UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20547
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
--------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file Number 000-23419
----------------------------------------------------------
NMBT CORP
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 06-1496548
- ------------------------------------------------------------- -----------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
55 Main Street, New Milford, Connecticut 06776-2400
- ------------------------------------------------------------- -----------------------------------
(Address of principal executive offices) (ZIP Code)
</TABLE>
Registrant's telephone number, including area code (860) 355-1171
------------------------------
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 requirements for the past 90 days. [ X ] Yes [ ] No
The number of shares of Common Stock, par value $.01 per share, outstanding
as of November 12, 1998 was 2,663,358.
<PAGE>
NMBT CORP
Form 10Q
September 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Condition (Unaudited)
September 30, 1998 and December 31, 1997 3
Consolidated Statements of Operations (Unaudited)
Nine Months and Three Months Ended
September 30, 1998 and September 30, 1997 4
Consolidated Statements of Comprehensive Income (Unaudited)
Nine Months and Three Months Ended
September 30, 1998 and September 30, 1997 5
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 1998 and September 30, 1997 6
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
Nine Months Ended September 30, 1998 and September 30, 1997 7
Notes to Consolidated Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 16
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 18
</TABLE>
2
<PAGE>
NMBT CORP
CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------- -------------------- ---------------------
September 30, December 31,
-------------------- ---------------------
1998 1997
-------------------- ---------------------
<S> <C> <C>
ASSETS
Cash and due from banks $18,647 $18,737
Interest-bearing deposits 710 4,025
- --------------------------------------------------------------------------------- -------------------- ---------------------
Cash and cash equivalents 19,357 22,762
- --------------------------------------------------------------------------------- -------------------- ---------------------
Securities:
Available for sale, at fair value (amortized cost of $71,513 in 1998 73,173 48,129
and $47,556 in 1997)
Held to maturity, at amortized cost (fair value of $38,479 in 1998 37,725 35,876
and $36,240 in 1997)
- --------------------------------------------------------------------------------- -------------------- ---------------------
Total securities 110,898 84,005
- --------------------------------------------------------------------------------- -------------------- ---------------------
Loans 234,571 223,909
Less allowance for loan losses 3,921 3,537
- --------------------------------------------------------------------------------- -------------------- ---------------------
Loans, net 230,650 220,372
- --------------------------------------------------------------------------------- -------------------- ---------------------
Real estate owned, net - 212
Premises and equipment, net 3,666 3,706
Excess of cost over fair value of net assets acquired, net 330 506
Accrued interest and other assets 5,299 5,003
- --------------------------------------------------------------------------------- -------------------- ---------------------
Total assets $370,200 $336,566
================================================================================= ==================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing checking $43,377 $36,999
Interest-bearing checking 92,621 88,501
Savings 67,019 60,782
Time deposits under $100 79,457 81,902
Time deposits $100 or more 17,315 17,411
- --------------------------------------------------------------------------------- -------------------- ---------------------
Total deposits 299,789 285,595
- --------------------------------------------------------------------------------- -------------------- ---------------------
Advances from Federal Home Loan Bank of Boston (FHLB) 39,535 23,145
Accrued interest and other liabilities 2,644 2,496
- --------------------------------------------------------------------------------- -------------------- ---------------------
Total liabilities 341,968 311,236
- --------------------------------------------------------------------------------- -------------------- ---------------------
Stockholders' equity:
Common stock, $0.01 par value
Shares authorized: 8,000,000
Shares outstanding: 1998 - 2,644,058; 1997 - 2,614,858 26 26
Additional paid-in capital 17,915 17,378
Retained earnings 9,196 7,548
Accumulated other comprehensive income 1,095 378
- --------------------------------------------------------------------------------- -------------------- ---------------------
Total stockholders' equity 28,232 25,330
- --------------------------------------------------------------------------------- -------------------- ---------------------
Total liabilities and stockholders' equity $370,200 $336,566
================================================================================= ==================== =====================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
NMBT CORP
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------- ---------------------------- ---------------------------
Nine Months Ended Three Months Ended
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------------- -------------- ------------- -------------
INTEREST AND DIVIDEND INCOME
<S> <C> <C> <C> <C>
Interest and fees on loans $13,638 $13,277 $4,659 $4,515
U.S. Treasury and agency securities 3,488 2,861 1,288 973
Municipal securities 626 409 215 164
Dividends on FHLB stock 87 79 30 28
Interest-bearing deposits 252 193 51 91
- -------------------------------------------------------------------------- ------------- -------------- ------------- -------------
Total interest and dividend income 18,091 16,819 6,243 5,771
- -------------------------------------------------------------------------- ------------- -------------- ------------- -------------
INTEREST EXPENSE
Interest-bearing checking 1,143 990 398 373
Savings 1,121 1,118 396 378
Time deposits under $100 3,185 3,274 1,045 1,122
Time deposits $100 or more 724 657 235 224
FHLB advances and capital leases 1,395 736 516 284
- -------------------------------------------------------------------------- ------------- -------------- ------------- -------------
Total interest expense 7,568 6,775 2,590 2,381
- -------------------------------------------------------------------------- ------------- -------------- ------------- -------------
Net interest and dividend income 10,523 10,044 3,653 3,390
Provision for loan losses 341 455 75 210
- -------------------------------------------------------------------------- ------------- -------------- ------------- -------------
Net interest and dividend income after provision for loan losses 10,182 9,589 3,578 3,180
- -------------------------------------------------------------------------- ------------- -------------- ------------- -------------
NONINTEREST INCOME
Service charges on deposit accounts 748 770 259 257
Other service charges, commissions and fees 285 273 104 91
Loan servicing fees 65 29 29 11
Gain on sale of securities 51 - - -
Net gain on sale of loans 718 259 323 107
Other income 96 98 41 43
- -------------------------------------------------------------------------- ------------- -------------- ------------- -------------
Total noninterest income 1,963 1,429 756 509
- -------------------------------------------------------------------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
NONINTEREST EXPENSE
Compensation, payroll taxes and benefits 4,539 4,011 1,574 1,368
Occupancy 779 724 274 243
Furniture and equipment 577 675 201 194
Data processing 278 199 111 75
Stationery, printing and supplies 350 305 122 107
Marketing, advertising and investor relations 310 283 98 68
Legal and professional fees 221 198 144 57
Other general and administrative expense 1,120 952 373 312
- -------------------------------------------------------------------------- ------------- -------------- ------------- -------------
Total general and administrative expense 8,174 7,347 2,897 2,424
Operations of real estate owned 46 15 (3) (47)
Amortization of intangible assets 176 176 59 59
- -------------------------------------------------------------------------- ------------- -------------- ------------- -------------
Total noninterest expense 8,396 7,538 2,953 2,436
- -------------------------------------------------------------------------- ------------- -------------- ------------- -------------
Income before provision for income taxes 3,749 3,480 1,381 1,253
Provision for income taxes 1,417 1,384 531 488
- -------------------------------------------------------------------------- ------------- -------------- ------------- -------------
Net income $2,332 $2,096 $850 $765
========================================================================== ============= ============== ============= =============
Basic earnings per share $0.88 $0.81 $0.32 $0.30
Diluted earnings per share $0.83 $0.76 $0.30 $0.27
- -------------------------------------------------------------------------- ------------- -------------- ------------- -------------
Average basic shares outstanding 2,639 2,593 2,639 2,593
Average diluted shares outstanding 2,811 2,745 2,811 2,745
- -------------------------------------------------------------------------- ------------- -------------- ------------- -------------
Cash dividends per share $0.260 $0.155 $0.090 $0.055
- -------------------------------------------------------------------------- ------------- -------------- ------------- -------------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
NMBT CORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
In thousands
<TABLE>
<CAPTION>
- ------------------------------------- ----------------------------------------- --------------------------------------------
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
- ------------------------------------- -------------------- -------------------- ----------------------- --------------------
<S> <C> <C> <C> <C>
Net Income $ 2,332 $ 2,096 $ 850 $ 765
Other comprehensive income,
net of tax:
Unrealized gains on
securities:
Unrealized holding gains
arising during period $ 751 $ 123 $ 778 $ 162
Less: reclassification
adjustment for gains
included in net income (34) -- -- --
------- ------- ------- -------
Other comprehensive income 717 123 778 162
======= ======= ======= =======
Comprehensive income $ 3,049 $ 2,219 $ 1,628 $ 927
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
NMBT CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
IN THOUSANDS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Nine Months Ended
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
-------------------- ---------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 2,332 $ 2,096
Adjustments to reconcile net income to net cash provided by
Operating activities:
Depreciation and amortization 574 687
Provision for loan losses 341 455
Net amortization of securities 154 103
Deferred income taxes 202 (48)
Realized securities gains, net (51) --
Loans originated for sale (61,464) (18,441)
Proceeds from loans sold, net 59,836 19,378
Gains from loan sales, net (718) (259)
Realized gains from real estate owned sales, net (42) (102)
Net increase in interest receivable (207) (419)
Net (increase) decrease in other assets (176) 122
Net increase in interest payable 61 68
Net increase in other liabilities 66 375
- ------------------------------------------------------------------------------- -------- --------
Net cash provided by operating activities 908 4,015
- ------------------------------------------------------------------------------- -------- --------
INVESTING ACTIVITIES
Purchase of held to maturity (HTM) securities (15,000) (4,996)
Net loan originations (8,731) (9,117)
Purchases of available for sale (AFS) securities (36,197) (17,233)
Net purchases of premises and equipment (357) (584)
Proceeds from real estate owned sales 267 340
Proceeds from maturities of AFS securities 10,046 3,726
Proceeds from maturities of HTM securities 13,046 5,911
Proceeds from sales of AFS securities 2,370 --
Purchases of FHLB stock (174) (218)
- ------------------------------------------------------------------------------- -------- --------
Net cash used for investing activities (34,730) (22,171)
- ------------------------------------------------------------------------------- -------- --------
FINANCING ACTIVITIES
Net increase in advances from FHLB 16,390 8,017
Net increase (decrease) in time deposits (2,541) 8,153
Net increase in checking and savings deposits 16,735 6,208
Cash dividends (685) (402)
Net proceeds from exercise of stock options 537 76
Other (19) (42)
- ------------------------------------------------------------------------------- -------- --------
Net cash provided by financing activities 30,417 22,010
- ------------------------------------------------------------------------------- -------- --------
Increase (decrease) in cash and cash equivalents (3,405) 3,854
Cash and cash equivalents, beginning of period 22,762 23,990
=============================================================================== ======== ========
Cash and cash equivalents, end of period $ 19,357 $ 27,844
=============================================================================== ======== ========
CASH PAID DURING PERIOD
Interest to depositors and creditors $ 7,507 $ 6,708
Income taxes 1,385 1,062
NON-CASH TRANSFERS
Transfer of loans to real estate owned 25 525
Net change in unrealized gains on AFS securities 717 123
Financed portion of sales of real estate owned 12 393
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
NMBT CORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
IN THOUSANDS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE RETAINED ACCUMULATED OTHER COMMON ADDITIONAL SHARES
INCOME EARNINGS COMPREHENSIVE STOCK PAID-IN OUTSTANDING
INCOME CAPITAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
JANUARY 1, 1997 $22,565 $5,195 $146 $26 $17,198 2,588
Net income 2,096 $2,096 2,096
Unrealized
gains on
securities 123 123 123
Proceeds from exercise
of stock options 76 76 12
Cash dividends (402) (402)
----------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1997 $24,458 $2,219 $6,889 $269 $26 $17,274 2,600
====================================================================================================
JANUARY 1, 1998 $25,330 $7,548 $378 $26 $17,378 2,615
Net income 2,332 $2,332 2,332
Unrealized
gains on
securities 717 717 717
Proceeds from exercise
of stock options 537 537 29
Cash dividends (684) (684)
----------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1998 $28,232 $3,049 $9,196 $1,095 $26 $17,915 2,644
====================================================================================================
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
NMBT CORP
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
NMBT CORP (the "Company"), a Delaware corporation formed in November, 1997, is
the bank holding company for NMBT (formerly The New Milford Bank & Trust
Company), a state-chartered commercial bank. The Company's activity is currently
limited to the holding of NMBT's outstanding common stock.
The interim unaudited consolidated financial statements of the Company have been
prepared in conformity with generally accepted accounting principles. Certain
financial information that is normally included in the financial statements
prepared in accordance with generally accepted accounting principles, but which
is not required for interim reporting purposes, has been condensed or omitted.
In preparing the interim financial statements, Management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ significantly from those estimates.
In the opinion of management, the accompanying interim unaudited consolidated
financial statements contain all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the Company's financial position as of
September 30, 1998, and the results of its operations and its cash flows for the
nine months then ended. The results of operations for the periods shown are not
necessarily indicative of the results to be expected for the year ending
December 31, 1998. The accompanying interim unaudited consolidated financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's 1997 Annual Report.
NOTE 2. SECURITIES
The aggregate amortized cost and estimated fair values of securities available
for sale at September 30, 1998 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
--------------------------------------------- -------------------------------------------------------
SEPTEMBER 30, 1998
--------------------------------------------- -------------------------------------------------------
Dollars in thousands AMORTIZED COST GROSS ESTIMATED
UNREALIZED FAIR VALUE
GAINS
--------------------------------------------- ----------------- --------------- ------------------
<S> <C> <C> <C>
U.S. Treasury and agency securities $48,055 $889 $48,944
Municipal securities 20,099 750 20,849
Mortgage-backed securities 1,424 21 1,445
--------------------------------------------- ----------------- --------------- ------------------
Total debt securities 69,578 1,660 71,238
FHLB Stock 1,935 - 1,935
============================================= ================= =============== ==================
Total securities available for sale $71,513 $1,660 $73,173
============================================= ================= =============== ==================
</TABLE>
8
<PAGE>
NMBT CORP
Form 10Q
September 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------- ----------------------------------------------------------------------
DECEMBER 31, 1997
- --------------------------------------------- ----------------------------------------------------------------------
Dollars in thousands AMORTIZED GROSS GROSS ESTIMATED
COST UNREALIZED UNREALIZED FAIR VALUE
GAINS LOSSES
- --------------------------------------------- ----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
U.S. Treasury and agency securities $24,615 $99 $19 $24,695
Municipal securities 16,968 418 1 17,385
Mortgage-backed securities 4,213 80 4 4,289
- --------------------------------------------- ----------------- ----------------- ---------------- -----------------
Total debt securities 45,796 597 24 46,369
FHLB Stock 1,760 - - 1,760
============================================= ================= ================= ================ =================
Total securities available for sale $47,556 $597 $24 $48,129
============================================= ================= ================= ================ =================
</TABLE>
The aggregate amortized cost and estimated fair values of securities held to
maturity at September 30, 1998 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------- ----------------------------------------------------------------------
SEPTEMBER 30, 1998
- --------------------------------------------- ----------------------------------------------------------------------
Dollars in thousands AMORTIZED GROSS GROSS ESTIMATED
COST UNREALIZED UNREALIZED FAIR VALUE
GAINS LOSSES
- --------------------------------------------- ----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
U.S. Treasury and agency securities $21,395 $471 $- $21,866
Mortgage-backed securities 16,330 296 13 16,613
- --------------------------------------------- ----------------- ----------------- ---------------- -----------------
Total securities held to maturity $37,725 $767 $13 $38,479
============================================= ================= ================= ================ =================
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------- ----------------------------------------------------------------------
DECEMBER 31, 1997
- --------------------------------------------- ----------------------------------------------------------------------
Dollars in thousands AMORTIZED GROSS GROSS ESTIMATED
COST UNREALIZED UNREALIZED FAIR VALUE
GAINS LOSSES
- --------------------------------------------- ----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
U.S. Treasury and agency securities $13,492 $96 $33 $13,555
Mortgage-backed securities 22,384 310 9 22,685
- --------------------------------------------- ----------------- ----------------- ---------------- -----------------
Total securities held to maturity $35,876 $406 $42 $36,240
============================================= ================= ================= ================ =================
</TABLE>
Securities with a carrying value of $3.0 million and $5.0 million were pledged
as collateral for public deposits as of September 30, 1998 and December 31,
1997, respectively.
9
<PAGE>
NMBT CORP
Form 10Q
September 30, 1998
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
- ------------------------------------------- ----------------------------- -----------------------------
In thousands SEPTEMBER 30, 1998 DECEMBER 31, 1997
- ------------------------------------------- ----------------------------- -----------------------------
<S> <C> <C>
LOANS
Real estate $196,910 $188,868
Commercial and industrial 18,282 17,818
Installment and education 7,705 8,994
Construction and development 10,880 7,299
Cash reserve and credit cards 794 930
=========================================== ============================= =============================
Total Loans $234,571 $223,909
=========================================== ============================= =============================
</TABLE>
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
----------------------------------------------------
In thousands SEPTEMBER 30, 1998 DECEMBER 31, 1997
- ------------------------------------------------------------------ -------------------------- -------------------------
<S> <C> <C>
Allowance for loan losses at beginning of year $3,537 $3,212
Provision for loan losses charged against income 341 582
Transfer to liability for estimated losses from off-balance
sheet credit instruments (40) (20)
Loan losses, net of recoveries 83 (237)
================================================================== ========================== =========================
Allowance for loan losses at end of period $3,921 $3,537
================================================================== ========================== =========================
</TABLE>
Loans to executive officers, principal stockholders, directors, companies of
which directors are principal owners, and individuals directly related to or
affiliated with directors and executive officers aggregated $2.52 million and
$2.50 million at September 30, 1998 and December 31, 1997, respectively.
NOTE 4. EARNINGS PER SHARE
Basic earnings per share are computed by dividing net income by the weighted
average number of common shares outstanding during the period. The computation
of diluted earnings per share is similar to the computation of basic earnings
per share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the dilutive
potential common shares, consisting solely of stock options, had been issued.
Weighted average common shares outstanding used to calculate basic and diluted
earnings per share for the nine-month periods ended September 30, 1998 and 1997
were as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------------------------------
In thousands SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------------------------------------ -------------------------- ----------------------------
<S> <C> <C>
Weighted average common shares:
Basic 2,639 2,593
Effect of dilutive stock options 172 152
========================== ============================
Diluted 2,811 2,745
========================== ============================
</TABLE>
10
<PAGE>
NMBT CORP
Form 10Q
September 30, 1998
NOTE 5. COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 (SFAS 130), "Reporting Comprehensive Income". SFAS 130
requires the reporting of comprehensive income in addition to net income from
operations. Comprehensive income is a more inclusive financial reporting
methodology that includes disclosure of certain financial information that
historically has not been recognized in the calculation of net income.
The Company held securities classified as available for sale at September 30,
1998 and December 31, 1997, which had unrealized gains. The before-tax and
after-tax amounts for these unrealized gains, as well as the tax
(expense)/benefits, are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------------------------------- ------------------------------------------
In thousands BEFORE TAX AFTER TAX BEFORE TAX AFTER TAX
TAX (EXPENSE)/ TAX (EXPENSE)/
BENEFIT BENEFIT
- ------------------------------------- ------------- -------------- -------------- ---- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Unrealized holding gains $1,710 ($581) $1,129 $573 ($195) $378
Reclassification adjustment for (51) 17 (34) - - -
gains included in net income
===================================== ============= ============== ============== ==== ============= =============== =============
Accumulated other comprehensive $1,659 ($564) $1,095 $573 ($195) $378
income
===================================== ============= ============== ============== ==== ============= =============== =============
</TABLE>
11
<PAGE>
NMBT CORP
Form 10Q
September 30, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company, a Delaware corporation formed in 1997, is the registered bank
holding company for NMBT (formerly The New Milford Bank & Trust Company), a
wholly owned subsidiary. NMBT, headquartered in New Milford, Connecticut, is a
state-chartered bank and trust company founded in 1975. The holding company
structure provides the Company with maximum flexibility in pursuing financial
opportunities. The Company's activity is currently limited to the holding of
NMBT's outstanding common stock. NMBT is the Company's only subsidiary and its
primary investment. The net income of the Company is presently derived entirely
from the business of NMBT.
FORWARD-LOOKING STATEMENTS
The Company has made, and may continue to make, various forward-looking
statements with respect to earnings, credit quality and other financial and
business matters for periods subsequent to September 30, 1998. The Company
cautions that these forward-looking statements are subject to numerous
assumptions, risks and uncertainties, and that statements relating to subsequent
periods increasingly are subject to greater uncertainty because of the increased
likelihood of changes in underlying factors and assumptions. Actual results
could differ materially from forward-looking statements.
In addition to those factors previously disclosed by the Company and those
factors identified elsewhere herein, the following factors could cause actual
results to differ materially from such forward-looking statements: competitive
pressures on loan and deposit product pricing; other actions of competitors;
changes in economic conditions; the extent and timing of actions of the Federal
Reserve Board; customer deposit disintermediation; changes in customers'
acceptance of NMBT's products and services; and the extent and timing of
legislative and regulatory actions and reform.
The Company's forward-looking statements speak only as of the date on which such
statements are made. By making any forward-looking statements, the Company
assumes no duty to update them to reflect new, changing or unanticipated events
or circumstances.
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Net income increased 11.1% to $0.85 million, or $0.30 per diluted share for the
quarter ended September 30, 1998, as compared to net income of $0.77 million, or
$0.27 per diluted share for the third quarter of 1997. For the nine months ended
September 30, 1998, net income was $2.33 million, or $0.83 per diluted share, an
increase of 11.3% over the same nine-month period in 1997.
Net interest and dividend income for the quarter ended September 30, 1998
increased by $0.26 million or 7.8%. Net interest and dividend income for the
first three quarters of 1998 increased by $0.48 million or 4.8%, from the first
three quarters of 1997. The net interest spread, the difference between the
yield earned on loans and investments and the rate paid on deposits and
borrowings, was 4.4% for the nine months ended September 30, 1998, and 4.7% for
the nine months ended September 30, 1997. The increase in net interest income is
a reflection of growth in interest-earning assets and was accomplished despite a
contraction in the interest rate spread caused by seasonal factors, customer
demand for fixed rate loans and increased price competition for loans and
deposits.
12
<PAGE>
NMBT CORP
Form 10Q
September 30, 1998
Management estimates the allowance for loan losses based on an evaluation of the
Company's past loan experience, known and inherent risks in the portfolio,
estimated value of underlying collateral, and current economic conditions.
Establishing the allowance for loan losses involves significant management
judgments using the best information available at the time. Those judgments are
subject to further review by various sources, including the Company's
regulators. Adjustments to the allowance for loan losses may be necessary in the
future based on changes in economic and real estate market conditions, further
information obtained regarding known problem loans, the identification of
additional problem loans, and other factors. The provision for loan losses for
the quarter ended September 30, 1998 was $0.07 million and for the first three
quarters of 1998 was $0.34 million as compared to $0.21 million and $0.46
million respectively for the same periods in 1997. In management's judgment, the
allowance for loan losses is adequate to absorb probable losses in the existing
portfolio.
Also contributing to the Company's improved financial performance was a 48.7%
increase in noninterest income comparing the third quarter of 1998 to the third
quarter of 1997, and an increase of 37.4% in noninterest income, comparing the
first three quarters of 1998 to the first three quarters of 1997, due to strong
activity in the mortgage banking area and increased fee income.
Noninterest expenses were up 21.3% from the third quarter of the previous year
and 11.4% from the first three quarters of the previous year, due principally to
the opening of the Southbury Office and formation of the holding company. In
addition, the bank has added staff to handle increasing mortgage volume. This
increased mortgage activity has been an important factor in the continued
growth. From September 30, 1997 to September 30, 1998, total assets have grown
12.1%, loans grew 6.7% and deposits have grown 6.9%. These growth rates have
contributed to increased overhead.
Total assets increased 10.0% to $370.20 million as of September 30, 1998 from
$336.57 million as of December 31, 1997. Deposits grew by $14.19 million and
Federal Home Loan Bank net advances of $16.39 million were borrowed to match
funds for selected fixed rate commercial loans and securities.
In late 1997, NMBT opened its tenth full service office in Southbury,
Connecticut. This is the bank's first office in New Haven County and NMBT
intends to look for other Fairfield County and New Haven County locations for
further expansion. The opening of the Southbury Office and the completion of the
reorganization to a holding company structure have had a negative impact on
earnings as the cost of these changes are absorbed.
IMPAIRED LOANS
The recorded investment in loans considered to be impaired was $3.01 million at
September 30, 1998, and $3.59 million at December 31, 1997, and consists of
loans for which an allowance of $0.34 million and $0.38 million, for the same
periods respectively, has been established. Income recorded on impaired loans
during the first nine months of 1998 for the portion of this period that they
were impaired was $0.05 million. Average investment in impaired loans during
this same period of 1998 was $3.09 million as compared to $3.54 million during
the first three quarters of 1997. Nonaccruing loans at September 30, 1998,
included $2.18 million of loans considered to be impaired, as compared with
$2.22 million at December 31, 1997.
13
<PAGE>
NMBT CORP
Form 10Q
September 30, 1998
NONPERFORMING ASSETS
Nonperforming loans consist principally of residential and commercial loans
collateralized by real estate and real estate acquired through foreclosures
(real estate owned). Nonperforming assets and relevant ratios were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------ ------------------------- -------------------------
Dollars in thousands SEPTEMBER 30, 1998 DECEMBER 31, 1997
- ------------------------------------------------------------------------ ------------------------- -------------------------
<S> <C> <C>
Total nonperforming loans $2,744 $3,208
Real estate owned - 212
======================================================================== ========================= =========================
Total nonperforming assets $2,744 $3,420
======================================================================== ========================= =========================
Total nonperforming loans/Total loans 1.17% 1.43%
Total nonperforming assets/Total assets 0.74% 1.02%
Allowance for loan losses/Total nonperforming loans 142.90% 110.23%
</TABLE>
LIQUIDITY MANAGEMENT
For information about the Company's liquidity position, see Management's
Discussion and Analysis in its 1997 Annual Report to Stockholders, which was
also incorporated into the Company's Annual Report to the Securities and
Exchange Commission on Form 10K. There has been no material change in that data
since it was reported.
CAPITAL
At September 30, 1998, the Company had $28.23 million in stockholders' equity,
compared with $25.33 million at December 31, 1997. The growth in stockholders'
equity from the end of 1997 reflected a $0.72 million adjustment for the
increase in unrealized gains on securities available for sale in accordance with
SFAS 115, proceeds of $0.54 million from the exercise of stock options, the
retention of $2.33 million in net earnings, less the cash dividends paid on
February 9, May 13, and August 5, 1998, totaling $0.69 million.
The following reflects the Company's capital ratios (which exclude intangible
assets and the SFAS 115 adjustment):
<TABLE>
<CAPTION>
- ------------------------------------- --------------------------- --------------------------- ---------------------------
Dollars in thousands SEPTEMBER 30, 1998 DECEMBER 31, 1997 REGULATORY MINIMUM
- ------------------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Risk-based capital ratios:
Tier 1 capital ratio 12.66% 12.19% 4.00%
Total capital ratio 13.92% 13.45% 8.00%
Leverage ratio 7.39% 7.36% 3.00%
Tier 1 capital $26,741 $24,428
Total risk-based capital $29,400 $26,948
Total risk-adjusted assets $211,201 $200,322
</TABLE>
There are no significant differences between the Company's and NMBT's capital
and capital ratios.
For further information about the Company's capital, see Management's Discussion
and Analysis in its 1997 Annual Report to Stockholders, which was also
incorporated into the Company's Annual Report to the Securities and Exchange
Commission on Form 10K.
14
<PAGE>
NMBT CORP
Form 10Q
September 30, 1998
YEAR 2000 READINESS
BACKGROUND
The Company's overall goal is to be "Year 2000 Ready," which means that critical
systems, devices, applications or business relationships have been evaluated and
are expected to be suitable for continued use into and beyond the Year 2000. In
the event the aforementioned are not suitable for continued use or malfunction,
contingency plans will be in place.
The Company began addressing Year 2000 in 1996 by establishing a Year 2000
committee to identify, monitor and document Year 2000 activities and report
those findings to the Board of Directors. Senior management and the Board of
Directors receive regular updates on the status of the Company's Year 2000 Plan.
The Company is using a multi-phase approach to Year 2000 which includes
inventory, assessment, remediation, testing and contingency planning. The
inventory and assessment phases were completed in 1997. As a part of the
assessment process, remediation strategies were identified and estimates of
remediation costs were developed. The Company has utilized both internal and
external resources to remediate and test for Year 2000 readiness. The majority
of the Company's systems requiring remediation have been modified or replaced.
The Company plans to test the remaining systems by the end of 1998.
The Company initiated formal communications with government agencies, suppliers
and large customers to determine the extent to which the Company is vulnerable
to those third parties' failure to remediate the Year 2000 Issue. While this
information will be used to mitigate these risks, there can be no assurance that
any third party systems will be Year 2000 compliant on a timely basis or that
noncompliance will not have an adverse material impact on the Company.
COSTS
The Company currently plans to complete the Year 2000 Issue by June 30, 1999.
The total remaining cost of the Year 2000 issue is estimated at less than
$50,000. To date, the Company has incurred costs of $20,050 which have been
expensed as incurred. The costs of the project and the date on which the Company
plans to complete Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third parties' Year
2000 readiness and other factors.
RISK ASSESSMENT
At this time, the Company believes that completed and planned modifications of
its internal systems and equipment will allow it to be Year 2000 compliant in a
timely manner. There can be no assurance, however, that the Company's internal
systems or equipment or those of third parties on which the Company relies will
be Year 2000 compliant in a timely manner or that the Company's or third
parties' contingency plans will mitigate the effects of any noncompliance. The
failure of the systems or equipment of the Company or third parties (which the
Company believes is the most likely worst case scenario) could result in the
reduction or suspension of the Company's operations and could have a material
adverse effect on the Company's business or consolidated financial statements.
CONTINGENCY PLANNING
The Company is revising its existing contingency plans to address internal and
external issues specific to Year 2000 to the extent practicable. These
contingency plan revisions are expected to be completed by September 30,
15
<PAGE>
NMBT CORP
Form 10Q
September 30, 1998
1999. The plans, which are intended to enable the Company to continue to operate
to the extent that it can do so prudently, include performing certain processes
manually; repairing or obtaining replacement systems; changing suppliers; and
reducing or suspending operations. The Company believes, however, that due to
the widespread nature of the potential Year 2000 Issue, the contingency planning
process is an ongoing one which will require further modifications as the
Company obtains additional information regarding (1) the Company's internal
systems and equipment during the remediation and testing phases of its Year 2000
project and (2) the status of third party Year 2000 readiness.
FORWARD-LOOKING STATEMENTS
The preceding "Year 2000 Readiness" discussion contains various forward-looking
statements which represent the Company's beliefs or expectations regarding
future events. When used in the "Year 2000 Readiness" discussion, the word
"believes," "expects," and "estimates" and similar expressions are intended to
identify forward-looking statements. Forward-looking statements include, without
limitation, the Company's expectations as to when it will complete the
remediation and testing phases of its Year 2000 project as well as its Year 2000
contingency plans; its estimated cost of achieving Year 2000 readiness; and the
Company's belief that its internal systems and equipment will be Year 2000
compliant in a timely manner. All forward-looking statements involve a number of
risks and uncertainties that could cause the actual results to differ materially
from the projected results. Factors that may cause these differences include,
but are not limited to, the availability of qualified personnel and other
information technology resources; the ability to replace embedded computer chips
in affected systems or equipment; and the actions of government agencies or
other third parties with respect to Year 2000 issues.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Quantitative and qualitative disclosure about market risk is presented at
December 31, 1997 in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 31, 1998. There have been no
material changes in the Company's market risk at September 30, 1998, compared to
December 31, 1997. The following is an update of the discussion provided
therein:
GENERAL. The Company's largest component of market risk continues to be interest
rate risk. Virtually all of this risk continues to reside at the bank level.
NMBT still is not subject to foreign currency exchange or commodity price risk.
At September 30, 1998, neither the Company nor NMBT owned any trading assets,
nor did they utilize hedging transactions such as interest rate swaps and caps.
ASSETS, DEPOSIT LIABILITIES AND BORROWINGS. There have been no material changes
in the composition of assets, deposit liabilities or borrowings from December
31, 1997 to September 30, 1998.
GAP ANALYSIS. There have been no material changes in the one-year cumulative
interest sensitivity gap as a percentage of total assets at September 30, 1998,
from December 31, 1997.
INTEREST RATE RISK COMPLIANCE. NMBT continues to monitor the impact of interest
rate volatility upon net interest income in the same manner as at December 31,
1997. There have been no changes in the board approved limits of acceptable
variance in net interest income and net portfolio value at September 30, 1998,
and the projected changes continue to fall within the board approved limits at
all levels of potential interest rate volatility.
16
<PAGE>
NMBT CORP
Form 10Q
September 30, 1998
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NMBT is a defendant in certain claims and legal actions that arose in the
ordinary course of business. In the opinion of management, after consultation
with legal counsel, these proceedings, in the aggregate, are not expected to
have a materially adverse effect on the financial position, results of
operations or liquidity of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Stockholders was held on May 5, 1998. There were no
solicitations in opposition to any of the Board of Directors' nominees for the
Board of Directors or other motions acted on at the Meeting. The following
matters were considered and voted on, as certified by the Judge of Election at
the Meeting:
1. Ruth Henderson, Terry C. Pellegrini and Arthur C. Weinshank were each
elected to serve as Directors until the Annual Meeting of Stockholders to
be held in the year 2001 who, with the six Directors, Kevin L. Dumas, Louis
A. Funk, Jr., Lawrence Greenhaus, Robert W. X. Martin, Walter G. Southworth
and Harry H. Taylor, Jr., whose terms of office did not expire at the
Meeting, constitute the full Board. All nominees received at least
2,202,745, or 96.47%, votes cast FOR.
2. An Amendment to the 1994 Stock Option Plan of the Company's operating
subsidiary, NMBT, increasing the number of shares issuable thereunder to
600,000 was approved. Votes cast FOR this amendment were 1,755,293.
3. The Directors' appointment of Deloitte & Touche LLP as the Company's
independent auditors for the year ending December 31, 1998 was ratified by
2,238,283 votes cast FOR.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit 27. Financial Data Schedule (included only with EDGAR
filing).
(B) REPORTS ON FORM 8-K
None
17
<PAGE>
SIGNATURES
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.
NMBT CORP
------------------------------------------------------
(Registrant)
November 12, 1998 /s/ Jay C. Lent
- ---------------------- ------------------------------------------------------
Date Jay C. Lent, Executive Vice President, Chief Financial
Officer and Secretary
November 12, 1998 /s/ Deborah L. Fish
- ---------------------- -----------------------------------------------------
Date Deborah L. Fish, Treasurer
18
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S SEPTEMBER 30, 1998 UNAUDITED STATEMENT OF CONDITION, STATEMENT OF
OPERATION AND STATEMENT OF CASH FLOWS, AND NOTES THERETO, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<NAME> NMBT CORP
<CIK> 0001046520
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 18,647
<INT-BEARING-DEPOSITS> 710
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 73,173
<INVESTMENTS-CARRYING> 37,725
<INVESTMENTS-MARKET> 38,479
<LOANS> 234,571
<ALLOWANCE> 3,921
<TOTAL-ASSETS> 370,200
<DEPOSITS> 299,789
<SHORT-TERM> 12,300
<LIABILITIES-OTHER> 2,644
<LONG-TERM> 27,235
26
0
<COMMON> 0
<OTHER-SE> 28,206
<TOTAL-LIABILITIES-AND-EQUITY> 370,200
<INTEREST-LOAN> 13,638
<INTEREST-INVEST> 4,201
<INTEREST-OTHER> 252
<INTEREST-TOTAL> 18,091
<INTEREST-DEPOSIT> 6,173
<INTEREST-EXPENSE> 7,568
<INTEREST-INCOME-NET> 10,523
<LOAN-LOSSES> 341
<SECURITIES-GAINS> 51
<EXPENSE-OTHER> 8,396
<INCOME-PRETAX> 3,749
<INCOME-PRE-EXTRAORDINARY> 2,332
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,332
<EPS-PRIMARY> 0.88
<EPS-DILUTED> 0.83
<YIELD-ACTUAL> 7.50
<LOANS-NON> 2,744
<LOANS-PAST> 37
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,537
<CHARGE-OFFS> 177
<RECOVERIES> 260
<ALLOWANCE-CLOSE> 3,921
<ALLOWANCE-DOMESTIC> 3,921
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
