UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
COMMISSION FILE NO. 0-11786
VILLAGE BANCORP, INC.
(Exact name of Registrant as specified in its charter)
Connecticut 06-1076844
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
25 Prospect Street Ridgefield, Connecticut 06877
Registrant's telephone number, including area code (203) 438-9551
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.
YES _X_ NO ___
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1998
Common Stock, $3.33 Par Value 1,942,334
<PAGE>
VILLAGE BANCORP, INC.
TABLE OF CONTENTS
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1998 and December 31, 1997 (unaudited)............ 1
Condensed Consolidated Statements of Income For The
Three Months Ended September 30, 1998 and 1997 (unaudited)
Nine Months Ended September 30, 1998 and 1997 (unaudited)....... 2
Condensed Consolidated Statements of Cash Flows For The
Nine Months Ended September 30, 1998 and 1997 (unaudited)....... 3
Notes to Condensed Consolidated Financial Statements (unaudited).. 4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 9
PART II. OTHER INFORMATION:
ITEM 1. Legal Proceedings............................................ 14
ITEM 2. Changes in Securities........................................ 14
ITEM 3. Defaults Upon Senior Securities.............................. 14
ITEM 4. Results of Votes of Security Holders......................... 14
ITEM 5. Other Information............................................ 14
ITEM 6. (a) Exhibits................................................ 14
(b) Reports on Form 8-K..................................... 14
SIGNATURES ............................................................. 15
<PAGE>
VILLAGE BANCORP, INC.
- --------------------------------------------------------------------------------
PART I. - FINANCIAL INFORMATION
<PAGE>
VILLAGE BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS - (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS Sept. 30, 1998 Dec. 31, 1997
-------------- -------------
(in thousands)
Cash and due from banks $ 11,831 $ 11,153
Federal funds sold 13,100 --
- --------------------------------------------------------------------------------
Total cash and cash equivalents 24,931 11,153
Securities:
Available-for-sale (at estimated fair value) 13,404 19,427
Held-to-maturity (market value of $32,307 at
Sept. 30, 1998, and $34,554 at Dec. 31, 1997) 31,618 34,382
Federal Home Loan Bank stock, at cost 901 782
Loans, net of deferred loan fees 150,075 147,659
Allowance for credit losses (1,181) (1,309)
- --------------------------------------------------------------------------------
Loans, net 148,894 146,350
Loans held for sale 2,060 1,686
Bank premises and equipment - net 5,331 5,256
Accrued income and other assets 3,034 3,513
- --------------------------------------------------------------------------------
TOTAL ASSETS $ 230,173 $ 222,549
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 21,439 $ 20,764
Interest bearing 189,405 183,044
- --------------------------------------------------------------------------------
Total deposits 210,844 203,808
Accrued interest payable 1,112 1,610
Other liabilities 1,007 1,258
- --------------------------------------------------------------------------------
Total liabilities 212,963 206,676
Stockholders' Equity:
Common stock, par value $3.33 per share;
authorized - 10,000,000 shares, issued and
outstanding, 1,938,334 at Sept. 30, 1998
and 1,908,634 at December 31, 1997 6,455 6,356
Additional paid-in capital 4,954 4,851
Retained earnings 5,700 4,635
Accumulated other comprehensive income 101 31
- --------------------------------------------------------------------------------
Total stockholders' equity 17,210 15,873
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 230,173 $ 222,549
================================================================================
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-1-
<PAGE>
VILLAGE BANCORP, INC.
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
1998 1997 1998 1997
---- ---- ---- ----
(in thousands, except share data)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $ 3,300 $ 3,000 $ 9,729 $ 8,545
Securities:
Taxable 519 539 1,612 1,486
Tax-exempt 128 91 376 199
Federal funds sold 70 87 242 292
- -------------------------------------------------------------------------------------------------------------
Total interest income 4,017 3,717 11,959 10,522
INTEREST EXPENSE 1,535 1,611 4,686 4,406
- -------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 2,482 2,106 7,273 6,116
PROVISION (CREDIT) FOR CREDIT LOSSES -- 15 (123) 45
- -------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION (CREDIT) FOR CREDIT LOSSES 2,482 2,091 7,396 6,071
- -------------------------------------------------------------------------------------------------------------
OTHER INCOME:
Other operating income 179 149 498 419
Security gains, net 40 -- 83 --
- -------------------------------------------------------------------------------------------------------------
Total other income 219 149 581 419
OTHER EXPENSES:
Salaries and employee benefits 941 919 2,935 2,594
Net occupancy 252 235 749 561
Furniture and equipment 97 95 295 215
Data processing services 197 159 594 438
Regulatory assessments 8 5 20 15
Printing, stationery and supplies 48 74 159 173
Other operating expenses 248 400 955 1,058
- -------------------------------------------------------------------------------------------------------------
Total other expenses 1,791 1,887 5,707 5,054
INCOME BEFORE PROVISION FOR INCOME TAXES 910 353 2,270 1,436
PROVISION FOR INCOME TAXES 330 122 686 481
- -------------------------------------------------------------------------------------------------------------
NET INCOME $ 580 $ 231 $ 1,584 $ 955
=============================================================================================================
`PER SHARE DATA(1)
Cash dividends paid $ .09 $ .09 $ .27 $ .27
Net income - basic earnings .30 .12 .82 .50
Net income - diluted earnings .29 .12 .81 .49
</TABLE>
(1)Adjusted for 100% stock dividend issued in 1997.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-2-
<PAGE>
VILLAGE BANCORP, INC.
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
- -----------------------------------------------------------------------------------------------
<CAPTION>
Nine Months Ended Sept. 30,
(in thousands)
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,584 $ 955
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision (credit) for credit losses (123) 45
Provision for depreciation and amortization 330 227
Accretion of security discounts - net (318) (153)
Security gains - net (83)
Decrease in deferred loan fees (57) (32)
(Decrease) increase in accrued interest payable (498) 656
Decrease in accrued income and other assets 479 842
(Decrease) increase in other liabilities (251) 126
Origination of loans held for sale (19,070) (2,376)
Proceeds from sales of loans 18,696 2,426
- -----------------------------------------------------------------------------------------------
Net cash provided by operating activities 689 2,716
INVESTING ACTIVITIES:
Proceeds from sales of available-for-sale securities 5,323 --
Proceeds from maturities of available-for-sale securities 8,608 6,067
Proceeds from maturities of held-to-maturity securities 15,345 990
Purchases of available-for-sale securities (7,449) (2,852)
Purchases of held-to-maturity securities (12,569) (19,487)
Purchase of Federal Home Loan Bank stock (119) (70)
Net increase in loans (2,364) (12,998)
Purchases of premises and equipment (405) (4,023)
- -----------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 6,370 (32,373)
FINANCING ACTIVITIES:
Net increase in deposits 7,036 36,064
Cash dividends (519) (514)
Net proceeds from issuance of common stock 202 2
- -----------------------------------------------------------------------------------------------
Net cash provided by financing activities 6,719 35,552
INCREASE IN CASH AND CASH EQUIVALENTS 13,778 5,895
- -----------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 11,153 15,145
- -----------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 24,931 $ 21,040
===============================================================================================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid on deposits $ 4,188 $ 3,750
Income tax payments 460 714
Change in net unrealized gain on available-
for-sale securities, net of tax 70 31
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-3-
<PAGE>
VILLAGE BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE A - BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments necessary, consisting
only of normal recurring accruals, to present fairly the financial position, the
results of operations, cash flows and the changes in financial position of
Village Bancorp, Inc. (the "Company") for the periods presented. In preparing
such financial statements, management is required to make estimates and
assumptions that effect the reported amounts. Actual results could differ
significantly from those estimates.
The Company's consolidated financial statements include the accounts of
Village Bancorp, Inc. and its wholly owned subsidiary The Village Bank & Trust
Company ("Village") and have been prepared in accordance with generally accepted
accounting principles and conform with predominant practices used within the
banking industry.
Village is engaged in the business of commercial banking and operates six
branch banking offices in Fairfield and Litchfield counties in Connecticut, and
is principally engaged in lending and deposit gathering activities within these
counties. Village also operates a trust department and offers trust services.
While management believes that the disclosures presented are adequate so as
not to make the information misleading, it is suggested that these financial
statements be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's 1997 annual report.
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
125"), which specifies accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities and for
distinguishing whether a transfer of financial assets in exchange for cash or
other consideration should be accounted for as a sale or as a pledge of
collateral in a secured borrowing. SFAS No. 125 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
December 31, 1996, except for certain provisions (relating to the accounting for
secured borrowings and collateral and the accounting for transfers and servicing
of repurchase agreements, dollar rolls, securities lending and similiar
transactions) which have been deferred until January 1, 1998 in accordance with
SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125." Adoption of the effective provisions of SFAS No. 125 as of
January 1, 1997 and 1998 has not had any material effect on the Company's
consolidated financial statements.
-4-
<PAGE>
VILLAGE BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
- --------------------------------------------------------------------------------
In June 1997, the FASB issued a new accounting standard, SFAS No. 131
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS No.
131"), which requires that enterprises report certain financial and descriptive
information about operating segments in complete sets of financial statements
and in condensed financial statements of interim periods issued to stockholders.
It will require the Company to report certain information about its products and
services, geographic areas in which it operates and its major customers. SFAS
No. 131 is effective for fiscal year 1998. As the requirements of this standard
are disclosure-related, its implementation will have no impact on the Company's
financial condition or results of operations.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments and for hedging activities. It is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999.
Management does not expect the adoption of this statement will have a material
effect on the Company's consolidated financial position or results of
operations.
NOTE B - SECURITIES
The amortized cost and estimated fair values of securities were as follows
(in thousands):
<TABLE>
<CAPTION>
Sept. 30, 1998
--------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SECURITIES HELD-TO-MATURITY
U.S. Treasury Securities $15,841 $ 316 $ -- $16,157
Mortgage-backed securities
of U.S. Government agencies 4,406 73 -- 4,479
Obligations of states and
political subdivisions 11,371 302 (2) 11,671
- ------------------------------------------------------------------------------------------------
TOTAL $31,618 $ 691 $ (2) $32,307
================================================================================================
SECURITIES AVAILABLE-FOR-SALE
U.S. Treasury securities $12,964 $ 166 $ -- $13,130
Mortgage-backed securities
of U.S. Government agencies 254 3 -- 257
Other 17 -- -- 17
- ------------------------------------------------------------------------------------------------
TOTAL $13,235 $ 169 $ -- $13,404
================================================================================================
</TABLE>
-5-
<PAGE>
VILLAGE BANCORP, INC.
<TABLE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
- ----------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1997
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
SECURITIES HELD-TO-MATURITY
U.S. Treasury Securities $16,792 $ 23 $ (4) $16,811
Mortgage-backed securities
of U.S. Government agencies 6,704 24 (2) 6,726
Obligations of states and
political subdivisions 10,886 147 (16) 11,017
- ----------------------------------------------------------------------------------------------------
TOTAL $34,382 $ 194 $ (22) $34,554
====================================================================================================
SECURITIES AVAILABLE-FOR-SALE
U.S. Treasury securities $18,993 $ 54 $ (2) $19,045
Mortgage-backed securities
of U.S. Government agencies 346 3 -- 349
Other 33 -- -- 33
- ----------------------------------------------------------------------------------------------------
TOTAL $19,372 $ 57 $ (2) $19,427
====================================================================================================
</TABLE>
At September 30, 1998 and December 31, 1997, securities with a book value
of $1,130,000 and $1,134,000, respectively, were pledged to secure public
deposits and for other purposes as required by law and banking regulation.
NOTE C - LOANS
The composition of the loan portfolio is summarized as follows (in
thousands):
Sept. 30, 1998 Dec. 31, 1997
-------------- -------------
Real estate $ 123,040 $ 122,837
Commercial and financial 18,569 17,138
Installment and consumer credit 8,613 7,888
Deferred loan fees (147) (204)
- --------------------------------------------------------------------------------
TOTAL $ 150,075 $ 147,659
================================================================================
The June 30, 1998 quarterly allowance for credit loss review and analysis
demonstrated that the reserve required an adjustment based on historical loss
experience, economic data and managements evaluation of the loan portfolio. This
adjustment was reflected as a credit to the provision for loan losses during the
second quarter of 1998.
The recorded investment in loans considered to be impaired at September 30,
1998 and December 31, 1997 was $1,165,000 and $1,427,000, respectively. Specific
valuation allowances for these loans were $158,000 and $174,000 at September 30,
1998 and December 31, 1997, respectively, to reduce the recorded amount of such
loans to their estimated fair value. Generally, the fair value of impaired loans
was determined using the estimated fair value of the underlying collateral.
-6-
<PAGE>
VILLAGE BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
- --------------------------------------------------------------------------------
NOTE D - COMMITMENTS
On September 30, 1998, standby letters of credit approximated $2,257,000.
NOTE E - STOCKHOLDERS' EQUITY
A $.09 per share cash dividend was distributed February 7, 1997 to
stockholders of record on January 30, 1997. A $.09 per share cash dividend was
distributed May 2, 1997 to stockholders of record on April 25, 1997. A $.09 per
share cash dividend was distributed August 1, 1997 to stockholders of record on
July 25, 1997.
A $.09 per share cash dividend was distributed February 6, 1998 to
stockholders of record on January 30, 1998. A $.09 per share cash dividend was
distributed May 1, 1998 to stockholders of record on April 24, 1998. A $.09 per
share cash dividend was distributed August 7, 1998 to stockholders of record on
July 31, 1998.
A 100% stock dividend (the functional equivalent of a 2 for 1 stock split)
was distributed in December, 1997 to stockholders of record on November 28,
1997.
Stock options exercised during the nine-month period ended September 30,
1998 totaled 29,700 shares at prices ranging from $5.50 to $11.13. Stock options
granted during the nine-month period ending September 30, 1998 totaled 6,000 at
prices ranging from $19.50 to $22.13.
NOTE F - EARNINGS PER SHARE
SFAS No. 128, "Earnings Per Share" ("SFAS No. 128"), became effective for
the Company in the fourth quarter of 1997, and requires restatement of all
prior-period earnings per share ("EPS"). SFAS No. 128 requires that "Basic EPS"
exclude dilution and be computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for
that period; "Diluted EPS" reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that would then
share in the earnings of the entity. A summary of the basic and diluted earnings
per share calculations for the three and nine months ended September 30, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------- ---------------------------------------
Per Per
Income Shares Share Income Shares Share
---------- --------- ------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
1998
----
Basic EPS $ 580,000 1,935,099 $ .30 $1,584,000 1,924,154 $ .82
Effect of Dilutive
Securities - Stock Options 42,355 43,434
- ----------------------------------------------------------------------------------------------------------------------------
Diluted EPS $ 580,000 1,977,454 $ .29 $1,584,000 1,967,588 $ .81
1997
----
Basic EPS $ 231,000 1,904,634 $ .12 $ 955,000 1,904,584 $ .50
Effect of Dilutive
Securities - Stock Options 30,243 27,106
- ----------------------------------------------------------------------------------------------------------------------------
Diluted EPS $ 231,000 1,934,877 $ .12 $ 955,000 1,931,690 $ .49
</TABLE>
-7-
<PAGE>
VILLAGE BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
- --------------------------------------------------------------------------------
NOTE G - REPORTING COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. This statement requires that all items that are required
to be recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as are the financial statements. For interim financial reporting
periods, the Company has elected to provide this disclosure in the notes to the
financial statements. Comprehensive income is defined as "the change in equity
(net assets) of a business enterprise during a period from transactions and
other events and circumstances from non-owner sources. It includes all changes
in equity during a period, except those resulting from investments by owners and
distributions to owners."
The Company's comprehensive income for the three and nine months ended
September 30, were as follows:
<TABLE>
<CAPTION>
Description Amount
- ----------- ------
Three Months Ended Nine Months Ended
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 580,000 $ 231,000 $ 1,584,000 $ 955,000
Other comprehensive income, net of tax:
Unrealized holding gains
on securities available-for-sale
arising during the period 126,000 63,000 114,000 55,000
Reclassification adjustment,
net of tax, for net gains realized
on available-for-sale securities
in the period ended September 30,
that were held as of December 31 (49,000) (28,000) (44,000) (24,000)
- ---------------------------------------------------------------------------------------------------------------
Net gain recognized in other
comprehensive income, net of tax 77,000 35,000 70,000 31,000
- ---------------------------------------------------------------------------------------------------------------
Comprehensive income $ 657,000 $ 266,000 $ 1,654,000 $ 986,000
===============================================================================================================
</TABLE>
The net gain recognized in other comprehensive income, net of tax,
represents an increase in the net unrealized appreciation of available-for-sale
securities, net of tax, during the periods ended September 30, 1998 and 1997.
The cumulative balance of this net unrealized gain, net of tax, at September 30,
1998 and 1997 was $101,000 and $18,000, respectively.
NOTE H - SUBSEQUENT EVENT
On November 11, 1998, Village Bancorp, Inc. ("Village") and Webster
Financial Corporation ("Webster") announced that they had reached a definitive
agreement, whereby Webster would acquire Village, the holding company for The
Village Bank & Trust Company, for $23.50 per share in a tax-free,
stock-for-stock exchange valued at approximately $46.4 million.
The definitive agreement, which has been approved by both companies' boards
of directors, is subject to approval by Village Bancorp's shareholders and
regulatory authorities. The transaction is expected to close in the first
quarter of 1999.
-8-
<PAGE>
VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
GENERAL
Village Bancorp, Inc. (the "Company") through its only subsidiary, The
Village Bank & Trust Company ("Village" or the "Bank") had total assets of
$230,173,000 on September 30, 1998 in comparison to total assets of $222,549,000
on December 31, 1997. This is an increase of $7,624,000 or 3.4%.
For the three month periods ended September 30, 1998 and 1997, the
Company's net income increased from $231,000 for the 1997 period to $580,000 for
the 1998 period. Net interest income increased $376,000 (17.9%) from $2,106,000
for the 1997 period to $2,482,000 for the 1998 period.
For the nine month periods ended September 30, 1998 and 1997, the Company's
net income increased from $955,000 for the 1997 period to $1,584,000 for the
1998 period. Net interest income increased $1,157,000 (18.9%) from $6,116,000
for the 1997 period to $7,273,000 for the 1998 period.
ASSETS AND RELATED INCOME ANANLYSIS (Nine Month Comparison)
Loans outstanding on September 30, 1998 totaled $150,075,000, which is an
increase of $2,416,000 (1.6%) from the $147,659,000 outstanding at December 31,
1997. Loan income increased $1,184,000 (13.9%) from $8,545,000 for the 1997
period to $9,729,000 for the 1998 period. This increase is due to an increase in
average outstanding loans, from $132,673,000 in the 1997 period to $150,879,000
for the 1998 period coupled with a slight increase in the average rate earned,
from 8.59% for the 1997 period to 8.60% for the 1998 period. The June 30, 1998
quarterly allowance for credit loss review and analysis demonstrated that the
reserve required an adjustment based on historical loss experience, economic
data and managements evaluation of the loan portfolio. This adjustment was
reflected as a credit to the provision for loan losses during the second quarter
of 1998.
Securities, which consists of securities held-to-maturity and securities
available-for-sale, decreased $8,787,000 (16.3%) from $53,809,000 at December
31, 1997 to $45,022,000 at September 30, 1998. Income from securities increased
$303,000 (18.0%) from $1,685,000 in the period ending September 30, 1997 to
$1,988,000 for the 1998 period. This increase was due to an increase in the
average dollar amount of securities held, from $39,918,000 for the 1997 period
to $48,973,000 in the 1998 period, offset by a decrease in the average rate
earned from 5.63% in the 1997 period to 5.41% in the 1998 period. The Bank has
the positive intent and ability to hold securities designated as
held-to-maturity until maturity and does not engage in trading activities.
Securities classified as available-for-sale are used to compensate for liquidity
forecasting deviations.
Federal funds sold increased $13,100,000 from $0 at December 31, 1997 to
$13,100,000 at September 30, 1998. Federal funds sold income decreased $50,000
(17.1%) from $292,000 for the 1997 period to $242,000 for the 1998 period,
primarily due to a decrease in the average dollar held from $7,309,000 in the
1997 period to $6,027,000, offset by a slight increase in the average rate
earned from 5.33% in the 1997 period to 5.35% in the 1998 period.
-9-
<PAGE>
VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - (Continued)
- --------------------------------------------------------------------------------
LIABILITIES AND RELATED EXPENSE ANALYSIS (Nine Month Comparison)
Deposits increased $7,036,000 (3.5%) from $203,808,000 at December 31, 1997
to $210,844,000 at September 30, 1998. Interest on deposits increased $280,000
(6.4%) from $4,406,000 for the 1997 period to $4,686,000 for the 1998 period.
This increase was primarily attributable to an increase in average deposits,
from $176,536,000 for the 1997 period to $206,044,000 in the 1998 period, offset
by a decrease in the average rate paid from 3.33% in the 1997 period to 3.03% in
the 1998 period.
Salary and employee benefit expense increased $341,000 (13.1%) from
$2,594,000 in the 1997 period to $2,935,000 in the 1998 period, primarily as a
result of the increase in the number of personnel due to the opening of the two
new branch office locations in June and July of 1997.
Net occupancy expenses increased $188,000 (33.5%) from $561,000 in the 1997
period to $749,000 in the 1998 period, primarily as a result of addtional
expenses incurred with the addition of a branch office in Westport, Connecticut
in June of 1997 along with the opening of the Bank's new building in Danbury,
Connecticut in July of 1997.
Furniture and equipment expense increased $80,000 (37.2%) from $215,000 in
the 1997 period to $295,000 in the 1998 period, primarily as a result of the
opening of the two new offices.
Data processing services expense increased $156,000 (35.6%) from $438,000
in the 1997 period to $594,000 in the 1998 primarily as a result of the growth
of the Bank and increased use of services.
ASSETS AND RELATED INCOME ANANLYSIS (Three Month Comparison)
Loans outstanding decreased $370,000 during the three month period ended
September 30, 1998. This compares to a $7,598,000 increase during the 1997
period. Loan income increased $300,000 (10.0%) from $3,000,000 for the 1997
period to $3,300,000 for the 1998 period. This increase is due to an increase in
average outstanding loans, from $137,160,000 in the 1997 period to $152,739,000
for the 1998 period offset by a decrease in the average rate earned, from 8.75%
for the 1997 period to 8.64% for the 1998 period.
Securities, which consists of securities held-to-maturity and securities
available-for-sale, decreased $3,915,000 (8.0%) during the 1998 period as
compared to an increase of $7,100,000 (17.2%) for the 1997 period. Income from
securities increased $17,000 (2.7%) from $630,000 in the period ending September
30, 1997 to $647,000 for the 1998 period. This increase was due to an increase
in the average dollar amount of securities held, from $45,012,000 for the 1997
period to $48,052,000 in the 1998 period, offset by a decrease in the average
rate earned from 5.60% in the 1997 period to 5.39% in the 1998 period.
-10-
<PAGE>
VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - (Continued)
- --------------------------------------------------------------------------------
Federal funds sold increased $2,050,000 (18.6%) during the 1998 period as
compared to an increase of $1,400,000 (32.2%) for the 1997 period. Federal funds
sold income decreased $17,000 (19.5%) from $87,000 for the 1997 period to
$70,000 for the 1998 period, primarily due to a decrease in the average dollar
amount outstanding from $6,276,000 in the 1997 period to $5,419,000, coupled
with a decrease in the average rate earned from 5.54% in the 1997 period to
5.17% in the 1998 period.
LIABILITIES AND RELATED EXPENSE ANALYSIS (Three Month Comparison)
Deposits decreased $4,722,000 (2.2%) during the 1998 period as compared to
an increase of $20,561,000 (11.5%) for the 1997 period. Interest on deposits
decreased $76,000 (4.7%) from $1,611,000 for the 1997 period to $1,535,000 for
the 1998 period. This decrease was primarily attributable to a decrease in the
average rate paid from 3.43% in the 1997 period to 2.96% in the 1998 period
offset by an increase in the average outstandings from $187,600,000 for the 1997
period to $207,443,000 in the 1998 period.
LIQUIDITY
Liquidity is the ability to provide funds for loan requests, unexpected
deposit outflows and meeting other recurring financial obligations. Cash and
cash equivalents at September 30, 1998 were $24,931,000 or 10.8% of total assets
as compared to $11,153,000 or 5.0% of total assets at December 31, 1997. The
Bank also maintains excess stored liquidity reserves to compensate for liquidity
forecasting deviations. These reserves are comprised of investment grade
securities that are highly marketable and liquid. The primary source of
liquidity, cash and due from banks and federal funds sold, have historically
surpassed the liquidity needs of the Company. Management closely monitors the
Bank's liquidity/cash flow position and does not anticipate any liquidity
problems in the foreseeable future.
CAPITAL RESOURCES
The table below lists the minimum capital requirements along with the
Company's capital position at September 30, 1998:
Capital Minimum Capital Company's Capital
Standard Requirement Position
-------- --------------- -----------------
Total Capital to risk
weighted assets 8.00% 13.79%
Stockholders' equity to
risk weighted assets 4.00% 12.90%
Leverage ratio 3.0 - 5.0% 7.54%
-11-
<PAGE>
VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - (Continued)
- --------------------------------------------------------------------------------
YEAR 2000
The Company and the Bank are aware of the significant impact that Year 2000
("Y2K") will have on financial service companies, as such, the Bank has
established a program to address Y2K issues. The Board of Directors monitors the
project and its ongoing implementation.
The Bank utilizes the services of a third party service bureau for its data
processing needs. This service bureau is well on its way to addressing the Y2K
project and has completed the first phase of testing of its processing system.
The Bank has also completed its first phase of testing on all the applications
that are provided by the third party. This first phase tested the actual change
of dates from December, 1999 to January, 2000. The second phase of testing that
will be performed prior to the end of the first quarter in 1999 will test month
end, quarter end and odd date (i.e. February 29, 2000) processing.
The Bank has developed contingency plans to deal with the possibility that
our third party processor will not be Y2K compliant on January 1, 2000. One plan
takes into account our role in the contingency plan that has been adopted by our
processor. The second plan which the Bank has developed will deal with
processing if our third party processor is not able to.
The Bank has completed the planned upgrade of the teller and platform
systems in all branch offices. This upgrade included enhancements to the back
office operational areas as well. These upgrades were Y2K compliant. All
personal computers currently in use at the Bank have been tested to ensure Y2K
compliance. In addition, all critical software used at the Bank not directly
involved with system processing by the Bank's third party processor have been
verified as being Y2K compliant.
The worst case Y2K scenario would involve the breakdown of utility service,
critical system failure and Federal Reserve, Automated Clearing House and
Clearing House failure. In this case, the Bank would have difficulty continuing
operations in a manner approaching normal. The Company has not yet developed a
contingency plan for this scenario, other than for the critical system failure.
It is not expected that this worst case scenario will occur. It is expected that
utilities, the Federal Reserve and the Clearing Houses will be Y2K compliant.
All of these components will be closely monitored and a contingency plan is
expected to be completed prior to the end of the first quarter of 1999.
The Federal Deposit Insurance Corporation ("FDIC") is responsible for
supervising efforts by banks to prepare for the Y2K date change. The FDIC has
been conducting special examinations of insured banks to make sure they are
taking necessary steps to get ready for the Y2K date change. The FDIC is also
closely monitoring the progress that the Bank is making to complete critical
steps as required by Y2K plans.
The costs associated with the implementation of changes to deal with Y2K
issues is not expected to have a material impact on the Company's consolidated
financial statements. The only expenses recorded to date are $6,625, which is
one-fourth of a testing fee by our third party processor of $26,500. While every
effort is being made to ensure the Bank is Y2K compliant, there can be no
assurances that Y2K will not to some degree affect the operations of the Bank.
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 Sept. 30, 1998. The Company cautions
that these forward-looking statements are subject to numerous assumptions, risks
and uncertainties, and that statements relating to subsequent periods
increasingly are subject to greater uncertainty because of the increased
likelihood of changes in underlying factors and assumptions. Actual results
could differ materially from forward-looking statements.
-12-
<PAGE>
VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - (Continued)
- --------------------------------------------------------------------------------
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 the Company'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.
-13-
<PAGE>
VILLAGE BANCORP, INC.
- --------------------------------------------------------------------------------
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings Not Applicable
Item 2. Changes in Securities Not Applicable
Item 3. Defaults Upon Senior Securities Not Applicable
Item 4. Results of Votes of Security Holders Not Applicable
Item 5. Other Information Not Applicable
Item 6. Exhibits and Reports on Form 8-k
(a) Exhibits - None
(b) Reports on Form 8-K - There were no reports on Form 8-K filed for the
three months ended September 30, 1998.
-14-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Village Bancorp, Inc.
---------------------
(Registrant)
Date: November 12, 1998 /s/ Robert V. Macklin
-------------------------------------
Robert V. Macklin - President
and Chief Executive Officer
Date: November 12, 1998 /s/ James R. Umbarger
-------------------------------------
James R. Umbarger - Executive Vice
President and Chief Financial Officer
-15-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 11,829
<INT-BEARING-DEPOSITS> 2
<FED-FUNDS-SOLD> 13,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 14,305
<INVESTMENTS-CARRYING> 31,618
<INVESTMENTS-MARKET> 32,307
<LOANS> 150,075
<ALLOWANCE> 1,181
<TOTAL-ASSETS> 230,173
<DEPOSITS> 210,844
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,119
<LONG-TERM> 0
0
0
<COMMON> 6,455
<OTHER-SE> 10,755
<TOTAL-LIABILITIES-AND-EQUITY> 230,173
<INTEREST-LOAN> 9,729
<INTEREST-INVEST> 1,988
<INTEREST-OTHER> 242
<INTEREST-TOTAL> 11,959
<INTEREST-DEPOSIT> 4,669
<INTEREST-EXPENSE> 17
<INTEREST-INCOME-NET> 7,273
<LOAN-LOSSES> (123)
<SECURITIES-GAINS> 83
<EXPENSE-OTHER> 5,707
<INCOME-PRETAX> 2,270
<INCOME-PRE-EXTRAORDINARY> 2,270
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,584
<EPS-PRIMARY> 0.82
<EPS-DILUTED> 0.81
<YIELD-ACTUAL> 4.70
<LOANS-NON> 1,133
<LOANS-PAST> 156
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,165
<ALLOWANCE-OPEN> 1,309
<CHARGE-OFFS> 48
<RECOVERIES> 43
<ALLOWANCE-CLOSE> 1,181
<ALLOWANCE-DOMESTIC> 1,181
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 958
</TABLE>
