SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
____________________
FORM 10-Q/A
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
____________________
For the Quarterly Period Ended September 30, 1993, 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 29, 1993 - 3,413,568
Page 1 of 8 Pages
<TABLE>
Part I. FINANCIAL INFORMATION
VERMONT FINANCIAL SERVICES CORP.
Consolidated Statements of Condition
September 30, 1993 and December 31, 1992
(in thousands)
<CAPTION> <C> <C>
September 30 December 31
ASSETS 1993 1992
Cash and Due from Banks 46,193 49,570
Interest Bearing Balances with Banks 50 50
Securities Available For Sale - With an Aggregate
Market Value of: 1993--$146,769
1992--$132,022
U.S. Treasury and U.S. Government Agencies 56,238 43,649
Mortgage Backed Securities 73,801 70,805
State and Municipal 7,144 6,855
Other 6,539 7,677
Total Securities Available for Sale 143,722 128,986
Federal Funds Sold 0 10,000
Loans:
Commercial 207,203 188,433
Commercial Real Estate 179,286 184,013
Residential Real Estate 217,857 216,504
Consumer 92,039 85,564
Total Loans 696,385 674,514
Less: Allowance for Loan Losses 15,285 17,893
Net Loans 681,100 656,621
Premises and Equipment 19,152 18,514
Other Real Estate Owned (net of reserve of 12,036 17,479
$3,093 in 1993 and $911 in 1992)
Other Assets 25,128 24,928
Total Assets 927,381 906,148
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand 92,604 91,906
Savings, NOW & Money Market Accounts 469,490 412,869
Other Time: Under $100,000 192,718 200,949
Over $100,000 26,966 43,855
Total Deposits 781,778 749,579
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase 57,756 67,363
Liabilities for Borrowed Money 15,734 20,738
Other Liabilities 6,042 5,384
Total Liabilities 861,310 843,064
Stockholders' Equity
Common Stock - $1 Par Value
Authorized 20,000,000 shares
Issued and Outstanding: 1993--3,518,488 shares
1992--3,507,961 shares 3,518 3,508
Preferred Stock - $1 Par Value
Authorized 5,000,000 shares
Capital Surplus 41,178 41,006
Undivided Profits 23,480 20,853
Security Valuation Allowance (46) (224)
Treasury Stock 1993--105,252 shares
1992--105,271 shares (2,059) (2,059)
Total Stockholders' Equity 66,071 63,084
Total Liabilities and Stockholders' Equity 927,381 906,148
Fully Diluted Book Value per Share of Common Stock $19.36 $18.54
</TABLE>
<TABLE>
Vermont Financial Services Corp.
Consolidated Statements of Income
(in thousands)
(unaudited)
<CAPTION> <C> <C>
Three months ended Nine months ended
September 30, September 30,
1993 1992 1993 1992
Interest Income
Interest and Fees on Loans 14,827 15,114 43,384 45,469
Interest on Securities Available for Sale:
Taxable Interest Income 2,136 2,652 6,757 8,085
Tax Exempt Interest Income 83 84 258 323
Interest on Federal Funds Sold 2 4 15 21
Interest on Time Deposits 1 0 2 1
Total Interest Income 17,049 17,854 50,416 53,899
Interest Expense
Interest on Deposits 5,519 7,060 16,661 24,476
Interest on Federal Funds Purchased and Borrowed Money
and Securities Sold under Agreements to Repurchase 650 812 2,233 1,454
Total Interest Expense 6,169 7,872 18,894 25,930
Net Interest Income 10,880 9,982 31,522 27,969
Less: Provision for Loan Losses 1,000 1,000 3,900 5,750
Net Interest Income After Provison for Loan Losses 9,880 8,982 27,622 22,219
Other Operating Income
Securities Gains 942 73 1,496 664
Trust Department Income 715 592 1,998 1,821
Service Charges on Deposit Accounts 975 921 2,933 2,568
Serviced Mortgage Fees 510 458 1,490 1,222
Merchants Discount 603 585 1,501 1,570
OREO Income/Profits 68 113 329 594
Other Noninterest Income 873 778 2,589 2,270
Total Other Operating Income 4,686 3,520 12,336 10,709
Other Operating Expense
Salaries and Wages 4,149 3,953 12,100 11,830
Pension and Other Employee Benefits 993 772 3,294 2,459
Occupancy of Bank Premises, net 705 638 2,138 2,056
Furniture and Equipment 907 904 2,698 2,640
FDIC Assessment 463 428 1,409 1,337
OREO & Collection Expense/Losses 3,500 1,329 6,417 2,559
Other Noninterest Expense 2,681 2,340 7,574 6,927
Total Other Operating Expense 13,398 10,364 35,630 29,808
Net Overhead (8,712) (6,844) (23,294) (19,099)
Income Before Income Taxes 1,168 2,138 4,328 3,120
Applicable Income Tax Expense 256 602 1,156 791
Net Income 912 1,536 3,172 2,329
Earnings per Common Share (Based on Average Number
of Common Shares Outstanding for the Respective
Period)
Net Income--Primary and Fully Diluted $ 0.27 $ 0.46 $ 0.93 $ 0.69
Dividends Paid Per Share Common Stock $ 0.08 $ 0.00 $ 0.24 $ 0.00
</TABLE>
<TABLE>
VERMONT FINANCIAL SERVICES CORP.
STATEMENTS OF CASH FLOW
(unaudited)
<CAPTION> <C>
9 Months Ended 9/30
1993 1992
------- -------
(in thousands)
<C> <C>
OPERATING ACTIVITIES
Net Income $ 3,172 $ 2,329
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 3,900 5,750
Provision for depreciation 1,550 1,482
Amortization and accretion on securities 526 21
Deferred income taxes 264 (501)
Security (gains) (1,496) (664)
Proceeds from sale of loans 130,230 127,299
Loans originated for sale (128,620) (128,944)
Losses on other real estate owned & insubstance foreclosure 4,198 970
(Increase) in interest receivable and other assets (464) (838)
Increase in interest payable and other liabilities 658 425
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 13,918 7,329
INVESTING ACTIVITIES
Proceeds from sales of securities 40,558 32,280
Proceeds from maturities of securities 33,969 21,617
Purchases of securities (88,116) (44,725)
Proceeds from sales of OREO 7,030 5,839
Net (increase) in loans (35,774) (33,389)
Purchase of premises and equipment (2,188) (2,463)
-------- --------
NET CASH (USED BY) INVESTING ACTIVITIES (44,521) (20,841)
FINANCING ACTIVITIES
Net increase (decrease) in deposits 32,199 (71,297)
Net (decrease) increase in short-term borrowings (14,611) 70,102
Issuance of common stock 183 73
Cash dividends (545)
------- -------
NET CASH PROVIDED BY (USED BY) FINANCING ACTIVITIES 17,226 (1,122)
(DECREASE) IN CASH AND CASH EQUIVALENTS (13,377) (14,634)
Cash and cash equivalents beginning of period 59,620 51,787
------- ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $46,243 $37,153
====== ======
Non-monetary Transactions:
Transfer of loans to OREO for the periods ended September 30, 1993
and 1992 totaled $6,011 and $7,962, respectively.
</TABLE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
For the Nine-Month Periods Ended September 30, 1993 and 1992
Overview
The first nine months of 1993 and 1992 resulted in net income
levels of $3,172,000, or $0.93 per share and $2,329,000, or $0.69 per
share, respectively. Income before income taxes improved by $1.2 million
from 1992's first nine months, all due to the $1.8 million reduction in
the provision for loan losses ($3.9 million and $5.7 million for the first
nine months of 1993 and 1992, respectively).
The annualized return on average total assets was 0.47% versus 0.35%
and the annualized return on average stockholders' equity was 6.59%
versus 5.19% for the first nine months of 1993 and 1992, respectively.
In the opinion of Management, all adjustments which are necessary to
the fair statement of the consolidated 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. All such adjustment are of a normal recurring
nature with the exception of adjustments made herein related to the
October 9, 1993 auction of real estate discussed below.
Results of Operations
Net Interest income of $31.5 million for the first nine months
of 1993 represented a $3.6 million increase from the same period in
1992. Approximately $700,000 of the increase was due to charges and
fees on loans, primarily related to mortgage loan origination activity.
Through September 30, 1993 the Company's mortgage originations were
$156 million versus $157 million during the same period of 1992.
However, the average per loan origination fee increased in 1993 due to
falling mortgage interest rates. At September 30, 1993 the mortgage
servicing portfolio totaled $434 million, compared to $417 million at
December 31, 1992 and $400 million at September 30, 1992. This portfolio
generates approximately $170,000 of servicing income on a monthly
basis. Earning assets, which increased approximately $24 million
since September 30, 1992 accounted for another $1.1 million of the
increase in net interest income. A widening of the spread between the
rate the Company earns on its average earning assets and pays on its
average funding sources contributed the remainder of the increase.
Net overhead for the first nine months of 1993 increased $4.2
million, or 22%, over the same 1992 period. The following items of
comparison are noteworthy:
o Expenses and losses relative to other real estate owned (OREO) and
other problem asset collection expense, net of related income was
$6.1 million in 1993, up $4.1 million compared to 1992. During the
third quarter of 1993 the Company established a special $2.7
million reserve for the disposition of OREO at a real estate
auction which was subsequently held October 9, 1993. The Company
sold 74 of 79 properties offered for sale at the auction with the
proceeds to the Company reducing OREO by $4.5 million in October
1993. (See "Loan Quality" section following). The auction resulted
from management's decision in the third quarter of 1993 to alter
the Company's strategy for the disposition of OREO in light of the
continuing level of expenses and losses relative to OREO and other
problem asset collection expense. At December 31, 1992 and into
the third quarter of 1993, the Company's strategy for disposition
of OREO had been to sell whenever an offer was received which
approximated appraised fair market value. The strategy had been
based on the decline during 1992 in the Company's OREO and
nonperforming assets outstanding from highs of $18.6 million and
$45.2 million, respectively, as of May 31, 1992 to $17.5 million
and $40.2 million at December 31, 1992. This improvement during
1992, combined with an anticipated slight improvement in the
Vermont economy and real estate market, led management to expect
a decrease in OREO losses and expenses, other problem asset
collection expense and net charge-offs during 1993. This
improvement did not occur as rapidly as management had expected due
to a slowdown in the loan resolution process in the State of
Vermont during the first nine months of 1993 due to judicial
vacancies and an increased burden on the system of litigation and
bankruptcies. In response, during the first three quarters of 1993
the Company entered into more stipulated agreements (i.e., deeds
in lieu of foreclosure) with a goal of speeding up the process of
resolving problem loans. This process, however, also increased
up-front charge-offs during the period which were $6.5 million at
September 30, 1993 as compared to $4.6 million at September 30,
1992. This increase in charge-offswas offset by a reduction in
nonperforming assets at September 30, 1993 and by associated
reductions in the allowance for loan losses and the provision for
loan Losses. See "Loan Quality" below. The $2.7 million special
OREO reserve noted above is included in the $3.5 million OREO
and collection expenses/losses of the third quarter of 1993.
Management expects the financial impact of the OREO auction to be
positive for the Company going forward into 1994, such impacts to
include lower expenses and writedowns and income earned on the
sale proceeds of $5.1 million. Such future benefits are currently
estimated to be approximately $500,000 pre-tax on a quarterly
basis.
o Security gains of $942,000 and $1.5 million were realized in the
third quarter and year-to-date 1993, respectively, partially
offsetting the auction reserve. Year to date security gains
exceeded the first nine months of 1992 by $832,000.
o Employee benefits year-to-date of $3.3 million are $835,000, or
34%, over 1992. Of the increase, approximately $240,000 was due to
one-time outplacement expenses which will improve future earnings,
and $233,000 is from the adoption of the FASB statement on
postretirement benefits.
Loan Quality
Nonperforming assets (nonaccrual loans, restructured loans and
OREO) were reduced from $40.2 million on December 31, 1992 to $31.9
million on September 30, 1993. Nonaccrual loans decreased $3.9 million to
$18.8 million, OREO decreased $5.4 million, to $12.7 million, and
restructured loans increased $1.0 million. As of September 30, 1993,
nonperforming assets equalled 4.5% of total loans plus OREO, down from 5.8%
at year end 1992. Loans 90 or more days past due and still accruing
interest were $6.6 million on September 30, 1993 versus $5.8 million at
December 31, 1992.
The Allowance for Loan Losses was $15.3 million as of quarter end,
equal to 2.19% of loans outstanding, 81% of nonaccrual loans and 47% of
total nonperforming assets. This compares with a December 31, 1992
allowance of $17.9 million, which was 2.65% of total loans, 79% of
nonaccrual loans and 45% of nonperforming assets.
Financial Condition
Loans
Total loans at September 30, 1993 were $696.4 million, up $21.9
million from the December 31, 1992 balance. Commercial loans increased
$18.8 million, or 10%, entirely due to a higher volume of municipal
loans which are included in that category.
Securities Available for Sale
Securities available for sale of $143.4 million increased $14.4
million from year-end 1992. U.S. Treasury and U.S. Government Agency
securities accounted for $12.6 million of that increase.
Deposits
At September 30, 1993, total deposits were $781.8 million, an
increase of $32.2 million, or 4.3% from the December 31, 1992 level.
Savings, Now and Money Market Accounts increased $56.8 million during the
nine months, replacing other time deposits and securities sold under
agreements to repurchase which decreased $34.7 million during the same
period.
On July 9, 1993 the Bank completed an acquisition of the deposits
of two branches formerly operated by Randolph National Bank. This
increased total Bank deposits by approximately $13 million and gave the
Company a new banking office in Williamstown, Vermont.
Capital Resources
Stockholders' equity increased from $63.1 million at year end to
$66.1 million at September 30, 1993. Equity as a percent of total assets
increased from 6.96% as of December 31, 1992 to 7.12% on September 30,
1993. Tier 1 and total qualifying capital as a percent of risk adjusted
assets were 9.94% and 11.21%, respectively, on September 30, 1993. The
above ratios are in excess of all regulatory requirements and place the
Company in the "well capitalized" regulatory classification.
During the remainder of 1993, the Company plans one major addition to
premises and equipment. A new branch facility will be built in Barre,
Vermont, at a total cost of approximately $1 million to replace and
expand the current leased space in that town which is too small to
accommodate its current customer base.
Recent Developments
The President's tax proposal, which includes a small increase in the
corporate tax rate, will not have a significant impact on the Company's
operating results.
The FASB has issued Statement No. 114 "Accounting by Creditors for
Impairment of a Loan". This Statement shall be effective for financial
statements issued for fiscal years beginning after December 15, 1993.
This Statement will not have a material impact on the financial statements
of the Company.
The FASB also issued Statement No. 115 "Accounting for Certain
Investments in Debt and Equity Securities," which is effective for
fiscal years beginning after December 15, 1993. The statement defines
categories of securities and expands the use of fair value accounting
for securities available for sale. The Company's equity capital as of
September 30, 1993 would have been approximately $2 million higher had
Statement No. 115 been adopted.
The major event of the Company's third quarter was the
announcement of a definitive merger agreement with West Mass Bankshares,
Inc. of Greenfield, Mass. Vermont Financial Services Corp. (VFSC)
will be acquiring West Mass in a stock-for-stock merger which will result
in their banking subsidiary, United Savings Bank, becoming a wholly
owned subsidiary of VFSC. West Mass had total assets of $220 million
as of September 30, 1993 and operates 6 banking offices in or near
Greenfield, Mass. The Company anticipates closing the transaction in
early 1994 subject to receiving shareholder and regulatory approval.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR 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
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
The foregoing replaces the 10-Q dated and submitted October 29, 1993.
VERMONT FINANCIAL SERVICES CORP.
Date February 1, 1994 ________________________________
John D. Hashagen, Jr.
Date February 1, 1994 ________________________________
Richard O. Madden