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, 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 December 31, 1997 is
3,879,241.
NEWMIL BANCORP, INC. and SUBSIDIARY
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements:
Consolidated Balance Sheets as of
December 31, 1997 and June 30, 1997. . . . . . . . . . . . . . .3
Consolidated Statement of Income
for the three and six month periods
ended December 31, 1997 and 1996 . . . . . . . . . . . . . . . .4
Consolidated Statements of Cash Flows
for the six month periods ended
December 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. . . . . . . . . . . . . . . . . . . . . . . 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
[CAPTION]
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)
<TABLE>
December 31, June 30,
1997 1997
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,402 $ 7,168
Federal funds sold 3,515 17,460
Securities:
Available-for-sale at market 108,180 49,549
Held-to-maturity at amortized cost
(market value: $57,982 and $68,328) 58,163 69,819
Loans (net of allowance for
loan losses: $5,546 and $5,452) 165,684 166,141
Other real estate owned
(net of valuation reserve: $137) 195 474
Bank premises and equipment, net 6,203 6,042
Accrued income 2,302 2,024
Deferred tax asset, net 3,202 3,456
Other assets 680 928
Total Assets $355,526 $323,061
LIABILITIES and SHAREHOLDERS' EQUITY
Deposits
Demand (non-interest bearing) $ 13,028 $ 12,369
NOW accounts 30,638 25,830
Money market 61,584 61,075
Savings and other 39,757 40,614
Certificates of deposit 140,509 135,504
Total deposits 285,516 275,392
Securities sold under agreement to repurchase - 5,000
Federal Home Loan Bank advances 34,000 8,000
Accrued interest and other liabilities 2,867 2,950
Total Liabilities 322,383 291,342
Commitments and contingencies - -
Shareholders' Equity
Common stock - $.50 per share par value
Authorized - 20,000,000 shares
Issued - 6,040,839 and 5,988,138 shares 3,020 2,994
Paid-in capital 44,448 44,192
Retained earnings 7,966 7,097
Unrealized losses on securities
available-for-sale, net (7) (319)
Unrealized losses on securities transferred
to held-to-maturity, net (1,104) (1,170)
Treasury stock, at cost - 2,161,598
and 2,153,798 shares (21,180) (21,075)
Total Shareholders' Equity 33,143 31,719
Total Liabilities and Shareholders' Equity $355,526 $323,061
</TABLE>
CONSOLIDATED STATEMENT OF INCOME
(in thousands except per share amounts)
(unaudited)
[CAPTION]
Three months ended Six months ended
December 31 December 31
1997 1996 1997 1996
<TABLE>
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $3,791 $3,607 $7,582 $7,154
Interest on securities 1,906 1,795 3,744 3,674
Dividend income 26 22 51 47
Interest on federal funds sold 246 232 484 402
Total interest and dividend
income 5,969 5,656 11,861 11,277
INTEREST EXPENSE
Deposits 2,754 2,518 5,477 4,995
Borrowed funds 111 178 214 372
Total interest expense 2,865 2,696 5,691 5,367
Net interest and dividend income 3,104 2,960 6,170 5,910
PROVISION FOR LOAN LOSSES 50 100 150 200
Net interest and dividend
income after provision
for loan losses 3,054 2,860 6,020 5,710
NON-INTEREST INCOME
Service charges on deposit accounts 287 249 556 483
Securities losses, net (258) (5) (281) (10)
Gains on mortgage loans, net 82 48 147 74
Loan servicing fees 27 27 53 56
Other 66 64 142 132
Total non-interest income 204 383 617 735
NON-INTEREST EXPENSE
Salaries 1,047 930 2,092 1,911
Employee benefits 284 221 600 478
Occupancy 224 218 441 430
Equipment 181 174 362 348
Insurance 26 20 52 39
Professional, collection and
OREO, net of (gains) (286) 23 (405) 112
Marketing 65 66 125 97
Shareholder relations 43 45 67 52
Other 458 434 880 823
Total non-interest expense 2,042 2,131 4,214 4,290
INCOME BEFORE INCOME TAXES 1,216 1,112 2,423 2,155
Provision for income taxes 511 467 1,017 905
NET INCOME $ 705 $ 645 $1,406 $1,250
Earnings per share - diluted $0.17 $0.15 $0.35 $0.30
Earnings per share - basic $0.18 $0.16 $0.37 $0.31
Dividends per share $0.08 $0.06 $0.14 $0.11
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
[CAPTION]
Six months ended
December 31,
1997 1996
<TABLE>
<S> <C> <C>
Operating Activities
Net income $1,406 $1,250
Adjustments to reconcile net income
to net cash provided
by operating activities:
Provision for loan losses 150 200
Provision for depreciation and
amortization 310 307
Decrease in deferred income tax asset 3 881
Amortization and accretion of securities
premiums and discounts, net 10 42
Securities losses, net 281 10
Realized gains on loan sales, net (147) (74)
Realized gains on sales of OREO, net (291) (154)
(Increase) decrease in accrued income (276) 46
Decrease in accrued interest expense
and other liabilities (84) (1,141)
Decrease in other assets, net 246 65
Net cash provided by
operating activities 1,608 1,432
Investing Activities
Proceeds from sales of securities
available-for-sale 5,968 12,681
Proceeds from sale of security
held-to-maturity 7,225 -
Proceeds from maturities and principal
repayments of securities 6,919 1,859
Proceeds from sale of mortgage backed
securities available-for-sale 1,042 348
Purchases of securities available-for-sale (49,246) (7,991)
Purchases of mortgage backed securities
available-for-sale (20,133) -
Principal collected on mortgage backed
securities 1,588 1,780
Loan repayments (advances), net 453 (8,338)
Proceeds from sale of OREO 988 1,838
Payments to improve OREO (418) (104)
Net purchases of Bank premises
and equipment (470) (144)
Net cash (used) provided by
investing activities (46,084) 1,929
Financing Activities
Net increase in deposits $10,123 $ 4,500
Net repayments of repurchase agreements (5,000) (9,705)
Net proceeds from FHLB advances 26,000 8,000
Treasury stock purchases (105) (200)
Cash dividends paid (536) (446)
Proceeds from exercise of stock options 283 2
Net cash used by financing activities 30,765 2,151
(Decrease) increase in cash and cash
equivalents (13,711) 5,512
Cash and federal funds sold, beginning
of year 24,628 17,590
Cash and federal funds sold, end of period $10,917 $23,102
Cash paid during period
Interest to depositors $ 5,476 $ 4,908
Interest on borrowings 176 411
Income taxes 990 405
Non-cash transfers
From loans to OREO - 225
</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
statement of income 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, 1997 are not necessarily indicative of the results that
may be expected for the year ending June 30, 1998. 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, 1997.
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 has adopted SFAS 128 in the quarter ended December 31,
1997.
<PAGE>
NOTE 2 - SECURITIES
Securities classified available-for-sale (carried at fair value) are as follows:
[CAPTION]
(dollars in thousands) Estimated Gross Amort-
fair unrealized ized
value gains losses cost
<TABLE>
<S> <C> <C> <C> <C>
December 31, 1997
U.S. Treasury and Government
Agencies
Within 1 year $15,026 $ 43 $ - $14,983
After 1 within 5 years 63,008 186 - 62,822
After 5 and within 10 years 988 - 12 1,000
Mortgage backed securities 24,826 21 33 24,838
Collateralized mortgage
obligations 2,632 - 217 2,849
Total debt securities 106,480 250 262 106,492
Federal Home Loan Bank stock 1,700 - - 1,700
Total securities
available-for-sale $108,180 $250 $262 $108,192
June 30, 1997
U.S. Treasury and Government
Agencies
Within 1 year $ 6,013 $ 24 $ - $ 5,989
After 1 within 5 years 25,784 85 4 25,703
After 5 and within 10 years 964 - 36 1,000
Mortgage backed securities 6,514 94 27 6,447
Collateralized mortgage
obligations 8,727 - 667 9,394
Total debt securities 48,002 203 734 48,533
Federal Home Loan Bank stock 1,547 - - 1,547
Total securities
available-for-sale $49,549 $203 $734 $50,080
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
December 31, 1997
Mortgage backed securities $ 7,773 $ 84 $ - $ 7,857
Collateralized mortgage
obligations 50,390 326 591 50,125
Total securities
held-to-maturity $58,163 $410 $591 $57,982
June 30, 1997
Mortgage backed securities $ 8,615 $ - $ 9 $ 8,606
Collateralized mortgage
obligations 61,204 207 1,689 59,722
Total securities
held-to-maturity $69,819 $ 207 $1,698 $68,328
</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 $1,000,000 and $988,000,
respectively, were pledged as collateral against public funds at December 31,
1997.
Cash proceeds and realized gains and losses from sales of securities during the
six month periods ended December 31 are as follows:
[CAPTION]
(dollars in thousands) Cash Realized Realized
proceeds gains losses
<TABLE>
<S> <C> <C> <C>
Six months ended December 31, 1997
Available-for-sale
Mortgage backed securities $ 1,042 $ 64 $ -
Collateralized mortgage obligations 5,968 - 242
Held-to-maturity
Collateralized mortgage obligation 7,225 - 103
Total $14,235 $ 64 $345
Six months ended December 31, 1996
Available-for-sale
Mortgage backed securities $ 348 $ 17 $ -
Collateralized mortgage obligations 12,681 $ 3 $ 30
Total $13,029 $ 20 $ 30
</TABLE>
In November 1997 the Company sold a collateralized mortgage obligation ("CMO")
which was classified as held-to-maturity. In October 1997 the Company engaged
a financial securities consultant to analyze this CMO. Based on this review
the Company determined that it was highly probable that the Company would
likely receive substantially less than the contractual interest on this CMO
and that the CMO could experience a significant decline in market value. The
Company concluded that these and other changes in circumstances surrounding
this CMO were isolated, non-recurring, and highly unusual, and could not have
been reasonably anticipated. The Company realized a loss on the sale of this
security.
NOTE 3 - LOANS
[CAPTION]
Major classifications of loans are as follows:
<TABLE>
<S> <C> <C>
December 31, June 30,
(in thousands) 1997 1997
Real estate mortgages:
One-four family residential $ 87,341 $ 90,885
Five or more family residential 5,829 4,812
Commercial 32,143 31,850
Land 8,022 8,334
Commercial and industrial 11,619 12,424
Home equity lines of credit 22,908 20,274
Installment and other 3,428 3,122
Total loans, gross 171,290 171,701
Deferred loan origination fees, net (60) (108)
Allowance for loan losses (5,546) (5,452)
Total loans, net $165,684 $166,141
Impaired loans
With valuation allowance $5,246 $2,136
With no valuation allowance 3,570 3,369
Total impaired loans 8,816 5,505
Valuation allowance 1,534 861
Changes in the allowance for loan losses for the six month periods ended
December 31, are as follows:
(in thousands) 1997 1996
Balance, beginning of period $5,452 $4,866
Provision for losses 150 200
Charge-offs (57) (46)
Recoveries 1 2
Balance, end of period $5,546 $5,022
</TABLE>
NOTE 4 - NON-PERFORMING ASSETS
[CAPTION]
The components of non-performing assets were as follows:
<TABLE>
<S> <C> <C>
December 31, June 30,
(in thousands) 1997 1997
Non-accrual loans $2,585 $2,054
Accruing loans past due
90 days or more 432 783
Accruing troubled debt
restructured loans - 274
Total non-performing loans 3,017 3,111
Other real estate owned 332 611
Allowance for estimated losses (137) (137)
Total OREO, net 195 474
Total non-performing assets $3,212 $3,585
</TABLE>
Other real estate owned (OREO) 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.
[CAPTION]
Changes in the OREO valuation reserve for the six month periods ended December
31 are as follows:
<TABLE>
<S> <C> <C>
(in thousands) 1997 1996
Valuation reserve at beginning of period $137 $474
Charge-offs - (33)
Provision - -
Valuation reserve at end of period $137 $441
</TABLE>
NOTE 5 - INCOME TAXES
[CAPTION]
The components of the provision for income taxes for the six month periods ended
December 31 are as follows:
<TABLE>
<S> <C> <C> <C> <C>
Three months ended Six months ended
December 31, December 31,
1997 1996 1997 1996
(in thousands)
Current provision
Federal $ 413 $ 412 $ 824 $ 759
State 140 146 279 269
Total 553 558 1,103 1,028
Deferred provision
Federal - - - -
State (42) (91) (86) (123)
Total (42) (91) (86) (123)
Income tax provision $ 511 $ 467 $1,017 $ 905
</TABLE>
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, 1997, were as follows:
<TABLE>
<S> <C> <C>
Company Bank
Leverage ratio 10.35% 10.10%
Tier I risk-based ratio 19.00% 19.05%
Total risk-based ratio 20.27% 20.33%
</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, 1997 is $4,405,000. In some instances,
further restrictions on dividends may be imposed on the Company by the
Federal Reserve Bank.
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,
1997.
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 fifteen offices in Litchfield, New Haven and 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, 1997 and 1996
Overview
The Company earned net income of $705,000, or $0.17 per share (diluted),
for the quarter ended December 31, 1997, the second quarter of the
Company's fiscal year. This compares with net income of $645,000, or $0.15
per share (diluted), for the quarter ended December 31, 1996, an
improvement of 9.3%. The increase in net income results from continued
growth in net interest income, reflecting a stable net interest margin and
growth in earning assets and a slight decrease on operating expenses offset
in part by a decrease in non-interest income as a result of losses on
security sales.
Earnings per share grew 13.3% as compared with the prior year period,
reflecting both the 9.3% 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 $144,000, or 4.9%, for the
quarter ended December 31, 1997 as compared with the prior year period.
This increase resulted from a $17.4 million, or 5.9% increase in average
earning assets offset in part by a 4 basis point decrease in the net
interest margin to 3.95% from 3.99%. The improvement in net interest
income was driven by loan and investment growth and stable yields on
earning assets.
[CAPTION]
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 December 31, 1997 and 1996.
<TABLE>
<S> <C> <C> <C>
Three months ended December 31, 1997 Average Income/ Average
(dollars in thousands) balance expense yield/rate
Loans(a) $170,605 $3,791 8.89%
Mortgage backed securities 16,298 251 6.16
Other securities(b) 127,045 1,927 6.07
Total earning assets 313,948 5,969 7.61
Other assets 10,349
Total assets $324,297
NOW accounts $28,358 102 1.44
Money market accounts 61,812 477 3.09
Savings & other 40,235 278 2.76
Certificates of deposit 138,202 1,897 5.49
Total interest-bearing deposits 268,607 2,754 4.10
Borrowings 7,587 111 5.85
Total interest-bearing funds 276,194 2,865 4.15
Demand deposits 13,060
Other liabilities 2,082
Shareholders' equity 32,961
Total liabilities and
shareholders' equity $324,297
Net interest income $3,104
Spread on interest-bearing funds 3.46
Net interest margin(c) 3.95
Three months ended December 31, 1996 Average Income/ Average
(dollars in thousands) balance expense yield/rate
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
</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>
<S> <C> <C> <C> <C>
Three months ended December 31, 1997 versus 1996
(dollars in thousands) Change in interest due to
Volume Rate Vol/rate Net
Interest-earning assets:
Loans $ 200 $ (15) $ (1) $ 184
Mortgage backed securities (15) (6) - (21)
Other securities 141 8 1 150
Total 326 (13) - 313
Interest-bearing liabilities:
Deposits 191 42 3 236
Borrowings (72) 9 (4) (67)
Total 119 51 (1) 169
Net change to interest income $ 207 $ (64) $ 1 $ 144
</TABLE>
Interest income
Total interest and dividend income increased $313,000, or 5.5%, for the
quarter ended December 31, 1997 as compared with the same period a year
ago. This increase is a result of an increase of $17.4 million, or 5.9%,
in average earning assets offset by a decline in average yield of 2 basis
points to 7.61%.
Loan interest and fee income increased $184,000, or 5.1%, for the quarter
ended December 31, 1997 as compared with the prior year period as a result
of loan growth offset by a decrease in average yield, down 4 basis points.
Average loan balances increased $9.0 million, or 5.5%.
Interest and dividends on investments and federal funds sold increased
$129,000, or 6.3%, for the quarter ended December 31, 1997 as compared with
the prior year period as a result of a $8.4 million, or 6.2%, increase in
average balances coupled by a slightly higher average yield, which was up
1 basis point to 6.08%.
Interest expense
Interest expense for the quarter ended December 31, 1997 increased
$169,000, or 6.3%, as compared to the same quarter of the prior year as a
result of increased deposit balances, offset by reduced average borrowings,
while the cost of funds increased to 4.15%, an increase of 4 basis points.
Total average balances for deposits and borrowings increased by $13.7
million, or 5.2%, for the period.
Deposit expense increased $236,000, or 9.4%, as a result of deposit growth
of $19.0 million, or 7.6%, coupled with an increase of 7 basis points in
the average cost of interest bearing deposits. Deposit growth has been
primarily in the certificate of deposit category, which increased $11.4
million, or 9.0%. Certificate of deposits have also seen the most
significate movement in rates since 1996, with the average cost increasing
to 5.49% from 5.40% a year ago. Non-maturity deposit rates (Savings Money
Market and NOW) have remained relatively stable over the past year. Non-
maturity deposit balances have also increased by $7.5 million, or 6.1%.
The Company has opened two additional branch locations since December 1996.
Interest expense on borrowings decreased $67,000, or 37.6%, as a result of
lower average borrowings, offset in part by a higher avverage rate.
Average borrowings decreased $5.2 million, or 40.8%. The average cost of
borrowings increased 29 basis points to 5.85% in 1997 from 5.56% in 1996.
During the past year the Company has utilized deposit growth to repay
higher cost borrowings. However, during the last part of the quarter the
Company has borrowed funds to purchase securities. The Company's
borrowings are generally for terms of one month and under.
Provision and Allowance for loan losses
The Company provided $50,000 for loan losses during the quarter ended
December 31, 1997, compared to $100,000 for 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>
<S> <C> <C>
1997 1996
(dollars in thousands)
Balance, beginning of period $5,544 $4,931
Provision for losses 50 100
Charge-offs (49) (10)
Recoveries 1 1
Balance, end of period $5,546 $5,022
Ratio of allowance for loan losses:
to non-performing loans 183.82% 119.15%
to total gross loans 3.24 3.07
</TABLE>
The increase in the reserve coverage to non-performing loans results from
both a $1,198,000 decrease in non-performing loans and a $524,000 increase
in the reserve since December 31, 1996. For a discussion of non-performing
loans see "Asset Quality and Portfolio Risk". The increase in reserve
coverage to total loans results from changes in loan mix and ongoing credit
administration efforts, all of which contribute to improvements in the risk
profile of the portfolio, and the provision of $50,000 for the quarter
ended December 31, 1997.
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, 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
[CAPTION]
The following table details the principal categories of non-interest income
for the three month periods ended December 31.
<TABLE>
<S> <C> <C> <C> <C>
(in thousands) 1997 1996 Change
Service charges on
deposit accounts $287 $249 $ 38 15.3%
Securities losses, net (258) (5) (253)(5,060.0)
Gains on mortgage loans, net 82 48 34 70.8
Loan servicing 27 27 - 0.0
Other 66 64 2 3.1
Total non-interest income $204 $383 $(179) (46.7)
</TABLE>
The increase in service charges on deposit accounts reflects increased
transactions volume resulting from deposit growth and increased ATM/debit
card activity. The Bank opened its fourteenth and fifteenth branches, in
Southbury and Norwalk, Connecticut, in July 1997 and October 1997,
respectively. The Company sold securities totaling $13.1 million on which
it realized net losses of $258,000. These were mostly CMOs whose market
risks were determined to be unsuitable. The Company's origination and sale
of residential mortgage loans to the secondary market has increased over
the past year, increasing the Company's gains from mortgage loan sales.
For the three month period ended December 31, 1997 the Bank sold $5.2
million in loans as compared to $2.6 million during the same period a year
ago. The decrease in loan serving fees results from portfolio run-off as
the loans currently being sold are sold with the servicing released.
Operating expenses
[CAPTION]
The following table details the principal categories of operating expenses
for the three month periods ended December 31.
<TABLE>
<S> <C> <C> <C> <C>
(in thousands) 1997 1996 Change
Salaries $1,047 $ 930 $117 12.6%
Employee benefits 284 221 63 28.5
Occupancy 224 218 6 2.8
Equipment 181 174 7 4.0
Insurance 26 20 6 30.0
Professional, collections
and OREO, net of (gains) (286) 23 (309) (1343.5)
Postage and telecommunications 98 89 9 10.1
Marketing 65 66 (1) (1.5)
Other operating 403 390 13 3.3
Total operating expenses $2,042 $2,131 $(89) (4.2)
</TABLE>
The increase in salaries expense for the quarter ended December 31, 1997 as
compared with the prior year period was due primarily to increases in
staffing, primarily in retail banking, as a result of additional locations,
and annual salary increases of approximately 4%. The increase in employee
benefits expense is due to additional health, taxes and other benefits
related to the increased staffing levels, and additional retirement benefit
expense. The Bank opened branches in Southbury and Norwalk in July 1997
and October 1997. The Southbury branch is the Bank's second supermarket
branch. The Norwalk branch expands the Bank's branch network into lower
Fairfield County. Professional, collection and OREO expense decreased
$309,000, due primarily to gains on OREO sales in 1997 coupled with reduced
legal fees for non-performing assets. Changes in other operating expenses,
which include shareholder relations, office supplies and other expenses,
result from normal operating activities.
Income taxes
Net income for the quarter included an income tax provision of $511,000,
representing a 42% effective rate, as compared with a provision of $467,000
a year ago, representing a 42% effective rate.
For the six month periods ended December 31, 1997 and 1996
Overview
The Company earned net income of $1,406,000, or $0.35 per share (diluted),
for the six month period ended December 31, 1997. This compares with net
income of $1,250,000, or $0.30 per share (diluted), for the six month
period ended December 31, 1996, an improvement of 12.5%. The increase in
net income results from continued growth in net interest income, reflecting
a stable net interest margin and growth in earning assets and a slight
decrease in operating expenses offset in part by a decrease in non-interest
income as a result of security losses.
Earnings per share grew 16.6% as compared with the prior year period,
reflecting both the 12.5% 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 $260,000, or 4.4%, for the six
month period ended December 31, 1997 as compared with the prior year
period. This increase resulted from a $15.8 million, or 5.3% increase in
average earning assets offset in part by a 4 basis point decrease in the
net interest margin to 3.96% from 4.00%. The improvement in net interest
income was driven by loan and investment growth and stable yields on
earning assets.
[CAPTION]
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 six month periods ended December 31, 1997 and 1996.
<TABLE>
<S> <C> <C> <C>
Six months ended December 31, 1997 Average Income/ Average
(dollars in thousands) balance expense yield/rate
Loans(a) $170,491 $7,582 8.89%
Mortgage backed securities 16,001 468 5.85
Other securities(b) 124,909 3,811 6.10
Total earning assets 311,401 11,861 7.62
Other assets 10,043
Total assets $321,444
NOW accounts $27,596 203 1.47
Money market accounts 62,128 954 3.07
Savings & other 39,970 550 2.75
Certificates of deposit 137,237 3,770 5.49
Total interest-bearing deposits 266,931 5,477 4.10
Borrowings 7,402 214 5.78
Total interest-bearing funds 274,333 5,691 4.15
Demand deposits 12,407
Other liabilities 2,048
Shareholders' equity 32,656
Total liabilities and
shareholders' equity $321,444
Net interest income $6,170
Spread on interest-bearing funds 3.47
Net interest margin(c) 3.96
Six months ended December 31, 1996 Average Income/ Average
(dollars in thousands) balance expense yield/rate
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
</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>
<S> <C> <C> <C> <C>
Six months ended December 31, 1997 versus 1996
(dollars in thousands) Change in interest due to
Volume Rate Vol/rate Net
Interest-earning assets:
Loans $ 475 $ (44) $ (3) $ 428
Mortgage backed securities (57) (46) 5 (98)
Other securities 210 42 2 254
Total 628 (48) 4 584
Interest-bearing liabilities:
Deposits 355 119 8 482
Borrowings (168) 18 (8) (158)
Total 187 137 - 324
Net change to interest income $ 441 $(185) $ 4 $ 260
</TABLE>
Interest income
Total interest and dividend income increased $584,000, or 5.2%, for the six
month period ended December 31, 1997 as compared with the same period a
year ago. This increase is a result of an increase of $15.8 million, or
5.3%, in average earning assets offset in part by a 1 basis point decline
in average yield to 7.62%.
Loan interest and fee income increased $428,000, or 6.0%, for the six month
period ended December 31, 1997 as compared with the prior year period as a
result of loan growth, offset by a slight decrease in average yield, down
6 basis points. Average loan balances increased $10.6 million, or 6.6%.
Investment and fed funds income increased $156,000, or 3.8%, for the six
month period ended December 31, 1997 as compared with the prior year period
as a result of a $5.2 million, or 3.8%, increase in average investments
offset in part by a slightly lower average yield on investments and fed
funds, down 1 basis point to 6.07%.
Interest expense
Interest expense for the six month period ended December 31, 1997 increased
$324,000, or 6.0%, as compared to the same period of the prior year as a
result of increased deposit balances, offset by reduced average borrowings,
while the cost of funds increased to 4.15%, an increase of 6 basis points.
Total average balances for deposits and borrowings increased by $11.6
million, or 4.4%, for the period.
Deposit expense increased $482,000, or 9.6%, as a result of deposit growth
of $17.7 million, or 7.1%, coupled with an increase of 9 basis points in
the average cost of interest bearing deposits. Deposit growth has been
primarily in the certificate of deposit category, which increased $12.1
million, or 9.7%. Certificate of deposits average cost increasing to 5.49%
from 5.38% a year ago. Non-maturity deposit rates (Savings Money Market
and NOW) have remained relatively stable over the past year. Non-maturity
deposit balances have increased by $5.6 million, or 4.5%.
Interest expense on borrowings decreased by $158,000, or 42.5%, as a result
of lower borrowings offset in part by higher borrowing rates. Average
borrowings decreased $6.1 million, or 45.1%. The average cost of
borrowings increased 26 basis points to 5.78% in 1997 from 5.52% in 1996.
During the past year the Company has utilized deposit growth to repay
higher cost borrowings. The Company's borrowings are generally for terms
of one month and under.
Provision and Allowance for loan losses
[CAPTION]
The Company provided $150,000 for loan losses during the six month period
ended December 31, 1997, compared to $200,000 from the prior year period
provision. The following table details changes in the allowance for loan
losses during the six month periods ended December 31:
<TABLE>
<S> <C> <C>
1997 1996
(dollars in thousands)
Balance, beginning of period $5,452 $4,866
Provision for losses 150 200
Charge-offs (58) (46)
Recoveries 2 2
Balance, end of period $5,546 $5,022
Ratio of allowance for loan losses:
to non-performing loans 183.82% 119.15%
to total gross loans 3.24 3.07
</TABLE>
Fora a detailed discussion of the Bank's allowance for loan losses see "For
the three month periods ended December 31, 1997 and 1996", above.
Non-interest income
[CAPTION]
The following table details the principal categories of non-interest income
for the six month periods ended December 31.
<TABLE>
<S> <C> <C> <C> <C>
(in thousands) 1997 1996 Change
Service charges on
deposit accounts $556 $483 $ 73 15.1%
Securities losses, net (281) (10) (271) (2710.0)
Gains on mortgage loans, net 147 74 73 98.6
Loan servicing 53 56 (3) (5.4)
Other 142 132 10 7.6
Total non-interest income $617 $735 $(118) (16.1)
</TABLE>
The increase in service charges on deposit accounts reflects increased
transactions volume resulting from deposit growth and increased ATM/debit
card activity. The increase in gain from mortgage loan sales results from
increased activity in the secondary market. For the six month period ended
December 1997 the Bank sold $9.2 million of loans as compared to $4.2
million during the same period a year ago. The securities losses resulted
from sales of $14.2 million, mostly CMOs whose market risks were determined
to be unsuitable. The decrease in loan serving fees results from portfolio
run-off as the loans currently being sold are sold with the servicing
released.
Operating expenses
[CAPTION]
The following table details the principal categories of operating expenses
for the six month periods ended December 31.
<TABLE>
<S> <C> <C> <C> <C>
(in thousands) 1997 1996 Change
Salaries $2,092 $1,911 $181 9.5%
Employee benefits 600 478 122 25.5
Occupancy 441 430 11 2.6
Equipment 362 348 14 4.0
Insurance 52 39 13 33.3
Professional, collections
and OREO, net of (gains) (405) 112 (517) (461.6)
Postage and telecommunications 182 173 9 5.2
Marketing 125 97 28 28.9
Other operating 765 702 63 9.0
Total operating expenses $4,214 $4,290 $(76) (1.8)
</TABLE>
The increase in salaries expense for the six month period ended December
31, 1997 as compared with the prior year period was due primarily to
increases in staffing, primarily in retail banking, as a result of
additional branch locations, and annual salary increases of approximately
4%. The increase in employee benefits expense is due to additional health,
taxes and other benefits related to the increased staffing levels, and
additional retirement benefit expense. Insurance expense increased
primarily as a result of increase FDIC premium cost. Professional,
collection and OREO expense decreased $517,000, due primarily to gains on
OREO sales in 1997 and reduced legal fees on non-performing assets. The
increase in marketing expense results from the promotion of new loan and
deposit products and services, the opening of new branch offices and
increased emphasis on new business development. Changes in other operating
expenses, which include shareholder relations, office supplies and other
expenses, result from normal operating activities.
Income taxes
Net income for the six month period included an income tax provision of
$1,017,000, representing a 42% effective rate, as compared with a provision
of $905,000 a year ago, representing a 42% effective rate.
ASSET QUALITY AND PORTFOLIO RISK
Loans
During the six month period ended December 31, 1997, net loans decreased by
$457,000.
[CAPTION]
Major classifications of loans are as follows:
<TABLE>
<S> <C> <C>
December 31, June 30,
(in thousands) 1997 1997
Real estate mortgages:
One-four family residential $ 87,341 $ 90,885
Five or more family residential 5,829 4,812
Commercial 32,143 31,850
Land 8,022 8,334
Commercial and industrial 11,619 12,424
Home equity lines of credit 22,908 20,274
Installment and other 3,428 3,122
Total loans, gross 170,290 171,701
Deferred loan origination fees, net (60) (108)
Allowance for loan losses (5,546) (5,452)
Total loans, net $165,684 $166,141
</TABLE>
During the year the Company has continued to develop relationships with new
commercial customers. However, as a result of higher prepayments,
commercial loans, including both mortgages and C & I loans, have decreased
$512,000, or 1.2%, since June 30, 1997. 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 lines. Many of residential mortgage loans are originated for
sale to the secondary market. Since June 30, 1997 the residential mortgage
loan portfolio has decreased $2.5 million, or 2.6%, as repayments have
exceeded portfolio originations. Home equity lines of credit balances have
increased $2.6 million, or 13.0%, as a result of successful product
promotion.
Non-performing assets
[CAPTION]
The following table details changes in non-performing assets during the six
month periods ended December 31.
<TABLE>
<S> <C> <C>
(in thousands) 1997 1996
Balance, beginning of year $3,585 $6,480
Loans placed on non-accrual status 926 1,457
Change in accruing loans past
due 90 or more days, net (351) 75
Change in loans restructured, net (274) (6)
Payments to improve OREO 419 104
Loan payments (88) (235)
Loans returned to accrual status (267) (1,061)
Loan charge-offs (41) (46)
Gross proceeds from OREO sales (988) (1,838)
Gains on OREO sales, net 291 154
Provision to OREO valuation reserve - -
Balance, end of period $3,212 $5,084
Percent of total assets 1.36% 1.63%
</TABLE>
During the twelve months ended December 31, 1997 non-performing assets
decreased $1,872,000, or 36.8%, due principally to OREO sales of $988,000,
offset in part by addition to non-accrual loans and capital improvements to
OREO. 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.
[CAPTION]
The following table details the composition of non-performing assets as of
December 31, 1997.
Non-Performing Assets Accruing Total
(dollars in thousands) loans non-
Non- past due Restruc- perform-
accrual 90 or tured OREO ing
loans more days loans (a) OREO reserve assets
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997
Real estate:
Residential $ 339 $397 - $ 58 $ - $ 794
Commercial 836 35 - 36 - 907
Land and land
development 1,409 - - 238 - 1,647
Collateral and
installment loans 1 - - - - 1
Valuation reserve - - - - (137) (137)
Totals $2,585 $432 $ - $ 332 $(137) $3,212
</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 OREO.
The OREO valuation reserve at December 31, 1997 totaled $137,000, or 41.3%
of OREO. 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 OREO which could
require additional provisions to the valuation reserve and reductions in
the carrying values of properties.
FINANCIAL CONDITION
Total assets increased by $32.5 million, or 10.0%, to $355.5 million in the
six month period from June 30, 1997 through December 31, 1997. The
increase resulted from an increase of $47.0 million in securities offset in
part by a decrease of $13.9 million in federal funds.
Loans
Loans, net of the allowance for loan loss, decreased $457,000, or 0.3%,
during the six month period ended December 31, 1997. The primary reason
for this decrease was a lower level of loan advances coupled with higher
prepayments. Loan originations and advances for the six month period
totaled $26.6 million, while repayments were $26.9 million. Of the loans
originated the Company sold $7.8 million in the secondary market during the
six months ended December 31, 1997.
Securities
Securities increased $47.0 million, or 39.4%, to $166.3 million during the
six month period ended December 31, 1997. This resulted from the
reinvestment of federal funds sold balances into securities and an increase
in borrowings for the purpose of purchasing additional securities, both of
which occured late in the Company's second fiscal quarter. Securities
purchased included US Government Agency obligations and mortgage backed
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 December 31, 1997, 80.9% 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 1.1 years and 1.3 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, 1997 18.1% 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 0.2 years and 12.7 years, respectively. The floating rate securities
are tied to several indices, including the eleventh district cost of funds
index ("EDCOFI"), and several Treasury indices. The remaining 1.0% of the
portfolio at December 31, 1997, was represented by Federal Home Loan Bank
stock.
At December 31, 1997, securities totaling $58.2 million, or 35.0%, were
classified as held-to-maturity and securities totaling $108.2 million, or
65.0%, 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, 1997 is an adjustment of
$1,104,000, 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 were purchased in 1993 and early
1994, and subsequent movements in interest rates and market conditions have
resulted in a net decline in fair market value of certain classes of CMOs.
At December 31, 1997 net unrealized losses on total securities, including
available-for-sale and held-to-maturity, totaled $1.9 million.
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, 1997
provided net cash of $1.6 million. Investing activities used net cash of
$46.1 millon, principally securities purchases, offset by securities sales,
principal repayments, net loan repayments and sales of OREO. Financing
activities provided net cash of $30.8 million, principally from net
increases in borrowings and deposits, and from stock options exercised,
offset, in part, by dividends paid and treasury stock purchases. Funds
provided by operating and financing activities were utilized to fund
investing activities. Cash and cash equivalents decreased to $10.9
million.
At December 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
$182.9 million, to net deposits and short term unsecured liabilities, was
60.9%, well in excess of the Company's minimum guideline of 15%. At
December 31, 1997, the Company had outstanding commitments to fund new loan
originations of $10.8 million, construction mortgage commitments of $1.2
million and unused lines of credit of $19.2 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 $1,424,000, to $33,143,000, while book value
per share increased $0.25 to $8.52, during the six month period ended
December 31, 1997. The increase in equity resulted from earnings of
$1,406,000, or $0.35 per share (diluted), a decrease of $378,000 in the
adjustment for net unrealized holding losses on securities, net of taxes,
and stock option proceeds of $283,000, offset by treasury stock purchases
of $105,000 and dividends paid of $536,000.
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. During the six month period ended
December 31, 1997 the Company repurchased 7,800 shares of its outstanding
common stock for total consideration of $105,000.
Shareholders' equity at December 31, 1997 included net unrealized holding
losses, net of taxes, of $7,000 on securities available-for-sale, and an
adjustment for unrealized holding losses, net of taxes, of $1.1 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, 1997 the Company's leverage capital ratio was 10.35%
and its tier I and total risk-based capital ratios were 19.00% and 20.27%,
respectively. At December 31, 1997 the Bank's leverage capital ratio was
10.10% and its tier I and total risk-based capital ratios were 19.05% and
20.33%, 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, 1997 was $4,405,000. 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 6, 1998 By /s/ Francis J. Wiatr
Francis J. Wiatr,
Chairman, President and CEO
February 6, 1998 By /s/ B. Ian McMahon
B. Ian McMahon,
Chief Financial Officer
[CAPTION]
Exhibit 11.1
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,
<TABLE>
<S> <C> <C> <C> <C>
1997 1996 1997 1996
Net income
Net income - basic and diluted $705 $645 $1,406 $1,250
Weighted Average Common and Common
Equivalent Stock
Weighted average common stock
outstanding 3,848 4,042 3,842 4,050
Weighted average common stock
outstanding 3,848 4,042 3,842 4,050
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 415 454 414 454
Assumed purchase of treasury stock
during each period with proceeds
from conversion of stock options
outstanding at the end of each
period (202) (284) (205) (305)
Weighted average common and common
equivalent stock outstanding
- diluted 4,061 4,212 4,051 4,199
Earnings Per Common and Common
Equivalent Share
Basic $0.18 $0.16 $0.37 $0.31
Diluted $0.17 $0.15 $0.35 $0.30
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's December 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 7,402,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,515,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 108,171,000
<INVESTMENTS-CARRYING> 58,172,000
<INVESTMENTS-MARKET> 57,982,000
<LOANS> 171,230,000
<ALLOWANCE> 5,546,000
<TOTAL-ASSETS> 355,526,000
<DEPOSITS> 285,516,000
<SHORT-TERM> 34,000,000
<LIABILITIES-OTHER> 2,867,000
<LONG-TERM> 0
0
0
<COMMON> 3,020,000
<OTHER-SE> 30,123,000
<TOTAL-LIABILITIES-AND-EQUITY> 355,526,000
<INTEREST-LOAN> 7,582,000
<INTEREST-INVEST> 3,795,000
<INTEREST-OTHER> 484,000
<INTEREST-TOTAL> 11,861,000
<INTEREST-DEPOSIT> 5,477,000
<INTEREST-EXPENSE> 5,691,000
<INTEREST-INCOME-NET> 6,170,000
<LOAN-LOSSES> 150,000
<SECURITIES-GAINS> 281,000
<EXPENSE-OTHER> 4,214,000
<INCOME-PRETAX> 2,423,000
<INCOME-PRE-EXTRAORDINARY> 2,423,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,406,000
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.35
<YIELD-ACTUAL> 3.96
<LOANS-NON> 2,585,000
<LOANS-PAST> 432,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,452,000
<CHARGE-OFFS> 58,000
<RECOVERIES> 2,000
<ALLOWANCE-CLOSE> 5,546,000
<ALLOWANCE-DOMESTIC> 4,470,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,076,000
</TABLE>
