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COMMUNITY BANCORP /VT - Quarter Report: 2002 September (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 the Quarterly Period Ended September 30, 2002
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 (  )


Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes ( )  No (X)


At October 21, 2002 there were 3,558,088 shares outstanding of the Corporation's common stock.

Total Pages - 24 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 )

September 30

December 31

2002

2001

Assets

Cash and due from banks

$7,071,316

$8,681,237

Federal funds sold and overnight deposits

3,491,442

6,019,178

Total cash and cash equivalents

10,562,758

14,700,415

Securities held-to-maturity (fair value $43,530,784 at

09/30/02 and $40,967,678 at 12/31/01)

43,115,826

40,644,481

Securities available-for-sale

39,608,249

32,513,512

Restricted equity securities

1,309,050

1,224,650

Loans held-for-sale

1,932,085

3,113,466

Loans

198,723,184

190,042,381

Allowance for loan losses

(2,160,615

)

(2,007,408

)

Unearned net loan fees

(926,355

)

(951,194

)

Net loans

195,636,214

187,083,779

Bank premises and equipment, net

4,913,970

4,867,413

Accrued interest receivable

1,989,308

1,744,133

Other real estate owned, net

70,259

60,000

Other assets

3,357,966

2,726,075

Total assets

$302,495,685

$288,677,924

Liabilities and Stockholders' Equity

Liabilities

Deposits:

Demand, non-interest bearing

33,506,566

30,724,508

NOW and money market accounts

79,734,915

76,779,687

Savings

36,709,057

33,059,937

Time deposits, $100,000 and over

20,996,882

18,017,850

Other time deposits

81,385,044

79,487,551

Total deposits

$252,332,464

$238,069,533

Federal funds purchased and other borrowed funds

10,055,000

5,055,000

Repurchase agreements

11,412,361

19,833,510

Accrued interest and other liabilities

3,255,838

2,272,055

Subordinated convertible debentures

0

1,000

Total liabilities

$277,055,663

$265,231,098

Stockholders' Equity

Common stock - $2.50 par value; 6,000,000 shares

authorized and 3,740,321 shares issued at 09/30/02

and 3,706,674 shares issued at 12/31/01

9,350,804

9,266,686

Additional paid-in capital

13,801,967

13,412,012

Retained earnings

3,690,623

2,459,827

Accumulated other comprehensive income

770,872

26,459

Less: treasury stock, at cost; 182,233 shares at 09/30/02

and 150,065 at 12/31/01

(2,174,244

)

(1,718,158

)

Total stockholders' equity

$25,440,022

$23,446,826

Total liabilities and stockholders' equity

$302,495,685

$288,677,924

 

COMMUNITY BANCORP. AND SUBSIDIARIES

Consolidated Statements of Income

      ( Unaudited )

For The Third Quarter Ended September 30,

2002

2001

2000

Interest income

   Interest and fees on loans

$3,629,054

$3,907,199

$3,792,690

   Interest on debt securities

     Taxable

688,153

530,724

723,755

     Tax-exempt

268,321

195,473

253,539

   Dividends

13,271

17,594

21,468

   Interest on federal funds sold and overnight deposits

6,130

82,911

23,047

        Total interest income

$4,604,929

$4,733,901

$4,814,499

Interest expense

   Interest on deposits

1,490,071

1,894,359

2,004,156

   Interest on borrowed funds

94,741

61,078

257,465

   Interest on repurchase agreements

63,318

129,872

132,335

   Interest on subordinated debentures

0

0

550

        Total interest expense

$1,648,130

$2,085,309

$2,394,506

    Net interest income

2,956,799

2,648,592

2,419,993

    Provision for loan losses

(50,000

)

(60,000

)

(63,000

)

        Net interest income after provision

$2,906,799

$2,588,592

$2,356,993

Other operating income

   Trust department income

0

98,178

93,811

   Service fees

254,201

231,313

210,869

   Security gains (losses)

27,663

10,095

(7,275

)

   Other

449,299

215,218

152,869

        Total other operating income

$731,163

$554,804

$450,274

Other operating expenses

   Salaries and wages

890,892

890,960

778,804

   Pension and other employee benefits

268,741

238,195

207,918

   Occupancy expenses, net

440,423

390,090

354,521

   Trust department expenses

40,000

43,973

23,168

   Other

954,796

713,517

612,353

        Total other operating expenses

$2,594,852

$2,276,735

$1,976,764

    Income before income taxes

1,043,110

866,661

830,503

    Applicable income taxes

241,901

211,794

198,155

        Net Income

$801,209

$654,867

$632,348

Earnings per share on weighted average

$0.23

$0.18

$0.18

Weighted average number of common shares

  used in computing earnings per share

3,558,088

3,550,607

3,531,062

Dividends declared per share

$0.16

$0.16

$0.16

Book value per share on shares outstanding

$7.15

$6.66

$6.47

Per share data for 2000 restated to reflect a 5% stock dividend paid on February 1, 2001.

 

COMMUNITY BANCORP. AND SUBSIDIARIES

Consolidated Statements of Income

     ( Unaudited )

For the Nine Months Ended September 30,

2002

2001

2000

Interest income

   Interest and fees on loans

$10,793,281

$11,644,676

$10,618,741

   Interest on debt securities

     Taxable

2,165,620

1,782,306

2,122,340

     Tax-exempt

728,598

542,900

556,898

   Dividends

35,777

63,387

63,927

   Interest on federal funds sold and overnight deposits

36,304

220,374

87,219

        Total interest income

$13,759,580

$14,253,643

$13,449,125

Interest expense

   Interest on deposits

4,656,238

6,002,986

5,560,791

   Interest on borrowed funds

258,803

220,127

403,319

   Interest on repurchase agreements

218,443

449,696

272,022

   Interest on subordinated debentures

0

706

1,650

        Total interest expense

$5,133,484

$6,673,515

$6,237,782

    Net interest income

8,626,096

7,580,128

7,211,343

    Provision for loan losses

(276,000

)

(240,000

)

(321,000

)

        Net interest income after provision

$8,350,096

$7,340,128

$6,890,343

Other operating income

   Trust department income

109,826

307,073

251,314

   Service fees

713,897

681,363

596,786

   Security gains (losses)

31,311

164,534

(18,782

)

   Other

1,741,190

562,264

541,845

        Total other operating income

2,596,224

1,715,234

1,371,163

Other operating expenses

   Salaries and wages

2,710,606

2,529,294

2,231,405

   Pension and other employee benefits

792,538

718,360

668,870

   Occupancy expenses, net

1,215,703

1,207,409

1,080,981

   Trust department expenses

135,985

108,042

73,511

   Other

2,897,816

2,145,054

1,902,705

        Total other operating expenses

$7,752,648

$6,708,159

$5,957,472

    Income before income taxes

3,193,672

2,347,203

2,304,034

    Applicable income taxes

828,080

562,442

589,397

        Net Income

$2,365,592

$1,784,761

$1,714,637

Earnings per share on weighted average

$0.67

$0.50

$0.48

Weighted average number of common shares

  used in computing earnings per share

3,554,960

3,541,442

3,549,489

Dividends declared per share

$0.48

$0.48

$0.48

Book value per share on shares outstanding

$7.15

$6.66

$6.47

Per share data for 2000 restated to reflect a 5% stock dividend paid on February 1, 2001.

 

COMMUNITY BANCORP. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

  ( Unaudited )

For the Nine Months Ended September 30,

2002

2001

2000

Reconciliation of Net Income to Net Cash Provided

 by Operating Activities:

  Net Income

$2,365,592

$1,784,761

$1,714,637

Adjustments to Reconcile Net Income to Net Cash

 Provided by Operating Activities:

 Depreciation and amortization

677,567

458,273

448,650

 Provision for loan losses

276,000

240,000

321,000

 Provision (Credit) for deferred income taxes

43,874

(115,211

)

(6,193

)

 Gain on sale of loans

(336,143

)

(85,040

)

(24,772

)

 Securities (gain) losses

(31,310

)

(164,534

)

18,782

 Gain on sales of OREO

(32,472

)

(15,955

)

(56,594

)

 OREO writedowns

0

0

6,883

 Amortization of bond premium, net

233,639

74,834

133,604

 Proceeds from sales of loans held for sale

28,547,971

7,641,571

2,008,907

 Originations of loans held for sale

(27,030,447

)

(7,663,163

)

(1,950,212

)

 (Decrease) increase in taxes payable

(39,518

)

38,505

96,554

 (Increase) decrease in interest receivable

(245,175

)

146,889

(595,206

)

 (Increase) decrease in mortgage service rights

(157,138

)

(5,274

)

22,361

 (Decrease) increase in other assets

(181,385

)

3,247

(117,218

)

 (Decrease) increase in unamortized loan fees

(24,839

)

34,468

36,303

 (Decrease) increase in interest payable

(35,641

)

(115,272

)

89,505

 Increase (decrease) in accrued expenses

510,577

162,670

(16,846

)

 Increase in other liabilities

334,897

85,643

79,575

   Net cash provided by operating activities

4,876,049

2,506,412

2,209,720

Cash Flows from Investing Activities:

 Investments - held to maturity

   Maturities and paydowns

19,512,632

23,849,227

9,586,421

   Purchases

(21,996,283

)

(23,772,217

)

(31,799,200

)

 Investments - available for sale

   Sales and maturities

11,060,000

13,170,168

9,987,892

   Purchases

(17,216,861

)

(6,285,878

)

0

 Purchase of restricted equity securities

(84,400

)

(83,000

)

0

 Investment in limited partnership, net

(189,488

)

(20,388

)

(4,078

)

 Increase in loans, net

(9,079,570

)

(8,486,918

)

(20,073,351

)

 Capital expenditures, net

(472,838

)

(624,105

)

(724,791

)

 Recoveries of loans charged off

94,192

119,974

113,377

 Proceeds from sales of other real estate owned

203,995

222,702

563,551

   Net cash (used in) provided by investing activities

(18,168,621

)

(1,910,435

)

(32,350,179

)

Cash Flows from Financing Activities:

 Net increase in demand, NOW, money market

 and savings accounts

9,386,406

11,789,857

1,377,014

 Net increase in certificates of deposit

4,876,525

2,530,092

4,538,532

 Net (decrease) increase in short-term borrowings

  and repurchase agreements

(8,421,149

)

2,621,438

10,820,543

 Net increase (decrease) in borrowed funds

5,000,000

(537,000

)

13,000,000

 Payments to acquire treasury stock

(456,086

)

(259,349

)

(758,212

)

 Debentures redeemed for cash

0

(12,000

)

0

 Dividends paid

(1,230,781

)

(1,162,083

)

(988,895

)

   Net cash provided by financing activities

9,154,915

14,970,955

27,988,982

  Net (decrease) increase in cash and cash equivalent

(4,137,657

)

15,566,932

(2,151,477

)

  Cash and cash equivalents:

     Beginning

14,700,415

6,110,527

12,716,144

     Ending

$10,562,758

$21,677,459

$10,564,667

Supplemental Schedule of Cash Paid During the Year

 Interest

$5,169,125

$6,788,787

$6,148,277

 Income taxes

$823,724

$639,149

$499,038

Supplemental Schedule of Noncash Investing and Financing Activities:

 Net change in securities valuation

$1,127,899

$308,053

$168,803

 OREO acquired in settlements of loans

$181,782

$214,181

$376,915

 Debentures converted to common stock

$1,000

$6,000

$0

 Stock dividends

$0

$1,803,162

$0

Dividends Paid

 Dividends declared

$1,134,795

$1,130,498

$1,081,410

 Decrease in dividends payable

569,058

536,926

537,361

 Dividends reinvested

(473,072

)

(505,341

)

(629,876

)

$1,230,781

$1,162,083

$988,895

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION AND CONSOLIDATION

     The interim consolidated financial statements of Community Bancorp. and subsidiaries are unaudited. All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments necessary for fair presentation of the financial condition and results of operations of the Company contained herein have been made. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2001, contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2001.


NOTE 2. RECENT ACCOUNTING DEVELOPMENTS

     The FASB recently issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Intangible Assets. SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for using the purchase method of accounting, and prohibits the use of the pooling-of-interests method for such transactions. The new standard also requires identified intangible assets acquired in a business combination be recognized as an asset apart from goodwill if they meet certain criteria. Adoption of SFAS No. 141 has had no material impact on the Company's consolidated financial statements.


     SFAS No. 142 applies to all goodwill and identified intangible assets acquired in a business combination. Under the new standard, all goodwill, including that acquired before initial application of the standard, should not be amortized but should be tested for impairment at least annually. The effect of the adoption of SFAS No. 142 is disclosed in this report in the section labeled "Other Operating Income and Expenses".


     The FASB has also issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 144 amends accounting and reporting standards for the disposal of segments of a business and addresses various issues related to the accounting for impairments or disposals of long-lived assets. The provisions of SFAS No. 144 are effective for the Company's fiscal year ending December 31, 2002. The Company is currently assessing the financial statement impact of this pronouncement and does not believe that the statements will have a material adverse effect upon its financial condition or the results of operations.


NOTE 3. EARNINGS PER SHARE

Earnings per common share amounts are computed based on the weighted average number of shares of common stock outstanding during the period (retroactively adjusted for stock splits and stock dividends) and reduced for shares held in treasury. The assumed conversion of subordinated debentures does not result in material dilution.

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 Nine Months Ended September 30, 2002

FORWARD-LOOKING STATEMENTS


     The Company's Management's Discussion and Analysis of Financial Condition and Results of Operations, contains certain forward-looking statements about the results of operations, financial condition and business of the Company and its subsidiaries. When used therein, the words "believes," "expects," "anticipates," "intends," "estimates," "plans," "predicts," or similar expressions, indicate that management of the Company is making forward-looking statements.


     Forward-looking statements are not guarantees of future performance. They necessarily involve risks, uncertainties and assumptions. Future results of the Company may differ materially from those expressed in these forward-looking statements. Although these statements are based on management's current expectations and estimates, many of the factors that could influence or determine actual results are unpredictable and not within the Company's control. In addition, the Company does not undertake to, and disclaims any obligation to, publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence or anticipated occurrence of events or circumstances after the date of this Report. The Company claims the protection of the safe harbor for forward-looking statements provided in the Private Securities Litigation Reform Act of 1995.


     Factors that may cause actual results to differ materially from those contemplated by these forward-looking statements include, among others, the following possibilities: (1) competitive pressures increase among financial services providers in the Company's northern New England market area or in the financial services industry generally, including competitive pressures from nonbank financial service providers, from increasing consolidation and integration of financial service providers, and from changes in technology and delivery systems; (2) interest rates change in such a way as to reduce the Company's margins; (3) general economic or monetary conditions, either nationally or regionally, are less favorable than expected, resulting in a deterioration in credit quality or a diminished demand for the Company's products and services; and (4) changes in laws or government rules, or the way in which courts interpret those laws or rules, adversely affect the Company's business.


OVERVIEW

     Community Bancorp. (the "Company") is a bank holding company headquartered in Derby, Vermont, which has one operating commercial bank subsidiary, Community National Bank (the "Bank"). The Bank is a commercial banking institution, which offers a full range of retail banking services to residents and businesses in northeastern and north central 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, located in Washington County.


     The Company also owns all of the stock of Liberty Savings Bank ("Liberty"), an inactive New Hampshire guaranty savings bank charter. Liberty has no substantial assets and does not have any offices or deposit taking authority and there are currently no plans to activate this charter.


     Prior to March 31, 2002 Community National Bank operated a trust department through which it offered personal fiduciary services. As of such date, the Bank transferred its trust operations to a newly formed Vermont-chartered nondepository trust and investment management affiliate, Community Financial Services Group, LLC based in Newport, Vermont ("CFSG"). The Bank's ownership interest in CFSG is held indirectly, through Community Financial Services Partners, LLC, a Vermont limited liability company ("Partners"), which owns 100% of the limited liability company equity interests of CFSG. On April 1, 2002, the Bank sold a one-third interest in Partners to each of the National Bank of Middlebury, in Middlebury, Vermont and Guaranty Bancorp, Inc., the bank holding company parent of Woodsville Guaranty Savings Bank, Woodsville, New Hampshire. As of such date the Bank retained a one-third ownership interest in Partners and, indirectly, in CFSG. Partners and CFSG are not consolidated subsidiaries of the Company.


     Substantially all of the Company's business is conducted through Community National Bank; therefore, the following narrative is based primarily on the Bank's operations. The balance sheet and statements of income preceding this section are consolidated figures for Community Bancorp. and subsidiaries and should be read in conjunction with the other information and reports following them to provide a more detailed comparison of the information disclosed in the following narrative.


RESULTS OF OPERATIONS


     Net income for the third quarter ended September 30, 2002 was $801,209, representing an increase of 22.4% and 26.7%, respectively, over the net income figures of $654,867 for the third quarter ended September 30, 2001, and $632,348 for the same period in 2000. The results of this are earnings per share of $0.23 for the third quarter of 2002 and $0.18 for each of 2001 and 2000. The third quarter of 2002 was profitable due in part to a decrease in interest expense, as well as an increase in non interest income attributable to the heavy volume of loans sold into the secondary market. Net income of $2.4 million for the first nine months of 2002 resulted in increases 32.5% and 38%, respectively compared to $1.8 million for the same period in 2001 and $1.7 million in 2000. Earnings per share of $0.67, $0.50, and $0.48, respectively, were reported for 2002, 2001, and 2000. The first nine months of 2002 have been very profitable compared to 2001 and 2000, due to the issues mentioned above as well as income of $617,355 generated through the sale of the Bank's trust operations mentioned above, and in the previous 10-Q report filed for June 30, 2002. As a result of a 5% stock dividend paid in February 2001, all per share information for 2000 cited in this report has been restated. The Company paid a cash dividend of $0.16 per share August 1, 2002 to shareholders of record as of July 15, 2002.


     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, and rate sensitivity of earning assets as well as by interest bearing liabilities, market interest rates and the amount of non-interest bearing funds which support earning assets. Tables A and B at the end of this narrative provide a visual comparison for each period. Figures presented on these two reports are consolidated and are stated on a tax equivalent basis assuming a federal tax rate of 34%.


     Net interest income for the third quarter comparison period was almost $3 million for 2002 compared to $2.6 million for 2001, resulting in an increase of 11.6%. Total interest income for the third quarter decreased $128,972 or by 2.7% from $4.7 million in 2001 to $4.6 million in 2002. Interest expense decreased $437,179 or by almost 21% from $2.1 million in 2001 to $1.6 million in 2002. A review of the third quarter figures for interest earned on loans, the major source of interest income, reveals a decrease of $278,145 or 7.1% for 2002 compared to 2001. In comparison, interest paid on deposits, the major source of interest expense, shows a decrease of $404,288 or 21.3% for the same comparison period. Net interest income for the nine months comparison period was $8.6 million for 2002 compared to $7.6 million for 2001, an increase of $1.0 million or 13.8%. Total interest income for the first nine months of 2002 decreased $494,063, or 3.5%, from $14.3 million to $13.8 million. These figures convert to tax equivalent interest income of $14.1 million and $14.5 million for the first nine months of 2002 and 2001, respectively. Although a substantial increase is noted in the average volume of loans compared to the first nine months of 2001, a decrease of 127 basis points is noted in the average yield, contributing to the decrease in income. In comparison, an increase is noted in the average volume of interest bearing accounts, while the rate paid on these accounts has decreased 145 basis points, with time deposits accounting for most of the decrease in interest expense. As a result of these changes, the tax equivalent spread for the first nine months increased 17 basis points to 3.85% for 2002 versus 3.68% for 2001.


CHANGES IN FINANCIAL CONDITION


     The Company had total average assets of $291 million at September 30, 2002 and $259 million at December 31, 2001. Average earning assets were $279 million for the period ended September 30, 2002, including average loans of $194 million and average investment securities of $81 million. Average earning assets were $249 million for the year ended December 31, 2001 including average loans of $182 million and average investment securities of $58 million. An increase in available for sale agencies as well as municipal investments accounts for a substantial portion of the increase in investment securities.


     Average interest bearing liabilities at September 30, 2002 were $235 million, with average time deposits reported totaling $99 million and NOW & money market funds of $80 million. At December 31, 2001, average interest bearing liabilities of just over $209 million were reported including average time deposits of $99 million and NOW & money market funds at $57 million. An increase in municipal deposits, from the new collateralized deposit product as discussed below, accounts for most of the increase in NOW & money market funds, as well as the decrease in repurchase agreements.


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. Other time deposits increased almost $2 million as of the end of the first nine months of 2002, while time deposits greater than $100,000 increased $3 million. A review of these deposits indicates that they are primarily generated locally and regionally and are established customers of the Company. The Company has no brokered deposits. Competitive time deposit rates and offerings have helped to increase these funds. Now and money market funds increased $3 million from December 31, 2001 to end the first nine months of 2002 to a balance of $79.7 million. The Company began offering a new interest bearing collateralized deposit account to its municipal account holders during the last part of 2001. This account has been well received during 2002, contributing to the increase in NOW and money market funds. Savings accounts increased $3.6 million for the first nine months of 2002, despite the less than favorable rates. The Company's in house loan portfolio has increased $8.7 million over the last nine months, and the investment portfolio increased $9.6 million for the same time period. As of September 30, 2002, the Company held in its investment portfolio securities classified as "Available for Sale" at a fair value of $39.6 million, compared to $32.5 million as of December 31, 2001, an increase of $7.1 million or 22%. Securities classified as "Held to Maturity" ended the first nine months of 2002 at a book value of just over $43 million compared to almost $41 million as of the end of the 2001 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 of Federal Home Loan Bank of Boston (FHLB) and Federal Reserve Bank stock. FHLB stock increased $84,400, increasing the combined stock balance to $1.3 million as of September 30, 2002.


     The Company has a credit line with FHLB with an available balance of $4.3 million. Interest is chargeable at a rate determined daily of approximately 25 basis points higher than the rate paid on fed funds sold. Additional borrowing capacity of approximately $103 million is available through the FHLB, which is secured by the Company's qualifying loan and investment portfolio. As of September 30, 2002, the Company has advances of just over $10 million against the $103 million in borrowing authority at FHLB, with no advances against the $4.3 million. Under a separate agreement, the Bank has the authority to collateralize public unit deposits, up to its FHLB borrowing capacity ($103 million less outstanding advances) with letters of credit issued by FHLB. At September 30, 2002, approximately $31 million was pledged as collateral for these deposits. Interest is charged to the Bank quarterly based on the average daily balance outstanding on these collateralized deposits at a rate of 20 basis points. At September 30, 2002, an average daily balance of approximately $3.8 million was reported.


Credit Risk - A primary concern of management is to reduce the exposure of credit loss within the portfolio. Management follows established underwriting guidelines, and any exceptions to policy must be approved by a lender with higher authority than the lender originating the loan. The adequacy of the loan loss coverage is reviewed quarterly by the risk management committee of the Board of Directors. This committee meets to discuss, among other matters, potential exposures, historical loss experience, 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 of the Banks internal risk ratings and compliance with various internal policies and procedures, as well as those set by the regulatory authorities. The Bank 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 believes may represent a greater risk for loss. A quarterly review of various qualitative factors, including levels of, and trends in, delinquencies and non-accruals and national and local economic trends and conditions, helps 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.

The following table reflects the composition of the Company's loan portfolio for nine months ended

September 30:

2002

2001

2000

(Dollars in Thousands)

Total

% of

Total

% of

Total

% of

Loans

Total

Loans

Total

Loans

Total

Real Estate Loans

  Construction & Land

   Development

7,404

3.69%

3,060

1.65%

1,356

0.79%

  Farm Land

2,659

1.33%

2,767

1.49%

3,216

1.86%

  1-4 Family Residential

116,906

58.26%

111,050

59.81%

104,548

60.59%

  Commercial Real Estate

33,041

16.47%

31,559

17.00%

28,471

16.50%

Loans to Finance

  Agricultural Production

390

0.19%

465

0.25%

601

0.35%

Commercial & Industrial

15,503

7.73%

12,709

6.84%

13,854

8.03%

Consumer Loans

24,202

12.06%

23,883

12.86%

20,325

11.78%

All Other Loans

550

0.27%

192

0.10%

183

0.10%

      Gross Loans

200,655

100%

185,685

100%

172,554

100%

Less:

  Reserve for Loan Losses

(2,161

)

-1.08%

(1,936

)

-1.04%

(1,761

)

-1.02%

  Deferred Loan Fees

(926

)

-0.46%

(985

)

-0.53%

(927

)

-0.54%

      Net Loans

197,568

98.46%

182,764

98.43%

169,866

98.44%

Allowance for loan losses and provisions - The valuation allowance for loan losses of $2.2 million as of September 30, 2002 composed 1.1% of the total gross loan portfolio. As of such date, the Company maintained a residential loan portfolio of approximately $117 million and a commercial real estate portfolio of approximately $43 million. The total portfolio of approximately $160 million of real estate secured mortgages accounted for almost 80% of the total loan portfolio at September 30, 2002, and together with the low historical loan loss experience in these portfolios, helps to support the Company's basis for loan loss coverage.

The following table summarizes the Company's loan loss experience for the nine months ended September 30,

  (Dollars in Thousands)

2002

2001

2000

Loans Outstanding End of Period

200,655

185,685

172,554

Ave. Loans Outstanding During Period

194,279

178,925

161,838

Loan Loss Reserve, Beginning of Period

2,008

1,797

1,715

Loans Charged Off:

  Real Estate

55

40

167

  Commercial

0

1

15

  Consumer

162

180

206

       Total

217

221

388

Recoveries:

  Real Estate

3

4

12

  Commercial

4

5

11

  Consumer

87

111

90

       Total

94

120

113

Net Loans Charged Off

123

101

275

Provision Charged to Income

276

240

321

Loan Loss Reserve, End of Period

2,161

1,936

1,761

     Non-Performing assets for the company are made up of three different types of loans, "90 Days or More Past Due", "Other Real Estate Owned" (OREO), and "Non-Accruing Loans". A comparison of these non-performing assets reveals a decrease for the first nine months of 2002 in non-accruing loans of $329,642, while an increase of $333,504 is noted in loans 90 days or more past due, and the Company's OREO portfolio increased $10,259 compared to the respective totals at December 31, 2001. The portfolio of non-accruing loans makes up the biggest portion of the non-performing assets and, as of September 30, 2002, $1.22 million or 98% were real estate secured mortgage loans, thereby reducing the exposure to loss.


Non-performing assets as of September 30, 2002 and December 31, 2001 were as follows:

 

09/30/2002

12/31/2001

 

 

 

Non-Accruing loans

$1,241,616

$1,571,258

Loans past due 90 day or more and still accruing

392,759

59,255

Other real estate owned

70,259

60,000

   Total

$1,704,634

$1,690,513

     Other real estate owned is made up of property that the Company has acquired by deed 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, less cost to sell, or the 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 September 30, 2002, and December 31, 2001. 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 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

September 30, 2002

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

875

0

0

0

0

875

Overnight deposits

2,616

0

0

0

0

2,616

Investments -

Available for Sale(1)

3,016

0

11,562

15,603

9,427

39,608

Held to Maturity

7,949

18,829

3,655

5,821

6,862

43,116

Restricted equity securities

1,171

0

0

0

138

1,309

Loans(2)

44,192

44,853

47,760

16,688

45,920

199,413

Total interest sensitive assets

59,819

63,682

62,977

38,112

62,347

286,937

Interest sensitive liabilities:

Certificates of deposit

25,390

37,366

23,355

16,271

0

102,382

Money markets

6,328

25,009

0

0

24,000

55,337

Regular savings

0

6,709

0

0

30,000

36,709

Now and super now accounts

0

0

0

0

24,398

24,398

Borrowed funds

5,015

0

0

0

5,040

10,055

Repurchase agreements

11,412

0

0

0

0

11,412

Total interest sensitive liabilities

48,145

69,084

23,355

16,271

83,438

240,293

Net interest rate sensitivity gap

11,674

(5,402

)

39,622

21,841

(21,091

)

Cumulative net interest rate

sensitivity gap

11,674

6,272

45,894

67,735

46,644

Cumulative net interest rate

sensitivity gap as a

percentage of total assets

3.86%

2.07%

15.17%

22.39%

15.42%

Cumulative interest sensitivity

gap as a percentage of total

interest-earning assets

4.07%

2.19%

15.99%

23.61%

16.26%

Cumulative interest earning assets

as a percentage of cumulative

interest-bearing liabilities

124.25%

105.35%

132.65%

143.18%

119.41%

(1) The Company may sell investments available for sale with a fair value of $39,608,249 at any time.

(2) Loan totals exclude non-accruing loans amounting to $1,241,616.

 

 

GAP ANALYSYS

Community Bancorp. & Subsidiaries

December 31, 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

4,800

0

0

0

0

4,800

Overnight deposits

1,219

0

0

0

0

1,219

Investments -

Available for Sale(1)

3,032

10,256

5,181

5,996

8,049

32,514

Held to Maturity

2,227

18,307

3,458

1,703

14,949

40,644

Restricted equity securities

1,087

0

0

0

138

1,225

Loans(2)

33,333

51,484

44,345

18,306

44,117

191,585

Total interest sensitive assets

45,698

80,047

52,984

26,005

67,253

271,987

Interest sensitive liabilities:

Certificates of deposit

16,296

58,002

15,574

7,634

0

97,506

Money markets

1,167

31,594

0

0

20,000

52,761

Regular savings

0

5,060

0

0

28,000

33,060

Now and super now accounts

0

0

0

0

24,018

24,018

Borrowed funds

0

15

0

30

5,010

5,055

Repurchase agreements

19,834

0

0

0

0

19,834

Total interest sensitive liabilities

37,297

94,671

15,574

7,664

77,028

232,234

Net interest rate sensitivity gap

8,401

(14,624

)

37,410

18,341

(9,775

)

Cumulative net interest rate

sensitivity gap

8,401

(6,223

)

31,187

49,528

39,753

Cumulative net interest rate

sensitivity gap as a

percentage of total assets

2.91%

-2.16%

10.80%

17.16%

13.77%

Cumulative interest sensitivity

gap as a percentage of total

interest-earning assets

3.09%

-2.29%

11.47%

18.21%

14.62%

Cumulative interest earning assets

as a percentage of cumulative

interest-bearing liabilities

122.52%

95.28%

121.14%

131.91%

117.12%

(1) The Company may sell investments available for sale with a fair value of $32,513,513 at any time.

(2) Loan totals exclude non-accruing loans amounting to $1,571,258.

 

 

OTHER OPERATING INCOME AND EXPENSES


     Total other operating income for the third quarter of 2002 was $731,163 compared to $554,804 for the same quarter in 2001, an increase of $176,359 or 31.8%. Other income reported the biggest increase with figures reported of $449,299 and $215,218, respectively, for the third quarter of 2002 and 2001. No income was generated through the trust department for the third quarter of 2002 due to the sale of the trust operations mentioned previously. Total other operating income for the first nine months of 2002 increased by $880,990 or by 51.4% to a figure of $2.6 million. As mentioned earlier, the Company recognized income of $617,355 through the sale of a 2/3 interest in its trust operations, thereby accounting for most of the increase for 2002. The Company continues to experience a heavy loan volume, both in house loans and loans sold on the secondary market helping to make the first nine months of 2002 very profitable.


     Total other operating expenses for the third quarter comparison periods increased from a figure of $2.3 million for 2001 to $2.6 million for 2002, an increase of $318,117, or 14%. Other expenses tallied the biggest increase for 2002 versus 2001, reporting an increase of $241,279 or almost 34%. Additional expenses were booked during the third quarter of 2002 in connection with the Company's involvement in non-profit housing projects. The Company continues to invest generously in these projects, resulting in an increase in the losses associated with them. Due to the nature of these investments, the losses are offset with tax savings passed through to the Bank. Total other operating expense figures presented for the first nine months indicate an increase of just over $1 million or 15.6% for 2002 compared to 2001, with other expenses again accounting for the biggest increase. The Company chose to expense the remaining goodwill associated with the acquisition of Liberty Savings Bank during the second quarter of 2002. This expense amounted to $245,575 accounting for a substantial portion of the increase in other expense.


     Management monitors all components of other operating expenses; however, a quarterly review is performed to assure that the accruals for these expenses are accurate. This helps alleviate the need to make significant adjustments to these accounts that in turn effect the net income of the Company.


APPLICABLE INCOME TAXES


     Income before taxes of just over $1 million was reported for the third quarter of 2002 compared to $866,661 for the same quarter of 2001, an increase of $176,449 or 20.4%. Provisions for income taxes increased accordingly from $211,794 to $241,901 for the comparison period. Income before taxes for the first nine months of 2002 revealed an increase of $846,469 or 36.1% with figures of $3.2 million for 2002 versus $2.4 million for 2001. Provisions for income taxes increased $265,638, or by 47.2%, from $562,442 to $828,080 for the nine month comparison periods, with taxes of approximately $210,000 resulting from the sale of the Banks trust operations.


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 it to maintain its purchasing power.


CAPITAL RESOURCES


     The Company periodically repurchases its own common stock under a stock buyback program initially authorized by the Board of Directors in April, 2000. Under the terms of the stock buyback, the Company may repurchase shares of its common stock from time to time in open market purchases and privately negotiated transactions, as market conditions may warrant. The initial authorization for the repurchase of up to 205,000 shares of common stock was extended by the Board of Directors on October 15, 2002 to cover an additional 200,000 shares, with an aggregate limit for such additional share repurchases of $3.5 million. As of September 30, 2002 the Company had repurchased 151,939 shares at a total cost of approximately $1,721,779 since the inception of the program.


     The Company's stockholders' equity, which started the year at $23,446,826, increased through earnings of $2,365,592; sales of common stock of $474,072 through dividend reinvestment and debenture conversions; and $744,413 for other comprehensive income pertaining to the valuation of securities. It decreased $13 for the purchase of treasury stock; $456,073 for the repurchase of stock through the stock buyback program; and payment of dividends totaling $1,135,204. Additionally, a dividend of $568,649 was paid during the first quarter of 2002 versus a dividend payable at December 31, 2001 of $569,058, thereby increasing Stockholders' equity by $409 ending the first nine months of 2002 at $25,440,022 with a book value of $7.15 per share. All stockholders' equity is unrestricted. It is further noted that an unrealized gain of $770,872 on valuation allowance for securities was reported as of September 30, 2002, compared to an unrealized gain of $26,459 as of December 31, 2001. The Company's portfolio of available for sale US Government Agencies has increased $10 million for the first nine months of 2002, with a valuation allowance of $698,944 compared to a loss of $23,514 at December 31, 2001, accounting for most of the increase in the valuation allowance. A review of this activity shows that as the maturity date of the investments gets closer, the market price increases, thereby enhancing unrealized gains.


     Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of September 30, 2002, that the Company meets all capital adequacy requirements to which it is subject.


     As of September 30, 2002, the Company and its Subsidiaries were deemed well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Company's category.

The Company's actual capital amounts and ratios (000's omitted) are also presented in the table.

 

 

 

 

Minimum to be Well

 

 

 

Minimum

Capitalized Under

 

 

 

For Capital

Prompt Corrective

 

Actual

Adequacy Purposes:

Action Provisions:

Amount

Ratio

Amount

Ratio

Amount

Ratio

As of September 30, 2002:

 

 

 

 

 

 

Total capital (to risk weighted assets)

$26,686

16.23%

$13,156

8.0%

$16,445

10.0%

Tier I capital (to risk weighted assets)

$24,632

14.98%

$ 6,578

4.0%

$ 9,867

6.0%

Tier I capital (to average assets)

$24,632

8.26%

$11,932

4.0%

$14,916

5.0%

 

 

 

 

 

 

 

As of December 31, 2001:

 

 

 

 

 

 

Total capital (to risk weighted assets)

$25,071

16.30%

$12,307

8.0%

$15,384

10.0%

Tier I capital (to risk weighted assets)

$23,147

15.05%

$ 6,154

4.0%

$ 9,230

6.0%

Tier I capital (to average assets)

$23,147

8.31%

$11,135

4.0%

$13,919

5.0%

 

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

 

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 Nine Months Ended:

2002

2001

Average

Income/

Rate/

Average

Income/

Rate/

Balance

Expense

Yield

Balance

Expense

Yield

EARNING ASSETS

Loans (gross)

194,278,555

10,793,281

7.43%

178,924,798

11,644,676

8.70%

Taxable Investment Securities

54,795,702

2,165,394

5.28%

38,805,669

1,749,038

6.03%

Tax Exempt Investment Securities (1)

24,975,765

1,103,936

5.91%

14,877,193

822,575

7.39%

Federal Funds Sold

1,448,571

18,585

1.72%

3,533,333

120,306

4.55%

Sweep Account

1,825,113

17,719

1.30%

3,823,905

100,068

3.50%

Other Securities

1,293,994

36,003

3.72%

2,004,822

96,656

6.45%

     TOTAL

278,617,700

14,134,918

6.78%

241,969,720

14,533,319

8.03%

INTEREST BEARING LIABILITIES

Savings Deposits

35,563,926

355,295

1.34%

31,116,558

504,680

2.17%

NOW & Money Market Funds

79,904,932

1,513,106

2.53%

53,040.767

1,370,437

3.45%

Time Deposits

99,250,079

2,787,837

3.76%

99,766,691

4,127,869

5.53%

Other Borrowed Funds

7,393,392

258,803

4.68%

5,842,546

220,127

5.04%

Repurchase Agreements

12,430,557

218,443

2.35%

14,147,424

449,696

4.25%

Subordinated Debentures

0

0

0.00%

11,000

706

8.58%

     TOTAL

234,542,886

5,133,484

2.93%

203,924,986

6,673,515

4.38%

Net Interest Income

9,001,434

7,859,804

Net Interest Spread(2)

3.85%

3.65%

Interest Differential(3)

4.32%

4.34%

(1) Income on investment securities of state and political subdivisions is stated on a fully taxable basis (assuming a      34% tax rate).

(2) Net interest Spread is the difference between the yield on earning assets and the rate paid on interest bearing      liabilities.

(3) 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 nine months of 2002 and 2001

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

(1,850,483

)

999,088

(851,395

)

Taxable Investment Securities

(304,812

)

721,168

416,356

Tax Exempt Investment Securities (2)

(276,819

)

558,180

281,361

Federal Funds Sold

(74,901

)

(26,820

)

(101,721

)

Sweep Account

(62,914

)

(19,435

)

(82,349

)

Other Securities

(40,875

)

(19,778

)

(60,653

)

Total Interest Earnings

(2,610,804

)

2,212,403

(398,401

)

INTEREST BEARING LIABILITIES

Savings Deposits

(221,568

)

72,183

(149,385

)

NOW & Money Market Funds

(550,537

)

693,206

142,669

Time Deposits

(1,325,503

)

(14,529

)

(1,340,032

)

Other Borrowed Funds

(19,785

)

58,461

38,676

Repurchase Agreements

(201,076

)

(30,177

)

(231,253

)

Subordinated Debentures

(706

)

0

(706

)

Total Interest Expense

(2,319,175

)

779,144

(1,540,031

)

(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 of this report labeled "Risk Management" in Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations.

ITEM 4. Controls and Procedures

Pursuant to Securities Exchange Act Rule 13a-15(b), within ninety days prior to the date of this Report, the Company has carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's President and Chief Executive Officer and its Treasurer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based upon that evaluation, the President and Chief Executive Officer and the Treasurer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic filings with the Securities and Exchange Commission. There were no significant changes in the Company's internal controls or in other factors that could significantly affect the Company's disclosure controls subsequent to the date of the evaluation referred to above through the date of filing of this report, nor have there been any corrective actions required in regard to significant deficiencies and material weaknesses.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

     There are no 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 2. Changes in Securities

       NONE

ITEM 3. Defaults Upon Senior Securities

       NONE

ITEM 4. Submission of Matters to a Vote of Security Holders

        NONE

ITEM 5. Other Information
        NONE

ITEM 6 Exhibits and Reports on Form 8-K

Exhibits

Exhibit 99.1 - Certification from the Chief Executive Officer of the Company pursuant to 18 U.S.C., Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 99.1 - Certification from the Chief Financial Officer of the Company pursuant to 18 U.S.C., Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002

Reports on Form 8-K

Form 8-K dated July 5, 2002, announcing the Company's earnings and other financial information for the period ended June 30, 2002.

 

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: November 13, 2002

By: /s/Richard C. White

 

Richard C. White, President

 

 

DATED: November 13, 2002

By: /s/Stephen P. Marsh

 

Stephen P. Marsh,

 

Vice President & Treasurer

FORM 10-Q CERTIFICATIONS

 

I, Richard C. White, President and Chief Executive Officer, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Community Bancorp.;

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 we 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 or not 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: November 13, 2002

/s/Richard C. White

President and Chief Executive Officer

 

I, Stephen P. Marsh, Treasurer and Chief Financial Officer, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Community Bancorp.;

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 we 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 or not 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: November 13, 2002

/s/Stephen P. Marsh

Treasurer and Chief Financial Officer