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, 2002
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]
Indicate by check mark if the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Act).
Yes [X] No [ ]
The aggregate market value of voting common stock held by non-affiliates of the
registrant, computed by reference to the price at which the common stock was
last sold as of June 28, 2002, the last business day of the registrant's most
recently completed second fiscal quarter, was $46,637,052.
The total number of shares of common stock outstanding at March 17, 2003 was
5,829,780.
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, 2002.
CAUTIONARY STATEMENT FOR PURPOSES OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
------------------------------------------------
This report of Community Bancorp, Inc. (the "Company") on Form 10-K,
including "Management's Discussion and Analysis of Financial Condition and
Results of Operations", contains, in addition to historic factual information,
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. When used in this and other Reports filed by the Company,
the words "anticipate", "estimate", "expect", "intend", "assume", "should",
"will", and similar expressions are intended to identify forward-looking
statements. These forward-looking statements are subject to a variety of risks
and uncertainties. The Company wishes to caution readers that the following
important factors, among others, could affect the Company's actual results and
could cause the Company's actual results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company herein:
1. The effect of changes in laws and regulations, including federal and state
banking laws and regulations with which the Company and its subsidiary,
Community National Bank (the "Bank"), must comply;
2. The effect of changes in accounting policies and practices, as may be
adopted by regulatory agencies as well as by the Financial Accounting
Standards Board ("FASB") or the Securities and Exchange Commission ("SEC");
3. The effect on the Company's competitive position within its market area of
increasing consolidation within the banking industry, and increasing
competition from larger regional and out-of-state banking organizations as
well as nonbank providers of various financial services;
4. The effect of unforeseen changes in interest rates; and
5. The effect of changes in the business cycle and in the New England and
national economies.
Any forward-looking statements contained in this report were based on
information, plans and estimates at the date of this report, and the Company
assumes no obligation to update any forward-looking statements to reflect new
information, future events or other changes.
-i-
TABLE OF CONTENTS
-----------------
Page #
------
PART I
- ------
Item 1. Business 1
Item 2. Properties 14
Item 3. Legal Proceedings 14
Item 4. Submissions of Matters to a Vote of Security Holders 14
PART II
- -------
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 14
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 19
Item 8. Consolidated Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreements With Accountants On
Accounting and Financial Disclosure 20
PART III
- --------
Item 10. Directors and Executive Officers 21
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain Beneficial Owners
and Management 26
Item 13. Certain Relationships and Related Transactions 28
Item 14. Controls and Procedures 28
PART IV
- -------
Item 15. Exhibits and Financial Statements 29
Exhibit Index 30
SIGNATURES 32
CERTIFICATIONS 34
SUPPLEMENTAL INFORMATION 36
-ii-
PART I
------
ITEM 1. BUSINESS
Community Bancorp, Inc., a Massachusetts corporation (the "Company"), is a
registered bank holding company under the Bank Holding Company Act of 1956, as
amended. The Company has one subsidiary, Community National Bank, a national
banking association (the "Bank"). The Company owns all the outstanding shares of
the Bank. At present, the 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, travelers' checks, safe deposit
boxes and other customary bank services to its customers. In 1999, the Bank
introduced fully-transactional Internet-based online banking services for both
retail and business customers. In 2000, the Bank introduced investment
management and trust services. In 2002, the Bank was licensed by the
Massachusetts Insurance Commissioner's office to sell insurance products
directly to the public. To date, the Bank's activities in trust services and
insurance sales have not been significant.
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
--------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Interest and fees on loans 49% 50% 52% 53% 52%
Interest and dividends on
securities and federal funds sold 33 33 33 31 31
Charges, fees and other sources 18 17 15 16 17
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
COMPETITION
- -----------
The Bank generally concentrates its activities within a 25 mile radius of
Hudson, Massachusetts and currently operates full service branch offices in
Hudson, Acton, Boxborough, Concord, Framingham, Marlborough, Stow and Sudbury,
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, a consumer
lending office and a remote ATM facility in the Town of Hudson.
The banking business in the Bank's market area is highly competitive, and
the bank faces considerable competition for loan originations and for the
attraction and retention of deposits. Competition for loan originations comes
primarily from other commercial banks, thrift institutions, credit unions and
-1-
mortgage companies. The Bank also faces competition from numerous other
financial institutions, both locally and nation-wide, which utilize the Internet
to solicit and service customers. The Company competes for loans on the basis of
product variety and flexibility, competitive interest rates and fees, service
quality and convenience. Management believes that the Company's emphasis on
personal service and convenience, coupled with active involvement in the
communities it serves, contributes to its ability to compete successfully.
Under the Gramm-Leach-Bliley Act of 1999 (the "Gramm-Leach-Bliley Act"),
effective March 11, 2000, securities firms, insurance companies and other
financial services providers that elect to become financial holding companies
may acquire banks and other financial institutions. The Company continues to
monitor developments resulting from the passage of this legislation.
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.
The passage by Congress of the Sarbanes-Oxley Act of 2002 (the "Act") and
the resulting SEC rules adopted by the Securities and Exchange Commission
pursuant to the implementation of the Act impose additional corporate governance
requirements on public companies. These requirements include additional
financial statement disclosures, CEO and CFO certification of financial
statements and additional audit committee responsibilities. The Company is
subject to many of those requirements.
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 ("OCC") 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 loss reserves,
loans, investments, trust services, sales of investment securities,
participation in mergers and consolidations, compliance with applicable laws and
regulations, and certain transactions with or in the stock of the Company.
Community Reinvestment Act: The Community Reinvestment Act ("CRA") requires the
OCC to evaluate the Bank's performance in helping to meet the credit needs of
the community. Management believes the Bank is currently in compliance with all
CRA requirements.
Customer Information Security: The OCC, the Federal Reserve Board and other bank
-2-
regulatory agencies have adopted guidelines (the "Guidelines") for safeguarding
confidential customer information. The Guidelines require each financial
institution, under the supervision and ongoing oversight of its Board of
Directors, to create a comprehensive written information security program
designed to ensure the security and confidentiality of customer information,
protect against any anticipated threats or hazards to the security or integrity
of such information, and protect against unauthorized access to or use of such
information that could result in substantial harm or inconvenience to any
customer.
Privacy: The Gramm-Leach-Bliley Act requires financial institutions to implement
policies and procedures regarding the disclosure of nonpublic personal
information about consumers to nonaffiliated third parties. In general, the
statute requires the Company to explain to consumers the Company's policies and
procedures regarding the disclosure of such nonpublic information, and, except
as otherwise required by law, the Company is prohibited from disclosing such
information except as provided in the Company's policies and procedures.
USA Patriot Act: The Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the "Patriot
Act"), designed to deny terrorists and others the ability to obtain anonymous
access to the United States financial system, has significant implications for
depositary institutions, brokers, dealers and other businesses involved in the
transfer of money. The Patriot Act requires financial institutions to implement
additional policies and procedures with respect to money laundering, suspicious
activities and currency transactions reporting.
EMPLOYEES
- ---------
The Company and the Bank employ 128 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 years ended December 31, 2002,
2001 and 2000. The total dollar amount of interest income from earning assets
and the resultant yields are calculated on a taxable equivalent basis.
(Dollars in thousands) 2002
- ---------------------- -------------------------------------
Interest &
Average Dividend Yield/
ASSETS Balance Inc./Exp. Rate
------------ ----------- -----
Federal funds sold $ 23,400 $ 338 1.44%
Deposits with banks 841 9 1.07%
Securities:
Taxable (1) 147,906 7,380 4.99%
Non-taxable (2) 19,806 1,435 7.25%
Preferred stock 6,432 403 6.27%
Total loans and leases (2)(3) 193,559 13,607 7.03%
------- ------ ----
Total earning assets 391,944 23,172 5.91%
------- ------ ----
Reserve for loan losses (2,725)
Other non interest-
bearing assets 30,149
-------
Total average assets $419,368
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Savings, money market and NOW $146,362 $ 1,064 0.73%
Time deposits 105,812 3,732 3.53%
Repurchase agreements 34,688 437 1.26%
Federal Home Loan Bank of Boston
advances 13,521 403 2.98%
------- ------ ----
Total interest-bearing
liabilities 300,383 5,636 1.88%
------- ------ ----
Non interest-bearing deposits 77,929
Other non interest-bearing
liabilities 2,586
Stockholders' equity 38,470
-------
Total average liabilities
and stockholders' equity $419,368
=======
Net interest income $17,536
======
Net yield on interest
earning assets 4.47%
====
(1) Includes Federal Home Loan Bank of Boston stock.
(2) Interest income and yield are stated on a fully taxable-equivalent basis.
The total amount of adjustment is $598,000. A federal tax rate of 34% was
used in performing this calculation.
(3) 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)
(Dollars in thousands) 2001
- ---------------------- -------------------------------------
Interest &
Average Dividend Yield/
ASSETS Balance Inc./Exp. Rate
------------ ----------- -----
Federal funds sold $ 34,507 $ 1,305 3.78%
Deposits with banks 432 15 3.47%
Securities:
Taxable (1) 123,416 7,325 5.94%
Non-taxable (2) 18,298 1,343 7.34%
Preferred stock 4,613 306 6.63%
Total loans and leases (2)(3) 180,533 14,998 8.31%
------- ------ ----
Total earning assets 361,799 25,292 6.99%
------- ------ ----
Reserve for loan losses (2,773)
Other non interest-
bearing assets 26,559
-------
Total average assets $385,585
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Savings, money market and NOW $142,606 $ 2,243 1.57%
Time deposits 97,452 5,111 5.24%
Repurchase agreements 37,165 1,275 3.43%
Federal Home Loan Bank of Boston
advances 219 5 2.48%
------- ------ ----
Total interest-bearing
liabilities 277,442 8,634 3.11%
------- ------ ----
Non interest-bearing deposits 70,877
Other non interest-bearing
liabilities 2,754
Stockholders' equity 34,512
-------
Total average liabilities
and stockholders' equity $385,585
=======
Net interest income $16,658
======
Net yield on interest
earning assets 4.60%
====
(1) Includes Federal Home Loan Bank of Boston stock.
(2) Interest income and yield are stated on a fully taxable-equivalent basis.
The total amount of adjustment is $556,000. A federal tax rate of 34% was
used in performing this calculation.
(3) 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)
(Dollars in thousands) 2000
- ---------------------- -------------------------------------
Interest &
Average Dividend Yield/
ASSETS Balance Inc./Exp. Rate
------------ ----------- -----
Federal funds sold $ 26,891 $ 1,682 6.25%
Deposits with banks 258 14 5.43%
Securities:
Taxable (1) 114,423 7,188 6.28%
Non-taxable (2) 13,138 949 7.22%
Preferred stock -- -- --
Total loans and leases (2)(3) 169,014 14,852 8.79%
------- ------ ----
Total earning assets 323,724 24,685 7.63%
------- ------ ----
Reserve for loan losses (2,914)
Other non interest-
bearing assets 27,064
-------
Total average assets $347,874
=======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Savings, money market and NOW $133,045 $ 3,164 2.38%
Time deposits 84,386 4,497 5.33%
Repurchase agreements 32,247 1,693 5.25%
Federal Home Loan Bank of Boston
advances -- -- --
------- ------ ----
Total interest-bearing
liabilities 249,678 9,354 3.75%
------- ------ ----
Non interest-bearing deposits 66,238
Other non interest-bearing
liabilities 2,117
Stockholders' equity 29,841
-------
Total average liabilities
and stockholders' equity $347,874
=======
Net interest income $15,331
======
Net yield on interest
earning assets 4.74%
====
(1) Includes Federal Home Loan Bank of Boston stock.
(2) Interest income and yield are stated on a fully taxable-equivalent basis.
The total amount of adjustment is $358,000. A federal tax rate of 34% was
used in performing this calculation.
(3) 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.
2002 as compared to 2001,
Due to a change in:
-------------------------------------
(Dollars in thousands) Volume Rate Total
- ---------------------- ------ ------ ------
Interest and dividend income from:
Federal funds sold $ (160) $ (807) $ (967)
Deposits with banks 4 (10) (6)
Securities:
Taxable (1) 1,227 (1,172) 55
Non-taxable 108 (16) 92
Preferred stock 114 (17) 97
Loans & leases 920 (2,311) (1,391)
----- ----- -----
Total 2,213 (4,333) (2,120)
----- ------ -----
Interest expense on:
Interest-bearing deposits:
Savings, money market and NOW 19 (1,198) (1,179)
Time deposits 287 (1,666) (1,379)
Repurchase agreements (32) (806) (838)
FHLBB advances 396 2 398
----- ------ -----
Total 670 (3,668) (2,998)
----- ------ -----
Net interest income $1,543 $ (665) $ 878
===== ===== =====
2001 as compared to 2000,
Due to a change in:
-------------------------------------
(Dollars in thousands) Volume Rate Total
- ---------------------- ------ ------ ------
Interest and dividend income from:
Federal funds sold $ 287 $ (664) $ (377)
Deposits with banks 6 (5) 1
Securities:
Taxable (1) 526 (389) 137
Non-taxable 378 16 394
Preferred stock 306 -- 306
Loans & leases 957 (811) 146
----- ----- -----
Total 2,460 (1,853) 607
----- ------ -----
Interest expense on:
Interest-bearing deposits:
Savings, money market and NOW 157 (1,078) (921)
Time deposits 690 (76) 614
Repurchase agreements 169 (587) (418)
FHLBB advances 5 -- 5
----- ------ -----
Total 1,021 (1,741) (720)
----- ------ -----
Net interest income $1,439 $ (112) $1,327
===== ===== =====
Note: The change due to the volume/rate variance has been allocated to volume.
(1) Includes Federal Home Loan Bank of Boston stock.
-7-
SECURITIES PORTFOLIO
- --------------------
The following table indicates the carrying value of the Company's
consolidated securities portfolio at December 31, 2002, 2001 and 2000.
(Dollars in thousands) 2002 2001 2000
- ---------------------- ------- ------- -------
U.S. Government agencies .......... $148,683 $137,772 $125,009
Obligations of states and political
subdivisions .................... 19,118 20,348 16,273
Preferred stock ................... 6,356 6,635 --
Corporate debt securities ......... 5,153 5,208 --
Other securities .................. 154 175 175
------- ------- -------
Total ............... $179,464 $170,138 $141,457
======= ======= =======
The following table shows the maturities, carrying value and weighted
average yields of the Company's consolidated securities portfolio at December
31, 2002. 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
------------- ------------- ------------- -------------
(Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield
- ---------------------- ------ ----- ------ ----- ------ ----- ------ -----
U.S. Govt. agencies
held to maturity $7,450 4.20% $10,816 4.11% $5,140 3.16% -- --
U.S. Govt. agencies
available for sale 6,015 3.90% 47,788 4.54% -- -- -- --
State and political subdivi-
sions held to maturity 305 6.44% -- -- 10,465 7.50% $8,348 7.39%
Mortgage-backed securities
held to maturity 22,204 5.33% 37,174 5.33% 7,644 5.33% -- --
Mortgage-backed securities
available for sale 3,527 5.17% 925 6.00% -- -- -- --
Corporate debt securities -- -- 5,153 5.70% -- -- -- --
Current estimated prepayment speed assumptions were used in estimating the
maturities of mortgage-backed securities in the above table. At December 31,
2002, 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, net of unearned discount and unearned net loan origination fees, as
of December 31 for each of the years indicated:
(Dollars in thousands) 2002 2001 2000 1999 1998
- ---------------------- ------ ------ ------ ------ ------
Commercial and industrial $ 26,180 $ 26,993 $ 24,206 $ 23,419 $ 21,127
Real estate - residential 80,654 81,231 76,945 66,788 55,055
Real estate - commercial 79,416 64,436 57,870 58,485 47,399
Real estate - construction 2,474 1,628 2,077 1,454 2,795
Loans to individuals 12,063 13,548 14,165 13,544 13,197
Other 602 617 766 670 651
------- ------- ------- ------- -------
Total loans $201,389 $188,453 $176,029 $164,360 $140,224
======= ======= ======= ======= =======
Loan maturities for commercial and real estate (construction) loans only at
December 31, 2002 were as follows: $14.4 million due in one year or less; $11.6
million due after one year through five years; $2.7 million due after five
years. Of the Bank's commercial and real estate (construction) loans due after
one year, $4.9 million have floating or adjustable rates and $9.4 million 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:
(Dollars in thousands) 2002 2001 2000 1999 1998
- ---------------------- ---- ---- ---- ---- ----
Nonaccrual loans $235 $320 $558 $684 $913
Accruing loans past due
90 days or more 10 13 2 -- 2
Restructured loans -- -- -- -- --
--- --- --- --- ---
Total $245 $333 $560 $684 $915
=== === === === ===
For the period ended December 31, 2002, the reduction of interest income
associated with nonaccrual and restructured loans was $20,000. The interest on
these loans that was included in interest income for 2002 was $22,000.
POTENTIAL PROBLEM LOANS
- -----------------------
As of December 31, 2002 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, 2002, 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 (including loans held for sale), loan losses and recoveries, and the
allowance for loan losses at December 31 for each of the years indicated:
(Dollars in thousands) 2002 2001 2000 1999 1998
- ---------------------- ------- ------- ------- ------- -------
Average outstanding loans (1) $193,559 $180,533 $169,014 $154,304 $138,311
======= ======= ======= ======= =======
ALLOWANCE FOR LOAN LOSSES
- -------------------------
(Dollars in thousands) 2002 2001 2000 1999 1998
- ---------------------- ------- ------- ------- ------- -------
Balance - beginning of year $ 2,685 $ 2,812 $ 3,042 $ 2,981 $ 3,216
===== ===== ===== ===== =====
Charge-offs:
Commercial and industrial (89) (85) (111) (36) (37)
Real estate - residential -- -- (42) -- (132)
Real estate - commercial -- (70) (118) -- (59)
Real estate - construction -- -- -- -- --
Loans to individuals (161) (107) (200) (76) (76)
----- ----- ----- ----- -----
Total charge-offs (250) (262) (471) (112) (304)
Recoveries:
Commercial and industrial 19 115 58 153 48
Real estate - residential 39 -- 27 1 6
Real estate - commercial 36 -- 18 8 2
Real estate - construction -- -- -- -- --
Loans to individuals 24 20 138 11 13
----- ----- ----- ----- -----
Total recoveries 118 135 241 173 69
Net (charge-off) recovery (132) (127) (230) 61 (235)
Provision for loan losses 180 -- -- -- --
----- ----- ----- ----- -----
Balance - end of year $ 2,733 $ 2,685 $ 2,812 $ 3,042 $ 2,981
===== ===== ===== ===== =====
Ratio of net charge-offs to
average loans .07% .07% .14% (.00)% .17%
===== ===== ===== ===== =====
(1) Includes the aggregate average balance of loans held for sale.
The provision for loan losses is based upon management's estimation of the
amount necessary to maintain the allowance for loan losses at an adequate level
to absorb inherent losses in the loan portfolio, as determined by current and
anticipated economic conditions and other pertinent factors. The methodology for
assessing the adequacy of the overall allowance consists of an evaluation of its
three components:
1. The valuation allowance for loans specifically identified as impaired.
2. The formula allowance for the various loan portfolio categories.
3. The imprecision allowance.
-10-
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:
2002 2001 2000 1999 1998
------------------- ------------------- ------------------ ------------------- -----------------
Percent of Percent of Percent of Percent of Percent of
loans in loans in loans in loans in loans in
(Dollars in category to category to category category to category to
thousands) Amount total loans Amount total loans Amount total loans Amount total loans Amount total loans
- ------------ ------ ----------- ------ ----------- ------ ----------- ------ ----------- ------ ---------
Commercial &
industrial $ 891 13.3% $ 755 14.7% $ 398 14.2% $ 263 14.7% $ 238 15.5%
Real estate -
residential 206 40.0% 208 43.1% 249 43.7% 596 40.6 197 39.3%
Real estate -
commercial 908 39.5% 965 34.1% 815 32.9% 227 35.6% 518 33.8%
Real estate -
construction -- 1.2% 21 0.9% 41 1.2% 15 0.9% 35 2.0%
Loans to
individuals 242 6.0% 259 7.2% 170 8.0% 128 8.2% 130 9.4%
Imprecision 486 N/A 477 N/A 1,139 N/A 1,813 N/A 1,863 N/A
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total $2,733 100.0% $2,685 100.0% $2,812 100.0% $2,981 100.0% $2,981 100.0%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
The allocation of the allowance for loan losses to the categories of loans
shown above includes both specific potential loss estimates for individual loans
and formula allocations deemed to be reasonable to provide for additional
potential losses within the categories of loans set forth.
DEPOSITS
- --------
The following table shows the average deposits and average interest rate
paid for each of the last three years:
2002 2001 2000
----------------- ----------------- -----------------
(Dollars in Average Average Average Average Average Average
thousands) Balance Rate Balance Rate Balance Rate
- ------------ ------- ------- ------- ------- ------- -------
Demand deposits $ 77,929 0.00% $ 70,877 0.00% $ 66,238 0.00%
NOW/FlexValue
deposits 50,629 0.22% 42,566 0.40% 36,010 0.85%
Money market
deposits 35,177 1.34% 34,410 2.20% 35,211 3.08%
Savings deposits 60,556 0.80% 65,630 2.01% 61,824 2.83%
Time deposits 105,812 3.53% 97,452 5.24% 84,386 5.33%
------- ---- ------- ---- ------- ----
Total $330,103 1.45% $310,935 2.37% $283,669 2.70%
======= ==== ======= ==== ======= ====
-11-
As of December 31, 2002, the Bank had certificates of deposit in amounts of
$100,000 or more aggregating $53.6 million. These certificates of deposit mature
as follows:
(Dollars in thousands)
- ----------------------
Maturity Amount
-------- -------
3 months or less $20,105
Over 3 months through 6 months 8,131
Over 6 months through 12 months 12,560
Over 12 months 12,815
------
Total $53,611
======
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,
----------------------------
2002 2001 2000
---- ---- ----
Return on average total
assets (net income divided
by average total assets) 1.32% 1.32% 1.30%
Return on average
stockholders' equity
(net income divided by
average stockholders'
equity) 14.44% 14.72% 15.19%
Dividend payout ratio
(total declared dividends
per share divided by diluted
earnings per share 33.01% 29.88% 27.14%
Equity to assets (average
stockholders' equity as
a percentage of average
total assets) 9.17% 8.95% 8.58%
-12-
BORROWINGS
- ----------
The Bank engages in certain borrowing agreements throughout the year. These
are in the ordinary course of the Bank's business. Such borrowings consist of
securities sold under repurchase agreements (which are borrowings from
customers) and advances from the Federal Home Loan Bank of Boston. The following
table summarizes such 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
(Dollars in end of end of at any out- during
thousands) the year the year month-end standing the year
- ------------ ------- -------- --------- -------- --------
Year ended
12/31/02
- ----------
Repurchase
agreements $24,969 1.15% $39,241 $34,688 1.26%
Federal Home
Loan Bank
advances 14,395 2.52% 15,000 13,521 2.98%
Year ended
12/31/01
- ----------
Repurchase
agreements $34,023 1.69% $40,284 $37,165 3.43%
Federal Home
Loan Bank
advances 10,000 2.48% 10,000 219 2.48%
Year ended
12/31/00
- ----------
Repurchase
agreements $33,463 5.78% $44,089 $32,247 5.25%
Federal Home
Loan Bank
advances -- -- -- -- --
-13-
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, the Marlborough Center Office
(1,800 square feet) at 96 Bolton Street, Marlborough, Massachusetts, and the
Framingham Office (a 4,450 square foot branch office with a separate 2,050
square foot building leased to a tenant) at 35 Edgell Road, Framingham,
Massachusetts, are owned by the Bank.
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 Marlborough East Office (1,110 square feet) at 500
Boston Post Road, Marlborough, Massachusetts, the Boxborough Office (1,350
square feet) at 629 Massachusetts Avenue, Boxborough, Massachusetts, and the
Sudbury Office (2,700 square feet) at 450 Boston Post Road, Sudbury,
Massachusetts, are leased by the Bank from third parties.
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, 2002.
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 457 as of
March 17, 2003.
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 ended December 31, 2002 and 2001:
2002 2001
---- ----
First quarter $ .073 $ .058
Second quarter .075 .062
Third quarter .078 .066
Fourth quarter .081 .071
---- ----
Total $ .307 $ .257
==== ====
-14-
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, 2002, which is hereby incorporated
by reference.
On May 21, 2002 the Company sold 16,612 unregistered shares of its common
stock to the Community Bancorp, Inc. 401(k) Savings Plan and 6,667 unregistered
shares of its common stock to the Community Bancorp, Inc. Employee Profit
Sharing Plan (which is a component of the 401(k) Savings Plan) at a per-share
price of $10.50. The aggregate cash price of these sales was $244,000.
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 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.
On October 1, 2002 the Company implemented an offer to purchase up to
222,222 shares (representing approximately 3.7% of the outstanding shares) of
its common stock through a tender offer at a price of $13.50 per share, payable
in cash. The offer to purchase expired at 5:00 P.M. on November 1, 2002. A total
of 134,505 shares of common stock were tendered in conjunction with the offer.
There was no proration of shares.
ITEM 6. SELECTED FINANCIAL DATA
A five year summary of selected consolidated financial data for the Company
is presented on page 3 of the Annual Report to Shareholders for the year ended
December 31, 2002 and is hereby incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Form 10-K contains certain statements that may be considered
"forward-looking statements". Forward-looking statements involve known and
unknown risks, uncertainties and other factors including, but not limited to,
those factors described under the caption "Cautionary Statement For Purposes of
The Private Securities Litigation Reform Act of 1995" on page "i" of this
report.
The following discussion should be read in conjunction with the
accompanying consolidated financial statements included, or incorporated by
reference, within this report. Because the Company's principal activity
currently is the ownership of the Bank, for ease of reference the term "Company"
in this discussion generally will refer to the activities of both the Company
and the Bank, except where otherwise noted.
Management's Discussion and Analysis of Financial Condition and Results of
Operations is contained on pages 24 through 27 of the Annual Report to
Shareholders for the year ended December 31, 2002 and is hereby incorporated by
reference.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
The Company's preparation of its consolidated financial statements requires
the use of estimates that affect the recorded balances of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reporting of income and expense. The Company has implemented accounting policies
and procedures that determine how such estimates are utilized in preparing the
financial statements. There can be no assurance that actual results will not
differ from those estimates.
-15-
The Company's significant accounting policies are described in Note 1 to
the consolidated financial statements, which is contained on pages 8 through 13
of the Annual Report to Shareholders for the year ended December 31, 2002. The
Company's management believes the following accounting policies affect its more
significant judgments and estimates used in the preparation of the consolidated
financial statements:
* LOANS: Loans are stated at the amount of unpaid principal, net of unearned
discounts and unearned net loan origination fees. It is the policy of the
Company to discontinue the accrual of interest on loans when, in the
judgment of management, the ultimate collectibility of principal or interest
becomes doubtful. The accrual of interest income generally is discontinued
when a loan becomes 90 days past due as to principal or interest. When
interest accruals are discontinued, unpaid interest credited to income is
reversed. Management may elect to continue the accrual of interest when the
estimated net realizable value of collateral is sufficient to cover the
principal balance and accrued interest. Otherwise, interest income is
subsequently recognized only to the extent cash payments are received.
Interest on loans is accrued and included in income as earned based upon
contractual interest rates applied to outstanding principal balances.
Nonrefundable loan origination fees and related costs are deferred and
amortized as an adjustment to the related loan yield over the contractual
life of the loan. When loans are sold or fully repaid, any unamortized fees,
discounts and costs are recognized in income. Mortgage loans held for sale
are carried at the lower of aggregate cost or fair value. Gains and losses
on sales of mortgages are recognized at the time of sale.
A loan is considered to be impaired when it is probable, based on current
information and events, that the Company will be unable to collect all
amounts due according to the contractual terms of the loan agreement. All
loans are individually evaluated for impairment, except for smaller balance
homogenous residential and consumer loans which are evaluated in aggregate,
according to the Company's normal loan review process, including overall
credit evaluation, nonaccrual status and payment experience. Loans
identified as impaired are further evaluated to determine the estimated
extent of impairment. Impaired loans are measured based on the present value
of expected future cash flows, discounted at each loan's effective interest
rate, or the fair value of the collateral for certain collateral-dependent
loans. For collateral-dependent loans, the extent of impairment is the
shortfall, if any, between the collateral value, less costs to dispose of
such collateral, and the carrying value of the loan.
* ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is based on
management's estimate of the amount required to reflect the risks in the
loan portfolio, based on circumstances and conditions known or anticipated
at each reporting date. The methodology of assessing the appropriateness of
the allowance consists of a review of the following three key elements:
1. The valuation allowance for loans specifically identified as impaired
2. The formula allowance for the various loan portfolio classifications
3. The imprecision allowance
The valuation allowance reflects specific estimates of potential losses on
individually impaired loans. When each impaired loan is evaluated, if the
net present value of the expected cash flows (or fair value of the
collateral if the loan is collateral-dependent) is lower than the recorded
loan balance, the difference represents the valuation allowance for that
loan.
The formula allowance is a percentage-based estimate based on historical
loss experience that assigns required allowance allocations by loan
classification based on fixed percentages of all outstanding loan balances.
-16-
The formula allowance employs a risk-rating model that grades loans based on
their general characteristics of credit quality and relative risk. When a
loan's credit quality becomes suspect, it is placed on the Company's
internal "watch list" and its allowance allocation is increased. For the
remainder of the loan portfolio, appropriate allowance levels are estimated
based on judgments regarding the type of loan, economic conditions and
trends, potential exposure to loss and other factors. Losses are charged
against the allowance when management believes the collectibility of
principal is doubtful.
In addition to the valuation allowance and the formula allowance, there is
an imprecision allowance that is determined based on the totals of the
valuation and formula allowances. The imprecision allowance reflects the
measurement imprecision inherent in determining the valuation allowance and
the formula allowance. It represents 15% - 25% of the valuation and formula
allowances, depending upon management's evaluation of various conditions,
the effects of which are not directly measured in determining the valuation
and formula allowances. The evaluation of the inherent loss resulting from
these conditions involves a higher level of uncertainty because they are not
identified with specific problem credits or portfolio segments. The
conditions evaluated in connection with the imprecision allowance include
the following:
* Levels of and trends in delinquencies and impaired loans
* Levels of and trends in charge-offs and recoveries
* Trends in loan volumes and terms
* Effects of changes in credit concentrations
* Effects of and changes in risk selection and underwriting standards, and
other changes in lending policies, procedures and practices
* National and local economic conditions
* Trends and duration of the present business cycle
* Findings of internal and external credit review examiners
When an evaluation of these conditions signifies a change in the level of
risk, the Company adjusts the formula allowance. Periodic credit reviews
enable further adjustment to the formula allowance through the risk rating
of loans and the identification of loans requiring a valuation allowance. In
addition, the formula allowance model is designed to be self-correcting by
taking into consideration recent actual loss experience. Losses are charged
against the allowance for loan losses when management believes the
collectibility of principal is doubtful.
-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 positive one-year cumulative gap position at
December 31, 2002, which represents the excess of rate-sensitive assets versus
rate-sensitive liabilities, was 2.2% expressed as a percentage of total assets.
The following table presents rate-sensitive assets and rate-sensitive
liabilities as of December 31, 2002:
1 to 6 7 to 12 1 to 2 2 to 5 Over 5
(Dollars in thousands) Months Months Years Years Years Total
- --------------------- ---------- ---------- ---------- --------- --------- ----------
RATE-SENSITIVE ASSETS
Federal funds sold $ 19,557 $ -- $ -- $ -- $ -- $ 19,557
Cash letter 18,500 -- -- -- -- 18,500
Securities 28,633 24,069 37,598 61,447 27,717 179,464
FHLBB stock -- -- -- -- 1,442 1,442
Adjustable-rate loans 62,741 13,761 15,020 38,416 13,850 143,788
Fixed-rate loans 7,450 5,331 7,379 15,096 22,345 57,601
Loans held for sale 2,531 -- -- -- -- 2,531
--------- --------- ---------- ---------- -------- ---------
Total $ 139,412 $ 43,161 $ 59,997 $ 114,959 $ 65,354 $ 422,883
--------- --------- ---------- --------- -------- ---------
RATE-SENSITIVE LIABILITIES
Demand deposits $ -- $ -- $ -- $ -- $ 83,445 $ 83,445
Money market accounts 10,313 -- -- -- 28,150 37,533
NOW/FlexValue accounts 16,188 -- -- -- 48,565 64,753
Cash management accounts 14,315 -- -- -- -- 14,315
Savings accounts 10,547 -- -- -- 31,640 42,187
Certificates of deposit 59,643 26,652 6,165 19,445 144 112,049
Repurchase agreements 20,873 3,518 -- 578 -- 24,969
Borrowed funds 468 10,485 973 2,469 -- 14,395
--------- --------- ---------- --------- -------- ---------
Total $ 132,347 $ 40,655 $ 7,138 $ 22,492 $ 191,014 $ 393,646
--------- --------- ---------- --------- -------- ---------
Gap $ 7,065 $ 2,506 $ 52,859 $ 92,467 $(125,660) $ 29,237
========== ========= ========= ========= ======== =========
Cumulative Gap $ 7,065 $ 9,571 $ 62,430 $ 154,897 $ 29,237
========== ========= ========= ========= ========
Gap as a percent of
total assets 1.62% 0.58% 12.13% 21.22% (28.84%)
==== ==== ===== ===== =====
Cumulative gap as a
percent of total assets 1.62% 2.20% 14.33% 35.55% 6.71%
==== ==== ===== ===== =====
Whenever possible, maturity dates or contractual repricing dates have been
used in the preparation of the above table. In addition to those factors,
certain assumptions are utilized such as the estimation of prepayments
associated with certain loans and mortgage-backed securities. For purposes of
this table, the Company considers the cash letter sent for collection each day
to convert from a rate-insensitive asset the day it is sent for collection to a
rate-sensitive asset the following day when it is funded and becomes an
interest-earning asset. The Company's historical experience over more than ten
years, during which time interest rates have risen and fallen significantly, has
demonstrated that demand deposit balances are rate-insensitive. The Company
considers 25% of NOW account, FlexValue account, money market account and
savings account balances to be rate-sensitive, with the remaining 75% of those
balances to be rate-insensitive. In addition, certain money market account
balances are tied to a short-term treasury rate and are repriced monthly. All
certificates of deposit are considered to be rate sensitive. The rate
-18-
sensitivity or insensitivity of the Company's various balance sheet categories
is reflected in the above table.
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 specific limits and guidelines
approved by the Company's Asset/Liability Committee and Board of Directors.
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 derived from
the Company's assets and liabilities under various interest rate scenarios.
The Company's interest rate risk policy specifies that if overnight
interest rates were to shift upward or downward by 200 basis points over four
quarters (i.e. 50 basis points per quarter for four consecutive quarters),
estimated net interest income for that twelve month period should decline by no
more than 5.00% of net interest income. However, during 2001 the Federal Reserve
Board (the "Fed") reduced the overnight federal funds target rate eleven times,
and in November of 2002 the Fed reduced the federal funds target rate again. At
December 31, 2002, the federal funds target rate stood at 1.25%. The Company's
management believes it is highly unlikely that overnight interest rates could
fall more than an additional 100 basis points during 2003. Therefore, for
purposes of this December 31, 2002 disclosure, the Company has measured the
impact on net interest income of a 200 basis point increase and a 100 basis
point decrease in overnight interest rates over four consecutive quarters.
One-quarter of the increase was projected to take place in each of the four
quarters, and one-half of the decrease was projected to take place in each of
the first and third quarters. Based upon those assumptions, the following table
sets forth the Company's estimated net interest income exposure:
Rate Change Estimated Exposure to
(Basis Points) Net Interest Income
------------ ---------------------
+200 2.45%
-100 (0.48%)
The reductions in short-term interest rates implemented by the Federal
Reserve Board during 2001 and 2002 reduced the Company's average net yield on
earning assets from 4.74% in 2000 to 4.60% in 2001 and 4.47% in 2002. This
reduction in the Company's net earning asset yield has resulted primarily from
an elevated incidence of fixed-rate home mortgage and commercial loan
refinancings, and the Company's limited ability to reduce interest rates on
deposit accounts and securities sold under agreements to repurchase due to
competitive factors. The Fed's 50 basis point reduction in the federal funds
target rate in November of 2002 is expected to place continued pressure on the
Company's net interest margin in 2003. Any further reduction in the federal
funds target rate during 2003 could place additional pressure on the net
interest margin.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements are included on pages 4
through 23 of the Annual Report to Shareholders for the year ended December 31,
2002 and are hereby incorporated by reference.
-19-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Effective May 21, 2002, the Company's Board of Directors dismissed Arthur
Andersen LLP as the Company's independent accountant for the fiscal year ended
December 31, 2002. This event was reported to the Securities and Exchange
Commission on May 21, 2002 on Form 8-K.
Effective June 6, 2002, the Company's Audit Committee of the Board of
Directors engaged Wolf & Company, P.C. as the Company's independent accountant
for the fiscal year ended December 31, 2002. This event was reported to the
Securities and Exchange Commission on June 6, 2002 on Form 8-K.
There were no disagreements between the Company and its present or former
independent accountants on accounting or financial disclosure during the 24
months ended December 31, 2002 or in any period subsequent to the most recent
financial statements.
-20-
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. Messrs. Gould,
Huehmer, Langway, Murphy and Poplin have been Directors of the Company since
1984. Mr. Frias has been a Director of the Company since 1985, Mr. Parker has
been a Director of the Company since 1986, Messrs. Hughes and Webster have been
Directors of the Company since 1995, and Ms. Colosi has been a Director of the
Company since 1999. Mr. Durkin was elected a Director of the Company effective
January 1, 2003. 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
- -------------- --- -------- ------- ---------------------------
Grace L. Blunt 48 Senior Vice Senior Vice President,
President of Community National Bank,
Bank; Assistant Assistant Clerk,
Clerk of Company Community Bancorp, Inc.
Jennie Lee 47 Director of 2003 President and Treasurer,
Colosi (1) Company and E. T.& L. Construction
Bank Corp.
Edward M.
Durkin (1,2) 42 Director of 2003 Vice President and CFO,
Company and Sockeye Networks, Inc.;
Bank formerly Vice President and
CFO, Open Market, Inc., Vice
President and CFO, Radview
Software Ltd., Vice President
and CFO, StarBurst
Communications Corporation
Antonio Frias (1) 63 Director of 2003 President and Treasurer,
Company and S & F Concrete Contractors,
Bank Inc.
John P. Galvani 46 Exec. Vice Executive Vice President and
President & Chief Operating Officer,
COO of Bank Community National Bank
I. George 86 Director of 2005 Chairman, Gould's, Inc.
Gould Company and
Bank
Horst Huehmer 75 Director of 2004 Retired
Company and
Bank
Donald R. 53 Treasurer, Clerk 2004 Treasurer, Clerk and Chief
Hughes, Jr. and CFO of Company; Financial Officer, Community
Executive Vice Bancorp, Inc.; Executive Vice
President, CFO President, Chief Financial
and Cashier of Officer and Cashier, Community
Bank; Director of National Bank
Company and Bank
-21-
James A. 63 President & CEO 2005 President and Chief Executive
Langway of Company and Bank; Officer, Community Bancorp, Inc.
Director of Company and Community National Bank
and Bank
Robert E. Leist 49 Senior Vice President Senior Vice President, Community
of Bank National Bank
Dennis F. 65 Chairman of the 2003 President and Treasurer, D. F.
Murphy, Jr. (1) Board of Company Murphy Insurance Agency, Inc.
and Bank
David L. 74 Director of 2005 Chairman of the Board, Larkin
Parker (3) Company and Lumber Co.
Bank
Mark Poplin 79 Director of 2004 President and Treasurer,
Company and Poplin Supply Co.
Bank
David W. 61 Director of 2004 President & Treasurer, Knight
Webster (3) Company and Fuel Co., Inc.
Bank
(1) Ms. Colosi and Messrs. Durkin, Frias and Murphy have been nominated for
election at the 2003 Annual Meeting to serve until 2006.
(2) Mr. Durkin has been designated by the Company's Board of Directors as the
"audit committee financial expert" as defined by the SEC's final rules
pursuant to Section 407 of the Sarbanes-Oxley Act of 2002. Mr. Durkin is
independent of management.
(3) Mr. Parker and Mr. Webster's wife 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.
-22-
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
- --------------------------
The following table sets forth all plan and non-plan compensation awarded
to, earned by or paid to the Chief Executive Officer and the four most highly
compensated other executive officers whose aggregate compensation by the Company
and the Bank exceeded $100,000 during 2002.
Long-Term
Compensation
Annual Compensation Awards
----------------------- ------------
(a) (b) (c) (d) (g) (i) (1)
Securities
Underlying All Other
Name and Salary Bonus Options Compensation
Principal Position Year ($) ($) (#) ($)
- ------------------ ---- ------ ------- ------------ ------------
James A. Langway 2002 $247,403 $ 98,961 20,617 $ 9,733
President and CEO 2001 237,888 103,800 23,789 10,022
of the Company and 2000 226,562 75,000 -- 8,974
the Bank
Donald R. Hughes, Jr. 2002 146,191 40,933 12,183 9,055
Treasurer and Clerk of 2001 140,568 51,844 14,057 8,855
Company; Executive Vice 2000 133,874 25,000 -- 8,493
President and Cashier
of the Bank
John P. Galvani 2002 125,000 28,000 10,417 6,283
Executive Vice President 2001 114,800 18,900 10,500 5,948
and Chief Operating 2000 98,730 16,000 -- 5,536
Officer of the Bank
Grace L. Blunt 2002 120,200 21,876 10,002 5,927
Senior Vice President 2001 96,750 18,772 9,100 5,280
of the Bank 2000 84,240 15,036 -- 5,713
Robert E. Leist 2002 106,445 18,380 8,870 3,673
Senior Vice President 2001 96,546 16,944 9,482 3,789
of the Bank 2000 91,948 15,723 -- 3,622
Note:
- ----
1. The Company maintains a 401(k) Savings Plan ("401(k) Plan") for employees
age 21 or over and who meet other requirements. Prior to December 31, 2001,
the Company also maintained an Employee Stock Ownership Plan ("ESOP") for
employees age 21 or older who were participants in the Company's Retirement
Plan and who met other requirements. Effective December 31, 2001, the ESOP
was merged into the 401(k) Plan as a profit-sharing component of the 401(k)
Plan. Messrs. Langway, Hughes, Galvani, and Leist and Ms. Blunt are
participants in the Company's 401(k) Plan, and they were also participants
in the ESOP plan prior to December 31, 2001. Of the $9,733 reported above
for 2002 in column (i) for Mr. Langway, $2,855 represents Company
profit-sharing contributions, $5,972 represents Company 401(k) Plan
contributions and $906 represents group life insurance premiums paid by the
Company. Of the $9,055 reported above for 2002 in column (i) for Mr. Hughes,
$2,672 represents Company profit-sharing contributions, $5,993
-23-
represents Company 401(k) Plan contributions and $390 represents group life
insurance premiums paid by the Company. Of the $6,283 reported above for
2002 in column (i) for Mr. Galvani, $2,239 represents Company profit-sharing
contributions, $3,750 represents Company 401(k)Plan contributions and $294
represents group life insurance premiums paid by the Company. Of the $5,927
reported above for 2002 in column (i) for Ms. Blunt, $2,027 represents
Company profit-sharing contributions, $3,606 represents Company 401(k) Plan
contributions and $294 represents group life insurance premiums paid by the
Company. Of the $3,673 reported above for 2002 in column (i) for Mr. Leist,
$1,782 represents Company profit-sharing contributions, $1,597 represents
Company 401(k) Plan contributions and $294 represents group life insurance
premiums paid by the Company.
STOCK OPTIONS GRANTED IN 2002
- -----------------------------
The following table sets forth certain information regarding stock options
granted during 2002 to the named Executive Officers. The grants reflected in the
table were made pursuant to the Company's 2001 Incentive Stock Option Plan for
Key Employees.
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price Appreciation
Individual Grants For Option Term
- --------------------------------------------------------- ------------------------------
(a) (b) (c) (d) (e) (f) (g)
% of Total
Number of Options
Securities Granted to Exercise
Underlying Employees or
Options in Fiscal Base Price Expiration 5% 10%
Name Granted (#) Period ($/Share) Date ($) ($)
- ---- ----------- ---------- ---------- ---------- -------- --------
James A. Langway 20,617 22.8% $12.00 02/18/12 $155,591 $394,298
Donald R. Hughes, Jr. 12,183 13.5% 12.00 02/18/12 91,942 232,999
John P. Galvani 10,417 11.5% 12.00 02/18/12 78,614 199,224
Grace L. Blunt 10,002 11.1% 12.00 02/18/12 75,482 191,287
Robert E. Leist 8,870 9.8% 12.00 02/18/12 66,940 169,638
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTIONS
- --------------------------------------------------------------------------
The following table sets forth certain information regarding stock options
exercised during fiscal 2002 and stock options held at December 31, 2002, by the
named Executive Officers. No stock appreciation rights ("SARS") are outstanding
pursuant to the Company's 2001 Incentive Stock Option Plan for Key Employees.
(a) (b) (c) (d) (e)
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Options at Options at
Fiscal Year-End Fiscal Year-End
Shares Value (#) ($)
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable (1)
- ---- ------------ -------- -------------- -----------------
James A. Langway 0 $0 5,947 / 38,459 $20,815 / $93,373
Donald R. Hughes, Jr. 0 0 3,514 / 22,726 12,299 / 55,175
John P. Galvani 0 0 2,625 / 18,292 9,188 / 43,188
Grace L. Blunt 0 0 2,275 / 16,827 7,963 / 38,891
Robert E. Leist 0 0 2,371 / 15,982 8,299 / 38,194
-24-
Note:
- ----
1. There is no established public trading market for the Company's common
stock. For purposes of this table, the value of the unexercised in-the-money
options at fiscal year-end has been based upon a fair value of $13.50, the
most recent trade price of the Company's stock at December 31, 2002.
COMPENSATION OF DIRECTORS
- -------------------------
During 2002, Directors of the Bank received a fee of $918 per month and the
Chairman of the Board of the Bank received a fee of $1,530 per month. Directors
who are not also employees of the Bank also received an annual retainer of
$2,000. The Company itself pays no compensation to its Directors for their
services.
During 2001, the Company adopted the "2001 Directors' Plan" (the
"Directors' Plan"), which is a non-qualified stock option plan for Directors who
are not also employees of the Company. Under the Director's Plan, during 2002
each eligible director was granted options to purchase 2,000 shares of the
Company's common stock at a price of $12.00 per share.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
- ------------------------------------------------------------------------
ARANGEMENTS
- -----------
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
-25-
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
2002, the Company recorded $16,981 in such expense.
The Bank has entered into "change in control" Severance Agreements with
John P. Galvani, Executive Vice President, Grace L. Blunt, Senior Vice
President, and Robert E. Leist, Senior Vice President.
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 14, 2003.
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 Jennie Lee Colosi 2,000 2,871 4,871 0.1%
Stock
($2.50 Edward M. Durkin -- 150 150 --
par)
Antonio Frias 108,001 2,120 110,121 1.9%
I. George Gould 18,470 24,494 42,964 0.7%
Horst Huehmer 1,400 44,114 45,514 0.8%
Donald R. Hughes, Jr. 39,719 (4) 58,000 97,719 1.7%
James A. Langway 248,306 (5) -- 248,306 4.3%
Dennis F. Murphy, Jr. 387,120 464,596 851,716 14.6%
David L. Parker 56,084 16,400 (6) 72,484 1.2%
Mark Poplin 3,728 303,890 (7) 307,618 5.3%
David W. Webster 1,940 140,168 142,108 2.4%
All directors and
executive officers
of the Company and
Bank as a group
(14 persons) 866,768 1,076,591 1,943,359 33.3%
(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.
-26-
(4) Includes 39,719 shares held by the Company's 401(k) Plan for which Mr.
Hughes has voting power in certain circumstances.
(5) Includes 63,118 shares held by the Company's 401(k) Plan for which Mr.
Langway has voting power in certain circumstances.
(6) Includes 4,000 shares held by the Unitarian Church of Marlboro and Hudson,
MA, for which Mr. Parker is a trustee.
(7) Includes 105,366 shares held by the Mark Poplin Family Trust and 193,628
shares held by the Shirley E. Poplin Family Trust.
The following persons own beneficially more than five percent of the
outstanding stock of the Company as of March 14, 2003:
Amount and
Title Name and Address Nature of Percent
of of Beneficial Beneficial of
Class Owner Ownership Class
- ------------ ----------------------- -------------- --------
Common Stock Dennis F. Murphy, Jr. 851,716 shares 14.6%
($2.50 par) 188 Prospect Hill Rd.
Still River, MA 01467
Cede & Co. 551,105 shares (1) 9.5%
P.O. Box 20
Bowling Green Station
New York, NY 10274
Community Bancorp, Inc 387,338 shares (2,3) 6.6%
401(k) Savings Plan
17 Pope Street
Hudson, MA 01749
Mark Poplin 307,618 shares (1) 5.3%
6 Greenway Street, #306
Wayland, MA 01778
Einar P. Robsham 303,800 shares 5.2%
164 Cochituate Road
Wayland, MA 01778
(1) Includes 105,366 shares held by the Mark Poplin Family Trust and 193,628
shares held by the Shirley E. Poplin Family Trust.
(2) Includes 63,118 shares for which Mr. Langway has voting power in certain
circumstances.
(3) Includes 39,719 shares for which Mr. Hughes has voting power in certain
circumstances.
-27-
The following table sets forth information regarding the Company's equity
compensation plans as of December 31, 2002:
Number of Securities
Remaining Available
Number of Securities For Future Issuance
To Be Issued Upon Weighted-Average Under Equity
Exercise of Exercise Price of Compensation Plans
Outstanding Options, Outstanding Options, (Excluding Securities
Plan Category Warrants and Rights Warrants and Rights Reflected in Column (a))
- ------------- -------------------- ------------------- ------------------------
(a) (b) (c)
- ------------- -------------------- ------------------- ------------------------
Equity Compensation
Plans Approved By
Security Holders (1) 179,479 $11.01 204,521
Equity Compensation
Plans Not Approved
By Security Holders (2) 23,750 $11.35 6,250
------- ----- -------
203,229 $11.05 210,771
======= ===== =======
(1) The Company's 2001 Incentive Stock Option Plan for Key Employees was
approved by the stockholders on April 10, 2001.
(2) The Company's 2001 Directors' Plan, which is a non-qualified stock option
plan for directors who are not also employees of the company, did not
require stockholder approval.
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 (the "Agreement") with Murphy Insurance Brokerage, Ltd. ("MIBL"). 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 MIBL was structured in
the form of a lease arrangement for floor space in the Bank's Main Office
located at 17 Pope Street, Hudson, Massachusetts. MIBL is a subsidiary of D. F.
Murphy Insurance Agency, Inc., which is owned by Dennis F. Murphy, Jr., Chairman
of the Company's Board of Directors. The Agreement was terminated effective
September 23, 2002, and it had no material affect on the Company's 2002
financial statements or results of operations.
ITEM 14. CONTROLS AND PROCEDURES
Within the 90 day period prior to the filing of this report, an evaluation
was carried out under the supervision and with the participation of the
Company's management, including the Chief Executive Officer ("CEO") and Chief
Financial Officer ("CFO"), of the effectiveness of the Company's disclosure
controls and procedures. Based on that evaluation, the CEO and CFO have
concluded that the Company's disclosure controls and procedures are effective to
-28-
ensure that information required to be disclosed by the Company in reports that
it files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. Subsequent to the date of
their evaluation, there were no significant changes in the Company's internal
controls or in other factors that could significantly affect the disclosure
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART IV
-------
ITEM 15. 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, 2002, are hereby incorporated by reference:
Annual Report to
Shareholders
Description page reference
----------- ----------------
Consolidated balance sheets at
December 31, 2002 and 2001 4
Consolidated statements of income for
the years ended December 31, 2002,
2001 and 2000 5
Consolidated statements of stockholders'
equity for the years ended December 31, 2002,
2001 and 2000 6
Consolidated statements of cash flows
for the years ended December 31, 2002,
2001 and 2000 7
Notes to consolidated financial statements 8 - 23
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, 2002 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, 2002.
3. Exhibits
See accompanying Exhibit Index.
(b) The Company did not file a Form 8-K during the quarter ended December 31,
2002.
-29-
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 specified persons. (g)
10.9 Shareholder Rights Agreement dated May 24,
1996 between Community Bancorp, Inc. and
Cambridge Trust Company. (h)
10.10 Form of Severance Agreement dated February 19,
1998 between Community National Bank and three
Executive Officers. (i)
10.11 First Amendment to Shareholder Rights Agreement
dated February 15, 2000. (j)
10.12 2001 Directors' Stock Option Plan dated February 22,
2001. (k)
10.13 2001 Incentive Stock Option Plan for Key Employees
dated April 10, 2001. (l)
13. 2002 Annual Report to Shareholders
-30-
21. Subsidiaries of Company
23.1 Consent of Independent Certified Public Accountants
23.2 Consent of Predecessor Independent Certified Public Accountants
99.1 Report of Predecessor Independent Certified Public Accountants
99.2 Certifications Pursuant to 18 U.S.C. Section 1350
Notes:
- -----
(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.
(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.
(h) Incorporated herein by reference as filed as part of the Company's Form 8-K
(File No. 33-12756-B), filed with the Commission on May 31, 1996.
(i) Incorporated herein by reference as filed as part of the Company's December
31, 1998 Form 10-K (File No. 33-12756-B), filed with the Commission on
March 24, 1999.
(j) Incorporated herein by reference as filed as part of the Company's December
31, 1999 Form 10-K (File No. 033-12756-B), filed with the Commission on
March 27, 2000.
(k) Incorporated herein by reference as filed as part of the Company's April
17, 2001 Form S-8 (File No. 333-59232), filed with the Commission on April
19, 2001.
(l) Incorporated herein by reference as filed as part of the Company's April
17, 2001 Form S-8 (File No. 333-59262), filed with the Commission on April
19, 2001.
-31-
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: 3-17-03 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
---- -----------------
3-17-03 /s/ James A. Langway
- ------------ -----------------------------------
James A. Langway, President & CEO
Principal Executive Officer
3-17-03 /s/ Donald R. Hughes, Jr.
- ------------ -----------------------------------
Donald R. Hughes, Jr., Treasurer & Clerk,
Principal Financial Officer and Principal
Accounting Officer
3-17-03 /s/ James A. Langway
- ------------ -----------------------------------
James A. Langway, Director
3-17-03 /s/ Donald R. Hughes, Jr.
- ------------ -----------------------------------
Donald R. Hughes, Jr., Director
3-17-03 /s/ Horst Huehmer
- ------------ ------------------------------------
Horst Huehmer, Director
3-17-03 /s/ David W. Webster
- ------------ ------------------------------------
David W. Webster, Director
3-19-03 /s/ I. George Gould
- ------------ ------------------------------------
I. George Gould, Director
-32-
SIGNATURES (CONT.)
------------------
3-24-03 /s/ Edward M. Durkin
- ------------ ------------------------------------
Edward M. Durkin, Director
-33-
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
----------------------------------------------------
I, James A. Langway, certify that:
1. I have reviewed this annual report on Form 10-K of Community Bancorp, Inc.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ James A. Langway
DATE: March 17, 2003 ----------------------------
James A. Langway
President and Chief Executive Officer
-34-
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
----------------------------------------------------
I, Donald R. Hughes, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of Community Bancorp, Inc.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Donald R. Hughes, Jr.
DATE: March 17, 2003 ------------------------------
Donald R. Hughes, Jr.
Treasurer, Clerk and Chief
Financial Officer
-35-
SUPPLEMENTAL INFORMATION
------------------------
Copies of the Notice of Annual Meeting of Shareholders, Proxy Statement and
Proxy For Annual Meeting of Shareholders for the Registrant's 2003 annual
meeting of shareholders, to be held on April 8, 2003, have been 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.
-36-