UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
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 - (978)568-8321
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
--- ---
Common Stock
$2.50 par value
2,960,947 shares outstanding
as of October 15, 1999
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<TABLE>
PART I - FINANCIAL INFORMATION
COMMUNITY BANCORP, INC.
Item 1. CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
September 30, December 31,
1999 1998
------------ -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 19,745,744 $ 17,601,043
Federal funds sold 10,776,623 17,000,000
Securities available for sale, at market 35,898,240 31,685,402
Securities held to maturity (market value
$87,403,279 at 9/30/99 and $87,832,432
at 12/31/98) 88,741,299 87,058,589
Mortgage loans held for sale 105,255 1,330,278
Loans 160,677,754 140,223,942
Less allowance for possible loan losses 3,057,975 2,981,012
----------- -----------
Total net loans 157,619,779 137,242,930
----------- -----------
Premises and equipment, net 6,089,630 5,576,789
Other assets, net 3,787,549 3,391,800
----------- -----------
Total assets $322,764,119 $300,886,831
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits
Noninterest bearing $ 60,593,741 $ 60,511,257
Interest bearing 216,761,635 193,897,478
----------- -----------
Total deposits 277,355,376 254,408,735
----------- -----------
Federal funds purchased and securities
sold under repurchase agreements 15,853,260 19,747,496
Other liabilities 1,761,032 1,265,351
----------- -----------
Total liabilities 294,969,668 275,421,582
----------- -----------
Stockholders' equity:
Preferred stock, $2.50 par value, 100,000
shares authorized, none issued or outstanding
Common stock, $2.50 par value, 12,000,000
shares authorized, 3,199,218 shares issued,
2,960,947 shares outstanding, (2,944,588
shares outstanding at 12/31/98) 7,998,045 7,998,045
Surplus 638,619 524,106
Undivided profits 21,442,286 19,274,861
Treasury stock, at cost, 238,271 shares,
(254,630 shares at 12/31/98) (2,217,342) (2,364,573)
Accumulated other comprehensive income (67,157) 32,810
----------- -----------
Total stockholders' equity 27,794,451 25,465,249
----------- -----------
Total liabilities and
stockholders' equity $322,764,119 $300,886,831
=========== ===========
<FN>
See accompanying notes.
</TABLE>
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<TABLE>
COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $3,534,547 $3,245,414 $10,207,944 $9,862,947
Interest and div. on securities:
Taxable interest 1,650,568 1,540,196 4,689,408 4,186,809
Nontaxable interest 141,779 126,677 414,424 341,372
Dividends 19,489 16,351 55,089 48,268
Interest on federal funds sold 227,696 431,014 528,686 881,449
--------- --------- ---------- ----------
Total interest income 5,574,079 5,359,652 15,895,551 15,320,845
--------- --------- ---------- ----------
Interest expense:
Deposits 1,772,584 1,723,556 4,986,964 4,996,615
Short term borrowings 237,514 344,897 682,454 771,118
--------- --------- ---------- ---------
Total interest expense 2,010,098 2,068,453 5,669,418 5,767,733
--------- --------- ---------- ---------
Net interest income 3,563,981 3,291,199 10,226,133 9,553,112
--------- --------- ---------- --------
Provision for loan losses 0 0 0 0
--------- --------- ---------- ---------
Net interest income after
provision for loan losses 3,563,981 3,291,199 10,226,133 9,553,112
--------- --------- ---------- ---------
Noninterest income:
Merchant credit card assessments 310,905 285,745 924,788 878,870
Service charges 143,684 142,058 442,388 439,897
Other charges, commissions, fees 300,782 313,112 880,924 824,704
Gains on sales of loans, net 5,938 71,807 55,705 218,336
Gains on sales of securities, net 0 0 0 0
Other 17,394 20,273 66,408 61,040
--------- --------- --------- ---------
Total noninterest income 778,703 832,995 2,370,213 2,422,847
--------- --------- --------- ---------
Noninterest expense:
Salaries and benefits 1,410,644 1,253,602 4,029,691 3,761,197
Data processing & ATM network 253,085 228,501 734,610 677,883
Occupancy, net 179,039 168,280 565,827 451,836
Furniture and equipment 114,690 113,766 327,611 344,168
Credit card processing 330,735 268,292 884,775 772,506
Printing, stationery & supplies 71,026 65,910 203,823 196,409
Professional fees 104,730 121,435 279,897 313,485
Marketing and advertising 57,974 97,951 231,052 202,899
Other 252,104 234,402 736,592 671,162
--------- --------- --------- ---------
Total noninterest expense 2,774,027 2,552,139 7,993,878 7,391,545
--------- --------- --------- ---------
Income before income taxes 1,568,657 1,572,055 4,602,468 4,584,414
Income taxes 552,598 579,357 1,642,932 1,687,825
--------- --------- --------- ---------
Net income $1,016,059 $ 992,698 $2,959,536 $2,896,589
========= ========= ========= =========
Earnings per common share $ .343 $ .337 $ 1.002 $ .986
Dividends per share $ .092 $ .082 $ .268 $ .238
Weighted average number of shares 2,960,947 2,944,588 2,952,738 2,936,262
<FN>
See accompanying notes.
</TABLE>
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<TABLE>
COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------- ----------------------
1999 1998 1999 1998
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $1,016,059 $ 992,698 $2,959,536 $2,896,589
Other comprehensive income:
Unrealized securities gains
(losses) arising during period 31,029 99,247 (169,235) 39,226
Income tax (expense) benefit on
securities gains (losses)
arising during period (12,700) (40,890) 69,268 (16,161)
--------- -------- --------- ---------
Net unrealized securities gains
(losses) arising during period 18,329 58,357 (99,967) 23,065
--------- -------- --------- ---------
Less: reclassification
adjustment for securities
(gains) losses included in
income 0 0 0 0
Income tax expense (benefit) on
securities (gains) losses
included in income 0 0 0 0
--------- -------- --------- ---------
Net reclassification adjustments
for securities (gains) losses
included in net income 0 0 0 0
--------- --------- --------- ---------
Other comprehensive income 18,329 58,357 (99,967) 23,065
--------- --------- --------- ---------
Comprehensive income $1,034,388 $1,051,055 $2,859,569 $2,919,654
========= ========= ========= =========
<FN>
See accompanying notes.
</TABLE>
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<TABLE>
COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine months ended
September 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,959,536 $ 2,896,589
Adjustments to reconcile net income
to net cash provided by operating
activities:
Decrease in mortgage loans held for sale 1,225,023 489,450
Premium on sale of mortgages 59,938 142,940
Depreciation and amortization 677,075 615,893
Increase (decrease) in other liabilities 302,478 (132,053)
Increase (decrease) in taxes payable 121,373 (108,993)
Increase (decrease) in interest payable 95,112 (10,575)
(Increase) decrease in other assets (129,783) 157,901
(Increase) in interest receivable (279,359) (263,644)
---------- ----------
Total adjustments 2,071,857 890,919
---------- ----------
Net cash provided by operating activities 5,031,393 3,787,508
---------- ----------
Cash flows from investing activities:
Maturities and principal repayments of
securities available for sale 9,652,800 9,437,884
Maturities and principal repayments of
securities held to maturity 19,708,408 21,831,805
Purchases of securities available for sale (14,035,128) (5,482,625)
Purchases of securities held to maturity (21,391,119) (47,963,991)
Net change in federal funds sold 6,223,377 (7,200,000)
Net change in loans and other real estate
owned (20,399,259) 2,599,856
Acquisition of property, plant and equipment (1,189,916) (728,100)
---------- ----------
Net cash (used in) investing activities (21,430,837) (27,505,171)
---------- ----------
Cash flows from financing activities:
Net change in deposits 22,946,641 17,222,765
Net change in federal funds purchased 0 (3,000,000)
Net change in repurchase agreements (3,894,236) 9,654,227
Sale of treasury stock 261,744 274,965
Dividends paid (770,004) (677,413)
---------- ----------
Net cash provided by financing activities 18,544,145 23,474,544
---------- ----------
Net increase (decrease) in cash and due
from banks 2,144,701 (243,119)
---------- ----------
Cash and due from banks at beginning
of period 17,601,043 16,704,667
---------- ----------
Cash and due from banks at end of period $19,745,744 $16,461,548
========== ==========
<FN>
See accompanying notes.
</TABLE>
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COMMUNITY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
_________________________________________________________________________
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and notes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. The results of operations for
any interim period are not necessarily indicative of results expected
for the full year. These consolidated financial statements should be
read in conjunction with the consolidated financial statements and
notes thereto contained in the Company's Annual Report to
shareholders and Form 10-K for the year ended December 31, 1998.
2. EARNINGS PER SHARE
The Company adopted Financial Accounting Standards Board Statement
No. 128, "Earnings Per Share" (SFAS No. 128), effective December 31,
1997. This Statement requires the presentation of "basic" earnings
per share, which excludes the effect of dilution, and "diluted"
earnings per share, which includes the effect of dilution. The
Company's "basic" and "diluted" earnings per share computations are
identical in the periods presented, as there is no dilution effect.
Earnings per share is based on the weighted average number of shares
outstanding during the period.
3. COMPREHENSIVE INCOME
The Company adopted Financial Accounting Standards Board Statement
No. 130, "Reporting Comprehensive Income" (SFAS No. 130), effective
January 1, 1998. Components of comprehensive income are net income
and all other non-owner changes in equity. The Statement requires
that an enterprise (a) classify items of other comprehensive income
by their nature in a financial statement and (b) display the
accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity
section of a statement of financial position. Reclassification of
financial statements for earlier periods provided for comparative
purposes is required. The Company has chosen to disclose
comprehensive income in the Consolidated Statements of Comprehensive
Income.
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<PAGE>
4. OPERATING SEGMENTS
The Company adopted Financial Accounting Standards Board Statement
No. 131, "Disclosures About Segments of an Enterprise and Related
Information" (SFAS No. 131), during 1998. SFAS No. 131 established
standards for reporting information about operating segments in
annual financial statements and requires selected information about
operating segments in interim financial reports issued to the
stockholders. It also established standards for related disclosures
about products and services, and geographic areas. Operating
segments are defined as components of an enterprise about which
separate financial information is available that is evaluated
regularly by the chief operating decision-maker, or decision making
group, in deciding how to allocate resources and in assessing
performance.
The Company has one reportable segment: community banking. At
present, the Company conducts no activities independent of the Bank.
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 consumer,
commercial, real estate and other loans. The Bank also offers
official checks, traveler's checks, safe deposit boxes, Internet
banking and bill payment services and other customary banking
services to its customers.
5. RECLASSIFICATIONS
Certain amounts in the prior period's financial statements have been
reclassified to be consistent with the current period's presentation.
The reclassifications have no effect on net income.
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Summary
The Company recorded consolidated net income of $2,959,536 for the nine
months ended September 30, 1999, representing an increase of $62,947 or
2.2% over $2,896,589 for the nine months ended September 30, 1998.
Earnings per share of $1.002 for the current period represented an
increase of $.016 from $.986 for the corresponding period in 1998.
The Company recorded consolidated net income of $1,016,059 for the three
months ended September 30, 1999, representing an increase of $23,361 or
2.4% over $992,698 for the three months ended September 30, 1998.
Earnings per share of $.343 for the current period represented an
increase of $.006 from $.337 for the corresponding period in 1998.
Deposits of $277,355,376 at September 30, 1999 increased by $22,946,641
or 9.0% from $254,408,735 at December 31, 1998. The increase in deposits
occurred primarily in the interest bearing categories of certificates of
deposit and money market deposit accounts, partially offset by a decrease
in NOW accounts.
Loans of $160,677,754 at September 30, 1999 increased by $20,453,812 or
14.6% from $140,223,942 at December 31, 1998. The growth in loans
occurred primarily in the commercial, residential mortgage and home
equity account categories. Noncurrent loans (nonaccrual loans and loans
90 days or more past due but still accruing) totaled $548,681 and
$913,151 at September 30, 1999 and December 31, 1998, respectively.
There were no accruing troubled debt restructurings at September 30, 1999
or December 31, 1998.
Assets of $322,764,119 at September 30, 1999 represented an $21,877,288
or 7.3% increase from $300,886,831 at December 31, 1998.
Nine months ended September 30, 1999 as Compared To
Nine months ended September 30, 1998
---------------------------------------------------
Net Interest Income
Interest income for the nine months ended September 30, 1999 was
$15,895,551, representing an increase of $574,706 or 3.8% from
$15,320,845 for the nine months ended September 30, 1998, primarily due
to higher average loan and securities balances in 1999, partially offset
by lower average interest rates in the current period. Interest expense
was $5,669,418, representing a decrease of $98,315 or 1.7% from
$5,767,733 for the nine months ended September 30, 1998, primarily due to
lower average interest rates in 1999, partially offset by higher average
interest bearing deposit balances in the current period. Net interest
income for the nine months ended September 30, 1999 was $10,226,133,
representing an increase of $673,021 or 7.0% from $9,553,112 for the nine
months ended September 30, 1998.
Noninterest Income and Expense
Noninterest income for the nine months ended September 30, 1999 was
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<PAGE>
$2,370,213 representing a decrease of $52,634 or 2.2% from $2,422,847 for
the nine months ended September 30, 1998. This decrease was primarily
the result of a decrease in gains on sales of loans, partially offset by
increases in merchant credit card assessments, service charges, other
charges, commissions and fees and other income. The decrease in gains on
sales of loans resulted from a reduction in residential mortgage volume
during the current period as compared to the same period in 1998.
Noninterest expense for the nine months ended September 30, 1999 of
$7,993,878 was up $602,333 or 8.1% from $7,391,545 for the same period in
1998. This increase was the result of increases in most noninterest
expense categories. Many of the non-inflationary increases in
noninterest expense were the result of costs associated with the opening
of two new Community National Bank branch offices during the second
quarter of 1999 and the Bank's continued investment in technology to
enhance customer service and product delivery systems.
Provision for Loan Losses
There was no provision for loan losses for the nine months ended
September 30, 1999 or 1998, reflecting management's continuing evaluation
of the adequacy of the allowance for loan losses and its belief that the
allowance is adequate.
Income Taxes
Income tax expense of $1,642,932 for the nine months ended September 30,
1999 compared to $1,687,825 for the same period in 1998.
Net Income
Net income of $2,959,536 for the first nine months of 1999 represented an
increase of $62,947 or 2.2% from $2,896,589 recorded for the first nine
months of 1998. Earnings per share of $1.002 for the current period
represented an increase of $.016 from $.986 for the nine months ended
September 30, 1998.
Three months ended September 30, 1999 as Compared To
Three months ended September 30, 1998
----------------------------------------------------
Net Interest Income
Interest income for the three months ended September 30, 1999 was
$5,574,079, representing an increase of $214,427 or 4.0% from $5,359,652
for the three months ended September 30, 1998, primarily due to higher
average loan and securities balances in 1999, partially offset by lower
average interest rates in the current period. Interest expense was
$2,010,098, representing a decrease of $58,355 or 2.8% from $2,068,453
for the three months ended September 30, 1998, primarily due to lower
average interest rates in 1999, partially offset by higher average
interest bearing deposit balances in the current period. Net interest
income for the three months ended September 30, 1999 was $3,563,981,
representing an increase of $272,782 or 8.3% from $3,291,199 for the
three months ended September 30, 1998.
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Noninterest Income and Expense
Noninterest income for the three months ended September 30, 1999 was
$778,703, representing a decrease of $54,292 or 6.5% from $832,995 for
the three months ended September 30, 1998. This decrease was primarily
the result of a decrease in gains on sales of loans, partially offset by
increases in merchant credit card assessments, service charges, other
charges, commissions and fees and other income. The decrease in gains on
sales of loans resulted from a reduction in residential mortgage volume
during the current period as compared to the same period in 1998.
Noninterest expense for the three months ended September 30, 1999 of
$2,774,027 was up $221,888 or 8.7% from $2,552,139 for the corresponding
period in 1998. This increase was the result of increases in most
noninterest expense categories. Many of the non-inflationary increases
in noninterest expense were the result of costs associated with the
opening of two new Community National Bank branch offices during the
second quarter of 1999 and the Bank's continued investment in technology
to enhance customer service and product delivery systems.
Provision for Loan Losses
There was no provision for loan losses for the three months ended
September 30, 1999 or 1998, reflecting management's continuing evaluation
of the adequacy of the allowance for loan losses and its belief that the
allowance is adequate.
Income Taxes
Income tax expense of $552,598 for the three months ended September 30,
1999 compared to $579,357 for the corresponding period in 1998.
Net Income
Net income of $1,016,059 for the first three months of 1999 represented a
decrease of $23,361 or 2.4% from $992,698 recorded for the first three
months of 1998. Earnings per share of $.343 for the current period
represented an increase of $.006 from $.337 for the three months ended
September 30, 1998.
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 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 losses. For
loans with potential losses, the bank sets aside or "allocates" a portion
of the ALLL against such potential losses. For the remainder of the
portfolio, "unallocated" reserve amounts are determined based on
judgments regarding the type of loan, economic conditions and trends,
potential exposure to loss and other factors. While the Company achieved
total loan growth of $20,453,812 or 14.6% during the nine months ended
September 30, 1999, there were no significant changes in loan
concentrations, loan quality or loan terms during the period. Estimation
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methods and assumptions affecting the allowance remained unchanged from
those used in prior periods. There was no significant reallocation of
the allowance among the various segments of the portfolio. The allowance
for possible loan losses is charged when management determines that the
repayment of the principal on a loan is in doubt. Subsequent recoveries,
if any, are credited to the allowance. At September 30, 1999, the
balance in the allowance was $3,057,975, representing 557% of noncurrent
loans, compared to $2,981,012 or 326% of noncurrent loans at December 31,
1998.
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 various municipalities. Those assets are used in part
to secure public deposits and as collateral for repurchase agreements.
Total securities were $124,639,539 at September 30, 1999, representing an
increase of $5,895,548 or 5.0% from $118,743,991 at December 31, 1998.
At September 30, 1999, $35,898,240 in securities were classified as
"available for sale". There were no sales of securities during the nine
months ended September 30, 1999.
Liquidity and Capital Resources
The Company's primary sources of liquidity are customer deposits,
amortization and pay-offs of loan principal and maturities of investment
securities. These sources provide funds for loan originations, the
purchase of investment securities and other activities. Deposits are
considered a relatively stable source of funds. At September 30, 1999
and 1998, deposits were $277.4 and $250.0 million, respectively.
Management anticipates that deposits will grow moderately during the
remainder of 1999.
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.
Bank regulatory authorities have established a capital measurement tool
called "Tier 1" leverage capital. A 4.00% ratio of Tier 1 capital to
assets constitutes the minimum capital standard for most banking
organizations. At September 30, 1999, the Company's Tier 1 leverage
capital ratio was 8.63%. Regulatory 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 September 30, 1999 the Company's Tier
1 and total risk-based capital ratios were 15.55% and 16.81%,
respectively. The Bank is categorized as "well capitalized" under the
Federal Deposit Insurance Corporation Improvement Act of 1991
(F.D.I.C.I.A.).
On September 21, 1999, the Company's Board of Directors declared a third
quarter 1999 cash dividend of $.092 per share of common stock to
shareholders of record at September 1, 1999, payable on October 15, 1999.
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Asset/Liability Management
The Company has an asset/liability management committee which oversees
all asset/liability activities of the Company. The committee establishes
general guidelines each year and meets regularly to review the Company's
operating results 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. 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 negative cumulative one year gap position at
September 30, 1999, representing the excess of repricing liabilities
versus repricing assets within a one year time frame, was 4.8% of total
assets.
Cautionary Statement Regarding Forward-Looking Information
This Quarterly Report on Form 10-Q, including Management's Discussion and
Analysis of Financial Condition and Results of Operations, contains, in
addition to historical information, "forward-looking statements" as
defined in the Private Securities Litigation Reform Act of 1995. When
used in this and other Reports filed by the Company, the words
"anticipate", "estimate", "expect", "objective", and similar expressions
are intended to identify forward-looking statements. These forward-
looking statements are subject to a variety of risks and uncertainties.
In addition to any assumptions and other factors referred to specifically
in connection with such forward-looking statements, risk factors that
could cause the Company's actual results to differ materially from those
contemplated in any forward-looking statement include, but are not
limited to, changes in political and economic conditions, interest rate
fluctuations, competitive product and pricing pressures, adverse changes
in asset quality, increased inflation, risks related to Year 2000 issues
(particularly with respect to compliance by third parties on which the
Company relies), and adverse legislative or regulatory changes.
Year 2000
The following Year 2000 statements constitute a Year 2000 Readiness
Disclosure within the meaning of the Year 2000 Information and Readiness
Disclosure Act of 1998.
The Company, like most users of computers, computer software, and
equipment utilizing embedded microcontrollers, may be affected by the
Year 2000 date change. The Company recognized the importance of this
issue in 1996 and formally established an internal Year 2000 Committee in
1997, chaired by a member of the Company's senior management team, to
assess all systems to ensure that they will function properly. This
process involved five separate phases: awareness, assessment, renovation,
validation and implementation.
The Company's Year 2000 Committee established a schedule specifying the
completion dates for each of the process's five phases. During 1997,
the Committee completed the systems assessment phase, identifying each
internal system that could potentially be affected by the Year 2000
issue. Those systems were then designated as either mission-critical or
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non-mission-critical. Mission-critical systems were defined by the
Company as being vital to the successful continuance of core business
activities. The Company determined that its only mission-critical system
is its mainframe data processing system. The mainframe system has been
certified by its respective hardware and software vendors as being Year
2000 compliant. In addition, the Company contracted with an independent
consulting firm to test the mainframe system for Year 2000 compatibility.
That testing has verified that the mainframe system is Year 2000
compliant.
For all non-mission-critical systems that could be affected by the Year
2000 issue, action plans were designed which set forth the process for
determining whether or not those systems are compliant. Those
determinations included obtaining compliance certifications from vendors
whenever possible and validation testing conducted by the Company. A
similar procedure was followed for external systems and services the
Company obtains from third parties. Testing of those third party systems
for Year 2000 compliance began during fourth quarter of 1998 and was
completed during the first quarter of 1999.
When the results of the Company's validation testing revealed that a
particular system or service was not Year 2000 compliant, a specific
deadline was established by which time that system or service had to be
brought into compliance. Contingency plans were formulated to either
upgrade such systems in order to meet Year 2000 compliance requirements,
replace them with systems that are certified as compliant, or establish
alternative processing arrangements. Those contingency plans document
the actions the Company has taken for each such non-compliant system. At
September 30, 1999, the Company had completed all phases of this process.
In certain cases, however, such as the potential loss of electrical power
or telecommunications services due to Year 2000 problems, testing by the
Company has been either not practical or not possible. In those cases,
detailed contingency plans were designed that specify how the Company
will deal with each such potential situation.
The Year 2000 issue presents several potential risks to the Company. The
banking transactions of the Company's customers are processed by its
internal mainframe data processing system. The failure of that system to
function as a result of the millennium date change could result in the
Company's inability to process customer transactions in the usual manner.
In that event, the Company could potentially lose customers to other
financial institutions, resulting in a loss of revenue. A number of the
Company's borrowers utilize computers and computer software to varying
degrees in conjunction with the operation of their businesses. The
customers and suppliers of those businesses may utilize computers as
well. Should the Company's borrowers, or the businesses on which they
depend, experience Year 2000 related computer problems, such borrowers'
cash flow could be disrupted, adversely affecting their ability to repay
their loans with the Company. The Company has assessed its Year 2000
exposure to credit customers through the use of questionnaires and
personal interviews. Management's determination of the potential impact
the Year 2000 issue could have on those customers' ability to continue
servicing their debt in a satisfactory manner has been factored into the
Company's credit risk rating system.
-13-
<PAGE>
Similar problems could affect certain of the Company's business
depositors, potentially causing interruptions in their cash flow that
could result in their inability to maintain historical deposit balance
levels in their accounts. Such an event could result in the reduction of
deposit balances available to the Company for loans, investments, etc.
Concern on the part of some depositors that potential Year 2000 related
problems could impair access to their deposit balances following the
millennium date change could result in the Company experiencing a deposit
outflow prior to December 31, 1999. The potential increase in cash
requirements has been estimated and factored into the Company's analysis
of projected future liquidity needs. Also, the Company has made a
special arrangement with the Federal Home Loan Bank of Boston for a
$10,000,000 loan for the period of November 15, 1999 through March 15,
2000. The Company believes this loan will provide additional liquidity
sufficient to fund any anticipated cash requirements resulting from
customers withdrawing funds from their deposit accounts.
Certain utility services, such as electrical power and telecommunications
services, could be disrupted if those services experience Year 2000
related problems. Also, should Year 2000 related problems occur which
cause any of the Company's systems, or the systems of certain third
parties upon which the Company depends, to become inoperative, increased
personnel costs could be incurred if additional staff is required to
perform functions that the inoperative systems would have otherwise
performed. The Company has created contingency plans to address such
potential occurrences.
As a nationally chartered financial institution, the Company and its
subsidiary, Community National Bank, are regulated by agencies of the
federal government. Federal bank regulators have established specific
guidelines and timetables for all nationally chartered financial
institutions to follow in addressing the Year 2000 issue. The Company's
Year 2000 contingency plans follow those requirements. As of September
30, 1999, the Company is in compliance with all Year 2000 guidelines and
timetables issued by the banking regulators, and it is also in compliance
with its own internal Year 2000 preparedness schedule.
The Company believes it is not possible to estimate the potential lost
revenue due to the Year 2000 issue, as the extent and longevity of such
potential problems cannot be predicted. However, the Company believes it
has modified or replaced any affected system that could have caused any
detrimental effects on its operations. The Company's estimated total
cost to test its systems and replace computer equipment, software
programs, or other equipment containing imbedded microprocessors that
were not Year 2000 compliant, is approximately $216,000, all of which was
incurred by June 30, 1999. System maintenance or modification costs have
been expensed as incurred, while the cost of new hardware, software, and
other equipment has been capitalized and amortized over their useful
lives.
-14-
<PAGE>
PART II - OTHER INFORMATION
Item 5. OTHER INFORMATION
On September 21, 1999, the Company's Board of Directors declared a third
quarter 1999 cash dividend of $.092 per share of common stock to
shareholders of record at September 1, 1999, payable on October 15, 1999.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Article 9 - Financial Data Schedule for the nine months
ended September 30, 1999
(b) The Company did not file a Form 8-K during the quarter ended
September 30, 1999.
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMUNITY BANCORP, INC.
Date: October 26, 1999 By: __________________________
James A. Langway
President & Chief Executive Officer
Principal Executive Officer
Date: October 26, 1999 By: __________________________
Donald R. Hughes, Jr.
Treasurer and Clerk,
Principal Financial Officer and
Principal Accounting Officer
-16-
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT DESCRIPTION
------- -----------
27 Article 9 - Financial Data Schedule for the nine months
ended September 30, 1999
-17-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited September 30, 1999 financial statements of Community Bancorp, Inc. and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 19745744
<INT-BEARING-DEPOSITS> 0
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0
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