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, 1995, 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, 1995 4,771,796
<TABLE>
Part I. FINANCIAL INFORMATION
VERMONT FINANCIAL SERVICES CORP.
Consolidated Statements of Condition
March 31, 1995 and December 31, 1994
(in thousands)
<CAPTION> <C> <C>
March 31, December 31,
ASSETS 1995 1994
Cash and Due from Banks $ 45,039 $ 57,002
Interest Bearing Balances with Banks 124 105
Securities Available
U.S. Treasury and U.S. Government Agencies 106,015 99,815
Mortgage Backed Securities 50,808 50,668
State and Municipal 8,442 8,238
Other 12,295 15,144
------- -------
Total Securities Available for Sale 177,560 173,865
Federal Funds Sold 8,600 16,000
Loans:
Commercial 211,423 207,299
Commercial Real Estate 205,031 211,218
Residential Real Estate 393,037 389,033
Consumer 101,836 103,953
-------- --------
Total Loans 911,327 911,503
Less: Allowance for Loan Losses 15,876 16,236
-------- --------
Net Loans 895,451 895,267
Premises and Equipment 21,382 21,298
Real Estate Held for Investment 1,283 1,272
Other Real Estate Owned (OREO) - net of 4,133 4,487
reserve of $769 in 1994 and $490 in 1993
Goodwill and Other Intangibles 3,053 3,136
Other Assets 30,468 32,989
-------- --------
Total Assets $ 1,187,093 $ 1,205,421
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 103,939 $ 117,411
Savings, NOW & Money Market Accounts 612,694 624,038
Other Time: Under $100,000 246,361 243,488
Over $100,000 28,665 27,932
------- --------
Total Deposits 991,659 1,012,869
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase 65,371 71,163
Liabilities for Borrowed Money 24,907 22,725
Other Liabilities 8,305 8,207
------- --------
Total Liabilities 1,090,242 1,114,964
Stockholders' Equity
Common Stock - $1 Par Value
Authorized 20,000,000 shares
Issued and Outstanding:1995--4,872,688 shares
1994--4,790,479 shares 4,873 4,790
Preferred Stock - $1 Par Value
Authorized 5,000,000 shares
Capital Surplus 49,272 48,715
Undivided Profits 50,863 48,615
Security Valuation Allowance (6,135) (9,604)
Treasury Stock 1995--103,264 shares
1994--105,260 shares (2,022) (2,059)
Total Stockholders' Equity 96,851 90,457
------- -------
Total Liabilities and Stockholders' Equity $ 1,187,093 $ 1,205,421
========= =========
Fully Diluted Tangible Book Value
per Share of Common Stock $19.56 $18.36
===== =====
</TABLE>
<TABLE>
Vermont Financial Services Corp.
Consolidated Statements of Income
(in thousands)
(unaudited)
Three Months Ended
March 31,
1995 1994
<CAPTION> <C> <C>
Interest Income
Interest and Fees on Loans $ 20,208 $ 16,965
Interest on Securities Available for Sale:
Taxable Interest Income 2,605 2,420
Tax Exempt Interest Income 106 107
Interest on Federal Funds Sold 144 37
Interest on Time Deposits 0 1
------ -----
Total Interest Income 23,063 19,530
Interest Expense
Interest on Deposits 8,557 6,690
Interest on Federal Funds Purchased, Borrowed Money
and Securities Sold under Agreements to Repurchase 1,071 690
Total Interest Expense 9,628 7,380
Net Interest Income 13,435 2,150
Less: Provision for Loan Losses 1,000 1,000
------ ------
Net Interest Income After Provison for Loan Losses 12,435 11,150
Other Operating Income
Securities Gains 0 20
Trust Department Income 771 759
Service Charges on Deposit Accounts 1,349 1,215
Serviced Mortgage Fees 533 515
Merchants Discount 593 566
Other Noninterest Income 861 961
------ ------
Total Other Operating Income 4,107 4,036
Other Operating Expense
Salaries and Wages 4,327 4,484
Pension and Other Employee Benefits 1,152 1,213
Occupancy of Bank Premises, net 897 906
Furniture and Equipment 1,074 1,003
Organizational Expenses 0 121
FDIC Assessment 566 614
OREO & Collection Expense/Losses, net 723 708
Other Noninterest Expense 3,105 2,868
------ ------
Total Other Operating Expense 11,844 11,917
Net Overhead (7,737) (7,881)
------ ------
Income Before Income Taxes 4,698 3,269
Applicable Income Tax Expense 1,526 1,095
------ ------
Net Income $ 3,172 $ 2,174
====== ======
Earnings Per Common Share (Based on
Average Number of Common Shares
Outstanding for the Respective Period)
Net Income -- Primary and Fully Diluted $ 0.67 $ 0.46
==== ====
</TABLE>
<TABLE>
VERMONT FINANCIAL SERVICES CORP.
STATEMENTS OF CASH FLOW
(unaudited)
3 Months Ended March 31,
1995 1994
<CAPTION> <C> <C>
OPERATING ACTIVITIES
Net Income $ 3,172 $ 2,174
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for Loan Losses 1,000 1,000
Provision for depreciation 805 794
Amortization and accretion on securities 161 344
Deferred income taxes 745 620
Security (gains) 0 (20)
Proceeds from sale of loans 8,141 33,725
Loans originated for sale (4,782) (31,797)
Losses on OREO 243 58
Decrease (Increase) in interest receivable
& other assets 101 (1,061)
(Increase) Decrease real estate held for
investment (11) 7
Increase (Decrease) in interest payable
and other liabilities 98 (52)
_________ _________
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,673 5,792
INVESTING ACTIVITIES
Proceeds from sales of securities 2,600 9,384
Proceeds from maturities of securities 1,881 15,922
Purchases of securities (3,110) (48,251)
Proceeds from sales of OREO 793 1,017
Purchases of loans (999) 0
Net (increase) decrease in loans (4,226) 548
Purchase of premises and equipment (889) (1,010)
_________ _________
NET CASH USED BY INVESTING ACTIVITIES (3,950) (22,390)
FINANCING ACTIVITIES
Net (Decrease) Increase in deposits (21,210) 6,671
Net (Decrease) Increase in short-term
borrowings (3,610) 3,703
Issuance of common stock 676 98
Cash dividends (923) (429)
_________ _________
NET CASH PROVIDED BY (USED BY)
FINANCING ACTIVITIES (25,067) 10,043
(DECREASED) IN CASH AND CASH EQUIVALENTS (19,344) (6,555)
Cash and cash equivalents beginning of period 73,107 61,878
_________ _________
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 53,763 $ 55,323
======= =======
Non-monetary Transactions:
Transfer of Loans to OREO for the periods ended March 31, 1995
and 1994 totaled $682 and $1,570, respectively.
</TABLE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
For the Three-Month Periods Ended March 31, 1995 and 1994
Overview
The first quarter of 1995 resulted in net income of $3,172,000 or $0.67 per
share, versus $2,174,000, or $0.46 per share in the same period of 1994.
Income before taxes improved by $1.4 million from 1994's first quarter,
primarily due to a $1.3 million increase in net interest income.
The annualized return on average total assets was 1.09% versus 0.77%
and the annualized return on average stockholders' equity was 13.89% versus
9.95% for the first quarter of 1995 and 1994, 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., 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 of $13.4 million for the first quarter of 1995
represented a $1.3 million increase from the same period in 1994. The net
interest margin was 5.04% in 1994, up from 4.68% a year earlier. The increase
in net interest income was primarily due to a 39 basis point increase in net
interest spread. Also contributing to the improvement in net interest income
was $30.9 million increase in average earning assets. These increases were
somewhat offset by a $0.2 million reduction in charges and fees on loans due
to a $31.2 million, or 70%, reduction in mortgage loan originations during the
first quarter of 1995 as compared to the same period in 1994.
At March 31, 1995, the mortgage servicing portfolio totaled $458.4
million compared to $459.2 million at year end. This portfolio generates
approximately $175,000 of servicing income on a monthly basis.
Net overhead for the first quarter of 1995 decreased $144,000, or 2%,
over the same 1994 period. This was due to nearly equal amounts of
improvement in other operating income and other operating expense.
Other operating expenses decreased $73,000 during the first quarter of
1995 as compared to the same period in 1994. This decrease is primarily due
to a $218,000 reduction in salaries and employee benefits and a $121,000
reduction in merger related expenses (associated with the merger with West
Mass Bankshares, Inc.), net of a $237,000 increase in other non-interest
expenses which consists of many small items.
Loan Quality
Nonperforming assets (nonaccrual loans, restructured loans and OREO)
were reduced from $21.3 million on December 31, 1994 to $18.7 million on
March 31, 1995 due to nonaccrual and restructured loans decreasing $2.3 mill-
ion, to $14.5 million. OREO decreased from year end by $0.4 million, to $ 4.1
million. As of March 31, 1995 nonperforming assets equaled 2.0% of total
loans plus OREO, down from 2.3% at year end 1994. Loans 90 or more days
past due and still accruing interest were $1.6 million, up from $1.4 million
at December 31, 1994.
The Allowance for Loan Losses was $15.9 million as of quarter end, equal
to 1.7% of loans outstanding, 109.4% of nonperforming (nonaccrual and
restructured) loans and 85.1% of total nonperforming assets. These compare to
the year end 1994 levels of 1.8%, 96.7% and 76.3%. respectively.
Financial Condition
Loans
Total loans at March 31, 1995 were $911.3 million, down $0.2 million
from the December 31, 1994 balance. Decreases in commercial real estate and
consumer loans of $6.2 million and $2.1 million respectively were almost
entirely offset by a $4.1 million increase in commercial loans and a $4.0
million increase in residential real estate loans.
Securities Available for Sale
The amortized cost of securities available for sale decreased $1.5
million. U.S. Treasury securities increased $2.9 million while investments in
Mortgage Backed securities and Money Market Funds decreased $1.4 million and
$2.9 million, respectively. Signs of a slowing economy and a resulting de-
crease in interest rates caused a reduction in the unrealized loss of $14.6
million at year end 1994, to $8.9 million at March 31, 1995. This more than
offset the decrease in the investment portfolio.
Deposits
At March 31, 1995, total deposits were $991.7 million, a decrease of
$21.2 million, or 2.1% from the December 31, 1994 level. Demand deposits
decreased $13.5 million during this period due to the normal runoff of year end
balances. Savings, Now and Money Market Accounts decreased $11.3 million
during the three months. Other time deposits (CDs) increased by $3.6 million,
with a $0.7 million increase in CDs over $100,000 and a $2.9 million increase
in CD's under $100,000.
Compared to March 31, 1994 balances, assets, equity and loans
increased 1.7%, 8.3% and 4.4%, respectively. Deposits increased 1.8% or
$17.4 million from March 31, 1994 to 1995. This growth was primarily the re-
sult of a $33.3 million increase in savings, Now and Money Market Deposit
accounts, net of a $16.5 million decrease in other time deposits under
$100,000.
Capital Resources
Stockholders' equity increased from $90.5 million at year end to $96.9
million at March 31, 1995. Equity as a percent of total assets increased from
7.50% at year end 1994 to 8.16% at March 31, 1995. This increase was a
result of a $3.5 million reduction in the Security Valuation Allowance associ-
ated with the securities available for sale portfolio and $2.2 million of earn-
ings retained by the Company. 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 12.38% and 13.64% from their year
end levels of 11.77% and 13.03%, respectively. The above ratios are in excess
of all regulatory requirements and place the Company in the "well capitalized"
regulatory classification.
Recent Developments
During January 1994, the company's largest subsidiary - Vermont
National Bank, established two task forces to find better and more efficient
ways to serve the customer. In the first quarter of 1995, the company retained
the services of a consultant, Diversified Consulting Incorporated (DCI), to
further analyze and improve profitability. In subsequent quarters of 1995 and
1996 there will be expenses and benefits associated with DCI, the net effect
of which will be immaterial for 1995 but significantly positive in future
years. The total amount of which cannot be determined at this time.
The Company adopted statement of Financial Accounting Standards
(SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan", on
January 1,1995. The impact of adopting this statement was immaterial.
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
Pursuant to the requirements of the Securities Exchange Act of 1934, the regis-
trant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VERMONT FINANCIAL SERVICES CORP.
/s/John D. Hashagen, Jr.
Dated May 10, 1995 ________________________________
John D. Hashagen, Jr.
/s/Richard O. Madden
Dated May 10, 1995 ________________________________
Richard O. Madden
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-30-1995
<EXCHANGE-RATE> 1
<CASH> 45,039
<INT-BEARING-DEPOSITS> 124
<FED-FUNDS-SOLD> 8,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 177,560
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 911,327
<ALLOWANCE> 15,876
<TOTAL-ASSETS> 1,187,093
<DEPOSITS> 991,659
<SHORT-TERM> 88,371
<LIABILITIES-OTHER> 8,139
<LONG-TERM> 1,907
<COMMON> 4,873
0
0
<OTHER-SE> 91,978
<TOTAL-LIABILITIES-AND-EQUITY> 1,187,093
<INTEREST-LOAN> 20,208
<INTEREST-INVEST> 2,711
<INTEREST-OTHER> 144
<INTEREST-TOTAL> 23,063
<INTEREST-DEPOSIT> 8,557
<INTEREST-EXPENSE> 9,628
<INTEREST-INCOME-NET> 13,435
<LOAN-LOSSES> 1,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 11,844
<INCOME-PRETAX> 4,698
<INCOME-PRE-EXTRAORDINARY> 3,172
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,172
<EPS-PRIMARY> .67
<EPS-DILUTED> .67
<YIELD-ACTUAL> 5.04
<LOANS-NON> 14,368
<LOANS-PAST> 1,583
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</TABLE>
