<PAGE1>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
Commission File No. 33-12756-B
COMMUNITY BANCORP, INC.
A Massachusetts Corporation
IRS Employer Identification No. 04-2841993
17 Pope Street, Hudson, Massachusetts 01749
Telephone - (508) 568-8321
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Common Stock
$2.50 par value
3,158,946 shares outstanding
as of October 31, 1995
<PAGE 2>
COMMUNITY BANCORP, INC.
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5-6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
EXHIBITS Financial Data Schedule (EX-27, Article 9) 15
-2-
<PAGE 3>
PART I - FINANCIAL INFORMATION
COMMUNITY BANCORP, INC.
Item 1. CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1995 1994
------------ -----------
ASSETS
Cash and due from banks $ 12,407,779 $ 11,600,385
Federal funds sold 15,000,000 6,100,000
Securities available for sale, at market 24,002,732 26,069,495
Securities held to maturity (market value
$45,860,225 at 9/30/95 and $43,296,728
at 12/31/94) 46,395,143 46,495,293
Mortgage loans held for sale 1,269,239 559,304
Loans 128,827,293 122,479,051
Less allowance for possible loan losses 3,859,774 3,703,470
----------- -----------
Total net loans 124,967,519 118,775,581
Premises and equipment, net 5,080,796 5,205,076
Other assets, net 4,042,438 5,045,633
----------- -----------
Total assets $233,165,646 $219,850,767
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits
Noninterest bearing $ 43,547,681 $ 42,074,618
Interest bearing 158,857,499 144,788,368
----------- -----------
Total deposits 202,405,180 186,862,986
Federal funds purchased and securities
sold under repurchase agreements 10,220,907 14,940,801
Other liabilities 1,575,228 1,302,530
----------- -----------
Total liabilities 214,201,315 203,106,317
Commitments
Stockholders' equity:
Preferred stock, $2.50 par value, 100,000
shares authorized, none issued or outstanding
Common stock, $2.50 par value, 4,000,000
shares authorized, 3,199,218 shares issued,
3,158,946 shares outstanding, (3,140,754
shares outstanding at December 31, 1994) 7,998,045 7,998,045
Surplus 290,253 263,538
Undivided profits 10,969,693 9,556,768
Treasury stock, 40,272 shares, (58,464
shares at December 31, 1994) (181,224) (263,088)
Unrealized losses on securities available
for sale, net (112,436) (810,813)
----------- -----------
Total stockholders' equity 18,964,331 16,744,450
----------- -----------
Total liabilities and
stockholders' equity $233,165,646 $219,850,767
=========== ===========
<FN>
See accompanying notes.
-3-
<PAGE 4>
COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended Nine months ended
September 30, September 30,
------------------- -------------------
1995 1994 1995 1994
--------- --------- ---------- ---------
Interest income:
Interest and fees on loans $3,183,086 $2,710,546 $9,210,908 $7,730,122
Interest and div. on securities:
Taxable interest 969,659 940,178 2,980,243 2,773,586
Nontaxable interest 20,532 13,728 68,668 39,122
Dividends 11,190 15,264 37,037 46,181
Interest on federal funds sold 156,109 27,455 189,618 50,931
--------- --------- ---------- ----------
Total interest income 4,340,576 3,707,171 12,486,474 10,639,942
--------- --------- ---------- ----------
Interest expense:
Deposits 1,513,352 1,053,501 4,175,750 2,914,605
Short term borrowings 122,334 87,966 414,330 287,401
--------- --------- --------- ---------
Total interest expense 1,635,686 1,141,467 4,590,080 3,202,006
--------- --------- --------- ---------
Net interest income 2,704,890 2,565,704 7,896,394 7,437,936
Provision for loan losses 30,000 75,000 90,000 225,000
--------- --------- --------- ---------
Net interest income after
provision for loan losses 2,674,890 2,490,704 7,806,394 7,212,936
--------- --------- --------- ---------
Noninterest income:
Merchant credit card assessments 161,265 140,917 490,995 427,667
Service charges 173,081 167,740 522,641 498,299
Other charges, commissions, fees 143,872 162,638 492,704 498,021
Gains (losses) on sales of
loans, net 20,120 38,530 (30,488) 90,504
Gains (losses) on sales of
securities, net (19,781) (50,703)
Other 8,855 25,574 50,616 94,530
--------- --------- --------- ---------
Total noninterest income 507,193 515,618 1,526,468 1,558,318
--------- --------- --------- ---------
Noninterest expense:
Salaries and benefits 1,011,108 1,102,952 3,143,859 3,175,914
Data processing 116,796 101,960 340,652 310,115
Occupancy, net 149,702 150,877 453,619 456,098
Furniture and equipment 81,869 67,505 242,366 201,983
Credit card processing 148,322 128,612 421,889 342,158
FDIC insurance premiums (11,967) 96,799 191,972 297,897
Other 431,813 488,942 1,223,631 1,349,698
--------- --------- --------- ---------
Total noninterest expense 1,927,643 2,137,647 6,017,988 6,133,863
--------- --------- --------- ---------
Income before income taxes 1,254,440 868,675 3,314,874 2,637,391
Income taxes 537,165 335,396 1,354,385 1,027,272
--------- --------- --------- ---------
Net income $ 717,275 $ 533,279 $1,960,489 $1,610,119
========= ========= ========= =========
Earnings per share $ .228 $ .171 $ .623 $ .512
Dividends per share $ .059 $ .055 $ .174 $ .158
Weighted average number of shares 3,152,530 3,123,136 3,144,721 3,142,233
<FN>
See accompanying notes.
-4-
<PAGE 5>
COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended
September 30,
-------------------------
1995 1994
---------- ----------
Cash flows from operating activities:
Interest received $ 12,516,261 $ 10,578,717
Fees and commissions received 1,495,560 1,386,851
Proceeds from secondary market
mortgage sales 4,474,743 30,375,626
Origination of mortgage loans for
secondary market sales (4,910,994) (16,193,073)
Interest paid (4,672,139) (3,194,204)
Cash paid to suppliers & employees (5,102,348) (5,450,722)
Income taxes paid (1,079,807) (837,247)
---------- ----------
Net cash provided by operating activities 2,721,276 16,665,948
---------- ----------
Cash flows from investing activities:
Purchases of securities held to maturity (9,981,688) (27,821,559)
Proceeds from maturities of securities
held to maturity 10,081,408 1,746,445
Purchases of securities available for sale (12,824,946)
Proceeds from maturities of securities
available for sale 3,245,351 13,452,878
Proceeds from sales of securities available
for sale 12,346,053
Net change in federal funds sold (8,900,000) 3,100,000
Net change in loans and other real estate
owned (6,534,665) (5,651,310)
Proceeds from sale of other real estate
owned 147,700 305,670
Acquisition of property, plant and equipment (366,639) (687,914)
---------- ----------
Net cash used in investing activities (12,308,533) (16,034,683)
---------- ----------
Cash flows from financing activities:
Net change in deposits 15,542,194 (546,114)
Net change in federal funds purchased (10,900,000) 2,600,000
Net change in repurchase agreements 6,180,107 (3,830,155)
Purchase of treasury stock (2,865) (992,826)
Sale of treasury stock 111,444 801,138
Dividends paid (536,229) (472,793)
---------- ----------
Net cash provided by (used in)
financing activities 10,394,651 (2,440,750)
---------- ----------
Net increase (decrease) in cash and
due from banks 807,394 (1,809,485)
---------- ----------
Cash and due from banks at beginning
of period 11,600,385 12,402,450
---------- ----------
Cash and due from banks at end of period $12,407,779 $10,592,965
========== ==========
<FN>
See accompanying notes.
-5-
<PAGE 6>
COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Reconciliation of Net Income to Net Cash Provided by Operating Activities
Nine months ended
September 30,
-------------------------
1995 1994
---------- ----------
Net income $ 1,960,489 $ 1,610,119
Adjustments to reconcile net income
to net cash provided by operating
activities:
(Increase) decrease in mortgage loans
held for sale (700,135) 13,981,198
Premium on sale of mortgages 90,000 201,354
Depreciation and amortization 550,391 844,913
Provision for loan losses 90,000 225,000
Increase (decrease) in other liabilities 365,255 (342,000)
Increase in taxes payable 274,578 190,025
(Decrease) increase in interest payable (82,059) 7,802
(Increase) decrease in other assets (30,910) 8,761
Decrease (increase) in interest receivable 29,783 (61,224)
---------- ----------
Total adjustments 760,788 15,055,829
---------- ----------
Net cash provided by operating activities $ 2,721,276 $16,665,948
========== ==========
<FN>
See accompanying notes.
-6-
<PAGE 7>
COMMUNITY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
________________________________________________________________________
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and notes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. The results of operations for
any interim period are not necessarily indicative of results
expected for the full year. These consolidated financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto contained in the Company's Annual
Report to shareholders and Form 10-K for the year ended December 31,
1994.
2. EARNINGS PER SHARE
Earnings per share calculations are based on the weighted average
number of common shares outstanding during the period.
3. FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 114, "ACCOUNTING
BY CREDITORS FOR IMPAIRMENT OF A LOAN"
Beginning January 1, 1995, the Company adopted Financial Accounting
Standards Board Statement No. 114, "Accounting by Creditors for
Impairment of a Loan" (SFAS No. 114), under which the allowance for
possible loan losses related to loans that are identified as
"impaired" is based on discounted cash flows using the loan's
effective interest rate or the fair value of the collateral for
certain collateral dependent loans. The Financial Accounting
Standards Board also issued SFAS No. 118, which amended SFAS No. 114
by allowing creditors to use their existing methods of recognizing
interest income on impaired loans.
The Company has determined after reviewing its Credit Quality
Monitoring policies and procedures, and an analysis of it loan
portfolio, that loans recognized by the Company as nonaccrual and
restructured are equivalent to "impaired loans" as defined by SFAS
No. 114. The Company has also determined that the reserve for
possible loan losses did not require an additional loan loss
provision as a result of the adoption of this statement on January
1, 1995.
-7-
<PAGE 8>
PART I - FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Summary
The Company recorded net income of $717,275 for the three months
ended September 30, 1995, representing an increase of $183,996 or 34.5%
over $533,279 for the corresponding period in 1994. Earnings per share
of $.228 for the current period represented an increase of $.057 from
$.171 for the same period in 1994.
The Company recorded net income of $1,960,489 for the nine months
ended September 30, 1995, representing an increase of $350,370 or 21.8%
over $1,610,119 for the same period in 1994. Earnings per share of
$.623 for the current period represented an increase of $.111 from $.512
for the same period in 1994.
The improvement in net income resulted primarily from an increase in
net interest income and decreases in the provision for possible loan
losses and FDIC insurance premiums.
Deposits of $202,405,180 at September 30, 1995 increased by
$15,542,194 or 8.3% from $186,862,986 at December 31, 1994. This
increase occurred primarily in interest bearing categories and
secondarily in non-interest bearing categories.
Loans of $128,827,293 at September 30, 1995, excluding mortgage
loans held for sale, increased by $6,348,242 or 5.2% from $122,479,051
at December 31, 1994. This increase occurred in the commercial,
residential real estate and consumer loan portfolios. Noncurrent loans
(nonaccrual loans and loans 90 days or more past due but still accruing)
totalled $2,147,874 and $975,475 at September 30, 1995 and December 31,
1994, respectively. Accruing troubled debt restructurings at September
30, 1995 and December 31, 1994 were $0 and $1,154,570, respectively.
The entire troubled debt restructuring balance at December 31, 1994 was
comprised of one loan which, although current in its payments, was
placed on nonaccrual status in September of 1995 due to potential
weaknesses in the credit.
Other real estate owned of $226,958 at September 30, 1995
represented a decrease of $201,178 or 47.0% from $428,136 at December
31, 1994.
Assets of $233,165,646 at September 30, 1995 represented a
$13,314,879 or 6.1% increase from $219,850,767 at December 31, 1994.
-8-
<PAGE 9>
Nine Months ended September 30, 1995 as Compared To
Nine Months ended September 30, 1994
Net Interest Income
Interest income for the nine months ended September 30, 1995 was
$12,486,474, representing an increase of $1,846,532 or 17.4% from
$10,639,942 for the nine months ended September 30, 1994, primarily due
to higher loan balances and interest rates in 1995. Interest expense
was $4,590,080, representing an increase of $1,388,074 or 43.4% from
$3,202,006 for the nine months ended September 30, 1994, primarily due
to higher interest bearing deposit balances and higher interest rates in
1995. Net interest income for the nine months ended September 30, 1995
was $7,896,394, representing an increase of $458,458 or 6.2% from
$7,437,936 for the nine months ended September 30, 1994.
Noninterest Income and Expense
Noninterest income for the nine months ended September 30, 1995 was
$1,526,468, representing a decrease of $31,850 or 2.0% from $1,558,318
for the nine months ended September 30, 1994. This small decrease was
primarily the result of losses on sales of residential real estate loans
sold in the secondary mortgage market, resulting from the refinancing of
a number of mortgages originated in prior periods and the associated
write-down of unamortized excess servicing fee income on those loans,
and a decrease in other income.
Noninterest expense for the nine months ended September 30, 1995 of
$6,017,988 was down $115,875 or 1.9% from $6,133,863 for the same period
in 1994. This decrease was primarily the result of reductions in
salaries and employee benefits, FDIC insurance premiums and other
expense, partially offset by increases in data processing, furniture and
equipment, and credit card processing.
As a result of the recapitalization of the FDIC's Bank Insurance
Fund (BIF) during the second quarter of 1995, a significant reduction in
FDIC deposit insurance premiums was announced in September, retroactive
to June 1. As a result, Hudson National Bank received a refund of
approximately $113,000 from the FDIC during September, representing the
return of overpaid insurance premiums plus interest. This refund was
recorded as a reduction of previously expensed premiums. FDIC insurance
expense during the fourth quarter of the year will be based on an
assessment of $.04 per $100 of insured deposits, compared to $.23 per
$100 of insured deposits during 1994 and the first five months of 1995.
Provision for Loan Losses
The provision for loan losses for the nine months ended September
30, 1995 was $90,000, representing a $135,000 or 60.0% decrease from
$225,000 for the same period in 1994. This decrease was the result of
management's continuing evaluation of the adequacy of the allowance for
loan losses and its belief that the allowance is adequate.
Income Taxes
Income tax expense of $1,354,385 for the nine months ended September
30, 1995 compared to $1,027,272 for the same period in 1994, the result
of an increase in taxable income during the current period.
-9-
<PAGE 10>
Net Income
Net income of $1,960,489 for the first nine months of 1995
represented an increase of $350,370 or 21.8% from $1,610,119 recorded
for the first nine months of 1994. The foregoing discussion summarized
the primary components of this increase in earnings.
Three Months ended September 30, 1995 as Compared To
Three Months ended September 30, 1994
Net Interest Income
Interest income for the three months ended September 30, 1995 was
$4,340,576, representing an increase of $633,405 or 17.1% from
$3,707,171 for the three months ended September 30, 1994. The increase
was primarily due to higher loan balances and higher interest rates in
1995. Interest expense was $1,635,686, representing an increase of
$494,219 or 43.3% from $1,141,467 for the three months ended September
30, 1994, primarily due to higher interest bearing deposit balances and
higher interest rates in 1995. Net interest income for the three months
ended September 30, 1995 was $2,704,890, representing an increase of
$139,186 or 5.4% from $2,565,704 for the same period in 1994.
Noninterest Income and Expense
Noninterest income for the three months ended September 30, 1995 was
$507,193, representing a decrease of $8,425 or 1.6% from $515,618 for
the three months ended September 30, 1994. This decrease was primarily
the result of reductions in other charges, commissions and fees, gains
on sales of loans and other income, partially offset by increases in
merchant credit card assessments and service charges.
Noninterest expense for the three months ended September 30, 1995 of
$1,927,643 was down $210,004 or 9.8% from $2,137,647 for the three
months ended September 30, 1994. This decrease was primarily the result
of reductions in salaries and employee benefits, FDIC insurance premiums
and occupancy expense, partially offset by increases in data processing,
furniture and equipment, and credit card processing.
As a result of the recapitalization of the FDIC's Bank Insurance
Fund (BIF) during the second quarter of 1995, a significant reduction in
FDIC deposit insurance premiums was announced in September, retroactive
to June 1. As a result, Hudson National Bank received a refund of
approximately $113,000 from the FDIC during September, representing the
return of overpaid insurance premiums plus interest. This refund was
recorded as a reduction of previously expensed premiums. FDIC insurance
expense during the fourth quarter of the year will be based on an
assessment of $.04 per $100 of insured deposits, compared to $.23 per
$100 of insured deposits during 1994 and the first five months of 1995.
-10-
<PAGE 11>
Provision for Loan Losses
The provision for loan losses for the three months ended September
30, 1995 was $30,000, representing a $45,000 or 60.0% decrease from
$75,000 for the three months ended September 30, 1994. This decrease
was the result of management's continuing evaluation of the adequacy of
the allowance for loan losses and its belief that the allowance is
adequate.
Income Taxes
Income tax expense of $537,165 for the three months ended September
30, 1995 compared to $335,396 for the three months ended September 30,
1994, the result of an increase in taxable income during the current
period.
Net Income
Net income of $717,275 for the three months ended September 30, 1995
represented an increase of $183,996 or 34.5% over $533,279 for the three
months ended September 30, 1994. The foregoing discussion summarized
the primary components of this increase in earnings.
Allowance for Possible Loan Losses
The allowance for possible loan losses is maintained at a level
believed by management to be adequate to absorb potential losses in the
loan portfolio. Management's methodology in determining the adequacy of
the allowance considers specific credit reviews, past loan loss
experience, current economic conditions and trends and the volume,
growth and composition of the loan portfolio. Each loan on the
Company's internal Watch List is evaluated periodically for potential
losses. For loans with potential losses, the bank sets aside or
"allocates" a portion of the ALLL against such potential losses. For
the remainder of the portfolio, "unallocated" reserve amounts are
determined based on judgements regarding the type of loan, economic
conditions and trends, potential exposure to loss and other factors.
The allowance for possible loan losses is charged when management
determines that the repayment of the principal on a loan is in doubt.
Subsequent recoveries, if any, are credited to the allowance. At
September 30, 1995, the balance in the allowance was $3,859,774,
representing 3.0% of total loans (excluding mortgage loans held for
sale), compared to $3,703,470 or 3.0% of total loans at December 31,
1994.
Securities
The Company's securities portfolio consists of obligations of the
U.S. Treasury, U.S. government sponsored agencies, mortgage backed
securities and obligations of municipalities in the Company's market
area. Those assets are used in part to secure public deposits and as
collateral for repurchase agreements.
-11-
<PAGE 12>
Total securities were $70,397,875 at September 30, 1995 compared to
$72,564,788 at December 31, 1994. This decrease was primarily the
result of the maturity and prepayment of certain securities during the
period. At September 30, 1995, $24,002,732 in securities were
classified as "available for sale". There were no sales of securities
during the nine months ended September 30, 1995.
Liquidity and Capital Resources
The Bank's principal sources of liquidity are customer deposits,
amortization and pay-offs of loan principal and maturities of investment
securities. These sources provide funds for loan originations, the
purchase of investment securities and other activities.
Deposits are considered a relatively stable source of funds. At
September 30, 1995, 1994 and 1993, deposits were $202.4, $185.0 and
$179.7 million, respectively. Management anticipates that deposits will
remain relatively stable or grow moderately during the remainder of 1995.
Of the Company's $70.4 million in investment securities at September
30, 1995, $11.3 million or 16.0% mature within one year. As a
nationally chartered member of the Federal Reserve System, the Bank has
the ability to borrow funds from the Federal Reserve Bank of Boston by
pledging certain of its investment securities as collateral. Also, the
Bank is a member of the Federal Home Loan Bank which provides additional
borrowing opportunities.
Bank regulatory authorities have established a capital measurement
tool called "Tier 1" leverage capital. A 3.00% ratio of Tier 1 capital
to assets now constitutes the minimum capital standard for banking
organizations. At September 30, 1995, the Company's Tier 1 leverage
capital ratio was 8.14%. In addition, regulatory authorities have also
implemented risk-based capital guidelines requiring a minimum ratio of
Tier 1 capital to risk weighted assets of 4.00% and a minimum ratio of
total capital to risk-weighted assets of 8.00. At September 30, 1995
the Company's Tier 1 and total risk-based capital ratios were 13.90% and
15.17%, respectively. Both the Company and the Bank are categorized as
"well capitalized" under the Federal Deposit Insurance Corporation
Improvement Act of 1991 (F.D.I.C.I.A.).
Asset/Liability Management
The Company has an asset/liability management committee which
oversees all asset/liability activities of the Company. The committee
establishes general guidelines each year and meets regularly to review
the Company's operating results and to make strategic changes when
necessary.
It is the Company's general policy to reasonably match the rate
sensitivity of its assets and liabilities. A common benchmark of this
sensitivity is the one year gap position, which is a reflection of the
difference between the speed and magnitude of rate changes of interest
rate sensitive liabilities as compared with the Bank's ability to adjust
the rates of it's interest rate sensitive assets in response to such
changes. The Company's positive cumulative one year gap position at
September 30, 1995, representing the excess of repricing assets versus
repricing liabilities within a one year time frame, was 1.9% of total
assets.
-12-
<PAGE 14>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) The Company did not file a Form 8-K during the quarter ended
September 30, 1995.
-13-
<PAGE 14>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMUNITY BANCORP, INC.
-----------------------
Date: November 3, 1995 By: /s/ James A. Langway
-------------------------
Janes A. Langway
President & Chief Executive Officer
Principal Executive Officer
Date: November 3, 1995 By: /s/ Donald R. Hughes, Jr.
-------------------------
Donald R. Hughes, Jr.
Treasurer and Clerk
Principal Financial Officer and
Principal Accounting Officer
-14-
<PAGE 15>