UNITED STATES SECURITIES AND EXCHANGE COMMISSION
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 the quarter and six months ended June 30, 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)
4 Broadway
Norwich, Connecticut
(Address of principal executive offices)
06360
(Zip Code)
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 5,374,691 shares of common stock, par value $.01, outstanding
as of July 31, 1996.
<PAGE>
NORWICH FINANCIAL CORP.
FORM 10-Q
QUARTER AND SIX MONTHS ENDED JUNE 30, 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. . . . . 14
Exhibit B - Consolidated Nonperforming Assets Summary. 15
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings. . . . . . . . . . . . . 16
Item 2 - Changes in Securities. . . . . . . . . . . 16
Item 3 - Defaults Upon Senior Securities. . . . . . 16
Item 4 - Submission of Matters to a Vote of Securities Holders . 16
Item 5 - Other Information. . . . . . . . . . . . . 16
Item 6 - Exhibits and Reports on Form 8-K . . . . . 16
Signatures. . . . . . . . . . . . . . . . . . . . . . . . 17
<PAGE>
<TABLE>
NORWICH FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(In thousands, except share data) 1996 1995 1995
<CAPTION>
<S> <C> <C> <C>
ASSETS
Cash and due from banks $22,573 $14,330 $14,600
Investments
Federal funds sold 5,785 7,260 4,150
Money market instruments, held to
maturity (market value of
$18,650 and $9,901 at
June 30, 1996 and 1995 and
$15,701 at December 31, 1995) 18,664 9,902 15,691
Mortgage-backed securities,
available for sale (amortized
cost of $100,388 and $76,991
at June 30, 1996 and 1995 and
$93,456 at December 31, 1995) 99,724 76,868 93,921
Investment securities
Held to maturity (market value
of $77,388 and $84,921 at June
30, 1996 and 1995 and $95,287 at
December 31, 1995) 77,420 84,845 95,281
Available for sale (amortized cost
of $25,903 and $25,261 at June
30, 1996 and 1995 and $14,934 at
December 31, 1995) 26,128 25,490 15,282
Federal Home Loan Bank stock,
at cost 3,715 3,715 3,715
231,436 208,080 228,040
Loans
Mortgage 338,611 297,482 304,226
Other 120,473 106,719 111,015
Total loans 459,084 404,201 415,241
Less: allowance for loan losses (15,223) (11,432) (13,168)
Net loans 443,861 392,769 402,073
Loans and foreclosed properties
held for sale 2,728 2,661 5,192
Premises and equipment, at cost
less accumulated depreciation 6,337 5,163 5,910
Accrued income receivable 3,900 3,315 3,512
Foreclosed properties (net of
allowance of $0 and $229 at
June 30, 1996 and 1995 and
$0 at December 31, 1995) 322 1,102 264
Deferred tax asset, net 5,340 4,052 4,718
Other assets 14,696 11,414 11,023
Total assets $731,193 $642,886 $675,332
LIABILITIES
Total deposits $616,801 $551,725 $567,783
Mortgagors' escrow accounts 3,486 3,204 3,221
FHLB advances 16,368 9,400 22,400
Other liabilities 21,269 5,180 5,908
Total liabilities $657,924 $569,509 $599,312
STOCKHOLDERS' EQUITY
Common stock 60 58 59
Additional paid in capital 58,755 57,490 58,030
Retained income 21,434 18,833 20,468
Less: Treasury stock, at cost
(561,690 and 288,729 shares at
June 30, 1996 and 1995 and
288,729 shares at December 31,
1995) (6,721) (3,074) (3,074)
Unrealized gain (loss) on
securities available for sale,
net of tax effect (259) 70 537
Total stockholders' equity 73,269 73,377 76,020
Total liabilities and
stockholders' equity $731,193 $642,886 $675,332
BOOK VALUE PER SHARE $ 13.59 $ 13.21 $ 13.58
</TABLE>
<PAGE>
<TABLE>
NORWICH FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
(In thousands, except share data) 1996 1995 1996 1995
<CAPTION>
<S> <C> <C> <C> <C>
INTEREST INCOME
Mortgage loans $14,260 $11,794 $ 7,237 $ 6,319
Other loans 5,338 4,632 2,659 2,525
Interest and dividends on
investments
Federal funds sold 167 269 73 146
Money market instruments 553 49 270 49
U.S. Government and agency
obligations 2,809 3,141 1,415 1,671
Mortgage-backed securities 2,770 2,373 1,353 1,186
Other bonds 30 30 15 15
Corporate stocks 131 124 68 67
Total interest income 26,058 22,412 13,090 11,978
INTEREST EXPENSE
Deposits 12,481 10,065 6,178 5,582
FHLB advances 534 352 278 141
Total interest expense 13,015 10,417 6,456 5,723
NET INTEREST INCOME 13,043 11,995 6,634 6,255
LOAN LOSS PROVISION 400 1,300 200 600
NET INTEREST INCOME AFTER
LOAN LOSS PROVISION 12,643 10,695 6,434 5,655
NONINTEREST INCOME
Mortgage servicing fees 328 332 160 170
Other service fee income 1,259 940 595 494
Net securities gains 209 0 206 0
Gains (losses) on loans sold or
held for sale (47) 9 (45) 12
Other 62 150 31 22
Total noninterest income 1,811 1,431 947 698
NONINTEREST EXPENSE
Salaries and employee benefits 4,841 3,594 2,473 1,942
Furniture and equipment 610 489 313 264
Net occupancy 1,226 811 600 442
Data processing 342 351 168 174
Advertising and promotion 303 251 145 169
FDIC/State assessments 11 592 6 312
Legal 63 114 44 43
Amortization of intagibles 324 96 162 96
Provision for losses on foreclosed
properties 0 0 0 0
Other nonperforming asset expenses (14) 297 (6) 95
Other operating expenses 1,570 1,294 797 737
Total noninterest expense 9,276 7,889 4,702 4,274
INCOME BEFORE INCOME TAXES 5,178 4,237 2,679 2,079
INCOME TAX PROVISION 2,256 1,511 1,165 747
NET INCOME $ 2,922 $ 2,726 $ 1,514 $ 1,332
NET INCOME PER SHARE $ 0.52 $ 0.50 $ 0.27 $ 0.23
</TABLE>
<PAGE>
<TABLE>
NORWICH FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Six Months Ended
(Dollars in thousands) June 30,
1996 1995
<CAPTION>
<S> <C> <C>
Operating Activities
Net income $ 2,922 $ 2,726
Adjustments to reconcile net income
to net cash provided by operating
activities:
Loan loss provision 400 1,300
Depreciation, amortization and
accretion (1,647) (1,963)
Amortization of intangible 324 96
Net gain on sales of securities (209) 0
Loss (gain) on loans sold 47 (9)
Loans originated for sale (12,669) (4,253)
Proceeds from loans sold 13,372 2,404
Gain on nonperforming loans and foreclosed
properties held for sale (284) 0
Gain on foreclosed properties (51) (65)
Change in assets and liabilities net of
effect from purchase of Seconn Holding
Company and The Bank of Mystic, Inc.
Change in accrued income receivable (141) (148)
Change in other liabilities (1,571) 1,120
Change in other assets (581) 1,494
Net cash (used) provided by operating
activities (88) 2,702
Investing Activities
Cash acquired net of cash paid for the purchase
of Seconn Holding Company 10,387 0
Cash acquired net of cash paid for the purchase
of The Bank of Mystic, Inc. 0 8,951
Mortgage-backed securities
Available for sale
Proceeds
Sales 0 0
Maturities and repayments 8,972 4,259
Purchases 0 0
Other investment securities
Available for sale
Proceeds
Sales 338 0
Maturities and repayments 8,500 0
Purchases (18,578) (4,992)
Held to maturity
Proceeds
Sales 0 0
Maturities and repayments 117,120 109,000
Purchases (100,065) (76,684)
Net advances on loans (13,139) (6,587)
Proceeds from sales of foreclosed properties 775 982
Proceeds from sales of loans and foreclosed
properties held for sale 1,699 1,108
Capital expenditures, net (403) (184)
Net cash provided by investing
activities 15,606 35,853
Financing Activities
Net increase (decrease) in savings, demand
and other deposit accounts 9,823 (12,748)
Net (decrease) increase in certificates of
deposits (5,074) 19,042
Net increase in mortgagors' escrow
accounts 250 326
Proceeds from FHLB advances 10,703 14,649
Repayment of FHLB advances (16,735) (42,649)
Proceeds from exercise of stock options 920 47
Purchase of treasury stock (3,839) (1,821)
Cash dividends paid (1,958) (1,641)
Net cash used by financing activities (5,910) (24,795)
Net increase in cash and cash
equivalents 9,608 13,760
Cash and cash equivalents at beginning
of period 18,750 17,732
Cash and cash equivalents at end of period $28,358 $31,492
Supplemental information on cash payments
Interest $12,991 $10,393
Income taxes 1,435 18
Supplemental information on noncash transactions
Transfer to foreclosed properties 83 827
Loans to facilitate the sale of foreclosed
properties 994 1,043
Treasury stock issued for the purchase of
The Bank of Mystic, Inc. 0 5,373
</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 CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1996
I. Basis of Presentation
The consolidated financial statements included herein have been prepared by
Norwich Financial Corp., (NFC), without an 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 14 and 15. 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 5,597,150
and 5,741,141 for the quarters ended June 30, 1996 and 1995, respectively. For
the six months ended June 30, 1996 and 1995, weighted average number of shares
outstanding, including common stock equivalents, were 5,672,419 and 5,479,339,
respectively.
III. Capital Ratios
<TABLE>
June 30, 1996
Actual Regulatory Requirements to
be Considered Well Capitalized
<CAPTION>
<S> <C> <C>
Risk-based
Tier 1 13.75% 6.00%
Total 15.02 10.00
Leverage 9.19 5.00
</TABLE>
<PAGE>
IV. Realized and Unrealized Gains and Losses on Investment Securities (in
thousands)
Unrealized gains and losses as of June 30, 1996 and June 30, 1995, were as
follows:
Unrealized at June 30, 1996
<TABLE>
Held to
Available for Sale Maturity
Mortgage-Backed All Other All Other
Securities Securities Securities
<CAPTION>
<S> <C> <C> <C>
Unrealized gains $ 564 $262 $ 3
Unrealized losses 1,228 37 49
Net unrealized gains
(losses) $ (664) $225 $(46)
</TABLE>
Unrealized at June 30, 1995
<TABLE>
Held to
Available for Sale Maturity
Mortgage-Backed All Other All Other
Securities Securities Securities
<CAPTION>
<S> <C> <C> <C>
Unrealized gains $ 823 $247 $79
Unrealized losses 946 18 3
Net unrealized gains
(losses) $(123) $229 $76
</TABLE>
Proceeds from the sale of securities for the second quarter of 1996 and for
the six months ended June 30, 1996 were $338,000. Realized gains were $206,000
for the second quarter of 1996 and $209,000 for the six months ended June 30,
1996 which included a capital gain distribution of $3,000 on mutual fund
investments during the first quarter of 1996.
There were no securities sold during the first six months of 1995.
At June 30, 1996, securities purchased but not yet settled were $16.0 million.
There were no securities in transit at June 30, 1995.
<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 second quarter and six months ended
June 30, 1996, the Company recorded mortgage servicing rights of $54,000 and
$122,000 respectively.
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 and Six Month Periods Ending June 30, 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 second quarter of 1996, NFC had net income of $1.5 million
or $.27 per share compared to net income of $1.3 million or $.23 per share for
the second quarter of 1995. For the six months ended June 30, 1996, net income
was $2.9 million ($.52 per share) compared to $2.7 million ($.50 per share) for
the first six months of 1995. Core earnings for the quarter ended June 30,
1996 were $2.7 million which is slightly higher than $2.6 million for the
quarter ended June 30, 1995. Core earnings were affected positively by
increased net interest income which was $379,000 (6.1%) higher in the second
quarter of 1996 than in the second quarter of 1995 and an increase in service
fee income of $91,000 (13.7%), offset by an increase in noninterest expenses of
$428,000 (10.0%) during the second quarter of 1996 compared to the second
quarter of 1995. For the six month period ended June 30, 1996 core earnings
were $5.4 million which is consistent with the same period in 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 June 30, 1996 excluding "loans and foreclosed
properties held for sale," were $10.1 million compared to $11.1 million at the
same date a year earlier. As of June 30, 1996, total nonperforming assets,
including "loans and foreclosed properties held for sale," were $12.5 million
compared to $13.3 million at June 30, 1995.
At June 30, 1996, NFC's equity represented 10.02% of total assets compared to
11.41% at June 30, 1995. The leverage capital ratio was 9.19% and total risk
based capital was 15.02% compared to 10.87% and 18.23%, respectively, at June
30, 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 $13.59 at June 30, 1996 compared to $13.21 at June 30, 1995.
The results of the six months ended June 30, 1996 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.
NET INTEREST INCOME: For the second quarter of 1996, net interest income was
$379,000 higher than for the same period in 1995. While rates on interest
earning assets declined slightly period over period, interest income increased
$1.1 million as average interest bearing assets displayed a significant
increase with the acquisition of Seconn. Interest expense for the second
quarter of 1996 was $733,000 higher than the second quarter 1995 due primarily
to an increase in interest bearing liabilities.
For the six months ended June 30, 1996, net interest income was $1.0 million
higher than for the same period in 1995. For the first six months of 1996, the
yield on the Company's loan portfolio was 8.70% compared to 8.71% for the first
six months of 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.
<PAGE>
For the first six months of 1996, the yield on the Company's investment
portfolio was 5.81% compared to 6.07% for the same period in 1995. At June 30,
1996 and 1995, the weighted average life of the portfolio was 1.85 years and
2.06 years, respectively. At June 30, 1996, 92% of the portfolio was rated Aaa
compared to 99% at June 30, 1995. Securities income was $474,000 higher in the
first six months of 1996 compared to the first six months of 1995 due to higher
volumes which was partially offset by declines related to lower rates.
Although open market interest rates during the second 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%. In addition, 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 June 30, 1996, NFC's one year ratio of rate
sensitive assets to rate sensitive liabilities was 95.8% compared to 90.2% at
June 30, 1995. The year-over-year increase in the ratio of rate sensitive
assets to rate sensitive liabilities within a one year time frame is partially
attributable to a change, implemented during the second quarter of 1996, in the
methodology used to determine the repricing classification of noncontractual
deposits such as demand deposits, interest-bearing checking, and savings and
money market deposits. These noncontractual deposits are now scheduled into
discrete time frames based on (1) management's current estimate of the
sensitivity of the rates and balances of these accounts to changes in market
interest rates, (2) management's current deposit pricing philosophy in response
to changes in the interest rate environment, and (3) management assumptions
regarding seasonal patterns, cyclical factors, and industry trends or
innovations that may influence the pricing or stability of these accounts.
Previously, all interest-bearing checking, savings and money market deposits
were classified as rate-sensitive within one year while all noninterest bearing
demand deposits were classified as long term, non rate-sensitive liabilities.
This change in methodology resulted in a net reduction in rate sensitive
liabilities within a one year time frame of approximately $50 million at June
30, 1996. It is believed that the new methodology appropriately reflects the
Company's rate sensitivity position. Had the previous methodology been applied
at June 30, 1996, the ratio would have been 84.0%.
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 second quarter of 1996, NPAs, excluding "loans and foreclosed
properties held for sale," were $10.1 million, which was $954,000 (8.6%)
lower than at the end of the second quarter of 1995 and was $749,000 (8.0%)
higher than at the end of 1995. Net chargeoffs for the second quarter and
first six months of 1996 were $556,000 and $851,000 respectively, compared to
$461,000 and $748,000 for the second quarter and first six months of 1995.
<PAGE>
Nonaccrual and restructured loans totaled $9.8 million or 96.8% of nonper-
forming assets, excluding "loans and foreclosed properties held for sale," at
June 30, 1996 compared to $9.8 million or 88.0% at June 30, 1995. Foreclosed
properties, excluding foreclosed properties held for sale and before the
allowance for losses, were $322,000 at June 30, 1996 compared to $1.3 million
at June 30, 1995 and represented 3.2% and 12.0%, respectively, of total
nonperforming assets.
The allowance for loan losses was $15.2 million at June 30, 1996 compared to
$13.2 million at December 31, 1995 and $11.4 million one year ago. The
provision for losses on loans was $200,000 for the second quarter of 1996, and
$400,000 for the first six months of 1996, compared to $600,000 and $1.3
million for the second quarter and first six months of 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 155.3% as of June
30, 1996 compared to 144.5% at December 31, 1995 and 117.3% at June 30, 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 six months of 1996. Proceeds from the
sales exceeded the carrying value by approximately $284,000 and resulted in a
decrease in nonperforming loans and foreclosed properties held for sale from
$4.1 million at December 31, 1995 to $2.4 million at June 30, 1996.
The bulk of NFC's problem assets and chargeoffs have been concentrated in the
commercial real estate and business loan portfolios. As of June 30, 1996,
these two portfolios accounted for $7.4 million (73.4%) of NPAs compared with
$7.9 million (71.1%) at June 30, 1995. Net chargeoffs of commercial real
estate, business loans and related foreclosed properties represented $457,000
or 53.7% of NFC's total net chargeoffs for the first six months of 1996
compared to $461,000 or 61.6% for the first six months of 1995.
NONINTEREST INCOME: Noninterest income for the current quarter amounted to
$947,000 compared to $698,000 for the year-earlier quarter, bolstered by
increases in service fee income along with a $206,000 net gain from the sale
of securities. 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 second quarter of 1996 as the Company's banking franchise
expanded.
For the first six months of 1996 noninterest income was $380,000 higher than
the first six months of 1995. Securities gains of $209,000 were recorded in
the first six months of 1996 while there were no securities sales in the
comparable period of 1995. Service fees, primarily deposit service fees, were
$315,000 (24.8%) higher in the first six months of 1996 compared to the first
six months of 1995. These increases in noninterest income were offset by lower
other noninterest income as well as losses on loans sold for the first six
months of 1996 compared to gains on loans sold for the first six months of
1995.
<PAGE>
NONINTEREST EXPENSE: Total noninterest expense was $4.7 million for the second
quarter of 1996 compared to $4.3 million for the second quarter of 1995. 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 gains recognized on nonperforming loans and
foreclosed properties held for sale.
The pattern of increases or decreases for the quarters ended June 30, 1996 and
June 30, 1995 was also true for the first six months of 1996 compared to the
first six months of 1995.
INCOME TAXES: The effective tax rate for the first six months of 1996 increased
to approximately 44% from 36% for the same period in 1995. The 1995 effective
tax rate benefited from the recognition of deferred tax assets. Such tax
benefits were fully realized at the end of 1995. Also, nondeductible goodwill
expense has increased in 1996 causing an increase in the effective tax rate.
CHANGES IN FINANCIAL CONDITION: Total assets were $731.2 million at June 30,
1996, an increase of $55.9 million from $675.3 million at December 31, 1995.
The increase in total assets is due primarily to the Seconn transaction, which
resulted in a total increase of $50.0 million.
The increase in other assets from December 31, 1995 is primarily due to the
excess cost over net assets acquired from the acquisition of Seconn.
Total liabilities were $657.9 million at June 30, 1996, an increase of $58.6
million from $599.3 million at December 31, 1995. The increase is due
primarily to the Seconn transaction which added approximately $44.4 million in
deposits on January 2, 1996. The remaining increase is attributable to
securities purchased but not yet settled of $16.0 million at June 30, 1996.
Stockholders' equity was $73.3 million at June 30, 1996, a decrease of $2.7
million from $76.0 million at December 31, 1995.
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 June 30, 1996. The equity to assets ratio decreased slightly over June
30, 1995's ratio 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 and treasury
stock was purchased. These ratios remain well in excess of requirements.
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 June 30, 1996, liquid assets were
$129.4 million or 17.7% of total assets compared to $124.8 million and 19.4% as
of June 30, 1995.
<PAGE>
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 acquisition of Seconn, total deposits, including mortgage
escrow, showed growth of $65.4 million (11.8%) during the year ended June 30,
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 restric-
tions on payment of dividends by The Norwich Savings Society to Norwich
Financial Corp.
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
SIX MONTHS ENDED THREE MONTHS ENDED
June 30, June 30,
(In thousands, except share data) 1996 1995 1996 1995
<CAPTION>
<S> <C> <C> <C> <C>
EARNINGS
Interest income $ 26,058 $22,412 $ 13,090 $11,978
Interest expense 13,015 10,417 6,456 5,723
Net interest income 13,043 11,995 6,634 6,255
Net income 2,922 2,726 1,514 1,332
Earnings per share 0.52 0.50 0.27 0.23
Weighted average common shares
outstanding, including common
stock equivalents 5,672,419 5,479,339 5,597,150 5,741,141
RATIOS (annualized)
Return on average assets 0.83% 0.91% 0.85% 0.84%
Return on average stockholders'
equity 7.75 7.84 8.26 7.29
Average stockholders' equity to
average assets 10.71 11.62 10.32 11.49
YIELD DATA
(taxable equivalent annualized)
Net interest margin 3.86 4.16 3.92 4.11
Net interest spread 3.10 3.46 3.16 3.38
Asset yields
Loans 8.70 8.71 8.72 8.75
Investments 5.81 6.07 5.75 6.16
Earning assets 7.74 7.80 7.75 7.88
Cost of funds
Deposits 4.58 4.31 4.52 4.48
FHLB advances 6.47 5.37 6.79 5.56
Interest bearing liabilities 4.64 4.34 4.59 4.50
</TABLE>
<TABLE>
June 30, December 31,
1996 1995 1995
<CAPTION>
<S> <C> <C> <C>
OUTSTANDING BALANCES
Total assets $731,193 $642,886 $675,332
Net loans 443,861 392,769 402,073
Deposits 616,801 551,725 567,783
FHLB advances 16,368 9,400 22,400
Stockholders' equity 73,269 73,377 76,020
Stockholders' equity to
total assets 10.02% 11.41% 11.26%
Leverage capital ratio 9.19 10.87 10.84
Risk based capital ratio
Tier 1 13.75 16.96 16.55
Total 15.02 18.23 17.82
Book value per share $13.59 $13.21 $13.58
Shares of common stock 5,392,191 5,556,172 5,597,549
</TABLE>
<PAGE>
<TABLE>
Exhibit B
NORWICH FINANCIAL CORP. AND SUBSIDIARY
NONPERFORMING ASSETS SUMMARY
June 30, December 31,
(Dollars in thousands) 1996 1995 1995
<CAPTION>
<S> <C> <C> <C>
Nonaccrual Loans
Residential real estate $ 2,084 $ 1,944 $ 1,286
Commercial real estate
Permanent 3,996 4,344 4,425
Land and construction 224 278 73
Commercial 2,163 1,585 1,809
Consumer 449 778 424
8,916 8,929 8,017
Restructured Loans
Residential and consumer 137 228 591
Commercial real estate 751 519 505
Commercial 0 73 0
888 820 1,096
Total nonperforming loans 9,804 9,749 9,113
Foreclosed properties 322 1,331 264
Total nonperforming assets before
nonperforming assets held for sale 10,126 11,080 9,377
Nonperforming assets held for
sale
Loans on nonaccrual 1,073 732 2,208
Foreclosed properties 1,340 1,486 1,919
Total nonperforming assets held
for sale 2,413 2,218 4,127
Total nonperforming assets $ 12,539 $ 13,298 $ 13,504
</TABLE>
Summary of Impaired Loans
All loans classified as nonaccrual as of June 30, 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 June 30, 1996. Impaired loans were
$10.4 million as of June 30, 1996 with an associated allowance for losses of
$1.4 million.
<TABLE>
June 30, December 31,
(Dollars in thousands) 1996 1995 1995
<CAPTION>
<S> <C> <C> <C>
Net chargeoffs (recoveries)
year to date $ 851 $ 748 $ 3,539
Net chargeoffs to average
loans and foreclosed properties
For the period 0.19% 0.20% 0.89%
Annualized 0.38 0.40% (a)
Allowances for losses
On loans $15,223 $11,432 $13,168
On foreclosed properties 0 229 0
Combined $15,223 $11,661 $13,168
Ratios (exclusive of nonperforming
assets held for sale)
Allowance for loan losses to:
Nonaccrual loans 170.74% 128.03% 164.25%
Nonperforming loans 155.27 117.26 144.50
Allowance for foreclosed properties
to foreclosed properties (a) 17.21 (a)
Combined allowances for losses to:
Total nonperforming assets 150.34 105.24 140.43
Total loans and foreclosed
properties 3.31 2.87 3.16
Total nonperforming assets to:
Total loans and foreclosed
properties 2.20 2.73 2.25
Total assets 1.38 1.72 1.39
(a) Not applicable
</TABLE>
<PAGE>
NORWICH FINANCIAL CORP. AND SUBSIDIARY
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 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 second 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
At the Annual Meeting of Stockholders, held May 10, 1996, two matters
were submitted to a vote; the election of three directors and the
ratification of KPMG Peat Marwick LLP as independent public accountants
for the fiscal year ending December 31, 1996. Following are the results
of the tabulation of the voting on these matters.
<TABLE>
For Against Withheld/
Abstentions
<CAPTION>
<S> <C> <C> <C>
Election of Directors
Paul R. Duevel 4,774,519 0 0
Robert T. Ramsdell 4,774,519 0 0
Richard P. Reed 4,774,519 0 0
Ratification of
Public Accountants 4,679,610 61,075 69,638
</TABLE>
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 SIX MONTHS ENDED JUNE 30, 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
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10Q and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 22,573
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,785
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 125,852
<INVESTMENTS-CARRYING> 99,799
<INVESTMENTS-MARKET> 99,753
<LOANS> 459,084
<ALLOWANCE> 15,223
<TOTAL-ASSETS> 731,193
<DEPOSITS> 616,801
<SHORT-TERM> 0
<LIABILITIES-OTHER> 21,269
<LONG-TERM> 16,368
0
0
<COMMON> 60
<OTHER-SE> 73,209
<TOTAL-LIABILITIES-AND-EQUITY> 731,193
<INTEREST-LOAN> 19,598
<INTEREST-INVEST> 6,460
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 26,058
<INTEREST-DEPOSIT> 12,481
<INTEREST-EXPENSE> 13,015
<INTEREST-INCOME-NET> 13,043
<LOAN-LOSSES> 400
<SECURITIES-GAINS> 209
<EXPENSE-OTHER> 9,276
<INCOME-PRETAX> 5,178
<INCOME-PRE-EXTRAORDINARY> 2,922
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,922
<EPS-PRIMARY> .52
<EPS-DILUTED> .51
<YIELD-ACTUAL> 3.86
<LOANS-NON> 9,989
<LOANS-PAST> 0
<LOANS-TROUBLED> 888
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 13,168
<CHARGE-OFFS> 1,484
<RECOVERIES> 633
<ALLOWANCE-CLOSE> 15,223
<ALLOWANCE-DOMESTIC> 15,223
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
