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CONFORMED COPY
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. 000-16435
COMMUNITY BANCORP.
(Exact name of registrant as specified in its charter)
Vermont 03-0284070
(State of Incorporation) (IRS Employer Identification No.)
Derby Road, Derby, Vermont 05829
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (802) 334-7915
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $2.50 par value per share
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. ( )
As of March 11, 1999, the date of the latest known sale of the registrant's
stock, the aggregate market value of the voting stock held by non-affiliates
of the registrant, based on the per share sale price of the stock on that
date, was $36,244,513.
There were 3,289,067 shares outstanding of the issuer's class of common stock
as of the close of business on March 11, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Report of Independent Public Accountants
Financial Statements:
Consolidated Statements of Condition as of December 31, 1998 and 1997
Consolidated Statements of Income for the Years Ended December 31, 1998,
1997 and 1996
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Changes in Financial Position for the Years
Ended December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
Condensed Financial Information (Parent Company Only)
Portions of the Annual Report to Shareholders for fiscal year 1998
incorporated by reference to Part II.
Portions of the Proxy Statement for the Annual Meeting to be held May 4,
1999 are incorporated by reference to Part III.
Total Number of Pages - 31
Exhibit Index Begins on Page 25
FORM 10-K ANNUAL REPORT
Table of Contents
PART I Page
Item I The Business 4
Organization and Operation 4
Distribution of Assets, Liabilities & Stockholders' Investment 7
Interest Income, Interest Expense and Interest Differential 8
Rate Volume Analysis 9
Investment Portfolio 10
Loan Portfolio 11
Summary of Loan Loss Experience 12
Non-Accrual, Past Due, and Restructured Loans 13
Deposits, Return on Equity and Assets 14
Item 2 Properties 15
Item 3 Legal Proceedings 16
Item 4 Submission of Matters to a Vote of Security Holders 16
PART II
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters 16
Item 6 Selected Financial Data 16
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
Item 8 Financial Statements and Supplementary Data 24
Item 9 Disagreements on Accounting and Financial Disclosures 24
PART III
Item 10 Directors and Executive Officers of the Registrant 24
Item 11 Executive Compensation 24
Item 12 Security Ownership of Certain Beneficial Owners and Management 24
Item 13 Certain Relationships and Related Transactions 24
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 25
Signatures 31
PART I
Item 1. The Business
Organization and Operation
Community Bancorp. (The Corporation) was organized under the laws of the
State of Vermont in 1982 and became a registered bank holding company under
the Bank Holding Company Act of 1956, as amended, in October 1983 when it
acquired all of the voting shares of Community National Bank (the Bank).
The Bank is one of two subsidiaries of the Corporation and principally all
of the Corporation's business operations are presently conducted through it.
Liberty Savings Bank (Liberty), a New Hampshire guaranty savings bank, is
the other subsidiary of Community Bancorp., and is presently inactive. On
December 31, 1997, Community Bancorp. acquired all of the outstanding stock
of Liberty Savings Bank, as well as the assets consisting of a U.S. Treasury
Strip and a small amount of cash. Currently, since no building was purchased
at the time of acquisition, the main office of Community National Bank serves
as the mailing address for this bank.
Community National Bank was organized in 1851 as the Peoples Bank, and was
subsequently reorganized as the National Bank of Derby Line in 1865. In
1975, after 110 continuous years of operation as the National Bank of Derby
Line, the Bank acquired the Island Pond National Bank and changed its name
to "Community National Bank."
Community National Bank provides a complete range of retail banking services
to the residents and businesses in northeastern Vermont. These services
include checking, savings and time deposit accounts, mortgage, consumer and
commercial loans, safe deposit and night deposit services, automatic teller
machine (ATM) facilities, credit card services, 24 hour telephone banking and
a full line of personal fiduciary services. The Bank is in the process of
testing internet banking. This service was first offered to employees in
order for them to become more familiar with it, test the different uses, and
work out any potential problems. The Bank plans to extend the service to
customers by the end of the first quarter of 1999.
Competition
The Bank has five offices located in Orleans County, one office in Essex
County, and one office in Caledonia County, all in northeastern Vermont.
Its primary service area is in the towns of Derby and Newport, Vermont, with
approximately 61% of its total deposits as of December 31, 1998 derived from
that area.
The Bank competes in all aspects of its business with other banks and
credit unions in northern Vermont, including two of the largest banks in
the state, which maintain branch offices throughout the Bank's service
area. Historically, competition in Orleans and Essex Counties has come
from The Chittenden Trust Company and The Howard Bank, N.A., a subsidiary
of Banknorth Group, Inc., based in Burlington, Vermont. The Chittenden
Trust Company maintains a branch office in Newport, and The Howard Bank
maintains one office in Barton, one office in Orleans, and one office in
St. Johnsbury. Competition in Caledonia County comprises of the Passumpsic
Savings Bank and Citizens Savings Bank, both based in St. Johnsbury,
Lyndonville Savings Bank and Trust Company, based in Lyndonville, The
Merchants Bank based in Burlington, and with two local credit unions for
deposits and consumer loans.
With recent changes in the regulatory framework of the banking industry,
the competition for deposits and loans has broadened to include not only
traditional rivals such as the mutual savings banks and stock savings banks,
but also several non-traditional rivals such as insurance companies, brokerage
firms, mutual funds and consumer finance companies.
Employees
As of December 31, 1998, the Bank employed 95 full-time employees and 31
part-time employees. Management of the Bank considers its employee relations
to be good.
Regulation and Supervision
As a registered bank holding company, the Corporation is subject to on-
going regulation supervision and examination by the Board of Governors of
the Federal Reserve System, under the Bank Holding Company Act of 1956, as
amended (the "Act"). A bank holding company for example, must obtain the
prior approval of the Board before it acquires all or substantially all of
the assets of any bank, or acquires ownership or control of more than 5% of
the voting shares of a bank. Prior Federal Reserve Board approval is also
required before a bank holding company may acquire more than 5% of any
outstanding class of voting securities of a company other than a bank or a
more than 5% interest in its property.
The Act limits the activity in which the Corporation and its subsidiaries
may engage to certain specified activities, including those activities
which the Federal Reserve Board may find, by order or regulation, to be
so closely related to banking or managing or controlling banks as to be a
proper incident thereto. Some of the activities that the Federal Reserve
Board has determined by regulation to be closely related to banking are:
(1) making, and servicing loans that could be made by mortgage, finance,
credit card or factoring companies; (2) performing the functions of a
trust company; (3) certain leasing of real or personal property; (4)
providing certain financial, banking or economic data processing services;
(5) except as otherwise prohibited by law, acting as an insurance agent or
broker with respect to insurance that is directly related to the extension
of credit or the provision of other financial services or, under certain
circumstances, with respect to insurance that is sold in certain small
communities in which the bank holding company system maintains banking
offices; (6) acting as an underwriter for credit life insurance and credit
health and accident insurance directly related to extensions of credit by
the holding company system; (7) providing certain kinds of management
consulting advice to unaffiliated banks and non-bank depository institutions;
(8) performing real estate appraisals; (9) issuing and selling money order
and similar instruments and travelers checks and selling U.S. Savings Bonds;
(10) providing certain securities brokerage and related services for the
account of bank customers; (11) underwriting and dealing in certain
government obligations and other obligations such as bankers' acceptances
and certificates of deposit; (12) providing consumer financial counseling;
(13) providing tax planning and preparation services; (14) providing check
guarantee services to merchants; (15) operating a collection agency; and
(16) operating a credit bureau.
The Corporation does not presently engage, directly or indirectly, in any
non-banking activities, with the exception of an onsite office occupied by
Linsco Private Ledgers, a financial investment company, offering a variety
of non-deposit investment and retirement options.
A bank holding company must also obtain prior Federal Reserve approval
in order to purchase or redeem its own stock if the gross consideration
to be paid, when added to the net consideration paid by the company for
all purchases or redemptions by the company of its equity securities
within the preceding 12 months, will equal 10% or more of the company's
consolidated net worth.
The Corporation is required to file with the Federal Reserve Board an
annual report and such additional information as the Board may require
pursuant to the Act. The Board may also make examinations of the
Corporation and any direct or indirect subsidiary of the Corporation.
The Corporation has registered its Common Stock under Section 12(g) of
the Securities Exchange Act of 1934 and is required to file annual and
periodic reports and proxy statements and other information with
the Securities and Exchange Commission.
Community Bancorp. and its subsidiaries, Community National Bank and
Liberty Savings Bank, are considered "affiliates" for the purposes of
Section 18(j) of the Federal Deposit Insurance Act, as amended, and
Section 23A of the Federal Reserve Act, as amended. Accordingly, they
are subject to limitations with respect to the Bank's ability to make loans
and other extensions of credit to or investments in the Corporation or in
any other subsidiaries that the Corporation may acquire. The Company is
prohibited from engaging in certain tie-in arrangements in connection with
any extension of credit or lease or sale of any property of the furnishing
of services.
The Bank is a national banking association and subject to the provisions
of the National Bank Act and federal and state statutes and rules and
regulations applicable to national banks. The primary supervisory authority
for the Bank is the Comptroller of the Currency. The Comptroller's
examinations are designed for the protection of the Bank's depositors and
not for its shareholders. The Bank is subject to periodic examination
by the Comptroller and must file periodic reports with the Comptroller
containing a full and accurate statement of its affairs. The deposits of
the Bank are insured by the Federal Deposit Insurance Corporation ("FDIC").
Accordingly, the Bank is also subject to regulation by the FDIC.
Liberty is subject to similar regulations and provisions in the state of
New Hampshire.
Effects of Government Monetary Policy
The earnings of the Company affected by general and local economic
conditions and by the policies of various governmental regulatory
authorities. In particular, the Federal Reserve Board regulates money
and credit conditions and interest rates in order to influence general
economic conditions, primarily through open market operations and United
States Government Securities, varying the discount rate on member bank
borrowings, setting reserve requirements against member and nonmember bank
deposits, and regulating interest rates payable by member banks on time
and savings deposits. Federal Reserve Board monetary policies have had a
significant effect on the operating results of commercial banks, including
the Company, in the past and are expected to continue to do so in the future.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
The following tables summarize various consolidated information and provides
a three year comparison relating to the average assets, liabilities, and
stockholders' equity.
(Dollars in Thousands)
Year ended December 31, 1998 1997 1996
ASSETS
Balance % Balance % Balance %
Cash and Due from Banks
Non-Interest Bearing 4,522 2.05% 4,979 2.37% 4,765 2.31%
Taxable Investment
Securities(1) 38,784 17.56% 35,649 17.00% 35,754 17.31%
Tax-exempt Investment
Securities(1) 13,060 5.91% 12,140 5.79% 14,179 6.87%
Other Securities(1) 1,270 0.57% 1,168 0.56% 1,168 0.57%
Total Investment
Securities 53,114 24.04% 48,957 23.35% 51,101 24.74%
Overnight Deposits(2) 3,339 1.51% 0 0.00% 0 0.00%
Federal Funds Sold 4,928 2.23% 2,583 1.23% 4,711 2.28%
Loans, Net 147,830 66.92% 145,778 69.53% 138,635 67.13%
Premises and Equipment 3,135 1.42% 3,328 1.59% 3,431 1.66%
Other Real Estate Owned 660 0.30% 997 0.48% 767 0.37%
Other Assets 3,368 1.53% 3,026 1.45% 3,107 1.50%
Total Assets 220,896 100% 209,648 100% 206,517 100%
LIABILITIES
Demand Deposits 20,857 9.44% 18,694 8.92% 17,493 8.47%
Now and Money Market
Accounts 44,916 20.33% 39,337 18.76% 41,383 20.04%
Savings Accounts 30,840 13.96% 31,907 15.22% 32,320 15.65%
Time Deposits 98,181 44.45% 94,751 45.20% 96,227 46.60%
Total Deposits 194,794 88.18% 184,689 88.10% 187,423 90.75%
Other Borrowed Funds 4,060 1.84% 4,061 1.94% 99 0.05%
Repurchase Agreements(3) 93 0.04% 0 0.00% 0 0.00%
Other Liabilities 1,020 0.46% 734 0.35% 522 0.25%
Subordinated Debentures 48 0.02% 107 0.05% 216 0.10%
Total Liabilities 200,015 90.55% 189,591 90.43% 188,260 91.16%
STOCKHOLDERS' EQUITY
Common Stock 6,174 2.79% 3,814 1.82% 3,466 1.68%
Surplus 8,293 3.75% 7,769 3.71% 5,948 2.88%
Retained Earnings 6,649 3.01% 8,916 4.25% 9,273 4.49%
Less: Treasury Stock (445) -0.20% (445) -0.21% (440) -0.21%
Accumulated Other
Comprehensive Income(1) 210 0.10% 3 0.00% 10 0.00%
Total Stockholders' Equity 20,881 9.45% 20,057 9.57% 18,257 8.84%
Total Liabilities and
Stockholders' Equity 220,896 100% 209,648 100% 206,517 100%
FASB No. 115, an accounting method in which securities classified
as Held to Maturity are carried at book value and securities
classified as Available for Sale are carried at fair value with
the unrealized gain (loss), net of applicable income taxes, reported
as a net amount in accumulated other comprehensive income. The Company
does not carry, nor does it intend to carry, securities classified as
Trading Securities.
Overnight deposits refers to the Bank of Boston sweep account
established during the first half of 1998 as another means
of selling funds overnight.
Repurchase agreements were introduced during the second part of 1998
in an effort to attract new business customers.
AVERAGE BALANCES AND INTEREST RATES
The table below presents the following information: average earning
assets (including non-accrual loans) and average interest bearing
liabilities supporting earning assets; and interest income and
interest expense as a rate/yield.
(Dollars in Thousands)
1998 1997 1996
AVE. INC./ RATE/ AVE. INC./ RATE/ AVE. INC./ RATE/
BAL. EXP. YIELD BAL. EXP. YIELD BAL. EXP. YIELD
EARNING ASSETS
Loans(net)(1) 147,830 13,758 9.31% 145,778 13,868 9.51% 138,635 13,376 9.65%
Taxable Investment
Securities 38,784 2,196 5.66% 35,649 2,117 5.94% 35,754 2,095 5.86%
Tax-exempt Investment
Securities(2) 13,060 930 7.12% 12,140 929 7.65% 14,179 1,114 7.86%
Federal Funds
Sold 4,928 237 4.81% 2,583 140 5.42% 4,711 246 5.22%
Overnight
Deposits(3) 3,339 185 5.54% N/A N/A
Other
Securities(4) 1,270 82 6.46% 1,168 79 6.76% 1,168 78 6.68%
TOTA L 209,211 17,388 8.31% 197,318 17,133 8.68% 194,447 16,909 8.70%
INTEREST BEARING LIABILITIES
Savings
Deposits 30,840 807 2.62% 31,907 877 2.75% 32,320 944 2.92%
NOW & Money
Market Funds 44,916 1,565 3.48% 39,337 1,397 3.55% 41,383 1,523 3.68%
Time Deposits 98,181 5,496 5.60% 94,751 5,304 5.60% 96,227 5,681 5.90%
Other Borrowed
Funds 4,060 198 4.88% 4,061 245 6.03% 99 7 7.07%
Repurchase
Agreements(5 ) 93 4 4.30% N/A N/A
Subordinated
Debentures 48 5 10.42% 107 11 10.28% 216 21 9.72%
TOTAL 178,138 8,075 4.53% 170,163 7,834 4.60% 170,245 8,176 4.80%
Net Interest Income 9,313 9,299 8,733
Net Interest Spread(6) 3.78% 4.08% 3.90%
Interest Differential(7) 4.45% 4.71% 4.49%
Included in net loans are non-accrual loans with an average balance
of $2,004,438 for 1998, $1,750,037 for 1997, and $1,655,907 for 1996.
Income on investment securities of state and political subdivisions
is stated on a tax equivalent basis (assuming a 34% rate). The
amount of adjustment was $316,232 in 1998, $315,855 in 1997, and
$378,873 in 1996.
Overnight deposits refers to the Bank of Boston sweep account
established during the first half of 1998 as another means of
selling funds overnight.
Included in other securities are taxable industrial development
bonds (VIDA), with income of $7,549 for 1998, $8,440 for 1997,
$8,381 for 1996.
Repurchase agreements were introduced during the second part of
1998 in an effort to attract new business customers.
Net interest spread is the difference between the yield on earning
assets and the rate paid on interest-bearing liabilities.
Interest differential is net interest income divided by average
earning assets.
CHANGES IN INTEREST INCOME AND INTEREST EXPENSE
The following table summarizes the variances in income for the years 1998,
1997, 1996, and 1995 resulting from volume changes in assets and liabilities
and fluctuations in rates earned and paid.
(Dollars in Thousands)
1998 vs. 1997 1997 vs. 1996 1996 vs. 1995
RATE VOLUME Variance(1) Variance(1) Variance(1)
Due to Total Due to Total Due to Total
Rate Volume Variance Rate Volume Variance Rate Volume Variance
Income Earning Assets
Loans(2) (305) 195 (110) (197) 689 492 287 638 925
Taxable
Investment
Securities (107) 186 79 28 (6) 22 45 292 337
Tax-Exempt
Investment
Securities(3) (69) 70 1 (29)(156) (185) (51) (252) (303)
Federal
Funds Sold (30) 127 97 9 (115) (106) (20) 86 66
Overnight
Deposits 0 185 185 N/A N/A
Other
Securities (4) 7 3 1 0 1 (4) 0 (4)
Total Interest
Earnings (515) 770 255 (188) 412 224 257 764 1,021
Interest Bearing Liabilities
Savings
Deposits (42) (28) (70) (56) (11) (67) (24) (35) (59)
NOW & Money
Market Funds (30) 198 168 (53) (73) (126) (50) 225 175
Time Deposits 0 192 192 (294) (83) (377) (360) 183 (177)
Other Borrowed
Funds (47) 0 (47) (42) 280 238 1 (1) 0
Repurchase
Agreements 0 4 4 N/A N/A
Subordinated
Debentures 0 (6) (6) 1 (11) (10) 1 (11) (10)
Total Interest
Expense (119) 360 241 (444) 102 (342) (432) 361 (71)
Items which have shown a year-to-year increase in volume have
variances allocated as follows:
Variance due to rate = Change in rate x new volume
Variance due to volume = Change in volume x old rate
Items which have shown a year-to-year decrease in volume have
variances allocated as follows:
Variance due to rate = Change in rate x old volume
Variance due to volume = Change in volume x new rate
Total loans are stated net of unearned discount and allowance
for loan losses. Interest on non-accrual loans is excluded from
income. The principal balances of non-accrual loans are included
in calculations of the yield on loans.
Income on tax-exempt securities is stated on a tax equivalent basis.
The assumed rate is 34%.
INVESTMENT PORTFOLIO
The following tables show the classification of the investment portfolio
by type of investment security based on book value for Held to Maturity
securities and fair value for Available for Sale securities on December
31 for each of the last 3 years.
(Dollars in Thousands)
1998 1997 1996
U.S. Treasury Obligations:
Available-for-Sale 20,590 8,039 7,974
Held-to-Maturity 15,562 22,491 28,097
U.S. Agency Obligations 4,582 1,631 1,679
Obligations of State &
Political Subdivisions 9,734 10,004 8,192
Restricted Equity Securities 1,142 1,100 1,063
Total Investment Securities 51,610 43,265 47,005
The following is an analysis of the maturities and yields of investment
securities as defined:
(Available for Sale; fair value, Held to Maturity; book value)
December 31, 1998 1997 1996
U.S. Treasury & Agency Obligations
Fair Ave. Fair Ave. Fair Ave.
Available for Sale Value Yield Value Yield Value Yield
Due within 1 year 0 0.00% 2,993 6.08% 0 0.00%
Due after 1 year within 5 years 20,590 6.16% 5,046 6.12% 7,974 5.79%
Total 20,590 6.16% 8,039 6.10% 7,974 5.79%
Book Ave. Book Ave. Book Ave.
Held to Maturity Value Yield Value Yield Value Yield
Due within 1 year 14,634 6.51% 8,965 5.78% 6,956 5.93%
Due after 1 year within 5 years 5,510 5.78% 15,157 5.69% 22,820 6.17%
Total 20,144 6.31% 24,122 5.72% 29,776 6.12%
Obligations of State &
Political Subdivisions (1)
Book Ave. Book Ave. Book Ave.
Value Yield Value Yield Value Yield
Due within 1 year 6,473 6.58% 6,624 7.94% 4,468 7.16%
Due after 1 year within 5 years 1,522 7.58% 1,543 7.91% 1,718 7.88%
Due after 5 years within 10 years 392 8.03% 363 8.03% 458 7.83%
Due after 10 years 1,347 0.10% 1,474 9.67% 1,548 9.61%
Total 9,734 7.21% 10,004 8.19% 8,192 7.81%
Restricted Equity Securities
Total Restricted Equity Securities 1,142 6.00% 1,100 6.76% 1,063 6.60%
Income on Obligations of State and Political Subdivisions is stated on
a tax equivalent basis assuming a 34 percent tax rate. Also included
are taxable industrial development bonds (VIDA) with a fair value of
$123,546 as of December 31, 1998, and $150,235 as of December 31, 1997,
and 1996 with respective yields of 4.76%, 5.55%, and 5.60%.
LOAN PORTFOLIO
The following table reflects the composition of the Company's loan portfolio
for years ended December 31:
(Dollars in Thousands)
1998 1997 1996 1995 1994
TOTAL % OF TOTAL % OF TOTAL % OF TOTAL % OF TOTAL
% OF
LOANS TOTAL LOANS TOTAL LOANS TOTAL LOANS TOTAL LOANS
TOTAL
Real Estate Loans
Construction & Land
Development 2,025 1.37% 1,091 0.73% 1,432 0.98% 912 0.66% 587
0.44%
Farm Land 2,634 1.78% 2,093 1.39% 2,148 1.48% 1,814 1.32% 1,115
0.84%
1-4 Family
Residential 98,407 66.34% 98,743 65.78% 94,393 64.83% 91,104 66.38% 88,967
66.68%
Commercial
Real Estate 19,555 13.18% 19,992 13.32% 20,602 14.15% 18,646 13.59% 18,094
13.56%
Loans to Finance
Agricultural
Production 829 0.56% 1,354 0.90% 1,222 0.84% 1,127 0.82% 1,305
0.98%
Commercial &
Industrial 8,767 5.91% 7,759 5.17% 7,084 4.87% 6,749 4.92% 6,719
5.04%
Loans to
Individuals 16,008 10.79% 18,943 12.62% 18,556 12.74% 16,578 12.08% 16,380
12.28%
All Other
Loans 110 0.07% 141 0.09% 166 0.11% 310 0.23% 259
0.19%
Gross Loans 148,335 100% 150,116 100% 145,603 100% 137,240 100% 133,426
100%
Less:
Reserve for
Loan Losses (1,659)-1.12% (1,502)-1.00% (1,401)-0.96% (1,519)-1.11% (1,708)
- -1.28%
Deferred
Loan Fees (849)-0.57% (867)-0.58% (904)-0.62% (909)-0.66% (924)
- -0.69%
Net Loans 145,827 98.31% 147,747 98.42% 143,298 98.42% 134,812 98.23% 130,794
98.03%
MATURITY OF LOANS
The following table shows the estimated maturity of loans (excluding
residential properties of 1 - 4 families, installment loans and other
loans) outstanding as of December 31, 1998.
Fixed Rate Loans Maturity Schedule
Within 1 - 5 After
1 Year Years 5 years Total
Real Estate
Construction & Land Development 2,025 0 0 2,025
Secured by Farm Land 12 20 172 204
Commercial Real Estate 157 479 2,172 2,808
Loans to Finance
Agricultural Production 67 186 0 253
Commercial & Industrial Loan 298 3,994 453 4,745
Total 2,559 4,679 2,797 10,035
Variable Rate Loans
Within 1 - 5 After
1 Year Years 5 years Total
Real Estate
Construction & Land Development 0 0 0 0
Secured by Farm Land 1,695 735 0 2,430
Commercial Real Estate 10,298 6,449 0 16,747
Loans to Finance
Agricultural Production 371 205 0 576
Commercial & Industrial Loans 2,879 1,143 0 4,022
Total 15,243 8,532 0 23,775
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes the Company's loan loss experience for
each of the last five years.
(Thousands of Dollars)
December 31, 1998 1997 1996 1995 1994
Loans Outstanding
End of Period 148,335 150,116 145,603 137,240 133,426
Ave. Loans Outstanding
During Period 147,830 145,778 138,635 131,879 127,394
Loan Loss Reserve,
Beginning of Period 1,502 1,401 1,519 1,708 1,872
Loans Charged Off:
Real Estate 177 191 116 198 187
Commercial 41 104 86 17 24
Loans to Individuals 487 436 383 238 250
Total 705 731 585 453 461
Recoveries:
Real Estate 65 12 18 5 43
Commercial 17 27 16 20 12
Loans to Individuals 120 133 68 119 62
Total 202 172 102 144 117
Net Loans Charged Off 503 559 483 309 344
Provision Charged to Income 660 660 365 120 180
Loan Loss Reserve, End of Period 1,659 1,502 1,401 1,519 1,708
Net Losses as a Percent
of Ave. Loans 0.34% 0.38% 0.35% 0.23% 0.27%
Provision Charged to Income as a
Percent of Average Loans 0.45% 0.45% 0.26% 0.09% 0.14%
At End of Period:
Loan Loss Reserve as a Percent
of Outstanding Loans 1.12% 1.00% 0.96% 1.11% 1.28%
Factors considered in the determination of the level of loan loss
coverage include, but are not limited to historical loss ratios,
composition of the loan portfolio, overall economic conditions
as well as future potential losses.
The following table shows an allocation of the allowance for loan
losses, as well as the percent to the total allowance for the last
five years (the corporation has no foreign loans, therefore,
allocations for this category are not necessary).
December 31, 1998 % 1997 % 1996 % 1995 % 1994 %
Domestic
Residential
Real Estate 559 33% 362 24% 490 35% 265 17% 200 12%
Commercial 475 29% 645 43% 307 22% 631 42% 950 56%
Loans to
Individuals 448 27% 487 32% 395 28% 485 32% 400 23%
Unallocated 177 11% 8 1% 209 15% 138 9% 158 9%
Total 1,659 100% 1,502 100% 1,401 100% 1,519 100% 1,708 100%
NON-ACCURAL, PAST DUE, AND RESTRUCTURED LOANS
The following table summarizes the bank's past due, non-accrual, and
restructured loans:
(Dollars in Thousands)
December 31, 1998 1997 1996 1995 1994
Accruing Loans Past Due 90 Days or More:
Consumer 53 121 36 28 54
Commercial 119 19 5 15 11
Real Estate 246 211 360 249 271
Total Past Due 90 Days or More 418 351 401 292 336
Non-accrual Loans 2,228 1,486 1,255 1,389 1,791
Restructured Loans (incl. non-accrual) 126 136 506 359 347
Total Non-accrual, Past Due
and Restructured Loans 2,772 1,973 2,162 2,040 2,474
Other Real Estate Owned 542 1,089 663 761 918
Total Non Performing Loans 3,314 3,062 2,825 2,801 3,392
Percent of Gross Loans 2.23% 2.04% 1.94% 2.04% 2.08%
Reserve Coverage of Non performing Loans 50.06% 49.05% 49.59% 54.23% 71.26%
When a loan reaches non-accrual status, it is determined that future
collection of interest and principal is doubtful. At this point, the
Company's policy is to reverse the accrued interest and to discontinue
the accrual of interest until the borrower clearly demonstrates the
ability to resume normal payments. Our portfolio of non-accrual loans
for the years ended 1998, 1997, 1996, 1995, and 1994 are made up
primarily of commercial real estate loans and residential real estate
loans. Management does not anticipate any substantial effect to future
operations if any of these loans are liquidated. Although interest is
included in income only to the extent received by the borrower , deferred
taxes are calculated monthly, based on the accrued interest of all non-
accrual loans. This accrued interest amounted to $363,713 in 1998,
$216,770 in 1997, $309,388 in 1996, $256,754 in 1995, and $181,930 in
1994. The Company had total foreign loans of less than one percent in
1998, and has no concentration in any industrial category.
DEPOSITS
The average daily amount of deposits and rates paid on such deposits is
summarized for the last three years. (Dollars in Thousands)
December 31,
1998 1997 1996
Amount Rate Amount Rate Amount Rate
Non-Interest Bearing
Demand Deposits 20,857 0.00% 18,694 0.00% 17,493 0.00%
NOW & Money Market Funds 44,916 3.48% 39,337 3.55% 41,383 3.68%
Savings Deposits 30,840 2.62% 31,907 2.75% 32,320 2.92%
Time Deposits 98,181 5.60% 94,751 5.60% 96,227 5.90%
Total Deposits 194,794 4.04% 184,689 4.10% 187,423 4.35%
Increments of maturity of time certificates of deposit and other time
deposits of $100,000 or more issued by domestic offices outstanding on
December 31, 1998 are summarized as follows:
Time Certificates
Maturity Date of Deposit
3 Months or Less 3,452
Over 3 through 6 Months 4,118
Over 6 through 12 Months 5,192
Over 12 Months 5,112
Total 17,874
RETURN ON EQUITY AND ASSETS
The following table shows consolidated operating and capital ratios of
the Corporation for each of the last three years.
December 31,
1998 1997 1996
Return on Average Assets 0.99% 1.02% 1.07%
Return on Average Equity 10.49% 10.69% 12.16%
Dividend Payout Ratio 83.69% 77.02% 63.29%
Ave. Equity to Ave. Assets Ratio 9.45% 9.57% 8.84%
Item 2. Properties
Community Bancorp. does not own or lease real property. The Corporation's
offices are located at the main offices of the Bank. All of the Bank's
offices are located in Vermont. In addition to the main office in Derby,
the Bank maintains facilities located in; City of Newport, Towns of Barton
and St. Johnsbury, and Villages of Island Pond, Troy and Derby Line. As
mentioned earlier, the newly acquired Liberty Savings Bank shares the same
address as the main offices as it does not maintain a facility.
The Bank's main offices are located in a two-story brick building on U.S.
Route 5 in Derby, Vermont. The main banking lobby and adjacent offices
were constructed in 1972, expanded in 1978, and the most recent expansion
was completed in July 1993, providing us with a total of 15,000 square
feet at this location. The main office is equipped with a drive-up
facility as well as an Automated Teller Machine (ATM). Computer and
similar support equipment is also located in the main office building.
The building previously housing our computer equipment currently houses
an office for the Bank's "Special Assets" department, and also serves
as a conference center for the Bank as well as various non-profit
organizations, free of charge, upon request.
The Bank owns the Derby Line office located on Main Street in a renovated
bank building. The facility consists of a small banking lobby containing
approximately 200 square feet and a walk-up window accessible to pedestrians.
Recent renovations to the walk-up window area and updated signs have helped
to give this office a fresh new appearance.
The Island Pond office is located in the renovated "Railroad Station"
acquired by the town of Brighton in 1993. The Bank leases approximately
two-thirds of the downstairs including a banking lobby, a drive-up
window, and an ATM. The other portion of the downstairs is occupied by
an information center, and the upstairs section houses the Island Pond
Historical Society.
The Barton office is located on Church Street, in a renovated facility.
This office is equipped with a banking lobby, a drive-up window, and an
ATM, making most deposit and withdrawal transactions possible at this
branch 24 hours a day. The facility is leased from Dean M. Comstock,
who is a member of the Bank's Barton Advisory Committee. The lease was
entered into in 1985 and provides a fifteen-year term.
The Bank's Newport office was located in a facility leased from Twin
Islands Realty, adjacent to RJ's Friendly Market until mid January 1999.
This facility consists of approximately 974 square feet and includes a
small banking lobby. This office moved into a condominium space in
the state office building on Main Street in Newport during the third
week of January. The Bank occupies approximately 3,084 square feet on
the first floor of the building for a full service banking facility
equipped with a remote drive-up facility and an ATM. In addition, the
Bank will own approximately 4,400 square feet on the second floor with
immediate plans to house our trust department, marketing department, and
an office for our public relations coordinator, with room for future
expansion.
The Bank's Troy office is located in a new facility, which was leased for
a few years and then purchased in 1992 from Tom and Eleanor Watts. The
bank currently leases space to one tenant while maintaining approximately
2,200 square feet for their own use. An ATM is available in this office
to provide the same type of limited 24-hour accessibility as our Derby,
Barton, Island Pond, Newport and St. Johnsbury offices.
The St. Johnsbury office is located at the corner of the I-91 Access Road
and Route 5 in the town of St. Johnsbury. The Bank occupies approximately
2,250 square feet in the front of the Price Chopper building leased from
Murphy Realty of St. Johnsbury. Peter Murphy is President of Murphy Realty,
and is a member of the Bank's St. Johnsbury Advisory Committee. Fully
equipped with an Automatic Teller Machine and a drive-up window, this
office operates as a full service banking facility.
Item 3. Legal Proceedings
Community National Bank is currently involved in a lawsuit against the
State of Vermont. The issue involves OREO property that is on "filled
land" on the shores of Lake Memphremagog in the City of Newport.
According to a so-called "public trust doctrine", the State of Vermont
might have ownership of any lands created by filling any portion of the
navigable waters of the state. The result of this is that the Bank has
been unable to sell these properties because some attorneys will not
clear title to the property. The suit filed is an attempt to clear title
to said properties by seeking judicial clarification of the public trust
doctrine. The outcome of the suit is not likely to have a material impact
on the financial statements of the Bank or consolidated Company. There
are no material pending legal proceedings, other than ordinary routine
litigation incidental to the business of the Bank, and the aforementioned
to which the Bank is a party or of which any of its property is the subject.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II.
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters
Common Stock Performance by Quarter
Incorporated by reference to Page 40 of the Annual Report to Shareholders
for fiscal year 1998.
Item 6. Selected Financial Data
Following pages
SELECTED FINANCIAL DATA
(Not covered by Report of Independent Public Accountants)
(Dollars in thousands, except per share data)
Year Ended December 31, 1998 1997 1996 1995 1994
Total Interest Income 17,072 16,817 16,532 15,406 13,605
Less:
Total Interest Expense 8,077 7,834 8,177 8,248 6,807
Net Interest Income 8,995 8,983 8,355 7,158 6,798
Less:
Provision for Loan Losses 660 660 365 120 180
Other Operating Income 1,586 1,336 1,281 1,181 1,057
Less:
Other Operating Expense 7,021 6,759 6,397 5,943 5,459
Income Before Income Taxes 2,900 2,900 2,874 2,276 2,216
Less:
Applicable Income Taxes (1) 710 755 654 324 329
Net Income 2,190 2,145 2,220 1,952 1,887
Per Share Data: (2)
Earnings per Share 0.71 0.72 0.78 0.71 0.72
Cash Dividends Declared 0.60 0.56 0.52 0.48 0.44
Weighted Average Number of
Common Shares Outstanding 3,075,906 2,976,448 2,862,708 2,744,213 2,629,116
Number of Common Shares
Outstanding 3,110,960 3,015,068 2,904,569 2,794,080 2,656,205
Balance Sheet Data:
Net Loans 145,827 147,747 143,298 134,812 130,794
Total Assets 225,051 213,001 205,536 197,382 191,315
Total Deposits 197,797 187,580 183,854 178,884 174,676
Total Liabilities 203,049 192,521 186,425 179,801 175,796
Subordinated Debentures 20 104 170 265 551
Total Shareholders' Equity 22,002 20,480 19,111 17,580 15,518
Applicable Income Taxes above includes the income tax effect, assuming
a 34% tax rate on securities gains (losses), which totaled $0 in 1998,
$0 in 1997, ($656) in 1996, $6,272 in 1995, and $7,021 in 1994.
Per share data for the calendar years 1996, 1995, and 1994 restated to
reflect 5% stock dividend in first quarter of 1997.
Per share data for all calendar years restated to reflect a 100% stock
dividend paid on June 1, 1998.
QUARTERLY RESULTS OF OPERATIONS
The following is an unaudited summary of the quarterly results of
Operations for the years ended December 31, 1998, 1997 and 1996.
(Dollars in thousands, except per share data)
1998 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
Interest Income 4,225 4,207 4,325 4,315
Interest Expense 1,990 2,053 2,045 1,989
Net Interest Income 2,235 2,154 2,280 2,326
Provisions For Loan Losses 200 160 150 150
Other Operating Expenses 1,802 1,742 1,758 1,719
Income Before Taxes 522 747 744 888
Applicable Income Taxes 114 189 182 226
Net Income 408 558 562 662
Net Income Per Share(1): 0.14 0.18 0.18 0.21
1997
Interest Income 4,040 4,172 4,253 4,352
Interest Expense 1,897 1,924 1,999 2,014
Net Interest Income 2,143 2,248 2,254 2,338
Provisions For Loan Losses 205 105 215 135
Other Operating Expenses 1,523 1,679 1,804 1,752
Income Before Taxes 695 832 576 798
Applicable Income Taxes 175 220 125 236
Net Income 520 612 451 562
Net Income Per Share(1): 0.18 0.21 0.15 0.18
1996
Interest Income 4,032 4,145 4,163 4,192
Interest Expense 2,092 2,094 2,041 1,949
Net Interest Income 1,940 2,051 2,122 2,243
Provisions For Loan Losses 38 122 80 125
Securities Gains(Losses) 0 (2) 0 0
Other Operating Expenses 1,546 1,630 1,643 1,578
Income Before Taxes 607 662 721 884
Applicable Income Taxes 140 149 182 184
Net Income 467 513 539 700
Net Income Per Share (1): 0.17 0.18 0.19 0.24
Per share data for 1996 restated to reflect 5% stock dividend
in first quarter of 1997. Per share data for all quarters
restated to reflect 100% stock dividend paid on June 1, 1998.
CAPITAL RATIOS
Community Bancorp. and Subsidiaries
(Dollars in Thousands)
ANNUAL
GROWTH RATE
At December 31, 1998 1997 1996 '98/'97 '97/'96
Total Assets 225,051 213,001 205,536 5.66% 3.63%
LESS: Goodwill(3) 320 343 0
Allowance for Possible Loan Losses 1,659 1,502 1,401 10.45% 7.21%
Total Adjusted Assets 226,390 214,160 206,937 5.71% 3.49%
Gross Risk-Adjusted Assets 107,450 106,298 102,922 1.08% 3.28%
Allowance for Loan Loss over limit(2) 316 173 114 82.66% 51.75%
Total Risk-Adjusted Assets 107,134 106,125 102,808 0.95% 3.23%
Shareholders' Equity 22,002 20,480 19,111 7.43% 7.16%
LESS:
Valuation Allowance for Securities 236 34 8
Intangible Assets(3) 339 352 6
Total Adjusted Tier 1 Capital (1) 21,427 20,094 19,097 6.63% 5.22%
Eligible Discounted Subordinated Debt 16 42 85-61.90% -50.59%
Max. Allowance for Possible
Loan Losses (2) 1,343 1,329 1,287 1.05% 3.26%
Total Capital (Tier II) 22,786 21,465 20,469 6.15% 4.87%
1998 1997 1996
Tier l Capital/Total Adjusted Assets 9.46% 9.38% 9.23%
Tier ll Capital/Total Adjusted Assets 10.06% 10.02% 9.89%
Tier l Capital/Total Risk-Adjusted Assets 20.00% 18.93% 18.58%
Tier ll Capital/Total Risk-Adjusted Assets 21.27% 20.23% 19.91%
Net unrealized holding gains and losses on available-for-sale
securities are excluded from common stockholders' equity for
regulatory capital purposes. However, National Banks continue
to deduct unrealized losses on equity securities in their
computation of Tier I Capital.
The maximum allowance for possible loan losses used in calculating
primary (Tier ll)capital is the lower of the period end allowance
for possible loan losses or 1.25% of gross risk-adjusted assets,
as implemented by regulatory capital guidelines in 1992.
Included in the 1998 and 1997 balance of intangible assets is
$319,818 and $342,662, respectively, in goodwill associated with
the acquisition of Liberty Savings Bank. Excess mortgage servicing
rights totaling $18,706, $9,452, and $5,808 for 1998, 1997, and
1996, respectively, comprise the balance of intangible assets.
The following table shows the repricing opportunities of the various
interest earning assets and interest bearing liabilities of the bank. We
assume that all payments on loans will be made as agreed, and that all
deposits will mature on schedule. The most important factor in assuring
liability liquidity is maintenance of confidence in the Bank by depositors
of funds. Such confidence, in turn, is based on performance and reputation.
The Company believe that its reputation, its financial strength and
numerous long-term customer relationships, should enable it to raise funds
as needed in many markets. To that end, the Bank does not place all of
it's "core" deposits in the earliest time period presented as suggested,
but places more emphasis on the historical experience of the Bank. Funds
are primarily generated locally and regionally and the Bank has no
brokered deposits.
The following table shows the interest sensitivity gaps for four different
time intervals as of December 31, 1998. The figures shown are reported in
thousands.
0 - 3 Months 4 - 12 Months 1 - 5 Years Over 5 Years Total
Rate Sensitive Assets:
Loans $31,750 $62,715 $46,773 $7,097 $148,335
Investments -
Taxable 3,000 11,634 26,224 0 40,858
Investments -
Tax-exempt 2,822 3,651 1,407 1,730 9,610
Other
Investments 0 0 0 1,142 1,142
Federal funds
Sold 15,527 0 0 0 15,527
Total $42,684 $73,605 $74,404 $9,969 $199,705
Rate Sensitive Liabilities:
NOW & super
NOW accounts $ 0 $ 0 $ 0 $19,122 $ 19,122
Savings deposits 0 2,512 0 28,000 30,512
Time
deposits(1) 40,471 42,822 18,042 0 101,335
Variable rate
time deposits 12,758 12,308 19 0 25,085
Repurchase
agreements 288 0 0 0 288
Other borrowed
Funds 4,000 5 15 40 4,060
Total $57,517 $57,647 $18,076 $47,162 $180,402
Interest sensitivity
Gap $(4,418) $20,353 $56,328 $(37,193)
GAP Ratio -2.05% 9.44% 26.14% -17.26%
Cumulative interest
sensitivity
gap $(4,418) $15,935 $72,263 $35,070
Cumulative
GAP Ratio -2.05% 7.39% 33.54% 16.27%
Included in the time deposits category of 0 - 3 months are money
market accounts totaling almost $31 million.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Incorporated by reference to Pages 28-35 of the Annual Report to
Shareholders for fiscal year 1998.
YEAR 2000
The Company is currently working to resolve the potential impact of the
Year 2000 (Y2K) on the processing of date-sensitive information by the
Company's computerized information systems. The Y2K problem is the result
of computer programs being written using two digits (rather than four) to
define the applicable year. Any of the Company's systems that have date-
sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000 which could result in miscalculations or systems
failures. The Federal Reserve Board and other federal banking regulators
(together known as the Federal Financial Institutions Examination Council,
or "FFEIC") have developed joint guidelines and benchmarks for assessing
Y2K risk, remediation of non-compliant systems and components and post-
remediation testing and implementation.
In an effort to correctly assess the effect of Y2K on the financial
position of the Company and assess our readiness for Y2K, a Y2K committee
was organized which meets on a regular basis to keep executive management
and the Board of Directors informed of our progress towards Y2K compliance.
The committee has developed strategic, customer awareness, customer risk
assessment, test and contingency plans. In accordance with FFEIC guide-
lines, the Y2K committee has defined five phases in the Y2K project
management:
Phase I - Awareness Phase
In this phase we defined the problem and gained executive level commitment.
The Y2K committee developed an overall strategy.
This phase has been completed.
Phase II - Assessment Phase
During this phase, we assessed the size and complexity of the Y2K issues
and identified both information technology (IT) and non-IT systems that
could be affected by the change. At this time, we also identified systems
which were mission-critical and non-mission-critical.
We define mission-critical systems as vital to the successful continuation
of our core business activities. Our core business activities include
servicing deposits, servicing loans, item processing and accounting,
originating deposits, originating loans, investments, and trust. The
mission-critical systems that support our core business activities include
our AS/400 (mainframe computer) and operating system; check processing
software; check sorters; loan, deposit and account origination software;
Fedline (interface to the Federal Reserve Bank); and trust accounting
software. Other systems not deemed mission-critical, but important,
include human resources; payroll; ATM networks; voice banking system;
heating and faxes.
We also evaluated the Y2K effect on strategic business initiatives. We
assessed the risk exposure of our customers as funds providers, funds
takers, and capital market/asset counter-parties.
This phase has been completed, however, we continue to monitor our
exposure on an on-going basis.
Phase III - Renovation Phase
This phase includes hardware and software upgrades or replacements and
other changes.
No mission-critical hardware or software needed to be replaced. All
our software applications are provided by vendors and these applications
were already Y2K compliant when we began the renovation phase. We are
however replacing several PCs which support non-mission critical
applications. This will be complete by 6/30/99.
Phase IV - Validation Phase
This is the testing phase. During this phase, the systems identified in
Phase II (Assessment) are tested for Y2K compliance. Systems that were
deemed mission-critical were tested first. We have now started testing
the remaining systems.
All mission-critical systems were tested by 12/31/98 and were in
compliance. Non-mission-critical systems will be tested by 6/30/99.
Phase V - Implementation Phase
January 1, 2000 will be a processing day. If we detect any failures of
our mission-critical systems, we will implement our contingency plans as
appropriate.
The Company does not write any source programming code and is therefore
dependent upon external vendors and service providers to alter their
programs to become Y2K compliant. We have received certification from our
vendors as to their product compliance, however, we will still test all
mission-critical and non-mission-critical systems identified in Phase II.
We have identified the following timetable for the testing phase:
12/31/98 testing of internal mission-critical systems was completed
03/31/99 testing with service providers for mission-critical systems
should be complete
06/30/99 testing of non-mission-critical systems should be complete.
As of 12/31/98, we had completed the testing of all mission-critical
systems and noted only a few minor date formatting errors in loan
documentation for which we have received corrections, which will be
installed during the first quarter of 1999. These minor errors do not
affect any calculations and do not affect our ability to process loans.
We will begin testing of the non-mission-critical systems during the first
quarter of 1999 and anticipate testing to be completed by 3/31/99. At
this time, we expect to have all our mission-critical and non-mission-
critical systems Y2K compliant by 6/30/99. We do not anticipate any major
upgrades to existing systems before year 2000.
The costs involved in addressing potential problems are not currently
expected to have a material impact on the Company's financial position,
results of operations, or cash flows in future periods. During 1998, we
budgeted $63,750 and actually spent $67,000 for Y2K testing and upgrades.
The costs included testing of our contingency site, replacement of 10 PCs
which were not Y2K compliant, and proxy testing of some of our mission-
critical systems. We have not calculated the personnel costs relating to
Y2K, however, we did not have to hire additional personnel in our Y2K
efforts.
For 1999, we have budgeted $77,000. Projected expenses include the
replacement of additional PCs, PC software upgrades, consulting services,
testing, travel and education. Y2K costs are expensed from current earnings.
No new projects have been deferred due to the Y2K effort. The yearly
software update to our core system provided by one of our vendors has been
postponed by the vendor until 2000 in an effort to minimize changes to an
already compliant system. This will not have an effect on our operations.
We have reviewed the credit risk our commercial borrowers may pose to
us if they are not Y2K compliant. At this time, we have identified only
a small number of customers deemed as high risk customers, and their
inability or failure to repay their loans as scheduled would not have a
material impact on the Company.
The worst case scenario relating to Y2K is that we would not have
electrical power. If this were the case, our contingency plan is to
operate in a manual mode. We have plans for hiring temporary help in
this situation.
The next worst case scenario is that telephones would be unavailable.
If this were the case, the Derby branch could be fully operational. Other
branches would need to service deposits in an off-line mode. Requests for
account and loan origination could be directed to the Derby branch.
Assuming we have electricity and telephones, we anticipate our core
systems to be functional.
Our Y2K contingency plan is based on our disaster recovery plan which
is written to respond to a complete core system outage. Our contingency
plan also outlines manual processes in the event of individual component
failures.
During the first quarter of 1999, outside consultants will review and
validate our contingency plans.
Item 8. Financial Statements and Supplementary Data
The financial statements and related notes of Community Bancorp. and
Subsidiaries are incorporated herein by reference from the Company's
annual report to shareholders for the year ended December 31, 1998,
Page 12 through Note 23 on Page 28.
Item 9. Disagreements on Accounting and Financial Disclosures
Inapplicable.
PART III.
Item 10. Directors and Executive Officers of the Registrant
Incorporated by reference to Pages 4-5 of the Company's Proxy Statement
for the Annual Meeting of Shareholders on May 4, 1999.
Position with Has Served As
Name, Age and Community Officer/Director
Principal Occupation Bancorp. Since
Stephen P. Marsh, 51 Vice President 07/01/73
Senior VP & Cashier & Treasurer
Community National Bank
Rosemary M. Rowe, 57 Secretary 09/08/80
Vice President,
Community National Bank
Alan A. Wing, 54 Vice President 09/01/71
Sr. Vice President
Community National Bank
Item 11. Executive Compensation
Incorporated by reference to the Company's Proxy Statement for the Annual
Meeting of Shareholders on May 4, 1999.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference to the Company's Proxy Statement for the Annual
Meeting of Shareholders on May 4, 1999.
Item 13. Certain Relationships and Related Transactions
Incorporated by reference to the Company's Proxy Statement for the Annual
Meeting of Shareholders on May 4, 1999, and incorporated by reference to the
Annual Report to the shareholders for the year ended December 31, 1998, Page
25, Note 16.
PART IV.
Item 14. Financial Statement Schedules, Exhibits and Reports on Form 8-K
(a)(1) and (2) Financial Statements
Financial statements are incorporated by reference to the Annual Report to the
shareholders for the year ended December 31, 1998.
(a)(3) Exhibits
The following exhibits are incorporated by reference:
Exhibit 3 - Articles of Association and By-laws of Community Bancorp. are
incorporated by reference to Community Bancorp.'s Registration Statement
dated May 20, 1983 (Registration No.2-83166).
Exhibit 4 - Indenture dated August 1, 1984 between Community Bancorp.
and Community National Bank as trustee, relating to $750,000 in principal
amount of 11% Convertible Subordinated Debentures due 2004 is incorporated
by reference to Community Bancorp.'s Registration Statement dated July 11,
1984 (Registration No. 2-92147).
Exhibit 5 - Indenture dated August 1, 1986, relating to $500,000 in
principal amount of 9% Convertible Subordinated Debentures due 1998 is
incorporated by reference to Community Bancorp.'s Registration Statement
dated April 15, 1986 (Registration No. 33-4924).
Exhibit 13 - Portions of the Annual Report to Shareholders of Community
Bancorp. for Year Ended December 31, 1998, specifically mentioned in this
report, incorporated by reference.
The following exhibits are filed as part of this report:
Exhibit 10(i) - Directors Deferred Compensation Plan*
Exhibit 10(ii) - Description of Supplemental Retirement Plan*
Exhibit 11 - Computation of Per Share Earnings
Exhibit 21 - Subsidiaries of Community Bancorp.
Exhibit 23 - Consent from A.M. Peisch & Company
(b) Reports on Form 8-K
None
[FN]
Denotes compensatory plan or arrangement.
Exhibit 10(i)
Directors' Deferred Compensation Plan
Under the terms of the Corporation's Deferred Compensation Plan for
Directors, directors of the Corporation and/or the Bank may elect to defer
current receipt of some or all of their director fees. Deferrals are credited
to a cash account, which bears interest at the rate in effect for the Bank's
three-year certificate of deposit, as adjusted from time to time. Payments
are deferred until the participant's retirement, death or disability, or at an
earlier or later date elected by the participant. Amounts deferred and
accumulated interest represent a general unsecured obligation of the
Corporation and no assets of the Corporation or the Bank have been segregated
to satisfy the Corporation's obligations under the Plan.
Exhibit 10(ii)
Description of Supplemental Retirement Plan
In 1998 the Board of Directors authorized the adoption of a Supplemental
Retirement Plan for Mr. White and the other Executive Officers of the Bank to
replace estimated benefits lost as a result of the previous termination of
the Bank's defined benefit pension plan. The plan is intended to provide an
annual benefit at retirement approximating 75% of the average annual bonus
received by the officer. It is estimated that this benefit, combined with
the projected benefits under the Bank's 401(k) plan, will be approximately
equal to the benefit that would have been provided to the Executive Officers
under the terminated defined benefit pension plan. Benefit payments will be
funded by annual contributions to a rabbi trust.
Exhibit 11
COMMUNITY BANCORP.
PRIMARY EARNINGS PER SHARE
For the Fourth Quarter Ended December 31, 1998 1997 1996
Net Income $662,615 $562,499 $700,246
Average Number of Common Shares
Outstanding. 3,110,961 3,014,935 2,901,980
Earnings Per Common Share $0.21 $0.19 $0.24
For The Twelve Months Ended December 31, 1998 1997 1996
Net Income $2,190,374 $2,145,395 $2,219,804
Average Number of Common Shares
Outstanding. 3,075,906 2,976,448 2,862,708
Earnings Per Common Share $0.71 $0.72 $0.78
Per share data restated to reflect 100% stock dividend paid on June 1, 1998.
Exhibit 11 (Cont'd)
COMMUNITY BANCORP.
FULLY DILUTED EARNINGS PER SHARE
For The Fourth Quarter Ended December 31, 1998 1997 1996
Net Income $662,615 $562,499 $700,246
Adjustments to Net Income (Assuming Conversion
of Subordinated Convertible Debentures). 363 1,639 2,857
Adjusted Net Income $662,978 $564,138 $703,103
Average Number of Common Shares
Outstanding. 3,110,961 3,014,935 2,901,980
Increase in Shares(Assuming Conversion
of Subordinated Convertible Debentures). 8,150 26,825 50,266
Average Number of Common Share Outstanding
(Fully Diluted). 3,119,111 3,041,760 2,952,246
Earnings Per Common Share Assuming Full
Dilution. $0.21 $0.19 $0.24
For The Twelve Months Ended December 31, 1998 1997 1996
Net Income $2,190,374 $2,145,395 $2,219,804
Adjustments to Net Income (Assuming Conversion
of Subordinated Convertible Debentures). 3,034 7,583 13,746
Adjusted Net Income $2,193,408 $2,152,978 $2,233,550
Average Number of Common Shares
Outstanding. 3,075,906 2,976,448 2,862,708
Increase in Shares(Assuming Conversion
of Subordinated Convertible Debentures). 15,896 32,317 55,659
Average Number of Common Share Outstanding
(Fully Diluted). 3,091,802 3,008,765 2,918,367
Earnings Per Common Share Assuming Full
Dilution. $0.71 $0.72 $0.77
Per share data restated to reflect 100% stock dividend paid on June 1, 1998.
Exhibit 21
Community Bancorp.'s subsidiaries include Community National Bank, a
banking corporation incorporated under the Banking Laws of The United
States, and Liberty Savings Bank, a New Hampshire guaranty savings bank.
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Community Bancorp. of our report dated January 6, 1999, included
in the 1998 Annual Report to Shareholders of Community Bancorp.
We also consent to the incorporation by reference in the Registration
Statement (Form S-3 No. 33-18535) pertaining to the Community Bancorp.
Dividend Reinvestment Plan and in the Registration Statement (Form S-8 No.
33-44713) pertaining to the Community Bancorp. Retirement Savings Plan of
our report dated January 6, 1999, with respect to the consolidated financial
statements incorporated herein by reference of Community Bancorp. included
in the Annual Report (Form 10-K) for the year ended December 31, 1998.
/s/ A.M. Peisch & Company
March 25, 1999
St. Johnsbury, Vermont
VT Reg. No. 92-0000102
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.
BY: /s/ Richard C. White Date: March 25, 1999
Richard C. White, President
and Chief Executive Officer
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.
BY: /s/ Stephen P. Marsh Date: March 25, 1999
Stephen P. Marsh, Treasurer
and Chief Financial and
Accounting Officer
COMMUNITY BANCORP. DIRECTORS
/s/ Thomas E. Adams Date: March 25, 1999
Thomas E. Adams
/s/ Jacques R. Couture Date: March 25, 1999
Jacques R. Couture
/s/ Elwood G. Duckless Date: March 25, 1999
Elwood G. Duckless
/s/ Michael H. Dunn Date: March 25, 1999
Michael H. Dunn
/s/ Rosemary M. Lalime Date: March 25, 1999
Rosemary M. Lalime
/s/ Marcel Locke Date: March 25, 1999
Marcel Locke
/s/ Stephen P. Marsh Date: March 25, 1999
Stephen P. Marsh
/s/ Anne T. Moore Date: March 25, 1999
Anne T. Moore
/s/ Dale Wells Date: March 25, 1999
Dale Wells
/s/ Richard C. White Date: March 25, 1999
Richard C. White