Connecticut Bancshares, Inc. Reports 26% Increase in Net Income for the Third Quarter and Declares Quarterly Dividend of $0.18 Per Share MANCHESTER, Conn., Oct. 27 /PRNewswire-FirstCall/ -- Connecticut Bancshares, Inc. (the "Company") , the holding company for The Savings Bank of Manchester (the "Bank"), reported net income of $8.51 million for the third quarter of 2003, compared to net income of $6.74 million for the third quarter of 2002, representing a 26.26% increase. Earnings per diluted share for the quarter ended September 30, 2003 were $0.79 based on 10.75 million weighted average shares outstanding, compared to earnings per diluted share for the quarter ended September 30, 2002 of $0.62 based on 10.81 million weighted average shares outstanding. Net income for the nine months ended September 30, 2003 was $23.33 million, as compared to net income of $18.43 million for the nine months ended September 30, 2002, representing a 26.59% increase. Earnings per diluted share for the nine months ended September 30, 2003 were $2.16 based on 10.79 million weighted average shares outstanding, compared to earnings per diluted share for the nine months ended September 30, 2002 of $1.71 based on 10.80 million weighted average shares outstanding. The Company also declared a quarterly cash dividend of $0.18 per share on the outstanding shares of its common stock. The dividend will be paid on or about November 24, 2003 to stockholders of record as of the close of business on November 10, 2003. On July 16, 2003, the Company announced it entered into an Agreement and Plan of Merger with The New Haven Savings Bank ("NHSB"). The Company's stockholders will receive $52.00 in cash in exchange for each share of the Company's common stock held. If the transaction closes after March 31, 2004, the merger price is subject to increase based on the Company's earnings less dividends paid from that date to the end of the month preceding the closing date of the merger. As a condition precedent to the merger, NHSB will convert from a Connecticut-chartered mutual savings bank to a Connecticut-chartered stock savings bank and simultaneously form a holding company. Net interest income for the third quarter of 2003 was $19.75 million, a $612,000, or 3.00%, decrease from $20.36 million for the third quarter of 2002. Average interest-earning assets were $2.43 billion for the quarter ended September 30, 2003 compared to $2.33 billion for the prior year quarter. The Company's net interest margin was 3.30% for the quarter ended September 30, 2003 compared to 3.55% for the quarter ended September 30, 2002. The decrease in net interest income from the prior year quarter was primarily due to lower yields on loans and investments partially offset by a lower cost of funds on interest-bearing liabilities and a higher volume of loans. The yield on interest-earning assets declined from 6.06% for the quarter ended September 30, 2002 to 5.22% for the quarter ended September 30, 2003. Loan yields declined from 6.64% for the quarter ended September 30, 2002 to 5.78% for the quarter ended September 30, 2003. Investment yields declined from 4.95% for the quarter ended September 30, 2002 to 3.94% for the quarter ended September 30, 2003. The reductions in yield were primarily due to a lower interest rate environment. The cost of funds decreased from 2.83% for the quarter ended September 30, 2002 to 2.17% for the quarter ended September 30, 2003. The reduction was primarily due to a lower interest rate environment. Average gross loans increased $160.22 million, or 10.50%, from $1.53 billion for the quarter ended September 30, 2002 to $1.69 billion for the quarter ended September 30, 2003. The increase in average gross loans was primarily in residential and commercial real estate loans. Noninterest income for the third quarter of 2003 was $9.22 million, a $4.46 million, or 93.70%, increase from $4.76 million for the third quarter of 2002. The increase in noninterest income over the prior year quarter was primarily due to an increase in gains on sales of securities, an increase in service charges and fees and a decrease in charges for other than temporary impairment of investment securities. Gains on sales of securities increased $3.33 million from the prior year quarter as the Company sold $13.64 million of common and preferred stock, realizing a $3.95 million gain during the 2003 quarter. At September 30, 2003, the Company had $1.00 million (fair value) of preferred stock and no common stock remaining in its portfolio. Service charges and fees increased $854,000 as compared to the prior year quarter primarily due to increases in checking account and commercial real estate loan prepayment fees. During the third quarter of 2003 there were no charges recorded for other than temporary impairment, while in the prior year quarter a charge for other than temporary impairment totaling $410,000 was recorded for two equity securities. Noninterest expense for the third quarter of 2003 was $15.86 million, a $1.18 million, or 8.04%, increase from $14.68 million for the third quarter of 2002. The increase in noninterest expense from the prior year quarter was primarily due to merger expenses and an increase in employee benefits partially offset by decreases in amortization of other intangible assets and salaries. The Company incurred $1.24 million in expenses, primarily professional fees, relating to the merger with NHSB in the quarter ended September 30, 2003. Employee benefits increased primarily due to increased restricted stock, pension and ESOP expenses. In conjunction with the 2001 acquisition of First Federal Savings and Loan Association of East Hartford ("First Federal"), the Bank recorded an intangible asset for noncompete agreements with former First Federal executives. The agreements were amortized over their twelve-month term through the third quarter of 2002. Salary expense decreased primarily due to higher cost deferrals relating to the origination of residential mortgages. Net interest income for the nine months ended September 30, 2003 was $61.13 million, a $1.59 million, or 2.67%, increase from $59.54 million for the nine months ended September 30, 2002. Average interest-earning assets were $2.41 billion for the nine months ended September 30, 2003 compared to $2.32 billion for the prior year period. The Company's net interest margin was 3.41% for the nine months ended September 30, 2003 compared to 3.45% for the nine months ended September 30, 2002. The increase in net interest income from the prior year period was primarily due to a lower cost of funds on interest-bearing liabilities and a higher volume of loans partially offset by lower yields on loans and investments. The cost of funds decreased from 2.97% for the nine months ended September 30, 2002 to 2.29% for the nine months ended September 30, 2003. The reduction was primarily due to a lower interest rate environment. Average gross loans increased $145.85 million, or 9.76%, from $1.49 billion for the nine months ended September 30, 2002 to $1.64 billion for the nine months ended September 30, 2003. The increase in average gross loans was primarily in residential and commercial real estate loans. The yield on interest-earning assets declined from 6.10% for the nine months ended September 30, 2002 to 5.44% for the nine months ended September 30, 2003. Loan yields declined from 6.75% for the nine months ended September 30, 2002 to 6.01% for the nine months ended September 30, 2003. Investment yields declined from 4.93% for the nine months ended September 30, 2002 to 4.23% for the nine months ended September 30, 2003. The reductions in yield were primarily due to a lower interest rate environment. Noninterest income for the first nine months of 2003 was $19.98 million, a $6.01 million, or 43.02%, increase from $13.97 million for the first nine months of 2002. The increase in noninterest income over the prior year was primarily due to an increase in gains on sales of securities and an increase in service charges and fees. Gains on sales of securities increased $3.79 million from the prior year as the Company sold $13.64 million of common and preferred stock, realizing a $3.95 million gain during the third quarter of 2003. Service charges and fees increased $2.21 million as compared to the prior year primarily due to increases in checking account, commercial real estate loan prepayment and merchant services fees. Noninterest expense for the first nine months of 2003 was $45.21 million, a $166,000, or 0.38%, increase from $45.05 million for the first nine months of 2002. The increase in noninterest expense from the prior year period was primarily due to merger expenses and an increase in employee benefits, partially offset by decreases in amortization of other intangible assets, fees and services, salaries, furniture and equipment and marketing expenses. The Company incurred $1.72 million in expenses, primarily professional fees, relating to the merger with NHSB in the nine months ended September 30, 2003. Employee benefits increased primarily due to increased restricted stock, pension and ESOP expenses. In conjunction with the 2001 acquisition of First Federal, the Bank recorded an intangible asset for noncompete agreements with former First Federal executives. The agreements were amortized over their twelve-month term through the third quarter of 2002. Fees and services decreased primarily due to lower consulting fees for information technology and investments. Salary expense decreased primarily due to higher cost deferrals relating to the origination of residential mortgages. Furniture and equipment expenses decreased as certain assets became fully depreciated. Marketing expenses decreased as the Bank reduced its expense related to various media advertising. The Company did not repurchase any shares of its common stock during the third quarter of 2003, and has repurchased a total of 558,641 shares of its common stock since it's initial public offering on March 2, 2000 at a weighted average price of $38.92 per share. Established in 1905, The Savings Bank of Manchester is one of Connecticut's oldest and largest banks. The Bank is headquartered in Manchester, Connecticut, with 28 branch offices serving 22 communities throughout central and eastern Connecticut. Statements contained in this news release, which are not historical facts, are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in documents filed by the Company with the Securities and Exchange Commission from time to time. Subject to applicable laws and regulations, the Company does not undertake - and specifically disclaims any obligation - to publicly release the results of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Contact: Connecticut Bancshares, Inc. Michael J. Hartl Senior Vice President and Chief Financial Officer (860) 646-1700 CONNECTICUT BANCSHARES, INC. AND SUBSIDIARY Consolidated Statements of Condition (unaudited) (dollars in thousands) September 30, September 30, December 31, 2003 2002 2002 ASSETS Cash and due from banks: Non-interest-bearing deposits and cash $26,137 $17,300 $16,346 Short-term investments 89,454 64,361 8,918 Cash and cash equivalents 115,591 81,661 25,264 Securities available for sale, at fair value 627,450 759,393 841,622 Loans held for sale - 35 - Loans: One- to four-family residential mortgages 996,319 893,037 907,188 Construction mortgages 65,922 83,531 64,182 Commercial and multi-family mortgages 308,611 261,593 275,818 Commercial business 184,874 176,080 180,612 Installment 138,947 121,101 128,939 Total loans, gross 1,694,673 1,535,342 1,556,739 Allowance for loan losses 16,487 15,344 16,172 Total loans, net 1,678,186 1,519,998 1,540,567 Federal Home Loan Bank Stock, at cost 30,783 30,783 30,783 Premises and equipment, net 16,115 18,181 17,793 Accrued interest receivable 10,549 12,828 12,613 Other real estate owned 112 - - Cash surrender value of life insurance 45,587 43,204 43,803 Current and deferred income taxes 7,410 - 58 Goodwill 19,488 19,488 19,488 Other intangible assets 8,417 9,693 9,598 Other assets 6,345 6,409 5,953 Total assets $2,566,033 $2,501,673 $2,547,542 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Savings and money market $618,294 $592,614 $592,386 Certificates of deposit 592,421 662,497 643,201 NOW accounts 230,495 213,564 230,293 Demand deposits 151,052 121,982 130,099 Total deposits 1,592,262 1,590,657 1,595,979 Short-term borrowed funds 120,332 119,532 121,052 Mortgagors' escrow accounts 12,205 7,862 15,097 Advances from Federal Home Loan Bank 554,759 472,681 533,890 Current and deferred income taxes - 38 - Accrued benefits and other liabilities 30,216 57,397 29,964 Total liabilities 2,309,774 2,248,167 2,295,982 Stockholders' equity: Common stock 115 113 113 Additional paid-in capital 120,079 110,217 110,345 Retained earnings 167,331 143,693 149,554 ESOP unearned compensation (6,979) (7,599) (7,444) Restricted stock unearned compensation (8,731) (5,196) (10,880) Treasury stock, at cost (21,744) (5,522) (5,522) Accumulated other comprehensive income 6,188 17,800 15,394 Total stockholders' equity 256,259 253,506 251,560 Total liabilities and stockholders' equity $2,566,033 $2,501,673 $2,547,542 CONNECTICUT BANCSHARES, INC. AND SUBSIDIARY Consolidated Statements of Operations (dollars in thousands, except earnings per share) For the Three Months Ended September 30, 2003 2002 (unaudited) Interest and dividend income: Interest income on loans $24,371 $25,354 Interest and dividends on investment securities 7,137 9,754 Total interest and dividend income 31,508 35,108 Interest expense: Interest on deposits and escrow 5,439 8,452 Interest on short-term borrowed funds 184 442 Interest on advances from Federal Home Loan Bank 6,139 5,856 Total interest expense 11,762 14,750 Net interest income 19,746 20,358 Provision for loan losses 300 375 Net interest income after provision for loan losses 19,446 19,983 Noninterest income: Service charges and fees 4,156 3,302 Income from cash surrender value of life insurance 598 616 Brokerage commission income 327 468 Gains on sales of securities, net 3,949 619 Other than temporary impairment of investment securities - (410) Gains on mortgage loan sales, net 54 41 Other 134 119 Total noninterest income 9,218 4,755 Noninterest expense: Salaries 4,905 5,342 Employee benefits 3,816 2,745 Fees and services 1,645 1,732 Occupancy, net 968 985 Furniture and equipment 848 961 Marketing 478 475 Amortization of other intangible assets 394 942 Foreclosed real estate (income) expense (2) 88 Net gains on sales of repossessed assets (37) (8) Merger expenses 1,235 - Other operating expenses 1,611 1,417 Total noninterest expense 15,861 14,679 Income before provision for income taxes 12,803 10,059 Provision for income taxes 4,289 3,320 Net income $8,514 $6,739 Earnings per share: Basic $0.86 $0.66 Diluted $0.79 $0.62 Weighted average shares outstanding: Basic 9,854,969 10,134,565 Diluted 10,750,447 10,814,817 CONNECTICUT BANCSHARES, INC. AND SUBSIDIARY Consolidated Statements of Operations (dollars in thousands, except earnings per share) For the Nine Months Ended September 30, 2003 2002 (unaudited) Interest and dividend income: Interest income on loans $73,877 $75,541 Interest and dividends on investment securities 23,918 30,020 Total interest and dividend income 97,795 105,561 Interest expense: Interest on deposits and escrow 17,584 27,007 Interest on short-term borrowed funds 582 1,304 Interest on advances from Federal Home Loan Bank 18,496 17,708 Total interest expense 36,662 46,019 Net interest income 61,133 59,542 Provision for loan losses 975 1,125 Net interest income after provision for loan losses 60,158 58,417 Noninterest income: Service charges and fees 11,415 9,211 Income from cash surrender value of life insurance 1,784 1,808 Brokerage commission income 1,120 1,286 Gains on sales of securities, net 5,458 1,671 Other than temporary impairment of investment securities (359) (680) Gains on mortgage loan sales, net 125 190 Other 433 488 Total noninterest income 19,976 13,974 Noninterest expense: Salaries 14,584 15,016 Employee benefits 11,323 8,536 Fees and services 4,857 5,578 Occupancy, net 2,962 3,535 Furniture and equipment 2,511 2,978 Marketing 1,220 1,567 Amortization of other intangible assets 1,181 2,914 Foreclosed real estate expense 83 179 Net gains on sales of repossessed assets (42) (16) Merger expenses 1,722 - Other operating expenses 4,811 4,759 Total noninterest expense 45,212 45,046 Income before provision for income taxes 34,922 27,345 Provision for income taxes 11,588 8,920 Net income $23,334 $18,425 Earnings per share: Basic $2.36 $1.82 Diluted $2.16 $1.71 Weighted average shares outstanding: Basic 9,885,825 10,137,470 Diluted 10,787,029 10,802,544 CONNECTICUT BANCSHARES, INC. AND SUBSIDIARY Selected Financial Data (dollars in thousands, except per share amounts) For the Three Months For the Nine Months Ended September 30, Ended September 30, 2003 2002 2003 2002 (unaudited) (unaudited) Operating ratios: Return on average assets 1.32% 1.08% 1.22% 1.00% Return on average stockholders' equity 13.39% 10.52% 12.27% 9.96% Average stockholders' equity to average assets 9.83% 10.30% 9.95% 10.07% Yields (1): Net interest rate spread 3.05% 3.23% 3.15% 3.13% Net interest margin 3.30% 3.55% 3.41% 3.45% Gross loans 5.78% 6.64% 6.01% 6.75% Securities and short term investments 3.94% 4.95% 4.23% 4.93% Total interest-earning assets 5.22% 6.06% 5.44% 6.10% Interest-bearing deposits and escrow 1.48% 2.27% 1.61% 2.43% Short-term borrowed funds 0.62% 1.47% 0.66% 1.54% Advances from Federal Home Loan Bank 4.25% 4.93% 4.39% 4.98% Total interest-bearing liabilities 2.17% 2.83% 2.29% 2.97% Allowance for loan losses summary: Allowance for loan losses, beginning of period $16,354 $15,325 $16,172 $15,228 Provision for loan losses 300 375 975 1,125 Loans charged off 292 433 900 1,261 Recoveries of loans previously charged off (125) (77) (240) (252) Net charge offs 167 356 660 1,009 Allowance for loan losses, end of period $16,487 $15,344 $16,487 $15,344 Net charge offs to average gross loans (annualized) 0.04% 0.09% 0.05% 0.09% Allowance for loan losses to: Total gross loans 0.97% 1.00% 0.97% 1.00% Total nonperforming loans 803.85% 155.87% 803.85% 155.87% At September 30, At December 31, 2003 2002 2002 Other selected data: (unaudited) (unaudited) Loans past due 90 days and still accruing: One- to four family mortgages $390 $670 $527 Commercial and multifamily mortgages - 605 395 Commercial business 187 1,394 313 Installment 244 228 108 Total loans past due 90 days and still accruing 821 2,897 1,343 Loans on nonaccrual: One- to four family mortgages 125 393 306 Construction mortgages - 2,393 - Commercial and multifamily mortgages 286 393 393 Commercial business 819 3,763 852 Installment - 5 - Total loans on nonaccrual 1,230 6,947 1,551 Total nonperforming loans 2,051 9,844 2,894 Other real estate owned 112 - - Total nonperforming assets $2,163 $9,844 $2,894 Total nonperforming loans as a percentage of total gross loans 0.12% 0.64% 0.19% Total nonperforming assets as a percentage of total assets 0.08% 0.39% 0.11% Shares outstanding (excludes treasury stock) 10,972,670 11,101,942 11,105,546 Book value per share $23.35 $22.83 $22.65 Tangible book value per share $20.81 $20.21 $20.03 Market value per share $51.25 $37.03 $38.45 (1) Yields are calculated on a fully taxable-equivalent basis assuming a 35% Federal income tax rate. Security yields are calculated on amortized cost and exclude the impact of unrealized gains and losses on available for sale securities. DATASOURCE: Connecticut Bancshares, Inc. CONTACT: Michael J. Hartl, Senior Vice President and Chief Financial Officer of Connecticut Bancshares, Inc., +1-860-646-1700 Web site: http://www.sbmct.com/

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