UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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 - (978) 568-8321
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-K or any
amendment to this form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 15, 1999 was $30,167,313.
The total number of shares of common stock outstanding at March 15, 1999
was 2,944,588.
Documents Incorporated By Reference
Parts II, III and IV incorporate information by reference from the Annual
Report to shareholders for the year ended December 31, 1998.
PART I
------
ITEM 1. BUSINESS
Community Bancorp, Inc., a Massachusetts corporation ("Company"), is
a registered bank holding company under the Bank Holding Company Act of
1956, as amended. The Holding Company has one subsidiary, Community
National Bank, a national banking association ("Bank"). The Holding
Company owns all the outstanding shares of the Bank. At present, the
Holding Company conducts no activities independent of the Bank. In 1992,
the Bank formed Community Securities Corporation as a wholly owned
subsidiary. The activities of this subsidiary consist of buying, selling,
dealing in or holding securities in its own behalf and not as a broker.
In 1998, the Bank formed Community Benefits Consulting, Inc. as a wholly
owned subsidiary. The activities of this subsidiary consist of providing
consulting services to small businesses in the areas of employee benefits
and human resources administration.
The Bank is engaged in substantially all of the business operations
customarily conducted by an independent commercial bank in Massachusetts.
Banking services offered include acceptance of checking, savings and time
deposits, and the making of commercial, real estate, installment and other
loans. The Bank also offers official checks, traveler's checks, safe
deposit boxes and other customary bank services to its customers. In 1994
the Bank introduced a telephone banking service allowing customers to
perform account inquiries and other functions using a Touch Tone
telephone. In 1995 the Bank introduced a PC-based office banking system
for businesses that allows business customers to access their accounts and
perform a number of functions directly through an office PC. In 1996 the
Bank introduced a PC-based home banking and bill payment system for
consumers. In 1997, the bank formed a third-party arrangement with Murphy
Insurance Brokerage, Ltd. for the purpose of providing insurance products
and services to the bank's customers and the general public.
The business of the Bank is not significantly affected by seasonal
factors.
In the last five years the Bank derived its operating income from
the following sources:
% of Operating Income
--------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Interest and fees on loans 55% 60% 63% 65% 64%
Interest and dividends on
securities 31 28 26 24 24
Charges, fees and other sources 14 12 11 11 12
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
Competition
The Bank generally concentrates its activities within a 20 mile
radius of Hudson, Massachusetts and currently operates full service branch
offices in Hudson, Acton, Boxboro, Concord, Marlboro and Stow,
Massachusetts. These communities are generally characterized by a growing
residential population and moderate to high household income. In addition
to its main office, the Bank also operates a full service branch office
and a consumer lending office in the Town of Hudson. The Bank is planning
to open two additional branch offices, in Framingham and Sudbury,
Massachusetts, during the second quarter of 1999. The Bank operates three
remote ATM facilities in Hudson and Marlboro.
-2-
The banking business in the Bank's market area is highly
competitive. The Bank competes actively with other banks, as well as with
other financial institutions engaged in the business of accepting deposits
or making loans, such as savings and loan associations, savings banks and
finance companies. In the Bank's general market area there are
approximately 2 national banks, 3 Massachusetts trust companies, 6 savings
banks, 1 cooperative bank and 6 credit unions. Since several of the
competing institutions are significantly larger than the Bank in assets
and deposits, the Bank strongly emphasizes a personal approach to service
while utilizing the latest in technology in order to meet and surpass the
vigorous competition.
Regulation of the Company
The Company is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended. It is subject to the supervision
and examination of the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board") and files with the Federal Reserve Board the
reports as required under the Bank Holding Company Act.
The Bank Holding Company Act requires prior approval by the Federal
Reserve Board of the acquisition by the Company of substantially all the
assets or more than five percent of the voting stock of any bank. The
Bank Holding Company Act also allows the Federal Reserve Board to
determine (by order or by regulation) what activities are so closely
related to banking as to be a proper incident of banking, and thus,
whether the Company can engage in such activities or transactions between
the affiliated banks and the Company or other affiliates. The Bank
Holding Company Act prohibits the Company and the Bank from engaging in
certain tie-in arrangements in connection with any extension of credit,
sale of property or furnishing of services.
Regulation of the Bank
The Bank is a national banking association chartered under the
National Bank Act. As such, it is subject to the supervision of the
Comptroller of the Currency and is examined by his office. In addition,
it is subject to examination by the Federal Reserve Board, by reason of
its membership in the Federal Reserve System, and by the Federal Deposit
Insurance Corporation, by reason of the insurance of its deposits by such
corporation. Areas in which the Bank is subject to regulation by federal
authorities include reserves, loans, investments, issuances of various
types of securities, participation in mergers and consolidations, and
certain transactions with or in the stock of the Company.
Employees
The Company and the Bank employ 113 full-time equivalent employees.
-3-
Distribution of Assets, Liabilities and Stockholders' Equity; Interest
Rates and Interest Differential
The following tables present the condensed average balance sheets
and the components of net interest differential for the three years ended
December 31, 1998, 1997 and 1996. The total dollar amount of interest
income from earning assets and the resultant yields are calculated on a
taxable equivalent basis.
1998
-----------------------------------
Average Interest Yield/
ASSETS Balance Inc./Exp. Rate
----------- ---------- -----
Federal funds sold $ 21,759,343 $ 1,155,014 5.31%
Securities:
Taxable 97,953,145 5,854,481 5.98%
Non-taxable (1) 9,908,169 699,584 7.06%
Total loans and leases (1)(2) 138,310,868 13,210,520 9.55%
----------- ---------- ----
Total earning assets 267,931,525 20,919,599 7.81%
----------
Reserve for loan losses (3,121,829)
Other non interest-
bearing assets 24,798,936
-----------
Total average assets $289,608,632
===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Savings, money market and NOW $113,384,703 $ 2,665,123 2.35%
Time deposits 72,259,015 3,984,185 5.51%
Federal funds purchased and
repurchase agreements 23,234,738 1,025,804 4.41%
----------- --------- ----
Total interest-bearing
liabilities 208,878,456 7,675,112 3.67%
---------
Non interest-bearing deposits 54,657,106
Other non interest-bearing
liabilities 1,860,238
Stockholders' equity 24,212,832
-----------
Total average liabilities
and stockholders' equity $289,608,632
===========
Net interest income $13,244,487
==========
Net yield on interest
earning assets 4.94%
====
<FN>
(1) Interest income and yield are stated on a fully taxable-equivalent
basis. The total amount of adjustment is $259,818. A federal tax
rate of 34% was used in performing this calculation.
(2) The average balances of non-accruing loans and loans held for sale
are included in the loan balance.
-4-
Distribution of Assets, Liabilities and Stockholders' Equity;
Interest Rates and Interest Differential (Continued)
1997
-----------------------------------
Average Interest Yield/
ASSETS Balance Inc./Exp. Rate
----------- ---------- -----
Federal funds sold $ 8,534,521 $ 464,016 5.44%
Securities:
Taxable 86,006,643 5,241,159 6.09%
Non-taxable (1) 6,544,073 472,507 7.22%
Total loans and leases (1)(2) 136,844,378 13,186,467 9.64%
----------- ---------- ----
Total earning assets 237,929,615 19,364,149 8.14%
----------
Reserve for loan losses (3,394,971)
Other non interest-
bearing assets 22,530,388
-----------
Total average assets $257,065,032
===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Savings, money market and NOW $100,555,499 $ 2,451,529 2.44%
Time deposits 68,313,627 3,687,605 5.40%
Federal funds purchased and
repurchase agreements 15,799,413 756,088 4.79%
----------- --------- ----
Total interest-bearing
liabilities 184,668,539 6,895,222 3.73%
---------
Non interest-bearing deposits 49,067,530
Other non interest-bearing
liabilities 1,984,377
Stockholders' equity 21,344,586
-----------
Total average liabilities
and stockholders' equity $257,065,032
===========
Net interest income $12,468,927
==========
Net yield on interest
earning assets 5.24%
====
<FN>
(1) Interest income and yield are stated on a fully taxable-equivalent
basis. The total amount of adjustment is $194,199. A federal tax
rate of 34% was used in performing this calculation.
(2) The average balances of non-accruing loans and loans held for sale
are included in the loan balance.
-5-
Distribution of Assets, Liabilities and Stockholders' Equity;
Interest Rates and Interest Differential (Continued)
1996
-----------------------------------
Average Interest Yield/
ASSETS Balance Inc./Exp. Rate
----------- ---------- -----
Federal funds sold $ 11,361,749 $ 590,663 5.20%
Securities:
Taxable 78,493,267 4,619,558 5.89%
Non-taxable (1) 2,752,956 192,885 7.01%
Total loans and leases (1)(2) 129,443,069 12,495,000 9.65%
----------- ---------- ----
Total earning assets 222,051,041 17,898,106 8.06%
----------
Reserve for loan losses (3,503,861)
Other non interest-
bearing assets 21,384,220
-----------
Total average assets $239,931,400
===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Savings, money market and NOW $ 94,508,038 $ 2,258,835 2.39%
Time deposits 66,704,196 3,581,610 5.37%
Federal funds purchased and
repurchase agreements 11,798,277 527,313 4.47%
----------- --------- ----
Total interest-bearing
liabilities 173,010,511 6,367,758 3.68%
---------
Non interest-bearing deposits 44,425,461
Other non interest-bearing
liabilities 1,977,905
Stockholders' equity 20,517,523
-----------
Total average liabilities
and stockholders' equity $239,931,400
===========
Net interest income $11,530,348
==========
Net yield on interest
earning assets 5.19%
====
<FN>
(1) Interest income and yield are stated on a fully taxable-equivalent
basis. The total amount of adjustment is $137,004. A federal tax
rate of 34% was used in performing this calculation.
(2) The average balances of non-accruing loans and loans held for sale
are included in the loan balance.
-6-
Distribution of Assets, Liabilities and Stockholders' Equity;
Interest Rates and Interest Differential (Continued)
The following table shows, for the periods indicated, the dollar
amount of changes in interest income and interest expense resulting from
changes in volume and interest rates. The total dollar amount of interest
income from earning assets is calculated on a taxable equivalent basis.
1998 as compared to 1997
Due to a change in:
-------------------------------------
Volume Rate Total
--------- --------- ---------
Interest income from:
Federal funds sold $ 702,093 $ (11,095) $ 690,998
Securities:
Taxable 707,929 (94,607) 613,322
Non-taxable 237,548 (10,471) 227,077
Loans & leases 147,213 (123,160) 24,053
--------- --------- ---------
Total 1,794,783 (239,333) 1,555,450
--------- --------- ---------
Interest expense on:
Interest-bearing deposits:
Savings, money market and NOW 304,094 (90,500) 213,594
Time deposits 221,434 75,145 296,579
Federal funds purchased and
repurchase agreements 329,755 (60,038) 269,717
--------- --------- ---------
Total 855,283 (75,393) 779,890
--------- --------- ---------
Net interest income $ 939,500 $ (163,940) $ 775,560
========= ========= =========
1997 as compared to 1996
Due to a change in:
-------------------------------------
Volume Rate Total
--------- --------- ---------
Interest income from:
Federal funds sold $ (153,915) $ 27,268 $ (126,647)
Securities:
Taxable 464,614 156,987 621,601
Non-taxable 273,841 5,781 279,622
Loans & leases 704,411 (12,944) 691,467
--------- --------- ---------
Total 1,288,951 177,092 1,466,043
--------- --------- ---------
Interest expense on:
Interest-bearing deposits:
Savings, money market and NOW 145,440 47,254 192,694
Time deposits 85,984 20,011 105,995
Federal funds purchased and
repurchase agreements 191,021 37,754 228,775
--------- --------- ---------
Total 422,444 105,020 527,464
--------- --------- ---------
Net interest income $ 866,507 $ 72,072 $ 938,579
========= ========= =========
<FN>
Note: The change due to the volume/rate variance has been allocated to
volume.
-7-
Securities Portfolio
The following table indicates the carrying value of the Company's
consolidated securities portfolio at December 31, 1998, 1997 and 1996.
(in $000)
1998 1997 1996
------- ------ ------
U.S. Government obligations $ 14,166 $21,134 $16,002
U.S. Government agencies and corp. 91,953 64,667 67,043
Obligations of states and political
subdivisions 11,571 8,414 4,141
Other securities 1,054 969 888
------- ------ ------
Total $118,744 $95,184 $88,074
======= ====== ======
The following table shows the maturities, carrying value and
weighted average yields of the Company's consolidated securities portfolio
at December 31, 1998. The yields are calculated by dividing the annual
interest, net of amortization of premiums and accretion of discounts, by
the amortized cost of the securities at the dates indicated. The yields
on state and municipal securities are presented on a taxable equivalent
basis.
After one After five
Maturing: Within but within but within After
-------- one year five years ten years ten years
------------ ------------ ------------ ------------
(in $000) Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
U.S. Govt. obli-
gations held to
maturity $1,000 5.09% $ 0 0% $ 0 0% $ 0 0%
U.S. Govt. obli-
gations avail-
able for sale 9,068 6.17 4,097 6.47 0 0 0 0
U.S. Govt. agencies
& corps. held to
maturity 0 0 24,981 6.06 3,465 6.02 0 0
U.S. Govt. agencies
& corps. available
for sale 0 0 3,030 6.30 0 0 0 0
State and political
subdivisions
held to maturity 415 7.13 195 7.13 1,782 7.33 9,179 7.33
Mortgage-backed
securities avail-
able for sale 699 5.70 0 0 0 0 13,738 6.05
Mortgage-backed
securities held to
maturity 4,316 6.30 6,103 6.12 0 0 35,622 6.29
Other securities 0 0 0 0 0 0 1,054 6.00
<FN>
Current estimated prepayment speed assumptions were used in estimating
the maturities of mortgage-backed securities in the above table. At
December 31, 1998 the Company did not own securities of any issuer where the
aggregate book value of such securities exceeded ten percent of the
Company's stockholders' equity.
-8-
Loan Portfolio
The following table summarizes the distribution of the Bank's loan
portfolio as of December 31 for each of the years indicated:
(in $000)
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
Commercial and industrial $ 21,127 $ 18,066 $ 17,227 $ 13,784 $ 13,685
Real estate - residential 55,055 54,211 49,790 50,979 44,246
Real estate - commercial 47,399 48,329 45,106 44,983 50,195
Real estate - construction 2,795 4,868 4,833 3,903 3,330
Mortgage loans held for sale 1,330 2,173 1,222 1,057 559
Loans to individuals 13,197 13,571 13,221 13,178 10,850
Other 651 795 171 188 173
------- ------- ------- ------- -------
Total loans $141,554 $142,013 $131,570 $128,072 $123,038
======= ======= ======= ======= =======
Loan maturities for commercial and real estate (construction) loans
at December 31, 1998 were as follows: $10,585,099 due in one year or less;
$8,190,712 due after one year through five years; $5,145,977 due after
five years. Of the Bank's commercial and real estate (construction) loans
due after one year, $9,083,781 have floating or adjustable rates and
$4,252,908 have fixed rates.
Nonaccrual, Past Due and Restructured Loans
It is the policy of the Bank to discontinue the accrual of interest
on loans when, in management's judgment, the collection of the full amount
of interest is considered doubtful. This will generally occur once a loan
has become 90 days past due, unless the loan is well secured and in the
process of collection. The following table sets forth information on
nonaccrual, past due loans and restructured loans as of December 31 for
each of the years indicated:
(in $000)
1998 1997 1996 1995 1994
----- ----- ----- ----- -----
Nonaccrual loans $ 913 $ 633 $ 897 $1,650 $ 909
Accruing loans past due 90
days or more 2 239 370 160 66
Restructured loans 0 0 0 0 1,155
----- ----- ----- ----- -----
Total $ 915 $ 872 $1,267 $1,810 $2,130
===== ===== ===== ===== =====
<FN>
The entire "restructured loans" balance at December 31, 1994 in the
above table was comprised of a single loan. That loan was placed on
nonaccrual status in September of 1995 and transferred to "Other Real
Estate Owned" in August of 1996.
For the period ended December 31, 1998, the reduction of interest
income associated with nonaccrual and restructured loans was $63,870. The
interest on these loans that was included in interest income for 1998 was
$82,456.
Potential Problem Loans
As of December 31, 1998 other than the above, there were no loans
where management had serious doubts as to the ability of the borrowers to
comply with the present loan repayment terms.
Concentrations of Credit
As of December 31, 1998 except as disclosed in the above table,
there were no concentrations of loans exceeding 10% of total loans.
-9-
Summary of Loan Loss Experience
The following table summarizes historical data with respect to loans
outstanding, loan losses and recoveries, and the allowance for possible
loan losses at December 31 for each of the years indicated:
(in $000)
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
Average outstanding loans (1) $138,311 $136,844 $129,443 $127,034 $120,018
======= ======= ======= ======= =======
Allowance for possible loan losses
(in $000)
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
Balance at beginning of period $ 3,216 $ 3,482 $ 3,455 $ 3,703 $ 3,910
Charge-offs:
Commercial and industrial (37) (133) (39) (31) (506)
Real estate - residential (132) (16) (53) (70) (221)
Real estate - commercial (59) (99) 0 (415) 0
Real estate - construction 0 0 0 0 0
Loans to individuals (76) (118) (138) (113) (112)
----- ----- ----- ----- -----
Total charge-off (304) (366) (230) (629) (839)
Recoveries:
Commercial and industrial 48 35 147 105 174
Real estate - residential 6 41 1 100 128
Real estate - commercial 2 0 79 18 3
Real estate - construction 0 0 0 0 0
Loans to individuals 13 24 30 38 27
----- ----- ----- ----- -----
Total recoveries 69 100 257 261 332
Net (charge-off) recovery (235) (266) 27 (368) (507)
Provision for possible
loan losses 0 0 0 120 300
----- ----- ----- ----- -----
Balance at end of period $ 2,981 $ 3,216 $ 3,482 $ 3,455 $ 3,703
==== ===== ===== ===== =====
Ratio of net charge-offs to
average loans .17% .19% .00% .29% .42%
==== ===== ===== ===== =====
<FN>
(1) Includes the aggregate average balance of loans held for sale.
The provision for possible loan losses is based upon management's
estimation of the amount necessary to maintain the allowance at an
adequate level to absorb inherent possible losses in the loan portfolio,
as determined by current and anticipated economic conditions and other
pertinent factors. Significant credits classified as "substandard" and
"doubtful", in accordance with applicable bank regulatory guidelines, are
individually analyzed to estimate inherent possible losses associated with
each such credit. A portion of the allowance for possible loan losses is
set aside or "allocated" against such estimated inherent losses, without
regard to if or when those estimated losses will actually be realized.
Additional "unallocated" reserves are provided for estimated inherent
losses in pools of loans. Such allocated and unallocated reserves are
established to absorb potential future losses and may or may not reflect
the Company's actual loss history for any specific category of loans.
-10-
Summary of Loan Loss Experience (Continued)
The following table reflects the allocation of the allowance for
loan losses and the percent of loans in each category to total outstanding
loans, including loans held for sale, as of December 31 for each of the
years indicated:
1998 1997 1996
------------------- ------------------- -------------------
Percent of Percent of Percent of
loans in loans in loans in
category to category to category
(in $000) Amount total loans Amount total loans Amount total loans
------ ----------- ------ ----------- ------ -----------
Commercial &
industrial $ 238 15.4% $ 318 12.7% $ 195 13.1%
Real estate -
residential 197 39.8% 198 39.7% 166 38.8%
Real estate -
commercial 518 33.5% 565 34.1% 767 34.2%
Real estate -
construction 35 2.0% 62 3.4% 82 3.7%
Loans to
individuals 130 9.3% 126 10.1% 126 10.2%
Unallocated 1,863 N/A 1,947 N/A 2,146 N/A
----- ----- ----- ----- ----- -----
Total $2,981 100.0% $3,216 100.0% $3,482 100.0%
===== ===== ===== ===== ===== =====
1995 1994
------------------- -------------------
Percent of Percent of
loans in loans in
category to category to
(in $000) Amount total loans Amount total loans
------ ----------- ------ -----------
Commercial &
industrial $ 165 10.9% $ 165 11.2%
Real estate -
residential 174 40.7 222 36.1%
Real estate -
commercial 746 35.1% 1,440 40.9%
Real estate -
construction 96 3.0% 45 2.8%
Loans to
individuals 100 10.3% 87 9.0%
Unallocated 2,174 N/A 1,744 N/A
----- ----- ----- -----
Total $3,455 100.0% $3,703 100.0%
===== ===== ===== =====
<FN>
The allocation of the allowance for possible loan losses to the
categories of loans shown above includes both specific potential loss
estimates for individual loans and general allocations deemed to be
reasonable to provide for additional potential losses within the
categories of loans set forth.
-11-
Deposits
The following table shows the average deposits and average interest
rate paid for each of the last three years:
1998 1997 1996
---------------- ---------------- ----------------
Average Average Average Average Average Average
(in $000) Balance Rate Balance Rate Balance Rate
------- ------- ------- ------- ------- -------
Demand deposits $ 54,658 0.00% $ 49,068 0.00% $ 44,426 0.00%
NOW deposits 30,382 1.10% 23,419 1.34% 22,544 1.29%
Money market
deposits 27,273 2.87% 27,996 2.74% 27,924 2.75%
Savings deposits 55,729 2.78% 49,140 2.79% 44,040 2.73%
Time deposits 72,259 5.51% 68,314 5.40% 66,704 5.37%
------- ---- ------- ---- ------- ----
Total $240,301 2.77% $217,937 2.82% $205,638 2.84%
======= ==== ======= ==== ======= ====
As of December 31, 1998, the Bank had certificates of deposit in
amounts of $100,000 or more aggregating $19.1 million. These certificates
of deposit mature as follows:
Maturity Amount (in $000)
-------- ---------------
3 months or less $ 5,800
Over 3 months through 6 months 3,165
Over 6 months through 12 months 7,533
Over 12 months 2,632
------
Total $19,130
======
-12-
Return on Equity and Assets
The following table summarizes various financial ratios of the
Company for each of the last three years:
Years ended December 31,
----------------------------
1998 1997 1996
---- ---- ----
Return on average total
assets (net income divided
by average total assets) 1.31% 1.33% 1.31%
Return on average
stockholders' equity
(net income divided by
average stockholders'
equity) 15.72% 16.07% 15.36%
Dividend payout ratio
(total declared dividends
per share divided by net
income per share) 24.94% 24.43% 24.99%
Equity to assets (average
stockholders' equity as
a percentage of average
total assets) 8.36% 8.30% 8.55%
-13-
Short-Term Borrowings
The Bank engages in certain borrowing agreements throughout the
year. These are in the ordinary course of the Bank's business. Such
short-term borrowings consisted of securities sold under repurchase
agreements, which are short-term borrowings from customers, and federal
funds purchased. The following table summarizes such short-term
borrowings at December 31 for each of the years indicated:
Weighted Max. Weighted
average amount average
interest out- Average interest
Balance, rate at standing amount rate
end of end of at any out- during
period period month-end standing period
---------- ------- ---------- --------- --------
Year ended
12/31/98
- ----------
Federal
Funds
Purchased $ 0 0% $ 0 $ 8,219 6.87%
Repurchase
Agreements 19,747,496 3.79% 32,342,233 23,226,519 4.41%
Year ended
12/31/97
- ----------
Federal
Funds
Purchased $ 3,000,000 7.05% $ 3,000,000 $ 55,616 5.95%
Repurchase
Agreements 13,637,063 4.71% 20,135,834 15,743,797 4.78%
Year ended
12/31/96
- ----------
Federal
Funds
Purchased $ 0 0% $ 0 $ 2,732 6.40%
Repurchase
Agreements 11,454,687 4.45% 14,435,268 11,795,545 4.39%
-14-
ITEM 2. PROPERTIES
The Bank's Main Office (approximately 32,000 square feet) at 17 Pope
Street, Hudson, Massachusetts, the Consumer Loan Center (2,623 square
feet) at 12 Pope Street, Hudson, Massachusetts, the Hudson South Office
(1,040 square feet) at 177 Broad Street, Hudson, Massachusetts and the
Marlboro Center Office (1,800 square feet) at 96 Bolton Street, Marlboro,
Massachusetts, are owned by the Bank. In December of 1998 the Bank
purchased a property located at 35 Edgell Road, Framingham, Massachusetts.
That property contains two buildings, a 4,450 square foot building that
will be used by the Bank as a branch office and a 2,050 square foot
building that is leased to a tenant. The Framingham branch office is
expected to open for business in the second quarter of 1999.
The Bank's Stow Office (1,228 square feet) at 159 Great Road, Stow,
Massachusetts, the Concord office (1,200 square feet) at 1134 Main Street,
Concord, Massachusetts, the Acton office (2,100 square feet) at 274 Great
Road, Acton, Massachusetts, the Marlboro office (1,110 square feet) at 500
Boston Post Road, Marlboro, Massachusetts and the Boxboro office (1,350
square feet) at 629 Massachusetts Avenue, Boxboro, Massachusetts, are
leased by the Bank from third parties. The Bank has also contracted to
lease from a third party a 2,700 square foot branch office at 450 Boston
Post Road, Sudbury, Massachusetts. The Sudbury branch office is expected
to open for business in the second quarter of 1999.
All properties occupied by the Bank are in good condition and are
adequate at present and for the foreseeable future for the purposes for
which they are being used. In the opinion of management the properties
are adequately insured.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceeding. The Bank is
involved in various routine legal actions arising in the normal course of
business. Based on its knowledge of the pertinent facts and the opinions
of legal counsel, management believes the aggregate liability, if any,
resulting from the ultimate resolution of these actions will not have a
material effect on the Company's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the quarter ended December 31, 1998.
-15-
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
There is no established public trading market for the Company's
common stock.
The record number of holders of the Company's common stock was
approximately 440 as of March 15, 1999.
The Company customarily declares quarterly cash dividends on its
outstanding common stock. The following table sets forth the cash
dividends per share declared for the years 1998 and 1997:
1998 1997
------ ------
First quarter $ .077 $ .068
Second quarter .079 .070
Third quarter .082 .072
Fourth quarter .085 .075
----- -----
Total $ .323 $ .285
===== =====
For a discussion of restrictions on the ability of the Bank to pay
dividends to the Company, see footnote 11 on page 19 of the Annual Report
to Shareholders for the year ended December 31, 1998, which is hereby
incorporated by reference.
On May 5, 1998 the Company sold 12,998 unregistered shares of its
common stock to the Community Bancorp, Inc. 401(k) Savings Plan and 5,333
unregistered shares of its common stock to the Community Bancorp, Inc.
Employee Stock Ownership Plan at a per share price of $15.00. The
aggregate cash price of these shares was $274,965. Registration of such
shares involved in the above transactions was not required because the
transactions were exempt pursuant to the private offering provisions of
the Securities Act and the rules thereunder. Alternatively, the Company
believes that registration of the shares issued to its 401(k) Plan was not
required because the transaction did not constitute a "sale" under Section
2(3) of the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA
A five year summary of selected consolidated financial data for the
Company is presented on page 1 of the Annual Report to Shareholders for
the year ended December 31, 1998 and is hereby incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and
results of operations is contained on pages 25 through 28 of the Annual
Report to Shareholders for the year ended December 31, 1998 and is hereby
incorporated by reference.
-16-
Safe Harbor Statements Under the Private Securities Litigation Reform Act
This report, including Management's Discussion and Analysis of
Financial Condition and Results of Operations, contains, in addition to
historic information, forward-looking statements. When used in this and
other Reports, the words "anticipate", "estimate", "expect", "objective",
and similar expressions are intended to identify forward-looking
statements. These forward-looking statements are subject to a variety of
risks and uncertainties. In addition to any assumptions and other factors
referred to specifically in connection with such forward-looking
statements, risk factors that could cause the Company's actual results to
differ materially from those contemplated in any forward-looking statement
include, but are not limited to, the following:
1. Adverse changes in asset quality;
2. Adverse changes in general economic conditions, including changes in
interest rates, inflation, or the strength of the economy in the
Company's service area;
3. Increased competition for the services offered by the Bank;
4. Legal and regulatory developments.
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133). SFAS No.
133 establishes the 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 qualifying 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 transactions that receive hedge accounting. The
Statement is effective for the Company's fiscal year beginning January 1,
2000. The Company does not believe the adoption of SFAS No. 133 will have
any material effect on its financial position or results of operations.
In March 1998, the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" (SOP
98-1). SOP 98-1 requires computer software costs associated with
internal-use software to be expensed as incurred until certain
capitalization criteria are met. SOP 98-1 is effective for the Company's
fiscal year beginning January 1, 1999. The Company does not believe the
adoption of SOP 98-1 will have any material impact on the Company's
financial statements or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities" (SOP 98-5). SOP 98-5 requires all costs associated
with pre-opening, pre-operating and organization activities to be expensed
as incurred. SOP 98-5 is effective for the Company's fiscal year
beginning January 1, 1999. The Company does not believe the adoption of
SOP 98-5 will have any material impact on the Company's financial
statements or results of operations.
-17-
Asset/Liability Management and Interest Rate Risk
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 Company'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, 1998, which represents
the excess of repricing liabilities versus repricing assets, was 1.7%
expressed as a percentage of total assets.
The following table presents rate-sensitive assets and rate-sensitive
liabilities as of December 31, 1998:
(Dollars in thousands) December 31, 1998
--------------------------------------------------------------------------
1 to 6 7 to 12 1 to 2 2 to 5 Over 5
Months Months Years Years Years Total
---------- --------- ---------- --------- --------- ----------
RATE-SENSITIVE ASSETS
Federal funds sold $ 17,000 $ $ $ $ $ 17,000
Securities 22,566 9,531 13,757 46,001 26,889 118,744
Adjustable-rate loans 43,262 17,397 21,760 22,926 1,312 106,657
Fixed-rate loans 5,454 4,640 4,492 7,803 11,178 33,567
Loans held for sale 1,330 1,330
--------- --------- ---------- ---------- -------- ---------
Total $ 89,612 $ 31,568 $ 40,009 $ 76,730 $ 39,379 $ 277,298
--------- --------- ---------- --------- -------- ---------
RATE-SENSITIVE LIABILITIES
Demand deposits $ $ $ $ $ 60,511 $ 60,511
NOW accounts* 36,319 36,319
Money market accounts 25,419 25,419
Savings accounts 36,060 36,060
Cash management accounts 22,238 22,238
Certificates of deposit 36,126 22,863 8,326 6,541 5 73,861
Short term borrowings 19,161 587 19,748
--------- --------- ---------- --------- -------- ---------
Total $ 102,944 $ 23,450 $ 8,326 $ 6,541 $ 132,895 $ 274,156
--------- --------- ---------- --------- -------- ---------
Gap $ (13,332) $ 8,118 $ 31,683 $ 70,189 $ (93,516) $ 3,142
========== ========= ========= ========= ========= =========
Cumulative Gap $ (13,332) $ (5,214) $ 26,469 $ 96,658 $ 3,142
========== ========= ========= ========= =========
Gap as a percent of
total assets (4.43%) 2.70% 10.53% 23.33% (31.08%)
Cumulative gap as a
percent of total assets (4.43%) (1.73%) 8.80% 32.12% 1.04%
* Cumulative gap as a
percent of total
assets if NOW accounts
are considered
immediately
withdrawable (16.50%) (13.80%) (3.27%) 20.05% 1.04%
<FN>
Whenever possible, maturity dates or contractual repricing dates have been
used in the preparation of the above table. In addition to those factors,
-18-
certain assumptions are utilized such as the estimation of prepayments
associated with certain loans and mortgage-backed securities. The Bank's
historical experience over the past ten years, during which time interest
rates have risen and fallen significantly, has demonstrated that savings
account balances, demand deposit balances and NOW account balances are
rate insensitive. Other deposit categories are considered to be rate
sensitive. That rate sensitivity or insensitivity is reflected in the
above table. (For purposes of this table, the Bank's FlexValue deposit
account balances have been included in the "NOW accounts" category.)
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk is the sensitivity of income to variations in
interest rates over a specified time horizon. The primary goal of
interest rate risk management is to control this risk within limits
approved by the Board of Directors and narrower guidelines approved by the
Asset/Liability Committee. Those limits and guidelines reflect the
Company's tolerance for interest rate risk.
The Company also uses simulation analysis to measure the exposure of
net interest income to changes in interest rates over a one year time
horizon. Simulation analysis involves projecting future income and
expense from the Company's assets and liabilities under various interest
rate scenarios.
The Company's limits on interest rate risk specify that if interest
rates were to shift immediately up or down by 200 basis points, estimated
net interest income for the subsequent twelve months should decline by no
more than 5.00% of net interest income. The following table sets forth
the Company's estimated net interest income exposure, assuming an
immediate, parallel shift in interest rates:
Rate Change Estimated Exposure to
(Basis Points) Net Interest Income
-------------- ---------------------
+200 (1.39%)
-200 0.85%
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements are included on page
1 and on pages 4 through 24 of the Annual Report to shareholders for the
year ended December 31, 1998 and are hereby incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There were no changes in the Company's independent public
accountants or disagreements with the Company's accountants on accounting
or financial disclosure during the 24 months ended December 31, 1998 or in
any period subsequent to the most recent financial statements.
-19-
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as to each of the Directors and
Executive Officers of the Company and the Bank, such person's age,
position, term of office, and all business experience during the past five
years. All Directors of the Company have served since 1984, except Mr.
Frias who has been a Director of the Company since 1985, Mr. Parker who
has been a Director of the Company since 1986, and Messrs. Hughes and
Webster who have been Directors of the Company since 1995. Each Director
of the Company is also a Director of the Bank. Each executive officer
holds office until the first Director's meeting following the annual
meeting of stockholders and thereafter until his or her successor is
elected and qualified.
Business Experience
Term of During Past
Name Age Position Office Five Years
- -------------- --- ------------- ------- -----------------------
Richard K. 46 Senior Vice Senior Vice President,
Bennett President Community National Bank
of Bank
Grace L. Blunt 44 Senior Vice Senior Vice President,
President Community National Bank,
of Bank Assistant Clerk,
Community Bancorp, Inc.
Alfred A. 81 Director of 2000 Retired
Cardoza Company and
Bank
Antonio Frias 59 Director of 2000 President and Treasurer,
Company and S & F Concrete
Bank Contractors, Inc.;
Secretary/Clerk, Frias
Bros. Service Station
John P. Galvani 42 Senior Vice Senior Vice President,
President Community National Bank
of Bank
I. George 82 Director of 1999 Chairman, Gould's, Inc.
Gould (1) Company and
Bank
Horst Huehmer 71 Director of 2001 Retired; formerly
Company and Manager, Hudson Light
Bank and Power Department
-20-
Donald R. 49 Treasurer and 2001 Executive Vice
Hughes, Jr. Clerk of President and Cashier,
Company; Exec. Community National Bank;
Vice President Treasurer and Clerk,
of Bank; Director Community Bancorp, Inc.
of Company and
Bank
James A. 59 President & 1999 President and CEO,
Langway (1) CEO of Company Community National Bank
and Bank; and Community
Director of Bancorp, Inc.
Company and
Bank
Robert E. Leist 45 Senior Vice Senior Vice President,
President Community National Bank
of Bank
Janet A. Lyman 52 Senior Vice Senior Vice President,
President Community National Bank
of Bank
Dennis F. 61 Chairman of 2000 President and
Murphy, Jr. the Board, Treasurer, D. F.
Company and Murphy Insurance
Bank Agency, Inc.;
Treasurer, Village
Real Estate
David L. 70 Director of 1999 Chairman of the Board,
Parker (1,2) Company and Larkin Lumber Co.
Bank
Mark Poplin 75 Director of 2001 President and
Company and Treasurer, Poplin
Bank Supply Co.;
Secretary, Poplin
Furniture Co.
David W. 57 Director of 2001 President & Treasurer,
Webster (2) Company and Knight Fuel Co., Inc.
Bank
<FN>
(1) Messrs. Gould, Langway, and Parker have been nominated for
election at the 1999 Annual Meeting to serve until 2002.
(2) Mr. Webster's wife and Mr. Parker are cousins.
No Director holds a directorship in any company with a class of
securities registered pursuant to Section 12 of the Securities Exchange
Act of 1934 or subject to the requirements of Section 15(d) of such Act or
any company registered as an investment company under the Investment
Company Act of 1940.
-21-
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all plan and non-plan compensation
awarded to, earned by or paid to the CEO and other executive officers
whose aggregate compensation by the Company and the Bank exceeded
$100,000.
Summary Compensation Table
--------------------------
Annual Compensation
---------------------------------------------
(a) (b) (c) (d) (i) (1)
Name and All Other
Principal Position Year Salary Bonus Compensation
- ------------------ ---- ------- ------ ------------
James A. Langway 1998 $211,503 $90,000 $ 9,500
President and CEO 1997 205,353 75,000 8,989
of the Company and 1996 195,574 68,451 8,838
the Bank
Donald R. Hughes, Jr. 1998 122,595 30,036 8,877
Treasurer and Clerk of 1997 116,757 28,605 8,104
Company; Executive Vice 1996 111,197 27,244 7,825
President and Cashier
of the Bank
Richard K. Bennett 1998 90,061 15,310 5,584
Senior Vice President 1997 85,772 14,581 5,037
of the Bank 1996 81,688 13,887 3,999
John P. Galvani 1998 89,250 15,173 5,526
Senior Vice President 1997 85,000 14,450 3,946
of the Bank 1996 75,000 12,750 3,587
<FN>
Notes:
1. The Company maintains an Employee Stock Ownership Plan (ESOP) for
employees age 21 or older who are participants in the Company's
Retirement Plan and who meet other requirements. The Company also
maintains a 401(k) Savings Plan (401(k) Plan) for employees age 21
or over and who meet other requirements. Messrs. Langway, Hughes,
Bennett and Galvani are participants in the Company's ESOP and
401(k) Plans. Of the $9,500 reported above for 1998 in column (i)
for Mr. Langway, $3,533 represents Company ESOP contributions,
$4,800 represents Company 401(k) Plan contributions and $1,167
represents group life insurance premiums paid by the Company. Of
the $8,877 reported above for 1998 in column (i) for Mr. Hughes,
$3,422 represents Company ESOP contributions, $4,579 represents
Company 401(k) Plan contributions and $876 represents group life
insurance premiums paid by the Company. Of the $5,584 reported
above for 1998 in column (i) for Mr. Bennett, $2,432 represents
Company ESOP contributions, $2,810 represents Company 401(k) Plan
contributions and $342 represents group life insurance premiums
paid by the Company. Of the $5,526 reported above for 1998 in
column (i) for Mr. Galvani, $2,399 represents Company ESOP
contributions, $2,785 represents Company 401(k) Plan contributions
and $342 represents group life insurance premiums paid by the
Company.
-22-
Compensation of Directors
The Bank paid its Directors an annual fee of $9,265 in 1998. The
Chairman of the Board was paid $15,443 in 1998. Director fees are paid on
a monthly basis. The Company pays no compensation to its Directors for
their services.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
The Company has entered into five-year Employment Agreements with
James A. Langway, President and Chief Executive Officer of the Company,
and with Donald R. Hughes, Jr., Treasurer and Clerk of the Company, which
specify the employee's duties and minimum compensation during the period
of the Employment Agreement. Each Employment Agreement is extended for one
additional year, on the anniversary of the commencement date, unless prior
notice is given by either party. Employment by the Company shall
terminate upon the employee's resignation, death, disability, or for
"cause" as defined in the Employment Agreement. If employment is
involuntarily terminated by the Company for any reason except for cause,
or if the Employment Agreement is not renewed at its expiration, the
Company is required to make additional payments to the employees. During
the term of the Employment Agreement and for one year afterwards, the
employee cannot compete with the Company within its market area.
The Company has also entered into Severance Agreements with Mr.
Langway and Mr. Hughes regarding termination of employment by the Company
or Bank subsequent to a "change in control" of the Company, as defined in
the Severance Agreement. Following the occurrence of a change in control,
if the employee's employment is terminated (except because of gross
dereliction of duty, death, retirement, disability or conviction for
criminal misconduct) or is involuntarily terminated for "good reason" as
defined in the Severance Agreement, then the employee shall be entitled to
a lump sum payment from the Company approximately equal to three times his
average annual compensation for the previous five years, plus accrued
vacation pay and bonus awards. If Mr. Langway or Mr. Hughes is entitled
to receive benefits under both his Employment Agreement and his Severance
Agreement, he must choose the agreement under which he will claim
benefits.
The Company has entered into an Executive Supplemental Income
Agreement with James A. Langway, President and Chief Executive Officer of
the Company, which commenced July 12, 1988 and which specifies benefits
payable to Mr. Langway for a ten (10) year period following the date on
which he ceases to be employed by the Company. The Agreement provides
that the Company will pay Mr. Langway $40,774 each year, increased by
increases in the Consumer Price Index, for a ten (10) year period
following the date he ceases to be employed by the Company for any cause
whatsoever after attaining age 55. The Agreement was amended on January
26, 1990, increasing the annual base retirement benefit to be paid to Mr.
Langway from $40,774 to $60,774 each year, increased by increases in the
Consumer Price Index in the same manner as the original Agreement. Mr.
Langway attained age 55 during 1994. The Company records annual expense
in anticipation of future payments expected to be made under this
Agreement. The annual expense amount recorded is determined by an
independent actuary based on Mr. Langway's life expectancy at the time he
begins receiving payments. During 1998, the Company recorded $47,340 in
such expense.
The Bank has entered into "change in control" Severance Agreements
with its five Senior Vice Presidents.
-23-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and related notes set forth information
regarding stock owned by each of the directors of the Company and Bank,
and by all directors and executive officers of the Company and Bank as a
group, at March 15, 1999.
Amount and Nature of
Beneficial Ownership
Title (Number of shares) (1) Percent
of Name of ------------------------------------- of
Class Beneficial Owner Sole (2) Shared (3) Total Class
---- ---------------- -------- ---------- ----- -------
Common Alfred A. Cardoza 12,600 9,886 22,486 .8%
Stock
($2.50 Antonio Frias 26,586 0 26,586 .9%
par)
I. George Gould 9,235 113,962 (4) 123,197 4.2%
Horst Huehmer 700 21,932 22,632 .8%
Donald R. Hughes, Jr. 2,000 118,339 (4,5) 120,339 4.1%
James A. Langway 94,170 245,392 (4,6,9) 339,562 11.5%
Dennis F. Murphy, Jr. 198,724 239,484 438,208 14.9%
David L. Parker 22,514 21,784 (7) 44,298 1.5%
Mark Poplin 364 152,690 153,054 5.2%
David W. Webster 750 70,084 70,834 2.4%
All directors and
executive officers
of the Company and
Bank as a group
(15 persons) 368,971 747,295 (4,8,9) 1,116,266 37.9%
<FN>
(1) Based upon information provided to the Company by the indicated
persons. Certain directors may disclaim beneficial ownership of
certain of the shares listed beside their names.
(2) Indicates sole voting and investment power.
(3) Indicates shared voting and investment power.
(4) Includes 78,209 shares held by the Company's ESOP for which
Messrs. Gould, Hughes and Langway are co-trustees.
(5) Includes 10,130 shares held by the Company's 401(k) plan for
which Mr. Hughes has voting power in certain circumstances.
(6) Includes 16,716 shares held by the Company's 401(k) plan for
which Mr. Langway has voting power in certain circumstances.
-24-
(7) Includes 2,000 shares held by the Unitarian Church of Marlboro
and Hudson, MA, for which Mr. Parker is a trustee, and 13,584
shares held in the name of Arline Parker, for whom Mr. Parker
has power of attorney.
(8) Includes 71,936 shares held by the Company's 401(k) plan, for
which Grace L. Blunt, Senior Vice President, and Robert E.
Leist, Senior Vice President, are co-trustees.
(9) Includes 53,428 shares held by the Mark Poplin Family Trust and
96,814 shares held by the Shirley E. Poplin Family Trust, for
which Mr. Langway is a trustee. Mr. Langway disclaims any
beneficial interest in these shares.
The following persons own beneficially more than five percent of the
outstanding stock of the Company as of March 15, 1999:
Amount and
Title Name and Address Nature of Percent
of of Beneficial Beneficial of
Class Owner Ownership Class
----- ---------------- ---------- -------
Common Stock Dennis F. Murphy, Jr. 438,208 shares 14.9%
($2.50 par) 188 Prospect Hill Rd.
Harvard, MA 01467
James A. Langway 339,562 shares (1,2) 11.5%
1143 Grove Street
Framingham, MA 01701
Mark Poplin 153,054 shares 5.2%
108 Barretts Mill Road
Concord, MA 01742
Einar P. Robsham 151,900 shares 5.2%
164 Cochituate Road
Wayland, MA 01778
(1) Includes 78,209 shares held by the Company's ESOP, for which Mr.
Langway is a trustee, and 16,716 shares held by the Company's
401(k) plan, for which Mr. Langway has voting power in certain
circumstances.
(2) Includes 53,428 shares held by the Mark Poplin Family Trust and
96,814 shares held by the Shirley E. Poplin Family Trust, for
which Mr. Langway is a trustee. Mr. Langway disclaims any
beneficial interest in these shares.
-25-
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company, through its wholly-owned bank subsidiary, has had,
currently has, and expects to continue to have in the future, banking
(including loans and extensions of credit) transactions in the ordinary
course of its business with its Directors, Executive Officers, members of
their families and associates. Such banking transactions have been and
are on substantially the same terms, including interest rates, collateral
and repayment conditions, as those prevailing at the same time for
comparable transactions with others and did not involve more than the
normal risk of collectibility or present other unfavorable features.
In October of 1997 the Bank entered into a third-party insurance
sales agreement with Murphy Insurance Brokerage, Ltd. ("Murphy"). By
entering into the agreement, the Bank implemented a decision of the Board
of Directors to expand the Bank's product line by providing the public
with access to insurance products. The agreement between the Bank and
Murphy is structured in the form of a lease arrangement for floor space in
the Bank's Main Office located at 17 Pope Street, Hudson, Massachusetts.
Murphy Insurance Brokerage, Ltd. is a subsidiary of Murphy Insurance
Agency, Inc., which is owned by Dennis F. Murphy, Jr., Chairman of the
Company's Board of Directors. The third-party agreement between the Bank
and Murphy had no material affect on the Company's 1998 financial
statements or results of operations.
-26-
PART IV
-------
ITEM 14. EXHIBITS AND FINANCIAL STATEMENTS
(a) 1. & 2. Index to Consolidated Financial Statement Schedules
The following consolidated financial statements, which are included
in the Annual Report to Shareholders of Community Bancorp, Inc. for the
year ended December 31, 1998, are hereby incorporated by reference:
Annual Report to
Shareholders
Description page reference
----------- ----------------
Consolidated balance sheets at
December 31, 1998 and 1997 4
Consolidated statements of income for
the years ended December 31, 1998,
1997 and 1996 5
Consolidated statements of comprehensive
income for the years ended December 31,
1998, 1997 and 1996 6
Consolidated statements of stockholders'
equity for the years ended December 31, 1998,
1997 and 1996 7
Consolidated statements of cash flows
for the years ended December 31, 1998,
1997 and 1996 8
Notes to consolidated financial statements 9 - 24
<FN>
With the exception of the aforementioned information, and
information incorporated by reference in Items 5, 6, 7, and 8, the Annual
Report to Shareholders for the year ended December 31, 1998 is not deemed
to be filed as part of this Form 10-K. Certain schedules required by
Regulation S-X have been omitted as the items are either not applicable or
are presented in the notes to the financial statements contained in the
Annual Report to Shareholders for the year ended December 31, 1998.
3. Exhibits
See accompanying Exhibit Index.
(b) The Company did not file a Form 8-K during the quarter ended
December 31, 1998.
-27-
EXHIBIT INDEX
-------------
3.1 Articles of Organization of Company
Amendments to Articles of Organization,
(dated prior to April 12, 1988) (a)
3.1.i Amendment to Articles of Organization,
dated April 12, 1988
3.2 By-Laws of Company (a)
10.1 Community Bancorp, Inc. Employee Stock
Ownership Plan (as amended and restated
effective January 1, 1985) (b)
10.2 Employment Agreement dated August 19, 1986
between Community Bancorp, Inc. and
James A. Langway (c)
10.3 Severance Agreement dated June 10, 1986
between Community Bancorp, Inc. and
James A. Langway (d)
10.4 Employment Agreement dated August 19, 1986
between Community Bancorp, Inc. and
Donald R. Hughes, Jr. (c)
10.5 Severance Agreement dated June 10, 1986
between Community Bancorp, Inc. and
Donald R. Hughes, Jr. (d)
10.6 Executive Supplemental Income Agreement
dated July 12, 1988 between Community
Bancorp, Inc. and James A. Langway (e)
10.7 Amendment to Executive Supplemental
Income Agreement dated January 26, 1990
between Community Bancorp, Inc. and
James A. Langway. (f)
10.8 Stock Purchase Agreement dated March 29, 1993
by and among Community Bancorp, Inc. and
certain specific persons. (g)
10.9 Form of Severance Agreement dated February 19,
1998 between Community National Bank and the
Bank's five Senior Vice Presidents.
13. 1998 Annual Report to shareholders
21. Subsidiaries of Company Page 30
27. Financial Data Schedule
<FN>
(a) Incorporated herein by reference to Exhibits 3.1, and 3.2 and filed
as part of Company's Amendment No. 1 to the Registration Statement on
Form S-18 (File No. 33-12756-B) filed with Commission on April 16,
1987.
-28-
(b) Incorporated herein by reference to Exhibit 10.1 as part of Company's
Registration Statement on Form S-18 (File No. 33-12756-B) filed with
the Commission on March 19, 1987.
(c) Incorporated herein by reference to Exhibits 5.8 and 5.9 filed as
part of Company's Amendment No. 2 to the Offering Statement on Form
1-A (File No. 24B-2076) filed with the Commission on August 14, 1986.
(d) Incorporated herein by reference to Exhibits 5.2 and 5.4 filed as
part of Company's Offering Statement on Form 1-A (File No. 24B-2076)
filed with the Commission on June 24, 1986.
(e) Incorporated herein by reference as filed as part of the Company's
December 31, 1988 Form 10-K (File No. 33-12756-B), filed with the
Commission on March 30, 1989.
(f) Incorporated herein by reference as filed as part of the Company's
December 31, 1989 Form 10-K (File No. 33-12756-B), filed with the
Commission on March 29, 1990.
(g) Incorporated herein by reference as filed as part of the Company's
December 31, 1992 Form 10-K (File No. 33-12756-B), filed with the
Commission on March 30, 1993.
-29-
SUBSIDIARIES OF COMPANY
-----------------------
1. Community National Bank, a national banking association.
-30-
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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: March 18, 1999 By: /s/ Donald R. Hughes, Jr.
-------------------------
Donald R. Hughes, Jr.
Treasurer and Clerk
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date Name and Capacity
---- -----------------
March 18, 1999 /s/ James A. Langway
-----------------------------------
James A. Langway, President & CEO
Principal Executive Officer
March 18, 1999 /s/ Donald R. Hughes, Jr.
-----------------------------------
Donald R. Hughes, Jr., Treasurer & Clerk,
Principal Financial Officer and Principal
Accounting Officer
March 18, 1999 /s/ James A. Langway
-----------------------------------
James A. Langway, Director
March 18, 1999 /s/ Donald R. Hughes, Jr.
-----------------------------------
Donald R. Hughes, Jr., Director
March 18, 1999 /s/ Alfred A. Cardoza
-----------------------------------
Alfred A. Cardoza, Director
March 19, 1999 /s/ David W. Webster
-----------------------------------
David W. Webster, Director
March 19, 1999 /s/ David L. Parker
-----------------------------------
David L. Parker, Director
March 23, 1999 /s/ I. George Gould
-----------------------------------
I. George Gould, Director
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SUPPLEMENTAL INFORMATION
------------------------
Copies of the Notice of Annual Meeting of Shareholders, Proxy
Statement and Proxy For Annual Meeting of Shareholders for the
Registrant's 1999 annual meeting of shareholders, to be held on April 13,
1999, are being submitted separately as an EDGAR Submission Type DEF 14A.
Such material is not deemed to be filed with the Commission or otherwise
subject to the liabilities of Section 18 of the Securities Exchange Act.
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