[DESCRIPTION] 1993 10K FILING
<COVER>
March 31, 1994
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: CHITTENDEN CORPORATION - REGISTRATION NO. 0-7974
ANNUAL REPORT (ON FORM 10-K)
To Whom It May Concern:
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, there is, appended to this transmittal, an electronic file of the
Annual Report (on Form 10-K) of Chittenden Corporation, Two Burlington Square,
Burlington, Vermont (the "Corporation"), for the year ended December 31, 1993.
Several additional copies of the Corporation's 1993 Annual Report will be
mailed.
The Corporation will wire the filing fee of $250.00 via Fedwire.
If any questions concerning this Annual Report, please telephone the
undersigned at (802) 660-1410.
Kindly acknowledge receipt of this letter by Compuserve Email.
Thank you.
Very truly yours,
F.SHELDON PRENTICE
Secretary
FSP/mgm
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1993
Commission File Number 0-7974
CHITTENDEN CORPORATION
(Exact name of registrant as specified in charter)
Vermont 03-0228404
(State of Incorporation) (IRS Employer Identification No.)
Two Burlington Square
Burlington, Vermont 05401
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number: 802-658-4000
Securities registered pursuant to Section 12(g) of the Act:
$1.00 par value common stock
(Title of Class)
Indicate by check mark whether the registrant (l) has filed all reports to be
filed by Section 13 or 15(D) of the Securities Exchange Act of 1934 during t
he preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES X NO .
The aggregate market value of the Registrant's common stock held by
non-affiliates of the Registrant, based on the average of the high and low
prices of such stock on March 4, 1994, as reported on NASDAQ, was $113,339,390.
At March 4, 1994, there were 6,227,439 shares of the Registrant's common
stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents, in whole or in part, are specifically incorporated by
reference in the indicated Part of this Annual Report on Form 10-K:
l. Proxy Statement for 1994 Annual Meeting of Registrant's Stockholders:
Part III, Items 10, 11, 12, 13.
2. Proxy Statement for 1994 Annual Meeting of Registrant's Stockholders:
Part I, Item 4.
3. Annual Report to Stockholders for fiscal year ended December 31, 1993:
Part I, Items l, 2, 3; Part II, Items 5, 6, 7, 8, 9; and Part IV, Item 14.
PART I
Item l. Business
Chittenden Corporation (the "Company"), a Vermont corporation organized in 1971,
is a registered bank holding company under the Bank Holding Company Act of 1956,
as amended. Assets of the Company were $1,231,003,000 at December 31, 1993.
The Company is the holding company parent of Chittenden Trust Company, and as
of December 31, 1993, owned 100% of the outstanding common stock of that bank.
The Company's principal executive offices are located at Two Burlington Square,
Burlington, Vermont 05401; telephone number: 802-660-4000.
Chittenden Trust Company
Chittenden Trust Company ("Chittenden Trust") was chartered by the Vermont
Legislature as a commercial bank in 1904, and is the largest bank in Vermont,
based on total deposits of $1,034,764,000 and total assets of $1,223,701,000 at
December 31, 1993.
Chittenden Trust has its principal offices in Burlington, Vermont and has 40
additional locations in Vermont, of which two are free standing automated
teller machines ("ATM's"). (See Item 2, "Properties"). Since
December 1, 1983, all offices of Chittenden Trust have used the trade name
"Chittenden Bank".
Chittenden Trust offers a wide range of banking services, including the
acceptance of demand, savings, and time deposits. As of December 31, 1993,
total time and savings deposits amounted to $875,441,000 or 85% of total
deposits.
Chittenden Trust offers a variety of lending services. The largest loan
category is real estate mortgage loans, which amounted to 73% of total loans
outstanding at December 31, 1993. The largest classification of real estate
mortgage loans is loans secured by residential properties including home equity
loans, which amounted to 47% of total loans outstanding at December 31, 1993.
Home equity loans as a seperate group amounted to 8% of loans at
December 31, 1993. The remaining real estate mortgage loans are commercial
related and primarily owner occupied or investment properties.
Consumer loans outstanding at December 31, 1993 were 15% of total loans,
constituting the second largest category. These include direct and indirect
installment loans, student loans and revolving credit.
Commercial loans outstanding at December 31, 1993 amounted to 13% of total
loans. These loans are made to a variety of businesses, including retail
concerns, small manufacturing businesses, and larger corporations.
In making commercial loans, Chittenden Trust occasionally solicits the
participation of other Vermont banks or correspondent banks and other financial
investors outside the State. Chittenden Trust also occasionally participates
in loans originated by other banks. A small amount of Chittenden Trust's
commercial loans are made under programs administered by the Vermont Industrial
Development Authority, the U.S. Small Business Administration, or the U.S.
Farmers Home Administration. These loans contain repayment guarantees by the
agency involved in varying amounts up to 90% of the original loan.
All of Chittenden Trust's loans, except a small volume of loans (less than 1%
of total loans as December 31, 1993), are made to individuals and businesses
located in Vermont. Lending is particularly active in Chittenden County, where
the main office of Chittenden Trust and 17 of its 38 branch offices are
located. Chittenden County also has the highest concentration of business and
population in Vermont, with approximately 132,821 persons, or 23.6% of the
State's residents.
Chittenden Trust provides personal trust services, including services as
executor, trustee, administrator, custodian and guardian, and corporate trust
services, including services as trustee for pension and profit sharing plans.
Chittenden Trust offers data processing services consisting primarily of
payroll and automated clearing house for several outside clients. The services
are performed by Systematics, Inc., a data processing facilities management
firm based in Little Rock, Arkansas, and Chittenden Trust.
Chittenden Trust provides financial and investment counseling to municipalities
and school districts within its service area and also provides central
depository, lending, payroll, and other banking services for such customers.
Chittenden Trust also provides safe deposit facilities, MasterCard, and VISA
credit card services.
Chittenden also offers certain non-bank, investment products through a
dual-employee contractual relationship with Link Investment Services, Inc.
COMPETITION
There is vigorous competition in Vermont for all aspects of the banking and
related financial services presently engaged in by the Company and its
subsidiaries.
Chittenden Trust competes with Vermont banks and metropolitan banks based in
southern New England and New York City to provide commercial banking services
to businesses. Many of these out-of-state banks have greater financial
resources than those of Vermont banks and are actively seeking financial
relationships with promising Vermont enterprises. Two out-of-state banks have
acquired in-state banks; Bank of Boston acquired Bank of Vermont, and Arrow
Financial acquired United Bancorp. Regulatory changes in the banking industry
have permitted thrift institutions to engage in commercial lending activities.
As a result, local bank competition has intensified.
In the retail market for financial services, competitors include other banks,
credit unions, finance companies, thrift institutions and, increasingly,
brokerage firms, insurance companies, and mortgage loan companies. Interest
rate competition for the investments of individuals has accelerated with the
enactment of the Garn-St. Germain Depository Institutions Act, which phased-out
interest rate ceilings applicable to certain deposit accounts. Money market
deposit accounts and short term flexible-maturity certificates of deposit
offered by the Company's banking subsidiary compete with investment account
offerings of brokerage firms and, more recently, with new products offered by
insurance companies.
The banking subsidiary also competes for personal and commercial trust business
with investment advisory firms, mutual funds, and insurance companies.
SUPERVISION AND REGULATION
The Company is a bank holding company within the meaning of the Bank Holding
Company Act of 1956 (the "Act") and is registered as such with the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"). As a
bank holding company, the Company is required to file with the Federal Reserve
Board an annual report and such other information as may be required. The
Federal Reserve Board may also make examinations of the Company.
The Act requires every bank holding company to obtain prior approval of the
Federal Reserve Board before acquiring substantially all the assets of direct
or indirect ownership or control of more than 5% of the voting shares of any
bank which is not already majority-owned. The Act also prohibits a bank
holding company, with certain exceptions, from itself engaging in or acquiring
direct or indirect control of more than 5% of the voting shares of any company
engaged in non-banking activities. One of the principal exceptions to these
prohibitions is for engaging in or acquiring shares of a company engaged in
activities found by the Federal Reserve Board by order or regulation to be so
closely related to banking or managing banks as to be a proper incident
thereto. The Act prohibits the acquisition by a bank holding company of more
than 5% of the outstanding voting shares of a bank located outside the state in
which the operations of its banking subsidiaries are principally conducted,
unless such an acquisition is specifically authorized by statute of the state
in which the bank to be acquired is located. Under Section 106 of the 1970
amendments to the Act and regulations of the Federal Reserve Board, a bank
holding company and its subsidiaries are prohibited from engaging in certain
tie-in arrangements in connection with any extension of credit or provision of
any property or services.
Chittenden Trust is a federally insured bank organized under the Banking Law of
the State of Vermont. Accordingly, its operations are subject to State laws
applicable to commercial banks with trust powers and to regulation by the
Department of Banking and Insurance of the State of Vermont and the Federal
Deposit Insurance Corporation.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
which went into effect on December 19, 1992, made extensive changes to the
federal banking laws. Among other changes, FDICIA requires federal bank
regulatory agencies to take prompt corrective action to address the problems of
undercapitalized banks. Through the issuance of appropriate prompt corrective
action directives to certain undercapitalized institutions, federal bank
regulatory agencies may require recapitalization, apply broader restrictions on
transactions with affiliates, limit interest rates paid on deposits, limit
asset growth and other activities, require possible replacement of directors
and officers, and restrict capital distributions by any bank holding company
controlling the institution.
With certain exceptions, FDICIA prohibits state banks from engaging, as
principals, in activities that are not permissible for national banks. In
addition, FDICIA amends federal statutes governing extensions of credit to
directors, executive officers and principal shareholders of banks, savings
associations and their holding companies, limits the aggregate amount of a
depository institution's loans to insiders, restricts depository institutions
that are not well capitalized from accepting brokered deposits without an
express waiver from the FDIC and imposes certain advance notice requirements
before closing a branch. FDICIA also requires the FDIC to institute a system
of risk-based deposit insurance assessments and requires depository
institutions to make additional disclosures to depositors with respect to the
rate of interest and terms of consumer deposit accounts.
EMPLOYEES
The Company and its subsidiaries on December 31, 1993 employed 744 persons, with
a full-time equivalency of 704 employees. The Company enjoys good relations
with its employees. A variety of employee benefits, including health, group
life and disability income replacement insurance, a funded, non-contributory
pension plan, and an incentive savings and profit sharing plan, are available
to officers and employees.
SELECTED STATISTICAL INFORMATION
Certain consolidated financial data about the business of the Company and its
subsidiaries, principally Chittenden Trust, is contained on pages 13-36 of the
Company's 1993 Annual Report to Stockholders, which is specifically
incorporated herein by reference.
ITEM 2. PROPERTIES
The Company's principal banking subsidiary, Chittenden Trust, operates banking
facilities in 41 locations in Vermont.
The offices of the Company and its non-banking subsidiaries are located in the
main office of the Chittenden Trust, which occupied all of the five-floor
Chittenden Building at Two Burlington Square in Burlington as of
December 31, 1993. The Chittenden Building is owned by Chittenden Trust.
The offices of Chittenden Trust are in good physical condition with modern
equipment and facilities considered adequate to meet the banking needs of
customers in the communities serviced.
ITEM 3. Legal Proceedings
A number of legal claims against the Company arising in the normal course of
business were outstanding at December 31, 1993. Management, after reviewing
these claims with legal counsel, is of the opinion that these matters, when
resolved, will not have a material effect on the consolidated financial
statements.
Note 12 of the Consolidated Financial Statements appearing on page 31 of the
Company's 1993 Annual Report to Stockholders contains a discussion of one legal
claim, Walsh v. Chittenden Corp., et.al., which is a class action, and is
specifically incorporated herein by reference.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters.
PART II
ITEM 5. Market For Registrant's Common Equity and Related Stockholder Matters
Information regarding the market in which the Company's common stock is
traded, the quarterly high and low bid quotations for the Company's common
stock during the past five years is included in the Company's 1993 Annual
Report to Stockholders on page 55, and is specifically incorporated herein by
reference. The approximate number of stockholders at March 4, 1994 was
3,063. Note 8 of the Consolidated Financial Statements appearing on page 26 of
the Company's 1993 Annual Report to Stockholders contains a discussion of
restrictions on dividends, which is specifically incorporated herein by
reference.
ITEM 6. Selected Financial Data
A five-year summary of selected consolidated financial data for the Company and
its subsidiaries is included on page 39 of the Company's 1993 Annual Report to
Stockholders, and is specifically incorporated herein by reference.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations is included on pages 40-52 of the Company's 1993 Annual Report to
Stockholders specifically incorporated herein by reference.
ITEM 8. Financial Statements and Supplementary Data
The following consolidated financial statements of the Company and its
subsidiaries appear in the Company's 1993 Annual Report to Stockholders at the
pages indicated and are incorporated herein by reference:
Page
Independent Auditors' Reports 37-38
Consolidated Balance Sheets at
December 31, 1993 and 1992 13
Consolidated Statements of Income for
the Years Ended December 31, 1993, 1992, and 1991 14
Consolidated Statements of Changes in
Stockholders' Equity for the Years Ended
December 31, 1993, 1992, and 1991 15
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1993, 1992, and 1991 16
Notes to Consolidated Financial Statements 17-36
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no disagreements with accountants on accounting principles, or
practices, or financial statement disclosure. Arthur Andersen & Co. are the
principal accountants for Chittenden Corporation as of and for the year ended
December 31, 1993. KPMG Peat Marwick were the principal accountants for
Chittenden Corporation for prior periods presented in this Annual Report.
On December 28, 1992, that firm was notified that they would be terminated as
principal accountants upon completion of the audit of the consolidated
financial statements of the Chittenden Corporation as of and for the year
ended December 31, 1992, and Arthur Andersen & Co. would be engaged as
principal accountants. The decision to change accountants was
approved by the Audit Committee of the Board of Directors and by the Board of
Directors.
In connection with the audits of the fiscal years ended December 31, 1993,
1992, and 1991, there were no disagreements with Arthur Andersen & Co. or
KPMG Peat Marwick on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope.
The audit reports of Arthur Andersen & Co. and KPMG Peat Marwick on the
consolidated financial statements of Chittenden Corporation and as
of and for the years ended December 31, 1993, 1992, 1991 did not contain any
adverse opinion or disclaimers of opinion nor were they qualified or modified as
to uncertainty, audit scope, or accounting principles.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Information regarding the directors and director-nominees of the Registrant is
included in the Company's definitive Proxy Statement for the 1994 Annual Meeting
of Stockholders at pages 5-10, and is specifically incorporated herein by
reference.
At December 31, 1993, the principal officers of the Company and its principal
subsidiary, Chittenden Trust, with their ages, positions, and years of
appointment, were as follows:
Year
Name and Age Appointed Positions
Barbara W. Snelling, 66 1990 Chair of the Company
Paul A. Perrault, 42 1990 President and Chief
Executive Officer of
the Company and
Chittenden Trust
Lawrence W. Deshaw, 47 1990 Executive Vice
President of the
Company and Chittenden
Trust
William R. Heaslip, 49 1988 Executive Vice
President of the
Company and of
Chittenden Trust for
Trust Services
John W. Kelly, 44 1990 Executive Vice
President of the
Company and
Chittenden Trust
Nancy Rowden Brock, 37 1984 Treasurer of the
Company and Senior
Vice President,
Chief Financial Officer,
and Treasurer of
Chittenden Trust
F. Sheldon Prentice, 43 1985 Secretary of the
Company and Senior
Vice President,
General Counsel, and
Secretary of Chittenden Trust
John P. Barnes, 38 1990 Senior Vice President of
Chittenden Trust
Danny H. O'Brien, 43 1990 Senior Vice President of
Chittenden Trust
All of the current officers, with the exceptions of Messrs. Perrault and Kelly,
have been principally employed in executive positions with Chittenden Trust for
more than five years. Mr. Perrault was President of Bank of New England - Old
Colony Bank located in Providence, Rhode Island. Mr. Kelly was Executive Vice
President and the head of commercial lending division of Bank of New England -
Old Colony in Providence, Rhode Island.
In accordance with the provisions of the Company's By-Laws, the officers, with
the exception of the Secretary, hold office at the pleasure of the Board of
Directors. The Secretary is elected annually by the Board of Directors.
ITEM 11. Executive Compensation
Information regarding remuneration of the directors and officers of the Company
is included in the Company's definitive Proxy Statement for the 1994 Annual
Meeting of Stockholders at pages 4-10 and is specifically incorporated herein
by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding the security ownership of directors and director-nominees
of the Company, all directors and officers of the Company as a group, and
certain beneficial owners of the Company's common stock, as of February 3, 1994,
is included in the Company's definitive Proxy Statement for its 1994 Annual
Meeting of Stockholders, at pages 4-10, and is specifically incorporated
herein by reference.
There are no arrangements known to the registrant which may, at a subsequent
date, result in a change of control of the registrant.
ITEM 13. Certain Relationships and Related Transactions
Information regarding certain relationships and transactions between the Company
and its Directors, Director-Nominees, Executive Officers, and family members
of these individuals, is included in the Company's definitive Proxy Statement
for its 1994 Annual Meeting of Stockholders at page 10, and is specifically
incorporated herein by reference.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents Filed as Part of this Report were filed as a full document and a
segment filing on the EDGAR system called Annual.
(l) Financial Statements
The following consolidated financial statements of the Company and its
subsidiaries appear in the Company's 1993 Annual Report to Stockholders
Page
Independent Auditors' Reports 37-38
Consolidated Balance Sheets at
December 31, 1993 and 1992 13
Consolidated Statements of Income for
the Years Ended December 31, 1993,
1992, and 1991 14
Consolidated Statements of Changes in
Stockholders' Equity for the Years Ended
December 31, 1993, 1992, and 1991 15
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1993, 1992, and 1991 16
Notes to Consolidated Financial Statements 17-34
(2)Financial Statement Schedules
There are no financial statement schedules required to be included in this
report.
(4) Exhibits
The following are included as exhibits to this report:
3. By-Laws of the Company, as amended, incorporated herein by reference to
Exhibit 3 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1985.
3.01 Amendment to the By-Laws of the Company, dated February 16, 1988,
incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1987.
3.02 Amendment to the By-Laws of the Company, dated January 17, 1990,
incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1989.
3.03 Amendment to the By-Laws of the Company, dated June 19, 1991, incorporated
herein by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1991.
3.1 Articles of Association of the Company, as amended, incorporated herein by
reference to the Proxy Statement for the 1994 Annual Meeting of
Stockholders.
4.2 Agreement regarding furnishing the instruments defining rights of holders
of long-term debt, incorporated herein by reference to Exhibit 4.5 to
Registration No. 2-89460 under the Securities Act of 1933.
4.31 Statement of the Company regarding its Dividend Reinvestment Plan is
attached and made part of the Company's Annual Report on Form 10-K for
the year ended December 31, 1993.
10.1 The Company's Employee Stock Purchase Plan, incorporated herein by
reference to Appendix A to Registration No. 2-69030 under the Securities
Act of 1933.
10.2 Deferred Directors Compensation Plan, dated April 1972, as amended
December 1976, August 1980, and March 1983, incorporated herein by
reference to Exhibit 10.2 to Registration No.2-89460 under the Securities
Act of 1933.
10.21 1986 and 1987 Amendments to Directors Deferred Compensation Plan,
incorporated here in by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1987.
10.22 1990 Amendment to Directors Deferred Compensation Plan, incorporated
herein by reference to the Company's Annual Report on form 10-K for the
year ended December 31, 1991.
10.23 1992 Amendment to Deferred Directors Compensation Plan,incorporated
herein by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992.
10.3 Trust Agreement and Pension Plan of Chittenden Trust, dated
December 1, 1969, with amendments thereto, incorporated herein by
reference to Exhibit 15 to Registration No. 2-50893 under the Securities
Act of 1933.
10.4 Amendments to Trust Agreement and Pension Plan of the Company are
attached and made part of the Company's Annual Report on form 10-K
for the year ended December 31, 1993.
10.8 Executive Incentive Compensation Plan dated May l, 1984, incorporated
herein by reference to Exhibit 10.9 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1985.
10.9 Incentive Savings and Profit Sharing Plan, incorporated herein by
reference to Exhibit 10.10 to the Company Annual Report on Form 10-K for
the year ended December 31, 1984.
10.10 The Company's Stock Option Plan, incorporated herein by reference to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1984.
10.11 The Company's Stock Option Plan, incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1987.
10.12 The Company's Restricted Stock Plan, incorporated herein by reference to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1984.
11. Computation of fully diluted earnings per share.
13. The Company's 1993 Annual Report to Stockholders.
22. List of subsidiaries of the Registrant.
28. The Proxy Statement for the Company's 1994 Annual Meeting of
Stockholders.
EXHIBIT 4.31
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
THE COMPANY
Chittenden Corporation (the "Company") is a holding company whose principal
subsidiary is Chittenden Bank. The Bank provides a full range of financial
services and has 40 locations throughout Vermont. Executive offices are
located at Two Burlington Square, Burlington, Vermont 05401.
DESCRIPTION OF THE PLAN
The Dividend Reinvestment and Stock Purchase Plan (the "Plan") for Stockholders
of Chittenden Corporation gives participants the opportunity to reinvest
dividends in additional shares of the Company's common stock and make optional
cash investments in a convenient and cost-free manner without commissions or
fees.
1) What is the purpose of the Plan?
The purpose of the Plan is to provide each eligible holder of Chittenden
Corporation Common Stock with a convenient method of investing cash dividends
and making optional cash investments.
2) What are the advantages to stockholders participating in the Plan?
a) Cash dividends on all shares of Common Stock are automatically reinvested.
b) Additional amounts may be invested by making payments of between $25 and
$10,000 quarterly.
c) Dividends are reinvested and optional cash investments are made without
commissions or fees.
d) Dividends on fractions as well as full shares will be reinvested in
additional shares and credited to participants' accounts.
e) Quarterly statements of account provide participants with a record of each
transaction.
f) The Agent provides safekeeping of stock certificates.
3) Who administers the Plan for participants?
Bank of Boston is the Agent for participating stockholders and keeps a
continuing record of participants' accounts, sends quarterly statements to
participants and performs other duties relating to the Plan. Common Stock
purchased under the Plan is registered in the name of the nominee of the
Agent. Should Bank of Boston cease to act as Agent under the Plan, another
agent will be appointed by the Company.
4) Who is eligible to participate?
All stockholders of record of Common Stock are eligible to participate in the
Plan. Shares registered in the name of a broker or nominee must be transferred
to the owner's name before they can be enrolled in the Plan.
5) How can an eligible stockholder participate?
An eligible stockholder may participate in the Plan by reviewing this brochure,
signing the authorization card, and returning it to Bank of Boston. A postage-
paid envelope is provided for this purpose. Additional authorization cards may
be obtained at any time by contacting Stockholder Relations, Chittenden
Corporation, or Bank of Boston.
6) When may a stockholder join the Plan?
A stockholder of record may join the Plan at any time if the authorization card
is received by Bank of Boston ten days prior to a record date for a dividend.
That dividend and any optional cash investment will be invested in additional
shares of Common Stock. If the authorization card is received by Bank of Boston
after the tenth day before a record date for a dividend, plan membership will
not start until the next following dividend. Record dates are usually about
two weeks before dividend payment dates, which are normally in the first
business week of February, May, August and November.
7) Are there any expenses to participants in connection with purchases under
the Plan?
No. Participants pay no commissions or fees for purchases made under the Plan.
All administration costs are paid by the Company. However, a participant who
withdraws from the Plan and directs Bank of Boston to sell Plan shares will pay
a fee of 5% of the value of the transaction ($1.00 minimum up to a maximum of
$10,000).
8) How many shares of Common Stock will be purchased for participants?
The number of shares purchased for a participant's account is determined by the
amount of the dividend, the amount of any optional cash payments and the price
of Common Stock. Accordingly, you cannot purchase a previously specified number
of shares. Your account will be credited on the settlement date with the number
of shares, including fractions computed to three decimal places, equal to the
total amount invested in your name divided by the purchase price per share.
9) What will be the price of Common Stock purchased under the Plan?
The price paid by participants for their shares will be the average purchase
price of all shares purchased on the investment date. Purchase(s) may be made
in the over-the-counter market or in negotiated transactions and may take more
than one day to complete.
In making purchases for a participant's account, the Agent may commingle the
participant's funds with those of other stockholders participating in the Plan.
The Agent has no responsibility for the value of stock acquired for a
participant's account. The Agent will invest dividends promptly, and in no
event more than 30 days after their receipt except where temporary curtailment
or suspension of purchases is necessary to comply with applicable provisions of
the Federal Securities Law.
10) Will certificates be issued automatically to participants for shares of
Common Stock purchased under the Plan?
No. Shares of Common Stock purchased under the Plan will be registered in the
name of the Agent (or its nominee) as Agent for the participant. However, at
any time, a participant may request in writing that the Agent issue, at no cost
to the participant, certificates for any number of whole shares credited to the
participant's account under the Plan. A withdrawal/termination form is
provided on the reverse side of the quarterly account statement for this
purpose or participants may contact Stockholder Relations, Chittenden
Corporation. Any remaining whole or fractional shares, for which certificates
are not requested, will continue to be credited to the participant's account
under the Plan.
11) What is safekeeping of certificates?
Certificates representing the Common Stock of the Company now held by you may
be submitted to Bank of Boston and consolidated with shares purchased for you
under the Plan. The certificates, together with a letter of instruction, must
be sent to Bank of Boston by certified or registered mail, return receipt
requested. The certificates need not be endorsed.
The Agent will cancel the certificates, credit your account with the appropriate
number of shares and will treat such shares in the same manner as shares
purchased for your account under the Plan.
12) How are optional cash investments made?
Optional cash investments may be made after a stockholder has submitted an
authorization form and has become a participant in the Plan. Any number of
checks between $25 and $10,000 may be sent for investment in each quarter,
total not to exceed $10,000 per calendar quarter, checks for more or less
than these amounts will be returned to the participant. For investments to be
processed, checks must be received by Bank of Boston between 5 business and 30
calendar days before a quarterly dividend date. Interest will not be paid on
funds being held for investment. It is in your best interest to deliver any
optional cash payments before the 5th business day preceding the dividend
payment date. Checks in U.S. funds should be sent payable to:
Bank of Boston
Dividend Reinvestment Department
Box 1681, Mail Stop 45-01-06
Boston, MA 02105
Payments to any other address do not constitute valid delivery.
Dividends on all shares purchased through optional investments, and credited
to the participant's account, will be reinvested in additional shares on
subsequent dividend payment dates.
13) What reports will be sent to participants in the Plan?
Each participant will receive a quarterly statement shortly after each dividend
payment date. These statements are the record of the cost of purchases and
should be retained for tax purposes.
In addition, each participant will receive copies of all of the Company's
mailings to stockholders.
14) When may a participant withdraw from the Plan?
A participant may withdraw by notifying the Agent, in writing, so that the Agent
receives the notice before a record date. All subsequent dividends will then be
paid to the participant in cash unless the participant re-enrolls in the Plan.
If notice of withdrawal is received by the Agent after a record date, that
dividend will be reinvested, but all subsequent dividends will be paid in
cash. Any optional cash payments which have not yet been invested will
be refunded if a written request for refund or withdrawal from the Plan is
received by the Agent at least 48 hours prior to a dividend payment date.
15) How does a participant withdraw from the Plan?
To withdraw from the Plan, a participant must contact Stockholder Relations at
Chittenden Corporation or fill out the form on the top of the quarterly
statement and send it to the Agent. The participant may choose one of two
options when withdrawing:
1) Ask that certificates for whole shares be issued and sent with a check
for any fractional share. The fractional share will be valued at the current
market price of Common Stock.
2) Request that all full and fractional shares be sold and that a check for
the proceeds be sent less 5% of the value of the transaction ($1.00 minimum up
to a maximum of $10.00). The sale will be made at the then current market
price. All information regarding the sale of stock is furnished to the
Internal Revenue Service.
Selling participants should be aware that Common Stock prices may fall during
the period between a request for sale, its receipt by the Agent and the ultimate
sale in the open market within ten trading days after receipt. This risk is
borne solely by the participant.
No check will be mailed prior to settlement of funds which is five business days
(one week) after the sale of shares.
16) What happens when a participant sells or transfers stock held in
certificate form?
A Plan participant holds shares in two ways: in certificate form and through
nominee name under the Agent. If certificates are sold or transferred, but
the participant does not withdraw from the Plan, dividends on any remaining
whole or fractional shares held for the participant in nominee name under the
Plan will continue to be reinvested.
17) What happens if the Company issues a stock dividend or declares a stock
split?
Full and fractional shares from stock dividends or splits on all shares
participating in the Plan, whether held by the Agent or by the participant,
will be credited to a participant's account and subsequent dividends will be
reinvested.
18) How will a participant's stock be voted at meetings of stockholders?
If a properly signed proxy card is returned, it will be voted as instructed or,
if there are not any contradictory instructions, it will be voted with
management. If the proxy card is not returned, or is returned unsigned, it will
not be voted unless the participant votes in person.
19) What are the federal income tax consequences of participation in the Plan?
The calculated dividend payment which is reinvested for a participant in a given
tax year is taxable in that year as income. The reinvestment of dividends does
not relieve the Participant of any income taxes which may be payable on such
dividends. The Agent will report to each participant and the IRS for tax
purposes the dividends credited to an account in each calendar year.
There is no additional taxable income on certificates for whole shares which
have previously been credited to the participant's account under the Plan.
However, a participant who receives a cash adjustment for a fraction of a share
may have a gain or loss on that fraction. A taxable gain or loss, which is the
difference between the amount the participant receives for shares and the tax
basis thereof, may be realized by the participant when shares are sold.
All participants are urged to consult with their own tax advisors regarding the
particular federal, state and local tax consequences of their participation in
the Plan.
20) What is the responsibility of the Company and the Agent under the Plan?
Neither the Company nor the Agent will be liable for any act or omission to
act done in good faith. This includes, without limitation, any claim of
liability arising out of failure to terminate a participant's account upon a
participant's death prior to receipt of notice in writing of such death.
The Company and the Agent cannot assure a profit or protect the participant
against a loss on the shares purchased under the Plan.
The Company and the Agent reserve the right to interpret and regulate the Plan
as may be necessary or desirable.
21) What provision is made for foreign stockholders whose dividends are
subject to income tax withholding?
In the case of participating foreign holders of Common Stock, whose dividends
are subject to United States income tax withholding, the Agent will reinvest an
amount equal to the dividends less the amount of tax required to be withheld.
Quarterly statements will be mailed confirming purchases made for foreign
participants.
Optional cash investments received from foreign stockholders must be in
United States dollars.
22) Can the Plan be changed or discontinued?
The Company reserves the right to suspend, modify or terminate the Plan at any
time. Notice of any such suspension, modification or termination will be sent
to all participants.
23) How can I get more information about the Plan?
To make inquires or obtain additional information please contact:
F. Sheldon Prentice, Secretary
Eugenie J. Fortin, Assistant Secretary
Chittenden Corporation
Two Burlington Square
Burlington, VT 05401
(802) 660-1412
(800) 642-3158
or
Bank of Boston
Shareholder Services
P.O. Box 644, Mail Stop 45-02-09
Boston, MA 02102-0644
(617) 575-2900
Plan revised
January 1994
EXHIBIT 10.4
FIRST AMENDMENT TO THE PENSION PLAN FOR EMPLOYEES OF THE CHITTENDEN CORPORATION
(As Amended and Restated Effective December 1, 1984)
WHEREAS, Chittenden Corporation (the "Corporation") presently provides
retirement benefits for certain of its employees pursuant to the terms of the
Pension Plan for Employees of the Chittenden Corporation (the "Plan"); and
WHEREAS, the Corporation desires to amend the Plan to provide a cost of living
increase to retirement benefits in pay status for Plan participants;
NOW THEREFORE, the Plan is hereby amended by adding the following new Section
5.11 to Article V:
"Any member or Beneficiary whose Pension entered pay status not later than
December 31, 1985 shall have such Pension increases by a cost of living
increase percentage determined in accordance with the following schedule:
<TABLE>
<CAPTION>
Date of which Pension Cost of Living
First Entered Pay Status Increase Percentage
- ------------------------ --------------------
<S> <C>
Prior to January 1, 1982 10%
January 1, 1982 through December 31, 1982 8
January 1, 1983 through December 31, 1983 6
January 1, 1984 through December 31, 1984 4
January 1, 1985 through December 31, 1985 2
</TABLE>
Such percentage increase shall, however, be applied to the amount of Pension
in pay status as of December 31, 1986 to such Members or Beneficiaries, and
shall commence with the payment due on January 1, 1987."
This First Amendment shall be effective as of December 31, 1986.
IN WITNESS WHEREOF, the foregoing amendment having been duly approved and
adopted by the Board of Directors of Chittenden Corporation, the Board has
caused this amendment to be executed in their name and on their behalf by
the Chairman and Chief Executive of the Corporation thereunto duly authorized
this 15th day of October, 1986.
CHITTENDEN CORPORATION
BY: Cynthia D. LaWare
-----------------------
TITLE: Senior Vice President
------------------------
ATTEST: John F. McAteer
--------------------
Secretary
AMENDMENT NUMBER TWO TO THE PENSION PLAN FOR EMPLOYEES OF THE CHITTENDEN
CORPORATION
(As Amended and Restated Effective December 1, 1984)
WHEREAS, Chittenden Corporation (the "Principal Employer") adopted the Pension
Plan for Employees of the Chittenden Corporation (the "Plan") as amended and
restated effective December 1, 1984; and
WHEREAS, Section 11.1 permits the Principal Employer to Amend the Plan; and
WHEREAS, the Principal Employer desires to amend the Plan to change the Plan
Year;
NOW, THEREFORE, the Plan is hereby amended effective December 1, 1992, and
follows:
Section 2.1.27 is amended by adding the following to the end thereof:
"Effective January 1, 1993, the Plan Year shall be the calendar year, with
a short Plan Year for the period beginning December 1, 1992, and ending
December 31, 1992."
IN WITNESS WHEREOF, the foregoing amendment having been duly approved and
adopted by the Board of Directors of Chittenden Corporation, the Board has
caused this amendment to be executed in their name and on their behalf by the
Officer of the Corporation thereunto duly authorized this 31st day of
December, 1992.
CHITTENDEN CORPORATION
BY: F. Sheldon Prentice
----------------------
TITLE: Secretary
-----------------------
ATTEST: Eugenie J. Fortin
----------------------
Asst. Secretary
AMENDMENT NUMBER THREE TO THE PENSION PLAN FOR EMPLOYEES OF THE CHITTENDEN
CORPORATION
(As Amended and Restated Effective December 1, 1984)
WHEREAS, Chittenden Corporation (the "Principal Employer") adopted the Pension
Plan for Employees of the Chittenden Corporation (the "Plan") as amended and
restated effective December 1, 1984; and
WHEREAS, Section 11.1 permits the Principal Employer to amend the Plan; and
WHEREAS, the Principal Employer desires to amend the Plan;
NOW, THEREFORE, the Plan is hereby amended effective July 1, 1993, and follows:
Section 3.2 is amended by adding the following to the end thereof:
(E) Notwithstanding anything herein to the contrary, an Employee of the
Principal Employer who was an Employee of Bellows Falls Trust Company
before it was acquired by the Principal Employer shall receive credit
for purposes of this Section 3.2 for any service with the former
Bellows Falls Trust Company, provided such service would have been
considered Eligibility Service in accordance with paragraph (A) of
Section 3.2.
Section 3.3 is amended by adding the following to the end of thereof:
(F) An Employee of Bellows Falls Trust Company who becomes a Member of this
plan shall receive credit for purposes of this Section 3.3 for all
services with the former Bellows Falls Trust Company through
June 30, 1993 which would have been credited under the Bellows Falls
Trust Company Pension Plan in the determination of the amount of accrued
benefit under the provisions of the Bellows Falls Trust Pension Plan.
In no event shall the Employee receive a lesser benefit than accrued as
of June 30, 1993, under the provisions of that former plan.
Section 5.5 is amended by adding the following to the end of thereof:
(G) Notwithstanding anything herein to the contrary, the amount of deferred
Vested Pension of any Member of this Plan who was a Member of the Bellows
Falls Trust Company Pension Plan as of June 30, 1993, shall not be less
than the deferred Vested Pension to which he was entitled as of June 30,
1993, under the provisions of that former plan.
IN WITNESS WHEREOF, the foregoing amendment having been duly approved and
adopted by the Board of Directors of Chittenden Corporation, the Board has
caused this amendment to be executed in their name and on their behalf by the
Officer of the Corporation thereunto duly authorized this 20th day of October,
1993.
CHITTENDEN CORPORATION
BY: F. Sheldon Prentice
---------------------
TITLE: Secretary
----------------------
ATTEST: Eugenie J. Fortin
-----------------------
Assistant Secretary
EXHIBIT 11
Chittenden Corporation
<TABLE>
EARNINGS PER SHARE
<CAPTION>
Years Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Net income (loss) $11,022,000 $7,218,000 $4,607,000
Average number of common shares
outstanding 6,206,848 6,193,944 6,186,600
========= ========= ==========
Earnings per common share
$ 1.78 $ 1.17 $ 0.74
</TABLE>
EXHIBIT 13, CHITTENDEN'S 1993 ANNUAL REPORT HAS BEEN FILED AS A SUBORDINATE
SEGMENT FILING TO FORM 10K.
EXHIBIT 22
LIST OF SUBSIDIARIES OF CHITTENDEN CORPORATION
Chittenden Trust Company
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 16, 1994 CHITTENDEN CORPORATION
By: Paul A. Perrault
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on the dates indicated.
Name Title Date
Barbara W. Snelling, Chair of the Board of 3/16/94
Directors
Paul A. Perrault, President and Chief 3/16/94
Executive Officer and
Director
Nancy Rowden Brock, Treasurer 3/16/94
Frederic H. Bertrand, Director 3/16/94
David M. Boardman, Director 3/16/94
Paul J. Carrara, Director 3/16/94
Eugene P. Cenci, Director 3/16/94
Robert E. Cummings, Jr., Director 3/16/94
Marvin B. Gameroff, Director 3/16/94
Philip A. Kolvoord, Director 3/16/94
Maureen A. McNamara, Director 3/16/94
James C. Pizzagalli, Director 3/16/94
Pall D. Spera, Director 3/16/94
Martel D. Wilson, Jr., Director 3/16/94
EXHIBIT 13
CHITTENDEN CORPORATION 1993 ANNUAL REPORT
TODAY at Chittenden Bank, we have reached a new level of banking sophistication.
Through a unique combination of technology and a traditional, strong branch
network,Chittenden customers are now accessing financial products and services
in a variety of new ways.
From ATM/Debit Cards to automated in-formation services and customized software
programs, Chittenden customers have the opportunity and tools to manage their
financial affairs without making a trip to the bank. And while technological
advancements are an important part of our future, it is the personal service
which Chittenden provides that will always be our most basic source of strength.
Ultimately, we are connected to our customers through a continued commitment to
meeting their many financial needs.
Our mission is a simple yet challenging one: focus on the fundamentals of sound
banking. With a strong foundation of three basic elements - accepting deposits,
making loans, and providing fee-based services - Chittenden Bank will deliver
integrated and valuable banking services to our customers in the most effective
and efficient manner possible.
TABLE OF CONTENTS
Financial Highlights 3
Letter to Stockholders 4
Our Year in Review 6
Consolidated Financial Statements 13
Reports of Independent Public Accountants 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
Condition and Results of Operations 40
Directors and Officers 53
Stockholder Information 55
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Restated
1993 1992
---------------------------
(dollars in thousands,
FOR THE YEAR except per share amounts)
<S> <C> <C>
Net interest income $50,229 $45,684
Provision for possible loan losses 6,600 7,513
Noninterest income 24,308 21,073
Noninterest expense 51,097 49,582
Net income 11,022 7,218
Cash dividends declared 1,243 826
----------------------
AT YEAR END
Investment securities $152,993 $148,457
Net loans 831,643 859,448
Deposits 1,034,764 1,043,939
Stockholders' equity 97,711 87,019
Total assets 1,231,003 1,192,068
Number of stockholders 3,087 3,259
Number of employees 744 747
-----------------------
PER SHARE OF COMMON STOCK
Net income $ 1.78 $ 1.17
Cash dividends declared 0.20 0.13
Book value 15.73 14.04
Weighted average shares outstanding 6,206,848 6,193,944
------------------------
</TABLE>
TO OUR STOCKHOLDERS
THROUGHOUT 1993, we saw further evidence that the great potential of Chittenden
Corporationis being realized because of our approach to the business of
banking. Our well-established "pattern of progress" continued, as we posted
$11 million in earnings for the year while further strengthening our already
strong balance sheet.
ESTABLISHING and building a strong foundation is imperative for a banking
company. We believe that it would not serve our shareholders well to post
higher earnings at the expense of fortifying the balance sheet. We have
addressed this responsibility by positioning Chittenden to respond with
sureness and agility to whatever economic, regulatory, and competitive
turbulence may lie ahead.
ONE of the core philosophies we embrace is the simple, honest recognition that
to be successful we must simultaneously be effective and efficient in all our
activities for all our constituencies. Although few would deny the importance of
these factors, we see some organizations viewing them as trade-offs; for
example, being highly efficient in one product while being ineffective in
dealing with a certain constituency. This may work for a while, but it is an
approach that will not fully satisfy a banking company's many constituencies
over time.
AT Chittenden, striving for this comprehensive, balanced approach permeates the
organization. By staying focused on the customer we have remained true to the
basics, avoiding trendy changes in focus and knee-jerk actions intended to
address either efficiency or effectiveness at the expense of the other. This
"stability in action" is exhibited by our fair, up-front pricing, superior
service, and appropriate technology. As customers increasingly seek value in
services, their reliance on Chittenden has grown to our mutual benefit.
At Chittenden our niche is our customer. Therefore, we have moved to expand
and extend the ways we approach our market. This means that Chittenden brand
products and services are increasingly available by phone, mail, and
electronically. In 1993, we made significant, but pragmatic, investments in
technology to better serve all our customers. While we are proud of our
technological capabilities and capacity, we understand that to many people the
local office is The Bank. Accordingly, we are organized to deliver our broad-
based banking services to customers through this more traditional outlet.
Dedicated and able local bankers are redefining the concept of the community
bank. Our approach puts the local bankers in control, free to utilize our
considerable centralized support resources on behalf of their customers. This
has resulted in Chittenden being a banking institution which truly serves its
community - not just in the way we have continued to earn the top CRA rating of
"outstanding," but more importantly in actions through which we have exhibited
the true spirit of the law.
CHITTENDEN'S people, organization, and technology are complemented by our
comprehensive product offering. During the year, we made further progress
toward balancing our loan portfolio mix. This was achieved by conducting our
residential mortgage activities primarily through the secondary market, and by
increasing our small business lending efforts. As the public sought to expand
its investment options, we introduced Chittenden Investment Services.
By providing customers value-added counsel and expert execution, we help them
reach their financial goals while avoiding high-pressure and high-cost sales
tactics. In addition, through the Chittenden Investment Advisory Account,
customers with smaller amounts to invest can benefit from the skill of the same
team of experts who administer over $1.8 billion in trust assets.
AS the financial marketplace has become more complex, crowded, and competitive,
it has become increasingly difficult for consumers to understand what product
or service they need and what they are buying. To help the public make better
choices, Chittenden has taken a leadership role in educating our community on
financial matters. Our popular "Money Minder" radio spots, seminars on topics
such as home ownership, and generous grants to the educational community are a
few examples of this effort.
MAUREEN McNamara, who retires from the Board of Directors in April 1994, has
spent her entire career in education and has been an important link between
Chittenden and this constituency. Her presence on the Board through the years
and through many changes has helped us maintain a strong sense of continuity.
We greatly appreciate her contribution and look forward to her continued
involvement as a Director Emerita.
CHITTENDEN has built strong momentum in 1993. In the ever-changing world of
banking, we are bolstered by a well-performing loan portfolio, growing
fee-based activities, and improving operating efficiency. We look to the future
with confidence and enthusiasm, prepared to seize the opportunities before us.
Paul A. Perrault
OUR YEAR IN REVIEW
IN 1993, Chittenden Bank successfully completed the acquisition of VerBanc
Financial Corp., the holding company of Bellows Falls Trust Company. This
acquisition set the tone for the year by demonstrating that Chittenden has the
strength and the expertise to recognize and capitalize on opportunities for
growth. Through this acquisition, Chittenden expanded its market and now has a
strong presence in southeastern Vermont with five new branch offices and over
7,000 additional individual, commercial, and trust customers, as well as a
wholesale mortgage group. Acting as a conduit to the secondary market, the
Mortgage Service Center of New England services the needs of independent
mortgage brokers, thrifts, and commercial banks. The Mortgage Service Center of
New England opens the door to new geographic areas and provides a new
distribution method for Chittenden to improve its market penetration in the
mortgage business.
FOR Chittenden's Commercial Banking Division, 1993 was marked by continued
growth and national recognition. Expansion was particularly evident in the area
of small business lending. Based on the overall number of Small Business
Administration loans approved in 1993, Chittenden ranked 16th highest
nationwide. In addition, Chittenden ranked in the top ten nationally in the SBA
"Preferred Lender Program." As one of only three Vermont banks with this SBA
designation, the "Preferred Lender Program" provides our customers with an
expedited loan approval process. And Chittenden was the only Vermont bank to
earn recognition as a "Priority Lender" under the Working Capital Guarantee
Program of the Export-Import Bank of the United States. As a "Priority Lender,"
Chittenden can provide customers with a faster response time from Eximbank for
financing programs.
CHITTENDEN continues to be a leader in delivering a broad range of Commercial
Services. Several years ago, Chittenden was the first Vermont bank to offer
businesses on-line access to their accounts through a service called C.O.I.N.
(Chittenden On-Line Information Network). In 1993, Chittenden continued to set
the standard for business banking technology by offering services such as
Tran$ACT. This time-saving service gives customers direct control of their cash
management from a personal computer. The number of Chittenden customers taking
advantage of this technology more than doubled in 1993. Chittenden also took
steps this year to offer Tran$ACT to the consumer market to provide individuals
with the technology to tap into banking services through a home computer. All of
our customer on-line services have been consolidated into one control center at
our headquarters in Burlington. With this technology in place, we are positioned
at the forefront of the competition in providing efficient electronic service
to our customers.
THROUGHOUT the year, Chittenden continued to vigorously pursue new opportunities
for earnings. Payroll Services, for instance, expanded its roster of services
to include customized reporting and a tax filing service. These improvements
were developed in response to customer demand, and resulted in a 50% increase
of the client base.
CHITTENDEN'S Specialized Industries Group helped finance some major improvements
to hospitals and other health care facilities throughout the state. This group
also has been instrumental in promoting energy efficiency and conservation
practices in Vermont. Working with the state's largest utilities, Chittenden
provides attractive financing packages to individuals and businesses for
projects that measurably reduce electricity demands.
AS the leading government finance provider in the state, Chittenden's Government
Banking Department strengthened the bond with its municipal customers in 1993.
Through customer visits and representation at a number of municipal events, the
Government Banking Department had the opportunity to meet face-to-face with
municipal officials. With this type of interaction, Chittenden continues to
enhance our understanding of and response to the special needs of this important
customer segment.Chittenden's Trust and Investment Department was administering
$1.8 billion in assets at year-end 1993. Flexible investment options, superior
service, expert investment management, and prudent growth are the cornerstones
of this business. A major software upgrade in the Trust Department's computer
system during 1993 resulted in more efficient management of customer assets and
provided better service to our trust customers.
ON February 1, 1993, Chittenden Investment Services was launched. This exciting
new venture was designed to meet increasing customer demand for diverse
investment opportunities and alternatives. The decision to open Chittenden
Investment Services was a logical extension of traditional deposit products and
trust investment services. As an established, leading money manager in northern
New England with considerable experience and expertise in the investment arena,
Chittenden can provide comprehensive investment service to all customers under
one roof.
CHITTENDEN'S Investment Advisory Account was also introduced in 1993. Based on
a personalized risk/needs assessment, a Chittenden Investment Counselor creates
a locally managed portfolio to match the specific objectives of each investor.
From capital preservation to capital growth, Chittenden's Investment Advisory
Account meets the objectives of all types of investors by constructing a
portfolio of mutual funds that create an appropriate asset allocation.
AT Chittenden, our continued practice of operating on sound banking principles
has resulted in an increased average deposit base even as deposit balances have
declined at many other banks. By rewarding core account holders with a special
Certificate of Deposit offer, nearly $19 million in deposits were committed to
Chittenden Bank for a period of two to five years.
IN an increasingly competitive credit card market, Chittenden Bank worked
diligently to stimulate the growth and use of Chittenden credit cards. As a
result of carefully planned and executed promotions, along with the lowest
credit card rate of any Vermont bank, card utilization and balances increased
in 1993.
CHITTENDEN Merchant Services (the processing of merchant credit card receipts)
saw dramatic increases in volume during 1993. As a result of investment in new
technology and steady sales efforts, net volume was up 38% this year for
Merchant Services. The number of transactions increased 44% over 1992 levels.
These increases were due to our focus on attracting new Merchant Services
customers who have high-volume accounts.
IN 1993, Chittenden Home Mortgage Services dedicated itself to working more
closely with our branch network. This teamwork - combined with superior service,
low rates, and increased staffing - resulted in record volumes of new and
refinancing business. Consequently, fee income on originations increased 15%
over 1992 figures. As an extension of its broad array of mortgage products and,
in particular, our Energy Rated Home program, Chittenden went a step further
to participate in a new Fannie Mae program. This pilot program offers qualifying
incentives on mortgage loans to finance improvements made to a home for energy
efficiency. This Energy Improvement Mortgage became available in
January of 1994.In response to the strong demand for residential mortgage
products, Chittenden Home Mortgage and Mortgage Service Center of New England
provided over $373 million in home mortgage originations for 1993. With the
addition of the Mortgage Service Center and through continued growth, the
combined servicing portfolios increased by approximately 20% over 1992 levels.
IN a resounding response to customer demand, Chittenden empowered the branch
network to deliver our complete line of products and services to our local
customers by increasing sales and administrative support and by upgrading
computer systems. In addition, branch managers and consumer lenders have been
specially trained to meet the unique credit needs of their individual
communities. And with the installation of a new, powerful IBM mainframe
computer, along with a state-of-the-art computer and software program to drive
our ATM system, Chittenden customers throughout Vermont are benefiting from the
improved efficiency provided by this technology.
IN its fifth year of operation, our Customer Information Center Welded its
400,000th phone call in 1993. Customers can open new accounts and access a wide
range of account information over the telephone through our customer service
representatives. We also continued to see a rapid growth in the use of our
24-hour Automated Information Line, averaging over 15,000 calls per month
compared with 3,000 during its first month of operation in 1992. Chittenden
ustomers, at their convenience, can access information such as account balances,
recent deposits, and the status of cleared checks.
AT Chittenden Bank, we keep a close watch on all of our customers' needs - from
adding more customer service representatives at peak hours to installing
handicapped-accessible ATM's. In particular, we constantly look at customer
activity and traffic volume at our branch offices and ATM's. Using profit-
ability and customer demand as criteria, in 1993 we consolidated or closed some
offices and ATM's, and invested in other, more profitable locations. Strong
customer demand in the Essex area, for instance, prompted the construction of a
new, full-service office in that region. From Bennington to Burlington, adding
drive-up windows and expanding hours in some branches are just a few examples
of Chittenden's ongoing commitment to satisfying our customers' banking needs.
AT Chittenden, we value customer feedback and will continue to seek, evaluate,
and respond to customer input through individual department surveys, our
"How Do We Rate" surveys, and "Customer Comment Cards." In addition, our
community input sessions continue to provide us with firsthand insight into the
credit needs of our community. Also, executive management at Chittenden Bank
takes an active role in the monitoring of customer needs by reviewing a
detailed customer comment report monthly.
CHITTENDEN Bank is proud to have initiated and continued programs which help
educate the community on a wide range of pertinent financial topics. In 1993,
Chittenden Bank doubled the number of the popular and educational Money Minder
radio advertisements - adding topics such as stocks and bonds, debit cards,
fixed income investments, and asset-based lending. Also in 1993, our statewide
branch network made school visits and offered seminars to educate Vermonters on
retirement planning, reverse home equity mortgages, the loan approval process,
financial planning for college, basic banking and more. Chittenden employees
also served as guest lecturers at several colleges and universities in the
state and were active in the Women in Business project which provides training
and assistance for female entrepreneurs.
AS we move toward the 21st century, our profitability and our ability to
compete depend on seeking new revenue opportunities, developing new products
and services, and delivering those services to our customers effectively and
efficiently. Adapting to changes in the marketplace, delivering our products
and services in a variety of ways, using advanced technology, and remaining
connected to our customers are key to the continued success of Chittenden in
1994 and beyond.
<TABLE>
CHITTENDEN CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31,
---------------------------------
Restated
1993 1992
(in thousands)
ASSETS
<S> <C> <C>
Cash and cash equivalents $195,111 $129,303
Investment securities held for sale
(Market value $152,205,000 in 1993)
(Notes 3 and 6) 150,743 -
Investment securities held for investment
(Market value $2,250,000 in 1993
$149,453,000 in 1992) (Notes 3 and 6) 2,250 148,457
Loans (Note 4 ) 850,560 875,820
Allowance for possible loan losses (Note 4) (18,917) (16,372)
----------------------------------
Net loans 831,643 859,448
----------------------------------
Mortgage loans held for sale 1,646 7,971
Premises and equipment (Note 5) 6,333 15,934
Accrued interest receivable 6,341 7,304
Other real estate owned 3,369 8,107
Excess of cost over fair value of
net assets acquired - 636
Net deferred tax asset (Note 7) 9,179 8,362
Other assets 4,388 6,546
-----------------------------------
TOTAL ASSETS $1,231,003 $1,192,068
===================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 159,323 $ 152,833
Certificates of deposit $100,000 and over 62,640 62,740
Savings and other time 812,801 828,366
-----------------------------------
Total deposits 1,034,764 1,043,939
Short-term borrowings (Notes 3 and 6) 79,078 37,212
Accrued expenses and other liabilities
(Notes 7 and 10) 19,450 23,898
----------------------------------
TOTAL LIABILITIES 1,133,292 1,105,049
==================================
Commitments and contingencies (Notes 5 and 12)
STOCKHOLDERS' EQUITY (Notes 2, 8, 9, and 10):
Preferred stock - $100 par value
authorized - 200,000 shares
issued and outstanding - none - -
Common stock - $1 par value
authorized - 10,000,000 shares
issued - 6,460,584 shares in 1993
and 6,448,760 shares in 1992 6,461 6,449
Surplus 51,228 49,918
Retained earnings 43,056 34,457
Treasury stock, at cost -
248,129 shares in 1993
and 250,644 shares in 1992 (2,982) (3,012)
Valuation allowance for net unrealized
depreciation of marketable equity
securities (Note 3) (21) (733)
Unearned portion of employee restricted stock (31) (60)
-----------------------------------
TOTAL STOCKHOLDERS' EQUITY 97,711 87,019
TOTAL LIABILITIES -----------------------------------
AND STOCKHOLDERS' EQUITY $1,231,003 $1,192,068
=====================================
</TABLE>
[FN]
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
CHITTENDEN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Years Ended December 31,
Restated Restated
1993 1992 1991
------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
INTEREST INCOME:
Interest on loans $69,979 $75,086 $86,398
Investment securities:
Mortgage-backed securities 2,101 3,956 3,873
Taxable 5,297 4,700 4,650
Tax-favored 2,159 2,705 2,697
Short-term investments 267 537 2,443
--------------------------------
TOTAL INTEREST INCOME 79,803 86,984 100,061
--------------------------------
INTEREST EXPENSE:
Deposits:
Savings 12,207 16,209 17,122
Time 15,663 22,702 38,733
Total interest on deposits 27,870 38,911 55,855
Short-term borrowings 1,704 2,167 1,847
Long-term debt - 222 270
-------------------------------
TOTAL INTEREST EXPENSE 29,574 41,300 57,972
-------------------------------
Net interest income 50,229 45,684 42,089
PROVISION FOR POSSIBLE
LOAN LOSSES (Note 4) 6,600 7,513 8,843
-------------------------------
Net interest income after
provision for possible
loan losses 43,629 38,171 33,246
------------------------------
NONINTEREST INCOME:
Trust department income 4,007 4,067 3,702
Service charges on deposit
accounts 4,163 3,897 3,719
Gains (losses)on investment
securities, net (Note 3) 130 (235) (534)
Mortgage servicing income (Note 4) 997 486 1,145
Gains on sales of mortgage loans 5,760 4,812 2,314
Credit card income 5,654 4,372 4,309
Other 3,597 3,674 3,787
TOTAL NONINTEREST INCOME 24,308 21,073 18,442
NONINTEREST EXPENSE:
Salaries 17,049 16,729 16,611
Employee benefits
(Notes 9 and 10) 5,485 4,763 4,395
Net occupancy expense 5,932 5,823 5,632
FDIC deposit insurance 2,574 2,276 2,044
Losses on and write-downs of other
real estate owned 1,542 2,736 925
Credit card expense 3,783 3,003 2,905
Other (Note 13) 14,732 14,252 13,335
------------------------------
TOTAL NONINTEREST EXPENSE 51,097 49,582 45,847
------------------------------
Income before income taxes and
cumulative effect of change in
accounting principle 16,840 9,662 5,841
Provision for income taxes
(Note 7) 5,243 2,444 1,234
-----------------------------
Income before cumulative effect
of change in accounting principle 11,597 7,218 4,607
Cumulative effect of change
in accounting principle (Note 1) (575) - -
-----------------------------
NET INCOME $11,022 $7,218 $4,607
Earnings per share:
Income before cumulative effect
of change in accounting principle $1.87 $1.17 $0.74
Cumulative effect of change in
accounting principle (0.09) - -
------------------------------
Net Income $1.78 $1.17 $0.74
==============================
Dividends declared $0.20 $0.13 $ -
Weighted average common
shares outstanding 6,206,848 6,193,94 6,186,600
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<TABLE>
CHITTENDEN CORPORATION
CONSOLIDATED STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Years Ended December 31, 1993,
1992 (Restated), and 1991 (Restated)
Preferred Common Retained Treasury
Stock Stock Surplus Earnings Stock
(in thousands)
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1990 $ - $6,440 $48,405 $24,978 (3,057)
Net income - - - 4,607 -
Common stock cash dividends
declared (Note 8) - - - (69) -
Shares forfeited under
restricted stock plan, net (Note 9) - - (4) - -
Shares issued under employees'
stock purchase plan (Note 9) - 1 8 - -
Transfers to surplus (Note 8) - 601 (601) - -
Amortization of deferred compensation
for restricted stock earned (Note 9) - - - - -
Issuance of treasury stock - - - - 14
Change in valuation allowance
on marketable equity securities - - - - -
------------------------------------------------------------
Balance at December 31, 1991 - 6,441 49,010 28,915 (3,043)
Net income - - - 7,218 -
Common stock cash dividends
declared ($0.13 per share) (Note 8) - - - (826) -
Shares forfeited under
restricted stock plan, net (Note 9) - (1) (5) - -
Shares issued under employees'
stock purchase plan (Note 9) - 3 24 - -
Shares issued under incentive
stock option plan (Note 9) - 6 33 - -
Transfers to surplus (Note 8) - - 850 (850) -
Amortization of deferred compensation
for restricted stock earned (Note 9 - - - - -
Issuance of treasury stock - - 6 - 31
Change in valuation allowance
on marketable equity securities - - - - -
------------------------------------------------------------
Balance at December 31, 1992 - 6,449 49,918 34,457 (3,012)
Net Income - - - 11,022 -
Common stock cash dividends
declared ($0.20 per share) (Note 8) - - - (1,243) -
Shares issued under employees'
stock purchase plan (Note 9) - 3 38 - -
Shares issued under incentive
stock option plan (Note 9) - 3 30 - -
Shares issued under executive management
incentive compensation plan (Note 9) - 6 57 - -
Transfers to surplus (Note 8) - - 1,180 (1,180) -
Amortization of deferred compensation
for restricted stock earned (Note 9) - - - - -
Issuance of treasury stock - - 5 - 30
Change in valuation allowance
on marketable equity securities - - - - -
------------------------------------------------------------
Balance at December 31, 1993 $ - $6,461 $51,228 $43,056 ($2,982)
=============================================================
Valuation
Allowance
for Net
Unrealized Unearned
Depreciation Portion of
Of Marketable Employee Total Number of
Equity Restricted Stockholders' Common
Securities Stock Equity Shares
----------------------------------------------------------
Balance at December 31, 1990 ($4,946) ($180) $71,640 6,184
Net income - - 4,607 -
Common stock cash dividends
declared (Note 8) - - (69) -
Shares forfeited under
restricted stock plan, net (Note 9) - - (4) -
Shares issued under employees'
stock purchase plan (Note 9) - - 9 3
Transfers to surplus (Note 8) - - - -
Amortization of deferred compensation
for restricted stock earned (Note 9) - 75 75 -
Issuance of treasury stock - - 14 -
Change in valuation allowance
on marketable equity securities 2,887 - 2,887 -
-------------------------------------------------------
Balance at December 31, 1991 (2,059) (105) 79,159 6,187
Net income - - 7,218 -
Common stock cash dividends
declared ($0.13 per share) (Note 8) - - (826) -
Shares forfeited under
restricted stock plan, net (Note 9) - 6 - -
Shares issued under employees'
stock purchase plan (Note 9) - - 27 3
Shares issued under incentive
stock option plan (Note 9) - - 39 6
Transfers to surplus (Note 8) - - - -
Amortization of deferred compensation
for restricted stock earned (Note 9) - 39 39 -
Issuance of treasury stock - - 37 2
Change in valuation allowance
on marketable equity securities 1,326 - 1,326 -
----------------------------------------------------
Balance at December 31, 1992 (733) (60) 87,019 6,198
Net Income - - 11,022 -
Common stock cash dividends
declared ($0.20 per share) (Note 8) - - (1,243) -
Shares issued under employees'
stock purchase plan (Note 9) - - 41 3
Shares issued under incentive
stock option plan (Note 9) - - 33 3
Shares issued under executive management
incentive compensation plan (Note 9) - - 63 6
Transfers to surplus (Note 8) - - - -
Amortization of deferred compensation
for restricted stock earned (Note 9) - 29 29 -
Issuance of treasury stock - - 35 2
Change in valuation allowance
on marketable equity securities 712 - 712 -
----------------------------------------------------
Balance at December 31, 1993 ($21) ($31) $97,711 6,212
====================================================
</TABLE>
[FN]
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
Chittenden Corporation
Consolidated Statements of Cash Flows
<CAPTION>
Years Ended December 31,
Restated Restated
1993 1992 1991
(in thousands)
---------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $11,022 $7,218 $4,607
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 6,600 7,513 8,843
Depreciation and amortization 2,071 1,838 1,913
Amortization of excess of cost over fair value of
net assets acquired 636 502 662
Prepaid income taxes (1,573) (1,953) (127)
Amortization of premiums, fees,
and discounts, net 1,035 3,219 647
Investment securities (gains) losses (130) 235 534
Decrease in trading account securities - - 2,018
Net (increase) decrease in loans held for sale (3,675) 2,996 (2,713)
Decrease in accrued interest receivable 963 236 1,171
Decrease in other assets 11,570 7,557 8,486
Increase (decrease) in accrued expenses
and other liabilities (4,389) 8,850 (3,793)
----------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 24,130 38,211 22,248
----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities 20,308 56,939 36,340
Proceeds from maturities of investment securities
and principal payments in mortgage-backed
securities 239,910 243,392 154,395
Purchase of investment securities (265,532) (311,680) (215,620)
Loans originated, net of principal repayments 17,901 (54,137) (12,738)
Purchases of premises and equipment (2,470) (2,207) (546)
---------------------------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 10,117 (67,693) (38,169)
---------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits (9,175) 22,630 19,852
Net increase (decrease) in short-term
borrowings 41,866 (49,807) 46,485
Principal repayments of long-term debt (59) (2,414) -
Proceeds from issuance of common stock 137 66 5
Dividends paid - common stock (1,243) (826) (69)
Proceeds from issuance of treasury stock 35 37 14
--------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 31,561 (30,314) 66,287
Net increase (decrease) in cash
and cash equivalents 65,808 (59,796) 50,366
Cash and cash equivalents at beginning of year 129,303 189,099 138,733
--------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $195,111 $129,303 $189,099
================================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $29,854 $42,374 $59,396
Income taxes 6,838 5,390 1,552
Noncash transactions:
Loans transferred to other real estate owned $3,916 $2,955 $11,486
</TABLE>
[FN]
The accompanying notes are an integral part of these consolidated financial
statements
CHITTENDEN CORPORATION
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Chittenden Corporation (the "Company") and its principal subsidiary,
Chittenden Trust Company (the "Bank"). All material intercompany accounts and
transactions have been eliminated in consolidation. Certain amounts for 1992
and 1991 have been reclassified to conform with 1993 classifications.
INVESTMENTS
Debt securities are designated at the time they are purchased as either held
for sale or held for investment, based on management's intentions in light of
investment policy, asset/liability management policy, liquidity needs and
economic factors. Debt securities held for sale are stated at the lower of
aggregate amortized cost or market value. Debt securities held for investment,
where management has the intention and ability to hold such securities until
maturity, are stated at amortized cost. Unrealized losses on debt securities
held for sale are recorded as a valuation allowance against the related
securities. Any provision for the valuation allowance is recorded in the
accompanying consolidated statements of income. The gain or loss recognized
on the sale of a debt security is based upon the adjusted cost of the specific
security.
Marketable equity securities are stated at the lower of aggregate cost or market
value. Net unrealized losses which are considered temporary in nature, are
shown as a reduction of stockholders' equity. Unrealized losses which are
considered other than temporary in nature, are recognized in the accompanying
consolidated statements of income. The gain or loss recognized on the sale of
a marketable equity security is based upon the adjusted cost of the specific
security.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities, which is effective for fiscal years beginning after
December 15, 1993. This statement addresses the accounting and reporting for
investments in equity securities that have readily determinable fair values
and for all investments in debt securities. The Bank will adopt this statement
on January 1, 1994. Upon adoption, the Bank will record an estimated increase
in stockholders' equity of $965,000 (net of an estimated income tax effect of
$497,000) to reflect the unrealized gain in the available for sale portfolio
(classified as held for sale at December 31, 1993) as required under
SFAS No. 115.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is based on management's estimate of the
amount required to reflect the risks in the loan portfolio, based on circum-
stances and conditions known or anticipated at each reporting date. There are
inherent uncertainties with respect to the final outcome of the Bank's loans
and nonperforming loans. Because of these inherent uncertainties, actual losses
may differ from the amounts reflected in these consolidated financial state-
ments. The inherent uncertainties in the assumptions relative to the projected
sales prices or rental rates may result in the ultimate realization of amounts
on certain loans that are significantly different from the amounts reflected
in these consolidated financial statements. As adjustments become necessary,
they are reported in income in the period in which they become known.
Factors considered in evaluating the adequacy of the allowance for possible
loan losses include previous loss experience, current economic conditions and
their effect on borrowers, the performance of individual loans in relation to
contract terms, and estimated fair values of underlying collateral. Losses are
charged against the allowance for possible loan losses when management believes
that the collectibility of principal is doubtful.
Key elements of the above estimates, including assumptions used in developing
independent appraisals, are dependent upon the economic conditions prevailing
at the time such estimates are made. Accordingly, uncertainty exists as to the
final outcome of certain valuation judgments as a result of economic conditions
in the region.
LOAN ORIGINATION AND COMMITMENT FEES
Loan origination and commitment fees, and certain related loan origination
costs, are deferred and amortized over the lives of the related loans as yield
adjustments using primarily the level-yield method. When loans are sold or
paid off, the unamortized fees and costs are recognized in income. Net
deferred loan fees amounted to $2,161,000 and $2,431,000 at December 31, 1993
and 1992, respectively.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are carried at the lower of aggregate cost or
market value. Gains and losses on sales of mortgage loans are recognized at
the time of the sale and are adjusted when the interest rate charged to the
borrower and the interest rate paid to the purchaser after considering a normal
servicing fee and, in the case of mortgage-backed securities, a fee for the
guarantee differ. Such deferred premium on sales of mortgage loans is
amortized using a method which approximates the level-yield method over the
remaining life of the related loans, adjusted for estimated prepayments.
Actual prepayment experience is reviewed periodically and, when necessary, the
deferred premium on sales of mortgage loans is adjusted and the amortization of
the deferred premium on sales of mortgage loans is accelerated.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided using the straight line method at rates that amortize
the original cost of the premises and equipment over estimated useful lives.
Leasehold improvements are amortized over the shorter of the terms of the
respective leases or the estimated useful lives of the improvements.
Expenditures for maintenance, repairs, and renewals of minor items are charged
to expense as incurred.
OTHER REAL ESTATE OWNED
Collateral acquired through foreclosure and loans accounted for as in-substance
foreclosures are recorded at the lower of cost or fair value, less estimated
costs to sell, at the time of acquisition or designation as in-substance
foreclosure. A valuation allowance is established for the estimated costs to
sell and is charged to expense. Subsequent changes in the fair value of other
real estate owned are reflected in the valuation allowance and charged or
credited to expense. Net operating income or expense related to foreclosed
property is included in noninterest expense in the accompanying consolidated
statements of income. Because of current market conditions, there are inherent
uncertainties in the assumptions with respect to the estimated fair value of
other real estate owned. Because of these inherent uncertainties, the amount
ultimately realized on other real estate owned may differ from the amounts
reflected in the consolidated financial statements.
INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No.109, Accounting for Income Taxes, which recognizes income taxes
under the asset and liability method. Under this method, deferred tax assets
and liabilities are established for the temporary differences between the
accounting basis and the tax basis of the Company's assets and liabilities at
enacted tax rates expected to be in effect when the amounts related to such
temporary differences are realized or settled. The Company's deferred tax
asset is reviewed quarterly and adjustments to such asset are recognized in
the provision for income taxes based on management's judgments relating to the
realizability of such asset. The cumulative effect of this change in
accounting principle as of January 1, 1993, was a charge of $575,000. This
charge has been recorded as a cumulative effect of change in accounting
principle in the accompanying 1993 consolidated statement of income.
Prior to January 1, 1993, the Company recognized income taxes under the deferred
method. Under this method, annual income tax expense was matched with pretax
accounting income by providing deferred taxes at current tax rates for timing
differences between income reported for accounting purposes and income
reported for tax purposes.
EARNINGS PER SHARE
The calculation of earnings per share is based upon the weighted average shares
of common stock outstanding and any dilutive effect of options granted under
the Company's stock plans, using the treasury stock method.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand, amounts due from banks,
interest bearing deposits, certain mutual fund investments, and investments
with original maturities of less than three months.
TRUST DEPARTMENT
Trust department assets of approximately $1,839 million, $1,458 million, and
$1,220 million at December 31, 1993, 1992, and 1991, respectively, held by the
Bank in a fiduciary or agency capacity for its customers are not included in
the accompanying consolidated balance sheets as they are not assets of the
Bank. Trust department income is recorded on the cash basis in accordance with
customary bank practices. The amounts recognized under this method are not
significantly different from amounts that would be recognized in accordance
with generally accepted accounting principles.
Note 2
ACQUISITION
On April 27, 1993, the Company issued 460,845 shares of its common stock for
all the outstanding common stock of VerBanc Financial Corp. (VerBanc), a holding
company for Bellows Falls Trust Company. The acquisition has been accounted
for as a pooling-of-interests and, accordingly, the Company's consolidated
financial statements and per share data have been restated for all periods
prior to the acquisition to include the results of operations, financial
position, and cash flows of VerBanc.
Separate financial information prior to the restatement is as follows:
<TABLE>
<CAPTION>
For the Three months For the Year For the Year
Ended Ended Ended
March 31, 1993 December 31, 1992 December 31, 1991
Chittenden VerBanc Chittenden VerBanc Chittenden VerBanc
----------------------------------------------------------------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net interest income $11,363 $922 $41,987 $3,697 $38,771 $3,318
Provision for possible
loan losses1,650 1,650 - 7,100 413 8,150 693
Noninterest income 5,020 551 18,980 2,093 17,099 1,343
Noninterest expense 10,823 1,358 44,283 5,299 41,461 4,386
Provision(benefit) for
income taxes 1,708 39 2,440 4 1,393 (159)
----------------------------------------------------------------
Net income (loss) $2,202 $76 $7,144 $74 $4,866 ($259)
================================================================
</TABLE>
Costs related to the merger of $961,000 were charged to expense during 1993.
Note 3
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
Investment securities at December 31, 1993 and 1992 are as follows:
Book Unrealized Unrealized Market
Value Gains Losses Value
(in thousands)
----------------------------------------
<S> <C> <C> <C> <C>
1993
U.S. Treasury securities $54,310 $880 ($183) $55,007
U.S. government agency obligations 20,211 280 - 20,491
Obligations of states and
political subdivisions 25,368 - - 25,368
Mortgage-backed securities 23,996 468 (35) 24,429
Corporate bonds and notes 28,885 198 (146) 28,937
Marketable equity securities 244 - (21) 223
---------------------------------------
153,014 $1,826 $(385) $154,455
===============================
Valuation allowance on marketable equity
securities (21)
-----------
$152,993
=======
</TABLE>
<CAPTION
<TABLE>
Book Unrealized Unrealized Market
Value Gains Losses Value
-----------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
1992
U.S. Treasury securities $27,338 $552 ($16) $27,874
U.S. government agency obligations 19,059 227 (175) 19,111
Obligations of states and political
subdivisions 23,691 - - 23,691
Mortgage-backed securities 50,127 483 (88) 50,522
Corporate bonds and notes 24,109 52 (39) 24,122
Marketable equity securities 4,581 - (733) 3,848
Other securities 285 - - 285
----------------------------------------
149,190 $1,314 $(1,051) $149,453
=================================
Valuation allowance on marketable
equity securities (733)
----------
$148,457
=======
</TABLE>
Investment securities as of December 31, 1993 are classified in the
accompanying balance sheet as held for sale, except for certain investments
totaling $2,250,000, which are classified as held for investment. Investment
securities as of December 31, 1992 are classified as held for investment.
Securities pledged to secure U.S. Treasury borrowings, public deposits,
securities sold under agreements to repurchase, and for other purposes required
by law, amounted to $84,077,000 and $40,224,000 at December 31, 1993 and
1992, respectively.
The following table shows the maturity distribution of the BOOK VALUE of the
Company's investment securities at December 31, 1993, with a comparative total
for 1992:
<TABLE>
After After
One But Five But
Within Within Within After
One Five Ten Ten No Fixed
Year Years Years Years Maturity Total
(in thousands)
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $10,016 $40,245 $4,049 $- $- $54,310
U.S. government agency obligations - 14,760 5,451 - - 20,211
Obligations of states and political
subdivisions 23,117 1,070 592 589 - 25,368
Mortgage-backed securities (1) 5,980 14,268 2,844 904 - 23,996
Corporate bonds and notes 3,959 22,097 2,829 - - 28,885
Marketable equity securities - - - - 223 223
-------------------------------------------------------------
$43,072 $92,440 $15,765 $1,493 $223 $152,993
=============================================================
Comparative amounts at
December 31, 1992 $50,057 $67,364 $26,243 $660 $4,133 $148,457
</TABLE>
[FN]
(1) Maturities of mortgage-backed securities are based on mortgage loan
prepayment assumptions
The following table shows the maturity distribution of the MARKET VALUE of the
Company's investment securities at December 31, 1993, with a comparative total
for 1992:
<TABLE>
<CAPTION>
After After
One But Five But
Within Within Within After
One Five Ten Ten No Fixed
Year Years Years Years Maturity Total
(in thousands)
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $10,095 $40,927 $3,985 $ - $- $55,007
U.S. government agency obligations - 14,902 5,589 - - 20,491
Obligations of states and political
subdivisions 23,117 1,070 592 589 - 25,368
Mortgage-backed securities (1) 6,088 14,526 2,895 920 - 24,429
Corporate bonds and notes 3,966 22,137 2,834 - - 28,937
Marketable equity securities - - - - 223 223
--------------------------------------------------------------
$43,266 $93,562 $15,895 $1,509 $223 $154,455
==============================================================
Comparative amounts
at December 31, 1992 $50,274 $67,872 $26,514 $660 $4,133 $149,453
</TABLE>
[FN]
(1) Maturities of mortgage-backed securities are based on mortgage loan
prepayment assumptions
Expected maturities may differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
Proceeds from sales of debt securities amounted to $12,913,000, $47,245,000,
and $36,340,000 in 1993, 1992, and 1991, respectively. Realized gains on such
sales were $84,000, $471,000, and $397,000 in 1993, 1992, and 1991,
respectively. Realized losses on such sales were $71,000, $49,000, and
$240,000 in 1993, 1992, and 1991, respectively. In 1993, the Company sold
marketable equity securities at a gain of $117,000. The Company sold
marketable equity securities at a loss of $557,000 and $76,000 in 1992 and 1991,
respectively. In addition, the Company reduced the carrying value of
marketable equity securities by $100,000 in 1992 and $615,000 in 1991, to
recognize unrealized losses considered to be other than temporary in nature.
Note 4
Loans Major classifications of loans at December 31, 1993 and 1992
are as follows:
<TABLE>
1993 1992
---------------------
(in thousands)
<S> <C> <C>
Commercial $107,722 $118,532
Real estate:
Residential 328,165 347,264
Commercial 205,851 190,907
Construction 13,747 18,008
----------------------
Total real estate 547,763 556,179
Home equity 69,849 76,934
Consumer 125,226 124,175
----------------------
Total gross loans 850,560 875,820
Allowance for possible loan losses (18,917) (16,372)
-----------------------
Net loans $831,643 $859,448
========================
Mortgage loans held for sale $11,646 $7,971
========================
</TABLE>
The Bank's lending activities are conducted almost entirely in Vermont. The
Bank makes single family and multi-family residential loans, commercial real
estate loans, commercial loans, and a variety of consumer loans. In addition,
the Bank makes loans for the construction of residential homes, multi-family
and commercial properties, and for land development. The ability and
willingness of the single family residential and consumer borrowers to honor
their repayment commitments are generally dependent on the level of overall
economic activity within the borrowers' geographic areas and real estate values.
The ability and willingness of commercial real estate, commercial, and
construction loan borrowers to honor their repayment commitments is generally
dependent on the health of the real estate sector in the borrowers' geographic
areas and the general economy.
Changes in the allowance for possible loan losses for the years ended
December 31, 1993, 1992, and 1991 are summarized as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------------------------------
(in thousands)
<S> <C> <C> <C>
Balance at beginning of year $16,372 $14,373 $13,030
Provision for possible loan losses 6,600 7,513 8,843
Loan recoveries 1,117 737 984
Loans charged off (5,172) (6,251) (8,484)
------------------------------
Balance at end of year $18,917 $16,372 $14,373
==============================
</TABLE>
The Bank's policy is to discontinue the accrual of interest on loans when
scheduled payments become past due in excess of 90 days, and when, in the
judgment of management, the ultimate collectibility of principal or interest
becomes doubtful. When a loan is placed on nonaccrual status, all interest
previously accrued but not collected is reversed against interest income in the
current period. The principal amount of loans in nonaccrual status was
$12,006,000 and $16,478,000 at December 31, 1993 and 1992, respectively. Loans
whose terms have been substantially modified in troubled restructurings
amounted to $367,000 and $53,000 as of December 31, 1993 and 1992,
respectively. There were no outstanding commitments to lend to customers with
existing loans whose terms have been substantially modified.
The amount of interest which was not earned but which would have been earned had
the nonaccrual and restructured loans performed in accordance with their
original terms and conditions was as follows:
<TABLE>
<CAPTION>
1993 1992 1991
(in thousands)
----------------------------
<S> <C> <C> <C>
Income in accordance with original loan terms $1,418 $1,554 $2,545
Income recognized 507 528 1,425
------------------------------
Reduction in interest income $911 $1,026 $1,120
==============================
</TABLE>
Directors and executive officers of the Company and their associates are credit
customers of the Company in the normal course of business. All loans and
commitments included in such transactions are made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons, and do not involve more than
normal risk of collectibility or present other unfavorable features.
<TABLE>
<CAPTION>
An analysis of loans in 1993 to directors and executive officers of the Company
and their associates is as follows:
Balance at Balance at
December 31,1992 Additions Reductions December 31, 1993
----------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
$14,971 $4,406 $4,667 $14,710
</TABLE>
The deferred premium on sales of mortgage loans included in other assets was
$919,000 at December 31, 1992. As a result of an accelerated level of
prepayments, the remaining balance was fully amortized in 1993 as a reduction
of mortgage servicing income.
The Company's serviced residential loan portfolio, which is not reflected in the
consolidated balance sheets, totaled approximately $634,689,000 and
$527,042,000 at December 31, 1993 and 1992, respectively. No formal recourse
provisions exist in connection with such servicing.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114, Accounting by Creditors for Impairment
of a Loan. The new standard requires that impaired loans be measured based
on the present value of expected future cash flows discounted at each loan's
effective interest rate or, as a practical expedient, the loan's observable
market price, or the fair value of the collateral if the loan is collateral
dependent. The statement also changes the accounting for in-substance
foreclosures and troubled debt restructurings. This statement is applied
prospectively with any adjustment reflected in the provision for possible
loan losses.
The Company is required to adopt the new standard by January 1, 1995, although
early implementation is permitted. Because of the complexities of the new
standard and the changing composition of the impaired loan portfolio, management
has not yet determined the effect that this change in accounting will have on
the Company's consolidated financial statements.
Note 5
PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1993 and 1992 are summarized as follows:
<TABLE>
<CAPTION>
1993 1992
(in thousands)
----------------------
<S> <C> <C>
Land $1,626 $1,626
Buildings and improvements 17,933 17,783
Furniture and equipment 12,845 14,528
----------------------
32,404 33,937
Accumulated depreciation and amortization (16,071) (18,003)
---------------------
$16,333 $15,934
======================
</TABLE>
Depreciation and amortization expense amounted to $2,071,000, $1,838,000, and
$1,913,000 in 1993, 1992, and 1991, respectively.
The Company is obligated under various noncancelable operating leases for
premises and equipment expiring in various years through the year 2008. Total
lease expense, less income from subleases, amounted to approximately $600,000,
$514,000, and $531,000, in 1993, 1992, and 1991, respectively.
Future minimum rental commitments for noncancelable operating leases for
premises and equipment with initial or remaining terms of one year or more at
December 31, 1993 are as follows:
<TABLE>
<CAPTION>
Year Amount
- -------------------
(in thousands)
<S> <C>
1994 $537
1995 460
1996 291
1997 284
1998 248
Thereafter 846
- -------------------
$2,666
Note 6
Short-Term Borrowings
Short-term borrowings at December 31, 1993 and 1992 consist of the following:
</TABLE>
<TABLE>
<CAPTION>
1993 1992
(in thousands)
-------------------
<S> <C> <C>
Securities sold under agreements to repurchase:
Due through January 10, 1994, weighted average rate of 9.20% $10,000 $ -
Due through January 10, 1993, weighted average rate of 9.20% - 10,000
Due through June 30, 1993, weighted average rate of 3.35% - 1,140
U.S. Treasury borrowings, 2.76% in 1993 and 2.61% in 1992, due on demand 69,078 26,072
------------------
$79,078 $37,212
===================
</TABLE>
Short-term borrowings are collateralized by U.S. Treasury and agency
securities, mortgage-backed securities, and residential mortgage loans. These
assets had a carrying value and a market value of $84,077,000 and $85,554,000,
respectively, at December 31, 1993, and $40,224,000 and $40,515,000,
respectively, at December 31, 1992.
The following is information relating to securities sold under agreements
to repurchase:
<TABLE>
<CAPTION>
1993 1992 1991
-----------------------------
(in thousands)
<S> <C> <C> <C>
Average balance outstanding during the year $10,954 $25,240 $1,264
Average rate during the year 8.65% 5.18% 5.06%
Maximum amount outstanding at any month-end $14,140 $43,974 $8,885
The following is information relating to U.S. Treasury borrowings:
1993 1992 1991
------------------------------
(in thousands)
Average balance outstanding during the year $25,758 $22,444 $30,145
Average rate during the year 2.82% 3.41% 5.66%
Maximum amount outstanding at any month-end $72,325 $70,364 $71,073
</TABLE>
Note 7
Income Taxes
As discussed in Note 1, effective January 1, 1993, the Company adopted Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes. The
provision for income taxes for the years ended December 31, 1993, 1992, and 1991
consists of the following:
<TABLE>
<CAPTION>
1993 1992 1991
-----------------------------
(in thousands)
<S> <C> <C> <C>
Current $6,816 $4,397 $1,361
Prepaid (1,573) (1,953) (127)
--------------------------------
Provision for income taxes $5,243 $2,444 $1,234
</TABLE>
The following is a reconciliation of the Federal income tax provision,
calculated at the statutory rate, to the recorded provision for income taxes:
<TABLE>
<CAPTION>
1993 1992 1991
------------------------------
(in thousands)
<S> <C> <C> <C>
Computed tax at statutory Federal rate $5,894 $3,285 $1,986
Increase (decrease) in taxes from:
Amortization of certain intangible assets 255 98 143
Tax-exempt interest, net (581) (628) (807)
Dividend received deduction (33) (81) (258)
Capital loss(benefited through carry forward) not
available for carryback (35) (98) 209
Alternative minimum tax credit - (290) (207)
Other, net (257) 158 168
----------------------------------
Total $5,243 $2,444 $1,234
==================================
Effective income tax rate 31.13% 25.30% 21.13%
</TABLE>
Prepaid and deferred income taxes arise due to timing differences in the
ecognition of revenue and expense for tax and financial statement purposes.
The sources of the differences and the approximate tax effect of each, for the
years ended December 31, 1993, 1992, and 1991 are as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------------------------------
(in thousands)
<S> <C> <C> <C>
Provision for possible loan losses (864) ($413) ($93)
Other real estate owned (62) (419) 296
Accelerated tax depreciation (127) (160) 55
Deferred loan origination fees 44 (233) (85)
Amortization of excess service fees (207) (396) (152)
Pension and employee benefits (289) (162) (123)
Restructuring charges 34 (357) 130
Allowance for uncollected interest 42 81 (15)
Other (144) 106 (140)
---------------------------------
(1,573) ($1,953) ($127)
=================================
</TABLE>
The net deferred tax asset was $9,179,000 and $8,362,000 at December 31, 1993
and 1992, respectively. Current income taxes payable included in accrued
expenses and other liabilities was $78,000 and $357,000 at December 31, 1993
and 1992, respectively.
The components of the net deferred tax asset at December 31, 1993 are as
follows:
<TABLE>
<CAPTION>
Amount
-------------------
(in thousands)
<S> <C>
Allowance for possible loan losses $6,356
Deferred compensation/pension 1,466
Other real estate owned writedowns 420
Deferred loan fees 735
Accumulated depreciation (776)
Accrued liabilities 999
Other (21)
--------------------
$9,179
===================
</TABLE>
The State of Vermont assesses a franchise tax for banks in lieu of a bank
income tax. The franchise tax is assessed based on deposits and amounted to
approximately $468,000, $459,000, and $441,000 in 1993, 1992, and 1991,
respectively. These amounts are included in other noninterest expense in the
accompanying consolidated statements of income.
Note 8
STOCKHOLDERS' EQUITY
TREASURY STOCK
Under a Plan approved by the Board of Directors in 1989, the Company is
authorized to purchase up to 91,875 additional shares of common stock as of
December 31, 1993, through open market purchases and in negotiated transactions.
DIVIDENDS
Dividends paid by the Bank are the primary source of funds available to the
Company for payment of dividends to its stockholders and for other corporate
needs. Applicable Federal and state statutes, regulations, and guidelines
impose restrictions on the amount of dividends that may be declared by the Bank.
During 1992, the Company declared dividends of $826,000 or $0.13 per share to
its stockholders. In 1993, the Company declared dividends of $1,243,000 or
$0.20 per share.
SURPLUS
The Bank is required by Vermont statute to transfer a minimum of 10% of net
income from retained earnings to surplus on an annual basis. No transfer is
equired if net worth as a percent of deposits and other liabilities exceeds
10%.
STOCK SPLIT
On September 24, 1993, the Company distributed a five-for-four stock split.
Accordingly, all share information presented in the consolidated financial
statements has been restated to reflect this event.
CAPITAL RATIOS
The Company is subject to two regulatory capital requirements: a "leverage"
requirement and a "risk-based" requirement. The leverage requirement provides
for minimum core capital, consisting primarily of common stockholders' equity,
of 3% of total assets for those institutions with the most favorable composite
regulatory examination rating. Other institutions are subject to a requirement
that adds an additional 1% to 2% of assets to the leverage requirement. The
risk-based capital requirement provides for a minimum capital level, based on
risk-weighted assets, of 8%. At December 31, 1993, the Company exceeded all
regulatory capital requirements.
Note 9
STOCK PLANS
An employees' stock purchase plan, which expired October 1, 1990, provided for
the granting of options to purchase up to 250,000 shares of common stock at the
higher of the par value or 85% of the fair market value of the common stock
at the time the options are exercised. Options granted under the plan are
exercisable for a period of five years after grant.
A summary of options transactions related to this plan follows:
<TABLE>
<CAPTION>
Shares Average
Under Exercise
Options Price
----------------------------
<S> <C> <C>
Options outstanding at December 31, 1990 135,871
Expired in 1991 (41,724)
Exercised in 1991 (1,715) $5.39
-----------------------------
Options outstanding at December 31, 1991 92,432
Expired in 1992 (24,265)
Exercised in 1992 (2,685) $9.83
----------------------------
Options outstanding at December 31, 1992 65,482
Expired in 1993 (26,875)
Exercised in 1993 (2,766) $14.81
-----------------------------
Options outstanding at December 31, 1993 35,841
========
</TABLE>
The option price at December 31, 1993, was $15.41.
The Company has a Stock Option Plan, Restricted Stock Plan, and a Stock
Incentive Plan for certain key employees and Directors of the Company. Under
the Stock Option Plan, certain key employees are eligible, at the
recommendation of the Executive Committee, to receive options to purchase a
fixed number of shares of common stock at market value on the date the stock
option is granted. Pursuant to the Stock Option Plan, 175,000 shares of common
stock have been reserved for allocation. At December 31, 1993, 86,469 options
to purchase common stock have been awarded at an average price of $9.58 per
share. All such options are exercisable.
Under the Restricted Stock Plan, which expired November 20, 1990, certain key
employees have been awarded a fixed number of shares of common stock. This
common stock may not be resold until the restrictions placed on these shares
expire. At December 31, 1993, 16,946 shares of common stock awarded pursuant
to this plan were subject to such restrictions. The amount of compensation
represented by the issuance of these shares of common stock is being amortized
over the remaining vesting period of approximately two years. Net expense
related to such awards was $29,000, $39,000 and $75,000 for 1993, 1992, and
1991, respectively.
Under the Stock Incentive Plan, certain key employees and Directors are eligible
to receive various types of stock incentives: options to purchase a specified
number of shares of stock at a specified price (including incentive stock
options and non-qualified stock options); restricted stock which vests after a
specified period of time; non-employee Directors' stock options to purchase
stock at pre-determined prices over a five-year period; and performance shares
which are incorporated into the Company's Executive Management Incentive
Compensation Plan and which represent a portion of each bonus awarded pursuant
to that plan. A total of 468,750 shares are allocated to the stock incentive
plan.
At December 31, 1993, 205,661 shares had been granted under the Stock Incentive
Plan in various forms: options to purchase 125,000 shares at a price of
$16.00 had been granted. All such options are exercisable; 75,000 stock
options were granted to twelve non-employee Directors in 1993. Each Director's
grant consists of 6,250 options which will vest on a schedule of 1,250 options
per year for five years beginning at the time of grant. The price of the
options which vested at the time of grant is $17.10 per share. The prices for
options which vest in the four succeeding years are indexed to increase at a
rate of 15% per year over the prior year's option price; officers were granted
5,661 performance shares which were distributed in 1993. These awards were
earned based on 1992 performance, and the associated expense of $61,000 was
accrued in 1992 under the Executive Management Incentive Compensation Plan.
Note 10
EMPLOYEE BENEFITS
PENSION PLAN
The Company has a noncontributory pension plan covering substantially all of
its employees. Benefits are based on years of service and the level of
compensation during the final years of employment. The funding policy of the
Company for the plan is to contribute annually the amount necessary to meet the
minimum funding standards established by the Employee Retirement Income
Security Act (ERISA). This contribution is based on an actuarial method that
recognizes estimated future salary levels and service.
The funded status of the plan is as follows at December 31, 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
---------------------
(in thousands)
<S> <C> <C>
Vested benefits $10,902 $8,123
Nonvested benefits 1,111 820
--------------------
Accumulated benefit obligation 12,013 8,943
Additional benefits related to future compensation levels 3,120 3,091
--------------------
Projected benefit obligation 15,133 12,034
Fair value of plan assets, invested primarily in
equity securities and bonds 12,714 12,222
--------------------
Plan assets in excess of (less than) projected
benefit obligation ($2,419) $188
====================
</TABLE>
Amounts resulting from changes in actuarial assumptions used to measure the
Company's benefit obligations are not recognized as they occur, but are
amortized systematically over subsequent periods. Unrecognized amounts to be
amortized and the reconciliation of the plan assets in excess of (less than) the
projected benefit obligation to the amounts included in the consolidated
balance sheets at December 31, 1993 and 1992 are shown below:
<TABLE>
<CAPTION>
1993 1992
-----------------
(in thousands)
<S> <C> <C>
Plan assets in excess of (less than) projected benefit obligation $(2,419) $188
Unrecognized net transition asset being amortized over
participants' period of service (172) (271)
Prior service cost not yet recognized in net periodic pension cost 445 347
Unrecognized net (gain) loss from past experience different
from that assumed 1,140 (748)
----------------
Accrued pension cost included in accrued expenses and other
liabilities $(1,006) $(484)
==================
</TABLE>
Net pension expense for 1993, 1992, and 1991 includes the following components:
<TABLE>
<CAPTION>
1993 1992 1991
---------------------------
(in thousands)
<S> <C> <C> <C>
Service cost - benefits attributable to service
during the period $681 $666 $687
Interest cost on projected benefit obligation 1,043 898 783
Actual return on plan assets (864) (598) (1,760)
Net amortization and deferral (338) (607) 729
---------------------------
Net periodic pension expense $522 $359 $439
===========================
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.0% in 1993 and 8.0% in
1992 and 1991. Future compensation levels were estimated using average salary
increases of 5.0% for 1993 and 6.0% for 1992 and 1991. The expected long-term
rate of return on plan assets was 9.0% in 1993 and 9.5% in 1992 and 1991.
The Bank has supplemental pension arrangements with certain retired employees.
The liability related to such arrangements was $925,000 and $864,000 at
December 31, 1993 and 1992, respectively. Total supplemental retirement
expense was $92,000, $83,000, and $109,000 for 1993, 1992, and 1991,
respectively.
POSTRETIREMENT BENEFITS
In addition to providing pension benefits, the Company provides certain health
care benefits to current employees who meet certain age and length of service
criteria, and to current retirees. Prior to January 1, 1993, the cost of
retiree health care benefits was recognized as expense and funded as claims
were paid. Such costs totaled $114,000 and $101,000 in 1992 and 1991,
respectively.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits
Other Than Pensions. This accounting standard requires that the expected cost
of postretirement benefits be charged to expense during the years that the
employees render service. The Company has elected to amortize the unfunded
obligation that was measured as of January 1, 1993, over a period of 20 years.
The effect of this change in accounting principle was to increase the expense
related to postretirement benefits by approximately $100,000 in 1993.
The following table reconciles the plan's funded status to the accrued
postretirement health care liability as reflected in the balance sheet as of
December 31, 1993:
<TABLE>
<CAPTION>
1993
----------------
(in thousands)
<S> <C>
Accumulated postretirement benefit obligation:
Retirees $1,092
Other fully eligible participants 114
Other active participants 522
----------
1,728
Unrecognized actuarial loss (92)
Unrecognized transition obligation (1,527)
-----------
Accrued postretirement health care liability $ 109
=======
Net postretirement health care expense for 1993 included the following
components:
Service cost - benefits attributed to service
during the period $ 20
Interest cost on accumulated postretirement
benefit obligation 125
Net amortization and deferral 80
-----------
Net postretirement health care expense 225
=======
</TABLE>
The weighted-average discount rate used in determining the accumulated post-
retirement benefit obligation at December 31, 1993, was 7.0%. For measurement
purposes, a 14.0% annual rate of increase in the per capita cost of covered
health care benefits was assumed.
OTHER BENEFIT PLANS
The Company has an incentive savings and profit sharing plan to provide
eligible employees with a means to save and invest a portion of their earnings,
supplemented by contributions from the Company. Investment in the Company's
common stock is one of four investment options available to employees.
Eligible employees of the Company may contribute, by salary reductions, up to
6% of their compensation as a basic employee contribution and may contribute up
to an additional 10% of their compensation as a supplemental employee
contribution. The Company makes an incentive savings contribution in an amount
equal to 35% of each employee's basic contribution. In 1993, 1992, and 1991,
14,861, 22,320 and 44,943 shares, respectively, of the Company's common stock
were purchased through the incentive savings and profit sharing plan; $233,000,
$192,000, and $194,000, respectively, were charged to expense for contributions
and payments made or to be made under the plan.
The Company may also make an additional matching contribution based on the
extent to which the annual corporate profitability goal established by the
Board of Directors is met. Expenses related to achievement of profitability
goals totaled $225,000, $151,000, and $144,000 in 1993, 1992, and 1991,
respectively.
The Company also has an Executive Management Incentive Compensation Plan.
Executives performing at defined levels of responsibility are eligible to
participate in the plan. Incentive award payments are determined on the basis
of corporate profitability and individual performance, with incentive awards
ranging from zero to 60% of annual compensation. These awards are paid over a
four-year period, contingent upon meeting profitability goals in subsequent
years. Beginning with payouts made in 1993, based on 1992 performance, a
portion of each award is paid in cash and a portion is paid in the Company's
common stock. Expenses for this plan totaled $407,000, $256,000, and $237,000
in 1993, 1992, and 1991, respectively.
In 1992, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 112, Employers' Accounting for Postemployment Benefits.
Statement No. 112 covers all postemployment benefits not already covered by two
prior accounting pronouncements. This statement is effective beginning
January 1, 1994, and its implementation is not expected to have a material
effect on the Company's consolidated financial statements.
The Company has a Directors' Deferred Compensation Plan. Under the plan,
Directors may defer fees and retainers that would otherwise be payable
currently. Deferrals may be made to an uninsured interest account or an
account recorded in equivalents of the Company's common stock. Expenses for
this plan totaled $289,000, $207,000, and $189,000 for 1993, 1992, and 1991
respectively.
Note 11
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, to meet the financing needs of its customers
and to reduce its own exposure to fluctuations in interest rates, the Bank is a
party to financial instruments with off-balance sheet risk. The financial
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the consolidated balance sheets.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for loan commitments and standby letters of
credit, is represented by the contractual amount of those instruments.
The Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments. The Bank evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of credit,
is based on management's credit evaluation of the borrower. Collateral held
varies, but may include accounts receivable, inventory, property, plant and
equipment, and income-producing commercial properties.
Commitments to originate loans, unused lines of credit, and unadvanced portions
of construction loans are agreements to lend to a customer provided there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Many of the commitments are expected to expire without being drawn
upon. Therefore, the amounts presented below do not necessarily represent
future cash requirements.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance by a customer to a third party. These guarantees are
issued primarily to support public and private borrowing arrangements, bond
financing, and similar transactions. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan f
acilities to customers.
Financial instruments whose contractual amounts represent off-balance sheet
credit risk at December 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1993 1992
-----------------------------
(in thousands)
<S> <C> <C>
Commitments to originate loans $22,012 $18,726
Unused lines of credit 109,902 180,708
Standby letters of credit 10,753 11,789
Unadvanced portions of construction loans 6,803 5,688
Equity commitments to limited partnerships 912 1,000
</TABLE>
Note 12
COMMITMENTS AND CONTINGENCIES
As a nonmember of the Federal Reserve System, the Company is required to
maintain certain reserve requirements of vault cash and/or deposits with the
Federal Reserve Bank of Boston. The amount of this reserve requirement,
included in cash and cash equivalents, was $19,466,000 and $18,286,000 at
December 31, 1993 and 1992, respectively.
The Bank has a contract for data processing services that extends to July 1998.
Base fees required to be paid during the remaining term of the contract are
approximately $11,728,000. Total fees to be paid may be the same as or exceed
the base fees depending on additional services rendered and consumer price
index changes during the remaining term of the contract.
Various legal claims against the Company arising in the normal course of
business were outstanding at December 31, 1993. Management, after reviewing
these claims with legal counsel, is of the opinion that the resolution of
these claims will not have a material effect on the consolidated financial
statements.
One legal claim, Walsh vs. Chittenden Corp., et al, is a class action in which
plaintiff is representing himself and other persons who purchased Chittenden
common stock from March 29, 1989 through August 15, 1990. Plaintiff named
Chittenden and two of its former executive officers in the suit filed on
August 9, 1991 in the United States District Court of Vermont. The plaintiff
claims violations of Federal securities laws on the grounds that Chittenden
allegedly withheld timely disclosure of developments affecting its loan
portfolio. Plaintiff's counsel and Chittenden have entered into a settlement
agreement which provides, among other things, that a fund of $1.5 million be
established to resolve any claims of members of the class, including
plaintiff's counsel fees. This settlement agreement is subject to approval of
the Court. Taking into consideration certain payments expected from an
insurance carrier, Chittenden's contribution to the settlement fund, when paid,
will have no material effect on Chittenden's consolidated financial statements.
Note 13
NONINTEREST EXPENSE - OTHER
The components of noninterest expense - other for the years 1993, 1992 and 1991
are as follows:
<TABLE>
<CAPTION>
1993 1992 1991
--------------------------
(in thousands)
<S> <C> <C> <C>
Data processing $3,104 $2,846 $2,680
Amortization of the excess of cost over fair
value of net assets acquired 636 502 662
Legal and professional 1,054 1,859 1,242
Other 9,938 9,045 8,751
------------------------------
$14,732 $14,252 $13,335
==============================
</TABLE>
Note 14
QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of quarterly financial data for 1993 and 1992 is presented below:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------
Restated
March 31 June 30 Sept. 30 Dec 31
-------------------------------------------------------
1993
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Total interest income $20,124 $19,789 $19,868 $20,022
Total interest expense 7,839 7,455 7,152 7,128
---------------------------------------------------
Net interest income 12,285 12,334 12,716 12,894
Provision for possible loan losses 1,650 1,650 1,650 1,650
Noninterest income 5,571 6,143 6,519 6,075
Noninterest expense 12,181 13,209 13,252 12,455
-----------------------------------------------------
Income before income taxes and cumulative effect
of change in accounting principle 4,025 3,618 4,333 4,864
Provision for income taxes 1,172 1,073 1,470 1,528
-----------------------------------------------------
Income before cumulative
in accounting principle 2,853 2,545 2,863 3,336
Cumulative effect of change
in accounting principl (575) - - -
---------------------------------------------------
Net income $2,278 $2,545 $2,863 $3,336
===================================================
Earnings per share:
Income before cumulative effect of change
in accounting principle $0.46 $0.41 $0.46 $0.54
Cumulative effect of change in accounting
principle (0.09) - - -
------------------------------------------------------
Net Income $0.37 $0.41 $0.46 $0.54
======================================================
Dividends declared $0.04 $0.05 $0.05 $0.06
Three Months Ended
-------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------------------------------------------------------
1992 (Restated)
(in thousands, except per share amounts)
Total interest income $22,527 $21,776 $21,823 $20,858
Total interest expense 11,831 10,687 10,137 8,645
--------------------------------------------------------
Net interest income 10,696 11,089 11,686 12,213
Provision for possible loan losses 1,790 2,108 1,800 1,815
Noninterest income 4,578 4,981 5,860 5,654
Noninterest expense 11,658 11,874 12,902 13,148
---------------------------------------------------------
Income before income taxes 1,826 2,088 2,844 2,904
Provision for income taxes 360 600 669 815
----------------------------------------------------------
Net income $1,466 $1,488 $2,175 $2,089
==========================================================
Earnings per share $0.24 $0.24 $0.35 $0.34
Dividends declared - 0.04 0.04 0.05
</TABLE>
Note 15
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values for the Company's financial instruments, together
with related methods and assumptions, are set forth below.
INVESTMENTS
The carrying amounts for cash and cash equivalents approximate fair value
because they mature in 90 days or less and do not present unanticipated
valuation risk. The fair value of investment securities, other than obligations
of states and political subdivisions, is estimated based on bid prices
published in financial newspapers or bid quotations received from securities
dealers. The fair value of obligations of states and political subdivisions is
estimated to be equal to book value since most of these notes mature within six
months and there is no active market for these instruments. Refer to
Note 3 - Investment Securities for the carrying value and estimated fair value
of investments at December 31, 1993 and 1992.
LOANS
Fair values are estimated for portfolios of loans with similar financial and
credit characteristics. The loan portfolio was evaluated in the following
segments: commercial, residential real estate, commercial real estate,
construction, home equity, and other consumer loans. Other consumer loans
include installment, credit card, and student loans. Each of these consumer
portfolios also was evaluated separately.
The fair value of performing commercial and real estate loans is estimated by
discounting cash flows through the estimated maturity using discount rates that
reflect the expected maturity and the credit and interest rate risk inherent in
such loans. The fair value of nonperforming commercial and real estate loans
is estimated using historical net charge-off experience applied to the
nonperforming balances. For performing residential mortgage loans, fair value
is estimated by discounting contractual cash flows adjusted for prepayment
estimates using discount rates based on secondary market sources.
The fair value of home equity, credit card, and other consumer loans is
estimated based on secondary market prices for asset-backed securities with
similar characteristics.
The following table presents comparative fair value information for loans:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1993 1992
Carrying Calculated Carrying Calculated
Amount Fair Value Amount Fair Value
---------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Commercial $107,722 $106,361 $118,532 $117,431
Real estate:
Residential 328,165 336,633 347,264 353,700
Commercial 205,851 203,018 190,907 188,870
Construction 13,747 13,520 18,008 17,816
Home equity 69,849 71,904 76,934 76,316
Consumer 125,226 127,033 124,175 124,312
---------------------------------------------
Total gross loans 850,560 858,469 875,820 878,445
Allowance for possible loan losses (18,917) - (16,372) -
--------------------------------------------
Net loans $831,643 $858,469 $859,448 $878,445
=============================================
</TABLE>
DEPOSITS
Under generally accepted accounting principles, the fair value of deposits with
no stated maturity, such as noninterest bearing demand deposits, savings, and
N.O.W. accounts, and money market and checking accounts, is equal to the amount
payable on demand as of December 31, 1993 and 1992. The fair value of
certificates of deposit and retirement accounts is based on the discounted
value of contractual cash flows. The discount rate used is based on the
estimated rates currently offered for deposits of similar remaining maturities.
The following table presents comparative fair value information for deposits:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1993 1992
-----------------------------------------------
Carrying Calculated Carrying Calculated
Amount Fair Value Amount Fair Value
<S> <C> <C> <C> <C>
(in thousands)
Demand $159,323 $159,323 $152,833 $152,833
Savings, N.O.W., and money markets 496,692 496,692 483,782 483,782
Certificates of deposit and retirement accounts:
Maturing in six months or less 216,672 218,393 234,614 238,623
Maturing between six months and one year 77,084 77,553 114,051 113,591
Maturing between one and three years 62,295 62,594 53,423 52,806
Maturing beyond three years 22,698 22,607 5,236 4,409
----------------------------------------------------
$1,034,764 $1,037,162 $1,043,939 $1,046,044
====================================================
</TABLE>
SHORT-TERM BORROWINGS
The carrying amounts for short-term borrowings approximate fair value because
they mature or are callable in ten days or less and do not present
unanticipated valuation risk.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates.
The fair value of financial standby letters of credit is based on fees
currently charged for similar agreements or on the estimated cost to terminate
them or otherwise settle the obligations with the counterparties. The
aggregate fair value of these commitments was $105,000 and $100,000 at
December 31, 1993 and 1992, respectively.
ASSUMPTIONS
Fair value estimates are made at a specific point in time, based on relevant
market information and information about specific financial instruments. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Bank's entire holdings of a particular
financial instrument. Because no active observable market exists for a
significant portion of the Bank's financial instruments, fair value estimates
are based on judgments regarding future expected loss experience, current
economic conditions, risk characteristics of various financial instruments, and
other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect t
he estimates.
Note 16
<TABLE>
<CAPTION>
PARENT COMPANY FINANCIAL STATEMENTS
CHITTENDEN CORPORATION (PARENT COMPANY ONLY)
BALANCE SHEETS
December 31
--------------------
Restated
1993 1992
--------------------
(in thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents $1,902 $1,501
Investment securities 210 211
Investments in subsidiaries at equity in net assets:
Bank subsidiary 95,161 84,628
Nonbank subsidiaries - 3
Other assets 593 957
-----------------
Total assets $97,866 $87,300
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accrued expenses and other liabilities $155 $222
Long-term debt - 59
-----------------
Total liabilities 155 281
-----------------
STOCKHOLDERS' EQUITY:
Preferred stock - $100 par value
authorized - 200,000 shares
issued and outstanding - none - -
Common stock - $1 par value
authorized -10,000,000 shares
issued - 6,460,584 shares in 1993
and 6,448,760 shares in 1992 6,461 6,449
Surplus 51,228 49,918
Retained earnings 43,056 34,457
Treasury stock at cost - 248,129 shares in 1993 and
250,644 shares in 1992 (2,982) (3,012)
Valuation allowance for net unrealized depreciation
of marketable equity securities (21) (733)
Unearned portion of employee restricted stock (31) (60)
------------------
Total stockholders' equity 97,711 87,019
------------------
Total liabilities and stockholders' equity $97,866 $87,300
===================
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
Restated Restated
1993 1992 1991
-----------------------------
(in thousands)
<S> <C> <C> <C>
Operating income:
Dividends from bank subsidiary $1,679 $2,049 $172
Dividends from investment securities - 40 144
Interest income - 39 6
-----------------------------
Total operating income 1,679 2,128 322
Operating expense:
Interest on borrowed funds - 222 270
Losses on investment securities 16 281 115
Other operating expense 769 759 670
-----------------------------
Total operating expense 785 1,262 1,055
-----------------------------
Income (loss) before income taxes and
equity in undistributed income
of subsidiaries 894 866 (733)
Income tax benefit 267 395 232
-------------------------------
Income (loss) before equity in undistributed
income of subsidiaries 1,161 1,261 (501)
Equity in undistributed income (loss) of :
Bank subsidiary 9,861 5,958 5,113
Nonbank subsidiaries - (1) (5)
--------------------------------
Net income $11,022 $7,218 $4,607
================================
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Years ended December 31,
-------------------------------
Restated Restated
1993 1992 1991
-------------------------------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $11,022 $7,218 $4,607
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed (income) loss of subsidiaries:
Bank subsidiary (9,861) (5,958) (5,113)
Nonbank subsidiaries - 1 5
Amortization 29 78 75
Investment securities losses 16 281 115
(Increase) decrease in other assets 361 (378) 1,333
Increase (decrease) in accrued expenses
and other liabilities (36) 25 33
-----------------------------
Net cash provided by operating activities 1,531 1,267 1,055
-----------------------------
Cash flows from investing activities:
Proceeds from sales of investment securities - 1,719 -
Proceeds from maturities of investment securities - 1,600 -
Purchase of investment securities - (1,639) -
----------------------------
Net cash provided by investing activities - 1,680 -
----------------------------
Cash flows from financing activities:
Principal repayments of long-term debt (59) (2,414) -
Net increase in advances to subsidiaries - - (24)
Proceeds from issuance of common stock 137 64 5
Dividends paid - common stock (1,243) (826) (126)
Proceeds from issuance of treasury stock 35 37 14
----------------------------
Net cash used in financing activities (1,130) (3,139) (131)
----------------------------
Net increase (decrease) in cash and cash equivalent 401 (192) 924
Cash and cash equivalents at beginning of year 1,501 1,693 769
----------------------------
Cash and cash equivalents at end of year $1,902 $1,501 $1,693
===========================
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ - $242 $270
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Chittenden Corporation
We have audited the accompanying consolidated balance sheet of Chittenden
Corporation and subsidiaries as of December 31, 1993, and the related
statements of income, changes in stockholders' equity and cash flows for the
year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements . An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Chittenden Corporation and
subsidiaries as of December 31, 1993, and results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
As explained in Notes 1 and 10 to the consolidated financial statements,
effective
January 1, 1993, the Company adopted prospectively two new account principles
promulgated by the Financial Accounting Standards Board, Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, and Statement of
Financial Accounting Standards No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pension.
ARTHUR ANDERSEN & CO.
Boston, Massachusetts
January 18, 1994
THE BOARD OF DIRECTORS AND STOCKHOLDERS
CHITTENDEN CORPORATION:
We have audited the accompanying consolidated balance sheet of Chittenden
Corporation and subsidiaries as of December 31, 1992, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the years ended December 31, 1992 and 1991. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Chittenden
Corporation and subsidiaries as of December 31, 1992, and the results of their
operations and their cash flows for the years ended December 31, 1992 and 1991
in conformity with generally accepted accounting principles.
We previously audited and reported on the consolidated balance sheet of
Chittenden Corporation and subsidiaries as of December 31, 1992, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the years ended December 31, 1992 and 1991, prior to their
restatement for the 1993 pooling of interests. The contribution of VerBanc
Financial Corp. and subsidiaries to total assets, total stockholders' equity
and net income represented 6.0%, 5.7% and 1.0% of the respective restated totals
for 1992. Separate consolidated financial statements of VerBanc Financial Corp.
and subsidiaries included in the 1992 restated consolidated balance sheet and
the 1992 and 1991 restated consolidated statements of income and cash flows were
audited and reported on separately by other auditors. We also audited the
combination of the accompanying consolidated balance sheet as of
December 31, 1992 and the consolidated statements of income, changes in
stockholders' equity and cash flows for the years ended December 31, 1992
and 1991, after restatement for the 1993 pooling of interests; in our opinion,
such consolidated statements have been properly combined on the basis described
in Note 2 of the consolidated financial statements.
KPMG Peat Marwick
Boston, Massachusetts
January 18, 1994
<PAGE>
<TABLE>
<CAPTION>
FIVE YEAR CONSOLIDATED FINANCIAL SUMMARY
Years Ended December 31,
--------------------------------------------------
1993 1992 1991 1990 1989
---------------------------------------------------
(in thousands, except share amounts)
<S> <C> <C> <C> <C> <C>
Statements of income:
Interest income $79,803 $86,984 $100,061 $106,182 $109,971
Interest expense 29,574 41,300 57,972 63,410 64,004
------------------------------------------------------
Net interest income 50,229 45,684 42,089 42,772 45,967
Provision for possible loan losses 6,600 7,513 8,843 12,189 10,830
-------------------------------------------------------
Net interest income after provision for possible
loan losses 43,629 38,171 33,246 30,583 35,137
Noninterest income 24,308 21,073 18,442 16,529 17,424
Noninterest expense 51,097 49,582 45,847 50,378 46,601
-------------------------------------------------------
Income (loss) before provision (benefit) for
income taxes 16,840 9,662 5,841 (3,266) 5,960
Provision (benefit) for income taxes 5,243 2,444 1,234 (2,219) 1,006
--------------------------------------------------------
Income (loss) before cumulative effect of change in
accounting principle 11,597 7,218 4,607 (1,047) 4,954
Cumulative effect of change in accounting principle (575) - - - -
--------------------------------------------------------
Net income (loss) 11,022 7,218 4,607 (1,047) 4,954
Preferred stock dividends - - - - 15
---------------------------------------------------------
Net income (loss) applicable to common stock $11,022 $7,218 $4,607 ($1,047) $4,939
==========================================================
Total assets at year-end $1,231,003 $1,192,068 $1,204,949 $1,136,988 $1,098,734
Long-term debt at year-end - 59 2,473 2,473 7,732
BALANCE SHEETS
- - AVERAGE DAILY BALANCES:
Total assets $1,172,809 $1,171,060 $1,115,744 $1,094,984 $1,096,016
Loans, net of allowance 852,958 844,126 828,433 847,440 851,059
Investment securities and interest-bearing
cash equivalents 220,927 227,428 191,244 147,353 148,142
Total deposits 1,030,839 1,021,827 992,017 959,297 952,431
Long-term debt 7 2,034 2,473 6,368 9,992
Total stockholders' equity 92,813 83,520 74,476 74,338 78,621
PER COMMON SHARE:
Net income (loss) $1.78 $1.17 $0.74 ($0.17) $0.79
Cash dividends declared 0.20 0.13 - 0.29 0.54
Book value 15.73 14.04 12.79 11.59 12.24
Weighted average common shares outstanding 6,206,848 6,193,944 6,186,600 6,192,416 6,258,399
SELECTED FINANCIAL PERCENTAGES:
Return on average total assets (1) 0.94% 0.62% 0.41% (0.10%) 0.45%
Return on average common stockholders' equity (1) 11.88 8.64 6.19 (1.41) 6.28
Interest rate spread 4.20 3.78 3.41 3.53 3.72
Net yield on earning assets 4.68 4.35 4.22 4.44 4.74
Net charge-offs as a percent of average loans 0.47 0.64 0.89 1.44 0.53
Nonperforming asset ratio (2) 1.84 2.79 3.75 3.42 3.70
Allowance for possible loan losses as a percent
of year-end loans 2.22 1.87 1.73 1.56 1.52
Year-end leverage capital ratio 8.13 7.30 6.86 N/A N/A
Year-end primary capital ratio N/A N/A N/A 7.36% 8.03%
RISK-BASED CAPITAL RATIO:
Tier 1 11.05 9.64 8.53 7.88 N/A
Total 12.41 10.95 10.04 9.36 N/A
Average stockholders' equity to average assets 7.91 7.13 6.68 6.79 7.17
Common stock dividend payout ratio (3) 11.28 11.44 - N/A 68.98
</TABLE>
[FN]
(1) Income used in the calculation is net income (loss) applicable to common
stock
(2) The sum of nonperforming assets (nonaccrual loans, restructured loans, and
other real estate owned) divided by the sum of total loans and other
real estate owned
(3) Common stock cash dividends declared divided by net income applicable to
common stock
Management's Discussion and Analysis of Financial Condition and Results of
Operations For the Years Ended December 31, 1993, 1992, and 1991
Overview
The following discussion and analysis of financial condition and results of
operations of Chittenden Corporation ("Chittenden" or the "Company") and its
principal subsidiary, Chittenden Trust Company (the "Bank"), should be read in
conjunction with the consolidated financial statements and notes thereto and
selected statistical information appearing in this annual report.
On April 27, 1993, Chittenden acquired VerBanc Financial Corp., the holding
company for Bellows Falls Trust. At December 31, 1992, VerBanc had
$72.6 million in assets, $67.0 million in deposits, and $5.0 million in
stockholders' equity. These amounts were not materially different at the date
of the merger. The Company issued 460,845 shares of its common stock in
exchange for all the outstanding common stock of VerBanc. The transaction is
being accounted for as a pooling-of-interests and, accordingly, all historical
financial data presented in these financial statements has been restated to
reflect this accounting method. VerBanc operated five banking offices, a
wholesale mortgage unit, and a trust unit located in southeastern Vermont in
markets contiguous to Chittenden's. The products, mix of assets and
liabilities, and nature of noninterest income and expense for VerBanc were
similar to Chittenden's. Therefore, the impact of the restatement on relevant
rends, ratios, and relationships is not material.
On September 24, 1993, the Company distributed a five-for-four stock split.
Accordingly, all share information presented in this annual report has been
restated to reflect this event.
Chittenden reported net income of $11.0 million for 1993, up $3.8 million or
53% from $7.2 million in earnings for 1992. In 1991, the Company reported net
income of $4.6 million. Total assets at December 31, 1993 were $1.2 billion,
unchanged from the $1.2 billion at year-end 1992. The return on average assets
was 0.94% for 1993, up from 0.62% in 1992 and 0.41% in 1991. The return on
average stockholders equity was 11.88% for 1993, compared with 8.64% for 1992
and 6.19% for 1991.
Although there was little change in total assets during 1993, earnings improved
due to several factors. Net interest income increased $4.5 million as interest
earned on assets declined less than interest paid on deposits. The provision
for possible loan losses was $6.6 million for 1993, down $913,000 from 1992.
Revenues from noninterest sources improved by $3.2 million to $24.3 million,
led by a $1.3 million increase in revenue related to credit card activities.
Noninterest expense increased by $1.5 million, to $51.1 million, in 1993. The
increase was mitigated by a reduction of $1.2 million in other real estate
owned expenses. The remaining noninterest expenses were up 5.8% over 1992,
with expenses directly related to the generation of credit card revenues
leading the increases. Also impacting this increase were one-time expenses
related to the acquisition. The 1993 income tax provision of $5.2 million
exceeded the 1992 provision by $2.8 million. The cumulative effect of a change
in accounting principle adopted effective January 1, 1993 amounted to a
$575,000 additional charge against earnings not included in the tax provision
discussed above.
The overall improvement from 1991 to 1992 resulted from improvement in several
elements of earnings: net interest income improved as spreads widened; the
provision for possible loan losses was $1.3 million lower than in 1991; and
noninterest income improved by $2.6 million resulting from higher levels of
activity, particularly related to residential mortgage financing. Noninterest
expenses were up by $3.7 million, almost half of this increase resulting from
higher other real estate owned expenses primarily due to property write-downs.
FINANCIAL CONDITION
LOANS
Chittenden's loan portfolio decreased by 3% during 1993, to end the year at
$850.6 million. The proportion of commercial-related loans continues to
increase relative to consumer types. This gradual change in mix is being
accomplished through continued focus on commercial lending simultaneous with
secondary market sales of originated residential mortgage loans. This
approach is consistent with the Company's strategic plan.
The classification of the Company's loan portfolio is based on underlying
collateral. At December 31, 1993, commercial loans secured by non-real estate
business assets totaled $107.7 million, down $10.8 million from the $118.5
million posted at year-end 1992. The decrease in this category reflects
several factors including the generally flat economy, customers' reducing
their overall debt positions, and some customers' taking advantage of the
favorable stock market to issue equity to retire debt. Further, Chittenden's
strategic decision to focus more aggressively on the small business market has
resulted in a higher proportion of commercial loans advanced for business
purposes being secured by equity in real estate collateral. These loans are
classified on the consolidated financial statements as residential or
commercial real estate loans, depending on the collateral type.
Commercial real estate loans stood at $205.9 million at year-end 1993, up 8%
from December 1992. About $84.4 million of the loans in this category are for
owner-occupied properties. These loans are underwritten with primary emphasis
on the cash flow of the business and secondary emphasis on the collateral
value. The increase in this category reflects increased loan demand in the
Company's marketplace and the focus noted previously, especially by the
Company's branch bankers, on developing small business relationships.
Construction loans amounted to $13.7 million at December 31, 1993, down from
$18.0 million the year before. Financing for custom-built residential
construction accounts for 45% of this total; the remainder is for various t
ypes of commercial construction.
Residential real estate loans stood at $328.2 million at year-end 1993, down
from $347.3 million on December 31, 1992. This decrease reflects the impact
of continued strong refinancing activity in 1993. Mortgages totaling $373.1
million were originated during 1993, and $341.7 million was sold in the
secondary market. This compares with $365.7 million in originations and $297.2
million in sales during 1992. The Company underwrites substantially all of its
residential mortgages to secondary market standards. During 1993, the Company
continued to follow its policy of selling substantially all of its residential
mortgage production.
The portfolio of residential mortgages serviced for investors continued to
grow, totaling $635.0 million at December 31,1993, up 20% from the $527.0
million a year ago. All of the loans serviced were originated by the Company.
These assets are owned by investors other than Chittenden and therefore are not
included in the consolidated balance sheets of the Company.
The home equity portfolio totaled $69.8 million at December 31, 1993, down from
$76.9 million the previous year. The decline was attributed primarily to
customers consolidating their borrowings when they refinanced mortgages.
Consumer loans increased for the second consecutive year, reaching $125.2
million at year-end 1993, up from $124.2 million at December 31, 1992. The
increase reflects higher levels of all types of consumer credit including
indirect installment lending through auto dealers, direct installment,
credit card, and student loans.
Congressionally-mandated changes regarding the government-guaranteed student
loan program may result in changes in the way the Company meets educational
credit demands in the future. Management does not expect this to have a
material impact on the Company's results because of the relatively small size
of this element of the portfolio. Student loans outstanding at
December 31, 1993 totaled $18.3 million.
The Company's lending activities are conducted in a market area focused in
Vermont with limited activity related to contiguous trading areas in Quebec,
New York, New Hampshire, and Massachusetts. In addition to the portfolio
diversification described above, the loans are widely diversified by borrowers
and industry groups.
The following table shows the composition of the loan portfolio for the five
years ended December 31, 1993:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
1993 1992 1991 1990 1989
----------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Commercial $107,722 $118,532 $94,336 $99,021 $113,925
Real estate:
Residentia 328,165 347,264 340,069 333,213 347,915
Commercial 205,851 190,907 160,824 154,335 140,418
Construction 13,747 18,008 32,471 39,384 66,256
Home equity 69,849 76,934 81,891 78,675 57,966
Consumer 125,226 124,175 121,029 132,146 141,583
-------------------------------------------------------
Total gross loans 850,560 875,820 830,620 836,774 868,063
Allowance for possible
loan losses (18,917) (16,372) (14,373) (13,030) (13,201)
--------------------------------------------------------
Net loans $831,643 $859,448 $816,247 $823,744 $854,862
========================================================
Mortgage Loans
Held for Sale $11,646 $7,971 $10,967 $8,254 $1,896
</TABLE>
NONPERFORMING ASSETS
Loans on which the accrual of interest has been discontinued are designated
as nonaccrual loans. Management classifies loans, except consumer and
residential loans, as nonaccrual loans when they become 90 days past due as to
principal or interest, unless they are adequately secured and are in the
process of collection. In addition, loans which have not met this delinquency
test may be placed on nonaccrual at management's discretion. Consumer and
residential loans are included when management considers it to be appropriate.
Generally, a loan remains on nonaccrual status until the factors which
indicated doubtful collectibility no longer exist or the loan is determined
to be uncollectible and is charged off against the allowance for possible loan
losses.
A loan is classified as a restructured loan when the interest rate is reduced
and/or other terms are modified because of the inability of the borrower to
service debt at current market rates and terms.
The following table shows the composition of nonperforming assets and loans
past due 90 days or more and still accruing for the five years ended
December 31, 1993:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
1993 1992 1991 1990 1989
----------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Loans on nonaccrual $12,006 $16,478 $19,740 $22,504 $31,242
Loans not included above which
are troubled debt restructurings 367 53 353 29 165
Other real estate owned 3,369 8,107 11,447 6,338 782
----------------------------------------------
Total nonperforming assets $15,742 $24,638 $31,540 $28,871 $32,189
==============================================
Loans past due 90 days or more
and still accruing $1,453 $2,340 $4,146 $4,222 $4,715
Percentage of nonperforming assets to
total loans and other real
estate owned 1.84% 2.79% 3.75% 3.42% 3.70%
Nonperforming assets to total assets 1.28 2.07 2.62 2.54 2.93
Allowance for possible loan losses to
nonperforming loans 152.89 99.04 71.53 57.83 42.03
</TABLE>
Total nonperforming assets stood at $15.7 million, or 1.28% of total assets,
at year-end 1993, down $8.9 million from the $24.6 million, or 2.07% of total
assets at the previous year-end. Nonaccrual loans stood at $12.0 million at
December 31, 1993, down from $16.5 million the year before. These reductions
continue the strong trend of improving asset quality. The nonaccrual loans
consist of more than 220 loans, the largest of which amounted to $1.8 million
at year-end 1993. These loans were diversified across a range of industries,
sectors, and geography. At year-end 1993, 48% were current as to principal
and interest, compared with 61% a year ago.
Other real estate owned ("OREO") includes in-substance foreclosures and real
estate formally acquired through foreclosures. OREO totaled $3.4 million at
year-end 1993; $1.9 million of this amount were in-substance foreclosure. This
compares with $8.1 million and $2.2 million, respectively, for 1992. During
1993, $2.2 million was added to the OREO balance. The balance was reduced by
$6.9 million, of which $1.4 million represented write-downs in the carrying
values of properties and $5.5 million represented proceeds from sales.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114, Accounting by Creditors for Impairment
of a Loan. The Company is required to adopt the new standard by
January 1, 1995. Because of the complexities of the new standard and the
changing nature of the impaired loan portfolio, management has not yet
determined the effect that this change in accounting will have on the Company's
financial statements.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The following table summarizes the activity in the Company's allowance for
possible loan losses for the five years ended December 31, 1993:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
1993 1992 1991 1990 1989
-----------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance of allowance for possible loan losses
at beginning of year $16,372 $14,373 $13,030 $13,201 $6,964
Provision charged to expense 6,600 7,513 8,843 12,189 10,830
-----------------------------------------------------
Balance of allowance for possible loan losses
after provision 22,972 21,886 21,873 25,390 17,794
-----------------------------------------------------
Loans charged off:
Commercial 2,001 1,725 788 962 1,798
Real estate:
Residential 927 738 432 669 78
Commercial 759 1,968 2,338 1,438 378
Construction - 87 2,848 8,034 1,927
Home equity 209 272 115 60 -
Consumer 1,276 1,461 1,963 2,020 1,657
------------------------------------------------------
Total loans charged off 5,172 6,251 8,484 13,183 5,838
---------------------------------------------------------
Recoveries of loans previously charged off:
Commercial 232 327 435 260 752
Real estate:
Residential 201 74 111 11 7
Commercial 216 11 4 46 27
Consumer 468 325 434 506 459
-------------------------------------------------------
Total recoveries 1,117 737 984 823 1,245
-------------------------------------------------------
Net loans charged off 4,055 5,514 7,500 12,360 4,593
--------------------------------------------------------
Balance of allowance for possible loan
losses at end of year $18,917 $16,372 $14,373 $13,030 $13,201
========================================================
Amount of loans outstanding at end of year $850,560 $875,820 $830,620 $836,774 $868,063
Average amount of loans outstanding 870,603 859,654 842,583 857,247 859,842
Ratio of net charge-offs during year to average loans
outstanding 0.47% 0.64% 0.89% 1.44% 0.53%
Allowance as a percent of loans outstanding
at end of year 2.22 1.87 1.73 1.56 1.52
At December 31, 1993, the allowance for possible loan losses was $18.9
million, or 2.22% of total loans. This represents an increase of $2.5 million
from the $16.4 million or 1.87% of loans, posted one year ago. The coverage
ratio, or allowance for possible loan losses to nonperforming loans, also has
improved from 99% at year-end 1992 to 153% at the end of 1993.
The provision for possible loan losses totaled $6.6 million in 1993, down from
$7.5 million in 1992, and $8.8 million in 1991. The provision was reduced due
to, among other things, the reduction in the level of losses experienced in the
loan portfolio and the decline in nonperforming loans.
The allowance for possible loan losses is based on management's estimate of the
amount required to reflect the risks in the loan portfolio, based on
circumstances and conditions known or anticipated at each reporting date. In
addition to evaluating the collectability of specific loans, when determining
the adequacy of the allowance for possible loan losses, management also takes
into consideration other factors such as changes in the mix and volume of the
loan portfolio, historic loss experience, the amount of delinquencies and loans
adversely classified, and economic trends. The adequacy of the allowance for
possible loan losses is accessed by an allocation process whereby specific
loss allocations are made against adversely classified loans, and general loss
allocations are made against segments of the loan portfolio which have similar
attributes. As previously mentioned, the Company increased the proportion of
commercial lending during 1993 as part of its overall corporate strategy. This
portfolio shift and the continued uncertainties concerning the pace of
improvement in the local and regional economy also were considered by management
in determining the adequacy of the allowance for possible loan losses.
The following table summarizes the allocation of the allowance for possible
loan losses for the five years ended December 31, 1993:
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1993 1992
----------------------------------------------
Amount Loan Amount Loan
Allocated Distribution Allocated Distribution
-----------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Commercial $2,146 13% $2,588 13%
Real estate:
Residential 785 38 999 40
Commercial 5,681 24 5,053 22
Construction 419 2 620 2
Home equity 349 8 377 9
Consumer 2,126 15 1,886 14
Other 7,411 - 4,849 -
-----------------------------------------------
$18,917 100% $16,372 100%
================================================
</TABLE>
<TABLE>
December 31,
------------------------------------------------------------------------
1991 1990 1989
------------------------------------------------------------------------
Amount Loan Amount Loan Amount Loan
Allocated Distribution Allocated Distribution Allocated Distribution
--------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial $3,469 11% $2,431 12% $3,081 13%
Real estate:
Residential 587 41 783 40 754 40
Commercial 4,035 19 3,224 18 2,363 16
Construction 3,007 4 4,529 5 5,520 8
Home equity 200 10 193 9 57 7
Consumer 1,928 15 1,764 16 1,414 16
Other 1,147 - 106 - 12 -
--------------------------------------------------------------------------
$14,373 100% $13,030 100% $13,201 100%
</TABLE>
Notwithstanding the foregoing analytical allocations, the entire allowance for
possible loan losses is available to absorb charge-offs in any category of
loans. (See "Provision for Possible Loan Losses")
INVESTMENT SECURITIES
The investment portfolio is used to meet liquidity demands, mitigate
interest rate sensitivity, and generate interest income. As the deposit growth
of the past three years has exceeded on-balance sheet loan demand, the
investment portfolio has increased. However, accelerating loan growth could
create liquidity demands which could be met by the sale of investments.
Additionally, the Company is required to adopt Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities, on January 1, 1994. Considering these factors, virtually all of
the investment portfolio was classified as "held for sale" at December 31,
1993. The remainder of the portfolio was classified as "held for investment."
At December 31, 1993, the total of these categories was $153.0 million, up from
$148.5 million posted the previous year. This entire portfolio was classified
as "held for investment" at December 31, 1992.
The mix of securities held changed during 1993, with continued increased
emphasis on Treasury securities and less focus on mortgage-backed securities
and adjustable rate preferred stock. During 1993, the Company sold its
remaining position in preferred stock. Obligations of U. S. government
agencies, municipalities, and corporations continued to represent significant,
balanced portions of the portfolio.
The following table details the book value of the Company's investment
securities at December 31, 1993, 1992, and 1991:
<TABLE>
<CAPTION>
December 31,
----------------------------
1993 1992 1991
----------------------------
(in thousands)
<S> <C> <C> <C>
U.S. Treasury securities $54,310 $27,338 $9,905
U.S. government agency obligations 20,211 19,059 17,017
Obligations of states and political
subdivisions 25,368 23,691 16,858
Mortgage-backed securities 23,996 50,127 66,663
Corporate bonds and notes 28,885 24,109 16,582
Marketable equity securities 244 4,581 13,488
Other securities - 285 274
Valuation allowance on marketable
equity securities (21) (733) (2,059)
----------------------------
$152,993 $148,457 $138,728
============================
</TABLE>
The following table shows the maturity distribution of the book value of the
Company's investment securities and weighted average yields of such securities
on a fully taxable equivalent basis, at December 31, 1993, with a comparative
total for 1992:
<TABLE>
<CAPTION>
After One After Five
Within But Within But Within After No Fixed
One Year Five Years Ten Years Ten Years Maturity Total
------------------------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $10,016 4.68% $40,245 5.53% $4,049 5.59% $ - -% $ - -% $54,310 5.38%
U.S. government agency
obligations - - 14,760 5.04 5,451 7.18 - - - - 20,211 5.62
Obligations of states and
political subdivisions 23,117 5.05 1,070 8.42 592 9.89 589 10.19 - - 25,368 5.43
Mortgage-backed securities (1) 5,980 7.04 14,268 7.23 2,844 7.36 904 7.41 - - 23,996 7.20
Corporate bonds and notes 3,959 5.20 22,097 5.29 2,829 4.51 - - - - 28,885 5.20
Marketable equity securities - - - - - - - - 223 2.77 223 2.77
------ ------ ------ ------ ------ -------
$43,072 5.26% $92,440 5.69% $15,765 6.43% $1,493 8.51% $ 223 2.77% $152,993 5.67%
====== ====== ====== ====== ====== =======
Comparative amounts at
December 31, 1992 $50,057 6.04% $67,364 6.25% $26,243 7.83% $ 660 10.19% $4,133 8.74% $148,457 6.54%
</TABLE>
[FN]
(1) Maturities of mortgage-backed securities are based on mortgage loan
prepayment assumptions
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities. The Company will adopt this statement on
January 1, 1994. Upon adoption, the Company will record a net estimated
increase in stockholders' equity of $965,000 to reflect the unrealized gain,
net of estimated tax effect, in the portfolio of securities available for
sale. Future changes in net unrealized gains or losses will be applied to this
valuation account.
DEPOSITS
During 1993, total deposits averaged $1,030.8 million, up from the $1,021.8
million in 1992. Noninterest-bearing demand deposits averaged $141.7 million,
up $10.4 million from $131.3 million in 1992. Possibly reflecting
disintermediation from insured but lower-yielding bank deposits into
higher-yielding uninsured nonbank investments, savings and time deposits under
$100,000 decreased $12.5 million, or 1.5%, to $821.9 million for 1993.
Deposit products in this group which saw growth were interest bearing
transaction accounts (money market accounts and N.O.W. accounts) and regular
savings accounts, while time accounts (retirement and certificates of deposit)
declined. This shift in product mix reflects customers' preference to hold
investments without specific maturities in a time of low, but possibly rising,
interest rates. The Company has a number of institutional customers whose
investment needs frequently are met by offering certificates of deposit over
$100,000. During 1993, the average balance in this category increased to $67.2
million, from $56.1 million for 1992. Depositors in this category tend to seek
bids regularly, and the Company raises or lowers the interest rates it offers
depending on its liquidity needs and on its investment opportunities.
The following table shows average daily balances of the Company's deposits for
the periods indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1993 1992 1991
------------------------------
(in thousands)
<S> <C> <C> <C>
Demand deposits $141,740 $131,282 $123,813
Savings and time deposits under $100,000 821,852 834,431 792,612
Certificates of deposit $100,000 and over 67,247 56,114 75,592
---------------------------------
$1,030,839 $1,021,827 $992,017
=================================
</TABLE>
The Company's outstanding certificates of deposit and other time deposits in
denominations of $100,000 and over at December 31, 1993 and 1992 had maturities
as follows:
<TABLE>
December 31,
------------------
1993 1992
--------------------
(in thousands)
<S> <C> <C>
Three months or less $71,118 $72,459
Over three months to six months 11,673 8,587
Over six months to twelve months 6,011 12,473
Over twelve months 5,117 3,524
-------------------
$93,919 $97,043
===================
</TABLE>
SHORT-TERM BORROWINGS
During 1993, short-term borrowings averaged $36.9 million, down $12.2 million
from the $49.1 million posted in 1992. This funding consists of borrowings
from the U.S. Treasury, securities sold under agreements to repurchase, and
Federal funds purchased. Treasury borrowings averaged $25.8 million for 1993
compared with $22.4 million during 1992. Treasury funding is attractive to the
Company because the rate of interest paid on borrowings floats at 25 basis
points below the Federal funds rate, there are no reserve requirements, and
there are no FDIC insurance costs. Repurchase agreements averaged $11.0
million for 1993, down from the $25.2 million posted during 1992. These
borrowings have neither reserve requirements nor FDIC insurance costs.
U.S. Treasury and agency securities, mortgage-backed securities, and
residential mortgage loans are pledged as collateral for the Treasury
borrowings and repurchase agreements. Federal funds purchased averaged
$167,000 for 1993 compared with $1.4 million for 1992.
CAPITAL RESOURCES
The Company's capital forms the foundation for maintaining investor confidence
as well as for developing programs for growth and new activities. The Company
continued to maintain and build on its capital position during 1993. At
December 31, 1993, capital stood at $97.7 million, up from $87.0 million at
December 31, 1992. Earnings of $11.0 million and a $712,000 improvement in the
valuation allowance on marketable equity securities combined to increase the
capital position during 1993. Common stock and treasury stock issued in
connection with benefits plans added $201,000 to capital. Dividend payments
for the year totaled $1.2 million. The capital position had increased during
1992 due to earnings of $7.2 million, a $1.3 million improvement in the
valuation allowance on marketable equity securities, and $142,000 from stock
issued. Dividends of $826,000 were paid during 1992.
Both the Board of Governors of the Federal Reserve System (the "FRB") and the
Federal Deposit Insurance Corporation (the "FDIC") have defined leverage
capital requirements. At December 31, 1993, the Company's leverage capital
ratio (which is calculated pursuant to the FRB's regulations) was 8.13%, and
the Bank's leverage capital ratio (which is calculated pursuant to the FDIC's
regulations) was 7.95%. The ratios in 1992 were 7.30% and 7.06%,
respectively.
Additionally, the FRB and the FDIC have a risk-based capital standard. Under
this measure of capital, banks are required to hold more capital against
certain assets, such as commercial loans, than against other assets, such as
residential mortgage loans and U.S. Treasury securities. Further, off-balance
sheet items such as unfunded loan commitments and standby letters of credit,
are included for the purposes of determining risk-weighted assets. Commercial
banking organizations are required to have total capital equal to 8% of
risk-weighted assets, and Tier 1 capital -- consisting of common stock and
certain types of preferred stock -- equal to at least 4% of risk-weighted
assets. Tier 2 capital, included in total capital, includes the allowance for
possible loan losses up to a maximum of 1.25% of risk-weighted assets. At
December 31, 1993, the Company's risk-based capital ratio was 12.41% and its
Tier 1 capital, consisting entirely of common stock, was 11.05%.
On December 19, 1992, new FDIC regulations pertaining to capital adequacy
became effective. These regulations, which apply to the Bank, require a
minimum 3% leverage capital ratio for those institutions with the most
favorable composite regulatory examination rating. In addition, a 4% Tier 1
risk-based capital ratio, and an 8% total risk-based capital ratio are required
for a bank to be considered adequately capitalized. Leverage, Tier 1
risk-based, and total risk-based capital ratios exceeding 5%, 6%, and 10%,
respectively, qualify a bank for the "well-capitalized" designation. At
December 31, 1993, the Bank's leverage capital ratio was 7.95%, its Tier 1
risk-based capital ratio was 10.81%, and its total risk-based capital ratio
was 12.17%, placing the Bank in the highest capital category. Capital ratios
in excess of minimum requirements indicate capacity to take advantage of
profitable and credit-worthy opportunities as they occur in the future.
The following table presents capital components and ratios of the Company
at December 31, 1993, 1992, and 1991:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1993 1992 1991
---------------------------------------
(in thousands)
<S> <C> <C> <C>
LEVERAGE
Stockholders' equity $ 97,711 $ 87,019 $ 79,159
Total average assets (1) 1,202,575 1,192,092 1,153,984
Leverage capital ratio 8.13% 7.30% 6.86%
RISK-BASED:
Capital components:
Tier 1 $ 97,711 $ 87,019 $ 79,159
Tier 211,049 11,277 13,906
-----------------------------------------
Total $ 108,760 $ 98,296 $ 93,065
=========================================
Risk-weighted assets:
On-balance sheet $ 819,735 $ 844,179 $ 862,099
Off-balance sheet 64,180 58,593 65,530
-----------------------------------------
$ 883,915 $ 902,772 $ 927,629
=========================================
Ratios:
Tier 1 11.05% 9.64% 8.53%
Total (including Tier 2) 12.41 10.95 10.04
</TABLE>
[FN]
(1) Average assets are for the most-recent quarter
LIQUIDITY AND RATE SENSITIVITY
The Company's liquidity and rate sensitivity are monitored by the Bank's asset
and liability committee. This committee meets weekly to review and direct the
Bank's lending and investment activities, as well as its deposit-gathering
functions.
The measure of an institution's liquidity is its ability to meet its cash
commitments at all times with available cash or by conversion of other assets t
to cash at a reasonable price. At December 31, 1993, the Company maintained
cash and cash equivalents of $195.1 million, compared with $129.3 million at
the end of 1992. During 1993, the Company continued to be an average daily
net seller of Federal funds.
Interest rate sensitivity is managed by the Bank's asset and liability committee
whose goals include achieving adequate and stable interest income. One of the
tools used to measure rate sensitivity is the funds gap. The funds gap is
defined as the amount by which a bank's rate sensitive assets exceed its rate
sensitive liabilities. A positive gap exists when rate sensitive assets exceed
rate sensitive liabilities. This indicates that a greater volume of assets
than liabilities will reprice during a given period. This mismatch will
improve earnings in a rising rate environment and inhibit earnings when rates
decline. Conversely, when rate sensitive liabilities exceed rate sensitive
assets, the gap is referred to as negative and indicates that a greater volume
of liabilities than assets will reprice during the period. In this case, a
rising rate environment will inhibit earnings and declining rates will improve
earnings.
Notwithstanding this general description of the effect on income of the gap
position, it may not be an accurate predictor of changes in net income. Due to
the continued decline in interest rates in 1993, the Company continued to
reduce gradually the rates on deposit accounts. These actions significantly
mitigated the effects of its positive gap position.
The following table shows the amounts of interest-earning assets and interest-
bearing liabilities at December 31, 1993 which reprice during the periods
indicated:
<TABLE>
<CAPTION>
Repricing Date
--------------------------------------------------------------
Over
One Day Over Six One Year Over
To Six Months To To Five Five
Months One Year Years Years Total
----------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans:
Commercial $83,868 $3,366 $12,072 $8,416 $107,722
Real estate:
Commercial and construction 176,175 5,557 23,191 14,675 219,598
Residential 131,110 92,879 48,987 55,189 328,165
Home equity 69,849 - - - 69,849
Consumer 83,900 10,805 30,056 465 125,226
--------------------------------------------------------------
Total loans 544,902 112,607 114,306 78,745 850,560
Investment securities 28,820 20,263 94,710 9,200 152,993
Interest-bearing cash equivalent 89,592 - - - 89,592
---------------------------------------------------------------
Total interest-earning assets 663,314 132,870 209,016 87,945 1,093,145
Interest-bearing liabilities:
Certificates of deposit
$100,000 and over 51,512 6,011 5,117 - 62,640
Other time deposits (1) 367,800 71,073 79,876 - 518,749
Short-term borrowings 79,078 - - - 79,078
---------------------------------------------------------------
Total interest-bearing liabilities 498,390 77,084 84,993 - 660,467
---------------------------------------------------------------
Net interest rate sensitivity gap $164,924 $55,786 $124,023 $87,945 $432,678
================================================================
Cumulative gap at December 31, 1993 $164,924 $220,710 $344,733 $432,678
Cumulative gap at December 31, 1992 164,963 195,647 324,609 424,359
</TABLE>
[FN]
(1) Regular savings deposits and N.O.W. accounts of $294.1 million at
December 31, 1993, and $283. 8 million at December 31, 1992, are not
included because repricing of these liabilities is not required nor defined
The following table shows schelduled maturites of selected loans at
December 31, 1993:
<TABLE>
<CAPTION>
Less One Year Over
Than One To Five Five
Year Years Years Total
---------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Predetermined rates:
Commercial $5,947 $12,022 $8,414 $26,383
Commercial real estate and construction 10,749 23,068 10,705 44,522
---------------------------------------------
16,696 35,090 19,119 70,905
=============================================
Floating or adjustable rates:
Commercial 23,155 40,311 17,873 81,339
Commercial real estate and construction 52,835 84,298 37,943 175,076
---------------------------------------------
$75,990 $124,609 $55,816 $256,415
============================================
</TABLE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
For 1993, net interest income was $50.2 million, up $4.5 million from the 1992
level. On a fully taxable equivalent basis, net interest income increased $4.0
million from 1992 to 1993. These increases were caused by lower deposit rates,
lower levels of interest-bearing liabilities, and higher levels of interest-
earning assets, which more than offset the lower yields on loans and
investments. In 1992, net interest income increased $3.6 million over the 1991
level. Fully taxable equivalent net interest income also increased $3.5
million from 1991 to 1992. Lower interest rates on loans and investments were
substantially offset by declining deposit rates. However, the effect of higher
volumes of earning assets significantly exceeded the cost attributed to higher
interest-bearing liabilities.
The taxable equivalent net yield on earning assets for 1993 was 4.68%, up 33
basis points from 4.35% for 1992. The decline of 120 basis points in the cost
of interest-bearing liabilities, mitigated by the compression caused by an
increase in the portions of funding provided by non-interest bearing sources,
more than offset the decline of 78 basis points in the yield on earning
assets. The 1992 net yield was up 13 basis points from the 4.22% reported
for 1991. Sharply declining interest rates, with little change in the
proportion of interest-bearing funding, caused the improvement.
The following table presents an analysis of average rates and yields on a
fully taxable equivalent basis for the years indicated:
<TABLE>
<CAPTION>
1993
--------------------------------
Interest Average
Average Income Yield
Balance Expense (1) Rate
---------------------------------
(in thousands)
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans $859,195 $69,310 8.07%
Industrial revenue bonds (3) 11,408 956 8.38
Investments:
Taxable 170,975 8,015 4.69
Tax-favored debt securities 35,872 1,837 5.12
Tax-favored equity securities 4,952 304 6.14
Interest-bearing deposits in banks 2,319 74 3.19
Federal funds sold 6,809 193 2.83
------- -------
Total interest-earning assets 1,091,530 80,689 7.39
Noninterest-earning assets 98,924 -------
Allowance for possible loan losses (17,645)
----------
Total assets $1,172,809
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Savings and interest-bearing
transactional accounts $495,595 12,207 2.46
Certificates of deposit
$100,000 and over 67,247 2,452 3.65
Other time deposits 326,257 13,211 4.05
--------- -------
Total interest-bearing deposits 889,099 27,870 3.13
Short-term borrowings 36,879 1,704 4.62
Long-term debt 7 - 8.00
---------
Total interest-bearing liabilities 925,985 29,574 3.19
---------
Noninterest-bearing liabilities:
Demand deposits 141,740
Other liabilities 12,271
---------
Total liabilities 1,079,996
Stockholders' equity 92,813
----------
Total liabilities and
stockholders' equity $1,172,809
==========
Net interest income $51,115
=======
Interest rate spread 4.20%
Net yield on earning assets 4.68
</TABLE>
<TABLE>
<CAPTION>
1992
--------------------------------
Interest Average
Average Income/ Yield/
Balance Expense (1) Rate (1)
---------------------------------
(in thousands)
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans $846,697 $74,260 8.77%
Industrial revenue bonds (3) 12,957 1,153 8.90
Investments:
Taxable 151,974 8,695 5.72
Tax-favored debt securities 28,195 2,052 7.28
Tax-favored equity securities 29,592 1,675 5.66
Interest-bearing deposits in banks 8,938 356 3.98
Federal funds sold 3,729 181 4.85
---------- -------
Total interest-earning assets 1,082,082 88,372 8.17
-------
Noninterest-earning assets 104,506
Allowance for possible loan losses (15,528)
-----------
Total assets $1,171,060
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Savings and interest-bearing
transactional accounts $464,900 16,209 3.49
Certificates of deposit
$100,000 and over 56,114 2,708 4.83
Other time deposits 369,531 19,994 5.41
--------- --------
Total interest-bearing deposits 890,545 38,911 4.37
Short-term borrowings 49,056 2,167 4.42
Long-term debt 2,034 222 10.91
--------- --------
Total interest-bearing liabilities 941,635 41,300 4.39
---------
Noninterest-bearing liabilities:
Demand deposits 131,282
Other liabilities 14,623
----------
Total liabilities 1,087,540
Stockholders' equity 83,520
----------
Total liabilities and
stockholders' equity $1,171,060
=========
Net interest income $47,072
======
Interest rate spread 3.78%
Net yield on earning assets 4.35
</TABLE>
<TABLE>
<CAPTION>
1991
-------------------------------
Interest Average Average
Average Income/ Yield/
Balance Expense (1) Rate (1)
--------------------------------
(in thousands)
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans (2) $828,953 $85,243 10.28%
Industrial revenue bonds (3) 13,630 1,597 11.72
Investments:
Taxable 109,601 8,523 7.78
Tax-favored debt securities 24,953 2,293 9.19
Tax-favored equity securities 12,658 1,489 11.76
Interest-bearing deposits in banks 26,366 1,424 5.40
Federal funds sold 17,666 1,019 5.77
------- -------
Total interest-earning assets 1,033,827 101,588 9.83
-------
Noninterest-earning assets 96,067
Allowance for possible loan losses (14,150)
-----------
Total assets $1,115,744
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Savings and interest-bearing
transactional accounts $323,746 17,122 5.29
Certificates of deposit
$100,000 and over 75,592 5,336 7.06
Other time deposits 468,866 33,397 7.12
--------- ---------
Total interest-bearing deposits 868,204 55,855 6.43
Short-term borrowings 32,012 1,847 5.77
Long-term debt 2,473 270 10.91
-------- --------
Total interest-bearing liabilities 902,689 57,972 6.42
--------
Noninterest-bearing liabilities:
Demand deposits 123,813
Other liabilities 14,766
----------
Total liabilities 1,041,268
Stockholders' equity 74,476
---------
Total liabilities and
stockholders' equity $1,115,744
=========
Net interest income $43,616
======
Interest rate spread (4) 3.41%
Net yield on earning assets (5) 4.22
</TABLE>
[FN]
(1) On a fully taxable equivalent basis. Calculated using a Federal income
tax rate of 35% for 1993 and 34% for 1992 and 1991
(2) Includes nonperforming loans
(3) Industrial revenue bonds are included in loans in the consolidated
financial statements
(4) Interest rate spread is the average rate earned on total interest-earning
assets less the average rate paid on interest-bearing liabilities
(5) Net yield on earning assets is net interest income divided by total
interest-earning assets
The following table attributes changes in the Company's net interest income
(on a fully taxable equivalent basis) to changes in either average daily
balances or average rates. Changes due to both interest rate and volume have
been allocated to change due to volume and change due to rate in proportion
to the relationship of the absolute dollar amounts of the change in each.
<TABLE>
<CAPTION>
1993 compared with 1992
-------------------------------------
Increase (Decrease)
Due to Change in: Total
Average Average Increase
Rate Balance (Decrease)
--------------------------------------
(in thousands)
<S> <C> <C> <C>
Interest income:
Loans, including fees ($6,032) $1,082 ($4,950)
Industrial revenue bonds (65) (132) (197)
Investments:
Taxable (1,687) 1,007 (680)
Tax-favored debt securities (694) 479 (215)
Tax-favored equity securities 131 (1,502) (1,371)
Interest-bearing deposits in banks (60) (222) (282)
Federal funds sold (96) 108 12
---------------------------------------
Total interest income (8,503) 820 (7,683)
Interest expense:
Savings and interest-bearing
transactional accounts (5,015) 1,013 (4,002)
Certificates of deposit $100,000
and over (734) 478 (256)
Other time deposits (4,629) (2,154) (6,783)
---------------------------------------
Total deposits (10,378) (663) (11,041)
Short-term borrowings 96 (559) (463)
Long-term debt (111) (111) (222)
---------------------------------------
Total interest expense (10,393) (1,333) (11,726)
---------------------------------------
Change in net interest income $1,890 $2,153 $4,043
========================================
</TABLE>
<TABLE>
<CAPTION>
1992 compared with 1991
-------------------------------
Increase (Decrease)
Due to Change in: Total
Average Average Increase
Rate Balance (Decrease)
---------------------------------
(in thousands)
<S> <C> <C> <C>
Interest income:
Loans, including fees ($12,774) $1,791 ($10,983)
Industrial revenue bonds (368) (76) (444)
Investments:
Taxable (2,606) 2,778 172
Tax-favored debt securities (515) 274 (241)
Tax-favored equity securities (1,061) 1,247 186
Interest-bearing deposits in banks (304) (764) (1,068)
Federal funds sold (140) (698) (838)
---------------------------------
Total interest income (17,768) 4,552 (13,216)
Interest expense:
Savings and interest-bearing
transactional accounts (6,950) 6,037 (913)
Certificates of deposit $100,000
and over (1,448) (1,180) (2,628)
Other time deposits (7,124) (6,279) (13,403)
----------------------------------
Total deposits (15,522) (1,422) (16,944)
Short-term borrowings (503) 823 320
Long-term debt - (48) (48)
----------------------------------
Total interest expense (16,025) (647) (16,672)
----------------------------------
Change in net interest income ($1,743) $5,199 $3,456
==================================
</TABLE>
PROVISION FOR POSSIBLE LOAN LOSSES
The Company provides for possible loan losses using the allowance method.
The allowance for possible loan losses is increased by provisions charged
against current earnings. Loan losses are charged against the allowance when
management believes that the collectibility of the loan principal is unlikely.
Recoveries on loans previously charged off are credited to the allowance.
The allowance is the amount management believes is necessary to absorb possible
loan losses based on evaluations of collectibility and prior loan loss
experience, changes in the nature and volume of the loan portfolio, overall
portfolio quality, specific problem loans, and current and anticipated economic
conditions that may affect the borrowers' ability to pay.
Management believes that the allowance for possible loan losses is adequate.
While management uses available information to assess possible losses on loans,
future additions to the allowance may be necessary. In addition, various
regulatory agencies periodically review the Company's allowance for possible
loan losses as an integral part of their examination process. Such agencies
may require the Company to recognize additions to the allowance based on
judgements different from those of management.
The provision for possible loan losses totaled $6.6 million in 1993, $7.5
million in 1992, and $8.8 million in 1991.
(See "Allowance for Possible Loan Losses")
NONINTEREST INCOME AND NONINTEREST EXPENSE
Noninterest income was $24.3 million in 1993, up from $21.1 million reported
for 1992. Trust department income, at $4.0 million, declined slightly from the
1992 level. Trust was largely successful during 1993 in rebuilding approximately
9% of its revenue base which had been diminished due in large part to the
successful disposition of a large bankruptcy trust during 1992. Service charges
on deposit accounts rose on a year to year basis; in 1993, $4.2 million of
income was recorded compared with $3.9 million in 1992. The improvement
reflects higher levels of activity in deposit accounts, a larger proportion of
accounts for which fee-based services were provided, and the effect of lower
interest rates generating lower levels of credit on deposit balances used to
offset service charges. The Company sold $20.3 million in securities during
1993, reporting a net gain of $130,000. During 1992, a net loss of $235,000
was reported, including a $100,000 reduction in the carrying value of certain
marketable equity securities.
The Company's mortgage banking activities continued to grow in 1993. The
VerBanc acquisition included a wholesale mortgage division which originates
residential mortgage loans through downstream correspondents, brokers, and
agents. Through this unit, the Company is enhancing its penetration of the
overall residential mortgage market. As has been the case for Chittenden, the
VerBanc unit has retained servicing on the mortgages it has sold. Total
servicing revenue was $1.0 million in 1993, up 105% from the level posted in
1992. These amounts are net of significant accelerated write-downs of excess
deferred excess servicing premiums amounting to $1.0 million in 1993 and $1.1
million in 1992. At December 31, 1993, the entire amount of the deferred
servicing asset had been amortized as a result of an accelerated level of
prepayments. Residential mortgage loan sales activity continued to be very
strong in 1993 (see "Loans"). The Company did not alter its stated strategy of
selling substantially all of its residential mortgage loan production. Market
demand for mortgage financing due to declining interest rates resulted in
brisk origination and sales of mortgage loans. Gains on sales of mortgage
loans totaled $5.8 million, up from $4.8 million in 1992.
Income related to credit card activities includes fees related to the issuance
of credit cards and interchange revenue generated when credit card transactions
are processed through the Company's merchant customers. These activities
generated income of $5.7 million in 1993, up from $4.4 million in 1992. Other
noninterest income decreased $77,000, to $3.6 million in 1993. This amount r
epresents over thirty categories of fee income. The largest decline was in
Canadian exchange, down $110,000 to $313,000, due to a lower level of
cross-border traffic in 1993.
For 1992, noninterest income was $21.1 million, up $2.6 million from the 1991
level. Trust department revenue was up $365,000 due to higher levels of
activity, particularly investment management relationships. Service charges on
deposit accounts rose $178,000, or 5%, due to higher levels of fee-based
activity and an increase in the total number of accounts serviced by the
Company. Net losses on sales of investment securities, at $235,000, improved
by $299,000 from the 1991 level. Mortgage servicing income declined by
$659,000, to $486,000, reflecting primarily an increase in the amortization of
deferred excess servicing premiums from $182,000 in 1991 to $1.1 million in
1992. Gains on sales of mortgage loans totaled $4.8 million, up from $2.3
million in 1991, as refinancing activity accelerated. Income from credit card
activities was up $63,000, to $4.4 million in 1992. Other noninterest income
of $3.7 million decreased by $113,000.
Noninterest expense for 1993 totaled $51.1 million, up 3% from the $49.6 million
recorded in 1992. Salaries of $17.0 million were up $320,000, or 2%, from the
$16.7 million reported in 1992. The increase of 15% in employee benefits
reflects primarily higher medical insurance expenses and incentive compensation
accruals related to performance.
In 1993 the Company adopted, prospectively, Statement of Financial Accounting
Standards No. 106, Employers' Accounting for Postretirement Benefits Other
Than Pensions. This accounting standard requires that the expected cost of
postretirement benefits be charged to expense during the years that the
employees render services. The Company has elected to amortize the unfunded
benefit obligation of $1.7 million that was measured at January 1, 1993, over a
period of 20 years. The effect of this change was to increase the expense
related to postretirement benefits by approximately $100,000 in 1993. In
1994, the Company will implement Statement of Financial Accounting Standards
No. 112, Employers' Accounting for Postemployment Benefits. Its implementation
is not expected to have a material effect on the Company's financial statements.
Occupancy expense increased less than 2%, to $5.9 million in 1993. Increases
in employee and occupancy expenses were mitigated by efficiencies realized
from the in-market acquisition of VerBanc.
FDIC insurance premiums increased $298,000 from the 1992 level to $2.6 million
in 1993. This increase was due to higher deposit levels during the year.
Expenses associated with OREO decreased substantially from 1992. During 1993,
$1.5 million was recorded in this area, of which $1.3 million represented
provisions for declines in the market values of properties held or substantively
repossessed. In 1992, OREO expenses amounted to $2.7 million. It is the
Company's intent to sell such real estate as soon after acquisition as is
feasible.
Expenses, excluding salaries, occupancy and overhead allocations, directly
related to the processing of credit card transactions totaled $3.8 million in
1993, up from $3.0 million in 1992. This increase is primarily volume-related.
Total other noninterest expense of $14.7 million was $480,000 higher than the
1992 level. This increase is more than accounted for by one-time costs related
to the acquisition of VerBanc.
Noninterest expense for 1992 was $49.6 million, up from $45.8 million in 1991.
Salaries of $16.7 million were up $118,000, or less than 1%, from the 1991
level.The increase of 8% in employee benefits reflects higher medical insurance
expenses and incentive bonus accruals related to performance. FDIC insurance
premiums were $2.3 million, an increase of $232,000 from the 1991 level. This
increase reflects higher insurance premium rates and higher average levels of
insured deposits. Expenses associated with OREO were up $1.8 million from 1991,
to $2.7 million. A substantial amount of the increase represented provisions
for declines in the market values of properties held. Direct credit card
expenses increased $98,000, reflecting higher volumes. Total other noninterest
expense of $14.3 million was $917,000 higher than the 1991 level. This increase
was attributable to primarily legal and professional, data processing, and
marketing expenses.
INCOME TAXES
For 1993, the Federal income tax provision amounted to $5.2 million. This
compares with an income tax provision of $2.4 million for 1992 and $1.2
million for 1991. Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, which
recognizes income taxes under the asset and liability method. Prior to 1993,
the Company recognized taxes under the deferred method, whereby annual income
tax expense was matched with pretax accounting income by providing deferred
taxes at current rates for timing differences between income reported for
accounting purposes and income reported for tax purposes. Under the new, asset
and liability method, deferred tax assets and liabilities are established for
temporary differences between the accounting basis and the tax basis of the
Company's assets and liabilities at enacted tax rates expected to be in effect
when the amounts related to such temporary differences are realized or settled.
The Company's deferred tax asset is reviewed quarterly and adjustments, based
on management's judgments as to the realizability of this asset, are recognized
in the provision for income taxes. The cumulative effect of adopting this
change in accounting principle was a one-time charge of $575,000.
The effective tax rates for 1993, 1992, and 1991 were 31.1% (excluding the
cumulative effect charge), 25.3%, and 21.1%, respectively. During 1993, the
Company's statutory Federal corporate tax rate was 35%. During 1992 and 1991,
the statutory Federal tax rate was 34%. The Company's effective tax rates
differed from the statutory rates primarily because of the proportion of
interest income from state and municipal securities and corporate dividend
income which are wholly or partially exempt from Federal taxation.
DIRECTORS AND OFFICERS
CHITTENDEN CORPORATION
DIRECTORS CHITTENDEN COUNTY Larry J. Baxter
Philip A. Kolvoord Vice President
Chair and Chief Auditor
Kevin J Endres Eugenie J. Fortin
Ramon J. Lawrence Assistant Corporate Secretary
Frederic H. Bertrand Michael G. LeBoeuf CHITTENDEN BANK OFFICERS
David M. Boardman Richard T. Mazza Barbara W. Snelling
Paul J. Carrara Clinton C. Morse, Jr. Chair, Board of Directors
Eugene P. Cenci Thomas L. Soules Paul A. Perrault
Robert E. Cummings, Jr. Janet K. Stackpole President and Chief Executive
Marvin B. Gameroff J. Larry Williams Officer
Philip A. Kolvoord AUDIT
Maureen A. McNamara MOUNTAIN REGION Larry J. Baxter
Paul A. Perrault Pall D. Spera Vice President and Chief
President and Chair Auditor
Chief Executive Officer Frederic H. Bertrand COMMERCIAL AND
James C. Pizzagalli Lawrence P. Heney GOVERNMENT BANKING
Barbara W. Snelling M. Richard Jamieson John W. Kelly
Chair Edward E. Steele Executive Vice President
Pall D. Spera Anthony B. Thompson Larry D. MacKinnon
Martel D. Wilson, Jr. Donald M. Walker Senior Vice President
Corporate Banking
NORTH EAST REGION Sylvia T. MacKinnon
DIRECTORS EMERITI NEWPORT/NORTH TROY Vice President, Private Banking
Howard A. Allen, Jr. Durward W. Starr Frank D. Romano
Malcolm I. Benton Sub-Regional Chair Vice President
Edward R. Eurich Constance D. Daigle Government Banking
William W. Freeman Charles C. Horvath Michael L. Seaver
Edwin B. Gage Vice President,
J. Robert Goodrich NORTH WEST REGION Corporate Banking
Norman H. Greenberg SWANTON/ALBURG Sarah P. Slatter
Frank J. Heinrich Rene J. Fournier Senior Vice President,
Robert D. Horton Lorraine P. Mumley Business Banking
George E. Little, Jr. Charles E. Prouty Charles J. Stone, Jr.
H. Gordon Page, M.D. George E. Spear, II Vice President,
Horace U. Ransom, Jr. Specialized Industries
Ernest H. Royal RUTLAND REGION
Webster S. Thompson Martel D. Wilson, Jr. COMMUNITY
Hilton A. Wick Chair BANKING
Philip E. Alderman Danny H. O'Brien
Joseph W. Kozlik Senior Vice President
BRANCH ADVISORY BOARDS J. Bruce Foust
Addison Region Vice President,
Paul J. Carrara CHITTENDEN CORPORATION Branch Administrator
Chair OFFICERS Katharine L. Hinman
Harland E. Bodette Barbara W. Snelling Vice President,
James R. Cartmell Chair, Board of Directors Branch Commercial
George W. Foster Paul A. Perrault Loan Administrator
Ronald D. Gardner President and C. Lynn Medeiros
Edwin R. Grant Chief Executive Office Assistant Vice President,
James D. Ross Lawrence W. DeShaw Sales Manager
Executive Vice President Bonnie L. Rivers
BENNINGTON REGION William R. Heaslip Vice President,
Robert E. Cummings, Jr. Executive Vice President Branch Administrator
Chair John W. Kelly Stuart F. Silloway, Jr
Dean F. Hanson Executive Vice President Senior Vice President,
William J. Haynes Nancy Rowden Brock Business Development
Charles H. Mather Treasurer Administrator
Kelton B. Miller F. Sheldon Prentice
Secretary
CORPORATE SECRETARY Gordon W. Carroll TREASURY
F. Sheldon Prentice Assistant Vice President, Nancy Rowden Brock
Senior Vice President, Item Processing Services Senior Vice President,
General Counsel and Bruce W. Cote Chief Financial Officer
Corporate Secretary Assistant Vice President, and Treasurer
Paul A. Benoit Loan Accounting Services Alan A. Fay
Vice President, Paul J. Hamlin Assistant Vice President,
Counsel and Senior Vice President, Treasury Services
Compliance Officer Branch Operations Frank P. Papillo
Richard A. Brownell Robert D. Hofmann Vice President and
Counsel Vice President, Controller
Eugenie J. Fortin Marketing TRUST AND INVESTMENT
Assistant Corporate Secretary, Florence F. Izzo William R. Heaslip
Stockholder Relations Senior Vice President, Executive Vice President
Deposit Services Louis J. Beaulieu
CREDIT POLICY Sarah P. Merritt Senior Vice President,
AND ADMINISTRATION Senior Vice President, Personal Trust Services
John P. Barnes Human Resources Jerry R. Condon
Senior Vice President and Rand L. Stratton Chief Investment Officer
Chief Credit Policy Officer Vice President Michael E. Gauding
Debra E. Cross Commercial Services and Assistant Vice President,
Vice President, Captive Insurance Trust Operations
Credit Administration Deborah E. Prince
Michael C. Houle CONSUMER CREDIT Vice President,
Vice President, Daniel G. Alcorn Corporate Programs
Credit Review Senior Vice President Edward J. Wagner
and Administration Ronald P. Bower Vice President,
Donald D. Martin Vice President, Investment Services
Vice President, Indirect Lending
Loan Resolution Linda L. Dusablon HEADQUARTERS
Rachel M. Sheridan Assistant Vice President, Chittenden Bank Building
Assistant Vice President, Student Loans Two Burlington Square
Credit Collections Kathryn Goodchild Mailing Address:
Assistant Vice President, P.O. Box 820
MORTGAGE SERVICE CENTER Consumer Loans Burlington, Vermont 05402-0820
OF NEW ENGLAND Sandra L. Smiel (802) 658-4000
Richard J. Christensen Assistant Vice President,
President Merchant Services
Debra A. Bauckman
Secondary Marketing CHITTENDEN HOME
Sandra M. Lambert MORTGAGE
Correspondent Lending Catherine S. Blackwell
Alane G. Perkins Assistant Vice President,
Vice President, Manager of Residential
Loan Administration Mortgage Department
and Accounting Jennie H. Buchanan
Vice President,
OPERATIONS Manager of Secondary Market
AND ADMINISTRATION Activities
Lawrence W. DeShaw Carolyn S. Lyman
Executive Vice President Vice President,
Christopher D. Bishop Manager of Mortgage Originations
Vice President,
Facilities Management
Nancy J. Barnes
Vice President,
Payroll Services
The following table sets forth the range of the high and low prices for the
Corporation's common stock for the last five years:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993 1992 1991 1990 1989
Quarter High Low High Low High Low High Low High Low
First 16.80 11.80 12.00 6.60 7.60 3.20 10.00 7.80 14.00 13.00
Second 17.60 15.20 13.20 10.20 7.40 5.20 8.20 5.80 14.00 12.60
Third 18.25 15.20 12.80 10.60 10.80 5.80 7.20 3.60 15.00 12.60
Fourth 19.00 17.00 13.00 11.20 9.00 5.40 6.00 3.80 13.00 8.60
</TABLE>
Stockholder Information
Form 10-K
A copy of the Chittenden Corporation's Annual Report for 1993 (on Form 10-K),
as filed with the Securities and Exchange Commission pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934, will be furnished free of charge
to beneficial owners of the Corporation's stock upon request.
Chittenden Corporation Stock
The $1 par value common stock of Chittenden Corporation has been publicly
traded on the over-the-counter market since November 14, 1974. As of
December 31, 1993, there were 3,087 record holders of the Corporation's common
stock.
The Corporation's stock is listed on NASDAQ, with the symbol CNDN, is included
in additional over-the-counter securities lists, and is listed daily in the
major newspapers.
For stockholder services and information, contact:
Stockholder Relations
Chittenden Corporation
P.O. Box 820
Burlington,VT 05402
(802) 660-1412
Chittenden Corporation is one-bank holding company registered as a Vermont
corporation. Organized in 1971 and activated in 1974, Chittenden Corporation
is the parent company of Chittenden Trust Company. Chittenden Bank is trade
name for Chittenden Trust Company.
Annual Meeting
The Annual Meeting of the Stockholders of the Chittenden Corporation will be
held on Wednesday, April 20, 1994 at 4:00 p.m. in Salon I of the Emerald
Ballroom in the Sheraton Burlington Hotel and Conference Center, located at the
intersection of Routes 2 (Williston Road) and 89 in South Burlington.
To find out about the wide range of products offered by Chittenden Bank, call
our Customer Information Center at 1-800-545-2236.
