I am pleased to report on several items which have taken place since our 2020 Annual Report.
Over the past six months, we have seen quite a bit of change in our marketplace. In reaction to the COVID-19 pandemic, regional banks in particular have jumped at the opportunity to trim operating expenses by closing branches. We have welcomed many new retail and business customers as a result of these local branch closures. We continue to believe branches are an important component to supporting the local economy, especially small business in our markets.
We are encouraged by the constant growth we are seeing in our digital services and continue to invest in technology. We have added Health Savings Accounts to our menu of products available for online account opening and have several new digital services or upgrades currently being implemented. We are committed to ensuring our customers are receiving the most innovative and secure options available, and are excited to launch these services later this year.
For the first time in over ten years, we have added a new consumer checking product to our product suite. I am happy to introduce the Uncommon Account, a checkless checking account designed to help the unbanked and underbanked population as part of the national Bank On initiative. With Bank On’s guidance, we have built the Uncommon Account to effectively engage and meet the needs of low income consumers who could be considered under or unbanked. The Uncommon Account is the first Bank On certified account offered in Connecticut by a mutual savings bank and we are one of only 72 financial institutions nationwide to receive Bank On certification. The Uncommon Account’s features stand out against a traditional checking account – the most noteworthy being that we will never assess overdraft and non-sufficient funds fees. It’s only $10 to open, has no monthly maintenance charge, and comes with all the great online tools and payment capabilities expected in today’s digital world, all at no charge. We look forward to seeing the impact this product will have in helping the unbanked members of our community begin to build healthy financial habits.
Hardships resulting from the COVID-19 pandemic have been incredibly damaging to individuals, families and businesses in our community. While everyone felt this impact at some level, the restaurant industry and crisis intervention centers were hit especially hard. In response to these ongoing struggles, we created the Community Kitchen Project. This initiative paired a selection of our restaurant customers with area crisis intervention and food security organizations in the community. We funded meals from the restaurants who prepared and delivered food to the selected organizations based on their needs. This gave our restaurants some welcomed business while helping to ensure the selected non-profits were able to feed their guests. The Community Kitchen Project funded over 6,180 meals to 10 agencies.
The first half of our current fiscal year was highlighted by solid balance sheet growth and record setting earnings. Total assets increased by $127 million, or 9.5%, over the first six months to $1.48 billion at March 31, 2021. Total deposits increased by $121 million, or 10.1%, to $1.32 billion including strong growth of $133 million in retail deposit balances. Municipal deposit balances contracted $4 million due to normal seasonal balance fluctuations. Total loans declined by $11 million, or 1.2%, to $902 million at the end of the period due to forgiveness of Paycheck Protection Program loans. Excluding these PPP loans, core loans grew $14 million, or 1.8%. The core loan growth was concentrated in the commercial portfolio reflecting our strategic focus. Additionally, $6 million was added to regulatory capital during the period.
The Bank’s core net income, which excludes certain non-recurring items was $6.4 million for the first six months of the fiscal year. Compared to the same period of the prior fiscal year, current year results were $4.3 million, or 200%, higher. All sources of revenue improved in the current year. Net interest income grew by $4.4 million, or 27%, gains on loans sold grew by $2.0 million, or 366% and noninterest income grew by $145,000, or 5%. Loan loss provision expenses were $499,000, or 55% higher due to both strong loan growth in the first six months, along with additional funds reserved in anticipation of higher future charge-offs associated with borrowers negatively impacted by COVID-19. Core operating expenses were higher by $743,000, or 4%. The increased expenses were primarily related to data processing, compensation, and FDIC insurance expenses. Additionally, the Bank contributed $165,000 to the Foundation during the first half of the year.
Notwithstanding record setting semi-annual earnings experienced this fiscal year, management recognizes that the economic impact of COVID-19 has not been fully realized as the government continues to infuse the economy with cash in the form of stimulus payments, grants, and forgivable loans. This has been a challenging time for many of our customers and we continue to work with borrowers who are still in need of loan deferments. While it is difficult to predict the extent of the impact on the Bank’s financial statements, management continues to update financial forecasts each quarter, setting aside adequate reserves to absorb any losses that may result in the future. Additionally, the Bank remains financially strong and “well capitalized” as defined by the FDIC.
Stephen L. Lewis
President & Chief Executive Officer
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