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, 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 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 15, 2000 was $33,215,814. The total number of shares of common stock outstanding at March 15, 2000 was 2,960,912. 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, 1999. 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, Community 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 Bank formed Community Securities Corporation as a wholly owned subsidiary. The activities of this subsidiary consist of buying, selling, dealing in or holding securities in its own behalf and not as a broker. In 1998, the Bank formed Community Benefits Consulting, Inc. as a wholly owned subsidiary. The activities of this subsidiary consist of providing consulting services to small businesses in the areas of employee benefits and human resources administration. 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 and bill payment system for consumers. In 1997, the Bank formed a third-party arrangement with Murphy Insurance Brokerage, Ltd. for the purpose of providing insurance products and services to the bank's customers and the general public. In 1999, the Bank introduced fully-transactional Internet-based online banking services for both retail and business customers. 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: % of Operating Income -------------------------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Interest and fees on loans 56% 55% 60% 63% 65% Interest and dividends on securities 31 31 28 26 24 Charges, fees and other sources 13 14 12 11 11 --- --- --- --- --- 100% 100% 100% 100% 100% === === === === === 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, Framingham, Marlboro, Stow and Sudbury, 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 and a consumer lending office in the Town of Hudson. The Bank operates three remote ATM facilities in Hudson and Marlboro. -2- 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 1 national bank, 3 Massachusetts trust companies, 7 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 while utilizing the latest in technology in order to meet and surpass the vigorous competition. The Bank also faces competition from numerous other banks, both locally and nation-wide, which utilize the Internet to solicit and service customers. The 1999 passing by Congress of the Gramm-Leach- Bliley Act, which eliminates previous barriers to combinations of banking organizations with insurance companies and securities firms, will likely result in significant changes taking place within the various financial services industries. Certain provisions of the Act were effective upon enactment, while others become effective over time. The Company will continue to monitor developments resulting from the passage of this legislation. 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 113 full-time equivalent employees. -3- 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, 1999, 1998 and 1997. The total dollar amount of interest income from earning assets and the resultant yields are calculated on a taxable equivalent basis. 1999 ------------------------------------ Average Interest Yield/ ASSETS Balance Inc./Exp. Rate ------------ ----------- ----- Federal funds sold $ 16,626,364 $ 824,531 4.96% Securities: Taxable 107,354,336 6,502,696 6.06% Non-taxable (1) 11,870,957 821,184 6.92% Total loans and leases (1)(2) 154,304,452 13,994,518 9.07% ----------- ---------- ---- Total earning assets 290,156,109 22,142,929 7.63% ---------- Reserve for loan losses (3,022,301) Other non interest- bearing assets 27,133,289 ----------- Total average assets $314,267,097 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing deposits: Savings, money market and NOW $112,910,766 $ 2,238,683 1.98% Time deposits 88,705,026 4,563,234 5.14% Federal funds purchased and repurchase agreements 24,461,823 1,027,751 4.20% ----------- --------- ---- Total interest-bearing liabilities 226,077,615 7,829,668 3.46% --------- Non interest-bearing deposits 59,254,021 Other non interest-bearing liabilities 1,838,508 Stockholders' equity 27,096,953 ----------- Total average liabilities and stockholders' equity $314,267,097 =========== Net interest income $14,313,261 ========== Net yield on interest earning assets 4.93% ==== <FN> (1)	Interest income and yield are stated on a fully taxable-equivalent basis. The total amount of adjustment is $302,204. 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. -4- Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and Interest Differential (Continued) 1998 ------------------------------------ Average Interest Yield/ ASSETS Balance Inc./Exp. Rate ------------ ----------- ----- Federal funds sold $ 21,759,343 $ 1,155,014 5.31% Securities: Taxable 97,953,145 5,854,481 5.98% Non-taxable (1) 9,908,169 699,584 7.06% Total loans and leases (1)(2) 138,310,868 13,210,520 9.55% ----------- ---------- ---- Total earning assets 267,931,525 20,919,599 7.81% ---------- Reserve for loan losses (3,121,829) Other non interest- bearing assets 24,798,936 ----------- Total average assets $289,608,632 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing deposits: Savings, money market and NOW $113,384,703 $ 2,665,123 2.35% Time deposits 72,259,015 3,984,185 5.51% Federal funds purchased and repurchase agreements 23,234,738 1,025,804 4.41% ----------- --------- ---- Total interest-bearing liabilities 208,878,456 7,675,112 3.67% --------- Non interest-bearing deposits 54,657,106 Other non interest-bearing liabilities 1,860,238 Stockholders' equity 24,212,832 ----------- Total average liabilities and stockholders' equity $289,608,632 =========== Net interest income $13,244,487 ========== Net yield on interest earning assets 4.94% ==== <FN> (1)	Interest income and yield are stated on a fully taxable-equivalent basis. The total amount of adjustment is $259,818. 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. -5- Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and Interest Differential (Continued) 1997 ------------------------------------ Average Interest Yield/ ASSETS Balance Inc./Exp. Rate ------------ ----------- ----- Federal funds sold $ 8,534,521 $ 464,016 5.44% Securities: Taxable 86,006,643 5,241,159 6.09% Non-taxable (1) 6,544,073 472,507 7.22% Total loans and leases (1)(2) 136,844,378 13,186,467 9.64% ----------- ---------- ---- Total earning assets 237,929,615 19,364,149 8.14% ---------- Reserve for loan losses (3,394,971) Other non interest- bearing assets 22,530,388 ----------- Total average assets $257,065,032 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing deposits: Savings, money market and NOW $100,555,499 $ 2,451,529 2.44% Time deposits 68,313,627 3,687,605 5.40% Federal funds purchased and repurchase agreements 15,799,413 756,088 4.79% ----------- --------- ---- Total interest-bearing liabilities 184,668,539 6,895,222 3.73% --------- Non interest-bearing deposits 49,067,530 Other non interest-bearing liabilities 1,984,377 Stockholders' equity 21,344,586 ----------- Total average liabilities and stockholders' equity $257,065,032 =========== Net interest income $12,468,927 ========== 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 $194,199. 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. -6- 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. 1999 as compared to 1998 Due to a change in: -------------------------------------- Volume Rate Total ---------- ---------- ---------- Interest income from: Federal funds sold $ (254,325) $ (76,158) $ (330,483) Securities: Taxable 569,852 78,363 648,215 Non-taxable 135,471 (13,871) 121,600 Loans & leases 1,447,890 (663,892) 783,998 --------- --------- --------- Total 1,898,888 (675,558) 1,223,330 --------- --------- --------- Interest expense on: Interest-bearing deposits: Savings, money market and NOW (6,917) (419,523) (426,440) Time deposits 846,408 (267,359) 579,049 Federal funds purchased and repurchase agreements 50,739 (48,793) 1,947 --------- --------- --------- Total 890,231 (735,675) 154,556 --------- --------- --------- Net interest income $1,008,657 $ 60,117 $1,068,774 ========= ========= ========= 1998 as compared to 1997 Due to a change in: -------------------------------------- Volume Rate Total ---------- ---------- ---------- Interest income from: Federal funds sold $ 702,093 $ (11,095) $ 690,998 Securities: Taxable 707,929 (94,607) 613,322 Non-taxable 237,548 (10,471) 227,077 Loans & leases 147,213 (123,160) 24,053 --------- --------- --------- Total 1,794,783 (239,333) 1,555,450 --------- --------- --------- Interest expense on: Interest-bearing deposits: Savings, money market and NOW 304,094 (90,500) 213,594 Time deposits 221,434 75,145 296,579 Federal funds purchased and repurchase agreements 329,755 (60,038) 269,717 --------- --------- --------- Total 855,283 (75,393) 779,890 --------- --------- --------- Net interest income $ 939,500 $ (163,940) $ 775,560 ========= ========= ========= <FN> Note: The change due to the volume/rate variance has been allocated to volume. -7- Securities Portfolio The following table indicates the carrying value of the Company's consolidated securities portfolio at December 31, 1999, 1998 and 1997. (in $000) 1999 1998 1997 -------- -------- ------- U.S. Government obligations $ 4,009 $ 14,166 $21,134 U.S. Government agencies and corp. 110,219 91,953 64,667 Obligations of states and political subdivisions 12,580 11,571 8,414 Other securities 1,225 1,054 969 ------- ------- ------ Total $128,033 $118,744 $95,184 ======= ======= ====== The following table shows the maturities, carrying value and weighted average yields of the Company's consolidated securities portfolio at December 31, 1999. 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. 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 ------ ----- ------ ----- ------ ----- ------ ----- U.S. Govt. obli- gations held to maturity $ 0 0% $ 0 0% $ 0 0% $ 0 0% U.S. Govt. obli- gations avail- able for sale 4,009 6.33 0 0 0 0 0 0 U.S. Govt. agencies & corps. held to maturity 0 0 34,464 6.03 0 0 0 0 U.S. Govt. agencies & corps. available for sale 0 0 19,680 6.32 5,934 6.56 0 0 State and political subdivisions held to maturity 1,619 5.81 0 0 2,756 7.33 8,205 7.33 Mortgage-backed securities avail- able for sale 146 5.70 0 0 5,257 5.85 5,556 5.93 Mortgage-backed securities held to maturity 1,832 6.37 7,193 6.43 18,538 6.21 11,618 6.30 Other securities 0 0 0 0 0 0 1,225 6.00 <FN> Current estimated prepayment speed assumptions were used in estimating the maturities of mortgage-backed securities in the above table. At December 31, 1999 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. -8- Loan Portfolio The following table summarizes the distribution of the Bank's loan portfolio as of December 31 for each of the years indicated: (in $000) 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- Commercial and industrial $ 23,419 $ 21,127 $ 18,066 $ 17,227 $ 13,784 Real estate - residential 66,788 55,055 54,211 49,790 50,979 Real estate - commercial 58,485 47,399 48,329 45,106 44,983 Real estate - construction 1,454 2,795 4,868 4,833 3,903 Mortgage loans held for sale 333 1,330 2,173 1,222 1,057 Loans to individuals 13,544 13,197 13,571 13,221 13,178 Other 670 651 795 171 188 ------- ------- ------- ------- ------- Total loans $164,693 $141,554 $142,013 $131,570 $128,072 ======= ======= ======= ======= ======= Loan maturities for commercial and real estate (construction) loans at December 31, 1999 were as follows: $9,643,217 due in one year or less; $9,607,981 due after one year through five years; $5,621,685 due after five years. Of the Bank's commercial and real estate (construction) loans due after one year, $7,276,606 have floating or adjustable rates and $7,953,060 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 judgment, 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: (in $000) 1999 1998 1997 1996 1995 ------ ------ ------ ------ ------ Nonaccrual loans $ 684 $ 913 $ 633 $ 897 $1,650 Accruing loans past due 90 days or more 0 2 239 370 160 Restructured loans 0 0 0 0 0 ----- ----- ----- ----- ----- Total $ 684 $ 915 $ 872 $1,267 $1,810 ===== ===== ===== ===== ===== <FN> For the period ended December 31, 1999, the reduction of interest income associated with nonaccrual and restructured loans was $54,060. The interest on these loans that was included in interest income for 1999 was $100,081. Potential Problem Loans As of December 31, 1999 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, 1999 except as disclosed in the above table, there were no concentrations of loans exceeding 10% of total loans. -9- 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: (in $000) 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- Average outstanding loans (1) $154,304 $138,311 $136,844 $129,443 $127,034 ======= ======= ======= ======= ======= Allowance for possible loan losses (in $000) 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- Balance at beginning of period $ 2,981 $ 3,216 $ 3,482 $ 3,455 $ 3,703 Charge-offs: Commercial and industrial (36) (37) (133) (39) (31) Real estate - residential 0 (132) (16) (53) (70) Real estate - commercial 0 (59) (99) 0 (415) Real estate - construction 0 0 0 0 0 Loans to individuals (76) (76) (118) (138) (113) ----- ----- ----- ----- ----- Total charge-offs (112) (304) (366) (230) (629) Recoveries: Commercial and industrial 153 48 35 147 105 Real estate - residential 1 6 41 1 100 Real estate - commercial 8 2 0 79 18 Real estate - construction 0 0 0 0 0 Loans to individuals 11 13 24 30 38 ----- ----- ----- ----- ----- Total recoveries 173 69 100 257 261 Net recovery (charge-off) 61 (235) (266) 27 (368) Provision for possible loan losses 0 0 0 0 120 ----- ----- ----- ----- ----- Balance at end of period $ 3,042 $ 2,981 $ 3,216 $ 3,482 $ 3,455 ===== ===== ===== ===== ===== Ratio of net charge-offs to average loans (.00%) .17% .19% (.00%) .29% ==== ==== ==== ==== ==== <FN> (1)	 Includes the aggregate average balance of loans held for sale. The provision for possible loan losses is based upon management's estimation of the amount necessary to maintain the allowance for possible loan losses at an adequate level to absorb inherent losses in the loan portfolio, as determined by current and anticipated economic conditions and other pertinent factors. The methodology for assessing the adequacy of the overall allowance consists of an evaluation of its three components: 1. The general allowance for the various loan portfolio categories. 2. The valuation allowance for loans specifically identified as impaired. 3. The unallocated allowance. -10- 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, including loans held for sale, as of December 31 for each of the years indicated: 1999 1998 1997 -------------------- -------------------- -------------------- 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 ------- ----------- ------- ----------- ------- ----------- Commercial & industrial $ 263 14.6% $ 238 15.4% $ 318 12.7% Real estate - residential 596 40.8% 197 39.8% 198 39.7% Real estate - commercial 227 35.5% 518 33.5% 565 34.1% Real estate - construction 15 .9% 35 2.0% 62 3.4% Loans to individuals 128 8.2% 130 9.3% 126 10.1% Unallocated 1,813 N/A 1,863 N/A 1,947 N/A ----- ----- ----- ----- ----- ----- Total $3,042 100.0% $2,981 100.0% $3,216 100.0% ===== ===== ===== ===== ===== ===== 1996 1995 -------------------- -------------------- Percent of Percent of loans in loans in category to category to (in $000) Amount total loans Amount total loans ------- ----------- ------- ----------- Commercial & industrial $ 195 13.1% $ 165 10.9% Real estate - residential 166 38.8 174 40.7% Real estate - commercial 767 34.2% 746 35.1% Real estate - construction 82 3.7% 96 3.0% Loans to individuals 126 10.2% 100 10.3% Unallocated 2,146 N/A 2,174 N/A ----- ----- ----- ----- Total $3,482 100.0% $3,455 100.0% ===== ===== ===== ===== <FN> 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. -11- Deposits The following table shows the average deposits and average interest rate paid for each of the last three years: 1999 1998 1997 ----------------- ----------------- ----------------- Average Average Average Average Average Average (in $000) Balance Rate Balance Rate Balance Rate -------- ------- -------- ------- -------- ------- Demand deposits $ 59,254 0.00% $ 54,658 0.00% $ 49,068 0.00% NOW/FlexValue deposits 31,778 .79% 30,382 1.10% 23,419 1.34% Money market deposits 27,824 2.66% 27,273 2.87% 27,996 2.74% Savings deposits 53,309 2.34% 55,729 2.78% 49,140 2.79% Time deposits 88,705 5.14% 72,259 5.51% 68,314 5.40% ------- ---- ------- ---- ------- ---- Total $260,870 2.61% $240,301 2.77% $217,937 2.82% ======= ==== ======= ==== ======= ==== As of December 31, 1999, the Bank had certificates of deposit in amounts of $100,000 or more aggregating $25.3 million. These certificates of deposit mature as follows: Maturity Amount (in $000) -------- ---------------- 3 months or less $ 8,204 Over 3 months through 6 months 6,915 Over 6 months through 12 months 7,695 Over 12 months 2,533 ------ Total $25,347 ====== -12- Return on Equity and Assets The following table summarizes various financial ratios of the Company for each of the last three years: Years ended December 31, ---------------------------- 1999 1998 1997 ---- ---- ---- Return on average total assets (net income divided by average total assets) 1.25% 1.31% 1.33% Return on average stockholders' equity (net income divided by average stockholders' equity) 14.45% 15.72% 16.07% Dividend payout ratio (total declared dividends per share divided by net income per share) 27.40% 24.94% 24.43% Equity to assets (average stockholders' equity as a percentage of average total assets) 8.62% 8.36% 8.30% -13- 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 consist of securities sold under repurchase agreements, which are short-term borrowings from customers, federal funds purchased and, during the fourth quarter of 1999, a short-term loan from the Federal Home Loan Bank of Boston to cover potential Year 2000 liquidity requirements. (That loan was repaid on December 28, 1999). The following table summarizes such short-term borrowings at December 31 for each of the years indicated: Weighted Max. Weighted average amount average interest out- Average interest Balance, rate at standing amount rate end of end of at any out- during period period month-end standing period ---------- -------- --------- ---------- -------- Year ended 12/31/99 - ---------- Federal Funds Purchased $ 0 0% $ 0 $ 0 0% Repurchase Agreements 21,766,424 4.79% 28,306,070 23,283,740 4.05% Federal Home Loan Bank Loan 0 0% 10,000,000 1,178,082 5.27% Year ended 12/31/98 - ---------- Federal Funds Purchased $ 0 0% $ 0 $ 8,219 6.87% Repurchase Agreements 19,747,496 3.79% 32,342,233 23,226,519 4.41% Year ended 12/31/97 - ---------- Federal Funds Purchased $ 3,000,000 7.05% $ 3,000,000 $ 55,616 5.95% Repurchase Agreements 13,637,063 4.71% 20,135,834 15,743,797 4.78% -14- 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, the Marlboro Center Office (1,800 square feet) at 96 Bolton Street, Marlboro, Massachusetts, and the Framingham Office (a 4,450 square foot branch office with a separate 2,050 square foot building leased to a tenant) at 35 Edgell Road, Framingham, 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 square feet) at 274 Great Road, Acton, Massachusetts, the Marlboro East Office (1,110 square feet) at 500 Boston Post Road, Marlboro, Massachusetts, the Boxboro Office (1,350 square feet) at 629 Massachusetts Avenue, Boxboro, Massachusetts, and the Sudbury Office (2,700 square feet) at 450 Boston Post Road, Sudbury, 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, 1999. -15- 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 450 as of March 15, 2000. 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 1999 and 1998: 1999 1998 ------ ------ First quarter $ .087 $ .077 Second quarter .089 .079 Third quarter .092 .082 Fourth quarter .095 .085 ----- ----- Total $ .363 $ .323 ===== ===== For a discussion of restrictions on the ability of the Bank to pay dividends to the Company, see footnote 11 on page 19 of the Annual Report to Shareholders for the year ended December 31, 1999, which is hereby incorporated by reference. On May 18, 1999 the Company sold 11,359 unregistered shares of its common stock to the Community Bancorp, Inc. 401(k) Savings Plan and 5,000 unregistered shares of its common stock to the Community Bancorp, Inc. Employee Stock Ownership Plan at a per share price of $16.00. The aggregate cash price of these sales was $261,744. Registration of such shares involved in the above transactions was not required because the transactions were exempt pursuant to the private offering provisions of the Securities Act and the rules thereunder. Alternatively, the Company believes that registration of shares issued to its 401(k) Plan was not required because the transaction did not constitute a "sale" under Section 2(3) of the Securities Act. 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, 1999 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 28 of the Annual Report to Shareholders for the year ended December 31, 1999 and is hereby incorporated by reference. -16- Cautionary Statement Regarding Forward-Looking Information This report on Form 10-K, including Management's Discussion and Analysis of Financial Condition and Results of Operations, contains, in addition to historic 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. New Accounting Pronouncement In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes the accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded on the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. The Company does not believe the adoption of SFAS No. 133 will have any material effect on its financial position or results of operations. As originally issued, SFAS No. 133 was to become effective for the Company's fiscal year beginning January 1, 2000. However, in June 1999 the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133" (SFAS No. 137). SFAS No. 137 defers the effective date of SFAS No. 133 until fiscal years beginning after June 15, 2000. -17- Asset/Liability Management and Interest Rate Risk 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 Company's ability to adjust the rates of its interest rate sensitive assets in response to such changes. The Company's negative one-year cumulative gap position at December 31, 1999, which represents the excess of repricing liabilities versus repricing assets, was 7.79% expressed as a percentage of total assets. The following table presents rate-sensitive assets and rate-sensitive liabilities as of December 31, 1999: (Dollars in thousands) December 31, 1999 -------------------------------------------------------------------------- 1 to 6 7 to 12 1 to 2 2 to 5 Over 5 Months Months Years Years Years Total ---------- --------- ---------- --------- --------- ---------- RATE-SENSITIVE ASSETS Federal funds sold $ 6,924 $ 0 $ 0 $ 0 $ 0 $ 6,924 Securities 17,771 6,263 15,633 60,105 28,261 128,033 Adjustable-rate loans 59,765 21,612 25,035 4,364 1,234 112,010 Fixed-rate loans 6,572 3,408 5,707 13,107 23,556 52,350 Loans held for sale 333 0 0 0 0 333 --------- --------- ---------- ---------- -------- --------- Total $ 91,365 $ 31,283 $ 46,375 $ 77,576 $ 53,051 $ 299,650 --------- --------- ---------- --------- -------- --------- RATE-SENSITIVE LIABILITIES Demand deposits $ 0 $ 0 $ 0 $ 0 $ 68,082 $ 68,082 NOW accounts* 0 0 0 0 32,372 32,372 Money market accounts 32,523 0 0 0 0 32,523 Savings accounts 0 0 0 0 36,672 36,672 Cash management accounts 17,445 0 0 0 0 17,445 Certificates of deposit 51,635 24,825 6,331 6,531 6 89,328 Short term borrowings 20,939 827 0 0 0 21,766 --------- --------- ---------- --------- -------- --------- Total $ 122,542 $ 25,652 $ 6,331 $ 6,531 $ 137,132 $ 298,188 --------- --------- ---------- --------- -------- --------- Gap $ (31,177) $ 5,631 $ 40,044 $ 71,045 $ (84,081) $ 1,462 ========== ========= ========= ========= ========= ========= Cumulative Gap $ (31,177) $ (25,546) $ 14,498 $ 85,543 $ 1,462 ========== ========= ========= ========= ========= Gap as a percent of total assets (9.51%) 1.72% 12.21% 21.66% (25.63%) Cumulative gap as a percent of total assets (9.51%) (7.79%) 4.42% 26.08% 0.45% Cumulative gap as a percent of total assets if NOW accounts are considered immediately withdrawable (19.37%) (17.66%) (5.45%) 16.21% 0.45% <FN> Whenever possible, maturity dates or contractual repricing dates have been used in the preparation of the above table. In addition to those factors, certain assumptions are utilized such as the estimation of prepayments associated with certain loans and mortgage-backed securities. The Bank's historical experience over the past ten years, during which time interest -18- rates have risen and fallen significantly, has demonstrated that savings account balances, demand deposit balances and NOW account balances are rate insensitive. Other deposit categories are considered to be rate sensitive. That rate sensitivity or insensitivity is reflected in the above table. (For purposes of this table, the Bank's FlexValue deposit account balances have been included in the "NOW accounts" category.) ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest rate risk is the sensitivity of income to variations in interest rates over a specified time horizon. The primary goal of interest rate risk management is to control this risk within limits approved by the Board of Directors and narrower guidelines approved by the Asset/Liability Committee. Those limits and guidelines reflect the Company's tolerance for interest rate risk. The Company also uses simulation analysis to measure the exposure of net interest income to changes in interest rates over a one year time horizon. Simulation analysis involves projecting future income and expense from the Company's assets and liabilities under various interest rate scenarios. The Company's limits on interest rate risk specify that if interest rates were to shift immediately up or down by 200 basis points, estimated net interest income for the subsequent twelve months should decline by no more than 5.00% of net interest income. The following table sets forth the Company's estimated net interest income exposure, assuming an immediate, parallel shift in interest rates: Rate Change Estimated Exposure to (Basis Points) Net Interest Income - -------------- --------------------- +200 (3.55%) -200 4.37% ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's consolidated financial statements are included on page 1 and on pages 4 through 24 of the Annual Report to shareholders for the year ended December 31, 1999 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, 1999 or in any period subsequent to the most recent financial statements. -19- 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 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, Messrs. Hughes and Webster who have been Directors of the Company since 1995, and Ms. Colosi who has been a Director of the Company since 1999. 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. Business Experience Term of During Past Name Age Position Office Five Years ---- --- -------- ------- -------------------- Richard K. 47 Senior Vice Senior Vice President, Bennett President Community National Bank of Bank Grace L. Blunt 45 Senior Vice Senior Vice President, President Community National Bank, of Bank Assistant Clerk, Community Bancorp, Inc. Alfred A. 82 Director of 2000 Retired Cardoza (1) Company and Bank Jenny Lee 44 Director of 2000	 President and Treasurer, Colosi (1) Company and E. T.& L. Construction, Bank Inc. Antonio Frias (1) 60 Director of 2000 President and Treasurer, Company and S & F Concrete Bank Contractors, Inc.; Secretary/Clerk, Frias Bros. Service Station John P. Galvani 43 Senior Vice Senior Vice President, President Community National Bank of Bank I. George Gould 83 Director of 2002 Chairman, Gould's, Inc. Company and Bank Horst Huehmer 72 Director of 2001 Retired; formerly Company and Manager, Hudson Light Bank and Power Department -20- Donald R. 50 Treasurer and 2001 Executive Vice Hughes, Jr. Clerk of President and Cashier, Company; Exec. Community National Bank; Vice President Treasurer and Clerk, of Bank; Director Community Bancorp, Inc. of Company and Bank James A. Langway 60 President & 2002 President and CEO, CEO of Company Community National Bank and Bank; and Community Director of Bancorp, Inc. Company and Bank Robert E. Leist 46 Senior Vice Senior Vice President, President Community National Bank of Bank Janet A. Lyman 53 Senior Vice Senior Vice President, President Community National Bank of Bank Dennis F. 62 Chairman of 2000 President and Murphy, Jr. (1) the Board, Treasurer, D. F. Company and Murphy Insurance Bank Agency, Inc.; Treasurer, Village Real Estate David L. 71 Director of 2002 Chairman of the Board, Parker (2) Company and Larkin Lumber Co. Bank Mark Poplin 76 Director of 2001 President and Company and Treasurer, Poplin Bank Supply Co.; Secretary, Poplin Furniture Co. David W. 58 Director of 2001 President & Treasurer, Webster (2) Company and Knight Fuel Co., Inc. Bank <FN> (1) Messrs. Cardoza, Frias and Murphy and Ms. Colosi have been nominated for election at the 2000 Annual Meeting to serve until 2003. (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. -21- 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 the four most highly compensated other executive officers whose aggregate compensation by the Company and the Bank exceeded $100,000. Summary Compensation Table -------------------------- Annual Compensation -------------------------------------------- (a) (b) (c) (d) (i) (1) Name and All Other Principal Position Year Salary Bonus Compensation ----------------- ---- ------ ----- ------------ James A. Langway 1999 $217,848 $93,800 $ 9,121 President and CEO 1998 211,503 90,000 9,500 of the Company and 1997 205,353 75,000 8,989 the Bank Donald R. Hughes, Jr. 1999 128,725 31,538 8,828 Treasurer and Clerk of 1998 122,595 30,036 8,877 Company; Executive Vice 1997 116,757 28,605 8,104 President and Cashier of the Bank Richard K. Bennett 1999 94,564 16,076 5,583 Senior Vice President 1998 90,061 15,310 5,584 of the Bank 1997 85,772 14,581 5,037 John P. Galvani 1999 93,712 15,931 5,440 Senior Vice President 1998 89,250 15,173 5,526 of the Bank 1997 85,000 14,450 3,946 Robert E. Leist 1999 88,421 15,032 3,220 Senior Vice President 1998 84,210 14,316 3,359 of the Bank 1997 80,200 13,634 4,569 <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, Hughes, Bennett and Galvani are participants in the Company's ESOP and 401(k) Plans. Of the $9,121 reported above for 1999 in column (i) for Mr. Langway, $3,154 represents Company ESOP contributions, $4,800 represents Company 401(k) Plan contributions and $1,167 represents group life insurance premiums paid by the Company. Of the $8,828 reported above for 1999 in column (i) for Mr. Hughes, $3,152 represents Company ESOP contributions, $4,800 represents Company 401(k) Plan contributions and $876 represents group life insurance premiums paid by the Company. Of the $5,583 reported above for 1999 in column (i) for Mr. Bennett, $2,196 represents Company ESOP contributions, $3,045 represents Company 401(k) Plan contributions and $342 represents group life insurance premiums -22- paid by the Company. Of the $5,440 reported above for 1999 in column (i) for Mr. Galvani, $2,167 represents Company ESOP contributions, $2,931 represents Company 401(k) Plan contributions and $342 represents group life insurance premiums paid by the Company. Of the $3,220 reported above for 1999 in column (i) for Mr. Leist, $1,965 represents Company ESOP contributions, $913 represents Company 401(k) Plan contributions and $342 represents group life insurance premiums paid by the Company. Compensation of Directors The Bank paid its Directors an annual fee of $9,448 in 1999. The Chairman of the Board was paid $15,748 in 1999. Director fees are paid on a monthly basis. The Company pays no compensation to its Directors for their services. 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 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 -23- 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 expectancy at the time he begins receiving payments. During 1999, the Company recorded $46,992 in such expense. The Bank has entered into "change in control" Severance Agreements with five Senior Vice Presidents. -24- 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 directors and executive officers of the Company and Bank as a group, at March 15, 2000. 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 ---- ---------------- -------- ---------- ----- ------- Common Alfred A. Cardoza 12,600 9,886 22,486 .8% Stock ($2.50 Jenny Lee Colosi 754 1,186 1,940 .1 par) Antonio Frias 32,936 0 32,936 1.1% I. George Gould 9,235 105,672 (4) 114,907 3.9% Horst Huehmer 700 21,932 22,632 .8% Donald R. Hughes, Jr. 2,000 121,212 (4,5) 123,212 4.2% James A. Langway 94,170 248,426 (4,6,9) 342,596 11.6% Dennis F. Murphy, Jr. 198,724 237,084 435,808 14.7% David L. Parker 28,042 8,200 (7) 36,242 1.2% Mark Poplin 364 152,690 153,054 5.2% David W. Webster 750 70,084 70,834 2.4% All directors and executive officers of the Company and Bank as a group (16 persons) 381,703 733,886 (4,8) 1,115,589 37.7% <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 79,919 shares held by the Company's ESOP for which Messrs. Gould, Hughes and Langway are co-trustees. (5) Includes 11,293 shares held by the Company's 401(k) plan for which Mr. Hughes has voting power in certain circumstances. (6) Includes 18,040 shares held by the Company's 401(k) plan for which Mr. Langway has voting power in certain circumstances. -25- (7) Includes 2,000 shares held by the Unitarian Church of Marlboro and Hudson, MA, for which Mr. Parker is a trustee. (8) Includes 81,315 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. (9) Includes 53,428 shares held by the Mark Poplin Family Trust and 96,814 shares held by the Shirley E. Poplin Family Trust, for which Mr. Langway is a trustee. Mr. Langway disclaims any beneficial interest in these shares. The following persons own beneficially more than five percent of the outstanding stock of the Company as of March 15, 2000: Amount and Title Name and Address Nature of Percent of of Beneficial Beneficial of Class Owner Ownership Class ----- ---------------- ---------- ------- Common Stock Dennis F. Murphy, Jr. 435,808 shares 14.7% ($2.50 par) 188 Prospect Hill Rd. Still River, MA 01467 James A. Langway 342,596 shares (1,2) 11.6% 1143 Grove Street Framingham, MA 01701 Mark Poplin 153,054 shares 5.2% 108 Barretts Mill Road Concord, MA 01742 Einar P. Robsham 151,900 shares 5.1% 164 Cochituate Road Wayland, MA 01778 <FN> (1) Includes 79,919 shares held by the Company's ESOP, for which Mr. Langway is a trustee, and 18,040 shares held by the Company's 401(k) plan, for which Mr. Langway has voting power in certain circumstances. (2) Includes 53,428 shares held by the Mark Poplin Family Trust and 96,814 shares held by the Shirley E. Poplin Family Trust, for which Mr. Langway is a trustee. Mr. Langway disclaims any beneficial interest in these shares. -26- 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. In October of 1997 the Bank entered into a third-party insurance sales agreement with Murphy Insurance Brokerage, Ltd. ("Murphy"). By entering into the agreement, the Bank implemented a decision of the Board of Directors to expand the Bank's product line by providing the public with access to insurance products. The agreement between the Bank and Murphy is structured in the form of a lease arrangement for floor space in the Bank's Main Office located at 17 Pope Street, Hudson, Massachusetts. Murphy Insurance Brokerage, Ltd. is a subsidiary of Murphy Insurance Agency, Inc., which is owned by Dennis F. Murphy, Jr., Chairman of the Company's Board of Directors. The third-party agreement between the Bank and Murphy had no material affect on the Company's 1999 financial statements or results of operations. -27- 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, 1999, are hereby incorporated by reference: Annual Report to Shareholders Description page reference ----------- ---------------- Consolidated balance sheets at December 31, 1999 and 1998 4 Consolidated statements of income for the years ended December 31, 1999, 1998 and 1997 5 Consolidated statements of comprehensive income for the years ended December 31, 1999, 1998 and 1997 6 Consolidated statements of stockholders' equity for the years ended December 31, 1999, 1998 and 1997 7 Consolidated statements of cash flows for the years ended December 31, 1999, 1998 and 1997 8 Notes to consolidated financial statements 9 - 24 <FN> 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, 1999 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, 1999. 3. Exhibits See accompanying Exhibit Index. (b) The Company did not file a Form 8-K during the quarter ended December 31, 1999. -28- EXHIBIT INDEX ------------- 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 specified persons. (g) 10.9 Shareholder Rights Agreement dated May 24, 1996 between Community Bancorp, Inc. and Cambridge Trust Company. (h) 10.10 Form of Severance Agreement dated February 19, 1998 between Community National Bank and five Senior Vice Presidents. (i) 10.11 First Amendment to Shareholder Rights Agreement dated February 15, 2000. 13. 1999 Annual Report to Shareholders 21. Subsidiaries of Company Page 31 27. Financial Data Schedule -29- (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. (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. (h) Incorporated herein by reference as filed as part of the Company's Form 8-K (File No. 33-12756-B), filed with the Commission on May 31, 1996. (i) Incorporated herein by reference as filed as part of the Company's December 31, 1998 Form 10-K (File No. 33-12756-B), filed with the Commission on March 24, 1999. -30- SUBSIDIARIES OF COMPANY ----------------------- 1. Community National Bank, a national banking association. -31- 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 15, 2000 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 15, 2000 /s/ James A. Langway --------------------------------- James A. Langway, President & CEO Principal Executive Officer March 15, 2000 /s/ Donald R. Hughes, Jr. --------------------------------- Donald R. Hughes, Jr., Treasurer & Clerk, Principal Financial Officer and Principal Accounting Officer March 15, 2000 /s/ James A. Langway --------------------------------- James A. Langway, Director March 15, 2000 /s/ Donald R. Hughes, Jr. --------------------------------- Donald R. Hughes, Jr., Director March 21, 2000 /s/ I. George Gould --------------------------------- I. George Gould, Director March 22, 2000 /s/ Alfred A. Cardoza --------------------------------- Alfred A. Cardoza, Director March 22, 2000 /s/ Antonio Frias --------------------------------- Antonio Frias, Director March 23, 2000 /s/ David W. Webster --------------------------------- David W. Webster, Director -32- SUPPLEMENTAL INFORMATION ------------------------ Copies of the Notice of Annual Meeting of Shareholders, Proxy Statement and Proxy For Annual Meeting of Shareholders for the Registrant's 2000 annual meeting of shareholders, to be held on April 11, 2000, 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. -33-