UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 2003
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
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
Common Stock
$2.50 par value
5,863,314 shares outstanding
as of June 30, 2003
PART I - FINANCIAL INFORMATION
------------------------------
COMMUNITY BANCORP, INC.
Item 1. CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(In thousands, except share data) 2003 2002
- --------------------------------- -------- -----------
ASSETS
Cash and cash equivalents $ 23,507 $ 22,308
Federal funds sold 12,606 19,557
Securities held to maturity, at amortized
cost (fair value $141,454 in 2003 and
$118,118 in 2002) 137,485 114,699
Securities available for sale, at fair value 49,784 64,765
Federal Home Loan Bank of Boston stock 2,153 1,442
Mortgage loans held for sale 2,868 2,531
Loans 219,461 201,389
Less allowance for loan losses 2,784 2,733
------- -------
Loans, net 216,677 198,656
Bank premises and equipment, net 6,156 6,295
Other assets 6,034 5,522
------- -------
Total assets $457,270 $435,775
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing $ 79,611 $ 83,445
Interest bearing 268,844 270,837
------- -------
Total deposits 348,455 354,282
------- -------
Securities sold under repurchase agreements 22,148 24,969
Federal Home Loan Bank of Boston advances 42,750 14,395
Other liabilities 3,168 3,223
------- -------
Total liabilities 416,521 396,869
------- -------
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, $2.50 par value, 100,000
shares authorized, none issued or outstanding -- --
Common stock, $2.50 par value, 12,000,000
shares authorized, 6,398,436 shares issued,
5,863,314 shares outstanding (5,829,630
shares outstanding at 12/31/2002) 15,996 15,996
Additional paid-in capital 609 360
Retained earnings 27,195 25,346
Treasury stock, at cost, 535,122 shares
(568,806 shares at 12/31/2002) (3,855) (4,007)
Accumulated other comprehensive income 804 1,211
------- -------
Total stockholders' equity 40,749 38,906
------- -------
Total liabilities and
stockholders' equity $457,270 $435,775
======= =======
The accompanying notes are an integral part of these unaudited, consolidated
financial statements
-2-
COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended Six months ended
(In thousands, except share data) June 30 June 30
- --------------------------------- ------------------ ----------------
2003 2002 2003 2002
---- ---- ---- ----
Interest and dividend income:
Interest and fees on loans $ 3,464 $ 3,405 $ 6,840 $ 6,771
Interest and dividends on securities:
Taxable interest 1,550 1,934 3,258 3,754
Nontaxable interest 293 237 542 477
Dividends 39 83 129 174
Interest on federal funds sold 39 79 81 158
------ ------ ------ ------
Total interest and dividend income 5,385 5,738 10,850 11,334
------ ------ ------ ------
Interest expense:
Interest on deposits 957 1,206 1,968 2,495
Interest on securities sold under
repurchase agreements 71 115 147 246
Interest on Federal Home Loan Bank
of Boston advances 204 115 385 176
------ ------ ------ ------
Total interest expense 1,232 1,436 2,500 2,917
------ ------ ------ ------
Net interest income 4,153 4,302 8,350 8,417
Provision for loan losses 35 45 80 90
------ ------ ------ ------
Net interest income after provision
for loan losses 4,118 4,257 8,270 8,327
------ ------ ------ ------
Noninterest income:
Merchant credit card assessments 400 405 776 821
Service charges 378 373 750 705
Other charges, commissions, fees 385 351 738 689
Gains on sales of loans, net 111 39 252 103
Gains on sales of securities, net 106 36 224 95
Other 23 24 50 52
------ ------ ------ ------
Total noninterest income 1,403 1,228 2,790 2,465
------ ------ ------ ------
Noninterest expense:
Salaries and employee benefits 1,734 1,666 3,535 3,379
Information technology and ATM network 339 313 653 608
Occupancy, net 254 226 524 459
Furniture and equipment 92 108 181 199
Credit card processing 372 343 697 683
Printing, stationery & supplies 45 58 116 119
Professional fees 144 120 293 239
Marketing and advertising 60 70 112 98
Other 339 290 698 648
------ ------ ------ ------
Total noninterest expense 3,379 3,194 6,809 6,432
------ ------ ------ ------
Income before income tax expense 2,142 2,291 4,251 4,360
Income tax expense 713 801 1,422 1,512
------ ------ ------ ------
Net income $ 1,429 $ 1,490 $ 2,829 $ 2,848
====== ====== ====== ======
The accompanying notes are an integral part of these unaudited, consolidated
financial statements.
-3-
COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
(Unaudited)
Three months ended Six months ended
June 30 June 30
------------------ ----------------
2003 2002 2003 2002
---- ---- ---- ----
Basic earnings per common share $ .25 $ .25 $ .49 $ .48
Diluted earnings per common share $ .24 $ .25 $ .48 $ .48
Dividends per share $ .09 $ .08 $ .17 $ .15
Basic weighted average number
of shares 5,835,547 5,951,094 5,832,673 5,945,879
Diluted weighted average number
of shares 5,878,676 5,966,928 5,874,264 5,961,713
The accompanying notes are an integral part of these unaudited, consolidated
financial statements.
-4-
COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Six months ended June 30, 2002
-------------------------------------------------------------------------
Accumulated
Additional Other
Common Paid-in Retained Treasury Comprehensive
(In thousands, except share data) Stock Capital Earnings Stock Income Total
- --------------------------------- ------- ---------- -------- -------- ------------- -------
Balance at December 31, 2001 $15,996 $ 219 $21,609 $(2,297) $ 784 $36,311
------
Comprehensive income:
Net income -- -- 2,848 -- -- 2,848
Change in net unrealized gain/loss
on securities available for sale,
net of reclassification adjustment
and tax effects -- -- -- -- 20 20
------
Total comprehensive income -- -- -- -- -- 2,868
------
Cash dividends declared ($0.15 per share -- -- (881) -- -- (881)
Reissuance of 23,279 shares of treasury
stock -- 140 -- 105 -- 245
------ ------ ------ ------ ------ ------
Balance at June 30, 2002 $15,996 $ 359 $23,576 $(2,192) $ 804 $38,543
====== ====== ====== ====== ====== ======
Six months ended June 30, 2003
------------------------------------------------------------------------
Accumulated
Additional Other
Common Paid-in Retained Treasury Comprehensive
(In thousands, except share data) Stock Capital Earnings Stock Income Total
- --------------------------------- ------ ------- -------- -------- -------- -------
Balance at December 31, 2002 $15,996 $ 360 $25,346 $(4,007) $ 1,211 $38,906
------
Comprehensive income
Net income -- -- 2,829 -- -- 2,829
Change in net unrealized gain/loss
on securities available for sale,
net of reclassification adjustment
and tax effects -- -- -- -- (407) (407)
------
Total comprehensive income -- -- -- -- -- 2,422
------
Cash dividends declared ($0.17 per share) -- -- (980) -- -- (980)
Reissuance of 33,684 shares of treasury
stock -- 249 -- 152 -- 401
------ ------ ------ ------ ------ ------
Balance at June 30, 2003 $15,996 $ 609 $27,195 $(3,855) $ 804 $40,749
====== ====== ====== ====== ====== ======
The accompanying notes are an integral part of these unaudited consolidated financial statements.
-5-
COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
(In thousands) June 30,
- -------------- -----------------
2003 2002
---- ----
Cash flows from operating activities:
Net income $ 2,829 $ 2,848
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 505 486
Gains on sales of securities (224) (95)
Amortization of securities premiums
and (discounts), net 493 209
Provision for loan losses 80 90
Deferred tax benefit 114 24
Net change in:
Mortgage loans held for sale (337) (1,328)
Other assets, net (626) (21)
Other liabilities, net 343 (453)
------ ------
Total adjustments 349 1,090
------ ------
Net cash provided by operating activities 3,177 1,760
------ ------
Cash flows from investing activities:
Net change in federal funds sold (6,951) (5,256)
Purchases of securities held to maturity (43,168) (15,989)
Purchases of securities available for sale
and Federal Home Loan Bank stock (711) (11,301)
Maturities, calls and principal repayments
of securities held to maturity 20,010 10,550
Proceeds from sales of securities available
for sale 9,217 6,034
Maturities and principal repayments of
securities available for sale 5,038 9,111
Net change in loans (18,101) (2,870)
Purchases of premises and equipment, net (366) (350)
------ ------
Net cash used in investing activities (21,130) (10,071)
------ ------
Cash flows from financing activities:
Net change in deposits (5,827) 12,881
Net change in securities sold under
repurchase agreements (2,821) (6,106)
Proceeds from Federal Home Loan Bank of
Boston advances 30,000 5,000
Payments on Federal Home Loan Bank of
Boston advances (1,645) (150)
Reissuance of treasury stock 401 245
Dividends paid (956) (855)
------ ------
Net cash provided by financing activities 19,152 11,015
------ ------
Net change in cash and cash equivalents 1,199 2,703
Cash and cash equivalents at beginning of period 22,308 19,877
------ ------
Cash and cash equivalents at end of period $ 23,507 $ 22,580
====== ======
The accompanying notes are an integral part of these unaudited, consolidated
financial statements.
-6-
Supplemental cash flow information:
Six months ended
(In thousands) June 30,
- -------------- -----------------
2003 2002
---- ----
Interest paid on deposits and borrowed funds $ 2,522 $ 2,941
Income taxes paid 1,300 794
-7-
COMMUNITY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
- -----------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by accounting principles generally accepted for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. The results of operations for any interim
period are not necessarily indicative of results expected for the full year.
These unaudited consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto contained in the
Company's Annual Report to shareholders and Form 10-K for the year ended
December 31, 2002.
2. STOCK OPTIONS
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", ("SFAS No. 123") requires stock-based compensation to be either
recorded or disclosed at its fair value. As permitted by SFAS No. 123, the
Company has elected to account for stock-based compensation under Accounting
Principles Board Opinion No. 25. Had compensation cost for awards made in 2003
and 2002 under the Company's stock option plans been determined based on the
fair value at the grant dates, consistent with the method set forth under SFAS
No. 123, the Company's pro forma net income and earnings per share would have
been adjusted to the pro forma amounts indicated below. Pro forma compensation
expense for options granted is reflected over the vesting period. Therefore,
future pro forma compensation expense may be greater as additional options are
granted. The table below is for the six month and three month periods ending
June 30, 2003 and 2002, respectively.
(In thousands, Six months ended Three months ended
except per share data) June 30, June 30,
- ---------------------- ---------------- ------------------
2003 2002 2003 2002
---- ---- ---- ----
Net income: As reported $2,829 $2,848 $1,429 $1,490
Pro forma 2,763 2,802 1,396 1,467
Earnings per
share - basic: As reported 0.49 0.48 0.25 0.25
Pro forma 0.47 0.47 0.24 0.25
Earnings per
share - diluted: As reported 0.48 0.48 0.24 0.25
Pro forma 0.47 0.47 0.24 0.25
3. MERGER AGREEMENT
On July 30, 2003, the Company and Citizens Financial Group ("Citizens") entered
into an Agreement and Plan of Merger (the "Agreement") by and among Citizens
-8-
Bank of Massachusetts ("Citizens Bank"), a wholly owned subsidiary of Citizens,
Citizens and the Company. Under the terms of the Agreement, Citizens will
acquire the Company in a cash merger transaction for $19.75 per share. Pursuant
to the Agreement, Community National Bank will become a part of Citizens Bank.
The acquisition is subject to customary conditions, including shareholder and
regulatory approval, and is expected to close in the fourth quarter of 2003.
-9-
PART I - FINANCIAL INFORMATION
------------------------------
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Summary
- -------
The Company recorded net income of $2,829,000 for the six months ended June 30,
2003, representing a decrease of $19,000 or 0.7% from net income of $2,848,000
reported for the same period in 2002. Basic earnings per share of $0.49 for the
current period represented an increase of $0.01 from basic earnings per share of
$0.48 reported for the six months ended June 30, 2002. Diluted earnings per
share of $0.48 for the current period remained unchanged from one year ago.
While net income for the six months ended June 30, 2003 remained relatively
unchanged compared to the six month period ending June 30, 2002, net interest
income decreased from one year ago and noninterest expense increased from a year
ago and both were offset by an increase in noninterest income and a decrease in
tax expense.
Deposits of $348.5 million at June 30, 2003 decreased by $5.8 million or 1.6%
from $354.3 million at December 31, 2002. The decrease in deposits occurred in
the noninterest-bearing, and interest-bearing categories.
Loans of $219.5 million at June 30, 2003 increased by $18.1 million or 9.0% from
$201.4 million at December 31, 2002. This increase took place in the commercial
loan and 1-4 family real estate loan categories. Noncurrent loans (nonaccrual
loans and loans 90 days or more past due but still accruing) totaled $510,000
and $245,000 at June 30, 2003 and December 31, 2002, respectively.
Assets of $457.3 million at June 30, 2003 represented a $21.5 million or 4.9%
increase from $435.8 million at December 31, 2002.
Six Months Ended June 30, 2003 As Compared To
Six Months Ended June 30, 2002
---------------------------------------------
Interest and Dividend Income
- ----------------------------
Interest and dividend income for the six months ended June 30, 2003 was
$10,850,000 representing a decrease of $484,000 or 4.3% from $11,334,000 for the
six months ended June 30, 2002, primarily due to lower interest rates in 2003,
partially offset by an increase in average loan and securities balances in 2003.
Interest expense was $2,500,000, representing a decrease of $417,000 or 14.3%
from $2,917,000 for the six months ended June 30, 2002, primarily due to lower
interest rates in 2003, partially offset by higher average interest bearing
deposit and borrowing balances in 2003. Net interest income for the six months
ended June 30, 2003 was $8,270,000, representing a decrease of $57,000 or 0.7%
from $8,327,000 for the six months ended June 30, 2002.
Noninterest Income and Expense
- ------------------------------
Noninterest income for the six months ended June 30, 2003 was $2,790,000
representing an increase of $325,000 or 13.2% from $2,465,000 for the six months
ended June 30, 2002. This increase was primarily the result of an increase in
service charges, gains on sales of loans and gains on sales of securities,
partially offset by a decrease in merchant credit card assessments. The
increases in service charges, loan sales and securities sales were primarily the
result of the low interest rate environment.
-10-
Service charges increased due to a lower earnings credit applied to business DDA
balances, gains on sale of loans increased due to increased residential mortgage
originations, and the low interest rate environment enabled the bank to sell
securities available for sale that mature within one year and invest the
proceeds of those sales in longer-term securities and in the loan portfolio. The
decrease in merchant credit card assessments resulted from lower merchant sales
volumes attributable to the weaker economic environment.
Noninterest expense for the six months ended June 30, 2003 of $6,809,000 was up
$377,000 or 5.9% from $6,432,000 for the corresponding period in 2002 as the
result of increases in salaries and benefits, and professional fees. The
increase in salaries and benefits occurred due to merit salary increases, minor
additions to staff and increases in employee benefit expense. Professional fees
increased primarily due to legal fees and expenses related to correspondent
banking.
Provision for Loan Losses
- -------------------------
The provision for loan losses for the six months ended June 30, 2003 was
$80,000, compared to $90,000 for the six months ended June 30, 2002. This change
was a result of changes in the inherent risk of the loan portfolio.
Income Taxes
- ------------
Income tax expense for the six months ended June 30, 2003 was $1,422,000,
compared to $1,512,000 for the corresponding period in 2002. The company's
effective tax rate was approximately 34% for both periods.
Three Months Ended June 30, 2003 As Compared To
Three Months Ended June 30, 2002
-----------------------------------------------
Interest and Dividend Income
- ----------------------------
Interest and dividend income for the three months ended June 30, 2003 was
$5,385,000 representing a decrease of $353,000 or 6.2% from $5,738,000 for the
three months ended June 30, 2002, primarily due to lower interest rates in 2003,
partially offset by an increase in average loan and securities balances in 2003.
Interest expense was $1,232,000, representing a decrease of $204,000 or 14.2%
from $1,436,000 for the three months ended June 30, 2002, primarily due to lower
interest rates in 2003, partially offset by higher average interest bearing
deposit and borrowing balances in 2003. Net interest income for the three months
ended June 30, 2003 was $4,118,000, representing a decrease of $139,000 or 3.3%
from $4,257,000 for the three months ended June 30, 2002.
Noninterest Income and Expense
- ------------------------------
Noninterest income for the three months ended June 30, 2003 was $1,403,000
representing an increase of $175,000 or 14.3% from $1,228,000 for the three
months ended June 30, 2002. This increase was primarily the result of an
increase in service charges, gains on sales of loans and gains on sales of
securities. The decrease in merchant credit card assessments resulted from lower
merchant sales volumes attributable to the weaker economic environment.
Noninterest expense for the three months ended June 30, 2003 was $3,379,000
representing an increase of $185,000 or 5.8% from $3,194,000 for the three
months ended June 30, 2002. This increase was primarily the result of an
increase in salaries and benefits, information technology, occupancy,
professional fees, and other expense. The increase in salaries and benefits
occurred due to merit salary increases, minor additions to staff and increases
in employee benefit expense. Occupancy expense increased as a result of the
-11-
bank's approval to sell insurance products. Prior to receiving this approval,
insurance commissions and annuity sales were booked as rental income offsetting
occupancy expense. This rental income totaled $43,000 during the first six
months of 2002. During 2003, this income in the amount of $26,000 has been
booked in noninterest income in other charges, commissions and fees.
Provision for Loan Losses
- -------------------------
The provision for loan losses for the three months ended June 30, 2003 was
$35,000, compared to $45,000 for the three months ended June 30, 2002.
Management believes the allowance for loan losses is adequate, and it will
continue its on going assessment of the allowance and may adjust the provision
if necessary.
Income Taxes
- ------------
Income tax expense was $713,000 for the three months ended June 30, 2003,
compared to $801,000 for the same period in 2002. The company's effective tax
rate was approximately 34% for both periods.
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 for
assessing the appropriateness of the allowance consists of a review of the
following three key elements:
* The valuation allowance for loans specifically identified as impaired
* The formula allowance for the various loan portfolio classifications
* 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 and assigns required allowance allocations by loan classification
based on fixed percentages of all outstanding loan balances. 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. Per the Company's internal policy, the imprecision allowance should
represent 15% - 25% of the valuation and formula allowances, depending on
management's evaluation of various conditions, the effects of which are not
directly measured in determining the valuation and formula allowances.
-12-
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 volume 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.
Securities
- ----------
The Company's securities portfolio consists of obligations of U.S. Government
sponsored agencies, mortgage-backed securities, obligations of various
municipalities, and corporate bonds. Those assets are used in part to secure
public deposits and as collateral for repurchase agreements. Total securities
were $189.4 million at June 30, 2003, representing an increase of $8.5 million
or 4.7% from $180.9 million at December 31, 2002. Securities classified as
available for sale were $49.8 million and $64.8 million at June 30, 2003 and
December 31, 2002, respectively. During the first six months of 2003, the
Company sold $9.2 million in short-term available for sale bonds. The sales took
place in order to take advantage of current interest rate conditions and improve
investment earnings.
Liquidity and Capital Resources
- -------------------------------
The Company's primary sources of liquidity are customer deposits, amortization
and pay-offs of loan principal and maturities of securities. These sources
provide funds for loan originations, the purchase of securities and other
activities. Deposits are considered a relatively stable source of funds. At June
30, 2003 and December 31, 2002, deposits were $348.5 million and $354.3 million,
respectively.
As a nationally chartered member of the Federal Reserve System, the Bank has the
ability to borrow funds from the Federal Reserve Bank of Boston by pledging
certain of its securities as collateral. Also, the Bank is a member of the
Federal Home Loan Bank which provides additional borrowing opportunities.
Bank regulatory authorities have established a capital measurement tool called
"Tier 1" leverage capital. A 4.00% ratio of Tier 1 capital to assets now
constitutes the minimum capital standard for most banking organizations. At June
30, 2003, the Company's Tier 1 leverage capital ratio was 8.73%. Regulatory
authorities have also implemented risk-based capital guidelines requiring a
minimum ratio of Tier 1 capital to risk weighted assets of 4.00% and a minimum
ratio of total capital to risk-weighted assets of 8.00%. At June 30, 2003 the
Company's Tier 1 and total risk-based capital ratios were 15.62% and 16.71%,
respectively. The Bank is categorized as "well capitalized" under the Federal
Deposit Insurance Corporation Improvement Act of 1991 (FDICIA).
-13-
Asset/Liability Management
- --------------------------
The Company has an asset/liability management committee which oversees all
asset/liability activities of the Company. The committee establishes general
guidelines each year and meets regularly to review the Company's operating
results and to make strategic changes when necessary.
It is the Company's general policy to reasonably match the rate sensitivity of
its assets and liabilities. A common benchmark of this sensitivity is the one
year gap position, which is a reflection of the difference between the speed and
magnitude of rate changes of interest rate sensitive liabilities as compared
with the Bank's ability to adjust the rates of it's interest rate sensitive
assets in response to such changes. The Company's positive one-year cumulative
gap position at June 30, 2003, representing the excess of repricing assets
versus repricing liabilities within a one year time frame, was 0.4% expressed as
a percentage of total assets.
Cautionary Statement Regarding Forward-Looking Information
- ----------------------------------------------------------
This Quarterly Report on Form 10-Q, including Management's Discussion and
Analysis of Financial Condition and Results of Operations, contains, in addition
to historical 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",
"objective", and similar expressions are intended to identify forward-looking
statements. These forward-looking statements are subject to a variety of risks
and uncertainties. In addition to any assumptions and other factors referred to
specifically in connection with such forward-looking statements, risk factors
that could cause the Company's actual results to differ materially from those
contemplated in any forward-looking statement include, but are not limited to,
changes in political and economic conditions, interest rate fluctuations,
competitive product and pricing pressures, adverse changes in asset quality,
increased inflation, and adverse legislative or regulatory changes.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure 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 our 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 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.
-14-
PART II - OTHER INFORMATION
---------------------------
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Shareholders was held on April 8, 2003. At that meeting,
two (2) matters were put before the shareholders for vote. The results of the
voting were as follows:
1. To fix the number of Directors who shall constitute the full Board of
Directors at eleven.
Votes for: 4,283,968
Votes against: 2,204
2. To elect as Directors the four individuals listed as nominees in the Proxy
Statement, who, together with the seven Directors whose terms of office did
not expire at this meeting, constitute the full Board of Directors.
Director Votes For Votes Against
-------- --------- -------------
Jennie Lee Colosi 4,276,968 9,204
Edward M. Durkin 4,276,968 9,204
Antonio Frias 4,276,968 9,204
Dennis F. Murphy, Jr. 4,276,968 9,204
Item 5. OTHER INFORMATION
On June 17, 2003, the Company's Board of Directors declared a second quarter
2003 cash dividend of $.085 per share of common stock to shareholders of record
at June 1, 2003, payable on July 15, 2003.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Amendment to Change in Control Agreement between the Company and John
P. Galvani, dated July 29, 2003.
99.1 Certification of Financial Statements by Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Financial Statements by Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.3 Form of Stockholder Agreement
(b) Reports on Form 8-K
The Company filed a Form 8-K on April 15, 2003 pursuant to the
Company's condensed consolidated financial statements for the three
months ended March 31, 2003, which were mailed to shareholders on that
date.
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMUNITY BANCORP, INC.
Date: August 12, 2003 By: /s/ James A. Langway
----------------------------
James A. Langway
President & Chief Executive Officer
Principal Executive Officer
Date: August 12, 2003 By: /s/ Donald R. Hughes, Jr.
----------------------------
Donald R. Hughes, Jr.
Treasurer and Clerk,
Principal Financial Officer and
Principal Accounting Officer
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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 quarterly report on Form 10-Q of Community Bancorp,
Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly 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 quarterly 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
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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
quarterly 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.
-17-
DATE: August 12, 2003 /s/ James A. Langway
-------------------------
James A. Langway
President and Chief Executive Officer
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 quarterly report on Form 10-Q of Community Bancorp,
Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly 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 quarterly 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
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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
-18-
6. The registrant's other certifying officers and I have indicated in this
quarterly 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.
DATE: August 12, 2003 /s/ Donald R. Hughes, Jr.
-------------------------
Donald R. Hughes, Jr.
Treasurer and Clerk and
Chief Financial Officer
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EXHIBIT INDEX
-------------
EXHIBIT DESCRIPTION
------- -----------
10.1 Amendment to Change in Control Agreement between the Company and
John P. Galvani, dated July 29, 2003.
99.1 Certification of Financial Statements by Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Financial Statements by Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.3 Form of Stockholder Agreement
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