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, 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 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, 1996 4,802,589
Part I. FINANCIAL INFORMATION
VERMONT FINANCIAL SERVICES CORP.
Consolidated Statements of Condition
March 31, 1996 and December 31, 1995
(in thousands, except per share data)
March 31, December 31,
ASSETS 1996 1995
Cash and Due from Banks $ 42,599 $ 53,834
Interest Bearing Balances with Banks 31 62
Securities Available
U.S. Treasury and U.S. Government Agencies 146,285 145,872
Mortgage Backed Securities 74,821 75,753
State and Municipal 10,252 10,342
Other 17,405 17,715
------- -------
Total Securities Available for Sale 248,763 249,682
Federal Funds Sold 21,426 8,925
Loans:
Commercial 169,185 170,162
Commercial Real Estate 200,006 207,049
Residential Real Estate 416,223 415,468
Consumer 95,054 100,791
-------- --------
Total Loans 880,468 893,470
Less: Allowance for Loan Losses 13,752 14,761
-------- --------
Net Loans 866,716 878,709
Premises and Equipment 20,701 20,366
Real Estate Held for Investment 1,320 1,309
Other Real Estate Owned (OREO) - net of
reserve of $157 in 1996 and $47 in 1995 3,888 2,977
Goodwill and Other Intangibles 2,646 2,747
Other Assets 27,777 28,058
-------- --------
Total Assets $1,235,867 $1,246,669
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 126,516 $ 137,504
Savings, NOW & Money Market Accounts 601,863 594,580
Other Time: Under $100,000 267,058 263,915
Over $100,000 38,524 37,958
------- --------
Total Deposits 1,033,961 1,033,957
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase 67,818 79,773
Liabilities for Borrowed Money 11,888 11,892
Other Liabilities 9,129 9,214
------- --------
Total Liabilities 1,122,796 1,134,836
Stockholders' Equity
Common Stock - $1 Par Value
Authorized 20,000,000 shares
Issued and Outstanding: 1996--4,884,847 shares
1995--4,883,017 shares 4,885 4,883
Preferred Stock - $1 Par Value
Authorized 5,000,000 shares
Capital Surplus 49,473 49,427
Undivided Profits 62,237 59,464
Security Valuation Allowance (1,783) 9
Treasury Stock 1996--89,054 shares
1995--99,750 shares (1,741) (1,950)
------- -------
Total Stockholders' Equity 113,071 111,833
Total Liabilities and Stockholders' Equity $1,235,867 $1,246,669
========= =========
Fully Diluted Tangible Book Value
per Share of Common Stock $22.74 $22.47
===== =====
Vermont Financial Services Corp.
Condensed Statements of Income
(in thousands)
(unaudited)
Three Months Ended
March 31,
1996 1995
Interest Income
Interest and Fees on Loans $ 20,391 $ 20,208
Interest on Securities Available for Sale:
Taxable Interest Income 3,538 2,605
Tax Exempt Interest Income 120 106
Interest on Federal Funds Sold 256 144
Interest on Time Deposits 0 0
------ -----
Total Interest Income 24,305 23,063
Interest Expense
Interest on Deposits 9,369 8,557
Interest on Federal Funds Purchased, Borrowed Money
and Securities Sold under Agreements to Repurchase 1,061 1,071
------ ------
Total Interest Expense 10,430 9,628
------ -----
Net Interest Income 13,875 13,435
Less: Provision for Loan Losses 900 1,000
------ ------
Net Interest Income After Provision for Loan Losses 12,975 12,435
Other Operating Income
Securities Gains 8 0
Trust Department Income 876 771
Service Charges on Deposit Accounts 1,591 1,349
Serviced Mortgage Fees 411 533
Merchants Credit Card Income 652 593
Other Noninterest Income 979 861
------ ------
Total Other Operating Income 4,517 4,107
Other Operating Expense
Salaries and Wages 4,455 4,327
Pension and Other Employee Benefits 1,374 1,152
Occupancy of Bank Premises, net 892 897
Furniture and Equipment 1,014 1,074
FDIC Assessment 2 566
Credit Card Merchant Expense 401 367
OREO & Collection Expense/Losses, net 546 723
Other Noninterest Expense 2,750 2,738
------ ------
Total Other Operating Expense 11,434 11,844
Net Overhead (6,917) (7,737)
------ ------
Income Before Income Taxes 6,058 4,698
Applicable Income Tax Expense 2,117 1,526
------ ------
Net Income $ 3,941 $ 3,172
====== ======
Earnings Per Common Share (Based on
Average Number of Common Shares
Outstanding for the Respective Period)
Net Income -- Primary and Fully Diluted $ 0.81 $ 0.67
==== ====
VERMONT FINANCIAL SERVICES CORP.
CONDENSED STATEMENTS OF CASH FLOW
(unaudited)
3 Months Ended March 31,
1996 1995
---- ----
OPERATING ACTIVITIES (in thousands)
Net Income $ 3,941 $ 3,172
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for Loan Losses 900 1,000
Provision for depreciation 761 805
Amortization and accretion on securities 260 161
Deferred income taxes 1,463 745
Security (gains) (8) 0
Proceeds from sale of loans 18,827 8,141
Loans originated for sale (15,531) (4,782)
Losses on OREO 116 243
(Increase) Decrease in interest receivable
and other assets (112) 101
(Increase) in real estate held for
investment (11) (11)
(Decrease) Increase in interest payable
and other liabilities (85) 98
_________ _________
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,521 9,673
INVESTING ACTIVITIES
Proceeds from sales of securities 5,702 2,600
Proceeds from maturities of securities 22,850 1,881
Purchases of securities (30,646) (3,110)
Proceeds from sales of OREO 124 793
Purchases of loans (306) (999)
Net (Decrease) Increase in loans 6,952 (4,226)
Purchase of premises and equipment (1,096) (889)
_________ _________
NET CASH PROVIDED BY (USED BY)
INVESTING ACTIVITIES 3,580 (3,950)
FINANCING ACTIVITIES
Net Increase (Decrease) in deposits 4 (21,210)
Net Decrease in short-term borrowings (11,959) (3,610)
Issuance of common stock 258 676
Cash dividends (1,169) (923)
_________ _________
NET CASH PROVIDED BY FINANCING ACTIVITIES (12,866) (25,067)
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,235 (19,344)
Cash and cash equivalents beginning of period 62,821 73,107
_________ _________
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 64,056 $ 53,763
======= =======
Non-monetary Transactions:
Transfer of Loans to OREO for the periods ended March 31, 1996
and 1995 totaled $1,151 and $682, respectively.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
For the Three-Month Periods Ended March 31, 1996 and 1995
Overview
The first quarter of 1996 resulted in net income of $3,941,000 or
$0.81 per share, versus $3,172,000, or $0.67 per share in the same
period of 1995. Income before taxes improved by $1.4 million from
1995's first quarter, primarily due to a $0.8 million decrease in
net overhead.
The annualized return on average total assets was $1.28%
versus 1.09% and the annualized return on average stockholders'
equity was 14.08% versus 13.89% for the first quarter 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 $13.9 million for the first quarter
of 1996 represented a $0.4 million increase from the same period
in 1995. The net interest margin was 4.93% in 1996, down from
5.04% a year earlier. The increase in net interest income was
due to a $186,000 or 48%, increase in loan fees and a $44.6
million increase in average earning assets. The increase in
loan fees was mostly due to a $173,000 increase in mortgage loan
loan related fees as a reduction in interest rates led to a $15.1
million, or $112%, increase in mortgage loan volume compared to
the first quarter of 1995. These positive factors were partially
offset by the effects of a 21 basis point reduction in net interest
spread.
At March 31, 1996, the mortgage servicing portfolio totaled
$419.3 million compared to $420.6 million at year end. This
portfolio generates approximately $137,000 of servicing income
on a monthly basis.
Net overhead for the first quarter of 1996 decreased
$820,000, or 11%, from the same 1995 period due equally to
improvements in other operating income and other operating expense.
The $410,000 increase in noninterest income was mainly due to
increases of $105,000 and $242,000 in trust department income
and service charges on deposits, respectively. The improvement in
other operating expense was primarily due to a $564,000 reduction
in FDIC insurance and a $177,000 reduction in OREO related
expenses. These improvements were partially offset by an
increase in salary and benefit expense of $350,000, or 6%
Asset Quality
Nonperforming assets (nonaccrual loans, restructured loans and OREO)
were reduced from $15.0 million on December 31, 1995 to $14.7 million on
March 31, 1996. Nonaccrual and restructured loans decreased $1.2
million, to $10.8 million. OREO increased from year end by $0.9 million,
to $3.9 million. As of March 31, 1996 nonperforming assets equaled 1.19%
of total assets, slightly down from the 1.20% level at year end 1995.
Loans 90 or more days past due and still accruing interest were $1.1
million, down from $2.0 million at December 31, 1995.
The Allowance for Loan Losses was $13.8 million as of quarter end,
equal to 1.6% of loans outstanding, 127.5% of nonperforming
(nonaccrual and restructured) loans and 93.7% of total nonperforming
assets. These compare to the year end 1995 levels of 1.7%, 122.9% and
98.5%, respectively.
At March 31, 1996, loans for which impairment has been recognized
in accordance with SFAS NO. 114 total $31.0 million, of which $29.0
million related to loans with no specific valuation reserve and $2.0
million related to loans with a specific valuation reserve of $0.7
million. During the first quarter of 1996 the average investment in
impared loans was $33.7 million.
Financial Condition
Loans
Total loans at March 31, 1996 were $880.5 million, down $13.0 million
from the December 31, 1995 balance. Decreases in commercial real estate
and consumer loans of $7.0 million and $5.7 million respectively accounted
for nearly all of this change.
Securities Available for Sale
The fair value of securities available for sale decreased
$0.9 million, with only minor changes in the portfolio mix.
Deposits
At March 31, 1996, total deposits were $1,034.0 million,
unchanged from the December 31, 1995 level. Demand deposits
decreased $11.0 million during this period due to the normal
runoff of year end balances. Offsetting this decrease were
increases in Savings and Other Time deposits of $7.3 million
and $3.7 million, respectively. Other Time deposits over $100,000
accounted for $0.6 million of the change in time deposit balances.
Compared to March 31, 1995 balances, assets, deposits and equity
increased 4.1%, 4.3% and 16.7%, respectively. The $42.3 million
growth in deposits was the result of a $22.6 million increase
in Demand Deposits and a $30.6 million increase in Other Time
Deposits, with $9.9 million of the increase from time deposits
of $100,000 or more. Offsetting these increases somewhat was a
$10.8 million decrease in Savings, Now and Money Market Deposit
accounts. Total loans decreased 3.4%, or $30.9 million, from
March 31, 1995 to 1996. Commercial loans decreased $42.3
million, largely due to a $17.4 million reduction in Municipal
Loans. The additional liquidity that resulted from the decrease
in the loan portfolio and increase in deposits was primarily
invested in the Securities Available for Sale portfolio which
increased $71.2 million from March 31, 1995.
Capital Resources
Stockholders' equity increased from $111.8 million at year end to
$113.1 million at March 31, 1996. Equity as a percent of total assets
increased from 8.97% at year end 1995 to 9.15% at March 31, 1996. This
increase was primarily the result of $2.8 million of earnings retained
by the Company, net of a $1.8 million increase in the Security Valuation
Allowance associated with the Security Available for Sale portfolio. 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 13.80% and 15.05% 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 (VNB's) on-line
teller system during the fourth quarter at an estimated total cost of $2.9
million. During the first quarter of 1996, VNB consummated the purchase
of its Williston Road office at a cost of $0.7 million. No further
additions to premises and equipment are expected to exceed $500,000.
All additions will be funded through the operation of the Company.
The company adopted the following Statement of Financial Accounting
Standards (SFAS) effective January 1, 1996:
Standard Title
SFAS 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of"
SFAS 122 "Accounting for Mortgage Servicing Rights"
SFAS 123 "Accounting for Stock-based Compensation"
The impact of adopting SFAS 121 and SFAS 123 was immaterial. The
income effect of adopting SFAS 122 was an increase to pretax earnings
of $108,000 or .84% of loans sold, an amount slightly lower than the
1.0% management expected and disclosed in its form 10-K for December 31,
1995.
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 registrant 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 9, 1996 ________________________________
John D. Hashagen, Jr.
/s/Richard O. Madden
Dated May 9, 1996 ________________________________
Richard O. Madden
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 42,599
<INT-BEARING-DEPOSITS> 31
<FED-FUNDS-SOLD> 21,426
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 248,763
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 880,468
<ALLOWANCE> 13,752
<TOTAL-ASSETS> 1,235,867
<DEPOSITS> 1,033,961
<SHORT-TERM> 67,818
<LIABILITIES-OTHER> 9,129
<LONG-TERM> 11,888
0
0
<COMMON> 4,885
<OTHER-SE> 108,186
<TOTAL-LIABILITIES-AND-EQUITY> 1,235,867
<INTEREST-LOAN> 20,391
<INTEREST-INVEST> 3,658
<INTEREST-OTHER> 256
<INTEREST-TOTAL> 24,305
<INTEREST-DEPOSIT> 9,369
<INTEREST-EXPENSE> 10,430
<INTEREST-INCOME-NET> 13,875
<LOAN-LOSSES> 900
<SECURITIES-GAINS> 8
<EXPENSE-OTHER> 11,434
<INCOME-PRETAX> 6,058
<INCOME-PRE-EXTRAORDINARY> 3,934
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,941
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.81
<YIELD-ACTUAL> 4.93
<LOANS-NON> 10,471
<LOANS-PAST> 1,108
<LOANS-TROUBLED> 316
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 14,761
<CHARGE-OFFS> 2,198
<RECOVERIES> 289
<ALLOWANCE-CLOSE> 13,752
<ALLOWANCE-DOMESTIC> 13,752
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
