SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
______________________
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
______________________
For the Quarterly Period Ended March 31, 1994, Commission Files Number
0-11012
VERMONT FINANCIAL SERVICES CORP.
A DELAWARE CORPORATION IRS EMPLOYER IDENTIFICATION NO. 03-0284445
100 Main Street, Brattleboro, Vermont 05301
Telephone: (802) 257-7151
______________________
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirement for the past 90
days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of April 30, 1994 - 3,418,637
<TABLE>
Part I. FINANCIAL INFORMATION
VERMONT FINANCIAL SERVICES CORP.
Consolidated Statements of Condition
March 31, 1994 and December 31, 1993
(in thousands)
(unaudited)
<CAPTION> <C> <C>
March 31 December 31
1994 1993
ASSETS -------- --------
Cash and Due from Banks $ 44,620 $ 48,453
Interest Bearing Balances with Banks 50 50
Securities Available for Sale:
U.S. Treasury and U.S. Government Agencies 95,406 68,170
Mortgage Backed Securities 62,347 70,391
State and Municipal 8,768 8,887
Other 9,725 13,790
------- -------
Total Securities Available for Sale 176,246 161,238
Federal Funds Sold 0 4,000
Loans:
Commercial 192,200 192,964
Commercial Real Estate 183,877 181,018
Residential Real Estate 217,829 222,852
Consumer 88,915 92,422
------- -------
Total Loans 682,821 689,256
Less: Allowance for Loan Losses 13,986 14,559
------- -------
Net Loans 668,835 674,697
Premises and Equipment 20,262 19,961
Other Real Estate Owned (OREO) (net of
reserve $601 in 1994 and $490 in 1993) 3,606 2,756
Other Assets 25,407 23,331
------- -------
Total Assets $ 939,026 $ 934,486
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 90,054 $ 99,936
Savings, NOW & Money Market Accounts 478,582 460,300
Other Time: Under $100,000 185,272 188,190
Over $100,000 22,527 25,008
------- -------
Total Deposits 776,435 773,434
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase 89,406 85,702
Liabilities for Borrowed Money 732 733
Other Liabilities 6,321 6,409
------- -------
Total Liabilities 872,894 866,278
Stockholders' Equity
Common Stock - $1 Par Value
Authorized 20,000,000 shares
Issued and Outstanding: 1994-3,523,607 shares
1993-3,522,268 shares 3,524 3,522
Preferred Stock - $1 Par Value
Authorized 5,000,000 shares
Capital Surplus 41,262 41,240
Undivided Profits 26,048 24,806
Security Valuation Allowance (2,643) 699
Treasury Stock 1994-105,261 shares
1993-105,256 shares (2,059) (2,059)
------- -------
Total Stockholders' Equity 66,132 68,208
------- -------
Total Liabilities & Stockholders' Equity $ 939,026 $ 934,486
======== ========
Fully Diluted Book Value
per Share of Common Stock $ 19.35 $ 19.96
</TABLE>
<TABLE>
Vermont Financial Services Corp.
Consolidated Statements of Income
(in thousands)
(unaudited)
Three Months Ended
March 31,
<CAPTION> <C> <C>
1994 1993
______ ______
Interest Income
Interest and Fees on Loans $ 13,374 $ 14,460
Interest on Securities Available for Sale:
Taxable Interest Income 2,209 2,374
Tax Exempt Interest Income 107 87
Interest on Federal Funds Sold 5 13
Interest on Time Deposits 0 1
------ ------
Total Interest Income 15,695 16,935
Interest Expense
Interest on Deposits 5,276 5,714
Interest on Federal Funds Purchased and
Borrowed Money and Securities Sold under
Agreements to Repurchase 630 741
------ ------
Total Interest Expense 5,906 6,455
------ ------
Net Interest Income 9,789 10,480
Less: Provision for Loan Losses 1,000 1,500
------ ------
Net Interest Income After
Provision for Loan Losses 8,789 8,980
Other Operating Income
Securities Gains 20 268
Trust Department Income 759 603
Service Charges on Deposit Accounts 1,077 954
Serviced Mortgage Fees 511 474
Merchants Discount 548 469
Other Noninterest Income 934 813
------ ------
Total Other Operating Income 3,849 3,581
Other Operating Expense
Salaries and Wages 3,935 3,895
Pension and Other Employee Benefits 1,039 1,016
Occupancy of Bank Premises, net 801 752
Furniture and Equipment 964 905
FDIC Assessment 491 527
OREO & Collection Expense/Losses, net 663 1,557
Other Noninterest Expense 2,526 2,322
------ ------
Total Other Operating Expenses 10,419 10,974
------ ------
Net Overhead (6,570) (7,393)
------ ------
Income Before Income Taxes 2,219 1,587
Applicable Income Tax Expense 634 466
------ ------
Net Income $ 1,585 $ 1,121
====== ======
Earnings Per Common Share (Based on 3,417,575
and 3,370,165 Average Common Shares Outstanding
for the Respective Periods)
Net Income -- Primary and Fully Diluted $ 0.46 $ 0.33
</TABLE>
<TABLE>
VERMONT FINANCIAL SERVICES CORP.
STATEMENTS OF CASH FLOW
(unaudited)
3 Months Ended March 31,
<CAPTION> <C> <C>
1994 1993
-------- --------
(in thousands)
OPERATING ACTIVITIES
Net Income $ 1,585 $ 1,121
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for Loan Losses 1,000 1,500
Provision for depreciation 600 497
Amortization and accretion on securities 344 (59)
Deferred income taxes 620 218
Security (gains) (20) (268)
Proceeds from sale of loans 33,721 31,981
Loans originated for sale (31,797) (29,608)
Losses on OREO 91 914
(Increase) in receivable and
other assets (974) (988)
(Decrease) Increase in interest payable and
other liabilities (88) 1,624
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,082 6,932
INVESTING ACTIVITIES
Proceeds from sales of securities 9,384 6,494
Proceeds from maturities of securities 9,049 6,900
Purchases of securities (38,829) (34,829)
Proceeds from sales of OREO 810 2,456
Net decrease in loans 1,187 2,201
Purchase of premises and equipment (901) (909)
-------- ---------
NET CASH USED BY INVESTING ACTIVITIES (19,300) (17,687)
FINANCING ACTIVITIES
Net increase (decrease) in deposits 3,001 (11,221)
Net increase (decrease) in short-term borrowings 3,703 (2,691)
Issuance of common stock 23 61
Cash dividends (342) (273)
-------- --------
NET CASH PROVIDED BY (USED BY) FINANCING ACTIVITIES 6,385 (14,124)
(DECREASE) IN CASH AND CASH EQUIVALENTS (7,833) (24,879)
Cash and cash equivalents beginning of period 52,503 59,620
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 44,670 $ 34,741
======== ========
</TABLE>
Non-monetary Transactions:
Transfer of Loans to OREO for the periods ended March 31, 1994
and 1993 totaled $1,751 and $3,405, respectively.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
For the Three-Month Periods Ended March 31, 1994 and 1993
Overview
The first quarter of 1994 resulted in net income of $1,585,000 or
$0.46 per share, versus $1,121,000, or $0.33 per share in the same
period of 1993. Income before taxes improved by $632,000 from 1993's
first quarter, primarily due to a $.5 million decrease in the
provision for loan losses ($1 million and $1.5 million for the first
quarters of 1994 and 1993, respectively).
The annualized return on average total assets was 0.69% versus
0.51% and the annualized return on average stockholders' equity was
9.45% versus 7.18% for the first quarter of 1994 and 1993,
respectively.
In the opinion of Management, all adjustments which are necessary
to the fair statement of the consolidate financial position of Vermont
Financial Services Corp. (Company) and the consolidated results of the
Company's operations and cash flow for the interim periods presented
herein are reflected and all such adjustment are of a normal recurring
nature.
Results of Operations
Net Interest Income of $9.8 million for the first quarter of 1994
represented a $0.7 million decrease from the same period in 1993. The
net interest margin was 4.72% in 1994, down from 5.35% a year earlier.
The decrease in Net Interest Income was due to lower charges and fees
on loans, which at $536,000, were $866,000 less than 1993. Much of
this decrease was due to rapidly rising long term interest rates which
caused a $590,000 decrease in mortgage loan related fees. Also
contributing to the decrease in Net Interest Income was a 0.22%
decrease in the spread between the rate the Bank earned on earning
assets and the rate it paid on interest-bearing liabilities. A rise
in the prime rate to 6.75% as of April 20th, from 6.00% at year end,
is expected to improve the net interest margin going forward.
At March 31,1994 the mortgage servicing portfolio totalled $443.3
million compared to $438.9 million at year end. This portfolio
generates approximately $170,000 of servicing income on a monthly
basis.
Net overhead for the first quarter of 1994 decreased $823,000 or
11%, over the same 1993 period. All of the decrease was due to a
decline in expenses, write downs and losses on sales of other real
estate owned (OREO) which were $894,000 lower in the first quarter of
1994 than they were in the first quarter of 1993. Management had
expected a substantial decrease in OREO related expenses as a result
of an auction held in October 1993. This, in fact, did occur.
The Bank's FDIC insurance costs decreased 7% from the first
quarter of 1993 to $491,000 for the first quarter of 1994. This was
largely due to a decrease in the assessment rate from $0.29 to $0.26
per $100 of deposits. The assessment will be dropping to $0.23 for
the semiannual period beginning July 1, 1994.
Costs associated with the pending merger with Western Mass
Bankshares have been expensed as incurred. These expenses will
continue throughout the second quarter as the merger is expected to be
consummated during the quarter. See "Recent Developments".
Loan Quality
Nonperforming assets (nonaccrual loans, restructured loans and
OREO) were reduced from $25.1 million on December 31, 1993 to $21.7
million on March 31, 1994 due to nonaccrual and restructured loans
decreasing $4.2 million to $18.1 million. OREO increased from year end
by $0.8 million to $3.6 million. As of March 31, 1994 non performing
assets equalled 3.2% of total loans plus OREO, down from 3.6% at year
end 1993. Loans 90 or more days past due and still accruing interest
were $2.5 million, up from $1.4 million at December 31, 1993.
The Allowance for Loan Losses was $14.0 million as of quarter
end, equal to 2.05% of loans outstanding, 77% of nonperforming
(nonaccrual and restructured) loans and 65% of total nonperforming
assets. These favorably compare to the year end 1993 levels of 2.11%,
65% and 58%, respectively.
Financial Condition
Loans
Total loans at March 31, 1994 were $682.8 million down $6.5
million from the December 31, 1993 balance. Residential real estate
and consumer loans decreased $5.0 million and $3.5 million,
respectively, while commercial real estate loans increased $2.9
million.
Securities Available for Sale
Securities available for sale increased $15 million. U.S.
Government Agency securities increased $32.8 million while investments
in U.S. Treasury securities, Mortgage Backed securities and Money
Market Funds decreased $2.2 million, $8.0 million and $4.0 million,
respectively. Rising interest rates caused a shift from an unrealized
gain of $1.1 million in the investment portfolio at year end 1993, to
an unrealized loss of $4.0 million at March 31, 1994. This partially
offset the increase in the investment portfolio.
Deposits
At March 31, 1994, total deposits were $776.4 million, an
increase of $3.0 million, or 1% from the December 31, 1993 level.
Demand deposits decreased $9.9 million during this period due to the
normal runoff of year end balances. Savings, Now and Money Market
Accounts increased $18.3 million during the three months. Other time
deposits (CDs) decreased by $5.4 million, with a $2.5 million decrease
in CDs over $100,000 and a $2.9 million decrease in CDs under
$100,000.
Compared to March 31, 1993 balances, assets, equity and loans
increased 4.9%, 3.2% and 1.7%, respectively. Deposits increased 5.2%
from March 31, 1993 to 1994. Nearly all of this growth was due to a
$53.1 million increase in Savings, Now and and Money Market balances.
Capital Resources
Stockholders' equity decreased from $68.2 million at year end to
$66.1 million at March 31, 1994. Equity as a percent of total assets
decreased from 7.30% at year end 1993 to 7.04% at March 31, 1994.
This decrease was a result of the $3.3 million charge to the Security
Valuation Allowance due to the decline in market value of the
securities available for sale portfolio. As the current risk based
Capital regulations exclude unrealized gains and losses from the
definition of Capital, Tier I and Total Risk Based Capital ratios
increased to 10.4% and 11.7% from their year end levels of 10.1% and
11.4%, respectively. The above ratios are in excess of all regulatory
requirements and place the Company in the "well capitalized"
regulatory classification.
Recent Developments
During the first quarter the Company completed the construction
of a new branch office building in Barre, Vermont. Plans have also
been announced to close an existing branch in the Berlin, Vermont
Shopping Plaza during the third quarter. No additions to premises and
equipment are expected to exceed $500,000. All additions will be
funded through the operations of the Company.
In the third quarter of 1993 the Company announced a definitive
merger agreement with West Mass Bankshares, Inc. ("West Mass") of
Greenfield, Mass. The Company has agreed to acquire West Mass in a
stock-for-stock merger which will result in West Mass' banking
subsidiary, United Savings Bank, becoming a wholly owned subsidiary of
VFSC. West Mass has total assets of approximately $227 million as of
March 31, 1994 and operates 6 banking offices in or near Greenfield,
Mass. Shareholder (see Item 4 below) and regulatory approval have
been obtained with the exception of approval by the Massachusetts
Board of Banking Incorporation, which has scheduled a public hearing
on the merger for May 12, 1994. The Company is aware of no reason why
such regulatory approval should not be granted, and it hopes to close
the transaction during the second quarter.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
At a meeting held on April 26, 1994, the shareholders of the
Company voted to approve the merger of West Mass' Bankshares, Inc.
("West Mass") into the Company. At this meeting 2,769,829 shares or
81.04% of the outstanding Common Stock, were present. The vote in
favor of the merger was 2,730,338 or 79.89%. At a similar meeting
held on the same day, 78.56% of West Mass' common shares outstanding
were voted in favor of the merger.
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
NONE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly cased this report to be signed and its behalf
by the undersigned thereunto duly authorized.
VERMONT FINANCIAL SERVICES CORP.
Dated May 10, 1994 /s/ John D. Hashagen, Jr.
________________________________
John D. Hashagen, Jr.
Dated May 10, 1994 /s/ Richard O. Madden
________________________________
Richard O. Madden
