Newport Bancorp Inc., the public company created last year after the merger of the former Newport Federal Savings Bank and Westerly Savings Bank, says it grew its assets by a sturdy 10.7 percent in 2006 to $290.4 million, while growing deposits by only 0.2 percent.
The company, which does business under the name NewportFed, reported on Feb. 16 that it closed 2006 with a net loss of $1.66 million, compared with a net profit of $674,000 for 2005 – but only because it spent $3.6 million to establish the NewportFed Charitable Foundation.
In the fourth quarter of 2006, the company said, net income was $468,000, or 10 cents per share, compared with $258,000 in the fourth quarter of 2005.
“This past year was both a memorable and challenging one for NewportFed,” Kevin McCarthy, president and CEO, said in a news release.
He described the company’s conversion from mutual bank to stock company, completed on July 6, as “highly successful,” adding that combined with the merger of the two banks in late 2005, it had “served to expand our geographic reach and to augment our financial resources to better serve our customer base.”
Like banks across the nation, NewportFed faced adverse interest-rate trends last year. Having grown its net loans by $24.4 million, or 10.5 percent – primarily in the residential and commercial mortgages – and with interest rates on loans having risen, the bank saw its interest and dividend income surge by 15.9 percent.
The yield on earning assets increased to 5.97 percent in 2006 from 5.69 percent in 2005, NewportFed said, but the cost of funds increased to 3.00 percent from 2.51 percent. (The resulting net interest margin, 2.97 percent, was still better than the 2.80 percent reported by The Washington Trust Co. – though not as good as Bank Rhode Island’s 3.06 percent.)
NewportFed’s net interest income for 2006 was $9.9 million, compared with $8.8 million for 2005. Non-interest income, meanwhile, already a small revenue source for the bank, declined by 15.9 percent to $1.45 million for the year.
Operating expenses increased 49.6 percent to $13.2 million, but the company stressed that the majority of the increase was due to the funding of the new foundation. The rest was attributed to increases in salaries and employee benefits in 2006.
Looking ahead to 2007, McCarthy said, “we expect the difficult interest rate environment to continue for most of the year and the competition for deposits to remain intense. Nevertheless, we look forward to the year ahead, as we believe we have never been better positioned to compete in the markets we serve.”
In an interview, Bruce Walsh, senior vice president and chief financial officer, provided a more tempered assessment. He noted that the loan growth has not necessarily coincided with new accounts and broader new relationships for the bank – though he didn’t know what share of borrowers weren’t account holders.
Asked why deposits had grown so slowly, Walsh replied that NewportFed officials “welcome deposits, but we don’t want to pay up for a lot of them.” As it is, the bank reported that many customers had moved their money into certificates of deposit, which carry higher interest rates and thus cost the bank more.
Asked whether he expects deposits to grow more this year, Walsh replied: “We don’t know. We think it’s a function of consumer demand. Certainly we’re marketing ourselves as we think appropriate, and we think it’s somewhat driven by inflation and alternative investments. There’s a whole bunch of factors going on here, so we’re just doing our best.”
A key goal of the merger had been to expand the banks’ geographic footprint and strengthen existing customer relationships by making more options available. But that promise hasn’t really been fulfilled yet, Walsh suggested.
“We have started direct-mail marketing in the Westerly area, but sometimes that takes a while to catch on, I guess you could say,” he said. As for the Newport area, he said, “we’re still opening accounts, but at the same time, accounts are closing.”
As for the NewportFed Charitable Foundation, Walsh said it’s up and running and has already begun to give out grants.
