News Column

Naugatuck Valley Financial Corporation Announces Their Second Quarter Results

August 7, 2014

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







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

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

  At June 30,  At March 31,
  2014 (1)  2014  
Nonperforming assets to total assets  1.19% 2.31% 
Adversely classified loans to total loans  2.15%  5.12%
 
(1)  Includes impact of loans sold in July 2014 which were held for sale at June 30, 2014.


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

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

Operating Highlights

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

• Provision for loan losses decreased by $6.0 million, or 170%, as asset quality improvements resulted in a $2.5 million credit provision in 2Q 2014 while $7.1 million in net charge-offs in 2Q 2013 drove the 2Q 2013 provision of $3.6 million.• Noninterest income decreased by $278 thousand, or 30%, primarily on 64% less mortgage banking income driven by significantly lower mortgage origination and loan sale volumes during the 2014 quarter.• Noninterest expenses increased by $819 thousand, or 13%, primarily due to the $1.9 million loss on loan sales during the 2014 quarter, which was a $1.2 million increase over the 2013 quarter for that expense category.

Net Interest Income

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

Credit Quality

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

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

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

Noninterest Income

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

Noninterest Expense

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

Selected Balance Sheet Data

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

Total liabilities at June 30, 2014 of $453.4 million increased $24.9 million, or 6%, from $428.5 million at December 31, 2013 primarily due to the $28.8 million increase in FHLB advances utilized to fund the increase in the Bank's investment portfolio. During this six month period, deposits decreased $4.4 million, or 1%, as noninterest bearing transaction accounts decreased by $2.7 million, or 3%, and interest bearing deposits, primarily certificates of deposit, decreased by $2.2 million, or less than 1%.

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

About Naugatuck Valley Savings and Loan

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

Forward- Looking Statements

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

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

SELECTED FINANCIAL CONDITION DATA (Unaudited)
 June 30,December 31,
 20142013
 (In thousands)
ASSETS    
Cash and due from depository institutions  $ 8,699  $ 26,330
Investment in federal funds  18  44
Cash and cash equivalents  8,717  26,374
Investment securities available-for-sale, at fair value  86,386  49,771
Investment securities held-to-maturity, at amortized cost  15,480  18,149
Loans held for sale  5,052  1,079
Loans receivable, net  362,324  360,568
Accrued income receivable  1,712  1,494
Foreclosed real estate  536  1,846
Premises and equipment, net  9,390  9,364
Bank owned life insurance  10,261  10,132
Federal Home Loan Bank of Boston stock, at cost  5,210  5,444
Other assets  6,996  2,560
Total assets  $ 512,064  $ 486,781
LIABILITIES AND STOCKHOLDERS' EQUITY    
Liabilities    
Deposits  $ 385,980  $ 390,847
FHLB advances  54,164  25,293
Other borrowed funds  3,967  4,173
Mortgagors' escrow accounts  4,630  4,392
Other liabilities  4,673  3,842
Total liabilities  453,414  428,547
Commitments and contingencies    
Stockholders' equity    
Preferred stock, $.01 par value; 1,000,000 shares authorized; no shares issued or outstanding  --  --
Common stock, $.01 par value; 25,000,000 shares authorized; 7,002,366 shares issued; 7,002,208 shares outstanding at  June 30, 2014 and December 31, 2013, respectively  70  70
Paid-in capital  58,759  58,757
Retained earnings  1,607  2,322
Unearned employee stock ownership plan ("ESOP") shares (326,751  shares at June 30, 2014 and December 31, 2013)  (2,824)  (2,824)
Treasury Stock, at cost (158 shares at June 30, 2014 and December 31, 2013)  (1)  (1)
Accumulated other comprehensive income (loss)  1,039  (90)
Total stockholders' equity  58,650  58,234
Total liabilities and stockholders' equity  $ 512,064  $ 486,781
 
OPERATIONS DATA (Unaudited)
 Three Months EndedSix Months Ended
 June 30,June 30,
(In thousands, except share data)2014201320142013
       
Interest and fees on loans  $ 4,200  $ 5,021  $ 8,412  $ 10,072
Interest and dividends on investments and deposits  856  292  1,518  612
Total interest income  5,056  5,313  9,930  10,684
Interest expense        
Interest on deposits  598  752  1,203  1,538
Interest on borrowed funds  189  249  342  543
Total interest expense  787  1,001  1,545  2,081
         
Net interest income  4,269  4,312  8,385  8,603
         
Provision for loan losses  (2,483)  3,550  (2,483)  3,850
         
Net interest income after provision for loan losses  6,752  762  10,868  4,753
         
Noninterest income        
Service charge income  176  182  350  360
Fees for other services  138  180  232  290
Mortgage banking income  140  393  276  895
Income from bank owned life insurance  63  70  129  140
Net gain on sale of investments  34  (4)  193  (4)
Income from investment advisory services, net  74  87  168  139
Other income  33  28  63  53
Total noninterest income  658  936  1,411  1,873
         
Noninterest expense        
Compensation, taxes and benefits  2,973  2,896  5,989  5,573
Occupancy  582  456  1,124  946
Professional fees  323  637  842  1,296
FDIC insurance premiums  270  249  531  454
Insurance  117  124  262  282
Computer processing  327  315  697  631
Expenses on foreclosed real estate, net  168  202  378  559
Writedowns on foreclosed real estate  11  49  38  60
Directors compensation  70  77  172  211
Advertising  118  108  213  195
Supplies  60  48  129  109
Expenses and losses related to sale of loans  1,940  765  1,940  765
Other expenses  357  571  679  935
Total noninterest expense  7,316  6,497  12,994  12,016
         
Income (loss) before provision (benefit) for income taxes  94  (4,799)  (715)  (5,390)
         
Provision (benefit) for income taxes  --  --  --  --
         
Net income (loss)  $ 94  $ (4,799)  $ (715)  $ (5,390)
Earnings (loss) per common share - basic and diluted (1)  $ 0.01  $ (0.72)  $ (0.11)  $ (0.81)
(1) Based on the following weighted average number of shares:        
Basic  6,675,457  6,610,729  6,675,457  6,610,729
Diluted  6,716,556  6,610,729  6,675,457  6,610,729
         
SELECTED FINANCIAL RATIOS (Unaudited)
 For the Three MonthsFor the Six Months
SELECTED PERFORMANCE RATIOS: (1)Ended June 30,Ended June 30,
 2014201320142013
 (Unaudited)  
                 
Return on average assets  0.07 %  N/M  %  (0.29) %  N/M  %
Return on average equity  0.65    N/M     (2.48)    N/M   
                 
ASSET QUALITY RATIOS:At June 30,At March 31,At December 31,    
 201420142013    
 (Unaudited)      
 (Dollars in thousands)      
                 
Allowance for loan losses  $ 7,297    $ 9,865    $ 9,891      
Allowance for loan losses as a percent of total loans 1.97 % 2.67 % 2.67 %    
Allowance for loan losses as a percent of nonperforming loans 131.52 % 93.15 % 73.91 %    
Nonperforming loans (3)  $ 5,548    $ 10,590    $ 13,383      
Nonperforming loans as a percent of total loans 1.50 % 2.86 % 3.61 %    
Nonperforming assets (2)  $ 6,084    $ 11,704    $ 15,229      
Nonperforming assets as a percent of total assets 1.19 % 2.31 % 3.13 %    
                 
(1) All applicable ratios reflect annualized figures.
(2) Nonperforming assets consist of nonperforming loans and foreclosed real estate.
(3) Excludes loans held for sale at June 30, 2014 which were subsequently sold in July 2014
 
N/M - Not meaningful


Graphs accompanying this release are available at http://media.globenewswire.com/cache/8545/file/28080.pdf

CONTACT: Naugatuck Valley Financial CorporationWilliam Calderara or James Hastings 1-203-720-5000



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Source: Naugatuck Valley Financial Corporation


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