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 September 30, 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 October 31, 1994 -4,570,133
Part I. FINANCIAL INFORMATION
VERMONT FINANCIAL SERVICES CORP.
Consolidated Statements of Condition
September 30, 1994 and December 31, 1993
(in thousands)
(unaudited)
<TABLE>
<CAPTION> <C> <C>
September 30 December 31
1994 1993
-------- ---------
Cash and Due from Banks $ 52,361 $ 53,345
Interest Bearing Balances with Banks 121 235
Securities Available for Sale:
U.S. Treasury and U.S. Government Agencies 102,148 70,776
Mortgage Backed Securities 51,939 75,720
State and Municipal 8,322 15,808
Other 17,327 22,096
--------- ---------
Total Securities Available for Sale 179,736 184,400
Federal Funds Sold 14,625 8,298
Loans:
Commercial 229,779 203,300
Commercial Real Estate 211,709 200,643
Residential Real Estate 382,773 372,570
Consumer 99,105 95,928
--------- ---------
Total Loans 923,366 872,441
Less: Allowance for Loan Losses 15,968 17,815
--------- ---------
Net Loans 907,398 854,626
Premises and Equipment 21,499 21,989
Real Estate Held for Investment 1,268 1,277
Other Real Estate Owned (OREO) (net of
reserve $769 in 1994 and $490 in 1993) 4,464 4,678
Goodwill and Other Intangibles 3,135 3,407
Other Assets 30,936 25,846
--------- ---------
Total Assets $1,215,543 $1,158,101
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand $ 120,903 $ 110,243
Savings, NOW & Money Market Accounts 615,774 560,570
Other Time: Under $100,000 249,433 262,134
Over $100,000 27,772 34,635
--------- ---------
Total Deposits 1,013,882 967,582
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase 102,269 86,262
Liabilities for Borrowed Money 2,476 5,791
Other Liabilities 6,914 7,439
--------- ---------
Total Liabilities 1,125,541 1,067,074
Stockholders' Equity
Common Stock - $1 Par Value
Authorized 20,000,000 shares
Issued and Outstanding: 1994-4,785,101 shares
1993-4,749,519 shares 4,785 4,749
Preferred Stock - $l Par Value
Authorized 5,000,000 shares
Capital Surplus 48,667 48,301
Undivided Profits 45,843 39,171
Security Valuation Allowance (7,234) 865
Treasury Stock 1994-105,273 shares
1993-105,255 shares (2,059) (2,059)
--------- ---------
Total Shareholders; Equity 90,002 91,027
Total Liabilities & Stockholders' Equity $1,215,543 $1,158,101
========= =========
Fully Diluted Tangible Book Value
per Share of Common Stock $18.26 $18.61
</TABLE>
Vermont Financial Services Corp.
Consolidated Statements of Income
(in thousands)
(unaudited)
<TABLE>
<CAPTION> <C> <C> <C> <C>
3 Months Ended 9 Months Ended
September 30, September 30,
1994 1993 1994 1993
Interest Income
Interest and Fees on Loans $18,913 $18,383 $53,367 $54,174
Interest on Securities Available
for Sale:
Taxable Interest Income 2,747 2,385 7,776 7,433
Tax Exempt Interest Income 106 43 323 258
Interest on Federal Funds Sold 83 33 152 106
Interest on Time Deposits 3 3 4 4
------ ------ ------ ------
Total Interest Income 21,752 20,847 61,622 61,975
Interest Expense
Interest on Deposits 7,282 6,960 20,939 21,245
Interest on Federal Funds Purchased
and Borrowed Money and Securities
Sold Under Agreements to Repurchase 1,407 711 3,062 2,406
------ ------ ------ ------
Total Interest Expense 8,689 7,671 24,001 23,651
------ ------ ------ ------
Net Interest Income 13,063 13,176 37,621 38,324
Less: Provision for Loan Losses 1,000 1,000 3,000 4,053
------ ------ ------ ------
Net Interest Income After
Provision for Loan Losses 12,063 12,176 34,621 34,271
Other Operating Income
Securities Gains 3 949 56 1,598
Trust Department Income 721 715 2,166 1,998
Service Charges on Deposit Accounts 1,348 1,122 4,075 3,370
Serviced Mortgage Fees 381 516 1,231 1,513
Merchants Discount 830 651 1,882 1,549
Other Noninterest Income 1,027 806 2,749 2,672
------ ------ ------ ------
Total Other Operating Income 4,310 4,759 12,159 12,700
Other Operating Expense
Salaries and Wages 4,427 4,709 13,332 13,717
Pension and Other Employee Benefits 937 1,141 3,443 3,786
Occupancy of Bank Premises, net 822 653 2,492 2,406
Furniture and Equipment 897 994 2,835 2,813
Organizational Expenses 51 79 551 79
FDIC Assessment 602 583 1,830 1,770
OREO & Collection Expense/Losses, net 447 3,523 1,845 6,222
Other Noninterest Expense 3,422 3,030 8,485 8,662
------ ------ ------ ------
Total Other Operating Expense 11,605 14,712 34,813 39,455
Net Overhead (7,295) (9,953)(22,654)(26,755)
------ ------ ------ ------
Income Before Income Taxes 4,768 2,223 11,967 7,516
Applicable Income Tax Expense 1,492 739 3,646 2,550
------ ------ ------ ------
Income Before Cum. Effect of Acctg. Change 3,276 1,484 8,321 4,966
Cum. Effect of Change in Acctg.
for Income Taxes 0 0 0 100
------ ------ ------ ------
Net Income $ 3,276 $ 1,484 $ 8,321 $ 5,066
====== ====== ====== ======
Earnings Per Common Share (Based on
Average Number of Common Shares
Outstanding for the Respective Period)
Net Income --
Primary and Fully Diluted $ 0.69 $ 0.32 $ 1.76 $ 1.08
</TABLE>
VERMONT FINANCIAL SERVICES CORP.
STATEMENTS OF CASH FLOW
(unaudited)
<TABLE>
<CAPTION> <C> <C>
9 Months Ended Sept. 30,
1994 1993
-------- --------
(in thousands)
OPERATING ACTIVITIES
Net Income $ 8,321 $ 5,066
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for Loan Losses 3,000 4,053
Provision for depreciation 2,034 2,051
Amortization and accretion on securities 769 526
Deferred income taxes 629 264
Security (gains) (56) (1,598)
Proceeds from sale of loans 75,106 130,230
Loans originated for sale (66,496) (128,620)
Losses on OREO 583 4,007
(Increase) in interest receivable
& other assets (1,274) (592)
Decrease in real estate held
for investment 9 0
(Decrease) increase in interest payable
and other liabilities (525) 1,168
-------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 22,100 16,555
INVESTING ACTIVITIES
Proceeds from sales of securities 27,127 44,651
Proceeds from maturities of securities 37,575 44,717
Purchases of securities (77,641) (105,549)
Proceeds from sales of OREO 5,243 8,653
Net (increase) in loans (65,376) (47,838)
Purchase of premises and equipment (1,544) (2,379)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (74,616) (57,745)
FINANCING ACTIVITIES
Net increase in deposits 46,300 31,041
Net increase (decrease) in short-term borrowings 12,692 (14,024)
Issuance of common stock 401 251
Cash dividends (1,648) (805)
------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 57,745 16,463
------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,229 (24,727)
Cash and cash equivalents beginning of period 61,878 80,210
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 67,107 $ 55,483
======== ========
</TABLE>
Non-monetary Transactions:
Transfer of Loans to OREO for the periods ended September 30, 1994
and 1993 totaled $5,612 and $6,404, respectively.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
For the Nine-Month Periods Ended September 30, 1994 and 1993
Overview
The first nine months of 1994 resulted in net income of
$8,321,000 or $1.76 per share, versus $5,066,000, or $1.08 per share
in the same period of 1993. Income before taxes improved by
$4,451,000 from the first nine months of 1993, primarily due to a
$4,377,000 reduction in net OREO and collection expense/losses.
The annualized return on the average total assets was 0.94% ver-
sus 0.61% and the annualized return on average stockholders' equity
was 12.42% versus 7.90% for the nine months ended September 30, 1994
and 1993, respectively.
In the opinion of Management, all adjustments which are necessary
to the fair statement of the consolidated financial position of Ver-
mont Financial Services Corp. (the Company) and the consolidated
results of the Company's operations and cash flow for the interim
periods presented herein are reflected and all such adjustments are of
a normal recurring nature.
Results of Operations
Net interest income during the nine months ended September 30,
1994 decreased $0.7 million from the same period in 1993, to $37.6
million. Net interest margin at 4.70%, represented a 0.38% decrease
from the same nine month period in 1993. Nearly all of these
decreases were due to a reduction in charges and fees on loans which,
at $1.3 million, represented a $2.4 million decrease from the same
period in 1993. Mortgage loan related fees accounted for $2.2 million
of this decrease as rising interest rates caused a $72.0 million, or
39%, reduction in mortgage loan originations. Also contributing to
this decrease was a .05% decrease in the spread between the rate
earned on earning assets and the rate paid on interest-bearing liabil-
ities compared to the prior year. Part of these decreases was offset
by the earnings associated with a $73.0 million increase in average
earning assets for the nine months ended September 30, 1994 as com-
pared to the same period in 1993.
Other operating income (net of securities gains) for the nine
month period ended September 30, 1994, increased $1,001,000 as com-
pared to the same period in 1993. The primary reasons for this were a
$705,000 increase in service charges on deposits and a $333,000
increase in credit card merchants fees. A decrease in serviced mort-
gage fees of $282,000, was nearly offset by a $168,000 increase in
Trust department income and a $77,000 increase in other non interest
income.
Other operating expenses decreased $4,642,000, or 11.9%, during
the first nine months of 1994 as compared to the same 1993 period.
Salaries and benefits were $728,000 lower, net OREO and collection
expense/losses decreased $4,377,000 and other non interest expense
decreased $177,000 from the first nine months of 1993. These repre-
sented relative decreases of 4%, 70% and 2%, respectively. The reduc-
tion in net OREO and collection expenses was due to a substantial
reduction in nonperforming assets in part as a result of auctions of
other real estate held during the third quarter of 1993 and second
quarter of 1994. Organizational expenses, primarily associated with
the merger with West Mass Bankshares, were $551,000 during 1994 and
$79,000 in the first nine months of 1993. See also, "Recent Develop-
ments."
In the form 10-Q for the first quarter of 1994 management
reported that the FDIC insurance rate for VNB would drop to $0.23 per
$100 of deposits in the third quarter of 1994. Despite a favorable
supervisory CAMEL rating and the fact that VNB was well capitalized,
the FDIC maintained a $0.26 insurance rate for VNB for the remainder
of 1994. The rate continues to be under appeal by the Bank.
Loan Quality
Nonperforming assets (nonaccrual loans, restructured loans and
OREO) were reduced from $32.0 million at December 31, 1993 to $24.1
million on September 30, 1994 due to nonaccrual and restructured loans
decreasing $7.6 million to $20.6 million. OREO decreased from year
end by $0.3 million to $4.4 million. As of September 30, 1994, non-
performing assets equalled 2.6% 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 $2.4 million at September 30, 1994. This rep-
resents $0.9 million increase over the year end level of $1.5 million.
The allowance for loan losses was $16.0 million at September 30,
1994, equal to 1.7% of total loans outstanding, 81.2% of nonperforming
(nonaccrual and restructured) loans and 66.2% of nonperforming assets.
These compare to year end levels of 2.2%, 65.3%, and 55.7%, respec-
tively.
Financial Condition
Loans
Total loans at September 30, 1994 were $923.4 million, up $50.9
million or 5.8% from the December 31, 1993 balance. Commercial loans,
real estate loans and consumer loans increased $26.5 million, $21.3
million and $3.2 million, respectively. Loans to states and political
subdivisions in the United States totaled $56.5 million at September
30, 1994, a $26.1 million increase from December 31, 1993. These
loans are classified as commercial in the accompanying financial
statements.
Securities Available for Sale
Securities available for sale decreased $4.7 million from the
year end level of $184.4 million. U.S. Treasury securities and Mort-
gage Backed securities decreased $4.0 million and $23.8 million
respectively while investments in U.S. Government Agency securities
increased $35.4 million. Rising interest rates caused a shift from an
unrealized gain of $1.3 million in the investment portfolio at year
end 1993, to an unrealized loss of $11.0 million at September 30,
1994. Net of this fluctuation the securities available for sale port-
folio increased $7.6 million during the first nine months of 1994.
Deposits
At September 30, 1994, total deposits were $1,013.9 million, an
increase of $46.3 million, or 4.8% from the December 31, 1993 level.
Demand deposits increased $10.7 million during this period. Savings,
Now, and Money Market Accounts increased $55.2 million during the nine
months. Other time deposits (CDs) decreased by $19.6 million, with a
$6.9 million decrease in CDs over $100,000 and a $12.7 million de-
crease in CDs under $100,000.
Compared to September 30, 1993 balances, assets, equity, loans
and deposits increased 5.8%, 2.1%, 4.7% and 4.2%, respectively.
Nearly all of the deposit growth was due to a $47.9 million increase
in Savings, Now, and Money Market balances net of $8.8 million
decrease in time deposits over $100,000.
Capital Resources
Stockholders' equity decreased from $91.0 million at year end to
$90.0 million at September 30, 1994. Equity as a percent of total
assets decreased from 7.90% at year end 1993 to 7.40% at September 30,
1994. This decrease was a result of the $8.1 million charge, net of
tax, to the security valuation allowance due to the decline in market
value of the securities available for sale portfolio noted above. 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 11.4% and 12.7% from their year end levels
of 10.8% and 12.1%, respectively. The above ratios are in excess of
all regulatory requirements and place the Company in the "well
capitalized" regulatory classification.
Recent Developments
Vermont Financial Services Corp.'s (VFSC) acquisition of West
Mass Bankshares, Inc. (WMBS) was completed on June 14, 1994 and all
information reflected in the consolidated financial statements herein,
reflect this transaction. The acquisition was effected as a pooling
of interests with an exchange of .9861 shares of VFSC stock for each
share of WMBS stock. As of October 18, 1994, there were 115,800 dis-
senting WMBS shares. Although management does not know the final out-
come, the attached financial statements assume an exchange at .9861
per share for all shares.
During the third quarter of 1994 management decided not to pursue
the renovations of the branch located in Burlington, Vermont. As a
result, expenditures totalling $137,000 relating to this possible ren-
ovation were expensed and are included in the third quarters other non
interest expense.
During the remainder of 1994 no additions to premises and equip-
ment are expected to exceed $500,000.
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
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
NONE
ITEM 27. FINANCIAL DATA SCHEDULE
Pursuant to the requirements of article nine of Regulation S-X,
we enclose the following Financial Data Schedule.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly cased this report to be signed on its behalf
by the undersigned thereunto duly authorized.
VERMONT FINANCIAL SERVICES CORP.
Dated
/s/____________________________
John D. Hashagen, Jr.
Dated
/s/ ____________________________
Richard O. Madden
<TABLE> <S> <C>
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<NAME> VERMONT FINANCIAL SERVICES CORP.
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<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
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