SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 29, 1996
CHITTENDEN CORPORATION
(Exact name of Registrant
as specified in charter)
Vermont 0-7974 03-0228404
(State or other jurisdiction (Commission (IRS Employer of
incorporation) File Number) Identification No.)
Two Burlington Square, Burlington, Vermont 05401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (802) 658-4000
Not Applicable
(Former name or former address,
if changed since last report.)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On February 29, 1996, the Company consummated the acquisition of Flagship Bank
and Trust Company, an FDIC-insured, Massachusetts trust company ("Flagship").
Flagship stockholders received 1.20 shares of the Company's Common Stock for
each share of Flagship Common Stock.
The Company issued 1,386,100 shares of its common stock in connection with this
transaction. The Company formed Chittenden Acquisition Bank, an FDIC-insured,
Massachusetts trust company ("CAB") which served as the survivor institution in
a merger of Flagship into CAB and the resulting company has been named Flagship
Bank and Trust Company ("Resulting Flagship").
The terms of the transaction and a description of Flagship are included in the
Company's Registration Statement on Form S-4, as amended, filed on November 22,
1995 (File Number 33-64527).
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
(b) Pro Forma Financial Information
(c) Exhibit
Attached as an Exhibit hereto is a copy of the Consent of
Independent Public Accountants
<PAGE>
(a) Financial Statements of Business Acquired
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Flagship Bank and Trust Company:
We have audited the accompanying consolidated balance sheets of Flagship Bank
and Trust Company and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, 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 Bank's manage-
ment. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Flagship Bank and
Trust Company and 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 Notes 1 and 3 to the consolidated financial statements,
effective January 1, 1994, the Bank changed its method of accounting for invest-
ment securities.
s/ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 7, 1996
<TABLE>
<CAPTION>
FLAGSHIP BANK AND TRUST COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
1995 1994
-------------------------------
ASSETS
<S> <C> <C>
Cash and due from banks $15,652,907 $11,113,230
Short term investments 1,000,000 1,000,000
Federal funds sold 1,088,818 1,565,768
Investments held-to-maturity
(Market value $33,013,938 in 1995 and
$31,016,068 in 1994) 33,690,874 33,391,088
(Notes 1 and 3)
Investments available-for-sale
(Notes 1 and 3) 46,189,761 49,281,608
Federal Home Loan Bank stock 1,225,700 852,000
Loans (Notes 1, 4, 10 and 11) 167,372,636 142,819,065
Allowance for possible loan losses (2,968,700) (3,064,063)
--------------------------------
Net Loans 164,403,936 139,755,002
Bank premises and equipment, net
(Notes 5 and 9) 6,313,865 4,706,077
Other real estate owned, net (Note 1) 754,465 853,465
Other assets (Note 8) 3,249,933 3,620,133
--------------------------------
TOTAL ASSETS $273,570,259 246,138,371
================================
LIABILITIES AND STOCKHOLDERS EQUITY
Deposits:
Demand $ 50,630,018 44,165,790
Savings 124,762,303 132,202,936
Certificates of deposit over $100,000
(Note 6) 15,393,796 8,499,708
Other Certificates of Deposit 29,962,228 20,659,882
--------------------------------
Total deposits 220,748,345 205,528,316
Borrowed funds (Note 7) 3,098,102 4,098,102
Customer repurchase agreements (Notes 3 28,391,323 19,212,121
and 7)
Obligation under capitalized lease (Note 1,484,335 1,429,945
9)
Other liabilities 2,633,300 858,176
--------------------------------
TOTAL LIABILITIES $256,355,405 $231,126,660
Stockholders equity:
Preferred Stock, $1 par value -
Authorized - 10,000 shares;
None issued (Note 12)
Common Stock, $2.815 par value -
Authorized - 5,000,000 shares; Issued -
1,113,144 at December 31, 1995 and 1994;
Outstanding - 1,085,600 shares at
December 31, 1995 and 1,085,600 shares at
December 31, 1994. (Notes 14 and 16) 3,133,500 3,133,500
Surplus 11,969,457 10,856,742
Retained earnings 2,168,109 2,366,389
Treasury Stock, at cost - 27,544 shares
at December 31, 1995 and 1994 (121,807) (121,807)
Net unrealized gain/(loss) on securities
available-for-sale 65,595 (1,223,113)
--------------------------------
Total stockholders equity 17,214,854 15,011,711
--------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY $273,570,259 $246,138,371
================================
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
FLAGSHIP BANK AND TRUST COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
---------------------------------------
Interest Income:
<S> <C> <C> <C>
Interest and fees on loans (Note 1) $14,733,462 $11,257,195 $10,054,389
Interest and dividends on
investment securities 5,133,707 4,424,803 3,690,695
Interest on interest-bearing
deposits and federal funds sold 202,721 687,360 341,348
---------------------------------------
Total interest income 20,069,890 16,369,358 14,086,432
---------------------------------------
Interest Expense:
Interest on deposits 5,422,602 4,209,978 4,284,445
Interest on customer repurchase
agreements 966,920 407,758 208,525
Interest on borrowed funds 428,291 317,998 327,774
---------------------------------------
Total interest expense 6,817,813 4,935,734 4,820,744
---------------------------------------
Net interest income 13,252,077 11,433,624 9,265,688
Provision for Possible Loan Losses
(Notes 1 and 4) 1,050,000 1,200,000 1,535,000
---------------------------------------
Net interest income after
provision for possible loan lossses 12,202,077 10,233,624 7,730,688
---------------------------------------
Noninterest Income:
Service charges on deposits 777,237 605,562 576,606
Gain on sales of loans 35,739 144,664 664,082
Gain on sales of O.R.E.O. 6,546 5,954 60,877
Net gain on sales of securities
(Notes 1 and 3) 6,508 160,735 561,270
Other noninterest income 477,304 666,428 404,920
---------------------------------------
Total noninterest income 1,303,334 1,583,343 2,267,755
Noninterest Expenses:
Salaries and benefits (Notes 15
and 17) 4,217,719 3,350,808 2,573,786
Net occupancy expense (Note 9) 1,040,943 902,318 796,681
Equipment and furniture expense 719,135 682,768 658,833
Loss on sale of O.R.E.O. 3,627 -- 14,101
Other real estate owned expense 57,567 90,521 850,437
Merger expenses (Note 20) 1,703,430 -- --
Other operating expenses (Note 19) 3,154,277 2,791,646 2,531,881
---------------------------------------
Total noninterest expenses 10,896,698 7,818,061 7,425,719
---------------------------------------
Income before taxes 2,608,713 3,998,906 2,572,724
Income Taxes (Notes 1 and 8) 1,363,168 1,498,903 667,349
---------------------------------------
Net Income $ 1,245,545 $ 2,500,003 $ 1,905,375
=======================================
Earnings per share $ 1.15 $ 2.31 $ 1.76
=======================================
Weighted average number of common
shares outstanding 1,159,753 1,082,100 1,079,600
=======================================
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<TABLE>
FLAGSHIP BANK AND TRUST COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<CAPTION>
Unrealized
Gain/(Loss)
Class A Retained on Total
Common Common (Deficit) Treasury Securities Stockholders
Stock Stock Surplus Earnings Stock Available Equity
For Sale
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $ 98 $ 2,912,376 $11,645,383 $(2,038,989) $ (196,417) -- $12,322,451
Net Income 1,905,375 1,905,375
Repurchase of common stock (6,000) (6,000)
Cash dividends declared (269,900) (269,900)
----------------------------------------------------------------------------------------------
Balance, December 31, 1993 98 2,912,376 11,375,483 (133,614) (202,417) -- 13,951,926
Net Income 2,500,003 2,500,003
Sale of Treasury Stock 80,610 80,610
Cash dividends declared (297,715) (297,715)
Cumulative effect of adoption of
SFAS No 115, net of related
taxes at January 1, 1994 391,917 391,917
Change in unrealized loss
on securities classified as available (1,615,030) (1,615,030)
for sale, net of related taxes
Conversion of class A common
stock to common stock (98) 221,124 (221,026) --
--------------------------------------------------------------------------------------------------
Balance, December 31, 1994 $ -- 3,133,500 $11,154,457 $2,068,674 $(121,807) $(1,223,113) $15,011,711
Net Income 1,245,545 1,245,545
Cash dividends declared (331,110) (331,110)
Transfer authorized by
Commissioner of Banks 815,000 (815,000)
Change in unrealized loss on
securities classified as available-
for-sale, net of related taxes 1,288,708 1,288,708
--------------------------------------------------------------------------------------------------
Balance, December 31, 1995 $ -- $3,133,500 $11,969,457 $2,168,109 $(121,807) $ 65,595 $17,214,854
==================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
<CAPTION>
FLAGSHIP BANK AND TRUST COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
----------------------------------------------------------
Cash Provided by Operating Activities:
<S> <C> <C> <C>
Net Income $ 1,245,545 $ 2,500,003 1,905,375
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 595,702 844,767 463,263
Provision for possible loan losses 1,050,000 1,200,000 1,535,000
Provision for O.R.E.O. losses -- 79,500 509,422
Gain on sale of investments (6,508) (160,735) (561,270)
Gain on sale of loans (35,739) (121,519) (664,082)
Proceeds from sale of loans 6,249,038 13,901,922 42,417,986
Originations of loans held for sale (6,213,299) (13,780,403) (41,753,904)
Gain on sale of other real estate owned (2,919) (5,954) (46,776)
Increase in FederalHome Loan Bank stock (373,700) -- --
Increase in other assets (505,941) (729,997) (276,780)
Increase (decrease) in other liabilities 1,829,512 (747,132) 1,047,042
------------------------------------------------------------
Total adjustments 2,586,146 480,449 2,669,901
------------------------------------------------------------
Net cash provided by operating activities 3,831,691 2,980,452 4,575,276
------------------------------------------------------------
Cash Flow Used in Investing Activities:
Net decrease (increase) in short-term investments
and federal funds sold 476,951 23,997,820 (24,534,015)
Proceeds from sales and maturities
of investment securities -- -- 41,327,826
Purchase of investment securities -- -- (57,267,667)
Proceeds from sales of securities
available for sale 2,299,793 13,264,578 --
Proceeds from maturing securities
and principal payments on securities
available for sale 8,097,367 3,819,981 --
Purchase of securities available for sale (5,058,132) (28,914,544) --
Proceeds from maturing securities and
principal payments on securities
held to maturity 5,658,395 9,701,747 --
Purchase of securities held to maturity (6,034,006) (12,668,131) --
Net (increase) decrease in loans (25,698,933) (17,066,004) 6,724,347
Capital expenditures (2,203,490) (1,270,160) (316,671)
Proceeds from sale of other real estate owned 101,917 428,647 1,068,165
------------------------------------------------------------
Net cash used in investing activities (22,360,138) (8,706,066) (32,998,015)
------------------------------------------------------------
Cash Flow Provided By Financing Activities:
Net increase in deposits 15,220,030 4,443,019 26,055,227
Net increase in customer repurchase agreements 9,179,202 8,093,837 4,373,389
Proceeds from borrowed funds (1,000,000) (2,000,000) (3,300,145)
Repurchase of common stock -- -- (6,000)
Dividends paid (331,108) (297,715) (269,900)
Sale of Treasury stock -- 80,610 --
-------------------------------------------------------------
Net cash provided by financing activities 23,068,124 10,319,751 26,852,571
-------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 4,539,677 4,594,137 (1,570,168)
Cash and cash equivalents at
beginning of year 11,113,230 6,519,093 8,089,261
-------------------------------------------------------------
Cash and cash equivalents at
end of year $ 15,652,907 $ 11,113,230 $ 6,519,093
=============================================================
Supplemental Disclosures
Interest paid $ 6,149,191 $ 4,387,541 $ 4,346,443
Income taxes paid $ 1,468,456 $ 1,346,000 $ 91,412
Transfers to other real estate owned $ -- $ 822,583 $ 1,535,472
Disclosure of Accounting Policy:
For purposes of reporting cash flows, cash and cash equivalents include cash on hand and amounts due from banks.
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
FLAGSHIP BANK AND TRUST COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) Summary of Significant Accounting Policies
BASIS OF PRESENTATION AND CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Flagship Bank and Trust Company and its wholly owned subsidiaries, Admiral
Properties, Incorporated and Flagship Securities Corporation (the Bank). All
significant inter-company balances and transactions have been eliminated in
consolidation.
USES 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 disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting periods.
Actual results could vary from these estimates. Material estimates that are
particularly susceptible to change relate to the determination of the allowance
for possible loan losses and the valuation of Other Real Estate Owned.
INVESTMENT SECURITIES
Effective January 1, 1994, the Bank adopted the provisions of the Financial
Accounting Standards Board (FASB) Statement of Financial Accounting Standards
(SFAS) No. 115, Accounting for Certain Investments in Debt and Equity
Securities. As provided under SFAS No. 115, financial statements for periods
prior to January 1, 1994 have not been restated.
Under the provisions of SFAS No. 115, investments in debt securities that
management has the positive intent and ability to hold to maturity are
classified as held-to-maturity and carried at amortized cost. Debt and equity
securities that are bought and held principally for the purpose of selling in
the near term are classified as trading securities. Unrealized gains and
losses for trading securities shall be included in earnings. No securities were
classified as trading during 1995. Debt and equity securities not classified as
held-to-maturity or trading are classified as available-for-sale and carried at
fair value. The net unrealized gains or losses on securities classified as
available-for-sale is reported, net of tax, as a separate component of
stockholders equity.
The cumulative effect of adopting SFAS No. 115 was a net unrealized gain of
$391,917, net of the income tax of $283,367; related to $49,539,167 of
securities that the Bank classified as available-for-sale.
Prior to January 1, 1994, securities that management had the intent and ability
to hold for the foreseeable future were carried at amortized cost. Debt
securities held-for-sale were stated at amortized cost. Equity securities were
stated at the lower of aggregate amortized cost or market value and net
unrealized losses considered temporary in nature were shown as reductions of
stockholders equity.
Premiums and discounts on investments securities are amortized and accreted,
respectively, using the straight-line method, which approximates effective
yield.
LOANS
Interest income is accrued based on the principal amount of loans outstanding.
When management determines that significant doubt exists as to the collecta-
bility of principal or interest on a loan, the loan is placed on nonaccrual
status. In addition, all loans past due 90 days or more as to principal or
interest are placed on nonaccrual status except those loans which, in
management's judgment, are fully secured and in the process of collection.
Interest accrued but not received on such loans is reversed and charged against
current operations. Interest on nonaccrual loans is recognized only when
received. Loans are restored to accrual status when the borrower has brought
the loan current and demonstrated the ability to make future payments of
principal and interest as scheduled.
Nonrefundable loan origination and commitment fees and related loan origination
costs are deferred and amortized over the lives of the loans originated. All
origination and commitment fees collected are initially deferred, as are the
incremental costs of completed loans. Net deferred fees amounted to
approximately $173,300 at December 31, 1995 and $27,000 at December 31, 1994,
and are being amortized into income as yield adjustments over the contractual
lives of the related loans using the interest method.
In May 1993, the FASB issued SFAS No. 114, Accounting by Creditors for
Impairment of a Loan, as amended by SFAS No. 118 (SFAS No. 114, as amended),
which is effective for fiscal years beginning after December 15, 1994. SFAS No.
114, as amended, addresses the accounting by creditors for impairment of certain
loans by requiring that the carrying value of impaired loans, as defined, be
measured based on the present value of expected future cash flows discounted at
the loan s effective interest rate or the fair value of the collateral if the
loan is collateral-dependent. This statement also amends SFAS No. 15,
Accounting by Debtors and Creditors for Troubled Debt Restructuring, to require
a creditor to measure all loans that are restructured in a troubled debt
restructuring involving a modification of terms in accordance with this
statement. As a result of adopting these statements, no additional provision
for possible loan losses was required as of January 1, 1995.
PROVISION AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses is based on management's evaluation of
the level of the allowance required in relation to the estimated loss exposure
in the loan portfolio. Procedures employed in considering the reserve
requirements include continuous reviews of loans by the credit department of the
Bank, management's evaluation of current economic conditions and the results of
examinations by regulatory authorities. Ultimate losses may vary from current
estimates. These estimates are reviewed periodically and, as adjustments become
necessary, they are reported as a charge against earnings in the period in which
they become known. Loans are charged off to the allowance for possible loan
losses when, in the opinion of management, such loans are deemed to be
uncollectible.
FINANCIAL INSTRUMENTS WITH OFF-BLANCE SHEET RISK AND CONCENTRATION
OF CREDIT RISK
In the normal course of business the Bank is a party to financial instruments
with off-balance sheet risk to meet the financing needs of its customers. As
discussed in Note 10, these financial instruments include firm commitments to
extend credit and stand-by letters of credit which involve, to varying degrees,
elements of credit and interest rate risk in excess of the amounts recognized in
the balance sheet. The Bank uses the same credit policies in making such
commitments as it does for on-balance sheets instruments. Commitments to extend
credit are binding agreements to lend to a customer as long as there is no
violation of any condition in the contract. Stand-by letters of credit are
obligations to make payments under certain conditions to meet contingencies
related to customers' contractual agreements and are subject to the same risk,
credit review, and approval process as a loan. The Bank has established
internal lending limits applicable to a single borrower or a related group of
borrowers to minimize risk and control exposure by obligor, industry, loan type
and other credit concentrations.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are computed using the
straight-line method. Bank premises are depreciated over 50 years, and
furniture and equipment are depreciated over 3 to 10 years. Leasehold
improvements are amortized over the shorter of the useful life of the
asset or the remaining expected term of the lease.
OTHER REAL ESTATE LOANED
Real estate acquired by foreclosure is initially recorded at the lower of cost
(principal and accrued interest on the former mortgage loan plus costs of
obtaining title and possession) or estimated fair value less cost to sell.
During the holding period, foreclosed real estate is periodically appraised and
the recorded value is adjusted, if necessary, if such recorded value exceeds the
estimated fair value less cost to sell.
INCOME TAXES
The Bank provides for income taxes using the liability method. Under the
liability method, deferred taxes are recognized for the future tax consequences
of the differences between the financial statement and tax bases of assets and
liabilities using the enacted tax rates. Deferred income tax expense (benefit)
is based upon the changes in the assets or liabilities from period to period.
EARNINGS PER SHARE
Earnings per share is computed using the weighted average number of shares of
Common Stock and Common Stock equivalents outstanding. Common Stock equivalents
consist of dilutive outstanding stock options computed under the treasury stock
method.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
In Footnote 18, the Bank discloses certain fair value information about
financial instruments, whether or not recognized on the balance sheet, for which
it is practicable to estimate that value. In cases where quoted market values
are not available, fair values are based upon estimates using present value or
other valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. The carrying amounts reported on the
balance sheet for cash and due from banks, short term investments and federal
funds sold approximate those assets' fair values. This disclosure excludes
certain financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Bank.
(2) Capital and Regulatory Matters
Banking regulators have classified and defined bank capital into the following
components: (1) Tier I capital which includes tangible stockholders' equity for
common stock and certain perpetual preferred stock and (2) Tier II capital which
includes a portion of the allowance for possible loan losses, certain qualifying
long-term debt and preferred stock which does not qualify for Tier I capital.
In addition, they have implemented risk-based capital guidelines which require a
bank to maintain certain minimum capital as a percent of such bank's assets and
certain off-balance sheet items adjusted for predefined credit risk factors
(risk-adjusted assets). As of December 31, 1995, the Bank was required to
maintain a minimum Tier I capital of 4.0% and combined Tier I and Tier II
capital ratios of 8.0%. As of December 31, 1995, the Bank's Tier I and combined
Tier I and II risk-based capital ratios were 9.75% and 11.00%, respectively.
In addition to the risk-based guidelines discussed above, the banking regulators
require that a bank which meets the regulators' highest performance and
operations standards maintain a minimum leverage ratio (Tier I capital as a
percent of tangible assets) of 3%. For those banks with higher levels of risk
or that are experiencing or anticipating significant growth, the minimum
leverage ratio will be proportionately increased. Minimum leverage ratios for
each bank will be evaluated through the ongoing regulatory examination process.
As of December 31, 1995, the Bank has a leverage ratio of 6.58%. The Bank
presently exceeds all of its regulatory capital requirements.
(3) Investment Securities
The amortized cost and estimated market values of investment securities held-to-
maturity are as follows:
<TABLE>
<CAPTION>
December 31, 1995
-----------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government Agency obligations $ 297,686 $ 408 $ (879) $ 297,215
Obligations of states and political
subdivisions 3,476,382 -- -- 3,476,382
Corporate securities -- -- -- --
Mortgage-backed securities 29,816,806 42,774 (719,239) 29,140,341
Other debt securities 100,000 -- -- 100,000
-------------------------------------------------------------------------
Total investment securities
held-to-maturity $33,690,874 $43,182 $ (720,118) $33,013,938
=========================================================================
The amortized cost and estimated market values of investment securities available-for-sale are as follows:
December 31, 1995
------------------------------------------------------------------------
U.S. Government Agency obligations $27,665,448 $250,347 $ (31,514) $27,884,281
Corporate securities 1,051,845 -- (4,669) 1,047,176
Mortgage-backed securities 17,355,214 37,037 (133,947) 17,258,304
------------------------------------------------------------------------
Total investment securities
available-for-sale $46,072,507 $287,384 $ (170,131) $46,189,761
========================================================================
December 31, 1994
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------------------------------------------------------------------
U.S. Government Agency obligations $ 403,348 $ 1,855 $ (6,346) $ 398,857
Obligations of states and political
subdivisions 2,906,190 -- -- 2,906,190
Corporate securities -- -- -- --
Mortgage-backed securities 29,991,550 -- (2,370,529) 27,621,021
Other debt securities 90,000 -- -- 90,000
---------------------------------------------------------------------
Total investment securities
held-to-maturity $ 33,391,088 $ 1,855 $(2,376,875) $31,016,068
=====================================================================
The amortized cost and estimated market values of investment securities available-for-sale are as follows:
December 31, 1994
---------------------------------------------------------------------
U.S. Government Agency obligations $ 29,239,686 $ -- $ (816,921) $28,422,765
Corporate securities 1,056,803 -- (45,968) 1,010,835
Mortgage-backed securities 21,032,713 -- (1,184,705) 19,848,008
Other debt securities -- -- -- --
---------------------------------------------------------------------
Total investment securities
available-for-sale $ 51,329,202 $ 0 $(2,047,594) $49,281,608
=====================================================================
</TABLE>
The amortized cost of debt securities at December 31, 1995 by contractual
maturity, are shown below.
<TABLE>
<CAPTION>
Held-to-maturity Available-for-sale
----------------------------------------------------------------------------------------------
Estimated Percent Estimated Percent
Amortized Market of Amortized Market of
Cost Value Total Cost Value Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Due in one year or less $ 3,494,068 $ 3,493,597 90.19% $14,341,369 $14,391,630 49.94%
Due after one year through
five years 290,000 290,000 7.49% 10,328,952 10,478,046 35.97%
Due after five years
through ten years 80,000 80,000 2.07% 2,250,000 2,255,625 7.84%
Due after ten years 10,000 10,000 0.26% 1,796,972 1,806,156 6.26%
-----------------------------------------------------------------------------------------------
3,874,068 3,873,597 100.0% 28,717,293 28,931,457 100.0%
Mortgage-backed securities 29,816,806 29,140,341 17,355,214 17,258,304
----------------------------- ------------------------------
33,690,874 33,013,938 46,072,507 46,189,761
============================= ==============================
</TABLE>
1995 1994 1993
-----------------------------------------
Proceeds from sales of
investment securities $2,299,793 $13, 264,578 $23,605,026
Gross gains realized on
investment sales $ 12,501 $ 225,430 $ 570,666
Gross losses realized on
investment sales $ 5,993 $ 64,695 $ 9,396
Securities in the amount of $34,595,000 are pledged to secure customer
repurchase agreements, debtor in possession accounts , and treasury tax and
loan liabilities.
(4) Total Loans and Reserve for Possible Loan Losses
The composition of total loans at December 31, 1995 and 1994 is as follows:
1995 1994
------------------------------------
Commercial $ 46,255,948 $ 41,611,098
Real Estate
Construction 11,668,422 11,531,732
Commercial 51,588,342 43,920,202
Residential 51,889,384 37,502,843
Consumer 5,970,540 8,253,190
------------------------------------
$167,372,636 $142,819,065
====================================
As of December 31, 1995, 1994 and 1993, the Bank had loans in the amounts of
$621,749, $354,938 and $1,235,549, respectively, on nonaccrual status. Had
non-accrual loans been accruing interest, interest income would have been higher
by approximately $39,800, $182,000 and $251,000 in 1995, 1994 and 1993,
respectively.
An analysis of the allowance for possible loan losses for the years ended
December 31, 1995, 1994 and 1993 is as follows:
1995 1994 1993
----------------------------------------------
Balance, January 1, $ 3,064,063 $ 2,755,411 $ 3,019,936
Provision for possible
loan losses 1,050,000 1,200,000 1,535,000
Charge-offs (1,185,275) (1,009,719) (1,875,481)
Recoveries 39,912 118,371 75,956
----------------------------------------------
Net charge-offs (1,145,363) (891,348) (1,799,525)
----------------------------------------------
Balance, December 31, $ 2,968,700 $ 3,064,063 $ 2,755,411
==============================================
In the ordinary course of business, the Bank sells real estate loans without
recourse to federal agencies. Generally, the Bank services the loans sold and
earns an annual servicing fee ranging from 1/4% to 1% per annum based upon the
monthly outstanding balances of the portfolio serviced. Total loans serviced
were approximately $79,562,268 as of December 31, 1995.
At December 31, 1995, the recorded investment in loans that are considered to be
impaired under SFAS 114 was $722,085. Included in this amount is $6,474 of
impaired loans for which the related allowance for possible loan losses is
$3,450 and $715,611 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
$790,173. For the year ended December 31, 1995, interest income on impaired
loans totaled $35,300.
(5) Bank Premises and Equipment
Bank premises and equipment at December 31, 1995 and 1994 are summarized as
follows:
1995 1994
-------------------------------
Land $1,500,700 $ 1,663,350
Buildings 3,278,888 1,883,233
Leasehold improvements 561,339 515,884
Furniture, fixtures and equipment 3,147,501 2,527,987
--------------------------------
8,488,428 6,590,454
Less - Accumulated
depreciation and amortization 2,174,563 1,884,377
--------------------------------
$6,313,865 $ 4,706,077
================================
(6) Certificates of Deposit
The following table shows the maturity distribution of the bank s certificates
of deposit in excess of $100,000 at December 31, 1995 and 1994:
1995 1994
----------------------------------
Less than three months $10,615,245 $ 5,425,647
Three to six months 1,915,716 2,011,481
Six to nine months 1,370,524 856,580
Nine to twelve months 705,700 206,000
Over twelve months 786,611 --
----------------------------------
$15,393,796 $ 8,499,708
=================================
(7) Borrowed Funds and Customer Repurchase Agreements
Borrowed funds at December 31, 1995 and 1994 are summarized as follows:
1995 1994
----------------------------------
FHLB Term Advances $ 3,000,000 $ 4,000,000
FHLB Affordable Housing
Program Advances 98,102 98,102
----------------------------------
$ 3,098,102 $ 4,098,102
==================================
A summary of term advances from the Federal Home Loan Bank ( FHLB ) by maturity
is as follows:
1995 1994
- --------------------------------------------------------------------------------
Maturity Date Rate Amount Maturity Date Rate Amount
- --------------------------------------------------------------------------------
October 3, 1996 5.79% $3,000,000 April 19, 1995 5.57% $1,000,000
July 3, 1995 5.43% 3,000,000
---------- -----------
$3,000,000 $4,000,000
========== ===========
The following information relates to FHLB borrowings:
1995 1994 1993
------------------------------------------
(in thousands)
Average balance outstanding
during the year $ 7,162 $ 5,954 $ 6,065
Average rate during the year 5.96% 5.34% 5.40%
Maximum amount outstanding
at any month-end $12,725 $ 6,098 $ 6,098
The following information relates to Customer Repurchase Agreements:
1995 1994 1993
------------------------------------------
(in thousands)
Average balance outstanding
during the year $26,950 $18,741 $15,940
Average rate during the year 3.59% 2.17% 1.31%
Maximum amount outstanding
at any month-end $30,791 $27,744 $15,741
(8) Income Taxes
The Bank's tax provision for the years ended December 31, 1995, 1994 and 1993
consisted of the following components:
1995 1994 1993
---------------------------------------------
Current Taxes:
Federal $1,171,391 $1,158,140 $ 706,538
State 144,805 244,166 408,826
---------------------------------------------
$1,316,196 $1,402,306 $1,115,364
Deferred (prepaid) tax:
Federal $ 28,864 $ 109,624 $ (446,130)
State 18,108 (13,027) (1,885)
----------------------------------------------
$ 46,972 $ 96,597 $ (448,015)
----------------------------------------------
Total $1,363,168 $1,498,903 $ 667,349
==============================================
The reason for the difference between the effective tax rate and the corporate
statutory federal income tax rate are as follows:
1995 1994 1993
----------------------------------------------
Income tax provision at
statutory rate: $ 886,962 $1,359,628 $ 874,726
Increase (decrease)
resulting from:
State taxes, net of
federal tax benefit 104,114 152,552 268,581
Interest on municipal
securities (55,680) (37,366) (22,090)
Merger Expense 440,632 -- --
Change in valuation
allowance (257) 28,069 (438,098)
Other, net (12,603) (3,980) (15,770)
----------------------------------------------
$1,363,168 $1,498,903 $ 667,349
==============================================
At December 31, 1995 and 1994, the Bank's net deferred tax asset included in
other assets in the accompanying balance sheets consisted of the following
components:
1995 1994
------------------------------
Assets
Allowance for possible
loan losses $ 344,461 $ 515,023
OREO writedowns 28,436 3,871
Net deferred loan fees 30,296 11,070
Origination costs 123,227 123,227
State net operating loss
carry forward 84,704 95,465
Unrealized loss on securities
available for sale -- 824,481
Other 82,286 50,912
-------------------------------
Deferred tax asset 693,410 1,624,049
Liabilities
Depreciation and amortization $(71,487) $ (130,416)
Unrealized gain on securities
available for sale (51,658) --
--------------------------------
Deferred tax liability (123,145) (130,416)
--------------------------------
Valuation allowance (91,412) (91,669)
--------------------------------
Net deferred tax asset $478,853 $ 1,401,964
================================
(9) Lease Commitments
The Bank has operating lease commitments for certain banking facilities and
certain equipment, and a capital lease for land. The future minimum payments
under such leases are as follows:
Year Ending December 31, Capital Leases Operating Leases
--------------------------------------------------------------------------
1996 79,890 662,453
1997 83,485 665,405
1998 87,240 75,405
1999 44,580 69,144
2000 1,710,000 69,144
------------------------------------------
Total minimum lease payments 2,005,195 1,541,551
------------------------------------------
Amounts representing interest 520,860 --
------------------------------------------
Present value of net minimum
lease payments $1,484,335 $1,541,551
==========================================
Rent expense amounted to approximately $665,300 in 1995, $671,600 in 1994 and
$637,900 in 1993.
(10) Commitments and Contingencies
In the normal course of business, the Bank enters into various commitments, such
as commitments to extend credit and guarantees which are not reflected in the
accompanying financial statements. No losses are anticipated as a result of
these transactions.
Commitments outstanding as of December 31, 1995 and 1994 are as follows:
1995 1994
-----------------------------------
Commitments to originate loans $12,902,000 $10,702,000
Unused Lines of credit 39,532,000 19,409,000
Standby letters of credit 812,000 1,188,000
Unadvanced portions of
construction loans 1,538,000 3,180,000
-----------------------------------
Total commitments outstanding $54,784,000 $34,479,000
===================================
(11) Related Party Transactions
In the ordinary course of business, the Bank has granted loans to certain
directors and officers. All such transactions are on substantially the same
terms as those prevailing for individuals not affiliated with the Bank and do
not involve more than the normal risk of collectability.
An analysis of loans in excess of $60,000 to directors and officers for the
years ended December 31, 1995 and 1994 is as follows:
1995 1994
-------------------------------------
Balance, January 1, $4,158,634 $ 3,468,701
Additions -- 4,013,224
Repayments (2,823,722) (3,323,291)
--------------------------------------
Balance, December 31, $1,334,912 $ 4,158,634
======================================
(12) Preferred Stock
The Bank may issue preferred stock in one or more series and may fix and state
the voting powers, designations, preferences and other features. There were no
outstanding issues at December 31, 1995.
(13) Class A Common Stock
During 1993, the Bank exceeded the defined cumulative net operating profits
(after tax) required to effect the conversion of Class A Common Stock into
Common Stock. On April 22, 1994, shares of the Class A Common Stock were
converted into shares of Common Stock on a one-for-two basis after receiving
written approval of the Commissioner of Banks to effect the conversion.
(14) Common Stock
On March 22, 1995, the Bank declared a stock split effected in the form of a
100% stock dividend to be distributed May 12, 1995 to shareholders of record
April 28, 1995.
On April 28, 1994 the Bank's stockholders approved a 2-for-1 stock split on the
Bank's common stock, and an increase in the number of authorized shares to
5,000,000, subject to approval of the Massachusetts Commissioner of Banks.
The approval was received on May 17, 1994.
Effective July 31, 1993 the Bank s Board of Directors approved a 2-for-1 stock
split on the Bank s Common Stock effected in the form of a stock dividend.
The accompanying consolidated financial statements and notes have been
retroactively restated for all periods presented to reflect these stock splits.
DIVIDEND DECLARATIONS
On February 5, 1996 the Bank declared a cash dividend of $.1525 per share
payable on February 12, 1996 to shareholders of record February 5, 1996.
(15) Thrift Plan
The Bank has a thrift plan which offers employees a program of savings and
investments funded by their contributions and those of the Bank. Thrift plan
expense amounted to approximately $105,700 in 1995, $61,600 in 1994 and $47,100
in 1993.
(16) Stock Option Plan
The Bank has an incentive stock option plan (the Plan) for the benefit of
officers and other full-time employees. The Plan allows for the issuance of
qualified and nonqualified stock options. Under the Plan, 200,000 shares of
authorized but unissued Common Stock have been reserved. The exercise price of
an option under the Plan may not be less than 100% of fair market value of the
shares of Common Stock on the date the option is granted. The Board, at its
discretion, may provide that an option shall be exercisable during any specified
period of time from the date such option is granted, not to exceed ten years
from the date of the grant. During 1988, 4,000 qualified options were granted
at an exercise price of $13.13 per share. During 1993, 18,304 qualified options
were granted at an exercise price of $9.38 per share. These options were
granted with cumulative vesting over a five-year period in increments of 20%
annually. Also in 1993 40,000 incentive options were granted at an exercise
price of $8.75 per share. These options will partially vest on an annual basis
if the bank meets or exceeds its yearly budgeted net income and/or become fully
vested on the fifth anniversary of the option grant date. Through December 31,
1995, 31,280 of the 40,000 incentive options have vested. In 1994, 16,000
options were granted at an excercise price of $13.50 per share. These options
were exercisable upon issuance. During 1995, 25,000 incentive options were
granted at an exercise price of $17.50 per share. Options outstanding under the
plan totaled 116,236 at December 31, 1995. These options were exercisable upon
issuance.
During 1988, 15,792 nonqualified options were granted at an exercise price of
$12.50 per share.
None of the above-noted options had been exercised at December 31, 1994.
Information regarding the Company s stock option plans is summarized as follows:
Option Price
Options Per Share
--------------------------------------------
December 31, 1992 19,792 $12.500 - 13.125
Granted 58,304 8.750 - 9.375
Exercised --
Expired --
--------------------------------------------
December 31, 1993 78,096 $12.500 - 13.125
Granted 16,000 13.500 - 13.500
Exercised --
Expired 1,144 9.375 - 9.375
--------------------------------------------
December 31, 1994 92,952 $ 8.750 - 13.500
Granted 25,000 17.500 - 17.500
Exercised --
Expired 1,716 9.375 - 9.375
--------------------------------------------
December 31, 1995 116,236 $ 8.750 - 17.500
============================================
(17) Deferred Compensation
The Bank entered into a deferred compensation agreement with its President on
October 20, 1994. The agreement provides supplemental retirement benefits to
the President. The expense associated with this agreement is included in salary
and benefits expense.(See Note 20.)
(18) Fair Value of Financial Instruments
The following methods and assumptions were used by the Bank in estimating the
fair value of financial instruments for disclosure purposes.
(A) CASH AND DUE FROM BANKS, FEDERAL FUNDS SOLD AND SHORT-TERM INVESTMENTS
The carrying amount reported in the balance sheets for cash and short-term
instruments at December 31, 1995 and 1994 approximates fair value.
(B) INVESTMENT SECURITIES
Fair values for investment securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values are based on
quoted market prices of comparable instruments.
(C) LOANS
Fair value for certain homogeneous categories of loans such as residential
mortgages, is estimated using the quoted market values for securities backed by
similar loans. The fair value of other types of loans is calculated by
discounting the estimated future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings and for the
same remaining maturities.
(D) DEPOSIT LIABILITIES
The carrying amounts of demand deposits and savings accounts at December 31,
1995 and 1994 approximate fair value at the reporting date. Fair values for
certificates of deposit are estimated using a discounted cash flow calculation
that applies interest rates currently offered on certificates to a schedule of
aggregated expected quarterly maturities.
(E) BORROWINGS
The carrying amounts of customer repurchase agreements at December 31, 1995 and
1994 approximate fair value. Fair values for FHLB borrowings are estimated
using the rates currently offered for borrowings of similar remaining
maturities.
The estimated fair value of the bank's financial instruments is as follows:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
-----------------------------------------------------------
Financial Assets -
Cash and due from banks and
<S> <C> <C> <C> <C>
federal funds sold $ 16,741,725 $ 16,741,725 $ 12,678,998 $ 12,678,998
Short term investments 1,000,000 1,000,000 1,000,000 1,000,000
Investments held-to maturity 33,690,874 33,013,938 33,391,088 31,016,068
Investments available-for-sale 47,419,461 47,419,461 50,137,608 50,137,608
Loans 164,403,936 166,030,043 139,755,002 137,930,779
Financial Liabilities -
Deposit liabilities 220,748,345 220,772,654 205,528,316 205,199,485
Borrowed funds 3,098,102 3,100,788 4,098,102 4,098,102
Customer repurchase agreements 28,391,323 28,391,323 19,212,121 19,212,121
</TABLE>
(19) Noninterest Expenses
The components of other on-interest expense for the years ended December 31,
1995, 1994 and 1993 is as follows:
1995 1994 1993
-----------------------------------------
Data processing $ 791,075 $ 585,707 $ 515,219
FDIC insurance 244,792 443,998 422,405
Legal, accounting and audit 271,342 252,503 204,445
Advertising and Public Relations 384,973 282,595 195,594
Other 1,462,095 1,226,843 1,194,218
-----------------------------------------
$3,154,277 $2,791,646 $2,531,881
(20) Merger with Chittenden Corporation
On September 19, 1995, the Bank entered into an Agreement and Plan of
Reorganization (the Merger Agreement ) with Chittenden Corporation (CC), a
Vermont corporation and registered bank holding company. The merger was
consummated on February 29, 1996. As consideration for the merger, each
outstanding share of the Bank s common stock was converted into 1.2 shares of CC
common stock. In connection with the merger the Bank incurred certain
investment, banking, legal, accounting and compensation expenses during 1995 of
$1,703,430. Of this amount, approximately $1,100,000 relates to the change in
control provisions of the deferred compensation agreement (See Note 17).
Certain additional merger expenses totaling aproximately $49,000 were incurred
during 1996.
<PAGE>
(b) Pro Forma Financial Information
PRO FORMA FINANCIAL DATA
The unaudited pro forma condensed consolidated balance sheet has been prepared
to reflect the Merger of Flagship Bank and Trust Company ("Flagship") with and
into Chittenden Acquisition Bank ("CAB"), a wholly-owned subsidiary of
Chittenden Corporation ("CC"), using the "pooling of interests" method of
accounting assuming the merger had occurred on December 31, 1995. Under the
"pooling of interests" method of accounting, the recorded amount of assets and
liabilities of CC and Flagship will be combined at the Effective Time and
carried forward at their previously recorded amounts and the stockholders'
equity accounts of CC and Flagship will be combined on CC's consolidated balance
sheet. Income and other financial statements of CC issued after the Effective
Time will be restated retroactively to reflect the consolidated operations of CC
and Flagship as if CC and Flagship have always been combined.
The unaudited pro forma condensed statements of operations present the results
of operations of CC and Flaghip for the years ended December 31, 1995, 1994 and
1993, assuming the merger had been effective on January 1, 1993. The pro forma
financial statements reflect the exchange of Flagship shares of Common Stock for
CC Common Stock in connection with the merger at 1.2 shares of CC for each share
of Flagship. This unaudited pro forma financial data should be read in conjunc-
tion with the consolidated historical financial statements of Flagship and CC,
including the respective notes thereto.
The unaudited pro forma condensed statements of operations for the years ended
December 31, 1995 and 1994 include the results of operations of BWM assuming the
acquisition of BWM had occurred at January 1, 1994. Because the BWM transaction
was consummated March 17, 1995, the BWM results of operations after that date
are included in the CC historical income statement data for the year ended
December 31, 1995.
The pro forma financial data are for information purposes only and are not
necessarily indicative of the results of future operations of the merged entity
or the actual results that would have been achieved had the merger been
consummated prior to the periods indicated. Moreover, the pro forma condensed
financial statements reflect preliminary pro forma adjustments made to combine
Flagship with CC utilizing the "pooling of interests" method of accounting.
<PAGE>
CHITTENDEN CORPORATION
PRO FORMA CONDENSED BALANCE SHEET
December 31, 1995
(Dollars in Thousands)
(Unaudited)
CC Flagship Pro Forma Pro
(Historical) (Historical) Adjustments Forma
-------------------------------------------------
DR(CR)
ASSETS
Cash and Cash Equivalents 179399 17742 - 197141
Investment Securities
Available for Sale 232128 46190 - 278318
Investment Securities Held
for Investment 9473 33691 - 43164
Loans 1041476 167373 - 1208849
Allowance for Loan Losses -24849 -2969 - -27818
-------------------------------------------------
Net Loans 1016627 164404 - 1181031
Premises and Equipment 18720 6314 - 25034
Intangibles 11514 - - 11514
Other Assets 53220 5229 - 58449
-------------------------------------------------
Total Assets 1521081 273570 - 1794651
=================================================
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities:
Total Deposits 1338460 220748 - 1559208
Borrowings 22927 32974 - 55901
Other Liabilities 22960 2633 - 25593
-------------------------------------------------
Total Liabilities 1384347 256355 - 1640702
Stockholders' Equity: 3133 (1)
Common Stock-Par Value 8574 3133 -1303 (1) 9877
Surplus 59326 11970 -3133 (1) 73004
1303 (1)
122 (1)
Retained Earnings 72168 2168 - 74336
Security Valuation Allowance,
Net of Taxes 702 66 - 768
Treasury Stock, at Cost -3967 -122 -122 (1) -3967
Unearned Portion of Employee
Restricted Stock -69 - - -69
-------------------------------------------------
Total Stockholders' Equity 136734 17215 - 153949
-------------------------------------------------
Total Liabilities and
Stockholders' Equity 1521081 273570 _ 1794651
=================================================
See Notes to Pro Forma Condensed Financial Statements
<PAGE>
CHITTENDEN CORPORATION
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
(Dollars in Thousands, Except Share Data)
(Unaudited)
Pro
Pro Forma
Forma CC-
CC Flagship Adjustments Flagship
(Historical) (Historical) DR(CR) Subtotal
--------------------------------------------------
Interest Income:
Interest and Fees on Loans 96569 14733 - 111302
Interest and Dividends on
Securities 16765 5134 - 21899
Other 1914 203 - 2117
--------------------------------------------------
Total Interest Income 115248 20070 - 135318
Interest Expense:
Deposits 47381 5423 - 52804
Other 2441 1395 - 3836
--------------------------------------------------
Total Interest Expense 49822 6818 - 56640
--------------------------------------------------
Net Interest Income Before
Provision for Possible
Loan Losses 65426 13252 - 78678
Provision for Possible
Loan Losses 3950 1050 - 5000
--------------------------------------------------
Net Interest Income After
Provision for Possible
Loan Losses 61476 12202 - 73678
Noninterest Income 29977 1303 - 31280
Noninterest Expenses 60805 10896 -1842 (2) 69859
--------------------------------------------------
Income (Loss) Before Income
Taxes 30648 2609 -1842 35099
Provision (Benefit) for Income
Taxes 9763 1363 261(2) 11387
--------------------------------------------------
Net Income (Loss) 20885 1246 -1581 23712
==================================================
Weighted Average Common
and Common Equivalent
Shares Outstanding 8276081 9667785
Earnings Per Share
Fully Diluted 2.52 2.45
Primary 2.53 2.45
<PAGE>
CHITTENDEN CORPORATION
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
(Dollars in Thousands, Except Share Data)
(Unaudited, continued)
Purchase
Accounting
BWM Adjustments Pro
(Historical) DR(CR)(4) Forma
---------------------------------------
Interest Income:
Interest and Fees on Loans 3185 18 114469
Interest and Dividends on
Securities 503 - 22402
Other - - 2117
---------------------------------------
Total Interest Income 3688 18 138988
Interest Expense:
Deposits 1272 -469 53607
Other 277 - 4113
---------------------------------------
Total Interest Expense 1549 -469 57720
---------------------------------------
Net Interest Income Before
Provision for Possible
Loan Losses 2139 -451 81268
Provision for Possible
Loan Losses 1200 - 6200
---------------------------------------
Net Interest Income After
Provision for Possible
Loan Losses 939 -451 75068
Noninterest Income 76 - 31356
Noninterest Expenses 1730 144 71733
---------------------------------------
Income (Loss) Before Income
Taxes -715 -307 34691
Provision (Benefit) for Income
Taxes -243 162 11045
---------------------------------------
Net Income (Loss) -472 -145 23646
=======================================
Weighted Average Common
and Common Equivalent
Shares Outstanding 9828964 (6)
Earnings Per Share
Fully Diluted 2.41
Primary 2.41
See Notes to Pro Forma Condensed Financial Statements
CHITTENDEN CORPORATION
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1994
(Dollars in Thousands, Except Share Data)
(Unaudited)
Pro Forma
CC-
CC Flagship Flagship BWM
(Historical) (Historical) Subtotal (Historical)
-------------------------------------------------
Interest Income:
Interest and Fees on Loans 71055 11257 82312 13218
Interest and Dividends on
Securities 12993 4425 17418 2174
Other 882 687 1569 19
-------------------------------------------------
Total Interest Income 84930 16369 101299 15411
Interest Expense:
Deposits 29225 4210 33435 5625
Other 1800 726 2526 303
-------------------------------------------------
Total Interest Expense 31025 4936 35961 5928
-------------------------------------------------
Net Interest Income Before
Provision for Possible
Loan Losses 53905 11433 65338 9483
Provision for Possible
Loan Losses 4300 1200 5500 1410
-------------------------------------------------
Net Interest Income After
Provision for Possible
Loan Losses 49605 10233 59838 8073
Noninterest Income 23525 1583 25108 568
Noninterest Expenses 49867 7818 57685 6235
-------------------------------------------------
Income Before Income Taxes 23263 3998 27261 2406
Provision (Benefit) for Income
Taxes 7726 1498 9224 992
-------------------------------------------------
Net Income 15537 2500 18037 1414
=================================================
Weighted Average Common
and Common Equivalent
Shares Outstanding 7879826 9178346
Earnings Per Share
Fully Diluted 1.97 1.97
Primary 1.97 1.97
CHITTENDEN CORPORATION
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1994
(Dollars in Thousands, Except Share Data)
(Unaudited, continued)
Purchase
Accounting
Adjustments Pro
DR(CR)(5) Forma
--------------------------
Interest Income:
Interest and Fees on Loans -551 96081
Interest and Dividends on
Securities - 19592
Other - 1588
--------------------------
Total Interest Income -551 117261
Interest Expense:
Deposits 686 39746
Other - 2829
--------------------------
Total Interest Expense 686 42575
--------------------------
Net Interest Income Before
Provision for Possible
Loan Losses 135 74686
Provision for Possible
Loan Losses - 6910
--------------------------
Net Interest Income After
Provision for Possible
Loan Losses 135 67776
Noninterest Income - 25676
Noninterest Expenses 1228 65148
--------------------------
Income Before Income Taxes 1363 28304
Provision (Benefit) for Income
Taxes -383 9833
--------------------------
Net Income 980 18471
==========================
Weighted Average Common
and Common Equivalent
Shares Outstanding 9962752 (6)
Earnings Per Share
Fully Diluted 1.85
Primary 1.85
See Notes to Pro Forma Condensed Financial Statements
<PAGE>
CHITTENDEN CORPORATION
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1993
(Dollars in Thousands, Except Share Data)
(Unaudited)
Pro Forma
CC Flagship Adjustments Pro
(Historical) (Historical) DR(CR) Forma
--------------------------------------------------
Interest Income:
Interest and Fees on Loans 69979 10054 - 80033
Interest and Dividends on
Securities 9557 3691 - 13248
Other 267 341 - 608
--------------------------------------------------
Total Interest Income 79803 14086 - 93889
Interest Expense:
Deposits 27870 4285 - 32155
Other 1704 536 - 2240
--------------------------------------------------
Total Interest Expense 29574 4821 - 34395
--------------------------------------------------
Net Interest Income Before
Provision for Possible Loan
Losses 50229 9265 - 59494
Provision for Possible Loan
Losses 6600 1535 - 8135
--------------------------------------------------
Net Interest Income After
Provision for Loan Losses 43629 7730 - 51359
Noninterest Income 24308 2268 - 26576
Noninterest Expenses 51097 7426 - 58523
--------------------------------------------------
Income Before Income Taxes 16840 2572 - 19412
Provision for Income Taxes 5243 667 - 5910
--------------------------------------------------
Income Before Cumulative
Effect of Change in
Accounting Principle 11597 1905 - 13502
Cumulative Effect of Change
in Accounting Principle -575 - -575 (3) -
--------------------------------------------------
Net Income 11022 1905 -575 13502
==================================================
Weighted Average Common and
Common Equivalent Shares
Outstanding 7759357 9051637
Earnings Per Share
Before Cumulative Effect of
Change in Accounting
Principle 1.50
Cumulative Effect of Change
in Accounting Principle -.08
Fully Diluted 1.42 1.43
Primary 1.42 1.43
See Notes to Pro Forma Condensed Financial Statements
<PAGE>
CHITTENDEN CORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
NOTES RELATED TO THE MERGER OF CC AND FLAGSHIP:
NOTE 1.
To adjust the stockholders' equity accounts for the conversion of each
share of Flagship common stock into 1.2 shares of Chittenden common stock.
Flagship shares 1,085,600
*1.2
---------
Chittenden shares 1,302,720
=========
NOTE 2.
To record the reversal of professional and other costs incurred in
connection with the merger included in the historical amounts for the year
ended December 31, 1995; and to record the reversal of the income tax
benefit related to those transaction costs expected to be deductible for
income tax purposes.
NOTE 3.
To reflect elimination of nonrecurring cumulative effect of change in
accounting principle resulting from CC's adoption of SFAS No. 109,
Accounting for Income Taxes, during 1993.
NOTES RELATED TO THE MERGER OF CC AND BWM:
On March 17, 1995, the Company acquired all of the outstanding shares of
the common stock of BWM. CC issued 784,406 shares at a price of $18.20;
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 $12.1 million. This transaction has been
accounted for as a purchase and, accordingly the consolidated financial
statements of CC include BWM and its operations since the date of
acquisition.
In accordance with the purchase method of accounting, the purchase price
was 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 an identifiable core
deposit intangible asset of approximately $5,021,000, has been recorded as
goodwill of approximately $7,123,000. 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 purchase accounting adjustments shown in Note 4 reflect the purchase
accounting entries which would have been recorded during the year ended
December 31, 1995 had the acquisition of BWM occurred on January 1,
1994, net of the actual purchase accounting entries recorded in CC's
historical results of operations since the March 17, 1995 acquisition date.
The purchase accounting adjustments shown in Note 5 reflect the purchase
accounting entries which would have been recorded during the year ended
December 31, 1994 had the acquisition of BWM occurred on January 1, 1994.
NOTE 4.
To record purchase accounting adjustments for the year ended December 31,
1995:
000's
------
Accretion of fair value adjustment - loans $ (18)
Amortization of fair value adjustment - deposits 469
Amortization of core deposit intangible (75)
Amortization of goodwill (69)
Income tax effect (162)
------
$ 145
======
NOTE 5.
To record purchase accounting adjustments for the year ended December 31,
1994:
000's
-----
Accretion of fair value adjustment - loans $ 551
Amortization of fair value adjustment - deposits (686)
Amortization of core deposit intangible (753)
Amortization of goodwill (475)
Income tax effect 383
-----
$(980)
======
NOTE 6.
The Pro Forma weighted average common and common equivalent shares
outstanding as of December 31, 1995 and 1994 include an additional 161,179
and 784,406 shares respectively to reflect the acquisition of BWM as of
January 1, 1994. The 1995 CC weighted average common and common equivalent
shares outstanding include the issuance of the 784,406 shares from the
March 17, 1995 acquisition date.
<PAGE>
(c) Exhibit
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 8-K/A, into the Company's previously filed
Registration Statement File No. 33-1229.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 1, 1996
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CHITTENDEN CORPORATION
(Registrant)
BY: S/ F. SHELDON PRENTICE
-----------------------
F. Sheldon Prentice, Esq.
Secretary
DATE: May 3, 1996
