[The annual report front cover contains a color graphic
and the following text:]
Annual Report 2001
Community Bancorp, Inc.
Parent Company of Community National Bank
[The following text appears on page 1]
Table of Contents
Message to Stockholders and Friends - - - - - - - - - - - - 2
Selected Consolidated Financial Data - - - - - - - - - - - - 3
Consolidated Balance Sheets - - - - - - - - - - - - - - - - 4
Consolidated Statements of Income - - - - - - - - - - - - - 5
Consolidated Statements of Comprehensive Income - - - - - - 6
Consolidated Statements of Stockholders' Equity - - - - - - 7
Consolidated Statements of Cash Flows - - - - - - - - - - - 8
Notes to Consolidated Financial Statements - - - - - - - - 9
Report of Independent Public Accountants - - - - - - - - - 27
Management's Discussion and Analysis of
Financial Condition and Results of Operations - - - - - - 28
Directors & Officers - - - - - - - - - - - - - - - - - - - 31
-1-
To Our Stockholders and Friends
On behalf of the Board of Directors, management and staff of Community Bancorp,
Inc., we are proud to present you with our 2001 Annual Report. The results of
operations for the past year are a very positive indication of the Company's
continued strength, as we again achieved record earnings. Net income for the
year ended December 31, 2001 was $5,080,838, compared to $4,532,119 recorded in
2000. Earnings per share of $0.86 for 2001 represented an 11.7% increase over
$0.77 per share in the previous year.
Although the nation's economy softened considerably during 2001, prompting the
Federal Reserve to lower interest rates an unprecedented eleven times during
the year, ongoing independent reviews of our loan portfolio confirm that the
Company's assets are of high quality. With a total loan portfolio of over $188
million at year-end, only $128,000 in net loan losses were realized during the
year. The Company's return on average assets (ROA), a key measurement of a
bank's earnings performance, was 1.32% during 2001, comparing very favorably
to peer financial institutions.
As a result of our continued strong earnings during 2001, the Board of
Directors increased the cash dividend paid to the Company's stockholders in
each of the four quarters. Total dividends of $0.26 per share declared during
2001 represented a 24% increase over $0.21 per share declared in 2000.
The year 2001 was a gratifying year for the Company, but a difficult year for
our country. We were deeply saddened by the events of September 11, 2001 and
the nation is still recovering from those tragedies, which prolonged and
deepened the economic recession. However, there are signs that the Federal
Reserve's interest rate cuts and the tax package passed by the President and
Congress last year are beginning to produce results. Nothing is certain,
however, and only time will tell if and how much the economy will improve in
the short term.
In the meantime, our outlook remains positive. We continually strive to
provide friendly, courteous and professional service to our many customers. We
also strive to provide our customers with technologically advanced services and
delivery systems that an increasing number of them desire each year. Community
Bancorp, Inc. is committed to being a leader at providing a full range of
diversified financial services and innovative technology that will both serve
our existing customers well and attract new customers. As we have said in
previous letters to our stockholders, as a community bank we know our customers
and their needs and we know how to provide the financial services they desire.
We believe these are the keys to our ongoing success.
On behalf of the Board of Directors, management and staff, we thank our
stockholders and customers for their continued support, and we are looking
forward to making 2002 another successful year.
Sincerely,
/s/ James A. Langway /s/ Dennis F. Murphy, Jr.
- -------------------- -------------------------
James A. Langway Dennis F. Murphy, Jr.
President and Chief Executive Officer Chairman of the Board
-2-
Selected Consolidated Financial Data
------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Total assets $402,705,744 $374,867,511 $327,996,575 $300,886,831 $273,550,527
Total deposits 319,066,339 307,128,832 276,422,308 254,408,735 232,788,534
Total net loans 185,768,186 173,216,873 161,318,593 137,242,930 136,624,294
Allowance for loan losses 2,684,517 2,812,392 3,041,873 2,981,012 3,215,559
Total interest income 25,507,838 24,964,665 21,840,725 20,659,783 19,169,951
Total interest expense 8,634,144 9,354,592 7,829,668 7,675,112 6,895,222
Net interest income 16,873,964 15,610,073 14,011,057 12,984,671 12,274,729
Gains on sales of securities 9,200 -- -- -- 8,587
Provision for loan losses -- -- -- -- --
Net income 5,080,838 4,532,119 3,915,217 3,805,761 3,429,859
Earnings per share 0.86 0.77 0.66 0.65 0.58
Dividends per share 0.26 0.21 0.18 0.16 0.14
[Five-year bar graphs for the following categories appear in this space.
Data for the graphs was obtained from the above table.]
Total Assets (in millions)
Net Income (in millions)
Earnings Per Share (in dollars)
Total Deposits (in millions)
Total Net Loans (in millions)
Net Interest Income (in millions)
-3-
Consolidated Balance Sheets
December 31, 2001 and 2000
2001 2000
----------- -----------
ASSETS
Cash and due from banks $ 19,876,999 $ 16,472,547
Federal funds sold 12,912,746 31,136,266
Securities available for sale at fair value (Note 3) 74,116,739 50,110,202
Securities held to maturity (fair value $99,075,447
in 2001 and $92,302,813 in 2000) (Note 3) 97,266,087 92,441,522
Mortgage loans held for sale 1,909,913 295,742
Loans (Notes 4 and 11) 188,452,703 176,029,265
Less allowance for loan losses (Note 4) 2,684,517 2,812,392
----------- -----------
Total net loans 185,768,186 173,216,873
Bank premises and equipment, net (Note 5) 6,140,477 6,234,641
Other assets, net (Notes 1, 8 and 9) 4,714,597 4,959,718
----------- -----------
Total assets $402,705,744 $374,867,511
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (Note 6):
Noninterest bearing $ 78,513,849 $ 75,969,408
Interest bearing 240,552,490 231,159,424
----------- -----------
Total deposits 319,066,339 307,128,832
----------- -----------
Securities sold under repurchase agreements (Note 1) 34,023,288 33,463,166
Borrowed funds (Note 7) 10,000,000 --
Other liabilities (Note 9) 3,305,118 2,460,642
----------- -----------
Total liabilities 366,394,745 343,052,640
----------- -----------
Commitments (Notes 10 and 13) -- --
Stockholders' equity: (Notes 1 and 9)
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, 6,398,436 shares issued,
5,940,606 shares outstanding, (5,914,441 shares
outstanding at December 31, 2000) 15,996,090 15,996,090
Surplus 219,120 101,378
Undivided profits 21,608,513 18,052,893
Treasury stock, at cost, 457,830 shares,
(483,995 at December 31, 2000) (2,297,019) (2,414,762)
Accumulated other comprehensive income 784,295 79,272
----------- -----------
Total stockholders' equity 36,310,999 31,814,871
----------- -----------
Total liabilities and stockholders'
equity $402,705,744 $374,867,511
=========== ===========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
-4-
Consolidated Statements of Income
Years ended December 31, 2001, 2000 and 1999
2001 2000 1999
---- ---- ----
Interest income:
Interest and fees on loans $15,748,562 $15,452,495 $13,947,164
Interest and dividends on securities:
Taxable interest 7,239,876 7,096,447 6,427,831
Nontaxable interest 889,442 628,313 566,334
Dividends 310,450 91,360 74,865
Interest on federal funds sold 1,319,508 1,696,050 824,531
---------- ---------- ----------
Total interest income 25,507,838 24,964,665 21,840,725
---------- ---------- ----------
Interest expense:
Interest on deposits 7,353,628 7,661,268 6,801,917
Interest on securities sold under
repurchase agreements 1,275,081 1,693,324 1,027,751
Interest on borrowed funds (Note 7) 5,435 -- --
---------- ---------- ----------
Total interest expense 8,634,144 9,354,592 7,829,668
---------- ---------- ----------
Net interest income 16,873,694 15,610,073 14,011,057
---------- ---------- ----------
Provision for loan losses (Note 4) -- -- --
---------- ---------- ----------
Net interest income after provision
for loan losses 16,873,694 15,610,073 14,011,057
---------- ---------- ----------
Noninterest income:
Merchant credit card processing
assessments 1,838,342 1,559,355 1,296,041
Service charges 639,163 635,823 589,697
Other charges, commissions and fees 1,350,290 1,110,542 1,169,175
Gains on sales of loans, net 200,402 89,458 71,661
Gains on sales of securities, net 9,200 -- --
Other 104,903 92,867 89,172
---------- ---------- ----------
Total noninterest income 4,142,300 3,488,045 3,215,746
---------- ---------- ----------
Noninterest expense:
Salaries and employee benefits (Note 9) 6,649,341 6,093,676 5,632,576
Information technology and ATM network 1,222,091 1,113,844 1,010,383
Occupancy, net 950,410 829,817 761,857
Furniture and equipment 427,634 416,133 370,549
Credit card processing 1,654,208 1,430,434 1,258,102
Printing, stationery and supplies 242,998 244,622 280,008
Professional fees 499,230 415,696 420,423
Marketing and advertising 205,529 276,315 326,348
Other 1,398,478 1,241,280 1,076,763
---------- ---------- ----------
Total noninterest expense 13,249,919 12,061,817 11,137,009
---------- ---------- ----------
Income before income tax expense 7,766,075 7,036,301 6,089,794
Income tax expense 2,685,237 2,504,182 2,174,577
---------- ---------- ----------
Net income $ 5,080,838 $ 4,532,119 $ 3,915,217
========== ========== ==========
Basic earnings per common share
(Notes 1 and 9) $ 0.86 $ 0.77 $ 0.66
Diluted earnings per common share
(Notes 1 and 9) $ 0.86 $ 0.77 $ 0.66
Basic weighted average number of shares
(Notes 1 and 9) 5,932,004 5,912,731 5,909,600
Diluted weighted average number of shares
(Notes 1 and 9) 5,940,597 5,912,731 5,909,600
========== ========= =========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
-5-
Consolidated Statements of Comprehensive Income
Years ended December 31, 2001, 2000 and 1999
2001 2000 1999
---- ---- ----
Net income $ 5,080,838 $ 4,532,119 $ 3,915,217
---------- ---------- ----------
Other comprehensive income:
Unrealized securities gains (losses)
arising during period 1,193,540 513,579 (434,930)
Income tax (expense) benefit on
unrealized securities gains (losses)
arising during period (488,517) (210,205) 178,018
---------- ---------- ----------
Net unrealized securities gains
(losses) arising during period 705,023 303,374 (256,912)
---------- ---------- ----------
Less: reclassification adjustment for
securities (gains) included in income -- -- --
Income tax expense on securities
(gains) included in income -- -- --
---------- ---------- ----------
Net reclassification adjustment for
securities (gains) included in
net income -- -- --
---------- ---------- ----------
Other comprehensive income (loss) 705,023 303,374 (256,912)
---------- ---------- ----------
Comprehensive income (Note 1) $ 5,785,861 $ 4,835,493 $ 3,658,305
========== ========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
-6-
Consolidated Statements of Stockholders' Equity
Years ended December 31, 2001, 2000 and 1999
Accumulated
Other
Common Undivided Treasury Comprehensive
Stock Surplus Profits Stock Income
-------- -------- ----------- --------- -------------
Balance, December 31, 1998 $ 7,998,045 $524,106 $19,274,861 $(2,364,573) $ 32,810
Net income -- -- 3,915,217 -- --
Cash dividends declared
($0.182 per share) -- -- (1,073,397) -- --
Purchase of 70 shares of
treasury stock -- -- -- (630) --
Reissuance of 32,718 shares
of treasury stock -- 114,513 -- 147,231 --
Change in accumulated other
comprehensive income (Note 1) -- -- -- -- (256,912)
- -------------------------- --------- ------- ---------- --------- -------
Balance, December 31, 1999 7,998,045 638,619 22,116,681 (2,217,972) (224,102)
Net income -- -- 4,532,119 -- --
Two-for-one stock split
effected in the form of a
100% stock dividend 7,998,045 (638,619) (7,359,426) -- --
Cash dividends declared
($0.209 per share) -- -- (1,236,481) -- --
Purchase of 36,348 shares of
treasury stock -- -- -- (327,132) --
Reissuance of 28,965 shares
of treasury stock -- 101,378 -- 130,342 --
Change in accumulated other
comprehensive income (Note 1) 303,374
- -------------------------- --------- ------- ---------- --------- -------
Balance, December 31, 2000 15,996,090 101,378 18,052,893 (2,414,762) 79,272
Net income -- -- 5,080,838 -- --
Cash dividends declared
($0.257 per share) -- -- (1,525,218) -- --
Reissuance of 26,165 shares
of treasury stock -- 117,742 -- 117,743 --
Change in accumulated other
comprehensive income (Note 1) 705,023
- -------------------------- --------- ------- --------- --------- ---------
Balance, December 31, 2001 $15,996,090 $219,120 $21,608,513 $(2,297,019) $ 784,295
========== ======= ========== ========= =======
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
-7-
Consolidated Statements of Cash Flows
Years ended December 31, 2001, 2000 and 1999
2001 2000 1999
---- ---- ----
Net income $ 5,080,838 $ 4,532,119 $ 3,915,217
Adjustments to reconcile net income to net
cash provided by operating activities:
(Increase) decrease in mortgage loans
held for sale (1,614,171) 36,944 997,592
Depreciation and amortization 1,016,058 974,945 1,063,584
Amortization of investment securities
premiums and (discounts), net 70,108 81,136 (47,149)
Deferred (prepaid) income taxes 114 (25,646) 91,991
Increase in other liabilities 380,706 643,537 82,050
(Decrease) increase in taxes payable (162,614) 122,817 83,454
(Decrease) increase in interest payable (100,178) 54,196 62,346
Decrease (increase) in other assets, net 9,507 (541,490) (313,921)
Decrease (increase) in interest receivable 235,499 (473,882) (365,378)
---------- ---------- ----------
Total adjustments (164,971) 872,557 1,654,569
---------- ---------- ----------
Net cash provided by operating activities 4,915,867 5,404,676 5,569,786
---------- ---------- ----------
Cash flows used in investing activities:
Purchases of securities held to maturity (59,080,530) (19,024,788) (23,815,119)
Purchases of securities available for sale (40,240,342) (13,160,212) (22,967,923)
Maturities and principal repayments of
securities held to maturity 54,124,695 12,837,780 24,648,691
Maturities and principal repayments of
securities available for sale 17,488,502 5,261,021 12,410,077
Net change in federal funds sold 18,223,520 (24,212,240 10,075,974)
Net change in loans (12,403,843) (11,944,251) (24,090,657)
Sales of other real estate owned -- 45,000 --
Acquisition of premises and equipment (921,894) (866,695) (1,672,117)
---------- ---------- ----------
Net cash used in investing activities (22,809,892) (51,064,385) (25,411,074)
---------- ---------- ----------
Cash flows from financing activities:
Net change in deposits 11,937,507 30,706,524 22,013,573
Net change in securities sold under
repurchase agreements 560,122 11,696,742 2,018,928
Proceeds of FHLBB borrowing 10,000,000 -- --
Purchase of treasury stock -- (327,132) (630)
Reissuance of treasury stock 235,485 231,720 261,744
Dividends paid (1,434,637) (1,186,557) (1,042,411)
---------- ---------- ----------
Net cash provided by financing activities 21,298,477 41,121,297 23,251,204
---------- ---------- ----------
Net increase (decrease) in cash and due from banks 3,404,452 (4,538,412) 3,409,916
Cash and due from banks at beginning of year 16,472,547 21,010,959 17,601,043
---------- ---------- ----------
Cash and due from banks at end of year $19,876,999 $16,472,547 $21,010,959
========== ========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
Supplemental Disclosures:
- ------------------------
1. Cash paid for interest was $8,734,322, $9,300,396 and $7,767,322 in 2001, 2000 and
1999, respectively.
2. Cash paid for income taxes was $2,847,851, $2,165,000 and $2,091,123 in 2001, 2000
and 1999, respectively.
3. Real estate acquired through, or deeds in lieu of, foreclosure was $10,359 in 1999.
-8-
Notes to Consolidated Financial Statements
1. Significant Accounting Policies
Basis of consolidation
The accompanying consolidated financial statements include the accounts
of Community Bancorp, Inc. (the "Company"), a Massachusetts corporation
registered as a bank holding company under the Bank Holding Company Act of
1956, as amended, and its wholly-owned subsidiary, Community National Bank,
(the "Bank"), a national banking association. The Bank has formed Community
Securities Corporation and Community Benefits Consulting, Inc. as wholly-owned
subsidiaries. All intercompany balances and transactions have been eliminated
in consolidation.
At present, the Company conducts no activities independent of the Bank.
The Bank has ten offices and is engaged in substantially all of the business
operations normally conducted by an independent commercial bank in
Massachusetts. Banking services offered include the acceptance of checking,
savings, and time deposits, and the making of commercial, real estate,
installment and other loans. The Bank also offers official checks, safe
deposit boxes, Internet banking and bill payment services, investment
management and trust services and other customary banking services to its
customers.
Use of estimates
The preparation of financial statements in conformity with accounting
standards generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and due from banks
Cash and due from banks consists of cash on hand, amounts due from banks and
interest-bearing deposits. Included in cash and due from banks as of
December 31, 2001 and 2000 is approximately $1,077,000 and $1,179,000,
respectively, that is subject to Federal Reserve withdrawal restrictions.
Securities
Debt securities that the Company has the positive intent and ability to hold
to maturity are classified as "held to maturity" securities and reported at
amortized cost. Securities purchased to be held for indefinite periods of
time and not intended to be held until maturity are classified as "available
for sale" securities. Securities classified as available for sale are
reported at fair value with unrealized gains and losses excluded from
earnings and reported net of taxes in accumulated other comprehensive
income. Securities held for indefinite periods of time include securities
that management may use in conjunction with the Company's asset/ liability
management program and that may be sold in response to changes in interest
rates, prepayment risks or other economic factors. When securities
classified as available for sale are sold, using the specific identification
method, the adjusted cost of each specific security sold is used to calculate
gains or losses on sale, which are included in earnings.
Dividend and interest income, including amortization of premiums and discounts,
is included in earnings for all categories of investment securities. Discounts
and premiums related to debt securities are amortized using a method that
approximates the level-yield method, adjusted for estimated prepayments in
the case of mortgage-backed securities. Declines in the fair value of held to
maturity and available for sale securities below their cost, that are
determined to be other than temporary, are reflected in earnings as realized
losses. The Company evaluates individual securities that have fair values
below cost for six months or longer to determine if their decline is other than
temporary.
Loans
Loans are stated at the amount of unpaid principal, net of unearned discounts
and unearned net loan origination fees. It is the policy of the Company to
discontinue the accrual of interest on loans when, in the judgment of
management, the ultimate collectibility of principal or interest becomes
doubtful. The accrual of interest income generally is discontinued when a
loan becomes 90 days past due as to principal or interest. When interest
accruals are discontinued, unpaid interest credited to income is reversed.
Management may elect to continue the accrual of interest when the estimated
net
-9-
realizable value of collateral is sufficient to cover the principal balance
and accrued interest. Otherwise, interest income is subsequently recognized
only to the extent cash payments are received.
Interest on loans is accrued and included in income as earned based upon
contractual interest rates applied to outstanding principal balances.
Nonrefundable loan origination fees and related costs are deferred and
amortized as an adjustment to the related loan yield over the contractual
life of the loan. When loans are sold or fully repaid, any unamortized
fees, discounts and costs are recognized in income. Mortgage loans held
for sale are carried at the lower of aggregate cost or fair value. Gains
and losses on sales of mortgages are recognized at the time of sale.
A loan is considered to be impaired when it is probable, based on current
information and events, that the Company will be unable to collect all
amounts due according to the contractual terms of the loan agreement.
All loans are individually evaluated for impairment, except for smaller
balance homogenous residential and consumer loans which are evaluated in
aggregate, according to the Company's normal loan review process, including
overall credit evaluation, nonaccrual status and payment experience. Loans
identified as impaired are further evaluated to determine the estimated extent
of impairment. Impaired loans are measured based on the present value of
expected future cash flows, discounted at each loan's effective interest
rate, or the fair value of the collateral for certain collateral-dependent
loans. For collateral-dependent loans, the extent of impairment is the
shortfall, if any, between the collateral value, less costs to dispose of
such collateral, and the carrying value of the loan.
The allowance for loan losses is based on management's estimate of the amount
required to reflect the risks in the loan portfolio, based on circumstances
and conditions known or anticipated at each reporting date. The methodology
for assessing the appropriateness of the allowance consists of a review of
the following three key elements:
* The valuation allowance for loans specifically identified as impaired
* The formula allowance for the various loan portfolio classifications
* The imprecision allowance
The valuation allowance reflects specific estimates of potential losses on
individually impaired loans. When each impaired loan is evaluated, if the net
present value of the expected cash flows (or fair value of the collateral
if the loan is collateral-dependent) is lower than the recorded loan
balance, the difference represents the valuation allowance for that loan.
The formula allowance is a percentage-based estimate based on historical loss
experience and assigns required allowance allocations by loan classification
based on fixed percentages of all outstanding loan balances. The formula
allowance employs a risk-rating model that grades loans based on their
general characteristics of credit quality and relative risk. When a loan's
credit quality becomes suspect, it is placed on the Company's internal "watch
list" and its allowance allocation is increased. For the remainder of the loan
portfolio, appropriate allowance levels are estimated based on judgments
regarding the type of loan, economic conditions and trends, potential exposure
to loss and other factors. Losses are charged against the allowance when
management believes the collectibility of principal is doubtful.
In addition to the valuation allowance and the formula allowance, there is an
imprecision allowance that is determined based on the totals of the valuation
and formula allowances. The imprecision allowance reflects the measurement
imprecision inherent in determining the valuation allowance and the formula
allowance. It represents 15% - 25% of the valuation and formula allowances,
depending on management's evaluation of various conditions, the effects of
which are not directly measured in determining the valuation and formula
allowances. The evaluation of the inherent loss resulting from these
conditions involves a higher level of uncertainty because they are not
identified with specific problem credits or portfolio segments. The conditions
evaluated in connection with the imprecision allowance include the following:
* Levels of and trends in delinquencies and impaired loans
* Levels of and trends in charge-offs and recoveries
* Trends in loan volume and terms
* Effects of changes in credit concentrations
* Effects of and changes in risk selection and underwriting standards, and
other changes in lending policies, procedures and practices
* National and local economic conditions
* Trends and duration of the present business cycle
* Findings of internal and external credit review examiners
-10-
When an evaluation of these conditions signifies a change in the level of risk,
the Company adjusts the formula allowance. Periodic credit reviews enable
further adjustment to the formula allowance through the risk rating of loans
and the identification of loans requiring a valuation allowance. In addition,
the formula allowance model is designed to be self-correcting by taking into
consideration recent actual loss experience.
In accordance with Statement of Financial Accounting Standard ("SFAS") No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities", the Company capitalizes the rights to service mortgage loans
for others and assesses those rights for impairment based on the fair value of
those rights. The loan servicing asset, included in other assets, represents
the estimated present value of the servicing income resulting from the sale of
loans with servicing rights retained. This amount is amortized over the
estimated lives of the underlying loans serviced. The loan servicing asset
totaled $199,174 and $187,066 at December 31, 2001 and 2000, respectively. At
December 31, 2001 and 2000, the Company was servicing mortgage loans for others
of approximately $80,189,000 and $88,944,000, respectively. Amortization of
these servicing rights totaled $70,541 and $66,475 for the years ended December
31, 2001 and 2000, respectively.
Bank premises and equipment
Land, buildings, leasehold improvements and furniture and equipment held for
banking purposes are stated at cost, less accumulated depreciation.
Depreciation is computed principally on the straight-line method over the
shorter of the estimated useful lives of the assets or the related lease
term. Expenditures for maintenance, repairs and renewals of minor items
are charged to expense as incurred.
Premises and equipment are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Based on its review, the Company does not believe that any
material impairment of its long-lived assets has occurred. Long-lived
assets to be disposed of are reported at the lower of the carrying amount
or fair value less cost to sell.
Securities sold under repurchase agreements
The Company sells securities under open-ended repurchase agreements with
certain customers. The principal balance of the repurchase agreements
changes daily. Specific securities are not sold and securities are not
transferred to the name of the customers. Instead, the Company has granted
the customer an interest in a portion of the U.S. Government securities and
U.S. Government agency securities held in the Company's investment portfolio.
The Company also sells term repurchase agreements that generally mature within
365 days from the transaction date.
Income taxes
The Company records income taxes under the liability method. Under this
method, deferred tax assets and liabilities are established for the temporary
differences between the accounting basis and the tax basis of the Company's
assets and liabilities. Deferred taxes are measured using enacted tax rates
that are expected to be in effect when the amounts related to such temporary
differences are realized or settled. The Company's deferred tax asset is
reviewed quarterly and adjustments are recognized in the provision for income
taxes based on management's judgments related to its realizability.
Earnings per share
The Company adopted SFAS No. 128, "Earnings Per Share", effective December
31, 1997. SFAS No. 128 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. Earnings per share is based
on the weighted average number of shares outstanding during the year.
Reclassifications
Certain amounts in prior year's financial statements have been reclassified
to be consistent with the current year's presentation. The reclassifications
have no effect on net income.
-11-
Recent accounting pronouncements
In March 2000, the Emerging Issues Task Force reached a consensus on Issue
No. 00-2, "Accounting for Web Site Development Costs," ("EITF Issue No. 00-2")
to be applicable to all Web site development costs incurred for fiscal
quarters beginning after June 30, 2000. The consensus states that for
specific Web site development costs, the accounting for such costs should
be based generally on a model consistent with AICPA SOP 98-1. The adoption
of EITF Issue No. 00-2 did not have any material effect on the Company's
financial statements or results of operations.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities".
SFAS No. 133 establishes 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 qualified 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 the transactions that receive hedge accounting. SFAS
No. 133, as amended by SFAS No. 137, is effective for fiscal years beginning
after June 15, 2000. The Company has adopted SFAS No. 133 as of January 1,
2001 and there was no material impact on the Company's financial statements
or results of operations upon adoption.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations"
("SFAS No. 141"), and SFAS No. 142, "Goodwill And Other Intangible Assets".
SFAS No. 141 addresses the accounting for acquisitions of business and is
effective for acquisitions occurring on or after July 1, 2001. SFAS No. 142
addresses the method of identifying and measuring goodwill and other
intangible assets acquired in a business combination, eliminates further
amortization of existing goodwill, and requires periodic evaluations of
impairment of goodwill balances. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. Upon adoption, SFAS No. 142 will not
have an impact on the financial position or the results of the Company
as the Company currently does not have any goodwill or intangible assets.
Going forward, should the Company enter into an acquisition, these statements
would be applicable.
In October 2001, the FASB issued SFAS No. 144, 'Accounting for the Impairment
or Disposal of Long-Lived Assets'. SFAS No. 144 addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. This
Statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" and the accounting and
reporting provisions of APB Opinion No. 30 "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions",
for the disposal of a segment of a business (as previously defined in that
Opinion). This Statement also amends ARB No. 51, "Consolidated Financial
Statements", to eliminate the exception to consolidation for a subsidiary for
which control is likely to be temporary. SFAS No. 144 is effective for the
Company beginning on January 1, 2002. The Company does not believe the
adoption of this statement will have a material impact on its financial
statements or results of operations.
2. Operating segments
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 identified its reportable operating segment as "Community
Banking". The Company's community banking segment consists of commercial
and retail banking. The community banking segment is managed as a single
strategic unit and derives its revenues from a wide range of banking
services, including investing and lending activities and the acceptance
of demand, savings and time deposits. Nonreportable operating segments
of the Company's operations which do not have similar characteristics to
the community banking operations and do not meet the thresholds requiring
separate disclosure are included in the "Other" category in the disclosure
of business segments below. The nonreportable segment represents the
holding company financial information. (Note 12)
-12-
The accounting policies used in the disclosure of operating segments are the
same as those described in the summary of significant accounting policies
(Note 1). The consolidation adjustments reflect certain eliminations of
intersegment revenue, cash and investments in the subsidiary. Reportable
segment-specific information, and the reconciliation to consolidated financial
information, are as follows (dollars are in thousands):
Community Other Adjustments
Banking Other and Eliminations Consolidated
--------- ---------- ----------------- ------------
December 31, 2001
Investment securities $171,383 $ -- $ -- $ 171,383
Net loans 185,768 -- -- 185,768
Total assets 402,706 36,690 (36,690) 402,706
Total deposits 319,844 -- (778) 319,066
Total liabilities 367,173 379 (1,157) 366,393
Net interest income 16,861 13 -- 16,874
Provision for loan losses -- -- -- --
Total noninterest income 4,142 1,913 (1,913) 4,142
Total noninterest expense 13,248 390 (388) 13,250
Net income 5,070 5,081 (5,070) 5,081
- ---------------------------------------------------------------------------------------
December 31, 2000
Investment securities 142,552 -- -- 142,552
Net loans 173,217 -- -- 173,217
Total assets 374,868 32,098 (32,098) 374,868
Total deposits 307,656 -- (527) 307,129
Total liabilities 343,628 283 (858) 343,053
Net interest income 15,599 11 -- 15,610
Provision for loan losses -- -- -- --
Total noninterest income 3,488 1,597 (1,597) 3,488
Total noninterest expense 12,061 366 (365) 12,062
Net income 4,527 4,532 (4,527) 4,532
- ---------------------------------------------------------------------------------------
December 31, 1999
Investment securities 128,033 -- -- 128,033
Net loans 161,319 -- -- 161,319
Total assets 327,997 28,558 (28,558) 327,997
Total deposits 277,053 -- (631) 276,422
Total liabilities 300,351 247 (913) 299,685
Net interest income 14,000 11 -- 14,011
Provision for loan losses -- -- -- --
Total noninterest income 3,216 1,420 (1,420) 3,216
Total noninterest expense 11,136 352 (351) 11,137
Net income $ 3,910 $ 3,915 $ (3,910) $ 3,915
- ---------------------------------------------------------------------------------------
-13-
3. Securities
The amortized cost and fair values of securities at December 31, 2001 and
2000 were as follows:
2001
-----------------------------------------------------------
Gross Gross
Securities Held Amortized Unrealized Unrealized Fair
to Maturity Cost Gains Losses Value
--------------- --------- ---------- ---------- -----
U.S. Government agencies $ 18,343,989 $ 109,765 $ 62 $ 18,453,692
Corporate debt securities 5,208,056 131,974 -- 5,340,030
Obligations of states and
political subdivisions 20,348,183 744,808 -- 21,092,991
Mortgage-backed securities 53,365,859 877,368 54,493 54,188,734
------------ ---------- ---------- -----------
$ 97,266,087 $ 1,863,915 $ 54,555 $ 99,075,447
============ ========== ========== ===========
Gross Gross
Securities Held Amortized Unrealized Unrealized Fair
Available for Sale Cost Gains Losses Value
------------------ --------- ---------- ---------- -----
U.S. Government agencies $ 51,363,841 $ 1,177,560 $ 114,195 $ 52,427,206
Mortgage-backed securities 13,435,629 212,795 13,672 13,634,752
Preferred stock 6,569,675 65,250 -- 6,634,925
FHLBB stock 1,244,800 -- -- 1,244,800
Other securities 175,056 -- -- 175,056
------------ ---------- ---------- -----------
$ 72,789,001 $ 1,455,605 $ 127,867 $ 74,116,739
============ ========== ========== ===========
2000
-----------------------------------------------------------
Gross Gross
Securities Held Amortized Unrealized Unrealized Fair
to Maturity Cost Gains Losses Value
--------------- --------- ---------- ---------- -----
U.S. Government agencies $ 41,315,639 $ 15,009 $ 199,275 $ 41,131,373
Obligations of states and
political subdivisions 16,273,263 244,910 24,242 16,493,931
Mortgage-backed securities 34,852,620 60,814 235,925 34,677,509
------------ ---------- ---------- -----------
$ 92,441,522 $ 320,733 $ 459,442 $ 92,302,813
============ ========== ========== ===========
Gross Gross
Securities Held Amortized Unrealized Unrealized Fair
Available for Sale Cost Gains Losses Value
------------------ --------- ---------- ---------- -----
U.S. Government agencies $ 29,871,868 $ 309,898 $ 4,904 $ 30,176,862
Mortgage-backed securities 18,834,380 89,566 260,362 18,663,584
FHLBB stock 1,094,700 -- -- 1,094,700
Other securities 175,056 -- -- 175,056
------------ ---------- ---------- -----------
$ 49,976,004 $ 399,464 $ 265,266 $ 50,110,202
============ ========== ========== ===========
-14-
The amortized cost and fair value of securities at December 31, 2001 by
contractual maturity are shown in the following table. Actual maturities
may differ from contractual maturities because issuers may have the right
to call or prepay obligations with or without call or prepayment penalties.
Securities Held to Maturity Securities Available for Sale
--------------------------- -----------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----- --------- -----
Within one year $ 1,230,000 $ 1,230,000 $ 4,993,595 $ 5,105,620
One to five years 23,677,045 23,918,722 46,370,246 47,321,586
Five to ten years -- -- -- --
Ten to fifteen years 18,993,183 19,737,991 -- --
Mortgage-backed securities 53,365,859 54,188,734 13,435,629 13,634,752
Other securities -- -- 7,989,531 8,054,781
----------- ---------- ---------- ----------
$97,266,087 $99,075,447 $72,789,001 $74,116,739
========== =========== ========== ==========
Securities with a book value of $54,668,000 and $53,387,000 at December 31,
2001 and 2000, respectively, were pledged to secure public funds on deposit
and for other purposes. Proceeds from sales of securities available for sale
in 2001 were $9,200. There were no sales of securities in 2000 or 1999.
Gross realized gains and losses on sales of securities in 2001 were $9,200
and $0, respectively.
4. Loans
The composition of the loan portfolio at December 31, 2001 and 2000 was
as follows:
2001 2000
---- ----
Commercial and industrial $ 26,992,523 $ 24,206,232
Real estate - residential 81,230,647 76,945,192
Real estate - commercial 64,436,576 57,869,786
Real estate - residential
construction 1,628,221 2,076,868
Loans to individuals 13,547,871 14,165,381
Other 616,865 765,836
----------- -----------
Total loans $188,452,703 $176,029,265
============ ===========
The Company's lending activities are conducted primarily in central
Massachusetts, where commercial loans, commercial real estate loans, single
family and multifamily residential loans and a variety of consumer loans
are originated. The Company generally requires collateral when extending
credit and, with respect to loans secured by real estate, Company policy
requires appropriate appraisals and repayment sources. The ability and
willingness of the Company's borrowers to honor their repayment commitments
are impacted by many factors, including the level of overall economic
activity within the borrowers' geographic areas.
A summary of changes in the allowance for loan losses for the years ended
December 31, 2001, 2000 and 1999 follows:
2001 2000 1999
------ ------ ------
Balance at beginning of year $2,812,392 $3,041,873 $2,981,012
Provision for possible losses -- -- --
Charge-offs (262,967) (470,934) (112,538)
Recoveries 135,092 241,453 173,399
--------- --------- ---------
Balance at end of year $2,684,517 $2,812,392 $3,041,873
========= ========= =========
-15-
Total impaired loans at December 31, 2001 and 2000 that required a related
allowance were $0 and $143,000, respectively, and the allowance allocated
to such loans was $0 and $30,000 respectively. In addition, at December 31,
2001 and 2000, the Company had impaired loans of $320,032 and $415,354,
respectively, that did not require a related allowance. Interest payments
on impaired loans are recorded as principal reductions if the remaining loan
balance is not expected to be repaid in full. If full collection of the
remaining loan balance is expected, interest payments are recognized as
interest income on a cash basis. Impaired loans averaged $469,236 and
$685,623 during 2001 and 2000, respectively. The Company recorded interest
income on impaired loans of $79,020 $37,370 and $100,081 during 2001, 2000
and 1999, respectively.
At December 31, 2001 and 2000, accruing loans 90 days or more past due
totaled $12,949 and $1,940, respectively, and nonaccruing loans totaled
$320,032 and $558,354, respectively. Troubled debt restructurings were $0
and $57,611 at December 31, 2001 and 2000, respectively, and were included
in impaired loans. The reduction of interest income associated with
nonaccrual and restructured loans for the years ended December 31, 2001,
2000 and 1999 was as follows:
2001 2000 1999
---- ---- ----
Interest income per original terms $ 96,624 $ 83,654 $ 154,141
Income recognized 79,020 37,370 100,081
-------- -------- --------
Foregone interest income $ 17,604 $ 46,284 $ 54,060
======== ======== ========
5. Bank Premises and Equipment
A summary of bank premises and equipment at December 31, 2001 and 2000 follows:
Estimated
2001 2000 Useful Life
---------- ---------- -----------
Land $ 1,069,062 $ 1,069,062
Buildings 5,120,562 5,008,907 30 - 40 years
Land and leasehold improvements 683,328 664,901 1 - 15 years
Furniture and equipment 3,751,880 3,723,277 3 - 10 years
----------- -----------
10,624,832 10,466,147
Less accumulated depreciation and
amortization 4,484,355 4,231,506
----------- -----------
$ 6,140,477 $ 6,234,641
=========== ===========
Total depreciation and amortization expense for the years ended December 31,
2001, 2000 and 1999 was $1,016,058, $974,945 and $906,015, respectively.
6. Deposits
A summary of deposits at December 31, 2001 and 2000 follows:
2001 2000
---- ----
Demand deposits $ 78,513,849 $ 75,969,408
Money-market deposits 32,721,406 34,688,800
NOW and FlexValue deposits 45,120,663 43,511,182
Cash management investment deposits 20,755,655 27,839,064
Savings deposit 40,610,123 38,470,706
Time certificates of deposit in
denominations of $100,000 or more 42,178,527 30,611,400
Other time deposits 59,166,116 56,038,272
----------- -----------
$319,066,339 $307,128,832
=========== ============
-16-
The following is a summary of original maturities of time deposits as of
December 31, 2001:
<CAPTION
2002 $ 82,355,580
2003 7,684,768
2004 3,216,744
2005 4,842,770
2006 3,244,781
-----------
$ 101,344,643
============
7. Borrowed Funds
At December 31, 2001, borrowed funds totaled $10,000,000. This amount
Represents a one-year advance from the Federal Home Loan Bank of Boston
(FHLBB") at an interest rate of 2.48%. The advance is secured by FHLBB
stock and a pledge of certain assets as collateral, and it matures in
December of 2002. There were no FHLBB advances outstanding at December
31, 2000.
8. Income Taxes
The components of income tax expense for the years ended December 31, 2001,
2000 and 1999 are as follows:
2001 2000 1999
---- ---- ----
Current:
Federal $ 2,114,562 $ 2,050,453 $ 1,644,242
State 570,561 479,375 438,344
---------- ---------- ----------
Total current 2,685,123 2,529,828 2,082,586
---------- ---------- ----------
Deferred:
Federal 85 (19,067) 68,392
State 29 (6,579) 25,599
---------- ---------- ----------
Total deferred (prepaid) 114 (25,646) 91,991
---------- ---------- ----------
Total $ 2,685,237 $ 2,504,182 $ 2,174,577
========== ========== ==========
The difference between the income tax provision computed by applying the
statutory federal income tax rate of 34% to income before income taxes and
the actual income tax provision is summarized below:
2001 2000 1999
---- ---- ----
Income tax expense
at statutory rates $ 2,640,466 $ 2,392,342 $ 2,070,524
State income taxes, net of
federal income tax benefit 376,589 312,045 304,883
Tax-exempt interest (286,696) (209,009) (206,274)
Other, net (45,122) 8,804 5,444
--------- ---------- ----------
$ 2,685,237 $ 2,504,182 $ 2,174,577
========= ========== ==========
The Company has recorded in other assets a net deferred tax asset of
$64,698. Realization is dependent on the generation of sufficient
taxable income in future years. Although realization is not assured,
management believes it is more likely than not that the full amount of
the net deferred tax asset will be realized. However, the amount
realizable could be reduced if estimates of future taxable income are
reduced.
-17-
At December 31, 2001 and 2000, the Company's net deferred tax asset, included
in other assets in the accompanying consolidated balance sheets, consisted of
the following components:
2001 2000
---- ----
Gross deferred tax asset:
Provision for possible loan losses $ 821,916 $ 874,255
Employee benefits and other
compensation arrangements 255,057 327,280
Other 23,822 19,883
--------- ---------
1,100,795 1,221,418
Gross deferred tax liability:
Accelerated tax depreciation (102,523) (133,516)
SFAS No. 115 adjustment (543,444) (55,287)
Other (390,130) (479,287)
--------- ---------
(1,036,097) (668,090)
--------- ---------
Net deferred tax asset $ 64,698 $ 553,328
========= =========
9. Employee Benefits
The Company has a defined benefit pension plan covering all eligible
employees. The benefits are based on years of service and the employees'
compensation as defined in the Plan agreement. The Company's funding
policy is to make annual contributions to the Plan equal to at least the
minimum amount required for actuarial purposes. Contributions are intended
to provide not only for benefits attributed to service to date, but also
for those to be earned in the future.
The following table sets forth the Plan's funded status and amounts
recognized in the Company's consolidated balance sheets at December 31,
2001 and 2000:
2001 2000
---- ----
Change in benefit obligation:
Benefit obligation at beginning of year $(3,832,387) $(3,315,486)
Service cost (273,486) (230,182)
Interest cost (281,078) (251,629)
Plan amendments (34,834) --
Actuarial (loss) (205,083) (265,815)
Benefits paid 21,497 230,725
--------- ---------
Benefit obligation at end of year (4,605,371) (3,832,387)
--------- ---------
Change in plan assets:
Fair value of assets at beginning of year 3,477,799 3,317,895
Actual return on plan assets (97,812) 78,121
Employer contributions 437,686 312,508
Benefits paid (21,497) (230,725)
--------- ---------
Fair value of plan assets at end of year 3,796,176 3,477,799
--------- ---------
Funded status (806,195) (354,588)
Unrecognized net loss 1,314,142 745,348
Unrecognized prior service cost 41,730 8,276
Unrecognized net asset (17,908) (26,861)
--------- ---------
Prepaid benefit cost $ 531,769 $ 372,175
========= =========
-18-
The following weighted-average assumptions were used in accounting for the
Company's pension plan for the years ended December 31, 2001, 2000 and 1999:
2001 2000 1999
---- ---- ----
Discount rate 7.00% 7.25% 7.50%
Expected return on plan assets 8.00% 8.00% 8.00%
Rate of compensation increase 4.00% 4.00% 4.00%
Net periodic benefit cost for the years ended December 31, 2001, 2000 and
1999 included the following components:
2001 2000 1999
---- ---- ----
Service cost $ 273,486 $ 230,182 $ 249,962
Interest cost 281,078 251,629 233,992
Expected return on plan assets (293,994) (272,190) (244,119)
Amortization of prior service cost 1,380 1,380 1,380
Amortization of transition obligation (8,953) (8,953) (8,953)
Recognized net (gain) loss 25,095 3,043 26,977
-------- --------- ---------
Net periodic benefit cost $ 278,092 $ 205,091 $ 259,239
========= ========= =========
The Company has a 401(k) Savings Plan that covers all eligible employees. The
Company matches a percentage of each participant's annual contribution to the
plan as determined by the Board of Directors each year. Compensation expense
recorded in 2001, 2000 and 1999 related to this plan was approximately $97,400
$81,400 and $85,800, respectively.
The Company had an Employee Stock Ownership Plan ("ESOP") that enabled eligible
employees to own common stock. Annual cash contributions of $70,000 were made
to the ESOP in 2001, 2000 and 1999. The ESOP was merged into the 401(k) Savings
Plan effective December 31, 2001.
The Company has a post-retirement medical plan covering all eligible employees,
for which an accrued liability of $43,139 and $30,775 was recorded at December
31, 2001 and 2000, respectively. The net periodic benefit cost of this plan
was $15,240, $13,890 and $12,397 in 2001, 2000 and 1999, respectively.
During 2001 the Company implemented two stock option plans, the 2001 Incentive
Stock Option Plan for Key Employees and the 2001 Directors' Plan. These plans
provide for the granting of options to employees and directors to purchase
shares of the Company's common stock.
A total of 119,374 options were granted during the year, having a weighted
average exercise price of $10.00. Of the total granted options, 21,308 options
were forfeited during the year. At December 31, 2001 a total of 98,066 options
were outstanding at a weighted average exercise price of $10.00, with a
weighted average remaining contractual life of nine years. A total of 317,934
shares were available for future grant.
The FASB has issued Statement of Financial Accounting Standard No. 123,
"Accounting for Stock-Based Compensation", ("SFAS No. 123"), which requires
stock-based compensation to be either recorded or disclosed at its fair value.
As permitted by SFAS No. 123, the Company has elected to account for
stock-based compensation under Accounting Principles Board Opinion No. 25. Had
compensation cost for awards made in 2001 under the Company's stock option
plans been determined based on the fair value at the grant dates, consistent
with the method set forth under SFAS No. 123, the Company's pro forma net
income would have been reduced from $5,080,838 to $5,027,910, and basic
earnings per share and diluted earnings per share would each have been reduced
from $.86 to $.85. Pro forma compensation expense for options granted is
reflected over the vesting period. Therefore, future pro forma compensation
expense may be greater as additional options are granted. Because the
Company's two stock option plans were implemented in 2001, there is no pro
forma impact on net income or earnings per share in 2000 or 1999.
The fair value of each option grant is estimated on the grant date using the
Black-Scholes option-pricing model. For purposes of those estimates, the
following weighted-average assumptions were used in 2001: 1) volatility =
20.4%, 2) dividend yield = 2.14%, 3) risk-free interest rate = 4.41%, and 4)
expected option life = 6 years. The weighted average fair value of options
granted during the year was $2.23.
-19-
10. Commitments
The Company leases branch offices and equipment under noncancelable agreements
expiring at various dates through 2008 that require various minimum annual
rentals. Rental expense totaled approximately $283,000, $262,000 and $246,000,
for 2001, 2000 and 1999, respectively. The total future minimum rental
commitments at December 31, 2001 aggregate $1,091,283. Rental commitments
for each of the next five fiscal years and thereafter are as follows:
2002 $277,340
2003 242,894
2004 166,400
2005 166,400
2006 87,049
Thereafter 151,200
The Company is not party to any legal proceedings. The Bank is involved in
various routine legal actions arising in the normal course of business, none
of which is believed by management, based on its knowledge of the pertinent
facts and opinions of legal counsel, to be material to the financial
condition or operations of the Company.
11. Loans to Related Parties
The schedule below discloses indebtedness of certain parties related to
the Company:
Balance Balance
January 1 New Loans Repayments December 31
---------- --------- ---------- -----------
2000 $ 5,873,747 $2,906,641 $ 1,262,575 $ 7,517,813
2001 $ 7,517,813 $2,493,049 $ 1,556,509 $ 8,454,353
These loans were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unrelated persons and do not involve more than normal
risk of collectibility.
-20-
12. Condensed Financial Information of Community Bancorp, Inc.
The following tables disclose certain parent-company-only financial
information at December 31, 2001 and 2000, and for each of the three
years in the period ended December 31, 2001:
Balance Sheets
2001 2000
---- ----
Assets:
Cash and cash equivalents $ 779,889 $ 527,417
Investment in subsidiary, at equity 35,488,957 31,239,102
Other assets 421,619 331,209
---------- ----------
Total assets $ 36,690,465 $ 32,097,728
=========== ==========
Liabilities and stockholders' equity:
Other liabilities $ 379,466 $ 282,857
---------- ----------
Total liabilities 379,466 282,857
---------- ----------
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, 6,398,436 shares issued,
5,940,606 shares outstanding, (5,914,441 shares
outstanding at December 31, 2000) 15,996,090 15,996,090
Surplus 219,120 101,378
Undivided profits 21,608,513 18,052,893
Treasury stock at cost, 457,830 shares
(483,995 shares at December 31, 2000) (2,297,019) (2,414,762)
Accumulated other comprehensive income 784,295 79,272
---------- ----------
Total stockholders' equity 36,310,999 31,814,871
---------- ----------
Total liabilities and stockholders' equity $36,690,465 $32,097,728
=========== ==========
Statements of Income
Years ended December 31,
-----------------------------------------
2001 2000 1999
---- ---- ----
Income:
Dividends from subsidiary $ 1,525,218 $ 1,236,481 $ 1,073,397
Other income 400,319 371,680 357,592
----------- ----------- ----------
Total income 1,925,537 1,608,161 1,430,989
----------- ----------- ----------
Expenses:
Other 389,530 366,231 352,237
----------- ----------- ----------
Total expenses 389,530 366,231 352,237
----------- ----------- ----------
Income before undistributed net
income of subsidiary 1,536,007 1,241,930 1,078,752
Equity in undistributed net income
of subsidiary 3,544,831 3,290,189 2,836,465
----------- ----------- ----------
Net income $ 5,080,838 $ 4,532,119 $ 3,915,217
=========== =========== ===========
-21-
Statements of Cash Flows
Years ended December 31,
-----------------------------------------
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net income $ 5,080,838 $ 4,532,119 $ 3,915,217
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed net income
of subsidiary bank (3,544,831) (3,290,189) (2,836,465)
Increase in other assets (90,411) (49,903) (30,996)
Increase in other liabilities 96,609 35,823 29,356
---------- ---------- ----------
Total adjustments (3,538,633) (3,304,269) (2,838,105)
---------- ---------- ----------
Net cash provided by operating activities 1,542,205 1,227,850 1,077,112
---------- ---------- ----------
Cash flows from financing activities:
Purchase of treasury stock -- (327,132) (630)
Reissuance of treasury stock 235,485 231,720 261,744
Dividends declared (1,525,218) (1,236,481) (1,073,397)
---------- ---------- ----------
Net cash used in financing activities (1,289,733) (1,331,893) (812,283)
---------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents 252,472 (104,043) 264,829
Cash and cash equivalents at beginning of year 527,417 631,460 366,631
---------- ---------- ----------
Cash and cash equivalents at end of year $ 779,889 $ 527,417 $ 631,460
========== ========== ===========
Cash and cash equivalents consist of a money market demand deposit account
on deposit with the subsidiary bank.
The approval of the Comptroller of the Currency is required for a national
bank to pay dividends if the total of all dividends declared in any calendar
year exceeds the bank's net profits (as defined) for that year combined with
its retained net profits for the preceding two calendar years. During 2002,
Community National Bank can, under this formula, declare dividends to
Community Bancorp, Inc. of approximately $6,835,000, plus an additional
amount equal to the Bank's net profit for 2002, up to the date of any such
dividend declaration, without the approval of the Comptroller of the Currency.
13. Financial Instruments With Off-Balance-Sheet Risk
The Company is party to financial instruments with off-balance-sheet risk in
the normal course of business. These financial instruments primarily consist
of commitments to extend credit and standby letters of credit. Loan commitments
are made to accommodate the financial needs of the Company's customers. Standby
letters of credit commit the Company to make payments on behalf of customers
when certain specified future events occur. They are primarily issued to
guarantee other customer obligations. Both arrangements have credit risk
essentially the same as that involved in extending loans to customers and
are subject to the Company's normal credit policies. Collateral typically
is obtained based on management's credit assessment of the customer. Loan
commitments and standby letters of credit usually have fixed expiration
dates or other termination clauses. Some commitments and letters of credit
expire without being drawn upon. Accordingly, the total commitment amounts do
not necessarily represent future cash requirements of the Company.
-22-
The Company's maximum exposure to credit loss for loan commitments (unfunded
loans and unused lines of credit) and standby letters of credit outstanding
at December 31, 2001 and 2000 was as follows:
2001 2000
---- ----
Commitments to extend credit:
Fixed-rate (6.99% to 9.00%) $ 333,703 $ 504,621
Adjustable rate 46,346,842 46,344,615
Standby letters of credit $ 665,861 $ 469,287
=========== ===========
Commitments to extend credit on a fixed-rate basis expose the Company to a
certain amount of interest rate risk if market rates of interest
substantially increase during the commitment period.
The Company has also sold mortgage loans with recourse in the event of the
default of the borrower. Loans sold with recourse are accounted for as sales
in the accompanying financial statements, with provisions made for anticipated
losses under the recourse provisions. At December 31, 2001 and 2000, the
outstanding balance of such mortgages totaled approximately $27,200 and
$47,800, respectively.
Fees associated with the Company's off-balance-sheet financial instruments are
minimal; therefore, the fair value of off-balance-sheet financial instruments
is not material.
14. Regulatory Capital
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary, actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices.
The Bank's capital amounts and classifications are also subject to
qualitative judgments by the regulators about components, risk weightings
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios
(set forth in the following table) of total and Tier 1 capital (as defined in
the regulations) to risk-weighted assets (as defined), and of Tier 1 capital
(as defined) to average assets (as defined). Management believes, as of
December 31, 2001, that the Company and the Bank met all capital adequacy
requirements to which they are subject.
As of December 31, 2001 and 2000, the most recent notification from the Office
of the Comptroller of the Currency categorized the Bank as "well capitalized"
under the regulatory framework for prompt corrective action. To be
categorized as "well capitalized", the Bank must maintain total risk-based,
Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table.
There are no conditions or events since that notification that management
believes have changed the Bank's category.
-23-
The Company's and the Bank's actual capital amounts and ratios at December 31,
2001 and 2000 are presented in the following table (dollars are in thousands):
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------- ----------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of December 31, 2001:
Company (consolidated):
Total capital
(to risk-weighted >
assets) $38,191 17.07% $17,899 - 8.00% N/A N/A
Tier 1 capital
(to risk-weighted >
assets) 35,507 15.87% 8,949 - 4.00% N/A N/A
Tier 1 capital >
(to average assets) 35,507 9.21% 15,423 - 4.00% N/A N/A
Bank:
Total capital
(to risk-weighted > >
assets) 37,369 16.70% 17,899 - 8.00% $22,373 - 10.00%
Tier 1 capital
(to risk-weighted > >
assets) 34,685 15.50% 8,949 - 4.00% 13,424 - 6.00%
Tier 1 capital > >
(to average assets) 34,685 9.00% 15,423 - 4.00% 19,279 - 5.00%
As of December 31, 2000:
Company (consolidated):
Total capital
(to risk-weighted >
assets) $34,213 17.16% $15,947 - 8.00% N/A N/A
Tier 1 capital
(to risk-weighted >
assets) 31,717 15.91% 7,974 - 4.00% N/A N/A
Tier 1 capital >
(to average assets) 31,717 9.12% 13,915 - 4.00% N/A N/A
Bank:
Total capital
(to risk-weighted > >
assets) 33,637 16.87% 15,947 - 8.00% $19,934 - 10.00%
Tier 1 capital
(to risk-weighted > >
assets) 31,141 15.62% 7,974 - 4.00% 11,960 - 6.00%
Tier 1 capital > >
(to average assets) 31,141 8.95% 13,915 - 4.00% 17,394 - 5.00%
-24-
15. Disclosures about Fair Value of Financial Instruments
In December 1991, the FASB issued SFAS No. 107, "Disclosures About Fair Value
of Financial Instruments". This statement requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. In that regard, the derived fair
value estimates cannot be substantiated by comparison to independent markets
and, in many cases, could not be realized in immediate settlement of the
instrument. SFAS No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly,
the aggregate fair value amounts presented do not represent the underlying
value of the Company. The following methods and assumptions were used by
the Company in estimating its fair value disclosures for financial instruments:
Cash and due from banks and federal funds sold: The carrying amounts reported
in the balance sheet for cash and due from banks and federal funds sold
approximate those assets' fair values.
Securities (including mortgage-backed securities, securities held to maturity
and securities available for sale): Fair values for securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
values. The fair values for certain one-to-four family residential
mortgages are based on quoted market prices of similar loans sold in
conjunction with securitization transactions, adjusted for differences
in loan characteristics. The fair values for credit card loans and other
consumer loans are based on carrying values, as the loans reprice
frequently at current market rates. The fair values for other loans
(e.g., commercial real estate and rental property mortgage loans, and
commercial and industrial loans) are estimated using discounted cash
flow analysis, using interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality. The carrying
amount of accrued interest receivable approximates its fair value.
Off-balance-sheet instruments: The fair value of lending commitments discussed
in Note 13 is not considered material nor has it been reflected in the
estimation of the fair value of the related loans.
Deposit liabilities: The fair values disclosed for demand deposits (e.g.,
interest and noninterest checking, passbook savings and certain types of
money market accounts) are, by definition, equal to the amount payable on
demand at the reporting date (i.e., their carrying amounts). The carrying
amounts for variable-rate, fixed-term money market accounts approximate
their fair values at the reporting date. Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on
time deposits.
Short-term borrowings: The carrying amounts of federal funds purchased,
borrowings under repurchase agreements and other short-term borrowings
approximate their fair values.
Commitments to extend credit/sell loans: The fair value of commitments is
estimated using the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the present
creditworthiness of customers. For fixed-rate loan commitments and
obligations to deliver fixed-rate loans, fair value also considers the
difference between committed rates and current levels of interest rates.
Values not determined: SFAS No. 107 excludes certain financial instruments
from its disclosure requirements, including real estate included in banking
premises and equipment, the intangible value of the Bank's portfolio of loans
serviced (both for itself and for others) and related servicing network and
the intangible value inherent in the Bank's deposit relationships (i.e. core
deposits) among others. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Bank.
-25-
The carrying amount and estimated fair values of the Bank's financial
instruments at December 31, 2001 and 2000 are as follows:
2001
-----------------------------
Carrying Estimated
Amount Fair Value
------------ -----------
Financial instrument assets:
Cash and due from banks $ 19,876,999 $ 19,876,999
Federal funds sold 12,912,746 12,912,746
Securities 171,382,826 173,192,186
Loans, including held for sale, net 187,678,099 193,421,254
Financial instrument liabilities:
Deposits 319,066,339 320,944,948
Short-term borrowings 34,023,288 34,023,288
FHLBB borrowing 10,000,000 10,000,000
2000
-----------------------------
Carrying Estimated
Amount Fair Value
------------ -----------
Financial instrument assets:
Cash and due from banks $ 16,472,547 $ 16,472,547
Federal funds sold 31,136,266 31,136,266
Securities 142,551,724 142,413,015
Loans, including held for sale, net 173,512,615 176,915,858
Financial instrument liabilities:
Deposits 307,128,832 307,295,190
Short-term borrowings 33,463,166 33,463,166
-26-
Report of Independent Public Accountants
[The following report appears on Arthur Andersen LLP letterhead]
Report of Independent Public Accountants
To the Board of Directors and Stockholders
of Community Bancorp, Inc.:
We have audited the accompanying consolidated balance sheets of Community
Bancorp, Inc. (a Massachusetts Corporation) and subsidiary as of December 31,
2001 and 2000, and the related consolidated statements of income,
comprehensive income, stockholders' equity and cash flows for the three
years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Community Bancorp,
Inc. and subsidiary as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for the three years then ended, in conformity
with accounting principals generally accepted in the United States.
/s/ Arthur Andersen LLP
Boston, Massachusetts
January 18, 2002
-27-
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Summary
The Company recorded net income of $5,080,838 for the year ended December
31, 2001, representing an increase of $548,719 or 12.1% over $4,532,119
recorded in 2000. Earnings per share of $.86 for the current year compared
to $.77 for the year ended December 31, 2000. The improvement in net income
resulted primarily from increases in net interest income and noninterest
income, partially offset by an increase in noninterest expense.
Loans of $188,452,703 at December 31, 2001 increased by $12,423,438 or 7.1%
from $176,029,265 at December 31, 2000. The increase took place primarily in
the commercial loan and residential mortgage categories. Noncurrent loans
(nonaccrual loans, troubled debt restructurings and loans 90 days or more
past due but still accruing) totaled $332,981 and $560,295 at December 31,
2001 and 2000, respectively.
Assets of $402,705,744 at December 31, 2001 represented a $27,838,233 or 7.4%
increase over $374,867,511 at December 31, 2000.
Deposits of $319,066,339 at December 31, 2001 increased by $11,937,507 or
3.9% from $307,128,832 at December 31, 2000. The increase occurred in both
interest bearing and noninterest bearing deposit categories.
2001 Compared to 2000
Interest income for the year ended December 31, 2001 was $25,507,838,
representing an increase of $543,173 or 2.2% over $24,964,665 for the year
ended December 31, 2000, primarily due to a $38,332,844 or 11.9% increase in
average earning assets, partially offset by lower average interest rates,
during 2001. The weighted average taxable equivalent yield on net earning
assets was 7.20% and 7.82% in 2001 and 2000, respectively. Interest expense of
$8,634,144 in 2001 represented a decrease of $720,448 or 7.7% from $9,354,592
in 2000, primarily due to lower average interest rates, partially offset by a
$27,764,693 or 11.1% increase in average interest bearing liabilities, during
2001. The weighted average cost of interest bearing liabilities was 3.11% in
2001 and 3.75% in 2000. Net interest income for 2001 was $16,873,694,
representing an increase of $1,263,621 or 8.1% over $15,610,073 recorded in
2000.
Noninterest income for the year ended December 31, 2001 was $4,142,300,
representing an increase of $654,255 or 18.8% from $3,488,045 in 2000. This
increase resulted primarily from increases in merchant credit card processing
assessments, other charges, commissions and fees, and gains on sales of loans.
Noninterest expense for the year ended December 31, 2001 of $13,249,919
represented an increase of $1,188,102 or 9.9% from $12,061,817 recorded during
2000. This increase was primarily the result of increases in salaries and
employee benefits, information technology and ATM network, occupancy, credit
card processing, professional fees and other expense, partially offset by
reductions in printing, stationery and supplies and marketing and advertising
expense.
There was no provision for loan losses in 2001 or 2000, reflecting management's
continuing evaluation of the adequacy of the allowance for loan losses and its
belief that the allowance is adequate. Management will continue its ongoing
assessment of the adequacy of the allowance for loan losses during 2002 and may
adjust the provision for loan losses if necessary.
Income tax expense was $2,685,237 for the year ended December 31, 2001,
compared to $2,504,182 for 2000, resulting from an increase in taxable income
during the current period. The Company's effective tax rate decreased to
34.6% in 2001 from 35.6% in 2000 due to favorable tax rates on certain
investment income.
Net income of $5,080,838 for the year ended December 31, 2001 represented an
increase of $548,719 or 12.1% over $4,532,119 recorded in 2000. Earnings per
share of $.86 in 2001 represented an increase of $.09 from $.77 in 2000.
2000 Compared to 1999
Interest income for the year ended December 31, 2000 was $24,964,665,
representing an increase of $3,123,940 or 14.3% over $21,840,725 for the year
ended December 31, 1999, primarily due to a $33,309,935 or 11.5% increase in
average earning assets, and higher average interest rates, during 2000. The
weighted average taxable equivalent yield on net earning assets was 7.82% and
7.61% in 2000 and 1999, respectively. Interest expense of $9,354,592 in 2000
represented an increase of $1,524,924 or 19.5% from $7,829,668 in 1999,
primarily due to a $23,599,941 or 10.4% increase in average interest bearing
liabilities, and higher average interest rates, during 2000. The weighted
average cost of interest bearing liabilities was 3.75% in 2000 and 3.46% in
1999. Net interest income for 2000 was $15,610,073, representing an increase
of $1,590,016 or 11.4% compared to $14,011,057 recorded in 1999.
-28-
Noninterest income for the year ended December 31, 2000 was $3,488,045,
representing an increase of $272,299 or 8.5% from $3,215,746 in 1999. This
increase resulted primarily from increases in merchant credit card processing
assessments, service charges and gains on sales of loans, partially offset by
a reduction in other charges, commissions and fees.
Noninterest expense for the year ended December 31, 2000 of $12,061,817
represented an increase of $924,808 or 8.3% from $11,137,009 recorded during
1999. This increase was the result of increases in salaries and employee
benefits, information technology and ATM network, occupancy, credit card
processing and other expense, partially offset by reductions in printing,
stationery and supplies, professional fees and marketing and advertising
expense.
There was no provision for possible loan losses in 2000 or 1999, reflecting
management's continuing evaluation of the adequacy of the allowance for
possible loan losses and its belief that the allowance is adequate.
Income tax expense was $2,504,182 for the year ended December 31, 2000,
compared to $2,174,577 for 1999, resulting from an increase in taxable income
during the current period. The Company's effective tax rate declined slightly
to 35.6% in 2000 from 35.7% in 1999 due to favorable tax rates on certain
investment income.
Net income of $4,532,119 for the year ended December 31, 2000 represented an
increase of $616,902 or 15.8% over $3,915,217 recorded in 1999. Earnings per
share of $.77 in 2000 represented an increase of $.11 from $.66 in 1999.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level believed by management
to be adequate to absorb inherent losses in the loan portfolio. The allowance
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. The allowance is maintained at an adequate level through the
provision for loan losses, which is a charge to operating income. At December
31, 2001 the allowance was $2,684,517, representing 1.4% of total loans,
compared to $2,812,392, representing 1.6% of total loans at December 31, 2000.
For a thorough description of the methodology used for determining the
allowance for loan losses, please see Note 1 to the consolidated financial
statements.
Securities
The Company's securities portfolio consists primarily of obligations of U.S.
Government sponsored agencies, mortgage-backed securities, corporate debt
securities and obligations of various municipalities. These assets are used in
part to secure public deposits and as collateral for repurchase agreements.
Total securities were $171,382,826 at December 31, 2001, representing an
increase of $28,831,102 or 20.2% from $142,551,724 at December 31, 2000.
Total securities averaged $146.3 million for 2001, representing an increase
of $18.7 million or 14.7% over $127.6 million for 2000. All mortgage-backed
securities in the Company's securities portfolio have been issued by U.S.
Government sponsored agencies. Management believes no other-than-temporary
impairment has occurred with regard to any security in the securities
portfolio. Gains on sales of available for sale securities were $9,200 during
2001.
Liquidity and Capital Resources
The Company's principal sources of liquidity are customer deposits,
amortization and pay-offs of loan principal and the amortization and maturities
of securities. These sources provide funds for loan originations, the purchase
of securities and other activities. Deposits are considered a relatively stable
source of funds. At December 31, 2001 and 2000, deposits were $319.1 million
and $307.1 million, respectively. Management anticipates that deposits will
increase moderately during 2002.
Of the Company's $171.4 million in securities at December 31, 2001, $6.3
million or 3.7% mature within one year. As a nationally chartered member of
the Federal Reserve System, the Bank has the ability to borrow funds from the
Federal Reserve Bank of Boston by pledging certain of its investment securities
as collateral. Also, the Bank is a member of the Federal Home Loan Bank of
Boston ("FHLBB"), which provides additional borrowing opportunities. At
December 31, 2001 and 2000, the Bank's total borrowings from the FHLBB were
$10,000,000 and $0, respectively.
Bank regulatory authorities have established a capital measurement tool called
Tier 1 leverage capital. A 4.00% ratio of Tier 1 leverage capital to assets now
constitutes the minimum capital standard for most banking organizations. At
December 31, 2001 and 2000, the Company's Tier 1 leverage capital ratio was
8.82% and 8.46%, respectively. 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 December 31, 2001, the
-29-
Company's Tier 1 and total risk-based capital ratios were 15.87% and 17.07%,
respectively. At December 31, 2000, the Company's Tier 1 and total risk-based
capital ratios were 15.91% and 17.16%, respectively. The Bank is categorized
as "well capitalized" under the Federal Deposit Insurance Corporation
Improvement Act of 1991 (F.D.I.C.I.A.).
Asset/Liability Management and Interest Rate Risk
The Company has an Asset/Liability Management Committee which oversees all
asset/liability management activities. The committee establishes general
guidelines each year and meets regularly to review the Company's operating
results, to measure and monitor interest rate risk and to make strategic
changes when necessary. It is the Company's general policy to reasonably match
the rate sensitivity of its assets and liabilities in an effort to prudently
manage interest rate risk. A common benchmark of this sensitivity is the one
year gap position, which is a reflection of the difference between the speed
and magnitude of rate changes of interest rate sensitive liabilities as
compared with the Bank's ability to adjust the rates of its interest rate
sensitive assets in response to such changes. The Company's negative one year
cumulative gap position at December 31, 2001, which represents the excess of
repricing liabilities versus repricing assets, was 7.2% expressed as a
percentage of total assets.
-30-
DIRECTORS & OFFICERS
- --------------------
COMMUNITY BANCORP, INC. AND COMMUNITY NATIONAL BANK
- ----------------------------------------------------
Chairman of the Board
- ---------------------
Dennis F. Murphy, Jr.
President and Treasurer of D. Francis Murphy Insurance Agency, Inc.
Directors:
- ---------
Alfred A. Cardoza
Retired
Jennie Lee Colosi
President and Treasurer of E. T. & L. Construction, Inc.
Antonio Frias
President and Treasurer of S & F Concrete Contractors, Inc.
I. George Gould
Chairman of the Board of Gould's, Inc.
Horst Huehmer
Retired
Donald R. Hughes, Jr.
Treasurer and Clerk of Community Bancorp, Inc.,
Executive Vice President of Community National Bank
James A. Langway
President and Chief Executive Officer
of Community Bancorp, Inc. and Community National Bank
David L. Parker
Chairman of the Board of Larkin Lumber Company
Mark Poplin
President and Treasurer of Poplin Supply Company
David W. Webster
President of Knight Fuel Company, Inc.
Officers:
- --------
James A. Langway
President and Chief Executive Officer
Donald R. Hughes, Jr.
Treasurer and Clerk
COMMUNITY NATIONAL BANK
- -----------------------
Officers
- --------
President and Chief Executive Officer
James A. Langway
Executive Vice President
Donald R. Hughes, Jr.
Auditor
Patricia North-Martino
Administrative Officer
Joy A. Pare'
Lending Division
- ------------------
Executive Vice President
John P. Galvani
Vice Presidents
Thomas J. Allain
Christal M. Bjork
Daniel L. Heney
Gregory A. Pauplis
Rocco Vallande
Credit Officer
AnnMarie Callahan
Mortgage Officer
Lynda L. D'Orlando
Mortgage Underwriting Officer
Sandra M. Borella
Security Officer
Clark Hooper
Financial Division
- -----------------
Senior Vice President
Robert E. Leist
Facilities Officer
Raymond A. Murphy
Sales, Service and Support Division
- -----------------------------------
Senior Vice President
Grace L. Blunt, Esq.
Vice Presidents
Jeffrey C. Barske
Diane L. LeBlanc
Janet A. Lyman
James P. Vasquezi
Assistant Vice Presidents
Linda A. Benway
Kelli A. Mason
M. Jean Mickle
Gail A. Plank
Lois A. Seymour
Nicole L. Sousa
Michelle M. Temple
Margaret M. Vasquezi
Officers
Joan Brigham
Christopher P. Keene
Lisa Pompeo
Investment Management & Trust
- -----------------------------
V.P. & Investment Officer
R. Richard Wilson
Assistant Vice President
Paul Travis
The Company's Securities and Exchange Commission filing on Form 10-K is
available to our stockholders upon request.
-31-
[The following text appears on the back cover.]
Community Bancorp, Inc.
Parent company of Community National Bank
[Community National Bank's logo appears in this space]
17 Pope Street
Hudson, Massachusetts 01749
tel 978-568-8321
fax 978-568-7129
877-CNB-DIRECT
Acton
270 Great Road
tel 978-263-8376
fax 978-266-2610
Boxborough
629 Massachusetts Avenue
tel 978-264-9092
fax 978-266-2600
Concord
1134 Main Street
tel 978-369-5421
fax 978-371-6600
Framingham
35 Edgell Road
tel 508-875-1333
fax 508-370-3885
Hudson South
177 Broad Street
tel 978-568-8813
fax 978-568-2610
Internet Branch
www.combanc.com
cnb-mail@combanc.com
Loan Center
12 Pope Street, Hudson
tel 978-568-2468
fax 978-562-9984
Marlborough Center
96 Bolton Street
tel 508-485-5003
fax 508-229-4602
Marlborough East
500 Boston Post Road
tel 508-485-3599
fax 508-229-4601
Stow
159 Great Road
tel 978-461-1600
fax 978-461-1610
Sudbury
450 Boston Post Road
tel 978-443-1620
fax 978-443-1626
ATM LOCATIONS:
New England Sports Center
Donald Lynch Blvd., Marlborough
Washington Square Plaza
Rt. 85, Hudson
Equal Opportunity Lender
Member FDIC