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, 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 Identification No.)
incorporation or organization)
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 November 10, 1999 was 2,689,558.
<PAGE>
NMBT CORP
Form 10Q
September 30, 1999
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Condition (Unaudited)
September 30, 1999 and December 31, 1998 3
Consolidated Statements of Operations (Unaudited)
Nine Months and Three Months Ended
September 30, 1999 and September 30, 1998 4
Consolidated Statements of Comprehensive Income (Unaudited)
Nine Months and Three Months Ended
September 30, 1999 and September 30, 1998 5
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 1999 and September 30, 1998 6
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
Nine Months Ended September 30, 1999 and September 30, 1998 7
Notes to Consolidated Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 17
PART II-OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURES 19
</TABLE>
2
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NMBT CORP
CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT SHARE DATA
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1999 DECEMBER 31, 1998
--------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $20,851 $13,934
Interest-bearing deposits 3,143 13,730
- ----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 23,994 27,664
- ----------------------------------------------------------------------------------------------------------------------------
Securities:
Available for sale, at fair value (amortized cost of $68,981 in
1999 and $75,302 in 1998) 67,080 76,326
Held to maturity, at amortized cost (fair value of $47,929 in
1999 and $40,769 in 1998) 49,535 40,364
- ----------------------------------------------------------------------------------------------------------------------------
Total securities 116,615 116,690
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Loans 244,687 229,945
Less allowance for loan losses 4,071 3,839
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Loans, net 240,616 226,106
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Real estate owned, net 115 -
Premises and equipment, net 3,492 3,546
Excess of cost over fair value of net assets acquired, net 95 271
Accrued interest and other assets 6,948 6,204
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $391,875 $380,481
============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing checking $45,898 $44,414
Interest-bearing checking 100,613 99,216
Savings 76,319 72,334
Time deposits under $100 70,843 77,662
Time deposits $100 or more 17,846 17,997
- ----------------------------------------------------------------------------------------------------------------------------
Total deposits 311,519 311,623
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Advances from Federal Home Loan Bank of Boston (FHLB) 48,859 37,672
Accrued interest and other liabilities 2,691 2,498
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 363,069 351,793
- ----------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, $0.01 par value
Shares authorized: 8,000,000
Shares outstanding: 1999 - 2,668,558; 1998 - 2,663,358 27 27
Additional paid-in capital 18,205 18,143
Retained earnings 11,829 9,842
Accumulated other comprehensive income (loss),
net of tax (1,255) 676
- ----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 28,806 28,688
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $391,875 $380,481
============================================================================================================================
See notes to consolidated financial statements.
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</TABLE>
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,
1999 1998 1999 1998
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $12,846 $13,638 $4,400 $4,659
U.S. Treasury and agency securities 4,197 3,488 1,434 1,288
Municipal securities 755 626 268 215
Corporate securities 176 - 85 -
Dividends on FHLB stock 108 87 41 30
Interest-bearing deposits 295 252 78 51
- ------------------------------------------------------------------------------------------------------------------------------
Total interest and dividend income 18,377 18,091 6,306 6,243
- ------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest-bearing checking 981 1,143 340 398
Savings 1,231 1,121 427 396
Time deposits under $100 2,589 3,185 807 1,045
Time deposits $100 or more 681 724 221 235
FHLB advances and capital leases 1,823 1,395 683 516
- ------------------------------------------------------------------------------------------------------------------------------
Total interest expense 7,305 7,568 2,478 2,590
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Net interest and dividend income 11,072 10,523 3,828 3,653
Provision for loan losses 207 341 - 75
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Net interest and dividend income after provision for loan losses 10,865 10,182 3,828 3,578
- ------------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Service charges on deposit accounts 756 748 245 259
Other service charges, commissions and fees 280 285 103 104
Loan servicing fees 178 65 66 29
Gain on sale of securities 3 51 3 -
Net gains from loans sold 389 718 80 323
Other income 169 96 33 41
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Total noninterest income 1,775 1,963 530 756
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NONINTEREST EXPENSE
Compensation, payroll taxes and benefits 4,803 4,539 1,605 1,574
Occupancy 814 779 264 274
Furniture and equipment 588 577 192 201
Data processing 282 278 100 111
Stationery, printing and supplies 274 350 80 122
Marketing, advertising and investor relations 343 310 44 98
Legal and professional fees 281 221 76 144
Other general and administrative expense 1,161 1,120 401 373
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Total general and administrative expense 8,546 8,174 2,762 2,897
Operations of real estate owned (249) 46 (21) (3)
Amortization of intangible assets 176 176 59 59
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Total noninterest expense 8,473 8,396 2,800 2,953
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Income before provision for income taxes 4,167 3,749 1,558 1,381
Provision for income taxes 1,381 1,417 424 531
- ------------------------------------------------------------------------------------------------------------------------------
Net income $2,786 $2,332 $1,134 $850
==============================================================================================================================
Basic earnings per share $1.05 $0.88 $0.43 $0.32
Diluted earnings per share $1.01 $0.83 $0.41 $0.30
- ------------------------------------------------------------------------------------------------------------------------------
Average basic shares outstanding 2,665 2,639 2,665 2,639
Average diluted shares outstanding 2,756 2,811 2,756 2,811
- ------------------------------------------------------------------------------------------------------------------------------
Cash dividends per share $0.30 $0.26 $0.10 $0.09
- ------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
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</TABLE>
4
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NMBT CORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
IN THOUSANDS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income $ 2,786 $2,332 $1,134 $ 850
Other comprehensive income (loss), net of tax:
Unrealized net gains (losses) on securities:
Unrealized net holding gains (losses) arising during period $(1,929) $ 751 $ (302) $ 778
Less: reclassification adjustment for gains included in net income (2) (34) (2) -
- -----------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) (1,931) 717 (304) 778
- -----------------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 855 $3,049 $ 830 $1,628
- -----------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
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</TABLE>
5
<PAGE>
NMBT CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
IN THOUSANDS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------------- -------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $2,786 $2,332
Adjustments to reconcile net income to net cash provided by
Operating activities:
Depreciation and amortization 592 574
Provision for loan losses 207 341
Net amortization of securities 198 154
Deferred income taxes 116 202
Realized securities gains, net (3) (51)
Loans originated for sale (50,101) (61,464)
Proceeds from loans sold, net 53,834 59,836
Gains from loans sold, net (390) (719)
Realized gains from real estate owned sales, net (331) (42)
(Increase) decrease in interest receivable 292 (207)
(Increase) decrease in other assets 209 (175)
Increase in interest payable 34 61
Increase in other liabilities 159 66
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,602 908
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INVESTING ACTIVITIES
Purchases of held to maturity (HTM) securities (16,930) (15,000)
Net loan originations (18,952) (8,731)
Purchases of available for sale (AFS) securities (8,951) (36,197)
Net purchases of premises and equipment (362) (357)
Proceeds from sales of real estate owned 743 267
Proceeds from maturities of AFS securities 8,755 10,046
Proceeds from maturities of HTM securities 7,694 13,046
Proceeds from sales of AFS securities 6,866 2,371
Purchases of FHLB stock (480) (175)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (21,617) (34,730)
- ----------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in advances from FHLB 11,187 16,390
Net decrease in time deposits (6,970) (2,541)
Net increase in checking and savings deposits 6,866 16,735
Cash dividends (799) (685)
Net proceeds from exercise of stock options 62 537
Other (1) (19)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 10,345 30,417
- ----------------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (3,670) (3,405)
Cash and cash equivalents, beginning of period 27,664 22,762
- ----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $23,994 $19,357
============================================================================================================================
CASH PAID DURING PERIOD
Interest to depositors and creditors $7,270 $7,507
Income taxes 1,049 1,385
NON-CASH TRANSFERS
Transfer of loans to real estate owned 677 25
Net change in unrealized gains on AFS securities (1,931) 717
Financed portion of sales of real estate owned 151 12
See notes to consolidated financial statements.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
NMBT CORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
IN THOUSANDS
<TABLE>
<CAPTION>
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TOTAL RETAINED ACCUMULATED OTHER COMMON STOCK ADDITIONAL SHARES
STOCKHOLDERS' EARNINGS COMPREHENSIVE PAID-IN CAPITAL OUTSTANDING
EQUITY INCOME (LOSS)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
JANUARY 1, 1998 $25,330 $7,548 $378 $26 $17,378 2,615
Net income 2,332 2,332
Other comprehensive
income 717 717
Proceeds from exercise
of stock options 537 537 29
Cash dividends (684) (684)
----------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1998 $28,232 $9,196 $1,095 $26 $17,915 2,644
====================================================================================================
JANUARY 1, 1999 $28,688 $9,842 $676 $27 $18,143 2,663
Net income 2,786 2,786
Other comprehensive loss (1,931) (1,931)
Proceeds from exercise
of stock options 62 62 6
Cash dividends (799) (799)
----------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1999 $28,806 $11,829 $(1,255) $27 $18,205 2,669
====================================================================================================
See notes to consolidated financial statements.
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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
September 30, 1999, and the results of its operations, comprehensive income 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, 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.
MERGER AGREEMENT
On October 3, 1999, the Company and Summit Bancorp ("Summit") entered into an
Agreement and Plan of Merger (the "Merger Agreement") which provides for, among
other things, the acquisition of the Company by Summit through a stock-for-stock
exchange. The Merger Agreement provides for the following alternative
transactional structures: (i) the merger of the Company into Summit; (ii) the
merger of the Company into a wholly-owned subsidiary of Summit; or (iii) the
merger of a wholly-owned subsidiary of Summit into the Company (the
"Acquisition"). Under the terms of the Merger Agreement, each stockholder of the
Company will receive between 0.7024 and 0.9503 shares of Summit common stock for
each share of the Company's common stock. The exact exchange ratio will be
determined based on the price of Summit common stock prior to closing as
follows: (i) if the average of the closing prices of a share of Summit common
stock on the New York Stock Exchange Composite Transaction List for the ten
consecutive full trading days ending on a date to be determined which will be
between five (5) and ten (10) business days prior to the closing date (the
Summit Price"), is equal to or between $27.36 and $37.02, the exchange ratio
will be $26.00 divided by that average price; (ii) if the Summit Price is
greater than $37.02, the exchange ratio will be fixed at 0.7024 shares of Summit
common stock for each share of the Company's common stock; or (iii) if the
Summit Price is less than $27.36, the exchange ratio will be fixed at 0.9503
shares of Summit common stock for each share of the Company's common stock. The
transaction will be a tax-free exchange to the holders of the Company's common
stock and will be accounted for on a purchase basis. The Boards of Directors of
the Company and Summit expect the transaction to close in the first quarter of
2000.
The transaction may be terminated by the Board of Directors of the Company if
the Summit Price is less than $26.39 and reflects a 15% or more drop in price as
compared to an index created from the current stock prices of fourteen (14)
banking institutions deemed to be similar to Summit in terms of size and other
factors.
The Acquisition is subject to customary conditions, including but not limited
to, the approval of federal bank regulatory authorities, the Connecticut Banking
Commissioner and the Company's stockholders. As of the date of this document, we
do not believe that any of these events has occurred.
In connection with the Merger Agreement, the Company has issued an option to
Summit, which, upon the
8
<PAGE>
NMBT CORP
Form 10Q
September 30, 1999
occurrence of certain events, entitles Summit to purchase up to 19.9% of the
outstanding common stock of the Company at a per share exercise price equal to
$18.87.
As a result of the transaction, the Company's Board of Directors will call a
special meeting of stockholders to vote on the proposed transaction. It is
anticipated that the Board of Directors will take action to set the date for the
special stockholders' meeting prior to December 31, 1999.
NOTE 2. SECURITIES
The aggregate amortized cost and estimated fair values of securities available
for sale at September 30, 1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
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SEPTEMBER 30, 1999
-----------------------------------------------------------------------------------------------------------------
Dollars in thousands GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED FAIR
AMORTIZED COST GAINS LOSSES VALUE
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and agency $39,749 $- $1,637 $38,112
Municipal 24,666 154 226 24,594
Corporate 2,106 - 192 1,914
-----------------------------------------------------------------------------------------------------------------
Total debt securities 66,521 154 2,055 64,620
FHLB Stock 2,460 - - 2,460
-----------------------------------------------------------------------------------------------------------------
Total securities available for sale $68,981 $154 $2,055 $67,080
=================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1998
-----------------------------------------------------------------------------------------------------------------
Dollars in thousands GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED FAIR
AMORTIZED COST GAINS LOSSES VALUE
-----------------------------------------------------------------------------------------------------------------
<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
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Total debt securities 73,322 1,166 142 74,346
FHLB Stock 1,980 - - 1,980
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Total securities available for sale $75,302 $1,166 $142 $76,326
=================================================================================================================
</TABLE>
9
<PAGE>
NMBT CORP
Form 10Q
September 30, 1999
The aggregate amortized cost and estimated fair values of securities held to
maturity at September 30, 1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
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SEPTEMBER 30, 1999
-----------------------------------------------------------------------------------------------------------------
Dollars in thousands GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED FAIR
AMORTIZED COST GAINS LOSSES VALUE
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and agency $36,008 $15 $1,426 $34,597
Mortgage-backed 10,550 60 48 10,562
Corporate 2,977 - 207 2,770
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Total securities held to maturity $49,535 $75 $1,681 $47,929
=================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1998
-----------------------------------------------------------------------------------------------------------------
Dollars in thousands GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED FAIR
AMORTIZED COST GAINS LOSSES VALUE
-----------------------------------------------------------------------------------------------------------------
<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>
Proceeds from sales of debt securities were, in thousands, $6,866 in 1999 and
$2,370 in 1998. Gross gains, in thousands, of $3 and $51, respectively, were
realized on these sales. Securities with a carrying value of $2.0 million and
$3.0 million were pledged as collateral for public deposits as of September 30,
1999 and December 31, 1998, respectively.
10
<PAGE>
NMBT CORP
Form 10Q
September 30, 1999
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
In thousands SEPTEMBER 30, 1999 DECEMBER 31, 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Real estate $208,648 $192,381
Commercial and industrial 16,410 16,107
Installment and education 5,592 7,137
Construction and development 13,254 13,443
Cash reserve and credit cards 783 877
- -------------------------------------------------------------------------------------------------------
Total Loans $244,687 $229,945
=======================================================================================================
</TABLE>
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
----------------------------------------------------
In thousands SEPTEMBER 30, 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 207 371
Transfer to liability for estimated losses from off-balance
sheet credit instruments - (110)
Charge-offs net of recoveries 25 41
- -----------------------------------------------------------------------------------------------------------------------
Allowance for loan losses at end of period $4,071 $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 $2.63 million and
$2.50 million at September 30, 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 six-month periods ended September 30, 1999 and 1998
were as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------------------------------
In thousands SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Weighted average common shares:
Basic 2,665 2,639
Effect of dilutive stock options 91 172
--------------------------------------------------------------------------------------------------------
Diluted 2,756 2,811
========================================================================================================
</TABLE>
11
<PAGE>
NMBT CORP
Form 10Q
September 30, 1999
NOTE 5. COMPREHENSIVE INCOME (LOSS)
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,
1999 and December 31, 1998, which had unrealized gains (losses). The before-tax
and after-tax amounts for these unrealized gains (losses), as well as the tax
(expense) benefits, are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------------------------------- -------------------------------------------
In thousands TAX
(EXPENSE) TAX (EXPENSE)
BEFORE TAX BENEFIT AFTER TAX BEFORE TAX BENEFIT AFTER TAX
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Unrealized holding gains (losses) $(1,904) $647 $(1,257) $1,075 $(365) $710
Reclassification adjustment
for gains included in net income 3 (1) 2 (51) 17 (34)
- ----------------------------------------------------------------------------------------------------------------------------------
Accumulated other
comprehensive income (loss) $(1,901) $646 $(1,255) $1,024 $(348) $676
==================================================================================================================== =============
</TABLE>
12
<PAGE>
NMBT CORP
Form 10Q
September 30, 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 September 30, 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; merger related factors; 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 33.4% to $1.13 million, or $0.41 per diluted share for the
third quarter ended September 30, 1999, as compared to net income of $0.85
million, or $0.30 per diluted share for the third quarter of 1998. For the nine
months ended September 30, 1999, net income was $2.79 million, or $1.01 per
diluted share, an increase of 19.5% over the same nine-month period in 1998.
Net interest and dividend income for the quarter ended September 30, 1999
increased by $0.17 million or 4.8% as compared to the third quarter of 1998. Net
interest and dividend income for the first three quarters of 1999 increased by
$0.55 million or 5.2%, from the first three quarters of 1998. 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 nine months ended
September 30, 1999, and 4.4% for the nine months ended September 30, 1998. The
increase in net interest income is a reflection of increased interest-earning
assets and was accomplished despite the continued contraction in the interest
rate spread caused by customer demand for fixed rate loans and increased price
competition for loans and deposits. This pricing pressure was offset by
increased loan volume and higher levels of earning assets.
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
13
<PAGE>
NMBT CORP
Form 10Q
September 30, 1999
regarding known problem loans, the identification of additional problem loans,
and other factors. The provision for loan losses for the nine months ended
September 30, 1999 was $0.21 million as compared to $0.34 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.
Noninterest income decreased 29.9% comparing the third quarter of 1999 to the
third quarter of 1998 and decreased 9.6% comparing the first three quarters of
1999 to the first three quarters of 1998 primarily due to declining activity in
the mortgage banking area. The increase in loan servicing fees reflects the
Company's strategy of increasing its mortgage-servicing portfolio, which grew
from $57.52 million at September 30, 1998 to $109.25 million at September 30,
1999. Noninterest expense was down 5.2% from the third quarter of the previous
year due to close control of operating expenses. Noninterest expense was up 0.9%
from the first three quarters of the previous year, mainly due to annual wage
increases.
Total assets increased 3.0% to $391.88 million as of September 30, 1999 from
$380.48 million as of December 31, 1998, reflecting an increase of $14.74
million in loans. Federal Home Loan Bank advances of $11.19 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 $2.58 million at
September 30, 1999, and $2.82 million at December 31, 1998, and consists of
loans for which an allowance of $0.06 million and $0.32 million, for the same
periods respectively, has been established. Income recorded on impaired loans
during the first nine months of 1999 for the portion of this period that they
were impaired was $0.06 million. Average investment in impaired loans during
this same period of 1999 was $2.71 million as compared to $3.09 million during
the first three quarters of 1998. Nonaccruing loans at September 30, 1999,
included $1.84 million of loans considered to be impaired, as compared with
$2.05 million at December 31, 1998.
14
<PAGE>
NMBT CORP
Form 10Q
September 30, 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 SEPTEMBER 30, 1999 DECEMBER 31, 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total nonperforming loans $2,087 $2,694
Real estate owned 115 -
- ----------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $2,202 $2,694
============================================================================================================================
Total nonperforming loans/Total loans 0.85% 1.17%
Total nonperforming assets/Total assets 0.56% 0.71%
Allowance for loan losses/Total nonperforming loans 195.05% 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 September 30, 1999, the Company had $28.81 million in stockholders' equity,
compared with $28.69 million at December 31, 1998. The increase in stockholders'
equity from the end of 1998 was due to the following: a $1.93 million adjustment
for net unrealized losses on securities available for sale; proceeds of $0.06
million from the exercise of stock options; and the retention of $2.79 million
in net earnings, less cash dividends paid on February 12, May 14, and August 13,
1999, totaling $0.80 million.
The following reflects the Company's capital ratios (which exclude intangible
assets and the adjustments for net unrealized gains or losses on securities
available for sale):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Dollars in thousands SEPTEMBER 30, 1999 DECEMBER 31, 1998 REGULATORY MINIMUM
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-based capital ratios:
Tier 1 capital ratio 13.12% 12.87% 4.00%
Total capital ratio 14.38% 14.13% 8.00%
Leverage ratio 7.68% 7.40% 3.00%
Tier 1 capital $29,836 $27,647
Total risk-based capital $32,698 $30,351
Total risk-adjusted assets $227,419 $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.
15
<PAGE>
NMBT CORP
Form 10Q
September 30, 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 used 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 has completed plans to remediate Year 2000 issues. The total
remaining cost of the Year 2000 related preparations is estimated at less than
$50,000. To date, the Company has incurred costs of approximately $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 has prepared and continuously refines contingency plans designed to
address internal and external issues specific to Year 2000 to the extent
practicable. 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 right up to year-end as the Company
16
<PAGE>
NMBT CORP
Form 10Q
September 30, 1999
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 that 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 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 September 30, 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 September 30, 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 September 30, 1999.
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, 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 September 30, 1999,
and the projected changes continue to fall within the board approved limits at
all levels of potential interest rate volatility.
17
<PAGE>
NMBT CORP
Form 10Q
September 30, 1999
PART II-OTHER INFORMATION
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
18
<PAGE>
NMBT CORP
Form 10Q
September 30, 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)
November 10, 1999 /s/ Jay C. Lent
- ---------------------- ----------------------------------------------------
Date Jay C. Lent, Executive Vice President
Chief Financial Officer and Secretary
November 10, 1999 /s/ Deborah L. Fish
- ---------------------- ----------------------------------------------------
Date Deborah L. Fish, Treasurer
19
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S SEPTEMBER 30, 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>
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 20,851
<INT-BEARING-DEPOSITS> 3,143
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 67,080
<INVESTMENTS-CARRYING> 49,535
<INVESTMENTS-MARKET> 47,929
<LOANS> 244,687
<ALLOWANCE> 4,071
<TOTAL-ASSETS> 391,875
<DEPOSITS> 311,519
<SHORT-TERM> 16,934
<LIABILITIES-OTHER> 2,691
<LONG-TERM> 31,925
<COMMON> 27
0
0
<OTHER-SE> 28,779
<TOTAL-LIABILITIES-AND-EQUITY> 391,875
<INTEREST-LOAN> 12,846
<INTEREST-INVEST> 5,236
<INTEREST-OTHER> 295
<INTEREST-TOTAL> 18,377
<INTEREST-DEPOSIT> 5,482
<INTEREST-EXPENSE> 7,305
<INTEREST-INCOME-NET> 11,072
<LOAN-LOSSES> 207
<SECURITIES-GAINS> 3
<EXPENSE-OTHER> 8,473
<INCOME-PRETAX> 4,167
<INCOME-PRE-EXTRAORDINARY> 2,786
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,786
<EPS-BASIC> 1.05
<EPS-DILUTED> 1.01
<YIELD-ACTUAL> 6.96
<LOANS-NON> 2,087
<LOANS-PAST> 197
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,839
<CHARGE-OFFS> 33
<RECOVERIES> 58
<ALLOWANCE-CLOSE> 4,071
<ALLOWANCE-DOMESTIC> 4,071
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
