SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Nine Months Ended September 30, 1996
or
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ____________to____________
Commission File Number 0-7974
CHITTENDEN CORPORATION
(Exact Name of Registrant as Specified in its Charter)
VERMONT 03-0228404
(State of Incorporation) (IRS Employer Identification No.)
TWO BURLINGTON SQUARE
BURLINGTON, VERMONT 05401
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (802) 658-4000
NOT APPLICABLE
Former Name, Former Address and Formal Fiscal Year
If Changed Since Last Report
Indicate by checkmark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
At November 8, 1996 there were 12,673,806 shares of the Corporations's $1.00
par value common stock issued, with 12,271,393 shares outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<PAGE>
CHITTENDEN CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31,
1996 1995
--------- ---------
Restated
ASSETS (See Note 3)
Cash and Cash Equivalents $227,187 $197,141
Securities Available For Sale 349,106 278,321
Securities Held For Investment (Market Value $38,748,000
in 1996; and $42,633,000 in 1995) 40,617 43,164
Stock in Federal Home Loan Bank of Boston 5,591 5,591
Loans Held for Sale 9,300 14,691
Loans:
Commercial 276,504 248,169
Real Estate:
Residential 485,491 468,008
Commercial 301,572 305,961
Construction 28,610 25,796
--------- ---------
Total Real Estate 815,673 799,765
Consumer 195,388 159,499
--------- ---------
Total Loans 1,287,565 1,207,433
Less: Allowance for Possible Loan Losses (28,328) (27,817)
--------- ---------
Net Loans 1,259,237 1,179,616
--------- ---------
Premises and Equipment 24,556 25,034
Accrued Interest Receivable 13,727 12,880
Other Real Estate Owned 1,990 2,651
Net Deferred Tax Asset 11,486 10,333
Other Assets 16,001 13,768
Intangible Assets 10,589 11,514
--------- ---------
Total Assets $1,969,387 $1,794,704
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $294,145 $252,421
Certificates of Deposit $100,000 and Over 116,842 103,924
Savings and Other Time 1,288,032 1,203,512
--------- ---------
Total Deposits 1,699,019 1,559,857
--------- ---------
Short-Term Borrowings 75,956 52,893
Accrued Expenses and Other Liabilities 24,662 25,521
Long-Term Debt 2,526 2,484
--------- ---------
Total Liabilities 1,802,163 1,640,755
--------- ---------
Stockholders' Equity:
Common Stock - $1 Par Value
Authorized - 30,000,000 Shares
Issued - 12,650,595 Shares in 1996; and 12,345,304
in 1995 12,651 12,345
Surplus 72,995 70,537
Retained Earnings 87,630 74,335
Treasury Stock - At Cost, 402,413 Shares in 1996;
367,417 in 1995 (4,770) (3,967)
Net Unrealized Gain (Loss) on Securities Available for Sale,
Net of Taxes (Benefit) of ($629,000) in 1996; and $535,000
in 1995 (1,231) 768
Unearned Portion of Employee Restricted Stock (51) (69)
--------- ---------
Total Stockholders' Equity 167,224 153,949
--------- ---------
Total Liabilities and Stockholders' Equity $1,969,387 $1,794,704
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CHITTENDEN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Quarter
Ended September 30,
1996 1995
-------- --------
(In Thousands, Except Share Data)
Restated
(See Note 3)
Interest Income:
Interest on Loans $29,314 $29,207
Investment Securities:
Mortgage-Backed Securities 1,451 1,427
Taxable 3,731 3,377
Tax-Favored Debt 843 763
Tax-Favored Equity 85 33
Short-Term Investments 517 365
-------- --------
Total Interest Income 35,941 35,172
-------- --------
Interest Expense:
Deposits:
Savings 6,902 6,760
Time 7,348 7,244
-------- --------
Total Interest on Deposits 14,250 14,004
Short-Term Borrowings 532 771
Long-Term Debt 46 31
-------- --------
Total Interest Expense 14,828 14,806
-------- --------
Net Interest Income 21,113 20,366
Provision for Possible Loan Losses 850 1,400
-------- --------
Net Interest Income after Provision for
Possible Loan Losses 20,263 18,966
-------- --------
Noninterest Income:
Trust Department Income 1,188 1,153
Service Charges on Deposit Accounts 1,542 1,505
Gains on Sales of Securities, Net - 205
Mortgage Servicing Income 652 648
Gains on Sales of Mortgage Loans 605 396
Credit Card Income, Net 1,171 964
Other 1,148 916
-------- --------
Total Noninterest Income 6,306 5,787
-------- --------
Noninterest Expense:
Salaries 6,575 5,976
Employee Benefits 1,971 2,007
Net Occupancy Expense 2,320 2,230
FDIC Deposit Insurance 6 (85)
Other Real Estate Owned Income and Expense, Net (61) (66)
Other 5,581 5,123
-------- --------
Total Noninterest Expense 16,392 15,185
-------- --------
Income Before Income Taxes 10,177 9,568
Provision for Income Taxes 3,300 3,128
-------- --------
Net Income $6,877 $6,440
======== ========
Earnings Per Share:
Primary $0.55 $0.52
Fully Diluted $0.55 $0.52
Dividends Declared Per Share $0.20 $0.11
Book Value $13.65 $12.46
Weighted Average Common and Common Equivalent
Shares Outstanding 12,490,224 12,322,994
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
For the Nine Months
Ended September 30,
1996 1995
-------- --------
(In Thousands, Except Share Data)
Restated
(See Note 3)
Interest Income:
Interest on Loans $86,602 $81,744
Investment Securities:
Mortgage-Backed Securities 4,363 4,277
Taxable 10,398 9,820
Tax-Favored Debt 2,265 1,890
Tax-Favored Equity 755 410
Short-Term Investments 1,256 1,417
-------- --------
Total Interest Income 105,639 99,558
-------- --------
Interest Expense:
Deposits:
Savings 19,974 19,415
Time 22,161 19,936
-------- --------
Total Interest on Deposits 42,135 39,351
Short-Term Borrowings 1,537 2,383
Long-Term Debt 146 98
-------- --------
Total Interest Expense 43,818 41,832
-------- --------
Net Interest Income 61,821 57,726
Provision for Possible Loan Losses 2,858 3,350
-------- --------
Net Interest Income after Provision for
Possible Loan Losses 58,963 54,376
-------- --------
Noninterest Income:
Trust Department Income 3,638 3,281
Service Charges on Deposit Accounts 4,665 4,360
Gains on Sales of Securities, Net - 199
Mortgage Servicing Income 1,890 1,773
Gains on Sales of Mortgage Loans 2,043 885
Credit Card Income, Net 2,990 2,664
Other 3,551 3,193
-------- --------
Total Noninterest Income 18,777 16,355
-------- --------
Noninterest Expense:
Salaries 19,013 16,965
Employee Benefits 5,907 5,847
Net Occupancy Expense 7,025 6,297
FDIC Deposit Insurance 21 1,433
Other Real Estate Owned Income and Expense, Net 113 (232)
Other 16,623 14,342
-------- --------
Total Noninterest Expense 48,702 44,652
-------- --------
Income Before Income Taxes 29,038 26,079
Provision for Income Taxes 9,451 8,591
-------- --------
Net Income $19,587 $17,488
======== ========
Earnings Per Share:
Primary $1.57 $1.45
Fully Diluted $1.57 $1.45
Dividends Declared Per Share $0.51 $0.29
Book Value $13.65 $12.46
Weighted Average Common and Common Equivalent
Shares Outstanding 12,452,645 12,051,947
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Chittenden Corporation
Consolidated Statements of Cash Flows
(Unaudited)
For Nine Months Ended September 30,
1996 1995
------------ ---------
(In Thousands)
Restated
(See Note 3)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $19,587 $17,488
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 2,858 3,350
Depreciation 2,662 2,158
Amortization of intangible assets 925 664
Amortization of premiums, fees, and discounts, net 1,479 852
Investment securities losses - (199)
Deferred (prepaid) income taxes 11 (1,268)
Loans originated and purchased for sale (150,070) (98,209)
Proceeds from sales of loans 157,504 93,267
Gain on sales of loans (2,043) (885)
Gain on sales of premises and equipment - (220)
Changes in assets and liabilities, net of effect from purchase
of the Bank of Western Massachusetts:
Accrued interest receivable (847) (134)
Other assets (2,406) 2,981
Accrued expenses and other liabilities (713) 2,060
-------- --------
Net cash provided by operating activities 28,947 21,905
-------- --------
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 - 26,050
Proceeds from maturing securities and principal payments
on securities available for sale 366,252 250,063
Purchase of securities available for sale (441,449) (284,762)
Proceeds from principal payments on securities held
for investment 7,255 3,867
Purchases of securities held for investment (3,540) (5,713)
Loans originated, net of principal repayments (82,996) (38,099)
Purchases of premises and equipment (2,184) (6,505)
Proceeds from sales of premises and equipment - 1,468
-------- --------
Net cash used in investing activities (156,662) (57,086)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 138,987 68,165
Net increase in short-term borrowings 23,063 19,112
Net increase in long-term debt 42 41
Proceeds from issuance of treasury and common stock 1,962 904
Dividends on common stock (6,293) (3,566)
-------- --------
Net cash provided by financing activities 157,761 84,656
-------- --------
Net increase in cash and cash equivalents 30,046 49,475
Cash and cash equivalents at beginning of year 197,141 114,652
-------- --------
Cash and cash equivalents at September 30, $227,187 $164,127
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $43,581 $39,676
Income taxes 7,240 8,106
Noncash investing and financing activities:
Loans transferred to other real estate owned 1,513 4,612
Common stock issued in conjunction with the acquisition
of The Bank of Western Massachusetts - 14,276
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
NOTE 1 - ACCOUNTING POLICIES
The Company's significant accounting policies, other than those described
in Note 2 below, are described in Note 1 of the Notes to Consolidated Financial
Statements included in its 1995 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. For interim reporting purposes, the Company
follows the same basic accounting policies and considers each interim period as
an integral part of an annual period.
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim periods.
1995 data reflects minor reclassifications to be consistent with 1996
presentation. In addition, the Company has made a reclassification in the
presentation of credit card and merchant processing operations. Previously, all
income generated from these operations was included in noninterest income on a
gross basis while all expenses related to these activities were included in
noninterest expense. In the third quarter of 1996, the Company changed the
presentation of these activities so that net credit card income is included in
noninterest income. All income statements presented have been restated to
reflect this change in classification.
NOTE 2 - ACCOUNTING POLICY CHANGE - ADOPTION OF SFAS 122
As of January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 122, ACCOUNTING FOR MORTGAGE SERVICING RIGHTS ("SFAS
122"). SFAS 122 requires the recognition, as separate assets, of 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. This change in
accounting was adopted prospectively for mortgage loans sold after January 1,
1996. Mortgage servicing rights capitalized during the nine months ended
September 30, 1996, net of amortization, totaled $967,000.
NOTE 3 - ACQUISITION OF FLAGSHIP BANK AND TRUST COMPANY
On February 29, 1996, the Company acquired Flagship Bank and Trust Company
("Flagship") of Worcester, Massachusetts for stock. The Company issued
1,628,400 shares of common stock in exchange for all outstanding Flagship
shares. This transaction has been accounted for as a pooling of interests and,
accordingly, the consolidated financial statements for all periods presented
have been restated to include the acquired bank.
<PAGE>
Total revenue, income before income taxes, net income, and earnings per
share data of the separate companies for the periods preceding the acquisition
were:
Nine months ended September 30, 1995
-----------------------------------------
Chittenden Flagship Combined
-----------------------------------------
Total Revenue $63,515 $10,566 $74,081
Income Before Income Taxes 22,902 3,177 26,079
Net Income 15,488 2,000 17,488
Earnings Per Share $1.50 $ 1.16 $1.45
Total revenue includes net interest income and non interest income.
NOTE 4 - STOCKHOLDERS' EQUITY
Stock Split. On April 17, 1996, the Company declared a five-for-four stock
split which was distributed on May 24, 1996 to stockholders of record May 10,
1996. This stock split has been reflected in the accompanying balance sheets as
of September 30, 1996 and December 31, 1995; all per share information shown on
the accompanying statements of income has been retroactively restated to reflect
the split.
Dividend Declaration. On October 18, 1996, the Company declared dividends of
approximately $2.45 million or $0.20 per share. This dividend is to be paid on
November 15, 1996 to stockholders of record on November 1, 1996.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
<PAGE>
Chittenden Corporation
Average Balances, Interest Income and Expense, and Average Rates (Unaudited)
For the Nine Months Ended September 30,
1995
---------------------------------------
Interest Average
Average Income/ Yield/
Balance Expense(1) Rate(1)
---------------------------------------
(In Thousands)
ASSETS
Interest-Earning Assets:
Loans $1,243,393 $86,302 9.27%
Industrial Revenue Bonds (2) 5,052 433 11.45
Investments:
Taxable 319,699 14,834 6.20
Tax-Favored Debt Securities 68,991 3,306 6.40
Tax-Favored Equity Securities 23,843 1,040 5.83
Interest-Bearing Deposits in Banks 100 - 3.00
Federal Funds Sold 29,341 1,183 5.39
------- -------
Total Interest-Earning Assets 1,690,419 107,098 8.46
-------
NonInterest-Earning Assets 156,406
Allowance for Possible Loan Losses (28,431)
-------
Total Assets $1,818,394
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
Savings and Interest-Bearing
Transactional Accounts 819,828 19,974 3.25
Certificates of Deposit $100,000
and Over 111,308 4,659 5.59
Other Time Deposits 433,209 17,502 5.40
------- -------
Total Interest-Bearing Deposits 1,364,345 42,135 4.13
Short-Term Borrowings 30,505 1,537 6.73
Long-Term Debt 2,507 146 7.78
------- -------
Total Interest-Bearing Liabilities 1,397,357 43,818 4.19
-------
NonInterest-Bearing Liabilities:
Demand Deposits 241,027
Other Liabilities 19,956
-------
Total Liabilities 1,658,340
Stockholders' Equity 160,054
-------
Total Liabilities and
Stockholders' Equity $1,818,394
==========
Net Interest Income $63,280
=======
Interest Rate Spread (3) 4.27%
Net Yield on Earning Assets (4) 5.00%
(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>
Chittenden Corporation
Average Balances, Interest Income and Expense, and Average Rates (Unaudited)
For the Nine Months Ended September 30,
1995
---------------------------------------
Interest Average
Average Income/ Yield/
Balance Expense(1) Rate(1)
---------------------------------------
(In Thousands)
ASSETS ------------------Restated------------
Interest-Earning Assets:
Loans $1,148,341 $81,302 9.47%
Industrial Revenue Bonds (2) 6,459 576 11.92
Investments:
Taxable 298,414 14,098 6.32
Tax-Favored Debt Securities 54,952 2,800 6.81
Tax-Favored Equity Securities 11,762 564 6.41
Interest-Bearing Deposits in Banks 100 2 3.00
Federal Funds Sold 32,060 1,414 5.90
------- -------
Total Interest-Earning Assets 1,552,088 100,756 8.68
-------
NonInterest-Earning Assets 135,946
Allowance for Possible Loan Losses (25,848)
-------
Total Assets $1,662,186
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
Savings and Interest-Bearing
Transactional Accounts 742,540 19,415 3.50
Certificates of Deposit $100,000
and Over 115,661 4,447 5.14
Other Time Deposits 383,407 15,489 5.40
------- -------
Total Interest-Bearing Deposits 1,241,608 39,351 4.24
Short-Term Borrowings 48,166 2,383 6.61
Long-Term Debt 1,452 98 9.02
------- -------
Total Interest-Bearing Liabilities 1,291,226 41,832 4.33
-------
NonInterest-Bearing Liabilities:
Demand Deposits 218,646
Other Liabilities 18,244
-------
Total Liabilities 1,528,116
Stockholders' Equity 134,070
-------
Total Liabilities and
Stockholders' Equity $1,662,186
==========
Net Interest Income $58,924
=======
Interest Rate Spread (3) 4.35%
Net Yield on Earning Assets (4) 5.08%
(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>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Chittenden Corporation completed the acquisition of Flagship Bank and Trust
Company, of Worcester, Massachusetts, on February 29, 1996. A total of 1.6
million shares of Chittenden stock were exchanged in the transaction, which has
been accounted for as a pooling of interests. All historical financial
information has been restated to reflect the acquired bank.
Chittenden Corporation's net income for the third quarter of 1996 was $6.9
million compared with $6.4 million a year ago. Net income per share of common
stock was $0.55 for the three months ended September 30, 1996, up from $0.52
reported a year ago. Return on average assets was 1.46% for the third quarter
of 1996, down slightly from 1.47% for the same period last year. Return on
average equity was 16.68% for the quarter ended September 30, 1996, compared
with 17.50% for the same period in 1995.
For the first nine months of 1996, net income was $19.6 million, or $1.57
per share, an increase from $17.5 million and $1.45 per share for the same
period a year ago. Return on average assets and return on average equity were
1.44% and 16.35%, respectively, compared with 1.41% and 17.44% for the first
nine months of 1995. The lower levels of return on average equity in 1996
reflect higher average equity balances on hand during 1996 as compared with the
year before.
Net interest income on a fully taxable equivalent basis for the three
months ended September 30, 1996 was $21.6 million, up $778,000 from the amount
earned during the same period in 1995. This increase was a result of higher
average earning assets, up $119 million from a year ago. The increase was due
to growth in loans and investments funded by higher deposit levels. The
increase in average earning assets was mitigated by a decrease in the net yield
on those assets from 5.09% for the third quarter of 1995 to 4.93% for the 1996
period.
For the nine months ended September 30, 1996, net interest income on a
fully taxable equivalent basis was $63.3 million, up $4.4 million from a year
ago. Net yield on earning assets was 5.00% and 5.08%, respectively, for the
first nine months of 1996 and 1995. The decline in net yield was more than
offset by higher average earning assets, up $138 million.
Provisions for and activity in the allowance for possible loan losses are
summarized as follows:
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
1996 1995 1996 1995
------------------ ------------------
(In Thousands)
Beginning Allowance for Possible
Loan Losses Balance $28,107 $26,517 $27,817 $22,163
Allowance of Bank Acquired
March 17, 1995 - - - 4,135
Provision for Possible Loan Losses 850 1,400 2,858 3,350
Loans Charged Off (1,273) (1,378) (4,013) (4,233)
Loan Recoveries 644 1,059 1,666 2,183
------------------- -------------------
Ending Allowance for Possible
Loan Losses Balance $28,328 $27,598 $28,328 $27,598
=================== ===================
<PAGE>
Total noninterest income and expense were less than amounts previously
reported because of a change in classification made to the income statement
during the third quarter of 1996. In previous quarters, income and expense
generated from credit card and merchant processing operations were included in
noninterest income and expense, respectively, on a gross basis. In the third
quarter, all income statements presented were restated to reflect the net
revenue from credit card and merchant processing activities in noninterest
income. The effect has been to reduce both total noninterest income and expense
by the amount of credit card expenses previously included in noninterest
expense. This change in classification was made to be consistent with industry
practice.
Noninterest income amounted to $6.3 million for the third quarter of 1996,
up $519,000 or 9% from last year. Net credit card income increased by $207,000,
or 21%, reflecting growth in merchant services transaction volumes. The
adoption of Statement of Financial Accounting Standards No. 122, Accounting for
Mortgage Servicing Rights, which requires the capitalization of mortgage
servicing rights retained, accounted for an additional $244,000 of the increase.
For the nine months ended September 30, 1996, noninterest income was $18.8
million, an increase of $2.4 million or 15% from the same period a year ago.
Increases in net credit card income and gains related to originated mortgage
servicing rights accounted for $326,000 and $967,000, respectively. The
remaining increases were noted in several areas, including trust department
income (up $357,000), service charges on deposit accounts (up $305,000), and
mortgage servicing income (up $117,000).
For the third quarter of 1996, noninterest expenses were $16.4 million, up
$1.2 million or 8% from the comparable 1995 level. Approximately half of that
increase was in additional salaries resulting from the opening of a new branch
at each of the Massachusetts banks since 1995, as well as additional full time
equivalents at Chittenden Bank working in the non-deposit fee-based businesses.
Noninterest expenses for the nine months ended September 30, 1996 were $48.7
million, an increase of $4.1 million or 9% from the same period a year ago.
Total noninterest expenses for The Bank of Western Massachusetts were $1.6
million higher in 1996 than the amount recorded for 1995 due to the conclusion
of that acquisition late in the first quarter of 1995. Because the transaction
was accounted for as a purchase, no operating results from prior to the
March 17, 1995 acquisition date are included in the 1995 amounts. In addition,
increased technology related expenses accounted for $742,000 of the increase.
while salaries increased $1.5 million for the reasons noted above. Non interest
expenses were reduced by $1.4 million in 1996 due to reduced FDIC insurance
costs. The Banks have been paying a minimal assessment in 1996 as compared to
1995 when assessments were reduced from 23 cents to 4 cents per $100 of deposits
when the FDIC insurance fund became fully capitalized. Based upon recently
enacted legislation, the Company anticipates that the Banks will pay assessments
of 1.3 cents per $100 of deposits in 1997 which would amount to approximately
$200,000 of expense for that year. Excluding the impact of these items,
noninterest expenses were up 4% in for the first nine months of 1996 compared
with a year ago.
CREDIT QUALITY
Nonperforming assets include nonaccrual loans, restructured debt, and
foreclosed real estate (Other Real Estate Owned). As of September 30, 1996,
nonperforming assets totaled $17.0 million, up from $15.7 million a year ago and
$13.9 million at June 30, 1996. The allowance for loan losses was $28.3 million
at September 30, 1996, up from $27.6 million at September 30, 1995 and up
slightly from the end of the second quarter of 1996. The provision for possible
loan losses charged against earnings in the third quarter was $850,000, a
reduction of $550,000 from the level provided during the third quarter of 1995
and $150,000 less than the amount provided during the second quarter of 1996.
A summary of credit quality follows:
09/30/96 06/30/96 12/31/95 09/30/95
---------------------------------------
(In Thousands)
Nonaccrual Loans $12,212 $ 9,112 $ 9,939 $12,706
Restructured Debt 2,791 2,892 2,502 220
Other Real Estate
Owned (OREO) 1,990 1,875 2,651 2,739
----------------------------------------
Total Nonperforming
Assets (NPA) $16,993 $13,879 $15,092 $15,665
========================================
Loans Past Due 90 Days or More
and Still Accruing Interest $ 2,360 $2,420 $ 1,054 $ 1,814
Allowance for Possible
Loan Losses 28,328 28,107 27,817 27,598
NPA as % of Loans plus OREO 1.32% 1.09 1.25 1.29%
Loss Allowance as % of Loans 2.20 2.22 2.30 2.28
Loss Allowance as % of
Nonperforming Loans 231.99 308.46 279.89 217.21
Loss Allowance as % of NPA 166.71 202.51 184.32 176.18
At September 30, 1996, the recorded investment in loans that are considered
to be impaired under SFAS 114 was $9,109,000 (all such loans, except troubled
debt restructurings, were on a nonaccrual basis). Included in this amount is
$5,430,000 of impaired loans for which the related allowance for possible loan
losses is $1,164,000, and $3,679,000 of impaired loans for which no specific
allowance for possible loan losses has been allocated. The average recorded
investment in impaired loans during the quarter ended September 30, 1996 was
approximately $8,210,000. For the quarter ended September 30, 1996, interest
income on impaired loans totaled $83,000, of which $16,000 was recognized on a
cash basis.
CAPITAL
Stockholders' equity totaled $167.2 million at September 30, 1996, up from
$153.9 million at year-end 1995. The current level reflects year-to-date net
income of $19.6 million, stock issued of $1.9 million under an incentive stock
option plan, the decline of $2.0 million in the valuation allowance for net
unrealized losses on investment securities available for sale, and dividends
paid to stockholders of $6.3 million.
<PAGE>
"Tier One" capital, consisting entirely of common equity, measured 11.47%
of risk-weighted assets at September 30, 1996. Total capital, including the
"Tier Two" allowance for loan losses, was 12.82% of risk-weighted assets. The
leverage capital ratio was 8.49%. These ratios placed Chittenden in the "well-
capitalized" category according to regulatory standards.
LIQUIDITY
The Company's liquidity and rate sensitivity are monitored by the Bank's
asset and liability committee. This committee meets regularly to review and
direct the Bank's lending and investment activities, as well as its deposit-
gathering and borrowing functions.
The measure of an institution's liquidity is its ability to meet its cash
commitments at all times with available cash or by conversion of other assets to
cash at a reasonable price. At September 30, 1996, the Company maintained cash
balances and short-term investments of approximately $227.2 million, compared
with $197.1 million at December 31, 1995. During the first nine months of 1996,
the Company continued to be an average daily net seller of Federal Funds.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
Press Release related to departure of Chief Financial Officer, Nancy
Rowden Brock, dated September 16, 1996.
<PAGE>
CHITTENDEN CORPORATION
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHITTENDEN CORPORATION
Registrant
November 8, 1996 S/PAUL A. PERRAULT
- -------------------- ----------------------------------
Date Paul A. Perrault,President
and Chief Executive Officer
November 8, 1996 S/JOHN P. BARNES
- -------------------- -----------------------------------
Date John P. Barnes, Senior Vice President
(Acting Principal Accounting Officer)
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 163587
<INT-BEARING-DEPOSITS> 100
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