-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WOVRCrRh6+fes17Lv8lCAJv5lpqU5ft/3n4q5zUC4WTh5/InBsIRsCuALSA7hH/r zL8CooWcf4fCsSKsDs+Fbg== 0000915656-97-000055.txt : 19970929 0000915656-97-000055.hdr.sgml : 19970929 ACCESSION NUMBER: 0000915656-97-000055 CONFORMED SUBMISSION TYPE: 8-A12G/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19970926 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NSS BANCORP INC CENTRAL INDEX KEY: 0001042806 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 061485317 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-A12G/A SEC ACT: SEC FILE NUMBER: 000-22937 FILM NUMBER: 97686266 BUSINESS ADDRESS: STREET 1: 48 WALL ST CITY: NORWALK STATE: CT ZIP: 06852 BUSINESS PHONE: 2038384545 MAIL ADDRESS: STREET 1: NSS BANCORP INC STREET 2: P O BOX 28 CITY: NORWALK STATE: CT ZIP: 06852 8-A12G/A 1 AMENDMENT NO. 1 TO FORM 8-A12G SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 AMENDMENT NO. 1 TO FORM 8-A FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES PURSUANT TO SECTION 12(b) or 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 NSS BANCORP, INC. _______________________________________________________________________________ (Exact Name of Registrant as Specified in its Charter) Connecticut 06-1485317 ________________________________________ ___________________________________ (State of Incorporation or Organization) (I.R.S. Employer Identification No.) 48 Wall Street, Norwalk, Connecticut 06852 ________________________________________ ___________________________________ (Address of Principal Executive Office) (Zip Code) If this form relates to the If this form relates to the registration of a class of debt registration of a class of debt securities and is effective upon securities and is to become filing pursuant to General Instruction effective simultaneously with (A)(C)(1) please check the following the effectiveness of a box. [ ] concurrent registration statement under the Securities Act of 1933 pursuant to General Information (A)(C)(2) please check the following box. [ ] Securities to be registered pursuant to Section 12(b) of the Act: NONE Securities to be registered pursuant to Section 12(g) of the Act: Name of Each Exchange on Which Title of Each Class to be so registered Each Class is to be registered _______________________________________ ______________________________ Common Stock, par value, $0.01 NASDAQ - National Market ______________________________ __________________________ INFORMATION REQUIRED IN REGISTRATION STATEMENT ______________________________________________ ITEM 1. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED ________________________________________________________________ This Amendment No. 1 to Form 8-A relates to the registration statement filed by NSS Bancorp, Inc. (the "Registrant") on Form 8-A to register the common stock of NSS Bancorp, Inc., par value, $0.01 per share (the "Registration Statement"). The Registrant and Norwalk Savings Society have entered into that certain Plan of Reorganization dated May 20, 1997 pursuant to which Norwalk Savings Society will become the wholly owned subsidiary of the Registrant. Accordingly, the Registrant included the Quarterly Report of Norwalk Savings Society on Form F-4 for the quarter ended March 31, 1997 as Exhibit 99.2 to the Registration Statement. This Amendment No. 1 to Form 8-A is being filed for the sole purpose of updating the financial statements in the Registration Statement. Accordingly, attached as exhibit 99.3 to this Amendment No. 1 to Form 8-A is the Quarterly Report of Norwalk Savings Society on Form F-4 for the quarter ended June 30, 1997. ITEM 2. EXHIBITS _________________ Exhibit 99.3: The Quarterly Report of Norwalk Savings Society on Form F-4 for the period ended June 30, 1997. SIGNATURE Pursuant to the requirements of section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned thereto duly authorized. NSS BANCORP, INC. Registrant Date: September 26, 1997 By /s/Robert T. Judson _____________________________________ Robert T. Judson Its President EX-99 2 UPDATED FINANCIAL STATEMENTS FEDERAL DEPOSIT INSURANCE CORPORATION WASHINGTON, DC 20429 Form F-4 QUARTERLY REPORT UNDER SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 1997 FDIC Insurance Certificate No. 17944 NORWALK SAVINGS SOCIETY (Exact name of bank as specified in its charter) 48 Wall Street, Norwalk, CT 06852 (Address of principal executive offices) Connecticut (State or other jurisdiction of incorporation or organization) 06-0475300 (I.R.S. Employer Identification Number) (203) 838-4545 (Bank's telephone number, including area code) Indicate by check mark whether the Bank (1) has filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Bank 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 Bank's classes of common stock, as of the latest practicable date: 2,442,129 shares of Common Stock, par value $.01 per share as of August 12, 1997 TABLE OF CONTENTS I. CONSOLIDATED FINANCIAL STATEMENTS Page A. Statement of Financial Condition 1 B. Statement of Operations 2 C. Statement of Shareholders' Equity 3 D. Statement of Cash Flows 4 E. Notes to Financial Statements 6 II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10 III. SIGNATURES 32 Exhibit A 33 NORWALK SAVINGS SOCIETY CONSOLIDATED STATEMENT OF FINANCIAL CONDITION June 30, December 31, 1997 1996 ------------------ --------------------- (unaudited) ( $ in thousands ) ASSETS Cash and due from banks $9,899 $14,978 Interest bearing deposits in other banks 3,521 2,373 Federal funds sold 1,500 ------- Securities Trading, at fair value 2,154 3,292 Available for sale, at fair value 182,811 136,809 Loans, net of allowance for credit losses of $ 6,911 as of June 30, 1997 & $7,334 as of December 31,1996, respectively) 443,130 410,766 Accrued interest receivable 6,165 4,034 Investment in Federal Home Loan Bank Stock, at cost 6,848 6,184 Other real estate owned, net 485 858 Bank premisies and equipment, net 3,635 3,151 Deferred income tax asset, net 1,614 2,574 Goodwill 1,687 1,754 Other assets 1,719 1,316 ------------------ --------------------- Total assets $663,668 $589,589 ================== ===================== LIABILITIES Deposits Non interest bearing $30,514 $22,479 Savings, money market and NOW accounts 165,052 156,684 Time accounts 239,465 244,127 ------------------ --------------------- Total deposits 435,031 423,290 Borrowed funds 174,986 114,043 Accrued expenses and other liabilities 1,741 2,903 ------------------ --------------------- Total liabilities 611,758 540,236 SHAREHOLDERS' EQUITY Preferred stock ($.01 par value, 500,000 shares authorized, none outstanding) ------- ------- Common stock ($.01 par value, 7,000,000 shares authorized, 2,442,129 issued; outstanding 2,410,118 as of June 30, and 2,397,312 as of December 31,) 24 24 Additional paid-in capital 23,742 23,545 Retained earnings 28,167 26,339 Net unrealized gain (loss) on securities available for sale 298 (106) ------------------ --------------------- 52,231 49,802 Less: unearned ESOP shares 321 449 ------------------ --------------------- Total shareholders' equity 51,910 49,353 ------------------ --------------------- Total liabilities and shareholders' equity $663,668 $589,589 ================== ===================== SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three months ended Six months ended June 30, --------------------------------------------------------------- ( $ in thousands, except shares and per share data ) 1997 1996 1997 1996 INTEREST AND DIVIDEND INCOME Loans, including fees $8,334 $7,249 $16,297 $14,109 Investment securities and other Taxable interest 2,524 2,628 5,098 4,752 Dividends 321 85 629 176 --------------------------------------------------------------- Total 11,179 9,962 22,024 19,037 --------------------------------------------------------------- INTEREST EXPENSE Deposits 4,293 3,828 8,508 7,613 Borrowed funds 2,308 1,822 4,278 3,013 --------------------------------------------------------------- Total 6,601 5,650 12,786 10,626 --------------------------------------------------------------- NET INTEREST INCOME 4,578 4,312 9,238 8,411 Provision for credit losses ---- 405 ---- 805 --------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 4,578 3,907 9,238 7,606 --------------------------------------------------------------- NON-INTEREST INCOME Customer service fees 205 158 406 328 Loan servicing fees 116 164 232 256 Trust department fees 137 148 278 278 Net gain on sale of securities 161 636 186 761 Credit card fees 393 ---- 687 ---- Other 250 43 333 147 --------------------------------------------------------------- Total non-interest income 1,262 1,149 2,122 1,770 --------------------------------------------------------------- NON-INTEREST EXPENSE Compensation and benefits 1,835 1,699 3,707 3,453 Occupancy, equipment & data processing 648 538 1,320 1,092 Regulatory assessments 13 2 28 6 OREO holding costs and expenses 14 86 98 214 Sale of OREO, (gains) losses, net (28) 354 (208) 492 Credit card expense 298 ---- 545 ---- Goodwill amortization 81 ---- 162 ---- Other 1,052 945 2,046 1,763 --------------------------------------------------------------- Total non-interest expense 3,913 3,624 7,698 7,020 --------------------------------------------------------------- EARNINGS BEFORE INCOME TAXES 1,927 1,432 3,662 2,356 Provision for income taxes 777 17 1,468 22 --------------------------------------------------------------- NET EARNINGS $1,150 $1,415 $2,194 $2,334 =============================================================== EARNINGS PER SHARE $0.48 $0.60 $0.91 $0.99 =============================================================== Weighted average shares outstanding (excluding shares committed to ESOP) 2,406,841 2,375,828 2,403,639 2,371,934 SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2 NORWALK SAVINGS SOCIETY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) Unrealized Additional Gains Unearned Total Common Paid-in Retained (Losses) ESOP Shareholders' on Shares Stock Capital Earnings Securities Shares Equity ---------- ------------------- --------- ----------- ----------------------- ($ in thousands) Balance - December 31,1994 2,329,670 $24 $22,838 $16,225 ($603) ($971) $37,513 Net Earnings 4,778 4,778 ESOP shares committed for release 26,556 168 266 434 Stock options exercised 8,494 127 127 Adjustment of unrealized gains, net 743 743 ---------- ------------------- --------- ----------- --------- ------------ Balance - December 31,1995 2,364,720 $24 $23,133 $21,003 $140 ($705) $43,595 ---------- ------------------- --------- ----------- --------- ------------ Net Earnings 5,702 5,702 Adjustment of unrealized gains (losses), net (246) (246) Stock options exercised 6,665 103 103 Shares distributed to Advisory Board 230 5 5 Dividends paid (366) (366) ESOP shares committed to be released 25,697 304 256 560 ---------- ------------------- --------- ----------- --------- ------------ Balance - December 31,1996 2,397,312 $24 $23,545 $26,339 ($106) ($449) $49,353 ---------- ------------------- --------- ----------- --------- ------------ Net Earnings 2,194 2,194 Adjustment of unrealized gains (losses), net 610 610 Tax effect of AFS (206) (206) Dividends paid (366) (366) ESOP shares committed to be released 12,806 197 128 325 ---------- ------------------- --------- ----------- --------- ------------ Balance - June 30,1997 2,410,118 $24 $23,742 $28,167 $298 ($321) $51,910 ========== =================== ========= =========== ========= ============ SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3 NORWALK SAVINGS SOCIETY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six months ended: June 30, ---------------------------------------------- 1997 1996 -------------------- ------------------- ($ in thousands) Cash Flows from Operating Activities Net Earnings $2,194 $2,334 ------- ------ Adjustments to Reconcile net earnings to cash provided (used) by operating activities Provision for Credit Losses ---- 805 Provision for Estimated OREO Losses ---- ---- Deferred Income Tax 680 ---- Provision for ESOP Benefit Cost 206 ---- Depreciation and Amortization 309 255 Goodwill Amortization 162 ---- Net Amortization (Accretion) of Discounts and Premiums on Securities 317 261 Net (Gains) Losses on Sales of Loans & Investments (50) (761) Net (Gains) Losses on Sales of OREO (208) 492 Net Decrease in Trading Securities 1,137 ---- (Increase) in Accrued Interest Receivable (979) (1,629) (Increase) in Other Assets (1,194) (54) (Decrease) in Accrued Expense and Other Liabilities (645) (245) ----- ----- Total Adjustments (265) (876) ----- ----- Net Cash Provided By (Applied to) Operating Activities 1,929 1,458 ------ ----- Cash Flows from Investing Activities Proceeds from: Sales of Loans, Investments & Mortgage Backed 47,065 20,692 Securities Maturities of Investments & Mortgage Backed Securities 9,005 16,429 Sales of Other Real Estate Owned 939 1,954 Purchases of Investment & Mortgage Backed Securities (102,320) (73,724) Net Increase in Loans (33,002) (53,450) Additions to OREO ---- (110) Additions to Goodwill (95) ---- Additions to Bank Premises & Equipment (872) (391) ----- ----- Net Cash Provided by (Applied to) Investing Activities (79,280) (88,600) -------- -------- Cash Flows from Financing Activities Net Increase in Deposits 11,343 23,502 Repayments of ESOP borrowing (96) (121) Cash Dividends (366) (120) Securities Sold under Repurchase Agreements 29,500 36,650 Repayments of Repurchase Agreements (21,200) (4,900) Advances from FHLB of Boston 116,854 87,750 Repayments of Advances from FHLB of Boston (64,115) (48,896) Proceeds from Exercise of Stock Options ---- 106 ------- ------ Net Cash Provided by (Applied to) Financing Activities 71,920 93,971 ------- ------ Increase (Decrease) in Cash and Cash Equivalents (5,431) 6,829 Cash and Cash Equivalents - Beginning 18,851 18,628 ------- ------ Cash and Cash Equivalents - Ending $13,420 $25,457 ======== ======= SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4 NORWALK SAVINGS SOCIETY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six months ended: June 30, ----------------------------------- 1997 1996 ------------------ -------------- ($ in thousands) SUPPLEMENTAL DISCLOSURES of CASH FLOW INFORMATION Cash Paid During the Period For: Interest $12,740 $10,626 ================== ============== Income Taxes $1,468 $5 ================== ============== Non-Cash Investing and Financing Activities: Transfer from Loans to OREO $681 $1,273 ================== ============== Loans originated in connection with sale of OREO $324 $670 ================== ==============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5 NORWALK SAVINGS SOCIETY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 (unaudited) and December 31, 1996 NOTE 1 - NATURE OF BUSINESS AND REGULATIONS - ------------------------------------------- The Norwalk Savings Society (Bank) provides a full range of banking services to its local area customers. The Bank is subject to competition from various other financial institutions, and is also subject to the regulations of certain federal and state agencies and undergoes periodic examination by those regulatory authorities. The following summarizes the Bank's capital ratios at June 30, 1997, and December 31, 1996: Actual -------------- June 30, Dec. 31, Required 1997 1996 -------- ------ -------- Tier 1 risk-based capital 4.0% 13.9% 15.7% Total risk-based capital 8.0% 15.3% 17.0% Tier 1 leverage capital 4.0%-5.0% 7.8% 7.9% NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES - ---------------------------------------- The condensed consolidated financial statements in this report have not been audited, with the exception of the information derived from the Consolidated Statement of Financial Condition as of December 31, 1996, which information should be read in conjunction with the Bank's audited financial statements and footnotes thereto included in the Bank's Annual Report to Shareholders for the year ended December 31, 1996. The consolidated financial statements include the accounts of the Bank and its wholly owned subsidiary, NSS Realty Corporation. All significant intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, all adjustments necessary for a fair presentation of financial position and results of operations for the interim periods presented have been made, and all such adjustments are of a normal recurring nature. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statement of financial condition and income and expenses for the periods presented. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near-term related to the determination of the allowance for credit losses and the valuation of other real estate owned ("OREO"). In addition, various regulatory agencies, as an integral part of their examination process, periodically review the 6 Bank's allowances for losses. Such agencies may require the Bank to recognize additions to the allowances based on their judgment of information available to them at the time of their examination. Effective January 1, 1993, the Bank adopted SFAS 109, "Accounting for Income Taxes", without applying its provisions to prior years. There was no impact on the Bank's consolidated statement of operations for the year ended December 31, 1993 from the cumulative effect of the change in the method of accounting for income taxes, due primarily to the Bank's net operating loss carryforward position. During the years 1993 and 1994, the Bank reflected a full valuation allowance against its net deferred tax assets due to significant net operating loss carryovers and uncertainty over the Bank's ability to generate sufficient and consistent future taxable income to be able to support recognition of any portion of its net deferred tax assets. During the first calendar quarter of the year ended December 31, 1995, management reviewed its current projections for future profitability and estimated that a portion of the Bank's net deferred income tax asset as of December 31, 1994 could be recognized in the amount of $1.2 million. The amount was recognized through a partial adjustment of the valuation allowance for the portion of the net deferred income tax asset attributable to a net operating loss carry-forward benefit which management was of the opinion was realizable during the year ended December 31, 1995. At December 31, 1995, management again reviewed its current projections of future profitability and determined that $1.2 million of net deferred income tax asset was more likely than not realizable in the future. During the fourth quarter of 1996, management reviewed the Bank's estimated profitability for the year ended December 31, 1996 and, on a projected basis, for the year ending December 31, 1997. Based on this review, management determined that it was more likely than not that the Bank's net deferred tax assets, including available future net operating loss benefits of approximately $1.1 million, as of December 31, 1996 were realizable, and therefore, reversed the existing valuation allowance against net deferred tax assets. Realization of the Bank's net deferred tax assets is dependent, however, on various factors and is not assured. Effective January 1, 1994, the Bank applied the provisions of SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities". Under this pronouncement, investment securities are classified into one of three categories: held to maturity, available-for-sale or trading. The classification is based upon management's intended holding period and, in the case of held-to-maturity, the ability to hold the securities to maturity. Investments classified as held-to-maturity are carried at amortized cost. Investments classified as available for sale are carried at fair value with unrealized gain or loss reported as a separate component of retained earnings, net of applicable income tax. Trading securities are carried at fair value with unrealized gains or losses included in earnings. The Financial Accounting Standards Board issued a "Special Report" in November 1995. "A Guide to Implementation of SFAS 115". This guide provided additional guidance as to the criteria for the financial statement classifications prescribed in SFAS 115. As a result of this additional guidance, the Bank could reassess the appropriateness of the classification of all its securities held. In December 1995, the Bank reclassified securities Held-to-Maturity with an aggregate amortized cost approximating $37.0 million to the classification of Available-for-Sale at a fair value approximating $36.6 million. During the year ended December 31, 1996, the Bank transferred securities Available-for-sale with a carrying basis of approximately $2.2 million to the classification of Trading and securities Held-to-Maturity with an amortized cost of approximately $30.5 million to the classification of Available-for-sale at their fair value of approximately $30.6 7 million. The transfer of securities Held-to-maturity to the classification of Available-for-sale was the result of management's assessment that there was no longer a positive intent to hold these securities to maturity based on management's revised asset/liability management strategies. The gain or loss on investments sold is computed by the specific identification method. Effective January 1, 1995, the Bank implemented the provisions of SFAS Nos. 114/118, "Accounting by Creditors for Impairment of a Loan" (SFAS 114/118). The basic provisions of these statements eliminate the financial statement classification of in-substance foreclosed assets as OREO, resulting in the classification of such assets and related specific allowance for credit losses as Loans receivable. Additionally, these statements address the accounting for loans considered impaired and the recognition of impairment. A loan is considered impaired when, in management's judgment, current information and events indicate it is probable that collection of all amounts due according to the contractual terms of the loan agreement will not be met.. The provisions of these statements are prospective, with any adjustments resulting from initial application reflected as an adjustment to the provision for credit losses. Insubstance foreclosed assets prior to January 1, 1995 have been reclassified to Loans receivable for comparability purposes. The effect on the accompanying Consolidated Financial Statements of adopting SFAS 114/118 was not significant. Effective January 1, 1996, the Bank has implemented the provisions of SFAS Nos. 121 and 122, which implementation had no significant effect on the Bank's financial condition or results of operations at and for the three and six month periods ended June 30, 1997 and 1996, or at and for the year ended December 31, 1996. NOTE 3 - SUPPLEMENTAL DISCLOSURES - --------------------------------- Additional information and supporting disclosures as to investment securities, loans, other real estate owned and related allowances for losses are included in Management's Discussion and Analysis. NOTE 4 - OTHER SIGNIFICANT MATTERS - ---------------------------------- On February 23, 1994, the Board of Directors unanimously adopted and approved the Bank's plan of Conversion (Conversion) to convert from a Connecticut-chartered mutual to a Connecticut-chartered capital stock savings bank through amendment of its mutual charter and the sale of common stock to the Bank's depositors and others. The Bank commenced its subscription offering on May 4, 1994, and concluded the offering on June 9, 1994. A total of 2,426,740 shares were issued on June 15, 1994, the effective issuance date of the securities. As part of the Conversion, the Board of Directors adopted a tax-qualified employee stock ownership plan (ESOP). The ESOP Trustee borrowed the funds to purchase Conversion stock in an amount equal to 5% of the total number of shares issued in the Conversion. The Trustee for the ESOP acquired 121,337 shares in connection with the stock conversion through the subscription offering. The shares were purchased with a loan obtained from a third party, guaranteed by the Bank, reflected as "Other Borrowings" on the Consolidated Statement of Financial Condition. 8 In addition, the Board adopted stock option plans for the benefit of the employees and directors of the Bank (Plans). The stock option plans became effective as a result of the approval by the Bank's stockholders on April 25, 1995. The number of shares reserved for the plans was 169,872 for the Employee Plan and 72,802 for the Director Plan as of March 31, 1996. At the April 1996 Annual Meeting, shareholders approved an amendment of the 1994 Employee Stock Option Plan to increase the number of shares of common stock subject to the Plan by 100,000 from 169, 872 to 269,872 shares. In addition, the shareholders approved an amendment to the 1994 Director Stock Option Plan to (i) increase the number of option shares granted to each director per year from 1,000 shares to 2,000 shares (effective immediately) following the 1996 Annual Meeting and (ii) increase the total number of shares subject to the Plan by 50,000 from 72,802 to 122, 802 shares. At the time of Conversion, the Bank established a liquidation account in an amount equal to its Retained Earnings as of that date. The liquidation account will be maintained for a period of ten years from the date of the Conversion for the benefit of eligible account holders who continue to maintain their accounts in the Bank after Conversion. In the event of a complete liquidation ( and only in such an unlikely event), each eligible account holder would be entitled to receive a liquidation distribution equal to the current amount in their subaccount balance. The Bank may not declare or pay dividends on its stock if such declaration and payment would violate statutory or regulatory requirements. In the event transactions resulting from the Conversion or from future events unrelated to the Conversion occur, causing an "ownership change", as defined by the Internal Revenue Code, the Bank's ability to realize all of the deferred tax assets attributable to net operating loss carryforwards may be limited. On July 23, 1997, the NSS Board of Directors declared a cash dividend of ten cents ($.10) per share to common shareholders of record August 8, 1997 and payable on August 27, 1997. NOTE 5 - NEW BRANCH - ------------------- The Bank has recently opened a full service branch office at 1089 Post Road in Darien, Connecticut. NOTE 6 - PROPOSED HOLDING COMPANY - --------------------------------- In January 1997 the Bank's Board of Directors authorized management to pursue the formation of a holding company. Stockholders voted in favor of this matter at the Annual Meeting on May 20, 1997. An application to form a bank holding company was submitted in June to the Federal Reserve Bank. On July 24, 1997, the Federal Reserve Bank of New York granted NSS approval to form NSS Bancorp which will be the parent company of Norwalk Savings Society and other subsidiaries. The approval requires the incorporation of the holding company not later than October 24, 1997. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS Overview -------- Norwalk Savings Society reported second quarter 1997 net earnings of $1.2 million or $0.48 per share. Net earnings for the six months ended June 30, 1997 were $2.2 million or $0.91 per share. The Bank declared a quarterly dividend of ten cents per share, payable to shareholders of record as of the close of business on August 8, 1997. The tier one leverage capital ratio was 7.76% as of June 30, 1997, continuing to qualify the Bank as "well capitalized" according to standards established by the Federal Deposit Insurance Corporation ("FDIC"). Asset quality showed significant improvement during the second quarter. Non-performing assets, comprised of non-accrual and restructured loans (collectively "non-performing loans"), and other real estate owned, were $9.0 million or 1.35% of total assets. RESULTS OF OPERATIONS --------------------- Comparison of Operating Results for the Three Months Ended ---------------------------------------------------------- June 30, 1997 and 1996. ----------------------- Operations - ---------- Pre-tax earnings for the three months ended June 30, 1997 were $1.9 million compared to $1.4 million for the comparable period in 1996, representing a 35% increase. As a result of the 1996 recognition of all remaining tax benefits associated with the tax loss carryforwards, 1997 earnings are fully taxable. The net earnings for the three months ended June 30, 1997 were $1.2 million or $0.48 per share compared to $1.4 million or $0.60 per share for the comparable period in 1996, a 19% decrease in net earnings. Net Interest Income - ------------------- Net interest income, which is the primary source of income for the Bank, is the difference between interest earned on loans and investments and the interest paid on deposits and borrowings. Net interest income was $4.6 million for the three months ended June 30, 1997 compared to $4.3 million for the same period last year. The increase in net interest income of $266,000 for the three months ended June 30, 1997 compared to the three months ended June 30, 1996 resulted from a $1.2 million increase in interest income offset by a $1.0 million increase in interest expense. 10 The improvement in interest income is primarily a result of the increased level of earning assets, particularly in the loan portfolio. In addition, the Bank began investing in quality rated preferred stocks which are classified in the marketable equity securities category. These issues have a callable feature which approximates five years for the total portfolio. If not called, the dividend rate converts to an adjustable rate tied to a margin over treasury securities. In addition, the dividends qualify for the dividend received deduction and each issue carries a protection feature which equalizes the owner to the current dividend received deduction (DRD) (presently 70 percent federally tax free) in the event that DRD is adjusted by Congress. This preferred stock portfolio amounted to $34.1 million fair value as of June 30, 1997, with a weighted average yield of 6.1% and a taxable equivalent yield approximating 8.9%. To a much lesser extent, the benefit was also derived from upward interest rate increases on the Bank's loans and securities portfolios. Average interest-earning assets improved to $619.7 million for the three months ended June 30, 1997, compared to $551.5 million for the same period in 1996. The continued growth of interest-earning assets was attributable to loan growth, funded primarily by sales and paydowns of mortgage backed securities, reduced levels of non-performing assets, and increased levels of Federal Home Loan Bank and other borrowings. Overall, the average interest rate on earning assets for the three months ended June 30, 1997 and 1996 was 7.22%. The most significant improvement in interest rates came in the investment and mortgage backed securities portfolios, reflecting the Bank's movement into longer term Federal Agency securities as well as taking advantage of the lower trending interest rate market and timing sales and swaps of securities. Interest expense increased to $6.6 million for the three months ended June 30, 1997 from $5.7 million for the comparable period last year. The $951,000 increase was primarily a result of the higher balances of interest bearing liabilities combined with the Bank's cost of funds increasing 29 basis points to the second quarter's level of 4.73% from 4.44% last year. The cost of funds associated with deposits increased 33 basis points while the cost of funds associated with borrowings showed a minimal decline of 9 basis points. The "market" for borrowings or wholesale funding continues to be extremely competitive and the reduced rate is reflective of that environment. Overall, the Bank's net interest margin declined modestly to 2.95% for the three months ended June 30, 1997 compared to 3.13% for the comparable period in 1996. The following table summarizes the Bank's net interest income and net yield on average interest-earning assets. Non-accruing loans for the purpose of this analysis are included in average loans outstanding during the periods indicated. For the purpose of this computation, daily average amounts were used to compute average balances. 11 TABLE 1 Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996 ($ thousands) 1997 1996 - -------------------------------------------------------------------- ---------------------------------------- Average Average Average Average balance Interest rate balance Interest rate - -------------------------------------------------------------------- ---------------------------------------- Interest-earning assets Loans receivable $437,105 $8,334 7.63 % $384,490 $7,249 7.54 % Investment securities 50,849 957 7.53 36,077 643 7.13 Mortgage backed securities 85,827 1,487 6.93 115,419 1,903 6.60 Short term investments 11,392 167 5.86 7,661 102 5.33 Marketable equity investments 34,548 234 2.71 7,899 65 3.29 ----------- ----------- ------------- ----------- Total interest-earning assets 619,721 11,179 7.22 % 551,546 9,962 7.22 % ----------- ----------- -------- ------------- ----------- ------------ Non-interest-earning assets Cash and cash equivalents 10,167 12,621 Accrued interest receivable 5,849 4,807 Premises and equipment 3,484 3,335 Other 6,519 9,194 Less: Allowance for credit (7,128) (4,369) losses ----------- ------------- Total non-interest-earning 18,891 25,588 assets ----------- ------------- Total assets $638,612 $577,134 =========== ============= Interest-bearing liabilities Deposits Regular savings & NOW $62,181 $254 1.63 % $58,598 $209 1.43 % Super savings & money market 95,616 769 3.22 109,052 735 2.70 Time 238,810 3,241 5.43 214,968 2,856 5.31 ----------- ------------ --------------- ----------- Total deposits 396,607 4,264 4.30 382,618 3,800 3.97 Borrowings 157,643 2,308 5.86 122,474 1,822 5.95 Mortgage escrow deposits 4,094 29 2.83 3,768 28 2.97 ----------- ----------- --------------- ----------- Total interest-bearing 558,344 6,601 4.73 % 508,860 5,650 4.44 % liabilities ----------- ----------- -------- ------------- ----------- ------------ Non-interest-bearing liabilities Non-interest-bearing deposits 27,429 22,508 Other liabilities 1,833 1,162 ----------- ------------- Total non-interest-bearing 29,262 23,670 liabilities ----------- ------------- Shareholders' equity 51,006 44,604 ----------- ------------- Total liabilities & $638,612 $577,134 shareholders' equity =========== ============= Net interest-earning assets and interest rate spread $61,377 2.49 % $42,686 2.78 % =========== -------- ============= ------------ Net interest income & net yield on average interest-earning assets $4,578 2.95 % $4,312 3.13 % =========== ======== =========== ============
12 Rate / Volume Analysis - ---------------------- The following table presents the changes in interest and dividend income and the changes in interest expense attributable to changes in interest rates or changes in volume of interest-bearing assets and interest-bearing liabilities during the periods indicated. Changes which are attributable to both rate and volume have been allocated proportionately. TABLE 2 Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996 RATE VOLUME NET ($ thousands) CHANGE INTEREST INCOME: Loans receivable $87 $998 $1,085 Mortgage-backed securities 91 (507) (416) Short term investments 11 54 65 Investment securities 25 458 483 --- ---- --- Total 214 1,003 1,217 ---- ------ ----- INTEREST EXPENSE: Deposits Savings & NOW (31) (14) (45) Super savings & money market 0 (34) (34) Time (65) (320) (385) ---- ----- ----- Total deposits (96) (368) (464) Borrowings 28 (514) (486) Mortgage escrow deposits 1 (2) (1) -- --- --- Total (67) (884) (951) ---- ----- ----- NET INTEREST INCOME $147 $119 $266 ======== ============= ==========
13 Provision for Credit Losses - --------------------------- There was no provision for credit losses for the three months ended June 30, 1997 compared to $405,000 for the comparable period in 1996. The balance in the allowance for credit losses account as of as of June 30, 1997 was $6.9 million providing 81.6% coverage of non-performing loans and 1.6% of total loans. In comparison, the allowance for credit losses account balance at June 30, 1996 was $4.2 million, providing a coverage ratio of 40.3% of non-performing loans and 1.0% of total loans. Although there was no provision for credit losses for the three months ended June 30, 1997, it is management's opinion that the allowance for credit losses is adequate based upon its review of the asset mix, the level of delinquencies, reduced levels of chargeoff, significant levels of recoveries, and the higher coverage of nonperforming loans. Non-Interest Income - ------------------- Non-Interest income consists of service charges and fees, fees derived from servicing of loans, net realized gains on sale of securities, as well as fees derived from the Bank's Trust Department, and, since the acquisition of Fairfield First Bank and Trust in July 1996 fee income generated by the credit card operation. Non-Interest income for the three months ended June 30, 1997, was $1.3 million, compared to $1.1 million for the comparable period of 1996. Fees from deposit accounts were up a total of $47,000 or 29.7% in the current quarter compared to a year ago as the Bank continues to concentrate on the generation of fee income through expanded commercial relationships. Fees from credit card services, aggregating $393,000 for the three months ended June 30, 1997 primarily derived from the merchant credit card business, are new since July of 1996 and have continually increased since the Bank acquired the business and introduced this new service to existing customers. Non-Interest income for the three months ended June 30, 1996 included a $627,000 gain on the Bank's investment in Hometown Bancorporation which was liquidated shortly after the planned acquisition announcement by HUBCO, Inc. in April, 1996. Non-Interest Expense - -------------------- Non-Interest expense is comprised of general and administrative expenses incurred in managing the business of the Bank and costs associated with managing and selling OREO properties. 14 The following table indicates the elements of non-interest expense including OREO related expense which is directly related to the level of non-performing assets. NON-INTEREST EXPENSE Three months ended: - -------------------- ------------------ June 30, 1997 1996 ---- ---- (in thousands) Compensation $1,360 $1,260 Employee benefits 475 439 Occupancy,Equipment & Data Processing 648 538 Regulatory assessments 13 2 Marketing 158 193 Goodwill amortization 81 --- Legal & professional 166 159 Office supplies 155 139 Credit card expense 298 --- Insurance 32 55 Other 541 399 --- ----- Total operating expense 3,927 3,184 ----- ----- Net OREO holding costs & expenses 14 86 Sale of OREO, (gains) losses, net (28) 354 Provision for estimated OREO losses ---- ---- Total OREO related expense (14) 440 ---- ---- Total non-interest expense $3,913 $3,624 ----- ----- Non-interest expense was $3.9 million for the three months ended June 30, 1997 compared to $3.6 million for the same period in 1996. Of the total net increase of $289,000, $379,000 was attributable to recurring expenses in 1997 that did not exist in the comparable period of 1996, such as goodwill amortization and credit card expenses. Additionally, compensation and benefits increased $136,000 from the comparable period in 1996 as a result of increased staff levels in commercial lending and the newly established credit card department as a result of the FFB&T acquisition. Offsetting the increase were substantially lower costs associated with OREO expense. The total cost associated with OREO favorably impacting non-interest expense for the three months ended June 30, 1997 was a net gain of $14,000 compared to net costs of $440,000 for the same period in 1996. The decline in OREO related expense is directly a result of the substantial reduction of properties in the OREO portfolio. Other operating expense accounts such as equipment, data processing, office supplies, and legal and professional fees increased, reflecting higher levels of the volume of the business. Regulatory assessments reflected the nominal assessment by the regulatory agencies as a result of the recent reduction in the insurance premium. NSS continues to qualify under the F.D.I.C.'s "well capitalized" status which carries the lowest possible rate of F.D.I.C. insurance. 15 Other non-interest expense increased to $541,000 for the quarter ended June 30, 1997 from $399,000 a year ago primarily as a result of additional expenses incurred with higher levels of residential and commercial loan volume. Provision for Income Taxes - -------------------------- The current provision for income taxes during the three months ended June 30, 1997 represents estimated taxes owed based on taxable earnings subject to taxation at a combined state and federal rate of approximately 40%. The provision for income taxes for the three months ended June 30, 1996 represented estimated minimum state income tax requirements for the periods as both federal and state income tax liabilities were offset by loss carryforwards. As of December 31, 1996, the Bank recognized the deferred tax benefits of all of its available net operating loss carryforwards. 16 RESULTS OF OPERATIONS Comparison of Operating Results for the Six Months Ended -------------------------------------------------------- June 30, 1997 and 1996. ----------------------- Operations - ---------- The net earnings for the six months ended June 30, 1997 were $2.2 million or $0.91 per share compared to net earnings of $2.3 million or $.99 per share for the six months ended June 30, 1996. The first six months earnings for 1997 were fully taxable compared to fully tax sheltered earnings during the first six months of 1996. Net Interest Income - ------------------- Net interest income, which is the primary source of income for the Bank, is the difference between interest earned on loans and investments and the interest paid on deposits and borrowings. Net interest income was $9.2 million for the six months ended June 30, 1997 compared to $8.4 million for the same period last year. The increase in net interest income of $0.8 million from the six months ended June 30, 1996 resulted from a $3.0 million increase in interest income offset by a $2.2 million increase in interest expense. The improvement in interest income is primarily a result of the increased level of earning assets, principally loans, and to a lesser extent, marketable equity securities. The total securities portfolio reflected interest rate improvements primarily as a result of the Bank moving to a longer term strategy in that portfolio. Average interest earning assets improved to $603.9 million for the first six months of 1997 compared to $525.6 million for the same period in 1996. Funds generated by deposit growth, dispositions of non-performing assets, and Federal Home Loan Bank and other borrowings, all contributed to the growth in earning assets. The average interest rate on earning assets for the six months ended June 30, 1997 rose to 7.29% from 7.24% for the same period last year. Interest expense increased to $12.8 million for the six months ended June 30, 1997 from $10.6 million for the comparable period last year. The $2.2 million increase was primarily attributable to the higher balances of interest bearing liabilities. For the six months ended June 30, 1997, the Bank's cost of funds increased 30 basis points to 4.70% from 4.40% last year. Overall, the Bank experienced a modest decline in net interest margin of 14 basis points to 3.06% for the six months ended June 30, 1997 from 3.20% for the comparable period in 1996. Table 3 summarizes the Bank's net interest income and net yield on average interest-earning assets. Non-accruing loans for the purpose of this analysis are included in average loans outstanding during the periods indicated. For the purpose of this computation, daily average amounts were used to compute average balances. 17 TABLE 3 Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996 ($ thousands) 1997 1996 - ----------------------------------------------------------------------------------------------------------------- Average Average Average Average balance Interest rate balance Interest rate - ----------------------------------------------------------------------------------------------------------------- Interest-earning assets Loans receivable $429,410 $16,297 7.59 % $373,861 $14,109 7.55 % Investment securities 45,357 1,656 7.30 33,077 1,144 6.92 Mortgage backed securities 90,978 3,253 7.15 106,031 3,537 6.67 Short term investments 11,684 364 6.23 5,573 148 5.31 Marketable equity investments 26,477 454 3.43 7,070 99 2.80 ------- ---- ------ --- Total interest-earning assets 603,906 22,024 7.29 % 525,612 19,037 7.24 % -------- ------- ----- -------- ------- ----- Non-interest-earning assets Cash and cash equivalents 12,439 11,366 Accrued interest receivable 5,100 4,245 Premises and equipment 3,393 3,367 Other 6,909 7,931 Less: Allowance for credit losses (7,304) (4,173) ------- ------- Total non-interest-earning assets 20,537 22,735 ------- ------ Total assets $624,443 $548,347 =========== ============ Interest-bearing liabilities Deposits Regular savings & NOW $59,834 $475 1.59 % $56,669 $421 1.49 % Super savings & money market 94,713 1,498 3.16 110,931 1,556 2.81 Time 239,609 6,484 5.41 210,218 5,588 5.32 -------- ------ -------- ------ Total deposits 394,156 8,457 4.29 377,818 7,565 4.00 Borrowings 146,780 4,278 5.83 101,650 3,013 5.93 Mortgage escrow deposits 3,688 51 2.77 3,396 48 2.83 ------ --- ------ --- Total interest-bearing liabilities 544,624 12,786 4.70 % 482,864 10,626 4.40 % -------- ------- ----- -------- ------- Non-interest-bearing liabilities Non-interest-bearing deposits 26,497 19,589 Other liabilities 2,505 1,501 ------ ----- Total non-interest-bearing 29,002 21,090 ------- ------ liabilities Shareholders' equity 50,817 44,393 ------- ------ Total liabilities & shareholders' $624,443 $548,347 equity =========== ============ Net interest-earning assets and interest rate spread $59,282 2.59 % $42,748 2.84 % ----- ----- =========== ============ Net interest income & net yield on average interest-earning assets $9,238 3.06 % $8,411 3.20 % =========== ========== ========== =========
18 Rate / Volume Analysis The following table presents the changes in interest and dividend income and the changes in interest expense attributable to changes in interest rates or changes in volume of interest-bearing assets and interest-bearing liabilities during the first six months of 1997 and 1996. Changes which are attributable to both rate and volume have been allocated proportionately. TABLE 4 Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996 RATE VOLUME NET ($ thousands) CHANGE INTEREST INCOME: Loans receivable $76 $2,112 $2,188 Mortgage-backed securities 242 (526) (284) Short term investments 30 186 216 Investment securities 94 773 867 --- ---- --- Total 442 2,545 2,987 ---- ------ ----- INTEREST EXPENSE: Deposits Savings & NOW (30) (24) (54) Super savings & money 0 58 58 market Time (102) (794) (896) ----- ----- ----- Total deposits (132) (760) (892) Borrowings 52 (1,317) (1,265) Mortgage escrow deposits 1 (4) (3) -- --- --- Total (79) (2,081) (2,160) ---- ------- ------- NET INTEREST INCOME $363 $464 $827 ============ ============== ============
19 Provision for Credit Losses - --------------------------- There was no provision for credit losses for the six months ended June 30, 1997 compared to $805,000 for the comparable period in 1996. The balance in the allowance for credit losses account as of June 30, 1997 was $6.9 million providing 81.6% coverage of non-performing loans and 1.6% of total loans. In comparison, the allowance for credit losses account balance at June 30, 1996 was $4.2 million providing a coverage ratio of 40.3% of non-performing loans and 1.0% of total loans. Although there was no provision for credit losses for the six months ended June 30, 1997, it is management's opinion that the allowance for credit losses is adequate based upon its review of the asset mix, the level of delinquencies, reduced levels of chargeoff, significant levels of recoveries, and the higher coverage of nonperforming loans. Non-Interest Income - ------------------- Non-Interest income consists of service charges and fees, fees derived from servicing of loans, net realized gains on sale of securities, as well as fees derived from the Bank's Trust Department and since the acquisition of Fairfield First Bank and Trust in July 1996, credit card fees. Non-Interest income for the six months ended June 30, 1997 and 1996 was $2.1 million and $1.8 million, respectively. Fees generated by the newly acquired Credit Card Department, combined with higher "core" business fees such as customer service, accounts for most of the increase. The most significant component of non-interest income for the six months ended June 30, 1996 was gains on security sales, primarily the result of the sale of the Bank's investment in Hometown Bancorporation. Non-Interest Expense - -------------------- Non-Interest expense is comprised of general and administrative expenses incurred in managing the business of the Bank and costs associated with managing and selling OREO properties. Non-interest expense was $7.7 million for the six months ended June 30, 1997 compared to $7.0 million for the same period in 1996. The table that follows indicates the elements of non-interest expense including OREO related expense which is directly related to the level of non-performing assets. 20 NON-INTEREST EXPENSE Six months ended: - -------------------- ----------------- June 30, 1997 1996 ---- ---- (in thousands) Compensation $2,712 $2,552 Employee benefits 995 901 Occupancy, Equipment & Data Processing 1,320 1,092 Regulatory assessments 28 6 Marketing 264 315 Goodwill amortization 162 ---- Legal & professional 371 297 Office supplies 291 317 Credit card expense 545 ---- Insurance 104 122 Other 1,016 712 ----- ----- Total operating expense 7,808 6,314 ----- ----- Net OREO holding costs & expenses 98 214 Sale of OREO, (gains) losses, net (208) 492 Provision for estimated OREO losses ---- ---- ----- ------ Total OREO related expense (110) 706 ----- ------ Total non-interest expense $7,698 $7,020 Operating expenses increased $1.5 million to $7.8 million for the six months ended June 30, 1997 from $6.3 million for the comparable period last year. Of the total increase, approximately $700,000 was attributable to amortization of goodwill and expenses relating to the Credit Card Department , both of which were new items in 1997. Additionally, increases in compensation and benefits, occupancy, equipment and data processing were attributable to higher volume levels of business in 1997 as compared to 1996. Partially offsetting the increase in the operating component of non-interest expense, OREO related expenses declined substantially to a net revenue of $110,000 from a net expense of $706,000 for the six months ended June 30, 1997 and 1996, respectively. Reduced levels of holding costs and expenses as the OREO portfolio declined coupled with gains on sales of OREO properties accounted for the overall improvement. 21 Provision for Income Taxes - -------------------------- The current provision for income taxes during the six months ended June 30, 1997 represents estimated taxes owed based on taxable earnings subject to taxation at a combined state and federal rate of approximately 40%. The provision for income taxes for the six months ended June 30, 1996 represented estimated minimum state income tax requirements as both federal and state tax liabilities were offset by loss carryforwards. As of December 31, 1996, the Bank recognized the deferred tax benefits of all of its available net operating loss carryforards. 22 FINANCIAL CONDITION General - ------- Total assets were $663.7 million as of June 30, 1997 compared to $589.6 million as of December 31, 1996, representing an increase of $74.1 million. Total loans, net of allowance for loan losses, were $443.1 million, an increase of $32.3 million from the $410.8 million as of December 31, 1996. Total deposits were $435.0 million compared to $423.3 million, an increase of $11.7 million from December 31, 1996. Shareholders' equity as of June 30, 1997 was $51.9 million compared to $49.4 million at December 31, 1996. The tier one leverage capital ratio was 7.8% as of June 30, 1997 and 7.9% at December 31, 1996. Investment Securities - --------------------- Total securities amounted to $185.0 million and $140.1 million as of June 30, 1997 and December 31, 1996, respectively. The $44.9 million increase represented the net effect of sales of lower yielding securities, monthly amortization (pay-downs) of the mortgage backed securities portfolio and purchases of approximately $100 million of various investments, primarily callable preferred stocks that convert in approximately 4-1/2 years to adjustable rates and provide for tax effective yield protection. During the first six months of 1997, the Bank, through continued use of wholesale leverage, purchased government agency callable bonds and mortgage backed securities using FHLB borrowings, generating pre-tax income spreads between 110 and 140 basis points. (See the section on Federal Home Loan Bank Advances to address the trend in longer term advances.) The Bank continued to purchase mortgage backed securities as a supplement to the mortgage lending program. In total, security gains for the first six months of 1997 were $186,000 compared to $761,000 for the comparable period in 1996. In April 1996, the Bank liquidated its investment in Hometown Bancorporation, which accounted for $627,000 of last year's total gains for the first six months. The following table presents a summary of the investments and other securities portfolios as of June 30, 1997 and December 31, 1996, fair values and unrealized gains and losses as of those dates. 23 TABLE 5 INVESTMENT & OTHER SECURITIES ($ thousands) June 30, 1997 ------------------------------------------------------------- Amortized Unrealized Fair Cost Holding Losses Value Gains ------------ ------------------------------ ----------------- Available for Sale ------------------ U.S. Government & Federal Agency Obligations $61,223 $71 $414 $60,880 Mortgage Backed Securities 84,771 466 217 85,020 Equity Securities 36,313 598 0 36,911 ------- ---- -- ------ Total Available for Sale $182,307 $1,135 $631 $182,811 ========= ======= ===== ======== Trading ------- Equity Securities $2,348 $0 ($194) $2,154 ======= === ====== ====== December 31, 1996 ------------------------------------------------------------- Amortized Unrealized Fair Cost Holding Losses Value Gains ------------ ------------------------------ ----------------- Available for Sale U.S. Government & Federal Agency Obligations $42,436 $145 $461 $42,120 Mortgage Backed Securities 92,443 382 372 92,453 Equity Securities 2,110 138 12 2,236 ------ ---- --- ----- Total Available for Sale $136,989 $665 $845 $136,809 ========= ==== ===== ======== Trading Equity Securities $3,353 $46 $107 $3,292 ======= ==== ===== ======
24 Loans - ----- Total loans, before reductions for deferred credits, fees and the allowance for credit losses amounted to $450.8 million, representing a $32.0 million or 7.6% increase over the December 31, 1996 level of $418.8 million. Demand for new residential mortgage loans continued at a good pace for the first six months of the year. The Bank continues to focus on residential loans with emphasis on adjustable rate products as its primary lending vehicle. As indicated by the following table, more than 81% of NSS's loan portfolio is in first mortgage residential loans, with 64.1% of the portfolio in adjustable rate first mortgage loans. Consumer loans declined approximately $2.7 million from December 31, 1996 primarily due to the fact that the portfolio of automobile leases which had been generated on an indirect basis was repurchased by the originating company. There were no significant sales or securitizations during the first six months of 1997; however, in conjunction with its current strategic plan, the Bank entered into a $10 million forward sale commitment with the Federal Home Loan Mortgage Corporation (Freddie Mac) of which $5 million was satisfied in July 1997. 25 TABLE 6 LOAN PORTFOLIO ($ thousands) June 30, 1997 December 31, 1996 ------------- ----------------- Real Estate Loans 1 to 4 family adjustable rate $288,736 64.1% $257,459 61.5% 1 to 4 family fixed rate 78,259 17.4% 77,160 18.4% Multi-family 6,699 1.5% 7,450 1.8% Commercial 46,874 10.4% 46,272 11.0% Home equity lines of credit 7,353 1.6% 7,127 1.7% Home improvement & second mortgages 2,842 0.6% 2,568 0.6% Land 804 0.2% 828 0.2% Construction 2,573 0.6% 1,227 0.3% Total Real Estate Loans 434,140 96.4% 400,091 95.5% Commercial Loans 8,988 2.0% 8,425 2.0% Consumer Loans Passbook 1,570 0.3% 1,510 0.4% Automobile loans 2,449 0.5% 2,619 0.6% Automobile leases 0 0.0% 3,149 0.8% Credit cards 973 0.2% 991 0.2% All other 2,635 0.6% 2,033 0.5% Total Consumer Loans 7,627 1.6% 10,302 2.5% Total Loans, gross 450,755 100% 418,818 100% Deferred fees & credits (714) (718) 450,041 418,100 Allowance for Credit Losses (6,911) (7,334) Total Loans, net $443,130 $410,766
26 Non-Performing Assets / Asset Quality - ------------------------------------- The Bank's level of non-performing assets stood at $9.0 million or 1.35% of assets as of June 30, 1997 compared to $12.5 million or 2.0% of assets as of March 31, 1997. The $3.5 million decrease in non-performing assets was primarily attributable to sales of two non-performing loans (amounting to $1.5 million), appropriate collection efforts, and the improved economy in the Bank's market area. Sales of nine OREO properties amounted to a reduction of $985,000 in the carrying value of OREO during the first six months of 1997. There were no troubled debt restructures included in non-performing loans as of June 30, 1997 or December 31, 1996. The allowance for credit losses amounted to $6.9 million at June 30, 1997, representing coverage of 81.6% of non-performing loans compared to $7.3 million as of December 31, 1996, representing coverage of 70.2% of non-performing loans. Through its credit rating system, the Bank has identified $12.3 million of watchlist loans at June 30, 1997 compared to $8.5 million at December 31, 1996. The increase was essentially attributable to one commercial real estate loan of approximately $2.5 million, which the borrowers subsequently brought current in July. Details of the Bank's asset quality are shown in the analysis provided by the table on the following page. 27 TABLE 7 ASSET QUALITY ($ thousands) AT JUNE 30, AT DECEMBER 31, ------------------------- --------------------------------------- 1997 1996 1996 1995 1994 Non-performing assets Non-accrual loans $8,468 $10,367 $10,441 $12,598 $9,489 Restructured loans --- --- --- 472 487 ----------- ----------- ----------- ----------- ----------- Total non-performing loans 8,468 10,367 10,441 13,070 9,976 ----------- ----------- ----------- ----------- ----------- Foreclosed assets 485 2,533 858 4,267 11,622 Allowance for estimated OREO losses --- --- --- --- (802) ----------- ----------- ----------- ----------- ----------- Total OREO 485 2,533 858 4,267 10,820 ----------- ----------- ----------- ----------- ----------- Total non-performing assets $8,953 $12,900 $11,299 $17,337 $20,796 =========== =========== =========== =========== =========== Allowance for credit losses Balance at beginning of year $7,334 $4,170 $4,170 $4,827 $2,532 Provision for credit losses --- 805 4,415 1,005 3,790 Addition to the reserve through goodwill --- --- 1,000 --- --- Charge-offs (892) (812) (2,488) (1,799) (1,589) Recoveries 469 14 237 137 94 ---- --- ---- ---- -- Net Charge-offs (423) (798) (2,251) (1,662) (1,495) ----- ----- ------- ------- ------- Balance at end of period $6,911 $4,177 $7,334 $4,170 $4,827 ======= ======= ======= ======= ====== Allowance for estimated OREO losses Balance at beginning of period $0 $0 $0 $802 $194 Provision for estimated OREO losses --- --- $459 460 2,894 Charge-offs --- --- ($459) (1,262) (2,286) ------ ------- ------- Balance at end of period $0 $0 $0 $0 $802 === === === === ==== Loans receivable, net End of period 443,130 407,692 410,766 355,796 284,885 Average 422,106 373,861 403,207 313,072 265,581 Assets, end of period 663,668 609,522 589,589 515,267 464,901 Ratios Allowance for credit losses to total 1.56% 1.01% 1.79% 1.17% 1.69% loans Net charge-offs to average loans 0.10% 0.19% 0.56% 0.53% 0.56% Non-performing loans to total loans 1.91% 2.51% 2.54% 3.67% 3.50% Non-performing assets to total assets 1.35% 2.12% 1.92% 3.36% 4.47% Allowance for credit losses to non-performing loans 81.61% 40.29% 70.24% 31.91% 48.39%
28 Deposits - -------- Total deposits as of June 30, 1997 were $435.0 million compared to $423.3 million as of December 31, 1996, representing an increase of $11.7 million or 2.7%. In terms of deposit mix, non interest bearing accounts as well as savings and NOW account gains more than offset the decline in money market certificate accounts. These accounts when opened are less than one year to maturity. The customer who is inclined to open a certificate of deposit has recently been inclined to extend maturities to two and two and a half year time frames as a result of special rates offered by the Bank. The Bank continues to focus on the total business deposit relationship. The Bank's goal is to attract small business customers and capture the majority of the business banking relationships through its commercial lending function. The Bank continues to aggressively seek time deposits and all other types of consumer deposits, but the best product to stimulate the Bank's net interest margin is the non-interest bearing checking account. The Bank does not solicit nor does it accept brokered deposits. The following table presents a summary of deposits as of June 30, 1997 and December 31, 1996. TABLE 8 Deposits - ----------------------------------------------------------------------------------------------------- June 30, 1997 December 31, 1996 ($ thousands) Demand deposits $30,514 7.0% $22,479 5.3% Savings Regular savings 29,709 6.8% 28,096 6.6% Super savings 48,148 11.1% 45,404 10.7% NOW 35,095 8.1% 30,262 7.1% Money market 47,173 10.8% 47,957 11.3% Escrow deposits 4,927 1.1% 4,965 1.2% Certificates Certificate accounts 202,935 46.7% 197,204 46.6% Money market certificates 36,530 8.4% 46,923 11.1% ------- ---- ------- ----- Total Deposits $435,031 100.0% $423,290 100.0% ========= ====== ========= ======
29 Federal Home Loan Bank of Boston, Advances and Other Borrowings - --------------------------------------------------------------- The Bank continues to utilize the FHLB as an alternative source of funds to the traditional deposit account relationship. As of June 30, 1997, borrowings from the FHLB amounted to $134.9 million at a weighted average rate of 5.83% and a weighted average maturity of 1.2 years compared to $82.2 million at a weighted average rate of 5.78% and a weighted average maturity of 1.3 years as of December 31, 1996. In addition to borrowing from the FHLB, the Bank utilizes the "REPO" market from time to time. There was $39.7 million outstanding in securities sold under agreements to repurchase as of June 30, 1997 at a weighted average rate of 5.88% and a weighted average maturity of 1.8 years. The comparable data as of December 31, 1996 was $31.4 million at 5.73% for approximately one year. Shareholders' Equity - -------------------- The Bank's Shareholders' equity at June 30, 1997 was $51.9 million compared to $49.4 million as of December 31, 1996. The Tier 1 leverage capital ratios were 7.8% and 7.9% at June 30, 1997 and December 31, 1996, respectively. The following table indicates required and actual levels of regulatory capital as of June 30, 1997 and December 31, 1996. Required Actual -------- ----------------------- June 30, Dec. 31, 1997 1996 ------- -------- Tier 1 risk-based capital..................4.0% 13.9% 15.7% Total risk-based capital...................8.0% 15.3% 17.0% Tier 1 leverage capital....................4.0%-5.0% 7.8% 7.9% Asset and Liability Management - ------------------------------ In accordance with the Asset and Liability Management policy of Norwalk Savings Society, senior management postures the Bank towards an acceptable level of interest rate risk in turn producing a stable net interest income in ever changing interest rate environments. On a continual basis, at its monthly asset and liability committee meeting and more frequently, if necessary, the level of interest-earning assets is monitored and measured in relation to interest-bearing liabilities, utilizing the "gap" schedule (Exhibit A) in conjunction with other supporting documents and systems providing relevant information. Certain assumptions are made during this process, and the applicable assumptions to the gap schedule are indicated at the bottom of the page at Exhibit A. These assumptions may or may not be indicative of future withdrawals of deposits or loan repayments. Liquidity and Capital Resources - ------------------------------- Liquidity is the ability of the Bank to meet its cash flow requirements arising from fluctuations in loans, securities, deposits, and other borrowings. At June 30, 1997, the Bank's primary liquidity consisting of cash, 30 cash equivalents and marketable securities (with maturities of one year or less) was $49.4 million or 7.4% of total assets, compared to $30.6 million or 5.2% of total assets at December 31, 1996. The Bank's primary source of funds is deposits and other borrowings, primarily from the FHLB. The Bank monitors its liquidity in accordance with policy guidelines established by the Asset and Liability Management Policy and regulatory standards, administered by the Asset and Liability Management Committee of the Bank. As of June 30, 1997, the Bank had approved loan commitments outstanding for one- to four-family loans of $9.3 million. In addition, there was $7.5 million available unused credit under the home equity line of credit facility and $0.9 million available unused credit under the overdraft protection credit line facility. The unadvanced portion of residential construction loans amounted to $1.7 million as of June 30, 1997. There was $1.7 million in approved loan commitments in the Commercial Lending Department as of June 30, 1997 , $2.3 in unused lines of credit, and $0.7 million in commercial letters of credit. There was $1.3 million available unused credit in the credit card program. Management believes that the Bank's liquidity position is currently adequate to meet normal operating needs. To meet unexpected demands, the Bank maintains a line of credit with the FHLB. At June 30, 1997, this line of credit was $10.3 million of which no amount was outstanding. Management also believes that the Bank's capital position is currently adequate to meet anticipated growth and does not currently have plans to raise capital from external sources in the near future. Market Price of Common Stock - ---------------------------- Norwalk Savings Society trades on the (NASDAQ) National Market under the symbol "NSSY". The following table sets forth the high/low price range of "NSSY" common stock as reported by NASDAQ and dividends declared for the periods indicated: 1997 1996 High Low Dividend High Low Dividend ------------------------------------------------------- First Quarter $26.25 $22.94 $.05 $22.00 $18.75 -- Second Quarter $31.00 $23.00 $.10 22.25 17.94 $.05 Third Quarter 23.13 20.88 .05 Fourth Quarter 24.88 22.75 .05 31 NORWALK SAVINGS SOCIETY (Registrant) Date: August 12, 1997 By_/s/Robert T. Judson____________ Robert T. Judson President & CEO Date: August 12, 1997 By_/s/Marcus I. Braverman_________ Marcus I. Braverman Senior Vice President Treasurer & CFO (0697MDA) 32 0697gap EXHIBIT A --------- The following table presents the Interest Rate Risk Exposure ("GAP") as of June 30, 1997. Repricing Repricing after one Repricing Total Percent of within and within over amount total one year five years five years - ----------------------------------------------------------------------------------------------------------------------------------- Assets Loans (1) 1 to 4 family first liens $363,873 54.83% $269,918 $20,090 $73,865 All other 78,414 11.82% 42,886 22,346 13,182 Securities Governments & agencies 60,880 9.17% 0 0 60,880 Mortgage-backed securities (1) 85,020 12.81% 15,696 16,362 52,962 Equity securities / FHLB stock 43,161 6.50% 2,613 33,700 6,848 Short term investments 5,675 0.86% 5,675 - ----------------------------------------------------------------------------------------------------------------------------------- Total rate sensitive assets 637,023 95.99% $336,788 $92,498 $207,737 - ----------------------------------------------------------------------------------------------------------------------------------- Cumulative rate sensitive assets $336,788 $429,286 $637,023 - ----------------------------------------------------------------------------------------------------------------------------------- Other assets (2) 26,645 4.01% - ------------------------------------------------------------------------------------------------------------------------------------ Total assets 663,668 100.00% - ------------------------------------------------------------------------------------------------------------------------------------ Liabilities and shareholders'equity Deposits Savings 29,709 4.48% 29,709 Super savings 48,148 7.25% 48,148 NOW 35,095 5.29% 35,095 Money market 47,173 7.11% 47,173 Escrow 4,927 0.74% 4,927 Certificates 239,465 36.08% 152,224 87,241 - ----------------------------------------------------------------------------------------------------------------------------------- Total deposits 404,517 60.95% 317,276 87,241 - ----------------------------------------------------------------------------------------------------------------------------------- Borrowings 174,986 26.37% 127,666 45,899 1,421 - ----------------------------------------------------------------------------------------------------------------------------------- Total rate sensitive liabilities 579,503 87.32% 444,942 133,140 1,421 - ----------------------------------------------------------------------------------------------------------------------------------- Cumulative rate sensitive liabilities $444,942 $578,082 $579,503 - ----------------------------------------------------------------------------------------------------------------------------------- Other liabilities 32,255 4.86% Shareholders' equity 51,910 7.82% - ----------------------------------------------------------------------------------------------------------------------------------- Total liabilities & shareholders' equity 663,668 100.00% - ----------------------------------------------------------------------------------------------------------------------------------- Net position of assets (liabilities) (108,154) (40,642) 206,316 - ----------------------------------------------------------------------------------------------------------------------------------- Adjustments (3), (4) ($125,111) $63,547 $61,564 - ----------------------------------------------------------------------------------------------------------------------------------- Adjusted GAP $16,957 ($104,189) $144,752 - ----------------------------------------------------------------------------------------------------------------------------------- Cumulative repricing difference (cummulative Gap) $16,957 ($87,232) $57,520 - ----------------------------------------------------------------------------------------------------------------------------------- Cumulative GAP to total assets 2.56% -13.14% 8.67% - ----------------------------------------------------------------------------------------------------------------------------------- Note: (1) Included in the one year period are regularly scheduled monthly payments to be received on Loans and Mortgage-backed securities. (2) Not included above, as interest rate sensitive are $8.5 million in non-accruing loans and $0.5 million in OREO property. (3) 95% of savings and NOW accounts were reclassified to the over five year period. (4) Money market and super savings were divided 1/3, 2/3, respectively in each of the first two periods.
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