Chittenden Reports Higher Earnings; Announces Quarterly Dividend

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Chittenden Reports Higher Earnings; Announces Quarterly Dividend

Wed, 01/21/2004 - 8:00pm -- tim

Chittenden Corporation
(NYSE: CHZ) Chairman, President and Chief Executive Officer, Paul A. Perrault,
announced higher earnings for the year ended December 31, 2003, of $74.8
million or $2.07 per diluted share, compared to $63.6 million or $1.96 a year
ago. For the fourth quarter of 2003, net income was $0.53 per diluted share,
compared to the $0.55 per diluted share earned in the fourth quarter of 2002.
The prior quarter amount exceeded the current quarter primarily due to higher
gains on sales of securities in 2002. Chittenden also announced its quarterly
dividend of $0.20 per share. The dividend will be paid on February 13, 2004,
to shareholders of record on January 30, 2004.
In making the announcement, Perrault said, "The past year has been a busy
one at Chittenden. In addition to our primary focus of delivering top quality
service to our customers, we completed the Granite acquisition in the first
quarter and there has been significant activity behind the scenes in
preparation for our IT conversion this coming spring. I am encouraged by our
progress on this important project as well as with the financial results that
we have achieved during 2003."
On February 28, 2003, Chittenden completed its acquisition of Granite
Bank, a $1.1 billion commercial bank headquartered in Keene, NH for $123
million in cash and approximately 4.4 million shares of Chittenden stock
valued at $116 million. Accordingly, Granite Bank's operations are reflected
in Chittenden's consolidated financial statements from the date of
acquisition.
Total loans increased $43 million from September 30, 2003 and $751 million
from December 31, 2002. The increase from a year ago was primarily
attributable to the acquisition of Granite, which contributed approximately
$626 million of total loans at the date of acquisition. The increase from
last quarter was due to continued growth in the Company's commercial and
commercial real estate loan portfolios. The Company experienced its normal
seasonal decline in municipal loans and a continued reduction in residential
real estate and consumer loans due to higher than normal prepayment speeds on
these portfolios.
Total deposits increased $844 million from a year ago and declined $48
million from last quarter. The increase from a year ago was primarily a
result of the Granite acquisition, which contributed $783 million in deposits
at the date of acquisition. The decrease from last quarter is primarily
related to the seasonal drop in municipal and captive insurance deposits,
which was partially offset by an increase in demand deposits. Borrowings
declined from last quarter due to the early redemption of $77 million of FHLB
advances, which had an effective rate of 3.50%.
The Company's net interest margin for the fourth quarter of 2003 was
4.14%, compared with 3.98% for the third quarter of 2003 and 4.38% for the
same period of 2002. The increase on a linked quarter basis is primarily
related to the recognition of additional accelerated fair value adjustments of
$1.7 million in the third quarter which were driven by heavy prepayments on
Granite's residential mortgages. Excluding the effect of the accelerated fair
value adjustment, the net interest margin was 4.11% in the third quarter of
2003. The net interest margin for the year ended December 31, 2003 was 4.12%
as compared to 4.53% for 2002. The decrease from 2002 is a result of the
Granite acquisition and the overall reduction in market interest rates. On a
pro forma basis the net interest margin without Granite for the fourth quarter
of 2003 was 4.21% and for 2003 was 4.33%.
Net charge-offs as a percentage of average loans were 8 basis points in
the fourth quarter and 16 basis points for the year ended December 31, 2003,
compared to 7 basis points and 28 basis points for the respective periods in
2002. Net charge-off activity on a year-to-date basis totaled $5.8 million
compared with $8.4 million in 2002. Nonperforming assets decreased $3.6
million from September 30, 2003 to $14.4 million at December 31, 2003 and as a
percentage of total loans declined to 39 basis points compared to 49 basis
points in the third quarter and 50 basis points at year end 2002. As a
percentage of loans, the allowance for loan losses was 1.54%, down from 1.61%
at September 30, 2003 and 1.62% at December 31, 2002.
The provision for loan losses was $7.2 million in 2003 compared to $8.3
million in 2002. For the fourth quarter, the provision was $1.0 million in
2003 compared to $2.1 million in the third quarter of 2003 and $2.3 million
for the fourth quarter of 2002. The lower provision in the fourth quarter of
2003 was primarily due to the reduction in the annual level of net charges-
offs as well as continued improvement in the Company's overall credit quality
and the general economic environment.
Noninterest income was $23.0 million for the fourth quarter of 2003,
compared with $25.0 million for the third quarter and $19.6 million for the
same period a year ago. The decline from the third quarter was primarily
attributable to lower gains on sales of mortgage loans and mortgage servicing
income. The increase in market interest rates during the second half of 2003
significantly slowed mortgage originations and resulted in lower volumes of
mortgage loans sold. Mortgage-servicing income declined in the fourth quarter
primarily due to lower impairment recoveries of $1.8 million, which was
partially offset by lower MSR amortization. The increase in other noninterest
income of $757,000 on a linked quarter basis was attributable to gains on
sales of real estate related to branch locations being consolidated. In
addition, gains on the sales of securities of $3.0 million were offset by
prepayment penalties on the redemption of FHLB borrowings of $916,000 and $2.2
million in conversion and restructuring charges, which were reported as part
of noninterest expense.
Noninterest expenses were $48.1 million for the fourth quarter of 2003,
compared to $46.9 million for the third quarter and $39.9 million for the
fourth quarter of 2002. Conversion and restructuring charges of $2.2 million
were recognized in the fourth quarter of 2003. These were comprised of
$378,000 in additional technology expenses related to the Company's second
quarter announcement that it would convert its core data processing systems
and $1.8 million of restructuring charges. The restructuring charges were
associated with the Company's plan to consolidate 11 branches and close 30
offsite ATMs, as well as to recognize severance for related staff reductions.
Salaries and employee benefits decreased $1.2 million from the third quarter
of 2003 and increased $4.7 million from the fourth quarter of 2002. Granite
represented $3.4 million of the increase from a year ago, while higher
commissions and sales based incentive expenses accounted for $1.3 million.
Other increases driven by the Granite acquisition were noted in occupancy
expense ($470,000) and amortization of intangibles ($407,000) related to the
Granite core deposit and customer list intangibles.
Effective income tax rates for 2003 were 34.8% for the fourth quarter and
35.8% year to date compared to 35.4% and 34.9% for the respective periods in
2002. The lower effective tax rate in the fourth quarter of 2003 was a result
of the recovery of prior year tax reserves that were no longer necessary. The
increase year over year was primarily attributable to the Granite acquisition.
The return on average equity was 13.90% for 2003, compared with 16.12% for
2002. The decline from a year ago is primarily due to the issuance of
additional equity of $116 million in the Granite acquisition. The return on
average assets for 2003 was 1.29%, compared with 1.40% for 2002. The ROE and
ROA without Granite for 2003 would have been 15.32% and 1.38% respectively.