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, 1999
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, 1999 is 3,678,113.
NEWMIL BANCORP, INC. and SUBSIDIARY
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements:
Consolidated Balance Sheets as of
September 30, 1999 and June 30, 1999 3
Consolidated Statements of Income
for the three month periods
ended September 30, 1999 and 1998 4
Consolidated Statements of Changes in
Shareholders' Equity for the three month
periods ended September 30, 1999 and 1998 5
Consolidated Statements of Cash Flows
for the three month periods ended
September 30, 1999 and 1998 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 20
PART II OTHER INFORMATION
Item 1 Legal Proceedings 21
Item 4 Submission of matters to a vote of
security holders 21
Item 5 Other information 21
Item 6 Exhibits and Reports on Form 8-K 21
<TABLE>
<S>
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<C> <C>
September 30, June 30,
1999 1999
---- ----
(unaudited)
ASSETS
Cash and due from banks $ 5,907 $ 9,719
Federal funds sold 3,233 3,167
-------- --------
Total cash and cash equivalents 9,140 12,886
Securities:
Available-for-sale at market 60,830 74,135
Held-to-maturity at amortized cost
(market value: $42,529 and $42,911) 43,906 44,067
Loans (net of allowance for
loan losses: $5,001 and $4,989) 213,561 210,036
Other real estate owned 377 333
Bank premises and equipment, net 6,142 6,238
Accrued income 2,025 2,190
Deferred tax asset, net 1,776 1,788
Other assets 626 444
-------- --------
Total Assets $338,383 $352,117
======== ========
LIABILITIES and SHAREHOLDERS' EQUITY
Deposits
Demand (non-interest bearing) $ 17,977 $ 18,622
NOW accounts 33,798 34,660
Money market 71,224 71,252
Savings and other 48,191 49,443
Certificates of deposit 124,218 126,146
-------- --------
Total deposits 295,408 300,123
Federal Home Loan Bank advances 7,500 15,000
Accrued interest and other liabilities 1,909 3,859
-------- --------
Total Liabilities 304,817 318,982
-------- --------
Commitments and contingencies - -
Shareholders' Equity
Common stock - $.50 per share par value
Authorized - 20,000,000 shares
Issued - 5,990,138 shares 2,995 2,995
Paid-in capital 43,365 43,773
Retained earnings 11,267 10,637
Accumulated other comprehensive income (1,109) (1,132)
Treasury stock, at cost - 2,312,025
and 2,325,924 shares (22,952) (23,138)
------- -------
Total Shareholders' Equity 33,566 33,135
------- -------
Total Liabilities and
Shareholders' Equity $338,383 $352,117
======== ========
</TABLE>
<TABLE>
<S>
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF INCOME
(in thousands except per share amounts)
(unaudited)
Three months ended
September 30
1999 1998
---- ----
<C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $4,144 $3,658
Interest on securities 1,752 2,415
Dividend income 35 44
Interest on federal funds sold 28 380
------ ------
Total interest and dividend income 5,959 6,497
------ ------
INTEREST EXPENSE
Deposits 2,381 2,757
Borrowed funds 192 558
------ ------
Total interest expense 2,573 3,315
------ ------
Net interest and dividend income 3,386 3,182
------ ------
PROVISION FOR LOAN LOSSES (520) 25
------ ------
Net interest and dividend
income after provision
for loan losses 3,906 3,157
------ ------
NON-INTEREST INCOME
Service charges on deposit accounts 328 307
Gain on sale of branch 75 -
Gains on sales of mortgage loans, net 54 138
Securities losses, net (109) -
Gains on sales of OREO - 110
Loan servicing fees 17 22
Other 80 80
------ ------
Total non-interest income 445 657
------ ------
NON-INTEREST EXPENSE
Salaries 1,216 1,136
Employee benefits 311 292
Occupancy 238 197
Equipment 212 214
Insurance 28 26
Professional, collection and
OREO expense 256 60
Other 584 547
------ ------
Total non-interest expense 2,845 2,472
------ ------
Income before income taxes 1,506 1,342
Provision for income taxes 504 540
------ ------
NET INCOME $1,002 $ 802
====== ======
Diluted earnings per share $0.26 $0.20
===== =====
Basic earnings per share $0.27 $0.21
===== =====
Dividends per share $0.10 $0.08
===== =====
</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, 1998 $2,995 $43,881 $8,933
Net income - - 802
Change in net
unrealized gains
(losses) on securities,
net of taxes - - -
Total comprehensive income
Cash dividends paid - - (306)
Proceeds from exercise
of stock options - (58) -
Acquisition of
treasury stock - - -
Balances at ------ ------- ------
September 30, 1998 $2,995 $43,823 $9,429
====== ======= ======
Balances at
June 30, 1999 $2,995 $43,773 $10,637
Net income - - 1,002
Change in net
unrealized gains
(losses) on securities,
net of taxes - - -
Total comprehensive income
Cash dividends paid - - (372)
Proceeds from
exercise of stock
options - (408) -
Acquisition of
treasury stock - - -
Balances at ------ ------- -------
September 30, 1999 $2,995 $43,365 $11,267
====== ======= =======
<C> <C> <C>
Accumulated
other
comprehensive
income Total
Treasury Unrealized shareholders'
stock gains (losses) equity
-------- -------------- -------------
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 1,502
------
Cash dividends paid - - (306)
Proceeds from exercise
of stock options 80 - 22
Acquisition of
treasury stock (53) - (53)
Balances at --------- -------- -------
September 30, 1998 $(21,168) $ (505) $34,574
========= ======== =======
Balances at
June 30, 1999 $(23,138) $(1,132) $33,135
Net income - - 1,002
Change in net
unrealized gains
(losses) on securities,
net of taxes - 23 23
------
Total comprehensive income 1,025
------
Cash dividends paid - - (372)
Proceeds from
exercise of stock
options 715 - 307
Acquisition of
treasury stock (529) - (529)
Balances at -------- ------- -------
September 30, 1999 $(22,952) $(1,109) $33,566
======== ======= =======
</TABLE>
<TABLE>
<S>
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Three months ended
(unaudited) September 30,
1999 1998
---- ----
<C> <C>
Operating Activities
Net income $1,002 $ 802
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses (520) 25
Provision for depreciation and amortization 184 175
Decrease in deferred income tax asset 8 43
Amortization and accretion of securities
premiums and discounts, net 100 175
Securities losses, net 109 -
Realized gains on loan sales, net (54) (138)
Realized gains on OREO sales, net - (110)
OREO Provision - (18)
Decrease (increase) in accrued income 162 (182)
Decrease in accrued interest expense
and other liabilities (2,372) (402)
Increase in other assets, net (187) (155)
------ ------
Net cash (used) provided by
operating activities (1,568) 215
------- ------
Investing Activities
Proceeds from sales of mortgage backed securities
available-for-sale 8,411 -
Proceeds from maturities and principal
repayments of securities 1,110 6,002
Purchases of securities held-to-maturity - (2,025)
Purchases of mortgage backed securities
available-for-sale (2,034) (15,598)
Principal collected on mortgage backed securities 5,804 7,876
Loan repayments, net 895 754
Loans purchased for portfolio (3,864) (7,510)
Proceeds from sales of OREO - 261
Payments to improve OREO (26) (99)
Purchases of Bank premises
and equipment, net (88) (700)
------- -------
Net cash provided (used) by
investing activities 10,208 (11,039)
------- -------
Financing Activities
Net (decrease) increase in deposits $(4,710) $ 1,445
Net repayments from FHLB advances (7,500) -
Cash dividends paid (372) (307)
Treasury stock purchased (529) (53)
Treasury Stock reissued 417 -
Proceeds from exercise of stock options 306 22
------- -------
Net cash (used) provided by
financing activities (12,386) 1,107
------- -------
Decrease in cash and cash equivalents (3,746) (9,717)
Cash and federal funds sold, beginning of year 12,886 30,476
------- -------
Cash and federal funds sold, end of period $ 9,140 $20,759
======= =======
Cash paid during period
Interest to depositors $ 2,372 $ 2,759
Interest on borrowings 219 558
Income taxes 567 790
Non-cash transfers
From loans to OREO 18 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 balance sheet, 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, 1999 are not necessarily indicative of the
results that may be expected for the year ending June 30, 2000. 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, 1999.
NOTE 2 - SECURITIES
<TABLE>
<S>
Securities classified available-for-sale (carried at fair value) were as
follows:
(dollars in thousands) Estimated Gross Amort-
fair unrealized ized
value gains losses cost
------- ----- ------ -----
<C> <C> <C> <C>
September 30, 1999
Mortgage backed securities $ 56,851 $ - $1,430 $ 58,281
Collateralized mortgage
obligations 1,214 - 114 1,328
-------- ---- ------ --------
Total debt securities 58,065 - 1,544 59,609
Equity securities 2,765 - - 2,765
-------- ---- ------ --------
Total securities
available-for-sale $ 60,830 $ - $1,544 $ 62,374
======== ==== ====== ========
June 30, 1999
Mortgage backed securities $ 70,106 $ - $1,438 $ 71,544
Collateralized mortgage
obligations 1,264 - 121 1,385
-------- ---- ------ --------
Total debt securities 71,370 - 1,559 72,929
Equity securities 2,765 - - 2,765
-------- ---- ------ --------
Total securities
available-for-sale $ 74,135 $ - $1,559 $ 75,694
======== ==== ====== ========
</TABLE>
<TABLE>
<S>
Securities classified held-to-maturity (carried at amortized cost) were
as follows:
(dollars in thousands) Gross Estimated
Amortized unrealized fair
cost(a) gains losses value
------- ----- ------ -----
<C> <C> <C> <C>
September 30, 1999
Municipal Bonds
After 10 years $10,556 $ - $1,027 $ 9,529
Mortgage backed securities 23,763 26 52 23,737
Collateralized mortgage
obligations 9,587 46 370 9,263
------- ---- ------ -------
Total securities
held-to-maturity $43,906 $ 72 $1,449 $42,529
======= ==== ====== =======
June 30, 1999
Municipal Bonds
After 10 years $10,558 $ - $866 $ 9,692
Mortgage backed securities 22,890 37 - 22,927
Collateralized mortgage
obligations 10,619 51 378 10,292
------- ---- ------ -------
Total securities
held-to-maturity $44,067 $ 88 $1,244 $42,911
======= ==== ====== =======
</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 of $786,000 and a market value of
$743,000 were pledged as collateral against public funds at September
30, 1999.
Cash proceeds and realized gains and losses from sales of securities
during the nine month periods ended September 30 are as follows:
<TABLE>
<S>
(dollars in thousands) Cash Realized Realized
proceeds gains losses
-------- ----- ------
<C> <C> <C>
Three months ended September 30, 1999
Available-for-sale
Mortgage backed securities $ 8,411 $ - $109
======= ==== ====
Three months ended September 30, 1998
Available-for-sale
Total $ - $ - $ -
======= ==== ====
</TABLE>
NOTE 3 - LOANS
<TABLE>
<S>
Major classifications of loans are as follows:
September 30, June 30,
(in thousands) 1999 1999
---- ----
<C> <C>
Real estate mortgages:
One-four family residential $129,355 $128,371
Five or more family residential 4,691 6,152
Commercial 52,694 47,894
Land 2,182 2,410
Commercial and industrial 8,049 7,773
Home equity lines of credit 18,842 19,429
Installment and other 2,636 2,850
-------- --------
Total loans, gross 218,449 214,879
Deferred loan origination fees
and purchase premium, net 113 146
Allowance for loan losses (5,001) (4,989)
-------- --------
Total loans, net $213,561 $210,036
======== ========
Impaired loans
With valuation allowance $610 $300
With no valuation allowance 454 453
------ ----
Total impaired loans $1,064 $753
====== ====
Valuation allowance $245 $173
Changes in the allowance for loan losses during the three month periods
ended September 30, are as follows:
(in thousands) 1999 1998
---- ----
Balance, beginning of period $4,989 $5,004
Provision for losses (520) 25
Charge-offs (22) (30)
Recoveries 554 6
------ ------
Balance, end of period $5,001 $5,005
====== ======
</TABLE>
NOTE 4 - NON-PERFORMING ASSETS
<TABLE>
<S>
The components of non-performing assets were as follows:
September 30, June 30,
(in thousands) 1999 1999
---- ----
<C> <C>
Non-accrual loans $1,281 $1,051
Accruing loans past due
90 days or more 853 185
Accruing troubled debt
restructured loans - -
------ ------
Total non-performing loans 2,134 1,236
------ ------
Other real estate owned 377 333
------ ------
Total non-performing assets $2,511 $1,569
====== ======
</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
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:
<TABLE>
<S>
Three months ended
September 30,
(in thousands) 1999 1998
---- ----
<C> <C>
Basic 3,654 3,834
Effect of dilutive stock options 173 197
----- -----
Diluted 3,827 4,031
===== =====
</TABLE>
NOTE 6 - COMPREHENSIVE INCOME
The components of comprehensive income for the three month periods ended
September 30, 1999 and 1998 are as follows:
<TABLE>
<S>
Three months ended
September 30,
(in thousands) 1999 1998
---- ----
<C> <C>
Comprehensive income
Net income $1,002 $802
Net unrealized gains on
securities during period 23 700
------ ------
Comprehensive income $1,025 $1,502
====== ======
</TABLE>
<TABLE>
<S>
The components of other comprehensive income, and related tax effects
were as follows:
(in thousands) Before Tax Net of
tax (expense) tax
amount benefit amount
------ ------- ------
<C> <C> <c)
Three months ended September 30, 1999
Net unrealized losses on securities
available-for-sale arising
during the period $ (94) $ 32 $ (62)
Reclassification adjustment for realized
losses included in net income 109 (37) 72
Accretion of unrealized loss on
securities transferred from
available-for-sale to held-to-
maturity 19 (6) 13
----- ----- -----
Net unrealized gains on
securities during period $ 34 $ (11) $ 23
===== ===== =====
Three months ended September 30, 1998
Net unrealized gains on securities
available-for-sale arising
during the period $1,035 $(412) $ 623
Accretion of unrealized loss on
securities transferred from
available-for-sale to held-to-
maturity 130 (53) 77
------ ----- -----
Net unrealized gains on
securities during period $1,165 $(465) $ 700
====== ===== =====
</TABLE>
NOTE 7 - INCOME TAXES
<TABLE>
<S>
The components of the provision for income taxes for the three month
periods ended September 30 are as follows:
Three months ended
September 30,
1999 1998
---- ----
<C> <C>
(in thousands)
Current provision
Federal $ 512 $ 456
State - 127
----- -----
Total 512 583
----- -----
Deferred provision
Federal (8) -
State - (43)
----- -----
Total (8) (43)
----- -----
Income tax provision $ 504 $ 540
===== =====
</TABLE>
On May 19, 1998 Connecticut legislation was passed which made sweeping
changes to the corporation 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 was effective for income
years commencing on or after January 1, 1999.
NewMil formed a PIC, NMSB Mortgage Company, and changed its tax year to
a calendar year basis to take advantage of the Connecticut statute.
Effective January 1, 1999 NewMil transferred mortgages into the PIC and
income of the PIC and its dividends to NewMil became exempt from the
Connecticut Corporation Business Tax. Effective January 1, 1999,
NewMil's combined Federal and State effective tax rate became 34%,
compared with an effective rate, during the first two quarters of the
prior fiscal year, of 40.27%.
NOTE 8 - SHAREHOLDERS' EQUITY
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, 1999, were as
follows:
<TABLE>
<S>
NewMil Bank
------ ----
<C> <C>
Leverage ratio 9.79% 9.60%
Tier I risk-based ratio 18.05% 18.28%
Total risk-based ratio 19.32% 19.55%
</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, 1999 is $427,000. 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,
1999.
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 fourteen 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, 1999 and 1998
Overview
- --------
NewMil earned net income of $1,002,000, or 26 cents per share (diluted),
for the quarter ended September 30, 1999 as compared with $802,000, or
20 cents per share (diluted), for the quarter ended September 30, 1998.
Analysis of net interest and dividend income
- --------------------------------------------
Net interest and dividend income increased $204,000, or 6.4%, for the
quarter ended September 30, 1999 as compared with the prior year period.
This increase resulted from a 48 basis point increase in the net
interest margin to 4.02% from 3.54%, offset in part by a $22.4 million,
or 6.2% decrease in average 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, 1999 and
1998.
<TABLE>
<S>
Three months ended September 30, 1999 Average Income/ Average
(dollars in thousands) balance expense yield/rate
------- ------- ----------
<C> <C> <C>
Loans(a) $216,636 $4,144 7.65%
Mortgage backed securities 93,098 1,470 6.32
Other securities(b) 27,315 345 5.05
-------- ------
Total earning assets 337,049 5,959 7.07
------
Other assets 10,662
--------
Total assets $347,711
========
NOW accounts $ 36,636 105 1.15
Money market accounts 72,004 528 2.93
Savings & other 48,762 289 2.37
Certificates of deposit 125,092 1,459 4.67
-------- ------
Total interest-bearing deposits 282,494 2,381 3.37
Borrowings 12,149 192 6.32
-------- ------
Total interest-bearing funds 294,643 2,573 3.49
------
Demand deposits 18,573
Other liabilities 1,612
Shareholders' equity 32,883
--------
Total liabilities and
shareholders' equity $347,711
========
Net interest income $3,386
======
Spread on interest-bearing funds 3.58
Net interest margin(c) 4.02
</TABLE>
<TABLE>
<S>
Three months ended September 30, 1998 Average Income/ Average
(dollars in thousands) balance expense yield/rate
------- ------- ----------
<C> <C> <C>
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 3.92
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
</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, 1999 and 1998.
<TABLE>
<S>
Three months ended September 30, 1999 versus 1998
(dollars in thousands) Change in interest due to
Volume Rate Vol/rate Net
------ ---- -------- ---
<C> <C> <C> <C>
Interest-earning assets:
Loans $ 969 $(382) $(101) $ 486
Mortgage backed securities (6) 43 - 37
Other securities (1,000) (210) 149 (1,061)
------- ----- ----- ------
Total (37) (549) 48 (538)
------- ----- ----- ------
Interest-bearing liabilities:
Deposits 8 (383) (1) (376)
Borrowings (377) 35 (24) (366)
------- ----- ----- ------
Total (369) (348) (25) (742)
------- ----- ----- ------
Net change to interest income $ 332 $(201) $ 73 $ 204
======= ===== ===== ======
</TABLE>
Interest income
- ---------------
Total interest and dividend income decreased $538,000, or 8.3%, for the
quarter ended September 30, 1999 as compared with the same period a year
ago. This decrease resulted from a $22.4 million, or 6.2%, decrease in
average earning assets coupled with a decline in average yield of 16
basis points to 7.07%.
Loan interest and fee income increased $486,000, or 13.3%, for the
quarter ended September 30, 1999 as compared with the prior year period
as a result of an increase in average loan balances offset in part by a
decrease in average yield. Average yield declined 89 basis points to
7.65%. Average loan balances increased $45.4 million, or 26.5%. The
increased volume was primarily in the lower yielding residential loan
portfolio.
Interest and dividends on investments and federal funds sold decreased
$1,024,000, or 36.1%, as a result of a $67.7 million, or 36.0%, decrease
in average balances coupled with a lower average yield, which declined
1 basis point to 6.03%. The decrease in volume results from maturities,
sales and monthly repayments on MBS and CMOs. The cash was utilized to
fund the loan demand and reduce borrowings.
Interest expense
- ----------------
Interest expense for the quarter ended September 30, 1999 decreased
$742,000, or 22.4%, as compared with the same period a year ago as a
result of a $24.6 million, or 7.7%, decrease in average borrowings and
deposit balances for the period coupled with a 66 basis point decrease
in the cost of funds to 3.49%.
Deposit expense decreased $376,000, or 13.6%, as a result of a 55 basis
points decrease in the average cost of funds offset, in part, by an
increase of $783,000, or 0.3%, in average interest bearing deposit
balances for the period. Deposit expense has also benefitted from a more
favorable deposit mix. The average savings account balance has
increased over the period by $3.0 million, or 6.5%, NOW account balances
have increased $5.6 million, or 18.2%, and Money Market accounts have
increased $4.8 million, or 7.1%. Certificates of deposit decreased by
$12.6 million, or 9.2%. The average rate paid on Certificate of deposit
has declined to 4.67% from 5.30% a year ago, while NOW deposit rates
have declined to 1.15% from 1.25% a year ago, Savings rates have
declined to 2.37% from 2.76% and Money Market rates have declined to
2.93% from 3.09%.
Interest expense on borrowings decreased $366,000, or 65.6%, as a result
of decreased average borrowings offset by a higher average cost of
funds. Average borrowings for the current quarter are $25.4 million, or
67.6%, lower than the prior year period and the average borrowings cost
is 37 basis points higher than the prior year period. In March 1998
NewMil used Federal Home Loan Bank fixed rate term advances to fund
purchases of fixed rate mortgage backed securities. In December 1998
NewMil prepaid $22.5 million of these fixed rate borrowings. NewMil's
current borrowings are for terms of less than two years.
Provision and Allowance for loan losses
NewMil had a negative provision of $520,000 for loan losses during the
quarter ended September 30, 1999, compared with provision of $25,000 for
the prior year period. The negative provision resulted from a loan loss
recovery of $545,000 related to a loan that had been charged off in
prior years. The recovery represents cash received from the borrower's
bankruptcy court proceedings. The following table details key ratios
for the periods ended Sept 30, 1998, June 30, 1999 and September 30,
1999:
<TABLE>
<S>
Sept. 30, 1999 June 30, 1999 Sept. 30,1998
-------------- ------------- -------------
<C> <C> <C>
Ratio of allowance for
loan losses:
to non-performing loans 234.4% 403.6% 202.4%
to total gross loans 2.3 2.3 2.9
</TABLE>
If it had not been for the loan loss recovery of $545,000 received
during the quarter the provision would have been at the same level as
the prior quarter. Since June 30, 1999, non-performing loans have
increased $898,000, or 72.7%, as a result of one loan for $348,000
becoming non-accrual and one loan, for $653,000, becoming 90 days past
due and accruing that has subsequently been paid off in full. If it
were not for these two loans non-performing loans would have decreased
by $103,000, or 8.3%, during the quarter. 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, 1999, 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 last examined by its banking regulators in August 1999 and no
additions to the allowance were requested as a result of this
examination. The level of unallocated reserves from June 30, 1999 to
September 30, 1999 remained substantially the same.
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) 1999 1998 Change
---- ---- ------
<C> <C> <C> <C>
Service charges on
deposit accounts $ 328 $ 307 $ 21 6.8%
Gain on sale of branch 75 - 75 100.0
Gains on sale of OREO - 110 (110) (100.0)
Gains on sales of mortgage
loans, net 54 138 (84) (60.9)
Loan servicing 17 22 (5) (22.7)
Securities losses, net (109) - (109) (100.0)
Other 80 80 - 0.0
----- ----- -----
Total non-interest income $ 445 $ 657 $(212) (32.3)
===== ===== =====
</TABLE>
The decrease in non-interest income is the result of security losses in
1999 and OREO gain in 1998, offset in part by the premium received from
the sale of our Winsted Office, in May 1999, and lower gains from loan
sales. The premium received in this quarter is the result of certain
competitive events that did not occur within the time frame that was
stipulated in the sale agreement. The decrease on gains on OREO is the
result of sales of OREO property, in the quarter ended September 30,
1998 as compared with no sales for the current quarter. The decrease in
gains on sales of residential mortgage loans resulted from reduced sales
volume in the quarter ended September 1999. Gains were generated on
loan sales of $3.1 million in 1999 compared with $6.6 million in 1998.
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 servicing fees results from portfolio run-off. No
loans have been sold with the servicing rights retained since June 1995.
Operating expenses
The following table details the principal categories of operating
expenses for the three month periods ended September 30:
<TABLE>
<S>
(in thousands) 1999 1998 Change
---- ---- ------
<C> <C> <C> <C>
Salaries $1,216 $1,136 $ 80 7.0%
Employee benefits 311 292 19 6.5
Occupancy 238 197 41 20.8
Equipment 212 214 (2) (0.9)
Insurance 28 26 2 7.7
Professional fees, Collection
and OREO expense 256 60 196 326.7
Postage and telecommunications 85 100 (15) (15.0)
Marketing 70 69 1 1.5
Other operating 429 378 51 13.5
------ ------ ----
Total operating expenses $2,845 $2,472 $373 15.1
====== ====== ====
</TABLE>
The increase in salaries expense for the quarter ended September 30,
1999 as compared with the prior year period was due primarily to higher
loan origination commissions, bonus accruals and annual salary increases
of approximately 4.5%. The increase in occupancy expense is a result of
increased building maintenance at certain branch offices. Professional,
Collection and OREO expense increased as a result of legal fees for
litigation over the sale of OREO, a negative OREO provision in 1998 and
expenses related to several strategic initiatives that have been
undertaken during the quarter ended September 1999. Changes in other
operating expenses, which include shareholder relations, office supplies
and other expenses, result from increased lending activities and changes
in operations activities.
Income taxes
- ------------
Net income for the quarter included an income tax provision of $504,000,
representing a 33.5% effective rate, as compared with a provision of
$540,000 a year ago, representing a 40.2% effective rate.
On May 19, 1998 Connecticut legislation was passed which made sweeping
changes to the corporation 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 was effective for income
years commencing on or after January 1, 1999.
NewMil formed a PIC and changed its Federal tax year to a calendar year
basis to take advantage of the Connecticut statute. Effective January
1, 1999 NewMil transferred mortgages into the PIC and income of the PIC
and its dividends to NewMil became exempt from the Connecticut
Corporation Business Tax. Effective January 1, 1999, NewMil's combined
Federal and State effective tax rate became 34%, compared with an
effective rate, during the first two quarters of the fiscal year, of
40.27%.
FINANCIAL CONDITION
Total assets decreased $13.7 million, or 3.9%, to $338.4 million during
the three month period from June 30, 1999 through September 30, 1999.
Securities decreased $13.5 million, or 11.4%, during the three month
period. Net loans increased $3.5 million, or 1.7%. Deposits decreased
$4.7 million, or 1.6%, and borrowings decreased by $7.5 million.
Securities
- ----------
During the three month period ended September 30, 1999 NewMil purchased
$2.0 million of fixed rate mortgage backed securities and sold $8.4
million in fixed rate mortgage backed securities. NewMil's securities
portfolio consists of MBSs, CMOs, bank qualified municipal bonds, and
equity securities. At September 30, 1999, 89.2% of the portfolio
consisted of fixed rate securities, principally MBS and to a lesser
extent, CMOs and municipal bonds. At September 30, 1999 total fixed
rate securities had a projected weighted average duration and life of
4.7 years and 6.6 years, respectively, based on median projected
prepayment speeds at current interest rates. At September 30, 1999,
8.1% 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 0.1
years and 7.4 years, respectively, based on median projected prepayment
speeds at current interest rates. Floating rate MBSs are tied to the
Eleventh District Cost of Funds index, while the floating rate CMOs are
tied to several Treasury indices. The remaining 2.7% of the portfolio
at September 30, 1999, was represented by Federal Home Loan Bank stock
and Bankers Bank Northeast stock.
At September 30, 1999, securities totaling $60.8 million, or 58.1%, were
classified as available-for-sale and securities totaling $43.9 million,
or 41.9%, were classified as held-to-maturity.
Loans
- -----
Net loans grew $3.5 million, or 1.7%, during the three month period
ended September 30, 1999. Loans originated and loan advances totaled
$20.4 million, while loan repayments and loans sold in the secondary
market were $16.8 million and $3.1 million, respectively. Loans
originated include $3.9 million of residential mortgage loans purchased
for portfolio.
Major classifications of loans are as follows:
<TABLE>
<S>
September 30, June 30,
(in thousands) 1999 1999
---- ----
<C> <C>
Real estate mortgages:
One-four family residential $129,355 $128,371
Five or more family residential 4,691 6,152
Commercial 52,694 47,894
Land 2,182 2,410
Commercial and industrial 8,049 7,773
Home equity lines of credit 18,842 19,429
Installment and other 2,636 2,850
-------- --------
Total loans, gross 218,449 214,879
Deferred loan origination fees
and purchase premium, net 113 146
Allowance for loan losses (5,001) (4,989)
-------- --------
Total loans, net $213,561 $210,036
======== ========
</TABLE>
The Commercial Lending department specializes in lending to small and
mid-size companies and professional practices and provides short-term
and long-term financing, construction loans, commercial mortgages and
property improvement loans. The department also works with several
government-assisted lending programs. Commercial mortgage loans,
including mortgages on land and multi-family property increased
$3,111,000, or 5.5% since June 30, 1999, and C & I loans increased
$276,000, or 3.6%, 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. During the three month period ended September
30, 1999 the department has originated and sold $3.1 million of loans to
the secondary market. The department supplements the Bank's own
originations by purchasing residential mortgage loans originated within
the State of Connecticut from several correspondent lenders. During the
three month period ended September 30, 1999 the department has purchased
$3.9 million of loans for portfolio. Since June 30, 1999 the
residential mortgage loan portfolio has increased by $984,000, or 0.8%,
while home equity lines and loans decreased $587,000, or 3.0%, 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) 1999 1998
---- ----
<C> <C>
Balance, beginning of year $1,569 $1,684
Loans placed on non-accrual status 448 406
Change in accruing loans past
due 90 or more days, net 668 760
Payments to improve OREO 26 99
Loan payments (1) (4)
Loans returned to accrual status (179) (1)
Loan charge-offs (20) (30)
Gross proceeds from OREO sales - (261)
Gains on OREO sales, net - 109
Reverse provision for OREO
valuation reserve - 19
------ ------
Balance, end of period $2,511 $2,781
====== ======
Percent of total assets 0.74% 0.75%
</TABLE>
During the three month period ended September 30, 1999 non-performing
assets increased $942,000, or 60.0%, due principally to new non-accrual
loans and loans 90 days past due and accruing. The increase in non-
accrual loans is primarily the result of one loan for $348,000 becoming
non-accrual. The increases in loans 90 days past due and accruing is
primarily the result of one loan for $653,00 that has subsequently been
paid in full. If it were not for these two credits non-performing
assets would have decreased by $59,000, or 3.8%, during the quarter.
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.
In addition to non-performing assets, at September 30, 1999 NewMil had
$8,264,000 of performing classified loans that are considered potential
problem loans. Although not impaired, performing classified loans, in
the opinion of management, exhibit a higher than normal degree of risk
and warrant monitoring due to various considerations, including (i) the
degree of documentation supporting the borrower's current financial
position, (ii) potential weaknesses in the borrowers' ability to service
the loan, (iii) possible collateral value deficiency, and (iv) other
risk factors such as geographic location, industry focus and negatively
trending financial results. These deficiencies create some uncertainty,
but not serious doubt, as to the borrowers' ability to comply with the
loan repayment terms in the future. Management believes that reserves
for these loans are adequate.
The following table details the composition of non-performing assets as
of September 30, 1999.
<TABLE>
<S>
Non-Performing Assets Accruing Total
(dollars in thousands) loans non-
Non- past due perform-
accrual 90 or ing
loans more days OREO assets
----- --------- ---- ------
<C> <C> <C> <C>
September 30, 1999
Real estate:
Residential $ 217 $ 171 $ 337 $ 725
Commercial 661 682 40 1,383
Land and land
development 403 - - 403
Collateral and
installment loans - - - -
------ ------ ----- ------
Totals $1,281 $ 853 $ 377 $2,511
====== ====== ===== ======
</TABLE>
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 property.
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, 1999
used net cash of $1,568,000. Investing activities provided net cash of
$10,208,000, principally as a result of securities repayments, sales and
maturities and net loan repayments offset, in part, by securities and
loans purchased. Financing activities used net cash of $12,386,000,
principally due to repayment of borrowings and by a net deposit decline.
Funds provided by investing activities, together with a $3.7 million
decrease in cash and overnight federal funds sold, were utilized to fund
financing activities.
At September 30, 1999, 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
$177.8 million, to net deposits and short term unsecured liabilities,
was 60.2%, well in excess of NewMil's minimum guideline of 15%. At
September 30, 1999, NewMil had outstanding commitments to fund new loan
originations of $4.6 million, construction mortgage commitments of $2.5
million and unused lines of credit of $24.9 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 $431,000, to $33,566,000, while book
value per share increased $0.09 to $9.13, during the three month period
ended September 30, 1999. The increase in equity resulted from net
income of $1,002,000, or $0.26 per share (diluted), net unrealized gains
on securities during the period, net of taxes, $23,000 and stock option
proceeds of $307,000, offset by treasury stock purchases of $529,000 and
dividends paid of $372,000.
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, 1999 NewMil's leverage capital ratio was
9.79% and its tier I and total risk-based capital ratios were 18.05% and
19.32%, respectively. At September 30, 1999 the Bank's leverage capital
ratio was 9.60% and its tier I and total risk-based capital ratios were
18.28% and 19.55%, 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, 1999 was $427,000. 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. During
1999 NewMil became compliant with its Year 2000 Plan. 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. The
assessment phase was completed for all items during the first six months
of 1999.
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.
The renovation phase addresses the bringing of systems into compliance,
systems replacements and retirements. The renovation phase was
completed for all items during the first six months of 1999.
The validation phase addresses systems testing by the Bank and its
outside vendors and suppliers alike. The Bank converted its in-house
computer system in November 1998 from a legacy computer system to a
client server relational database system. The Bank's new client server
system has been certified Year 2000 compliant by the supplying vendor
and the Bank verified compliance in early 1999. Several third party
interfaces were scheduled for testing in early 1999 as well. All
systems testing has been completed during the first six months of 1999.
The implementation phase addresses the roll out of Year 2000 compliant
systems during 1998 and 1999. The implementation phase was completed
for all items during the first six months of 1999.
In addition, contingency plans have been developed for all systems with
high criticality ratings. All testing of contingency plans has been
completed as of September 30, 1999.
NewMil has completed an evaluation of its loan portfolio to identify
credit risk arising from the potential failure of a borrower's operating
or other systems as a consequence of the Year 2000. NewMil conducted
mailings of a Year 2000 Questionnaire to all of its commercial borrowers
and completed Year 2000 Risk to Bank assessment ratings for all
commercial borrowers in early 1999. Based on our evaluation of
commercial borrowers there has not been a significant increase in credit
risk as a result of our Year 2000 assessment.
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. In
September 1998 the FDIC conducted a supervisory review of the Bank's
Year 2000 conversion effort. In March 1999 the FDIC and State of
Connecticut completed their Year 2000 Readiness Phase II Assessment of
the Bank.
Costs
The cost of Year 2000 compliance is expected to be minimal because the
Bank converted its in-house data processing system to a new system which
has been certified to be Year 2000 compliant. This cost has been
capitalized and is being depreciated over the fixed assets useful lives.
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
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, if any, will have
a material impact on NewMil's results of operations, liquidity or
financial condition. However, based on NewMil's high level of readiness
and the readiness reported by all significant third party vendors,
NewMil does not expect any significant disruption of service. 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 will be
minimized.
Item 3. QUANTITATIVE 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 29, 1999. The
following matters were considered and voted on, as certified by the
election officer at the annual meeting:
<TABLE>
<S>
<C> <C> <C> <C>
Abstentions
Votes Votes Votes Broker
For Against Withheld Non-Votes
----- ------- -------- ---------
Director Election
Betty Pacocha
for 3 year term 3,085,654 79,409 - -
Director Election
Mary C. Williams
for 3 year term 3,085,654 79,409 - -
Director Election
Joseph Carlson II
for 3 year term 3,085,654 79,409 - -
Ratification of
PricewaterhouseCoopers
as auditors 3,086,685 23,488 1,000 54,890
</TABLE>
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 9, 1999 By /s/ Francis J. Wiatr
Francis J. Wiatr,
Chairman, President and CEO
November 9, 1999 By /s/ B. Ian McMahon
B. Ian McMahon,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAIN SUMMARY FINANCIAL INFORMATION EXTRACGTED FROM THE
REGISTRANT'S SEPTEMBER 30, 1999 UNAUDITED BALANCE SHEET, INCOME
STATMEMENT AND CASH FLOW STATEMENT, AND NOTES THERETO, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,808,000
<INT-BEARING-DEPOSITS> 99,000
<FED-FUNDS-SOLD> 3,233,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 60,830,000
<INVESTMENTS-CARRYING> 43,906,000
<INVESTMENTS-MARKET> 42,529,000
<LOANS> 213,561,000
<ALLOWANCE> 5,001,000
<TOTAL-ASSETS> 338,383,000
<DEPOSITS> 295,408,000
<SHORT-TERM> 7,500,000
<LIABILITIES-OTHER> 1,909,000
<LONG-TERM> 0
0
0
<COMMON> 2,995,000
<OTHER-SE> 30,571,000
<TOTAL-LIABILITIES-AND-EQUITY> 338,383,000
<INTEREST-LOAN> 4,144,000
<INTEREST-INVEST> 1,787,000
<INTEREST-OTHER> 28,000
<INTEREST-TOTAL> 5,959,000
<INTEREST-DEPOSIT> 2,381,000
<INTEREST-EXPENSE> 2,573,000
<INTEREST-INCOME-NET> 3,386,000
<LOAN-LOSSES> (520,000)
<SECURITIES-GAINS> (109,000)
<EXPENSE-OTHER> 2,845,000
<INCOME-PRETAX> 1,505,000
<INCOME-PRE-EXTRAORDINARY> 1,506,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,002,000
<EPS-BASIC> 0.27
<EPS-DILUTED> 0.26
<YIELD-ACTUAL> 4.02
<LOANS-NON> 1,281,000
<LOANS-PAST> 853,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 8,264,000
<ALLOWANCE-OPEN> 4,989,000
<CHARGE-OFFS> 22,000
<RECOVERIES> 554,000
<ALLOWANCE-CLOSE> 5,001,000
<ALLOWANCE-DOMESTIC> 4,018,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 983,000
</TABLE>
Exhibit 11.1
NEWMIL BANCORP, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
(in thousands except per share amounts)
<TABLE>
<S>
Three months
ended
September 30,
1999 1998
---- ----
<C> <C>
Net income
Net income - basic and diluted $1,002 $ 802
====== =====
Weighted Average Common and Common
Equivalent Stock
Weighted average common stock
outstanding 3,654 3,855
===== =====
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 378 409
Assumed purchase of treasury stock
during each period with proceeds
from conversion of stock options
outstanding at the end of each
period (205) (212)
Weighted average common and common
equivalent stock outstanding
- diluted 3,827 4,031
===== =====
Earnings Per Common and Common
Equivalent Share
Basic $0.27 $0.21
===== =====
Diluted $0.26 $0.20
===== =====
</TABLE>
