-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GkFmqypMtfKDj0ZVrc29AKrRLwXEqRjibVchGxNn9RWd6kA6GRs2nFFT1BeIH4ld GiObQAXNMOGu545QZzvVuw== 0000742170-98-000005.txt : 19980325 0000742170-98-000005.hdr.sgml : 19980325 ACCESSION NUMBER: 0000742170-98-000005 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980324 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMUNITY BANCORP INC /MA/ CENTRAL INDEX KEY: 0000742170 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 042841993 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 033-12756-B FILM NUMBER: 98571835 BUSINESS ADDRESS: STREET 1: 17 POPE ST CITY: HUDSON STATE: MA ZIP: 01749 BUSINESS PHONE: 5085688321 MAIL ADDRESS: STREET 1: 17 POPE STREET CITY: HUDSON STATE: MA ZIP: 01749 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 ------------------------------------------- Commission File No. 33-12756-B COMMUNITY BANCORP, INC. ----------------------- A Massachusetts Corporation IRS Employer Identification No. 04-2841993 17 Pope Street, Hudson, Massachusetts 01749 Telephone - (978) 568-8321 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this form 10-K or any amendment to this form 10-K. [X] The aggregate market value of voting stock held by non-affiliates of the registrant as of March 20, 1998 was $21,391,092. The total number of shares of common stock outstanding at March 20, 1998 was 2,926,257. Documents Incorporated By Reference ----------------------------------- Parts II, III and IV incorporate information by reference from the Annual Report to shareholders for the year ended December 31, 1997. PART I - ------ ITEM 1. BUSINESS Community Bancorp, Inc., a Massachusetts corporation ("Company"), is a registered bank holding company under the Bank Holding Company Act of 1956, as amended. The Holding Company has one subsidiary, Community National Bank (formerly Hudson National Bank), a national banking association ("Bank"). The Holding Company owns all the outstanding shares of the Bank. At present, the Holding Company conducts no activities independent of the Bank. In 1992, the Company formed Community Securities Corporation, a wholly owned subsidiary of the Bank. The activities of the subsidiary consist of buying, selling, dealing in or holding securities in its own behalf and not as a broker. The Bank is engaged in substantially all of the business operations customarily conducted by an independent commercial bank in Massachusetts. Banking services offered include acceptance of checking, savings and time deposits, and the making of commercial, real estate, installment and other loans. The Bank also offers official checks, traveler's checks, safe deposit boxes and other customary bank services to its customers. In 1994 the Bank introduced a telephone banking service allowing customers to perform account inquiries and other functions using a Touch Tone telephone. In 1995 the Bank introduced a PC-based office banking system for businesses that allows business customers to access their accounts and perform a number of functions directly through an office PC. In 1996 the Bank introduced a PC-based home banking and bill payment system for consumers. In 1997, the bank formed a third-party arrangement with Murphy Insurance Brokerage, Ltd. for the purpose of providing insurance products and services to the bank's customers and the general public. The business of the Bank is not significantly affected by seasonal factors. In the last five years the Bank derived its operating income from the following sources:
% of Operating Income -------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Interest and fees on loans 60 63 65 64 67 Interest and dividends on securities 28 26 24 24 21 Charges, fees and other sources 12 11 11 12 12 --- --- --- --- --- 100% 100% 100% 100% 100% === === === === ===
Competition - ----------- The Bank generally concentrates its activities within a 20 mile radius of Hudson, Massachusetts and currently operates full service branch offices in Hudson, Acton, Boxboro, Concord, Marlboro and Stow, Massachusetts. These communities are generally characterized by a growing residential population and moderate to high household income. In addition to its main office, the Bank also operates a full service branch office in the Town of Hudson. The Bank operates three remote ATM facilities in Hudson and Marlboro. -1- The banking business in the Bank's market area is highly competitive. The Bank competes actively with other banks, as well as with other financial institutions engaged in the business of accepting deposits or making loans, such as savings and loan associations, savings banks and finance companies. In the Bank's general market area there are approximately 2 national banks, 4 Massachusetts trust companies, 6 savings banks, 1 cooperative bank and 6 credit unions. Since several of the competing institutions are significantly larger than the Bank in assets and deposits, the Bank strongly emphasizes a personal approach to service in order to meet and surpass the vigorous competition. Regulation of the Company - ------------------------- The Company is a registered bank holding company under the Bank Holding Company Act of 1956, as amended. It is subject to the supervision and examination of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") and files with the Federal Reserve Board the reports as required under the Bank Holding Company Act. The Bank Holding Company Act requires prior approval by the Federal Reserve Board of the acquisition by the Company of substantially all the assets or more than five percent of the voting stock of any bank. The Bank Holding Company Act also allows the Federal Reserve Board to determine (by order or by regulation) what activities are so closely related to banking as to be a proper incident of banking, and thus, whether the Company can engage in such activities or transactions between the affiliated banks and the Company or other affiliates. The Bank Holding Company Act prohibits the Company and the Bank from engaging in certain tie-in arrangements in connection with any extension of credit, sale of property or furnishing of services. Regulation of the Bank - ---------------------- The Bank is a national banking association chartered under the National Bank Act. As such, it is subject to the supervision of the Comptroller of the Currency and is examined by his office. In addition, it is subject to examination by the Federal Reserve Board by reason of its membership in the Federal Reserve System and by the Federal Deposit Insurance Corporation by reason of the insurance of its deposits by such corporation. Areas in which the Bank is subject to regulation by federal authorities include reserves, loans, investments, issuances of various types of securities, participation in mergers and consolidations, and certain transactions with or in the stock of the Company. Accounting Pronouncements - ------------------------- In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income", effective for financial statements issued for fiscal years beginning after December 15, 1997. This statement establishes standards for reporting comprehensive income and its components (revenues, expenses, gains and losses). Components of comprehensive income are net income and all other non-owner changes in equity. The Statement requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. Reclassification of -2- financial statements for earlier periods provided for comparative purposes is required. The Company will adopt this Statement for the fiscal year ending December 31, 1998. In June 1997 the Financial Accounting Standards Board also issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information", effective for financial statements issued for fiscal years beginning after December 15, 1997. This Statement establishes standards for reporting information about segments in annual and interim financial statements. SFAS No. 131 introduces a new model for segment reporting called the "management approach." The management approach is based on the way the chief operating decision-maker organizes segments within a company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure and any other manner in which management disaggregates a company. The Company will adopt this Statement for the fiscal year ending December 31, 1998. However, the Company's management believes SFAS No. 131 will have no impact on the Company's presentation of its financial statements as its business is considered to comprise a single segment. Employees - --------- The Company and the Bank employ 107 full time equivalent employees. -3- Distribution of Assets, Liabilities and Stockholders' Equity; Interest - ----------------------------------------------------------------------- Rates and Interest Differential - ------------------------------- The following tables present the condensed average balance sheets and the components of net interest differential for the three years ended December 31, 1997, 1996 and 1995. The total dollar amount of interest income from earning assets and the resultant yields are calculated on a taxable equivalent basis.
1997 ------------------------------------ Average Interest Yield/ ASSETS Balance Inc./Exp. Rate ------------ ----------- ------ Federal funds sold $ 8,534,521 $ 464,016 5.44% Securities: Taxable 86,006,643 5,241,159 6.09% Non-taxable (1) 6,544,073 472,507 7.22% Total loans and leases (1)(2) 136,844,378 13,186,467 9.64% ----------- ---------- ---- Total earning assets 237,929,615 19,364,149 8.14% ---------- Reserve for loan losses (3,394,971) Other non interest- bearing assets 22,530,388 ----------- Total average assets $257,065,032 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing deposits: Savings, money market and NOW $100,555,499 $ 2,451,529 2.44% Time deposits 68,313,627 3,687,605 5.40% Federal funds purchased and repurchase agreements 15,799,413 756,088 4.79% ----------- --------- ---- Total interest-bearing liabilities 184,668,539 6,895,222 3.73% --------- Non interest-bearing deposits 49,067,530 Other non interest-bearing liabilities 1,984,377 Stockholders' equity 21,344,586 ----------- Total average liabilities and stockholders' equity $257,065,032 =========== Net interest income $12,468,927 ========== Net yield on interest earning assets 5.24% ==== (1) Interest income and yield are stated on a fully taxable-equivalent basis. The total amount of adjustment is $194,199. A federal tax rate of 34% was used in performing this calculation. (2) The average balances of non-accruing loans and loans held for sale are included in the loan balance.
-4- Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and Interest Differential (Continued)
1996 ------------------------------------ Average Interest Yield/ ASSETS Balance Inc./Exp. Rate ------------ ----------- ------ Federal funds sold $ 11,361,749 $ 590,663 5.20% Securities: Taxable 78,493,267 4,619,558 5.89% Non-taxable (1) 2,752,956 192,885 7.01% Total loans and leases (1)(2) 129,443,069 12,495,000 9.65% ----------- ---------- ---- Total earning assets 222,051,041 17,898,106 8.06% =========== Reserve for loan losses (3,503,861) Other non interest- bearing assets 21,384,220 ----------- Total average assets $239,931,400 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing deposits: Savings, money market and NOW $ 94,508,038 $ 2,258,835 2.39% Time deposits 66,704,196 3,581,610 5.37% Federal funds purchased and repurchase agreements 11,798,277 527,313 4.47% ----------- --------- ---- Total interest-bearing liabilities 173,010,511 6,367,758 3.68% --------- Non interest-bearing deposits 44,425,461 Other non interest-bearing liabilities 1,977,905 Stockholders' equity 20,517,523 ----------- Total average liabilities and stockholders' equity $239,931,400 =========== Net interest income $11,530,348 ========== Net yield on interest earning assets 5.19% ==== (1) Interest income and yield are stated on a fully taxable-equivalent basis. The total amount of adjustment is $137,004. A federal tax rate of 34% was used in performing this calculation. (2) The average balances of non-accruing loans and loans held for sale are included in the loan balance.
-5- Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and Interest Differential (Continued)
1995 ------------------------------------ Average Interest Yield/ ASSETS Balance Inc./Exp. Rate ------------ ----------- ------ Federal funds sold $ 7,115,616 $ 406,977 5.72% Securities: Taxable 69,470,273 4,055,415 5.84% Non-taxable (1) 1,879,882 146,427 7.79% Total loans and leases (1)(2) 127,033,820 12,450,001 9.80% ----------- ---------- ---- Total earning assets 205,499,591 17,058,820 8.30% ---------- Reserve for loan losses (3,779,610) Other non interest- bearing assets 20,993,896 ----------- Total average assets $222,713,877 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing deposits: Savings, money market and NOW $ 89,849,771 $ 2,417,573 2.69% Time deposits 61,842,194 3,317,979 5.37% Federal funds purchased and repurchase agreements 11,453,322 549,198 4.80% ----------- --------- ---- Total interest-bearing liabilities 163,145,287 6,284,750 3.85% --------- Non interest-bearing deposits 39,366,065 Other non interest-bearing liabilities 1,853,949 Stockholders' equity 18,348,576 ----------- Total average liabilities and stockholders' equity $222,713,877 =========== Net interest income $10,774,070 ========== Net yield on interest earning assets 5.24% ==== (1) Interest income and yield are stated on a fully taxable-equivalent basis. The total amount of adjustment is $141,196. A federal tax rate of 34% was used in performing this calculation. (2) The average balances of non-accruing loans and loans held for sale are included in the loan balance.
-6- Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and Interest Differential (Continued) The following table shows, for the periods indicated, the dollar amount of changes in interest income and interest expense resulting from changes in volume and interest rates. The total dollar amount of interest income from earning assets is calculated on a taxable equivalent basis.
1997 as compared to 1996 -------------------------------------- Due to a change in: ------------------- Volume Rate Total ---------- ---------- ---------- Interest income from: Federal funds sold $ (153,915) $ 27,268 $ (126,647) Securities: Taxable 464,614 156,987 621,601 Non-taxable 273,841 5,781 279,622 Loans & leases 704,411 (12,944) 691,467 --------- --------- --------- Total $1,288,951 $ 177,092 $1,466,043 ========= ========= ========= Interest expense on: Interest-bearing deposits: Savings, money market and NOW $ 145,440 $ 47,254 $ 192,694 Time deposits 85,984 20,011 105,995 Federal funds purchased and repurchase agreements 191,021 37,754 228,775 --------- --------- --------- Total $ 422,444 $ 105,020 $ 527,464 --------- --------- --------- Net interest income $ 866,507 $ 72,072 $ 938,579 ========= ========= ========= 1996 as compared to 1995 -------------------------------------- Due to a change in: ------------------- Volume Rate Total ---------- ---------- ---------- Interest income from: Federal funds sold $ 220,678 $ (37,001) $ 183,686 Securities: Taxable 529,408 34,745 564,143 Non-taxable 61,121 (14,663) 46,458 Loans & leases 235,550 (190,551 44,999 --------- --------- --------- Total $1,046,766 $ (207,480) $ 839,286 --------- --------- --------- Interest expense on: Interest-bearing deposits: Savings, money market and NOW $ 110,811 $ (269,549) $ (158,738) Time deposits 263,631 0 263,631 Federal funds purchased and repurchase agreements 15,911 (37,796) (21,885) --------- --------- --------- Total $ 390,353 $ (307,345) $ 83,008 --------- --------- --------- Net interest income $ 656,413 $ 99,865 $ 756,278 ========= ========= ========= Note: The change due to the volume/rate variance has been allocated to volume.
-7- Securities Portfolio - -------------------- The following table indicates the carrying value of the Company's consolidated securities portfolio at December 31, 1997, 1996 and 1995.
(in $000) 1997 1996 1995 ------ ------ ------ U.S. Government obligations $21,134 $16,002 $17,160 U.S. Government agencies and corp. 64,667 67,043 54,627 Obligations of states and political subdivisions 8,414 4,141 1,941 Other securities 969 888 888 ------ ------ ------ Total $95,184 $88,074 $74,616 ====== ====== ======
The following table shows the maturities, carrying value and weighted average yields of the Company's consolidated securities portfolio at December 31, 1997. The yields are calculated by dividing the annual interest, net of amortization of premiums and accretion of discounts, by the amortized cost of the securities at the dates indicated. The yields on state and municipal securities are presented on a taxable equivalent basis.
After one After five Maturing: Within but within but within After -------- one year five years ten years ten years ------------ ------------ ------------ ------------ (in $000) Amount Yield Amount Yield Amount Yield Amount Yield --------- ------ ----- ------ ----- ------ ----- ------ ----- U.S. Govt. obli- gations held to maturity $2,996 5.82% $1,013 5.09% $ 0 0% $ 0 0% U.S. Govt. obli- gations avail- able for sale 3,992 6.08% 13,133 6.21% 0 0% 0 0% U.S. Govt. agencies & corps. held to maturity 999 5.80% 3,992 6.47% 4,978 6.62% 0 0% U.S. Govt. agencies & corps. available for sale 3,999 5.91% 0 0% 0 0% 0 0% State and political subdivisions held to maturity 1,740 6.80% 656 7.61% 0 0% 6,019 7.65% Mortgage-backed securities avail- able for sale 14,274 6.19% 2,513 5.73% 0 0% 0 0% Mortgage-backed securities held to maturity 10,889 6.19% 17,341 6.65% 5,681 6.63% 0 0% Other securities 0 0% 0 0% 0 0% 969 6.25% Current estimated prepayment speed assumptions were used in estimating the maturities of mortgage-backed securities in the above table. At December 31, 1997, the Company did not own securities of any issuer where the aggregate book value of such securities exceeded ten percent of the Company's stockholders' equity.
-8- Loan Portfolio - -------------- The following table summarizes the distribution of the Bank's loan portfolio as of December 31 for each of the years indicated:
(in $000) 1997 1996 1995 1994 1993 - --------- ------ ------ ------ ------ ------ Commercial and industrial $ 18,066 $ 17,227 $ 13,784 $ 13,685 $ 11,108 Real estate - commercial 48,329 45,106 44,983 50,195 45,488 Real estate - residential 54,211 49,790 50,979 44,246 43,167 Real estate - construction 4,868 4,833 3,903 3,330 4,586 Mortgage loans held for sale 2,173 1,222 1,057 559 14,172 Loans to individuals 13,571 13,221 13,178 10,850 10,311 Other 795 171 188 173 514 ------- ------- ------- ------- ------- Total loans $142,013 $131,570 $128,072 $123,038 $129,346 ======= ======= ======= ======= =======
Loan maturities for commercial and real estate (construction) loans at December 31, 1997 were as follows: $9,180,622 due in one year or less; $9,865,047 due after one year through five years; $3,888,640 due after five years. Of the Bank's commercial and real estate (construction) loans due after one year, $8,924,480 have floating or adjustable rates and $4,829,207 have fixed rates. Nonaccrual, Past Due and Restructured Loans - ------------------------------------------- It is the policy of the Bank to discontinue the accrual of interest on loans when, in management's judgment, the collection of the full amount of interest is considered doubtful. This will generally occur once a loan has become 90 days past due, unless the loan is well secured and in the process of collection. The following table sets forth information on nonaccrual, past due loans and restructured loans as of December 31 for each of the years indicated:
(in $000) 1997 1996 1995 1994 1993 - --------- ------ ------ ------ ------ ------ Nonaccrual loans $ 633 $ 897 $1,650 $ 909 $1,681 Accruing loans past due 90 days or more 239 370 160 66 346 Restructured loans 0 0 0 1,155 1,357 ----- ----- ----- ----- ----- Total $ 872 $1,267 $1,810 $2,130 $3,384 ===== ===== ===== ===== ===== The entire "restructured loans" balance at December 31, 1994 in the above table was comprised of a single loan. That loan was placed on nonaccrual status in September of 1995 and transferred to "Other Real Estate Owned" in August of 1996.
For the period ended December 31, 1997, the reduction of interest income associated with nonaccrual and restructured loans was $124,394. The interest on these loans that was included in interest income for 1997 was $19,475. Potential Problem Loans - ----------------------- As of December 31, 1997, other than the above, there were no loans where management had serious doubts as to the ability of the borrowers to comply with the present loan repayment terms. Concentrations of Credit - ------------------------ As of December 31, 1997, except as disclosed in the above table, there were no concentrations of loans exceeding 10% of total loans. -9- Summary of Loan Loss Experience - ------------------------------- The following table summarizes historical data with respect to loans outstanding, loan losses and recoveries, and the allowance for possible loan losses at December 31 for each of the years indicated:
(in $000) 1997 1996 1995 1994 1993 - --------- ------- ------- ------- ------- ------- Average outstanding loans (1) $136,844 $129,443 $127,034 $120,018 $122,411 ======= ======= ======= ======= =======
Allowance for possible loan losses - ----------------------------------
(in $000) 1997 1996 1995 1994 1993 ------- ------- ------- ------- ------- Balance at beginning of period $ 3,482 $ 3,455 $ 3,703 $ 3,910 $ 4,178 Charge-offs: Commercial and industrial (133) (39) (31) (506) (305) Real estate - commercial (99) 0 (415) 0 (455) Real estate - residential (16) (53) (70) (221) (169) Real estate - construction 0 0 0 0 0 Loans to individuals (118) (138) (113) (112) (87) ----- ----- ----- ----- ----- Total charge-offs (366) (230) (629) (839) (1,016) Recoveries: Commercial and industrial 35 147 105 174 60 Real estate - commercial 0 79 18 3 44 Real estate - residential 41 1 100 128 11 Real estate - construction 0 0 0 0 0 Loans to individuals 24 30 38 27 33 ----- ----- ----- ----- ----- Total recoveries 100 257 261 332 148 Net (charge-off) recovery (266) 27 (368) (507) (868) Provision for possible loan losses 0 0 120 300 600 ----- ----- ----- ----- ----- Balance at end of period $ 3,216 $ 3,482 $ 3,455 $ 3,703 $ 3,910 ===== ===== ===== ===== ===== Ratio of net charge-offs to average loans .19% .00% .29% .42% .71% ===== ===== ===== ===== ===== (1) Includes the aggregate average balance of loans held for sale.
The provision for possible loan losses is based upon management's estimation of the amount necessary to maintain the allowance at an adequate level to absorb inherent possible losses in the loan portfolio, as determined by current and anticipated economic conditions and other pertinent factors. Significant credits classified as "substandard" and "doubtful", in accordance with applicable bank regulatory guidelines, are individually analyzed to estimate inherent possible losses associated with each such credit. A portion of the allowance for possible loan losses is set aside or "allocated" against such estimated inherent losses, without regard to if or when those estimated losses will actually be realized. Additional "unallocated" reserves are provided for estimated inherent losses in pools of loans. Such allocated and unallocated reserves are established to absorb potential future losses and may or may not reflect the Company's actual loss history for any specific category of loans. -10- Summary of Loan Loss Experience (Continued) - ------------------------------------------- The following table reflects the allocation of the allowance for loan losses and the percent of loans in each category to total outstanding loans, including loans held for sale, as of December 31 for each of the years indicated:
1997 1996 1995 -------------------- -------------------- -------------------- Percent of Percent of Percent of loans in loans in loans in category to category to category (in $000) Amount total loans Amount total loans Amount total loans - --------- ------ ----------- ------ ----------- ------ ----------- Commercial & industrial $ 318 12.7% $ 195 13.1% $ 165 10.9% Real estate - commercial 565 34.1% 767 34.2% 746 35.1% Real estate - residential 198 39.7% 166 38.8% 174 40.7% Real estate - construction 62 3.4% 82 3.7% 96 3.0% Loans to individuals 126 10.1% 126 10.2% 100 10.3% Unallocated 1,947 N/A 2,146 N/A 2,174 N/A ----- ----- ----- ----- ----- ----- Total $3,216 100.0% $3,482 100.0% $3,455 100.0% ===== ===== ===== ===== ===== ===== 1994 1993 -------------------- -------------------- Percent of Percent of loans in loans in category to category to (in $000) Amount total loans Amount total loans - --------- ------ ----------- ------ ----------- Commercial & industrial $ 165 11.2% $ 157 8.6% Real estate - commercial 1,440 40.9% 1,986 35.2% Real estate - residential 222 36.1% 217 44.6% Real estate - construction 45 2.8% 32 3.6% Loans to individuals 87 9.0% 126 8.0% Unallocated 1,744 N/A 1,392 N/A ----- ----- ----- ----- Total $3,703 100.0% $3,910 100.0% ===== ===== ===== ===== The allocation of the allowance for possible loan losses to the categories of loans shown above includes both specific potential loss estimates for individual loans and general allocations deemed to be reasonable to provide for additional potential losses within the categories of loans set forth.
-11- Deposits - -------- The following table shows the average deposits and average interest rate paid for each of the last three years:
1997 1996 1995 ---------------- ---------------- ---------------- Average Average Average Average Average Average (in $000) Balance Rate Balance Rate Balance Rate - --------- ------- ------- ------- ------- ------- ------- Demand deposits $ 49,068 0.00% $ 44,426 0.00% $ 39,366 0.00% NOW deposits 22,560 1.20% 22,544 1.29% 21,621 1.78% Money market deposits 27,996 2.74% 27,924 2.75% 26,812 2.91% Savings deposits 49,999 2.83% 44,040 2.73 41,417 3.02% Time deposits 68,314 5.40% 66,704 5.37% 61,842 5.37% ------- ---- ------- ---- ------- ---- Total $217,937 2.82% $205,638 2.84% $191,058 3.00% ======= ==== ======= ==== ======= ====
As of December 31, 1997, the Bank had certificates of deposit in amounts of $100,000 or more aggregating $21.2 million. These certificates of deposit mature as follows:
Maturity Amount (in $000) -------- ---------------- 3 months or less $10,251 Over 3 months through 6 months 2,826 Over 6 months through 12 months 6,075 Over 12 months 2,032 ------ Total $21,184 ======
-12- Return on Equity and Assets - --------------------------- The following table summarizes various financial ratios of the Company for each of the last three years:
Years ended December 31, -------------------------------- 1997 1996 1995 ---- ---- ---- Return on average total assets (net income divided by average total assets) 1.33% 1.31% 1.19% Return on average stockholders' equity (net income divided by average stockholders' equity) 16.07% 15.36% 14.41% Dividend payout ratio (total declared dividends per share divided by net income per share) 24.43% 24.99% 27.86% Equity to assets (average stockholders' equity as a percentage of average total assets) 8.30% 8.55% 8.24%
-13- Short-Term Borrowings - --------------------- The Bank engages in certain borrowing agreements throughout the year. These are in the ordinary course of the Bank's business. Such short-term borrowings consisted of securities sold under repurchase agreements, which are short-term borrowings from customers, and federal funds purchased. The following table summarizes such short-term borrowings at December 31 for each of the years indicated:
Weighted Max. Weighted average amount average interest out- Average interest Year Balance, rate at standing amount rate ended end of end of at any out- during 12/31/97 period period month-end standing period - -------------------------------------------------------------------------- Federal Funds Purchased $ 3,000,000 7.05% $ 3,000,000 $ 55,616 5.95% Repurchase Agreements 13,637,063 4.71% 20,135,834 15,743,797 4.78% Weighted Max. Weighted average amount average interest out- Average interest Year Balance, rate at standing amount rate ended end of end of at any out- during 12/31/96 period period month-end standing period - -------------------------------------------------------------------------- Federal Funds Purchased $ 0 0% $ 0 $ 2,732 6.40% Repurchase Agreements 11,454,687 4.45% 14,435,268 11,795,545 4.39% Weighted Max. Weighted average amount average interest out- Average interest Year Balance, rate at standing amount rate ended end of end of at any out- during 12/31/95 period period month-end standing period - -------------------------------------------------------------------------- Federal Funds Purchased $ 1,000,000 6.40% $ 6,200,000 $ 1,536,438 6.12% Repurchase Agreements 8,289,963 4.38% 14,374,499 9,916,887 4.56%
-14- ITEM 2. PROPERTIES The Bank's Main Office (approximately 32,000 square feet) at 17 Pope Street, Hudson, Massachusetts, the Consumer Loan Center (2,623 square feet) at 12 Pope Street, Hudson, Massachusetts, the Hudson South Office (1,040 square feet) at 177 Broad Street, Hudson, Massachusetts and the Marlboro Center Office (1,800 square feet) at 96 Bolton Street, Marlboro, Massachusetts, are owned by the Bank. The Bank's Stow Office (1,228 square feet) at 159 Great Road, Stow, Massachusetts, the Concord office (1,200 square feet) at 1134 Main Street, Concord, Massachusetts, the Acton office (2,100 square feet) at 274 Great Road, Acton, Massachusetts, the Marlboro office (1,110 square feet) at 500 Boston Post Road, Marlboro, Massachusetts and the Boxboro office (679 square feet) at 629 Mass Avenue, Boxboro, Massachusetts, are leased by the Bank from third parties. All properties occupied by the Bank are in good condition, and are adequate at present and for the foreseeable future for the purposes for which they are being used. In the opinion of management the properties are adequately insured. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any legal proceeding. The Bank is involved in various routine legal actions arising in the normal course of business. Based on its knowledge of the pertinent facts and the opinions of legal counsel, management believes the aggregate liability, if any, resulting from the ultimate resolution of these actions will not have a material effect on the Company's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the quarter ended December 31, 1997. -15- PART II ------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS There is no established public trading market for the Company's common stock. The record number of holders of the Company's common stock was approximately 437 as of March 20, 1998. The Company customarily declares quarterly cash dividends on its outstanding common stock. The following table sets forth the cash dividends per share declared for the years 1997 and 1996:
1997 1996 ------ ------ First quarter $.068 $ .061 Second quarter .070 .062 Third quarter .072 .064 Fourth quarter .075 .066 ----- ----- Total $ .285 $ .253 ===== =====
For a discussion of restrictions on the ability of the Bank to pay dividends to the Company, see footnote 12 on page 21 of the Annual Report to Shareholders for the year ended December 31, 1997, which is hereby incorporated by reference. ITEM 6. SELECTED FINANCIAL DATA A five year summary of selected consolidated financial data for the Company is presented on page 1 of the Annual Report to Shareholders for the year ended December 31, 1997 and is hereby incorporated by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of financial condition and results of operations is contained on pages 26 through 29 of the Annual Report to Shareholders for the year ended December 31, 1997 and is hereby incorporated by reference. It is the Company's general policy to reasonably match the rate sensitivity of its assets and liabilities in an effort to prudently manage interest rate risk. A common benchmark of this sensitivity is the one year gap position, which is a reflection of the difference between the speed and magnitude of rate changes of interest rate sensitive liabilities as compared with the Company's ability to adjust the rates of its interest rate sensitive assets in response to such changes. The Company's positive one-year cumulative gap position at December 31, 1997, which represents the excess of repricing assets versus repricing liabilities, was 3.2% expressed as a percentage of total assets. -16- The following table presents rate-sensitive assets and rate-sensitive liabilities as of December 31, 1997:
(Dollars in thousands) December 31, 1997 - --------------------------------------------------------------------------------------------------- 1 to 6 7 to 12 1 to 2 2 to 5 Over 5 Months Months Years Years Years Total ---------- --------- ---------- --------- --------- ---------- RATE-SENSITIVE ASSETS Federal funds sold $ 14,600 $ $ $ $ $ 14,600 Securities 21,252 15,631 25,557 15,097 17,647 95,184 Adjustable-rate loans 53,154 13,662 19,150 22,002 506 108,474 Fixed-rate loans 5,491 3,480 5,489 9,343 9,736 33,539 --------- --------- ---------- ---------- -------- --------- Total $ 94,497 $ 32,773 $ 50,196 $ 46,442 $ 27,889 $ 251,797 --------- --------- ---------- --------- -------- --------- RATE-SENSITIVE LIABILITIES Demand deposits $ $ $ $ $ 55,679 $ 55,679 NOW accounts* 26,744 26,744 Money market accounts 29,057 29,057 Savings accounts 34,814 34,814 Cash management accounts 15,580 15,580 Certificates of deposit 38,904 18,366 5,797 7,789 59 70,915 Short term borrowings 16,637 16,637 --------- --------- ---------- --------- -------- --------- Total $ 100,178 $ 18,366 $ 5,797 $ 7,789 $ 117,296 $ 249,426 --------- --------- ---------- --------- -------- --------- Gap $ (5,681) $ 14,407 $ 44,399 $ 38,653 $ (89,407) $ 2,371 ========== ========= ========= ========= ======== ========= Cumulative Gap $ (5,681) $ 8,726 $ 53,125 $ 91,778 $ 2,371 ========== ========= ========= ========= ======== Gap as a percent of total assets (2.07%) 5.26% 16.23% 14.13% (32.68%) Cumulative gap as a percent of total assets (2.07%) 3.19% 19.42% 33.55% 0.87% * Cumulative gap as a percent of total assets if NOW accounts are considered immediately withdrawable (11.85%) (6.59%) 9.64% 23.77% 0.87% The "adjustable-rate loans" and "fixed-rate loans" figures in the above table include loans held for sale. For purposes of this table, the Bank's FlexValue deposit account balances have been included in the "Money market accounts" category. Whenever possible, maturity dates or contractual repricing dates were used in the preparation of the above table. In addition to those factors, certain assumptions are utilized in preparing the table. The Bank's historical experience over the past ten years, during which time interest rates have risen and fallen significantly, has shown that savings account balances, demand deposit balances and NOW account balances are rate insensitive. Other deposit categories are considered to be rate sensitive. That rate sensitivity or insensitivity is reflected in the above table.
-17- ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest rate risk is the sensitivity of income to variations in interest rates over a specified time horizon. The primary goal of interest rate risk management is to control this risk within limits approved by the Board of Directors and narrower guidelines approved by the Asset/Liability Committee. Those limits and guidelines reflect the Company's tolerance for interest rate risk. The Company also uses simulation analysis to measure the exposure of net interest income to changes in interest rates over a one year time horizon. Simulation analysis involves projecting future income and expense from the Company's assets and liabilities under various interest rate scenarios. The Company's limits on interest rate risk specify that if interest rates were to shift immediately up or down by 200 basis points, estimated net interest income for the subsequent twelve months should decline by no more than $500,000. The following table sets forth the Company's estimated net interest income exposure, assuming an immediate, parallel shift in interest rates:
Rate Change Estimated Exposure to (Basis Points) Net Interest Income -------------- --------------------- +200 $517,567 -200 (399,180)
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's consolidated financial statements are included on page 1 and on pages 9 through 25 of the Annual Report to shareholders for the year ended December 31, 1997 and are hereby incorporated by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes in the Company's independent public accountants or disagreements with the Company's accountants on accounting or financial disclosure during the 24 months ended December 31, 1997 or in any period subsequent to the most recent financial statements. -18- PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth, as to each of the Directors and Executive Officers of the Company and the Bank, such person's age, position, term of office, and all business experience during the past five years. All Directors and Executive Officers of the Company have served since 1984, except Mr. Frias who has been a Director of the Company since 1985, Mr. Parker who has been a Director of the Company since 1986, and Messrs. Hughes and Webster who have been Directors of the Company since 1995. Each Director of the Company is also a Director of the Bank. Each executive officer holds office until the first Director's meeting following the annual meeting of stockholders and thereafter until his or her successor is elected and qualified.
Business Experience Term of During Past Name Age Position Office Five Years - ---------- --- ----------- -------- ------------------------ Richard K. 45 Senior Vice Senior Vice President, Bennett President Vice President, of Bank Community National Bank Grace L. Blunt 43 Senior Vice Senior Vice President, President Vice President, Community of Bank National Bank, Assistant Clerk, Community Bancorp, Inc. Alfred A. 80 Director of 2000 Retired Cardoza (1) Company and Bank Argeo R. 74 Director of 2000 Retired; formerly Cellucci (1) Company and President and Treasurer, Bank Washington Street Motors, Inc.; President, Cellucci Hudson Corp. Antonio 58 Director of 2000 President and Treasurer, Frias (1) Company and S & F Concrete Bank Contractors, Inc.; Secretary/Clerk, Frias Bros. Service Station John P. Galvani 41 Senior Vice Senior Vice President, President Vice President, of Bank Community National Bank I. George Gould 81 Director of 1999 Chairman, Gould's, Inc. Company and Bank Horst Huehmer 70 Director of 1998 Retired; formerly Company and Manager, Hudson Light Bank and Power Department -19- Donald R. 48 Treasurer and 1998 Executive Vice Hughes, Jr. Clerk of President, Community Company; Exec. National Bank; Vice President Treasurer and Clerk, of Bank; Director Community Bancorp, Inc. of Company and Bank James A. Langway 58 President & 1999 President and CEO, CEO of Company Community National Bank and Bank; and Community Director of Bancorp, Inc. Company and Bank Robert E. Leist 44 Senior Vice Senior Vice President, President Vice President, of Bank Community National Bank Janet A. Lyman 51 Senior Vice Senior Vice President, President Vice President, of Bank Community National Bank Dennis F. 60 Chairman of 2000 President and Murphy, Jr. (1) the Board, Treasurer, D. F. Company and Murphy Insurance Bank Agency, Inc.; Treasurer, Village Real Estate David L. 69 Director of 1999 Chairman of the Board, Parker (2) Company and Larkin Lumber Co. Bank Mark Poplin 74 Director of 1998 President and Company and Treasurer, Poplin Bank Supply Co.; Secretary, Poplin Furniture Co. David W. 56 Director of 1998 President & Treasurer, Webster (2) Company and A. T. Knight Fuel Co., Bank Inc. (1) Messrs. Huehmer, Hughes, Poplin and Webster have been nominated for election at the 1998 Annual Meeting to serve until 2001. (2) Mr. Webster's wife and Mr. Parker are cousins. No Director holds a directorship in any company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 or subject to the requirements of Section 15(d) of such Act or any company registered as an investment company under the Investment Company Act of 1940.
-20- ITEM 11. EXECUTIVE COMPENSATION The following table sets forth all plan and non-plan compensation awarded to, earned by or paid to the CEO and other executive officers whose aggregate compensation exceeded $100,000 by the Company and the Bank for 1997, 1996 and 1995.
Summary Compensation Table -------------------------- Annual Compensation --------------------------------------------- (a) (b) (c) (d) (i) (1) Name and All Other Principal Position Year Salary Bonus Compensation - ------------------ ---- ------ ----- ------------ James A. Langway 1997 $205,353 $75,000 $ 8,989 President and CEO 1996 195,574 68,451 8,838 of the Company and 1995 186,261 55,000 2,982 the Bank Donald R. Hughes, Jr. 1997 116,757 28,605 8,104 Treasurer and Clerk of 1996 111,197 27,244 7,825 Company; Executive Vice 1995 105,902 26,740 2,062 President of the Bank Richard K. Bennett 1997 85,772 14,581 5,037 Senior Vice President 1996 81,688 13,887 3,999 of the Bank 1995 77,798 13,615 1,335 Notes: 1. The Company maintains an Employee Stock Ownership Plan (ESOP) for employees age 21 or older who are participants in the Company's Retirement Plan and who meet other requirements. The Company also maintains a 401(k) Savings Plan (401(k) Plan) for employees age 21 or over and who meet other requirements. Messrs. Langway, Hughes and Bennett are participants in the Company's ESOP and 401(k) Plans. Of the $8,989 reported above for 1997 in column (i) for Mr. Langway, $3,520 represents Company ESOP contributions, $4,750 represents Company 401(k) Plan contributions and $719 represents group life insurance premiums paid by the Company. Of the $8,104 reported above for 1997 in column (i) for Mr. Hughes, $3,240 represents Company ESOP contributions, $4,361 represents Company 401(k) Plan contributions and $504 represents group life insurance premiums paid by the Company. Of the $5,037 reported above for 1997 in column (i) for Mr. Bennett, $2,266 represents Company ESOP contributions, $2,663 represents Company 401(k) Plan contributions and $108 represents group life insurance premiums paid by the Company.
Compensation of Directors - ------------------------- The Bank paid its Directors an annual fee of $9,098 in 1997. The Chairman of the Board was paid $15,164 in 1997. Director fees are paid on a monthly basis. The Company pays no compensation to its Directors for their services. -21- Employment Contracts and Termination of Employment and Change-in-Control - ------------------------------------------------------------------------ Arrangements - ------------ The Company has entered into five-year Employment Agreements with James A. Langway, President and Chief Executive Officer of the Company, and with Donald R. Hughes, Jr., Treasurer and Clerk of the Company, which commenced August 1, 1986 and which specify the employee's duties and minimum compensation during the period of the Employment Agreement. Each Employment Agreement is extended for one additional year, on the anniversary of the commencement date, unless prior notice is given by either party. Employment by the Company shall terminate upon the employee's resignation, death, disability, or for "cause" as defined in the Employment Agreement. If employment is involuntarily terminated by the Company for any reason except for cause, or if the Employment Agreement is not renewed at its expiration, the Company is required to make additional payments to the employees. During the term of the Employment Agreement and for one year afterwards, the employee cannot compete with the Company within its market area. The Company has also entered into Severance Agreements with Mr. Langway and Mr. Hughes regarding termination of employment by the Company or Bank subsequent to a "change in control" of the Company, as defined in the Severance Agreement. Following the occurrence of a change in control, if the employee's employment is terminated (except because of gross dereliction of duty, death, retirement, disability or conviction for criminal misconduct) or is involuntarily terminated for "good reason" as defined in the Severance Agreement, then the employee shall be entitled to a lump sum payment from the Company approximately equal to three times his average annual compensation for the previous five years, plus accrued vacation pay and bonus awards. If Mr. Langway or Mr. Hughes is entitled to receive benefits under both his Employment Agreement and his Severance Agreement, he must choose the agreement under which he will claim benefits. The Company has entered into an Executive Supplemental Income Agreement with James A. Langway, President and Chief Executive Officer of the Company, which commenced July 12, 1988 and which specifies benefits payable to Mr. Langway for a ten (10) year period following the date on which he ceases to be employed by the Company. The Agreement provides that the Company will pay Mr. Langway $40,774 each year, increased by increases in the Consumer Price Index, for a ten (10) year period following the date he ceases to be employed by the Company for any cause whatsoever after attaining age 55. The Agreement was amended on January 26, 1990, increasing the annual base retirement benefit to be paid to Mr. Langway from $40,774 to $60,774 each year, increased by increases in the Consumer Price Index in the same manner as the original Agreement. Mr. Langway attained age 55 during 1994. The Company records annual expense in anticipation of future payments expected to be made under this Agreement. The annual expense amount recorded is determined by an independent actuary based on Mr. Langway's life expectancy at the time he begins receiving payments. During 1997, the Company recorded $47,340 in such expense. -22- ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table and related notes set forth information regarding stock owned by each of the Directors of the Company and Bank and by all officers and Directors of the Company and Bank as a group at March 20, 1998.
Amount and Nature of Beneficial Ownership Title (Number of shares) (1) Percent of Name of ------------------------------------- of Class Beneficial Owner Sole (2) Shared (3) Total Class - ----- ---------------- -------- ---------- ------ ------- Common Alfred A. Cardoza 12,600 9,886 22,486 .8% Stock ($2.50 Argeo R. Cellucci 6,728 0 6,728 .2% par) Antonio Frias 19,858 0 19,858 .7% I. George Gould 9,235 108,828 (4) 118,063 4.0% Horst Huehmer 18,532 4,100 22,632 .8% Donald R. Hughes, Jr. 2,000 111,859 (4,5) 113,859 3.9% James A. Langway 91,170 101,746 (4,6,7) 192,916 6.6% Dennis F. Murphy, Jr. 193,724 250,948 444,672 15.2% David L. Parker 22,514 21,784 (8) 44,298 1.5% Mark Poplin 45,428 107,336 152,764 5.2% David W. Webster 750 76,741 (7) 77,491 2.6% All directors and officers of the Company and Bank as a group (20 persons) 423,867 719,799 (4,9) 1,143,666 39.1% (1) Based upon information provided to the Company by the indicated persons. Certain directors may disclaim beneficial ownership of certain of the shares listed beside their names. (2) Indicates sole voting and investment power. (3) Indicates shared voting and investment power. (4) Includes 73,075 shares held by the Company's ESOP for which Messrs. Gould, Hughes and Langway are co-trustees. (5) Includes 8,784 shares held by the Company's 401(k) plan for which Mr. Hughes has voting power in certain circumstances. (6) Includes 15,132 shares held by the Company's 401(k) plan for which Mr. Langway has voting power in certain circumstances. -23- (7) Includes 13,314 shares held in the name of Katherine A. Knight, for whose estate Mr. Langway and Mr. Webster's wife are co-executors. (8) Includes 2,000 shares held by the Unitarian Church of Marlboro and Hudson, MA, for which Mr. Parker is a trustee, and 13,584 shares held in the name of Arline Parker, for whom Mr. Parker has power of attorney. (9) Includes 64,563 shares held by the Company's 401(k) plan for which Grace L. Blunt, Senior Vice President, and Robert E. Leist, Senior Vice President, are co-trustees.
The following persons own beneficially more than five percent of the outstanding stock of the Company as of March 20, 1998:
Amount and Title Name and Address Nature of Percent of of Beneficial Beneficial of Class Owner Ownership Class ----- ---------------- ---------- ------- Common Stock Dennis F. Murphy, Jr. 444,672 shares 15.2% ($2.50 par) 44 Wilder Road Bolton, MA 01740 James A. Langway 192,916 shares (1) 6.6% 1143 Grove Street Framingham, MA 01701 Mark Poplin 152,764 shares 5.2% 108 Barretts Mill Road Concord, MA 01742 Einar P. Robsham 151,900 shares 5.2% 164 Cochituate Road Wayland, MA 01778 (1) Includes 73,075 shares held by the Company's ESOP for which Mr. Langway is a trustee, 15,132 shares held by the Company's 401(k) plan for which Mr. Langway has voting power in certain circumstances, and 13,314 shares held in the name of Katherine A. Knight, for whose estate Mr. Langway is a co-executor.
-24- ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company, through its wholly-owned bank subsidiary, has had, currently has, and expects to continue to have in the future, banking (including loans and extensions of credit) transactions in the ordinary course of its business with its Directors, Executive Officers, members of their families and associates. Such banking transactions have been and are on substantially the same terms, including interest rates, collateral and repayment conditions, as those prevailing at the same time for comparable transactions with others and did not involve more than the normal risk of collectibility or present other unfavorable features. In October of 1997, the Bank entered into a third-party insurance sales agreement with Murphy Insurance Brokerage, Ltd. ("Murphy"). Entering into the agreement was intended to implement a decision of the Board of Directors to expand the Bank's product line by offering insurance products to the public. The extent and the form of the arrangement between the Bank and Murphy are still under discussion based on regulatory issues and the volume of sales which can be reasonably expected. Murphy Insurance Brokerage, Ltd. is a subsidiary of Murphy Insurance Agency, Inc., which is owned by Dennis F. Murphy, Jr., Chairman of the Company's Board of Directors. The third-party arrangement between the Bank and Murphy had no material affect on the Company's 1997 financial statements or results of operations. -25- PART IV ------- ITEM 14. EXHIBITS AND FINANCIAL STATEMENTS (a) 1. & 2. Index to Consolidated Financial Statement Schedules --------------------------------------------------- The following consolidated financial statements, which are included in the Annual Report to Shareholders of Community Bancorp, Inc. for the year ended December 31, 1997, are hereby incorporated by reference: Annual Report to Shareholders Description page reference Consolidated balance sheets at December 31, 1997 and 1996 9 Consolidated statements of income for the years ended December 31, 1997, 1996 and 1995 10 Consolidated statements of stockholders' equity for the years ended December 31, 1997, 1996 and 1995 11 Consolidated statements of cash flows for the years ended December 31, 1997, 1996 and 1995 12 - 13 Notes to consolidated financial statements 14 - 24 With the exception of the aforementioned information, and information incorporated by reference in Items 5, 6, 7, and 8, the Annual Report to Shareholders for the year ended December 31, 1997 is not deemed to be filed as part of this Form 10-K. Certain schedules required by Regulation S-X have been omitted as the items are either not applicable or are presented in the notes to the financial statements contained in the Annual Report to Shareholders for the year ended December 31, 1997. 3. Exhibits -------- See accompanying Exhibit Index. (b) The Company did not file a Form 8-K during the quarter ended December 31, 1997. -26-
EXHIBIT INDEX ------------- 3.1 Articles of Organization of Company Amendments to Articles of Organization, (dated prior to April 12, 1988) (a) 3.1.i Amendment to Articles of Organization, dated April 12, 1988 3.2 By-Laws of Company (a) 10.1 Community Bancorp, Inc. Employee Stock Ownership Plan (as amended and restated effective January 1, 1985) (b) 10.2 Employment Agreement dated August 19, 1986 between Community Bancorp, Inc. and James A. Langway (c) 10.3 Severance Agreement dated June 10, 1986 between Community Bancorp, Inc. and James A. Langway (d) 10.4 Employment Agreement dated August 19, 1986 between Community Bancorp, Inc. and Donald R. Hughes, Jr. (c) 10.5 Severance Agreement dated June 10, 1986 between Community Bancorp, Inc. and Donald R. Hughes, Jr. (d) 10.6 Executive Supplemental Income Agreement dated July 12, 1988 between Community Bancorp, Inc. and James A. Langway (e) 10.7 Amendment to Executive Supplemental Income Agreement dated January 26, 1990 between Community Bancorp, Inc. and James A. Langway. (f) 10.8 Stock Purchase Agreement dated March 29, 1993 by and among Community Bancorp, Inc. and certain specific persons. (g) 13. 1997 Annual Report to shareholders 21. Subsidiaries of Company Page 29 27. Financial Data Schedule (a) Incorporated herein by reference to Exhibits 3.1, and 3.2 and filed as part of Company's Amendment No. 1 to the Registration Statement on Form S-18 (File No. 33-12756-B) filed with Commission on April 16, 1987. -27- (b) Incorporated herein by reference to Exhibit 10.1 as part of Company's Registration Statement on Form S-18 (File No. 33-12756-B) filed with the Commission on March 19, 1987. (c) Incorporated herein by reference to Exhibits 5.8 and 5.9 filed as part of Company's Amendment No. 2 to the Offering Statement on Form 1-A (File No. 24B-2076) filed with the Commission on August 14, 1986. (d) Incorporated herein by reference to Exhibits 5.2 and 5.4 filed as part of Company's Offering Statement on Form 1-A (File No. 24B-2076) filed with the Commission on June 24, 1986. (e) Incorporated herein by reference as filed as part of the Company's December 31, 1988 Form 10-K (File No. 33-12756-B), filed with the Commission on March 30, 1989. (f) Incorporated herein by reference as filed as part of the Company's December 31, 1989 Form 10-K (File No. 33-12756-B), filed with the Commission on March 29, 1990. (g) Incorporated herein by reference as filed as part of the Company's December 31, 1992 Form 10-K (File No. 33-12756-B), filed with the Commission on March 30, 1993.
-28- SUBSIDIARIES OF COMPANY ----------------------- 1. Community National Bank, a national banking association. -29- SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. COMMUNITY BANCORP, INC. Date: March 20, 1998 By: /s/ Donald R. Hughes, Jr. -------------- ------------------------- Donald R. Hughes, Jr. Treasurer and Clerk Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date Name and Capacity ---- ----------------- March 20, 1998 /s/ James A. Langway - -------------- --------------------------------- James A. Langway, President & CEO Principal Executive Officer March 20, 1998 /s/ Donald R. Hughes, Jr. - -------------- --------------------------------- Donald R. Hughes, Jr., Treasurer & Clerk, Principal Financial Officer and Principal Accounting Officer March 20, 1998 /s/ James A. Langway - -------------- --------------------------------- James A. Langway, Director March 20, 1998 /s/ Donald R. Hughes, Jr. - -------------- --------------------------------- Donald R. Hughes, Jr., Director March 20, 1998 /s/ Alfred A. Cardoza - -------------- --------------------------------- Alfred A. Cardoza, Director March 20, 1998 /s/ I. George Gould - -------------- --------------------------------- I. George Gould, Director March 20, 1998 /s/ Argeo R. Cellucci - -------------- --------------------------------- Argeo R. Cellucci, Director March 20, 1998 /s/ Mark Poplin - -------------- --------------------------------- Mark Poplin, Director -30- SUPPLEMENTAL INFORMATION ------------------------ Copies of the Notice of Annual Meeting of Shareholders, Proxy Statement and Proxy For Annual Meeting of Shareholders for the Registrant's 1997 annual meeting of shareholders, to be held on April 14, 1998, are being submitted separately as an EDGAR Submission Type DEF 14A. Such material is not deemed to be filed with the Commission or otherwise subject to the liabilities of Section 18 of the Securities Exchange Act. -31- EX-13 2 1997 ANNUAL REPORT TO SHAREHOLDERS [Front cover] Community Bancorp, Inc. Annual Report 1997 Selected Consolidated Financial Data
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Total assets $273,550,527 $250,002,458 $237,580,796 $219,850,767 $214,682,682 Total deposits 232,788,534 217,181,869 207,039,865 186,862,986 185,499,065 Total net loans 136,624,294 126,866,560 123,558,839 118,775,581 111,263,480 Allowance for possible loan losses 3,215,559 3,481,705 3,455,098 3,703,470 3,910,195 Total interest income 19,169,951 17,761,102 16,917,624 14,429,932 14,032,506 Total interest expense 6,895,222 6,367,758 6,284,750 4,525,558 4,465,379 Net interest income 12,274,729 11,393,344 10,632,874 9,904,374 9,567,127 Gains (losses) on sales of securities 8,587 (9,460) 0 (29,828) 69,600 Provision for possible loan losses 0 0 120,000 300,000 600,000 Net income 3,429,859 3,152,098 2,643,877 2,105,433 1,505,158 Earnings per share 1.17 1.01 0.84 0.67 0.49 Dividends per share 0.285 0.253 0.234 0.214 0.173
[Five-year bar graphs for the following categories appear in this space. Data for the graphs was obtained from the above table.] Total Assets (in millions) Net Income (in millions) Earnings Per Share (in dollars) Total Deposits (in millions) Total Net Loans (in millions) Net Interest Income (in millions) -1- Table of Contents ----------------- Message to Stockholders and Friends - - - - - - - - - - - - 3 Year in Review - - - - - - - - - - - - - - - - - - - - - - 5 Consolidated Balance Sheets - - - - - - - - - - - - - - - - 9 Consolidated Statements of Income - - - - - - - - - - - - - 10 Consolidated Statements of Stockholders' Equity - - - - - - 11 Consolidated Statements of Cash Flows - - - - - - - - - - - 12 Notes to Consolidated Financial Statements - - - - - - - - 14 Report of Independent Public Accountants - - - - - - - - - 25 Management's Discussion and Analysis of Financial Condition and Results of Operations - - - - - - - 26 Directors & Officers - - - - - - - - - - - - - - - - - - - 30 -2- To Our Stockholders and Friends: On behalf of the Board of Directors, management and staff of Community Bancorp, Inc., we are proud to present you with our 1997 Annual Report. The overall results of operations for the past year are a very positive indication of the Company's continued strength, as we again achieved record earnings. Net income for the year was $3,429,859, compared to $3,152,098 recorded in 1996. Earnings per share of common stock was $1.17, representing a 15.8% increase over $1.01 in the previous year. This continued improvement in earnings was the result of increases in net interest income and noninterest income. [A photograph of Dennis F. Murphy, Jr., Chairman of the Board, appears here.] For the first time in its history, the Company achieved a return on assets (ROA) of 1.33% and a return on equity (ROE) of 16.07%, comparing very favorably to peer institutions. As a result of our continued strong earnings during 1997, the Board of Directors increased the cash dividend paid to stockholders in each of the four quarters. Total dividends declared of $.285 per share represented a 12.6% increase over $.253 declared in 1996. [A photograph of James A. Langway, President and Chief Executive Officer, appears here.] Sound, conservative, yet innovative banking practices have provided the foundation for Community National Bank to continue to function effectively as a locally-owned, independent bank. That foundation is further strengthened by our continued financial success, as evidenced by the operating results presented in this report. The Bank's consistently strong performance has once again brought us recognition as a "Blue Ribbon" bank by one of the nation's top financial institution rating services. -3- We continually strive to provide friendly, courteous and professional service to our customers. We also strive to provide our customers with technologically advanced services and delivery systems that an increasing number of them desire every year. Community Bancorp, Inc. is committed to being a leader at providing a full range of diversified financial services with high quality and innovative technology that will expand our customer base and improve the quality of life in the communities we serve. As we have stated in previous letters to our stockholders, we are a community bank. We know our customers and their needs, and we know how to provide the financial services they desire. We believe that is the key to our success. On behalf of the Board of Directors, management and staff, we thank our stockholders and customers for their continued support. We are looking forward to making 1998 another successful year. Sincerely, /s/ James A. Langway /s/ Dennis F. Murphy, Jr. - -------------------- ------------------------- James A. Langway Dennis F. Murphy, Jr. President and Chief Executive Officer Chairman of the Board -4- Year in Review In 1881, three businessmen in Hudson, MA recognized the need for a hometown bank to support the growth of their town. The people of Hudson strongly supported the project and $100,000 in capital was easily raised. A national charter was obtained on January 23, 1882, and the doors of Hudson National Bank were opened for business on March 7 of that year. [A drawing of the original Hudson National Bank facility appears here.] Over the years, as the Bank grew and expanded into surrounding cities and towns, it maintained a strong commitment to help individuals, families and businesses grow and prosper. Today, with branch offices in six communities and customers in many more, the Bank continues to succeed by offering competitive products and personal service. On June 2, 1997, the hometown Bank started a new chapter in its history by changing its name to Community National Bank. This change did not come about in response to a merger or acquisition, nor did it signal a change in direction; rather it is a reflection of the strong commitment of the Bank to the core values that have allowed it to succeed so well for 116 years - a commitment to the community. [A photograph of a lobby poster announcing the Bank's change of name to Community National Bank appears here.] Preparations for the name change started in early 1997. A new logo was designed, colors selected, identity standards established and an -5- implementation plan developed. The task carried over into the second quarter when signs, stationery, cards, forms, statements, brochures and checks were all redesigned and printed with the new name. The Bank's web site was also redesigned to reflect the new identity and the URL was changed to http://www.combanc.com. The e-mail address was also changed to cnb-mail@combanc.com. All of these changes were communicated to customers through a newly designed quarterly newsletter. [Photographs of the Bank's "Flexvalue Checking Package" product brochure and a bilingual services brochure appear here.] In addition to the name change, a number of activities were undertaken in 1997 to allow the Bank to better serve the needs of the community. A new checking account was introduced to reward customers who maintain multiple deposit accounts with CNB and frequent the Bank's ATMs. With a FlexValue checking account, customers can avoid checking account service charges by either maintaining a specified minimum balance in their checking account or by maintaining a specified total deposit relationship. Savings accounts, Certificates of Deposit and Money Market Deposit Account balances can all be used to offset minimum balance requirements. In addition to unlimited check writing, FlexValue checking account benefits include a number of ATM transactions with a transaction fee, an interest rate bonus on Certificates of Deposit, an interest rate discount on installment loans and other free or discounted services. The benefits of FlexValue and other CNB services are described in our new bilingual services brochure. This comprehensive brochure provides a description of products and services in both Portuguese and English, and has been well received by the Portuguese community. -6- In the third quarter, a new off-site ATM was installed at the New England Sports Center in Marlborough. This new location was added to provide greater convenience to CNB customers and to generate fee income from foreign transactions. Also during the third quarter, CNB entered into a third-party arrangement with Murphy Brokerage, LTD., an affiliate of Murphy Insurance Agency, to offer a variety of insurance products to customers. Investment annuities, long-term care, life and disability insurance are now available to CNB customers at any branch office. The addition of this new product line, along with investment products offered by Barrett and Company, provides CNB customers with choices well beyond those at other area banks. The Year 2000 issue poses a special challenge to all businesses. CNB recognized that challenge in 1996, when it began researching the impact the millennium date change could have on the Bank. In 1997 an official Year 2000 Committee was created to formalize that process. The Committee's task is to evaluate all systems at the Bank that are computer operated or dependent - such as ATMs, security systems, vaults, elevators, heating and air conditioning, and all communications systems for possible problems when the calendar changes to the Year 2000. The Year 2000 Committee is charged with developing a plan to replace file servers, software and workstations with Year 2000-ready technology, and also to monitor outside vendors with whom the bank interacts to [A photograph of the Bank's technology training center appears here.] -7- ensure that any problems that may impact CNB customers will be addressed well in advance of the date change. A variety of projects are planned for 1998 which will continue to enhance CNB's position as a small community with big bank services. Late in the first quarter of 1998, the Bank will introduce Community Benefit Consulting, Inc. to provide an affordable human resource consulting program for small businesses. An expansion project is being planned for the Boxborough office to provide additional space at the teller line and a drive up window. The corporate identity standards introduced with the new name are to be incorporated into the branch merchandising displays to create a unified brand for all CNB offices. A corporate debit card program will be introduced to meet the purchasing needs of our commercial customers. And, new commercial loan packages are being developed to meet the specified needs of targeted groups of business customers. [A photograph of the front of the Bank's Boxboro, MA branch office appears here.] Since 1881, Community National Bank has built its reputation on professionalism, strength and customer service. Today, we compete and hold our own with the biggest and best in our market area. But we maintain one decided advantage: a sense of community. [A photograph of two of the Bank's Main Office tellers appears here.] -8- Consolidated Balance Sheets December 31, 1997 and 1996
1997 1996 ----------- ----------- ASSETS Cash and due from banks $ 16,704,667 $ 14,391,567 Federal funds sold 14,600,000 11,300,000 Securities available for sale at market value (Note 2) 38,880,166 29,245,007 Securities held to maturity (market value $56,404,323 in 1997 and $58,312,349 in 1996) (Note 2) 56,304,224 58,828,881 Mortgage loans held for sale 2,173,322 1,222,165 Loans (Notes 3 and 10) 139,839,853 130,348,265 Less allowance for possible loan losses (Notes 4 and 13) 3,215,559 3,481,705 ----------- ----------- Total net loans 136,624,294 126,866,560 Premises and equipment, net (Note 5) 4,637,965 4,848,202 Other assets, net (Note 14) 3,625,889 3,300,076 ----------- ----------- Total assets $273,550,527 $250,002,458 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits (Note 11): Noninterest bearing $ 55,678,794 $ 51,358,151 Interest bearing 177,109,740 165,823,718 ----------- ----------- Total deposits 232,788,534 217,181,869 ----------- ----------- Securities sold under repurchase agreements 16,637,064 11,454,687 Other liabilities (Note 8) 1,688,830 1,524,768 ----------- ----------- Total liabilities 251,114,428 230,161,324 ----------- ----------- Commitments (Notes 9 and 13) Stockholders' equity (Note 6): Preferred stock, $2.50 par value, 100,000 shares authorized, none issued or outstanding Common stock, $2.50 par value, 12,000,000 shares authorized, (4,000,000 shares authorized at December 31, 1996), 3,199,218 shares issued, 2,926,257 shares outstanding, (2,935,012 shares outstanding at December 31, 1996) 7,998,045 7,998,045 Surplus 414,120 374,580 Undivided profits 16,418,790 13,826,958 Treasury stock, 272,961 shares, (264,206 at December 31, 1996) (2,529,552) (2,348,419) Unrealized losses on securities available for sale, net of taxes (Note 2) 134,696 (10,030) ----------- ----------- Total stockholders' equity 22,436,099 19,841,134 ----------- ----------- Total liabilities and stockholders' equity $273,550,527 $250,002,458 =========== =========== The accompanying notes are an integral part of these consolidated financial statements.
-9- Consolidated Statements of Income Years ended December 31, 1997, 1996 and 1995
1997 1996 1995 ---- ---- ---- Interest income: Interest and fees on loans $ 13,138,908 $12,430,327 $12,363,714 Interest and dividends on securities: Taxable interest 5,181,809 4,565,311 4,003,765 Nontaxable interest 325,868 120,553 91,517 Dividends 59,350 54,248 51,651 Interest on federal funds sold 464,016 590,663 406,977 ---------- ---------- ---------- Total interest income 19,169,951 17,761,102 16,917,624 ---------- ---------- ---------- Interest expense: Interest on deposits 6,139,134 5,840,445 5,735,554 Interest on federal funds purchased and securities sold under repurchase agreements 756,088 527,313 549,196 ---------- ---------- ---------- Total interest expense 6,895,222 6,367,758 6,284,750 ---------- ---------- ---------- Net interest income 12,274,729 11,393,344 10,632,874 ---------- ---------- ---------- Provision for possible loan losses (Note 4) 0 0 120,000 ---------- ---------- ---------- Net interest income after provision for possible loan losses 12,274,729 11,393,344 10,512,874 ---------- ---------- ---------- Noninterest income: Merchant credit card processing assessments 1,028,404 855,488 690,024 Service charges 611,089 612,786 592,002 Other charges, commissions and fees 883,316 899,481 807,717 Gains (losses) on sales of loans, net 41,744 21,105 (31,776) Gains (losses) on sales of securities, net 8,587 (9,460) 0 Other 81,488 75,399 60,065 ---------- ---------- ---------- Total noninterest income 2,654,628 2,454,799 2,118,032 ---------- ---------- ---------- Noninterest expense: Salaries and employee benefits (Note 8) 4,777,520 4,541,551 4,362,821 Data processing 584,125 582,334 478,064 Occupancy 584,484 580,519 610,737 Furniture and equipment 409,897 362,453 325,662 Credit card processing 891,461 738,227 621,695 OREO carrying costs (income), net 20,138 51,623 (4,413) FDIC insurance premiums 0 2,000 209,906 Other 2,177,884 1,810,678 1,703,008 ---------- ---------- ---------- Total noninterest expense 9,445,509 8,669,385 8,307,480 ---------- ---------- ---------- Income before income tax expense 5,483,848 5,178,758 4,323,426 Income tax expense 2,053,989 2,026,660 1,679,549 ---------- ---------- ---------- Net income $ 3,429,859 $ 3,152,098 $ 2,643,877 ========= ========== ========== Earnings per common share (Note 1) $ 1.17 $ 1.01 $ 0.84 Weighted average number of shares outstanding 2,940,158 3,113,388 3,148,306 ========== ========= ========= The accompanying notes are an integral part of these consolidated financial statements.
-10- Consolidated Statements of Stockholders' Equity Years ended December 31, 1997, 1996 and 1995
Common Undivided Treasury Stock Surplus Profits Stock Other ----- ------- ---------- -------- ----- Balance, December 31, 1994 7,998,045 263,538 9,556,768 (263,088) (810,813) Net income 2,643,877 Cash dividends declared ($.234 per share) (737,101) Purchase of 382 shares of treasury stock (2,865) Reissuance of 18,574 shares of treasury stock 26,715 84,729 Change in unrealized loss on securities available for sale, net of taxes 780,868 - -------------------------- --------- ------- --------- --------- --------- Balance, December 31, 1995 7,998,045 290,253 11,463,544 (181,224) (29,945) Net income 3,152,098 Cash dividends declared ($.253 per share) (788,684) Purchase of 257,665 shares of treasury stock (2,318,985) Reissuance of 33,731 shares of treasury stock 84,327 151,790 Change in unrealized loss on securities available for sale, net of taxes 19,915 - -------------------------- --------- ------- ---------- ------- ------- Balance, December 31, 1996 7,998,045 374,580 13,826,958 (2,348,419) (10,030) Net income 3,429,859 Cash dividends declared ($.285 per share) (838,027) Purchase of 24,301 shares of treasury stock (Note 6) (291,612) Reissuance of 15,546 shares of treasury stock 39,540 110,479 Change in unrealized loss on securities available for sale, net of taxes 144,726 - -------------------------- --------- ------- ---------- --------- ------- Balance, December 31, 1997 $7,998,045 $414,120 $16,418,790 $(2,529,552) $134,696 ========= ======= ========== ========= ======= The accompanying notes are an integral part of these consolidated financial statements.
-11- Consolidated Statements of Cash Flows Years ended December 31, 1997, 1996 and 1995
1997 1996 1995 ---- ---- ---- Cash flows from operating activities: Interest received $ 18,940,716 $ 17,803,811 $ 16,739,141 Fees and commissions received 2,533,938 2,514,788 2,068,486 Secondary market mortgage sales 11,422,325 14,737,701 8,899,808 Origination of mortgage loans for secondary market sale (12,596,278) (14,577,346) (9,320,396) Interest paid (6,895,838) (6,373,350) (6,308,750) Cash paid to suppliers and employees (8,570,253) (8,020,426) (7,084,208) Income taxes paid (2,094,290) (1,941,421) (1,404,520) ----------- ----------- ---------- Net cash provided by operating activities 2,740,320 4,143,757 3,589,561 ----------- ---------- ---------- Cash flows used in investing activities: Purchases of securities held to maturity (16,731,111) (22,899,227) (17,362,828) Purchases of securities available for sale (17,560,698 (14,347,861) 0 Maturities and principal repayments of securities held to maturity 17,174,567 14,056,633 13,194,982 Maturities and principal repayments of securities available for sale 5,342,727 6,257,701 3,434,457 Sales of securities held to maturity 2,000,000 0 0 Sales of securities available for sale 2,913,737 3,507,742 0 Net change in federal funds sold (3,300,000) 5,400,000 (10,600,000) Net change in loans and other real estate owned (9,524,836) (3,446,092) (4,689,293) Sales of other real estate owned 15,600 100,000 178,700 Acquisition of premises and equipment (592,386) (488,905) (589,533) ---------- ---------- ---------- Net cash used in investing activities (20,262,400) (11,860,009) (16,433,515) ---------- ---------- ---------- Cash flows from financing activities: Net change in deposits 15,606,665 10,142,004 20,176,879 Net change in securities sold under repurchase agreements 2,182,377 3,164,724 4,249,163 Net change in federal funds purchased 3,000,000 (1,000,000) (9,900,000) Purchase of treasury stock (291,612) (2,318,985) (2,865) Reissuance of treasury stock 150,019 236,117 111,444 Dividends paid (812,269) (784,487) (722,606) ---------- ---------- ---------- Net cash provided by financing activities 19,835,180 9,439,373 13,912,015 ---------- ---------- ---------- Net increase in cash and due from banks 2,313,100 1,723,121 1,068,061 Cash and due from banks at beginning of year 14,391,567 12,668,446 11,600,385 ---------- ---------- ---------- Cash and due from banks at end of year $16,704,667 $14,391,567 $12,668,446 ========== ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
-12- Consolidated Statements of Cash Flows Years ended December 31, 1997, 1996 and 1995 (Continued) Reconciliation of Net Income to Net Cash Provided by Operating Activities
1997 1996 1995 ---- ---- ---- Net income $ 3,429,859 $ 3,142,098 $ 2,643,877 Adjustments to reconcile net income to net cash provided by operating activities: (Increase) in mortgage loans held for sale (1,336,719) (164,784) (787,488) Premium on sale of mortgages 162,766 325,139 366,900 Depreciation and amortization 802,623) 839,476 747,822 Provision for possible loan losses 0 0 120,000 Deferred income taxes 80,729 25,581 176,043 Increase (decrease) in other liabilities 72,638 (230,258) 441,387 (Decrease) increase in taxes payable (40,301) 85,239 275,029 (Decrease) in interest payable (616) (5,592) (24,000) (Increase) decrease in other assets, net (201,423) 74,150 (191,521) (Increase) decrease in interest receivable (229,236) 42,708 (178,488) ------------ ----------- ----------- Total adjustments (689,539) 991,659 945,684 ------------ ----------- ----------- Net cash provided by operating activities $ 2,740,320 $ 4,143,757 $ 3,589,561 =========== =========== =========== The accompanying notes are an integral part of these consolidated financial statements.
-13- Notes to Consolidated Financial Statements 1. Significant Accounting Policies Basis of consolidation The accompanying consolidated financial statements include the accounts of Community Bancorp, Inc. (the "Company"), a Massachusetts corporation registered as a bank holding company under the Bank Holding Company Act of 1956, as amended, and its wholly-owned subsidiary, Community National Bank, formerly Hudson National Bank, (the "Bank"), a national banking association. The Company has also formed Community Securities Corporation, a wholly-owned subsidiary of the Bank. All intercompany balances and transactions have been eliminated in consolidation. At present, the Company conducts no activities independent of the Bank. The Bank has eight offices and is engaged in substantially all of the business operations normally conducted by an independent commercial bank in Massachusetts. Banking services offered include the acceptance of checking, savings, and time deposits, and the making of commercial, real estate, installment and other loans. The Bank also offers official checks, safe deposit boxes, electronic banking and bill payment services and other customary banking services to its customers. Use of estimates The preparation of financial statements in conformity with 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. Securities Debt securities that the Company has the positive intent and ability to hold to maturity are reported at amortized cost. Securities purchased to be held for indefinite periods of time and not intended to be held until maturity are classified as "available for sale" securities. Securities classified as available for sale are reported at fair value with unrealized gains and losses excluded from earnings and reported net of taxes in a separate component of stockholders' equity. Securities held for indefinite periods of time include securities that management may use in conjunction with the Company's asset/liability in management program and that may be sold in response to changes in interest rates, prepayment risks or other economic factors. When securities classified as available for sale are sold, the adjusted cost of each specific security sold is used to calculate gains or losses on sale, which are included in earnings. Premises and equipment Premises and equipment are stated at cost, less accumulated depreciation and amortization, which is computed by using both the straight-line and accelerated methods. Estimated useful lives are as follows: Buildings................30 to 40 years Buildings and leasehold improvements.............5 to 25 years Furniture and equipment...3 to 10 years Cash and due from banks Included in cash and due from banks as of December 31, 1997 and 1996 is approximately $5,341,000 and $4,527,000, respectively, that is subject to Federal Reserve withdrawal restrictions. Allowance for possible loan losses Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for possible loan -14- losses. The allowance for possible loan losses is increased through a provision for possible loan losses charged to expense and decreased by charge-offs, net of recoveries. The provision is based on management's estimation of the amount necessary to maintain the allowance at an adequate level. Management's periodic evaluation of the adequacy of the allowance is based on specific credit reviews, past loan loss experience, current economic conditions and trends known and inherent risks in the loan portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral and the volume, growth and composition of the loan portfolio. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary. Effective January 1, 1995, the Company adopted Financial Accounting Standards Board Statement No 114, "Accounting by Creditors for Impairment of a Loan" (SFAS No. 114). Under the standard, the allowance for possible loan losses related to loans that are identified as impaired in accordance with SFAS No. 114 is based on discounted cash flows using the loan's effective interest rate or the fair value of the collateral for certain collateral dependent loans. Prior to 1995, the allowance for possible loan losses related to these loans was based on undiscounted cash flows or the fair market value of the collateral for collateral dependent loans. For purposes of this Statement, a loan is considered to be impaired when it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Financial Accounting Standards Board also issued SFAS No. 118, which amended SFAS No. 114 by allowing creditors to use their existing methods of recognizing interest income on impaired loans. The Company determined, after reviewing its credit quality monitoring policies and procedures and an analysis of the loan portfolio, that loans recognized by the Company as nonaccrual and restructured troubled debt are equivalent to "impaired" loans as defined by SFAS No. 114. The Company also determined that the allowance for possible loan losses did not require an additional loan loss provision as a result of the adoption of this Statement. Securities sold under repurchase agreements The Company sells securities under open-ended repurchase agreements with certain customers. The principal balance of the repurchase agreements changes daily. Specific securities are not sold and securities are not transferred to the name of the customers. Instead, the customer has an interest in a portion of the U.S. Government securities held in the Company's investment portfolio. Earnings per share The Company adopted Financial Accounting Standards Board Statement No. 128, "Earnings Per Share" (SFAS No. 128), effective December 31, 1997. This Statement requires the presentation of "basic" earnings per share, which excludes the effect of dilution, and "diluted" earnings per share, which includes the effect of dilution. The Company's "basic" and "diluted" earnings per share computations are identical in 1997, 1996 and 1995, as there is no dilution effect. Earnings per share is based on the weighted average number of shares outstanding during the year. -15- Long-lived assets Effective January 1, 1996, the Company adopted Financial Accounting Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of" (SFAS No. 121). SFAS No. 121 requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Statement also requires that certain long-lived assets and identifiable intangibles to be disposed of be reported at the lower of the carrying amount or fair value less cost to sell. The adoption of SFAS No. 121 by the Company had no impact on the results of its operations or financial condition. Loan sales and loans held for sale Gains and losses on sales of mortgage loans are recognized at the time of sale based on the difference between the selling price and the carrying value of the related loans sold. The gains and losses are increased or decreased by the present value of the difference (generally referred to as "excess servicing") between the interest rate on the loans sold, adjusted for a normal servicing fee and, in the case of mortgage-backed securities, a guaranty fee, and the agreed-upon yield to the buyer. The present value is computed over the estimated life of the loans sold, taking into account scheduled payments and estimated prepayments. At December 31, 1997 and 1996, loans held for sale totaled $2,173,322 and $1,222,165, respectively. Effective January 1, 1996, the Company adopted Financial Accounting Standards Board Statement No. 122, "Accounting for Mortgage Servicing Rights" (SFAS No. 122). SFAS No. 122, as amended by SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities", requires the capitalization of the rights to service mortgage loans for others. In addition, capitalized mortgage servicing rights are required to be assessed for impairment based on the fair value of those rights. The Company adopted SFAS No. 122 on a prospective basis and, as a result, recorded an incremental gain of $46,849 on the sale of mortgage loans with servicing rights retained during 1996. Revenue recognition Interest on loans, securities and other earning assets is accrued and credited to operations based on contractual rates and principal amounts outstanding. Nonrefundable loan fees and certain related costs are deferred and recognized as income over the life of the loan as an adjustment of the yield. It is the policy of the Company to discontinue the accrual of interest on loans when, in the judgment of management, the ultimate collectibility of principal or interest becomes doubtful. The accrual of interest income generally is discontinued when a loan becomes 90 days past due as to principal or interest. When interest accruals are discontinued, unpaid interest credited to income in the current year is reversed, and interest accrued in prior years is charged to the allowance for possible loan losses. Management may elect to continue the accrual of interest when the estimated net realizable value of collateral is sufficient to cover the principal balance and accrued interest. Otherwise, interest income is subsequently recognized only to the extent cash payments are received. -16- Reclassifications Certain amounts in prior year's financial statements have been reclassified to be consistent with the current year's presentation. The reclassifications have no effect on net income. 2. Securities The book and estimated market values of securities at December 31, 1997 and 1996 were as follows:
1997 ----------------------------------------------------------- Gross Gross Securities Held Amortized Unrealized Unrealized Market to Maturity Cost Gains Losses Value --------------- --------- ---------- ---------- ----- U.S. Government obligations $ 4,008,114 $ 1,403 $ 5,357 $ 4,004,160 U.S. Government agencies and corporations 9,970,706 7,021 80,955 9,896,772 Obligations of states and political subdivisions 8,414,205 131,412 0 8,545,617 Mortgage-backed securities 33,911,199 127,021 80,446 33,957,774 ------------ ---------- ---------- ----------- $ 56,304,224 $ 266,857 $ 166,758 $ 56,404,323 ============ ========== ========== =========== Gross Gross Securities Held Amortized Unrealized Unrealized Market Available for Sale Cost Gains Losses Value ------------------ --------- ---------- ---------- ----- U.S. Government obligations $ 17,004,822 $ 120,818 $ 0 $ 17,125,640 U.S. Government agencies and corporations 3,987,259 11,892 701 3,998,450 Mortgage-backed securities 16,685,383 112,686 11,349 16,786,720 Other securities 969,356 0 0 969,356 ------------ ---------- ---------- ----------- $ 38,646,820 $ 245,396 $ 12,050 $ 38,880,166 ============ ========== ========== =========== 1996 ----------------------------------------------------------- Gross Gross Securities Held Amortized Unrealized Unrealized Market to Maturity Cost Gains Losses Value --------------- --------- ---------- ---------- ----- U.S. Government obligations $ 6,040,283 $ 3,747 $ 26,831 $ 6,017,199 U.S. Government agencies and corporations 12,018,820 9,233 90,914 11,937,139 Obligations of states and political subdivisions 4,141,216 595 8,113 4,133,698 Mortgage-backed securities 36,628,562 80,802 485,051 36,224,313 ---------- ---------- ---------- ----------- $ 58,828,881 $ 94,377 $ 610,909 $ 58,312,349 ============ ========== ========== =========== Gross Gross Securities Amortized Unrealized Unrealized Market Available for Sale Cost Gains Losses Value ------------------ --------- ---------- ---------- ----- U.S. Government obligations $ 9,920,585 $ 44,377 $ 3,866 $ 9,961,096 U.S. Government agencies and corporations 4,989,529 0 27,652 4,961,877 Mortgage-backed securities 13,463,117 83,447 112,686 13,433,878 Other securities 888,156 0 0 888,156 ------------ ---------- ---------- ----------- $ 29,261,387 $ 127,824 $ 144,204 $ 29,245,007 ============ ========== ========== ===========
The book and estimated market value of securities at December 31, 1997 by contractual maturity are shown in the following table. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
Securities Held to Maturity Securities Available for Sale --------------------------- ----------------------------- Amortized Market Amortized Market Cost Value Cost Value --------- ----- --------- ----- Within one year $ 5,734,844 $ 5,735,601 $ 7,967,873 $ 7,990,650 One to five years 5,660,488 5,655,630 13,024,223 13,133,440 Five to ten years 4,978,488 4,904,700 0 0 Ten to fifteen years 6,019,205 6,150,618 0 0 Mortgage-backed securities 33,911,199 33,957,774 16,685,368 16,786,720 Other securities 0 0 969,356 969,356 ----------- ---------- ---------- ---------- $56,304,224 $56,404,323 $38,646,820 $38,880,166 ========== =========== ========== ==========
Securities with a book value of $33,718,000 and $25,861,000 at December 31, 1997 and 1996, respectively, were pledged to secure public funds on deposit and for other purposes. Proceeds from sales of securities were $4,913,737 and $3,507,742 in 1997 and 1996, respectively. Gross realized gains on sales of securities were $25,839 in 1997 and $0 in 1996. Gross realized losses on sales of securities were $17,252 in 1997 and $9,460 in 1996. Realized gains or losses on sales of securities were determined by specific identification. 3. Loans The composition of the loan portfolio at December 31, 1997 and 1996 was as follows:
1997 1996 ---- ---- Commercial and industrial $ 18,065,586 $ 17,227,165 Real estate - residential 54,211,465 49,789,922 Real estate - commercial 48,328,565 45,104,891 Real estate - residential construction 4,868,265 4,833,291 Loans to individuals 13,571,431 13,221,415 Other 794,541 171,581 ----------- ----------- Total loans $139,839,853 $130,348,265 ============ ===========
Substantially all of the Company's loan portfolio is collateralized by assets in the New England region, especially central Massachusetts. The Company generally requires collateral when extending credit and, with respect to loans secured by real estate, Company policy requires appropriate appraisals and repayment sources. -17- Total impaired loans at December 31, 1997 and 1996 that required a related allowance were $0 and $373,318, respectively, and the allowance allocated to such loans was $0 and $120,000, respectively. In addition, at December 31, 1997 and 1996, the Company had impaired loans of $632,569 and $523,191, respectively, that did not require a related allowance. Interest payments on impaired loans are recorded as principal reductions if the remaining loan balance is not expected to be repaid in full. If full collection of the remaining loan balance is expected, interest payments are recognized as interest income on a cash basis. Impaired loans averaged $649,075 and $1,457,388 during 1997 and 1996, respectively. The Company recorded interest income on impaired loans of $19,475 during 1997 and $42,238 during 1996. At December 31, 1997 and 1996, accruing loans 90 days or more past due totaled $239,050 and $370,223, respectively, and nonaccruing loans totaled $632,569 and $896,509, respectively. There were no troubled debt restructurings at December 31, 1997 or 1996. The reduction of interest income associated with nonaccrual and restructured loans for the years ended December 31, 1997, 1996 and 1995 was as follows:
1997 1996 1995 ---- ---- ---- Interest income per original terms $ 143,869 $ 220,029 $ 211,348 Income recognized 19,475 42,411 103,069 -------- -------- -------- Foregone interest income $ 124,394 $ 177,618 $ 108,279 ======== ======== ========
4. Allowance for Possible Loan Losses Activity in the allowance for possible loan losses for the years ended December 31, 1997, 1996 and 1995 was as follows: Balance, December 31, 1994 $3,703,470 Provision for possible losses 120,000 Charge-offs (629,306) Recoveries 260,934 --------- Balance, December 31, 1995 3,455,098 Provision for possible losses 0 Charge-offs (230,545) Recoveries 257,152 --------- Balance, December 31, 1996 3,481,705 Provision for possible losses 0 Charge-offs (366,139) Recoveries 99,993 --------- Balance, December 31, 1997 $3,215,559 =========
5. Premises and Equipment The composition of premises and equipment at December 31, 1997 and 1996 was as follows:
1997 1996 ---- ---- Premises $ 5,057,478 $ 5,046,199 Equipment 2,935,940 3,097,098 ---------- ----------- 7,993,418 8,143,297 Less accumulated depreciation and amortization 3,355,453 3,295,095 ---------- ----------- $ 4,637,965 $ 4,848,202 ========== ===========
Total depreciation and amortization expense for the years ended December 31, 1997, 1996 and 1995 was $802,623, $746,120 and $668,526, respectively, and is included in data processing, occupancy and furniture and equipment expense. 6. Stockholders' Equity At the Company's 1997 Annual Meeting, the stockholders voted to increase the authorized common stock from 4,000,000 shares to 12,000,000 shares. On September 15, 1997, the Company implemented an Offer to Purchase up to 125,000 shares of its outstanding common stock at a price of $12.00 per share. The Offer expired on October 15, 1997, with 24,301 shares tendered. The Company purchased all 24,301 shares -18- tendered under the offer. Shares acquired by the Company were accounted for as treasury stock under the cost method. As a result of the repurchase of shares, the Company's capital was reduced by $291,612. 7. Income Taxes The components of income tax expense for the years ended December 31, 1997, 1996 and 1995 are as follows:
1997 1996 1995 ---- ---- ---- Current: Federal $ 1,531,216 $ 1,508,248 $ 1,160,210 State 442,044 492,831 343,296 ---------- ---------- ---------- Total current 1,973,260 2,001,079 1,503,506 ---------- ---------- ---------- Deferred: Federal 54,614 6,430 114,195 State 26,115 19,151 61,848 ---------- ---------- ---------- Total deferred 80,729 25,581 176,043 ---------- ---------- ---------- Total $ 2,053,989 $ 2,026,660 $ 1,679,549 ========== ========== ==========
The difference between the income tax provision computed by applying the statutory federal income tax rate of 34% to income before income taxes and the cumulative effect of a change in accounting principle and the actual income tax provision is summarized as follows:
1997 1996 1995 ---- ---- ---- Income tax expense at statutory rates $ 1,864,508 $ 1,760,833 $ 1,469,965 State income taxes, net of federal income tax benefit 308,984 337,908 267,395 Tax-exempt interest (132,117) (69,794) (71,828) Other, net 12,614 (2,287) 14,017 ---------- ---------- ---------- $ 2,053,989 $ 2,026,660 $ 1,679,549 ========== ========== ==========
The Company has recorded a net deferred tax asset of $571,920. Realization is dependent on the generation of sufficient taxable income in future years. Although realization is not assured, management believes it is more likely than not that the full amount of the net deferred tax asset will be realized. However, the amount realizable could be reduced if estimates of future taxable income are reduced. At December 31, 1997 and 1996, the Company's net deferred tax asset, as presented in the accompanying consolidated balance sheets, consisted of the following components:
1997 1996 ---- ---- Gross deferred tax asset: Provision for possible loan losses $ 899,555 $ 909,466 Employee benefits and other compensation arrangements 381,227 334,663 OREO write-downs 20,600 20,732 Other 14,491 30,319 --------- --------- 1,315,873 1,295,180 Gross deferred tax liability: Accelerated tax depreciation (377,005) (390,932) Other (366,948) (147,958) --------- --------- (743,953) (538,890) --------- --------- Net deferred tax asset $ 571,920 $ 756,290 ========= =========
8. Employee Benefits The Company has a defined benefit pension plan covering all eligible employees. The benefits are based on years of service and the employees' compensation as defined in the Plan agreement. The Company's funding policy is to make annual contributions to the Plan equal to at least the minimum amount required for actuarial purposes. Contributions are intended to provide not only for benefits attributed to service to date, but also for those to be earned in the future. The following table sets forth the Plan's funded status and amounts recognized in the Company's consolidated balance sheets at December 31, 1997 and 1996:
1997 1996 ---- ---- Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $2,038,508 ($1,597,121 in 1996) $(2,083,921) $(1,678,366) ========= ========= Projected benefit obligation for service rendered to date $(3,161,057) $(2,732,471) Plan assets at fair value (funds held in mutual funds, Community Bancorp, Inc. stock and deposit accounts at Community National Bank) 2,831,044 2,277,087 ---------- ---------- Funded status of plan (330,013) (455,384) Prior service cost not yet recognized in net periodic pension cost 12,416 13,796 Unrecognized net asset at transition being recognized over 17 years (53,721) (62,675) Unrecognized net loss from past experience different from that assumed 242,267 401,786 ---------- ---------- Accrued pension cost $ (129,051) $ (102,477) ========= ==========
-19- Net periodic pension cost for the years ended December 31, 1997, 1996 and 1995 included the following components:
1997 1996 1995 ---- ---- ---- Service cost-benefits earned during the period $ 213,920 $ 210,421 $ 174,826 Interest cost on projected benefit obligation 202,397 179,213 149,673 Actual return on plan assets (419,388) (210,676) (209,069) Net amortization and deferral 230,041 90,728 103,634 ---------- ---------- ----------- Net periodic pension cost $ 226,970 $ 269,686 $ 219,064 ========== ========== ===========
The weighted-average discount rate and annual rate of increase in the future compensation levels used in determining the actuarial present value of the projected benefit obligation at December 31, 1997 were 7.25% and 5.00%, respectively. Those rates as of December 31, 1996 were 7.50% and 5.50%, respectively. The expected annual long-term rate of return on assets was 8.0% for the years ended December 31, 1997 and 1996. The Company has an Employee Stock Ownership Plan (ESOP) that enables eligible employees to own common stock. Cash contributions of $70,000 were made to the ESOP in 1997 and 1996. No cash contribution was made to the ESOP in 1995. The Company implemented a 401(k) plan in 1989, covering all eligible employees. Compensation expense recorded in 1997, 1996 and 1995 related to this plan was approximately $78,900, $61,400 and $22,800, respectively. 9. Commitments The Company leases branch offices and equipment under noncancelable agreements expiring at various dates through 2002 that require various minimum annual rentals. The total future minimum rental commitments at December 31, 1997 aggregate $568,991. Rental commitments for each of the next five fiscal years and thereafter are as follows: 1998 $169,774 1999 132,209 2000 111,134 2001 77,412 2002 78,462 Thereafter 0 Rental expense totaled approximately $170,000, $149,000 and $146,000, for 1997, 1996 and 1995, respectively. 10. Loans to Related Parties The schedule below discloses indebtedness of certain parties related to the Company:
Balance Balance January 1 New Loans Repayments December 31 ---------- --------- ---------- ----------- 1996 $ 5,994,289 $ 319,636 $ 695,356 $ 5,618,569 1997 $ 5,618,569 $ 787,285 $ 625,805 $ 5,780,049
These loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than normal risk of collectibility. 11. Deposits Deposits consisted of the following at December 31, 1997 and 1996:
1997 1996 ---- ---- Demand deposits $ 55,678,794 $ 51,358,151 Money-market deposits 25,721,390 24,183,300 NOW and FlexValue deposits 30,079,576 27,341,479 Cash management investment deposits 15,580,137 13,007,808 Savings deposit 34,813,944 33,304,686 Time certificates of deposit in denominations of $100,000 or more 21,183,954 19,144,157 Other time deposits 49,730,739 48,842,288 ----------- ----------- $232,788,534 $217,181,869 =========== ============
-20- 12. Condensed Financial Information of Community Bancorp, Inc. The following discloses certain parent-company-only financial information at December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997: Balance Sheets
1997 1996 ---- ---- Assets: Cash and cash equivalents $ 92,421 $ 122,186 Investment in subsidiary, at equity 22,309,350 19,696,253 Other assets 219,469 216,534 ---------- ---------- Total assets $ 22,621,240 $ 20,034,973 =========== ========== Liabilities and stockholders' equity: Other liabilities $ 185,141 $ 193,839 ---------- ---------- Total liabilities 185,141 193,839 Stockholders' equity: Preferred stock, $2.50 par value, 100,000 shares authorized, none issued or outstanding Common stock, $2.50 par value, 12,000,000 shares authorized (4,000,000 shares authorized at December 31, 1996), 3,199,218 shares issued, 2,926,257 shares outstanding, (2,935,012 shares outstanding at December 31, 1996) 7,998,045 7,998,045 Surplus 414,120 374,580 Undivided profits 16,418,790 13,826,958 Treasury stock (2,529,552) (2,348,419) Unrealized losses on securities available for sale, net of taxes 134,696 (10,030) ---------- ---------- Total stockholders' equity 22,436,099 19,841,134 ---------- ---------- Total liabilities and stockholders' equity $22,621,240 $20,034,973 =========== ==========
Statements of Income
Years ended December 31, ------------------------------------------ 1997 1996 1995 ---- ---- ---- Income: Dividends from subsidiary bank $ 979,641 $ 2,407,668 $ 737,101 Other income 326,669 322,048 307,939 ----------- ----------- ---------- Total income 1,306,310 2,729,716 1,045,040 ----------- ----------- ---------- Expenses: Other 344,822 324,478 299,756 ----------- ----------- ---------- Total expenses 344,822 324,478 299,756 ----------- ----------- ---------- Income before undistributed net income of subsidiary bank 961,488 2,405,238 745,284 Equity in undistributed net income of subsidiary bank 2,468,371 746,860 1,898,593 ----------- ----------- ---------- Net income $ 3,429,859 $ 3,152,098 $ 2,643,877 =========== =========== ===========
Statements of Cash Flows
Years ended December 31, ----------------------------------------- 1997 1996 1995 ---- ---- ---- Cash flows from operating activities: Net income $ 3,429,859 $ 3,152,098 $ 2,643,877 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed net income of subsidiary bank (2,468,371) (746,860) (1,898,593) Increase in other assets (2,935) (26,997) (1,718) (Decrease) increase in other liabilities (8,698) 21,441 (1,685) ---------- ---------- ---------- Total adjustments (2,480,004) (752,416) (1,901,996) ---------- ---------- ---------- Net cash provided by operating activities 949,855 2,399,682 741,881 ---------- ---------- ---------- Cash flows from financing activities: Purchase of treasury stock (291,612) (2,318,985) (2,865) Reissuance of treasury stock 150,019 236,117 111,444 Dividends declared (838,027) (788,684) (737,101) ---------- ---------- ---------- Net cash used in financing activities (979,620) (2,871,552) (628,522) ---------- ---------- ---------- Net (decrease) increase in cash and cash equivalents (29,765) (471,870) 113,359 Cash and cash equivalents at beginning of year 122,186 594,056 480,697 ---------- ---------- ---------- Cash and cash equivalents at end of year $ 92,421 $ 122,186 $ 594,056 ========== ========== ===========
Cash and cash equivalents consist of a money market demand deposit account on deposit with the subsidiary bank. The approval of the Comptroller of the Currency is required for a national bank to pay dividends if the total of all dividends declared in any calendar year exceeds the bank's net profits (as defined) for that year combined with its retained net profits for the preceding two calendar years. During 1998, Community National Bank can, under this formula, declare dividends to Community Bancorp, Inc. of approximately $4,976,000, plus an additional amount equal to the Bank's net profit for 1998, up to the date of any such dividend declaration, without the approval of the Comptroller of the Currency. 13. Financial Instruments With Off-Balance-Sheet Risk The Company is party to financial instruments with off-balance-sheet risk in the normal course of business. These financial instruments primarily consist of commitments to extend credit and standby letters of credit. Loan commitments are made to accommodate the financial needs of the Company's customers. Standby letters of credit commit the Company to make payments on behalf of customers when certain specified future events occur. They are primarily issued to guarantee other customer obligations. Both arrangements have credit risk essentially the same as that involved in extending loans to customers and are subject to the Company's normal credit policies. Collateral typically is obtained based on management's credit assessment of the customer. Loan commitments and standby letters of credit usually have fixed expiration dates or other termination clauses. Some commitments and letters of credit expire -21- without being drawn upon. Accordingly, the total commitment amounts do not necessarily represent future cash requirements of the Company. The Company's maximum exposure to credit loss for loan commitments (unfunded loans and unused lines of credit) and standby letters of credit outstanding at December 31, 1997 and 1996 was as follows:
1997 1996 ---- ---- Commitments to extend credit: Fixed-rate (6.99% to 10.00%) $ 1,394,116 $ 703,687 Adjustable rate 38,754,983 31,820,455 Standby letters of credit $ 629,086 $ 742,338 =========== ===========
Commitments to extend credit on a fixed-rate basis expose the Company to a certain amount of interest rate risk if market rates of interest substantially increase during the commitment period. The Company has also sold mortgage loans with recourse in the event of the default of the borrower. Loans sold with recourse are accounted for as sales in the accompanying financial statements, with provisions made for anticipated losses under the recourse provisions. At December 31, 1997 and 1996, the outstanding balance of such mortgages totaled approximately $272,000 and $421,000, respectively. Fees associated with the Company's off-balance-sheet financial instruments are minimal; therefore, the fair value of off-balance-sheet financial instruments is not material. 14. Loan Servicing Asset The loan servicing asset, included in other assets, represents the estimated present value of the interest rate differential resulting from the sale of loans with servicing rights retained. This amount is amortized over the estimated lives of the underlying loans sold. The loan servicing asset is also reduced by a charge to earnings if actual prepayments exceed estimated prepayments. The loan servicing asset totaled $350,937 and $513,703 at December 31, 1997 and 1996, respectively. At December 31, 1997 and 1996, the Company was servicing mortgage loans for others of approximately $118,137,000 and $127,258,000, respectively. 15. Regulatory Capital The Company and the Bank are 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 classifications 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 Company and 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, 1997, that the Company and the Bank met all capital adequacy requirements to which they are subject. -22- As of December 31, 1997 and 1996, the most recent notification from the Office of the Comptroller of the Currency categorized the Bank as "well capitalized" under the regulatory framework for prompt corrective action. To be categorized as "well capitalized", the Bank must maintain 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 Company's and the Bank's actual capital amounts and ratios at December 31, 1997 are presented in the following table (dollars are in thousands):
To Be Well Capitalized For Capital Under Prompt Corrective Actual Adequacy Purposes Action Provisions --------------- ----------------- ----------------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- Company (consolidated): Total capital (to risk-weighted > assets) $24,234 15.75% $12,312 - 8.0% N/A N/A Tier 1 capital (to risk-weighted > assets) 22,295 14.49% 6,156 - 4.0% N/A N/A Tier 1 capital > (to average assets) 22,295 8.67% 10,283 - 4.0% N/A N/A Bank: Total capital (to risk-weighted > > assets) $24,108 15.66% $12,312 - 8.0% $15,390 - 10.0% Tier 1 capital (to risk-weighted > > assets) 22,168 14.40% 6,156 - 4.0% 9,234 - 6.0% Tier 1 capital > > (to average assets) 22,168 8.62% 10,283 - 4.0% 12,853 - 5.0%
16. Disclosures about Fair Value of Financial Instruments In December 1991, the FASB issued Statement of Financial Accounting Standards No. 107, Disclosures About Fair Value of Financial Instruments (SFAS No. 107). This statement requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. SFAS No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and due from banks and federal funds sold: The carrying amounts reported in the balance sheet for cash and due from banks and federal funds sold approximate those assets' fair values. Securities (including mortgage-backed securities, securities held to maturity and securities available for sale): Fair values for 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. Loans: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for certain one-to-four family residential mortgages are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. The fair values for credit card loans and other consumer loans are based on carrying values, as the loans reprice frequently at current market rates. The fair values -23- for other loans (e.g., commercial real estate and rental property mortgage loans, and commercial and industrial loans) are estimated using discounted cash flow analysis, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The carrying amount of accrued interest receivable approximates its fair value. Off-balance-sheet instruments: The fair value of lending commitments discussed in Note 13 is not considered material nor has it been reflected in the estimation of the fair value of the related loans. Deposit liabilities: The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts for variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. Short-term borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase agreements and other short-term borrowings approximate their fair values. Commitments to extend credit/sell loans: The fair value of commitments is 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 customers. For fixed-rate loan commitments and obligations to deliver fixed-rate loans, fair value also considers the difference between committed rates and current levels of interest rates. Values not determined: SFAS No. 107 excludes certain financial instruments from its disclosure requirements, including real estate included in banking premises and equipment, the intangible value of the Bank's portfolio of loans serviced (both for itself and for others) and related servicing network and the intangible value inherent in the Bank's deposit relationships (i.e. core deposits) among others. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Bank. The carrying amount and estimated fair values of the Bank's financial instruments at December 31, 1997 and 1996 are as follows:
1997 ----------------------------- Carrying Estimated Amount Fair Value ------------ ----------- Financial instrument assets: Cash and cash equivalents $ 31,304,667 $ 31,304,667 Securities 95,184,390 95,284,489 Loans, including held for sale, net 138,797,615 140,905,729 Financial instrument liabilities: Deposits 232,788,534 232,248,046 Short-term borrowings 16,637,064 16,637,064 1996 ------------------------------ Carrying Estimated Amount Fair Value ------------ ----------- Financial instrument assets: Cash and cash equivalents $ 25,691,567 $ 25,691,567 Securities 88,073,888 87,557,356 Loans, including held for sale, net 128,088,725 132,035,766 Financial instrument liabilities: Deposits 217,181,869 216,345,523 Short-term borrowings 11,454,687 11,454,687
-24- [The following report appears on Arthur Andersen LLP letterhead] Report of Independent Public Accountants - ---------------------------------------- To the Board of Directors and Stockholders of Community Bancorp, Inc.: We have audited the accompanying consolidated balance sheets of Community Bancorp, Inc. (a Massachusetts corporation) and subsidiary as of December 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity and cash flows for the three years ended December 31, 1997. 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 generally accepted auditing standards. Those standards require that we plan and perform the audit 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 financial statements referred to above present fairly, in all material respects, the financial position of Community Bancorp, Inc. and subsidiary as of December 31, 1997 and 1996, and the results of their operations and their cash flows for the three years ended December 31, 1997 in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Boston, Massachusetts January 23, 1998 -25- Management's Discussion and Analysis of Financial Condition and Results of Operations Summary The Company recorded net income of $3,429,859 for the year ended December 31, 1997, representing an increase of $277,761 over $3,152,098 recorded in 1996. Earnings per share of $1.17 for the current period compared to $1.01 for the year ended December 31, 1996. The improvement in net income resulted primarily from increases in net interest income and noninterest income. Deposits of $232,788,534 at December 31, 1997 increased by $15,606,665 or 7.2% from $217,181,869 at December 31, 1996. The increase occurred primarily in interest bearing categories and secondarily in noninterest bearing categories. Loans of $139,839,853 at December 31, 1997 increased by $9,491,588 or 7.3% from $130,348,265 at December 31, 1996. The increase occurred in the commercial and consumer loan categories. Noncurrent loans (nonaccrual loans and loans 90 days or more past due but still accruing) totaled $871,619 and $1,266,732 at December 31, 1997 and 1996, respectively. There were no accruing troubled debt restructurings at December 31, 1997 or 1996. Other real estate owned of $170,000 at December 31, 1997 compared to $25,000 at December 31, 1996. The 1997 increase represented one foreclosed property. Assets of $273,550,527 at December 31, 1997 represented a $23,548,069 or 9.4% increase over $250,002,458 at December 31, 1996. 1997 Compared to 1996 Interest income for the year ended December 31, 1997 was $19,169,951, representing an increase of $1,408,849 or 7.9% over $17,761,102 for the year ended December 31, 1996, primarily due to a $15,878,574 or 7.2% increase in average earning assets during 1997. The weighted average taxable equivalent yield on net earning assets was 8.14% and 8.06% in 1997 and 1996, respectively. Interest expense of $6,895,222 in 1997 represented an increase of $527,464 or 8.3% from $6,367,758 in 1996, primarily due to an $11,658,028 or 6.7% increase in average interest bearing liabilities during 1997. The weighted average cost of interest bearing liabilities was 3.73% in 1997 and 3.68% in 1996. Net interest income for 1997 was $12,274,729, representing an increase of $881,385 or 7.7% compared to $11,393,344 recorded in 1996. Noninterest income for the year ended December 31, 1997 was $2,654,628, representing an increase of $199,829 or 8.1% from $2,454,799 in 1996. This increase resulted primarily from increases in merchant credit card processing, gains on sales of loans and gains on sales of securities. Noninterest expense for the year ended December 31, 1997 of $9,445,509 represented an increase of $776,124 or 9.0% from $8,669,385 recorded during 1996. This increase was primarily the result of increases in salaries and employee benefits, furniture and equipment, credit card processing and other expense. The provision for possible loan losses was $0 in 1997 and 1996, resulting from management's continuing evaluation of the adequacy of the allowance for possible loan losses and its belief that the allowance is -26- adequate. Management will continue its ongoing assessment of the adequacy of the allowance for possible loan losses during 1998 and may adjust the provision for possible loan losses if necessary. Income tax expense of $2,053,989 for the year ended December 31, 1997 compared to $2,026,660 for 1996, the result of an increase in taxable income during the current period. Net income of $3,429,859 for the year ended December 31, 1997 represented an increase of $277,761 or 8.8% over $3,152,098 recorded in 1996. The foregoing discussion summarized the primary components of this increase in earnings. 1996 Compared to 1995 Interest income for the year ended December 31, 1996 was $17,761,102, representing an increase of $843,478 or 5.0% over $16,917,624 for the year ended December 31, 1995, primarily due to a $16,551,450 or 8.1% increase in average earning assets during 1996, partially offset by slightly lower interest rates as compared to 1995. The weighted average taxable equivalent yield on net earning assets was 8.06% and 8.30% in 1996 and 1995, respectively. Interest expense of $6,367,758 in 1996 represented an increase of $83,008 or 1.3% from $6,284,750 in 1995, primarily due to a $9,865,224 or 6.0% increase in average interest bearing liabilities during 1996, partially offset by slightly lower interest rates as compared to 1995. The weighted average cost of interest bearing liabilities was 3.68% in 1996 and 3.85% in 1995. Net interest income for 1996 was $11,393,344, representing an increase of $760,470 or 7.2% compared to $10,632,874 recorded in 1995. Noninterest income for the year ended December 31, 1996 was $2,454,799, representing an increase of $336,767 or 15.9% from $2,118,032 in 1995. This increase resulted primarily from increases in merchant credit card processing, service charge income, other charges, commissions and fees, gains on sales of loans and other income, slightly offset by an increase in losses on sales of securities. Noninterest expense for the year ended December 31, 1996 of $8,669,385 represented an increase of $361,905 or 4.4% from $8,307,480 recorded during 1995. This increase was primarily the result of increases in salaries and employee benefits, data processing, furniture and equipment, credit card processing, OREO carrying costs and other expense, partially offset by reductions in occupancy expense and FDIC insurance premiums. The provision for possible loan losses for 1996 was $0, representing a $120,000 or 100.0% decrease from $120,000 for 1995. This decrease was the result of management's continuing evaluation of the adequacy of the allowance for possible loan losses and its belief that the allowance is adequate. Management continued its ongoing assessment of the adequacy of the allowance for possible loan losses during 1997. Income tax expense of $2,026,660 for the year ended December 31, 1996 compared to $1,679,549 for 1995, the result of an increase in taxable income during the current period. Net income of $3,152,098 for the year ended December 31, 1996 represented an increase of $508,221 or 19.2% over $2,643,877 recorded in 1995. The foregoing discussion summarized the primary components of this increase in earnings. -27- Allowance for Possible Loan Losses The allowance for possible loan losses is maintained at a level believed by management to be adequate to absorb potential losses in the loan portfolio. Management's methodology in determining the adequacy of the allowance considers specific credit reviews, past loan loss experience, current economic conditions and trends, known and inherent risks in the loan portfolio, adverse situations that may affect a borrower's ability to repay, the estimated value of any underlying collateral and the volume, growth and composition of the loan portfolio. Each loan on the Company's internal Watch List is evaluated periodically to estimate potential loss. For loans with potential losses, the bank sets aside or allocates a portion of the allowance against such potential losses. For the remainder of the loan portfolio, unallocated allowance amounts are determined based on judgments regarding the type of loan, economic conditions and trends, potential exposure to loss and other factors. When specific loans, or portions thereof, are deemed to be uncollectible, those amounts are charged off against the allowance. Subsequent recoveries, if any, are credited to the allowance. At December 31, 1997 the allowance was $3,215,559, representing 2.3% of total loans, compared to $3,481,705, representing 2.7% of total loans at December 31, 1996. Securities The Company's securities portfolio consists of obligations of the U.S. Treasury, U.S. Government sponsored agencies, mortgage backed securities and obligations of municipalities in the Company's market area. These assets are used in part to secure public deposits and as collateral for repurchase agreements. Securities for 1997 averaged $92.6 million, an increase of $11.4 million or 14.0% over $81.2 million for 1996. Proceeds from sales of securities were $4,913,737 in 1997. All mortgage-backed securities in the securities portfolio have been issued by U.S. Government sponsored agencies. Management believes no other-than-temporary impairment has occurred with regard to any security in the securities portfolio. The Company's adequate liquidity position provides the ability to hold all currently owned securities to maturity. Liquidity and Capital Resources The Company's principal sources of liquidity are customer deposits, amortization and pay-offs of loan principal and amortization and maturities of securities. These sources provide funds for loan originations, the purchase of securities and other activities. Deposits are considered a relatively stable source of funds. At December 31, 1997 and 1996, deposits were $232.8 million and $217.2 million, respectively. Management anticipates that deposits will increase moderately during 1998. Of the Company's $95.2 million in securities at December 31, 1997, $36.9 million or 38.7% mature within one year. As a nationally chartered member of the Federal Reserve System, the Bank has the ability to borrow funds from the Federal Reserve Bank of Boston by pledging certain of its investment securities as collateral. Also, the Bank is a member of the Federal Home Loan Bank which provides additional borrowing opportunities. On September 15, 1997, the Company implemented an Offer to Purchase up to 125,000 shares of its outstanding shares of common stock at a price of $12.00 per share. The Offer was designed to reposition -28- the Company's balance sheet to increase return on equity by redeploying that portion of equity capital that was not necessary for the Company's core banking business. The Offer expired at 5:00 P.M. on October 15, 1997, with 24,301 shares tendered. The Company purchased all 24,301 shares tendered in the Offer. As a result of the repurchase of the shares, the Company's capital was reduced by $291,612. Bank regulatory authorities have established a capital measurement tool called Tier 1 leverage capital. A 4.00% ratio of Tier 1 leverage capital to assets now constitutes the minimum capital standard for most banking organizations. At December 31, 1997 and 1996, the Company's Tier 1 leverage capital ratio was 8.15% and 7.94%, respectively. Regulatory authorities have also implemented risk-based capital guidelines requiring a minimum ratio of Tier 1 capital to risk-weighted assets of 4.00% and a minimum ratio of total capital to risk-weighted assets of 8.00%. At December 31, 1997, the Company's Tier 1 and total risk-based capital ratios were 14.49% and 15.75%, respectively. At December 31, 1996 the Company's Tier 1 and total risk-based capital ratios were 14.00% and 15.27%, respectively. The Bank is categorized as "well capitalized" under the Federal Deposit Insurance Corporation Improvement Act of 1991 (F.D.I.C.I.A.). The Year 2000 Issue The Company, like most users of computers and computer software, will be affected by the year 2000 date change. An internal Year 2000 Committee has been established to assess all bank systems to ensure that they will function properly in the year 2000. The Committee has completed the systems assessment, identified those that could be affected by the Year 2000 issue, and developed an implementation plan. Maintenance or modification costs will be expensed as incurred, while the cost of new hardware or software will be capitalized and amortized over its useful life. Those costs will be incurred during 1998 and 1999, and they are not expected to have a material effect on the Company's financial statements or results of operations. Asset/Liability Management and Interest Rate Risk The Company has an asset/liability management committee which oversees all asset/liability management activities. The committee establishes general guidelines each year and meets regularly to review the Company's operating results, to measure and monitor interest rate risk and to make strategic changes when necessary. It is the Company's general policy to reasonably match the rate sensitivity of its assets and liabilities in an effort to prudently manage interest rate risk. A common benchmark of this sensitivity is the one year gap position, which is a reflection of the difference between the speed and magnitude of rate changes of interest rate sensitive liabilities as compared with the Bank's ability to adjust the rates of it's interest rate sensitive assets in response to such changes. The Company's positive one-year cumulative gap position at December 31, 1997, which represents the excess of repricing assets versus repricing liabilities, was 3.2% expressed as a percentage of total assets. -29- Directors & Officers - -------------------- COMMUNITY BANCORP, INC. AND COMMUNITY NATIONAL BANK - ---------------------------------------------------- Chairman of the Board - --------------------- Dennis F. Murphy, Jr. President and Treasurer of D. Francis Murphy Insurance Agency, Inc. Directors: - --------- Alfred A. Cardoza Retired Argeo R. Cellucci President of Cellucci Hudson Corp. Antonio Frias President and Treasurer of S & F Concrete Contractors, Inc. I. George Gould Chairman of the Board of Gould's, Inc. Horst Huehmer Retired Donald R. Hughes, Jr. Treasurer and Clerk of Community Bancorp, Inc., Executive Vice President of Community National Bank James A. Langway President and Chief Executive Officer of Community Bancorp, Inc. and Community National Bank David L. Parker Chairman of the Board of Larkin Lumber Company Mark Poplin President and Treasurer of Poplin Supply Company Secretary of Poplin Furniture Company David W. Webster President of Knight Fuel Company, Inc. Officers: - -------- James A. Langway President and Chief Executive Officer Donald R. Hughes, Jr. Treasurer and Clerk COMMUNITY NATIONAL BANK - ----------------------- Officers - -------- James A. Langway President and Chief Executive Officer Donald R. Hughes, Jr. Executive Vice President Robert P. Converse Auditor Barbara M. Masciarelli Administrative Officer Compliance/Personnel/Legal - -------------------------- Grace L. Blunt, Esq. Senior Vice President Diane L. LeBlanc Human Resources Officer Retail Banking/Mortgage Division - -------------------------------- Richard K. Bennett Senior Vice President Nanci J. Pisani Vice President Ana M. Czapkowski Assistant Vice President Shereen A. Fahey Assistant Vice President Jane B. Karlson Assistant Vice President Elizabeth M. Brooks Branch Officer Andrea E. A. Cope Branch Officer Lynda L. D'Orlando Mortgage Officer Cynthia M. Farrah Marketing Officer Clark Hooper Security Officer M. Jean Mickle Branch Officer Raymond A. Murphy III Facilities Officer Lois A. Seymour Branch Officer Peter Shinas Branch Officer Kathleen E. Texeira Merchant Plan Officer Financial Control - ----------------- Robert E. Leist Senior Vice President Commercial Banking Division - --------------------------- John P. Galvani Senior View President Christal M. Bjork Vice President Daniel L. Heney Assistant Vice President Linda Glaser Commercial Loan Officer Jennifer D. Vasquezi Junior Commercial Officer/Credit Analyst Operations/Data Processing and Electronic Banking - ------------------------------------------------- Janet A. Lyman Senior Vice President James P. Vasquezi Assistant Vice President Margaret M. Vasquezi Assistant Vice President Susan B. Gillespie Operations Officer Michelle M. Temple Loan Servicing Officer The Company's Securities and Exchange Commission filing on Form 10-K is available to our stockholders upon request. -30- [The following text appears on the back cover.] Community Bancorp, Inc. Parent company of Community National Bank 17 Pope Street Hudson, Massachusetts 01749 Telephone 978-568-8321 Community National Bank - Branch Offices - ---------------------------------------- Hudson Main Office 17 Pope Street Phone: 978-568-8321 Fax: 978-562-7129 Acton 270 Great Road Phone: 978-263-8376 Fax: 978-266-2610 Boxborough 629 Massachusetts Avenue Phone: 978-264-9092 Fax: 978-266-2600 Concord 1134 Main Street Phone: 978-369-5421 Fax: 978-371-6600 Hudson South 177 Broad Street Phone: 978-568-8813 Fax: 978-568-2610 Marlborough Center 96 Bolton Street Phone: 978-485-5003 Fax: 978-229-4602 Marlborough East 500 Boston Post Road Phone: 508-485-3599 Fax: 508-229-4601 Stow 159 Great Road Phone: 978-461-1600 Fax: 978-461-1610 Loan Center 12 Pope Street, Hudson Phone: 978-568-8321 Fax: 978-562-9984 Additional ATM Locations Shaw's Supermarket - Hudson Solomon Pond Mall - Marlborough New England Sports Center - Marlborough Internet Web site: http://www.combank.com E-mail: cnb-mail@combank.com Member FDIC Equal Opportunity Lender EX-27 3
9 This schedule contains summary financial information extracted from the December 31, 1997 financial statements of Community Bancorp, Inc. and is qualified in its entirety by reference to such financial statements. YEAR DEC-31-1997 DEC-31-1997 16704667 0 14600000 0 38880166 56304224 56404323 139839853 3215559 273550527 232788534 16637064 1688830 0 0 0 7998045 14438054 273550527 13138908 5567027 464016 19169951 6139134 6895222 12274729 0 8587 9445509 5483848 5483848 0 0 3429859 1.17 1.17 5.24 632569 239050 0 0 3481705 366139 99993 3215559 1710617 0 1504942
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