Exhibit 99.1

 

PRESS RELEASE

 

 

Naugatuck Valley Financial Corporation Announces Their Second Quarter Results

 

Naugatuck, CT, August 7, 2014. Naugatuck Valley Financial Corporation (the “Company”) (NASDAQ Global Market: “NVSL”), the parent company of Naugatuck Valley Savings and Loan (the “Bank”), announced today the Company earned $94 thousand, or $0.01 per diluted share, for the quarter ended June 30, 2014 compared to a net loss of $4.8 million, or ($0.72) per diluted share, for the quarter ended June 30, 2013. Furthermore, the Company also announced that the Bank has completed the sale of $11.4 million in primarily classified loans in three separate transactions with investors over the past fifty days. These sales have further reduced the Bank’s level of nonperforming assets and continued the improvement in the Bank’s asset quality metrics.

 

“Strengthening the Bank’s balance sheet through improvements in its asset quality and returning to profitability have been the top priorities of this management team since the second quarter of 2013,” said William C. Calderara, President and Chief Executive Officer. “Under this leadership team, we have made significant improvement in asset quality, liquidity and cost of funds and returned the Bank to profitability during the past fourteen months. These loan sale transactions were a key step in further reducing our risk profile giving us an even stronger foundation to continue to build our Bank to better serve the customers and our market.”

 

The sold loans had a book balance of $10.4 million including $10.2 million in adversely classified loans, of which $4.7 million were nonaccrual loans. Net proceeds amounted to $8.7 million, or approximately 83% of the book balance of these loans. The improvement in the Bank’s asset quality resulting from these loan sales is represented in the following key ratios:

 

			At June 30, 2014 (1)				At March 31, 2014
Nonperforming assets to total assets			1.19%				2.31%
Adversely classified loans to total loans			2.15%				5.12%

 

(1)

Includes impact of loans sold in July 2014 which were held for sale at June 30, 2014.

 

In the current quarter, these loan sales resulted in a loss on sale of $1.9 million which was more than offset by the impact of a $2.5 million credit to provision for loan losses brought about by the reduction in nonperforming loans through sale, and the significant improvement in the Bank’s loan portfolio at June 30, 2014. During the same quarter in 2013, the Bank had loan sales of $20.8 million with net charge-offs of $5.1 million attributable to those loan sales. The $4.8 million net loss incurred in 2Q 2013 was largely due to the $3.6 million provision for loan losses during that quarter.

 

 

 

For the six months ended June 30, 2014, the Company incurred a net loss of $715 thousand compared to a net loss of $5.4 million for the same period in 2013. Loss per diluted share for the six months ended June 30, 2014 was ($0.11) compared to ($0.81) for the same period in 2013.

 

Operating Highlights

 

The Company’s operating results for the second quarter of 2014, when compared to the same period of 2013, were influenced by the following:

 

·

Provision for loan losses decreased by $6.0 million, or 170%, as asset quality improvements resulted in a $2.5 million credit provision in 2Q 2014 while $7.1 million in net charge-offs in 2Q 2013 drove the 2Q 2013 provision of $3.6 million.

	·	Noninterest income decreased by $278 thousand, or 30%, primarily on 64% less mortgage banking income driven by significantly lower mortgage origination and loan sale volumes during the 2014 quarter.

	·	Noninterest expenses increased by $819 thousand, or 13%, primarily due to the $1.9 million loss on loan sales during the 2014 quarter, which was a $1.2 million increase over the 2013 quarter for that expense category.

 

Net Interest Income

 

Net interest income for the quarter ended June 30, 2014 decreased $43 thousand, or 1%, to $4.3 million which remained relatively unchanged compared to the quarter ended June 30, 2013. While the Company’s average balance of earning assets for the quarter ended June 30, 2014 decreased by $9.0 million, or 2%, compared with the prior year comparable quarter, the net interest margin increased to 3.49% for the quarter ended June 30, 2014 compared with 3.46% for the same quarter in 2013. The improvement in net interest margin was the result of the decrease in the cost of funds of 19 basis points exceeding the decrease in the average yield on earning assets of 13 basis points. The decrease in the cost of funds was primarily the result of continued repricing of the Company’s deposits, which drove the cost of deposits down by 13 basis points. In addition, the average cost of the Company’s FHLB advances for the second quarter of 2014 decreased by 124 basis points to 1.36% from 2.60% for the quarter ended June 30, 2013 as a result of management’s restructuring its FHLB advances in the third quarter of 2013 and new FHLB advances borrowed at lower market rates. The reduction in the average yield on earning assets was attributable to the shift in the earning asset mix as the average balance of loans and overnight balances held at the Federal Reserve Bank of Boston decreased by $50.5 million, or 12%, and $17.3 million, or 78%, respectively, and the average balance of investment securities increased by $58.9 million, or 129%. While the average balance of interest bearing liabilities only increased by $0.4 million for the second quarter of 2014 compared to the same quarter in 2013, the $12.8 million, or 3%, decrease in the average balance of interest bearing deposits was exceeded by the $13.3 million, or 28%, increase in borrowings.

 

 

 

Credit Quality

 

The provision for loan losses for the three months ended June 30, 2014 was ($2.5) million compared to $3.6 million for the same quarter in 2013. As stated above, the decrease in the provision was the result of significant improvements in the inherent credit risk exposure in the Bank’s loan portfolio brought about by loan sales and diligent workout efforts over the past year. In comparing relative loss experience, the Bank’s net charge-offs for the three and six month periods ended June 30, 2014 decreased to $85 thousand and $111 thousand, respectively, compared to $7.1 million and $7.6 million for the three and six month periods ended June 30, 2013, respectively.

 

Nonperforming loans decreased $5.0 million, or 48%, to $5.5 million, or 1.50% of loans, at June 30, 2014 from $10.6 million, or 2.86% of loans, at March 31, 2014 and decreased $7.8 million, or 59%, from $13.4 million, or 3.61% of loans, at December 31, 2013. Nonperforming assets of $6.1 million at June 30, 2014 decreased $5.6 million from $11.7 million, or 2.31% of total assets, at March 31, 2014 and decreased $9.1 million from $15.2 million, or 3.13% of total assets, at December 31, 2013. Adversely classified loans (i.e. loans classified substandard or doubtful) decreased $11.0 million, or 58%, from $18.9 million, or 5.12% of total loans, at March 31, 2014 and decreased $8.4 million, or 51%, from $16.4 million, or 4.42% of total loans, at December 31, 2013. The decreases in these asset quality metrics were primarily attributable to $4.7 million in nonaccrual loans and $10.2 million in adversely classified loans sold during June and July 2014.

 

At June 30, 2014, the Bank’s allowance for loan losses represented 1.97% of loans as compared to 2.67% of loans at December 31, 2013.

 

Noninterest Income

 

Noninterest income for the quarter ended June 30, 2014 was $658 thousand compared to $936 thousand for the same quarter in 2013, a decrease of $278 thousand, or 30%. Mortgage banking income, which includes the gains associated with the sales of one-to-four family fixed rate mortgage loans in the secondary market and income derived from the servicing of mortgage loans for others, decreased by $253 thousand, or 64%, due to significantly lower volume of mortgage loans sold during the 2014 quarter.

 

Noninterest Expense

 

Noninterest expense was $7.3 million for the quarter ended June 30, 2014 compared to $6.5 million for the quarter ended June 30, 2013, an increase of $819 thousand, or 13%. The year-over-year increase was primarily attributable to the increase in expenses and loss relating to loan sales of $1.2 million ($1.9 million in the 2014 quarter compared with $765 thousand in the 2013 quarter). Partially offsetting this increase, professional fees decreased by $314 thousand, or 49%, primarily due to management’s efforts in reducing its risk profile and its cost control efforts.

 

 

 

Selected Balance Sheet Data

 

Total assets at June 30, 2014 of $512.1 million increased from $486.8 million at December 31, 2013, an increase of $25.3 million, or 5%. Loans held for sale increased by $4.0 million, most of which was attributable to loan sales in process at June 30, 2014. Loans receivable, gross decreased by $845 thousand, or less than 1%, primarily due to the reduction from loan sales in the second quarter of 2014 offsetting new loan production. Investment securities available for sale increased $36.6 million, or 74%, during the six months ended June 30, 2014 as management grew the investment portfolio to increase the Bank’s net interest income.

 

Total liabilities at June 30, 2014 of $453.4 million increased $24.9 million, or 6%, from $428.5 million at December 31, 2013 primarily due to the $28.8 million increase in FHLB advances utilized to fund the increase in the Bank’s investment portfolio. During this six month period, deposits decreased $4.4 million, or 1%, as noninterest bearing transaction accounts decreased by $2.7 million, or 4%, and interest bearing deposits, primarily certificates of deposit, decreased by $2.2 million, or less than 1%.

 

Total stockholders’ equity was $58.7 million at June 30, 2014 compared to $58.2 million at December 31, 2013. The increase in stockholders’ equity was due to the net loss of $715 thousand for the six month period ended June 30, 2014 being more than offset by an increase in accumulated other comprehensive income of $1.1 million attributable to an increase in unrealized gain on available-for-sale investment securities during this period.

 

About Naugatuck Valley Savings and Loan

 

Naugatuck Valley Savings and Loan is headquartered in Naugatuck, Connecticut with eight other branches in Southwest Connecticut. The Bank is a community-oriented financial institution dedicated to serving the financial service needs of consumers and businesses within its market area.

 

Forward- Looking Statements

 

Certain statements in this press release that are not historical facts may constitute “forward-looking statements” within the meaning of the federal securities laws. These statements are based on the Company’s current expectations regarding its business strategies, intended results and future performance. Forward-looking statements are preceded by terms such as “expects”, “believes”, “anticipates”, “intends” and similar expressions.

 

 

 

Management’s ability to predict results or the effect of future plans or strategies is inherently uncertain. Factors which could affect actual results include interest rate trends, the general economic climate in the market area in which the Company operates, as well as nationwide, the Company’s ability to control costs and expenses, competitive products and pricing, loan delinquency rates and changes in federal and state legislation and regulation. Additional factors, risks and uncertainties that may affect our results are discussed in the Company’s Annual Report on Form 10-K and updated by the Company’s Quarterly Reports on Form 10-Q and other filings submitted to the Securities and Exchange Commission. These factors, risks and uncertainties should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements. Forward-looking statements speak only as of the date on which they are made. The Company does not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made.

 

 

Contact: Naugatuck Valley Financial Corporation

William Calderara or James Hastings

1-203-720-5000

 

 

 

 

		June 30,				December 31,
		2014				2013
		(In thousands)
ASSETS
Cash and due from depository institutions		$	8,699			$	26,330
Investment in federal funds			18				44
Cash and cash equivalents			8,717				26,374
Investment securities available-for-sale, at fair value			86,386				49,771
Investment securities held-to-maturity, at amortized cost			15,480				18,149
Loans held for sale			5,052				1,079
Loans receivable, net			362,324				360,568
Accrued income receivable			1,712				1,494
Foreclosed real estate and repossessed assets, net			536				1,846
Premises and equipment, net			9,390				9,364
Bank owned life insurance			10,261				10,132
Federal Home Loan Bank of Boston (“FHLB”) stock, at cost			5,210				5,444
Other assets			6,996				2,560
Total assets		$	512,064			$	486,781
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits		$	385,980			$	390,847
FHLB advances			54,164				25,293
Other borrowed funds			3,967				4,173
Mortgagors' escrow accounts			4,630				4,392
Other liabilities			4,673				3,842
Total liabilities			453,414				428,547
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value; 1,000,000 shares authorized;
no shares issued or outstanding			—				—
Common stock, $.01 par value; 25,000,000 shares authorized;
7,002,366 shares issued; 7,002,208 shares outstanding at
June 30, 2014 and December 31, 2013, respectively			70				70
Paid-in capital			58,759				58,757
Retained earnings			1,607				2,322
Unearned employee stock ownership plan ("ESOP") shares (326,751 shares at
June 30, 2014 and December 31, 2013)			(2,824	)			(2,824	)
Treasury Stock, at cost (158 shares at June 30, 2014 and
December 31, 2013)			(1	)			(1	)
Accumulated other comprehensive income (loss)			1,039				(90	)
Total stockholders' equity			58,650				58,234
Total liabilities and stockholders' equity		$	512,064			$	486,781

 

 

 

 

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(In thousands, except share data)		2014				2013				2014				2013
Interest and fees on loans		$	4,200			$	5,021			$	8,412			$	10,072
Interest and dividends on investments and deposits			856				292				1,518				612
Total interest income			5,056				5,313				9,930				10,684
Interest expense
Interest on deposits			598				752				1,203				1,538
Interest on borrowed funds			189				249				342				543
Total interest expense			787				1,001				1,545				2,081
Net interest income			4,269				4,312				8,385				8,603
Provision for loan losses			(2,483	)			3,550				(2,483	)			3,850
Net interest income after provision for loan losses			6,752				762				10,868				4,753
Noninterest income
Service charge income			176				182				350				360
Fees for other services			138				180				232				290
Mortgage banking income			140				393				276				895
Income from bank owned life insurance			63				70				129				140
Net gain on sale of investments			34				(4	)			193				(4	)
Income from investment advisory services, net			74				87				168				139
Other income			33				28				63				53
Total noninterest income			658				936				1,411				1,873
Noninterest expense
Compensation, taxes and benefits			2,973				2,896				5,989				5,573
Occupancy			582				456				1,124				946
Professional fees			323				637				842				1,296
FDIC insurance premiums			270				249				531				454
Insurance			117				124				262				282
Computer processing			327				315				697				631
Expenses on foreclosed real estate, net			168				202				378				559
Writedowns on foreclosed real estate			11				49				38				60
Directors compensation			70				77				172				211
Advertising			118				108				213				195
Supplies			60				48				129				109
Expenses and loss related to sale of loans			1,940				765				1,940				765
Other expenses			357				571				679				935
Total noninterest expense			7,316				6,497				12,994				12,016
Income (loss) before provision (benefit) for income taxes			94				(4,799	)			(715	)			(5,390	)
Provision (benefit) for income taxes			—				—				—				—
Net income (loss)		$	94			$	(4,799	)		$	(715	)		$	(5,390	)
Earnings (loss) per common share - basic and diluted (1)		$	0.01			$	(0.72	)		$	(0.11	)		$	(0.81	)

 

(1)

Based on the following weighted average number of shares:

 

Basic			6,675,457				6,610,729				6,675,457				6,610,729
Diluted			6,716,556				6,610,729				6,675,457				6,610,729

 

 

 

 

		For the Three Months								For the Six Months
SELECTED PERFORMANCE RATIOS: (1)		Ended June 30,								Ended June 30,
		2014				2013				2014				2013
Return on average assets			0.07%				N/M%				(0.29)%				N/M%
Return on average equity			0.65				N/M				(2.48)				N/M
Interest rate spread			3.43				3.37				3.46				3.35
Net interest margin			3.49				3.46				3.52				3.44

 

ASSET QUALITY RATIOS:		At June 30,				At March 31,				At December 31,
		2014				2014				2013
		(Unaudited)
		(Dollars in thousands)
Allowance for loan losses		$	7,297			$	9,865			$	9,891
Allowance for loan losses as a percent of total loans			1.97	%			2.67	%			2.67	%
Allowance for loan losses as a percent of
nonperforming loans			131.52	%			93.15	%			73.91	%
Nonperforming loans (3)		$	5,548			$	10,590			$	13,383
Nonperforming loans as a percent of total loans			1.50	%			2.86	%			3.61	%
Nonperforming assets (2)(3)		$	6,084			$	11,704			$	15,229
Nonperforming assets as a percent of total assets			1.19	%			2.31	%			3.13	%

 

(1)

All applicable ratios reflect annualized figures.

(2)

Nonperforming assets consist of nonperforming loans and foreclosed real estate.

(3)

Excludes loans held for sale at June 30, 2014 which were subsequently sold in July 2014.

 

N/M - Not meaningful