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, 1999, 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, 1999 12,943,066
VEREMONT FINANCIAL SERVICES CORP. AND SUBSIDIARIES
INDEX
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 10
Part II Other Information 10
Signatures 11
<TABLE>
VERMONT FINANCIAL SERVICES CORP.
Consolidated Statements of Condition
March 31, 1999 and December 31, 1998
($ in thousands,except per share data)
(unaudited)
<C> <C>
March 31, December 31,
1999 1998
ASSETS
Cash and Due from Banks $ 69,017 $ 63,346
Interest Bearing Balances with Banks 2,332 1,661
Federal Funds Sold 2,551 56,186
Total Cash & Cash Equivalents 73,900 121,193
Securities Available for Sale
U.S. Treasury and U.S. Government
Agencies 169,354 167,784
Mortgage Backed Securities 217,247 223,910
State and Municipal 10,307 10,318
Other 114,150 115,924
Total Securities Available for Sale 511,058 517,936
Loans:
Commercial 201,083 203,851
Commercial Real Estate 306,377 285,028
Residential Real Estate 752,244 760,445
Consumer 122,194 120,181
Total Loans 1,381,898 1,369,505
Less: Allowance for Loan Losses 17,243 16,699
Net Loans 1,364,655 1,352,806
Premises and Equipment 40,256 41,571
Real Estate Held for Investment 1,339 1,251
Other Real Estate Owned (OREO) - net of
reserve of $27 in 1999 and $28 in 1998 1,038 1,174
Goodwill & Other Intangibles 55,831 56,966
Other Assets 48,701 49,527
Total Assets $2,096,778 $2,142,424
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 285,631 $ 292,466
Savings, NOW & Money Market Accounts 981,758 1,002,478
Other Time: Under $100,000 394,268 404,611
Over $100,000 90,334 89,462
Total Deposits 1,751,991 1,789,017
Federal Funds Purchased and
Securities Sold
Under Agreements to Repurchase 80,951 83,778
Liabilities for Borrowed Money 22,973 28,129
Other Liabilities 25,058 27,187
Total Liabilities 1,880,973 1,928,111
Stockholders' Equity
Common Stock - $1 Par Value
Authorized 20,000,000 shares
Issued : 1999 - 13,293,465
1998 - 13,293,465 13,293 13,293
Preferred Stock - $1 Par Value
Authorized 5,000,000 shares
Capital Surplus 117,168 116,894
Undivided Profits 94,511 92,273
Security Valuation Allowance 1,255 2,651
Treasury Stock,at cost - 1999 - 421,888
1998 - 438,547 (10,422) (10,798)
Total Stockholders' Equity 215,805 214,313
Total Liabilities and Stockholders' Equity $2,096,778 $2,142,424
Fully Diluted Tangible Book Value
per Share of Common Stock $12.39 $12.25
</TABLE>
<TABLE>
Vermont Financial Services Corp.
Consolidated Statements of Income
(unaudited)
(in thousands, except share and per share data)
Three Months Ended
<C> <C>
March 31, March 31,
1999 1998
Interest Income:
Interest and Fees on Loans $ 28,006 $ 28,475
Interest on Securities Available for Sale:
Taxable Interest Income 7,523 8,056
Tax Exempt Income 110 109
Interest on Fed Funds Sold and Other
Short Term Investments 210 435
Total Interest Income 35,849 37,075
Interest Expense:
Interest on Deposits 13,841 14,686
Interest on Fed Funds Purchased,
Borrowed Money and Securities
Sold under Agreements to Repurchase 1,217 2,009
Total Interest Expense 15,058 16,695
Net Interest Income 20,791 20,380
Less: Provision for Loan Losses 825 1,125
Net Interest Income After Provision
for Loan Losses 19,966 19,255
Other Operating Income
Securities Gains 0 147
Trust Department Income 1,740 1,625
Service Charges on Deposit Accounts 2,960 3,400
Credit Card Merchant Income 1,045 878
Other Loan Related Fee Income 156 52
Other Noninterest Income 2,803 2,791
Total Other Operating Income 8,704 8,893
Other Operating Expense
Salaries and Wages 7,483 7,482
Pension and Other Employee Benefits 2,097 1,793
Occupancy of Bank Premises, net 1,902 1,892
Furniture and Equipment 2,284 2,114
Goodwill Amortization 1,128 1,129
FDIC Assessment 132 132
Credit Card Merchant Expense 752 680
OREO & Collection Expense/Losses, net 237 430
Other Noninterest Expense 5,318 5,334
Total Other Operating Expense 21,333 20,986
Net Overhead (12,629) (12,093)
Income Before Income Taxes 7,337 7,162
Applicable Income Tax Expense 2,913 2,883
Net Income $4,424 $4,279
Average basic shares outstanding 12,859,947 13,258,670
Basic earnings per share $0.34 $0.32
Average dilluted shares outstanding 13,033,714 13,360,320
Diluted earnings per share $0.34 $0.32
</TABLE>
<TABLE>
VERMONT FINANCIAL SERVICES CORP. AND SUBSIDIARIES
Condensed Statements of Cash Flows
(unaudited)
(in thousands)
3 months ended March 31,
<C> <C>
1999 1998
OPERATING ACTIVITIES
Net Income $ 4,424 $ 4,279
Adjustments to reconcile net income
to net cash provided
by operating activities:
Provision for loan losses 825 1,125
Provision for depreciation 1,816 1,812
Amortization and accretion on securities 53 102
Deferred income taxes (666) 161
Security (gains) - (147)
Purchases of loans (658) -
Proceeds from sale of loans 52,440 60,468
Loans originated for sale (59,518) (62,461)
Losses on OREO 27 15
Decrease (Increase) in interest
receivable and other assets 3,425 (518)
(Increase) Decrease in real estate
held for investment (88) 12
(Decrease) Increase in interest payable
and other liabilities (2,129) 2,298
NET CASH (USED BY) PROVIDED BY OPERATING
OPERATING ACTIVITIES (49) 7,146
INVESTING ACTIVITIES
Proceeds from the sale of securities 2,060 1,730
Proceeds from the maturity of securities 37,011 71,973
Purchases of securities (34,440) (18,741)
Proceeds from sales of OREO 261 413
Net (increase) decrease in loans (5,090) 27,476
(Purchase) of premises and equipment (501) (1,903)
NET CASH (USED BY) PROVIDED BY INVESTING
ACTIVITIES (699) 80,948
FINANCING ACTIVITIES
Net (decrease) increase in deposits (37,026) 5,779
Net (decrease)in short-term borrowings (7,983) (45,953)
Issuance of common stock 650 545
Cash dividends (2,186) (1,987)
NET CASH (USED BY) FINANCING ACTIVITIES (46,545) (41,616)
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (47,293) 46,478
Cash and cash equivalents at
beginning of period 121,193 98,009
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 73,900 $144,487
</TABLE>
Non-monetary Transactions:
Transfer of loans to OREO for the periods ended March 31, 1999
and 1998 totaled $152 and $1,042, respectively.
VERMONT FINANCIAL SERVICES CORP.
Notes to Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
should be read with the audited financial statements and notes thereto
included in the annual report on Form 10-K. In the opinion of Management,
all adjustments which are necessary for the fair presentation of the
statement of the consolidated financial position of Vermont Financial
Services Corp., ("VFSC" or 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. Certain items from interest income have been
reclassified to noninterest income and noninterest expense in accordance
with Statement of Financial Accounting Standards (SFAS) No. 91, "Accounting
for Nonrefundable Fees and Costs Associated With Originating or Acquiring
Loans and Initial Direct Cost of Leases". There is no impact on net income
associated with these reclassifications.
Operating results for any interim period are not necessarily indicators
of results for anyother interim period or the entire year.
2. New Accounting Pronouncements
The FASB has issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities", which provides for matching the timing of gain
or loss recognition on the hedging instrument with the recognition of
(a) the changes in fair value of the hedged asset or liability that
are attributable to the hedged risk or (b) the earnings effect of the
hedged forecasted transaction. The standard is effective for fiscal
quarters beginning after June 15, 1999. The Company expects adoption of
this standard to have an immaterial impact on its financial statements.
In addition, VFSC has adopted SFAS No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans held for
Sale by a Mortgage Banking Enterprise". This statement requires that
after an enterprise securitizes a mortgage loan held for sale, it must
then classify the resulting mortgage-backed security as a trading
security. This statement did not have a material impact on the financial
statements of the Company.
3. Acquisitions
On December 16, 1998, VFSC, Chittenden Corporation (NYSE: "CHZ"), and a
wholly owned subsidiary of Chittenden Corporation, entered into an
Agreement and Plan of Merger (the Merger Agreement), pursuant to which
VFSC will be merged with and into Chittenden Corporation (the Merger). The
Merger is structured to qualify as a pooling of interests for accounting
purposes and as a tax-free exchange of 1.07 shares of Chittenden
Corporation common stock for each share of VFSC common stock and is
expected to close in the second quarter of 1999. The completion of the
Merger is subject to certain customary conditions, including without
limitation the approval of the stockholders of each of VFSC and Chittenden
Corporation and certain regulatory approvals.
<TABLE>
4. Comprehensive Income
<C> <C>
1999 1998
Net Income $4,424 $4,279
Other comprehensive income, net of tax:
Unrealized (losses) gains on investments
Unrealized holding (loss) gain arising
during the period net of income tax
(benefit) expense of $(768) and $61 for
1999 and 1998, respectively. (1,396) 113
Less reclassification adjustment for gains
included in net income net of income tax
expense of 0 and $(51) for 1999 and 1998,
respectively. 0 (96)
Other comprehensive income (1,396) 17
Comprehensive income $3,028 $4,296
</TABLE>
5. Segment Information
Description of Reportable Segments
VFSC has two reportable segments, its two banking subsidiaries, Vermont
National Bank (VNB) and United Bank (UB). Each bank provides a wide
range of loan, deposit and trust services to individuals, businesses,
institutions and government entities located primarily in their respective
market areas. VNB operates 41 branches in Vermont and 16 branches in
southern New Hampshire and is regulated by the OCC. UB operates 7 branches
in western Massachusetts and is regulated by the FDIC. Each bank has a
separate management team. Financial reports for each are reviewed monthly
by the Company's Chief Executive Officer and Board of Directors and are
the basis for evaluating performance and allocating resources.
Measurement of Segment Profit or Loss and Segment Assets
The Company evaluates each bank's performance primarily based on growth of
loans, deposits, net revenue, net income, operating efficiency and return
on assets. The accounting policies of each bank are the same as those
described in Note 1 of VFSC's Annual Report (filed on Form 10-K)
"Significant Accounting Policies". Intersegment transactions are
not material and are recorded approximately at cost.
The following tables summarize the significant items used by management
to evaluate the performance of each segment over the three months
ended March 31, 1999 and 1998.
<TABLE>
Three Months Ended March 31, 1999 (in thousands)
<C> <C> <C> <C>
Item VNB UB All Other Consolidated
Net Revenue (before security
gains) $26,596 $2,895 $4 $29,495
Net Income Before Taxes 6,441 1,220 (324) 7,337
Net Income After Taxes 3,939 747 (262) 4,424
Total Loans 1,193,547 188,351 0 1,381,898
Total Deposits 1,507,613 245,017 (639) 1,751,991
Total Assets $1,809,590 $277,053 $10,135 $2,096,778
ROA 0.88% 1.10% N/A 0.85%
ROE 8.79% 12.32% N/A 8.37%
Efficiency Ratio 72.68% 57.86% N/A 72.33%
</TABLE>
<TABLE>
Three Months Ended March 31, 1998 (in thousands)
<C> <C> <C> <C>
Item VNB UB All Other Consolidated
Net Revenue (before security
gains) $25,880 $3,003 $243 $29,126
Net Income Before Taxes 6,012 1,403 (253) 7,162
Net Income After Taxes 3,683 810 (214) 4,279
Total Loans 1,084,818 201,572 0 1,286,390
Total Deposits 1,460,431 233,094 (6,105) 1,687,420
Total Assets 1,787,542 $262,421 $12,467 $2,062,430
ROA 0.83% 1.28% N/A 0.84%
ROE 8.58% 14.35% N/A 8.10%
Efficiency Ratio 73.22% 51.28% N/A 72.05%
</TABLE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
For the Three-Month Periods Ended March 31, 1999 and 1998
Overview
The three months ended March 31, 1999 resulted in net income of $4,424,000,
or a 3% increase over $4,279,000 in earnings for the same period of 1998.
Diluted earnings per share for quarter ended March 31, were $0.34 and
$0.32 for the first three months of 1999 and 1998, respectively. Diluted
cash earnings per share (earnings before the effects of the amortization
of goodwill) were $0.42 and $0.40 for the three months ended March 31,
1999 and 1998, respectively.
The accompanying unaudited condensed consolidated financial statements
should be read with the audited financial statements and notes thereto
included in the Company's annual report on Form 10-K. 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.
Except for historical information contained herein, the matters discussed
in this filing, may express "forward-looking" statements. Those
"forward-looking" statements may involve risk and uncertainties, including
statements concerning future events or performances and assumptions
and other statements that are other than statements of historical facts.
The Company wishes to caution readers not to place undue reliance on any
forward-looking statements, which speak only as of the date made.
Readers are advised that various factors - including, but not limited
to, changes in laws, regulations or Generally Accepted Accounting
Principles; the Company's competitive position within the markets
served or increasing consolidation within the banking industry;
certain customers and vendors of critical systems or services failing to
comply with Year 2000 programming issues; unforeseen changes interest
rates; any unforeseen downturns in the local, regional or national
economies - could cause the Company's actual results or circumstances
for future periods to differ materially from those anticipated or
projected. Vermont Financial Services Corp. does not undertake, and
specifically disclaims any obligation, to publicly release the result of
any revisions that may be made to any forward-looking statements to
reflect the occurrence of unanticipated events or circumstances after
the date of such statements.
Results of Operations
Net interest income of $20.8 million for the first three months of 1999
represented a $0.4 million increase from the same period in 1998. A
$78.5 million increase in average earning assets more than offset a
0.09% decrease in net interest margin to 4.46% from 4.55% during the
first quarter of 1998. Most of the growth in average earning assets was
due to $62.3 million, or 15%, increase in average commercial loans.
The provision for loan losses was $825,000 for the first quarter of 1999,
a 27% decrease from the $1.1 million provision for the first quarter of
1998. The lower provision reflects the lower level of net charged off
loans , $281,000 in the first quarter of 1999 versus $1.6 million in the
first quarter of 1998. It also reflects the lower levels of non performing
assets discussed below.
Noninterest income, before securities gains, remained the same during the
first quarter of 1999 compared to a year earlier as reduced service
charges on deposits offset increases in other fee income categories.
Noninterest expense increased $0.3 million, or 2%, during the first quarter
of 1999 as compared to the same period in 1998. Nearly all of this
increase was due to increased employee benefit expense (largely medical).
Year 2000
The Project and VFSC's State of Readiness
Many of the world's computer systems (including those in non-information
technology equipment and systems) currently record years in a two-digit
format. If not addressed, such computer systems will be unable to
properly interpret dates beyond the year 1999, which could lead to
business disruptions (the "Year 2000" issue). The potential costs and
uncertainties associated with the Year 2000 issue will depend on a number
of factors, including software, hardware and the nature of the industry
in which a company operates. Additionally, companies must coordinate with
other entities with which they electronically interact. VFSC, like most
financial service providers, is dependent on computer-generated
information and processing and thus may be significantly affected by the
Year 2000 issue. The Company began its Year 2000 remediation project in
late 1996. The Year 2000 project has been structured following the
guidance set forth in several statements that have been issued by the
Federal Financial Institutions Examination Counsel ("FFIEC"). VFSC
and the Banks are monitored in their Year 2000 efforts by various
regulators, including the Federal Reserve Board, the Office of the
Comptroller of the Currency , the FDIC and the Massachusetts Commissioner
of Banks. The overall project has five phases: awareness, assessment,
renovation, validation and implementation. In the awareness phase, the
Company defined the Year 2000 issue, communicated the Year 2000 issue to
all employees and obtained executive level support and funding. In the
assessment phase, the Company created a comprehensive Year 2000 plan
which includes conducting an inventory of all systems which may be affected
by the Year 2000 issue, including facilities and related non-information
technology systems (embedded systems), such as vaults, alarms, elevators,
telephone and electric power, computer systems, hardware, and services and
products provided by third parties, and assessing the risk of
non-compliance for each identified system. In the renovation phase, the
Company renovates or fixes certain systems, while others are replaced or
retired. In the validation phase, the Company conducts testing to ensure
all systems, including renovated systems, are Year 2000 compliant for
present and future dates. Finally, in the implementation phase, the
Company places compliant systems in production. The Company's banking
subsidiaries, VNB and UB, maintain separate computer systems. Both VNB
and UB have completed the awareness and assessment phases. VNB has
substantially completed the renovation and validation phases for all its
mission critical systems and is currently in the implementation phase.
UB has completed the renovation and validation phases of the project.
VNB and UB purchase the software for their mission critical systems
from nationally recognized vendors, and although they service these
applications, they do very little custom coding for those systems. The
Company considers its mission critical systems to be software used to
maintain its general ledger, loan, deposit, item processing and ATM/EFT
(Electronic Funds Transfer) applications. In order to perform the
assessment of its systems, both VNB and UB have initiated communications
with the appropriate vendors as to the Year 2000 readiness of their
product(s) and continue to monitor vendor status. VNB and UB have
initiated and will maintain communications with their suppliers, data
exchange partners and large customers to determine and monitor the status
of their Year 2000 efforts.
The renovation phase principally consists of the installation of the
vendor identified Year 2000 compliant versions of the relevant systems
and the validation of the functionality of the systems as well as forward
date (dates in the next century) verification. As of March 31, 1999,
Management estimates that approximately 95% of the overall project at VNB
was completed. Forward date testing of VNB's systems was substantially
complete at that date, with the remainder of forward date testing and
the validation of all internal and external data exchange interfaces to
be completed by June 30, 1999. Validation of VNB's non-mission-critical
systems will continue during 1999. Validation of UB's non-mission critical
systems will likewise continue during 1999. As of March 31, 1999,
management estimates that the overall project at UB was approximately
91% complete. VNB's schedule to date in addressing the Year 2000 issue
meets the applicable regulatory guidelines. On February 19, 1999 UB
entered into an agreement with the FDIC which specifies certain Year
2000 compliance steps that must be completed in the near term. The Company
allocated additional resources to UB's Y2K project and as of March
31, 1999 has completed all of the compliance steps specified in the
agreement. On April 26, 1999, the FDIC notified UB that the terms
and conditions have been met and that the agreement has been terminated.
Costs
Management estimates the costs of its Year 2000 project to be $5.5
million. As of March 31, 1999, $3.4 million has been expended. The
total estimated expenditure for 1999 is $2.4 million and for 2000, is
$0.9 million. The $3.4 million already incurred includes $2.7 in
operating expense(s) and $0.7 million in capital expenditures. The
$5.5 million estimated total cost of the project includes $0.9 million
for capital expenditures, including upgrades of hardware and software
for ATM machines and software for the retail delivery system of VNB
(teller/platform automation), which were incurred primarily in 1998 and
will be depreciated over three to five years, depending on useful life.
The Company is relying primarily on internal staff resources to
complete its Year 2000 compliance project. The costs of the project
will be funded from normal operating budgets and are not expected to
have a material effect on the Company.
Risks
There are many risks associated with the Year 2000 issue, including the
possibility of a failure of the Company's computer and non-information
technology systems. Such failures could have a material adverse effect on
the Company and may cause systems malfunctions, incorrect or incomplete
transaction processing resulting in failed trade settlements, the
inability to reconcile accounting books and records and disruptions of
funding requirements. While the Company is attempting to mitigate the
risks for systems under its control, the Company obtains most of the
hardware and software from external vendors. In addition, even if the
Company successfully remediates its Year 2000 issues, it can be
materially and adversely affected by failures of third parties to remediate
their own Year 2000 issues. The failure of third parties with which the
Company has financial or operational relationships such as clearing
organizations, regulatory agencies, other banks, borrowers, counterparties,
vendors and utilities, to remediate their computer and non-information
technology systems issues in a timely manner could result in a material
financial risk to the Company.
The Company has undertaken to communicate with its commercial loan
customers to assess their Year 2000 readiness. As of December 31, 1998
the Company had completed its assessment of 100% of the target portfolio,
which includes all commercial loans in excess of $250,000.
If the above mentioned risks are not remedied, the Company may experience
business interruption or shutdown, financial loss, regulatory actions,
damage to the Company's franchise and legal liability.
Contingency Plan
The Company has initiated contingency planning for its mission critical
systems and processes, including a business impact analysis and risk
assessment of these processes. A draft contingency plan (the "Plan")
was completed by December 31, 1998. The Plan will be enhanced and then
reviewed by senior management and is expected to be completed by June
30, 1999. The Plan will be reviewed quarterly for the remainder of 1999
to determine if any changes should be made to the Plan or any additional
contingencies should be addressed by the Plan.
Asset Quality
Nonperforming assets totaled $9.4 million as of March 31, 1999, a $10.2
million decrease from $19.6 million on March 31, 1998 and a $0.3
million increase from $9.1 million at December 31, 1998. As of
March 31, 1999 nonperforming assets were 0.45% of total assets, down
from 0.95% a year ago and up from 0.42% at December 31, 1998.
The allowance for loan losses was $17.2 million at March 31, 1999, down
from $18.5 million a year ago and up from $16.7 million at December
31, 1998, reflecting the dissimilar levels of nonperforming assets at
these points in time. The allowance for loan losses was 207% of
nonperforming loans and 184% of nonperforming assets as of March 31,
1999.
The following table provides information with respect to the Company's
past due loans, the Components of nonperforming assets and the
allowance for loan losses at the dates indicated:
<TABLE>
March 31,1999 December 31, 1998
<C> <C>
Loans 90 days past due and still
accruing interest $3,666 $2,069
Nonperforming assets:
Nonaccrual loans $8,331 $7,904
Other real estate owned 1,038 1,175
Total nonperforming assets $9,369 $9,079
Nonperforming assets to period end
loans net of unearned income, plus
other real estate owned 0.68% 0.66%
Allowance for loan losses $17,243 $16,699
</TABLE>
The following table details the Company's impaired loans as of
March 31, 1999:
Total impaired loans $21,942
Impaired loans with a specific valuation reserve 5,158
Impaired loans without a specific valuation reserve 16,784
Valuation reserve for impaired loans 1,859
Average impaired loans $20,510
Financial Condition
Total assets were $2.1 billion as of March 31,1999, essentially
unchanged from a year ago and at December 31,1998. Total loans of
$1.4 billion were up $96 million, or 7%, from March 31, 1998 and were
up $12 million from year end. Total deposits increased $ 65 million,
or 4%, from a year ago, yet experienced a seasonal decline of $32 million
from December 31, 1998.
Capital Resources
Stockholders' equity increased from $214 million at year end to $216
million at March 31,1999. Equity as a percent of total assets increased
from 10.0% at year end 1998 to 10.3% at March 31, 1999, while tangible
stockholder's equity to total assets increased from 7.34% to 7.60%.
These increases were primarily the result of the earnings retained
by the Company and the $1.1 million reduction in goodwill and intangible
assets. Also, Tier I and Total Risk Based Capital ratios increased to
12.04% and 13.29% from their year end levels of 11.78% 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
On December 16, 1998, VFSC, and Chittenden Corporation (NYSE: "CHZ"),
and a wholly owned subsidiary of Chittenden Corporation, entered into an
Agreement and Plan of Merger (the Merger Agreement), pursuant to which
VFSC will be merged with and into Chittenden Corporation (the Merger).
The Merger is structured to qualify as a pooling of interests for
accounting purposes and as a tax-free exchange of 1.07 shares of Chittenden
Corporation common stock for each share of VFSC common stock and is
expected to close in the second quarter of 1999. The completion of the
Merger is subject to certain customary conditions, including, without
limitation, the approval of the stockholders of each of VFSC and Chittenden
Corporation and certain regulatory approvals
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity and Liquidity
See discussion and analysis of interest rate sensitivity and liquidity
provided in the Company's Annual Report filed on Form 10-K for the year
ended December 31, 1998. There have been no material changes in reported
market risks faced by the Company since the filing of the Company's
Annual Report Form 10-K.
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
VERMONT FINANCIAL SERVICES CORP.
Dated May 10, 1999 _____________________________________
John D. Hashagen, Jr.
Dated May 10, 1999 _____________________________________
Richard O. Madden
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<S> <C>
<PERIOD-TYPE> 3-MOS
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0
0
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</TABLE>
