SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended
December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-16455
NEWMIL BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1186389
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
19 Main St., P.O. Box 600, New Milford, Conn. 06776
(Address of principal executive offices) (Zip Code)
(860) 355-7600
(Registrant's telephone number, including area code)
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
The number of shares of Common Stock outstanding as of December 31, 1996 is
4,042,390.
NEWMIL BANCORP, INC. and SUBSIDIARY
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements:
Consolidated Balance Sheets as of
December 31, 1996 and June 30, 1996. . . . . . . . . . . . . . . .3
Consolidated Statement of Income
for the three month and six month
periods ended December 31, 1996 and 1995 . . . . . . . . . . . . .4
Consolidated Statements of Cash Flows
for the six month periods ended
December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . .5
Notes to Consolidated Financial Statements . . . . . . . . . . . .7
Item 2 Management's Discussion and Analysis
of Financial Condition and Results
of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . 13
PART II OTHER INFORMATION
Item 1 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 28
Item 4 Submission of matters to a vote of
security holders . . . . . . . . . . . . . . . . . . . . . . . . 28
Item 5 Other information. . . . . . . . . . . . . . . . . . . . . . . . 28
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 28
<TABLE>
<CAPTION>
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)
December 31, June 30,
1996 1996
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,802 $ 6,630
Federal funds sold 17,300 10,960
Securities:
Available-for-sale at market 44,467 50,171
Held-to-maturity at amortized cost
(market value: $71,328 and $73,364) 72,787 75,412
Loans (net of allowance for
loan losses: $5,022 and $4,866) 158,545 150,558
Real estate acquired
(net of valuation reserve: $441 and $474) 869 2,224
Bank premises and equipment, net 6,056 6,219
Accrued income 1,829 1,874
Deferred tax asset, net 3,571 4,612
Other assets 637 703
Total Assets $311,863 $309,363
LIABILITIES and SHAREHOLDERS' EQUITY
Deposits
Demand (non-interest bearing) $ 11,146 $ 10,750
NOW accounts 25,342 25,653
Money market 61,163 60,945
Savings and other 37,760 40,531
Certificates of deposit 128,443 121,388
Total deposits 263,854 259,267
Securities sold under agreement to repurchase 5,071 14,776
Federal Home Loan advances 8,000 -
Accrued interest and other liabilities 2,199 3,428
Total Liabilities 279,124 277,471
Commitments and contingencies - -
Shareholders' Equity
Common stock - $.50 per share par value
Authorized - 20,000,000 shares
Issued - 5,987,888 and 5,987,388 shares 2,994 2,994
Paid-in capital 44,191 44,189
Retained earnings 6,217 5,413
Unrealized losses on securities
available-for-sale, net (313) (511)
Unrealized losses on securities transferred
to held-to-maturity, net (1,212) (1,255)
Treasury stock, at cost - 1,945,498
and 1,917,498 shares (19,138) (18,938)
Total Shareholders' Equity 32,739 31,892
Total Liabilities and Shareholders' Equity $311,863 $309,363
</TABLE>
<TABLE>
<CAPTION>
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF INCOME
(in thousands except per share amounts)
(unaudited)
Three months ended Six months ended
December 31, December 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $3,607 $3,456 $7,154 $6,928
Interest on securities 1,795 1,940 3,674 3,923
Dividend income 22 22 47 46
Interest on federal funds sold 232 46 402 68
Total interest and dividend
income 5,656 5,464 11,277 10,965
INTEREST EXPENSE
Deposits 2,518 2,522 4,995 5,008
Borrowed funds 178 125 372 299
Total interest expense 2,696 2,647 5,367 5,307
Net interest and dividend income 2,960 2,817 5,910 5,658
PROVISION FOR LOAN LOSSES 100 100 200 200
Net interest and dividend
income after provision
for loan losses 2,860 2,717 5,710 5,458
NON-INTEREST INCOME
Service charges on deposit accounts 249 218 483 413
Securities losses, net (5) (55) (10) (45)
Gains on mortgage loans, net 48 - 74 5
Loan servicing fees 27 32 56 64
Other 64 61 132 130
Total non-interest income 383 256 735 567
NON-INTEREST EXPENSE
Salaries 930 824 1,911 1,678
Employee benefits 221 208 478 432
Occupancy 218 186 430 365
Equipment 174 166 348 337
Insurance 20 54 39 76
Collection and real estate
acquired, net of (gains) (65) 92 (50) 308
Professional services 88 110 162 234
Marketing 66 51 97 86
Shareholders relationship 45 29 52 77
Other 434 369 823 685
Total non-interest expense 2,131 2,089 4,290 4,278
INCOME BEFORE INCOME TAXES 1,112 884 2,155 1,747
Provision for income taxes 467 365 905 723
NET INCOME $ 645 $ 519 $1,250 $1,024
Earnings per share $0.15 $0.11 $0.29 $0.22
Dividends per share $0.06 $0.05 $0.11 $0.07
</TABLE>
<TABLE>
<CAPTION>
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Six months
ended
December 31,
1996 1995
<S> <C> <C>
Operating Activities
Net income $1,250 $1,024
Adjustments to reconcile net income
to net cash provided
by operating activities:
Provision for loan losses 200 200
Provision for losses on
real estate acquired - 172
Provision for depreciation and
amortization 307 273
Decrease in deferred income tax asset 881 698
Amortization and accretion of securities
premiums and discounts, net 42 198
Securities losses, net 10 45
Realized gains on loan sales, net (74) (5)
Realized gains on sales of real
estate acquired, net (154) (183)
Decrease in accrued income 46 145
Decrease in accrued interest
and other liabilities (1,141) (403)
Decrease in other assets, net 65 104
Net cash provided by
operating activities 1,432 2,268
Investing Activities
Proceeds from sales of securities
available-for-sale 12,681 3,942
Proceeds from maturities and principal
repayments of securities 1,859 2,210
Proceeds from sale of available-for-sale
mortgage backed securities 348 942
Purchases of securities available-for-sale (7,991) -
Purchase of trading securities - (5,900)
Principal collected on mortgage backed
securities 1,780 2,428
Loan advances, net (8,338) (44)
Proceeds from sale of real estate
acquired 1,838 1,731
Payments to improve real estate acquired (104) (546)
Net purchases of Bank premises
and equipment (144) (219)
Net cash provided by
investing activities 1,929 4,544
Financing Activities
Net increase in deposits 4,500 4,166
Net repayments of repurchase agreements (9,705) (7,520)
Net proceeds from (repayments of) FHLB advances 8,000 (2,000)
Treasury stock purchase (200) -
Cash dividends paid (446) (315)
Proceeds from exercise of stock options 2 13
Net cash provided (used) by
financing activities 2,151 (5,656)
Increase in cash and cash equivalents 5,512 1,156
Cash and federal funds sold, beginning
of year 17,590 14,291
Cash and federal funds sold, end of year $23,102 $15,447
Cash paid during period
Interest to depositors $ 4,908 $ 4,974
Interest on borrowings 411 127
Income taxes 405 94
Non-cash transfers
From securities held-to-maturity
to securities available-for-sale - 40,530
From loans to real estate acquired 225 2,913
</TABLE>
NEWMIL BANCORP, INC. and SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
The interim consolidated financial statements of NewMil Bancorp, Inc.
(the "Company") include those of the Company and its wholly-owned
subsidiary, New Milford Savings Bank (the "Bank"). Certain prior period
amounts in the statements of operations and balance sheets have been
reclassified to conform with the current financial presentation. In the
opinion of management, the interim unaudited consolidated financial
statements include all adjustments (consisting of normal recurring
adjustments ) necessary to present fairly the financial position of the
Company and the statements of operations and cash flows for the interim
periods presented.
The financial statements have been prepared in accordance with generally
accepted accounting principles. In preparing the financial statements,
management is required to make extensive use of estimates and
assumptions that affect the reported amounts of assets and liabilities
as of the date of the statement of condition, and revenues and expenses
for the period. Actual results could differ significantly from those
estimates. Material estimates that are particularly susceptible to
significant change in the near term relate to the determination of the
allowance for loan losses and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans. In connection
with the determination of the allowance for loan losses and valuation of
real estate, management obtains independent appraisals for significant
properties.
Certain financial information which is normally included in financial
statements prepared in accordance with generally accepted accounting
principles, but which is not required for interim reporting purposes,
has been condensed or omitted. Operating results for the six month
period ended December 31, 1996 are not necessarily indicative of the
results that may be expected for the year ended June 30, 1997. The
accompanying condensed financial statements should be read in
conjunction with the financial statements and notes thereto included in
the Company's Annual Report for the year ended June 30, 1996.
Effective July 1, 1996 the Company adopted the provisions of Statement
of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of". SFAS 121 establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles and
goodwill related to those assets to be held and used and for long-lived
assets and certain identifiable intangibles to be disposed of. The
adoption of this standard did not have a material effect on the
Company's financial condition or its results of operations.
Effective July 1, 1996 the Company adopted the provisions of Statement
of Financial Accounting Standards No. 122 (SFAS 122), "Accounting for
Mortgage Servicing Rights". SFAS 122 amends SFAS No. 65 "Accounting for
Certain Mortgage Banking Activities". It requires that the Company
recognize an asset for rights to service mortgage loans for others,
however those servicing rights are acquired. It also requires the
Company to assess its capitalized mortgage servicing rights for
impairment based on the fair value of those rights. The loans sold,
with servicing retained, was minimal for the six months ended December
31, 1996, therefore, the adoption of this standard did not have a
material effect on the Company's financial condition or its results of
operations.
Effective January 1, 1997 the Company adopted the provisions of
Statement of Financial Accounting Standards No. 125 (SFAS 125),
"Accounting for Transfers and Serving of Financial Assets and
Extinguishment of Liabilities". SFAS 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishing of liabilities occurring after December 31, 1996, on a
prospective basis. The adoption of this standard will not have a
material effect on the Company's financial condition or its results of
operations.
NOTE 2 - SECURITIES
Securities classified available-for-sale (carried at fair value) are as
follows:
<TABLE>
<CAPTION>
(dollars in thousands) Estimated Gross Amort-
fair unrealized ized
value gains losses cost
<S> <C> <C> <C> <C>
December 31, 1996
U.S. Government Agencies
Within 5 years $26,054 $121 $ 3 $25,936
After 5 and within 10 years 966 - 34 1,000
Mortgage backed securities 6,945 116 40 6,869
Collateralized mortgage
obligations 8,955 - 682 9,637
Total debt securities 42,920 237 759 43,442
Federal Home Loan Bank stock 1,547 - - 1,547
Total securities
available-for-sale $44,467 $237 $759 $44,989
June 30, 1996
U.S. Government Agencies
Within 5 years $17,940 $ 22 $ 2 $17,920
After 5 and within 10 years 938 - 63 1,001
Mortgage backed securities 7,772 127 134 7,779
Collateralized mortgage
obligations 21,974 - 802 22,776
Total debt securities 48,624 149 1,001 49,476
Federal Home Loan Bank stock 1,547 - - 1,547
Total securities
available-for-sale $50,171 $149 $1,001 $51,023
</TABLE>
Securities classified held-to-maturity (carried at amortized cost) are
as follows:
<TABLE>
<CAPTION>
(dollars in thousands) Gross Estimated
Amortized unrealized fair
cost(a) gains losses value
<S> <C> <C> <C> <C>
December 31, 1996
Mortgage backed securities $ 9,759 $ - $ 47 $ 9,712
Collateralized mortgage
obligations 63,028 222 1,634 61,616
Total securities
held-to-maturity $72,787 $ 222 $1,681 $71,328
June 30, 1996
Mortgage backed securities $10,980 $ - $ 222 $10,758
Collateralized mortgage
obligations 64,432 6 1,832 62,606
Total securities
held-to-maturity $75,412 $ 6 $2,054 $73,364
</TABLE>
(a) Securities transferred from available-for-sale are carried at
estimated fair value as of the transfer date and adjusted for
subsequent amortization.
Securities with an amortized cost and market value of $11,214,000 and
$11,235,000, respectively, were pledged as collateral against repurchase
agreements and public funds at December 31, 1996.
Cash proceeds and realized gains and losses from sales of securities
during the six month periods ended December 31 are as follows:
<TABLE>
<CAPTION>
(dollars in thousands) Cash Realized Realized
proceeds gains losses
<S> <C> <C> <C>
Six months ended December 31, 1996
Available-for-sale
Mortgage backed securities $ 348 $ 17 $ -
Collateralized mortgage
obligation $12,681 $ 3 $ 30
Total $13,029 $ 20 $ 30
Six months ended December 31, 1995
Available-for-sale
Mortgage backed securities $ 942 $ 4 $ -
Collateralized mortgage obligations 3,932 - 62
Marketable equity securities (a) 10 10 -
Total $4,884 $ 14 $ 62
</TABLE>
(a) Represents the settlement proceeds from a class action suit
relating to a previously held equity security.
NOTE 3 - LOANS
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
(in thousands) 1996 1996
<S> <C> <C>
Real estate mortgages:
One-four family residential $ 89,434 $ 89,159
Five or more family residential 5,985 3,262
Commercial 27,637 30,408
Land 8,841 9,472
Commercial and industrial 11,031 6,130
Home equity lines of credit 17,921 14,474
Installment and other 2,855 2,658
Total loans, gross 163,704 155,563
Deferred loan origination fees, net (137) (139)
Allowance for loan losses (5,022) (4,866)
Total loans, net $158,545 $150,558
Impaired loans
With valuation allowance $2,191 $2,688
With no valuation allowance 5,175 3,900
Total impaired loans 7,366 6,588
Valuation allowance 868 813
</TABLE>
Changes in the allowance for loan losses for the six month periods ended
December 31, are as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
<S> <C> <C>
Balance, beginning of period $4,866 $5,372
Provision for losses 200 200
Charge-offs (46) (441)
Recoveries 2 2
Balance, end of period $5,022 $5,133
</TABLE>
NOTE 4 - NON-PERFORMING ASSETS
The components of non-performing assets were as follows:
<TABLE>
<CAPTION>
December 31, June 30,
(in thousands) 1996 1996
<S> <C> <C>
Non-accrual loans $3,697 $3,809
Accruing loans past due
90 days or more 241 166
Accruing troubled debt
restructured loans 277 281
Total non-performing loans 4,215 4,256
Real estate acquired 1,310 2,698
Allowance for estimated losses (441) (474)
Total real estate acquired, net 869 2,224
Total non-performing assets $5,084 $6,480
</TABLE>
Real estate acquired includes collateral acquired through foreclosure,
forgiveness of debt or otherwise in lieu of debt, or loans where the
Company has taken physical possession of the collateral.
Changes in the real estate acquired valuation reserve for the six month
periods ended December 31 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
<S> <C> <C>
Valuation reserve at beginning of period $474 $313
Charge-offs (33) (50)
Provision - 172
Valuation reserve at end of period $441 $435
</TABLE>
NOTE 5 - INCOME TAXES
The components of the provision for income taxes for the three and six
month periods ended December 31 are as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
1996 1995 1996 1995
(in thousands)
<S> <C> <C> <C> <C>
Current provision
Federal $ 412 $ 301 $ 759 $ 594
State 146 102 269 201
Benefit from net operating
loss carry forwards
Federal (195) (294) (325) (581)
State (140) (96) (257) (189)
Total 223 13 446 25
Deferred provision
Federal 217 239 422 515
State 27 113 37 183
Total 244 352 459 698
Income tax provision $ 467 $ 365 $ 905 $ 723
</TABLE>
Included in the Company's deferred tax assets as of December 31, 1996
were Federal net operating loss carryforwards of approximately $2.0
million (expiring in 2007) and State net operating loss carryforwards of
approximately $7.6 million (expiring in 1997) which can be applied to
reduce future Federal and State income taxes. Also included as of
December 31, 1996 were Federal and State capital loss carryforwards of
approximately $4.8 million and $4.7 million (expiring principally in
1997), respectively, which the Company does not expect to utilize
because of the discontinuation of investing in marketable equity
securities.
NOTE 6 - SHAREHOLDERS' EQUITY
Capital Requirements
The Company and the Bank are subject to minimum capital requirements
established, respectively, by the Federal Reserve Board (the "FRB") and
the Federal Deposit Insurance Corporation (the "FDIC"). The Company's
and the Bank's regulatory capital ratios at December 31, 1996, were as
follows:
<TABLE>
<CAPTION>
Company Bank
<S> <C> <C>
Leverage ratio 10.86% 10.62%
Tier I risk-based ratio 20.20% 19.77%
Total risk-based ratio 21.47% 21.04%
</TABLE>
The Company and the Bank are categorized as "well capitalized". A well
capitalized institution, as defined by the Prompt Corrective Action
rules issued by the FDIC and the FRB, is one which maintains a total
risk-based ratio of 10% or above, a Tier I risk-based ratio of 6% or
above and a leverage ratio of 5% or above. In addition to meeting these
numerical thresholds, well capitalized institutions may not be subject
to any written order, written agreement, capital directive, or prompt
corrective action directive to meet and maintain a specific capital
level.
Restrictions on Subsidiary's Dividends and Payments
The Company's ability to pay dividends is dependent on the Bank's
ability to pay dividends to the Company. There are certain restrictions
on the payment of dividends and other payments by the Bank to the
Company. Under Connecticut law the Bank is prohibited from declaring a
cash dividend on its common stock except from its net earnings for the
current year and retained net profits for the preceding two years.
Consequently, the maximum amount of dividends payable by the Bank to the
Company for the six month period ended December 31, 1996 is $7,151,000.
In some instances, further restrictions on dividends may be imposed on
the Company by the Federal Reserve Bank.
NewMil Bancorp, Inc. and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results
of operations of the Company and its subsidiary should be read in
conjunction with the Company's Annual Report on Form 10-K for the year
ended June 30, 1996.
BUSINESS
NewMil Bancorp, Inc. (the "Company"), a Delaware corporation, is a bank
holding company for New Milford Savings Bank (the "Bank"), a
Connecticut-chartered and Federal Deposit Insurance Corporation (the
"FDIC") insured savings bank headquartered in New Milford, Connecticut.
The principal business of the Company consists of the business of the
Bank. The Bank is engaged in customary banking activities, including
general deposit taking and lending activities, and conducts its business
from thirteen offices in Litchfield and northern Fairfield Counties.
The Company and the Bank were formed in 1987 and 1858, respectively.
RESULTS OF OPERATIONS
For the three month periods ended December 31, 1996 and 1995
Overview
The Company earned net income of $645,000, or $0.15 per share, for the
quarter ended December 31, 1996, the second fiscal quarter of the
Company's fiscal year. This compares with net income of $519,000, or
$0.11 per share, for the quarter ended December 31, 1995, an improvement
of 24%. The increase reflects improvements in net interest income and
non-interest income.
Analysis of net interest and dividend income
Net interest and dividend income increased $143,000, or 5.08%, for the
quarter ended December 31, 1996 as compared with the prior year period.
This increase resulted from a 2 basis points increase in net interest
margin (to 3.99% from 3.97%) in addition to a $13.1 million, or 4.62%
increase in average earning assets. The improvement in net interest
margin was driven by higher volume of interest earning assets and the
benefit of lower cost of funds, 4.11% as compared to 4.18% a year ago.
Yield on interest earning assets declined by 8 basis points as compared
to a year ago, while the cost of interest bearing liabilities declined
by 7 basis points.
The following table set forth the components of the Company's net
interest income and yields on average interest-earning assets and
interest-bearing funds for the three month periods ended December 31,
1996 and 1995.
<TABLE>
<CAPTION>
Three months ended December 31, 1996 Average Income/ Average
(dollars in thousands) balance expense yield/rate
<S> <C> <C> <C>
Loans(a) $161,653 $3,607 8.93%
Mortgage backed securities 17,225 272 6.32
Other securities(b) 117,707 1,777 6.04
Total earning assets 296,585 5,656 7.63
Other assets 11,305
Total assets $307,890
NOW accounts $24,088 90 1.50
Money market accounts 61,168 466 3.05
Savings & other 37,628 251 2.67
Certificates of deposit 126,763 1,711 5.40
Total interest-bearing deposits 249,647 2,518 4.03
Borrowings 12,810 178 5.56
Total interest-bearing funds 262,457 2,696 4.11
Demand deposits 11,131
Other liabilities 1,392
Shareholders' equity 32,910
Total liabilities and
shareholders' equity $307,890
Net interest income $2,960
Spread on interest-bearing funds 3.52
Net interest margin(c) 3.99
Three months ended December 31, 1995 Average Income/ Average
(dollars in thousands) balance expense yield/rate
Loans(a) $153,205 $3,456 9.02%
Mortgage backed securities 22,613 337 5.96
Other securities(b) 107,658 1,671 6.21
Total earning assets 283,476 5,464 7.71
Other assets 13,590
Total assets $297,066
NOW accounts $22,847 85 1.49
Money market accounts 60,785 464 3.05
Savings & other 39,178 258 2.63
Certificates of deposit 122,029 1,715 5.62
Total interest-bearing deposits 244,839 2,522 4.12
Borrowings 8,278 125 6.04
Total interest-bearing funds 253,117 2,647 4.18
Demand deposits 8,705
Other liabilities 1,479
Shareholders' equity 33,765
Total liabilities and
shareholders' equity $297,066
Net interest income $2,817
Spread on interest-bearing funds 3.53
Net interest margin(c) 3.97
</TABLE>
(a) Includes non-accrual loans.
(b) Includes interest-bearing deposits in other banks and federal funds
sold.
(c) Net interest income divided by average interest-earning assets.
<TABLE>
<CAPTION>
Three months ended December 31, 1996 versus 1995
(dollars in thousands) Change in interest due to
Volume Rate Vol/rate Net
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 191 $ (38) $ (2) $ 151
Mortgage backed securities (80) 20 (5) (65)
Other securities 156 (46) (4) 106
Total 267 (64) (11) 192
Interest-bearing liabilities:
Deposits 50 (53) (1) (4)
Borrowings 68 (10) (5) 53
Total 118 (63) (6) 49
Net change to interest income $ 149 $ (1) $ (5) $ 143
</TABLE>
Interest income
Total interest and dividend income increased $192,000, or 3.5%, for the
quarter ended December 31, 1996 as compared with the same period a year
ago. This increase is a result of an increase of $13.1 million, or
4.6%, in average earning assets, offset by a slight decline in yield.
Loan interest and fee income increased $151,000, or 4.4%, for the
quarter ended December 31, 1996 as compared with the prior year period
as a result of higher average balances, offset by lower yields, down by
9 basis points. Average loan balances increased $8.4 million, or 5.5%.
Investment and fed funds income increased $41,000, or 2.0%, for the
quarter ended December 31, 1996 as compared with the prior year period
as a result of a $4.7 million, or 3.6%, increase in average investments
offset by lower yields on investments and fed funds. Average investment
yield decreased to 6.07% for 1996 from 6.17% in 1995 as a result of the
repricing of floating rate securities. Fed funds yield decreased to
5.33% from 5.64% in 1995, reflecting the lower interest rate environment
in 1996.
Interest expense
Interest expense for the quarter ended December 31, 1996 increased
$49,000, or 1.9%, as compared to the same quarter of the prior year as
a result of increased deposit and borrowings volume offset by lower cost
of funds. Total average balances for deposits and borrowings increased
by $9.3 million, or 3.7%, for the period. Average cost of funds
decreased to 4.11% from 4.18% in 1995. This decrease reflects the lower
interest rate environment in 1996 and the resulting effect on time
deposits.
Deposit expense decreased $4,000, or 0.2%, as a result of lower deposit
rates offset by deposit growth of $4.8 million, or 2.0%. Deposit growth
has been primarily in the certificate of deposit category, which
increased $4.7 million, or 3.9%. Certificate of deposits have also seen
the most significate movement in rates since 1995, with the average cost
declining to 5.40% from 5.62% a year ago. Other deposit rates (Savings
Money Market and NOW) have remained relatively stable over the past
year.
Interest expense on borrowings increased by $53,000, or 42.4%, as a
result of higher average balances, offset in part by lower borrowing
rates. Average borrowings increased $4.5 million, or 54.7%. The
average cost of borrowings decreased 48 basis points to 5.56% in 1996
from 6.04% in 1995. The Company's borrowings are generally for terms of
one month and under.
Provision and Allowance for loan losses
The Company provided $100,000 for loan losses during the quarter ended
December 31, 1996, unchanged from the prior year period provision. The
following table details changes in the allowance for loan losses during
the three month periods ended December 31:
<TABLE>
<CAPTION>
1996 1995
(dollars in thousands)
<S> <C> <C>
Balance, beginning of period $4,931 $5,242
Provision for losses 100 100
Charge-offs (10) (209)
Recoveries 1 -
Balance, end of period $5,022 $5,133
Ratio of allowance for loan losses:
to non-performing loans 119.15% 109.73%
to total gross loans 3.07 3.37
</TABLE>
The increase in the reserve coverage to non-performing loans results
from the $463,000 decrease in non-performing loans, since December 31,
1995. For a discussion of non-performing loans see "Asset Quality and
Portfolio Risk". The decrease in reserve coverage to total loans
results from new loan originations, changes in loan mix and ongoing
credit administration efforts, all of which contribute to improvements
in the risk profile of the portfolio.
The Bank determines its allowance and provisions for loan losses based
upon a detailed evaluation of the loan portfolio through a process which
considers numerous factors, including estimated credit losses based upon
internal and external portfolio reviews, delinquency levels and trends,
estimates of the current value of underlying collateral, concentrations,
portfolio volume and mix, changes in lending policy, historical loan
loss experience, current economic conditions and examinations performed
by regulatory authorities. Determining the level of the allowance at
any given period is difficult, particularly during deteriorating or
uncertain economic periods. Management must make estimates using
assumptions and information which is often subjective and changing
rapidly. The review of the loan portfolio is a continuing event in the
light of a changing economy and the dynamics of the banking and
regulatory environment. In management's judgement the allowance for
loan losses at December 31, 1996, is adequate. Should the economic
climate begin to deteriorate, borrowers may experience difficulty and
the level of non-performing loans, charge-offs and delinquencies could
rise and require increased provisions. In addition, various regulatory
agencies, as an integral part of their examination process, periodically
review the Company's allowance for loan losses. Such agencies could
require the Company to recognize additions to the allowance based on
their judgements of information available to them at the time of their
examination. The Bank was examined by the FDIC, in March 1996. No
additions to the allowance were requested as a result of this
examination.
Non-interest income
The following table details the principal categories of non-interest
income for the three month periods ended December 31.
<TABLE>
<CAPTION>
(in thousands) 1996 1995 Change
<S> <C> <C> <C> <C>
Service charges on
deposit accounts $249 $218 $ 31 14.2%
Securities losses, net (5) (55) 50 90.9
Gains on loans, net 48 - 48 100.0
Loan servicing 27 32 (5) (15.6)
Other 64 61 3 4.9
Total non-interest income $383 $256 $127 49.6
</TABLE>
Service charges on deposit accounts increased $31,000, or 14.2%,
reflecting the increased in service charge activity as a result of
higher NOW and Demand deposit balances coupled with higher ATM activity.
Gains on loan sales result from the Company's increased activity in the
secondary market over the past year. The decrease in Loan serving fees
is a result of the lower servicing portfolio. At December 31, 1996 the
loan servicing portfolio totaled $29.9 million compared to $32.9 million
at December 31, 1995.
Operating expenses
The following table details the principal categories of operating
expenses for the three month periods ended December 31.
<TABLE>
<CAPTION>
(in thousands) 1996 1995 Change
<S> <C> <C> <C> <C>
Salaries $ 930 $ 824 $ 106 12.9 %
Employee benefits 221 208 13 6.3
Occupancy 218 186 32 17.2
Equipment 174 166 8 4.8
Insurance 20 54 (34) (63.0)
Collections and REA,
net of (gains) (65) 92 (157) (170.7)
Professional services 88 110 (22) (20.0)
Postage and telecommunications 89 70 19 27.1
Marketing 66 51 15 29.4
Other operating 390 328 62 18.9
Total operating expenses $2,131 $2,089 $ 42 2.0
</TABLE>
Salaries expense increased for the quarter ended December 31, 1996 as
compared with the prior year period due primarily to increases in
staffing, primarily in lending and retail banking and annual salary
increases of approximately 4% offset by higher deferred loan origination
expense due to higher mortgage loan origination activity. Employee
benefits expense increased primarily as a result of increased taxes and
other benefits related to the increased salary and wages. Occupancy
expense increased $32,000, as a result of increased cost of building
maintenance and an additional branch location. Collection and real
estate acquired expense decreased $157,000, due primarily to reductions
in non-performing assets over the past year coupled with gains on sales
in 1996 and the absence of a provision for OREO losses in 1996. Changes
in professional services have decreased as a result of lower consulting
and legal fees. Postage and phone expense has increased as a result of
an additional branch and increased lending activity. Marketing expense
has increased as a result of marketing our retail and lending products
in new geographic areas and the Company's continuing efforts to attract
commercial customers for deposit and lending products. Other operating
expenses, which include shareholder relations, office supplies and other
expenses, increased as a result of normal changes in operating
activities.
Income taxes
Net income for the quarter included an income tax provision of $467,000,
representing a 42% effective rate, as compared with a provision of
$365,000, a 41% effective rate, a year ago.
The Company's income tax expense of $467,000 for the quarter ended
December 31, 1996 represents deferred federal and state taxes totaling
$244,000 and minimum federal and state taxes totaling $223,000, net of
federal and state tax benefits from the utilization of net operating
loss carryforwards.
The Company's income tax expense of $365,000 for the quarter ended
December 31, 1995 represents deferred federal and state taxes totaling
$353,000 and minimum federal and state taxes totaling $13,000, net of
federal and state tax benefits from the utilization of net operating
loss carryforwards.
For the six month periods ended December 31, 1996 and 1995
Overview
The Company earned net income of $1,250,000, or $0.29 per share, for the
six month period ended December 31, 1996. This compares with net income
of $1,024,000, or $0.22 per share, for the same period ended December
31, 1995. The increased income, for the six month period, is a result
of increases in net interest income and non-interest income.
Analysis of net interest and dividend income
Net interest and dividend income increased $252,000, or 4.5%, for the
six months ended December 31, 1996 as compared with the prior year
period. This increase resulted from a 3 basis points increase in net
interest margin (to 4.00% from 3.97%) coupled with a $10.5 million, or
3.7% increase in average earning assets. The improvement in net
interest margin was driven by a 8 basis point decline in the cost of
funds while the yield on assets declined 6 basis point.
The following table set forth the components of the Company's net
interest income and yields on average interest-earning assets and
interest-bearing funds for the six month periods ended December 31, 1996
and 1995.
<TABLE>
<CAPTION>
Six months ended December 31, 1996 Average Income/ Average
(dollars in thousands) balance expense yield/rate
<S> <C> <C> <C>
Loans(a) $159,869 $7,154 8.95%
Mortgage backed securities 17,784 566 6.37
Other securities(b) 117,952 3,557 6.03
Total earning assets 295,605 11,277 7.63
Other assets 12,169
Total assets $307,774
NOW accounts $24,130 181 1.50
Money market accounts 61,384 938 3.06
Savings & other 38,604 513 2.66
Certificates of deposit 125,124 3,363 5.38
Total interest-bearing deposits 249,242 4,995 4.01
Borrowings 13,475 372 5.52
Total interest-bearing funds 262,717 5,367 4.09
Demand deposits 10,939
Other liabilities 1,502
Shareholders' equity 32,616
Total liabilities and
shareholders' equity $307,774
Net interest income $5,910
Spread on interest-bearing funds 3.54
Net interest margin(c) 4.00
Six months ended December 31, 1995 Average Income/ Average
(dollars in thousands) balance expense yield/rate
Loans(a) $154,070 $6,928 8.99%
Mortgage backed securities 23,343 689 5.90
Other securities(b) 107,711 3,348 6.22
Total earning assets 285,124 10,965 7.69
Other assets 13,173
Total assets $298,297
NOW accounts $22,544 168 1.49
Money market accounts 61,582 940 3.05
Savings & other 39,998 527 2.64
Certificates of deposit 120,521 3,373 5.60
Total interest-bearing deposits 244,645 5,008 4.09
Borrowings 9,912 299 6.03
Total interest-bearing funds 254,557 5,307 4.17
Demand deposits 8,537
Other liabilities 1,700
Shareholders' equity 33,503
Total liabilities and
shareholders' equity $298,297
Net interest income $5,658
Spread on interest-bearing funds 3.52
Net interest margin(c) 3.97
</TABLE>
(a) Includes non-accrual loans.
(b) Includes interest-bearing deposits in other banks and federal funds
sold.
(c) Net interest income divided by average interest-earning assets.
<TABLE>
<CAPTION>
Six months ended December 31, 1996 versus 1995
(dollars in thousands) Change in interest due to
Volume Rate Vol/rate Net
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 261 $ (34) $ (1) $ 226
Mortgage backed securities (164) 54 (13) (123)
Other securities 318 (100) (9) 209
Total 415 (80) (23) 312
Interest-bearing liabilities:
Deposits 94 (105) (2) (13)
Borrowings 107 (25) (9) 73
Total 201 (130) (11) 60
Net change to interest income $ 214 $ 50 $ (12) $ 252
</TABLE>
Interest income
Total interest and dividend income increased $312,000, or 2.8%, for the
six months ended December 31, 1996 as compared with the same period a
year ago.
Loan interest and fee income increased $226,000, or 3.3%, for the six
months ended December 31, 1996 as compared with the prior year period as
a result of increased loan volume, which increased $5.8 million, or
3.8%. The yield on the loan portfolio decreased to 8.95%, a decrease of
4 basis points as compared to the prior year.
Investment and fed funds income increased $86,000, or 2.1%, for the six
months ended December 31, 1996 as compared with the prior year period as
a result of a $4.7 million, or 3.6%, increase in average investments
offset by lower yields on securities. Average investment yield
decreased to 6.08% for 1996 from 6.16% in 1995 as a result of the
downward repricing of floating rate securities and changes in the mix of
the investment portfolio.
Interest expense
Interest expense for the six months ended December 31, 1996 increased
$60,000, or 1.1%, as compared to the same period in the prior year.
Total average balances for deposits and borrowings increased by $8.2
million, or 3.2%, for the period. The average cost of funds decreased
8 basis points to 4.09% for 1996 from 4.17% for 1995.
Deposit expense decreased $13,000, or 0.3%, as a result of lower deposit
rates, offset by deposit growth of $4.6 million, or 1.9%. Bank deposit
rates, particularly savings and money market rates, have remained stable
over the past year. The rates on certificates however have decreased to
5.38% in 1996 from 5.60% in 1995.
Interest expense on borrowings increased by $73,000, or 24.4%, as a
result of higher average balances, offset in part by lower borrowing
rates. Average borrowings increased $3.6 million, or 35.9%. The
average cost of borrowings decreased to 5.52% in 1996 from 6.03% in
1995, as a result of the lower interest rate environment in 1996.
Provision and Allowance for loan losses
The Company provided $200,000 for loan losses during the six months
ended December 31, 1996 and 1995. The following table details changes
in the allowance for loan losses during the six month periods ended
December 31:
<TABLE>
<CAPTION>
1996 1995
(dollars in thousands)
<S> <C> <C>
Balance, beginning of period $4,866 $5,372
Provision for losses 200 200
Charge-offs (46) (441)
Recoveries 2 2
Balance, end of period $5,022 $5,133
Ratio of allowance for loan losses:
to non-performing loans 119.15% 109.73%
to total gross loans 3.07 3.37
</TABLE>
For a detailed discussion of the Bank's allowance for loan losses see
"For the three month periods ended December 31, 1996 and 1995", above.
Non-interest income
The following table details the principal categories of non-interest
income for the six month periods ended December 31.
<TABLE>
<CAPTION>
(in thousands) 1996 1995 Change
<S> <C> <C> <C> <C>
Service charges on
deposit accounts $483 $413 $ 70 17.0%
Securities losses, net (10) (45) 35 (77.8)
Gains on loan sales, net 74 5 69 1380.0
Loan servicing 56 64 (8) (12.5)
Other 132 130 2 1.5
Total non-interest income $735 $567 $168 29.6
</TABLE>
Service charges on deposit accounts increased $70,000 reflecting both
the increased level of usage at the Bank's ATMs and higher deposit fees
reflected in a higher deposit base. During the six months the Company
realized a net gain of $74,000 from the sales of loans as a result of
increased secondary market activity.
Operating expenses
The following table details the principal categories of operating
expenses for the six month periods ended December 31.
<TABLE>
<CAPTION>
(in thousands) 1996 1995 Change
<S> <C> <C> <C> <C>
Salaries $1,911 $1,678 $ 233 13.9%
Employee benefits 478 432 46 10.6
Occupancy 430 365 65 17.8
Equipment 348 337 11 3.3
Insurance 39 76 (37) (48.7)
Collections and REA,
net of (gains) (50) 308 (358) (116.2)
Professional services 162 234 (72) (30.8)
Postage and telecommunications 173 140 33 23.6
Marketing 97 86 11 12.8
Other operating 702 622 80 12.9
Total operating expenses $4,290 $4,278 $ 12 0.3
</TABLE>
Salaries expense increased for the six month period ended December 31,
1996 as compared with the prior year period primarily as a result of
higher level of staffing, primarily in lending and an additional branch
location and annual salary increases of approximately 4%. Employee
benefits expense increased primarily as a result of the increase in
taxes related to the increased salary and wages. Occupancy expense and
equipment expense increased primarily as a result of an additional
branch location that was opened in May 1996. Insurance expense
decreased $37,000, as a result of lower FDIC deposit insurance premiums.
Collection and real estate acquired expense decreased $358,000, due
primarily to the absence of an OREO provision for losses for 1996 as
compared to a provision of $172,00 in 1995, in addition to reduced legal
fees resulting from a lower level of collection and OREO work.
Professional expense decreased $72,000, as a result of lower legal
expenses. Changes in other operating expenses, including postage and
phone, office, shareholders relationship and other, result from normal
changes in operating activities.
Income taxes
Net income for the six month period ended December 31, 1996 included an
income tax provision of $905,000, representing a 42.0% effective rate,
as compared with a provision of $723,000, representing a 41.4% effective
rate, a year ago.
The Company's income tax expense of $905,000 for the six months ended
December 31, 1996 represents deferred federal and state taxes totaling
$459,000 and minimum federal and state taxes net of federal and state
tax benefits of $325,000 and $257,000, respectively, from the
utilization of net operating loss carryforwards. The Company's income
tax expense of $723,000 for the period ended December 31, 1995
represents minimum federal and state taxes net of federal and state tax
benefits of $581,000 and $189,000, respectively, from the utilization of
net operating loss carryforwards.
ASSET QUALITY AND PORTFOLIO RISK
Loans
During the six month period ended December 31, 1996, net loans increased
by $8.0 million, or 5.3%. This increase is a result of the Company's
continuing emphasis on both commercial and retail lending.
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
(in thousands) 1996 1996
<S> <C> <C>
Real estate mortgages:
One-four family residential $ 89,434 $ 89,159
Five or more family residential 5,985 3,262
Commercial 27,637 30,408
Land 8,841 9,472
Commercial and industrial 11,031 6,130
Home equity lines of credit 17,921 14,474
Installment and other 2,855 2,658
Total loans, gross 163,704 155,563
Deferred loan origination fees, net (137) (139)
Allowance for loan losses (5,022) (4,866)
Total loans, net $158,545 $150,558
</TABLE>
During the year the Company has continued to develop relationships with
commercial customers. As a result of this commercial loans, including
both mortgages and C & I loans, have increased $2.1 million since June
30, 1996. Residential mortgage and land loans have remained relatively
flat since June 30, 1996. Home equity lines of credit increased $3.4
million, or 23.8%, as a result of successful product promotion.
Non-performing assets
The following table details changes in non-performing assets during the
six month periods ended December 31.
<TABLE>
<CAPTION>
(in thousands) 1996 1995
<S> <C> <C>
Balance, beginning of year $6,480 $8,322
Loans placed on non-accrual status 1,457 513
Increase in accruing loans past
due 90 or more days, net 75 420
Decrease in loans restructured (6) -
Payments to improve REA 104 172
Loan payments (235) (333)
Loans returned to accrual status (1,061) (60)
Loan charge-offs (46) (209)
Gross proceeds from REA sales (1,838) (743)
Gains on REA sales, net 154 183
Provision to REA valuation reserve - (172)
Balance, end of period $5,084 $8,093
Percent of total assets 1.63% 2.66%
</TABLE>
During the six months ended December 31, 1996 non-performing assets
decreased $1,396,000, or 21.5%, due principally to sales of real estate
of $1,837,000 and loans that were returned to an accruing status offset
by additions to non-performing loans and capital improvements to real
estate acquired. Additions to non-accrual loans generally represent
loans which had previously been classified on the Company's internally
monitored list and had been adequately reserved.
The following table details the composition of non-performing assets as
of December 31, 1996.
<TABLE>
<CAPTION>
Non-Performing Assets Accruing Total
(dollars in thousands) loans non-
Non- past due Restruc- Real Valuat-perform-
accrual 90 or tured estate ion ing
loans more days loans (a)acquired reserve assets
<S> <S> <C> <C> <C> <C> <C>
December 31, 1996
Real estate:
Residential $1,129 $241 - $ 415 $ - $1,785
Commercial 330 - 277 183 - 790
Land and land
development 2,233 - - 712 - 2,945
Collateral and
installment loans 5 - - - - 5
Valuation reserve - - - - (441) (441)
Totals $3,697 $241 $277 $1,310 $(441) $5,084
</TABLE>
(a) Includes accruing troubled debt restructurings.
The Company pursues the resolution of all non-performing assets through
restructurings, credit enhancements or collections. When collection
procedures do not bring a loan into performing or restructured status,
the Company generally initiates action to foreclose the property or to
acquire it by deed in lieu of foreclosure. The Company actively markets
all real estate owned. The REA valuation reserve at December 31, 1996
totaled $441,000, or 33.7% of real estate acquired. There continues to
be an oversupply of commercial and residential real estate in New
England and any decline in the real estate market could adversely affect
the market values of the Company's real estate acquired which could
require additional provisions to the valuation reserve and reductions in
the carrying values of properties.
FINANCIAL CONDITION
Total assets grew by $2.5 million, or 0.8%, to $311.9 million in the six
month period from June 30, 1996 through December 31, 1996. The increase
resulted from a $8.0 million increase in net loans, which was offset in
part by a decrease in securities and fed funds of $2.0 million. For the
six month period ended December 31, 1996, deposits have increased by
$4.6 million while borrowings are down $1.7 million.
Loans
Loans, net of the allowance for loan loss, increased $8.0 million, or
5.3%, during the six month period ended December 31, 1996. The primary
reason for this increase was the Company's continuing efforts in loan
originations. Loan originations and advances for the six month period
totaled $31.0 million, while repayments were $19.0 million. Of the
loans originated the Company sold $3.7 million in the secondary market
during the six months ended December 31, 1996.
Securities
The securities portfolio consists primarily of collateralized mortgage
obligations ("CMOs") and mortgage-backed securities ("MBSs"), and to a
lesser extent, US Treasury, agency obligations and Federal Home Loan
Bank stock. At December 31, 1996 63.7% of the portfolio was invested in
fixed rate securities, principally CMOs and US Treasury and agency
obligations and to a lesser extent MBSs. The fixed rate portfolio had
a consensus weighted average duration and life of 2.7 years and 3.1
years, respectively. Fixed rate CMOs and MBSs are generally securities
with relatively stable cash flows. The Company actively monitors the
prepayment of its CMOs and MBSs. At December 31, 1996 35.0% of the
portfolio was invested in floating rate CMOs and MBSs which generally
reprice monthly based on pre-determined spreads to underlying index,
subject to life-time caps and floors. The floating rate portfolio had
a consensus weighted average duration and life of 0.01 years and 14.7
years, respectively. The floating rate securities are tied to several
indices including the eleventh district cost of funds index ("EDCOFI"),
one-month LIBOR and Treasury indices. The remaining 1.3% of the
portfolio at December 31, 1996, was represented by Federal Home Loan
Bank stock.
At December 31, 1996, securities totaling $72.8 million, or 62.1%, were
classified as held-to-maturity and securities totaling $44.5 million, or
37.9%, were classified as available-for-sale.
All held-to-maturity securities are part of the Company's core portfolio
which the Company has the ability and positive intent to hold to
maturity. Included in shareholders' equity at December 31, 1996 is an
adjustment of $1,212,000, net of taxes, relating to securities
transferred from available-for-sale to held-to-maturity, representing
net unrealized holding losses at the time of transfer adjusted for
subsequent principal amortization and net of taxes.
Substantially all of the Company's CMOs and MBSs investments were
purchased in 1993 and early 1994. Subsequent movements in interest
rates and market conditions have resulted in a net decline in fair
market value. At December 31, 1996 net unrealized losses on both
securities available-for-sale and held-to-maturity totaled $4.0 million.
No credit losses are expected and all gains and losses are expected to
reverse as securities approach maturity. Fluctuations in fair market
value caused by movements in interest rates and market conditions will
not necessarily adversely impact future earnings.
LIQUIDITY
The Company manages its liquidity position to ensure that there is
sufficient funding availability at all times to meet both anticipated
and unanticipated deposit withdrawals, new loan originations, securities
purchases and other operating cash outflows. The principal sources of
liquidity for the Company are principal payments and maturities of
securities and loans, short term borrowings through repurchase
agreements and Federal Home Loan Bank advances, net deposit growth and
funds provided by operations. Liquidity can also be provided through
sales of loans and available-for-sale securities.
Operating activities for the six month period ended December 31, 1996
provided net cash of $1.4 million. Investing activities provided net
cash of $1.9 million principally from securities sales, principal
repayments and sales of real estate acquired, offset in part by
securities purchased, net loan advances and capitalized improvements to
real estate acquired. Financing activities provided net cash of $2.2
million, principally as a result of a net increase in deposits and
proceeds from the exercise of stock options offset by net decrease in
borrowings, dividends paid to shareholders and treasury stock purchases.
Funds provided by operating, investing and financing activities were
utilized to increase cash and cash equivalents to $23.1 million.
At December 31, 1996, the Company's liquidity ratio, as represented by
cash, short term available-for-sale securities, marketable assets and
the ability to borrow against held-to-maturity securities and loans
through unused FHLB and other short term borrowing capacity, of
approximately $190.6 million, to net deposits and short term unsecured
liabilities, was 69.4%, well in excess of the Company's minimum
guideline of 15%. At December 31, 1996, the Company had outstanding
commitments to fund new loan originations of $10.5 million, construction
mortgage commitments of $268,000 and unused lines of credit of $15.9
million. These commitments will be met in the normal course of
business. The Company believes that its liquidity sources will continue
to provide funding sufficient to support operating activities, loan
originations and commitments, and deposit withdrawals.
CAPITAL RESOURCES
Shareholders' equity increased $847,000, to $32,739,000, while book
value per share increased $0.26 to $8.10, during the six month period
ended December 31, 1996. The increase, in equity, resulted from
earnings of $1,250,000, or $0.29 per share, together with a $241,000
decrease in the adjustment to shareholders' equity for net unrealized
holding losses on securities net of taxes offset by treasury stock
purchases of $200,000 and dividends paid of $446,000.
In July 1996 the Company announced its intention to repurchase up to 10%
of its outstanding common stock over the next 18 months in the open
market and unsolicited negotiated transactions, including block
purchases. For the six months ended December 31, 1996 the Company had
repurchased 0.7% or 28,000 shares of its outstanding common stock for
total consideration of $200,000.
Shareholders' equity at December 31, 1996 included net unrealized
holding losses, net of taxes, of $313,000 on securities available-for-
sale, and an adjustment for unrealized holding losses, net of taxes, of
$1.2 million on held-to-maturity securities which had previously been
transferred from available-for-sale. Securities transferred from
available-for-sale to held-to-maturity are carried at estimated fair
value as of the transfer date and adjusted for subsequent amortization.
The Company and the Bank are subject to minimum capital requirements
established, respectively, by the Federal Reserve Board (the "FRB") and
the FDIC. At December 31, 1996 the Company's leverage capital ratio was
10.86% and its tier I and total risk-based capital ratios were 20.20%
and 21.47%, respectively. At December 31, 1996 the Bank's leverage
capital ratio was 10.62% and its tier I and total risk-based capital
ratios were 19.77% and 21.04%, respectively. The Company and the Bank
are categorized as "well capitalized". A well capitalized institution,
which is the highest capital category for an institution as defined by
the Prompt Corrective regulations issued by the FDIC and the FRB, is one
which maintains a total risk-based ratio of 10% or above, a Tier I risk-
based ratio of 6% or above and a leverage ratio of 5% or above, and is
not subject to any written order, written agreement, capital directive,
or prompt corrective action directive to meet and maintain a specific
capital level.
Dividends
The Company's ability to pay dividends is dependent on the Bank's
ability to pay dividends to the Company. There are certain restrictions
on the payment of dividends and other payments by the Bank to the
Company. Under Connecticut law the Bank is prohibited from declaring a
cash dividend on its common stock except from its net earnings for the
current calendar year and retained net profits for the preceding two
years. Consequently, the maximum amount of dividends payable by the
Bank to the Company as of December 31, 1996 was $7,151,000. In some
instances, further restrictions on dividends may be imposed on the
Company by the Federal Reserve Bank.
The Company believes that the payment of cash dividends to its
shareholders is appropriate, provided that such payment considers the
Company's capital needs, asset quality, and overall financial condition
and does not adversely affect the financial stability of the Company or
the Bank. The continued payment of cash dividends by the Company will
be dependent on the Company's future core earnings, financial condition
and capital needs, regulatory restrictions, and other factors deemed
relevant by the Board of Directors of the Company.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company or
the Bank or any of their properties, other than ordinary routine
litigation incidental to the Company's business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Computation of earnings per share.
(b) Report on Form 8-K.
None
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.
NEWMIL BANCORP, INC.
February 10, 1997 By /s/ Francis J. Wiatr
Francis J. Wiatr,
President
February 10, 1997 By /s/ B. Ian McMahon
B. Ian McMahon,
Chief Financial Officer
Exhibit 11.1
<TABLE>
<CAPTION>
NEWMIL BANCORP, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
(in thousands except per share amounts)
Three months Six months
ended ended
December 31, December 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net income
Net income - primary and
fully diluted $645 $519 $1,250 $1,024
Weighted Average Common and Common
Equivalent Stock
Weighted average common stock
outstanding 4,042 4,494 4,050 4,493
Assumed conversion as of the
beginning of each period or upon
issuance during a period of stock
options outstanding at the end
of each period 454 390 454 377
Assumed purchase of treasury stock
during each period with proceeds
from conversion of stock options
outstanding at the end of each
period (249) (248) (274) (243)
Weighted average common and common
equivalent stock outstanding
- primary 4,247 4,636 4,230 4,627
Weighted average common stock
outstanding 4,042 4,494 4,050 4,493
Assumed conversion as of the
beginning of each period or upon
issuance during a period of stock
options outstanding at the end
of each period 454 412 454 400
Assumed purchase of treasury stock
during each period with proceeds
from conversion of stock options
outstanding at the end of each
period (225) (267) (225) (257)
Weighted average common and common
equivalent stock outstanding
- fully diluted 4,271 4,639 4,279 4,636
Earnings Per Common and Common
Equivalent Share
Primary $0.15 $0.11 $0.30 $0.22
Fully diluted $0.15 $0.11 $0.29 $0.22
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's December 31, 1996 unaudited balance sheet, income statement and
cash flow statement, and notes thereto, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,802,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 17,300,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 44,467,000
<INVESTMENTS-CARRYING> 72,787,000
<INVESTMENTS-MARKET> 71,328,000
<LOANS> 163,567,000
<ALLOWANCE> 5,022,000
<TOTAL-ASSETS> 311,863,000
<DEPOSITS> 263,854,000
<SHORT-TERM> 13,071,000
<LIABILITIES-OTHER> 2,199,000
<LONG-TERM> 0
0
0
<COMMON> 2,994,000
<OTHER-SE> 29,745,000
<TOTAL-LIABILITIES-AND-EQUITY> 311,863,000
<INTEREST-LOAN> 7,154,000
<INTEREST-INVEST> 3,721,000
<INTEREST-OTHER> 402,000
<INTEREST-TOTAL> 11,277,000
<INTEREST-DEPOSIT> 4,995,000
<INTEREST-EXPENSE> 5,367,000
<INTEREST-INCOME-NET> 5,910,000
<LOAN-LOSSES> 200,000
<SECURITIES-GAINS> 10,000
<EXPENSE-OTHER> 4,290,000
<INCOME-PRETAX> 2,155,000
<INCOME-PRE-EXTRAORDINARY> 2,155,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,250,000
<EPS-PRIMARY> .30
<EPS-DILUTED> .29
<YIELD-ACTUAL> 4.00
<LOANS-NON> 3,697,000
<LOANS-PAST> 241,000
<LOANS-TROUBLED> 277,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,866,000
<CHARGE-OFFS> 46,000
<RECOVERIES> 2,000
<ALLOWANCE-CLOSE> 5,022,000
<ALLOWANCE-DOMESTIC> 4,687,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 335,000
</TABLE>
