Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended
December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-16455
NEWMIL BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1186389
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
19 Main St., P.O. Box 600, New Milford, Conn. 06776
(Address of principal executive offices) (Zip Code)
(860) 355-7600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
The number of shares of Common Stock outstanding as of December 31, 1998
is 3,835,014.
NEWMIL BANCORP, INC. and SUBSIDIARY
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page
Item 1 Financial Statements:
Consolidated Balance Sheets as of
December 31, 1998 and June 30, 1998. . . . . . . . . . . . . . .3
Consolidated Statements of Income
for the three and six month periods
ended December 31, 1998 and 1997 . . . . . . . . . . . . . . .4-5
Consolidated Statements of Changes in
Shareholders' Equity for the six month
periods ended December 31, 1998 and 1997 . . . . . . . . . . . .6
Consolidated Statements of Cash Flows
for the six month periods ended
December 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . .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. . . . . . . . . . . . . . . . . . . . . . . 28
PART II OTHER INFORMATION
Item 1 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 29
Item 4 Submission of matters to a vote of
security holders . . . . . . . . . . . . . . . . . . . . . . . 29
Item 5 Other information. . . . . . . . . . . . . . . . . . . . . . . 29
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 29
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<S>
<C> <C>
December 31, June 30,
1998 1998
(unaudited)
ASSETS
Cash and due from banks $ 15,098 $ 5,342
Federal funds sold 5,196 25,134
Securities:
Available-for-sale at market 103,493 112,091
Held-to-maturity at amortized cost
(market value: $31,967 and $49,911) 32,430 50,176
Loans (net of allowance for
loan losses: $5,068 and $5,004) 189,862 162,849
Other real estate owned
(net of valuation reserve: $63 and $82) 257 295
Bank premises and equipment, net 6,618 6,124
Accrued income 2,141 2,259
Deferred tax asset, net 1,674 2,503
Other assets 995 796
-------- --------
Total Assets $357,764 $367,569
======== ========
LIABILITIES and SHAREHOLDERS' EQUITY
Deposits
Demand (non-interest bearing) $ 17,392 $ 14,520
NOW accounts 37,057 30,202
Money market 68,167 65,257
Savings and other 49,043 45,180
Certificates of deposit 133,722 138,718
-------- --------
Total deposits 305,381 293,877
Federal Home Loan Bank advances 15,000 37,500
Accrued interest and other liabilities 2,527 2,783
-------- --------
Total Liabilities 322,908 334,160
-------- --------
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 43,795 43,881
Retained earnings 9,406 8,933
Unrealized gains (losses) on securities
available-for-sale, net 50 (250)
Unrealized losses on securities transferred
to held-to-maturity, net (197) (955)
Treasury stock, at cost - 2,155,124
and 2,155,824 shares (21,193) (21,195)
-------- --------
Total Shareholders' Equity 34,856 33,409
-------- --------
Total Liabilities and Shareholders' Equity $357,764 $367,569
======== ========
</TABLE>
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF INCOME
(in thousands except per share amounts)
(unaudited)
<TABLE>
<S>
Three months ended Six months ended
December 31 December 31
1998 1997 1998 1997
---- ---- ---- ----
<C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $3,677 $3,791 $ 7,335 $ 7,582
Interest on securities 2,310 1,906 4,725 3,744
Dividend income 36 26 80 51
Interest on federal funds sold 125 246 505 484
------ ------ ------- -------
Total interest and dividend income 6,148 5,969 12,645 11,861
------ ------ ------- -------
INTEREST EXPENSE
Deposits 2,665 2,754 5,422 5,477
Borrowed funds 447 111 1,005 214
------ ------ ------- -------
Total interest expense 3,112 2,865 6,427 5,691
------ ------ ------- -------
Net interest and dividend income 3,036 3,104 6,218 6,170
------ ------ ------- -------
PROVISION FOR LOAN LOSSES 25 50 50 150
------ ------ ------- -------
Net interest and dividend
income after provision
for loan losses 3,011 3,054 6,168 6,020
------ ------ ------- -------
NON-INTEREST INCOME
Service charges on deposit accounts 294 287 601 556
Gains on sales of mortgage loans, net 152 82 290 147
Securities losses, net - (258) - (281)
Gains on sales of OREO 754 140 864 291
Loan servicing fees 21 27 43 53
Other 79 66 159 142
------ ------ ------- -------
Total non-interest income 1,300 344 1,957 908
------ ------ ------- -------
NON-INTEREST EXPENSE
Salaries 1,221 1,047 2,357 2,092
Employee benefits 270 284 562 600
Occupancy 315 224 512 441
Equipment 232 181 446 362
Insurance 26 26 52 52
Professional, collection and
OREO expense 181 (146) 241 (114)
Marketing 58 65 127 125
Shareholder relations 32 43 46 67
Other 534 458 998 880
------ ------ ------- -------
Total non-interest expense 2,869 2,182 5,341 4,505
------ ------ ------- -------
Income before income taxes,
cumulative effect of accounting
change and extraordinary item 1,442 1,216 2,784 2,423
Provision for income taxes 870 511 1,410 1,017
------ ------ ------- -------
Income before cumulative effect of accounting
change and extraordinary item 572 705 1,374 1,406
Cumulative effect of change in accounting
principle, net of tax (162) - (162) -
Extraordinary item, net of tax (87) - (87) -
------ ------ ------- -------
NET INCOME $ 323 $ 705 $ 1,125 $ 1,406
====== ====== ======= =======
</TABLE>
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF INCOME
(in thousands except per share amounts)
(unaudited)
<TABLE>
<S>
Three months ended Six months ended
December 31 December 31
1998 1997 1998 1997
---- ---- ---- ----
<C> <C> <C> <C>
Diluted earnings per share
Income before cumulative effect of
accounting change and extraordinary
item $0.14 $0.17 $0.34 $0.35
Cumulative effect of change in
accounting principle, net of tax (0.04) 0.00 (0.04) 0.00
Extraordinary item, net of tax (0.02) 0.00 (0.02) 0.00
----- ----- ----- -----
Net income $0.08 $0.17 $0.28 $0.35
===== ===== ===== =====
Basic earnings per share
Income before cumulative effect of
accounting change and extraordinary
item $0.14 $0.18 $0.35 $0.37
Cumulative effect of change in
accounting principle, net of tax (0.04) 0.00 (0.04) 0.00
Extraordinary item, net of tax (0.02) 0.00 (0.02) 0.00
----- ----- ----- -----
Net income $0.08 $0.18 $0.29 $0.37
===== ===== ===== =====
Dividends per share $0.09 $0.08 $0.17 $0.14
===== ===== ===== =====
</TABLE>
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(dollars in thousands)
<TABLE>
<S>
<C> <C> <C> <C>
Common Paid-in Retained Treasury
Stock capital earnings stock
------ ------- -------- --------
Balances at
June 30, 1997 $2,994 $44,192 $7,097 $(21,075)
Net income - - 1,406 -
Change in net
unrealized gains
(losses) on
securities, net of
taxes - - - -
Total comprehensive
income
Cash dividends paid - - (537) -
Proceeds from exercise
of stock options 26 256 - -
Acquisition of
treasury stock - - - (105)
Balances at ------ ------- ------ --------
December 31, 1997 $3,020 $44,448 $7,966 $(21,180)
====== ======= ====== ========
Balances at
June 30, 1998 $2,995 $43,881 $8,933 $(21,195)
Net income - - 1,125 -
Change in net
unrealized gains
(losses) on
securities, net of
taxes - - - -
Total comprehensive
income
Cash dividends paid - - (652) -
Proceeds from
exercise of stock
options - (86) - 138
Acquisition of
treasury stock - - - (136)
Balances at
December 31, 1998 $2,995 $43,795 $9,406 $(21,193)
====== ======= ====== ========
</TABLE>
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(dollars in thousands)
<TABLE>
<S>
<C> <C>
Accumulated
other
comprehensive
income Total
Unrealized shareholders'
gains (losses) equity
-------------- -------------
Balances at
June 30, 1997 $ (1,489) $ 31,719
Net income - 1,406
Change in net
unrealized gains
(losses) on
securities, net of
taxes 378 378
---------
Total comprehensive income 1,784
Cash dividends paid - (537)
Proceeds from exercise
of stock options - 282
Acquisition of
treasury stock - (105)
--------- ---------
Balances at December 31, 1997 $ (1,111) $ 33,143
========= =========
Balances at June 30, 1998 $ (1,205) $ 33,409
Net income - 1,125
Change in net unrealized gains
(losses) on securities, net of taxes 1,058 1,058
Total comprehensive income 2,183
Cash dividends paid - (652)
Proceeds from
exercise of stock options - 52
Acquisition of treasury stock - (136)
--------- ---------
Balances at December 31, 1998 $ (147) $ 34,856
========= =========
</TABLE>
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<S>
Six months ended
December 31,
1998 1997
---- ----
<C> <C>
Operating Activities
Net income $ 1,125 $ 1,406
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 50 150
Provision for depreciation and amortization 389 310
Decrease in deferred income tax asset 192 86
Amortization and accretion of securities
premiums and discounts, net 400 10
Securities losses, net - 281
Cumulative effect of accounting change, net 162 -
Extraordinary loss on debt extinguishment, net 87 -
Realized gains on loan sales, net (290) (147)
Realized gains on OREO sales, net (864) (291)
Decrease (increase) in accrued income 137 (276)
Decrease in accrued interest expense
and other liabilities (88) (84)
(Increase) decrease in other assets, net (350) 163
------- -------
Net cash provided by
operating activities 950 1,608
------- -------
Investing Activities
Proceeds from sales of securities
available-for-sale 20,933 5,968
Proceeds from sale of securities
held-to-maturity - 7,225
Proceeds from maturities and principal
repayments of securities 15,214 6,919
Proceeds from sale of mortgage backed
securities available-for-sale - 1,042
Purchases of securities available-for-sale - (49,246)
Purchases of securities held-to-maturity (10,565) -
Purchases of mortgage backed securities
available-for-sale (15,598) (20,133)
Principal collected on mortgage backed securities 17,495 1,588
Loan repayments, net 3,495 453
Loans purchased for portfolio (30,316) -
Proceeds from sales of OREO 1,076 988
Payments to improve OREO (107) (418)
Purchases of Bank premises
and equipment, net (884) (470)
------- -------
Net cash provided (used) by
investing activities 743 (46,084)
------- -------
Financing Activities
Net increase in deposits $11,508 $10,123
Net repayments of repurchase agreements - (5,000)
Net (repayments) proceeds from FHLB advances (22,647) 26,000
Cash dividends paid (652) (536)
Treasury stock purchased (136) (105)
Proceeds from exercise of stock options 52 283
------- -------
Net cash (used) provided by
financing activities (11,875) 30,765
------- -------
Decrease in cash and cash equivalents (10,182) (13,711)
Cash and federal funds sold, beginning of year 30,476 24,628
------- -------
Cash and federal funds sold, end of period $20,294 $10,917
======= =======
Cash paid during period
Interest to depositors $ 5,419 $ 5,476
Interest on borrowings 1,110 176
Income taxes 1,510 990
Non-cash transfers
From loans to OREO 60 -
From securities held-to-maturity to
securities available-for-sale 21,509 -
</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 six month
period ended December 31, 1998 are not necessarily indicative of the
results that may be expected for the year ending June 30, 1999. The
accompanying condensed financial statements should be read in
conjunction with the financial statements and notes thereto included in
NewMil's Annual Report for the year ended June 30, 1998.
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 required 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
from the sale is treated as an accumulative 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 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> <C> <C> <C>
(dollars in thousands) Estimated Gross Amort-
fair unrealized ized
value gains losses cost
--------- ----- ------ ------
December 31, 1998
U.S. Treasury and Government
Agencies
Within 1 year $ 12,304 $ 59 $ - $ 12,245
Mortgage backed securities 87,041 251 96 86,886
Collateralized mortgage
obligations 1,623 - 129 1,752
-------- ---- ---- --------
Total debt securities 100,968 310 225 100,883
Federal Home Loan Bank stock 2,525 - - 2,525
-------- ---- ---- --------
Total securities
available-for-sale $103,493 $310 $225 $103,408
======== ==== ==== ========
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
--------- ----- ------ ---------
December 31, 1998
Mortgage backed securities $ 5,730 $111 $ - $ 5,841
Municipal Bonds
After 10 years 10,563 4 395 10,172
Collateralized mortgage
obligations 16,137 180 363 15,954
Total securities -------- ---- ---- --------
held-to-maturity $ 32,430 $295 $758 $ 31,967
======== ==== ==== ========
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
======== ==== ==== ========
(a) Securities transferred from available-for-sale are carried at
estimated fair value as of the transfer date and adjusted for
subsequent amortization.
</TABLE>
Securities with an amortized cost of $786,000 and a market value of
$790,000 were pledged as collateral against public funds at December 31,
1998.
Cash proceeds and realized gains and losses from sales of securities
during the six month periods ended December 31 are as follows:
<TABLE>
<S>
<C> <C> <C>
(dollars in thousands) Cash Realized Realized
proceeds gains losses
-------- -------- --------
Six months ended December 31, 1998
Available-for-sale
Collateralized mortgage obligations(b) $20,933 $ - $ 274
======= ===== =====
Six months ended December 31, 1997
Available-for-sale
Mortgage backed securities $ 1,042 $ 64 $ -
Collateralized mortgage obligations 5,968 - 242
Held-to-maturity
Collateralized mortgage obligations 7,225 - 103
------- ----- -----
Total $14,235 $ 64 $ 345
======= ===== =====
(b) 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.
</TABLE>
NOTE 3 - LOANS
Major classifications of loans are as follows:
<TABLE>
<S> <C> <C>
December 31, June 30,
(in thousands) 1998 1998
Real estate mortgages: ------------ --------
One-four family residential $ 110,432 $ 85,274
Five or more family residential 6,303 5,500
Commercial 34,275 34,878
Land 2,919 3,571
Commercial and industrial 17,685 14,357
Home equity lines of credit 20,386 21,208
Installment and other 2,812 3,118
Total loans, gross 194,812 167,906
Deferred loan origination fees --------- ---------
and purchase premium, net 118 (53)
Allowance for loan losses (5,068) (5,004)
--------- ---------
Total loans, net $ 189,862 $ 162,849
========= =========
Impaired loans
With valuation allowance $ 37 $ -
With no valuation allowance 460 464
---- ----
Total impaired loans $497 $464
==== ====
Valuation allowance $ 14 $ -
Changes in the allowance for loan losses during the six month periods
ended December 31, are as follows:
(in thousands) 1998 1997
---- ----
Balance, beginning of period $5,004 $5,452
Provision for losses 50 150
Charge-offs (33) (57)
Recoveries 47 1
------ ------
Balance, end of period $5,068 $5,546
====== ======
</TABLE>
NOTE 4 - NON-PERFORMING ASSETS
The components of non-performing assets were as follows:
<TABLE>
<S> <C> <C>
December 31, June 30,
(in thousands) 1998 1998
---- ----
Non-accrual loans $1,187 $ 761
Accruing loans past due
90 days or more 228 628
Accruing troubled debt
restructured loans - -
------ ------
Total non-performing loans 1,415 1,389
------ ------
Other real estate owned 320 377
Valuation reserve (63) (82)
------ ------
Total OREO, net 257 295
------ ------
Total non-performing assets $1,672 $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 six month periods ended December 31, are as follows:
<TABLE>
<S>
Three months ended Six months ended
December 31, December 31,
<C> <C> <C> <C>
(in thousands) 1998 1997 1998 1997
---- ---- ---- ----
Basic 3,838 3,848 3,836 3,841
Effect of dilutive stock options 192 230 197 232
----- ----- ----- -----
Diluted 4,030 4,078 4,033 4,073
===== ===== ===== =====
</TABLE>
NOTE 6 - COMPREHENSIVE INCOME
Effective July 1, 1998, NewMil adopted the provisions of Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130). SFAS 130 establishes standards for reporting and display of
comprehensive income and its components (such as changes in net
unrealized gains (losses) on securities). Comprehensive income includes
net income and any changes in equity from non-owner sources that are not
recorded in the income statement. The purpose of reporting
comprehensive income is to report a measure of all changes in equity of
an enterprise that result from recognized transactions and other
economic events of the period other than transactions with owners in
their capacity as owners. NewMil's one source of other comprehensive
income is the net unrealized gain (loss) on securities.
The components of comprehensive income for the three and six month
periods ended December 31, 1998 and 1997 are as follows:
<TABLE>
<S>
Three months ended Six months ended
December 31, December 31,
(in thousands) 1998 1997 1998 1997
---- ---- ---- ----
<C> <C> <C> <C>
Comprehensive income
Net income $323 $705 $1,125 $1,406
Net unrealized gains on
securities during period 357 267 1,058 378
---- ---- ------ ------
Comprehensive income $680 $972 $2,183 $1,784
==== ==== ====== ======
</TABLE>
The components of other comprehensive income, and related tax effects
were as follows:
<TABLE>
<S>
<C> <C> <C>
(in thousands) Before Tax Net of
tax (expense) tax
amount benefit amount
------ --------- ------
Three months ended December 31, 1998
Net unrealized loss on securities
available-for-sale arising
during the period $(538) $ 233 $ (305)
Reclassification adjustment for
realized loss included in net income 274 (112) 162
Accretion of unrealized loss on
securities transferred from
held-to-maturity to available-
for-sale 817 (369) 448
Accretion of unrealized loss on
securities transferred from
available-for-sale to held-to-
maturity 87 (35) 52
Net unrealized gains on ------ ------ -----
securities during period $ 640 $(283) $ 357
====== ===== =====
Three months ended December 31, 1997
Net unrealized gains on securities
available-for-sale arising
during the period $375 $(150) $ 225
Accretion of unrealized loss on
securities transferred from
available-for-sale to held-to-
maturity 70 (28) 42
Net unrealized gains on ------ ----- -----
securities during period $ 445 $(178) $ 267
====== ===== =====
Six months ended December 31, 1998
Net unrealized gains on securities
available-for-sale arising
during the period $ 501 $(182) $ 319
Reclassification adjustment for
realized loss included in net income 274 (112) 162
Accretion of unrealized loss on
securities transferred from
held-to-maturity to available-
for-sale 817 (369) 448
Accretion of unrealized loss on
securities transferred from
available-for-sale to held-to-
maturity 217 (88) 129
Net unrealized gains on ------ ----- ------
securities during period $1,809 $(751) $1,058
====== ===== ======
Six months ended December 31, 1997
Net unrealized gains on securities
available-for-sale arising
during the period $519 $(208) $311
Accretion of unrealized loss on
securities transferred from
available-for-sale to held-to-
maturity 111 (44) 67
Net unrealized gains on ------ ----- ------
securities during period $ 630 $(252) $ 378
====== ===== ======
</TABLE>
NOTE 7 - INCOME TAXES
The components of the provision for income taxes for the three and six
month periods ended December 31 are as follows:
<TABLE>
<S>
Three months ended Six months ended
December 31, December 31,
1998 1997 1998 1997
(in thousands) ---- ---- ---- ----
<C> <C> <C> <C>
Current provision
Federal $457 $413 $ 913 $ 824
State 178 140 305 279
---- ---- ------ ------
Total 635 553 1,218 1,103
Deferred provision ---- ---- ------ ------
Federal (237) - (237) -
State 472 (42) 429 (86)
---- ---- ------ ------
Total 235 (42) 192 (86)
---- ---- ------ ------
Income tax provision $870 $511 $1,410 $1,017
==== ==== ====== ======
</TABLE>
NewMil has 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 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 three and six month
periods ended December 31, 1998 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 December 31, 1998, were as
follows:
<TABLE>
<S> <C> <C>
NewMil Bank
------ ----
Leverage ratio 9.38% 9.40%
Tier I risk-based ratio 19.53% 20.23%
Total risk-based ratio 20.80% 21.50%
</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 six
month period ended December 31, 1998 is $1,933,000. 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 December 31, 1998 and 1997
Overview
- --------
NewMil earned net income of $323,000, or 8 cents per share (diluted),
for the second quarter ended December 31, 1998 as compared with
$705,000, or 17 cents per share (diluted), for the second quarter ended
December 31, 1997.
Net income for the quarter ended December 31, 1998 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.
NewMil has 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. Effective January 1, 1999, NewMil's combined
Federal and State effective statutory tax rate will be 34%, compared
with a current effective statutory rate 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. Accordingly, NewMil's income tax provision
for the second quarter ended December 31, 1998 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.
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. This reclassification and revaluation of these
securities has contributed 17 cents to the increase in book value for
the period.
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 second quarter ended
December 31, 1998 increased 18.9% to $838,000 as compared with $705,000
for the second quarter ended December 31, 1997. The improvement is
attributable to an increase in non-interest income, offset in part by
higher operating expenses and a slight decrease in net interest income.
Analysis of net interest and dividend income
- --------------------------------------------
Net interest and dividend income decreased $68,000, or 2.2%, for the
quarter ended December 31, 1998 as compared with the prior year period.
This decrease resulted from a 50 basis point decrease in the net
interest margin to 3.45% from 3.95% offset, in part by a $38.2 million,
or 12.2% increase in average earning assets. The decrease in the net
interest margin is due primarily to the decline in market interest rates
over the past year.
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 December 31, 1998 and
1997.
<TABLE>
<S>
<C> <C> <C>
Three months ended December 31, 1998 Average Income/ Average
(dollars in thousands) balance expense yield/rate
------- ------- ----------
Loans(a) $180,538 $3,677 8.15%
Mortgage backed securities 98,501 1,445 5.87
Other securities(b) 73,076 1,026 5.62
-------- ------
Total earning assets 352,115 6,148 6.98
Other assets 14,800 ------
--------
Total assets $366,915
========
NOW accounts $ 32,772 97 1.18
Money market accounts 67,579 501 2.97
Savings & other 47,942 323 2.70
Certificates of deposit 134,532 1,744 5.19
-------- -----
Total interest-bearing deposits 282,825 2,665 3.77
Borrowings 29,918 447 5.98
-------- -----
Total interest-bearing funds 312,743 3,112 3.98
Demand deposits 17,307 -----
Other liabilities 2,154
Shareholders' equity 34,711
Total liabilities and --------
shareholders' equity $366,915
========
Net interest income $3,036
======
Spread on interest-bearing funds 3.00
Net interest margin(c) 3.45
Three months ended December 31, 1997 Average Income/ Average
(dollars in thousands) balance expense yield/rate
------- ------- ----------
Loans(a) $170,605 $3,791 8.89%
Mortgage backed securities 16,298 251 6.16
Other securities(b) 127,045 1,927 6.07
-------- ------
Total earning assets 313,948 5,969 7.61
Other assets 10,349 ------
--------
Total assets $324,297
========
NOW accounts $ 28,358 102 1.44
Money market accounts 61,812 477 3.09
Savings & other 40,235 278 2.76
Certificates of deposit 138,202 1,897 5.49
-------- ------
Total interest-bearing deposits 268,607 2,754 4.10
Borrowings 7,587 111 5.85
-------- ------
Total interest-bearing funds 276,194 2,865 4.15
Demand deposits 13,060 ------
Other liabilities 2,082
Shareholders' equity 32,961
Total liabilities and --------
shareholders' equity $324,297
========
Net interest income $3,104
Spread on interest-bearing funds ====== 3.46
Net interest margin(c) 3.95
(a) Includes non-accrual loans.
(b) Includes interest-bearing deposits in other banks and federal
funds sold.
(c) Net interest income divided by average interest-earning assets.
</TABLE>
The following table sets forth the changes in interest due to volume and
rate for the three month periods ended December 31, 1998 and 1997.
<TABLE>
<S>
Three months ended December 31, 1998 versus 1997
(dollars in thousands) Change in interest due to
Volume Rate Vol/rate Net
------ ---- -------- ---
<C> <C> <C> <C>
Interest-earning assets:
Loans $ 221 $ (316) $ (19) $ (114)
Mortgage backed securities 1,266 (12) (60) 1,194
Other securities (819) (143) 61 (901)
------ ------ ----- ------
Total 668 (471) (18) 179
------ ------ ----- ------
Interest-bearing liabilities:
Deposits 146 (223) (12) (89)
Borrowings 327 2 7 336
------ ------ ----- ------
Total 473 (221) (5) 247
------ ------ ----- ------
Net change to interest income $ 195 $ (250) $ (13) $ (68)
====== ====== ===== ======
</TABLE>
Interest income
- ---------------
Total interest and dividend income increased $179,000, or 3.0%, for the
quarter ended December 31, 1998 as compared with the same period a year
ago. This increase resulted from a $38.2 million, or 12.2%, increase in
average earning assets offset by a decline in average yield of 63 basis
points to 6.98%.
Loan interest and fee income decreased $114,000, or 3.0%, for the
quarter ended December 31, 1998 as compared with the prior year period
as a result of a decrease in average yield offset in part by an increase
in average loan balance. Average yield declined 74 basis points to
8.15% while average loan balances increased $9.9 million, or 5.8%.
Interest and dividends on investments and federal funds sold increased
$293,000, or 13.5%, as a result of a $28.2 million, or 19.7%, increase
in average balances offset by a lower average yield, which declined 32
basis point to 5.76%.
Interest expense
- ----------------
Interest expense for the quarter ended December 31, 1998 increased
$247,000, or 8.6%, as compared with the same period a year ago as a
result of a $36.5 million, or 13.2%, increase in average borrowings and
deposit balances for the period offset, in part, by a 17 basis point
decrease in the cost of funds to 3.98%.
Deposit expense decreased $89,000, or 3.2%, as a result of a 33 basis
points decrease in the average cost of funds offset, in part, by an
increase of $14.2 million, or 5.3%, in average interest bearing deposit
balances for the period. The average savings account balance has
increased over the period by $7.7 million, or 19.2%, while NOW account
balances have increased $4.4 million, or 15.6%, and money Market
accounts have increased $5.8 million, or 9.3%. Certificates of deposit
decreased slightly by $3.7 million, or 2.7%. The average rate paid on
certificate of deposit has declined to 5.19% from 5.49% a year ago,
while NOW deposit rates have declined to 1.18% from 1.44% a year ago,
and other non-maturity deposit rates (Savings and Money Market) have
declined slightly to 2.97% and 2.70%, respectively.
Interest expense on borrowings increased $336,000, or 302.7%, as a
result of increased average borrowings coupled with a higher average
cost of funds. In March 1998 NewMil used Federal Home Loan Bank fixed
rate term advances to fund purchases of fixed rate mortgage backed
securities. As a result, average borrowings for the current quarter are
$22.3 million higher as compared with the prior year period and the
average borrowings cost is 13 basis points higher than the prior year
period. 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
December 31, 1998, 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 December 31:
<TABLE>
<S>
<C> <C>
1998 1997
(dollars in thousands) ---- ----
Balance, beginning of period $5,005 $5,544
Provision for losses 25 50
Charge-offs (3) (49)
Recoveries 41 1
------ ------
Balance, end of period $5,068 $5,546
Ratio of allowance for loan losses: ====== ======
to non-performing loans 358.16% 183.82%
to total gross loans 2.60 3.24
</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 1998. Non-performing loans have
decreased $1.6 million, or 53.1%, to $1.4 million at December 31, 1998,
as compared with $3.0 million at December 31, 1997. As a result, the
reserve coverage to non-performing loans has increased to 358.2%.
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 December 31, 1998, is adequate. Should the economic
climate deteriorate, borrowers could experience difficulty and the level
of non-performing loans, charge-offs and delinquencies could rise and
require increased provisions. In addition, various regulatory agencies,
as an integral part of their examination process, periodically review
the Bank's allowance for loan losses. Such agencies could require the
Bank to recognize additions to the allowance based on their judgements
of information available to them at the time of their examination. The
Bank was 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 December 31.
<TABLE>
<S>
(in thousands) 1998 1997 Change
---- ---- ------
<C> <C> <C> <C>
Service charges on
deposit accounts $ 294 $287 $ 7 2.4%
Gains on sale of OREO 754 140 614 438.6
Gains on sales of mortgage
loans, net 152 82 70 85.4
Loan servicing 21 27 (6) (22.2)
Securities losses, net - (258) 258 (100.0)
Other 79 66 13 19.7
------ ---- ----
Total non-interest income $1,300 $344 $956 277.9
====== ==== ====
</TABLE>
The increase in service charges on deposit accounts reflects increased
transaction volume, resulting from deposit growth, fees from the
Generations Gold Family Club introduced in 1998, and increased ATM/debit
card activity. The increase on gains on OREO is the result of the sale
of one property during the past 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. The increase in gains on sales of residential
mortgage loans resulted from loan sales of $7.7 million in 1998 compared
with $5.2 million in 1997. Secondary market loan sales are generally
pre-arranged on a loan by loan basis prior to origination and loans are
sold service-released. The decrease in loan servicing fees results from
portfolio run-off. The net securities losses in 1997 were realized on
sales of $13.1 million and resulted from a restructuring of the
securities portfolio.
Operating expenses
- ------------------
The following table details the principal categories of operating
expenses for the three month periods ended December 31.
<TABLE>
<S>
(in thousands) 1998 1997 Change
---- ---- ------
<C> <C> <C> <C>
Salaries $1,221 $1,047 $174 16.6%
Employee benefits 270 284 (14) (4.9)
Occupancy 315 224 91 40.6
Equipment 232 181 51 28.2
Insurance 26 26 - 0.0
Professional fees, Collection
and OREO expense 181 (146) 327 224.0
Postage and telecommunications 108 98 10 10.2
Marketing 58 65 (7) (10.8)
Other operating 458 403 55 13.6
------ ------ ----
Total operating expenses $2,869 $2,182 $687 31.5
====== ====== ====
</TABLE>
The increase in salaries expense for the quarter ended December 31, 1998
as compared with the prior year period was due primarily to increases in
staffing, primarily in lending originations and annual salary increases
of approximately 4.5%. The increase in occupancy expense is a result of
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. Professional, Collection and OREO expense for 1997 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 quarter included an income tax provision of $870,000,
representing a 60.3% effective rate, as compared with a provision of
$511,000 a year ago, representing a 42.0% effective rate. The provision
for quarter ended December 31, 1998 included a one-time charge of
$266,000, as discussed below, without which the effective tax rate would
have been 41.9%.
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 is effective for income years
commencing on or after January 1, 1999.
NewMil has 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 can transfer mortgages into the PIC and income of
the PIC and its dividends to NewMil are exempt from the Connecticut
Corporation Business Tax. Effective January 1, 1999, NewMil's combined
Federal and State effective statutory tax rate will be 34%, compared
with a current effective statutory rate 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. Accordingly, NewMil's income tax provision
for the second quarter ended December 31, 1998 includes a charge of
$266,000. NewMil anticipates that the reduction in future tax expense
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.
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.
RESULTS OF OPERATIONS
For the six month periods ended December 31, 1998 and 1997
Overview
- --------
NewMil earned net income of $1,125,000, or 28 cents per share (diluted),
for the six month period ended December 31, 1998 as compared with
$1,406,000, or 35 cents per share (diluted), for the six month period
ended December 31, 1997. Net income for the six month period ended
December 31, 1998 includes a number of special adjustments resulting
from the formation of the PIC, the adoption of SFAS 133 and related
securities sales, and the prepayment of above market rate Federal Home
Loan Bank advances. Refer to the discussion of the results for the
three month period ended December 31, 1998 above for a detailed
explanation of these adjustments.
Excluding the effects of SFAS 133, the formation of the PIC and the FHLB
prepaid borrowings, income from operations for the six month period
ended December 31, 1998 increased 16.6% to $1,640,000 as compared with
$1,406,000 for the prior year period.
Analysis of net interest and dividend income
- --------------------------------------------
Net interest and dividend income increased $48,000, or 0.8%, for the six
month period ended December 31, 1998 as compared with the prior year
period. This increase resulted from a $44.4 million, or 14.2% increase
in average earning assets offset in part by a 46 basis point decrease in
the net interest margin to 3.50% from 3.96%. 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.
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 six month periods ended December 31, 1998 and
1997.
<TABLE>
<S>
<C> <C> <C>
Six months ended December 31, 1998 Average Income/ Average
(dollars in thousands) balance expense yield/rate
------- ------- ----------
Loans(a) $175,909 $ 7,335 8.34%
Mortgage backed securities 95,992 2,879 6.00
Other securities(b) 83,867 2,431 5.80
-------- -------
Total earning assets 355,768 12,645 7.11
Other assets 12,987 -------
--------
Total assets $368,755
========
NOW accounts $ 31,886 194 1.22
Money market accounts 67,392 1,020 3.03
Savings & other 46,867 639 2.73
Certificates of deposit 136,123 3,569 5.24
-------- -------
Total interest-bearing deposits 282,268 5,422 3.84
Borrowings 33,709 1,005 5.96
-------- -------
Total interest-bearing funds 315,977 6,427 4.07
Demand deposits 16,348 -------
Other liabilities 2,069
Shareholders' equity 34,361
Total liabilities and --------
shareholders' equity $368,755
========
Net interest income $ 6,218
=======
Spread on interest-bearing funds 3.04
Net interest margin(c) 3.50
Six months ended December 31, 1997 Average Income/ Average
(dollars in thousands) balance expense yield/rate
------- ------- ----------
Loans(a) $170,491 $ 7,582 8.89%
Mortgage backed securities 16,001 468 5.85
Other securities(b) 124,909 3,811 6.10
-------- -------
Total earning assets 311,401 11,861 7.62
Other assets 10,043 -------
--------
Total assets $321,444
========
NOW accounts $ 27,596 203 1.47
Money market accounts 62,128 954 3.07
Savings & other 39,970 550 2.75
Certificates of deposit 137,237 3,770 5.49
-------- ------
Total interest-bearing deposits 266,931 5,477 4.10
Borrowings 7,402 214 5.78
-------- ------
Total interest-bearing funds 274,333 5,691 4.15
Demand deposits 12,407 ------
Other liabilities 2,048
Shareholders' equity 32,656
--------
Total liabilities and
shareholders' equity $321,444
========
Net interest income $ 6,170
Spread on interest-bearing funds ======= 3.47
Net interest margin(c) 3.96
(a) Includes non-accrual loans.
(b) Includes interest-bearing deposits in other banks and federal
funds sold.
(c) Net interest income divided by average interest-earning assets.
</TABLE>
The following table sets forth the changes in interest due to volume and
rate for the six month periods ended December 31, 1998 and 1997.
<TABLE>
<S>
Six months ended December 31, 1998 versus 1997
(dollars in thousands) Change in interest due to
Volume Rate Vol/rate Net
------ ---- -------- ---
<C> <C> <C> <C>
Interest-earning assets:
Loans $ 241 $ (473) $ (15) $ (247)
Mortgage backed securities 2,339 12 60 2,411
Other securities (1,252) (190) 62 (1,380)
------ ------ ----- ------
Total 1,328 (651) 107 784
------ ------ ----- ------
Interest-bearing liabilities:
Deposits 315 (350) (20) (55)
Borrowings 760 7 24 791
------ ----- ----- ------
Total 1,075 (343) 4 736
------ ----- ----- ------
Net change to interest income $ 253 $(308) $ 103 $ 48
====== ===== ===== ======
</TABLE>
Interest income
- ---------------
Total interest and dividend income increased $784,000, or 6.6%, for the
six month period ended December 31, 1998 as compared with the same
period a year ago. This increase resulted from a $44.4 million, or
14.2%, increase in average earning assets, offset by a decrease in
average yield of 51 basis points to 7.11%.
Loan interest and fee income decreased $247,000, or 3.3%, for the six
month period ended December 31, 1998 as compared with the prior year
period as a result of a 55 basis point decrease in average yield to
8.34%, offset, in part, by a $5.4 million, or 3.2%, increase in average
loans as compared with the prior year period.
Interest and dividends on investments and federal funds sold increased
$1,031,000, or 24.1%, for the six month period ended December 31, 1998
as compared with the prior year period as a result of a $38.9 million,
or 27.6%, increase in average balances, offset by a lower average yield,
which was down 16 basis point to 5.91%.
Interest expense
- ----------------
Interest expense for the six month period ended December 31, 1998
increased $736,000, or 12.9%, as compared with the prior year period as
a result of a $41.6 million, or 15.2%, increase in average balances for
deposits and borrowings, offset, in part, by an 8 basis points decrease
in the cost of funds from 4.15% to 4.07%.
Deposit expense decreased $55,000, or 1.0%, as a result of a 26 basis
point decrease in the average cost of interest bearing deposits deposit,
offset, in part, by a $15.3 million, or 5.7%, increase in average
interest-bearing deposit balances. Average savings account balances
have increased $6.9 million, or 17.3%, over the period, while NOW
account balances have increased $4.3 million, or 15.5%, and money market
accounts have increased $5.3 million, or 8.5%. Certificates of deposit
decreased slightly by $1.1 million, or 0.8%. The average rate paid on
certificates of deposit declined to 5.24% from 5.49% a year ago, while
NOW deposit rates have declined to 1.22% from 1.47% a year ago, and
other non-maturity deposit rates (savings and money market) have
declined slightly to 2.73% and 3.03%, respectively.
Interest expense on borrowings increased $791,000, or 369.6%, as a
result of increased average borrowings coupled with a higher average
cost of funds. In March 1998 NewMil used Federal Home Loan Bank fixed
rate term advances to fund purchases of fixed rate mortgage backed
securities. As a result, average borrowings for the current quarter are
$26.3 million higher as compared with the prior year period and the
average borrowings cost is 18 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 $50,000 for loan losses during the six months ended
December 31, 1998, compared to $150,000 for the prior year period
provision. The following table details changes in the allowance for
loan losses during the six month periods ended December 31:
<TABLE>
<S>
<C> <C>
1998 1997
(dollars in thousands) ---- ----
Balance, beginning of period $5,004 $5,452
Provision for losses 50 150
Charge-offs (33) (58)
Recoveries 47 2
------ ------
Balance, end of period $5,068 $5,546
====== ======
Ratio of allowance for loan losses:
to non-performing loans 358.16% 183.82%
to total gross loans 2.60 3.24
</TABLE>
For a detailed discussion of the Bank's allowance for loan losses see
"For the three month periods ended December 31, 1998 and 1997", above.
Non-interest income
- -------------------
The following table details the principal categories of non-interest
income for the six month periods ended December 31.
<TABLE>
<S>
(in thousands) 1998 1997 Change
---- ---- ------
<C> <C> <C> <C>
Service charges on
deposit accounts $ 601 $556 $ 45 8.1%
Gains on sales of mortgage
loans, net 290 147 143 97.3
Gains on sale of OREO 864 291 573 196.9
Loan servicing 43 53 (10) (18.9)
Securities losses, net - (281) 281 100.0
Other 159 142 17 12.0
------ ---- ------
Total non-interest income $1,957 $908 $1,049 115.5
====== ==== ======
</TABLE>
The increase in service charges on deposit accounts reflects increased
transaction volume, resulting from deposit growth, fees from the
Generations Gold Family Club introduced in 1998, and increased ATM/debit
card activity. The increase in gains on sales of residential mortgage
loans resulted from loan sales of $14.3 million in 1998 compared with
$9.2 million in 1997. Secondary market loan sales are generally pre-
arranged on a loan by loan basis prior to origination and loans are sold
service-released. The increase on gains on OREO sales results from the
sale of one property during the past 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. The decrease in loan servicing fees results from
portfolio run-off. The net securities losses in 1997 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 six month periods ended December 31.
<TABLE>
<S>
(in thousands) 1998 1997 Change
---- ---- ------
<C> <C> <C> <C>
Salaries $2,357 $2,092 $265 12.7%
Employee benefits 562 600 (38) (6.3)
Occupancy 512 441 71 16.1
Equipment 446 362 84 23.2
Insurance 52 52 - 0.0
Professional fees, Collections
and OREO expense 241 (114) 355 311.4
Postage and telecommunications 208 182 26 14.3
Marketing 127 125 2 1.6
Other operating 836 765 71 9.3
------ ------ ----
Total operating expenses $5,341 $4,505 $836 18.6
====== ====== ====
</TABLE>
The increase in salaries expense for the period ended December 31, 1998
as compared with the prior year period was due primarily to increases in
staffing, primarily in lending, 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. Professional, Collection and OREO expense for 1997 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 six month period ended December 31, 1998 included an
income tax provision of $1,410,000, representing a 50.6% effective rate,
as compared with a provision of $1,017,000 a year ago, representing a
42.0% effective rate. The provision for period ended December 31, 1998
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 41.1%.
FINANCIAL CONDITION
Total assets decreased $9.8 million, or 2.7%, to $357.8 million during
the six month period from June 30, 1998 through December 31, 1998. Net
loans and deposits grew $27.0 million and $11.5 million, respectively,
while securities, borrowings and overnight federal funds sold decreased
by $26.3 million, $22.5 million and $19.9 million, respectively.
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
December 31, 1998 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 six month period ended December 31, 1998 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 December 31, 1998, 91.1% of the portfolio consisted of fixed rate
securities, principally MBS and to a lesser extent, CMOs, US Treasury
notes, and municipal bonds. At December 31, 1998 total fixed rate
securities had a projected weighted average duration and life of 2.6
years and 3.3 years, respectively, based on median projected prepayment
speeds at current interest rates. At December 31, 1998 7.1% 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 0.2 years and 6.0
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 1.9% of the portfolio at
December 31, 1998, was represented by Federal Home Loan Bank stock.
At December 31, 1998, securities totaling $103.5 million, or 76.1%, were
classified as available-for-sale and securities totaling $32.4 million,
or 23.9%, were classified as held-to-maturity.
Loans
- -----
Net loans grew $27.0 million, or 16.6%, during the six month period
ended December 31, 1998. Loans originated and loan advances totaled
$73.7 million, while loan repayments and loans sold in the secondary
market were $32.5 million and $14.3 million, respectively. Loans
originated include $30.3 million of residential mortgage loans purchased
for portfolio.
Major classifications of loans are as follows:
<TABLE>
<S>
<C> <C>
December 31, June 30,
(in thousands) 1998 1998
Real estate mortgages:
One-four family residential $110,432 $ 85,274
Five or more family residential 6,303 5,500
Commercial 34,275 34,878
Land 2,919 3,571
Commercial and industrial 17,685 14,357
Home equity lines of credit 20,386 21,208
Installment and other 2,812 3,118
-------- --------
Total loans, gross 194,812 167,906
Deferred loan origination fees
and purchase premium, net 118 (53)
Allowance for loan losses (5,068) (5,004)
-------- --------
Total loans, net $189,862 $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
$452,000, or 1.0% since June 30, 1998, and C & I loans increased
$3,328,000, or 23.2%, 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 six month period ended December 31,
1998 the department has originated and sold $14.3 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
six month period ended December 31, 1998 the department has purchased
$30.3 million of loans for portfolio. Since June 30, 1998 the
residential mortgage loan portfolio has increased by $25.2 million, or
29.5%, while home equity lines and loans decreased $822,000, or 3.9%,
for the period.
Non-performing assets
- ---------------------
The following table details changes in non-performing assets during the
six month periods ended December 31.
<TABLE>
<S>
<C> <C>
(in thousands) 1998 1997
---- ----
Balance, beginning of year $1,683 $3,585
Loans placed on non-accrual status 632 926
Change in accruing loans past
due 90 or more days, net (400) (351)
Change in loans restructured, net - (274)
Payments to improve OREO 108 419
Loan payments (125) (88)
Loans returned to accrual status (3) (267)
Loan charge-offs (30) (41)
Gross proceeds from OREO sales (1,076) (988)
Gains on OREO sales, net 864 291
Reverse provision for real estate acquired
valuation reserve 19 -
------ ------
Balance, end of period $1,672 $3,212
====== ======
Percent of total assets 0.47% 1.36%
</TABLE>
During the six month period ended December 31, 1998 non-performing
assets decreased $11,000, or 0.7%, due principally to OREO sales and
collections of non-accrual loans and loans 90 days past due and
accruing, offset, in part, by new non-accrual loans. 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 December 31, 1998.
<TABLE>
<S>
Non-Performing Assets Accruing Total
(dollars in thousands) loans non-
Non- past due Restruc- perform-
accrual 90 or tured OREO ing
loans more days loans (a) OREO reserve assets
----- --------- -------- ---- ------- ------
<C> <C> <C> <C> <C> <C>
December 31, 1998
Real estate:
Residential $ 585 $ 228 - $ 58 $ - $ 871
Commercial 190 - - 36 - 226
Land and land
development 410 - - 226 - 636
Collateral and
installment loans 2 - - - - 2
Valuation reserve - - - - (63) (63)
------ ---- ---- ---- ---- ------
Totals $1,187 $228 $ - $320 $(63) $1,672
====== ==== ==== ==== ==== ======
(a) Includes accruing troubled debt restructurings.
</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. The OREO valuation reserve at December 31, 1998 totaled $63,000,
or 19.7% of OREO.
LIQUIDITY
NewMil manages its liquidity position to ensure that there is sufficient
funding availability at all times to meet both anticipated and
unanticipated deposit withdrawals, new loan originations, securities
purchases and other operating cash outflows. The principal sources of
liquidity for NewMil are principal payments and maturities of securities
and loans, short term borrowings through repurchase agreements and
Federal Home Loan Bank advances, net deposit growth and funds provided
by operations. Liquidity can also be provided through sales of loans
and available-for-sale securities.
Operating activities for the six month period ended December 31, 1998
provided net cash of $950,000. Investing activities provided net cash
of $743,000, principally as a result of securities repayments, sales and
maturities, net loan repayments and sales of OREO, offset, in part, by
securities and loan purchases. Financing activities used net cash of
$11.9 million, principally to repay borrowings, offset in part, by net
deposit growth. Funds provided by operating and investing activities,
together with a $10.2 million decrease in cash and overnight federal
funds sold, were utilized to fund financing activities.
At December 31, 1998, NewMil's liquidity ratio, as represented by cash,
short term available-for-sale securities, marketable assets and the
ability to borrow against held-to-maturity securities and loans through
unused FHLB and other short term borrowing capacity, of approximately
$185.2 million, to net deposits and short term unsecured liabilities,
was 65.5%, well in excess of NewMil's minimum guideline of 15%. At
December 31, 1998, NewMil had outstanding commitments to fund new loan
originations of $23.0 million, construction mortgage commitments of
$788,000 and unused lines of credit of $23.0 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 $1,447,000, to $34,856,000, while book
value per share increased $0.38 to $9.09, during the six month period
ended December 31, 1998. The increase in equity resulted from net
income of $1,125,000, or $0.28 per share (diluted), net unrealized gains
on securities during the period, net of taxes, $1,058,000 and stock
option proceeds of $52,000, offset by treasury stock purchases of
$136,000 and dividends paid of $652,000.
NewMil and the Bank are subject to minimum capital requirements
established, respectively, by the Federal Reserve Board (the "FRB") and
the FDIC. At December 31, 1998 NewMil's leverage capital ratio was
9.38% and its tier I and total risk-based capital ratios were 19.53% and
20.80%, respectively. At December 31, 1998 the Bank's leverage capital
ratio was 9.40% and its tier I and total risk-based capital ratios were
20.23% and 21.50%, 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 December 31, 1998 was $1,933,000. In some instances,
further restrictions on dividends may be imposed on NewMil by the
Federal Reserve Bank.
NewMil believes that the payment of cash dividends to its shareholders
is appropriate, provided that such payment considers NewMil's capital
needs, asset quality, and overall financial condition and does not
adversely affect the financial stability of NewMil or the Bank. The
continued payment of cash dividends by NewMil will be dependent on
NewMil's future core earnings, financial condition and capital needs,
regulatory restrictions, and other factors deemed relevant by the Board
of Directors of NewMil.
YEAR 2000
Year 2000 Action Plan
In early 1997 NewMil developed its Year 2000 Action Plan (Plan) to
ensure that its operating systems, and those of its outside vendors and
suppliers, will function correctly in the year 2000 and beyond. NewMil
expects to be compliant with its Year 2000 Plan by March 31, 1999. The
Plan is managed by the Year 2000 Committee, comprised of representatives
from each operational area of the Bank. The Plan has five phases: (1)
awareness; (2) assessment; (3) renovation; (4) validation; and, (5)
implementation.
The awareness phase included development of the Plan, conducting
awareness meetings and communicating with all NewMil employees,
attending Year 2000 seminars and attending a user group meeting for the
Bank's legacy system vendor. The awareness phase was completed during
1997.
The assessment phase included the development of an inventory of all
date sensitive systems, including in-house systems and those of the
Bank's outside vendors and suppliers, a risk assessment of each element,
and specific methodology to correct non-compliant systems. As of
December 31, 1998 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. After a thorough
evaluation the Bank decided to convert from its in-house legacy computer
systems to an in-house client server, relational database system. The
Bank converted to the in-house database system on November 13, 1998.
The Bank's new client server system has been certified Year 2000
compliant by the supplying vendor and the Bank will verify compliance in
early 1999. Several third party interfaces are scheduled for testing in
early 1999. All systems testing is expected to be completed by March
31, 1999.
The implementation phase addresses the roll out of Year 2000 compliant
systems during 1998 and 1999. Should any systems fail the validation,
contingency plans will be developed and executed in early 1999.
NewMil has also developed an action plan to identify credit risk in its
loan portfolio arising from the potential failure of a borrower's
operating or other systems as a consequence of the Year 2000. NewMil
has conducted mailings of a Year 2000 Questionnaire to all of its
commercial borrowers and will complete 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 and in
September 1998 the FDIC conducted a supervisory review of the Bank's
Year 2000 conversion effort.
Costs
The cost of new hardware and software associated with the systems
conversion, including the replacement of all teller terminals, is
approximately $1,400,000. This cost has been capitalized and is being
depreciated over the fixed assets useful lives. The annual operating
expense of the new system is estimated to be approximately the same as
that of the present system. Based on current information, management
believes that specific costs related to NewMil's Year 2000 systems
issues will not have a material impact on the operations, cash flows or
financial condition of NewMil.
Risks
The failure to correct a material Year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially and adversely affect
NewMil's results of operations, liquidity and financial condition. Due
to the general uncertainty inherent in the Year 2000 problem, resulting
in part from the uncertainty of the Year 2000 readiness of third-party
vendors and borrowers, NewMil is unable to determine at this time
whether the consequences of Year 2000 failures will have a material
impact on NewMil's results of operations, liquidity or financial
condition. The Year 2000 Action Plan is expected to significantly
reduce NewMil's level of uncertainty about the Year 2000 problem and, in
particular, about the Year 2000 readiness of its material vendors,
suppliers and commercial borrowers. NewMil believes that, with the
implementation of the new client server system and the completion of the
Plan as scheduled, the possibility of significant interruptions of
normal operations should be reduced.
Item 3. 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
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEWMIL BANCORP, INC.
February 12, 1999 By /s/ Francis J. Wiatr
Francis J. Wiatr,
Chairman, President and CEO
February 12, 1999 By /s/ B. Ian McMahon
B. Ian McMahon,
Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
NEWMIL BANCORP, INC.
February 12, 1999 By:
Francis J. Wiatr,
Chairman, President and CEO
February 12, 1999 By:
B. Ian McMahon,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAIN SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S DECEMBER 31, 1998 UNAUDITED BALANCE SHEET, INCOME STATEMENT
AND CASH FLOW STATMENT, AND NOTES THERETO, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 15,098,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,196,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 103,493,000
<INVESTMENTS-CARRYING> 32,430,000
<INVESTMENTS-MARKET> 31,967,000
<LOANS> 189,862,000
<ALLOWANCE> 5,068,000
<TOTAL-ASSETS> 357,764,000
<DEPOSITS> 305,381,000
<SHORT-TERM> 15,000,000
<LIABILITIES-OTHER> 2,527,000
<LONG-TERM> 0
0
0
<COMMON> 2,995,000
<OTHER-SE> 31,861,000
<TOTAL-LIABILITIES-AND-EQUITY> 357,764,000
<INTEREST-LOAN> 7,335,000
<INTEREST-INVEST> 4,805,000
<INTEREST-OTHER> 505,000
<INTEREST-TOTAL> 12,645,000
<INTEREST-DEPOSIT> 5,422,000
<INTEREST-EXPENSE> 6,427,000
<INTEREST-INCOME-NET> 6,218,000
<LOAN-LOSSES> 50,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,341,000
<INCOME-PRETAX> 2,784,000
<INCOME-PRE-EXTRAORDINARY> 2,784,000
<EXTRAORDINARY> 87,000
<CHANGES> 162,000
<NET-INCOME> 1,125,000
<EPS-PRIMARY> .29
<EPS-DILUTED> .28
<YIELD-ACTUAL> 3.50
<LOANS-NON> 1,187,000
<LOANS-PAST> 228,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 7,192,000
<ALLOWANCE-OPEN> 5,004,000
<CHARGE-OFFS> 33,000
<RECOVERIES> 47,000
<ALLOWANCE-CLOSE> 5,068,000
<ALLOWANCE-DOMESTIC> 4,266,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 803,000
</TABLE>
Exhibit 11.1
NEWMIL BANCORP, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
(in thousands except per share amounts)
<TABLE>
<S>
Three months Six months
ended ended
December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
<C> <C> <C> <C>
Net income
Net income - basic and diluted $323 $705 $1,125 $1,406
==== ==== ====== ======
Weighted Average Common and Common
Equivalent Stock
Weighted average common stock
outstanding 3,838 3,848 3,836 3,842
===== ===== ===== =====
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 402 415 411 414
Assumed purchase of treasury stock
during each period with proceeds
from conversion of stock options
outstanding at the end of each
period (210) (202) (214) (205)
----- ----- ----- -----
Weighted average common and common
equivalent stock outstanding
- diluted 4,030 4,061 4,033 4,051
===== ===== ===== =====
Earnings Per Common and Common
Equivalent Share
Basic $0.08 $0.18 $0.29 $0.37
===== ===== ===== =====
Diluted $0.08 $0.17 $0.28 $0.35
===== ===== ===== =====
</TABLE>
