Bottom line improves for Naugatuck Valley Financial Corp.

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NAUGATUCK — Naugatuck Valley Financial Corp. has improved its bottom line by almost $10 million over the past year, in large part thanks to selling off its bad loans.

The parent of Naugatuck Valley Savings and Loan reported net income of $1 million, or 10 cents per diluted share, for 2014, according to the annual report it filed March 19 with the Securities and Exchange Commission. That compares to a net loss of $8.8 million, or $1.33 per diluted share, a year earlier.

The bank reported net income of $660,000, or 10 cents per diluted share, for the fourth quarter of the year, compared to a net loss of $2.4 million, or 36 cents per diluted share, for the same period in 2013.

It was able to make a profit for both the quarter and the year by reducing the amount of money it set aside for expected loan losses after selling the troubled loans, which totaled $11 million in 2014 and $20 million in 2013, William Calderara, the bank’s CEO and president, said last week.

The bank invested the money from the loan sales in securities, created “a pipeline” of new loans, and then sold the securities at a gain due to lower interest rates to fund the new loans and make additional money, Calderara said.

The bank said the improvement in 2014’s earnings was “primarily the result of a $5.9 million favorable change” in the amount of money set aside for loan losses, “as well as a $3.1 million increase in non-interest income and a $0.7 million decrease in non-interest expenses.”

“It’s the improved risk profile of the bank,” Calderara said.

Naugatuck Valley said it had net loan charge-offs — loans the bank does not expect to be repaid — of $2.1 million during 2014, down 76 percent from $8.8 million during 2013. The bank’s nonperforming loans decreased 62 percent to $5.1 million, or 1.4 percent of total loans, in 2014 from $13.4 million, or 3.6 percent of total loans, in 2013.

The bank’s non-interest, or fee-based, income for 2014 was $4.3 million, up 264 percent from $1.2 million in 2013, the report said. Meanwhile, non-interest expenses — items like salaries, rent, equipment costs and taxes — declined more than 3 percent to $21.7 million in 2014 from $22.4 million during the prior year.

Net interest income after provision for loans losses for 2014 totaled $18.4 million, up 44 percent from $12.8 million.

The bank’s net interest income after provision for loan losses for the fourth quarter of 2014 was $4.9 million, up more than 18 percent from $4.2 million a year earlier. Non-interest income totaled $904,000 for the quarter, compared to a loss of $1.2 million a year ago.

Non-interest expenses increased 4 percent to $5.2 million for the fourth quarter, up from $5 million a year earlier.

Asked about rumors that other banks are looking to acquire Naugatuck Valley given its now solid finances, Calderara said such rumors are “probably the constant of every bank.”

The bank is “in a good financial position now” and “poised for growth,” he said.

In January 2013, the U.S. Treasury Department’s Office of the Comptroller of the Currency required the bank to maintain a Tier 1-leverage-capital-to-adjusted-total-assets ratio of 9 percent, and a risk-based-capital-to-risk-weighted-assets ratio of at least 13 percent. A year earlier, the bank signed an agreement with the OCC to improve its banking practices related to asset quality, management and credit risk.

Calderara said the bank, which has total assets of $495.1 million, is still required to meet those ratios, but it is “well above those levels,” maintaining respective ratios of 11.13 percent and 18.67 percent.

The bank moved 14 loan officers from its main office in Naugatuck to a new Home Loan Center in Southbury this week. In June 2014, the bank cut 10 jobs in its residential mortgage and related departments. Calderara said the bank has not brought back any of those eliminated positions, but did rehire a couple of people in the “residential area.”

“We think we’re at the right size for lending,” he said.