UNITED STATES
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, 1996
-------------------------------------------
Commission File No. 33-12756-B
COMMUNITY BANCORP, INC.
-----------------------
A Massachusetts Corporation
IRS Employer Identification No. 04-2841993
17 Pope Street, Hudson, Massachusetts 01749
Telephone - (508) 568-8321
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 20, 1997 was $16,316,307.
The total number of shares of common stock outstanding at March 20, 1997
was 2,935,012.
Documents Incorporated By Reference
Parts II, III and IV incorporate information by reference from the
Annual Report to shareholders for the year ended December 31, 1996.
<PAGE>
PART I
------
ITEM 1. BUSINESS
Community Bancorp, Inc., a Massachusetts corporation ("Company"),
is a registered bank holding company under the Bank Holding Company Act
of 1956, as amended. The Holding Company has one subsidiary, Hudson
National Bank, a national banking association ("Bank"). The Holding
Company owns all the outstanding shares of the Bank. At present, the
Holding Company conducts no activities independent of the Bank. In
1992, the Company formed Community Securities Corporation, a wholly
owned subsidiary of the Bank. The activities of the subsidiary consist
of buying, selling, dealing in or holding securities in its own behalf
and not as a broker.
The Bank is engaged in substantially all of the business operations
customarily conducted by an independent commercial bank in
Massachusetts. Banking services offered include acceptance of checking,
savings and time deposits, and the making of commercial, real estate,
installment and other loans. The Bank also offers official checks,
traveler's checks, safe deposit boxes and other customary bank services
to its customers. In 1994 the Bank introduced a telephone banking
service allowing customers to perform account inquiries and other
functions using a Touch Tone telephone. In 1995 the Bank introduced a
PC-based office banking system for businesses that allows business
customers to access their accounts and perform a number of functions
directly through an office PC. In 1996 the Bank introduced a PC-based
home banking system for consumers.
The business of the Bank is not significantly affected by seasonal
factors.
In the last five years the Bank derived its operating income from
the following sources:
<TABLE>
<CAPTION>
% of Operating Income
--------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest and fees on loans 63 65 64 67 69
Interest and dividends on
securities 26 24 24 21 16
Charges, fees and other sources 11 11 12 12 15
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
Competition
- -----------
The Bank generally concentrates its activities within a 20 mile
radius of Hudson, Massachusetts and currently operates full service
branch offices in Hudson, Acton, Boxboro, Concord, Marlboro and Stow,
Massachusetts. These communities are generally characterized by a
growing residential population and moderate to high household income.
In addition to its main office, the Bank also operates a full service
branch office in the Town of Hudson.
-1-
<PAGE>
The banking business in the Bank's market area is highly
competitive. The Bank competes actively with other banks, as well as
with other financial institutions engaged in the business of accepting
deposits or making loans, such as savings and loan associations, savings
banks and finance companies. In the Bank's general market area there
are approximately 2 national banks, 3 Massachusetts trust companies, 6
savings banks, 2 cooperative banks and 6 credit unions. Since several
of the competing institutions are significantly larger than the Bank in
assets and deposits, the Bank strongly emphasizes a personal approach to
service in order to meet and surpass the vigorous competition.
Regulation of the Company
- -------------------------
The Company is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended. It is subject to the
supervision and examination of the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") and files with the Federal
Reserve Board the reports as required under the Bank Holding Company Act.
The Bank Holding Company Act requires prior approval by the Federal
Reserve Board of the acquisition by the Company of substantially all the
assets or more than five percent of the voting stock of any bank. The
Bank Holding Company Act also allows the Federal Reserve Board to
determine (by order or by regulation) what activities are so closely
related to banking as to be a proper incident of banking, and thus,
whether the Company can engage in such activities or transactions
between the affiliated banks and the Company or other affiliates. The
Bank Holding Company Act prohibits the Company and the Bank from
engaging in certain tie-in arrangements in connection with any extension
of credit, sale of property or furnishing of services.
Regulation of the Bank
- ----------------------
The Bank is a national banking association chartered under the
National Bank Act. As such, it is subject to the supervision of the
Comptroller of the Currency and is examined by his office. In addition,
it is subject to examination by the Federal Reserve Board by reason of
its membership in the Federal Reserve System and by the Federal Deposit
Insurance Corporation by reason of the insurance of its deposits by such
corporation. Areas in which the Bank is subject to regulation by
federal authorities include reserves, loans, investments, issuances of
various types of securities, participation in mergers and
consolidations, and certain transactions with or in the stock of the
Company.
Employees
- ---------
The Company and the Bank employ 132 full-time and part-time
officers and employees.
-2-
<PAGE>
Distribution of Assets, Liabilities and Stockholders' Equity; Interest
Rates and Interest Differential
The following tables present the condensed average balance sheets
and the components of net interest differential for the three years
ended December 31, 1996, 1995 and 1994. The total dollar amount of
interest income from earning assets and the resultant yields are
calculated on a taxable equivalent basis.
<TABLE>
<CAPTION>
1996
-----------------------------------
Average Interest Yield/
ASSETS Balance Inc./Exp. Rate
----------- ---------- ------
<S> <C> <C> <C>
Federal funds sold $ 11,361,749 $ 590,663 5.20%
Securities:
Taxable 78,493,267 4,619,558 5.89%
Non-taxable (1) 2,752,956 192,885 7.01%
Total loans and leases (1)(2) 129,443,069 12,495,000 9.65%
----------- ---------- ----
Total earning assets 222,051,041 17,898,106 8.06%
----------
Reserve for loan losses (3,503,861)
Other non interest-
bearing assets 21,384,220
-----------
Total average assets $239,931,400
===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Savings, money market and NOW $ 94,508,038 $ 2,258,835 2.39%
Time deposits 66,704,196 3,581,610 5.37%
Federal funds purchased and
repurchase agreements 11,798,277 527,313 4.47%
----------- ---------- ----
Total interest-bearing
liabilities $173,010,511 $ 6,367,758 3.68%
----------
Non interest-bearing deposits 44,425,461
Other non interest-bearing
liabilities 1,977,905
Stockholders' equity 20,517,523
-----------
Total average liabilities
and stockholders' equity $239,931,400
===========
Net interest income $11,530,348
==========
Net yield on interest
earning assets 5.19%
====
<FN>
(1) Interest income and yield are stated on a fully taxable-equivalent
basis. The total amount of adjustment is $137,004. A federal tax
rate of 34% was used in performing this calculation.
(2) The average balances of non-accruing loans and loans held for sale
are included in the loan balance.
</TABLE>
-3-
<PAGE>
Distribution of Assets, Liabilities and Stockholders' Equity;
Interest Rates and Interest Differential (Continued)
<TABLE>
<CAPTION>
1995
-----------------------------------
Average Interest Yield/
ASSETS Balance Inc./Exp. Rate
----------- ---------- ------
<S> <C> <C> <C>
Federal funds sold $ 7,115,616 $ 406,977 5.72%
Securities:
Taxable 69,470,273 4,055,415 5.84%
Non-taxable (1) 1,879,882 146,427 7.79%
Total loans and leases (1)(2) 127,033,820 12,450,001 9.80%
----------- ---------- ----
Total earning assets 205,499,591 17,058,820 8.30%
---------- ----
Reserve for loan losses (3,779,610)
Other non interest-
bearing assets 20,993,896
-----------
Total average assets $222,713,877
===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Savings, money market and NOW $ 89,849,771 $ 2,417,573 2.69%
Time deposits 61,842,194 3,317,979 5.37%
Federal funds purchased and
repurchase agreements 11,453,322 549,198 4.80%
----------- ---------- ----
Total interest-bearing
liabilities $163,145,287 $ 6,284,750 3.85%
----------
Non interest-bearing deposits 39,366,065
Other non interest-bearing
liabilities 1,853,949
Stockholders' equity 18,348,576
-----------
Total average liabilities
and stockholders' equity $222,713,877
===========
Net interest income $10,774,070
==========
Net yield on interest
earning assets 5.24%
====
<FN>
(1) Interest income and yield are stated on a fully taxable-equivalent
basis. The total amount of adjustment is $141,196. A federal tax
rate of 34% was used in performing this calculation.
(2) The average balances of non-accruing loans and loans held for sale
are included in the loan balance.
</TABLE>
-4-
<PAGE>
Distribution of Assets, Liabilities and Stockholders' Equity;
Interest Rates and Interest Differential (Continued)
<TABLE>
<CAPTION>
1994
-----------------------------------
Average Interest Yield/
ASSETS Balance Inc./Exp. Rate
----------- ---------- ------
<S> <C> <C> <C>
Federal funds sold $ 1,527,940 $ 61,642 4.03%
Securities:
Taxable 69,513,479 3,871,111 5.57%
Non-taxable (1) 1,072,378 92,522 8.63%
Total loans and leases (1)(2) 120,017,690 10,524,329 8.77%
----------- ---------- ----
Total earning assets 192,131,487 14,549,604 7.57%
----------
Reserve for loan losses (3,860,367)
Other non interest-
bearing assets 21,227,612
-----------
Total average assets $209,498,732
===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Savings, money market and NOW $ 88,782,185 $ 1,854,068 2.09%
Time deposits 53,789,007 2,288,637 4.25%
Federal funds purchased and
repurchase agreements 11,971,422 379,483 3.17%
Short term debt 41,968 3,370 8.03%
----------- ---------- ----
Total interest-bearing
liabilities $154,584,582 $ 4,525,558 2.93%
---------
Non interest-bearing deposits 37,001,536
Other non interest-bearing
liabilities 1,392,148
Stockholders' equity 16,520,466
-----------
Total average liabilities
and stockholders' equity $209,498,732
===========
Net interest income $10,024,046
----------
Net yield on interest
earning assets 5.22%
====
<FN>
(1) Interest income and yield are stated on a fully taxable-equivalent
basis. The total amount of adjustment is $119,672. A federal tax
rate of 34% was used in performing this calculation.
(2) The average balances of non-accruing loans and loans held for sale
are included in the loan balance.
</TABLE>
-5-
<PAGE>
Distribution of Assets, Liabilities and Stockholders' Equity;
Interest Rates and Interest Differential (Continued)
The following table shows, for the periods indicated, the dollar
amount of changes in interest income and interest expense resulting from
changes in volume and interest rates. The total dollar amount of interest
income from earning assets is calculated on a taxable equivalent basis.
<TABLE>
<CAPTION>
1996 as compared to 1995
-------------------------------------
Due to a change in:
-------------------
Volume Rate Total
--------- --------- ---------
<S> <C> <C> <C>
Interest income from:
Federal funds sold $ 220,687 $ (37,001) $ 183,686
Securities:
Taxable 529,408 34,735 564,143
Non-taxable 61,121 (14,663) 46,458
Loans & leases 235,550 (190,551) 44,999
--------- --------- ---------
Total $1,046,766 $ (207,480) $ 839,286
--------- --------- ---------
Interest expense on:
Interest-bearing deposits:
Savings, money market and NOW $ 110,811 $ (269,549) $ (158,738)
Time deposits 263,631 0 263,631
Federal funds purchased and
repurchase agreements 15,911 (37,796) (21,885)
Short term debt 0 0 0
--------- --------- ---------
Total $ 390,353 $ (307,345) $ 83,008
--------- --------- ---------
Net interest income $ 656,413 $ 99,865 $ 756,278
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
1995 as compared to 1994
-------------------------------------
Due to a change in:
-------------------
Volume Rate Total
--------- --------- ---------
<S> <C> <C> <C>
Interest income from:
Federal funds sold $ 319,513 $ 25,822 $ 345,335
Securities:
Taxable (3,382) 187,686 184,304
Non-taxable 62,913 (9,008) 53,905
Loans & leases 689,490 1,236,182 1,925,672
--------- --------- ---------
Total $1,068,533 $1,440,683 $2,509,216
--------- --------- ---------
Interest expense on:
Interest-bearing deposits:
Savings, money market and NOW $ 30,812 $ 532,693 $ 563,505
Time deposits 426,905 602,437 1,029,342
Federal funds purchased and
repurchase agreements (25,419) 195,134 169,715
Short term debt (3,370) 0 (3,370)
--------- --------- ---------
Total $ 428,928 $1,330,264 $1,759,192
--------- --------- ---------
Net interest income $ 639,605 $ 110,419 $ 750,024
========= ========= =========
<FN>
Note: The change due to the volume/rate variance has been allocated to
volume.
</TABLE>
-6-
<PAGE>
Securities Portfolio
- --------------------
The following table indicates the carrying value of the Company's
consolidated securities portfolio at December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
(in $000) 1996 1995 1994
- --------- ------ ------ ------
<S> <C> <C> <C>
U.S. Government obligations $16,002 $17,160 $12,881
U.S. Government agencies and corp. 67,043 54,627 56,990
Obligations of states and political
subdivisions 4,141 1,941 1,569
Other securities 888 888 1,125
------ ------ ------
Total $88,074 $74,616 $72,565
====== ====== ======
</TABLE>
The following table shows the maturities, carrying value and weighted
average yields of the Company's consolidated securities portfolio at
December 31, 1996. The yields are calculated by dividing the annual
interest, net of amortization of premiums and accretion of discounts, by
the amortized cost of the securities at the dates indicated. The yields
on state and municipal securities are presented on a taxable equivalent
basis.
<TABLE>
<CAPTION>
After one After five
Maturing: Within but within but within After
-------- one year five years ten years ten years
------------ ------------ ------------ ------------
(in $000) Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Govt. obli-
gations held to
maturity $2,003 5.11% $4,037 5.57% $ 0 0% $ 0 0%
U.S. Govt. obli-
gations avail-
able for sale 3,004 5.76% 6,958 6.16% 0 0% 0 0%
U.S. Govt. agencies
& corps. held to
maturity 3,038 5.12% 8,981 6.07% 0 0% 0 0%
U.S. Govt. agencies
& corps. available
for sale 1,005 5.09% 3,957 5.45% 0 0% 0 0%
State and political
subdivisions
held to maturity 730 6.92% 955 7.41% 0 0% 2,456 7.65%
Mortgage-backed
securities avail-
able for sale 1,094 5.34% 4,828 5.85% 2,262 6.61% 5,250 7.09%
Mortgage-backed
securities held to
maturity 1,170 5.74% 30,280 6.39% 5,179 6.79% 0 0%
Other securities 0 0% 0 0% 0 0% 888 6.06%
</TABLE>
Current estimated prepayment speed assumptions were used in estimating
the maturities of mortgage-backed securities in the above table. At
December 31, 1996, the Company did not own securities of any issuer where
the aggregate book value of such securities exceeded ten percent of the
Company's stockholders' equity.
-7-
<PAGE>
Loan Portfolio
- --------------
The following table summarizes the distribution of the Bank's loan
portfolio as of December 31 for each of the years indicated:
<TABLE>
<CAPTION>
(in $000) 1996 1995 1994 1993 1992
- --------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Commercial and industrial $ 17,227 $ 13,784 $ 13,685 $ 11,108 $ 10,218
Real estate - commercial 45,106 44,983 50,195 45,488 45,882
Real estate - residential 49,790 50,979 44,246 43,167 46,370
Real estate - construction 4,833 3,903 3,330 4,568 3,168
Mortgage loans held for sale 1,222 1,057 559 14,172 11,273
Loans to individuals 13,221 13,178 10,850 10,311 9,223
Other 171 188 173 514 113
------- ------- ------- ------- -------
Total loans $131,570 $128,072 $123,038 $129,346 $126,247
======= ======= ======= ======= =======
</TABLE>
Loan maturities for commercial and real estate (construction) loans
at December 31, 1996 were as follows: $9,108,301 due in one year or less;
$9,154,007 due after one year through five years; $3,797,692 due after
five years. Of the Bank's commercial and real estate (construction)
loans due after one year, $8,518,726 have floating or adjustable rates
and $4,432,973 have fixed rates.
Nonaccrual, Past Due and Restructured Loans
- -------------------------------------------
It is the policy of the Bank to discontinue the accrual of interest
on loans when, in management's judgement, the collection of the full
amount of interest is considered doubtful. This will generally occur
once a loan has become 90 days past due, unless the loan is well secured
and in the process of collection. The following table sets forth
information on nonaccrual, past due loans and restructured loans as of
December 31 for each of the years indicated:
<TABLE>
<CAPTION>
(in $000) 1996 1995 1994 1993 1992
- --------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 897 $1,650 $ 909 $1,681 $2,028
Accruing loans past due 90
days or more 370 160 66 346 232
Restructured loans 0 0 1,155 1,357 1,735
----- ----- ----- ----- -----
Total $1,267 $1,810 $2,130 $3,384 $3,995
===== ===== ===== ===== =====
</TABLE>
The entire "restructured loans" balance at December 31, 1994 in the
above table was comprised of a single loan. That loan was placed on
nonaccrual status in September of 1995 and transferred to "Other Real
Estate Owned" in August of 1996.
For the period ended December 31, 1996, the reduction of interest
income associated with nonaccrual and restructured loans was $177,618.
The interest on these loans that was included in interest income for 1996
was $42,238
Potential Problem Loans
- -----------------------
As of December 31, 1996, other than the above, there were no loans
where management had serious doubts as to the ability of the borrowers to
comply with the present loan repayment terms.
Concentrations of Credit
- ------------------------
As of December 31, 1996, except as disclosed in the above table,
there were no concentrations of loans exceeding 10% of total loans.
-8-
<PAGE>
Summary of Loan Loss Experience
- -------------------------------
The following table summarizes historical data with respect to
loans outstanding, loan losses and recoveries, and the allowance for
possible loan losses at December 31 for each of the years indicated:
<TABLE>
<CAPTION>
(in $000) 1996 1995 1994 1993 1992
- --------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Average outstanding loans (1) $129,443 $127,034 $120,018 $122,411 $124,741
======= ======= ======= ======= =======
</TABLE>
Allowance for possible loan losses
<TABLE>
<CAPTION>
(in $000) 1996 1995 1994 1993 1992
- --------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 3,455 $ 3,703 $ 3,910 $ 4,178 $ 3,968
Charge-offs:
Commercial and industrial (39) (31) (506) (305) (318)
Real estate - residential (53) (70) (221) (169) (390)
Real estate - commercial 0 (415) 0 (455) (505)
Real estate - construction 0 0 0 0 0
Loans to individuals (138) (113) (112) (87) (217)
----- ----- ----- ----- -----
Total charge-offs (230) (629) (839) (1,016) (1,430)
Recoveries:
Commercial and industrial 147 105 174 60 54
Real estate - residential 1 100 128 11 11
Real estate - commercial 79 18 3 44 32
Real estate - construction 0 0 0 0 0
Loans to individuals 30 38 27 33 118
----- ----- ----- ----- -----
Total recoveries 257 261 332 148 215
----- ----- ----- ----- -----
Net (charge-off) recovery 27 (368) (507) (868) (1,215)
Provision for possible
loan losses 0 120 300 600 1,425
----- ----- ----- ----- -----
Balance at end of period $ 3,482 $ 3,455 $ 3,703 $ 3,910 $ 4,178
===== ===== ===== ===== =====
Ratio of net charge-offs to
average loans (0.00)% 0.29% 0.42% 0.71% 0.97%
==== ==== ==== ==== ====
<FN>
(1) Includes the aggregate average balance of loans held for sale.
</TABLE>
The provision for possible loan losses is based upon management's
estimation of the amount necessary to maintain the allowance at an
adequate level to absorb inherent possible losses in the loan portfolio,
as determined by current and anticipated economic conditions and other
pertinent factors. Significant credits classified as "substandard" and
"doubtful", in accordance with applicable bank regulatory guidelines,
are individually analyzed to estimate inherent possible losses
associated with each such credit. A portion of the allowance for
possible loan losses is set aside or "allocated" against such estimated
inherent losses, without regard to if or when those estimated losses
will actually be realized. Additional "unallocated" reserves are
provided for estimated inherent losses in pools of loans. Such
allocated and unallocated reserves are established to absorb potential
future losses and may or may not reflect the Company's actual loss
history for any specific category of loans.
-9-
<PAGE>
Summary of Loan Loss Experience (Continued)
- -------------------------------------------
The following table reflects the allocation of the allowance for
loan losses and the percent of loans in each category to total
outstanding loans as of December 31 for each of the years indicated:
<TABLE>
<CAPTION>
1996 1995 1994
------------------- ------------------- ------------------
Percent of Percent of Percent of
loans in loans in loans in
category to category to category
(in $000) Amount total loans Amount total loans Amount total loans
- --------- ------ ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Commercial &
industrial $ 195 13.1% $ 165 10.9% $ 165 11.2%
Real estate -
commercial 767 34.2% 746 35.1% 1,440 40.9%
Real estate -
residential 166 38.8% 174 40.7% 222 36.1%
Real estate -
construction 82 3.7% 96 3.0% 45 2.8%
Loans to
individuals 126 10.2% 100 10.3% 87 9.0%
Unallocated 2,146 N/A 2,174 N/A 1,744 N/A
----- ----- ----- ----- ----- -----
Total $3,482 100.0% $3,455 100.0% $3,703 100.0%
===== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
1993 1992
------------------- -------------------
Percent of Percent of
loans in loans in
category to category to
(in $000) Amount total loans Amount total loans
- --------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Commercial &
industrial $ 157 8.6% $ 360 8.1%
Real estate -
commercial 1,986 35.2% 1,615 36.7%
Real estate -
residential 217 44.6% 210 45.3%
Real estate -
construction 32 3.6% 87 2.5%
Loans to
individuals 126 8.0% 207 7.4%
Unallocated 1,392 N/A 1,699 N/A
----- ----- ----- -----
Total $3,910 100.0% $4,178 100.0%
===== ===== ===== =====
</TABLE>
The allocation of the allowance for possible loan losses to the
categories of loans shown above includes both specific potential loss
estimates for individual loans and general allocations deemed to be
reasonable to provide for additional potential losses within the
categories of loans set forth.
-10-
<PAGE>
Deposits
- --------
The following table shows the average deposits and average interest
rate paid for each of the last three years:
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ---------------- ----------------
Average Average Average Average Average Average
(in $000) Balance Rate Balance Rate Balance Rate
- --------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 44,426 0.00% $ 39,366 0.00% $ 37,001 0.00%
NOW deposits 22,544 1.29% 21,621 1.78% 21,025 1.95%
Money market
deposits 27,924 2.75% 26,812 2.91% 27,047 2.34%
Savings deposits 44,040 2.73% 41,417 3.02% 40,711 2.58%
Time deposits 66,704 5.37% 61,842 5.37% 53,789 3.81%
------- ---- ------- ---- ------- ----
Total $205,638 2.84% $191,058 3.00% $179,573 2.31%
======= ==== ======= ==== ======= ====
</TABLE>
As of December 31, 1996, the Bank had certificates of deposit in
amounts of $100,000 or more aggregating $19.1 million. These
certificates of deposit mature as follows:
<TABLE>
<CAPTION>
Maturity Amount (in $000)
-------- ----------------
<S> <C>
3 months or less $11,430
Over 3 months through 6 months 2,544
Over 6 months through 12 months 4,356
Over 12 months 814
------
Total $19,144
======
</TABLE>
-11-
<PAGE>
Return on Equity and Assets
- ---------------------------
The following table summarizes various financial ratios of the
Company for each of the last three years:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Return on average total
assets (net income divided
by average total assets) 1.31% 1.19% 1.00%
Return on average
stockholders' equity
(net income divided by
average stockholders'
equity) 15.36% 14.41% 12.74%
Dividend payout ratio
(total declared dividends
per share divided by net
income per share) 24.99% 27.86% 31.91%
Equity to assets (average
stockholders' equity as
a percentage of average
total assets) 8.55% 8.24% 7.89%
</TABLE>
-12-
<PAGE>
Short-Term Borrowings
- ---------------------
The Bank engages in certain borrowing agreements throughout the
year. These are in the ordinary course of the Bank's business. Such
short-term borrowings consisted of securities sold under repurchase
agreements, which are short-term borrowings from customers, and federal
funds purchased. The following table summarizes such short-term
borrowings at December 31 for each of the years indicated:
<TABLE>
<CAPTION>
Weighted Max. Weighted
average amount average
interest out- Average interest
Year Balance, rate at standing amount rate
ended end of end of at any out- during
12/31/96 period period month-end standing period
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal
Funds
Purchased $ 0 0% $ 0 $ 2,732 6.40%
Repurchase
Agreements 11,454,687 4.45% 14,435,268 11,795,545 4.39%
</TABLE>
<TABLE>
<CAPTION>
Weighted Max. Weighted
average amount average
interest out- Average interest
Year Balance, rate at standing amount rate
ended end of end of at any out- during
12/31/95 period period month-end standing period
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal
Funds
Purchased $ 1,000,000 6.40% $ 6,200,000 $ 1,536,438 6.12%
Repurchase
Agreements 8,289,963 4.38% 14,374,499 9,916,887 4.56%
</TABLE>
<TABLE>
<CAPTION>
Weighted Max. Weighted
average amount average
interest out- Average interest
Year Balance, rate at standing amount rate
ended end of end of at any out- during
12/31/94 period period month-end standing period
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal
Funds
Purchased $10,900,000 6.65% $10,900,000 $ 1,446,000 4.64%
Repurchase
Agreements 4,040,801 3.67% 15,752,377 10,526,000 2.95%
</TABLE>
-13-
<PAGE>
ITEM 2. PROPERTIES
The Bank's Main Office (approximately 32,000 square feet) at 17
Pope Street, Hudson, Massachusetts, the Consumer Loan Center (2,623
square feet) at 12 Pope Street, Hudson, Massachusetts, the Hudson South
Office (1,040 square feet) at 177 Broad Street, Hudson, Massachusetts
and the Marlboro Center Office (1,800 square feet) at 96 Bolton Street,
Marlboro, Massachusetts, are owned by the Bank.
The Bank's Stow Office (1,228 square feet) at 159 Great Road, Stow,
Massachusetts, the Concord office (1,200 square feet) at 1134 Main
Street, Concord, Massachusetts, the Acton office (2,100 sqare feet) at
274 Great Road, Acton, Massachusetts, the Marlboro office (1,110 square
feet) at 500 Boston Post Road, Marlboro, Massachusetts and the Boxboro
office (679 square feet) at 629 Mass Avenue, Boxboro, Massachusetts, are
leased by the Bank from third parties.
All properties occupied by the Bank are in good condition, and are
adequate at present and for the foreseeable future for the purposes for
which they are being used. In the opinion of management, the properties
are adequately insured.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceeding. The Bank is
involved in various routine legal actions arising in the normal course
of business. Based on its knowledge of the pertinent facts and the
opinions of legal counsel, management believes the aggregate liability,
if any, resulting from the ultimate resolution of these actions will not
have a material effect on the Company's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders
during the quarter ended December 31, 1996.
-14-
<PAGE>
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
There is no established public trading market for the Company's
common stock.
The record number of holders of the Company's common stock was
approximately 434 as of March 20, 1997.
The Company customarily declares quarterly cash dividends on its
outstanding common stock. The following table sets forth the cash
dividends per share declared for the years 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
First quarter $ .061 $ .057
Second quarter .062 .058
Third quarter .064 .059
Fourth quarter .066 .060
------ ------
Total $ .253 $ .234
====== ======
</TABLE>
For a discussion of restrictions on the ability of the Bank to pay
dividends to the Company, see footnote 12 on page 20 of the Annual
Report to Shareholders for the year ended December 31, 1996, which is
hereby incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA
A five year summary of selected consolidated financial data for the
Company is presented on page 1 of the Annual Report to Shareholders for
the year ended December 31, 1996 and is hereby incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and
results of operations is contained on pages 25 through 29 of the Annual
Report to Shareholders for the year ended December 31, 1996 and is
hereby incorporated by reference.
For a discussion of restrictions on the ability of the Bank to pay
dividends to the Company, see footnote 12 on page 20 of the Annual
Report to shareholders for the year ended December 31, 1996, which is
hereby incorporated by reference.
-15-
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements are included on
page 1 and pages 9 through 23 of the Annual Report to shareholders for
the year ended December 31, 1996 and are hereby incorporated by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There were no changes in the Company's independent public
accountants or disagreements with the Company's accountants on
accounting or financial disclosure during the 24 months ended December
31, 1996 or in any period subsequent to the most recent financial
statements.
-16-
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as to each of the Directors and
Executive Officers of the Company and the Bank, such person's age,
position, term of office, and all business experience during the past
five years. All Directors and Executive Officers of the Company have
served since 1984, except Mr. Frias who has been a Director of the
Company since 1985, Mr. Parker who has been a Director of the Company
since 1986, and Messrs. Hughes and Webster who have been Directors of
the Company since 1995. Each Director of the Company is also a Director
of the Bank. Each executive officer holds office until the first
Director's meeting following the annual meeting of stockholders and
thereafter until his or her successor is elected and qualified.
<TABLE>
<CAPTION>
Business Experience
Term of During Past
Name Age Position Office Five Years
----- --- -------- ------- -------------------
<S> <C> <C> <C> <C>
Richard K. 44 Senior Vice Senior Vice President,
Bennett President Vice President,
of Bank Hudson National Bank
Grace L. Blunt 42 Senior Vice Senior Vice President,
President Vice President,
of Bank Hudson National Bank
Alfred A. 79 Director of 1997 Retired
Cardoza (1) Company and
Bank
Argeo R. 73 Director of 1997 Retired; formerly
Cellucci (1) Company and President and Treasurer,
Bank Washington Street Motors,
Inc.; President, Cellucci
Hudson Corp.
Antonio 57 Director of 1997 President and Treasurer,
Frias (1) Company and S & F Concrete
Bank Contractors, Inc.;
Secretary/Clerk, Frias
Bros. Service Station
John P. Galvani 40 Senior Vice Senior Vice President,
President Vice President,
of Bank Hudson National Bank
I. George Gould 80 Director of 1999 Chairman, Gould's, Inc.
Company and
Bank
Horst Huehmer 69 Director of 1998 Retired; formerly
Company and Manager, Hudson Light
Bank and Power Department
-17-
<PAGE>
Donald R. 47 Treasurer and 1998 Executive Vice
Hughes, Jr. Clerk of President, Hudson
Company; Exec. National Bank;
Vice President Treasurer and Clerk,
of Bank; Director Community Bancorp, Inc.
of Company and
Bank
James A. Langway 57 President & 1999 President and CEO,
CEO of Company Hudson National Bank
and Bank; and Community
Director of Bancorp, Inc.
Company and
Bank
Robert E. Leist 43 Senior Vice Senior Vice President,
President Vice President,
of Bank Hudson National Bank
Janet A. Lyman 50 Senior Vice Senior Vice President,
President Vice President,
of Bank Hudson National Bank
Dennis F. 59 Chairman of 1997 President and
Murphy, Jr. (1) the Board, Treasurer, D. F.
Company and Murphy Insurance
Bank Agency, Inc.;
Treasurer, Village
Real Estate
David L. 68 Director of 1999 Chairman of the Board,
Parker (2) Company and Larkin Lumber Co.
Bank
Mark Poplin 73 Director of 1998 President and
Company and Treasurer, Poplin
Bank Supply Co.;
Secretary, Poplin
Furniture Co.
David W. 55 Director of 1998 President & Treasurer,
Webster (2) Company and A. T. Knight Fuel Co.,
Bank Inc.
<FN>
(1) Messrs. Cardoza, Cellucci, Frias and Murphy have been nominated
for election at the 1997 Annual Meeting to serve until 2000.
(2) Mr. Webster's wife and Mr. Parker are cousins.
No Director holds a directorship in any company with a class of
securities registered pursuant to Section 12 of the Securities Exchange
Act of 1934 or subject to the requirements of Section 15(d) of such Act
or any company registered as an investment company under the Investment
Company Act of 1940.
</TABLE>
-18-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all plan and non-plan compensation
awarded to, earned by or paid to the CEO and other executive officers
whose aggregate compensation exceeded $100,000 by the Company and the
Bank for 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Annual Compensation
-------------------
(a) (b) (c) (d) (i) (1)
Name and All Other
Principal Position Year Salary Bonus Compensation
- ------------------ ---- ------ ----- ------------
<S> <C> <C> <C> <C>
James A. Langway 1996 $194,806 $68,451 $ 8,838
President and CEO 1995 186,261 55,000 2,982
of the Company and 1994 177,392 44,348 2,924
the Bank
Donald R. Hughes, Jr. 1996 111,197 27,244 7,825
Treasurer and Clerk of 1995 105,902 26,740 2,062
Company; Executive Vice 1994 100,859 20,172 1,936
President of the Bank
<FN>
Notes:
1. The Company maintains an Employee Stock Ownership Plan (ESOP) for
employees age 21 or older who are participants in the Company's
Retirement Plan and who meet other requirements. The Company also
maintains a 401(k) Savings Plan (401(k) Plan) for employees age 21
or over and who meet other requirements. Messrs. Langway and
Hughes are participants in the Company's ESOP and 401(k) Plans.
Of the $8,838 reported above for 1996 in column (i) for James A.
Langway, $3,416 represents Company ESOP contributions, $4,750
represents Company 401(k) Plan contributions and $672 represents
group life insurance premiums paid by the Company. Of the $7,825
reported above for 1996 in column (i) for Donald R. Hughes, Jr.,
$3,199 represents Company ESOP contributions, $4,153 represents
Company 401(k) Plan contributions and $473 represents group life
insurance premiums paid by the Company.
</TABLE>
Compensation of Directors
- -------------------------
The Bank paid its Directors an annual fee of $8,805 in 1996. The
Chairman of the Board was paid $14,674 in 1996. Director fees are paid
on a monthly basis. The Company pays no compensation to its Directors
for their services as Directors.
-19-
<PAGE>
Employment Contracts and Termination of Employment and Change-in-Control
- ------------------------------------------------------------------------
Arrangements
- ------------
The Company has entered into five-year Employment Agreements with
James A. Langway, President and Chief Executive Officer of the Company,
and with Donald R. Hughes, Jr., Treasurer and Clerk of the Company,
which commenced August 1, 1986 and which specify the employee's duties
and minimum compensation during the period of the Employment Agreement.
Each Employment Agreement is extended for one additional year, on the
anniversary of the commencement date, unless prior notice is given by
either party. Employment by the Company shall terminate upon the
employee's resignation, death, disability, or for "cause" as defined in
the Employment Agreement. If employment is involuntarily terminated by
the Company for any reason except for cause, or if the Employment
Agreement is not renewed at its expiration, the Company is required to
make additional payments to the employees. During the term of the
Employment Agreement and for one year afterwards, the employee cannot
compete with the Company within its market area.
The Company has also entered into Severance Agreements with Mr.
Langway and Mr. Hughes regarding termination of employment by the
Company or Bank subsequent to a "change in control" of the Company, as
defined in the Severance Agreement. Following the occurrence of a
change in control, if the employee's employment is terminated (except
because of gross dereliction of duty, death, retirement, disability or
conviction for criminal misconduct) or is involuntarily terminated for
"good reason" as defined in the Severance Agreement, then the employee
shall be entitled to a lump sum payment from the Company approximately
equal to three times his average annual compensation for the previous
five years, plus accrued vacation pay and bonus awards. If Mr. Langway
or Mr. Hughes is entitled to receive benefits under both his Employment
Agreement and his Severance Agreement, he must choose the agreement
under which he will claim benefits.
The Company has entered into an Executive Supplemental Income
Agreement with James A. Langway, President and Chief Executive Officer
of the Company, which commenced July 12, 1988 and which specifies
benefits payable to Mr. Langway for a ten (10) year period following the
date on which he ceases to be employed by the Company. The Agreement
provides that the Company will pay Mr. Langway $40,774 each year,
increased by increases in the Consumer Price Index, for a ten (10) year
period following the date he ceases to be employed by the Company for
any cause whatsoever after attaining age 55. The Agreement was amended
on January 26, 1990, increasing the annual base retirement benefit to be
paid to Mr. Langway from $40,774 to $60,774 each year, increased by
increases in the Consumer Price Index in the same manner as the original
Agreement. Mr. Langway attained age 55 during 1994. The Company
records annual expense in anticipation of future payments expected to be
made under this Agreement. The annual expense amount recorded is
determined by an independent actuary based on Mr. Langway's life
expectency at the time he begins receiving payments. During 1996, the
Company recorded $20,799 in such expense.
-20-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and related notes set forth information regarding
stock owned by each of the Directors of the Company and Bank and by all
officers and Directors of the Company and Bank as a group at March 20, 1997.
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership
Title (Number of shares) (1) Percent
of Name of ------------------------------------- of
Class Beneficial Owner Sole (2) Shared (3) Total Class
- ----- ---------------- -------- ---------- ----- -------
<S> <C> <C> <C> <C> <C>
Common Alfred A. Cardoza 12,600 9,886 22,486 0.8%
Stock
($2.50 Argeo R. Cellucci 6,728 0 6,728 0.2%
par)
Antonio Frias 19,858 0 19,858 0.7%
I. George Gould 17,564 109,904 (4) 127,468 4.3%
Horst Huehmer 18,532 4,100 22,632 0.8%
Donald R. Hughes, Jr. 2,000 103,261 (4,5) 105,261 3.6%
James A. Langway 90,902 92,739 (4,6,7) 183,641 6.3%
Dennis F. Murphy, Jr. 193,724 252,548 446,272 15.2%
David L. Parker 22,514 21,784 (8) 44,298 1.5%
Mark Poplin 45,428 107,336 152,764 5.2%
David W. Webster 750 76,741 (7) 77,491 2.6%
All directors and
officers of the
Company and Bank
as a group
(20 persons) 431,928 690,161 (4,9) 1,122,089 38.2%
<FN>
(1) Based upon information provided to the Company by the indicated
persons. Certain directors may disclaim beneficial ownership of
certain of the shares listed beside their names.
(2) Indicates sole voting and investment power.
(3) Indicates shared voting and investment power.
(4) Includes 65,822 shares held by the Company's ESOP for which Messrs.
Gould, Hughes and Langway are co-trustees.
(5) Includes 7,439 shares held by the Company's 401(k) plan for which
Mr. Hughes has voting power in certain circumstances.
(6) Includes 13,428 shares held by the Company's 401(k) plan for which
Mr. Langway has voting power in certain circumstances.
-21-
<PAGE>
(7) Includes 13,314 shares held in the name of Katherine A. Knight, for
whose estate Mr. Langway and Mr. Webster's wife are co-executors.
(8) Includes 2,000 shares held by the Unitarian Church of Marlboro and
Hudson, MA, for which Mr. Parker is a trustee, and 13,584 shares
held in the name of Arline Parker, for whom Mr. Parker has power of
attorney.
(9) Includes 56,215 shares held by the Company's 401(k) plan for which
Grace L. Blunt, Senior Vice President, and Robert E. Leist, Senior
Vice President, are co-trustees.
</TABLE>
The following persons own beneficially more than five percent of
the outstanding stock of the Company as of March 20, 1997:
<TABLE>
<CAPTION>
Amount and
Title Name and Address Nature of Percent
of of Beneficial Beneficial of
Class Owner Ownership Class
----- ---------------- ---------- -------
<S> <C> <C> <C>
Common Stock Dennis F. Murphy, Jr. 446,272 shares 15.2%
($2.50 par) 44 Wilder Road
Bolton, MA 01740
James A. Langway 183,641 shares (1) 6.3%
1143 Grove Street
Framingham, MA 01701
Mark Poplin 152,764 shares 5.2%
108 Barretts Mill Road
Concord, MA 01742
<FN>
(1) Includes 65,822 shares held by the Company's ESOP for which Mr.
Langway is a trustee, 13,428 shares held by the Company's 401(k)
plan for which Mr. Langway has voting power in certain
circumstances, and 13,314 shares held in the name of Katherine A.
Knight, for whose estate Mr. Langway is a co-executor.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company, through its wholly-owned bank subsidiary, has had,
currently has, and expects to continue to have in the future, banking
(including loans and extensions of credit) transactions in the ordinary
course of its business with its Directors, Executive Officers, members
of their families and associates. Such banking transactions have been
and are on substantially the same terms, including interest rates,
collateral and repayment conditions, as those prevailing at the same
time for comparable transactions with others and did not involve more
than the normal risk of collectibility or present other unfavorable
features.
-22-
<PAGE>
PART IV
ITEM 14. EXHIBITS AND FINANCIAL STATEMENTS
(a) 1. & 2. Index to Consolidated Financial Statement Schedules
---------------------------------------------------
The following consolidated financial statements, which are included
in the Annual Report to Shareholders of Community Bancorp, Inc. for the
year ended December 31, 1996, are hereby incorporated by reference:
Annual Report to
Shareholders
Description page reference
----------- ----------------
Consolidated balance sheets at
December 31, 1996 and 1995 9
Consolidated statements of income for
the years ended December 31, 1996,
1995 and 1994 10
Consolidated statements of stockholders'
equity for the years ended December 31, 1996,
1995 and 1994 11
Consolidated statements of cash flows
for the years ended December 31, 1996,
1995 and 1994 12 - 13
Notes to consolidated financial statements 14 - 23
With the exception of the aforementioned information, and
information incorporated by reference in Items 5, 6, 7, and 8, the
Annual Report to Shareholders for the year ended December 31, 1996 is
not deemed to be filed as part of this Form 10-K. Certain schedules
required by Regulation S-X have been omitted as the items are either not
applicable or are presented in the notes to the financial statements
contained in the Annual Report to Shareholders for the year ended
December 31, 1996.
3. Exhibits
See accompanying Exhibit Index.
(b) The Company did not file a Form 8-K during the quarter ended
December 31, 1996.
-23-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------
<C> <S> <C>
3.1 Articles of Organization of Company
Amendments to Articles of Organization,
(dated prior to April 12, 1988) (a)
3.1.i Amendment to Articles of Organization,
dated April 12, 1988
3.2 By-Laws of Company (a)
10.1 Community Bancorp, Inc. Employee Stock
Ownership Plan (as amended and restated
effective January 1, 1985) (b)
10.2 Employment Agreement dated August 19, 1986
between Community Bancorp, Inc. and
James A. Langway (c)
10.3 Severance Agreement dated June 10, 1986
between Community Bancorp, Inc. and
James A. Langway (d)
10.4 Employment Agreement dated August 19, 1986
between Community Bancorp, Inc. and
Donald R. Hughes, Jr. (c)
10.5 Severance Agreement dated June 10, 1986
between Community Bancorp, Inc. and
Donald R. Hughes, Jr. (d)
10.6 Executive Supplemental Income Agreement
dated July 12, 1988 between Community
Bancorp, Inc. and James A. Langway (e)
10.7 Amendment to Executive Supplemental
Income Agreement dated January 26, 1990
between Community Bancorp, Inc. and
James A. Langway. (f)
10.8 Stock Purchase Agreement dated March 29, 1993
by and among Community Bancorp, Inc. and
certain specific persons. (g)
13. 1996 Annual Report to shareholders
21. Subsidiaries of Company Page 26
27. Financial Data Schedule
<FN>
(a) Incorporated herein by reference to Exhibits 3.1, and 3.2 and filed
as part of Company's Amendment No. 1 to the Registration Statement
on Form S-18 (File No. 33-12756-B) filed with Commission on April
16, 1987.
-24-
<PAGE>
(b) Incorporated herein by reference to Exhibit 10.1 as part of
Company's Registration Statement on Form S-18 (File No. 33-12756-B)
filed with the Commission on March 19, 1987.
(c) Incorporated herein by reference to Exhibits 5.8 and 5.9 filed as
part of Company's Amendment No. 2 to the Offering Statement on Form
1-A (File No. 24B-2076) filed with the Commission on August 14,
1986.
(d) Incorporated herein by reference to Exhibits 5.2 and 5.4 filed as
part of Company's Offering Statement on Form 1-A (File No.
24B-2076) filed with the Commission on June 24, 1986.
(e) Incorporated herein by reference as filed as part of the Company's
December 31, 1988 Form 10-K (File No. 33-12756-B), filed with the
Commission on March 30, 1989.
(f) Incorporated herein by reference as filed as part of the Company's
December 31, 1989 Form 10-K (File No. 33-12756-B), filed with the
Commission on March 29, 1990.
(g) Incorporated herein by reference as filed as part of the Company's
December 31, 1992 Form 10-K (File No. 33-12756-B), filed with the
Commission on March 30, 1993.
</TABLE>
-25-
<PAGE>
SUBSIDIARIES OF COMPANY
-----------------------
1. Hudson National Bank, a national banking association.
-26-
<PAGE>
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, INC.
Date: March 14, 1997 By: /s/ Donald R. Hughes, Jr.
--------------------------
Donald R. Hughes, Jr.
Treasurer and Clerk
- --------------------------------------------------------------------------
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.
Date Name and Capacity
---- -----------------
March 14, 1997 /s/ James A. Langway
---------------------------------
James A. Langway, President & CEO
Principal Executive Officer
March 14, 1997 /s/ Donald R. Hughes, Jr.
---------------------------------
Donald R. Hughes, Jr., Treasurer &
Clerk, Principal Financial Officer
and Principal Accounting Officer
March 14, 1997 /s/ James A. Langway
---------------------------------
James A. Langway, Director
March 14, 1997 /s/ Donald R. Hughes, Jr.
---------------------------------
Donald R. Hughes, Jr., Director
March 17, 1997 /s/ David W. Webster
---------------------------------
David W. Webster - Director
March 17, 1997 /s/ Mark Poplin
---------------------------------
Mark Poplin - Director
March 17, 1997 /s/ Argeo R. Cellucci
---------------------------------
Argeo R. Cellucci - Director
March 18, 1997 /s/ I. George Gould
---------------------------------
I. George Gould - Director
-27-
<PAGE>
SUPPLEMENTAL INFORMATION
------------------------
Copies of the Notice of Annual Meeting of Shareholders, Proxy
Statement and Proxy For Annual Meeting of Shareholders for the
Registrant's 1997 annual meeting of shareholders, to be held on April 8,
1997, are being submitted separately as an EDGAR Submission Type DEF
14A. Such material is not deemed to be filed with the Commission or
otherwise subject to the liabilities of Section 18 of the Securities
Exchange Act.
-28-
[The annual report front cover is a color image depicting Hudson National
Bank's Internet web site home page.]
Community Bancorp, Inc.
Annual Report 1996
<PAGE>
[The following text appears on the inside front cover.]
The image depicted on the cover of this annual report is from the home page
of our Internet web site. We hope you will visit us frequently at
http://www.hnbank.com.
<PAGE>
<TABLE>
Selected Consolidated Financial Data
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total assets $250,002,458 $237,580,796 $219,850,767 $214,682,682 $199,455,534
Total deposits 217,181,869 207,039,865 186,862,986 185,499,065 174,348,956
Total net loans 128,088,725 124,616,963 119,334,885 125,435,415 122,144,150
Allowance for possible loan losses 3,481,705 3,455,098 3,703,470 3,910,195 4,178,343
Total interest income 17,761,102 16,917,624 14,429,932 14,032,506 15,027,657
Total interest expense 6,367,758 6,284,750 4,525,558 4,465,379 5,696,474
Net interest income 11,393,344 10,632,874 9,904,374 9,567,127 9,058,183
Gains (losses) on sales of securities (9,460) --- (29,828) 69,600 371,436
Provision for possible loan losses --- 120,000 300,000 600,000 1,425,000
Net income (loss) 3,152,098 2,643,877 2,105,433 1,505,158 1,021,986
Earnings (loss) per share 1.01 0.84 0.67 0.49 0.32
Dividends per share 0.253 0.234 0.214 0.173 0.075
</TABLE>
[Five-year bar graphs for the following categories appear in this space. Data
for the graphs was obtained from the above table.]
Total Assets (in millions)
Net Income (in millions)
Earnings Per Share (in dollars)
Total Deposits (in millions)
Total Net Loans (in millions)
Net Interest Income (in millions)
<PAGE>
Table of Contents
-----------------
3. Message to Stockholders and Friends
5. Year in Review
9. Consolidated Balance Sheets
10. Consolidated Statements of Income
11. Consolidated Statements of Stockholders' Equity
12. Consolidated Statements of Cash Flows
14. Notes to Consolidated Financial Statements
24. Report of Independent Public Accountants
25. Management's Discussion and Analysis of
Financial Condition and Results of Operations
30. Directors & Officers
-2-
<PAGE>
To Our Stockholders and Friends
It is always a pleasure to announce good news, which makes this year's
letter especially enjoyable to write. Community Bancorp, Inc. and its
subsidiary, Hudson National Bank, achieved another record-breaking year in
1996. The Company recorded net income of $3,152,098 for the year,
surpassing by 19.2% the $2,643,877 recorded in 1995. Earnings per share of
common stock was $1.01 in 1996, compared to $.84 in the previous year. This
increase in net income was the combined result of increases in net interest
income and noninterest income, and reductions in the provision for possible
loan losses and FDIC insurance premiums in 1996.
During 1996 the Company achieved a return on assets (ROA) of 1.31%, the
highest in its history and considerably above its peer group average.
Equally important is the fact that the return on equity (ROE) for the year
rose to 15.36%, again the highest in the Company's history. This increase
in ROE resulted from higher net income and also from the stock repurchase
program implemented in the fall of 1996 which reduced the number of
outstanding shares of common stock.
[A photograph of the bank's newly-renovated Commercial Banking Department
appears here.]
-3-
<PAGE>
The Company's asset quality is very high, and at year-end past due loans
represented only 1.6% of total outstanding loans. No provision for loan
losses was necessary in 1996, yet the allowance for loan losses actually
increased in balance due to recoveries of previously charged-off loans.
The banking business is changing, and as a community bank we must now serve
two important groups of customers; those who prefer to do their banking in
person and those who prefer to do their banking electronically through
modern technology. We are striving to provide excellent service to both
customer groups.
In March of 1996 we introduced HomeBanc, an easy to use PC-based electronic
banking system for personal account customers. Within the first six months
following the introduction of this new service, over 1,000 customers had
registered to use it, representing approximately 10% of our personal account
customer base. We believe electronic banking services like HomeBanc, and
our PC-based banking system for businesses called ExecuBanc, will appeal to
an increasing number of our customers in the future, and we will continue to
enhance these services to maximize customer convenience.
Community Bancorp is a strong, well-capitalized, community-oriented
financial institution. We believe we can continue to distinguish ourselves
from the competition by doing what a community bank does best - know its
customers and provide the best banking service possible. The Board of
Directors, management and staff will continue to work diligently to enhance
profitability and shareholder value, and we look forward to 1997 with
enthusiasm.
Sincerely,
/s/ James A. Langway /s/ Dennis F. Murphy, Jr.
- -------------------- -------------------------
James A. Langway Dennis F. Murphy, Jr.
President and Chief Executive Officer Chairman of the Board
-4-
<PAGE>
Year in Review
Hudson National Bank is a strong, independent owned, community-oriented
commercial bank with eight branch offices in Middlesex County. The Bank
prides itself on its ability to provide quality, personal service as well as
a full range of financial products designed to meet various financial needs
of both consumers and local businesses.
[A photograph of the Bank's Mortgage Officer appears here.]
Some people believe you have to sacrifice high quality personal service for
banking convenience or that only large banks have sophisticated banking
products, but Hudson National Bank proves that customers can have the best
of both worlds. In essence, it's a hybrid bank that can deliver all the
modern services as well as a level of personal service few larger banks can
match.
-5-
<PAGE>
Technology continues to be a driving force in providing alternative methods
of banking access as the number of customers who prefer "electronic" over
"geographic" convenience grows larger each year. Convenient banking has
always been a key consideration when choosing a bank; however, the basis on
which convenience is measured has grown to include ATM access, telephone
banking, debit cards, direct deposit and now PC banking. Hudson National
has recognized this trend and is responding to the changing needs of its
customers.
[A photo of the Bank's new drive-up ATM at its Hudson South branch appears
here.]
A number of projects were undertaken during the year to further strengthen
the Bank's product line. During the first quarter, Hudson National offered
a debit card to complement it's credit card. The FlexCard [TM] is a
MasterMoney [TM] debit card that provides account access at ATMs and can
also be used to pay for purchases wherever MasterCard [R] is accepted. The
Bank is one of the first community banks in the area to offer a full-fledged
debit card, demonstrating the Bank's ability to offer a competitive array of
services. With ATM links to the NYCE [R] and Cirrus [R] ATM networks, as
well as the new MasterMoney feature, customers can use their FlexCards for
payment and cash access virtually anywhere in the world.
In the second quarter we successfully introduced our PC banking program
HomeBanc [TM], and have since added several enhancements. HomeBanc is a
state-of-the-art PC-based computer banking service which allows customers to
use their PC or laptop computer to access their
-6-
<PAGE>
account information, transfer funds, and pay bills 24 hours a day, 365 days
per year. Hudson National is the first community bank in the area to offer
this type of service to its customers. We will continue to enhance the
HomeBanc service during 1997.
[A photo of the Bank's Operations Department appears here.]
The Bank continues to expand and upgrade its ATM system, with ATMs in
service now totalling 12. The two most recent additions include a drive-up
ATM at the Hudson South office and a walk-up unit in the Solomon Pond Mall
in Marlborough. These new locations have provided our customers with added
convenience and have been well received.
In addition, Hudson National updated and improved its Internet World Wide
Web site to provide a variety of product and organizational information,
current deposit and loan rates, and even a simplified loan application. It
can be found at http://www.hnbank.com. Hudson National was one of the first
banks in the state to begin utilizing the Internet. Additional features
being planned include interactive loan calculators to allow customers to
determine payments on various types of loans.
[A second photo of the Bank's Operations Department appears here.]
Hudson National has implemented a new commercial lending program, HNB Small
Business Financing, to focus on Small Business Administration (SBA) loans.
Loans will be generated for the Bank's portfolio and for sale, depending on
market conditions. The Bank's Capital Access Program and SBA 504 program
also proved to be very successful in 1996.
Hudson National understands small business and can tailor-make financing
arrangements to suit the particular needs of each individual firm. An
experienced team of lenders works to develop a clear understanding of a
business and its needs so a lasting partnership can be built.
-7-
<PAGE>
[A photo of the Bank's Consumer Loan Center appears here.]
Banking has traditionally been a very local business. In working with small
businesses and commercial customers, the trust and relationships fostered by
having local ties to clients plays a major role in the success of Hudson
National, as does our ability to customize products and pricing according to
local requirements.
Today, the challenges that come with change have never been greater. New
distribution channels are rapidly developing, and with them come
opportunities to provide customers with greater convenience and access to
information. These technological and regulatory changes have made it
possible for Hudson National to greatly extend the scope of its operations.
Yet, we are committed to remaining true to our community banking roots. In
addition to providing support for a variety of organizations and community
programs through charitable donations, many members of our staff are
involved in various community groups. It is through this interaction with
the communities we serve that we are able to learn and understand the needs
of our customers, allowing us to remain "closer to you".
Hudson National Bank is fortunate that its primary market area is in one of
the fastest growing regions of the state. Middlesex County's growth rate is
double the average growth rate of the state. Personal income growth is also
rising faster than the state as a whole. Furthermore, while Hudson National
is both a strong and profitable organization, it has a relatively small
market share, providing opportunities for future growth. In 1997 we will
focus on leveraging some of our core strengths into new lines of business
including consulting, SBA 7A lending, asset management, financial planning
and insurance and annuity sales.
-8-
<PAGE>
<TABLE>
Consolidated Balance Sheets
December 31, 1996 and 1995
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 14,391,567 $ 12,668,446
Federal funds sold 11,300,000 16,700,000
Securities available for sale at market value (Note 2) 29,245,007 24,678,624
Securities held to maturity (market value $58,312,349
in 1996 and $49,745,222 in 1995) (Note 2) 58,828,881 49,937,205
Loans (Notes 3 and 10) 131,570,430 128,072,061
Less allowance for possible loan losses
(Notes 4 and 13) 3,481,705 3,455,098
----------- -----------
Total net loans 128,088,725 124,616,963
Premises and equipment, net (Note 5) 4,848,202 5,126,083
Other assets, net (Note 14) 3,300,076 3,853,475
----------- -----------
Total assets $250,002,458 $237,580,796
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (Note 11):
Noninterest bearing $ 51,358,151 $ 45,383,886
Interest bearing 165,823,718 161,655,979
----------- -----------
Total deposits 217,181,869 207,039,865
----------- -----------
Securities sold under repurchase agreements 11,454,687 9,289,963
Other liabilities (Note 8) 1,524,768 1,710,295
----------- -----------
Total liabilities 230,161,324 218,040,123
----------- -----------
Commitments (Notes 9 and 13)
Stockholders' equity (Note 6):
Preferred stock, $2.50 par value, 100,000 shares
authorized, none issued or outstanding
Common stock, $2.50 par value, 4,000,000 shares
authorized, 3,199,218 shares issued, 2,935,012
shares outstanding, (3,158,946 shares outstanding
at December 31, 1995) 7,998,045 7,998,045
Surplus 374,580 290,253
Undivided profits 13,826,958 11,463,544
Treasury stock, 264,206 shares, (40,272 at December
31, 1995) (2,348,419) (181,224)
Unrealized losses on securities available for sale,
net of taxes (Note 2) (10,030) (29,945)
----------- -----------
Total stockholders' equity 19,841,134 19,540,673
----------- -----------
Total liabilities and stockholders'
equity $250,002,458 $237,580,796
=========== ===========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-9-
<PAGE>
<TABLE>
Consolidated Statements of Income
Years ended December 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 12,430,327 $12,363,714 $10,439,354
Interest and dividends on securities:
Taxable interest 4,565,311 4,003,765 3,791,167
Nontaxable interest 120,553 91,517 57,826
Dividends 54,248 51,651 79,943
Interest on federal funds sold 590,663 406,977 61,642
---------- ---------- ----------
Total interest income 17,761,102 16,917,624 14,429,932
---------- ---------- ----------
Interest expense:
Interest on deposits 5,840,445 5,735,554 4,142,705
Interest on federal funds purchased and
securities sold under repurchase
agreements 527,313 549,196 382,853
---------- ---------- ----------
Total interest expense 6,367,758 6,284,750 4,525,558
---------- ---------- ----------
Net interest income 11,393,344 10,632,874 9,904,374
---------- ---------- ----------
Provision for possible loan losses
(Note 4) --- 120,000 300,000
---------- ---------- ----------
Net interest income after provision
for possible loan losses 11,393,344 10,512,874 9,604,374
---------- ---------- ----------
Noninterest income:
Merchant credit card processing
assessments 855,488 690,024 599,513
Service charges 774,876 701,824 679,818
Other charges, commissions and fees 697,650 663,827 683,590
Gains (losses) on sales of loans, net 21,105 (31,776) (1,698)
Losses on sales of securities, net (9,460) --- (29,828)
Other 75,399 60,065 96,534
---------- ---------- ----------
Total noninterest income 2,415,058 2,083,964 2,027,929
---------- ---------- ----------
Noninterest expense:
Salaries and employee benefits (Note 8) 4,541,551 4,362,821 4,289,900
Data processing 582,334 478,064 380,596
Occupancy 580,519 610,737 601,235
Furniture and equipment 362,453 325,662 310,987
Credit card processing 738,227 621,695 500,094
OREO carrying costs (income), net 51,623 (4,413) 170,143
FDIC insurance premiums 2,000 209,906 394,696
Other 1,770,937 1,668,940 1,672,118
---------- ---------- ----------
Total noninterest expense 8,629,644 8,273,412 8,319,769
---------- ---------- ----------
Income before income tax expense and
cumulative effect of change in accounting
principle 5,178,758 4,323,426 3,312,534
Income tax expense 2,026,660 1,679,549 1,207,101
---------- ---------- ----------
Net income $ 3,152,098 $ 2,643,877 $ 2,105,433
========== ========== ==========
Earnings per share $ 1.01 $ 0.84 $ 0.67
Weighted average number of shares
outstanding 3,113,388 3,148,306 3,138,998
========== ========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-10-
<PAGE>
<TABLE>
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996, 1995 and 1994
<CAPTION>
Common Undivided Treasury
Stock Surplus Profits Stock Other
----- ------- ---------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 7,998,045 102,138 8,117,525 200,158
Net income 2,105,433
Cash dividends declared
($.214 per share) (666,190)
Purchase of 220,628 shares of
treasury stock (Note 6) (992,826)
Reissuance of 162,164 shares of
treasury stock (Note 6) 161,400 729,738
Change in unrealized loss
on securities available
for sale, net of taxes (1,010,971)
- -------------------------- --------- ------- --------- --------- ---------
Balance, December 31, 1994 7,998,045 263,538 9,556,768 (263,088) (810,813)
Net income 2,643,877
Cash dividends declared
($.234 per share) (737,101)
Purchase of 382 shares of
treasury stock (2,865)
Reissuance of 18,574 shares of
treasury stock 26,715 84,729
Change in unrealized loss
on securities available
for sale, net of taxes 780,868
- -------------------------- --------- ------- ---------- ------- -------
Balance, December 31, 1995 7,998,045 290,253 11,463,544 (181,224) (29,945)
Net income 3,152,098
Cash dividends declared
($.253 per share) (788,684)
Purchase of 257,665 shares
of treasury stock (Note 6) (2,318,985)
Reissuance of 33,731 shares
of treasury stock 84,327 151,790
Change in unrealized loss
on securities available
for sale, net of taxes 19,915
- -------------------------- --------- ------- ---------- --------- ------
Balance, December 31, 1996 $7,998,045 $374,580 $13,826,958 $(2,348,419) $(10,030)
========= ======= ========== ========= ======
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-11-
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Interest received $ 17,803,811 $ 16,739,141 $ 14,155,067
Fees and commissions received 2,514,788 2,068,486 2,109,853
Proceeds from secondary market mortgage sales 14,737,701 8,899,808 31,829,089
Origination of mortgage loans held for sale (14,577,346) (9,320,396) (17,847,022)
Interest paid (6,373,350) (6,308,750) (4,341,747)
Cash paid to suppliers and employees (8,020,426) (7,084,208) (7,732,757)
Income taxes paid (1,941,421) (1,404,520) (1,201,342)
----------- ----------- ----------
Net cash provided by operating activities 4,143,757 3,589,561 16,971,141
----------- ---------- -------
Cash flows used in investing activities:
Purchases of securities held to maturity (22,899,227) (17,362,828) (28,049,573)
Proceeds from maturities of securities
held to maturity 14,056,633 13,194,982 4,004,738
Purchase of securities held for sale (14,347,861) --- (12,824,946)
Proceeds from sales of securities held for
sale 3,507,742 --- 13,047,576
Proceeds from maturities of securities held
for sale 6,257,701 3,434,457 13,219,324
Net change in federal funds sold 5,400,000 (10,600,000) (3,000,000)
Net change in loans and other real estate
owned (3,446,092) (4,689,293) (7,769,209)
Proceeds from sales of other real estate
owned 100,000 178,700 316,350
Acquisition of premises and equipment (488,905) (589,533) (754,005)
----------- ---------- ---------
Net cash used in investing activities (11,860,009) (16,433,515) (21,809,745)
---------- ---------- ----------
Cash flows from financing activities:
Net change in deposits 10,142,004 20,176,879 1,363,921
Net change in securities sold under
repurchase agreements 3,164,724 4,249,163 3,422,141
Net change in federal funds purchased (1,000,000) (9,000,000) ---
Purchase of treasury stock (2,318,985) (2,865) (992,826)
Reissuance of treasury stock 236,117 111,444 891,138
Dividends paid (784,487) (722,606) (647,835)
---------- ---------- ----------
Net cash provided by financing activities 9,439,373 13,912,015 4,036,539
---------- ----------- ----------
Net increase (decrease) in cash and due from banks 1,723,121 1,068,061 (802,065)
Cash and due from banks at beginning of year 12,668,446 11,600,385 12,402,450
---------- ---------- ----------
Cash and due from banks at end of year $14,391,567 $12,668,446 $11,600,385
========== ========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-12-
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994 (Continued)
Reconciliation of Net Income to Net Cash Provided by Operating Activities
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income $ 3,152,098 $ 2,643,877 $ 2,105,433
Adjustments to reconcile net income to net
cash provided by operating activities:
(Increase) decrease in mortgage loans held
for sale (164,784) (787,488) (13,612,894)
Premium on sale of mortgages 325,139 366,900 369,172
Depreciation and amortization 839,476) 747,822 818,632
Provision for possible loan losses --- 120,000 300,000
Write-down of OREO properties --- --- 21,870
Deferred income taxes 25,581 176,043 139,324
Increase (decrease) in other liabilities (230,258) 441,387 (253,490)
Increase in taxes payable 85,239 275,029 5,759
Increase (decrease) in interest payable (5,592) (24,000) 183,811
(Increase) decrease in other assets, net 74,150 (191,521) (57,400)
(Increase) decrease in interest receivable 42,708 (178,488) (274,864)
----------- ----------- -----------
Total adjustments 991,659 945,684 14,865,708
----------- ----------- -----------
Net cash provided by operating activities $ 4,143,757 $ 3,589,561 $ 16,971,141
=========== =========== ===========
Supplemental Disclosure:
Loans transferred to OREO totalled $998,708, $182,958 and $742,136 for the years ended
December 31, 1996, 1995 and 1994, respectively.
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-13-
<PAGE>
Notes to Consolidated Financial Statements
1. Significant Accounting Policies
Basis of consolidation
The accompanying consolidated financial statements include the accounts of
Community Bancorp, Inc. (the "Company"), a Massachusetts corporation
registered as a bank holding company under the Bank Holding Company Act of
1956, as amended, and its wholly-owned subsidiary, Hudson National Bank (the
"Bank"), a national banking association. The Company also formed Community
Securities Corporation, a wholly-owned subsidiary of the Bank. All
inter-company balances and transactions have been eliminated in
consolidation.
At present, the Company conducts no activities independent of the Bank. The
Bank has eight offices and is engaged in substantially all of the business
operations normally conducted by an independent commercial bank in
Massachusetts. Banking services offered include the acceptance of checking,
savings, and time deposits, and the making of commercial, real estate,
installment and other loans. The Bank also offers official checks, safe
deposit boxes, and other customary banking services to its customers.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Securities
Debt securities that the Company has the positive intent and ability to hold
to maturity are reported at amortized cost. Securities purchased to be held
for indefinite periods of time and not intended to be held until maturity
are classified as "available for sale" securities. Securities classified as
available for sale are reported at fair value with unrealized gains and
losses excluded from earnings and reported net of taxes in a separate
component of stockholders' equity. Securities held for indefinite periods
of time include securities that management may use in conjunction with the
Company's asset/liability in management program and that may be sold in
response to changes in interest rates, prepayment risks or other economic
factors. When securities classified as available for sale are sold, the
adjusted cost of each specific security sold is used to calculate gains or
losses on sale, which are included in earnings.
Premises and equipment
Premises and equipment are stated at cost, less accumulated depreciation and
amortization, which is accumulated depreciation and amortization, which is
computed by using both the straight-line and accelerated methods. Estimated
useful lives are as follows:
Buildings................30 to 40 years
Buildings and leasehold
improvements.............5 to 25 years
Furniture and equipment...3 to 10 years
Cash and due from banks
Included in cash and due from banks as of December 31, 1996 and 1995 is
approximately $4,527,000 and $3,313,000, respectively, that is subject to
Federal Reserve withdrawal restrictions.
Allowance for possible loan losses
Material estimates that are particularly susceptible to significant change
in the near term relate to the determination of the allowance for possible
loan losses. The allowance for possible loan losses is increased through a
provision for possible loan losses charged to expense and decreased by
charge-offs, net of recoveries. The provision is based on management's
estimation of the amount necessary to maintain the allowance at an adequate
level. Management's periodic evaluation of the adequacy of the allowance is
based on specific credit reviews, past loan loss experience, current
economic conditions and trends known and inherent risks in the loan
portfolio, adverse situations that may affect the borrower's ability to
repay, the estimated value of any underlying collateral and the volume,
growth and composition of the loan portfolio. While management uses
available information to recognize losses on loans, future additions to the
allowance may be necessary.
Effective January 1, 1995, the Company adopted Financial Accounting
Standards Board Statement No 114, "Accounting by Creditors for Impairment of
a Loan" (SFAS No. 114). Under the standard, the allowance for possible loan
losses related to loans that are identified as
-14-
<PAGE>
impaired is based on discounted cash flows using the loan's effective
interest rate or the fair value of the collateral for certain collateral
dependent loans. Prior to 1995, the allowance for possible loan losses
related to these loans was based on undiscounted cash flows or the fair
market value of the collateral for collateral dependent loans.
For purposes of this Statement, a loan is considered to be impaired when it
is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. The Financial
Accounting Standards Board also issued SFAS No. 118, which amended SFAS No.
114 by allowing creditors to use their existing methods of recognizing
interest income on impaired loans.
The Company determined, after reviewing its credit quality monitoring
policies and procedures and an analysis of the loan portfolio, that loans
recognized by the Company as nonaccrual and restructured troubled debt are
equivalent to "impaired" loans as defined by SFAS No. 114. The Company also
determined that the allowance for possible loan losses did not require an
additional loan loss provision as a result of the adoption of this Statement.
Total impaired loans at December 31, 1996 and 1995 that required a related
allowance were $373,318 and $214,131, respectively, and the allowance
allocated to such loans was $120,000 and $35,000, respectively. In
addition, at December 31, 1996 and 1995, the Company had impaired loans of
$523,191 and $1,436,214, respectively, that did not require a related
allowance. Interest payments on impaired loans are recorded as principal
reductions if the remaining loan balance is not expected to be repaid in
full. If full collection of the remaining loan balance is expected,
interest payments are recognized as interest income on a cash basis.
Impaired loans averaged $1,457,388 and $1,010,296 during 1996 and 1995,
respectively. The Company recorded interest income on impaired loans of
$42,238 during 1996 and $108,279 during 1995.
Securities sold under repurchase agreements
The Company sells securities under open-ended repurchase agreements with
certain customers. The principal balance of the repurchase agreements
changes daily. Specific securities are not sold and securities are not
transferred to the name of the customers. Instead, the customer has an
interest in a portion of the U.S. Government securities held in the
Company's investment portfolio.
Earnings per share
Earnings per share is based on the weighted average number of shares
outstanding during the year.
Long-lived assets
Effective January 1, 1996, the Company adopted Financial Accounting
Standards Board Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of" (SFAS No.
121). SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The Statement also requires that
certain long-lived assets and identifiable intangibles to be disposed of be
reported at the lower of the carrying amount or fair value less cost to
sell. The adoption of SFAS No. 121 by the Company had no impact on the
results of its operations or financial condition.
Loan sales and loans held for sale
Gains and losses on sales of mortgage loans are recognized at the time of
sale based on the difference between the selling price and the carrying
value of the related loans sold. The gains and losses are increased or
decreased by the present value of the difference (generally referred to as
"excess servicing)" between the interest rate on the loans sold, adjusted for
a normal servicing fee and, in the case of mortgage-backed securities, a
guaranty fee, and the agreed-upon yield to the buyer. The present value is
computed over the estimated life of the loans sold, taking into account
scheduled payments and estimated prepayments. At December 31, 1996 and
1995, loans held for sale totalled $1,222,165 and $1,057,381, respectively.
Effective January 1, 1996, the Company adopted Financial Accounting
Standards Board Statement No. 122, "Accounting for Mortgage Servicing
Rights" (SFAS No. 122). SFAS No. 122, as amended by SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities", requires the capitalization of the rights to
service mortgage loans for others. In addition, capitalized mortgage
servicing rights are required to be assessed for impairment based on the
-15-
<PAGE>
fair value of those rights. The Company adopted SFAS No. 122 on a
prospective basis and, as a result, recorded an incremental gain of $46,849
on the sale of mortgage loans with servicing rights retained during 1996.
Revenue recognition
Interest on loans, securities and other earning assets is accrued and
credited to operations based on contractual rates and principal amounts
outstanding. Nonrefundable loan fees and certain related costs are deferred
and recognized as income over the life of the loan as an adjustment of the
yield.
It is the policy of the Company to discontinue the accrual of interest on
loans when, in the judgement of management, the ultimate collectibility of
principal or interest becomes doubtful. The accrual of interest income
generally is discontinued when a loan becomes 90 days past due as to
principal or interest. When interest accruals are discontinued, unpaid
interest credited to income in the current year is reversed, and interest
accrued in prior years is charged to the allowance for possible loan losses.
Management may elect to continue the accrual of interest when the estimated
net realizable value of collateral is sufficient to cover the principal
balance and accrued interest. Otherwise, interest income is subsequently
recognized only to the extent cash payments are received.
Reclassifications
Certain amounts in prior year's financial statements have been reclassified
to be consistent with the current year's presentation. The reclassifications
have no effect on net income.
2. Securities
The book and estimated market values of securities at December 31, 1996 and
1995 were as follows:
<TABLE>
<CAPTION>
1996
--------------------------------------------------------
Gross Gross
Securities Held Amortized Unrealized Unrealized Fair
to Maturity Cost Gains Losses Value
--------------- --------- ---------- ---------- -----
<S> <C> <C> <C> <C>
U.S. Government obligations $ 6,040,283 $ 3,747 $ 26,831 $ 6,017,199
U.S. Government agencies
and corporations 12,018,820 9,233 90,914 11,937,139
Obligations of states and
political subdivisions 4,141,216 595 8,113 4,133,698
Mortgage-backed securities 36,628,562 80,802 485,051 36,224,313
----------- ---------- ---------- -----------
$ 58,828,881 $ 94,377 $ 610,909 $ 58,312,349
=========== ========== ========== ===========
<CAPTION>
Gross Gross
Securities Held Amortized Unrealized Unrealized Fair
Available for Sale Cost Gains Losses Value
------------------ --------- ---------- ---------- -----
<S> <C> <C> <C> <C>
U.S. Government obligations $ 9,920,585 $ 44,377 $ 3,866 $ 9,961,096
U.S. Government agencies
and corporations 4,989,529 --- 27,652 4,961,877
Mortgage-backed securities 13,463,117 83,447 112,686 13,433,878
Other securities 888,156 --- --- 888,156
----------- ---------- ---------- -----------
$ 29,261,387 $ 127,824 $ 144,204 $ 29,245,007
=========== ========== ========== ===========
<CAPTION>
1995
--------------------------------------------------------
Gross Gross
Securities Held Amortized Unrealized Unrealized Fair
to Maturity Cost Gains Losses Value
--------------- --------- ---------- ---------- -----
<S> <C> <C> <C> <C>
U.S. Government obligations $ 9,104,865 $ 16,179 $ 20,366 $ 9,100,678
U.S. Government agencies
and corporations 12,545,065 --- 23,350 12,521,715
Obligations of states and
political subdivisions 1,940,710 --- --- 1,940,710
Mortgage-backed securities 26,346,565 96,131 260,577 26,182,119
----------- ---------- ---------- -----------
$ 49,937,205 $ 112,310 $ 304,293 $ 49,745,222
=========== ========== ========== ===========
<CAPTION>
Gross Gross
Securities Amortized Unrealized Unrealized Fair
Available for Sale Cost Gains Losses Value
------------------ --------- ---------- ---------- -----
<S> <C> <C> <C> <C>
U.S. Government obligations $ 8,056,639 $ 20,172 $ 21,501 $ 8,055,310
U.S. Government agencies and
corporations 2,021,784 --- 5,676 2,016,108
Mortgage-backed securities 13,761,475 61,673 104,096 13,719,052
Other securities 888,154 --- --- 888,154
----------- ---------- ---------- -----------
$ 24,728,052 $ 81,845 $ 131,273 $ 24,678,624
=========== ========== ========== ===========
</TABLE>
The book and estimated market value of securities at December 31, 1996 by
contractual maturity are shown in the following table. Actual maturities may
differ from contractual maturities because issuers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Securities Held to Maturity Securities Available for Sale
--------------------------- -----------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----- --------- -----
<S> <C> <C> <C> <C>
Within one year $ 5,770,949 $ 5,748,153 $ 4,005,378 $ 4,008,282
One to five years 13,973,407 13,891,438 7,919,579 7,951,252
Five to ten years --- --- 2,985,157 2,963,439
Ten to fifteen years 2,455,963 2,448,445 --- ---
Mortgage-backed securities 36,628,562 36,224,313 13,463,117 13,433,878
Other securities --- --- 888,156 888,156
----------- ---------- ---------- ----------
$58,828,881 $58,312,349 $29,261,387 $29,245,007
========== =========== ========== ==========
</TABLE>
-16-
<PAGE>
Securities with a book value of $25,861,000 and $22,085,000 at December 31,
1996 and 1995, respectively, were pledged to secure public funds on deposit and
for other purposes.
Proceeds from sales, purchases, and maturities of securities available for
sale during 1996 were $3,507,742, $14,347,861, and $6,257,701, respectively.
Gross realized losses on sales of securities during 1996 were $9,460. There
were no sales of securities in 1995. Realized gains or losses on sales of
securities were determined by specific identification.
3. Loans
The composition of the loan portfolio at December 31, 1996 and 1995 was as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Commercial and industrial $ 17,227,165 $ 13,783,644
Real estate - residential 51,012,087 52,036,183
Real estate - commercial 45,104,891 44,983,032
Real estate - residential
construction 4,833,291 3,903,267
Loans to individuals 13,221,415 13,177,862
Other 171,581 188,073
----------- -----------
Total loans $131,570,430 $128,072,061
=========== ===========
</TABLE>
Substantially all of the Company's loan portfolio is collateralized by assets
in the New England region, especially central Massachusetts. The Company
generally requires collateral when extending credit and, with respect to loans
secured by real estate, Company policy requires appropriate appraisals and
repayment sources.
At December 31, 1996 and 1995, accruing loans 90 days or more past due totalled
$370,223 and $159,922, respectively, and nonaccruing loans totalled $896,509
and $1,650,345, respectively. There were no troubled debt restructurings at
December 31, 1996 or 1995. The reduction of interest income associated with
nonaccrual and restructured loans for the years ended December 31, 1996, 1995
and 1994 was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest income per original terms $ 220,029 $ 211,348 $ 357,774
Income recognized 42,411 103,069 216,280
-------- -------- --------
Foregone interest income $ 177,618 $ 108,279 $ 141,494
======== ======== ========
</TABLE>
4. Allowance for Possible Loan Losses
Activity in the allowance for possible loan losses for the years ended
December 31, 1996, 1995 and 1994 was as follows:
<TABLE>
<S> <C>
Balance, December 31, 1993 $3,910,195
Provision for possible losses 300,000
Charge-offs (838,955)
Recoveries 332,230
---------
Balance, December 31, 1994 3,703,470
Provision for possible losses 120,000
Charge-offs (629,306)
Recoveries 260,934
---------
Balance, December 31, 1995 3,455,098
Provision for possible losses ---
Charge-offs (230,545)
Recoveries 257,152
---------
Balance, December 31, 1996 $3,481,705
=========
</TABLE>
5. Premises and Equipment
The composition of premises and equipment at December 31, 1996 and 1995 was as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Premises $ 5,046,199 $ 5,023,261
Equipment 3,097,098 2,861,731
---------- ----------
8,143,297 7,884,992
Less accumulated depreciation and
amortization 3,295,095 2,758,909
---------- ----------
$ 4,848,202 $ 5,126,083
========== ==========
</TABLE>
Total depreciation and amortization expense for the years ended December 31,
1996, 1995 and 1994 was $746,120, $668,526 and $598,018, respectively, and is
included in data processing, occupancy and furniture and equipment expense.
6. Stockholders' Equity
Pursuant to a Stock Purchase Agreement dated March 29, 1993, the Company and
certain individuals agreed to purchase a total of 766,924 shares of common
stock from existing stockholders of the Company in two separate transactions.
The initial transaction was consummated on April 30, 1993 and involved a total
of 546,296 shares. Of these, 379,810 shares were acquired by the Company. The
remaining 166,486 shares were acquired by various individuals.
The purchase price in the initial transaction was $4.40 per share. The Company
received a fairness opinion indicating that such purchase price was fair to the
Company from a financial point of view. The total
-17-
<PAGE>
purchase price paid by the Company in the initial transaction was $1,671,164.
During 1993, the Company completed a stock offering to reissue the 379,810
shares of treasury stock and sell 35,606 additional shares of common stock.
Net proceeds from the stock offering were $1,817,809 after deducting
applicable offering expenses.
Pursuant to the second transaction, which was consummated on May 6, 1994, the
Company purchased 220,628 additional shares of common stock from certain
existing stockholders at a price of $4.50 per share. The Company received a
fairness opinion indicating that such purchase price was fair to the Company
from a financial point of view. The total purchase price paid by the Company
in the second transaction was $992,826. Shares acquired by the Company in both
the initial and the second transaction were accounted for as treasury stock
under the cost method. During 1994, the Company re-issued 162,164 shares of
acquired stock, providing net proceeds of $891,138 after deducting applicable
expenses.
On August 15, 1996, the Company implemented an Offer to Purchase up to 222,222
shares of its outstanding common stock at a price of $9.00 per share. The
Offer expired on September 13, 1996, with 257,665 shares tendered. As provided
in the Offer, the Company increased the number of shares sought in the Offer by
approximately 1.1% of the outstanding shares and purchased all 257,665 shares
tendered under the offer. There was no proration of shares. Shares acquired
by the Company were accounted for as treasury stock under the cost method. As
a result of the repurchase of shares, the Company's capital was reduced by
$2,318,985.
7. Income Taxes
The components of income tax expense for the years ended December 31, 1996,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 1,508,248 $ 1,160,210 $ 817,474
State 492,831 343,296 250,303
---------- ---------- ----------
Total current 2,001,079 1,503,506 1,067,777
---------- ---------- ----------
(Prepaid)/Deferred:
Federal 6,430 114,195 194,508
State 19,151 61,848 (55,184)
---------- ---------- ----------
Total (prepaid)/deferred 25,581 176,043 139,324
---------- ---------- ----------
Total $ 2,026,660 $ 1,679,549 $ 1,207,101
========== ========== ==========
</TABLE>
The difference between the income tax provision computed by applying the
statutory federal income tax rate of 34% to income before income taxes and the
cumulative effect of a change in accounting principle and the actual income tax
provision is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income tax expense
at statutory rates $ 1,760,833 $ 1,469,965 $ 1,126,262
State income taxes, net of
federal income tax benefit 337,908 267,395 207,978
Tax-exempt interest (69,794) (71,828) (62,953)
Reversal of valuation allowance --- --- (80,000)
Other, net (2,287) 14,017 15,814
----------- ---------- ----------
$ 2,026,660 $ 1,679,549 $ 1,207,101
========== ========== ==========
</TABLE>
The Company has recorded a net deferred tax asset of $756,290. Realization is
dependent on the generation of sufficient taxable income in future years.
Although realization is not assured, management believes it is more likely than
not that the full amount of the net deferred tax asset will be realized.
However, the amount realizable could be reduced if estimates of future taxable
income are reduced.
At December 31, 1996 and 1995, the Company's net deferred tax asset, as
presented in the accompanying consolidated balance sheets, consisted of the
following components:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Gross deferred tax asset:
Provision for possible loan losses $ 909,466 $ 921,209
Employee benefits and other
compensation arrangements 334 663 325,975
OREO write-downs 20,732 21,000
Other 30,319 29,066
--------- ---------
1,295,180 1,297,250
Gross deferred tax liability:
Amortization of intangible assets --- (30,529)
Accelerated tax depreciation (390,932) (350,807)
Other (147,958) (121,060)
--------- ---------
(538,890) (502,396)
--------- ---------
Net deferred tax asset $ 756,290 $ 794,854
========= =========
</TABLE>
8. Employee Benefits
The Company has a defined benefit pension plan covering all eligible employees.
The benefits are based on years of service and the employees' compensation as
defined in the Plan agreement. The Company's funding policy is to make annual
contributions to the Plan equal to at least the minimum amount required for
actuarial purposes. Contributions are intended to provide not only for benefits
attributed to service to date, but also for those to be earned in the future.
The following table sets forth the Plan's funded status and
-18-
<PAGE>
amounts recognized in the Company's consolidated balance sheets at December 31,
1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $1,597,121 ($1,422,106
in 1995) $(1,678,366) $(1,497,943)
========= =========
Projected benefit obligation for service
rendered to date $(2,732,471) $(2,443,171)
Plan assets at fair value (funds held in
mutual funds, Community Bancorp, Inc.
stock and deposit accounts at
Hudson National Bank) 2,277,087 1,514,977
---------- ----------
Funded status of plan (455,384) (928,194)
Prior service cost not yet recognized
in net periodic pension cost 13,796 15,176
Unrecognized net asset at transition
being recognized over 17 years (62,675) (71,629)
Unrecognized net loss from past experience
different from that assumed 401,786 547,906
---------- ----------
Accrued pension cost $ (102,477) $ (436,741)
========== ==========
</TABLE>
Net periodic pension cost for the years ended December 31, 1996, 1995 and 1994
included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned
during the period $ 210,421 $ 174,826 $ 208,151
Interest cost on projected
benefit obligation 179,213 149,673 149,088
Actual return on plan assets (210,676) (209,069) 98,961
Adjustment to reflect amount
expensed by plan sponsor --- --- (1,000)
Net amortization and deferral 90,728 103,634 (204,260)
---------- ---------- ----------
Net periodic pension cost $ 269,686 $ 219,064 $ 250,940
========== ========== ==========
</TABLE>
The weighted-average discount rate and annual rate of increase in the future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 7.5% and 5.5% at December 31, 1996 and 1995,
respectively. The expected annual long-term rate of return on assets was 8.0%
for the years ended December 31, 1996 and 1995.
The Company has an Employee Stock Ownership Plan (ESOP) that enables eligible
employees to own common stock. A cash contribution of $70,000 was made to the
ESOP in 1996. No cash contributions were made to the ESOP in 1995 or 1994.
The Company implemented a 401(k) plan in 1989, covering all eligible employees.
Compensation expense recorded in 1996, 1995 and 1994 related to this plan was
approximately $61,400, $22,800 and $26,900, respectively.
9. Commitments
The Company leases branch offices and equipment under noncancelable agreements
expiring at various dates through 2001 that require various minimum annual
rentals. The total future minimum rental commitments at December 31, 1996
aggregate $435,936. Rental commitments for each of the next five fiscal years
and thereafter are as follows:
1997 158,837
1998 88,674
1999 62,039
2000 42,962
2001 41,712
Thereafter 41,712
Rental expense totalled approximately $149,000, $146,000 and $146,000, for
1996, 1995 and 1994, respectively.
10. Loans to Related Parties
The schedule below discloses indebtedness of certain parties related to the
Company:
<TABLE>
<CAPTION>
Balance Balance
January 1 New Loans Repayments December 31
---------- --------- ---------- -----------
<S> <C> <C> <C> <C>
1995 $ 5,684,454 $1,707,252 $2,479,504 $ 4,912,202
1996 $ 4,912,202 $ 319,636 $3,194,000 $ 2,037,838
</TABLE>
These loans were made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions
with unrelated persons and do not involve more than normal risk of
collectibility.
11. Deposits
Deposits consisted of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Demand deposits $ 51,358,151 $ 42,074,618
Money-market and Flex Value deposits 28,306,881 26,791,018
NOW deposits 23,217,898 20,977,338
Cash management investment deposits 13,007,808 5,773,655
Savings deposit 33,304,686 33,180,044
Time certificates of deposit in
denominations of $100,000 or more 19,144,157 14,360,287
Other time deposits 48,842,288 43,706,026
----------- -----------
$217,181,869 $186,862,986
=========== ===========
</TABLE>
-19-
<PAGE>
12. Condensed Financial Information of Community Bancorp, Inc.
The following discloses certain parent-company-only financial information at
December 31, 1996 and 1995, and for each of the three years in the period
ended December 31, 1996:
<TABLE>
Balance Sheets
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Assets:
Cash and cash equivalents $ 122,186 $ 594,056
Investment in subsidiary, at equity 19,696,253 18,929,479
Other assets 216,534 189,536
---------- ----------
Total assets $ 20,034,973 $ 19,713,071
========== ==========
Liabilities and stockholders' equity:
Other liabilities $ 193,839 $ 172,398
---------- ----------
Total liabilities 193,839 172,398
Stockholders' equity:
Preferred stock, $2.50 par value,
100,000 shares authorized, none
issued or outstanding
Common stock, $2.50 par value,
4,000,000 shares authorized, 3,199,218
shares issued, 2,935,012 shares
outstanding, (3,158,946 shares
outstanding at December 31, 1995) 7,998,045 7,998,045
Surplus 374,580 290,253
Undivided profits 13,826,958 11,463,544
Treasury stock (2,348,419) (181,224)
Unrealized losses on securities
available for sale, net of taxes (10,030) (29,945)
---------- ----------
Total stockholders' equity 19,841,134 19,540,673
---------- ----------
Total liabilities and stockholders'
equity $20,034,973 $19,713,071
========== ==========
</TABLE>
<TABLE>
Statements of Income
<CAPTION>
Years ended December 31,
------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income:
Dividends from subsidiary
bank $ 2,407,668 $ 737,101 $ 666,190
Other income 322,048 307,939 288,806
----------- ----------- ----------
Total income 2,729,716 1,045,040 954,996
----------- ----------- ----------
Expenses:
Other 324,478 299,756 285,821
----------- ----------- ----------
Total expenses 324,478 299,756 285,821
----------- ----------- ----------
Income before undistributed net
income of subsidiary bank 2,405,238 745,284 669,175
Equity in undistributed net
income of subsidiary bank 746,860 1,898,593 1,436,258
----------- ----------- ----------
Net income $ 3,152,098 $ 2,643,877 $ 2,105,433
=========== =========== ===========
</TABLE>
<TABLE>
Statements of Cash Flows
<CAPTION>
Years ended December 31,
-----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 3,152,098 $ 2,643,877 $ 2,105,433
Adjustments to reconcile net
income to net cash
provided by operating
activities:
Equity in undistributed
net income of subsidiary
bank (746,860) (1,898,593) (1,436,258)
Increase in other assets (26,997) (1,718) (22,289)
Increase (decrease) in
other liabilities 21,441 (1,685) 21,273
---------- ---------- ----------
Total adjustments (752,416) (1,901,996) (1,437,274)
---------- ---------- ----------
Net cash provided by
operating activities 2,399,682 741,881 668,159
---------- ---------- ----------
Cash flows from financing
activities:
Purchase of treasury stock (2,318,985) (2,865) (992,826)
Reissuance of treasury stock 236,117 111,444 891,138
Dividends declared (788,684) (737,101) (666,190)
---------- ---------- ----------
Net cash used in
financing activities (2,871,552) (628,522) (767,878)
---------- ---------- ----------
Net increase (decrease) in
cash and cash equivalents (471,870) 113,359 (99,719)
Cash and cash equivalents
at beginning of year 594,056 480,697 580,416
---------- ---------- ----------
Cash and cash equivalents
at end of year $ 122,186 $ 594,056 $ 480,697
========== ========== ==========
</TABLE>
Cash and cash equivalents consist of a money market demand deposit account on
deposit with the subsidiary bank.
The approval of the Comptroller of the Currency is required for a national bank
to pay dividends if the total of all dividends declared in any calendar year
exceeds the bank's net profits (as defined) for that year combined with its
retained net profits for the preceding two calendar years. During 1997, Hudson
National Bank can, under this formula, declare dividends to Community Bancorp,
Inc. of approximately $4,264,000, plus an additional amount equal to the Bank's
net profit for 1997, up to the date of any such dividend declaration, without
the approval of the Comptroller of the Currency.
13. Financial Instruments With Off-Balance-Sheet Risk
The Company is party to financial instruments with off-balance-sheet risk in
the normal course of business. These financial instruments primarily consist
of commitments to extend credit and standby letters of credit. Loan
commitments are made to accommodate the financial needs of the Company's
customers. Standby letters of credit commit the Company to make payments on
behalf of customers when certain specified future events occur. They are
primarily issued to guarantee other
-20-
<PAGE>
customer obligations.
Both arrangements have credit risk essentially the same as that involved in
extending loans to customers and are subject to the Company's normal credit
policies. Collateral typically is obtained based on management's credit
assessment of the customer. Loan commitments and standby letters of credit
usually have fixed expiration dates or other termination clauses. Some
commitments and letters of credit expire without being drawn upon. Accordingly,
the total commitment amounts do not necessarily represent future cash
requirements of the Company.
The Company's maximum exposure to credit loss for loan commitments (unfunded
loans and unused lines of credit) and standby letters of credit outstanding at
December 31, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Commitments to extend credit:
Fixed-rate (6.99% to 12.00%) $ 703,687 $ 465,582
Adjustable rate 31,820,455 28,212,387
Standby letters of credit $ 742,338 $ 704,368
=========== ===========
</TABLE>
Commitments to extend credit on a fixed-rate basis expose the Company to a
certain amount of interest rate risk if market rates of interest substantially
increase during the commitment period.
The Company has also sold mortgage loans with recourse in the event of the
default of the borrower. Loans sold with recourse are accounted for as sales in
the accompanying financial statements, with provisions made for anticipated
losses under the recourse provisions. At December 31, 1996 and 1995, the
outstanding balance of such mortgages totalled approximately $421,000 and
$434,000, respectively.
Fees associated with the Company's off-balance-sheet financial instruments are
minimal; therefore, the fair value of off-balance-sheet financial instruments
is not material.
14. Excess Servicing Asset
The excess servicing asset, included in other assets, represents the estimated
present value of the interest rate differential resulting from the sale of
loans with servicing rights retained. This amount is amortized over the
estimated lives of the underlying loans sold. The excess servicing asset is
also reduced by a charge to earnings if actual prepayments exceed estimated
prepayments.
The activity in the excess servicing asset is summarized as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1996 1995
---- ----
<S> <C> <C>
Balance, beginning of period $ 838,841 $ 1,205,742
Additions, related to current
year loan sales --- ---
Amortization (325,138) (366,901)
----------- -----------
Balance, end of period $ 513,703 $ 838,841
=========== ===========
</TABLE>
At December 31, 1996 and 1995, the Company was servicing mortgage loans for
others of approximately $127,258,000 and $135,518,000, respectively.
15. Regulatory Capital
The Company and the Bank are 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
classifications 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 Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December
31, 1996, that the Company and the Bank met all capital adequacy requirements
to which they are subject.
As of December 31, 1996 and 1995, the most recent notification from the Office
of the Comptroller of the Currency categorized the Bank as "well capitalized"
under the regulatory framework for prompt corrective action. To be categorized
as "well capitalized", the Bank must
-21-
<PAGE>
maintain 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.
The Company's and the Bank's actual capital amounts and ratios at December 31,
1996 are presented in the following table (dollars are in thousands):
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------- ----------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Company (consolidated):
Total capital
(to risk-weighted >
assets) $21,644 15.27% $11,341 - 8.0% N/A N/A
Tier 1 capital
(to risk-weighted >
assets) 19,851 14.00% 5,670 - 4.0% N/A N/A
Tier 1 capital >
(to average assets) 19,851 8.06% 9,852 - 4.0% N/A N/A
Bank:
Total capital
(to risk-weighted > >
assets) $21,499 15.17% $11,341 - 8.0% $14,176 - 10.0%
Tier 1 capital
(to risk-weighted > >
assets) 19,706 13.90% 5,670 - 4.0% 8,506 - 6.0%
Tier 1 capital > >
(to average assets) 19,706 8.00% 9,852 - 4.0% 12,316 - 5.0%
</TABLE>
16. Disclosures about Fair Value of Financial Instruments
In December 1991, the FASB issued Statement of Financial Accounting Standards
No. 107, Disclosures About Fair Value of Financial Instruments (SFAS No. 107).
This statement requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. In cases where quoted market prices are
not available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could
not be realized in immediate settlement of the instrument. SFAS No. 107
excludes certain financial instruments and all nonfinancial instruments from
its disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company. The following
methods and assumptions were used by the Company in estimating its fair value
disclosures for financial instruments:
Cash and due from banks and federal funds sold: The carrying amounts reported
in the balance sheet for cash and due from banks and federal funds sold
approximate those assets' fair values.
Securities (including mortgage-backed securities, securities held to maturity
and securities available for sale): Fair values for 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.
Loans: For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. The fair
values for certain one-to-four family residential mortgages are based on quoted
market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. The fair
values for credit card loans and other consumer loans are based on carrying
values, as the loans reprice frequently at current market rates. The fair
values for other loans (e.g., commercial real estate and rental property
mortgage loans, and commercial and industrial loans) are estimated using
discounted cash flow analysis, using interest rates currently being offered
for loans with similar terms to borrowers of similar credit quality. The
carrying amount of accrued interest receivable approximates its fair value.
Off-balance-sheet instruments: The fair value of lending commitments discussed
in Note 13 is not considered material nor has it been reflected in the
estimation of the fair value of the related loans.
Deposit liabilities: The fair values disclosed for demand deposits (e.g.,
interest and noninterest checking, passbook savings and certain types of money
market accounts) are, by definition, equal to the amount payable on demand at
the reporting date (i.e., their carrying amounts). The carrying amounts for
variable-rate, fixed-term money market accounts and certificates of deposit
approximate their fair values at the reporting date. Fair values for
fixed-rate certificates of deposit are estimated using a
-22-
<PAGE>
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities
on time deposits.
Short-term borrowings: The carrying amounts of federal funds purchased,
borrowings under repurchase agreements and other short-term borrowings
approximate their fair values.
Commitments to extend credit/sell loans: The fair value of commitments is
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 customers. For fixed-rate loan commitments and obligations
to deliver fixed-rate loans, fair value also considers the difference between
committed rates and current levels of interest rates.
Values not determined: SFAS No. 107 excludes certain financial instruments
from its disclosure requirements, including real estate included in banking
premises and equipment, the intangible value of the Bank's portfolio of loans
serviced (both for itself and for others) and related servicing network and the
intangible value inherent in the Bank's deposit relationships (i.e. core
deposits) among others. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Bank.
The carrying amount and estimated fair values of the Bank's financial
instruments at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996
-----------------------------
Carrying Estimated
Amount Fair Value
------------ -----------
<S> <C> <C>
Financial instrument assets:
Cash and cash equivalents $ 25,691,567 $ 25,691,567
Securities 88,073,888 87,557,356
Loans, including held for sale, net 128,088,725 132,035,766
Financial instrument liabilities:
Deposits 217,181,869 216,345,523
Short-term borrowings 11,454,687 11,454,687
</TABLE>
<TABLE>
<CAPTION>
1995
------------------------------
Carrying Estimated
Amount Fair Value
------------ -----------
<S> <C> <C>
Financial instrument assets:
Cash and cash equivalents $ 29,368,446 $ 29,368,446
Securities 74,615,829 74,423,848
Loans, including held for sale, net 124,616,963 128,494,633
Financial instrument liabilities:
Deposits 207,039,865 206,194,823
Short-term borrowings 9,289,963 9,289,963
</TABLE>
-23-
<PAGE>
Report of Independent Public Accountants
- ----------------------------------------
To the Board of Directors and Stockholders of Community Bancorp, Inc.:
We have audited the accompanying consolidated balance sheets of Community
Bancorp, Inc. (a Massachusetts corporation) and subsidiary as of December 31,
1996 and 1995, and the related consolidated statements of income, stockholders'
equity and cash flows for the three years ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Community Bancorp, Inc. and
subsidiary as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the three years ended December 31, 1996 in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
January 23, 1997
-24-
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Summary
The Company recorded net income of $3,152,098 for the year ended December 31,
1996, representing an increase of $508,221 over $2,643,877 recorded in 1995.
Earnings per share of $1.01 for the current period compared to $.84 for the
year ended December 31, 1995. The improvement in net income resulted
primarily from an increase in net interest income and noninterest income, and
reductions in the provision for possible loan losses and FDIC insurance
premiums during 1996.
Deposits of $217,181,869 at December 31, 1996 increased by $10,142,004 or
4.9% from $207,039,865 at December 31, 1995. The increase occurred primarily
in noninterest bearing categories and secondarily in interest bearing
categories.
Loans of $131,570,430 at December 31, 1996 increased by $3,498,369 or 2.7%
from $128,072,061 at December 31, 1995. The increase occurred in the
commercial and consumer loan categories. Noncurrent loans (nonaccrual loans
and loans 90 days or more past due but still accruing) totaled $1,266,732 and
$1,810,267 at December 31, 1996 and 1995, respectively. There were no
accruing troubled debt restructurings at December 31, 1996 or 1995. Other
real estate owned of $25,000 at December 31, 1996 was unchanged from December
31, 1995.
Assets of $250,002,458 at December 31, 1996 represented a $12,421,662 or 5.2%
increase over $237,580,796 at December 31, 1995.
1996 Compared to 1995
Interest income for the year ended December 31, 1996 was $17,761,102,
representing an increase of $843,478 or 5.0% over $16,917,624 for the year
ended December 31, 1995, primarily due to a $16,551,450 or 8.1% increase in
average earning assets during 1996, partially offset by slightly lower
interest rates as compared to 1995. The weighted average taxable equivalent
yield on net earning assets was 8.06% and 8.30% in 1996 and 1995,
respectively. Interest expense of $6,367,758 in 1996 represented an increase
of $83,008 or 1.3% from $6,284,750 in 1995, primarily due to an $9,865,224 or
6.0% increase in interest bearing liabilities during 1996, partially offset
by slightly lower interest rates as compared to 1995 The weighted average
cost of interest bearing liabilities was 3.68% in 1996 and 3.85% in 1995.
Net interest income for 1996 was $11,393,344, representing an increase of
$760,470 or 7.2% compared to $10,632,874 recorded in 1995.
Noninterest income for the year ended December 31, 1996 was $2,415,058,
representing an increase of $331,094 or 15.9% from $2,083,964 in 1995. This
increase resulted primarily from increases in merchant credit card
processing, service charge income, other charges, commissions and fees, gains
on sales of loans and other income, slightly offset by an increase in losses
on sales of securities.
Noninterest expense for the year ended December 31, 1996 of $8,629,644
represented an increase of $356,232 or 4.3% from $8,273,412 recorded during
1995. This increase was primarily the result of increases in salaries and
employee benefits, data processing, furniture and equipment, credit card
processing, OREO carrying costs and other expense, partially offset by
reductions in occupancy expense and FDIC insurance premiums. As a result of
the recapitalization of the FDIC Bank Insurance Fund (BIF) during 1995, the
FDIC established deposit insurance premiums of $500 per quarter in 1996 for
well capitalized banks. This resulted in a significant savings by Hudson
National Bank.
The provision for possible loan losses for 1996 was $0, representing a
$120,000 or 100.0% decrease from $120,000 in 1995. This decrease was the
result of management's continuing evaluation of the adequacy of the allowance
for possible loan losses and its belief that the allowance is adequate.
Management will continue its ongoing assessment of the adequacy of the
allowance for possible loan losses during 1997 and may adjust the provision
for possible loan losses if necessary.
-25-
<PAGE>
Income tax expense of $2,026,660 for the year ended December 31, 1996
compared to $1,679,549 for 1995, the result of an increase in taxable income
during the current period.
Net income of $3,152,098 for the year ended December 31, 1996 represented an
increase of $508,221 or 19.2% over $2,543,877 recorded in 1995. The
foregoing discussion summarized the primary components of this increase in
earnings.
1995 Compared to 1994
Interest income for the year ended December 31, 1995 was $16,917,624,
representing an increase of $2,487,692 or 17.2% over $14,429,932 for the year
ended December 31, 1994, primarily due to a $13,368,104 or 7.0% increase in
average earning assets and higher average interest rates in 1995 as compared
to 1994. The weighted average taxable equivalent yield on net earning assets
was 8.30% and 7.57% in 1995 and 1994, respectively. Interest expense of
$6,284,750 in 1995 represented an increase of $1,759,192 or 38.9% from
$4,525,558 in 1994, primarily due to an $8,560,705 or 5.5% increase in
interest bearing liabilities and higher average interest rates in 1995. The
weighted average cost of interest bearing liabilities was 3.85% in 1995 and
2.93% in 1994. Net interest income for 1995 was $10,632,874, representing an
increase of $728,500 or 7.4% compared to $9,904,374 recorded in 1994.
Noninterest income for the year ended December 31, 1995 was $2,083,964,
representing an increase of $56,035 or 2.8% from $2,027,929 in 1994. This
increase resulted primarily from increases in merchant credit card processing
and service charge income, partially offset by reductions in other charges,
commissions and fees and other income and by losses on sales of residential
real estate loans sold in the secondary mortgage market, resulting from the
refinancing of a number of mortgages originated in prior periods and the
associated write-down of unamortized excess servicing fee income on those
loans.
Noninterest expense for the year ended December 31, 1995 of $8,273,412
represented a decrease of $46,357 or .6% from $8,319,769 recorded during
1994. This decrease was primarily the result of reductions in FDIC insurance
premiums and OREO carrying costs, partially offset by increases in salaries
and employee benefits, data processing, occupancy, furniture and equipment,
and credit card processing.
As a result of the recapitalization of the FDIC's Bank Insurance Fund (BIF)
during the second quarter of 1995, a significant reduction in FDIC deposit
insurance premiums was announced in September, retroactive to June 1, 1995.
As a result, Hudson National Bank received a refund of approximately $113,000
from the FDIC during September, representing the return of previously
assessed insurance premiums plus interest. That refund was recorded as a
reduction of previously expensed premiums. FDIC deposit insurance expense
during the fourth quarter of the year was based on an assessment of $.04 per
$100 of insured deposits, compared to $.23 per $100 of insured deposits
during 1994 and the first five months of 1995. During the fourth quarter of
1995 the FDIC announced that the Bank's deposit insurance premium would be a
flat $1,000 for the first six months of 1996.
The provision for possible loan losses for 1995 was $120,000, representing a
$180,000 or 60.0% decrease from $300,000 for 1994. This decrease was the
result of management's continuing evaluation of the adequacy of the allowance
for possible loan losses and its belief that the allowance is adequate.
Income tax expense of $1,679,549 for the year ended December 31, 1995
compared to $1,207,101 for 1994, the result of an increase in taxable income
during the current period.
Net income of $2,643,877 for the year ended December 31, 1995 represented an
increase of $538,444 or 25.6% over $2,105,433 recorded in 1994. The
foregoing discussion summarized the primary components of this increase in
earnings.
-26-
<PAGE>
Allowance for Possible Loan Losses
The allowance for possible loan losses is maintained at a level believed by
management to be adequate to absorb potential losses in the loan portfolio.
Management's methodology in determining the adequacy of the allowance
considers specific credit reviews, past loan loss experience, current
economic conditions and trends, known and inherent risks in the loan
portfolio, adverse situations that may affect a borrower's ability to repay,
the estimated value of any underlying collateral and the volume, growth and
composition of the loan portfolio. Each loan on the Company's internal Watch
List is evaluated periodically to estimate potential loss. For loans with
potential losses, the bank sets aside or allocates a portion of the allowance
against such potential losses. For the remainder of the loan portfolio,
unallocated allowance amounts are determined based on judgements regarding
the type of loan, economic conditions and trends, potential exposure to loss
and other factors. When specific loans, or portions thereof, are deemed to
be uncollectible, those amounts are charged off against the allowance.
Subsequent recoveries, if any, are credited to the allowance. At December
31, 1996 the allowance was $3,481,705, representing 2.6% of total loans,
compared to $3,455,098, representing 2.7% of total loans at December 31, 1995.
Securities
The Company's securities portfolio consists of obligations of the U.S.
Treasury, U.S. Government sponsored agencies, mortgage backed securities and
obligations of municipalities in the Company's market area. These assets are
used in part to secure public deposits and as collateral for repurchase
agreements. Securities for 1996 averaged $81.2 million, an increase of $9.8
million or 13.7% over $71.4 million for 1995. Proceeds from sales of
securities was $3,507,742 in 1996. All mortgage-backed securities in the
securities portfolio have been issued by U.S. Government sponsored agencies.
Management believes no other-than-temporary impairment has occurred with
regard to any security in the securities portfolio. The Company's adequate
liquidity position provides the ability to hold all currently owned
securities to maturity.
Liquidity and Capital Resources
The Company's principal sources of liquidity are customer deposits,
amortization and pay-offs of loan principal and amortization and maturities
of securities. These sources provide funds for loan originations, the
purchase of securities and other activities. Deposits are considered a
relatively stable source of funds. At December 31, 1996, 1995 and 1994,
deposits were $217.2 million, $207.0 million and $186.9 million,
respectively. Management anticipates that deposits will increase moderately
during 1997.
Of the Company's $88.1 million in securities at December 31,1996, $21.4
million or 24.3% mature within one year. As a nationally chartered member of
the Federal Reserve System, the Bank has the ability to borrow funds from the
Federal Reserve Bank of Boston by pledging certain of its investment
securities as collateral. Also, the Bank is a member of the Federal Home
Loan Bank which provides additional borrowing opportunities.
On August 15, 1996, the Company implemented an Offer to Purchase up to
222,222 shares of its outstanding shares of common stock at a price of $9.00
per share. The Offer expired at 5:00 P.M. on September 13, 1996, with
257,665 shares tendered. As provided in the Offer, the Company increased the
number of shares sought in the Offer by approximately 1.1% of the outstanding
shares and purchased all 257,665 shares tendered in the Offer. There was no
proration of shares. As a result of the repurchase of the shares, the
Company's capital was reduced by $2,318,985.
Bank regulatory authorities have established a capital measurement tool
called Tier 1 leverage capital. A 4.00% ratio of Tier 1 leverage capital to
assets now constitutes the minimum capital standard for most banking
organizations. At December 31, 1996 and 1995, the Company's Tier 1 leverage
capital ratio was 7.94% and 8.23%, respectively. Regulatory
-27-
<PAGE>
authorities have also implemented risk-based capital guidelines requiring a
minimum ratio of Tier 1 capital to risk-weighted assets of 4.00% and a
minimum ratio of total capital to risk-weighted assets of 8.00%. At December
31, 1996, the Company's Tier 1 and total risk-based capital ratios were
14.00% and 15.27%, respectively. At December 31, 1995 the Company's Tier 1
and total risk-based capital ratios were 14.30% and 15.57%, respectively.
The Bank is categorized as "well capitalized" under the Federal Deposit
Insurance Corporation Improvement Act of 1991 (F.D.I.C.I.A.).
Asset/Liability Management and Interest Rate Risk
The Company has an asset/liability management committee which oversees all
asset/liability management activities. The committee establishes general
guidelines each year and meets regularly to review the Company's operating
results, to measure and monitor interest rate risk and to make strategic
changes when necessary.
It is the Company's general policy to reasonably match the rate sensitivity
of its assets and liabilities in an effort to prudently manage interest rate
risk. A common benchmark of this sensitivity is the one year gap position,
which is a reflection of the difference between the speed and magnitude of
rate changes of interest rate sensitive liabilities as compared with the
Bank's ability to adjust the rates of it's interest rate sensitive assets in
response to such changes. The Company's positive one-year cumulative gap
position at December 31, 1996, which represents the excess of repricing
assets versus repricing liabilities, was 3.7% expressed as a percentage of
total assets.
-28-
<PAGE>
The following table presents rate-sensitive assets and rate-sensitive
liabilities as of December 31, 1996:
<TABLE>
<CAPTION>
(Dollars in thousands) December 31, 1996
--------------------------------------------------------------------------
1 to 6 7 to 12 1 to 2 2 to 5 Over 5
Months Months Years Years Years Total
---------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
RATE-SENSITIVE ASSETS
Federal funds sold $ 11,300 $ $ $ $ $ 11,300
Securities 12,035 9,337 27,888 28,351 10,463 88,074
Adjustable-rate loans 48,765 17,325 9,540 20,795 908 97,333
Fixed-rate loans 11,096 1,962 7,003 7,099 7,077 34,237
--------- --------- ---------- ---------- -------- ---------
Total $ 83,196 $ 28,624 $ 44,431 $ 56,245 $ 18,448 $ 230,944
--------- --------- ---------- --------- -------- ---------
RATE-SENSITIVE LIABILITIES
Demand deposits $ $ $ $ $ 51,358 $ 51,358
NOW accounts* 23,218 23,218
Money market accounts 28,307 28,307
Savings accounts 11,000 22,305 33,305
Cash management accounts 13,008 13,008
Certificates of deposit 39,179 18,177 3,913 6,678 39 67,986
Repurchase agreements 11,455 11,455
--------- --------- ---------- --------- -------- ---------
Total $ 102,949 $ 18,177 $ 3,913 $ 6,678 $ 96,920 $ 228,637
--------- --------- ---------- --------- -------- ---------
Gap $ (19,753) $ 10,447 $ 40,518 $ 49,567 $ (78,472) $ 2,307
========== ========= ========= ========= ========= =========
Cumulative Gap $ (19,753) $ (9,306) $ 31,212 $ 80,779 $ 2,307
========== ========= ========= ========= =========
Gap as a percent of
total assets (7.90%) 4.18% 16.20% 19.83% (31.39%)
Cumulative gap as a
percent of total assets (7.90%) (3.72) 12.48% 32.31% 0.89%
* Cumulative gap as a
percent of total
assets if NOW accounts
are considered
immediately
withdrawable (17.19%) (13.00%) 3.20% 23.00% 0.89%
<FN>
Whenever possible, maturity dates or contractual repricing dates were used in
preparation of the above table. In addition to these factors, certain
assumptions were utilized in two of the balance categories based on the current
interest rate environment. In the savings account category, $11.0 million is
considered rate sensitive. This represents the approximate drop in certificate
of deposit balances and the concurrent growth in savings balances that took
place between June 1991, when interest rates began to fall significantly, and
December 1995. It is assumed that these funds will be immediately rate
sensitive if rates begin to rise. The remaining savings, demand deposit and
NOW account balances are considered rate insensitive.
</TABLE>
-29-
<PAGE>
[Photographs of the following Directors appear on this page:]
Dennis F. Murphy, Jr.
Alfred A. Cardoza
Argeo R. Cellucci
Antonio Frias
I. George Gould
Horst Huehmer
Donald R. Hughes, Jr.
James A. Langway
David L. Parker
Mark Poplin
David W. Webster
-30-
<PAGE>
DIRECTORS & OFFICERS
- --------------------
COMMUNITY BANCORP, INC. AND HUDSON NATIONAL BANK
- -------------------------------------------------
Chairman of the Board
- ---------------------
Dennis F. Murphy, Jr.
President and Treasurer of D. Francis Murphy Insurance Agency, Inc.
Directors:
- ---------
Alfred A. Cardoza
Retired
Argeo R. Cellucci
President of Cellucci Hudson Corp.
Antonio Frias
President and Treasurer of S & F Concrete Contractors, Inc.
I. George Gould
Chairman of the Board of Gould's, Inc.
Horst Huehmer
Retired
Donald R. Hughes, Jr.
Treasurer and Clerk of Community Bancorp, Inc.,
Executive Vice President of Hudson National Bank
James A. Langway
President and Chief Executive Officer
of Community Bancorp, Inc. and Hudson National Bank
David L. Parker
Chairman of the Board of Larkin Lumber Company
Mark Poplin
President and Treasurer of Poplin Supply Company
David W. Webster
President of Knight Fuel Company
Officers:
- --------
James A. Langway
President and Chief Executive Officer
Donald R. Hughes, Jr.
Treasurer and Clerk
HUDSON NATIONAL BANK
- --------------------
Officers
- --------
James A. Langway
President and Chief Executive Officer
Donald R. Hughes, Jr.
Executive Vice President
Robert P. Converse
Auditor
Barbara M. Masciarelli
Administrative Officer
Compliance/Personnel/Legal
- --------------------------
Grace L. Blunt, Esq.
Senior Vice President
Retail Banking/Mortgage Division
- --------------------------------
Richard K. Bennett
Senior Vice President
Nanci J. Pisani
Vice President
Ana M. Czapkowski
Assistant Vice President
Jane B. Karlson
Assistant Vice President
Elizabeth M. Brooks
Branch Officer
Kristen A. Cappello
Branch Officer
Lynda L. D'Orlando
Mortgage Officer
Cynthia M. Farrah
Marketing Officer
Clark Hooper
Security Officer
M. Jean Mickle
Branch Officer
Lois A. Seymour
Branch Officer
Peter Shinas
Branch Officer
Kathleen E. Texeira
Merchant Plan Officer
Financial Control
- -----------------
Robert E. Leist
Senior Vice President
Commercial Banking
- ------------------
John P. Galvani
Senior View President
Christal M. Bjork
Vice President
Daniel Heney
Assistant Vice President
Peter S. Fletcher
Commercial Loan Officer
Linda Glaser
Commercial Loan Officer
Operations/Data Processing and Electronic Banking
- -------------------------------------------------
Janet A. Lyman
Senior Vice President
James P. Vasquezi
Assistant Vice President
Margaret M. Vasquezi
Assistant Vice President
The Company's Securities and Exchange Commission filing on Form 10-K is
available to our stockholders upon request.
-31-
<PAGE>
[A photo of James A. Langway, Dennis F. Murphy, Jr. and Donald R. Hughes, Jr.
appears here.]
-32-
<PAGE>
[The following text appears on the back cover.]
Community Bancorp, Inc.
Parent company of Hudson National Bank
17 Pope Street
Hudson, Massachusetts 01749
Telephone (508) 568-8321
Hudson National Bank - Branch Offices
- -------------------------------------
Hudson Main Office
17 Pope Street
Phone: (508) 568-8321
Fax: (508) 562-7129
Hudson South
177 Broad Street
Phone: (508) 568-8813
Fax: (508) 568-2610
Acton
270 Great Road
Phone: (508) 263-8376
Fax: (508) 266-2610
Concord
1134 Main Street
Phone: (508) 369-5421
Fax: (508) 371-6600
Marlborough Center
96 Bolton Street
Phone: (508) 485-5003
Fax: (508) 229-4602
Marlborough East
500 Boston Post Road
Phone: (508) 485-3599
Fax: (508) 229-4601
Boxborough
629 Massachusetts Avenue
Phone: (508) 264-9092
Fax: (508) 266-2600
Stow
159 Great Road
Phone: (508) 461-1600
Fax: (508) 461-1610
Loan Center
12 Pope Street, Hudson
Phone: (508) 568-8321
Fax: (508) 562-9984
Shaw's Supermarket
Washington Street, Hudson
(ATM only)
Solomon Pond Mall
Donald Lunch Blvd., Marlborough
(ATM only)
Internet web site:
http://www.hnbank.com
E-mail:
[email protected]
Member FDIC
Equal Opportunity Lender
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
December 31, 1996 consolidated financial statements of Community Bancorp,
Inc., and it is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 14391567
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 11300000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 29245007
<INVESTMENTS-CARRYING> 58828881
<INVESTMENTS-MARKET> 58312349
<LOANS> 131570430
<ALLOWANCE> 3481705
<TOTAL-ASSETS> 250002458
<DEPOSITS> 217181869
<SHORT-TERM> 11454687
<LIABILITIES-OTHER> 1524768
<LONG-TERM> 0
0
0
<COMMON> 7998045
<OTHER-SE> 11843089
<TOTAL-LIABILITIES-AND-EQUITY> 250002458
<INTEREST-LOAN> 12430327
<INTEREST-INVEST> 4740112
<INTEREST-OTHER> 590663
<INTEREST-TOTAL> 17761102
<INTEREST-DEPOSIT> 5840445
<INTEREST-EXPENSE> 6367758
<INTEREST-INCOME-NET> 11393344
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (9)
<EXPENSE-OTHER> 8629644
<INCOME-PRETAX> 5178758
<INCOME-PRE-EXTRAORDINARY> 5178758
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3152098
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 1.01
<YIELD-ACTUAL> 5.19
<LOANS-NON> 896509
<LOANS-PAST> 370223
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3455098
<CHARGE-OFFS> 230545
<RECOVERIES> 257152
<ALLOWANCE-CLOSE> 3481705
<ALLOWANCE-DOMESTIC> 1701123
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1780582
</TABLE>
