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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-K
(Mark One)
X Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (Fee Required)
For the Fiscal Year Ended December 31, 1995
or
_____Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (No Fee Required)
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
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
$1.00 Par Value Common Stock
(Title of Class)
Indicate by check mark whether the registrant (l) has filed all reports 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
The aggregate market value of the Registrant's common stock held by
non-affiliates of the Registrant, based on the average of the high and low
prices of such stock on March 1, 1996, as reported on NASDAQ, was $259,361,000.
At March 1, 1996, there were 9,605,968 shares of the Registrant's common stock
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents, in whole or in part, are specifically incorporated by
reference in the indicated Part of this Annual Report on Form 10-K:
1. Proxy Statement for 1996 Annual Meeting of Registrant's Stockholders: Part
III, Items 10, 11, 12, 13.
2. The Company's Registration Statement No. 33-64527 on Form S-4 under the
Securities Act of 1933, filed in connection with the Company's acquisition
of Flagship Bank and Trust Company, Worcester, Massachusetts: Part I,
Items 1, 2; Part II, Items 6, 7, 8.
PART I
ITEM l
BUSINESS
Chittenden Corporation (the "Company" or "CC"), a Vermont corporation organized
in 1971, is a registered bank holding company under the Bank Holding Company Act
of 1956, as amended. Assets of the Company were $1,521,081,000 at December 31,
1995. The Company is the holding company parent of Chittenden Trust Company
("CTC") and The Bank of Western Massachusetts ("BWM"), and as of December 31,
1995, owned 100% of the outstanding common stock of those banks. The Company
also became the holding company parent of Flagship Bank and Trust Company
("FBT") on February 29, 1996 and owns 100% of the outstanding common stock of
that bank. Reference is made to the Company's Registration Statement
No. 33-64527 on Form S-4 under the Securities Act of 1933, filed in connection
with the Company's acquisition of FBT, Worcester, Massachusetts.
The Company's principal executive offices are located at Two Burlington Square,
Burlington, Vermont 05401; telephone number: 802-658-4000.
CHITTENDEN TRUST COMPANY
CTC was chartered by the Vermont Legislature as a commercial bank in 1904. It
is the largest bank in Vermont, based on total assets of $1,276,713,000 and
total deposits of $1,136,640,000 at December 31, 1995. All financial
information on CTC is based on the December 31, 1995 Call Report.
CTC has its principal offices in Burlington, Vermont and has 38 additional
locations in Vermont, of which three are free standing automated teller machines
("ATM's"). (See Item 2, "Properties"). All offices of CTC use the trade name
"Chittenden Bank".
CTC offers a wide range of banking services, including the acceptance of demand,
savings, and time deposits. As of December 31, 1995, total interest-bearing
deposits amounted to $955,883,000 or 84% of total deposits.
CTC offers a variety of lending services, with loans and leases totaling
$948,082,000 at December 31, 1995. The largest loan category is real estate
mortgage loans, which amounted to 64% of total loans outstanding at December 31,
1995. The largest classification of real estate mortgage loans is loans secured
by residential properties including close-ended home equity loans, which
amounted to 34% of total loans outstanding at December 31, 1995. CTC
underwrites substantially all of its residential mortgages to secondary market
standards. CTC sells substantially all of its fixed-rate residential mortgage
production on a servicing-retained basis. Variable-rate mortgage loans are held
in portfolio. Revolving home equity loans as a separate group amounted to 7% of
loans at December 31, 1995. These loans are generally underwritten to the same
standards as first mortgages. The remaining real estate mortgage loans are
commercial related and primarily owner occupied or investment properties.
Consumer loans outstanding at December 31, 1995 were 15% of total loans. These
include direct and indirect installment loans, auto leases and revolving credit.
All other loans outstanding at December 31, 1995 amounted to 21% of total loans.
These loans are made to a variety of businesses, including retail concerns,
small manufacturing businesses, and larger corporations, as well as to other
commercial banks, and to political subdivisions in the U.S.
In making commercial loans, CTC occasionally solicits the participation of other
Vermont banks or correspondent banks and other financial investors outside the
State. CTC also occasionally participates in loans originated by other banks.
Certain of CTC's commercial loans are made under programs administered by the
Vermont Industrial Development Authority, the U.S. Small Business
Administration, or the U.S. Farmers Home Administration. These loans contain
repayment guarantees by the agency involved in varying amounts up to 90% of the
original loan.
CTC's lending activities are conducted primarily in Vermont with additional
activity related to nearby trading areas in Quebec, New York, New Hampshire,
Maine and Connecticut. In addition to the portfolio diversification described
above, the loans are widely diversified by borrowers and industry groups.
CTC provides personal trust services, including services as executor, trustee,
administrator, custodian and guardian; and corporate trust services, including
services as trustee for pension and profit sharing plans.
CTC offers data processing services consisting primarily of payroll and
automated clearing house for several outside clients. All of CTC's data
processing services are performed by Alltel Systematics, a data processing
facilities management firm based in Little Rock, Arkansas, and CTC.
CTC provides financial and investment counseling to municipalities and school
districts within its service area and also provides central depository, lending,
payroll, and other banking services for such customers.
CTC also provides safe deposit facilities, MasterCard, and VISA credit card
services, and is a processor of merchant credit card transactions.
Chittenden also offers certain non-bank, investment products through a
dual-employee contractual relationship with Link Investment Services, Inc.
THE BANK OF WESTERN MASSACHUSETTS
BWM was chartered by the Commonwealth of Massachusetts as a commercial bank in
1986. BWM had total assets of $248,683,000 and total deposits of $214,380,000
at December 31, 1995. All financial information on BWM is based on the December
31, 1995 Call Report.
BWM has its principal offices in Springfield, Massachusetts and has 3 additional
locations in the greater Springfield, Massachusetts area. (See Item 2,
"Properties").
BWM offers a wide range of banking services, including the acceptance of demand,
savings, and time deposits. As of December 31, 1995, total interest-bearing
deposits amounted to $170,048,000 or 79% of total deposits.
BWM offers a variety of lending services, with loans totaling $175,315,000 at
December 31, 1995. The largest loan category is real estate mortgage loans,
which amounted to 57% of total loans outstanding at December 31, 1995. The
largest classification of real estate mortgage loans is loans secured by
commercial properties which amounted to 31% of total loans outstanding at
December 31, 1995. Residential properties including close-ended home equity
loans, amounted to 20% of total loans outstanding at December 31, 1995.
Revolving home equity loans as a separate group amounted to 10% of loans at
December 31, 1995. The remaining real estate mortgage loans are primarily
construction loans.
Consumer loans outstanding at December 31, 1995 were 3% of total loans. These
include direct and indirect installment loans, and revolving credit.
All other loans outstanding at December 31, 1995 amounted to 40% of total loans.
These loans are made to a variety of businesses, including retail concerns and
small manufacturing businesses.
In making commercial loans, BWM occasionally solicits the participation of other
banks, including its affiliate, CTC. BWM also occasionally participates in
loans originated by other banks. Certain of BWM's commercial loans are made
under programs administered by the U.S. Small Business Administration, or the
U.S. Farmers Home Administration. These loans contain repayment guarantees by
the agency involved in varying amounts up to 90% of the original loan.
BWM's lending activities are conducted primarily in the greater Springfield,
Massachusetts area.
BWM provides personal trust services, including services as executor, trustee,
administrator, custodian and guardian; and corporate trust services, including
services as trustee for pension and profit sharing plans.
ECONOMY
Although still sluggish, the New England econony showed signs of improvement
during 1995. Both retail and manufacturing sales remain lackluster for the
Boston Federal Reserve District region. Both housing permits and new
construction contracts remain below the prior year level. However, the outlook
improved on the employment front. The ability and willingness of the Company's
borrowers to honor their repayment commitments are impacted by many factors,
including the level of overall economic activity within the borrowers'
geographic area.
COMPETITION
There is vigorous competition in the Company's marketplace for all aspects of
the banking and related financial services presently engaged in by the Company
and its subsidiaries.
CTC competes with Vermont banks and metropolitan banks based in southern New
England and New York City to provide commercial banking services to businesses.
Many of these out-of-state banks have greater financial resources than those of
Vermont banks and are actively seeking financial relationships with promising
Vermont enterprises. Two out-of-state banks own in-state banks; Key Bank owns
Bank of Vermont and Allbank acquired Marble Bank early in 1996. Another out-of-
state bank, Arrow, exited Vermont early in 1996. Regulatory changes in the
banking industry have permitted thrift institutions to engage in commercial
lending activities.
In the retail market for financial services, competitors include other banks,
credit unions, finance companies, thrift institutions and, increasingly,
brokerage firms, insurance companies, and mortgage loan companies. Money market
deposit accounts and short term flexible-maturity certificates of deposit
offered by CTC compete with investment account offerings of brokerage firms and,
more recently, with new products offered by insurance companies.
CTC also competes for personal and commercial trust business with investment
advisory firms, mutual funds, and insurance companies.
BWM also operates in an area in which competition among financial institutions
is continuously increasing; however, by focusing on meeting the needs of the
smaller and medium-sized businesses and professionals in its market area, BWM
believes that it has found a market niche in which it competes effectively.
SUPERVISION AND REGULATION
The Company and its banking subsidiaries (CTC and BWM) are subject to extensive
regulation under federal and state banking laws and regulations. The following
discussion of certain of the material elements of the regulatory framework
applicable to banks and bank holding companies is not intended to be complete
and is qualified in its entirety by the text of the relevant state and federal
statutes and regulations. A change in the applicable laws or regulations may
have a material effect on the business of the Company and/or its banking
subsidiaries.
Regulation of the Company
GENERAL. As a bank holding company, the Company is subject to supervision and
regulation by the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board") under the Bank Holding Company Act of 1956, as amended (the "BHC
Act"). Under the BHC Act, bank holding companies generally may not acquire
ownership or control of more than 5% of any class of voting shares or
substantially all of the assets of any company, including a bank, without the
prior approval of the Federal Reserve Board. In addition, bank holding
companies are generally prohibited under the BHC Act from engaging in non-
banking activities, subject to certain exceptions. As a bank holding company,
the Company's activities are limited generally to the business of banking and
activities determined by the Federal Reserve Board to be so closely related to
banking as to be a proper incident thereto. The Federal Reserve Board has
authority to issue cease and desist orders and assess civil money penalties
against bank holding companies and their non-bank subsidiaries, officers,
directors and other institution-affiliated parties, and to remove officers,
directors and other institution-affiliated parties to terminate or prevent
unsafe or unsound banking practices or violations of laws or regulations.
INTERSTATE ACQUISITIONS. Prior to September 29, 1995, under the BHC Act a bank
holding company was permitted to acquire a bank in another state only if the law
of the state in which the bank to be acquired was located specifically
authorized such acquisition of an in-state bank by an out-of-state bank holding
company. As described below under "Recent Banking Legislation - Interstate
Banking and Branching", the BHC Act has recently been amended, effective
September 29, 1995, to remove this prohibition. Even prior to this amendment
to the BHC Act, state legislation enacted in recent years substantially lessened
prior legislative restrictions on geographic expansion by bank holding companies
from and into Massachusetts and Vermont. For example, under nationwide
reciprocal interstate banking legislation adopted by both states which became
effective in 1990, bank holding companies whose subsidiaries' banking operations
were principally conducted in any state outside Massachusetts or Vermont were
authorized to acquire Massachusetts or Vermont banking organizations, provided
that such companies' home states afforded Massachusetts or Vermont banking
organizations reciprocal rights to acquire banks in such states.
DIVIDENDS. The Federal Reserve Board has authority to prohibit bank holding
companies from paying dividends if such payment would be an unsafe or unsound
practice. The Federal Reserve Board has indicated generally that it may be an
unsound practice for bank holding companies to pay dividends unless the bank
holding company's net income over the preceding year is sufficient to fund the
dividends and the expected rate of earnings retention is consistent with the
organization's capital needs, asset quality, and overall financial condition.
The Company's ability to pay dividends is dependent upon the flow of dividend
income to it from its banking subsidiaries, which may be affected or limited by
regulatory restrictions imposed by federal or state bank regulatory agencies.
See "- Regulation of CTC and BWM - Dividends."
CERTAIN TRANSACTIONS BY BANK HOLDING COMPANIES WITH THEIR AFFILIATES. There are
various legal restrictions on the extent to which bank holding companies and
their non-bank subsidiaries may borrow, obtain credit from or otherwise engage
in "covered transactions" with their insured depository institution
subsidiaries. Such borrowings and other covered transactions by an insured
depository institution subsidiary (and its subsidiaries) with its non-depository
institution affiliates are limited to the following amounts: (a) in the case of
any one such affiliate, the aggregate amount of covered transactions of the
insured depository institution and its subsidiaries cannot exceed 10% of the
capital stock and surplus of the insured depository institution; and (b) in the
case of all affiliates, the aggregate amount of covered transactions of the
insured depository institution and its subsidiaries cannot exceed 20% of the
capital stock and surplus of the insured depository institution. "Covered
transactions" are defined by statute for these purposes to include a loan or
extension of credit to an affiliate, a purchase of or investment in securities
issued by an affiliate, a purchase of assets from an affiliate unless exempted
by the Federal Reserve Board, the acceptance of securities issued by an
affiliate as collateral for a loan or extension of credit to any person or
company, or the issuance of a guarantee, acceptance or letter of credit on
behalf of an affiliate. Covered transactions are also subject to certain
collateral security requirements. Further, a bank holding company and its
subsidiaries are prohibited from engaging in certain tying arrangements in
connection with any extension of credit, lease or sale of property of any kind,
or furnishing of any service.
HOLDING COMPANY SUPPORT OF SUBSIDIARY BANKS. Under Federal Reserve Board
policy, the Company is expected to act as a source of financial strength to its
subsidiary banks and to commit resources to support such subsidiaries. This
support of its subsidiary banks may be required at times when, absent such
Federal Reserve Board policy, the Company might not otherwise be inclined to
provide it. In addition, any capital loans by a bank holding company to any of
its subsidiary banks are subordinate in right of payment to deposits and certain
other indebtedness of such subsidiary banks. In the event of a bank holding
company's bankruptcy, any commitment by the bank holding company to a federal
bank regulatory agency to maintain capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
LIABILITY OF COMMONLY CONTROLLED DEPOSITORY INSTITUTIONS. Under the Federal
Deposit Insurance Act, as amended ("FDI Act"), an FDIC-insured depository
institution, such as CTC or BWM, can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC after August 9, 1989 in
connection with (i) the "default" of a commonly controlled FDIC-insured
depository institution, or (ii) any assistance provided by the FDIC to any
commonly controlled depository institution in "danger of default." For these
purposes, the term "default" is defined generally as the appointment of a
conservator or receiver and "in danger of default" is defined generally as the
existence of certain conditions indicating that a default is likely to occur
without Federal regulatory assistance.
Regulation of CTC and BWM
GENERAL. As FDIC-insured state-chartered banks, CTC and BWM are subject to
supervision of and regulation by the Commissioner of Banking, Insurance and
Securities of the State of Vermont, in connection with CTC, and the Commissioner
of Banks of the Commonwealth of Massachusetts in connection with BWM
(collectively, the "Commissioners") and, for both banks, by the FDIC. This
supervision and regulation is for the protection of depositors, the BIF (as
hereinafter defined), and consumers, and is not for the protection of the
Company's stockholders. The prior approval of the FDIC and the Commissioners is
required for CTC or BWM to establish or relocate an additional branch office,
assume deposits, or engage in any merger, consolidation or purchase or sale of
all or substantially all of the assets of any bank or savings association.
EXAMINATIONS AND SUPERVISION. The FDIC and the Commissioners regularly examine
the operations of CTC and BWM, including (but not limited to) their capital
adequacy, reserves, loans, investments, earnings, liquidity, compliance with
laws and regulations, record of performance under the Community Reinvestment Act
and management practices. In addition, CTC and BWM are required to furnish
quarterly and annual reports of income and condition to the FDIC and periodic
reports to the Commissioners. The enforcement authority of the FDIC includes
the power to impose civil money penalties, terminate insurance coverage, remove
officers and directors and issue cease-and-desist orders to prevent unsafe or
unsound practices or violations of laws or regulations. In addition, under
recent federal banking legislation, the FDIC has authority to impose additional
restrictions and requirements with respect to banks that do not satisfy
applicable regulatory capital requirements. See "- Recent Banking Legislation -
Prompt Corrective Action" below.
DIVIDENDS. The principal source of the Company's revenue is dividends from CTC,
one of its bank subsidiaries. Payment of dividends by CTC and BWM are subject
to certain Vermont and Massachusetts banking law restrictions. Payment of
dividends by CTC is subject to Vermont banking law restrictions which require
that, except when surplus and paid-in capital together amount to 10% or more of
deposits and other liabilities (not including surplus, paid-in capital, capital
notes and debentures, and funds held in a fiduciary capacity), at least one-
tenth of its net profits must be set aside annually and added to surplus.
The FDIC has authority to prevent CTC and BWM from paying dividends if such
payment would constitute an unsafe or unsound banking practice or reduce the
respective bank's capital below safe and sound levels. In addition, recently
enacted federal legislation prohibits FDIC-insured depository institutions from
paying dividends or making capital distributions that would cause the
institution to fail to meet minimum capital requirements. See "- Recent Banking
Legislation - Prompt Corrective Action" below.
AFFILIATE TRANSACTIONS. Banks are subject to restrictions imposed by federal
law on extensions of credit to, purchases of assets from, and certain other
transactions with, affiliates, and on investments in stock or other securities
issued by affiliates. Such restrictions prevent CTC and BWM from making loans
to affiliates unless the loans are secured by collateral in specified amounts
and have terms at least as favorable to the bank as the terms of comparable
transactions between the bank and non-affiliates. Further, federal and
applicable state laws significantly restrict extensions of credit by CTC and BWM
to directors, executive officers and principal stockholders and related
interests of such persons.
DEPOSIT INSURANCE. CTC's and BWM's deposits are insured by the Bank Insurance
Fund ("BIF") of the FDIC to the legal maximum of $100,000 for each insured
depositor. The Federal Deposit Insurance Act provides that the FDIC shall set
deposit insurance assessment rates on a semi-annual basis at a level sufficient
to increase the ratio of BIF reserves to BIF-insured deposits to at least 1.25%
over a 15-year period commencing in 1991, and to maintain that ratio. Although
the recently-established framework of risk-based insurance assessments
accomplished this increase in May 1995, and the FDIC has made a substantial
reduction in the assessment rate schedule, the BIF insurance assessments may be
increased in the future if necessary to maintain BIF reserves at the required
level. In addition, certain proposed legislation to recapitalize the Savings
Association Insurance Fund ("SAIF"), which insures the deposits of savings
associations and certain savings banks, may result in increased BIF assessments.
See "-Recent Banking Legislation - Risk-Based Deposit Insurance Assessments"
below.
FEDERAL RESERVE BOARD POLICIES. The monetary policies and regulations of the
Federal Reserve Board have had a significant effect on the operating results of
banks in the past and are expected to continue to do so in the future. Federal
Reserve Board Policies affect the levels of bank earnings on loans and
investments and the levels of interest paid on bank deposits through the Federal
Reserve System's open-market operations in United States government securities,
regulation of the discount rate on bank borrowings from Federal Reserve Banks
and regulation of non-earning reserve requirements applicable to bank deposit
account balances.
CONSUMER PROTECTION REGULATION; BANK SECRECY ACT. Other aspects of the lending
and deposit business of CTC and BWM that are subject to regulation by the FDIC
and the Commissioners include disclosure requirements with respect to interest,
payment and other terms of consumer and residential mortgage loans and
disclosure of interest and fees and other terms of and the availability of,funds
for withdrawal from consumer deposit accounts. In addition, CTC and BWM are
subject to federal and state laws and regulations prohibiting certain forms of
discrimination in credit transactions, and imposing certain record keeping,
reporting and disclosure requirements with respect to residential mortgage loan
applications. In addition, CTC and BWM are subject to federal laws establishing
certain record keeping, customer identification, and reporting requirements with
respect to certain large cash transactions, sales of travelers checks or other
monetary instruments and the international transportation of cash or monetary
instruments.
CRA Regulations
The Community Reinvestment Act ("CRA") requires lenders to identify the
communities served by the institution's offices and to identify the types of
credit the institution is prepared to extend within such communities. The FDIC
conducts examinations of insured institutions' CRA compliance and rates such
institutions as "Outstanding", "Satisfactory", "Needs to Improve" and
"Substantial Noncompliance". As of their last CRA examinations, CTC received a
rating of "Outstanding" and BWM received a rating of "Satisfactory." Failure of
an institution to receive at least a "Satisfactory" rating could inhibit such
institution's undertaking certain activities, including acquisitions of other
financial institutions, which require regulatory approval based, in part, on CRA
compliance considerations. The Federal Reserve Board must take into account the
record of performance of banks in meeting the credit needs of the entire
community served, including low and moderate income neighborhoods.
The federal bank regulatory agencies have jointly issued amendments to the
regulations implementing the CRA that revise the CRA framework effective January
1, 1996. These new CRA regulations rely more than the former CRA regulations
upon objective criteria of the performance of institutions under three key
assessment tests: a lending test, a service test and an investment test. CTC
and BWM are committed to meeting the existing or anticipated credit needs of
their entire communities, including low and moderate income neighborhoods,
consistent with safe and sound operations. At this time, CTC and BWM are
adjusting their procedures to accumulate the information required under the new
CRA regulations.
Capital Requirements
GENERAL. The FDIC has established guidelines with respect to the maintenance of
appropriate levels of capital by FDIC-insured banks. The Federal Reserve Board
has established substantially identical guidelines with respect to the
maintenance of appropriate levels of capital, on a consolidated basis, by bank
holding companies. If a banking organization's capital levels fall below the
minimum requirements established by such guidelines, a bank or bank holding
company will be expected to develop and implement a plan acceptable to the FDIC
or the Federal Reserve Board, respectively, to achieve adequate levels of
capital within a reasonable period, and may be denied approval to acquire or
establish additional banks or non-bank businesses, merge with other institutions
or open branch facilities until such capital levels are achieved. Federal
legislation requires federal bank regulators to take "prompt corrective action"
with respect to insured depository institutions that fail to satisfy minimum
capital requirements and imposes significant restrictions on such institutions.
See "- Recent Banking Legislation - Prompt Corrective Action" below.
LEVERAGE CAPITAL RATIO. The regulations of the FDIC require FDIC-insured banks
to maintain a minimum "Leverage Capital Ratio" or "Tier 1 Capital" (as defined
in the Risk-Based Capital Guidelines discussed in the following paragraphs) to
Total Assets of 3.0%. The regulations of the FDIC state that only banks with
the highest federal bank regulatory examination rating will be permitted to
operate at or near such minimum level of capital. All other banks are expected
to maintain an additional margin of capital, equal to at least 1% to 2% of Total
Assets, above the minimum ratio. Any bank experiencing or anticipating
significant growth is expected to maintain capital well above the minimum
levels. The Federal Reserve Board's guidelines impose substantially similar
leverage capital requirements on bank holding companies on a consolidated basis.
RISK-BASED CAPITAL REQUIREMENTS. The regulations of the FDIC also require FDIC-
insured banks to maintain minimum capital levels measured as a percentage of
such banks' risk-adjusted assets. A bank's qualifying total capital ("Total
Capital") for this purpose may include two components - "Core" (Tier 1) Capital
and "Supplementary" (Tier 2) Capital. Core Capital consists primarily of common
stockholders' equity, which generally includes common stock, related surplus and
retained earnings, certain non-cumulative perpetual preferred stock and related
surplus, and minority interests in the equity accounts of consolidated
subsidiaries, and (subject to certain limitations) mortgage servicing rights and
purchased credit card relationships, less all other intangible assets (primarily
goodwill). Supplementary Capital elements include, subject to certain
limitations, a portion of the allowance for losses on loans and leases,
perpetual preferred stock that does not qualify for inclusion in Tier 1 capital,
long-term preferred stock with an original maturity of at least 20 years and
related surplus, certain forms of perpetual debt and mandatory convertible
securities, and certain forms of subordinated debt and intermediate-term
preferred stock.
The risk-based capital rules of the FDIC and the Federal Reserve Board assign a
bank's balance sheet assets and the credit equivalent amounts of the bank's off-
balance sheet obligations to one of four risk categories, weighted at 0%, 20%,
50% or 100%, respectively. Applying these risk-weights to each category of the
bank's balance sheet assets and to credit the equivalent amounts of the bank's
off-balance sheet obligations and summing the totals results in the amount of
the bank's total Risk-Adjusted Assets for purposes of the risk-based capital
requirements. Risk-Adjusted Assets can either exceed or be less than reported
balance sheet assets, depending on the risk profile of the banking organization.
Risk-Adjusted Assets for institutions such as CTC will generally be less than
reported balance sheet assets because its retail banking activities include
proportionally more residential mortgage loans with a lower risk weighing and
relatively smaller off-balance sheet obligations.
Effective as of December 31, 1992, the risk-based capital regulations require
all banks to maintain a minimum ratio of Total Capital to Risk-Adjusted Assets
of 8.0%, of which at least one-half (4.0%) must be Core (Tier 1) Capital. For
the purpose of calculating these ratios: (i) a banking organization's
Supplementary Capital eligible for inclusion in Total Capital is limited to no
more than 100% of Core Capital; and (ii) the aggregate amount of certain types
of Supplementary Capital eligible for inclusion in Total Capital is further
limited. For example, the regulations limit the portion of the allowance for
loan losses eligible for inclusion in Total Capital to 1.25% of Risk-Adjusted
Assets. The Federal Reserve Board has established substantially identical risk-
based capital requirements which are applied to bank holding companies on a
consolidated basis.
Effective September 1, 1995, the FDIC amended its risk-based capital regulation
to provide explicitly for consideration of interest rate risk in the FDIC's
overall evaluation of a bank's capital adequacy. The intended effect of the
amendment is to ensure that banks effectively measure and monitor their interest
rate risk, and that they maintain capital adequate for that risk. A bank deemed
by the FDIC to have excessive interest rate risk exposure may be required by the
FDIC to maintain additional capital (that is, capital in excess of the minimum
ratios discussed above). Both CTC and BWM believe that this amendment will not
have a material adverse effect on them.
At December 31, 1995, the Company's consolidated Total and Tier 1 Risk-Based
Capital Ratios were 12.74% and 11.36%, respectively, and its Leverage Capital
Ratio was 8.34%.
Based on the above figures and accompanying discussion, CC exceeds all
regulatory capital requirements.
Recent Banking Legislation
GENERAL. On December 19, 1991, the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") was enacted. FDICIA extensively revised the
regulatory and funding provisions of the FDI Act and made revisions to several
federal banking statutes. In addition, there has been certain other recent
banking legislation. Certain of these changes are summarized below.
PROMPT CORRECTIVE ACTION. Among other things, FDICIA requires the federal
banking regulators to take "prompt corrective action" with respect to, and
imposes significant restrictions on, any bank that fails to satisfy its
applicable minimum capital requirements. FDICIA establishes five capital
categories consisting of "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized." Under applicable regulations, a bank that has a Total Risk-
Based Capital Ratio of 10.0% or greater, a Tier 1 Risk-Based Capital Ratio of
6.0% or greater and a Leverage Capital Ratio of 5.0% or greater, and is not
subject to any written agreement, order, capital directive or prompt corrective
action directive to meet and maintain a specific capital level for any capital
measure is deemed to be "well capitalized." A bank that has a Total Risk-Based
Capital Ratio of 8.0% or greater, a Tier 1 Risk-Based Capital Ratio of 4.0% or
greater and a Leverage Capital Ratio of 4.0% or greater and does not meet the
definition of a well capitalized bank is considered to be "adequately
capitalized." A bank that has a Total Risk-Based Capital Ratio of less than
8.0% or has a Tier 1 Risk-Based Capital Ratio that is less than 4.0% or
generally a Leverage Capital Ratio of less than 4.0% is considered
"undercapitalized." A bank that has a Total Risk-Based Capital Ratio of less
than 6.0%, or a Tier 1 Risk-Based Capital Ratio that is less than 3.0% or a
Leverage Capital Ratio that is less than 3.0% is considered to be "significantly
undercapitalized," and a bank that has a ratio of tangible equity to total
assets equal to or less than 2% is deemed to be "critically undercapitalized."
A bank may be deemed to be in a capital category lower than is indicated by its
actual capital position if it is determined to be in an unsafe or unsound
condition or receives an unsatisfactory examination rating. FDICIA generally
prohibits a bank from making capital distributions (including payment of
dividends) or paying management fees to controlling stockholders or their
affiliates if, after such payment, the bank would be undercapitalized.
Under FDICIA and the applicable implementing regulations, an undercapitalized
bank will be (i) subject to increased monitoring by the FDIC; (ii) required to
submit to the FDIC an acceptable capital restoration plan (guaranteed, subject
to certain limits, by the bank's holding company) within 45 days; (iii) subject
to strict asset growth limitations; and (iv) required to obtain prior regulatory
approval for certain acquisitions, transactions not in the ordinary course of
business, and entry into new lines of business. In addition to the foregoing,
the FDIC may issue a "prompt corrective action directive" to any
undercapitalized institution. Such a directive may require sale or
recapitalization of the bank, impose additional restrictions on transactions
between the bank and its affiliates, limit interest rates paid by the bank on
deposits, limit asset growth and other activities, require divestiture of the
subsidiaries, require replacement of directors and officers, and restrict
capital distributions by the bank's parent holding company.
In addition to the foregoing, a significantly undercapitalized institution may
not award bonuses or increases in compensation to its senior executive officers
until it has submitted an acceptable capital restoration plan and received
approval from the FDIC.
Not later than 90 days after an institution becomes critically undercapitalized,
the appropriate federal banking agency for the institution must appoint a
receiver or, with the concurrence of the FDIC, a conservator, unless the agency,
with the concurrence of the FDIC, determines that the purposes of the prompt
corrective action provisions would be better served by another course of action.
FDICIA requires that any alternative determination be "documented" and
reassessed on a periodic basis. Notwithstanding the foregoing, a receiver must
be appointed after 270 days unless the appropriate federal banking agency and
the FDIC certify that the institution is viable and not expected to fail.
RISK-BASED DEPOSIT INSURANCE ASSESSMENTS. Effective January 1, 1993, a
transitional risk-based structure was implemented by the FDIC pursuant to FDICIA
and the average assessment rate paid by Savings Association Insurance Fund-
insured and BIF-insured institutions was increased. Under the rule implementing
the transitional system, the FDIC assigned an institution to one of three
capital categories consisting of (1) well capitalized, (2) adequately
capitalized, or (3) undercapitalized, and one of three supervisory categories.
An institution's assessment rate depended on the capital category and
supervisory category to which it was assigned. Under the transitional system,
there were nine assessment risk classifications (i.e., combinations of capital
categories and supervisory subgroups within each capital group) to which the
differing assessment rates were applied. Assessment rates ranged from 0.23% of
domestic deposits for an institution in the lowest risk category (i.e., well-
capitalized and healthy from a supervisory standpoint), to 0.31% of domestic
deposits for institutions in the highest risk category (i.e., undercapitalized
and unhealthy from a supervisory standpoint). The risk classification to which
an institution is assigned by the FDIC is confidential and may not be disclosed.
On June 17, 1993, the FDIC adopted a final rule establishing a new risk-based
system that was implemented beginning with the semi-annual assessment period
commencing on January 1, 1994, as required under FDICIA. Except for limited
changes, the structure of the new risk-based system is substantially the same as
the structure of the transitional system it replaced and (until recently)
retained the same range of assessment rates. Under the FDIC rule implementing
the new risk-based system, an institution's deposit insurance assessment rate is
determined by assigning the institution to a capital category and a supervisory
subgroup to determine which one of the nine risk classification categories is
applicable, in substantially the same manner as for the transitional system
discussed above. The FDIC is authorized to raise the assessment rates in
certain circumstances. If the FDIC determines to increase the assessment rates
for all institutions, institutions in all risk categories could be affected.
The FDIC has exercised this authority several times in the past and may raise
BIF insurance premiums again in the future. If such action is taken by the
FDIC, it could have an adverse effect on the earnings of CTC and BWM, the extent
of which is not currently quantifiable.
On November 14, 1995, the FDIC lowered the assessment rate schedule for BIF-
insured institutions, effective for the semiannual assessment period beginning
January 1, 1996, from a range of 0.04% to 0.31% of domestic deposits to a range
of the statutory annual minimum assessment of $2,000 per institution (regardless
of size) to 0.27% of domestic deposits, with intermediate rates of 0.03%, 0.10%,
0.17% and 0.24%. The FDIC indicated that it took this action in view of the
historically high reserve ratio of the BIF (approximately 1.30% of insured
deposits), the general health of the banking industry, the low projected losses
to the BIF, and the strength of the economy. The FDIC has estimated that
approximately 92% of BIF-insured institutions will qualify for the minimum
annual assessment of $2,000, and it is expected that CTC and BWM will qualify
for the minimum annual assessment under this new assessment rate schedule. The
new assessment rate schedule does not reflect the possible impact upon
assessment rates of the proposed legislation to recapitalize the SAIF, discussed
below.
Although the BIF has now been recapitalized, the SAIF remains seriously
undercapitalized, and the Congress is currently considering legislation to
recapitalize the SAIF. Among other things, this proposed legislation would, if
enacted into law, (1) require BIF-insured institutions to pay most of the annual
interest on the Financing Corporation ("FICO") bonds issued in 1987 to begin
funding the resolution of the problems in the savings and loan industry, which
may result in an increase of 0.025% (or more) of domestic deposits in the
assessment rates applicable to BIF-insured institutions, and (2) following the
recapitalization of the SAIF, merge the SAIF into the BIF, resulting in the
assumption by the BIF of the risk of loss from the possible failure of
institutions now insured by the SAIF, and the possibility of higher BIF
assessments to cover such losses or to establish special reserves (not counted
toward the statutorily-required reserve ratio) against anticipated losses. At
present, different versions of such legislation had been approved by both the
House of Representatives and the Senate as parts of budget reconciliation bills.
A House-Senate conference committee is attempting to resolve the differences
between these two bills (including the provisions relating to the
recapitalization of the SAIF). Although the passage of some form of legislation
to recapitalize the SAIF appears likely in the near future, the ultimate form of
such legislation, including the timing and amounts of any payments to be made
thereunder by BIF-insured institutions, and the effect (if any) of such
legislation on possible future losses of the BIF or the insurance assessment
rate schedule for BIF-insured institutions, cannot be determined at this time.
BROKERED DEPOSITS AND PASS-THROUGH DEPOSIT INSURANCE LIMITATIONS. Under FDICIA,
a bank cannot accept brokered deposits unless it either (i) is "Well
Capitalized" or (ii) is "Adequately Capitalized" and has received a written
waiver from the FDIC. For this purpose, "Well Capitalized" and "Adequately
Capitalized" have the same definitions as in the Prompt Corrective Action
regulations. See "- Prompt Corrective Action" above. Banks that are not in the
"Well Capitalized" category are subject to certain limits on the rates of
interest they may offer on any deposits (whether or not obtained through a
third-party deposit broker). Pass-through insurance coverage is not available
for deposits of certain employee benefits plans in banks that do not satisfy the
requirements for acceptance of brokered deposits, except that pass-through
insurance coverage will be provided for employee benefit plan deposits in
institutions which at the time of acceptance of the deposit meet all applicable
regulatory capital requirements and send written notice to their depositors that
their funds are eligible for pass-through deposit insurance. Although eligible
to do so, CTC does not accept brokered deposits.
CONSERVATORSHIP AND RECEIVERSHIP AMENDMENTS. FDICIA authorizes the FDIC to
appoint itself conservator or receiver for a state-chartered bank under certain
circumstances and expands the grounds for appointment of a conservator or
receiver for an insured depository institution to include (i) consent to such
action by the board of directors of the institution; (ii) cessation of the
institution's status as an insured depository institution; (iii) the institution
is undercapitalized and has no reasonable prospect of becoming adequately
capitalized, or fails to become adequately capitalized when required to do so,
or fails to timely submit an acceptable capital plan, or materially fails to
implement an acceptable capital plan; and (iv) the institution is critically
undercapitalized or otherwise has substantially insufficient capital. FDICIA
provides that an institution's directors shall not be liable to its stockholders
or creditors for acquiescing in or consenting to the appointment of the FDIC as
receiver or conservator for, or as a supervisor in the acquisition of, the
institution.
REAL ESTATE LENDING STANDARDS. FDICIA requires the federal bank regulatory
agencies to adopt uniform real estate lending standards. The FDIC has adopted
implementing regulations which establish supervisory limitations on Loan-to-
Value ("LTV") ratios in real estate loans by FDIC-insured banks. The
regulations require FDIC-insured banks to establish LTV ratio limitations within
or below the prescribed uniform range of supervisory limits.
STANDARDS FOR SAFETY AND SOUNDNESS. FDICIA requires the federal bank regulatory
agencies to prescribe, by regulation, standards for all insured depository
institutions and depository institution holding companies relating to: (i)
internal controls, information systems and internal audit systems; (ii) loan
documentation; (iii) credit underwriting; (iv) interest rate risk exposure; (v)
asset growth; and (vi) compensation, fees and benefits. The compensation
standards would prohibit employment contracts, compensation or benefit
arrangements, stock option plans, fee arrangements or other compensatory
arrangements that would provide "excessive" compensation, fees or benefits, or
that could lead to material financial loss. In addition, the federal bank
regulatory agencies are required by FDICIA to prescribe standards specifying;
(i) maximum classified assets to capital ratios; (ii) minimum earnings
sufficient to absorb losses without impairing capital; and (iii) to the extent
feasible, a minimum ratio of market value to book value for publicly-traded
shares of depository institutions and depository institution holding companies.
The FDIC has issued regulations implementing certain of these provisions.
ACTIVITIES AND INVESTMENTS OF INSURED STATE BANKS. FDICIA provides that FDIC-
insured state banks such as CTC and BWM may not engage as a principal, directly
or through a subsidiary, in any activity that is not permissible for a national
bank unless the FDIC determines that the activity does not pose a significant
risk to the BIF, and the bank is in compliance with its applicable capital
standards. In addition, an insured state bank may not acquire or retain,
directly or through a subsidiary, any equity investment of a type, or in an
amount, that is not permissible for a national bank.
Subject to certain limited exceptions, the foregoing provisions of FDICIA
prohibit insured state banks such as CTC and BWM or any subsidiary of such
insured state banks from retaining or acquiring equity investments. However,
under an exception in the statute, an insured state bank such as CTC and BWM
that (i) is located in a state such as Vermont or Massachusetts which
authorized, as of September 30, 1991, state banks to invest in common or
preferred stock listed on a national securities exchange ("listed stock") or
shares of an investment company registered under the Investment Company Act of
1940 ("registered shares") and (ii) during the period beginning September 30,
1990 and ending on November 26, 1991 made or maintained investments in listed
stocks and registered shares, may retain whatever listed stock or registered
shares it lawfully acquired or held prior to December 19, 1991 and may continue
to acquire listed stock or registered shares which may not exceed, taken
together in the aggregate, 100% of the bank's Tier 1 Capital. In order to
acquire or retain any listed stock or registered shares under this exception,
the bank must file a one-time notice with the FDIC containing specified
information, and the FDIC must determine that acquiring or retaining the listed
stock or registered shares will not pose a significant risk to BIF. Any such
approval may be subject to whatever conditions or restrictions the FDIC
determines to be necessary or appropriate and will terminate with respect to
further acquisitions of listed stock or registered shares if the bank or its
holding company experiences a change in control and in certain other
circumstances. CTC filed the one-time notice with the FDIC and the FDIC did not
object.
Insured state banks are required to divest any equity investments made
impermissible by FDICIA including any listed stock and registered shares for
which FDIC approval is not obtained, as quickly as prudently possible but in no
event later than December 19, 1996, and to submit a plan for such divestiture to
the FDIC.
CONSUMER PROTECTION PROVISIONS. FDICIA also includes provisions requiring
advance notice to regulators and customers for any proposed branch closing and
authorizing (subject to future appropriation of the necessary funds) reduced
insurance assessments for institutions offering "lifeline" banking accounts or
engaged in lending in distressed communities. FDICIA also includes provisions
requiring depository institutions to make additional and uniform disclosures to
depositors with respect to the rates of interest, fees and other terms
applicable to consumer deposit accounts.
DEPOSITOR PRIORITY STATUTE. Effective August 10, 1993, the FDI Act was amended
to provide that, in the liquidation or other resolution by any receiver of a
bank insured by the FDIC, the claims of depositors have priority over the
general claims of other creditors. Hence, in the event of the liquidation or
other resolution of a banking subsidiary of the Company, the general claims of
the Company as creditor of such banking subsidiary would be subordinate to the
claims of the depositors of such banking subsidiary, even if the claims of CC
were not by their terms so subordinated. In addition, this statute may, in
certain circumstances, increase the costs to banks of obtaining funds through
nondeposit liabilities.
INTERSTATE BANKING AND BRANCHING. On September 29, 1994, the President of the
United States signed into law the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 ("Riegle-Neal Act"). Beginning September 29, 1995, an
adequately capitalized and managed bank holding company may (with Federal
Reserve Board approval) acquire control of banks outside its principal state of
operations, without regard to whether such acquisitions are permissible under
state law. States may, however, limit the eligibility of banks to be acquired
by an out-of-state bank holding company to banks in existence for a minimum
period of time (not in excess of five years). No bank holding company may make
an acquisition outside its principal state of operations which would result in
it controlling more than 10% of the total amount of deposits of all insured
depository institutions in the United States, or 30% or more of the total
deposits of insured depository institutions in any state (unless such limit is
waived, or a more restrictive or permissible limit is established, by a
particular state). In addition, beginning June 1, 1997, banks may branch across
state lines either by merging with banks in other states or by establishing new
branches in other states. The date relating to interstate branching through
mergers may be accelerated by any state, and such mergers may be prohibited by
any state. The provision relating to establishing new branches in another state
requires a state's specific approval. The Vermont Commissioner made
recommendations to the Vermont legislature in November, 1995 that Vermont should
enact laws and regulations on interstate branching in response to the Riegle-
Neal Act. In her report to the legislature, the Vermont Commissioner
recommended that the legislature adopt legislation to accelerate the effective
date of interstate branching through mergers to July 1, 1996 (that is, to "opt-
in early") by permitting out-of-state banks to acquire Vermont banks in
existence for at least five years, or branches in existence for at least one
year, subject (prior to July 1, 1997) to the reciprocity requirements that banks
from another state may so branch through mergers into Vermont only if Vermont
banks may so branch through mergers into that other state by acquiring banks or
branches in that state. The Vermont Commissioner recommended that the
legislature not adopt legislation permitting interstate branching through the
establishment of new branches (so called "de novo branching"). No prediction
can be made whether the Vermont legislature will enact legislation to implement
the recommendations of the Vermont Commissioner, or other legislation relating
to interstate branching. Since 1990, Massachusetts has had nationwide
reciprocal interstate banking legislation permitting out-of-state banks to
conduct banking operations in that state both by mergers and by establishing new
banks, subject to the reciprocity requirements that banks from another state may
acquire banks in Massachusetts only if Massachusetts banks may conduct banking
operations in that state. CC is unable to predict the ultimate impact of this
new interstate banking legislation on it or its competitors.
The United States Congress has periodically considered and adopted legislation
which has resulted in and could result in further regulation or deregulation of
both banks and other financial institutions. Such legislation could place the
Company, CTC or BWM in more direct competition with other financial
institutions, including mutual funds, securities brokerage firms and investment
banking firms. No assurance can be given as to whether any additional
legislation will be enacted or as to the effect of such legislation on the
business of the Company, CTC or BWM.
EMPLOYEES
The Company and its subsidiaries on December 31, 1995 employed 816 persons, with
a full-time equivalency of 769 employees. The Company enjoys good relations
with its employees. A variety of employee benefits, including health, group
life and disability income replacement insurance, a funded, non-contributory
pension plan, and an incentive savings and profit sharing plan, are available to
qualifying officers and employees.
SELECTED STATISTICAL INFORMATION
Certain consolidated financial data about the business of the Company is
contained on pages 13 to 54 of the Company's 1995 Annual Report to Stockholders
is attached hereto as Exhibit 13.
ITEM 2
PROPERTIES
The Company's principal banking subsidiary, CTC, operates banking facilities in
39 locations in Vermont. The offices of CTC are in good physical condition with
modern equipment and facilities considered adequate to meet the banking needs of
customers in the communities serviced.
The offices of the Company are located in the main office of the CTC, which
occupied all of the five-floor Chittenden Building at Two Burlington Square in
Burlington as of December 31, 1995. The Chittenden Building is owned by CTC.
BWM operates banking facilities in 3 locations in Massachusetts. The offices of
BWM are in good physical condition with modern equipment and facilities consid-
ered adequate to meet thebanking needs of customers in the communities serviced.
The Company continues to conduct business out of properties owned or leased by
FBT in the area of Worcester, Massachusetts. Reference is made to The Company's
Registration Statement No. 33-64527 on Form S-4 under the Securities Act of
1933, filed in connection with the Company's acquisition of FBT.
ITEM 3
LEGAL PROCEEDINGS
A number of legal claims against the Company arising in the normal course of
business were outstanding at December 31, 1995. Management, after reviewing
these claims with legal counsel, is of the opinion that these matters, when
resolved, will not have a material effect on the consolidated financial
statements.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters.
PART II
ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information regarding the market in which the Company's common stock is traded,
and the quarterly high and low bid quotations for the Company's common stock
during the past five years are included in the Company's 1995 Annual Report to
Stockholders on page 57, and is attached hereto as Exhibit 13. The approximate
number of stockholders at March 1, 1996 was 3,354. Note 8 of the Consolidated
Financial Statements appearing on page 27 of the Company's 1995 Annual Report to
Stockholders contains a discussion of restrictions on dividends and is attached
hereto as Exhibit 13.
ITEM 6
SELECTED FINANCIAL DATA
A five-year summary of selected consolidated financial data for the Company and
its subsidiaries is included on page 39 of the Company's 1995 Annual Report to
Stockholders and is attached hereto as Exhibit 13.
The Company consummated an acquisition of FBT on February 29, 1996. Reference
is made to the Company's Registration Statement No. 33-64527 on Form S-4 under
the Securities Act of 1933, filed in connection with the Company's acquisition
of FBT, Worcester, Massachusetts.
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations is included on pages 40 to 54 of the Company's 1995 Annual Report to
Stockholders and is attached hereto as Exhibit 13.
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company and its
subsidiaries appear in the Company's 1995 Annual Report to Stockholders at the
pages indicated and are attached hereto as Exhibit 13:
Report of Independent Public Accountants Page 38
Consolidated Balance Sheets at
December 31, 1995 and 1994 Page 13
Consolidated Statements of Income for the
Years Ended December 31, 1995, 1994, and 1993 Page 14
Consolidated Statements of Changes in
Stockholders' Equity for the Years Ended
December 31, 1995, 1994, and 1993 Page 15
Consolidated Statements of Cash Flows for
the Years Ended December 31, 1995, 1994, and 1993 Page 16
Notes to Consolidated Financial Statements Pages 17-37
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not Applicable
PART III
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors and director-nominees of the Registrant is
included in the Company's definitive Proxy Statement for the 1996 Annual Meeting
of Stockholders at pages 5-11, and is specifically incorporated herein by
reference.
At December 31, 1995, the principal officers of the Company and its principal
subsidiary, CTC, with their ages, positions, and years of appointment, were as
follows:
YEAR
NAME AND AGE APPOINTED POSITIONS
- --------------------------------------------------------------------------------
Barbara W. Snelling, 68 1990 Chair of the Company
Paul A. Perrault, 44 1990 President and Chief Executive Officer of
the Company and Chittenden Trust
Lawrence W. DeShaw, 49 1990 Executive Vice President of the Company
and Chittenden Trust
John W. Kelly, 46 1990 Executive Vice President of the
Company and Chittenden Trust
Nancy Rowden Brock, 39 1984 Treasurer of the Company and Senior
Vice President, Chief Financial
Officer, and Treasurer of
Chittenden Trust
F. Sheldon Prentice, 45 1985 Secretary of the Company and Senior Vice
President, General Counsel, and
Secretary of Chittenden Trust
John P. Barnes, 40 1990 Senior Vice President of the Company and
Chittenden Trust
Danny H. O'Brien, 45 1990 Senior Vice President of the Company and
Chittenden Trust
- --------------------------------------------------------------------------------
All of the current officers have been principally employed in executive
positions with CTC for more than five years.
In accordance with the provisions of the Company's By-Laws, the officers, with
the exception of the Secretary, hold office at the pleasure of the Board of
Directors. The Secretary is elected annually by the Board of Directors.
ITEM 11
EXECUTIVE COMPENSATION
Information regarding remuneration of the directors and officers of the Company
is included in the Company's definitive Proxy Statement for the 1996 Annual
Meeting of Stockholders at pages 11-19 and is specifically incorporated herein
by reference.
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding the security ownership of directors and director-nominees
of the Company, all directors and officers of the Company as a group, and
certain beneficial owners of the Company's common stock, as of February 1, 1996,
is included in the Company's definitive Proxy Statement for its 1996 Annual
Meeting of Stockholders, at pages 4-10, and is specifically incorporated herein
by reference.
There are no arrangements known to the registrant which may, at a subsequent
date, result in a change of control of the registrant.
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and transactions between the Company
and its Directors, Director-Nominees, Executive Officers, and family members of
these individuals, is included in the Company's definitive Proxy Statement for
its 1996 Annual Meeting of Stockholders at pages 10 and 21, and is specifically
incorporated herein by reference.
PART IV
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(l) FINANCIAL STATEMENTS
The following consolidated financial statements of the Company and its
subsidiaries appear in the Company's 1995 Annual Report to Stockholders:
Report of Independent Public Accountants Page 38
Consolidated Balance Sheets at
December 31, 1995 and 1994 Page 13
Consolidated Statements of Income for the
Years Ended December 31, 1995, 1994, and 1993 Page 14
Consolidated Statements of Changes in
Stockholders' Equity for the Years Ended
December 31, 1995, 1994, and 1993 Page 15
Consolidated Statements of Cash Flows for
the Years Ended December 31, 1995, 1994, and 1993 Page 16
Notes to Consolidated Financial Statements Pages 17-37
(2) FINANCIAL STATEMENT SCHEDULES
There are no financial statement schedules required to be included in this
report.
(3) REPORTS ON FORM 8-K
A report was filed by the Company on Form 8-K December 13, 1995 in connection
with the Company's acquisition of FBT so as to file with the Securities and
Exchange Commission certain paper reports that would be incorporated by
reference into its Registration Statement on Form S-4.
(4) EXHIBITS
The following are included as exhibits to this report:
3. By-Laws of the Company, as amended, incorporated herein by reference to
Exhibit 3 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1985.
3.01 Amendment to the By-Laws of the Company, dated February 16, 1988,
incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1987.
3.02 Amendment to the By-Laws of the Company, dated January 17, 1990,
incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1989.
3.03 Amendment to the By-Laws of the Company, dated June 19, 1991, incorporated
herein by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1991.
3.04 Amendment to the By-Laws of the Company, dated November 15, 1995. CHANGED
FROM: "A director elected to fill a vacancy shall hold office until the
next regular election of directors." CHANGED TO: "A director elected to
fill a vacancy shall hold office until the expiration of the term of the
departed director who creates the vacancy."
3.1 Articles of Association of the Company, as amended, incorporated herein by
reference to the Proxy Statement for the 1994 Annual Meeting of
Stockholders.
4. Statement of the Company regarding its Dividend Reinvestment Plan is
incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1993.
10.1 Directors' Deferred Compensation Plan, dated April 1972, as amended
January 1, 1992, incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992.
10.2 Pension Plan of CTC, attached to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994, as amended on March 15, 1995 and
December 20, 1995 and attached to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
10.3 Incentive Savings and Profit Sharing Plan, attached to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, as amended
on March 15, 1995 and attached to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
10.4 The Company's Stock Option Plan, incorporated herein by reference to the
Company's Proxy Statement in connection with the 1986 Annual Meeting of
Stockholders.
10.5 The Company's Stock Option Plan, incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1987.
10.6 The Company's Restricted Stock Plan, incorporated herein by reference to
the Company's Proxy Statement in connection with the 1986 Annual Meeting
of Stockholders.
10.7 Executive Management Incentive Compensation Plan, attached to the
Company's Annual Report on Form 10-K for the year ended December 31, 1994
and is incorporated herein by reference.
10.8 The Company's Stock Incentive Plan, dated January 1, 1993, incorporated
herein by reference to the Company's Proxy Statement for the 1993 Annual
Meeting of Stockholders.
13. The Company's 1995 Annual Report to Stockholders.
21. List of subsidiaries of the Registrant.
23. Consent of Arthur Andersen LLP.
EXHIBITS
EXHIBIT 3.04
AMENDMENT TO THE BY-LAWS OF THE COMPANY
EXHIBIT 10.2
AMENDMENT NUMBER ONE
AMENDMENT NUMBER ONE
TO THE
PENSION PLAN FOR EMPLOYEES OF
THE CHITTENDEN CORPORATION
(As Amended and Restated Effective January 1, 1989)
WHEREAS, Chittenden Corporation (the "Principal Employer") heretofore
adopted the Pension Plan for Employees of The Chittenden Corporation (the
"Plan"); and
WHEREAS, Article X permits the Principal Employer to amend the Plan from
time to time; and
WHEREAS, the Principal Employer will acquire the Bank of Western
Massachusetts (such date to be known as the "Acquisition Date"); and
WHEREAS, the Principal Employer intends to maintain the qualified
retirement plans of the Bank of Western Massachusetts on and after the
Acquisition Date;
NOW, THEREFORE, the Plan is hereby amended effective as of the Acquisition
Date, as follows:
Section 3.1, "MEMBERSHIP" shall be amended by adding the following paragraph (d)
immediately after paragraph (c) thereof:
"(d) Notwithstanding the foregoing, each Employee who is employed by the
Bank of Western Massachusetts shall not be eligible for membership
hereunder."
IN WITNESS WHEREOF, Chittenden Corporation has caused this amendment to be
executed by its officer thereunto duly authorized and its corporate seal to be
hereunto affixed as of the 15th day of March, 1995.
CHITTENDEN CORPORATION
BY: /s/ F. Sheldon Prentice, Esq.
Secretary
CORPORATE SEAL
EXHIBIT 10.2
AMENDMENT NUMBER TWO
BOARD OF DIRECTORS RESOLUTION
AUTHORIZING THE ADOPTION OF
AMENDMENT NUMBER TWO
TO THE
PENSION PLAN FOR EMPLOYEES OF THE CHITTENDEN CORPORATION
(As Amended and Restated Effective January 1, 1989)
WHEREAS, the Chittenden Corporation (the "Principal Employer") heretofore
adopted the Pension Plan for Employees of the Chittenden Corporation (the
"Plan"); and
WHEREAS, Article X permits the Principal Employer to amend the Plan at any
time by means of a resolution of the Board of Directors;
WHEREAS, it is the desire of the Principal Employer to credit certain past
service under the Plan;
NOW, THEREFORE, the Plan is amended effective January 1, 1995, as follows:
1. Section 3.3, ELIGIBILITY SERVICE, is amended by adding the following
paragraph (f) to the end thereof:
"(f) Subject to the Break in Service provisions of Section 3.5, an Employee
who terminates employment with the Employer and all Affiliated
Companies on or after January 1, 1995, shall be credited with
Eligibility Service in accordance with the provisions set forth in
this Section 3.3 for periods of employment with the Employer or an
Affiliated Company prior to December 1, 1976."
2. Section 3.4, BENEFIT SERVICE, is amended by adding the following paragraph
(g) to the end thereof:
"(g) Subject to the Break in Service provisions of Section 3.5, a Member
who terminates employment with the Employer on or after January 1,
1995, shall receive Benefit Service in accordance with the provisions
set forth in this Section 3.4 for periods of employment with the
Employer prior to December 1, 1976."
IN WITNESS WHEREOF, the Principal Employer has caused this instrument to be
executed by its officer duly authorized and its corporate seal to be hereunto
affixed as of the 20th day of December, 1995.
CHITTENDEN CORPORATION
BY: /s/ Paul A. Perrault
ATTEST:
/s/ F. Sheldon Prentice
CORPORATE SEAL
EXHIBIT 10.2
AMENDMENT NUMBER THREE
BOARD OF DIRECTORS RESOLUTION
AUTHORIZING THE ADOPTION OF PROPOSED
AMENDMENT NUMBER THREE
TO THE
PENSION PLAN FOR EMPLOYEES OF THE CHITTENDEN CORPORATION
(As Amended and Restated Effective January 1, 1989)
WHEREAS, Chittenden Corporation (the "Principal Employer") heretofore
adopted the Pension Plan for Employees of The Chittenden Corporation (the
"Plan"); and
WHEREAS, Article X permits the Principal Employer to amend the Plan at any
time by means of a resolution of the Board of Directors; and
WHEREAS, the Internal Revenue Service (IRS) has requested that the Plan be
amended in response to the Principal Employer's application for a letter of
determination for the Plan;
NOW, THEREFORE, the following proposed amendments shall be effective
January 1, 1989, and shall be adopted by the Board upon approval of the IRS:
Section 2.12, "COMPENSATION" shall be amended by deleting the last paragraph
thereof and replacing it with the following:
"Effective for Plan Years beginning after December 31, 1988, Compensation
taken in to account under the Plan shall not exceed $200,000 ($150,000 effective
for Plan Years beginning after December 31, 1993) or such other amount as
indexed pursuant to Sections 401(a)(17) and 415(d) of the Code. In any event,
the Accrued Benefit of any Member determined in accordance with this provision
shall not be less than the Accrued Benefit of such Member determined as of
December 31, 1988, in accordance with the applicable provisions of the Plan as
in effect on such date.
In determining the Compensation of an Employee for purposes of the Code Section
401(a)(17) limitation, the rules of Section 414(q)(6) of the Code shall apply;
provided, however, that in applying such rules, the term "family" shall include
only the spouse of the Employee and any lineal descendants of the Employee who
have not attained age 19 before the close of the Plan Year.
If the Compensation of the Employee exceeds the Code Section 401(a)(17)
limitation, then the Code Section 401(a)(17) limitation shall be prorated among
the Compensation of the Employee and his family (as determined under this
Section 2.12 prior to the application of the Code Section 401(a)(17) limitation)
in proportion to each such individual's Compensation (as determined under the
Section 2.12 prior to the application of the Code Section 401(a)(17)
limitation)."
IN WITNESS WHEREOF, the Principal Employer has caused this instrument to be
executed by is officer duly authorized and its corporate seal to be hereunto
affixed as of the 20th day of December, 1995.
CHITTENDEN CORPORATION
BY: /s/ Paul A. Perrault
ATTEST:
/s/ F. Sheldon Prentice
CORPORATE SEAL
EXHIBIT 10.3
AMENDMENT NUMBER ONE
THE CHITTENDEN CORPORATION
INCENTIVE SAVINGS AND PROFIT SHARING PLAN
(As Amended and Restated Effective January 1, 1989)
WHEREAS, Chittenden Corporation (the "Employer") heretofore adopted the
Chittenden Corporation Incentive Savings and Profit Sharing Plan (the "Plan");
and
WHEREAS, Article XIII permits the Employer to amend the Plan from time to
time; and
WHEREAS, the Employer will acquire the Bank of Western Massachusetts (such
date to be known as the "Acquisition Date"); and
WHEREAS, the Employer intends to maintain the qualified retirement plans
of the Bank of Western Massachusetts on and after the Acquisition Date;
NOW THEREFORE, the Plan is hereby amended effective as of the Acquisition
Date, as follows:
Section 2.1, "ELIGIBILITY TO PARTICIPATE" shall be amended by adding the
following paragraph immediately after paragraph (e) thereof:
"Notwithstanding the foregoing, each Employee who is employed by the Bank
of Western Massachusetts shall not be considered an Eligible Employee
hereunder."
IN WITNESS WHEREOF, Chittenden Corporation has caused this amendment to be
executed by its officer thereunto duly authorized and its corporate seal to be
hereunto affixed as of the 15th day of March, 1995.
CHITTENDEN CORPORATION
BY: /s/ F. Sheldon Prentice, Esq.
Secretary
CORPORATE SEAL
EXHIBIT 13
CHITTENDEN'S 1995 ANNUAL REPORT HAS BEEN FILED AS AN EXHIBIT ATTACHED HERETO
EXHIBIT 21
LIST OF SUBSIDIARIES OF CHITTENDEN CORPORATION
Chittenden Trust Company, Vermont, d/b/a Chittenden Bank
The Bank of Western Massachusetts, Massachusetts
Chittenden Acquisition Bank, Massachusetts d/b/a Flagship Bank and Trust
Company, is a Bank in formation to effectuate the acquisition of Flagship Bank
and Trust Company.
EXHIBIT 23
CONSENT LETTER ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated January 16, 1996, included in Chittenden Corporation's Form 10-K
for the year ended December 31, 1995, into the Company's previously filed
Registration Statement File No. 33-1229.
s/ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 25, 1996