EX-13 3 december2001.htm EXHIBIT 13 - ANNUAL REPORT FOR DECEMBER 31, 2001

A.M. PEISCH & COMPANY, LLP
CERTIFIED PUBLIC ACCOUNTANTS
-SINCE 1920-

INDEPENDENT AUDITOR'S REPORT

 

 

 

To the Board of Directors and Stockholders
Community Bancorp. and Subsidiaries
Derby, Vermont

 

We have audited the accompanying consolidated balance sheets of Community Bancorp. and Subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of income, stockholders' equity, and cash flows for the years ended December 31, 2001, 2000, and 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with U. S. generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Community Bancorp. and Subsidiaries at December 31, 2001 and 2000, and the results of their operations and their cash flows for the years ended December 31, 2001, 2000, and 1999 in conformity with U. S. generally accepted accounting principles.

/s/ A.M. Peisch & Company, LLP

January 7, 2002
St. Johnsbury, Vermont
VT Reg. No. 92-0000102

COMMUNITY BANCORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2001 and 2000

ASSETS

2001

2000

Cash and due from banks (Note 18)

$ 8,681,237

$ 6,110,527

Federal funds sold and overnight deposits

6,019,178

-0-

Cash and cash equivalents

14,700,415

6,110,527

Securities held-to-maturity (approximate fair value $40,967,678 and

 

 

 $42,466,587 at December 31, 2001 and 2000) (Note 2)

40,644,481

42,197,130

Securities available-for-sale (Note 2)

32,513,512

19,145,938

Restricted equity securities (Note 1)

1,224,650

1,141,650

Loans held-for-sale (Note 1)

3,113,466

710,991

Loans (Note 3)

190,042,381

176,815,408

Allowance for loan losses (Note 4)

( 2,007,408)

( 1,796,810)

Unearned net loan fees

( 951,194)

( 950,937)

Net loans

187,083,779

174,067,661

Bank premises and equipment, net (Note 5)

4,867,413

4,693,934

Accrued interest receivable

1,744,133

1,929,495

Other real estate owned, net (Note 6)

60,000

201,123

Other assets (Notes 7 and 12)

2,726,075

2,586,788

Total assets

$288,677,924

$252,785,237

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

LIABILITIES

 

 

Deposits:

 

 

Demand, non-interest bearing

$ 30,724,508

$ 25,640,868

NOW and money market accounts

76,779,687

55,776,849

Savings

33,059,937

29,810,798

Time, $100,000 and over (Note 8)

18,017,850

17,504,358

Other time (Note 8)

79,487,551

79,651,657

 

238,069,533

208,384,530

Repurchase agreements (Note 10)

19,833,510

14,371,538

Borrowed funds (Note 9)

5,055,000

5,592,000

Accrued interest and other liabilities (Note 17)

2,272,055

1,886,999

Subordinated debentures (Note 11)

1,000

20,000

Total liabilities

265,231,098

230,255,067

COMMITMENTS AND CONTINGENT LIABILITIES (Notes 5, 13, 14, 15, and 17)

STOCKHOLDERS' EQUITY

 

 

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

 

 

3,706,674 shares issued at December 31, 2001

 

 

and 3,478,561shares issued at December 31, 2000

9,266,686

8,696,402

Additional paid-in capital

13,412,012

11,515,514

Retained earnings (Note 19)

2,459,827

3,731,098

Accumulated other comprehensive income (loss)

26,459

( 23,108)

Less treasury stock, at cost (2001 - 150,065 shares; 2000 - 122,777shares)

( 1,718,158)

( 1,389,736)

 

23,446,826

22,530,170

Total liabilities and stockholders' equity

$288,677,924

$252,785,237

 

 

 

See accompanying notes.

 

 

COMMUNITY BANCORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31, 2001, 2000, and 1999

 

2001

2000

1999

Interest and dividend income

 

 

 

Interest and fees on loans

$15,522,741

$14,538,722

$13,036,041

Interest on debt securities

 

 

 

Taxable

2,410,427

2,839,110

2,720,774

Tax-exempt

742,560

797,025

610,114

Dividends

80,352

89,130

79,540

Interest on federal funds sold and overnight deposits

288,172

170,783

276,322

 

19,044,252

18,434,770

16,722,791

Interest expense

 

 

 

Interest on deposits

7,705,308

7,699,756

7,277,456

Interest on borrowed funds and securities sold

 

 

 

Under agreements to repurchase

880,456

1,087,178

254,884

Interest on subordinated debentures

706

2,200

2,200

 

8,586,470

8,789,134

7,534,540

Net interest income

10,457,782

9,645,636

9,188,251

Provision for loan losses (Note 4)

(410,000)

(384,000)

(497,000)

Net interest income after provision for loan losses

10,047,782

9,261,636

8,691,251

 

 

 

 

Other income

 

 

 

Trust Department income

438,736

362,979

247,001

Service fees

921,877

808,139

704,348

Security gains (losses) (Note 2)

170,899

(18,782)

-0-

Other (Note 24)

812,539

712,846

808,014

 

2,344,051

1,865,182

1,759,363

Other expenses

 

 

 

Salaries and wages

3,285,000

2,917,665

2,839,193

Pension and other employee benefits (Notes 13 and 17)

959,078

936,367

792,328

Occupancy expenses

1,499,186

1,407,505

1,284,339

Other operating expenses (Note 24)

2,975,268

2,666,900

2,413,915

 

8,718,532

7,928,437

7,329,775

Income before income taxes

3,673,301

3,198,381

3,120,839

Income taxes (Note 12)

875,476

775,960

786,481

Net income

$ 2,797,825

$ 2,422,421

$ 2,334,358

 

 

 

 

Earnings per common share on weighted average

$0.79

$0.68

$0.67

Weighted average number of common shares

 

 

 

used in computing earnings per share

3,545,670

3,543,956

3,474,844

 

 

 

 

Book value per share on shares outstanding at December 31

$6.59

$6.39

$6.29

 

 

 

 

See accompanying notes.

 

 

 

COMMUNITY BANCORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Years Ended December 31, 2001, 2000, and 1999

 

---Common Stock---

 

Shares

Amount

 

 

 

Balances, December 31, 1998

3,110,960

$7,851,516

 

 

 

Comprehensive income, net of taxes

 

 

 Net income

-0-

-0-

 Net unrealized holding losses on securities available-for-sale,

 

 

  net of tax, ($248,540)

-0-

-0-

Total comprehensive income

 

 

Dividends declared

-0-

-0-

5% stock dividend

156,633

391,582

Issuance of stock

91,155

227,887

Purchase of treasury stock

( 241)

-0-

Balances, December 31, 1999

3,358,507

8,470,985

 

 

 

Comprehensive income, net of taxes

 

 

 Net income

-0-

-0-

 Net unrealized holding gains on securities available-for-sale,

 

 

  net of tax, ($115,383)

-0-

-0-

Total comprehensive income

 

 

Dividends declared

-0-

-0-

Issuance of stock

90,167

225,417

Purchase of treasury stock

( 92,890)

-0-

Balances, December 31, 2000

3,355,784

8,696,402

 

 

 

Comprehensive income, net of taxes

 

 

 Net income

-0-

-0-

 Net unrealized holding gains on securities available-for-sale

 

 

  net of tax, ($25,535)

-0-

-0-

Total comprehensive income

 

 

Dividends declared

-0-

-0-

5% stock dividend

167,939

419,848

Issuance of stock

60,174

150,436

Purchase of treasury stock

( 27,288)

-0-

Balances, December 31, 2001

3,556,609

$9,266,686

 

 

 

See accompanying notes.

 

 

 

 

 

Accumulated

 

 

Additional

 

other

 

Total

Paid-in

Retained

comprehensive

Treasury

stockholders'

Capital

Earnings

income (loss)

stock

equity

 

 

 

 

 

$ 8,756,453

$5,604,096

$ 235,375

($ 445,381)

$22,002,059

 

 

 

 

 

 

 

 

 

 

-0-

2,334,358

-0-

-0-

2,334,358

 

 

 

 

 

-0-

-0-

( 482,461)

-0-

( 482,461)

 

 

 

 

1,851,897

-0-

( 2,624,150)

-0-

-0-

( 2,624,150)

1,459,756

( 1,851,338)

-0-

-0-

-0-

726,301

-0-

-0-

-0-

954,188

-0-

-0-

-0-

( 2,840)

( 2,840)

10,942,510

3,462,966

( 47,086)

( 448,221)

22,181,154

 

 

 

 

 

 

 

 

 

 

-0-

2,422,421

-0-

-0-

2,422,421

 

 

 

 

 

-0-

-0-

223,978

-0-

223,978

 

 

 

 

2,646,399

-0-

( 2,154,289)

-0-

-0-

( 2,154,289)

573,004

-0-

-0-

-0-

798,421

-0-

-0-

-0-

( 941,515)

( 941,515)

11,515,514

3,731,098

( 23,108)

( 1,389,736)

22,530,170

 

 

 

 

 

 

 

 

 

 

-0-

2,797,825

-0-

-0-

2,797,825

 

 

 

 

 

-0-

-0-

49,567

-0-

49,567

 

 

 

 

2,847,392

-0-

( 2,265,934)

-0-

-0-

( 2,265,934)

1,383,314

( 1,803,162)

-0-

-0-

-0-

513,184

-0-

-0-

-0-

663,620

-0-

-0-

-0-

( 328,422)

( 328,422)

$13,412,012

$ 2,459,827

$ 26,459

($ 1,718,158)

$23,446,826

 

 

 

 

 

COMMUNITY BANCORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2001, 2000, and 1999

 

2001

2000

1999

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

Net income

$ 2,797,825

$ 2,422,421

$ 2,334,358

Adjustments to reconcile net income to net

 

 

 

cash provided by operating activities:

 

 

 

Depreciation and amortization

588,862

599,487

516,824

Provision for possible loan losses

410,000

384,000

497,000

Provision (credit) for deferred income taxes

1,509

( 26,119)

21,068

(Gain) loss on sale of securities

( 170,899)

18,782

-0-

Gain on sale of loans

( 152,469)

( 50,863)

( 108,389)

Losses on sales of fixed assets

4,075

-0-

1,675

Gains on sales of OREO

( 36,858)

( 58,405)

( 96,318)

OREO writedowns

44,824

23,343

19,590

Amortization of bond premium, net

139,244

174,685

270,141

Proceeds from sales of loans held for sale

14,887,568

3,886,000

10,790,620

Originations of loans held for sale

( 17,137,574)

( 3,885,705)

( 10,310,457)

Decrease (increase) in interest receivable

185,362

( 445,303)

( 23,521)

(Increase) decrease in mortgage servicing rights

( 20,532)

22,892

( 31,114)

Decrease (increase) in other assets

55,193

( 191,227)

158,157

Increase in unamortized loan fees

257

59,823

42,151

Increase (decrease) in taxes payable

34,819

123,041

( 41,049)

(Decrease) increase in interest payable

( 141,707)

107,381

( 38,366)

Increase (decrease) in accrued expenses

36,667

( 40,418)

55,097

Increase in other liabilities

120,188

221,637

103,265

Net cash provided by operating activities

1,646,354

3,345,452

4,160,732

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

Securities held-to-maturity

 

 

 

Maturities and paydowns

38,229,271

21,842,506

31,875,523

Purchases

( 43,634,788)

( 34,157,564)

( 31,987,612)

Securities available-for-sale

 

 

 

Sales and maturities

13,147,578

9,987,892

-0-

Purchases

( 19,450,231)

-0-

( 9,291,211)

Purchase of restricted equity securities

( 83,000)

-0-

-0-

Increase in loans, net

( 13,884,200)

( 25,025,922)

( 6,589,397)

Capital expenditures, net

( 743,572)

( 947,879)

( 1,808,310)

Investments in limited partnership, net

79,123

24,740

( 324,258)

Proceeds from sales of other real estate owned

452,162

659,648

908,399

Recoveries of loans charged off

138,820

136,422

108,004

Net cash used in investing activities

( 25,748,837)

( 27,480,157)

( 17,108,862)

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

Net increase in demand, NOW, savings, and

 

 

 

money market accounts

29,335,617

551,589

8,482,469

Net increase (decrease) in certificates of deposit

349,386

5,990,061

( 4,436,883)

Net increase in short-term borrowings and repurchase agreements

5,461,972

11,748,256

2,335,041

Net (decrease) increase in borrowed funds

( 537,000)

1,537,000

( 5,000)

Payments to acquire treasury stock

( 328,422)

( 941,515)

( 2,840)

Dividends paid

( 1,577,182)

( 1,356,303)

( 1,132,601)

Debentures converted to cash

( 12,000)

-0-

-0-

Net cash provided by financing activities

32,692,371

17,529,088

5,240,186

Net increase (decrease) in cash

 

 

 

and cash equivalents

8,589,888

( 6,605,617)

( 7,707,944)

Cash and cash equivalents

 

 

 

Beginning

6,110,527

12,716,144

20,424,088

Ending

$14,700,415

$ 6,110,527

$12,716,144

 

 

 

 

SUPPLEMENTAL SCHEDULE OF CASH PAID

 

 

 

DURING THE YEAR

 

 

 

Interest

$ 8,728,177

$ 8,681,753

$ 7,572,906

 

 

 

 

Income taxes

$ 839,149

$ 679,038

$ 806,462

 

 

 

 

SUPPLEMENTAL SCHEDULE OF NONCASH

 

 

 

INVESTING AND FINANCING ACTIVITIES

 

 

 

Unrealized gain (loss) on securities available-for-sale

$ 75,101

$ 339,361

($ 731,001)

 

 

 

 

Other real estate owned acquired in settlement of loans

$ 319,005

$ 391,015

$ 724,462

 

 

 

 

Investments in limited partnership

 

 

 

(Increase) decrease in limited partnerships

($ 304,163)

$ 24,740

($ 324,258)

Increase in contributions payable

383,286

-0-

-0-

 

 

 

 

 

$ 79,123

$ 24,740

($ 324,258)

Debentures:

 

 

 

Decrease in subordinated debentures

$ 19,000

$ -0-

$ -0-

Debentures converted to common stock

( 7,000)

-0-

-0-

Debentures redeemed for cash

$ 12,000

$ -0-

$ -0-

 

 

 

 

Stock dividends

$ 1,803,162

$ -0-

$ 1,851,338

 

 

 

 

Dividends paid:

 

 

 

Dividends declared

$ 2,265,934

$ 2,154,289

$ 2,624,150

(Increase) decrease in dividends payable

( 32,132)

435

( 537,361)

Dividends reinvested

( 656,620)

( 798,421)

( 954,188)

 

$ 1,577,182

$ 1,356,303

$ 1,132,601

See accompanying notes.

 

 

 

COMMUNITY BANCORP. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.   Significant Accounting Policies

The accounting policies of Community Bancorp. and Subsidiaries ("Company") are in conformity with U. S. generally accepted accounting principles and general practices within the banking industry. The following is a description of the more significant policies.

Basis of presentation and consolidation

The consolidated financial statements include the accounts of Community Bancorp. and its wholly-owned subsidiaries, Community National Bank (Community) and Liberty Savings Bank (Liberty). All significant intercompany accounts and transactions have been eliminated.

Nature of operations

The Company provides a variety of financial services to individuals and corporate customers through its branches in northeastern and central Vermont, which is primarily a small business and agricultural area. The Company's primary deposit products are checking and savings accounts and certificates-of-deposit. Its primary lending products are commercial, real estate, and consumer loans.

Concentration of risk

The Company's operations are affected by various risk factors, including interest-rate risk, credit risk, and risk from geographic concentration of lending activities. Management attempts to manage interest rate risk through various asset/liability management techniques designed to match maturities of assets and liabilities. Loan policies and administration are designed to provide assurance that loans will only be granted to credit-worthy borrowers, although credit losses are expected to occur because of subjective factors and factors beyond the control of the Company. Although the Company has a diversified loan portfolio and economic conditions are stable, most of its lending activities are conducted within the geographic area where it is located. As a result, the Company and its borrowers may be especially vulnerable to the consequences of changes in the local economy. Note 2 discusses the types of securities the Bank invests in, and Note 3 discusses the types of lending in which the Bank engages. In addition, a substantial portion of the Company's loans are secured by real estate.

Use of estimates

The preparation of consolidated financial statements in conformity with U. S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for losses on loans and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans and deferred tax assets. In connection with the determination of the allowances for losses on loans and foreclosed real estate, management obtains independent appraisals for significant properties. Accordingly, the ultimate collectibility of a substantial portion of the Company's loan portfolio and the recovery of a substantial portion of the carrying amount of foreclosed real estate are susceptible to changes in local market conditions. The amount of the change that is reasonably possible cannot be estimated.

While management uses available information to recognize losses on loans and foreclosed real estate, future additions to the allowances may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company's allowances for losses on loans and foreclosed real estate. Such agencies may require the Company to recognize additions to the allowances based on their judgments about information available to them at the time of their examination.

Presentation of cash flows

For purposes of presentation in the consolidated statement of cash flows, cash and cash equivalents includes cash on hand, amounts due from banks (including cash items in process of clearing), federal funds sold (generally purchased and sold for one day periods), and overnight deposits.

Trust assets

Assets of the Trust Department, other than trust cash on deposit at the Company, are not included in these consolidated financial statements because they are not assets of the Company.

Investment securities

Investment securities purchased and held primarily for resale in the near future are classified as trading. Trading securities are carried at fair value with unrealized gains and losses included in earnings. Debt securities the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity and reported at amortized cost. Debt and equity securities not classified as either held-to-maturity or trading are classified as available-for-sale. Investments classified as available-for-sale are carried at fair value with unrealized gains and losses net of tax and reclassification adjustment reported as a net amount in other comprehensive income. The specific identification method is used to determine realized gains and losses on sales of securities available-for-sale. Premiums and discounts are recognized in interest income using the interest method over the period to maturity.

Restricted equity securities

Restricted equity securities are comprised of Federal Reserve Bank stock and Federal Home Loan Bank stock. These securities are carried at cost. As a member of the Federal Reserve Bank (FRB), the Company is required to invest in FRB stock in an amount equal to 3% of Community National Bank's capital stock and surplus.

As a member of the Federal Home Loan Bank, the Company is required to invest in $100 par value stock of the Federal Home Loan Bank. The stock is nonmarketable, and when redeemed, the Company would receive from the Federal Home Loan Bank an amount equal to the par value of the stock.

Loans held for sale

Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. All sales are made without recourse. Net unrealized losses are recognized through a valuation allowance by charges to income.

Loans

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.

Loan interest income is accrued daily on the outstanding balances. The accrual of interest is discontinued when a loan is specifically determined to be impaired or management believes, after considering collection efforts and other factors, that the borrower's financial condition is such that collection of interest is doubtful. Any unpaid interest previously accrued on those loans is reversed from income. Interest income is generally not recognized on specific impaired loans unless the likelihood of further loss is remote. Interest payments received on such loans are generally applied as a reduction of the loan principal balance. Interest income on other nonaccrual loans is recognized only to the extent of interest payments received.

Loan origination and commitment fees and certain direct loan origination costs are being deferred and the net amount amortized as an adjustment of the related loan's yield. The Company is generally amortizing these amounts over the contractual life.

Allowance for loan losses

The allowance for loan losses is maintained at a level which, in management's judgment, is adequate to absorb credit losses inherent in the loan portfolio. The amount of the allowance is based on management's periodic evaluation of the collectibility of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, and economic conditions. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows. The allowance is increased by a provision for loan losses, which is charged to expense, and reduced by charge-offs, net of recoveries.

Bank premises and equipment

Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed principally by the straight-line method over their estimated useful lives. The cost of assets sold or otherwise disposed of, and the related allowance for depreciation, is eliminated from the accounts and the resulting gains or losses are reflected in the income statement. Maintenance and repairs are charged to current expense as incurred and the cost of major renewals and betterments are capitalized.

Other real estate owned

Real estate properties acquired through or in lieu of loan foreclosure are initially recorded at the lower of the Company's carrying amount or fair value less estimated selling cost at the date of foreclosure. Any write-downs based on the asset's fair value at the date of acquisition are charged to the allowance for loan losses. After foreclosure, these assets are carried at the lower of their new cost basis or fair value less cost to sell. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed. Valuations are periodically performed by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to the lower of its cost or fair value less cost to sell.

Note 1.   Significant Accounting Policies (Continued)

Income taxes

The Company recognizes income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are established for the temporary differences between the accounting basis and the tax basis of the Company's assets and liabilities at enacted tax rates expected to be in effect when the amounts related to such temporary differences are realized or settled. Adjustments to the Company's deferred tax assets are recognized as deferred income tax expense or benefit based on management's judgments relating to the realizability of such asset.

Foreign currency transactions

Foreign currency (principally Canadian) amounts are translated to U.S. dollars. The U.S. dollar is the functional currency and therefore translation adjustments are recognized in income. Total translation adjustments, including adjustments on foreign currency transactions, are immaterial.

Mortgage servicing

Servicing assets are recognized as separate assets when rights are acquired through purchase or through sale of financial assets. Capitalized servicing rights are reported in other assets and are amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing rights are evaluated for impairment based upon the fair value of the rights as compared to amortized cost. Impairment is determined by stratifying the rights by predominant characteristics, such as interest rates and terms. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Impairment is recognized through a valuation allowance for an individual stratum, to the extent that fair value is less than the capitalized amount for the stratum.

Pension costs

Pension costs are charged to salaries and employee benefits expense and are funded as accrued.

Advertising costs

The Company expenses advertising costs as incurred.

Comprehensive income

Accounting principles generally require that recognized revenue, expenses, gains, and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.

The components of other comprehensive income and related tax effects at December 31 are as follows:

 

2001

2000

1999

Change in unrealized holding (losses) gains

 

 

 

 on available-for-sale securities

($ 95,798)

$358,143

($731,001)

Reclassification adjustment for gains (losses)

 

 

 

 realized in income

170,899

( 18,782)

-0-

Net unrealized gains (losses)

75,101

339,361

( 731,001)

Tax effect

( 25,534)

( 115,383)

248,540

Net of tax amount

$ 49,567

$223,978

($482,461)

Earnings per common 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.

Off-balance-sheet financial instruments

In the ordinary course of business, the Company has entered into off-balance-sheet financial instruments consisting of commitments to extend credit, commitments under credit card arrangements, commercial letters of credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable.

Fair values of financial instruments

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

Cash and cash equivalents: The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets' fair values.

Investment securities: Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Restricted equity securities: The carrying amounts of these securities approximate their fair values.

Loans and loans held for sale: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying amounts. The fair values for other loans (for example, fixed rate residential, commercial real estate, and rental property mortgage loans, and commercial and industrial loans) are estimated using discounted cash flow analysis, based on interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Loan fair value estimates include judgments regarding future expected loss experience and risk characteristics. The carrying amounts reported in the balance sheet for loans that are held for sale approximate their market values. Fair values for impaired loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

Deposits and borrowed funds: The fair values disclosed for demand deposits (for example, checking and savings accounts) are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The fair values for certificates of deposit and debt are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates and debt to a schedule of aggregated contractual maturities on such time deposits and debt.

Short-term borrowings: The carrying amounts reported in the balance sheets for federal funds purchased approximate their fair values. These borrowings are short-term and due on demand.

Other liabilities: Commitments to extend credit were evaluated and fair value was estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.

Accrued interest: The carrying amounts of accrued interest approximates their fair values.

Transfers of financial assets

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Recent accounting pronouncements

The FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by FAS Nos. 137 and 138, which became effective for years beginning after June 15, 2000. This Statement establishes new accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those derivatives at fair value. The accounting for the gains or losses resulting in the changes of value of those derivatives will depend on the intended use of the derivatives and whether it qualifies for hedge accounting.

Concurrent with the adoption of the Statement and as permitted by its provisions, on March 27, 2001, debt securities classified as held-to-maturity with a carrying value of $7,043,461 and fair value of $7,127,400 were reclassified as securities available-for-sale. As of December 31, 2001, some of these securities have been sold with resulting realized net gains of $80,864 included in the income statement caption "Security gains and (losses)".

In 2001, the FASB issued Statement No. 142, Goodwill and Other Intangible Assets, which is effective for fiscal years beginning after December 15, 2001. This Statement establishes guidelines on how intangible assets that are acquired individually or with a group of other assets (other than those acquired in a business combination) are accounted for in financial statements. Goodwill and intangible assets that have indefinite lives will not be amortized but rather will be evaluated at least annually for impairment by comparing the fair value of those assets with their recorded amounts. Management is currently evaluating the impact of this statement on the Company's financial statements but does not anticipate a material impact. Unamortized goodwill amounted to $251,286 as of December 31, 2001 (see Note 21).

Reclassification

Certain amounts in the 2000 and 1999 financial statements have been reclassified to conform to the current year presentation.

Note 2.   Investment Securities

Securities available-for-sale (AFS) and held-to-maturity (HTM) consist of the following:

 

 

Gross

Gross

 

 

Amortized

Unrealized

Unrealized

Fair

Securities AFS

Cost

Gains

Losses

Value

December 31, 2001

 

 

 

 

U. S. Government and agency securities

$23,129,935

$ 276,095

$ 142,818

$23,263,212

Corporate debt securities

9,343,488

32,424

125,612

9,250,300

 

$32,473,423

$ 308,519

$ 268,430

$32,513,512

December 31, 2000

 

 

 

 

U. S. Government and agency securities

$19,180,950

$ 1,606

$ 36,618

$19,145,938

 

$19,180,950

$ 1,606

$ 36,618

$19,145,938

Securities HTM

 

 

 

 

December 31, 2001

 

 

 

 

U. S. Government and agency securities

$19,087,603

$ 504,798

$ 181,601

$19,410,800

States and political subdivisions

21,556,878

-0-

-0-

21,556,878

 

$40,644,481

$ 504,798

$ 181,601

$40,967,678

December 31, 2000

 

 

 

 

U. S. Government and agency securities

$28,676,667

$ 373,580

$ 104,123

$28,946,124

States and political subdivisions

13,520,463

-0-

-0-

13,520,463

 

$42,197,130

$ 373,580

$ 104,123

$42,466,587

Investment securities with a carrying amount of $34,207,566 and $28,021,023 and a fair value of $34,740,513 and $28,296,137 at December 31, 2001 and 2000, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.

Proceeds from the sale of securities available-for-sale amounted to $13,147,578 in 2001, $9,987,892 in 2000, and $-0- in 1999. Realized gains from sales of investments available-for-sale were $120,190 in 2001, $1,391 in 2000, and $-0- in 1999. Realized losses were $783 in 2001, $20,173 in 2000, and $-0- in 1999. Realized gains of $51,492 were recognized in 2001 on securities held-to-maturity due to call features exercised prior to maturity on certain debt securities.

The carrying amount and estimated fair value of securities by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

The scheduled maturities of securities available-for-sale at December 31, 2001 were as follows:

 

Amortized

Fair

Cost

Value

Due in one year or less

$13,056,545

$13,287,912

Due from one to five years

11,314,559

11,176,700

Due from five to ten years

8,102,319

8,048,900

 

$32,473,423

$32,513,512

The maturities of securities held-to-maturity at December 31, 2001 were as follows:

 

Amortized

Fair

 

Cost

Value

Due in one year or less

$20,534,034

$20,565,335

Due from one to five years

5,160,956

5,106,556

Due from five to ten years

13,833,593

14,179,889

Due after ten years

1,115,898

1,115,898

 

$40,644,481

$40,967,678

Note 2.   Investment Securities (Continued)

Included in the caption "States and Political Subdivisions" are securities of local municipalities carried at $21,530,221 and $13,459,837 at December 31, 2001 and 2000, respectively, which are attributable to private financing transactions arranged by the Company. There is no established trading market for these securities and, accordingly, the carrying amount of these securities has been reflected as their fair value. The Company anticipates no losses on these securities and expects to hold them until their maturity.

Note 3.   Loans

The composition of net loans at December 31 is as follows:

 

2001

2000

 

 

 

Commercial

$ 13,771,308

$ 14,635,161

Real estate - Construction

3,365,082

1,021,113

Real estate - Mortgage

148,689,042

138,771,429

Installment and other

24,216,949

22,387,705

 

190,042,381

176,815,408

Deduct:

 

 

Allowance for loan losses

2,007,408

1,796,810

Unearned net loan fees

951,194

950,937

 

2,958,602

2,747,747

 

$187,083,779

$174,067,661

Total unamortized premiums on purchased loans totaled $66,979 and $71,082 at December 31, 2001 and 2000, respectively, and are included in the "Installment and other" caption.

Commercial and mortgage loans serviced for others are not included in the accompanying balance sheets. The unpaid principal balances of commercial and mortgage loans serviced for others were $57,675,883, $51,351,638, and $50,638,724 at December 31, 2001, 2000, and 1999, respectively. Mortgage servicing rights of $89,913, $25,672, and $77,926 were capitalized in 2001, 2000, and 1999, respectively. Amortization of mortgage servicing rights was $69,381, $48,564, and $46,762 in 2001, 2000, and 1999, respectively.

The total recorded investment in impaired loans as determined in accordance with FASB Statements No. 114 and No. 118 approximated $334,157 and $399,450 at December 31, 2001 and 2000, respectively. These loans were subject to allowances for loan losses of approximately $16,429 and $8,732 which represented the total allowance for loan losses related to impaired loans at December 31, 2001 and 2000, respectively. The average recorded investment in impaired loans amounted to approximately $277,551, $470,107, and $895,365 for the years ended December 31, 2001, 2000, and 1999, respectively. Cash receipts on impaired loans amounted to $185,404, $151,110, and $444,327 in 2001, 2000, and 1999, respectively, of which $185,404, $125,268, and $384,860 were applied to the principal balances of the loans.

Note 3.   Loans (Continued)

In addition, the Company had other nonaccrual loans of approximately $1,237,102 and $1,015,433 at December 31, 2001 and 2000, respectively, for which impairment had not been recognized. If interest on these loans had been recognized at the original interest rates, interest income would have increased approximately $150,720, $117,954, and $102,900 for the years ended December 31, 2001, 2000, and 1999, respectively.

The Company is not committed to lend additional funds to debtors with impaired, nonaccrual or modified loans.

Note 4.   Allowance for Loan Losses

Changes in the allowance for loan losses for the years ended December 31 are as follows:

 

2001

2000

1999

Balance, beginning

$1,796,810

$1,714,763

$1,658,967

Provision for loan losses

410,000

384,000

497,000

Recoveries of Amounts Charged off

138,820

136,422

108,004

 

2,345,630

2,235,185

2,263,971

Amounts charged off

( 338,222)

( 438,375)

( 549,208)

Balance, ending

$2,007,408

$1,796,810

$1,714,763

Note 5.   Bank Premises and Equipment

The major classes of bank premises and equipment and accumulated depreciation at December 31 are as follows:

 

2001

2000

Land

$ 100,612

$ 80,747

Buildings and improvements

3,795,496

3,794,658

Furniture and equipment

5,878,101

5,453,261

Leasehold improvements

697,516

418,916

 

10,471,725

9,747,582

Less accumulated depreciation

( 5,604,312)

( 5,053,648)

 

$ 4,867,413

$ 4,693,934

Depreciation included in occupancy and equipment expense amounted to $566,018, $576,642, and $493,979 for the years ended December 31, 2001, 2000, and 1999, respectively.

The Company occupies leased quarters at five branch office locations under operating leases expiring in various years through 2013 with options to renew.

Note 5.   Bank Premises and Equipment (Continued)

Minimum future rental payments under non-cancelable operating leases having original terms in excess of one year as of December 31, 2001 for each of the next five years and in aggregate are:

2002

$130,753

2003

131,882

2004

133,045

2005

110,189

2006

60,368

Subsequent to 2006

280,409

 

$846,646

Total rental expense amounted to $139,307, $102,327, and $150,865 for the years ended December 31, 2001, 2000, and 1999, respectively.

Note 6.   Other Real Estate Owned

A summary of foreclosed real estate at December 31 is as follows:

 

2001

2000

 

 

 

Other real estate owned

$ 60,000

$464,129

Less allowance for losses on OREO

-0-

( 263,006)

Other real estate owned, net

$ 60,000

$201,123

Changes in the allowance for losses on OREO for the years ended December 31 were as follows:

 

2001

2000

1999

 

 

 

 

Balance, beginning

$263,006

$251,546

$251,546

Provision for losses

44,824

23,343

19,590

Charge-offs, net

( 307,830)

( 11,883)

( 19,590)

Balance, ending

$ -0-

$263,006

$251,546

Note 7.   Investments Carried at Equity

The Company purchased various partnership interests in limited partnerships. These partnerships were established to acquire, own and rent residential housing for low and moderate income Vermonters located in northeastern Vermont. The investments are accounted for under the equity method of accounting. These equity investments, which are included in other assets, are recorded at cost and adjusted for the Company's proportionate share of the partnership's undistributed earnings or losses. The carrying values of these investments were $905,618 and $601,454 at December 31, 2001 and 2000, respectively. The provision for undistributed net losses of the partnerships charged to earnings were $127,758, $86,141, and $28,992 for 2001, 2000, and 1999, respectively.

Note 8.   Deposits

The following is a maturity distribution of time certificates of deposit at December 31, 2001:

Maturing in 2002

$67,109,123

Maturing in 2003

10,082,664

Maturing in 2004

12,577,646

Maturing in 2005

479,718

Maturing in 2006 and thereafter

7,256,250

 

$97,505,401

A maturity distribution of time certificates of deposit in denominations of $100,000 or more at December 31, 2001 is as follows:

Three months or less

$ 1,234,824

Over three months through six months

6,105,449

Over six months through twelve months

5,288,945

Over twelve months

5,388,632

 

$18,017,850

Note 9.   Borrowed Funds

Borrowings from the Federal Home Loan Bank of Boston (FHLB) for the years ended December 31 were as follows:

 

2001

2000

 

 

 

FHLB term borrowing, 4.78% fixed rate,

 

 

Payable, January 18, 2011

$5,000,000

$ -0-

 

 

 

FHLB term borrowing, 6.69% fixed rate,

 

 

Payable March 1, 2001

-0-

5,000,000

 

 

 

Community Investment Program borrowings,

 

 

Fixed rate (vary 7.16% to 7.67%), payable

 

 

Payable at various maturities

 

 

Through November, 2012

55,000

55,000

 

$5,055,000

$5,055,000

Principal maturities of borrowed funds as of December 31, 2001 are as follows:

2002

$ 15,000

2003

-0-

2004

-0-

2005

-0-

2006

-0-

Thereafter

5,040,000

 

$5,055,000

Note 9.   Borrowed Funds (Continued)

The Company also maintains a $4,301,000 IDEAL Way Line of Credit with the Federal Home Loan Bank of Boston. Outstanding advances under this line were $-0- and $537,000 at December 31, 2001 and 2000, respectively. Interest on these borrowings is chargeable at a rate determined daily by the Federal Home Loan Bank and payable monthly.

Collateral on these borrowings consists of all funds placed in deposit with the Federal Home Loan Bank, qualified first mortgages held by the Company, and any additional holdings which may be pledged as security.

The Bank also maintains a line of credit with Fleet Bank for the purchase of overnight Federal Funds. As of December 31, 2001, the total amount of this line approximated $2,000,000 with outstanding borrowings of $-0-. Interest on this borrowing is chargeable at the Federal Funds rate at the time of the borrowing and payable daily.

Under a separate agreement, the Bank has the authority to collateralize public unit deposits, up to their borrowing capacity, with letters of credit issued by the Federal Home Loan Bank. As of December 31, 2001, the Bank's potential borrowing capacity is approximately $103 million, reduced by outstanding advances. At December 31, 2001, $8,965,000 was pledged as collateral for these deposits. Interest is charged to the Bank quarterly based on the average daily balance outstanding at a rate of 20 basis points.

Note 10.   Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase amounted to $19,833,510 and $14,371,538 as of December 31, 2001 and 2000, respectively. These agreements are collateralized by U. S. government and agency securities and U. S. Treasury notes with a carrying value of $28,206,581 and $21,998,106 and a fair value of $28,567,613 and $22,227,651 at December 31, 2001 and 2000, respectively. These securities pay interest at rates between 3.65 % and 7.76% and mature at varying dates through 2011.

The average daily balance of these repurchase agreements approximated $15,888,258 and $9,956,407 during 2001 and 2000, respectively. The maximum borrowings outstanding on these agreements at any month-end reporting period of the Bank were $23,287,776 and $19,754,560 in 2001 and 2000, respectively. These repurchase agreements mature daily and carry interest rates ranging from 2.26% to 3.26%. The securities underlying these agreements are held in safekeeping by the Institution.

Note 11.   Subordinated Debentures

On September 1, 1984, the Company issued $750,000 of 11% convertible debentures due August 1, 2004. The notes are subordinated to all other indebtedness of the Company. At December 31, 2001 and 2000, $1,000 and $20,000, respectively, remained outstanding.

These debentures are convertible prior to maturity in whole or in part, at the option of the holder, into common stock of the Company at a conversion price of $2.23 per share.

The debentures are redeemable, in whole or in any part, at the option of the Company at any time after July 31, 1996, and prior to maturity, on not less than 30 days prior notice to holders. The redemption price shall be equal to the percentage set forth below:

August 1, 2000 - July 31, 2002

102%

August 1, 2002 - July 31, 2004

101%

Note 12.   Income Taxes

The Company prepares its federal income tax return on a consolidated basis (see Note 1). Federal income taxes are allocated to members of the consolidated group based on taxable income.

Federal income tax expense for the years ended December 31 was as follows:

 

2001

2000

1999

Currently paid or payable

$ 873,967

$ 802,079

$ 765,413

Deferred

1,509

( 26,119)

21,068

 

$ 875,476

$ 775,960

$ 786,481

Total income tax expense differed from the amounts computed at the statutory federal income tax rate of 34 percent primarily due to the following at December 31:

 

2001

2000

1999

Computed "expected tax expense

$1,248,922

$1,087,449

$1,061,085

Tax exempt interest

( 252,470)

( 270,988)

( 207,439)

Disallowed interest

35,124

40,229

30,736

Partnership tax credits

( 169,990)

( 93,169)

( 109,749)

Other

13,890

12,439

11,848

 

$ 875,476

$ 775,960

$ 786,481

Note 12.   Income Taxes (Continued)

The deferred income tax provision consisted of the following items for the years ended December 31:

 

2001

2000

1999

 

 

 

 

Depreciation

$ 27,406

$ 4,026

($ 23,241)

Loan fees

27,143

14,573

25,175

Mortgage servicing

6,981

( 7,783)

10,579

Deferred compensation

( 36,429)

( 45,489)

( 42,985)

Bad debts

( 66,398)

( 19,629)

4,566

Limited partnerships

77,312

32,649

47,344

Nonaccrual loan interest

( 12,020)

9,680

( 11,660)

OREO

89,422

( 3,896)

-0-

Other

( 111,908)

( 10,250)

11,290

 

$ 1,509

($ 26,119)

$ 21,068

Listed below are the significant components of the net deferred tax asset at December 31:

 

2001

2000

Components of the deferred tax asset:

 

 

Bad debts

$508,343

$441,945

Unearned loan fees

35,563

62,706

Nonaccrual loan interest

137,662

125,642

OREO writedowns

-0-

89,422

Deferred compensation

199,635

163,206

Other

49,257

23,156

Unrealized loss on securities available-for-sale

-0-

11,904

Total deferred tax asset

930,460

917,981

Valuation allowance

-0-

-0-

Total deferred tax asset, net of valuation allowance

930,460

917,981

 

 

 

Components of the deferred tax liability:

 

 

Depreciation

165,419

138,013

Limited partnerships

281,511

204,199

Mortgage servicing right

73,377

66,396

Unrealized gain on securities available-for-sale

13,630

-0-

Total deferred tax liability

533,937

408,608

Net deferred tax asset

$396,523

$509,373

FASB Statement No. 109 allows for recognition and measurement of deductible temporary differences (including general valuation allowances) to the extent that it is more likely than not that the deferred tax asset will be realized.

Net deferred tax assets are included in the caption "Other assets" on the balance sheets at December 31, 2001 and 2000, respectively.

Note 13.   Pension Plan

The Company has a discretionary defined contribution plan covering all employees who meet certain age and service requirements. Due to the nature of the plan, defined contribution, there is no unfunded past service liability. The provisions for pension expense were $285,105, $284,596, and $280,650 for 2001, 2000, and 1999, respectively.

Note 14.   Financial Instruments with Off-Balance-Sheet Risk

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees, interest rate caps and floors written on adjustable rate loans, and commitments to sell loans. Such instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit and financial guarantees written is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. For interest rate caps and floors written on adjustable rate loans, the contract or notional amounts do not represent exposure to credit loss. The Company controls the credit risk of their interest rate cap agreements through credit approvals, limits, and monitoring procedures.

The Company generally requires collateral or other security to support financial instruments with credit risk.

 

Contract or

 

----Notional Amount----

 

2001

2000

Financial instruments whose contract amount represent credit risk:

 

 

 

 

 

   Commitments to extend credit

$19,495,158

$16,600,962

   Standby letters of credit and commercial letters of credit

$ 65,000

$ 51,362

   Credit card arrangements

$ 6,585,013

$ 6,071,739

Note 14.   Financial Instruments with Off-Balance-Sheet Risk (Continued)

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on management's credit evaluation of the counter-party. Collateral held varies but may include real estate, accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.

Standby letters of credit and financial guarantees written are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.

The Company enters into a variety of interest rate contracts, including interest rate caps and floors written on adjustable rate loans in managing its interest rate exposure. Interest rate caps and floors on loans written by the Company enable customers to transfer, modify, or reduce their interest rate risk.

Note 15.   Commitments and Contingencies

The Company has entered into an agreement to invest in a limited liability company which will offer trust and brokerage services. The initial investment is anticipated to be $530,000, which will purchase one third ownership in the limited liability company. The Company has also entered into an agreement to sell its Trust Department and related services to this limited liability company and anticipates a gain on this transaction of approximately $567,000 ($374,000 net of tax) to be recognized in 2002.

In the normal course of business, the Company is involved in various claims and legal proceedings. In the opinion of the Company's management, after consulting with the Company's legal counsel, any liabilities resulting from such proceedings would not have a material adverse effect on the Company's financial statements.

Note 16.   Transactions with Related Parties

The Company has had, and may be expected to have in the future, banking transactions in the ordinary course of business with directors, principal officers, their immediate families and affiliated companies in which they are principal stockholders (commonly referred to as related parties), all of which have been, in the opinion of management, on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with others.

Aggregate loan transactions with related parties as of December 31 were as follows:

 

2001

2000

 

 

 

Balance, beginning

$415,665

$396,339

New loans

607,501

335,386

Repayments

( 391,702)

( 316,060)

Balance, ending

$631,464

$415,665

Total deposits with related parties approximated $815,015 and $745,476 at December 31, 2001 and 2000, respectively.

Note 17.   Deferred Compensation Plans

The Company has a deferred compensation and retirement program for directors and key employees of the Company. These employees and directors are general creditors of the Company with respect to these benefits. The benefits accrued under these plans aggregated $588,732 and $480,016 at December 31, 2001 and 2000, respectively. The expense associated with these deferred compensation plans was $120,415, $142,093, and $131,426 for the years ended December 31, 2001, 2000, and 1999, respectively.

Note 18.   Restrictions on Cash and Due From Banks

The Company is required to maintain reserve balances in cash with Federal Reserve Banks. The totals of those reserve balances were approximately $1,755,000 and $1,052,000 at December 31, 2001 and 2000, respectively.

The nature of the Bank's business requires that it maintain amounts due from banks which, at times, may exceed federally insured limits. The balance in these accounts at December 31 is as follows:

 

2001

2000

Noninterest-bearing accounts

$ 678,132

$ 408,026

Federal Reserve Bank

5,781,998

4,365,530

Federal funds sold

6,019,178

-0-

No losses have been experienced in these accounts. In addition, the Company was required to maintain contracted clearing balances of $275,000 at December 31, 2001 and 2000.

Note 19.   Regulatory Matters

The Bank (Community National Bank) is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank 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 December 31, 2001, that the Bank meets all capital adequacy requirements to which it is subject.

As of December 31, 2001, the most recent notification from the OCC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank 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 Bank's category.

The Bank'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

 

 

 

Adequacy Purposes:

Action Provisions:

 

 

Actual

 

 

 

Amount

Ratio

Amount

Ratio

Amount

Ratio

As of December 31, 2001:

 

 

 

 

 

 

Total capital (to risk weighted assets)

$23,975

15.59%

$12,305

8.0%

$15,381

10.0%

Tier I capital (to risk weighted assets)

$22,051

14.34%

$ 6,153

4.0%

$ 9,229

6.0%

Tier I capital (to average assets)

$22,051

7.92%

$11,133

4.0%

$13,916

5.0%

 

 

 

 

 

 

 

As of December 31, 2000:

 

 

 

 

 

 

Total capital (to risk weighted assets)

$22,513

17.08%

$10,543

8.0%

$13,178

10.0%

Tier I capital (to risk weighted assets)

$20,864

15.83%

$ 5,272

4.0%

$ 7,907

6.0%

Tier I capital (to average assets)

$20,864

8.06%

$10,359

4.0%

$12,949

5.0%

The Bank is restricted as to the amount of dividends which can be paid. Dividends declared by national banks that exceed net income for the current and preceding two years must be approved by the OCC. Regardless of formal regulatory restrictions, the Bank may not pay dividends that would result in its capital levels being reduced below the minimum requirements shown above.

Note 20.   Fair Value of Financial Instruments

The estimated fair values of the Company's financial instruments are as follows:

 

December 31, 2001

 

Carrying

Fair

 

Amount

Value

Financial assets:

 

 

Cash and cash equivalents

$ 14,700,415

$ 14,700,415

Securities held-to-maturity

40,644,481

40,967,678

Securities available-for-sale

32,513,512

32,513,512

Restricted equity securities

1,224,650

1,224,650

Loans and loans held-for-sale, net

190,197,245

191,561,882

Accrued interest receivable

1,744,133

1,744,133

Financial liabilities:

 

 

Deposits

238,069,533

239,548,863

Repurchase agreements

19,833,510

19,833,510

Borrowed funds

5,056,000

4,605,000

Accrued interest payable

252,431

252,431

 

 

 

 

December 31, 2000

 

Carrying

Fair

 

Amount

Value

Financial assets:

 

 

Cash and cash equivalents

$ 6,110,527

$ 6,110,527

Securities held-to-maturity

42,197,130

42,466,587

Securities available-for-sale

19,145,938

19,145,938

Restricted equity securities

1,141,650

1,141,650

Loans and loans held-for-sale, net

174,778,652

173,969,010

Accrued interest receivable

1,929,495

1,929,495

Financial liabilities:

 

 

Deposits

208,384,530

208,910,182

Repurchase agreements

14,371,538

14,371,538

Borrowed funds

5,612,000

5,612,000

Accrued interest payable

394,138

394,138

The estimated fair values of deferred fees on commitments to extend credit and letters of credit were immaterial at December 31, 2001 and 2000.

The carrying amounts in the preceding table are included in the balance sheet under the applicable captions, except for borrowed funds which consist of long-term debt and subordinated debentures.

Note 21.   Intangibles

Pursuant to the Company's purchase of 100% of the stock of Liberty Savings Bank, a New Hampshire guaranty savings bank, the excess of the purchase price paid over the assets acquired is being amortized on a straight-line basis over 15 years. Unamortized goodwill amounted to $251,286 and $274,130 as of December 31, 2001 and 2000, respectively, and is included in "Other Assets" on the balance sheet. Amortization expense was $22,844 for the years ended December 31, 2001, 2000, and 1999.

Note 22.   Condensed financial Information (Parent Company Only)

The following financial statements are for Community Bancorp. (Parent Company Only), and should be read in conjunction with the consolidated financial statements of Community Bancorp. and Subsidiaries.

COMMUNITY BANCORP. (PARENT COMPANY ONLY)

CONDENSED BALANCE SHEETS

DECEMBER 31, 2001 and 2000

 

ASSETS

2001

2000

 

 

 

Cash

$ 4,895

$ 334,696

Investment in Subsidiary - Community National Bank

22,099,537

20,860,217

Investment in Subsidiary - Liberty Savings Bank

1,889,083

1,860,860

Other assets

37,169

31,690

Total assets

$24,030,684

$23,087,463

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

Liabilities

 

 

Other liabilities

$ 13,800

$ 367

Dividends payable

569,058

536,926

Subordinated convertible debentures

1,000

20,000

Total liabilities

583,858

557,293

 

 

 

Stockholders' equity

 

 

Common stock, $2.50 par value;6,000,000 share authorized,

 

 

3,706,674 shares issued at December 31, 2001 and 3,478,561

 

 

shares issued at December 31, 2000

9,266,686

8,696,402

Additional paid-in capital

13,412,012

11,515,514

Retained earnings (Note 19)

2,459,827

3,731,098

Accumulated other comprehensive income (loss)

26,459

( 23,108)

Less treasury stock, at cost (2001 - 150,065 shares;

 

 

2000 - 122,777 shares)

( 1,718,158)

( 1,389,736)

Total stockholders' equity

23,446,826

22,530,170

Total liabilities and stockholders' equity

$24,030,684

$23,087,463

The investment in the subsidiary banks is carried under the equity method of accounting. The investment and cash, which is on deposit with the Bank, has been eliminated in consolidation.

COMMUNITY BANCORP. (PARENT COMPANY ONLY)

CONDENSED STATEMENTS OF INCOME

Years Ended December 31, 2001, 2000, and 1999

 

 

2001

2000

1999

Revenues

 

 

 

Dividends

 

 

 

Bank subsidiary - Community National Bank

$1,652,000

$2,653,000

$ 942,200

Total revenues

1,652,000

2,653,000

942,200

 

 

 

 

Expenses

 

 

 

Interest on long-term debt

706

2,200

2,200

Administrative and other

108,614

91,007

49,560

Total expenses

109,320

93,207

51,760

 

 

 

 

Income before applicable income tax and

 

 

 

equity in undistributed net income of subsidiaries

1,542,680

2,559,793

890,440

Applicable income tax (benefit)

( 37,169)

( 31,690)

( 17,599)

Income before equity (deficit) in

 

 

 

undistributed net income of subsidiaries

1,579,849

2,591,483

908,039

Equity (deficit) in undistributed net income - Subsidiaries

1,217,976

( 169,062)

1,426,319

Net income

$2,797,825

$2,422,421

$2,334,358

Note 22.   Condensed Financial Information (Parent Company Only) (Continued)

COMMUNITY BANCORP. (PARENT COMPANY ONLY)

CONDENSED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2001, 2000, and 1999

 

 

2001

2000

1999

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

Net income

$2,797,825

$2,422,421

$2,334,358

Adjustments to reconcile net income to net cash

 

 

 

provided by operating activities

 

 

 

(Equity) deficit in undistributed net income of subsidiaries

( 1,217,976)

169,062

( 1,426,319)

(Increase) decrease in income taxes receivable

( 5,479)

( 14,091)

5,890

Increase in other liabilities

13,433

-0-

-0-

Net cash provided by operating activities

1,587,803

2,577,392

913,929

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

Purchase of treasury stock

( 328,422)

( 941,515)

( 2,840)

Debentures redeemed for cash

( 12,000)

-0-

-0-

Dividends paid

( 1,577,182)

( 1,356,303)

( 1,132,601)

 

 

 

 

Net cash used for financing activities

( 1,917,604)

( 2,297,818)

( 1,135,441)

 

 

 

 

Net (decrease) increase in cash

( 329,801)

279,574

( 221,512)

Cash

 

 

 

   Beginning

334,696

55,122

276,634

   Ending

$ 4,895

$ 334,696

$ 55,122

 

 

 

 

SUPPLEMENTAL SCHEDULE OF CASH PAID (RECEIVED)

DURING THE YEAR

 

 

 

Interest

$ 1,073

$ 2,200

$ 2,200

Income taxes

($ 31,690)

($ 17,599)

($ 23,489)

 

 

 

 

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING

AND FINANCING ACTIVITIES

 

 

 

Unrealized gain (loss) on securities available-for-sale

$ 75,101

$ 339,361

($ 731,001)

Debentures

 

 

 

Decrease in subordinated debentures payable

$ 19,000

$ -0-

$ -0-

Debentures converted to common stock

( 7,000)

-0-

-0-

Debentures redeemed for cash

$ 12,000

$ -0-

$ -0-

 

 

 

 

Stock dividends

$1,803,162

$ -0-

$1,851,338

Dividends paid

 

 

 

Dividends declared

$2,265,934

$2,154,289

$2,624,150

(Increase) decrease in dividends payable

( 32,132)

435

( 537,361)

Dividends reinvested

( 656,620)

( 798,421)

( 954,188)

 

$1,577,182

$1,356,303

$1,132,601

Note 23.   Quarterly Financial Data (Unaudited)

A summary of financial data for the four quarters of 2001, 2000, and 1999 is presented below:

COMMUNITY BANCORP. AND SUBSIDIARIES

 

-----------------------------------------------Quarters in 2001 ended-----------------------------------------------

 

March 31,

June 30,

Sept. 30,

Dec. 31,

Interest income

$4,769,266

$4,750,476

$4,733,901

$4,790,609

Interest expense

2,367,798

2,220,408

2,085,309

1,912,955

Provision for loan losses

90,000

90,000

60,000

170,000

Securities gains (loss)

29,644

124,795

10,095

6,365

Other operating expenses

2,190,350

2,241,075

2,276,735

2,010,372

Net income

488,917

640,976

654,867

1,013,065

Earnings per common share

0.14

0.18

0.18

0.29

 

 

 

 

 

-----------------------------------------------Quarters in 2000 ended-----------------------------------------------

 

March 31,

June 30,

Sept. 30,

Dec. 31,

Interest income

$4,177,223

$4,457,402

$4,814,499

$4,985,646

Interest expense

1,830,627

2,012,649

2,394,506

2,551,352

Provision for loan losses

162,000

96,000

63,000

63,000

Securities gains (loss)

( 11,507)

-0-

( 7,275)

-0-

Other operating expenses

2,008,774

1,971,934

1,976,764

1,970,965

Net income

433,625

648,664

632,348

707,784

Earnings per common share

0.12

0.18

0.18

0.20

 

 

 

 

 

-----------------------------------------------Quarters in 1999 ended-----------------------------------------------

 

March 31,

June 30,

Sept. 30,

Dec. 31,

Interest income

$4,050,380

$4,203,280

$4,247,655

$4,221,476

Interest expense

1,872,028

1,889,484

1,897,260

1,875,768

Provision for loan losses

150,000

150,000

115,000

82,000

Securities gains (loss)

-0-

-0-

-0-

-0-

Other operating expenses

1,847,475

1,828,715

1,826,272

1,827,313

Net income

410,797

566,489

603,906

753,166

Earnings per common share

0.12

0.16

0.17

0.22

Note 24.   Other Income and Other Expenses

The components of other income and other expenses which are in excess of one percent of total revenues in any of the three years disclosed are as follows:

 

2001

2000

1999

Income

 

 

 

Other

$ 812,539

$ 712,846

$ 808,014

 

 

 

 

Expenses

 

 

 

Printing and supplies

$ 235,160

$ 216,966

$ 204,707

State deposit tax

228,400

243,333

230,000

Other

2,511,708

2,206,601

1,979,208

 

$2,975,268

$2,666,900

$2,413,915

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
THE RESULTS OF OPERATIONS

For the Year Ended December 31, 2001

     Community Bancorp. is a holding company whose subsidiaries include Community National Bank ("The Bank") and Liberty Savings Bank ("Liberty"). Community National Bank is a full service institution operating in the state of Vermont. On May 29, 2001, Community National Bank expanded its servicing area by opening a branch office in Montpelier, Vermont. This office operates as a full service institution, serving the Barre-Montpelier area. This brings the total number of branch offices to eight, serving four counties in northern and central Vermont. This office has performed better than anticipated with average deposits totaling $2.5 million and average loans reported at $5.9 million as of December 31, 2001. The Bank also leases space in Barre for a trust office to serve the needs of clients in that area. Liberty Savings Bank is a New Hampshire guaranty savings bank acquired by Community Bancorp. on December 31, 1997. Presently, this bank is inactive, and shares the mailing address of Community Bancorp.

     In a recent press release, the Company announced plans to establish a new trust and investment company to be known as Community Financial Services Group. This new venture is formed jointly with the National Bank of Middlebury in Vermont and Woodsville Guaranty Savings Bank in New Hampshire. Each institution will house an office staffed with full-time professional advisors offering trust, investment management, estate, tax and retirement planning services to individuals, non-profits and businesses. Subject to regulatory approval, the business will be fully operational during the first quarter of 2002. The Company anticipates recognition of a gain on this transaction of approximately $567,000 ($374,000 net of tax), resulting from the sale of the Company's trust operations to the new entity.

     Most of the Bancorp's business is conducted through the Community National Bank; therefore, the following narrative is based primarily on this Bank's operations. The financial information disclosed in various spreadsheets in this section are consolidated figures for Community Bancorp. and subsidiaries.

RESULTS OF OPERATION

     The calendar year of 2001 ended with a 15.5% increase in earnings over the calendar year of 2000, and almost 20% over the calendar year of 1999. Total earnings of $2.8 million were reported for 2001 compared to $2.4 million in 2000, and $2.3 million for 1999. The results of these figures are earnings per share of $0.79, $0.68, and $0.67, respectively. A cash dividend of $0.16 per share was paid in each of the four quarters of 2001 with the most recent paid on November 1, 2001 to shareholders of record as of October 15, 2001. These dividends of $0.16 per share for the quarter and $0.64 for the year are equal to the cash dividends paid in 2000 and 1999. A 5% stock dividend was declared in 2001, payable on February 1, 2001 to shareholders of record as of January 16, 2001. As a result of this stock dividend, all per share data for the previous years have been restated.

INTEREST INCOME VERSUS INTEREST EXPENSE

(NET INTEREST INCOME)

     Net interest income represents the difference between interest earned on loans and investments versus the interest paid on deposits and other sources of funds (i.e. other borrowings). Changes in net interest income result from changes in the level and mix of earning assets, and sources of funds (volume) and from changes in the yield earned and costs paid (rate). Table A and B at the end of this narrative provides a visual analysis for the comparison of interest income versus interest expense. These figures, which include earnings on tax-exempt investment securities, are stated on a tax equivalent basis with an assumed rate of 34%.

     Net interest income was $10.8 million, $10.1 million, and $9.5 million, respectively for the years-ended 2001, 2000, and 1999. Net interest spread, the difference between the yield on interest earning assets versus interest bearing liabilities, at the end of 2001 was 3.69% versus 3.58% for 2000 and 3.66% for 1999. Interest differential, defined as net interest income divided by average earning assets, for the years ended 2001, 2000 and 1999, was reported at 4.33%, 4.30%, and 4.32%, respectively.

     Interest income increased from $17.04 million for 1999, to $18.85 million for 2000, and then to $19.35 million as of the end of 2001, an increase of 10.6% and 2.7%, respectively. Income from loans accounts for the biggest portion of interest income as well as the biggest increase, reporting $13.04 million for 1999, $14.54 million for 2000, and $15.52 million for 2001, with average yields of 8.71%, 8.80%, and 8.55%, respectively. An increase in the average volume of loans clearly supports the steady increase in interest earned throughout the comparison period.

     Interest expense increased from $7.5 million at the end of 1999 to $8.8 million as of year-end 2000, and then decreased to $8.6 million as of December 31, 2001. This translates to an increase of 16.7% for 1999 versus 2000 and a decrease of 2.3% for 2000 versus 2001. Interest expense on time deposits accounts for the biggest portion of interest expense with figures for the comparison period totaling $4.9 million for 1999, $5.0 million for 2000, and $5.2 million for 2001, with average yields of 5.14%, 5.43%, and 5.27%, respectively.

CHANGES IN FINANCIAL CONDITION

     The Company had total average assets of $279 million as of December 31, 2001 and $246 million as of December 30, 2000. Average earning assets were reported at $249 million at the end of 2001, including average loans of $182 million and average investment securities of $58 million. Average earning assets of $234 million were reported at the end of 2000, including average loans of $165 million and average investments of $66 million. The decrease in interest rates throughout 2001 contributes to the increase in volume for the loan portfolio.

     Average interest-bearing liabilities at December 31, 2001 were almost $210 million, with $99 million in average time deposits and $57 million in average NOW and money market funds. At December 31, 2000, average interest bearing liabilities of $196 million were reported, including average time deposits of $93 million and average NOW and money market funds of $51 million. A new NOW account product, geared toward municipalities, is a contributing factor to the increase in those funds. Although the average volume of time deposits indicates growth, this resulted from a substantial increase in the outstanding balances during the first part of 2001, however as deposit rates declined with the change in prime lending rates, end of year balances on time deposits shows only a moderate increase of approximately $350 thousand over the prior year end.

     Repurchase agreements have increased from an average volume of $1.3 million at the end of 1999, to almost $10 million at the end of 2000, and then increased almost $6 million to an average volume of $15.9 million at the end of 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 from $17.5 million at the end of 2000, to just over $18 million as of December 31, 2001. Other time deposits decreased from $79.7 million to $79.5 million for the same time period. A review of these deposits indicates that any changes are generated locally and regionally, and by established customers of the Company. The Company has no brokered deposits.

     Our gross loan portfolio increased $13.2 million or by 7.5% to end the 2001 calendar year at $190 million compared to $176.8 million a year ago. The Company's portfolio of Available for Sale securities increased $13.5 million in one year, from $19 million to $32.5 million as of year-end 2001. Additionally, as of December 31, 2001, the Company held in its investment portfolio treasuries and agencies classified as Held to Maturity with a book value of $41 million, compared to $42.2 million a year ago. Both of these types of investments mature at monthly intervals as shown on the gap analysis enclosed in this discussion. 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. These securities ended the year at a balance of $1.22 million compared to $1.14 million as of December 31, 2000.

     The Company has two credit lines with available balances totaling $6.3 million and additional borrowing capacity of approximately $103 million through the Federal Home Loan Bank of Boston, which is secured by the Company's qualifying loan and investment portfolio. As of December 31, 2001, the Company had an advance of just over $5 million against the $103 million line at FHLB. Under a separate agreement, the Bank has the authority to collateralize public unit deposits, up to their borrowing capacity, $103 million less outstanding advances, with letters of credit issued by the Federal Home Loan Bank. At December 31, 2001, approximately $9 million was pledged as collateral for these deposits. Interest is charged to the Bank quarterly based on the average daily balance outstanding at a rate of 20 basis points.

Credit Risk - Management believes that the policies and procedures established for the underwriting of its loan portfolio are both accurate and up-to-date helping to alleviate many of the problems that could exist within the portfolio in a changing environment. Loans are typically reviewed on a loan-by-loan basis with more emphasis placed on larger loans and loans that have the potential for a higher level of risk. These measures also help to ensure the adequacy of the allowance for loan losses. The Executive Officers and Board of Directors perform periodic reviews of the loan portfolio. Among the topics discussed during their review are potential exposures that exist within the loan portfolio. Factors considered include, but are not limited to, historical loss ratios, each borrower's financial condition, the industry or sector of the economy in which the borrower operates, and overall economic conditions. Existing or potential problems are noted and reviewed by senior management to ensure that adequate loan-to-value ratios exist to help cover any cost associated with these loans. The Company employs a full-time loan review and credit administration officer staffed with a department whose duties include, but are not limited to, a review of the loan portfolio including delinquent and non-accrual loans. Also on staff are personnel whose primary duties are to monitor non-performing loans. Included in the duties of this department are the tracking of payments by delinquent loan customers, and management of the Company's OREO portfolio. A quick review of the OREO portfolio, as well as the portfolio of loans past due 90 days or more, shows positive results since this department was established. Results from both departments mentioned are reported to senior management for further review and additional action if necessary.

     Specific allocations are made in situations management feels are at a greater risk for loss. A quarterly review of certain qualitative factors, which include "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 adjusted to reflect current trends in delinquencies and non-accruals. First mortgage loans make up the largest part of the loan portfolio and have the lowest historical loss ratio helping to alleviate overall risk.

Allowance for Loan Losses and Provisions - The valuation allowance for loan losses as of December 31, 2001 of $2 million constitutes 1.04% of the total loan portfolio compared to $1.8 million or 1.01% a year ago. In management's opinion, this is both adequate and reasonable in view of the fact that $155 million of the total loan portfolio, or 80.3% consists of real estate mortgage loans. Of this total for 2001, $116.3 million or 60.2% are loans secured by 1-4 family residences. A primary concern of management is to reduce the exposure of credit loss within the portfolio. This volume of home loans, together with the low historic loan loss experience, helps to support our basis for loan loss coverage. Additionally, in management's opinion, a loan portfolio consisting of 80.3% in residential and commercial real estate secured mortgage loans is more stable and less vulnerable than a portfolio with a higher concentration of unsecured commercial and industrial loans or personal loans.

     A comparison of non-performing assets for 2001 and 2000 reveals an increase of $23,945 or 1.44% from a figure of $1.67 million to $1.69 million. Non-accruing loans increased $156,375 or by 11%, loans past due 90 days or more increased $8,693 or by 17.2%, while the Company's OREO portfolio decreased $141,123 or by 70%.

Non-performing assets as of December 31, were made up of the following:

 

2001

2000

Non-accruing loans

$1,571,258

$1,414,883

Loans past due 90 days or more and still accruing

59,255

50,562

Other real estate owned

60,000

201,123

Total

$1,690,513

$1,666,568

     Management continues to monitor the allowance for loan losses very carefully with the reserve currently approximating one percent of total eligible loans. The Northeast Kingdom is known for being on the lower end of the economic scale, and as such sees a direct impact in times of economic uncertainty. In view of this, the Company will always maintain its conservative approach to the review process for reserve requirements and adjust accordingly for any changes.

     Management considered the events of September11, 2001, in determining its reserve for loan losses. Although the Company has not endured any hardship from this tragic event, there has been a negative impact to the local economy. In consideration of this qualitative factor, management has decided to increase the provision for loan losses in the first quarter of 2002.

     Other Real Estate Owned consists of properties that the Company has acquired in lieu of foreclosure or through normal foreclosure proceedings. The policy of the Company is to value property in other real estate owned at the lesser of appraised value or book value. An appraisal is necessary to determine the value of the property. If the appraised value of the property is less than the book value, a "write-down" is necessary to bring the loan balance to a level equal to the appraised value prior to including it in OREO. Any such write-down is charged to the reserve for loan losses. Once the property is in OREO, any additional write-downs are charged to earnings.

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 December 31, 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 ANALYSIS

Community Bancorp. & Subsidiaries

December 31, 2001

Dollars in thousands, by repricing date

Cumulative repriced within:

3 Months

4 to 12

1 to 3

3 to 5

Over 5

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

0

0

0

0

1,225

1,225

Loans(2)

33,333

51,484

44,345

18,306

44,117

191,585

Total interest sensitive assets

44,611

80,047

52,984

26,005

68,340

271,987

Interest sensitive liabilities:

Certificates of deposit

16,296

58,002

15,574

7,633

0

97,505

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

7,663

77,028

232,233

Net interest rate sensitivity gap

7,314

(14,624)

37,410

18,342

(8,688)

Cumulative net interest rate

sensitivity gap

7,314

(7,310)

30,100

48,442

39,754

Cumulative net interest rate

sensitivity gap as a

percentage of total assets

2.53%

-2.53%

10.43%

16.78%

13.77%

Cumulative interest sensitivity

gap as a percentage of total

interest-earning assets

2.69%

-2.69%

11.07%

17.81%

14.62%

Cumulative interest earning assets

as a percentage of cumulative

interest-bearing liabilities

119.61%

94.46%

120.40%

131.21%

117.12%

(1) The Company may sell investments available for sale with a fair value of $32,513,512 at any time.

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

 

GAP ANALYSIS

Community Bancorp. & Subsidiaries

December 31, 2000

Dollars in thousands, by repricing date

Cumulative repriced within:

3 Months

4 to 12

1 to 3

3 to 5

Over 5

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

5,340

6,370

0

0

20,000

31,710

Regular savings

0

1,811

0

0

28,000

29,811

NOW and super 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

40,315

83,276

6,384

646

72,107

202,728

Net interest rate sensitivity gap

(12,515)

(10,866)

61,305

20,157

(22,214)

Cumulative net interest rate

sensitivity gap

(12,515)

(23,381)

37,924

58,081

35,867

Cumulative net interest rate

sensitivity gap as a

percentage of total assets

-4.95%

-9.25%

15.00%

22.98%

14.19%

Cumulative interest sensitivity

gap as a percentage of total

interest-earning assets

-5.25%

-9.80%

15.89%

24.34%

15.03%

Cumulative interest earning assets

as a percentage of cumulative

interest-bearing liabilities

68.96%

81.08%

129.18%

144.47%

117.69%

(1) The Company may sell investments available for sale with a fair value of $19,145,938 at any time.

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

INVESTMENT SECURITIES

     Accounting standards require banks to recognize all appreciation or depreciation of the investment portfolio either on the balance sheet or through the income statement even though a gain or loss had not been realized. These changes require securities classified as "trading securities" to be marked to market with any gain or loss charged to income. The Company does not have any trading securities. Securities classified as "available-for-sale" are marked to market with any gain or loss after taxes charged to the equity portion of the balance sheet. Securities classified as "held-to-maturity" are to be held at book value.

     The Company had $1.22 million and $1.14 million in restricted equity securities for the 2001 and 2000 comparison periods, respectively. In addition, at December 31, 2001, the Company had $32.5 million in investments classified as available-for-sale comprising of $16 million of U.S. Government Agencies, $7.2 million of U.S. Treasuries, and $9.3 million in Corporate Bonds, compared to $19.2 million, which consist only of U.S. Treasuries at December 31, 2000. These securities have been marked to market, with a resulting unrealized gain after taxes of $26,459 for 2001 compared to an unrealized loss of $23,108 for 2000. These figures are presented in the equity section of our financial statement as "accumulated other comprehensive income". As adjusted for this item, our investment portfolios at the respective years' ends were as follows:

December 31, 2001:

Amortized

Unrealized

Unrealized

Fair

 

Cost

Gains

Losses

Value

U.S. Government & agency securities

 

 

 

 

Available-for-sale

$23,129,935

$276,095

$142,818

$23,263,212

Held-to-maturity

19,087,603

504,798

181,601

19,410,800

Corporate Bonds

 

 

 

 

Available-for-sale

9,343,488

32,424

125,612

9,250,300

States & political subdivisions

 

 

 

 

Held-to-maturity

21,556,878

0

0

21,556,878

Restricted equity securities

 

 

 

 

Available-for-sale

1,224,650

0

0

1,224,650

 

$74,342,554

$813,317

$450,031

$74,705,840

 

 

 

 

 

December 31, 2000:

Amortized

Unrealized

Unrealized

Fair

 

Cost

Gains

Losses

Value

U.S. Government & agency securities

 

 

 

 

Available-for-sale

$19,180,950

$ 1,606

$ 36,618

$19,145,938

Held-to-maturity(1)

28,676,667

373,580

104,123

28,946,124

States & political subdivisions

 

 

 

 

Held-to-Maturity

13,520,463

0

0

13,520,463

Restricted equity securities

 

 

 

 

Available-for-Sale

1,141,650

0

0

1,141,650

 

$62,519,730

$375,186

$140,741

$62,754,175

 

 

 

 

 
  1. Included in this portfolio is the U.S. Treasury Strip for Liberty Savings Bank with an amortized cost of $1,657,625 and fair value of $1,655,298 as of December 31, 2000. This investment matured on November 15, 2001.

Gross realized gains and gross realized losses on actual sales of securities were:

Gross realized gains:

2001

2000

1999

Available-for-sale

U.S. Government & agency securities

$120,190

$ 1,391

$ 0

Other Securities

0

0

0

$120,190

$ 1,391

$ 0

Held-to-maturity(1)

U.S. Government & agency securities

$ 51,492

$ 0

$ 0

Other Securities

0

0

0

$ 51,492

$ 0

$ 0

Gross realized losses:

2001

2000

1999

U.S. Government & agency securities

$ 783

$20,173

$ 0

Other Securities

0

0

0

$ 783

$20,173

$ 0
  1. Various Government Agency securities with "First Call" options were exercised.

BANK PREMISES AND EQUIPMENT

Major classes of bank premises and equipment and the total accumulated depreciation are as follows:

 

December 31,

 

 

 

 

2001

2000

Land

$ 100,612

$ 80,747

Buildings and improvements

3,795,496

3,794,658

Furniture and equipment

5,878,101

5,453,261

Leasehold improvements

697,516

418,916

 

10,471,725

9,747,582

Less accumulated depreciation

(5,604,312)

(5,053,648)

 

$ 4,867,413

$ 4,693,934

     Depreciation included in occupancy and equipment expense amounted to $566,018, $576,642, and $493,979 for the years ended December 31, 2001, 2000 and 1999, respectively.

     The Company currently leases five of the eight buildings it occupies. These leased offices are in Island Pond, Newport, Barton, St. Johnsbury, and Montpelier, Vermont. The Montpelier office is located on State Street in Montpelier in an historic building of which the Bank occupies approximately 1,500 square feet. The operating leases for the four other locations expire in various years through 2013 with options to renew.

     Minimum future rental payments under non-cancelable operating leases having remaining terms in excess of one year, as of December 31, 2001, for each of the next five years and in aggregate are:

2002

$130,753

2003

131,882

2004

133,045

2005

110,189

2006

60,368

Subsequent to 2006

280,409

Total

$846,646

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 because, as costs and prices rise, cash and credit demands of individuals and businesses increase, and the purchasing power of net monetary assets declines.

     The Company's ability to preserve its purchasing power depends primarily on its ability to manage net interest income. The Company's net interest income improved during the last three years, despite the fluctuation in the spread from 1999 to 2001.

OTHER OPERATING INCOME AND EXPENSES

     Other operating income for the fourth quarter was reported at $628,817 for 2001, $494,018 for 2000, and $531,184 for 1999. Other income accounts for most of the increase for 2001 compared to 2000, as well as the decrease for 2000 compared to 1999, with income of $250,275 for 2001, $171,001 for 2000 and $267,458 for 1999. The heavy volume of loans sold on the secondary market helped to boost earnings during the fourth quarter of 2001, while a gain of $108,605 on the sale of an OREO property helped to boost other income for the fourth quarter of 1999. Other operating income of $2.34 million for the 12 months of 2001 is an increase of 25.7% over the $1.87 million for the 12 months of 2000, which is an increase of 6% over the 1999 figure of $1.76 million. Security gains of $170,899 accounts for the biggest portion of the increase for 2001, while trust department income reported the biggest increase for the 2000 versus 1999 period with figures of $362,979 for 2000 versus $247,001 for 1999. In addition to tremendous growth, the trust department acquired the assets of Northfield Savings Bank during the 2000 calendar year, contributing to the increase in income.

     Other operating expenses for the fourth quarter of 2001 was reported at just over $2 million, an increase of 2% over the 2000 expense figure of $1.97 million, which increased 7.9% over the 1999 figure of $1.83 million. Salaries and wages increased accordingly with the opening of the Montpelier office, followed by an increase of $41,408 in trust department expenses. An increase of $39,348 is noted in the fourth quarter comparisons for losses on limited partnerships for 2000 versus 1999 due to a $17,107 reversal of an anticipated loss in 1999 and the booked loss of $22,241 during the same quarter of 2000. Occupancy expense for the fourth quarter of 1999 was higher than both the 2001 and 2000 fourth quarters due to higher depreciation amounts on furniture and equipment. Total other operating expenses ended the 2001 fiscal year at $8.7 million, an increase of $790,095 or 10% over the 2000 fiscal year of $7.9 million, which increased $598,662 or 8.2% over the 1999 fiscal year of $7.3 million. Salaries and wages tops the increases for the 2001 versus 2000 comparison period, with an increase of $367,335 or 12.6%, primarily resulting from the opening of the Montpelier office, while other expenses tallied the biggest increase for 2000 versus 1999 with an increase of $252,985 or 10.5%.

     Many of the components of other operating expenses are estimated on a yearly basis and accrued in monthly installments. In an attempt to present accurate figures on the statement of income for any interim period, these expenses are reviewed quarterly by senior management to ensure that monthly accruals are accurate, and any necessary adjustments are made at that time.

APPLICABLE INCOME TAXES

     Income before taxes of $1.3 million are reported for the fourth quarter of 2001 compared to $894,344 for the fourth quarter of 2000 and $967,579 for the fourth quarter of 1999. This translates to an increase of $431,755 or 48.3% for 2001 versus 2000 and a decrease of $73,235 or 7.6% for 2000 versus 1999. As a result, provisions for income taxes for the fourth quarters ended 2001, 2000, and 1999 are reported at $313,035, $186,562, and $214,412, respectively. Year-end figures presented are $3.7 million for 2001, leading to an increase of $474,920 or 14.9% over the 2000 figure of $3.2 million, resulting in an increase of $77,542 or 2.5% over the 1999 figure of $3.1 million. Provisions for income taxes for each fiscal year are reported at $875,476, $775,960, and $786,481, respectively 2001, 2000, and 1999.

     Return on average assets (ROA), which measures how effectively a corporation uses its assets to produce earnings, ended the fiscal years at 1.08% for 2001 compared to 1.00% for 2000 and 1.02% for 1999. Return on average equity (ROE), which is the ratio of income earned to average shareholders' equity was 12.04% for 2001, 10.70% for 2000, and 10.54% for 1999.

CAPITAL RESOURCES

     Stockholders' equity at December 31, 2000, was $22,530,170, with a book value of $6.39 per share. It increased through earnings of $2,797,825, the sale of common stock of $663,620 through our dividend reinvestment program and debenture conversions, and $49,567 through adjustments for the valuation allowance of securities. It decreased through purchases of treasury stock of $3,169; dividends paid totaling $2,233,822, and the repurchase of stock through the Stock Buyback Plan of $325,253. Additionally, the Company declared a dividend in December of 2001, payable in February of 2002. As a result, an accrual for the dividend was necessary, decreasing stockholders' equity by $569,057 as of December 31, 2001. The same event occurred in December of 2000 announcing a dividend of $536,925 payable in February of 2001. As of December 31, 2001, stockholders' equity was $23,446,826 with a book value of $6.59 per share. All stockholders' equity is unrestricted. Additionally, it is noted that as the maturity date on securities classified as available for sale draws near, the market price on these securities becomes more favorable.

     On April 11, 2000, the Company issued a press release announcing plans to buy up to 6% or 205,000 shares of its outstanding common stock at current market prices. Total shares bought back through the end of year 2001 totaled 119,772 and the repurchase price paid for these shares ranged from $9.75 per share in May of 2000 to $13.95 per share in November of 2001.

     The Bank, as a National Bank, is subject to the dividend restrictions set forth by the Comptroller of the Currency. Under such restrictions, the Bank may not, without the prior approval of the Comptroller of the Currency, declare dividends in excess of the sum of the current year's earnings (as defined) plus the retained earnings (as defined) from the prior two years.

     The Bank is required to maintain minimum amounts of capital to total "risk weighted" assets, as defined by the banking regulators. At December 31, 2001, the Bank is required to have minimum Tier I and Total Capital ratios of 4.00% and 8.00%, respectively. The Company's consolidated risk weighted assets were reported at $154 million with reported ratios, at December 31, 2001, of approximately 15% for Tier I capital and 16% for Total capital. The report labeled "Capital Ratios" provides a better understanding of the components of each the Tier I and Tier II capital ratios as well as a three-year comparison of the growth of these ratios.

     The Company intends to continue the past policy of 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 either of its subsidiaries, Community National Bank or Liberty Savings Bank. At present, regulatory authorities have made no demand on the Company to make additional capital contributions to either the Bank's or Liberty's capital.

RECENT ACCOUNTING DEVELOPMENTS

     Community Bancorp. Adopted Statement of Financial Accounting Standards (SFAF) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAF Nos. 137 and 138, which became effective as of January 1, 2001. Concurrent with adoption of the Standard, and as permitted by its provisions; approximately $7 million of debt securities classified as held to maturity were reclassified as securities available for sale. Through the year ended December 31, 2001, some of the debt securities have been subsequently sold with resulting realized net gains of $80,864 included in the income statement caption "Security gains (losses)".

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) and average interest-bearing liabilities supporting earning assets; and interest income and

interest expense as a rate/yield.

(Dollars in Thousands)

2001

2000

1999

Average

Income/

Rate/

Average

Income/

Rate/

Average

Income/

Rate/

Balance

Expense

Yield

Balance

Expense

Yield

Balance

Expense

Yield

EARNING ASSETS

Loans (1)

181,631

15,523

8.55%

165,176

14,539

8.80%

149,707

13,036

8.71%

Taxable Investment

  Securities

41,240

2,330

5.65%

48,080

2,835

5.90%

49,832

2,715

5.45%

Tax-exempt Investment

  Securities (2)

15,693

1,125

7.17%

16,398

1,208

7.37%

13,843

924

6.67%

Federal Funds Sold

5,005

166

3.32%

1,090

67

6.15%

2,897

143

4.94%

Overnight Deposits

3,732

122

3.27%

1,788

104

5.82%

2,638

133

5.04%

Other Securities (3)

1,204

83

6.89%

1,222

92

7.53%

1,254

85

6.78%

     TOTAL

248,505

19,349

7.79%

233,754

18,845

8.06%

220,171

17,036

7.74%

INTEREST-BEARING LIABILITIES

Savings Deposits

31,708

637

2.01%

32,696

752

2.30%

32,748

756

2.31%

NOW and Money

  Market Funds

56,807

1,832

3.22%

51,296

1,907

3.72%

51,850

1,656

3.19%

Time Deposits

99,418

5,236

5.27%

92,747

5,040

5.43%

94,694

4,865

5.14%

Other Borrowed Funds

5,647

280

4.96%

9,319

601

6.45%

4,059

203

5.00%

Repurchase Agreements

15,888

601

3.78%

9,956

487

4.89%

1,305

52

3.98%

Subordinated Debentures

8

1

8.75%

20

2

11.00%

20

2

11.00%

     TOTAL

209,476

8,587

4.10%

196,034

8,789

4.48%

184,676

7,534

4.08%

Net Interest Income

10,762

10,056

9,502

Net Interest Spread(4)

3.69%

3.58%

3.66%

Interest Differential(5)

4.33%

4.30%

4.32%

(1) Included in gross loans are non-accrual loans with an average balance of $1,420,468 for 2001, $1,344.971 for

     2000, and $1,894,097 for 1999.

(2) Income on investment securities of state and political subdivisions is state on a tax equivalent basis (assuming a

     34% rate). The amount of adjustment was $382,531 for 2001, $410,588 for 2000, and $314,301 for 1999.

(3) Included in other securities are taxable industrial development bonds (VIDA), with income of $2,611 for 2001,

     $4,377 for 2000, and $5,443 for 1999.

(4) Net interest spread is the difference between the yield on earning assets and the rate paid on interest-bearing      liabilities.

(5) 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 years 2001, 2000, 1999, and 1998

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

(Dollars in Thousands)

2001 vs. 2000

2000 vs. 1999

1999 vs. 1998

RATE VOLUME

Variance(1)

Variance(1)

Variance(1)

Due to

Total

Due to

Total

Due to

Total

Rate

Volume

Variance

Rate

Volume

Variance

Rate

Volume

Variance

Income-Earning Assets

Loans(2)

(464)

1,448

984

156

1,347

1,503

(669)

(53)

(722)

Taxable Investment Securities

(119)

(386)

(505)

223

(103)

120

(107)

626

519

Tax-exempt Investment

  Securities (3)

(32)

(51)

(83)

113

171

284

(62)

56

(6)

Federal Funds Sold

(142)

241

99

35

(111)

(76)

6

(100)

(94)

Overnight Deposits

(95)

113

18

20

(49)

(29)

(17)

(35)

(52)

Other Securities

(8)

(1)

(9)

9

(2)

7

4

(1)

3

   Total Interest Earnings

(860)

1,364

504

556

1,253

1,809

(845)

493

(352)

Interest-Bearing Liabilities

Savings Deposits

(95)

(20)

(115)

(3)

(1)

(4)

(101)

50

(51)

NOW and Money Market

  Funds

(280)

205

(75)

272

(21)

251

(151)

242

91

Time Deposits

(167)

363

196

281

(106)

175

(452)

(179)

(631)

Other Borrowed Funds

(139)

(182)

(321)

135

263

398

5

0

5

Repurchase Agreements

(176)

290

114

90

345

435

(4)

52

48

Subordinated Debentures

(1)

(1)

(2)

0

0

0

0

(3)

(3)

   Total Interest Expense

(858)

655

(203)

775

480

1,255

(703)

162

(541)

(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

Variance due to volume = Change in volume x new rate

(2) Total loans are stated before deduction of unearned discount and allowance for loan losses. Interest on non-accrual

     loans is excluded from income. The principal balances of non-accrual loans are included in calculations of the

     yield on loans.

(3) Income on tax-exempt securities is stated on a tax equivalent basis. The assumed rate is 34%.

 

SELECTED FINANCIAL DATA

(Not covered by Report of Independent Public Accountants)

(Dollars in thousands, except per share data)

Year Ended December 31,

2001

2000

1999

1998

1997

Total Interest Income

19,044

18,435

16,723

17,072

16,817

Less:

Total Interest Expense

8,586

8,789

7,535

8,077

7,834

Net Interest Income

10,458

9,646

9,188

8,995

8,983

Less:

Provision for Loan Losses

410

384

497

660

660

Other Operating Income

2,344

1,865

1,759

1,586

1,336

Less:

Other Operating Expense

8,719

7,929

7,330

7,021

6,759

Income Before Income Taxes

3,673

3,198

3,120

2,900

2,900

Less:

Applicable Income Taxes (1)

875

776

786

710

755

Net Income

2,798

2,422

2,334

2,190

2,145

Per Share Data: (2)

Earnings per Share

0.79

0.68

0.67

0.65

0.65

Cash Dividends Declared

0.64

0.64

0.64

0.60

0.56

Weighted Average Number of

Common Shares Outstanding

3,545,670

3,543,956

3,474,844

3,391,187

3,281,534

Number of Common Shares

Outstanding

3,556,609

3,523,573

3,526,432

3,429,833

3,324,112

Balance Sheet Data:

Net Loans

190,197

174,779

150,673

145,827

147,747

Total Assets

288,678

252,785

232,216

225,051

213,001

Total Deposits

238,070

208,385

201,843

197,797

187,580

Total Liabilities

265,231

230,255

210,035

203,049

192,521

Borrowed Funds

5,055

5,592

4,075

4,080

4,164

Total Shareholders' Equity

23,447

22,530

22,181

22,002

20,480

(1) Applicable Income Taxes above includes the income tax effect, assuming a 34% tax rate, on securities

Gains (losses), which totaled $58,106 in 2001, $(6,386) in 2000, and $0 in each 1999, 1998, 1997.

(2) All per share data for calendar years prior to 2001 have been restated to reflect a 5% stock dividend paid

in the first quarter of 2001. Per share data for calendar years prior to 1999 have been restated to reflect

a 5% dividend paid in the first quarter of 1999. Additionally, a 100% stock dividend was paid on

June 1, 1998, requiring restatement of per share data for the 1997 calendar year.

 

CAPITAL RATIOS

(Dollars in Thousands)

ANNUAL

GROWTH RATE

At December 31,

2001

2000

1999

2001 / 2000

2000 / 1999

Total Assets

288,678

252,785

232,216

LESS: Goodwill (1)

251

274

297

Allowance for Possible Loan Losses

2,008

1,797

1,715

Total Adjusted Assets

290,435

254,308

233,634

14.21%

8.85%

Gross Risk-Adjusted Assets

153,922

132,204

111,995

Allowance for Loan Loss over limit (2)

84

144

315

Total Risk-Adjusted Assets

153,838

132,060

111,680

16.49%

18.25%

Shareholders' Equity

23,447

22,530

22,181

LESS:

Valuation Allowance for Securities

26

(23)

(247)

Intangible Assets(1)

273

293

319

Total Adjusted Tier 1 Capital (3)

23,148

22,260

22,109

3.99%

0.68%

Eligible Discounted Subordinated Debt

0

12

16

Max. Allowance for Possible Loan Losses (2)

1,924

1,653

1,400

Total Capital (Tier II)

25,072

23,925

23,525

4.79%

1.70%

2001

2000

1999

Tier l Capital / Total Adjusted Assets

7.97%

8.75%

9.46%

Tier ll Capital / Total Adjusted Assets

8.63%

9.41%

10.07%

Tier l Capital / Total Risk-Adjusted Assets

15.05%

16.86%

19.80%

Tier ll Capital / Total Risk-Adjusted Assets

16.30%

18.12%

21.06%

(1) Included in the 2001, 2000, and 1999 balances of intangible assets are $251,286, $274,130 and $296,974,

respectively, in goodwill associated with the acquisition of Liberty Savings Bank. Excess mortgage

servicing rights totaling $21,581, $19,528 and $21,817 for 2001, 2000, and 1999, respectively, comprise

the balance of intangible assets.

(2) Net unrealized holding gains and losses on available-for-sale securities are excluded from common

stockholders' equity for regulatory capital purposes. However, National Banks continue to deduct

unrealized losses on equity securities in their computation of Tier I Capital.

(3) The maximum allowance for possible loan losses used in calculating primary (TierII) capital is the

lower of the period end allowance for possible loan losses or 1.25% of gross risk-adjusted assets, as

implemented by regulatory capital guidelines.

 

COMMON STOCK PERFORMANCE BY QUARTER

 

 

2001

 

 

First

Second

Third

Fourth

Trade price

 

 

 

 

High

$11.75

$13.00

$14.00

$15.00

Low

$10.25

$10.50

$12.75

$13.05

Cash Dividends

 

 

 

 

Declared

$0.16

$0.16

$0.16

$0.16

 

 

 

 

 

 

 

2000

 

 

First

Second

Third

Fourth

Trade price

 

 

 

 

High

$9.25

$10.50

$10.75

$12.00

Low

$8.63

$ 8.13

$ 9.00

$ 9.75

Cash Dividends

 

 

 

 

Declared

$0.16

$0.16

$0.16

$0.16

Form 10-K
A copy of the Form 10-K Report filed with the Securities and Exchange Commission may be obtained without charge upon written request to:

     Stephen P. Marsh, Executive Vice President & CFO
     Community Bancorp.
     P.O. Box 259
     Derby, Vermont 05829

Shareholder Services
For shareholder services or information contact:

     Chris Bumps, Corporate Secretary
     Community National Bank
     P.O. Box 259
     Derby, Vermont 05829
     (802) 334-7915

Annual Shareholders Meeting
The 2002 Annual Shareholders Meeting will be held at 5:30 p.m., May 7, 2002, at the Elks Club in Derby. We hope to see many of our shareholders there.

Community Bancorp. Stock
As of February 1, 2002, the Corporation's common stock ($2.50 par value) was owned by approximately 850 shareholders of record. Although there is no established public trading market in the Corporation's common stock, several brokerage firms follow the stock and maintain a minor market in it. Trading in the Corporation's stock, however, is not active. You can contact these firms at the following addresses:

First Albany Corp.

A.G. Edwards

P.O. Box 387

1184 Main Street, Suite 1

Burlington, Vermont 05402

St. Johnsbury, Vermont 05819

(800) 451-3249

(800) 457-1002

 

 

Salomon Smith Barney

Winslow, Evans & Crocker

P.O. Box 1095

33 Broad Street

Burlington, Vermont 05402

Boston, Massachusetts 02109

(800) 446-0193

(800) 556-8600