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 June 30, 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 requried to file such reports), and (2) has been subject to
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 July 31, 1995 4,774,347
Part I. FINANCIAL INFORMATION
VERMONT FINANCIAL SERVICES CORP.
Condensed Statement of Condition
June 30, 1995 and December 31, 1994
(in thousands,except per share data)
June 30, December 31,
ASSETS 1995 1994
<TABLE>
<CAPTION> <C> <C> <C> <C>
Cash and Due from Banks $ 63,862 $ 57,002
Interest Bearing Balances with Banks 61 105
Securities Available
U.S. Treasury and U.S. Government Agencies 113,432 99,815
Mortgage Backed Securities 51,045 50,668
State and Municipal 8,357 8,238
Other 14,833 15,144
--------- --------
Total Securities Available for Sale 187,667 173,865
Federal Funds Sold 3,600 16,000
Loans:
Commercial 189,983 207,299
Commercial Real Estate 206,141 211,218
Residential Real Estate 403,509 389,033
Consumer 102,003 103,953
--------- --------
Total Loans 901,636 911,503
Less: Allowance for Loan Losses 15,461 16,236
--------- --------
Net Loans 886,175 895,267
Premises and Equipment 21,158 21,298
Real Estate Held for Investment 1,306 1,272
Other Real Estate Owned (OREO) - net of
reserve of $570 in 1995 and $710 in 1994 3,986 4,487
Goodwill and Other Intangibles 2,952 3,136
Other Assets 29,527 32,989
--------- ---------
Total Assets $1,200,294 $ 1,205,421
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 111,249 $ 117,411
Savings, NOW & Money Market Accounts 592,508 624,038
Other Time: Under $100,000 253,827 243,488
Over $100,000 35,580 27,932
--------- ---------
Total Deposits 993,164 1,012,869
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase 52,977 71,163
Liabilities for Borrowed Money 41,420 22,725
Other Liabilities 8,958 8,207
--------- ---------
Total Liabilities 1,096,519 1,114,964
Stockholders' Equity
Common Stock - $1 Par Value
Authorized 20,000,000 shares
Issued : 1995--4,876,954 shares
1994--4,749,519 shares 4,877 4,790
Preferred Stock - $1 Par Value
Authorized 5,000,000 shares
Capital Surplus 49,335 48,715
Undivided Profits 53,633 48,615
Security Valuation Allowance (2,051) (9,604)
Treasury Stock 1995--103,238 shares
1994--105,260 shares (2,019) (2,059)
--------- ---------
Total Stockholders' Equity 103,775 90,457
Total Liabilities and Stockholders' Equity $1,200,294 $ 1,205,421
========= =========
</TABLE>
Fully Diluted Tangible Book Value
per Share of Common Stock $20.92 $18.36
Vermont Financial Services Corp.
Condensed Statement of Income
(in thousands,except per share data)
(unaudited)
Three Months Ended Six months ended
June 30, June 30,
1995 1994 1995 1994
<TABLE>
<CAPTION> <C> <C> <C> <C><C> <C><C> <C>
Interest Income
Interest and Fees on Loans $21,125 $17,537 $41,333 $34,554
Interest on Securities Available for Sale:
Taxable Interest Income 2,696 2,623 5,301 5,029
Tax Exempt Interest Income 105 148 211 217
Interest on Short Term Investments 86 32 230 70
------ ------ ------ ------
Total Interest Income 24,012 20,340 47,075 39,870
Interest Expense
Interest on Deposits 9,088 6,967 17,645 13,657
Interest on Federal Funds Purchased,
Borrowed Money, and Securities Sold
under Agreements to Repurchase 1,285 965 2,356 1,655
------ ------ ------ ------
Total Interest Expense 10,373 7,932 20,001 15,312
------ ------ ------ ------
Net Interest Income 13,639 12,408 27,074 24,558
Less: Provision for Loan Losses 1,000 1,000 2,000 2,000
------ ------ ------ ------
Net Interest Income After
Provision for Loan Losses 12,639 11,408 25,074 22,558
Other Operating Income
Securities Gains 76 33 76 53
Trust Department Income 771 686 1,542 1,445
Service Charges on Deposit Accounts 1,441 1,512 2,790 2,727
Serviced Mortgage Fees 481 339 1,014 850
Merchants Discount 588 504 1,181 1,052
Other Noninterest Income 1,089 739 1,950 1,722
------ ------ ------ ------
Total Other Operating Income 4,446 3,813 8,553 7,849
Other Operating Expense
Salaries and Wages 4,292 4,421 8,619 8,905
Pension and Other Employee Benefits 1,118 1,289 2,270 2,506
Occupancy of Bank Premises, net 789 764 1,686 1,670
Furniture and Equipment 1,039 935 2,113 1,938
Organizational Expenses 0 426 0 500
FDIC Assessment 568 614 1,134 1,228
OREO & Collection Expense/Losses, net 579 690 1,302 1,398
Other Noninterest Expense 3,274 2,152 6,379 5,063
------ ------ ------ ------
Total Other Operating Expense 11,659 11,291 23,503 23,208
------ ------ ------ ------
Net Overhead (7,213) (7,478) (14,950) (15,359)
------ ------ ------ ------
Income Before Income Taxes 5,426 3,930 10,124 7,199
Applicable Income Tax Expense 1,727 1,059 3,253 2,154
------ ------ ------ ------
Net Income $ 3,699 $ 2,871 $ 6,871 $ 5,045
======== ======== ======== ========
Earnings Per Common Share (Based on
Average Number of Common Shares
(Outstanding for the Respective Period)
Net Income -- Primary and Fully Diluted $0.77 $0.61 $1.44 $1.07
</TABLE>
VERMONT FINANCIAL SERVICES CORP.
STATEMENTS OF CASH FLOW
(unaudited)
6 months ended June 30,
1995 1994
------ ------
OPERATING ACTIVITIES (in thousands)
<TABLE>
<CAPTION> <C> <C> <C> <C>
Net Income $ 6,874 $ 5,045
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for Loan Losses 2,000 2,000
Provision for depreciation 1,583 1,329
Amortization and accretion on securities 308 596
Deferred income taxes 319 204
Security (gains) (76) (53)
Proceeds from sale of loans 14,309 56,037
Loans originated for sale (11,107) (45,923)
Losses on OREO 651 454
(Increase) in interest receivable and
other assets (556) (1,293)
(Increase) decrease in real estate held
for investment (34) 3
Increase (decrease) in interest payable
and other liabilities 751 (66)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 15,022 18,333
INVESTING ACTIVITIES
Proceeds from sales of securities 12,192 22,924
Proceeds from maturities of securities 3,525 27,198
Purchases of securities (18,315) (69,762)
Proceeds from sales of OREO 2,036 3,795
Purchases of loans (1,441) 0
Net decrease (increase) in loans 3,145 (20,800)
Purchase of premises and equipment (1,443) (1,188)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (301) (37,833)
FINANCING ACTIVITIES
Net (decrease) increase in deposit (19,705) 2,272
Net increase in short-term borrowings 509 17,849
Issuance of common stock 745 180
Cash dividends (1,854) (965)
--------- ---------
NET CASH (USED BY) PROVIDED BY FINANCING
ACTIVITIES (20,305) 19,336
(DECREASE) IN CASH AND CASH EQUIVALENTS (5,584) (164)
Cash and cash equivalents at beginning
of period 73,107 61,878
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 67,523 $ 61,714
========== ==========
</TABLE>
Non-monetary Transactions:
Transfer of Loans to OREO for the periods ended June 30, 1995
and 1994 totaled $2,186 and $3,748, respectively.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the Six-Month Periods Ended June 30, 1995 and 1994
Overview
The first half of 1995 resulted in net income of $6,871,000 or $1.44 per
share, versus $5,045,000, or $1.07 per share in the same period of 1994. Income
before taxes improved by $2,925,000 from 1994's first six months, primarily
due to a $3,197,000 increase in net revenue, a combination of net interest
income plus other operating income, net of securities gains.
The annualized return on average total assets was 1.17% versus 0.87%
and the annualized return on average stockholders' equity was 14.39% versus
11.37% for the first half 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 $27.1 million for the first half of 1995
represented a $2.5 million increase from the same period in 1994. The net
interest margin was 5.05% in 1995, up from 4.67% a year earlier. The increase
in net interest income was due to a 0.29% increase in the net interest spread
and a $21.6 million increase in average earning assets and financial resources.
At June 30, 1995, the mortgage servicing portfolio totaled $453.0 million
compared to $459.2 million at year end. This portfolio generates approximately
$170,000 of servicing income on a monthly basis.
Net overhead for the first six months of 1995 decreased $409,000, or
2.7%, from the same 1994 period. This was due to a $704,000 improvement in
other operating income net of a $295,000 increase in other operating expenses.
The increase in other operating income was primarily due to increases
in mortgage servicing income, credit card merchants fees and other noninterest
income of $164,000, $129,000 and $228,000, respectively. The improvement
in other noninterest income was primarily due to a $170,000 gain on the sale of
the right to service $29,000,000 in mortgage loans on second home properties.
The $295,000, or 1.3%, increase in other operating expense was due to
an unusual expense credit of $584,000 received during the second quarter of
1994. Net of this credit, other operating expenses decreased $289,000, or 1.2%,
from the first six months of 1994. This was primarily due to decreases in
staff and organizational expenses of $522,000 and $500,000, respectively.
These improvements were partially offset by smaller increases in other areas.
Loan Quality
Nonperforming assets (nonaccrual loans, restructured loans and OREO)
were reduced from $21.3 million on December 31, 1994 to $16.8 million on
June 30, 1995 due to nonaccrual loans and OREO decreasing $3.9 million and
$0.5 million, respectively. As of June 30, 1995 nonperforming assets equaled
1.9% 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 $15.5 million as of quarter end, equal
to 1.7% of loans outstanding, 120.2% of nonperforming (nonaccrual and
restructured) loans and 92.3% 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 June 30, 1995 were $901.6 million, down $9.9 million from
the December 31, 1994 balance. Decreases in commercial, commercial real estate,
and consumer loans of $17.3 million, $5.1 million, and $2.0 million,
respectively were partially offset by a $14.5 million increase in residential
real estate loans.
Securities Available for Sale
The amortized cost of securities available for sale increased $2.4 million.
U.S. Treasury and Agency securities each increased $2.9 million. These
increases were partially offset by decreases in Mortgage Backed, State and
Municipal and Other securities of $2.9 million, $0.3 million and $0.2 million,
respectively.
Deposits
At June 30, 1995, total deposits were $993.2 million, a decrease of
$19.7 million, or 1.9% from the December 31, 1994 level. Demand deposits
decreased $6.2 million during this period due to the normal runoff of year end
balances. Savings, Now and Money Market Accounts decreased $31.5 million,
or 5.1%, during the six months. Other time deposits (CD's) increased by $18.0
million, with a $7.6 million increase in CD's over $100,000 and a $10.4 million
increase in CD's under $100,000.
Compared to June 30, 1994 balances, assets, equity and loans increased
2.1%, 17.3% and 2.8%, respectively. Deposits increased 2.4% or $23.3 million
from June 30, 1994 to 1995. This growth was primarily the result of a $18.2
million increase in savings, Now and Money Market Deposit accounts, and a
$3.5 million increase in demand deposits.
Capital Resources
Stockholders' equity increased from $90.5 million at year end to $103.8
million at June 30, 1995. Equity as a percent of total assets increased from
7.50% at year end 1994 to 8.65% at June 30, 1995. This increase was primarily
the results of a $7.6 million reduction in the Security Valuation Allowance
associated with the securities available for sale portfolio and $5.0 million of
earnings 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 12.64% and 13.90% 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
Effective January 1, 1995, the Company adopted, prospectively,
Statement of Financial Accounting Standards (SFAS) NO. 114, "Accounting by
Creditors for Impairment of a Loan" as amended by SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan-Income Recognition and Disclosure."
These standards require that loans be classified and accounted for as impaired
loans when it is probable that the Company will be unable to collect all
principal and interest due on a loan in accordance with the loan's original
contractual terms or will collect them in a time frame which reduces the
present value of the expected cash flows from the repayment of the loan. For
purposes of applying the standards, impaired loans have been defined as all
nonaccrual loans and commercial classified assets in excess of $250,000.
Impaired loans are valued based on the fair value of the related
collateral in the case of a collateral-dependent loan and, for all other
impaired, loans, based on the present value of expected future cash flows,
using the interest rate in effect at the time the loan became impaired.
Impairment exists when the recorded investment in a loan exceeds the value of
the loan measured using the above-mentioned techniques. Such impairment is
recognized as a valuation reserve, which is included as a part of the Company's
overall reserve for credit losses.
The Company recognizes interest income on impaired loans consistent
with its nonaccrual policy. When loans are placed on nonaccrual status, the
related interest receivable is reversed against current period interest income.
Interest payments received on nonaccrual loans are applied as a reduction of the
principal. For loans not in nonaccrual status, the Company recognizes principal
and interest, in accordance with the original contractual terms.
Adoption of the standards did not have a material effect on the Corporation's
financial position or results of operations and did not result in any additional
provision for credit losses as of January 1, 1995. At June 30,1995, loans for
which impairment has been recognized in accordance with SFAS No. 114 totaled
$34.9 million, of which $30.2 million related to loans with no specific
valuation reserve and $4.7 million related to loans with a specific valuation
reserve of $1.8 million.
During the second quarter of 1995, two directors departed from the
Board of Directors. Robert C. Cody retired after 21 years of service and
Daniel C. Lyons died while in office after also serving 21 years. Both
individuals were Class II directors as a result the Board of Directors has
option to fill their positions.
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 the Company's annual meeting, held on April 25, 1995, four Class II
directors - Allyn W. Coombs, James E. Griffin, Daniel C. Lyons and
Stephan A. Morse were re-elected to their positions as board members. Of the
4,614,916.7792 shares outstanding, 79.12% of shares were represented. Results
were as follows:
Director Votes for % Total Votes Cast
Allyn W. Coombs 3,643,901.0284 99.80%
James E. Griffin 3,640,928.2284 99.72%
Daniel C. Lyons 3,631,288.2284 99.45%
Stephan E. Morse 3.643.948.2284 99.80%
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.
VERMONT FINANCIAL SERVICES CORP.
Dated July 28, 1995 /s/________________________________
John D. Hashagen, Jr.
Dated July 28, 199 /s/________________________________
Richard O. Madden
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<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
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