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, 1997
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
2,935,012 shares outstanding
as of April 30, 1997
PART I - FINANCIAL INFORMATION
COMMUNITY BANCORP, INC.
Item 1. CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996
------------ ------------
ASSETS
Cash and due from banks $ 15,566,463 $ 14,391,567
Federal funds sold 4,500,000 11,300,000
Securities available for sale, at market 34,763,157 29,245,007
Securities held to maturity (market value
$58,979,231 at 3/31/97 and $58,312,349
at 12/31/96) 59,456,344 58,828,881
Loans 131,688,235 131,570,430
Less allowance for possible loan losses 3,472,681 3,481,705
----------- -----------
Total net loans 128,215,554 128,088,725
Premises and equipment, net 4,896,488 4,848,202
Other assets, net 3,688,920 3,300,076
----------- -----------
Total assets $251,086,926 $250,002,458
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits
Noninterest bearing $ 48,317,521 $ 51,358,151
Interest bearing 167,361,264 165,823,718
----------- -----------
Total deposits 215,678,785 217,181,869
Securities sold under repurchase agreements 13,072,833 11,454,687
Other liabilities 1,945,099 1,524,768
----------- -----------
Total liabilities 230,696,717 230,161,324
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,
2,935,012 shares outstanding 7,998,045 7,998,045
Surplus 374,580 374,580
Undivided profits 14,403,193 13,826,958
Treasury stock, 264,206 shares (2,348,419) (2,348,419)
Unrealized losses on securities available
for sale, net (37,190) (10,030)
----------- -----------
Total stockholders' equity 20,390,209 19,841,134
----------- -----------
Total liabilities and
stockholders' equity $251,086,926 $250,002,458
=========== ===========
<FN>
See accompanying notes.
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COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended
March 31,
--------------------------
1997 1996
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Interest income:
Interest and fees on loans $3,095,446 $3,101,014
Interest and dividends on securities:
Taxable interest 1,299,399 1,044,609
Nontaxable interest 62,999 21,570
Dividends 15,077 12,989
Interest on federal funds sold 86,512 179,516
--------- ---------
Total interest income 4,559,433 4,359,698
--------- ---------
Interest expense:
Interest on deposits 1,473,902 1,500,433
Interest on short term borrowings 165,332 116,958
--------- ---------
Total interest expense 1,639,234 1,617,391
--------- ---------
Net interest income 2,920,199 2,742,307
--------- ---------
Provision for possible loan losses 0 0
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Net interest income after provision
for possible loan losses 2,920,199 2,742,307
--------- ---------
Noninterest income:
Merchant credit card assessments 248,786 206,366
Service charges 154,029 150,952
Other charges, commissions and fees 192,499 205,757
Gains on sales of loans, net 2,585 15,503
Losses on sales of securities (12,876) 0
Other 33,557 34,719
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Total noninterest income 618,580 613,297
--------- ---------
Noninterest expense:
Salaries and employee benefits 1,189,385 1,106,656
Data processing 143,779 140,299
Occupancy, net 132,748 157,228
Furniture and equipment 100,371 91,389
Credit card processing 200,558 159,202
Other 515,630 460,039
--------- ---------
Total noninterest expense 2,282,471 2,114,813
--------- ---------
Income before income taxes 1,256,308 1,240,791
Income taxes 480,493 479,967
--------- ---------
Net income $ 775,815 $ 760,824
========= =========
Earnings per share $ .264 $ .241
Dividends per share $ .068 $ .061
Weighted average number of shares 2,935,012 3,158,946
<FN>
See accompanying notes.
-3-
COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended
March 31,
---------------------------
1997 1996
------------ ------------
Cash flows from operating activities:
Interest received $ 4,433,932 $ 4,352,168
Fees and commissions received 489,461 564,786
Proceeds from secondary market
mortgage sales 1,812,922 5,031,532
Origination of mortgage loans for
secondary market sales (1,678,195) (5,106,130)
Interest paid (1,694,698) (1,683,058)
Cash paid to suppliers & employees (1,926,262) (2,020,105)
Income taxes paid (239,090) (81,400)
---------- ----------
Net cash provided by operating activities 1,198,070 1,057,793
---------- ----------
Cash flows from investing activities:
Purchases of securities held to maturity (2,913,032) (4,224,752)
Proceeds from maturities of securities
held to maturity 2,204,368 5,006,869
Purchases of securities available for sale (9,079,375) (8,153,017)
Proceeds from maturities of securities
available for sale 1,590,025 2,377,623
Proceeds from sales of securities available
for sale 2,004,596 0
Net change in federal funds sold 6,800,000 9,000,000
Net change in loans (305,683) (1,297,015)
Acquisition of property, plant and equipment (245,425) (68,450)
---------- ----------
Net cash provided by investing activities 55,474 2,641,258
---------- ----------
Cash flows from financing activities:
Net change in deposits (1,503,084) (5,882,249)
Net change in federal funds purchased 0 (1,000,000)
Net change in repurchase agreements 1,618,146 2,346,307
Dividends paid (193,710) (189,537)
---------- ----------
Net cash used in financing activities (78,648) (4,725,479)
---------- ----------
Net increase (decrease) in cash and due
from banks 1,174,896 (1,026,428)
---------- ----------
Cash and due from banks at beginning
of period 14,391,567 12,668,446
---------- ----------
Cash and due from banks at end of period $15,566,463 $11,642,018
---------- ----------
<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,
--------------------------
1997 1996
----------- -----------
Net income $ 755,815 $ 760,824
Adjustments to reconcile net income
to net cash provided by operating
activities:
Decrease (increase) in mortgage loans
held for sale 98,303 (159,816)
Premium on sale of mortgages 36,424 85,218
Depreciation and amortization 197,140 210,434
Increase (decrease) in other liabilities 159,073 (135,146)
Increase in taxes payable 241,403 398,567
Decrease in interest payable (55,464) (65,667)
Increase in other assets (129,122) (29,088)
Increase in interest receivable (125,502) (7,533)
---------- ----------
Total adjustments 422,255 269,969
---------- ----------
Net cash provided by operating activities $ 1,198,070 $ 1,057,793
========== ==========
<FN>
See accompanying notes.
-5-
COMMUNITY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
________________________________________________________________________
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,
1996.
2. EARNINGS PER SHARE (EPS)
In February 1997, Financial Accounting Standards Board Statement No.
128, "Earnings Per Share" (SFAS No. 128) was issued. This Statement
is effective for both interim and annual periods ending after
December 15, 1997, and replaces the presentation of "primary" EPS with
a presentation of "basic" EPS. Basic EPS excludes dilution and is
computed by dividing income available to holders of common stock by the
weighted-average number of common shares outstanding during the period.
The Statement also requires the presentation of diluted EPS, if
applicable, which is computed similarly to "fully diluted" EPS under
existing accounting rules. Restatement of prior years' EPS, if
necessary, is also required by this Statement. The adoption of SFAS
No. 128 by the Company is not expected to have any impact on the
Company's computation of EPS.
3. RECLASSIFICATIONS
Certain amounts in the prior period's financial statements have been
reclassified to be consistent with the current year's presentation.
The reclassifications have no effect on net income.
-6-
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 $775,815 for the three months
ended March 31, 1997, representing an increase of $14,991 or 2.0% over
$760,824 for the same period in 1996. Earnings per share of $.264 for
the current period represented an increase of $.023 from $.241 for the
Three months ended March 31, 1996.
Deposits of $215,678,785 at March 31, 1997 decreased by $1,503,084
or .7% from $217,181,869 at December 31, 1996. This decrease occurred
primarily in noninterest bearing deposit categories. Interest bearing
deposits increased by $1,537,546, primarily in the area of NOW accounts,
savings accounts and certificates of deposit. Noninterest bearing
deposits decreased by $3,040,630, primarily in the area of business
checking accounts.
Loans of $131,688,235 at March 31, 1997 increased by $117,805 or .1%
from $131,570,430 at December 31, 1996. This increase occurred
primarily in the home equity loan portfolio. Noncurrent loans
(nonaccrual loans and loans 90 days or more past due but still accruing)
totalled $1,197,581 and $1,266,732 at March 31, 1997 and December 31,
1996, respectively. There were no accruing troubled debt restructurings
at March 31, 1997 or December 31, 1996.
Assets of $251,086,926 at March 31, 1997 represented a $1,084,468 or
.4% increase from $250,002,458 at December 31, 1996.
Three months ended March 31, 1997 as Compared To
Three months ended March 31, 1996
------------------------------------------------
Net Interest Income
- -------------------
Interest income for the three months ended March 31, 1997 was
$4,559,433, representing an increase of $199,735 or 4.6% from $4,359,698
for the three months ended March 31, 1996, primarily due to higher loan
and securities balances in 1997. Interest expense was $1,639,234,
representing an increase of $21,843 or 1.4% from $1,617,391 for the
three months ended March 31, 1996, primarily due to higher average
interest bearing deposit balances in 1997. Net interest income for the
three months ended March 31, 1997 was $2,920,199, representing an
increase of $177,892 or 6.5% from $2,742,307 for the three months ended
March 31, 1996.
Noninterest Income and Expense
- ------------------------------
Noninterest income for the three months ended March 31, 1997 was
$618,580, representing an increase of $5,283 or .9% from $613,297 for
the three months ended March 31, 1996. This increase was primarily the
result of an increase in merchant credit card assessments, partially
offset by losses on sales of securities and a reduction in other
charges, commissions and fees.
-7-
Noninterest expense for the three months ended March 31, 1997 of
$2,282,471 was up $167,658 or 7.9% from $2,114,813 for the same period
in 1996. This increase was primarily the result of increases in
salaries and employee benefits, credit card processing and other expense.
Provision for Loan Losses
- -------------------------
There was no provision for loan losses for the three months ended
March 31, 1997 or 1996, reflecting management's continued 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 $480,493 for the three months ended March 31,
1997 compared to $479,967 for the same period in 1996, the result of an
increase in taxable income during the current period.
Net Income
- ----------
Net income of $775,815 for the three months ended March 31, 1997
represented an increase of $14,991 or 2.0% from $760,824 recorded for
the three months ended March 31, 1996. Earnings per share of $.264 for
the current period represented an increase of $.023 from $.241 for the
three months ended March 31, 1996.
Allowance for Possible Loan Losses
- ----------------------------------
The allowance for possible loan losses is maintained at a level
believed by management to be adequate to absorb potential losses in the
loan portfolio. Management's methodology in determining the adequacy of
the allowance considers specific credit reviews, past loan loss
experience, current economic conditions and trends and the volume,
growth and composition of the loan portfolio. Each loan on the
Company's internal Watch List is evaluated periodically to estimate
potential losses. For loans with potential losses, the bank sets aside
or "allocates" a portion of the ALLL against such potential losses. For
the remainder of the portfolio, "unallocated" reserve amounts are
determined based on 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, 1997, the balance in the allowance was $3,472,681, representing 290%
of noncurrent loans, compared to $3,481,705 or 275% of noncurrent loans
at December 31, 1996.
Securities
- ----------
The Company's securities portfolio consists of obligations of the
U.S. Treasury, U.S. government sponsored agencies, mortgage backed
securities issued by U. S. Government-sponsored agencies and obligations
of states and other municipalities. Those securities are used in part
to secure public deposits and as collateral for repurchase agreements.
-8-
Total securities were $94,219,501 at March 31, 1997, representing an
increase of $6,145,613 or 7.0% from $88,073,888 at December 31, 1996.
At March 31, 1997, $34,763,157 in securities were classified as
"available for sale". Sales of securities totalled $2,004,596 during
the three months ended March 31, 1997.
Liquidity and Capital Resources
- -------------------------------
The Company's primary sources of liquidity are customer deposits,
amortization and pay-offs of loan principal and maturities of investment
securities. These sources provide funds for loan originations, the
purchase of investment securities and other activities. Deposits are
considered a relatively stable source of funds. At March 31, 1997, 1996
and 1995, deposits were $215.7, $202.4 and $185.0 million, respectively.
Management anticipates that deposits will remain relatively stable or
grow moderately during the remainder of 1997.
As a nationally chartered member of the Federal Reserve System, the
Bank has the ability to borrow funds from the Federal Reserve Bank of
Boston by pledging certain of its investment securities as collateral.
Also, the Bank is a member of the Federal Home Loan Bank which provides
additional borrowing opportunities.
Bank regulatory authorities have established a capital measurement
tool called "Tier 1" leverage capital. A 4.00% ratio of Tier 1 capital
to assets now constitutes the minimum capital standard for most banking
organizations. At March 31, 1997, the Company's Tier 1 leverage capital
ratio was 8.13%. 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 March 31, 1997, the
Company's Tier 1 and total risk-based capital ratios were 14.42% and
15.68%, 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
- --------------------------
The Company has an asset/liability management committee which
oversees all asset/liability activities of the Company. The committee
establishes general guidelines each year and meets regularly to review
the Company's operating results and to make strategic changes when
necessary.
It is the Company's general policy to reasonably match the rate
sensitivity of its assets and liabilities. A common benchmark of this
sensitivity is the one year gap position, which is a reflection of the
difference between the speed and magnitude of rate changes of interest
rate sensitive liabilities as compared with the Bank's ability to adjust
the rates of it's interest rate sensitive assets in response to such
changes. The Company's negative cumulative one year gap position at
March 31, 1997, representing the excess of repricing liabilities versus
repricing assets within a one year time frame, was .8% of total assets.
-9-
PART II - OTHER INFORMATION
---------------------------
Item 5. OTHER INFORMATION
On March 18, 1997, the Company's Board of Directors declared a
first quarter 1997 cash dividend of $.068 per share of common stock
to shareholders of record at March 1, 1997, payable on April 15,
1997.
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, 1997.
-10
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 2, 1997 By: /s/ James A. Langway
--------------------------
James A. Langway
President & Chief Executive Officer
Principal Executive Officer
Date: May 2, 1997 By: /s/ Donald R. Hughes, Jr.
--------------------------
Donald R. Hughes, Jr.
Treasurer and Clerk
Principal Financial Officer and
Principal Accounting Officer
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