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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 0-16455
NEWMIL BANCORP, INC.
(exact name of registrant as specified in its charter)
Delaware 06-1186389
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
19 Main Street, New Milford, CT 06776
(Address of principal executive offices) (Zip code)
(860) 355-7600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.50 per share (Title of class)
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
Indicated by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendments to this Form 10-K [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based on the average bid and asked prices of such stock,
as of August 27, 1998, is $29,184,257. The number of shares of Common
Stock outstanding as of August 27, 1998, is 3,830,114.
DOCUMENTS INCORPORATED BY REFERENCE
- -----------------------------------
Portions of the registrant's definitive Proxy Statement dated September
14, 1998 for the 1998 Annual Meeting of Shareholders are incorporated by
reference into Part III (Items 10, 11, 12 and 13).
TABLE OF CONTENTS
PART I
Item 1. BUSINESS
Item 2. PROPERTIES
Item 3. LEGAL PROCEEDINGS
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Item 6. SELECTED FINANCIAL DATA
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Item 11. EXECUTIVE COMPENSATION
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
PART I
Item 1. BUSINESS
General
- -------
NewMil Bancorp, Inc., ("NewMil"), a Delaware corporation formed in
1987, is the registered bank holding company for New Milford Savings
Bank ("the Bank"), a wholly-owned subsidiary. NewMil's activity is
currently limited to the holding of the Bank's outstanding capital
stock and the Bank is NewMil's only subsidiary and its primary
investment. NewMil's net income is presently derived from the
business of the Bank. Future establishment or acquisition of
subsidiaries by NewMil is possible. Nevertheless, it is expected that
the Bank will account for most of NewMil's net income in the
foreseeable future.
The Bank, which was organized in 1858, is a Connecticut chartered and
Federal Deposit Insurance Corporation (the "FDIC") insured savings
bank headquartered in New Milford, Connecticut. The Bank's principal
business consists of attracting deposits from the public and using
such deposits, with other funds, to make various types of loans and
investments. The Bank offers both consumer and commercial deposit
accounts, including checking accounts, interest bearing "NOW"
accounts, money market accounts, certificates of deposit, savings
accounts and Individual Retirement Accounts. The Bank offers 24-Hour
banking through automated teller machines in ten branches.
The Bank offers a broad range of mortgage and consumer loans to the
residents of its service area including residential mortgages, home
equity credit lines and loans, installment loans and collateral loans.
The Bank offers a broad range of mortgage and commercial loans to the
companies and small businesses of its service area including lines of
credit, term loans, Small Business Administration lending, commercial
real estate mortgages, and construction and development mortgages. In
addition, the Bank offers services including money orders, travelers'
checks and safe deposit boxes. Although empowered, the Bank is not
currently offering trust services.
NewMil's results of operations are significantly affected by general
economic and competitive conditions, the real estate market, changes
in interest rates, government policies and actions of regulatory
authorities. Similar to all of New England, Connecticut experienced a
severe recession in 1989 and the early 1990's. Although some economic
stabilization has occurred, Connecticut as a whole continues to be
negatively affected by corporate downsizing, defense reductions, and
corporate consolidations. Real estate values, particularly commercial
real estate values, declined substantially and have not recovered
completely. During the past five fiscal years NewMil has worked to
reduce non-performing assets, resulting from these conditions, and has
improved the credit quality of its loan portfolio. However, should
the general economic recovery stall, or reverse, NewMil's operations
could be negatively impacted by adverse economic conditions.
Market Area and Competition
- ---------------------------
The Bank conducts its business through 15 offices located in
Litchfield, Fairfield and New Haven Counties. The Bank's service
area, which has a population of approximately 300,000, enjoys a
balance of manufacturing, trade, and service employment and is home to
a number of Fortune 500 companies. Although the Bank's primary market
area is Litchfield and northern Fairfield counties, the Bank has
depositors and borrowers that live outside of these areas.
The Bank faces strong competition in attracting and retaining deposits
and in making mortgage and other loans. Its most direct competition
for deposits has historically come from other savings banks,
commercial banks and savings and loan associations located in its
market area. Although the Bank expects this continuing competition to
have an effect upon the cost of funds, it does not anticipate any
substantial adverse effect on maintaining the current deposit base.
The Bank is competitive within its market area in the various deposit
products it offers to depositors. Due to this fact, management feels
they have the ability to maintain the deposit base. The Bank does not
rely upon any individual, group or entity for a significant portion of
its deposits.
The Bank's competition for real estate loans comes primarily from
mortgage banking companies, savings banks, savings and loan
associations, commercial banks, insurance companies, and other
institutional lenders. The Bank competes for loan originations
primarily through the interest rates and loan fees it charges and the
efficiency and quality of services it offers borrowers, real estate
brokers and builders. Factors which affect competition include, among
others, the general availability of funds and credit, general and
local economic conditions, current interest rate levels and volatility
in the mortgage markets.
Congress passed legislation in 1994 providing for a phase-in of full
interstate branching. Connecticut law has since 1990 provided for
full interstate banking and has recently adopted legislation allowing
interstate branching, subject to certain limitations. Although a
number of out of state institutions have begun operations in
Connecticut in recent years, the impact of expected further
competition under the new interstate banking laws cannot be determined
at this time. NewMil may consider expansion within or outside of New
England provided appropriate opportunities and conditions exist.
Distribution of Assets, Liabilities and Stockholders' Equity; Interest
- ----------------------------------------------------------------------
Rates and Interest Differential
- -------------------------------
For tables and discussion of the average balances, interest rates and
interest differential of NewMil for the years 1998, 1997 and 1996, see
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Results of Operations" on pages 13 through 15.
For tables and discussion of an analysis of the effect on net interest
income of volume and rate changes on NewMil for 1998 over 1997 and
1997 over 1996, see "Management's Discussion and Analysis of Financial
condition and Results of Operations - Results of Operations" on pages
15 through 16. In this analysis, the change due to volume was
calculated as the change in average balance multiplied by the prior
year's weighted average rate, the change in rate was calculated as the
change in average rate multiplied by the prior year's average balance,
and the change in rate/volume was calculated as the change in average
rate multiplied by the change in average balance. Principal amounts
of non-accruing loans have been included in the average loan balances
used to determine the rate earned on loans. Interest income on non-
accruing loans is included in income only to the extent that cash
payments have been received.
Securities
- ----------
For information concerning NewMil's securities portfolio activities
see "Management's Discussion and Analysis of Financial Condition and
Results of Operations" under the captions "Results of Operations" on
pages 13 and 16, "Financial Condition" on pages 30 through 32 and
"Note 2 -Securities" on pages 49 through 51.
Lending Activities
- ------------------
The Bank offers a broad range of mortgage and consumer loans to the
residents of its service area including residential mortgages, home
equity credit lines and loans, installment loans and collateral loans.
The Bank also offers a broad range of mortgage and commercial loans to
the companies and small businesses of its service area including lines
of credit, term loans, Small Business Administration ("SBA") loans,
commercial real estate mortgages, and construction and development
mortgages.
One-to-Four Family Residential Mortgage Loans: The Bank offers a
variety of adjustable rate loans, including a one-year adjustable rate
loan and several adjustable rate loans that have fixed rates for an
initial period ranging from 3 to 10 years and adjust thereafter. The
Bank offers amortization periods of up to 30 years. The Bank's
adjustable rate loans generally have a limit on the maximum rate
change per interest rate adjustment of 2% to 3%, and have limits on
the total interest rate adjustments during the life of a loan ranging
from 4.0% to 6.0%, depending on the initial rate and type of loan.
The Bank's adjustable rate loans include loans whose interest rate
adjustments are based on U.S. Treasury constant maturity indices and
other indices.
The Bank's initial rates on adjustable rate mortgage loans are offered
at levels which are intended to be competitive within the Bank's
service area and which are frequently at a discount from fully indexed
contractual rates. The Bank charges origination fees ranging from no
fee to several percent, depending on the initial rate and type of
loan.
Adjustable rate mortgage loans allow the Bank to maintain a degree of
rate sensitivity, though the extent of this sensitivity is limited by
the repricing intervals and caps contained in each loan type.
The Bank also offers a variety of fixed rate mortgage loans, most of
which are sold by the Bank either at the time of registration or after
closing. The Bank maintains an active secondary market distribution
capability, which allows the Bank to sell mortgages either on a
service-released or service-retained basis, enhancing fee income. The
Bank's residential mortgage loans are underwritten based on the
borrower's income in accordance with secondary market or investor
standards. In evaluating a potential residential mortgage borrower,
the Bank considers a number of factors, including the creditworthiness
of the borrower, the capacity of the borrower to repay the loan, an
appraisal of the property to be mortgaged and a review of the loan to
value ratio.
Collateral and Installment Loans: The Bank makes collateral and
installment loans, including home equity lines of credit, home equity
loans, automobile and other personal loans. While the Bank offers
fixed rates on its consumer loans and home equity loans, its home
equity lines of credit are generally offered at or a spread over the
prime rate. Home equity loans and lines of credit have risks similar
to those associated with residential mortgages discussed above.
Commercial Mortgage and Multi-Family Mortgage Loans: The Bank also
makes loans collateralized by mortgages on commercial and multi-family
residential properties. Commercial and multi-family loans are
originated on an adjustable rate basis, generally with a daily
repricing frequency and with the interest adjustment tied to the Prime
rate. Loans may also be structured with fixed rate terms ranging from
1 to 5 years.
Loans collateralized by commercial properties, including multi-family
residential properties, can involve greater credit risks than one- to
four-family residential mortgage loans. The commercial real estate
business is cyclical and subject to downturns, over-building,
fluctuations in market value and local economic conditions.
Typically, such loans are substantially larger than one- to
four-family residential mortgage loans. Because repayment is often
dependent on the cash flow of a successfully operated or managed
property, repayment of such loans may be more susceptible to adverse
conditions in the real estate market or the economy generally than is
the case with residential mortgages.
Construction Loans: The Bank also makes construction loans to
individuals and professional builders for the purpose of constructing
1-to-4 family residential properties, either as a primary residence or
for investment or resale.
Commercial and Industrial Loans: The Bank offers unsecured commercial
business loans, generally adjustable-rate loans with the adjustment of
interest based on the Prime Rate plus a spread. The Bank believes it
has been conservative in its underwriting standards for this market
with the goal of obtaining quality loans for the portfolio. The Bank
also offers SBA and other Government guaranteed loans. The Bank's
loan products are targeted for, and tailored to the needs of, the
local business and professional community in the Bank's market area.
For further information on the composition and quality of the loan
portfolio see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" under the caption and "Financial
Condition - Loans" on pages 25 through 31.
For information on the reduction in interest income associated with
non-accrual loans as of June 30, 1998 see "Note 4 - Non-Performing
Assets" on page 53. For discussion of the Bank's policy for placing
loans on non-accrual status refer to "Note 1 - Summary of Significant
Accounting Policies - Loans" on pages 46 and 47. For information
concerning loan portfolio composition and concentrations see
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" under the caption "Financial Condition" on
pages 25 through 29.
Summary of Loan Loss Experience
- -------------------------------
For a discussion of the factors considered by management in
determining the provision for loan losses, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" under the caption "Results of Operations - Provision and
Allowance for Loan Losses" on page 17.
Deposits
- --------
For a table on the average balances and rates on deposits, see
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Results of Operations" on pages 13 through 15.
Certificate of deposits with balances of $100,000 and greater amounted
to $16,477,000 and $12,898,000 at June 30, 1998 and 1997,
respectively. The Bank generally attracts deposits from its market
area and uses those deposits to fund lending and investment
activities. The Bank has no brokered deposits.
Return on Equity and Assets
- ---------------------------
For selected statistical information required by this item see
"Selected Financial Data" on pages 11 and 12.
Short-term Borrowings
- ---------------------
For the information required by this item see "Note 6 - Short Term
Borrowed Funds" on page 54.
Supervision and Regulation
- --------------------------
Federal Bank Holding Company Regulation: NewMil is registered under,
and is subject to, the Bank Holding Company Act of 1956, as amended.
This Act limits the types of companies which NewMil may acquire or
organize and the activities in which it or they may engage. In
general, NewMil and the Bank are prohibited from engaging in or
acquiring direct or indirect control of any corporation engaged in
non-banking activities unless such activities are so closely related
to banking as to be a proper incident thereto. In addition, NewMil
must obtain the prior approval of the Board of Governors of the
Federal Reserve System to acquire control of any bank; to acquire,
with certain exceptions, more than 5 percent of the outstanding voting
stock of any other corporation; or, to merge or consolidate with
another bank holding company. As a result of such laws and
regulation, NewMil is restricted as to the types of business
activities it may conduct and the Bank is subject to limitations on,
among others, the types of loans and the amount of loans it may make
to any one borrower.
Federal Reserve System: NewMil is required by the Board of Governors
of the Federal Reserve System to maintain cash reserves against its
deposits. After exhausting all other sources of funds, NewMil may
request to borrow from the Federal Reserve. Bank holding companies
registered with the FRB are, among other things, restricted from
making direct investments in real estate. Both NewMil and the Bank
are subject to extensive supervision and regulation, which focus on,
among other things, the protection of depositors' funds.
The Federal Reserve System also regulates the national supply of bank
credit in order to influence general economic conditions. These
policies have a significant influence on overall growth and
distribution of loans, investments and deposits, and affect the
interest rates charged on loans or paid for time and savings deposits.
Fluctuations in interest rates, which may result from government
fiscal policies and the monetary policies of the Federal Reserve
System, have a strong impact on the income to be derived from loans
and investments, as well as cost of deposits. While NewMil and its
subsidiary strive to anticipate changes and adjust their strategies
for such changes, the level of earnings can be materially affected by
economic circumstances beyond their control.
NewMil and the Bank are subject to minimum capital requirements
established, respectively, by the FRB and the FDIC. For information
on these capital requirements and NewMil and the Bank's capital ratios
see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Capital Resources" on pages 34 and 35 and Note
9 to the Financial Statements - Shareholders Equity under Capital
Requirements.
Connecticut Banking Law and FDIC Regulation: The Bank is a state
chartered savings bank organized under the Banking Law of the State of
Connecticut. Deposits are insured by the FDIC and FDIC insurance
premiums are assessed on the Bank's deposit base on a semi-annual
basis at variable rates dependent upon the Bank's capital rating and
other safety and soundness considerations. The Bank is subject to
regulation, examination and supervision by the Connecticut Banking
Department and the FDIC. Both the Connecticut Banking Department and
the FDIC issue regulations and require the filing of reports
describing the activities and financial condition of the banks under
their jurisdiction. Each agency conducts periodic examinations to
test safety, soundness and compliance with various regulatory
requirements and generally supervises the operations of such banks.
Employees
- ---------
The Bank had 130 full-time and 20 part-time employees at June 30,
1998. Management considers the Bank's relationship with its employees
to be good. The Bank's employees are not represented by any
collective bargaining groups.
Subsidiaries
- ------------
The Bank is NewMil's only subsidiary and accounts for 100% of NewMil's
income for the current fiscal year. At June 30, 1998, the Bank had
two wholly-owned subsidiaries, Asset Recovery Management Company and
New Mil Asset Company, both formed to hold and develop certain
foreclosed real estate.
Item 2. PROPERTIES
The Bank conducts its business at its main office, located at 19 Main
Street, New Milford, Connecticut, and through 15 branches located in
Litchfield, Fairfield and New Haven Counties. On July 18, 1997 and
October 3, 1997 the bank opened its fourteenth and fifteenth branches
in Southbury and Norwalk, Connecticut, respectively. The Bank owns
its main office and seven of its branches.
The following table sets forth certain information regarding the
Bank's branch offices, as of June 30, 1998.
Owned Lease
Date or expiration
Branch office Location opened Leased date
- ------------- -------- ------ ------ -----------
(a)
Kent 50 North Main St. 1960 Owned ----
Kent, CT
New Fairfield Routes 37 & 39
New Fairfield, CT 1969 Leased 1999
Brookfield Route 7
Brookfield, CT 1964 Leased 2000
Sherman Routes 37 & 39
Sherman, CT 1976 Leased 2000
Bridgewater (b) Routes 57 & 133
Bridgewater, CT 1981 Owned ----
New Milford (c) 19 Main Street
New Milford, CT 1902 Owned ----
Boardman Terrace 53 Main Street
New Milford, CT 1977 Owned ----
New Preston (d) Routes 202 & 45
New Preston, CT 1979 Owned ----
Morris Route 109 & 63
Morris, CT 1981 Owned ----
Sharon Route 41
Sharon, CT 1971 Leased 2002
Canaan Main St. &
Granite Avenue
Canaan, CT 1982 Owned ----
Lanesville 291 Danbury Road
New Milford, CT 1989 Owned ----
Winsted Stop & Shop
Supermarket Rte 44
Winsted, CT 1996 Leased 1999
Southbury Grand Union
Supermarket
775 Main Street
South
Southbury, CT 1997 Leased 2003
Norwalk 187 Main Street
Norwalk, CT 1997 Leased 2004
(a) The information concerning the Bank's lease payments see Note 12 on
pages 61 and 62.
(b) The Bank owns an additional building on this site which is leased at
an annual rent of $5,000.
(c) Main Office.
(d) The Bank owns an additional building on this site which is leased at
an annual rent of $14,800.
Item 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending against NewMil or the
Bank or any of their properties, other than ordinary routine
litigation incidental to the Company's business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1998, no matter was submitted to a vote
of the shareholders of NewMil.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
For the information required by this item see "Quarterly Financial Data
(unaudited)" on pages 66 and 67. For a discussion of NewMil's
dividend policy and restrictions on dividends see "Management
Discussion and Analysis of Financial Condition and Results of
Operations" under the caption "Dividend Restrictions" on page 35.
Item 6. SELECTED FINANCIAL DATA
The following table sets forth NewMil's consolidated financial and
other data at the dates and for the periods indicated. This data has
been derived from NewMil's audited consolidated financial statements.
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except ratios and per share amounts)
At or for the years ended June 30,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Statement of Income
Interest and
dividend income $ 24,655 $ 22,851 $ 21,837 $ 20,283 $ 17,450
Interest expense 12,196 10,916 10,438 9,602 8,473
Net interest income 12,459 11,935 11,399 10,681 8,977
Provision for loan
losses 250 400 400 400 208
Non-interest income:
Securities (losses)
gains, net (271) (9) 27 226 404
Gain on sale of
non-performing loan 778 - - - -
Gains on sales of
loans, net 480 181 10 28 99
Service fees and other 1,518 1,347 1,218 1,167 1,033
Non-interest expense 9,561 8,566 8,465 9,352 8,694
Income before
income taxes 5,153 4,488 3,789 2,350 1,611
Income tax expense
(benefit) 2,164 1,886 1,547 (3,874) (720)
Net income 2,989 2,602 2,242 6,224 2,331
Financial Condition
Total assets $367,569 $323,061 $309,363 $308,671 $315,159
Loans, net 162,849 166,141 150,558 150,442 141,775
Allowance for loan
losses 5,004 5,452 4,866 5,372 5,246
Securities 162,267 119,368 125,583 127,194 153,746
Deposits 293,877 275,392 259,267 252,420 236,182
Borrowings 37,500 13,000 14,776 20,499 51,850
Shareholders' equity 33,409 31,719 31,892 32,721 25,094
Non-performing assets 1,684 3,585 6,480 8,885 13,685
Per Share Data
Earnings, diluted $0.74 $0.63 $0.50 $1.37 $0.52
Earnings, basic 0.78 0.65 0.51 1.39 0.52
Cash dividends 0.30 0.23 0.17 0.06 -
Book value 8.71 8.27 7.84 7.29 5.59
Statistical Data
Net interest margin 3.78% 3.98% 4.01% 3.70% 3.10%
Efficiency ratio 63.89 63.67 66.90 77.28 82.70
Effective tax rate 42.00 42.02 40.83 (164.85) (44.69)
Return on average assets 0.88 0.84 0.75 2.08 0.76
Return on average
shareholders' equity 9.04 8.02 6.71 23.75 8.16
At or for the years ended June 30,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Statistical Data
- continued
Dividend payout ratio 38.57% 35.28% 33.18% 4.32% - %
Allowance for loan
losses to total loans 2.98 3.18 3.13 3.45 3.57
Non-performing assets
to total assets 0.46 1.11 2.09 2.88 4.34
Tier 1 leverage capital 9.28 10.25 10.39 10.58 8.94
Total risk-based capital 21.26 19.85 20.98 21.36 21.90
Average shareholders'
equity to average
assets 9.69 10.44 11.22 8.74 9.30
Weighted average equivalent
shares outstanding,
diluted 4,066 4,143 4,487 4,554 4,524
Shares outstanding
at June 30 (excluding
Treasury stock) 3,834 3,834 4,070 4,491 4,486
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BUSINESS
NewMil Bancorp, Inc. ("NewMil"), a Delaware corporation, is a bank
holding company for New Milford Savings Bank (the "Bank"), a
Connecticut-chartered and Federal Deposit Insurance Corporation (the
"FDIC") insured savings bank headquartered in New Milford,
Connecticut. NewMil's principal business consists of the business of
the Bank. The Bank is engaged in customary banking activities,
including general deposit taking and lending activities, and conducts
its business from fifteen offices in Litchfield, Fairfield and New
Haven Counties. NewMil and the Bank were formed in 1987 and 1858,
respectively.
OVERVIEW
NewMil earned net income of $2,989,000, or $.74 per share, for the
year ended June 30, 1998, compared with net income of $2,602,000, or
$0.63 per share, for fiscal year 1997. Net income grew 14.9% in 1998,
reflecting significantly improved core earnings, driven by higher net
interest income and non-interest income, and partly offset by
increased operating expenses. Earnings per share increased 17.5%,
reflecting both the growth in net income and share repurchase
activity.
Over the past five years NewMil has achieved a steady improvement in
core earnings. This is attributed to a continuing strategy which
includes refining both the mix and the quality of NewMil's earning
assets, controlling operating expenses, and reducing non-performing
assets. With a loan to deposit ratio of only 55% at June 30, 1998,
NewMil has ample capacity to grow its loan portfolio.
The following discussion and analysis of NewMil's consolidated results
of operations should be read in conjunction with the Consolidated
Financial Statements and footnotes.
RESULTS OF OPERATIONS
Comparison Between 1998 and 1997
Analysis of Net Interest and Dividend Income
- --------------------------------------------
Net interest income increased $524,000, or 4.4%, to $12,459,000 in
1998. This resulted from growth of $30.5 million, or 10.2%, in
average earning assets, driven by an increase in average investments
of $23.9 million, or 17.6%, and an increase in average loans of $6.6
million, or 4.0%. The net interest margin declined 20 basis points,
to 3.78% from 3.98%, as a result of the modest securities leverage.
The following table sets forth the components of NewMil's net interest
income and yields on average interest-earning assets and interest-
bearing funds for each of the past three years.
Year ended June 30, 1998 Average Income/ Average
(dollars in thousands) balance expense yield/rate
------- ------- ----------
Loans (a) $170,287 $15,005 8.81%
Mortgage backed securities 42,014 2,532 6.03
Other securities (b) 117,690 7,118 6.05
------- -------
Total earning assets 329,991 24,655 7.47
Other assets 11,024 -------
-------
Total assets $341,015
========
NOW accounts $ 29,008 389 1.34
Money market accounts 62,687 1,921 3.06
Savings & other 40,933 1,116 2.73
Certificates of deposit 138,202 7,477 5.41
-------- ------
Total interest-bearing
deposits 270,830 10,903 4.03
Borrowings 22,208 1,293 5.82
-------- ------
Total interest-bearing funds 293,038 12,196 4.16
------
Demand deposits 12,884
Other liabilities 2,037
Shareholders' equity 33,056
--------
Total liabilities and
shareholders' equity $341,015
========
Net interest income $12,459
=======
Spread on interest-bearing funds 3.31
Net interest margin (c) 3.78
Year ended June 30, 1997 Average Income/ Average
(dollars in thousands) balance expense yield/rate
------- ------- ----------
Loans (a) $163,715 $14,601 8.92%
Mortgage backed securities 16,856 1,065 6.32
Other securities (b) 118,948 7,185 6.04
-------- ------
Total earning assets 299,519 22,851 7.63
------
Other assets 11,409
--------
Total assets $310,928
========
NOW accounts $ 24,414 363 1.49
Money market accounts 61,258 1,857 3.03
Savings & other 38,458 1,026 2.67
Certificates of deposit 129,010 6,953 5.39
-------- ------
Total interest-bearing
deposits 253,140 10,199 4.03
Borrowings 13,059 717 5.49
-------- ------
Total interest-bearing funds 266,199 10,916 4.10
------
Demand deposits 10,826
Other liabilities 1,452
Shareholders' equity 32,451
--------
Total liabilities and
shareholders' equity $310,928
========
Net interest income $11,935
=======
Spread on interest-bearing funds 3.53
Net interest margin (c) 3.98
Year ended June 30, 1996 Average Income/ Average
(dollars in thousands) balance expense yield/rate
------- ------- ----------
Loans (a) $153,024 $13,919 9.10%
Mortgage backed securities 21,752 1,323 6.08
Other securities (b) 109,165 6,595 6.04
-------- -------
Total earning assets 283,941 21,837 7.69
-------
Other assets 13,756
--------
Total assets $297,697
========
NOW accounts $ 23,032 343 1.49
Money market accounts 61,011 1,852 3.04
Savings & other 39,676 1,041 2.62
Certificates of deposit 122,118 6,744 5.52
------- -----
Total interest-bearing
deposits 245,837 9,980 4.06
Borrowings 7,973 458 5.74
------- ------
Total interest-bearing funds 253,810 10,438 4.11
------
Demand deposits 8,964
Other liabilities 1,515
Shareholders' equity 33,408
-------
Total liabilities and
shareholders' equity $297,697
========
Net interest income $11,399
=======
Spread on interest-bearing funds 3.58
Net interest margin (c) 4.01
(a) Includes non-accrual loans.
(b) Includes interest-bearing deposits in other banks and federal
funds sold.
(c) Net interest income divided by average interest-earning assets.
Years ended June 30, 1998 versus 1997
(dollars in thousands) Change in interest due to
Volume Rate Vol/rate Net
------ ---- -------- ---
Interest-earning assets:
Loans $ 586 $ (175) $ (7) $ 404
Mortgage backed securities 1,590 (49) (74) 1,467
Other securities (76) 9 - (67)
------ ------ ------ ------
Total 2,100 (215) (81) 1,804
------ ------ ------ ------
Interest-bearing liabilities:
Deposits 713 (8) (1) 704
Borrowings 502 43 31 576
----- ----- ----- -----
Total 1,215 35 30 1,280
----- ----- ----- -----
Net change to interest income $ 885 $ (250) $(111) $ 524
===== ====== ===== ======
Years ended June 30, 1997 versus 1996
(dollars in thousands) Change in interest due to
Volume Rate Vol/rate Net
------ ---- -------- ---
Interest-earning assets:
Loans $ 972 $ (271) $ (19) $ 682
Mortgage backed securities (297) 51 (12) (258)
Other securities 591 (1) - 590
------ ------ ------ -----
Total 1,266 (221) (31) 1,014
------ ------ ------ -----
Interest-bearing liabilities:
Deposits 296 (75) (2) 219
Borrowings 292 (20) (13) 259
------ ------ ------ ------
Total 588 (95) (15) 478
------ ------ ------ ------
Net change to interest income $ 678 $ (126) $ (16) $ 536
====== ====== ====== ======
Net interest and dividend income represents the difference between
interest and dividends earned on loans and securities and interest
paid on deposits and borrowings. The level of net interest income is
a function of volume, rates and mix of both earning assets and
interest-bearing liabilities. Net interest income can be adversely
affected by changes in interest rate levels as determined by NewMil's
"gap" position, measured by the differences between the volume of
assets and liabilities that are subject to repricing within different
future time periods.
Interest Income
- ---------------
Total interest and dividend income increased $1,804,000, or 7.9%, to
$24.7 million in 1998. Loan income increased $404,000, or 2.8%, as a
result of higher loan volume offset by slightly lower average yield.
Average loans increased $6.6 million, or 4.0%, to $170.3 million in
1998 as compared with 1997. The decrease in average loan yield, down
11 basis points, was mostly due to lower yields on loans originated
during 1998. Investment income increased $1,400,000, or 17.0%, in
1998 as a result of higher average volume, offset in part by a
slightly lower average yield. Average securities increased $23.9
million, or 17.6%, while average federal funds balances remained
fairly constant. Increases in U.S. Treasury notes and U.S. Government
Agency bonds of $16.5 million, or 61.1%, and mortgaged backed
securities of $25.2 million, or 149.3% were partly offset by a decline
of $18.0 million, or 23.4% in other bonds and notes, principally
collateralized mortgage obligations. The decrease in average
investment yield, down 3 basis points, resulted from changes in
portfolio mix and lower market yields on securities purchased.
Interest Expense
- ----------------
Interest expense increased $1,280,000, or 11.7%, to $12.2 million in
1998 primarily as a result of deposit growth and higher average
borrowings. Deposit expense increased $704,000, or 6.9%, as a result
of a $17.7 million, or 7.0%, increase in average interest-bearing
deposits. The average cost of interest-bearing deposits remained
unchanged at 4.03%. Deposit growth occurred in all deposit
categories, but was concentrated in certificates of deposits, which
increased $9.2 million, and NOW accounts, which increased $4.6
million. Borrowings expense increased $576,000, primarily as a result
of additional borrowings in 1998, including term advances at higher
rates, to fund securities purchases. Borrowings at June 30, 1998
consisted of one to five year term advances with fixed rates ranging
from 5.68% to 6.02%. Borrowings at June 30, 1997 had terms of 30 days
or less.
Provision and Allowance for Loan Losses
- ---------------------------------------
NewMil provided $250,000 for loan losses in 1998, down from $400,000
in 1997. Changes in the allowance for loan losses during each of the
past three years are as follows:
Years ended June 30,
(dollars in thousands) 1998 1997 1996
---- ---- ----
Balance, beginning of year $5,452 $4,866 $5,372
Provision for losses 250 400 400
Charge-offs (706) (124) (919)
Recoveries 8 310 13
------ ------ ------
Balance, end of year $5,004 $5,452 $4,866
====== ====== ======
Ratio of allowance for loan losses:
to non-performing loans 360.26% 175.3% 114.3%
to total gross loans 3.0 3.2 3.1
Loan loss provision to
average loans 0.1 0.2 0.3
Net charge-offs (recoveries)
to average loans 0.4 (0.1) 0.6
NewMil has achieved a steady reduction in non-performing loans in each
of the past three years. This improvement in loan quality, together
with limited loan portfolio growth, allowed NewMil to lower its loan
provision in 1998. During 1998 non-performing loans decreased $1.7
million, or 55.4%, to $1.4 million at June 30, 1998, or 0.8% of gross
loans. As a result, the reserve coverage to non-performing loans
increased to 360.3%. Past due performing loans (accruing loans 30-89
days past due) increased slightly during 1998, and at June 30, 1998
were 1.8% of gross loans. NewMil remains adequately reserved both
against total loans and non-performing loans. For a discussion on
loan quality see "Asset Quality and Portfolio Risk".
The Bank determines its allowance and provisions for loan losses based
upon a detailed evaluation of the loan portfolio through a process
which considers numerous factors, including estimated credit losses
based upon internal and external portfolio reviews, delinquency levels
and trends, estimates of the current value of underlying collateral,
concentrations, portfolio volume and mix, changes in lending policy,
historical loan loss experience, current economic conditions and
examinations performed by regulatory authorities. Determining the
level of the allowance at any given period is difficult, particularly
during deteriorating or uncertain economic periods. Management must
make estimates using assumptions and information which is often
subjective and changing rapidly. The review of the loan portfolio is
a continuing event in the light of a changing economy and the dynamics
of the banking and regulatory environment. In management's judgement
the allowance for loan losses at June 30, 1998, is adequate. Should
the economic climate deteriorate, borrowers could experience
difficulty and the level of non-performing loans, charge-offs and
delinquencies could rise and require increased provisions. In
addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan
losses. Such agencies could require the Bank to recognize additions
to the allowance based on their judgements of information available to
them at the time of their examination. The Bank was examined by the
State of Connecticut, Department of Banking, in March 1997 and no
additions to the allowance were requested as a result of this
examination.
Non-Interest Income
- -------------------
Non-interest income increased $986,000 or 64.9%, to $2,505,000 in
1998. Much of this increase is attributable to a $778,000 gain on the
sale of a non-performing loan in 1998. The principal categories of
non-interest income are as follows:
Years ended June 30,
(in thousands) 1998 1997 Change
---- ---- ------
Service charges on
deposit accounts $1,122 $ 975 $147 15.1%
Gains on sales of
loans, net 480 181 299 165.2
Loan servicing 101 111 (10) (9.0)
Securities (losses)
gains, net (271) (9) (262) 2,911.1
Gain on sale of
non-performing loan 778 - 778 100.0
Other 295 261 34 13.0
------ ------ ---- ------
Total non-interest income $2,505 $1,519 $986 64.9%
====== ====== ==== ======
The increase in service charges on deposit accounts in 1998 reflects
increased transaction volume, resulting from growth in demand deposit
and NOW accounts, fees from the Generations Gold Family Club
introduced in 1998, and increased debit card transactions volume. The
increase in gains from sales of residential mortgage loans resulted
from loan sales of $25.8 million in 1998 compared with $9.6 million in
1997. Secondary market loan sales are generally pre-arranged on a
loan by loan basis prior to origination and loans are sold service-
released. The decrease in loan servicing fees in 1998 resulted from a
decrease in the mortgage servicing portfolio, which at June 30, 1998
totaled $24.8 million, down from $28.8 million at June 30, 1997. The
net securities losses in 1998 and 1997 were realized on securities
sales of $44.2 million and $23.3 million, respectively. Net
securities losses include a loss of $103,000 from the sale of a
collateralized mortgage obligation ("CMO") which was classified as
held-to-maturity. In October 1997 NewMil engaged a financial
securities consultant to analyze this CMO. Based on this review
NewMil determined that it was highly probable that NewMil would likely
receive substantially less than the contractual interest on this CMO
and that the CMO could experience a significant decline in market
value. NewMil concluded that these and other changes in circumstances
surrounding this CMO were isolated, non-recurring, and highly unusual,
and could not have been reasonably anticipated. In May 1998 NewMil
realized a gain of $778,000 from the sale of its largest remaining
non-performing loan. The gain resulted from the sale of the loan to a
buyer whose intended use of the property added significant value which
was not anticipated.
Operating Expenses
- ------------------
Operating expenses increased $995,000, or 11.6%, in 1998. In 1998
NewMil opened two branch offices, in Southbury and Norwalk,
Connecticut, which opened in July and October 1997, respectively.
These offices added approximately $422,000 to operating expenses,
principally compensation, occupancy and equipment expense. Other
increases in 1998 include the write-off of obsolete equipment and a
prepaid maintenance contract as the Bank prepares to convert its
legacy computer system to a client server, relational database system
in November 1998. These increases were offset in part by a
significant reduction in professional, collection and OREO expense.
The principal categories of operating expenses are as follows:
Years ended June 30,
(in thousands) 1998 1997 Change
---- ---- ------
Salaries $4,216 $3,909 $307 7.9%
Employee benefits 1,183 1,076 107 9.9
Occupancy 1,018 840 178 21.2
Equipment 922 683 239 35.0
Professional, collection
and OREO expense (44) 132 (176) (133.3)
Insurance 92 78 14 17.9
Postage and telecommunications 424 348 76 21.8
Marketing 235 209 26 12.4
Service bureau 221 198 23 11.6
Other operating 1,294 1,093 201 18.4
------ ------ ---- -----
Total operating expenses $9,561 $8,566 $995 11.6%
====== ====== ==== ====
The increase in salaries in 1998 was due primarily to increase in
staffing levels at the new branches and annual salary increases.
Employee benefits expense increased as a result of additional health,
taxes and other benefits related to the increased staffing levels and
increased medical claims from the Bank's self insured plan. These
increases were partly offset by net income related to the Bank's
pension plan. The increase in occupancy expense is primarily related
to the two additional branches. Equipment expense for 1998 included
$213,000 to write-off obsolete computer equipment and prepaid
maintenance related to the Bank's legacy computer system as the Bank
prepares to convert to a new client server system. Professional,
collection and OREO expense included expenditures related to audit,
accounting, legal, appraisal, property tax, insurance, other workout
related expenses, together with gains and losses on OREO sales and the
provision for OREO losses. The decrease in 1998 resulted from a
decrease in professional fees and a negative provision to the OREO
reserve, offset in part by an increase in collection expenses and a
decrease in OREO gains. The increase in insurance expense resulted
from both increased FDIC insurance premiums related to deposit growth
and increase in premiums relating to the new branches. All other
operating expenses, including marketing, shareholder relations, office
expense and other, increased $326,000 or 17.6% in 1998. This increase
is attributed principally to increased lending activity, the
additional branch locations, various deposit and loan marketing
promotions and other changes in operating activities.
Income Taxes
- ------------
Net income for 1998 included an income tax provision of $2,164,000, an
effective tax rate of 42%, as compared with an income tax provision of
$1,886,000, with a similar effective tax rate of 42%, for 1997. For
further information on income taxes see Note 7 of Notes to
Consolidated Financial Statements.
Comparison between 1997 and 1996
Overview
- --------
NewMil earned net income of $2,602,000 or $0.61 per share, for the
year ended June 30, 1997, compared with net income of $2,242,000, or
$0.50 per share, for fiscal year 1996. Net income grew 16.1% in 1997,
reflecting significantly improved core earnings, driven by higher net
interest income and non-interest income, and relatively stable
operating expenses. Earnings per share increased 22.0%, reflecting
both the growth in net income and share repurchase activity.
Analysis of Net Interest Income
- -------------------------------
Net interest income grew $536,000, or 4.7%, to $11,935,000 in 1997.
This resulted from growth of $15.6 million, or 5.5%, in average
earning assets, driven by loan growth, up $10.7 million, or 7.0%. The
net interest margin decreased slightly by 3 basis points, to 3.98%
from 4.01%, as a result of a slight decrease in yield on earning
assets.
Interest Income
- ---------------
Total interest and dividend income increased $1,014,000, or 4.6%, to
$22.9 million in 1997. Loan income increased $682,000, or 4.9%, as a
result of higher volume offset by slightly lower overall yield.
Average loans grew $10.7 million, or 7.0%, to $163.7 million in 1997
as compared with 1996. The decrease in the average loan yield
resulted primarily from downward portfolio repricing on residential
adjustable rate mortgages due to lower interest rates, which also
affected new loan rates. Interest and dividends from securities and
federal funds increased $332,000, or 4.2%, in 1997 as a result of
higher overall volume coupled with a marginally higher yield.
Mortgage backed security prepayments have continued to decline which
reduces the amortization expense, thereby increasing the yield on the
mortgage backed security portfolio. While average securities declined
$4.9 million, or 3.7%, average federal funds balances increased $8.7
million. The change in average yield resulted from changes in
portfolio mix and market interest rates on securities purchased.
Interest Expense
- ----------------
Interest expense increased $478,000, or 4.6%, to $10.9 million in 1997
primarily as a result of deposit growth and higher average borrowings,
offset in part by slightly lower cost of funds which decreased 1 basis
point. Deposit expense increased $219,000, or 2.2%, as a result of an
increase of $7.3 million, or 3.0%, in average interest-bearing
deposits offset by a 3 basis point decrease in the average cost of
interest-bearing deposits (to 4.03% from 4.06%). Deposit growth was
concentrated in certificates of deposit, NOW and demand deposit
accounts, while savings accounts declined slightly. Interest expense
on borrowings increased $259,000 as a result of an increase in average
borrowings, up $5.1 million, or 63.8%, offset by a lower cost of
borrowings, down 25 basis points to 5.49% in 1997 from 5.74% in 1996.
NewMil's borrowings are short term and rates generally follow the one-
month LIBOR index, which declined during the year.
Non-Interest Income
- -------------------
Non-interest income increased $264,000, or 21.0%, to $1,519,000 in
1997. The principal categories of non-interest income are as follows:
Years ended June 30,
(in thousands) 1997 1006 Change
---- ---- ------
Service charges on
deposit accounts $ 975 $ 830 $145 17.5%
Gains on sales of
loans, net 181 10 171 1,710.0
Loan servicing 111 123 (12) (9.8)
Securities (losses)
gains, net (9) 27 (36) (133.3)
Other 261 265 (4) (1.5)
------ ------ ---- ------
Total non-interest income $1,519 $1,255 $264 21.0%
====== ====== ==== ======
The increase in service charges on deposit accounts in 1997 reflects
increased transaction volume, resulting from growth in demand deposit
and NOW accounts and increased debit card transactions volume. In
late 1996 NewMil restructured its residential mortgage lending
department with the objective of increasing fee income from pre-
arranged service-released lending activities. Gains on loans resulted
from residential mortgage loan sales in 1997 and 1996 of $10.6 million
and $882,000, respectively. The decrease in loan servicing fees in
1997 resulted from a decrease in the mortgage servicing portfolio,
which at June 30, 1997 totaled $28.8 million, down from $31.2 million
at June 30, 1996. The net securities losses and gains in 1997 and
1996 were realized on sales of available-for-sale securities of $23.3
million and $21.6 million, respectively. Other fee income,
principally safe deposit box fees and other miscellaneous income,
decreased slightly in 1997 as compared with 1996.
Operating Expenses
- ------------------
Operating expenses increased $101,000, or 1.2%, in 1997 primarily as a
result of additional salaries and benefits associated with increased
staffing in lending and retail banking, and higher pension and health
benefits costs. These increases were offset in part by a significant
reduction in professional, collection and OREO expense. The principal
categories of operating expenses are as follows:
Years ended June 30,
(in thousands) 1997 1996 Change
---- ---- ------
Salaries $3,909 $3,422 $ 487 14.2%
Employee benefits 1,076 854 222 26.0
Occupancy 840 773 67 8.7
Equipment 683 584 99 17.0
Professional, collection
and OREO expense 132 940 (808) (86.0)
Insurance 78 123 (45) (36.6)
Postage & telecommunications 348 284 64 22.5
Marketing 209 234 (25) (10.7)
Service bureau 198 157 41 26.1
Other operating 1,093 1,094 (1) (0.1)
------ ------ ----- -----
Total operating expenses $8,566 $8,465 $ 101 1.2%
====== ====== ===== =====
The increase in salaries in 1997 was due primarily to changes in
staffing levels in lending and retail banking, and annual salary
increases. In late 1996 NewMil restructured the residential mortgage
lending department and opened a supermarket branch office in Winsted,
Connecticut. Employee benefits expense increased as a result of
additional health, taxes and other benefits related to the increased
staffing levels, and additional pension expense. The increase in
occupancy expense is related to the addition of the Winsted branch
office. Equipment expense increased in 1997 primarily as a result of
increased maintenance expense for computer systems. Professional,
collection and OREO expense includes expenditures related to audit,
accounting, legal, appraisal, property tax, insurance, other workout
related expenses, together with gains and losses on OREO sales and the
provision for OREO losses. The decrease in 1997 resulted from a
decrease in collections and OREO expense, OREO gains and a negative
provision to the OREO reserve, offset in part by increased
professional fees. The decrease in insurance expense resulted from
decreased insurance premiums on NewMil's Directors and Officers policy
and the Blanket Bond policy as a result of NewMil's strong financial
position, offset by an increase in FDIC insurance premiums. All other
operating expenses, including marketing, shareholder relations, office
expense and other, increased $79,000 or 4.5% in 1997. This increase
is attributed principally to increased lending activity, the
additional branch location, various deposit and loan marketing
promotions and other changes in operating activities.
Income Taxes
- ------------
Net income for 1997 included an income tax provision of $1,886,000, an
effective tax rate of 42%, as compared with an income tax provision of
$1,547,000, an effective tax rate of 41%, for 1996.
FINANCIAL CONDITION
During 1998 total assets grew $44.5 million, or 13.8%, to $367.6
million at June 30, 1998. This resulted from deposit growth of $18.5
million, or 6.7%, to $293.9 million and an increase in borrowings of
$29.5 million to $37.5 million. These additional funds were invested
in securities, which grew $42.9 million, or 35.9%, to $162.3 million,
while net loans declined by $3.3 million to $162.8 million at June 30,
1998. Non-performing assets decreased $1.9 million, or 53.0%, to $1.7
million, and represented only 0.46% of assets at June 30, 1998. Book
value per share increased 5.3% to $8.71 at June 30, 1998, after cash
dividends of $0.74, representing a 38.6% payout ratio. At June 30,
1998 tier 1 leverage and total risk-based capital ratios were 9.28%
and 21.26%, respectively, and NewMil was "well capitalized" as defined
by the Federal Reserve Board.
Securities
- ----------
During 1998 securities grew $42.9 million, or 35.9%, to $162.3 million
at June 30, 1998. This increase was funded with additional borrowings
of $24.5 million and deposit growth. Investments in mortgage backed
securities increased $79.5 million while U.S. Treasury and Government
Agency notes and collateralized mortgage obligations decreased $13.4
million and $24.1 million, respectively. Included in mortgage backed
securities at June 30, 1998 are $47.9 million of securities which have
been partially funded with $37.5 million of borrowings under a
leverage strategy. The principal categories of securities are as
follows (including both available-for-sale and held-to-maturity):
June 30, (in thousands) 1998 1997
---- ----
U.S. Treasury notes $ 18,330 11.3% $ 24,297 20.3%
U.S. Government Agency notes 993 .6 8,463 7.1
Mortgage backed securities 94,602 58.3 15,130 12.7
Collateralized mortgage
obligations 45,817 28.2 69,931 58.6
Federal Home Loan Bank stock 2,525 1.6 1,547 1.3
-------- ----- -------- -----
Total securities $162,267 100.0 $119,368 100.0
======== ===== ======== =====
At June 30, 1998, 78.8% of the portfolio consisted of fixed rate
securities, principally mortgage backed securities ("MBSs") and to a
lesser extent, U.S. Treasury and Government Agency notes, and
collateralized mortgage obligations ("CMOs"). At June 30, 1998 total
fixed rate securities had a projected weighted average duration and
life of 2.6 years and 3.0 years, respectively, based on median
projected prepayment speeds at current interest rates. At June 30,
1998, 19.6% of the portfolio consisted of floating rate CMOs and MBSs,
which generally reprice monthly based on spreads to various indices,
subject to life-time caps and floors. Total floating rate securities
had a projected weighted average duration and life of 0.1 years and
11.7 years, respectively, based on median projected prepayment speeds
at current interest rates. Floating rate securities are tied
primarily to the Eleventh District Cost of Funds index, and to other
Treasury indices. All floating rate securities are match funded with
core deposits. The remaining 1.6% of the portfolio was represented by
Federal Home Loan Bank stock.
At June 30, 1998, securities totaling $112.1 million, or 69.1%, were
classified as available-for-sale and securities totaling $50.2
million, or 30.9%, were classified as held-to-maturity. Included in
shareholders' equity at June 30, 1998 is an adjustment of $955,000,
net of taxes, relating to securities transferred in a prior year from
available-for-sale to held-to-maturity, representing net unrealized
losses at the time of transfer adjusted for subsequent principal
amortization, net of taxes.
All of the CMOs were purchased in 1993 and early 1994, and subsequent
movements in interest rates and market conditions have resulted in a
net decline in the fair market value of certain classes of floating
rate CMOs. At June 30, 1998 net unrealized losses for all available-
for-sale and held-to-maturity securities, being the difference between
current fair market value and amortized cost, totaled $2.0 million.
Fluctuations in fair market values caused by movements in interest
rates and market conditions will not necessarily adversely impact
future earnings.
The composition, maturity distribution and weighted average yields of
securities available-for-sale at June 30 were as follows:
(dollars in thousands) Carrying Market
Value Value Yield
----- ----- -----
June 30, 1998(a)
U.S. Treasury and Government
U.S. Treasury Obligation
Within 1 year $ 18,330 $ 18,330 6.32%
Agency Obligations
After 5 but within 10 years 993 993 6.17
Mortgage backed securities 87,796 87,796 6.55
Collateralized mortgage obligations 2,447 2,447 4.45
Federal Home Loan Bank Stock 2,525 2,525 6.00
-------- --------
Total Securities Available-for-sale $112,091 $112,091 6.45
======== ========
June 30, 1997(a)
U.S. Treasury and Government
U.S. Treasury Obligation
Within 1 year $ 6,013 $ 6,013 6.06%
After 1 but within 5 years 18,285 18,285 6.13
Agency Obligations
After 1 but within 5 years 7,499 7,499 6.26
After 5 but within 10 years 964 964 6.17
Mortgage backed securities 6,514 6,514 6.75
Collateralized mortgage obligations 8,727 8,727 5.89
Federal Home Loan Bank Stock 1,547 1,547 6.21
------- -------
Total Securities Available-for-sale $49,549 $49,549 6.31
======= =======
(dollars in thousands) Carrying Market
Value Value Yield
----- ----- -----
June 30, 1996(a)
U.S. Treasury and Government
U.S. Treasury Obligation
After 1 but within 5 years $16,201 $16,201 6.21%
Agency Obligations
After 1 but within 5 years 1,739 1,739 6.58
After 5 but within 10 years 938 938 6.15
Mortgage backed securities 7,771 7,771 7.01
Collateralized mortgage obligations 21,975 21,975 5.36
Federal Home Loan Bank Stock 1,547 1,547 6.00
------- -------
Total Securities Available-for-sale $50,171 $50,171 5.96
======= =======
The composition, maturity distribution and weighted average yields of
securities held-to-maturity at June 30 were as follows:
(dollars in thousands) Carrying Market
Value Value Yield
----- ----- -----
June 30, 1998
Mortgage backed securities $ 6,806 $ 6,905 6.59%
Collateralized mortgage obligations 43,370 43,006 6.08
------- -------
Total Securities Held-to-maturity $50,176 $49,911 6.14
======= =======
June 30, 1997
Mortgage backed securities $ 8,615 $ 8,606 6.49%
Collateralized mortgage obligations 61,204 59,722 5.97
------- -------
Total Securities Held-to-maturity $69,819 $68,328 6.03
======= =======
June 30, 1996(a)
Mortgage backed securities $10,981 $10,758 6.32%
Collateralized mortgage obligations 64,431 62,606 6.24
------- -------
Total Securities Held-to-maturity $75,412 $73,364 6.25
======= =======
(a) In 1996 securities with a fair value of $39,507,000 were
transferred from held-to-maturity to available-for-sale in
conformity with the Special Report issued by the Financial
Accounting Standards Board, "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and
Equity Securities".
Loans
- -----
During 1998 net loans declined by $3.3 million to $162.8 million at
June 30, 1998. Loan originations and advances for portfolio totaled
$58.3 million for 1998, up 1.2% compared with $57.6 million in 1997.
Loan repayments totaled $61.6 million, up from $41.3 million in 1997.
The increase in loan repayments was due primarily to refinancings of
residential mortgage loans and, to a lesser extent, related home
equity lines of credit. Residential mortgage loans originated for
sale increased by $16.2 million to $25.8 million, compared with $9.6
million in 1997.
The principal categories of the loan portfolio are as follows:
June 30, (in thousands) 1998 1997
---- ----
Real estate mortgages
One-four family residential $ 85,274 50.8% $ 90,885 52.9%
Five or more family residential 5,500 3.3 4,812 02.8
Commercial 34,878 20.8 31,850 18.6
Land and land development 3,571 2.1 8,334 4.9
Commercial and industrial 14,357 8.6 12,424 7.2
Home equity lines of credit 21,208 12.6 20,274 11.8
Installment and other 3,118 1.8 3,122 1.8
-------- --------
Total loans, gross $167,906 100.0 $171,701 100.0
======== ========
The Commercial Lending department specializes in lending to small and
mid-size companies and professional practices and provides short- and
long-term financing, construction loans, commercial mortgages and
property improvement loans. The department also works extensively
with several government-assisted lending programs. The Residential
Mortgage Department, in addition to traditional portfolio lending, has
a secondary market distribution capability, which provides the
flexibility to sell a variety of mortgage products on a service-
released basis. The department has recently established a number of
correspondent lending relationships and has begun purchasing
adjustable residential mortgage loans originated within the State of
Connecticut for its own portfolio. The department offers one of the
most comprehensive residential mortgage product lines of any
institution in northwest Connecticut. The department also offers home
equity loans and lines of credit and has run several successful
promotions over the past few years.
The following table sets forth information on the composition of
NewMil's loan portfolio by loan type as of June 30 for the past five
years (in thousands):
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Real Estate Mortgages:
Residential
1-4 family $ 85,274 $ 90,885 $ 89,159 $ 98,766 $ 95,176
5-more family 5,500 4,812 3,262 3,171 3,199
Commercial 34,878 31,850 30,408 29,068 23,801
Land 3,571 8,334 9,472 12,067 15,403
Home equity credit 21,208 20,274 14,474 7,785 7,367
-------- ------- ------- ------- -------
Total mortgage
loans 150,431 156,155 146,775 150,857 144,946
Commercial and
industrial 14,357 12,424 6,130 3,201 708
Installment 1,161 1,140 502 284 256
Collateral and other 1,957 1,982 2,156 1,903 1,497
------- ------- ------- ------- -------
Total loans, gross 167,906 171,701 155,563 156,245 147,407
Deferred loan orig-
ination fees, net (53) (108) (139) (431) (386)
Allowance for loan
losses (5,004) (5,452) (4,866) (5,372) (5,246)
-------- -------- -------- -------- --------
Total loans, net $162,849 $166,141 $150,558 $150,442 $141,775
======== ======== ======== ======== ========
The following tables reflect NewMil's loan portfolio maturity
distribution as of June 30, 1998 (in thousands); non-accrual loans
have been presented in the after 5 years category:
Within After
Within 1-5 5
1 year years years Total
------ ----- ----- -----
Real Estate Mortgages:
Residential
1-4 family $ 14,478 $ 35,811 $34,985 $ 85,274
5-more family 949 2,834 1,717 5,500
Commercial 8,752 16,209 9,917 34,878
Land 1,816 1,449 306 3,571
Home equity credit lines 3,159 6,559 11,490 21,208
Commercial and industrial 3,159 8,033 3,165 14,357
Installment 545 551 65 1,161
Collateral and other 1,957 - - 1,957
------- ------- ------- --------
Total loans, gross $34,815 $71,446 $61,645 $167,906
======= ======= ======= ========
The following table shows as of June 30, 1998 the amount of loans due
after one year that have fixed interest rates and variable or
adjustable interest rates (in thousands):
Fixed Adjustable
interest interest
rates rates
----- -----
Real Estate Mortgages:
1-4 family residential $13,893 $ 56,903
5-more family residential 129 4,422
Commercial 360 25,766
Land 3 1,752
Home equity credit lines - 18,049
Commercial and industrial 2,200 8,998
Installment 616 -
Collateral and other - -
------- --------
Total loans, gross $17,201 $115,890
======= ========
The following table sets forth changes in the allowance for loan
losses and other selected statistics for the five fiscal years ended
June 30 (dollars in thousands):
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Balance at beginning of
period $5,452 $4,866 $5,372 $5,246 $5,331
Provision for loan losses 250 400 400 400 208
Charge-offs:
Real estate mortgages 633 90 884 294 294
Commercial and industrial - 23 30 - -
Consumer loans 73 11 5 1 14
------ ------ ------ ------ ------
Total charge-offs 706 124 919 295 308
------ ------ ------ ------ ------
Recoveries:
Real estate mortgages 4 308 10 20 4
Commercial and industrial - - - - -
Consumer loans 4 2 3 1 11
------ ------ ------ ------ ------
Total recoveries 8 310 13 21 15
Net (recoveries) ------ ------ ------ ------ ------
charge-offs 698 (186) 906 274 293
------ ------ ------ ------ ------
Balance at end of period $5,004 $5,452 $4,866 $5,372 $5,246
Ratio of net (recoveries) ====== ====== ====== ====== ======
charge-offs to average
loans outstanding 0.41% (0.11%) 0.59% 0.19% 0.21%
The following table sets forth the allocation of the allowance for
loan losses among the broad categories of the loan portfolio and the
percentage of loans in each category to total loans at June 30, for
the past three years. Although the allowance has been allocated among
loan categories for purposes of the table, it is important to
recognize that the allowance is applicable to the entire portfolio.
Furthermore, charge-offs in the future may not necessarily occur in
these amounts or proportions.
1998 1997
---- ----
(dollars in thousands) Allowance Loans(a) Allowance Loans(a)
--------- -------- --------- --------
Real Estate Mortgages
1-4 family residential $ 978 50.79% $1,131 52.94%
5-more family residential 694 3.27 906 2.80
Commercial 2,026 20.77 1,669 18.55
Land 440 2.13 683 4.85
Home equity credit lines 212 12.63 205 11.81
------ ------
Total mortgage loans 4,350 89.59 4,594 90.95
Commercial and industrial 188 8.55 184 7.24
Installment 24 0.69 34 0.66
Collateral 0 1.17 0 1.15
Unallocated 442 - 640 -
------ ------
Total allowance $5,004 100.00 $5,452 100.00
====== ======
dollars in thousands) 1996
----
Allowance Loans(a)
--------- --------
Real Estate Mortgages
1-4 family residential $1,258 57.31%
5-more family residential 290 2.10
Commercial 1,942 19.55
Land 512 6.09
Home equity credit lines 147 9.30
------
Total mortgage loans 4,149 94.35
Commercial and industrial 139 3.94
Installment 12 0.32
Other 0 1.39
Unallocated 566 -
------
Total allowance $4,866 100.00
======
(a) Percent of loans in each category to total loans.
Non-performing assets
- ---------------------
The following table sets forth non-performing assets as of June 30,
for the last five years (in thousands):
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Non-accruing loans $ 761 $2,054 $3,809 $7,175 $ 8,325
Accruing loans past due
90 days or more 628 783 166 34 379
Accruing restructured
loans - 274 281 - -
------ ------ ------ ------ ------
Total non-performing loans 1,389 3,111 4,256 7,209 8,704
OREO, net 295 474 2,224 1,676 4,981
------ ------ ------ ------ ------
Total non-performing assets $1,684 $3,585 $6,480 $8,885 $13,685
====== ====== ====== ====== =======
During 1998 non-performing assets decreased $1.9 million, or 53.0%, to
$1.7 million at June 30, 1998, or 0.46% of total assets. This
significant decrease was due primarily to sales of non-performing
loans and OREO and reflects NewMil's rigorous ongoing credit
management process. The following table summarizes changes in non-
performing assets during the periods presented.
Years ended June 30, (in thousands) 1998 1997
---- ----
Balance, beginning of year $ 3,585 $ 6,480
Loans placed on non-accrual status 1,360 1,649
Non-accrual loan payments (366) (1,407)
Loans returned to accrual status (408) (1,334)
Proceeds from non-accrual loan sales (1,835) -
Gain on non-accrual loan sale 778 -
Non-accrual loan charge-offs (620) (117)
Change in accruing loans past
due 90 or more days, net (155) 616
Change in accruing loans
restructured, net (274) (7)
Payments to improve OREO 498 150
Decrease in OREO valuation reserve 55 300
Gross proceeds from OREO sales (1,293) (3,312)
Gains on OREO sales, net 359 567
------- -------
Balance, end of year $ 1,684 $ 3,585
======= =======
Percent of total assets 0.46% 1.11%
The following table details the composition of non-performing assets
as of the periods presented.
Non-Performing Accruing Other Total
Assets (dollars Non- loans past Restruc- real non-
in thousands) accrual due 90 or tured estate performing
loans more days loans owned assets
----- --------- ----- ----- ------
June 30, 1998
Real estate:
Residential $ 189 $593 $ - $ 106 $ 888
Commercial 157 35 - 36 228
Land and land
development 414 - - 235 649
Installment and
Other 1 - - - 1
Valuation reserve - - - (82) (82)
------ ---- ---- ----- ------
Totals $ 761 $628 $ - $ 295 $1,684
====== ==== ==== ===== ======
June 30, 1997
Real estate:
Residential $ 492 $466 $ - $ 251 $1,209
Commercial 285 317 274 36 912
Land and land
development 1,270 - - 324 1,594
Installment and
Other 7 - - - 7
Valuation reserve - - - (137) (137)
------ ---- ---- ----- ------
Totals $2,054 $783 $274 $ 474 $3,585
====== ==== ==== ===== ======
Had non-accrual loans as of June 30, 1998 and 1997, been current in
accordance with their original terms, gross interest income of $77,000
and $228,000 would have been recorded in net income for 1998 and 1997,
respectively. The amount of interest on these loans that was included
in income was $58,000 and $44,000 in 1998 and 1997, respectively.
Accruing loans past due 90 days or more at June 30, 1998 consist of
five residential mortgage loans and one SBA guaranteed commercial
loan, all of which are in the process of collection and where the
collection of accrued interest is probable. NewMil pursues the
resolution of all non-performing assets through restructurings, credit
enhancements or collections. When collection procedures do not bring
a loan into performing or restructured status, NewMil generally
initiates action to foreclose the property or to acquire it by deed in
lieu of foreclosure. NewMil actively markets all OREO and in 1998
sold $1.3 million of OREO from which net gains of $359,000 were
realized. During 1998 NewMil recorded a $55,000 negative provision
against the OREO valuation reserve and at June 30, 1998 the reserve
was $82,000, or 21.8% of OREO.
In addition to non-performing assets, at June 30, 1998 NewMil had
$7,740,000 of performing classified loans that are considered
potential problem loans. Although not impaired, performing classified
loans, in the opinion of management, exhibit a higher than normal
degree of risk and warrant monitoring due to various considerations,
including (i) the degree of documentation supporting the borrower's
current financial position, (ii) potential weaknesses in the
borrowers' ability to service the loan, (iii) possible collateral
value deficiency, and (iv) other risk factors such as geographic
location, industry focus and negatively trending financial results.
These deficiencies create some uncertainty, but not serious doubt, as
to the borrowers' ability to comply with the loan repayment terms in
the future. Management believes the reserves for these loans are
adequate.
Deposits and borrowings
- -----------------------
Deposits increased $18.5 million, or 6.7%, during 1998 to $293.9
million, aided by the opening of two new branch offices. In July 1997
NewMil opened an in-store supermarket branch in Southbury,
Connecticut, and in October 1997 opened a branch office in Norwalk,
Connecticut. The Company has 15 branch offices located in Fairfield,
Litchfield and New Haven Counties. All deposit categories grew during
1998. Savings, money market and NOW accounts grew $13.1 million, or
10.3%, certificates of deposit grew $3.2 million, or 2.4%, and demand
deposits grew $2.2 million, or 17.4%.
The following table shows the scheduled maturities of certificates of
deposit with balances in excess of $100,000 as of June 30, 1998 (in
thousands):
Less Within Within Over
than 3 3 - 6 6 - 12 one
months months months year Total
------ ------ ------ ---- -----
Certificates of deposit
over $100,000 $5,801 $2,769 $4,062 $3,845 $16,477
====== ====== ====== ====== =======
Borrowings increased $24.5 million in 1998 to $37.5 million.
Borrowings at June 30, 1998 consisted of Federal Home Loan Bank
advances with terms ranging from one to five years and fixed rates
ranging from 5.68% to 6.02%. The borrowings were used to match
certain securities purchases. Borrowings at June 30, 1997 had terms
of 30 days or less.
LIQUIDITY
NewMil manages its liquidity position to ensure that there is
sufficient funding availability at all times to meet both anticipated
and unanticipated deposit withdrawals, new loan originations,
securities purchases and other operating cash outflows. The primary
sources of liquidity are principal payments and maturities of
securities and loans, short term borrowings through repurchase
agreements and Federal Home Loan Bank advances, net deposit growth and
funds provided by operations. Liquidity can also be provided through
sales of loans and available-for-sale securities.
Operating activities in 1998 provided net cash flows of $3.6 million,
up from $3.3 million in 1997. During 1998 investing activities used
net cash of $39.2 million, principally for net security purchases.
Financing activities provided net cash of $41.4 million, principally
from increased deposits and borrowings, offset in part by dividends
paid to shareholders and treasury stock purchases. Funds provided by
operating and financing activities were utilized to fund investing
activities and to increase cash and cash equivalents by $5.8 million.
Operating activities in 1997 provided net cash flows of $3.3 million,
down from $4.9 million in 1996. During 1997 investing activities used
net cash of $7.5 million principally from security purchases and net
loan advances offset in part by securities sales, principal repayments
and maturities, and sales of OREO. Financing activities provided net
cash of $11.2 million, principally from increased deposits, offset in
part by a net decrease in borrowings, dividends paid to shareholders
and treasury stock purchases. Funds provided by operating and
financing activities were utilized to fund investing activities and to
increase cash and cash equivalents by $7.0 million.
At June 30, 1998, NewMil's liquidity ratio, as represented by cash,
short-term available-for-sale securities, marketable assets, the
ability to borrow against held-to-maturity securities and loans
through unused FHLB and other short term borrowing capacity, of
approximately $193.7 million, to net deposits and short term unsecured
liabilities, was 62.4%, well in excess of NewMil's minimum guideline
of 15%.
At June 30, 1998, NewMil had outstanding commitments to fund new loan
originations of $7.3 million, construction mortgage commitments of
$1.5 million and unused lines of credit of $19.3 million. NewMil has
committed to the conversion of its legacy computer system to a client
server, relational database system in November 1998. The cost of the
new hardware and software, which includes the replacement of all
teller terminals is approximately $1,400,000, of which $489,000 has
been expended through June 30, 1998. This cost will be capitalized
and depreciated over the fixed assets useful lives. The annual
operating expense of the new system is estimated to be approximately
the same as that of the present system. These commitments will be met
in the normal course of business. NewMil believes that its liquidity
sources will continue to provide funding sufficient to support
operating activities, loan originations and commitments, and deposit
withdrawals.
ASSET/LIABILITY MANAGEMENT AND MARKET RISK
NewMil manages interest rate risk with the objective of maintaining a
high and stable net interest margin under changing interest rate
environments. Interest rate risk is measured using gap analysis, to
identify short- medium- and long-term interest rate risk positions,
and simulation analysis, to measure the amount of short-term earnings
at risk under rising and falling interest rate scenarios. NewMil
seeks to manage interest rate risk within limits approved by the Board
of Directors.
The following table sets forth NewMil's interest rate sensitivity
position, or gap position, at June 30, 1998, measured in terms of the
volume of interest rate sensitive assets and liabilities that are
subject to repricing in future time periods. For the purposes of this
analysis, money market deposits have been presented in the within 1
month category and savings and NOW deposits have been presented in the
2-to-3 months category, although the interest rate elasticity of money
market, savings and NOW deposits cannot be tied to any one time
category. Non-accrual loans and overdrafts have been presented in the
non-interest-bearing category. Significant variations may exist in
the degree of interest rate sensitivity between individual asset and
liability types within the repricing periods presented due to
differences in their repricing elasticity relative to changes in the
general level of interest rates.
June 30, 1998 Within Within Non-
(in thousands) Within 6 7-12 1-5 After interest-
months months years 5 years bearing Total
------ ------ ----- ------- ------- -----
ASSETS
Securities $ 55,127 $24,334 $55,719 $29,095 $(2,008) $162,267
Federal funds sold 25,134 - - - - 25,134
Loans 85,009 30,443 39,356 9,503 3,595 167,906
Other assets - - - - 12,262 12,262
------- ------- ------- ------- ------- --------
Total assets 165,270 54,777 95,075 38,598 13,849 $367,569
------- ------- ------- ------- ------- ========
SOURCE OF FUNDS
Deposits
Demand (non
interest-bearing) - - - - 14,520 14,520
NOW accounts 30,202 - - - - 30,202
Money market 65,257 - - - - 65,257
Savings and other 45,180 - - - - 45,180
Certificates of
deposit 67,555 36,830 34,298 35 - 138,718
Securities sold
under repurchase
agreements - - - - - -
Federal Home Loan
Bank advances - 12,500 25,000 - - 37,500
Other liabilities - - - - 2,783 2,783
Stockholders'
equity - - - - 33,409 33,409
Total sources ------- ------ ------ ------ ------ --------
of funds 208,194 49,330 59,298 35 50,712 $367,569
Cumulative ------- ------ ------ ------ ------ ========
interest-rate
sensitivity
gap $(42,924) $(37,477) $(1,700) $36,863 $ -
======== ======== ======= ======= =======
Percent of
total assets (11.7)% (10.2)% (0.5)% 10.0% - %
NewMil maintains a relatively balanced position for managing interest
rate risk and, at June 30, 1998, its one year cumulative gap was -
$37.5 million, or 10.2% of assets. A liability sensitive gap implies
that NewMil's net interest margin could be adversely affected by a
sudden increase in interest rates.
NewMil simulates earnings at risk over a twelve month horizon by
ramping interest rates +/-100 basis points from the current rate
environment. NewMil's asset/liability management responds to changes
in interest rates and market conditions. The simulation analysis
incorporates numerous assumptions about balance sheet changes,
including growth and product mix, product pricing and the behavior of
interest rates. NewMil's policy is to ensure that the change in net
income over the twelve month horizon within the +/-100 basis point
band will not exceed +/-15%. The following table indicates that the
estimated percentage change in net income over the next twelve month
forecast horizon is within the +/-15% tolerance limit.
Change % Change in
in Rate Net Income
+100 bp 9.0%
-100 bp -9.0%
Due to the numerous assumptions in the simulation analysis, actual
results will differ from estimated results. Factors other than
changes in interest rates could also impact net income. A significant
factor in determining NewMil's ability to maintain its net interest
margin in a changing interest rate environment is its ability to
manage its core deposit rates. Essentially all of NewMil's deposit
base is composed of local retail deposit accounts which tend to be
somewhat less sensitive to moderate interest fluctuations than other
funding sources and, therefore, provide a reasonably stable and cost-
effective source of funds. The entry of new competitors into NewMil's
market area may pressure NewMil to change its loan and deposit pricing
which may negatively affect NewMil's net interest margin. NewMil
structures its loan and securities portfolios to provide for portfolio
repricing consistent with its interest rate risk objectives.
CAPITAL RESOURCES
During 1998 shareholders' equity increased $1,690,000, or 5.3%, to
$33.4 million, while book value per share increased 5.3% to $8.71 at
June 30, 1998. The increase in shareholders' equity resulted from
earnings of $2,989,000 ($0.74 per share), a $284,000 decrease in the
adjustment to shareholders equity for net unrealized holding losses on
securities, net of taxes, $285,000 from the exercise of stock
options, and $50,000 from the reissuance of treasury stock, offset by
treasury stock purchases of $765,000 and cash dividends of $1,153,000
($0.30 per share, a 39% payout ratio).
In July 1996 NewMil announced its intention to repurchase up to 10% of
its outstanding common stock in the open market and unsolicited
negotiated transactions, including block purchases. The purpose of
the repurchase plan is to offset the future dilution from shares
issued upon the exercise of stock options under NewMil's stock option
plans, and for general corporate purposes. During 1998 NewMil
repurchased 58,000 shares, or 1.4%, of its outstanding shares of
common stock. As of June 30, 1998 NewMil had repurchased 294,300
shares of its outstanding common stock, representing 72.0% of the
planned repurchases, for a total consideration of $2,902,400.
Shareholders' equity at June 30, 1998 included an adjustment, net of
taxes, for unrealized holding losses of $955,000 on securities
transferred from available-for-sale to held-to-maturity and net
unrealized holding losses of $250,000 on securities available-for-
sale.
NewMil and the Bank are subject to minimum capital requirements
established, respectively, by the Federal Reserve Board (the "FRB")
and the FDIC. At June 30, 1998 NewMil's leverage capital ratio was
9.28% and its tier I and total risk-based capital ratios were 19.99%
and 21.26%, respectively. At June 30, 1998 the Bank's leverage
capital ratio was 9.24% and its tier I and total risk-based capital
ratios were 20.48% and 21.75%, respectively. NewMil and the Bank are
categorized as "well capitalized". A well capitalized institution,
which is the highest capital category for an institution as defined by
the Prompt Corrective Action regulations issued by the FDIC and the
FRB, is one which maintains a total risk-based ratio of 10% or above,
a tier I risk-based ratio of 6% or above and a leverage ratio of 5% or
above, and is not subject to any written order, written agreement,
capital directive, or prompt corrective action directive to meet and
maintain a specific capital level.
Dividend Restrictions
- ---------------------
NewMil's ability to pay dividends to its shareholders is dependent on
the Bank's ability to pay dividends to NewMil. There are certain
restrictions on the payment of dividends by the Bank to NewMil. Under
Connecticut law a bank is prohibited from declaring a cash dividend on
its common stock except from its net earnings for the current year and
retained net profits for the preceding two years. Consequently, the
maximum amount of dividends payable by the Bank to NewMil at June 30,
1998 is $1,030,000. In some instances, further restrictions on
dividends may be imposed on NewMil by the FRB.
In October 1994 NewMil resumed dividend payments with the payment of a
$0.02 quarterly cash dividend, following a four year lapse. In
October 1995, 1996 and 1997 NewMil increased its quarterly cash
dividend to $0.05, $0.06 and $0.08, respectively. For 1998 total
dividends of $0.30 per share were paid.
NewMil believes that the payment of cash dividends to its shareholders
is appropriate, provided that such payment considers NewMil's capital
needs, asset quality, and overall financial condition and does not
adversely affect the financial stability of NewMil or the Bank. The
continued payment of cash dividends by NewMil will be dependent on
NewMil's future core earnings, financial condition and capital needs,
regulatory restrictions, and other factors deemed relevant by the
Board of Directors of NewMil.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" (SFAS 130). SFAS
130 establishes standards for reporting and display of comprehensive
income, which is defined as the change in equity of a business
enterprise during a period from nonowner sources. SFAS 130 is
effective for years beginning after December 15, 1997 and requires
reclassification of financial statements for all prior years
presented. The adoption of SFAS 130 is expected to impact the
presentation of financial information only.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 "Disclosures about Segments of an Enterprise and
Related Information" (SFAS 131). SFAS 131 requires public companies
to report financial and descriptive information about operating
segments in their financial statements and requires selected
information about operating segments to be reported in interim
financial reports issued to shareholders. Operating segment financial
information is required to be reported on the basis that it is used
internally for evaluating segment performance and allocation of
resources. SFAS 131 is effective for financial statements for periods
beginning after December 15, 1997 and requires presentation of
comparative information for prior periods presented. The adoption of
SFAS 131 is only expected to impact the presentation of financial
information.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132 (SFAS 132), "Employers' Disclosure about Pensions
and Other Post-retirement Benefits". SFAS 132 revises employers'
disclosure about pension and other post-retirement benefits. It does
not change the measurement or recognition of those plans. SFAS 132 is
effective for years beginning after December 15, 1997. The adoption
of SFAS 132 is only expected to impact the presentation of financial
information.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments
and Hedging Activities". SFAS 133 is effective for all fiscal years
beginning after June 15, 1999 (July 1, 1999 for NewMil). SFAS 133
requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivative
instruments are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated
as part of a hedge transaction and, if it is, the type of hedge
transaction. Management anticipates that, due to its limited use of
derivative instruments, the adoption of SFAS 133 will not have a
significant effect on NewMil's results of operations or its financial
position.
YEAR 2000
Because many operating systems have been programmed to use a two-digit
number to represent the year (e.g., "99" for "1999"), all systems must
be analyzed, and necessary software and hardware changes made, to
ensure that they will function correctly when the date changes to
January 1, 2000.
During 1998, NewMil developed and implemented a Year 2000 Plan to
ensure that its operating systems, and those of its outside vendors
and suppliers, will function correctly in the year 2000 and beyond.
NewMil expects to be compliant with its Year 2000 Plan by March 31,
1999. As part of this plan NewMil has committed to the conversion of
its legacy computer system to a client server, relational database
system in November 1998. This system has been certified Year 2000
compliant by the supplying vendor and NewMil will be verifying
compliance within the time frame of its Year 2000 Plan. The annual
operating expense of the new system is estimated to be approximately
the same as that of the present system. Based on current information,
management believes that specific costs related to NewMil's year 2000
systems issues will not have a material impact on the operations, cash
flows or financial condition of NewMil.
IMPACT OF INFLATION AND CHANGING PRICES
NewMil's financial statements have been prepared in terms of
historical dollars, without considering changes in the relative
purchasing power of money over time due to inflation. Unlike most
industrial companies, virtually all of the assets and liabilities of a
financial institution are monetary in nature. As a result, interest
rates have a more significant impact on a financial institution's
performance than the effect of general levels of inflation. Interest
rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services. Notwithstanding this,
inflation can directly affect the value of loan collateral, in
particular real estate. Sharp decreases in real estate prices have,
in past years, resulted in significant loan losses and losses on real
estate acquired. Inflation, or disinflation, could significantly
affect NewMil's earnings in future periods.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NEWMIL BANCORP, INC.
REPORT OF PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and
Shareholders of NewMil Bancorp, Inc.
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of income, changes in
shareholders' equity, and cash flows present fairly, in all
material respects, the financial position of NewMil Bancorp, Inc.
and its subsidiary at June 30, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years
in the period ended June 30, 1998, in conformity with generally
accepted accounting principles. These financial statements are
the responsibility of the Company's management; our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
July 17, 1998
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
June 30,
1998 1997
---- ----
ASSETS
Cash and due from banks $ 5,342 $ 7,168
Federal funds sold 25,134 17,460
Securities
Available-for-sale at market 112,091 49,549
Held-to-maturity at amortized
cost (fair value: $49,911 and $68,328) 50,176 69,819
Loans (net of allowance for loan losses:
$5,004 and $5,452) 162,849 166,141
Other real estate owned (net of valuation
reserve: $82 and $137) 295 474
Bank premises and equipment, net 6,124 6,042
Accrued interest income 2,259 2,014
Deferred tax asset, net 2,503 3,456
Other assets 796 938
-------- --------
Total Assets $367,569 $323,061
======== ========
LIABILITIES and SHAREHOLDERS' EQUITY
Deposits
Demand (non-interest bearing) $ 14,520 $ 12,369
NOW accounts 30,202 25,830
Money market 65,257 61,075
Savings and other 45,180 40,614
Certificates of deposit 138,718 135,504
-------- --------
Total deposits 293,877 275,392
Securities sold under repurchase agreements - 5,000
Federal Home Loan Bank advances 37,500 8,000
Accrued interest and other liabilities 2,783 2,950
-------- --------
Total Liabilities 334,160 291,342
-------- --------
Commitments and contingencies - -
-------- --------
Shareholders' Equity
Common stock - $.50 per share par value
Shares authorized: 20,000,000
Shares issued: 5,990,138 and 5,988,138 2,995 2,994
Paid-in capital 43,881 44,192
Retained earnings 8,933 7,097
Net unrealized holding losses on
securities available-for-sale, net of taxes (250) (319)
Net unrealized holding losses on
securities transferred to held-to-
maturity, net of taxes (955) (1,170)
Treasury stock, at cost: 2,155,824 and
2,153,798 shares (21,195) (21,075)
-------- --------
Total Shareholders' Equity 33,409 31,719
-------- --------
Total Liabilities and Shareholders' Equity $367,569 $323,061
======== ========
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share amounts)
Years ended June 30,
1998 1997 1996
---- ---- ----
Interest and dividend income
Interest and fees on loans $15,005 $14,601 $13,919
Interest and dividends on securities 8,886 7,531 7,655
Interest on federal funds sold 764 719 263
------- ------- -------
Total interest and dividend income 24,655 22,851 21,837
------- ------- -------
Interest expense
Deposits 10,903 10,199 9,980
Borrowed funds 1,293 717 458
------- ------- -------
Total interest expense 12,196 10,916 10,438
------- ------- -------
Net interest and dividend income 12,459 11,935 11,399
Provision for loan losses 250 400 400
Net interest and dividend income ------- ------- -------
after provision for loan losses 12,209 11,535 10,999
------- ------- -------
Non-interest income
Service charges on deposit accounts 1,122 975 830
Gain on sale of non-performing loan 778 - -
Gains on sales of mortgage loans, net 480 181 10
Loan servicing fees 101 111 123
Securities (losses) gains, net (271) (9) 27
Other 295 261 265
------ ------ ------
Total non-interest income 2,505 1,519 1,255
------ ------ ------
Non-interest expense
Salaries 4,216 3,909 3,422
Employee benefits 1,183 1,076 854
Occupancy 1,018 840 773
Equipment 922 683 584
Professional, collections
and OREO (44) 132 940
Marketing 235 209 234
Insurance 92 78 123
Other 1,939 1,639 1,535
------- ------ ------
Total non-interest expense 9,561 8,566 8,465
------- ------ ------
Income before income taxes 5,153 4,488 3,789
Income tax provision 2,164 1,886 1,547
------- ------ ------
Net income $ 2,989 $ 2,602 $ 2,242
======= ======= =======
Diluted earnings per share $0.74 $0.63 $0.50
===== ===== =====
Basic earnings per share $0.78 $0.65 $0.51
===== ===== =====
Dividends per share $0.30 $0.23 $0.17
===== ===== =====
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(dollars in thousands)
Retained
earnings
Common Stock Paid-in accumulated
Shares Amount capital deficit)
------ ------ ------- --------
Balances at
June 30, 1995 5,965,888 $2,983 $44,145 $ 3,915
Net income for
year - - - 2,242
Proceeds from
exercise of
stock options 21,500 11 76 -
Cash dividends
paid - - - (744)
Acquisition
of treasury
stock - - - -
Proceeds from
issuance of
Treasury Stock - - (32) -
Change in net
unrealized gains
(losses) on
securities,
net of taxes - - - -
--------- ------- -------- --------
Balances at
June 30, 1996 5,987,388 2,994 44,189 5,413
Net income for
year - - - 2,602
Proceeds from
exercise of
stock options 750 - 3 -
Cash dividends
paid - - - (918)
Acquisition
of treasury
stock - - - -
Change in net
unrealized gains
(losses) on
securities,
net of taxes - - - -
Balances at --------- ------- -------- --------
June 30, 1997 5,988,138 2,994 44,192 7,097
Net unrealized
gains (losses) Total
Treasury on securities shareholders'
stock net of taxes equity
----- ------------- --------
Balances at
June 30, 1995 $(15,804) $(2,518) $32,721
Net income for
year - - 2,242
Proceeds from
exercise of
stock options - - 87
Cash dividends
paid - - (744)
Acquisition
of treasury
stock (3,206) - (3,206)
Proceeds from
issuance of
Treasury Stock 72 - 40
Change in net
unrealized gains
(losses) on
securities,
net of taxes - 752 752
Balances at --------- ------- --------
June 30, 1996 (18,938) (1,766) 31,892
Net income for
year - - 2,602
Proceeds from
exercise of
stock options - - 3
Cash dividends
paid - - (918)
Acquisition
of treasury
stock (2,137) - (2,137)
Change in net
unrealized gains
(losses) on
securities,
net of taxes - 277 277
Balances at -------- -------- ---------
June 30, 1997 (21,075) (1,489) 31,719
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(dollars in thousands)
Retained
earnings
Common Stock Paid-in accumulated
Shares Amount capital deficit)
------ ------ ------- --------
Balances at
June 30, 1997 5,988,138 2,994 44,192 7,097
Net income for
year - - - 2,989
Proceeds from
exercise of
stock options:
Issuance of
new shares 2,000 1 12 -
Issuance of
treasury stock - - (312) -
Cash dividends
paid - - - (1,153)
Acquisition
of treasury
stock - - - -
Proceeds from
issuance of
treasury stock - - (11) -
Change in net
unrealized gains
(losses) on
securities,
net of taxes - - - -
Balances at --------- ------ ------- -------
June 30, 1998 5,990,138 $2,995 $43,881 $ 8,933
========= ====== ======= =======
Net unrealized
gains (losses) Total
Treasury on securities shareholders'
stock net of taxes equity
------- ------------- --------
Balances at
June 30, 1997 (21,075) (1,489) 31,719
Net income for
year - - 2,989
Proceeds from
exercise of
stock options:
Issuance of
new shares - - 13
Issuance of
treasury stock 584 - 272
Cash dividends
paid - - (1,153)
Acquisition
of treasury
stock (765) - (765)
Proceeds from
issuance of
treasury stock 61 - 50
Change in net
unrealized gains
(losses) on
securities,
net of taxes - 284 284
Balances at -------- ------- -------
June 30, 1998 $(21,195) $(1,205) $33,409
======== ======= =======
NewMil Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Years ended June 30,
1998 1997 1996
---- ---- ----
Operating Activities
Net income $ 2,989 $ 2,602 $ 2,242
Adjustments to reconcile net income
to net cash provided
by operating activities:
Provision for loan losses 250 400 400
Provision for OREO (recovery) loss (55) - 212
Provision for depreciation and
amortization 626 587 563
Decrease in deferred income tax asset 763 972 1,284
Amortization and accretion of
securities premiums and
discounts, net 185 58 304
Securities losses (gains), net 271 9 (27)
Loans originated for sale (25,331) (9,420) (875)
Proceeds from loans originated
for sale 25,812 9,601 885
Realized gains on loan sales, net (1,258) (181) (10)
Realized gains on OREO sales, net (359) (567) (388)
(Increase) decrease in accrued
interest income (245) (150) 45
(Decrease) increase in accrued interest
expense and other liabilities (166) (405) 351
Decrease (increase) in other
assets, net 141 (226) (75)
Net cash provided by ------- ------ -------
operating activities 3,623 3,280 4,911
======= ====== =======
Investing Activities
Proceeds from sales of securities
available-for-sale 35,877 22,903 20,625
Proceeds from sale of security
held-to-maturity 7,325 - -
Proceeds from maturities and principal
repayments of securities 44,152 5,721 4,225
Purchases of securities
available-for-sale (50,071) (25,691) (27,914)
Proceeds from sales of mortgage backed
securities available-for-sale 1,042 348 942
Purchases of mortgage backed
securities available-for-sale (93,403) - -
Principal collected on mortgage backed
securities 12,196 3,327 4,710
Loan repayments (advances), net 2,427 (15,216) (3,215)
Purchase of loans (644) - -
Proceeds from sales of loans 1,835 - -
Proceeds from sales of OREO 1,294 2,001 2,999
Payments to improve OREO (498) (450) (673)
Purchases of Bank premises and equipment (709) (410) (657)
Net cash (used) provided by -------- ------- -------
investing activities (39,177) (7,467) 1,042
-------- ------- -------
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued:-
(in thousands)
Years ended June 30,
1998 1997 1996
---- ---- ----
Financing Activities
Net increase in deposits 18,485 16,053 6,893
Net repayments of
repurchase agreements - (9,776) (723)
FHLB advances (repayments), net 24,500 8,000 (5,000)
Treasury stock purchased (765) (2,137) (3,207)
Proceeds from Treasury Stock reissued 50 - 40
Cash dividends paid (1,153) (918) (744)
Proceeds from exercise of stock options 285 3 87
------ ------ ------
Net cash provided (used) by
financing activities 41,402 11,225 (2,654)
Increase in cash and ------ ------ ------
cash equivalents 5,848 7,038 3,299
Cash and federal funds sold, beginning
of year 24,628 17,590 14,291
------- ------- -------
Cash and federal funds sold, end of year $30,476 $24,628 $17,590
======= ======= =======
Cash paid during year
Interest to depositors $10,904 $ 10,271 $ 9,933
Interest on borrowings and
interest rate swaps 1,151 693 463
Income taxes 1,115 965 277
Non-cash transfers
From securities held-to-maturity to
securities available-for-sale - - 39,507
From loans to OREO 202 545 4,132
Financed portion of OREO sales 378 1,311 1,433
NewMil Bancorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NewMil Bancorp, Inc. ("NewMil") is the bank holding company for New
Milford Savings Bank (the "Bank"), a State chartered savings bank.
NewMil's activity is currently limited to the holding of the Bank's
outstanding capital stock and the Bank is the Company's only
subsidiary and its primary investment. The Bank is a Connecticut
chartered and Federal Deposit Insurance Corporation (the "FDIC")
insured savings bank headquartered in New Milford, Connecticut. The
Bank's principal business consists of attracting deposits from the
public and using such deposits, with other funds, to make various
types of loans and investments. The Bank conducts its business
through 15 offices located in Litchfield, Fairfield and New Haven
Counties. The accompanying consolidated financial statements have
been prepared in conformity with generally accepted accounting
principles. The following is a summary of significant accounting
policies:
Principles of Consolidation
The consolidated financial statements include those of NewMil and its
subsidiary after elimination of all intercompany accounts and
transactions. Certain reclassifications have been made to prior
years' amounts to conform with the 1998 financial presentation.
Basis of Financial Statement Presentation
The financial statements have been prepared in accordance with
generally accepted accounting principles. In preparing the financial
statements, management is required to make extensive use of estimates
and assumptions that affect the reported amounts of assets and
liabilities as of the date of the statement of condition, and revenues
and expenses for the period. Actual results could differ
significantly from those estimates. Material estimates that are
particularly susceptible to significant change in the near term relate
to the determination of the allowance for loan losses and the
valuation of OREO in connection with foreclosures or in satisfaction
of loans. In connection with the determination of the allowance for
loan losses and valuation of OREO, management obtains independent
appraisals for significant properties.
NewMil's loans are generally collateralized by real estate located
principally in Connecticut. In addition, substantially all OREO is
located in Connecticut. Accordingly, the collectability of a
substantial portion of the Company's loan portfolio and OREO through
foreclosure is particularly susceptible to changes in market
conditions.
While management uses available information to recognize losses on
loans and OREO, future additions to the allowance or write-downs of
OREO may be necessary based on changes in economic conditions,
particularly in Connecticut. In addition, various regulatory
agencies, as an integral part of their examination process,
periodically review NewMil's allowance for loan losses and valuation
of OREO. Such agencies may require NewMil to recognize additions to
the allowance or write-downs based on their judgements of information
available to them at the time of their examination.
Effective January 1, 1997 NewMil adopted the provisions of Statement
of Financial Accounting Standards No. 125 (SFAS 125), "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities". SFAS 125 provides accounting and reporting standards
for transfers and servicing of financial assets and extinguishing of
liabilities occurring after December 31, 1996, on a prospective basis.
The adoption of this standard did not have a material effect on
NewMil's financial condition or its results of operations.
Effective December 31, 1997 NewMil adopted the provisions of Statement
of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per
Share". SFAS 128 provides accounting and reporting standards for the
calculation of earnings per share intended to simplify the computation
by replacing presentation of primary earnings per share with the
presentation of basic earnings per share. In accordance with SFAS
128, earnings per share data for prior fiscal years has been restated.
Securities
Securities that may be sold as part of NewMil's asset/liability or
liquidity management or in response to or in anticipation of changes
in interest rates and resulting prepayment risk, or for other similar
factors, are classified as available-for-sale and carried at their
fair market value. Unrealized holding gains and losses on such
securities are reported net of related taxes, if applicable, as a
separate component of shareholders' equity. Securities that NewMil
has the ability and positive intent to hold to maturity are classified
as held-to-maturity and carried at amortized cost. Realized gains and
losses on the sales of all securities are reported in earnings and
computed using the specific identification cost basis. Securities
that NewMil has transferred from available-for-sale to held-to-
maturity are carried at the fair value at the time of transfer,
adjusted for subsequent amortization or accretion and net of
applicable taxes.
Loans
Loans are reported at their principal outstanding balance net of
charge-offs, deferred loan origination fees and costs, and unamortized
premiums or discounts on purchased loans. Loan origination and
commitment fees and certain direct origination costs are deferred and
recognized over the life of the related loan as an adjustment of
yield, or taken into income when the related loan is sold.
Mortgage loans held-for-sale are valued at the lower of cost or market
as determined by outstanding commitments from investors or current
investor yield requirements calculated on the aggregate loan basis.
Changes in the carrying value are reported in earnings as gains and
losses on mortgage loans. Realized gains and losses on sales of
mortgage loans are reported in earnings when the proceeds are received
from investors.
The accrual of interest on loans is generally discontinued when
principal or interest is past due by 90 days or more, or earlier when,
in the opinion of management, full collection of principal or interest
is unlikely unless such loans are well collateralized and in the
process of collection. When a loan is placed on non-accrual status,
interest previously accrued but not collected is charged against
current income. Income on such loans is then recognized only to the
extent that cash is received and future collection of principal is
probable.
Loans are restored to accrual status when principal and interest
payments are brought current and future payments are reasonably
assured, following a sustained period of repayment performance by the
borrower in accordance with the loan's contractual terms.
Troubled debt restructurings ("TDR") are renegotiated loans for which
concessions, such as the reduction of interest rates, deferral of
interest or principal payments, or partial forgiveness of principal
and interest, have been granted due to a deterioration in a borrower's
financial condition. Interest to be paid on a deferred or contingent
basis is reported in earnings only as collected.
Allowance for Loan Losses
NewMil periodically reviews the allowance for loan losses in order to
maintain the allowance at a level sufficient to absorb probable credit
losses. NewMil's review is based upon a detailed evaluation of the
loan portfolio through a process which considers numerous factors,
including estimated credit losses based upon internal and external
portfolio reviews, delinquency levels and trends, estimates of the
current value of underlying collateral, concentrations, portfolio
volume and mix, changes in lending policy, historical loan loss
experience, current economic conditions and examinations performed by
regulatory authorities. The allowance for loan losses is increased
through charges to earnings in the form of a provision for loan
losses. When a loan or portion of a loan is determined to be
uncollectible, the portion deemed uncollectible is charged against the
allowance and subsequent recoveries, if any, are credited to the
allowance. While NewMil uses available information to recognize
losses on loans, future additions to the allowance may be necessary
based on changes in regional economic conditions and related factors.
NewMil measures impaired loans based on the present value of the
expected future cash flows discounted at the loan's effective interest
rate, or the fair value of the collateral, less estimated selling
costs, if the loan is collateral dependent and foreclosure is
probable. NewMil recognizes impairment by creating a valuation
allowance. A loan is impaired when, based on current information, it
is probable that NewMil will be unable to collect all amounts due
according to the contractual terms of the loan.
Smaller-balance homogeneous loans consisting of residential mortgages
and consumer loans are evaluated for collectability by NewMil based on
historical loss experience rather than on an individual loan-by-loan
basis. Impaired loans are primarily commercial mortgages, secured by
real estate.
Other Real Estate Owned
Real estate acquired through foreclosure, forgiveness of debt and in
lieu of debt, are stated at the lower of cost (principally loan
amount) or fair value minus estimated selling expenses. When a loan
is reclassified as real estate acquired any excess of the loan balance
over its fair value less estimated selling costs is charged against
the allowance for loan losses. Costs relating to the subsequent
development or improvement of a property are capitalized, to the
extent realizable. Holding costs and any subsequent provisions to
reduce the carrying value of a property to fair value minus estimated
selling expenses are charged to earnings and classified as real estate
acquired expense. Fair value is determined by current appraisal for
collateral dependent loans.
Income Taxes
Deferred income taxes are provided for differences arising in the
timing of income and expenses for financial reporting and for income
tax purposes using the asset/liability method of accounting for income
taxes. Deferred income taxes and tax benefits are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. NewMil provides deferred taxes
for the estimated future tax effects attributable to temporary
differences and carry-forwards when realization is assured beyond a
reasonable doubt.
Bank Premises and Equipment
Bank premises, furniture and equipment are carried at cost, less
accumulated depreciation and amortization computed on the straight-
line method over the estimated useful lives of the assets. Leasehold
improvements are amortized on the straight-line basis over the shorter
of the estimated useful lives of the improvements or the term of the
related leases.
Statement of Cash Flows
For the purpose of the Consolidated Statements of Cash Flows, cash and
cash equivalents include cash and due from banks, interest-bearing
deposits at other financial institutions and overnight federal funds
sold.
Computation of Earnings per Share
Effective December 31, 1997, NewMil adopted the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" (SFAS 128). SFAS 128 establishes standards for computing and
presenting earnings per share ("EPS"). It replaces the presentation
of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures. This
statement was effective for financial statements issued for periods
ending after December 15, 1997 and has been applied for all periods
presented.
Basic earnings per share is computed using the weighted-average common
shares outstanding during the year. The computation of diluted
earnings per share is similar to the computation of basic earnings per
share except the denominator is increased to include the number of
additional common shares that would have been outstanding if dilutive
potential common shares had been issued. The shares used in the
computations for the three years ended June 30, were as follows:
(in thousands) 1998 1997 1996
---- ---- ----
[S] [C] [C] [C]
Basic 3,845 3,978 4,371
Effect of dilutive stock options 221 165 116
----- ----- -----
Diluted 4,066 4,143 4,487
===== ===== =====
Recent Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" (SFAS 130). SFAS
130 establishes standards for reporting and display of comprehensive
income, which is defined as the change in equity of a business
enterprise during a period from nonowner sources. SFAS 130 is
effective for years beginning after December 15, 1997 and requires
reclassification of financial statements for all prior years
presented. The adoption of SFAS 130 is expected to impact the
presentation of financial information only.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 "Disclosures about Segments of an Enterprise and
Related Information" (SFAS 131). SFAS 131 requires public companies
to report financial and descriptive information about operating
segments in their financial statements and requires selected
information about operating segments to be reported in interim
financial reports issued to shareholders. Operating segment financial
information is required to be reported on the basis that it is used
internally for evaluating segment performance and allocation of
resources. SFAS 131 is effective for financial statements for periods
beginning after December 15, 1997 and requires presentation of
comparative information for prior periods presented. The adoption of
SFAS 131 is only expected to only impact the presentation of financial
information.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132 (SFAS 132), "Employers' Disclosure about Pensions
and Other Post-retirement Benefits". SFAS 132 revises employers'
disclosure about pension and other post-retirement benefits. It does
not change the measurement or recognition of those plans. SFAS 132 is
effective for years beginning after December 15, 1997. The adoption
of SFAS 132 is only expected to impact the presentation of financial
information.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments
and Hedging Activities". SFAS 133 is effective for all fiscal years
beginning after June 15, 1999 (July 1, 1999 for NewMil). SFAS 133
requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivative
instruments are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated
as part of a hedge transaction and, if it is, the type of hedge
transaction. Management anticipates that, due to its limited use of
derivative instruments, the adoption of SFAS 133 will not have a
significant effect on NewMil's results of operations or its financial
position.
NOTE 2 - SECURITIES
Securities classified available-for-sale (carried at fair value) were
as follows:
Estimated Gross un- Gross un- Amort-
(dollars in thousands) fair realized realized ized
value gains losses cost
----- ----- ------ ----
June 30, 1998
U.S. Treasury and Government
Agency obligations:
Within 1 year $ 18,330 $ 98 $ - $ 18,232
After 5 and within 10 years 993 - 7 1,000
Mortgage backed securities 87,796 46 390 88,140
Collateralized mortgage
obligations 2,447 - 163 2,610
-------- ---- ---- --------
Total debt securities 109,566 144 560 109,982
Federal Home Loan Bank stock 2,525 - - 2,525
Total securities -------- ---- ---- --------
available-for-sale $112,091 $144 $560 $112,507
======== ==== ==== ========
Estimated Gross un- Gross un- Amort-
(dollars in thousands) fair realized realized ized
value gains losses cost
----- ----- ------ ----
June 30, 1997
U.S. Treasury and Government
Agency obligations:
Within 1 year $ 6,013 $ 24 $ - $ 5,989
After 1 within 5 years 25,784 85 4 25,703
After 5 and within 10 years 964 - 36 1,000
Mortgage backed securities 6,514 94 27 6,447
Collateralized mortgage
obligations 8,727 - 667 9,394
------- ---- ---- -------
Total debt securities 48,002 203 734 48,533
Federal Home Loan Bank stock 1,547 - - 1,547
Total securities ------- ---- ---- -------
available-for-sale $49,549 $203 $734 $50,080
======= ==== ==== =======
In 1996 securities with fair value of $39,507,000 and an amortized
cost of $40,530,000 were transferred from held-to-maturity to
available-for-sale. In 1995 securities with a fair value of
$92,231,000 were transferred from available-for-sale to held-to-
maturity. Included in shareholders' equity at June 30, 1998 and 1997
are unrealized holding losses, net of taxes, on securities transferred
to held-to-maturity of $955,000 and $1,170,000, respectively,
representing unrealized holding losses at the date of transfer
adjusted for subsequent amortization and taxation.
Securities classified held-to-maturity (carried at amortized cost)
were as follows:
(dollars in thousands) Gross un- Gross un- Estimated
Amortized realized realized fair
cost(a) gains losses value
------- ----- ------ -----
June 30, 1998
Mortgage backed securities $ 6,806 $ 99 $ - $ 6,905
Collateralized mortgage
obligations 43,370 438 802 43,006
Total securities ------- ---- ---- -------
held-to-maturity $50,176 $537 $802 $49,911
======= ==== ==== =======
June 30, 1997
Mortgage backed securities $ 8,615 $ - $ 9 $ 8,606
Collateralized mortgage
obligations 61,204 207 1,689 59,722
Total securities ------- ---- ------ -------
held-to-maturity $69,819 $207 $1,698 $68,328
======= ==== ====== =======
(a) Securities transferred from available-for-sale are carried at
estimated fair value as of the transfer date and adjusted for
subsequent amortization.
Cash proceeds and realized gains and losses from sales of securities
were as follows:
(dollars in thousands) Cash Realized Realized
proceeds gains losses
-------- ----- ------
Year ended June 30, 1998
US Government Agency securities
Available-for-sale $30,009 $ 10 $ -
Mortgage backed securities
Available-for-sale 1,042 64 -
Collateralized mortgage obligations
Available-for-sale 5,868 - 242
Held-to-maturity 7,325 - 103
------- ---- ----
Total $44,244 $ 74 $345
======= ==== ====
Year ended June 30, 1997
US Treasury securities
Available-for-sale $10,222 $ 2 $ 1
Mortgage backed securities
Available-for-sale 348 17 -
Collateralized mortgage obligations
Available-for-sale 12,681 3 30
------- ---- ----
Total $23,251 $ 22 $ 31
======= ==== ====
Year ended June 30, 1996
Mortgage backed securities
Available-for-sale $ 942 $ 4 $ -
Collateralized mortgage obligations
Available-for-sale 10,551 11 62
Mutual fund, trading 10,064 64 -
Marketable equity securities
Available-for-sale 10 10 -
------- ---- ----
Total $21,567 $ 89 $ 62
======= ==== ====
During 1998 NewMil sold a collateralized mortgage obligation ("CMO")
with an amortized cost of $7,428,000 which was classified as held-to-
maturity and realized a loss of $103,000. NewMil had engaged a
financial securities consultant to analyze this CMO. Based on this
review NewMil determined that it was highly probable that NewMil would
likely receive substantially less than the contractual interest on
this CMO and that the CMO could experience a significant decline in
market value. NewMil concluded that these and other changes in
circumstances surrounding this CMO were isolated, non-recurring, and
highly unusual, and could not have been reasonably anticipated.
At June 30, 1998 securities with a carrying value aggregating
approximately $993,000 were pledged as collateral against public
funds.
NOTE 3 - LOANS
The composition of the loan portfolio was as follows:
June 30, (in thousands) 1998 1997
---- ----
Real estate mortgages
One-four family residential $ 85,274 $ 90,885
Five or more family residential 5,500 4,812
Commercial 34,878 31,850
Land loans 3,571 8,334
Commercial and industrial 14,357 12,424
Home equity lines of credit 21,208 20,274
Installment and other 3,118 3,122
-------- --------
Total loans, gross 167,906 171,701
Deferred loan origination fees, net (53) (108)
Allowance for loan losses (5,004) (5,452)
-------- --------
Total loans, net $162,849 $166,141
======== ========
Impaired loans at June 30 (in thousands)
With no valuation allowance $464 $1,270
With valuation allowance - -
---- ------
Total impaired loans 464 1,270
---- ------
Valuation allowance - -
Commitments to lend additional
amounts to impaired borrowers - -
Average impaired loans 1,034 2,264
Amount of impaired loans based on:
Discounted cash flows - -
Collateral values 464 1,270
NewMil's loans consist primarily of residential and commercial real
estate loans located principally in western Connecticut, the Company's
service area. NewMil offers a broad range of loan and credit
facilities to borrowers in its service area, including residential
mortgage loans, commercial real estate loans, construction loans,
working capital loans, and a variety of consumer loans, including home
equity lines of credit, and installment and collateral loans. All
residential and commercial mortgage loans are collateralized by first
or second mortgages on real estate. The ability and willingness of
borrowers to satisfy their loan obligations is dependent in large part
upon the status of the regional economy and regional real estate
market. Accordingly, the ultimate collectability of a substantial
portion of the NewMil's loan portfolio and the recovery of a
substantial portion of real estate acquired is susceptible to changes
in market conditions.
Changes in the allowance for loan losses were as follows:
Year ended June 30, (in thousands) 1998 1997 1996
---- ---- ----
Balance at beginning of year $5,452 $4,866 $5,372
Provision for losses 250 400 400
Charge-offs (706) (124) (919)
Recoveries 8 310 13
------ ------ ------
Balance at end of year $5,004 $5,452 $4,866
====== ====== ======
NOTE 4 - NON-PERFORMING ASSETS
The components of non-performing assets were as follows:
June 30, (in thousands) 1998 1997
---- ----
Non-accrual loans $ 761 $2,054
Accruing loans past due
90 days or more 628 783
Accruing troubled debt
restructured loans - 274
------ ------
Total non-performing loans 1,389 3,111
Real estate acquired in ------ ------
settlement of loans 377 611
Valuation reserve (82) (137)
Total other real estate owned, net 295 474
------ ------
Total non-performing assets $1,684 $3,585
====== ======
The reductions in interest income associated with non-accrual loans
were as follows:
Year ended June 30, (in thousands) 1998 1997 1996
---- ---- ----
Income in accordance with
original terms $ 77 $228 $385
Income recognized 58 44 96
---- ---- ----
Reduction in interest income $ 19 $184 $289
==== ==== ====
NOTE 5 - BANK PREMISES AND EQUIPMENT
The components of NewMil's premises and equipment were as follows:
June 30, (in thousands) 1998 1997
---- ----
Land $ 1,140 $ 1,140
Buildings and improvements 6,155 6,113
Equipment 2,216 2,825
Leasehold improvements 674 557
------- -------
Total cost 10,185 10,635
Accumulated depreciation
and amortization (4,061) (4,593)
------- -------
Bank premises and equipment, net $ 6,124 $ 6,042
======= =======
NOTE 6 - BORROWINGS
NewMil's borrowings consist of advances from the Federal Home Loan
Bank of Boston and repurchase agreements with major brokerage firms
that are primary dealers in government securities. Advances from the
Federal Home Loan Bank of Boston at June 30, were as follows:
(in thousands) 1998 1997
---- ----
5.58% due July 2, 1997 $ - $2,000
5.57% due July 9, 1997 - 2,000
5.57% due July 18, 1997 - 2,000
5.57% due July 23, 1997 - 2,000
5.68% due March 3, 1999 12,500 -
5.80% due March 3, 2000 10,000 -
5.91% due March 5, 2001 7,500 -
6.02% due March 4, 2002 5,000 -
6.00% due March 3, 2003 2,500 -
------- ------
Total $37,500 $8,000
======= ======
The following is an analysis of repurchase agreements:
(dollars in thousands) 1998 1997
---- ----
Repurchase agreements
Borrowings at June 30
maturing 30 days or less $ - $5,000
Average borrowings during year 493 6,713
Maximum month-end borrowings 5,000 14,776
Accrued interest expense at June 30 - 21
Weighted average rate at June 30 - % 5.64%
Weighted average rate during year 5.71 5.47
Amount at risk by broker:
Salomon Brothers $ - $2,629
Collateral at June 30
Carrying amount - 7,606
Market value - 7,585
Accrued interest income - 44
NewMil has a pre-approved line of credit of up to 2% of total assets
with the Federal Home Loan Bank of Boston ("FHLBB") under the FHLBB's
IDEAL Way Line of Credit Program. These advances are one-day variable
rate loans with automatic rollover. Under an agreement with the FHLBB
NewMil is required to maintain qualified collateral, as defined in the
FHLBB's Statement of Credit Policy, free and clear of liens, pledges
and encumbrances, as collateral for the advances and the pre-approved
line of credit. NewMil maintains qualified collateral in excess of
the amount required to support the outstanding advances and the pre-
approved line of credit at June 30, 1998.
NOTE 7 - INCOME TAXES
NewMil provides deferred taxes for the estimated future tax effects
attributable to temporary differences and carry-forwards when
realization is more likely than not. The components of the income tax
provision were as follows:
(in thousands)
Year ended June 30, 1998 1997 1996
---- ---- ----
Current provision (benefit)
Federal $ 888 $ 896 $ 223
State 513 (26) 40
------ ------ ------
Total 1,401 870 263
------ ------ ------
Deferred provision
Federal 690 641 949
State 73 375 335
------ ------ ------
Total 763 1,016 1,284
------ ------ ------
Income tax provision $2,164 $1,886 $1,547
====== ====== ======
The following is a reconciliation of the expected federal statutory
tax to the income tax provision:
Year ended June 30, 1998 1997 1996
---- ---- ----
Income tax at statutory
federal tax rate 34.0% 34.0% 34.0%
Connecticut Corporation tax,
net of federal tax benefit 7.5 5.1 6.5
Other 0.5 2.9 0.3
----- ----- -----
Effective income tax rates 42.0 42.0 40.8
===== ===== =====
The components of NewMil's net deferred tax asset were as follows:
(in thousands)
June 30, 1998 Federal State
------- -----
Deferred tax assets
Unrealized losses on securities
available-for-sale and transferred
to held-to-maturity $ 612 $ 191
Capital loss carry-forwards 143 35
Bad debt expense, book 1,540 475
Losses on real estate acquired 45 14
Accrued pension expense 151 47
Deferred income 50 15
Other 162 50
------ -----
Total deferred tax assets 2,703 827
------ -----
Deferred tax liabilities
Bad debt expense, tax 638 197
Deferred income 13 1
------ ----
Total deferred tax liabilities 651 198
------ ----
Net deferred tax asset 2,052 629
Valuation reserve (143) (35)
------ ----
Net deferred tax asset $1,909 $ 594
====== =====
June 30, 1997 Federal State
------- -----
Deferred tax assets
Unrealized losses on securities
available-for-sale and transferred
to held-to-maturity $ 734 $ 258
Capital loss carry-forwards 668 201
Bad debt expense, book 1,659 573
Losses on real estate acquired 76 26
Accrued pension expense 184 64
Deferred income 23 8
Other 282 97
Tax credits 566 -
------ ------
Total deferred tax assets 4,192 1,227
------ ------
Deferred tax liabilities
Bad debt expense, tax 840 290
Deferred income 8 1
------ ------
Total deferred tax liabilities 848 291
------ ------
Net deferred tax asset 3,344 936
Valuation reserve (623) (201)
------ ------
Net deferred tax asset $2,721 $ 735
====== ======
The allocation of deferred tax expense involving items charged to
current year income and items charged directly to shareholders' equity
for the years ended June 30, are as follows:
(in thousands) Federal State
------- -----
June 30, 1998
Deferred tax expense allocated to:
Shareholders' equity $ 122 $ 68
Income 690 73
----- -----
Total deferred tax expense $ 812 $ 141
===== =====
June 30, 1997
Deferred tax expense allocated to:
Shareholders' equity $ 148 $ 37
Income 641 375
----- -----
Total deferred tax expense $ 789 $ 412
===== =====
NewMil will only recognize a deferred tax asset when, based upon
available evidence, realization is more likely than not. At June 30,
1998, NewMil recorded a valuation reserve of $143,000 and $35,000
against federal and state deferred tax assets, respectively,
representing capital loss carry-forwards which NewMil does not expect
to utilize.
NOTE 8 - RETIREMENT PLANS
NewMil has a non-contributory defined benefit pension plan (the
"Pension Plan") covering all eligible employees. Since September 1,
1993 benefit accruals have been suspended under the Pension Plan for
all employees. The accrued benefits are primarily based on
compensation and length of service. Pension Plan assets consist
principally of cash, money market funds, bonds and equity securities.
The funded status of the Pension Plan at March 31 was as follows:
March 31, (in thousands) 1998 1997
---- ----
Actuarial present value of benefit
obligations:
Vested benefit obligation $(5,875) $(5,332)
Accumulated benefit obligation $(5,875) $(5,337)
======= =======
Projected benefit obligation $(5,875) $(5,337)
Plan assets at fair value 7,820 6,145
------- -------
Plan assets in excess of
projected benefit obligation 1,945 808
Unrecognized net gain (2,146) (1,089)
------- -------
Accrued pension cost included
in other liabilities $ (201) $ (281)
======= =======
The components of net pension expense are as follows:
Year ended June 30, (in thousands) 1998 1997 1996
---- ---- ----
Interest cost on projected
benefit obligation $ 314 $ 295 $ 289
Actual return on plan assets (1,882) (703) (264)
Net amortization and deferral 1,488 344 -
------- ----- -----
Net pension (income) expense $ (80) $ (64) $ 25
======= ===== =====
Actuarial assumptions:
Weighted average discount rate 6.0% 6.0% 6.0%
Expected long term rate of
return on plan assets 6.0 6.0 6.0
No contributions were made to the Pension Plan in 1998, 1997 or 1996.
NewMil has a supplemental pension plan which provides retirement
benefits to a key employee who is not included in the Pension Plan.
NewMil has a 401(k) Savings Retirement Plan covering all eligible
employees. Participants may contribute up to 15% of their
compensation, subject to a maximum of $10,000 per year in 1998.
NewMil contributes amounts equal to 50% of annual employee
contributions up to 6% of participants' compensation. Employees are
fully vested in NewMil's contributions after five years of service.
NewMil contributed $74,875, $61,972 and $56,196 to the Plan in 1998,
1997 and 1996, respectively. This plan allows for NewMil to make non-
contributory profit sharing contributions. No profit sharing
contributions were made in 1998, 1997 or 1996.
NewMil provides post-retirement health benefits for current retirees
and eligible employees. Post-retirement life insurance benefits are
provided for employees that were eligible for retirement as of October
1, 1993 and current retirees. The cost of post-retirement health care
benefits is shared by NewMil and the retiree, and benefits are based
on deductible and coinsurance provisions. The post-retirement life
insurance benefits are non-contributory, and benefits are based on a
percentage of the base pay at retirement. Effective October 1, 1993
NewMil suspended certain post-retirement benefits and introduced a co-
pay provision for new employees hired on or after October 1, 1993.
NewMil does not advance-fund its post-retirement health care and life
insurance benefit plan. Post-retirement expense for 1998, 1997 and
1996 was $50,000, $60,000 and $60,000, respectively.
NOTE 9 - SHAREHOLDERS' EQUITY
Capital Requirements
- --------------------
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional and discretionary actions by the regulators that, if
undertaken, could have a direct material effect on the Bank's
financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet
specific guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of Tier 1 capital (as defined) to average
assets (as defined) and total and Tier 1 capital (as defined) to risk-
weighted assets (as defined). Management believes, as of June 30,
1998, that the Bank meets all capital adequacy requirements to which
it is subject.
The Bank was classified, as of its most recent notification, as "well
capitalized". At June 30, 1998, the Bank's actual regulatory capital
position as compared to both the capital position as defined "For
Capital Adequacy Purposes" and "To Be Well Capitalized Under Prompt
Corrective Action Provisions" is as follows:
For Capital
(dollars in thousands) Actual Adequacy Purposes
Amount Ratio Amount Ratio
------ ----- ------ -----
As of June 30, 1998
Tier one leverage $34,463 9.24% >= $14,918 >= 4.00%
Tier one risk-based 34,463 20.48 >= 6,731 >= 4.00
Total risk-based 36,602 21.75 >= 13,463 >= 8.00
As of June 30, 1997
Tier one leverage 32,466 10.02 >= 12,961 >= 4.00
Tier one risk-based 32,466 18.62 >= 6,974 >= 4.00
Total risk-based 34,685 19.89 >= 13,948 >= 8.00
To Be Well Capitalized
Under Prompt Corrective
Action Provisions
Amount Ratio
------ -----
As of June 30, 1998
Tier one leverage >= $18,648 >= 5.00%
Tier one risk-based >= 10,097 >= 6.00
Total risk-based >= 16,829 >= 10.00
As of June 30, 1997
Tier one leverage >= 16,201 >= 5.00
Tier one risk-based >= 10,461 >= 6.00
Total risk-based >= 17,435 >= 10.00
Restrictions on Subsidiary's Dividends and Payments
- ---------------------------------------------------
NewMil's ability to pay dividends is dependent on the Bank's ability
to pay dividends to NewMil. There are certain restrictions on the
payment of dividends and other payments by the Bank to NewMil. Under
Connecticut law the Bank is prohibited from declaring a cash dividend
on its common stock except from its net earnings for the current year
and retained net profits for the preceding two years. Consequently,
the maximum amount of dividends payable by the Bank to NewMil at June
30, 1998 is $1,030,000. In some instances, further restrictions on
dividends may be imposed on NewMil by the FRB.
NOTE 10 - RELATED PARTY TRANSACTIONS
In the normal course of business the Bank has granted loans to
executive officers, directors, principal shareholders and associates
of the foregoing persons considered to be related parties. Changes in
loans to related parties are as follows:
Principal
(in thousands) Officers/ share-
directors holders Total
--------- ------- -----
Year ended June 30, 1998
Balance, beginning of year $ 583 $ - $ 583
Advances 70 - 70
Repayments (76) - (76)
Change in related party
status (Note a) 38 38
----- ----- -----
Balance, end of year $ 615 $ - $ 615
===== ===== =====
Year ended June 30, 1997
Balance, beginning of year $ 212 $ - $ 212
Advances 610 - 610
Repayments (239) - (239)
----- ----- -----
Balance, end of year $ 583 $ - $ 583
===== ===== =====
Note a. Adjustment to exclude loans outstanding to persons who are no
longer considered related parties, as well as, to add loans previously
outstanding to persons who became related parties during the year.
NOTE 11 - STOCK OPTIONS
NewMil's 1986 Stock Option and Incentive Plan (the "1986 Plan")
authorizes the granting of both incentive and non-incentive options
and stock appreciation rights (SARS) to officers and other key
employees by the Salary and Benefits Committee of the Board. The 1986
Plan provides for the granting of options to purchase shares of Common
Stock for terms of up to 10 years at an exercise price not less than
85% of the fair market value of NewMil's stock on the date of the
grant. Changes in outstanding stock option and SARS were as follows:
Number of options Weighted
----------------- average
Without With exercise
SARS SARS Total price
---- ---- ----- --------
June 30, 1995 239,820 9,900 249,720 $4.295
Granted 154,500 - 154,500 6.433
Exercised (21,500) - (21,500) 4.052
Lapsed (2,200) (1,900) (4,100) 7.676
------- ----- -------
June 30, 1996 370,620 8,000 378,620 4.968
Granted - - -
Exercised (750) - (750) 3.833
Lapsed (334) (8,000) (8,334) 10.945
------- ----- -------
June 30, 1997 369,536 - 369,536 4.835
Granted - - -
Exercised (52,701) - (52,701) 5.362
Lapsed (1,084) - (1,084) 6.726
------- ----- -------
June 30, 1998 315,751 - 315,751 4.953
====== ===== =======
All stock options outstanding as of June 30, 1998 were exercisable.
As of June 30, 1998 options to purchase 101,548 shares of Common Stock
were available to be granted under the 1986 Stock Option and Incentive
Plan.
NewMil's 1992 Stock Option Plan for Outside Directors (the "1992
Plan") provides for automatic grants of options to non-employee
directors who were participants on the effective date of the plan and
were reelected as non-employee directors. At the annual meeting in
1995 the plan was amended so that all non-employee directors would be
granted 2,000 options at June 30th of each subsequent year. The 1992
Plan provides for the granting of options to purchase shares of Common
Stock for terms of up to 10 years at an exercise price of not less
than the fair market value of NewMil's stock on the date of the grant.
Changes in outstanding stock options were as follows:
Weighted
average
Number of exercise
Options Price
------- -------
June 30, 1995 66,000 $3.205
Granted 18,000 6.813
Lapsed - -
June 30, 1996 84,000 4.000
-------
Granted 12,000 11.188
Lapsed - -
-------
June 30, 1997 96,000 4.898
Granted 17,000 12.783
Lapsed - -
-------
June 30, 1998 113,000 6.085
=======
All stock options outstanding as of June 30, 1998 were exercisable.
As of June 30, 1998 options to purchase 17,000 shares of Common Stock
were available to be granted under the 1992 Stock Option Plan for
Outside Directors.
The following table summarizes information about NewMil's Employee
and Director Stock Option Plans, as of June 30, 1998:
Number of Weighted
options average Weighted
Range of outstanding remaining average
exercise and contractual exercise
price exercisable life price
----- ----------- ---- -----
$ 3.00 - $ 5.99 253,950 5.0 $ 3.72
6.00 - 8.99 145,801 7.0 6.55
9.00 - 11.99 12,000 9.0 11.19
12.00 - 12.84 17,000 9.8 12.78
------- ---- ------
428,751 6.03 $ 5.25
======= ==== ======
Effective July 1, 1996 NewMil adopted Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
(SFAS 123). As permitted by SFAS 123 NewMil has chosen to apply APB
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25)
and related interpretations in accounting for its Plans. Accordingly,
no compensation expense has been recognized for options granted under
its Plans. Had compensation cost for the NewMil's Plans been
determined based on the fair value at the grant dates for awards under
the Plans consistent with the method of SFAS 123, NewMil's net income
and diluted earnings per share would have been reduced to the proforma
amounts indicated below.
Net income Earnings per
Year ended June 30, (in thousands) share, diluted
-------------- --------------
1998
As reported $2,989 $0.74
Pro forma 2,938 0.72
1997
As reported $2,602 $0.63
Pro forma 2,567 0.62
1996
As reported $2,242 $0.50
Pro forma 1,977 0.44
The fair value of each option grant was estimated on the date of grant
using the Roll-Geske Model for pricing American call options with
dividends, with the following weighted average assumptions used for
grants:
1998 1997 1996
---- ---- ----
Dividend yield 1.54% 1.61% 2.79%
Expected volatility 30.00 30.00 35.00
Risk-free interest rate 5.37 6.49 6.60
Expected lives, years 10 10 10
Fair value of options
granted during year $5.06 $4.90 $2.60
NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business there are various commitments and
contingent liabilities outstanding pertaining to the purchase and sale
of securities and the granting of loans and lines of credit which are
not reflected in the accompanying financial statements. At June 30,
1998 NewMil had commitments under outstanding construction mortgages
of $1,501,000, unused lines of credit of $19,268,000 and outstanding
commitments to fund loans of $7,254,000. At June 30, 1997 NewMil had
commitments under outstanding construction mortgages of $759,000,
unused lines of credit of $17,670,000 and outstanding commitments to
fund loans of $5,022,000. NewMil does not anticipate any material
losses as a result of these transactions. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. NewMil's exposure to credit loss in the event of non-
performance by the other party to the commitment is represented by the
contractual amount of the instrument. The exposure to credit loss is
limited by evaluating the customer's credit worthiness on a case-by-
case basis and by obtaining collateral if deemed necessary.
Collateral held generally includes residential and commercial
properties. NewMil generally requires an initial loan to value ratio
of no greater than 80% when real estate collateralizes a loan
commitment.
NewMil has committed to the conversion of its legacy computer system
to a client server, relational database system in November 1998. The
cost of the new hardware and software, which includes the replacement
of all teller terminals is approximately $1,400,000, of which $489,000
has been expended through June 30, 1998. This cost will be
capitalized and depreciated over the fixed assets useful lives. The
annual operating expense of the new system is estimated to be
approximately the same as that of the present system.
NewMil leases facilities under operating leases which expire at
various dates through 2004. The leases have varying renewal options,
generally require a fixed annual rent, and provide that real estate
taxes, insurance, and maintenance are to be paid by NewMil. Rent
expense totaled $232,240, $167,041 and $129,820 for 1998, 1997 and
1996, respectively. Future minimum lease payments at June 30, 1998
are as follows:
1999 $279,222
2000 203,940
2001 148,716
2002 117,789
2003 58,155
After 2003 70,140
--------
$877,962
========
NOTE 13 - ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 "Disclosures About
Fair Value of Financial Instruments" (SFAS 107), requires NewMil to
disclose fair value information for certain of its financial
instruments, including loans, securities, deposits, borrowings,
interest rate swaps and other such instruments. Quoted market prices
are not available for a significant portion of NewMil's financial
instruments and, as a result, the fair values presented may not be
indicative of net realizable or liquidation values. Fair values are
estimates derived using present value or other valuation techniques
and are based on judgements regarding future expected loss experience,
current economic conditions, risk characteristics, and other factors.
In addition, fair value estimates are based on market conditions and
information about the financial instrument at a specific point in
time. Fair value estimates are based on existing on- and off-balance
sheet financial instruments without attempting to estimate the value
of anticipated future business and the value of assets and liabilities
that are not considered financial instruments. Such items include
mortgage servicing, core deposit intangibles and other customer
relationships, premises and equipment, foreclosed real estate and
income taxes. In addition, the tax ramifications relating to the
realization of the unrealized gains and losses may have a significant
effect on fair value estimates and have not been considered in the
estimates.
The following is a summary of the methodologies and assumptions used
to estimate the fair value of NewMil's financial instruments pursuant
to SFAS 107.
Cash, cash equivalents and other: The fair value of cash and due from
banks, deposits with banks, federal funds sold, accrued interest
receivable, securities sold under repurchase agreements and accrued
interest payable, is considered to approximate the book value due to
their short-term nature and negligible credit losses.
Securities: Securities classified as available-for-sale are carried
at fair value. Fair value for securities held-for-sale was determined
by secondary market and independent broker quotations.
Loans: Fair values for residential mortgage and consumer installment
loans were estimated by discounting cash flows, adjusted for
prepayments. The discount rates used for residential mortgages were
secondary market yields for residential mortgage loans, net of
servicing and adjusted for risk. The discount rates used for consumer
installment loans were current rates offered by NewMil. Fair values
for commercial loans were estimated by assessing credit risk and
interest rate risk. Such loans were valued by discounting estimated
future cash flows at a rate that incorporates both interest and credit
risk.
Deposit liabilities: The fair value for demand, savings and certain
money market deposits is equal to the amount payable on demand at the
balance sheet date which is equal to the carrying value. The fair
value of certificates of deposit was estimated by discounting cash
flows using rates currently offered by NewMil for deposits of similar
remaining maturities.
The carrying values and estimated fair values of NewMil's financial
instruments are as follows:
June 30, 1998 1997
-------------------- -------------------
(dollars in thousands) Estimated Estimated
Carrying fair Carrying fair
value value value value
----- ----- ----- -----
Financial Assets
Cash and due from banks $ 5,342 $ 5,342 $ 7,168 $ 7,168
Federal funds sold 25,134 25,134 17,460 17,460
Securities available for sale 112,091 112,091 49,549 49,549
Securities held to maturity 50,176 49,911 69,819 68,328
Loans 167,906 169,692 171,701 169,989
Allowance for loan losses (5,004) - (5,452) -
Deferred loan origination
fees, net (53) - (108) -
------- ------- ------- -------
Loans, net 162,849 169,692 166,141 169,989
Accrued interest receivable 2,259 2,259 2,014 2,014
Financial Liabilities
Deposits
Demand (non-interest bearing) $ 14,520 $ 14,520 $ 12,369 $ 12,369
NOW accounts 30,202 30,202 25,830 25,830
Money market 65,257 65,257 61,075 61,075
Savings and other 45,180 45,180 40,614 40,614
Certificates of deposit 138,718 139,385 135,504 136,392
------- ------- ------- -------
Total deposits 293,877 294,544 275,392 276,280
Securities sold under
repurchase agreements - - 5,000 5,000
FHLB advances 37,500 37,988 8,000 8,000
Accrued interest payable 233 233 92 92
NOTE 14 - NEWMIL BANCORP, INC. (parent company only) FINANCIAL
INFORMATION
The unconsolidated balance sheets of NewMil Bancorp, Inc. at June 30,
and its statements of income and cash flows for each of the years
ended June 30, are presented as follows:
Balance Sheets June 30, June 30,
(in thousands) 1998 1997
---- ----
Assets
Due from bank $ 75 $ 692
Investment in New Milford
Savings Bank 32,454 30,977
Other assets 891 86
------- -------
Total Assets $33,420 $31,755
======= =======
Liabilities and Shareholders'
Equity
Liabilities $ 11 $ 36
Shareholders' equity 33,409 31,719
Total Liabilities and ------- -------
Shareholders' Equity $33,420 $31,755
======= =======
Statements of Income Years ended June 30,
(in thousands) 1998 1997 1996
---- ---- ----
Interest income $ - $ - $ 36
Dividends from subsidiary 1,155 2,919 3,743
Expenses 163 166 172
------ ------ -------
Income before taxes and
undistributed net income
of subsidiary 992 2,753 3,607
Income tax benefit - - (81)
------ ------ ------
Income before equity in
undistributed net income
of subsidiary 992 2,753 3,688
Equity in undistributed
(equity distributed in
excess of) net income
of subsidiary 1,997 (151) (1,446)
------- ------- -------
Net income $ 2,989 $ 2,602 $ 2,242
======= ======= =======
Parent Company Only Financial Information continued:
Statements of Cash Flows Years ended June 30,
(in thousands) 1998 1997 1996
---- ---- ----
Net income $ 2,989 $ 2,602 $ 2,242
Adjustments to reconcile net
income to net cash provided
by operating activities:
Equity in undistributed
(equity distributed in
excess of) net income
of subsidiary (1,997) 151 1,446
Other (26) 34 (89)
Net cash provided by ------ ------ ------
operating activities 966 2,787 3,599
------ ------ ------
Investing Activities:
Net decrease in note
receivable from subsidiary - - 1,100
------ ------ ------
Net cash provided by
investing activities - - 1,100
Financing Activities:
Cash dividends paid (1,153) (918) (744)
Proceeds from Treasury Stock
issued 50 - 40
Treasury stock purchased (765) (2,137) (3,207)
Proceeds from exercise of
stock options 285 3 87
Net cash used by ---- --- ----
financing activities (1,583) (3,052) (3,824)
(Decrease) increase in cash ------- ------- -------
and cash equivalents (617) (265) 875
Cash and cash equivalents,
beginning of year 692 957 82
Cash and cash equivalents, ------- ------- -------
end of year $ 75 $ 692 $ 957
======= ======= =======
QUARTERLY FINANCIAL DATA (Unaudited)
Quarterly financial data for 1998 and 1997 is as follows (in thousands
except ratios and per share amounts):
Year ended June 30, 1998
June 30, Mar 31, Dec 31, Sept 30,
-------- ------- ------- --------
Statement of Income
Interest and dividend
income $6,442 $6,352 $5,969 $5,892
Interest expense 3,311 3,194 2,865 2,826
Net interest income 3,131 3,158 3,104 3,066
Provision for loan losses 50 50 50 100
Non-interest income:
Securities gains (losses), net - 10 (258) (23)
Gains on sales of
loans, net 244 89 82 65
Service fees and other 406 361 380 371
Gain on sale of
non-performing loan 778 - - -
Non-interest expense 3,072 2,275 2,042 2,172
Income before income taxes 1,437 1,293 1,216 1,207
Income tax provision 604 543 511 506
Net income 833 750 705 701
Financial Condition
Total assets 367,569 $370,276 $355,526 $317,407
Loans, net 162,849 169,206 165,684 164,561
Allowance for loan losses 5,004 4,998 5,546 5,544
Securities 162,267 181,527 166,343 121,888
Deposits 293,877 289,335 285,516 278,328
Borrowings 37,500 44,500 34,000 4,000
Shareholders' equity 33,409 32,989 33,143 32,295
Non-performing assets 1,684 2,321 3,212 4,325
Per Share Data
Earnings, diluted $0.21 $0.18 $0.17 $0.17
Cash dividends 0.08 0.08 0.08 0.06
Book value 8.71 8.59 8.54 8.42
Market price: (a)
High 14.625 14.000 14.500 14.250
Low 12.750 12.500 12.188 10.875
Statistical Data
Net interest margin 3.52% 3.67% 3.95% 3.97%
Efficiency ratio 67.38 62.88 61.73 62.43
Return on average assets 0.91 0.85 0.87 0.88
Return on average
shareholders' equity 9.94 8.98 8.56 8.67
Weighted average equivalent
shares outstanding,
diluted 4,053 4,065 4,061 4,067
Quarterly Financial Data (unaudited) continued:
Year ended June 30, 1997
June 30, Mar 31, Dec 31, Sept 30,
-------- ------- ------- --------
Statement of Income
Interest and dividend
income $5,789 $5,788 $5,656 $5,621
Interest expense 2,818 2,731 2,696 2,671
Net interest income 2,968 3,057 2,960 2,950
Provision for loan losses 100 100 100 100
Non-interest income:
Securities gains (losses), net 1 - (5) (5)
Gains on sales of
loans, net 52 55 48 26
Service fees and other 357 319 340 331
Non-interest expense 2,109 2,167 2,131 2,159
Income before income taxes 1,169 1,164 1,112 1,043
Income tax provision 492 489 467 438
Net income 677 675 645 605
Financial Condition
Total assets $323,061 $317,013 $311,863 $306,171
Loans, net 166,141 163,876 158,545 155,794
Allowance for loan losses 5,452 5,084 5,022 4,931
Securities 119,368 122,766 117,254 119,064
Deposits 275,392 268,916 263,854 258,179
Borrowings 13,000 13,071 13,071 13,071
Shareholders' equity 31,719 31,593 32,739 32,172
Non-performing assets 3,585 4,131 5,084 5,683
Per Share Data
Earnings, diluted $0.17 $0.16 $0.15 $0.14
Cash dividends 0.06 0.06 0.06 0.05
Book value 8.27 8.13 8.10 7.96
Market price: (a)
High 11.750 9.750 9.750 7.500
Low 8.875 8.750 7.000 6.750
Statistical Data
Net interest margin 3.87% 4.08% 3.99% 4.01%
Efficiency ratio 62.43 63.16 63.75 65.38
Return on average assets 0.85 0.87 0.84 0.79
Return on average
shareholders' equity 8.50 8.26 7.84 7.49
Weighted average equivalent
shares outstanding,
diluted 4,030 4,153 4,199 4,179
NewMil Bancorp, Inc.'s Common Stock, par value $.50 per share ("Common
Stock") trades on the Nasdaq National Market tier of The Nasdaq Stock
Market under the symbol: NMSB. As of August 27, 1998, there were
1,630 shareholders of record of the Company's Common Stock.
(a) The above market prices reflect interdealer prices, without retail
markup, markdown or commissions, and may not necessarily represent
actual transactions.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There were no disagreements on accounting and financial disclosures
between NewMil and its independent accountants for which a Form 8-K
was required to be filed during the two most recent fiscal years or
for the period from June 30, 1998 to the date hereof.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item appears on pages 5 through 7 of
NewMil's Proxy Statement dated September 14, 1998 for the 1998 Annual
Meeting of Shareholders, under the captions "Nominees for Election for
a Three Year Term" and "Directors Continuing in Office". Such
information is incorporated herein by reference and made a part
hereof.
Item 11. EXECUTIVE COMPENSATION
The information required by this item appears on pages 7 through 13 of
NewMil's Proxy Statement dated September 14, 1998 for the 1998 Annual
Meeting of Shareholders, under the captions "Executive Compensation";
"Employee Benefit Plans"; "Report of the Board on Executive
Compensation"; and "Performance Graph". Such information is incorporated
herein by reference and made a part
hereof.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item appears on pages 5 through 7 of
NewMil's Proxy Statement dated September 14, 1998 for the 1998 Annual
Meeting of Shareholders, under the caption "Nominees for Election for
a Three Year Term" and "Directors Continuing in Office". Such
information is incorporated herein by reference and made a part
hereof.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appears on page 13 of NewMil's
Proxy Statement dated September 14, 1998 for the 1998 Annual Meeting
of Shareholders, under the caption "Transactions with Management and
Others". Such information is incorporated herein by reference and
made a part hereof.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as exhibits to this report and
appear on the pages indicated.
Financial Statements
--------------------
None.
(b) Reports on Form 8-K
-------------------
None.
(c) Exhibits
--------
The following documents are filed as Exhibit to this Form 10-K, as required
by Item 601 of Regulation S-K.
Exhibit No. Description
3.1 Certificate of Incorporation of NewMil (incorporated by
reference to Exhibit 3.1 to NewMil's Registration
Statement on Form S-4 (No. 33-10693) filed on December
9, 1986)
3.1.1 Amendment to Certificate of Incorporation of NewMil
increasing authorized shares of common stock from
6,000,000 to 20,000,000 (incorporated by reference to
the Registrant's 1994 Proxy Statement dated September
23, 1994, page A-1).
3.2 Bylaws of NewMil (incorporated by reference to Exhibit
3.2 to NewMil's Registration Statement on Form S-4 (No.
33-10693) filed on December 9, 1986)
4.1 Instruments Defining Rights of Security Holders
(Included in Exhibits 3.1 and 3.2)
10.1 The New Milford Savings Bank 1986 Stock Option and
Incentive Plan (incorporated by reference to Exhibit
10.1 to the Company's Registration Statement on Form
S-4 (No. 33-10693) filed on December 9, 1986)
10.2 The New Milford Savings Bank 1986 Stock Option and
Incentive Plan Incentive Stock Option Agreement and
Non-Qualified Stock Option Agreement (incorporated by
reference to the Registrant's 1988 Form 10-K).
10.3 1992 Stock Option Plan For Outside Directors of NewMil
Bancorp, Inc. (incorporated by reference to the
Registrant's 1992 Proxy Statement dated
September 22, 1992, pages 17 through 20).
10.5 Rights Agreement between NewMil Bancorp, Inc. and
American Stock Transfer and Trust Company as Rights
Agent dated as of July 19, 1994 concerning NewMil
Bancorp's shareholder rights plan of same date
(incorporated by reference to the Registrant's 1994
Form 10-K).
10.6 The NewMil Bancorp, Inc. Amended and Restated 1986
Stock Option and Incentive Plan (incorporated by
reference to the Registrant's 1995 Proxy Statement
dated September 20, 1995, pages A-1 to A-11).
10.7 Employment agreement between New Milford Savings Bank
and its President and CEO, Francis J. Wiatr, as of
March 31, 1994 (incorporated by reference to the
Registrant's 1995 Form 10-K).
10.8 Dividend reinvestment plan for NewMil Bancorp's
shareholders (incorporated by reference to the
Registrant's 1996 Form 10-K).
10.9 Change in control agreements between New Milford
Savings Bank and management (Messrs. Grant and McMahon,
Ms. Farrell and Ms. Shannon) (incorporated by reference
to the Registrant's 1996 Form 10-K).
10.10 The Amended and Restated 1992 Stock Option Plan for
Outside Directors of NewMil Bancorp, Inc. (incorporated
by reference to the Registrant's 1995 Proxy Statement
dated September 20, 1995, pages B-1 to B-4).
10.11 The consulting agreement between New Milford Savings
Bank and Anthony J. Nania.
10.12 The Amended 1986 Stock Option and Incentive Plan
(extending term until 2005 and increasing shares to
525,000), approved by shareholders October 1997.
10.13 First and Second Amendments to Employment Agreement of
Francis J. Wiatr, as of August, 1998.
10.14 Amendment to Bylaws of New Mil.
11.1 Statement regarding Computation of Net Income Per
Common Share.
18.3 Consent of PricewaterhoueCoopers LLP.
20.1 Proxy Statement dated September 14, 1998 for the Annual
Meeting of Shareholders, of NewMil Bancorp, Inc.
21.1 Subsidiaries of the Registrant.
(d) Financial Statement Schedules
-----------------------------
No financial statement schedules are required to be filed as Exhibits
pursuant to Item 14(d).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
NEWMIL BANCORP, INC.
/s/ Francis J. Wiatr
Francis J. Wiatr
Chairman of the Board, President
and Chief Executive Officer
September XX, 1998
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated,
on the dates indicated below.
/s/ Willis H. Barton, Jr.
Willis H. Barton, Jr.
Director
September 22, 1998
/s/ Herbert E. Bullock
Herbert E. Bullock
Director
September 22, 1998
/s/ Joseph Carlson II
Joseph Carlson II
Director
September 22, 1998
/s/ Laurie G. Gonthier
Laurie G. Gonthier
Director
September 22, 1998
/s/ Dr. John V. Haxo
Dr. John V. Haxo
Director
September 22, 1998
/s/ Betty F. Pacocha
Betty F Pacocha
Director and Secretary
September 22, 1998
/s/ Suzanne L. Powers
Suzanne L. Powers
Director
September 22, 1998
/s/ Francis J. Wiatr
Francis J. Wiatr
Chairman of the Board, President
and Chief Executive Officer
September 22, 1998
/s/ Mary C. Williams
Mary C. Williams
Director
September 22, 1998
/s/ B. Ian McMahon
B. Ian McMahon
Chief Financial Officer
September 22, 1998