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 JUNE 30, 1998
COMMISSION FILE NO. 0-11786
VILLAGE BANCORP, INC.
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(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
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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 July 31, 1998
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Common Stock, $3.33 Par Value 1,938,334
<PAGE>
VILLAGE BANCORP, INC.
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1998 and December 31, 1997 (unaudited)..........................1
Condensed Consolidated Statements of Income For The
Three Months Ended June 30, 1998 and 1997 (unaudited)
Six Months Ended June 30, 1998 and 1997 (unaudited)......................2
Condensed Consolidated Statements of Cash Flows For The
Six Months Ended June 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..................................................13
ITEM 2. Changes in Securities..............................................13
ITEM 3. Defaults Upon Senior Securities....................................13
ITEM 4. Results of Votes of Security Holders...............................13
ITEM 5. Other Information..................................................13
ITEM 6. (a) Exhibits......................................................13
(b) Reports on Form 8-K...........................................13
SIGNATURES ................................................................14
<PAGE>
VILLAGE BANCORP, INC.
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PART I. - FINANCIAL INFORMATION
<PAGE>
VILLAGE BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS - (UNAUDITED)
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<TABLE>
<CAPTION>
ASSETS June 30, 1998 Dec. 31, 1997
- ------ ------------- -------------
(in thousands)
<S> <C> <C>
Cash and due from banks $ 14,469 $ 11,153
Federal funds sold 11,050 --
- ------------------------------------------------------------------------------------
Total cash and cash equivalents 25,519 11,153
Securities:
Available-for-sale (at estimated fair value) 16,810 19,427
Held-to-maturity (market value of $32,319 at
June 30, 1998, and $34,554 at Dec. 31, 1997) 32,127 34,382
Federal Home Loan Bank stock, at cost 901 782
Loans, net of deferred loan fees 150,445 147,659
Allowance for credit losses (1,185) (1,309)
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Loans, net 149,260 146,350
Loans held for sale 1,036 1,686
Bank premises and equipment - net 5,230 5,256
Accrued income and other assets 3,374 3,513
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TOTAL ASSETS $ 234,257 $ 222,549
====================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 24,598 $ 20,764
Interest bearing 190,968 183,044
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Total deposits 215,566 203,808
Accrued interest payable 1,459 1,610
Other liabilities 584 1,258
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Total liabilities 2,043 2,868
Stockholders' Equity:
Common stock, par value $3.33 per share;
authorized - 10,000,000 shares, issued and
outstanding, 1,925,534 at June 30, 1998
and 1,908,634 at December 31, 1997 6,412 6,356
Additional paid-in capital 4,917 4,851
Retained earnings 5,295 4,635
Accumulated other comprehensive income 24 31
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Total stockholders' equity 16,648 15,873
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 234,257 $ 222,549
====================================================================================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
- 1 -
<PAGE>
VILLAGE BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - (UNAUDITED)
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<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
(in thousands, except share data)
INTEREST INCOME:
<S> <C> <C> <C> <C>
Loans, including fees $ 3,245 $ 2,832 $ 6,429 $ 5,545
Securities:
Taxable 542 490 1,093 947
Tax-exempt 125 73 248 108
Federal funds sold 103 98 172 205
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Total interest income 4,015 3,493 7,942 6,805
INTEREST EXPENSE 1,566 1,452 3,151 2,795
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NET INTEREST INCOME 2,449 2,041 4,791 4,010
PROVISION/(CREDIT) FOR CREDIT LOSSES (153) 15 (123) 30
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NET INTEREST INCOME AFTER
PROVISION/(CREDIT) FOR CREDIT LOSSES 2,602 2,026 4,914 3,980
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OTHER INCOME:
Other operating income 174 137 319 270
Security gains, net -- -- 43 --
- ------------------------------------------------------------------------------------------
Total other income 174 137 362 270
OTHER EXPENSES:
Salaries and employee benefits 991 862 1,994 1,675
Net occupancy 246 185 497 326
Furniture and equipment 98 62 198 120
Data processing services 202 139 397 279
Regulatory assessments 6 7 12 10
Printing, stationery and supplies 46 59 111 99
Other operating expenses 371 340 707 658
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Total other expense 1,960 1,654 3,916 3,167
INCOME BEFORE PROVISION FOR INCOME TAXES 816 509 1,360 1,083
PROVISION FOR INCOME TAXES 294 194 356 359
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NET INCOME $ 522 $ 315 $ 1,004 $ 724
==========================================================================================
PER SHARE DATA(1)
Cash dividends paid $ .09 $ .09 $ .18 $ .18
Net income - basic earnings .27 .17 .52 .38
Net income - diluted earnings .27 .17 .51 .38
</TABLE>
(1)Adjusted for 100% stock dividend issued in 1997.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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<PAGE>
VILLAGE BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
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<TABLE>
<CAPTION>
Six Months Ended June 30,
(in thousands)
1998 1997
---- ----
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,004 $ 724
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision/(credit) for credit losses (123) 30
Provision for depreciation and amortization 217 117
Accretion of security discounts - net (190) (67)
Security gains - net (43) --
Decrease in deferred loan fees (43) (45)
(Decrease) increase in interest payable (151) 448
Decrease (increase) in accrued income and other assets 144 (2,290)
Decrease in other liabilities (674) (99)
Origination of loans held for sale (9,471) (5,309)
Proceeds from sales of loans 10,121 5,359
- -------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 791 (1,132)
INVESTING ACTIVITIES:
Proceeds from sales of available-for-sale securities 1,235 --
Proceeds from maturities of available-for-sale securities 7,061 5,043
Proceeds from maturities of held-to-maturity securities 8,543 332
Purchases of available-for-sale securities (5,452) (2,852)
Purchases of held-to-maturity securities (6,294) (10,830)
Purchase of Federal Home Loan Bank stock (119) (70)
Net increase in loans (2,744) (5,356)
Purchases of premises and equipment (191) (74)
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Net cash provided (used) by investing activities 2,039 (13,807)
FINANCING ACTIVITIES:
Net increase in deposits 11,758 15,503
Cash dividends (344) (343)
Net proceeds from issuance of common stock 122 2
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Net cash provided by financing activities 11,536 15,162
INCREASE IN CASH AND CASH EQUIVALENTS 14,366 223
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CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 11,153 15,145
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 25,519 $ 15,368
=====================================================================================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid on deposits $ 3,000 $ 2,347
Income tax payments 460 589
Change in net unrealized gain on available-
for-sale securities, net of tax (7) (4)
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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<PAGE>
VILLAGE BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
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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. ("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 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," 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 has not had any material effect on the Company's consolidated
financial statements.
SFAS No. 128, "Earnings Per Share", 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 the period; "Diluted
EPS" reflects the potential dilution
- 4 -
<PAGE>
VILLAGE BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
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. Adoption of SFAS No.
128 had no significant effect on the Company's previously reported EPS.
In June 1997, the FASB issued a new accounting standard, SFAS No. 131
"Disclosures About Segments of an Enterprise and Related Information", 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 the estimated fair values of securities were as
follows (in thousands):
<TABLE>
<CAPTION>
(Unaudited)
June 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 $16,183 $ 48 $ (2) $16,229
Mortgage-backed securities
of U.S. Government agencies 4,791 29 -- 4,820
Obligations of states and
political suddivisions 11,153 140 (23) 11,270
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TOTAL $32,127 $ 217 $ (25) $32,319
=========================================================================================
SECURITIES AVAILABLE-FOR-SALE
U.S. Treasury securities $16,449 $ 41 $ (1) $16,489
Mortgage-backed securities
of U.S. Government agencies 299 3 -- 302
Other 19 -- -- 19
- -----------------------------------------------------------------------------------------
TOTAL $16,767 $ 44 $ (1) $16,810
=========================================================================================
</TABLE>
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<PAGE>
VILLAGE BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<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 suddivisions 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 June 30, 1998 and December 31, 1997 securities with a book value of
$1,132,000 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:
June 30, 1998 Dec. 31, 1997
------------- -------------
(in thousands)
Real estate $ 124,538 $ 122,837
Commercial and financial 18,410 17,138
Installment and consumer credit 7,658 7,888
Deferred loan fees (161) (204)
- --------------------------------------------------------------------------------
TOTAL $ 150,445 $ 147,659
================================================================================
The 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 in the expense for the provision for loan losses.
The recorded investment in loans considered to be impaired at June 30, 1998
and December 31, 1997 was $1,372,000 and $1,427,000, respectively. Specific
valuation allowances for these loans were $158,000 and $174,000 at June 30, 1998
and December 31, 1997, respectively. Generally the fair value of impaired loans
was determined using the fair value of the underlying collateral.
- 6 -
<PAGE>
VILLAGE BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- --------------------------------------------------------------------------------
NOTE D - COMMITMENTS
On June 30, 1998, standby letters of credit approximated $1,503,000.
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 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 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.
Options exercised during the six-month period ended June 30, 1998 totaled
16,900 shares at prices ranging from $5.50 to $11.07.
NOTE F - EARNINGS PER SHARE
SFAS No. 128, "Earnings Per Share", 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 June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
Per Per
Income Shares Share Income Shares Share
------ ------ ----- ------ ------ -----
1998
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $ 522,000 1,922,110 $.27 $1,004,000 1,918,591 $.52
Effect of Dilutive
Securities - Stock Options 52,252 52,252
Diluted EPS $ 522,000 1,974,362 $.27 $1,004,000 1,970,843 $.51
1997
Basic EPS $ 315,000 1,904,634 $.17 $ 724,000 1,904,559 $.38
Effect of Dilutive
Securities - Stock Options 25,880 25,880
Diluted EPS $ 315,000 1,930,514 $.17 $ 724,000 1,930,439 $.38
</TABLE>
- 7 -
<PAGE>
VILLAGE BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (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. 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 six months ended June 30, was as
follows:
<TABLE>
<CAPTION>
Description Amount
- ----------- ------
1998 1997
---- ----
<S> <C> <C>
Net income $ 1,004,000 $ 724,000
Other comprehensive income, net of tax:
Unrealized holding gains on securities available-
for-sale arising during the period 19,000 (13,000)
Reclassification adjustment, net of tax, for net gains
realized on available-for-sale securities in the period
ended June 30, that were held as of December 31 (26,000) 9,000
--------- ---------
Net loss recognized in other comprehensive income,
net of tax (7,000) (4,000)
--------- ---------
Comprehensive income $ 997,000 $ 720,000
========= =========
</TABLE>
The net loss recognized in other comprehensive income, net of tax,
represents a decrease in the net unrealized appreciation of available-for-sale
securities, net of tax, during the six months ended June 30, 1997 and 1998. The
cumulative balance of this unrealized gain, net of tax, at June 30, 1997 and
1998 was $24,000 and ($17,000), respectively.
- 8 -
<PAGE>
VILLAGE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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GENERAL
Village Bancorp, Inc. (the "Company") through its only subsidiary, The
Village Bank & Trust Company ("Village" or the "Bank") had total assets of
$234,257,000 on June 30, 1998 in comparison to total assets of $222,549,000 on
December 31, 1997. This is an increase of $11,708,000 or 5.3%.
For the three month periods ended June 30, 1998 and 1997, the Company's net
income increased from $315,000 for the 1997 period to $522,000 for the 1998
period. Net interest income increased $408,000 (20.0%) from $2,041,000 for the
1997 period to $2,449,000 for the 1998 period.
For the six month periods ended June 30, 1998 and 1997, the Company's net
income increased from $724,000 for the 1997 period to $1,004,000 for the 1998
period. Net interest income increased $781,000 (19.5%) from $4,010,000 for the
1997 period to $4,791,000 for the 1998 period.
ASSETS AND RELATED INCOME ANANLYSIS (Six Month Comparison)
Loans outstanding on June 30, 1998 totaled $150,445,000, which is an
increase of $2,786,000 (1.9%) from the $147,659,000 outstanding at December 31,
1997. Loan income increased $884,000 (15.9%) from $5,545,000 for the 1997 period
to $6,429,000 for the 1998 period. This increase is due to an increase in
average outstanding loans, from $130,430,000 in the 1997 period to
$149,932,157,000 for the 1998 period coupled with an increase in the average
rate earned, from 8.50% for the 1997 period to 8.58% for the 1998 period. The
quarterly allowance for credit loss review and analysis demonstrated that the
reserve required an adjustment to the provision based on historical loss
experience, economic data and managements evaluation of the loan portfolio. This
adjustment was reflected as a credit in the expense for the provision for loan
losses.
Securities, which consists of securities held-to-maturity and securities
available-for-sale, decreased $4,872,000 (9.1%) from $53,809,000 at December 31,
1997 to $48,937,000 at June 30, 1998. Security income increased $286,000 (27.1%)
from $1,055,000 in the period ending June 30, 1997 to $1,341,000 for the 1998
period. This increase was due to an increase in the average dollar amount of
securities held, from $36,625,000 for the 1997 period to $49,421,000 in the 1998
period, offset by a decrease in the average rate earned from 5.76% in the 1997
period to 5.43% 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 $11,050,000 from $0 at December 31, 1997 to
$11,050,000 at June 30, 1998. Federal funds sold income decreased $33,000
(16.1%) from $205,000 for the 1997 period to $172,000 for the 1998 period,
primarily due to a decrease in the average dollar amount outstanding from
$7,825,000 in the 1997 period to $6,360,000, offset by a decrease in the average
rate earned from 5.33% in the 1997 period to 5.41% 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 (Six Month Comparison)
Deposits increased $11,758,000 (5.8%) from $203,808,000 at December 31,
1997 to $215,566,000 at June 30, 1998. Interest on deposits increased $356,000
(12.7%) from $2,795,000 for the 1997 period to $3,151,000 for the 1998 period.
This increase was primarily attributable to an increase in the average
outstandings, from $171,005,000 for the 1997 period to $205,334,000 in the 1998
period, offset by a decrease in the average rate paid from 3.27% in the 1997
period to 3.07% in the 1998 period.
Salary and employee benefit expense increased $319,000 (19.0%) from
$1,675,000 in the 1997 period to $1,994,000 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 1998.
Net occupancy expenses increased $171,000 (52.5%) from $326,000 in the 1997
period to $497,000 in the 1998 period, primarily as a result of addtional
expenses incurred with the addition of a branch office in Westport, Connecticut
along with the construction of the Bank's new building in Danbury, Connecticut.
Furniture and equipment expense increased $78,000 (65.0%) from $120,000 in
the 1997 period to $198,000 in the 1998 period, primarily as a result of the
opening of the two new offices.
Data processing services expense increased $118,000 (42.3%) from $279,000
in the 1997 period to $397,000 in the 1998 period and printing, stationery and
supplies expense increased $12,000 (12.1%) from $99,000 in the 1997 period to
$111,000 in the 1998 period, 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 increased $2,431,000 during the three month period ended
June 30, 1998. This compares to a $875,000 increase during the 1997 period. Loan
income increased $413,000 (14.6%) from $2,832,000 for the 1997 period to
$3,245,000 for the 1998 period. This increase is due to an increase in average
outstanding loans, from $131,633,000 in the 1997 period to $151,381,000 for the
1998 period offset by a slight decrease in the average rate earned, from 8.61%
for the 1997 period to 8.57% for the 1998 period.
Securities, which consists of securities held-to-maturity and securities
available-for-sale, increased $361,000 (.7%) during the 1998 period as compared
to an increase of $1,011,000 (2.5%) for the 1997 period. Security income
increased $104,000 (18.5%) from $563,000 in the period ending June 30, 1997 to
$667,000 for the 1998 period. This increase was due to an increase in the
average dollar amount of securities held, from $40,241,000 for the 1997 period
to $49,306,000 in the 1998 period, offset by a decrease in the average rate
earned from 5.60% in the 1997 period to 5.41% 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 decreased $1,600,000 (12.6%) during the 1998 period as
compared to a decrease of $100,000 (2.2%) for the 1997 period. Federal funds
sold income increased $5,000 (5.1%) from $98,000 for the 1997 period to $103,000
for the 1998 period, primarily due to an increase in the average dollar amount
outstanding from $7,325,000 in the 1997 period to $7,357,000, coupled with an
increase in the average rate earned from 5.35% in the 1997 period to 5.60% in
the 1998 period .
LIABILITIES AND RELATED EXPENSE ANALYSIS (Three Month Comparison)
Deposits increased $5,408,000 (2.6%) during the 1998 period as compared to
an increase of $4,470,000 (2.6%) for the 1997 period. Interest on deposits
increased $114,000 (7.9%) from $1,452,000 for the 1997 period to $1,566,000 for
the 1998 period. This increase was primarily attributable to an increase in the
average outstandings, from $174,940,000 for the 1997 period to $208,774,000 in
the 1998 period, offset by a decrease in the average rate paid from 3.32% in the
1997 period to 3.00% 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 June 30, 1998 were $25,519,000 or 10.9% 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 June 30, 1998:
Capital Minimum Capital Company's Capital
Standard Requirement Position
-------- ----------- --------
Total Capital to risk
weighted assets 8.00% 13.61%
Stockholders' equity to
risk weighted assets 4.00% 12.58%
Leverage ratio 3.0 - 5.0% 7.32%
- 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 expects to complete its testing of its system changes by October of
1998. At the same time the Bank will in conjunction with the service bureau be
conducting testing of its own on all of the applications. In addition the Bank
has recently 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.
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, however 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 June 30, 1998. The Company cautions
that these forward-looking statements are subject to numerous assumptions, risks
and uncertainties, and that statements relating to subsequent periods
increasingly are subject to greater uncertainty because of the increased
likelihood of changes in underlying factors and assumptions. Actual results
could differ materially from forward-looking statements.
In addition to those factors previously disclosed by the Company and those
factors identified elsewhere herein, the following factors could cause actual
results to differ materially from such forward-looking statements; competitive
pressures on loan and deposit product pricing; other actions of competitors;
changes in economic conditions; the extent and timing of actions of the Federal
Reserve Board; customer deposit disintermediation; changes in customers'
acceptance of 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.
- 12 -
<PAGE>
VILLAGE BANCORP, INC.
- --------------------------------------------------------------------------------
PART II. - OTHER INFORMATION
<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 June 30, 1998.
- 13 -
<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: August 12, 1998 /s/ Robert V. Macklin
--------------- ----------------------
Robert V. Macklin - President
and Chief Executive Officer
Date: August 12, 1998 /s/ James R. Umbarger
--------------- ---------------------
James R. Umbarger - Executive Vice
President and Chief Financial Officer
- 14 -
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