SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-K
(Mark One)
X Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (Fee Required)
For the Fiscal Year Ended December 31, 1995
or
_____Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (No Fee Required)
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
Securities registered pursuant to Section 12(b) of the Act: NONE
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 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
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 1, 1996, as reported on NASDAQ, was $259,361,000.
At March 1, 1996, there were 9,605,968 shares of the Registrant's common stock
issued and outstanding.
<PAGE>
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:
1. Proxy Statement for 1996 Annual Meeting of Registrant's Stockholders: Part
III, Items 10, 11, 12, 13.
2. The Company's Registration Statement No. 33-64527 on Form S-4 under the
Securities Act of 1933, filed in connection with the Company's acquisition
of Flagship Bank and Trust Company, Worcester, Massachusetts: Part I,
Items 1, 2; Part II, Items 6, 7, 8.
PART I
ITEM l
BUSINESS
Chittenden Corporation (the "Company" or "CC"), 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 $1,521,081,000 at December 31,
1995. The Company is the holding company parent of Chittenden Trust Company
("CTC") and The Bank of Western Massachusetts ("BWM"), and as of December 31,
1995, owned 100% of the outstanding common stock of those banks. The Company
also became the holding company parent of Flagship Bank and Trust Company
("FBT") on February 29, 1996 and owns 100% of the outstanding common stock of
that bank. Reference is made to the Company's Registration Statement
No. 33-64527 on Form S-4 under the Securities Act of 1933, filed in connection
with the Company's acquisition of FBT, Worcester, Massachusetts.
The Company's principal executive offices are located at Two Burlington Square,
Burlington, Vermont 05401; telephone number: 802-658-4000.
CHITTENDEN TRUST COMPANY
CTC was chartered by the Vermont Legislature as a commercial bank in 1904. It
is the largest bank in Vermont, based on total assets of $1,276,713,000 and
total deposits of $1,136,640,000 at December 31, 1995. All financial
information on CTC is based on the December 31, 1995 Call Report.
CTC has its principal offices in Burlington, Vermont and has 38 additional
locations in Vermont, of which three are free standing automated teller machines
("ATM's"). (See Item 2, "Properties"). All offices of CTC use the trade name
"Chittenden Bank".
CTC offers a wide range of banking services, including the acceptance of demand,
savings, and time deposits. As of December 31, 1995, total interest-bearing
deposits amounted to $955,883,000 or 84% of total deposits.
CTC offers a variety of lending services, with loans and leases totaling
$948,082,000 at December 31, 1995. The largest loan category is real estate
mortgage loans, which amounted to 64% of total loans outstanding at December 31,
1995. The largest classification of real estate mortgage loans is loans secured
by residential properties including close-ended home equity loans, which
amounted to 34% of total loans outstanding at December 31, 1995. CTC
underwrites substantially all of its residential mortgages to secondary market
standards. CTC sells substantially all of its fixed-rate residential mortgage
production on a servicing-retained basis. Variable-rate mortgage loans are held
in portfolio. Revolving home equity loans as a separate group amounted to 7% of
loans at December 31, 1995. These loans are generally underwritten to the same
standards as first mortgages. The remaining real estate mortgage loans are
commercial related and primarily owner occupied or investment properties.
Consumer loans outstanding at December 31, 1995 were 15% of total loans. These
include direct and indirect installment loans, auto leases and revolving credit.
All other loans outstanding at December 31, 1995 amounted to 21% of total loans.
These loans are made to a variety of businesses, including retail concerns,
small manufacturing businesses, and larger corporations, as well as to other
commercial banks, and to political subdivisions in the U.S.
In making commercial loans, CTC occasionally solicits the participation of other
Vermont banks or correspondent banks and other financial investors outside the
State. CTC also occasionally participates in loans originated by other banks.
Certain of CTC'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.
CTC's lending activities are conducted primarily in Vermont with additional
activity related to nearby trading areas in Quebec, New York, New Hampshire,
Maine and Connecticut. In addition to the portfolio diversification described
above, the loans are widely diversified by borrowers and industry groups.
CTC 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.
CTC offers data processing services consisting primarily of payroll and
automated clearing house for several outside clients. All of CTC's data
processing services are performed by Alltel Systematics, a data processing
facilities management firm based in Little Rock, Arkansas, and CTC.
CTC 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.
CTC also provides safe deposit facilities, MasterCard, and VISA credit card
services, and is a processor of merchant credit card transactions.
Chittenden also offers certain non-bank, investment products through a
dual-employee contractual relationship with Link Investment Services, Inc.
THE BANK OF WESTERN MASSACHUSETTS
BWM was chartered by the Commonwealth of Massachusetts as a commercial bank in
1986. BWM had total assets of $248,683,000 and total deposits of $214,380,000
at December 31, 1995. All financial information on BWM is based on the December
31, 1995 Call Report.
BWM has its principal offices in Springfield, Massachusetts and has 3 additional
locations in the greater Springfield, Massachusetts area. (See Item 2,
"Properties").
BWM offers a wide range of banking services, including the acceptance of demand,
savings, and time deposits. As of December 31, 1995, total interest-bearing
deposits amounted to $170,048,000 or 79% of total deposits.
BWM offers a variety of lending services, with loans totaling $175,315,000 at
December 31, 1995. The largest loan category is real estate mortgage loans,
which amounted to 57% of total loans outstanding at December 31, 1995. The
largest classification of real estate mortgage loans is loans secured by
commercial properties which amounted to 31% of total loans outstanding at
December 31, 1995. Residential properties including close-ended home equity
loans, amounted to 20% of total loans outstanding at December 31, 1995.
Revolving home equity loans as a separate group amounted to 10% of loans at
December 31, 1995. The remaining real estate mortgage loans are primarily
construction loans.
Consumer loans outstanding at December 31, 1995 were 3% of total loans. These
include direct and indirect installment loans, and revolving credit.
All other loans outstanding at December 31, 1995 amounted to 40% of total loans.
These loans are made to a variety of businesses, including retail concerns and
small manufacturing businesses.
In making commercial loans, BWM occasionally solicits the participation of other
banks, including its affiliate, CTC. BWM also occasionally participates in
loans originated by other banks. Certain of BWM's commercial loans are made
under programs administered by 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.
BWM's lending activities are conducted primarily in the greater Springfield,
Massachusetts area.
BWM 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.
ECONOMY
Although still sluggish, the New England econony showed signs of improvement
during 1995. Both retail and manufacturing sales remain lackluster for the
Boston Federal Reserve District region. Both housing permits and new
construction contracts remain below the prior year level. However, the outlook
improved on the employment front. The ability and willingness of the Company's
borrowers to honor their repayment commitments are impacted by many factors,
including the level of overall economic activity within the borrowers'
geographic area.
COMPETITION
There is vigorous competition in the Company's marketplace for all aspects of
the banking and related financial services presently engaged in by the Company
and its subsidiaries.
CTC 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 own in-state banks; Key Bank owns
Bank of Vermont and Allbank acquired Marble Bank early in 1996. Another out-of-
state bank, Arrow, exited Vermont early in 1996. Regulatory changes in the
banking industry have permitted thrift institutions to engage in commercial
lending activities.
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. Money market
deposit accounts and short term flexible-maturity certificates of deposit
offered by CTC compete with investment account offerings of brokerage firms and,
more recently, with new products offered by insurance companies.
CTC also competes for personal and commercial trust business with investment
advisory firms, mutual funds, and insurance companies.
BWM also operates in an area in which competition among financial institutions
is continuously increasing; however, by focusing on meeting the needs of the
smaller and medium-sized businesses and professionals in its market area, BWM
believes that it has found a market niche in which it competes effectively.
SUPERVISION AND REGULATION
The Company and its banking subsidiaries (CTC and BWM) are subject to extensive
regulation under federal and state banking laws and regulations. The following
discussion of certain of the material elements of the regulatory framework
applicable to banks and bank holding companies is not intended to be complete
and is qualified in its entirety by the text of the relevant state and federal
statutes and regulations. A change in the applicable laws or regulations may
have a material effect on the business of the Company and/or its banking
subsidiaries.
Regulation of the Company
GENERAL. As a bank holding company, the Company is subject to supervision and
regulation by the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board") under the Bank Holding Company Act of 1956, as amended (the "BHC
Act"). Under the BHC Act, bank holding companies generally may not acquire
ownership or control of more than 5% of any class of voting shares or
substantially all of the assets of any company, including a bank, without the
prior approval of the Federal Reserve Board. In addition, bank holding
companies are generally prohibited under the BHC Act from engaging in non-
banking activities, subject to certain exceptions. As a bank holding company,
the Company's activities are limited generally to the business of banking and
activities determined by the Federal Reserve Board to be so closely related to
banking as to be a proper incident thereto. The Federal Reserve Board has
authority to issue cease and desist orders and assess civil money penalties
against bank holding companies and their non-bank subsidiaries, officers,
directors and other institution-affiliated parties, and to remove officers,
directors and other institution-affiliated parties to terminate or prevent
unsafe or unsound banking practices or violations of laws or regulations.
INTERSTATE ACQUISITIONS. Prior to September 29, 1995, under the BHC Act a bank
holding company was permitted to acquire a bank in another state only if the law
of the state in which the bank to be acquired was located specifically
authorized such acquisition of an in-state bank by an out-of-state bank holding
company. As described below under "Recent Banking Legislation - Interstate
Banking and Branching", the BHC Act has recently been amended, effective
September 29, 1995, to remove this prohibition. Even prior to this amendment
to the BHC Act, state legislation enacted in recent years substantially lessened
prior legislative restrictions on geographic expansion by bank holding companies
from and into Massachusetts and Vermont. For example, under nationwide
reciprocal interstate banking legislation adopted by both states which became
effective in 1990, bank holding companies whose subsidiaries' banking operations
were principally conducted in any state outside Massachusetts or Vermont were
authorized to acquire Massachusetts or Vermont banking organizations, provided
that such companies' home states afforded Massachusetts or Vermont banking
organizations reciprocal rights to acquire banks in such states.
DIVIDENDS. The Federal Reserve Board has authority to prohibit bank holding
companies from paying dividends if such payment would be an unsafe or unsound
practice. The Federal Reserve Board has indicated generally that it may be an
unsound practice for bank holding companies to pay dividends unless the bank
holding company's net income over the preceding year is sufficient to fund the
dividends and the expected rate of earnings retention is consistent with the
organization's capital needs, asset quality, and overall financial condition.
The Company's ability to pay dividends is dependent upon the flow of dividend
income to it from its banking subsidiaries, which may be affected or limited by
regulatory restrictions imposed by federal or state bank regulatory agencies.
See "- Regulation of CTC and BWM - Dividends."
CERTAIN TRANSACTIONS BY BANK HOLDING COMPANIES WITH THEIR AFFILIATES. There are
various legal restrictions on the extent to which bank holding companies and
their non-bank subsidiaries may borrow, obtain credit from or otherwise engage
in "covered transactions" with their insured depository institution
subsidiaries. Such borrowings and other covered transactions by an insured
depository institution subsidiary (and its subsidiaries) with its non-depository
institution affiliates are limited to the following amounts: (a) in the case of
any one such affiliate, the aggregate amount of covered transactions of the
insured depository institution and its subsidiaries cannot exceed 10% of the
capital stock and surplus of the insured depository institution; and (b) in the
case of all affiliates, the aggregate amount of covered transactions of the
insured depository institution and its subsidiaries cannot exceed 20% of the
capital stock and surplus of the insured depository institution. "Covered
transactions" are defined by statute for these purposes to include a loan or
extension of credit to an affiliate, a purchase of or investment in securities
issued by an affiliate, a purchase of assets from an affiliate unless exempted
by the Federal Reserve Board, the acceptance of securities issued by an
affiliate as collateral for a loan or extension of credit to any person or
company, or the issuance of a guarantee, acceptance or letter of credit on
behalf of an affiliate. Covered transactions are also subject to certain
collateral security requirements. Further, a bank holding company and its
subsidiaries are prohibited from engaging in certain tying arrangements in
connection with any extension of credit, lease or sale of property of any kind,
or furnishing of any service.
HOLDING COMPANY SUPPORT OF SUBSIDIARY BANKS. Under Federal Reserve Board
policy, the Company is expected to act as a source of financial strength to its
subsidiary banks and to commit resources to support such subsidiaries. This
support of its subsidiary banks may be required at times when, absent such
Federal Reserve Board policy, the Company might not otherwise be inclined to
provide it. In addition, any capital loans by a bank holding company to any of
its subsidiary banks are subordinate in right of payment to deposits and certain
other indebtedness of such subsidiary banks. In the event of a bank holding
company's bankruptcy, any commitment by the bank holding company to a federal
bank regulatory agency to maintain capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
LIABILITY OF COMMONLY CONTROLLED DEPOSITORY INSTITUTIONS. Under the Federal
Deposit Insurance Act, as amended ("FDI Act"), an FDIC-insured depository
institution, such as CTC or BWM, can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC after August 9, 1989 in
connection with (i) the "default" of a commonly controlled FDIC-insured
depository institution, or (ii) any assistance provided by the FDIC to any
commonly controlled depository institution in "danger of default." For these
purposes, the term "default" is defined generally as the appointment of a
conservator or receiver and "in danger of default" is defined generally as the
existence of certain conditions indicating that a default is likely to occur
without Federal regulatory assistance.
Regulation of CTC and BWM
GENERAL. As FDIC-insured state-chartered banks, CTC and BWM are subject to
supervision of and regulation by the Commissioner of Banking, Insurance and
Securities of the State of Vermont, in connection with CTC, and the Commissioner
of Banks of the Commonwealth of Massachusetts in connection with BWM
(collectively, the "Commissioners") and, for both banks, by the FDIC. This
supervision and regulation is for the protection of depositors, the BIF (as
hereinafter defined), and consumers, and is not for the protection of the
Company's stockholders. The prior approval of the FDIC and the Commissioners is
required for CTC or BWM to establish or relocate an additional branch office,
assume deposits, or engage in any merger, consolidation or purchase or sale of
all or substantially all of the assets of any bank or savings association.
EXAMINATIONS AND SUPERVISION. The FDIC and the Commissioners regularly examine
the operations of CTC and BWM, including (but not limited to) their capital
adequacy, reserves, loans, investments, earnings, liquidity, compliance with
laws and regulations, record of performance under the Community Reinvestment Act
and management practices. In addition, CTC and BWM are required to furnish
quarterly and annual reports of income and condition to the FDIC and periodic
reports to the Commissioners. The enforcement authority of the FDIC includes
the power to impose civil money penalties, terminate insurance coverage, remove
officers and directors and issue cease-and-desist orders to prevent unsafe or
unsound practices or violations of laws or regulations. In addition, under
recent federal banking legislation, the FDIC has authority to impose additional
restrictions and requirements with respect to banks that do not satisfy
applicable regulatory capital requirements. See "- Recent Banking Legislation -
Prompt Corrective Action" below.
DIVIDENDS. The principal source of the Company's revenue is dividends from CTC,
one of its bank subsidiaries. Payment of dividends by CTC and BWM are subject
to certain Vermont and Massachusetts banking law restrictions. Payment of
dividends by CTC is subject to Vermont banking law restrictions which require
that, except when surplus and paid-in capital together amount to 10% or more of
deposits and other liabilities (not including surplus, paid-in capital, capital
notes and debentures, and funds held in a fiduciary capacity), at least one-
tenth of its net profits must be set aside annually and added to surplus.
The FDIC has authority to prevent CTC and BWM from paying dividends if such
payment would constitute an unsafe or unsound banking practice or reduce the
respective bank's capital below safe and sound levels. In addition, recently
enacted federal legislation prohibits FDIC-insured depository institutions from
paying dividends or making capital distributions that would cause the
institution to fail to meet minimum capital requirements. See "- Recent Banking
Legislation - Prompt Corrective Action" below.
AFFILIATE TRANSACTIONS. Banks are subject to restrictions imposed by federal
law on extensions of credit to, purchases of assets from, and certain other
transactions with, affiliates, and on investments in stock or other securities
issued by affiliates. Such restrictions prevent CTC and BWM from making loans
to affiliates unless the loans are secured by collateral in specified amounts
and have terms at least as favorable to the bank as the terms of comparable
transactions between the bank and non-affiliates. Further, federal and
applicable state laws significantly restrict extensions of credit by CTC and BWM
to directors, executive officers and principal stockholders and related
interests of such persons.
DEPOSIT INSURANCE. CTC's and BWM's deposits are insured by the Bank Insurance
Fund ("BIF") of the FDIC to the legal maximum of $100,000 for each insured
depositor. The Federal Deposit Insurance Act provides that the FDIC shall set
deposit insurance assessment rates on a semi-annual basis at a level sufficient
to increase the ratio of BIF reserves to BIF-insured deposits to at least 1.25%
over a 15-year period commencing in 1991, and to maintain that ratio. Although
the recently-established framework of risk-based insurance assessments
accomplished this increase in May 1995, and the FDIC has made a substantial
reduction in the assessment rate schedule, the BIF insurance assessments may be
increased in the future if necessary to maintain BIF reserves at the required
level. In addition, certain proposed legislation to recapitalize the Savings
Association Insurance Fund ("SAIF"), which insures the deposits of savings
associations and certain savings banks, may result in increased BIF assessments.
See "-Recent Banking Legislation - Risk-Based Deposit Insurance Assessments"
below.
FEDERAL RESERVE BOARD POLICIES. The monetary policies and regulations of the
Federal Reserve Board have had a significant effect on the operating results of
banks in the past and are expected to continue to do so in the future. Federal
Reserve Board Policies affect the levels of bank earnings on loans and
investments and the levels of interest paid on bank deposits through the Federal
Reserve System's open-market operations in United States government securities,
regulation of the discount rate on bank borrowings from Federal Reserve Banks
and regulation of non-earning reserve requirements applicable to bank deposit
account balances.
CONSUMER PROTECTION REGULATION; BANK SECRECY ACT. Other aspects of the lending
and deposit business of CTC and BWM that are subject to regulation by the FDIC
and the Commissioners include disclosure requirements with respect to interest,
payment and other terms of consumer and residential mortgage loans and
disclosure of interest and fees and other terms of and the availability of,funds
for withdrawal from consumer deposit accounts. In addition, CTC and BWM are
subject to federal and state laws and regulations prohibiting certain forms of
discrimination in credit transactions, and imposing certain record keeping,
reporting and disclosure requirements with respect to residential mortgage loan
applications. In addition, CTC and BWM are subject to federal laws establishing
certain record keeping, customer identification, and reporting requirements with
respect to certain large cash transactions, sales of travelers checks or other
monetary instruments and the international transportation of cash or monetary
instruments.
CRA Regulations
The Community Reinvestment Act ("CRA") requires lenders to identify the
communities served by the institution's offices and to identify the types of
credit the institution is prepared to extend within such communities. The FDIC
conducts examinations of insured institutions' CRA compliance and rates such
institutions as "Outstanding", "Satisfactory", "Needs to Improve" and
"Substantial Noncompliance". As of their last CRA examinations, CTC received a
rating of "Outstanding" and BWM received a rating of "Satisfactory." Failure of
an institution to receive at least a "Satisfactory" rating could inhibit such
institution's undertaking certain activities, including acquisitions of other
financial institutions, which require regulatory approval based, in part, on CRA
compliance considerations. The Federal Reserve Board must take into account the
record of performance of banks in meeting the credit needs of the entire
community served, including low and moderate income neighborhoods.
The federal bank regulatory agencies have jointly issued amendments to the
regulations implementing the CRA that revise the CRA framework effective January
1, 1996. These new CRA regulations rely more than the former CRA regulations
upon objective criteria of the performance of institutions under three key
assessment tests: a lending test, a service test and an investment test. CTC
and BWM are committed to meeting the existing or anticipated credit needs of
their entire communities, including low and moderate income neighborhoods,
consistent with safe and sound operations. At this time, CTC and BWM are
adjusting their procedures to accumulate the information required under the new
CRA regulations.
Capital Requirements
GENERAL. The FDIC has established guidelines with respect to the maintenance of
appropriate levels of capital by FDIC-insured banks. The Federal Reserve Board
has established substantially identical guidelines with respect to the
maintenance of appropriate levels of capital, on a consolidated basis, by bank
holding companies. If a banking organization's capital levels fall below the
minimum requirements established by such guidelines, a bank or bank holding
company will be expected to develop and implement a plan acceptable to the FDIC
or the Federal Reserve Board, respectively, to achieve adequate levels of
capital within a reasonable period, and may be denied approval to acquire or
establish additional banks or non-bank businesses, merge with other institutions
or open branch facilities until such capital levels are achieved. Federal
legislation requires federal bank regulators to take "prompt corrective action"
with respect to insured depository institutions that fail to satisfy minimum
capital requirements and imposes significant restrictions on such institutions.
See "- Recent Banking Legislation - Prompt Corrective Action" below.
LEVERAGE CAPITAL RATIO. The regulations of the FDIC require FDIC-insured banks
to maintain a minimum "Leverage Capital Ratio" or "Tier 1 Capital" (as defined
in the Risk-Based Capital Guidelines discussed in the following paragraphs) to
Total Assets of 3.0%. The regulations of the FDIC state that only banks with
the highest federal bank regulatory examination rating will be permitted to
operate at or near such minimum level of capital. All other banks are expected
to maintain an additional margin of capital, equal to at least 1% to 2% of Total
Assets, above the minimum ratio. Any bank experiencing or anticipating
significant growth is expected to maintain capital well above the minimum
levels. The Federal Reserve Board's guidelines impose substantially similar
leverage capital requirements on bank holding companies on a consolidated basis.
RISK-BASED CAPITAL REQUIREMENTS. The regulations of the FDIC also require FDIC-
insured banks to maintain minimum capital levels measured as a percentage of
such banks' risk-adjusted assets. A bank's qualifying total capital ("Total
Capital") for this purpose may include two components - "Core" (Tier 1) Capital
and "Supplementary" (Tier 2) Capital. Core Capital consists primarily of common
stockholders' equity, which generally includes common stock, related surplus and
retained earnings, certain non-cumulative perpetual preferred stock and related
surplus, and minority interests in the equity accounts of consolidated
subsidiaries, and (subject to certain limitations) mortgage servicing rights and
purchased credit card relationships, less all other intangible assets (primarily
goodwill). Supplementary Capital elements include, subject to certain
limitations, a portion of the allowance for losses on loans and leases,
perpetual preferred stock that does not qualify for inclusion in Tier 1 capital,
long-term preferred stock with an original maturity of at least 20 years and
related surplus, certain forms of perpetual debt and mandatory convertible
securities, and certain forms of subordinated debt and intermediate-term
preferred stock.
The risk-based capital rules of the FDIC and the Federal Reserve Board assign a
bank's balance sheet assets and the credit equivalent amounts of the bank's off-
balance sheet obligations to one of four risk categories, weighted at 0%, 20%,
50% or 100%, respectively. Applying these risk-weights to each category of the
bank's balance sheet assets and to credit the equivalent amounts of the bank's
off-balance sheet obligations and summing the totals results in the amount of
the bank's total Risk-Adjusted Assets for purposes of the risk-based capital
requirements. Risk-Adjusted Assets can either exceed or be less than reported
balance sheet assets, depending on the risk profile of the banking organization.
Risk-Adjusted Assets for institutions such as CTC will generally be less than
reported balance sheet assets because its retail banking activities include
proportionally more residential mortgage loans with a lower risk weighing and
relatively smaller off-balance sheet obligations.
Effective as of December 31, 1992, the risk-based capital regulations require
all banks to maintain a minimum ratio of Total Capital to Risk-Adjusted Assets
of 8.0%, of which at least one-half (4.0%) must be Core (Tier 1) Capital. For
the purpose of calculating these ratios: (i) a banking organization's
Supplementary Capital eligible for inclusion in Total Capital is limited to no
more than 100% of Core Capital; and (ii) the aggregate amount of certain types
of Supplementary Capital eligible for inclusion in Total Capital is further
limited. For example, the regulations limit the portion of the allowance for
loan losses eligible for inclusion in Total Capital to 1.25% of Risk-Adjusted
Assets. The Federal Reserve Board has established substantially identical risk-
based capital requirements which are applied to bank holding companies on a
consolidated basis.
Effective September 1, 1995, the FDIC amended its risk-based capital regulation
to provide explicitly for consideration of interest rate risk in the FDIC's
overall evaluation of a bank's capital adequacy. The intended effect of the
amendment is to ensure that banks effectively measure and monitor their interest
rate risk, and that they maintain capital adequate for that risk. A bank deemed
by the FDIC to have excessive interest rate risk exposure may be required by the
FDIC to maintain additional capital (that is, capital in excess of the minimum
ratios discussed above). Both CTC and BWM believe that this amendment will not
have a material adverse effect on them.
At December 31, 1995, the Company's consolidated Total and Tier 1 Risk-Based
Capital Ratios were 12.74% and 11.36%, respectively, and its Leverage Capital
Ratio was 8.34%.
Based on the above figures and accompanying discussion, CC exceeds all
regulatory capital requirements.
Recent Banking Legislation
GENERAL. On December 19, 1991, the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") was enacted. FDICIA extensively revised the
regulatory and funding provisions of the FDI Act and made revisions to several
federal banking statutes. In addition, there has been certain other recent
banking legislation. Certain of these changes are summarized below.
PROMPT CORRECTIVE ACTION. Among other things, FDICIA requires the federal
banking regulators to take "prompt corrective action" with respect to, and
imposes significant restrictions on, any bank that fails to satisfy its
applicable minimum capital requirements. FDICIA establishes five capital
categories consisting of "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized." Under applicable regulations, a bank that has a Total Risk-
Based Capital Ratio of 10.0% or greater, a Tier 1 Risk-Based Capital Ratio of
6.0% or greater and a Leverage Capital Ratio of 5.0% or greater, and is not
subject to any written agreement, order, capital directive or prompt corrective
action directive to meet and maintain a specific capital level for any capital
measure is deemed to be "well capitalized." A bank that has a Total Risk-Based
Capital Ratio of 8.0% or greater, a Tier 1 Risk-Based Capital Ratio of 4.0% or
greater and a Leverage Capital Ratio of 4.0% or greater and does not meet the
definition of a well capitalized bank is considered to be "adequately
capitalized." A bank that has a Total Risk-Based Capital Ratio of less than
8.0% or has a Tier 1 Risk-Based Capital Ratio that is less than 4.0% or
generally a Leverage Capital Ratio of less than 4.0% is considered
"undercapitalized." A bank that has a Total Risk-Based Capital Ratio of less
than 6.0%, or a Tier 1 Risk-Based Capital Ratio that is less than 3.0% or a
Leverage Capital Ratio that is less than 3.0% is considered to be "significantly
undercapitalized," and a bank that has a ratio of tangible equity to total
assets equal to or less than 2% is deemed to be "critically undercapitalized."
A bank may be deemed to be in a capital category lower than is indicated by its
actual capital position if it is determined to be in an unsafe or unsound
condition or receives an unsatisfactory examination rating. FDICIA generally
prohibits a bank from making capital distributions (including payment of
dividends) or paying management fees to controlling stockholders or their
affiliates if, after such payment, the bank would be undercapitalized.
Under FDICIA and the applicable implementing regulations, an undercapitalized
bank will be (i) subject to increased monitoring by the FDIC; (ii) required to
submit to the FDIC an acceptable capital restoration plan (guaranteed, subject
to certain limits, by the bank's holding company) within 45 days; (iii) subject
to strict asset growth limitations; and (iv) required to obtain prior regulatory
approval for certain acquisitions, transactions not in the ordinary course of
business, and entry into new lines of business. In addition to the foregoing,
the FDIC may issue a "prompt corrective action directive" to any
undercapitalized institution. Such a directive may require sale or
recapitalization of the bank, impose additional restrictions on transactions
between the bank and its affiliates, limit interest rates paid by the bank on
deposits, limit asset growth and other activities, require divestiture of the
subsidiaries, require replacement of directors and officers, and restrict
capital distributions by the bank's parent holding company.
In addition to the foregoing, a significantly undercapitalized institution may
not award bonuses or increases in compensation to its senior executive officers
until it has submitted an acceptable capital restoration plan and received
approval from the FDIC.
Not later than 90 days after an institution becomes critically undercapitalized,
the appropriate federal banking agency for the institution must appoint a
receiver or, with the concurrence of the FDIC, a conservator, unless the agency,
with the concurrence of the FDIC, determines that the purposes of the prompt
corrective action provisions would be better served by another course of action.
FDICIA requires that any alternative determination be "documented" and
reassessed on a periodic basis. Notwithstanding the foregoing, a receiver must
be appointed after 270 days unless the appropriate federal banking agency and
the FDIC certify that the institution is viable and not expected to fail.
RISK-BASED DEPOSIT INSURANCE ASSESSMENTS. Effective January 1, 1993, a
transitional risk-based structure was implemented by the FDIC pursuant to FDICIA
and the average assessment rate paid by Savings Association Insurance Fund-
insured and BIF-insured institutions was increased. Under the rule implementing
the transitional system, the FDIC assigned an institution to one of three
capital categories consisting of (1) well capitalized, (2) adequately
capitalized, or (3) undercapitalized, and one of three supervisory categories.
An institution's assessment rate depended on the capital category and
supervisory category to which it was assigned. Under the transitional system,
there were nine assessment risk classifications (i.e., combinations of capital
categories and supervisory subgroups within each capital group) to which the
differing assessment rates were applied. Assessment rates ranged from 0.23% of
domestic deposits for an institution in the lowest risk category (i.e., well-
capitalized and healthy from a supervisory standpoint), to 0.31% of domestic
deposits for institutions in the highest risk category (i.e., undercapitalized
and unhealthy from a supervisory standpoint). The risk classification to which
an institution is assigned by the FDIC is confidential and may not be disclosed.
On June 17, 1993, the FDIC adopted a final rule establishing a new risk-based
system that was implemented beginning with the semi-annual assessment period
commencing on January 1, 1994, as required under FDICIA. Except for limited
changes, the structure of the new risk-based system is substantially the same as
the structure of the transitional system it replaced and (until recently)
retained the same range of assessment rates. Under the FDIC rule implementing
the new risk-based system, an institution's deposit insurance assessment rate is
determined by assigning the institution to a capital category and a supervisory
subgroup to determine which one of the nine risk classification categories is
applicable, in substantially the same manner as for the transitional system
discussed above. The FDIC is authorized to raise the assessment rates in
certain circumstances. If the FDIC determines to increase the assessment rates
for all institutions, institutions in all risk categories could be affected.
The FDIC has exercised this authority several times in the past and may raise
BIF insurance premiums again in the future. If such action is taken by the
FDIC, it could have an adverse effect on the earnings of CTC and BWM, the extent
of which is not currently quantifiable.
On November 14, 1995, the FDIC lowered the assessment rate schedule for BIF-
insured institutions, effective for the semiannual assessment period beginning
January 1, 1996, from a range of 0.04% to 0.31% of domestic deposits to a range
of the statutory annual minimum assessment of $2,000 per institution (regardless
of size) to 0.27% of domestic deposits, with intermediate rates of 0.03%, 0.10%,
0.17% and 0.24%. The FDIC indicated that it took this action in view of the
historically high reserve ratio of the BIF (approximately 1.30% of insured
deposits), the general health of the banking industry, the low projected losses
to the BIF, and the strength of the economy. The FDIC has estimated that
approximately 92% of BIF-insured institutions will qualify for the minimum
annual assessment of $2,000, and it is expected that CTC and BWM will qualify
for the minimum annual assessment under this new assessment rate schedule. The
new assessment rate schedule does not reflect the possible impact upon
assessment rates of the proposed legislation to recapitalize the SAIF, discussed
below.
Although the BIF has now been recapitalized, the SAIF remains seriously
undercapitalized, and the Congress is currently considering legislation to
recapitalize the SAIF. Among other things, this proposed legislation would, if
enacted into law, (1) require BIF-insured institutions to pay most of the annual
interest on the Financing Corporation ("FICO") bonds issued in 1987 to begin
funding the resolution of the problems in the savings and loan industry, which
may result in an increase of 0.025% (or more) of domestic deposits in the
assessment rates applicable to BIF-insured institutions, and (2) following the
recapitalization of the SAIF, merge the SAIF into the BIF, resulting in the
assumption by the BIF of the risk of loss from the possible failure of
institutions now insured by the SAIF, and the possibility of higher BIF
assessments to cover such losses or to establish special reserves (not counted
toward the statutorily-required reserve ratio) against anticipated losses. At
present, different versions of such legislation had been approved by both the
House of Representatives and the Senate as parts of budget reconciliation bills.
A House-Senate conference committee is attempting to resolve the differences
between these two bills (including the provisions relating to the
recapitalization of the SAIF). Although the passage of some form of legislation
to recapitalize the SAIF appears likely in the near future, the ultimate form of
such legislation, including the timing and amounts of any payments to be made
thereunder by BIF-insured institutions, and the effect (if any) of such
legislation on possible future losses of the BIF or the insurance assessment
rate schedule for BIF-insured institutions, cannot be determined at this time.
BROKERED DEPOSITS AND PASS-THROUGH DEPOSIT INSURANCE LIMITATIONS. Under FDICIA,
a bank cannot accept brokered deposits unless it either (i) is "Well
Capitalized" or (ii) is "Adequately Capitalized" and has received a written
waiver from the FDIC. For this purpose, "Well Capitalized" and "Adequately
Capitalized" have the same definitions as in the Prompt Corrective Action
regulations. See "- Prompt Corrective Action" above. Banks that are not in the
"Well Capitalized" category are subject to certain limits on the rates of
interest they may offer on any deposits (whether or not obtained through a
third-party deposit broker). Pass-through insurance coverage is not available
for deposits of certain employee benefits plans in banks that do not satisfy the
requirements for acceptance of brokered deposits, except that pass-through
insurance coverage will be provided for employee benefit plan deposits in
institutions which at the time of acceptance of the deposit meet all applicable
regulatory capital requirements and send written notice to their depositors that
their funds are eligible for pass-through deposit insurance. Although eligible
to do so, CTC does not accept brokered deposits.
CONSERVATORSHIP AND RECEIVERSHIP AMENDMENTS. FDICIA authorizes the FDIC to
appoint itself conservator or receiver for a state-chartered bank under certain
circumstances and expands the grounds for appointment of a conservator or
receiver for an insured depository institution to include (i) consent to such
action by the board of directors of the institution; (ii) cessation of the
institution's status as an insured depository institution; (iii) the institution
is undercapitalized and has no reasonable prospect of becoming adequately
capitalized, or fails to become adequately capitalized when required to do so,
or fails to timely submit an acceptable capital plan, or materially fails to
implement an acceptable capital plan; and (iv) the institution is critically
undercapitalized or otherwise has substantially insufficient capital. FDICIA
provides that an institution's directors shall not be liable to its stockholders
or creditors for acquiescing in or consenting to the appointment of the FDIC as
receiver or conservator for, or as a supervisor in the acquisition of, the
institution.
REAL ESTATE LENDING STANDARDS. FDICIA requires the federal bank regulatory
agencies to adopt uniform real estate lending standards. The FDIC has adopted
implementing regulations which establish supervisory limitations on Loan-to-
Value ("LTV") ratios in real estate loans by FDIC-insured banks. The
regulations require FDIC-insured banks to establish LTV ratio limitations within
or below the prescribed uniform range of supervisory limits.
STANDARDS FOR SAFETY AND SOUNDNESS. FDICIA requires the federal bank regulatory
agencies to prescribe, by regulation, standards for all insured depository
institutions and depository institution holding companies relating to: (i)
internal controls, information systems and internal audit systems; (ii) loan
documentation; (iii) credit underwriting; (iv) interest rate risk exposure; (v)
asset growth; and (vi) compensation, fees and benefits. The compensation
standards would prohibit employment contracts, compensation or benefit
arrangements, stock option plans, fee arrangements or other compensatory
arrangements that would provide "excessive" compensation, fees or benefits, or
that could lead to material financial loss. In addition, the federal bank
regulatory agencies are required by FDICIA to prescribe standards specifying;
(i) maximum classified assets to capital ratios; (ii) minimum earnings
sufficient to absorb losses without impairing capital; and (iii) to the extent
feasible, a minimum ratio of market value to book value for publicly-traded
shares of depository institutions and depository institution holding companies.
The FDIC has issued regulations implementing certain of these provisions.
ACTIVITIES AND INVESTMENTS OF INSURED STATE BANKS. FDICIA provides that FDIC-
insured state banks such as CTC and BWM may not engage as a principal, directly
or through a subsidiary, in any activity that is not permissible for a national
bank unless the FDIC determines that the activity does not pose a significant
risk to the BIF, and the bank is in compliance with its applicable capital
standards. In addition, an insured state bank may not acquire or retain,
directly or through a subsidiary, any equity investment of a type, or in an
amount, that is not permissible for a national bank.
Subject to certain limited exceptions, the foregoing provisions of FDICIA
prohibit insured state banks such as CTC and BWM or any subsidiary of such
insured state banks from retaining or acquiring equity investments. However,
under an exception in the statute, an insured state bank such as CTC and BWM
that (i) is located in a state such as Vermont or Massachusetts which
authorized, as of September 30, 1991, state banks to invest in common or
preferred stock listed on a national securities exchange ("listed stock") or
shares of an investment company registered under the Investment Company Act of
1940 ("registered shares") and (ii) during the period beginning September 30,
1990 and ending on November 26, 1991 made or maintained investments in listed
stocks and registered shares, may retain whatever listed stock or registered
shares it lawfully acquired or held prior to December 19, 1991 and may continue
to acquire listed stock or registered shares which may not exceed, taken
together in the aggregate, 100% of the bank's Tier 1 Capital. In order to
acquire or retain any listed stock or registered shares under this exception,
the bank must file a one-time notice with the FDIC containing specified
information, and the FDIC must determine that acquiring or retaining the listed
stock or registered shares will not pose a significant risk to BIF. Any such
approval may be subject to whatever conditions or restrictions the FDIC
determines to be necessary or appropriate and will terminate with respect to
further acquisitions of listed stock or registered shares if the bank or its
holding company experiences a change in control and in certain other
circumstances. CTC filed the one-time notice with the FDIC and the FDIC did not
object.
Insured state banks are required to divest any equity investments made
impermissible by FDICIA including any listed stock and registered shares for
which FDIC approval is not obtained, as quickly as prudently possible but in no
event later than December 19, 1996, and to submit a plan for such divestiture to
the FDIC.
CONSUMER PROTECTION PROVISIONS. FDICIA also includes provisions requiring
advance notice to regulators and customers for any proposed branch closing and
authorizing (subject to future appropriation of the necessary funds) reduced
insurance assessments for institutions offering "lifeline" banking accounts or
engaged in lending in distressed communities. FDICIA also includes provisions
requiring depository institutions to make additional and uniform disclosures to
depositors with respect to the rates of interest, fees and other terms
applicable to consumer deposit accounts.
DEPOSITOR PRIORITY STATUTE. Effective August 10, 1993, the FDI Act was amended
to provide that, in the liquidation or other resolution by any receiver of a
bank insured by the FDIC, the claims of depositors have priority over the
general claims of other creditors. Hence, in the event of the liquidation or
other resolution of a banking subsidiary of the Company, the general claims of
the Company as creditor of such banking subsidiary would be subordinate to the
claims of the depositors of such banking subsidiary, even if the claims of CC
were not by their terms so subordinated. In addition, this statute may, in
certain circumstances, increase the costs to banks of obtaining funds through
nondeposit liabilities.
INTERSTATE BANKING AND BRANCHING. On September 29, 1994, the President of the
United States signed into law the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 ("Riegle-Neal Act"). Beginning September 29, 1995, an
adequately capitalized and managed bank holding company may (with Federal
Reserve Board approval) acquire control of banks outside its principal state of
operations, without regard to whether such acquisitions are permissible under
state law. States may, however, limit the eligibility of banks to be acquired
by an out-of-state bank holding company to banks in existence for a minimum
period of time (not in excess of five years). No bank holding company may make
an acquisition outside its principal state of operations which would result in
it controlling more than 10% of the total amount of deposits of all insured
depository institutions in the United States, or 30% or more of the total
deposits of insured depository institutions in any state (unless such limit is
waived, or a more restrictive or permissible limit is established, by a
particular state). In addition, beginning June 1, 1997, banks may branch across
state lines either by merging with banks in other states or by establishing new
branches in other states. The date relating to interstate branching through
mergers may be accelerated by any state, and such mergers may be prohibited by
any state. The provision relating to establishing new branches in another state
requires a state's specific approval. The Vermont Commissioner made
recommendations to the Vermont legislature in November, 1995 that Vermont should
enact laws and regulations on interstate branching in response to the Riegle-
Neal Act. In her report to the legislature, the Vermont Commissioner
recommended that the legislature adopt legislation to accelerate the effective
date of interstate branching through mergers to July 1, 1996 (that is, to "opt-
in early") by permitting out-of-state banks to acquire Vermont banks in
existence for at least five years, or branches in existence for at least one
year, subject (prior to July 1, 1997) to the reciprocity requirements that banks
from another state may so branch through mergers into Vermont only if Vermont
banks may so branch through mergers into that other state by acquiring banks or
branches in that state. The Vermont Commissioner recommended that the
legislature not adopt legislation permitting interstate branching through the
establishment of new branches (so called "de novo branching"). No prediction
can be made whether the Vermont legislature will enact legislation to implement
the recommendations of the Vermont Commissioner, or other legislation relating
to interstate branching. Since 1990, Massachusetts has had nationwide
reciprocal interstate banking legislation permitting out-of-state banks to
conduct banking operations in that state both by mergers and by establishing new
banks, subject to the reciprocity requirements that banks from another state may
acquire banks in Massachusetts only if Massachusetts banks may conduct banking
operations in that state. CC is unable to predict the ultimate impact of this
new interstate banking legislation on it or its competitors.
The United States Congress has periodically considered and adopted legislation
which has resulted in and could result in further regulation or deregulation of
both banks and other financial institutions. Such legislation could place the
Company, CTC or BWM in more direct competition with other financial
institutions, including mutual funds, securities brokerage firms and investment
banking firms. No assurance can be given as to whether any additional
legislation will be enacted or as to the effect of such legislation on the
business of the Company, CTC or BWM.
EMPLOYEES
The Company and its subsidiaries on December 31, 1995 employed 816 persons, with
a full-time equivalency of 769 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
qualifying officers and employees.
SELECTED STATISTICAL INFORMATION
Certain consolidated financial data about the business of the Company is
contained on pages 13 to 54 of the Company's 1995 Annual Report to Stockholders
is attached hereto as Exhibit 13.
ITEM 2
PROPERTIES
The Company's principal banking subsidiary, CTC, operates banking facilities in
39 locations in Vermont. The offices of CTC are in good physical condition with
modern equipment and facilities considered adequate to meet the banking needs of
customers in the communities serviced.
The offices of the Company are located in the main office of the CTC, which
occupied all of the five-floor Chittenden Building at Two Burlington Square in
Burlington as of December 31, 1995. The Chittenden Building is owned by CTC.
BWM operates banking facilities in 3 locations in Massachusetts. The offices of
BWM are in good physical condition with modern equipment and facilities consid-
ered adequate to meet thebanking needs of customers in the communities serviced.
The Company continues to conduct business out of properties owned or leased by
FBT in the area of Worcester, Massachusetts. Reference is made to The Company's
Registration Statement No. 33-64527 on Form S-4 under the Securities Act of
1933, filed in connection with the Company's acquisition of FBT.
ITEM 3
LEGAL PROCEEDINGS
A number of legal claims against the Company arising in the normal course of
business were outstanding at December 31, 1995. 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.
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,
and the quarterly high and low bid quotations for the Company's common stock
during the past five years are included in the Company's 1995 Annual Report to
Stockholders on page 57, and is attached hereto as Exhibit 13. The approximate
number of stockholders at March 1, 1996 was 3,354. Note 8 of the Consolidated
Financial Statements appearing on page 27 of the Company's 1995 Annual Report to
Stockholders contains a discussion of restrictions on dividends and is attached
hereto as Exhibit 13.
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 1995 Annual Report to
Stockholders and is attached hereto as Exhibit 13.
The Company consummated an acquisition of FBT on February 29, 1996. Reference
is made to the Company's Registration Statement No. 33-64527 on Form S-4 under
the Securities Act of 1933, filed in connection with the Company's acquisition
of FBT, Worcester, Massachusetts.
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 to 54 of the Company's 1995 Annual Report to
Stockholders and is attached hereto as Exhibit 13.
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company and its
subsidiaries appear in the Company's 1995 Annual Report to Stockholders at the
pages indicated and are attached hereto as Exhibit 13:
Report of Independent Public Accountants Page 38
Consolidated Balance Sheets at
December 31, 1995 and 1994 Page 13
Consolidated Statements of Income for the
Years Ended December 31, 1995, 1994, and 1993 Page 14
Consolidated Statements of Changes in
Stockholders' Equity for the Years Ended
December 31, 1995, 1994, and 1993 Page 15
Consolidated Statements of Cash Flows for
the Years Ended December 31, 1995, 1994, and 1993 Page 16
Notes to Consolidated Financial Statements Pages 17-37
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not Applicable
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 1996 Annual Meeting
of Stockholders at pages 5-11, and is specifically incorporated herein by
reference.
At December 31, 1995, the principal officers of the Company and its principal
subsidiary, CTC, with their ages, positions, and years of appointment, were as
follows:
YEAR
NAME AND AGE APPOINTED POSITIONS
- --------------------------------------------------------------------------------
Barbara W. Snelling, 68 1990 Chair of the Company
Paul A. Perrault, 44 1990 President and Chief Executive Officer of
the Company and Chittenden Trust
Lawrence W. DeShaw, 49 1990 Executive Vice President of the Company
and Chittenden Trust
John W. Kelly, 46 1990 Executive Vice President of the
Company and Chittenden Trust
Nancy Rowden Brock, 39 1984 Treasurer of the Company and Senior
Vice President, Chief Financial
Officer, and Treasurer of
Chittenden Trust
F. Sheldon Prentice, 45 1985 Secretary of the Company and Senior Vice
President, General Counsel, and
Secretary of Chittenden Trust
John P. Barnes, 40 1990 Senior Vice President of the Company and
Chittenden Trust
Danny H. O'Brien, 45 1990 Senior Vice President of the Company and
Chittenden Trust
- --------------------------------------------------------------------------------
All of the current officers have been principally employed in executive
positions with CTC for more than five years.
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 1996 Annual
Meeting of Stockholders at pages 11-19 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 1, 1996,
is included in the Company's definitive Proxy Statement for its 1996 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 1996 Annual Meeting of Stockholders at pages 10 and 21, and is specifically
incorporated herein by reference.
PART IV
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(l) FINANCIAL STATEMENTS
The following consolidated financial statements of the Company and its
subsidiaries appear in the Company's 1995 Annual Report to Stockholders:
Report of Independent Public Accountants Page 38
Consolidated Balance Sheets at
December 31, 1995 and 1994 Page 13
Consolidated Statements of Income for the
Years Ended December 31, 1995, 1994, and 1993 Page 14
Consolidated Statements of Changes in
Stockholders' Equity for the Years Ended
December 31, 1995, 1994, and 1993 Page 15
Consolidated Statements of Cash Flows for
the Years Ended December 31, 1995, 1994, and 1993 Page 16
Notes to Consolidated Financial Statements Pages 17-37
(2) FINANCIAL STATEMENT SCHEDULES
There are no financial statement schedules required to be included in this
report.
(3) REPORTS ON FORM 8-K
A report was filed by the Company on Form 8-K December 13, 1995 in connection
with the Company's acquisition of FBT so as to file with the Securities and
Exchange Commission certain paper reports that would be incorporated by
reference into its Registration Statement on Form S-4.
(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.
3.04 Amendment to the By-Laws of the Company, dated November 15, 1995. CHANGED
FROM: "A director elected to fill a vacancy shall hold office until the
next regular election of directors." CHANGED TO: "A director elected to
fill a vacancy shall hold office until the expiration of the term of the
departed director who creates the vacancy."
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. Statement of the Company regarding its Dividend Reinvestment Plan is
incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1993.
10.1 Directors' Deferred Compensation Plan, dated April 1972, as amended
January 1, 1992, incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992.
10.2 Pension Plan of CTC, attached to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994, as amended on March 15, 1995 and
December 20, 1995 and attached to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
10.3 Incentive Savings and Profit Sharing Plan, attached to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, as amended
on March 15, 1995 and attached to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
10.4 The Company's Stock Option Plan, incorporated herein by reference to the
Company's Proxy Statement in connection with the 1986 Annual Meeting of
Stockholders.
10.5 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.
10.6 The Company's Restricted Stock Plan, incorporated herein by reference to
the Company's Proxy Statement in connection with the 1986 Annual Meeting
of Stockholders.
10.7 Executive Management Incentive Compensation Plan, attached to the
Company's Annual Report on Form 10-K for the year ended December 31, 1994
and is incorporated herein by reference.
10.8 The Company's Stock Incentive Plan, dated January 1, 1993, incorporated
herein by reference to the Company's Proxy Statement for the 1993 Annual
Meeting of Stockholders.
13. The Company's 1995 Annual Report to Stockholders.
21. List of subsidiaries of the Registrant.
23. Consent of Arthur Andersen LLP.
EXHIBITS
EXHIBIT 3.04
AMENDMENT TO THE BY-LAWS OF THE COMPANY
EXHIBIT 10.2
AMENDMENT NUMBER ONE
AMENDMENT NUMBER ONE
TO THE
PENSION PLAN FOR EMPLOYEES OF
THE CHITTENDEN CORPORATION
(As Amended and Restated Effective January 1, 1989)
WHEREAS, Chittenden Corporation (the "Principal Employer") heretofore
adopted the Pension Plan for Employees of The Chittenden Corporation (the
"Plan"); and
WHEREAS, Article X permits the Principal Employer to amend the Plan from
time to time; and
WHEREAS, the Principal Employer will acquire the Bank of Western
Massachusetts (such date to be known as the "Acquisition Date"); and
WHEREAS, the Principal Employer intends to maintain the qualified
retirement plans of the Bank of Western Massachusetts on and after the
Acquisition Date;
NOW, THEREFORE, the Plan is hereby amended effective as of the Acquisition
Date, as follows:
Section 3.1, "MEMBERSHIP" shall be amended by adding the following paragraph (d)
immediately after paragraph (c) thereof:
"(d) Notwithstanding the foregoing, each Employee who is employed by the
Bank of Western Massachusetts shall not be eligible for membership
hereunder."
IN WITNESS WHEREOF, Chittenden Corporation has caused this amendment to be
executed by its officer thereunto duly authorized and its corporate seal to be
hereunto affixed as of the 15th day of March, 1995.
CHITTENDEN CORPORATION
BY: /s/ F. Sheldon Prentice, Esq.
Secretary
CORPORATE SEAL
EXHIBIT 10.2
AMENDMENT NUMBER TWO
BOARD OF DIRECTORS RESOLUTION
AUTHORIZING THE ADOPTION OF
AMENDMENT NUMBER TWO
TO THE
PENSION PLAN FOR EMPLOYEES OF THE CHITTENDEN CORPORATION
(As Amended and Restated Effective January 1, 1989)
WHEREAS, the Chittenden Corporation (the "Principal Employer") heretofore
adopted the Pension Plan for Employees of the Chittenden Corporation (the
"Plan"); and
WHEREAS, Article X permits the Principal Employer to amend the Plan at any
time by means of a resolution of the Board of Directors;
WHEREAS, it is the desire of the Principal Employer to credit certain past
service under the Plan;
NOW, THEREFORE, the Plan is amended effective January 1, 1995, as follows:
1. Section 3.3, ELIGIBILITY SERVICE, is amended by adding the following
paragraph (f) to the end thereof:
"(f) Subject to the Break in Service provisions of Section 3.5, an Employee
who terminates employment with the Employer and all Affiliated
Companies on or after January 1, 1995, shall be credited with
Eligibility Service in accordance with the provisions set forth in
this Section 3.3 for periods of employment with the Employer or an
Affiliated Company prior to December 1, 1976."
2. Section 3.4, BENEFIT SERVICE, is amended by adding the following paragraph
(g) to the end thereof:
"(g) Subject to the Break in Service provisions of Section 3.5, a Member
who terminates employment with the Employer on or after January 1,
1995, shall receive Benefit Service in accordance with the provisions
set forth in this Section 3.4 for periods of employment with the
Employer prior to December 1, 1976."
IN WITNESS WHEREOF, the Principal Employer has caused this instrument to be
executed by its officer duly authorized and its corporate seal to be hereunto
affixed as of the 20th day of December, 1995.
CHITTENDEN CORPORATION
BY: /s/ Paul A. Perrault
ATTEST:
/s/ F. Sheldon Prentice
CORPORATE SEAL
EXHIBIT 10.2
AMENDMENT NUMBER THREE
BOARD OF DIRECTORS RESOLUTION
AUTHORIZING THE ADOPTION OF PROPOSED
AMENDMENT NUMBER THREE
TO THE
PENSION PLAN FOR EMPLOYEES OF THE CHITTENDEN CORPORATION
(As Amended and Restated Effective January 1, 1989)
WHEREAS, Chittenden Corporation (the "Principal Employer") heretofore
adopted the Pension Plan for Employees of The Chittenden Corporation (the
"Plan"); and
WHEREAS, Article X permits the Principal Employer to amend the Plan at any
time by means of a resolution of the Board of Directors; and
WHEREAS, the Internal Revenue Service (IRS) has requested that the Plan be
amended in response to the Principal Employer's application for a letter of
determination for the Plan;
NOW, THEREFORE, the following proposed amendments shall be effective
January 1, 1989, and shall be adopted by the Board upon approval of the IRS:
Section 2.12, "COMPENSATION" shall be amended by deleting the last paragraph
thereof and replacing it with the following:
"Effective for Plan Years beginning after December 31, 1988, Compensation
taken in to account under the Plan shall not exceed $200,000 ($150,000 effective
for Plan Years beginning after December 31, 1993) or such other amount as
indexed pursuant to Sections 401(a)(17) and 415(d) of the Code. In any event,
the Accrued Benefit of any Member determined in accordance with this provision
shall not be less than the Accrued Benefit of such Member determined as of
December 31, 1988, in accordance with the applicable provisions of the Plan as
in effect on such date.
In determining the Compensation of an Employee for purposes of the Code Section
401(a)(17) limitation, the rules of Section 414(q)(6) of the Code shall apply;
provided, however, that in applying such rules, the term "family" shall include
only the spouse of the Employee and any lineal descendants of the Employee who
have not attained age 19 before the close of the Plan Year.
If the Compensation of the Employee exceeds the Code Section 401(a)(17)
limitation, then the Code Section 401(a)(17) limitation shall be prorated among
the Compensation of the Employee and his family (as determined under this
Section 2.12 prior to the application of the Code Section 401(a)(17) limitation)
in proportion to each such individual's Compensation (as determined under the
Section 2.12 prior to the application of the Code Section 401(a)(17)
limitation)."
IN WITNESS WHEREOF, the Principal Employer has caused this instrument to be
executed by is officer duly authorized and its corporate seal to be hereunto
affixed as of the 20th day of December, 1995.
CHITTENDEN CORPORATION
BY: /s/ Paul A. Perrault
ATTEST:
/s/ F. Sheldon Prentice
CORPORATE SEAL
EXHIBIT 10.3
AMENDMENT NUMBER ONE
THE CHITTENDEN CORPORATION
INCENTIVE SAVINGS AND PROFIT SHARING PLAN
(As Amended and Restated Effective January 1, 1989)
WHEREAS, Chittenden Corporation (the "Employer") heretofore adopted the
Chittenden Corporation Incentive Savings and Profit Sharing Plan (the "Plan");
and
WHEREAS, Article XIII permits the Employer to amend the Plan from time to
time; and
WHEREAS, the Employer will acquire the Bank of Western Massachusetts (such
date to be known as the "Acquisition Date"); and
WHEREAS, the Employer intends to maintain the qualified retirement plans
of the Bank of Western Massachusetts on and after the Acquisition Date;
NOW THEREFORE, the Plan is hereby amended effective as of the Acquisition
Date, as follows:
Section 2.1, "ELIGIBILITY TO PARTICIPATE" shall be amended by adding the
following paragraph immediately after paragraph (e) thereof:
"Notwithstanding the foregoing, each Employee who is employed by the Bank
of Western Massachusetts shall not be considered an Eligible Employee
hereunder."
IN WITNESS WHEREOF, Chittenden Corporation has caused this amendment to be
executed by its officer thereunto duly authorized and its corporate seal to be
hereunto affixed as of the 15th day of March, 1995.
CHITTENDEN CORPORATION
BY: /s/ F. Sheldon Prentice, Esq.
Secretary
CORPORATE SEAL
EXHIBIT 13
CHITTENDEN'S 1995 ANNUAL REPORT HAS BEEN FILED AS AN EXHIBIT ATTACHED HERETO
EXHIBIT 21
LIST OF SUBSIDIARIES OF CHITTENDEN CORPORATION
Chittenden Trust Company, Vermont, d/b/a Chittenden Bank
The Bank of Western Massachusetts, Massachusetts
Chittenden Acquisition Bank, Massachusetts d/b/a Flagship Bank and Trust
Company, is a Bank in formation to effectuate the acquisition of Flagship Bank
and Trust Company.
EXHIBIT 23
CONSENT LETTER ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated January 16, 1996, included in Chittenden Corporation's Form 10-K
for the year ended December 31, 1995, into the Company's previously filed
Registration Statement File No. 33-1229.
s/ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 25, 1996
EXHIBIT 13
<PAGE> 1
In recent years Chittenden Corporation has demonstrated a consistent level of
achievement. Our key financial indicators certainly underscore and illustrate
this, but they do not tell the entire story. If you look behind the numbers you
will come to understand why Chittenden Corporation is poised for continued
achievement into 1996 and beyond.
Behind the scenes at Chittenden, activity is fast-paced and complex. From
electronic banking and introducing new products to constructing and renovating
branch offices, there is a potent combination of human energy and technological
support. From our customers' perspectives, however, this results in the
efficient and straightforward execution of their banking needs. With this in
mind, we present some of the highlights of 1995.
<PAGE> 2
Table of Contents
Financial Highlights 3
Letter to Stockholders 4
Chittenden A Graphic Review 6
Chittenden A Profile of Our Year 8
Consolidated Financial Statements 13
Report of Independent Public Accountants 38
Management's Discussion and Analysis of Financial
Condition and Results of Operations 40
Directors and Officers 55
Stockholder Information 56
<PAGE> 3
Financial Highlights
1995 1994
--------------------------
(dollars in thousands,
except per share amounts)
FOR THE YEAR
Net interest income $ 65,426 $ 53,905
Provision for possible loan losses 3,950 4,300
Noninterest income 29,977 23,525
Noninterest expense 60,805 49,867
Net income 20,885 15,537
Cash dividends declared 4,472 2,838
-------------------------
AT YEAR END
Investment securities $ 241,601 $ 206,698
Net loans 1,016,627 853,861
Deposits 1,338,460 1,070,198
Stockholders' equity 136,734 98,310
Total assets 1,521,081 1,213,908
Number of stockholders 3,073 2,995
Number of employees 816 707
--------------------------
PER SHARE OF COMMON STOCK
Fully diluted earnings $ 2.52 $ 1.97
Cash dividends declared 0.55 0.37
Book value at end of year 16.51 13.30
Weighted average shares outstanding during year 8,276,081 7,879,826
--------------------------
<PAGE> 4
To Our Stockholders
Over the past few years, we at Chittenden Corporation have been articulating
strategies and implementing plans to ensure that your company is performing at a
sustainable, high performance level, undertaking activities to both protect core
results and grow earnings.
We are pleased to present our 1995 results in this annual report. Earnings of
$21 million, or $2.52 per share, are a new record for the Corporation. While
these results reflect a favorable operating environment, they also represent the
execution of strategies that have distinguished Chittenden from the pack, both
in the marketplace and in earnings capability. We urge all shareholders and
potential shareholders to explore this document to understand the depth of our
balance sheet strength and the diversity of our revenues, and to learn about the
many reasons we are the preferred provider of banking services to the markets we
serve.
As we have stated before, our core philosophies include balance in our
activities, investment in our core and new businesses, and refusal to sacrifice
future earnings to bolster the current year's results. During 1995, we held fast
to these beliefs. You will find many examples in this report of how these values
are being practiced at Chittenden.
Constantly challenging core values is the `change' mantra that has become so
prevalent in business, and in fact, in life. We are constantly warned we must
change or we are doomed. As usual, we at Chittenden are a bit skeptical about
the wholesale nature of this view. At Chittenden, we are an institution
identifying and changing what should be changed in order to make the results
better. It seems that few today are willing to admit that change rarely has a
"win-win" outcome, but often is a matter of weighing trade-offs. Sometimes the
most difficult and best choice we can make is to not change something.
We have developed an approach to evaluating proposed changes: careful
examination determines if and how the change will benefit constituencies and
also points out what we lose with a particular change. Let me provide you
examples of this for each major constituency.
Shareholders-Earnings growth should favorably affect stock price. Our 1995
merger with The Bank of Western Massachusetts and our 1996 merger with Flagship
Bank and Trust Company represent important changes that, when coupled with our
specialty businesses, bring a broader, higher revenue growth profile to
Chittenden.
Customers-Our goal is to introduce modern products that are worthy of
Chittenden's customers. Our products must be easy to access, reliable, stable,
and live up to the hype. In a word, they must truly provide value. For customers
in central and western Massachusetts, we are bringing up-to-date, proven
products, and the Corporation's capital strength, to support them in their
activities.
<PAGE> 5
Employees-Changes implemented in recent years have presented employees with
valuable training and teamwork opportunities. Career opportunities have never
been better, whether in positions of greater responsibility or in new and
growing activities and geography. Other changes in compensation and benefits
that provide flexibility and opportunity have been carefully researched,
crafted, and implemented. These are not trendy `programs,' but rather represent
constant improvement.
Communities-Employees and Board Members are constantly bringing new and more
effective volunteer and leadership efforts to our communities. We have improved
and increased the effectiveness of our donations program, bringing greater local
office control to the process; and we have worked to customize our efforts and
products to match the well-researched needs and wants of each of our
communities.
This management of change and how it affects all of us is representative of how
Chittenden remains valuable to the marketplace. We represent our constituencies
in financial services.
Recent times have generally been good for banking, but we recognize that these
`fair winds and calm seas' can turn quickly. As a result, we are constantly
vigilant at the helm. Through consistency, we navigate to avoid the `shoals' of
poor credit quality. Through aggressiveness, we seize every opportunity in our
chosen markets. With diligence, we explore every acquisition possibility to
ensure transactions undertaken are indeed beneficial, and we maintain the clear-
headedness to walk away if that is the more appropriate action. All the while,
we nurture a culture that views expense control as an opportunity for
improvement, not as a reduction in service or capability. As ever, we are an
organization that is in balance moving forward as a team, in control, and
focused on the future.
By its nature, an annual report reflects what has happened. In the case of
Chittenden, this report is also representative of where your Corporation is
going. I know that I speak for your Board of Directors and all my colleagues, as
I proudly present these results. We will continue making 'the Chittenden way' a
valuable contributor to all our constituencies.
<PAGE> 6
Chittenden: A Graphic Review
The following graphs are provided to give you a brief, visual review of
Chittenden's progress over the past six years. The graphs indicate that
Chittenden has achieved consistent and steady improvement in a number of
measurements. This performance is a reflection of Chittenden's commitment to a
balanced, efficient, and sound approach to banking.
Return on Average Equity (In Percent)
- ------------------------------------------------------
90 91 92 93 94 95
- ------------------------------------------------------
(1.4) 6.2 8.6 11.9 15.4 17.2
Return on Average Assets (In Percent)
- ------------------------------------------------------
90 91 92 93 94 95
- ------------------------------------------------------
(0.1) 0.4 0.6 0.9 1.3 1.5
Earnings Per Share (In Dollars)
- ------------------------------------------------------
90 91 92 93 94 95
- ------------------------------------------------------
(0.14) 0.59 0.94 1.42 1.97 2.52
<PAGE> 7
Net Revenue (Dollars in Millions)
- ------------------------------------------------------
90 91 92 93 94 95
- ------------------------------------------------------
59.3 60.5 66.8 74.5 77.4 95.4
Net Yield on Earnings Assets (In Percent)
- ------------------------------------------------------
90 91 92 93 94 95
- ------------------------------------------------------
4.4 4.2 4.3 4.7 4.9 5.0
Efficiency Ratio (In Percent)
- ------------------------------------------------------
90 91 92 93 94 95
- ------------------------------------------------------
85.0 75.7 74.3 68.5 64.4 63.7
Year End Total Assets (Dollars in Millions)
- ------------------------------------------------------
90 91 92 93 94 95
- ------------------------------------------------------
1137 1205 1192 1231 1214 1521
Book Value per Share (In Dollars)
- ------------------------------------------------------
90 91 92 93 94 95
- ------------------------------------------------------
9.27 10.23 11.23 12.58 13.30 16.51
Closing Price per Share (In Dollars)
- ------------------------------------------------------
90 91 92 93 94 95
- ------------------------------------------------------
3.52 5.59 10.23 14.80 16.59 32.00
<PAGE> 8
Chittenden - A Profile of Our Year
Broadening Our Reach. Deepening Our Relationships.
Chittenden continued to expand the scope of its operations in 1995. With the
acquisition of The Bank of Western Massachusetts in the first quarter of 1995,
Chittenden is now providing comprehensive banking services to more customers
throughout the northeast. In addition, the purchase of selected assets of CUMEX
Mortgage Corporation, Inc., a mortgage company that services credit unions and
community banks, helped to expand Chittenden's territory to Massachusetts and
Connecticut. Both transitions have been virtually flawless, and the benefits
have been immediate and numerous.
We are putting our extensive infrastructure and nearly 90 years experience to
work for these new additions to Chittenden Corporation. Expanded home mortgage
products are now available to customers of The Bank of Western Massachusetts
through the Mortgage Service Center of New England, a division of Chittenden
Bank. Functions of Chittenden Bank, such as trust operations, investment
portfolio management and indirect auto lending, are now available to The Bank of
Western Massachusetts allowing them to offer new services to their customers
with a minimum outlay of start-up time and expense.
With The Bank of Western Massachusetts' strong focus on small business lending
and expertise in the Springfield area, Chittenden Bank has been able to join
forces with them in a number of loan participations. The obvious benefit to both
The Bank of Western Massachusetts can offer their customers larger loans, and
Chittenden Bank increases its commercial loan portfolio.
The anticipated completion of the merger with Flagship Bank and Trust Company in
the first quarter of 1996 is another opportunity to accelerate growth and
earnings. The Worcester, Massachusetts marketplace has great potential with
16,000 small businesses and more than 6 million people who live within an hour's
drive. Chittenden can offer additional services and products to Flagship Bank
and Trust Company that will help the bank compete more aggressively in the
Worcester area.
Expanding Chittenden's ties to other northeast markets has been achieved by the
development of correspondent relationships with many community banks. Chittenden
has approximately $40 million in loan participations with community banks in
upstate New York, western Massachusetts, New Hampshire, and Maine. In these
relationships, Chittenden is a reliable and knowledgeable partner to the other
banks, and unlike many potential correspondent banks, not a direct competitor.
The business of the electronic processing of credit card transactions and
deposits for retail outlets has also broadened Chittenden's reach and has been
extremely successful. With customers throughout the United States, our merchant
services processing volume has grown from $165 million in 1993 to $475 million
in 1995.
All of these examples are representative of Chittenden Corporation's philosophy
of diversifying activities and getting the most out of existing infrastructure.
In any business, knowing your existing customers is essential to success. To
achieve a deeper relationship with our customers, we continue to find ways to
better understand and satisfy their needs.
To better understand our customers and their financial needs, Chittenden Bank
installed a Marketing Customer Information File (MCIF) system in 1995. As a tool
to market our products and services to specific customer segments, MCIF has
proven beneficial. Customer profiles have highlighted sales opportunities that
can lead to building more comprehensive financial relationships with Chittenden
Bank.
<PAGE> 9
We continue to find ways to better understand and satisfy out customers' needs.
Recognizing and rewarding loyal customers are proven ways of strengthening
relationships and generating opportunities to sell other financial services.
With this in mind, Chittenden introduced the Advantage Banking Package in 1995.
The challenge for Chittenden, however, was to identify and qualify customers as
accurately and efficiently as possible.
To accomplish this, with the help of the MCIF system, Chittenden identified
existing customers who qualified for this new banking package. Customers
received a personalized letter explaining the many benefits of the Advantage
Banking Package and encouraging them to visit a local office to sign up for this
product. As a result of this targeted effort, sales for this new product have
exceeded our expectations.
In 1995, Chittenden Bank developed new ways of identifying and attracting new
customers. For example, many younger homeowners, who had yet to establish
considerable equity in their homes, were recognized as potential home equity
customers. To attract this new population segment, a home equity product was
introduced that allows the customer to borrow up to 95% of the equity in their
home. 1995 also witnessed the introduction of the Rapid Result Mortgage Program.
This mortgage program, which offers 24-hour approval, appeals to potential
homebuyers who want the fastest turnaround possible on their mortgage decisions.
In these and many other instances, the bank has been successful in identifying
specific customer needs and capitalizing on those opportunities by delivering
the products and services that meet those needs.
A Gallon of Milk, a Dozen Eggs and a Certificate of Deposit.
Traditionally, a trip to the supermarket involved shopping for groceries. But
today, the shopping list can include a certificate of deposit or an automobile
loan. At Chittenden Bank, the local office network has been expanded to include
supermarket branches in Brattleboro and Morrisville. As one of the first banks
in Vermont to offer a full-service branch office in a supermarket, Chittenden is
again leading the way with alternative and proven ways to bank.
In Morrisville, where the population is relatively small, opening a traditional,
full-service branch office would not have been economical. However, opening a
branch inside the new local supermarket provides added banking convenience and
extended service hours to the residents of Morrisville. They are served by
Chittenden in a way that works for the bank, and as important, in a way that
works for the customer.
In Brattleboro, the supermarket branch works in tandem with a `traditional'
office location. The supermarket branch adds supplemental service in the form
of weekend service and extended hours to satisfy the banking needs of
customers in Brattleboro.
In 1995, an information kiosk was installed in the lobby of our main office in
Burlington. The kiosk offers a means to aggressively manage customer
transactions. The primary focus is to provide customers with information and
demonstrations on convenience products such as electronic banking, ATM
operation, and the Automated Information Line. The kiosk also helps move
customers in and out of the bank more quickly. For instance, customers with
information requests are handled at the kiosk while other customers with banking
transactions can move to a teller. Or a customer can drop off a loan payment at
the kiosk. Most importantly, staffing the kiosk with a Chittenden representative
maintains the high level of personalized service that people have come to expect
from Chittenden Bank.
<PAGE> 10
New and different banking conveniences are constantly being researched, tested,
and made available.
In the future, customized versions of the kiosk will be introduced in other
office locations to assist our customers with their banking needs.
Because customer financial relationships continue to grow more complex and
numerous, another convenience introduced in 1995 was the combined, comprehensive
statement. Customers are provided a consolidated statement to help simplify the
reporting of their Chittenden relationship. The combined statement will reduce
our mailing and operational expenses.
In 1995, Chittenden continued to play a leadership role in providing small
businesses with a choice of financing alternatives. With a new product called
the Basic Business Loan, businesses that are just starting out, or small
businesses that are growing, can take advantage of a five-year, fixed rate loan.
A fixed rate of interest allows a business to better anticipate and prepare for
loan expenses. Additionally, the new borrowers can reduce the interest rate of
the loan when they take advantage of planning assistance from a qualified
technical assistance provider such as a Small Business Development Corporation.
Whether it's supermarket banking or a combined statement, at Chittenden Bank
building strong, comprehensive relationships with our customers is fundamental
to our success as a banking company. That is why new and different banking
conveniences are constantly being researched, tested, and made available to our
customers in an orderly and synchronized manner.
Adapting Our Service to Fit Our Customers' Schedules.
A commitment to service means offering alternative banking services that work
with your customers' schedules. Chittenden recognizes the many changes and
challenges in our customers' lives and has taken steps to provide the banking
conveniences that will complement those changes.
It is obvious that customer banking patterns have changed over the years. More
recently, with the advent of technological improvements, these patterns are
changing at a startling rate. In an effort to meet the changing needs of our
customers, Chittenden is continually adapting and updating its services when and
where needed.
For example, the Automated Information Line continues to grow in popularity.
When the Automated Information Line completed its first full year of operation
in 1993, less than 20,000 calls had been received. The following year, the
number of calls increased to just over 157,000. And in 1995, the Automated
Information Line received over 300,000 calls.
Increased use of automated banking services is also evident in other areas of
our banking business. In 1995, the number of ATM cardholders continued to rise.
The total number of ATM transactions for Chittenden customers in 1995 was well
over 1,600,000. Debit usage, which is the ability to use an ATM card for
purchases and have the funds automatically withdrawn from a checking account,
also experienced solid growth. Additionally, over 70 new merchants became part
of Chittenden's growing network of debit service providers.
<PAGE> 11
The ATM network at Chittenden also has been adapted and changed in response to
customer needs. In Burlington, Chittenden installed an additional ATM at the
University Mall during the holiday season. The Burlington Square Mall location
was reconfigured to provide automated services through a combination of ATM's
and staffed office hours. At Taft Corners in Williston, heavy customer traffic
dictated the installation of a second lobby ATM.
Also in 1995, Chittenden made it possible for customers to apply for consumer
loans over the telephone, and we introduced automated underwriting for home
mortgage applications.
Nationwide, many banks and financial institutions have started to offer on-line
banking services. Some of these institutions have experienced success, while
others have not. Chittenden continues to investigate the expansion of on-line
banking; we plan to move ahead with this new and growing technology when the
benefits for us and our customers can be assured.
Chittenden chooses not to be a trend setter when it comes to technology.
Chittenden does, however, set the standard when it comes to meeting the ever-
changing banking needs of our customers. As an organization, Chittenden never
loses sight of the fact that, to be truly successful, technological advancements
must make financial sense for the bank as well as provide service and value to
the customer.
Another example of our increasing involvement in the technology arena is the
introduction of an expanded, automated commercial banking service called
Electronic Banking. This service replaces Chittenden's On-Line Information
Network and offers business customers a comprehensive, on-line, and interactive
banking system using their personal computer. Chittenden's Electronic Banking
provides customers more control over their cash flow and direct access to their
Chittenden accounts. A variety of cash management functions are available,
including direct payments or deposits to other institutions, real-time reporting
on individual transactions, and automated reconciliation of checks and deposits.
Bricks and Mortar. Hearts and Minds.
Along with the many new products, services, and technological improvements made
in 1995, we also recognize that the bricks and mortar of Chittenden's local
offices remain an integral part of our future. The physical improvements to our
facilities will continue because they are one of the many ways to keep pace with
the changing needs of our customers.
In Montpelier, where we owned two buildings, there were many problems with the
original main building location. Flooding from an adjacent river caused repeated
interruptions in service as well as costly repairs. The building was not
handicapped accessible and there was no parking available for our customers.
To remedy this situation without disrupting or altering service, we designed and
constructed a new building. The design conforms with and complements the
distinctive architecture in the Capitol District. From our new facility, we now
provide the same services to our customers in a more efficient and cost-
effective manner by replacing two older buildings with one new building.
Our operations in Rutland provide another example of fine-tuning our physical
presence. In 1995, we consolidated Retail Sales, Merchant Services, and Indirect
Auto Lending on two floors of the Merchant's Row building. As a result,
operating efficiency improved and overall expenses were considerably reduced.
Other instances of `bricks and mortar' refinements were evident at numerous
Chittenden locations. In Middlebury, the lobby area was renovated and the remote
drive-up location was changed to a video and tube operation. In Brattleboro, a
new, stand-alone office was constructed in addition to our supermarket branch
presence.
In the Springfield area, The Bank of Western Massachusetts opened a new branch
in Holyoke. The new location offers more space, convenient and ample parking,
drive-up windows, and easy access from major thoroughfares.
<PAGE> 12
Our corporate strategy is built on day-to-day performance and focused on long-
term institutional success.
In these instances, and in many others throughout the year, Chittenden Bank has
demonstrated its commitment to change based on a thorough analysis and
assessment of the needs in our marketplace. Whether these changes take place in
the heart of Vermont, or in Massachusetts, they are part of a corporate strategy
that is built on day-to-day performance and focused on long-term institutional
success.
At Chittenden Corporation, our over 800 employees are better than ever. They
have to be. Because as our customers' lives and banking needs have become
increasingly complex, our employees must have the skills and the talent to keep
up.
Chittenden and its employees continue to play a constructive and positive role
in our communities. Some of the major commitments in 1995 included donations to
the Lake Champlain Basin Science Center, Champlain College, the Newport
Community Center, Shelburne Museum, Southwestern Medical Center, Northern
Vermont Lending Partners Program, Vermont Technology Center, Sara Holbrook
Center, and the Flynn Theatre. The Bank of Western Massachusetts provided
financial support to the Jimmy Fund, American Cancer Society, Spirit of
Springfield, Western Massachusetts Enterprise Fund, Junior Achievement of
Western Massachusetts, Springfield Boys Club, Cooley Dickinson Hospital, Food
Bank, and Elms College. All of our employees continue to volunteer thousands of
hours with hundreds of non-profit organizations throughout our market areas.
Chittenden also continued a tradition of offering seminars across the state on a
wide range of relevant financial topics. Among the many seminars were How to
Sell Your Home, Investments for Women, Estate Planning, and a Small Business
Roundtable.
In recognition of our ongoing commitment to the communities of Vermont,
Chittenden Bank again received an `outstanding' rating, and The Bank of Western
Massachusetts received a `satisfactory' rating, from the Federal Deposit
Insurance Corporation for compliance with the Community Reinvestment Act. This
rating is an important indicator of Chittenden's efforts to meet the credit
needs of their marketplace. An `outstanding' rating is an accomplishment that
less than 10% of all financial institutions across the country achieve in any
given year. In fact, Chittenden Bank has received an "outstanding" rating every
time we have been evaluated by the FDIC.
1996 marks Chittenden Bank's 90th anniversary in the banking business.
Throughout the years we have witnessed dramatic changes in the financial needs
of our customers, and we have responded appropriately to those changes.
As Chittenden heads towards the 21st century, we remain committed to the sound
principles of banking which have been the foundation of our achievements. We
will continue to provide the products, services, and delivery systems that are
proven and appropriate as our customers' needs continue to change.
<PAGE> 13
Chittenden Corporation
Consolidated Balance Sheets
December 31,
----------------
1995 1994
----------------
(in thousands)
ASSETS
Cash and cash equivalents $ 179,399 $ 100,973
Securities available for sale 232,128 196,829
Securities held for investment (market value
$9,620,000 in 1995 and $9,280,000 in 1994) 9,473 9,869
Federal Home Loan Bank stock 4,365 -
Mortgage loans held for sale 13,276 2,870
Loans 1,041,476 872,960
Allowance for possible loan losses (24,849) (19,099)
---------------------
Net loans 1,016,627 853,861
---------------------
Premises and equipment 18,720 17,864
Accrued interest receivable 11,063 9,906
Other real estate owned 1,897 1,288
Net deferred tax asset 9,680 11,969
Other assets 12,939 8,479
Intangible assets 11,514 -
----------------------
Total assets $1,521,081 $1,213,908
======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 201,666 $ 180,481
Certificates of deposit $100,000 and over 90,210 69,885
Savings and other time 1,046,584 819,832
----------------------
Total deposits 1,338,460 1,070,198
Short-term borrowings 21,927 22,650
Accrued expenses and other liabilities 22,960 22,750
Long-term debt 1,000 -
----------------------
Total liabilities 1,384,347 1,115,598
----------------------
Commitments and contingencies
Stockholders' Equity:
Preferred stock - $100 par value authorized -
200,000 shares issued and outstanding - none - -
Common stock - $1 par value authorized -
30,000,000 shares issued - 8,573,523 in 1995 and
8,099,870 in 1994 8,574 8,100
Surplus 59,326 49,863
Retained earnings 72,168 55,755
Treasury stock, at cost - 293,934 shares in 1995
and 710,346 shares in 1994 (3,967) (9,586)
Net unrealized gain (loss) on securities
available for sale, net of taxes (benefit) of
$483,000 in 1995 and ($3,077,000) in 1994 702 (5,718)
Unearned portion of employee restricted stock (69) (104)
----------------------
Total stockholders' equity 136,734 98,310
----------------------
Total liabilities and stockholders' equity $1,521,081 $1,213,908
======================
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 14
Chittenden Corporation
Consolidated Statements of Income
Years Ended December 31,
--------------------------------------
1995 1994 1993
--------------------------------------
(in thousands, except per
share amounts)
Interest income:
Interest on loans $96,569 $71,055 $69,979
Investment securities:
Mortgage-backed securities 2,271 2,379 2,101
Taxable 11,271 8,517 5,919
Tax-favored debt 2,523 1,568 1,313
Tax-favored equity 700 529 224
Short-term investments 1,914 882 267
-------------------------------------
Total interest income 115,248 84,930 79,803
-------------------------------------
Interest expense:
Deposits:
Savings 21,761 14,727 12,207
Time 25,620 14,498 15,663
-------------------------------------
Total interest on deposits 47,381 29,225 27,870
Short-term borrowings 2,429 1,800 1,704
Long-term debt 12 - -
-------------------------------------
Total interest expense 49,822 31,025 29,574
-------------------------------------
Net interest income 65,426 53,905 50,229
Provision for possible loan losses 3,950 4,300 6,600
-------------------------------------
Net interest income after provision for
possible loan losses 61,476 49,605 43,629
-------------------------------------
Noninterest income:
Trust department income 4,456 4,038 4,007
Service charges on deposit accounts 5,067 4,622 4,484
Gains (losses) on sales of securities, net 198 (523) 130
Mortgage servicing income 2,159 2,052 997
Gains on sales of mortgage loans, net 1,246 1,086 5,760
Credit card income 12,817 8,238 5,654
Other 4,034 4,012 3,276
-----------------------------------
Total noninterest income 29,977 23,525 24,308
-----------------------------------
Noninterest expense:
Salaries 19,979 17,180 17,049
Employee benefits 7,424 6,344 5,485
Net occupancy expense 6,911 5,635 5,932
FDIC deposit insurance 1,335 2,325 2,574
Other real estate owned, income and
expense, net (236) (67) 1,542
Credit card expense 9,227 5,466 3,783
Other 16,165 12,984 14,732
----------------------------------
Total noninterest expense 60,805 49,867 51,097
----------------------------------
Income before income taxes and cumulative
effect of change in accounting principle 30,648 23,263 16,840
Provision for income taxes 9,763 7,726 5,243
----------------------------------
Income before cumulative effect of change
in accounting principle 20,885 15,537 11,597
Cumulative effect of change in accounting
principle - - (575)
---------------------------------
Net income $20,885 $15,537 $11,022
=================================
Earnings per share:
Income before cumulative effect of
change in accounting principle $2.53 $1.97 $1.50
Cumulative effect of change in
accounting principle - - (0.08)
---------------------------------
Primary $2.53 $1.97 $1.42
=================================
Fully diluted $2.52 $1.97 $1.42
Dividends declared per share $0.55 $0.37 $0.16
Weighted average shares outstanding 8,276,081 7,879,826 7,759,357
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 15
Chittenden Corporation
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 1995, 1994, and 1993
Common Retained Treasury
Stock Surplus Earnings Stock
--------------------------------------
(in thousands)
Balance at December 31, 1992 $8,061 $48,306 $34,457 $(3,012)
Net income - - 11,022 -
Cash dividends declared ($016 per share) - - (1,243) -
Shares issued/forfeited under
various stock plans, net 15 122 - -
Transfers to surplus - 1,180 (1,180) -
Amortization of deferred
compensation for restricted stock earned - - - -
Issuance of treasury stock - 5 - 30
Change in valuation allowance on
marketable equity securities - - - -
-------------------------------------
Balance at December 31, 1993 8,076 49,613 43,056 (2,982)
Cumulative effect of adoption of
SFAS 115 - - - -
Net income - - 15,537 -
Cash dividends declared ($037 per
share) - - (2,838) -
Shares issued/forfeited under
various stock plans, net 24 265 - -
Amortization of deferred compensation
for restricted stock earned - - - -
Repurchase of common stock - - - (6,685)
Issuance of treasury stock - (15) - 81
Change in net unrealized loss on
securities available for sale - - - -
-------------------------------------
Balance at December 31, 1994 8,100 49,863 55,755 (9,586)
Net income - - 20,885 -
Cash dividends declared ($0.55 per share) - - (4,472) -
Shares issued in conjunction with
acquisition of The Bank of
Western Massachusetts 376 8,386 - 5,514
Shares issued/forfeited under - -
various stock plans, net 98 1,095
Amortization of deferred compensation
for restricted stock earned - - - -
Issuance of treasury stock - (18) - 105
Change in net unrealized gain on
securities available for sale - - - -
-------------------------------------
Balance at December 31, 1995 $8,574 $59,326 $72,168 $(3,967)
=====================================
The accompanying notes are an integral part of these consolidated financial
statements.
Valuation Net
Allowance for Unrealized
Net Gain (Loss)
Unrealized on Unearned
Loss on Securities Portion of Total
Marketable Available Employee Stock-
Equity for Sale, Restricted holders'
Securities Net of Taxes Stock Equity
------------------------------------------------
Balance at December 31, 1992 $(733) $ - $(60) $87,019
Net income - - - 11,022
Cash dividends declared
($0.16 per share) - - - (1,243)
Shares issued/forfeited under
various stock plans, net - - - 137
Transfers to surplus - - - -
Amortization of deferred
compensation for restricted
stock earned - - 29 29
Issuance of treasury stock - - - 35
Change in valuation allowance on
marketable equity securities 712 - - 712
----------------------------------------------
Balance at December 31, 1993 (21) - (31) 97,711
Cumulative effect of
adoption of SFAS 115 21 965 - 986
Net income - - - 15,537
Cash dividends declared - - - (2,838)
($0.37 per share)
Shares issued/forfeited
under various stock plans, net - - (116) 173
Amortization of deferred compensation
for restricted stock earned - - 43 43
Repurchase of common stock - - - (6,685)
Issuance of treasury stock - - - 66
Change in net unrealized loss on
securities available for sale - (6,683) - (6,683)
----------------------------------------------
Balance at December 31, 1994 - (5,718) (104) 98,310
Net income - - - 20,885
Cash dividends declared
($0.55 per share) - - - (4,472)
Shares issued in conjunction
with acquisition of The Bank
of Western Massachusetts - - - 14,276
Shares issued/forfeited under
various stock plans, net - - - 1,193
Amortization of deferred compensation
for restricted stock earned - - 35 35
Issuance of treasury stock - - - 87
Change in net unrealized gain on
securities available for sale - 6,420 - 6,420
----------------------------------------------
Balance at December 31, 1995 $ - $702 $(69) $136,734
==============================================
<PAGE> 16
Chittenden Corporation
Consolidated Statements of Cash Flows
Years Ended December 31,
--------------------------------
1995 1994 1993
--------------------------------
(in thousands)
Cash flows from operating activities:
Net income $ 20,885 $ 15,537 $ 11,022
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for possible loan losses 3,950 4,300 6,600
Depreciation and amortization 2,244 2,061 2,071
Amortization of intangible assets 1,031 - 636
Amortization of premiums, fees, and
discounts, net 1,449 1,375 1,035
Investment securities (gains) losses (198) 523 (130)
Deferred (prepaid) income taxes (90) 160 (1,573)
Loans originated and purchased for
for sale (153,682) (109,846) (461,375)
Proceeds from sales of loans 144,522 119,708 463,460
Gains on sales of loans (1,246) (1,086) (5,760)
Gains on sales of premises
and equipment (225) (425) -
Changes in assets and liabilities, net of
effect from purchase of The Bank of Western
Massachusetts:
Accrued interest receivable 417 (3,565) 963
Other assets 1,259 (182) 11,156
Accrued expenses and other
liabilities (1,518) 3,300 (4,389)
---------------------------------
Net cash provided by operating
activities 18,798 31,860 23,716
---------------------------------
Cash flows from investing activities:
Acquisition of The Bank of Western
Massachusetts, net of cash acquired (3,455) - -
Proceeds from sales of securities
available for sale 7,451 32,818 -
Proceeds from maturing securities and
principal payments on securities
available for sale 317,610 151,537 -
Purchases of securities available for
sale (312,282) (249,707) -
Proceeds from principal payments on
securities held for investment 396 1,476 -
Purchases of securities held for
investment - (104) -
Proceeds from sales of securities - - 20,308
Proceeds from maturing securities and
principal payments on securities - - 239,910
Purchases of securities - - (265,532)
Loans originated, net of principal
repayments (12,681) (28,625) 18,337
Purchases of premises and equipment (2,080) (3,663) (2,470)
Proceeds from sales of premises and
equipment 488 496 -
---------------------------------
Net cash provided by (used in)
investing activities (4,553) (95,772) 10,553
---------------------------------
Cash flows from financing activities:
Net increase (decrease) in deposits 91,257 35,434 (9,175)
Net increase (decrease) in short-term
borrowings (23,884) (56,428) 41,866
Principal repayments of long-term debt - - (59)
Proceeds from issuance of treasury and
common stock 1,280 239 172
Dividends on common stock (4,472) (2,838) (1,243)
Repurchase of common stock - (6,685) -
--------------------------------
Net cash provided by (used in)
financing activities 64,181 (30,278) 31,561
--------------------------------
Net increase (decrease) in cash and cash
equivalents 78,426 (94,190) 65,830
Cash and cash equivalents at beginning of
year 100,973 195,163 129,333
-------------------------------
Cash and cash equivalents at end of year $179,399 $100,973 $195,163
===============================
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest $50,261 $30,881 $29,854
Income taxes 10,200 6,650 6,838
Noncash investing and financing activities:
Loans transferred to OREO 5,152 1,688 3,916
Mortgage loans securitized 3,665 9,228 -
Acquisition of The Bank of Western
Massachusetts:
Fair value of assets acquired $229,971 $ - $ -
Liabilities assumed (203,518) - -
Common stock issued (14,276) - -
---------------------------------
Cash paid $ 12,177 $ - $ -
=================================
The accompanying notes arean integral part of theseconsolidated financial
statements.
<PAGE> 17
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 subsidiaries (the `Banks'),
Chittenden Trust Company (CTC) and The Bank of Western Massachusetts (BWM). All
material intercompany accounts and transactions have been eliminated in
consolidation. Certain amounts for 1994 and 1993 have been reclassified to
conform with 1995 classifications.
Nature of Operations
CTC operates thirty-seven branches throughout the state of Vermont. BWM
operates four branches in the greater Springfield, Massachusetts area. The
Banks' primary business is providing loans, deposits, and other banking services
to commercial, individual, and public sector customers.
Use of Estimates in the preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Securities
Under Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities (SFAS 115), investments in
debt securities may be classified as held for investment and measured at
amortized cost only if the Company has the positive intent and ability to hold
such securities to maturity. Investments in debt securities that are not
classified as held for investment and equity securities that have readily
determinable fair values are classified as either trading securities or
securities available for sale. Trading securities are investments purchased and
held principally for the purpose of selling in the near term; securities
available for sale are investments not classified as trading or held for
investment. Unrealized holding gains and losses on trading securities are
included in earnings; unrealized holding gains and losses on securities
available for sale are reported as a separate component of stockholders' equity,
net of applicable income taxes.
The Company adopted SFAS 115 on January 1, 1994. The majority of the Company's
investment portfolio was classified as available for sale and the cumulative net
unrealized holding gain of $986,000, net of applicable taxes, was recorded in
stockholders' equity. All other debt securities held are classified as held for
investment as the Company has the positive intent and ability to hold such
securities to maturity. Dividend and interest income, including amortization of
premiums and discounts, is included in earnings for all categories of investment
securities. Discounts and premiums related to debt securities are amortized
using a method which approximates the level-yield method, adjusted for estimated
prepayments in the case of mortgage-backed securities.
Prior to January 1, 1994, debt securities were designated at the time purchased
as either held for sale or held for investment, based on management's intentions
in light of investment policy, liquidity needs, and economic factors. Debt
securities held for sale were stated at the lower of amortized cost or market
value with any unrealized loss included in earnings. Debt securities held for
investment, where management had the intention and ability to hold such
securities until maturity, were stated at amortized cost. The gain or loss
recognized on the sale of a debt security was based on the amortized cost of the
specific security. Marketable equity securities were stated at the lower of
aggregate cost or market value. Net unrealized losses considered temporary in
nature were shown as a reduction of stockholders' equity.
Unrealized losses which are considered other than temporary in nature are
recognized in earnings.
<PAGE> 18
Loans
Loans are stated at the amount of unpaid principal, net of unearned discounts
and unearned net loan origination fees. Such fees and discounts are accreted
using methods that approximate the effective-interest method.
Interest on loans is included in income as earned based upon interest rates
applied to unpaid principal. Interest is not accrued on loans 90 days or more
past due unless they are adequately secured and in the process of collection, or
on other loans when management believes collection is doubtful. All loans
considered impaired under SFAS 114, as defined below, are nonaccruing. Interest
on nonaccruing loans is recognized when payments are received when the ultimate
collectibility of interest is no longer considered doubtful. When a loan is
placed on nonaccrual status, all interest previously accrued is reversed against
current-period interest income.
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
circumstances and conditions known or anticipated at each reporting date. There
are inherent uncertainties with respect to the final outcome of the Banks'
loans. Because of these inherent uncertainties, it is reasonably possible that
actual losses experienced in the near term may differ from the amounts reflected
in these consolidated financial statements. The inherent uncertainties in the
assumptions relative to 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.
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 on 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 changes in economic
conditions in the Banks' lending areas.
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 policy, 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 affect the Company's provision for possible loan losses for the
year ended December 31, 1995.
The adoption of SFAS 114 had no impact on the Company's income recognition
policy for nonaccrual loans.
Loan Origination and Commitment Fees
Loan origination and commitment fees, and certain loan origination costs, are
deferred and amortized over the contractual terms of the related loans as yield
adjustments using primarily the level-yield method. When loans are sold or paid
off, the unamortized net fees and costs are recognized in income. Net deferred
loan fees amounted to $2,110,000 and $2,516,000 at December 31, 1995 and 1994,
respectively.
Purchased Mortgage Servicing Rights
Purchased Mortgage Servicing Rights (PMSRs) are initially recorded at the lower
of cost or the present value of the estimated future net servicing income. Such
amounts are amortized in proportion to and over the period of the estimated net
servicing income. The Company regularly evaluates the carrying value of PMSRs
for individual servicing acquisitions, compared with the present value of
estimated future net servicing income. Amortization is adjusted to reflect
changes in prepayment experience. PMSRs included in Other Assets amounted to
$2,126,000 and $628,000 at December 31, 1995 and 1994, respectively.
<PAGE> 19
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 guarantee fee),
differ.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided using the straight line method over the estimated
useful lives of the premises and equipment. 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 (`Other Real Estate Owned' or `OREO') is
recorded at the lower of the carrying amount of the loan or the fair value of
the property, less estimated costs to sell, at the time of acquisition. A
valuation allowance for the estimated costs to sell is charged to expense.
Subsequent changes in the fair value of OREO are reflected in the valuation
allowance and charged or credited to expense. Such amounts and net operating
income or expense related to OREO are included in noninterest expense in the
accompanying consolidated statements of income.
Intangible Assets
Intangible assets include the excess of the purchase price over the fair value
of net assets acquired (goodwill) in the acquisition of BWM as well as a core
deposit intangible (see Note 2). 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. The Company periodically evaluates intangible
assets for impairment on the basis of whether these assets are fully recoverable
from projected, undiscounted net cash flows of the related acquired entity.
Income Taxes
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (SFAS 109), 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 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.
Earnings Per Share
The calculation of earnings per share is based on the weighted average number of
shares of common stock outstanding, adjusted for the incremental shares
attributed to outstanding common stock equivalents, using the treasury stock
method. Common stock equivalents include options granted under the Company's
stock plan and shares to be issued under the Company's Directors' Deferred
Compensation Plan.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, amounts due from banks,
interest-bearing deposits, certain money market mutual fund investments, and
investments with original maturities of less than three months. Cash
equivalents are accounted for at cost which approximates fair value.
Trust Department
Trust department assets of approximately $2.2 billion and $1.8 billion at
December 31, 1995 and 1994, respectively, held by CTC in a fiduciary or agency
capacity for its customers are not included in the accompanying consolidated
balance sheets as they are not assets of CTC. 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.
<PAGE> 20
Credit Card Income and Credit Card Expense
Credit card income includes annual fees and interchange income from credit cards
issued by the Company, and merchant discount income. Merchant discount income
consists of the fees charged on credit card receipts submitted by the Company's
business customers. Credit card expense includes fees paid by the Company to
credit card issuers and third-party processors. Such amounts are recognized on
the accrual basis.
NOTE 2 ACQUISITIONS
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 BWM, was $12.2 million. This
transaction has been accounted for as a purchase and, accordingly, the
consolidated statement of income includes BWM's results of operations from the
date of acquisition.
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 is approximately $100,000 of capitalized
costs incurred in connection with the acquisition.
Following is supplemental information reflecting selected pro forma results as
if this acquisition had been consummated as of January 1, 1994:
1995 1994
-----------------------
(in thousands, except EPS)
Total revenue $98,069 $87,346
Income before income taxes 30,240 24,306
Net income 20,558 15,972
Earnings per share (EPS) 2.48 1.84
Total revenue includes net interest income and noninterest income.
<PAGE> 21
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, 1995,
Flagship had total assets and shareholders' equity of $273.6 million and $17.2
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 December 31, 1995, the
market value of the shares to be exchanged totaled $41.7 million. The
acquisition will be accounted for as a pooling of interests.
On February 5, 1996, Flagship shareholders approved the proposed merger.
Consummation of the transaction is subject to approval by certain regulatory
agencies and is expected to occur in the first quarter of 1996.
The following unaudited proforma consolidated financial information as of
December 31, 1995 and for the years ended December 31, 1995, 1994, and 1993 have
been prepared to give effect to the Flagship acquisition using the pooling of
interests method of accounting. The unaudited proforma consolidated statements
of income data for the years ended December 31, 1995, 1994, and 1993 have been
derived from the audited statements of income of Chittenden Corporation for the
years ended December 31, 1995, 1994, and 1993, and Flagship for the years ended
December 31, 1994 and 1993, and Flagship's unaudited statement of income for the
year ended December 31, 1995. The unaudited proforma balance sheet data have
been derived from the audited consolidated balance sheet of Chittenden
Corporation and the unaudited balance sheet of Flagship as of December 31, 1995.
Such unaudited proforma consolidated financial information is not necessarily
indicative of the results of operations or financial condition which would have
actually been reported had the merger of Chittenden Corporation and Flagship
occurred on the assumed dates, nor is it necessarily indicative of the future
results of operations or financial condition of the Company.
Unaudited proforma consolidated statements of income data:
Years Ended December 31,
1995 1994 1993
--------------------------
(in thousands)
Total revenue $109,958 $90,446 $86,070
Net income 22,130 18,037 13,502
Total revenue includes net interest income and non interest income.
Unaudited proforma consolidated balance sheet data:
December 31, 1995
-------------------
(in thousands)
Total assets $1,794,651
Stockholders' equity 153,949
The above unaudited pro forma consolidated financial information includes The
Bank of Western Massachusetts' actual results since the date of its acquisition,
March 17, 1995.
<PAGE> 22
<TABLE>
NOTE 3 SECURITIES
Investment securities at December 31, 1995 and 1994 are as follows:
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------------------------------------------------------
1995 (in thousands)
Securities available for sale:
<S> <C> <C> <C> <C>
US Treasury securities $ 81,625 $1,101 $(123) $ 82,603
US government agency obligations 32,777 306 (25) 33,058
Obligations of states and political subdivisions 44,853 - - 44,853
Mortgage-backed securities 31,832 297 (60) 32,069
Corporate bonds and notes 29,020 70 (113) 28,977
Government bond mutual funds 10,605 - (288) 10,317
Marketable equity securities 231 20 - 251
------------------------------------------------------------------
Total securities available for sale $230,943 $1,794 $(609) $232,128
==================================================================
Securities held for investment:
Obligations of states and political subdivisions $1,543 $ - $ - $1,543
Mortgage-backed securities 7,930 168 (21) 8,077
------------------------------------------------------------------
Total securities held for investment $9,473 $ 168 $ (21) $9,620
==================================================================
1994
Securities available for sale:
US Treasury securities $ 61,076 $ 7 $(4,095) $ 56,988
US government agency obligations 33,138 - (889) 32,249
Obligations of states and political subdivisions 40,341 - - 40,341
Mortgage-backed securities 23,823 10 (1,182) 22,651
Corporate bonds and notes 36,397 2 (1,947) 34,452
Government bond mutual funds 10,605 - (818) 9,787
Marketable equity securities 244 123 (6) 361
------------------------------------------------------------------
Total securities available for sale $205,624 $ 142 $(8,937) $196,829
==================================================================
Securities held for investment:
Obligations of states and political subdivisions $ 1,651 $ - $ - $1,651
Mortgage-backed securities 8,218 - (589) 7,629
-------------------------------------------------------------------
Total securities held for investment $ 9,869 $ - $ (589) $9,280
===================================================================
</TABLE>
Proceeds from sales of debt securities amounted to $7,173,000, $32,818,000, and
$12,913,000 in 1995, 1994, and 1993, respectively. Realized gains on sales of
debt securities were $21,000 and $84,000 in 1994 and 1993, respectively.
Realized losses on sales of debt securities were $67,000, $78,000, and $71,000
in 1995, 1994, and 1993, respectively. In 1994, the Company sold government
bond mutual funds at a loss of $466,000. The Company sold marketable equity
securities at gains of $265,000 and $117,000 in 1995 and 1993, respectively.
Market value of 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 $39,118,000 and $30,483,000 at December 31, 1995
and 1994, respectively.
<PAGE> 23
The following table shows the maturity distribution of the amortized cost of the
Company's investment securities at December 31, 1995, with a comparative total
for 1994:
After After
One but Five but
Within Within Within
One Five Ten
Year Years Years
-------------------------------
(in thousands)
Securities available for sale:
US Treasury securities $15,467 $ 61,108 $ 5,050
US government agency obligations 16,640 15,177 960
Obligations of states and political
subdivisions 42,160 2,008 685
Mortgage-backed securities (1) 6,536 14,741 7,421
Corporate bonds and notes 6,264 20,756 2,000
Government bond mutual funds - - -
Marketable equity securities - - -
------------------------------
Total securities available for sale 87,067 113,790 16,116
------------------------------
Securities held for investment:
Obligations of states and political
subdivisions 115 971 457
Mortgage-backed securities (1) 771 2,392 1,930
------------------------------
Total securities held for investment 886 3,363 2,387
------------------------------
Total securities $87,953 $117,153 $18,503
===============================
Comparative amounts at December 31, 1994 $70,965 $115,036 $11,698
After
Ten No Fixed
Years Maturity Total
-------------------------------
(in thousands)
Securities available for sale:
US Treasury securities $ - $ - $81,625
US government agency obligations - - 32,777
Obligations of states and political
subdivisions - - 44,853
Mortgage-backed securities (1) 3,134 - 31,832
Corporate bonds and notes - - 29,020
Government bond mutual funds - 10,605 10,605
Marketable equity securities - 231 231
-------------------------------
Total securities available for sale 3,134 10,836 230,943
-------------------------------
Securities held for investment:
Obligations of states and political
subdivisions - - 1,543
Mortgage-backed securities (1) 2,837 - 7,930
-------------------------------
Total securities held for investment 2,837 - 9,473
-------------------------------
Total securities $5,971 $10,836 $240,416
===============================
Comparative amounts at December 31, 1994 $6,945 $10,849 $215,493
(1) Maturities of mortgage-backed securities are based on mortgage loan prepay-
ment assumptions.
The following table shows the maturity distribution of the fair value of the
Company's investment securities at December 31, 1995, with a comparative total
for 1994:
After After
One But Five But
Within Within Within
One Five Ten
Year Years Years
-----------------------------
(in thousands)
Securities available for sale:
US Treasury securities $15,579 $ 61,962 $ 5,062
US government agency obligations 16,688 15,414 956
Obligations of states and political subdivisions 42,160 2,008 685
Mortgage-backed securities (1) 6,585 14,851 7,476
Corporate bonds and notes 6,255 20,725 1,997
Government bond mutual funds - - -
Marketable equity securities - - -
-----------------------------
Total securities available for sale 87,267 114,960 16,176
-----------------------------
Securities held for investment:
Obligations of states and political subdivisions 115 971 457
Mortgage-backed securities (1) 785 2,436 1,966
-----------------------------
Total securities held for investment 900 3,407 2,423
-----------------------------
Total securities $88,167 $118,367 $18,599
=============================
Comparative amounts at December 31, 1994 $70,337 $108,517 $10,486
After
Ten No Fixed
Years Maturity Total
-----------------------------
(in thousands)
Securities available for sale:
US Treasury securities $ - $ - $82,603
US government agency obligations - - 33,058
Obligations of states and political subdivisions - - 44,853
Mortgage-backed securities (1) 3,157 - 32,069
Corporate bonds and notes - - 28,977
Government bond mutual funds - 10,317 10,317
Marketable equity securities - 251 251
-----------------------------
Total securities available for sale 3,157 10,568 232,128
-----------------------------
Securities held for investment:
Obligations of states and political subdivisions - - 1,543
Mortgage-backed securities (1) 2,890 - 8,077
-----------------------------
Total securities held for investment 2,890 - 9,620
-----------------------------
Total securities $6,047 $10,568 $241,748
=============================
Comparative amounts at December 31, 1994 $6,621 $10,148 $206,109
(1)Maturities of mortgage-backed securities are based on mortgage loan prepay-
ment assumptions. The discount for fair value is applied to the maturity
distribution proportionately.
Expected maturities may differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
<PAGE> 24
NOTE 4 LOANS
Major classifications of loans, based on FDIC collateral definitions, at
December 31, 1995 and 1994 are as follows:
1995 1994
-----------------------------------
(in thousands)
Commercial $ 202,237 $105,281
Real estate:
Residential 344,494 334,841
Commercial 254,352 214,103
Construction 14,128 7,281
-----------------------------------
Total real estate 612,974 556,225
Home equity 72,737 70,777
Consumer 141,108 140,677
Lease financing receivable 12,420 -
-----------------------------------
Total gross loans 1,041,476 872,960
Allowance for possible loan losses (24,849) (19,099)
-----------------------------------
Net loans $1,016,627 $853,861
===================================
Mortgage loans held for sale $ 13,276 $ 2,870
===================================
Lease financing receivable at December 31, 1995 includes the estimated residual
value of leased vehicles of approximately $6,821,000 and is net of unearned
interest income of approximately $1,880,000.
CTC's lending activities are conducted primarily in Vermont, with additional
activity relating to nearby trading areas in Quebec, New York, New Hampshire,
Maine, and Connecticut. BWM's lending activities are conducted primarily in the
greater Springfield, Massachusetts area. The Banks make single family and
multi-family residential loans, commercial real estate loans, commercial loans,
and a variety of consumer loans. In addition, the Banks make loans for the
construction of residential homes, multi-family and commercial properties, and
for land development. The ability and willingness of the Banks' borrowers to
honor their repayment commitments are impacted by many factors, including the
level of overall economic activity within the borrowers' geographic areas.
Changes in the allowance for possible loan losses are summarized as follows:
1995 1994 1993
----------------------------------------
(in thousands)
Balance at beginning of year $19,099 $ 18,917 $ 16,372
Allowance of BWM at acquisition 4,135 - -
Provision for possible loan losses 3,950 4,300 6,600
Loan recoveries 2,962 1,111 1,117
Loans charged off (5,297) (5,229) (5,172)
----------------------------------------
Balance at end of year $24,849 $ 19,099 $ 18,917
========================================
The principal amount of loans on nonaccrual status was $9,317,000 and $7,934,000
at December 31, 1995 and 1994, respectively. Loans whose terms have been
substantially modified in troubled debt restructurings amounted to $2,463,000
and $185,000 at December 31, 1995 and 1994, respectively.
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:
1995 1994 1993
----------------------------------------
(in thousands)
Interest income in accordance
with original loan terms $895 $ 1,269 $ 1,418
Interest income recognized 441 506 507
----------------------------------------
Reduction in interest income $454 $ 763 $ 911
========================================
<PAGE> 25
At December 31, 1995, the Banks were not committed to lend any additional funds
to borrowers with loans whose terms have been restructured.
Residential mortgage loans serviced for others, which are not reflected in the
consolidated balance sheets, totaled approximately $880,650,000 and $709,873,000
at December 31, 1995 and 1994, respectively. No formal recourse provisions
exist in connection with such servicing.
At December 31, 1995, the recorded investment in loans that are considered to be
impaired under SFAS 114 was $7,440,000 (all such loans, except troubled debt re-
structurings, were on a nonaccrual basis). Included in this amount is
$3,382,000 of impaired loans for which the related allowance for possible loan
losses is $818,000, and $4,057,000 of impaired loans for which no specific
allowance for possible loan losses has been allocated. The average recorded
investment in impaired loans during the year ended December 31, 1995 was
approximately $8,643,000. For the year ended December 31, 1995, interest income
on impaired loans totaled $284,000, of which $221,000 was recognized on a cash
basis.
NOTE 5 PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1995 and 1994 are summarized as follows:
Estimated Original
1995 1994 Useful Lives
---------------------------------------------------
(in thousands)
Land $ 1,661 $ 1,570 -
Buildings and improvements 6,148 6,102 12 - 50 years
Leasehold improvements 11,517 11,918 1 - 33 years
Furniture and equipment 16,624 13,335 2 - 10 years
Construction in progress 107 2,869 -
---------------------------
36,057 35,794
Accumulated depreciation
and amortization (17,337) (17,930)
---------------------------
$18,720 $17,864
===========================
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 $1,184,000,
$601,000, and $600,000 in 1995, 1994, and 1993, 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, 1995 are as follows:
Year Amount
---------------------------------------------------------------------------
(in thousands)
1996 $1,131
1997 1,006
1998 867
1999 725
2000 695
Thereafter 1,755
-------------
$6,179
=============
<PAGE> 26
NOTE 6 BORROWINGS
Short-term borrowings at December 31, 1995 and 1994 consist of the following:
1995 1994
--------------------------
(in thousands)
Securities sold under agreements to repurchase:
Due through January 8, 1996, weighted average
rate of 9.20 % $10,000 $ -
Due through January 9, 1995, weighted average
rate of 9.20% - 10,000
US Treasury borrowings, 5.16% in 1995 and 5.21%
in 1994, due on demand 11,927 12,650
--------------------------
$21,927 $22,650
==========================
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 $25,471,000 and $25,542,000, respectively,
at December 31, 1995, and $23,909,000 and $22,336,000, respectively, at December
31, 1994.
The following information relates to securities sold under agreements to
repurchase:
1995 1994 1993
-------------------------------------
(in thousands)
Average balance outstanding
during the year $11,304 $11,806 $10,954
Average interest rate
during the year 8.83% 8.46% 8.65%
Maximum amount outstanding
at any month-end $20,000 $20,237 $14,140
The following information relates to U.S. Treasury borrowings:
1995 1994 1993
--------------------------------------
(in thousands)
Average balance outstanding
during the year $19,556 $20,349 $25,758
Average interest rate
during the year 5.73% 3.74% 2.82%
Maximum amount outstanding
at any month-end $70,669 $70,517 $72,325
Long-term debt at December 31, 1995 consisted of an advance of $1,000,000 from
the Federal Home Loan Bank of Boston, with a rate of 5.81%. This borrowing is
payable at maturity on October 19, 1998. The advance from the Federal Home Loan
Bank of Boston is collateralized by the Company's holdings of Federal Home Loan
Bank of Boston stock and residential real estate loans equal to at least
200% of the advances.
NOTE 7 INCOME TAXES
The provision for income taxes consists of the following:
1995 1994 1993
------------------------------------
(in thousands)
Current payable
Federal $9,542 $7,566 $6,816
State 311 - -
------------------------------------
9,853 7,566 6,816
Deferred (prepaid)
Federal (74) 160 (1,573)
State (16) - -
------------------------------------
(90) 160 (1,573)
------------------------------------
Provision for income taxes $9,763 $7,726 $5,243
====================================
<PAGE> 27
Current income taxes receivable, included in other assets, were $786,000 and
$52,000, federal and state, respectively, at December 31, 1995. Current federal
income taxes payable, included in accrued expenses and other liabilities, was
$266,000 at December 31, 1994.
The State of Vermont assesses a franchise tax for banks in lieu of a bank income
tax. The franchise tax, assessed based on deposits, amounted to approximately
$530,000, $493,000, and $468,000 in 1995, 1994, and 1993, respectively. These
amounts are included in other noninterest expense in the accompanying
consolidated statements of income.
The following is a reconciliation of the provision for Federal income taxes,
calculated at the statutory rate, to the recorded provision for income taxes:
1995 1994 1993
---------------------------------------
(in thousands)
Computed tax at statutory Federal rate $10,727 $8,142 $5,894
Increase (decrease) in taxes from:
Amortization of intangible assets 142 - 255
Tax-exempt interest, net (1,053) (645) (581)
Dividends received deduction (214) (134) (33)
Other, net 161 363 (292)
---------------------------------------
Total $9,763 $7,726 $5,243
=======================================
Effective income tax rate 31.9% 33.2% 31.1%
The components of the net deferred tax asset at December 31, 1995 and 1994 are
as follows:
1995 1994
-----------------------
(in thousands)
Allowance for possible loan losses $8,596 $6,494
Deferred compensation and pension 2,522 1,871
Other real estate owned writedowns 105 161
Depreciation (698) (798)
Accrued liabilities 714 1,017
Unrealized (gain) loss on securities available for sale (483) 3,077
Basis differences, loans, purchase accounting 579 -
Core deposit intangible (1,911) -
Other 256 147
-----------------------
$9,680 $11,969
=======================
NOTE 8 STOCKHOLDERS' EQUITY
Treasury Stock
On October 26 and November 7, 1994, the Company purchased 283,594 and 125,000
shares, respectively, of its common stock for a total cost of $6.7 million. On
March 17, 1995, the Company issued 408,594 common shares from treasury in the
acquisition of The Bank of Western Massachusetts.
Dividends
Dividends paid by the Banks 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 Banks.
The Company declared dividends of $4,472,000, $2,838,000, and $1,243,000 during
1995, 1994, and 1993, respectively. These amounts represented $0.55, $0.37, and
$0.16 per share.
Surplus
CTC 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 required
if net worth as a percent of deposits and other liabilities exceeds 10%.
<PAGE> 28
Prior to the payment of dividends, BWM is required by Massachusetts statute to
transfer an amount from retained earnings to surplus such that the total of
capital stock and surplus is a minimum of 10% of deposits. Because this level
was exceeded at December 31, 1995, no transfer was made during the year.
Stock Splits
On May 26, 1995 and September 24, 1993, the Company distributed five-for-four
stock splits. All historical share information presented in the consolidated
financial statements has been restated to reflect these events.
Capital Ratios
The Banks and the Company are subject to various regulatory capital requirements
administered by banking regulatory agencies. To be considered adequately
capitalized under the regulatory framework for prompt corrective action, the
Banks and the Company must maintain minimum Tier 1 leverage, Tier 1 risk-based,
and total risk-based ratios of 4%, 4%, and 8%, respectively. At December 31,
1995 and 1994, the Banks and the Company exceeded all regulatory requirements to
be considered adequately capitalized.
NOTE 9 STOCK PLANS
The Company has four stock option plans: a 1980 employee stock purchase plan, a
1985 restricted stock plan, a 1988 employee stock option plan, and a 1993 Stock
Incentive Plan. The employee stock purchase plan, the restricted stock plan and
the employee stock option plan expired between October 1990 and February 1993,
except as to options then outstanding. Of the 386,624 options outstanding
at December 31, 1995, 261,624 were exercisable.
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 predetermined 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 585,938 shares are allocated to the Stock Incentive
Plan. At December 31, 1995 there were 410,757 shares reserved under the plan.
Information regarding the Company's stock option plans is summarized as follows:
Option Price
Per Share Options
---------------------------------
December 31, 1992 188,766
Granted $12.08 - 12.80 261,999
Exercised 4.96 - 13.68 (14,284)
Expired (33,593)
----------------------------------
December 31, 1993 402,888
Granted $15.80 - 16.95 10,938
Exercised 4.96 - 14.79 (15,638)
Expired (46,664)
----------------------------------
December 31, 1994 351,524
Granted $18.50 - 24.25 125,850
Exercised 4.96 - 16.95 (84,629)
Expired (6,121)
----------------------------------
December 31, 1995 $ 4.96 - 24.25 386,624
==================================
<PAGE> 29
NOTE 10 EMPLOYEE BENEFITS
Pension Plan
CTC 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 Bank 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, 1995 and 1994:
1995 1994
---------------------------
(in thousands)
Vested benefits $12,699 $10,222
Nonvested benefits 1,364 1,069
---------------------------
Accumulated benefit obligation 14,063 11,291
Additional benefits related to future
compensation levels 1,766 3,886
---------------------------
Projected benefit obligation 15,829 15,177
Fair value of plan assets, invested primarily
in equity securities and bonds 14,083 12,232
--------------------------
Plan assets less than projected
benefit obligation $(1,746) $(2,945)
==========================
Amounts resulting from changes in actuarial assumptions used to measure the
Bank'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 less than the projected benefit obligation
to the amounts included in the consolidated balance sheets at December 31, 1995
and 1994 are shown below:
1995 1994
--------------------------
(in thousands)
Plan assets less than projected benefit
obligation $(1,746) $(2,945)
Unrecognized net transition asset being amortized
over participants' period of service (130) (143)
Prior service cost not yet recognized in net
periodic pension cost (3,043) 414
Unrecognized net loss from past experience
different from that assumed 1,956 778
--------------------------
Accrued pension cost included in accrued
expenses and other liabilities $(2,963) $(1,896)
==========================
Net pension expense, included in employee benefits in the consolidated
statements of income, includes the following components:
1995 1994 1993
----------------------------------------
(in thousands)
Service cost - benefits attributable
to service during the period $ 814 $ 868 $ 681
Interest cost on projected benefit
obligation 1,297 1,136 1,043
Actual return on plan assets (2,301) 72 (864)
Net amortization and deferral 1,257 (1,186) (338)
-----------------------------------------
Net pension expense $1,067 $ 890 $ 522
=========================================
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.0% in 1995 and 1993, and 8.0% in
1994. Future compensation levels were estimated using average salary increases
of 5.0% for 1995 and 1993, and 6.0% for 1994. The expected long-term rate of
return on plan assets was 9.0% in 1995, 1994, and 1993.
In September 1995, the Company approved an amendment to the pension plan,
effective January 1, 1996, adopting a cash balance approach. This amendment had
no effect on the Company's financial condition or results of operations.
CTC has supplemental pension arrangements with certain retired employees. The
liability, included in accrued expenses and other liabilities, related to such
arrangements was $1,117,000 and $995,000 at December 31, 1995 and 1994,
respectively.
The Company has established a Supplemental Executive Retirement Plan (SERP) for
its Chief Executive Officer. The SERP is a defined contribution plan in which
contributions are accrued based upon the Company's Return on Equity (ROE). An
ROE of 10% is the minimum threshold at which any contribution will be made.
Benefits are payable upon attaining the age of 55, except in the event of death
or disability. The liability related to the SERP, included in accrued expenses
and other liabilities, was $179,000 and $119,000 at December 31, 1995 and 1994,
respectively.
<PAGE> 30
Postretirement and Postemployment Benefits
In addition to providing pension benefits, CTC provides certain postretirement
health care benefits to retirees and to current employees who meet certain age
and length of service criteria.
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions (SFAS 106). 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 following table reconciles the plan's funded status to the accrued post-
retirement health care liability as reflected in the balance sheets at
December 31, 1995 and 1994:
1995 1994
--------------------------
(in thousands)
Accumulated postretirement benefit obligation:
Retirees $ 781 $ 725
Other fully eligible participants 147 113
Other active participants 466 454
---------------------------
1,394 1,292
Unrecognized actuarial gain 152 259
Unrecognized transition obligation (1,366) (1,446)
---------------------------
Accrued postretirement health care liability $ 180 $ 105
===========================
Net postretirement health care expense includes the following components:
Service cost - benefits attributed to
service during the period $ 16 $ 20
Interest cost on accumulated postretirement
benefit obligation 101 99
Net amortization and deferral 64 76
--------------------------
Net postretirement health care expense $ 181 $ 195
==========================
The weighted average discount rate used in determining the accumulated post-
retirement benefit obligation at December 31, 1995 and 1994 was 8.0% and 7.0%,
respectively. For measurement purposes, 9.0% and 11.0% annual rate of increase
in the per capita cost of covered health care benefits was assumed for the
respective periods.
Other Benefit Plans
CTC 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 CTC. Investment in the Company's common
stock is one of four investment options available to employees.
Eligible employees of CTC 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.
CTC makes an incentive savings contribution in an amount equal to 35% of each
employee's basic contribution. In 1995, 1994, and 1993, 30,864, 18,236, and
18,576 shares, respectively, of the Company's common stock were purchased
through the incentive savings and profit sharing plan; $274,000, $214,000, and
$233,000, respectively, were charged to expense for contributions and payments
made or to be made under the plan.
CTC 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 $364,000, $214,000, and $225,000, in 1995, 1994, and 1993, respectively.
CTC 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 $599,000, $529,000, and $407,000 in 1995, 1994,
and 1993, respectively.
<PAGE> 31
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 $183,000, $202,000, and $289,000 for 1995, 1994, and 1993, respectively.
Shares which will be issued under the plan totaled 125,414 at December 31, 1995.
BWM has a 401(k) plan which allows eligible employees to defer up to 25% of
their earnings on a pre-tax basis up to the maximum allowable under Internal
Revenue Service limits. Participants' contributions, up to a maximum of 6% of
the participants' compensation for the year, are matched at 25% by BWM. An
additional match may be made, contingent upon achievement of certain earning
goals.
Participant contributions and the employer's basic match are fully vested when
made. Any employer's bonus contributions are vested 20% per year after three
years of service. BWM contributed approximately $51,000 to the plan during
1995.
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 Banks are
parties to financial instruments with off-balance sheet risk, held for purposes
other than trading. 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 Banks' 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, assuming that the amounts are fully advanced and
that collateral or other security is of no value. The Banks use the same credit
policies in making commitments and conditional obligations as they do for
on-balance sheet instruments. The Banks evaluate each customer's creditworthi-
ness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Banks 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 Banks 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 commitments
to customers.
Financial instruments whose contractual amounts represent off-balance sheet risk
at December 31, 1995 and 1994 are as follows:
1995 1994
---------------------------
(in thousands)
Commitments to originate loans $ 21,287 $ 13,671
Unused lines of credit 149,785 122,784
Standby letters of credit 12,517 16,005
Unadvanced portions of construction loans 7,730 7,065
Equity commitments to limited partnerships - 597
<PAGE> 32
NOTE 12 COMMITMENTS AND CONTINGENCIES
As nonmembers of the Federal Reserve System, the Banks are 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 $23,389,000 and $20,409,000 at December 31, 1995 and
1994, respectively.
CTC 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 approxi-
mately $9,487,000. 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.
The Company has entered into severance agreements with the Chief Executive
Officer and several members of senior management. These agreements are
triggered by a change of control and subsequent termination of employment under
certain circumstances. Payments are equal to 2.99 times annual salary for the
Chief Executive Officer and from 1 to 2 times annual salary for the individual
participating members of senior management.
Various legal claims against the Company arising in the normal course of
business were outstanding at December 31, 1995. 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 financial condition or results of
operations.
NOTE 13 OTHER NONINTEREST EXPENSE
The components of other noninterest expense for the years presented are as
follows:
1995 1994 1993
---------------------------------------
(in thousands)
Data processing $ 3,909 $ 3,521 $ 3,432
Amortization of intangible assets 1,031 - 636
Legal and professional 733 573 1,054
Other 10,492 8,890 9,610
---------------------------------------
$16,165 $12,984 $14,732
=======================================
NOTE 14 RELATED PARTY TRANSACTIONS
Directors and executive officers of the Banks and their associates are credit
customers of the Banks 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.
An analysis of loans to directors and executive officers of the Banks and their
associates, for 1995, is as follows (in thousands):
Balance at Acquisition Balance at
December 31, 1994 of BWM Additions Reductions December 31, 1995
- --------------------------------------------------------------------------------
$7,931 $3,177 $3,692 $7,846 $6,954
================================================================================
BWM's Chairman of the Board is a principal in a partnership which leases
premises to BWM. Rent paid to the partnership was approximately $225,000 in
1995. BWM's Chairman is also a principal in a law firm which provides services
to the Bank. Charges for services rendered were approximately $26,000 in 1995.
Two other members of BWM's Board are principals of companies which provide
services to the Bank. BWM's 1995 expenses included marketing consulting and
insurance expenses of $113,000 and $6,000,respectively, paid to these companies.
A construction company, whose principal owner is a member of the Board of
Directors of the Company and of CTC, was hired in 1994 to build a new banking
facility for CTC. CTC paid the construction company approximately $2,391,000
and $1,575,000 in 1995 and 1994, respectively.
<PAGE> 33
NOTE 15 QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of quarterly financial data for 1995 and 1994 is presented below:
1995 Three months ended
March 31 June 30 Sept. 30 Dec. 31
----------------------------------------------
(in thousands, except per share amounts)
Total interest income $25,140 $29,630 $30,077 $30,401
Total interest expense 10,684 13,102 12,974 13,062
----------------------------------------------
Net interest income 14,456 16,528 17,103 17,339
Provision for possible
loan losses 950 600 1,200 1,200
Noninterest income 6,587 7,164 8,022 8,204
Noninterest expense 13,265 15,577 15,365 16,598 (1)
------------------------------------------------
Income before income taxes 6,828 7,515 8,560 7,745
Provision for income taxes 2,186 2,473 2,755 2,349
------------------------------------------------
Net income $ 4,642 $ 5,042 $ 5,805 $ 5,396
================================================
Fully diluted earnings
per share $ 0.60 $ 0.60 $ 0.68 $ 0.64
Dividends declared
per share $ 0.10 $ 0.15 $ 0.15 $ 0.15
(1) Salaries and employee benefits expenses were $436,000 higher than in the
third quarter, primarily due to accruals for various performance-based incentive
plans.
1994 Three months ended
March 31 June 30 Sept. 30 Dec. 31
------------------------------------------------
(in thousands, except per share amounts)
Total interest income $19,278 $20,672 $21,851 $23,129
Total interest expense 6,956 7,173 7,898 8,998
------------------------------------------------
Net interest income 12,322 13,499 13,953 14,131
Provision for possible
loan losses 1,200 1,200 1,000 900
Noninterest income 5,620 5,775 5,640 6,490 (2)
Noninterest expense 11,690 12,314 12,539 13,324 (3)
------------------------------------------------
Income before income taxes 5,052 5,760 6,054 6,397
Provision for income taxes 1,667 1,917 2,031 2,111
------------------------------------------------
Net income $ 3,385 $ 3,843 $ 4,023 $ 4,286
================================================
Earnings per share $ 0.42 $ 0.48 $ 0.51 $ 0.56
Dividends declared per share $ 0.08 $ 0.08 $ 0.10 $ 0.11
(2) Noninterest income for the fourth quarter of 1994 was $850,000 higher than
for the third quarter. Increased credit card income, primarily from higher
merchant discount volumes, amounted to $363,000. A one-time gain of $444,000
resulted from the sale of branch real estate.
(3) Noninterest expense for the fourth quarter of 1994 exceeded the third
quarter level by $785,000. Employee benefits expense was higher by $300,000,
primarily due to accruals for various performance-based incentive plans. Credit
card expense was up $212,000 as higher volumes resulted in increased processing
costs.
NOTE 16 FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents
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.
Securities
The fair value of investment securities, other than obligations of states,
political subdivisions, and Federal Home Loan Bank (FHLB) stock, is based on
quoted market prices. The fair value of obligations of states and political sub-
divisions is estimated to be equal to amortized cost since most of these notes
mature within six months and there is no active market for these instruments.
The carrying value of FHLB stock represents its redemption value.
<PAGE> 34
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 nonper-
forming balances. For performing residential mortgage loans, fair value is esti-
mated 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, leasing, and other consumer loans is estimated based on
secondary market prices for asset-backed securities with similar character-
istics.
Purchased Mortgage Service Rights
The fair value is estimated by discounting the future cash flows through the
estimated maturity of the underlying mortgage loans.
Deposits
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, that is, the carrying
amount. 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.
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. Long-term debt has an estimated fair value equal to its
carrying amount.
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.
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 Banks' entire holdings of a particular financial
instrument. Because no active observable market exists for a significant
portion of the Banks' 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 the estimates.
<PAGE> 35
The estimated fair values of the Company's financial instruments are as follows:
December 31,
---------------------------------------------------
1995 1994
---------------------------------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
---------------------------------------------------
(in thousands)
Financial assets:
Cash and cash equivalents $ 179,399 $ 179,399 $ 100,973 $ 100,973
Securities available
for sale 232,128 232,128 196,829 196,829
Securities held
for investment 9,473 9,620 9,869 9,280
Federal Home Loan
Bank Stock 4,365 4,365 - -
Loans, net 1,016,627 1,026,878 853,861 870,111
Mortgage loans held
for sale 13,276 13,276 2,870 2,892
Purchased mortgage
servicing rights 2,126 2,126 628 628
Financial liabilities:
Deposits:
Demand 201,666 201,666 180,481 180,481
Savings 653,980 653,980 519,512 519,512
Time:
Certificates of deposit
$100,000 and over 90,210 90,326 69,885 69,594
Other time deposits 392,604 393,578 300,320 298,329
Short-term borrowings 21,927 21,927 22,650 22,650
Long-term debt 1,000 1,000 - -
Commitments 116 111 160 160
NOTE 17 PARENT COMPANY FINANCIAL STATEMENTS
CHITTENDEN CORPORATION (PARENT COMPANY ONLY)
Balance Sheets December 31,
-------------------------------
1995 1994
-------------------------------
(in thousands)
Assets
Cash and cash equivalents $ 6,621 $ 5,011
Investment securities 247 225
Investment in bank subsidiaries
at equity in net assets 129,598 92,525
Other assets 323 749
-------------------------------
Total assets $136,789 $98,510
===============================
Liabilities and stockholders' equity
Liabilities:
Accrued expenses and other liabilities $ 55 $ 200
------------------------------
Total liabilities 55 200
------------------------------
Total stockholders' equity 136,734 98,310
------------------------------
Total liabilities and stockholders' equity $136,789 $98,510
==============================
<PAGE > 36
Statements of Income Years Ended December 31,
------------------------------------------
1995 1994 1993
------------------------------------------
(in thousands)
Operating income:
Dividends from bank
subsidiaries $16,992 $13,275 $ 1,679
Dividends from investment
securities 10 19 -
Interest income 135 13 -
-----------------------------------------
Total operating income 17,137 13,307 1,679
-----------------------------------------
Operating expense:
Losses on investment
securities - - 16
Other operating expense 609 1,268 769
----------------------------------------
Total operating expense 609 1,268 785
----------------------------------------
Income before income taxes and
equity in undistributed earnings
of subsidiaries 16,528 12,039 894
Income tax benefit 143 420 267
----------------------------------------
Income before equity in undistributed
earnings of subsidiaries 16,671 12,459 1,161
Equity in undistributed earnings
of bank subsidiaries 4,214 3,078 9,861
----------------------------------------
Net income $20,885 $15,537 $11,022
========================================
STATEMENTS OF CASH FLOWS Years Ended December 31,
----------------------------------------
1995 1994 1993
----------------------------------------
(in thousands)
Cash flows from operating activities:
Net income $20,885 $15,537 $11,022
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed earnings
of bank subsidiaries (4,214) (3,078) (9,861)
Amortization - - 29
Investment securities losses - - 16
(Increase) decrease in other assets 404 (171) 361
Increase (decrease) in accrued expenses
and other liabilities (96) 105 (36)
----------------------------------------
Net cash provided by operating
activities 16,979 12,393 1,531
----------------------------------------
Cash flows from investing activities:
Purchase of The Bank of Western
Massachusetts (12,177) - -
----------------------------------------
Net cash used in investing
activities (12,177) - -
----------------------------------------
Cash flows from financing activities:
Principal repayments of
long-term debt - - (59)
Proceeds from issuance of
treasury and common stock 1,280 239 172
Dividends on common stock (4,472) (2,838) (1,243)
Repurchase of common stock - (6,685) -
----------------------------------------
Net cash used in financing
activities (3,192) (9,284) (1,130)
----------------------------------------
Net increase in cash and
cash equivalents 1,610 3,109 401
Cash and cash equivalents
at beginning of year 5,011 1,902 1,501
---------------------------------------
Cash and cash equivalents at
end of year $ 6,621 $ 5,011 $ 1,902
=======================================
<PAGE> 37
NOTE 18 RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (SFAS 121). This
Statement requires that long-lived assets and certain identifiable intangibles
to be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If the sum of the expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the asset, an
impairment loss is recognized. Measurement of an impairment loss for long-lived
assets and identifiable intangibles that an entity expects to hold and use
should be based on the fair value of the asset. SFAS 121 specifically exempts
core deposit intangibles from the required analysis for impairment.
SFAS 121 will be applied prospectively in the Company's fiscal year beginning
January 1, 1996. The Company expects the adoption of SFAS 121 will not impact
the Company's reported financial condition or results of operations.
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 SFAS No. 65, Accounting for Certain Mortgage
Banking Activities, 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
and sold 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 impact on
income in 1996, the significance of which will depend on the volume of loans
sold during the year.
<PAGE> 38
Report of Independent Public Accountants
To the Board of Directors and Stockholders of
Chittenden Corporation:
We have audited the accompanying consolidated balance sheets of Chittenden
Corporation and its subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1995.
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 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 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 audits
provide 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 its
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 1994, the Company adopted Statement of Financial Accounting Standards
No. 115, Accounting for Certain Investments in Debt and Equity Securities. As
also discussed in Note 1, the Company adopted Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, as of January 1, 1993.
Arthur Andersen LLP
Boston, Massachusetts
January 16, 1996
(except with respect to matters discussed in Note 2,
as to which the date is February 5, 1996)
<PAGE> 39
<TABLE>
Five-year Consolidated Financial Summary
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1995 1994 1993
--------------------------------------------------
(in thousands, except share amounts)
Statements of income:
<S> <C> <C> <C>
Interest income $115,248 $84,930 $79,803
Interest expense 49,822 31,025 29,574
----------------------------------------------------
Net interest income 65,426 53,905 50,229
Provision for possible loan losses 3,950 4,300 6,600
Net interest income after provision
for possible loan losses 61,476 49,605 43,629
Noninterest income 29,977 23,525 24,308
Noninterest expense 60,805 49,867 51,097
----------------------------------------------------
Income before provision for
income taxes 30,648 23,263 16,840
Provision for income taxes 9,763 7,726 5,243
----------------------------------------------------
Income before cumulative effect
of change in accounting principle 20,885 15,537 11,597
Cumulative effect of change in
accounting principle - - (575)
----------------------------------------------------
Net income $ 20,885 $15,537 $11,022
====================================================
Total assets at year-end $1,521,081 $1,213,908 $1,231,003
Long-term debt at year-end 1,000 - -
Balance sheets - average daily balances:
Total assets $1,432,312 $1,200,785 $1,172,809
Loans, net of allowance 996,604 833,205 852,958
Investment securities and interest-
earning cash equivalents 317,907 269,050 220,927
Total deposits 1,257,607 1,055,604 1,030,839
Long-term debt 203 - 7
Total stockholders' equity 121,738 100,635 92,813
Per common share:
Net income $2.52 $1.97 $1.42
Cash dividends declared 0.55 0.37 0.16
Book value 16.51 13.30 12.58
Weighted average shares
outstanding 8,276,081 7,879,826 7,759,357
Selected financial percentages:
Return on average total assets 1.46% 1.29% 0.94%
Return on average stockholders'
equity 17.16 15.44 11.88
Interest rate spread 4.26 4.33 4.21
Net yield on earning assets 5.01 4.92 4.69
Net charge-offs as a percent
of average loans 0.23 0.48 0.47
Nonperforming assets ratio (1) 1.31 1.08 1.85
Allowance for possible loan losses as
a percent of year-end loans 2.39 2.19 2.22
Year-end leverage capital ratio 8.34 8.41 8.13
Risk-based capital ratios:
Tier 1 11.36 11.46 11.05
Total 12.74 12.82 12.41
Average stockholders' equity
to average assets 8.50 8.38 7.91
Common stock dividend payout
ratio (2) 21.41 18.27 11.28
Years Ended December 31,
---------------------------------------
1992 1991
---------------------------------------
(in thousands, except share amounts)
Statements of income:
Interest income $86,984 $100,061
Interest expense 41,300 57,972
---------------------------------------
Net interest income 45,684 42,089
Provision for possible loan losses 7,513 8,843
Net interest income after provision
for possible loan losses 38,171 33,246
Noninterest income 21,073 18,442
Noninterest expense 49,582 45,847
---------------------------------------
Income before provision for
income taxes 9,662 5,841
Provision for income taxes 2,444 1,234
---------------------------------------
Income before cumulative effect of
change in accounting principle 7,218 4,607
Cumulative effect of change
in accounting principle - -
---------------------------------------
Net income $7,218 $4,607
=======================================
Total assets at year-end $1,192,068 $1,204,949
Long-term debt at year-end 59 2,473
Balance sheets - average daily balances:
Total assets $1,171,060 $1,115,744
Loans, net of allowance 844,126 828,433
Investment securities and interest-
bearing cash equivalents 222,428 191,244
Total Deposits 1,021,827 922,017
Long-term debt 2,034 2,473
Total stockholders' equity 83,520 74,476
Per common share:
Net income $0.94 $0.59
Cash dividends declared 0.10 -
Book value 11.23 10.23
Weighted average shares outstanding 7,743,227 7,734,047
Selected financial percentages:
Return on average total assets 0.62% 0.41%
Return on average stockholders'
equity 8.64 6.19
Interest rate spread 3.79 3.41
Net yield on earning assets 4.35 4.22
Net charge-offs as a percent of
average loans 0.64 0.89
Nonperforming assets ratio (1) 2.79 3.75
Allowance for possible loan losses
as a percent of year-end loans 1.87 1.73
Year-end leverage capital ratio 7.30 6.86
Risk-based capital ratios:
Tier 1 9.64 8.53
Total 10.95 10.04
Average stockholders' equity to
average assets 7.13 6.68
Common stock dividend payout ratio (2) 11.44 -
(1) 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
(2) Common stock cash dividends declared divided by net income
</TABLE>
<PAGE> 40
Management's Discussion and Analysis of Financial Condition and Results of
Operations
For the Years Ended December 31, 1995, 1994, and 1993
Overview
The following discussion and analysis of financial condition and results of
operations of Chittenden Corporation (`Chittenden' or the `Company') and its
subsidiaries, Chittenden Trust Company (CTC) and The Bank of Western
Massachusetts (BWM) (collectively, the `Banks'), should be read in conjunction
with the consolidated financial statements and notes thereto and selected
statistical information appearing in this annual report.
On March 17, 1995, the Company acquired all of the outstanding shares of BWM for
a combination of cash and common stock of the Company. The transaction has been
accounted for as a purchase and, accordingly, the consolidated statement of
income for 1995 includes BWM's results of operations for the period from the
acquisition date.
Chittenden reported net income of $20.9 million for 1995, up from $15.5 million
for 1994, and $11.0 million in 1993. Total assets at December 31, 1995 were
$1.5 billion up from $1.2 billion at year-end 1994. The return on average
assets was 1.46% for 1995, up from 1.29% in 1994 and 0.94% in 1993. The return
on average stockholders' equity was 17.16% for 1995, compared with 15.44% for
1994 and 11.88% for 1993.
The acquisition of BWM accounted for most of the growth in total assets of the
Company from year-end 1994 to year-end 1995. Earnings continued their upward
trend in 1995 due to several factors. Net interest income increased $11.5
million to $65.4 million primarily due to the higher level of average earning
assets contributed by the BWM acquisition, and from an increase in the net
yield. The provision for possible loan losses was $4.0 million, down $350,000
from the 1994 level reflecting continued strength in asset quality. Revenues
from noninterest sources were $30.0 million, up $6.5 million, led by higher
credit card processing revenues. Noninterest expense, at $60.8 million,
increased by $10.9 million, owing primarily to volume-driven increases in
processing expenses for credit card activities. Despite a lower effective tax
rate, the 1995 income tax provision of $9.8 million exceeded the 1994 provision
by $2.0 million, as the level of taxable income increased.
The $4.5 million increase in net income from 1993 to 1994 resulted from improve-
ments in several elements of earnings: net interest income increased $3.7
million as the net yield on earning assets increased while average earning
assets remained flat; the provision for possible loan losses was down $2.3
million from 1993; and noninterest expense declined by $1.2 million owing
primarily to elimination of expense related to managing and disposing of fore-
closed properties and nonrecurrance of 1993 merger expenses. In 1994,
revenues from noninterest sources declined by $783,000 from the 1993 levels, as
a $4.7 million reduction in gains on sales of mortgage loans was largely offset
by increases in revenues from several other sources. The 1994 income tax
provision exceeded the year-earlier level by $2.5 million, as both the effective
tax rate and the level of taxable income increased.
Financial Condition
Loans
Chittenden's gross loan portfolio increased by $168.5 million during 1995, to
end the year at $1,041.5 million. The increase can be attributed entirely to
the BWM acquisition. Further, the overall proportions of commercial-related and
consumer types of loans changed somewhat from the mix at the end of 1994. The
Company continues to pursue its strategy of gradually shifting the loan mix
through continued focus on commercial and non-residential consumer lending
simultaneous with secondary market sales of originated fixed-rate residential
mortgage loans.
The classification of the Company's loan portfolio is based on underlying
collateral. At December 31, 1995, commercial loans secured by non-real estate
business assets totaled $202.2 million, or 20% of total loans, up from the
$105.3 million, or 12% of total loans, posted at year-end 1994. The increase in
this category reflects several factors including the impact of the BWM
acquisition and the Company's expansion of commercial lending activities,
including correspondent lending and commercial finance programs, in northern New
England and upstate New York markets. Commercial real estate loans,
representing about one quarter of the portfolio, stood at $254.4 million at
year-end 1995, up from $214.1 million at December 31, 1994. Almost two-thirds
of this increase resulted from the BWM acquisition. Construction loans amounted
to $14.1 million at December 31, 1995, up from $7.3 million the year before.
Financing for custom-built residential construction accounts for approximately
$2.5 million of this total; the remainder is for various types of commercial
construction.
<PAGE> 41
Residential real estate loans stood at $344.5 million at year-end 1995, up from
$334.8 million at December 31, 1994. Reflecting the shift in the Company's loan
mix noted above, this category represented 33% of the portfolio at year-end
1995, down from 39% at year-end 1994. During the fourth quarter of 1995, the
Company created marketable securities using $3.7 million of Chittenden
Affordable Real Estate mortgage loans. These securities remained in the
Company's investment portfolio at December 31, 1995. The amounts and types of
residential mortgage loan originations changed during the year driven primarily
by movements in interest rates. Early in the year, volume slowed as refinancing
activity tapered off. Demand accelerated beginning in mid-year, as interest
rates fell. Volume was concentrated in fixed-rate loans which the Company
generally sells in the secondary market. In total, $172.4 million in mortgages
were originated during 1995, up from $159.4 million during 1994. Secondary
market sales of mortgage loans totaled $143.3 million in 1995 (excluding the
securitization described above), up from $118.7 million in 1994. The Company
underwrites substantially all of its residential mortgages to secondary market
standards. During 1995, the Company continued to follow its policy of selling
substantially all of its fixed-rate residential mortgage production on a
servicing-retained basis.
The portfolio of residential mortgages serviced for investors continued to grow,
totaling $880.7 million at December 31, 1995, up from $709.9 million at year-end
1994. These assets are owned by investors other than Chittenden and therefore
are not included in the consolidated balance sheets of the Company. Of the
loans serviced, $749.6 million were originated by the Company. During 1995, the
Company acquired substantially all of the servicing portfolio of CUMEX, a
Massachusetts mortgage company. For $1.8 million, the Company purchased rights
to service a portfolio of $130.2 million in residential mortgages in its market
area.
The outstanding balances on home equity lines totaled $72.7 million at December
31, 1995, up slightly from $70.8 million the previous year. The unused portion
of these lines totaled $68.3 million at December 31, 1995, up from $61.2 million
at year-end 1994.
Consumer loans increased slightly in 1995, ending the year at $141.1 million,
compared with $140.7 at year-end 1994. Congressionally-mandated changes
regarding the government-guaranteed student loan program resulted in the
Company's decision to discontinue its participation in this program. The
Company's remaining student loans were sold in the secondary market during the
first half of 1995. Management believes that changing consumer credit patterns,
including utilization of co-branded credit cards which the Company does not
offer, and using the equity in residential real estate to finance consumer debt
through a primary mortgage or home equity line of credit, have reduced the
demand for traditional consumer credit. Direct installment and credit card
balances at December 31, 1995 stood at $39.7 million and $24.7 million,
respectively, compared with $33.8 million and $27.3 million at the end of 1994.
Most of the increase in direct installment was attributable to the BWM
acquisition. Unused portions of credit card lines totaled $63.5 million at
the end of 1995, up from $61.6 million one year earlier. Contrary to these
trends, indirect installment lending through auto dealers was up $12.2 million
from year-end 1994 to $76.7 million at the end of 1995. This reflects the
Company's emphasis on responding to the marketplace through dealer relationships
and through development of correspondent bank relationships. Under the latter
arrangements, the Company acquires indirect installment loans which smaller
correspondent banks do not have balance sheet capacity to retain. The
Company underwrites all its indirect automotive loans, maintaining the same
credit standards as for car loans originated in its branch offices. During
1995, the Company began offering auto leases through its dealer base. This
product is underwritten and priced similarly to indirect installment auto loans.
The Company's lending activities are conducted in market areas focused in
Vermont and western Massachusetts, with additional activity related to nearby
trading areas in Quebec, New York, New Hampshire, Maine, and Connecticut. In
addition to the portfolio diversification described above, the loans are widely
diversified by borrowers and industry groups.
<PAGE> 42
The following table shows the composition of the loan portfolio for the five
years ended December 31, 1995:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------
1995 1994 1993 1992 1991
--------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Commercial $202,237 $105,281 $107,722 $118,532 $ 94,336
Real estate:
Residential 344,494 334,841 328,165 347,264 340,069
Commercial 254,352 214,103 206,601 190,907 160,824
Construction 14,128 7,281 13,747 18,008 32,471
Home equity 72,737 70,777 69,849 76,934 81,891
Consumer 141,108 140,677 124,412 123,484 120,284
Lease financing receivables 12,420 - - - -
----------------------------------------------------------------------
Total gross loans 1,041,476 872,960 850,496 875,129 829,875
Allowance for possible loan losses (24,849) (19,099) (18,917) (16,372) (14,373)
----------------------------------------------------------------------
Net loans $1,016,627 $853,861 $831,579 $858,757 $815,502
=======================================================================
Mortgage loans held for sale $13,276 $2,870 $11,646 $7,971 $10,967
</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.
Other real estate owned (`OREO') is real estate that has been formally acquired
through foreclosure.
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,
1995:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1995 1994 1993 1992 1991
--------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Loans on nonaccrual $9,317 $7,934 $12,756 $17,541 $19,740
Loans not included above
which are troubled debt
restructurings 2,463 185 367 53 353
Other real estate owned 1,897 1,288 2,619 7,044 11,447
----------------------------------------------------------------------
Total nonperforming assets $13,677 $9,407 $15,742 $24,638 $31,540
======================================================================
Loans past due 90 days or
more and still accruing $993 $1,132 $1,453 $2,340 $4,146
Percentage of nonperforming
assets to total loans and
other real estate owned 1.31% 1.08% 1.85% 2.79% 3.75%
Nonperforming assets
to total assets 0.90 0.77 1.28 2.07 2.62
Allowance for possible loan
losses to nonperforming loans 210.94 235.24 144.15 93.05 71.53
</TABLE>
Total nonperforming assets stood at $13.7 million, or 0.90% of total assets, at
year-end 1995, up from $9.4 million, or 0.77% of total assets at the previous
year-end. Nonaccrual loans stood at $9.3 million at December 31, 1995, up from
$7.9 million the year before. The nonaccrual loans consist of more than 185
loans, the largest of which amounted to $780,000 at year-end 1995. Troubled
debt restructurings stood at $2.5 million on December 31, 1995, up from $185,000
the year before. This increase was primarily attributable to the transfer of a
single credit from nonaccrual status to the troubled debt restructurings
category. This loan is being serviced according to the terms and conditions of
the restructured agreement. The nonaccrual loans and restructured debt were
diversified across a range of industries, sectors, and geography. At year-end
1995, 41% were current as to principal and interest, compared with 42% at the
previous year-end. OREO totaled $1.9 million at year-end 1995, compared with
$1.3 million at the end of 1994.
<PAGE> 43
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 114, as amended, Accounting by Creditors for
Impairment of a Loan (SFAS 114). The Company adopted the new standard
January 1, 1995. In addition to the credit evaluation of the loan portfolios
described above, and the evaluation of the allowance for possible loan losses
discussed later in this report, the Company also undertakes an analysis of the
portfolios and allowance using the impairment approach prescribed in SFAS 114.
In this analysis, the Company considers all consumer and residential real estate
loans to be smaller balance, homogeneous loans. This evaluation category also
includes commercial and commercial real estate loans with balances under
$100,000. All other loans are evaluated for impairment according to the
Company's normal loan review process, including overall credit evaluation and
rating, nonaccrual status, and payment experience. Loans identified as impaired
are further evaluated to determine the estimated extent of impairment. For
collateral-based loans, the extent of impairment is the shortfall, if any,
between the collateral value less costs to dispose of such collateral and the
carrying value of the loan. For other loans, the impairment is the shortfall,
if any, between the discounted cash flow and the carrying value of the loan.
The results of this SFAS 114 analysis are disclosed in the accompanying notes
to the consolidated financial statements. Adopting SFAS 114 had no material
effect on the Company's financial condition or results of operations.
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, 1995:
<TABLE>
<CAPTION>
December 31, 1995
------------------------------------------------------------------
1995 1994 1993 1992 1991
------------------------------------------------------------------
(in thousands)
Balance of allowance for possible
<S> <C> <C> <C> <C> <C>
loan losses at beginning of year $19,099 $18,917 $16,372 $14,373 $13,030
BWM allowance acquired 4,135 - - - -
Provision charged to expense 3,950 4,300 6,600 7,513 8,843
-------------------------------------------------------------------
Balance of allowance for possible
loan losses after provision 27,184 23,217 22,972 21,886 21,873
-------------------------------------------------------------------
Loans charged off:
Commercial 1,285 893 2,001 1,725 788
Real estate:
Residential 872 461 927 738 432
Commercial 1,164 2,779 759 1,968 2,338
Construction - - - 87 2,848
Home equity 108 51 209 272 115
Consumer 1,868 1,045 1,276 1,461 1,963
-------------------------------------------------------------------
Total loans charged off 5,297 5,229 5,172 6,251 8,484
-------------------------------------------------------------------
Recoveries of loans previously
charged off:
Commercial 1,138 512 232 327 435
Real estate:
Residential 53 80 201 74 111
Commercial 1,120 133 216 11 4
Consumer 651 386 468 325 434
-------------------------------------------------------------------
Total recoveries 2,962 1,111 1,117 737 984
-------------------------------------------------------------------
Net loans charged off 2,335 4,118 4,055 5,514 7,500
-------------------------------------------------------------------
Balance of allowance for possible
loan losses at end of year $24,849 $19,099 $18,917 $16,372 $14,373
=====================================================================
Amount of loans outstanding at
end of year $1,041,476 $872,960 $850,496 $875,129 $829,875
Average amount of loans
outstanding 1,019,886 852,528 870,603 859,654 842,583
Ratio of net charge-offs during
year to average loans outstanding 0.23% 0.48% 0.47% 0.64% 0.89%
Allowance as a percent of loans
outstanding at end of year 2.39 2.19 2.22 1.87 1.73
</TABLE>
<PAGE> 44
At December 31, 1995, the allowance for possible loan losses was $24.8 million,
or 2.39% of total loans. This is a $5.8 million increase from the $19.1
million, or 2.19% of loans, posted one year ago. The coverage ratio, or
allowance for possible loan losses to nonperforming loans, stood at 211% at
year-end 1995, compared with 235% at the end of 1994.
The provision for possible loan losses totaled $4.0 million in 1995, down from
$4.3 million in 1994, and $6.6 million in 1993. The provision was reduced due
to, among other things, the reduction in the level of net losses experienced in
the loan portfolio and the strength of the ratios in connection with the
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
circumstances and conditions known or anticipated at each reporting date. In
addition to evaluating the collectibility 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 assessed 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 mix of the Company's loan portfolio
changed somewhat during 1995. This, and uncertainties concerning how changing
interest rates and unclear, or contradictory economic indicators will affect 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, 1995:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------
1995 1994
--------------------------------------------------------------------------------
Amount Loan Amount Loan
Allocated Distribution Allocated Distribution
--------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Commercial $3,477 19% $2,001 12%
Real estate:
Residential 1,406 33 726 38
Commercial 5,228 25 5,143 25
Construction 439 1 626 1
Home equity 270 7 248 8
Consumer and leasing 1,635 15 1,865 16
Other 12,394 - 8,490 -
-------------------------------------------------------------------------------
$24,849 100% $19,099 100%
===============================================================================
December 31,
------------------------------------------------------------------------------
1993 1992
------------------------------------------------------------------------------
(in thousands)
Amount Loan Amount Loan
Allocated Distribution Allocated Distribution
-------------------------------------------------------------------------------
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 and leasing 2,126 15 1,886 14
Other 7,411 - 4,849 -
------------------------------------------------------------------------------
$18,917 100% $16,372 100%
==============================================================================
December 31,
---------------------------------------------
1991
---------------------------------------------
Amount Loan
Allocated Distribution
---------------------------------------------
Commercial $3,469 11%
Real estate:
Residential 587 41
Commercial 4,035 19
Construction 3,007 4
Home equity 200 10
Consumer and leasing 1,928 15
Other 1,147 -
---------------------------------------------
$14,373 100%
=============================================
</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.
At December 31, 1995, the Company held investments totaling $230.9 million in
the available for sale category; $9.5 million was held for investment. This
compares with $205.6 million available for sale and $9.9 million held for
investment at December 31, 1994. At December 31, 1995, net unrealized gains
(net of taxes) of $702,000 resulted from marking to market value the available
for sale portfolio. This compares with net unrealized losses (net of taxes) of
$5.7 million at December 31, 1994. These amounts are reflected as an increase
and reduction, respectively, in stockholders' equity. This change in valuation
reflected the impact of sharply lower interest rates at the end of 1995 compared
with 1994, and the increase in the market value of the Company's bond portfolio
which resulted.
The mix of securities held changed little during 1995, with continued emphasis
on Treasury securities. Obligations of U. S. government agencies,
municipalities, and corporations continued to represent significant, balanced
portions of the portfolio.
<PAGE> 45
The following tables show the composition of the Company's investment portfolio,
at amortized cost, at December 31, 1995 and 1994:
December 31,
------------------------
1995 1994
------------------------
(in thousands)
Securities available for sale
US Treasury securities $81,625 $61,076
US government agency obligations 32,777 33,138
Obligations of states and
political subdivisions 44,853 40,341
Mortgage-backed securities 31,832 23,823
Corporate bonds and notes 29,020 36,397
Government bond mutual funds 10,605 10,605
Marketable equity securities 231 244
------------------------
$230,943 $205,624
========================
Securities held for investment
Obligations of states
and political subdivisions $ 1,543 $ 1,651
Mortgage-backed securities $ 7,930 $ 8,218
------------------------
$ 9,473 $ 9,869
========================
The following table shows the maturity distribution of the amortized cost of the
Company's investment securities and weighted average yields of such securities
on a fully taxable equivalent basis, at December 31, 1995, with a comparative
total for 1994:
<TABLE>
<CAPTION>
After One After Five
Within But Within But Within
One Year Five Years Ten Years
-----------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield
-----------------------------------------------------------------------
(in thousands)
Securities available for sale
<S> <C> <C> <C> <C> <C> <C>
US Treasury securities $15,467 6.63% $61,108 5.83% $5,050 5.58%
US government agency obligations 16,640 6.29 15,177 6.57 960 8.40
Obligations of states and political
subdivisions 42,160 6.14 2,008 6.51 685 10.13
Mortgage-backed securities (1) 6,536 7.33 14,741 7.18 7,421 6.45
Corporate bonds and notes 6,264 5.39 20,756 5.92 2,000 6.38
Government bond mutual funds - - - - - -
Marketable equity securities - - - - - -
------ ------- ------
Total available for sale 87,067 6.29 113,790 6.13 16,116 6.44
------ ------- -------
Securities held for investment
Obligations of states and political
subdivisions 115 10.09 971 10.20 457 9.81
Mortgage-backed securities (1) 771 7.68 2,392 7.59 1,930 7.46
------ ------ -------
Total held for investment 886 7.99 3,363 8.34 2,387 7.91
------ ------ -------
Total securities $87,953 6.31% $117,153 6.19% $18,503 6.63%
======= ======== ========
Comparative amounts at
Dec 31, 1994 $70,965 5.47% $115,036 5.85% $11,698 6.51%
After No Fixed
Ten Years Maturity Total
-----------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield
-----------------------------------------------------------------------
Securities available for sale (in thousands)
<S> <C> <C> <C> <C> <C> <C>
US Treasury securities $ - - % $ - - % $81,625 5.96%
US government agency obligations - - - - 32,777 6.48
Obligations of states and political
subdivisions - - - - 44,853 6.22
Mortgage-backed securities (1) 3,134 6.46 - - 31,832 6.97
Corporate bonds and notes - - - - 29,020 5.84
Government bond mutual funds - - 10,605 5.30 10,605 5.30
Marketable equity securities - - 231 4.41 231 4.41
------ ------- -------
Total available for sale 3,134 6.46 10,836 5.28 230,943 6.18
------ ------- --------
Securities held for investment
Obligations of states and political
subdivisions - - - - 1,543 10.08
Mortgage-backed securities (1) 2,837 7.18 - - 7,930 7.42
----- ------- --------
Total held for investment 2,837 7.18 - - 9,473 7.85
------ ------- ---------
Total securities $5,971 6.80% $10,836 5.28% $240,416 6.24%
====== ======= =========
Comparative amounts at
Dec 31, 1994 $6,945 7.58% $10,849 7.03% $215,493 5.88%
(1) Maturities of mortgage-backed securities are based on mortgage loan
prepayment assumptions.
</TABLE>
<PAGE> 46
Deposits
During 1995, total deposits averaged $1,257.6 million, up from $1,055.6 million
in 1994. Of this $202.0 million increase, approximately $155.4 million is
attributable to the acquisition of BWM. Noninterest-bearing demand deposits
averaged $180.9 million, up from $161.7 million in 1994. Savings and time
deposits under $100,000 increased $141.4 million, to $973.1 million for 1995.
Deposit products in this group which saw growth were interest bearing
transaction accounts (money market accounts and N.O.W. accounts) and time
accounts (retirement and certificates of deposit), while regular savings
accounts declined. This shift in product mix reflects customers' preference to
hold higher yielding investments and to lock in these yields by investing in
instruments with specific maturities in a time of low and possibly declining
interest rates. The Company has a number of institutional customers whose
investment needs frequently are met by purchasing certificates of deposit over
$100,000. During 1995, the average balance in this category increased to $103.6
million, from $62.2 million for 1994. 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:
Years ended December 31,
------------------------------------
1995 1994 1993
------------------------------------
(in thousands)
Demand deposits $ 180,915 $ 161,657 $ 141,740
Savings and time deposits
under $100,000 973,069 831,698 821,852
Certificates of deposit
$100,000 and over 103,623 62,249 67,247
------------------------------------
$1,257,607 $1,055,604 $1,030,839
====================================
The Company's outstanding certificates of deposit and other time deposits in
denominations of $100,000 and over had maturities as follows:
December 31,
-------------
1995
-------------
(in thousands)
Three months or less $ 67,288
Over three months to six months 15,268
Over six months to twelve months 9,728
Over twelve months 8,926
-----------
$101,210
===========
Borrowings
During 1995, short-term borrowings averaged $35.5 million, up from $32.8 million
posted in 1994. This funding consists of borrowings from the U.S. Treasury,
securities sold under agreements to repurchase, and Federal funds purchased.
Treasury borrowings averaged $19.6 million for 1995 compared with $20.3 million
during 1994. 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 $11.3 million for 1995, down slightly from the
$11.8 million posted during 1994. 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 $678,000 for 1995 compared with $644,000 for 1994.
During 1995, BWM's short-term borrowings from the Federal Home Loan Bank
averaged $3.9 million.
Long-term borrowings, consisting entirely of advances to BWM from the Federal
Home Loan Bank, averaged $203,000 during 1995.
<PAGE> 47
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 1995. At
December 31, 1995, capital stood at $136.7 million, up $38.4 million from $98.3
million at December 31, 1994. Common stock issued in connection with the
acquisition of BWM contributed $14.3 million. Earnings of $20.9 million, a $6.4
million improvement in the valuation allowance for unrealized losses on
available for sale securities, and $1.2 million of common stock issued in
connection with benefit plans added to capital during the year. Dividend
payments totaling $4.5 million reduced the capital position.
The capital position had increased during 1994 by $599,000. Earnings of $15.5
million and $173,000 of stock issued in connection with benefit plans were
almost offset by a $6.7 million stock buyback, a $5.7 million increase in the
valuation allowance for unrealized losses on available for sale securities, and
dividends of $2.8 million.
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, 1995, the Company's leverage capital ratio
(which is calculated pursuant to the FRB's regulations) was 8.34%, CTC's and
BWM's leverage capital ratios (which are calculated pursuant to the FDIC's
regulations) were 8.01% and 7.18%, respectively. The ratios in 1994 were 8.41%
for the Company and 8.01% CTC.
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 perceived as more-risky, such as commercial loans, than against other
assets perceived as less-risky, 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, 1995, the Company's risk-based
capital ratio was 12.74% and its Tier 1 capital, consisting entirely of common
stock, was 11.36% of risk-weighted assets. This compares with year-end 1994
ratios of 12.82% and 11.46%, respectively.
FDIC regulations pertaining to capital adequacy, which apply to the Banks,
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, 1995, CTC's leverage capital ratio was 8.01%, its Tier 1 risk-based
capital ratio was 11.05%, and its total risk-based capital ratio was 12.42%;
BWM's ratios were 7.18%, 9.16%, and 10.54%, respectively. These ratios placed
the Banks in the FDIC's 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.
<PAGE> 48
The following table presents capital components and ratios of the Company at
December 31, 1995, 1994, and 1993:
December 31,
-------------------------------------------
1995 1994 1993
-------------------------------------------
(in thousands)
Leverage
Stockholders' equity $ 124,304 $ 103,333 $ 97,711
Total average equity (1) 1,490,124 1,228,105 1,202,575
Leverage capital ratio 8.34% 8.41% 8.13%
Risk-based
Capital components:
Tier 1 $ 124,304 $ 103,333 $ 97,711
Tier 2 13,675 11,273 11,049
-----------------------------------------
Total $ 137,979 $ 114,606 $ 108,760
=========================================
Risk-weighted assets:
On-balance sheet $1,035,922 $ 840,484 $ 819,735
Off-balance sheet 58,084 61,317 64,180
-----------------------------------------
$1,094,006 $ 901,801 $ 883,915
=========================================
Ratios:
Tier 1 11.36% 11.46% 11.05%
Total (including Tier 2) 12.74 12.82 12.41
(1) Total average assets are for the most recent quarter
Liquidity and Rate Sensitivity
The Company's liquidity and rate sensitivity are monitored by the asset and
liability committee. Strategies are implemented by the Banks' asset and
liability committees. These committees meet weekly to review and direct the
Banks' lending and deposit-gathering functions. Investment and borrowing
activities are managed by the Company's Treasury function.
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 December 31, 1995, the Company maintained cash
and cash equivalents of $179.4 million, compared with $101.0 million at the end
of 1994. During 1995, the Company continued to be an average daily net seller
of Federal funds.
Interest rate sensitivity is managed by the 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.
<PAGE> 49
The following table shows the amounts of interest-earning assets and interest-
bearing liabilities at December 31, 1995 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)
Interest-earning assets:
Loans:
<S> <C> <C> <C> <C> <C>
Commercial $160,260 $ 3,584 $ 30,214 $ 8,179 $202,237
Real estate:
Commercial and
construction 202,336 7,861 46,001 12,282 268,480
Residential 127,575 96,111 67,664 53,144 344,494
Home equity 71,804 124 809 - 72,737
Consumer 67,980 18,760 66,357 431 153,528
------------------------------------------------------------------------------
Total loans 629,955 126,440 211,045 74,036 1,041,476
Investment securities (1) 61,157 38,389 120,239 20,631 240,416
Interest-bearing
cash equivalents 88,000 - - - 88,000
-------------------------------------------------------------------------------
Total interest-earning
assets 779,112 164,829 331,284 94,667 1,369,892
-------------------------------------------------------------------------------
Interest-bearing liabilities:
Certificates of deposit
$100,000 and over 74,129 8,729 7,352 - 90,210
Other time deposits (2) 547,217 103,231 105,620 588 756,656
Short-term borrowings 21,927 - - - 21,927
Long-term borrowings - - 1,000 - 1,000
-------------------------------------------------------------------------------
Total interest-bearing
liabilities 643,273 111,960 113,972 588 869,793
-------------------------------------------------------------------------------
Net interest rate
sensitivity gap $135,839 $ 52,869 $217,312 $94,079 $500,099
===============================================================================
Cumulative gap at
December 31, 1995 $135,839 $188,708 $406,020 $500,099
Cumulative gap at
December 31, 1994 $140,909 $180,239 $378,631 $489,560
(1) Amounts are based on amortized cost balances.
(2) Regular savings deposits and N.O.W. accounts of $290.2 million at December
31, 1995, and $273.2 million at December 31, 1994, are not included because
repricing of these liabilities is neither required nor defined.
</TABLE>
The following table shows scheduled maturities of selected loans at
December 31, 1995:
<TABLE>
<CAPTION>
Less One Year Over
Than One To Five Five
Year Years Years Total
-----------------------------------------------------------
(in thousands)
Predetermined rates:
<S> <C> <C> <C> <C>
Commercial $8,146 $29,732 $ 8,179 $ 46,057
Commercial real estate
and construction 8,054 46,015 12,282 66,351
----------------------------------------------------------
$16,200 $75,747 $20,461 $112,408
==========================================================
Floating or adjustable rates:
Commercial $69,501 $48,005 $38,674 $156,180
Commercial real estate
and construction 41,720 70,192 90,217 202,129
----------------------------------------------------------
$111,221 $118,197 $128,891 $358,309
===========================================================
</TABLE>
<PAGE> 50
Results of Operations
Comparison of Years Ended December 31, 1995 and 1994
Net Interest Income
For 1995, net interest income was $65.4 million, up $ 11.5 million from the 1994
level. On a fully taxable equivalent basis, net interest income increased $11.9
million from 1994, to $67.1 million in 1995. These improvements resulted from
higher levels of interest-earning assets, attributable primarily to the
acquisition of BWM, and an increase in the net yield on earning assets. Average
interest-earning assets totaled $1,337.8 million for 1995, up $216.2 million
from the 1994 level. The taxable equivalent net yield on earning assets was
5.01% in 1995, up nine basis points from 4.92% in 1994. Although the 113-basis
points increase in the cost of interest-bearing liabilities was greater than the
106-basis points increase in the yield on earning assets, the effect of non-
interest bearing liabilities more than offset this to result in the improvement
in the net yield.
The following table presents an analysis of average rates and yields on a fully
taxable equivalent basis for the years indicated:
1995
---------------------------------------------
Interest Average
Average Income/ Yield/
Balance Expense (1) Rate (1)
---------------------------------------------
(in thousands)
Assets
Interest-earning assets:
Loans $1,013,728 $96,074 9.48%
Industrial revenue bonds (2) 6,158 715 11.61
Investments:
Taxable 215,855 13,542 6.27
Tax-favored debt
securities 54,125 3,688 6.81
Tax-favored equity
securities 15,233 963 6.32
Interest-bearing deposits
in banks 100 3 3.00
Federal funds sold 32,594 1,912 5.87
-------------------------------------------
Total interest-earning
assets 1,337,793 116,897 8.74
-------
Noninterest-earning assets 117,801
Allowance for possible
loan losses (23,282)
----------
Total assets $1,432,312
===========
Liabilities and stockholders' equity
Interest-bearing liabilities:
Savings and interest-bearing
transactional accounts $611,641 21,761 3.56
Certificates of deposit
$100,000 and over 103,623 6,585 6.35
Other time deposits 361,428 19,035 5.27
--------------------------
Total interest-bearing
deposits 1,076,692 47,381 4.40
Short-term borrowings 35,467 2,429 6.85
Long-term debt 203 12 5.91
--------------------------
Total interest-bearing
liabilities 1,112,362 49,822 4.48
---------
Noninterest-bearing liabilities:
Demand deposits 180,915
Other liabilities 17,297
----------
Total liabilities 1,310,574
Stockholders' equity 121,738
----------
Total liabilities and
stockholders' equity $1,432,312
===========
Net interest income $67,075
==========
Interest rate spread (3) 4.26%
Net yield on earning assets (4) 5.01
______________________
1994
------------------------------------------
Interest Average
Average Income/ Yield/
Balance Expense (1) Rate (1)
------------------------------------------
(in thousands)
Assets
Interest-earning assets:
Loans $ 842,807 $70,416 8.35%
Industrial revenue bonds (2) 9,721 956 9.83
Investments:
Taxable 190,784 10,897 5.71
Tax-favored debt
securities 41,494 2,301 5.55
Tax-favored equity
securities 16,609 728 4.38
Interest-bearing deposits
in banks 1,045 35 3.35
Federal funds sold 19,118 847 4.43
------------------------
Total interest-earning assets 1,121,578 86,180 7.68
------
Noninterest-earning assets 98,530
Allowance for possible loan losses (19,323)
----------
Total assets $1,200,785
===========
Liabilities and stockholders' equity
Interest-bearing liabilities:
Savings and interest-bearing
transactional accounts $526,422 14,727 2.80
Certificates of deposit
$100,000 and over 62,249 2,502 4.02
Other time deposits 305,276 11,996 3.93
-----------------------
Total interest-bearing
deposits 893,947 29,225 3.27
Short-term borrowings 32,799 1,800 5.49
Long-term debt - - -
-----------------------
Total interest-bearing
liabilities 926,746 31,025 3.35
-------
Noninterest-bearing liabilities:
Demand deposits 161,657
Other liabilities 11,747
----------
Total liabilities 1,100,150
Stockholders' equity 100,635
----------
Total liabilities and
stockholders' equity $1,200,785
===========
Net interest income $55,155
========
Interest rate spread (3) 4.33%
Net yield on earning
assets (4) 4.92
______________________
1993
-----------------------------------------
Interest Average
Average Income/ Yield/
Balance Expense (1) Rate (1)
-----------------------------------------
(in thousands)
Assets
Interest-earning assets:
Loans $ 859,195 $69,310 8.07%
Industrial revenue bonds (2) 11,408 970 8.50
Investments:
Taxable 170,975 8,020 4.69
Tax-favored debt securities 35,872 1,927 5.37
Tax-favored equity securities 4,952 309 6.24
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 80,803 7.40
---------
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 $51,229
==========
Interest rate spread (3) 4.21%
Net yield on earning assets (4) 4.69
______________________
(1) On a fully taxable equivalent basis. Calculated using a Federal income tax
rate of 35%. Loan income includes fees.
(2) Industrial revenue bonds are included in loans in the financial statements.
(3) Interest rate spread is the average rate earned on total interest-earning
assets less the average rate paid on interest-bearing liabilities.
(4) Net yield on earning assets is net interest income divided by total
interest-earning assets.
<PAGE> 51
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 balance and change due to rate in proportion to the
relationship of the absolute dollar amounts of the change in each.
1995 Compared With 1994
--------------------------------------
Increase(Decrease)
Due to Change in: Total
Average Average Increase
Rate Balance (Decrease)
----------------------------------------
(in thousands)
Interest income:
Loans, including fees $10,224 $15,434 $25,658
Industrial revenue bonds 152 (393) (241)
Investments:
Taxable 1,132 1,513 2,645
Tax-favored debt securities 595 792 1,387
Tax-favored equity securities 300 (65) 235
Interest-bearing deposits in banks (3) (29) (32)
Federal funds sold 335 730 1,065
---------------------------------------
Total interest income 12,735 17,982 30,717
---------------------------------------
Interest expense:
Savings and interest-bearing
transactional accounts 4,408 2,626 7,034
Certificates of deposit
$100,000 and over 1,904 2,179 4,083
Other time deposits 4,569 2,470 7,039
--------------------------------------
Total deposits 10,881 7,275 18,156
Short-term borrowings 474 155 629
Long-term debt - 12 12
--------------------------------------
Total interest expense 11,355 7,442 18,797
--------------------------------------
Change in net interest income $ 1,380 $10,540 $11,920
========================================
1994 Compared With 1993
--------------------------------------------
Increase(Decrease)
Due to Change in: Total
Average Average Increase
Rate Balance (Decrease)
--------------------------------------------
(in thousands)
Interest income:
Loans, including fees $2,444 $(1,338) $1,106
Industrial revenue bonds 140 (154) (14)
Investments:
Taxable 1,878 999 2,877
Tax-favored debt securities 64 310 374
Tax-favored equity securities (116) 535 419
Interest-bearing deposits
in banks 4 (43) (39)
Federal funds sold 155 499 654
--------------------------------------------
Total interest income 4,569 808 5,377
--------------------------------------------
Interest expense:
Savings and interest-bearing
transactional accounts 1,728 792 2,520
Certificates of deposit
$100,000 and over 240 (190) 50
Other time deposits (383) (832) (1,215)
-------------------------------------------
Total deposits 1,585 (230) 1,355
Short-term borrowings 298 (202) 96
Long-term debt - - -
-------------------------------------------
Total interest expense 1,883 (432) 1,451
-------------------------------------------
Change in net interest income $2,686 $1,240 $3,926
==========================================
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 judgments
different from those of management.
The provision for possible loan losses totaled $4.0 million in 1995 and $4.3
million in 1994. (See `Allowance for Possible Loan Losses.')
Noninterest Income and Noninterest Expense
Noninterest income was $30.0 million in 1995, up $6.5 million from the $23.5
million reported in 1994. Trust department income was up $418,000 from the 1994
level, to $4.5 million. The effects of an increase in the number of trust
clients served and higher levels of administered assets were enhanced by the
impact of the advances in the stock and bond markets during the year.
<PAGE> 52
Service charges on deposit accounts increased again in 1995, rising to $5.1
million from $4.6 million in the previous year. Two-thirds of the increase was
contributed by BWM, the remainder reflected higher levels of transaction
activity at CTC.
During 1995, a net gain of $198,000 was realized on the sale of $7.4 million of
securities. This compares with a with a net loss in 1994 of $523,000 on sales
of $32.8 million of securities.
Mortgage banking activity varied throughout 1995, as generally declining
interest rates impacted the business. Mortgage servicing income rose by over 5%
to $2.2 million. The increase was due to higher levels of serviced loans,
including the servicing purchased from CUMEX. Continued refinancing activity
combined with slightly narrower spreads on sold loans in 1995 netted a
modest increase in gains on sales of mortgage loans. For 1995, gains totaled
$1.2 million, up from $1.1 million in 1994.
Income related to credit card activities includes fees related to the issuance
of credit cards and revenue generated when credit card transactions are
processed through the Company's merchant customers. The Company has emphasized
development of the merchant business in recent years. This business has
expanded to include local and national customers involved in retail, service,
and mail order businesses. These activities generated income of $12.8 million
in 1995, up from $8.2 million in the prior year. This increase resulted
primarily from an increase in the number of merchants served, and consequently,
significantly higher levels of merchant volume; $477 million was processed in
1995, compared with $266 million in 1994.
The Company posted a total of $4.0 million in other noninterest income,
unchanged from the 1994 level. This category represents over thirty categories
of fee income.
Noninterest expense totaled $60.8 million in 1995, up $10.9 million from the
1994 level. BWM's noninterest expense of $5.9 million accounted for slightly
more than half of the increase. Salaries increased to $20.0 million from $17.2
million in 1994. Of this increase, $1.9 million was expensed at BWM. Employee
benefits rose by $1.1 million to $7.4 million in 1995. This category includes
accruals for performance-based incentive compensation amounting to $2.4 million,
up from $1.6 million in 1994.
Occupancy expense was $6.9 million, up from $5.6 million in 1994. $1.0 million
of the $1.3 million increase was due to BWM.
FDIC insurance premiums totaled $1.3 million, down $990,000 from the 1994 level.
Higher deposit balances on the premium assessment dates were more than offset by
lower premium rates owing to the statutory recapitaliztion of the Bank Insurance
Fund and the Banks' qualifying for the lowest possible FDIC insurance premium
rates throughout 1995. At December 31, 1995, the Banks had been notified by
the FDIC that their premium for the first half of 1996 would be zero.
In 1995, expenses associated with OREO were more than offset by recoveries on
OREO properties sold, so that a net credit of $236,000 was posted. Net OREO
recoveries of $67,000 were recorded in 1994.
Expenses, excluding salaries and benefits, occupancy, and overhead allocations,
directly related to the processing of credit card transactions totaled $9.2
million in 1995, up from $5.5 million the previous year. This increase was
related to the significantly higher volumes processed in 1995 as compared with
1994.
Total other noninterest expense for 1995 totaled $16.2 million, up from $13.0
million in 1994. Of the $3.2 million increase, $2.5 million was contributed by
BWM. Amortization of intangibles, which had been $0 in 1994, accounted for $1.0
million in 1995.
Income Taxes
For 1995, the Federal and Massachusetts income tax provision amounted to $9.8
million. This compares with a Federal income tax provision of $7.7 million for
1994. The effective tax rates for 1995 and 1994 were 31.9% and 33.2%,
respectively. During 1995 and 1994, the Company's statutory Federal corporate
tax rate was 35%. 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.
<PAGE> 53
Results of Operations
Comparison of Years Ended December 31, 1994 and 1993
Net Interest Income
For 1994, net interest income was $53.9 million, up $3.7 million from the 1993
level. On a fully taxable equivalent basis, net interest income increased $3.9
million from 1993, to $55.2 million in 1994. These improvements resulted from
higher yields on loans and investments and higher levels of interest-earning
assets, which more than offset the impact of higher deposit and borrowing rates.
The level of interest-bearing liabilities was essentially unchanged from the
1993 average, thus the $30.0 million increase in interest-earning assets was
funded almost entirely by noninterest-bearing sources, helping to improve net
interest income. The taxable equivalent yield on earning assets was 4.92% in
1994, up 23 basis points from 4.69% in 1993. The 16-basis point increase in the
cost of interest-bearing liabilities was more than offset by the 28-basis point
increase in the yield on earning assets and the effect of the higher proportion
of non-interest bearing liabilities.
Provision for Possible Loan Losses
The provision for possible loan losses totaled $4.3 million in 1994, down from
$6.6 million in 1993. The reduction was in response to stable net charge-offs
of $4.1 million and lower levels of nonaccrual loans.
Noninterest Income and Noninterest Expense
Noninterest income was $23.5 million in 1994, down $783,000 from the $24.3
million reported in 1993. Trust department income was unchanged from the 1993
level, at $4.0 million. The effects of an increase in the number of trust
clients served and higher levels of administered assets were offset by the
impact of the declines in the bond market during the year.
Service charges on deposit accounts increased in 1994, rising 3% to $4.6
million, primarily due to higher levels of cash management fees.
During 1994, a net loss of $523,000 was realized on the sale of securities,
compared with a net gain of $130,000 posted in 1993.
Mortgage banking activity changed significantly during 1994, as rapidly rising
interest rates impacted the business. Mortgage servicing income rose by over
100%, to $2.1 million. The increase was due in part to the nonrecurrence of
write-downs of excess servicing assets totaling $1.0 million which had occurred
in 1993 when refinancing activity had been strong. At December 31, 1993, the
entire amount of the deferred servicing asset had been amortized as a result of
an accelerated level of prepayments. The decline in refinancing activity and a
narrowing of spreads on sold loans in 1994 resulted in a sharp decline in gains
on sales of mortgage loans. For 1994, gains totaled $1.1 million, down $4.7
million from the 1993 level.
Income related to credit card activities includes fees related to the issuance
of credit cards and revenue generated when credit card transactions are
processed through the Company's merchant customers. These activities generated
income of $8.2 million in 1994, up from $5.7 million in the prior year.
The Company posted a total of $4.0 million in other noninterest income, up
$736,000 from the 1993 level. This category represents over thirty categories
of fee income. The increase includes a gain of $444,000 resulting from the sale
of branch property, as well as increases in revenues from payroll services, ATM
fees, and foreign exchange.
Noninterest expense totaled $49.9 million in 1994, down $1.2 million from the
1993 level. Salaries increased less than 1% to $17.2 million as the Company
continued to reduce staff, primarily through attrition. Employee benefits rose
by $859,000 to $6.3 million in 1994. This category includes accruals for
performance-based incentive compensation amounting to $1.6 million, up from $1.1
million in 1993. In 1994, the Company implemented Statement of Financial
Accounting Standards No. 112, Employers' Accounting for Postemployment
Benefits. $185,000 was expensed in 1994 to establish the estimated liability
for such benefits. In future periods, this liability will be assessed and any
increases will be charged to income.
Occupancy expense declined $297,000, to $5.6 million in 1994, primarily due to
efficiencies resulting from an in-market acquisition and other actions taken to
improve the branch network.
FDIC insurance premiums totaled $2.3 million, down $249,000 from the 1993 level.
Lower deposit balances on the premium assessment dates accounted for the
decline.
<PAGE> 54
In 1994, expenses associated with OREO were slightly more than offset by
recoveries on OREO properties sold, so that a net credit of $67,000 was posted.
OREO expenses were $1.5 million in 1993.
Expenses, excluding salaries and benefits, occupancy, and overhead allocations,
directly related to the processing of credit card transactions totaled $5.5
million in 1994, up from $3.8 million the previous year. This increase was
related to the significantly higher volumes processed in 1994 as compared with
1993.
Total other noninterest expense for 1994 totaled $13.0 million, down $1.7
million from 1993. Absence of goodwill amortization in 1994, which had been
$636,000 in 1993, and nonrecurrence of one-time costs associated with the 1993
acquisition, accounted for most of the improvement.
Income Taxes
For 1994, the Federal income tax provision amounted to $7.7 million. This
compares with an income tax provision of $5.2 million for 1993. 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. The cumulative effect of adopting this change in
accounting principle was a one-time charge of $575,000 to 1993 earnings. 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 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 effective tax rates for 1994 and 1993 were 33.2% and 31.1% (excluding the
cumulative effect charge), respectively. During 1994 and 1993, the Company's
statutory Federal corporate tax rate was 35%. 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.
<PAGE> 55
DIRECTORS AND OFFICERS
CHITTENDEN CORPORATION AND CHITTENDEN BANK
DIRECTORS
Frederic H. Bertrand
David M. Boardman
Paul J. Carrara
Lyn Hutton
Philip A. Kolvoord
Paul A. Perrault, President and Chief Executive Officer
James C. Pizzagalli
Barbara W. Snelling, Chair
Pall D. Spera
Martel D. Wilson, Jr.
DIRECTORS EMERITI
Howard A. Allen, Jr.
Malcolm I. Benton
Edward R. Eurich
William W. Freeman
Edwin B. Gage
Marvin B. Gameroff
Norman H. Greenberg
Frank J. Heinrich
Robert D. Horton
George E. Little, Jr.
Maureen A. McNamara
H. Gordon Page, M.D.
Horace U. Ransom, Jr.
Webster S. Thompson
Hilton A. Wick
CHITTENDEN CORPORATION
OFFICERS
Barbara W. Snelling, Chair, Board of Directors
Paul A. Perrault, President and Chief Executive Officer
Lawrence W. DeShaw, Executive Vice President
Nancy Rowden Brock, Treasurer
F. Sheldon Prentice, Secretary
Larry J. Baxter, Vice President and Chief Auditor
Eugenie J. Fortin, Assistant Corporate Secretary
John P. Barnes, Senior Vice President
Danny H. O'Brien, Senior Vice President
CHITTENDEN BANK
OFFICERS
Barbara W. Snelling, Chair, Board of Directors
Paul A. Perrault, President and Chief Executive Officer
AUDIT
Larry J. Baxter, Vice President and Chief Auditor
COMMERCIAL BANKING, TRUST AND INVESTMENT
John W. Kelly, Executive Vice President
BUSINESS BANKING
Louise C. Sandberg, Vice President
COMMERCIAL FINANCE
Matthew K. Durkee, Vice President
CORPORATE BANKING
Larry D. MacKinnon, Senior Vice President
Michael L. Seaver, Vice President
CORPORATE TRUST
Sonja R. Shaver, Assistant Vice President
CORRESPONDENT BANKING, SPECIALIZED INDUSTRIES
Charles J. Stone, Jr., Senior Vice President
CREDIT DEPARTMENT
Amy J. Myers, Assistant Vice President
EMPLOYEE BENEFITS PROGRAM
Charles C. Claudio, Vice President
GOVERNMENT BANKING
David E. Olson, Assistant Vice President
INVESTMENT MANAGEMENT
Jerry R. Condon, Chief Investment Officer
PERSONAL TRUST SERVICES
Louis J. Beaulieu, Senior Vice President
PRIVATE BANKING
Sylvia T. MacKinnon
Vice President
COMMUNITY BANKING
Danny H. O'Brien, Senior Vice President
Katharine H. Bosley, Vice President, Branch Commercial Loan Administrator
J. Bruce Foust, Vice President, Branch Administrator
C. Lynn Medeiros, Assistant Vice President, Sales Manager
Bonnie L. Rivers, Vice President, Branch Administrator
Stuart F. Silloway, Jr., Senior Vice President, Business Development
Administrator
CORPORATE SECRETARY
F. Sheldon Prentice, Senior Vice President, General Counsel and Corporate
Secretary
Paul A. Benoit, Vice President, Counsel and Compliance Officer
Stephanie Barton, Counsel and Assistant Compliance Officer
Eugenie J. Fortin, Assistant Corporate Secretary, Stockholder Relations
CREDIT POLICY AND ADMINISTRATION
John P. Barnes, Senior Vice President, Chief Credit Policy Officer
Debra E. Cross, Vice President, Credit Administration
Donald D. Martin, Senior Vice President, Loan Resolution
Rachel M. Sheridan, Assistant Vice President, Credit Collections
Sarah P. Slatter, Senior Vice President, Credit Review and Administration
MORTGAGE SERVICE CENTER OF NEW ENGLAND
Richard J. Christensen, Senior Vice President
Sandra M. Lambert, Correspondent Lending
Raymond M. O'Connor, Secondary Marketing
Alane G. Perkins, Vice President, Loan Administration and Accounting
OPERATIONS AND ADMINISTRATION
Lawrence W. DeShaw, Executive Vice President
ADMINISTRATION
Christopher D. Bishop, Vice President, Facilities Management
Robert D. Hofmann, Vice President, Marketing
Sarah P. Merritt, Senior Vice President, Human Resources
<PAGE> 56
CHITTENDEN HOME MORTGAGE
Catherine S. Blackwell, Assistant Vice President, Manager, Residential Mortgage
Department
Jennie H. Buchanan, Vice President, Manager, Secondary Market Activities
Carolyn S. Lyman, Vice President, Manager, Mortgage Originations
COMMERCIAL SERVICES AND CAPTIVE INSURANCE
Rand L. Stretton, Vice President, Commercial Services and Captive Insurance
OPERATIONS
Bruce W. Cote, Assistant Vice President, Loan Accounting Services
Paul J. Hamlin, Senior Vice President, Branch Operations
Florence F. Izzo, Senior Vice President, Commercial, Deposit, and Trust
Operations Services
Joseph J. Leombruno, Data Security Officer, Personal Computer Administration
PAYROLL SERVICES
Nancy J. Barnes, Vice President, Payroll Services
RETAIL CREDIT
Daniel G. Alcorn, Senior Vice President, Retail Credit Division
Ronald P. Bower, Vice President, Automotive Financing
Mary C. Chicoine, Assistant Vice President, Merchant Services
TREASURY
Nancy Rowden Brock, Senior Vice President, Chief Financial Officer, and
Treasurer
Alan A. Fay, Vice President, Treasury Services
Timothy J. Keefe, Vice President, Controller
THE BANK OF WESTERN MASSACHUSETTS
DIRECTORS
John J. Cardone
Edward J. Carroll, Jr.
Martin J. Clayton
Timothy P. Crimmins, Jr., President and Chief Executive Officer
James J. Falcone
Frank P. Fitzgerald, Esq., Chair
William F. Frain
John P. Isenburg
Edward C. Leavy
Carl B. Martin, III
William G. Mazeine
Paul A. Perrault
Emilio J. Sibilia, Jr.
Andrew E. Skroback, Jr.
Benjamin Surner, Jr.
THE BANK OF WESTERN MASSACHUSETTS
OFFICERS
Frank P. Fitzgerald, Esq., Chair, Board of Directors
Timothy P. Crimmins, Jr., President and Chief Executive Officer
ASSET-BASED LENDING
James J. Carvalho, Vice President
Daniel M. Flynn, Vice President and Senior Loan Officer
William A. Fontes, Vice President
Rhoda A. Manoogian, Vice President
Steven J. Robinson, Vice President
J. Jeffrey Sullivan, Vice President
CONSUMER LENDING
Pamela L. Baran, Assistant Vice President
Ronald W. Rice, Assistant Vice President
CREDIT ADMINISTRATION
Donna M. George-Ebbeling, Assistant Vice President
Kevin M. Bowler, Asset Recovery Officer
DEPOSIT AND BRANCH ADMINISTRATION
Cheryl A. Pesto, Assistant Vice President
Sylvia B. Nadeau-Poole, Assistant Vice President
Ann M. Destromp, Branch Manager, Consumer Loan Officer
Gwendoline M. Briere, Branch Manager, Consumer Loan Officer
FINANCE
James P. Russell, Vice President and Treasurer
Joanne M. Corliss, Assistant Vice President
Lynne A. Gino, Operations Officer
OPERATIONS
Barbara J. Wallace, Vice President and Senior Staff Development Officer
Ralph V. Ritchie, Assistant Vice President
TRUST AND INVESTMENT SERVICES
John S. Newton, Vice President
HEADQUARTERS, CHITTENDEN CORPORATION AND CHITTENDEN BANK
Chittenden Bank Building
Two Burlington Square
Burlington, Vermont 05401
Mailing Address:
P.O. Box 820
Burlington, Vermont 05402-0820
HEADQUARTERS, THE BANK OF WESTERN MASSACHUSETTS
29 State Street
Springfield, Massachusetts 01103
Mailing Address:
P.O. Box 4950
Springfield, Massachusetts 01101-4950
<PAGE> 57
The following table sets forth the range of the high and low prices for the
Corporation's common stock for the last five years:
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
Quarter High Low High Low High Low High Low High Low
First 19.20 16.40 15.40 14.00 13.44 9.44 9.60 5.28 6.08 2.56
Second 23.00 18.20 17.40 13.60 14.08 12.16 10.56 8.16 5.92 4.16
Third 27.75 21.50 17.60 16.00 14.60 12.16 10.24 8.48 8.64 4.64
Fourth 32.00 25.00 17.20 16.00 15.20 13.60 10.40 8.96 7.20 4.32
STOCKHOLDER INFORMATION
FORM 10-K
A copy of the Chittenden Corporation's Annual Report for 1995 (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,
1995, there were 3,073 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.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The Dividend Reinvestment and Stock Purchase plan for stockholders of Chittenden
Corporation gives the 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.
For stockholder services and information contact:
Stockholder Relations
Chittenden Corporation
P.O. Box 820
Burlington, Vermont 05402-0820
(802) 660-1412
Chittenden Corporation is a two-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 and The Bank of Western
Massachusetts. Chittenden Bank is the trade name for Chittenden Trust Company.
By the end of the first quarter of 1996, Chittenden Corporation expects to
consummate an Agreement and Plan of Reorganization by which Flagship Bank and
Trust Company will become a wholly-owned subsidiary of Chittenden Corporation.
ANNUAL MEETING
The Annual Meeting of the Stockholders of Chittenden Corporation will be held on
Wednesday, April 17, 1996 at 4:00 p.m. in the Adirondack Ballroom (A and B) in
the Radisson Hotel Burlington, located at 60 Battery Street, Burlington,
Vermont.
To find out about the wide range of products offered by Chittenden Bank, call
the Customer Information Center at 1-800-545-2236.
For products and services offered by The Bank of Western Massachusetts, please
call 1-800-331-5003.
<PAGE>
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 20, 1996 CHITTENDEN CORPORATION
BY: s/PAUL A. PERRAULT
------------------
Chief Executive Officer
and Director
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
NAME TITLE DATE
- --------------------------------------------------------------------------------
s/Barbara W. Snelling Chair of the Board
of Directors 03-20-96
s/Paul A. Perrault President, Chief Executive
Officer and Director 03-20-96
s/Nancy Rowden Brock Chief Financial Officer 03-20-96
(and principal accounting officer)
Frederic H. Bertrand Director
s/David M. Boardman Director 03-20-96
Paul J. Carrara Director
s/Lyn Hutton Director 03-20-96
s/Philip A. Kolvoord Director 03-20-96
s/James C. Pizzagalli Director 03-20-96
s/Pall D. Spera Director 03-20-96
s/Martel D. Wilson, Jr. Director 03-20-96
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