Naugatuck Valley Financial Corp., the parent of Naugatuck Valley Savings and Loan, reported a net loss of $715,000 for the second quarter due primarily to an increased provision for loan losses and higher compensation and professional fee costs.
The net loss of $715,000, or 11 cents per diluted share, comes a year after the company reported a profit of $505,000, or 7 cents per diluted share, for the second quarter of 2011.
It was the second straight quarter in which the Naugatuck-based bank reported a net loss. It reported a loss of $977,000, or 15 cents per diluted share, for the first quarter of the year.
The bank, which has nine branches in addition to its headquarters, announced in June that John Roman has submitted written notice of his intent to resign as president and CEO, effective in 60 days. Roman, 57, has been president and chief executive of the bank and its parent company since 2004.
Earnings were hurt by an increase in the bank’s provision against loan losses to $2.1 million in the second quarter compared with a provision of $1 million for the same quarter of 2011.
The higher provision dropped the bank’s net interest income from $4.64 million to $2.5 million. That compares with net interest income after loan-loss provision of $3.5 million in the year-ago quarter.
The bank said that nonperforming loans, or loans that are more than 90 days past due, increased from $24.7 million on Dec. 31 to $29.1 million on June 30, primarily due to one $2.9 million residential subdivision construction loan and several smaller loans that were placed on nonaccrual status during the six-month period.
Nonaccrual loans are loans that are not earning the contractual rate of interest in the original loan agreement. Banks can assign non accrual status to loans for a number of reasons, but the most common is that the borrower is known to be having financial difficulties.
Noninterest, or fee-based, income jumped 18 percent to $1.2 million from $1.06 million in the year-ago quarter. The hike was attributed to higher earnings generated by the sale of mortgage loans in the secondary mortgage market, combined with increases in fees for other services.
Noninterest expenses — items like salaries, rent, equipment costs and taxes — increased to $4.9 million in the second quarter compared with $3.9 million in the same quarter last year. The company said the increase was the result of increases in compensation, professional fees, losses on foreclosed real estate, advertising, directors’ compensation and office supplies over the second quarter of 2011.
The increases in compensation and professional fees were due to the addition of new staff and to additional work performed by legal and accounting professionals related to the bank’s efforts to comply with the standards and practices of the Office of the Comptroller of the Currency, or OCC, its new federal regulator. OCC regulations are generally considered to be more stringent than those imposed by the bank’s previous regulator, the U.S. Office of Thrift Supervision.