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 the Quarterly Period Ended September 30, 2006
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 001-13769
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 check mark 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. x Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of a “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check One):
Large Accelerated Filer x Accelerated Filer ¨ Non-Accelerated Filer ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
At October 16, 2006, there were 46,004,441 shares of Chittenden Corporation’s $1.00 par value common stock issued and outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
2
Chittenden Corporation
Consolidated Balance Sheets
(Unaudited)
September 30, 2006 | December 31, 2005 | |||||||
(in thousands) | ||||||||
Assets: | ||||||||
Cash and cash equivalents | $ | 145,393 | $ | 180,707 | ||||
Securities available for sale | 1,231,369 | 1,383,909 | ||||||
FRB and FHLB stock | 16,124 | 19,352 | ||||||
Loans held for sale | 21,646 | 19,737 | ||||||
Loans: | ||||||||
Commercial & Industrial (C&I) | 854,475 | 848,420 | ||||||
Municipal | 144,152 | 160,357 | ||||||
Multi-family | 213,153 | 196,590 | ||||||
Commercial real estate | 1,933,279 | 1,778,202 | ||||||
Construction | 211,187 | 192,165 | ||||||
Residential real estate | 749,106 | 737,462 | ||||||
Home equity credit lines | 325,814 | 316,465 | ||||||
Consumer | 246,394 | 257,829 | ||||||
Total Loans | 4,677,560 | 4,487,490 | ||||||
Less: Allowance for loan losses | (62,153 | ) | (60,822 | ) | ||||
Net loans | 4,615,407 | 4,426,668 | ||||||
Accrued interest receivable | 32,393 | 32,621 | ||||||
Other assets | 89,759 | 93,377 | ||||||
Premises and equipment, net | 67,952 | 69,731 | ||||||
Mortgage servicing rights | 14,347 | 13,741 | ||||||
Identified intangibles | 15,661 | 17,655 | ||||||
Goodwill | 216,038 | 216,038 | ||||||
Total assets | $ | 6,466,089 | $ | 6,473,536 | ||||
Liabilities: | ||||||||
Deposits: | ||||||||
Demand | $ | 971,378 | $ | 973,752 | ||||
Savings | 481,380 | 489,734 | ||||||
NOW | 866,134 | 861,000 | ||||||
CMAs/ Money market | 1,658,319 | 1,749,878 | ||||||
Certificates of deposit less than $100,000 | 858,834 | 814,289 | ||||||
Certificates of deposit $100,000 and over | 663,086 | 625,682 | ||||||
Total deposits | 5,499,131 | 5,514,335 | ||||||
Securities sold under agreements to repurchase | 87,112 | 56,315 | ||||||
Other borrowings | 135,975 | 171,008 | ||||||
Accrued expenses and other liabilities | 63,162 | 60,488 | ||||||
Total liabilities | 5,785,380 | 5,802,146 | ||||||
Stockholders’ Equity: | ||||||||
Preferred stock - $100 par value; authorized – 1,000,000 shares; issued and outstanding - none | — | — | ||||||
Common stock - $1 par value; authorized – 120,000,000 shares; issued and outstanding – 50,234,661 in 2006 and 50,219,825 in 2005 | 50,235 | 50,220 | ||||||
Surplus | 274,834 | 276,278 | ||||||
Retained earnings | 454,985 | 419,057 | ||||||
Treasury stock, at cost – 4,240,320 shares in 2006 and 3,390,777 shares in 2005 | (85,613 | ) | (60,801 | ) | ||||
Accumulated other comprehensive income | (19,470 | ) | (18,968 | ) | ||||
Directors’ deferred compensation to be settled in stock | 5,738 | 5,604 | ||||||
Total stockholders’ equity | 680,709 | 671,390 | ||||||
Total liabilities and stockholders’ equity | $ | 6,466,089 | $ | 6,473,536 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
Chittenden Corporation
Consolidated Statements of Income
(Unaudited)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||
(in thousands, except per share amounts) | ||||||||||||
Interest income: | ||||||||||||
Loans | $ | 82,743 | $ | 68,588 | $ | 234,555 | $ | 189,525 | ||||
Investments | 13,539 | 14,033 | 42,353 | 43,923 | ||||||||
Total interest income | 96,282 | 82,621 | 276,908 | 233,448 | ||||||||
Interest expense: | ||||||||||||
Deposits | 28,868 | 17,561 | 77,648 | 43,022 | ||||||||
Borrowings | 4,689 | 2,845 | 13,487 | 9,146 | ||||||||
Total interest expense | 33,557 | 20,406 | 91,135 | 52,168 | ||||||||
Net interest income | 62,725 | 62,215 | 185,773 | 181,280 | ||||||||
Provision for credit losses | 1,670 | 1,325 | 4,953 | 3,800 | ||||||||
Net interest income after provision for credit losses | 61,055 | 60,890 | 180,820 | 177,480 | ||||||||
Noninterest income: | ||||||||||||
Investment management and trust | 5,233 | 4,996 | 15,708 | 14,970 | ||||||||
Service charges on deposits | 4,277 | 4,053 | 12,564 | 12,187 | ||||||||
Mortgage servicing | 382 | 658 | 1,702 | 1,222 | ||||||||
Gains on sales of loans, net | 1,624 | 2,586 | 4,897 | 6,720 | ||||||||
Credit card, net | 1,376 | 1,237 | 3,837 | 3,343 | ||||||||
Insurance commissions, net | 1,275 | 1,341 | 4,750 | 5,231 | ||||||||
Other | 1,970 | 2,907 | 8,794 | 8,840 | ||||||||
Total noninterest income | 16,137 | 17,778 | 52,252 | 52,513 | ||||||||
Noninterest expense: | ||||||||||||
Salaries | 23,200 | 22,250 | 69,906 | 67,837 | ||||||||
Employee benefits | 5,637 | 5,784 | 16,987 | 16,501 | ||||||||
Net occupancy | 5,705 | 5,844 | 17,635 | 18,194 | ||||||||
Data processing | 1,034 | 921 | 2,987 | 2,506 | ||||||||
Amortization of intangibles | 665 | 665 | 1,994 | 2,103 | ||||||||
Other | 9,777 | 9,948 | 30,545 | 30,713 | ||||||||
Total noninterest expense | 46,018 | 45,412 | 140,054 | 137,854 | ||||||||
Income before income taxes | 31,174 | 33,256 | 93,018 | 92,139 | ||||||||
Income tax expense | 9,449 | 11,572 | 30,086 | 31,913 | ||||||||
Net income | $ | 21,725 | $ | 21,684 | $ | 62,932 | $ | 60,226 | ||||
Basic earnings per share | $ | 0.47 | $ | 0.47 | $ | 1.36 | $ | 1.30 | ||||
Diluted earnings per share | 0.47 | 0.46 | 1.34 | 1.28 | ||||||||
Dividends per share | 0.20 | 0.18 | 0.58 | 0.54 |
The accompanying notes are an integral part of these consolidated financial statements.
4
Chittenden Corporation
Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended September 30, | ||||||||
2006 | 2005 | |||||||
(in thousands) | ||||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 62,932 | $ | 60,226 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Provision for credit losses | 4,953 | 3,800 | ||||||
Depreciation | 5,617 | 6,147 | ||||||
Amortization of intangible assets | 1,994 | 2,103 | ||||||
Amortization of premiums, fees, and discounts, net | 5,762 | 9,095 | ||||||
Share-based payment compensation | 3,041 | 2,231 | ||||||
Recovery of MSR impairment | (117 | ) | (289 | ) | ||||
Prepaid income taxes | (1,575 | ) | (3,174 | ) | ||||
Loans originated for sale | (225,063 | ) | (280,580 | ) | ||||
Proceeds from sales of loans | 224,866 | 281,951 | ||||||
Gains on sales of loans, net | (4,897 | ) | (6,720 | ) | ||||
Changes in assets and liabilities: | ||||||||
Accrued interest receivable | 228 | (246 | ) | |||||
Other assets | 6,898 | (4,187 | ) | |||||
Accrued expenses and other liabilities | 4,081 | 12,714 | ||||||
Net cash provided by operating activities | 88,720 | 83,071 | ||||||
Cash flows from investing activities: | ||||||||
Proceeds from redemptions of FHLB stock | 3,237 | — | ||||||
Purchase of Federal Reserve Bank stock | — | (109 | ) | |||||
Proceeds from sales of securities available for sale | — | 29,354 | ||||||
Proceeds from principal payments on securities available for sale | 172,970 | 222,166 | ||||||
Purchases of securities available for sale | (25,318 | ) | (183,268 | ) | ||||
Loans originated, net of principal repayments | (199,899 | ) | (355,351 | ) | ||||
Purchases of premises and equipment | (3,838 | ) | (2,385 | ) | ||||
Net cash used in investing activities | (52,848 | ) | (289,593 | ) | ||||
Cash flows from financing activities: | ||||||||
Net increase (decrease) in deposits | (15,204 | ) | 354,618 | |||||
Net increase (decrease) in repurchase agreements | 30,797 | (100,203 | ) | |||||
Net decrease in other borrowings | (35,033 | ) | (12,602 | ) | ||||
Common stock transactions – net | 3,640 | 3,724 | ||||||
Dividends on common stock | (26,992 | ) | (25,074 | ) | ||||
Repurchase of common stock | (28,394 | ) | — | |||||
Net cash provided by (used in) financing activities | (71,186 | ) | 220,463 | |||||
Net increase (decrease) in cash and cash equivalents | (35,314 | ) | 13,941 | |||||
Cash and cash equivalents at beginning of period | 180,707 | 136,468 | ||||||
Cash and cash equivalents at end of period | $ | 145,393 | $ | 150,409 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 92,434 | $ | 53,335 | ||||
Income taxes | 32,017 | 39,096 | ||||||
Non-cash investing and financing activities: | ||||||||
Assets acquired through foreclosure and repossession | 424 | 114 | ||||||
Issuance of treasury and restricted stock | 2,995 | 2,928 |
The accompanying notes are an integral part of these consolidated financial statements.
5
NOTE 1 - ACCOUNTING POLICIES
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.
Chittenden Corporation’s (the “Company”) significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in its 2005 Annual Report on Form 10-K filed with the Securities and Exchange Commission. For interim reporting purposes, the Company follows the same accounting policies and considers each interim period as an integral part of an annual period. Certain amounts presented for the period have been reclassified to conform with the presentation used in the current period.
Effective January 1, 2006, the Company adopted Financial Accounting Standards Board Statement No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R) which amends SFAS 123, “Accounting for Stock-Based Compensation”, and supercedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. The Company adopted SFAS 123R using the modified retrospective method. The modified retrospective method requires that compensation cost be recognized beginning with the effective date 1) based on the requirements of SFAS 123R for all share-based payments granted after the effective date and 2) based on the requirements of SFAS 123 for all awards granted to employees prior to the effective date of SFAS 123R. The modified retrospective method also requires companies to adjust prior year financials based on the amounts previously reported under the SFAS 123 pro forma disclosures for all prior periods in which SFAS 123 was effective. See Note 7 for a more detailed description of the Company’s adoption of SFAS 123R.
NOTE 2 – ACQUIRED INTANGIBLE ASSETS
As of September 30, 2006 | |||||||||
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||
(in thousands) | |||||||||
Amortized intangible assets | |||||||||
Core deposit intangibles | $ | 28,541 | $ | 16,371 | $ | 12,170 | |||
Customer list intangibles | 7,498 | 4,007 | 3,491 | ||||||
Total | $ | 36,039 | $ | 20,378 | $ | 15,661 | |||
Aggregate Amortization Expense: | |||
For the three months ended September 30, 2006 | $ | 665 | |
For the nine months ended September 30, 2006 | 1,994 | ||
Estimated Amortization Expense: | |||
For year ended 12/31/07 | 2,659 | ||
For year ended 12/31/08 | 2,659 | ||
For year ended 12/31/09 | 2,659 | ||
For year ended 12/31/10 | 2,542 | ||
For year ended 12/31/11 | 2,379 |
There were no changes in the carrying amount of goodwill for the nine months ended September 30, 2006.
6
NOTE 3 – CAPITAL TRUST SECURITIES
On May 21, 2002, Chittenden Capital Trust I (the “Trust”) issued $125 million of 8% trust preferred securities (“Trust Preferred Securities”) to the public and invested the proceeds from this offering in an equivalent amount of junior subordinated debentures issued by the Company. These debentures are the sole asset of the Trust. The proceeds from the offering, which was net of $4.4 million of issuance costs, were primarily used to fund the cash consideration paid in the Granite Bank transaction. The Trust Preferred Securities pay interest quarterly, are mandatorily redeemable on July 1, 2032 and may be redeemed by the Trust at par any time on or after July 1, 2007. The Company has fully and unconditionally guaranteed the Trust Preferred Securities issued by the Trust.
Concurrent with the issuance of these Trust Preferred Securities, the Company entered into interest rate swap agreements with two counterparties, pursuant to which the Company received 8% fixed on the notional amount of $125 million, while paying the counterparties a variable rate based on the three month LIBOR (London Interbank Offered Rate), plus approximately 122 basis points. In August 2006, the Company terminated the interest rate swap agreements with both counterparties and settled with a final payment of interest and termination fees of $372,000.
NOTE 4 – COMPREHENSIVE INCOME
The Company’s comprehensive income for the three months and nine months ended September 30, 2006 and 2005 is presented below:
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2006 | 2005 | 2006 | 2005 | ||||||||||||
(in thousands) | |||||||||||||||
Net Income | $ | 21,725 | $ | 21,684 | $ | 62,932 | $ | 60,226 | |||||||
Unrealized gains (losses) on securities available for sale, net of tax | 11,454 | (9,613 | ) | (506 | ) | (15,263 | ) | ||||||||
Reclassification adjustments for gains arising during the period, net of tax | — | (4 | ) | — | (4 | ) | |||||||||
Foreign currency translation adjustments | — | — | 4 | — | |||||||||||
Total Comprehensive Income | $ | 33,179 | $ | 12,067 | $ | 62,430 | $ | 44,959 | |||||||
NOTE 5 – EARNINGS PER SHARE
The following table summarizes the calculation of basic and diluted earnings per share:
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||
(in thousands except per share information) | ||||||||||||
Net income | $ | 21,725 | $ | 21,684 | $ | 62,932 | $ | 60,226 | ||||
Weighted average common shares outstanding | 45,982 | 46,519 | 46,400 | 46,440 | ||||||||
Dilutive effect of common stock equivalents | 522 | 590 | 532 | 529 | ||||||||
Weighted average common and common equivalent shares | 46,504 | 47,109 | 46,932 | 46,969 | ||||||||
Basic earnings per share | $ | 0.47 | $ | 0.47 | $ | 1.36 | $ | 1.30 | ||||
Diluted earnings per share | 0.47 | 0.46 | 1.34 | 1.28 |
7
The following table summarizes anti-dilutive stock options which were not included in the computation of common stock equivalents:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||
Anti-dilutive options | 918,115 | 445,725 | 918,115 | 466,031 | ||||||||
Weighted average exercise price | $ | 29.50 | $ | 29.90 | $ | 29.50 | $ | 29.78 |
NOTE 6 – STOCK PLANS
Effective January 1, 2006, the Company adopted SFAS 123R using the modified retrospective method to account for share-based payments to employees and the Company’s Board of Directors. In accordance with the modified retrospective method, the Company has adjusted previously reported results to reflect the effect of expensing stock options granted during those periods. The cumulative adjustment associated with the adoption of SFAS 123R increased the Company’s deferred tax asset $4.2 million, surplus $19.8 million and decreased retained earnings $15.6 million as of the quarter ended March 31, 2006.
The primary type of share-based payment utilized by the Company is stock options. Stock options are awards which allow the employee to purchase shares of the Company’s stock at a fixed price. In accordance with Chittenden’s Stock Incentive Plan, stock options are granted at an exercise price equal to the Company stock price at the date of grant. Prior to 2006, the stock options issued by the Company generally vested immediately at the time of issuance. In 2006, the Company’s Board of Directors changed this practice and vested the new option grants over one year.
The following tables summarize stock option activity during the first nine months of 2006:
Options | Weighted-Average Exercise Price Per Share | |||||
Outstanding at December 31, 2005 | 3,373,623 | $ | 23.49 | |||
Options granted | 489,500 | 29.11 | ||||
Options exercised | (171,803 | ) | 21.31 | |||
Options forfeited | (5,750 | ) | 29.11 | |||
Options expired | (5,500 | ) | 29.46 | |||
Outstanding at September 30, 2006 | 3,680,070 | $ | 24.33 | |||
Exercisable at September 30, 2006 | 3,556,820 | $ | 24.16 |
Options Outstanding | Options Exercisable | |||||||||||
Range of Exercise Prices | Options Outstanding | Weighted Avg. Contractual Life | Weighted Average Exercise Price | Options Exercisable | Weighted Average Exercise Price | |||||||
$12.03 - $20.15 | 674,929 | 4.65 | $ | 19.13 | 674,929 | $ | 19.13 | |||||
$20.24 - $22.89 | 815,377 | 5.01 | $ | 21.94 | 815,377 | $ | 21.94 | |||||
$22.93 - $24.50 | 721,111 | 7.58 | $ | 23.95 | 721,111 | $ | 23.95 | |||||
$24.60 - $29.11 | 1,051,011 | 7.79 | $ | 27.53 | 929,636 | $ | 27.32 | |||||
$29.20 - $32.74 | 395,774 | 7.36 | $ | 29.65 | 393,899 | $ | 29.65 | |||||
$36.02 | 21,868 | 2.09 | $ | 36.02 | 21,868 | $ | 36.02 | |||||
$12.03 - $36.02 | 3,680,070 | 6.48 | $ | 24.33 | 3,556,820 | $ | 24.16 | |||||
The Company estimates the fair value of stock option grants using the Black-Scholes valuation model and the key input assumptions are described fully in the disclosure of its critical accounting policies in Item 2 of this report on Form 10-Q. The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are consistent with SFAS 123R. Estimates of fair value are not intended to predict the actual future value ultimately realized by employees who receive share-based awards, and subsequent events are not indicative of the reasonableness of original estimates of fair value made by the Company under SFAS 123R.
8
The following table presents the key input assumptions for the Black-Scholes valuation model:
Nine Months Ended September 30, | ||||||||
2006 | 2005 | |||||||
Expected term (years) | 4.79 | 4.76 | ||||||
Volatility | 24.67 | 21.97 | ||||||
Risk-free interest rate | 4.71 | % | 3.78 | % | ||||
Dividend yield | 2.47 | % | 2.91 | % | ||||
Fair value per share | $ | 6.55 | $ | 4.36 |
The total intrinsic value (market value on date of exercise less grant price) of options exercised during the three months ended September 30, 2006 and 2005, was $277,000 and $878,000, respectively. The total cash received from employees as a result of employee stock option exercises for the quarters ended September 30, 2006 and 2005 was approximately $1.2 million and $2.5 million, respectively. The tax benefit realized as a result of the stock option exercises was $84,000 in the third quarter of 2006 compared with $306,000 for the same period in 2005.
As of September 30, 2006, there was $784,000 of unearned compensation cost related to non-vested stock options granted in 2006 under the plans. The Company expects to recognize this expense in the fourth quarter of 2006 when the stock options become fully vested. The total compensation cost related to options during the quarters ended September 30, 2006 and September 30, 2005 was $784,000 and $5,000, respectively. These amounts are included in salary expense in the accompanying consolidated Statements of Income.
NOTE 7 – PENSION PLAN
The Company sponsors a qualified defined benefit pension plan “Pension Account Plan”. On December 31, 2005, benefits accrued under the defined benefit Pension Account Plan were frozen based on participants’ current service and pay levels. Effective January 1, 2006, the Company’s annual contribution to the Incentive Savings and Profit Sharing Plan was enhanced for all eligible employees.
The components of net periodic pension expense, which is included in employee benefits expense in the consolidated statements of income are presented below.
Nine Months Ended September 30, | ||||||||
2006 | 2005 | |||||||
(in thousands) | ||||||||
Service cost | $ | 746 | $ | 2,981 | ||||
Interest cost | 2,882 | 3,120 | ||||||
Expected return on plan assets | (3,901 | ) | (3,593 | ) | ||||
Net amortization: | ||||||||
Prior service cost | — | (379 | ) | |||||
Net actuarial loss | 99 | 776 | ||||||
Transition cost | — | — | ||||||
Total amortization | 99 | 397 | ||||||
Net periodic pension expense (income) | $ | (174 | ) | $ | 2,905 | |||
The Company made a voluntary contribution totaling $1.5 million to the Pension Account Plan during the third quarter of 2006.
9
NOTE 8 – BUSINESS SEGMENTS
The Company has identified Commercial Banking as its reportable operating business segment based on the fact that the results of operations are viewed as a single strategic unit by the chief operating decision-maker. The Commercial Banking segment is comprised of the five Commercial Banking subsidiaries, Chittenden Trust Company, The Bank of Western Massachusetts, Flagship Bank and Trust Co., Ocean National Bank and Maine Bank and Trust Co. (the “Banks”), 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 deposits, business services, investment management and trust, and mortgage banking.
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. Revenue derived from these segments includes commissions from insurance related products and services, as well as other operations associated with the parent holding company. The consolidation adjustments reflect certain eliminations of inter-segment revenue, cash and parent company investments in subsidiaries.
For the Three Months Ended September 30, 2006 | Commercial Banking | Other (2) | Consolidation Adjustments | Consolidated | ||||||||||
(in thousands) | ||||||||||||||
Net interest income (1) | $ | 65,300 | $ | (2,575 | ) | $ | — | $ | 62,725 | |||||
Noninterest income | 15,195 | 942 | — | 16,137 | ||||||||||
Provision for credit losses | 1,670 | — | — | 1,670 | ||||||||||
Noninterest expense | 44,621 | 1,397 | — | 46,018 | ||||||||||
Net income (loss) before income tax | 34,204 | (3,030 | ) | — | 31,174 | |||||||||
Income tax expense/(benefit) | 10,664 | (1,215 | ) | — | 9,449 | |||||||||
Net income (loss) | $ | 23,540 | $ | (1,815 | ) | $ | — | $ | 21,725 | |||||
End of Period Assets | $ | 6,622,770 | $ | 877,316 | $ | (1,033,997 | ) | $ | 6,466,089 | |||||
For the Three Months Ended September 30, 2005 | Commercial Banking | Other (2) | Consolidation Adjustments | Consolidated | ||||||||||
(in thousands) | ||||||||||||||
Net interest income (1) | $ | 63,963 | $ | (1,748 | ) | $ | — | $ | 62,215 | |||||
Noninterest income | 16,412 | 1,366 | — | 17,778 | ||||||||||
Provision for loan losses | 1,325 | — | — | 1,325 | ||||||||||
Noninterest expense | 43,623 | 1,789 | — | 45,412 | ||||||||||
Net income (loss) before income tax | 35,427 | (2,171 | ) | — | 33,256 | |||||||||
Income tax expense/(benefit) | 12,356 | (784 | ) | — | 11,572 | |||||||||
Net income (loss) | $ | 23,071 | $ | (1,387 | ) | $ | — | $ | 21,684 | |||||
End of Period Assets | $ | 6,408,631 | $ | 825,804 | $ | (878,606 | ) | $ | 6,355,829 |
10
For the Nine Months Ended September 30, 2006 | Commercial Banking | Other (2) | Consolidation Adjustments | Consolidated | ||||||||||
(in thousands) | ||||||||||||||
Net interest income (1) | $ | 192,603 | $ | (6,830 | ) | $ | — | $ | 185,773 | |||||
Noninterest income | 47,748 | 4,504 | — | 52,252 | ||||||||||
Provision for credit losses | 4,953 | — | — | 4,953 | ||||||||||
Noninterest expense | 135,526 | 4,528 | — | 140,054 | ||||||||||
Net income (loss) before income tax | 99,872 | (6,854 | ) | — | 93,018 | |||||||||
Income tax expense/(benefit) | 32,753 | (2,667 | ) | — | 30,086 | |||||||||
Net income (loss) | $ | 67,119 | $ | (4,187 | ) | $ | — | $ | 62,932 | |||||
End of Period Assets | $ | 6,622,770 | $ | 877,316 | $ | (1,033,997 | ) | $ | 6,466,089 | |||||
For the Nine Months Ended September 30, 2005 | Commercial Banking | Other (2) | Consolidation Adjustments | Consolidated | ||||||||||
(in thousands) | ||||||||||||||
Net interest income (1) | $ | 186,033 | $ | (4,753 | ) | $ | — | $ | 181,280 | |||||
Noninterest income | 47,207 | 5,306 | — | 52,513 | ||||||||||
Provision for loan losses | 3,800 | — | — | 3,800 | ||||||||||
Noninterest expense | 130,523 | 7,331 | — | 137,854 | ||||||||||
Net income (loss) before income tax | 98,917 | (6,778 | ) | — | 92,139 | |||||||||
Income tax expense/(benefit) | 34,316 | (2,403 | ) | — | 31,913 | |||||||||
Net income (loss) | $ | 64,601 | $ | (4,375 | ) | $ | — | $ | 60,226 | |||||
End of Period Assets | $ | 6,408,631 | $ | 825,804 | $ | (878,606 | ) | $ | 6,355,829 |
(1) | The Commercial Banking segment derives a majority of its revenue from interest. In addition, management primarily relies on net interest income, not the gross revenue and expense amounts, in managing the segment. Therefore, only the net amount has been disclosed. |
(2) | Revenue derived from these non-reportable segments includes insurance commissions from insurance related products and services, as well as other operations associated with the parent holding company. |
NOTE 9 – STOCKHOLDERS’ EQUITY
On October 18, 2006 the Company’s Board of Directors declared a dividend of $0.20 per share or approximately $9.2 million, to be paid on November 10, 2006 to shareholders of record on October 27, 2006. In the third quarter of 2006, the Company repurchased 37,500 shares of common stock at an average price per share of $27.92 under the Company’s share repurchase plan, which was adopted on July 19, 2006. The repurchase of the common stock may be done in negotiated transactions or open market purchases for two years from the date the repurchase plan was adopted.
NOTE 10 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, to meet customers’ financing needs and to reduce their own exposure to fluctuations in interest rates, the Banks are parties to financial instruments with off-balance sheet risk, held for purposes other than trading. The financial instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Banks’ exposure to credit loss in the event of nonperformance by the other party for loan commitments and standby letters of credit is represented by the contractual amount of those instruments, assuming that the amounts are fully advanced and that collateral or other security is of no value. The Banks use the same credit policies in making commitments and conditional obligations as they do for on-balance sheet instruments. The amount of collateral obtained, if deemed necessary by the Banks upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held varies, but may include accounts receivable, inventory, plant and equipment, and real estate.
11
Commitments to originate loans, unused lines of credit, and unadvanced portions of commercial real estate and construction loans are agreements to lend to a customer provided there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Many of the commitments are expected to expire without being drawn upon. Therefore, the amounts presented below do not necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by the Banks to guarantee the performance by a customer to a third party. These guarantees are issued primarily to support public and private borrowing arrangements, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan commitments to customers. Other commitments refer to the Company’s equity investments in limited partnerships for CRA related low income housing projects.
Financial instruments whose contractual amounts represent off-balance sheet risk at September 30, 2006 (in thousands):
Loan Commitments | |||
Commitments to originate loans | $ | 157,305 | |
Unused home equity lines of credit | 394,617 | ||
Unused portions of business credit card lines | 55,799 | ||
Unadvanced portions of C&I loans | 442,136 | ||
Unadvanced portions of commercial real estate and construction loans | 195,275 | ||
Standby Letters of Credit | |||
Notional amount collateralized by cash | $ | 66,299 | |
Notional amount of other standby letters of credit | 37,163 | ||
Liability associated with letters of credit recorded on balance sheet | 409 | ||
Other Commitments | |||
Equity investment commitments | 14,768 |
NOTE 11 – RECENT ACCOUNTING PRONOUNCEMENTS
On September 29, 2006, the Financial Accounting Standards Board “FASB” issued SFAS No. 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (“SFAS 158”), which amends SFAS 87 and SFAS 106 to require recognition of the overfunded or underfunded status of pension and other postretirement benefit plans on the balance sheet. Under SFAS 158, gains and losses, prior service costs and credits, and any remaining transition amounts under SFAS 87 and SFAS 106 that have not yet been recognized through net periodic benefit cost will be recognized in accumulated other comprehensive income, net of tax effects, until they are amortized as a component of net periodic cost. The measurement date — the date at which the benefit obligation and plan assets are measured — is required to be the company’s fiscal year end. SFAS 158 is effective for publicly-held companies for fiscal years ending after December 15, 2006, except for the measurement date provisions, which are effective for fiscal years ending after December 15, 2008. The Company is currently analyzing the effects of SFAS 158 but does not expect its implementation will have a significant impact on the Company’s financial conditions or results of operations.
On September 13, 2006, the Securities and Exchange Commission “SEC” issued Staff Accounting Bulleting No. 108 (“SAB 108”). SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a potential current year misstatement. Prior to SAB 108, Companies might evaluate the materiality of financial-statement misstatements using either the income statement or balance approach, with the income statement approach
12
focusing on new misstatements added in the current year, and the balance sheet approach focusing on the cumulative amount of misstatement present in a company’s balance sheet. Misstatements that would be material under one approach could be viewed as immaterial under another approach, and not be corrected. SAB 108 now requires that companies view financial statement misstatements as material if they are material according to either the income statement or balance sheet approach. The Company has analyzed SAB 108 and determined that upon adoption it will have no impact on the reported results of operations or financial conditions.
In July 2006, the FASB issued Financial Accounting Standards Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes”. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises’ financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48 prescribes a recognition threshold and measurement attributable for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transitions. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently analyzing the effects of FIN 48.
In March 2006, the FASB also issued Statement of Financial Accounting Standards No. 156 (“SFAS 156”), “Accounting for Servicing of Financial Assets”. This statement amends Financial Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”, with respect to the accounting for separately recognized servicing assets and servicing liabilities. SFAS 156 requires companies to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract. The statement permits a company to choose either the amortized cost method or fair value measurement method for each class of separately recognized servicing assets. This statement is effective as of the beginning of a company’s first fiscal year after September 15, 2006. The Company is in the process of analyzing the impact of SFAS 156.
13
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This report contains statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these statements by forward-looking words such as “may,” “could,” “should,” “would,” “intend,” “will,” “expect,” “anticipate,” “believe,” “estimate,” “continue” or similar words. The Company intends these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and is including this statement for purposes of complying with these safe harbor provisions. You should read statements that contain these words carefully because they discuss the Company’s future expectations, contain projections of the Company’s future results of operations or financial condition, or state other “forward-looking” information.
There may be events in the future that the Company is not able to predict accurately or control and that may cause actual results to differ materially from the expectations described in forward-looking statements. Readers are cautioned that all forward-looking statements involve risks and uncertainties, and actual results may differ materially from those discussed in this report. These differences may be the result of various factors, including changes in general, national or regional economic conditions, changes in loan default and charge-off rates, reductions in deposit levels necessitating increased borrowings to fund loans and investments, changes in interest rates, changes in levels of noninterest income and expense related activities, changes in the methods or rates used by governments to assess taxes against the Company including income that is exempted from taxation or expenses that are not deductible for tax purposes, and other risk factors identified from time to time in the Company’s periodic filings with the Securities and Exchange Commission.
The factors referred to above include many, but not all of the factors that could impact the Company’s ability to achieve the results described in any forward-looking statements. You should not place undue reliance on forward-looking statements. You should be aware that the occurrence or non-occurrence of the events described above and elsewhere in this report could harm the Company’s business, prospects, operating results or financial condition. The Company does not undertake any obligation to update any forward-looking statements as a result of future events or developments.
Application of Critical Accounting Policies
The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2005. The Company considers the following accounting policies and related estimates to be the most critical in their potential effect on its financial position or results of operations:
Allowance for Credit Losses (ACL). The allowance for credit losses consists of two components: (1) the allowance for loan losses and (2) the reserve for unfunded commitments. The allowance for loan losses is established through a charge against current earnings to the provision for credit losses. The allowance for loan losses is based on management’s estimate of the amount required to reflect the probable inherent losses in the loan portfolio, based on circumstances and conditions known at each reporting date in accordance with Generally Accepted Accounting Principles (“GAAP”). There are three components of the allowance for loan losses: 1) specific reserves for loans considered to be impaired or for other loans for which management considers a specific reserve to be necessary; 2) allocated reserves based upon management’s formula-based process for assessing the adequacy of the allowance for loan losses; and 3) a non-specific environmentally-driven allowance considered necessary by management based on its assessment of other qualitative factors. The allowance for loan losses is a significant estimate and is regularly reviewed by the Company for adequacy using a consistent, systematic methodology which assesses such factors as changes in the mix and volume of the loan portfolio; trends in portfolio credit quality, including delinquency and charge-off rates; and current economic conditions that may affect a borrower’s ability to repay. Adverse changes in management’s assessment of these factors could lead to additional provisions for loan losses.
14
The reserve for unfunded commitments is based on management’s estimate of the amount required to reflect the probable inherent losses on outstanding letters of credit, merchant processing activity and unused loan credit commitments. Adequacy of the reserve is determined using a consistent, systematic methodology, similar to the one that analyzes the allowance for loan losses. Management must also estimate the likelihood that these commitments would be funded and become loans. This is done by evaluating the historical utilization of each type of unfunded commitment and estimating the likelihood that the current utilization rates on lines available at the balance sheet date could change in the future. The Company’s methodology with respect to the assessment of the adequacy of the allowance for credit losses is more fully discussed in its Form 10-K for the year ended December 31, 2005.
Income Taxes.The Company estimates income tax expense in each of the jurisdictions in which it operates for each period for which a statement of operations is presented. This involves estimating the Company’s actual current tax exposure as well as assessing temporary differences resulting from differing treatment of items, such as timing of the deduction of expenses, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the Company’s consolidated balance sheets. The Company must also assess the likelihood that any deferred tax assets will be recovered from future taxable income and to the extent that recovery is not likely, a valuation allowance must be established. Significant management judgment is required in determining income tax expense, and deferred tax assets and liabilities. As of September 30, 2006, there were no valuation allowances set aside against any deferred tax assets.
Interest Income Recognition. Interest on loans is included in income as earned based upon interest rates applied to unpaid principal. Interest is not accrued on loans 90 days or more past due unless they are adequately secured and in the process of collection or on other loans when management believes collection is doubtful. All loans considered impaired are nonaccruing. Interest on nonaccruing loans is recognized as payments are received when the ultimate collectibility of interest is no longer considered doubtful. When a loan is placed on nonaccrual status, all unpaid interest previously accrued is reversed against current-period interest income; therefore, an increase in loans on nonaccural status could have an adverse impact on interest income recognized in future periods.
Stock Compensation Plans.The Company has two stock compensation plans: The Stock Incentive Plan and the Directors’ Omnibus Long-term Incentive Plan. In January 2006, the Company adopted FASB Statement No. 123R (revised 2004), “Share-Based Payment” (SFAS 123R) which amends SFAS 123, “Accounting for Stock-Based Compensation”, and supercedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. SFAS 123R requires new, modified and unvested share-based payment transactions with employees to be measured at fair value and recognized as compensation expense over the vesting period. The fair value of each option award is estimated using a Black-Scholes option valuation model that requires the Company to develop estimates for assumptions used in the model. The Black-Scholes valuation model uses the following assumptions: expected volatility, expected term of option, risk-free interest rate and dividend yield. Expected volatility estimates are developed by the Company based on historical volatility of the Company’s stock. The Company uses historical data to estimate the expected term of the options. The risk-free interest rate for periods within the expected life of the option is based on the U.S. Treasury yield in effect at the grant date. The dividend yield represents the expected dividends on the Company stock.
Management Overview
The Company earned $21.7 million in net income for the third quarter of 2006, which was effectively flat compared to the same quarter in 2005. Fully diluted earnings per share increased one cent to $0.47 from the third quarter of 2005 primarily due to common stock repurchases of one million shares in the first half of 2006. Chittenden’s financial results for the nine months ended September 30, 2006 reflected a $2.7 million
15
increase in net income and a 5% increase in fully diluted earnings per share over the comparable period of a year ago. The increase in fully diluted earnings per share and net income for the first nine months of 2006 was primarily due to higher net interest income and lower income tax expense. The increase in net interest income was attributable to higher average earning assets which was partially offset by a lower net interest margin. The decrease in income tax expense was driven by a lower effective tax rate due to higher levels of tax credits.
Results of Operations
The Company posted third quarter 2006 net income $21.725 million or $0.47 per diluted share, compared to $21.684 or $0.46 per diluted share in the third quarter of last year. The increase in fully diluted earnings per share was primiarly attributable to lower weighted average common shares outstanding due to common stock repurchases in the first half of 2006. Return on average equity (ROE) was 13.00% for the quarter ended September 30, 2006 compared with 13.20% for the same period in 2005. Return on average assets (ROA) was 1.33% for the third quarter of 2006, down from 1.37% for the same quarter last year. Net interest income on a tax equivalent basis for the three months ended September 30, 2006 increased to $63.5 million, from $62.8 million for the same period a year ago. The net yield on earning assets was 4.23%, down 12 basis points from the third quarter of 2005. The decline in the net yield on earning assets primarily related to higher funding costs driven by the Federal Reserve increasing short-term interest rates and increased competition for deposits.
On a year to date basis, the Company posted net income of $1.34 per diluted share, compared to $1.28 per diluted share for the same period of last year. Net income for the first nine months of 2006 was $62.9 million, compared to $60.2 million recorded for the first nine months of 2005. ROE was 12.65% through September 30, 2006 compared with 12.59% for the same period in 2005. ROA was 1.30% for the nine-month period ended September 30, 2006, essentially flat with the same period in 2005. Net interest income on a tax equivalent basis for the nine months ended September 30, 2006 was $188.0 million compared with $182.7 million for the same period a year ago. The increase in net interest income was attributable to higher average earning assets which was partially offset by a lower net interest margin. The net yield on earning assets was 4.22%, a decrease of 9 basis points, compared to 4.31% for the same period a year ago. The decline is largely due to an increase in funding costs of 101 basis points which was partially offset by an increase in the yield on interest earning assets. The increase in funding costs was driven by aggressive competition for deposits as well as the Federal Reserve increasing short term interest rates by 225 basis points during this period.
16
The following table presents an analysis of average rates and yields on a fully taxable equivalent basis for the three months and nine months ended September 30, 2006 and 2005:
For the Three Months Ended September 30, 2006 | For the Three Months Ended September 30, 2005 | For the Nine Months Ended September 30, 2006 | For the Nine Months Ended September 30, 2005 | |||||||||||||||||||||||||||||||||||||
Average Balance | Interest Income/ Expense (1) | Average Yield/ Rate (1) | Average Balance | Interest Income/ Expense (1) | Average Yield/ Rate (1) | Description | Average Balance | Interest Income/ Expense (1) | Average Yield/ Rate (1) | Average Balance | Interest Income/ Expense (1) | Average Yield/ Rate (1) | ||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||||||||||
$ | 863,524 | $ | 17,298 | 7.95 | % | $ | 834,727 | $ | 14,460 | 6.87 | % | C&I | $ | 845,080 | $ | 48,731 | 7.71 | % | $ | 818,953 | $ | 39,533 | 6.45 | % | ||||||||||||||||
141,345 | 2,045 | 5.79 | 146,877 | 1,622 | 4.42 | Municipal | 158,602 | 6,055 | 5.09 | 117,175 | 3,356 | 3.82 | ||||||||||||||||||||||||||||
207,717 | 3,706 | 6.98 | 190,694 | 3,123 | 6.41 | Multifamily | 200,973 | 10,485 | 6.88 | 185,105 | 8,792 | 6.26 | ||||||||||||||||||||||||||||
1,915,610 | 33,704 | 6.98 | 1,739,088 | 27,847 | 6.35 | Commercial real estate | 1,858,681 | 95,417 | 6.86 | 1,681,183 | 76,840 | 6.11 | ||||||||||||||||||||||||||||
215,894 | 4,165 | 7.55 | 146,735 | 2,429 | 6.48 | Construction | 214,217 | 11,833 | 7.28 | 148,337 | 7,047 | 6.26 | ||||||||||||||||||||||||||||
771,780 | 12,334 | 6.39 | 746,348 | 11,022 | 5.91 | Residential | 759,203 | 34,986 | 6.20 | 739,380 | 31,215 | 5.63 | ||||||||||||||||||||||||||||
322,452 | 6,524 | 8.03 | 312,292 | 4,974 | 6.32 | Home Equity | 318,144 | 18,338 | 7.71 | 303,415 | 13,491 | 5.94 | ||||||||||||||||||||||||||||
250,665 | 3,720 | 5.88 | 261,000 | 3,739 | 5.68 | Consumer | 252,735 | 10,938 | 5.77 | 250,493 | 10,641 | 5.68 | ||||||||||||||||||||||||||||
4,688,987 | 83,496 | 7.07 | 4,377,761 | 69,216 | 6.27 | Total loans | 4,607,635 | 236,783 | 6.86 | 4,244,041 | 190,915 | 6.00 | ||||||||||||||||||||||||||||
Investments: | ||||||||||||||||||||||||||||||||||||||||
1,269,409 | 13,526 | 4.26 | 1,340,640 | 13,858 | 4.13 | Taxable | 1,330,632 | 42,256 | 4.23 | 1,398,707 | 43,710 | 4.17 | ||||||||||||||||||||||||||||
498 | 8 | 6.52 | 1,008 | 15 | 6.04 | Tax-favored securities | 498 | 24 | 6.52 | 1,197 | 56 | 6.23 | ||||||||||||||||||||||||||||
280 | 2 | 3.12 | 250 | 2 | 2.46 | Interest-bearing deposits | 280 | 6 | 3.05 | 198 | 3 | 2.18 | ||||||||||||||||||||||||||||
425 | 6 | 5.23 | 18,840 | 164 | 3.46 | Federal funds sold | 2,328 | 75 | 4.29 | 6,792 | 173 | 3.40 | ||||||||||||||||||||||||||||
5,959,599 | 97,038 | 6.47 | 5,738,499 | 83,255 | 5.76 | Total interest-earning assets | 5,941,373 | 279,144 | 6.27 | 5,650,935 | 234,857 | 5.55 | ||||||||||||||||||||||||||||
585,321 | 580,675 | Noninterest-earning assets | 577,460 | 569,247 | ||||||||||||||||||||||||||||||||||||
(62,793 | ) | (61,444 | ) | Allowance for loan losses | (62,173 | ) | (60,450 | ) | ||||||||||||||||||||||||||||||||
$ | 6,482,127 | $ | 6,257,730 | $ | 6,456,660 | $ | 6,159,732 | |||||||||||||||||||||||||||||||||
Liabilities and stockholders’ equity | ||||||||||||||||||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||||||
489,804 | 1,050 | 0.85 | 502,122 | 597 | 0.47 | Savings | 486,959 | 2,530 | 0.69 | 509,436 | 1,567 | 0.41 | ||||||||||||||||||||||||||||
851,371 | 1,631 | 0.76 | 890,033 | 1,237 | 0.55 | NOWs | 867,544 | 4,628 | 0.71 | 876,608 | 2,927 | 0.45 | ||||||||||||||||||||||||||||
1,605,212 | 11,433 | 2.83 | 1,518,362 | 6,005 | 1.57 | CMAs/money markets | 1,602,800 | 30,459 | 2.54 | 1,519,236 | 14,474 | 1.27 | ||||||||||||||||||||||||||||
873,690 | 7,532 | 3.42 | 814,942 | 5,118 | 2.49 | Certificates of deposit under $100,000 | 855,926 | 20,489 | 3.20 | 782,401 | 13,177 | 2.25 | ||||||||||||||||||||||||||||
662,562 | 7,222 | 4.32 | 599,388 | 4,604 | 3.05 | Certificates of deposit $100,000 and over | 647,900 | 19,542 | 4.03 | 526,632 | 10,877 | 2.76 | ||||||||||||||||||||||||||||
4,482,639 | 28,868 | 2.55 | 4,324,847 | 17,561 | 1.61 | Total interest-bearing deposits | 4,461,129 | 77,648 | 2.33 | 4,214,313 | 43,022 | 1.36 | ||||||||||||||||||||||||||||
104,068 | 1,008 | 3.84 | 66,187 | 275 | 1.65 | Repurchase agreements | 88,642 | 2,259 | 3.41 | 94,774 | 1,202 | 1.70 | ||||||||||||||||||||||||||||
208,362 | 3,681 | 7.01 | 206,070 | 2,570 | 4.95 | Other borrowings | 245,065 | 11,228 | 6.13 | 246,970 | 7,944 | 4.30 | ||||||||||||||||||||||||||||
4,795,069 | 33,557 | 2.78 | 4,597,104 | 20,406 | 1.76 | Total interest-bearing liabilities | 4,794,836 | 91,135 | 2.54 | 4,556,057 | 52,168 | 1.53 | ||||||||||||||||||||||||||||
Noninterest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||||||
960,255 | 945,559 | Demand deposits | 934,845 | 905,381 | ||||||||||||||||||||||||||||||||||||
63,839 | 63,400 | Other liabilities | 61,998 | 58,694 | ||||||||||||||||||||||||||||||||||||
5,819,163 | 5,606,063 | Total liabilities | 5,791,679 | 5,520,132 | ||||||||||||||||||||||||||||||||||||
662,964 | 651,667 | Stockholders’ equity | 664,981 | 639,600 | ||||||||||||||||||||||||||||||||||||
$ | 6,482,127 | $ | 6,257,730 | $ | 6,456,660 | $ | 6,159,732 | |||||||||||||||||||||||||||||||||
$ | 63,481 | $ | 62,849 | Net interest income | $ | 188,009 | $ | 182,689 | ||||||||||||||||||||||||||||||||
3.69 | % | 4.00 | % | Interest rate spread (2) | 3.73 | % | 4.02 | % | ||||||||||||||||||||||||||||||||
4.23 | 4.35 | Net yield on earning assets (3) | 4.22 | 4.31 |
(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. |
17
The following table attributes changes in the Company’s net interest income (on a fully taxable equivalent basis) to changes in either average balances or average rates for the three and nine months ended September 30, 2006. Changes due to both interest rate and volume have been allocated in proportion to the relationship of the absolute dollar amounts of the change in each.
QTD 2006 Compared with QTD 2005 | YTD 2006 Compared with YTD 2005 | |||||||||||||||||||||||
Increase (Decrease) in Net Interest Income Due to: | Total Increase (Decrease) | Increase (Decrease) in Net Interest Income Due to: | Total Increase (Decrease) | |||||||||||||||||||||
Average Rate | Average Balance | Average Rate | Average Balance | |||||||||||||||||||||
Description | ||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||
Interest income: | ||||||||||||||||||||||||
Loans: | ||||||||||||||||||||||||
$ | 2,260 | $ | 578 | $ | 2,838 | C&I | $ | 7,692 | $ | 1,506 | $ | 9,198 | ||||||||||||
503 | (80 | ) | 423 | Municipal | 1,117 | 1,582 | 2,699 | |||||||||||||||||
279 | 304 | 583 | Multifamily | 865 | 828 | 1,693 | ||||||||||||||||||
2,751 | 3,106 | 5,857 | Commercial real estate | 9,465 | 9,112 | 18,577 | ||||||||||||||||||
402 | 1,334 | 1,736 | Construction | 1,147 | 3,639 | 4,786 | ||||||||||||||||||
906 | 406 | 1,312 | Residential | 2,859 | 912 | 3,771 | ||||||||||||||||||
1,344 | 206 | 1,550 | Home equity | 3,998 | 849 | 4,847 | ||||||||||||||||||
129 | (148 | ) | (19 | ) | Consumer | 200 | 97 | 297 | ||||||||||||||||
8,574 | 5,706 | 14,280 | Total loans | 27,343 | 18,525 | 45,868 | ||||||||||||||||||
Investments: | ||||||||||||||||||||||||
427 | (759 | ) | (332 | ) | Taxable | 708 | (2,162 | ) | (1,454 | ) | ||||||||||||||
1 | (8 | ) | (7 | ) | Tax-favored securities | 2 | (34 | ) | (32 | ) | ||||||||||||||
— | — | — | Interest-bearing deposits | 1 | 2 | 3 | ||||||||||||||||||
85 | (243 | ) | (158 | ) | Federal funds sold | 46 | (144 | ) | (98 | ) | ||||||||||||||
9,087 | 4,696 | 13,783 | Total interest income | 28,100 | 16,187 | 44,287 | ||||||||||||||||||
Interest expense: | ||||||||||||||||||||||||
(479 | ) | 26 | (453 | ) | Savings | (1,080 | ) | 117 | (963 | ) | ||||||||||||||
(468 | ) | 74 | (394 | ) | NOWs | (1,750 | ) | 49 | (1,701 | ) | ||||||||||||||
(4,809 | ) | (619 | ) | (5,428 | ) | CMAs/ money markets | (14,397 | ) | (1,588 | ) | (15,985 | ) | ||||||||||||
(1,908 | ) | (506 | ) | (2,414 | ) | Certificates of deposit under $100,000 | (5,552 | ) | (1,760 | ) | (7,312 | ) | ||||||||||||
(1,929 | ) | (689 | ) | (2,618 | ) | Certificates of deposit $100,000 and over | (5,007 | ) | (3,658 | ) | (8,665 | ) | ||||||||||||
(366 | ) | (367 | ) | (733 | ) | Repurchase agreements | (1,213 | ) | 156 | (1,057 | ) | |||||||||||||
(1,071 | ) | (40 | ) | (1,111 | ) | Other borrowings | (3,371 | ) | 87 | (3,284 | ) | |||||||||||||
(11,030 | ) | (2,121 | ) | (13,151 | ) | Total interest expense | (32,370 | ) | (6,597 | ) | (38,967 | ) | ||||||||||||
$ | (1,943 | ) | $ | 2,575 | $ | 632 | Change in net interest income | $ | (4,270 | ) | $ | 9,590 | $ | 5,320 | ||||||||||
Noninterest Income
Noninterest income for the third quarter of 2006 was $16.1 million, a decline of $1.6 million from the same period a year ago. The decrease was primarily a result of lower gains on sales of loans, mortgage servicing income and other noninterest income; which was partially offset by an increase in investment management and trust income and service charges on deposits. Other noninterest income declined from the same period a year ago due to a final payment of interest and termination fees of $372,000 incurred on the termination of the interest rate swaps related to the Company’s Trust Preferred Securities and a reduction in accrued interest of $275,000 on IRS and state income tax refunds.
Noninterest income for the first nine months of 2006 was $52.3 million, essentially flat with the same period in 2005. In 2006, the Company experienced lower gains on sales of mortgage loans and insurance commissions, which were substantially offset by higher investment management and trust income, service charges on deposits and credit card income.
Gains on sales of loans declined $962,000 in the third quarter and $1.8 million for the first nine months of 2006 as compared to the similar periods in 2005 due to lower volumes of loans sold. For the third quarter the Company originated $78 million and sold $113 million in residential real estate loans, which was down from $125 million and $189 million, respectively, in the same quarter of 2005. For the first nine months of 2006, the Company originated $316 million and sold $223 million in residential real estate loans, which was down from $471 million and $320 million, respectively, during the same period in 2005. Volatility in interest rates can significantly impact mortgage origination and sales volumes, amortization of mortgage servicing assets and related impairments or recoveries based on the fair value of those assets as measured based on current interest rates.
18
Mortgage Servicing Rights (MSRs) amortization was $824,000 for the third quarter of 2006 and $2.4 million for the first nine months as compared with $931,000 and $3.3 million for the respective periods in 2005. The Company recorded an impairment of $104,000 for the third quarter of 2006 compared with a recovery of $146,000 for the third quarter of 2005. On a year to date basis, the Company recorded a recovery of $117,000 in 2006 as compared to $288,000 for the same period a year ago. The remaining impairment reserve for particular stratas in the MSR’s at September 30, 2006 was $483,000. The Company services approximately $2.0 billion in mortgages for others and has net capitalized mortgage-servicing rights of $14.4 million. As a result, the MSR asset as a percentage of loans serviced was approximately 71 basis points as of September 30, 2006.
Noninterest Expense
Noninterest expenses for the third quarter of 2006 were $46.0 million, an increase of $606,000 from the same period in 2005. The increase from 2005 primarily related to higher salary expense, which was partially offset by lower other noninterest expense. Salary expense increased from the same period a year ago due to higher share-based payment costs of $779,000 (see Note 6). Other noninterest expense declined $171,000 primarily due to lower training and legal expenses.
For the first nine months of 2006, noninterest expenses were $140.0 million an increase of $2.2 million from 2005. The increase was primarily attributable to higher salary and data processing costs, which were partially offset by lower net occupancy expenses. The increase in salary expense is related to normal cost of living increases as well as higher share-based payment costs. Net occupancy expense declined from 2005 primarily due to lower depreciation expense and energy costs.
Income Taxes
The Company and its subsidiaries are taxed on their income at the Federal level and by various states in which they do business. The effective income tax rate was 30.3% for the third quarter and 32.3% year to date compared with 34.8% and 34.6% for the respective periods in 2005. The lower effective income tax rate was primarily attributable to higher low income housing and historic rehabilitation tax credits.
Financial Position
Total loans increased $251 million from the third quarter of 2005 to $4.7 billion at September 30, 2006. The increase was attributable to solid growth in the commercial real estate, construction, multifamily, and residential real estate portfolios. The growth in commercial real estate loans was primarily in Vermont and Maine. In addition, financings for commercial customers were the primary drivers for the construction loan portfolio growth, which increased $37 million from September 30, 2005. Municipal loans experienced their historical seasonal trend, increasing $54 million from June 30, 2006.
Total deposits were up $182 million from June 30, 2006 and $106 million from September 30, 2005. The increase on a linked quarter basis was primarily driven by the normal seasonal inflows from Chittenden’s municipal and captive insurance customers. The year-over-year increase was due to higher levels of CMA/money market deposits and CDs, which were partially offset by declines in NOW and savings deposits. At September 30, 2006, other borrowings declined by $44 million from the same period in 2005 as a result of increased deposit flows.
Credit Quality
The provision for credit losses was $1.67 million for the third quarter of 2006 compared to $1.33 million for the same quarter of last year. The increase from the comparable period in 2005 was principally driven by higher net charge-offs, increased nonperforming assets, and continued commercial loan growth.
As of September 30, 2006, nonperforming assets (NPAs) were $26.1 million, up $7.8 million from the same period in 2005 and $1.4 million on a linked quarter basis. The increase in nonperforming assets from September
19
30, 2005 primarily relates to one commercial finance loan that was placed on non-accrual status in the first quarter of 2006. As a percentage of total loans, NPAs were 56 basis points, which was up slightly on a linked quarter basis, and up 15 basis points from the third quarter of 2005. Net charge-offs totaled $1.6 million for the third quarter of 2006 compared to $662,000 for the same period in 2005. The increase in net charge-offs was due to higher charges-offs of $425,000 that was primarily attributable to one C&I loan and lower recoveries of $500,000. A summary of the Company’s credit quality follows:
9/30/06 | 6/30/06 | 12/31/05 | 9/30/05 | |||||||||||||
(in thousands) | ||||||||||||||||
Nonaccrual loans | $ | 25,453 | $ | 24,323 | $ | 15,819 | $ | 18,299 | ||||||||
Other real estate owned (OREO) | 636 | 404 | 375 | — | ||||||||||||
Total NPAs | $ | 26,089 | $ | 24,727 | $ | 16,194 | $ | 18,299 | ||||||||
Loans past due 90 days or more and still accruing interest | $ | 3,196 | $ | 2,283 | $ | 3,038 | $ | 2,720 | ||||||||
NPAs as % of loans plus OREO | 0.56 | % | 0.54 | % | 0.36 | % | 0.41 | % | ||||||||
ACL as % of loans | 1.35 | % | 1.38 | % | 1.38 | % | 1.39 | % | ||||||||
ACL as % of loans (excluding municipal loans) | 1.40 | % | 1.41 | % | 1.43 | % | 1.44 | % | ||||||||
ACL as % of nonaccrual loans | 248.90 | % | 260.13 | % | 392.06 | % | 335.92 | % |
Provisions for and activity in the allowance for credit losses are summarized as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
(in thousands) | ||||||||||||||||
Allowance for loan losses : | $ | 62,070 | $ | 60,805 | $ | 60,822 | $ | 59,031 | ||||||||
Provision for loan losses | 1,670 | 1,325 | 4,953 | 3,800 | ||||||||||||
Loans charged off | (2,093 | ) | (1,668 | ) | (5,718 | ) | (4,135 | ) | ||||||||
Loan recoveries | 506 | 1,006 | 2,096 | 2,772 | ||||||||||||
$ | 62,153 | $ | 61,468 | $ | 62,153 | $ | 61,468 | |||||||||
Components of allowance for credit losses: | ||||||||||||||||
Allowance for loan losses | $ | 62,153 | $ | 61,468 | $ | 62,153 | $ | 61,468 | ||||||||
Reserve for unfunded commitments | 1,200 | — | 1,200 | — | ||||||||||||
$ | 63,353 | $ | 61,468 | $ | 63,353 | $ | 61,468 | |||||||||
The allowance for credit losses consists of two components: 1) the allowance for loan losses which is presented as a contra to total gross loans, and 2) the reserve for unfunded commitments included in other liabilities. The allowance for loan losses is based on management’s estimate of the amount required to reflect the potential inherent losses in the loan portfolio, based on circumstances and conditions known or anticipated at each reporting date. There are inherent uncertainties with respect to the collectibility of the Banks’ loans and it is reasonably possible that actual losses experienced in the near term may differ from the amounts reflected in this report.
For a full discussion on the Company’s allowance for credit loss policies, see “Allowance for Credit Losses” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.
Capital
Stockholders’ equity totaled $680.7 million at September 30, 2006, compared to $671.4 million at December 31, 2005. Net income of $62.9 million for the first nine months of 2006 increased stockholders’ equity, which was offset by common stock dividend payments of $27.0 million, an after tax decrease of $502,000 in the fair market value of the Company’s securities portfolio and the Company’s repurchase of
20
$28.3 million in common stock. In the third quarter of 2006, the Company repurchased 37,500 shares of common stock at an average price of $27.92 per share. These repurchases were completed under the Company’s share repurchase plan, which was adopted on July 19, 2006. The Company may repurchase up to one million shares of its common stock in negotiated transactions or open market purchases for two years from the date that the repurchase plan was adopted. Tier one capital, consisting of common equity and the Trust Preferred Securities, measured 11.59% of risk-weighted assets at September 30, 2006. Total capital, including the Tier two allowance for credit losses, was 12.80% of risk-weighted assets and the leverage capital ratio was 9.24%. These ratios placed the Company in the “well-capitalized” category according to regulatory standards.
In June 2004, the central bank governors of the member countries of the Basel Committee approved a revised capital adequacy framework generally known as the “Basel II Framework.” The Basel II Framework is a three-pillar capital adequacy approach versus the flat 8% of risk-weighted assets (as defined) currently used. The Basel II Framework also permits qualifying bank institutions to use more advanced approaches for measuring operational risk and credit risk. In order to address competitive equity issues for community and regional banking organizations that could arise under the bifurcated regulatory capital framework following the implementation of the Basel II Framework, the United States bank regulatory agencies issued an advance notice of proposed rulemaking (ANPR) in October 2005, known as Basel IA, which would make some aspects of the Basel II Framework applicable in modified form to smaller banks. It remains uncertain whether the rules will be adopted and, even if adopted, how closely the final Basel IA rules will resemble the rules described in the ANPR and what the effective date of such rules will be.
Liquidity
The Company’s liquidity is monitored by the Asset and Liability Committee, based upon policies approved by the Board of Directors. 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. For the quarter ended September 30, 2006, the Company’s ratio of average loans to average deposits was approximately 86.0%. At September 30, 2006, the Company maintained cash balances and short-term investments of $145.4 million, compared with $180.7 million at December 31, 2005. The Company had securities available for sale of $1.2 billion at September 30, 2006 with expected cash flow of $59 million remaining in 2006 and $295 million in 2007 from maturities and principal payments on mortgage-backed securities. Repurchase agreements and other borrowings at September 30, 2006 were $223.1 million compared to $227.3 million on December 31, 2005.
The Company has available borrowing capacity under certain programs including the FHLB, U.S. Treasury, repurchase agreement lines, and advised Fed Funds lines totaling more than $1 billion. The Company also has an effective shelf registration statement under which an additional $225 million in debt securities, common stock, preferred stock, or warrants may be offered from time to time.
Payments due by period | |||||||||||||||
(in thousands) | |||||||||||||||
Contractual Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||
FHLB advances | $ | 2,841 | $ | 77 | $ | 162 | $ | 1,845 | $ | 757 | |||||
Trust preferred securities | 125,000 | — | — | — | 125,000 | ||||||||||
Data processing contract | 3,740 | 1,360 | 2,380 | — | — | ||||||||||
Equity investment commitments | 14,768 | 1,422 | 10,008 | 3,338 | — | ||||||||||
Operating leases. | 27,121 | 5,297 | 10,910 | 2,283 | 8,631 | ||||||||||
Total | $ | 173,470 | $ | 8,156 | $ | 23,460 | $ | 7,466 | $ | 134,388 | |||||
21
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, to meet customers’ financing needs and to reduce their own exposure to fluctuations in interest rates, the Banks are parties to financial instruments with off-balance sheet risk, held for purposes other than trading. The financial instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Banks’ exposure to credit loss in the event of nonperformance by the other party for loan commitments and standby letters of credit is represented by the contractual amount of those instruments, assuming that the amounts are fully advanced and that collateral or other security is of no value. The Banks use the same credit policies in making commitments and conditional obligations as they do for on-balance sheet instruments. The amount of collateral obtained, if deemed necessary by the Banks upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held varies, but may include accounts receivable, inventory, plant and equipment, and real estate.
Commitments to originate loans, unused lines of credit, and unadvanced portions of commercial real estate and construction loans are agreements to lend to a customer provided there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Many of the commitments are expected to expire without being drawn upon. Therefore, the amounts presented below do not necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by the Banks to guarantee the performance by a customer to a third party. These guarantees are issued primarily to support public and private borrowing arrangements, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan commitments to customers. Other commitments refer to the Company’s equity investments in limited partnerships for CRA related low income housing projects.
Financial instruments whose contractual amounts represent off-balance sheet risk at September 30, 2006 (in thousands):
Loan Commitments | |||
Commitments to originate loans | $ | 157,305 | |
Unused home equity lines of credit | 394,617 | ||
Unused portions of business credit card lines | 55,799 | ||
Unadvanced portions of C&I loans | 442,136 | ||
Unadvanced portions of commercial real estate and construction loans | 195,275 | ||
Standby Letters of Credit | |||
Notional amount collateralized by cash | $ | 66,299 | |
Notional amount of other standby letters of credit | 37,163 | ||
Liability associated with letters of credit recorded on balance sheet | 409 | ||
Other Commitments | |||
Equity investment commitments to limited partnerships | 14,768 |
22
Item 3. Qualitative and Quantitative Disclosures About Market Risk
To measure the sensitivity of its income to changes in interest rates, the Company uses a variety of methods, including simulation, valuation techniques and gap analyses. 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. For a full discussion of interest-rate risk see “Liquidity and Rate Sensitivity” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. The Company has completed the analysis for September 30, 2006 and believes that it has moved from being slightly asset sensitive at the prior year-end to slightly liability sensitive. This change in our interest sensitivity was primarily driven by an increase in fixed rate commercial loans, changes in the funding mix and increased short term interest rates.
Item 4. Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of September 30, 2006, the end of the quarter covered by this report, the Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective. There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2006 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company reviews its disclosure controls and procedures, which may include its internal control over financial reporting on an ongoing basis, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that the Company’s systems evolve with its business.
23
PART II - OTHER INFORMATION
ITEM 1A. RISK FACTORS
There have been no material changes to the Risk Factors previously disclosed in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.
Item 2. Unregistered Sales of Equity Securities and use of Proceeds
(c) The following table sets forth information with respect to any purchase made by or on behalf of the Company or any “affiliated purchaser,” as defined in §240.10b-18(a)(3) under the Exchange Act, of shares of the Company’s common stock during the indicated periods.
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program | Maximum Number of Shares that may yet be Purchased under the Plan or Program (1) | |||||
July 1-31, 2006 | — | — | — | 1,000,000 | |||||
August 1-31, 2006 | 31,900 | $ | 27.91 | 31,900 | 968,100 | ||||
September 1-30, 2006 | 5,600 | 28.16 | 5,600 | 962,500 | |||||
Total | 37,500 | $ | 27.92 | 37,500 | 962,500 |
(1) | On July 19, 2006 the Board of Directors authorized the repurchase of 1,000,000 shares of the Company’s common stock. The repurchase of the common stock may be done in negotiated transactions or open market purchases for two years from the date the repurchase plan was adopted. |
24
ITEM 6. EXHIBITS
(a) EXHIBITS
3.i.1 | Amended and Restated Articles of Incorporation of the Company (Incorporated herein by reference to the Proxy Statement for the 1999 Annual Meeting of the Stockholders). | |||
3.i.2 | Articles of Amendment of the Amended and Restated Articles of Incorporation of the Company (Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005). | |||
3.ii.1 | Amended and Restated By-Laws of the Company (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003). | |||
* | 31.1 | Certification of Chairman, President and Chief Executive Officer, Paul A. Perrault pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
* | 31.2 | Certification of Executive Vice President and Chief Financial Officer, Kirk W. Walters pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
** | 32.1 | Certification of Chairman, President, and Chief Executive Officer, Paul A. Perrault, pursuant to 18 U. S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
** | 32.2 | Certification of Executive Vice President and Chief Financial Officer, Kirk W. Walters, pursuant to 18 U. S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* | Filed herewith |
** | Furnished herewith |
25
CHITTENDEN CORPORATION 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 thereunto duly authorized.
CHITTENDEN CORPORATION | ||
Registrant | ||
October 20, 2006 | /S/ PAUL A. PERRAULT | |
Date | Paul A. Perrault, | |
Chairman, President and Chief Executive Officer | ||
October 20, 2006 | /S/ KIRK W. WALTERS | |
Date | Kirk W. Walters | |
Executive Vice President, | ||
Treasurer, and Chief Financial Officer |
26