Merger will enrich CBT execs

Community Bank and Trust’s chief executive, board chairman and vice chairman – all of whom recommended that the Wolfeboro bank should merge with Chittenden Corp.’s Ocean Bank — will receive $560,000 in salaries and cash and more than $1.1 million in stock options as a result of the deal, according to preliminary merger documents filed last week with the Securities and Exchange Commission.

The merger still has to be approved by two-thirds of the holders of Community Bank and Trust’s voting shares, with the time and date of that vote still not disclosed. While the stock is held by some 1,200 shareholders, the deal has received the unanimous backing of the board and CEO, who together own more than a quarter of the bank. Those shares which would transform into Chittenden stock worth roughly more than $30 million when the merger closes, as expected, at the end of this year.

McConnell, Budd & Romano, Inc. the financial adviser recommending the merger, will be paid roughly $1 million for its services with more than two-thirds of that coming upon the merger’s completion.

In the draft proxy, the bank maintains that this is the best deal shareholders could get, given the current economic and regulatory climate. It also is a good geographical fit for one of the state’s remaining community-based banks, according to the draft, and offers sufficient protections for the bank’s 120 employees.

Community Bank and Trust – with its $415 million in assets — would become part of Ocean Bank, based in Portsmouth, itself the product of a 2004 merger of Ocean National Bank and Granite Bank. It has some 40 branches in New Hampshire and southern Maine.

Community Bank and Trust announced the deal in early June, after looking around for a suitor since February, eventually narrowing the field down to three before entering into direct negotiations with Chittenden in May, according to the documents. As a result of the deal, shareholders will get either $33.37 in cash or 1.1293 shares of stock, though that figure may change due to an agreement that 75 percent of the transaction must be in stock, not cash.

In late June, on the heels of that merger announcement, Vermont-based Chittenden announced it was being gobbled up by the Connecticut-based People’s United Financial Inc., so Community Bank shareholders who hang on to Chittenden shares will get – in either cash or stock — $20.35 per share, plus 0.8775 multiplied by the average closing price of People’s United Financial common stock during the five trading days before completion of the People’s/Chittenden merger. Those thinking about taking the cash, however, should realize that it would be taxed as a capital gain.

Board members and high-ranking bank officials won’t have a choice, however. They must hold on to their stock during this process. But bank officials have other perks. Community Bank President Peter Alden would receive $195,000 in base salary as senior vice president of Ocean, plus a settlement of $412,000 for his stock options. Board Chairman Bradford Gile will receive $200,000 for a yearlong consulting contract, and get a payout of $717,000 for his options. Gregory A. Roark, vice chairman and treasurer, will receive $165,000 for his consulting services, though no options. All three will be able to keep the company cars that they have been using, and the two consultants will get an office and secretarial services.

While Roark didn’t have any options to cash in, board member Irene Kimball will get $352,000 for her options. Board members also own about a million shares, or 27 percent, of the stock, with Giles (7.96 percent), Roark (6.21 percent) and Q. David Bowers (6.32 percent) with the most skin in the game.

McConnell, Budd & Romano concluded that shareholders would only do better going alone if Community Bank experienced sustained annual asset growth rates exceeding 6 percent and/or average returns on assets exceeding 1.64 percent. Neither has been the case in the recent past.

Indeed, the bank’s $7 million in net income in 2006, was $1 million less than 2005 income, and income for the first half of 2007 ($2.9 million) declined from the first half of 2006. In addition, total nonperforming assets jumped to $6.28 million in 2006, a 175 percent increase reflecting increase pressure that has hit the loan market. – BOB SANDERS

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