10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2012

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto

Commission File Number 000-16435

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 þ  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ  No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o  (Do not check if a smaller reporting company)	Smaller reporting company	þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No þ

At November 05, 2012, there were 4,793,743 shares outstanding of the Corporation's common stock.

FORM 10-Q
Index
		Page
PART I	FINANCIAL INFORMATION
Item 1	Financial Statements		3
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Item 3	Quantitative and Qualitative Disclosures About Market Risk		45
Item 4	Controls and Procedures		45
PART II	OTHER INFORMATION
Item 1	Legal Proceedings		46
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		46
Item 6	Exhibits		46
	Signatures		47

2

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)

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

3

Community Bancorp. and Subsidiary	September 30			December 31			September 30
Consolidated Balance Sheets	2012			2011			2011
	(Unaudited)						(Unaudited)
Assets
Cash and due from banks	$	9,519,193		$	23,459,776		$	47,758,305
Federal funds sold and overnight deposits		5,000			5,000			1,000
Total cash and cash equivalents		9,524,193			23,464,776			47,759,305
Securities held-to-maturity (fair value $50,631,000 at 09/30/12,
$30,289,000 at 12/31/11 and $37,397,000 at 09/30/11)		50,065,653			29,702,159			36,898,097
Securities available-for-sale		47,008,818			66,098,917			31,533,275
Restricted equity securities, at cost		4,021,350			4,308,550			4,308,550
Loans held-for-sale		1,483,940			2,285,567			2,411,242
Loans		407,610,705			386,386,472			388,548,864
Allowance for loan losses		(4,115,230	)		(3,886,502	)		(3,835,840	)
Deferred net loan costs (fees)		101,742			7,251			(20,474	)
Net loans		403,597,217			382,507,221			384,692,550
Bank premises and equipment, net		12,351,925			12,715,226			12,736,423
Accrued interest receivable		1,810,063			1,700,600			1,670,294
Bank owned life insurance		4,156,201			4,063,246			4,031,057
Core deposit intangible		1,448,694			1,704,346			1,810,867
Goodwill		11,574,269			11,574,269			11,574,269
Other real estate owned (OREO)		1,150,198			90,000			0
Prepaid expense - Federal Deposit Insurance Corporation (FDIC)		855,513			1,131,861			1,218,308
Other assets		12,613,921			11,558,779			10,077,689
Total assets	$	561,661,955		$	552,905,517		$	550,721,926
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Demand, non-interest bearing	$	68,580,510		$	62,745,782		$	60,683,698
NOW		109,271,808			123,493,475			116,418,838
Money market funds		84,057,492			71,408,069			72,014,042
Savings		66,204,831			59,284,631			61,763,381
Time deposits, $100,000 and over		49,474,950			51,372,782			51,369,773
Other time deposits		79,511,981			86,088,570			88,913,603
Total deposits		457,101,572			454,393,309			451,163,335
Federal funds purchased and other borrowed funds		16,850,000			18,010,000			18,010,000
Repurchase agreements		28,076,308			21,645,446			24,090,954
Capital lease obligations		789,836			833,467			800,315
Junior subordinated debentures		12,887,000			12,887,000			12,887,000
Accrued interest and other liabilities		3,078,347			4,217,886			3,289,410
Total liabilities		518,783,063			511,987,108			510,241,014
Shareholders' Equity
Preferred stock, 1,000,000 shares authorized, 25 shares issued
and outstanding ($100,000 liquidation value)		2,500,000			2,500,000			2,500,000
Common stock - $2.50 par value; 10,000,000 shares authorized,
5,007,099 shares issued at 09/30/12, 4,938,262 shares
issued at 12/31/11 and 4,914,777 shares issued at 09/30/11		12,517,748			12,345,655			12,286,943
Additional paid-in capital		27,911,150			27,410,049			27,237,038
Retained earnings		2,268,901			1,151,751			910,428
Accumulated other comprehensive income		303,870			133,731			169,280
Less: treasury stock, at cost; 210,101 shares at 09/30/12,
12/31/11 and 09/30/11		(2,622,777	)		(2,622,777	)		(2,622,777	)
Total shareholders' equity		42,878,892			40,918,409			40,480,912
Total liabilities and shareholders' equity	$	561,661,955		$	552,905,517		$	550,721,926

The accompanying notes are an integral part of these consolidated financial statements.

4

Community Bancorp. and Subsidiary

Consolidated Statements of Income

(Unaudited)

For The Quarter Ended September 30,

	2012		2011
Interest income
Interest and fees on loans	$	5,356,710	$	5,334,992
Interest on debt securities
Taxable		119,586		74,842
Tax-exempt		285,099		235,399
Dividends		20,575		18,641
Interest on federal funds sold and overnight deposits		111		17,290
Total interest income		5,782,081		5,681,164
Interest expense
Interest on deposits		866,591		964,303
Interest on federal funds purchased and other borrowed funds		94,636		99,803
Interest on repurchase agreements		33,600		36,744
Interest on junior subordinated debentures		243,564		243,564
Total interest expense		1,238,391		1,344,414
Net interest income		4,543,690		4,336,750
Provision for loan losses		249,999		287,500
Net interest income after provision for loan losses		4,293,691		4,049,250
Non-interest income
Service fees		597,567		612,163
Income from sold loans		418,594		205,743
Other income from loans		246,566		165,178
Net realized gains on sale of securities available-for-sale		99,676		0
Other income		167,814		131,364
Total non-interest income		1,530,217		1,114,448
Non-interest expense
Salaries and wages		1,547,284		1,473,800
Employee benefits		486,103		552,834
Occupancy expenses, net		796,029		767,948
FDIC insurance		92,343		84,199
Amortization of core deposit intangible		85,217		106,522
Other expenses		1,546,047		1,267,350
Total non-interest expense		4,553,023		4,252,653
Income before income taxes		1,270,885		911,045
Income tax expense		3,534		90,421
Net income	$	1,267,351	$	820,624
Earnings per common share	$	0.26	$	0.17
Weighted average number of common shares used in computing earnings per share		4,781,877		4,687,718
Dividends declared per common share	$	0.14	$	0.14
Book value per share on common shares outstanding at September 30,	$	8.42	$	8.07

The accompanying notes are an integral part of these consolidated financial statements.

5

Community Bancorp. and Subsidiary

Consolidated Statements of Income

(Unaudited)

For the Nine Months Ended September 30,

	2012			2011
Interest income
Interest and fees on loans	$	15,786,521		$	15,998,085
Interest on debt securities
Taxable		439,642			229,612
Tax-exempt		713,081			762,129
Dividends		62,162			56,519
Interest on federal funds sold and overnight deposits		3,434			52,730
Total interest income		17,004,840			17,099,075
Interest expense
Interest on deposits		2,636,745			3,119,596
Interest on federal funds purchased and other borrowed funds		280,788			316,135
Interest on repurchase agreements		100,249			110,968
Interest on junior subordinated debentures		730,693			730,693
Total interest expense		3,748,475			4,277,392
Net interest income		13,256,365			12,821,683
Provision for loan losses		750,001			712,500
Net interest income after provision for loan losses		12,506,364			12,109,183
Non-interest income
Service fees		1,751,912			1,761,951
Income from sold loans		1,256,763			913,802
Other income from loans		667,633			508,673
Net realized gains on sale of securities available-for-sale		140,971			0
Other income		600,947			668,686
Total non-interest income		4,418,226			3,853,112
Non-interest expense
Salaries and wages		4,523,882			4,409,491
Employee benefits		1,673,327			1,671,174
Occupancy expenses, net		2,481,921			2,360,165
FDIC insurance		301,925			344,810
Amortization of core deposit intangible		255,652			319,565
Other expenses		4,584,461			3,883,621
Total non-interest expense		13,821,168			12,988,826
Income before income taxes		3,103,422			2,973,469
Income tax (benefit) expense		(149,970	)		336,658
Net income	$	3,253,392		$	2,636,811
Earnings per common share	$	0.65		$	0.54
Weighted average number of common shares used in computing earnings per share		4,759,383			4,662,261
Dividends declared per common share	$	0.42		$	0.42
Book value per share on common shares outstanding at September 30,	$	8.42		$	8.07

The accompanying notes are an integral part of these consolidated financial statements.

6

Community Bancorp. and Subsidiary

Consolidated Statements of Comprehensive Income

(Unaudited)

For The Quarter Ended September 30,

	2012			2011
Net income	$	1,267,351		$	820,624
Other comprehensive loss, net of tax:
Change in unrealized holding gain on securities available-for-sale
arising during the period		(124,090	)		(61,026	)
Reclassification adjustment for gains realized in income		99,676			0
Net change in unrealized gain		(24,414	)		(61,026	)
Tax effect		8,301			20,749
Other comprehensive loss, net of tax		(16,113	)		(40,277	)
Total comprehensive income	$	1,251,238		$	780,347

Community Bancorp. and Subsidiary
Consolidated Statements of Comprehensive Income
(Unaudited)
For the Nine Months Ended September 30,		2012			2011
Net income	$	3,253,392		$	2,636,811
Other comprehensive income, net of tax:
Change in unrealized holding gain on securities available-for-sale
arising during the period		116,816			140,338
Reclassification adjustment for gains realized in income		140,971			0
Net change in unrealized gain		257,787			140,338
Tax effect		(87,648	)		(47,715	)
Other comprehensive income, net of tax		170,139			92,623
Total comprehensive income	$	3,423,531		$	2,729,434

The accompanying notes are an integral part of these consolidated financial statements.

7

Community Bancorp. and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited)

For the Nine Months Ended September 30,

	2012			2011
Cash Flows from Operating Activities:
Net income	$	3,253,392		$	2,636,811
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization, bank premises and equipment		837,551			748,753
Provision for loan losses		750,001			712,500
Deferred income tax		(789,852	)		31,188
Net gain on sale of securities available-for-sale		(140,971	)		0
Net gain on sale of loans		(949,833	)		(463,048	)
(Gain) loss on sale of OREO		(3,740	)		7,212
Gain on Trust LLC		(111,573	)		(111,174	)
Amortization of bond premium, net		408,330			258,155
Write down of OREO		0			10,000
Proceeds from sales of loans held-for-sale		37,158,591			26,779,989
Originations of loans held-for-sale		(35,407,131	)		(26,364,245	)
Increase (decrease) in taxes payable		60,128			(386,079	)
(Increase) decrease in interest receivable		(109,463	)		119,327
Amortization of prepaid FDIC insurance assessment		276,348			314,849
Decrease (increase) in mortgage servicing rights		92,105			(58,408	)
Increase in other assets		(1,095,473	)		(171,301	)
Increase in cash surrender value of bank owned life insurance		(92,955	)		(97,726	)
Amortization of core deposit intangible		255,652			319,565
Amortization of limited partnerships		915,705			366,440
Decrease in deferred loan costs (fees)		(94,491	)		(53,877	)
Decrease in interest payable		(28,727	)		(54,056	)
Increase (decrease) in accrued expenses		5,900			(161,669	)
Decrease in other liabilities		(56,152	)		(391,259	)
Net cash provided by operating activities		5,133,342			3,991,947
Cash Flows from Investing Activities:
Investments - held-to-maturity
Maturities and pay downs		18,065,787			32,429,747
Purchases		(38,429,281	)		(31,887,130	)
Investments - available-for-sale
Maturities, calls, pay downs and sales		30,171,833			10,000,000
Purchases		(11,091,306	)		(20,220,656	)
Proceeds from redemption of restricted equity securities		287,200			0
(Decrease) increase in limited partnership contributions payable		(1,084,000	)		1,084,000
Investments in limited partnerships		(213,830	)		(1,085,000	)
Increase in loans, net		(22,935,389	)		(291,935	)
Proceeds from sales of bank premises and equipment,
net of capital expenditures		(474,250	)		(693,205	)
Proceeds from sales of OREO		58,740			1,324,088
Recoveries of loans charged off		74,685			76,335
Net cash used in investing activities		(25,569,811	)		(9,263,756	)

8

Cash Flows from Financing Activities:
Net (decrease) increase in demand and NOW accounts		(8,386,939	)		12,574,469
Net increase in money market and savings accounts		19,569,623			3,845,325
Net decrease in time deposits		(8,474,421	)		(3,448,722	)
Net increase in repurchase agreements		6,430,862			4,983,139
Net increase in short-term borrowings		4,840,000			0
Repayments on long-term borrowings		(6,000,000	)		(15,000,000	)
Decrease in capital lease obligations		(43,631	)		(34,524	)
Dividends paid on preferred stock		(140,625	)		(140,625	)
Dividends paid on common stock		(1,298,983	)		(1,196,235	)
Net cash provided by financing activities		6,495,886			1,582,827
Net decrease in cash and cash equivalents		(13,940,583	)		(3,688,982	)
Cash and cash equivalents:
Beginning		23,464,776			51,448,287
Ending	$	9,524,193		$	47,759,305
Supplemental Schedule of Cash Paid During the Period
Interest	$	3,777,202		$	4,331,448
Income taxes	$	550,000		$	691,550
Supplemental Schedule of Noncash Investing and Financing Activities:
Change in unrealized gain on securities available-for-sale	$	257,787		$	140,338
Loans transferred to OREO	$	1,115,198		$	131,000
Investments in limited partnerships
Investments in limited partnerships	$	(213,830	)	$	(1,085,000	)
(Decrease) increase in limited partnership contributions payable		(1,084,000	)		1,084,000
	$	(1,297,830	)	$	(1,000	)
Common Shares Dividends Paid
Dividends declared	$	1,995,617		$	1,954,606
Increase in dividends payable attributable to dividends declared		(23,440	)		(39,331	)
Dividends reinvested		(673,194	)		(719,040	)
	$	1,298,983		$	1,196,235

The accompanying notes are an integral part of these consolidated financial statements.

9

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 the 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, 2011 contained in the Company's Annual Report on Form 10-K.  The results of operations for the interim period are not necessarily indicative of the results of operations to be expected for the full annual period ending December 31, 2012, or for any other interim period.

Note 2.  Recent Accounting Developments

In April 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-03, “Reconsideration of Effective Control for Repurchase Agreements,” amending the criteria under Accounting Standards Codification (ASC) Topic 860 for determining whether the transferor under a repurchase agreement involving a financial asset has retained effective control over the financial asset and therefore must account for the transaction as a secured borrowing rather than a sale.  The guidance removes from the effective control criteria the consideration of whether the transferor has the ability to repurchase or redeem the financial asset on substantially the agreed terms.  The guidance is applied prospectively and is effective for new transactions and for existing transactions that are modified as of the beginning of the first interim or annual period beginning on or after December 15, 2011.  Adoption of ASU 2011-03 did not have a material impact on the Company’s consolidated financial statements.

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement:  Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in United States Generally Accepted Accounting Principles (US GAAP) and IFRS,” amending ASC Topic 820.  Although ASU 2011-04 deals primarily with development of a single fair value framework for US GAAP and International Financial Reporting Standards, the ASU also contains additional guidance on fair value measurements.  Among other things, ASU 2011-04: clarifies how a principal market is determined; addresses the fair value measurement or counterparty credit risks and the concept of valuation premise and highest and best use of nonfinancial assets; prescribes a model for measuring the fair value of an instrument classified in shareholders’ equity; limits the use of premiums or discounts based on the size of a holding; and requires certain new disclosures, including disclosures of all transfers between Levels 1 and 2 of the fair value hierarchy, whether or not significant, and additional disclosures regarding unobservable inputs and valuation processes for Level 3 measurements.  The guidance in ASU 2011-04 is to be applied prospectively, and is effective for interim and annual periods beginning on or after December 15, 2011.  Adoption of ASU 2011-04 did not have a material impact on the Company’s consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income,” amending Topic 220.  The amendments provide that an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  The Company has chosen the latter option.  This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity.  The ASU does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income, nor does it require any transition disclosures.  The amendments in this ASU are applied retrospectively, and are effective for fiscal years and interim periods beginning after December 15, 2011.  In December 2011, the FASB issued ASU No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05”, which defers the effective date of a requirement in ASU 2011-05 related to reclassifications of items out of accumulated other comprehensive income.  The deferral of the effective date was made to allow the FASB time to consider whether to require presentation on the face of the financial statements of the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented.  Adoption of ASU 2011-05 did not have a material impact on the Company’s consolidated financial statements.

In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment,” amending Topic 350.  The guidance changes the manner of testing of goodwill for impairment by providing an entity with the option of first assessing qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the fair value of a reporting unit is less than its carrying amount. Such qualitative factors may include the following: macroeconomic conditions; industry and market considerations; cost factors; overall financial performance; and other relevant entity-specific events.  If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the existing two-step quantitative impairment test; otherwise, no further analysis is required.  An entity also may elect not to perform the qualitative assessment and instead go directly to the two-step quantitative impairment test.  These changes are effective for fiscal years beginning on or after December 15, 2011.  The Company does not expect that adoption of the ASU will have a material impact on the Company’s consolidated financial statements.

10

In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (Topic 210):  Disclosures about Offsetting Assets and Liabilities,” amending Topic 210.  The amendments require an entity to disclose both gross and net information about both instruments and transactions that are eligible for offset on the balance sheet and instruments and transactions that are subject to an agreement similar to a master netting arrangement.  This guidance is effective for annual periods beginning on or after January 1, 2013 and interim periods within those annual periods, with retrospective disclosure for all comparative periods presented.  The Company is evaluating the impact of ASU 2011-11 but does not expect that adoption of the ASU will have a material impact on the Company’s consolidated financial statements.

In July 2012, the FASB issued ASU 2012-02, “Intangibles-Goodwill and Other (Topic 35): Testing Indefinite-Lived Intangible Assets for Impairment,” amending Topic 350. The guidance allows entities to first perform an optional qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired in order to determine whether the asset should be further evaluated under quantitative impairment testing. The guidance does not revise the requirement that indefinite-lived intangible assets be tested for impairment at least annually, or more frequently if circumstances warrant, although it does revise the examples of events and circumstances that an entity should consider during interim periods. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, although early adoption is permitted. The Company is evaluating the impact of ASU 2012-02 but does not expect its adoption will have a material impact on the Company’s consolidated financial statements.

Note 3.  Earnings per Common 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), including Dividend Reinvestment Plan shares issuable upon reinvestment of dividends declared, and reduced for shares held in treasury.

The following table illustrates the calculation for the periods ended September 30, as adjusted for the cash dividends declared on the preferred stock:

For The Quarter Ended September 30,	2012		2011
Net income, as reported	$	1,267,351	$	820,624
Less: dividends to preferred shareholders		46,875		46,875
Net income available to common shareholders	$	1,220,476	$	773,749
Weighted average number of common shares
used in calculating earnings per share		4,781,877		4,687,718
Earnings per common share	$	0.26	$	0.17

For the Nine Months Ended September 30,		2012		2011
Net income, as reported	$	3,253,392	$	2,636,811
Less: dividends to preferred shareholders		140,625		140,625
Net income available to common shareholders	$	3,112,767	$	2,496,186
Weighted average number of common shares
used in calculating earnings per share		4,759,383		4,662,261
Earnings per common share	$	0.65	$	0.54

11

Note 4.  Investment Securities

Securities available-for-sale (AFS) and held-to-maturity (HTM) as of the balance sheet dates consisted of the following:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Securities AFS	Cost		Gains		Losses		Value
September 30, 2012
U.S. Government sponsored enterprise (GSE) debt securities	$	39,423,142	$	419,253	$	2,610	$	39,839,785
U.S. Government securities		7,082,906		35,050		300		7,117,656
U.S. GSE preferred stock		42,360		9,017		0		51,377
	$	46,548,408	$	463,320	$	2,910	$	47,008,818
December 31, 2011
U.S. GSE debt securities	$	60,846,954	$	215,595	$	99,310	$	60,963,239
U.S. Government securities		5,006,979		37,424		848		5,043,555
U.S. GSE preferred stock		42,360		49,763		0		92,123
	$	65,896,293	$	302,782	$	100,158	$	66,098,917
September 30, 2011
U.S. GSE debt securities	$	26,224,330	$	187,825	$	52,705	$	26,359,450
U.S. Government securities		5,010,100		35,350		0		5,045,450
U.S. GSE preferred stock		42,360		86,015		0		128,375
	$	31,276,790	$	309,190	$	52,705	$	31,533,275

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Securities HTM	Cost		Gains		Losses		Value*
September 30, 2012
States and political subdivisions	$	50,065,653	$	565,347	$	0	$	50,631,000
December 31, 2011
States and political subdivisions	$	29,702,159	$	586,841	$	0	$	30,289,000
September 30, 2011
States and political subdivisions	$	36,898,097	$	498,903	$	0	$	37,397,000

12

The scheduled maturities of debt securities AFS were as follows:

	Amortized		Fair
	Cost		Value
September 30, 2012
Due in one year or less	$	3,003,306	$	3,013,511
Due from one to five years		43,502,742		43,943,930
	$	46,506,048	$	46,957,441
December 31, 2011
Due in one year or less	$	5,018,549	$	5,035,711
Due from one to five years		58,835,384		58,970,925
Due from five to ten years		2,000,000		2,000,158
	$	65,853,933	$	66,006,794
September 30, 2011
Due in one year or less	$	8,031,513	$	8,060,834
Due from one to five years		22,202,917		22,352,436
Due from five to ten years		1,000,000		991,630
	$	31,234,430	$	31,404,900

The scheduled maturities of debt securities HTM were as follows:

	Amortized		Fair
	Cost		Value*
September 30, 2012
Due in one year or less	$	40,302,625	$	40,303,000
Due from one to five years		4,041,285		4,183,000
Due from five to ten years		2,286,741		2,428,000
Due after ten years		3,435,002		3,717,000
	$	50,065,653	$	50,631,000
December 31, 2011
Due in one year or less	$	20,589,247	$	20,589,000
Due from one to five years		4,534,944		4,682,000
Due from five to ten years		822,735		969,000
Due after ten years		3,755,233		4,049,000
	$	29,702,159	$	30,289,000
September 30, 2011
Due in one year or less	$	27,402,959	$	27,403,000
Due from one to five years		4,902,641		5,027,000
Due from five to ten years		749,063		874,000
Due after ten years		3,843,434		4,093,000
	$	36,898,097	$	37,397,000

_______

*Method used to determine fair value on HTM securities rounds values to nearest thousand.

13

There were no debt securities HTM in an unrealized loss position as of the balance sheet date.  Debt securities AFS with unrealized losses as of the balance sheet dates are presented in the table below.

	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Loss
September 30, 2012
U.S. GSE debt securities	$	0	$	0	$	1,512,667	$	2,610	$	1,512,667	$	2,610
U.S. Government securities		1,057,928		300		0		0		1,057,928		300
	$	1,057,928	$	300	$	1,512,667	$	2,610	$	2,570,595	$	2,910
December 31, 2011
U.S. GSE debt securities	$	29,940,644	$	99,310	$	0	$	0	$	29,940,644	$	99,310
U.S. Government securities		999,766		848		0		0		999,766		848
	$	30,940,410	$	100,158	$	0	$	0	$	30,940,410	$	100,158
September 30, 2011
U.S. GSE debt securities	$	7,046,617	$	52,705	$	0	$	0	$	7,046,617	$	52,705
U.S. Government securities		0		0		0		0		0		0
	$	7,046,617	$	52,705	$	0	$	0	$	7,046,617	$	52,705

Debt securities in the table above consisted of one U.S. GSE debt securities and one U.S. Government securities at September 30, 2012, 21 U.S. GSE debt securities and one U.S. Government security at December 31, 2011, and four U.S. GSE debt securities at September 30, 2011.  These unrealized losses were principally attributable to changes in prevailing interest rates for similar types of securities and not deterioration in the creditworthiness of the issuer.

At September 30, 2012 and 2011 and December 31, 2011, the Company’s AFS portfolio included two classes of Fannie Mae preferred stock with an aggregate cost basis of $42,360, which reflects cumulative other-than-temporary impairment write downs in prior periods of $833,778.

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market conditions, or adverse developments relating to the issuer, warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than the carrying value, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment for a period of time sufficient to allow for any anticipated recovery in fair value.  In analyzing an issuer's financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies or other adverse developments in the status of the securities have occurred, and the results of reviews of the issuer's financial condition.

Note 5.  Loans, Allowance for Loan Losses and Credit Quality

The composition of net loans follows:

	September 30, 2012			December 31, 2011			September 30, 2011
Commercial & industrial	$	47,484,639		$	39,514,607		$	34,570,063
Commercial real estate		136,016,554			132,269,368			137,892,249
Residential real estate - 1st lien		168,541,410			159,535,958			159,755,182
Residential real estate - Jr lien		46,029,238			45,886,967			46,843,024
Consumer		11,022,804			11,465,139			11,899,588
		409,094,645			388,672,039			390,960,106
Deduct (add):
Allowance for loan losses		4,115,230			3,886,502			3,835,840
Deferred net loan costs (fees)		(101,742	)		(7,251	)		20,474
Loans held-for-sale		1,483,940			2,285,567			2,411,242
		5,497,428			6,164,818			6,267,556
Net Loans	$	403,597,217		$	382,507,221		$	384,692,550

14

The following is an age analysis of past due loans (including non-accrual) by segment:

			90 Days		Total						Non-Accrual		Over 90 Days
September 30, 2012	30-89 Days		or More		Past Due		Current		Total Loans		Loans		and Accruing
Commercial & industrial	$	254,847	$	326,693	$	581,540	$	46,903,099	$	47,484,639	$	613,817	$	75,042
Commercial real estate		426,428		1,331,505		1,757,933		134,258,621		136,016,554		2,321,320		53,936
Residential real estate - 1st lien		749,535		1,102,424		1,851,959		165,205,511		167,057,470		1,441,659		825,843
Residential real estate - Jr lien		456,984		109,222		566,206		45,463,032		46,029,238		326,882		109,222
Consumer		123,197		14,077		137,274		10,885,530		11,022,804		4,841		9,236
Total	$	2,010,991	$	2,883,921	$	4,894,912	$	402,715,793	$	407,610,705	$	4,708,519	$	1,073,279

			90 Days		Total						Non-Accrual		Over 90 Days
December 31, 2011	30-89 Days		or More		Past Due		Current		Total Loans		Loans		and Accruing
Commercial & industrial	$	655,168	$	265,668	$	920,836	$	38,593,771	$	39,514,607	$	1,066,945	$	59,618
Commercial real estate		2,266,412		1,288,616		3,555,028		128,714,340		132,269,368		3,714,146		98,554
Residential real estate - 1st lien		5,614,513		2,517,282		8,131,795		149,118,596		157,250,391		2,703,920		969,078
Residential real estate - Jr lien		431,885		2,754,129		3,186,014		42,700,953		45,886,967		464,308		111,061
Consumer		152,151		1,498		153,649		11,311,490		11,465,139		0		1,498
Total	$	9,120,129	$	6,827,193	$	15,947,322	$	370,439,150	$	386,386,472	$	7,949,319	$	1,239,809

			90 Days		Total						Non-Accrual		Over 90 Days
September 30, 2011	30-89 Days		or More		Past Due		Current		Total Loans		Loans		and Accruing
Commercial & industrial	$	667,668	$	583,258	$	1,250,926	$	33,319,137	$	34,570,063	$	917,328	$	21,824
Commercial real estate		3,066,295		1,025,858		4,092,153		133,800,096		137,892,249		2,911,034		209,506
Residential real estate - 1st lien		1,673,594		2,192,883		3,866,477		153,477,463		157,343,940		2,768,549		619,848
Residential real estate - Jr lien		380,341		403,815		784,156		46,058,868		46,843,024		537,892		208,754
Consumer		92,843		2,869		95,712		11,803,876		11,899,588		0		1,010
Total	$	5,880,741	$	4,208,683	$	10,089,424	$	378,459,440	$	388,548,864	$	7,134,803	$	1,060,942

Allowance for loan losses

The allowance for loan losses is established through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is probable. Subsequent recoveries, if any, are credited to the allowance.

As described below, the allowance consists of general, specific and unallocated components.  However, the entire allowance is available to absorb losses in the loan portfolio, regardless of specific, general and unallocated components considered in determining the amount of the allowance.

General component

The general component of the allowance for loan losses is based on historical loss experience, adjusted for qualitative factors and stratified by the following loan segments: commercial & industrial, commercial real estate, residential real estate first lien, residential real estate junior lien, and consumer loans. The Company does not disaggregate its portfolio segments further into classes.  Loss ratios are calculated for one year, two year and five year look back periods.  The highest loss ratio among these look-back periods is then applied against the respective segment.  Management uses an average of historical losses based on a time frame appropriate to capture relevant loss data for each loan segment. This historical loss factor is adjusted for the following qualitative factors: levels of and trends in delinquencies and non-performing loans, levels of and trends in loan risk groups, trends in volumes and terms of loans, effects of any changes in loan related policies, experience, ability and the depth of management, documentation and credit data exception levels, national and local economic trends, external factors such as competition and regulation and lastly, concentrations of credit risk in a variety of areas, including portfolio product mix, the level of loans to individual borrowers and their related interests, loans to industry segments, and the geographic distribution of commercial real estate loans. This evaluation is inherently subjective as it requires estimates that are susceptible to revision as more information becomes available.

15

During the fourth quarter of 2011 the Company modified its allowance methodology by further segmenting the residential real estate portfolio into first lien residential mortgages and junior lien residential mortgages, also known as home equity loans.  The change was made to allow the Company to more closely monitor and appropriately reserve for the risk inherent with home equity lending, given the modest repayment requirements, relaxed documentation compared to first lien residential mortgage loans, higher loan to value ratios, subordinate lien position, and recent decline of home property values. The residential real estate junior lien portfolio accounted for 22 percent of the total residential real estate portfolio as of September 30, 2012 and December 31, 2011, and 23 percent as of September 30, 2011. No changes in the Company’s policies or methodology pertaining to the general component for loan losses were made during the first nine months of 2012.

The qualitative factors are determined based on the various risk characteristics of each loan segment. The Company has policies, procedures and internal controls that management believes are commensurate with the risk profile of each of these segments. Risk characteristics relevant to each portfolio segment are as follows:

Commercial & Industrial – Loans in this segment include commercial and industrial loans and to a lesser extent loans to finance agricultural production. Commercial loans are made to businesses and are generally secured by assets of the business, including trade assets and equipment. While not the primary collateral, in many cases these loans may also be secured by the real estate of the business. Repayment is expected from the cash flows of the business. A weakened economy, soft consumer spending, unfavorable foreign trade conditions and the rising cost of labor or raw materials are examples of issues that can impact the credit quality in this segment.

Commercial Real Estate – Loans in this segment are principally made to businesses and are generally secured by either owner-occupied, or non-owner occupied commercial real estate. A relatively small portion of this segment includes farm loans secured by farm land and buildings.  As with commercial loans, repayment of owner-occupied commercial real estate loans is expected from the cash flows of the business and the segment would be impacted by similar risk factors. The non-owner occupied commercial real estate portion includes both residential and commercial construction loans, vacant land and real estate development loans, multi-family dwelling loans and commercial rental property loans. Repayment of construction loans is expected from permanent financing takeout; the Company generally requires a commitment or eligibility for the take-out financing prior to construction loan origination. Real estate development loans are generally repaid from the sale of the subject real property as the project progresses. Construction and development lending entail additional risks, including the project exceeding budget, not being constructed according to plans, not receiving permits, or the pre-leasing or occupancy rate not meeting expectations. Repayment of multi-family loans and commercial rental property loans is expected from the cash flow generated by rental payments received from the individuals or businesses occupying the real estate. Commercial real estate loans are impacted by factors such as competitive market forces, vacancy rates, cap rates, net operating incomes, lease renewals and overall economic demand. In addition, loans in the recreational and tourism sector can be affected by weather conditions, such as unseasonably low winter snowfalls. Commercial real estate lending also carries a higher degree of environmental risk than other real estate lending.

Residential Real Estate - 1st Lien – All loans in this segment are collateralized by first mortgages on 1 – 4 family owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, has an impact on the credit quality of this segment.

Residential Real Estate – Jr Lien – All loans in this segment are collateralized by junior lien mortgages on 1 – 4 family residential real estate and repayment is primarily dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, has an impact on the credit quality of this segment.

Consumer – Loans in this segment are made to individuals for consumer and household purposes.  This segment includes both loans secured by automobiles and other consumer goods, as well as loans that are unsecured.  This segment also includes overdrafts, which are extensions of credit made to both individuals and businesses to cover temporary shortages in their deposit accounts and are generally unsecured.  The Company maintains policies restricting the size and length of these extensions of credit.  The overall health of the economy, including unemployment rates, has an impact on the credit quality of this segment.

Specific component

The specific component of the allowance for loan losses relates to loans that are impaired.  A specific allowance is established when a loan’s impaired basis is less than the carrying value of the loan.  For all loan segments, except consumer loans, a loan is considered impaired when, based on current information and events, in management’s estimation it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Impaired loans are loan(s) to a borrower that in aggregate are greater than $100,000 and that are in non-accrual status or are troubled debt restructurings (TDR).  Factors considered by management in determining impairment include payment status, collateral value and probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant or temporary payment delays and payment shortfalls generally are not classified as impaired. Management evaluates the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length and frequency of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis, by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

16

Impaired loans also include troubled loans that are restructured. A TDR occurs when the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that would otherwise not be granted. TDRs may include the transfer of assets to the Company in partial satisfaction of a troubled loan, a modification of a loan’s terms, or a combination of the two.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer loans for impairment evaluation, unless such loans are subject to a restructuring agreement.

Unallocated component

An unallocated component of the allowance of loan losses is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

The following summarizes changes in the allowance for loan losses and select loan information, by portfolio segment (excluding loans held-for-sale).

For the quarter ended September 30, 2012
							Residential			Residential
	Commercial			Commercial			Real Estate			Real Estate
	& Industrial			Real Estate			1st Lien			Jr Lien			Consumer			Unallocated		Total
Allowance for loan losses
Beginning balance	$	383,523		$	1,386,183		$	1,473,661		$	368,939		$	126,914		$	186,899	$	3,926,119
Charge-offs		(34,375	)		(2,821	)		(56,126	)		(9,447	)		(9,065	)		0		(111,834	)
Recoveries		17,978			24,587			1,426			60			6,895			0		50,946
Provisions		51,298			36,941			85,324			38,815			5,965			31,656		249,999
Ending balance	$	418,424		$	1,444,890		$	1,504,285		$	398,367		$	130,709		$	218,555	$	4,115,230

For the nine months ended September 30, 2012
							Residential			Residential
	Commercial			Commercial			Real Estate			Real Estate
	& Industrial			Real Estate			1st Lien			Jr Lien			Consumer			Unallocated		Total
Allowance for loan losses
Beginning balance	$	342,314		$	1,385,939		$	1,578,493		$	331,684		$	124,779		$	123,293	$	3,886,502
Charge-offs		(159,309	)		(57,878	)		(239,600	)		(69,734	)		(69,437	)		0		(595,958	)
Recoveries		20,498			25,450			3,248			1,479			24,010			0		74,685
Provisions		214,921			91,379			162,144			134,938			51,357			95,262		750,001
Ending balance	$	418,424		$	1,444,890		$	1,504,285		$	398,367		$	130,709		$	218,555	$	4,115,230
Allowance for loan losses
Evaluated for impairment
Individually	$	0		$	8,900		$	110,700		$	46,400		$	0		$	0	$	166,000
Collectively		418,424			1,435,990			1,393,585			351,967			130,709			218,555		3,949,230
Total	$	418,424		$	1,444,890		$	1,504,285		$	398,367		$	130,709		$	218,555	$	4,115,230
Loans evaluated for impairment
Individually	$	446,484		$	2,187,060		$	1,261,272		$	297,898		$	0				$	4,192,714
Collectively		47,038,155			133,829,494			165,796,198			45,731,340			11,022,804					403,417,991
Total	$	47,484,639		$	136,016,554		$	167,057,470		$	46,029,238		$	11,022,804				$	407,610,705

17

For the year ended December 31, 2011
							Residential			Residential
	Commercial			Commercial			Real Estate			Real Estate
	& Industrial			Real Estate			1st Lien			Jr Lien			Consumer			Unallocated		Total
Allowance for loan losses
Beginning balance	$	302,421		$	1,391,898		$	1,830,816		$	0		$	151,948		$	50,852	$	3,727,935
Charge-offs		(22,050	)		(197,367	)		(521,608	)		(96,961	)		(103,687	)		0		(941,673	)
Recoveries		13,225			8,479			42,593			20			35,923			0		100,240
Provisions		48,718			182,929			226,692			428,625			40,595			72,441		1,000,000
Ending balance	$	342,314		$	1,385,939		$	1,578,493		$	331,684		$	124,779		$	123,293	$	3,886,502
Allowance for loan losses
Evaluated for impairment
Individually	$	70,600		$	57,500		$	283,200		$	47,200		$	0		$	0	$	458,500
Collectively		271,714			1,328,439			1,295,293			284,484			124,779			123,293		3,428,002
Total	$	342,314		$	1,385,939		$	1,578,493		$	331,684		$	124,779		$	123,293	$	3,886,502
Loans evaluated for impairment
Individually	$	1,000,120		$	3,669,260		$	2,366,326		$	434,664		$	0				$	7,470,370
Collectively		38,514,487			128,600,108			154,884,065			45,452,303			11,465,139					378,916,102
Total	$	39,514,607		$	132,269,368		$	157,250,391		$	45,886,967		$	11,465,139				$	386,386,472

For the quarter ended September 30, 2011
	Commercial			Commercial			Residential
	& Industrial			Real Estate			Real Estate			Consumer			Unallocated			Total
Allowance for loan losses
Beginning balance	$	246,567		$	1,395,350		$	1,965,940		$	132,532		$	110,980		$	3,851,369
Charge-offs		(18,924	)		(21,679	)		(291,077	)		(10,565	)		0			(342,245	)
Recoveries		1,144			4,241			27,355			6,476			0			39,216
Provisions(Reductions)		51,343			148,745			129,545			615			(42,748	)		287,500
Ending balance	$	280,130		$	1,526,657		$	1,831,763		$	129,058		$	68,232		$	3,835,840

For the nine months ended September 30, 2011
	Commercial			Commercial			Residential
	& Industrial			Real Estate			Real Estate			Consumer			Unallocated		Total
Allowance for loan losses
Beginning balance	$	302,421		$	1,391,898		$	1,830,816		$	151,948		$	50,852	$	3,727,935
Charge-offs		(22,050	)		(21,679	)		(562,524	)		(74,677	)		0		(680,930	)
Recoveries		12,665			6,422			27,955			29,293			0		76,335
Provisions(Reductions)		(12,906	)		150,016			535,516			22,494			17,380		712,500
Ending balance	$	280,130		$	1,526,657		$	1,831,763		$	129,058		$	68,232	$	3,835,840
Individually evaluated for impairment	$	42,100		$	104,500		$	352,600		$	0		$	0	$	499,200
Collectively evaluated  for impairment		238,030			1,422,157			1,479,163			129,058			68,232		3,336,640
Total	$	280,130		$	1,526,657		$	1,831,763		$	129,058		$	68,232	$	3,835,840
Loans
Individually evaluated for impairment	$	841,032		$	2,834,584		$	2,892,878		$	0				$	6,568,494
Collectively evaluated for impairment		33,729,031			135,057,665			201,294,086			11,899,588					381,980,370
Total	$	34,570,063		$	137,892,249		$	204,186,964		$	11,899,588				$	388,548,864

18

Impaired loans by segments were as follows:

For the nine months ended September 30, 2012
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized *
With no related allowance recorded
Commercial & industrial	$	446,484	$	478,798	$	0	$	562,425	$	0
Commercial real estate		1,996,452		2,426,167		0		2,083,657		0
Residential real estate 1st lien		900,217		1,149,862		0		860,886		0
Residential real estate Jr lien		0		0		0		39,329		0
With an allowance recorded
Commercial & industrial		0		0		0		290,929		0
Commercial real estate		190,608		192,108		8,900		1,151,053		0
Residential real estate 1st lien		361,055		402,647		110,700		961,084		0
Residential real estate Jr lien		297,898		319,472		46,400		295,737		0
Total
Commercial & industrial	$	446,484	$	478,798	$	0	$	853,354	$	0
Commercial real estate	$	2,187,060	$	2,618,275	$	8,900	$	3,234,710	$	0
Residential real estate 1st lien	$	1,261,272	$	1,552,509	$	110,700	$	1,821,970	$	0
Residential real estate Jr lien	$	297,898	$	319,472	$	46,400	$	335,066	$	0
Total	$	4,192,714	$	4,969,054	$	166,000	$	6,245,100	$	0

For the year ended December 31, 2011
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized*
With no related allowance recorded
Commercial & industrial	$	380,624	$	391,800	$	0	$	332,523	$	0
Commercial real estate		2,041,101		2,246,905		0		960,407		0
Residential real estate 1st lien		1,000,819		1,191,437		0		1,210,137		0
Residential real estate Jr lien		125,786		185,142		0		25,157		0
With an allowance recorded
Commercial & industrial		619,496		637,729		70,600		237,724		0
Commercial real estate		1,628,159		1,653,646		57,500		1,128,795		0
Residential real estate 1st lien		1,365,507		1,869,338		283,200		1,629,151		0
Residential real estate Jr lien		308,878		321,475		47,200		61,776		0
Total
Commercial & industrial	$	1,000,120	$	1,029,529	$	70,600	$	570,247	$	0
Commercial real estate	$	3,669,260	$	3,900,551	$	57,500	$	2,089,202	$	0
Residential real estate 1st lien	$	2,366,326	$	3,060,775	$	283,200	$	2,839,288	$	0
Residential real estate Jr lien	$	434,664	$	506,617	$	47,200	$	86,933	$	0
Total	$	7,470,370	$	8,497,472	$	458,500	$	5,585,670	$	0

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For the nine months ended September 30, 2011
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized*
With no related allowance recorded
Commercial & industrial	$	397,993	$	400,678	$	0	$	320,498	$	0
Commercial real estate		1,320,096		1,350,647		0		690,234		0
Residential real estate		1,079,821		1,370,967		0		1,262,466		0
With an allowance recorded
Commercial & industrial		443,039		443,887		42,100		142,281		0
Commercial real estate		1,514,488		1,517,237		104,500		1,003,954		0
Residential real estate		1,813,057		2,316,927		352,600		1,695,062		0
Total
Commercial & industrial	$	841,032	$	844,565	$	42,100	$	462,779	$	0
Commercial real estate	$	2,834,584	$	2,867,884	$	104,500	$	1,694,188	$	0
Residential real estate	$	2,892,878	$	3,687,894	$	352,600	$	2,957,528	$	0
Total	$	6,568,494	$	7,400,343	$	499,200	$	5,114,495	$	0

__________

*Interest income recognized on impaired loans is immaterial for all periods presented.

Interest accrued but not collected for loans that are placed on non-accrual or charged off is reversed against interest income.  The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The Company is not contractually committed to lend additional funds to debtors with impaired, non-accrual or restructured loans.

Credit Quality Grouping

In developing the allowance for loan losses, management uses credit quality grouping to help evaluate trends in credit quality. The Company groups credit risk into Groups A, B and C. The manner the Company utilizes to assign risk grouping is driven by loan purpose. Commercial purpose loans are individually risk graded while the retail portion of the portfolio is generally grouped by delinquency pool.

Group A loans - Acceptable Risk– are loans that are expected to perform as agreed under their respective terms.  Such loans carry a normal level of risk that does not require management attention beyond that warranted by the loan or loan relationship characteristics, such as loan size or relationship size. Group A loans include commercial loans that are individually risk rated and retail loans that are rated by pool. Group A retail loans include both performing consumer and residential real estate loans. Residential real estate loans are loans to individuals secured by 1-4 family homes, including first mortgages, home equity and home improvement loans. Loan balances fully secured by deposit accounts or that are fully guaranteed by the Federal Government are considered acceptable risk.

Group B loans – Management Involved - are loans that require greater attention than the acceptable loans in Group A. Characteristics of such loans may include, but are not limited to, borrowers that are experiencing negative operating trends such as reduced sales or margins, borrowers that have exposure to adverse market conditions such as increased competition or regulatory burden, or borrowers that have had unexpected or adverse changes in management. These loans have a greater likelihood of migrating to an unacceptable risk level if these characteristics are left unchecked. Group B is limited to commercial purpose loans that are individually risk rated.

Group C loans – Unacceptable Risk – are loans that have distinct shortcomings that require a greater degree of management attention.  Examples of these shortcomings include a borrower's inadequate capacity to service debt, poor operating performance, or insolvency.  These loans are more likely to result in repayment through collateral liquidation. Group C loans range from those that are likely to sustain some loss if the shortcomings are not corrected, to those for which loss is imminent and non-accrual treatment is warranted. Group C loans include individually rated commercial purpose loans, and retail loans adversely rated in accordance with the Federal Financial Institutions Examination Council’s Uniform Retail Credit Classification Policy. Group C retail loans include 1-4 family residential real estate loans and home equity loans past due 90 days or more with loan-to-value ratios greater than 60%, home equity loans 90 days or more past due where the bank does not hold first mortgage, irrespective of loan-to-value, loans in bankruptcy where repayment is likely but not yet established, and lastly consumer loans that are 90 days or more past due.

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Commercial purpose loan ratings are assigned by the commercial account officer; for larger and more complex commercial loans, the credit rating is a collaborative assignment by the lender and the credit analyst. The credit risk rating is based on the borrower's expected performance, i.e., the likelihood that the borrower will be able to service its obligations in accordance with the loan terms. Credit risk ratings are meant to measure risk versus simply record history.  Assessment of expected future payment performance requires consideration of numerous factors.  While past performance is part of the overall evaluation, expected performance is based on an analysis of the borrower's financial strength, and historical and projected factors such as size and financing alternatives, capacity and cash flow, balance sheet and income statement trends, the quality and timeliness of financial reporting, and the quality of the borrower’s management.  Other factors influencing the credit risk rating to a lesser degree include collateral coverage and control, guarantor strength and commitment, documentation, structure and covenants and industry conditions.  There are uncertainties inherent in this process.

Credit risk ratings are dynamic and require updating whenever relevant information is received.  The risk ratings of larger or more complex loans, and Group B and C rated loans, are assessed at the time of their respective annual reviews, during quarterly updates, in action plans or at any other time that relevant information warrants update. Lenders are required to make immediate disclosure to the Chief Credit Officer of any known increase in loan risk, even if considered temporary in nature.

The risk ratings within the loan portfolio by segments as of the balance sheet dates were as follows:

	Total Loans
					Residential		Residential
	Commercial		Commercial		Real Estate		Real Estate
September 30, 2012	& Industrial		Real Estate		1st Lien		Jr Lien		Consumer		Total
Group A	$	45,649,737	$	127,984,841	$	164,474,055	$	45,373,633	$	11,005,770	$	394,488,036
Group B		590,534		3,787,365		408,051		318,848		0		5,104,798
Group C		1,244,368		4,244,348		3,659,304		336,757		17,034		9,501,811
Total	$	47,484,639	$	136,016,554	$	168,541,410	$	46,029,238	$	11,022,804	$	409,094,645

	Total Loans
					Residential		Residential
	Commercial		Commercial		Real Estate		Real Estate
December 31, 2011	& Industrial		Real Estate		1st Lien		Jr Lien		Consumer		Total
Group A	$	36,971,880	$	119,410,381	$	153,954,604	$	44,943,200	$	11,459,371	$	366,739,436
Group B		530,523		4,037,860		98,603		322,022		0		4,989,008
Group C		2,012,204		8,821,127		5,482,751		621,745		5,768		16,943,595
Total	$	39,514,607	$	132,269,368	$	159,535,958	$	45,886,967	$	11,465,139	$	388,672,039

	Total Loans
	Commercial		Commercial		Residential
September 30, 2011	& Industrial		Real Estate		Real Estate		Consumer		Total
Group A	$	31,263,167	$	121,785,036	$	200,493,345	$	11,884,313	$	365,425,861
Group B		889,433		7,157,279		587,332		0		8,634,044
Group C		2,417,463		8,949,934		5,517,529		15,275		16,900,201
Total	$	34,570,063	$	137,892,249	$	206,598,206	$	11,899,588	$	390,960,106

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Modifications of Loans and TDRs

A loan is classified as a TDR if, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider.

The Company is deemed to have granted such a concession if it has modified a troubled loan in any of the following ways:

●   Reduced accrued interest

●   Reduced the original contractual interest rate to a rate that is below the current market rate for the borrower;

●   Converted a variable-rate loan to a fixed-rate loan;

●   Extended the term of the loan beyond an insignificant delay;

●   Deferred or forgiven principal in an amount greater than three months of payments; or,

●   Performed a refinancing and deferred or forgiven principal on the original loan.

An insignificant delay or insignificant shortfall in the amount of payments typically would not require the loan to be accounted for as a TDR.  However, pursuant to regulatory guidance, any payment delay longer than three months is generally not considered insignificant. The assessment of whether a concession has been granted also takes into account payments expected to be received from third parties, including third-party guarantors, provided that the third party has the ability to perform on the guarantee.

The Company’s TDRs are principally a result of extending loan repayment terms to relieve cash flow difficulties. The Company has only, on a limited basis, reduced interest rates for borrowers below the current market rate for the borrower.  The Company has not forgiven principal or reduced accrued interest within the terms of original restructurings, nor has it converted variable rate terms to fixed rate terms.  However, the Company evaluates each TDR situation on its own merits and does not foreclose the granting of any particular type of concession.

For the nine months ended September 30, 2012
			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
Commercial real estate		2	$	1,030,645	$	1,030,645
Residential real estate 1st lien		1		143,757		146,306
Total		3	$	1,174,402	$	1,176,951

The following table presents TDRs for the twelve month period ended September 30, 2012 for which there was a payment default under the restructured terms during the period:

	Number of		Recorded
	Contracts		Investment
Commercial & industrial		1	$	158,076

With respect to the calculation of the allowance for loan losses, TDRs are treated as other impaired loans and carry specific reserves. These loans are categorized as non-performing, may be past due, and are generally adversely risk rated. TDRs that have defaulted under their restructured terms are generally in collection status and the specific reserve is typically calculated using the fair value of collateral method.

Note 6.  Goodwill and Other Intangible Assets

As a result of the merger with LyndonBank on December 31, 2007, the Company recorded goodwill amounting to $11,574,269.  The goodwill is not amortizable and is not deductible for tax purposes.

The Company also recorded $4,161,000 of acquired identified intangible assets representing the core deposit intangible which is subject to amortization as a non-interest expense over a ten year period.

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Amortization expense for the core deposit intangible for the first nine months of 2012 was $255,652.  As of September 30, 2012, the remaining annual amortization expense related to the core deposit intangible, absent any future impairment, is expected to be as follows:

2012	$	85,218
2013		272,695
2014		272,695
2015		272,695
2016		272,695
2017		272,696
Total remaining core deposit intangible	$	1,448,694

Management evaluates goodwill for impairment annually and the core deposit intangible for impairment if conditions warrant.  As of the date of the most recent evaluation (December 31, 2011), management concluded that no impairment existed.

Note 7.  Fair Value

Certain assets and liabilities are recorded at fair value to provide additional insight into the Company’s quality of earnings. Some of these assets and liabilities are measured on a recurring basis while others are measured on a nonrecurring basis, with the determination based upon applicable existing accounting pronouncements. For example, securities available-for-sale are recorded at fair value on a recurring basis. Other assets, such as mortgage servicing rights, loans held-for-sale, and impaired loans, are recorded at fair value on a nonrecurring basis using the lower of cost or market methodology to determine impairment of individual assets. The Company groups assets and liabilities which are recorded at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement (with level 1 considered highest and level 3 considered lowest). A brief description of each level follows.

Level 1 Quoted prices in active markets for identical assets or liabilities.  Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as U.S. Treasury, other U.S. Government and agency mortgage-backed debt securities that are highly liquid and are actively traded in over-the-counter markets.

Level 2 Observable inputs other than Level 1 prices such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.  Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.  This category generally includes mortgage servicing rights, impaired loans, and OREO.

Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.  Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

Securities Available-for-Sale.Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices for similar assets, if available. If quoted prices are not available, fair values are measured using matrix pricing models, or other model-based valuation techniques requiring observable inputs other than quoted prices such as yield curves, prepayment speeds, and default rates.  Level 1 securities would include U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets.  Level 2 securities include federal agency securities.

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Assets measured at fair value on a recurring basis and reflected in the balance sheet at the dates presented, segregated by fair value hierarchy, are summarized below:

September 30, 2012	Level 1		Level 2		Total
Assets: (market approach)
U.S. GSE debt securities	$	0	$	39,839,785	$	39,839,785
U.S. Government securities		7,117,656		0		7,117,656
U.S. GSE preferred stock		51,377		0		51,377
December 31, 2011
Assets: (market approach)
U.S. GSE debt securities	$	0	$	60,963,239	$	60,963,239
U.S. Government securities		5,043,555		0		5,043,555
U.S. GSE preferred stock		92,123		0		92,123
September 30, 2011
Assets: (market approach)
U.S. GSE debt securities	$	0	$	26,359,450	$	26,359,450
U.S. Government securities		4,041,970		1,003,480		5,045,450
U.S. GSE preferred stock		128,375		0		128,375

There were no transfers between Levels 1 and 2 for the periods presented.  There were no Level 3 financial instruments at of the balance sheet dates presented.

Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis

Mortgage servicing rights. Mortgage servicing rights represent the value associated with servicing residential mortgage loans. Servicing assets and servicing liabilities are reported using the amortization method. In evaluating the carrying values of mortgage servicing rights, the Company obtains third party valuations based on loan level data including note rate, and the type and term of the underlying loans. As such, the Company classifies mortgage servicing rights as nonrecurring Level 2.

OREO.Real estate acquired through foreclosure is initially recorded at market value. The fair value of other real estate owned is based on property appraisals and an analysis of similar properties currently available. As such, the Company records other real estate owned as nonrecurring Level 2.

Impaired loans.A loan is considered to be impaired when it is probable that all of the principal and interest due under the original underwriting terms of the loan may not be collected. Impairment is measured based on the fair value of the underlying collateral or present value of expected cash flows. As such, the Company records impaired loans as nonrecurring Level 2.

The following table includes assets measured at fair value on a nonrecurring basis that have had a fair value adjustment since their initial recognition. Impaired loans measured at fair value only include impaired loans with a related specific allowance for loan losses and are presented net of specific allowances as disclosed in Note 5.

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Assets measured at fair value on a nonrecurring basis and reflected in the balance sheet at the dates presented, segregated by fair value hierarchy, are summarized below:

September 30, 2012	Level 2
Assets: (market approach)
Residential mortgage servicing rights	$	1,005,857
Impaired loans, net of related allowance		683,561
OREO		1,150,198
December 31, 2011
Assets: (market approach)
Residential mortgage servicing rights	$	1,167,808
Impaired loans, net of related allowance		3,463,540
OREO		90,000
September 30, 2011
Assets: (market approach)
Residential mortgage servicing rights	$	1,211,219
Impaired loans, net of related allowance		3,271,384
OREO		0

There were no Level 1 or Level 3 financial instruments measured on a non-recurring basis as of the balance sheet dates presented.

FASB ASC Topic 825 “Financial Instruments”, requires disclosures of fair value information about financial instruments, whether or not recognized in the balance sheet, if the fair values can be reasonably determined. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques using observable inputs when available. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Topic 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

Fair values of financial instruments

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

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

Investment securities:The fair value of securities available for sale equals quoted market prices, if available.  If quoted market prices are not available, fair value is determined using quoted market prices for similar securities.

Restricted equity securities:Restricted equity securities are comprised of Federal Reserve Bank of Boston (FRBB) stock and Federal Home Loan Bank of Boston (FHLBB) stock.  These securities are carried at cost, which is believed to approximate fair value, based on the redemption provisions of the FRBB and the FHLBB.  The stock is nonmarketable, and redeemable at par value, subject to certain conditions, and, in the case of FHLBB stock, a moratorium on redemptions.

Loans and loans held-for-sale:For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying amounts.  The fair values for other loans (for example, fixed rate residential, commercial real estate, and rental property mortgage loans, and commercial and industrial loans) are estimated using discounted cash flow analyses, based on interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Loan fair value estimates include judgments regarding future expected loss experience and risk characteristics.  Loan impairment is deemed to exist when full repayment of principal and interest according to the contractual terms of the loan is no longer probable.  Impaired loans are reported based on one of three measures: the present value of expected future cash flows discounted at the loan’s effective interest rate; the loan’s observable market price; or the fair value of the collateral if the loan is collateral dependent.  If the fair value is less than an impaired loan’s recorded investment, an impairment loss is recognized as part of the allowance for loan losses.  Accordingly, certain impaired loans may be subject to measurement at fair value on a non-recurring basis.  Management has estimated the fair values of these assets using Level 2 inputs, such as the fair value of collateral based on independent third-party appraisals for collateral-dependent loans.

25

The fair value of loans held-for-sale is based upon an actual purchase and sale agreement between the Company and an independent market participant.  The sale is executed within a reasonable period following quarter end at the stated fair value.

Mortgage servicing rights:  Mortgage servicing rights are evaluated regularly for impairment based upon the fair   value of the servicing rights as compared to their amortized cost. The fair value of mortgage servicing rights is based on a valuation model that calculates the present value of estimated net servicing income, with loans divided into strata for valuation purposes based on their rates, terms and other features. The Company obtains a third party valuation based upon loan level data, including note rate, type and term. The model utilizes a variety of observable inputs for its assumptions, the most significant of which are loan prepayment assumptions and the discount rate used to discount future cash flows.

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

Junior subordinated debentures:  Fair value is estimated using current rates for debentures of similar maturity.

Capital lease obligations:  Fair value is determined using a discounted cash flow calculation using current rates.  Based on current rates, carrying value approximates fair value.

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

Off-balance-sheet credit related instruments:Commitments to extend credit are evaluated and fair value is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present credit-worthiness of the counterparties.  For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.

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

September 30, 2012	Carrying		Fair		Fair		Fair		Fair
	Amount		Value		Value		Value		Value
	(Dollars in Thousands)
Financial assets:			Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	9,524	$	9,524	$	0	$	0	$	9,524
Securities held-to-maturity		50,066		0		50,631		0		50,631
Securities available-for-sale		47,009		7,169		39,840		0		47,009
Restricted equity securities		4,021		0		4,021		0		4,021
Loans and loans held-for-sale
Commercial & industrial		47,485		0		0		48,187		48,187
Commercial real estate		136,017		0		0		137,753		137,753
Residential real estate - 1st lien		168,541		0		0		175,808		175,808
Residential real estate - Jr lien		46,029		0		0		46,954		46,954
Consumer		11,023		0		0		11,465		11,465
Mortgage servicing rights		1,005		0		1,006		0		1,006
Accrued interest receivable		1,810		0		1,810		0		1,810
Financial liabilities:
Deposits
Other deposits		443,008		0		445,472		0		445,472
Brokered deposits		14,094		0		14,101		0		14,101
Federal funds purchased and short term-borrowings		4,840		0		4,840		0		4,840
Long-term borrowings		12,010		0		12,327		0		12,327
Repurchase agreements		28,076		0		28,076		0		28,076
Capital lease obligations		790		0		790		0		790
Subordinated debentures		12,887		0		13,621		0		13,621
Accrued interest payable		121		0		121		0		121

	December 31, 2011				September 30, 2011
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	$	23,465	$	23,465	$	47,759	$	47,759
Securities held-to-maturity		29,702		30,289		36,898		37,397
Securities available-for-sale		66,099		66,099		31,533		31,533
Restricted equity securities		4,309		4,309		4,309		4,309
Loans and loans held-for-sale, net		384,793		395,386		387,104		398,640
Mortgage servicing rights		1,097		1,168		1,135		1,211
Accrued interest receivable		1,701		1,701		1,670		1,670
Financial liabilities:
Deposits		454,393		457,347		451,163		454,429
Federal funds purchased and other borrowed funds		18,010		18,404		18,010		18,437
Repurchase agreements		21,645		21,645		24,091		24,091
Capital lease obligations		833		833		800		800
Subordinated debentures		12,887		11,691		12,887		11,883
Accrued interest payable		150		150		138		138

The estimated fair values of commitments to extend credit and letters of credit were immaterial as of the dates presented in the above table.

27

Note 8.  Loan Servicing

The following table shows the changes in the carrying amount of the mortgage servicing rights for the periods indicated:

	September 30,			December 31,			September 30,
	2012			2011			2011
Balance at beginning of year	$	1,097,442		$	1,076,708		$	1,076,708
Mortgage servicing rights capitalized		313,082			355,730			238,117
Mortgage servicing rights amortized		(314,100	)		(346,165	)		(260,597	)
Change in valuation allowance		(91,087	)		11,169			80,888
Balance at end of period	$	1,005,337		$	1,097,442		$	1,135,116

Note 9.  Legal Proceedings

In the normal course of business the Company and its subsidiary are involved in litigation that is considered incidental to their business.  Management does not expect that any such litigation will be material to the Company's consolidated financial condition or results of operations.

Note 10.  Subsequent Event

The Company has evaluated events and transactions through the date that the financial statements were issued for potential recognition or disclosure in these financial statements, as required by GAAP.  On September 25, 2012, the Company declared a cash dividend of $0.14 per common share payable November 1, 2012 to shareholders of record as of October 15, 2012.  This dividend, amounting to $668,439, was accrued at September 30, 2012.

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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, 2012

The following discussion analyzes the consolidated financial condition of Community Bancorp. (the Company) and its wholly-owned subsidiary, Community National Bank (the Bank), as of September 30, 2012, December 31, 2011 and September 30, 2011, and its consolidated results of operations for the two interim periods presented.  The Company is considered a “smaller reporting company” under applicable regulations of the Securities and Exchange Commission (SEC) and is therefore eligible for relief from certain disclosure requirements.

The following discussion should be read in conjunction with the Company’s audited consolidated financial statements and related notes contained in its 2011 Annual Report on form 10-K filed with the SEC.

FORWARD-LOOKING STATEMENTS

The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking statements about the results of operations, financial condition and business of the Company and its subsidiary. 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 included in this discussion include, but are not limited to, estimated contingent liability related to assumptions made within the asset/liability management process, management's expectations as to the future interest rate environment and the Company's related liquidity level, credit risk expectations relating to the Company's loan portfolio and its participation in the Federal Home Loan Bank of Boston (FHLBB) Mortgage Partnership Finance (MPF) program, and management's general outlook for the future performance of the Company, summarized below under "Overview". Although forward-looking 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 does not undertake, and disclaims any obligation, to revise or update any forward-looking statements to reflect the occurrence or anticipated occurrence of events or circumstances after the date of this Report, except as required by applicable law.  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) general economic conditions, either nationally, regionally or locally continue to deteriorate, resulting in a decline in credit quality or a diminished demand for the Company's products and services; (2) competitive pressures increase among financial service providers in the Company's northern New England market area or in the financial service industry generally, including competitive pressures from non-bank financial service providers, from increasing consolidation and integration of financial service providers, and from changes in technology and delivery systems; (3) interest rates change in such a way as to reduce the Company's margins;  (4) changes in laws or government rules, or the way in which courts and government agencies interpret or implement those laws or rules, increase our costs of doing business or otherwise adversely affect the Company's business; (5) changes in federal or state tax policy; (6) changes in the level of nonperforming assets and charge-offs; (7) changes in estimates of future reserve requirements based upon relevant regulatory and accounting requirements; (8) changes in consumer and business spending, borrowing and savings habits; (9) proposed changes to the calculation of the Company’s regulatory capital ratios, which are due to be implemented on January 1, 2013, and which, among other things, will require additional regulatory capital, phase out the Tier 1 capital treatment for trust preferred securities, change the framework for risk-weighting of assets and require accumulated other comprehensive income to be reflected in regulatory capital; and (10) the effect of and changes in the United States monetary and fiscal policies, including the interest rate policies, regulation of the money supply by the Federal Reserve Board, and adverse changes in the credit rating of U.S. government debt.

NON-GAAP FINANCIAL MEASURES

Under SEC Regulation G, public companies making disclosures containing financial measures that are not in accordance with generally accepted accounting principles in the United States (US GAAP or GAAP) must also disclose, along with each non-GAAP financial measure, certain additional information, including a reconciliation of the non-GAAP financial measure to the closest comparable GAAP financial measure, as well as a statement of the company’s reasons for utilizing the non-GAAP financial measure.  The SEC has exempted from the definition of non-GAAP financial measures certain commonly used financial measures that are not based on GAAP.  However, two non-GAAP financial measures commonly used by financial institutions, namely tax-equivalent net interest income and tax-equivalent net interest margin, have not been specifically exempted by the SEC, and may therefore constitute non-GAAP financial measures under Regulation G.  We are unable to state with certainty whether the SEC would regard those measures as subject to Regulation G.

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Management believes that these non-GAAP financial measures are useful in evaluating the Company’s financial performance and facilitate comparisons with the performance of other financial institutions.  However, that information should be considered supplemental in nature and not as a substitute for related financial information prepared in accordance with GAAP.

OVERVIEW

The Company’s consolidated assets on September 30, 2012 were $561,661,955, an increase of $8,756,438, or 1.58% from December 31, 2011, and an increase of $10,940,029, or 1.99% from September 30, 2011.  The most significant change in assets in both comparison periods was an increase in loans and a decrease in cash.  Demand for commercial loans increased since year-end and demand for 1-4 family residential loans has remained steady.  The Company has retained in the loan portfolio some 10 and 15 year fixed rate mortgages to help maintain the relative level of the 1-4 family loans in the overall portfolio, while continuing to sell 30 year mortgage loans in the secondary market to manage interest rate risk.  Cash decreased $13,940,583 from year-end and $38,239,112 year over year.  Cash was used to purchase available-for-sale securities during the later part of 2011 and continuing into the first quarter of 2012, increasing the portfolio by $15,475,543 year over year.  As loan demand increased in 2012, cash was used to fund loans, which increased $20,422,606 from year end and $18,134,539 from September 30, 2011.  This resulted in a decrease of $19,090,099 in securities available-for-sale from year-end to September 30, 2012.  Deposits at September 30, 2012 were $457,101,572, an increase of $5,938,237, or 1.32% from September 30, 2011 and an increase of $2,708,263, or 0.6% from December 31, 2011.  Although there was not a significant increase in total deposits, some changes within the mix are worth noting.  The decrease in NOW accounts of $7,147,030 from September 30, 2011 to September 30, 2012 is attributed to a decrease in an account with the Company’s affiliate, Community Financial Services Group (CFSG) in the amount of $10,569,228 which was partially offset by growth in core customer accounts of $2,427,057.  The cyclical fluctuations in the balances of municipal customer accounts contributed to the fluctuations in NOW and money market accounts, with a decrease in Government Agency accounts (NOW accounts) from December 31, 2011 to September 30, 2012 of $14,900,150, and an increase in the non arbitrage deposit accounts (money market accounts) of $9,888,181 from December 31, 2011 to September 30, 2012 and $9,556,445 from September 30, 2011 to September 30, 2012.    While an increase is noted in core money market and savings accounts, management believes, to a certain extent that this increase may be related to the $8,474,421 or 6.2% decrease in time deposits year over year as customers shift funds from maturing time deposits to non-maturing deposit accounts due to the low interest rate environment.

Net income for the third quarter of 2012 was $1,267,351 or $0.26 per common share compared to $820,624 or $0.17 per common share for the third quarter of 2011.  Net interest income increased in the third quarter of 2012 compared to the third quarter of 2011, due to both an increase in interest income and a decrease in interest expense.  The increase in interest income is due to a combination of the growth of the balance sheet and a shift from lower earning assets to higher earning assets.  The lower interest expense was attributed to a combination of the decrease in other time deposits and long-term borrowings, as well as a decrease in rates paid on interest bearing deposits.  Non-interest income increased during the third quarter of 2012 compared to the third quarter 2011, due mostly to an increase in fee income from the sale of residential loans in the secondary market.  Normal operating expenses have remained fairly stable with increases in other expenses for the third quarter and year to date mostly attributed to the increase in the amortization of the Company’s investment in tax credit projects as further described in the results of operation section of this report.

On September 25, 2012, the Company's Board of Directors declared a quarterly cash dividend of $0.14 per common share, payable on November 1, 2012 to shareholders of record on October 15, 2012.  The Company is focused on increasing the profitability of the balance sheet, improving expense efficiency, and prudently managing risk, particularly credit risk, in order to remain a well-capitalized bank in this challenging economic environment.

CRITICAL ACCOUNTING POLICIES

The Company’s significant accounting policies, which are described in Note 1 (Significant Accounting Policies) to the Company’s consolidated financial statements in the December 31, 2011 Annual Report on Form 10-K, are fundamental to understanding the Company’s results of operations and financial condition because they require management to use estimates and assumptions that may affect the value of the Company’s assets or liabilities and financial results.  These policies are considered by management to be critical because they require subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions.  The critical accounting policies govern:

●the allowance for loan losses;

●other real estate owned (OREO);

●valuation of residential mortgage servicing rights (MSRs);

●other than temporary impairment of investment securities; and

●the carrying value of goodwill.

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These policies are described further in the Company’s December 31, 2011 Annual Report on Form 10-K in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” and in Note 1 (Significant Accounting Policies) to the consolidated financial statements.  There have been no material changes in the critical accounting policies described in the 2011 Annual Report on Form 10-K.

RESULTS OF OPERATIONS

The Company’s net income for the third quarter of 2012 was $1,267,351, representing an increase of $446,727 or 54.4% over net income of $820,624 for the third quarter of 2011. This resulted in earnings per common share of $0.26 for the third quarter of 2012 compared to $0.17 for the third quarter of 2011.  Net income for the first nine months of 2012 was $3,253,392 compared to $2,636,811 for the same period in 2011, representing an increase of $616,581 or 23.4%.  This resulted in earnings per common share for the nine months ended September 30, of $0.65 for 2012 and $0.54 for 2011.  Core earnings (net interest income) for the third quarter of 2012 increased $206,940 or 4.8%, compared to the third quarter of 2011, despite continued pressure on the net interest margin and spread in this persistently low interest rate environment.  Growth in the balance sheet combined with an effort to increase earning assets and decrease cash resulted in an increase in interest income of $100,917 or 1.8% compared to the same period last year.   Although total deposits increased $5,938,237 year over year, interest expense on deposits, the major component of total interest expense, decreased $97,712 or 10.1% between quarterly periods, partly attributable to a decrease in the rates paid on interest-bearing deposit accounts, as certificates of deposits matured and were renewed into products at lower rates.  Furthermore, it appears that some customers may be parking funds in more liquid, non maturing products such as savings or money market accounts while rates remain at historical lows.  These same trends affected net interest income for the first nine months of 2012, resulting in net interest income of $13,256,365, an increase of $434,682 or 3.4% over the first nine months of 2011.  The Company recorded a provision for loan losses of $249,999 for the third quarter of 2012 compared to $287,500 for the third quarter of 2011, a decrease of 13.0% and the provision for the nine months ended September 30, 2012 was $750,001 compared to $712,500 for the same period in 2011, an increase of 5.3%.

Non-interest income increased $415,769 or 37.3%, when compared to the third quarter of 2011.  Strong mortgage activity and commercial loan demand had a positive impact on non-interest income.  Fees related to the sales and servicing of loans sold on the secondary market were the major component of the increase in total non-interest income between the two quarters.  Point fees and premiums collected on sold mortgages were $322,637 for the third quarter of 2012 compared to $165,590 for the same period in 2011, an increase of 94.8%.  Also contributing to the increase in total non-interest income for the comparison period were gains of $99,676 on the sale of securities available-for-sale, as further discussed in the Changes in Financial Condition section of this report.  The increase in non-interest income for the nine months ended September 30, 2012 was $565,114 or 14.7% from the same period in 2011, with similar trends causing the variance.

Total non-interest expense increased $330,370 or 7.1% for the third quarter 2012 compared to the same quarter in 2011.  The most significant increase was the amortization of the Company’s investments in tax credit projects which was $295,317 for the third quarter of 2012 compared to $122,146 for the third quarter of 2011; an increase of $173,171, or 141.8%.  The amortization for the nine months ended September 30, 2012 was $885,951 compared to $366,440; an increase of $519,511 or 141.8% over the first nine months of 2011.  The tax credit investments provided tax benefits of $977,229 for the first nine months of 2012 compared to $400,554 for the first nine months of 2011.  During the quarter, the Company was able to reduce the accrual for the employee health insurance plan in the amount of $107,000 due to lower than expected claims.  Otherwise, operating expenses remained relatively stable compared to the same period last year.

Return on average assets, which is net income divided by average total assets, measures how effectively a corporation uses its assets to produce earnings.  Return on average equity, which is net income divided by average shareholders' equity, measures how effectively a corporation uses its equity capital to produce earnings.  The following table shows these ratios annualized for the comparison periods.

For the quarter ended September 30,	2012			2011
Return on Average Assets		0.90	%		0.58	%
Return on Average Equity		11.85	%		8.01	%
For the nine months ended September 30,		2012			2011
Return on Average Assets		0.78	%		0.64	%
Return on Average Equity		10.35	%		8.78	%

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The following table summarizes the earnings performance and certain balance sheet data of the Company for the 2012 and 2011 comparison periods.

SELECTED FINANCIAL DATA (Unaudited)
	September 30,			December 31,
	2012			2011
Balance Sheet Data
Net loans*	$	405,081,157		$	384,792,788
Total assets		561,661,955			552,905,517
Total deposits		457,101,572			454,393,309
Borrowed funds		16,850,000			18,010,000
Total liabilities		518,783,063			511,987,108
Total shareholders' equity		42,878,892			40,918,409
*includes loans held-for-sale
Statement of Income Data
Nine Months Ended September 30,		2012			2011
Total interest income	$	17,004,840		$	17,099,075
Less:
Total interest expense		3,748,475			4,277,392
Net interest income		13,256,365			12,821,683
Less:
Provision for loan losses		750,001			712,500
Non-interest income		4,418,226			3,853,112
Less:
Non-interest expense		13,821,168			12,988,826
Income before income taxes		3,103,422			2,973,469
Less:
Applicable income tax (benefit) expense		(149,970	)		336,658
Net Income	$	3,253,392		$	2,636,811
Per Share Data
Earnings per common share	$	0.65		$	0.54
Dividends declared per common share	$	0.42		$	0.42
Book value per common shares outstanding	$	8.42		$	8.07
Weighted average number of common shares outstanding		4,759,383			4,662,261
Number of common shares outstanding, period end		4,796,998			4,704,676

INTEREST INCOME VERSUS INTEREST EXPENSE (NET INTEREST INCOME)

The largest component of the Company’s operating income is net interest income, which is the difference between interest earned on loans and investments versus the interest paid on deposits and other sources of funds (i.e. other borrowings).  The Company’s level of net interest income can fluctuate over time due to changes in the level and mix of earning assets, and sources of funds (volume) and from changes in the yield earned and costs of funds (rate).  A portion of the Company’s income from municipal investments is not subject to income taxes.  Because the proportion of tax-exempt items in the Company's portfolio varies from year-to-year, to improve comparability of information, the non-taxable income shown in the tables below has been converted to a tax equivalent basis. Because the Company’s corporate tax rate is 34%, to equalize tax-free and taxable income in the comparison, we divide the tax-free income by 66%, with the result that every tax-free dollar is equivalent to $1.52 in taxable income.

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The Company’s tax-exempt income is derived from its municipal investments, which comprised the entire held-to-maturity portfolio of $50,065,653 at September 30, 2012, and $36,898,097 at September 30, 2011.

The following table shows the reconciliation between reported net interest income and tax equivalent, net interest income for the comparison periods of 2012 and 2011.

For the nine months ended September 30,	2012		2011
Net interest income as presented	$	13,256,365	$	12,821,683
Effect of tax-exempt income		367,345		392,612
Net interest income, tax equivalent	$	13,623,710	$	13,214,295

The following table 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 2012 and 2011 comparison periods.

	For the Nine Months Ended September 30,
	2012							2011
					Average							Average
	Average		Income/		Rate/			Average		Income/		Rate/
	Balance		Expense		Yield			Balance		Expense		Yield
Interest-Earning Assets
Loans (1)	$	399,953,037	$	15,786,521		5.27	%	$	390,948,990	$	15,998,085		5.47	%
Taxable investment securities		62,357,637		439,642		0.94	%		26,217,030		229,612		1.17	%
Tax-exempt investment securities		37,882,741		1,080,426		3.81	%		35,628,634		1,154,741		4.33	%
Sweep and interest earning accounts		6,184,367		3,434		0.07	%		33,887,918		52,730		0.21	%
Other investments (4)		4,482,770		62,162		1.85	%		4,695,550		56,519		1.61	%
Total	$	510,860,552	$	17,372,185		4.54	%	$	491,378,122	$	17,491,687		4.76	%
Interest-Bearing Liabilities
NOW	$	105,668,556	$	245,440		0.31	%	$	104,526,578	$	347,805		0.44	%
Money market accounts		78,214,169		577,481		0.99	%		72,950,935		600,954		1.10	%
Savings deposits		64,471,836		76,915		0.16	%		60,237,153		85,090		0.19	%
Time deposits		135,606,637		1,736,909		1.71	%		142,288,283		2,085,747		1.96	%
Federal funds purchased and
other borrowed funds		23,461,496		231,603		1.32	%		19,460,549		266,422		1.83	%
Repurchase agreements		24,690,402		100,249		0.54	%		21,201,727		110,968		0.70	%
Capital lease obligations		809,263		49,185		8.10	%		816,188		49,713		8.12	%
Junior subordinated debentures		12,887,000		730,693		7.57	%		12,887,000		730,693		7.58	%
Total	$	445,809,359	$	3,748,475		1.12	%	$	434,368,413	$	4,277,392		1.32	%
Net interest income			$	13,623,710						$	13,214,295
Net interest spread (2)						3.42	%						3.44	%
Net interest margin (3)						3.56	%						3.60	%

(1)	Included in gross loans are non-accrual loans with an average balance of $6,804,857 and $5,008,281 for the nine months ended September 30, 2012 and 2011, respectively.  Loans are stated before deduction of deferred loan costs (fees) and allowance for loan losses.
(2)	Net interest spread is the difference between the average yield on average earning assets and the average rate paid on average interest-bearing liabilities.
(3)	Net interest margin is net interest income divided by average earning assets.
(4)	Included in other investments is the Company’s FHLBB Stock with an average balance of $3,507,620 and a dividend payout rate of approximately 0.52% per quarter.

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The average volume of earning assets for the first nine months of 2012 increased $19,482,430 or 4.0% compared to the same period of 2011, while the average yield decreased 22 basis points.  The average volume of loans increased $9,004,047 or 2.3%, while the average yield decreased 20 basis points.  Interest earned on the loan portfolio equaled 90.9% of total interest income for the first nine months of 2012 and 91.5% for the 2011 comparison period.  The average volume of sweep and interest earning accounts decreased $27,703,551 or 81.8%, as the Company shifted cash into higher yielding assets, primarily loans and investment securities.  The average volume of the taxable investment portfolio (classified as available-for-sale) increased $36,140,607 or 137.9% for the same period, while the average yield decreased 23 basis points.  The Company increased its taxable investment portfolio with U.S. government sponsored enterprise securities, as deposit funding increased in 2011, yet loan demand was weak.  The Company has now seen an increase in loan demand throughout 2012 allowing for the reallocation of funds into higher earning assets.  The average volume of the tax exempt investment portfolio (classified as held-to-maturity) increased $2,254,107 or 6.3% between periods, while the average tax equivalent yield decreased 52 basis points.  Interest earned on tax exempt investments (which is presented in the table on a tax equivalent basis) comprised 6.2% of total interest income for the first nine months of 2012 compared to 6.6% for the same period in 2011.

In comparison, the average volume of interest bearing liabilities for the first nine months of 2012 increased $11,440,946 or 2.6% over the 2011 comparison period, while the average rate paid on these liabilities decreased 20 basis points.  The average volume of NOW accounts increased $1,141,978 or 1.1% and money market funds increased $5,263,234 or 7.2% while the average rate paid decreased 13 basis points and 11 basis points, respectively.  The average volume carried in the Company’s money market product, an insured cash sweep account (ICS) offered through Promontory Interfinancial Network, increased $3,336,693 year over year from $8,975,493 in 2011 to $12,312,186 in 2012.  Although this product has brought in some new funds, most of the interest has come from the Company’s Certificate of Deposit Account Registry Service (CDARS) of Promontory Interfinancial Network customers looking for alternatives to placing their money in time deposit accounts that are not as liquid.  The average volume of time deposits decreased $6,681,646 or 4.7%, and the average rate paid on time deposits decreased 25 basis points.  The average volume of federal funds purchased and other borrowed funds increased $4,000,947 or 20.6% from an average volume of $19,460,549 for the nine months of 2011 to $23,461,496 for the same period in 2012, reflecting stronger loan demand in excess of deposit growth.

The prolonged low interest rate environment has resulted in continued pressure on the Company’s net interest spread and margin.  The Company’s earning assets are being replaced and repricing to lower interest rates, while the opportunity to reduce rates further on non-maturing interest-bearing deposits is more limited, given the already low rates paid on deposits.  During the first nine months of 2012, the average yield on interest earning assets decreased 22 basis points while the average rate paid on interest bearing liabilities decreased only 20 basis points compared to the average yields and rates for the same period last year.  Most of the decrease in interest expense during the first nine months of 2012 was attributable to the decrease in time deposits due to both volume and the rate paid on these deposits.  As long-term time deposits matured, they either repriced to lower rates or were not renewed.  The cumulative result of all these changes was a decrease of two basis points in the net interest spread and a decrease of three basis points in the net interest margin.

During the fourth quarter of 2012, the Company will begin to benefit from a scheduled rate adjustment on its $12,887,000 in principal amount of Junior Subordinated Debentures.  Effective December 15, 2012, the rate paid on the Company’s trust preferred securities, which mature on December 15, 2037, will convert from a fixed rate of 7.56% per year to a floating rate equal to the 3 month London Interbank Offered Rate (LIBOR) plus 2.85%. The current 3 month LIBOR is approximately 0.38%

The following table summarizes the variances in interest income and interest expense on a fully tax-equivalent basis for the first nine months of 2012 and 2011 resulting from volume changes in average assets and average liabilities and fluctuations in average rates earned and paid.

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Changes in Interest Income and Interest Expense
	Variance			Variance
	Due to			Due to			Total
	Rate (1)			Volume (1)			Variance
Average Interest-Earning Assets
Loans	$	(579,943	)	$	368,379		$	(211,564	)
Taxable investment securities		(106,235	)		316,265			210,030
Tax-exempt investment securities		(147,317	)		73,002			(74,315	)
Sweep and interest earning accounts		(34,778	)		(14,518	)		(49,296	)
Other investments		8,590			(2,947	)		5,643
Total	$	(859,683	)	$	740,181		$	(119,502	)
Average Interest-Bearing Liabilities
NOW	$	(106,123	)	$	3,758		$	(102,365	)
Money market accounts		(66,776	)		43,303			(23,473	)
Savings deposits		(14,193	)		6,018			(8,175	)
Time deposits		(263,302	)		(85,536	)		(348,838	)
Federal funds purchased and other borrowed funds		(89,582	)		54,763			(34,819	)
Repurchase agreements		(28,984	)		18,265			(10,719	)
Capital lease obligations		(108	)		(420	)		(528	)
Total	$	(569,068	)	$	40,151		$	(528,917	)
Changes in net interest income	$	(290,615	)	$	700,030		$	409,415

(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

NON-INTEREST INCOME AND NON-INTEREST EXPENSE

Non-interest Income: The Company's non-interest income increased $415,769 or 37.3% to $1,530,217 for the third quarter of 2012 compared to the third quarter of 2011, while in the year-to-date comparison the increase was $565,114 or 14.7% to $4,418,226.  Income from sold loans of $418,593 during the third quarter was the major contributor to this increase.  Also contributing to the increase in non-interest income was an increase in documentation fees collected on both commercial and in-house residential loans, for a total increase of $70,612, or 63.7%.  During the quarter, the Company sold $12,750,000 in securities available-for-sale to support loan growth, which created realized gains of $99,676 compared to no securities gains during the third quarter in 2011.  Other income, a subtotal within total non-interest income, increased $36,450 in the third quarter or 27.8%, compared to the same quarter last year.  The fair value adjustment to the Company’s Supplemental Employee Retirement Plan (SERP) was a gain of $21,757 at the end of the third quarter of 2012, while the adjustment at the end of the third quarter of 2011 was a loss of $10,649, resulting in a net positive variance of $32,406 or 304.3% quarter over quarter.These same trends resulted in an increase in non-interest income for the nine months ended September 30, 2012 of $565,114 or 14.7%.

Non-interest Expense: The Company's non-interest expense was $4,553,023 compared to $4,252,653 for the third quarter of 2012 and 2011, respectively and $13,821,168 and $12,988,826 for the nine months ended September 30, 2012 and 2011, respectively, an increase of 7.06% for the quarter comparison and an increase of 6.41% for the year-to-date comparison.  Salaries, wages and employee benefits increased 0.3% and 1.9% for the quarter and nine months ended September 30, 2012, respectively when compared to the same periods in 2011.  While salaries and wages increased by 5.0% and 2.6% for the comparison periods, employee benefits decreased 12.1% and increased only 0.1% for the same periods.  The decrease in employee benefits was primarily due to a $107,000 accrual adjustment at quarter end to the employee health plan expense to reflect a lower than expected level of health benefit claims.    Occupancy expenses were $796,029 and $2,481,921 for the quarter and nine months ended September 30, 2012 respectively, compared to $767,948 and $2,360,165 for the same periods in 2011.  This increase is primarily a result of depreciation and service contracts related to significant bank-wide investments in new technology, including among others, digital imaging, requiring more sophisticated software which entails new service contracts.  FDIC insurance for the third quarter of 2012 was $92,343 compared to $84,199 for the same period in 2011 while the total for the nine months ended September 30, 2012 and 2011 was $301,925 and $344,810, respectively.  A new deposit insurance assessment rule based on assets rather than deposits that went into effect on April 1, 2011 initially resulted in lower premiums for the Company, however the combination of an increase in assets and an increase in the factor used to calculate the premiums resulted in the increase beginning in the second quarter of 2012.  The Company continues to benefit from the amortization of the core deposit intangible associated with the LyndonBank acquisition which was $85,217 and $255,652 for the quarter and nine months ended September 30, 2012 respectively, compared to $106,522 and $319,565 for the same periods in 2011.

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Losses relating to various limited partnership investments for affordable housing in our market area constitute the largest portion of other expenses and account for the largest portion of the increase in non-interest expense.  These losses for the third quarter of 2012 and 2011 amounted to $295,317 and $122,147, respectively, representing an increase of $173,171 or 141.8%.  Losses for the first nine months of 2012 and 2011 amounted to $885,951 and $366,440, respectively, representing an increase of $519,511 or 141.8%.  These investments provide tax benefits, including tax credits, and are designed to provide an effective yield between 8% and 10%.  Losses relating to the Company’s New Market Tax Credit (NMTC) investment for the first nine months of 2012 were recorded as $29,754, with tax credits amounting to $84,521.  The Company amortizes these investments under the effective yield method.

APPLICABLE INCOME TAXES

The provision for income taxes decreased from a tax expense of $90,421 for the third quarter of 2011 to a tax expense of $3,534 for the third quarter of 2012, a decrease of $86,887 or 96.1%.  The provision for income taxes decreased from a tax expense of $336,658 for the first nine months of 2011 to a tax benefit of $149,970 for the first nine months of 2012, a decrease of $486,628 or 144.6%.  The change from expense to benefit is due primarily to the $576,675 increase in tax credits year over year.

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 or liabilities and shareholders’ equity, as the case may be, as of the dates indicated:

	September 30, 2012				December 31, 2011				September 30, 2011
Assets
Loans (gross)*	$	409,094,645	72.84	%	$	388,672,039	70.30	%	$	390,960,106	70.99	%
Securities available-for-sale		47,008,818	8.37	%		66,098,917	11.95	%		31,533,275	5.73	%
Securities held-to-maturity		50,065,653	8.91	%		29,702,159	5.37	%		36,898,097	6.70	%
*includes loans held for sale
Liabilities
Time deposits	$	128,986,931	22.97	%	$	137,461,352	24.86	%	$	140,283,376	25.47	%
Savings deposits		66,204,831	11.79	%		59,284,631	10.72	%		61,763,381	11.21	%
Demand deposits		68,580,510	12.21	%		62,745,782	11.35	%		60,683,698	11.02	%
Now		109,271,808	19.46	%		123,493,475	22.34	%		116,418,838	21.14	%
Money market accounts		84,057,492	14.97	%		71,408,069	12.92	%		72,014,042	13.08	%
Federal funds purchased		4,840,000	0.86	%		0	0.00	%		0	0.00	%
Long-term borrowings		12,010,000	2.14	%		18,010,000	3.26	%		18,010,000	3.27	%

The Company's loan portfolio increased $20,422,606 or 5.2%, from December 31, 2011 to September 30, 2012, and increased $18,134,539 or 4.6%, from September 30, 2011 to September 30, 2012.  This increase is due in part to strong commercial loan growth during the first nine months of 2012 and to the Company’s decision to begin holding some 10-15 year fixed rate residential mortgages in-house, rather than selling them into the secondary market.  Securities available-for-sale decreased $19,090,099 or 28.9% from December 31, 2011 to September 30, 2012, and increased $15,475,543 or 49.1% year over year.  During 2011 and early in 2012, excess cash was invested in available-for-sale securities while loan demand was weak.  Subsequently, during the second and third quarters of 2012 as loan demand increased, securities available-for-sale were sold to help fund loan growth.  During the third quarter, the Company sold $12,750,000 in available-for-sale securities, resulting in gains of $99,676. Securities held-to-maturity increased $20,363,494 or 68.6% during the first nine months of 2012, and increased $13,167,556 or 35.7% year over year; 128.4% of the increase occurred during the third quarter of 2012, resulting in an increase of only 6.3% in the comparison of average balances of these securities quarter over quarter.

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Total deposits increased $2,708,263 or 0.6% from December 31, 2011 to September 30, 2012 and increased $5,938,237 or 1.3% from September 30, 2011 to September 30, 2012.  Time deposits decreased $8,474,421 or 6.2% from December 31, 2011 to September 30, 2012 and $11,296,445 or 8.1% from September 30, 2011 to September 30, 2012.  Management believes this decrease in time deposits is partially attributable to the low rate environment as customers park their funds in non-maturing deposit accounts while searching for higher paying investments. Savings deposits increased $6,920,200 or 11.7% during the first nine months of 2012 and $4,441,450 or 7.2% year to year.  Demand deposits increased $5,834,728 or 9.3% during the first nine months of 2012, compared to an increase of $7,896,812 or 13.0% year to year.  NOW accounts reported a decrease during the first nine months of 2012 of $14,221,667 or 11.5% and a decrease of $7,147,030 or 6.1% year over year.  The decrease during the first nine months of 2012 was due to a decrease in government agency accounts in the amount of $14,900,150 while the decrease year over year was due in part to a decrease of $10,569,228 in the account held by the Company’s affiliate, CFSG, offset by an increase in core NOW accounts in the amount of $2,427,057.  Money market accounts increased $12,649,423 or 17.7% for the first nine months of 2012 and increased $12,043,450 or 16.7% year over year.  Contributing to the increases was the balances in the non arbitrage accounts with an increase of $9,888,181 during the first nine months of 2012 and $9,556,445 year over year.  These increases are related to the annual finance cycle of the municipal customers.  Repurchase agreements increased $6,430,862 or 29.7% from December 31, 2011 to September 30, 2012 and $3,985,353 or 16.5% from September 30, 2011 to September 30, 2012.  These increases are the result of new business customers relationships created from the increase in commercial loans during the comparison periods.  The decrease in federal funds purchased and other borrowed funds during both comparison periods was due to the maturity of a long-term borrowing of $6,000,000 and an increase in federal funds purchased overnight of $4,840,000.

RISK MANAGEMENT

Interest Rate Risk and Asset and Liability Management - Management actively monitors and manages the Company’s 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) is made up of the Executive Officers and all the Vice Presidents of the Bank.  The 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 and periodically reviewed 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 financial instruments 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 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.

The Company’s Asset/Liability Policy has been enhanced with a contingency funding plan to help management prepare for unforeseen liquidity restrictions to include hypothetical severe liquidity crises.

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 customer preferences or competitor influences might change.

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Credit Risk - As a financial institution, one of the primary risks the Company manages is credit risk, the risk of loss stemming from borrowers’ failure to repay loans or inability to meet other contractual obligations.  The company’s Board of Directors prescribes policies for managing credit risk, including Loan, Appraisal and Environmental policies.  These policies are supplemented by comprehensive underwriting standards and procedures.  The Company maintains a Credit Administration department whose function includes credit analysis and monitoring of and reporting on the status of the loan portfolio, including delinquent and non-performing loan trends. The Company also monitors concentration of credit risk in a variety of areas, including portfolio mix, the level of loans to individual borrowers and their related interest, loans to industry segments, and the geographic distribution of commercial real estate loans. Loans are reviewed periodically by an independent loan review firm in order to assure accuracy of the Company's internal risk ratings and compliance with various internal policies and procedures and regulatory guidance.

The residential mortgage portfolio is the largest segment of the loan portfolio and as a result of the severity and depth of the recent recession and slow economic recovery it has recently seen the greatest degree of collection and foreclosure activity and losses. The Company however, has not experienced delinquencies and losses to the extent of national peers as the Company maintains a mortgage loan portfolio of traditional mortgage products and has not engaged in higher risk loans such as option adjustable rate mortgage products, high loan-to-value products, interest only mortgages, subprime loans and products with deeply discounted teaser rates. While real estate values have declined in the Company’s market area, the sound underwriting standards historically employed by the Company have mitigated the trends in defaults and property surrenders experienced elsewhere.  Residential mortgages with loan-to-values exceeding 80% are generally covered by private mortgage insurance (PMI).  A 90% loan-to-value residential mortgage product without PMI is only available to borrowers with excellent credit and low debt-to-income ratios and has not been widely originated.  Junior lien home equity products make up 22% of the residential mortgage portfolio with maximum loan-to-value ratios (including prior liens) of 80%.  The residential mortgage portfolio has had satisfactory performance in light of the depth of the recent recession and the slow recovery.

Risk in the Company’s commercial and commercial real estate loan portfolios is mitigated in part by government guarantees issued by federal agencies such as the U.S. Small Business Administration and USDA Rural Development. At September 30, 2012, the Company had $26,929,217 in guaranteed loans with guaranteed balances of 21,510,648, compared to $28,077,575 in guaranteed loans with guaranteed balances of $22,885,794 at December 31, 2011.

The Company’s strategy is to continue growing the commercial and commercial real estate portfolios. Consistent with management’s increased strategic focus on commercial lending, the Company has seen an overall increase in commercial and industrial loans as a percent of the total loan portfolio over the past year, despite the decrease during the third quarter of 2012 which was primarily attributable to the payoff of one commercial loan.  Achieving significant increases in commercial loans remains a challenge in light of the prolonged weakness of the economy and slow recovery.  Some growth has also been realized in the residential mortgage first lien portfolio during 2012 with the Company now holding rather than selling some of its 10 and 15 year fixed rate residential mortgage originations.

The following table reflects the composition of the Company's loan portfolio as of the dates indicated:

	September 30, 2012						December 31, 2011
	Total Loans			% of Total			Total Loans			% of Total
Construction & land development	$	13,458,200			3.29	%	$	12,588,715			3.24	%
Secured by farm land		10,537,820			2.58	%		10,223,277			2.63	%
1 - 4 family residential - 1st lien		168,541,410			41.20	%		159,535,958			41.05	%
1 - 4 family residential - Jr lien		46,029,238			11.25	%		45,886,967			11.80	%
Commercial real estate		112,020,534			27.38	%		109,457,376			28.16	%
Loans to finance agricultural production		1,348,057			0.33	%		1,282,339			0.33	%
Commercial & industrial		46,136,582			11.28	%		38,232,268			9.84	%
Consumer		11,022,804			2.69	%		11,465,139			2.95	%
Total gross loans		409,094,645			100.00	%		388,672,039			100.00	%
Deduct:
Allowance for loan losses		4,115,230						3,886,502
Deferred loan costs		(101,742	)					(7,251	)
Loans held-for-sale		1,483,940						2,285,567
		5,497,428						6,164,818
Net loans	$	403,597,217					$	382,507,221

Allowance for loan losses and provisions - The Company maintains an allowance for loan losses (allowance) at a level that management believes is appropriate to absorb losses inherent in the loan portfolio (See Critical Accounting Policies). Although the Company, in establishing the allowance, considers the inherent losses in individual loans and pools of loans, the allowance is a general reserve available to absorb all credit losses in the loan portfolio.  No part of the allowance is segregated for, or allocated to, any particular loan or class.

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When establishing the allowance each quarter the Company applies a combination of historical loss factors and qualitative factors to loan classes including residential first and junior lien mortgages, commercial real estate, commercial and industrial, and consumer loan portfolios. During the fourth quarter of 2011 the Company changed its allowance methodology by segmenting the classes of the residential real estate portfolio into first lien residential mortgages and junior lien residential mortgages, also known as home equity loans. The change was made to allow the Company to closely monitor and appropriately reserve for the risk inherent with home equity lending, given the modest repayment requirements, relaxed documentation, higher loan to value ratios characteristic of home equity lending, subordinate lien position, and recent decline of home property values. No changes in the Company’s policies or methodology pertaining to the general component for loan losses were made during the first nine months of 2012. The Company will shorten or lengthen its look back period for determining average portfolio historical loss rates as the economy either contracts or expands; during a period of economic contraction a shortening of the look back period may more conservatively reflect the current economic climate. The highest loss rates experienced for the look back period are applied to the various segments in establishing the allowance.

The Company then applies numerous qualitative factors to each of these segments of the loan portfolio. Those factors include the levels of and trends in delinquencies and non-accrual loans, criticized and classified assets, volumes and terms of loans, and the impact of any loan policy changes. Experience, ability and depth of lending personnel, levels of policy and documentation exceptions, national and local economic trends, the competitive environment, and concentrations of credit are also factors considered.

The adequacy of the allowance is reviewed quarterly by the risk management committee of the Board of Directors and then presented to the full Board of Directors for approval.

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

	2012			2011
Loans outstanding, end of period	$	409,094,645		$	390,960,106
Average loans outstanding during period	$	399,953,037		$	390,948,990
Non-accruing loans, end of period	$	4,708,519		$	7,134,803
Non-accruing loans, net of government guarantees	$	3,118,286		$	5,118,917
Allowance, beginning of period	$	3,886,502		$	3,727,935
Loans charged off:
Residential real estate - 1st lien		(239,600	)		(465,562	)
Residential real estate - Jr lien		(69,734	)		(96,962	)
Commercial real estate		(57,878	)		(21,679	)
Commercial & industrial loans		(159,309	)		(22,050	)
Consumer loans		(69,437	)		(74,677	)
Total loans charged off		(595,958	)		(680,930	)
Recoveries:
Residential real estate - 1st lien		3,248			27,955
Residential real estate - Jr lien		1,479			0
Commercial real estate		25,450			6,422
Commercial & industrial loans		20,498			12,665
Consumer loans		24,010			29,293
Total recoveries		74,685			76,335
Net loans charged off		(521,273	)		(604,595	)
Provision charged to income		750,001			712,500
Allowance, end of period	$	4,115,230		$	3,835,840
Net charge offs to average loans outstanding		0.130	%		0.155	%
Provision charged to income as a percent of average loans		0.188	%		0.182	%
Allowance to average loans outstanding		1.029	%		0.981	%
Allowance to non-accruing loans		87.400	%		53.762	%
Allowance to non-accrual loans, net of government guarantees		131.971	%		74.935	%

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Specific allocations to the allowance are made for certain impaired loans. Impaired loans are loans to a borrower that in aggregate are greater than $100,000 and that are in non-accrual status. A loan is considered impaired when it is probable that the Company will be unable to collect all amounts due, including interest and principal, according to the contractual terms of the loan agreement.  The Company will review all the facts and circumstances surrounding non-accrual loans and on a case-by-case basis may consider loans below the threshold as impaired when such treatment is material to the financial statements.  See Note 5 to the accompanying unaudited interim consolidated financial statements for information on the recorded investment in impaired loans and their related allocations.

Commercial and commercial real estate loans are generally placed on non-accrual status when there is deterioration in the financial position of the borrower, payment in full of principal and interest is not expected, and/or principal or interest has been in default for 90 days or more. However, such a loan need not be placed in non-accrual status if it is both well secured and in the process of collection.  Residential mortgages and home equity loans are considered for non-accrual status at 90 days past due and are evaluated on a case-by-case basis.  The Company obtains current property appraisals or market value analyses and considers the cost to carry and sell collateral in order to assess the level of specific allocations required. Consumer loans are generally not placed in non-accrual but are charged off by the time they reach 120 days past due. When a loan is placed in non-accrual status, the Company's policy is to reverse the accrued interest against current period income and to discontinue the accrual of interest until the borrower clearly demonstrates the ability and intention to resume normal payments, typically demonstrated by regular timely payments for a period of not less than six months.  Interest payments received on non-accrual or impaired loans are generally applied as a reduction of the loan principal balance.  Deferred taxes are calculated monthly, based on interest amounts that would have accrued through the normal accrual process.

The portion of the allowance termed "unallocated" is established to absorb inherent losses that exist as of the valuation date although not specifically identified through management's process for estimating credit losses.  While the allowance is described as consisting of separate allocated portions, the entire allowance is available to support loan losses, regardless of category.

The Company began experiencing increasing delinquencies and collection activity in 2008 when the most recent recession began. The slow recovery has resulted in prolonged work through of some of these delinquencies and problem loans. The Company works actively with customers early in the delinquency process to help them to avoid default and foreclosure. During the same period the Company experienced increasing trends in the levels of non-performing loans and criticized and classified assets, which is consistent with the length and depth of the economic recession and the current slow recovery. During 2009 the Company had carried the maximum qualitative factor adjustment for weak economic conditions and is now slowly decreasing that factor as the recovery progresses. With the economic recovery continuing, the levels of both Group B (Management Involved) and Group C (Unacceptable Risk) loans (as defined in Note 5 to the Company’s unaudited interim consolidated financial statements) have shown gradual improvement and thus the factors for trends in delinquency and non-accrual loans and criticized and classified have also been gradually decreased. Alternatively, qualitative factors have been increased to account for growth in the loan portfolio.

The Company’s non-performing assets decreased $2,347,132 or 25.3% during the first nine months of 2012. The improvement in non-performing loans is principally due to resolution of loans through foreclosure actions and collateral liquidations. Claims receivable on related government guarantees were $467,145 at September 30, 2012.

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Non-performing assets for the comparison periods were as follows:

	September 30, 2012					December 31, 2011
			Percent					Percent
	Balance		of Total			Balance		of Total
Loans past due 90 days or more and still accruing:
Commercial & industrial loans	$	75,042		1.08	%	$	59,618		0.64	%
Commercial real estate		53,936		0.78	%		98,554		1.06	%
Residential real estate - 1st lien		825,843		11.91	%		969,078		10.44	%
Residential real estate – Jr lien		109,222		1.58	%		111,061		1.20	%
Consumer		9,236		0.13	%		1,498		0.02	%
Total		1,073,279		15.48	%		1,239,809		13.36	%
Non-accrual loans:
Commercial & industrial loans		613,817		8.85	%		1,066,945		11.50	%
Commercial real estate		2,321,320		33.49	%		3,714,146		40.03	%
Residential real estate - 1st lien		1,441,659		20.80	%		2,703,920		29.14	%
Residential real estate - Jr lien		326,882		4.72	%		464,308		5.00	%
Consumer		4,841		0.07	%		0		0.00	%
Total		4,708,519		67.93	%		7,949,319		85.67	%
Other real estate owned		1,150,198		16.59	%		90,000		0.97	%
Total Non-Performing Assets	$	6,931,996		100.00	%	$	9,279,128		100.00	%
Non-Performing Assets, net of government guarantees	$	5,341,762				$	7,263,242

The Company is not contractually committed to lend additional funds to debtors with impaired, non-accrual or modified loans.

As of September 30, 2012 and December 31, 2011, the OREO portfolio totaled $1,150,198 and $90,000 respectively.  The Company’s OREO portfolio at September 30, 2012 consisted of six properties acquired through the normal foreclosure process.  Five residential properties and one commercial property were added to OREO during the first nine months of 2012, with one of the residential properties being sold during the third quarter..

The Company made provisions to the allowance of $750,001 during the first nine months of 2012, comparable to the level of the provision made during the same periods over the last two years and sufficient, in management’s view, to cover charge offs, net of recoveries of $521,273 during the first nine months of 2012, and to provide for growth in the loan portfolio. Net loan losses began increasing in 2007 and 2008 as a result of the recession and, given the increasing trend, the depth of the recession and the long and shallow recovery, management increased its provision for loan losses to $1.0 million for 2011 and just under $1.1 million for 2010, compared to $625,004 for 2009. Management believes that the level of the provision for loan losses for the first nine months of 2012 and prior recent periods is directionally consistent with the trends and risk in the loan portfolio and with the growth of the loan portfolio. Management will continue to monitor the activity of non-performing loans, carefully assess the reserve requirements and adjust the provision in future periods as circumstances warrant. The Company has an experienced collections department that continues to work actively with borrowers to resolve problem loans, and management continues to monitor the loan portfolio closely.

Market Risk - In addition to credit risk in the Company’s loan portfolio and liquidity risk in its loan and deposit-taking operations, 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.  Declining capital markets can result in fair value adjustments necessary to record decreases in the value of the investment portfolio for other-than-temporary-impairment.  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 and deposit taking activities. During times of recessionary periods, a declining housing market can result in an increase in loan loss reserves or ultimately an increase in foreclosures.  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.  The prolonged weak economy and disruption in the financial markets in recent years may heighten the Company’s market risk.  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.

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COMMITMENTS, CONTINGENCIES AND OFF-BALANCE-SHEET ARRANGEMENTS

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.  These financial instruments include commitments to extend 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 six months of 2012, the Company did not engage in any activity that created any additional types of off-balance sheet risk.

The Company generally requires collateral or other security to support financial instruments with credit risk. The Company's financial instruments whose contract amount represents credit risk were as follows:

	-Contract or Notional Amount-
	September 30, 2012		December 31, 2011
Unused portions of home equity lines of credit	$	21,311,983	$	20,161,629
Other commitments to extend credit		50,848,805		38,106,476
Residential construction lines of credit		1,753,666		588,290
Commercial real estate and other construction lines of credit		1,957,618		2,126,558
Standby letters of credit and commercial letters of credit		1,581,155		1,954,885
Recourse on sale of credit card portfolio		352,000		398,200
MPF credit enhancement obligation, net of liability recorded		997,911		1,979,684

Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  The Company sold its credit card portfolio during the third quarter of 2007, but retained a partial recourse obligation under the terms of the sale, based on total lines, not balances outstanding.  Based on historical losses, the Company does not expect any significant losses from this commitment.

In connection with its trust preferred securities financing completed on October 31, 2007, the Company guaranteed the payment obligations under the $12,500,000 of capital securities of its subsidiary, CMTV Statutory Trust I.  The source of funds for payments by the Trust on its capital securities is payments made by the Company on its debentures issued to the Trust.  The Company's obligation under those debentures is fully reflected in the Company's balance sheet, in the gross amount of $12,887,000 for each of the comparison periods, of which $12,500,000 represents external financing.

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 requirements for 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.

Currently, the Company is not offering competitive rates to attract or retain “rate chasers”.  The Company however, recognizes that, at times, when loan demand exceeds deposit growth it may be desirable to utilize alternative sources of deposit funding to augment retail deposits and borrowings.  One-way deposits purchased through the CDARS provide an alternative funding source when needed.  Such deposits are generally considered a form of brokered deposits.  The Company had $2,061,461 and $0 in one-way funds on September 30, 2012 and December 31, 2011, respectively.  In addition, two-way CDARS deposits allow the Company to provide FDIC deposit insurance to its customers in excess of account coverage limits by exchanging deposits with other CDARS members.  At September 30, 2012, the Company reported $1,021,906 in CDARS deposits representing exchanged deposits with other CDARS participating banks compared to $1,121,632 at December 31, 2011.  The balance in ICS deposits was $11,010,252 at September 30, 2012, compared to $10,872,204 at December 31, 2011.

42

The Company has a Borrower-in-Custody arrangement with the Federal Reserve Bank of Boston (FRBB) secured by eligible commercial loans, commercial real estate loans and home equity loans, resulting in an available line of $70,635,875 and $69,222,549, respectively at September 30, 2012 and December 31, 2011.  Credit advances in the FRBB lending program are overnight advances with interest chargeable at the primary credit rate (generally referred to as the discount rate), currently 75 basis points.  At September 30, 2012 and December 31, 2011, the Company had no outstanding advances against this line.

The Company has an unsecured IDEAL Way line with the FHLBB with an available balance of $500,000 at September 30, 2012 and December 31, 2011.  Interest is determined daily and is approximately 25 basis points higher than the rate paid on federal funds sold.  In addition, at September 30, 2012 and December 31, 2011, additional borrowing capacity of $69,862,201 and $77,902,569, respectively, was available through the FHLBB secured by the Company's qualifying loan portfolio (generally residential mortgages).  Under a separate agreement, the Company has the authority to collateralize public unit deposits up to its available FHLBB borrowing capacity with letters of credit issued by the FHLBB.  The Company offers a Government Agency Account to the municipalities collateralized with these FHLBB letters of credit.  At September 30, 2012 and December 31, 2011, approximately $22,350,000 and $15,950,000, respectively, of qualifying residential real estate loans were pledged as collateral to the FHLBB for these collateralized governmental unit deposits.  Early in 2012, a $6,000,000 long-term advance matured and was replaced with lower cost overnight borrowings.  As of September 30, 2012, the balance of overnight borrowings was $4,840,000, compared to a zero balance on both September 30, 2011 and December 31, 2011.  The Company utilized this low cost funding source as loan demand outpaced the modest growth in deposits.

The following table reflects the Company’s outstanding FHLBB advances against the respective lines as of the dates indicated:

	September 30,		December 31,		September 30,
	2012		2011		2011
Long-Term Advances
FHLBB Community Investment Program borrowing, 7.67% fixed
rate, due November 16, 2012	$	10,000	$	10,000	$	10,000
FHLBB term borrowing, 1.00% fixed rate, due January 27, 2012		0		6,000,000		6,000,000
FHLBB term borrowing, 1.71% fixed rate, due January 28, 2013		6,000,000		6,000,000		6,000,000
FHLBB term borrowing, 2.72% fixed rate, due January 27, 2015		6,000,000		6,000,000		6,000,000
		12,010,000		18,010,000		18,010,000
Overnight Borrowings
Federal funds purchased (FHLBB),  0.3125%		4,840,000		0		0
Total Borrowings	$	16,850,000	$	18,010,000	$	18,010,000

The following table illustrates the changes in shareholders' equity from December 31, 2011 to September 30, 2012:

Balance at December 31, 2011 (book value $8.13 per common share)	$	40,918,409
Net income		3,253,392
Issuance of stock through the Dividend Reinvestment Plan		673,194
Dividends declared on common stock		(1,995,617	)
Dividends declared on preferred stock		(140,625	)
Change in unrealized gain on available-for-sale securities, net of tax		170,139
Balance at September 30, 2012 (book value $8.42 per common share)	$	42,878,892

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.

43

The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Company's and the Bank's financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items, as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.  Prompt corrective action capital requirements are applicable to banks, but not bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined).  The Company’s Series A preferred stock ($2.5 million liquidation preference) is includable without limitation in its Tier 1 capital.  In accordance with changes in the regulatory requirements for calculating capital ratios, beginning with the quarter ended March 31, 2011, the Company deducts the amount of goodwill, net of deferred tax liability ($2,061,772 at September 30, 2012 and December 31, 2011), for purposes of calculating the amount of trust preferred junior subordinated debentures includable in Tier 1 capital.  Management believes, as of September 30, 2012, that the Company and the Bank met all capital adequacy requirements to which they are subject.

As of September 30, 2012 the Bank was considered well capitalized under the regulatory capital framework for Prompt Corrective Action and the Company exceeded applicable consolidated regulatory capital guidelines.

The regulatory capital ratios of the Company and its subsidiary as of September 30, 2012 and December 31, 2011 exceeded regulatory guidelines and are presented in the following table.

	Actual					Minimum For Capital Adequacy Purposes:					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions:
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of September 30, 2012:						(Dollars in Thousands)
Total capital (to risk-weighted assets)
Company	$	48,554		12.97	%	$	29,946		8.00	%		N/A		N/A
Bank	$	48,504		12.97	%	$	29,916		8.00	%	$	37,394		10.00	%
Tier I capital (to risk-weighted assets)
Company	$	42,625		11.39	%	$	14,972		4.00	%		N/A		N/A
Bank	$	44,351		11.86	%	$	14,958		4.00	%	$	22,437		6.00	%
Tier I capital (to average assets)
Company	$	42,625		7.75	%	$	22,007		4.00	%		N/A		N/A
Bank	$	44,351		8.08	%	$	21,968		4.00	%	$	27,460		5.00	%
As of December 31, 2011:
Total capital (to risk-weighted assets)
Company	$	46,351		12.50	%	$	29,660		8.00	%		N/A		N/A
Bank	$	45,772		12.37	%	$	29,596		8.00	%	$	36,995		10.00	%
Tier I capital (to risk-weighted assets)
Company	$	39,980		10.78	%	$	14,830		4.00	%		N/A		N/A
Bank	$	41,830		11.31	%	$	14,798		4.00	%	$	22,197		6.00	%
Tier I capital (to average assets)
Company	$	39,980		7.28	%	$	21,965		4.00	%		N/A		N/A
Bank	$	41,830		7.63	%	$	21,935		4.00	%	$	27,419		5.00	%

44

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

In June 2012, the Federal Reserve Board proposed new rules implementing the Basel III capital standards, which if adopted as proposed would significantly revise the regulatory capital standards for U.S. financial institutions, including community banks.  Among other things, the proposed rules would revise the definition of various regulatory capital components and related calculation methods, add a new regulatory capital component (common equity tier 1 capital), increase the minimum required tier 1 capital, implement a new capital conservation buffer and restrict dividends and certain discretionary bonus payments when the buffer is not maintained.  The revisions most troubling to the Company are the changes to risk-weighting of assets, the inclusion of unrealized gains and losses on available-for-sale securities in regulatory capital and the exclusion of trust preferred securities from regulatory capital accomplished over a 10 year phase out period.  Management is evaluating the potential impact of the proposed capital rules on the Company.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 captions "RISK MANAGEMENT" and “COMMITMENTS, CONTINGENCIES AND OFF-BALANCE-SHEET ARRANGEMENTS”, which are 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 2011 Annual Report on form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”).  As of September 30, 2012, an evaluation was performed under the supervision and with the participation of management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures.  Based on that evaluation, management concluded that its disclosure controls and procedures as of September 30, 2012 were effective in ensuring that material information required to be disclosed in the reports it files with the Commission under the Exchange Act was recorded, processed, summarized, and reported on a timely basis.

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.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

45

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the normal course of business the Company and its subsidiary are involved in litigation that is considered incidental to their business.  Management does not expect that any such litigation will be material to the Company's consolidated financial condition or results of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information as to purchases of the Company’s common stock during the quarter ended September 30, 2012, by the Company and by any affiliated purchaser (as defined in SEC Rule 10b-18):

For the period:	Total Number of Shares Purchased(1)(2)		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan		Maximum Number of Shares That May Yet Be Purchased Under the Plan at the End of the Period
July 1 - July 31		0	$	0.00		N/A		N/A
August 1 - August 31		2,328		10.35		N/A		N/A
September 1 - September 30		2,872		10.65		N/A		N/A
Total		5,200	$	10.52		N/A		N/A

(1)  All 5,200 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 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.

(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.

ITEM 6. EXHIBITS

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*

Exhibit 101-- The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 formatted in eXtensible Business Reporting Language (XBRL): (i) the unaudited consolidated balance sheets, (ii) the unaudited consolidated statements of income for the third quarters and nine months ended September 30, 2012 and 2011, (iii) the unaudited consolidated statements of comprehensive income, (iv) the unaudited consolidated statements of cash flows and (v) related notes, tagged as detail tagging.*  **

__________

*  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 Exchange Act of 1934.

**  As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

46

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	COMMUNITY BANCORP.
DATED:  November 14, 2012	By:	/s/ Stephen P. Marsh
		Stephen P. Marsh, Chairman, President
		& Chief Executive Officer
DATED:  November 14, 2012	By:	/s/ Louise M. Bonvechio
		Louise M. Bonvechio,  Treasurer
		(Principal Financial Officer)

47

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Stephen P. Marsh, Chairman, President and Chief Executive Officer, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Community Bancorp.;
2.	Based on my knowledge, this 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(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.

	Community Bancorp.
Date  November 14, 2012	By:	/s/ Stephen P. Marsh
		Name  Stephen P. Marsh
		Title  Chairman, President & Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Louise M. Bonvechio, Treasurer (Principal Financial Officer), 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(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.

	Community Bancorp.
Date  November 14, 2012	By:	/s/ Louise M. Bonvechio
		Name  Louise M. Bonvechio
		Title  Treasurer (Principal Financial Officer)

EX-32.1

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, 2012, 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.

	Community Bancorp.
Date  November 14, 2012	By:	/s/ Stephen P. Marsh
		Name  Stephen P. Marsh
		Title  Chairman, President & Chief Executive Officer

EX-32.2

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, 2012 as 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.

	Community Bancorp.
Date  November 14, 2012	By:	/s/ Louise M. Bonvechio
		Name  Louise M. Bonvechio
		Title  Treasurer (Principal Financial Officer)

XML

7. Schedule of Fair Value Assets Nonrecurring Basis (Details) (Fair Value Level 2, USD $)	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Fair Value Level 2
Assets: (market approach)
Mortgage servicing rights	$ 1,005,857	$ 1,167,808	$ 1,211,219
Impaired loans, net of related allowance	683,561	3,463,540	3,271,384
OREO	$ 1,150,198	$ 90,000	$ 0

XML

5. Credit Quality - Risk ratings (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Group A	$ 394,488,036	$ 366,739,436	$ 365,425,861
Group B	5,104,798	4,989,008	8,634,044
Group C	9,501,811	16,943,595	16,900,201
Total Loans	409,094,645	388,672,039	390,960,106
Commercial and Industrial
Group A	45,649,737	36,971,880	31,263,167
Group B	590,534	530,523	889,433
Group C	1,244,368	2,012,204	2,417,463
Total Loans	47,484,639	39,514,607	34,570,063
Commercial Real Estate
Group A	127,984,841	119,410,381	121,785,036
Group B	3,787,365	4,037,860	7,157,279
Group C	4,244,348	8,821,127	8,949,934
Total Loans	136,016,554	132,269,368	137,892,249
Residential real estate - 1st lien
Group A	164,474,055	153,954,604
Group B	408,051	98,603
Group C	3,659,304	5,482,751
Total Loans	168,541,410	159,535,958
ResidentialRealEstate1Member
Group A			200,493,345
Group B			587,332
Group C			5,517,529
Total Loans			206,598,206
Residential real estate - Jr lien
Group A	45,373,633	44,943,200
Group B	318,848	322,022
Group C	336,757	621,745
Total Loans	46,029,238	45,886,967
Consumer
Group A	11,005,770	11,459,371	11,884,313
Group B	0	0	0
Group C	17,034	5,768	15,275
Total Loans	$ 11,022,804	$ 11,465,139	$ 11,899,588

XML

4. Schedule Of Securities (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Available for sale Securities
Amortized Cost - Available for sale Securities	$ 46,548,408	$ 65,896,293	$ 31,276,790
Gross Unrealized Gains - Available for sale Securities	463,320	302,782	309,190
Gross Unrealized Losses - Available for sale Securities	2,910	100,158	52,705
Fair Value - Available for sale Securities	47,008,818	66,098,917	31,533,275
U.S. GSE debt securities
Available for sale Securities
Amortized Cost - Available for sale Securities	39,423,142	60,846,954	26,224,330
Gross Unrealized Gains - Available for sale Securities	419,253	215,595	187,825
Gross Unrealized Losses - Available for sale Securities	2,610	99,310	52,705
Fair Value - Available for sale Securities	39,839,785	60,963,239	26,359,450
U.S. Government securities
Available for sale Securities
Amortized Cost - Available for sale Securities	7,082,906	5,006,979	5,010,100
Gross Unrealized Gains - Available for sale Securities	35,050	37,424	35,350
Gross Unrealized Losses - Available for sale Securities	300	848	0
Fair Value - Available for sale Securities	7,117,656	5,043,555	5,045,450
U.S. GSE preferred stock
Available for sale Securities
Amortized Cost - Available for sale Securities	42,360	42,360	42,360
Gross Unrealized Gains - Available for sale Securities	9,017	49,763	86,015
Gross Unrealized Losses - Available for sale Securities	0	0	0
Fair Value - Available for sale Securities	51,377	92,123	128,375
US States and Political Subdivisions Debt Securities [Member]
Held-to-Maturity Securities
Amortized Cost - Held-to-Maturity	50,065,653	29,702,159	36,898,097
Gross Unrealized Gains - Held-to-Maturity	565,347	586,841	498,903
Gross Unrealized Losses - Held-to-Maturity	0	0	0
Fair Value - Held-to-Maturity	$ 50,631,000	$ 30,289,000	$ 37,397,000

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10. Subsequent Event (Details Narrative) (USD $)	Sep. 30, 2012
Notes to Financial Statements
Cash Dividends Declared	$ 0.14
Dividends Payable	$ 668,439

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6. Goodwill and Other Intangible Assets (Details Narrative) (USD $)	9 Months Ended
	Sep. 30, 2012
Notes to Financial Statements
Amortization Expense	$ 255,652
Intangible assets acquired	$ 4,161,000

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3. Earnings per Common Share

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

3. Earnings per Common 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), including Dividend Reinvestment Plan shares issuable upon reinvestment of dividends declared, and reduced for shares held in treasury.

The following table illustrates the calculation for the periods ended September 30, as adjusted for the cash dividends declared on the preferred stock:

For The Quarter Ended September 30,	2012		2011
Net income, as reported	$	1,267,351	$	820,624
Less: dividends to preferred shareholders		46,875		46,875
Net income available to common shareholders	$	1,220,476	$	773,749
Weighted average number of common shares
used in calculating earnings per share		4,781,877		4,687,718
Earnings per common share	$	0.26	$	0.17

For the Nine Months Ended September 30,		2012		2011
Net income, as reported	$	3,253,392	$	2,636,811
Less: dividends to preferred shareholders		140,625		140,625
Net income available to common shareholders	$	3,112,767	$	2,496,186
Weighted average number of common shares
used in calculating earnings per share		4,759,383		4,662,261
Earnings per common share	$	0.65	$	0.54

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5. Composition of net loans (Details) (USD $)	Sep. 30, 2012	Jun. 30, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Dec. 31, 2010
Notes to Financial Statements
Commercial and Industrial	$ 47,484,639		$ 39,514,607	$ 34,570,063
Commercial real estate	136,016,554		132,269,368	137,892,249
Residential real estate - 1st lien	168,541,410		159,535,958	159,755,182
Residential real estate - Jr. lien	46,029,238		45,886,967	46,843,024
Consumer	11,022,804		11,465,139	11,899,588
Gross Loans	409,094,645		388,672,039	390,960,106
Allowance for loan losses	4,115,230	3,926,119	3,886,502	3,835,840	3,851,369	3,727,935
Deferred net loan costs (fees)	(101,742)		(7,251)	20,474
Loans held-for-sale	1,483,940		2,285,567	2,411,242
Total Adjustments	5,497,428		6,164,818	6,267,556
Net loans	$ 403,597,217		$ 382,507,221	$ 384,692,550

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4. Investment Securities (Details Narrative) (USD $)	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Investment Securities Details Narrative
Fannie Mae preferred stock aggregate cost basis	$ 42,360	$ 42,360	$ 42,360
Fannie Mae preferred stock reflected impairment	$ 833,778	$ 833,778	$ 833,778

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5. Past due loans by segment (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
30-89 Days	$ 2,010,991	$ 9,120,129	$ 5,880,741
90 Days or more	2,883,921	6,827,193	4,208,683
Total Past Due	4,894,912	15,947,322	10,089,424
Current	402,715,793	370,439,150	378,459,440
Total Loans	407,610,705	386,386,472	388,548,864
Non-Accrual Loans	4,708,519	7,949,319	7,134,803
Over 90 Days and Accruing	1,073,279	1,239,809	1,060,942
Commercial and Industrial
30-89 Days	254,847	655,168	667,668
90 Days or more	326,693	265,668	583,258
Total Past Due	581,540	920,836	1,250,926
Current	46,903,099	38,593,771	33,319,137
Total Loans	47,484,639	39,514,607	34,570,063
Non-Accrual Loans	613,817	1,066,945	917,328
Over 90 Days and Accruing	75,042	59,618	21,824
Commercial Real Estate
30-89 Days	426,428	2,266,412	3,066,295
90 Days or more	1,331,505	1,288,616	1,025,858
Total Past Due	1,757,933	3,555,028	4,092,153
Current	134,258,621	128,714,340	133,800,096
Total Loans	136,016,554	132,269,368	137,892,249
Non-Accrual Loans	2,321,320	3,714,146	2,911,034
Over 90 Days and Accruing	53,936	98,554	209,506
Residential real estate - 1st lien
30-89 Days	749,535	5,614,513	1,673,594
90 Days or more	1,102,424	2,517,282	2,192,883
Total Past Due	1,851,959	8,131,795	3,866,477
Current	165,205,511	149,118,596	153,477,463
Total Loans	167,057,470	157,250,391	157,343,940
Non-Accrual Loans	1,441,659	2,703,920	2,768,549
Over 90 Days and Accruing	825,843	969,078	619,848
Residential real estate - Jr lien
30-89 Days	456,984	431,885	380,341
90 Days or more	109,222	2,754,129	403,815
Total Past Due	566,206	3,186,014	784,156
Current	45,463,032	42,700,953	46,058,868
Total Loans	46,029,238	45,886,967	46,843,024
Non-Accrual Loans	326,882	464,308	537,892
Over 90 Days and Accruing	109,222	111,061	208,754
Consumer
30-89 Days	123,197	152,151	92,843
90 Days or more	14,077	1,498	2,869
Total Past Due	137,274	153,649	95,712
Current	10,885,530	11,311,490	11,803,876
Total Loans	11,022,804	11,465,139	11,899,588
Non-Accrual Loans	4,841	0	0
Over 90 Days and Accruing	$ 9,236	$ 1,498	$ 1,010

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5. Changes in the allowance for loan losses (Details) (USD $)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Allowance for loan losses, Beginning balance	$ 3,926,119	$ 3,851,369	$ 3,886,502	$ 3,727,935	$ 3,727,935
Charge-offs	(111,834)	(342,245)	(595,958)	(680,930)	(941,673)
Recoveries	50,946	39,216	74,685	76,335	100,240
Provisions	249,999	287,500	750,001	712,500	1,000,000
Allowance for loan losses, Ending balance	4,115,230	3,835,840	4,115,230	3,835,840	3,886,502
Allowance for loan losses evaluated for impairment, Individually	166,000	499,200	166,000	499,200	458,500
Allowance for loan losses evaluated for impairment, Collectively	3,949,230	3,336,640	3,949,230	3,336,640	3,428,002
Total Allowance for loan losses	4,115,230	3,835,840	4,115,230	3,835,840	3,886,502
Loans evaluated for impairment, Individually	4,192,714	6,568,494	4,192,714	6,568,494	7,470,370
Loans evaluated for impairment, Collectively	403,417,991	381,980,370	403,417,991	381,980,370	378,916,102
Total Loans	407,610,705	388,548,864	407,610,705	388,548,864	386,386,472
Commercial and industrial
Allowance for loan losses, Beginning balance	383,523	246,567	342,314	302,421	302,421
Charge-offs	(34,375)	(18,924)	(159,309)	(22,050)	(22,050)
Recoveries	17,978	1,144	20,498	12,665	13,225
Provisions	51,298	51,343	214,921	(12,906)	48,718
Allowance for loan losses, Ending balance	418,424	280,130	418,424	280,130	342,314
Allowance for loan losses evaluated for impairment, Individually	0	42,100	0	42,100	70,600
Allowance for loan losses evaluated for impairment, Collectively	418,424	238,030	418,424	238,030	271,714
Total Allowance for loan losses	418,424	280,130	418,424	280,130	342,314
Loans evaluated for impairment, Individually	446,484	841,032	446,484	841,032	1,000,120
Loans evaluated for impairment, Collectively	47,038,155	33,729,031	47,038,155	33,729,031	38,514,487
Total Loans	47,484,639	34,570,063	47,484,639	34,570,063	39,514,607
Commercial real estate
Allowance for loan losses, Beginning balance	1,386,183	1,395,350	1,385,939	1,391,898	1,391,898
Charge-offs	(2,821)	(21,679)	(57,878)	(21,679)	(197,367)
Recoveries	24,587	4,241	25,450	6,422	8,479
Provisions	36,941	148,745	91,379	150,016	182,929
Allowance for loan losses, Ending balance	1,444,890	1,526,657	1,444,890	1,526,657	1,385,939
Allowance for loan losses evaluated for impairment, Individually	8,900	104,500	8,900	104,500	57,500
Allowance for loan losses evaluated for impairment, Collectively	1,435,990	1,422,157	1,435,990	1,422,157	1,328,439
Total Allowance for loan losses	1,444,890	1,526,657	1,444,890	1,526,657	1,385,939
Loans evaluated for impairment, Individually	2,187,060	2,834,584	2,187,060	2,834,584	3,669,260
Loans evaluated for impairment, Collectively	133,829,494	135,057,665	133,829,494	135,057,665	128,600,108
Total Loans	136,016,554	137,892,249	136,016,554	137,892,249	132,269,368
Residential real estate 1st lien
Allowance for loan losses, Beginning balance	1,473,661		1,578,493
Charge-offs	(56,126)		(239,600)		(521,608)
Recoveries	1,426		3,248		42,593
Provisions	85,324		162,144		226,692
Allowance for loan losses, Ending balance	1,504,285		1,504,285		1,578,493
Allowance for loan losses evaluated for impairment, Individually	110,700		110,700		283,200
Allowance for loan losses evaluated for impairment, Collectively	1,393,585		1,393,585		1,295,293
Total Allowance for loan losses	1,504,285		1,504,285		1,578,493
Loans evaluated for impairment, Individually	1,261,272		1,261,272		2,366,326
Loans evaluated for impairment, Collectively	165,796,198		165,796,198		154,884,065
Total Loans	167,057,470		167,057,470		157,250,391
Residential Real Estate Jr Lien
Allowance for loan losses, Beginning balance	368,939		331,684	0	0
Charge-offs	(9,447)		(69,734)		(96,961)
Recoveries	60		1,479		20
Provisions	38,815		134,938		428,625
Allowance for loan losses, Ending balance	398,367		398,367		331,684
Allowance for loan losses evaluated for impairment, Individually	46,400		46,400		47,200
Allowance for loan losses evaluated for impairment, Collectively	351,967		351,967		284,484
Total Allowance for loan losses	398,367		398,367		331,684
Loans evaluated for impairment, Individually	297,898		297,898		434,664
Loans evaluated for impairment, Collectively	45,731,340		45,731,340		45,452,303
Total Loans	46,029,238		46,029,238		45,886,967
Residential Real Estate
Allowance for loan losses, Beginning balance		1,965,940		1,830,816	1,830,816
Charge-offs		(291,077)		(562,524)
Recoveries		27,355		27,955
Provisions		129,545		535,516
Allowance for loan losses, Ending balance		1,831,763		1,831,763
Allowance for loan losses evaluated for impairment, Individually		352,600		352,600
Allowance for loan losses evaluated for impairment, Collectively		1,479,163		1,479,163
Total Allowance for loan losses		1,831,763		1,831,763
Loans evaluated for impairment, Individually		2,892,878		2,892,878
Loans evaluated for impairment, Collectively		201,294,086		201,294,086
Total Loans		204,186,964		204,186,964
Consumer Portfolio Segment [Member]
Allowance for loan losses, Beginning balance	126,914	132,532	124,779	151,948	151,948
Charge-offs	(9,065)	(10,565)	(69,437)	(74,677)	(103,687)
Recoveries	6,895	6,476	24,010	29,293	35,923
Provisions	5,965	615	51,357	22,494	40,595
Allowance for loan losses, Ending balance	130,709	129,058	130,709	129,058	124,779
Allowance for loan losses evaluated for impairment, Individually	0	0	0	0	0
Allowance for loan losses evaluated for impairment, Collectively	130,709	129,058	130,709	129,058	124,779
Total Allowance for loan losses	130,709	129,058	130,709	129,058	124,779
Loans evaluated for impairment, Individually	0	0	0	0	0
Loans evaluated for impairment, Collectively	11,022,804	11,899,588	11,022,804	11,899,588	11,465,139
Total Loans	11,022,804	11,899,588	11,022,804	11,899,588	11,465,139
Unallocated
Allowance for loan losses, Beginning balance	186,899	110,980	123,293	50,852	50,852
Charge-offs	0	0	0	0	0
Recoveries	0	0	0	0	0
Provisions	31,656	(42,748)	95,262	17,380	72,441
Allowance for loan losses, Ending balance	218,555	68,232	218,555	68,232	123,293
Allowance for loan losses evaluated for impairment, Individually	0	0	0	0	0
Allowance for loan losses evaluated for impairment, Collectively	218,555	68,232	218,555	68,232	123,293
Total Allowance for loan losses	$ 218,555	$ 68,232	$ 218,555	$ 68,232	$ 123,293

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2. Recent Accounting Developments

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

Note 2. Recent Accounting Developments

In April 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-03, “Reconsideration of Effective Control for Repurchase Agreements,” amending the criteria under Accounting Standards Codification (ASC) Topic 860 for determining whether the transferor under a repurchase agreement involving a financial asset has retained effective control over the financial asset and therefore must account for the transaction as a secured borrowing rather than a sale.  The guidance removes from the effective control criteria the consideration of whether the transferor has the ability to repurchase or redeem the financial asset on substantially the agreed terms.  The guidance is applied prospectively and is effective for new transactions and for existing transactions that are modified as of the beginning of the first interim or annual period beginning on or after December 15, 2011.  Adoption of ASU 2011-03 did not have a material impact on the Company’s consolidated financial statements.

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement:  Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in United States Generally Accepted Accounting Principles (US GAAP) and IFRS,” amending ASC Topic 820.  Although ASU 2011-04 deals primarily with development of a single fair value framework for US GAAP and International Financial Reporting Standards, the ASU also contains additional guidance on fair value measurements.  Among other things, ASU 2011-04: clarifies how a principal market is determined; addresses the fair value measurement or counterparty credit risks and the concept of valuation premise and highest and best use of nonfinancial assets; prescribes a model for measuring the fair value of an instrument classified in shareholders’ equity; limits the use of premiums or discounts based on the size of a holding; and requires certain new disclosures, including disclosures of all transfers between Levels 1 and 2 of the fair value hierarchy, whether or not significant, and additional disclosures regarding unobservable inputs and valuation processes for Level 3 measurements.  The guidance in ASU 2011-04 is to be applied prospectively, and is effective for interim and annual periods beginning on or after December 15, 2011.  Adoption of ASU 2011-04 did not have a material impact on the Company’s consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income,” amending Topic 220.  The amendments provide that an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  The Company has chosen the latter option.  This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity.  The ASU does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income, nor does it require any transition disclosures.  The amendments in this ASU are applied retrospectively, and are effective for fiscal years and interim periods beginning after December 15, 2011.  In December 2011, the FASB issued ASU No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05”, which defers the effective date of a requirement in ASU 2011-05 related to reclassifications of items out of accumulated other comprehensive income.  The deferral of the effective date was made to allow the FASB time to consider whether to require presentation on the face of the financial statements of the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented.  Adoption of ASU 2011-05 did not have a material impact on the Company’s consolidated financial statements.

In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment,” amending Topic 350.  The guidance changes the manner of testing of goodwill for impairment by providing an entity with the option of first assessing qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the fair value of a reporting unit is less than its carrying amount. Such qualitative factors may include the following: macroeconomic conditions; industry and market considerations; cost factors; overall financial performance; and other relevant entity-specific events.  If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the existing two-step quantitative impairment test; otherwise, no further analysis is required.  An entity also may elect not to perform the qualitative assessment and instead go directly to the two-step quantitative impairment test.  These changes are effective for fiscal years beginning on or after December 15, 2011.  The Company does not expect that adoption of the ASU will have a material impact on the Company’s consolidated financial statements.

In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (Topic 210):  Disclosures about Offsetting Assets and Liabilities,” amending Topic 210.  The amendments require an entity to disclose both gross and net information about both instruments and transactions that are eligible for offset on the balance sheet and instruments and transactions that are subject to an agreement similar to a master netting arrangement.  This guidance is effective for annual periods beginning on or after January 1, 2013 and interim periods within those annual periods, with retrospective disclosure for all comparative periods presented.  The Company is evaluating the impact of ASU 2011-11 but does not expect that adoption of the ASU will have a material impact on the Company’s consolidated financial statements.

In July 2012, the FASB issued ASU 2012-02, “Intangibles-Goodwill and Other (Topic 35): Testing Indefinite-Lived Intangible Assets for Impairment,” amending Topic 350. The guidance allows entities to first perform an optional qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired in order to determine whether the asset should be further evaluated under quantitative impairment testing. The guidance does not revise the requirement that indefinite-lived intangible assets be tested for impairment at least annually, or more frequently if circumstances warrant, although it does revise the examples of events and circumstances that an entity should consider during interim periods. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, although early adoption is permitted. The Company is evaluating the impact of ASU 2012-02 but does not expect its adoption will have a material impact on the Company’s consolidated financial statements.

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5. Impaired loans by segment (Details) (USD $)	9 Months Ended		12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Recorde Investment allowance recorded	$ 4,192,714	$ 6,568,494	$ 7,470,370
Unpaid Principal Balance allowance recorded	4,969,054	7,400,343	8,497,472
Related Allowance recorded	166,000	499,200	458,500
Average Recorded Investment Allowance recorded	6,245,100	5,114,495	5,585,670
Interet Income Recognized allownce recorded	0	0	0
Commercial and Industrial
Recorded Investment With no related allowance recorded	446,484	397,993	380,624
Recorded Investment With an allowance recorded	0	443,039	619,496
Recorde Investment allowance recorded	446,484	841,032	1,000,120
Unpaid Principal Balance With no related allowance recorded	478,798	400,678	391,800
Unpaid Principal Balance With an allowance recorded	0	443,887	637,729
Unpaid Principal Balance allowance recorded	478,798	844,565	1,029,529
Related Allowance With no ralated allowance recorded	0	0	0
Related Allowance With an allowance recorded	0	42,100	70,600
Related Allowance recorded	0	42,100	70,600
Average Recorded Investment With no related allowance recorded	562,425	320,498	332,523
Average Recorded Investment With an allowance recorded	290,929	142,281	237,724
Average Recorded Investment Allowance recorded	853,354	462,779	570,247
Interest Income Recognized With no related allowance recorded	0	0	0
Interest Income Recognized With an allowance recorded	0	0	0
Interet Income Recognized allownce recorded	0	0	0
Commercial Real Estate
Recorded Investment With no related allowance recorded	1,996,452	1,320,096	2,041,101
Recorded Investment With an allowance recorded	190,608	1,514,488	1,628,159
Recorde Investment allowance recorded	2,187,060	2,834,584	3,669,260
Unpaid Principal Balance With no related allowance recorded	2,426,167	1,350,647	2,246,905
Unpaid Principal Balance With an allowance recorded	192,108	1,517,237	1,653,646
Unpaid Principal Balance allowance recorded	2,618,275	2,867,884	3,900,551
Related Allowance With no ralated allowance recorded	0	0	0
Related Allowance With an allowance recorded	8,900	104,500	57,500
Related Allowance recorded	8,900	104,500	57,500
Average Recorded Investment With no related allowance recorded	2,083,657	690,234	960,407
Average Recorded Investment With an allowance recorded	1,151,053	1,003,954	1,128,795
Average Recorded Investment Allowance recorded	3,234,710	1,694,188	2,089,202
Interest Income Recognized With no related allowance recorded	0	0	0
Interest Income Recognized With an allowance recorded	0	0	0
Interet Income Recognized allownce recorded	0	0	0
Residential real estate - 1st lien
Recorded Investment With no related allowance recorded	900,217		1,000,819
Recorded Investment With an allowance recorded	361,055		1,365,507
Recorde Investment allowance recorded	1,261,272		2,366,326
Unpaid Principal Balance With no related allowance recorded	1,149,862		1,191,437
Unpaid Principal Balance With an allowance recorded	402,647		1,869,338
Unpaid Principal Balance allowance recorded	1,552,509		3,060,775
Related Allowance With no ralated allowance recorded	0		0
Related Allowance With an allowance recorded	110,700		283,200
Related Allowance recorded	110,700		283,200
Average Recorded Investment With no related allowance recorded	860,886		1,210,137
Average Recorded Investment With an allowance recorded	961,084		1,629,151
Average Recorded Investment Allowance recorded	1,821,970		2,839,288
Interest Income Recognized With no related allowance recorded	0		0
Interest Income Recognized With an allowance recorded	0		0
Residential Real Estate
Recorded Investment With no related allowance recorded		1,079,821
Recorded Investment With an allowance recorded		1,813,057
Recorde Investment allowance recorded		2,892,878
Unpaid Principal Balance With no related allowance recorded		1,370,967
Unpaid Principal Balance With an allowance recorded		2,316,927
Unpaid Principal Balance allowance recorded		3,687,894
Related Allowance With no ralated allowance recorded		0
Related Allowance With an allowance recorded		352,600
Related Allowance recorded		352,600
Average Recorded Investment With no related allowance recorded		1,262,466
Average Recorded Investment With an allowance recorded		1,695,062
Average Recorded Investment Allowance recorded		2,957,528
Interest Income Recognized With no related allowance recorded		0
Interest Income Recognized With an allowance recorded		0
Interet Income Recognized allownce recorded		0
Residential real estate - Jr lien
Recorded Investment With no related allowance recorded	0		125,786
Recorded Investment With an allowance recorded	297,898		308,878
Recorde Investment allowance recorded	297,898		434,664
Unpaid Principal Balance With no related allowance recorded	0		185,142
Unpaid Principal Balance With an allowance recorded	319,472		321,475
Unpaid Principal Balance allowance recorded	319,472		506,617
Related Allowance With no ralated allowance recorded	0		0
Related Allowance With an allowance recorded	46,400		47,200
Related Allowance recorded	46,400		47,200
Average Recorded Investment With no related allowance recorded	39,329		25,157
Average Recorded Investment With an allowance recorded	295,737		61,776
Average Recorded Investment Allowance recorded	335,066		86,933
Interest Income Recognized With no related allowance recorded	0		0
Interest Income Recognized With an allowance recorded	0		0
Interet Income Recognized allownce recorded	$ 0		$ 0

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7. Schedule Of Estimated Fair Values (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Carrying Amount
Financial assets: (in thousands)
Cash and cash equivalents	$ 9,524	$ 23,465	$ 47,759
Securities held-to-maturity	50,066	29,702	36,898
Fair Value - Available for sale Securities	47,009	66,099	31,533
Restricted equity securities	4,021	4,309	4,309
Loans and loans held-for-sale		384,793	387,104
Commercial & Industrial	47,485
Commercial real estate	136,017
Residential real estate - 1st lien	168,541
Residential real estate - Jr. lien	46,029
Consumer	11,023
Mortgage servicing rights	1,005	1,097	1,135
Accrued interest receivable	1,810	1,701	1,670
Financial liabilities: (in thousands)
Deposits		454,393	451,163
Other deposits	443,008
Brokered deposits	14,094
Federal funds purchased and other borrowed funds	4,840	18,010	18,010
Long-term borrowings	12,010
Repurchase agreements	28,076	21,645	24,091
Capital lease obligations	790	833	800
Subordinated debentures	12,887	12,887	12,887
Accrued interest payable	121	150	138
Fair Value
Financial assets: (in thousands)
Cash and cash equivalents	9,524	23,465	47,759
Securities held-to-maturity	50,631	30,289	37,397
Fair Value - Available for sale Securities	47,009	66,099	31,533
Restricted equity securities	4,021	4,309	4,309
Loans and loans held-for-sale		395,386	398,640
Commercial & Industrial	48,187
Commercial real estate	137,753
Residential real estate - 1st lien	175,808
Residential real estate - Jr. lien	46,954
Consumer	11,465
Mortgage servicing rights	1,006	1,168	1,211
Accrued interest receivable	1,810	1,701	1,670
Financial liabilities: (in thousands)
Deposits		457,347	454,429
Other deposits	445,472
Brokered deposits	14,101
Federal funds purchased and other borrowed funds	4,840	18,404	18,437
Long-term borrowings	12,327
Repurchase agreements	28,076	21,645	24,091
Capital lease obligations	790	833	800
Subordinated debentures	13,621	11,691	11,883
Accrued interest payable	121	150	138
Fair Value Level 1
Financial assets: (in thousands)
Cash and cash equivalents	9,524
Securities held-to-maturity	0
Fair Value - Available for sale Securities	7,169
Restricted equity securities	0
Commercial & Industrial	0
Commercial real estate	0
Residential real estate - 1st lien	0
Residential real estate - Jr. lien	0
Consumer	0
Mortgage servicing rights	0
Accrued interest receivable	0
Financial liabilities: (in thousands)
Other deposits	0
Brokered deposits	0
Federal funds purchased and other borrowed funds	0
Long-term borrowings	0
Repurchase agreements	0
Capital lease obligations	0
Subordinated debentures	0
Fair Value Level 2
Financial assets: (in thousands)
Cash and cash equivalents	0
Securities held-to-maturity	50,631
Fair Value - Available for sale Securities	39,840
Restricted equity securities	4,021
Commercial & Industrial	0
Commercial real estate	0
Residential real estate - 1st lien	0
Residential real estate - Jr. lien	0
Consumer	0
Mortgage servicing rights	1,006
Accrued interest receivable	1,810
Financial liabilities: (in thousands)
Other deposits	445,472
Brokered deposits	14,101
Federal funds purchased and other borrowed funds	4,840
Long-term borrowings	12,327
Repurchase agreements	28,076
Capital lease obligations	790
Subordinated debentures	13,621
Accrued interest payable	121
Fair Value Level 3
Financial assets: (in thousands)
Cash and cash equivalents	0
Securities held-to-maturity	0
Fair Value - Available for sale Securities	0
Restricted equity securities	0
Commercial & Industrial	48,187
Commercial real estate	137,753
Residential real estate - 1st lien	175,808
Residential real estate - Jr. lien	46,954
Consumer	11,465
Mortgage servicing rights	0
Accrued interest receivable	0
Financial liabilities: (in thousands)
Other deposits	0
Brokered deposits	0
Federal funds purchased and other borrowed funds	0
Long-term borrowings	0
Repurchase agreements	0
Capital lease obligations	0
Subordinated debentures	$ 0

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Consolidated Balance Sheets (Unaudited) (USD $)	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Statement of Financial Position [Abstract]
Cash and due from banks	$ 9,519,193	$ 23,459,776	$ 47,758,305
Federal funds sold and overnight deposits	5,000	5,000	1,000
Total cash and cash equivalents	9,524,193	23,464,776	47,759,305
Securities held-to-maturity (fair value $50,631,000 at 09/30/12, $30,289,000 at 12/31/11 and $37,397,000 at 09/30/11)	50,065,653	29,702,159	36,898,097
Securities available-for-sale	47,008,818	66,098,917	31,533,275
Restricted equity securities, at cost	4,021,350	4,308,550	4,308,550
Loans held-for-sale	1,483,940	2,285,567	2,411,242
Loans	407,610,705	386,386,472	388,548,864
Allowance for loan losses	(4,115,230)	(3,886,502)	(3,835,840)
Deferred net loan costs (fees)	101,742	7,251	(20,474)
Net loans	403,597,217	382,507,221	384,692,550
Bank premises and equipment, net	12,351,925	12,715,226	12,736,423
Accrued interest receivable	1,810,063	1,700,600	1,670,294
Bank owned life insurance	4,156,201	4,063,246	4,031,057
Core deposit intangible	1,448,694	1,704,346	1,810,867
Goodwill	11,574,269	11,574,269	11,574,269
Other real estate owned (OREO)	1,150,198	90,000	0
Prepaid expense - Federal Deposit Insurance Corporation (FDIC)	855,513	1,131,861	1,218,308
Other assets	12,613,921	11,558,779	10,077,689
Total assets	561,661,955	552,905,517	550,721,926
Demand, non-interest bearing	68,580,510	62,745,782	60,683,698
NOW	109,271,808	123,493,475	116,418,838
Money market funds	84,057,492	71,408,069	72,014,042
Savings	66,204,831	59,284,631	61,763,381
Time deposits, $100,000 and over	49,474,950	51,372,782	51,369,773
Other time deposits	79,511,981	86,088,570	88,913,603
Total deposits	457,101,572	454,393,309	451,163,335
Federal funds purchased and other borrowed funds	16,850,000	18,010,000	18,010,000
Repurchase agreements	28,076,308	21,645,446	24,090,954
Capital lease obligations	789,836	833,467	800,315
Junior subordinated debentures	12,887,000	12,887,000	12,887,000
Accrued interest and other liabilities	3,078,347	4,217,886	3,289,410
Total liabilities	518,783,063	511,987,108	510,241,014
Preferred stock, 1,000,000 shares authorized, 25 shares issued and outstanding ($100,000 liquidation value)	2,500,000	2,500,000	2,500,000
Common stock - $2.50 par value; 10,000,000 shares authorized, 5,007,099 shares issued at 09/30/12, 4,938,262 shares issued at 12/31/11 and 4,914,777 shares issued at 09/30/11	12,517,748	12,345,655	12,286,943
Additional paid-in capital	27,911,150	27,410,049	27,237,038
Retained earnings	2,268,901	1,151,751	910,428
Accumulated other comprehensive income	303,870	133,731	169,280
Less: treasury stock, at cost; 210,101 shares at 09/30/12, 12/31/11 and 09/30/11	(2,622,777)	(2,622,777)	(2,622,777)
Total shareholders' equity	42,878,892	40,918,409	40,480,912
Total liabilities and shareholders' equity	$ 561,661,955	$ 552,905,517	$ 550,721,926

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Consolidated Statements of Cash Flows (Unaudited) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Cash Flows from Operating Activities:
Net income	$ 3,253,392	$ 2,636,811
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, bank premises and equipment	837,551	748,753
Provision for loan losses	750,001	712,500
Deferred income tax	(789,852)	31,188
Net gain on sale of securities available-for-sale	(140,971)	0
Net gain on sale of loans	(949,833)	(463,048)
(Gain) loss on sale of OREO	(3,740)	7,212
Gain on Trust LLC	(111,573)	(111,174)
Amortization of bond premium, net	408,330	258,155
Write down of OREO	0	10,000
Proceeds from sales of loans held-for-sale	37,158,591	26,779,989
Originations of loans held-for-sale	(35,407,131)	(26,364,245)
Increase (decrease) in taxes payable	60,128	(386,079)
(Increase) decrease in interest receivable	(109,463)	119,327
Amortization of FDIC insurance assessment	276,348	314,849
Decrease (increase) in mortgage servicing rights	92,105	(58,408)
Increase in other assets	(1,095,473)	(171,301)
Increase in cash surrender value of bank owned life insurance	(92,955)	(97,726)
Amortization of core deposit intangible	255,652	319,565
Amortization of limited partnerships	915,705	366,440
Decrease in deferred loan costs (fees)	(94,491)	(53,877)
Decrease in interest payable	(28,727)	(54,056)
Increase (decrease) in accrued expenses	5,900	(161,669)
Decrease in other liabilities	(56,152)	(391,259)
Net cash provided by operating activities	5,133,342	3,991,947
Cash Flows from Investing Activities:
Maturities and pay downs	18,065,787	32,429,747
Purchases	(38,429,281)	(31,887,130)
Investments - available-for-sale Maturities, calls, pay downs and sales	30,171,833	10,000,000
Purchases	(11,091,306)	(20,220,656)
Proceeds from redemption of restricted equity securities	287,200	0
(Decrease) increase in limited partnership contributions payable	(1,084,000)	1,084,000
Investments in limited partnerships	(213,830)	(1,085,000)
Increase in loans, net	(22,935,389)	(291,935)
Proceeds from sales of bank premises and equipment, net of capital expenditures	(474,250)	(693,205)
Proceeds from sales of OREO	58,740	1,324,088
Recoveries of loans charged off	74,685	76,335
Net cash used in investing activities	(25,569,811)	(9,263,756)
Cash Flows from Financing Activities:
Net (decrease) increase in demand and NOW accounts	(8,386,939)	12,574,469
Net increase in money market and savings accounts	19,569,623	3,845,325
Net decrease in time deposits	(8,474,421)	(3,448,722)
Net increase in repurchase agreements	6,430,862	4,983,139
Net increase in short-term borrowings	4,840,000	0
Repayments on long-term borrowings	(6,000,000)	(15,000,000)
Decrease in capital lease obligations	(43,631)	(34,524)
Dividends paid on preferred stock	(140,625)	(140,625)
Dividends paid on common stock	(1,298,983)	(1,196,235)
Net cash provided by financing activities	6,495,886	1,582,827
Net decrease in cash and cash equivalents	(13,940,583)	(3,688,982)
Cash and cash equivalents:
Beginning	23,464,776	51,448,287
Ending	9,524,193	47,759,305
Supplemental Schedule of Cash Paid During the Period
Interest	3,777,202	4,331,448
Income taxes	550,000	691,550
Supplemental Schedule of Noncash Investing and Financing Activities:
Change in unrealized gain on securities available-for-sale	257,787	140,338
Loans transferred to OREO	1,115,198	131,000
Investments in limited partnerships
Investment in limited partnerships	(213,830)	(1,085,000)
(Decrease) increase in limited partnership contributions payable	(1,084,000)	1,084,000
Investments in limited partnerships NET	(1,297,830)	(1,000)
Common Shares Dividends Paid
Dividends declared	1,995,617	1,954,606
Increase in dividends payable attributable to dividends declared	(23,440)	(39,331)
Dividends reinvested	(673,194)	(719,040)
Total common shares dividends paid	$ 1,298,983	$ 1,196,235

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5. Loans, Allowance for Loan Losses and Credit Quality (Details Narrative)	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Loans Allowance For Loan Losses And Credit Quality Details Narrative
Junior lien portfolio	22.00%	22.00%	23.00%

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7. Fair Value (Tables)

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

Schedule Of Fair Value Assets On Recurring Basis

Assets measured at fair value on a recurring basis and reflected in the balance sheet at the dates presented, segregated by fair value hierarchy, are summarized below:

September 30, 2012	Level 1		Level 2		Total
Assets: (market approach)
U.S. GSE debt securities	$	0	$	39,839,785	$	39,839,785
U.S. Government securities		7,117,656		0		7,117,656
U.S. GSE preferred stock		51,377		0		51,377
December 31, 2011
Assets: (market approach)
U.S. GSE debt securities	$	0	$	60,963,239	$	60,963,239
U.S. Government securities		5,043,555		0		5,043,555
U.S. GSE preferred stock		92,123		0		92,123
September 30, 2011
Assets: (market approach)
U.S. GSE debt securities	$	0	$	26,359,450	$	26,359,450
U.S. Government securities		4,041,970		1,003,480		5,045,450
U.S. GSE preferred stock		128,375		0		128,375

Schedule of Fair Value Assets Nonrecurring Basis

Assets measured at fair value on a nonrecurring basis and reflected in the balance sheet at the dates presented, segregated by fair value hierarchy, are summarized below:

September 30, 2012	Level 2
Assets: (market approach)
Residential mortgage servicing rights	$	1,005,857
Impaired loans, net of related allowance		683,561
OREO		1,150,198
December 31, 2011
Assets: (market approach)
Residential mortgage servicing rights	$	1,167,808
Impaired loans, net of related allowance		3,463,540
OREO		90,000
September 30, 2011
Assets: (market approach)
Residential mortgage servicing rights	$	1,211,219
Impaired loans, net of related allowance		3,271,384
OREO		0

Schedule Of Estimated Fair Values Of Financial Instruments

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

September 30, 2012	Carrying		Fair		Fair		Fair		Fair
	Amount		Value		Value		Value		Value
	(Dollars in Thousands)
Financial assets:			Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	9,524	$	9,524	$	0	$	0	$	9,524
Securities held-to-maturity		50,066		0		50,631		0		50,631
Securities available-for-sale		47,009		7,169		39,840		0		47,009
Restricted equity securities		4,021		0		4,021		0		4,021
Loans and loans held-for-sale
Commercial & industrial		47,485		0		0		48,187		48,187
Commercial real estate		136,017		0		0		137,753		137,753
Residential real estate - 1st lien		168,541		0		0		175,808		175,808
Residential real estate - Jr lien		46,029		0		0		46,954		46,954
Consumer		11,023		0		0		11,465		11,465
Mortgage servicing rights		1,005		0		1,006		0		1,006
Accrued interest receivable		1,810		0		1,810		0		1,810
Financial liabilities:
Deposits
Other deposits		443,008		0		445,472		0		445,472
Brokered deposits		14,094		0		14,101		0		14,101
Federal funds purchased and short term-borrowings		4,840		0		4,840		0		4,840
Long-term borrowings		12,010		0		12,327		0		12,327
Repurchase agreements		28,076		0		28,076		0		28,076
Capital lease obligations		790		0		790		0		790
Subordinated debentures		12,887		0		13,621		0		13,621
Accrued interest payable		121		0		121		0		121

	December 31, 2011				September 30, 2011
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	$	23,465	$	23,465	$	47,759	$	47,759
Securities held-to-maturity		29,702		30,289		36,898		37,397
Securities available-for-sale		66,099		66,099		31,533		31,533
Restricted equity securities		4,309		4,309		4,309		4,309
Loans and loans held-for-sale, net		384,793		395,386		387,104		398,640
Mortgage servicing rights		1,097		1,168		1,135		1,211
Accrued interest receivable		1,701		1,701		1,670		1,670
Financial liabilities:
Deposits		454,393		457,347		451,163		454,429
Federal funds purchased and other borrowed funds		18,010		18,404		18,010		18,437
Repurchase agreements		21,645		21,645		24,091		24,091
Capital lease obligations		833		833		800		800
Subordinated debentures		12,887		11,691		12,887		11,883
Accrued interest payable		150		150		138		138

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6. Schedule of Future Amortization Expense (Details) (USD $)	Sep. 30, 2012
Notes to Financial Statements
2012	$ 85,218
2013	272,695
2014	272,695
2015	272,695
2016	272,695
2017	272,696
Total remaining core deposit intangible	$ 1,448,694

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3. Schedule Of Earnings Per Share (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Notes to Financial Statements
Net income, as reported	$ 1,267,351	$ 820,624	$ 3,253,392	$ 2,636,811
Less: dividends to preferred shareholders	46,875	46,875	140,625	140,625
Net income available to common shareholders	$ 1,220,476	$ 773,749	$ 3,112,767	$ 2,496,186
Weighted average number of common shares used in calculating earnings per share	4,781,877	4,687,718	4,759,383	4,662,261
Earnings per common share	$ 0.26	$ 0.17	$ 0.65	$ 0.54

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1. Basis of Presentation and Consolidation

9 Months Ended

Sep. 30, 2012

Notes to 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 the 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, 2011 contained in the Company's Annual Report on Form 10-K.  The results of operations for the interim period are not necessarily indicative of the results of operations to be expected for the full annual period ending December 31, 2012, or for any other interim period.

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Consolidated Balance Sheets (Parenthetical) (USD $)	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Assets
Securities held-to-maturity, fair value	$ 50,631,000	$ 30,289,000	$ 37,397,000
Shareholder's Equity
Preferred stock, shares authorized (in shares)	1,000,000	1,000,000	1,000,000
Preferred stock, shares issued (in shares)	25	25	25
Preferred stock, shares outstanding (in shares)	25	25	25
Preferred stock liquidation value	$ 100,000	$ 100,000	$ 100,000
Common stock par value (in dollars per share)	$ 2.50	$ 2.50	$ 2.50
Common stock, shares authorized (in shares)	10,000,000	10,000,000	10,000,000
Common stock, shares issued (in shares)	5,007,099	4,938,262	4,914,777
Treasury stock (in shares)	210,101	210,101	210,101

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1. Basis of Presentation and Consolidation (Policies)

9 Months Ended

Sep. 30, 2012

Basis Of Presentation And Consolidation Policies

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 the 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, 2011 contained in the Company's Annual Report on Form 10-K.  The results of operations for the interim period are not necessarily indicative of the results of operations to be expected for the full annual period ending December 31, 2012, or for any other interim period.

Recent Accounting Developments

In April 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-03, “Reconsideration of Effective Control for Repurchase Agreements,” amending the criteria under Accounting Standards Codification (ASC) Topic 860 for determining whether the transferor under a repurchase agreement involving a financial asset has retained effective control over the financial asset and therefore must account for the transaction as a secured borrowing rather than a sale.  The guidance removes from the effective control criteria the consideration of whether the transferor has the ability to repurchase or redeem the financial asset on substantially the agreed terms.  The guidance is applied prospectively and is effective for new transactions and for existing transactions that are modified as of the beginning of the first interim or annual period beginning on or after December 15, 2011.  Adoption of ASU 2011-03 did not have a material impact on the Company’s consolidated financial statements.

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement:  Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in United States Generally Accepted Accounting Principles (US GAAP) and IFRS,” amending ASC Topic 820.  Although ASU 2011-04 deals primarily with development of a single fair value framework for US GAAP and International Financial Reporting Standards, the ASU also contains additional guidance on fair value measurements.  Among other things, ASU 2011-04: clarifies how a principal market is determined; addresses the fair value measurement or counterparty credit risks and the concept of valuation premise and highest and best use of nonfinancial assets; prescribes a model for measuring the fair value of an instrument classified in shareholders’ equity; limits the use of premiums or discounts based on the size of a holding; and requires certain new disclosures, including disclosures of all transfers between Levels 1 and 2 of the fair value hierarchy, whether or not significant, and additional disclosures regarding unobservable inputs and valuation processes for Level 3 measurements.  The guidance in ASU 2011-04 is to be applied prospectively, and is effective for interim and annual periods beginning on or after December 15, 2011.  Adoption of ASU 2011-04 did not have a material impact on the Company’s consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income,” amending Topic 220.  The amendments provide that an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  The Company has chosen the latter option.  This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity.  The ASU does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income, nor does it require any transition disclosures.  The amendments in this ASU are applied retrospectively, and are effective for fiscal years and interim periods beginning after December 15, 2011.  In December 2011, the FASB issued ASU No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05”, which defers the effective date of a requirement in ASU 2011-05 related to reclassifications of items out of accumulated other comprehensive income.  The deferral of the effective date was made to allow the FASB time to consider whether to require presentation on the face of the financial statements of the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented.  Adoption of ASU 2011-05 did not have a material impact on the Company’s consolidated financial statements.

In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment,” amending Topic 350.  The guidance changes the manner of testing of goodwill for impairment by providing an entity with the option of first assessing qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the fair value of a reporting unit is less than its carrying amount. Such qualitative factors may include the following: macroeconomic conditions; industry and market considerations; cost factors; overall financial performance; and other relevant entity-specific events.  If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the existing two-step quantitative impairment test; otherwise, no further analysis is required.  An entity also may elect not to perform the qualitative assessment and instead go directly to the two-step quantitative impairment test.  These changes are effective for fiscal years beginning on or after December 15, 2011.  The Company does not expect that adoption of the ASU will have a material impact on the Company’s consolidated financial statements.

In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (Topic 210):  Disclosures about Offsetting Assets and Liabilities,” amending Topic 210.  The amendments require an entity to disclose both gross and net information about both instruments and transactions that are eligible for offset on the balance sheet and instruments and transactions that are subject to an agreement similar to a master netting arrangement.  This guidance is effective for annual periods beginning on or after January 1, 2013 and interim periods within those annual periods, with retrospective disclosure for all comparative periods presented.  The Company is evaluating the impact of ASU 2011-11 but does not expect that adoption of the ASU will have a material impact on the Company’s consolidated financial statements.

In July 2012, the FASB issued ASU 2012-02, “Intangibles-Goodwill and Other (Topic 35): Testing Indefinite-Lived Intangible Assets for Impairment,” amending Topic 350. The guidance allows entities to first perform an optional qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired in order to determine whether the asset should be further evaluated under quantitative impairment testing. The guidance does not revise the requirement that indefinite-lived intangible assets be tested for impairment at least annually, or more frequently if circumstances warrant, although it does revise the examples of events and circumstances that an entity should consider during interim periods. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, although early adoption is permitted. The Company is evaluating the impact of ASU 2012-02 but does not expect its adoption will have a material impact on the Company’s consolidated financial statements.

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Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Nov. 05, 2012
Document And Entity Information
Entity Registrant Name	Community Bancorp /VT
Entity Central Index Key	0000718413
Document Type	10-Q
Document Period End Date	Sep. 30, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		4,793,743
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2012

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3. Earnings per Common Share (Tables)

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

3. Schedule Of Earnings Per Share

The following table illustrates the calculation for the periods ended September 30, as adjusted for the cash dividends declared on the preferred stock:

For The Quarter Ended September 30,	2012		2011
Net income, as reported	$	1,267,351	$	820,624
Less: dividends to preferred shareholders		46,875		46,875
Net income available to common shareholders	$	1,220,476	$	773,749
Weighted average number of common shares
used in calculating earnings per share		4,781,877		4,687,718
Earnings per common share	$	0.26	$	0.17

For the Nine Months Ended September 30,		2012		2011
Net income, as reported	$	3,253,392	$	2,636,811
Less: dividends to preferred shareholders		140,625		140,625
Net income available to common shareholders	$	3,112,767	$	2,496,186
Weighted average number of common shares
used in calculating earnings per share		4,759,383		4,662,261
Earnings per common share	$	0.65	$	0.54

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Consolidated Statements of Income (Unaudited) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Interest income
Interest and fees on loans	$ 5,356,710	$ 5,334,992	$ 15,786,521	$ 15,998,085
Interest on debt securities
Taxable	119,586	74,842	439,642	229,612
Tax-exempt	285,099	235,399	713,081	762,129
Dividends	20,575	18,641	62,162	56,519
Interest on federal funds sold and overnight deposits	111	17,290	3,434	52,730
Total interest income	5,782,081	5,681,164	17,004,840	17,099,075
Interest expense
Interest on deposits	866,591	964,303	2,636,745	3,119,596
Interest on federal funds purchased and other borrowed funds	94,636	99,803	280,788	316,135
Interest on repurchase agreements	33,600	36,744	100,249	110,968
Interest on junior subordinated debentures	243,564	243,564	730,693	730,693
Total interest expense	1,238,391	1,344,414	3,748,475	4,277,392
Net interest income	4,543,690	4,336,750	13,256,365	12,821,683
Provision for loan losses	249,999	287,500	750,001	712,500
Net interest income after provision for loan losses	4,293,691	4,049,250	12,506,364	12,109,183
Non-interest income
Service fees	597,567	612,163	1,751,912	1,761,951
Income from sold loans	418,594	205,743	1,256,763	913,802
Other income from loans	246,566	165,178	667,633	508,673
Net realized gains on sale of securities available-for-sale	99,676	0	140,971	0
Other income	167,814	131,364	600,947	668,686
Total non-interest income	1,530,217	1,114,448	4,418,226	3,853,112
Non-interest expense
Salaries and wages	1,547,284	1,473,800	4,523,882	4,409,491
Employee benefits	486,103	552,834	1,673,327	1,671,174
Occupancy expenses, net	796,029	767,948	2,481,921	2,360,165
FDIC insurance	92,343	84,199	301,925	344,810
Amortization of core deposit intangible	85,217	106,522	255,652	319,565
Other expenses	1,546,047	1,267,350	4,584,461	3,883,621
Total non-interest expense	4,553,023	4,252,653	13,821,168	12,988,826
Income before income taxes	1,270,885	911,045	3,103,422	2,973,469
Income tax expense	3,534	90,421	(149,970)	336,658
Net income	$ 1,267,351	$ 820,624	$ 3,253,392	$ 2,636,811
Earnings per common share	$ 0.26	$ 0.17	$ 0.65	$ 0.54
Weighted average number of common shares used in computing earnings per share	4,781,877	4,687,718	4,759,383	4,662,261
Dividends declared per common share	$ 0.14	$ 0.14	$ 0.42	$ 0.42
Book value per share on common shares outstanding at September 30,	8.42	8.07	8.42	8.07

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6. Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

6. Goodwill and Other Intangible Assets

As a result of the merger with LyndonBank on December 31, 2007, the Company recorded goodwill amounting to $11,574,269.  The goodwill is not amortizable and is not deductible for tax purposes.

The Company also recorded $4,161,000 of acquired identified intangible assets representing the core deposit intangible which is subject to amortization as a non-interest expense over a ten year period. 

Amortization expense for the core deposit intangible for the first nine months of 2012 was $255,652.  As of September 30, 2012, the remaining annual amortization expense related to the core deposit intangible, absent any future impairment, is expected to be as follows:

2012	$	85,218
2013		272,695
2014		272,695
2015		272,695
2016		272,695
2017		272,696
Total remaining core deposit intangible	$	1,448,694

Management evaluates goodwill for impairment annually and the core deposit intangible for impairment if conditions warrant.  As of the date of the most recent evaluation (December 31, 2011), management concluded that no impairment existed.

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5. Loans, Allowance for Loan Losses and Credit Quality

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

Loans, Allowance for Loan Losses and Credit Quality

The composition of net loans follows:

	September 30, 2012			December 31, 2011			September 30, 2011
Commercial & industrial	$	47,484,639		$	39,514,607		$	34,570,063
Commercial real estate		136,016,554			132,269,368			137,892,249
Residential real estate - 1st lien		168,541,410			159,535,958			159,755,182
Residential real estate - Jr lien		46,029,238			45,886,967			46,843,024
Consumer		11,022,804			11,465,139			11,899,588
		409,094,645			388,672,039			390,960,106
Deduct (add):
Allowance for loan losses		4,115,230			3,886,502			3,835,840
Deferred net loan costs (fees)		(101,742	)		(7,251	)		20,474
Loans held-for-sale		1,483,940			2,285,567			2,411,242
		5,497,428			6,164,818			6,267,556
Net Loans	$	403,597,217		$	382,507,221		$	384,692,550

The following is an age analysis of past due loans (including non-accrual) by segment:

			90 Days		Total						Non-Accrual		Over 90 Days
September 30, 2012	30-89 Days		or More		Past Due		Current		Total Loans		Loans		and Accruing
Commercial & industrial	$	254,847	$	326,693	$	581,540	$	46,903,099	$	47,484,639	$	613,817	$	75,042
Commercial real estate		426,428		1,331,505		1,757,933		134,258,621		136,016,554		2,321,320		53,936
Residential real estate - 1st lien		749,535		1,102,424		1,851,959		165,205,511		167,057,470		1,441,659		825,843
Residential real estate - Jr lien		456,984		109,222		566,206		45,463,032		46,029,238		326,882		109,222
Consumer		123,197		14,077		137,274		10,885,530		11,022,804		4,841		9,236
Total	$	2,010,991	$	2,883,921	$	4,894,912	$	402,715,793	$	407,610,705	$	4,708,519	$	1,073,279

			90 Days		Total						Non-Accrual		Over 90 Days
December 31, 2011	30-89 Days		or More		Past Due		Current		Total Loans		Loans		and Accruing
Commercial & industrial	$	655,168	$	265,668	$	920,836	$	38,593,771	$	39,514,607	$	1,066,945	$	59,618
Commercial real estate		2,266,412		1,288,616		3,555,028		128,714,340		132,269,368		3,714,146		98,554
Residential real estate - 1st lien		5,614,513		2,517,282		8,131,795		149,118,596		157,250,391		2,703,920		969,078
Residential real estate - Jr lien		431,885		2,754,129		3,186,014		42,700,953		45,886,967		464,308		111,061
Consumer		152,151		1,498		153,649		11,311,490		11,465,139		0		1,498
Total	$	9,120,129	$	6,827,193	$	15,947,322	$	370,439,150	$	386,386,472	$	7,949,319	$	1,239,809

			90 Days		Total						Non-Accrual		Over 90 Days
September 30, 2011	30-89 Days		or More		Past Due		Current		Total Loans		Loans		and Accruing
Commercial & industrial	$	667,668	$	583,258	$	1,250,926	$	33,319,137	$	34,570,063	$	917,328	$	21,824
Commercial real estate		3,066,295		1,025,858		4,092,153		133,800,096		137,892,249		2,911,034		209,506
Residential real estate - 1st lien		1,673,594		2,192,883		3,866,477		153,477,463		157,343,940		2,768,549		619,848
Residential real estate - Jr lien		380,341		403,815		784,156		46,058,868		46,843,024		537,892		208,754
Consumer		92,843		2,869		95,712		11,803,876		11,899,588		0		1,010
Total	$	5,880,741	$	4,208,683	$	10,089,424	$	378,459,440	$	388,548,864	$	7,134,803	$	1,060,942

Allowance for loan losses

The allowance for loan losses is established through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is probable. Subsequent recoveries, if any, are credited to the allowance.

As described below, the allowance consists of general, specific and unallocated components.  However, the entire allowance is available to absorb losses in the loan portfolio, regardless of specific, general and unallocated components considered in determining the amount of the allowance.

General component

The general component of the allowance for loan losses is based on historical loss experience, adjusted for qualitative factors and stratified by the following loan segments: commercial & industrial, commercial real estate, residential real estate first lien, residential real estate junior lien, and consumer loans. The Company does not disaggregate its portfolio segments further into classes.  Loss ratios are calculated for one year, two year and five year look back periods.  The highest loss ratio among these look-back periods is then applied against the respective segment.  Management uses an average of historical losses based on a time frame appropriate to capture relevant loss data for each loan segment. This historical loss factor is adjusted for the following qualitative factors: levels of and trends in delinquencies and non-performing loans, levels of and trends in loan risk groups, trends in volumes and terms of loans, effects of any changes in loan related policies, experience, ability and the depth of management, documentation and credit data exception levels, national and local economic trends, external factors such as competition and regulation and lastly, concentrations of credit risk in a variety of areas, including portfolio product mix, the level of loans to individual borrowers and their related interests, loans to industry segments, and the geographic distribution of commercial real estate loans. This evaluation is inherently subjective as it requires estimates that are susceptible to revision as more information becomes available.

During the fourth quarter of 2011 the Company modified its allowance methodology by further segmenting the residential real estate portfolio into first lien residential mortgages and junior lien residential mortgages, also known as home equity loans.  The change was made to allow the Company to more closely monitor and appropriately reserve for the risk inherent with home equity lending, given the modest repayment requirements, relaxed documentation compared to first lien residential mortgage loans, higher loan to value ratios, subordinate lien position, and recent decline of home property values. The residential real estate junior lien portfolio accounted for 22 percent of the total residential real estate portfolio as of September 30, 2012 and December 31, 2011, and 23 percent as of September 30, 2011. No changes in the Company’s policies or methodology pertaining to the general component for loan losses were made during the first nine months of 2012.

The qualitative factors are determined based on the various risk characteristics of each loan segment. The Company has policies, procedures and internal controls that management believes are commensurate with the risk profile of each of these segments. Risk characteristics relevant to each portfolio segment are as follows:

Commercial & Industrial – Loans in this segment include commercial and industrial loans and to a lesser extent loans to finance agricultural production. Commercial loans are made to businesses and are generally secured by assets of the business, including trade assets and equipment. While not the primary collateral, in many cases these loans may also be secured by the real estate of the business. Repayment is expected from the cash flows of the business. A weakened economy, soft consumer spending, unfavorable foreign trade conditions and the rising cost of labor or raw materials are examples of issues that can impact the credit quality in this segment.

Commercial Real Estate – Loans in this segment are principally made to businesses and are generally secured by either owner-occupied, or non-owner occupied commercial real estate. A relatively small portion of this segment includes farm loans secured by farm land and buildings.  As with commercial loans, repayment of owner-occupied commercial real estate loans is expected from the cash flows of the business and the segment would be impacted by similar risk factors. The non-owner occupied commercial real estate portion includes both residential and commercial construction loans, vacant land and real estate development loans, multi-family dwelling loans and commercial rental property loans. Repayment of construction loans is expected from permanent financing takeout; the Company generally requires a commitment or eligibility for the take-out financing prior to construction loan origination. Real estate development loans are generally repaid from the sale of the subject real property as the project progresses. Construction and development lending entail additional risks, including the project exceeding budget, not being constructed according to plans, not receiving permits, or the pre-leasing or occupancy rate not meeting expectations. Repayment of multi-family loans and commercial rental property loans is expected from the cash flow generated by rental payments received from the individuals or businesses occupying the real estate. Commercial real estate loans are impacted by factors such as competitive market forces, vacancy rates, cap rates, net operating incomes, lease renewals and overall economic demand. In addition, loans in the recreational and tourism sector can be affected by weather conditions, such as unseasonably low winter snowfalls. Commercial real estate lending also carries a higher degree of environmental risk than other real estate lending.

Residential Real Estate - 1st Lien – All loans in this segment are collateralized by first mortgages on 1 – 4 family owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, has an impact on the credit quality of this segment.

Residential Real Estate – Jr Lien – All loans in this segment are collateralized by junior lien mortgages on 1 – 4 family residential real estate and repayment is primarily dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, has an impact on the credit quality of this segment.

Consumer – Loans in this segment are made to individuals for consumer and household purposes.  This segment includes both loans secured by automobiles and other consumer goods, as well as loans that are unsecured.  This segment also includes overdrafts, which are extensions of credit made to both individuals and businesses to cover temporary shortages in their deposit accounts and are generally unsecured.  The Company maintains policies restricting the size and length of these extensions of credit.  The overall health of the economy, including unemployment rates, has an impact on the credit quality of this segment.

Specific component

The specific component of the allowance for loan losses relates to loans that are impaired.  A specific allowance is established when a loan’s impaired basis is less than the carrying value of the loan.  For all loan segments, except consumer loans, a loan is considered impaired when, based on current information and events, in management’s estimation it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Impaired loans are loan(s) to a borrower that in aggregate are greater than $100,000 and that are in non-accrual status or are troubled debt restructurings (TDR).  Factors considered by management in determining impairment include payment status, collateral value and probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant or temporary payment delays and payment shortfalls generally are not classified as impaired. Management evaluates the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length and frequency of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis, by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Impaired loans also include troubled loans that are restructured. A TDR occurs when the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that would otherwise not be granted. TDRs may include the transfer of assets to the Company in partial satisfaction of a troubled loan, a modification of a loan’s terms, or a combination of the two.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer loans for impairment evaluation, unless such loans are subject to a restructuring agreement.

Unallocated component

An unallocated component of the allowance of loan losses is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

The following summarizes changes in the allowance for loan losses and select loan information, by portfolio segment (excluding loans held-for-sale).

For the quarter ended September 30, 2012
							Residential			Residential
	Commercial			Commercial			Real Estate			Real Estate
	& Industrial			Real Estate			1st Lien			Jr Lien			Consumer			Unallocated		Total
Allowance for loan losses
Beginning balance	$	383,523		$	1,386,183		$	1,473,661		$	368,939		$	126,914		$	186,899	$	3,926,119
Charge-offs		(34,375	)		(2,821	)		(56,126	)		(9,447	)		(9,065	)		0		(111,834	)
Recoveries		17,978			24,587			1,426			60			6,895			0		50,946
Provisions		51,298			36,941			85,324			38,815			5,965			31,656		249,999
Ending balance	$	418,424		$	1,444,890		$	1,504,285		$	398,367		$	130,709		$	218,555	$	4,115,230

For the nine months ended September 30, 2012
							Residential			Residential
	Commercial			Commercial			Real Estate			Real Estate
	& Industrial			Real Estate			1st Lien			Jr Lien			Consumer			Unallocated		Total
Allowance for loan losses
Beginning balance	$	342,314		$	1,385,939		$	1,578,493		$	331,684		$	124,779		$	123,293	$	3,886,502
Charge-offs		(159,309	)		(57,878	)		(239,600	)		(69,734	)		(69,437	)		0		(595,958	)
Recoveries		20,498			25,450			3,248			1,479			24,010			0		74,685
Provisions		214,921			91,379			162,144			134,938			51,357			95,262		750,001
Ending balance	$	418,424		$	1,444,890		$	1,504,285		$	398,367		$	130,709		$	218,555	$	4,115,230
Allowance for loan losses
Evaluated for impairment
Individually	$	0		$	8,900		$	110,700		$	46,400		$	0		$	0	$	166,000
Collectively		418,424			1,435,990			1,393,585			351,967			130,709			218,555		3,949,230
Total	$	418,424		$	1,444,890		$	1,504,285		$	398,367		$	130,709		$	218,555	$	4,115,230
Loans evaluated for impairment
Individually	$	446,484		$	2,187,060		$	1,261,272		$	297,898		$	0				$	4,192,714
Collectively		47,038,155			133,829,494			165,796,198			45,731,340			11,022,804					403,417,991
Total	$	47,484,639		$	136,016,554		$	167,057,470		$	46,029,238		$	11,022,804				$	407,610,705

For the year ended December 31, 2011
							Residential			Residential
	Commercial			Commercial			Real Estate			Real Estate
	& Industrial			Real Estate			1st Lien			Jr Lien			Consumer			Unallocated		Total
Allowance for loan losses
Beginning balance	$	302,421		$	1,391,898		$	1,830,816		$	0		$	151,948		$	50,852	$	3,727,935
Charge-offs		(22,050	)		(197,367	)		(521,608	)		(96,961	)		(103,687	)		0		(941,673	)
Recoveries		13,225			8,479			42,593			20			35,923			0		100,240
Provisions		48,718			182,929			226,692			428,625			40,595			72,441		1,000,000
Ending balance	$	342,314		$	1,385,939		$	1,578,493		$	331,684		$	124,779		$	123,293	$	3,886,502
Allowance for loan losses
Evaluated for impairment
Individually	$	70,600		$	57,500		$	283,200		$	47,200		$	0		$	0	$	458,500
Collectively		271,714			1,328,439			1,295,293			284,484			124,779			123,293		3,428,002
Total	$	342,314		$	1,385,939		$	1,578,493		$	331,684		$	124,779		$	123,293	$	3,886,502
Loans evaluated for impairment
Individually	$	1,000,120		$	3,669,260		$	2,366,326		$	434,664		$	0				$	7,470,370
Collectively		38,514,487			128,600,108			154,884,065			45,452,303			11,465,139					378,916,102
Total	$	39,514,607		$	132,269,368		$	157,250,391		$	45,886,967		$	11,465,139				$	386,386,472

For the quarter ended September 30, 2011
	Commercial			Commercial			Residential
	& Industrial			Real Estate			Real Estate			Consumer			Unallocated			Total
Allowance for loan losses
Beginning balance	$	246,567		$	1,395,350		$	1,965,940		$	132,532		$	110,980		$	3,851,369
Charge-offs		(18,924	)		(21,679	)		(291,077	)		(10,565	)		0			(342,245	)
Recoveries		1,144			4,241			27,355			6,476			0			39,216
Provisions(Reductions)		51,343			148,745			129,545			615			(42,748	)		287,500
Ending balance	$	280,130		$	1,526,657		$	1,831,763		$	129,058		$	68,232		$	3,835,840

For the nine months ended September 30, 2011
	Commercial			Commercial			Residential
	& Industrial			Real Estate			Real Estate			Consumer			Unallocated		Total
Allowance for loan losses
Beginning balance	$	302,421		$	1,391,898		$	1,830,816		$	151,948		$	50,852	$	3,727,935
Charge-offs		(22,050	)		(21,679	)		(562,524	)		(74,677	)		0		(680,930	)
Recoveries		12,665			6,422			27,955			29,293			0		76,335
Provisions(Reductions)		(12,906	)		150,016			535,516			22,494			17,380		712,500
Ending balance	$	280,130		$	1,526,657		$	1,831,763		$	129,058		$	68,232	$	3,835,840
Individually evaluated for impairment	$	42,100		$	104,500		$	352,600		$	0		$	0	$	499,200
Collectively evaluated  for impairment		238,030			1,422,157			1,479,163			129,058			68,232		3,336,640
Total	$	280,130		$	1,526,657		$	1,831,763		$	129,058		$	68,232	$	3,835,840
Loans
Individually evaluated for impairment	$	841,032		$	2,834,584		$	2,892,878		$	0				$	6,568,494
Collectively evaluated for impairment		33,729,031			135,057,665			201,294,086			11,899,588					381,980,370
Total	$	34,570,063		$	137,892,249		$	204,186,964		$	11,899,588				$	388,548,864

Impaired loans by segments were as follows:

For the nine months ended September 30, 2012
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized *
With no related allowance recorded
Commercial & industrial	$	446,484	$	478,798	$	0	$	562,425	$	0
Commercial real estate		1,996,452		2,426,167		0		2,083,657		0
Residential real estate 1st lien		900,217		1,149,862		0		860,886		0
Residential real estate Jr lien		0		0		0		39,329		0
With an allowance recorded
Commercial & industrial		0		0		0		290,929		0
Commercial real estate		190,608		192,108		8,900		1,151,053		0
Residential real estate 1st lien		361,055		402,647		110,700		961,084		0
Residential real estate Jr lien		297,898		319,472		46,400		295,737		0
Total
Commercial & industrial	$	446,484	$	478,798	$	0	$	853,354	$	0
Commercial real estate	$	2,187,060	$	2,618,275	$	8,900	$	3,234,710	$	0
Residential real estate 1st lien	$	1,261,272	$	1,552,509	$	110,700	$	1,821,970	$	0
Residential real estate Jr lien	$	297,898	$	319,472	$	46,400	$	335,066	$	0
Total	$	4,192,714	$	4,969,054	$	166,000	$	6,245,100	$	0

For the year ended December 31, 2011
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized*
With no related allowance recorded
Commercial & industrial	$	380,624	$	391,800	$	0	$	332,523	$	0
Commercial real estate		2,041,101		2,246,905		0		960,407		0
Residential real estate 1st lien		1,000,819		1,191,437		0		1,210,137		0
Residential real estate Jr lien		125,786		185,142		0		25,157		0
With an allowance recorded
Commercial & industrial		619,496		637,729		70,600		237,724		0
Commercial real estate		1,628,159		1,653,646		57,500		1,128,795		0
Residential real estate 1st lien		1,365,507		1,869,338		283,200		1,629,151		0
Residential real estate Jr lien		308,878		321,475		47,200		61,776		0
Total
Commercial & industrial	$	1,000,120	$	1,029,529	$	70,600	$	570,247	$	0
Commercial real estate	$	3,669,260	$	3,900,551	$	57,500	$	2,089,202	$	0
Residential real estate 1st lien	$	2,366,326	$	3,060,775	$	283,200	$	2,839,288	$	0
Residential real estate Jr lien	$	434,664	$	506,617	$	47,200	$	86,933	$	0
Total	$	7,470,370	$	8,497,472	$	458,500	$	5,585,670	$	0

For the nine months ended September 30, 2011
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized*
With no related allowance recorded
Commercial & industrial	$	397,993	$	400,678	$	0	$	320,498	$	0
Commercial real estate		1,320,096		1,350,647		0		690,234		0
Residential real estate		1,079,821		1,370,967		0		1,262,466		0
With an allowance recorded
Commercial & industrial		443,039		443,887		42,100		142,281		0
Commercial real estate		1,514,488		1,517,237		104,500		1,003,954		0
Residential real estate		1,813,057		2,316,927		352,600		1,695,062		0
Total
Commercial & industrial	$	841,032	$	844,565	$	42,100	$	462,779	$	0
Commercial real estate	$	2,834,584	$	2,867,884	$	104,500	$	1,694,188	$	0
Residential real estate	$	2,892,878	$	3,687,894	$	352,600	$	2,957,528	$	0
Total	$	6,568,494	$	7,400,343	$	499,200	$	5,114,495	$	0

__________

*Interest income recognized on impaired loans is immaterial for all periods presented.

Interest accrued but not collected for loans that are placed on non-accrual or charged off is reversed against interest income.  The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The Company is not contractually committed to lend additional funds to debtors with impaired, non-accrual or restructured loans.

Credit Quality Grouping

In developing the allowance for loan losses, management uses credit quality grouping to help evaluate trends in credit quality. The Company groups credit risk into Groups A, B and C. The manner the Company utilizes to assign risk grouping is driven by loan purpose. Commercial purpose loans are individually risk graded while the retail portion of the portfolio is generally grouped by delinquency pool.

Group A loans - Acceptable Risk – are loans that are expected to perform as agreed under their respective terms.  Such loans carry a normal level of risk that does not require management attention beyond that warranted by the loan or loan relationship characteristics, such as loan size or relationship size. Group A loans include commercial loans that are individually risk rated and retail loans that are rated by pool. Group A retail loans include both performing consumer and residential real estate loans. Residential real estate loans are loans to individuals secured by 1-4 family homes, including first mortgages, home equity and home improvement loans. Loan balances fully secured by deposit accounts or that are fully guaranteed by the Federal Government are considered acceptable risk.

Group B loans – Management Involved - are loans that require greater attention than the acceptable loans in Group A. Characteristics of such loans may include, but are not limited to, borrowers that are experiencing negative operating trends such as reduced sales or margins, borrowers that have exposure to adverse market conditions such as increased competition or regulatory burden, or borrowers that have had unexpected or adverse changes in management. These loans have a greater likelihood of migrating to an unacceptable risk level if these characteristics are left unchecked. Group B is limited to commercial purpose loans that are individually risk rated.

Group C loans – Unacceptable Risk – are loans that have distinct shortcomings that require a greater degree of management attention.  Examples of these shortcomings include a borrower's inadequate capacity to service debt, poor operating performance, or insolvency.  These loans are more likely to result in repayment through collateral liquidation. Group C loans range from those that are likely to sustain some loss if the shortcomings are not corrected, to those for which loss is imminent and non-accrual treatment is warranted. Group C loans include individually rated commercial purpose loans, and retail loans adversely rated in accordance with the Federal Financial Institutions Examination Council’s Uniform Retail Credit Classification Policy. Group C retail loans include 1-4 family residential real estate loans and home equity loans past due 90 days or more with loan-to-value ratios greater than 60%, home equity loans 90 days or more past due where the bank does not hold first mortgage, irrespective of loan-to-value, loans in bankruptcy where repayment is likely but not yet established, and lastly consumer loans that are 90 days or more past due. 

Commercial purpose loan ratings are assigned by the commercial account officer; for larger and more complex commercial loans, the credit rating is a collaborative assignment by the lender and the credit analyst. The credit risk rating is based on the borrower's expected performance, i.e., the likelihood that the borrower will be able to service its obligations in accordance with the loan terms. Credit risk ratings are meant to measure risk versus simply record history.  Assessment of expected future payment performance requires consideration of numerous factors.  While past performance is part of the overall evaluation, expected performance is based on an analysis of the borrower's financial strength, and historical and projected factors such as size and financing alternatives, capacity and cash flow, balance sheet and income statement trends, the quality and timeliness of financial reporting, and the quality of the borrower’s management.  Other factors influencing the credit risk rating to a lesser degree include collateral coverage and control, guarantor strength and commitment, documentation, structure and covenants and industry conditions.  There are uncertainties inherent in this process.

Credit risk ratings are dynamic and require updating whenever relevant information is received.  The risk ratings of larger or more complex loans, and Group B and C rated loans, are assessed at the time of their respective annual reviews, during quarterly updates, in action plans or at any other time that relevant information warrants update. Lenders are required to make immediate disclosure to the Chief Credit Officer of any known increase in loan risk, even if considered temporary in nature.

The risk ratings within the loan portfolio by segments as of the balance sheet dates were as follows:

	Total Loans
					Residential		Residential
	Commercial		Commercial		Real Estate		Real Estate
September 30, 2012	& Industrial		Real Estate		1st Lien		Jr Lien		Consumer		Total
Group A	$	45,649,737	$	127,984,841	$	164,474,055	$	45,373,633	$	11,005,770	$	394,488,036
Group B		590,534		3,787,365		408,051		318,848		0		5,104,798
Group C		1,244,368		4,244,348		3,659,304		336,757		17,034		9,501,811
Total	$	47,484,639	$	136,016,554	$	168,541,410	$	46,029,238	$	11,022,804	$	409,094,645

	Total Loans
					Residential		Residential
	Commercial		Commercial		Real Estate		Real Estate
December 31, 2011	& Industrial		Real Estate		1st Lien		Jr Lien		Consumer		Total
Group A	$	36,971,880	$	119,410,381	$	153,954,604	$	44,943,200	$	11,459,371	$	366,739,436
Group B		530,523		4,037,860		98,603		322,022		0		4,989,008
Group C		2,012,204		8,821,127		5,482,751		621,745		5,768		16,943,595
Total	$	39,514,607	$	132,269,368	$	159,535,958	$	45,886,967	$	11,465,139	$	388,672,039

	Total Loans
	Commercial		Commercial		Residential
September 30, 2011	& Industrial		Real Estate		Real Estate		Consumer		Total
Group A	$	31,263,167	$	121,785,036	$	200,493,345	$	11,884,313	$	365,425,861
Group B		889,433		7,157,279		587,332		0		8,634,044
Group C		2,417,463		8,949,934		5,517,529		15,275		16,900,201
Total	$	34,570,063	$	137,892,249	$	206,598,206	$	11,899,588	$	390,960,106

Modifications of Loans and TDRs

A loan is classified as a TDR if, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider.

The Company is deemed to have granted such a concession if it has modified a troubled loan in any of the following ways:

·   Reduced accrued interest

·   Reduced the original contractual interest rate to a rate that is below the current market rate for the borrower;

·   Converted a variable-rate loan to a fixed-rate loan;

·   Extended the term of the loan beyond an insignificant delay;

·   Deferred or forgiven principal in an amount greater than three months of payments; or,

·   Performed a refinancing and deferred or forgiven principal on the original loan.

An insignificant delay or insignificant shortfall in the amount of payments typically would not require the loan to be accounted for as a TDR.  However, pursuant to regulatory guidance, any payment delay longer than three months is generally not considered insignificant. The assessment of whether a concession has been granted also takes into account payments expected to be received from third parties, including third-party guarantors, provided that the third party has the ability to perform on the guarantee.

The Company’s TDRs are principally a result of extending loan repayment terms to relieve cash flow difficulties. The Company has only, on a limited basis, reduced interest rates for borrowers below the current market rate for the borrower.  The Company has not forgiven principal or reduced accrued interest within the terms of original restructurings, nor has it converted variable rate terms to fixed rate terms.  However, the Company evaluates each TDR situation on its own merits and does not foreclose the granting of any particular type of concession.

For the nine months ended September 30, 2012
			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
Commercial real estate		2	$	1,030,645	$	1,030,645
Residential real estate 1st lien		1		143,757		146,306
Total		3	$	1,174,402	$	1,176,951

The following table presents TDRs for the twelve month period ended September 30, 2012 for which there was a payment default under the restructured terms during the period:

	Number of		Recorded
	Contracts		Investment
Commercial & industrial		1	$	158,076

With respect to the calculation of the allowance for loan losses, TDRs are treated as other impaired loans and carry specific reserves. These loans are categorized as non-performing, may be past due, and are generally adversely risk rated. TDRs that have defaulted under their restructured terms are generally in collection status and the specific reserve is typically calculated using the fair value of collateral method.

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8. Loan Servicing (Tables)

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

Schedule Of Mortgage Servicing Rights

The following table shows the changes in the carrying amount of the mortgage servicing rights for the periods indicated:

	September 30,			December 31,			September 30,
	2012			2011			2011
Balance at beginning of year	$	1,097,442		$	1,076,708		$	1,076,708
Mortgage servicing rights capitalized		313,082			355,730			238,117
Mortgage servicing rights amortized		(314,100	)		(346,165	)		(260,597	)
Change in valuation allowance		(91,087	)		11,169			80,888
Balance at end of period	$	1,005,337		$	1,097,442		$	1,135,116

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4. Investment Securities (Tables)

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

Schedule Of Available For Sale Securities

Securities available-for-sale (AFS) and held-to-maturity (HTM) as of the balance sheet dates consisted of the following:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Securities AFS	Cost		Gains		Losses		Value
September 30, 2012
U.S. Government sponsored enterprise (GSE) debt securities	$	39,423,142	$	419,253	$	2,610	$	39,839,785
U.S. Government securities		7,082,906		35,050		300		7,117,656
U.S. GSE preferred stock		42,360		9,017		0		51,377
	$	46,548,408	$	463,320	$	2,910	$	47,008,818
December 31, 2011
U.S. GSE debt securities	$	60,846,954	$	215,595	$	99,310	$	60,963,239
U.S. Government securities		5,006,979		37,424		848		5,043,555
U.S. GSE preferred stock		42,360		49,763		0		92,123
	$	65,896,293	$	302,782	$	100,158	$	66,098,917
September 30, 2011
U.S. GSE debt securities	$	26,224,330	$	187,825	$	52,705	$	26,359,450
U.S. Government securities		5,010,100		35,350		0		5,045,450
U.S. GSE preferred stock		42,360		86,015		0		128,375
	$	31,276,790	$	309,190	$	52,705	$	31,533,275

Schedule Of Held to Maturity Securities

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Securities HTM	Cost		Gains		Losses		Value*
September 30, 2012
States and political subdivisions	$	50,065,653	$	565,347	$	0	$	50,631,000
December 31, 2011
States and political subdivisions	$	29,702,159	$	586,841	$	0	$	30,289,000
September 30, 2011
States and political subdivisions	$	36,898,097	$	498,903	$	0	$	37,397,000

Schedule of Maturities of Debt Securities Available for Sale

The scheduled maturities of debt securities AFS were as follows:

	Amortized		Fair
	Cost		Value
September 30, 2012
Due in one year or less	$	3,003,306	$	3,013,511
Due from one to five years		43,502,742		43,943,930
	$	46,506,048	$	46,957,441
December 31, 2011
Due in one year or less	$	5,018,549	$	5,035,711
Due from one to five years		58,835,384		58,970,925
Due from five to ten years		2,000,000		2,000,158
	$	65,853,933	$	66,006,794
September 30, 2011
Due in one year or less	$	8,031,513	$	8,060,834
Due from one to five years		22,202,917		22,352,436
Due from five to ten years		1,000,000		991,630
	$	31,234,430	$	31,404,900

Schedule Of Maturities of Debt Securities Held to Maturity

The scheduled maturities of debt securities HTM were as follows:

	Amortized		Fair
	Cost		Value*
September 30, 2012
Due in one year or less	$	40,302,625	$	40,303,000
Due from one to five years		4,041,285		4,183,000
Due from five to ten years		2,286,741		2,428,000
Due after ten years		3,435,002		3,717,000
	$	50,065,653	$	50,631,000
December 31, 2011
Due in one year or less	$	20,589,247	$	20,589,000
Due from one to five years		4,534,944		4,682,000
Due from five to ten years		822,735		969,000
Due after ten years		3,755,233		4,049,000
	$	29,702,159	$	30,289,000
September 30, 2011
Due in one year or less	$	27,402,959	$	27,403,000
Due from one to five years		4,902,641		5,027,000
Due from five to ten years		749,063		874,000
Due after ten years		3,843,434		4,093,000
	$	36,898,097	$	37,397,000

_______

*Method used to determine fair value on HTM securities rounds values to nearest thousand.

Schedule Of Unrealized Loss

There were no debt securities HTM in an unrealized loss position as of the balance sheet date.  Debt securities AFS with unrealized losses as of the balance sheet dates are presented in the table below.

	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Loss
September 30, 2012
U.S. GSE debt securities	$	0	$	0	$	1,512,667	$	2,610	$	1,512,667	$	2,610
U.S. Government securities		1,057,928		300		0		0		1,057,928		300
	$	1,057,928	$	300	$	1,512,667	$	2,610	$	2,570,595	$	2,910
December 31, 2011
U.S. GSE debt securities	$	29,940,644	$	99,310	$	0	$	0	$	29,940,644	$	99,310
U.S. Government securities		999,766		848		0		0		999,766		848
	$	30,940,410	$	100,158	$	0	$	0	$	30,940,410	$	100,158
September 30, 2011
U.S. GSE debt securities	$	7,046,617	$	52,705	$	0	$	0	$	7,046,617	$	52,705
U.S. Government securities		0		0		0		0		0		0
	$	7,046,617	$	52,705	$	0	$	0	$	7,046,617	$	52,705

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9. Legal Proceedings

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

9. Legal Proceedings

In the normal course of business the Company and its subsidiary are involved in litigation that is considered incidental to their business.  Management does not expect that any such litigation will be material to the Company's consolidated financial condition or results of operations.

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7. Fair Value

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

7. Fair Value

Certain assets and liabilities are recorded at fair value to provide additional insight into the Company’s quality of earnings. Some of these assets and liabilities are measured on a recurring basis while others are measured on a nonrecurring basis, with the determination based upon applicable existing accounting pronouncements. For example, securities available-for-sale are recorded at fair value on a recurring basis. Other assets, such as mortgage servicing rights, loans held-for-sale, and impaired loans, are recorded at fair value on a nonrecurring basis using the lower of cost or market methodology to determine impairment of individual assets. The Company groups assets and liabilities which are recorded at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement (with level 1 considered highest and level 3 considered lowest). A brief description of each level follows.

Level 1 Quoted prices in active markets for identical assets or liabilities.  Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as U.S. Treasury, other U.S. Government and agency mortgage-backed debt securities that are highly liquid and are actively traded in over-the-counter markets.

Level 2 Observable inputs other than Level 1 prices such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.  Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.  This category generally includes mortgage servicing rights, impaired loans, and OREO.

Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.  Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

Securities Available-for-Sale. Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices for similar assets, if available. If quoted prices are not available, fair values are measured using matrix pricing models, or other model-based valuation techniques requiring observable inputs other than quoted prices such as yield curves, prepayment speeds, and default rates.  Level 1 securities would include U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets.  Level 2 securities include federal agency securities. 

Assets measured at fair value on a recurring basis and reflected in the balance sheet at the dates presented, segregated by fair value hierarchy, are summarized below:

September 30, 2012	Level 1		Level 2		Total
Assets: (market approach)
U.S. GSE debt securities	$	0	$	39,839,785	$	39,839,785
U.S. Government securities		7,117,656		0		7,117,656
U.S. GSE preferred stock		51,377		0		51,377
December 31, 2011
Assets: (market approach)
U.S. GSE debt securities	$	0	$	60,963,239	$	60,963,239
U.S. Government securities		5,043,555		0		5,043,555
U.S. GSE preferred stock		92,123		0		92,123
September 30, 2011
Assets: (market approach)
U.S. GSE debt securities	$	0	$	26,359,450	$	26,359,450
U.S. Government securities		4,041,970		1,003,480		5,045,450
U.S. GSE preferred stock		128,375		0		128,375

There were no transfers between Levels 1 and 2 for the periods presented.  There were no Level 3 financial instruments at of the balance sheet dates presented.

Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis

Mortgage servicing rights. Mortgage servicing rights represent the value associated with servicing residential mortgage loans. Servicing assets and servicing liabilities are reported using the amortization method. In evaluating the carrying values of mortgage servicing rights, the Company obtains third party valuations based on loan level data including note rate, and the type and term of the underlying loans. As such, the Company classifies mortgage servicing rights as nonrecurring Level 2.

OREO. Real estate acquired through foreclosure is initially recorded at market value. The fair value of other real estate owned is based on property appraisals and an analysis of similar properties currently available. As such, the Company records other real estate owned as nonrecurring Level 2.

Impaired loans. A loan is considered to be impaired when it is probable that all of the principal and interest due under the original underwriting terms of the loan may not be collected. Impairment is measured based on the fair value of the underlying collateral or present value of expected cash flows. As such, the Company records impaired loans as nonrecurring Level 2.

The following table includes assets measured at fair value on a nonrecurring basis that have had a fair value adjustment since their initial recognition. Impaired loans measured at fair value only include impaired loans with a related specific allowance for loan losses and are presented net of specific allowances as disclosed in Note 5.

Assets measured at fair value on a nonrecurring basis and reflected in the balance sheet at the dates presented, segregated by fair value hierarchy, are summarized below:

September 30, 2012	Level 2
Assets: (market approach)
Residential mortgage servicing rights	$	1,005,857
Impaired loans, net of related allowance		683,561
OREO		1,150,198
December 31, 2011
Assets: (market approach)
Residential mortgage servicing rights	$	1,167,808
Impaired loans, net of related allowance		3,463,540
OREO		90,000
September 30, 2011
Assets: (market approach)
Residential mortgage servicing rights	$	1,211,219
Impaired loans, net of related allowance		3,271,384
OREO		0

There were no Level 1 or Level 3 financial instruments measured on a non-recurring basis as of the balance sheet dates presented.

FASB ASC Topic 825 “Financial Instruments”, requires disclosures of fair value information about financial instruments, whether or not recognized in the balance sheet, if the fair values can be reasonably determined. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques using observable inputs when available. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Topic 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

Fair values of financial instruments

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

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

Investment securities:  The fair value of securities available for sale equals quoted market prices, if available.  If quoted market prices are not available, fair value is determined using quoted market prices for similar securities.

Restricted equity securities:  Restricted equity securities are comprised of Federal Reserve Bank of Boston (FRBB) stock and Federal Home Loan Bank of Boston (FHLBB) stock.  These securities are carried at cost, which is believed to approximate fair value, based on the redemption provisions of the FRBB and the FHLBB.  The stock is nonmarketable, and redeemable at par value, subject to certain conditions, and, in the case of FHLBB stock, a moratorium on redemptions.

Loans and loans held-for-sale:  For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying amounts.  The fair values for other loans (for example, fixed rate residential, commercial real estate, and rental property mortgage loans, and commercial and industrial loans) are estimated using discounted cash flow analyses, based on interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Loan fair value estimates include judgments regarding future expected loss experience and risk characteristics.  Loan impairment is deemed to exist when full repayment of principal and interest according to the contractual terms of the loan is no longer probable.  Impaired loans are reported based on one of three measures: the present value of expected future cash flows discounted at the loan’s effective interest rate; the loan’s observable market price; or the fair value of the collateral if the loan is collateral dependent.  If the fair value is less than an impaired loan’s recorded investment, an impairment loss is recognized as part of the allowance for loan losses.  Accordingly, certain impaired loans may be subject to measurement at fair value on a non-recurring basis.  Management has estimated the fair values of these assets using Level 2 inputs, such as the fair value of collateral based on independent third-party appraisals for collateral-dependent loans. 

The fair value of loans held-for-sale is based upon an actual purchase and sale agreement between the Company and an independent market participant.  The sale is executed within a reasonable period following quarter end at the stated fair value.

Mortgage servicing rights:  Mortgage servicing rights are evaluated regularly for impairment based upon the fair   value of the servicing rights as compared to their amortized cost. The fair value of mortgage servicing rights is based on a valuation model that calculates the present value of estimated net servicing income, with loans divided into strata for valuation purposes based on their rates, terms and other features. The Company obtains a third party valuation based upon loan level data, including note rate, type and term. The model utilizes a variety of observable inputs for its assumptions, the most significant of which are loan prepayment assumptions and the discount rate used to discount future cash flows.

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

Junior subordinated debentures:  Fair value is estimated using current rates for debentures of similar maturity.

Capital lease obligations:  Fair value is determined using a discounted cash flow calculation using current rates.  Based on current rates, carrying value approximates fair value.

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

Off-balance-sheet credit related instruments:  Commitments to extend credit are evaluated and fair value is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present credit-worthiness of the counterparties.  For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. 

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

September 30, 2012	Carrying		Fair		Fair		Fair		Fair
	Amount		Value		Value		Value		Value
	(Dollars in Thousands)
Financial assets:			Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	9,524	$	9,524	$	0	$	0	$	9,524
Securities held-to-maturity		50,066		0		50,631		0		50,631
Securities available-for-sale		47,009		7,169		39,840		0		47,009
Restricted equity securities		4,021		0		4,021		0		4,021
Loans and loans held-for-sale
Commercial & industrial		47,485		0		0		48,187		48,187
Commercial real estate		136,017		0		0		137,753		137,753
Residential real estate - 1st lien		168,541		0		0		175,808		175,808
Residential real estate - Jr lien		46,029		0		0		46,954		46,954
Consumer		11,023		0		0		11,465		11,465
Mortgage servicing rights		1,005		0		1,006		0		1,006
Accrued interest receivable		1,810		0		1,810		0		1,810
Financial liabilities:
Deposits
Other deposits		443,008		0		445,472		0		445,472
Brokered deposits		14,094		0		14,101		0		14,101
Federal funds purchased and short term-borrowings		4,840		0		4,840		0		4,840
Long-term borrowings		12,010		0		12,327		0		12,327
Repurchase agreements		28,076		0		28,076		0		28,076
Capital lease obligations		790		0		790		0		790
Subordinated debentures		12,887		0		13,621		0		13,621
Accrued interest payable		121		0		121		0		121

	December 31, 2011				September 30, 2011
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	$	23,465	$	23,465	$	47,759	$	47,759
Securities held-to-maturity		29,702		30,289		36,898		37,397
Securities available-for-sale		66,099		66,099		31,533		31,533
Restricted equity securities		4,309		4,309		4,309		4,309
Loans and loans held-for-sale, net		384,793		395,386		387,104		398,640
Mortgage servicing rights		1,097		1,168		1,135		1,211
Accrued interest receivable		1,701		1,701		1,670		1,670
Financial liabilities:
Deposits		454,393		457,347		451,163		454,429
Federal funds purchased and other borrowed funds		18,010		18,404		18,010		18,437
Repurchase agreements		21,645		21,645		24,091		24,091
Capital lease obligations		833		833		800		800
Subordinated debentures		12,887		11,691		12,887		11,883
Accrued interest payable		150		150		138		138

The estimated fair values of commitments to extend credit and letters of credit were immaterial as of the dates presented in the above table.

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8. Loan Servicing

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

8. Loan Servicing

The following table shows the changes in the carrying amount of the mortgage servicing rights for the periods indicated:

	September 30,			December 31,			September 30,
	2012			2011			2011
Balance at beginning of year	$	1,097,442		$	1,076,708		$	1,076,708
Mortgage servicing rights capitalized		313,082			355,730			238,117
Mortgage servicing rights amortized		(314,100	)		(346,165	)		(260,597	)
Change in valuation allowance		(91,087	)		11,169			80,888
Balance at end of period	$	1,005,337		$	1,097,442		$	1,135,116

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10. Subsequent Event

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

10. Subsequent Event

The Company has evaluated events and transactions through the date that the financial statements were issued for potential recognition or disclosure in these financial statements, as required by GAAP.  On September 25, 2012, the Company declared a cash dividend of $0.14 per common share payable November 1, 2012 to shareholders of record as of October 15, 2012.  This dividend, amounting to $668,439, was accrued at September 30, 2012.

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5. Loans modified as TDRs (Details) (USD $)	Sep. 30, 2012 integer
Number of Contracts modified as TDRs	3
Pre-Modification Outstanding Recorded Investment	$ 1,174,402
Post- Modification Outstanding Recorded Investment	1,176,951
Commercial real estate
Number of Contracts modified as TDRs	2
Pre-Modification Outstanding Recorded Investment	1,030,645
Post- Modification Outstanding Recorded Investment	1,030,645
Residential real estate 1st lien
Number of Contracts modified as TDRs	1
Pre-Modification Outstanding Recorded Investment	143,757
Post- Modification Outstanding Recorded Investment	146,306
Commercial and industrial
Number of TDRs contracts which subsequently default	1
Recorded Investment for TDRs default	$ 158,076

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6. Goodwill and Other Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

Schedule of Future Amortization Expense

Amortization expense for the core deposit intangible for the first nine months of 2012 was $255,652.  As of September 30, 2012, the remaining annual amortization expense related to the core deposit intangible, absent any future impairment, is expected to be as follows:

2012	$	85,218
2013		272,695
2014		272,695
2015		272,695
2016		272,695
2017		272,696
Total remaining core deposit intangible	$	1,448,694

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4. Schedule Of Debt Securities Available For Sale (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Available for sale Securities
Amortized Cost
Due in one year or less, Amortized Cost	$ 3,003,306	$ 5,018,549	$ 8,031,513
Due from one to five years, Amortized Cost	43,502,742	58,835,384	22,202,917
Due from five to ten years, Amortized Cost		2,000,000	1,000,000
Amortization Cost of Debt	46,506,048	65,853,933	31,234,430
Fair Value
Due in one year or less, fair value	3,013,511	5,035,711	8,060,834
Due from one to five years, fair value	43,943,930	58,970,925	22,352,436
Due from five to ten years, fair value		2,000,158	991,630
Fair value of debt	46,957,441	66,006,794	31,404,900
Held to maturity Securities
Amortized Cost
Due in one year or less, Amortized Cost	40,302,625	20,589,247	27,402,959
Due from one to five years, Amortized Cost	4,041,285	4,534,944	4,902,641
Due from five to ten years, Amortized Cost	2,286,741	822,735	749,063
Due after ten years, Amortized Cost	3,435,002	3,755,233	3,843,434
Amortization Cost of Debt	50,065,653	29,702,159	36,898,097
Fair Value
Due in one year or less, fair value	40,303,000	20,589,000	27,403,000
Due from one to five years, fair value	4,183,000	4,682,000	5,027,000
Due from five to ten years, fair value	2,428,000	969,000	874,000
Due after ten years, fair value	3,717,000	4,049,000	4,093,000
Fair value of debt	$ 50,631,000	$ 30,289,000	$ 37,397,000

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8. Schedule Of Mortgage Servicing Rights (Details) (USD $)	9 Months Ended		12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Notes to Financial Statements
Balance at beginning of year	$ 1,097,442	$ 1,076,708	$ 1,076,708
Mortgage servicing rights capitalized	313,082	238,117	355,730
Mortgage servicing rights amortized	(314,100)	(260,597)	(346,165)
Change in valuation allowance	(91,087)	80,888	11,169
Balance at end of period	$ 1,005,337	$ 1,135,116	$ 1,097,442

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Consolidated Statements of Comprehensive Income (Unaudited) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Consolidated Statements of Comprehensive Income
Net Income	$ 1,267,351	$ 820,624	$ 3,253,392	$ 2,636,811
Other comprehensive income (loss), net of tax:
Change in unrealized holding gain on securities available-for-sale arising during the period	(124,090)	(61,026)	116,816	140,338
Reclassification adjustment for gains realized in income	99,676	0	140,971	0
Net change in unrealized gain	(24,414)	(61,026)	257,787	140,338
Tax effect	8,301	20,749	(87,648)	(47,715)
Other comprehensive loss, net of tax	(16,113)	(40,277)	170,139	92,623
Total comprehensive income	$ 1,251,238	$ 780,347	$ 3,423,531	$ 2,729,434

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4. Investment Securities

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

4. Investment Securities

Securities available-for-sale (AFS) and held-to-maturity (HTM) as of the balance sheet dates consisted of the following:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Securities AFS	Cost		Gains		Losses		Value
September 30, 2012
U.S. Government sponsored enterprise (GSE) debt securities	$	39,423,142	$	419,253	$	2,610	$	39,839,785
U.S. Government securities		7,082,906		35,050		300		7,117,656
U.S. GSE preferred stock		42,360		9,017		0		51,377
	$	46,548,408	$	463,320	$	2,910	$	47,008,818
December 31, 2011
U.S. GSE debt securities	$	60,846,954	$	215,595	$	99,310	$	60,963,239
U.S. Government securities		5,006,979		37,424		848		5,043,555
U.S. GSE preferred stock		42,360		49,763		0		92,123
	$	65,896,293	$	302,782	$	100,158	$	66,098,917
September 30, 2011
U.S. GSE debt securities	$	26,224,330	$	187,825	$	52,705	$	26,359,450
U.S. Government securities		5,010,100		35,350		0		5,045,450
U.S. GSE preferred stock		42,360		86,015		0		128,375
	$	31,276,790	$	309,190	$	52,705	$	31,533,275

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
Securities HTM	Cost		Gains		Losses		Value*
September 30, 2012
States and political subdivisions	$	50,065,653	$	565,347	$	0	$	50,631,000
December 31, 2011
States and political subdivisions	$	29,702,159	$	586,841	$	0	$	30,289,000
September 30, 2011
States and political subdivisions	$	36,898,097	$	498,903	$	0	$	37,397,000

The scheduled maturities of debt securities AFS were as follows:

	Amortized		Fair
	Cost		Value
September 30, 2012
Due in one year or less	$	3,003,306	$	3,013,511
Due from one to five years		43,502,742		43,943,930
	$	46,506,048	$	46,957,441
December 31, 2011
Due in one year or less	$	5,018,549	$	5,035,711
Due from one to five years		58,835,384		58,970,925
Due from five to ten years		2,000,000		2,000,158
	$	65,853,933	$	66,006,794
September 30, 2011
Due in one year or less	$	8,031,513	$	8,060,834
Due from one to five years		22,202,917		22,352,436
Due from five to ten years		1,000,000		991,630
	$	31,234,430	$	31,404,900

The scheduled maturities of debt securities HTM were as follows:

	Amortized		Fair
	Cost		Value*
September 30, 2012
Due in one year or less	$	40,302,625	$	40,303,000
Due from one to five years		4,041,285		4,183,000
Due from five to ten years		2,286,741		2,428,000
Due after ten years		3,435,002		3,717,000
	$	50,065,653	$	50,631,000
December 31, 2011
Due in one year or less	$	20,589,247	$	20,589,000
Due from one to five years		4,534,944		4,682,000
Due from five to ten years		822,735		969,000
Due after ten years		3,755,233		4,049,000
	$	29,702,159	$	30,289,000
September 30, 2011
Due in one year or less	$	27,402,959	$	27,403,000
Due from one to five years		4,902,641		5,027,000
Due from five to ten years		749,063		874,000
Due after ten years		3,843,434		4,093,000
	$	36,898,097	$	37,397,000

_______

*Method used to determine fair value on HTM securities rounds values to nearest thousand. 

There were no debt securities HTM in an unrealized loss position as of the balance sheet date.  Debt securities AFS with unrealized losses as of the balance sheet dates are presented in the table below.

	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Loss
September 30, 2012
U.S. GSE debt securities	$	0	$	0	$	1,512,667	$	2,610	$	1,512,667	$	2,610
U.S. Government securities		1,057,928		300		0		0		1,057,928		300
	$	1,057,928	$	300	$	1,512,667	$	2,610	$	2,570,595	$	2,910
December 31, 2011
U.S. GSE debt securities	$	29,940,644	$	99,310	$	0	$	0	$	29,940,644	$	99,310
U.S. Government securities		999,766		848		0		0		999,766		848
	$	30,940,410	$	100,158	$	0	$	0	$	30,940,410	$	100,158
September 30, 2011
U.S. GSE debt securities	$	7,046,617	$	52,705	$	0	$	0	$	7,046,617	$	52,705
U.S. Government securities		0		0		0		0		0		0
	$	7,046,617	$	52,705	$	0	$	0	$	7,046,617	$	52,705

Debt securities in the table above consisted of one U.S. GSE debt securities and one U.S. Government securities at September 30, 2012, 21 U.S. GSE debt securities and one U.S. Government security at December 31, 2011, and four U.S. GSE debt securities at September 30, 2011.  These unrealized losses were principally attributable to changes in prevailing interest rates for similar types of securities and not deterioration in the creditworthiness of the issuer.

At September 30, 2012 and 2011 and December 31, 2011, the Company’s AFS portfolio included two classes of Fannie Mae preferred stock with an aggregate cost basis of $42,360, which reflects cumulative other-than-temporary impairment write downs in prior periods of $833,778.

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market conditions, or adverse developments relating to the issuer, warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than the carrying value, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment for a period of time sufficient to allow for any anticipated recovery in fair value.  In analyzing an issuer's financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies or other adverse developments in the status of the securities have occurred, and the results of reviews of the issuer's financial condition.

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4. Schedule Of Unrealized Loss (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Less than 12 months
Fair Value	$ 1,057,928	$ 30,940,410	$ 7,046,617
Unrealized Loss	300	100,158	52,705
12 months or more
Fair Value	1,512,667	0	0
Unrealized Loss	2,610	0	0
Total
Fair Value	2,570,595	30,940,410	7,046,617
Unrealized Loss	2,910	100,158	52,705
U.S. GSE debt securities
Less than 12 months
Fair Value	0	29,940,644	7,046,617
Unrealized Loss	0	99,310	52,705
12 months or more
Fair Value	1,512,667	0	0
Unrealized Loss	2,610	0	0
Total
Fair Value	1,512,667	29,940,644	7,046,617
Unrealized Loss	2,610	99,310	52,705
U.S. Government securities
Less than 12 months
Fair Value	1,057,928	999,766	0
Unrealized Loss	300	848	0
12 months or more
Fair Value	0	0	0
Unrealized Loss	0	0	0
Total
Fair Value	1,057,928	999,766	0
Unrealized Loss	$ 300	$ 848	$ 0

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7. Schedule Of Fair Value Assets On Recurring Basis (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
U.S. GSE debt securities	$ 39,839,785	$ 60,963,239	$ 26,359,450
U.S. Government securities	7,117,656	5,043,555	5,045,450
U.S. GSE preferred stock	51,377	92,123	128,375
Fair Value Level 1
U.S. GSE debt securities	0	0	0
U.S. Government securities	7,117,656	5,043,555	4,041,970
U.S. GSE preferred stock	51,377	92,123	128,375
Fair Value Level 2
U.S. GSE debt securities	39,839,785	60,963,239	26,359,450
U.S. Government securities	0	0	1,003,480
U.S. GSE preferred stock	$ 0	$ 0	$ 0

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5. Loans, Allowance for Loan Losses and Credit Quality (Tables)

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

Composition of net loans

The composition of net loans follows:

	September 30, 2012			December 31, 2011			September 30, 2011
Commercial & industrial	$	47,484,639		$	39,514,607		$	34,570,063
Commercial real estate		136,016,554			132,269,368			137,892,249
Residential real estate - 1st lien		168,541,410			159,535,958			159,755,182
Residential real estate - Jr lien		46,029,238			45,886,967			46,843,024
Consumer		11,022,804			11,465,139			11,899,588
		409,094,645			388,672,039			390,960,106
Deduct (add):
Allowance for loan losses		4,115,230			3,886,502			3,835,840
Deferred net loan costs (fees)		(101,742	)		(7,251	)		20,474
Loans held-for-sale		1,483,940			2,285,567			2,411,242
		5,497,428			6,164,818			6,267,556
Net Loans	$	403,597,217		$	382,507,221		$	384,692,550

Past due loans by segment

The following is an age analysis of past due loans (including non-accrual) by segment:

			90 Days		Total						Non-Accrual		Over 90 Days
September 30, 2012	30-89 Days		or More		Past Due		Current		Total Loans		Loans		and Accruing
Commercial & industrial	$	254,847	$	326,693	$	581,540	$	46,903,099	$	47,484,639	$	613,817	$	75,042
Commercial real estate		426,428		1,331,505		1,757,933		134,258,621		136,016,554		2,321,320		53,936
Residential real estate - 1st lien		749,535		1,102,424		1,851,959		165,205,511		167,057,470		1,441,659		825,843
Residential real estate - Jr lien		456,984		109,222		566,206		45,463,032		46,029,238		326,882		109,222
Consumer		123,197		14,077		137,274		10,885,530		11,022,804		4,841		9,236
Total	$	2,010,991	$	2,883,921	$	4,894,912	$	402,715,793	$	407,610,705	$	4,708,519	$	1,073,279

			90 Days		Total						Non-Accrual		Over 90 Days
December 31, 2011	30-89 Days		or More		Past Due		Current		Total Loans		Loans		and Accruing
Commercial & industrial	$	655,168	$	265,668	$	920,836	$	38,593,771	$	39,514,607	$	1,066,945	$	59,618
Commercial real estate		2,266,412		1,288,616		3,555,028		128,714,340		132,269,368		3,714,146		98,554
Residential real estate - 1st lien		5,614,513		2,517,282		8,131,795		149,118,596		157,250,391		2,703,920		969,078
Residential real estate - Jr lien		431,885		2,754,129		3,186,014		42,700,953		45,886,967		464,308		111,061
Consumer		152,151		1,498		153,649		11,311,490		11,465,139		0		1,498
Total	$	9,120,129	$	6,827,193	$	15,947,322	$	370,439,150	$	386,386,472	$	7,949,319	$	1,239,809

			90 Days		Total						Non-Accrual		Over 90 Days
September 30, 2011	30-89 Days		or More		Past Due		Current		Total Loans		Loans		and Accruing
Commercial & industrial	$	667,668	$	583,258	$	1,250,926	$	33,319,137	$	34,570,063	$	917,328	$	21,824
Commercial real estate		3,066,295		1,025,858		4,092,153		133,800,096		137,892,249		2,911,034		209,506
Residential real estate - 1st lien		1,673,594		2,192,883		3,866,477		153,477,463		157,343,940		2,768,549		619,848
Residential real estate - Jr lien		380,341		403,815		784,156		46,058,868		46,843,024		537,892		208,754
Consumer		92,843		2,869		95,712		11,803,876		11,899,588		0		1,010
Total	$	5,880,741	$	4,208,683	$	10,089,424	$	378,459,440	$	388,548,864	$	7,134,803	$	1,060,942

Changes in the allowance for loan losses

The following summarizes changes in the allowance for loan losses and select loan information, by portfolio segment (excluding loans held-for-sale).

For the quarter ended September 30, 2012
							Residential			Residential
	Commercial			Commercial			Real Estate			Real Estate
	& Industrial			Real Estate			1st Lien			Jr Lien			Consumer			Unallocated		Total
Allowance for loan losses
Beginning balance	$	383,523		$	1,386,183		$	1,473,661		$	368,939		$	126,914		$	186,899	$	3,926,119
Charge-offs		(34,375	)		(2,821	)		(56,126	)		(9,447	)		(9,065	)		0		(111,834	)
Recoveries		17,978			24,587			1,426			60			6,895			0		50,946
Provisions		51,298			36,941			85,324			38,815			5,965			31,656		249,999
Ending balance	$	418,424		$	1,444,890		$	1,504,285		$	398,367		$	130,709		$	218,555	$	4,115,230

For the nine months ended September 30, 2012
							Residential			Residential
	Commercial			Commercial			Real Estate			Real Estate
	& Industrial			Real Estate			1st Lien			Jr Lien			Consumer			Unallocated		Total
Allowance for loan losses
Beginning balance	$	342,314		$	1,385,939		$	1,578,493		$	331,684		$	124,779		$	123,293	$	3,886,502
Charge-offs		(159,309	)		(57,878	)		(239,600	)		(69,734	)		(69,437	)		0		(595,958	)
Recoveries		20,498			25,450			3,248			1,479			24,010			0		74,685
Provisions		214,921			91,379			162,144			134,938			51,357			95,262		750,001
Ending balance	$	418,424		$	1,444,890		$	1,504,285		$	398,367		$	130,709		$	218,555	$	4,115,230
Allowance for loan losses
Evaluated for impairment
Individually	$	0		$	8,900		$	110,700		$	46,400		$	0		$	0	$	166,000
Collectively		418,424			1,435,990			1,393,585			351,967			130,709			218,555		3,949,230
Total	$	418,424		$	1,444,890		$	1,504,285		$	398,367		$	130,709		$	218,555	$	4,115,230
Loans evaluated for impairment
Individually	$	446,484		$	2,187,060		$	1,261,272		$	297,898		$	0				$	4,192,714
Collectively		47,038,155			133,829,494			165,796,198			45,731,340			11,022,804					403,417,991
Total	$	47,484,639		$	136,016,554		$	167,057,470		$	46,029,238		$	11,022,804				$	407,610,705

For the year ended December 31, 2011
							Residential			Residential
	Commercial			Commercial			Real Estate			Real Estate
	& Industrial			Real Estate			1st Lien			Jr Lien			Consumer			Unallocated		Total
Allowance for loan losses
Beginning balance	$	302,421		$	1,391,898		$	1,830,816		$	0		$	151,948		$	50,852	$	3,727,935
Charge-offs		(22,050	)		(197,367	)		(521,608	)		(96,961	)		(103,687	)		0		(941,673	)
Recoveries		13,225			8,479			42,593			20			35,923			0		100,240
Provisions		48,718			182,929			226,692			428,625			40,595			72,441		1,000,000
Ending balance	$	342,314		$	1,385,939		$	1,578,493		$	331,684		$	124,779		$	123,293	$	3,886,502
Allowance for loan losses
Evaluated for impairment
Individually	$	70,600		$	57,500		$	283,200		$	47,200		$	0		$	0	$	458,500
Collectively		271,714			1,328,439			1,295,293			284,484			124,779			123,293		3,428,002
Total	$	342,314		$	1,385,939		$	1,578,493		$	331,684		$	124,779		$	123,293	$	3,886,502
Loans evaluated for impairment
Individually	$	1,000,120		$	3,669,260		$	2,366,326		$	434,664		$	0				$	7,470,370
Collectively		38,514,487			128,600,108			154,884,065			45,452,303			11,465,139					378,916,102
Total	$	39,514,607		$	132,269,368		$	157,250,391		$	45,886,967		$	11,465,139				$	386,386,472

For the quarter ended September 30, 2011
	Commercial			Commercial			Residential
	& Industrial			Real Estate			Real Estate			Consumer			Unallocated			Total
Allowance for loan losses
Beginning balance	$	246,567		$	1,395,350		$	1,965,940		$	132,532		$	110,980		$	3,851,369
Charge-offs		(18,924	)		(21,679	)		(291,077	)		(10,565	)		0			(342,245	)
Recoveries		1,144			4,241			27,355			6,476			0			39,216
Provisions(Reductions)		51,343			148,745			129,545			615			(42,748	)		287,500
Ending balance	$	280,130		$	1,526,657		$	1,831,763		$	129,058		$	68,232		$	3,835,840

For the nine months ended September 30, 2011
	Commercial			Commercial			Residential
	& Industrial			Real Estate			Real Estate			Consumer			Unallocated		Total
Allowance for loan losses
Beginning balance	$	302,421		$	1,391,898		$	1,830,816		$	151,948		$	50,852	$	3,727,935
Charge-offs		(22,050	)		(21,679	)		(562,524	)		(74,677	)		0		(680,930	)
Recoveries		12,665			6,422			27,955			29,293			0		76,335
Provisions(Reductions)		(12,906	)		150,016			535,516			22,494			17,380		712,500
Ending balance	$	280,130		$	1,526,657		$	1,831,763		$	129,058		$	68,232	$	3,835,840
Individually evaluated for impairment	$	42,100		$	104,500		$	352,600		$	0		$	0	$	499,200
Collectively evaluated  for impairment		238,030			1,422,157			1,479,163			129,058			68,232		3,336,640
Total	$	280,130		$	1,526,657		$	1,831,763		$	129,058		$	68,232	$	3,835,840
Loans
Individually evaluated for impairment	$	841,032		$	2,834,584		$	2,892,878		$	0				$	6,568,494
Collectively evaluated for impairment		33,729,031			135,057,665			201,294,086			11,899,588					381,980,370
Total	$	34,570,063		$	137,892,249		$	204,186,964		$	11,899,588				$	388,548,864

Impaired loans by segment

Impaired loans by segments were as follows:

For the nine months ended September 30, 2012
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized *
With no related allowance recorded
Commercial & industrial	$	446,484	$	478,798	$	0	$	562,425	$	0
Commercial real estate		1,996,452		2,426,167		0		2,083,657		0
Residential real estate 1st lien		900,217		1,149,862		0		860,886		0
Residential real estate Jr lien		0		0		0		39,329		0
With an allowance recorded
Commercial & industrial		0		0		0		290,929		0
Commercial real estate		190,608		192,108		8,900		1,151,053		0
Residential real estate 1st lien		361,055		402,647		110,700		961,084		0
Residential real estate Jr lien		297,898		319,472		46,400		295,737		0
Total
Commercial & industrial	$	446,484	$	478,798	$	0	$	853,354	$	0
Commercial real estate	$	2,187,060	$	2,618,275	$	8,900	$	3,234,710	$	0
Residential real estate 1st lien	$	1,261,272	$	1,552,509	$	110,700	$	1,821,970	$	0
Residential real estate Jr lien	$	297,898	$	319,472	$	46,400	$	335,066	$	0
Total	$	4,192,714	$	4,969,054	$	166,000	$	6,245,100	$	0

For the year ended December 31, 2011
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized*
With no related allowance recorded
Commercial & industrial	$	380,624	$	391,800	$	0	$	332,523	$	0
Commercial real estate		2,041,101		2,246,905		0		960,407		0
Residential real estate 1st lien		1,000,819		1,191,437		0		1,210,137		0
Residential real estate Jr lien		125,786		185,142		0		25,157		0
With an allowance recorded
Commercial & industrial		619,496		637,729		70,600		237,724		0
Commercial real estate		1,628,159		1,653,646		57,500		1,128,795		0
Residential real estate 1st lien		1,365,507		1,869,338		283,200		1,629,151		0
Residential real estate Jr lien		308,878		321,475		47,200		61,776		0
Total
Commercial & industrial	$	1,000,120	$	1,029,529	$	70,600	$	570,247	$	0
Commercial real estate	$	3,669,260	$	3,900,551	$	57,500	$	2,089,202	$	0
Residential real estate 1st lien	$	2,366,326	$	3,060,775	$	283,200	$	2,839,288	$	0
Residential real estate Jr lien	$	434,664	$	506,617	$	47,200	$	86,933	$	0
Total	$	7,470,370	$	8,497,472	$	458,500	$	5,585,670	$	0

For the nine months ended September 30, 2011
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized*
With no related allowance recorded
Commercial & industrial	$	397,993	$	400,678	$	0	$	320,498	$	0
Commercial real estate		1,320,096		1,350,647		0		690,234		0
Residential real estate		1,079,821		1,370,967		0		1,262,466		0
With an allowance recorded
Commercial & industrial		443,039		443,887		42,100		142,281		0
Commercial real estate		1,514,488		1,517,237		104,500		1,003,954		0
Residential real estate		1,813,057		2,316,927		352,600		1,695,062		0
Total
Commercial & industrial	$	841,032	$	844,565	$	42,100	$	462,779	$	0
Commercial real estate	$	2,834,584	$	2,867,884	$	104,500	$	1,694,188	$	0
Residential real estate	$	2,892,878	$	3,687,894	$	352,600	$	2,957,528	$	0
Total	$	6,568,494	$	7,400,343	$	499,200	$	5,114,495	$	0

Risk ratings

The risk ratings within the loan portfolio by segments as of the balance sheet dates were as follows:

	Total Loans
					Residential		Residential
	Commercial		Commercial		Real Estate		Real Estate
September 30, 2012	& Industrial		Real Estate		1st Lien		Jr Lien		Consumer		Total
Group A	$	45,649,737	$	127,984,841	$	164,474,055	$	45,373,633	$	11,005,770	$	394,488,036
Group B		590,534		3,787,365		408,051		318,848		0		5,104,798
Group C		1,244,368		4,244,348		3,659,304		336,757		17,034		9,501,811
Total	$	47,484,639	$	136,016,554	$	168,541,410	$	46,029,238	$	11,022,804	$	409,094,645

	Total Loans
					Residential		Residential
	Commercial		Commercial		Real Estate		Real Estate
December 31, 2011	& Industrial		Real Estate		1st Lien		Jr Lien		Consumer		Total
Group A	$	36,971,880	$	119,410,381	$	153,954,604	$	44,943,200	$	11,459,371	$	366,739,436
Group B		530,523		4,037,860		98,603		322,022		0		4,989,008
Group C		2,012,204		8,821,127		5,482,751		621,745		5,768		16,943,595
Total	$	39,514,607	$	132,269,368	$	159,535,958	$	45,886,967	$	11,465,139	$	388,672,039

	Total Loans
	Commercial		Commercial		Residential
September 30, 2011	& Industrial		Real Estate		Real Estate		Consumer		Total
Group A	$	31,263,167	$	121,785,036	$	200,493,345	$	11,884,313	$	365,425,861
Group B		889,433		7,157,279		587,332		0		8,634,044
Group C		2,417,463		8,949,934		5,517,529		15,275		16,900,201
Total	$	34,570,063	$	137,892,249	$	206,598,206	$	11,899,588	$	390,960,106

Loans modified as TDRs

For the nine months ended September 30, 2012
			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
Commercial real estate		2	$	1,030,645	$	1,030,645
Residential real estate 1st lien		1		143,757		146,306
Total		3	$	1,174,402	$	1,176,951

The following table presents TDRs for the twelve month period ended September 30, 2012 for which there was a payment default under the restructured terms during the period:

	Number of		Recorded
	Contracts		Investment
Commercial & industrial		1	$	158,076