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
September 30, 1998
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 September
30, 1998 is 3,837,014.
NEWMIL BANCORP, INC. and SUBSIDIARY
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements:
Consolidated Balance Sheets as of
September 30, 1998 and June 30, 1998. . . . . . . . . . .3
Consolidated Statements of Income
for the three month periods
ended September 30, 1998 and 1997 . . . . . . . . . . . .4
Consolidated Statements of Changes in
Shareholders' Equity for the three month
periods ended September 30, 1998 and 1997 . . . . . . . .5
Consolidated Statements of Cash Flows
for the three month periods ended
September 30, 1998 and 1997 . . . . . . . . . . . . . . .6
Notes to Consolidated Financial Statements. . . . . . . .7
Item 2 Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . 12
Item 3 Quantitative and Qualitative Disclosures
about Market Risk . . . . . . . . . . . . . . . . . . . 22
PART II OTHER INFORMATION
Item 1 Legal Proceedings . . . . . . . . . . . . . . . . . . . 23
Item 4 Submission of matters to a vote of
security holders. . . . . . . . . . . . . . . . . . . . 23
Item 5 Other information . . . . . . . . . . . . . . . . . . . 23
Item 6 Exhibits and Reports on Form 8-K. . . . . . . . . . . . 23
<TABLE>
<S>
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)
September 30, June 30,
1998 1998
ASSETS ---- ----
- ------ <C> <C>
Cash and due from banks $ 7,407 $ 5,342
Federal funds sold 13,352 25,134
Securities:
Available-for-sale at market 119,055 112,091
Held-to-maturity at amortized cost
(market value: $48,827 and $49,911) 47,950 50,176
Loans (net of allowance for
loan losses: $5,005 and $5,004) 169,668 162,849
Other real estate owned
(net of valuation reserve: $63 and $82 308 295
Bank premises and equipment, net 6,650 6,124
Accrued income 2,464 2,259
Deferred tax asset, net 2,036 2,503
Other assets 887 796
------- -------
Total Assets $369,777 $367,569
======= =======
LIABILITIES and SHAREHOLDERS' EQUITY
- ------------------------------------
Deposits
Demand (non-interest $ 15,134 $ 14,520
NOW accounts 30,961 30,202
Money market 66,540 65,257
Savings and other 46,303 45,180
Certificates of deposit 136,385 138,718
------- -------
Total deposits 295,323 293,877
Federal Home Loan Bank advances 37,500 37,500
Accrued interest and other liabilities 2,381 2,783
------- -------
Total Liabilities 335,204 334,160
------- -------
Commitments and contingencies - -
Shareholders' Equity
Common stock - $.50 per share par value
Authorized - 20,000,000 shares
Issued - 5,990,138 and 5,990,138 shares 2,995 2,995
Paid-in capital 43,823 43,881
Retained earnings 9,428 8,933
Unrealized gains (losses) on securities
available-for-sale, net 373 (250)
Unrealized losses on securities transferred
to held-to-maturity, net (878) (955)
Treasury stock, at cost - 2,153,124
and 2,155,824 shares (21,168) (21,195)
------- -------
Total Shareholders' Equity 34,573 33,409
------- -------
Total Liabilities and Shareholders'
Equity $369,777 $367,569
======= =======
</TABLE>
<TABLE>
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF INCOME
(in thousands except per share amounts)
(unaudited)
Three months ended
September 30
1998 1997
<S> ---- ----
INTEREST AND DIVIDEND INCOME <C> <C>
Interest and fees on loans $3,658 $3,791
Interest on securities 2,415 1,838
Dividend income 44 25
Interest on federal funds sold 380 238
----- -----
Total interest and dividend income 6,497 5,892
----- -----
INTEREST EXPENSE
Deposits 2,757 2,723
Borrowed funds 558 103
----- -----
Total interest expense 3,315 2,826
----- -----
Net interest and dividend income 3,182 3,066
----- -----
PROVISION FOR LOAN LOSSES 25 100
Net interest and dividend ----- -----
income after provision
for loan losses 3,157 2,966
----- -----
NON-INTEREST INCOME
Service charges on deposit accounts 307 269
Securities losses, net - (23)
Gains on sales of mortgage loans, net 138 65
Loan servicing fees 22 26
Other 80 76
------ ------
Total non-interest income 547 413
------ ------
NON-INTEREST EXPENSE
Salaries 1,136 1,045
Employee benefits 292 316
Occupancy 197 217
Equipment 214 181
Insurance 26 26
Professional, collection and
OREO, net of (gains) (50) (119)
Marketing 69 60
Shareholder relations 14 24
Other 464 422
------ -----
Total non-interest expense 2,362 2,172
------ ------
INCOME BEFORE INCOME TAXES 1,342 1,207
Provision for income taxes 540 506
------ -----
NET INCOME $ 802 $ 701
====== ======
Earnings per share - basic $0.21 $0.18
===== =====
Earnings per share - diluted $0.20 $0.17
===== =====
Dividends per share $0.08 $0.06
===== =====
</TABLE>
<TABLE>
<S>
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(dollars in thousands)
<C> <C> <C>
Common Paid-in Retained
Stock capital earnings
Balances at ------ ------- --------
June 30, 1997 $2,994 $44,192 $7,097
Net income - - 701
Change in net
unrealized gains
(losses) on
securities, net of
taxes - - -
Total comprehensive ----- ------ -----
income - - 701
Cash dividends paid - - (203)
Proceeds from exercise
of stock options 1 8 -
Acquisition of
treasury stock - - -
Balances at ------ ------- ------
September 30, 1997 $2,995 $44,200 $7,568
====== ======= ======
Balances at
June 30, 1998 $2,995 $43,881 $8,933
Net income - - 802
Change in net
unrealized gains
(losses) on
securities, net of
taxes - - -
Total comprehensive ----- ------ ------
income - - 802
Cash dividends paid - - (307)
Proceeds from
exercise of stock
options - (58) -
Acquisition of
treasury stock - - -
Balances at ------ ------- ------
September 30, 1998 $2,995 $43,823 $9,428
====== ======= ======
</TABLE>
<TABLE>
<S>
Accumulated
other
comprehensive Total
income share-
Treasury Unrealized holders'
stock gains(losses) equity
Balances at ------- -------------- --------
<C> <C> <C>
June 30, 1997 $(21,075) $(1,489) $31,719
Net income - - 701
Change in net
unrealized gains
(losses) on
securities, net of
taxes - 109 109
Total comprehensive -------- ------ ------
income - 109 810
Cash dividends paid - - (230)
Proceeds from exercise
of stock options - - 9
Acquisition of
treasury stock (13) - (13)
Balances at -------- ------- -------
September 30, 1997 $(21,088) $(1,380) $32,295
======== ======= =======
Balances at
June 30, 1998 $(21,195) $(1,205) $33,409
Net income - - 802
Change in net
unrealized gains
(losses) on
securities, net of
taxes - 700 700
Total comprehensive -------- ----- -------
income - 700 1,502
Cash dividends paid - - (307)
Proceeds from
exercise of stock
options 80 - 22
Acquisition of
treasury stock (53) - (53)
Balances at -------- ----- -------
September 30, 1998 $(21,168) $(505) $34,573
======== ===== =======
</TABLE>
<TABLE>
<S>
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Three
months ended
September 30,
1998 1997
---- ----
Operating Activities <C> <C>
Net income $802 $701
Adjustments to reconcile net income
to net cash provided
by operating activities:
Provision for loan losses 25 100
Provision for depreciation and
amortization 175 155
Decrease in deferred income tax asset 43 40
Amortization and accretion of securities
premiums and discounts, net 175 5
Securities losses, net - 23
Realized gains on loan sales, net (138) (65)
Realized gains on OREO sales, net (128) (151)
Increase in accrued income (182) (98)
Decrease in accrued interest expense
and other liabilities (402) (170)
(Increase) decrease in other assets, net (155) 220
Net cash provided by ------ ------
operating activities 215 760
Investing Activities ------ ------
Proceeds from sales of securities
available-for-sale - 1,126
Proceeds from maturities and principal
repayments of securities 6,002 4,776
Purchases of securities available-for-sale - (9,093)
Purchases of securities held-to-maturity (2,025) -
Purchases of mortgage backed securities
available-for-sale (15,598) -
Principal collected on mortgage backed
securities 7,876 824
Loan repayments, net 754 1,544
Loans purchased for portfolio (7,510) -
Proceeds from sales of OREO 261 531
Payments to improve OREO (99) (266)
Purchases of Bank premises
and equipment, net (700) (288)
Net cash used by ------- -------
investing activities (11,039) (846)
Financing Activities ------- -------
Net increase in deposits $1,445 $ 2,939
Net repayments of repurchase agreements - (5,000)
Net repayments of FHLB advances - (4,000)
Cash dividends paid (307) (230)
Treasury stock purchased (53) (13)
Proceeds from exercise of stock options 22 9
Net cash provided (used) by ------ ------
financing activities 1,107 (6,295)
Decrease in cash and cash ------ ------
equivalents (9,717) (6,381)
Cash and federal funds sold, beginning
of year 30,476 24,628
------- -------
Cash and federal funds sold, end of period $20,759 $18,247
======= =======
Cash paid during period
Interest to depositors $ 2,759 $ 2,721
Interest on borrowings 558 135
Income taxes 790 68
Non-cash transfers
From loans to OREO 60 -
</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. ("NewMil") include those of NewMil 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 NewMil
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 three
month period ended September 30, 1998 are not necessarily indicative of
the results that may be expected for the year ending June 30, 1999.
The accompanying condensed financial statements should be read in
conjunction with the financial statements and notes thereto
included in NewMil's Annual Report for the year ended June 30, 1998.
NOTE 2 - SECURITIES
<TABLE>
Securities classified available-for-sale (carried at fair value)
are as follows:
<S>
(dollars in thousands) Estimated Gross Amort
fair unrealized -ized
value gains losses cost
September 30, 1998 --------- ----- ------ ------
U.S. Treasury and Government <C> <C> <C> <C>
Agencies
Within 1 year $16,368 $128 $ - $16,240
After 5 and within 10 years 1,000 - - 1,000
Mortgage backed securities 96,766 628 44 96,182
Collateralized mortgage
obligations 2,396 - 92 2,488
------- ---- ---- -------
Total debt securities 116,530 756 136 115,910
Federal Home Loan Bank stock 2,525 - - 2,525
Total securities -------- ---- ---- --------
available-for-sale $119,055 $756 $136 $118,435
======== ==== ==== ========
June 30, 1998
U.S. Treasury and Government
Agencies
Within 1 year $ 18,330 $ 98 $ - $ 18,232
After 5 and within 10 years 993 - 7 1,000
Mortgage backed securities 87,796 46 390 88,140
Collateralized mortgage
obligations 2,447 - 163 2,610
------- ---- ---- --------
Total debt securities 109,566 144 560 109,982
Federal Home Loan Bank stock 2,525 - - 2,525
Total securities -------- ---- ---- --------
available-for-sale $112,091 $144 $560 $112,507
======== ==== ==== ========
</TABLE>
<TABLE>
Securities classified held-to-maturity (carried at amortized
cost) are as follows:
<S>
(dollars in thousands) Gross Estimated
Amortized unrealized fair
cost(a) gains losses value
--------- ----- ------ --------
September 30, 1998 <C> <C> <C> <C>
Mortgage backed securities $ 6,292 $142 $ - $ 6,434
Municipal Bonds
After 10 years 2,025 1 - 2,026
Collateralized mortgage
obligations 39,633 915 181 40,367
Total securities ------- ------ ---- -------
held-to-maturity $47,950 $1,058 $181 $48,827
======= ====== ==== =======
June 30, 1998
Mortgage backed securities $ 6,806 $ 99 $ - $ 6,905
Collateralized mortgage
obligations 43,370 438 802 43,006
Total securities ------- ----- ----- -------
held-to-maturity $50,176 $ 537 $ 802 $49,911
======= ===== ===== =======
</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
were pledged as collateral against public funds at September 30, 1998.
<TABLE>
Cash proceeds and realized gains and losses from sales of securities
during the three month periods ended September 30 are as follows:
<S>
(dollars in thousands) Cash Realized Realized
proceeds gains losses
-------- -------- --------
Three months ended September 30, 1997 <C> <C> <C>
Available-for-sale
Collateralized mortgage obligations $ 1,130 $ - $ 23
Total $ 1,130 $ - $ 23
</TABLE>
NOTE 3 - LOANS
<TABLE>
<S>
Major classifications of loans are as follows:
<C> <C>
September 30, June 30,
(in thousands) 1998 1998
Real estate mortgages: ---- ----
One-four family residential $ 90,935 $85,274
Five or more family residential 6,432 5,500
Commercial 33,791 34,878
Land 3,074 3,571
Commercial and industrial 15,783 14,357
Home equity lines of credit 21,785 21,208
Installment and other 2,883 3,118
-------- --------
Total loans, gross 174,683 167,906
Deferred loan origination fees, net (10) (53)
Allowance for loan losses (5,005) (5,004)
-------- --------
Total loans, net $169,668 $162,849
======== ========
Impaired loans
With valuation allowance $ 37 $ -
With no valuation allowance 462 464
---- ----
Total impaired loans $499 $464
==== ====
Valuation allowance 14 -
</TABLE>
<TABLE>
<S>
Changes in the allowance for loan losses for the three month
periods ended September 30, are as follows:
<C> <C>
(in thousands) 1998 1997
---- ----
Balance, beginning of period $5,004 $5,452
Provision for losses 25 100
Charge-offs (30) (9)
Recoveries 6 1
------ ------
Balance, end of period $5,005 $5,544
====== ======
</TABLE>
NOTE 4 - NON-PERFORMING ASSETS
<TABLE>
The components of non-performing assets were as follows:
<S>
<C> <C>
September 30, June 30,
(in thousands) 1998 1998
---- ----
Non-accrual loans $1,085 $ 761
Accruing loans past due
90 days or more 1,388 628
Accruing troubled debt
restructured loans - -
------ ------
Total non-performing loans 2,473 1,389
------ ------
Other real estate owned 371 377
Valuation reserve (63) (82)
------ ------
Total OREO, net 308 295
------ ------
Total non-performing assets $2,781 $1,684
====== ======
</TABLE>
Other real estate owned (OREO) includes collateral acquired through
foreclosure, forgiveness of debt or otherwise in lieu of debt, or
loans where NewMil has taken physical possession of the collateral.
NOTE 5 - EARNINGS PER SHARE
Effective December 31, 1997, NewMil adopted the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS 128). SFAS 128 establishes standards for computing and
presenting earnings per share ("EPS"). It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures. This statement was
effective for financial statements issued for periods ending after
December 15, 1997 and has been applied for all periods presented.
<TABLE>
Basic earnings per share is computed using the weighted-average
common shares outstanding during the year. The computation of diluted
earnings per share is similar to the computation of basic earnings per
share except the denominator is increased to include the number of
additional common shares that would have been outstanding if dilutive
potential common shares had been issued. Shares used in the computations
for the three month periods ended September 30, are as follows:
<S>
Three months ended
September 30,
(in thousands) 1998 1997
<C> <C>
Basic 3,834 3,835
Effect of dilutive stock options 197 232
----- -----
Diluted 4,031 4,067
===== =====
</TABLE>
NOTE 6 - COMPREHENSIVE INCOME
Effective July 1, 1998, NewMil adopted the provisions of
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130). SFAS 130 establishes standards for
reporting and display of comprehensive income and its components (such
as changes in net unrealized gains (losses) on securities).
Comprehensive income includes net income and any changes in equity from
non-owner sources that bypass the income statement. The purpose of
reporting comprehensive income is to report a measure of all changes in
equity of an enterprise that result from recognized transactions and
other economic events of the period other than transactions with owners
in their capacity as owners. NewMil's one source of other comprehensive
income is the net unrealized gain (loss) on securities.
<TABLE>
The components of comprehensive income for the three month
periods ended September 30, 1998 and 1997 are as follows:
<S>
Three months ended
September 30,
(in thousands) 1998 1997
Comprehensive income <C> <C>
Net income $ 802 $701
Net unrealized gains (losses)
on securities available-for-
sale during period (taxes:
$412 and $56) 623 86
Accretion of unrealized loss
on securities transferred
to held-to-maturity (taxes:
$53 and $17) 77 23
------ ----
Comprehensive income $1,502 $810
====== ====
</TABLE>
NOTE 7 - INCOME TAXES
<TABLE>
The components of the provision for income taxes for the three
month periods ended September 30 are as follows:
<S>
Three months ended
September 30,
1998 1997
(in thousands) ---- ----
Current provision <C> <C>
Federal $ 456 $ 410
State 127 136
----- -----
Total 583 546
Deferred provision ----- -----
Federal - -
State (43) (40)
----- -----
Total (43) (40)
----- -----
Income tax provision $ 540 $ 506
===== =====
</TABLE>
NOTE 8 - SHAREHOLDERS' EQUITY
<TABLE>
Capital Requirements
- --------------------
NewMil 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").
NewMil's and the Bank's regulatory capital ratios at September 30, 1998,
were as follows:
<S>
<C> <C>
NewMil Bank
------ ----
Leverage ratio 9.42% 9.28%
Tier I risk-based ratio 19.97% 20.47%
Total risk-based ratio 21.24% 21.74%
</TABLE>
NewMil 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 NewMil's ability to
pay dividends is dependent on the Bank's ability to pay dividends to
NewMil. There are certain restrictions on the payment of dividends and
other payments by the Bank to NewMil. 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 NewMil for the three month period ended September
30, 1998 is $1,539,000. In some instances, further restrictions on
dividends may be imposed on NewMil 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 NewMil and its subsidiary should be read in
conjunction with NewMil's Annual Report on Form 10-K for the year ended
June 30, 1998.
BUSINESS
NewMil Bancorp, Inc. ("NewMil"), 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 NewMil 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. NewMil and the Bank were formed in
1987 and 1858, respectively.
RESULTS OF OPERATIONS
For the three month periods ended September 30, 1998 and 1997
Overview
- --------
NewMil earned net income of $802,000, or $0.20 per share (diluted), for
the quarter ended September 30, 1998, the first quarter of NewMil's
fiscal year. This compares with net income of $701,000, or $0.17 per
share (diluted), for the quarter ended September 30, 1997, an
improvement, in net income, of 14.4%. The increase in net income
results from growth in net interest income, reflecting growth in earning
assets and an increase in non-interest income offset, in part, by an
increase in non-interest expense.
Earnings per share grew 17.6% as compared with the prior year period,
reflecting both the 14.4% increase in net income and the effect of
NewMil's Treasury stock purchases.
Analysis of net interest and dividend income
- --------------------------------------------
Net interest and dividend income increased $116,000, or 3.8%, for the
quarter ended September 30, 1998 as compared with the prior year period.
This increase resulted from a $50.6 million, or 16.4% increase in
average earning assets offset in part by a 43 basis point decrease in
the net interest margin to 3.54% from 3.97%. The improvement in net
interest income was driven by loan and investment growth offset by lower
yields on earning assets.
The following table sets forth the components of NewMil's net interest
income and yields on average interest-earning assets and interest-
bearing funds for the three month periods ended September 30, 1998 and
1997.
<TABLE>
<S>
<C> <C> <C>
Three months ended September 30, 1998 Average Income/ Average
(dollars in thousands) balance expense yield/rate
------- ------- ----------
Loans(a) $171,280 $3,658 8.54%
Mortgage backed securities 93,484 1,433 6.13
Other securities(b) 94,656 1,406 5.94
-------- ------
Total earning assets 359,420 6,497 7.23
Other assets 11,176 ------
--------
Total assets $370,596
========
NOW accounts $30,999 97 1.25
Money market accounts 67,206 519 3.09
Savings & other 45,792 316 2.76
Certificates of deposit 137,714 1,825 5.30
-------- ------
Total interest-bearing deposits 281,711 2,757 3.91
Borrowings 37,500 558 5.95
-------- ------
Total interest-bearing funds 319,211 3,315 4.15
Demand deposits 15,390 ------
Other liabilities 1,984
Shareholders' equity 34,011
Total liabilities and --------
shareholders' equity $370,596
========
Net interest income $3,182
======
Spread on interest-bearing funds 3.08
Net interest margin(c) 3.54
<S>
<C> <C> <C>
Three months ended September 30, 1997 Average Income/ Average
(dollars in thousands) balance expense yield/rate
------- ------- ----------
Loans(a) $170,376 $3,791 8.90%
Mortgage backed securities 14,745 231 6.27
Other securities(b) 123,733 1,870 6.05
-------- ------
Total earning assets 308,854 5,892 7.63
Other assets 9,737 ------
--------
Total assets $318,591
========
NOW accounts $ 26,834 101 1.51
Money market accounts 62,443 477 3.06
Savings & other 39,705 272 2.74
Certificates of deposit 136,272 1,873 5.50
-------- ------
Total interest-bearing deposits 265,254 2,723 4.11
Borrowings 7,217 103 5.71
-------- ------
Total interest-bearing funds 272,471 2,826 4.15
Demand deposits 11,754 ------
Other liabilities 2,014
Shareholders' equity 32,352
Total liabilities and --------
shareholders' equity $318,591
========
Net interest income $3,066
Spread on interest-bearing funds ====== 3.48
Net interest margin(c) 3.97
</TABLE>
(a) Includes non-accrual loans.
(b) Includes interest-bearing deposits in other banks and federal
funds sold.
(c) Net interest income divided by average interest-earning assets.
The following table sets forth the changes in interest due to volume and
rate for the three month periods ended September 30, 1998 and 1997.
<TABLE>
<S>
Three months ended September 30, 1998 versus 1997
(dollars in thousands) Change in interest due to
Volume Rate Vol/rate Net
Interest-earning assets: ------ ---- -------- ---
<C> <C> <C> <C>
Loans $ 20 $ (152) $ (1) $(133)
Mortgage backed securities 1,234 (5) (27) 1,202
Other securities (440) (32) 8 (464)
----- ----- ----- -----
Total 814 (189) (20) 605
Interest-bearing liabilities: ----- ----- ----- -----
Deposits 169 (127) (8) 34
Borrowings 432 4 19 455
----- ----- ----- -----
Total 601 (123) 11 489
----- ----- ----- -----
Net change to interest income $ 213 $ (66) $ (31) $ 116
===== ===== ===== =====
</TABLE>
Interest income
- ---------------
Total interest and dividend income increased $605,000, or 10.3%, for the
quarter ended September 30, 1998 as compared with the same period a year
ago. This increase is a result of an increase of $50.6 million, or
16.4%, in average earning assets offset by a decline in average yield of
40 basis points to 7.23%.
Loan interest and fee income decreased $133,000, or 3.5%, for the
quarter ended September 30, 1998 as compared with the prior year period
as a result of a decrease in average yield offset in part by a slight
increase in average loan balance. The average yield is down 36 basis
points to 8.54% for September 30, 1998. Average loan balances increased
$904,000, or 0.5% in September 30, 1998 as compared to the prior year.
Interest and dividends on investments and federal funds sold increased
$738,000, or 35.1%, for the quarter ended September 30, 1998 as compared
with the prior year period as a result of a $49.7 million, or 35.9%,
increase in average balances offset by a slightly lower average yield,
which was down 6 basis point to 6.04%.
Interest expense
- ----------------
Interest expense for the quarter ended September 30, 1998 increased
$489,000, or 17.3%, as compared to the same quarter of the prior year as
a result of increased deposit balances and borrowings, while the cost of
funds remained unchanged at 4.15%. Total average balances for deposits
and borrowings increased by $46.7 million, or 17.2%, for the period.
Deposit expense increased $34,000, or 1.2%, as a result of deposit
growth of $16.5 million, or 6.2%, offset in part, by a decrease of 20
basis points in the average cost of interest bearing deposits. Deposit
growth has been experienced in all deposit categories. Savings account
balances increased $6.1 million, or 15.3%. NOW and Money Market
accounts increased $4.2 million, or 15.5%, and $4.8 million, or 7.6%,
respectively. Certificate of deposit increased $1.4 million, or 1.1%.
Certificate of Deposit rates have declined slightly to 5.30% from 5.50%
a year ago. NOW deposit rates also declined slightly to 1.25% from
1.51% a year ago. Other non-maturity deposit rates (Savings and Money
Market) have remained relatively stable over the past year.
Interest expense on borrowings increased $455,000, or 441.7%, as a
result of increased average borrowings coupled with a higher average
cost of funds. In March 1998 NewMil used Federal Home Loan Bank fixed
rate term advances to fund purchases of fixed rate mortgage backed
securities. As a result, average borrowings for the current quarter are
$30.3 million higher as compared with the prior year period and the
average borrowings cost is 24 basis points higher than the prior year
period. NewMil's borrowings are for terms of less than five years.
Provision and Allowance for loan losses
- ---------------------------------------
NewMil provided $25,000 for loan losses during the quarter ended
September 30, 1998, 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 September 30:
<TABLE>
<S>
<C> <C>
1998 1997
(dollars in thousands) ---- ----
Balance, beginning of period $5,004 $5,452
Provision for losses 25 100
Charge-offs (30) (9)
Recoveries 6 1
------ ------
Balance, end of period $5,005 $5,544
Ratio of allowance for loan losses: ====== ======
to non-performing loans 202.39% 139.82%
to total gross loans 2.87 3.26
</TABLE>
NewMil has achieved a steady reduction in non-performing loans in each
of the past three years. This improvement in loan quality, together
with limited loan portfolio growth, allowed NewMil to lower its loan
provision in 1998. Non-performing loans have decreased $1.5 million, or
37.6%, to $2.5 million at September 30, 1998, as compared with $4.0
million at September 30, 1997. As a result, the reserve coverage to
non-performing loans has increased to 202.4%. During the three month
period ended September 30, 1998, non-performing loans increased $1.1
million. NewMil remains adequately reserved both against total loans
and non-performing loans. For a discussion on loan quality see "Non-
Performing Assets".
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 September 30, 1998, is adequate. Should the economic
climate deteriorate, borrowers could 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 Bank's allowance for loan losses. Such agencies could require the
Bank 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 its banking regulators in August 1998 and 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 September 30.
<TABLE>
<S>
(in thousands) 1998 1997 Change
Service charges on ---- ---- ------
<C> <C> <C> <C>
deposit accounts $307 $269 $ 38 14.1%
Gains on sales of mortgage
loans, net 138 65 73 112.3
Loan servicing 22 26 (4) (15.4)
Securities losses, net - (23) 23 (100.0)
Other 80 76 4 5.3
---- ---- ----
Total non-interest income $547 $413 $134 32.4
==== ==== ====
</TABLE>
The increase in service charges on deposit accounts reflects increased
transaction volume, resulting from deposit growth, fees from the
Generations Gold Family Club introduced in 1998, and increased ATM/debit
card activity. The increase in gains on sales of residential mortgage
loans resulted from loan sales of $6.6 million in 1998 compared with
$4.1 million in 1997. Secondary market loan sales are generally pre-
arranged on a loan by loan basis prior to origination and loans are sold
service-released. The decrease in loan serving fees results from
portfolio run-off.
Operating expenses
- ------------------
The following table details the principal categories of operating
expenses for the three month periods ended September 30.
<TABLE>
<S>
(in thousands) 1998 1997 Change
---- ---- ------
<C> <C> <C> <C>
Salaries $1,136 $1,045 $ 91 8.7%
Employee benefits 292 316 (24) (7.6)
Occupancy 197 217 (20) (9.2)
Equipment 214 181 33 18.2
Insurance 26 26 - 0.0
Professional, collections
and OREO, net of (gains) (50) (119) 69 (58.0)
Postage and telecommunications 100 84 16 19.0
Marketing 69 60 9 15.0
Other operating 378 362 16 4.4
------ ------ ----
Total operating expenses $2,362 $2,172 $190 8.7
====== ====== ====
</TABLE>
The increase in salaries expense for the quarter ended September 30,
1998 as compared with the prior year period was due primarily to
increases in staffing, primarily in retail banking, as a result of the
opening of the Norwalk branch in October 1997, and annual salary
increases of approximately 4.5%. The increase in Equipment expense is
primarily a result of increased banking locations. Professional,
collection and OREO expense increased $69,000, due primarily to gains on
OREO sales in 1997 of $151,000 compared to $109,000 in 1998. Changes in
other operating expenses, which include shareholder relations, office
supplies and other expenses, result from increased lending activities,
the additional branch location and changes in operations activities.
Income taxes
- ------------
Net income for the quarter included an income tax provision of $540,000,
representing a 40.2% effective rate, as compared with a provision of
$506,000 a year ago, representing a 42.0% effective rate.
On May 19, 1998 Connecticut legislation was passed which made sweeping
changes to the corportation business tax treatment of banks and
financial service companies. The new law permits banks to shelter
certain mortgage income from the Connecticut corporation business tax
through the use of a new special purpose entity called a "passive
investment company" (PIC). In general, the PIC can earn mortgage
interest income, and pay dividends to its parent company, free from the
Connecticut corporation business tax. The legislation is effective for
income years commencing on or after January 1, 1999 (July 1, 1999 for
NewMil). Management is presently evaluating the new legislation and its
effect on NewMil's results of operations and financial position.
FINANCIAL CONDITION
Total assets grew $2.2 million, or 0.6%, to $369.8 million during the
three month period from June 30, 1998 through September 30, 1998. Net
loans grew $6.8 million and securities increased by $4.7 million, while
overnight federal funds sold balances declined by $11.8 million.
Deposits grew $1.4 million during the period.
Securities
- ----------
Securities increased $4.7 million, or 2.9%, to $167.0 million during the
three month period ended September 30, 1998. This resulted from the
reinvestment of federal funds sold balances and portfolio run-off into
additional securities. Securities purchased included Government agency
mortgage backed securities and municipal obligations.
The securities portfolio consists of mortgage backed securities ("MBS"),
collateralized mortgage obligations ("CMOs"), U.S. Treasury and Agency
obligations, municipal obligations and Federal Home Loan Bank stock. At
September 30, 1998, 79.8% of the portfolio consisted of fixed rate
securities, principally MBS and to a lesser extent, CMOs, US Treasury
and Agency obligations, and municipal bonds. At September 30, 1998
total fixed rate securities had a projected weighted average duration
and life of 2.3 years and 2.9 years, respectively, based on median
projected prepayment speeds at current interest rates. At September 30,
1998 18.7% of the portfolio consisted of 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 securities had a projected weighted average duration and life of
0.2 years and 8.9 years, respectively, based on median projected
prepayment speeds at current interest rates. Floating rate securities
are tied primarily to the Eleventh District Cost of Funds index, and to
several Treasury indices. The remaining 1.5% of the portfolio at
September 30, 1998, was represented by Federal Home Loan Bank stock.
At September 30, 1998, securities totaling $119.1 million, or 71.3%,
were classified as available-for-sale and securities totaling $48.0
million, or 28.7%, were classified as held-to-maturity. Included in
shareholders' equity at September 30, 1998 is an adjustment of $878,000,
net of taxes, relating to securities transferred in a prior year from
available-for-sale to held-to-maturity, representing net unrealized
losses at the time of transfer adjusted for subsequent principal
amortization, net of taxes.
Loans
- -----
Net loans grew $6.8 million, or 4.2%, during the three month period
ended September 30, 1998. Loans originatinated for portfolio and
related advances totaled $23.1 million, while repayments were $16.3
million. Of the loans originated NewMil sold $6.6 million in the
secondary market during the three months ended September 30, 1998. Of
the loans originated NewMil purchased $7.5 million during the three
months ended September 30, 1998.
<TABLE>
Major classifications of loans are as follows:
<S>
September 30, June 30,
(in thousands) 1998 1998
Real estate mortgages: <C> <C>
One-four family residential $ 90,935 $ 85,274
Five or more family residential 6,432 5,500
Commercial 33,791 34,878
Land 3,074 3,571
Commercial and industrial 15,783 14,357
Home equity lines of credit 21,785 21,208
Installment and other 2,883 3,118
-------- --------
Total loans, gross 174,683 167,906
Deferred loan origination fees, net (10) (53)
Allowance for loan losses (5,005) (5,004)
-------- --------
Total loans, net $169,668 $162,849
======== ========
</TABLE>
The Commercial Lending department specializes in lending to small and
mid-size companies and professional practices and provides short- and
long-term financing, construction loans, commercial mortgages and
property improvement loans. The department also works extensively with
several government-assisted lending programs. Commercial mortgage
loans, including mortgages on land and multi-family property increased
$652,000, or 1.5% since June 30, 1998, and C & I loans increased
$1,426,000, or 9.9%, for the period.
The Residential Mortgage Department, in addition to traditional
portfolio lending, has a secondary market distribution capability, which
provides the flexibility to sell a variety of mortgage products on a
service-released basis. The department has recently established a
number of correspondent lending relationships and has begun purchasing
residential mortgage loans originated within the State of Connecticut
for its own portfolio. Since June 30, 1998 the residential mortgage
loan portfolio has increased $5.7 million, or 6.6%. Loans purchased for
portfolio totaled $7.5 million, while loans sold totaled $6.6 million.
Home equity lines and loans increased $577,000, or 2.7%, for the period.
Non-performing assets
- ---------------------
The following table details changes in non-performing assets during the
three month periods ended September 30.
<TABLE>
<S>
(in thousands) 1998 1997
---- ----
<C> <C>
Balance, beginning of year $1,684 $3,585
Loans placed on non-accrual status 406 661
Change in accruing loans past
due 90 or more days, net 760 203
Change in loans restructured, net - (3)
Payments to improve OREO 99 266
Loan payments (4) (6)
Loans returned to accrual status (1) -
Loan charge-offs (30) (1)
Gross proceeds from OREO sales (261) (531)
Gains on OREO sales, net 109 151
Reverse provision for real estate acquired
valuation reserve 19 -
------ ------
Balance, end of period $2,781 $4,325
====== ======
Percent of total assets 0.75% 1.36%
</TABLE>
During the three months ended September 30, 1998 non-performing assets
increased $1,097,000, or 65.1%, due principally to several large loans
that became 90 days past due offset, in part, by OREO sales of $261,000
and collections of non-accrual loans and loans 90 days past due and
accruing. Additions to non-accrual loans generally represent loans
which had previously been classified on NewMil's internally monitored
list and had been adequately reserved. Additions to loans 90 days past
due and still accruing represent loans which are classified on NewMil's
internally monitored list, have adequate collateral value, and are in
the process of collection.
The following table details the composition of non-performing
assets as of September 30, 1998.
<TABLE>
<S>
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
September 30, 1998 ------- --------- --------- ---- ------- ------
Real estate: <C> <C> <C> <C> <C> <C>
Residential $ 480 $ 981 - $118 $ - $1,579
Commercial 193 407 - 36 - 636
Land and land
development 412 - - 217 - 629
Collateral and
installment loans - - - - - -
Valuation reserve - - - - (63) (63)
------ ------ ----- ----- ------ ------
Totals $1,085 $1,388 $ - $ 371 $ (63) $2,781
====== ====== ===== ===== ====== ======
</TABLE>
(a) Includes accruing troubled debt restructurings.
NewMil 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,
NewMil generally initiates action to foreclose the property or to
acquire it by deed in lieu of foreclosure. NewMil actively markets all
OREO. The OREO valuation reserve at September 30, 1998 totaled $63,000,
or 17.0% of OREO.
LIQUIDITY
NewMil 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 NewMil 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 three month period ended September 30, 1998
provided net cash of $215,000. Investing activities used net cash of
$11.0 millon, principally as a result of securities purchases, loan
purchases, purchases of fixed assets and payments to improve real estate
acquired, offset in part, by security principal repayments, net loan
repayments and sales of OREO. Financing activities provided net cash of
$1.1 million, principally from net increases in 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 $20.8 million.
At September 30, 1998, NewMil'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
$193.2 million, to net deposits and short term unsecured liabilities,
was 59.7%, well in excess of NewMil's minimum guideline of 15%. At
September 30, 1998, NewMil had outstanding commitments to fund new loan
originations of $6.3 million, construction mortgage commitments of
$830,000 and unused lines of credit of $18.8 million. These commitments
will be met in the normal course of business. NewMil 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 $1,165,000, to $34,574,000, while book
value per share increased $0.30 to $9.01, during the three month period
ended September 30, 1998. The increase in equity resulted from earnings
of $802,000, or $0.20 per share (diluted), a decrease of $700,000 in the
adjustment for net unrealized holding losses on securities, net of
taxes, and stock option proceeds of $22,000, offset by treasury stock
purchases of $53,000 and dividends paid of $307,000.
Shareholders' equity at September 30, 1998 included net unrealized
holding gains, net of taxes, of $373,000 on securities available-for-
sale, and an adjustment for unrealized holding losses, net of taxes, of
$878,000 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.
NewMil and the Bank are subject to minimum capital requirements
established, respectively, by the Federal Reserve Board (the "FRB") and
the FDIC. At September 30, 1998 NewMil's leverage capital ratio was
9.42% and its tier I and total risk-based capital ratios were 19.97% and
21.24%, respectively. At September 30, 1998 the Bank's leverage capital
ratio was 9.28% and its tier I and total risk-based capital ratios were
20.47% and 21.74%, respectively. NewMil 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
- ---------
NewMil's ability to pay dividends is dependent on the Bank's ability to
pay dividends to NewMil. There are certain restrictions on the payment
of dividends and other payments by the Bank to NewMil. 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
NewMil as of September 30, 1998 was $1,539,000. In some instances,
further restrictions on dividends may be imposed on NewMil by the
Federal Reserve Bank.
NewMil believes that the payment of cash dividends to its shareholders
is appropriate, provided that such payment considers NewMil's capital
needs, asset quality, and overall financial condition and does not
adversely affect the financial stability of NewMil or the Bank. The
continued payment of cash dividends by NewMil will be dependent on
NewMil's future core earnings, financial condition and capital needs,
regulatory restrictions, and other factors deemed relevant by the Board
of Directors of NewMil.
YEAR 2000
Year 2000 Action Plan
In early 1997 NewMil developed its Year 2000 Action Plan (Plan) to
ensure that its operating systems, and those of its outside vendors and
suppliers, will function correctly in the year 2000 and beyond. NewMil
expects to be compliant with its Year 2000 Plan by March 31, 1999. The
Plan is managed by the Year 2000 Committee, comprised of representatives
from each operational area of the Bank. The Plan has five phases: (1)
awareness; (2) assessment; (3) renovation; (4) validation; and, (5)
implementation.
The awareness phase included development of the Plan, conducting
awareness meetings and communicating with all NewMil employees, attending
Year 2000 seminars and attending a user group meeting for the Bank's
legacy system vendor. The awareness phase was completed during 1997.
The assessment phase included the development of an inventory of all
date sensitive systems, including in-house systems and those of the
Bank's outside vendors and suppliers, a risk assessment of each element,
and specific methodology to correct non-compliant systems. As of
September 30, 1998 the assessment phase has been completed for all
material items. Of the eighty eight systems identified, sixty five have
now been tested, retired or scheduled for replacement, and twenty three
remain to be processed.
High criticality ratings were assigned to several systems, including the
Bank's legacy computer systems, that had the potential to substantially
impact the Bank's operation should they prove to be non-compliant.
After a thorough evaluation NewMil decided to convert from its in-house
legacy computer systems to an in-house client server, relational database
system. The conversion is scheduled for November 15, 1998 and is
proceeding according to plan.
The renovation phase addresses the bringing of systems into compliance,
systems replacements and retirements. Several replacements and
retirements have been completed to date and the renovation phase is
proceeding according to the Plan. The principal remaining item is
conversion from the legacy system to the new client server system. This
project is the Committee's primary focus at the present time.
The validation phase addresses systems testing and is being performed by
the Bank and its outside vendors and suppliers alike. The Bank's new
client server system has been certified Year 2000 compliant by the
supplying vendor and the Bank will be verifying compliance following the
conversion. Several third party interfaces are scheduled for testing in
early 1999. All systems testing is expected to be completed by March
31, 1999.
The implementation phase addresses the roll out of Year 2000 compliant
systems during 1998 and 1999. Should any systems fail the validation
contingency plans will be developed and executed in early 1999.
NewMil has also developed an action plan to identify credit risk in its
loan portfolio arising from the potential failure of a borrower's
operating or other systems as a consequence of the Year 2000. NewMil
has conducted mailings of a Year 2000 Questionnaire to all of its
commercial borrowers and is preparing Year 2000 Risk to Bank assessment
ratings for all commercial borrowers.
Federal banking agencies are conducting supervisory reviews of all
financial institutions Year 2000 readiness. In February 1998 the FDIC
completed an assessment of the Bank's Year 2000 planning efforts and in
September 1998 the FDIC conducted a supervisory review of the Bank's
Year 2000 conversion effort.
Costs
The cost of new hardware and software associated with the systems
conversion, including the replacement of all teller terminals, is
approximately $1,400,000. This cost will be capitalized and depreciated
over the fixed assets useful lives. The annual operating expense of the
new system is estimated to be approximately the same as that of the
present system. Based on current information, management believes that
specific costs related to NewMil's Year 2000 systems issues will not
have a material impact on the operations, cash flows or financial
condition of NewMil.
Risks
The failure to correct a material Year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially and adversely affect
NewMil's results of operations, liquidity and financial condition. Due
to the general uncertainty inherent in the Year 2000 problem, resulting
in part from the uncertainty of the Year 2000 readiness of third-party
vendors and borrowers, NewMil is unable to determine at this time
whether the consequences of Year 2000 failures will have a material
impact on NewMil's results of operations, liquidity or financial
condition. The Year 2000 Action Plan is expected to significantly
reduce NewMil's level of uncertainty about the Year 2000 problem
and, in particular, about the Year 2000 readiness of its material
vendors, suppliers and commercial borrowers. NewMil believes that, with
the implementation of the new client server system and the completion
of the Plan as scheduled, the possibility of significant interruptions
of normal operations should be reduced.
Item 3. QUANTATATIVE and QUALITATIVE DISCLOSURE of MARKET RISK
NewMil manages interest rate risk through an ALCO Committee comprised of
senior management. The committee monitors exposure to interest rate
risk on a quarterly basis using both a traditional gap analysis and
simulation analysis. Traditional gap analysis identifies short and long
term interest rate positions or exposure. Simulation analysis measures
the amount of short term earnings at risk under both rising and falling
rate scenarios. NewMil's interest rate risk has not significantly
changed from the prior year.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
There are no material legal proceedings pending against NewMil or the
Bank or any of their properties, other than ordinary routine litigation
incidental to NewMil's business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual shareholders' meeting was held on October 16, 1998. The
following matters were considered and voted on, as certified by the
election officer at the annual meeting:
(1) Laurie G. Gonthier, John V. Haxo and Suzanne L. Powers
were each elected to the office of Director for a three year
term. All nominees received at least 3,024,624 votes, or 97%.
(2) PricewaterhouseCoopers LLP, Certified Public Accountants, were
approved as independent auditors for the fiscal year ending
June 30, 1999. The shares were voted as follows: 3,080,237,
or 99%, FOR.
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.
November 13, 1998 By /s/ Francis J. Wiatr
Francis J. Wiatr,
Chairman, President and CEO
November 13, 1998 By /s/ B. Ian McMahon
B. Ian McMahon,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S SEPTEMBER 30, 1998 UNAUDITED BALANCE SHEET, INCOME STATEMENT
AND CASH FLOW STATEMENT, AND NOTES THERETO, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERNECE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 7,407,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 13,352,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 121,080,000
<INVESTMENTS-CARRYING> 45,925,000
<INVESTMENTS-MARKET> 46,801,000
<LOANS> 174,673,000
<ALLOWANCE> 5,005,000
<TOTAL-ASSETS> 369,777,000
<DEPOSITS> 295,323,000
<SHORT-TERM> 37,500,000
<LIABILITIES-OTHER> 2,380,000
<LONG-TERM> 0
0
0
<COMMON> 2,998,000
<OTHER-SE> 31,576,000
<TOTAL-LIABILITIES-AND-EQUITY> 369,777,000
<INTEREST-LOAN> 3,658,000
<INTEREST-INVEST> 2,459,000
<INTEREST-OTHER> 380,000
<INTEREST-TOTAL> 6,497,000
<INTEREST-DEPOSIT> 2,757,000
<INTEREST-EXPENSE> 3,315,000
<INTEREST-INCOME-NET> 3,182,000
<LOAN-LOSSES> 25,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,362,000
<INCOME-PRETAX> 1,342,000
<INCOME-PRE-EXTRAORDINARY> 1,342,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 802,000
<EPS-PRIMARY> .21
<EPS-DILUTED> .20
<YIELD-ACTUAL> 3.54
<LOANS-NON> 1,085,000
<LOANS-PAST> 1,388,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 6,168,000
<ALLOWANCE-OPEN> 5,004,000
<CHARGE-OFFS> 30,000
<RECOVERIES> 6,000
<ALLOWANCE-CLOSE> 5,005,000
<ALLOWANCE-DOMESTIC> 4,577,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 428,000
</TABLE>
<TABLE>
Exhibit 11.1
NEWMIL BANCORP, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
(in thousands except per share amounts)
<S>
Three months
ended
September 30,
-------------
1998 1997
---- ----
Net income <C> <C>
- ----------
Net income - basic and diluted $802 $701
==== ====
Weighted Average Common and Common
- ----------------------------------
Equivalent Stock
- ----------------
Weighted average common stock
outstanding 3,834 3,835
===== =====
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 409 465
Assumed purchase of treasury stock
during each period with proceeds
from conversion of stock options
outstanding at the end of each
period (212) (233)
Weighted average common and common
equivalent stock outstanding
- diluted 4,031 4,067
===== =====
Earnings Per Common and Common
- ------------------------------
Equivalent Share
- ----------------
Basic $0.21 $0.18
===== =====
Diluted $0.20 $0.17
===== =====
</TABLE>
