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0000718413-07-000062.txt : 20071114
0000718413-07-000062.hdr.sgml : 20071114
20071114144101
ACCESSION NUMBER: 0000718413-07-000062
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 6
CONFORMED PERIOD OF REPORT: 20070930
FILED AS OF DATE: 20071114
DATE AS OF CHANGE: 20071114
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: COMMUNITY BANCORP /VT
CENTRAL INDEX KEY: 0000718413
STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021]
IRS NUMBER: 030284070
STATE OF INCORPORATION: VT
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-16435
FILM NUMBER: 071243600
BUSINESS ADDRESS:
STREET 1: PO BOX 259
CITY: DERBY
STATE: VT
ZIP: 05829
BUSINESS PHONE: 8023347915
MAIL ADDRESS:
STREET 1: DERBY ROAD
CITY: DERBY
STATE: VT
ZIP: 05829
10-Q
1
september2007.htm
SEPTEMBER 10-Q REPORT FOR COMMUNITY BANCORP.
september2007.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
[ x ] QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the
Quarterly Period Ended September 30, 2007
OR
[ ] TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the
transition period
from to
Commission
File Number 000-16435
COMMUNITY
BANCORP.
Vermont
|
03-0284070
|
(State
of Incorporation)
|
(IRS
Employer Identification Number)
|
|
4811
US Route 5, Derby, Vermont
|
05829
|
(Address
of Principal Executive Offices)
|
(zip
code)
|
|
|
Registrant's
Telephone Number: (802)
334-7915
|
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the Registrant was required
to file for such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ( X ) No
( )
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of
the
Exchange Act).
Large
accelerated filer ( )
|
Accelerated
filer ( )
|
Non-accelerated
filer ( X )
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
YES
( ) NO(X)
At
November 13, 2007, there were 4,383,170 shares outstanding of the Corporation's
common stock.
FORM
10-Q
|
|
|
Page
|
PART
I FINANCIAL INFORMATION
|
|
|
|
|
4
|
|
11
|
|
24
|
|
24
|
|
|
PART
II OTHER INFORMATION
|
|
|
|
|
24
|
|
25
|
|
25
|
|
25
|
|
25
|
|
27
|
PART
I. FINANCIAL INFORMATION
The
following are the consolidated financial statements for Community Bancorp.
and
Subsidiary, "the Company".
COMMUNITY
BANCORP. AND SUBSIDIARY
|
|
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets
|
|
September
30
|
|
|
December
31
|
|
|
September
30
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$ |
7,609,332
|
|
|
$ |
11,292,831
|
|
|
$ |
8,823,425
|
|
Federal
funds sold and overnight deposits
|
|
|
12,389,462
|
|
|
|
8,173,779
|
|
|
|
4,378,201
|
|
Total
cash and cash equivalents
|
|
|
19,998,794
|
|
|
|
19,466,610
|
|
|
|
13,201,626
|
|
Securities
held-to-maturity (fair value $29,472,000 at 09/30/07,
|
|
|
|
|
|
|
|
|
|
|
|
|
$21,301,000
at 12/31/06, and $30,789,000 at 09/30/06)
|
|
|
29,431,718
|
|
|
|
21,069,866
|
|
|
|
30,778,188
|
|
Securities
available-for-sale
|
|
|
25,074,048
|
|
|
|
22,612,207
|
|
|
|
27,495,869
|
|
Restricted
equity securities, at cost
|
|
|
2,450,150
|
|
|
|
2,828,250
|
|
|
|
3,203,350
|
|
Loans
held-for-sale
|
|
|
982,576
|
|
|
|
566,300
|
|
|
|
1,240,998
|
|
Loans
|
|
|
255,926,578
|
|
|
|
268,729,726
|
|
|
|
265,415,470
|
|
Allowance
for loan losses
|
|
|
(2,321,409 |
) |
|
|
(2,267,821 |
) |
|
|
(2,279,307 |
) |
Unearned
net loan fees
|
|
|
(490,826 |
) |
|
|
(632,105 |
) |
|
|
(671,132 |
) |
Net
loans
|
|
|
253,114,343
|
|
|
|
265,829,800
|
|
|
|
262,465,031
|
|
Bank
premises and equipment, net
|
|
|
12,072,266
|
|
|
|
12,334,024
|
|
|
|
12,459,780
|
|
Accrued
interest receivable
|
|
|
1,755,545
|
|
|
|
1,667,135
|
|
|
|
1,737,816
|
|
Other
assets
|
|
|
5,928,109
|
|
|
|
5,440,350
|
|
|
|
5,751,305
|
|
Total
assets
|
|
$ |
350,807,549
|
|
|
$ |
351,814,542
|
|
|
$ |
358,333,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand,
non-interest bearing
|
|
$ |
50,485,030
|
|
|
$ |
47,402,628
|
|
|
$ |
48,826,758
|
|
NOW
and money market accounts
|
|
|
77,204,394
|
|
|
|
81,402,928
|
|
|
|
71,803,791
|
|
Savings
|
|
|
39,505,522
|
|
|
|
38,471,441
|
|
|
|
40,633,051
|
|
Time
deposits, $100,000 and over
|
|
|
40,455,562
|
|
|
|
33,835,057
|
|
|
|
33,178,430
|
|
Other
time deposits
|
|
|
94,388,283
|
|
|
|
99,876,140
|
|
|
|
100,966,555
|
|
Total
deposits
|
|
|
302,038,791
|
|
|
|
300,988,194
|
|
|
|
295,408,585
|
|
Federal
funds purchased and other borrowed funds
|
|
|
40,000
|
|
|
|
40,000
|
|
|
|
15,040,000
|
|
Repurchase
agreements
|
|
|
14,212,876
|
|
|
|
17,083,946
|
|
|
|
14,561,094
|
|
Accrued
interest and other liabilities
|
|
|
2,653,456
|
|
|
|
2,971,591
|
|
|
|
3,303,333
|
|
Total
liabilities
|
|
|
318,945,123
|
|
|
|
321,083,731
|
|
|
|
328,313,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock - $2.50 par value; 10,000,000 shares authorized at
|
|
|
|
|
|
|
|
|
|
|
|
|
09/30/07 and 6,000,000 shares authorized at 12/31/06 and
09/30/06;
|
|
|
|
|
|
|
|
|
|
and
4,592,735 shares issued at 09/30/07, 4,339,619 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
issued
at 12/31/06, and 4,324,606 shares issued at 09/30/06
|
|
|
11,481,838
|
|
|
|
10,849,048
|
|
|
|
10,811,516
|
|
Preferred
stock, 1,000,000 shares authorized, no shares
|
|
|
|
|
|
|
|
|
|
|
|
|
issued
and outstanding
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Additional
paid-in capital
|
|
|
24,818,896
|
|
|
|
22,006,492
|
|
|
|
21,854,354
|
|
Retained
earnings (accumulated deficit)
|
|
|
(1,749,560 |
) |
|
|
760,667
|
|
|
|
346,873
|
|
Accumulated
other comprehensive loss
|
|
|
(65,971 |
) |
|
|
(270,664 |
) |
|
|
(377,060 |
) |
Less:
treasury stock, at cost; 210,101 shares at 09/30/07, and
|
|
|
|
|
|
|
|
|
|
|
|
|
209,510
shares at 12/31/06 and 09/30/06
|
|
|
(2,622,777 |
) |
|
|
(2,614,732 |
) |
|
|
(2,614,732 |
) |
Total
shareholders' equity
|
|
|
31,862,426
|
|
|
|
30,730,811
|
|
|
|
30,020,951
|
|
Total
liabilities and shareholders' equity
|
|
$ |
350,807,549
|
|
|
$ |
351,814,542
|
|
|
$ |
358,333,963
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|
COMMUNITY
BANCORP. AND SUBSIDIARY
|
|
|
|
|
|
|
Consolidated
Statements of Income
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
For
The Third Quarter Ended September 30,
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
|
Interest
and fees on loans
|
|
$ |
4,778,687
|
|
|
$ |
4,661,390
|
|
Interest
on debt securities
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
215,234
|
|
|
|
262,517
|
|
Tax-exempt
|
|
|
259,404
|
|
|
|
288,563
|
|
Dividends
|
|
|
37,329
|
|
|
|
45,980
|
|
Interest
on federal funds sold and overnight deposits
|
|
|
133,350
|
|
|
|
34,871
|
|
Total
interest income
|
|
|
5,424,004
|
|
|
|
5,293,321
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
Interest
on deposits
|
|
|
1,957,858
|
|
|
|
1,716,957
|
|
Interest
on federal funds purchased and other borrowed funds
|
|
|
63,283
|
|
|
|
282,817
|
|
Interest
on repurchase agreements
|
|
|
79,004
|
|
|
|
79,019
|
|
Total
interest expense
|
|
|
2,100,145
|
|
|
|
2,078,793
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
3,323,859
|
|
|
|
3,214,528
|
|
Provision
for loan losses
|
|
|
47,500
|
|
|
|
37,500
|
|
Net
interest income after provision
|
|
|
3,276,359
|
|
|
|
3,177,028
|
|
|
|
|
|
|
|
|
|
|
Non-interest
income
|
|
|
|
|
|
|
|
|
Service
fees
|
|
|
350,054
|
|
|
|
352,661
|
|
Other
income
|
|
|
760,304
|
|
|
|
438,748
|
|
Total
non-interest income
|
|
|
1,110,358
|
|
|
|
791,409
|
|
|
|
|
|
|
|
|
|
|
Non-interest
expense
|
|
|
|
|
|
|
|
|
Salaries
and wages
|
|
|
1,168,792
|
|
|
|
1,158,325
|
|
Employee
benefits
|
|
|
477,144
|
|
|
|
424,615
|
|
Occupancy
expenses, net
|
|
|
539,202
|
|
|
|
550,917
|
|
Other
expenses
|
|
|
1,061,908
|
|
|
|
927,713
|
|
Total
non-interest expense
|
|
|
3,247,046
|
|
|
|
3,061,570
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
1,139,671
|
|
|
|
906,867
|
|
Applicable
income taxes
|
|
|
212,499
|
|
|
|
142,803
|
|
Net
Income
|
|
$ |
927,172
|
|
|
$ |
764,064
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share
|
|
$ |
0.21
|
|
|
$ |
0.18
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares
|
|
|
|
|
|
|
|
|
used
in computing earnings per share
|
|
|
4,372,670
|
|
|
|
4,310,080
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared per share
|
|
$ |
0.17
|
|
|
$ |
0.16
|
|
|
|
|
|
|
|
|
|
|
Book
value per share on shares outstanding at September
30,
|
|
$ |
7.27
|
|
|
$ |
6.95
|
|
|
|
|
|
|
|
|
|
|
All
share and per share data for prior periods restated to reflect a
5% stock
dividend declared in June 2007.
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|
COMMUNITY
BANCORP. AND SUBSIDIARY
|
|
|
|
|
|
|
Consolidated
Statements of Income
|
|
|
|
|
|
|
For
the Nine Months Ended September 30,
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
|
Interest
and fees on loans
|
|
$ |
14,406,502
|
|
|
$ |
13,520,265
|
|
Interest
on debt securities
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
630,478
|
|
|
|
849,716
|
|
Tax-exempt
|
|
|
691,445
|
|
|
|
795,495
|
|
Dividends
|
|
|
126,370
|
|
|
|
130,399
|
|
Interest
on federal funds sold and overnight deposits
|
|
|
191,178
|
|
|
|
60,033
|
|
Total
interest income
|
|
|
16,045,973
|
|
|
|
15,355,908
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
Interest
on deposits
|
|
|
5,774,457
|
|
|
|
4,700,719
|
|
Interest
on federal funds purchased and other borrowed funds
|
|
|
90,642
|
|
|
|
603,143
|
|
Interest
on repurchase agreements
|
|
|
240,688
|
|
|
|
239,327
|
|
Total
interest expense
|
|
|
6,105,787
|
|
|
|
5,543,189
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
9,940,186
|
|
|
|
9,812,719
|
|
Provision
for loan losses
|
|
|
122,500
|
|
|
|
112,500
|
|
Net
interest income after provision
|
|
|
9,817,686
|
|
|
|
9,700,219
|
|
|
|
|
|
|
|
|
|
|
Non-interest
income
|
|
|
|
|
|
|
|
|
Service
fees
|
|
|
1,031,526
|
|
|
|
989,006
|
|
Other
income
|
|
|
1,676,660
|
|
|
|
1,310,420
|
|
Total
non-interest income
|
|
|
2,708,186
|
|
|
|
2,299,426
|
|
|
|
|
|
|
|
|
|
|
Non-interest
expense
|
|
|
|
|
|
|
|
|
Salaries
and wages
|
|
|
3,421,779
|
|
|
|
3,490,338
|
|
Employee
benefits
|
|
|
1,349,547
|
|
|
|
1,263,179
|
|
Occupancy
expenses, net
|
|
|
1,776,935
|
|
|
|
1,679,889
|
|
Other
expenses
|
|
|
3,004,450
|
|
|
|
2,861,614
|
|
Total
non-interest expense
|
|
|
9,552,711
|
|
|
|
9,295,020
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
2,973,161
|
|
|
|
2,704,625
|
|
Applicable
income taxes
|
|
|
512,850
|
|
|
|
442,519
|
|
Net
Income
|
|
$ |
2,460,311
|
|
|
$ |
2,262,106
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share
|
|
$ |
0.57
|
|
|
$ |
0.53
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares
|
|
|
|
|
|
|
|
|
used
in computing earnings per share
|
|
|
4,357,565
|
|
|
|
4,294,492
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared per share
|
|
$ |
0.50
|
|
|
$ |
0.48
|
|
|
|
|
|
|
|
|
|
|
Book
value per share on shares outstanding at September
30,
|
|
$ |
7.27
|
|
|
$ |
6.95
|
|
|
|
|
|
|
|
|
|
|
All
share and per share data for prior periods restated to reflect a
5% stock
dividend declared in June 2007.
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
For
the Nine Months Ended September 30,
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Cash
Flow from Operating Activities:
|
|
|
|
|
|
|
Net
Income
|
|
$ |
2,460,311
|
|
|
$ |
2,262,106
|
|
Adjustments
to Reconcile Net Income to Net Cash Provided by Operating
Activities:
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
710,591
|
|
|
|
655,411
|
|
Provision
for loan losses
|
|
|
122,500
|
|
|
|
112,500
|
|
Deferred
income taxes
|
|
|
(34,470 |
) |
|
|
(52,608 |
) |
Net
gain on sale of loans
|
|
|
(226,492 |
) |
|
|
(221,559 |
) |
Loss
(gain) on sale or disposal of fixed assets
|
|
|
8,415
|
|
|
|
(818 |
) |
Gain
on investment in Trust LLC
|
|
|
(104,337 |
) |
|
|
(56,195 |
) |
Amortization
of bond premium, net
|
|
|
8,301
|
|
|
|
72,282
|
|
Proceeds
from sales of loans held for sale
|
|
|
22,295,686
|
|
|
|
20,935,477
|
|
Originations
of loans held for sale
|
|
|
(22,485,470 |
) |
|
|
(20,368,334 |
) |
(Decrease)
increase in taxes payable
|
|
|
(202,680 |
) |
|
|
195,127
|
|
(Increase)
decrease in interest receivable
|
|
|
(88,410 |
) |
|
|
51,435
|
|
Increase
in mortgage servicing rights
|
|
|
(90,643 |
) |
|
|
(108,351 |
) |
Increase
in other assets
|
|
|
(366,050 |
) |
|
|
(395,998 |
) |
Amortization
of limited partnerships
|
|
|
292,530
|
|
|
|
254,268
|
|
Decrease
in unamortized loan fees
|
|
|
(141,279 |
) |
|
|
(12,974 |
) |
(Decrease)
increase in interest payable
|
|
|
(49,183 |
) |
|
|
142,972
|
|
Increase
in accrued expenses
|
|
|
88,396
|
|
|
|
107,263
|
|
Increase
in other liabilities
|
|
|
22,037
|
|
|
|
127,330
|
|
Net
cash provided by operating activities
|
|
|
2,219,753
|
|
|
|
3,699,334
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Investments
- held to maturity
|
|
|
|
|
|
|
|
|
Maturities
and paydowns
|
|
|
17,709,462
|
|
|
|
29,304,142
|
|
Purchases
|
|
|
(26,071,314 |
) |
|
|
(31,690,664 |
) |
Investments
- available for sale
|
|
|
|
|
|
|
|
|
Sales
and maturities
|
|
|
3,000,000
|
|
|
|
10,000,000
|
|
Purchases
|
|
|
(5,160,000 |
) |
|
|
(1,000,000 |
) |
Proceeds
from sale of restricted equity securities
|
|
|
378,100
|
|
|
|
48,800
|
|
Decrease
in limited partnership contributions payable
|
|
|
(236,094 |
) |
|
|
(298,632 |
) |
Investments
in limited partnership
|
|
|
(264,800 |
) |
|
|
(2,993 |
) |
Decrease
(increase) in loans, net
|
|
|
12,686,366
|
|
|
|
(14,864,071 |
) |
Capital
expenditures, net
|
|
|
(457,248 |
) |
|
|
(1,497,255 |
) |
Recoveries
of loans charged off
|
|
|
47,870
|
|
|
|
49,176
|
|
Net
cash provided by (used in) investing
activities
|
|
|
1,632,342
|
|
|
|
(9,951,497 |
) |
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Net
decrease in demand, NOW, money market and savings accounts
|
|
|
(82,051 |
) |
|
|
(29,945,770 |
) |
Net
increase in time deposits
|
|
|
1,132,648
|
|
|
|
31,041,944
|
|
Net
decrease in repurchase agreements
|
|
|
(2,871,070 |
) |
|
|
(2,786,046 |
) |
Net
decrease in short-term borrowings
|
|
|
0
|
|
|
|
(2,000,000 |
) |
Advances
on long-term borrowings
|
|
|
0
|
|
|
|
20,000,000
|
|
Repayments
on long-term borrowings
|
|
|
0
|
|
|
|
(13,000,000 |
) |
Payments
to acquire treasury stock
|
|
|
(8,045 |
) |
|
|
(11 |
) |
Dividends
paid
|
|
|
(1,491,393 |
) |
|
|
(1,431,267 |
) |
Net
cash (used in) provided by financing
activities
|
|
|
(3,319,911 |
) |
|
|
1,878,850
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash
equivalents
|
|
|
532,184
|
|
|
|
(4,373,313 |
) |
Cash
and cash equivalents:
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
19,466,610
|
|
|
|
17,574,939
|
|
Ending
|
|
$ |
19,998,794
|
|
|
$ |
13,201,626
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Schedule of Cash Paid During the Period
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
6,154,970
|
|
|
$ |
5,400,217
|
|
Income
taxes
|
|
$ |
750,000
|
|
|
$ |
300,000
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Schedule of Noncash Investing and Financing
Activities:
|
|
|
|
|
|
|
|
|
Change
in unrealized loss on securities available-for-sale
|
|
$ |
310,142
|
|
|
$ |
113,725
|
|
|
|
|
|
|
|
|
|
|
Dividends
Paid
|
|
|
|
|
|
|
|
|
Dividends
declared
|
|
$ |
2,149,218
|
|
|
$ |
2,081,216
|
|
Increase
in dividends payable attributable to dividends declared
|
|
|
(42,872 |
) |
|
|
(5,015 |
) |
Dividends
reinvested
|
|
|
(614,953 |
) |
|
|
(644,934 |
) |
|
|
$ |
1,491,393
|
|
|
$ |
1,431,267
|
|
|
|
|
|
|
|
|
|
|
Stock
Dividends
|
|
$ |
2,821,320
|
|
|
$ |
0
|
|
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1. BASIS OF PRESENTATION AND CONSOLIDATION
The
interim consolidated financial statements of Community Bancorp. and Subsidiary
are unaudited. All significant intercompany balances and transactions
have been eliminated in consolidation. In the opinion of management,
all adjustments necessary for fair presentation of the financial condition
and
results of operations of the Company contained herein have been
made. The unaudited consolidated financial statements should be read
in conjunction with the audited consolidated financial statements and notes
thereto for the year ended December 31, 2006 contained in the Company's Annual
Report on Form 10-K.
NOTE
2. 5% STOCK DIVIDEND
In
June
2007, the Company declared a 5% stock dividend payable August 15, 2007 to
shareholders of record as of July 15, 2007. As a result of this stock
dividend, all per share data and weighted average number of shares for prior
periods have been restated. An accrual of $2,801,082, representing
the estimated dollar value of the stock dividend, was recorded in the second
quarter to Shareholders’ Equity, resulting in a shift from Retained Earnings to
Accumulated Deficit on the Balance Sheet. The actual amount of the 5%
stock dividend was $2,821,320 (valued on August 15, 2007, the dividend payment
date), and was reflected in an adjusting entry to Retained Earnings during
the
third quarter.
NOTE
3. RECENT ACCOUNTING DEVELOPMENTS
In
March
2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 156, “Accounting for Servicing of
Financial Assets-an Amendment to FASB Statement No. 140”. SFAS No. 156 requires
mortgage servicing rights associated with loans originated and sold, where
servicing is retained, to be initially capitalized at fair value and
subsequently accounted for using the “fair value method” or the “amortization
method”. The Company is using the amortization method for subsequent reporting.
Mortgage servicing rights are evaluated for impairment based upon the fair
value
of the rights as compared to amortized cost. The Company implemented changes
to
its valuation analysis, with the assistance of a specialized valuation
consulting firm, during the first quarter of 2007. The model used to
value the mortgage servicing rights utilizes prepayment assumptions based on
the
Bond Market Association prepayment survey. The discount rate applied
is at the lower end of the observed industry range. Other assumptions
include delinquency rates, servicing cost inflation, and annual unit loan
cost. All assumptions are adjusted periodically to reflect current
circumstances. SFAS No. 156 was effective January 1, 2007.
Implementation of SFAS No. 156 did not have a material effect on the financial
statements of the Company.
In
September 2006, FASB issued SFAS No 157, “Fair Value Measurements” which
provides enhanced guidance for using fair value to measure assets and
liabilities. This Statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value measurements. This
Statement applies under other accounting pronouncements that require or permit
fair value measurements, the Board having previously concluded in those
accounting pronouncements that fair value is the relevant measurement
attribute. Accordingly, this Statement does not require any new fair
value measurements. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. Although SFAS No. 157 will
not have any impact on the financial statements of the Company in the current
year, it could impact the footnotes to the financial statements in the
future.
In
February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities”, which gives entities the option to measure
eligible financial assets and financial liabilities at fair value on an
instrument by instrument basis. The election to use the fair value option is
available when an entity first recognizes a financial asset or financial
liability. Subsequent changes in fair value must be recorded in earnings. SFAS
No. 159 contains provisions to apply the fair value option to existing eligible
financial instruments at the date of adoption. This statement is effective
as of
the beginning of an entity’s first fiscal year after November 15, 2007, with
provisions for early adoption. The Company did not apply the fair
value option to any financial instruments; therefore, SFAS No. 159 has not
had
any impact on the financial statements.
NOTE
4.
INCOME TAXES
In
July
2006, FASB issued Financial Accounting Standards Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in a company’s financial statements in accordance with FASB
Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a
recognition threshold of more-likely-than-not, and a measurement attribute
for
all tax positions taken or expected to be taken on a tax return, in order for
those tax positions to be recognized in the financial statements. FIN 48 also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosures and transitions. Effective January
1,
2007, the Company adopted FIN 48. The implementation of FIN 48 did not have
a
material impact on the Company’s financial statements.
The
Company’s income tax returns for the years ended December 31, 2003, 2004, 2005
and 2006 are open to audit under the statute of limitations by the Internal
Revenue Service. The Company’s policy is to record interest and
penalties related to uncertain tax positions as part of its provision for income
taxes. The Company had no penalties and interest recorded for the nine months
ended September 30, 2006. A late estimated tax payment for the first
quarter of 2006 resulted in penalty and interest of $15,208 which is reflected
in the provision for income taxes for 2007.
NOTE
5. EARNINGS PER SHARE
Earnings
per common share amounts are computed based on the weighted average number
of
shares of common stock issued during the period (retroactively adjusted for
stock splits and stock dividends) and reduced for shares held in
Treasury.
NOTE
6. COMPREHENSIVE INCOME
Accounting
principles generally require recognized revenue, expenses, gains, and losses
to
be included in net income. Certain changes in assets and liabilities,
such as the after-tax effect of unrealized gains and losses on
available-for-sale securities, are not reflected in the statement of income,
but
the cumulative effect of such items from period-to-period is reflected as a
separate component of the equity section of the balance
sheet
(accumulated other comprehensive income or loss). Other comprehensive
income or loss, along with net income, comprises the Company's total
comprehensive income.
The
Company's total comprehensive income for the comparison periods is calculated
as
follows:
For
the third quarter ended September 30,
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
927,172
|
|
|
$ |
764,064
|
|
Other
comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
Unrealized
holding gain on available-for-sale
|
|
|
|
|
|
|
|
|
securities
arising during the period
|
|
|
221,604
|
|
|
|
271,848
|
|
Tax
effect
|
|
|
(75,345 |
) |
|
|
(92,428 |
) |
Other
comprehensive income, net of tax
|
|
|
146,259
|
|
|
|
179,420
|
|
Total
comprehensive income
|
|
$ |
1,073,431
|
|
|
$ |
943,484
|
|
For
the nine months ended September 30,
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
2,460,311
|
|
|
$ |
2,262,106
|
|
Other
comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
Unrealized
holding gains on available-for-sale
|
|
|
|
|
|
|
|
|
securities
arising during the period
|
|
|
310,142
|
|
|
|
113,725
|
|
Tax
effect
|
|
|
(105,448 |
) |
|
|
(38,667 |
) |
Other
comprehensive income, net of tax
|
|
|
204,694
|
|
|
|
75,058
|
|
Total
comprehensive income
|
|
$ |
2,665,005
|
|
|
$ |
2,337,164
|
|
NOTE
7. MERGER AGREEMENT
On
August
1, 2007, the Company entered into an agreement to acquire LyndonBank, a
Vermont-chartered commercial bank headquartered in Lyndonville, Vermont
(“LyndonBank”), for approximately $26.7 million in cash. As of June
30, 2007, LyndonBank had approximately $159.6 million in total assets, $124.8
million in deposits and $109.8 million in net loans. Under the terms
of the agreement, LyndonBank will be merged into the Company’s wholly-owned
subsidiary, Community National Bank, with each of the 1,058,131.6 shares of
LyndonBank’s outstanding common stock converted into the right to receive a cash
payment of $25.25. The Boards of Directors of the Company, Community
National Bank and LyndonBank have each approved the
agreement. Completion of the merger is subject to the approval of the
LyndonBank shareholders, as well as to receipt of all required regulatory
approvals and satisfaction of other customary conditions. On November
7, 2007, at a special meeting of LyndonBank shareholders, the merger was
approved by the affirmative vote of 80.6% of the shares
outstanding. Immediately following consummation of the merger,
Community National Bank intends to sell the Vergennes branch of LyndonBank
to
the National Bank of Middlebury. As of August 31, 2007, there were
approximately $9.1 million in deposits booked at that branch. The
merger and branch sale are expected to close at or near the end of calendar
year
2007.
NOTE
8. SUBSEQUENT EVENT
On
October 31, 2007, the Company completed a $12.5 million trust preferred
securities financing. The Company intends to use the net proceeds
from the financing to provide a portion of the funding for the LyndonBank
acquisition. The trust preferred securities were issued by a newly
established subsidiary of the Company, CMTV Statutory Trust I, a Delaware
statutory business trust (the “Trust”) to a pooling vehicle sponsored by FTN
Financial Capital Markets and Keefe, Bruyette & Woods, Inc. The
Trust was formed for the purpose of effecting the financing, and all of its
voting securities are held by the Company. The proceeds from the
trust’s sale of its non voting capital securities were loaned to the Company by
the trust under deeply subordinated debentures issued to the
Trust. These hybrid securities will qualify as Tier 1 regulatory
capital up to applicable regulatory limits, and interest payments on the
debentures are expected to be deductible for tax purposes. The trust
preferred securities will bear a fixed rate of interest of 7.56% per year for
the first five years, followed by a floating rate, adjusted quarterly, equal
to
the three-month London Interbank Offered Rate (“LIBOR”) plus
2.85%. The securities are redeemable at par by the Company in whole
or in part after five years, or earlier under certain
circumstances.
ITEM
2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
for
the
Period Ended September 30, 2007
FORWARD-LOOKING
STATEMENTS
The
Company's Management's Discussion and Analysis of Financial Condition and
Results of Operations may contain certain forward-looking statements about
the
Company's operations, financial condition and business. When used therein,
the
words "believes," "expects," "anticipates," "intends," "estimates," "plans,"
"predicts," or similar expressions, indicate that management of the Company
is
making forward-looking statements.
Forward-looking
statements are not guarantees of future performance. They necessarily
involve risks, uncertainties and assumptions. Future results of the
Company may differ materially from those expressed in these forward-looking
statements. Examples of forward looking statements contained in this
discussion include, but are not limited to, management’s expectations as to
future asset growth, income trends, results of operations and other matters
reflected in the Overview section, estimated contingent liability related to
the
Company's participation in the Federal Home Loan Bank (FHLB) Mortgage
Partnership Finance (MPF) program, assumptions made within the asset/liability
management process, and management's expectations as to the future interest
rate
environment and the Company's related liquidity level. Although these statements
are based on management's current expectations and estimates, many of the
factors that could influence or determine actual results are unpredictable
and
not within the Company's control. Readers are cautioned not to place
undue reliance on such statements as they speak only as of the date they are
made. The Company claims the protection of the safe harbor for
forward-looking statements provided in the Private Securities Litigation Reform
Act of 1995.
Factors
that may cause actual results to differ materially from those contemplated
by
these forward-looking statements include, among others, the following
possibilities: (1) competitive pressures increase among financial services
providers in the Company's northern New England market area or in the financial
services industry generally, including competitive pressures from nonbank
financial service providers, from increasing consolidation and integration
of
financial service providers, and from changes in technology and delivery
systems, which erode the competitive advantage of in-market branch facilities;
(2) interest rates change in such a way as to reduce the Company's margins;
(3)
general economic or monetary conditions, either nationally or regionally, are
less favorable than expected, resulting in a deterioration in credit quality
or
a diminished demand for the Company's products and services; and (4) changes
in
laws or government rules, or the way in which courts interpret those laws or
rules, adversely affect the Company's business.
OVERVIEW
The
Company’s total assets increased during the third quarter by $16.5 million, or
approximately 5.0% to $350.8 million at September 30, 2007. After a
seasonal decline in assets at the end of the second quarter due to the many
municipal loans that mature, total assets have increased as new municipal loans
were booked during the first weeks of the third quarter. Although
assets have increased during this quarter, total assets are still below 2006
levels. This contraction is mainly due to a decrease in the loan
portfolio from a lack of demand for commercial and residential real estate
loans. This decline reflects a nationwide pattern in the banking
industry due to an unsettled economy and the fall out of the sub-prime lending
activity. The Company has not offered any deeply discounted
adjustable rate mortgages, nor engaged in any other form of sub-prime lending
practices. Therefore, the Company should not be adversely affected by
the sub-prime lending fiasco beyond the weakened real estate
market. Total deposits increased $21.5 million, or 7.7% since the end
of June. Municipal accounts contributed $13.2 million, or 61.4% to
the increase during the quarter. With no borrowed funds to pay
off and loan demand weak, the cash flow was utilized by increasing the available
for sale securities portfolio by $2.16 million and the remainder invested in
overnight funds.
The
Company’s net income for the third quarter of 2007 was $927,172 or $0.21 per
share, compared to $764,064, or $0.18 per share for the same period in
2006. Net interest income for the third quarter of 2007, after a
provision for loan loss of $47,500, was $3,276,359. This is $99,331
more than the same quarter in 2006, an increase of 3.13% between
quarters. Total interest income for the third quarter of 2007 was
2.47% higher than total interest income for the third quarter in 2006, while
total interest expense for the quarter rose 1.03% over the total interest
expense for the third quarter in 2006. The increase in overnight
investments contributed to the increase in interest income. The
absence of borrowed funds during the quarter helped to offset the effect of
increases in yields on the certificate of deposit and money market
accounts. The recent decrease in the overnight funds rate had an
immediate negative impact on the interest the Company earns on overnight
investments.
During
the third quarter, the Company sold its $1.65 million credit card portfolio
to
the Bankers’ Bank of Atlanta, Georgia. The decision came from the
desire to offer a more competitive product to the customer. Through
the Bankers’ Bank, the customer will have a product that is priced more
competitively and with a variety of options that the Company was not able to
offer previously. The portfolio was sold at an 18% premium which,
after related expenses, resulted in a gain of $257,836. This one-time
gain contributed significantly to the increase of non-interest income for the
third quarter of 2007 over the third quarter of 2006.
Non-interest
income for the quarter was $1.11 million, which was $318,949, or 40% greater
than the third quarter last year. Without the one-time gain from the
sale of the credit card portfolio, the increase would have been
$24,958. Non-interest expenses were $185,476 greater for the third
quarter of 2007 compared to the same quarter last year. Most
increases were normal increases in the cost of doing business; however,
contributing to the increase in expenses was an increase in employee benefits
due to increases in the cost of the Company’s health insurance program and the
consulting fees associated with the implementation of Section 404
of Sarbanes
Oxley.
On
August 2, 2007, the Company announced plans to acquire LyndonBank, formerly
Lyndon Savings Bank and Trust Company. LyndonBank is a $159.6 million
community bank based in Lyndonville, VT. It currently has seven
offices, four in Orleans and Caledonia Counties, and the others in Franklin,
Lamoille and Addison Counties. A subsequent announcement on October
4, 2007 stated the Company intends to sell the Vergennes branch in Addison
County to the National Bank of Middlebury. Under the proposed terms,
Middlebury will assume all of the deposits booked at LyndonBank’s Vergennes
branch (approximately $9.1 million as of August 31, 2007) and will purchase
certain branch loans and fixed assets, including the real
estate. These transactions are intended to close at or near year end,
2007, subject to regulatory approval and to LyndonBank shareholder
approval. On November 7, 2007, at a special meeting of LyndonBank
shareholders, the merger was approved by the affirmative vote of 80.6% of the
shares outstanding. It is expected that the combined institution will
have approximately $500 million in assets, which would make it the 5th largest
bank based
in Vermont.
On
October 31, 2007, the Company completed a $12.5 million trust preferred
securities financing for the purpose of funding a portion of the merger
consideration for the LyndonBank acquisition. The trust preferred
securities were issued by a newly established subsidiary of the Company, CMTV
Statutory Trust I, a Delaware statutory business trust, to a pooling vehicle
sponsored by FTN Financial Capital Markets and Keefe, Bruyette & Woods,
Inc. The proceeds of that sale were loaned to the Company under
deeply subordinated debentures issued by the Company to the
trust. The trust preferred securities, which are expected to qualify
as Tier I capital for regulatory purposes up to applicable regulatory
limitations, will bear a fixed rate of interest of 7.56% per year for the first
five years, followed by a floating rate, adjusted quarterly, equal to the
three-month London Interbank Offered Rate (“LIBOR”) plus 2.85% and are
redeemable at par by the Company in whole or in part after five years, or
earlier under certain circumstances. Interest payments on the
debentures are expected to be deductible for tax purposes.
The
following pages describe our third quarter financial results in much more
detail. Please take the time to read them to more fully understand the nine
months ended September 30, 2007 in relation to the 2006 comparison
periods. The discussion below should be read in conjunction with the
Consolidated Financial Statements of the Company and related notes included
in
this report and with the Company's Annual Report on Form 10-K for the year
ended
December 31, 2006. This report includes forward-looking statements
within the meaning of the Securities and Exchange Act of 1934 (the "Exchange
Act").
CRITICAL
ACCOUNTING POLICIES
The
Company’s consolidated financial statements are prepared according to accounting
principles generally accepted in the United States of America. The
preparation of such financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and related disclosure of contingent assets and
liabilities in the consolidated financial statements and related
notes. The Securities and Exchange Commission (SEC) has defined a
company’s critical accounting policies as the ones that are most important to
the portrayal of the Company’s financial condition and results of operations,
and which require the Company to make its most difficult and subjective
judgments, often as a result of the need to make estimates of matters that
are
inherently uncertain. Because of the significance of these estimates
and assumptions, there is a high likelihood that materially different amounts
would be reported for the Company under different conditions or using different
assumptions or estimates.
Allowance
for Loan Losses - Management evaluates on an ongoing basis its judgment as
to which policies are considered to be critical. Management believes that the
calculation of the allowance for loan losses (ALL) is a critical accounting
policy that requires the most significant judgments and estimates used in the
preparation of its consolidated financial statements. In estimating
the ALL, management considers historical experience as well as other factors
including the effect of changes in the local real estate market on collateral
values, current economic indicators and their probable impact on borrowers
and
changes in delinquent, non-performing or impaired loans. Management’s
estimates used in calculating the ALL may increase or decrease based on changes
in these factors, which in turn will affect the amount of the Company’s
provision for loan losses charged against current period
income. Actual results could differ significantly from these
estimates under different assumptions, judgments or conditions.
Other-Than-Temporary
Impairment of Securities - Companies are required to perform periodic
reviews of individual securities in their investment portfolios to determine
whether decline in the value of a security is other than temporary. A review
of
other-than-temporary impairment requires companies to make certain judgments
regarding the materiality of the decline, its effect on the financial statements
and the probability, extent and timing of a valuation recovery and the company’s
intent and ability to hold the security. Pursuant to these requirements,
management assesses valuation declines to determine the extent to which such
changes are attributable to fundamental factors specific to the issuer, such
as
financial condition, business prospects or other factors or market-related
factors, such as interest rates. Declines in the fair value of securities below
their cost that are deemed to be other than temporary are recorded in earnings
as realized losses.
Mortgage
Servicing Rights - As required by SFAS No. 156, “Accounting for Servicing
of Financial Assets-an Amendment to FASB Statement No. 140”, mortgage servicing
rights associated with loans originated and sold, where servicing is retained,
are initially capitalized at fair value and included in other assets in the
consolidated balance sheet. Mortgage servicing rights are amortized into
non-interest income in proportion to, and over the period of, estimated future
net servicing income of the underlying financial assets. The value of
capitalized servicing rights represents the present value of the future
servicing fees arising from the right to service loans in the portfolio. The
carrying value of the mortgage servicing rights is periodically reviewed for
impairment based on a determination of fair value and impairment, if any, is
recognized through a valuation allowance and is recorded as amortization of
other assets. Critical accounting policies for mortgage servicing
rights relate to the initial valuation and subsequent impairment tests. The
methodology used to determine the valuation of mortgage servicing rights
requires the development and use of a number of estimates, including anticipated
principal amortization and prepayments of that principal balance. Events that
may significantly affect the estimates used are changes in interest rates and
the payment performance of the underlying loans. The Company
implemented changes to its valuation analysis, with the assistance of a
specialized valuation consulting firm during the first quarter of
2007. The model used to value the mortgage servicing rights utilizes
prepayment assumptions based on the Bond Market Association prepayment
survey. The discount rate applied is at the lower end of the observed
industry range. Other assumptions include delinquency rates,
servicing cost inflation, and annual unit loan cost. All assumptions
are adjusted periodically to reflect current
circumstances. Implementation of SFAS No. 156 did not have a material
effect on the financial statements of the Company.
Other
Real Estate Owned - Occasionally, the Company acquires property in
connection with foreclosures or in satisfaction of debt previously
contracted. To determine the value of property acquired in
foreclosure, management often obtains independent appraisals for significant
properties. Because the extent of any recovery on these loans depends
largely on the amount the Company is able to realize upon liquidation of the
underlying collateral, the recovery of a substantial portion of the carrying
amount of foreclosed real estate is susceptible to changes in local market
conditions. The amount of the change that is reasonably possible
cannot be estimated. In addition, regulatory agencies, as an integral
part of their examination process, periodically review the Company’s allowance
for losses on loans and foreclosed real estate. Such agencies may
require the Company to recognize additions to the allowances based on their
judgments about information available to them at the time of their
examination.
Management
utilizes numerous techniques to estimate the carrying value of various assets
held by the Company, including, but not limited to, property, plant and
equipment, and deferred taxes. The assumptions considered in making these
estimates are based on historical experience and on various other factors that
are believed by management to be reasonable under the
circumstances. Management acknowledges that the use of different
estimates or assumptions could produce different estimates of carrying
values.
RESULTS
OF OPERATIONS
The
Company’s net income for the third quarter of 2007 was $927,172, representing an
increase of $163,108, or 21.4% over net income of $764,064 for the third quarter
of 2006. This resulted in earnings per share of $0.21 and $0.18, respectively,
for the third quarter of 2007 and 2006. Core earnings (net interest
income) for the third quarter of 2007 increased by $109,331, or 3.4% over the
third quarter of 2006. Interest income on loans, the major component
of interest income, increased $117,297, or 2.5%, while interest income on
investments decreased $85,093, or 14.3% in total. Interest expense on deposits,
the major component of interest expense, increased $240,901, or approximately
14.0%, between periods but was partially offset by a decrease of $219,534,
or
77.6%, in interest expense on federal funds purchased and other borrowed
funds.
Net
income for the first nine months of 2007 was $2.5 million, representing an
increase of $198,205 or 8.8% over net income of $2.3 million for the first
nine
months of 2006. Core earnings for the first nine months increased by $127,467
or
1.3% from $9.8 million at September 30, 2006 to $9.9 million as of September
30,
2007. Interest income on loans increased $886,237, or 6.6%, while investment
income decreased $327,317 or 18.4% between periods. Interest expense on deposits
increased by $1.1 million, or by 22.8%, but was partially offset by a decrease
of $512,501, or 85.0%, in interest expense on federal funds purchased and other
borrowed funds. The Company’s average volume of overnight deposits
was higher in both the third quarter and first nine months of 2007 compared
to
the same periods of 2006, and the average volume of federal funds purchased
and
other borrowed funds was lower in 2007 than 2006, contributing to the increase
in core earnings. The one-time gain of $257,836 from the sale of the
Company’s credit card portfolio helped to boost non-interest income in both
comparison periods.
Return
on average assets (ROA), which is net income divided by average total assets,
measures how effectively a corporation uses its assets to produce
earnings. Return on average equity (ROE), which is net income divided
by average shareholders' equity, measures how effectively a corporation uses
its
equity capital to produce earnings. ROA and ROE were higher in 2007
compared to 2006. The following table shows these ratios annualized
for the comparison periods.
For
the third quarter ended September 30,
|
2007
|
2006
|
|
|
|
Return
on Average Assets
|
1.03%
|
.86%
|
Return
on Average Equity
|
11.66%
|
10.18%
|
|
|
|
For
the nine months ended September 30,
|
2007
|
2006
|
|
|
|
Return
on Average Assets
|
.93%
|
.86%
|
Return
on Average Equity
|
10.82%
|
10.28%
|
INTEREST
INCOME LESS INTEREST EXPENSE (NET INTEREST INCOME)
Net
interest income, the difference between interest income and interest expense,
represents the largest portion of the Company's earnings, and is affected by
the
volume, mix, and rate sensitivity of earning assets and interest bearing
liabilities, market interest rates and the amount of non-interest bearing funds
which support earning assets. The three tables below provide a visual
comparison of the consolidated figures, and are stated on a tax equivalent
basis
assuming a federal tax rate of 34%. The Company’s corporate
tax rate is 34%, therefore, to equalize tax-free and taxable income in the
comparison, we must divide the tax-free income by 66%, with the result that
every tax-free dollar is equal to $1.52 in taxable income.
Tax-exempt
income is derived from our municipal investments, which comprise the
held-to-maturity portfolio. Although the balance sheets indicate a
decrease of $1.4 million in these investments from year to year, the average
volume has decreased approximately $6.1 million from year to year, resulting
in
a decrease of $157,650 in interest income, and a related reduction of $53,600
in
the tax effect of exempt interest income between periods. The
following table shows the reconciliation between reported net interest income
and tax equivalent, net interest income for the nine month comparison periods
of
2007 and 2006:
For
the nine months ended September 30,
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Net
interest income as presented
|
|
$ |
9,940,186
|
|
|
$ |
9,812,719
|
|
Effect
of tax-exempt income
|
|
|
356,199
|
|
|
|
409,799
|
|
Net
interest income, tax equivalent
|
|
$ |
10,296,385
|
|
|
$ |
10,222,518
|
|
AVERAGE
BALANCES AND INTEREST RATES
The
table below presents average earning assets and average interest-bearing
liabilities supporting earning assets. Interest income (excluding
interest on non-accrual loans) and interest expense are both expressed on a
tax
equivalent basis, both in dollars and as a rate/yield for the 2007 and 2006
comparison periods. Loans are stated before deduction of non-accrual
loans, unearned discount and allowance for loan losses.
|
|
For
the Nine Months Ended September 30,
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
Average
|
|
|
Income/
|
|
|
Rate/
|
|
|
Average
|
|
|
Income/
|
|
|
Rate/
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Yield
|
|
|
Balance
|
|
|
Expense
|
|
|
Yield
|
|
EARNING
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
(gross)
|
|
$ |
265,366,409
|
|
|
$ |
14,406,502
|
|
|
|
7.26 |
% |
|
|
262,198,237
|
|
|
|
13,520,265
|
|
|
|
6.89 |
% |
Taxable
Investment Securities
|
|
|
21,882,922
|
|
|
|
630,477
|
|
|
|
3.85 |
% |
|
|
31,901,030
|
|
|
|
849,716
|
|
|
|
3.56 |
% |
Tax
Exempt Investment Securities
|
|
|
22,309,646
|
|
|
|
1,047,645
|
|
|
|
6.28 |
% |
|
|
28,408,056
|
|
|
|
1,205,295
|
|
|
|
5.67 |
% |
Federal
Funds Sold
|
|
|
0
|
|
|
|
0
|
|
|
|
0.00 |
% |
|
|
351,190
|
|
|
|
10,458
|
|
|
|
3.98 |
% |
Sweep
Accounts
|
|
|
4,948,974
|
|
|
|
191,178
|
|
|
|
5.16 |
% |
|
|
1,377,695
|
|
|
|
49,575
|
|
|
|
4.81 |
% |
Other
Investments
|
|
|
2,370,985
|
|
|
|
126,370
|
|
|
|
7.13 |
% |
|
|
3,227,293
|
|
|
|
130,399
|
|
|
|
5.40 |
% |
TOTAL
|
|
$ |
316,878,936
|
|
|
$ |
16,402,172
|
|
|
|
6.92 |
% |
|
|
327,463,501
|
|
|
|
15,765,708
|
|
|
|
6.44 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
BEARING LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
Deposits
|
|
$ |
39,401,552
|
|
|
$ |
102,845
|
|
|
|
0.35 |
% |
|
|
45,007,831
|
|
|
|
117,430
|
|
|
|
0.35 |
% |
NOW
& Money Market Funds
|
|
|
71,331,482
|
|
|
|
1,367,627
|
|
|
|
2.56 |
% |
|
|
78,572,070
|
|
|
|
1,195,144
|
|
|
|
2.03 |
% |
Time
Deposits
|
|
|
132,389,714
|
|
|
|
4,303,985
|
|
|
|
4.35 |
% |
|
|
117,776,384
|
|
|
|
3,388,145
|
|
|
|
3.85 |
% |
Federal
Funds Purchased and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Borrowed Funds
|
|
|
2,223,615
|
|
|
|
90,642
|
|
|
|
5.45 |
% |
|
|
15,559,247
|
|
|
|
603,144
|
|
|
|
5.18 |
% |
Repurchase
Agreements
|
|
|
14,489,925
|
|
|
|
240,688
|
|
|
|
2.22 |
% |
|
|
15,753,227
|
|
|
|
239,327
|
|
|
|
2.03 |
% |
TOTAL
|
|
$ |
259,836,288
|
|
|
$ |
6,105,787
|
|
|
|
3.14 |
% |
|
$ |
272,668,759
|
|
|
$ |
5,543,190
|
|
|
|
2.72 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Income
|
|
|
|
|
|
$ |
10,296,385
|
|
|
|
|
|
|
|
|
|
|
$ |
10,222,518
|
|
|
|
|
|
Net
Interest Spread(1)
|
|
|
|
|
|
|
|
|
|
|
3.78 |
% |
|
|
|
|
|
|
|
|
|
|
3.72 |
% |
Interest
Margin(2)
|
|
|
|
|
|
|
|
|
|
|
4.34 |
% |
|
|
|
|
|
|
|
|
|
|
4.17 |
% |
(1) Net
interest spread is the difference between the yield on earning assets
and
the rate paid on interest bearing liabilities.
|
(2) Interest
margin is net interest income divided by average earning
assets.
|
The
average volume of earning assets for the first nine months of 2007 decreased
$10.6 million, or 3.2% compared to the same period of 2006, while average yield
increased 48 basis points. A decrease in average volume of just under
$17.0 million in the investment portfolio contributed to the overall decrease
in
average volume of earning assets. Interest earned on the loan
portfolio comprised approximately 87.8% of total interest income for the first
nine months of 2007 and 85.8% for the 2006 comparison period. This
increase is attributable to an increase in interest rates through repricing
of
loans in the Company’s adjustable rate portfolio and an increase in the average
volume of overnight funds in the sweep accounts of $3.6 million, which also
notes an increase of 35 basis points in average yield. During 2007,
the rate earned on the Company’s sweep accounts has generally been more
favorable than the overnight Federal Funds Sold, accounting for the zero balance
in that category in 2007.
In
comparison, the average volume of interest bearing liabilities for the first
nine months of 2007 decreased approximately $12.8 million, or 4.7% over the
2006
comparison period, while the average rate paid on these accounts increased
42
basis points. The average volume of time deposits increased $14.6
million, or 12.4%, and the interest paid on time deposits, which comprises
70.5%
and 61.1%, respectively, of total interest expense for the 2007 and 2006
comparison periods, increased $915,840, or just over 27.0%. These
increases between periods reflect a shift from the lower yielding deposit
accounts to higher cost time deposits resulting in part from the Company’s offer
of various CD specials at competitive rates. This increase was offset
by decreases in all other volumes of interest bearing liabilities, with the
largest decrease, amounting to $13.3 million or 85.7%, coming from federal
funds
purchased and other borrowed funds. The Company was able to payoff
all its short-term borrowings before year end 2006, and has had minimal
short-term borrowings in 2007, all of which were paid off by September 30,
2007. Year-to-date, the increase in the average rate paid on
interest-bearing liabilities was six basis points lower than the increase in
the
average yield earned on interest-earning assets, helping to ease slightly the
pressure on the Company’s net interest spread, resulting in a spread of 3.78%,
up from 3.72% for first nine months of 2006.
CHANGES
IN INTEREST INCOME AND INTEREST EXPENSE
The
following table summarizes the variances in interest income and interest expense
on a fully tax-equivalent basis for the first nine months of 2007 and 2006
resulting from volume changes in average assets and average liabilities and
fluctuations in rates earned and paid.
|
|
Variance
|
|
|
Variance
|
|
|
|
|
RATE
/ VOLUME
|
|
Due
to
|
|
|
Due
to
|
|
|
Total
|
|
|
|
Rate(1)
|
|
|
Volume(1)
|
|
|
Variance
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
EARNING ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
(2)
|
|
|
722,970
|
|
|
|
163,267
|
|
|
|
886,237
|
|
Taxable
Investment Securities
|
|
|
(27,975 |
) |
|
|
(191,264 |
) |
|
|
(219,239 |
) |
Tax
Exempt Investment Securities
|
|
|
32,266
|
|
|
|
(189,916 |
) |
|
|
(157,650 |
) |
Federal
Funds Sold
|
|
|
(10,458 |
) |
|
|
0
|
|
|
|
(10,458 |
) |
Sweep
Account
|
|
|
13,122
|
|
|
|
128,481
|
|
|
|
141,603
|
|
Other
Investments
|
|
|
26,247
|
|
|
|
(30,276 |
) |
|
|
(4,029 |
) |
Total
Interest Earnings
|
|
|
756,172
|
|
|
|
(119,708 |
) |
|
|
636,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
BEARING LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
Deposits
|
|
|
(4,855 |
) |
|
|
(9,730 |
) |
|
|
(14,585 |
) |
NOW
& Money Market Funds
|
|
|
264,401
|
|
|
|
(91,918 |
) |
|
|
172,483
|
|
Time
Deposits
|
|
|
495,036
|
|
|
|
420,804
|
|
|
|
915,840
|
|
Other
Borrowed Funds
|
|
|
(152,093 |
) |
|
|
(360,409 |
) |
|
|
(512,502 |
) |
Repurchase
Agreements
|
|
|
15,268
|
|
|
|
(13,907 |
) |
|
|
1,361
|
|
Total
Interest Expense
|
|
|
617,757
|
|
|
|
(55,160 |
) |
|
|
562,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in Net Interest Income
|
|
|
138,415
|
|
|
|
(64,548 |
) |
|
|
73,867
|
|
(1)
Items which have shown a year-to-year increase in volume have variances
allocated as follows:
|
Variance
due to rate = Change in rate x new volume
|
Variance
due to volume = Change in volume x old rate
|
|
Items
which have shown a year-to-year decrease in volume have variances
allocated as follows:
|
Variance
due to rate = Change in rate x old volume
|
Variances
due to volume = Change in volume x new rate
|
|
(2)
Loans are stated before deduction of unearned discount and allowances
for
loan losses. The
|
principal
balances of non-accrual loans is included in calculations of the
yield on
loans, while
|
the
interest on these non-performing assets is
excluded.
|
NON-INTEREST
INCOME AND NON-INTEREST EXPENSE
Non-interest
income increased $318,949, or 40.3% for the third quarter of 2007 compared
to
the third quarter of 2006, from $791,409 to $1.1 million. The Company
sold its credit card portfolio during the third quarter of 2007, resulting
in a
one-time gain after expenses of $257,836, which accounted for most of the
increase in non-interest income for this time period. Non-interest
income increased $408,760 or 17.8% for the first nine months of 2007 compared
to
the first nine months of 2006. ATM and Debit Card related fees
account for a portion of the increase, with an increase of $55,836, or 15.8%
for
the first nine months of 2007 compared to 2006. Income from assets
held under the Company’s Supplemental Employee Retirement Plan (SERP), which is
stock market driven, increased $62,186 from $19,234 to $81,420 as a result
of
the stock market activity during the first nine months of 2007.
Non-interest
expense increased $185,476, or 6.1% for the third quarter of 2007 compared
to
2006. Non-interest expense for the first nine months of 2007
increased $257,691, or 2.8% from $9.3 million for the first nine months of
2006
to $9.6 million for the first nine months of 2007. Salaries and wages
decreased $68,559 or 2.0% for the first nine months of 2007 compared to the
same
period in 2006. Higher accruals in 2006 for salaries and wages
compared to 2007 was a major factor for the decrease, but were adjusted later
in
the year due to attrition and the consolidation of some positions. Employee
benefits increased $52,529, or 12.4%, for the third quarter of 2007 compared
to
2006, and an increase of $86,368 or 6.8% is noted for the first nine months
of
2007 compared to the same period in 2006, due in part to an increase in the
health care costs for the Company’s health insurance program. Other
expenses increased $134,195, or 14.5% for the third quarter of 2007 compared
to
the third quarter of 2006, and an increase of $142,836, or 5.0% is noted for
the
first nine months of 2007 compared to the first nine months of
2006. Outside service fees associated with the implementation of SOX
404 amounted to $67,329 for the third quarter of 2007 and $113,216 for the
first
nine months of 2007, contributing to the increase for both comparison
periods. Legal and audit fees increased for both comparison periods,
with a combined increase of $16,163, or 19.8% for the third quarter of 2007
compared to the third quarter of 2006, and an increase of $26,021, or 10.5%
for
the first nine months of 2007 compared to the same period in 2006.
Management
monitors all components of other non-interest expenses; however, a quarterly
review is performed to assure that the accruals for these expenses are
accurate. This helps alleviate the need to make significant
adjustments to these accounts that in turn affect the net income of the
Company.
APPLICABLE
INCOME TAXES
Provisions
for income taxes increased in both comparison periods with increases of $69,696,
or 48.8% for the third quarter of 2007 compared to the same quarter of 2006,
and
$70,331, or 15.9% for the first nine months of 2007 compared to the same period
in 2007. These increases are consistent with the increase in income
before income taxes.
CHANGES
IN FINANCIAL CONDITION
The
following table reflects the composition of the Company's major categories
of
assets and liabilities as a percent of total assets as of the dates
indicated:
ASSETS
|
|
September
30, 2007
|
|
|
December
31, 2006
|
|
|
September
30, 2006
|
|
|
|
Loans
(gross)*
|
|
$ |
256,909,154
|
|
|
|
73.23 |
% |
|
$ |
269,296,026
|
|
|
|
76.54 |
% |
|
$ |
266,656,468
|
|
|
|
74.42 |
% |
Available
for Sale Securities
|
|
|
25,074,048
|
|
|
|
7.15 |
% |
|
|
22,612,207
|
|
|
|
6.43 |
% |
|
|
27,495,869
|
|
|
|
7.67 |
% |
Held
to Maturity Securities
|
|
|
29,431,718
|
|
|
|
8.39 |
% |
|
|
21,069,866
|
|
|
|
5.99 |
% |
|
|
30,778,188
|
|
|
|
8.59 |
% |
*includes
loans held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time
Deposits
|
|
$ |
134,843,845
|
|
|
|
38.44 |
% |
|
$ |
133,711,197
|
|
|
|
38.01 |
% |
|
$ |
134,144,985
|
|
|
|
37.44 |
% |
Savings
Deposits
|
|
|
39,505,522
|
|
|
|
11.26 |
% |
|
|
38,471,441
|
|
|
|
10.94 |
% |
|
|
40,633,051
|
|
|
|
11.34 |
% |
Demand
Deposits
|
|
|
50,485,030
|
|
|
|
14.39 |
% |
|
|
47,402,628
|
|
|
|
13.47 |
% |
|
|
48,826,758
|
|
|
|
13.63 |
% |
NOW
& Money Market Funds
|
|
|
77,204,394
|
|
|
|
22.01 |
% |
|
|
81,402,928
|
|
|
|
23.14 |
% |
|
|
71,803,791
|
|
|
|
20.04 |
% |
The
Company's loan portfolio decreased $12.4 million, or 4.6% from December 31,
2006
to September 30, 2007, and decrease $9.7 million, or 3.7%, from September 30,
2006 to September 30, 2007. Weaker residential mortgage loan
activity, along with a decrease in the Company’s commercial loan portfolio
accounts for the decrease over the past year. The Company purchased
$4.2 million in available-for-sale investments during the third quarter of
2007,
so despite maturities during the year, an increase of $2.5 million, or 10.9%
is
noted from December 31, 2006 to September 30, 2007. As of September
30, 2007, the Company’s held-to-maturity investment portfolio increased $8.4
million or 39.7% from December 31, 2006, but was $1.4 million, or 4.4% under
the
September 30, 2006 balance of $30.8 million. Moderate changes in
balances are noted in time, savings and demand deposit accounts, while NOW
&
money market funds show more marked variations between periods. A
decrease of $4.2 million, or 5.2% is noted from December 31, 2006 to September
30, 2007, while an increase of $5.4 million, or 7.5% is reported year over
year. The Company’s municipal deposits, which are a component of NOW
& money market funds, typically increase beginning in the third quarter of
the fiscal year as a result of collection of town and city taxes.
RISK
MANAGEMENT
Interest
Rate Risk and Asset and Liability Management
- Management actively monitors and manages its
interest rate risk exposure and attempts to structure the balance sheet to
maximize net interest income while controlling its exposure to interest rate
risk. The Company's Asset/Liability Management Committee (ALCO)
formulates strategies to manage interest rate risk by evaluating the impact
on
earnings and capital of such factors as current interest rate forecasts and
economic indicators, potential changes in such forecasts and indicators,
liquidity, and various business strategies. The ALCO meets monthly to
review financial statements, liquidity levels, yields and spreads to better
understand, measure, monitor and control the Company’s interest rate
risk. In the ALCO process, the committee members apply policy limits
set forth in the Asset Liability, Liquidity and Investment policies approved
by
the Company’s Board of Directors. The ALCO's methods for evaluating
interest rate risk include an analysis of the effects of interest rate changes
on net interest income and an analysis of the Company's interest rate
sensitivity "gap", which provides a static analysis of the maturity and
repricing characteristics of the entire balance sheet.
Interest
rate risk represents the sensitivity of earnings to changes in market interest
rates. As interest rates change, the interest income and expense
streams associated with the Company’s interest sensitive assets and liabilities
also change, thereby impacting net interest income (NII), the primary component
of the Company’s earnings. Fluctuations in interest rates can also
have an impact on liquidity. The ALCO uses an outside consultant to
perform quarterly rate shock simulations to the Company's net interest income,
as well as a variety of other analyses. It is the ALCO’s function to
provide the assumptions used in the modeling process. The ALCO
utilizes the results of this simulation model to quantify the estimated exposure
of NII and liquidity to sustained interest rate changes. The
simulation model captures the impact of changing interest rates on the interest
income received and interest expense paid on all interest-earning assets and
interest-bearing liabilities reflected on the Company’s balance
sheet. Furthermore, the model simulates the balance sheet’s
sensitivity to a prolonged flat rate environment. All rate scenarios are
simulated assuming a parallel shift of the yield curve; however further
simulations are performed utilizing a flattening yield curve as well. This
sensitivity analysis is compared to the ALCO policy limits which specify a
maximum tolerance level for NII exposure over a 1-year horizon, assuming no
balance sheet growth, given a 200 basis point (bp) shift upward and a 100 bp
shift downward in interest rates. The analysis also provides a
summary of the Company's liquidity position. Furthermore, the analysis provides
testing of the assumptions used in previous simulation models by comparing
the
projected NII with actual NII. The asset/liability
simulation model provides management with an important tool for making sound
economic decisions regarding the balance sheet.
While
assumptions are developed based upon current economic and local market
conditions, the Company cannot provide any assurances as to the predictive
nature of these assumptions including how or when customer preferences or
competitor influences might change.
Credit
Risk - A primary concern of management is to reduce the
exposure to credit loss within the loan portfolio. Management
follows established underwriting guidelines, and any exceptions to the policy
must be approved by a loan officer with higher authority than the loan officer
originating the loan. The adequacy of the loan loss coverage is
reviewed quarterly by the risk management committee of the Board of
Directors. This committee meets to discuss, among other matters,
potential exposures, historical loss experience, and overall economic
conditions. Existing or potential problems are noted and addressed by
senior management in order to assess the risk of probable loss or
delinquency. A variety of loans are reviewed periodically by an
independent firm in order to help ensure accuracy of the Company's internal
risk
ratings and compliance with various internal policies and procedures, as well
as
those set by the regulatory authorities. The Company also employs a
Credit Administration Officer whose duties include monitoring and reporting
on
the status of the loan portfolio including delinquent and non-performing
loans. Credit
risk
may also arise from geographic concentration of loans. While the
Company’s loan portfolio is derived primarily from its primary market area in
northeast Vermont, geographic concentration is partially mitigated by the
continued growth of the Company’s loan portfolio in central Vermont, its newest
market area.
The
following table reflects the composition of the Company's loan portfolio as
of
the dates indicated:
|
|
September
30, 2007
|
|
|
December
31, 2006
|
|
|
|
Total
Loans
|
|
|
%
of Total
|
|
|
Total
Loans
|
|
|
%
of Total
|
|
Real
Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
& Land Development
|
|
$ |
10,686,649
|
|
|
|
4.16 |
% |
|
$ |
11,889,203
|
|
|
|
4.41 |
% |
Farm
Land
|
|
|
5,165,395
|
|
|
|
2.01 |
% |
|
|
3,217,107
|
|
|
|
1.19 |
% |
1-4
Family Residential
|
|
|
140,156,852
|
|
|
|
54.56 |
% |
|
|
143,228,599
|
|
|
|
53.19 |
% |
Home
Equity Lines
|
|
|
14,363,799
|
|
|
|
5.59 |
% |
|
|
13,778,692
|
|
|
|
5.12 |
% |
Commercial
Real Estate
|
|
|
50,701,048
|
|
|
|
19.74 |
% |
|
|
54,236,037
|
|
|
|
20.14 |
% |
Loans
to Finance Agricultural Production
|
|
|
431,244
|
|
|
|
0.17 |
% |
|
|
224,257
|
|
|
|
0.08 |
% |
Commercial
& Industrial
|
|
|
18,326,163
|
|
|
|
7.13 |
% |
|
|
21,992,790
|
|
|
|
8.17 |
% |
Consumer
Loans
|
|
|
16,938,743
|
|
|
|
6.59 |
% |
|
|
20,588,227
|
|
|
|
7.65 |
% |
All
Other Loans
|
|
|
139,261
|
|
|
|
0.05 |
% |
|
|
141,114
|
|
|
|
0.05 |
% |
Gross
Loans
|
|
|
256,909,154
|
|
|
|
100.00 |
% |
|
|
269,296,026
|
|
|
|
100.00 |
% |
Allowance
for Loan Losses
|
|
|
(2,321,409 |
) |
|
|
-0.90 |
% |
|
|
(2,267,821 |
) |
|
|
-0.84 |
% |
Unearned
Net Loan Fees
|
|
|
(490,826 |
) |
|
|
-0.19 |
% |
|
|
(632,105 |
) |
|
|
-0.24 |
% |
Net
Loans
|
|
$ |
254,096,919
|
|
|
|
98.91 |
% |
|
$ |
266,396,100
|
|
|
|
98.92 |
% |
Allowance
for loan losses and provisions - The Company maintains an
allowance for loan losses at a level that management believes is appropriate
to
absorb losses inherent in the loan portfolio (See “Critical Accounting
Policies”). As of September 30, 2007, the Company maintained a residential loan
portfolio (including home equity lines of credit) of $154.5 million, compared
to
$157.0 million at December 31, 2006, accounting for 60.1% and 58.3%,
respectively, of the total loan portfolio. The commercial real estate
portfolio (including construction, land development and farmland loans) totaled
$66.6 million and $69.3 million, respectively, at September 30, 2007 and
December 31, 2006, comprising 25.9% and 25.7%, respectively, of the total loan
portfolio. The Company's commercial loan portfolio includes loans
that carry guarantees from government programs, thereby mitigating the Company's
credit risk on such loans. At September 30, 2007, the Company had
$17.5 million in loans under various government loan guarantee programs, with
the guaranteed portion totaling $12.3 million, compared to $18.4 million in
loans carrying a guaranteed total of $13.1 million at December 31,
2006. The volume of residential and commercial loans secured by real
estate, together with the low historical loan loss experience in these
portfolios, and experienced loan officers and well established loan underwriting
and credit administration staffs, helps to support the Company's estimate for
loan loss coverage.
The
following table summarizes the Company's loan loss experience for the nine
months ended September 30,
|
|
2007
|
|
|
2006
|
|
Loans
Outstanding End of Period
|
|
$ |
256,909,154
|
|
|
$ |
266,656,468
|
|
Average
Loans Outstanding During Period
|
|
$ |
265,366,409
|
|
|
$ |
262,198,237
|
|
|
|
|
|
|
|
|
|
|
Loan
Loss Reserve, Beginning of Period
|
|
$ |
2,267,821
|
|
|
$ |
2,189,187
|
|
Loans
Charged Off:
|
|
|
|
|
|
|
|
|
Residential
Real Estate
|
|
|
0
|
|
|
|
5,490
|
|
Commercial
Real Estate
|
|
|
0
|
|
|
|
5,998
|
|
Commercial
Loans not Secured by Real Estate
|
|
|
0
|
|
|
|
13,266
|
|
Consumer
Loans
|
|
|
116,782
|
|
|
|
46,802
|
|
Total
Loans Charged Off
|
|
|
116,782
|
|
|
|
71,556
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
Residential
Real Estate
|
|
|
13,446
|
|
|
|
1,340
|
|
Commercial
Real Estate
|
|
|
12,459
|
|
|
|
0
|
|
Commercial
Loans not Secured by Real Estate
|
|
|
1,944
|
|
|
|
2,912
|
|
Consumer
Loans
|
|
|
20,021
|
|
|
|
44,924
|
|
Total
Recoveries
|
|
|
47,870
|
|
|
|
49,176
|
|
Net
Loans Charged Off
|
|
|
68,912
|
|
|
|
22,380
|
|
Provision
Charged to Income
|
|
|
122,500
|
|
|
|
112,500
|
|
Loan
Loss Reserve, End of Period
|
|
$ |
2,321,409
|
|
|
$ |
2,279,307
|
|
|
|
|
|
|
|
|
|
|
Net
Charge Offs to Average Loans Outstanding
|
|
|
0.026 |
% |
|
|
0.009 |
% |
Loan
Loss Reserve to Average Loans Outstanding
|
|
|
0.875 |
% |
|
|
0.869 |
% |
Non-performing
assets for the comparison periods were as follows:
|
|
September
30, 2007
|
|
|
December
31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
Balance
|
|
|
of
Total
|
|
|
Balance
|
|
|
of
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Accruing
loans
|
|
$ |
662,060
|
|
|
|
62.82 |
% |
|
$ |
720,587
|
|
|
|
77.78 |
% |
Loans
past due 90 days or more and still accruing
|
|
|
391,806
|
|
|
|
37.18 |
% |
|
|
205,801
|
|
|
|
22.22 |
% |
Total
|
|
$ |
1,053,866
|
|
|
|
100.00 |
% |
|
$ |
926,388
|
|
|
|
100.00 |
% |
Specific
allocations are made in the allowance for loan losses in situations management
believes may represent a greater risk for loss. In addition, a
portion of the allowance (termed "unallocated") is established to absorb
inherent losses that probably exist as of the valuation date although not
identified through management's objective processes for estimated credit
losses. A quarterly review of various qualitative factors, including
levels of, and trends in, delinquencies and non-accruals and national and local
economic trends and conditions, helps to ensure that areas with potential risk
are noted and coverage increased or decreased to reflect the trends in
delinquencies and non-accruals. Due in part to local economic
conditions, the Company increased this section of qualitative factors during
the
first quarter of 2007, to allocate portions of the allowance to this
area. Residential mortgage loans make up the largest part of the loan
portfolio and have the lowest historical loss ratio, helping to alleviate the
overall risk. While the allowance is described as consisting of
separate allocated portions, the entire allowance is available to support loan
losses, regardless of category.
Market
Risk - In addition to credit risk in the Company’s
loan portfolio and liquidity risk, the Company’s business activities also
generate market risk. Market risk is the risk of loss in a financial
instrument arising from adverse changes in market prices and rates, foreign
currency exchange rates, commodity prices and equity prices. The
Company does not have any market risk sensitive instruments acquired for trading
purposes. The Company’s market risk arises primarily from interest
rate risk inherent in its lending, investing, and deposit taking
activities. Interest rate risk is directly related to the different
maturities and repricing characteristics of interest-bearing assets and
liabilities, as well as to loan prepayment risks, early withdrawal of time
deposits, and the fact that the speed and magnitude of responses to interest
rate changes vary by product. As discussed above under "Interest Rate
Risk and Asset and Liability Management", the Company actively monitors and
manages its interest rate risk through the ALCO process.
FINANCIAL
INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The
Company is a party to financial instruments with off-balance-sheet risk in
the
normal course of business to meet the financing needs of its customers and
to
reduce its own exposure to fluctuations in interest rates. These
financial instruments include commitments to extend credit (including commercial
and construction lines of credit), standby letters of credit and risk-sharing
commitments on certain sold loans. Such instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the balance sheet. The contract or notional
amounts of those instruments reflect the extent of involvement the Company
has
in particular classes of financial instruments. During the first nine
months of 2007, the Company did not engage in any activity that created any
additional types of off-balance-sheet risk. However, as noted above
in the Overview and in Note 8 (Subsequent Event) to the financial statements,
on
October 31, 2007 the Company completed a $12.5 million trust preferred
securities financing, for the purposes of funding a portion of the merger
consideration for the pending acquisition of LyndonBank. The capital
securities were issued by a newly-formed Delaware trust subsidiary of the
Company, CMTV Statutory Trust I, and bear interest of fixed rate of 7.56% per
year for the first five years, followed by a floating rate, adjusted quarterly,
equal to the three-month LIBOR, plus 2.85%. The Company has
guaranteed the payment, after expiration of any grace or cure period, of any
amounts to be paid by the trust under the terms of the trust preferred
securities. This guarantee represents an unsecured contingent
obligation of the Company.
The
Company generally requires collateral or other security to support financial
instruments with credit risk. The Company's financial instruments or
commitments whose contract amount represents credit risk as of September 30,
2007 were as follows:
|
|
Contract
or
|
|
|
|
Notional
Amount
|
|
|
|
|
|
Unused
portions of home equity lines of credit
|
|
|
12,343,114
|
|
Other
commitments to extend credit
|
|
|
20,342,953
|
|
Standby
letters of credit and commercial letters of credit
|
|
|
36,500
|
|
Recourse
on sale of credit card portfolio
|
|
|
1,311,950
|
|
MPF
credit enhancement obligation, net of liability recorded
|
|
|
1,257,055
|
|
Since
some commitments expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. As mentioned
in previous sections of this current report, the Company sold its credit card
portfolio during the third quarter of 2007, thereby eliminating the unused
portion of the credit card portfolio from the table above. The
recourse provision under the terms of the sale is based on total lines, not
balances outstanding. Based on historical losses, the Company does
not expect any significant losses from this commitment.
AGGREGATE
CONTRACTUAL OBLIGATIONS
The
following table presents, as of September 30, 2007, significant fixed and
determinable contractual obligations to third parties, by payment
date:
|
|
Less
than
|
|
|
|
2-3
|
|
|
|
4-5
|
|
|
More
than
|
|
|
|
|
|
|
1
year
|
|
|
years
|
|
|
years
|
|
|
5
years
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Leases
|
|
$ |
144,673
|
|
|
$ |
277,311
|
|
|
$ |
200,112
|
|
|
$ |
265,127
|
|
|
$ |
887,223
|
|
FHLB
Borrowings
|
|
|
30,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
10,000
|
|
|
|
40,000
|
|
Total
|
|
$ |
174,673
|
|
|
$ |
277,311
|
|
|
$ |
200,112
|
|
|
$ |
275,127
|
|
|
$ |
927,223
|
|
LIQUIDITY
AND CAPITAL RESOURCES
Managing
liquidity risk is essential to maintaining both depositor confidence and
stability in earnings. Liquidity management refers to the ability of
the Company to adequately cover fluctuations in assets and
liabilities. Meeting loan demand (assets) and covering the withdrawal
of deposit funds (liabilities) are two key components of the liquidity
management process. The Company’s principal sources of funds are
deposits, amortization and prepayment of loans and securities, maturities of
investment securities, sales of loans available for sale, and earnings and
funds
provided from operations. Maintaining a relatively stable funding
base, which is achieved by diversifying funding sources, competitively pricing
deposit products, and extending the contractual maturity of liabilities, reduces
the Company’s exposure to roll over risk on deposits and limits reliance on
volatile short-term borrowed funds. Short-term funding needs arise
from declines in deposits or other funding sources and funding of loan
commitments. The Company’s strategy is to fund assets to the maximum
extent possible with core deposits that provide a sizable source of relatively
stable and low-cost funds. When loan demand out paces deposit growth,
it is necessary for the Company to use alternative funding sources, such as
investment portfolio maturities and short-term borrowings, to meet these funding
needs.
The
Company has taken the approach of offering deposit specials at competitive
rates, in varying terms that fit within the balance sheet mix. The
strategy of offering specials is meant to provide a means to retain deposits
while not having to reprice the entire deposit portfolio. The
Company recognizes that with increasing competition for deposits, it may at
times be desirable to utilize alternative sources of funding to supplement
deposits. This year, the Board of Directors approved an updated Asset
Liability Management Funding Policy that contemplates the expanded use of
brokered deposits. This will allow the Company to augment retail
deposits and borrowings with brokered deposits as needed to help fund
loans.
During
the first nine months of 2007, the Company's available-for-sale investment
portfolio increased with purchases of $5.2 million and maturities totaling
$3.0
million and the held-to-maturity investment portfolio increased $8.4 million
while the loan portfolio decreased $12.4 million. On the liability
side, NOW and money market accounts decreased $4.2 million, while time deposits
increased $1.1 million, and savings deposits increased $1.0
million.
As
a member of the Federal Home Loan Bank of Boston (FHLBB), the Company has access
to pre-approved lines of credit. The Company had a $1.0 million
unsecured Federal Funds line with an available balance of the same at September
30, 2007. Interest is chargeable at a rate determined daily,
approximately 25 basis points higher than the rate paid on federal funds
sold. Additional borrowing capacity of approximately $82.9 million
through the FHLBB is secured by the Company's qualifying loan
portfolio.
To
cover seasonal decreases in deposits primarily associated with municipal
accounts, the Company typically borrows short-term advances from the FHLB and
pays the advances down as the municipal deposits flow back into the bank during
the third and fourth quarter. At the end of the second quarter, the
Company had borrowed $7 million in a short-term advance all of which was paid
off during the third quarter of 2007. As of September 30, 2007, the
Company had total advances of $40,000 against the $82.9 million consisting
of
the following:
|
|
Annual
|
|
|
|
Principal
|
|
Purchase
Date
|
|
Rate
|
|
Maturity
Date
|
|
Balance
|
|
|
|
|
|
|
|
|
|
Long-term
Advances
|
|
|
|
|
|
|
|
November
16, 1992
|
|
|
7.57 |
% |
November
16, 2007
|
|
$ |
30,000
|
|
November
16, 1992
|
|
|
7.67 |
% |
November
16, 2012
|
|
|
10,000
|
|
Total
Long-term Advances
|
|
|
|
$ |
40,000
|
|
Under
a separate agreement with FHLBB, the Company has the authority to collateralize
public unit deposits, up to its FHLBB borrowing capacity ($82.9 million less
outstanding advances noted above) with letters of credit issued by the
FHLBB. At September 30, 2007, approximately $61.2 million was pledged
under this agreement, as collateral for these deposits. A letter of
credit fee is charged to the Company quarterly based on the average daily
balance for the quarter at an annual rate of 20 basis points. The
average daily balance for the third quarter of 2007 was approximately $11.7
million.
Other
alternative sources of funding come from unsecured Federal Funds lines with
two
other correspondent banks that total $7.5 million. There were no
balances outstanding on either line at September 30, 2007.
In
the third quarter of 2007, the Company declared a cash dividend of $0.17 per
share, payable in the fourth quarter of 2007, requiring an accrual of $742,421
at September 30, 2007. In the second quarter of 2007, the Company
declared a 5% stock dividend to be paid during the third quarter, requiring
restatement of all per share data prior to the second quarter of 2007, and
an
estimated accrual of $2,801,082 recorded to Shareholders’
Equity. During the third quarter of 2007, an adjusting entry was made
to Shareholders’ Equity to reflect the actual valuation of the stock dividend on
the payment date ($2,821,320). The required accounting entries for
the stock dividend have resulted in a shift from Retained Earnings at December
31, 2007 to Accumulated Deficit as indicated on the Balance Sheet as of
September 30, 2007.
The
following table illustrates the changes in shareholders' equity from December
31, 2006 to September 30, 2007:
Balance
at December 31, 2006 (book value $7.09 per share)
|
|
$ |
30,730,811
|
|
Net
income
|
|
|
2,460,311
|
|
Issuance
of stock through the Dividend Reinvestment Plan
|
|
|
623,874
|
|
Purchase
of treasury stock (fractional share redemption associated with the
5%
stock dividend)
|
|
|
(8,045 |
) |
Total
dividends declared
|
|
|
(2,149,218 |
) |
Unrealized
holding gain arising during the period on available-for-sale securities,
net of tax
|
|
|
204,693
|
|
Balance
at September 30, 2007 (book value $7.27 per
share)
|
|
|
31,862,426
|
|
At
September 30, 2007, the Company reported that of the 405,000 shares authorized
for the stock buyback plan, 178,890 shares have been purchased, leaving 226,110
shares available for repurchase. The repurchase price paid for these
shares ranged from $9.75 per share in May of 2000 to $16.50 per share paid
in
September of 2005. During the first nine months of 2007, the Company
did not repurchase any shares pursuant to the buyback authority. The
last purchase pursuant to such authority was December 23, 2005 in which 4,938
shares were repurchased at a price of $16.00 per share. For additional
information on stock repurchases by the Company and affiliated purchasers (as
defined in SEC Rule 10b-18) refer to Part II, Item 2 of this
Report.
The
primary source of funds for the Company's payment of dividends to its
shareholders is dividends paid to the Company by the Bank. The Bank,
as a national bank, is subject to the dividend restrictions set forth by the
Comptroller of the Currency ("OCC"). Under such restrictions, the
Bank may not, without the prior approval of the OCC, declare dividends in excess
of the sum of the current year's earnings (as defined) plus the retained
earnings (as defined) from the prior two years.
Quantitative
measures established by regulation to ensure capital adequacy require the
Company to maintain minimum amounts and ratios of total and Tier 1 capital
(as
defined in the regulations) to risk-weighted assets (as defined), and a
so-called leverage ratio of Tier 1 capital (as defined) to average assets (as
defined). Under current guidelines, banks must maintain a risk-based
capital ratio of 8.0%, of which at least 4.0% must be in the form of core
capital (as defined).
Regulators
have also established minimum capital ratio guidelines for FDIC-insured banks
under the prompt corrective action provisions of the Federal Deposit Insurance
Act, as amended. These minimums are a total risk-based capital ratio
of 10.0%, a Tier I risk-based capital ratio of 6%, and a leverage ratio of
5%. As of September 30, 2007, the Company’s Subsidiary was deemed
well capitalized under the regulatory framework for prompt corrective action.
There are no conditions or events since that time that management believes
have
changed the Subsidiary's classification.
The
risk
based ratios of the Company and its subsidiary as of September 30, 2007 and
December 31, 2006 exceeded regulatory guidelines and are presented in the table
below.
|
|
|
|
|
Minimum
To Be Well
|
|
|
|
Minimum
|
Capitalized
Under
|
|
|
|
For
Capital
|
Prompt
Corrective
|
|
Actual
|
Adequacy
Purposes:
|
Action
Provisions:
|
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
|
(Dollars
in Thousands)
|
As
of September 30, 2007:
|
|
|
|
|
|
|
Total
capital (to risk-weighted assets)
|
|
|
|
|
|
|
Consolidated
|
$34,249
|
14.89%
|
$18,398
|
8.0%
|
N/A
|
N/A
|
Bank
|
$34,341
|
14.96%
|
$18,361
|
8.0%
|
$22,951
|
10.0%
|
Tier
I capital (to risk-weighted assets)
|
|
|
|
|
|
|
Consolidated
|
$31,928
|
13.88%
|
$ 9,199
|
4.0%
|
N/A
|
N/A
|
Bank
|
$32,020
|
13.95%
|
$ 9,181
|
4.0%
|
$13,771
|
6.0%
|
Tier
I capital (to average assets)
|
|
|
|
|
|
|
Consolidated
|
$31,928
|
9.31%
|
$13,716
|
4.0%
|
N/A
|
N/A
|
Bank
|
$32,020
|
9.34%
|
$13,709
|
4.0%
|
$17,136
|
5.0%
|
|
|
|
|
|
Minimum
To Be Well
|
|
|
|
Minimum
|
Capitalized
Under
|
|
|
|
For
Capital
|
Prompt
Corrective
|
|
Actual
|
Adequacy
Purposes:
|
Action
Provisions:
|
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
|
(Dollars
in Thousands)
|
As
of December 31, 2006:
|
|
|
|
|
|
|
Total
capital (to risk-weighted assets)
|
|
|
|
|
|
|
Consolidated
|
$33,270
|
14.10%
|
$18,879
|
8.0%
|
N/A
|
N/A
|
Bank
|
$33,047
|
14.01%
|
$18,872
|
8.0%
|
$23,590
|
10.0%
|
Tier
I capital (to risk-weighted assets)
|
|
|
|
|
|
|
Consolidated
|
$31,002
|
13.14%
|
$ 9,439
|
4.0%
|
N/A
|
N/A
|
Bank
|
$30,779
|
13.05%
|
$ 9,436
|
4.0%
|
$14,154
|
6.0%
|
Tier
I capital (to average assets)
|
|
|
|
|
|
|
Consolidated
|
$31,002
|
8.59%
|
$14,434
|
4.0%
|
N/A
|
N/A
|
Bank
|
$30,779
|
8.53%
|
$14,430
|
4.0%
|
$18,038
|
5.0%
|
The
Company intends to maintain a capital resource position in excess of the
minimums shown above. Consistent with that policy, management will
continue to anticipate the Company's future capital needs.
From
time to time the Company may make contributions to the capital of Community
National Bank. At present, regulatory authorities have made no demand
on the Company to make additional capital contributions. On August 2,
2007, the Company agreed to acquire LyndonBank, headquartered in Lyndonville,
Vermont, through a merger of LyndonBank into Community National Bank, for a
cash
price of approximately $26.7 million. As described above in the
Overview and in Note 8 (Subsequent Event) to the financial statements, in
connection with that transaction, the Company has completed a $12.5 million
trust preferred securities financing. The Company intends to
contribute all, or substantially all, of the proceeds of such issuance to the
capital of Community National Bank.
The
Company's management of the credit, liquidity and market risk inherent in its
business operations is discussed in Part 1, Item 2 of this report under the
caption "RISK MANAGEMENT", which is incorporated herein by
reference. Management does not believe that there have been any
material changes in the nature or categories of the Company's risk exposures
from those disclosed in the Company’s 2006 annual report on form
10-K.
ITEM
4.
Controls and Procedures
As
required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), the Company has evaluated the effectiveness of the design
and operation of the Company’s disclosure controls and procedures as of the end
of the period covered by this report. This evaluation was carried out
under the supervision and with the participation of the Company’s management,
including the Company’s Chairman and Chief Executive Officer and its President
and Chief Operating Officer (Chief Financial Officer). Based upon
that evaluation, such officers concluded that the Company’s disclosure controls
and procedures were effective as of the end of the period covered by this
report. For this purpose, the term “disclosure controls and
procedures” means controls and other procedures of the Company that are designed
to ensure that information required to be disclosed by it in the reports that
it
files or submits under the Exchange Act (15 U.S.C. 78a et seq.) is
recorded, processed, summarized and reported, within the time periods specified
in the SEC’s rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by the Company in the reports that it
files
or submits under the Exchange Act is accumulated and communicated to the
Company’s management, including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.
PART
II.
OTHER INFORMATION
The
Company and/or its Subsidiary are subject to various claims and legal actions
that have arisen in the normal course of business. Management does
not expect that the ultimate disposition of these matters, individually or
in
the aggregate, will have a material adverse impact on the Company’s financial
statements.
There
has been no material change in the Company's risk factors described in its
Annual Report on Form 10-K for the year ended December 31, 2006.
The
following table provides information as to purchases of the Company’s common
stock during the third quarter ended September 30, 2007, by the Company and
by
any affiliated purchaser (as defined in SEC Rule 10b-18):
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
|
|
|
|
|
|
|
Total
Number of
|
|
|
That
May Yet Be
|
|
|
|
Total
Number
|
|
|
Average
|
|
|
Shares
Purchased
|
|
|
Purchased
Under
|
|
|
|
Of
Shares
|
|
|
Price
Paid
|
|
|
as
Part of Publicly
|
|
|
the
Plan at the
|
|
For
the period:
|
|
Purchased(1)(2)
|
|
|
Per
Share
|
|
|
Announced
Plan(3)
|
|
|
End
of the Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
1 - July 31
|
|
|
0
|
|
|
$ |
0
|
|
|
|
0
|
|
|
|
226,110
|
|
August
1 - August 31
|
|
|
117
|
|
|
$ |
13.75
|
|
|
|
0
|
|
|
|
226,110
|
|
September
1 - September 30
|
|
|
0
|
|
|
$ |
0
|
|
|
|
0
|
|
|
|
226,110
|
|
Total
|
|
|
117
|
|
|
$ |
13.75
|
|
|
|
0
|
|
|
|
226,110
|
|
(1) All
117 shares were purchased for the account of participants invested in the
Company Stock Fund under the Company’s Retirement Savings Plan by or on behalf
of the Plan Trustee, the Human Resources Committee of Community National
Bank. Such share purchases were facilitated through Community
Financial Services Group, LLC (“CFSG”), which provides certain investment
advisory services to the Plan. Both the Plan Trustee and CFSG may be
considered affiliates of the Company under Rule 10b-18. All purchases
by the Plan were made in the open market in brokerage transactions and reported
on the OTC Bulletin Board©.
(2) Shares
purchased during the period do not include fractional shares repurchased from
time to time in connection with the participant's election to discontinue
participation in the Company's Dividend Reinvestment Plan.
(3) The
Company’s Board of Directors in April, 2000 initially authorized the repurchase
from time to time of up to 205,000 shares of the Company’s common stock in open
market and privately negotiated transactions, in management’s discretion and as
market conditions may warrant. The Board extended this authorization
on October 15, 2002 to repurchase an additional 200,000 shares, with an
aggregate limit for such repurchases under both authorizations of $3.5
million. The approval did not specify a termination
date.
The
following exhibits are incorporated by reference:
Exhibit
2.1 – Agreement and Plan of Merger dated as of August 1, 2007 among Community
Bancorp., Community National Bank and LyndonBank incorporated by reference
to
the Company’s Current Report on Form 8-K filed with the Commission on August 2,
2007.
Exhibit
4.1 - Indenture dated as of October 31, 2007 between Community Bancorp., as
issuer and Wilmington Trust Company, as indenture trustee, incorporated by
reference to the Company’s Current Report on Form 8-K filed with the Commission
on November 2, 2007.
Exhibit
4.2 - Amended and Restated Declaration of Trust dated as of October 31, 2007
among Community Bancorp., as sponsor, Wilmington Trust Company, as Delaware
and
institutional Trustee, and the administrators named therein, incorporated by
reference to the Company’s Current Report on Form 8-K filed with the Commission
on November 2, 2007.
Exhibit
10.1 - Guarantee Agreement dated as of October 31, 2007 between Community
Bancorp., as guarantor and Wilmington Trust Company, as guarantee trustee,
incorporated by reference to the Company’s Current Report on Form 8-K filed with
the Commission on November 2, 2007.
Exhibit
10.2 - Placement Agreement dated October 30, 2007 among Community Bancorp.,
CMTV
Statutory Trust I, FTN Financial Capital Markets and Keefe, Bruyette &
Woods, Inc., incorporated by reference to the Company’s Current Report on Form
8-K filed with the Commission on November 2, 2007.
The
following exhibits are filed with this report:
Exhibit
31.1 - Certification from the Chief Executive Officer of the Company pursuant
to
section 302 of the Sarbanes-Oxley Act of 2002
Exhibit
31.2 - Certification from the Chief Financial Officer of the Company pursuant
to
section 302 of the Sarbanes-Oxley Act of 2002
Exhibit
32.1 - Certification from the Chief Executive Officer of the Company pursuant
to
18 U.S.C., Section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002*
Exhibit
32.2 - Certification from the Chief Financial Officer of the Company pursuant
to
18 U.S.C., Section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002*
*This
exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities
Exchange Act of 1934, or otherwise subject to the liability of that section,
and
shall not be deemed to be incorporated by reference into any filing under the
Securities Act of 1933 or the Securities Act of 1934.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
COMMUNITY
BANCORP.
DATED: November
13, 2007
|
/s/
Richard C.
White
|
|
|
Richard
C. White, Chairman &
|
|
|
Chief
Executive Officer
|
|
|
|
|
DATED: November
13, 2007
|
/s/
Stephen P.
Marsh
|
|
|
Stephen
P. Marsh, President &
|
|
|
Chief
Operating Officer
|
|
|
(Chief
Financial Officer)
|
|
EX-31.1
2
exhibit31_1rcw.htm
302 CERTIFICATION STATEMENT FOR RICHARD C. WHITE, CHAIRMAN & CEO
exhibit31_1rcw.htm
Exhibit
31.1
CERTIFICATION
I,
Richard C. White, certify that:
1.
|
I
have reviewed this quarterly report on Form 10-Q of Community
Bancorp.;
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement
of a
material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
4.
|
The
registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
|
|
|
(a)
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within
those
entities, particularly during the period in which this report is
being
prepared;
|
|
|
(b)
[Omitted]
|
|
|
(c)
Evaluated the effectiveness of the registrant's disclosure controls
and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the
end of
the period covered by this report based on such evaluation;
and
|
|
|
(d)
Disclosed in this report any change in the registrant's internal
control
over financial reporting that occurred during the registrant's most
recent
fiscal quarter (the registrant's fourth fiscal quarter in the case
of an
annual report) that has materially affected, or is reasonably likely
to
materially affect, the registrant's internal control over financial
reporting; and
|
5.
|
The
registrant's other certifying officer(s) and I have disclosed, based
on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent
functions):
|
|
|
(a)
All significant deficiencies and material weaknesses in the design
or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record,
process, summarize and report financial information;
and
|
|
|
(b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control
over financial reporting.
|
Date: November
13, 2007
/s/
Richard C.
White
Chairman
and Chief Executive Officer
(Principal
Executive Officer)
EX-31.2
3
exhibit31_2spm.htm
302 CERTIFICATION STATEMENT FOR STEPHEN P. MARSH, PRESIDENT & COO (CFO)
exhibit31_2spm.htm
Exhibit
31.2
CERTIFICATION
I,
Stephen P. Marsh, certify that:
1.
|
I
have reviewed this quarterly report on Form 10-Q of Community
Bancorp.;
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement
of a
material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
4.
|
The
registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
|
|
|
(a)
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within
those
entities, particularly during the period in which this report is
being
prepared;
|
|
|
(b)
[Omitted]
|
|
|
(c)
Evaluated the effectiveness of the registrant's disclosure controls
and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the
end of
the period covered by this report based on such evaluation;
and
|
|
|
(d)
Disclosed in this report any change in the registrant's internal
control
over financial reporting that occurred during the registrant's most
recent
fiscal quarter (the registrant's fourth fiscal quarter in the case
of an
annual report) that has materially affected, or is reasonably likely
to
materially affect, the registrant's internal control over financial
reporting; and
|
5.
|
The
registrant's other certifying officer(s) and I have disclosed, based
on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent
functions):
|
|
|
(a)
All significant deficiencies and material weaknesses in the design
or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record,
process, summarize and report financial information;
and
|
|
|
(b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control
over financial reporting.
|
Date: November
13, 2007
/s/
Stephen P.
Marsh
President
and Chief Operating Officer
(Principal
Financial Officer)
EX-32.1
4
exhibit32_1rcw.htm
906 CERTIFICATION STATEMENT FOR RICHARD C. WHITE, CHAIRMAN & CEO
exhibit32_1rcw.htm
Exhibit
32.1
CERTIFICATION
PURSUANT TO 18 U. S. C. SECTION 1350 AS ADOPTED
PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report of Community Bancorp. (the "Company")
on
Form 10-Q for the period ended September 30, 2007 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), the undersigned
Chief
Executive Officer of the Company hereby certifies, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that: 1) the Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934, and 2) the information
contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company as of and for the periods
covered in the Report.
A
signed original of this written statement required by Section 906 has been
provided to Community Bancorp. and will be retained by Community Bancorp. and
furnished to the Securities and Exchange Commission or its staff upon
request.
/s/
Richard C.
White
Richard
C. White, Chairman
&
Chief Executive Officer
November
13, 2007
EX-32.2
5
exhibit32_2spm.htm
906 CERTIFICATION STATEMENT FOR STEPHEN P. MARSH, PRESIDENT & COO (CFO)
exhibit32_2spm.htm
Exhibit
32.2
CERTIFICATION
PURSUANT TO 18 U. S. C. SECTION 1350 AS ADOPTED
PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report of Community Bancorp. (the "Company")
on
Form 10-Q for the period ended September 30, 2007, filed with the Securities
and
Exchange Commission on the date hereof (the "Report"), the undersigned Chief
Financial Officer of the Company hereby certifies, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that: 1) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, and 2) the information contained
in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company as of and for the periods covered
in
the Report.
A
signed original of this written statement required by Section 906 has been
provided to Community Bancorp. and will be retained by Community Bancorp. and
furnished to the Securities and Exchange Commission or its staff upon
request.
/s/
Stephen P.
Marsh
Stephen
P. Marsh, President
&
Chief Operating Officer
(Chief
Financial Officer)
November
13, 2007
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6
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