August 13, 1997
Securities and Exchange Commission
450 5th Street
Washington, D. C. 20549
RE: CHITTENDEN CORPORATION QUARTERLY REPORT (ON FROM 10-Q)
REGISTRATION NO. 0-7974
To Whom It May Concern:
Pursuant to the requirements of Rule 13a-13 under the Securities Exchange
Act of 1934, there is appended to this transmittal, an electronic file of
the quarterly report for the three months ended June 30, 1997 (on Form 10-
Q) of Chittenden Corporation, Two Burlington Square, Burlington, Vermont
05401.
If you have any questions concerning this quarterly report, please
telephone the undersigned at (802) 660-1410.
Kindly acknowledge receipt of this letter by Compuserve E-Mail.
Sincerely,
CHITTENDEN CORPORATION
S/F. SHELDON PRENTICE, SECRETARY
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CHITTENDEN CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, December 31,
1997 1996
--------------------------
ASSETS (In Thousands)
Cash and Cash Equivalents $ 166,316 $ 214,459
Securities Available For Sale 329,708 329,213
Securities Held for Investment (Market Value
$24,201,000 in 1997; and $35,405,000 in 1996) 24,609 35,580
Federal Home Loan Bank Stock 5,591 5,591
Mortgage Loans Held for Sale 9,331 9,870
Loans:
Commercial 327,702 321,068
Real Estate:
Residential 481,321 491,169
Commercial 307,162 304,530
Construction 23,787 25,084
--------------------------
Total Real Estate 812,270 820,783
Consumer 224,152 202,816
Total Loans 1,364,124 1,344,667
Less: Allowance for Possible Loan Losses (28,167) (28,096)
--------------------------
Net Loans 1,335,957 1,316,571
Accrued Interest Receivable 13,943 14,179
Other Real Estate Owned 1,141 2,251
Net Deferred Tax Asset 10,795 10,647
Other Assets 18,496 15,797
Premises and Equipment, Net 25,125 24,297
Intangible Assets 14,564 10,291
--------------------------
Total Assets $1,955,576 $1,988,746
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 290,260 $ 286,932
Certificates of Deposit $100,000 and Over 96,729 104,295
Savings and Other Time 1,287,830 1,370,352
--------------------------
Total Deposits 1,674,819 1,761,579
Short-Term Borrowings 71,942 23,992
Accrued Expenses and Other Liabilities 34,209 26,234
Long-Term Debt 6,268 2,540
-------------------------
Total Liabilities 1,787,238 1,814,345
-------------------------
Stockholders' Equity:
Common Stock - $1 Par Value
Authorized - 30,000,000 Shares
Issued - 12,703,975 Shares in 1997; and
12,678,625 in 1996 12,704 12,679
Surplus 74,964 74,706
Retained Earnings 101,346 92,040
Treasury Stock - At Cost, 938,574 Shares in 1997;
402,413 in 1996 (20,013) (4,770)
Net Unrealized Loss on Securities Available for Sale,
Net of Benefit of $224,000 in 1997;
and $102,000 in 1996 (433) (208)
Unearned Portion of Employee Restricted Stock (230) (46)
-------------------------
Total Stockholders' Equity 168,338 174,401
-------------------------
Total Liabilities and Stockholders' Equity $1,955,576 $1,988,746
=========================
The accompanying notes are an integral part of these financial statements.
Certain amounts for 1996 have been reclassified to conform with 1997
classifications.
<PAGE>
CHITTENDEN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------- --------------------
1997 1996 1997 1996
(In Thousands, Except Share Data)
Interest Income:
Interest on Loans $ 31,013 $ 29,568 $ 60,740 $ 58,655
Investment Securities:
Mortgage-Backed Securities 2,146 1,416 3,924 2,886
Taxable 3,811 3,505 7,816 6,693
Tax-Favored Debt 5 27 14 55
Tax-Favored Equity 95 233 300 670
Short-Term Investments 437 293 891 739
--------------------- --------------------
Total Interest Income 37,507 35,042 73,685 69,698
--------------------- --------------------
Interest Expense:
Deposits:
Savings 7,189 6,484 14,241 13,072
Time 6,703 7,332 13,320 14,813
--------------------- --------------------
Total Interest on Deposits 13,892 13,816 27,561 27,885
Short-Term Borrowings 748 530 1,265 1,005
Long-Term Debt 50 52 100 100
--------------------- --------------------
Total Interest Expense 14,690 14,398 28,926 28,990
--------------------- --------------------
Net Interest Income 22,817 20,644 44,759 40,708
Provision for Possible Loan
Losses 1,012 1,025 2,025 2,008
---------------------- --------------------
Net Interest Income after
Provision for Possible
Loan Losses 21,805 19,619 42,734 38,700
---------------------- --------------------
Noninterest Income:
Trust Income 1,381 1,271 2,637 2,450
Service Charges on Deposit
Accounts 1,793 1,638 3,389 3,123
Mortgage Servicing Income 578 612 1,142 1,238
Gains on Sales of Mortgage
Loans, Net 646 659 1,051 1,438
Credit Card Income, Net 1,410 857 2,754 1,793
Other 1,401 1,300 2,647 2,427
-------------------- -------------------
Total Noninterest Income 7,209 6,337 13,620 12,469
Noninterest Expense:
Salaries 7,146 6,258 13,681 12,438
Employee Benefits 2,312 1,897 4,794 3,936
Net Occupancy Expense 2,308 2,346 4,722 4,705
FDIC Deposit Insurance 64 6 117 15
Other Real Estate Owned,
Income and Expense, Net 16 106 72 174
Other 5,784 5,322 11,186 10,759
-------------------- -------------------
Total Noninterest Expense 17,630 15,935 34,572 32,027
-------------------- -------------------
Income Before Income Taxes 11,384 10,021 21,782 19,142
Provision for Income Taxes 3,867 3,324 7,381 6,432
-------------------- -------------------
Net Income $ 7,517 $ 6,697 $ 14,401 $ 12,710
==================== ===================
Earnings Per Share $0.61 $0.54 $1.16 $1.02
Dividends Per Share $0.22 $0.20 $0.42 $0.31
Book Value $14.31 $13.26 $14.31 $13.26
Weighted Average Common and
Common Equivalent Shares
Oustanding 12,221,893 12,470,416 12,374,281 12,433,649
The accompanying notes are an integral part of these financial statements.
Certain amounts for 1996 have been reclassified to conform with 1997
classifications.
<PAGE>
CHITTENDEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended June 30,
---------------------------------
1997 1996
---------------------------------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $14,401 $12,710
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 2,025 2,008
Depreciation 1,706 1,781
Amortization of intangible assets 602 626
Amortization of premiums, fees, and discounts, 276 (606)
Deferred income taxes (25) (244)
Loans originated and purchased for sale (66,703) (103,614)
Proceeds from sales of loans 68,042 110,362
Gain on sales of loans (1,051) (1,438)
Changes in assets and liabilities, net of effect from
purchase of The Pomerleau Agency, Inc.:
Accrued interest receivable 236 (730)
Other assets (996) (1,056)
Accrued expenses and other liabilities 4,790 2,244
--------- ----------
Net cash provided by operating activities 23,303 22,043
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash received from the acquisition
of The Pomerleau Agency, Inc., net
of cash paid 721 -
Proceeds from sales of securities available
for sale 64,064 -
Proceeds from maturing securities and principal
payments on securities available for sale 83,803 173,728
Purchase of securities available for sale (148,199) (186,902)
Proceeds from principal payments on securities
held for investment 10,871 546
Purchases of securities held for investment (199) -
Loans originated, net of principal repayments (20,889) (68,778)
Purchases of premises and equipment (2,498) (1,537)
---------- ----------
Net cash used in investing activities (12,326) (82,943)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits (86,775) 58,344
Net increase in short-term borrowings 47,950 7,284
Net increase in long-term debt 28 28
Proceeds from issuance of treasury and common stock 115 1,704
Dividends on common stock (5,095) (3,849)
Repurchase of common stock (15,343) -
---------- ----------
Net cash provided by (used in) financing
activities (59,120) 63,511
---------- ----------
Net decrease (increase) in cash and cash equivalents (48,143) 2,611
Cash and cash equivalents at beginning of period 214,459 165,441
---------- ----------
Cash and cash equivalents at end of period $166,316 $168,052
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $28,851 $28,635
Income taxes 6,866 4,620
Noncash investing and financing activities:
Loans transferred to other real estate owned 1,297 1,408
Issuance of treasury and restricted stock 268 33
Acquisition of The Pomerleau Agency, Inc.:
Fair value of assets acquired 7,937 -
Liabilities assumed 3,182 -
Debt issued 3,700 -
Cash paid 1,055 -
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
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 1996 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. Certain amounts for 1996 have been
reclassified to conform with 1997 classifications.
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. Results for interim periods are
not necessarily indicative of the results of operations for the full year or any
other interim period.
NOTE 2 - ACCOUNTING POLICY CHANGES - ADOPTION OF SFAS 125
As of January 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF
FINANCIAL ASSETS AND EXTINGUISHMENT OF LIABILITIES ("SFAS 125"), which
superseded SFAS 122, ACCOUNTING FOR MORTGAGE SERVICING RIGHTS. Under the
financial-components approach set forth in SFAS 125, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered, and derecognizes liabilities when extinguished.
The Statement also provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
SFAS 125 did not have a significant impact on the Company's financial position
or results of operations.
NOTE 3 NEW ACCOUNTING PRONOUNCEMENT
In March 1997, the Financial Accounting Standards Board (the FASB) issued
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE ( SFAS
128 ), which established new standards for calculating and presenting earnings
per share. The Company will adopt this new standard in its financial statements
for the period ended December 31, 1997. The standard will require the reporting
of diluted earnings per share and basic earnings per share. For the three-month
and six-month periods ended June 30, 1997 and 1996, pro forma basic earnings per
share and diluted earnings per share would have been as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
-------------------- -------------------
Fully Diluted EPS,
as reported $0.61 $0.54 $1.16 $1.02
Pro Forma:
Basic EPS per SFAS 128 0.63 0.55 1.19 1.05
Diluted EPS per SFAS 128 0.62 0.54 1.17 1.02
NOTE 4 ACQUISITIONS
On May 31, 1997, Chittenden Bank acquired certain assets and assumed
certain liabilities of The Pomerleau Agency, Inc. This transaction has been
accounted for as a purchase and accordingly, all results of operations
subsequent to the transaction have been included in Chittenden's consolidated
statement of income. The impact of the acquisition was not material to
consolidated operations. Therefore, pro forma disclosures have been omitted.
NOTE 5 - SUBSEQUENT EVENT
On July 17, 1997, the Company declared dividends of approximately $2.584
million or $0.22 per share. This dividend is to be paid on August 15, 1997
to stockholders of record on August 1, 1997.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Chittenden Corporation
Average Balances, Interest Income and Expense, and Average Rates (Unaudited)
For the Six Months Ended June 30,
1997
--------------------------------
Interest Average
Average Income/ Yield/
Balance Expense(1) Rate(1)
--------------------------------
(In Thousands)
ASSETS
Interest-Earning Assets:
Loans $1,366,573 $61,048 9.01%
Industrial Revenue Bonds (2) 4,628 265 11.55%
Investments:
Taxable 370,069 11,740 6.40%
Tax-Favored Debt Securities 438 20 9.21%
Tax-Favored Equity Securities 14,665 414 5.69%
Interest-Bearing Deposits in Banks 100 2 3.23%
Federal Funds Sold 34,148 891 5.26%
---------- ------
Total Interest-Earning Assets 1,790,621 74,380 8.38%
------
NonInterest-Earning Assets 139,160
Allowance for Possible Loan Losses (28,194)
-----------
Total Assets $1,901,587
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
Savings and Interest-Bearing
Transactional Accounts 868,771 14,241 3.31%
Certificates of Deposit $100,000
and Over 108,529 2,854 5.30%
Other Time Deposits 414,385 10,466 5.09%
-------- -------
Total Interest-Bearing Deposits 1,391,685 27,561 3.99%
Short-Term Borrowings 42,109 1,265 6.06%
Long-Term Debt 2,573 100 7.84%
--------- -------
Total Interest-Bearing Liabilities 1,436,367 28,926 4.06%
-------
NonInterest-Bearing Liabilities:
Demand Deposits 270,025
Other Liabilities 23,202
---------
Total Liabilities 1,729,594
Stockholders' Equity 171,993
----------
Total Liabilities and
Stockholders' Equity $1,901,587
===========
Net Interest Income $45,454
=======
Interest Rate Spread (3) 4.32%
Net Yield on Earning Assets (4) 5.12%
(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.
Chittenden Corporation
Average Balances, Interest Income and Expense, and Average Rates (Unaudited)
For the Six Months Ended June 30,
1996
------------------------------
Interest Average
Average Income/ Yield/
Balance Expense(1) Rate(1)
------------------------------
(In Thousands)
ASSETS
Interest-Earning Assets:
Loans $1,295,769 $59,103 9.17%
Industrial Revenue Bonds (2) 5,110 292 11.49%
Investments:
Taxable 311,131 9,579 6.19%
Tax-Favored Debt Securities 1,489 73 9.86%
Tax-Favored Equity Securities 31,684 922 5.85%
Interest-Bearing Deposits in Banks 100 1 3.00%
Federal Funds Sold 27,365 739 5.43%
---------- -------
Total Interest-Earning Assets 1,672,648 70,709 8.50%
-------
NonInterest-Earning Assets 150,814
Allowance for Possible Loan Losses (28,377)
---------
Total Assets $1,795,085
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
Savings and Interest-Bearing
Transactional Accounts 803,944 13,072 3.27%
Certificates of Deposit $100,000
and Over 105,874 2,981 5.66%
Other Time Deposits 435,432 11,832 5.46%
--------- -------
Total Interest-Bearing Deposits 1,345,250 27,885 4.17%
Short-Term Borrowings 29,840 1,005 6.77%
Long-Term Debt 2,500 100 8.04%
--------- -------
Total Interest-Bearing Liabilities 1,377,590 28,990 4.23%
-------
NonInterest-Bearing Liabilities:
Demand Deposits 237,229
Other Liabilities 22,722
---------
Total Liabilities 1,637,541
Stockholders' Equity 157,544
---------
Total Liabilities and
Stockholders' Equity $1,795,085
==========
Net Interest Income $41,719
=======
Interest Rate Spread (3) 4.27%
Net Yield on Earning Assets (4) 5.02%
(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
RESULTS OF OPERATIONS
Chittenden Corporation's net income for the second quarter of 1997 was $7.5
million compared with $6.7 million a year ago. Net income per share of common
stock was $0.61 for the three months ended June 30, 1997, up from $0.54 reported
a year ago. Return on average assets was 1.58% for the second quarter of 1997,
up from 1.49% for the same period last year. Return on average equity was
17.88% for the quarter ended June 30, 1997, compared with 16.83% for the same
period in 1996.
For the first six months of 1997, net income was $14.4 million, or $1.16 per
share, an increase from $12.7 million and $1.02 per share for the same period a
year ago. Return on average assets and return on average equity were 1.53% and
16.88%, respectively, compared with 1.42% and 16.22% for the first six months of
1996.
Net interest income on a fully taxable equivalent basis for the three months
ended June 30, 1997 was $23.1 million, up $2 million from the amount earned
during the same period in 1996. This increase was a result of higher average
earning assets, up $112 million from a year ago, and an increase in the net
yield on earning assets from 5.03% in 1996 to 5.15% in 1997. The increase in
average earning assets was due to growth in loans and investments funded by
higher levels of deposits and borrowings.
For the first six months of 1997, net interest income on a fully taxable
equivalent basis was $45.5 million, up $3.7 million from a year ago. Net yield
on earning assets was 5.12% in 1997, up from 5.02% in 1996. Average earning
assets also increased year-to-date, up $118 million from the first six months of
1996.
Provisions for and activity in the allowance for possible loan losses are
summarized as follows:
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ---------------
1997 1996 1997 1996
(In thousands)
Beginning Balance, Allowance for
Possible Loan Losses $28,200 $27,997 $28,096 $27,817
Provision for Possible Loan Losses 1,012 1,025 2,025 2,008
Loans Charged Off (1,663) (1,323) (3,022) (2,740)
Loan Recoveries 618 408 1,068 1,022
----------------- ----------------
Ending Balance, Allowance for
Possible Loan Losses $28,167 $28,107 $28,167 $28,107
================= =================
Noninterest income amounted to $7.2 million for the second quarter of 1997, up
$872,000 or 14% from last year. Net credit card income increased by $553,000,
or 65%, reflecting growth in merchant services transaction volumes. More modest
increases were seen in trust income, service charges on deposit accounts, and
other noninterest income. Mortgage servicing income declined slightly from 1996
as a result of increased amortization expense related to originated mortgage
servicing rights. Gains on sales of mortgage loans for the second quarter of
1997 included a $251,000 gain recognized upon the sale of mortgage backed
securities, which had been deferred when the underlying mortgages were
securitized and held in the investment portfolio. Chittenden continues to
service the underlying mortgages. Excluding this gain, gains on sale of
mortgages were down $264,000, reflecting decreased market activity in 1997.
For the six months ended June 30, 1997, noninterest income was $13.6 million, an
increase of $1.1 million or 9% from the same period a year ago. Increased net
credit card income accounted for $961,000 of the increase. The remaining
increase primarily resulted from higher service charges on deposit accounts,
and stronger trust income. Mortgage servicing income and gains on sales of
mortgage loans were down year-to-date due to the same factors that caused them
to be down for the second quarter.
For the second quarter of 1997, noninterest expenses were $17.6 million, up $1.7
million or 11% from the comparable 1996 level. For the first six months of 1997,
noninterest expenses were $34.6 million, an increase of $2.5 million or 8% from
1996. The majority of these increases was attributable to higher salaries and
employee benefits costs, resulting primarily from higher staffing levels and
related recruitment expenses, as well as to higher accruals for incentive
compensation plans due to stronger profit levels.
On May 31, 1997, Chittenden Bank acquired certain assets and assumed certain
liabilities of The Pomerleau Agency. The acquisition has been accounted for as
a purchase and accordingly, the consolidated statement of income includes
Pomerleau s results of operations from the date of acquisition. The impact of
the acquisition was not material to consolidated operations. Therefore, pro
forma disclosures have been omitted.
INCOME TAXES
The Company and its subsidiaries are taxed on income by the IRS at the Federal
level and by various states in which they do business. The majority of the
Company's income is generated in the State of Vermont, which levies franchise
taxes on financial institutions based upon average deposit levels in lieu of
taxing income. Legislation recently passed by the State of Vermont, increases
the franchise tax rate from $.04 per $1,000 of deposits to $.096. The new
legislation became effective on August 1, 1997. Total franchise taxes are
expected to be approximately $330,000 higher in the second half of 1997 than in
the first half of the year. Franchise taxes are included in income tax expense
in the consolidated statements of income.
For the six months ended June 30, 1997 and 1996, Federal and state income tax
provisions amounted to $7.4 million and $6.4 million, respectively. The
effective tax rates for the respective periods were 33.9% and 33.6%. For the
three month periods ended June 30, 1997 and 1996, Federal and state income tax
provisions amounted to $3.9 million and $3.3 million, respectively. The
effective tax rates for the respective periods were 34.0% and 33.2%. During all
periods, the Company s statutory Federal corporate tax rate was 35%. The
Company's effective tax rates differed from the statutory rates primarily
because of 1) the proportion of interest income from state and municipal
securities and corporate dividend income which are partially exempt from Federal
taxation and 2) tax credits and depreciation expense on investments in qualified
low income housing projects.
FINANCIAL POSITION
Total assets declined slightly from $1.989 billion at December 31, 1996 to
$1.956 billion at June 30, 1997. The Company invests the majority of its assets
in loans and investments. Total loans increased $19.5 million, or 1.5%, during
the period to $1.364 billion at June 30, 1997. This growth was concentrated
primarily in the consumer portfolio, particularly in leasing (up $18.8 million)
and indirect installment loans (up $7.2 million) made through participating
dealers.
Total investments at June 30, 1997 were $360 million, down slightly from $370.4
million at December 31, 1996. This decrease reflects the sale of securities
backed by Chittenden serviced mortgages during the second quarter of 1997. The
investment portfolio was also restructured during the second quarter of 1997,
resulting in an average yield on investments of 6.45% for the second quarter of
1997, compared to 6.21% for the second quarter of 1996 and 6.29% for the first
quarter of 1997.
Other assets increased $6.6 million from December 31, 1996 to $84.1 million at
June 30, 1997. The majority of this increase was due to customer accounts
receivable and intangible assets resulting from the acquisition of The Pomerleau
Agency.
Total deposits at June 30, 1997 were $1.675 billion, down $86.8 million from the
December 31, 1996 level. However, the June 30, 1997 level was consistent with
amounts at March 31, 1997, September 30, 1996, and June 30, 1996. The deposit
level at December 31, 1996 was higher than usual due to higher than normal
deposits left on hand by governmental depositors.
CREDIT QUALITY
Nonperforming assets include nonaccrual loans, restructured debt, and foreclosed
real estate (Other Real Estate Owned). As of June 30, 1997, nonperforming
assets totaled $9.8 million, down from $13.9 million a year ago and $12.3
million at March 31, 1997. The allowance for loan losses was $28.2 million at
June 30, 1997, up from $28.1 million at June 30, 1996 and unchanged from the end
of the first quarter of 1997. The provision for possible loan losses charged
against earnings in the second quarter was $1.0 million, the same level provided
during the second quarter of 1996 and the first quarter of 1997.
A summary of credit quality follows:
6/30/97 3/31/97 12/31/96 6/30/96
-----------------------------------
(In thousands)
Nonaccrual Loans $ 7,845 $ 9,172 $10,601 $ 9,112
Restructured Debt 835 842 638 2,892
Other Real Estate
Owned (OREO) 1,141 2,276 2,251 1,875
-----------------------------------
Total Nonperforming
Assets (NPA) $ 9,821 $12,290 $13,490 $13,879
===================================
Loans Past Due 90 Days or
More and Still Accruing
Interest $ 1,531 $ 2,326 $ 966 $ 2,420
Allowance for Possible
Loan Losses 28,167 28,200 28,096 28,107
NPA as % of Loans
Plus OREO 0.72% 0.90% 1.00% 1.05%
Loss Allowance as %
of Loans 2.06 2.08 2.09 2.12
Loss Allowance as %
of Nonperforming Loans 324.50 282.20 249.99 234.15
Loss Allowance as %
of NPA 286.80 229.45 208.27 202.51
CAPITAL
Stockholders' equity totaled $168.3 million at June 30, 1997, down from $174.4
million at year-end 1996. The current level reflects year-to-date net income of
$14.4 million, stock repurchases of $15.3 million, and dividends paid to
stockholders of $5.1 million.
"Tier One" capital, consisting entirely of common equity, measured 11.07% of
risk-weighted assets at June 30, 1997. Total capital, including the "Tier Two"
allowance for loan losses, was 12.42% of risk-weighted assets. The leverage
capital ratio was 8.11%. 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 June 30, 1997, the Company maintained cash
balances and short-term investments of approximately $166.3 million, compared
with $214.5 million at December 31, 1996. Cash on hand at December 31, 1996 was
higher than usual due to the higher than usual deposit balances caused by the
additional governmental deposits discussed above. During the first six months
of 1997, the Company continued to be an average daily net seller of Federal
Funds.
YEAR 2000
The Year 2000 problem, which is common to most corporations, concerns the
inability of information systems, primarily computer software programs, to
properly recognize and process date sensitive information as the year 2000
approaches. The Corporation has commenced an assessment of the majority of its
systems and is in the process of developing a specific workplan to address this
issue. The Corporation currently believes it will be able to modify or replace
its affected systems in time to minimize any detrimental effect on operations.
While it is not possible, at present, to give an accurate estimate of the cost
of this work, these costs may be material to the Corporation s results of
operations in one or more fiscal quarters or years, but will not have material
adverse impact on the long-term results of operations, liquidity, or
consolidated financial position of the Corporation.
Except for historical information contained herein, the foregoing
statements are forward-looking statements, the accuracy of which is subject to a
number of risks and assumptions. The Corporation's Form 10-K for the fiscal
year ended December 31, 1996 discusses such risks and assumptions and other key
factors that could cause actual results to differ materially from those
expressed in such forward-looking statements. An additional risk is the
Corporation's ability to timely and efficiently address the Year 2000 problem.
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) MEETING DATE
April 16, 1997
(b) ELECTION OF DIRECTORS AND CONTINUING DIRECTORS
Richard D. Driscoll 3 Year Term
Lyn Hutton 3 Year Term
Paul A. Perrault 3 Year Term
Frederic H. Bertrand Continuing
David M. Boardman Continuing
Paul J. Carrara Continuing
Philip A. Kolvoord Continuing
James C. Pizzagalli Continuing
Barbara W. Snelling Continuing
Pall D. Spera Continuing
Martel D. Wilson, Jr. Continuing
(c) VOTING MATTERS
1. The election of Directors as provided by the By-Laws.
Director Total Vote Total Vote Withheld
For Each Director From Each Director
-------------------------------------------------------------------
Richard D. Driscoll 10,277,184 126,824
Lyn Hutton 10,283,734 120,274
Paul A. Perrault 10,294,572 109,436
2. Ratification of the Amendment to the 1993 Stock Incentive Plan.
For 9,017,500
Against 1,157,747
Abstain 228,761
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 10.10 The Company's Stock Incentive Plan,
dated January 1, 1997
Exhibit 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None.
<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
August 13, 1997 S/PAUL A. PERRAULT
- -------------------- ------------------------
Date Paul A. Perrault,
President and Chief Executive Officer
August 13, 1997 S/KIRK W. WALTERS
- -------------------- -------------------------
Date Kirk W. Walters
Executive Vice President,
Treasurer, and Chief Financial Officer
EXHIBIT 10.10
CHITTENDEN CORPORATION
1993 STOCK INCENTIVE PLAN
(As restated and amended January 1, 1997)
1. NAME OF PLAN
The plan shall be known as the 1993 Chittenden Corporation Stock Incentive
Plan (the "Plan").
2. PURPOSE OF THE PLAN
The purpose of the Plan is to attract and retain the best available
personnel for positions of substantial responsibility and to provide
additional incentive to those employees of Chittenden Corporation or any
Affiliated Corporation to promote the success of the Company.
3. DEFINITIONS
As used herein, the following definitions shall apply:
(a) "Affiliated Corporations" shall include members of the controlled
group of corporations within the meaning of Section 1563 of the
Internal Revenue Code. Those Affiliated Corporations at the time
of the adoption of the Amendment to the Plan include Chittenden
Trust Company, Bank of Western Massachusetts, Flagship Bank and
Trust, and Chittenden Connecticut Corporation.
(b) "Award" means a grant or award under Section 7, 8, or 9 of the
Plan.
(c) "Company" means Chittenden Corporation.
(d) "Board" means the Board of Directors of the Company.
(e) "Common Stock" means common stock, par value $1.00 per share, of
the Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means the Executive Committee appointed by the Board
in accordance with Section 5(a) hereof.
(h) "Continuous Employment" or "Continuous Status as an Employee"
means the absence of any interruption or termination of employment
with the Company or with an Affiliated Corporation.
Employment shall not be considered interrupted in the case of sick
leave, military leave or any other leave of absence approved by
the Company, while such approval continues, or in the case of
transfers between payroll locations of the Company or between the
Company and an Affiliated Corporation.
(i) "Effective Date" means the date specified in Section 12 hereof.
(j) "Employee" means any person employed by the Company or an
Affiliated Corporation.
(k) "Fair Market Value" means the price per share determined by
averaging the high and low stock price on the date specified.
(l) "Incentive Stock Option" means a stock option grant that is
intended to meet the requirements of Section 422 of the Code.
(m) "Non-Qualified Stock Option" means a stock option grant that is not
intended to be an Incentive Stock Option.
(n) "Option" means an Incentive Stock Option or a Non-Qualified Stock
Option granted pursuant to this Plan.
(o) "Optioned Stock" means the Common Stock of an Employee who
receives an Option.
(p) "Optionee" means an Employee who receives an Option.
(q) "Plan" means the 1993 Chittenden Corporation Stock Incentive Plan.
(r) "Share" means one share of the Common Stock of the Company.
(s) "Restricted Stock" means shares of Common Stock contingently
granted to an employee under Section 8 of the Plan.
4. SHARES SUBJECT TO THE PLAN
As originally approved in 1993, 375,000 shares of Common Stock were
allocated for use as defined by the Plan. As a result of subsequent stock
splits that number totalled 732,422 shares.
Except as otherwise required by the provisions of Section 11 hereof, the
aggregate number of shares of Common Stock in respect of which Awards may be
made shall not exceed an additional 500,000 shares. Such shares may either
be authorized but unissued or treasury shares.
Individual awards granted under this Plan shall not exceed 200,000 shares
per participant per year.
If an Option should expire or become unexercisable for any reason without
having been exercised in full or any Award is forfeited for any reason, the
shares which were subject thereto shall, unless the Plan shall have been
terminated, be available for the grant of other Awards under the Plan.
5. ADMINISTRATION OF THE PLAN
(a) Composition of Executive Committee. The Plan shall be
administered by the Executive Committee of the Board of Directors
of the Company. Employees who are designated by the Committee
shall be eligible to receive Awards under the Plan. All persons
designated as members of the Committee shall be non-employee
directors of the Corporation within the meaning of Rule 16b-
3(b)(3)(i) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and outside directors within the meaning of
Section 162(m) of the Code.
(b) Powers of the Committee. The Committee is authorized (but only to
the extent not contrary to the express provisions of the Plan or
to resolutions adopted by the Board) (i) to interpret the Plan,
(ii) to prescribe, amend and rescind rules and regulations
relating to the Plan, (iii) to determine Employees to whom
Awards shall be granted under the Plan, the amount and terms
of such Awards and the time when Awards will be granted, and (iv)
to make other determinations necessary or advisable for the
administration of the Plan, and shall have and may exercise such
other power and authority as may be delegated to it by the Board
from time to time. A majority of the entire Committee shall
constitute a quorum and the action of a majority of the members
present at any meeting at which a quorum is present shall be deemed
the action of the Committee.
The President of the Company is hereby authorized to assist the
Committee in the administration of the Plan and to execute
instruments evidencing Awards on behalf of the Company and to cause
them to be delivered to the Employees.
(c) Effect of Committee's Decision. All decisions, determinations and
interpretations of the Committee shall be final and conclusive on
all persons affected thereby.
6. ELIGIBILITY
Awards may be granted by the Board only to those officers and key Employees
of the Company and of any Affiliated Corporation who are in positions in
which their decisions, actions and counsel significantly impact upon the
profitability of the Company, and only in accordance with the determination
of the Committee. An Employee who has been granted an Award may, if
otherwise eligible, be granted an additional Award or Awards.
7. STOCK OPTIONS
(a) Grant. Subject to the provisions of the Plan, the Committee shall
have sole and complete authority to determine the Employee to whom
Options shall be granted, the number of shares to be covered by
each Option, the option price therefor and the conditions and
limitations applicable to the exercise of the Option. The
Committee shall have the authority to grant Incentive Stock
Options, or to grant Non-Qualified Stock Options, or to grant both
types of options. In the case of Incentive Stock Options, the
terms and conditions of such grants shall be subject to and comply
with such rules as may be prescribed by Section 422 of the Code,
as from time to time amended, and any regulations implementing
Section 422.
(b) Option Price. The price per share at which each Incentive Stock
Option granted under the Plan may be exercised shall not, as to
any particular Incentive Stock Option, be less than 100% of the
Fair Market Value of the Stock at the time such Incentive Stock
Option is granted.
(c) Exercise of Option. An Option shall be exercisable at such times
and under such conditions as shall be permissible under the terms
of the Plan and of the Option granted to an Optionee; however, in
no event may any Option granted hereunder be exercisable after
expiration of 10 years from the date of such grant. The Committee
shall have the power to permit in its discretion an acceleration
of previously determined exercise terms, under such circumstances
and upon such terms as it deems appropriate. An Option may not be
exercised for a fractional Share.
An Option may be exercised, subject to the provisions hereof
relative to its termination and limitations on its exercise, from
time to time only by (i) written notice of intent to exercise the
Option with respect to a specified number of Shares, and (ii)
payment to the Company (contemporaneously with delivery of each
such notice), either in cash, of the amount of the Option price
of the number of Shares with respect to which the Option is then
being exercised or by the surrender and delivery to the Company of
Shares of the same class as the Shares to be acquired by exercise
of the Option with a Fair Market Value equal to or less than
the total Option price plus cash for any difference.
Each such notice and payment shall be delivered, or mailed by
prepaid registered or certified mail, addressed to the Secretary
of the Company at the Company's executive offices, until the total
number of Shares then subject to the Option have been purchased.
(d) TERMINATION OF EMPLOYMENT
(1) If an Optionee ceases to be an employee of the Company or any
subsidiary other than by reason of death, retirement or
disability, absent a determination by the Committee to the
contrary, any options which were exercisable by the Optionee on
the date of termination of employment may be exercised any time
before their expiration date or within three months after the date
of termination, whichever is earlier, but only to the extent that
the options were exercisable when employment ceased.
(2) If an Optionee's employment terminates because of death or
disability, all stock options previously granted to the Optionee
will become exercisable. In the case of death of the Optionee,
options may be exercised at any time before their expiration date
or within one year after the date of death, whichever is earlier.
In the case of permanent disability, options may be exercised at
any time before their expiration date.
(3) If an Optionee's employment terminates because of retirement, any
options which were exercisable by the Optionee on the date of
termination of employment may be exercised any time before their
expiration date or within one year after the date of termination,
whichever is earlier, but only to the extent that the options were
exercisable when employment ceased absent a determination by the
Committee to the contrary.
8. RESTRICTED STOCK
(a) Subject to the provisions of the Plan, the Committee shall have
sole and complete authority to determine the Employees to whom
shares of Restricted Stock shall be granted, the number of shares
of Restricted Stock to be granted to each Employee, the duration
of the Restricted Period during which and the conditions under
which, the Restricted Stock may be forfeited to the Company, and
the other terms and conditions of such Awards. The Committee may
determine that the Restricted Period applicable to a particular
grant may vary depending upon specific performance targets. These
targets will be measured by one or more of the following:
Corporate profitability, ROE or EPS. The Committee shall
determine the Awards to be granted hereunder and the targets to be
used for any Award by such date as is permitted under Section
162(m) of the Code for the establishment of performance goals
pursuant to which performance-based compensation is to be payable
for a particular period.
(b) Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered, except as herein provided, during
the Restricted Period. Certificates issued in respect of shares
of Restricted Stock shall be registered in the name of the
Employee and deposited by such Employee, with the Company. During
this period the Employee shall have voting rights on such shares
and shall receive applicable dividends. At the expiration of the
Restricted Period, the Company shall deliver such certificates to
the Employee or the Employee's legal representative.
(c) If an Employee's employment terminates by reasons of permanent
disability or death, any Restricted Stock held by such Employee
shall thereafter vest or any restriction lapse, to the extent such
Restricted Stock would have become vested or no longer subject to
restriction within one year from the time of termination had the
Employee continued to fulfill all of the conditions of the
Restricted Stock during such period (or on such accelerated basis
as the Committee may determine at or after grant). Unless
otherwise determined by the Committee, subject to (j) below, if an
Employee's employment terminates for any reasons other than
permanent disability or death, the Restricted Stock which is
unvested or subject to restriction shall thereupon be forfeited.
9. PERFORMANCE AWARDS
(a) Performance Awards shall consist of shares of Common Stock of the
Company to be issued in the event that Profit Goals as measured by
one or more of the following: Corporate profitability, EPS or ROE
are met. The Committee shall determine the Awards to be granted
hereunder and the targets to be used for any Award by such date as
is permitted under Section 162(m) of the Code for the
establishment of performance goals pursuant to which performance-
based compensation is to be payable for a particular period.
(b) Actual payments of Performance Awards earned shall be in cash or
in Common Stock or in a combination of both, as the Committee in
its sole discretion determines.
(c) If Common Stock of the Company is used, the Employee shall not
have the right to vote and receive dividends until the Profit
Goals are achieved and the actual shares are issued.
(d) The number of shares of Common Stock to be issued to an Employee
will be determined by dividing the dollar value of the portion of
the incentive award that is to be paid in stock by the per share
Fair Market Dollar Value of the Common Stock on the date that the
Employee's award value is calculated.
10. CHANGE IN CONTROL
Notwithstanding anything to the contrary contained herein, and
notwithstanding any contrary waiting period or installment period in any
option agreement or in the Plan, each outstanding Option and Right granted
under the Plan shall become exercisable in full for the aggregate number of
shares covered thereby, and any restriction or deferral limitation
applicable to any Restricted Stock, shall lapse and such shares and awards
shall be deemed fully vested, in the event of a Change in Control (as
hereinafter defined).
For purposes of this Plan, a Change in Control shall be deemed to have
occurred upon the first to occur of the following events:
(i) any "person", as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (other than the Company or any corporation owned, directly
or indirectly, by the stockholders of the Company in substantially
the same proportions as their ownership of stock of the Company),
is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of
the Company representing more than 25% of the number of the
Company's then outstanding securities;
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board, and any new
director (other than a director designated by a person who has
entered into an agreement with the Company to effect a transaction
described in Subsection 12(i), (iii) or (iv) of this Section 12)
whose election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at least two-
thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease by any
reason to constitute at least one half thereof;
(iii) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or being converted into voting
securities of the surviving entity) more than 60% of the number of
outstanding securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
11. GENERAL PROVISIONS
(a) Withholding. The Employer shall have the right to deduct from all
amounts paid to an Employee in cash (whether under this plan or
otherwise) any taxes required by law to be withheld in respect of
Awards under this Plan. In the case of payments of Awards in the
form of Common Stock, at the Committee's discretion the
Participant may be required to pay to the Employer the amount of
any taxes required to be withheld with respect to such Common
Stock, or, in lieu thereof, the Employer shall have the right to
retain (or the Participant may be offered the opportunity to elect
to tender) the number of shares of Common Stock whose Fair Market
Value equals the amount required to be withheld.
(b) Nontransferability. No Award shall be assignable or transferable,
and no right or interest of any Participant shall be subject to
any lien, obligation or liability of the Participant, except by
will or the laws of descent and distribution.
(c) No Right to Employment. No person shall have any claim or right
to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to be retained in the
employ of the Employer. Further, the Employer expressly reserves
the right at any time to dismiss a Participant. Such event will
relieve the Employer from any liability, and eliminates the
Employee's claim under the Plan, except as provided herein or in
any agreement entered into with respect to an Award.
(d) No Rights as Stockholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall
have any rights as a stockholder with respect to any shares of
Common Stock to be distributed under the Plan until he or she has
become the holder thereof. Notwithstanding the foregoing, in
connection with each grant of Restricted Stock hereunder, the
applicable Award shall specify if and to what extent the
Participant shall not be entitled to the rights of a stockholder
in respect of such Restricted Stock.
(e) Construction of the Plan. The validity, construction,
interpretation, administration and effect of the Plan and of its
rules and regulations, and rights relating to the Plan, shall be
determined solely in accordance with the laws of Vermont.
(f) Effective Date. Subject to the approval of the stockholders of
the Company, the Plan shall be effective on January 1, 1993. No
Options or Awards may be granted under the Plan after April 16,
2002.
(g) Amendment of Plan. The Board of Directors may amend, suspend or
terminate the Plan or any portion thereof at any time, provided
that no amendment shall be made without stockholder approval if
such approval is necessary to comply with any tax or regulatory
requirement, including for these purposes any approval requirement
which is a prerequisite for exemptive relief under Section 162(m)
of the Code. Notwithstanding anything to the contrary contained
herein, the Committee may amend the Plan in such manner as may be
necessary so as to have the Plan conform with local rules and
regulations. The President shall be authorized to make minor or
administrative modifications to the Plan as well as modification
to the Plan which may be dictated by requirements of federal or
state statutes applicable to the Company or authorized or made
desirable by such statutes. No modification or termination of the
Plan shall, without the Optionee's consent, alter or impair any of
their rights or obligations under any Option or Right theretofore
granted to him or her under the Plan.
(h) Amendment of Award. Unless otherwise provided by the Committee in
granting an award, but subject to (j) below, the Committee may
amend, modify or terminate any outstanding Award with the
Participant's consent at any time prior to payment or exercise in
any manner not inconsistent with the terms of the Plan, including
without limitation, (i) to change the date or dates as of which
(A) an Option or Right becomes exercisable; (B) Restricted Stock
becomes nonforfeitable; or (ii) to cancel and reissue an Award
under such different terms and conditions as it determines
appropriate. The Option agreement evidencing an Option granted
under the Plan may contain such provisions limiting the
acceleration of the exercise of Options as the Committee deems
appropriate to ensure that the penalty provisions of Section 4999
of the Code, or any successor thereto in effect at the time of
such acceleration, will not apply to any stock or cash received by
the holder from the Company.
(i) Adjustments and Assumptions. In the event of a reorganization,
recapitalization, stock split, stock dividend, combination of
shares, merger, consolidation, distribution of assets, or any
other change in the corporate structure or shares of the Company,
the Committee shall make such adjustments as it deems appropriate
in the number and kind of shares authorized by the Plan, in the
number and kind of shares covered by the Awards granted, and in
the purchase price of outstanding Options. In the event of any
merger, consolidation or other reorganization in which the Company
is not the surviving or continuing corporation, all Awards granted
hereunder and outstanding on the date of such event shall be
assumed by the surviving or continuing corporation with
appropriate adjustment as to the number and kind of shares and
purchase price of the shares.
(j) Committee Certification and Discretion. No Employee shall receive
any shares of Restricted Stock or Performance Awards under this
Plan unless the Committee has certified, by resolution or other
appropriate action in writing, that the relevant performance
targets have in fact been satisfied. Notwithstanding any other
provision of the Plan to the contrary, the Committee shall have
the discretion to reduce the size of any individual Award under
Section 8 or 9, but neither the Committee nor any other person may
take any action which would result in the increase of the Award to
be paid to any Employee under the terms of the Plan or authorize
the payment of shares of Restricted Stock or Performance Awards
under this Plan if the performance targets have not been
satisfied.
(k) Section 162(m) Conditions: Bifurcation of Plan. It is the intent
of the Company that the Plan and the shares of Restricted Stock
and Performance Awards hereunder satisfy and be interpreted in a
manner, that, in the case of Employees who are or may be persons
whose compensation is subject to Section 162(m) of the Code,
satisfies any applicable requirements as performance-based
compensation. Any provision, application or interpretation of the
Plan inconsistent with this intent to satisfy the standards in
Section 162(m) of the Code shall be disregarded. Notwithstanding
anything to the contrary in the Plan, the provisions of the Plan
may at any time be bifurcated by the Committee in any manner so
that certain provisions of the Plan intended (or required in
order) to satisfy the applicable requirements of Section 162(m)
are only applicable to persons whose compensation is subject to
Section 162(m) of the Code.
To record the adoption of the restated and amended Chittenden Corporation 1993
Stock Incentive Plan, the Company has caused its appropriate officers to affix
its corporate name and seal hereto this 19th day of February, 1997.
ATTEST:
CHITTENDEN CORPORATION
Witnessed
By s/F. Sheldon Prentice By s/Mary Beth Stanley
Official
Title SVP, General Counsel and Secretary
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