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
March 31, 1997
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 March 31, 1997 is
3,888,340.
NEWMIL BANCORP, INC. and SUBSIDIARY
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements:
Consolidated Balance Sheets as of
March 31, 1997 and June 30, 1996 . . . . . . . . . . . . . . . . .3
Consolidated Statement of Income
for the three month and nine month
periods ended March 31, 1997 and 1996. . . . . . . . . . . . . . .4
Consolidated Statements of Cash Flows
for the nine month periods ended
March 31, 1997 and 1996. . . . . . . . . . . . . . . . . . . . . .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. . . . . . . . . . . . . . . . . . . . . . . . 27
Item 4 Submission of matters to a vote of
security holders . . . . . . . . . . . . . . . . . . . . . . . . 27
Item 5 Other information. . . . . . . . . . . . . . . . . . . . . . . . 27
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 27
<TABLE>
<CAPTION>
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)
March 31, June 30,
1997 1996
<S> <C> <C>
ASSETS
Cash and due from banks $ 6,076 $ 6,630
Federal funds sold 10,800 10,960
Securities:
Available-for-sale at market 51,396 50,171
Held-to-maturity at amortized cost
(market value: $69,443 and $73,364) 71,370 75,412
Loans (net of allowance for
loan losses: $5,084 and $4,866) 163,876 150,558
Real estate acquired
(net of valuation reserve: $441 and $474) 651 2,224
Bank premises and equipment, net 5,969 6,219
Accrued income 2,389 1,874
Deferred tax asset, net 3,819 4,612
Other assets 667 703
Total Assets $317,013 $309,363
LIABILITIES and SHAREHOLDERS' EQUITY
Deposits
Demand (non-interest bearing) $ 10,196 $ 10,750
NOW accounts 24,325 25,653
Money market 61,708 60,945
Savings and other 38,255 40,531
Certificates of deposit 134,432 121,388
Total deposits 268,916 259,267
Securities sold under agreement to repurchase 5,071 14,776
Federal Home Loan advances 8,000 -
Accrued interest and other liabilities 3,433 3,428
Total Liabilities 285,420 277,471
Commitments and contingencies - -
Shareholders' Equity
Common stock - $.50 per share par value
Authorized - 20,000,000 shares
Issued - 5,988,138 and 5,987,388 shares 2,994 2,994
Paid-in capital 44,192 44,189
Retained earnings 6,651 5,413
Unrealized losses on securities
available-for-sale, net (492) (511)
Unrealized losses on securities transferred
to held-to-maturity, net (1,191) (1,255)
Treasury stock, at cost - 2,099,798
and 1,917,498 shares (20,561) (18,938)
Total Shareholders' Equity 31,593 31,892
Total Liabilities and Shareholders' Equity $317,013 $309,363
</TABLE>
<TABLE>
<CAPTION>
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF INCOME
(in thousands except per share amounts)
(unaudited)
Three months ended Nine months ended
March 31, March 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $3,741 $3,459 $10,895 $10,387
Interest on securities 1,897 1,778 5,571 5,701
Dividend income 25 33 72 79
Interest on federal funds sold 125 45 527 113
Total interest and dividend
income 5,788 5,315 17,065 16,280
INTEREST EXPENSE
Deposits 2,564 2,523 7,559 7,531
Borrowed funds 167 48 539 347
Total interest expense 2,731 2,571 8,098 7,878
Net interest and dividend income 3,057 2,744 8,967 8,402
PROVISION FOR LOAN LOSSES 100 100 300 300
Net interest and dividend
income after provision
for loan losses 2,957 2,644 8,667 8,102
NON-INTEREST INCOME
Service charges on deposit accounts 233 200 716 613
Securities gains (losses), net - 72 (10) 27
Gains on mortgage loans, net 55 - 129 5
Loan servicing fees 27 30 83 94
Other 59 68 191 198
Total non-interest income 374 370 1,109 937
NON-INTEREST EXPENSE
Salaries 930 801 2,841 2,479
Employee benefits 326 245 804 677
Occupancy 207 214 637 579
Equipment 166 174 514 511
Insurance 25 20 64 96
Collection and real estate
acquired, net of (gains) (55) 98 (105) 406
Professional services 130 82 292 316
Marketing 49 26 146 112
Shareholder relations 10 10 62 87
Other 379 337 1,202 1,022
Total non-interest expense 2,167 2,007 6,457 6,285
INCOME BEFORE INCOME TAXES 1,164 1,007 3,319 2,754
Provision for income taxes 489 394 1,394 1,117
NET INCOME $ 675 $ 613 $1,925 $1,637
Earnings per share $0.16 $0.14 $0.45 $0.36
Dividends per share $0.06 $0.05 $0.17 $0.12
</TABLE>
<TABLE>
<CAPTION>
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Nine months
ended
March 31,
1997 1996
<S> <C> <C>
Operating Activities
Net income $1,925 $1,637
Adjustments to reconcile net income
to net cash provided
by operating activities:
Provision for loan losses 300 300
Provision for losses on
real estate acquired - 212
Provision for depreciation and
amortization 435 409
Decrease in deferred income tax asset 738 1,080
Amortization and accretion of securities
premiums and discounts, net 50 246
Securities losses (gains), net 10 (27)
Realized gains on loan sales, net (129) (5)
Realized gains on sales of real
estate acquired, net (286) (302)
(Increase) decrease in accrued income (516) 231
Increase (decrease) in accrued interest
and other liabilities 58 (1,192)
Decrease in other assets, net 37 76
Net cash provided by
operating activities 2,622 2,665
Investing Activities
Proceeds from sales of securities
available-for-sale 12,681 10,561
Proceeds from sale of trading securities - 10,064
Proceeds from maturities and principal
repayments of securities 2,701 3,111
Proceeds from sale of available-for-sale
mortgage backed securities 348 942
Purchases of securities available-for-sale (15,460) -
Purchase of trading securities - (10,000)
Principal collected on mortgage backed
securities 2,625 3,393
Loan (advances) repayments, net (13,880) 131
Proceeds from sale of real estate
acquired 2,392 2,215
Payments to improve real estate acquired (141) (711)
Net purchases of Bank premises
and equipment (185) (319)
Net cash (used) provided by
investing activities (8,919) 19,387
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued:-
(in thousands) Nine months
ended
March 31,
1997 1996
Financing Activities
Net increase in deposits 9,595 4,860
Net repayments of repurchase agreements (9,705) (15,499)
Net proceeds from (repayments of) FHLB advances 8,000 (5,000)
Treasury stock purchase (1,623) (2,381)
Treasury stock reissued - 25
Cash dividends paid (687) (536)
Proceeds from exercise of stock options 3 62
Net cash provided (used) by
financing activities 5,583 (18,469)
(Decrease) increase in cash and
cash equivalents (714) 3,583
Cash and federal funds sold, beginning
of year 17,590 14,291
Cash and federal funds sold, end of period $16,876 $17,874
Cash paid during period
Interest to depositors $ 7,613 $ 7,492
Interest on borrowings 532 401
Income taxes 755 94
Non-cash transfers
From securities held-to-maturity
to securities available-for-sale - 40,530
From loans to real estate acquired 392 3,278
</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 nine month
period ended March 31, 1997 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 amount of loans
sold with servicing retained was minimal for the nine months ended March
31, 1997, 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 Servicing 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.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128 (SFAS 128), "Earnings Per Share". SFAS 128 provides
accounting and reporting standards for the calculation of earnings per
share intended to simplify the computation by replacing presentation of
primary earnings per share with the presentation of basic earnings per
share. The Company will be required to adopt SFAS 128 in the quarter
ending December 31, 1997. Had earnings per share for the nine months
ended March 31, 1997 been computed in accordance with SFAS 128 basic and
diluted earnings per share would have been $0.48 and $0.45 respectively,
and $0.37 and $0.36, respectively, for March 31, 1996.
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>
March 31, 1997
U.S. Government Agencies
Within 5 years $33,400 $ 22 $ 43 $33,421
After 5 and within 10 years 942 - 58 1,000
Mortgage backed securities 6,708 118 94 6,684
Collateralized mortgage
obligations 8,799 - 751 9,550
Total debt securities 49,849 140 946 50,655
Federal Home Loan Bank stock 1,547 - - 1,547
Total securities
available-for-sale $51,396 $140 $946 $52,202
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
Securities classified held-to-maturity (carried at amortized cost) are
as follows:
(dollars in thousands) Gross Estimated
Amortized unrealized fair
cost(a) gains losses value
March 31, 1997
Mortgage backed securities $ 9,078 $ - $ 177 $ 8,901
Collateralized mortgage
obligations 62,292 21 1,771 60,542
Total securities
held-to-maturity $71,370 $ 21 $1,948 $69,443
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 $6,514,000 and
$6,458,000, respectively, were pledged as collateral against repurchase
agreements and public funds at March 31, 1997.
Cash proceeds and realized gains and losses from sales of securities
during the nine month periods ended March 31 are as follows:
<TABLE>
<CAPTION>
(dollars in thousands) Cash Realized Realized
proceeds gains losses
<S> <C> <C> <C>
Nine months ended March 31, 1997
Available-for-sale
Mortgage backed securities $ 348 $ 17 $ -
Collateralized mortgage
obligation 12,681 3 30
Total $13,029 $ 20 $ 30
Nine months ended March 31, 1996
Available-for-sale
Mortgage backed securities $ 942 $ 4 $ -
Collateralized mortgage obligations 10,551 11 62
Trading assets 10,064 64 -
Marketable equity securities (a) 10 10 -
Total $21,567 $ 89 $ 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>
March 31, June 30,
(in thousands) 1997 1996
<S> <C> <C>
Real estate mortgages:
One-four family residential $ 89,772 $ 89,159
Five or more family residential 5,696 3,262
Commercial 30,888 30,408
Land 8,415 9,472
Commercial and industrial 12,440 6,130
Home equity lines of credit 18,955 14,474
Installment and other 2,912 2,658
Total loans, gross 169,078 155,563
Deferred loan origination fees, net (118) (139)
Allowance for loan losses (5,084) (4,866)
Total loans, net $163,876 $150,558
Impaired loans
With valuation allowance $2,184 $2,688
With no valuation allowance 4,500 3,900
Total impaired loans 6,684 6,588
Valuation allowance 865 813
Changes in the allowance for loan losses for the nine month periods
ended March 31, are as follows:
(in thousands) 1997 1996
Balance, beginning of period $4,866 $5,372
Provision for losses 300 300
Charge-offs (85) (476)
Recoveries 3 4
Balance, end of period $5,084 $5,200
</TABLE>
NOTE 4 - NON-PERFORMING ASSETS
The components of non-performing assets were as follows:
<TABLE>
<CAPTION>
March 31, June 30,
(in thousands) 1997 1996
<S> <C> <C>
Non-accrual loans $3,110 $3,809
Accruing loans past due
90 days or more 93 166
Accruing troubled debt
restructured loans 277 281
Total non-performing loans 3,480 4,256
Real estate acquired 1,092 2,698
Allowance for estimated losses (441) (474)
Total real estate acquired, net 651 2,224
Total non-performing assets $4,131 $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 nine month
periods ended March 31 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
<S> <C> <C>
Valuation reserve at beginning of period $474 $313
Charge-offs (33) (50)
Provision - 212
Valuation reserve at end of period $441 $475
</TABLE>
NOTE 5 - INCOME TAXES
The components of the provision for income taxes for the three and nine
month periods ended March 31 are as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
1997 1996 1997 1996
(in thousands)
<S> <C> <C> <C> <C>
Current provision
Federal $ 396 $ 342 $1,128 $ 936
State 125 113 357 310
Benefit from net operating
loss carry forwards
Federal (178) (336) (522) (918)
State (100) (107) (307) (291)
Total 243 12 656 37
Deferred provision
Federal 180 290 540 805
State 66 92 198 275
Total 246 382 738 1,080
Income tax provision $ 489 $ 394 $1,394 $1,117
</TABLE>
Included in the Company's deferred tax assets as of March 31, 1997 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 March
31, 1997 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 March 31, 1997, were as
follows:
<TABLE>
<CAPTION>
Company Bank
<S> <C> <C>
Leverage ratio 10.40% 10.30%
Tier I risk-based ratio 18.73% 19.01%
Total risk-based ratio 20.00% 20.28%
</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 nine month period ended March 31, 1997 is $3,957,000.
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 to both retail and
commercial markets, 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 March 31, 1997 and 1996
Overview
The Company earned net income of $675,000, or $0.16 per share, for the
quarter ended March 31, 1997, the third quarter of the Company's fiscal
year. This compares with net income of $613,000, or $0.14 per share,
for the quarter ended March 31, 1996, an improvement of 10.1%. The
increase in net income results from continued growth in net interest
income, reflecting a higher net interest margin and growth in earning
assets, offset in part by an increase in operating expenses.
Earnings per share grew 14.3% as compared with the prior year period,
reflecting both the 10.1% increase in net income and the effect of the
Company's share repurchases.
Analysis of net interest and dividend income
Net interest and dividend income increased $313,000, or 11.4%, for the
quarter ended March 31, 1997 as compared with the prior year period.
This increase resulted from a 17 basis points increase in net interest
margin (to 4.08% from 3.91%) in addition to a $19.4 million, or 7.0%
increase in average earning assets. The improvement in net interest
margin was driven by loan growth and higher yields on investments.
The following table sets 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 March 31, 1997
and 1996.
<TABLE>
<CAPTION>
Three months ended March 31, 1997 Average Income/ Average
(dollars in thousands) balance expense yield/rate
<S> <C> <C> <C>
Loans(a) $166,130 $3,741 9.01%
Mortgage backed securities 16,278 256 6.29
Other securities(b) 117,540 1,791 6.10
Total earning assets 299,948 5,788 7.72
Other assets 10,863
Total assets $310,811
NOW accounts $23,903 87 1.46
Money market accounts 61,335 459 2.99
Savings & other 37,103 243 2.62
Certificates of deposit 131,907 1,775 5.38
Total interest-bearing deposits 254,248 2,564 4.03
Borrowings 12,449 167 5.37
Total interest-bearing funds 266,697 2,731 4.10
Demand deposits 10,106
Other liabilities 1,310
Shareholders' equity 32,698
Total liabilities and
shareholders' equity $310,811
Net interest income $3,057
Spread on interest-bearing funds 3.62
Net interest margin(c) 4.08
Three months ended March 31, 1996 Average Income/ Average
(dollars in thousands) balance expense yield/rate
Loans(a) $151,794 $3,459 9.12%
Mortgage backed securities 20,705 329 6.36
Other securities(b) 107,905 1,527 5.66
Total earning assets 280,404 5,315 7.58
Other assets 14,076
Total assets $294,480
NOW accounts $22,708 84 1.48
Money market accounts 60,633 458 3.02
Savings & other 38,462 251 2.61
Certificates of deposit 125,091 1,730 5.53
Total interest-bearing deposits 246,894 2,523 4.09
Borrowings 3,710 48 5.18
Total interest-bearing funds 250,604 2,571 4.10
Demand deposits 8,527
Other liabilities 1,273
Shareholders' equity 34,076
Total liabilities and
shareholders' equity $294,480
Net interest income $2,744
Spread on interest-bearing funds 3.48
Net interest margin(c) 3.91
</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 March 31, 1997 versus 1996
(dollars in thousands) Change in interest due to
Volume Rate Vol/rate Net
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 327 $ (41) $ (4) $ 282
Mortgage backed securities (70) (3) - (73)
Other securities 136 117 11 264
Total 393 73 7 473
Interest-bearing liabilities:
Deposits 75 (33) (1) 41
Borrowings 113 2 4 119
Total 188 (31) 3 160
Net change to interest income $ 205 $ 104 $ 4 $ 313
</TABLE>
Interest income
Total interest and dividend income increased $473,000, or 8.9%, for the
quarter ended March 31, 1997 as compared with the same period a year
ago. This increase is a result of an increase of $19.5 million, or
7.0%, in average earning assets coupled with an increase in yield.
Loan interest and fee income increased $282,000, or 8.2%, for the
quarter ended March 31, 1997 as compared with the prior year period as
a result of loan growth, offset by a slight decrease in average yields,
down 11 basis points. Average loan balances increased $14.3 million, or
9.4%.
Investment and fed funds income increased $191,000, or 10.3%, for the
quarter ended March 31, 1997 as compared with the prior year period as
a result of a $5.2 million, or 4.0%, increase in average investments
coupled with higher yields on investments and fed funds. The average
investment yield increased to 6.12% in 1997 from 5.77% in 1996 as a
result of the capital gains treatment, in 1996, on a $10.0 million
trading asset, offset in part by the downward repricing of floating rate
securities. Fed funds average yield decreased to 5.02% in 1997 from
5.25% in 1996, reflecting the lower interest rate environment in 1997.
Interest expense
Interest expense for the quarter ended March 31, 1997 increased
$160,000, or 6.2%, as compared to the same quarter of the prior year as
a result of increased deposit and borrowings volume while the cost of
funds remained flat at 4.10%. Total average balances for deposits and
borrowings increased by $16.1 million, or 6.4%, for the period. Average
cost of funds remained flat at 4.10%.
Deposit expense increased $41,000, or 1.6%, as a result of deposit
growth of $7.4 million, or 3.0%, offset by a decrease of 6 basis points
in the average cost of interest bearing deposits. Deposit growth has
been primarily in the certificate of deposit category, which increased
$6.8 million, or 5.4%. Certificate of deposits have also seen the most
significate movement in rates since 1996, with the average cost
declining to 5.38% from 5.53% 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 $119,000, or 247.9%, as a
result of higher borrowings, coupled with higher borrowing rates.
Average borrowings increased $8.7 million, or 235.6%. The average cost
of borrowings increased 19 basis points to 5.37% in 1997 from 5.18% in
1996. During the past year the Company has utilized borrowings from the
FHLB in part to replace the repurchase agreements that had been in place
the prior year. 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
March 31, 1997, unchanged from the prior year period provision. The
following table details changes in the allowance for loan losses during
the three month periods ended March 31:
<TABLE>
<CAPTION>
1997 1996
(dollars in thousands)
<S> <C> <C>
Balance, beginning of period $5,022 $5,133
Provision for losses 100 100
Charge-offs (39) (35)
Recoveries 1 2
Balance, end of period $5,084 $5,200
Ratio of allowance for loan losses:
to non-performing loans 146.09% 106.93%
to total gross loans 3.01 3.42
</TABLE>
The increase in the reserve coverage to non-performing loans results
from the $1,383,000 decrease in non-performing loans since March 31,
1996. 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 March 31, 1997, 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 State of Connecticut, in
March 1997. 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 March 31.
<TABLE>
<CAPTION>
(in thousands) 1997 1996 Change
<S> <C> <C> <C> <C>
Service charges on
deposit accounts $233 $200 $ 33 16.5%
Securities gains, net - 72 (72) (100.0)
Gains on loans, net 55 - 55 100.0
Loan servicing 27 30 (3) (10.0)
Other 59 68 (9) (13.2)
Total non-interest income $374 $370 $ 4 1.1
</TABLE>
Service charges on deposit accounts increased $33,000, or 16.5%,
reflecting increased customer activity as a result of deposit growth and
the introduction of the debit card in 1996. The Bank opened its
thirteenth branch, in Winsted, in May 1996. The 1996 securities gain
was associated with a $10.0 million short term mutual fund investment.
Gain on loan sales result from increased activity in the secondary
market. During the last year the Company has become more active in
originating residential loans for the secondary market. The decrease in
Loan servicing fees is a result of a decrease in the servicing portfolio.
Operating expenses
The following table details the principal categories of operating
expenses for the three month periods ended March 31.
<TABLE>
<CAPTION>
(in thousands) 1997 1996 Change
<S> <C> <C> <C> <C>
Salaries $ 930 $ 801 $ 129 16.1 %
Employee benefits 326 245 81 33.1
Occupancy 207 214 (7) (3.3)
Equipment 166 174 (8) (4.6)
Insurance 25 20 5 25.0
Collections and OREO,
net of (gains) (55) 98 (153) (156.1)
Professional services 130 82 48 58.5
Postage and telecommunications 87 71 16 22.5
Marketing 49 26 23 88.5
Other operating 302 276 26 9.4
Total operating expenses $2,167 $2,007 $ 160 8.0
</TABLE>
Salaries expense increased for the quarter ended March 31, 1997 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%. Employee benefits expense increased
primarily as a result of increased taxes, cost relating to supplemental
pension and other benefits related to the increased salary and wages.
In May 1996 the Bank opened a supermarket branch, its thirteenth branch,
in Winsted, CT. Collection and real estate acquired expense decreased
$153,000, due primarily to reductions in non-performing assets over the
past year coupled with gains on OREO sales in 1997 and the absence of a
provision for OREO losses in 1997. Professional services have increased
as a result of increased legal expense for general corporate matters.
Postage and phone expense has increased as a result of the additional
branch and increased lending activity. Marketing expense has increased
as a result of the introduction of new loan and deposit products and
services, the extension of the Bank's geographic reach and increased
emphasis on new business development. 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 $489,000,
representing a 42% effective rate, as compared with a provision of
$394,000, a 39% effective rate, a year ago. The lower effective rate in
1996 was associated with a short term mutual fund investment which
enabled the Company to utilize a portion of its capital loss
carryforwards.
For the nine month periods ended March 31, 1997 and 1996
Overview
The Company earned net income of $1,925,000, or $0.45 per share, for the
nine month period ended March 31, 1997. This compares with net income
of $1,637,000, or $0.36 per share, for the same period ended March 31,
1996. The increase in net income results from continued growth in net
interest income, coupled with increased non-interest income, offset in
part by an increase in non-interest expense.
Analysis of net interest and dividend income
Net interest and dividend income increased $565,000, or 6.7%, for the
nine months ended March 31, 1997 as compared with the prior year period.
This increase resulted from an 8 basis points increase in net interest
margin (to 4.03% from 3.95%) coupled with a $13.5 million, or 4.7%
increase in average earning assets. The improvement in net interest
margin was driven by a 6 basis point decline in the cost of funds while
the yield on assets remained unchanged for the period.
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 nine month periods ended March 31, 1997
and 1996.
<TABLE>
<CAPTION>
Nine months ended March 31, 1997 Average Income/ Average
(dollars in thousands) balance expense yield/rate
<S> <C> <C> <C>
Loans(a) $161,926 $10,895 8.97%
Mortgage backed securities 17,289 822 6.34
Other securities(b) 117,817 5,348 6.05
Total earning assets 297,032 17,065 7.66
Other assets 11,740
Total assets $308,772
NOW accounts $24,056 268 1.49
Money market accounts 61,367 1,397 3.04
Savings & other 38,111 756 2.65
Certificates of deposit 127,352 5,138 5.38
Total interest-bearing deposits 250,886 7,559 4.02
Borrowings 13,138 539 5.47
Total interest-bearing funds 264,024 8,098 4.09
Demand deposits 10,666
Other liabilities 1,439
Shareholders' equity 32,643
Total liabilities and
shareholders' equity $308,772
Net interest income $ 8,967
Spread on interest-bearing funds 3.57
Net interest margin(c) 4.03
Nine months ended March 31, 1996 Average Income/ Average
(dollars in thousands) balance expense yield/rate
Loans(a) $153,319 $10,387 9.03%
Mortgage backed securities 22,470 1,018 6.04
Other securities(b) 107,783 4,875 6.03
Total earning assets 283,572 16,280 7.66
Other assets 13,473
Total assets $297,045
NOW accounts $22,599 252 1.49
Money market accounts 61,271 1,398 3.04
Savings & other 39,492 778 2.63
Certificates of deposit 122,033 5,103 5.58
Total interest-bearing deposits 245,395 7,531 4.09
Borrowings 7,859 347 5.89
Total interest-bearing funds 253,254 7,878 4.15
Demand deposits 8,539
Other liabilities 1,559
Shareholders' equity 33,693
Total liabilities and
shareholders' equity $297,045
Net interest income $ 8,402
Spread on interest-bearing funds 3.51
Net interest margin(c) 3.95
</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>
Nine months ended March 31, 1997 versus 1996
(dollars in thousands) Change in interest due to
Volume Rate Vol/rate Net
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 583 $ (71) $ (4) $ 508
Mortgage backed securities (235) 50 (11) (196)
Other securities 454 18 1 473
Total 802 (3) (14) 785
Interest-bearing liabilities:
Deposits 169 (137) (4) 28
Borrowings 233 (25) (16) 192
Total 402 (162) (20) 220
Net change to interest income $ 400 $ 159 $ 6 $ 565
</TABLE>
Interest income
Total interest and dividend income increased $785,000, or 4.8%, for the
nine months ended March 31, 1997 as compared with the same period a year
ago.
Loan interest and fee income increased $508,000, or 4.9%, for the nine
months ended March 31, 1997 as compared with the prior year period as a
result of increased loan volume, which increased $8.6 million, or 5.6%.
The yield on the loan portfolio decreased to 8.97%, a decrease of 6
basis points as compared to the prior year.
Investment and fed funds income increased $277,000, or 4.7%, for the
nine months ended March 31, 1997 as compared with the prior year period
as a result of a $4.9 million, or 3.7%, increase in average investments
coupled with slightly higher yields on securities. Average investment
yield increased to 6.09% for 1997 from 6.03% in 1996 as a result of the
changes in the mix of the investment portfolio.
Interest expense
Interest expense for the nine months ended March 31, 1997 increased
$220,000, or 2.8%, as compared to the same period in the prior year.
Total average balances for deposits and borrowings increased by $10.8
million, or 4.3%, for the period. The average cost of funds decreased
6 basis points to 4.09% for 1997 from 4.15% for 1996.
Deposit expense increased $28,000, or 0.4%, as a result of deposit
growth of $5.5 million, or 2.2% offset by lower deposit rates. Bank
deposit rates, particularly savings and money market rates, have
remained stable over the past year. The rates on certificates, however,
have decreased by 20 basis points to 5.38% in 1997 from 5.58% in 1996.
Interest expense on borrowings increased by $192,000, or 55.3%, as a
result of higher average balances, offset in part by lower borrowing
rates. Average borrowings increased $5.3 million, or 67.2%. The
average cost of borrowings decreased to 5.47% in 1997 from 5.89% in
1996.
Provision and Allowance for loan losses
The Company provided $300,000 for loan losses during the nine months
ended March 31, 1997 and 1996. The following table details changes in
the allowance for loan losses during the nine month periods ended March
31:
<TABLE>
<CAPTION>
1997 1996
(dollars in thousands)
<S> <C> <C>
Balance, beginning of period $4,866 $5,372
Provision for losses 300 300
Charge-offs (85) (476)
Recoveries 3 4
Balance, end of period $5,084 $5,200
Ratio of allowance for loan losses:
to non-performing loans 146.09% 106.93%
to total gross loans 3.01 3.42
</TABLE>
For a detailed discussion of the Bank's allowance for loan losses see
"For the three month periods ended March 31, 1997 and 1996", above.
Non-interest income
The following table details the principal categories of non-interest
income for the nine month periods ended March 31.
<TABLE>
<CAPTION>
(in thousands) 1997 1996 Change
<S> <C> <C> <C> <C>
Service charges on
deposit accounts $716 $613 $103 16.8%
Securities gains (losses), net (10) 27 (37) (137.0)
Gains on loan sales, net 129 5 124 2480.0
Loan servicing 83 94 (11) (11.7)
Other 191 198 (7) (3.5)
Total non-interest income $1,109 $ 937 $ 172 18.4
</TABLE>
Service charges on deposit accounts increased $103,000 reflecting both
the increased level of usage at the Bank's ATMs, higher volume of NSF
fees and higher deposit fees reflected in a higher deposit base. During
the past year the Company has become more active in secondary market
residential mortgage lending, as reflected in the increase in gains on
loan sales.
Operating expenses
The following table details the principal categories of operating
expenses for the nine month periods ended March 31.
<TABLE>
<CAPTION>
(in thousands) 1997 1996 Change
<S> <C> <C> <C> <C>
Salaries $2,841 $2,479 $ 362 14.6%
Employee benefits 804 677 127 18.8
Occupancy 637 579 58 10.0
Equipment 514 511 3 0.6
Insurance 64 96 (32) (33.3)
Collections and OREO,
net of (gains) (105) 406 (511) (125.9)
Professional services 292 316 (24) (7.6)
Postage and telecommunications 260 211 49 23.2
Marketing 146 112 34 30.4
Other operating 1,004 898 106 11.8
Total operating expenses $6,457 $6,285 $ 172 2.7
</TABLE>
Salaries expense increased for the nine month period ended March 31,
1997 as compared with the prior year period primarily as a result of
higher level of staffing, primarily in lending and the 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 and increased pension
expense. Occupancy expense and equipment expense increased primarily as
a result of the additional branch location that was opened in May 1996.
Insurance expense decreased $32,000, as a result of lower FDIC deposit
insurance premiums. Collection and real estate acquired expense
decreased $511,000, due primarily to the absence of an OREO provision
for losses for 1997 as compared to a provision of $212,00 in 1996, in
addition to reduced legal fees resulting from a lower level of
collection and OREO work. Professional services decreased $24,000, 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 nine month period ended March 31, 1997 included an
income tax provision of $1,394,000, representing a 42.0% effective rate,
as compared with a provision of $1,117,000, representing a 40.6%
effective rate, a year ago. The lower effective rate in 1996 was
associated with a short term mutual fund investment which enabled the
Company to utilize a portion of its capital loss carryforwards.
ASSET QUALITY AND PORTFOLIO RISK
Loans
During the nine month period ended March 31, 1997, net loans increased
by $13.3 million, or 8.8%. 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>
March 31, June 30,
(in thousands) 1997 1996
<S> <C> <C>
Real estate mortgages:
One-four family residential $ 89,772 $ 89,159
Five or more family residential 5,696 3,262
Commercial 30,888 30,408
Land 8,415 9,472
Commercial and industrial 12,440 6,130
Home equity lines of credit 18,955 14,474
Installment and other 2,912 2,658
Total loans, gross 169,078 155,563
Deferred loan origination fees, net (118) (139)
Allowance for loan losses (5,084) (4,866)
Total loans, net $163,876 $150,558
</TABLE>
During the year the Company has continued to develop relationships with
new commercial customers. As a result of this commercial loans,
including both mortgages and C & I loans, have increased $6.8 million,
or 18.6%, since June 30, 1996. The Company has also expanded its retail
lending business development effort. Over the past year the Company has
increased originations of both residential mortgage loans and home
equity credit line. The Company has added mortgage originators to
increase production for portfolio and secondary market sales. Despite
this, residential mortgage loans have remained relatively flat since
June 30, 1996. Home equity lines of credit have increased $4.5 million,
or 31.0%, as a result of successful product promotion.
Non-performing assets
The following table details changes in non-performing assets during the
nine month periods ended March 31.
<TABLE>
<CAPTION>
(in thousands) 1997 1996
<S> <C> <C>
Balance, beginning of year $6,480 $8,885
Loans placed on non-accrual status 1,489 1,668
Change in accruing loans past
due 90 or more days, net (73) 59
Change in loans restructured, net (4) 284
Payments to improve OREO 141 711
Loan payments (548) (461)
Loans returned to accrual status (1,167) (143)
Loan charge-offs (81) (475)
Gross proceeds from OREO sales (2,392) (2,215)
Gains on OREO sales, net 286 302
Provision to OREO valuation reserve - (212)
Balance, end of period $4,131 $8,403
Percent of total assets 1.30% 2.88%
</TABLE>
During the nine months ended March 31, 1997 non-performing assets
decreased $2,349,000, or 36.3%, due principally to sales of real estate
of $2,392,000 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 March 31, 1997.
<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
March 31, 1997
<S> <C> <C> <C> <C> <C> <C>
Real estate:
Residential $ 677 $ 93 - $ 503 $ - $1,273
Commercial 308 - 277 40 - 625
Land and land
development 2,123 - - 549 - 2,672
Collateral and
installment loans 2 - - - - 2
Valuation reserve - - - - (441) (441)
Totals $3,110 $ 93 $277 $1,092 $(441) $4,131
</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 OREO valuation reserve at March 31, 1997
totaled $441,000, or 40.4% 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 $7.7 million, or 2.5%, to $317.0 million in the
nine month period from June 30, 1996 through March 31, 1997. The
increase resulted from a $13.3 million increase in net loans, which was
offset in part by a decrease in securities and fed funds of $3.0 million
and a decrease in OREO of $1.6 million. For the nine month period ended
March 31, 1997, deposits have increased by $9.6 million while borrowings
are down $1.7 million.
Loans
Loans, net of the allowance for loan loss, increased $13.3 million, or
8.8%, during the nine month period ended March 31, 1997. The primary
reason for this increase was the Company's continuing efforts in loan
originations. Loan originations and advances for the nine month period
totaled $48.1 million, while repayments were $27.6 million. Of the
loans originated the Company sold $6.6 million in the secondary market
during the nine months ended March 31, 1997.
Securities
The securities portfolio consists primarily of U.S. Treasury and Agency
obligations, collateralized mortgage obligations ("CMOs") and mortgage-
backed securities ("MBSs"), and to a lesser extent, Federal Home Loan
Bank stock. At March 31, 1997, 65.4% of the portfolio was invested in
fixed rate securities, principally CMOs, US Treasury and Agency
obligations and to a lesser extent MBSs. The fixed rate portfolio had
a consensus weighted average duration and life of 2.3 years and 2.5
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 March 31, 1997 33.3% 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 13.5
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 March 31, 1997, was represented by Federal Home Loan Bank
stock.
At March 31, 1997, securities totaling $71.4 million, or 58.1%, were
classified as held-to-maturity and securities totaling $51.4 million, or
41.9%, 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 March 31, 1997 is an
adjustment of $1,191,000, 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 March 31, 1997 net unrealized losses on both
securities available-for-sale and held-to-maturity totaled $4.7 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 nine month period ended March 31, 1997
provided net cash of $2.6 million. Investing activities used net cash
of $8.9 million, principally securities purchases and net loan advances,
offset by securities sales, principal repayments and sales of real
estate acquired. Financing activities provided net cash of $5.6
million, principally as a result of a net increase in deposits, offset
by a net decrease in borrowings, dividends paid to shareholders and
treasury stock purchases. Funds provided by operating and financing
activities were utilized to fund investing activities. Cash and cash
equivalents decreased slightly to $16.9 million.
At March 31, 1997, 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 $194.5 million, to net deposits and short term unsecured
liabilities, was 68.7%, well in excess of the Company's minimum
guideline of 15%. At March 31, 1997, the Company had outstanding
commitments to fund new loan originations of $9.6 million, construction
mortgage commitments of $6,000 and unused lines of credit of $16.6
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 decreased $299,000, to $31,593,000, while book
value per share increased $0.29 to $8.13, during the nine month period
ended March 31, 1996. The decrease, in equity, resulted from the
treasury stock purchases of $1,623,000 and dividends paid of $687,000
offset by earnings of $1,925,000, or $0.45 per share, together with an
$83,000 decrease in the adjustment to shareholders' equity for net
unrealized holding losses on securities, net of taxes.
In July 1996 the Company announced its intention to repurchase up to 10%
of its outstanding common stock in the open market and unsolicited
negotiated transactions, including block purchases. For the nine months
ended March 31, 1997 the Company had repurchased 182,300 shares of its
outstanding common stock, representing 44.8% of the planned repurchases,
for total consideration of $1,623,000.
Shareholders' equity at March 31, 1997 included net unrealized holding
losses, net of taxes, of $492,000 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 March 31, 1997 the Company's leverage capital ratio was
10.40% and its tier I and total risk-based capital ratios were 18.73%
and 20.00%, respectively. At March 31, 1997 the Bank's leverage capital
ratio was 10.30% and its tier I and total risk-based capital ratios were
19.01% and 20.28%, 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 March 31, 1997 was $3,957,000. 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.
May 12, 1997 By /s/ Francis J. Wiatr
Francis J. Wiatr,
President
May 12, 1997 By /s/ B. Ian McMahon
B. Ian McMahon,
Chief Financial Officer
<TABLE>
<CAPTION>
Exhibit 11.1
NEWMIL BANCORP, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
(in thousands except per share amounts)
Three months Nine months
ended ended
March 31, March 31,
<S> <C> <C> <C> <C>
1997 1996 1997 1996
Net income
Net income - primary and
fully diluted $675 $613 $1,925 $1,637
Weighted Average Common and Common
Equivalent Stock
Weighted average common stock
outstanding 3,973 4,380 4,025 4,455
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 454 377 454 377
Assumed purchase of treasury stock
during each period with proceeds
from conversion of stock options
outstanding at the end of each
period (237) (233) (261) (238)
Weighted average common and common
equivalent stock outstanding
- primary 4,190 4,524 4,218 4,594
Weighted average common stock
outstanding 3,973 4,380 4,025 4,456
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 454 396 454 398
Assumed purchase of treasury stock
during each period with proceeds
from conversion of stock options
outstanding at the end of each
period (231) (258) (231) (255)
Weighted average common and common
equivalent stock outstanding
- fully diluted 4,196 4,518 4,248 4,599
Earnings Per Common and Common
Equivalent Share
Primary $0.16 $0.14 $0.46 $0.36
Fully diluted $0.16 $0.14 $0.45 $0.36
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's March 31, 1997 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> MAR-31-1997
<CASH> 6,076,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 10,800,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 51,396,000
<INVESTMENTS-CARRYING> 71,370,000
<INVESTMENTS-MARKET> 69,443,000
<LOANS> 168,960,000
<ALLOWANCE> 5,084,000
<TOTAL-ASSETS> 317,013,000
<DEPOSITS> 268,916,000
<SHORT-TERM> 13,071,000
<LIABILITIES-OTHER> 3,433,000
<LONG-TERM> 0
0
0
<COMMON> 2,994,000
<OTHER-SE> 28,599,000
<TOTAL-LIABILITIES-AND-EQUITY> 317,013,000
<INTEREST-LOAN> 10,895,000
<INTEREST-INVEST> 5,643,000
<INTEREST-OTHER> 527,000
<INTEREST-TOTAL> 17,065,000
<INTEREST-DEPOSIT> 7,559,000
<INTEREST-EXPENSE> 8,098,000
<INTEREST-INCOME-NET> 8,967,000
<LOAN-LOSSES> 300,000
<SECURITIES-GAINS> 10,000
<EXPENSE-OTHER> 6,457,000
<INCOME-PRETAX> 3,319,000
<INCOME-PRE-EXTRAORDINARY> 3,319,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,925,000
<EPS-PRIMARY> .46
<EPS-DILUTED> .45
<YIELD-ACTUAL> 4.03
<LOANS-NON> 3,110,000
<LOANS-PAST> 93,000
<LOANS-TROUBLED> 277,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,866,000
<CHARGE-OFFS> 85,000
<RECOVERIES> 3,000
<ALLOWANCE-CLOSE> 5,084,000
<ALLOWANCE-DOMESTIC> 4,551,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 533,000
</TABLE>
