November 9, 1995
Securities and Exchange Commission
450 5th Street
Washington, D. C. 20549
RE: CHITTENDEN CORPORATION QUARTERLY REPORT (ON FROM 10-Q)
REGISTRATION NO. 0-7974
To Whom It May Concern:
Pursuant to the requirements of Rule 13a-13 under the Securities Exchange Act of
1934, there is appended to this transmittal, an electronic file of the quarterly
report (on Form 10-Q) of Chittenden Corporation, Two Burlington Square,
Burlington, Vermont 05401 for the nine months ended September 30, 1995.
If you have any questions concerning this quarterly report, please telephone the
undersigned at (802) 660-1410.
Kindly acknowledge receipt of this letter by Compuserve E-Mail.
Sincerely,
CHITTENDEN CORPORATION
S/F. SHELDON PRENTICE, SECRETARY
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Nine Months Ended September 30, 1995
or
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ____________to____________
Commission File Number 0-7974
CHITTENDEN CORPORATION
(Exact Name of Registrant as Specified in its 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
NOT APPLICABLE
Former Name, Former Address and Formal Fiscal Year
If Changed Since Last Report
Indicate by checkmark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
At September 30, 1995, there were 8,541,705 shares of the Corporations's $1.00
par value common stock issued, with 8,247,771 shares outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CHITTENDEN CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31,
1995 1994
--------- ---------
ASSETS (In Thousands)
Cash and Cash Equivalents $151,632 $100,973
Securities Available For Sale 258,991 196,829
Securities Held For Investment (Market Value
$9,745,000 in 1995; and $9,280,000 in 1994) 9,747 9,869
Loans:
Commercial 203,980 105,281
Real Estate:
Residential 431,069 405,618
Commercial 253,892 214,103
Construction 15,503 7,281
--------- ---------
Total Real Estate 700,464 627,002
Consumer 145,346 140,677
--------- ---------
Total Loans 1,049,790 872,960
Less: Allowance for Possible Loan Losses (24,536) (19,099)
--------- ---------
Net Loans 1,025,254 853,861
--------- ---------
Loans Held for Sale 9,288 2,870
Premises and Equipment 18,600 17,864
Intangible Assets 11,481 -
Accrued Interest Receivable 11,614 9,906
Other Real Estate Owned 1,961 1,288
Net Deferred Tax Asset 12,044 11,969
Other Assets 12,196 8,479
--------- ---------
Total Assets $1,522,808 $1,213,908
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $187,274 $180,481
Certificates of Deposit $100,000 and Over 88,065 69,885
Savings and Other Time 1,030,077 819,832
--------- ---------
Total Deposits 1,305,416 1,070,198
--------- ---------
Short-Term Borrowings 60,922 22,650
Accrued Expenses and Other Liabilities 25,541 22,750
--------- ---------
Total Liabilities 1,391,879 1,115,598
--------- ---------
Stockholders' Equity:
Common Stock - $1 Par Value
Authorized - 30,000,000 Shares
Issued - 8,541,705 Shares in 1995; and
8,099,870 in 1994 8,542 8,100
Surplus 58,982 49,863
Retained Earnings 68,008 55,755
Treasury Stock - At Cost, 293,934 Shares in 1995;
710,346 in 1994 (3,967) (9,586)
Net Unrealized Loss on Securities Available for Sale,
Net of Taxes of $230,000 in 1995; and $3,077,000
in 1994 (561) (5,718)
Unearned Portion of Employee Restricted Stock (75) (104)
--------- ---------
Total Stockholders' Equity 130,929 98,310
--------- ---------
Total Liabilities and Stockholders' Equity $1,522,808 $1,213,908
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
CHITTENDEN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Quarter
Ended September 30,
1995 1994
Interest Income: -------- --------
(In Thousands, Except Share Data)
Interest on Loans $25,417 $18,321
Investment Securities:
Mortgage-Backed Securities 578 605
Taxable 2,969 2,102
Tax-Favored Debt 725 511
Tax-Favored Equity 33 24
Short-Term Investments 355 288
-------- --------
Total Interest Income 30,077 21,851
-------- --------
Interest Expense:
Deposits:
Savings 5,616 3,931
Time 6,711 3,552
-------- --------
Total Interest on Deposits 12,327 7,483
Short-Term Borrowings 647 415
-------- --------
Total Interest Expense 12,974 7,898
-------- --------
Net Interest Income 17,103 13,953
Provision for Possible Loan Losses 1,200 1,000
-------- --------
Net Interest Income after Provision for
Possible Loan Losses 15,903 12,953
-------- --------
Noninterest Income:
Trust Department Income 1,153 990
Service Charges on Deposit Accounts 1,291 1,131
Gains (Losses) on Sales of Securities, Net 205 (200)
Mortgage Servicing Income 589 520
Gains on Sales of Mortgage Loans 403 184
Credit Card Income 3,440 2,160
Other 941 855
-------- --------
Total Noninterest Income 8,022 5,640
-------- --------
Noninterest Expense:
Salaries 5,151 4,321
Employee Benefits 1,880 1,528
Net Occupancy Expense 1,743 1,368
FDIC Deposit Insurance (77) 572
Other Real Estate Owned Income and Expense, Net (61) 39
Credit Card Expense 2,516 1,437
Other 4,213 3,274
-------- --------
Total Noninterest Expense 15,365 12,539
-------- --------
Income Before Income Taxes 8,560 6,054
Provision for Income Taxes 2,755 2,031
-------- --------
Net Income $5,805 $4,023
======== ========
Earnings Per Share:
Primary $0.68 $0.50
Fully Diluted $0.68 $0.50
Dividends Declared Per Share $0.15 $0.10
Book Value $15.87 $13.22
Weighted Average Common Shares Outstanding 8,562,968 7,965,433
The accompanying notes are an integral part of these consolidated financial
statements.
CHITTENDEN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Nine Months
Ended September 30,
1995 1994
Interest Income: -------- --------
(In Thousands, Except Share Data)
Interest on Loans $71,057 $51,616
Investment Securities:
Mortgage-Backed Securities 1,716 1,815
Taxable 8,524 6,341
Tax-Favored Debt 1,780 1,024
Tax-Favored Equity 410 417
Short-Term Investments 1,360 588
-------- --------
Total Interest Income 84,847 61,801
-------- --------
Interest Expense:
Deposits:
Savings 16,136 10,097
Time 18,568 10,550
-------- --------
Total Interest on Deposits 34,704 20,647
Short-Term Borrowings 2,056 1,380
-------- --------
Total Interest Expense 36,760 22,027
-------- --------
Net Interest Income 48,087 39,774
Provision for Possible Loan Losses 2,750 3,400
-------- --------
Net Interest Income after Provision for
Possible Loan Losses 45,337 36,374
-------- --------
Noninterest Income:
Trust Department Income 3,281 3,039
Service Charges on Deposit Accounts 3,772 3,475
Gains (Losses) on Sales of Securities, Net 205 (324)
Mortgage Servicing Income 1,596 1,528
Gains on Sales of Mortgage Loans 853 918
Credit Card Income 8,975 5,715
Other 3,091 2,684
-------- --------
Total Noninterest Income 21,773 17,035
-------- --------
Noninterest Expense:
Salaries 14,647 12,842
Employee Benefits 5,287 4,516
Net Occupancy Expense 5,063 4,161
FDIC Deposit Insurance 1,213 1,753
Other Real Estate Owned Income and Expense, Net (234) (87)
Credit Card Expense 6,338 3,817
Other 11,894 9,541
-------- --------
Total Noninterest Expense 44,208 36,543
-------- --------
Income Before Income Taxes 22,902 16,866
Provision for Income Taxes 7,414 5,615
-------- --------
Net Income $15,488 $11,251
======== ========
Earnings Per Share:
Primary $1.88 $1.42
Fully Diluted $1.87 $1.42
Dividends Declared Per Share $0.40 $0.26
Book Value $15.87 $13.22
Weighted Average Common Shares Outstanding 8,263,179 7,958,431
The accompanying notes are an integral part of these consolidated financial
statements.
Chittenden Corporation
Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 30,
1995 1994
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $15,488 $11,251
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 2,750 3,400
Depreciation and amortization 1,734 1,468
Amortization of intangible assets 664 -
Amortization of premiums, fees, and discounts, net 852 1,038
Investment securities (gains) losses (205) 324
Gains on sale of premises and equipment (220) -
Prepaid income taxes (1,066) (10)
Changes in assets and liabilities net of effects from
purchase of the Bank of Western Massachusetts:
Loans held for sale (6,418) 9,751
Accrued interest receivable (134) (2,977)
Other assets 4,508 (893)
Accrued expenses and other liabilities 84 201
--------- ---------
Net cash provided by operating activities 18,037 23,553
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Bank of Western Massachusetts,
net of cash acquired (3,455) -
Proceeds from sales of securities (available for sale) 23,817 32,992
Proceeds from maturing securities and principal payments
on securities (available for sale) 245,537 124,328
Purchases of securities (available for sale) (281,133) (240,663)
Proceeds from principal payments on securities
(held for investment) 122 775
Loans originated, net of principal repayments (19,393) (21,286)
Purchases of premises and equipment (4,435) (1,590)
Proceeds on sale of premises and equipment 1,468 22
--------- ---------
Net cash used in investing activities (37,472) (105,422)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 58,313 4,964
Net increase (decrease) in short-term borrowings 14,112 (17,945)
Proceeds from issuance of treasury and common stock 904 235
Dividends on common stock (3,235) (2,056)
--------- ---------
Net cash provided by (used in) financing activities 70,094 (14,802)
--------- ---------
Net increase (decrease) in cash and cash equivalents 50,659 (96,671)
Cash and cash equivalents at beginning of year 100,973 195,163
--------- ---------
Cash and cash equivalents at September 30, $151,632 $98,492
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $36,587 $22,004
Income taxes 7,000 4,400
Noncash transactions:
Loans transferred to other real estate owned 4,612 1,187
Mortgage loans securitized 8,100 -
Common stock issued in conjunction with the
acquisition of The Bank of Western Massachusetts 14,276 -
The accompanying notes are an integral part of these consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
NOTE 1 - ACCOUNTING POLICIES
The Company's significant accounting policies, other than those described
in Note 2 below, are described in Note 1 of the Notes to Consolidated Financial
Statements included in its 1994 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. For interim reporting purposes, the Company
follows the same basic accounting policies and considers each interim period as
an integral part of an annual period.
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim periods.
1994 data reflects minor reclassifications to be consistent with 1995
presentation.
NOTE 2 - ACCOUNTING POLICY CHANGE - ADOPTION OF SFAS 114
As of January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN,
as amended by SFAS No. 118 (hereafter collectively referred to as SFAS 114). A
loan is impaired when, based on current information and events, it is probable
that a creditor will be unable to collect all amounts due according to the
contractual terms of the loan agreement. SFAS 114 requires that impaired loans
be measured based on the present value of the expected future cash flows
discounted at the loan's effective interest rate. In the case of collateral
dependent loans, impairment may be measured based on the fair value of the
collateral. When the measure of the impaired loan is less than the recorded
investment in the loan, the impairment is recorded through a valuation
allowance. This change in accounting as prescribed by SFAS 114 did not result
in a cumulative adjustment of the Company's reported financial condition.
Further, adoption of SFAS 114 did not impact the Company's measurement of its
provision for possible loan losses for the nine month period ended September 30,
1995.
The adoption of SFAS 114 had no impact on the Company's income recognition
policy for nonaccrual loans.
Allowance for Possible Loan Losses. The following table presents changes
in the allowance for possible loan losses:
Three Months Nine Months
Ended September 30, Ended September 30,
----------------------------------------------
1995 1994 1995 1994
------------------------------------------------
(In Thousands)
Beginning Balance $23,546 $18,927 $19,099 $18,917
Allowance of Acquired Bank - - 4,135 -
Provision 1,200 1,000 2,750 3,400
Loans Charged Off (1,263) (1,211) (3,606) (4,088)
Loan Recoveries 1,053 373 2,158 860
---------------------------------------------
Ending Balance $24,536 $19,089 $24,536 $19,089
=============================================
At September 30, 1995, the recorded investment in loans that are considered
to be impaired under SFAS 114 was $8,246,000 (all such loans were on a
nonaccrual basis). Included in this amount is $3,794,000 of impaired loans for
which the related allowance for possible loan losses is $765,000, and $4,452,000
of impaired loans for which no specific allowance for possible loan losses has
been allocated. The average recorded investment in impaired loans during the
quarter ended September 30, 1995 was approximately $7,933,000. For the quarter
ended September 30, 1995, interest income on impaired loans totaled $19,000,
which was recognized on a cash basis.
NOTE 3 - ACQUISITION OF THE BANK OF WESTERN MASSACHUSETTS
On March 17, 1995 the Company acquired all of the outstanding shares of the
common stock of The Bank of Western Massachusetts. The Company issued 784,406
shares at a price of $18.20 per share; 408,594 of the shares issued were
treasury stock. The total cash outlay, including payments made with respect to
outstanding stock options and warrants issued by The Bank of Western
Massachusetts, was $12.1 million. This transaction has been accounted for as a
purchase and, accordingly the consolidated statement of income includes The Bank
of Western Massachusetts' results of operations from the date of acquisition.
In accordance with the purchase method of accounting, the purchase price
has been allocated to assets acquired and liabilities assumed based on estimates
of fair value at the date of acquisition. The excess of purchase price over the
fair value of assets acquired, including a core deposit intangible asset, has
been recorded as goodwill. The fair value of these assets and liabilities is
summarized as follows:
(In Thousands)
--------------
Cash and Cash Equivalents $ 8,715
Securities Available for Sale 42,123
Net Loans 158,975
Premises and Equipment 1,422
Core Deposit Intangible 5,021
Goodwill 7,123
Other Real Estate Owned 1,296
Prepaid Expenses and Other Assets 5,296
Deposits (176,395)
Short-Term Borrowings ( 18,980)
Accrued Expenses and Other Liabilities ( 8,143)
------------
Total Acquisition Cost $ 26,453
============
Included in the total acquisition cost are approximately $100,000 of
capitalized costs incurred in connection with the acquisition.
Goodwill is being amortized on a straight-line basis over 15 years; the
core deposit intangible is being amortized on an accelerated basis over 10
years.
Following is supplemental information reflecting selected pro forma results
if this acquisition had been consummated as of January 1, 1994.
First
Full Year Nine Months
---------------------------
1994 1995
---------------------------
(In Thousands, except EPS)
Total Revenue $87,346 $72,485
Income Before Income Taxes 24,306 22,424
Net Income 15,972 15,121
Earnings per Share (EPS) $ 1.84 $ 1.78
Total revenue includes net interest income and noninterest income.
NOTE 4 - ACQUISITION OF FLAGSHIP BANK AND TRUST COMPANY
On September 19, 1995, the Company announced that a definitive agreement
had been signed under which the Company would acquire Flagship Bank and Trust
Company (Flagship) of Worcester, Massachusetts for stock. At December 31, 1994,
Flagship had total assets and shareholders' equity of $246.1 million and $15.0
million, respectively. Under the agreement, Flagship shareholders will receive
1.2 shares of Chittenden Corporation stock for each share of Flagship stock
owned. Total shares outstanding of Chittenden Corporation stock will increase
by 1.3 million shares to a total of 9.6 million shares after the acquisition.
Based on the closing price of Chittenden stock as of October 31, 1995, the
market value of the shares to be exchanged totaled $35.7 million.
Consummation of the agreement is subject to approval by Flagship
stocksholders and certain regulatory agencies and is expected to occur in the
first quarter of 1996. The agreement permits Flagship to terminate the
transaction if the average closing price of Chittenden stock during the pricing
period falls below $23.25. In connection with signing the definitive agreement,
Flagship granted Chittenden an option, exercisable upon the occurrence of
certain events, to acquire up to 24.9% of Flagship in newly issued common stock
at an exercise price of $20.00 per share.
The acquisition will be accounted for as a pooling of interests.
NOTE 5 - STOCKHOLDERS' EQUITY
Stock Split. On April 19, 1995, the Company declared a five-for-four stock
split to be distributed on May 26, 1995 to stockholders of record May 12, 1995.
This stock split has been reflected in the accompanying balance sheets as of
September 30, 1995 and December 31, 1994; all per share information shown on the
accompanying statements of income has been retroactively restated to reflect the
split. Quarterly per share figures may not total to the full year amount due to
changes in the average number of shares outstanding.
NOTE 6 - SUBSEQUENT EVENT
Dividend Declaration. On October 18, 1995, the Company declared dividends
of approximately $1.25 million or $0.15 per share. This dividend is to be paid
on November 17, 1995 to stockholders of record on November 3, 1995.
NOTE 7 - RECENT ACCOUNTING PRONOUNCEMENT
In May, 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 122, ACCOUNTING FOR MORTGAGE SERVICING RIGHTS
(SFAS 122). This Statement amends Statement No. 65, ACCOUNTING FOR CERTAIN
MORTGAGE BANKING ACTIVITIES (SFAS 65), to require that enterprises engaged in
mortgage banking activities recognize as separate assets rights to service
mortgage loans for others, when the related loans are sold and the servicing
rights are retained. The amount capitalized is based on an allocation of the
total cost of the mortgage loans to the mortgage servicing rights and the loans
(without the mortgage servicing rights) based on their relative fair values.
SFAS 122 also requires capitalized mortgage servicing rights to be assessed for
impairment based on the fair value of those rights.
SFAS 122 will be applied prospectively in the Company's fiscal year
beginning January 1, 1996, to transactions in which mortgage loans are sold or
securitized with servicing rights retained. Retroactive capitalization of
mortgage servicing rights retained in transactions occurring before the adoption
of SFAS 122 is not permitted.
The Company expects the adoption of SFAS 122 will have a positive, and
perhaps significant, impact on income in 1996, depending on the volume of loans
closed and sold during the year.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Chittenden Corporation's net income for the third quarter of 1995
increased 44% from the 1994 level to $5.8 million, or $0.68 per share. Net
income for the first nine months of 1995 totaled $15.5 million, or $1.87
per fully diluted share, up 32% from last year. Return on average assets
was 1.47% for the first nine months of 1995, compared with 1.26% last year.
Return on average equity was 17.61% for the first nine months of 1995, up
from 14.95% for the same period in 1994.
Net interest income on a fully taxable equivalent basis for the nine
months of 1995 was $49.2 million, up $8.6 million from the amount earned
during the same period in 1994. Contributing to this increase were both a
higher net yield on earning assets, up 13 basis points from a year ago to
5.00%, and higher average earning assets, up $203.9 million from a year ago
due primarily to the acquisition of The Bank of Western Massachusetts late in
the first quarter of 1995. The acquisition was accounted for as a purchase,
therefore the amounts disclosed in the tables and narrative that follow include
the acquired bank only since March 17, 1995, the date the acquisition was
completed.
Provisions for and activity in the allowance for possible loan losses
are summarized as follows:
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
-----------------------------------
1995 1994 1995 1994
-----------------------------------
(In Thousands)
Beginning Allowance for Possible
Loan Losses Balance $23,546 $18,927 $19,099 $18,917
Allowance of Bank Acquired
March 17, 1995 - - 4,135 -
Provision for Possible Loan Losses 1,200 1,000 2,750 3,400
Loans Charged Off (1,263) (1,211) (3,606) (4,088)
Loan Recoveries 1,053 373 2,158 860
--------------------------------------
Ending Allowance for Possible
Loan Losses Balance $24,536 $19,089 $24,536 $19,089
======================================
The lower level of provision for possible loan losses for the nine months ended
September 30, 1995, reflects the effect of significant recoveries in the second
quarter.
Noninterest income amounted to $8.0 million for the third quarter and
$21.8 million for the nine months ended September 30, 1995, up 42% and 28%,
respectively, from the same periods a year ago. For the nine months ended
September 30, 1995, trust revenue was up 8% due to increased business in
both corporate and personal trusts. Service charges on deposit accounts
were up due to higher deposit levels, primarily reflecting the acquired
bank. Gains on sales of mortgage loans were up $219,000 for the quarter
due to increased activity. For the first nine months of the year, gains
were down $65,000 reflecting lower levels of refinancing activity in the
first quarter of 1995. Chittenden continues to sell most of its fixed rate
residential mortgage production in the secondary market. Mortgage
servicing income for the third quarter was up 13% from the same period in
1994 and was up slightly for the nine months ended September 30, 1995.
Revenue from higher serviced mortgage balances was partially offset by
accelerated amortization of purchased mortgage servicing rights. Credit
card income increased $1.3 million for the third quarter and $3.3 million
for the first nine months from the comparable 1994 periods. These increases
primarily reflect an increase in the number of merchant customers served and,
to a lesser extent, increased transaction volumes with existing customers.
For the third quarter of 1995, noninterest expenses were $15.4
million, up 23% from the comparable 1994 level. Most of the increase
reflected the inclusion of The Bank of Western Massachusetts' expenses in
the 1995 amounts. Without the effect of the acquisition, third quarter
expenses were up approximately $1 million or 8%. This increase was primarily
in the credit card expense category and reflected the increased number of
customers served, leading to the increaed volume of activity noted previously.
Also included in the increase were increased salaries and employee benefits of
$484,000 which were offset by a $638,000 decrease in FDIC expense. The reduced
FDIC expense was due to the receipt of premium refunds resulting from the
adjustment of both banks' deposit insurance assessment from 23 cents to 4 cents
per $100 of deposits effective with the full capitalization of the FDIC
insurance fund late in the second quarter of 1995. The total amount of the
refunds received by the two banks was $780,000, of which $585,000 related to
premiums previously paid for the third quarter.
Noninterest expenses for the nine months ended September 30, 1995
totaled $44.2 million, up $7.7 million, or 21%, from the same period one
year ago. The Bank of Western Massachusetts expenses accounted for $3.9
million of the increase. The remaining increase of $3.8 million, or 10%,
was primarily attributable to higher credit card expenses of $2.5 million.
Other expense included $664,000 of amortization ofintangibles recorded in
connection with the acquisition of The Bank of Western Massachusetts.
CREDIT QUALITY
Nonperforming assets include nonaccrual loans, restructured debt, and
foreclosed real estate (Other Real Estate Owned). As of September 30,
1995, nonperforming assets totaled $14.5 million up from $13.7 million at
June 30, 1995. Nonperforming assets excluding those related to The Bank of
Western Massachusetts were $9.6 million at September 30, 1995, up from $9.4
million at December 31, 1994. During the quarter ended September 30, 1995,
$3.5 million was added to non-performing assets, while payments received
and charge-offs totaled $1.7 million and $900,000 respectively. The
allowance for loan losses stood at $24.5 million at September 30, 1995, up
from $23.5 million at June 30, 1995 and $19.1 million at December 31, 1994.
A summary of credit quality follows:
09/30/95 06/30/95 12/31/94 09/30/94
--------------------------------------
(In Thousands)
Nonaccrual Loans $12,347 $11,166 $ 7,934 $ 7,926
Restructured Debt 180 187 185 187
Other Real Estate
Owned (OREO) 1,961 2,312 1,288 1,125
-------------------------------------
Total Nonperforming
Assets (NPA) $14,488 $13,665 $ 9,407 $ 9,238
=====================================
Loans Past Due 90 Days or
More and Still Accruing Interest $ 1,812 $ 1,814 $ 1,132 $ 1,073
Allowance for Possible Loan Losses 24,536 23,546 19,099 19,089
NPA as % of Loans plus OREO 1.38% 1.30% 1.08% 1.06%
Loss Allowance as % of Loans 2.34 2.24 2.19 2.20
Loss Allowance as % of
Nonperforming Loans 195.86 207.40 235.24 235.29
Loss Allowance as % of NPA 169.35 172.31 203.02 206.64
As of January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN,
as amended by SFAS No. 118. Please refer to NOTE 2 to the Consolidated Financial
Statements appearing elsewhere in this document.
CAPITAL
Stockholders' equity totaled $130.9 million at September 30, 1995, up
from $98.3 million at December 31, 1994. The current level reflects the net
income of $15.5 million for nine months ended September 30, 1995, stock issued
of $14.3 million in connection with the acquisition of The Bank of Western
Massachusetts, stock issued of $800,000 under an incentive stock option plan,
changes in net unrealized losses on securities available for sale totaling $5.2
million, and dividends paid to stockholders of $3.2 million. On October 18,
1995, the Company declared dividends of approximately $1.25 million or $.15 per
share. The dividend will be paid on November 17, 1995 to shareholders of record
on November 3, 1995.
As noted in Footnote 4 to the consolidated financial statements, the
Company announced on September 19, 1995 that it had signed a definitive
agreement under which the Company would acquire Flagship Bank and Trust Company
for stock. As a result of the transaction, which has not yet been consummated,
approximately 1.3 million shares of Chittenden Corporation stock will be issued
in exchange for the Flagship stock. The transaction will be accounted for as a
pooling of interests. Therefore, total, stockholders' equity of Chittenden
Corporation will increase by the amount of Flagship's stockholders equity, which
totaled $17.9 million at September 30, 1995.
"Tier One" capital, consisting entirely of common equity, measured
11.06% of risk-weighted assets at September 30, 1995. Total capital,
including the "Tier Two" allowance for loan losses, was 12.43% of risk-
weighted assets. The leverage capital ratio was 8.14%. These ratios
placed Chittenden in the "well-capitalized" category according to
regulatory standards.
LIQUIDITY
The Company's liquidity and rate sensitivity are monitored by the
Bank's asset and liability committee. This committee meets regularly to
review and direct the Bank's lending and investment activities, as well as
its deposit-gathering and borrowing 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 to cash at a reasonable price. At September 30, 1995, the Company
maintained cash balances and short-term investments of approximately $151.6
million, compared with $101.0 million at December 31, 1994. During the
first nine months of 1995, the Company continued to be an average daily net
seller of Federal Funds.
Chittenden Corporation
Average Balances, Interest Income and Expense, and Average Rates (Unaudited)
For the Nine Months Ended September 30,
1995
---------------------------------------
Interest Average
Average Income/ Yield/
Balance (4) Expense(1) Rate(1)
---------------------------------------
(In Thousands)
ASSETS
Interest-Earning Assets:
Loans (2) $999,076 $70,671 9.46%
Industrial Revenue Bonds (3) 6,459 576 11.92
Investments:
Taxable 218,231 10,240 6.27
Tax-Favored Debt Securities 51,584 2,600 6.74
Tax-Favored Equity Securities 11,762 564 6.41
Interest-Bearing Deposits in Banks 100 2 2.67
Federal Funds Sold 30,795 1,358 5.90
------- -------
Total Interest-Earning Assets 1,318,007 86,011 8.73
-------
NonInterest-Earning Assets 115,286
Allowance for Possible Loan Losses (22,758)
-------
Total Assets $1,410,535
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
Savings and Interest-Bearing
Transactional Accounts 595,269 16,136 3.62
Certificates of Deposit $100,000
and Over 105,070 4,033 5.13
Other Time Deposits 357,890 14,535 5.43
------- -------
Total Interest-Bearing Deposits 1,058,229 34,704 4.38
Short-Term Borrowings 40,832 2,056 6.73
------- -------
Total Interest-Bearing Liabilities 1,099,061 36,760 4.47
-------
NonInterest-Bearing Liabilities:
Demand Deposits 176,535
Other Liabilities 17,336
-------
Total Liabilities 1,292,932
Stockholders' Equity 117,603
-------
Total Liabilities and
Stockholders' Equity $1,410,535
===========
Net Interest Income $49,251
=======
Interest Rate Spread (5) 4.25%
Net Yield on Earning Assets (6) 5.00%
(1) On a fully taxable equivalent basis. Calculated using a Federal Income
Tax Rate of 35%.
(2) Includes nonperforming loans
(3) Industrial revenue bonds are included in Loans in the Financial Statements.
(4) Average balances are based on historical amortized cost balances.
(5) Interest rate spread is the average rate earned on total interest-earning
assets less the average rate paid for interest-bearing liabilities.
(6) Net yield on earning assets is net interest income divided by total
interest-earning assets.
Chittenden Corporation
Average Balances, Interest Income and Expense, and Average Rates (Unaudited)
For the Nine Months Ended September 30,
1994
---------------------------------------
Interest Average
Average Income/ Yield/
Balance (4) Expense(1) Rate(1)
---------------------------------------
(In Thousands)
ASSETS
Interest-Earning Assets:
Loans (2) $834,187 $51,121 8.19%
Industrial Revenue Bonds (3) 10,071 730 9.69
Investments:
Taxable 193,649 8,156 5.63
Tax-Favored Debt Securities 37,838 1,481 5.23
Tax-Favored Equity Securities 18,721 565 4.04
Interest-Bearing Deposits in Banks 1,364 34 3.33
Federal Funds Sold 18,286 554 4.05
------- -------
Total Interest-Earning Assets 1,114,116 62,641 7.52
-------
NonInterest-Earning Assets 97,349
Allowance for Possible Loan Losses (19,302)
-------
Total Assets $1,192,163
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
Savings and Interest-Bearing
Transactional Accounts 516,816 10,097 2.61
Certificates of Deposit $100,000
and Over 61,988 1,746 3.77
Other Time Deposits 306,866 8,804 3.84
------- -------
Total Interest-Bearing Deposits 885,670 20,647 3.12
Short-Term Borrowings 35,532 1,380 5.19
------- -------
Total Interest-Bearing Liabilities 921,202 22,027 3.20
-------
NonInterest-Bearing Liabilities:
Demand Deposits 158,910
Other Liabilities 11,433
-------
Total Liabilities 1,091,545
Stockholders' Equity 100,618
-------
Total Liabilities and
Stockholders' Equity $1,192,163
===========
Net Interest Income $40,614
=======
Interest Rate Spread (5) 4.32%
Net Yield on Earning Assets (6) 4.87%
(1) On a fully taxable equivalent basis. Calculated using a Federal Income
Tax Rate of 35%.
(2) Includes nonperforming loans
(3) Industrial revenue bonds are included in Loans in the Financial Statements.
(4) Average balances are based on historical amortized cost balances.
(5) Interest rate spread is the average rate earned on total interest-earning
assets less the average rate paid for interest-bearing liabilities.
(6) Net yield on earning assets is net interest income divided by total
interest-earning assets.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27. Financial Data Schedule
b. Reports on Form 8-K
Press Release related to announcement of an agreement to
acquire Flagship Bank and Trust Company, filed via Edgar
on September 22, 1995.
<PAGE>
CHITTENDEN CORPORATION
SIGNATURES
Pursuant to the requirement 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.
CHITTENDEN CORPORATION
Registrant
November 9, 1995 S/PAUL A. PERRAULT
---------------- ---------------------------
Date Paul A. Perrault, President
and Chief Executive Officer
November 9, 1995 S/NANCY ROWDEN BROCK
---------------- --------------------------
Date Nancy Rowden Brock
Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 78532
<INT-BEARING-DEPOSITS> 100
<FED-FUNDS-SOLD> 73000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 9747
<INVESTMENTS-MARKET> 9745
<LOANS> 1049790
<ALLOWANCE> 24536
<TOTAL-ASSETS> 1522808
<DEPOSITS> 1305416
<SHORT-TERM> 60922
<LIABILITIES-OTHER> 25541
<LONG-TERM> 0
<COMMON> 8542
0
0
<OTHER-SE> 122387
<TOTAL-LIABILITIES-AND-EQUITY> 1522808
<INTEREST-LOAN> 71057
<INTEREST-INVEST> 12430
<INTEREST-OTHER> 1360
<INTEREST-TOTAL> 84847
<INTEREST-DEPOSIT> 34704
<INTEREST-EXPENSE> 36760
<INTEREST-INCOME-NET> 48087
<LOAN-LOSSES> 2750
<SECURITIES-GAINS> 205
<EXPENSE-OTHER> 44208
<INCOME-PRETAX> 22902
<INCOME-PRE-EXTRAORDINARY> 22902
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15488
<EPS-PRIMARY> 1.88
<EPS-DILUTED> 1.87
<YIELD-ACTUAL> 5.15
<LOANS-NON> 12347
<LOANS-PAST> 1812
<LOANS-TROUBLED> 180
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 19099
<CHARGE-OFFS> 3606
<RECOVERIES> 2158
<ALLOWANCE-CLOSE> 24536
<ALLOWANCE-DOMESTIC> 24536
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
