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 June 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 August 6, 1999 was 2,667,408.
<PAGE>
NMBT CORP
Form 10Q
June 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Condition (Unaudited)
June 30, 1999 and December 31, 1998 3
Consolidated Statements of Operations (Unaudited)
Six Months and Three Months Ended June 30, 1999 and June 30, 1998 4
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
Six Months and Three Months Ended June 30, 1999 and June 30, 1998 5
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 1999 and June 30, 1998 6
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
Six Months Ended June 30, 1999 and June 30, 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
</TABLE>
2
<PAGE>
NMBT CORP
CONSOLIDATED STATEMENTS OF CONDITION (Unaudited)
Dollars in thousands, except per share data
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
June 30, 1999 December 31, 1998
---------------------- ----------------------
<S> <C> <C>
ASSETS
Cash and due from banks $14,368 $13,934
Interest-bearing deposits 18,055 13,730
---------------------- ----------------------
Cash and cash equivalents 32,423 27,664
---------------------- ----------------------
Securities:
Available for sale, at fair value (amortized cost of $76,434 in 1999
and $75,302 in 1998) 74,993 76,326
Held to maturity, at amortized cost (fair value of $43,060 in 1999
and $40,769 in 1998) 44,424 40,364
---------------------- ----------------------
Total securities 119,417 116,690
---------------------- ----------------------
Loans 233,088 229,945
Less allowance for loan losses 4,076 3,839
---------------------- ----------------------
Loans, net 229,012 226,106
---------------------- ----------------------
Real estate owned, net 241 -
Premises and equipment, net 3,414 3,546
Excess of cost over fair value of net assets acquired, net 154 271
Accrued interest and other assets 7,269 6,204
---------------------- ----------------------
Total assets $391,930 $380,481
====================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing checking $48,928 $44,414
Interest-bearing checking 96,485 99,216
Savings 75,708 72,334
Time deposits under $100 75,007 77,662
Time deposits $100 or more 17,782 17,997
---------------------- ----------------------
Total deposits 313,910 311,623
---------------------- ----------------------
Advances from Federal Home Loan Bank of Boston (FHLB) 46,954 37,672
Accrued interest and other liabilities 2,844 2,498
---------------------- ----------------------
Total liabilities 363,708 351,793
---------------------- ----------------------
Stockholders' equity:
Common stock, $0.01 par value
Shares authorized: 8,000,000
Shares outstanding: 1999 - 2,666,358; 1998 - 2,663,358 27 27
Additional paid-in capital 18,184 18,143
Retained earnings 10,962 9,842
Accumulated other comprehensive income (loss), net of tax (951) 676
---------------------- ----------------------
Total stockholders' equity 28,222 28,688
---------------------- ----------------------
Total liabilities and stockholders' equity $391,930 $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>
- --------------------------------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
June 30, June 30,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $8,446 $8,979 $4,226 $4,511
U.S. Treasury and agency securities 2,763 2,200 1,399 1,168
Municipal securities 487 411 247 212
Corporate securities 91 - 58 -
Dividends on FHLB stock 67 57 35 29
Interest-bearing deposits 217 201 140 99
------- ------- ------- -------
Total interest and dividend income 12,071 11,848 6,105 6,019
------- ------- ------- -------
INTEREST EXPENSE
Interest-bearing checking 641 745 323 380
Savings 804 725 410 368
Time deposits under $100 1,782 2,140 864 1,063
Time deposits $100 or more 460 489 219 244
FHLB advances and capital leases 1,140 879 619 488
------- ------- ------- -------
Total interest expense 4,827 4,978 2,435 2,543
------- ------ ------- -------
Net interest and dividend income 7,244 6,870 3,670 3,476
Provision for loan losses 207 266 40 125
------- ------- ------- -------
Net interest and dividend income after provision for loan losses 7,037 6,604 3,630 3,351
------- ------- ------- -------
NONINTEREST INCOME
Service charges on deposit accounts 511 489 259 247
Other service charges, commissions and fees 177 188 89 92
Loan servicing fees 112 36 62 21
Gain on sale of securities - 51 - -
Net gains from loans sold 309 395 104 250
Other income 136 55 51 29
------- ------- ------- -------
Total noninterest income 1,245 1,207 565 639
------- ------- ------- -------
NONINTEREST EXPENSE
Compensation, payroll taxes and benefits 3,198 2,965 1,585 1,496
Occupancy 550 505 269 248
Furniture and equipment 396 376 197 188
Data processing 182 167 97 89
Stationery, printing and supplies 194 228 96 106
Marketing, advertising and investor relations 299 212 131 111
Legal and professional fees 205 77 77 29
Other general and administrative expense 760 747 385 359
------- ------- ------- -------
Total general and administrative expense 5,784 5,277 2,837 2,626
Operations of real estate owned (228) 49 (69) 48
Amortization of intangible assets 117 117 58 58
------- ------- ------- -------
Total noninterest expense 5,673 5,443 2,826 2,732
------- ------- ------- -------
Income before provision for income taxes 2,609 2,368 1,369 1,258
Provision for income taxes 957 886 469 472
------- ------- ------- -------
Net income $1,652 $1,482 $900 $786
======= ======= ======= =======
Basic earnings per share $0.62 $0.56 $0.34 $0.30
Diluted earnings per share $0.60 $0.53 $0.33 $0.28
------- ------- ------- -------
Average basic shares outstanding 2,664 2,637 2,664 2,637
Average diluted shares outstanding 2,755 2,810 2,755 2,810
------- ------- ------- -------
Cash dividends per share $0.20 $0.17 $0.10 $0.09
------- ------- ------- -------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
NMBT CORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
In thousands
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Income $1,652 $1,482 $900 $786
Other comprehensive income
(loss), net of tax:
Unrealized net gains (losses)
on securities:
Unrealized net holding
gains (losses) arising
during period $(1,627) $(27) $(1,060) $23
Less: reclassification
adjustment for gains
included in net income - (34) - -
------------- ------------- ------------- -------------
Other comprehensive income
(loss) (1,627) (61) (1,060) 23
------------- ------------- ------------- -------------
Comprehensive income (loss) $25 $1,421 $(160) $809
============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
NMBT CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
In thousands
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Six Months Ended
June 30, 1999 June 30, 1998
-------------------- ---------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $1,652 $1,482
Adjustments to reconcile net income to net cash provided by
Operating activities:
Depreciation and amortization 398 380
Provision for loan losses 207 266
Net amortization of securities 139 102
Deferred income taxes 168 123
Realized securities gains, net - (51)
Loans originated for sale (38,951) (35,400)
Proceeds from loans sold, net 42,336 35,447
Gains from loans sold, net (309) (395)
Realized gains from real estate owned sales, net (288) (27)
Increase in interest receivable (112) (236)
(Increase) decrease in other assets 50 (236)
Increase in interest payable 54 60
Increase (decrease) in other liabilities 292 (109)
-------------------- ---------------------
Net cash provided by operating activities 5,636 1,406
-------------------- ---------------------
INVESTING ACTIVITIES
Purchases of held to maturity (HTM) securities (10,930) (15,000)
Net loan originations (6,933) (9,757)
Purchases of available for sale (AFS) securities (7,479) (20,898)
Net purchases of premises and equipment (149) (255)
Proceeds from sales of real estate owned 458 176
Proceeds from maturities of AFS securities 6,627 9,880
Proceeds from maturities of HTM securities 6,819 11,249
Proceeds from sales of AFS securities - 2,370
Purchases of FHLB stock (368) (13)
-------------------- ---------------------
Net cash used for investing activities (11,955) (22,248)
-------------------- ---------------------
FINANCING ACTIVITIES
Net increase in advances from FHLB 9,282 11,760
Net decrease in time deposits (2,870) (120)
Net increase in checking and savings deposits 5,157 19,626
Cash dividends (532) (447)
Net proceeds from exercise of stock options 41 421
Other - (18)
-------------------- ---------------------
Net cash provided by financing activities 11,078 31,222
-------------------- ---------------------
Increase in cash and cash equivalents 4,759 10,380
Cash and cash equivalents, beginning of period 27,664 22,762
-------------------- ---------------------
Cash and cash equivalents, end of period $32,423 $33,142
==================== =====================
CASH PAID DURING PERIOD
Interest to depositors and creditors $4,773 $4,918
Income taxes 789 994
Non-Cash Transfers
Transfer of loans to real estate owned 563 25
Net change in unrealized gains on AFS securities (1,627) (61)
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
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 1,482 1,482
Comprehensive income
(loss) (61) (61)
Proceeds from exercise
of stock options 421 421 27
Cash dividends (447) (447)
------------- ----------- ----------------- ------------- --------------- ---------------
JUNE 30, 1998 $26,725 $8,583 $317 $26 $17,799 2,642
============= =========== ================= ============= =============== ===============
JANUARY 1, 1999 $28,688 $9,842 $676 $27 $18,143 2,663
Net income 1,652 1,652
Comprehensive income
(loss) (1,627) (1,627)
Proceeds from exercise
of stock options 41 41 3
Cash dividends (532) (532)
------------- ----------- ----------------- ------------- --------------- ---------------
JUNE 30, 1999 $28,222 $10,962 $(951) $27 $18,184 2,666
============= =========== ================= ============= =============== ===============
</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
June 30, 1999, and the results of its operations and its cash flows for the six
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 June 30, 1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
June 30, 1999
- --------------------------------------------------------------------------------------------------------------------
Dollars in thousands Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury and agency $47,784 $20 $1,410 $46,394
Municipal 23,215 185 135 23,265
Mortgage-backed 979 13 1 991
Corporate 2,108 - 113 1,995
--------- ---------- ---------- ----------
Total debt securities 74,086 218 1,659 72,645
FHLB Stock 2,348 - - 2,348
--------- ---------- ---------- ----------
Total securities available for sale $76,434 $218 $1,659 $74,993
========= ========== ========== ==========
</TABLE>
8
<PAGE>
NMBT Corp
Form 10Q
June 30, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
December 31, 1998
- ---------------------------------------------------------------------------------------------------------------------
Dollars in thousands Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair 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
--------- ---------- ---------- ----------
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 June 30, 1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
June 30, 1999
- ---------------------------------------------------------------------------------------------------------------------
Dollars in thousands Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury and agency $30,008 $- $1,209 $28,799
Mortgage-backed 11,440 69 33 11,476
Corporate 2,976 - 191 2,785
--------- ---------- ---------- ----------
Total securities held to maturity $44,424 $69 $1,433 $43,060
========= ========== ========== ==========
- ---------------------------------------------------------------------------------------------------------------------
December 31, 1998
- ---------------------------------------------------------------------------------------------------------------------
Dollars in thousands Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
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 $3.0 million were pledged as collateral for
public deposits as of June 30, 1999 and December 31, 1998, respectively.
9
<PAGE>
NMBT CORP
Form 10Q
June 30, 1999
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
In thousands June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Real estate $197,064 $192,381
Commercial and industrial 16,761 16,107
Installment and education 6,175 7,137
Construction and development 12,311 13,443
Cash reserve and credit cards 777 877
------------- -----------------
Total Loans $233,088 $229,945
============= =================
</TABLE>
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Period ended
- -----------------------------------------------------------------------------------------------------------------------
In thousands June 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 - (110)
sheet credit instruments
Loan losses, net of recoveries 30 41
------------- -----------------
Allowance for loan losses at end of period $4,076 $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 $2.46 million and
$2.50 million at June 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 June 30, 1999 and 1998 were
as follows:
<TABLE>
<CAPTION>
Six months ended
- -------------------------------------------------------------------------------------------------------
In thousands June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Weighted average common shares:
Basic 2,664 2,637
Effect of dilutive stock options 91 173
------------- -------------
Diluted 2,755 2,810
============= =============
</TABLE>
10
<PAGE>
NMBT Corp
Form 10Q
June 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 June 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>
June 30, 1999 December 31, 1998
- --------------------------------------------------------------------------------------------------------------------------------
In thousands Tax Tax
Before (Expense)/ Before (Expense)/
Tax Benefit After Tax Tax Benefit After Tax
-------- ---------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Unrealized holding
gains/(losses) $(1,441) $490 $(951) $1,075 $(365) $710
Reclassification adjustment
for gains included in net
income - - - (51) 17 (34)
-------- ---------- --------- -------- ---------- ---------
Accumulated other
comprehensive income
(loss) $(1,441) $490 $(951) $1,024 $(348) $676
======== ========== ========= ======== ========== =========
</TABLE>
11
<PAGE>
NMBT CORP
Form 10Q
June 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 June 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; 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 14.5% to $0.90 million, or $0.33 per diluted share for the
second quarter ended June 30, 1999, as compared to net income of $0.79 million,
or $0.28 per diluted share for the second quarter of 1998. For the six months
ended June 30, 1999, net income was $1.65 million, or $0.60 per diluted share,
an increase of 11.5% over the same six-month period in 1998.
Net interest and dividend income for the quarter ended June 30, 1999 increased
by $0.20 million or 5.6%. Net interest and dividend income for the first half of
1999 increased by $0.37 million or 5.5%, from the first half 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 4.1% for the six
months ended June 30, 1999, and 4.4% for the six months ended June 30, 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 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,
12
<PAGE>
NMBT CORP
Form 10Q
June 30, 1999
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 six months ended June 30, 1999 was $0.21 million as
compared to $0.27 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 11.7% comparing the second quarter of 1999 to the
second quarter of 1998, due to declining activity in the mortgage banking area.
Noninterest income increased 3.2% comparing the first half of 1999 to the first
half of 1998 primarily due to an increase in loan servicing fees and other
income generated from recording back-interest received on loans being returned
to accrual status. The increase in loan servicing fees reflects the Company's
strategy of increasing its mortgage-servicing portfolio, which grew from $43.83
million at June 30, 1998 to $106.76 million at June 30, 1999. Noninterest
expense was up 3.5% from the second quarter of the previous year and up 4.2%
from the first half of the previous year, mainly due to annual wage increases,
additional staff in the mortgage banking area and general price increases on
leases and other services.
Total assets increased 3.0% to $391.93 million as of June 30, 1999 from $380.48
million as of December 31, 1998. Deposits increased by $2.29 million and Federal
Home Loan Bank advances of $9.28 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 $2.20 million at
June 30, 1999, and $2.82 million at December 31, 1998, and consists of loans for
which an allowance of $0.05 million and $0.32 million, for the same periods
respectively, has been established. Income recorded on impaired loans during the
first six months of 1999 for the portion of this period that they were impaired
was $0.04 million. Average investment in impaired loans during this same period
of 1999 was $2.30 million as compared to $3.60 million during the first half of
1998. Nonaccruing loans at June 30, 1999, included $1.30 million of loans
considered to be impaired, as compared with $2.05 million at December 31, 1998.
13
<PAGE>
NMBT CORP
Form 10Q
June 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 June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Total nonperforming loans $1,913 $2,694
Real estate owned 241 -
------------- -----------------
Total nonperforming assets $2,154 $2,694
============= =================
Total nonperforming loans/Total loans 0.82% 1.17%
Total nonperforming assets/Total assets 0.55% 0.71%
Allowance for loan losses/Total nonperforming loans 213.05% 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 June 30, 1999, the Company had $28.22 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 $1.63 million adjustment
for net unrealized losses on securities available for sale; proceeds of $0.04
million from the exercise of stock options; and the retention of $1.65 million
in net earnings, less cash dividends paid on February 12, and May 14, 1999,
totaling $0.53 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 June 30, 1999 December 31, 1998 Regulatory Minimum
------------- ----------------- ------------------
<S> <C> <C> <C>
Risk-based capital ratios:
Tier 1 capital ratio 13.03% 12.19% 4.00%
Total capital ratio 14.29% 14.13% 8.00%
Leverage ratio 7.57% 7.40% 3.00%
Tier 1 capital $28,892 $27,647
Total risk-based capital $31,685 $30,351
Total risk-adjusted assets $221,786 $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
June 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 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 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;
15
<PAGE>
NMBT CORP
Form 10Q
June 30, 1999
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 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 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 June 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 June 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 June 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 June 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 June 30, 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
June 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
17
<PAGE>
NMBT CORP
Form 10Q
June 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)
August 6, 1999 /s/ Jay C. Lent
- ------------------ -----------------------------------------
Date Jay C. Lent, Executive Vice President,
Chief Financial Officer and Secretary
August 6, 1999 /s/ Deborah L. Fish
- ------------------ -----------------------------------------
Date Deborah L. Fish, Treasurer
18
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
NMBT Corp
Form 10Q
June 30, 1999
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S JUNE 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>
<NAME> NMBT CORP
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</TABLE>
