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, 1996,
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 reg-
istrant 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 July 31, 1996 4,740,336
Part I. FINANCIAL INFORMATION
VERMONT FINANCIAL SERVICES CORP.
Condensed Statements of Condition
June 30, 1996 and December 31, 1995
($ in thousands,except per share data)
(unaudited)
June 30, December 31
ASSETS 1996 1995
Cash and Due from Banks $ 53,019 $ 53,834
Interest Bearing Balances with Banks 52 62
Securities Available
U.S. Treasury and U.S. Government Agencies 157,584 145,872
Mortgage Backed Securities 70,514 75,753
State and Municipal 10,952 10,342
Other 16,688 17,715
--------- --------
Total Securities Available for Sale 255,738 249,682
Federal Funds Sold 12,728 8,925
Loans:
Commercial 175,666 170,162
Commercial Real Estate 198,057 207,049
Residential Real Estate 426,810 415,468
Consumer 93,797 100,791
--------- --------
Total Loans 894,330 893,470
Less: Allowance for Loan Losses 14,510 14,761
--------- --------
Net Loans 879,820 878,709
Premises and Equipment 20,820 20,366
Real Estate Held for Investment 1,355 1,309
Other Real Estate Owned (OREO) - net of
reserve of $79 in 1996 and $517 in 1995 2,064 2,977
Goodwill and Other Intangibles 2,546 2,747
Other Assets 30,926 28,058
--------- ---------
Total Assets $1,259,068 $ 1,246,669
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 135,156 $ 137,504
Savings, NOW & Money Market Accounts 599,075 594,580
Other Time: Under $100,000 265,641 263,915
Over $100,000 36,820 37,958
--------- ---------
Total Deposits 1,036,692 1,033,957
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase 62,526 79,773
Liabilities for Borrowed Money 36,882 11,892
Other Liabilities 9,357 9,214
--------- ---------
Total Liabilities 1,145,457 1,134,836
Stockholders' Equity
Common Stock - $1 Par Value
Authorized 20,000,000 shares
Issued : 1996--4,885,773 shares
1995--4,878,954 shares 4,885 4,883
Preferred Stock - $1 Par Value
Authorized 5,000,000 shares
Capital Surplus 49,503 49,427
Undivided Profits 64,979 59,464
Security Valuation Allowance (3,212) 9
Treasury Stock 1996-- 110,552 shares
1995-- 103,238 shares (2,544) (1,950)
--------- ---------
Total Stockholders' Equity 113,611 111,833
Total Liabilities and Stockholders' Equity $1,259,068 $ 1,246,669
========= =========
Fully Diluted Tangible Book Value
per Share of Common Stock $22.98 $22.47
Vermont Financial Services Corp.
Condensed Statements of Income
(in thousands,except per share data)
(unaudited)
Three Months Ended Six months ended
June 30, June 30,
1996 1995 1996 1995
Interest Income
Interest and Fees on Loans $ 20,386 $ 21,125 $ 40,777 $ 41,333
Interest on Securities Available for Sale:
Taxable Interest Income 3,729 2,696 7,267 5,301
Tax Exempt Interest Income 118 105 238 211
Interest on Short Term Investments 243 86 499 230
Total Interest Income 24,476 24,012 48,781 47,075
Interest Expense
Interest on Deposits 9,087 9,088 18,456 17,645
Interest on Federal Funds Purchased,
Borrowed Money and Securities Sold
under Agreements to Repurchase 1,073 1,285 2,134 2,356
Total Interest Expense 10,160 10,373 20,590 20,001
Net Interest Income 14,316 13,639 28,191 27,074
Less: Provision for Loan Losses 900 1,000 1,800 2,000
Net Interest Income After
Provison for Loan Losses 13,416 12,639 26,391 25,074
Other Operating Income
Securities Gains 0 76 8 76
Trust Department Income 871 771 1,747 1,542
Service Charges on Deposit Accounts 1,515 1,441 3,106 2,790
Serviced Mortgage Fees 422 481 833 1,014
Credit Card Merchant Income 656 588 1,308 1,181
Other Noninterest Income 968 1,089 1,947 1,950
Total Other Operating Income 4,432 4,446 8,949 8,553
Other Operating Expens
Salaries and Wages 4,595 4,292 9,050 8,619
Pension and Other Employee Benefits 1,325 1,118 2,699 2,270
Occupancy of Bank Premises, net 852 789 1,744 1,686
Furniture and Equipment 993 1,039 2,007 2,113
FDIC Assessment 1 568 3 1,134
Credit Card Merchant Expense 417 135 818 723
OREO & Collection Expense/Losses, net 450 579 996 1,302
Other Noninterest Expense 3,082 3,139 5,832 5,656
Total Other Operating Expense 11,715 11,659 23,149 23,503
Net Overhead (7,283) (7,213) (14,200) (14,950)
Income Before Income Taxes 6,133 5,426 12,191 10,124
Applicable Income Tax Expense 2,124 1,727 4,241 3,253
Net Income $ 4,009 $ 3,699 $ 7,950 $ 6,871
======== ======== ======== ========
Earnings Per Common Share (Based on
Average Number of Common Shares Out-
standing for the Respective Period) Net
Income -- Primary and Fully Diluted $ 0.83 $ 0.77 $ 1.64 $ 1.44
VERMONT FINANCIAL SERVICES CORP.
CONDENSED STATEMENTS OF CASH FLOW
(unaudited)
6 months ended June 30,
1996 1995
------ ------
OPERATING ACTIVITIES (in thousands)
Net Income $7,950 $6,871
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for Loan Losses 1,800 2,000
Provision for depreciation 1,510 1,584
Amortization and accretion on securities 538 309
Deferred income taxes 698 320
Security (gains) (8) (76)
Proceeds from sale of loans 34,067 14,309
Loans originated for sale (32,849) (11,107)
Losses on OREO 249 651
(Increase) in interest receivable
and other assets (1,622) (556)
(Increase) in real estate held
for investment (46) (34)
Increase in interest payable
and other liabilities 143 751
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 12,430 15,022
INVESTING ACTIVITIES
Proceeds from sales of securities 10,403 12,192
Proceeds from maturities of securities 31,592 3,525
Purchases of securities (53,546) (18,315)
Proceeds from sales of OREO 2,354 2,036
Purchases of loans (1,060) (1,441)
Net (Increase) Decrease in loans (4,759) 3,145
Purchase of premises and equipment (1,964) (1,443)
--------- ---------
NET CASH (USED BY) INVESTING ACTIVITIES (16,980) (301)
FINANCING ACTIVITIES
Net Increase (Decrease) in deposits 2,735 (19,705)
Net Increase in short-term borrowings 7,743 509
Issuance of common stock 82 745
Purchase of Treasury Stock (597) 0
Cash dividends (2,435) (1,854)
--------- ---------
NET CASH PROVIDED BY (USED BY) FINANCING
ACTIVITIES 7,528 (20,305)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,978 (5,584)
Cash and cash equivalents at beginning
of period 62,821 73,107
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $65,799 $67,523
========= =========
Non-monetary Transactions:
Transfer of Loans to OREO for the periods ended June 30, 1996
and 1995 totaled $1,690 and $2,186, respectively.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the Six-Month Periods Ended June 30, 1996 and 1995
Overview
The first half of 1996 resulted in net income of $7,950,000 or $1.64
per share, versus $6,871,000, or $1.44 per share in the same period of 1995.
Income before taxes improved by $2,067,000 from 1995's first six months,
primarily due to a $1,581,000, or 4.4% increase in net net revenue, a combin-
ation of net interest income plus other operating income, net of securities
gains.
The annualized return on average total assets was 1.29% versus 1.17%
and the annualized return on average stockholders' equity was 14.18% versus
14.39% for the first half of 1996 and 1995, 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 $28.2 million for the first half of 1996
represented a $1.1 million increase from the same period in 1995. The net
interest margin was 4.99% in 1996, down from 5.05% a year earlier. The
increase in net interest income was due to a $38.8 million increase in average
earning assets and financial resources and a $213,000 increase in charges and
fees on loans as mortgage loan originations increased $16.8 million or
40.5% over the prior year.
At June 30, 1996, the mortgage servicing portfolio totaled $435.2
million compared to $420.6 million at year end. This portfolio generates
approximately $139,000 of servicing income on a monthly basis.
Net overhead for the first six months of 1996 decreased $750,000, or
5.0%, over the same 1995 period. This was due to nearly equal improvements
in other operating income and expense.
Other operating income (net of securities gains) increased $464,000.
Trust department income, service charges on deposits and credit card merchant
income increased $205,000, $316,000 and $127,000, respectively. Partially
offsetting these improvements was a $181,000 decrease in serviced mortgage
fees. This decrease was due to Company's sale of the right to service $29.0
million of mortgage loans on second home properties during the second
quarter of 1995 at a gain of $170,000.
Other operating expenses decreased $354,000 or 1.5% from
$23,503,000 during the first six months of 1995.Furniture and equipment exp-
enses decreased $106,000 and FDIC insurance expense decreased $1,131,000.
These improvements were partially offset by an $860,000 increase in salaries
and benefits.
Asset Quality
Nonperforming assets (nonaccrual loans, restructured loans and
OREO) were reduced from $15.0 million on December 31, 1995 to $11.8
million on June 30, 1996 due to nonaccrual loans and OREO decreasing $2.3
million, and $0.9 million, respectively. As of June 30, 1996 nonperforming
assets equaled 1.3% of total loans plus OREO, down from 1.7% at year end
1995. Loans 90 or more days past due and still accruing interest were $2.1
million, up slightly from $2.0 million at December 31, 1995.
The Allowance for Loan Losses was $14.5 million as of quarter end,
equal to 1.6% of loans outstanding, 149.1% of nonperforming (nonaccrual and
restructured) loans and 123.0% of total nonperforming assets. These compare to
the year end 1995 levels of 1.7%, 122.9% and 98.5%, respectively.
At June 30, 1996 loans for which impairment has been recognized in
accordance with SFAS NO. 114 totalled $31.8 million, of which $30.0 mill-
ion pertained to loans with no specific valuation reserve and $1.8 million per-
tained to loans with a specific valuation reserve of $0.6 million. During the
first half of 1996 the average investment in impaired loans was $32.1 million.
Financial Condition
Loans
Total loans at June 30, 1996 were $894.3 million, up $0.9 million
from the December 31, 1995 balance. Decreases in commercial real estate
and consumer loans of $9.0 million and $7.0 million,respectively, were more
than offset by a $5.5 million increase in commercial loans and a $11.4 in-
crease in residential real estate loans.
Securities Available for Sale
The amortized cost of securities available for sale increased $11.0
million. U.S Agency securities increased $15.0 million, U.S. Treasuries
increased $0.5 million and State and Municipal securities increased $0.7
million. These increases were partially offset by decreases in Mortgage
Backed and other securities of $4.1 million and $1.0 million, respectively.
A rise in interest rates caused a shift from the unrealized gain of $.01
million at year end 1995 to a $4.96 million unrealized loss at June 30, 1996.
Deposits
At June 30, 1996, total deposits were $1,036.7 million, an increase of
$2.7 million, or 0.3% from the December 31, 1995 level. Demand deposits
decreased $2.3 million during this period due to the normal runoff of year end
balances. Savings, Now and Money Market Accounts increased $4.5 million
during the six months. Other time deposits (CDs) increased by $0.6 million,
with a $1.1 million decrease in CDs over $100,000 and a $1.7 million increase
in CD's under $100,000.
Compared to June 30, 1995 balances, assets, deposits and equity
increased 4.9%, 4.4% and 9.5% respectively. Loans decreased 0.6% or
$5.7 million from June 30, 1995 to 1996. The growth in deposits was
primarily the result of a $23.9 million increase in demand deposits and a
$11.8 million increase in certificates of deposit under $100,000.
Capital Resources
Stockholders' equity increased from $111.8 million at year end to
$113.6 million at June 30, 1996. Equity as a percent of total assets increased
from 8.97% at year end 1995 to 9.02% at June 30, 1996. This increase was a
result of $5.5 million in earnings that were retained by the company net of
a $3.2 million increase in the Security Valuation Allowance associated with
the securities available for sale portfolio and a $0.6 million increase in
treasury stock as the company undertook its stock buyback program (see Recent
Developments).
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 13.91% and 15.17% from their year end levels
of 13.44% and 14.70%, respectively. The above ratios are in excess of all
regulatory requirements and place the Company in the "well capitalized"
regulatory classification.
Recent Developments
The Company plans to replace Vermont National Bank's on-line
teller system during the fourth quarter of 1996 at an estimated total cost
of $2.9 million. No other additions to premises and equipment are expected
to exceed $500,000. All additions will be funded through operation of the
Company.
During the second quarter of 1996 one director, Donald E. O'Brien,
retired from the Board of Directors. The Company has the option to fill this
position.
The company announced during the second quarter that its Board of
Directors approved the repurchase of up to 3%, or 140,000 shares of its out-
standing common stock. This is a continuation of the repurchase program inst-
ituted in 1987 under which shares are repurchased to cover unexcercised options
that are expected to be excercised. These shares are held in treasury pending
reissuance when options are excercised. The repurchase program will be accomp-
lished through a series of transactions on the open market. As of June 30,
1996, 28,000 shares had been repurchased under this program.
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 its annual meeting held on April 30, 1996, four class III directors
Anthony F. Abatiell, Francis L. Lemay, Roger M. Pike and Mark W. Richards,
were re-elected to their positions as board members. Of the 4,789,770 shares
outstanding , 82.01 % of shares were represented at the meeting.
Results were as follows:
Director Votes for % of Total Votes cast
- ------------- ------------- ------------------------
Anthony F. Abatiell 3,916,260 99.70%
Francis L. Lemay 3,922,278 99.85%
Roger M. Pike 3,922,023 99.85%
Mark W. Richards 3,922,023 99.85%
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.
Dated August 2, 1996 /s/ John D. Hashagen, Jr.
President and Chief Executive Officer
Dated August 2, 1996 /s/ Richard O. Madden
Executive Vice President, Treasurer and Secretary
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