SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1996 Commission File Number 0-14018
BNH BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)
CONNECTICUT 06-1126899
(State of incorporation (I.R.S. Employer Identification
or organization) Number)
209 CHURCH STREET, NEW HAVEN, CONNECTICUT 06510
(Address of principal executive offices)
Registrant's telephone number, including area code (203) 498-3500
Former name, former address and former fiscal year, if changed since
last report NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES [ X ] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS August 11, 1996
Common Stock (no par value) 3,683,662
BNH BANCSHARES, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements: Page
Consolidated Statement of Financial Position
as of June 30, 1996 and December 31, 1995 3
Consolidated Statement of Income for the three and six
months ended June 30, 1996 and June 30, 1995 4
Consolidated Statement of Changes in Shareholders'
Equity for the six months ended June 30, 1996 and
June 30, 1995 5
Consolidated Statement of Cash Flows for the six
months ended June 30, 1996 and June 30, 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. Other Information
Items 1-3 Not Applicable 26
Items 4 Submission of Matters to a Vote of
Security-Holders 26
Item 5 Not Applicable 27
Item 6 Exhibits and Reports on Form 8-K 27
SIGNATURES 28
BNH BANCSHARES, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
ASSETS June 30, 1996 Dec. 31, 1995
______________ _____________
(unaudited)
Cash and due from banks $ 22,192,914 $ 19,818,406
Federal funds sold 5,250,000 5,800,000
Investment securities:
Held to Maturity, at amortized cost 23,835,075 23,830,868
Available for Sale, at market value 41,627,364 42,766,901
Loans less unearned discount 213,070,590 204,495,433
Less allowance for loan losses (4,722,769) (5,892,675)
___________ ___________
Loans - net 208,347,821 198,602,758
Property and equipment-net 3,874,551 3,891,749
Accrued interest receivable 2,080,231 2,052,832
Other real estate owned 1,672,565 614,272
Other assets 1,959,171 1,533,294
___________ ___________
TOTAL $310,839,692 $298,911,080
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Demand deposits $ 53,852,590 $ 52,320,298
NOW accounts 45,476,580 44,018,506
Money market accounts 30,019,264 29,395,173
Savings deposits 32,808,334 32,508,789
Time deposits under $100,000 109,019,139 103,719,077
Time deposits $100,000 or more 14,421,897 14,802,638
___________ ___________
Total deposits 285,597,804 276,764,481
FHLB Advances 7,842,635 5,546,683
Accrued interest payable 419,875 404,262
Other liabilities 437,931 602,931
___________ ___________
Total liabilities 294,298,245 283,318,357
Shareholders' equity:
Common stock, $.01 stated value, par
value $1, issued 3,688,439 shares
Authorized 30,000,000 36,884 36,884
Capital surplus 47,645,186 47,634,086
Undivided profit/(loss) (30,076,909) (31,581,840)
Net unrealized losses on investment (816,543) (249,216)
Treasury stock (4,777 shares) (247,171) (247,171)
_____________ _____________
Total shareholders' equity 16,541,447 15,592,723
_____________ _____________
TOTAL $310,839,692 $298,911,080
See accompanying Notes to Consolidated Financial Statements.
BNH BANCSHARES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended June 30, Six Months June 30,
1996 1995 1996 1995
INTEREST INCOME:
Loans $4,483,177 $4,694,075 $8,910,408 $9,286,380
Investment
securities:
Held to maturity 323,555 491,511 652,908 994,899
Available for sale 617,587 474,126 1,199,710 941,154
Federal funds sold 38,853 123,307 88,587 131,207
__________ __________ __________ __________
Total interest income 5,463,171 5,783,019 10,851,613 11,353,640
INTEREST EXPENSE:
Time deposits
$100,000 or more 197,734 193,667 396,191 333,155
Time deposits
under $100,000 1,494,126 1,562,528 2,968,131 2,922,389
Other deposits 588,905 635,771 1,172,376 1,185,985
Other borrowings 107,978 148,296 213,929 335,636
_________ __________ __________ __________
Total interest
expense 2,388,745 2,540,262 4,750,627 4,777,165
_________ __________ __________ __________
NET INTEREST INCOME 3,074,425 3,242,757 6,100,986 6,576,475
PROVISION FOR LOAN
LOSSES (526,000) (894,000) (1,102,000) (2,288,000)
__________ ___________ __________ __________
NET INTEREST INCOME
AFTER PROVISION FOR
LOAN LOSSES 2,548,425 2,348,757 4,998,986 4,288,475
OTHER INCOME:
Service charges 549,556 545,094 1,058,369 1,080,439
Other income 303,961 203,087 575,682 356,599
Net gain on
investment securities 0 5,710 7,242 5,710
_________ __________ __________ _________
Total other income 853,517 753,891 1,641,293 1,442,748
_________ __________ __________ _________
OPERATING EXPENSES:
Salaries and employee
benefits 1,440,006 1,349,128 2,811,346 2,710,667
Occupancy 318,218 305,233 672,646 640,373
Advertising and
promotion 140,808 157,754 226,432 271,273
Office stationery
and supplies 83,633 57,823 159,291 111,256
Examination and
professional fees 182,046 144,146 383,467 292,375
Insurance 108,303 264,140 215,276 529,793
Other real estate
owned 20,182 133,434 66,426 302,288
Other 572,626 473,548 1,060,965 919,332
_________ __________ _________ _________
Total operating
expenses 2,865,821 2,885,206 5,595,849 5,777,357
NET INCOME(LOSS)
BEFORE INCOME TAXES 536,121 217,442 1,044,430 (46,134)
(BENEFIT)PROVISION
FOR INCOME TAXES (235,000) 5,000 (460,500) (480,500)
_________ ___________ _________ _________
NET INCOME $771,121 $212,442 $1,504,930 $434,366
NET INCOME PER
COMMON SHARE $0.21 $0.06 $0.41 $0.12
Weighted average
number of common
shares outstanding
during the period 3,688,307 3,681,663 3,687,378 3,681,663
See accompanying Notes to Consolidated Financial Statements.
BNH BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
June 30, 1996 June 30, 1995
______________ ______________
SHAREHOLDERS' EQUITY at beginning
of period $15,592,723 $12,355,659
Net income 1,504,930 434,366
Change in unrealized appreciation
(depreciation) on investment securities
available for sale (567,327) 1,198,269
Proceeds from stock options exercised
2nd quarter 11,120
___________ ___________
SHAREHOLDERS' EQUITY at end of period $16,541,447 $13,988,294
See accompanying Notes to Consolidated Financial Statements.
BNH BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six months ended June 30,
1996 1995
_____________________________
OPERATING ACTIVITIES
Net income $ 1,504,930 $ 434,366
Adjustments for items not affecting cash:
Provision for loan losses 1,102,000 2,288,000
Depreciation and amortization of property
and equipment 226,286 260,220
Amortization of bond premiums and discounts (132,552) (42,484)
Gain from the sale of available for sale
securities (7,242) 0
Loss/writedown on other real estate owned 22,077 278,279
(Increase) in interest receivable (27,399) (39,748)
Increase in interest payable 15,613 87,629
Other,net (590,874) (350,101)
_________ _________
Net cash provided by operating activities 2,112,839 2,916,161
_________ _________
FINANCING ACTIVITIES
Net increase(decrease) in demand, NOW, money
market and savings accounts 3,914,002 (7,544,592)
Net increase in time deposits 4,919,321 9,752,574
Net (decrease)in federal funds purchased and
securities sold under repurchase agreements 0 (2,291,352)
Proceeds from FHLB advances 2,295,952 2,182,160
___________ __________
Net cash provided by financing activities 11,129,275 2,098,790
___________ __________
INVESTING ACTIVITIES
Net (increase)decrease in federal funds sold 550,000 (4,200,000)
Maturities of securities held to maturity 0 2,100,000
Maturities of securities available for sale 17,049,185 2,046,968
Purchase of securities available for sale (16,351,781) (12,484,619)
Proceeds from the sale of available for sale
securities 10,392 7,024,703
Net loans originated and matured (10,847,063) (2,697,615)
Proceeds from sale of other real estate owned 609,981 694,011
Purchase/capitalization of OREO property (1,690,352)
Purchase of property and equipment (209,088) (140,517)
___________ ___________
Net cash used by investing activities (10,878,726) (7,657,069)
SUPPLEMENTAL DATA
Cash received upon exercising stock options 11,120
(Decrease)increase in cash 2,374,508 (2,642,118)
Cash and due from banks at beginning of year 19,818,406 22,011,625
___________ ___________
Cash and due from banks at end of period $22,192,914 $19,369,507
Cash paid for:
Interest expense $ 4,735,012 $ 4,689,536
Income taxes $ 15,500 $ 23,500
Non-cash transfers from loans receivable to other real estate owned were
$575,126 and $96,000, for the six months ending June 30, 1996 and 1995,
respectively.
Non-cash transfers from other real estate owned to loans receivable were
$252,800 for the six months ending June 30, 1995. There were no cash
transfers from other real estate owned to loans receivable for the six months
ended June 30, 1996.
See accompanying Notes to Consolidated Financial Statements.
BNH BANCSHARES, INC.
Notes to Consolidated Financial Statements
1. Basis of Presentation
The accompanying consolidated financial statements are unaudited and include
the accounts of BNH Bancshares, Inc. (the "Company") and its subsidiaries,
The Bank of New Haven (the "Bank") and Northeastern Capital Corporation. The
financial statements reflect, in management's opinion, all appropriate
adjustments consisting of normal recurring adjustments necessary for a fair
presentation of the Company's financial position, the results of its
operations and the change in its cash flows for the periods presented. These
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's 1995 Annual Report to
Shareholders.
All per share data disclosed has been adjusted to reflect a one-for-four
reverse stock split of the Company's issued common stock which shareholders
voted to approve at the Company's Annual Meeting on April 23, 1996.
2. Loan Portfolio
June 30, Dec. 31,
1996 1995
(dollars in thousands)
Commercial $ 53,706 $ 58,746
Real estate:
Construction 750 400
Commercial mortgage 53,711 54,518
Residential mortgage 50,279 45,399
Consumer 54,625 45,433
________ ________
Total loans 213,071 204,496
Allowance for loan losses (4,723) (5,893)
________ ________
Loans - net $208,348 $198,603
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company earned net income for the six months ended June 30, 1996 of
$1,505,000 as compared to $434,000 for the same 1995 period. Net income for
the three months ended June 30, 1996 was $771,000 as compared to $212,000 for
the same 1995 period. The most significant difference when comparing both the
three month and six month financial results of 1996 and 1995 was the
Company's provision for loan losses. Provisions for loan losses were
$1,102,000 for the six month period ended June 30, 1996 compared to
$2,288,000 for the same 1995 period. During the first six months of 1996, the
Company also experienced lower OREO expense as compared to the same 1995
period. Losses on sales of OREO properties and writedowns of real estate
values of OREO properties were $22,000 for the six month period ended June
30, 1996, as compared to $278,000 for the same 1995 period. Insurance Expense
decreased significantly during the first six months of 1996, to $215,276 from
$529,793 for the same 1995 period. This is largely due to a decrease in
premiums assessed on the Company by the FDIC. In addition, as a result of
the Company's improving profitability and its available net operating loss
carryforwards, the Company recognized noncurrent deferred tax benefits of
$476,000 during the first six months of 1996.
The return on average assets was 1.00% for the six months ended June 30, 1996
compared to .30% for the same 1995 period. Net income was $0.21 for the
three months ended June 30, 1996 compared with $0.06 per share for the three
months ended June 30, 1995. Net income was $0.41 per share for the six months
ended June 30, 1996 compared with $0.12 per share for the same 1995 period.
All per share data has been adjusted for a recent reverse stock split which
occurred during the second quarter of 1996.
REGULATORY MATTERS
The Federal Deposit Insurance Corporation ("FDIC"), after completion of a
joint examination of the Bank with the Connecticut Banking Department as of
December 31, 1995, has removed its Memorandum of Understanding (the
"Memorandum"), issued on May 16, 1995. The Memorandum required, among other
things, that the Bank achieve certain Tier 1 leverage and total risk-based
capital requirements. The Bank was required to have a Tier 1 leverage
capital ratio of at least 5% by June 30, 1996 and 6% by June 30, 1997. Also,
the Bank was required to maintain a total risk-based capital ratio of at
least 8% throughout the existence of the Memorandum. As of September 30,
1995, the Bank met the first capital target identified in the Memorandum, as
its Tier 1 leverage capital and total risk-based capital ratios were 5.0% and
8.8%, respectively. As of June 30, 1996, the Bank's Tier 1 leverage capital
and total risk-based capital ratios are 5.7% and 9.7%. The Company
anticipates that it will achieve the second Tier 1 leverage capital ratio
requirement, 6%, through future earnings. In removing the Memorandum, the
FDIC and the Company have agreed that the Company will continue efforts
toward meeting the capital goals outlined in the Memorandum, notify the State
regulators prior to paying dividends, and establish a goal for the end of
1996 that classified assets will be equal to 40% of total capital and
eligible reserves; and, at the end of 1997, that this ratio will be 30%.
NET INTEREST INCOME
Net interest income is the difference between the interest earned on loans
and investments and the interest paid on deposits and other borrowings.
Net interest income was $6,101,000 for the six month period ended June 30,
1996 compared to $6,576,000 for the same 1995 period, representing a decrease
of $475,000, or 7%. Net interest income was $3,074,000 for the three month
period ended June 30, 1996 compared to $3,242,000 for the same 1995 period,
representing a decrease of $168,000, or 5%. The decrease in net interest
income for both the three and six month comparative periods is primarily
attributed to both decreased yields on and lower levels of average earning
assets partially offset by a proportionately smaller decrease in the levels
of average paying liabilities. Although the yields on average paying
liabilities decreased 12 basis points when comparing the three month periods
ended June 30, 1995 and June 30, 1996, the yields increase by 6 basis points
when comparing the respective 6 month periods.
The net interest margins for the six month periods ended June 30, 1996 and
1995 were 4.47% and 4.72%, respectively, a decrease of 25 basis points. The
net interest margins for the three months ended June 30, 1996 and 1995 were
4.45% and 4.57%, respectively, a decrease of 13 basis points.
Interest income decreased to $10,852,000 for the six months ended June 30,
1996 from $11,354,000 for the same 1995 period, a decrease of $502,000, or
4.4%. Interest income decreased to $5,463,000 for the three months ended June
30, 1996 from $5,783,000 for the same 1995 period, a decrease of $320,000, or
6%. The Company's average earning assets decreased to $274,257,000 for the
six months ended June 30, 1996 from $280,914,000 for the same 1995 period, or
2%. The reduction in interest income can be primarily attributed to a
decrease in both the average loan and investment portfolios.
Interest expense decreased to $4,751,000 for the six months ended June 30,
1996 from $4,777,000 for the same 1995 period, a decrease of $26,000, or
.54%. Interest expense decreased to $2,389,000 for the three months ended
June 30, 1996 from $2,540,000 for the same 1995 period, a decrease of
$151,000, or 6%. This decrease reflects the reduction in average paying
liabilities and their associated interest rates from June 30, 1995 to June
30, 1996. Average paying liabilities decreased to $228,000 for the six months
ended June 30, 1996 from $234,010,000 for the same period in 1995, a decrease
of $5,354,000, or 2.3%. The Company's average interest rate on paying
liabilities increased 6 basis points from 4.12% for the six months ended June
30, 1995 to 4.18% for the six months ended June 30, 1996. The Company
anticipates that upward pressure on market interest rates for deposits during
the next six months will continue to increase the Company's overall cost of
funds during the remainder of 1996.
Three Months Ended June 30,
(in thousands of dollars)
(Unaudited)
1996 | 1995
|
Average Average | Average Average
ASSETS Balance Interest Yield | Balance Interest Yield
|
Investments: |
Held to Maturity, |
at amortized cost $ 23,834 $ 323 5.46% | $ 36,685 $ 491 5.37%
|
Available for |
Sale(2) 42,055 618 5.91% | 31,476 474 6.04%
|
Federal funds sold 2,920 39 5.35% | 8,595 124 5.78%
|
Loans - net(1) 208,789 4,483 8.64% | 208,012 4,694 9.05%
________ ______ _____ | ________ ______ _____
|
Total average |
earning assets (1) $277,598 $5,463 7.92% | $284,768 $5,783 8.15%
|
INTEREST BEARING |
LIABILITIES |
____________________________ |
Deposits: |
|
NOW accounts $ 40,590 $ 151 1.50% | $ 37,765 $ 164 1.75%
|
Money markets 29,039 244 3.37% | 30,512 251 3.30%
|
Savings deposits 30,384 194 2.57% | 31,826 220 2.77%
|
Time deposits |
under $100,000 109,225 1,494 5.50% | 114,277 1,562 5.48%
|
Time deposits over |
$100,000 or more 14,629 198 5.44% | 14,442 194 5.38%
________ ______ _____ | ________ ______ _____
Total interest |
bearing deposits $223,867 $2,281 4.10% | 228,7822 $2,391 4.19%
|
Other borrowings 7,705 108 5.64% | 9,551 149 6.26%
________ ______ _____ | ________ ______ _____
Total interest |
bearing deposits |
& other borrowings $231,572 $2,389 4.15% | $238,373 $2,540 4.27%
|
Net interest |
income $3,074 | $3,243
|
Interest rate |
spread (1) 3.77% | 3.88%
|
Net interest |
margin (1) 4.45% | 4.57%
(1) Interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities (which do not include non-interest bearing
demand accounts), and net interest margin represents net interest income as a
percentage of average interest-earning assets, including the average daily
amount of non-performing loans.
(2) The average balance and related weighted average yield calculations are
based on average historical amortized cost for the period presented.
For the Year to Date period ended June 30,
(in thousands of dollars)
(Unaudited)
1996 | 1995
|
Average Average | Average Average
ASSETS Balance Interest Yield | Balance Interest Yield
|
Investments: |
Held to Maturity, |
at amortized cost $ 23,833 $ 653 5.51% | $ 37,239 $ 994 5.38%
|
Available for |
Sale(2) 41,048 1,200 5.88% | 31,080 942 6.11%
|
Federal funds sold 3,377 89 5.28% | 4,547 132 5.86%
|
Loans - net(1) 206,000 8,910 8.70% | 208,048 9,286 9.00%
________ ______ _____ | ________ ______ _____
|
Total average |
earning assets (1) $274,257 $10,852 7.96% | $280,914 $11,354 8.15%
|
INTEREST BEARING |
LIABILITIES |
____________________________ |
Deposits: |
|
NOW accounts $ 40,021 $ 299 1.50% | $ 37,904 $ 329 1.75%
|
Money markets 29,004 483 3.35% | 26,617 406 3.07%
|
Savings deposits 30,840 391 2.55% | 32,730 451 2.78%
|
Time deposits |
under $100,000 106,703 2,968 5.59% | 112,629 2,922 5.23%
|
Time deposits over |
$100,000 or more 14,628 396 5.45% | 13,085 333 5.13%
________ ______ ______ | ________ ______ _____
Total interest |
bearing deposits $221,196 $4,537 4.12% | $222,964 $4,441 4.02%
|
Other borrowings 7,460 214 5.77% | 11,045 336 6.13%
________ ______ _____ | ________ ______ _____
Total interest |
bearing deposits |
& other borrowings $228,656 $4,751 4.18% | $234,010 $4,777 4.12%
|
Net interest |
income $6,101 | $6,577
|
Interest rate |
spread (1) 3.78% | 4.03%
|
Net interest |
margin (1) 4.47% | 4.72%
(1) Interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities (which do not include non-interest bearing
demand accounts), and net interest margin represents net interest income
as a percentage of average interest-earning assets, including the average
daily amount of non-performing loans.
(2) The average balance and related weighted average yield calculations
are based on average historical amortized cost for the period presented.
OTHER INCOME
Other income increased $198,000, or 14%, to $1,641,000 for the six months
ended June 30, 1996 from $1,443,000 for the same 1995 period. In
addition, other income increased $100,000, or 13%, to $854,000 for the
three months ended June 30, 1996 from $754,000 for the same 1995 period.
This increase is primarily due to increased revenue from mortgage
placement fees and installment loan origination fees. Mortgage placement
fees, which are fees the company earns for originating residential first
mortgage applications increased $77,000 or 113% for the six months ended
June 30, 1996 to $145,000 from $68,000 for the six month period ended
June 30, 1995 and $34,000 or 89% for the three months ended June 30, 1996
to $72,000 from $38,000 for the three month period ended June 30, 1996.
Installment loan placement fees, which are fees the Company earns for
originating installment loan applications, increased $89,000 or 636% for
the six months ended June 30, 1996 to $103,000 from $14,000 for the same
1995 period and increased $78,000 for the three month period ended June
30, 1996 to $83,000 from $5,000 for the same 1995 period. The aggressive
increase in such fees is a result of the Company's active participation
in loan placement programs where both mortgage and installment loans are
brokered or sold to third party financial institutions.
PROVISION FOR LOAN LOSSES
The provision for loan losses charged to operations reflects management's
analysis of the loan portfolio and determination of an adequate allowance
for loan losses to provide for probable losses in the loan portfolio.
The potential for loss in the portfolio reflects the risks and
uncertainties inherent in the extension of credit.
The determination of the adequacy of the allowance for loan loss is based
upon management's assessment of risk elements in the portfolio, factors
affecting loan quality and assumptions about the economic environment in
which the Company operates. The Company utilizes a loan grading system,
based upon FDIC parameters, and utilizes that assessment of the overall
quality of the loan portfolio in the process of determining an adequate
allowance for loan loss level. This system involves an ongoing review of
the commercial and real estate loan portfolios, with added emphasis on
the Company's larger commercial credits and nonperforming loans. Various
factors are involved in determining the loan grade, including the cash
flow and financial status of the borrower, the existence and nature of
collateral, and general economic conditions and their impact on the
borrower's industry. These reviews are dependent upon estimates,
appraisals and judgments, which can change quickly due to economic
conditions and the Company's perceptions as to how these conditions
affect the collateral securing its current and past due loans as well as
the borrower's economic prospects. In each reporting period, the
allowance for loan losses is reviewed based on the most recent loan
grading data and is adjusted to the amount deemed necessary, in the
Company's judgment, to maintain adequate allowance for loan loss levels.
The provision for loan losses charged against earnings in the first six
months of 1996 was $1,102,000 compared with $2,288,000 in the same 1995
period. Net loan charge-offs for the six months ended June 30, 1996 and
1995 were $2,272,000 and $2,398,000, respectively. The provision for loan
losses charged against earnings in the second quarter of 1996 was
$526,000 compared with $894,000 in the same 1995 period. Net loan charge-
offs for the three months ended June 30, 1996 and June 30, 1995 were
$967,000 and $1,581,000, respectively.
In establishing the allowance for loan losses, management has considered
the possible deterioration of the collateral securing its past due loans.
As of June 30, 1996, the Company's allowance for loan losses was
$4,723,000, or 2.2% of total loans, as compared to $6,717,000, or 3.2% of
total loans, as of June 30, 1995. The allowance for loan losses was
$5,893,000, or 2.9% as of December 31, 1995. The ratio of the allowance
for loan losses to nonaccrual and restructured loans and accruing loans
past due 90 days or more was 75.8% as of June 30, 1996 as compared to
76.8% and 69.4% as of December 31, 1995 and June 30, 1995, respectively.
As of June 30, 1996, nonaccrual loans were $4,452,000 as compared with
$5,964,000 as of December 31, 1995, and $6,670,000 as of June 30, 1995.
As of June 30, 1996, approximately $2,787,000 of the loans in the
nonaccrual portfolio were collateralized partially by commercial or
residential real estate or business assets and approximately $482,000 of
nonaccrual loans were unsecured. The Company believes that its allowance
for loan losses is adequate to absorb any potential reduction of the net
carrying value in the nonaccrual portfolio. The ratio of nonaccrual loans
to total loans declined from 3.2% at June 30, 1995 to 2.1% at June 30,
1996.
Management, after careful consideration of the above factors, is of the
opinion that the allowance for loan losses as of June 30, 1995 is
adequate. However, because the economic recovery in Connecticut appears
to be progressing slower than in the nation, as a whole, it is difficult
to predict how the future economy may impact the Company's loan
customers. If economic conditions continue to slowly improve during
1995, management believes that the level of its nonaccrual loans will
continue to decline during the next several quarterly periods. However,
the level of the Company's nonperforming assets will continue to
negatively impact the Company's profitability in future quarterly
periods. The nature of the Connecticut economy will continue to
influence the levels of loan charge-offs, nonaccrual loans and the
allowance for loan losses, and management will appropriately adjust the
allowance as considered necessary to reflect future changes in risk.
The following tables set forth quarterly information on nonperforming
assets, restructured loans, accruing loans past due 90 days or more and
loans charged-off for the quarterly periods from June 30, 1995 to June
30, 1996.
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
Quarter Ended
(dollars in thousands)
June 30, March 31, Dec. 31, Sept. 30, June 30,
1996 1996 1995 1995 1995
Balance
beginning
of period $5,164 $5,893 $5,880 $6,717 $7,404
Provision
charged to
income 526 576 600 775 894
Loans charged
off:
Commercial 696 1,064 537 1,313 1,553
Real Estate:
Commercial
Mtg. 182 15 1 225 0
Residential
Mtg. 108 133 14 36 0
Consumer 109 117 93 86 99
______ ______ ______ ______ _______
Total Loans
Charged-off 1,095 1,329 645 1,660 1,652
Recoveries 128 24 58 48 71
______ ______ _______ ______ _______
Net loans
charged-off 967 1,305 587 1,612 1,581
______ ______ ______ ______ ______
Balance, end
of period $4,723 $5,164 $5,893 $5,880 $6,717
Ratios:
Net loans
charged-off
to avg. loans 0.46% 0.64% 0.29% 0.80% 0.76%
Allowance for
loan losses to
total loans 2.22% 2.54% 2.88% 2.92% 3.24%
NONACCRUAL LOANS, RESTRUCTURED LOANS
AND OTHER REAL ESTATE OWNED
(in thousands)
QUARTER ENDED June 30, March 31, Dec. 31, Sept. 30, June 30,
1996 1996 1995 1995 1995
Nonaccrual loans:
Commercial $ 1,665 $ 1,375 $ 1,806 $ 2,422 $ 2,688
Real Estate:
Commercial 2,336 3,140 3,628 3,044 3,509
Residential 185 520 292 773 420
Consumer 266 238 238 381 53
______ ______ ______ ______ ______
Total nonaccrual
loans 4,452 5,273 5,964 6,620 6,670
Other Real
Estate Owned-
net 1,673 1,618 614 1,063 1,102
______ ______ ______ _______ _______
Total
nonperforming
assets 6,124 6,890 6,578 7,683 7,772
Restructured
loans 1,622 1,650 1,570 2,759 2,824
_______ _______ _______ _______ _______
Total
nonperforming
assets &
restructured
loans $ 7,746 $ 8,540 $ 8,148 $10,442 $10,596
Accruing loans
past due
90 days or more:
Commercial 5 215 0 194 1
Real Estate:
Construction 0 0 0 0 0
Commercial 0 0 0 0 0
Residential 0 199 0 75 0
Consumer 151 126 139 110 185
______ ______ ______ ______ ______
Total accruing
loans past
due 90 days
or more $ 156 $ 540 $ 139 $ 379 $ 186
Allowance for
loan losses $ 4,723 $ 5,164 $ 5,893 $ 5,880 $ 6,717
SFAS 114
impaired loans $ 2,997 $ 4,252 $ 5,590 $ 7,914 $ 9,535
Ratio of
nonperforming
assets to total
assets 2.0% 2.3% 2.2% 2.6% 2.6%
Ratio of
nonperforming
assets,
restructured
loans & accruing
loans past due
90 days or more
to total assets 2.5% 3.1% 2.8% 3.6% 3.6%
Ratio of
nonperforming
assets to total
loans and OREO 2.9% 3.4% 3.2% 3.8% 3.7%
Ratio of
nonperforming
assets,
restructured
loans, and
accruing loans
past due 90 days
or more to total
loans and OREO 3.7% 4.5% 4.0% 5.4% 5.2%
Ratio of allowance
for loan losses to
nonaccrual loans,
restructured loans
and accruing loans
past due 90 days or
more 75.8% 69.2% 76.8% 60.2% 69.4%
Ratio of nonaccrual
loans, restructured
loans and accruing
loans past due
90 days or more
to shareholders'
equity and
allowance for
loan losses 29.3% 35.3% 35.7% 48.2% 46.8%
OTHER REAL ESTATE OWNED
Other Real Estate Owned (OREO) expense was $66,000 for the six month
period ended June 30, 1996 as compared to $302,000 for the six months
ended June 30, 1995. OREO expense was $20,000 for the three month period
ended June 30, 1996 as compared to $133,000 for the three months ended
June 30, 1995. These expenses reflect losses on sales and writedowns on
OREO properties and associated direct holding costs, such as property
taxes, insurance and utilities. OREO holding costs were $44,000 and
$24,000 for the six month periods ended June 30, 1996 and 1995,
respectively. For the three month period ended June 30, 1996, holding
costs were $19,000. There were no holding costs recorded in the three
month period ended June 30, 1995.
The OREO balance as of June 30, 1996 is $1,673,000 and was comprised of
20 properties. The OREO portfolio consists of 5 commercial properties
which constitute 25% of the total OREO portfolio, 11 residential
properties, including multifamily homes, representing 55% of the total
OREO portfolio, and 4 parcels of land comprising the remaining 20% of the
portfolio.
OREO properties are carried at the lower of carrying value of the related
loan or fair value of the foreclosed property at date acquired through
foreclosure less the cost to dispose. Fair value of OREO properties is
determined using the Company's most recent appraisal or a more recent
broker's valuation. In order to facilitate the sale and ultimate
disposition of OREO, the Bank may finance the sale of a property at
market rates to qualified, credit-worthy borrowers. The Company values
its OREO properties based on an asset by asset review and on the
assumption that an active market exists for those properties. The
Company's primary valuation technique is to derive values from available
comparable sales data and not from other evaluation criteria such as
discounted cash flows. In making the assumption that an active market
exists for OREO properties, the Company has made the determination that
the properties are salable within approximately one year, and has valued
each property at an amount which the Company anticipates will permit the
sale of such property within approximately one year. Although the
Company actively markets all OREO properties for sale, no assurance can
be given that properties will actually sell in approximately one year,
such sales being dependent upon relevant market conditions which will
vary from property to property, and include such factors as the number of
comparable properties available for purchase at the time, the
availability of financing and the stability or trends of real estate
values in the area. The following table reflects OREO activity for the
last five quarterly periods.
OTHER REAL ESTATE OWNED
QUARTERLY ANALYSIS
(dollars in thousands)
QUARTER ENDED
DESCRIPTION 06/30/96 03/31/96 12/31/95 09/30/95 06/30/95
_____________________________________________________________________________
Beginning book value $1,617 $ 614 $1,063 $1,102 $1,453
Properties added 620 1,071 487 100 180
Proceeds from OREO
sold (563) (47) (892) (53) (398)
Gains(losses) on
properties sold 84 (8) (44) 7 (103)
Property writedowns (85) (13) (93) (30)
_______ _______ _______ _______ _______
Ending book value $1,673 $1,617 $ 614 $1,063 $1,102
OPERATING EXPENSES
Operating expenses decreased $181,000, or 3.1%, from $5,777,000 for the
six months ending June 30, 1995 to $5,596,000 for the same 1996 period.
OREO and insurance expenses were primarily responsible for the decrease
in operating expenses during the first six months of 1996 as compared to
the same 1995 period.
OREO expense comprised of losses on sales and writedowns on OREO
properties and associated direct holding costs declined $236,000, or 78%,
from $302,000 for the six months ended June 30, 1995 to $66,000 for the
same 1996 period. Insurance expense decreased $315,000 or 59% from
$530,000 for the six month period ended June 30, 1995 to $215,000 for the
same 1996 period. This decrease is due primarily to reduced insurance
assessments by the FDIC. Salaries and employee benefits increased by
$100,000 or 4% from $2,711,000 for the first six months of 1995 to
$2,811,000 for the same 1996 period. The Company's full-time equivalent
positions as of June 30, 1996 is 143 as compared to 142 as of June 30,
1995.
Operating expenses decreased $19,000, or .7%, from $2,885,000 for the
three months ending June 30, 1995 to $2,866,000 for the same 1996 period.
Similar to the six month operating expense comparisons, OREO expense and
insurance expenses were primarily responsible for the decrease in
operating expenses during the second quarter of 1996 as compared to the
same 1995 period.
PROVISION(BENEFIT) FOR INCOME TAXES
Income tax benefits for the six months ended June 30, 1996 were $460,500.
Tax benefits of $476,000, less $15,500 of state and alternative minimum
federal taxes, were recorded in the first six months of 1996 as a result
of further reductions of the valuation allowance for net deferred tax
assets. Management based the reduction on improved profitability for the
remainder of 1996 and 1997.
Gross deferred tax assets were approximately $12.9 million as of June 30,
1996. A valuation allowance of approximately $11.3 million was
established for a significant portion of the deferred tax assets. The
net deferred tax asset after valuation allowance was $1,549,000 as of
June 30, 1996 and was included in other assets in the financial
statements. The level of valuation allowance is management's best
judgment regarding the amount and timing of future taxable income and
estimated reversal patterns of temporary differences.
CAPITAL ADEQUACY
The Company and the Bank are subject to the capital adequacy rules of
several regulators. Effective December 19, 1992, each federal banking
agency issued final rules to carry out the "prompt corrective action"
provisions of the Federal Deposit Insurance Corporation Improvement Act
of 1991 (the "Improvement Act"). The regulations adopted, among other
things, defined capital measures and the capital thresholds for each of
the five capital categories established in the statute and established a
uniform schedule for filing of capital restoration plans by
undercapitalized institutions. The following table identifies generally
the capital measures and thresholds defined under the FDIC and Federal
Reserve Board rules.
Total Tier 1 Tier 1
Risk-Based Risk-Based Leverage
Ratio Ratio Ratio
Well Capitalized 10% or above & 6% or above & 5% or above
Adequately Capitalized 8% or above & 4% or above & 4% or above
Undercapitalized Under 8% or Under 4% or Under 4%
Significantly
Undercapitalized Under 6% or Under 3% or Under 3%
Critically Undercapitalized A ratio of
tangible
equity to
total assets
equal to or
under 2%
To fall within the well capitalized or adequately capitalized capital
category, the financial institution must meet the requirements of all
three capital measurements. Undercapitalized and significantly
undercapitalized institutions will be categorized as such if the
institution falls within any of those three capital measurements. The
risk-based capital guidelines establish a measurement of capital adequacy
by relating a banking organization's capital to its financial risks, both
on- and off-balance sheet. As of June 30, 1996, December 31, 1995 and
June 30, 1995, the Company's total risk-based capital ratio was 9.72%,
9.37% and 8.4%, respectively. The second capital measure is the Tier 1
risk-based ratio, which includes only core capital as it measures the
relationship to risk-weighted assets. As of June 30, 1996, December 31,
1995 and June 30, 1995, the Company's Tier 1 risk-based ratio was 8.46%,
8.1%, and 7.1%, respectively. The third capital adequacy measure is the
Tier 1 (or core) leverage capital (using the same definition of capital
as used in the risk-based guidelines) to average total assets. The
Company's Tier 1 leverage ratio was 5.76%, 5.29%, and 4.8% as of June 30,
1996, December 31, 1995 and June 30, 1995, respectively. As of June 30,
1995, based on the above criteria, the Company falls within the
adequately capitalized category. The Bank also falls within the
adequately capitalized category.
At the conclusion of its regulatory examination, the FDIC, based on the
Bank's improved overall financial condition, has removed the Memorandum
of Understanding. See "Regulatory Matters" for further discussion.
The Improvement Act also requires each federal banking agency to revise
its risk-based capital standards for insured institutions to ensure that
those standards take adequate account of interest rate risk,
concentration of credit risk, and risks of nontraditional activities and
reflect the actual performance and expected risk of loss on multi-family
residential loans. While the FDIC has published proposed regulations for
the purpose of amending its risk-based capital standards, the Company
cannot predict what may be required under any final regulations that may
be adopted. Such regulations could, however, further increase the
regulatory capital requirements which are applicable to the Company and
the Bank.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The liquidity process is monitored by the Company's Asset Liability
Committee ("ALCO"), which meets regularly to implement its
asset/liability and funds management policy. ALCO's role is to evaluate
liquidity and interest rate risk and their impact on earnings. The
Committee developed a reporting system that integrates the current
interest rate environment of the national and local economy with the
maturities and the repricing schedules of both the assets and liabilities
of the Company. The objective of ALCO is to manage the Company's assets
and liabilities to provide an optimum and stable net interest margin and
to facilitate a constant level of net interest income.
The primary focus of the Company's liquidity management is appropriately
to match cash inflows and outflows with funds provided by the Company's
market for deposits and loans. The Company's objective is to maintain
adequate cash which is invested in federal funds. During the first six
months of 1996, the average balance of federal funds sold was $3,377,000.
In the event the Company needs to borrow cash to manage its overnight
position or short-term position, the Company can borrow approximately
$6,000,000 as of June 30, 1996, on an overnight basis from the Federal
Home Loan Bank of Boston. The Company can also borrow from the Federal
Home Loan Bank of Boston on a short- and long-term advance basis. As of
June 30, 1996, the Company had no overnight borrowings outstanding from
the Federal Home Loan Bank of Boston and has borrowed $7.4 million, on
average, during the first six months of 1996 in term advances. In
addition, the Company has access to $2,000,000 in short-term funds via
reverse repurchase agreements with two brokerage firms. The Company's
investment portfolio also provides a secondary source of liquidity.
At June 30, 1996, the Company's liquidity ratio as defined by FDIC
criteria was 28.3% compared to 29.1% and 29.3% as of December 31, 1995
and June 30, 1995. The liquidity ratio is defined as the total of net
cash, short-term investments and other marketable assets, divided by
total net deposits and short-term liabilities. Management believes that
its liquidity position is adequate as of June 30, 1995.
The Company generated a positive aggregate cash flow of $2,375,000 for
the six months ended June 30, 1996, as compared to a negative aggregate
cash flow of $2,642,000 for the same 1995 period. Cash flows provided by
operating activities were $2,113,000 and $2,916,000 for the six months
ending June 30, 1996 and June 30, 1995, respectively, which was due in
part to significant non-cash charges for the provision for loan losses
and writedowns on OREO. Net cash used by financing activities was
$11,129,000 and $2,098,000 for the six months ending June 30, 1996 and
1995, respectively. For the six months ended June 30, 1996, net cash
provided by financing activities was primarily attributed to time
deposits, proceeds from FHLB advances, and in increase in the Company's
core deposits. Net cash used by investing activities was $10,878,000 and
$7,657,000 for the six months ending June 30, 1996 and June 30, 1995.
The cash used by investing activities for the six months ended June 30,
1996 was primarily due to net loans originated and matured and net
purchases of investment securities available for sale partially offset by
the sale of investment securities held as available for sale. For the
six months ended June 30, 1995, cash used by investing activities was due
to loans originated offset by a decrease in federal funds sold and
investment securities maturities.
The Company concentrates its efforts on evaluating interest rate risk and
appropriately adjusts for changes in rates and maturities of its assets
and liabilities. The Company's objective is to provide stable net
interest income. The table below illustrates the ratio of rate sensitive
assets to rate sensitive liabilities as they mature and/or reprice within
the indicated periods. As of June 30, 1996, the Company's rate sensitive
assets repricing or maturing approximately equalled its rate sensitive
liabilities during the first six months. This results from having
approximately 35% of the Company's loan portfolio available to reprice
within thirty days. In an increasing rate environment, asset sensitivity
enhances earnings potential, whereas liability sensitivity would
negatively impact earnings. In contrast, in a declining rate
environment, asset sensitivity would negatively impact earnings, whereas
liability sensitivity enhances earnings potential. The Company is
"liability sensitive" between the periods of seven to twelve months and
beyond one year which is primarily due to its demand and savings
accounts, which are considered relatively stable and not easily
influenced by changes in interest rates. At June 30, 1996, the amount of
the Company's cumulative gap with respect to assets and liabilities
maturing or repricing within one year was $19,453,000 more liabilities
than assets repricing (a negative gap position), representing a negative
7% cumulative gap to total rate sensitive assets. ALCO manages the gap
position on an ongoing basis to assure an interest rate risk not to
exceed more than a 3% change in net interest income for a one year
period. If interest rates were to immediately increase by 200 basis
points, the negative impact on the Company would be within ALCO's
tolerance level.
The following table sets forth the distribution of the repricing of the
Company's earning assets and interest bearing liabilities at a single
point in time, as of June 30, 1996. The table shows the interest rate
sensitivity gap (i.e., interest rate sensitive assets less interest rate
sensitive liabilities), the cumulative interest rate sensitivity gap, the
interest rate sensitivity gap ratio (i.e., interest rate sensitive assets
divided by interest rate sensitive liabilities) and the cumulative
interest rate sensitivity gap ratio. The table also sets forth the time
periods in which interest earning assets and interest bearing liabilities
will mature or may reprice in accordance with their contractual terms.
However, the table does not necessarily indicate the impact of general
interest rate movements on the net interest margin since the Company's
repricing of various categories of assets and liabilities is subject to
competitive pressures and the needs of the Company's customers. The
Company's interest rate sensitivity position is adjusted as ALCO's
assessment of the interest rate outlook and other factors are modified.
As the Company increases its total assets, the overall business plan
provides for matching its assets and liabilities to reduce interest rate
risk and liquidity risk.
Interest - Rate Sensitivity
Table
(dollars in thousands)
June 30, 1996 Month 1 Month 2 Month 3 Months Months Over Total
4-6 7-12 1 Year
_____________________________________________________________________________
Rate
Sensitive
Assets:
Loans (1) $72,448 $3,537 $3,395 $12,451 $21,565 $95,718 $209,114
Investments 15,445 3,482 6,252 15,003 6,993 23,537 70,712
_______ ______ ______ ______ _______ _______ _______
Total Rate
Sensitive
Assets 87,893 7,019 9,647 27,454 28,558 119,255 279,826
Rate
Sensitive
Liabilities:
Time deposits 9,652 9,583 6,759 18,452 46,687 32,308 123,441
Other
deposits(2) 82,108 69 2,069 212 4,433 80,872 169,763
_______ ______ ______ ______ ______ _______ _______
Total Rate
Sensitive
Liabilities 91,760 9,652 8,828 18,664 51,120 113,180 293,204
Net Gap (3,867) (2,633) 819 8,790 (22,562) 6,075 (13,378)
______ ______ _____ ______ ______ _______ ______
Cumulative
Gap (3,867) (6,500) (5,681) 3,109 (19,453) (13,378)(13,378)
Net Gap as %
of total
rate sensitive
assets -1% -1% 0% 3% -8% 2% -5%
Cumulative Gap
as % of total
rate sensitive
assets -1% -2% -2% 1% -7% -5% -5%
(1) Excludes nonaccrual loans
(2) Includes borrowings
PART II - OTHER INFORMATION
ITEMS 1-3 Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
On April 23, 1996, BNH Bancshares, Inc. held its Annual Meeting of
Shareholders. At such meeting, the Company's shareholders were asked to
vote upon the following proposals:
Proposal 1 the election of directors;
Proposal 2 to approve a one-for-four reverse stock split of the
Company's issued common stock;
Proposal 3 to approve certain amendments to the BNH Bancshares,
Inc. 1992 Stock Incentive Plan;
Proposal 4 to ratify the appointment of Coopers & Lybrand L.L.P. as
the independent accountants to audit the consolidated
financial statements of the Company for the calendar
year 1996.
The following is the name of each director elected at the meeting, which
includes all directors whose term as director will continue after such
Annual Meeting, and a description of the number of votes cast for,
against or withheld, abstentions and broker non-votes as to the election
of each nominee for director:
Proposal 1
Election of Votes Against Broker
Directors Votes For or Withheld Abstentions Non-Votes
Stephen P. Ahern 11,504,757 164,135 0 0
Martin R. Anastasio 11,516,252 152,640 0 0
Edward M. Crowley 11,516,252 152,640 0 0
James J. Cullen 11,515,252 153,640 0 0
George M. Dermer 11,515,876 153,016 0 0
Thomas M. Donegan 11,516,252 152,640 0 0
Victor B. Hallberg 11,504,491 164,401 0 0
Theodore F. Hogan, Jr. 11,516,252 152,640 0 0
Karl J. Jalbert 11,516,142 152,750 0 0
Jean G. Lamont 11,515,252 153,640 0 0
Lawrence M. Liebman 11,515,576 153,316 0 0
F. Patrick McFadden, Jr. 11,516,027 152,865 0 0
Carl M. Porto 11,513,052 155,840 0 0
Vincent A. Romei 11,516,252 152,640 0 0
Stanley Scholsohn 11,499,291 169,135 0 0
Cheever Tyler 11,504,757 164,135 0 0
Proposal 2 11,032,024 571,897 64,965 6
Proposal 3 9,738,914 1,720,874 209,098 6
Proposal 4 11,497,591 111,761 59,540 0
ITEM 5 OTHER INFORMATION - None.
ITEM 6 Exhibits and Reports on Form 8-K: None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 15, 1996 /s/ F. Patrick McFadden, Jr.
F. Patrick McFadden, Jr.
President/Chief Executive Officer
Date: August 15, 1996 /s/ John F. Trentacosta
John F. Trentacosta
Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 15, 1996
F. Patrick McFadden, Jr.
President/Chief Executive Officer
Date: August 15, 1996
John F. Trentacosta
Chief Financial Officer