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 QUARTERLY PERIOD ENDED JUNE 30, 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
2,950,558 shares outstanding
as of July 31, 1997
PART I - FINANCIAL INFORMATION
COMMUNITY BANCORP, INC.
Item 1. CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1997 1996
------------ ------------
ASSETS
Cash and due from banks $ 18,567,549 $ 14,391,567
Federal funds sold 6,700,000 11,300,000
Securities available for sale, at market 34,124,593 29,245,007
Securities held to maturity (market value
$59,099,345 at 6/30/97 and $58,312,349
at 12/31/96) 59,208,361 58,828,881
Loans 137,554,263 131,570,430
Less allowance for possible loan losses 3,439,250 3,481,705
----------- -----------
Total net loans 134,115,013 128,088,725
Premises and equipment, net 4,880,460 4,848,202
Other assets, net 3,478,634 3,300,076
----------- -----------
Total assets $261,074,610 $250,002,458
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits
Noninterest bearing $ 51,203,465 $ 51,358,151
Interest bearing 166,984,859 165,823,718
----------- -----------
Total deposits 218,188,324 217,181,869
Federal funds purchased and securities
sold under repurchase agreements 20,135,834 11,454,687
Other liabilities 1,551,369 1,524,768
----------- -----------
Total liabilities 239,875,527 230,161,324
Stockholders' equity:
Preferred stock, $2.50 par value, 100,000
shares authorized, none issued or outstanding
Common stock, $2.50 par value, 12,000,000
shares authorized, (4,000,000 shares
authorized at December 31, 1996),
3,199,218 shares issued, 2,950,558 shares
outstanding, (2,935,012 shares outstanding
at December 31, 1996) 7,998,045 7,998,045
Surplus 414,120 374,580
Undivided profits 15,021,413 13,826,958
Treasury stock, at cost, 248,660 shares,
(264,206 shares at December 31, 1996) (2,237,940) (2,348,419)
Unrealized gains (losses) on securities
available for sale, net 3,445 (10,030)
----------- -----------
Total stockholders' equity 21,199,083 19,841,134
Total liabilities and
stockholders' equity $261,074,610 $250,002,458
=========== ===========
<FN>
See accompanying notes.
-2-
COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
Interest income:
Interest and fees on loans $3,256,817 $3,121,407 $6,352,263 $6,222,421
Interest and div. on securities:
Taxable interest 1,310,265 1,137,476 2,609,664 2,182,085
Nontaxable interest 75,617 23,686 138,616 45,256
Dividends 13,655 13,548 28,732 26,537
Interest on federal funds sold 69,520 123,001 156,032 302,517
--------- --------- --------- ---------
Total interest income 4,725,874 4,419,118 9,285,307 8,778,816
--------- --------- --------- ---------
Interest expense:
Deposits 1,492,635 1,430,007 2,966,537 2,930,440
Short term borrowings 198,231 123,874 363,563 240,832
--------- --------- --------- ---------
Total interest expense 1,690,866 1,553,881 3,330,100 3,171,272
--------- --------- --------- ---------
Net interest income 3,035,008 2,865,237 5,955,207 5,607,544
Provision for loan losses 0 0 0 0
--------- --------- --------- ---------
Net interest income after
provision for loan losses 3,035,008 2,865,237 5,955,207 5,607,544
--------- --------- --------- ---------
Noninterest income:
Merchant credit card assessments 243,806 195,016 492,592 401,382
Service charges 161,096 159,168 315,125 310,120
Other charges, commissions, fees 235,856 227,775 428,355 452,956
Gains on sales of loans, net 13,401 4,436 15,986 19,939
Gains (losses) on sales of
securities, net 11,012 0 (1,864) 0
Other 7,666 17,842 41,223 33,137
--------- --------- --------- ---------
Total noninterest income 672,837 604,237 1,291,417 1,217,534
--------- --------- --------- ---------
Noninterest expense:
Salaries and benefits 1,168,189 1,144,023 2,357,574 2,250,679
Data processing 147,841 150,970 291,620 291,269
Occupancy, net 142,375 132,338 275,123 289,566
Furniture and equipment 102,608 82,217 202,979 173,606
Credit card processing 204,988 170,942 405,546 330,144
Other 623,205 474,963 1,138,835 935,002
--------- --------- --------- ---------
Total noninterest expense 2,389,206 2,155,453 4,671,677 4,270,266
--------- --------- --------- ---------
Income before income taxes 1,318,639 1,314,021 2,574,947 2,554,812
Income taxes 493,881 518,035 974,374 998,002
--------- --------- --------- ---------
Net income $ 824,758 $ 795,986 $1,600,573 $1,556,810
========= ========= ========= =========
Earnings per share $ .280 $ .250 $ .545 $ .491
Dividends per share $ .070 $ .062 $ .138 $ .123
Weighted average number of shares 2,941,845 3,179,933 2,938,448 3,169,139
<FN>
See accompanying notes.
-3-
COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended
June 30,
--------------------------
1997 1996
----------- -----------
Cash flows from operating activities:
Interest received $ 9,062,384 $ 8,691,380
Fees and commissions received 1,261,225 1,249,303
Proceeds from secondary market
mortgage sales 4,108,857 8,858,377
Origination of mortgage loans for
secondary market sales (4,369,944) (7,895,977)
Interest paid (3,371,741) (3,223,425)
Cash paid to suppliers & employees (4,271,528) (3,908,440)
Income taxes paid (1,011,010) (992,795)
---------- ----------
Net cash provided by operating activities 1,408,243 2,778,423
---------- ----------
Cash flows from investing activities:
Purchases of securities held to maturity (6,029,533) (9,586,198)
Proceeds from maturities of securities
held to maturity 6,017,668 5,939,184
Purchases of securities available for sale (10,068,750) (8,403,017)
Proceeds from maturities of securities
available for sale 2,839,300 3,072,767
Proceeds from sale of securities available
for sale 2,004,596 0
Net change in federal funds sold 4,600,000 6,400,000
Net change in loans and other real estate
owned (5,629,058) (1,698,799)
Proceeds from sale of other real estate
owned 15,600 0
Acquisition of property, plant and equipment (426,416) (174,204)
---------- ----------
Net cash used in investing activities (6,676,593) (4,450,267)
---------- ----------
Cash flows from financing activities:
Net change in deposits 1,006,456 3,283,717
Net change in federal funds purchased 0 (1,000,000)
Net change in repurchase agreements 8,681,147 1,788,712
Sale of treasury stock 150,019 236,137
Dividends paid (393,290) (382,232)
---------- ----------
Net cash provided by (used in)
financing activities 9,444,332 (3,926,334)
---------- ----------
Net increase in cash and due from banks 4,175,982 2,254,490
Cash and due from banks at beginning
of period 14,391,567 12,668,446
---------- ----------
Cash and due from banks at end of period $18,567,549 $14,922,936
========== ==========
<FN>
See accompanying notes.
-4-
COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Reconciliation of Net Income to Net Cash Provided by Operating Activities
Six months ended
June 30,
--------------------------
1997 1996
----------- -----------
Net income $ 1,600,573 $ 1,556,810
Adjustments to reconcile net income
to net cash provided by operating
activities:
(Increase) decrease in mortgage loans
held for sale (329,294) 791,145
Premium on sale of mortgages 68,207 171,255
Depreciation and amortization 394,158 420,855
Increase (decrease) in other liabilities 5,992 (88,786)
(Decrease) increase in taxes payable (36,636) 5,207
(Decrease) in interest payable (41,641) (52,153)
(Increase) decrease in other assets (30,192) 61,511
(Increase) in interest receivable (222,924) (87,421)
---------- ----------
Total adjustments (192,330) 1,221,613
---------- ----------
Net cash provided by operating activities $ 1,408,243 $ 2,778,423
========== ==========
<FN>
See accompanying notes.
-5-
COMMUNITY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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. The 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 $1,600,573 for the six months
ended June 30, 1997, representing an increase of $43,764 or 2.7% over
$1,556,810 for the same period in 1996. Earnings per share of $.545 for
the current period represented an increase of $.054 from $.491 for the
six months ended June 30, 1996.
The Company recorded net income of $824,758 for the three months
ended June 30, 1997, representing an increase of $28,772 or 3.5% over
$795,986 for the corresponding period in 1996. Earnings per share of
$.280 for the current period represented an increase of $.030 from $.250
for the same period in 1996.
The improvement in net income resulted primarily from an increase in
net interest income and noninterest income, partially offset by
increases in salaries and benefits, furniture and equipment, credit card
processing and other expense.
Deposits of $218,188,324 at June 30, 1997 increased by $1,006,455 or
.5% from $217,181,869 at December 31, 1996.
Loans of $137,554,263 at June 30, 1997 increased by $5,983,833 or
4.4 % from $131,570,430 at December 31, 1996. This increase occurred in
the commercial, residential construction and consumer loan portfolios.
Noncurrent loans (nonaccrual loans and loans 90 days or more past due
but still accruing) totalled $1,308,410 and $1,266,732 at June 30, 1997
and December 31, 1996, respectively. There were no accruing troubled
debt restructurings at June 30, 1997 or December 31, 1996.
Assets of $261,074,610 at June 30, 1997 represented an $11,072,152
or 4.2% increase from $250,002,458 at December 31, 1996.
Six Months ended June 30, 1997 as Compared To
Six Months ended June 30, 1996
---------------------------------------------
Net Interest Income
- -------------------
Interest income for the six months ended June 30, 1997 was
$9,285,307, representing an increase of $506,491 or 5.5% from $8,778,816
for the six months ended June 30, 1996, primarily due to higher loan and
securities balances and slightly higher interest yields in 1997.
Interest expense was $3,330,100, representing an increase of $158,828 or
4.8% from $3,171,272 for the six months ended June 30, 1996, primarily
due to higher interest bearing deposit and repurchase agreement balances
in 1997. Net interest income for the six months ended June 30, 1997 was
$5,955,207, representing an increase of $347,663 or 5.8% from $5,607,544
for the six months ended June 30, 1996.
-7-
Noninterest Income and Expense
- ------------------------------
Noninterest income for the six months ended June 30, 1997 was
$1,291,417, representing an increase of $73,883 or 5.7% from $1,217,534
for the six months ended June 30, 1996. This increase was primarily the
result of increases in merchant credit card assessments, service charges
and other income, partially offset by a reduction in other charges,
commissions and fees.
Noninterest expense for the six months ended June 30, 1997 of
$4,671,677 was up $401,411 or 8.6% from $4,270,266 for the same period
in 1996. This increase was primarily the result of increases in
salaries and employee benefits, furniture and equipment and credit card
processing, partially offset by a reduction in occupancy expense.
Included in other expense for the first six months of 1997 is
approximately $152,000 in expense associated with the name change of the
Company's subsidiary from Hudson National Bank to Community National
Bank. The new name became effective on June 2, 1997.
Provision for Loan Losses
- -------------------------
There was no provision for loan losses for the six months ended June
30, 1997 and 1996, reflecting 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 $974,374 for the six months ended June 30,
1997 compared to $998,002 for the same period in 1996, the result of an
increase in tax-exempt income during the current period.
Net Income
- ----------
Net income of $1,600,573 for the first six months of 1997
represented an increase of $43,763 or 2.7% from $1,556,810 recorded for
the first six months of 1996. Earnings per share of $.545 for the
current period represented an increase of $.054 from $.491 for the six
months ended June 30, 1996.
Three Months ended June 30, 1997 as Compared To
Three Months ended June 30, 1996
-----------------------------------------------
Net Interest Income
- -------------------
Interest income for the three months ended June 30, 1997 was
$4,725,874, representing an increase of $306,756 or 6.5% from $4,419,118
for the three months ended June 30, 1996. The increase was primarily
due to higher loan and securities balances and slightly higher interest
yields in 1997. Interest expense was $1,690,866, representing an
increase of $136,985 or 8.1% from $1,553,881 for the three months ended
June 30, 1996, primarily due to higher interest bearing deposit and
repurchase agreement balances in 1997. Net interest income for the
three months ended June 30, 1997 was $3,035,008, representing an
increase of $169,771 or 5.6% from $2,865,237 for the same period in 1996.
-8-
Noninterest Income and Expense
- ------------------------------
Noninterest income for the three months ended June 30, 1997 was
$672,837, representing an increase of $68,600 or 10.2% from $604,237 for
the three months ended June 30, 1996. This increase was primarily the
result of increases in merchant credit card assessments, service
charges, other charges, commissions and fees, gains on sales of loans
and gains on sales of securities, partially offset by a reduction in
other income.
Noninterest expense for the three months ended June 30, 1997 of
$2,389,206 was up $233,753 or 9.8% from $2,155,453 for the three months
ended June 30, 1996. This increase was primarily the result of
increases in salaries and employee benefits, occupancy, furniture and
equipment, credit card processing and other expense, partially offset by
a reduction in data processing expense. Included in other expense for
the three months ended June 30, 1997 is approximately $134,000 in
expense associated with the name change of the Company's subsidiary from
Hudson National Bank to Community National Bank.
Provision for Loan Losses
- -------------------------
There was no provision for loan losses for the three months ended
June 30, 1997 or 1996, reflecting 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 $493,881 for the three months ended June 30,
1997 compared to $518,035 for the three months ended June 30, 1996, the
result of an increase in tax-exempt income during the current period.
Net Income
- ----------
Net income of $824,758 for the three months ended June 30, 1997
represented an increase of $28,772 or 3.5% over $795,986 for the three
months ended June 30, 1996. Earnings per share of $.280 for the current
period represented an increase of $.030 from $.250 for the three months
ended June 30, 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.
-9-
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 June
30, 1997, the balance in the allowance was $3,439,250, representing 263%
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 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.
Total securities were $93,332,954 at June 30, 1997, representing an
increase of $5,259,066 or 5.6% from $88,073,888 at December 31, 1996.
At June 30, 1997, $34,124,593 in securities were classified as
"available for sale". Sales of securities totalled $2,453,412 during
the six months ended June 30, 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 June 30, 1997 and
1996, deposits were $218.2 and $210.3, 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 June 30, 1997, the Company's Tier 1 leverage capital
ratio was 8.12%. 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 June 30, 1997 the
Company's Tier 1 and total risk-based capital ratios were 14.35% and
15.61%, respectively. The Bank is categorized as "well capitalized"
under the Federal Deposit Insurance Corporation Improvement Act of 1991
(F.D.I.C.I.A.).
On May 22, 1997, the Company's 401(k) Savings Plan and the Employee
Stock Ownership Plan purchased 8,293 shares and 7,253 shares,
respectively, of common stock from the Company. The stock was sold to
the two Plans at a price of $9.65 per share, which was determined by the
trustees of the plans, based on a fair value market analysis performed
by an independent third party pursuant to the ESOP, to represent a fair
price from a financial point of view as of December 31, 1996. The stock
was sold to the two plans from the Company's treasury stock account.
-10-
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
June 30, 1997, representing the excess of repricing assets versus
repricing liabilities within a one year time frame, was 3.0% of total
assets.
-11-
PART II - OTHER INFORMATION
---------------------------
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Shareholders was held on April 8, 1997. At
that meeting, three (3) matters were put before the shareholders for
vote. Proxies for the meeting were solicited, and a copy of the Proxy
Statement dated March 19, 1997 is incorporated herein by reference and
attached hereto as an exhibit. Such Proxy Statement provides a
description of the matters put before the shareholders for vote and
provides other information required under this Item 4.
The results of the voting were as follows:
1. To fix the number of Directors who shall constitute the full Board
of Directors at eleven.
Votes for: 2,154,442
Votes against: 3,996
2. To elect as Directors the four individuals listed as nominees in
the Proxy Statement, who, together with the seven Directors whose
terms of office did not expire at this meeting, constitute the full
Board of Directors.
Director Votes For Votes Against
-------- --------- -------------
Alfred A. Cardoza 2,154,710 3,698
Argeo R. Cellucci 2,154,710 3,698
Antonio Frias 2,154,710 3,698
Dennis F. Murphy, Jr. 2,154,710 3,698
3. To increase the number of authorized shares of the Company's common
stock, par value $2.50 per share, from 4,000,000 shares to
12,000,000 shares.
Votes for: 2,133,381
Votes against: 16,651
Item 5. OTHER INFORMATION
Effective June 2, 1997, the Company's wholly-owned subsidiary,
Hudson National Bank, changed its name to Community National Bank.
On July 15, 1997, the Company's Board of Directors voted to declare
a second quarter 1997 cash dividend of $.070 per share of common
stock to shareholders of record at June 1, 1997, payable July 15,
1997.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(99) Community Bancorp, Inc. Proxy Statement dated March 19,
1997
(b) The Company did not file a Form 8-K during the quarter ended June
30, 1997
-12-
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: August 1, 1997 By: /s/ James A. Langway
-----------------------------------
James A. Langway
President & Chief Executive Officer
Principal Executive Officer
Date: August 1, 1997 By: /s/ Donald R. Hughes, Jr.
----------------------------------
Donald R. Hughes, Jr.
Treasurer and Clerk
Principal Financial Officer and
Principal Accounting Officer
-13-
EXHIBIT INDEX
-------------
EXHIBIT PAGE
------- ----
99 Community Bancorp, Inc. Proxy
Statement dated March 19, 1997 15
-14-