Chittenden Reports Earnings and Quarterly Dividend

BURLINGTON, Vt., Jan. 20 /PRNewswire-FirstCall/ -- Chittenden Corporation Chairman, President and Chief Executive Officer, Paul A. Perrault, today announced earnings for the year ended December 31, 2004 of $75.1 million or $1.61 per diluted share, compared to $74.8 million or $1.66 per diluted share a year ago. For the fourth quarter of 2004, net income was $20.0 million or $0.43 per diluted share, compared to $19.7 million or $0.43 per diluted share earned in the fourth quarter of 2003. Chittenden also announced its quarterly dividend of $0.18 per share. The dividend will be paid on February 11, 2005, to shareholders of record on January 28, 2005.

In making the announcement, Perrault said, "We accomplished many important things internally in 2004, including the core data processing systems conversion and the merger of Granite Bank into Ocean National Bank. At the same time significant progress was made externally, as evidenced by double digit growth in both commercial and commercial real estate loans. I look forward to putting these developments to the advantage of our shareholders, customers, and employees in 2005."

Total loans increased $97 million from September 30, 2004 and $352 million from December 31, 2003. Both the quarter to date (on an annualized basis) and the year over year increases were approximately 9.5%. The increase in both periods was primarily driven by growth in the Company's commercial (22% increase year over year) and commercial real estate (11% increase year over year) loan portfolios. In addition, financings for commercial customers also influenced the Company's construction loan portfolio growth, which increased $33 million from year-end 2003 and $30 million from September 30, 2004. Consumer loans declined from both the prior year-end and on a linked quarter basis. This decrease was primarily due to runoff in the Company's discontinued indirect auto lease portfolio. Runoff from the prior year in the 1-4 family residential real estate portfolio was more than offset by growth in home equity lines of credit.

Total deposits increased $69 million from a year ago and declined $54 million from the third quarter. The decline from the prior quarter was due to the Company's normal seasonal trends, driven primarily by municipal and commercial customers. The increase from the prior year-end was primarily attributable to higher levels of deposits from our commercial customers in our Vermont and New Hampshire franchises. Borrowings increased from both the third quarter as well as from the prior year-end due to higher levels of short-term borrowings, which resulted from the seasonal declines in deposits and the strong loan growth in the fourth quarter.

The Company's net interest margin for the fourth quarter was 4.27%, compared with 4.20% for the third quarter of 2004 and 4.14% for the same period in 2003. For 2004 the net interest margin was 4.21% compared with 4.12% for 2003. The increase in net interest margin primarily related to higher yields on loans due to increases in the prime rate as well as continued improvement in the Company's asset mix.

Net charge-offs as a percentage of average loans were 3 basis points in the fourth quarter and 7 basis points for the year ended December 31, 2004, compared to 8 basis points and 16 basis points for the respective periods in 2003. Net charge-offs on a year-to-date basis totaled $2.8 million compared with $5.8 million in 2003. Nonperforming assets were $20.0 million at December 31, 2004, down $1.5 million from September 30, 2004. As a percentage of total loans this represented 49 basis points, down 5 basis points from the third quarter and up from the unusually low level in the fourth quarter of 2003 of 39 basis points. The provision for loan losses was $4.4 million in 2004 compared to $7.2 million in 2003. Continued lower levels of net charge-offs, and strong asset quality drove the provision for 2004. As a percentage of total loans, the allowance for loan losses was 1.45%, down from 1.47% at September 30, 2004, primarily as a result of continued loan growth.

Noninterest income for the fourth quarter of 2004 declined $6.0 million from the same quarter of 2003. The primary drivers of the decline were lower securities gains, mortgage banking revenues and retail investment income. Gains on sales of securities were $107,000 in the fourth quarter of 2004, compared with $3.0 million in 2003. Securities gains in the fourth quarter of 2003 were substantially offset by $916,000 in losses on the prepayment of borrowings and $2.2 million in conversion and restructuring charges. Mortgage banking revenues declined $2.5 million from the fourth quarter of 2004 due to a 50% decline in loan sales volumes. Retail investment income declined $449,000 primarily due to lower annuity sales at Chittenden Securities, Inc.

Noninterest income for the year ended December 31, 2004 was $73.4 million, a decline of $23.6 million from the prior year. Lower levels of gains on sales of securities and mortgage loans, net of lower losses on prepayments of borrowings, accounted for all of the variance. Excluding these items, noninterest income was $1.6 million higher in 2004 than in 2003, driven primarily by higher levels of investment management income, which offset lower levels of retail investment income. Also included in the 2004 other income amount was $1.3 million in gains on sales of two branches.

Noninterest expenses were $43.0 million for the fourth quarter of 2004 compared with $48.1 million for the same period in 2003. Conversion and restructuring charges in the fourth quarter of 2004 were $291,000, a decline of $1.9 million from the similar quarter a year ago. The 2003 restructuring charges primarily related to $1.8 million for the consolidation of 11 branches and the closure of 30 offsite ATMs. Data processing expense declined $1.5 million, as a result of the Company's core data processing conversion in the second quarter of 2004. Salaries were approximately $1.0 million lower than the year ago level and other noninterest expenses declined $719,000.

In 2004 noninterest expenses were $15 million lower than in 2003, primarily driven by $6.7 million in reduced conversion and restructuring charges. An additional $4.8 million was due to reduced salary expenses, driven by lower staffing and reduced levels of incentive compensation. Lower levels of data processing expenses also accounted for $3.2 million of the decline. Increased employee benefits costs, driven by higher medical and dental benefits of $699,000, were offset by reduced levels of occupancy expenses of $587,000 and other noninterest expenses of $1.4 million.

The effective income tax rate for 2004 was 36.0% for the fourth quarter and 36.4% year to date compared with 34.8% and 35.8% for the respective periods in 2003. The higher effective income tax rate was primarily attributable to increased taxable income in New Hampshire, which has a higher statutory tax rate than other states in which the Company has operations.

The return on average equity was 12.70% for 2004, compared with 13.90% for a year ago. The decrease from 2003 primarily resulted from higher levels of average equity due to the Granite acquisition and retention of earnings. The return on average assets for year ended December 31, 2004 was 1.27%, a decrease of 2 basis points from 2003.

Kirk W. Walters, Executive Vice President and Chief Financial Officer of Chittenden Corporation, will host a conference call on January 20, 2005 at 10:30 am eastern time to discuss these earnings results. Interested parties may access the conference call by calling 800-901-5217, passcode 56712003. International dial-in number is 617-786-2964. Participants are asked to call in a few minutes prior to the call to allow time for registration. Internet access to the call is also available (listen only) by clicking "webcasts" under the Investor Resources section of the Company's website at http://www.chittendencorp.com/. A replay of the call will be available through January 27, 2005 by calling 888-286-8010 (International dial number is 617- 801-6888), passcode 27736802. A replay of the call will also be available on the Company's website at the address above for an extended period of time. The Company may answer one or more questions concerning business and financial developments and trends and other business. Some of the responses to these questions may contain information that has not been previously disclosed.

Chittenden is a bank holding company headquartered in Burlington, Vermont. Through its subsidiary banks(1), the Company offers a broad range of financial products and services to customers throughout Northern New England and Massachusetts, including deposit accounts and services; commercial and consumer loans; insurance; and investment and trust services to individuals, businesses, and the public sector. Chittenden Corporation's news releases, including earnings announcements, are available on the Company's website.

This press release 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. Chittenden intends for 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. These forward-looking statements are based on current plans and expectations, which are subject to a number of risk factors and uncertainties that could cause future results to differ from historical performance or future expectations.

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 borrowing to fund loans and investments, changes in interest rates, changes in levels of income and expense in noninterest income and expense related activities and other risk factors.

For further information on these risk factors and uncertainties, please see Chittenden's filings with the Securities and Exchange Commission, including Chittenden's Annual Report on Form 10-K/A for the year ended December 31, 2003. Chittenden undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or other changes.

(1) Chittenden's subsidiaries are Chittenden Bank, The Bank of Western Massachusetts, Flagship Bank and Trust Company, Maine Bank & Trust Company, and Ocean National Bank. Chittenden Bank also operates under the name Mortgage Service Center, and it owns Chittenden Insurance Group, and Chittenden Securities, Inc.

CHITTENDEN CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) (In Thousands) ASSETS 12/31/04 9/30/04 6/30/04 3/31/04 12/31/03 Cash and Cash Equivalents $136,468 $165,191 $170,940 $154,178 $174,939 Securities Available For Sale 1,446,221 1,458,149 1,412,206 1,473,497 1,588,151 FRB and FHLB Stock 19,243 19,243 12,240 20,753 20,753 Loans Held For Sale 33,535 35,723 49,497 32,276 25,262 Loans: Commercial 801,369 770,933 740,410 686,304 658,615 Municipal 106,120 105,781 66,533 92,338 87,080 Real Estate: Residential: 1-4 family 688,017 685,714 667,676 666,753 700,671 Multi-family 182,541 181,622 189,589 182,085 176,478 Home equity 294,656 287,479 276,640 277,062 270,959 Commercial 1,590,457 1,558,221 1,505,880 1,485,031 1,430,945 Construction 174,283 143,871 129,901 138,497 140,801 Total Real Estate 2,929,954 2,856,907 2,769,686 2,749,428 2,719,854 Consumer 239,750 246,889 249,208 252,097 259,135 Total Loans 4,077,193 3,980,510 3,825,837 3,780,167 3,724,684 Less: Allowance for Loan Losses (59,031) (58,598) (57,969) (57,500) (57,464) Net Loans 4,018,162 3,921,912 3,767,868 3,722,667 3,667,220 Accrued Interest Receivable 28,956 26,607 27,376 25,582 29,124 Other Real Estate Owned 109 987 47 36 100 Other Assets 64,861 66,069 71,534 57,095 71,536 Premises and Equipment, net 74,271 73,927 72,805 72,273 72,130 Mortgage Servicing Rights 11,826 12,119 12,562 10,866 12,265 Identified Intangibles 20,422 21,196 21,972 21,978 22,733 Goodwill 216,136 216,697 216,697 216,431 216,431 Total Assets $6,070,210 $6,017,820 $5,835,744 $5,807,632 $5,900,644 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits: Demand $890,561 $907,396 $891,244 $848,758 $898,920 Savings 519,623 534,286 541,138 526,625 517,789 NOW 890,701 903,307 912,175 894,575 899,018 CMAs/ Money Market 1,577,474 1,603,059 1,491,522 1,472,377 1,604,138 Certificates of Deposit less than $100,000 752,828 755,494 779,492 780,940 789,066 Certificates of Deposit $100,000 and Over 407,543 388,935 298,721 311,067 260,960 Total Deposits 5,038,730 5,092,477 4,914,292 4,834,342 4,969,891 Securities Sold Under Agreements to Repurchase 76,716 71,056 75,016 76,051 78,980 Other Borrowings 279,755 182,450 204,122 236,446 208,454 Accrued Expenses and Other Liabilities 54,752 60,769 54,452 61,308 63,368 Total Liabilities 5,449,953 5,406,752 5,247,882 5,208,147 5,320,693 Stockholders' Equity: Common Stock 50,204 50,202 50,202 50,196 50,178 Surplus 249,036 248,828 248,241 247,464 246,938 Retained Earnings 384,679 372,980 361,623 351,569 341,441 Treasury Stock, at cost (69,246) (71,017) (72,967) (76,058) (78,579) Accumulated Other Comprehensive Income: Unrealized Gains (Losses) on Securities Available for Sale 672 5,377 (3,772) 21,964 15,595 Directors Deferred Compensation to be Settled in Stock 4,930 4,720 4,562 4,381 4,413 Unearned Portion of Employee Restricted Stock (18) (22) (27) (31) (35) Total Stockholders' Equity 620,257 611,068 587,862 599,485 579,951 Total Liabilities and Stockholders' Equity $6,070,210 $6,017,820 $5,835,744 $5,807,632 $5,900,644 CHITTENDEN CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In Thousands, except for per share amounts) For the Three Months For the Year Ended December 31, Ended December 31, 2004 2003 2004 2003 Interest Income: Loans $56,302 $49,878 $209,107 $199,436 Investment Securities: Taxable 15,269 17,176 60,413 71,551 Tax-favored 14 13 53 162 Short-term Investments 76 71 194 293 Total Interest Income 71,661 67,138 269,767 271,442 Interest Expense: Deposits 10,300 8,507 36,439 41,172 Borrowings 2,167 2,277 7,830 12,207 Total Interest Expense 12,467 10,784 44,269 53,379 Net Interest Income 59,194 56,354 225,498 218,063 Provision for Loan Losses 1,825 1,025 4,377 7,175 Net Interest Income after Provision for Loan Losses 57,369 55,329 221,121 210,888 Noninterest Income: Investment Management and Trust 4,648 4,321 18,383 15,956 Service Charges on Deposits 4,179 4,686 17,886 18,396 Mortgage Servicing (260) 592 159 281 Gains on Sales of Loans, Net 2,604 4,272 9,661 21,765 Gains on Sales of Securities, Net 107 3,031 2,335 17,380 Loss on Prepayments of Borrowings - (916) (1,194) (3,070) Credit Card Income, Net 1,074 1,057 4,150 4,079 Insurance Commissions, Net 1,223 1,501 6,966 6,686 Retail Investment Services 674 1,123 3,239 4,621 Other 2,674 3,327 11,820 10,937 Total Noninterest Income 16,923 22,994 73,405 97,031 Noninterest Expense: Salaries 21,302 22,248 84,619 89,431 Employee Benefits 5,281 5,157 21,958 20,578 Net Occupancy Expense 5,410 5,603 22,669 23,256 Data Processing 916 2,404 6,188 9,384 Amortization of Intangibles 774 755 3,077 2,748 Conversion and Restructuring Charges 291 2,169 2,266 8,969 Other 9,022 9,741 35,595 37,005 Total Noninterest Expense 42,996 48,077 176,372 191,371 Income Before Income Taxes 31,296 30,246 118,154 116,548 Income Tax Expense 11,268 10,528 43,027 41,749 Net Income $20,028 $19,718 $75,127 $74,799 Earnings Per Share, Basic $0.43 $0.43 $1.63 $1.67 Earnings Per Share, Diluted 0.43 0.43 1.61 1.66 Dividends Per Share 0.18 0.16 0.70 0.64 Return on Average Equity 12.95% 13.66% 12.70% 13.90% Return on Average Assets 1.31% 1.31% 1.27% 1.29% CHITTENDEN CORPORATION SELECTED QUARTERLY FINANCIAL DATA (Unaudited) (In thousands, except ratios and per share amounts) Selected Financial Ratios 12/31/04 9/30/04 6/30/04 3/31/04 12/31/03 Return on Average Equity 12.95% 13.11% 12.40% 11.97% 13.66% Return on Average Assets 1.31% 1.31% 1.26% 1.21% 1.31% Return on Average Tangible Equity(1) 21.25% 22.13% 21.01% 20.38% 23.63% Return on Average Tangible Assets(1) 1.39% 1.40% 1.35% 1.30% 1.40% Net Yield on Earning Assets 4.27% 4.20% 4.18% 4.17% 4.14% Efficiency Ratio 55.64% 56.87% 58.05% 60.34% 59.58% Tangible Capital Ratio 6.58% 6.46% 6.24% 6.48% 6.02% Leverage Ratio 8.42% 8.39% 8.22% 8.28% 7.79% Tier 1 Capital Ratio 10.44% 10.51% 10.46% 10.36% 10.07% Total Capital Ratio 11.64% 11.76% 11.73% 11.61% 11.32% Common Share Data Common Shares Outstanding 46,342 46,241 46,135 45,954 45,796 Weighted Avg Common Shares Outstanding 46,293 46,188 46,045 45,899 45,729 Weighted Avg Common and Common Equivalent Shares Outstanding 46,960 46,863 46,556 46,522 46,390 Book Value per Share $13.38 $13.21 $12.74 $13.05 $12.66 Tangible Book Value per Share $8.28 $8.07 $7.57 $7.86 $7.44 Credit Quality Data Nonperforming Assets (including OREO) $20,024 $21,565 $20,624 $20,657 $14,431 90 days past due and still accruing 2,604 3,140 3,777 3,201 4,029 Total $22,628 $24,705 $24,401 $23,858 $18,460 Nonperforming Assets to Loans Plus OREO 0.49% 0.54% 0.54% 0.55% 0.39% Allowance to Loans 1.45% 1.47% 1.52% 1.52% 1.54% Allowance to Nonperforming Loans (excluding OREO) 296.41% 284.76% 281.70% 278.85% 400.99% Gross Charge-offs $2,821 $1,654 $1,433 $1,251 $4,176 Gross Recoveries 1,428 1,258 802 860 1,444 Net Charge-offs $1,393 $396 $631 $391 $2,732 Net Charge-offs to Average Loans 0.03% 0.01% 0.02% 0.01% 0.08% QTD Average Balance Sheet Data Securities $1,495,302 $1,440,938 $1,447,419 $1,530,534 $1,647,313 Loans, Net 4,000,917 3,892,431 3,777,039 3,701,494 3,697,490 Earning Assets 5,572,226 5,414,750 5,294,057 5,292,868 5,446,055 Total Assets 6,089,616 5,930,272 5,799,583 5,792,012 5,960,054 Deposits 5,128,344 5,017,991 4,868,682 4,808,334 5,033,498 Borrowings 291,919 267,323 290,730 339,983 298,478 Stockholders' Equity 615,420 591,137 589,067 586,788 572,512 (1). Reconciliation of non-GAAP measurements to GAAP Net Income (GAAP) $20,028 $19,478 $18,154 $17,467 $19,718 Amortization of identified intangibles, net of tax 503 504 502 491 491 Tangible Net Income (A) $20,531 $19,982 $18,656 $17,958 $20,209 Average Equity (GAAP) 615,420 591,137 589,067 586,788 572,512 Average Identified Intangibles 20,919 21,695 21,960 22,405 23,148 Average Deferred Tax on Identified Intangibles (6,392) (6,392) (6,392) (6,392) (6,392) Average Goodwill 216,502 216,697 216,439 216,431 216,431 Average Tangible Equity (B) 384,391 359,137 357,060 354,344 339,325 Return on Average Tangible Equity (A)/(B) 21.25% 22.13% 21.01% 20.38% 23.63% Average Assets (GAAP) 6,089,616 5,930,272 5,799,583 5,792,012 5,960,054 Average Identified Intangibles 20,919 21,695 21,960 22,405 23,148 Average Deferred Tax on Identified Intangibles (6,392) (6,392) (6,392) (6,392) (6,392) Average Goodwill 216,502 216,697 216,439 216,431 216,431 Average Tangible Assets (C) 5,858,587 5,698,272 5,567,576 5,559,568 5,726,867 Return on Average Tangible Assets (A)/(C) 1.39% 1.40% 1.35% 1.30% 1.40%