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COMMUNITY BANCORP /VT - Quarter Report: 2001 June (Form 10-Q)

CONFORMED COPY

 

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934

For Six Months Ended June 30, 2001
Commission File Number 000-16435

COMMUNITY BANCORP.

(Exact Name of Registrant as Specified in its Charter)

 

Vermont

03-0284070

(State of Incorporation)

(IRS Employer Identification Number)

 

 

Derby Road, Derby, Vermont

05829

(Address of Principal Executive Offices)

(zip code)

 

Registrant's Telephone Number: (802) 334-7915


Not Applicable
Former Name, Former Address and Formal Fiscal Year
(If Changed Since Last Report)

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 for such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ( X ) No ( )

At July 20, 2001 there were 3,551,634 shares outstanding of the Corporation's common stock.

Total Pages -20 Pages

 

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements (Unaudited)

The following are the consolidated financial statements for Community Bancorp. and subsidiaries, "the Company".

COMMUNITY BANCORP. AND SUBSIDIARIES

Consolidated Balance Sheets

( Unaudited )

June 30

December 31

June 30

2001

2000

2000

Assets

Cash and due from banks

6,118,850

6,110,527

6,103,876

Federal funds sold and overnight deposits

6,001,412

0

151,646

Total cash and cash equivalents

12,120,262

6,110,527

6,255,522

Securities held-to-maturity (fair value $35,772,352

   at 06/30/01, $42,466,587 at 12/31/00, and

$42,647,462 at 06/30/00)

35,264,054

42,197,130

43,057,756

Securities available-for-sale

15,336,787

19,145,938

20,938,438

Restricted equity securities

1,224,650

1,141,650

1,141,650

Loans held-for-sale

910,992

710,991

580,941

Loans

179,408,446

176,815,408

167,354,034

Allowance for loan losses

(1,878,799)

(1,796,810)

(1,805,932)

Unearned net loan fees

(942,577)

(950,937)

(897,819)

Net loans

176,587,070

174,067,661

164,650,283

Bank premises and equipment, net

4,642,975

4,693,934

4,501,342

Accrued interest receivable

1,775,167

1,929,495

1,875,933

Other real estate owned, net

171,983

201,123

393,040

Other assets

2,712,090

2,586,788

2,583,037

Total assets

$250,746,030

$252,785,237

$245,977,942

Liabilities and Stockholders' Equity

Liabilities

Deposits:

Demand, non-interest bearing

26,088,193

25,640,868

26,218,657

NOW and money market accounts

50,182,079

55,776,849

47,635,682

Savings

31,501,930

29,810,798

33,506,278

Time deposits, $100,000 and over

17,741,024

17,504,358

15,965,541

Other time deposits

81,462,156

79,651,657

75,732,466

Total deposits

$206,975,382

$208,384,530

$199,058,624

Federal funds purchased and other borrowed funds

5,055,000

5,592,000

13,055,000

Repurchase agreements

13,854,663

14,371,538

9,914,497

Accrued interest and other liabilities

1,493,765

1,886,999

1,135,237

Subordinated convertible debentures

6,000

20,000

20,000

Total liabilities

$227,384,810

$230,255,067

$223,183,358

Stockholders' Equity

Common stock - $2.50 par value;

6,000,000 shares authorized and 3,679,838 shares

issued at 06/30/01, 3,478,561 shares issued at

12/31/00, and 3,445,718 shares issued at 06/30/00

9,199,594

8,696,402

8,614,294

Additional paid-in capital

13,171,753

11,515,514

11,277,332

Retained earnings

2,494,767

3,731,098

4,003,306

Accumulated other comprehensive income

99,605

(23,108)

(215,040)

Less: treasury stock, at cost; 141,670 shares

at 06/30/01, 122,777 shares at 12/31/00, and

73,978 shares at 06/30/00

(1,604,499)

(1,389,736)

(885,308)

Total stockholders' equity

$23,361,220

$22,530,170

$22,794,584

Total liabilities and stockholders' equity

$250,746,030

$252,785,237

$245,977,942

 

COMMUNITY BANCORP. AND SUBSIDIARIES

Consolidated Statements of Income

( Unaudited )

For The Second Quarter Ended June 30,

2001

2000

1999

Interest income

Interest and fees on loans

3,914,524

3,521,222

3,275,786

Interest and dividends on investment securities

U.S. Treasury securities

187,853

357,309

585,169

U.S. Government agencies

392,366

359,362

139,754

States and political subdivisions

177,188

162,925

138,058

Dividends

21,960

21,888

19,127

Interest on federal funds sold and overnight deposits

56,585

34,696

45,386

Total interest income

$4,750,476

$4,457,402

$4,203,280

Interest expense

Interest on deposits

2,020,578

1,823,342

1,832,086

Interest on borrowed funds

60,414

92,366

50,172

Interest on repurchase agreements

139,260

96,391

6,676

Interest on subordinated debentures

156

550

550

Total interest expense

$2,220,408

$2,012,649

$1,889,484

Net interest income

2,530,068

2,444,753

2,313,796

Provision for loan losses

(90,000)

(96,000)

(150,000)

Net interest income after provision

$2,440,068

$2,348,753

$2,163,796

Other operating income

Trust department income

103,427

86,153

56,030

Service fees

234,210

203,130

178,513

Security gains (losses)

124,795

0

0

Other

193,177

229,310

215,548

Total other operating income

$655,609

$518,593

$450,091

Other operating expenses

Salaries and wages

855,888

733,497

691,829

Pension and other employee benefits

241,032

237,766

221,398

Occupancy expenses, net

410,650

361,076

305,077

Trust department expenses

33,027

26,649

16,713

Other

700,478

612,946

593,698

Total other operating expenses

$2,241,075

$1,971,934

$1,828,715

Income before income taxes

854,602

895,412

785,172

Applicable income taxes (credit)

213,626

246,748

218,683

Net Income

$640,976

$648,664

$566,489

Earnings per share on weighted average

$0.18

$0.18

$0.16

Weighted average number of common shares

Used in computing earnings per share

3,539,766

3,561,070

3,475,797

Dividends declared per share

$0.16

$0.16

$0.16

Book value per share on shares outstanding

$6.60

$6.44

$6.36

Per share data for 2000 and 1999 restated to reflect a 5% stock dividend paid on

February 1, 2001.

COMMUNITY BANCORP. AND SUBSIDIARIES

Consolidated Statements of Income

( Unaudited )

For the First Six Months Ended June 30,

2001

2000

1999

Interest income

Interest and fees on loans

7,737,477

6,826,051

6,453,188

Interest and dividends on investment securities

U.S. Treasury securities

389,637

828,379

1,130,449

U.S. Government agencies

860,245

567,895

268,053

States and political subdivisions

349,128

305,670

251,589

Dividends

45,793

42,459

38,849

Interest on federal funds sold and overnight deposits

137,463

64,172

111,533

Total interest income

$9,519,743

$8,634,626

$8,253,661

Interest expense

Interest on deposits

4,108,627

3,556,635

3,652,030

Interest on borrowed funds

159,049

145,854

99,072

Interest on repurchase agreements

319,824

139,687

9,310

Interest on subordinated debentures

706

1,100

1,100

Total interest expense

$4,588,206

$3,843,276

$3,761,512

Net interest income

4,931,537

4,791,350

4,492,149

Provision for loan losses

(180,000)

(258,000)

(300,000)

Net interest income after provision

$4,751,537

$4,533,350

$4,192,149

Other operating income

Trust department income

208,895

157,503

105,509

Service fees

450,050

385,917

343,263

Security gains (losses)

154,439

(11,507)

0

Other

347,046

388,976

374,791

Total other operating income

1,160,430

920,889

823,563

Other operating expenses

Salaries and wages

1,638,334

1,452,601

1,407,288

Pension and other employee benefits

480,165

460,952

398,450

Occupancy expenses, net

817,319

726,460

643,796

Trust department expenses

64,069

50,343

28,002

Other

1,431,538

1,290,352

1,198,654

Total other operating expenses

$4,431,425

$3,980,708

$3,676,190

Income before income taxes

1,480,542

1,473,531

1,339,522

Applicable income taxes (credit)

350,648

391,242

362,236

Net Income

$1,129,894

$1,082,289

$977,286

Earnings per share on weighted average

$0.32

$0.30

$0.28

Weighted average number of common shares

Used in computing earnings per share

3,536,810

3,558,804

3,436,685

Book value per share on shares outstanding

$6.60

$6.44

$6.36

Dividends declared per share

$0.32

$0.32

$0.32

Per share data for 2000 and 1999 restated to reflect a 5% stock dividend paid on

February 1, 2001.

COMMUNITY BANCORP. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (unaudited)

For the First Six Months Ended June 30,

2001

2000

1999

Reconciliation of net income to net cash provided by operating activities:

Net Income

$1,129,894

$1,082,289

$977,286

Adjustments to reconcile net income to net cash provided

by operating activities:

Depreciation and amortization

315,750

299,100

209,439

Provision for loan losses

180,000

258,000

300,000

Provision (credit) for deferred income taxes

(80,015)

(14,943)

(12,281)

Gain on sale of loans

(32,641)

(16,094)

(60,392)

Securities losses

(154,439)

11,507

0

(Gain) losses on sales of OREO

(11,114)

(61,922)

(4,587)

OREO writedowns

0

0

19,590

Amortization of bond premium, net

48,086

90,639

163,816

Proceeds from sales of loans held for sale

2,671,947

1,218,779

7,128,347

Originations of loans held for sale

(2,839,307)

(1,123,203)

(7,338,986)

Increase (decrease) in taxes payable

111,514

106,185

90,538

(Increase) decrease in interest receivable

154,328

(391,741)

(356,702)

Decrease (increase) in mortgage service rights

16,933

15,373

(27,648)

Decrease (increase) in other assets

(110,046)

(27,647)

253,871

(Decrease) increase in unamortized loan fees

(8,360)

6,705

7,635

(Decrease) increase in interest payable

(119,480)

(6,045)

(9,667)

(Decrease) increase in accrued expenses

159,720

(916)

(41,436)

Increase (decrease) in other liabilities

(3,064)

84,630

49,587

Net cash provided by operating activities

$1,429,706

$1,530,696

$1,348,410

Cash Flows from investing activities:

Investments - held to maturity

Maturities and paydowns

15,747,660

6,814,129

9,338,378

Purchases

(15,805,590)

(19,988,829)

(15,487,110)

Investments - available for sale

Sales and maturities

13,170,169

7,994,923

0

Purchases

(2,077,730)

0

(9,291,211)

Purchase of restricted equity securities

(83,000)

0

0

Investment in limited partnership, net

(20,388)

(4,078)

(14,130)

Decrease (increase) in loans, net

(2,836,728)

(15,264,429)

(2,315,420)

Capital expenditures, net

(264,791)

(477,745)

(1,585,656)

Recoveries of loans charged off

57,055

78,520

46,170

Proceeds from sales of other real estate owned

128,878

387,496

140,735

Net Cash Used in Investing Activities

$8,015,535

($20,460,013)

($19,168,244)

Cash Flows from Financing Activities:

Net (decrease) increase in demand, NOW, money market

and savings accounts

(3,456,313)

(3,316,309)

7,387,405

Net increase (decrease) in certificates of deposit

2,047,165

532,053

(517,718)

Net (decrease) increase in short-term borrowings

and repurchase agreements

(516,875)

7,291,215

626,710

Net increase in borrowed funds

(537,000)

9,000,000

0

Payments to acquire treasury stock

(213,153)

(437,087)

(2,698)

Debentures redeemed for cash

(12,000)

0

0

Dividends paid

(747,330)

(601,177)

(551,439)

Net cash provided by financing activities

($3,435,506)

$12,468,695

$6,942,260

Net decrease in cash and cash equivalents

$6,009,735

($6,460,622)

($10,877,574)

Cash and cash equivalents:

Beginning

$6,110,527

$12,716,144

$20,424,088

Ending

$12,120,262

$6,255,522

$9,546,514

Supplemental Schedule of Cash Paid During the Year

Interest paid

$4,707,686

$3,849,321

$3,770,445

Income Taxes Paid

$319,149

$300,000

$283,980

Supplemental schedule of noncash investing and financing activities:

Net change in securities valuation

$185,929

$48,554

($492,436)

OREO acquired in settlements of loans

($88,624)

$283,920

$346,809

Debentures converted to common stock

$2,000

$0

$0

Stock dividends

$1,801,552

$0

$1,851,338

Dividends paid

Dividends declared

564,673

$541,948

$1,024,004

Decrease (Increase) in dividends payable

536,926

537,361

0

Dividends reinvested

(354,269)

(478,132)

(472,565)

$747,330

$601,177

$551,439

 

 

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the Six Months Ended June 30, 2001

     Community Bancorp. (the "Company") is a bank holding company whose subsidiaries include Community National Bank and Liberty Savings Bank. Community National Bank ("the Bank") is a full service institution operating in the state of Vermont. The Bank has eight offices, five of which are located in Orleans County, one in Essex County, one in Caledonia County, and the newest office in Washington County. On May 29, 2001, Community National Bank opened its eighth office on 95-97 State Street in Montpelier, Vermont. This office operates as a full service institution, serving the Barre-Montpelier area. The Company felt it was time to branch out into another county in Vermont. This office has proved to be a profitable addition to the Company with average loans totaling $249,928 and average total deposits of $308,980. Liberty Savings Bank ("Liberty") is a New Hampshire guaranty savings bank acquired by Community Bancorp. on December 31, 1997. Currently this bank is inactive and shares the mailing address of Community Bancorp. Most of the Bancorp's business is conducted through the Bank, therefore, the following narrative is based primarily on this Bank's operations. The various spreadsheets preceding this section are consolidated figures for Community Bancorp. and subsidiaries, and can be used to provide a more detailed comparison of the information disclosed in the following narrative.

OVERVIEW

     Net income for the second quarter ended June 30, 2001 was $640,976, representing a decrease of 1.2% and an increase of 13.2%, respectively, over the net income figures of $648,664 for the second quarter ended June 30, 2000, and $566,489 for the same period in 1999. The results of this are earnings per share of $0.18 for the second quarter of 2001 and 2000, and $0.16 for the second quarter of 1999. The Company declared a cash dividend of $0.16 per share payable May 1, 2001 to shareholders of record as of April 15, 2001. Net income for the first six months of 2001 was $1,129,894 compared to $1,082,289 for the first six months of 2000, and $977,286 for the first six months of 1999, representing an increase of 4.4% for 2001 versus 2000, and 15.6% for 2001 versus 1999. Earnings per share for the first six months were $0.32 for 2001 compared to $0.30 for 2000 and $0.28 for 1999. The second quarter of 2001 was not as profitable as the second quarter of 2000 due in part to a decrease in the investment portfolio, resulting in less interest income. Net income for the first six months of 2001 was more profitable than both the 2000 and 1999 comparison periods due to a decrease in the provision for loan losses and a substantial gain on the sale of treasuries from the investment portfolio.

     Net interest income, the difference between interest income and expense, represents the largest portion of the Company's earnings, and is affected by the volume, mix, rate sensitivity of earning assets as well as interest bearing liabilities, market interest rates and the amount of non-interest bearing funds which support earning assets.

     Net interest income for the second quarter comparison period started at $2.3 million for 1999, increased to $2.4 million for 2000, and then increased to $2.5 million for 2001, resulting in an increase of 5.7% for 2000 versus 1999, and an increase of 3.5% for 2001 versus 2000. Total interest income for the second quarter of 2001 increased $293,074 or by 6.6% compared to the same quarter in 2000, and the second quarter of 2000 increased $254,122 or 6.1% compared to the same quarter of 1999. Interest expense followed the same pattern with an increase of $207,759 or 10.3% for the second quarter of 2001 compared to 2000, and an increase of $123,165 or 6.5% for the second quarter of 2000 compared to the same quarter in 1999.

     Net interest income started at $4.5 million as of the end of the first six months of 1999, increased $299,201 or 6.7% to $4.8 million as of the end the first six months of 2000, and then increased $140,187 or 2.9% to end the first six months of 2001 at a figure of $4.9 million. Total interest income for the first six months increased $380,965 or 4.6% for 2000 versus 1999, and $885,117 or 10.3% for 2001 versus 2000. An increase in the loan portfolio over the past three years supports the increase in both comparison periods. Total interest expense increased $81,764 or 2.2% for the first six months of 2000 versus 1999, and an increase of $744,930 or 19.4% is recognized for the first six months of 2001 versus 2000. A review of the six month figures for interest earned on loans, the major source of interest income, reveals an increase of 5.8% for 2000 compared to 1999, and an increase of 13.4% for 2001 compared to 2000. In comparison, interest paid on deposits, the major source of interest expense, shows a decrease of 2.6% and in increase of 15.5%, respectively. The result is a tax equivalent spread for the first six months equaling 3.6% for 2001 versus 3.8% for 2000 and 3.6% for 1999.

CHANGES IN FINANCIAL CONDITION

     The Company had total average assets of $251 million at June 30, 2001 and $246 million at December 31, 2000. Average earning assets were $239 million for the first six months ended June 30, 2001, including average loans of $177 million and average investment securities of $57 million. Average earning assets were $234 million for the year ended December 31, 2000 including average loans of $165 million and average investment securities of $66 million. The Company attributes the desire to increase the loan portfolio for the increase in average loan volume.

     Average interest bearing liabilities at June 30, 2001 were $202 million, with average time deposits reported totaling $100 million and NOW & money market funds of $51 million. At December 31, 2000, average interest bearing liabilities of $196 million were reported including average time deposits of $93 million and NOW & money market funds at an average volume of $51 million.

     Repurchase agreements continue to increase in volume, starting at an average volume of $10 million at December 31, 2000, and increasing $4.5 million to end at a six-month average balance of $14.5 million as of June 30, 2001. These accounts have been well received since they were introduced in 1998, and have been successful in retaining current business customers and attracting new ones.

RISK MANAGEMENT

Liquidity Risk - Liquidity management refers to the ability of the Company to adequately cover fluctuations in assets and liabilities. Meeting loan demand (assets) and covering the withdrawal of deposit funds (liabilities) are two key components of the liquidity management process. The repayment of loans and growth in deposits are two of the major sources of liquidity. Our time deposits greater than $100,000 increased $236,666 or 1.4% to end the first six months of 2001 at a volume of $17.7 million compared to $17.5 million at the end of the 2000 calendar year. Other time deposits increased $1.8 million from December 31, 2000 to June 30, 2001. This increase is attributable to a variety of attractive rates and maturity schedules offered in an effort to retain and attract new deposit customers. A review of these deposits, primarily the time deposits over $100,000 indicates that they are primarily generated locally and regionally and most are established customers of the Company. The Company has no brokered deposits. Now and money market funds decreased $5.6 million to end the first six months of 2001 at $50.2 million compared to $55.8 million as of the end of 2000. The positive response to the repurchase agreements is a key factor to the decrease in now and money market funds. Our gross loan portfolio increased 1.6% from $177.5 million at the end of 2000 to $180.3 million at the end of the first six months of 2001. The Bank has purchased approximately $2 million in loans from other institutions contributing to the increase in the loan portfolio. Federal funds sold and overnight deposits reported a balance of $6 million as of the end the first six months of 2001, compared to a zero balance as of the end of the 2000 calendar year. As of June 30, 2001, the Company held in it's investment portfolio treasuries classified as "Available for Sale" at a fair value of $15.4 million, compared to $19.2 million as of December 31, 2000, a decrease of $3.8 million or 19.9%. Treasuries classified as "Held to Maturity" ended the first six months of 2001 at a book value of $35.3 million compared to $42.2 million as of the end of the 2000 calendar year. Both of these types of investments mature at monthly intervals as shown on the gap report at the end of this section. Securities classified as "Restricted Equity Securities" are made up of equity securities the Company is required to maintain in the form Federal Home Loan Bank of Boston (FHLB) and Federal Reserve stock. These securities increased $83,000 to a reported balance of $1.2 million as of June 30, 2001. The Company currently has an advance of just over $5 million against an available line of $106.8 million, with an additional $2 million and $4.1 million, respectively, at First Boston and FHLB.

Credit Risk - Management follows strict underwriting guidelines, and has established a thorough loan-by-loan review policy. These measures help to insure the adequacy of the loan loss coverage. The Executive Officers and the Board of Directors conduct periodic reviews of the loan portfolio. Topics discussed include potential exposures existing within the portfolio. Factors considered are each borrower's financial condition, the industry or sector for the economy in which the borrower operates, and overall economic conditions. Existing or potential problems are noted and addressed by senior management in order to assess the risk of probable loss or delinquency. A variety of loans are reviewed periodically by an independent firm in order to assure accuracy and compliance with various policies and procedures set by the regulatory authorities. The Company also employs a Credit Administration Officer whose duties include, among others, a review of the loan portfolio including delinquent and non-performing loans.

     Specific allocations are made in situations management feels are at a greater risk for loss. A quarterly review of the qualitative factors including "Levels of, and Trends in, Delinquencies and Non-Accruals" and "National and Local Economic Trends and Conditions", help to ensure that areas with potential risk are noted and coverage increased or decreased to reflect the trends in delinquencies and non-accruals. Residential first mortgage loans make up the largest part of the loan portfolio and have the lowest historical loss ratio helping to alleviate the overall risk.

Allowance for loan losses and provisions - The valuation allowance for loan losses of $1.9 million as of June 30, 2001 composed 1.04% of the total gross loan portfolio. A primary concern of management is to reduce the exposure of credit loss within the portfolio. The Company maintains a residential loan portfolio of approximately $107.6 million and a commercial real estate portfolio of approximately $34 million accounting for 60% and 19%, respectively, of the total loan portfolio. This large loan volume together with the low historical loan loss experience helps to support our basis for loan loss coverage.

     The three components of non-performing assets for the company are loans classified as 90 days or more past due and still accruing, non-accruing loans, and other real estate owned (OREO). A comparison of these non-performing assets revealed a decrease in non-accruing loans of $35,810 or 2.5%, and a decrease in the OREO portfolio of $29,140 or 14.5%, while an increase of $43,392 or 86% was noted in loans 90 days or more past due. The portfolio of non-accruing loans makes up the biggest portion of the non-performing assets and consists of $1.25 million or 91% of real estate secured mortgage loans at the end of the first six months of 2001, thereby reducing the exposure to loss.

Non-performing assets as of June 30, 2001 and December 31, 2000 were as follows:

 

06/30/2001

12/31/2000

 

 

 

Non-Accruing loans

$1,379,073

$1,414,883

Loans past due 90 day or more and still accruing

93,954

50,562

Other real estate owned

   171,983

   201,123

Total

$1,645,010

$1,666,568

     Other real estate owned is made up of property that the Company owns in lieu of foreclosure or through normal foreclosure proceedings, and property that the Company does not hold title to but is in actual control of, known as in-substance foreclosure. The value of the property is determined prior to transferring the balance to other real estate owned. The balance transferred to OREO is the lesser of the appraised value of the property, or book value of the loan. A write-down may be deemed necessary to bring the book value of the loan equal to the appraised value. Appraisals are then done periodically thereafter charging any additional write-downs to the appropriate expense account.

Market Risk and Asset and Liability Management - Market risk is the risk of loss in a financial instrument arising from adverse changes in market prices and rates, foreign currency exchange rates, commodity prices and equity prices. The Company's market risk arises primarily from interest rate risk inherent in its lending and deposit taking activities. To that end, management actively monitors and manages its interest rate risk exposure. The Company does not have any market risk sensitive instruments acquired for trading purposes. The Company attempts to structure its balance sheet to maximize net interest income while controlling its exposure to interest rate risk. The Company's Asset/Liability Committee formulates strategies to manage interest rate risk by evaluating the impact on earnings and capital of such factors as current interest rate forecasts and economic indicators, potential changes in such forecasts and indicators, liquidity, and various business strategies. The Asset/Liability Committee's methods for evaluating interest rate risk include an analysis of the Company's interest rate sensitivity "gap", which provides a static analysis of the maturity and repricing characteristics of the entire balance sheet, and a simulation analysis which calculates projected net interest income based on alternative balance sheet and interest rate scenarios, including "rate shock" scenarios involving immediate substantial increases or decreases in market rates of interest.

Interest Rate Sensitivity "Gap" Analysis - An interest rate sensitivity "gap" is defined as the difference between the interest-earning assets and interest-bearing liabilities maturing or repricing within a given time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income, while a positive gap would tend to result in an increase in net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to affect net interest income adversely. Because different types of assets and liabilities with the same or similar maturities may react differently to changes in overall market interest rates or conditions, changes in interest rates may affect net interest income positively or negatively even if an institution were perfectly matched in each maturity category.

     The following tables set forth the estimated maturity or repricing of the Company's interest-earning assets and interest-bearing liabilities at June 30, 2001, and December 31, 2000. The Company prepares its interest rate sensitivity "gap" analysis by scheduling assets and liabilities into periods based upon the next date on which such assets and liabilities could mature or reprice. The amounts of assets and liabilities shown within a particular period were determined in accordance with the contractual term of the assets and liabilities, except that:

Adjustable-rate loans and certificates of deposit are included in the period when they are first scheduled to adjust and not in the period in which they mature;

Fixed-rate loans reflect scheduled contractual amortization, with no estimated prepayments;

And

NOW, money markets, and savings deposits, which do not have contractual maturities, reflect estimated levels of attrition, which are based on detailed studies by the Company of the sensitivity of each such category of deposit, to changes in interest rates.

     

     Management believes that these assumptions approximate actual experience and considers them reasonable. However, the interest rate sensitivity of the Company's assets and liabilities in the tables could vary substantially if different assumptions were used or actual experience differs from the historical experiences on which the assumptions are based.

GAP ANALYSYS

Community Bancorp. & Subsidiaries

June 30, 2001

Cumulative repriced within:

Dollars in thousands,

3 Months

4 to 12

1 to 3

3 to 5

Over 5

by repricing date

or less

Months

Years

Years

Years

Total

Interest sensitive assets:

Federal funds sold

3,100

0

0

0

0

3,100

Overnight deposits

2,901

0

0

0

0

2,901

Investments -

Available for Sale(1)

0

9,198

4,088

1,011

1040

15,337

Held to Maturity

2,941

13,576

409

2,508

15,830

35,264

Restricted equity securities

0

0

0

0

1,225

1,225

Loans(2)

35,263

43,928

40,801

18,840

40,109

178,941

   Total interest sensitive assets

44,205

66,702

45,298

22,359

58,204

236,768

Interest sensitive liabilities:

Certificates of deposit

24,894

58,948

11,883

3,478

0

99,203

Money markets

30,236

0

0

0

0

30,236

Regular savings

0

4,502

0

0

27,000

31,502

Now accounts

0

0

0

0

19,946

19,946

Borrowed funds

0

0

15

0

5,040

5,055

Repurchase agreements

13,855

0

0

0

0

13,855

   Total interest sensitive liabilities

68,985

63,450

11,898

3,478

51,986

199,797

Net interest rate sensitivity gap

(24,780)

3,252

33,400

18,881

6,218

Cumulative net interest rate

sensitivity gap

(24,780)

(21,528)

11,872

30,753

36,971

Cumulative net interest rate

sensitivity gap as a

percentage of total assets

-9.88%

-8.59%

4.73%

12.26%

14.74%

Cumulative interest sensitivity

gap as a percentage of total

interest-earning assets

-10.47%

-9.09%

5.01%

12.99%

15.61%

Cumulative interest earning assets

as a percentage of cumulative

interest-bearing liabilities

64.08%

83.74%

108.23%

120.81%

118.50%

(1) The Company may sell investments available for sale with a fair value of $15,336,787 at any time.

(2) Loan totals exclude non-accruing loans amounting to $1,379,073.

 

GAP ANALYSYS

Community Bancorp. & Subsidiaries

December 31, 2000

Cumulative repriced within:

Dollars in thousands,

3 Months

4 to 12

1 to 3

3 to 5

Over 5

by repricing date

or less

Months

Years

Years

Years

Total

Interest sensitive assets:

Federal funds sold

0

0

0

0

0

0

Overnight deposits

0

0

0

0

0

0

Investments -

Available for Sale(1)

2,998

6,030

10,118

0

0

19,146

Held to Maturity

2,145

14,395

9,540

3,517

12,599

42,196

Restricted equity securities

0

0

0

0

1,142

1,142

Loans(2)

22,657

51,985

48,031

17,286

36,152

176,111

Total interest sensitive assets

27,800

72,410

67,689

20,803

49,893

238,595

Interest sensitive liabilities:

Certificates of deposit

15,066

75,095

6,369

626

0

97,156

Money markets

31,710

0

0

0

0

31,710

Regular savings

0

4,811

0

0

25,000

29,811

Now accounts

0

0

0

0

24,067

24,067

Borrowed funds

5,537

0

15

0

40

5,592

Repurchase agreements

14,372

0

0

0

0

14,372

Subordinated debentures

0

0

0

20

0

20

Total interest sensitive liabilities

66,685

79,906

6,384

646

49,107

202,728

Net interest rate sensitivity gap

(38,885)

(7,496)

61,305

20,157

786

Cumulative net interest rate

sensitivity gap

(38,885)

(46,381)

14,924

35,081

35,867

Cumulative net interest rate

sensitivity gap as a

percentage of total assets

-15.38%

-18.35%

5.90%

13.88%

14.19%

Cumulative interest sensitivity

gap as a percentage of total

interest-earning assets

-16.30%

-19.44%

6.25%

14.70%

15.03%

Cumulative interest earning assets

as a percentage of cumulative

interest-bearing liabilities

41.69%

68.36%

109.76%

122.84%

117.69%

(1) The Company may sell investments available for sale with a fair value of $19,145,937 at any time.

(2) Loan totals exclude non-accruing loans amounting to $1,414,883.

 

OTHER OPERATING INCOME AND EXPENSES

     Total other operating income for the second quarter of 2001 was $655,609 compared to $518,593 for the second quarter of 2000 and $450,091 for the second quarter of 1999, resulting in increases of $137,016 or 26.4% for 2001 versus 2000 and $68,502 or 15.2% for 2000 versus 1999. A gain of $124,795 on the sale of various US Treasuries and Government Agencies during the second quarter helped to boost income for the respective period. Total other operating income for the first six months of 2001 ended at $1,160,430 compared to $920,889 for 2000 and $823,563 as of the end of the first six months of 1999. The results are an increase of $239,541 or 26% for 2001 versus 2000 and $97,326 or 11.8% for 2000 versus 1999. Security gains again notes the biggest increase for the 2001 versus 2000 comparison period while other income notes the only decrease reported at $41,930 or just under 11%. A decrease of $51,285 is noted in the gain on sale of OREO properties. The Bank has had to take possession of fewer properties during the first six months of 2001, generating less income and expenses on these non-performing assets.

     Total other operating expenses followed the same pattern for the second quarter comparisons with figures of $2.24 million for 2001, an increase of $269,141 or 13.7% over the 2000 second quarter figure of $1.97 million, which increased $143,219 or 7.8% over the 1999 figure of $1.83 million. Salaries and wages noted the biggest increase for 2001 compared to 2000, due to the increase in personnel needed to staff our newly opened Montpelier office. Occupancy expense notes the biggest increase for the second quarter of 2000 versus 1999, due to significant increases in depreciation, taxes on bank properties, and service contracts. Total other operating expense for the six month comparison periods increased from $3.7 million for 1999 to $4 million for 2000, and then increased to $4.4 million for 2001, resulting in increases of 8.3% for 2000 versus 1999 and 11.3% for 2001 versus 2000. Salaries and wages again notes the biggest increase for the 2001 versus 2000 comparison period followed by other expenses reporting an increase of $141,186 or 11%. The Company is celebrating its 150th Anniversary during the 2001 calendar year. The expenses incurred for different events going on throughout the year are included in various components of other expenses. Other expense notes an increase of $91,968 or 7.7% for the 2000 versus 1999 comparison period, followed closely by occupancy expense with a reported increase for 2000 versus 1999 of $82,664 or 12.8%.

     All components of other operating expenses are monitored by management, however, a quarterly review is performed on crucial components to assure that the accruals for these expenses are accurate. This helps alleviate the need to make drastic adjustments to these accounts that in turn effect the net income of the Company.

APPLICABLE INCOME TAXES

     Income before taxes increased from $785,172 for the second quarter of 1999 to $895,412 for the second quarter of 2000, and then decreased to $854,602 for the second quarter of 2001. The results are an increase of $110,240 or 14% for 2000 versus 1999 and a decrease of $40,810 or 4.6% for 2001 versus 2000. As a result, provisions for income taxes increased $28,065 or 12.8% for the 2000 versus 1999 period, followed by a decrease of $33,122 or 13.4% for 2001 versus 2000 ending the second quarter of 2001 at $213,626. Income before taxes for the first six months increased from $1.34 million for 1999 to $1.47 million for 2000 to $1.48 million as of June 30, 2001, with income taxes calculated at $362,236, $391,242, and $350,648, respectively.

EFFECTS OF INFLATION

     Rates of inflation affect the reported financial condition and results of operations of all industries, including the banking industry. The effect of monetary inflation is generally magnified in bank financial and operating statements. As costs and prices rise during periods of monetary inflation, cash and credit demands of individuals and businesses increase, and the purchasing power of net monetary assets declines. The Company depends primarily on a strong net interest income to enable their purchasing power to remain aggressive.

CAPITAL RESOURCES

     The Company's stockholders' equity started the year at $22,530,170, increased through earnings of $1,129,894 and sales of common stock of $356,270 through dividend reinvestment and debenture conversions, as well as adjustments totaling $122,713 for valuation allowance for securities. It was decreased by dividends totaling $1,101,599, the purchase of treasury stock of $1,476 and the purchase of stock through the Company's stock repurchase program of $211,677. During the first quarter of 2000, the Company announced plans to buy up to 6% or 205,000 shares of its outstanding common stock at current market prices. The price per share during the first six months of the 2001 calendar year was in the range of $11.25 to $12.50 per share. The Company declared a dividend in December of 2000, payable in February of 2001. As a result, an accrual for the dividend was necessary, decreasing stockholders' equity by $536,925 as of December 31, 2000. Stockholders' equity ended the first six months of 2001 at $23,361,220 with a book value of $6.60 per share. All stockholders' equity is unrestricted. Additionally, it is noted that the net unrealized loss on valuation allowance for securities has decreased since the beginning of the year. A review of this activity shows that as the maturity date of the investments gets closer, the market price increases, therefore, reducing the amount of the unrealized loss associated with these investment securities.

     The Company is required to maintain minimum amounts of capital to "risk weighted" assets, as defined by the banking regulators. The minimum requirements for Tier I and Total Capital are 4% and 8%, respectively. As of June 30, 2001, the Company continued to maintain ratios far above the minimum requirements with reported ratios of approximately 17% for Tier I and 18% for Total Capital.

     The Company intends to continue maintaining a strong capital resource position to support its asset size and level of operations. Consistent with that policy, management will continue to anticipate the Company's future capital needs.

     From time to time the Company may make contributions to the capital of its subsidiaries, Community National Bank and Liberty Savings Bank. At present, regulatory authorities have made no demand on the Company to make additional capital contributions to either Bank's capital.

FORWARD-LOOKING STATEMENTS

     When used in this report, the terms "expect, plan, anticipate, believe" or similar expressions, as they relate to the Company or its management, are intended to identify forward-looking statements.

     The Company has included certain forward-looking statements in this Management's Discussion and Analysis of Financial Condition and Results of Operations. These statements are based on current expectations, estimates and projections about the industries in which the Company operates, management's beliefs and various assumptions made by management which are difficult to predict. Among the factors that could affect the outcome of the statements are general industry and market conditions and growth rates. Therefore, actual outcomes and their impact on the Company may differ materially from what is expressed or forecasted. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Table A

AVERAGE BALANCES AND INTEREST RATES

The table below presents the following information:

Average earning assets (including non-accrual loans)

Average interest bearing liabilities supporting earning assets

Interest income and interest expense as a rate/yield

For the First Six Months Ended:

2001

2000

Average

Income/

Rate/

Average

Income/

Rate/

Balance

Expense

Yield

Balance

Expense

Yield

EARNING ASSETS

Loans (gross)

176,781,920

7,737,477

8.83%

157,566,760

6,826,051

8.71%

Taxable Investment

Securities

41,557,311

1,249,881

6.07%

48,251,850

1,396,274

5.82%

Tax Exempt Investment

Securities (1)

13,928,202

526,405

7.62%

12,738,393

459,635

7.26%

Federal Funds Sold

2,892,265

76,539

5.34%

667,033

18,739

5.65%

Sweep Account

2,843,702

60,924

4.32%

1,684,996

45,432

5.42%

Other Securities (2)

1,238,601

47,494

7.73%

1,230,276

44,770

7.32%

TOTAL

239,242,001

9,698,720

8.18%

222,139,308

8,790,901

7.96%

INTEREST BEARING LIABILITIES

Savings Deposits

30,425,349

336,833

2.23%

33,226,467

380,379

2.30%

NOW & Money Market Funds

50,899,673

911,456

3.61%

49,938,951

868,934

3.50%

Time Deposits

99,905,631

2,860,338

5.77%

90,577,037

2,307,322

5.12%

Other Borrowed Funds

6,242,845

159,049

5.14%

5,106,670

145,854

5.74%

Repurchase Agreements

14,479,596

319,824

4.45%

6,124,131

139,687

4.59%

Subordinated Debentures

12,833

706

11.09%

20,000

1,100

11.06%

TOTAL

201,965,927

4,588,206

4.58%

184,993,256

3,843,276

4.18%

Net Interest Income

5,110,514

4,947,625

Net Interest Spread(3)

3.60%

3.78%

Interest Differential(4)

4.31%

4.48%

(1) Income on investment securities of state and political subdivisions is stated on a fully taxable

      basis (assuming a 34% tax rate).

(2) Included in other securities are taxable industrial development bonds (VIDA) with income of

      $1,701 for 2001 and $2,311 for 2000.

(3) Net interest Spread is the difference between the yield on earning assets and the rate paid on

      interest bearing liabilities.

(4) Interest differential is net interest income divided by average earning assets.

Table B

CHANGES IN INTEREST INCOME AND INTEREST EXPENSE

The following table summarizes the variances in income for the first six months of 2001 and 2000

resulting from volume changes in assets and liabilities and fluctuations in rates earned and paid.

Variance

Variance

RATE / VOLUME

Due to

Due to

Total

Rate(1)

Volume(1)

Variance

INCOME EARNING ASSETS

Loans

79,179

832,247

911,426

Taxable Investment Securities

55,116

(201,509)

(146,393)

Tax Exempt Investment

Securities (2)

23,816

42,954

66,770

Federal Funds Sold

(4,719)

62,519

57,800

Sweep Account

(15,737)

31,229

15,492

Other Securities

2,421

303

2,724

Total Interest Earnings

140,076

767,743

907,819

INTEREST BEARING LIABILITIES

Savings Deposits

(12,570)

(30,976)

(43,546)

NOW & Money Market Funds

25,800

16,721

42,521

Time Deposits

315,509

237,507

553,016

Other Borrowed Funds

(19,235)

32,430

13,195

Repurchase Agreements

(10,573)

190,710

180,137

Subordinated Debentures

0

(394)

(394)

Total Interest Expense

298,931

445,998

744,929

(1) Items which have shown a year-to-year increase in volume have variances

     allocated as  follows:

          Variance due to rate = Change in rate x new volume

          Variance due to volume = Change in volume x old rate

     Items which have shown a year-to-year decrease in volume have variances

    allocated as follows:

          Variance due to rate = Change in rate x old volume

          Variances due to volume = Change in volume x new rate

(2) Income on tax exempt securities is stated on a fully taxable basis. The assumed rate is 34%.

 

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Incorporated by reference to the section labeled "Risk Management" in Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

     Community National Bank is currently involved in a lawsuit filed on March 23, 1998, in the Orleans Superior Court against the State of Vermont. The issue involves OREO property that is on "filled land" on the shores of Lake Memphremagog in the City of Newport. According to a so-called "public trust doctrine", the State of Vermont might have ownership of any lands created by filling any portion of the navigable waters of the state. The result of this is that the Bank has been unable to sell these properties for fair value because some attorneys will not clear title to the property. The suit filed is an attempt to clear title to said properties by seeking judicial clarification of the public trust doctrine. The Bank received documents in mid April of 2000 pertaining to the ruling of the lawsuit. The judgement was not in the Bank's favor. On June 23, 2000, the Bank filed an appeal to the Vermont Supreme Court, but as of this filing, no date has been set for oral arguments. Regardless of the outcome of the suit, is not likely to have a material impact on the financial statements of the Bank or consolidated Company.

     There are no other pending legal proceedings to which the Company is a party or of which any of its property is the subject, other than routine litigation incidental to its banking business.


ITEM 4 Submission of Matters to a Vote of Security Holders

     The following matters were submitted to a vote of security holders, at the Annual Meeting of Shareholders of Community Bancorp. on May 8, 2001:

To elect four directors to serve until the Annual Meeting of Shareholders in 2004;

 

To ratify the selection of the independent public accounting firm of A.M. Peisch & Company as the Corporation's external auditors for the fiscal year ending December 31, 2001;

 

  

The results are as follows:

   

AUTHORITY

 




   

WITHHELD/

BROKER

MATTER

FOR

AGAINST

ABSTAIN

NON-VOTE

Election of Directors:

 

 

 

 

   Michael H. Dunn

2,732,080.2158

20,782.9002

4,957.6576

-0-

   Marcel M. Locke

2,742,899.116

9,964.0000

4,957.6576

-0-

   Stephen P. Marsh

2,744,857.116

8,006.0000

4,957.6576

-0-

   Dale Wells

2,748,426.116

4,437.0000

4,957.6576

-0-

Selection of Auditors

       

A.M. Peisch & Company

2,752,637.5338

2,498.1649

2,685.0749

-0-

ITEM 5 Other Information

       NONE

ITEM 6 Exhibits and Reports on Form 8-K

Reports on Form 8-K

Form 8-K dated April 5, 2001 announcing the earnings and other financial information for the period ended March 31, 2001.

Form 8-K dated June 14, 2001, announced the opening of the Montpelier office and identified key personnel in charge of the various departments.

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.

DATED: August 3, 2001

By: /s/ Richard C. White

 

Richard C. White, President

 

 

DATED: August 3, 2001

By: /s/ Stephen P. Marsh

 

Stephen P. Marsh,

 

Vice President & Treasurer