FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1996
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from____________to_____________
Commission file number 0-16272
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HOMETOWN BANCORPORATION, INC.
-----------------------------
(Exact name of Registrant as specified its charter)
DELAWARE 06-1199559
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
20 WEST AVENUE, P.O. BOX 1265, DARIEN, CT 06820
------------------------------------------------
(Address of principal executive offices)
(203) 656-2265
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(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
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date:
CLASS OUTSTANDING AT APRIL 30, 1996
----- -----------------------------
Common Stock (Voting), $1 par
Value 1,708,046
---------
<PAGE>
HOMETOWN BANCORPORATION, INC.
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. - Financial Statements
-------
Consolidated Balance Sheet -
March 31, 1996 and December 31, 1995 3
Consolidated Statement of Income -
Three Months Ended March 31, 1996 and 1995 4
Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1996 and 1995 5
ITEM 2. - Management's Discussion and Analysis
of Financial Condition and Results of Operations 6-10
PART II - EXHIBITS 11
------------------
SIGNATURES 12
2
<PAGE>
Part I
ITEM 1. - FINANCIAL STATEMENTS
- -------------------------------
HOMETOWN BANCORPORATION, INC.
CONSOLIDATED BALANCE SHEET
(000'S OF DOLLARS EXCEPT PAR VALUE AND SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
1996 1995
---- ----
ASSETS (unaudited)
Cash and due from banks $7,213 $9,891
Investments available for sale, at fair value 76,626 93,696
Investments held to maturity (fair value:
$14,621 in 1996 and $14,763 in 1995) 14,561 15,100
Loans, less allowance for loan losses of
$2,914 in 1996 and $2,883 in 1995 106,080 103,407
Equipment and leasehold improvements, net of
accumulated depreciation of $1,981 in 1996
and $1,897 in 1995 1,435 1,456
Other real estate owned 683 603
Other assets 6,310 5,067
------- -------
Total Assets $212,908 $229,220
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $23,747 $26,064
NOW and money market accounts 72,024 69,200
Savings deposits 12,288 12,858
Certificates of deposit of $100 and over 10,688 14,056
Other time deposits 56,287 55,822
------- -------
175,034 178,000
Short-term borrowings 19,001 32,116
Accrued interest and other liabilities 1,681 2,286
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Total Liabilities 195,716 212,402
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STOCKHOLDERS' EQUITY
Preferred Stock, par value $1; 2,000,000 shares
authorized, none issued and outstanding
Common Stock, par value $1; 10,000,000 shares
authorized, 1,833,381 issued
and outstanding in 1996 and 1995 1,833 1,833
Surplus 14,123 14,123
Retained earnings 2,123 1,784
Unrealized loss on investments available for sale (152) (187)
Treasury Stock - 126,900 and 126,935 shares in 1996
and 1995, respectively, at cost (735) (735)
------- -------
Total Stockholders' Equity 17,192 16,818
------- -------
Total Liabilities and Stockholders' Equity $212,908 $229,220
======= =======
3
<PAGE>
HOMETOWN BANCORPORATION, INC.
CONSOLIDATED STATEMENT OF INCOME
(000'S OF DOLLARS EXCEPT PAR VALUE AND SHARE AMOUNTS)
FOR THE THREE MONTHS ENDED
MARCH 31,
1996 1995
Interest and dividend income: (unaudited) (unaudited)
Interest and fees on loans $2,303 $1,769
Interest on investment securities:
Obligations of U.S. Agencies 994 1,403
Other 459 505
Interest on federal funds sold 1 --
Dividends 28 33
------- -------
Total interest and dividend income 3,785 3,710
Interest expense:
Deposits 1,448 1,554
Short-term borrowings 366 312
------- -------
Total interest expense 1,814 1,866
Net interest income 1,971 1,844
Provision for loan losses 25 25
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Net interest income after provision for
loan losses 1,946 1,819
Other operating revenue:
Deposit and other service charges 162 173
Mortgage origination fees 79 56
Securities losses (2) --
Other 58 33
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Net interest income and operating revenue 2,243 2,081
Other operating expenses:
Salaries and benefits 853 754
Occupancy expense 136 145
FDIC insurance premiums 1 102
Depreciation 84 91
Advertising and marketing 67 55
Legal and Accounting 53 23
Foreclosure expense and cost of OREO 41 30
Other operating expenses-other 425 309
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Total other operating expenses 1,660 1,509
Income before federal and state income taxes 583 572
Provision for federal and state income taxes 244 202
------- -------
Net income $339 $370
======= =======
Earnings per share $.19 $.21
===== =====
Average number of shares outstanding 1,780,741 1,762,349
========= =========
4
<PAGE>
HOMETOWN BANCORPORATION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(THOUSANDS OF DOLLARS)
FOR THE THREE MONTHS ENDED
MARCH 31,
1996 1995
Cash Flows from Operating Activities: (unaudited) (unaudited)
Net income $339 $370
Adjustments to reconcile net income to net cash
(used) by operating activities:
Depreciation and amortization, net 135 91
Provision for loan losses 25 25
Securities losses 2 --
(Increase) decrease in other assets (1,329) 179
(Decrease) in other liabilities (605) (1,659)
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Net cash (used) by operating activities (1,433) (994)
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Cash Flows from Investing Activities:
Proceeds from the maturity of investments held
to maturity 539 1,199
Proceeds from the maturity of investments
available for sale 6,347 1,629
Purchase of investment securities available
for sale (1,026) (16,910)
Proceeds from the sale of investments available
for sale 11,817 3,742
Net decrease in loans (2,698) (53)
Decrease (increase) in OREO (80) 1
Purchase of capital assets (63) (67)
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Net cash provided (used) by investing activities 14,836 (10,459)
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Cash Flows from Financing Activities:
Net (decrease) in demand deposits, NOW
accounts, money market accounts and
savings accounts (63) (266)
Net (decrease) in certificates of deposit
and other time deposits (2,903) (142)
(Decrease) increase in short-term borrowings (13,115) 9,598
Exercise of stock options -- 14
------- -------
Net cash (used) provided by financing activities (16,081) 9,204
------- -------
Net decrease in cash and cash equivalents (2,678) (2,249)
Cash and cash equivalents at the beginning of
the period 9,891 8,549
------- -------
Cash and cash equivalents at the end of the period $7,213 $6,300
====== ======
5
<PAGE>
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
------------
Hometown Bancorporation, Inc. (the "Company") was formed to become a
holding company for The Bank of Darien (the "Bank") to raise additional
capital and to provide a vehicle for other permitted holding company
activities. On July 21, 1987, each share of the Bank's outstanding
common stock was exchanged for one share of Common Stock, par value
$1.00, of the Company. This transaction was recorded in a manner
analogous to a pooling of interests.
The Bank is the sole subsidiary of the Company. The business of the
Company consists of ownership of the capital stock of the Bank.
The Bank, which currently has branch offices in Darien and Westport,
Connecticut, is a full service commercial institution with a market area
within Southern Fairfield County. Its commitment to service excellence
is supported by a flexible approach to banking, immediate problem
resolution and local decision making with fast turnaround. The staff's
commitment to excellence is evidenced by low turnover of personnel and
courteous and efficient service.
The Bank, a member of the FDIC, offers a complete line of financial
services to the retail and commercial market segments. Deposit products
include checking, NOW and money market accounts, savings accounts,
certificates of deposit, individual retirement accounts and Keoghs.
Loan products include personal and commercial loans, mortgages, home
equity lines of credit, secured and unsecured loans, MasterCard, VISA
and Gold MasterCard credit cards.
RESULTS OF OPERATIONS
---------------------
The Company earned consolidated net income of $339,000 or $.19 per
share and $370,000 or $.21 per share for the three months ended March
31, 1996 and 1995, respectively. The decrease in net income for the
first quarter of 1996 as compared to the first quarter of 1995 was
primarily the result of increases in other operating expense and the
provisions for federal and state income taxes which offset a 7% increase
in net interest income.
NET INTEREST INCOME
-------------------
Net interest income increased $127,000 or 7% from $1,844,000 for the
three months ended March 31, 1995 to $1,971,000 for the three months
ended March 31, 1996. The increase in net interest income was due to a
10% increase in the comparative period interest rate spread which was
offset by a $6,629,000 decline in the period's average interest earning
assets.
6
<PAGE>
Below is the yield analysis for the three months ended March 31, 1996
and for the year ended December 31, 1995.
<TABLE>
HOMETOWN BANCORPORATION, INC.
YIELD ANALYSIS
(000'S of dollars)
<CAPTION>
For the Three Months Ended For the Year Ended
March 31, 1996 December 31, 1995
Average Average
Balance Interest Yield Balance Interest Yield
------- -------- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
------
Interest earning assets:
Loans $106,719 $2,303 8.63% $ 81,948 $ 7,625 9.30%
Investment securities 97,219 1,482 6.10% 124,325 7,403 5.95%
Federal funds sold 80 1 5.00% 990 52 5.25%
------------------------------------------------------------
Total interest earning assets 204,018 3,786 7.42% 207,263 15,080 7.28%
------------------------------------------------------------
Non interest earning assets:
Cash and due from banks 7,940 7,288
Allowance for loan losses (2,905) (2,990)
Other assets 5,511 7,130
-------- --------
Total assets $214,564 $218,691
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Interest bearning liabilities:
Savings deposits $ 12,348 61 1.98% $13,304 292 2.19%
NOW accounts 26,451 82 1.24% 25,448 364 1.43%
Money market deposits 43,088 365 3.39% 50,100 1,896 3.78%
Time deposits 68,392 901 5.27% 66,830 3,463 5.18%
Other interest bearning liabilities 25,167 405 6.44% 24,444 1,653 6.76%
------------------------------------------------------------
Total interest bearning liabilities 175,446 1,814 4.14% 180,126 7,668 4.26%
------------------------------------------------------------
Non interest bearing liabilities:
Demand deposits 21,964 22,209
Other liabilities 583 947
Stockholders' equity 16,571 15,409
-------- --------
Total liabilities and stockholders'
equity $214,564 $218,691
======== ========
------ ------
Net interest income $1,972 $7,412
====== ======
Net yield on interest earning assets 3.87% 3.58%
==== ====
</TABLE>
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The Company maintains an allowance for loan losses which is recorded
through a provision for loan losses. The provision for loan losses is
charged to operations based on management's assessment of such loan
related factors as loan risk, including collateral and
7
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liquidation value of that collateral, loan type, current economic
conditions and other pertinent factors.
The Company, in its assessment of the allowance for loan losses,
utilizes a risk rating system. This system involves an ongoing review
of the loan portfolio that culminates in loans being assigned a risk
factor based upon various credit criteria. If the review indicates a
possibility that some portion of the loan may result in a loss, a
specific allowance is established for the amount of the estimated loss.
If the review indicates that it is probable that some portion of the
loan will result in a loss, that portion of the loan is charged-off as a
reduction of the loan and allowance for loan losses balance. In
determining the allowance for loan losses for the balance of the
portfolio, loans are classified as to industry and collateral type with
risk assessments made for each category of loans. Reserve requirements
are then established for each category and provided for in the allowance
for loan losses.
The Company recorded a $25,000 provision to the allowance for loan
losses for the three-month periods ended March 31, 1996 and 1995. The
following table illustrates nonperforming assets and allowance for
possible loan loss coverage ratios for the Company at March 31, 1996 and
December 31, 1995.
March 31, December 31,
1996 1995
(thousands of dollars)
Nonaccruing loans $1,191 $1,475
Other real estate owned, net 683 603
----- -----
Total nonperforming assets $1,874 $2,078
===== =====
Restructured and performing loans $533 $544
Nonaccruing loans to gross loans 1.09% 1.39%
Nonperforming assets to total assets 0.88% 0.91%
Allowance for loan losses $2,914 $2,883
Coverage Ratios:
Allowance for loan losses to gross loans 2.67% 2.71%
Allowance for loan losses to nonperforming 155.50% 138.74%
assets
Had the nonaccruing loans in the table above been current, gross
interest income on these loans for the three months ended March 31, 1996
would have been approximately $30,000. There was no interest income
recorded on these loans during 1996.
OTHER OPERATING REVENUE
-----------------------
For the three months ended March 31, 1996, total other operating
revenue increased $35,000 or 13% as compared to the three months ended
March 31, 1995. This increase was due to a $23,000 or 41% improvement in
mortgage origination fees from $56,000 for the quarter ended March 31, 1995
to $79,000 for the quarter ended March 31, 1996. The increase in mortgage
activity was primarily due to improved primary and new market coverage
by Company personnel. Other operating income, other, increased $25,000
for the quarter ended March 31, 1996 to $58,000, compared with $33,000
at March 31, 1995. The
8
<PAGE>
increase in other revenues was related to increased OREO rental income
and increased fees on the merchant credit card processing and other
retail-based services.
OTHER OPERATING EXPENSES
------------------------
Total other operating expenses increased $151,000 or 10% from
$1,509,000 for the three months ended March 31, 1995 to $1,660,000 for
the three months ended March 31, 1996. The increase in total other
operating expenses during the three months ended March 31, 1996 was
primarily due to increases in salaries and benefits.
For the three months ended March 31, 1996 salaries and benefits
expense increased $99,000 or 12% versus the three months ended March 31,
1995. This increase reflects increases in the cost of comprehensive
benefits, primarily medical and dental insurance offered to employees
combined with unemployment and FICA taxes, and an increase in salary
expense related to the addition and changes in personnel.
Occupancy expense decreased $9,000 or 6% for the three months ended
March 31, 1996 as compared to the three months ended March 31, 1995.
This decrease is due primarily to a renegotiated lease on the Darien
facility during the second quarter of 1995.
For the three months ended March 31, 1996, FDIC insurance premiums
decreased $101,000 as compared to the three months ended March 31, 1995.
During the second quarter of 1995 the FDIC reduced premiums charged to its
member banks as a result of the Bank Insurance Fund's meeting certain
federally mandated recapitalization requirements. The decline in
premium expense for the quarter ended March 31, 1996 relates to this
reduction in premiums.
Depreciation expense decreased $7,000 or 8% for the three months
ended March 31, 1996 as compared to the three months ended March 31,
1995. This decrease was due to more assets becoming fully depreciated
during the quarter than were purchased.
For the three months ended March 31, 1996 advertising and marketing
expense increased $12,000 or 22% from $55,000 for the three months ended
March 31, 1995 to $67,000 for the three months ended March 31, 1996.
The increase is due to increased advertising, public relations, and
direct marketing of the Bank's products in the first quarter of 1996.
Legal and accounting expense increased $30,000 for the three months
ended March 31, 1996 as compared to the three month period ended March
31, 1995. The increase reflects increased fees billed by our external
independent accountants and increased legal fees related to regulatory
matters. Foreclosure expense and cost of OREO increased $11,000 from
$30,000 for the three months ended March 31, 1995 to $41,000 for the
quarter ended March 31, 1996. The increase is due to increased
operating costs this past winter of OREO properties.
For the three months ended March 31, 1996, other operating expenses-
other increased $116,000 as compared to the three months ended March 31,
1995. This increase was due to increased expense related to customer
statement preparation, outside consulting assignments and other variable
fees and expenses for operations.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Total deposits of the Company decreased $2,966,000 to $175.0 million
at March 31, 1996 from December 31, 1995 when total deposits were $178.0
million. This decrease was due primarily to lower demand and time
deposit balances at March 31, 1996.
In addition to deposits (the Bank's primary funding and liquidity
source) liquidity is managed through continuous maturity of earning
assets, federal funds lines of credit and
9
<PAGE>
Federal Home Loan Bank of Boston (the "FHLBB") advances. FHLBB advances
decreased $13.1 million from $32.1 million at December 31, 1995 to $19.0
million at March 31, 1996.
The Company's total capital increased $374,000 from December 31,
1995 to March 31, 1996. The improvement was due to the net income
realized during the quarter of $339,000 and to an improvement in net
unrealized loss on the available-for-sale investment portfolio in the
amount of $35,000. Illustrated below are the Company's capital to asset
ratios and the corresponding regulatory minimums.
Capital Ratios
March 31, Regulatory
1996 Minimum
---- -------
HOMETOWN BANCORPORATION, INC.
-----------------------------
Tier one leverage capital ratio 7.88% 4.00%
Risk-based capital ratio 17.21% 8.00%
The following summarizes the Company's investment portfolio by type
of security at March 31, 1996:
Carrying Approximate
Amount Fair Value
------ ----------
(thousands of dollars)
Investments held to maturity:
U. S. Agency Mortgage-Backed Securities $5,293 $5,284
Obligations of U. S. Government Agencies 2,950 2,944
Other mortgage-backed securities 6,318 6,066
------ ------
Total investments held-to-maturity $14,561 $14,294
====== ======
Investments available for sale:
U. S. Agency Mortgage-Backed Securities $50,601 $50,485
Obligations of U. S. Government Agencies 1,019 1,038
Other mortgage-backed securities 19,523 19,383
U. S. Treasury Securities 4,026 4,003
FHLBB stock 1,717 1,717
------ ------
Total investments available-for-sale $76,886 $76,626
====== ======
10
<PAGE>
Part II
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------
(a) Exhibits
NO. DESCRIPTION
--- -----------
27 Financial Data Schedule
(b) During the quarter ended March 31, 1996, the Company filed a
Current Report on Form 8-K dated March 5, 1996, as amended,
reporting information pursuant to Item 4.
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Hometown Bancorporation, Inc.
Date: May 14, 1996 By: /S/ KEVIN E. GAGE
---------------------------
Kevin E. Gage
President and
Chief Executive Officer
Date: May 14, 1996 By: /S/ ALBERT T. JARONCZYK
----------------------------
Albert T. Jaronczyk
Senior Vice President and
Chief Financial Officer
12
<PAGE>
EXHIBIT INDEX
NO. DESCRIPTION
--- -----------
27 Financial Data Schedule
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE COMPANY AS OF MARCH 31, 1996 AND FOR THE THREE
MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 7,213
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 76,626
<INVESTMENTS-CARRYING> 14,561
<INVESTMENTS-MARKET> 14,621
<LOANS> 108,994
<ALLOWANCE> 2,914
<TOTAL-ASSETS> 212,908
<DEPOSITS> 175,034
<SHORT-TERM> 19,001
<LIABILITIES-OTHER> 1,681
<LONG-TERM> 0
0
0
<COMMON> 1,833
<OTHER-SE> 15,359
<TOTAL-LIABILITIES-AND-EQUITY> 212,908
<INTEREST-LOAN> 2,303
<INTEREST-INVEST> 1,482
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,785
<INTEREST-DEPOSIT> 1,448
<INTEREST-EXPENSE> 1,814
<INTEREST-INCOME-NET> 1,971
<LOAN-LOSSES> 25
<SECURITIES-GAINS> (2)
<EXPENSE-OTHER> 1,660
<INCOME-PRETAX> 583
<INCOME-PRE-EXTRAORDINARY> 339
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 339
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
<YIELD-ACTUAL> 7.42
<LOANS-NON> 1,191
<LOANS-PAST> 0
<LOANS-TROUBLED> 533
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,883
<CHARGE-OFFS> 32
<RECOVERIES> 38
<ALLOWANCE-CLOSE> 2,914
<ALLOWANCE-DOMESTIC> 2,914
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
