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 Quarter Ended June 30, 1995 Commission File Number 0-14018
BNH BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)
CONNECTICUT 06-1126899
(State of incorporation (I.R.S. Employer
or organization) Identification Number)
209 CHURCH STREET, NEW HAVEN, CONNECTICUT 06510
(Address of principal executive offices)
Registrant's telephone number, including area code (203) 498-3500
Former name, former address and former fiscal year, if changed since
last report NONE
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 August 11, 1995
Common Stock (no par value) 14,726,650
<PAGE>
BNH BANCSHARES, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements: Page
Consolidated Statement of Financial Position as of June 30, 1995,
December 31, 1994 and June 30, 1994 3
Consolidated Statement of Operations for the three and six
months ended June 30, 1995 and June 30, 1994 4
Consolidated Statement of Changes in Shareholders' Equity for the
six months ended June 30, 1995 and June 30, 1994 5
Consolidated Statement of Cash Flows for the six months ended
June 30, 1995 and June 30, 1994 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information
Items 1-3 Not Applicable 28
Item 4 Submission of Matters to a Vote of Security-Holders 28
Item 5 Other Information - Not Applicable 28
Item 6 Exhibits and Reports on Form 8-K - Not Applicable 28
SIGNATURES 29
<PAGE>
<TABLE>
<CAPTION>
BNH BANCSHARES, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited)
<S> <C> <C> <C>
ASSETS June 30, 1995 Dec. 31, 1994 June 30, 1994
______________ _____________ _____________
Cash and due from banks $ 19,369,507 $ 22,011,625 $ 19,174,108
Federal funds sold 4,200,000 2,051,539
Investment securities:
Held to Maturity,
at amortized cost 36,671,888 38,799,457 33,705,690
Available for Sale,
at fair value 33,831,678 29,155,531 24,049,287
Loans less unearned
discount 207,062,273 206,985,544 198,537,448
Less allowance for
loan losses (6,716,738) (6,827,374) (7,155,510)
___________ ___________ ____________
Loans - net 200,345,535 200,158,170 191,381,938
Loans held for sale - net 0 0 11,577,649
Property and equipment-net 4,015,686 4,139,386 4,150,571
Accrued interest receivable 2,180,025 2,140,277 2,067,338
Other real estate owned 1,102,026 1,852,068 3,169,463
Deferred tax asset-net 504,000
Other assets 695,595 918,672 385,745
___________ ___________ ___________
TOTAL $302,915,940 $299,175,186 $291,713,328
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Demand deposits $ 48,535,193 $ 59,232,645 $ 47,076,844
NOW accounts 43,026,885 39,869,769 43,460,216
Money market accounts 28,760,224 23,095,704 28,877,037
Savings deposits 30,500,763 36,169,539 34,046,214
Time deposits under
$100,000 112,869,190 108,055,465 107,058,654
Time deposits $100,000
or more 16,231,889 11,293,040 11,411,161
___________ ____________ ____________
Total deposits 279,924,144 277,716,162 271,930,126
Federal funds purchased and
securities sold under
repurchase agreements 1,269,782 3,561,134 1,261,989
FHLB Advances 6,874,340 4,692,180 5,000,000
Accrued interest payable 392,444 304,815 262,553
Other liabilities 466,936 545,236 784,051
___________ ___________ ____________
Total liabilities 288,927,646 286,819,527 279,238,719
Shareholders' equity:
Common stock, $.01, stated value;
issued 14,745,756, shares
Authorized 30,000,000 147,458 147,458 147,458
Capital surplus 47,523,492 47,523,492 47,523,492
Undivided losses (32,958,253) (33,392,619) (34,020,531)
Net unrealized losses
on investment securities
available for sale (477,232) (1,675,501) (928,639)
Treasury stock (19,106,
shares) (247,171) (247,171) (247,171)
_____________ _____________ _____________
Total shareholders' 13,988,294 12,355,659 12,474,609
equity
_____________ _____________ _____________
TOTAL $302,915,940 $299,175,186 $291,713,328
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BNH BANCSHARES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
1995 1994 1995 1994
INTEREST INCOME:
<S> <C> <C> <C> <C>
Loans $4,694,075 $4,251,681 $9,286,380 $8,206,335
Investment securities:
Held to maturity 491,511 453,155 994,899 942,800
Available for sale 474,126 321,048 941,154 676,884
Federal funds sold 123,307 12,575 131,207 24,169
__________ __________ __________ __________
Total interest income 5,783,019 5,038,459 11,353,640 9,850,188
INTEREST EXPENSE:
Time deposits
$100,000 or more 193,667 98,526 333,155 197,560
Time deposits under
$100,000 1,562,528 1,115,542 2,922,389 2,207,241
Other deposits 635,771 556,289 1,185,985 1,097,782
Other borrowings 148,296 84,655 335,636 125,106
_________ __________ __________ __________
Total interest expense 2,540,262 1,855,012 4,777,165 3,627,689
_________ __________ __________ __________
NET INTEREST INCOME 3,242,757 3,183,447 6,576,475 6,222,499
PROVISION FOR LOAN (894,000) (7,051,600) (2,288,000) (7,879,000)
LOSSES
__________ ___________ __________ __________
NET INTEREST INCOME
AFTER PROVISION FOR
LOAN LOSSES 2,348,757 (3,868,153) 4,288,475 (1,656,501)
OTHER INCOME:
Service charges 545,094 405,358 1,080,439 796,189
Other income 203,087 273,675 356,599 575,890
Net loss on investment
securities 5,710 0 5,710 (6,000)
_________ __________ __________ _________
Total other income 753,891 679,033 1,442,748 1,366,079
_________ __________ __________ _________
OPERATING EXPENSES:
Salaries and employee
benefits 1,349,128 1,365,295 2,710,667 2,736,152
Occupancy 305,233 309,257 640,373 662,130
Advertising and
promotion 157,754 135,066 271,273 240,113
Office stationery and
supplies 57,823 80,084 111,256 148,898
Examination and
professional fees 144,146 194,634 292,375 389,040
Insurance 264,140 263,139 529,793 527,543
Other real estate owned 133,434 374,455 302,288 740,300
Other 473,548 579,268 919,332 1,081,463
_________ __________ _________ _________
Total operating
expenses 2,885,206 3,301,198 5,777,357 6,525,639
NET INCOME (LOSS)
BEFORE INCOME TAXES 217,442 (6,490,318) (46,134) (6,816,061)
PROVISION (BENEFIT)
FOR INCOME TAXES 5,000 0 (480,500) 0
_________ ___________ _________ _________
NET INCOME (LOSS) $212,442 ($6,490,318) $ 434,366 ($6,816,061)
NET INCOME (LOSS) PER
COMMON SHARE $0.01 ($0.44) $0.03 ($0.46)
Weighted average number
of common shares
outstanding
during the period 14,726,650 14,726,650 14,726,650 14,726,650
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BNH BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
June 30, 1995 June 30, 1994
______________ ______________
<S> <C> <C>
SHAREHOLDERS' EQUITY at
beginning of period $12,355,659 $20,206,348
UNDIVIDED LOSSES:
Net income (loss) 434,366 (6,816,061)
Change in unrealized depreciation
on marketable equity securities 12,959
NET UNREALIZED LOSSES ON SECURITIES:
Unrealized depreciation
on investment securities
available for sale 1,198,269 (928,639)
___________ ___________
SHAREHOLDERS' EQUITY at end of
period $13,988,294 $12,474,609
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BNH BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six months ended June 30,
1995 1994
_____________________________
<S> <C> <C>
OPERATING ACTIVITIES
Net profit(loss) $ 434,366 $(6,816,061)
Adjustments for items not affecting cash:
Provision for loan losses 2,288,000 7,879,000
Depreciation and amortization of property
and equipment 260,220 272,071
(Accretion) amortization of bond premiums
and discounts (42,484) 116,552
Loss/writedown on other real estate owned 278,279 461,013
(Increase)decrease in interest receivable (39,748) 80,526
Increase(Decrease)in interest payable 87,629 (12,042)
Increase in deferred tax assets (504,000)
Other, net 153,899 31,902
_________ _________
Net cash provided by operating activities 2,916,161 2,012,961
_________ _________
FINANCING ACTIVITIES
Net decrease in demand, NOW, money market and
savings accounts (7,544,592) 3,177,173
Net increase(decrease) in time deposits 9,752,574 4,146,633
Net (decrease)increase in federal funds
purchased and securities sold under
repurchase agreements (2,291,352) 1,173,055
Proceeds from FHLB advances 2,182,160 3,000,000
___________ __________
Net cash used by financing activities 2,098,790 11,496,861
___________ __________
INVESTING ACTIVITIES
Net (increase)decrease in federal funds
sold (4,200,000) 4,621,134
Maturities of securities held to maturity 2,100,000 5,255,000
Maturities of securities available for sale 2,046,968 469,104
Purchase of securities available for sale (12,484,619) (369,300)
Proceeds from the sale of available for
sale securities 7,024,703 1,998,000
Net loans originated and matured (2,697,615) (20,080,331)
Proceeds from sale of other real estate
owned 694,011 1,551,666
Purchase of property and equipment (140,517) (130,078)
___________ ___________
Net cash (used)provided by investing
activities (7,657,069) (6,684,805)
(Decrease)increase in cash (2,642,118) 6,825,017
Cash and due from banks at beginning of
year 22,011,625 12,349,091
___________ ___________
Cash and due from banks at end of period $19,369,507 $19,174,108
Cash paid for:
Interest expense $ 4,689,536 $ 3,639,731
Income taxes $ 23,500 $ 17,480
Non-cash transfers from loans receivable to other real estate owned were
$96,000 and $207,147, for the six months ending June 30, 1995 and 1994,
respectively.
Non-cash transfers from other real estate owned to loans receivable were
$252,800 and $662,924, for the six months ending June 30, 1995 and 1994,
respectively.
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
BNH BANCSHARES, INC.
Notes to Consolidated Financial Statements
1. Basis of Presentation
The accompanying consolidated financial statements are unaudited and
include the accounts of BNH Bancshares, Inc. (the "Company") and its
subsidiaries, The Bank of New Haven (the "Bank") and Northeastern Capital
Corporation. The financial statements reflect, in management's opinion,
all appropriate adjustments consisting of normal recurring adjustments
necessary for a fair presentation of the Company's financial position,
the results of its operations and the change in its cash flows for the
periods presented. These financial statements should be read in
conjunction with the financial statements and notes thereto included in
the Company's 1994 Annual Report to Shareholders.
2. Loan Portfolio
<TABLE>
<CAPTION>
June 30, Dec. 31, June 30,
1995 1994 1994
(dollars in thousands)
<S> <C> <C> <C>
Commercial $ 65,113 $ 67,418 $ 73,072
Real estate:
Commercial mortgage 56,030 57,097 56,435
Residential mortgage 41,001 36,605 29,975
Consumer 44,918 45,866 39,056
________ ________ ________
Total loans 207,062 206,986 198,538
Allowance for loan losses (6,717) (6,827) (7,156)
________ ________ ________
Loans - net $200,345 $200,159 $191,382
Below is an analysis of the allowance for loan losses for the six month
period ended June 30, 1995.
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(dollars in thousands)
June 30,
1995
<S> <C>
Balance beginning
of period $6,827
Provision charged to income 2,288
Loans charged off:
Commercial 1,737
Real Estate:
Commercial Mtg. 616
Residential Mtg. 40
Consumer 188
______
Total Loans Charged-off 2,581
Recoveries 183
______
Net loans charged-off 2,398
______
Balance, end of period $6,717
</TABLE>
The Company adopted Statement of Financial Accounting Standards No. 114
("SFAS 114"), "Accounting by Creditors For Impairment of a Loan",
effective January 1, 1995. The new accounting standard requires that
impaired loans, which are defined as loans where it is probable that a
creditor will not be able to fully collect both the contractual interest
and principal payments, be measured at the present value of expected
future cash flows discounted at the loan's effective interest rate or, as
a practical expedient, at the loan's observable market price or the fair
value of the collateral, if the loan is collateral dependent, when
assessing the need for a loss accrual. As of June 30, 1995, the recorded
investment in loans that are considered to be impaired under SFAS 114 was
$9,535,000. The related allowance for loan losses on impaired loans was
$3,140,000. The average aggregate balance of impaired loans was
$8,788,000 for the six month period ended June 30, 1995. For those loans
categorized as impaired as of June 30, 1995, the Company recognized
$224,000 of interest income for the six month period ended June 30, 1995.
All impaired nonaccrual loans recognize cash payments as a reduction to
principal.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company earned net income for the six months ended June 30, 1995 of
$434,000 as compared to a net loss of $6,816,000 for the same 1994
period. Net income for the three months ended June 30, 1995 was $212,000
as compared to a net loss of $6,490,000 for the same 1994 period. The
Company's substantial net losses for the three and six month period
ending June 30, 1994 can be attributed to loan charge-offs, other real
estate owned ("OREO") writedowns and a special loan loss provision for
charge-offs related to a valuation of loans held for sale at their
approximate fair value, less selling costs. The Company subsequently sold
approximately $18 million of these problem loans in the third quarter of
1994. The most significant difference when comparing both the three month
and six month financial results of 1995 and 1994 was the Company's
provision for loan losses. Provisions for loan losses were $2,288,000 for
the six month period ended June 30, 1995 compared to $7,879,000 for the
same 1994 period. During the first six months of 1995, the Company also
experienced lower OREO expense as compared to the same 1994 period.
Losses on sales of OREO properties and writedowns of real estate values
of OREO properties were $302,000 for the six month period ended June 30,
1995, as compared to $461,000 for the same 1994 period. Operating
expenses associated with OREO also declined substantially and were
$24,000 for the six months ended June 30, 1995 as compared to $279,000
for the same 1994 period. In addition, as a result of the Company's
improving profitability and its available net operating loss
carryforwards, the Company recognized noncurrent deferred tax benefits of
$504,000 during the first quarter of 1995. However, no additional
deferred tax benefits relating to future periods were recognized during
the second quarter of 1995.
The return on average assets was 0.30% for the six months ended June 30,
1995 compared to (4.75%) for the same 1994 period. Net income was $0.01
for the three months ended June 30, 1995 compared with a net loss of
$0.44 per share for the three months ended June 30, 1994. Net income was
$0.03 per share for the six months ended June 30, 1995 compared with a
net loss of $0.46 per share for the same 1994 period.
REGULATORY MATTERS
The FDIC, after completion of a joint examination of the Bank with the
Connecticut Banking Department as of February 6, 1995, has removed its
Cease and Desist Order ("Order") issued in 1991. The Order required the
Bank to take a series of actions designed to improve its financial
condition and operating results and augment its capital position. At the
conclusion of its regulatory examination, the FDIC, based on the Bank's
improved overall financial condition, issued on May 16, 1995 a less
stringent Memorandum of Understanding (the "Memorandum"), which the Bank
voluntarily agreed to enter into. The Memorandum requires, among other
things, that the Bank achieve certain Tier 1 leverage and total risk
based capital requirements. The Bank must improve its Tier 1 leverage
capital ratio to 5% by June 30, 1996 and to 6% by June 30, 1997. If these
thresholds are not achieved the Bank will be required to submit a written
capital plan to increase its Tier 1 leverage capital to the required
level. Also, the Bank must maintain a total risk-based capital ratio of
at least 8% throughout the existence of the Memorandum. As of June 30,
1995, the Bank's Tier 1 leverage capital and total risk-based capital
ratios were 4.8% and 8.4%, respectively. The Company anticipates that it
will achieve the minimum Tier 1 leverage capital ratio requirements
through future earnings. See "Capital Adequacy" for further discussion.
The Memorandum also required the Bank to charge-off certain loans and
develop and implement a written problem loan reduction program to
continue to reduce its level of problem loans. In addition, the
Memorandum prohibits the payment of dividends without prior FDIC consent
and requires the Bank to review, monitor and update certain loan and
liquidity policies.
NET INTEREST INCOME
Net interest income is the difference between the interest earned on
loans and investments and the interest paid on deposits and other
borrowings.
Net interest income was $6,576,000 for the six month period ended June
30, 1995 compared to $6,222,000 for the same 1994 period, representing an
increase of $354,000, or 6%. Net interest income was $3,242,000 for the
three month period ended June 30, 1995 compared to $3,183,000 for the
same 1994 period, representing an increase of $59,000, or 2%. The
increase in net interest income for both the three and six month
comparative periods was primarily attributed to an increase in earning
assets and their associated interest rates and partially offset by an
increase in both the level and cost of average paying liabilities.
Although the Company's net interest income increased on a comparative
basis from June 30, 1994 to June 30, 1995, the level of nonperforming
assets continues to impact negatively net interest income, although to a
lesser degree than in prior periods.
The net interest margins for the six month periods ended June 30, 1995
and 1994 were 4.72% and 4.69%, respectively, an increase of 3 basis
points. The net interest margins for the three months ended June 30, 1995
and 1994 were 4.57% and 4.72%, respectively, a decrease of 15 basis
points.
Interest income increased to $11,354,000 for the six months ended June
30, 1995 from $9,850,000 for the same 1994 period, an increase of
$1,504,000, or 15%. Interest income increased to $5,783,000 for the three
months ended June 30, 1995 from $5,038,000 for the same 1994 period, an
increase of $745,000, or 15%. The Company's average earning assets
increased from $267,464,000 for the six months ended June 30, 1994 to
$280,914,000 for the same 1995 period, or 5%. The growth in interest
income can be primarily attributed to an increase in both the average
loan and investment portfolios.
Average total investments increased from $61,330,000 for the six months
ended June 30, 1994 to $67,890,000 for the same period in 1995. The
average yield on the Company's Held to Maturity investment portfolio
increased 17 basis points when comparing the first half of 1994 to the
same 1995 period. The average yield on the Company's available for sale
portfolio increased 63 basis points during the same comparable period.
Average loans increased from $204,663,000 for the six months ended June
30, 1994 to $208,048,000 during the same 1995 period. The rates earned
on average loans increased 91 basis points from 8.09% for the six months
ended June 30, 1994 to 9.0% for the same 1995 period. The Wall Street
Prime rate of interest charged on loans ranged between 6.00% and 7.25%
for the first six months of 1994. For the first six months of 1995, the
Wall Street Prime rate of interest ranged from 8.5% to 9.00%. Most of
the Company's commercial loans are either directly tied to the Wall
Street Prime rate of interest or an internal Company index whose movement
closely follows movements in Wall Street Prime. Interest income was
negatively impacted by the level of nonperforming assets (nonaccrual
loans and OREO) of $7,772,000, $8,895,000 and $11,050,000 as of June 30,
1995, December 31, 1994 and June 30, 1994, respectively. If
nonperforming assets had earned interest in accordance with their
original terms, the Company would have earned additional interest of
approximately $462,000 and $233,000 for the first six months and the
second quarter, respectively, of 1995, as compared to $625,000 and
$306,000 for the same 1994 periods, respectively.
Interest expense increased to $4,777,000 for the six months ended June
30, 1995 from $3,628,000 for the same 1994 period, an increase of
$1,149,000, or 32%. Interest expense increased to $2,540,000 for the
three months ended June 30, 1995 from $1,855,000 for the same 1994
period, an increase of $685,000, or 37%. This increase reflects the rise
in average paying liabilities and their associated interest rates from
June 30, 1994 to June 30, 1995. Average paying liabilities increased from
$223,356,000 for the six months ended June 30, 1994 to $234,010,000 for
the same period in 1995, an increase of $10,654,000, or 4.8%. The growth
in average paying liabilities is primarily related to an increase in
higher cost time deposits and other borrowings. Average time deposits
increased $11,893,000 and average other borrowings increased $5,225,000
for the six months period ended June 30, 1995 compared to the same 1994
period. Average interest bearing core deposits (NOW, money market and
savings accounts) as a percentage of total average paying liabilities
declined from 39% as of June 30, 1994 to 34% as of June 30, 1995. The
Company's average interest rate on paying liabilities increased 84 basis
points from 3.28% for the six months ended June 30, 1994 to 4.12% for the
six months ended June 30, 1995. The Company anticipates that upward
pressure on market interest rates for deposits during the next six months
will increase the Company's overall cost of funding during the remainder
of 1995.
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30,
(in thousands of dollars)
(Unaudited)
1995 | 1994
<S> <C> <C> <C> | <C> <C> <C>
Average Average | Average Average
ASSETS Balance Interest Yield | Balance Interest Yield
|
Investments: |
Held to Maturity, |
at amortized cost $ 36,685 $ 491 5.37% | $ 35,281 $ 453 5.15%
|
Available for |
Sale (2) 30,655 463 6.06% | 24,934 321 5.16%
|
Federal funds sold 9,416 135 5.75% | 1,418 13 3.68%
|
Loans - net (1) 208,012 4,694 9.05% | 208,909 4,251 8.16%
________ ______ _____ | ________ ______ _____
|
Total average |
earning assets (1) $284,768 $5,783 8.15% | $270,542 $5,038 7.47%
|
INTEREST BEARING |
LIABILITIES |
____________________________ |
Deposits: |
|
NOW accounts $ 37,765 $ 164 1.74% | $ 42,596 $ 188 1.77%
|
Money markets 30,512 251 3.30% | 28,221 158 2.25%
|
Savings deposits 31,826 220 2.77% | 34,052 210 2.47%
|
Time deposits |
under $100,000 114,277 1,562 5.48% | 103,514 1,115 4.32%
|
Time deposits over |
$100,000 or more 14,442 194 5.39% | 10,380 99 3.83%
________ ______ _____ | ________ ______ _____
Total interest |
bearing deposits $228,822 $2,391 4.19% | $218,763 $1,770 3.25%
|
Other borrowings 9,551 149 6.26% | 7,306 85 4.67%
________ ______ _____ | ________ ______ _____
Total interest |
bearing deposits |
& other borrowings $238,373 $2,540 4.27% | $226,069 $1,855 3.29%
|
Net interest |
income $3,243 | $3,183
|
Interest rate |
spread (1) 3.88% | 4.18%
|
Net interest |
margin (1) 4.57% | 4.72%
(1) Interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities (which do not include non-interest bearing
demand accounts), and net interest margin represents net interest income as a
percentage of average interest-earning assets, including the average daily
amount of non-performing loans.
(2) The average balance and related weighted average yield calculations are
based on average historical amortized cost for the period presented.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the Year to Date period ended June 30,
(in thousands of dollars)
(Unaudited)
1995 | 1994
<S> <C> <C> <C> | <C> <C> <C>
Average Average | Average Average
ASSETS Balance Interest Yield | Balance Interest Yield
|
Investments: |
Held to Maturity, |
at amortized cost $ 37,239 $ 994 5.38% | $ 36,473 $ 943 5.21%
|
Available for |
Sale(2) 30,652 930 6.12% | 24,857 677 5.49%
|
Federal funds sold 4,975 144 5.84% | 1,471 24 3.29%
|
Loans - net(1) 208,048 9,286 9.00% | 204,663 8,206 8.09%
________ ______ _____ | ________ ______ _____
|
Total average |
earning assets (1) $280,914 $11,354 8.15% | $267,464 $9,850 7.43%
|
INTEREST BEARING |
LIABILITIES |
____________________________ |
Deposits: |
|
NOW accounts $ 37,904 $ 329 1.75% | $ 42,225 $ 372 1.78%
|
Money markets 26,617 406 3.08% | 28,483 318 2.25%
|
Savings deposits 32,730 451 2.78% | 33,007 408 2.49%
|
Time deposits |
under $100,000 112,629 2,922 5.23% | 103,477 2,207 4.30%
|
Time deposits over |
$100,000 or more 13,085 333 5.13% | 10,344 198 3.86%
________ ______ _____ | ________ ______ _____
Total interest |
bearing deposits $222,965 $4,441 4.02% | $217,536 $3,503 3.25%
|
Other borrowings 11,045 336 6.13% | 5,820 125 4.33%
________ ______ _____ | ________ ______ _____
Total interest |
bearing deposits |
& other borrowings $234,010 $4,777 4.12% | $223,356 $3,628 3.28%
|
Net interest |
income $6,577 | $6,222
|
Interest rate |
spread (1) 4.03% | 4.15%
|
Net interest |
margin (1) 4.72% | 4.69%
(1) Interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities (which do not include non-interest bearing
demand accounts), and net interest margin represents net interest income as a
percentage of average interest-earning assets, including the average daily
amount of non-performing loans.
(2) The average balance and related weighted average yield calculations are
based on average historical amortized cost for the period presented.
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR TO DATE PERIOD
SUMMARY OF AVERAGE INTEREST BEARING
LIABILITIES AND DEMAND DEPOSITS
(dollars in thousands)
June 30, 1995 December 31, 1994 June 30, 1994
Amount % Amount % Amount %
________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 48,534 17.2% $ 46,290 17.0% $ 43,026 16.1%
NOW accounts 37,904 13.4% 41,048 15.1% 42,225 15.9%
Money market
accounts 26,617 9.4% 27,955 10.3% 28,483 10.7%
Savings deposits 32,730 11.6% 34,512 12.6% 33,007 12.4%
Time deposits
under $100,000 112,629 39.9% 105,067 38.5% 103,477 38.8%
Time deposits
$100,000 or more 13,085 4.6% 10,444 3.8% 10,344 3.9%
_______ ______ _______ ______ _______ ______
Total deposits 271,499 96.1% 265,316 97.3% 260,562 97.8%
Other borrowings 11,045 3.9% 7,362 2.7% 5,820 2.2%
________ ______ ________ ______ ________ ______
Average deposits
and other
borrowings $282,544 100.0% $272,678 100.0% $266,382 100.0%
</TABLE>
OTHER INCOME
Other income increased $77,000, or 6%, to $1,443,000 for the six months
ended June 30, 1995 from $1,366,000 for the same 1994 period. In
addition, other income increased $75,000, or 11%, to $754,000 for the
three months ended June 30, 1995 from $679,000 for the same 1994 period.
Service fees related to NOW and demand accounts increased from $760,000
for the six months ended June 30, 1994 to $1,027,000 for the same 1995
period. This increase is primarily due to the additional fees collected
relating to checking account overdrafts charges. Mortgage placement fees,
which are fees the Company earns for originating residential first
mortgage applications, declined $89,000 for the six months ending June
30, 1995 as compared to the same 1994 period due to a slowdown in
residential mortgage business.
PROVISION FOR LOAN LOSSES
The provision for loan losses charged to operations reflects management's
analysis of the loan portfolio and determination of an adequate allowance
for loan losses to provide for probable losses in the loan portfolio.
The potential for loss in the portfolio reflects the risks and
uncertainties inherent in the extension of credit.
The determination of the adequacy of the allowance for loan loss is based
upon management's assessment of risk elements in the portfolio, factors
affecting loan quality and assumptions about the economic environment in
which the Company operates. The Company utilizes a loan grading system,
based upon FDIC parameters, and utilizes that assessment of the overall
quality of the loan portfolio in the process of determining an adequate
allowance for loan loss level. This system involves an ongoing review of
the commercial and real estate loan portfolios, with added emphasis on
the Company's larger commercial credits and nonperforming loans. Various
factors are involved in determining the loan grade, including the cash
flow and financial status of the borrower, the existence and nature of
collateral, and general economic conditions and their impact on the
borrower's industry. These reviews are dependent upon estimates,
appraisals and judgments, which can change quickly due to economic
conditions and the Company's perceptions as to how these conditions
affect the collateral securing its current and past due loans as well as
the borrower's economic prospects. In each reporting period, the
allowance for loan losses is reviewed based on the most recent loan
grading data and is adjusted to the amount deemed necessary, in the
Company's judgment, to maintain adequate allowance for loan loss levels.
The provision for loan losses charged against earnings in the first six
months of 1995 was $2,288,000 compared with $7,879,000 in the same 1994
period. Net loan charge-offs for the six months ended June 30, 1995 and
1994 were $2,398,000 and $10,221,000, respectively. The provision for
loan losses charged against earnings in the second quarter of 1995 was
$894,000 compared with $7,052,000 in the same 1994 period. Net loan
charge-offs for the three months ended June 30, 1995 and June 30, 1994
were $1,581,000 and $9,391,000, respectively.
During the second quarter of 1994, the Company classified a pool of loans
as held for sale which were recorded at their approximate fair value on
June 30, 1994. The loans held for sale represented gross loans of
$17,860,000 which were carried net of $6,282,000 of charge-offs made
during the second quarter of 1994, which approximated the fair value less
selling costs. The loan sale was completed during the third quarter of
1994 and ultimately resulted in total charge-offs of approximately
$6,500,000. Management believed that this loan sale was necessary in
order to improve the quality of its loan portfolio.
The Company's adoption of SFAS 114 as of January 1, 1995, required that
impaired loans, which are defined as loans where it is probable that a
creditor will not be able to fully collect both the contractual interest
and principal payments, be measured at the present value of expected
future cash flows discounted at the loan's effective interest rate or, as
a practical expedient, at the loan's observable market price or the fair
value of the collateral, if the loan is collateral dependent, when
assessing the need for a loss accrual. The adoption of SFAS 114 resulted
in an additional provision for loan losses of approximately $500,000
during the first quarter of 1995. The Company anticipates that third
quarter 1995 net charge-offs could approximate $1,300,000 to $1,500,000.
Net charge-offs for the fourth quarter of 1995 should not exceed the
level experienced by the Company during the first quarter of 1995.
However, the Company anticipates that quarterly provisions for loan
losses for the remaining two quarterly periods of 1995 should not exceed
the level experienced by the Company during the second quarter of 1995.
In establishing the allowance for loan losses, management has considered
the possible deterioration of the collateral securing its past due loans.
As of June 30, 1995, the Company's allowance for loan losses was
$6,717,000, or 3.2% of total loans, as compared to $7,156,000, or 3.6% of
total loans, as of June 30, 1994. The allowance for loan losses was
$6,827,000, or 3.3% as of December 31, 1994. The ratio of the allowance
for loan losses to nonaccrual and restructured loans and accruing loans
past due 90 days or more was 69.4% as of June 30, 1995 as compared to
69.3% and 53.5% as of December 31, 1994 and June 30, 1994, respectively.
As of June 30, 1995, nonaccrual loans were $6,670,000 as compared with
$7,043,000 as of December 31, 1994, and $7,881,000 as of June 30, 1994.
As of June 30, 1995, approximately $4,316,000 of the loans in the
nonaccrual portfolio were collateralized partially by commercial or
residential real estate or business assets and approximately $2,219,000
of nonaccrual loans were unsecured. The Company believes that its
allowance for loan losses is adequate to absorb any potential reduction
of the net carrying value in the nonaccrual portfolio. The ratio of
nonaccrual loans to total loans declined from 4.0% at June 30, 1994 to
3.2% at June 30, 1995.
Accruing loans past due 90 days or more were $186,000 as of June 30,
1995, $357,000 as of December 31, 1994 and $346,000 as of June 30, 1994.
The Company's nonaccrual policy states that any commercial or mortgage
loan attaining a 90-day past due status is placed on nonaccrual unless
such loan is well secured and in the process of collection. Exceptions
to placement on nonaccrual status that extend beyond 120 days must be
approved by the Board of Directors' Loan Committee. Any installment or
consumer loan that attains a 180-day past due status will be placed on
nonaccrual regardless of collateral value or collection proceedings. At
June 30, 1995, loans totaling $37,000 were accruing past due 120-180
days.
As of June 30, 1995, the Company's recorded investment in loans that are
considered to be impaired under SFAS 114 was $9,535,000 of which
$6,670,000 were on a nonaccrual status and $552,000 were classified as
troubled debt restructured loans. The remaining $2,313,000 of loans
classified as impaired, which are also classified as potential problem
loans, have either experienced slight delinquency problems or collateral
deterioration but continue to meet the contractual terms of the loan.
The Company has also identified additional potential problem loans in the
amount of $1,332,000 as of June 30, 1995. Potential problem loans are
defined as loans where known information about possible credit problems
of borrowers causes management to have serious doubts as to the ability
of such borrowers to comply with the present loan repayment terms. These
accruing commercial loans have experienced frequent delinquency problems.
Twelve accruing loans with a principal balance of $1,332,000 have
experienced 2 or more delinquencies between 60-89 days during the last
six quarterly periods. However, they continue to be less than 90 days
delinquent as of June 30, 1995. If these credits continue to have
financial difficulties, they could be classified as nonaccrual loans or
become potential loan charge-offs in future quarterly periods.
At June 30, 1995, December 31, 1994 and June 30, 1994, the Company had
restructured loans of $2,824,000, $2,448,000 and $5,148,000,
respectively. Interest income recorded on these loans during the six
month periods ending June 30, 1995 and 1994 was $115,000 and $528,000,
respectively. The weighted average yield on restructured loans was 7.48%
and 6.44% during the six months ending June 30, 1995 and 1994,
respectively. If these loans had earned interest in accordance with
their original terms, interest income for the first six months of 1995
and 1994 would have been $47,000 and $174,000 higher, respectively.
Management, after careful consideration of the above factors, is of the
opinion that the allowance for loan losses as of June 30, 1995 is
adequate. However, because the economic recovery in Connecticut appears
to be progressing slower than in the nation, as a whole, it is difficult
to predict how the future economy may impact the Company's loan
customers. If economic conditions continue to slowly improve during
1995, management believes that the level of its nonaccrual loans will
continue to decline during the next several quarterly periods. However,
the level of the Company's nonperforming assets will continue to
negatively impact the Company's profitability in future quarterly
periods. The nature of the Connecticut economy will continue to
influence the levels of loan charge-offs, nonaccrual loans and the
allowance for loan losses, and management will appropriately adjust the
allowance as considered necessary to reflect future changes in risk.
The following tables set forth quarterly information on nonperforming
assets, restructured loans, accruing loans past due 90 days or more and
loans charged-off for the quarterly periods from June 30, 1994 to June
30, 1995.
<PAGE>
<TABLE>
<CAPTION>
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
Quarter Ended
(dollars in thousands)
June 30, March 31, Dec. 31, Sept. 30, June 30,
1995 1995 1994 1994 1994(1)
<S> <C> <C> <C> <C> <C>
Balance beginning
of period $7,404 $6,827 $6,695 $7,155 $9,495
Provision charged to
income 894 1,394 757 564 7,051
Loans charged off:
Commercial 1,071 666 529 1,131 3,208
Real Estate:
Commercial Mtg. 482 134 173 189 5,656
Residential Mtg. 0 40 0 0 574
Consumer 99 89 58 41 46
______ ______ ______ ______ _______
Total Loans
Charged-off 1,652 929 760 1,361 9,484
Recoveries 71 112 135 337 93
______ ______ _______ ______ _______
Net loans
charged-off 1,581 817 625 1,024 9,391
______ ______ ______ ______ ______
Balance, end of
period $6,717 $7,404 $6,827 $6,695 $7,155
Ratios:
Net loans charged-off
to avg. loans 0.76% 0.39% 0.30% 0.50% 4.59%
Allowance for loan
losses to total
loans 3.24% 3.56% 3.30% 3.22% 3.60%
(1) The Company incurred loan charge-offs of approximately $6,500,000 in
connection with a sale of problem loans that was completed in the third
quarter of 1994.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NONACCRUAL LOANS, RESTRUCTURED LOANS
AND OTHER REAL ESTATE OWNED
(in thousands)
QUARTER ENDED June 30, March 31, Dec. 31, Sept. 30, June 30,
1995 1995 1994 1994 1994
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Commercial $ 2,688 $ 3,368 $ 3,712 $ 3,595 $ 4,873
Real Estate:
Commercial 3,509 4,032 3,129 3,748 2,834
Residential 420 556 190 161 114
Consumer 53 145 12 60 60
______ ______ ______ ______ ______
Total nonaccrual
loans 6,670 8,101 7,043 7,564 7,881
Other Real Estate
Owned-net 1,102 1,453 1,852 2,105 3,169
______ ______ ______ _______ _______
Total nonperforming
assets 7,772 9,554 8,895 9,669 11,050
Restructured loans 2,824 2,740 2,448 4,806 5,148
_______ _______ _______ _______ _______
Total nonperforming
assets &
restructured loans $10,596 $12,294 $11,343 $14,475 $16,198
Accruing loans past due
90 days or more:
Commercial 1 164 88 240 66
Real Estate:
Construction 0 0 0 0 0
Commercial 0 0 0 132 0
Residential 0 0 0 0 49
Consumer 185 196 269 292 231
______ ______ ______ ______ ______
Total accruing loans
past due 90 days
or more $ 186 $ 360 $ 357 $ 664 $ 346
Allowance for loan
losses $ 6,717 $ 7,404 $ 6,827 $ 6,695 $ 7,155
SFAS 114 impaired
loans $ 9,535 $ 8,705
Ratio of
nonperforming assets
to total assets 2.6% 3.3% 3.0% 3.3% 3.8%
Ratio of nonperforming
assets, restructured
loans & accruing loans
past due 90 days or
more to total assets 3.6% 4.3% 3.9% 5.2% 5.7%
Ratio of nonperforming
assets to total loans
and OREO 3.7% 4.6% 4.3% 4.6% 5.5%
Ratio of nonperforming
assets, restructured
loans, and accruing
loans past due 90 days
or more to total
loans and OREO 5.2% 6.0% 5.6% 7.3% 8.3%
Ratio of allowance for
loan losses to
nonaccrual loans,
restructured loans
and accruing loans
past due 90 days
or more 69.4% 66.1% 69.3% 51.4% 53.5%
Ratio of nonaccrual
loans, restructured
loans and accruing loans
past due 90 days
or more to shareholders'
equity and allowance for
loan losses 46.8% 54.5% 51.3% 67.9% 68.1%
</TABLE>
OTHER REAL ESTATE OWNED
Other Real Estate Owned (OREO) expense was $302,000 for the six month
period ended June 30, 1995 as compared to $740,000 for the six months
ended June 30, 1994. OREO expense was $133,000 for the three month
period ended June 30, 1995 as compared to $374,000 for the three months
ended June 30, 1994. These expenses reflect losses on sales and
writedowns on OREO properties and associated direct holding costs, such
as property taxes, insurance and utilities. OREO holding costs were
$24,000 and $280,000 for the six month periods ended June 30, 1995 and
1994, respectively. For the three month period ended June 30, 1995,
there were no holding costs as compared to $195,000 for the same 1994
period. The total decline in OREO expense is attributed to decrease in
OREO properties held.
The OREO balance as of June 30, 1995 is $1,102,000 and was comprised of
14 properties. The OREO portfolio consists of 4 commercial properties
which constitute 65% of the total OREO portfolio, 6 residential
properties, including multifamily homes, representing 26% of the total
OREO portfolio, and 4 parcels of land comprising the remaining 9% of the
portfolio.
OREO properties are carried at the lower of carrying value of the related
loan or fair value of the foreclosed property at date acquired through
foreclosure less the cost to dispose. Fair value of OREO properties is
determined using the Company's most recent appraisal or a more recent
broker's valuation. In order to facilitate the sale and ultimate
disposition of OREO, the Bank may finance the sale of a property at
market rates to qualified, credit-worthy borrowers. The Company values
its OREO properties based on an asset by asset review and on the
assumption that an active market exists for those properties. The
Company's primary valuation technique is to derive values from available
comparable sales data and not from other evaluation criteria such as
discounted cash flows. In making the assumption that an active market
exists for OREO properties, the Company has made the determination that
the properties are salable within approximately one year, and has valued
each property at an amount which the Company anticipates will permit the
sale of such property within approximately one year. Although the
Company actively markets all OREO properties for sale, no assurance can
be given that properties will actually sell in approximately one year,
such sales being dependent upon relevant market conditions which will
vary from property to property, and include such factors as the number of
comparable properties available for purchase at the time, the
availability of financing and the stability or trends of real estate
values in the area. The following table reflects OREO activity for the
last five quarterly periods.
<PAGE>
<TABLE>
<CAPTION>
OTHER REAL ESTATE OWNED
QUARTERLY ANALYSIS
(dollars in thousands)
QUARTER ENDED
<S> <C> <C> <C> <C> <C>
DESCRIPTION 06/30/95 03/31/95 12/31/94 09/30/94 06/30/94
____________________________________________________________________________
Beginning book value $1,453 $1,852 $2,105 $3,169 $5,177
Properties added 180 42 101 23 305
Proceeds from OREO sold (398) (296) (186) (590) (2,005)
Gains(losses) on
properties sold (103) 14 (35) (24) (5)
Other activity (8) (157) (129)
Property writedowns (30) (159) (125) (316) (174)
_______ _______ _______ _______ _______
Ending book value $1,102 $1,453 $1,852 $2,105 $3,169
</TABLE>
OPERATING EXPENSES
Operating expenses decreased $749,000, or 11.5%, from $6,526,000 for the
six months ending June 30, 1994 to $5,777,000 for the same 1995 period.
OREO expense, examination and professional fees and other operating
expenses were primarily responsible for the decrease in operating
expenses during the first six months of 1995 as compared to the same 1994
period.
OREO expense comprised of losses on sales and writedowns on OREO
properties and associated direct holding costs declined $438,000, or 59%,
from $740,000 for the six months ended June 30, 1994 to $302,000 for the
same 1995 period. Examination and professional fees decreased $97,000,
or 25%, from $389,000 for the six months ended June 30, 1994 to $292,000
for the same 1995 period which resulted from lower legal expenses related
to problem assets. Salaries and employee benefits remained flat at
$2,710,000 for the first six months of 1995 as compared to $2,736,000 for
the same 1994 period. The Company's full-time equivalent positions as of
June 30, 1995 is 139 as compared to 142 as of June 30, 1994. The
reduction in other operating expenses of $162,000 from the six month
period ended June 30, 1994 to June 30, 1995 primarily consisted of
approximately $80,000 in fraudulent check losses experienced in 1994.
Operating expenses decreased $416,000, or 12.6%, from $3,301,000 for the
three months ending June 30, 1994 to $2,885,000 for the same 1995 period.
Similar to the six month operating expense comparisons, OREO expense,
examination and professional fees and other operating expenses were
primarily responsible for the decrease in operating expenses during the
second quarter of 1995 as compared to the same 1994 period.
PROVISION (BENEFIT) FOR INCOME TAXES
The provision for income taxes for the second quarter of 1995 was $5,000,
representing an effective tax rate of 2.3%. The effective tax rate
reflects the utilization of net operating loss carryforwards and state
and alternative minimum federal taxes.
Income tax benefits for the six months ended June 30, 1995 were $480,500.
Tax benefits of $504,000, less $18,500 of state and alternative minimum
federal taxes, were recorded in the first quarter of 1995 for recognition
of deferred tax amounts relating to the realization of net operating loss
carryforwards on 1996 earnings. No additional deferred tax assets
relating to 1996 or other future periods were recognized in the second
quarter of 1995.
Gross deferred tax assets and liabilities were approximately $14.5
million and $.7 million, respectively, as of June 30, 1995. A valuation
allowance of approximately $13.3 million was established for a
significant portion of the deferred tax assets. The net deferred tax
assets after valuation allowance were $500,000 as of June 30, 1995 and
were included in other assets in the financial statements. The level of
valuation allowance is management's best judgment regarding the amount
and timing of future taxable income and estimated reversal patterns of
temporary differences.
As a result of the Company's net operating losses in prior years, it has
federal and state tax net operating loss carryforwards of approximately
$20.8 million and $31.1 million, respectively, as of December 31, 1994.
Such net operating loss carryforwards can be used to offset future
taxable income based on management's estimate of the amount of taxable
income to be generated in future periods. The federal tax net operating
loss carryforwards expire in the years from 1997 to 2009 while the state
tax net operating loss carryforwards expire from 1995 to 1999.
CAPITAL ADEQUACY
The Company and the Bank are subject to the capital adequacy rules of
several regulators. Effective December 19, 1992, each federal banking
agency issued final rules to carry out the "prompt corrective action"
provisions of the Federal Deposit Insurance Corporation Improvement Act
of 1991 (the "Improvement Act"). The regulations adopted, among other
things, defined capital measures and the capital thresholds for each of
the five capital categories established in the statute and established a
uniform schedule for filing of capital restoration plans by
undercapitalized institutions. The following table identifies generally
the capital measures and thresholds defined under the FDIC and Federal
Reserve Board rules.
<TABLE>
<CAPTION>
Total Tier 1 Tier 1
Risk-Based Risk-Based Leverage
Ratio Ratio Ratio
<S> <C> <C> <C>
Well Capitalized 10% or above & 6% or above & 5% or above
Adequately Capitalized 8% or above & 4% or above & 4% or above
Undercapitalized Under 8% or Under 4% or Under 4%
Significantly Undercapitalized Under 6% or Under 3% or Under 3%
Critically Undercapitalized A ratio of
tangible
equity to
total
assets
equal to or
under 2%
</TABLE>
To fall within the well capitalized or adequately capitalized capital
category, the financial institution must meet the requirements of all
three capital measurements. Undercapitalized and significantly
undercapitalized institutions will be categorized as such if the
institution falls within any of those three capital measurements. The
risk-based capital guidelines establish a measurement of capital adequacy
by relating a banking organization's capital to its financial risks, both
on- and off-balance sheet. As of June 30, 1995, December 31, 1994 and
June 30, 1994, the Company's total risk-based capital ratio was 8.4%,
8.1% and 7.6%, respectively. The second capital measure is the Tier 1
risk-based ratio, which includes only core capital as it measures the
relationship to risk-weighted assets. As of June 30, 1995, December 31,
1994 and June 30, 1994, the Company's Tier 1 risk-based ratio was 7.1%,
6.8%, and 6.3%, respectively. The third capital adequacy measure is the
Tier 1 (or core) leverage capital (using the same definition of capital
as used in the risk-based guidelines) to average total assets. The
Company's Tier 1 leverage ratio was 4.8%, 4.7%, and 4.6% as of June 30,
1995, December 31, 1994 and June 30, 1994, respectively. As of June 30,
1995, based on the above criteria, the Company falls within the
adequately capitalized category. The Bank also falls within the
adequately capitalized category.
The reporting of debt and equity securities (not held for trading
activities or to maturity) for the purposes of calculating Tier 1 capital
for the Company and the Bank differs from reporting under SFAS 115. Under
final FDIC regulations, net unrealized losses for equity securities that
are available for sale are included in the calculation of Tier 1 capital.
All other net unrealized gains or losses on available for sale securities
are excluded from the definition of Tier 1 capital. As of June 30, 1995,
Tier 1 capital was reduced $212,000 to reflect the unrealized
depreciation on the Company's equity securities held as available for
sale.
At the conclusion of its regulatory examination, the FDIC, based on the
Bank's improved overall financial condition, has removed the Order and
has issued a less stringent Memorandum of Understanding. See "Regulatory
Matters" for further discussion. The Company's principal subsidiary, The
Bank of New Haven, voluntarily agreed to enter into the Memorandum
effective May 16, 1995. The Memorandum requires, among other things, the
Bank to achieve certain Tier 1 leverage and total risk-based capital
requirements.
The Improvement Act also requires each federal banking agency to revise
its risk-based capital standards for insured institutions to ensure that
those standards take adequate account of interest rate risk,
concentration of credit risk, and risks of nontraditional activities and
reflect the actual performance and expected risk of loss on multi-family
residential loans. While the FDIC has published proposed regulations for
the purpose of amending its risk-based capital standards, the Company
cannot predict what may be required under any final regulations that may
be adopted. Such regulations could, however, further increase the
regulatory capital requirements which are applicable to the Company and
the Bank.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The liquidity process is monitored by the Company's Asset Liability
Committee ("ALCO"), which meets regularly to implement its
asset/liability and funds management policy. ALCO's role is to evaluate
liquidity and interest rate risk and their impact on earnings. The
Committee developed a reporting system that integrates the current
interest rate environment of the national and local economy with the
maturities and the repricing schedules of both the assets and liabilities
of the Company. The objective of ALCO is to manage the Company's assets
and liabilities to provide an optimum and stable net interest margin and
to facilitate a constant level of net interest income.
The primary focus of the Company's liquidity management is appropriately
to match cash inflows and outflows with funds provided by the Company's
market for deposits and loans. The Company's objective is to maintain
adequate cash which is invested in federal funds. During the first six
months of 1995, the average balance of federal funds sold was $4,975,000.
In the event the Company needs to borrow cash to manage its overnight
position or short-term position, the Company can borrow up to 2% of its
assets, $6,058,000 as of June 30, 1995, on an overnight basis from the
Federal Home Loan Bank of Boston and $15 million in short- and long-term
advances. As of June 30, 1995, the Company had no overnight borrowings
outstanding from the Federal Home Loan Bank of Boston and has borrowed
$7.5 million, on average, during the first six months of 1995 in term
advances. In addition, the Company has access to $7,000,000 in short-
term funds via reverse repurchase agreements with two brokerage firms.
The Company's investment portfolio also provides a secondary source of
liquidity.
At June 30, 1995, the Company's liquidity ratio as defined by FDIC
criteria was 28.3% compared to 25.9% and 25.5% as of December 31, 1994
and June 30, 1994. The liquidity ratio is defined as the total of net
cash, short-term investments and other marketable assets, divided by
total net deposits and short-term liabilities. Management believes that
its liquidity position is adequate as of June 30, 1995.
Effective January 1, 1994, the Company adopted the provisions of the
Statement of Financial Accounting Standard No. 115 ("SFAS 115"),
"Accounting for Certain Investments in Debt and Equity Securities".
Under SFAS 115, debt securities classified as held to maturity are
reported at amortized cost. Debt and equity securities (not held for
trading activities or to maturity) are reported at fair value with
unrealized gains or losses excluded from income and reported as a
separate component of shareholders' equity. In order to classify
securities as held to maturity, management must have the positive intent
and ability to hold the securities to maturity.
The Company generated a negative aggregate cash flow of $2,642,000 for
the six months ended June 30, 1995, as compared to a positive aggregate
cash flow of $6,825,000 for the same 1994 period. Cash flows provided by
operating activities were $2,916,000 and $2,013,000 for the six months
ending June 30, 1995 and June 30, 1994, respectively. This was due in
part to significant non-cash charges for the provision for loan losses
and writedowns on OREO. Net cash used by financing activities was
$2,099,000 and $11,497,000 for the six months ending June 30, 1995 and
1994, respectively. For the six months ended June 30, 1995, net cash
provided by financing activities was primarily attributed to time
deposits and proceeds from FHLB advances, offset by a reduction in the
Company's core deposits. During the first six months of 1994, net funds
provided by financing activities were attributed to increases in both
core and time deposits, FHLB advances, as well as increases in short-term
borrowings through repurchase agreements and Federal Funds. Net cash
used by investing activities was $7,657,000 and $6,685,000 for the six
months ending June 30, 1995 and June 30, 1994. The cash used by
investing activities for the six months ended June 30, 1995 was primarily
due to net purchases of investment securities available for sale and a
net increase in federal funds sold partially offset by the sale of
investment securities held as available for sale. For the six months
ended June 30, 1994, cash used by investing activities was due to loans
originated offset by a decrease in federal funds sold and investment
securities maturities.
The Company concentrates its efforts on evaluating interest rate risk and
appropriately adjusts for changes in rates and maturities of its assets
and liabilities. The Company's objective is to provide stable net
interest income. The table below illustrates the ratio of rate sensitive
assets to rate sensitive liabilities as they mature and/or reprice within
the indicated periods. As of June 30, 1995, the Company's rate sensitive
assets repricing or maturing approximately equalled its rate sensitive
liabilities during the first six months. This results from having
approximately 40% of the Company's loan portfolio available to reprice
within thirty days. In an increasing rate environment, asset sensitivity
enhances earnings potential, whereas liability sensitivity would
negatively impact earnings. In contrast, in a declining rate
environment, asset sensitivity would negatively impact earnings, whereas
liability sensitivity enhances earnings potential. The Company is
"liability sensitive" between the periods of seven to twelve months and
beyond one year which is primarily due to its demand and savings
accounts, which are considered relatively stable and not easily
influenced by changes in interest rates. At June 30, 1995, the amount of
the Company's cumulative gap with respect to assets and liabilities
maturing or repricing within one year was $11,353,000 more liabilities
than assets repricing (a negative gap position), representing a negative
4% cumulative gap to total rate sensitive assets. ALCO manages the gap
position on an ongoing basis to assure an interest rate risk not to
exceed more than a 3% change in net interest income for a one year
period. If interest rates were to immediately increase by 200 basis
points, the negative impact on the Company would be within ALCO's
tolerance level.
The following table sets forth the distribution of the repricing of the
Company's earning assets and interest bearing liabilities at a single
point in time, as of June 30, 1995. The table shows the interest rate
sensitivity gap (i.e., interest rate sensitive assets less interest rate
sensitive liabilities), the cumulative interest rate sensitivity gap, the
interest rate sensitivity gap ratio (i.e., interest rate sensitive assets
divided by interest rate sensitive liabilities) and the cumulative
interest rate sensitivity gap ratio. The table also sets forth the time
periods in which interest earning assets and interest bearing liabilities
will mature or may reprice in accordance with their contractual terms.
However, the table does not necessarily indicate the impact of general
interest rate movements on the net interest margin since the Company's
repricing of various categories of assets and liabilities is subject to
competitive pressures and the needs of the Company's customers. The
Company's interest rate sensitivity position is adjusted as ALCO's
assessment of the interest rate outlook and other factors are modified.
As the Company increases its total assets, the overall business plan
provides for matching its assets and liabilities to reduce interest rate
risk and liquidity risk.
<PAGE>
<TABLE>
<CAPTION>
Interest - Rate Sensitivity
Table
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
March 31, 1995 Month 1 Month 2 Month 3 Months Months Over Total
4-6 7-12 1 Year
_____________________________________________________________________________
Rate Sensitive Assets:
Loans (1) $82,497 $2,917 $3,429 $12,689 $22,452 $73,098 $197,082
Investments 12,371 4,480 6,756 13,466 6,074 31,566 74,713
_______ ______ ______ ______ _______ _______ ________
Total Rate
Sensitive Assets 94,868 7,397 10,185 26,155 28,526 104,664 271,795
Rate Sensitive
Liabilities:
Time deposits 9,726 3,950 3,464 30,815 43,445 37,608 129,008
Other deposits 81,584(2) 1,500 1,000 1,000 2,000 73,320(3) 160,404
_______ ______ ______ ______ ______ _______ _______
Total Rate
Sensitive
Liabilities 91,310 5,450 4,464 31,815 45,445 110,928 289,412
Net Gap 3,558 1,947 5,721 (5,660) (16,919) (6,264) (17,617)
______ ______ ______ ______ ______ _______ ______
Cumulative Gap 3,558 5,505 11,226 5,566 (11,353) (17,617) (17,617)
Net Gap as % of
total rate
sensitive
assets 1% 1% 2% -2% -6% -2% -6%
Cumulative Gap as %
of total rate
sensitive assets 1% 2% 4% 2% -4% -6% -6%
(1) Excludes nonaccrual loans
(2) The Company has assumed that 100% of money market and NOW accounts
will reprice within 30 days based on local market conditions.
(3) The Company has assumed that 90% of demand and savings deposits will
not be withdrawn in less than one year based on its analysis of Bank and
industry experiences for the rate of runoff of such deposits.
</TABLE>
PART II - OTHER INFORMATION
ITEMS 1-3 Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY-
HOLDERS
On April 25, 1995, BNH Bancshares, Inc. held its Annual Meeting of
Shareholders. At such meeting, the Company's shareholders were asked to
vote upon the following proposals:
Proposal 1 the election of directors;
Proposal 2 ratification of the selection of Price Waterhouse
as independent accountants for the Company for the
fiscal year ended December 31, 1995.
The following is the name of each director elected at the meeting, which
includes all directors whose term as director will continue after such
Annual Meeting, and a description of the number of votes cast for,
against or withheld, abstentions and broker non-votes as to the election
of each nominee for director:
<TABLE>
Proposal 1
Election of Votes Against Broker
Directors Votes For or Withheld Abstentions Non-Votes
<S> <C> <C> <C> <C>
Richard L. Ades 12,878,890 104,431 0 0
Stephen P. Ahern 12,875,651 107,670 0 0
Martin R. Anastasio 12,878,015 105,306 0 0
George M. Dermer 12,878,890 104,431 0 0
Thomas M. Donegan 12,879,940 103,381 0 0
Albert M. D'Onofrio 12,880,940 102,381 0 0
Victor B. Hallberg 12,881,890 101,431 0 0
Theodore F. Hogan, Jr. 12,881,840 101,481 0 0
Karl J. Jalbert 12,881,790 101,531 0 0
Lawrence M. Liebman 12,877,613 105,708 0 0
F. Patrick McFadden, Jr. 12,879,720 103,601 0 0
Carl M. Porto 12,881,940 101,381 0 0
Vincent A. Romei 12,881,940 101,381 0 0
Stanley Scholsohn 12,880,790 102,531 0 0
Cheever Tyler 12,877,295 106,026 0 0
Proposal 2 12,929,925 16,777 36,619 0
</TABLE>
ITEM 5 OTHER INFORMATION - None.
ITEM 6 Exhibits and Reports on Form 8-K: None.
<PAGE>
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.
Date: August 10, 1995 /s/ F. Patrick McFadden, Jr.
F. Patrick McFadden, Jr.
President/Chief Executive Officer
Date: August 10, 1995 /s/ John F. Trentacosta
John F. Trentacosta
Executive Vice President/
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains Summary Financial Information extracted from Form 10-Q
dated 6/30/95 and is qualified in its entirety by reference to such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 19,370
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 33,832
<INVESTMENTS-CARRYING> 36,672
<INVESTMENTS-MARKET> 0<F1>
<LOANS> 207,062
<ALLOWANCE> 6,717
<TOTAL-ASSETS> 302,916
<DEPOSITS> 279,924
<SHORT-TERM> 6,770
<LIABILITIES-OTHER> 859
<LONG-TERM> 1,374
<COMMON> 147
0
0
<OTHER-SE> 13,841
<TOTAL-LIABILITIES-AND-EQUITY> 302,916
<INTEREST-LOAN> 9,286
<INTEREST-INVEST> 1,936
<INTEREST-OTHER> 131
<INTEREST-TOTAL> 11,354
<INTEREST-DEPOSIT> 4,442
<INTEREST-EXPENSE> 4,777
<INTEREST-INCOME-NET> 6,576
<LOAN-LOSSES> 2,288
<SECURITIES-GAINS> 6
<EXPENSE-OTHER> 5,777
<INCOME-PRETAX> (46)
<INCOME-PRE-EXTRAORDINARY> (46)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 434
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
<YIELD-ACTUAL> 4.7
<LOANS-NON> 6,670
<LOANS-PAST> 186
<LOANS-TROUBLED> 2,824
<LOANS-PROBLEM> 3,645
<ALLOWANCE-OPEN> 6,827
<CHARGE-OFFS> 2,581
<RECOVERIES> 183
<ALLOWANCE-CLOSE> 6,717
<ALLOWANCE-DOMESTIC> 6,717
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0<F1>
<FN>
<F1>not reported on a quarterly basis
</FN>
</TABLE>
