Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended
March 31, 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 March 31, 1999 is
3,777,014.
Page 2
NEWMIL BANCORP, INC. and SUBSIDIARY
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page
Item 1 Financial Statements:
Consolidated Balance Sheets as of
March 31, 1999 and June 30, 1998 3
Consolidated Statements of Income
for the three and nine month periods
ended March 31, 1999 and 1998 4-5
Consolidated Statements of Changes in
Shareholders' Equity for the nine month
periods ended March 31, 1999 and 1998 6
Consolidated Statements of Cash Flows
for the nine month periods ended
March 31, 1999 and 1998 7
Notes to Consolidated Financial Statements 8
Item 2 Management's Discussion and Analysis
of Financial Condition and Results
of Operations 14
Item 3 Quantitative and Qualitative Disclosures
about Market Risk 29
PART II OTHER INFORMATION
Item 1 Legal Proceedings 30
Item 4 Submission of matters to a vote of
security holders 30
Item 5 Other information 30
Item 6 Exhibits and Reports on Form 8-K 30
Page 3
<TABLE>
<S>
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
March 31, June 30,
1999 1998
---- ----
(unaudited)
<C> <C>
ASSETS
- ------
Cash and due from banks $ 7,850 $ 5,342
Federal funds sold 16,237 25,134
Securities:
Available-for-sale at market 88,303 112,091
Held-to-maturity at amortized cost
(market value: $27,682 and $49,911) 28,181 50,176
Loans (net of allowance for
loan losses: $5,100 and $5,004) 206,165 162,849
Other real estate owned
(net of valuation reserve: $56 and $82) 2 295
Bank premises and equipment, net 6,506 6,124
Accrued income 2,226 2,259
Deferred tax asset, net 1,751 2,503
Other assets 1,058 796
-------- --------
Total Assets $358,279 $367,569
======== ========
LIABILITIES and SHAREHOLDERS' EQUITY
- ------------------------------------
Deposits
Demand (non-interest bearing) $ 18,581 $ 14,520
NOW accounts 33,327 30,202
Money market 70,748 65,257
Savings and other 50,542 45,180
Certificates of deposit 131,990 138,718
-------- --------
Total deposits 305,188 293,877
Federal Home Loan Bank advances 15,000 37,500
Accrued interest and other liabilities 3,549 2,783
-------- --------
Total Liabilities 323,737 334,160
-------- --------
Commitments and contingencies - -
Page 4
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 43,773 43,881
Retained earnings 9,942 8,933
Accumulated other comprehensive income (298) (1,205)
Treasury stock, at cost - 2,213,124
and 2,155,824 shares (21,870) (21,195)
-------- --------
Total Shareholders' Equity 34,542 33,409
-------- --------
Total Liabilities and Shareholders' Equity $358,279 $367,569
======== ========
</TABLE>
<TABLE>
<S>
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF INCOME
(in thousands except per share amounts)
(unaudited)
Three months ended Nine months ended
March 31 March 31
1999 1998 1999 1998
---- ---- ---- ----
<C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $4,009 $3,756 $11,344 $11,338
Interest on securities 1,810 2,439 6,535 6,183
Dividend income 44 31 124 82
Interest on federal funds sold 81 126 586 610
Total interest and dividend ------ ------ ------- -------
income 5,944 6,352 18,589 18,213
------ ------ ------- -------
INTEREST EXPENSE
Deposits 2,492 2,689 7,914 8,166
Borrowed funds 224 505 1,229 719
----- ----- ----- -----
Total interest expense 2,716 3,194 9,143 8,885
----- ----- ----- -----
Net interest and dividend income 3,228 3,158 9,446 9,328
----- ----- ----- -----
PROVISION FOR LOAN LOSSES 25 50 75 200
Net interest and dividend
income after provision
for loan losses 3,203 3,108 9,371 9,128
----- ----- ----- -----
Page 5
NON-INTEREST INCOME
Service charges on deposit accounts 265 270 866 826
Gains on sales of mortgage loans,
net 161 89 451 236
Securities gains (losses), net - 10 - (271)
Gains on sales of OREO 478 50 1,342 341
Loan servicing fees 19 25 62 78
Other 76 66 235 208
----- ----- ----- -----
Total non-interest income 999 510 2,956 1,418
----- ----- ----- -----
NON-INTEREST EXPENSE
Salaries 1,316 979 3,673 3,071
Employee benefits 345 325 907 925
Occupancy 268 232 780 673
Equipment 222 183 668 545
Insurance 26 26 78 78
Professional, collection and
OREO expense 107 77 348 (37)
Other 572 503 1,743 1,575
----- ----- ------- ------
Total non-interest expense 2,856 2,325 8,197 6,830
Income before income taxes, ----- ----- ------- ------
cumulative effect of accounting
change and extraordinary item 1,346 1,293 4,130 3,716
Provision for income taxes 466 543 1,876 1,560
Income before cumulative effect of ----- ----- ------- ------
accounting change and extraordinary
item 880 750 2,254 2,156
Cumulative effect of change in
accounting principle, net of tax - - (162) -
Extraordinary item, net of tax - - (87) -
------ ------ ------- -------
NET INCOME $ 880 $ 750 $ 2,005 $ 2,156
====== ====== ======= =======
</TABLE>
<TABLE>
<S>
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF INCOME
(in thousands except per share amounts)
(unaudited)
Three months ended Nine months ended
March 31 March 31
1999 1998 1999 1998
---- ---- ---- ----
<C> <C> <C> <C>
Page 6
Diluted earnings per share
Income before cumulative effect of
accounting change and
extraordinary item $0.22 $0.18 $0.56 $0.53
Cumulative effect of change in
accounting principle, net of tax 0.00 0.00 (0.04) 0.00
Extraordinary item, net of tax 0.00 0.00 (0.02) 0.00
----- ----- ----- -----
Net income $0.22 $0.18 $0.50 $0.53
===== ===== ===== =====
Basic earnings per share
Income before cumulative effect of
accounting change and
extraordinary item $0.23 $0.19 $0.58 $0.56
Cumulative effect of change in
accounting principle, net of tax 0.00 0.00 (0.04) 0.00
Extraordinary item, net of tax 0.00 0.00 (0.02) 0.00
Net income $0.23 $0.19 $0.52 $0.56
===== ===== ===== =====
Dividends per share $0.09 $0.08 $0.26 $0.22
===== ===== ===== =====
</TABLE>
<TABLE>
<S>
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(dollars in thousands)
Common Paid-in Retained
Stock capital earnings
------ ------- --------
<C> <C> <C>
Balances at
June 30, 1997 $2,994 $44,192 $7,097
Net income - - 2,156
Change in net unrealized gains
(losses) on securities, net of
taxes - - -
Total comprehensive income
Cash dividends paid - - (845)
Proceeds from exercise
of stock options 26 256 -
Acquisition of treasury stock - - -
------ ------- ------
Balances at March 31, 1998 $3,020 $44,448 $8,408
====== ======= ======
Page 7
Balances at June 30, 1998 $2,995 $43,881 $8,933
Net income - - 2,005
Change in net
unrealized gains (losses) on
securities, net of taxes - - -
Total comprehensive income
Cash dividends paid - - (996)
Proceeds from exercise
of stock options - (108) -
Acquisition of treasury stock - - -
------ ------- ------
Balances at March 31, 1999 $2,995 $43,773 $9,942
====== ======= ======
Accumulated
other
comprehensive
income Total
Treasury Unrealized shareholders
stock gains (losses) equity
-------- -------------- ------------
<C> <C> <C>
Balances at
June 30, 1997 $(21,075) $(1,489) $31,719
Net income - - 2,156
Change in net unrealized
gains (losses) on
securities, net of taxes - 310 310
-------
Total comprehensive income 2,466
-------
Cash dividends paid - - (845)
Proceeds from exercise
of stock options - - 282
Acquisition of
treasury stock (633) - (633)
Balances at -------- ------- -------
March 31, 1998 $(21,708) $(1,179) $32,989
======== ======= =======
Page 8
Balances at
June 30, 1998 $(21,195) $(1,205) $33,409
Net income - - 2,005
Change in net unrealized
gains (losses) on
securities, net of taxes - 907 907
-------
Total comprehensive income 2,912
-------
Cash dividends paid - - (996)
Proceeds from exercise
of stock options 168 - 60
Acquisition of
treasury stock (843) - (843)
Balances at -------- ----- -------
March 31, 1999 $(21,870) $(298) $34,542
======== ===== =======
</TABLE>
<TABLE>
<S>
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Nine months ended
(unaudited) March 31,
1999 1998
---- ----
<C> <C>
Operating Activities
Net income $2,005 $2,156
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 75 200
Provision for depreciation and amortization 564 464
Decrease in deferred income tax asset 167 130
Amortization and accretion of securities
premiums and discounts, net 602 66
Securities losses, net - 271
Cumulative effect of accounting change, net 162 -
Extraordinary loss on debt extinguishment, net 87 -
Realized gains on loan sales, net (451) (236)
Realized gains on OREO sales, net (1,342) (341)
Decrease (increase) in accrued income 51 (526)
Increase in accrued interest expense
and other liabilities 756 508
Decrease in other assets, net (369) (15)
Net cash provided by ------- -------
operating activities 2,307 2,677
Investing Activities ------- -------
Page 9
Proceeds from sales of securities
available-for-sale 20,933 35,878
Proceeds from sale of securities
held-to-maturity - 7,325
Proceeds from maturities and principal
repayments of securities 25,284 33,417
Proceeds from sale of mortgage backed
securities available-for-sale - 1,042
Purchases of securities available-for-sale - (50,071)
Purchases of securities held-to-maturity (10,565) -
Purchases of mortgage backed securities
available-for-sale (15,598) (93,403)
Principal collected on mortgage backed securities 26,433 3,832
Loan (advances) repayments, net (5,408) (3,207)
Loans purchased for portfolio (37,580) -
Proceeds from sales of OREO 1,815 1,249
Payments to improve OREO (107) (498)
Purchases of Bank premises
and equipment, net (945) (750)
Net cash provided (used) by ------- -------
investing activities 4,262 (65,186)
Financing Activities ------- -------
Net increase in deposits $11,321 $13,936
Net repayments of repurchase agreements - (5,000)
Net (repayments) proceeds from FHLB advances (22,500) 36,500
Cash dividends paid (996) (633)
Treasury stock purchased (843) (845)
Proceeds from exercise of stock options 60 283
Net cash (used) provided by ------- -------
financing activities (12,958) 44,241
------- -------
Decrease in cash and cash equivalents (6,389) (18,268)
------- -------
Cash and federal funds sold, beginning of year 30,476 24,628
------- -------
Cash and federal funds sold, end of period $24,087 $ 6,360
======= =======
Cash paid during period
Interest to depositors $ 7,904 $8,172
Interest on borrowings 1,334 576
Income taxes 1,510 990
Non-cash transfers
From loans to OREO 60 177
From securities held-to-maturity to
securities available-for-sale 21,509 -
</TABLE>
Page 10
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 nine month
period ended March 31, 1999 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.
Effective October 1, 1998 NewMil adopted the provisions of Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging Activities". SFAS 133 requires that
all derivative instruments be recorded on the balance sheet at their
fair value. SFAS 133 also requires that changes in the fair value of
derivative instruments be recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of
hedge transaction. In addition SFAS 133 allows for the reclassification
of securities from held-to-maturity to available-for-sale without
tainting the investment portfolio. Under the provisions of SFAS 133, if
securities are reclassified and sold in the same period the gain or loss
Page 11
from the sale is treated as a cumulative effect of accounting change on
the income statement. NewMil took advantage of the provisions of SFAS
133 by reclassifying securities totaling $21 million from held-to-
maturity to available-for-sale, and then sold those securities. NewMil
realized a loss, net of tax, of $162,000 on the transfer and sale of
these securities. This loss has been reported separately in net income
as the cumulative effect of adopting SFAS 133. The securities were
previously carried below cost as held-to-maturity, and an unrealized
loss, net of taxes, of $654,000 against these securities was included in
shareholders equity on September 30, 1998. These securities had been
transferred, in a previous year, from available-for-sale to held-to-
maturity with an unrealized loss being amortized in equity. NewMil does
not have any derivative securities in its portfolio, therefore, the
disclosures required by SFAS 133 are not applicable.
NOTE 2 - SECURITIES
Securities classified available-for-sale (carried at fair value) are as
follows:
<TABLE>
<S>
(dollars in thousands) Estimated Gross Amort-
fair unrealized ized
value gains losses cost
--------- ----- ------ -----
<C> <C> <C> <C>
March 31, 1999
U.S. Treasury and Government
Agencies
Within 1 year $ 6,009 $ 10 $ - $ 5,999
Mortgage backed securities 78,176 211 334 78,299
Collateralized mortgage
obligations 1,593 - 129 1,722
------- ---- ---- -------
Total debt securities 85,778 221 463 86,020
Federal Home Loan Bank stock 2,525 - - 2,525
Total securities ------- ---- ---- -------
available-for-sale $88,303 $221 $463 $88,545
======= ==== ==== =======
Page 12
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
======== ==== ==== ========
Securities classified held-to-maturity (carried at amortized cost) are
as follows:
(dollars in thousands) Gross Estimated
Amortized unrealized fair
cost(a) gains losses value
--------- ----- ------ ---------
<C> <C> <C> <C>
March 31, 1999
Mortgage backed securities $ 5,165 $108 $ - $ 5,273
Municipal Bonds
After 10 years 10,560 1 323 10,238
Collateralized mortgage
obligations 12,456 86 371 12,171
Total securities ------- ---- ---- -------
held-to-maturity $28,181 $195 $694 $27,682
======= ==== ==== =======
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 of $786,000 and a market value of
$787,000 were pledged as collateral against public funds at March 31,
1999.
Page 13
NewMil adopted the provisions of SFAS 133 and under this provision
reclassified securities totaling $21 million from held-to-maturity to
available-for-sale, and then sold those securities. NewMil realized a
loss, net of tax, of $162,000 on the transfer and sale of these
securities. This loss has been reported separately in net income as the
cumulative effect of adopting SFAS 133. In past years these securities
have experienced significant market price volatility. NewMil sold these
securities to reduce its exposure to market risk.
Cash proceeds and realized gains and losses from sales of securities
during the nine month periods ended March 31 are as follows:
<TABLE>
<S>
(dollars in thousands) Cash Realized Realized
proceeds gains losses
-------- -------- --------
<C> <C> <C>
Nine months ended March 31, 1999
Available-for-sale
Collateralized mortgage obligations(a) $20,933 $ - $ 274
======= ===== =====
Nine months ended March 31, 1998
Available-for-sale
U.S. Treasury and Government Obligations $30,010 $ 10 $ -
Mortgage backed securities 1,042 64 -
Collateralized mortgage obligations 5,868 - 242
Held-to-maturity
Collateralized mortgage obligations (b) 7,325 - 103
------- ---- -----
Total $44,245 $ 74 $ 345
======= ==== =====
</TABLE>
(a) This sale was transacted under the provisions of SFAS 133 with
the loss being reported as the cumulative effect of a change
in accounting principle.
(b) In November 1997 NewMil sold a collateralized mortgage obligation
("CMO") which was classified as held-to-maturity. In October 1997
NewMil engaged a financial securities consultant to analyze this
CMO. Based on this review NewMil determined that it was highly
probable that NewMil would likely receive substantially less than
the contractual interest on this CMO and that the CMO could
experience a significant decline in market value. NewMil concluded
that these and other changes in circumstances surrounding this CMO
were isolated, non-recurring, and highly unusual, and could not
have been reasonably anticipated. NewMil realized a loss on the
sale of this security.
Page 14
NOTE 3 - LOANS
Major classifications of loans are as follows:
<TABLE>
<S>
March 31, June 30,
(in thousands) 1999 1998
---- ----
<C> <C>
Real estate mortgages:
One-four family residential $127,238 $ 85,274
Five or more family residential 6,321 5,500
Commercial 35,193 34,878
Land 2,851 3,571
Commercial and industrial 17,271 14,357
Home equity lines of credit 19,481 21,208
Installment and other 2,679 3,118
-------- --------
Total loans, gross 211,034 167,906
Deferred loan origination fees
and purchase premium, net 231 (53)
Allowance for loan losses (5,100) (5,004)
-------- --------
Total loans, net $206,165 $162,849
======== ========
Impaired loans <C> <C>
With valuation allowance $300 $ -
With no valuation allowance 460 464
---- ----
Total impaired loans $760 $464
==== ====
Valuation allowance $173 $ -
Changes in the allowance for loan losses during the nine month periods
ended March 31, are as follows:
(in thousands) 1999 1998
---- ----
<C> <C>
Balance, beginning of period $5,004 $5,452
Provision for losses 75 200
Charge-offs (36) (658)
Recoveries 57 4
------ ------
Balance, end of period $5,100 $4,998
====== ======
</TABLE>
Page 15
NOTE 4 - NON-PERFORMING ASSETS
The components of non-performing assets were as follows:
<TABLE>
<S>
March 31, June 30,
(in thousands) 1999 1998
---- ----
<C> <C>
Non-accrual loans $1,450 $ 761
Accruing loans past due
90 days or more 340 628
Accruing troubled debt
restructured loans - -
------ ------
Total non-performing loans 1,790 1,389
------ ------
Other real estate owned 58 377
Valuation reserve (56) (82)
------ ------
Total OREO, net 2 295
------ ------
Total non-performing assets $1,792 $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.
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 and nine month periods ended March 31, are as follows:
Page 16
<TABLE>
<S>
Three months ended Nine months ended
March 31, March 31,
(in thousands) 1999 1998 1999 1998
---- ---- ---- ----
<C> <C> <C> <C>
Basic 3,804 3,855 3,825 3,846
Effect of dilutive stock options 194 209 194 225
----- ----- ----- -----
Diluted 3,998 4,064 4,019 4,071
===== ===== ===== =====
</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. Comprehensive income includes
net income and any changes in equity from non-owner sources that are not
recorded in the income statement (such as changes in net unrealized
gains (losses) on securities). 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.
The components of comprehensive income for the three and nine month
periods ended March 31, 1999 and 1998 are as follows:
<TABLE>
<S>
Three months ended Nine months ended
March 31, March 31,
(in thousands) 1999 1998 1999 1998
---- ---- ---- ----
<C> <C> <C> <C>
Comprehensive income
Net income $880 $750 $2,005 $2,156
Net unrealized (losses) gains
on securities during period (151) (68) 907 310
---- ---- ------ ------
Comprehensive income $729 $682 $2,912 $2,466
==== ==== ====== ======
</TABLE>
Page 17
The components of other comprehensive income, and related tax effects
were as follows:
<TABLE>
<S>
(in thousands) Before Tax Net of
tax (expense) tax
amount benefit amount
------ ------- ------
<C> <C> <C>
Three months ended March 31, 1999
Net unrealized loss on securities
available-for-sale arising
during the period $(318) $ 108 $(210)
Accretion of unrealized loss on
securities transferred from
available-for-sale to held-to-
maturity 89 (30) 59
Net unrealized gains on ----- ----- -----
securities during period $(229) $ 78 $(151)
Three months ended March 31, 1998 ===== ===== =====
Net unrealized gains on securities
available-for-sale arising
during the period $(219) $ 88 $(131)
Accretion of unrealized loss on
securities transferred from
available-for-sale to held-to-
maturity 106 (43) 63
Net unrealized gains on ----- ----- -----
securities during period $(113) $ 45 $ (68)
Nine months ended March 31, 1999 ===== ===== =====
Net unrealized gains on securities
available-for-sale arising
during the period $ 240 $(150) $ 90
Reclassification adjustment for
realized loss included in net income 274 (112) 162
Accretion of unrealized loss on
securities transferred from
available-for-sale to held-to-maturity
and subsequently sold (Note 2) 817 (369) 448
Accretion of unrealized loss on
securities transferred from
available-for-sale to held-to-
maturity 552 (345) 207
Net unrealized gains on ------ ----- ----
securities during period $1,883 $(976) $907
Nine months ended March 31, 1998 ====== ===== ====
Page 18
Net unrealized gains on securities
available-for-sale arising
during the period $300 $(120) $180
Accretion of unrealized loss on
securities transferred from
available-for-sale to held-to-
maturity 217 (87) 130
Net unrealized gains on ---- ----- ----
securities during period $517 $(207) $310
==== ===== ====
</TABLE>
NOTE 7 - INCOME TAXES
The components of the provision for income taxes for the three and nine
month periods ended March 31 are as follows:
<TABLE>
<S>
Three months ended Nine months ended
March 31, March 31,
1999 1998 1999 1998
---- ---- ---- ----
<C> <C> <C> <C>
(in thousands)
Current provision
Federal $ 458 $ 440 $1,404 $1,263
State - 149 305 427
----- ----- ------ ------
Total 458 589 1,709 1,690
----- ----- ------ ------
Deferred provision
Federal 8 - (262) -
State - (46) 429 (130)
----- ----- ------ ------
Total 8 (46) 167 (130)
----- ----- ------ ------
Income tax provision $ 466 $ 543 $1,876 $1,560
===== ===== ====== ======
</TABLE>
Page 19
NewMil formed a Passive Investment Company ("PIC") and changed its
Federal tax year to a calendar year basis to take advantage of recent
changes in Connecticut tax statutes. The Connecticut statute, effective
January 1, 1999, allows NewMil to transfer mortgages into a PIC. Income
of the PIC and its dividends to NewMil are exempt from the Connecticut
Corporation Business Tax. The formation of the PIC required NewMil to
establish a valuation allowance against its existing deferred State tax
assets that are no longer expected to be realized in future years.
Accordingly, NewMil's income tax provision for the nine month periods
ended March 31, 1999 includes a charge of $266,000.
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 March 31, 1999, were as follows:
<TABLE>
<S>
NewMil Bank
------ ----
<C> <C>
Leverage ratio 9.68% 9.60%
Tier I risk-based ratio 18.69% 19.15%
Total risk-based ratio 19.96% 20.42%
</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 nine
Page 20
month period ended March 31, 1999 is $2,428,000. 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 March 31, 1999 and 1998
Overview
- --------
NewMil earned net income of $880,000, or 22 cents per share (diluted),
for the third quarter ended March 31, 1999 as compared with $750,000, or
18 cents per share (diluted), for the third quarter ended March 31,
1998.
Analysis of net interest and dividend income
- --------------------------------------------
Net interest and dividend income increased $70,000, or 2.2%, for the
quarter ended March 31, 1999 as compared with the prior year period.
This increase resulted from a 13 basis point increase in the net
interest margin to 3.80% from 3.67%, offset, in part by a $3.8 million,
or 1.1% 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 March 31, 1999 and 1998.
Page 21
<TABLE>
<S>
Three months ended March 31, 1999 Average Income/ Average
(dollars in thousands) balance expense yield/rate
------- ------- ----------
<C> <C> <C>
Loans(a) $203,623 $4,009 7.88%
Mortgage backed securities 88,362 1,286 5.82
Other securities(b) 47,921 649 5.42
-------- -----
Total earning assets 339,906 5,944 7.00
Other assets 14,738 -----
--------
Total assets $354,644
========
NOW accounts $33,716 94 1.12
Money market accounts 68,758 492 2.86
Savings & other 49,753 297 2.39
Certificates of deposit 132,598 1,609 4.85
-------- -----
Total interest-bearing deposits 284,825 2,492 3.50
Borrowings 15,000 224 5.97
-------- -----
Total interest-bearing funds 299,825 2,716 3.62
Demand deposits 17,717 -----
Other liabilities 2,416
Shareholders' equity 34,686
Total liabilities and --------
shareholders' equity $354,644
========
Net interest income $3,228
======
Spread on interest-bearing funds 3.38
Net interest margin(c) 3.80
Three months ended March 31, 1998 Average Income/ Average
(dollars in thousands) balance expense yield/rate
------- ------- ----------
Loans(a) $170,928 $3,756 8.79%
Mortgage backed securities 38,796 574 5.92
Other securities(b) 134,012 2,022 6.04
-------- ------
Total earning assets 343,736 6,352 7.39
Other assets 11,238 ------
--------
Total assets $354,974
========
Page 22
NOW accounts $ 28,906 87 1.20
Money market accounts 62,725 476 3.04
Savings & other 40,453 267 2.64
Certificates of deposit 139,688 1,859 5.32
-------- ------
Total interest-bearing deposits 271,772 2,689 3.96
Borrowings 35,528 505 5.69
-------- ------
Total interest-bearing funds 307,300 3,194 4.16
Demand deposits 12,552 ------
Other liabilities 1,721
Shareholders' equity 33,401
Total liabilities and --------
shareholders' equity $354,974
========
Net interest income $3,158
======
Spread on interest-bearing funds 3.23
Net interest margin(c) 3.67
</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 March 31, 1999 and 1998.
<TABLE>
<S>
Three months ended March 31, 1999 versus 1998
(dollars in thousands) Change in interest due to
Volume Rate Vol/rate Net
------ ---- -------- ---
<C> <C> <C> <C>
Interest-earning assets:
Loans $ 718 $(391) $ (74) $ 253
Mortgage backed securities 733 (9) (12) 712
Other securities (1,299) (207) 133 (1,373)
------ ---- ---- -----
Total 152 (607) 47 (408)
Interest-bearing liabilities: ------ ---- ---- -----
Page 23
Deposits 129 (311) (15) (197)
Borrowings (292) 26 (15) (281)
------- ----- ----- -----
Total (163) (285) (30) (478)
------- ----- ----- -----
Net change to interest income $ 315 $(322) $ 77 $ 70
======= ===== ===== =====
</TABLE>
Interest income
- ---------------
Total interest and dividend income decreased $408,000, or 6.9%, for the
quarter ended March 31, 1999 as compared with the same period a year
ago. This decrease resulted from a $3.8 million, or 1.1%, decrease in
average earning assets coupled with a decline in average yield of 39
basis points to 7.00%.
Loan interest and fee income increased $253,000, or 6.7%, for the
quarter ended March 31, 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 91 basis points to
7.88% while average loan balances increased $32.7 million, or 19.1%.
Interest and dividends on investments and federal funds sold decreased
$661,000, or 25.5%, as a result of a $36.5 million, or 21.1%, decrease
in average balances coupled with a lower average yield, which declined
33 basis point to 5.68%.
Interest expense
- ----------------
Interest expense for the quarter ended March 31, 1999 decreased
$478,000, or 15.0%, as compared with the same period a year ago as a
result of a $7.5 million, or 2.4%, decrease in average borrowings and
deposit balances for the period coupled by a 54 basis point decrease in
the cost of funds to 3.62%.
Deposit expense decreased $197,000, or 7.3%, as a result of a 46 basis
points decrease in the average cost of funds offset, in part, by an
increase of $13.1 million, or 4.8%, in average interest bearing deposit
balances for the period. The average savings account balance has
increased over the period by $9.3 million, or 23.0%, NOW account
balances have increased $4.8 million, or 16.6%, and Money Market
accounts have increased $6.0 million, or 9.6%. Certificates of deposit
decreased by $7.1 million, or 5.1%. The average rate paid on
Certificate of deposit has declined to 4.85% from 5.32% a year ago,
while NOW deposit rates have declined to 1.12% from 1.20% a year ago,
Savings rates have declined to 2.39% and Money Market rates have
declined to 2.86% from 3.04%.
Page 24
Interest expense on borrowings decreased $281,000, or 55.6%, as a result
of decreased average borrowings offset by a higher average cost of
funds. Average borrowings for the current quarter are $20.5 million
lower as compared with the prior year period and the average borrowings
cost is 28 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
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 March
31, 1999, compared with $50,000 for the prior year period provision.
The following table details changes in the allowance for loan losses
during the three month periods ended March 31:
<TABLE>
<S>
1999 1998
---- ----
<C> <C>
(dollars in thousands)
Balance, beginning of period $5,068 $5,546
Provision for losses 25 50
Charge-offs (3) (600)
Recoveries 10 2
------ ------
Balance, end of period $5,100 $4,998
====== ======
Ratio of allowance for loan losses:
to non-performing loans 284.92% 246.81%
to total gross loans 2.41 2.87
</TABLE>
NewMil has achieved a steady reduction in non-performing loans in each
of the past three years. This improvement in loan quality has allowed
NewMil to lower its loan provision in 1999. Non-performing loans have
decreased $235,000, or 11.6%, to $1.8 million at March 31, 1999, as
compared with $2.0 million at March 31, 1998. As a result, the reserve
coverage to non-performing loans has increased to 284.9%. NewMil
remains adequately reserved both against total loans and non-performing
loans. For a discussion on loan quality see "Non-Performing Assets".
Page 25
The Bank determines its allowance and provisions for loan losses based
upon a detailed evaluation of the loan portfolio through a process which
considers numerous factors, including estimated credit losses based upon
internal and external portfolio reviews, delinquency levels and trends,
estimates of the current value of underlying collateral, concentrations,
portfolio volume and mix, changes in lending policy, historical loan
loss experience, current economic conditions and examinations performed
by regulatory authorities. Determining the level of the allowance at
any given period is difficult, particularly during deteriorating or
uncertain economic periods. Management must make estimates using
assumptions and information which is often subjective and changing
rapidly. The review of the loan portfolio is a continuing event in the
light of a changing economy and the dynamics of the banking and
regulatory environment. In management's judgement the allowance for
loan losses at March 31, 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 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 March 31.
<TABLE>
<S>
(in thousands) 1999 1998 Change
---- ---- ------
<C> <C> <C> <C>
Service charges on
deposit accounts $ 265 $ 270 $ (5) (1.9)%
Gains on sale of OREO 478 50 428 856.0
Gains on sales of mortgage
loans, net 161 89 72 80.9
Loan servicing 19 25 (6) (24.0)
Securities gains (losses), net - 10 (10)(100.0)
Other 76 66 10 15.2
----- ----- -----
Total non-interest income $ 999 $ 510 $ 489 95.9
===== ===== =====
</TABLE>
Page 26
The increase on gains on OREO is the result of the sale of the
partnership that the Bank had formed to develop OREO property, in the
quarter ended March 31, 1999. The increase in gains on sales of
residential mortgage loans resulted from loan sales of $8.4 million in
1999 compared with $4.8 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 March 31.
<TABLE>
<S>
(in thousands) 1999 1998 Change
---- ---- ------
<C> <C> <C> <C>
Salaries $1,316 $ 979 $337 34.4%
Employee benefits 345 325 20 6.2
Occupancy 268 232 36 15.5
Equipment 222 183 39 21.3
Insurance 26 26 - 0.0
Professional fees, Collection
and OREO expense 107 77 30 39.0
Postage and telecommunications 107 98 9 9.2
Marketing 26 49 (23)(46.9)
Other operating 439 356 83 23.3
------ ------ ----
Total operating expenses $2,856 $2,325 $531 22.8
====== ====== ====
</TABLE>
The increase in salaries expense for the quarter ended March 31, 1999 as
compared with the prior year period was due primarily to increases in
staffing, primarily in lending originations, higher loan origination
commissions, bonuses and annual salary increases of approximately 4.5%.
The increase in occupancy expense is a result of building maintenance at
certain branch offices. The increase in equipment expense is primarily
a result of increased depreciation and other expense arising from the
replacement of NewMil's core processing hardware and software systems.
Professional, Collection and OREO expense for 1998 included a negative
OREO provision, which reduced the expense 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.
Page 26
Income taxes
- ------------
Net income for the quarter included an income tax provision of $466,000,
representing a 34.6% effective rate, as compared with a provision of
$543,000 a year ago, representing a 42.0% 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%. The formation of the PIC has required NewMil to establish a
valuation allowance against its existing deferred State tax assets that
are no longer expected to be realized in future years.
RESULTS OF OPERATIONS
For the nine month periods ended March 31, 1999 and 1998
Overview
- --------
NewMil earned net income of $2,005,000, or 50 cents per share (diluted),
for the nine month period ended March 31, 1999 as compared with
$2,156,000, or 53 cents per share (diluted), for the nine month period
ended March 31, 1998.
Net income for the nine month period ended March 31, 1999 includes a
number of special adjustments resulting from the formation of a Passive
Investment Company, the adoption of SFAS 133 and related securities
sales, and the prepayment of above market rate Federal Home Loan Bank
advances, as discussed below.
Page 28
NewMil formed a Passive Investment Company ("PIC") and changed its
Federal tax year to a calendar year basis to take advantage of recent
changes in Connecticut tax statutes. The Connecticut statute, effective
January 1, 1999, allows NewMil to transfer mortgages into a PIC. 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 is 34%, compared
with an effective rate of 40.27%, for the first two quarters of the
fiscal year. The formation of the PIC has required NewMil to establish
a valuation allowance against its existing deferred State tax assets
that are no longer expected to be realized in future years.
Accordingly, NewMil's income tax provision for the nine months ended
March 31, 1999 includes a charge of $266,000. NewMil anticipates that
this reduction in taxes will benefit net income for the remainder of the
current fiscal year and future years, and that the charge will be
recovered within the next three quarters. The reduction in tax expense
for the quarter ended March 31, 1999 was approximately $80,000.
Effective October 1, 1998 NewMil adopted the provisions of SFAS 133
(Accounting for Derivative Instruments and Hedging Activities). NewMil
took advantage of the provisions of SFAS 133 by reclassifying securities
totaling $21 million from held-to-maturity to available-for-sale, and
then sold those securities. NewMil realized a loss, net of tax, of
$162,000 on the transfer and sale of these securities. This loss has
been reported separately in net income as the cumulative effect of
adopting SFAS 133. The securities were previously carried below cost as
held-to-maturity, and an unrealized loss, net of taxes, of $654,000
against these securities was included in shareholders equity on
September 30, 1998.
NewMil used the proceeds from the sale of the securities to prepay $22.5
million of Federal Home Loan Bank fixed rate advances. NewMil incurred
a prepayment fee, net of taxes, of $87,000 that has been reported in net
income as an extraordinary item for this early extinguishment of debt.
Excluding the effects of SFAS 133, the formation of the PIC and the FHLB
prepaid borrowings, income from operations for the nine month period
ended March 31, 1999 increased 16.9% to $2,520,000 as compared with
$2,156,000 for the prior year period.
Analysis of net interest and dividend income
- --------------------------------------------
Net interest and dividend income increased $118,000, or 1.3%, for the
nine month period ended March 31, 1999 as compared with the prior year
period. This increase resulted from a $29.0 million, or 9.0% increase
in average earning assets offset in part by a 28 basis point decrease in
the net interest margin to 3.59% from 3.87%. The improvement in net
interest income was driven by loan and investment growth offset by lower
yields on earning assets. The decrease in the net interest margin is
due primarily to the decline in market interest rates over the past
year.
Page 29
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 nine month periods ended March 31, 1999 and 1998.
<TABLE>
<S>
Nine months ended March 31, 1999 Average Income/ Average
(dollars in thousands) balance expense yield/rate
------- ------- ----------
<C> <C> <C>
Loans(a) $185,012 $11,344 8.18%
Mortgage backed securities 93,487 4,165 5.94
Other securities(b) 72,059 3,080 5.70
-------- -------
Total earning assets 350,558 18,589 7.07
Other assets 13,562 -------
--------
Total assets $364,120
========
NOW accounts $32,487 289 1.19
Money market accounts 67,840 1,511 2.97
Savings & other 47,815 936 2.61
Certificates of deposit 134,965 5,178 5.12
-------- -------
Total interest-bearing deposits 283,107 7,914 3.73
Borrowings 27,564 1,229 5.95
-------- -------
Total interest-bearing funds 310,671 9,143 3.92
Demand deposits 16,798 -------
Other liabilities 2,183
Shareholders' equity 34,468
--------
Total liabilities and
shareholders' equity $364,120
========
Net interest income $ 9,446
=======
Spread on interest-bearing funds 3.15
Net interest margin(c) 3.59
Page 30
Nine months ended March 31, 1998 Average Income/ Average
(dollars in thousands) balance expense yield/rate
------- ------- ----------
<C> <C> <C>
Loans(a) $170,634 $11,338 8.86%
Mortgage backed securities 22,865 1,042 6.08
Other securities(b) 128,041 5,833 6.07
-------- -------
Total earning assets 321,540 18,213 7.55
Other assets 10,917 -------
--------
Total assets $332,457
========
NOW accounts $ 28,026 290 1.38
Money market accounts 62,324 1,430 3.06
Savings & other 40,128 817 2.72
Certificates of deposit 138,042 5,629 5.44
-------- -------
Total interest-bearing deposits 268,520 8,166 4.06
Borrowings 16,641 719 5.76
-------- -------
Total interest-bearing funds 285,161 8,885 4.15
Demand deposits 12,455 -------
Other liabilities 1,940
Shareholders' equity 32,901
--------
Total liabilities and
shareholders' equity $332,457
========
Net interest income $ 9,328
=======
Spread on interest-bearing funds 3.40
Net interest margin(c) 3.87
</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 nine month periods ended March 31, 1999 and 1998.
Page 31
<TABLE>
<S>
Nine months ended March 31, 1999 versus 1998
(dollars in thousands) Change in interest due to
Volume Rate Vol/rate Net
------ ---- -------- ---
<C> <C> <C> <C>
Interest-earning assets:
Loans $ 956 $ (876) $(74) $ 6
Mortgage backed securities 3,218 (23) (72) 3,123
Other securities (2,550) (360) 157 (2,753)
------- ------- ---- ------
Total 1,624 (1,259) 11 376
------- ------- ---- ------
Interest-bearing liabilities:
Deposits 444 (660) (36) (252)
Borrowings 472 23 15 510
------- ------- ---- ------
Total 916 (637) (21) 258
------- ------- ---- ------
Net change to interest income $ 708 $ (622) $ 32 $ 118
======= ======= ==== ======
</TABLE>
Interest income
- ---------------
Total interest and dividend income increased $376,000, or 2.1%, for the
nine month period ended March 31, 1999 as compared with the same period
a year ago. This increase resulted from a $29.0 million, or 9.0%,
increase in average earning assets, offset by a decrease in average
yield of 48 basis points to 7.07%.
Loan interest and fee income increased $6,000, or 0.1%, for the nine
month period ended March 31, 1999 as compared with the prior year period
as a result a $14.4 million, or 8.4%, increase in average loan balance
offset by a 68 basis point decrease in average yield to 8.18%.
Interest and dividends on investments and federal funds sold increased
$370,000, or 5.4%, for the nine month period ended March 31, 1999 as
compared with the prior year period as a result of a $14.6 million, or
9.7%, increase in average balances, offset by a lower average yield,
which was down 23 basis point to 5.84%.
Page 32
Interest expense
- ----------------
Interest expense for the nine month period ended March 31, 1999
increased $258,000, or 2.9%, as compared with the prior year period as
a result of a $25.5 million, or 8.9%, increase in average balances for
deposits and borrowings, offset, in part, by a 23 basis points decrease
in the cost of funds from 4.15% to 3.92%.
Deposit expense decreased $252,000, or 3.1%, as a result of a 33 basis
point decrease in the average cost of interest bearing deposits, offset,
in part, by a $14.6 million, or 5.4%, increase in average interest-
bearing deposit balances. Average savings account balances have
increased $7.7 million, or 19.2%, over the period, while NOW account
balances have increased $4.5 million, or 15.9%, and Money Market
accounts have increased $5.5 million, or 8.9%. Certificates of deposit
decreased by $3.1 million, or 2.2%. The average rate paid on
Certificates of deposit declined to 5.12% from 5.44% a year ago, while
NOW deposit rates have declined to 1.19% from 1.38% a year ago, and
other non-maturity deposit rates (savings and money market) have
declined slightly to 2.61% and 2.97%, respectively.
Interest expense on borrowings increased $510,000, or 70.9%, 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. In
December 1998 NewMil prepaid $22.5 million of these fixed rate
borrowings. As a result, average borrowings for the current quarter are
$10.9 million higher as compared with the prior year period and the
average borrowings cost is 19 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 $75,000 for loan losses during the nine months ended
March 31, 1999, compared to $200,000 for the prior year period
provision. The following table details changes in the allowance for
loan losses during the nine month periods ended March 31:
Page 33
<TABLE>
<S>
1999 1998
---- ----
<C> <C>
(dollars in thousands)
Balance, beginning of period $5,004 $5,452
Provision for losses 75 200
Charge-offs (36) (658)
Recoveries 57 4
------ ------
Balance, end of period $5,100 $4,998
====== ======
Ratio of allowance for loan losses:
to non-performing loans 284.92% 246.81%
to total gross loans 2.41 2.87
</TABLE>
For a detailed discussion of the Bank's allowance for loan losses see
"For the three month periods ended March 31, 1999 and 1998", above.
Non-interest income
- -------------------
The following table details the principal categories of non-interest
income for the nine month periods ended March 31.
<TABLE>
<S>
(in thousands) 1999 1998 Change
---- ---- ------
<C> <C> <C> <C>
Service charges on
deposit accounts $ 866 $ 826 $ 40 4.8%
Gains on sales of mortgage
loans, net 451 236 215 91.1
Gains on sale of OREO 1,342 341 1,001 293.5
Loan servicing 62 78 (16) (20.5)
Securities losses, net - (271) 271 100.0
Other 235 208 27 13.0
------ ------ ------
Total non-interest income $2,956 $1,418 $1,538 108.5
====== ====== ======
</TABLE>
Page 34
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 $22.7 million in 1999 compared with
$14.0 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 increase on gains on OREO sales results from the
sale of one property during the December 31, 1998 quarter that had been
taken into OREO several years ago, at which time it was written down to
its market value, and as a result of the recent strong market was sold
at a significant gain in addition to the sale of a Partnership that the
Bank had formed to develop OREO property. The decrease in loan
servicing fees results from portfolio run-off. The net securities
losses in 1998 were realized on sales of $14.2 million and resulted from
a restructuring of the securities portfolio.
Operating expenses
- ------------------
The following table details the principal categories of operating
expenses for the nine month periods ended March 31.
<TABLE>
<S>
(in thousands) 1999 1998 Change
---- ---- ------
<C> <C> <C> <C>
Salaries $3,673 $3,071 $ 602 19.6%
Employee benefits 907 925 (18) (1.9)
Occupancy 780 673 107 15.9
Equipment 668 545 123 22.6
Insurance 78 78 - 0.0
Professional fees, Collections
and OREO expense 71 (94) 165 175.5
Postage and telecommunications 315 280 35 12.5
Marketing 153 174 (21) (12.1)
Other operating 1,552 1,178 374 31.7
------ ------ ------
Total operating expenses $8,197 $6,830 $1,367 20.2
====== ====== ======
</TABLE>
The increase in salaries expense for the period ended March 31, 1999 as
compared with the prior year period was due primarily to increases in
staffing, primarily in lending, higher loan origination commission
expense, bonuses and annual salary increases of approximately 4.5%. The
increase in occupancy expense results from building maintenance at
certain branch offices and the write-off of certain leasehold
improvements. The increase in equipment expense is primarily a result
of increased depreciation and other expense arising from the replacement
of NewMil's core processing hardware and software systems.
Page 35
Professional, Collection and OREO expense for 1998 included a negative
OREO provision and recovery of legal expenses related to a securities
arbitration claim that was settled in that period. 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 nine month period ended March 31, 1999 included an
income tax provision of $1,876,000, representing a 45.4% effective rate,
as compared with a provision of $1,560,000 a year ago, representing a
42.0% effective rate. The provision for period ended March 31, 1999
included a one-time charge of $266,000 related to the formation of the
PIC, as discussed above, without which the effective tax rate would have
been 39.0%.
Effect of Change in Accounting Principle and Extraordinary Item
- ---------------------------------------------------------------
Effective October 1, 1998 NewMil adopted the provisions of SFAS 133,
reclassified securities totaling $21 million from held-to-maturity to
available-for-sale, and then sold those securities. NewMil realized a
loss, net of tax, of $162,000 on the transfer and sale of these
securities. This loss has been reported separately in net income as the
cumulative effect of adopting SFAS 133.
NewMil used the proceeds from the sale of the securities to prepay $22.5
million of Federal Home Loan Bank fixed rate advances. NewMil incurred
a prepayment fee, net of taxes, of $87,000 that has been reported in net
income as an extraordinary item.
FINANCIAL CONDITION
Total assets decreased $9.3 million, or 2.5%, to $358.3 million during
the nine month period from June 30, 1998 through March 31, 1999. Net
loans and deposits grew $43.3 million and $11.3 million, respectively,
while securities, borrowings and overnight federal funds sold decreased
by $45.8 million, $22.5 million and $8.9 million, respectively.
Page 36
Securities
- ----------
NewMil took advantage of the one-time opportunity to reclassify
securities from held-to-maturity to available-for-sale permitted with
the adoption of SFAS 133 to restructure its securities portfolio. On
adopting SFAS 133 effective October 1, 1998, NewMil reclassified certain
securities totaling $21 million from held-to-maturity to available-for-
sale, and then sold those securities. These securities consisted of
floating rate collateralized mortgage obligations ("CMOs") which reprice
off the Eleventh District Cost of Funds index. At September 30, 1998
these securities had been carried in held-to-maturity at $1,091,000
below cost. NewMil sold the securities during the quarter ended March
31, 1999 and realized a loss of only $274,000. This loss has been
reported separately in net income, net of taxes, as the cumulative
effect of adopting SFAS 133.
During the nine month period ended March 31, 1999 NewMil purchased $15.6
million of fixed rate mortgage backed securities ("MBS") and $10.6
million of bank qualified municipal bonds. These purchases were funded
from $32.7 million MBS and CMO principal repayments and other securities
maturities.
NewMil's securities portfolio consists of MBSs, CMOs, bank qualified
municipal bonds, U.S. Treasury notes and Federal Home Loan Bank stock.
At March 31, 1999, 89.7% of the portfolio consisted of fixed rate
securities, principally MBS and to a lesser extent, CMOs, US Treasury
notes, and municipal bonds. At March 31, 1999 total fixed rate
securities had a projected weighted average duration and life of 3.6
years and 4.8 years, respectively, based on median projected prepayment
speeds at current interest rates. At March 31, 1999 8.2% 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 3.2
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 2.1% of the portfolio at March
31, 1999, was represented by Federal Home Loan Bank stock.
At March 31, 1999, securities totaling $88.3 million, or 75.8%, were
classified as available-for-sale and securities totaling $28.2 million,
or 24.2%, were classified as held-to-maturity.
Page 37
Loans
- -----
Net loans grew $43.3 million, or 26.6%, during the nine month period
ended March 31, 1999. Loans originated and loan advances totaled
$95.1 million, while loan repayments and loans sold in the secondary
market were $ 52.0 million and $22.7 million, respectively. Loans
originated include $37.6 million of residential mortgage loans purchased
for portfolio.
Major classifications of loans are as follows:
<TABLE>
<S>
March 31, June 30,
(in thousands) 1999 1998
---- ----
<C> <C>
Real estate mortgages:
One-four family residential $127,238 $ 85,274
Five or more family residential 6,321 5,500
Commercial 35,193 34,878
Land 2,851 3,571
Commercial and industrial 17,271 14,357
Home equity lines of credit 19,481 21,208
Installment and other 2,679 3,118
-------- --------
Total loans, gross 211,034 167,906
Deferred loan origination fees
and purchase premium, net 231 (53)
Allowance for loan losses (5,100) (5,004)
-------- --------
Total loans, net $206,165 $162,849
======== ========
</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 decreased
$416,000, or 0.9% since June 30, 1998, and C & I loans increased
$2,914,000, or 20.3%, for the period.
Page 38
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 nine month period ended March 31,
1999 the department has originated and sold $22.7 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
nine month period ended March 31, 1999 the department has purchased
$37.6 million of loans for portfolio. Since June 30, 1998 the
residential mortgage loan portfolio has increased by $42.0 million, or
49.2%, while home equity lines and loans decreased $1.7 million, or
8.1%, for the period.
Non-performing assets
- ---------------------
The following table details changes in non-performing assets during the
nine month periods ended March 31.
<TABLE>
<S>
(in thousands) 1999 1998
---- ----
<C> <C>
Balance, beginning of year $1,683 $3,585
Loans placed on non-accrual status 895 1,167
Change in accruing loans past
due 90 or more days, net (288) (206)
Change in loans restructured, net - (274)
Payments to improve OREO 107 498
Loan payments (125) (675)
Loans returned to accrual status (3) (341)
Loan charge-offs (30) (580)
Gross proceeds from OREO sales (1,815) (1,249)
Gains on OREO sales, net 1,342 341
Reverse provision for real estate acquired
valuation reserve 26 55
------ ------
Balance, end of period $1,792 $2,321
====== ======
Percent of total assets 0.50% 0.63%
</TABLE>
Page 39
During the nine month period ended March 31, 1999 non-performing assets
increased $108,000, or 6.4%, due principally to new non-accrual loans
offset in part by a decrease in loans 90 days past due and accruing and
OREO sales. 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 March 31, 1999.
<TABLE>
<S>
Non-Performing Assets Accruing
(dollars in thousands) loans Total
Non- past due Restruc- non-per
accrual 90 or tured OREO forming
loans more days loans (a) OREO reserve assets
----- --------- --------- ---- ------- -----
<C> <C> <C> <C> <C> <C>
March 31, 1999
Real estate:
Residential $ 585 $ 340 - $ 58 $ - $ 983
Commercial 453 - - - - 453
Land and land
development 410 - - - - 410
Collateral and
installment loans 2 - - - - 2
Valuation reserve - - - - (56) (56)
------ ----- ---- ---- ---- ------
Totals $1,450 $ 340 $ - $ 58 $(56) $1,792
====== ===== ==== ==== ==== ======
</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.
Page 40
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 nine month period ended March 31, 1999
provided net cash of $2,307,000. Investing activities provided net cash
of $4,262,000, principally as a result of securities repayments, sales
and maturities, and sales of OREO, offset, in part, by securities
purchased, net loan advances and loan purchases. Financing activities
used net cash of $13.0 million, principally to repay borrowings, offset
in part, by net deposit growth. Funds provided by operating and
investing activities, together with a $6.4 million decrease in cash and
overnight federal funds sold, were utilized to fund financing
activities.
At March 31, 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
$190.3 million, to net deposits and short term unsecured liabilities,
was 64.9%, well in excess of NewMil's minimum guideline of 15%. At
March 31, 1999, NewMil had outstanding commitments to fund new loan
originations of $4.2 million, construction mortgage commitments of $1.5
million and unused lines of credit of $23.4 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 $1,133,000, to $34,542,000, while book
value per share increased $0.44 to $9.15, during the nine month period
ended March 31, 1999. The increase in equity resulted from net income
of $2,005,000, or $0.50 per share (diluted), net unrealized gains on
securities during the period, net of taxes, $907,000 and stock option
proceeds of $60,000, offset by treasury stock purchases of $843,000 and
dividends paid of $996,000.
Page 41
NewMil and the Bank are subject to minimum capital requirements
established, respectively, by the Federal Reserve Board (the "FRB") and
the FDIC. At March 31, 1999 NewMil's leverage capital ratio was 9.68%
and its tier I and total risk-based capital ratios were 18.69% and
19.96%, respectively. At March 31, 1999 the Bank's leverage capital
ratio was 9.60% and its tier I and total risk-based capital ratios were
19.15% and 20.42%, 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 March 31, 1999 was $2,428,000. 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.
Page 42
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 June 30, 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 March
31, 1999 the assessment phase has been completed for all material items.
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. Several replacements and
retirements have been completed to date and the renovation phase is
proceeding according to the Plan.
The validation phase addresses systems testing and is being performed 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 is expected to be completed by June 30,
1999.
The implementation phase addresses the roll out of Year 2000 compliant
systems during 1998 and 1999. Should any systems fail the validation
phase they will be replaced or retired no later then June 30, 1999.
Contingency plans will be documented by June 30, 1999 and tested by
September 1999.
Page 43
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.
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
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.
Page 44
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
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Computation of earnings per share.
(b) Report on Form 8-K.
None
Page 45
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEWMIL BANCORP, INC.
May 12, 1999 By /s/ Francis J. Wiatr
Francis J. Wiatr,
Chairman, President and CEO
May 12, 1999 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 MARCH 31, 1999 UNAUDITED BALANCE SHEET, INCOME STATEMENT AND
CASH FLOW STATEMENT, AND NOTES THERETO, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 7,850,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 16,237,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 88,303,000
<INVESTMENTS-CARRYING> 28,181,000
<INVESTMENTS-MARKET> 27,682,000
<LOANS> 206,165,000
<ALLOWANCE> 5,100,000
<TOTAL-ASSETS> 358,279,000
<DEPOSITS> 305,188,000
<SHORT-TERM> 15,000,000
<LIABILITIES-OTHER> 3,549,000
<LONG-TERM> 0
0
0
<COMMON> 2,995,000
<OTHER-SE> 31,547,000
<TOTAL-LIABILITIES-AND-EQUITY> 358,279,000
<INTEREST-LOAN> 11,344,000
<INTEREST-INVEST> 6,659,000
<INTEREST-OTHER> 586,000
<INTEREST-TOTAL> 18,589,000
<INTEREST-DEPOSIT> 7,914,000
<INTEREST-EXPENSE> 9,143,000
<INTEREST-INCOME-NET> 9,446,000
<LOAN-LOSSES> 75,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,197,000
<INCOME-PRETAX> 4,130,000
<INCOME-PRE-EXTRAORDINARY> 2,254,000
<EXTRAORDINARY> 87,000
<CHANGES> 162,000
<NET-INCOME> 2,005,000
<EPS-PRIMARY> .52
<EPS-DILUTED> .50
<YIELD-ACTUAL> 3.59
<LOANS-NON> 1,450,00
<LOANS-PAST> 340,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 8,107,000
<ALLOWANCE-OPEN> 5,004,000
<CHARGE-OFFS> 36,000
<RECOVERIES> 57,000
<ALLOWANCE-CLOSE> 5,100,00
<ALLOWANCE-DOMESTIC> 4,150,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 950,000
</TABLE>
Exhibit 11.1
NEWMIL BANCORP, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
(in thousands except per share amounts)
<TABLE>
<S>
Three months Nine months
ended ended
March 31, March 31,
--------- ---------
1999 1998 1999 1998
---- ---- ---- ----
<C> <C> <C> <C>
Net income
Net income - basic and diluted $ 880 $ 750 $2,005 $2,148
===== ===== ====== ======
Weighted Average Common and Common
Equivalent Stock
Weighted average common stock
outstanding 3,804 3,855 3,826 3,846
===== ===== ===== =====
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 399 415 403 444
Assumed purchase of treasury stock
during each period with proceeds
from conversion of stock options
outstanding at the end of each
period (205) (206) (210) (219)
----- ----- ----- -----
Weighted average common and common
equivalent stock outstanding
- diluted 3,998 4,064 4,019 4,071
===== ===== ===== =====
Earnings Per Common and Common
- ------------------------------
Equivalent Share
- ----------------
Basic $0.23 $0.19 $0.52 $0.56
===== ===== ===== =====
Diluted $0.22 $0.18 $0.50 $0.53
===== ===== ===== =====
</TABLE>
