<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d)
--- of the Securities Exchange Act of 1934
For Three Months Ended March 31, 2000
or
___ Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ____________to____________
Commission File Number 0-7974
CHITTENDEN CORPORATION
(Exact Name of Registrant as Specified in its Charter)
VERMONT 03-0228404
(State of Incorporation) (IRS Employer Identification No.)
TWO BURLINGTON SQUARE
BURLINGTON, VERMONT 05401
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (802) 658-4000
NOT APPLICABLE
Former Name, Former Address and Formal Fiscal Year
If Changed Since Last Report
Indicate by checkmark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---
At May 5, 2000, there were 28,481,358 shares of the Corporation's $1.00 par
value common stock issued and outstanding.
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
2
<PAGE>
Chittenden Corporation
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------------------------
(in thousands)
<S> <C> <C>
Assets
Cash and cash equivalents $ 128,242 $ 150,415
Securities available for sale 637,238 649,471
FHLB and FRB stock 11,559 16,879
Mortgage loans held for sale 1,624 2,926
Loans:
Commercial 511,911 482,820
Municipal 98,527 90,148
Real Estate:
Residential 1,067,506 1,070,389
Commercial 674,126 651,860
Construction 60,752 57,429
---------------------------
Total Real Estate 1,802,384 1,779,678
Consumer 537,517 546,010
---------------------------
Total Loans 2,950,339 2,898,656
Less: Allowance for loan losses (41,228) (41,079)
---------------------------
Net loans 2,909,111 2,857,577
Accrued interest receivable 25,799 25,399
Other real estate owned 690 416
Other assets 64,505 64,573
Premises and equipment, net 42,919 41,052
Intangible assets 17,347 18,589
---------------------------
Total assets $3,839,034 $3,827,297
===========================
Liabilities:
Deposits:
Demand $ 499,405 $ 532,120
Savings 1,841,013 1,807,843
Certificates of deposit less than $100,000 and other time deposits 630,244 649,051
Certificates of deposit $100,000 and over 216,387 215,084
---------------------------
Total deposits 3,187,049 3,204,098
Short-term borrowings 254,323 197,072
Accrued expenses and other liabilities 46,073 63,667
---------------------------
Total liabilities 3,487,445 3,464,837
Commitments and contingencies
Stockholders' Equity:
Preferred stock - $100 par value
authorized - 1,000,000 shares; issued and outstanding - none
Common stock - $1 par value; authorized - 60,000,000 shares; 28,466 28,380
issued - 28,466,176 in 2000 and 28,380,040 in 1999
Surplus 151,399 149,828
Retained earnings 197,379 189,018
Treasury stock, at cost - 740,508 shares in 2000 and 1,808 shares in 1999 (20,160) (24)
Accumulated other comprehensive income (7,837) (7,018)
Directors deferred compensation to be settled in stock 2,496 2,449
Unearned portion of employee restricted stock (154) (173)
---------------------------
Total stockholders' equity 351,589 362,460
---------------------------
Total liabilities and stockholders' equity $3,839,034 $3,827,297
===========================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
Chittenden Corporation
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
2000 1999
(Restated)
-----------------------------------------
(in thousands)
<S> <C> <C>
Interest income:
Interest on loans $59,616 $56,507
Investment securities:
Taxable 10,729 14,537
Tax-favored 88 526
Short-term investments 19 471
-------------------------------------
Total interest income 70,452 72,041
-------------------------------------
Interest expense:
Deposits:
Savings 14,094 14,019
Time 10,385 13,351
-------------------------------------
Total interest on deposits 24,479 27,370
Short-term borrowings 3,450 1,643
-------------------------------------
Total interest expense 27,929 29,013
-------------------------------------
Net interest income 42,523 43,028
Provision for loan losses 2,175 2,175
-------------------------------------
Net interest income after provision for loan losses 40,348 40,853
-------------------------------------
Noninterest income:
Investment management and trust income 3,494 3,542
Service charges on deposit accounts 3,687 4,566
Mortgage servicing income 936 932
Gains on sales of mortgage loans, net 611 1,831
Credit card income, net 1,153 1,243
Insurance commissions, net 781 641
Other 3,289 3,403
-------------------------------------
Total noninterest income 13,951 16,158
-------------------------------------
Noninterest expense:
Salaries 13,675 14,910
Employee benefits 2,653 4,527
Net occupancy expense 5,070 6,515
Other real estate owned, income and expense, net (50) 30
Special charges 833 -
Other 10,811 12,235
-------------------------------------
Total noninterest expense 32,992 38,217
-------------------------------------
Income before income taxes 21,307 18,794
Income tax expense 6,716 6,875
-------------------------------------
Net income $14,591 $11,919
=====================================
Basic earnings per share $0.52 $0.43
Diluted earnings per share 0.51 0.42
Dividends per share $0.22 $0.20
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
4
<PAGE>
Chittenden Corporation
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
<S> <C> <C>
2000 1999
(Restated)
-----------------------
(in thousands)
Cash flows from operating activities:
Net income $ 14,591 $ 11,919
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 2,175 2,175
Depreciation and amortization 1,676 2,616
Amortization of intangible assets 540 1,467
Amortization of premiums, fees, and discounts, net (126) 185
Loss on sale of branch (792) -
Write-off of goodwill related to sale of branch 701 -
Investment securities losses 688 -
Deferred income taxes 7,356 3,639
Loans originated for sale (31,962) (152,936)
Proceeds from sales of loans 33,876 163,948
Gains on sales of loans (611) (1,831)
Changes in assets and liabilities:
Accrued interest receivable (400) 1,327
Other assets 200 3,386
Accrued expenses and other liabilities (21,243) (2,056)
-----------------------
Net cash provided by operating activities 6,669 33,839
-----------------------
Cash flows from investing activities:
Net cash used in branch divestiture (21,823) -
Proceeds from redemption of Federal Home Loan Bank stock 2,836 -
Proceeds from maturing securities and principal payments 201,276 271,985
on securities available for sale
Purchases of securities available for sale (188,641) (205,835)
Loans originated, net of principal repayments (60,728) (34,413)
Purchases of premises and equipment (4,298) (3,984)
-----------------------
Net cash provided by (used in ) investing activities (71,378) 27,753
-----------------------
Cash flows from financing activities:
Net increase (decrease) in deposits 10,017 (79,585)
Net increase (decrease) in short-term borrowings 57,251 (3,496)
Proceeds from issuance of treasury and common stock 1,866 1,337
Dividends on common stock (6,247) (4,806)
Repurchase of common stock (20,351) -
-----------------------
Net cash provided by (used in) financing activities 42,536 (86,550)
-----------------------
Net decrease in cash and cash equivalents (22,173) (24,958)
Cash and cash equivalents at beginning of period 150,415 267,999
-----------------------
Cash and cash equivalents at end of period $ 128,242 $ 243,041
=======================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 29,029 $ 35,890
Income taxes 17,685 8,106
Non-cash investing and financing activities:
Loans transferred to other real estate owned 431 439
Issuance of treasury and restricted stock 70 89
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
5
<PAGE>
Chittenden Corporation
Notes to Consolidated Financial Statements
NOTE 1 - ACCOUNTING POLICIES
The Company's significant accounting policies are described in Note 1 of the
Notes to Consolidated Financial Statements included in its 1999 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 1999 have been reclassified to conform to 2000 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 - ACQUISITIONS
On May 28, 1999, the Company acquired Vermont Financial Services Corp. (VFSC)
of Brattleboro, Vermont for stock. VFSC's subsidiary banks included Vermont
National Bank, headquartered in Brattleboro, Vermont and United Bank,
headquartered in Greenfield, Massachusetts. Under the agreement, VFSC
shareholders received 1.07 shares of Chittenden Corporation common stock for
each share of VFSC stock. Total shares outstanding of Chittenden Corporation
stock increased by approximately 14 million shares as a result of the
acquisition. Based on the closing price of Chittenden stock as of May 28, 1999,
the market value of the shares exchanged totaled $387.2 million. The
acquisition was accounted for as a pooling of interests. Accordingly, the
consolidated financial statements for the periods presented have been restated
to include VFSC.
Total revenue, income before taxes, net income, and earnings per share data
of the separate companies for the periods preceding the acquisition were:
For the Three Months
Ended March 31, 1999
Chittenden
Corporation VFSC Combined
-----------------------------------------
Total Revenue $30,673 $28,513 $59,186
Income before Income Taxes 11,072 7,722 18,794
Net Income 7,495 4,424 11,919
Diluted Earnings Per Share 0.52 0.34 0.42
Total revenue includes net interest income and noninterest income.
NOTE 3 - SPECIAL CHARGES
Special charges of $833,000 (pre-tax) were recorded during the first quarter
of 2000, which included deposit premium (net of loss on branch fixed assets and
recovery of goodwill) of $145,000 and losses of $688,000 on securities sold to
fund the divestiture. Included in accrued expenses and other liabilities at
March 31, 2000, are merger related expenses totaling $5.0 million which will be
paid in future periods.
The change in accrued merger related expenses at March 31, 2000 is summarized
below:
<TABLE>
<CAPTION>
Original Less: Accrual Balance as
Accrual Cash Transactions of March 31, 2000
================================================
<S> <C> <C> <C>
Compensation and Benefits $10,030 $ 4,985 $5,045
System Conversion 8,278 8,278 -
Legal and Professional 7,109 7,109 -
Other 587 587 -
Total $26,004 $20,959 $5,045
================================================
</TABLE>
6
<PAGE>
NOTE 4 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). SFAS 133 establishes the accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or a liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting treatment.
Statement 133, as amended by SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activiities - Deferral of the Effective Date of FASB
Statement No. 133," is effective for the Company's fiscal year beginning January
1, 2001. The Company has the option to elect to early adopt the Statement at
the beginning of its next fiscal quarter. The statement cannot be applied
retroactively. Statement 133 must be applied to (a) derivative instruments and
(b) certain derivative instruments embedded in hybrid contracts that were
issued, acquired, or substantively modified after December 31, 1997 (and, at the
Company's election, before January 1, 1998). The Company has not yet quantified
the impact of adopting Statement 133 on its consolidated financial statements
and has not determined the timing of or method of its adoption of the Statement.
NOTE 5 - COMPREHENSIVE INCOME
The Company's comprehensive income for the three-month period ended March 31,
2000 and 1999 is presented below:
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
2000 1999
------------------------------
<S> <C> <C>
Net Income $14,591 $11,919
Unrealized losses on investment securities:
Unrealized holding losses on securities available for sale, (1,294) (3,429)
net of tax
Reclassification adjustments for (gains) losses arising during 475 --
period, net of tax
Total Comprehensive income $13,772 $ 8,490
==============================
</TABLE>
NOTE 6 - BUSINESS SEGMENTS
The Company has identified Commercial Banking as its reportable operating
business segment based on the fact that the chief operating decision-maker views
the results of operations as a single strategic unit. The Commercial Banking
segment is comprised of Chittenden Bank, The Bank of Western Massachusetts,
Flagship Bank and Trust, and Chittenden Connecticut Corporation, which provide
similar products and services, have similar distribution methods, types of
customers and regulatory responsibilities. Commercial Banking derives its
revenue from a wide range of banking services, including lending activities,
acceptance of demand, savings and time deposits, safe deposit facilities,
merchant credit card services, trust and investment management, data processing,
brokerage services, mortgage banking, and loan servicing for investor
portfolios.
Immaterial operating segments of the Company's operations, which do not have
similar characteristics to the commercial banking operations and do not meet the
quantitative thresholds requiring disclosure, are included in the Other category
in the disclosure of business segments below.
The accounting policies used in the disclosure of business segments are the
same as those described in the summary of significant accounting policies
included in Note 1 of the Company's 1999 Annual Report on Form 10-K. The
consolidation adjustment reflects certain eliminations of inter-segment revenue,
cash and parent company investments in subsidiaries.
7
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended Consolidation
Commercial Banking Other (2) Adjustments Consolidated
--------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31, 2000
Net interest revenue (1) $ 42,505 $ 75 $ (57) $ 42,523
Noninterest income 13,168 792 $ (9) 13,951
Provision for Loan Losses 2,175 - - 2,175
Noninterest expense 32,065 936 (9) 32,992
--------------------------------------------------------------
Net income before tax 21,433 (69) (57) 21,307
Income tax expense/(benefit) 6,725 (9) - 6,716
Net Income $ 14,708 $ (60) $ (57) $ 14,591
==============================================================
End of Period Assets $3,834,257 $342,818 $(338,041) $3,839,034
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended Consolidation
Commercial Banking Other (2) Adjustments Consolidated
--------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31, 1999
Net interest revenue (1) $ 43,008 $ 93 $ (73) $ 43,028
Noninterest income 15,515 643 - 16,158
Provision for Loan Losses 2,175 - - 2,175
Noninterest expense 37,113 1,104 - 38,217
--------------------------------------------------------------
Net income before tax 19,235 (368) (73) 18,794
Income tax expense/(benefit) 6,928 (53) - 6,875
Net Income $ 12,307 $ (118) $ (73) $ 11,919
==============================================================
End of Period Assets $4,157,111 $401,872 $(382,905) $4,176,078
</TABLE>
(1) The Commercial Banking segment derives a majority of its revenue from
interest. In addition, management primarily relies on net interest
revenue, not the gross revenue and expense amounts, in managing that
segment. Therefore, only the net amount has been disclosed.
(2) Revenue derived from these non-reportable segments includes insurance
commissions from various insurance related products and services as well as
the operations of the bank holding company.
NOTE 7 - SUBSEQUENT EVENT
On April 19, 2000, the Company declared regular dividends of approximately
$6.7 million, or $0.24 per share, to be paid on May 19, 2000 to shareholders of
record on May 5, 2000.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
On May 28, 1999, Chittenden Corporation ("Chittenden" or "the Company")
completed the acquisition of Vermont Financial Services Corp. (VFSC) in a stock-
for-stock transaction accounted for as a pooling of interests. Accordingly, the
consolidated financial statements of the Company have been restated to reflect
the acquisition as of the beginning of the earliest period presented. The
Company recognized $792,000 of after-tax special charges in the first quarter of
2000 related to the final branch sale required as a condition of the regulatory
approval of the acquisition. Results excluding these special charges are
referred to in the following discussion as operating.
8
<PAGE>
A reconciliation of the Company's net income to its operating earnings for
the three-month period ended March 31, 2000 and 1999 is presented below:
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
-----------------------
<S> <C> <C>
2000 1999
Net income $14,591 $11,919
Add:
Loss on branch sale 833 -
Tax effect of adjustment for loss on branch sale (41) -
Operating net income $15,383 $11,919
=======================
Diluted Operating EPS $ 0.54 $ 0.42
</TABLE>
The Company has completed the sale of all eighteen branches as required by
the U.S. Department of Justice and the Federal Reserve in the approval of the
merger transaction with VFSC. Total loans and deposits sold to the buyers were
approximately $131 million and $469 million, respectively.
Chittenden Corporation posted first quarter 2000 operating net income of
$0.54 per diluted share, compared to the $0.42 per diluted share posted in the
first quarter of last year. Operating net income for the first quarter of 2000
was $15.4 million, compared to the $11.9 million recorded in the same quarter a
year ago. Operating return on average equity was 17.35% for the quarter ended
March 31, 2000 compared with 12.44% for the same period in 1999. Operating
return on average assets was 1.60% for the first quarter of 2000, up from 1.16%
for the first quarter of last year.
Net interest income on a tax equivalent basis for the three months ended
March 31, 2000 was $43.1 million, down slightly from $43.7 million for the same
period a year ago. The yield on earning assets increased from 4.60% in the
first quarter of 1999 to 4.81% for the same period in 2000. The decrease in net
interest income from the comparable three month period is attributable to lower
levels of average earning assets resulting from required branch divestitures,
the majority of which occurred during the second half of 1999.
9
<PAGE>
The following table presents an analysis of average rates and yields on a
fully taxable equivalent basis for the three months ended March 31,
<TABLE>
2000 1999
--------------------------------------------------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense (1) Rate (1) Balance Expense (1) Rate (1)
--------------------------------------------------------------------------
Assets (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $2,920,499 $60,105 8.28% $2,785,443 $56,952 8.29%
Investments:
Taxable 671,368 10,729 6.43% 970,824 14,537 6.07%
Tax-favored securities 8,345 130 6.26% 57,226 738 5.23%
Interest-bearing deposits in banks 275 3 4.14% 4,224 23 2.21%
Federal funds sold 1,205 17 5.67% 36,875 449 4.94%
------------------------ -----------------------
Total interest-earning assets 3,601,692 70,984 7.93% 3,854,592 72,699 7.65%
------------- -----------
Noninterest-earning assets 295,614 362,042
Allowance for loan losses (41,694) (42,120)
Total assets $3,855,612 $4,174,514
=========== ==========
Liabilities and stockholders' equity
Interest-bearing liabilities:
Savings and interest-bearing transactional accounts $1,818,721 $14,094 3.12% $2,020,414 $14,019 2.81%
Certificates of deposit under $100,000 and other 647,039 2,658 5.20% 796,745 11,088 5.64%
time deposits
Certificates of deposit $100,000 and over 205,725 7,727 4.80% 196,441 2,263 4.67%
------------------------- --------------------------
Total interest-bearing deposits 2,671,485 24,479 3.69% 3,013,600 27,370 3.68%
Short-term borrowings 233,961 3,450 5.93% 133,173 1,643 5.00%
------------------------- --------------------------
Total interest-bearing liabilities 2,905,446 27,929 3.87% 3,146,773 29,013 3.74%
------------- -------------
Noninterest-bearing liabilities:
Demand deposits 515,045 583,164
Other liabilities 78,482 56,042
------------ -------------
Total liabilities 3,498,973 3,785,979
Stockholders' equity 356,639 388,535
------------ -------------
Total liabilities and stockholders' equity $3,855,612 $4,174,514
============ =============
Net interest income $43,055 $43,686
============= =============
Interest rate spread (2) 4.06% 3.91%
Net yield on earning assets (3) 4.81% 4.60%
</TABLE>
(1) On a fully taxable equivalent basis, calculated using a Federal income tax
rate of 35%. Loan income includes fees.
(2) Interest rate spread is the average rate earned on total interest-earning
assets less the average rate paid on interest-bearing liabilities.
(3) Net yield on earning assets is net interest income divided by total
interest-earning assets.
Operating noninterest income amounted to $14.0 million for the first quarter
of 2000, down from $16.2 million for the first quarter of 1999. The $2.2
million decline in noninterest income for the first quarter of 2000 was
primarily attributable to reductions in gains on sales of mortgage loans related
to lower volumes due to higher market interest rates. Also contributing were
lower levels of service charges on deposit accounts due to the required branch
divestitures and to the temporary waiving of certain fees for Vermont National
customers during conversion to Chittenden Bank systems in the first quarter of
2000.
Operating noninterest expenses declined 16% to $32.2 million for the first
quarter from $38.2 million for same period last year. The reduction in
noninterest expenses was due to lower levels of amortization of intangibles
resulting from the recovery of goodwill related to the divested branches,
reduced compensation expense caused by lower staffing levels, and reduced
depreciation expense related to duplicative fixed assets written off as a result
of the merger. Also contributing was a $1.3 million curtailment gain recorded
upon the merger of the Vermont National Bank and Chittenden Bank pension plans.
This amount was recognized as a reduction to pension expense in the employee
benefits line of noninterest expense.
10
<PAGE>
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 banks based upon average deposit levels in lieu of taxing income.
Franchise taxes are included in income tax expense in the consolidated
statements of income.
For the three months ended March 31, 2000 and 1999, Federal and state income
tax provisions amounted to $6.7 million and $6.9 million, respectively. The
effective tax rates for the respective periods were 31.5% and 36.6%. 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 non-tax-deductible amortization of goodwill related to VFSC's
acquisition of Eastern Bancorp. The higher effective rate produced by these
nondeductible expenses was partially reduced by 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 on investments in
qualified low income housing projects. The reduction in the Company's effective
tax rate from 1999 to 2000 reflects lower levels of non-tax deductible goodwill
resulting from the impaired goodwill written off in the second quarter of 1999
upon the consummation of the merger of Chittenden and VFSC, as well as
recognition of the tax deductibility of certain transaction related expenses
previously treated as non-tax deductible for accrual purposes.
Financial Position
The Company invests the majority of its assets in loans and investments. Total
loans increased $53 million, to $2.95 billion at March 31, 2000. This increase
was primarily attributable to growth in the commercial and consumer portfolios.
Total deposits at March 31, 2000 were $3.2 billion, flat from December 31, 1999,
due primarily to the divestiture of $27 million of deposits in branch sale late
in the first quarter of 2000. After adjusting for deposits divested in all
branch sales, total deposits increased by $55.4 million from March 31, 1999 to
March 31, 2000. The decrease in securities available for sale of $12.2 million
from December 31, 1999 to $637.2 million at March 31, 2000 is primarily
attributable to the sale of securities to fund the final branch divestiture.
Credit Quality
Nonperforming assets include nonaccrual loans and foreclosed real estate (Other
Real Estate Owned). As of March 31, 2000, nonperforming assets totaled $12.0
million, up from $9.6 million at December 31, 1999 and down from $17.7 million
at the end of the first quarter of 1999. The increase from December 31, 1999
was due to higher levels of nonperforming commercial loans driven by one
customer relationship. Net charge-off activity totaled $2.0 million for the
first quarter of 2000 compared to $1.1 million for the same period in 1999. The
allowance for loan losses was $41.2 million at March 31, 2000, down from $42.3
million a year ago, and up slightly from $41.1 million at December 31, 1999.
A summary of credit quality follows:
<TABLE>
<S> <C> <C> <C> <C>
3/31/00 12/31/99 9/30/99 3/31/99
----------------------------------------------------------------------------------
(In thousands)
Nonaccrual loans $ 11,280 $ 9,172 $ 11,397 $ 16,145
Other real estate owned (OREO) 690 416 695 1,560
Total nonperforming assets (NPA) $ 11,970 $ 9,588 $ 12,092 $ 17,705
==================================================================================
Loans past due 90 days or more $ 6,594 $ 5,016 $ 5,881 $ 5,161
and still accruing interest
Allowance for loan losses 41,228 41,079 40,844 42,263
NPA as % of loans plus OREO 0.41% 0.33% 0.41% 0.62%
Allowance as % of loans 1.40% 1.42% 1.38% 1.50%
Allowance as % of nonperforming loans 365.50% 447.87% 358.38% 265.17%
Allowance as % of NPA 344.43% 428.44% 337.78% 238.71%
</TABLE>
11
<PAGE>
Provisions for and activity in the allowance for loan losses are summarized as
follows:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
<S> <C> <C>
2000 1999
----------------------------
(In thousands)
Beginning Balance $41,079 $41,209
Provision for Loan Losses 2,175 2,175
Loans Charged Off (2,793) (2,680)
Loan Recoveries 767 1,559
----------------------------
Ending Balance $41,228 $42,263
============================
</TABLE>
The allowance to possible loan losses is based on management's estimate of the
amount required to reflect the risks in the loan portfolio, based on
circumstances and conditions known at each reporting date. Adequacy of the
allowance is determined using a consistent, systematic methodology which
analyzes the size and risk of the loan portfolio. In addition to evaluating the
collectibility of specific loans when determining the adequacy of the allowance
for possible loan losses, management also takes into consideration other factors
such as changes in the mix and volume of the loan portfolio, historic loss
experience, the amount of the delinquencies and loans adversely classified, and
economic trends. The adequacy of the allowance for possible loan losses is
assessed by an allocation process whereby specific loss allocations are made
against certain adversely classified loans, and general loss allocations are
made against segments of the loan portfolio which have similar attributes. The
Company's historical loss experience, industry trends, and the impact of the
local and regional economy on the Company's borrowers, were considered by
management in determining the adequacy of the allowance for possible loan
losses.
Capital
Stockholders' equity totaled $351.6 million at March 31, 2000, compared to
$362.5 million at year-end 1999. The current level reflects the dividends paid
to shareholders totaling $6.2 million, an increase in the net income of $14.6
million, and share repurchases totaling $20.4 million. Through the first
quarter of 2000, approximately 776,000 shares have been repurchased. "Tier One"
capital, consisting entirely of common equity, measured 11.19% of risk-weighted
assets at March 31, 2000. Total capital, including the "Tier Two" allowance for
loan losses, was 12.45% of risk-weighted assets. The leverage capital ratio was
8.86%. 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 asset and
liability committee, based upon policies approved by the Board of Directors.
Strategies are implemented by the Company's asset and liability committee. This
committee meets periodically to review and direct the Banks' lending and
deposit-gathering functions. Investment and borrowing activities are managed by
the Company's Treasury function.
The measure of an institution's liquidity is its ability to meet its cash
commitments at all times with available cash or by conversion of other assets to
cash at a reasonable price. At March 31, 2000, the Company maintained cash
balances and short-term investments of approximately $128.2 million, compared
with $150.4 million at December 31, 1999.
Interest-rate risk is the sensitivity of income to variations in interest
rates over both short-term and long-term horizons. The primary goal of
interest-rate management is to control this risk within limits approved by the
Board of Directors. These limits and guidelines reflect the Company's tolerance
for interest-rate risk. The Company attempts to control interest-rate risk by
identifying exposures, quantifying them and taking appropriate actions. The
Company quantifies its interest-rate risk exposure using sophisticated
simulation and valuation models, as well as simpler gap analyses. For a full
discussion of interest-rate risk see "Liquidity and Rate Sensitivity" in the
Company's 1999 annual report on Form 10-K. There has not been a material change
in the Company's interest-rate exposure or its anticipated market risk during
the current period.
12
<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
The Company's first quarter press release announcing the authorization
to repurchase up to 2,000,000 shares of its common stock was filed on
Form 8-K on January 26, 2000.
13
<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
May 12, 2000 /S/ PAUL A. PERRAULT
- ------------ ----------------------------
Date Paul A. Perrault,
Chairman, President and
Chief Executive Officer
May 12, 2000 /S/ KIRK W. WALTERS
- ------------ ----------------------------
Date Kirk W. Walters
Executive Vice President,
Treasurer, and Chief Financial Officer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from 10-Q,
3/31/00 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 117,467
<INT-BEARING-DEPOSITS> 275
<FED-FUNDS-SOLD> 10,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 637,238
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 2,950,339
<ALLOWANCE> 41,228
<TOTAL-ASSETS> 3,839,034
<DEPOSITS> 3,187,049
<SHORT-TERM> 254,323
<LIABILITIES-OTHER> 46,073
<LONG-TERM> 0
0
0
<COMMON> 28,466
<OTHER-SE> 323,123
<TOTAL-LIABILITIES-AND-EQUITY> 3,839,034
<INTEREST-LOAN> 59,616
<INTEREST-INVEST> 10,836
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 70,452
<INTEREST-DEPOSIT> 24,479
<INTEREST-EXPENSE> 27,929
<INTEREST-INCOME-NET> 42,523
<LOAN-LOSSES> 2,175
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 32,992
<INCOME-PRETAX> 21,307
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,591
<EPS-BASIC> 0.52
<EPS-DILUTED> 0.51
<YIELD-ACTUAL> 4.75
<LOANS-NON> 11,280
<LOANS-PAST> 6,594
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 41,079
<CHARGE-OFFS> 2,793
<RECOVERIES> 767
<ALLOWANCE-CLOSE> 41,228
<ALLOWANCE-DOMESTIC> 41,228
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
