FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ____________________
Commission File Number 0-14550
NEW ENGLAND COMMUNITY BANCORP, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 06-1116165
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No)
OLD WINDSOR MALL, WINDSOR, CT 06095
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (860) 688-5251
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act: COMMON STOCK par
value $.10 per share.
Name of exchange on which registered: NASDAQ
Indicate by checkmark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days. Yes [X] No [ ]
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K. Yes [ ] No [X]
AT MARCH 15, 1996, THE AGGREGATE MARKET VALUE OF THE OUTSTANDING COMMON STOCK,
EXCLUSIVE OF THE SHARES HELD BY AFFILIATES OF THE REGISTRANT, WAS $25,096,050
BASED ON THE CLOSING SALES PRICE ON MARCH 15, 1996. ALTHOUGH DIRECTORS END
EXECUTIVE OFFICERS OF THE REGISTRANT AND ITS SUBSIDIARIES WERE ASSUMED TO BE
"AFFILIATES" OF THE REGISTRANT FOR THE PURPOSES OF THIS CALCULATION, THIS
CLASSIFICATION IS NOT BE INTERPRETED AS AN ADMISSION OF SUCH STATUS.
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK, $.10 PAR
VALUE, WAS 3,084,309 AT MARCH 15, 1996, NEW ENGLAND COMMUNITY BANCORP, INC. HAS
NO OTHER SHARES OF EQUITY SECURITIES OUTSTANDING.
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DOCUMENTS INCORPORATED BY REFERENCE - None
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TABLE OF CONTENTS
Part I
Item 1 - Business 3
Item 2 - Properties 18
Item 3 - Legal Proceedings 19
Item 4 - Submission of Matters to a Vote of
Security Holders 19
Part II
Item 5 - Market for Registrant's Common Equity
and Related Stockholder Matters 20
Item 6 - Selected Financial Data 22
Item 7 - Management's Discussion and Analysis
of Financial Condition and Results
of Operations 23
Item 8 - Financial Statements and Supplementary
Data 40
Item 9 - Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 41
Part III
Item 10 - Directors and Executive Officers
of the Registrant 41
Item 11 - Executive Compensation 44
Item 12 - Security Ownership of Certain
Beneficial Owners and Management 49
Item 13 - Certain Relationships and
Related Transactions 50
Part IV
Item 14 - Exhibits, Financial Statement
Schedules, and Reports on Form 8-K 52
Signatures
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
New England Community Bancorp, Inc., which was formerly known as Olde
Windsor Bancorp, Inc., is the bank holding company for New England Bank and
Trust Company ("NEBT"), and The Equity Bank ("EQBK"), Connecticut chartered
commercial banks committed to offering quality banking products and services to
their customers and the communities which they serve on a prudent and profitable
basis. NECB has built its community banking network through both internal growth
and acquisition. NECB was incorporated in the State of Delaware in June, 1984.
In 1985, NECB acquired all of the capital stock and became the sole stockholder
of Windsor Bank and Trust Company ("Windsor Bank"), a Connecticut-chartered bank
and trust company. Subsequently, NECB acquired a second bank subsidiary, New
England Bank and Trust Company. In 1988, Windsor Bank was merged with and into
NEBT. In 1995, NECB acquired all of the outstanding common stock of EQBK. EQBK
was founded in 1987 and in 1995 EQBK became a separate bank subsidiary of NECB.
The strategy of NECB is to operate its subsidiaries as community-oriented
banking institutions dedicated to providing personalized service. NECB believes
that its maintenance of professional, personalized service has resulted in its
ability to obtain and service many of the small to medium sized desirable
commercial credits in its market area. As part of its growth strategy, NECB
intends to continue to provide personalized banking services whether expansion
occurs through internal growth, de novo expansion, reorganization or
acquisition.
NEBT's and EQBK's deposits are insured by the FDIC in accordance with the
Federal Deposit Insurance Act. NEBT and EQBK are members of the Federal Home
Loan Bank System ("FHLBS") through the Federal Home Loan Bank of Boston. The
FHLBS encourages and supports residential mortgage lending by allowing member
banks to borrow money long term at favored rates based on certain lending ratios
and the ownership of shares in the FHLBS.
NECB's subsidiaries provide services to a diverse range of customers and
neither institution relies on any one depositor for a significant percentage of
deposits made in their respective institutions. Management believes that the
business of each institution will continue to be broadly based and will not
depend on the business of one or a few customers, the loss of any or all of
which would materially and adversely affect its business.
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NECB operates banks which are community-oriented with a commitment to
customer service, sound community relations and professional excellence. The
target market of NEBT and EQBK consists of individual consumers and locally
based businesses. Emphasis is placed upon "relationship banking" as NECB's banks
strive to provide the majority (if not all) of their clients' borrowing and
deposit needs. NEBT's primary market area is located in north central
Connecticut. The primary market area of EQBK consists of the Towns of
Wethersfield and Rocky Hill. The area of Hartford south of Park Street forms the
secondary market of EQBK.
During the 1990's, the Connecticut banking industry has become more
concentrated with over 30 banks ceasing operations as a result of
reorganizations or failure. Increasingly, the industry consists of a few very
large, regional or super-regional institutions, and a number of smaller
community-based banks whose success depends upon providing customer focused,
responsive products and services.
The continued growth of super-regional institutions and the potential for
large out-of-area banking organizations to enter the local banking market may
create significant opportunities for efficiently operated, service-oriented,
community-based banking organizations. NECB is optimistic regarding the
opportunities available to prudent, well capitalized community-based banks to
serve successfully and profitably the banking needs of their constituents.
NECB believes that to be successful, community banks must be able to offer
their customers competitive products and services of their own initiation or
through strategic alliances and contractual relationships with third parties.
While offering desired products and services is important in attracting and
maintaining customer relationships, the delivery of such products in a
convenient, friendly, professional and responsive manner is essential to the
success of a community bank. NECB's Management team and staff continue to strive
to meet the needs of customers and the community with innovative products and
friendly, responsive service at convenient locations.
Management of NECB is continuously exploring potential opportunities to
expand prudently NECB's earning potential through expansion of NECB's base of
earning assets within its existing market area or in proximate geographic areas
through the establishment or acquisition of other banking operations.
NECB's subsidiaries attract deposits through their branch network by
offering a variety of commercial and consumer deposit products including, but
not limited to, demand deposits, certificates of deposit and savings deposits.
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These funds are then primarily invested in investment securities and loans to
borrowers within the NEBT's and EQBK's respective market area. A variety of loan
products are available to potential borrowers including secured and unsecured
loans, inventory financing, term loans, interim construction financing, mortgage
loans and home equity loans.
Fee income is generated through traditional deposit related services such
as checking account charges, overdraft fees, stop payment and returned item
fees. Seven of NEBT's ten automated teller machines ("ATMs"), which also
generate fee income, are located at NEBT's offices. Two ATMs are located within
the terminal areas at Bradley International Airport in Windsor Locks,
Connecticut and one is installed within a convenience store/gasoline station
within close proximity to the NEBT branch located in East Windsor. The ATMs at
branch locations are primarily for efficient utilization of branch personnel
resources and customer convenience, while machines located away from NEBT
premises are primarily utilized by non-customers and provide NEBT with greater
revenues than do the ATM's located at branch locations. The servicing of
mortgage loans sold to the Federal Home Loan Mortgage Corporation and the rental
of safe deposit boxes to customers also provides revenues.
COMPETITION AND GENERAL BUSINESS CONDITIONS
The banking business in Connecticut is quite competitive. NECB and its
subsidiaries compete with commercial banks, savings banks, savings and loan
associations, credit unions, finance companies, mutual funds, money market funds
and other institutions for various products and services. NECB and its
subsidiaries strive to remain competitive with these other financial
institutions and to improve the services offered to customers, by making
available to savers various depository products and certificates of deposit
having a wide range of maturities, amounts and interest rates (currently several
different rates, depending on the principal balance and term of the certificate
of deposit). In lending, NEBT is an approved Federal Home Loan Mortgage
Corporation ("FHLMC") lender, thereby allowing it to make mortgage loans, sell
such loans in the secondary market and retain the servicing rights to these
loans.
While the banking business in Connecticut is very competitive, the past
several years have seen the focus of the industry shift from growth in market
share to improvement in asset quality and expense reduction. Connecticut-based
financial institutions have been adversely affected by the economic downturn and
devaluation of real estate. Many of the banks in Connecticut and the region have
spent much of the past three years strengthening their balance sheets in order
to either position themselves for future opportunities or, in some cases, simply
to survive. While the recession has created attractive opportunities for
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expansion for well-capitalized institutions, many banks have not maintained a
capital cushion adequate enough to pursue these opportunities. Accordingly, the
total number of competitors within the market has been decreasing. However, NECB
may come into competition with new banks as a result of the erosion of the
previous barriers to inter-state banking.
Competition among financial institutions is based upon interest rates and
other credit and service charges, the quality of services rendered, the
convenience of banking facilities and in the case of loans to larger commercial
borrowers, relative lending limits. As in the past, NECB's future earnings will
be affected by changes in the prevailing interest rates, as well as other
financial market developments and regulatory controls beyond the control of
NECB's Management.
Connecticut has enacted legislation which liberalized banking powers and
has put thrift institutions on equal footing with other banks, thereby improving
their competitive position. In addition, in 1995, the Connecticut General
Assembly revised its Interstate Banking Act to permit acquisitions of and
mergers with Connecticut banks and bank holding companies with banks and bank
holding companies in other states. It is possible that such legislative
authority will increase the number or the size of financial institutions
competing with NEBT and EQBK for deposits and loans in its market place,
although it is impossible to predict the effect upon competition of such
legislation.
Recently adopted Federal legislation permits adequately capitalized bank
holding companies to venture across state lines to offer banking services
through bank subsidiaries to a wider geographic market. In light of this change
in the law, it will be possible for large super-regional organizations to enter
many new markets including the market served by NEBT and EQBK. Certain of these
competitors, by virtue of their size and resources, may enjoy certain
efficiencies and competitive advantages over NEBT and EQBK in the pricing,
delivery, and marketing of their products and services.
LENDING ACTIVITIES
The lending policy of NECB's subsidiary banks is designed to correspond
with its mission of remaining a community-oriented bank. The loan policy sets
forth accountability for lending functions in addition to standardizing the
underwriting, credit and documentation procedures. The typical loan customer is
an individual or small business which has a deposit relationship. NECB, through
its subsidiary banks, strives to provide an appropriate mix in its loan
portfolios of commercial loans and loans to individual consumers.
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SINGLE FAMILY MORTGAGE LOANS
The largest sector of consumer lending has traditionally been mortgage
loans secured by single family residential properties. This includes both first
and second mortgages. Second mortgages consist of equity lines of credit and
closed-end loans, such as home improvement and construction loans. Historically,
single family mortgage loans are considered to involve the least risk to a
lending institution. Applications for mortgage loans are received primarily
through the branch office network. NEBT and EQBK will lend up to 95% of the
value of the collateral. On loans in excess of 80% of the value of collateral,
borrowers are required to obtain mortgage insurance covering the portion over
80%. Interest rates charged for mortgage loans are primarily set according to
secondary market conditions, and terms generally follow the underwriting
requirements of the FHLMC in the granting of residential mortgage loans and
sells residential mortgage loans to the agency when market conditions permit.
The sale of fixed rate mortgage loans in the secondary market provides liquidity
to make additional loans, revenues for servicing the sold loans, and premiums
and discounts to par upon the sale of such loans. At December 31, 1995, NECB'S
combined portfolio of loans serviced for others was $64,909,000 compared to
$56,753,000 at December 31, 1994. NEBT and EQBK make a variety of adjustable
rate mortgage loans. However, one year adjustable rate mortgages are the primary
adjustable rate mortgage product. The rate is tied to the one year Treasury bill
rate and is generally priced competitively in the range of 2.75% above such rate
and is typically discounted by market conditions during the first year, for
competitive purposes.
CONSUMER LOANS
NEBT and EQBK originate a variety of other consumer loans such as
short-term demand loans, automobile and boat loans and student loans. Consumer
loans are made both on an unsecured basis and a secured basis. Interest rates
charged on consumer loans are primarily determined by competitive loan rates
offered in its lending area. The primary risk in such loans is the borrower's
ability to repay. Such loans are typically made for small amounts, which
provides for risk diversification.
COMMERCIAL REAL ESTATE LOANS
The portfolio of commercial loans of NEBT and EQBK includes various
products. NEBT's target market with respect to commercial lending consists of
small businesses with annual sales up to eight million dollars. Commercial
mortgages are granted on owner occupied and investment properties up to 75% of
the lesser of the cost or appraised value of the property. Short-term business
loans are made on a demand basis to finance various cash needs of customers.
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Construction and land development financing is available to qualified borrowers
for development of sub-divisions or single family residences.
COMMERCIAL BUSINESS LOANS
Financing for capital expenditures, such as equipment, is provided on an
amortizing basis for terms up to five years. NEBT and EQBK offer revolving
credit lines and commercial letters of credit primarily used for performance
bonding.
NECB's combined portfolio of commercial loans includes various products.
Generally, the target market of its subsidiary banks with respect to commercial
lending consists of small businesses with annual sales up to eight million
dollars. Short-term business loans are made on a demand basis to finance various
cash needs of customers. The risks associated with the borrower's ability to
repay are critical to such loans and are evaluated both prior to granting such
loans and throughout the duration and renewal of such credits.
LOAN PORTFOLIO
NECB's combined loan portfolio, net of unearned income, at December 31,
1995-1991 was comprised of the following categories based upon the nature of
collateral:
(Dollar Amounts in Thousands)
December 31,
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
Commercial, Financial $ 35,808 $ 27,033 $ 14,439 $ 19,490 $ 25,238
Real estate
Construction 12,942 1,883 830 3,929 4,640
Residential 80,863 50,382 51,433 59,609 64,736
Commercial 85,041 40,863 38,234 38,140 35,403
Installment 5,415 12,298 10,591 13,543 16,229
Other 2,166 166 169 611 685
-------- -------- -------- -------- --------
Total Loans $222,235 $132,625 $115,696 $135,322 $146,931
======== ======== ======== ======== ========
The largest concentration within the loan portfolio is with individuals
which include home mortgages and personal loans, and the policy for requiring
collateral for real estate construction and development loans is essentially the
same as that for other types of loans and is evaluated on an individual basis.
At December 31, 1995, substantially all of the loans included as "commercial and
financial" or "real estate construction" are due in one year or less.
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The following table reflects the maturity and sensitivities for NECB's
combined loan portfolio at December 31, 1995.
(Dollar Amounts in Thousands)
After one
One year year through Due after Total
or less five years five years loans
------- ---------- ---------- -----
Commercial, Financial $ 26,630 $ 8,091 $ 87 $ 34,808
Real estate 0 0 0 0
Construction 12,942 0 0 12,942
Residential 40,825 18,387 10,822 70,034
Commercial 46,245 40,964 4,793 92,002
Installment 3,509 1,785 21 5,315
Other 1,776 360 0 2,136
-------- ------- ------- -------
Total performing loans $131,927 $69,587 $15,723 217,237
======== ======= ======= =======
Nonperforming loans 4,998
--------
Total loans $222,235
========
At December 31, 1995 loans maturing after one year included: $39,767 in
fixed rate loans and $40,932 in variable rate loans.
INVESTMENT SECURITIES
The primary objectives of NECB's investment policy are to provide a stable
source of interest income, to provide adequate liquidity necessary to meet short
and long-term changes in the mix of its assets, to provide a means to achieve
goals set forth in the interest rate risk policy and to provide a balance of
quality and diversification to its assets. The available for sale portion of
investment portfolio is expected to provide funds when demand for acceptable
loans increases and is expected to absorb funds when loan demand decreases.
At December 31, 1995, NECB's investment portfolio was $82,129,000 or 24.0%
of total assets. Federal funds sold were $9,075,000 or 2.7% of total assets at
December 31, 1995. Recently, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 115 (SFAS 115), "Accounting for
Investment in Certain Debt and Equity Securities." SFAS 115 provides for the
categorization of investments into three groups and further provides for the
accounting and reporting treatment of each group. Investments may be classified
as held-to-maturity, available-for-sale, or trading. NECB does not purchase or
hold any investment securities for the purpose of trading such investments.
The table below presents the carrying amounts and fair values of investment
securities held by NECB at December 31, 1995 and 1994.
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(Dollar Amounts in Thousands)
1995 1994
--------------------- -----------------------
Amortized Amortized
Cost Fair Cost Fair
Basis Value Basis Value
----- ----- ----- -----
Held-to-maturity $ 7,066 $ 7,189 $11,742 $11,528
Available-for-sale 74,793 75,063 37,508 36,065
FHLB Stock 1,176 1,176 810 810
------- ------- ------- -------
$83,035 $83,428 $50,060 $48,403
======= ======= ======= =======
The following tables present the maturity distribution of investment
securities at December 31, 1995, and the weighted average yields of such
securities. The weighted average yields were calculated based on the cost and
effective yields to maturity of each security. The weighted average yields on
income from municipal obligations and equity securities were adjusted to a
tax-equivalent basis.
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(Dollar Amounts in Thousands)
Held-to-maturity
One Over one Over five Over Weighted
year through through ten No average
or less five years ten years years maturity Total yield
------- ---------- --------- ----- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
other U.S. agencies
and corporations $ 1,500 $ 4,001 $ 0 $ 0 $ 5,501 6.4%
Obligations of states
and political
subdivisions 0 622 697 246 1,565 8.1%
------- ------- ------ ------ -------
Total $ 1,500 $ 4,623 $ 697 $ 246 $ 7,066
------- ------- ------ ------ -------
Weighted average
yield 5.90% 6.60% 7.60% 9.20% 7.10%
------- ------- ------ ------ -------
Available-for-sale (1)
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One Over one Over five Over Weighted
year through through ten No average
or less five years ten years years maturity Total yield
------- ---------- --------- ----- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
other U.S. agencies
and corporations $ 5,000 $29,035 $4,448 $ 0 $38,483 6.2%
Obligations of states
and political
subdivisions 251 0 0 0 251 10.9%
Mortgage backed
securities 0 4,735 313 6,208 11,256 7.4%
Corporate bonds 6,288 3,400 0 0 9,688 7.1%
Equities 0 0 0 0 15,115 15,115
------- ------- ------ ------ ------- -------
Total $11,539 $37,170 $4,761 $6,208 $15,115 $74,793
------- ------- ------ ------ ------- -------
Weighted average
yield 6.7% 6.0% 7.4% 7.4% 4.4% 6.9%
------- ------- ------ ------ ------- -------
Total Portfolio $13,039 $41,793 $5,458 $6,454 $15,115 $81,859
======= ======= ====== ====== ======= =======
Total weighted
average yield 6.7% 6.1% 7.5% 7.5% 4.4% 6.9%
======= ======= ====== ====== ======= =======
(1) Dollars shown at amortized cost amounts.
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DEPOSITS AND OTHER FUNDING SOURCES
Deposit liabilities have historically provided the primary source of
funding assets. It is anticipated that this means of funding will not change in
the immediate future. Deposits funded 90% of such assets at December 31, 1995
compared to 91% of such assets at December 31, 1994 and 93% of such assets at
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December 31, 1993. Other borrowed funds, which funded .2% of assets at December
31, 1995 funded .4% of assets at December 31, 1994 and .4% of assets at December
31, 1993, consist of U.S. Treasury tax and loan deposits and, occasionally,
repurchase agreements. Funding capacity is also provided by amortization of loan
principal balances, sales of single family mortgage loans in the secondary
market and interest and dividend income received.
A variety of both retail and commercial deposit products is offered by NECB
through its subsidiaries that both fill the needs of its customer base and
provide funds of varying maturities, including fixed rate certificates of
deposit with original terms of up to four years, regular savings accounts, money
market accounts, NOW accounts, business checking, and demand deposits.
Management seeks to retain customers holding "core deposit" accounts such as
regular savings, NOW, money market and demand deposits. At year-end, interest
rates payable on time deposits were at levels consistent with market rates of
interest in NECB's geographic area.
Total deposits increased to $307,161,000 at December 31, 1995, compared to
$196,872,000 at December 31, 1994. The branch network and main office of NEBT
and the main office of EQBK serve as the primary sources of deposit gathering.
NECB does not solicit deposits from beyond the communities in which its
subsidiaries or their branch offices are located.
The following table summarizes average deposits and interest rates of NECB
for the years ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
(Dollar Amounts in Thousands)
1995 1994 1993
------------------ ------------------- ------------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand deposits $ 39,395 $ 32,754 $ 27,834
Now and money market
account deposits 28,452 1.26% 27,593 1.55% 50,162 2.54%
Savings deposits 47,746 2.16% 56,819 2.02% 40,835 2.56%
Time deposits 80,615 5.35% 63,619 3.74% 67,289 3.89%
-------- -------- --------
Total deposits $196,208 $180,785 $186,120
======== ======== ========
</TABLE>
Fixed rate certificates of deposit in amounts of $100,000 or more at
December 31, 1995 are scheduled to mature as follows:
(Dollar Amounts in Thousands)
Three months or less $ 6,754
Over three, through six months 4,078
Over six, through twelve months 3,983
Over twelve months 4,407
-------
Total $19,222
=======
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RETURN ON EQUITY AND ASSETS
The following table summarizes various operating ratios of NECB for each of
the five years through December 31, 1995:
YEARS ENDED DECEMBER 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Return on average total 0.91% 0.56% 0.20% 0.18% (0.29)%
assets (net income divided
by average total assets)
Return on average 9.61% 8.34% 3.26% 3.08% (5.18)%
shareholders' equity (net
income divided by average
shareholders' equity)
Tangible equity to assets (average 8.76% 8.53% 6.40% 5.83% 5.50%
shareholders' equity less goodwill
as a percent of average total
assets)
Dividend payout ratios 24.30% 9.43% 0% 0% 0%
ASSET/LIABILITY MANAGEMENT
A principal objective of NECB is to reduce and manage the exposure of its
results of operations to changes in interest rates and to maintain an
approximate balance between the interest rate sensitivity of its assets and
liabilities within acceptable limits. While interest rate risk is a normal part
of the commercial banking activity, NECB desires to minimize its effect upon
operating results. Managing the rate sensitivity embedded in the balance sheet
can be accomplished in several ways. By managing the origination of new assets
and liabilities, or the rollover of the existing balance sheet assets,
incremental change towards the desired sensitivity position can be achieved.
Hedging activities, such as the use of interest rate caps, can be utilized to
create immediate change in the sensitivity position.
NECB monitors the relationship between interest earning assets and interest
bearing liabilities by examining the extent to which such assets and liabilities
are "interest rate sensitive" and by monitoring the interest rate sensitivity
"gap". An asset or liability is said to be interest rate sensitive within a
specific time period if it will mature or reprice within that time period. The
interest rate sensitivity gap is defined as the difference between the amount of
interest-bearing liabilities maturing or repricing and the amount of
interest-earning assets maturing or repricing for the same period of time.
During a period of falling interest rates, a positive gap would tend to
adversely affect net interest income, while a negative gap would tend to
increase net interest income. During a period of rising interest rates, a
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positive gap would tend to increase net interest income, while a negative gap
would tend to adversely affect net interest income.
Asset and liability management functions are supervised by the Asset
Liability Committee ("ALCO"), which reports to the Board of Directors quarterly.
It is actively involved in the financial planning and budgeting process and
developing policies for monitoring and coordination sources, uses and pricing of
funds. The following table summarizes the repricing schedule for interest
earning assets and interest bearing liabilities and provides an analysis of
periodic and cumulative gap positions on a company-wide consolidated basis.
<TABLE>
<CAPTION>
(Dollar Amounts in Thousands)
As of December 31, 1995
Repriced Within
------------------------------------------------------------------
Under 3 4 to 12 1 to 5 Over 5
Months Months Years Years Total
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 9,130 $ $ $ 14,495 $ 23,625
Securities 18,365 13,624 25,180 26,136 83,305
Loan portfolio 69,882 67,980 64,777 19,596 222,235
Loans held-for-sale 788 788
Other assets 3,000 8,608 11,608
-------- -------- --------
Total interest $101,165 $81,604 $89,957 $ 68,835 $341,561
-------- ------- ------- -------- --------
Deposits
Demand $ 4,199 $ $ 4,256 $ 51,490 $ 59,945
Savings 25,168 30,394 17,236 31,957 104,755
Time 42,993 60,089 39,379 142,461
-------- ------- ------- -------- --------
Total deposits 72,360 90,483 60,871 83,447 307,161
Short-term borrowed funds 540 540
Other liabilities 1,221 2,159 3,380
Shareholder's equity 30,480 30,480
-------- ------- ------- -------- --------
Total liabilities and equity 72,900 90,483 62,092 116,086 341,561
Periodic gap 28,265 (8,879) 27,865 (47,251)
-------- ------- ------- --------
Cumulative gap $ 28,265 $19,386 $47,251 $ 0
======== ======= ======= ========
Cumulative gap as a percentage
of total earning assets 8.3% 5.7% 13.8% 0.0%
</TABLE>
The information presented in the interest sensitivity table is based upon a
combination of maturities, call provisions, repricing frequencies, prepayment
patterns and Management judgment. The distribution of variable rate assets and
liabilities is based upon the repricing interval of the instrument. Management
estimates that approximately 65% of savings products are sensitive to interest
rate changes based upon analysis of historic and industry data for these types
of accounts.
EMPLOYEES
At December 31, 1995, NECB, NEBT and EQBK employed an aggregate of 129
full-time and 41 part-time employees. Employees are not represented by a
collective bargaining unit and relationships with employees of NECB and NEBT are
considered to be good.
<PAGE>
-14-
LEGISLATION, REGULATION AND SUPERVISION
GENERAL
Legislation adopted in recent years has substantially increased the scope
of regulations applicable to banks and bank holding companies.
Virtually every aspect of the business of banking is subject to regulation
with respect to such matters as the amount of reserves that must be established
against various deposits, the establishment of branches, Reorganizations,
non-banking activities and other operations. Numerous laws and regulations also
set forth special restrictions and procedural requirements with respect to the
extension of credit, credit practices, the disclosure of credit terms and
discrimination in credit transactions.
The descriptions of the statutory provisions and regulations applicable to
banks and bank holding companies set forth below do not purport to be a complete
description of such statutes and regulations and their effects on NECB, NEBT and
EQBK. Proposals to change the laws and regulations governing the banking
industry are frequently introduced in Congress, in the state legislatures and
before the various bank regulatory agencies. The likelihood and timing of any
changes and the impact such changes might have on NECB, NEBT and EQBK are
difficult to determine.
FEDERAL RESERVE REGULATION
NECB is a bank holding company registered pursuant to the provisions of the
Bank Holding Company Act of 1956, as amended (the "Holding Company Act"), and
consequently is subject to regulation and examination by the Federal Reserve
Board (the "FRB"). Bank holding companies are required to file annually with the
FRB a report of their operations and they and their subsidiaries are subject to
examination by the Board of Governors of the Federal Reserve System.
The Holding Company Act also requires prior approval by the FRB before a
bank holding company (1) merges or consolidates with another bank holding
company, (2) acquires directly or indirectly ownership or control of voting
shares of a bank if after such acquisition it would own or control directly or
indirectly more than five percent of the voting stock of such bank, except where
50 percent or more is already owned, or (3) acquires substantially all of the
assets of any bank.
<PAGE>
-15-
The Holding Company Act further provides that the FRB shall not approve any
acquisition, reorganization or consolidation which would result in a monopoly or
which would be in furtherance of any combination or conspiracy to monopolize or
attempt to monopolize the business of banking in any part of the United States.
Further, the FRB may not approve any other proposed acquisition, reorganization
or consolidation, the effect of which may be substantially to lessen competition
or to tend to create a monopoly in any section of the country, or which in any
other manner would be in restraint of trade, unless the anti-competitive effects
of the proposed transaction are clearly outweighed in the public interest by the
probable effect of the transaction in meeting the convenience and needs of the
community to be served.
Historically, the Holding Company Act prohibited a bank holding company
from controlling or acquiring in excess of 5% of the voting shares or
substantially all of the assets of a bank located outside of the state in which
the operations of such bank holding company's banking subsidiaries were
principally conducted, unless such acquisition was specifically authorized by
the laws of the state in which NEBT was located. The laws of Connecticut
currently authorize such acquisitions to a limited extent.
Under the Riegle-Neal Interstate Banking and Efficiency Act of 1994
substantially all state law barriers to the acquisition of banks by out-of-state
bank holding companies have been eliminated effective September 29, 1995. The
law will also permit interstate branching by banks effective as of June 1, 1997,
subject to the ability of states to opt-out completely or to set an earlier
effective date. NECB anticipates that the effect of the new law may be to
increase competition within the markets in which NECB operates, although NECB
cannot predict the effect to which competition will increase in such markets or
the timing of such increase.
A bank holding company is also prohibited, with limited exceptions, from
engaging directly or indirectly through its subsidiaries in activities unrelated
to banking, managing or controlling banks. One of the exceptions to this
prohibition permits ownership of the shares of a company engaged solely in
furnishing services to subsidiary banks; another exception permits ownership of
shares of a company the activities of which the FRB has determined, by
regulation or after due notice and opportunity for hearing, to be so closely
related to banking, or managing or controlling banks, as to be a proper incident
thereto in each individual case.
<PAGE>
-16-
A bank holding company and its subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with any extension of credit or sale
of any property or services. Subsidiary banks of a bank holding company are
subject to certain restrictions imposed by the Federal Reserve Act on any
extension of credit to the bank holding company or any of its subsidiaries, or
investments in the stock or other securities thereof, and on the taking of such
stock or securities as collateral for loans to any borrower.
NEBT and EQBK are also subject to FRB regulations regarding the maintenance
of reserves. Under such regulations, NEBT and EQBK must maintain reserves
against their transaction accounts and non-personal time deposits.
Under FRB regulations, a bank holding company is required to serve as a
source of financial and managerial strength to its subsidiary banks and may not
conduct its operations in an unsafe or unsound manner. In addition, it is the
FRB's policy that in serving as a source of strength to its subsidiary banks, a
bank holding company should stand ready to use available resources to provide
adequate capital funds to its subsidiary banks during periods of financial
stress or adversity and should maintain the financial flexibility and
capital-raising capacity to obtain additional resources for assisting its
subsidiary banks. A bank holding company's failure to meet its obligation to
serve as a source of strength to its subsidiary banks will generally be
considered by the FRB to be an unsafe and unsound banking practice or a
violation of the FRB regulations or both.
The FRB has established capital adequacy guidelines for bank holding
companies. See "MANAGEMENT'S DISCUSSION AND ANALYSIS".
CONNECTICUT REGULATION
As state-chartered banks and members of the FDIC, NEBT and EQBK are subject
to regulation both by the Connecticut Banking Commissioner and by the FDIC.
Applicable laws and the regulations impose restrictions and requirements in many
areas, including interest rates on selected instruments, capital requirements,
maintenance of reserves, establishment of new branch offices, making of loans
and investments, consumer protection, employment practices and other matters.
Any new regulations or amendments toexisting regulations may materially affect
the services offered, expenses incurred and/or income generated by NEBT.
The Connecticut Banking Commissioner regulates NEBT's and EQBK's internal
organization as well as their deposit, lending and investment activities. The
approval of the Connecticut Banking Commissioner is required, among other
<PAGE>
-17-
things, to open branch offices and to consummate merger transactions and other
business combinations. The Connecticut Banking Commissioner conducts periodic
examinations of NEBT and EQBK. The Connecticut banking statutes also restrict
the ability of NEBT and EQBK to declare cash dividends to their sole
stockholder, NECB.
Subject to certain limited exceptions, loans made to any one obligor may
not exceed 15% of a bank's capital, surplus, undivided profits and loan
reserves.
Connecticut banks and bank holding companies, with the approval of the
Connecticut Banking Commissioner, are permitted to engage in stock acquisitions
of banks and bank holding companies in other states with reciprocal legislation.
Several interstate mergers involving large Connecticut banks with offices in
NEBT's service area and banks headquartered in other states have been completed
which have resulted in increased competition for NEBT and EQBK, respectively. In
addition, under Connecticut law, the beneficial ownership of more than 10% of
any class of voting securities of a bank or bank holding company may not be
acquired by any person or groups of persons acting in concert without the
approval of the Connecticut Banking Commissioner.
FDIC REGULATION
The FDIC insures NEBT's and EQBK's deposit accounts in an amount up to
$100,000 for each insured depositor. NEBT and EQBK, as Connecticut-chartered
FDIC-insured banks, are regulated by the FDIC in many of the areas also
regulated by the Connecticut Banking Commissioner. The FDIC also conducts its
own periodic examinations of NEBT and EQBK, and each institution is required to
submit financial and other reports to the FDIC on a quarterly and annual basis,
or as otherwise required by the FDIC.
FDIC insured banks, such as NEBT and EQBK pay premiums to the FDIC for the
insurance of deposits. The FDIC has determined that no premiums need be assessed
at this time.
Under FDIC regulations, FDIC-insured, state-chartered banks which are not
members of the Federal Reserve System must meet certain minimum capital
requirements, including a leverage capital ratio and a risk-based capital ratio.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS".
FDIC insurance of deposits may be terminated by the FDIC, after notice and
a hearing, upon a finding by the FDIC that the insured institution has engaged
in unsafe or unsound practices, or is in an unsafe or unsound condition to
<PAGE>
-18-
continue operations, or has violated any applicable law, regulation, rule, or
order of, or condition imposed by, the FDIC. A bank's failure to meet the
minimum capital and risk-based capital guidelines set forth above, would be
considered to be unsafe and unsound banking practices.
The Community Reinvestment Act ("CRA") requires lenders to identify the
communities served by the institution's offices and to identify the types of
credit the institution is prepared to extend within such communities. The FDIC
conducts examinations of insured institutions' CRA compliance and rates such
institutions as "Outstanding", "Satisfactory", "Needs to Improve" and
"Substantial Noncompliance." As of their last CRA examinations, NEBT received a
rating of "Outstanding" and EQBK received a rating of "Satisfactory". Failure to
receive at least a "Satisfactory" rating may inhibit an institution from
undertaking certain activities, including acquisitions of other financial
institutions, which require regulatory approval based, in part, on CRA
compliance considerations.
ITEM 2. PROPERTIES
NECB is the owner of an operations center in East Hartford Connecticut. The
operations center located at 20 Founders Plaza, East Hartford, Connecticut
consists of an 18,227 square foot office building which is adequate to meet the
foreseeable data processing needs of NECB. NECB is not the lessee of any
properties. The properties described below are properties owned or leased by
NEBT or EQBK.
NEBT's designated main office is located at Old Windsor Mall, Windsor,
Connecticut. In addition to the designated main office in Windsor, NEBT has
branches in Canton, Poquonock (Windsor), Enfield, Ellington, Somers, East
Windsor and Suffield.
During the year ended December 31, 1995, the aggregate rental expenses paid
by NECB for all its office properties was approximately $267,900. All properties
are considered to be in good condition and adequate for the purposes for which
they are used. The following table outlines all owned or leased property of
NECB, NEBT and EQBK but does not include other real estate owned.
<PAGE>
-19-
<TABLE>
<CAPTION>
Owned/ Lease
Location Address Leased Expiration
- -------- ------- ------ ----------
<S> <C> <C> <C>
Executive Offices Old Windsor Mall Owned
(New England Community 176 Broad Street
Bancorp, Inc. and Windsor, CT 06095
New England Bank)
/Operations/Main Office
NEBT Poquonock 2100 Poquonock Avenue *Bldg-Owned 1996
Branch (Windsor) Windsor, CT 06064 Land-Owned/Leased
NEBT Enfield Branch 9 Hazard Avenue Bldg-Owned 2011
Enfield, CT 06082 Land-Leased
NEBT Ellington Branch 70 West Road Owned
Ellington, CT 06029
NEBT Somers Branch 637 Main Street Owned
Somers, CT 06071
NEBT East Windsor Branch 2 North Road Leased 2002
East Windsor, CT 06088
NEBT Suffield Branch 275 Mountain Road Owned
Suffield, CT 06078
NEBT Canton Branch 250 Albany Turnpike, Leased 2000
Canton, CT 06109
NEBT West Hartford 55 South Main Street Leased
Branch** West Hartford, CT 06107
EQBK Main Office 1160 Silas Deane Highway Leased 2004
Wethersfield, CT 06109
</TABLE>
* The Poquonock Office occupies two parcels of land. One parcel that was
previously leased was purchased in 1991 and the other parcel continues
to be leased.
** In February 1996, NEBT filed an application with the Federal Deposit
Insurance Corporation and State of Connecticut Department of Banking
to locate a branch at 55 South Main Street, West Hartford, CT.
ITEM 3. LEGAL PROCEEDINGS
There are no pending material adverse legal proceedings other than ordinary
routine litigation incidental to normal business to which NECB, NEBT or EQBK is
a party or to which any of their properties are subject except that, in
connection with the consummation of its acquisition of EQBK, certain
shareholders of EQBK gave notices of their intention to exercise their
dissenter's rights and receive cash rather than stock in NECB. The stock
appraisal process is ongoing but is not expected to have any material adverse
effect on EQBK and NECB on a consolidated basis.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of NECB's 1995 fiscal year.
<PAGE>
-20-
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY
HOLDER MATTERS
NECB's Common Stock has been quoted on the NASDAQ National Market System
since November 4, 1994. Advest, Inc., Tucker Anthony Incorporated and First
Albany are market makers in the NECB Common Stock.
As of March 15, 1996, there were 3,084,309 shares of NECB Common Stock
issued and outstanding which were held by approximately 2,400 shareholders of
record.
Through the third calendar quarter of 1994, the market price quoted in the
following table is based upon the high and low bid quotations during the period
shown. The prices represent quotations by dealers and do not include mark-ups,
mark-downs or commissions and do not necessarily represent actual transactions.
The pricing information has been provided by various brokers identified as
market makers in NECB's stock. Commencing with the fourth quarter of 1994, NECB
stock has been traded on the NASDAQ National Market System under the symbol
NECB. Information for the fourth quarter of 1994, for each quarter of 1995 and
1996, to date, was obtained from reports provided to NECB by the NASDAQ National
Market System.
QUARTER ENDED HIGH LOW
- ------------- ---- ---
March 15, 1996 $11 1/4 $ 9 3/4
December 31, 1995 10 1/4 9 1/4
September 30, 1995 10 7 3/4
June 30, 1995 8 1/2 7 3/4
March 31, 1995 8 1/2 7 1/2
December 31, 1994 9 1/4 7 1/2
September 30, 1994 8 3/8 8
June 30, 1994 8 7
March 31, 1994 6 4 1/2
DIVIDEND POLICY
All shares of the NECB Common Stock are entitled to participate equally in
such dividends as may be declared by NECB's Board of Directors. The holders of
NECB Common Stock will be entitled to receive dividends when, as and if declared
by the Board of Directors of NECB. Dividends may be declared and paid by NECB
only out of funds legally available therefor. Under Delaware law, dividends may
generally be declared by the board of directors of a corporation and paid in
cash, property or in shares of such corporation, either out of such
<PAGE>
-21-
corporation's surplus or, in case there is no surplus, out of its net profits
for the fiscal year in which the dividend is declared or the preceding fiscal
year, or both.
NECB's principal assets are its investments in NEBT and EQBK. As such,
NECB's ability to pay dividends to its shareholders is largely dependent on the
ability of NEBT and EQBK to pay dividends to NECB.
NEBT and EQBK may not declare a dividend on their capital stock except from
their net profits. "Net profits" is defined as the remainder of all earnings
from current operations. The total of all dividends declared by each respective
institution in any calendar year may not, unless specifically approved by the
Connecticut Banking Commissioner, exceed the total of each respective
institution's net profits of that year combined with each institutions retained
net profits of the preceding two years.
NECB believes that the payment of dividends is an important part of its
efforts to provide value to its shareholders. The payment of regular prudent
dividends, when justified by the condition and earnings of NEBT, EQBK and NECB,
while not assured, is a goal of NECB and its Board of Directors. To the extent
net proceeds are retained by NECB, earnings on such proceeds would be available
to pay dividends.
From 1990 until the fourth quarter of 1994, no dividends were declared or
paid by NECB. NECB began the payment of regular quarterly dividends in the
fourth quarter of 1994. Quarterly payments were $.05 per share until the fourth
quarter of 1995 when the quarterly payment was increased to $.055 per share. In
the first quarter of 1996, the dividend was increased to $.06 per share. It is
anticipated that subsequent to the Reorganization with Manchester State Bank,
NECB will continue to declare and pay a quarterly dividend of $.06 per share
unless a change is warranted by the condition or profitability of the NECB. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of NECB - Recent Developments."
<PAGE>
-22-
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF NECB
The following table sets forth selected consolidated financial and other data of
NECB at the dates and for the periods indicated. The data at December 31, 1995,
1994, 1993, 1992 and 1991 and for the years then ended has been derived from the
audited Consolidated Financial Statements and related Notes of NECB included
elsewhere herein. The selected consolidated financial and other data set forth
below should be read in conjunction with, and are qualified in its entirety by,
the more detailed information, including the Consolidated Financial Statements
and related Notes, included elsewhere herein.
<TABLE>
<CAPTION>
Years Ended December 31,
(000's omitted, except per share data)
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Earnings:
Interest income $ 16,300 $ 12,551 $ 13,185 $ 15,343 $ 17,835
Interest expense 5,736 3,974 4,962 6,497 10,480
-------- -------- -------- -------- ---------
Net interest income 10,564 8,577 8,223 8,846 7,355
Provisions for loan loss 700 530 764 2,679 3,400
-------- -------- -------- -------- ---------
Net interest income after provision for loan losses 9,864 8,047 7,459 6,167 3,955
Non-interest income 1,692 1,616 2,115 2,350 1,822
Non-interest expense 8,591 7,895 9,337 7,272 6,493
-------- -------- -------- -------- ---------
Income (loss) before income tax expense (benefit) and change 2,965 1,768 237 1,245 (716)
in accounting principle
Income tax expense (benefit) 985 665 56 872 (97)
-------- -------- -------- -------- ---------
Income (loss) before effect of change in accounting
principle 1,980 1,103 181 373 (619)
-------- -------- -------- -------- ---------
Cumulative effect of change in accounting principle 228
Net income (loss) $ 1,980 $ 1,103 $ 409 $ 373 $ (619)
======== ======== ======== ======== ========
Per share data:
Net income (loss) $ 0.91 $ 0.82 $ 0.31 $ 0.29 $ (0.49)
Dividends declared 0.205 0.05
Book value (as of end of year) 9.88 8.88 9.99 9.47 9.31
Tangible book value (as of end of year) 9.75 8.88 9.99 9.47 9.31
Balance sheet data as of end of year:
Loans (1) $222,235 $132,624 $115,696 $135,322 $146,931
Allowance for possible loan losses 4,446 2,565 2,784 3,197 3,442
Investments 82,129 47,807 59,274 49,357 42,751
Assets 341,561 216,690 203,184 211,727 214,845
Deposits 307,161 196,872 188,466 196,178 201,856
Shareholders' equity 30,480 18,473 13,012 12,334 11,812
Nonperforming assets 5,453 3,548 4,224 8,905 12,672
Operating Ratios:
Return on average assets 0.91% 0.56% 0.20% 0.18% (0.29)%
Return on average equity 9.61% 8.34% 3.26% 3.08% (5.18)%
Interest rate spread (2) 4.31% 4.30% 4.20% 4.40% 3.10%
Net interest margin (2) 5.28% 4.80% 4.60% 4.80% 3.90%
Tangible equity / total assets 8.76% 8.53% 6.40% 5.83% 5.50%
Tier 1 risk-based capital ratio (minimum 4%) 12.25% 13.99% 10.30% 8.76% 8.25%
Total risk based capital ratio (minimum 8%) 13.49% 15.25% 11.66% 10.03% 9.52%
(1) Does not include mortgages held for sale.
(2) Computed on a fully tax-equivalent basis.
</TABLE>
<PAGE>
-23-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is Management's discussion of the financial condition and
results of operations on a consolidated basis for the three years ended December
31, 1995, of New England Community Bancorp, Inc. ("NECB"). The consolidated
financial statements of NECB include the accounts of NECB and its wholly-owned
subsidiaries, New England Bank & Trust Company ("NEBT") and The Equity Bank
("EQBK") which became a subsidiary of NECB on November 30, 1995. The transaction
was accounted for as a purchase and, as such, prior year comparative data was
not revised to include information about EQBK. The changes thus noted between
December 31, 1994 and December 31, 1995 reflect the addition of EQBK at November
30, 1995 as well as the continuing operations NECB and its subsidiaries. This
discussion should be read in conjunction with the consolidated financial
statements and the related notes of NECB presented elsewhere herein.
FINANCIAL CONDITION
1995 COMPARED TO 1994.
Loans outstanding at year end 1995 amounted to $222,235,000. During the
year, NECB added to outstanding loans by originating new loans which exceeded
repayments and payoffs by $6,694,000. Additionally, during 1995, NECB purchased
loans at a cost of $4,871,000 from another lender and transferred loans with the
carrying amount of $895,000 to mortgages held for sale. NECB generally sells
convertible adjustable rate mortgages (ARMs) from its loan portfolio when
borrowers convert ARMs to fixed status if the term remaining to maturity is
greater than ten (10) years. Convertible ARMs are residential mortgage loans
which have a variable rate at inception, but which subsequently permit the
borrower to convert to a fixed rate at designated times.
During 1995, NECB increased securities available-for-sale through
purchasing $31,575,000 of securities. During the year, maturities and sales of
securities available-for-sale amounted to $23,359,000. In contrast, the
securities held-to-maturity decreased, with purchases amounting to $3,742,000
and maturities amounting to $8,556,000. The shift to securities
available-for-sale allowed the Company to increase its commitment to
intermediate term loans while maintaining sufficient liquidity to meet the
continuing needs of its customers.
<PAGE>
-24-
During 1995, NECB experienced moderate growth in deposits. Interest bearing
deposits, including savings products and time deposits, increased $5,754,000
while non-interest bearing accounts, largely commercial checking accounts,
declined $2,861,000. The lowering of checking account balances, following a
substantial increase of $14,841,000 in the previous year, appears to reflect the
preferences of the Company's customers to use their excess funds to either
reduce existing loans or avoid added borrowing. Management encourages this
practice through its rapid responsiveness to borrowing requests, particularly
for established customers.
NECB's investment in premises and equipment amounted to $6,960,000 at
December 31, 1995, representing an increase of $1,353,000 from a year ago.
Throughout 1995, the Company continued the program it began in late 1993 to
improve the appearance and capability of NEBT's older branch banking offices.
The Enfield office was extensively remodeled and new furnishings were added. In
addition, the branch's parking area was leveled and expanded to increase the
number of parking spaces for customers banking at this office. NEBT also
installed a drive-up ATM at the Somers Office. A year earlier a similar machine,
installed at NEBT's Poquonock office, quickly became NEBT's most actively used
machine. NEBT opened a full service branch in Canton, Connecticut to serve the
Farmington Valley market area. Finally, in December 1995, NECB purchased an
18,000 square foot office building located within the Founders Plaza complex in
East Hartford, Connecticut. This centrally located facility will house NECB's
growing operations and data processing departments which provide for the
informational needs of NECB and its subsidiaries.
1994 COMPARED TO 1993.
In the year ended December 31, 1994, total loans increased $16,928,000.
This increase was primarily the result of increased demand for new credit. As
the financial health of NECB's subsidiary, NEBT, steadily improved, it was able
to respond to this demand. In response to this improvement, in April 1994, the
FDIC removed the formal supervisory Order it had imposed a year earlier. The
carrying amount of security investments (consisting of securities
available-for-sale, securities held-to-maturity and Federal Home Loan Bank
stock) decreased $11,467,000 as the proceeds from sales and maturities, less
purchases, were used to support a portion of the growth of loans. The decrease
included a reduction of $1,889,000 in the carrying amount of securities
available-for-sale to reflect the fair value of those securities in conformity
with SFAS No. 115 "Accounting for Certain Debt and Equity Securities." This
<PAGE>
-25-
unrealized loss was decreased by related deferred taxes to $1,109,000 which
changed the net unrealized holding gain of $266,000 on securities
available-for-sale at December 31, 1993 in the equity section of the balance
sheet to a net unrealized holding loss of $843,000 at December 31, 1994. At
December 31, 1994, the unrealized loss on securities available-for-sale was
$1,443,000 and the deferred taxes on such amount was $600,000.
During 1994, cash and cash equivalents were increased $8,453,000 to offset
the volatile nature of noninterest-bearing checking account liabilities which
increased $14,841,000. During 1994, interest bearing deposits decreased
$6,435,000, as NEBT selectively reduced interest rates offered relative to the
marketplace. During this period, shareholders' equity increased as the result of
several factors. NECB raised approximately $5,600,000 through an offering
completed in December 1994 and net income added an additional $1,000,000.
The increased investment in bank premises and equipment represents funds
used to repair and improve NEBT's branch offices and the purchase of equipment
and technology necessary to maintain high quality services.
RESULTS OF OPERATIONS
1995 COMPARED TO 1994, AND 1993, RESPECTIVELY.
NECB reported net income for 1995 of $1,980,000 or $0.91 per share. This
represented an increase of $877,000 or 80% from net income for 1994 of
$1,103,000 or $0.82 per share. This improvement resulted primarily from the
$1,987,000 increase in net interest and dividend income. Net income for 1994
increased $694,000 or 170% greater than the $409,000 reported for 1993. Unlike
1995, this improvement was primarily the result of the $1,442,000 reduction in
noninterest expenses. Significant factors affecting NECB's operating performance
for the three years ended December 31, 1995, included the following:
NET INTEREST AND DIVIDEND INCOME
1995 COMPARED TO 1994, AND 1993, RESPECTIVELY.
The net interest and dividend income for 1995 and 1994 increased $1,987,000
and $354,000 respectively from the preceding year. The table below shows net
interest and dividend income for each of the three years through December 31,
1995, on a fully taxable equivalent basis.
<PAGE>
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<TABLE>
<CAPTION>
(amounts in thousands)
1995 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and dividend income (financial statements) $16,300 $12,551 $13,185
Tax-equivalent adjustment 121 48 74
Interest expense (5,736) (3,974) (4,962)
------- ------- -------
Net interest and dividend income (taxable equivalent) $10,685 $ 8,625 $ 8,297
</TABLE>
Net interest and dividend income, on a fully taxable equivalent basis,
increased $2,060,000 in 1995 and $328,000 in 1994.
Several factors contributed to the increase in net interest and dividend
income during 1995. Average earning assets increased $23 million due to growth
in average loans outstanding. Despite declining during the later half of 1995,
interest rates during most of 1995 were generally higher than those prevailing
during 1994. The net interest margin improved to 5.28% in 1995, compared to
4.81% in the preceding year. The average rate on earning assets improved to
8.12% in 1995 compared to 7.03% in 1994. The average rate paid for interest
bearing liabilities also increased, to 3.65% in 1995, from 2.67% in 1994. Higher
rates offered to holders of time deposits attracted approximately $17 million in
new funds, while relatively low yielding savings deposits resulted in an $8
million outflow of such deposits. During periods of higher interest rates,
interest-free sources of funds such as demand deposits and equity increase in
value when the interest rates available for the employment of these funds are
higher.
Net interest and dividend income for 1994 increased $328,000 to $8,625,000
from $8,297,000 in 1993. During 1994, the two factors primarily responsible for
the increase in net interest and dividend income were the reduction in the
average rate paid for interest bearing liabilities and the growth in noninterest
bearing sources of funds.
AVERAGE BALANCE SHEETS, NET INTEREST AND DIVIDEND INCOME AND INTEREST RATES
The table below presents NECB's average balance sheets (computed on a daily
basis), net interest and dividend income and interest rates for the years ended
December 31, 1995, 1994 and 1993. Average loans outstanding include nonaccruing
loans. Interest and dividend income is presented on a tax-equivalent basis which
reflects a federal tax rate of 34% for all periods presented.
<PAGE>
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<TABLE>
<CAPTION>
(amounts in thousands)
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds sold $ 7,246 $ 407 5.62% $ 6,760 $ 279 4.13% $ 4,411 $ 127 2.88%
Investment securities 50,962 3,079 6.04% 52,892 2,813 5.32% 52,230 2,765 5.29%
Loans 144,138 12,935 8.97% 119,690 9,507 7.94% 125,400 10,367 8.27%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest earning 202,346 16,421 8.12% 179,342 12,599 7.03% 182,041 13,259 7.28%
assets
Allowance for loan (2,543) (2,777) (3,087)
losses
Cash & due from banks 9466 9,542 10,601
Other assets 9,282 9,349 11,473
-------- -------- --------
Total Assets $218,551 $195,456 $201,028
======== ======== ========
LIABILITIES
Regular savings deposits $ 47,746 $ 1,033 2.16% $ 56,819 $ 1,149 2.02% $ 40,835 $ 1,045 2.56%
NOW accounts deposits 23,405 266 1.14% 23,197 307 1.32% 30,789 567 1.84%
Money market deposits 5,047 92 1.82% 4,396 120 2.73% 19,373 708 3.65%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total savings deposits 76,198 1,391 1.83% 84,412 1,576 1.87% 90,997 2,320 2.55%
Time deposits 80,615 4,312 5.35% 63,619 2,377 3.74% 67,289 2,617 3.89%
Borrowed funds 532 33 6.20% 589 21 3.57% 978 25 2.56%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest bearing 157,345 5,736 3.65% 148,620 3,974 2.67% 159,264 4,962 3.12%
liab.
Demand deposits 39,395 32,754 27,834
Other liabilities 1,206 854 1,389
Total liabilities 197,946 182,228 188,487
Equity 20,605 13,228 12,541
-------- -------- --------
Total Liabilities & $218,551 $195,456 $201,028
======== ======== ========
Equity
Net interest income $ 10,685 $ 8,625 $ 8,297
(tax equivalent Basis)
Less: FTE adjustment 121 48 74
-------- -------- --------
Net interest income $ 10,564 $ 8,577 $ 8,223
======== ======== ========
(book)
Net interest spread 4.47% 4.35% 4.17%
Net yield on earning 5.28% 4.81% 4.56%
assets
</TABLE>
<PAGE>
-28-
The fully taxable equivalent yield on earning assets was 8.12% in 1995 up
from 7.03% in 1994 and 7.28% in 1993. The cost of interest bearing liabilities
was 3.65% in 1995 as compared to 2.67% in 1994 and 3.12% in 1993. As a result
the net interest margin, on a fully taxable equivalent basis, was 5.28% in 1995
compared to 4.81% in 1994 and 4.56% in 1993.
RATE VOLUME ANALYSIS
The following table, which is presented on a tax-equivalent basis, reflects
the changes for the years ended December 31, 1995 and 1994 in net interest
income arising from changes in interest rates and from asset and liability
volume, including mix. The change in interest attributable to both rate and
volume has been allocated to the changes in the rate and the volume on a pro
rated basis.
<TABLE>
<CAPTION>
(amounts in thousands)
1995 1994
------------------ ------------------
Change due to Change due to
change in: change in:
------------------ ------------------
Increase Increase
(Decrease) Rate Volume (Decrease) Rate Volume
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income change
Federal funds sold $ 128 $ 107 $ 21 $ 152 $ 68 $ 84
Investment securities 266 372 (106) 48 13 35
Loans 3,428 1,332 2,096 (860) (398) (462)
------ ------ ------ ----- ----- -----
Total interest income change 3,822 1,811 2,011 (660) (317) (343)
------ ------ ------ ----- ----- -----
Interest expense change
Regular savings deposit (116) 76 (192) 104 (249) 353
NOW account deposits (41) (44) 3 (260) (139) (121)
Money market deposits (28) (44) 16 (588) (145) (443)
------ ------ ------ ----- ----- -----
Total savings deposits (185) (12) (173) (744) (533) (211)
Time deposits 1,935 1,195 740 (240) (101) (139)
Borrowed funds 12 14 (2) (4) 8 (12)
------ ------ ------ ----- ----- -----
Total interest expense
change 1,762 1,197 565 (988) (626) (362)
------ ------ ------ ----- ----- -----
Net interest income change $2,060 $ 614 $1,446 $ 328 $ 309 $ 19
------ ------ ------ ----- ----- -----
</TABLE>
Of the $2,060,000 increase in the net interest income in 1995, $612,000
resulted from changes in interest rates earned or paid during 1995 and the
remaining $1,448,000 is attributed to changes in volume of average assets and
liabilities.
<PAGE>
-29-
NONINTEREST INCOME
1995 COMPARED TO 1994, AND 1993, RESPECTIVELY.
Noninterest income consists of service charges, commissions and fee income,
net gains on the sales of investments and loans, and other income. Total
noninterest income was $1,692,000 in 1995. This was an increase of $76,000 or
4.7% from $1,616,000 in 1994. This followed a decrease in 1994 noninterest
income of $499,000 or 23.6% from $2,115,000 in 1993. The increase in 1995
resulted from changes in several categories of noninterest income. Gains from
the sales of investments and loans increased $21,000 and $148,000, respectively.
The increase in gains from the sale of loans occurred as demand for fixed rate
mortgages rose in response to declining interest rates. This increased demand
lead to increased production and subsequent sales of these fixed rate loans.
Fixed rate mortgage loans are typically sold, with servicing retained by the
Company's subsidiaries, after origination. Service charges, commissions and fees
declined $124,000 and all other income increased $31,000. The $499,000 decrease
in 1994 included decreases of $177,000 and $143,000, respectively from sales of
investments and loans. Also included was a $93,000 decrease in service charges
and an $86,000 decrease in all other noninterest income.
The decrease in 1995 of $124,000 in service charges, commissions and fees
included a $14,000 increase in loan servicing fees and a $138,000 reduction in
deposit fees. The increase in servicing fees reflected growth in the volume of
serviced loans. Deposit fees declined in 1995 as depositors took advantage of
other product opportunities or maintained the minimum account balances necessary
to avoid service charges.
NONINTEREST EXPENSE
1995 COMPARED TO 1994, AND 1993, RESPECTIVELY.
Total noninterest expense was $8,591,000 in 1995, an increase of $696,000
or 8.8% from $7,895,000 in 1994. In 1994, total noninterest expense decreased
$1,442,000 or 15.4% from $9,337,000 1993. The $696,000 increase in noninterest
expense in 1995 resulted primarily from the $548,000 increase in salaries and
employee benefits. This was partially offset by the reduction of $276,000 in
fees paid to the FDIC for deposit insurance. All other expenses increased
$424,000. Management maintains control over noninterest expenses by assigning
specific managers authority for expense-incurring activities providing these
managers with tools for planning and monitoring the performance of their duties.
<PAGE>
-30-
In working with senior officers line managers are better able to anticipate and
minimize the expense of the goods and services needed to perform efficiently.
The decrease of $1,442,000 in 1994 resulted in large measure from the
continuing reduction in non-performing assets which had plagued NECB throughout
the preceding several years. The largest reduction, $1,331,000, related to
losses, writedowns and expenses of ownership of other real estate. Banks acquire
such real estate through foreclosures and other actions resulting from borrowers
failing to meet the terms of loans secured by such properties. Outside services,
principally legal fees related to foreclosures preceding decreased $397,000, and
the cost of FDIC fees and other insurance decreased $137,000. All other expenses
increased $423,000 during 1994, including occupancy and equipment expense,
$92,000; marketing, $169,000; and, the resumption of the payment of fees to
Directors, $81,000.
NONPERFORMING ASSETS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Nonperforming assets include nonaccrual loans and assets classified as
OREO. Generally, loans are placed in nonaccrual status when they are past due
greater than ninety (90) days or the repayment of interest or principal is
considered to be in doubt.
OREO consists of properties acquired through foreclosure proceedings. These
properties are recorded at the lower of the carrying value of the related loans
or the estimated fair market value less estimated selling costs. Charges to the
allowance for loan losses are the measure by which properties are reduced to
fair market value less estimated selling expenses upon reclassification as OREO.
Subsequent reductions are charged to operating income.
NECB's subsidiaries make provisions on a quarterly basis for possible loan
losses as determined by a continuing assessment of the adequacy of the allowance
for possible loan losses. NECB's subsidiaries perform ongoing reviews of loans
in accordance with an individual loan rating system to determine the required
allowance for possible loan losses at any given date. The review of loans is
performed to estimate potential exposure to losses. In the review process, the
subsidiaries assess factors including the borrowers' past and current financial
condition, repayment ability and liquidity, the nature of collateral and changes
in its value, current and anticipated economic conditions and other factors
deemed appropriate. These reviews are dependent upon estimates, appraisals and
judgments which can change quickly because of changing economic conditions and
<PAGE>
-31-
Management's perception as to how these factors affect the financial condition
of debtors. The loan rating process classifies loans according to the
subsidiaries' uniform classification system. The subsidiaries consider
performing loans rated as "substandard" and "doubtful" to be potential problem
loans. "Substandard" loans are characterized by well-defined weaknesses such as
deteriorating or inadequate collateral or impaired repayment ability. A loan is
considered "doubtful" when similar conditions exist but are more severe in
nature.
At December 31, 1995, NECB considered loans totaling approximately
$14,067,000 (which considers, for the first time, EQBK's loan portfolio) to be
potential problems compared to $7,699,000 at December 31, 1994. Included in
these totals were loans totaling $9,342,000 and $4,724,000 respectively, which
were not classified as non-performing loans because such loans are performing
according to their terms.
NECB's subsidiaries loan review processes are designed to identify certain
potential problem loans at an early stage, alleviate weaknesses in each
respective institution lending policies, oversee the individual loan rating
system and ensure compliance with NEBT's and EQBK's underwriting, documentation,
compliance and administrative policies. Certain potential problem loans mean
loans considered by Management as being in need of special attention because of
some deficiency related to the credit or documentation, but which are still
considered collectable and performing. Such attention is intended to act as
preventative measures and thereby avoid more serious problems in the future.
Accrued interest income is generally reversed against interest income when
loans are classified as nonaccrual, unless Management deems that the value of
collateral is sufficient to recover both principal and accrued interest. Real
estate held for sale consists of properties acquired through mortgage loan
foreclosure proceedings. Real estate owned is carried at the lower of the
carrying value of the related loan or the estimated fair market value of the
property less estimated selling costs.
NECB's nonperforming assets at December 31, 1995 through 1991 are presented
below. Had the nonaccrual loans performed in accordance with their original
terms, gross interest income for the year ended 1995 would have increased by
approximately $120,000 compared to an increase of approximately $194,000 for the
year ended 1994. As reflected below, NECB has made significant progress since
reaching a high of $12,672,000 at December 31, 1991.
<PAGE>
-32-
<TABLE>
<CAPTION>
(amounts in thousands) at
December 31, 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $4,725 $2,975 $3,176 $3,144 $ 7,606
Other real estate owned 728 573 1,048 5,761 5,066
---------------------------------------------------------
Total nonperforming assets $5,453 $3,548 $4,224 $8,905 $12,672
=========================================================
Loans past due in excess of ninety days and
accruing interest $ 273 $ 16 $ 193 $ 4 $ 483
</TABLE>
Total nonperforming assets increased by $1,905,000, or 53.7%, to $5,453,000
at December 31, 1995 from $3,548,000 at December 31, 1994. In 1994, total
nonperforming assets decreased $676,000 or 16% from $4,224,000 at December 31,
1993. Loans past due in excess of ninety days and accruing interest amounted to
$273,000, this compared to balances of $16,000 and $193,000, respectively, at
December 31, 1994 and 1993. The increase in total nonperforming assets in the
year ended December 31, 1995 resulted from the inclusion, for the first time, of
$2,896,000 in nonaccrual loans and $497,000 in OREO held by EQBK (acquired on
November 30, 1995) and decreases of $1,146,000 in nonaccrual loans and $342,000
in OREO held by NEBT.
Total nonperforming assets represented 2.5% of total loans and other real
estate owned at December 31, 1995, as compared to 2.7% and 3.6% respectively, at
December 31, 1994 and 1993. Improvement in this ratio is the result of
reductions in nonperforming assets and the increase in total loans. The
allowance for loan losses increased to 2.0% of total loans at December 31, 1995
from 1.9% at December 31, 1994, and 2.4% at December 31, 1993 respectively. The
coverage afforded to nonperforming assets and loans past due ninety days and
still accruing was 77.6% compared to 71.9% and 63.0% for December 31, 1994 and
1993, respectively. Real estate acquired through foreclosure was $1,007,000 in
1993, $743,000 in 1994, and $796,000 in 1995. The allowance for possible loan
losses was equal to 94.1% of nonaccrual loans at December 31, 1995, as compared
to 86.2% and 87.7%, respectively, at December 31, 1994 and 1993.
<PAGE>
-33-
<TABLE>
<CAPTION>
(amounts in thousands) 1995 1994 1993
December 31, ------ ------ ------
<S> <C> <C> <C>
Nonaccrual loans $4,725 $2,975 $3,176
Other real estate owned 728 573 1,048
------ ------ ------
Total nonperforming assets 5,453 3,548 4,224
Loans past due in excess of ninety days and accruing interest 273 16 193
Ratio of nonperforming assets to total loans and OREO 2.5% 2.7% 3.6%
Ratio of nonperforming assets and loans past due in excess
of ninety days and accruing interest to total loans OREO 2.6% 2.7% 3.8%
Ratio of allowance loan losses to total loans 2.0% 1.9% 2.4%
Ratio of allowance for loan losses to nonperforming assets
and loans in excess of ninety days past due and accruing
interests 77.6% 71.9% 63.0%
Ratio of nonperforming assets and loans in excess of ninety
days out past due and accruing interest to total shareholders'
equity 18.8% 19.3% 34.0%
</TABLE>
The following table summarizes the activity in the allowance for possible
loan losses for the years ended December 31, 1991 through 1995. The allowance is
maintained at a level consistent with identified loss potential and the
perceived risk in the portfolio. It is not considered meaningful to allocate the
allowance according to geographic area as NECB's market area is homogenous and
limited in size.
<TABLE>
<CAPTION>
(amounts in thousands)
December 31, 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------
Loans charged-off:
<S> <C> <C> <C> <C> <C>
Commercial and financial $ 154 $ 92 $ 216 $ 539 $ 828
Real estate 750 892 930 2,348 744
Installment loans to individuals 74 17 80 121 761
------ ------ ------ ------ ------
978 1,001 1,226 3,008 2,333
------ ------ ------ ------ ------
Recoveries on loans charged-off:
Commercial and financial 150 51 17 4 15
Real estate 27 163 22 54 0
Installment loans to individuals 22 37 10 26 15
------ ------ ------ ------ ------
199 251 49 84 30
------ ------ ------ ------ ------
Net loans charged-off 779 750 1,177 2,924 2,303
Provision charged to operations 700 530 764 2,679 3,400
Balance, at beginning of year 2,564 2,784 3,197 3,442 2,345
Changes incident to merger 1,961
------ ------ ------ ------ ------
Balance, at end of year $4,446 $2,564 $2,784 $3,197 $3,442
====== ====== ====== ====== ======
Ratio of net charge-offs during the
period to average loans outstanding
during the period 0.54% 0.63% 0.94% 2.02% 1.67%
Ratio of allowance for loans losses
to total loans 2.00% 1.93% 2.41% 2.36% 2.34%
</TABLE>
<PAGE>
-34-
NECB's subsidiaries continually assess the adequacy of their allowances for
loan losses in response to changing economic conditions, specific problem loans,
and the overall risk profile of their loan portfolios. Management allocates
specific reserves to individual problem loans based upon Management's analysis
of the potential for loss perceived to exist related to such loans. In addition
to the specific reserves for individual loans, a portion of the allowance is
maintained as a general reserve. The amount of the general reserve is determined
through Management's analysis of the potential for loss inherent in those loans
not considered problem loans. Among the factors considered by Management in this
analysis are the number and type of loans, nature and amount of collateral
pledged to secure such loans, and current economic conditions.
During the years ended 1991 and 1992, NEBT made substantial provisions to
the allowance in response to the recognition of problem loans and the potential
for loss perceived to be inherent in the portfolio as a result of economic
conditions and declines in real estate values. Thereafter, in 1993 and 1994 the
reduction in provisions reflects the stabilization of the economy, the improved
performance of the loan portfolio and recoveries of previously charged-off
loans.
The following table reflects the Allowance for Loan Losses as of December
31, 1995 with allocations categorized by loan type:
(amounts in thousands)
Allocation of Percentage of loans in
Allowance for each category to total
Loans by type Loan Losses loans
- ----------------------------------------------------------------------------
Commercial & Financial $ 541 16.1%
Real Estate:
Construction 254 5.8
Residential 1,090 36.4
Commercial 2,388 38.3
Installment 154 2.5
Other 19 0.9
------ -----
Total $4,446 100.0%
====== =====
LIQUIDITY
Management's objective is to ensure continuous ability to meet cash needs
as they arise. Such needs may occur from time to time as a result of
fluctuations in loan demand and the level of total deposits. Accordingly, NECB's
<PAGE>
-35-
subsidiaries have liquidity policies which provide flexibility to meet cash
needs. The liquidity objective is achieved through the maintenance of readily
marketable investment securities as well as a balanced flow of asset maturities,
prudent pricing on loan and deposit products and the sale of mortgage loans in
the secondary market.
The policy also provides Management with the ability to acquire and hold
debt instruments known collectively as structured notes. Structured notes, which
can differ as to particular terms, are used by Management to reduce the
potential effect changes in interest rates can have upon the operating results
of the Company. From time to time, Management invests in various types of
structured notes (such as dual index notes and interest rate step-up notes) as
part of its overall management of the risk of changes to interest rates.
In 1993, NECB adopted Statement of Financial Accounting Standards No. 115
("Accounting for Certain Debt and Equity Securities"). The statement, issued by
the Financial Accounting Standards Board (FASB), set forth guidance for
accounting for certain investments in debt and equity securities. Adoption of
Statement No. 115 resulted in several changes to the information provided in the
financial statements of NECB. The first change resulted from the separation of
investment security assets into those held-to-maturity and those
available-for-sale. The second change resulted from the change to the carrying
value of the group held available-for-sale to reflect the current market values
of the assets held. The amount of this "mark-to-market" value is then added to
or deducted from the equity portion of NECB's balance sheet after appropriate
reduction to reflect the value of the related deferred taxes. At December 31,
1995, the amount added to NECB's shareholders' equity was $158,000, while
$843,000 was deducted from shareholders' equity a year earlier.
During the year end of 1995 and during 1994, it did not become necessary
for NECB to increase its borrowed funds to meet its liquidity needs. NECB has
alternative sources of liquidity available including federal funds purchased and
repurchase agreements. Purchases of federal funds and borrowing on repurchase
agreements may be utilized to meet short-term borrowing needs. During 1994 NEBT
joined the Federal Home Loan Bank of Boston (FHLBB) to further enhance its
liquidity position. The FHLBB provides its member banks with credit by accepting
as collateral the member bank's mortgage assets. Through its membership, NEBT
has available a line of credit for $3,500,000 and also has the ability to pledge
up to $60,000,000 of its assets to meet its credit needs. EQBK has available a
line of credit for $2,100,000 and also has the ability to pledge up to
<PAGE>
-36-
$25,000,000 of its assets to meet its credit needs. NECB believes that its
policies will enable it to maintain adequate liquidity and to prudently commit
funds to loans or investments, depending upon underlying risk, demand and rate
of return.
As shown in the Consolidated Statements of Cash Flows, NECB experienced a
decrease of $4,091,000 in the amount of cash and cash equivalents at December
31, 1995 compared to December 31, 1994. This compares to the significant
increase of $8,453,000 in 1994, compared to December 31 1993. The increase in
1994 was largely due to the $5,571,000 received in December as proceeds from the
issuance of 778,260 shares of NECB's stock coupled with an increase throughout
the year in demand deposit account balances. Demand deposit accounts represent a
volatile source of funds which is subject to significant inflows and outflows of
both seasonal and cyclical nature.
CAPITAL
At December 31, 1995, total shareholders' equity was $30,480,000, an
increase of $12,007,000 compared to $18,473,000 at December 31, 1994. In
November 1995, in acquiring The Equity Bank, 1,004,000 shares of common stock
were issued by NECB at a value of $9,507,000 representing the inclusion of the
adjusted net assets of EQBK. Also increasing capital in 1995 was the retention
of $1,499,000 in earned income and the $1,001,000 change in the unrealized
holding gain (loss) on securities available for sale. During 1994, shareholders'
equity increased $5,461,000 to $18,473,000 at December 31, 1994, from
$13,012,000 at December 31, 1993. In December 1994, NECB completed an offering
which raised $5,571,000 in new capital funds. The offering resulted in the
issuance of 778,000 new shares of common stock. Also adding to capital was net
income of $1,103,000.
The various capital ratios of EQBK, NEBT and NECB are as follows as of
December 31, 1995:
Minimum Level EQBK NEBT NECB
- ---------------------------------------------------------------------------
Leverage 4% 8.22% 7.34% 11.89%
Tier 1 Risk-Based 4% 10.13% 10.42% 12.25%
Total Risk-Based 8% 11.38% 11.67% 13.49%
INCOME TAXES
Income tax expense for 1995 was $985,000 which is an effective income tax
rate of 33.2%. This compares to income tax expense of $665,000 in 1994 and
$56,000 in 1993.
<PAGE>
-37-
In February 1992, The Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109 ("Accounting for Income Taxes"). The
effect of adoption of Statement No. 109 in 1993 upon 1993 results is set forth
in Note 11 to the Consolidated Financial Statements for the years ended December
31, 1995, 1994 and 1993.
RECENT ACCOUNTING DEVELOPMENTS
The adoption of Financial Accounting Standard No. 115 in December 1993
requires that NECB classify debt and equity securities into one of three
categories: held-to-maturity, available-for-sale, or trading. This security
classification may be modified after acquisition only under certain specified
conditions. In general, securities may be classified as held-to-maturity only if
NECB has the positive intent and ability to hold them to maturity. Trading
securities are defined as those bought and held principally for the purpose of
selling them in the near term. All other securities must be classified as
available-for-sale.
In May 1993, the Financial Accounting Standards Board issued SFAS No. 114
("Accounting by Creditors for Impairment of a Loan"). The Statement requires
that impaired loans be measured on a loan by loan basis by either the present
value of expected future cash flows discounted at the loan's effective interest
rate, the loan's observable market price, or the fair value of the collateral if
the loan is collateral dependent.
The Statement is applicable to all creditors and to all loans, except large
groups of smaller balance homogeneous loans that are collectively evaluated for
impairment, loans that are measured at fair value or at the lower of cost or
fair value, leases, and convertible or nonconvertible debentures and bonds and
other debt securities. The Statement applies to financial statements for fiscal
years beginning after December 15, 1994. Management has determined that the
financial statement impact of adopting the provisions of this statement is not
material.
In October of 1994, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 119 ("Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments"). This
Statement requires disclosures about derivative financial instruments-futures,
forward, swap, and option contracts, and other financial instruments with
similar characteristics. It also amends existing requirements of FASB Statement
No. 105, "Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
<PAGE>
-38-
Risk," and FASB Statement No. 107, ("Disclosures about Fair Value of Financial
Instruments"). This Statement, which was effective for 1995, did not have a
material impact upon NECB's 1995 financial statements.
In May of 1995, the FASB issued Statement of Financial Accounting Standards
No. 122 ("Accounting for Mortgage Servicing Rights"). This Statement requires
that a mortgage banking enterprise recognize as a separate asset rights to
service mortgage loans for others, however those servicing rights are acquired.
A mortgage banking enterprise that acquires mortgage servicing rights through
either the purchase or origination of mortgage loans or sells or securities
those loans with servicing rights retained should allocate the total cost of the
mortgage loans to the mortgage servicing rights and to the loans (without the
mortgage servicing rights) based on their fair values if practicable to estimate
those fair values. If it is not practicable to estimate the fair values of the
mortgage servicing rights and the mortgage loans (without the mortgage servicing
rights), the entire cost of purchasing and originating the loans should be
allocated to the mortgage loans (without the mortgage servicing rights) and no
cost should be allocated to the mortgage servicing rights. This Statement is
effective for fiscal years beginning after December 15, 1995 and is not expected
to have a material impact on NECB as it does not have significant loan servicing
operations.
In October of 1995, the FASB issued Statement of Financial Accounting
Standard No. 123 ("Accounting for Stock-based Compensation"). This statement
establishes financial accounting and reporting standards for stock-based
employee compensation plans, including arrangements by which employees receive
options to purchase shares of NECB's stock. This statement defines a fair value
based method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of accounting for
their employee stock compensation plans. However, it also allows an entity to
continue to measure compensation for those plans using the method of accounting
in Accounting Principles Board (APB) Opinion No. 25. Entities selecting to
remain with the accounting in Opinion No. 25 complete must make pro forma
disclosures of net income and, if presented earnings per share, as if the fair
value based method of accounting in SFAS No. 123 had been applied. The
accounting and disclosure requirements of SFAS No. 123 are effective for NECB in
1996 for all awards in 1996 and thereafter. Management believes that the
financial statement impact of adoption the provisions of this statement will not
be material.
<PAGE>
-39-
IMPACT OF INFLATION
The Consolidated Financial Statements and related notes thereto presented
elsewhere herein have been prepared in accordance with generally accepted
accounting principles which require the measurement of financial position and
operating results in terms of historical dollars without considering changes in
the relative value of money over time due to inflation. Unlike many industrial
companies, most of the assets and virtually all of the liabilities of NECB are
monetary in nature. As a result, interest rates have a more significant impact
on NECB's performance than the general level of inflation. Over short periods of
time, interest rates may not necessarily move in the same direction or in the
same magnitude as inflation.
RECENT DEVELOPMENTS
On December 19, 1995, the Boards of Directors of NECB, NEBT and Manchester
State Bank, a Connecticut chartered commercial bank with its principal place of
business in Manchester, Connecticut, executed a Plan and Agreement of
Reorganization (the "Agreement").
Pursuant to the Agreement, upon consummation of the transaction, it is
anticipated that shareholders of Manchester State Bank will exchange each share
of common stock of Manchester State Bank for the Reorganization consideration
consisting of $35.20 payable in cash and 5.493 shares of New England's common
stock. The Agreement is subject to conditions including approval by regulatory
authorities and the shareholders of Manchester State Bank. See Current Report on
Form 8-K filed by New England Community Bancorp, Inc. on January 11, 1996, which
Report is hereby incorporated by reference.
<PAGE>
-40-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
INDEX TO FINANCIAL STATEMENTS
NECB AND SUBSIDIARIES
Report of Independent Certified Public Accountants for
the Years Ended December 31, 1995, 1994 and 1993...........F-1
Consolidated Balance Sheets at December 31, 1995
and 1994...................................................F-2
Consolidated Statements of Income for the Years Ended
December 31, 1995, 1994 and 1993...........................F-3
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995, 1994 and 1993.....................F-4
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1995, 1994 and 1993...............F-5
Notes to Consolidated Financial Statements for the
Years Ended December 31, 1995, 1994 and 1993...............F-6-F-13
<PAGE>
F-1
SHATSWELL MacLEOD & COMPANY, P.C.
Certified Public Accountants
83 Pine street
West Peabody, Massachusetts 01960-3635
(508) 535-0206
To the Board of Directors
New England Community Bancorp, Inc.
Windsor, Connecticut
INDEPENDENT AUDITORS' REPORT
----------------------------
We have audited the accompanying consolidated balance sheets of New England
Community Bancorp, Inc. and Subsidiaries as of December 31, 1995 and 1994 and
the related consolidated statements of income, changes in shareholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of New
England Community Bancorp, Inc. and Subsidiaries as of December 31, 1995 and
1994, and the consolidated results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1995, in
conformity with generally accepted accounting principles.
As discussed in Notes 2 and 11 to the consolidated financial statements, the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes," effective January 1, 1993.
As discussed in Note 2 to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities" as of December 31, 1993.
/S/ SHATSWELL, MacLEOD & COMPANY, P.C
---------------------------------
SHATSWELL, MacLEOD & COMPANY, P.C.
West Peabody, Massachusetts
January 25, 1996
<PAGE>
F-2
New England Community Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(amounts in thousands; except per share data)
Years Ended December 31, 1995 1994
- ------------------------------------------------------------------------------------------------------------
ASSETS:
<S> <C> <C>
Cash and due from banks $ 14,495 $ 13,014
Interest-bearing demand deposits with other banks 55 1,000
Federal funds sold 9,075 13,702
----- ------
Cash and cash equivalents 23,625 27,716
Interest-bearing time deposits with other banks 3,000 99
Investment securities (Note 3)
Securities held-to-maturity (fair values of $7,189 and $11,528 at
December 31, 1995 and 1994, respectively) (Note 4) 7,066 11,742
Securities available-for-sale (at fair value) (Note 5) 75,063 36,065
Federal Home Loan Bank stock 1,176 810
Loans outstanding (Note 6) 222,235 132,624
Less: allowance for loan losses (Note 6) (4,446) (2,564)
------- -------
Net loans 217,789 130,060
Mortgages held-for-sale 788
Accrued interest receivable 2,538 1,502
Premises and equipment (Note 7) 6,960 5,607
Other real estate owned 728 573
Other assets 2,828 2,516
----- -----
TOTAL ASSETS $341,561 $216,690
======== ========
LIABILITIES:
Deposits
Noninterest bearing $59,945 $47,323
Interest bearing 247,216 149,549
------- -------
Total deposits (Note 8) 307,161 196,872
Short-term borrowings 540 800
Accrued interest payable 317 66
Other liabilities 3,063 479
----- ---
TOTAL LIABILITIES 311,081 198,217
------- -------
SHAREHOLDERS' EQUITY (Note 9):
Serial preferred stock, $.10 par value, 200,000 shares authorized;
no shares issued
Common stock, $.10 par value, December 31, 1995 authorized 10,000,000
shares, 3,084,309 outstanding; December 31, 1994
authorized 10,000,000 shares, outstanding 2,080,692 308 208
Additional paid-in capital 21,522 12,115
Retained earnings 8,492 6,993
Net unrealized holding gain (loss) on securities available-for-sale 158 (843)
--- -----
TOTAL SHAREHOLDERS' EQUITY 30,480 18,473
------ ------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $341,561 $216,690
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
F-3
New England Community Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
(amounts in thousands; except per share data)
Years Ended December 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
Interest and dividend income:
<S> <C> <C> <C>
Loans, including fees $12,935 $ 9,507 $10,367
Investment securities:
Taxable interest 2,721 2,668 2,537
Interest exempt from federal income taxes 49 32 61
Dividends 188 63 93
Federal funds sold and other interest 407 281 127
------- ------- -------
Total interest and dividend income 16,300 12,551 13,185
------- ------- -------
Interest expense:
Deposits (Note 8) 5,703 3,953 4,937
Borrowed funds 33 21 25
------- ------- -------
Total interest expense 5,736 3,974 4,962
------- ------- -------
Net interest and dividend income 10,564 8,577 8,223
Provision for possible loan losses (Note 6) 700 530 764
------- ------- -------
Net interest and dividend income after provision
for possible loan losses 9,864 8,047 7,459
------- ------- -------
Noninterest income:
Service charges, fees and commissions 1,385 1,509 1,676
Investment securities gains, net 21 177
Gain on sales of loans, net 193 45 188
Other 93 62 74
------- ------- -------
Total noninterest income 1,692 1,616 2,115
------- ------- -------
Noninterest expense:
Salaries and employee benefits (Note 10) 4,378 3,830 3,969
Occupancy 729 658 638
Furniture and equipment 686 682 610
Outside services 322 311 708
Postage and supplies 391 343 370
Insurance and assessments 363 639 776
Loan origination and collection 21 21 76
Losses, writedowns, expenses - other real estate owned 225 265 1,596
Other 1,476 1,146 594
------- ------- -------
Total noninterest expenses 8,591 7,895 9,337
------- ------- -------
Income before taxes and cumulative effect of change
in accounting principle 2,965 1,768 237
Income taxes (Note 11) 985 665 56
------- ------- -------
Income before cumulative effect of change in accounting
principle 1,980 1,103 181
Cumulative effect of change in accounting principle (Note 2) 228
------- ------- -------
NET INCOME $ 1,980 $ 1,103 $ 409
======= ======= =======
Income per share before cumulative effect of change in
accounting principle $ 0.91 $ 0.82 $ 0.14
Cumulative per share effect of change in method of
accounting principle (Note 2) 0.17
Net income per share $ 0.91 $ 0.82 $ 0.31
======= ======= =======
Weighted average shares of common stock 2,165,931 1,345,076 1,302,432
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
F-4
New England Community Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(amounts in thousands)
Years Ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
Operating Activities:
<S> <C> <C> <C>
Net income $ 1,980 $ 1,103 $ 409
Adjustment for noncash charges (credits):
Provision for depreciation and amortization 508 425 388
Losses from sale or disposal and provisions to reduce
the carrying value of other real estate owned, net 169 174 1,201
Investment securities gains, net (21) (177)
Accretion of discounts and amortization of premiums
on bonds, net 108 229 381
Provision for possible loan losses 700 530 764
Gain on sales of loans, net (45) (188)
(Increase) decrease in accrued interest receivable and other assets, net 832 (891) 364
(Increase) decrease in loans held for sale (788) 3,512 (3,512)
Change in method of accounting for income taxes (228)
Increase (decrease) in accrued interest payable and other liabilities, net 640 (465) (1,560)
-------- ------- -------
Net cash provided by (used for) operating activities 4,128 4,572 (2,158)
-------- ------- -------
Financing Activities:
Net increase (decrease) in noninterest-bearing accounts (2,861) 14,841 2,380
Net increase (decrease) in interest-bearing accounts 5,754 (6,435) (10,092)
Decrease in short-term borrowings, net (260) (138)
Issuance of common stock 5,571
Cash equivalents acquired in the merger of The Equity
Bank 7,790
Cash dividends paid (415)
-------- ------- -------
Net cash provided by (used for) financing activities 10,008 13,977 (7,850)
-------- ------- -------
Investing Activities:
Loans originated, net of principal collections (6,694) (24,666) 6,820
Loans purchased from other lenders (4,871)
Net increase in interest-bearing time deposits (2,802) (99)
Purchases of Federal Home Loan Bank stock (810)
Proceeds from sales of loans 6,063 10,665
Purchases of securities available-for-sale (31,575) (12,955)
Proceeds from sales of securities available-for-sale 4,535 7,301
Proceeds from maturities of securities available-for-sale 18,824 14,192
Purchases of securities held-to-maturity (3,742) (11,297)
Proceeds from maturities of securities held-to-maturity 8,556 12,099
Purchases of investment securities (34,346)
Proceeds from sales of securities 3,578
Proceeds from maturities of securities 23,634
Proceeds from sales of other real estate owned 969 1,131 2,100
Payments on other real estate owned 17 73
Purchases of premises and equipment, net (1,427) (929) (736)
Refund on purchase of computer software 5
Capitalization of expenditures on other real estate owned (148)
-------- -------- --------
Net cash provided by (used for) investing activities (18,227) (10,096) 11,788
-------- -------- --------
(Decrease) increase in cash and cash equivalents (4,091) 8,453 1,780
Cash and cash equivalents, beginning of year 27,716 19,263 17,483
-------- ------- -------
Cash and cash equivalents, end of year $23,625 $27,716 $19,263
======== ======= =======
Schedule of noncash investing and financing activities:
Loans charged off, net of recoveries $779 $750 $1,177
Conversions of mortgage loans to mortgage backed securities 2,489
Real estate acquired through foreclosure 796 743 1,007
Real estate owned charged to valuation allowance 296
Securities classified in accordance with SFAS No. 115 as of
December 31, 1993:
Available-for-sale 46,704
Held-to-maturity 12,668
Loans originated to facilitate sales of other real estate owned 564 1,579
A summary of the merger of The Equity Bank is as follows:
Fair value of assets acquired, excluding cash and cash
equivalents 111,242
Cash and cash equivalents acquired, 7,790
-------
119,032
Liabilities assumed 109,525
-------
Value of Company common stock issued for the merger 9,507
Income tax paid (received) 797 344 (393)
Interest paid 5,678 3,974 5,037
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
F-5
New England Community Bancorp, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
(amounts in thousands; except per share data)
<TABLE>
<CAPTION>
Net Unrealized
Holding Gain (Loss)
Additional on Securities
Common Stock Paid-in Retained Available- Total
Shares Value Capital Earnings for-Sale Equity
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 1,302 $130 $6,622 $5,582 $ $12,334
Net income 409 409
Net change in unrealized loss on
marketable equity securities 3 3
Net unrealized holding gain on securities
available-for-sale upon adoption
of SFAS No. 115 266 266
----- --- ----- ----- --- ---
Balance, December 31, 1993 1,302 130 6,622 5,994 266 13,012
Net income 1,103 1,103
Dividends declared ($0.05 per share) (104) (104)
Net change in unrealized holding gain on
securities available-for-sale (1,109) (1,109)
Common stock offering (Note 9) 778 78 5,493 5,571
--- -- ----- ----- ----- -----
Balance, December 31, 1994 2,080 208 12,115 6,993 (843) 18,473
Net income 1,980 1,980
Dividends declared ($0.205 per share) (481) (481)
Shares issued pursuant to the merger
of The Equity Bank (Note 9) 1,004 100 9,407 9,507
Net change in unrealized holding loss on
securities available-for-sale 1,001 1,001
----- ---- ------- ------ ----- -----
Balance, December 31, 1995 3,084 $308 $21,522 $8,492 $158 $30,480
===== ==== ======= ====== ==== =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
F-6
Notes to Consolidated Financial Statements
NOTE 1 -- ORGANIZATION
New England Community Bancorp, Inc. (the "Company"), a Delaware
Corporation, is a multi-bank holding company. It operates two wholly owned
subsidiary banks chartered by the state of Connecticut. New England Bank & Trust
Company is headquartered in Windsor, Connecticut and provides commercial and
consumer banking services from its eight offices located in the towns of Canton,
East Windsor, Ellington, Enfield, Somers, Suffield and Windsor (2), Connecticut.
The Equity Bank, acquired in December 1995, provides commercial and consumer
banking services from its office in Wethersfield, Connecticut.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements of the Company have been prepared in
conformity with generally accepted accounting principles and include its
accounts and those of its subsidiaries, after elimination of significant
inter-company balances and transactions.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from the estimates.
Investment Securities, In General
Investments in debt securities are adjusted for amortization of premiums
and accretion of discounts computed on the effective interest method. Gains or
losses on sales of investment securities are computed on a specific asset basis.
As of December 31, 1993, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS No. 115). The Statement establishes standards of
financial accounting and reporting for investments in equity securities that
have readily determinable fair values and all investments in debt securities.
SFAS No. 115 requires that the Company classify debt and equity securities into
one of three categories: held-to-maturity, available-for-sale, or trading. This
security classification may be modified after acquisition only under certain
specified conditions. In general, securities may be classified as
held-to-maturity only if the Company has the positive intent and ability to hold
them to maturity. Trading securities are defined as those bought and held
principally for the purpose of selling them in the near term. All other
securities must be classified as available-for-sale. In terms of how the Company
accounts for and reports these securities, refer to the table below:
Security Classification Accounting and Reporting Treatment
- --------------------------------------------------------------------------------
Held-to-maturity These securities are measured at amortized cost
on the balance sheet. Unrealized holding gains
and losses are not included in earnings or in a
separate component of capital. They are merely
disclosed in the notes to the financial
statements.
Available-for-sale These securities are carried at fair value on
the balance sheet. Unrealized holding gains and
losses are not included in earnings, but are
reported as a net amount (less expected tax) in
a separate component of capital until realized.
Trading Trading securities are carried at fair value on
the balance sheet. Unrealized holding gains and
losses for trading securities are included in
earnings. As the Company had no trading
securities as of December 31, 1993 there was no
impact to the Company's earnings upon the
adoption of the Statement.
Loans
Loans are stated at their principal amount outstanding and are net of
unearned income on discounted loans. Interest on nondiscounted loans is
recognized on the simple interest method based upon the principal amount
outstanding except for those loans in a nonaccrual status. Loans are placed in a
nonaccrual status when a loan is past due greater than ninety days or the
payment of principal or interest is considered to be in doubt. Payments received
on nonaccrual and impaired loans are first applied to the remaining principal
balance and are next applied to interest income.
Loan origination and commitment fees and certain direct loan origination
costs are deferred and the net amount amortized as adjustments of the related
loan's yield. These amounts are being amortized over the contractual life of the
related loans. Upon sale of loans in the secondary market, the related deferred
fees or costs are recorded in income. Commitment fees based on a percentage of a
customer's unused line of credit and fees related to standby letters of credit
are recognized over the commitment period.
Allowance for Possible Loan Losses
The allowance for possible losses on loans is established through charges
against income and is maintained at a level considered adequate to provide for
probable loan losses based on management's evaluation of known and inherent
risks in the loan portfolio. When a loan or a portion of a loan is considered
uncollectible, it is charged-off against the allowance. Recoveries of loans
previously charged-off are credited to the allowance when received.
Management's evaluation of the allowance is based on a continuing review of
the loan portfolio which includes many factors, such as utilization of an
individual loan rating system to assess trends in asset quality; identification
and review of individual problem situations which may affect the borrower's
ability to repay; review of overall portfolio quality through analytical review
of current charge-offs, delinquency and nonperforming loan data; review of
regulatory authority examinations and evaluation of loans; an assessment of
current economic conditions; and changes in the size and character of the loan
portfolio. These reviews are dependent upon estimates, appraisals and judgments
which can change quickly because of changing economic conditions and
management's perception as to how these factors affect the financial condition
of debtors.
As of January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan", as amended by SFAS No. 118. The Statement requires that impaired loans be
measured on a loan by loan basis by either the present value of expected future
cash flows discounted at the loan's effective interest rate, the loan's
observable market price, or the fair value of the collateral if the loan is
collateral dependent.
The Statement is applicable to all loans, except large groups of smaller
balance homogeneous loans that are collectively evaluated for impairment, loans
that are measured at fair value or at the lower of cost or fair value, lease,
convertible or non-convertible debentures and bonds and other debt securities.
The financial statement impact of adopting the provisions of this Statement
was not material.
<PAGE>
F-7
Mortgages Held-For-Sale
Mortgages held-for-sale are carried at the lower of aggregate cost or fair
value.
Other Real Estate Owned
Other real estate owned consists of properties acquired through mortgage
loan foreclosure proceedings. These properties are recorded at the lower of the
carrying value of the related loans or the estimated fair market value less
estimated selling costs. Charges to the allowance for loan losses are the
measure by which properties are reduced to fair market value less estimated
selling costs upon reclassification as other real estate owned. Subsequent
reductions in carrying value are charged to operating income.
Beginning in 1995, in accordance with Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan", the
Company classifies loans as in-substance repossessed or foreclosed if the
Company receives physical possession of the debtor's assets regardless of
whether formal foreclosure proceedings take place.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line method over the following
estimated useful lives: building, 30 years; furniture, fixtures and equipment,
3-10 years. Leasehold improvements are amortized over the shorter of the
estimated useful life or the life of the lease.
Income Taxes
The Company recognizes income taxes under the asset and liability method.
Under this method, deferred tax assets and liabilities are established for the
temporary differences between the accounting basis and the tax basis of the
Company's assets and liabilities at enacted tax rates expected to be in effect
when the amounts related to such temporary differences are realized or settled.
The adoption of this method as of January 1, 1993 resulted in the recognition of
an additional deferred income tax asset of $227,800 which has been reported in
1993 income as the cumulative effect of an accounting change. As a matter of
practice, it is the Company's policy is to continually evaluate the
realizability of any deferred tax assets resulting from the use of the asset and
liability method.
Earnings Per Share
Earnings per share have been computed based on the weighted average number
of shares outstanding after giving retroactive effect to stock splits and stock
dividends. Shares issuable upon the exercise of stock option grants have not
been included in the per share computation because they would not have a
material effect on earnings per share.
Cash Flows
For the purpose of reporting cash flows, the Company has defined cash
equivalents as those amounts included in cash and due from banks, interest
bearing demand deposits and federal funds sold.
Fair Values of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," (SFAS No. 107) requires disclosure of
estimated fair values of financial instruments. A financial instrument is
defined as cash, evidence of an ownership interest in an entity, or a contract
that conveys or imposes the contractual right or obligation to receive or
deliver cash or another financial instrument. Fair value is defined as the
amount at which a financial instrument can be exchanged in a current exchange
between willing parties, other than in a forced sale or liquidation, and is best
evidenced by a quoted market price, if one exists.
The Company has estimated fair value based on quoted market prices where
available. In cases where quoted market prices were not available, fair value is
based on estimates using the present value of expected future cash flows and
certain other techniques. These techniques are based on certain assumptions
which are subjective and judgmental in nature. Accordingly, the results may not
be substantiated by comparison with independent market prices and, in some
cases, cannot be realized in immediate settlement of the financial instrument.
Furthermore, SFAS No. 107 excludes certain financial instruments and all
non-financial instruments from its disclosure requirements. Accordingly, the
fair values disclosed should not be interpreted as the aggregate current fair
market value of the Company.
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
Financial Instrument Methods and Assumptions
- --------------------------------------------------------------------------------
Cash and cash equivalents The carrying amounts reported in the balance
sheet for cash and due from banks and federal
funds sold approximate fair value.
Investment securities The fair value of investment securities are
based on prices obtained through brokers and
independent pricing services.
Loans The fair value of loans was estimated for groups
of similar loans based on the type of loan,
interest rate characteristics and maturity. The
fair value of performing commercial, commercial
real estate, installment loans and residential
mortgage loans was estimated by discounting
expected future cash flows using interest rates
currently being offered for loans with similar
terms to borrowers of similar credit quality.
The fair value of nonaccruing loans was
estimated by determining expected future
principal cash flows, adjusted for credit risk.
Deposits The fair value of demand deposits, savings,
money market and NOW deposits and certificates
of deposits having variable interest rates
approximate their carrying value. The fair value
of certificates of deposits with fixed
maturities and interest rates was estimated by
discounting expected future cash flows utilizing
interest rates currently being offered on
deposits with similar characteristics and
maturities.
Short-term borrowings The carrying amounts reported for short-term
borrowings approximate fair value.
NOTE 3 -- INVESTMENT SECURITIES
There were no securities of issuers whose aggregate carrying amount
exceeded 10% of stockholders' equity at December 31, 1995.
Securities having an amortized cost basis of $5,020,000 and $2,694,000 at
December 31, 1995 and 1994, respectively were pledged to secure treasury, tax
and loan deposits and public deposits.
<PAGE>
F-8
NOTE 4 -- INVESTMENTS IN SECURITIES HELD-TO-MATURITY
Investments in securities held-to-maturity at December 31, 1995 are carried
at amortized cost on the balance sheet and are summarized as follows:
(amounts in thousands)
<TABLE>
<CAPTION>
Gross Gross
Amortized Cost Unrealized Unrealized
Basis Holding Gains Holding Losses Fair Value
-------------------------------------------------------------------------------
Debt securities issued by...
<S> <C> <C> <C> <C>
...the U.S. Treasury and other U.S.
government agencies $5,501 $ 71 $12 $5,560
...states of the United States and
political subdivisions of the states 1,565 65 1 1,629
-------------------------------------------------------------------------------
$7,066 $136 $13 $7,189
================================================================================
</TABLE>
Information about the contractual maturities of investments in debt
securities classified as held-to-maturity at December 31, 1995 is summarized as
follows:
(amounts in thousands)
Amortized Cost
Basis Fair Value
--------------------------------------
Due within one year $1,500 $1,503
Due after one year through five years 4,622 4,691
Due after five years through ten years 697 726
Due after ten years 247 269
--------------------------------------
$7,066 $7,189
======================================
Investments in securities held-to-maturity at December 31, 1994 are carried
at amortized cost on the balance sheet and are summarized as follows:
(amounts in thousands)
<TABLE>
<CAPTION>
Gross Gross
Amortized Cost Unrealized Unrealized
Basis Holding Gains Holding Losses Fair Value
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt securities issued by...
...the U.S. Treasury and other U.S.
government agencies $10,886 $ $242 $10,644
...states of the United States and
political subdivisions of the states 856 28 884
---------------------------------------------------------------------------
$11,742 $28 $242 $11,528
===========================================================================
</TABLE>
NOTE 5 -- INVESTMENTS IN SECURITIES AVAILABLE-FOR-SALE
Investments in available-for-sale securities at December 31, 1995 are
carried at fair value on the balance sheet and are summarized as follows:
(amounts in thousands)
<TABLE>
<CAPTION>
Gross Gross
Amortized Cost Unrealized Unrealized
Basis Holding Gains Holding Losses Fair Value
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Marketable equity securities $15,115 $93 $7 $15,201
Debt securities issued by...
...the U.S. Treasury and other U.S. government
agencies 38,483 275 203 38,555
...states of the United States and political subdivisions
of the states 251 251
Corporate debt securities 9,688 8 28 9,668
Mortgage-backed securities 11,256 159 27 11,388
------------------------------------------------------------------
$74,793 $535 $265 $75,063
==================================================================
Information about the contractual maturities of investments in debt
securities classified as available-for-sale at December 31, 1995 is summarized
as follows:
</TABLE>
<TABLE>
<CAPTION>
(amounts in thousands) Amortized Cost Basis Fair Value
--------------------------------------------
Debt securities other than mortgage-backed securities:
<S> <C> <C>
Due within one year $11,540 $11,534
Due after one year through five years 32,435 32,418
Due after five years through ten years 4,447 4,522
Mortgage-backed securities 11,256 11,388
--------------------------------------------
$59,678 $59,862
============================================
</TABLE>
<PAGE>
F-9
During 1995, proceeds from sales of available-for-sale securities amounted
to $4,535,000. Gross realized gains and gross realized losses on those sales
amounted to $36,000 and $17,000, respectively. During 1994, proceeds from sales
of available-for-sale securities amounted to $7,301,000. Gross realized gains
and gross realized losses on those sales amounted to $63,000 and $63,000,
respectively. During 1993, proceeds from sales of securities amounted to
$3,578,000. Gross realized gains and gross realized losses on those sales
amounted to $181,000 and $4,000, respectively.
Investments in available-for-sale securities at December 31, 1994 are
carried at fair value on the balance sheet and are summarized as follows:
<TABLE>
<CAPTION>
(amounts in thousands)
Gross Gross
Amortized Cost Unrealized Unrealized
Basis Holding Gains Holding Losses Fair Value
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Marketable equity securities $2,120 $18 $8 $2,130
Debt securities issued by the U.S. Treasury and other
U.S. government agencies 22,977 1 998 21,980
Debt securities issued by foreign governments 5 5
Corporate debt securities 3,361 85 3,276
Mortgage-backed securities 9,045 12 383 8,674
-------------------------------------------------------------------
$37,508 $31 $1,474 $36,065
===================================================================
</TABLE>
NOTE 6 -- LOANS
<TABLE>
<CAPTION>
(amounts in thousands)
Loans consisted of the following at December 31, 1995 1994
----------------------------------
<S> <C> <C>
Commercial and financial; less unearned income of $266 and
$70 in 1995 and 1994, respectively $35,808 $27,033
Real estate construction 12,942 1,883
Real estate mortgage; less unearned income of $365 and
$268 in 1995 and 1994, respectively 165,904 91,245
Installment; less unearned income of $24 and
$38 in 1995 and 1994, respectively 5,415 12,298
Other 2,166 165
----------------------------------
$222,235 $132,624
==================================
</TABLE>
Most of the Company's business activity is with customers located within
the state. There are no concentrations of credit to borrowers that have similar
economic characteristics. The majority of the Company's loan portfolio is
comprised of loans collateralized by real estate located in the State of
Connecticut.
Nonaccrual Loans and Allowance for Possible Loan Losses
At December 31, 1995 and 1994 nonaccrual loans totaled $4,725,000 and
$2,975,000, respectively. Interest income related to nonaccrual loans not
reflected in the accompanying financial statements amounted to approximately
$120,000 in 1995, $194,000 in 1994 and approximately $193,000 in 1993.
Additionally, loans in excess of ninety days past their contractual due dates
and still accruing interest at December 31, 1995 and 1994 amounted to
approximately $273,000 and $16,000, respectively.
Changes in the allowance for possible loan losses for the years ended December
31 were as follows:
(amounts in thousands)
1995 1994 1993
---- ---- ----
Balance, beginning of year $2,564 $2,784 $3,197
Changes incident to merger, net 1,961
Provision charged to operations 700 530 764
Recoveries on loans previously charged-off 199 251 50
Loans charged-off (978) (1,001) (1,227)
----- ------- -------
Balance, end of year $4,446 $2,564 $2,784
====== ====== ======
Loans to Officers and Directors
Loans to officers, directors, principal shareholders and their associates
of the Company aggregated $6,971,000 at December 31, 1995 as compared to
$3,337,000 at December 31, 1994. The following table summarizes the related
party loan activity for the year ended December 31, 1995:
(amounts in thousands)
Balance, beginning of year $3,337
Changes incident to merger 2,908
Additions 3,361
Repayments/sales 2,635
-----
Balance, end of year $6,971
======
As of December 31, 1995, information about loans that meet the definition of an
impaired loan in Statement of Financial Accounting Standards No. 114 is as
follows:
(amounts in thousands)
<TABLE>
<CAPTION>
Recorded Related
Allowance Investment
In Impaired for Credit
Loans Losses
----- ------
<S> <C> <C>
Loans for which there is a related allowance for credit losses $2,267 $634
Loans for which there is no related allowance for credit losses 869
---
Totals $3,136 $634
====== ====
Average recorded investment in impaired loans during the year
ended December 31, 1995 $ 870
======
Related amount of interest income recognized during the time, in the
year ended December 31, 1995, that the loans were impaired
Total recognized $1
==
Amount recognized using a cash-basis method of accounting $0
==
</TABLE>
<PAGE>
F-10
NOTE 7 -- PREMISES AND EQUIPMENT
Premises and equipment at December 31, comprised the following:
(amounts in thousands)
1995 1994
---- ----
Land $1,035 $1,035
Premises 5,877 4,906
Furniture and equipment 3,042 2,537
Leasehold improvements 646 302
--- ---
10,600 8,780
Accumulated depreciation and amortization (3,640) (3,173)
------- -------
$6,960 $5,607
======= =======
Provisions for depreciation and amortization on premises and equipment were
$467,000, $397,000, and $372,000 for the years ended December 31, 1995, 1994 and
1993, respectively.
Noncancelable Leases
The Company and its subsidiaries occupy certain premises and are provided
equipment under noncancelable leases that are accounted for as operating leases
and that have expiration dates through 2011. These leases are renewable for
either three or five-year terms at the Company's option. Certain of the leases
contain escalation clauses for additional rentals based upon increases in local
property taxes and inflationary measures. Rental expense under these leases
aggregated $197,000 in 1995, $188,000 in 1994 and $224,000 in 1993 and is
recorded in occupancy expenses.
The aggregate minimum rental commitments under all leases at December 31,
1995 are $2,399,000 as indicated below:
(amounts in thousands)
In Year... ...the minimum commitment is...
---------- -------------------------------
1996; $ 326
1997; 263
1998; 270
1999; 270
2000; 243
and subsequent years, 1,027
-----
Total $2,399
======
The Equity Bank leases its premises from one of its directors. The lease
expires in 2004, with two five year renewal options.
NOTE 8 -- DEPOSITS
As of December 31, 1995 and 1994, outstanding certificates of deposit of
$100,000 or more were $19,222,000 and $8,559,000, respectively. Interest expense
incurred on such deposits was $1,076,000, $278,000 and $469,000 for the years
ended December 31, 1995, 1994 and 1993, respectively. NOW accounts totaled
$29,527,000 and $23,836,000 as of December 31, 1995 and 1994, respectively.
Interest expense incurred on NOW accounts was $266,000, $307,000 and $567,000
for the years ended December 31, 1995, 1994 and 1993, respectively.
NOTE 9 -- SHAREHOLDERS' EQUITY
Common Stock
The Company is authorized to issue 10,000,000 shares of common stock, $0.10
par value.
In 1994 an offering of shares of common stock of the Company resulted in
the sale of 778,260 shares. These shares were purchased at the fair market value
which was determined at the time to be $8.00. The offering resulted in
additional capital of $5,570,574 after deducting expenses associated with the
offering.
On November 30, 1995, the Company acquired The Equity Bank which resulted
in the issuance of 1,003,617 shares of its common stock in exchange for all of
the outstanding common shares (less 69,486 shares not exchanged by dissenting
shareholders).
Serial Preferred Stock
The Company is authorized to issue 200,000 shares of serial preferred stock
in one or more series and to fix the number of shares of each series and to
determine the rights and privileges of the shares of each series. At December
31, 1995, no such shares have been issued.
Common Stock Options
During 1993 the Board of Directors of the Company voted to grant stock
options to two executive officers to purchase 34,000 shares of common stock at
$5.00 per share expiring on September 1, 1996. The granting of these options was
approved by shareholders on April 12, 1994. In January 1995, the Board of
Directors of the Company voted to grant stock options to three executive
officers to purchase 30,000 shares of common stock at $7.75 per share after
January 24, 1996 and prior to January 24, 1998. The granting of these options
was approved by shareholders on May 16, 1995. The following table reflects this
activity:
Number of Options
-----------------
1995 1994 1993
------ ------ ------
Outstanding, beginning of year 34,000 34,000 0
Granted 30,000 34,000
------ ------ ------
Outstanding, end of year 64,000 34,000 34,000
====== ====== ======
Exercisable, end of year 34,000 34,000 34,000
====== ====== ======
Aggregate Option Price
----------------------
1995 1994 1993
-------- -------- --------
Outstanding, beginning of year $170,000 $170,000 $0
Granted 232,500 170,000
------- -------
Outstanding, end of year $402,500 $170,000 $170,000
======== ======== ========
NOTE 10 -- EMPLOYEE BENEFITS
The Company and its subsidiaries maintain defined contribution plans for
substantially all of its full-time employees. The contributions under the plans
were $227,000, $86,000 and $131,000, for the years ended December 31, 1995, 1994
and 1993, respectively.
<PAGE>
F-11
NOTE 11 -- INCOME TAXES
As discussed in Note 2, effective January 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes".
The components of income tax provision are as follows:
(amounts in thousands)
Years ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
Current:
Federal $706 $112 (170)
State 270 45 8
---- ---- ----
976 157 (162)
---- ---- ----
Deferred:
Federal 145 387 206
State 50 157 12
---- ---- --
195 544 218
---- ---- ----
Change in valuation allowance (186) (36)
---- ---- ----
Total income tax provision $985 $665 $ 56
==== ==== ====
The following reconciles the income tax provision from the statutory rate
to the amount reported in the consolidated statements of income:
(amounts in thousands)
<TABLE>
<CAPTION>
Years ended December 31, % of % of % of
1995 Income 1994 Income 1993 Income
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal income tax at statutory rate $1,008 34.0% $601 34.0% $81 34.0%
Increase (decrease) in tax resulting from:
Tax-exempt income (19) (.6) (14) (.8) (21) (8.7)
Surtax exemption (11) (4.9)
Dividends received deduction (49) (1.7) (15) (.8) (22) (9.3)
Alternative minimum tax (12) (.7) 12 5.0
Unallowable expenses 21 .7 7 .4 4 1.9
Change in valuation allowance (187) (6.3) (36) (2.0)
State tax, net of federal tax benefit 211 7.1 134 7.5 13 5.6
------ --- ---- ----- --- ----
$ 985 33.2% $665 37.6% $56 23.6%
====== ===== ==== ===== === =====
</TABLE>
The major components of deferred income tax expense attributable to income
are as follows:
(amounts in thousands)
Years ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
Other real estate valuation $118 $131 $146
Contribution carryover 5 3 (7)
Fair value of loans available for sale (14) 14
Accrued expenses (104)
Other temporary differences 5 43
Alternative minimum tax credit (12) (48)
Operating loss carryover-state 4 (4)
Deferred loan fees 35 37 (60)
Provision for loan losses 97 380 174
Accelerated depreciation 9 12 3
Accrued interest nonperforming loans 30 (40)
---- ---- ----
$195 $544 $218
==== ==== ====
At December 31, the Company had gross deferred tax assets and gross
deferred tax liabilities as follows:
(amounts in thousands)
1995 1994
- --------------------------------------------------------------------------------
Deferred tax assets:
Accrued interest nonperforming loans $ 118 $80
Accrued expenses 103
Allowance for loan losses 876 475
Loan origination fees 242 219
Depreciation 95 98
Contribution carryover 33
Other real estate owned valuation 192 115
Net unrealized holding loss on available-for-sale securities 600
------ ------
Gross deferred tax asset 1,626 1,620
Valuation allowance (684) (871)
------ ------
942 749
Deferred tax liabilities: ------ ------
Other adjustments (22) (4)
Net unrealized holding gain on available-for-sale securities (112)
------ ------
Gross deferred tax liability (134) (4)
------ ------
Net deferred tax asset $ 808 $ 745
====== ======
At December 31, 1995, the Company had no operating loss carryovers for tax
purposes.
The deferred tax assets, liabilities and valuation allowance at December
31, 1994 have been adjusted to reflect the results of an examination of the
Company's federal income tax returns of prior years by the Internal Revenue
Service.
The net deferred tax asset at December 31, 1995 includes approximately
$783,000 from the merger with The Equity Bank as of November 30, 1995.
<PAGE>
F-12
NOTE 12 -- CONDENSED FINANCIAL INFORMATION OF NEW ENGLAND COMMUNITY BANCORP,
INC.
The condensed balance sheets of New England Community Bancorp, Inc. (parent
company only) as of December 31, 1995 and 1994 and statements of income and cash
flows for each of the three years in the period ended December 31, 1995 follow:
<TABLE>
<CAPTION>
(amounts in thousands) 1995 1994
---- ----
Balance Sheets
Assets:
<S> <C> <C>
Investment in bank subsidiaries, at equity in net assets $25,510 $12,959
Investments 4,919 5,500
Cash 58 122
Other assets 1,010
------- -------
$31,497 $18,581
======= =======
Other liabilities $1,017 $108
Shareholders' equity 30,480 18,473
------- -------
$31,497 $18,581
======= =======
</TABLE>
<TABLE>
<CAPTION>
Statements of Income
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Equity in undistributed net income of bank subsidiaries $2,027 $1,097 $409
Interest income 293 16
Income tax benefit (expense) 33 (4)
Other expense (373) (6)
------ ------ ----
Net income $1,980 $1,103 $409
====== ====== ====
Statements of Cash Flows
Operating activities:
Net income $1,980 $1,103 $409
Adjustments to reconcile net income
to net cash provided by (used for) operating activities:
Equity in undistributed net income of bank subsidiaries (2,027) (1,097) (409)
Net change in other liabilities 355
Net change in other assets (450)
(Decrease) increase in taxes payable (101) 4
------ ------ ----
Net cash provided by (used for) operating activities (243) 10
------ ------ ----
Investing activities:
Purchases of investment securities (235) (5,500)
Sales of investment securities 850
------ ------ ----
Net cash provided by (used for) investing activities 615 (5,500)
------ ------ ----
Financing activities:
Net proceeds from issuance of common stock 5,571
Dividends paid (415)
Cash paid in lieu of fractional shares in the merger of
The Equity Bank (3)
Costs of registering and issuing shares for the merger
of The Equity Bank (18)
------ ------ ----
Net cash provided by (used for) financing activities (436) 5,571
------ ------ ----
Increase (decrease) in cash (64) 81
Cash, beginning of year 122 41 41
------ ------ ----
Cash, end of year $ 58 $ 122 $ 41
====== ====== ====
</TABLE>
NOTE 13 -- FINANCIAL INSTRUMENTS
The Company is party to financial instruments with off-balance-sheet risk
to satisfy the financing needs of its borrowers. These financial instruments
include commitments to extend credit and standby letters of credit and financial
guarantees. The Company does not anticipate any material losses as a result of
these transactions.
Commitments to extend credit are agreements to lend to a borrower as long
as there is not a violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitments do not necessarily
represent future cash requirements. The Company evaluates each borrower's
creditworthiness on a case-by-case basis using the same credit policies as for
on-balance-sheet financial instruments. The amount of collateral obtained, if
deemed necessary upon extension of credit, is based on Management's credit
evaluation of the counterpart. Collateral held varies but may include real
estate, accounts receivable, inventory, property, plant and equipment and
income-producing property.
Standby letters of credit and financial guarantees are conditional
commitments issued by the Company's subsidiaries to guarantee the performance of
a borrower to a third party. The evaluations of creditworthiness, consideration
of need for collateral and credit risk involved in issuing letters of credit are
essentially the same as that involved in extending loans to borrowers.
Of the total standby letters of credit outstanding at December 31, 1995,
$361,000 are secured by deposit accounts held with the Company's subsidiaries.
The estimated fair values of the Company's financial instruments, all of
which are held or issued for purposes other than trading, were as follows at
December 31:
<TABLE>
<CAPTION>
1995 1994
---- ----
(amounts in thousands) Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
Financial assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $23,625 $23,625 $27,716 $27,716
Securities available-for-sale 75,063 75,063 36,065 36,065
Securities held-to-maturity 7,066 7,189 11,742 11,528
Federal Home Loan Bank stock 1,176 1,176 810 810
Loans 217,789 218,516 130,060 129,037
Accrued interest receivable 2,538 2,538 1,502 1,502
Interest-bearing time deposits with other banks 3,000 3,000 99 99
Mortgages held-for-sale 788 788 - -
<PAGE>
F-13
Financial liabilities:
Deposits 307,161 308,164 196,872 197,075
Short-term borrowings 540 540 800 800
</TABLE>
The carrying amounts of financial instruments in the above table are
included in the consolidated balance sheets under the individual captions.
Off-balance-sheet liabilities:
1995 1994
---- ----
Notional Notional
Amount Amount
------ ------
Commitments to extend credit $44,753 $20,511
Standby letters of credit and financial guaranties 1,715 754
There is no material difference between the notional amount and the
estimated fair value of loan commitments and unadvanced portions of loans. The
fair value of letters of credit approximates the notional value.
NOTE 14 -- MERGER
On November 30, 1995, the Company merged with The Equity Bank by issuing
1,003,617 shares of the Company's common stock in exchange for all of the
outstanding common shares (less 69,486 shares not exchanged by dissenting
shareholders) of The Equity Bank. The value of the Company's shares of common
stock issued to effect the merger and the direct costs of the merger was
$9,507,000.
The merger has been accounted for as a purchase, and the results of
operations for The Equity Bank since the date of the merger are included in the
consolidated financial statements. Goodwill reflected by purchase accounting
amounted to $402,000 and is being amortized over fourteen (14) years. The
estimated amount due to dissenting shareholders of The Equity Bank is $1,221,216
and is reflected in other liabilities in the consolidated balance sheet of the
Company as of December 31, 1995. The dissenting shareholders have exercised
their rights to submit the value of their shares to arbitration. The arbitration
award could result in a different liability.
The following summary, prepared on an unaudited pro forma basis, combines
the consolidated results of operations as if The Equity Bank had been merged as
of the beginning of the periods presented and includes purchase accounting
adjustments (amounts in thousands).
1995 1994
---- ----
Net interest income after provision for loan losses $14,612 $12,877
Noninterest income 1,990 2,002
----- -----
Total 16,602 14,879
Noninterest expense 11,682 11,346
------ ------
Income before income taxes 4,920 3,533
Income taxes 1,829 1,441
----- -----
Net Income $3,091 $2,092
====== ======
The pro forma results are not necessarily indicative of what actually would
have occurred if the merger had been in effect for the entire periods presented.
In addition, they are not intended to be a projection of future results and do
not reflect any synergies that might be achieved from combined operations.
NOTE 15 -- REGULATORY MATTERS
Agreement with Regulators
In July 1992, the Federal Deposit Insurance Corporation ("FDIC") conducted
a routine periodic examination of the New England Bank. To address certain
concerns of the FDIC resulting from the examination, on February 22, 1993 the
Bank agreed to consent to the FDIC's issuing to the Bank an order to cease and
desist (the "Order") which became effective on March 4, 1993. Management took
swift action to comply with all provisions of the Order--which was subsequently
removed by the FDIC on April 14, 1994.
Restrictions on Dividends
The Company's principal assets are its investments in its bank
subsidiaries. As such, the Company's ability to pay dividends to its
shareholders is largely dependent on the ability of the Banks to pay dividends
to the Company. The declaration of cash dividends is dependent on a number of
factors, including regulatory limitations, and the Banks' operating results and
financial conditions. The Stockholders of the Company will be entitled to
dividends only when, and if, declared by the Company's Board of Directors out of
funds legally available therefore. The declaration of future dividends will be
subject to favorable operating results, financial conditions, tax considerations
and other factors. The Federal Deposit Insurance Corporation regulations require
banks to maintain certain capital ratios as noted below which may otherwise
restrict the ability of the Banks to pay dividends to the Company.
Minimum Capital Requirements
Bank regulators have established Risk-Based and Leverage Capital
requirements that establish the minimum level of capital. Under the
requirements, a minimum level of capital will vary among banks based on safety
and soundness of operations. Along with the regulatory minimums, the table below
reflects actual Risk-Based and Leverage Capital ratios for the Company and its
subsidiaries at December 31, 1995:
Minimum Level The Equity New England New England
Bank Bank Community Bancorp
- --------------------------------------------------------------------------------
Leverage 4% 8.22% 7.34% 11.89%
Tier 1 Risk-Based 4% 10.13% 10.42% 12.25%
Total Risk-Based 8% 11.38% 11.67% 13.49%
Under Federal Reserve regulation, the Company's subsidiaries are limited as
to the amount they may lend or advance to the Company, unless such loans and
advances are collateralized by specific obligations. No advances were made to
the Company by either subsidiary at December 31, 1995 or 1994.
NOTE 16 -- BUSINESS COMBINATION AGREEMENT
In an agreement dated December 19, 1995, the Company and Manchester State
Bank agreed to consummate a business combination transaction in which Manchester
State Bank will merge with and into New England Bank & Trust Company. The
agreement is subject to the approval of regulators and the shareholders of
Manchester State Bank.
NOTE 17 -- RECLASSIFICATION
Certain amounts in the prior years have been reclassified to be consistent
with the current year's statement presentation.
<PAGE>
-41-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the two most recent fiscal years, NECB has had no changes in or
disagreements with its independent accountants on accounting and financial
disclosure matters.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
MANAGEMENT OF NECB
DIRECTORS AND EXECUTIVE OFFICERS
OF NECB
The following table sets forth the name and age of each Director and
Executive Officer, his/her principal occupation for the last five years and the
year in which he/she was first elected as a Director or appointed an Executive
Officer of NECB, NEBT or EQBK.
Positions Director or
and Principal Executive Officer
Age Occupation (1) Of NECB Since:
--- -------------- --------------
Tadeus J. Buczkowski (69) Loss Control 1986
Director (Retired)
Hartford Insurance
Group
John C. Carmon (48) President, Carmon 1985
Funeral Homes, Inc.
John A. Coccomo, Sr. (69) Secretary of NECB; 1985
Manager John A.
Coccomo Associates, LLC
(Real Estate,
Construction and
Land Development)
George A. Colli, Jr. (67) Assistant Secretary 1986
of NECB;
President, Colli-
Wagner (Real Estate)
<PAGE>
-42-
Positions Director or
and Principal Executive Officer
Age Occupation (1) Of NECB Since:
--- -------------- --------------
Gary J. DeNino (41) President of IMSCO, 1995
Inc., a domestic market
representative of
international products
since 1982
Frank A. Falvo (53) Executive Vice 1995
President of NECB
since December, 1995
and President and Chief
Executive Officer of
EQBK since
its formation
Dominic J. Ferraina (63) Chairman of the 1986
Boards of NECB and
NEBT; Attorney
Donat A. Fournier (47) Vice President, 1993
Senior Lending
Officer of NECB;
Executive Vice
President of NEBT(2)
Charles D. Gersten (72) Attorney and founding 1995
partner of Gersten &
Clifford
John R. Harvey (48) Certified Public 1995
Accountant and
Partner in Harvey
& Horowitz, P.C.
Anson C. Hall (58) Vice President, 1993
Chief Financial
Officer and
Treasurer of NECB and
Senior Vice President
of NEBT(3)
<PAGE>
-43-
Positions Director or
and Principal Executive Officer
Age Occupation (1) Of NECB Since:
--- -------------- --------------
David A. Lentini (49) President and 1993
Chief Executive
Officer of NECB
and NEBT(4)
Angelina J. McGillivray (45) President, 1993
Coccomo Associates
Realtors, Inc.
Edward J. Szewczyk (66) President, 1985
Southwood
Pharmacy, Inc.
1. All the Directors and Executive Officers have been engaged in their
respective occupations for more than five years unless otherwise indicated.
2. In June, 1993, the Board of Directors appointed Mr. Donat A. Fournier to
serve as Executive Vice President and Chief Lending Officer of NEBT. NEBT
entered into an employment agreement with Mr. Fournier in August of 1994,
for a period of two years. Prior to his appointment by the Board of
Directors, Mr. Fournier served as Chief Operations Officer, Senior
Executive Vice President and Corporate Secretary of Eastland Financial
Corporation in Woonsocket, Rhode Island. Mr. Fournier does not serve as a
director of NECB.
3. In June, 1993, the Board of Directors appointed Mr. Anson C. Hall to serve
as Treasurer of NECB and as Senior Vice President and Chief Financial
Officer of NEBT. NEBT entered into an employment agreement with Mr. Hall in
August of 1994, for a period of two years. Between August 1992 and June
1993, Mr. Hall owned and operated a business, Bestway Management, a
management consulting firm serving small banks and businesses. Prior to
that time, Mr. Hall served as Senior Vice President, Treasurer and
Controller of Fleet Bank, N.A., Hartford, Connecticut until 1992. Mr. Hall
does not serve as a director of NECB.
4. Mr. Lentini was appointed to serve as President and Chief Executive Officer
of NEBT and NECB in May, 1993. NEBT entered into an employment agreement
with Mr. Lentini in August of 1994, for a term of two years. Prior to
joining NEBT and NECB, Mr. Lentini served as President and Chief Executive
Officer of the Connecticut Bank of Commerce, Woodbridge, Connecticut from
September, 1992 through May, 1993. Mr. Lentini was employed by the Bank of
South Windsor as President and Chief Executive Officer from December, 1987
until September, 1992.
COMPLIANCE WITH FILINGS PURSUANT TO SECTION 16(a) OF THE SECURITIES AND EXCHANGE
ACT
Section 16(a) of the Securities Exchange Act of 1934 requires NECB's
Directors, Executive Officers, and persons who own more than 10% of NECB's
Common Stock, to file with the Securities and Exchange Commission (the "SEC")
and the NASDAQ National Market System reports of ownership and changes in
ownership of Common Stock of NECB. Executive Officers, Directors and greater
than 10% shareholders are required by regulations of the SEC to furnish NECB
with copies of all Section 16(a) forms they file.
<PAGE>
-44-
Based solely on review of the copies of such reports furnished to NECB or
written representations that no other reports were required, NECB believes that,
during the 1995 fiscal year, all filing requirements applicable to its Executive
Officers, Directors and greater than 10% beneficial owners were complied with
except that Mr. Colli filed one late report disclosing one transaction.
ITEM 11. EXECUTIVE COMPENSATION
The following table provides certain information regarding the compensation
paid to the Executive Officers (the "Executive Officers") of NECB for services
rendered in capacities to NECB and NEBT during the fiscal years ended December
31, 1995, 1994 and 1993. All compensation, was paid by NEBT. No other current
executive officer of NECB received cash compensation in excess of $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPEMNSATION TABLE
Long Term Compensation
- ------------------------------------------------------------------------------------------------------------------------
Annual Compensation Awards Payouts
Restricted
Other Annual Stock Options/
Name and Principal Compensation Award(s) SARs LTIP All Other
Position Year Salary($) Bonus($) ($) ($) (#) Payouts($) Compensation($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
David A. Lentini 1995 $140,000(1) $13,500 15,000 $22,837(2)
President, Chief 1994 135,000(1) 20,000 17,647(4)
Executive Officer 1993 83,082(3) 6,055(5)
of NECB;
President, Chief
Executive Officer
of NEBT
Donat A. Fournier 1995 $ 95,000(6) $10,500 10,000 $17,138(7)
Vice President, 1994 93,484(6) 14,000 8,062
Senior Lending 1993 58,876(8) 357
Officer of NECB;
Executive Vice President
of NEBT
Frank A. Falvo 1995 $125,000(9) $12,325
Executive Vice
President of
NECB; President
and Chief Executive
Officer of EQBK
Barry R. Loucks 1993 $209,990(10) $12,085(11)
Former Chairman,
President, Chief
Executive Officer
of NECB;
Former Chairman
and Chief Executive
Officer of
NEBT
Raymond G. Halsted 1993 $105,721(12) $12,603(13)
Former Senior Vice
President of
NECB; Former
President of NEBT
</TABLE>
<PAGE>
-45-
- --------------------------------------------------------------------------------
1. NEBT entered into an employment agreement with Mr. Lentini in August of
1994 for a term of two (2) years with automatic renewal provisions. See
"Employment Agreements."
2. NEBT provides Mr. Lentini with the use of an automobile and the typical
costs associated therewith. The total dollar value of this benefit amounted
to $2,116 in 1995. Pursuant to his Employment Agreement, NEBT paid $6,100
which is the dollar value of disability insurance premiums paid for the
benefit of Mr. Lentini. Additionally, NEBT contributed $9,000 to NEBT's
Defined Contribution Pension Plan for the benefit of Mr. Lentini.
3. Mr. Lentini joined NEBT in May, 1993.
4. NEBT provided Mr. Lentini with the use of an automobile and the typical
costs associated therewith. The total dollar value of this benefit amounted
to $2,116 in 1994. Pursuant to his employment agreement, NEBT paid $5,959
which is the dollar value of disability insurance premiums paid for the
benefit of Mr. Lentini. NEBT paid $870 which is the dollar value of group
life insurance and $423 which is the dollar value of insurance premiums
paid by NEBT with respect to term life insurance for the benefit of Mr.
Lentini. Additionally, NEBT contributed $8,279 to NEBT's Defined
Contribution Pension Plan for the benefit of Mr. Lentini.
5. NEBT provided Mr. Lentini with the use of an automobile and the typical
costs associated therewith. The total dollar value of this benefit amounted
to $1,261 in 1993. Pursuant to his Employment Agreement, NEBT paid $4,362
to Mr. Lentini which represented the amount which NEBT would have
contributed to its Defined Contribution Pension Plan if he was eligible to
participate therein. Additionally, the aggregate amount set forth in the
above table includes $432, which is the dollar value of insurance premiums
paid by NEBT with respect to term life insurance for the benefit of Mr.
Lentini.
6. NEBT entered into an Employment Agreement with Mr. Fournier in August of
1994 for a term of two (2) years with automatic renewal provisions. See
"Employment Agreements."
7. NEBT provides Mr. Fournier with the use of an automobile and the typical
costs associated therewith. The total dollar value of this benefit amounted
to $5,987 in 1995. Additionally, NEBT contributed $6,728 to NEBT's Defined
Contribution Pension Plan for the benefit of Mr. Fournier.
8. Mr. Fournier joined NEBT in May, 1993.
9. EQBK entered into an employment agreement with Mr. Falvo for a term of two
(2) years. See "Employment Agreements."
10. In March 1993, Mr. Loucks resigned from his senior management positions
with NECB and NEBT. He entered into a severance agreement. Under the
agreement with Mr. Loucks, Mr. Loucks received a severance payment of
$139,000 which sum approximated his 1992 compensation. Mr. Loucks received
health, life and disability benefits under NEBT's benefit plans for one
year following his resignation.
11. Pursuant to the Severance Agreement between Mr. Loucks, respectively, Mr.
Loucks received the automobile which he utilized while employed by NECB and
NEBT. The total dollar value of this benefit was $11,338. Additionally, the
aggregate amount set forth in the above table includes $747, which is the
dollar value of insurance premiums paid by NEBT with respect to term life
insurance for the benefit of Mr. Loucks.
12. In March 1993, Mr. Halsted resigned from his senior management position
with NECB and NEBT. He entered into a severance agreement. Under the
agreement, Mr. Halsted received a severance payment of $66,000. Mr. Halsted
received health, life and disability benefits under NEBT's benefit plans
for 32 weeks following his resignation.
13. Pursuant to the Severance Agreement, Mr. Halsted received the automobile
which he utilized while employed by NECB and NEBT. The total dollar value
of the benefit was $11,933. The aggregate amount set forth in the above
table includes $670, the dollar value of insurance premiums paid by NEBT
with respect to term life insurance for the benefit of Mr. Halsted.
PENSION PLAN
A defined contribution pension plan covering all eligible employees of
NECB's subsidiary, NEBT, calls for an annual contribution of 6% of an employee's
annual compensation. Full-time employees of NEBT who are 21 years of age and
have completed six months of continuous service are eligible to participate in
the defined contribution pension plan. Employee's interest in the contributions
under the defined contribution pension plan vest on a schedule of three to seven
years with three years being 20% vested and seven years being 100% vested. The
total contributions made during 1995 amounted to $227,000.
Effective January 1, 1991, EQBK adopted a 401 K plan (the "Plan") for
employees of EQBK. The Plan is intended to comply with the requirements of
Section 401(k) of the Internal Revenue Code and in all material respects with
the Employee Retirement Income Securities Act of 1974 (ERISA).
Employees become eligible to participate in the Plan after one year of
employment. Employees may elect to contribute up to 20% of their monthly
earnings to the Plan. EQBK will contribute to each employee's account 50% of the
amount of the employee's elective contribution up to a maximum of 6% of such
employee's earnings. EQBK has the option at the end of the Plan year (December
31) to make additional contributions to each employee's account of up to a
maximum of the amount of the employee's aggregate elective contribution. The
total contributions made during 1995 amounted to $20,900.
<PAGE>
-46-
Participating employees become fully vested in EQBK's matching contribution
after completing six years of service. All contributions by employees are fully
vested when made. All amounts contributed are invested in a Flexible Investment
Annuity contract with Principal Mutual Life Insurance Company.
INSURANCE
In addition to the cash compensation paid to the Executive Officers of
NECB, NEBT and EQBK the Executive Officers receive group life, health,
hospitalization and medical reimbursement insurance coverage. However, these
plans do not discriminate in scope, terms, or operation, in favor of officers or
Directors of NECB, NEBT and EQBK and are available generally to all full-time
employees.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
With the exception of the individuals set forth in the table below, no
other executive officer of NECB was granted options to purchase shares of common
stock in 1995. All shares purchased upon the exercise of any option must be paid
in full at the time of purchase.
<TABLE>
<CAPTION>
Individual Grants
Number of Percent of
Securities Total Options/ Fair Market
Underlying SARs Granted Exercise of Value on
Option/SARs to Employees Base Price date of Date of Date of Expiration
Name(1) Granted (#) In Fiscal Year (S/sh) Grant Grant(2) Exercise Date
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
David Lentini 15,000 50.0% $7.75 $ 7.50 1/24/95 1/24/96 1/24/98
President and
Chief Executive
Officer, NECB
and NEBT
Donat A. Fournier 10,000 33.3% $7.75 $ 7.50 1/24/95 1/24/96 1/24/98
Executive Vice
President, Chief
Lending Officer,
NEBT
Anson C. Hall 5,000 16.6% $7.75 $ 7.50 1/24/95 1/24/96 1/24/98
Senior Vice
President and Chief
Financial Officer
of NEBT and
Treasurer of NECB
Executive Group 100.0%
</TABLE>
- ----------
1. Table does not include references to grant of stock options by the Board of
Directors to Messrs. Lentini, Fournier, Hall, Falvo and Veilleux because
such options were granted January 31, 1996 subject to shareholder approval
of the 1996 Incentive Non-Qualified Compensatory Stock Option Plan at the
May 21, 1996 Annual Meeting of Shareholders of NECB. At that meeting,
shareholders will vote on a proposal to approve the Board's grant of
options to purchase 40,000 shares of NECB Common Stock to David A. Lentini,
30,000 shares of NECB Common Stock to Donat A. Fournier, 30,000 shares of
NECB Common Stock to Anson C. Hall, 30,000 shares of NECB Common Stock to
Frank A. Falvo and 10,000 shares of NECB Common Stock to Leo Veilleux. The
stock options are exercisable in five (5) equal annual installments
commencing in 1997, at the price of $10.25 per share.
2. The grant of options by the Board of Directors was subject to and received
shareholder approval.
<PAGE>
-47-
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
The table below sets forth information regarding stock options that were
exercised, if any, during the last fiscal year, and unexercised stock options
held by Executive Officers of NECB and NEBT:
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised In-the-Money
Shares Acquired Value Realized Options/SARs Options/SARS
Name On Exercise(#) ($) At Fy-end(#) At Fy-end($)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
David A. Lentini -0- -0- 20,000(1) $105,000
-0- -0- 15,000(2) 37,500
Donat A. Fournier -0- -0- 14,000(1) $ 73,500
-0- -0- 10,000(2) 25,000
Anson C. Hall -0- -0- 5,000(2) $ 12,500
</TABLE>
- ----------
1. As of December 31, 1995, the market value of the NECB Common Stock was
approximately $10.25 per share. As the option exercise price for the
options previously granted to Messrs. Lentini and Fournier in 1993, equals
$5.00 which amount is less than $10.25 per share at December 31, 1995, the
options were "In-the-Money" on December 31, 1995. Options are
"In-the-Money" if the fair market value of the underlying securities
exceeds the exercise price of the Option.
2. The option exercise price for the options granted to Messrs. Lentini,
Fournier and Hall in 1995 equals $7.75, which amount is less than $10.25
per share at December 31, 1995. Accordingly, the options were "In-the
Money" on December 31, 1995.
DIRECTORS' FEES
During 1995, Directors received $100 for each NECB Board Meeting attended
and $75 for each NECB Committee meeting attended. Officers who are also
Directors received no additional compensation for their services as Directors.
EMPLOYMENT AGREEMENTS
NEBT entered into employment agreements with Messrs. Lentini, Fournier and
Hall in August, 1994. A description of the terms and conditions of the
employment agreements with those executive officers whose cash compensation
exceeds $100,000 are set forth below:
Mr. David A. Lentini's Employment Agreement provides for his employment as
President and Chief Executive Officer until July 30, 1997, unless the employment
agreement is extended by mutual agreement. In connection with his employment,
NEBT paid to Mr. Lentini an annual salary of $140,000 per year through December
31, 1995. Additionally, NEBT provides Mr. Lentini with the use of an automobile.
Pursuant to the employment agreement, Mr. Lentini is able to participate in
NEBT's standard health, accidental death. Additionally, NEBT has provided Mr.
Lentini with life insurance coverage on his life in an amount which is no less
than four times his annual base salary.
<PAGE>
-48-
The employment agreement also provides that the Board of Directors of NEBT
may pay an incentive bonus to Mr. Lentini at their own option, and the amount of
such bonus is discretionary and will be determined by the Board of Directors.
The Board of Directors has indicated that it will consider noteworthy
contributions to the success of NECB and success in achieving or exceeding net
income objectives which the Board may from time to time establish or which may
be set forth in financial plans adopted by the Board of Directors.
Mr. Donat A. Fournier's Agreement provides for his employment by NEBT as
its Executive Vice President and Chief Lending Officer until July 30, 1997,
unless the employment agreement is extended by mutual agreement. In connection
with his employment, NEBT paid to Mr. Fournier an annual salary of $95,000 per
year through December 31, 1995. Additionally, NEBT has agreed to supply Mr.
Fournier with the use of an automobile.
Pursuant to the employment agreement, Mr. Fournier is able to participate
in NEBT's standard health, accidental death.
The employment agreement also provides that the Board of Directors of NEBT
may pay an incentive bonus to Mr. Fournier at their own option, and the amount
of such bonus is discretionary and will be determined by the Board of Directors.
The Board of Directors has indicated that it will consider noteworthy
contributions to the success of NECB and success in achieving or exceeding net
income objectives which the Board may from time to time establish or which may
be set forth in financial plans adopted by the Board of Directors.
On September 1, 1989, Frank A. Falvo, President and Chief Executive Officer
of EQBK, signed an employment agreement approved by the Board of Directors which
became effective on March 15, 1990.
The employment agreement was written for a two (2) year term and
automatically renews each year unless written notice is given by either party.
If notice is given, then the agreement will terminate one (1) year later on the
anniversary of the commencement date next following the commencement date
anniversary with respect to which such notice was given. If Mr. Falvo dies
during the employment period, his estate receives all arrearage of salary and
expenses, six months' salary, and a pro rata share of any other accrued
benefits. If Mr. Falvo is terminated for cause, as defined in the employment
agreement, he will receive only his salary and other amounts which have been
earned but are unpaid on the date of termination.
<PAGE>
-49-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table includes certain information as of March 15, 1996
regarding the principal shareholders ("Principal Shareholders") of NECB. With
the exception of the Principal Shareholders listed below, NECB is not aware of
any beneficial owner of five percent (5%) or more of NECB's Common Stock.
Name and Amount of
Address of Shares Beneficially Percentage
Beneficial Owners Owned (1) Of Class
- ----------------- --------- --------
John A. Coccomo, Sr. 184,082 (2) 6.0%
130 West Street
Windsor, CT 06095
John Hancock Advisers, 165,000 (3) 5.3%
Inc.
101 Huntington Avenue
Boston, MA 02119
Angelina J. McGillivray 173,102 (4) 5.6%
195 Ethan Drive
Windsor, CT 06095
- ---------
1. Percentages are based upon the 3,084,309 shares of NECB Common Stock
outstanding on March 15, 1996. The definition of a beneficial owner of a
security includes any person who, directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise has or
shares voting power or investment power with respect to such security.
2. Includes 42,012 shares (1.36%) owned by the John A. Coccomo, Sr.,
Foundation for the Blind, Inc., a charitable trust of which Mr. Coccomo is
a trustee, ownership of which shares has been disclaimed by Mr. Coccomo.
3. Based on filings made pursuant to the Securities Exchange Act of 1934,
which indicate that John Hancock Advisers, Inc. has direct beneficial
ownership of 165,000 shares of Common Stock. Through their
parent-subsidiary relationship to John Hancock Advisers, Inc., John Hancock
Mutual Life Insurance Company, John Hancock Subsidiaries, Inc. and the
Berkeley Financial Group have indirect ownership of the same shares. The
shares are held by the John Hancock Bank & Thrift Opportunity Fund, a
closed-end diversified management company registered under ss.8 of the
Investment Company Act. John Hancock Advisers has the sole power to vote or
to direct the vote and sole power to dispose or to direct the disposition
of the 165,000 shares of the Common Stock under an advisory agreement with
the John Hancock Bank & Thrift Opportunity Fund, dated July 24, 1994.
4. Includes 42,012 shares (1.36%) owned by the John A. Coccomo, Sr.,
Foundation for the Blind, Inc., a charitable trust of which Mrs.
McGillivray is a trustee, ownership of which shares has been disclaimed by
Mrs. McGillivray.
<PAGE>
-50-
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table includes certain information as of March 15, 1996
regarding the Directors and Executive Officers of NECB.
Shares of Common Stock
Beneficially Owned as
Of March 15, 1996 (1)
---------------------
Name
- ----
Tadeus J. Buczkowski...................... 17,788 (0.6%) (2)
John C. Carmon............................ 18,240 (0.6%) (2)
John A. Coccomo, Sr....................... 184,082 (6.0%) (3)(8)
George A. Colli, Jr....................... 58,025 (1.9%) (4)
Gary J. DeNino............................ 38,712 (1.3%) (2)
Frank Falvo............................... 13,034 (0.4%)
Dominic J. Ferraina....................... 17,500 (0.6%) (2)(5)
Donat A. Fournier......................... 28,656 (0.9%) (5)(6)
Charles D. Gersten........................ 100,525 (3.3%) (2)
Anson C. Hall............................. 6,486 (0.2%) (2)(9)
John R. Harvey............................ 13,786 (0.4%) (2)
David A. Lentini.......................... 43,100 (1.4%) (2)(5)(7)
Angelina J. McGillivray................... 173,102 (5.6%) (8)
Edward J. Szewczyk........................ 12,242 (0.4%) (2)
-------
All Directors and Executive Officers
as a Group (14 persons) ................ 688,549 (22.3%) (10)
=======
- ----------
1. Percentages are based upon the 3,084,309 shares of NECB Common Stock
outstanding on March 15, 1996. The definition of beneficial owner includes
any person who, directly or indirectly, through any contract or agreement,
understanding, relationship or otherwise has or shares voting power or
investment power with respect to such security.
2. Includes shares owned by, or as to which voting power is shared with,
spouse, children or controlled business.
3. Includes 42,012 shares of NECB Common Stock (1.36%) owned by the John A.
Coccomo, Sr., Foundation for the Blind, Inc., a charitable trust of which
Mr. Coccomo is a Trustee, ownership of which shares has been disclaimed by
Mr. Coccomo.
4. Does not include 35,280 shares of NECB Common Stock (1.14%) owned by Mr.
Colli's family members, ownership of which shares Mr. Colli has disclaimed.
5. Includes 2,500 shares of NECB Common Stock (0.8%) in the NEBT defined
contribution pension plan over which Messrs. Lentini, Ferraina and Fournier
share voting power as Trustees. Such shares have been included in the
beneficial ownerships of each respective director, and in the total
beneficial ownership of Directors and Executive Officers as a group.
6. Includes options to purchase 14,000 shares of NECB Common Stock at $5.00
per share and options to purchase 10,000 shares of NECB Common Stock at
$7.75 per share exercisable within 60 days.
7. Includes options to purchase 20,000 shares of NECB Common Stock at $5.00
per share and options to purchase 15,000 shares of NECB Common Stock at
$7.75 per share exercisable within 60 days.
8. Includes 42,012 shares of NECB Common Stock (1.36%) owned by the John A.
Coccomo, Sr., Foundation for the Blind, Inc., a charitable trust of which
Mrs. McGillivray is a Trustee, ownership of which shares has been
disclaimed by Mrs. McGillivray. Such shares have been included in total
beneficial ownership of Directors and Executive Officers as a group and in
the beneficial ownership of Director Coccomo, who also disclaims such
beneficial ownership.
9. Includes options to purchase 5,000 shares of NECB Common Stock at $7.75 per
share exercisable within 60 days.
10. Includes all outstanding shares of NECB Common Stock and options owned or
controlled by Directors as of the Record Date. The shares owned by the John
A. Coccomo, Sr. Foundation for the Blind, Inc. and by the NEBT defined
contribution pension plan have been counted only once in determining the
total shares beneficially owned by all Directors of NECB as a group.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED MATTERS
Some of the directors and executive officers of NECB, NEBT and EQBK and
companies or organizations with which they are associated, have had, and may
have in the future, banking transactions with NEBT and EQBK in the ordinary
course of NEBT's and EQBK's business. All such loans are currently performing in
accordance with their terms. Total loans to directors and executive officers of
NECB, NEBT and EQBK and associates of such executive officers and directors
outstanding during the past three years were as follows:
<PAGE>
-51-
Date Total Indebtedness Outstanding
---- ------------------------------
December 31, 1995 $6,971,000
December 31, 1994 $3,337,000
December 31, 1993 $2,465,000
Federal banking laws and regulations limit the aggregate amount of
indebtedness which banks may extend to bank insiders. Pursuant to such laws and
regulations, NEBT and EQBK may extend credit to executive officers, Directors,
principal shareholders or any related interest of such persons, if the extension
of credit to such persons is in an amount that, when aggregated with the amount
of all outstanding extensions of credit to such individuals, does not exceed
NEBT's and EQBK's unimpaired capital and unimpaired surplus. As of December 31,
1995, 1994 and 1993 the aggregate amount of extensions of credit to insiders was
well below this limit.
NEBT and EQBK have had, and expect to have in the future, banking
transactions in the ordinary course of its business with Directors, executive
officers, principal shareholders and their associates, on the same terms,
including interest rates and collateral on loans, as those prevailing at the
same time for comparable transactions with others and, on terms that do not
involve more than the normal risk of collectibility or present other unfavorable
features.
During 1995, NEBT paid fees of $23,400 for certain legal services to
Dominic J. Ferraina, Chairman of the Boards of NECB and NEBT.
Charles D. Gersten, Trustee, a director of NECB and EQBK, is the lessor of
the property leased by EQBK at 1160 Silas Deane Highway, Wethersfield,
Connecticut. EQBK's lease, which commenced in 1989, provides that space in the
building will be leased for ten years with three five-year renewal options.
Beginning in 1994, until the end of the term of the lease, the rent is subject
to an annual increase equal to one-half of the prevailing cost of living rate
adjustment. Rent expense under this lease amounted to $183,600 during 1995. EQBK
considers the lease to have been written on terms comparable to the general
market at the time the lease was entered into and to have terms and conditions
as would have been negotiated with an outside party.
<PAGE>
-52-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report on Form 10-K.
1. Financial Statements:
The financial statement filed as part of this report are listed in the index
appearing at Item 8.
2. Financial Statement Schedules:
Such schedules are omitted because they are inapplicable or the information
is included in the consolidated financial statements or notes thereto.
3. Exhibits Required by Item 601 of Regulation S-K:
Exhibit No.
2.1 Plan and Agreement of Reorganization, dated as of December 19, 1995,
among Manchester State Bank, New England Community Bancorp, Inc. and New
England Bank and Trust Company was filed on January 11, 1996 as Exhibit 2 to
New England Community Bancorp, Inc.'s current Report on Form 8-K and is
incorporated herein by reference.
3.1 Amended and Restated Certificate of Incorporation of New England
Community Bancorp, Inc. was filed on June 20, 1995 as Exhibit 3.1 to New
England Community Bancorp, Inc.'s Registration Statement on Form S-4
(No.33-93640) and is incorporated herein by reference.
3.2 Amended and Restated Bylaws of New England Community Bancorp, Inc. was
filed on March 31, 1995 as Exhibit 3.2 to New England Community Bancorp,
Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31,
1994 and are in corporated by reference.
10. Material Agreements.
<PAGE>
-53-
10.1 The Severance Agreement by and between Barry R. Loucks and Olde Windsor
Bancorp, Inc. and New England Bank and Trust Company dated March 22, 1993
was filed as Exhibit 10.1 to Olde Windsor Bancorp, Inc.'s now known as, New
England Community Bancorp, Inc.'s Registration Statement on Form S-1 (No.
33-83622) and is incorporated herein by reference.
10.2 The Severance Agreement between Raymond G. Halstead and Olde Windsor
Bancorp, Inc. and New England Bank and Trust Company dated March 22, 1993
was filed as Exhibit 10.2 to Olde Windsor Bancorp, Inc.'s, now known as, New
England Community Bancorp, Inc.'s Registration Statement on Form S-1 (No.
33-83622) and is incorporated herein by reference.
10.3 The Employment Agreement between New England Bank and Trust Company and
David A. Lentini dated August 9, 1994 was filed as Exhibit 10.3 to Olde
Windsor Bancorp, Inc.'s, now known as New England Bancorp, Inc.'s,
Registration Statement on Form S-1 (No. 33-83622) and is incorporated herein
by reference.
10.4 The Employment Agreement by and between New England Bank and Trust
Company and David A. Lentini dated August 31, 1993 was filed as Exhibit 10.4
to Olde Windsor Bancorp, Inc.'s, now known as New England Community Bancorp,
Inc.'s, Registration Statement on Form S-1 (No. 33-83622) and is
incorporated herein by reference.
10.5 The Employment Agreement by and between New England Bank and Trust
Company and Donat A. Fournier dated August 31, 1993 was filed as Exhibit
10.5 to Olde Windsor Bancorp, Inc.'s, now known as New England Community
Bancorp, Inc.'s, Registration Statement on Form S-1 (No. 33-83622) and are
incorporated herein by reference.
10.6 The Employment Agreement by and between New England Bank and Trust
Company and Donat A. Fournier dated August 9, 1994 was filed on October 20,
1994 as Exhibit 10.6 to New England Community Bancorp, Inc.'s Registration
Statement on Form S-1 (No. 33-83622), Amendment 1, and is incorporated
herein by reference.
<PAGE>
-54-
10.7 The Employment Agreement by and between New England Bank and Trust
Company and Anson C. Hall dated August 9, 1994 was filed on October 20, 1994
as Exhibit 10.7 to New England Community Bancorp, Inc.'s Registration
Statement on Form S-1 (No. 33-83622), Amendment Number 1, and is
incorporated herein by reference.
21. List of Subsidiaries. Attached hereto as Exhibit 21 is a list of New
England Community Bancorp, Inc.'s subsidiaries.
27. Financial Data Schedule. Attached hereto as Exhibit 27 is New England
Community Bancorp, Inc.'s Financial Data Schedule.
(b) CURRENT REPORTS: The following Reports on Form 8-K were filed during the
fourth quarter of the 1995 fiscal year:
NECB filed a Form 8-K with the Securities and Exchange Commission ("SEC")
on December 14, 1995 regarding consummation of the Reorganization with The
Equity Bank ("Equity"). The Reorganization became effective on Thursday,
November 30, 1995 (the "Effective Time"). At the Effective Time, each share of
Equity Common Stock issued and outstanding immediately prior to the Effective
Time (except for (i) shares of Equity Common Stock held by NECB; and (ii) shares
as to which dissenters' rights had been perfected) was converted into the right
to receive 1.85 shares of NECB Common Stock in exchange for each share of Equity
Common Stock. NECB filed a Form 8-K/A with the Securities and Exchange
Commission on January 5, 1996, including financial information regarding such
Reorganization which was not readily available at the time of the filing of the
initial Form 8-K on December 14, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in Windsor, Connecticut on
March 21, 1996.
NEW ENGLAND COMMUNITY BANCORP,
INC.
By /s/ ANSON C. HALL
-------------------------------
Anson C. Hall
Vice President, Chief Financial
Officer, Principal Financial
Officer
By /s/ DAVID A. LENTINI
-------------------------------
David A. Lentini
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
Chairman and
/s/ DOMINIC J. FERRAINA Director March 21, 1996
- -------------------------
(Dominic J. Ferraina)
President and
Chief Executive Officer
/s/ DAVID A. LENTINI Director March 21, 1996
- -------------------------
(David A. Lentini)
/s/ TADEUS J. BUCZKOWSKI Director March 21, 1996
- -------------------------
(Tadeus J. Buczkowski)
/s/ JOHN C. CARMON Director March 21, 1996
- -------------------------
(John C. Carmon)
<PAGE>
Signature Title Date
- --------- ----- ----
Secretary and
/s/ JOHN A. COCCOMO, SR. Director March 21, 1996
- -------------------------
(John A. Coccomo, Sr.)
Assistant Secretary
/s/ GEORGE A. COLLI, JR. and Director March 21, 1996
- -------------------------
(George A. Colli, Jr.)
/s/ GARY J. DENINO Director March 21, 1996
- -------------------------
(Gary J. DeNino)
/s/ FRANK A. FALVO Director March 21, 1996
- -------------------------
(Frank A. Falvo)
/s/ CHARLES D. GERSTEN Director March 21, 1996
- -------------------------
(Charles D. Gersten)
/s/ JOHN R. HARVEY Director March 21, 1996
- -------------------------
(John R. Harvey)
/s/ ANGELINA J. MCGILLIVRAY Director March 21, 1996
- -------------------------
(Angelina J. McGillivray)
/s/ EDWARD J. SZEWCZYK Director March 21, 1996
- -------------------------
(Edward J. Szewczyk)
<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
- --------------------------------------------------------------------------------
EXHIBITS
TO
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1995
UNDER
THE SECURITIES EXCHANGE ACT OF 1934
- --------------------------------------------------------------------------------
NEW ENGLAND COMMUNITY BANCORP, INC.
(Exact name of Registrant as specified in its charter)
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
2.1 Plan and Agreement of Reorganization, dated as of December 19, 1995, among
Manchester State Bank, New England Community Bancorp, Inc. and New England Bank
and Trust Company was filed on January 11, 1996 as Exhibit 2 to New England
Community Bancorp, Inc.'s current Report on Form 8-K and is incorporated herein
by reference.
3.1 Amended and Restated Certificate of Incorporation of New England Community
Bancorp, Inc. was filed on June 20, 1995 as Exhibit 3.1 to New England Community
Bancorp, Inc.'s Registration Statement on Form S-4 (No. 33-93640) and is
incorporated herein by reference.
3.2 Amended and Restated Bylaws of New England Community Bancorp, Inc. was filed
on March 31, 1995 as Exhibit 3.2 to New England Community Bancorp, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December 31, 1994 and are in
corporated by reference.
10. Material Agreements.
10.1 The Severance Agreement by and between Barry R. Loucks and Olde Windsor
Bancorp, Inc. and New England Bank and Trust Company dated March 22, 1993 was
filed as Exhibit 10.1 to Olde Windsor Bancorp, Inc.'s now known as, New England
Community Bancorp, Inc.'s Registration Statement on Form S-1 (No. 33-83622) and
is incorporated herein by reference.
10.2 The Severance Agreement between Raymond G. Halstead and Olde Windsor
Bancorp, Inc. and New England Bank and Trust Company dated March 22, 1993 was
filed as Exhibit 10.2 to Olde Windsor Bancorp, Inc.'s now known as, New England
Community Bancorp, Inc.'s Registration Statement on Form S-1 (No. 33-83622) and
is incorporated herein by reference.
10.3 The Employment Agreement between New England Bank and Trust Company and
David A. Lentini dated August 9, 1994 was filed as Exhibit 10.3 to Olde Windsor
Bancorp, Inc.'s, now known as New England Bancorp, Inc.'s, Registration
Statement on Form S-1 (No. 33-83622) and is incorporated herein by reference.
<PAGE>
10.4 The Employment Agreement by and between New England Bank and Trust Company
and David A. Lentini dated August 31, 1993 was filed as Exhibit 10.4 to Olde
Windsor Bancorp, Inc.'s, now known as New England Community Bancorp, Inc.'s,
Registration Statement on Form S-1 (No. 33-83622) and is incorporated herein by
reference.
10.5 The Employment Agreement by and between New England Bank and Trust Company
and Donat A. Fournier dated August 31, 1993 was filed as Exhibit 10.5 to Olde
Windsor Bancorp, Inc.'s, now known as New England Community Bancorp, Inc.'s,
Registration Statement on Form S-1 (No. 33-83622) and are incorporated here by
reference.
10.6 The Employment Agreement by and between New England Bank and Trust Company
and Donat A. Fournier dated August 9, 1994 was filed on October 20, 1994 as
Exhibit 10.6 to New England Community Bancorp, Inc.'s Registration Statement on
Form S-1 (No. 33-83622), Amendment 1, and is incorporated herein by reference.
10.7 The Employment Agreement by and between New England Bank and Trust Company
and Anson C. Hall dated August 9, 1994 was filed on October 20, 1994 as Exhibit
10.7 to New England Community Bancorp, Inc.'s Registration Statement on Form S-1
(No. 33-83622), Amendment Number 1, and is incorporated herein by reference.
21. List of Subsidiaries. Attached hereto as Exhibit 21 is a list of New England
Community Bancorp, Inc.'s subsidiaries.
27. Financial Data Schedule. Attached hereto as Exhibit 27 is New England
Community Bancorp, Inc.'s Financial Data Schedule.
<PAGE>
EXHIBIT 21
21. Subsidiaries of New England Community Bancorp, Inc. at December 31, 1995:
Percent
Owned By
New England
Incorporated In Community
Subsidiary The State Of: Bancorp, Inc.
- ---------- ------------- -------------
New England Bank and Trust Connecticut 100%
Company
The Equity Bank Connecticut 100%
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
EXHIBIT 27
Financial Data Schedule
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-END> Dec-31-1995
<CASH> 14,495
<INT-BEARING-DEPOSITS> 247,216
<FED-FUNDS-SOLD> 9,075
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 74,793
<INVESTMENTS-MARKET> 75,063
<LOANS> 222,235
<ALLOWANCE> 4,446
<TOTAL-ASSETS> 341,561
<DEPOSITS> 307,161
<SHORT-TERM> 540
<LIABILITIES-OTHER> 3,063
<LONG-TERM> 0
0
0
<COMMON> 308
<OTHER-SE> 30,172
<TOTAL-LIABILITIES-AND-EQUITY> 341,561
<INTEREST-LOAN> 12,935
<INTEREST-INVEST> 2,958
<INTEREST-OTHER> 407
<INTEREST-TOTAL> 16,300
<INTEREST-DEPOSIT> 5,703
<INTEREST-EXPENSE> 5,736
<INTEREST-INCOME-NET> 10,564
<LOAN-LOSSES> 700
<SECURITIES-GAINS> 19
<EXPENSE-OTHER> 8,591
<INCOME-PRETAX> 2,965
<INCOME-PRE-EXTRAORDINARY> 985
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,980
<EPS-PRIMARY> 0.91
<EPS-DILUTED> 0.91
<YIELD-ACTUAL> 8.12
<LOANS-NON> 4,725
<LOANS-PAST> 273
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 14,067
<ALLOWANCE-OPEN> 2,564
<CHARGE-OFFS> 978
<RECOVERIES> 199
<ALLOWANCE-CLOSE> 4,446
<ALLOWANCE-DOMESTIC> 4,446
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
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