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 MARCH 31, 1996
Commission File No. 33-12756-B
COMMUNITY BANCORP, INC.
A Massachusetts Corporation
IRS Employer Identification No. 04-2841993
17 Pope Street, Hudson, Massachusetts 01749
Telephone - (508) 568-8321
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 May 6, 1996
PART I - FINANCIAL INFORMATION
COMMUNITY BANCORP, INC.
Item 1. CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1996 1995
----------- -----------
ASSETS
Cash and due from banks $ 11,642,018 $ 12,668,446
Federal funds sold 7,700,000 16,700,000
Securities available for sale, at market 29,438,019 23,790,470
Securities held to maturity (market value
$49,806,956 at 3/31/96 and $50,633,376
at 12/31/95) 50,073,548 50,825,359
Loans 129,546,094 128,072,061
Less allowance for possible loan losses 3,481,044 3,455,098
----------- -----------
Total net loans 126,065,050 124,616,963
Premises and equipment, net 5,002,270 5,126,083
Other assets, net 3,827,629 3,853,475
----------- -----------
Total assets $233,748,534 $237,580,796
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits
Noninterest bearing $ 44,419,715 $ 45,383,886
Interest bearing 156,737,901 161,655,979
----------- -----------
Total deposits 201,157,616 207,039,865
Federal funds purchased and securities
sold under repurchase agreements 10,636,270 9,289,963
Other liabilities 1,902,463 1,710,295
----------- -----------
Total liabilities 213,696,349 218,040,123
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 7,998,045 7,998,045
Surplus 290,253 290,253
Undivided profits 12,031,672 11,463,544
Treasury stock (40,272 shares) (181,224) (181,224)
Unrealized losses on securities available
for sale, net (86,561) (29,945)
----------- -----------
Total stockholders' equity 20,052,185 19,540,673
----------- -----------
Total liabilities and
stockholders' equity $233,748,534 $237,580,796
=========== ===========
<FN>
See accompanying notes.
-2-
COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended
March 31,
-------------------------
1996 1995
--------- ----------
Interest income:
Interest and fees on loans $3,101,014 $2,952,232
Interest and dividends on securities:
Taxable interest 1,044,609 1,011,866
Nontaxable interest 21,570 23,365
Dividends 12,989 20,352
Interest on federal funds sold 179,516 2,350
--------- ---------
Total interest income 4,359,698 4,010,165
--------- ---------
Interest expense:
Interest on deposits 1,500,433 1,281,406
Interest on short term borrowings 116,958 148,525
--------- ---------
Total interest expense 1,617,391 1,429,931
--------- ---------
Net interest income 2,742,307 2,580,234
Provision for possible loan losses 0 30,000
--------- ---------
Net interest income after provision
for possible loan losses 2,742,307 2,550,234
--------- ---------
Noninterest income:
Merchant credit card assessments 206,366 170,693
Service charges 186,122 177,226
Other charges, commissions and fees 170,587 165,036
Gains (losses) on sales of loans, net 15,503 (12,726)
Other 15,295 21,766
--------- ---------
Total noninterest income 593,873 521,995
--------- ---------
Noninterest expense:
Salaries and employee benefits 1,106,656 1,006,997
Data processing 140,299 113,643
Occupancy, net 157,228 147,653
Furniture and equipment 91,389 82,871
Credit card processing 159,202 134,250
Other 440,615 499,072
--------- ---------
Total noninterest expense 2,095,389 1,984,486
--------- ---------
Income before income taxes 1,240,791 1,087,743
Income taxes 479,967 436,359
--------- ---------
Net income $ 760,824 $ 651,384
--------- ---------
Earnings per share $ .241 $ .207
Dividends per share $ .061 $ .057
Weighted average number of shares 3,158,946 3,140,754
<FN>
See accompanying notes.
-3-
COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended
March 31,
--------------------------
1996 1995
----------- -----------
Cash flows from operating activities:
Interest received $ 4,352,168 $ 4,228,613
Fees and commissions received 564,786 381,148
Proceeds from secondary market
mortgage sales 5,031,532 1,661,593
Origination of mortgage loans for
secondary market sales (5,106,130) (1,046,141)
Interest paid (1,683,058) (1,562,164)
Cash paid to suppliers & employees (2,020,105) (1,465,161)
Income taxes paid (81,400) (29,275)
---------- ----------
Net cash provided by operating activities 1,057,793 2,168,613
---------- ----------
Cash flows from investing activities:
Purchases of securities held to maturity (4,224,752) (417,000)
Proceeds from maturities of securities
held to maturity 5,006,869 383,200
Purchases of securities available for sale (8,153,017)
Proceeds from maturities of securities
available for sale 2,377,623 1,055,469
Net change in federal funds sold 9,000,000 3,600,000
Net change in loans and other real estate
owned (1,297,015) (2,530,000)
Acquisition of property, plant and equipment (68,450) (91,573)
---------- ----------
Net cash provided by (used in)
investing activities 2,641,258 (2,000,096)
---------- ----------
Cash flows from financing activities:
Net change in deposits (5,882,249) (2,547,277)
Net change in federal funds purchased (1,000,000)
Net change in repurchase agreements 2,346,307 (2,268,933)
Dividends paid (189,537) (175,041)
---------- ----------
Net cash used in financing activities (4,725,479) (4,991,251)
---------- ----------
Net decrease in cash and due from banks (1,026,428) (822,542)
Cash and due from banks at beginning
of period 12,668,446 11,600,385
---------- ----------
Cash and due from banks at end of period $11,642,018 $10,777,843
========== ==========
<FN>
See accompanying notes.
-4-
COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Reconciliation of Net Income to Net Cash Provided by Operating Activities
Three months ended
March 31,
-------------------------
1996 1995
---------- ----------
Net income $ 760,824 $ 651,384
Adjustments to reconcile net income to net
cash provided by operating activities:
(Increase) decrease in mortgage loans
held for sale (159,816) 524,304
Premium on sale of mortgages 85,218 91,148
Depreciation and amortization 210,434 245,553
Provision for loan losses 30,000
(Decrease) increase in other liabilities (135,146) 273,771
Increase in taxes payable 398,567 407,084
(Decrease) in interest payable (65,667) (132,233)
(Increase) in other assets (29,088) (140,847)
(Increase) decrease in interest receivable (7,533) 218,449
---------- ----------
Total adjustments 296,969 1,517,229
---------- ----------
Net cash provided by operating activities $ 1,057,793 $ 2,168,613
========== ==========
<FN>
See accompanying notes.
-5-
COMMUNITY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
________________________________________________________________________
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,
1995.
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. 122, "ACCOUNTING
FOR MORTGAGE SERVICING RIGHTS"
Beginning January 1, 1996, the Company adopted Financial Accounting
Standards Board Statement No. 122, "Accounting for Mortgage
Servicing Rights" (SFAS No. 122), which requires the capitalization
of the cost of originating the rights to service mortgage loans for
others. In addition, capitalized mortgage servicing rights are
required to be assessed for impairment based on the fair value of
those rights. The adoption of SFAS No. 122 resulted in the Company
recording $12,841 in income associated with the origination of
mortgage servicing rights during the quarter ended March 31, 1996.
-6-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Summary
- -------
The Company recorded net income of $760,824 for the three months
ended March 31, 1996, representing an increase of $109,440 or 16.8% over
$651,384 for the same period in 1995. Earnings per share increased to
$.241 for the current period compared to $.207 for the three months
ended March 31, 1995.
The improvement in net income for the current three month period
resulted from an increase in net interest and noninterest income and a
reduction in the provision for loan losses, partially offset by a small
increase in noninterest expense.
Deposits of $201,157,616 at March 31, 1996 decreased by $5,882,249
or 2.8% from $207,039,865 at December 31, 1995. The decrease occurred
primarily in interest bearing categories. Interest bearing deposits
decreased by $4,918,078, primarily in the areas of NOW and money market
deposit accounts, while noninterest bearing accounts decreased by
$964,171, primarily in the area of business demand deposit accounts.
Loans of $129,546,094 at March 31, 1996 increased by $1,474,033 or
1.2% from $128,072,061 at December 31, 1995. This increase occurred
primarily in the area of commercial loans. Noncurrent loans (nonaccrual
loans and loans 90 days or more past due but still accruing) totaled
$2,113,757 and $1,650,345 at March 31, 1996 and December 31, 1995,
respectively. There were no accruing troubled debt restructurings at
March 31, 1996 or December 31, 1995.
Other real estate owned of $25,000 at March 31, 1996, was unchanged
from December 31, 1995.
Assets of $233,748,534 at March 31, 1996 represented a $3,832,262 or
1.6% decrease from $237,580,796 at December 31, 1995.
Three Months ended March 31, 1996 as Compared To
Three Months ended March 31, 1995
------------------------------------------------
Net Interest Income
- -------------------
Interest income for the three months ended March 31, 1996 was
$4,359,698, representing an increase of $349,533 or 8.7% from $4,010,165
for the three months ended March 31, 1995, primarily due to higher loan
balances and higher interest rates in 1996. Interest expense was
$1,617,391, representing an increase of $187,460 or 13.1% from
$1,429,931 for the three months ended March 31, 1995, primarily due to
an increase in interest bearing deposits and higher interest rates in
1996. Net interest income for the three months ended March 31, 1996 was
$2,742,307, representing an increase of $192,073 or 7.5% over $2,580,234
for the same period in 1995.
-7-
Noninterest Income and Expense
- ------------------------------
Noninterest income for the three months ended March 31, 1996 was
$593,873, representing an increase of $71,878 or 13.8% from $521,995 for
the same period in 1995. This increase resulted primarily from
increases in merchant credit card assessments, service charges, other
charges, commissions and fees, and gains on sales of loans.
Noninterest expense for the three months ended March 31, 1996 of
$2,095,389 represented an increase of $110,903 or 5.6% from $1,984,486
recorded during the same period in 1995. This increase was primarily
the result of increases in salaries and employee benefits, data
processing, occupancy expense, credit card processing and furniture and
equipment expense, partially offset by a decrease in other expense.
Provision for Possible Loan Losses
- ----------------------------------
The provision for possible loan losses for the three months ended
March 31, 1996 was $0, representing a $30,000 or 100.0% reduction from
$30,000 for the same period in 1995. This decrease was the result of
management's continuing evaluation of the adequacy of the allowance for
possible loan losses and its belief that the allowance is adequate.
Income Taxes
- ------------
Income tax expense of $479,967 for the three months ended March 31,
1996 compared to $436,359 for the same period in 1995, resulting from an
increase in taxable income during the current period.
Net Income
- ----------
Net income of $760,824 for the three months ended March 31, 1996
represented an increase of $109,440 or 16.8% over $651,384 recorded
during the same period in 1995. 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 March 31,
-8-
1996, the balance in the allowance was $3,481,044, representing 2.7%
of total loans, compared to $3,455,098 or 2.7% of total loans at
December 31, 1995.
Securities
- ----------
The Company's securities portfolio consists of obligations of the
U.S. Treasury, government sponsored agencies, mortgage backed securities
and obligations of municipalities in the Company's market area. These
assets are used in part to secure public deposits and as collateral for
repurchase agreements.
Total securities were $79,511,567 at March 31, 1996, representing an
increase of $4,895,738 or 6.6% from $74,615,829 at December 31, 1995.
At March 31, 1996, $29,438,019 in securities were classified as
available for sale. There were no sales of securities during the three
months ended March 31, 1996.
Liquidity and Capital Resources
- -------------------------------
The Company's principle 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 March 31, 1996, 1995
and 1994, deposits were $201.2 million, $184.3 million and $175.3
million, respectively. Management anticipates that deposits will
increase moderately during 1996.
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 leverage
capital to assets now constitutes the minimum capital standard for
banking organizations. At March 31, 1996, the Company's Tier 1 leverage
capital ratio was 8.59%. 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 March 31, 1996 the
Company's Tier 1 and total risk-based capital ratios were 14.70% and
15.97%, respectively. Both the Company and the Bank are categorized as
"well capitalized" under the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA).
The Board of Directors declared a first quarter 1996 dividend of
$.061 per share of common stock to shareholders of record at March 1,
1996, payable on April 15, 1996.
-9-
Asset/Liability Management
- --------------------------
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 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
March 31, 1996, representing the excess of repricing assets versus
repricing liabilities within a one year time frame, was 1.8% expressed
as a percentage of total assets.
-10-
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
March 31, 1996.
-11-
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: May 3, 1996 By: /s/ James A. Langway
-------------------------
James A. Langway
President & Chief Executive Officer
Principal Executive Officer
Date: May 3, 1996 By: /s/ Donald R. Hughes, Jr.
--------------------------
Donald R. Hughes, Jr.
Treasurer and Clerk
Principal Financial Officer and
Principal Accounting Officer
-12-