UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 0-17138
NORWICH FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
06-1226755
(IRS Employer Identification Number)
860-889-2621
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
by section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of
common stock was 5,470,841 shares of common stock, par value $.01, outstanding
as of April 30, 1996.
<PAGE>
NORWICH FINANCIAL CORP.
FORM 10-Q
THREE MONTHS ENDED MARCH 31, 1996
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Listed below are the financial statements filed as a part of this quarterly
report.
Item 1 - Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flow 5
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis 9
Exhibit A - Consolidated Financial Results 13
Exhibit B - Consolidated Nonperforming Assets Summary 14
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 15
Item 2 - Changes in Securities 15
Item 3 - Defaults Upon Senior Securities 15
Item 4 - Submission of Matters to a Vote of Securities Holders 15
Item 5 - Other Information 15
Item 6 - Exhibits and Reports on Form 8-K 15
Signatures 16
<PAGE>
<TABLE>
NORWICH FINANCIAL CORP. AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
(in thousands, except share data) 1996 1995 1995
<CAPTION>
<S> <C> <C> <C>
ASSETS
Cash and due from banks $16,966 $11,544 $14,600
Investments
Federal funds sold 10,400 6,950 4,150
Money market instruments, held to
maturity (market value of
$15,863 at March 31, 1996 and
$15,701 at December 31, 1995) 15,866 0 15,691
Mortgage-backed securities,
available for sale (amortized
cost of $88,907 and $79,195
at March 31, 1996 and 1995 and
$93,456 at December 31, 1995) 88,387 77,346 93,921
Investment securities
Held to maturity (market value
of $86,345 and $92,191 at March
31, 1996 and 1995 and $95,287 at
December 31, 1995) 86,358 92,149 95,281
Available for sale (amortized cost
of $20,058 and $15,788 at March
31, 1996 and 1995 and $14,934 at
December 31, 1995) 20,354 15,697 15,282
Federal Home Loan Bank stock,
at cost 3,715 2,992 3,715
225,080 195,134 228,040
Loans
Mortgage 330,115 263,839 304,226
Other 118,537 91,903 111,015
Total loans 448,652 355,742 415,241
Less: allowance for loan losses (15,579) (9,218) (13,168)
Net loans 433,073 346,524 402,073
Loans and foreclosed properties
held for sale 5,610 2,902 5,192
Premises and equipment, at cost
less accumulated depreciation 6,493 4,860 5,910
Accrued income receivable 3,894 2,887 3,512
Foreclosed properties (net of
allowance of $0 and $430 at
March 31, 1996 and 1995 and
$0 at December 31, 1995) 715 1,056 264
Deferred tax asset, net 5,251 4,284 4,718
Other assets 14,546 9,591 11,023
Total assets 711,628 578,782 $675,332
LIABILITIES
Total deposits $610,754 $486,468 $567,783
Mortgagors' escrow accounts 1,811 1,607 3,221
Borrowed funds 18,357 19,400 22,400
Other liabilities 5,453 4,181 5,908
Total liabilities 636,375 511,656 599,312
STOCKHOLDERS' EQUITY
Common stock 60 58 59
Additional paid in capital 58,805 57,073 58,030
Retained income 20,467 17,956 20,468
Less: Treasury stock, at cost
(349,729 and 688,300 shares at
March 31, 1996 and 1995 and
288,729 shares at December 31,
1995) (3,948) (6,680) (3,074)
Unrealized gain (losses) on
securities available for sale,
net of tax effect (131) (1,281) 537
Total stockholders' equity 75,253 67,126 76,020
Total liabilities and
stockholders' equity $711,628 $578,782 $675,332
BOOK VALUE PER SHARE $13.43 $13.03 $13.58
</TABLE>
<PAGE>
<TABLE>
Norwich Financial Corp. and Subsidiary
Consolidated Statements of Income
(Unaudited)
Three Months Ended
March 31,
(In thousands, except share data) 1996 1995
<CAPTION>
<S> <C> <C>
INTEREST INCOME
Mortgage loans $7,023 $5,475
Other loans 2,679 2,107
Interest and dividends on investments
Federal funds sold 94 123
Money market instruments 283 0
U.S. Government and agency obligations 1,394 1,470
Mortgage-backed securities 1,417 1,187
Other investment securities, including
dividends 78 72
Total interest income 12,968 10,434
INTEREST EXPENSE
Deposits 6,303 4,483
Borrowed funds 256 211
Total interest expense 6,559 4,694
Net interest income 6,409 5,740
Loan loss provision 200 700
NET INTEREST INCOME AFTER
LOAN LOSS PROVISION 6,209 5,040
NONINTEREST INCOME
Mortgage servicing fees 168 162
Other service fee income 664 446
Net securities gains 3 0
Gains (losses) on loans sold or held for sale (2) (3)
Other 31 128
Total noninterest income 864 733
NONINTEREST EXPENSE
Salaries and employee benefits 2,368 1,652
Furniture and equipment 297 225
Net occupancy 626 369
Data processing 174 177
Advertising and promotion 158 82
FDIC/State assessments 5 280
Legal 19 71
Amortization of intangibles 162 0
Provision for losses on foreclosed properties 0 0
Other nonperforming asset expenses (8) 202
Other operating expenses 773 557
Total noninterest expense 4,574 3,615
INCOME BEFORE INCOME TAXES 2,499 2,158
INCOME TAX PROVISION 1,091 764
NET INCOME $1,408 $1,394
NET INCOME PER SHARE $0.25 $0.27
</TABLE>
<PAGE>
<TABLE>
NORWICH FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flow
(Unaudited)
Three Months Ended
(In thousands) March 31,
1996 1995
<CAPTION>
<S> <C> <C>
Operating Activities
Net income $1,408 $1,394
Adjustments to reconcile net income
to net cash provided by operating
activities:
Loan loss provision 200 700
Depreciation, amortization and
accretion (824) (934)
Amortization of intangible 162 0
Deferred income tax benefit 0 740
Net gain on sales of securities (3) 0
Loss on loans sold 2 3
Loans originated for sale (8,658) (1,025)
Proceeds from loans sold 7,580 966
Gain on nonperforming loans and foreclosed
properties held for sale (161) 0
Gain on foreclosed properties (14) 0
Change in assets and liabilities net of
effect from purchase of Seconn Holding
Company
Change in accrued income receivable (135) (42)
Change in other liabilities (1,427) 700
Change in other assets (269) (1,222)
Net Cash (used) provided by operating
activities (2,139) 1,280
Investing Activities
Payment for purchase of Seconn Holding Company
net of cash acquired 10,387 0
Mortgage-backed securities
Available for sale
Proceeds
Sales 0 0
Maturities and repayments 4,520 1,443
Purchases 0 0
Other investment securities
Available for sale
Proceeds
Sales 0 0
Maturities and repayments 1,500 22
Purchases (5,613) 0
Held to maturity
Proceeds
Sales 0 0
Maturities and repayments 52,120 78,866
Purchases (42,286) (55,276)
Net advances on loans (2,281) (7,584)
Proceeds from sales of foreclosed properties 330 500
Proceeds from sales of loans and foreclosed
properties held for sale 665 0
Capital expenditures, net (314) (75)
Net cash provided by investing
activities 19,028 17,896
Financing Activities
Net decrease in savings, demand
and other deposit accounts (3,827) (12,535)
Net increase in certificates of deposits 2,529 13,631
Net decrease (increase) in mortgagors'
escrow accounts (1,425) (1,271)
Proceeds from borrowed funds 3,644 11,987
Repayment of borrowed funds (7,687) (28,987)
Proceeds from exercise of stock options 778 0
Purchase of treasury stock (874) (54)
Cash dividends paid (1,411) (1,185)
Net cash used by financing activities (8,273) (18,414)
Net increase (decrease) in cash and
cash equivalents 8,616 762
Cash and cash equivalents at beginning
of period 18,750 17,732
Cash and cash equivalents at end of period $27,366 $18,494
Supplemental information on Cash Payments
Interest $6,576 $4,728
Income Taxes 1,218 16
Supplemental Information on Noncash Transactions
Transfer to foreclosed properties 68 529
Loans to facilitate the sale of foreclosed
properties 401 442
</TABLE>
As of January 2, 1996, the Company purchased all the stock of Seconn Holding
Company for approximately $4.7 million. In conjunction with the acquisition,
liabilities were assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired $49,910
Cash paid (4,654)
Liabilities assumed $45,256
</TABLE>
<PAGE>
NORWICH FINANCIAL CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
I. Basis of Presentation
The consolidated financial statements included herein have been prepared by
Norwich Financial Corp., (NFC) without audit except for the December 31, 1995
balance sheet, which was derived from the Annual Report on Form 10-K, pursuant
to the rules and regulations of the Securities and Exchange Commission.
Certain information and disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although NFC
believes the disclosures are adequate to make the information presented not
misleading. The information furnished reflects all adjustments which are, in
the opinion of management, of a normal, recurring nature and necessary for a
fair statement of the results for the interim periods. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and related notes included in NFC's Annual Report on
Form 10-K for the year ended December 31, 1995 and with the Supplementary
Schedules presented as Exhibits A and B on pages 13 and 14. NFC's
consolidated financial statements contained herein have been prepared in
accordance with the accounting policies described in Note 2 to the December
31, 1995 financial statements included in NFC's 1995 Annual Report on Form 10-K.
II. Earnings Per Share
Earnings per share have been computed based on the weighted average number of
shares outstanding, including common stock equivalents, which were 5,753,581
and 5,222,639 for the quarters ended March 31, 1996 and 1995, respectively.
III. Capital Ratios
<TABLE>
March 31, 1996
Actual Regulatory Requirements to
be Considered Well Capitalized
<CAPTION>
<S> <C> <C>
Risk-based
Tier 1 14.73% 6.00%
Total 16.01 10.00
Leverage 9.82 5.00
</TABLE>
<PAGE>
IV. Realized and Unrealized Gains and Losses on Investment Securities (in
thousands)
There were no securities sales during the first quarters of 1996 or 1995.
Unrealized gains and losses as of March 31, 1996 and March 31, 1995,
respectively, were as follows:
Unrealized at March 31, 1996
<TABLE>
Held to
Available for Sale Maturity
Mortgage-Backed All Other All Other
Securities Securities Securities
<CAPTION>
<S> <C> <C> <C>
Unrealized gains $ 626 $ 306 $ 23
Unrealized losses 1,146 10 36
Net unrealized gains
(losses) $ (520) $ 296 $(13)
</TABLE>
Unrealized at March 31, 1995
<TABLE>
Held to
Available for Sale Maturity
Mortgage-Backed All Other All Other
Securities Securities Securities
<CAPTION>
<S> <C> <C> <C>
Unrealized gains $ 654 $139 $ 7
Unrealized losses 2,503 230 49
Net unrealized gains
(losses) $(1,849) $(91) $(42)
</TABLE>
The Company received a capital gain distribution of $3,000 on its investment
of mutual funds during the first quarter of 1996.
<PAGE>
V. Adoption of New Financial Accounting Standards
In March 1995, SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" was issued. SFAS No. 121
requires that long-lived assets and certain identifiable intangibles to be
held and used by the Company be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company adopted SFAS No. 121 effective January 1, 1996.
The adoption of this Statement did not have a material impact on the Company's
financial statements.
In May 1995, SFAS No. 122, "Accounting for Mortgage Servicing Rights" was
issued. SFAS No. 122 requires an enterprise which acquires mortgage servicing
rights through either the purchase or origination of mortgage loans and sells
or securitizes those loans with servicing retained, to allocate the total cost
of the mortgage loans to the mortgage servicing rights and the loans based on
their relative fair values if it is practical to estimate those fair values.
These mortgage servicing rights are to be amortized in proportion to and over
the period of estimated net servicing income and should be evaluated for
impairment based on their fair values. The Company adopted SFAS No. 121
effective January 1, 1996. During the first quarter of 1996, the Company
recorded mortgage servicing rights of $68,000.
In October 1995, SFAS No. 123 "Accounting for Stock-Based Compensation" was
issued and is required to be adopted in 1996. This Statement establishes
financial accounting and reporting standards for stock-based employee
compensation plans. This includes all arrangements by which employees receive
shares of stock or other equity instruments of the employer or the employer
incurs liabilities to employees in amounts based on the price of the
employer's stock. This Statement defines a fair value based method of
accounting for an employee stock option or similar equity instrument and
encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the intrinsic
value based method of accounting prescribed by Accounting Principles Board
Opinion 25, "Accounting for Stock Issued to Employees." Entities electing to
remain with the accounting in Opinion 25 must make proforma disclosures of net
income and earnings per share as if the fair value method of accounting
defined in this Statement had been applied. The Company adopted SFAS No. 123
effective January 1, 1996, and continues to follow the method of accounting
prescribed by Opinion 25. The required proforma disclosure will be made in the
notes to the 1996 Annual Report.
VI. Mergers and Acquisitions
On January 2, 1996, the Company completed the acquisition of Seconn Holding
Company, (Seconn), the holding company for The Bank of Southeastern
Connecticut. In accordance with the definitive acquisition agreement,
shareholders of Seconn received $6 in cash for each share of outstanding stock
of Seconn. The total price paid to selling shareholders was approximately
$4.7 million. As of December 31, 1995, Seconn had total assets of $47.0
million, including $28.9 million in net loans. Deposits as of December 31,
1995, were $44.4 million. The acquisition was accounted for as a purchase in
1996.
<PAGE>
NORWICH FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Comparison of the Three Month Periods Ending March 31, 1996 and 1995
The following discussion and analysis presents a review of Norwich Financial
Corp.'s (NFC or the Company) financial condition and results of operations.
This review should be read in conjunction with the consolidated financial
statements and other data presented herein.
SUMMARY: For the first quarter of 1996, NFC had net income of $1.4 million
or $.25 per share compared to net income of $1.4 million or $.27 per share for
the first quarter of 1995. Core earnings for the quarter ended March 31, 1996
were $2.7 million which is consistent with $2.7 million for the quarter ended
March 31, 1995. Core earnings were affected positively by increased net
interest income which was $669,000 (11.7%) higher in the first quarter of 1996
than in the first quarter of 1995 and an increase in service fee income of
$224,000 (36.8%), offset by an increase in noninterest expenses of $1.0
million (20.1%) during the first quarter of 1996 compared to the first quarter
of 1995. NFC defines core earnings as net interest income plus service fee
income, less noninterest expenses other than provisions for losses on
foreclosed properties.
Total nonperforming assets at March 31, 1996 excluding "loans and foreclosed
properties held for sale," were $10.2 million compared to $10.1 million at the
same date a year earlier. As of March 31, 1996, total nonperforming assets,
including loans and foreclosed properties held for sale were $13.7 million
compared to $12.8 million at March 31, 1995.
At March 31, 1996, NFC's equity represented 10.57% of total assets compared to
11.60% at March 31, 1995. The leverage capital ratio was 9.82% and total risk
based capital was 16.01% compared to 11.79% and 19.76%, respectively, at March
31, 1995. Capital ratios remain well above minimum regulatory requirements of
4% to 5% for leverage capital and 8% for total risk-based capital. Book value
per share was $13.43 at March 31, 1996 compared to $13.03 at March 31, 1995.
The first quarter 1996 results include the impact of the acquisitions of The
Bank of Mystic, Inc., on April 1, 1995 and The Bank of Southeastern
Connecticut (Seconn) on January 2, 1996; both acquisitions were recorded using
the purchase method of accounting.
The increase in other assets from December 31, 1995 is primarily due to the
excess cost over net assets acquired from the acquisition of The Bank of
Southeastern Connecticut.
NET INTEREST INCOME: For the first quarter of 1996, net interest income was
$669,000 higher than for the same period in 1995. While rates on interest
earning assets remained consistent period over period, interest income
increased $2.5 million as average interest bearing assets displayed a
significant increase with the acquisition of The Bank of Mystic, Inc., and
Seconn. Interest expense for the first quarter of 1996 was $1.9 million
higher than the first quarter 1995 due to an increase in rates as well as an
increase in interest bearing liabilities.
For the first three months of 1996, the yield on the Company's loan portfolio
was 8.70% compared to 8.66% for the same period in 1995. All categories of
loans displayed volume related increases as net loans of $48.0 million from
The Bank of Mystic, Inc., were acquired on April 1, 1995 and $28.9 million
from The Bank of Southeastern Connecticut were acquired on January 2, 1996.
For the first three months of 1996, the yield on the Company's investment
portfolio was 5.87% compared to 5.97% for the same period in 1995. At March
31, 1996 and 1995, the weighted average life of the portfolio was 2.1 years
and 2.3 years, respectively. The quality of the portfolio was unchanged with
99% of the book value being rated Aaa. Securities income was higher in the
first quarter of 1996 compared to the first quarter of 1995 due to higher
volumes which was partially offset by declines related to lower rates.
Although open market interest rates during the first quarter of 1996 were
lower than one year ago, the cost of funds on deposits increased during the
current quarter due to higher deposit rates in previous quarters which remain
in the portfolio and a shift in the Company's deposit composition from regular
savings accounts to higher yielding certificates of deposits.
RATE SENSITIVITY: An ongoing objective of management is to manage asset and
liability positions so as to moderate the effect of interest rate fluctuations
on net interest income. NFC's position is measured by the ratio of interest
rate sensitive assets to interest rate sensitive liabilities within a one year
time frame. Management attempts to maintain this ratio within a range of 90%
to 110%. Management continually reviews the potential effect that changes in
interest rates could have on net interest income and on the repayment of rate
sensitive assets and funding requirements of rate sensitive liabilities. As
of March 31, 1996, NFC's one year ratio of rate sensitive assets to rate
sensitive liabilities was 89.0% compared to 87.6% at March 31, 1995.
The Investment Committee of NFC's Board of Directors reviews asset/liability
guidelines from time to time, including the target range for the rate
sensitivity ratio at one year. The 90% to 110% guideline is still in effect
and the Investment Committee approves ratios outside the target range.
NONPERFORMING ASSETS (NPAs) AND ALLOWANCES AND PROVISIONS FOR CREDIT LOSSES:
At the end of the first quarter of 1996, NPAs, excluding "loans and foreclosed
properties held for sale," were $10.2 million, which was $147,000 (1.5%)
higher than at the end of the first quarter of 1995 and were $844,000 (9.0%)
higher than at the end of 1995. Net chargeoffs for both loans and foreclosed
properties the first quarter of 1996 were $295,000 compared to $287,000 for
the first quarter of 1995.
Nonaccrual and restructured loans totaled $9.5 million or 93.0% of
nonperforming assets, excluding "loans and foreclosed properties held for
sale", at March 31, 1996 compared to $8.6 million or 85.2% at March 31, 1995.
Foreclosed properties, excluding foreclosed properties held for sale and
before the allowance for losses, were $715,000 at March 31, 1996 compared to
$1.5 million at March 31, 1995 and represented 7.0% and 14.8%, respectively,
of total nonperforming assets.
The allowance for loan losses was $15.6 million at March 31, 1996 compared to
$13.2 million at December 31, 1995 and $9.2 million one year ago. The
provision for losses on loans was $200,000 for the first quarter of 1996
compared to $700,000 for the first quarter 1995. The allowance for loan
losses also increased when Seconn's allowance of $2.5 million was added on
January 2, 1996. NFC's ratio of allowance for loan losses to nonperforming
loans, excluding nonperforming assets held for sale, was 163.89% as of March
31, 1996 compared to 144.50% at December 31, 1995 and 107.34% at March 31,
1995. Provisions and allowances for losses are dependent on several factors,
including the quality and estimated value of underlying collateral held on
nonperforming assets, the results of NFC's systematic methodology to evaluate
allowance adequacy, and chargeoffs of existing nonperforming assets.
Certain nonperforming loans and foreclosed properties held for sale at
December 31, 1995 were sold during the first quarter of 1996. Proceeds from
the sales exceeded the carrying value by approximately $161,000 and resulted
in a decrease in nonperforming loans and foreclosed properties held for sale
from $4.1 million at December 31, 1995 to $3.5 million at March 31, 1996.
The bulk of NFC's problem assets and chargeoffs have been concentrated in the
commercial real estate and business loan portfolios. As of March 31, 1996,
these two portfolios accounted for $7.4 million (72.8%) of NPAs compared with
$7.7 million (76.0%) at March 31, 1995. Net chargeoffs of commercial real
estate, business loans and related foreclosed properties represented $226,000
or 76.6% of NFC's total net chargeoffs for the first three months of 1996
compared to $166,000 or 57.8% for the first three months of 1995.
NONINTEREST INCOME: Noninterest income for the current quarter amounted to
$864,000 compared to $733,000 for the year-earlier quarter, bolstered by
increases in service fee income. Deposit account service charges, automated
teller machine fees and insurance commissions contributed to the year-over-
year increase in service fee income. These increases primarily resulted from
higher account activity during the first quarter of 1996 as the Company's
banking franchise expanded.
NONINTEREST EXPENSE: Total noninterest expense was $4.6 million for the first
quarter of 1996 compared to $3.6 million for the first quarter of 1995,
presenting an increase of $1.0 million. The increase in total noninterest
expense was principally the result of higher general operating expenses
associated with a significant expansion of the Company's eastern Connecticut
banking franchise during the past twelve months, partially offset by
reductions in the Company's federal deposit insurance (FDIC) assessment and
other nonperforming asset expenses.
INCOME TAXES: The effective tax rate for the first three months of 1996
increased to approximately 43% from 35% for the same period in 1995. The
increase in the effective tax rate is primarily due to the recognition of the
remaining deferred tax asset during the fourth quarter of 1995.
LIQUIDITY: Liquidity is needed to meet normal depositor demands and to
acquire assets. NFC's bank subsidiary, The Norwich Savings Society, considers
liquid assets to be cash and due from banks, Federal funds sold, time deposits
with other banks, money market instruments and U.S. Government and agency
obligations maturing within one year. As of March 31, 1996, liquid assets were
$141.6 million or 19.9% of total assets compared to $110.6 million and 19.1%
as of March 31, 1995.
Liquidity is generated by maturities of assets, borrowings from the Federal
Home Loan Bank, deposit inflows and loan principal and interest payments. Due
primarily to the acquisitions of The Bank of Mystic, Inc., and Seconn, total
deposits, including mortgage escrow, showed growth of $124.5 million (25.5%)
during the year ended March 31, 1996.
Norwich Financial Corp.'s main source of liquidity are dividends from The
Norwich Savings Society, while the main outflows are the payment of dividends
to common stockholders and repurchase of shares. There are certain
restrictions on payment of dividends by The Norwich Savings Society to Norwich
Financial Corp.
CAPITAL RESOURCES: Capital ratios for NFC and its subsidiary bank, The
Norwich Savings Society, continue to be well in excess of all regulatory
requirements as of March 31, 1996. The equity to assets ratio decreased
slightly over March 31, 1995's ratios due to dividend payments and treasury
stock purchases which exceeded net income and option exercises during the
period. Risk based capital ratios and the leverage capital ratio declined
over prior period levels as The Bank of Southeastern Connecticut was added on
January 2, 1996 but were nonetheless, well in excess of requirements.
INFLATION: The effect of inflation is reflected in the cost of NFC's
operations. Since the assets and liabilities of NFC are primarily monetary in
nature, the extent to which inflation affects interest rates will, in turn,
affect NFC's operation.
<PAGE>
<TABLE>
Exhibit A
NORWICH FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED FINANCIAL RESULTS
THREE MONTHS ENDED
MARCH 31,
(In thousands, except share data) 1996 1995
<CAPTION>
<S> <C> <C>
EARNINGS
Interest income $12,968 $10,434
Interest expense 6,559 4,694
Net interest income 6,409 5,740
Net income 1,408 1,394
Earnings per share 0.25 0.27
Weighted average common shares
outstanding, including common stock
equivalents 5,753,581 5,222,639
RATIOS (annualized)
Return on average assets 0.81% 0.99%
Return on average stockholders' equity 7.47 8.53
Average stockholders' equity to average
assets 10.81 11.65
YIELD DATA
(taxable equivalent annualized)
Net interest margin 3.83 4.22
Net interest spread 3.07 3.53
Asset yields
Loans 8.70 8.66
Investments 5.87 5.97
Earning assets 7.76 7.71
Cost of funds
Deposits 4.64 4.14
Borrowings 6.16 5.26
Interest bearing liabilities 4.69 4.18
</TABLE>
<TABLE>
March 31, December 31,
1996 1995 1995
<CAPTION>
<S> <C> <C> <C>
OUTSTANDING BALANCES
Total assets $711,628 $578,782 $675,332
Net loans 433,073 346,524 402,073
Deposits 610,754 486,468 567,783
Borrowed funds 18,357 19,400 22,400
Stockholders' equity 75,253 67,126 76,020
Stockholders' equity to
total assets 10.57% 11.60% 11.26%
Leverage capital ratio 9.82 11.79 10.84
Risk based capital ratio
Tier 1 14.73 18.85 16.55
Total 16.01 19.76 17.82
Book value per share $13.43 $13.03 $13.58
Shares of common stock 5,604,152 5,150,801 5,597,549
</TABLE>
<PAGE>
<TABLE>
Exhibit B
NORWICH FINANCIAL CORP. AND SUBSIDIARY
NONPERFORMING ASSETS SUMMARY
March 31, December 31,
(Dollars in thousands) 1996 1995 1995
<CAPTION>
<S> <C> <C> <C>
Nonaccrual Loans
Residential real estate $ 1,943 1,621 1,286
Commercial real estate
Permanent 3,556 4,272 4,425
Land and construction 224 187 73
Commercial 2,367 1,476 1,809
Consumer 470 436 424
8,560 7,992 8,017
Restructured Loans
Residential and consumer 288 0 591
Commercial real estate 658 523 505
Commercial 0 73 0
946 596 1,096
Total nonperforming loans 9,506 8,588 9,113
Foreclosed properties 715 1,486 264
Total nonperforming assets before
nonperforming assets held for sale 10,221 10,074 9,377
Nonperforming assets held for sale
Loans 1,605 748 2,208
Foreclosed properties 1,864 2,017 1,919
Total nonperforming assets held
for sale 3,469 2,765 4,127
Total nonperforming assets $13,690 $ 12,839 $ 13,504
</TABLE>
Summary of Impaired Loans
All loans classified as nonaccrual as of March 31, 1996 in the above table,
and all loans restructured since January 1, 1995 are classified as impaired as
a result of the adoption of Financial Accounting Standards Nos. 114 and 118,
"Accounting by Creditors for Impairment of a Loan" and "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures."
There were no impaired loans on accrual status as of March 31, 1996. Impaired
loans were $10.6 million as of March 31, 1996 with an associated allowance for
losses of $2.4 million.
<TABLE>
March 31, December 31,
(Dollars in thousands) 1996 1995 1995
<CAPTION>
<S> <C> <C> <C>
Net chargeoffs (recoveries)
year to date $ 295 $ 287 $3,539
Net chargeoffs to average
loans and foreclosed properties
For the period 0.07% 0.08% 0.89%
Annualized 0.26% 0.33% (a)
Allowances for losses
On loans $15,579 $9,218 $13,168
On foreclosed properties 0 430 0
Combined $15,579 $9,648 $13,168
Ratios (exclusive of nonperforming
assets held for sale)
Allowance for loan losses to:
Nonaccrual loans 182.00% 115.34% 164.25%
Nonperforming loans 163.89 107.34 144.50
Allowance for foreclosed properties
to foreclosed properties 0.00 28.94 0.00
Combined allowances for losses to:
Total nonperforming assets 152.42 95.77 140.43
Total loans and foreclosed
properties 3.45 2.70 3.16
Total nonperforming assets to:
Total loans and foreclosed
properties 2.26 2.82 2.25
Total assets 1.44 1.74 1.39
(a) Not applicable
</TABLE>
<PAGE>
NORWICH FINANCIAL CORP. AND SUBSIDIARY
QUARTER AND THREE MONTHS ENDED MARCH 31, 1996
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which the Company or
its subsidiary is a party, or of which any of their property is the
subject, other than ordinary routine litigation in the normal course of
business.
Item 2. Changes in Securities
During the first quarter of 1996, there were no changes which would
materially modify the rights of the holders of the Company's registered
securities.
Item 3. Defaults upon Senior Securities
The Company and its subsidiary are not in default with respect to the
payment of principal or interest related to any outstanding borrowing.
Item 4. Submission of Matters to a Vote of Securities Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) The following Exhibits are filed herewith:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
No report on Form 8-K was filed during the period covered by this
report.
<PAGE>
NORWICH FINANCIAL CORP. AND SUBSIDIARY
FOR THE QUARTER AND THREE MONTHS ENDED MARCH 31, 1996
10-Q 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.
Date: By:
Daniel R. Dennis, Jr.
Chairman, President, Chief Executive
Officer and Director
Date: By:
Michael J. Hartl
Executive Vice President, Treasurer,
Chief Financial Officer and Director
Date: By:
Lori J. Ferro
Vice President and Controller
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from SEC Form 10Q
and is qualified in its entirety by its reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 16,966
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 10,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 108,741
<INVESTMENTS-CARRYING> 105,939
<INVESTMENTS-MARKET> 105,923
<LOANS> 448,652
<ALLOWANCE> 15,579
<TOTAL-ASSETS> 711,628
<DEPOSITS> 610,754
<SHORT-TERM> 1,971
<LIABILITIES-OTHER> 5,453
<LONG-TERM> 16,386
0
0
<COMMON> 60
<OTHER-SE> 75,193
<TOTAL-LIABILITIES-AND-EQUITY> 711,628
<INTEREST-LOAN> 9,702
<INTEREST-INVEST> 3,266
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 12,968
<INTEREST-DEPOSIT> 6,303
<INTEREST-EXPENSE> 6,559
<INTEREST-INCOME-NET> 6,409
<LOAN-LOSSES> 200
<SECURITIES-GAINS> 3
<EXPENSE-OTHER> 4,574
<INCOME-PRETAX> 2,499
<INCOME-PRE-EXTRAORDINARY> 1,408
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,408
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
<YIELD-ACTUAL> 3.83
<LOANS-NON> 10,165
<LOANS-PAST> 0
<LOANS-TROUBLED> 946
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 13,168
<CHARGE-OFFS> 716
<RECOVERIES> 421
<ALLOWANCE-CLOSE> 15,579
<ALLOWANCE-DOMESTIC> 15,579
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
