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 March 31, 1999
---------------------------------------------
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)
Delaware 06-1496548
- ---------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Main Street, New Milford, Connecticut 06776-2400
- ---------------------------------------- -------------------
(Address of principal executive offices) (ZIP Code)
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 May 12, 1999 was 2,663,358.
<PAGE>
NMBT CORP
Form 10Q
March 31, 1999
TABLE OF CONTENTS
Page
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Condition (Unaudited)
March 31, 1999 and December 31, 1998 3
Consolidated Statements of Operations (Unaudited)
Three Months Ended March 31, 1999 and March 31, 1998 4
Consolidated Statements of Comprehensive Income (Unaudited)
Three Months Ended March 31, 1999 and March 31, 1998 5
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 1999 and March 31, 1998 6
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)Three Months Ended March 31, 1999 and March 31, 1998 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
<PAGE>
NMBT CORP
CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------- -------------- ------------------
March 31, 1999 December 31, 1998
-------------- ------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 14,170 $ 13,934
Interest-bearing deposits 11,957 13,730
- ----------------------------------------------------------------------------- ---------- ----------
Cash and cash equivalents 26,127 27,664
- ----------------------------------------------------------------------------- ---------- ----------
Securities:
Available for sale, at fair value (amortized cost of $74,793 in 1999 74,958 76,326
and $75,302 in 1998)
Held to maturity, at amortized cost (fair value of $43,688 in 1999 43,855 40,364
and $40,769 in 1998)
- ----------------------------------------------------------------------------- ---------- ----------
Total securities 118,813 116,690
- ----------------------------------------------------------------------------- ---------- ----------
Loans 230,365 229,945
Less allowance for loan losses 4,005 3,839
- ----------------------------------------------------------------------------- ---------- ----------
Loans, net 226,360 226,106
- ----------------------------------------------------------------------------- ---------- ----------
Real estate owned, net 204 --
Premises and equipment, net 3,478 3,546
Excess of cost over fair value of net assets acquired, net 212 271
Accrued interest and other assets 5,998 6,204
- ----------------------------------------------------------------------------- ---------- ----------
Total assets $ 381,192 $ 380,481
============================================================================= ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing checking $ 40,144 $ 44,414
Interest-bearing checking 98,353 99,216
Savings 73,392 72,334
Time deposits under $100 76,562 77,662
Time deposits $100 or more 19,245 17,997
- ----------------------------------------------------------------------------- ---------- ----------
Total deposits 307,696 311,623
- ----------------------------------------------------------------------------- ---------- ----------
Advances from Federal Home Loan Bank of Boston (FHLB) 42,312 37,672
Accrued interest and other liabilities 2,577 2,498
- ----------------------------------------------------------------------------- ---------- ----------
Total liabilities 352,585 351,793
- ----------------------------------------------------------------------------- ---------- ----------
Stockholders' equity:
Common stock, $0.01 par value
Shares authorized: 8,000,000
Shares outstanding: 1999 - 2,663,358; 1998 - 2,663,358 27 27
Additional paid-in capital 18,143 18,143
Retained earnings 10,328 9,842
Accumulated other comprehensive income, net of tax 109 676
- ----------------------------------------------------------------------------- ---------- ----------
Total stockholders' equity 28,607 28,688
- ----------------------------------------------------------------------------- ---------- ----------
Total liabilities and stockholders' equity $ 381,192 $ 380,481
============================================================================= ========== ==========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
NMBT CORP
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------- ----------------------------
THREE MONTHS ENDED
MARCH 31,
1999 1998
-------------- -------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $ 4,220 $ 4,468
U.S. Treasury and agency securities 1,364 1,032
Municipal securities 240 199
Corporate securities 33 --
Dividends on FHLB stock 32 28
Interest-bearing deposits 77 102
- -------------------------------------------------------------------------- ------- -------
Total interest and dividend income 5,966 5,829
- -------------------------------------------------------------------------- ------- -------
INTEREST EXPENSE
Interest-bearing checking 318 365
Savings 394 357
Time deposits under $100 918 1,077
Time deposits $100 or more 241 245
FHLB advances and capital leases 521 391
- -------------------------------------------------------------------------- ------- -------
Total interest expense 2,392 2,435
- -------------------------------------------------------------------------- ------- -------
Net interest and dividend income 3,574 3,394
Provision for loan losses 167 141
- -------------------------------------------------------------------------- ------- -------
Net interest and dividend income after provision for loan losses 3,407 3,253
- -------------------------------------------------------------------------- ------- -------
NONINTEREST INCOME
Service charges on deposit accounts 252 242
Other service charges, commissions and fees 88 89
Loan servicing fees 50 15
Gain on sale of securities -- 51
Net gains from loans sold 205 145
Other income 85 26
- -------------------------------------------------------------------------- ------- -------
Total noninterest income 680 568
- -------------------------------------------------------------------------- ------- -------
NONINTEREST EXPENSE
Compensation, payroll taxes and benefits 1,613 1,469
Occupancy 281 257
Furniture and equipment 199 188
Data processing 85 78
Stationery, printing and supplies 98 122
Marketing, advertising and investor relations 168 101
Legal and professional fees 128 48
Other general and administrative expense 375 388
- -------------------------------------------------------------------------- ------- -------
Total general and administrative expense 2,947 2,651
Operations of real estate owned (159) 1
Amortization of intangible assets 59 59
- -------------------------------------------------------------------------- ------- -------
Total noninterest expense 2,847 2,711
- -------------------------------------------------------------------------- ------- -------
Income before provision for income taxes 1,240 1,110
Provision for income taxes 488 414
- -------------------------------------------------------------------------- ------- -------
Net income $ 752 $ 696
========================================================================== ======= =======
Basic earnings per share $ 0.28 $ 0.26
Diluted earnings per share $ 0.27 $ 0.25
- -------------------------------------------------------------------------- ------- -------
Average basic shares outstanding 2,663 2,632
Average diluted shares outstanding 2,803 2,807
- -------------------------------------------------------------------------- ------- -------
Cash dividends per share $ 0.10 $ 0.08
- -------------------------------------------------------------------------- ------- -------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
NMBT CORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
IN THOUSANDS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------- -----------------------------------------
THREE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1998
- -------------------------------------------------------------------------- -------------------- --------------------
<S> <C> <C>
Net Income $ 752 $ 696
Other comprehensive income,
net of tax:
Unrealized net losses on
securities:
Unrealized net holding
losses arising during
period $(567) $ (50)
Less: reclassification
adjustment for gains
included in net income -- (34)
- -------------------------------------------------------------------------- ----- -----
Other comprehensive income (567) (84)
========================================================================== ===== =====
Comprehensive income $ 185 $ 612
========================================================================== ===== =====
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
NMBT CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
IN THOUSANDS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------- ------------------------------------------
Three Months Ended
MARCH 31, 1999 MARCH 31, 1998
-------------------- ---------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 752 $ 696
Adjustments to reconcile net income to net cash provided by
Operating activities:
Depreciation and amortization 199 189
Provision for loan losses 167 141
Net amortization of securities 70 47
Deferred income taxes 156 1
Realized securities gains, net -- (51)
Loans originated for sale (24,347) (11,425)
Proceeds from loans sold, net 25,686 11,801
Gains from loans sold, net (205) (145)
Realized gains from real estate owned sales, net (198) (21)
(Increase) decrease in interest receivable 421 (13)
(Increase) decrease in other assets 161 (172)
Increase in interest payable 36 63
Increase (decrease) in other liabilities 43 (98)
- --------------------------------------------------------------------------------- -------- --------
Net cash provided by operating activities 2,941 1,013
- --------------------------------------------------------------------------------- -------- --------
INVESTING ACTIVITIES
Purchases of held to maturity (HTM) securities (7,000) (10,000)
Net loan originations (1,983) (860)
Purchases of available for sale (AFS) securities (1,526) (8,552)
Net purchases of premises and equipment (72) (142)
Proceeds from sales of real estate owned 182 170
Proceeds from maturities of AFS securities 2,127 7,712
Proceeds from maturities of HTM securities 3,483 5,995
Proceeds from sales of AFS securities -- 2,370
Purchases of FHLB stock (136) --
- --------------------------------------------------------------------------------- -------- --------
Net cash used for investing activities (4,925) (3,307)
- --------------------------------------------------------------------------------- -------- --------
FINANCING ACTIVITIES
Net increase in advances from FHLB 4,640 7,091
Net increase in time deposits 148 1,779
Net increase (decrease) in checking and savings deposits (4,075) 4,840
Cash dividends (266) (210)
Net proceeds from exercise of stock options -- 401
Other -- (8)
- --------------------------------------------------------------------------------- -------- --------
Net cash provided by financing activities 447 13,893
- --------------------------------------------------------------------------------- -------- --------
Increase (decrease) in cash and cash equivalents (1,537) 11,599
Cash and cash equivalents, beginning of period 27,664 22,762
================================================================================= ======== ========
Cash and cash equivalents, end of period $ 26,127 $ 34,361
================================================================================= ======== ========
CASH PAID DURING PERIOD
Interest to depositors and creditors $ 2,357 $ 2,372
Income taxes 139 449
NON-CASH TRANSFERS
Transfer of loans to real estate owned 339 --
Net change in unrealized gains on AFS securities (567) (84)
Financed portion of sales of real estate owned 151 12
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
NMBT CORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
IN THOUSANDS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETAINED ACCUMULATED OTHER COMMON STOCK ADDITIONAL SHARES
EARNINGS COMPREHENSIVE PAID-IN CAPITAL OUTSTANDING
INCOME
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
JANUARY 1, 1998 $ 25,330 $ 7,548 $ 378 $ 26 $ 17,378 2,615
Net income 696 696
Comprehensive income (84) (84)
Proceeds from exercise
of stock options 401 401 25
Cash dividends (210) (210)
-------------------------------------------------------------------------------------------
MARCH 31, 1998 $ 26,133 $ 8,034 $ 294 $ 26 $ 17,779 2,640
===========================================================================================
JANUARY 1, 1999 $ 28,688 $ 9,842 $ 676 $ 27 $ 18,143 2,663
Net income 752 752
Comprehensive income (567) (567)
Cash dividends (266) (266)
-------------------------------------------------------------------------------------------
MARCH 31, 1999 $ 28,607 $ 10,328 $ 109 $ 27 $ 18,143 2,663
===========================================================================================
</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 registered bank holding company for NMBT, a wholly owned subsidiary. NMBT is
a state-chartered commercial bank and is the Company's only subsidiary and its
primary investment.
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
March 31, 1999, and the results of its operations and its cash flows for the
three 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, 1999. The accompanying interim unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's 1998 Annual Report.
NOTE 2. SECURITIES
The aggregate amortized cost and estimated fair values of securities available
for sale at March 31, 1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------- ----------------------------------------------------------------------
MARCH 31, 1999
- -------------------------------------------- ----------------------------------------------------------------------
Dollars in thousands AMORTIZED GROSS GROSS ESTIMATED
COST UNREALIZED UNREALIZED FAIR VALUE
GAINS LOSSES
- -------------------------------------------- ----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
U.S. Treasury and agency $48,179 $62 $434 $47,807
Municipal 22,307 577 16 22,868
Mortgage-backed 1,108 20 - 1,128
Corporate 1,083 - 44 1,039
- -------------------------------------------- ----------------- ---------------- ----------------- -----------------
Total debt securities 72,677 659 494 72,842
FHLB Stock 2,116 - - 2,116
============================================ ================= ================ ================= =================
Total securities available for sale $74,793 $659 $494 $74,958
============================================ ================= ================ ================= =================
</TABLE>
8
<PAGE>
NMBT CORP
Form 10Q
March 31, 1999
<TABLE>
<CAPTION>
- --------------------------------------------- ----------------------------------------------------------------------
DECEMBER 31, 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 $50,204 $434 $140 $50,498
Municipal 20,797 698 2 21,493
Mortgage-backed 1,236 19 - 1,255
Corporate 1,085 15 - 1,100
- --------------------------------------------- ----------------- ----------------- ---------------- -----------------
Total debt securities 73,322 1,166 142 74,346
FHLB Stock 1,980 - - 1,980
============================================= ================= ================= ================ =================
Total securities available for sale $75,302 $1,166 $142 $76,326
============================================= ================= ================= ================ =================
</TABLE>
The aggregate amortized cost and estimated fair values of securities held to
maturity at March 31, 1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------- ----------------------------------------------------------------------
MARCH 31, 1999
- --------------------------------------------- ----------------------------------------------------------------------
Dollars in thousands AMORTIZED GROSS GROSS ESTIMATED
COST UNREALIZED UNREALIZED FAIR VALUE
GAINS LOSSES
- -------------------------------------------- ----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
U.S. Treasury and agency $30,008 $46 $333 $29,721
Mortgage-backed 12,800 181 12 12,969
Corporate 1,047 - 49 998
- --------------------------------------------- ----------------- ----------------- ---------------- -----------------
============================================= ================= ================= ================ =================
Total securities held to maturity $43,855 $227 $394 $43,688
============================================= ================= ================= ================ =================
<CAPTION>
- --------------------------------------------- ----------------------------------------------------------------------
DECEMBER 31, 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 $25,008 $250 $24 $25,234
Mortgage-backed 14,308 207 17 14,498
Corporate 1,048 - 11 1,037
- --------------------------------------------- ----------------- ----------------- ---------------- -----------------
============================================= ================= ================= ================ =================
Total securities held to maturity $40,364 $457 $52 $40,769
============================================= ================= ================= ================ =================
</TABLE>
Securities with a carrying value of $3.1 million and $3.0 million were pledged
as collateral for public deposits as of March 31, 1999 and December 31, 1998,
respectively.
9
<PAGE>
NMBT CORP
Form 10Q
March 31, 1999
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
- ------------------------------------------- ----------------------------- -----------------------------
In thousands MARCH 31, 1999 DECEMBER 31, 1998
- ------------------------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Real estate $191,883 $192,381
Commercial and industrial 17,133 16,107
Installment and education 6,550 7,137
Construction and development 14,003 13,443
Cash reserve and credit cards 796 877
=========================================== ============================= =============================
Total Loans $230,365 $229,945
=========================================== ============================= =============================
</TABLE>
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
----------------------------------------------------
In thousands MARCH 31, 1999 DECEMBER 31, 1998
- ------------------------------------------------------------------ -------------------------- -------------------------
<S> <C> <C>
Allowance for loan losses at beginning of year $3,839 $3,537
Provision for loan losses charged against income 167 371
Transfer to liability for estimated losses from off-balance
sheet credit instruments - (110)
Loan losses, net of recoveries (1) 41
================================================================== ========================== =========================
Allowance for loan losses at end of period $4,005 $3,839
================================================================== ========================== =========================
</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 $2.28 million and
$2.50 million at March 31, 1999 and December 31, 1998, 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 three-month periods ended March 31, 1999 and 1998
were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------
In thousands MARCH 31, 1999 MARCH 31, 1998
------------------------------------------------ -------------------------- ----------------------------
<S> <C> <C>
Weighted average common shares:
Basic 2,663 2,632
Effect of dilutive stock options 140 175
================================================ ========================== ============================
Diluted 2,803 2,807
================================================ ========================== ============================
</TABLE>
10
<PAGE>
NMBT CORP
Form 10Q
March 31, 1999
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 March 31, 1999
and December 31, 1998, 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>
March 31, 1999 December 31, 1998
------------------------------------------- ------------------------------------------
In thousands BEFORE TAX AFTER BEFORE TAX AFTER
TAX (EXPENSE)/ TAX TAX (EXPENSE)/ TAX
BENEFIT BENEFIT
- ------------------------------------- ------------- -------------- -------------- ---- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Unrealized holding gains $165 ($56) $109 $1,075 ($365) $710
Reclassification adjustment
for gains included in net
income - - - (51) 17 (34)
===================================== ============= ============== ============== ==== ============= =============== =============
Accumulated
other
comprehensive income $165 ($56) $109 $1,024 ($348) $676
===================================== ============= ============== ============== ==== ============= =============== =============
</TABLE>
11
<PAGE>
NMBT CORP
Form 10Q
March 31, 1999
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, a wholly owned subsidiary formed in 1975. NMBT is the
Company's only subsidiary and its primary investment.
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 March 31, 1999. 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 8.1% to $0.75 million, or $0.27 per diluted share for the
first quarter ended March 31, 1999, as compared to net income of $0.69 million,
or $0.25 per diluted share for the first quarter of 1998. The increase in net
income was accomplished despite a $0.13 million charge to the tax provision in
connection with the formation of NMBT Mortgage Company, a Passive Investment
Company ("PIC"), to take advantage of recent changes in Connecticut tax
statutes. Effective January 1, 1999, the Connecticut statute allows NMBT to
transfer mortgages into a PIC. Income of the PIC and its dividends to NMBT are
exempt from the Connecticut Corporation Business Tax. Therefore, for fiscal 1999
NMBT's effective tax rate is expected to be approximately 3 percent lower than
in fiscal 1998. The formation of the PIC has required NMBT to establish a
valuation allowance against existing deferred state tax assets that are not
expected to be realized in future years. Accordingly, NMBT's tax provision for
the quarter ended March 31, 1999 includes a charge of $0.13 million. Management
anticipates that the PIC will benefit net income for the remainder of 1999 and
that this charge will be recovered by June 30, 1999.
Net interest and dividend income for the quarter ended March 31, 1999 increased
by $0.18 million or 5.3%. The net interest spread, the difference between the
yield earned on loans and investments and the rate paid on deposits and
borrowings, was 4.2% for the three months ended March 31, 1999, and 4.5% for the
three months ended March 31, 1998. The increase in net interest income is a
reflection of increased interest-earning assets and was accomplished despite a
continued 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
March 31, 1999
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 March 31, 1999 was $0.17 million as compared to $0.14 million
for the same period in 1998. 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 19.9%
increase in noninterest income comparing the first quarter of 1999 to the first
quarter of 1998, due to strong activity in the mortgage banking area and
increased fee income. Noninterest expenses were up 5.0% from the first quarter
of the previous year, mainly due to increased staff in the mortgage banking area
and general price increases on leases and supplies. From March 31, 1998 to March
31, 1999, total assets have grown 8.6%, loans grew 2.6% and deposits have grown
5.3%. These growth rates have also contributed to increased overhead.
Total assets increased 0.2% to $381.19 million as of March 31, 1999 from $380.48
million as of December 31, 1998. Deposits declined by $3.93 million and Federal
Home Loan Bank advances of $4.64 million were borrowed to match funds for
selected fixed rate commercial loans and securities.
IMPAIRED LOANS
The recorded investment in loans considered to be impaired was $2.66 million at
March 31, 1999, and $2.82 million at December 31, 1998, and consists of loans
for which an allowance of $0.30 million and $0.32 million, for the same periods
respectively, has been established. Income recorded on impaired loans during the
first three months of 1999 for the portion of this period that they were
impaired was $0.02 million. Average investment in impaired loans during this
same period of 1999 was $2.68 million as compared to $4.07 million during the
first quarter of 1998. Nonaccruing loans at March 31, 1999, included $1.65
million of loans considered to be impaired, as compared with $2.05 million at
December 31, 1998.
13
<PAGE>
NMBT CORP
Form 10Q
March 31, 1999
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 MARCH 31, 1999 DECEMBER 31, 1998
- ------------------------------------------------------------------------ ------------------------- -------------------------
<S> <C> <C>
Total nonperforming loans $2,305 $2,694
Real estate owned 204 -
- ------------------------------------------------------------------------ ------------------------- -------------------------
Total nonperforming assets $2,509 $2,694
======================================================================== ========================= =========================
Total nonperforming loans/Total loans 1.00% 1.17%
Total nonperforming assets/Total assets 0.66% 0.71%
Allowance for loan losses/Total nonperforming loans 173.75% 142.48%
</TABLE>
LIQUIDITY MANAGEMENT
For information about the Company's liquidity position, see Management's
Discussion and Analysis in its 1998 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 March 31, 1999, the Company had $28.60 million in stockholders' equity,
compared with $28.69 million at December 31, 1998. The decline in stockholders'
equity from the end of 1998 was due to the following: a $0.57 million negative
adjustment for net unrealized gains on securities available for sale; and the
retention of $0.75 million in net earnings, less cash dividends paid on February
12, 1999, of $0.27 million.
The following reflects the Company's capital ratios (which exclude intangible
assets and the adjustments for net unrealized gains on securities available for
sale):
<TABLE>
<CAPTION>
- ------------------------------------- --------------------------- --------------------------- ---------------------------
Dollars in thousands MARCH 31, 1999 DECEMBER 31, 1998 REGULATORY MINIMUM
- ------------------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Risk-based capital ratios:
Tier 1 capital ratio 12.66% 12.19% 4.00%
Total capital ratio 14.29% 14.13% 8.00%
Leverage ratio 7.63% 7.40% 3.00%
Tier 1 capital $28,168 $27,647
Total risk-based capital $30,890 $30,351
Total risk-adjusted assets $216,142 $214,786
</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 1998 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
March 31, 1999
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 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 Year 2000 remediation 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 $40,000 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, 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
15
<PAGE>
NMBT CORP
Form 10Q
March 31, 1999
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.
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, 1998 in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 31, 1999. There have been no
material changes in the Company's market risk at March 31, 1999, compared to
December 31, 1998. 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 March 31, 1999, 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, 1998 to March 31, 1999.
GAP ANALYSIS. There have been no material changes in the one-year cumulative
interest sensitivity gap as a percentage of total assets at March 31, 1999, from
December 31, 1998.
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,
1998. There have been no changes in the board approved limits of acceptable
variance in net interest income and net portfolio value at March 31, 1999, 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
March 31, 1999
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 4, 1999. 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. Robert W. X. Martin and Harry H. Taylor, Jr. were each elected to serve as
Directors until the Annual Meeting of Stockholders to be held in the year
2002 who, with the six Directors, Kevin L. Dumas, Louis A. Funk, Jr.,
Lawrence Greenhaus, Ruth Henderson, Terry C. Pellegrini and Arthur C.
Weinshank, whose terms of office did not expire at the Meeting, constitute
the full Board. Each nominee received at least 1,924,016, or 99.04%, votes
cast FOR.
2. The Directors' appointment of Deloitte & Touche LLP as the Company's
independent auditors for the year ending December 31, 1999 was ratified by
1,921,966 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
<PAGE>
NMBT CORP
Form 10Q
March 31, 1999
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)
May 12, 1999 /s/ Jay C. Lent
- ------------------ ------------------------------------------------
Date Jay C. Lent, Executive Vice President, Chief
Financial Officer and Secretary
May 12, 1999 /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 MARCH 31, 1999 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>
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 14,170
<INT-BEARING-DEPOSITS> 11,957
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<INVESTMENTS-CARRYING> 43,855
<INVESTMENTS-MARKET> 43,688
<LOANS> 230,365
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<TOTAL-ASSETS> 381,192
<DEPOSITS> 307,696
<SHORT-TERM> 10,507
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<LONG-TERM> 31,805
0
0
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</TABLE>
