SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1996 Commission File Number 0-14550
NEW ENGLAND COMMUNITY BANCORP, INC.
DELAWARE 06-1116165
OLD WINDSOR MALL
P.O. BOX 130
WINDSOR, CONNECTICUT 06095
Telephone: (860) 683-4612
Indicate by check mark whether 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 twelve months, and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
------ ------
The number of shares of common stock of the registrant outstanding as of
November 12, 1996 was 3,667,166.
The total number of pages in this report is 16.
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NEW ENGLAND COMMUNITY BANCORP, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Part I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements:
Consolidated Balance Sheets--September 30, 1996 and 1995 (unaudited)
and December 31, 1995 4
Consolidated Statements of Income--nine months ended September 30, 1996
and 1995 (unaudited) 5
Consolidated Statements of Cash Flows--nine months ended September 30, 1996
and 1995 (unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Part II. OTHER INFORMATION 15
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits, Financial Statement Schedules and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
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Part I--FINANCIAL INFORMATION
Item 1. Financial Statements
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<TABLE>
<CAPTION>
NEW ENGLAND COMMUNITY BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(thousands of dollars)
September 30, September 30, December 31,
1996 1995 1995
(Unaudited) (Unaudited)
=======================================================================================================================
<S> <C> <C> <C>
ASSETS:
Cash and due from banks $ 22,850 $ 13,417 $ 14,495
Interest-bearing demand deposits with other banks 55
Federal funds sold 7,850 12,650 9,075
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 30,700 26,067 23,625
Interest-bearing time deposits with other banks 3,000
Investment securities:
Securities held-to-maturity 7,107 6,033 7,066
Securities available-for-sale 91,225 41,794 75,063
FHLBB Stock 1,753 810 1,176
Loans Outstanding 283,413 136,334 222,235
Less: allowance for loan losses (5,769) (2,369) (4,446)
- -----------------------------------------------------------------------------------------------------------------------
Net loans 277,644 133,965 217,789
Mortgages held-for-sale 2,573 1,558 788
Accrued interest receivable 2,898 1,415 2,538
Premises and equipment 9,419 5,879 6,960
Other real estate owned 1,838 427 728
Other assets 7,004 1,270 2,828
- -----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 432,161 $ 219,218 $ 341,561
=======================================================================================================================
LIABILITIES:
Deposits
Noninterest bearing $ 73,494 $ 42,595 $ 59,945
Interest bearing 312,791 154,597 247,216
- -----------------------------------------------------------------------------------------------------------------------
Total deposits 386,285 197,192 307,161
Short-term borrowings 4,139 691 540
Other liabilities 2,661 1,031 3,380
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 393,085 198,914 311,081
- -----------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value, authorized 10,000,000 shares; outstanding
September 30, 1995, 2,080,692; December 31, 1995, 3,084,309; and,
September 30, 1996, 3,667,166 367 208 308
Surplus 27,943 12,115 21,522
Retained earnings 10,877 8,102 8,492
Net unrealized (loss) gain on securities available-for-sale (111) (121) 158
- -----------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 39,076 20,304 30,480
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 432,161 $ 219,218 $ 341,561
=======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
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<TABLE>
<CAPTION>
NEW ENGLAND COMMUNITY BANCORP, INC.
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
(thousands of dollars; except per share data)
Nine Months Ended Three Months Ended
September 30, September 30,
1996 1995 1996 1995
====================================================================================================
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 16,744 8,956 $6,220 $3,083
Investment securities:
Taxable interest 3,352 1,884 1,373 626
Interest exempt from federal income taxes 85 32 33 10
Dividends 287 138 71 59
Federal funds sold 307 273 100 69
- ----------------------------------------------------------------------------------------------------
Total interest income 20,775 11,283 7,797 3,847
Interest expense:
Deposits 7,500 3,854 2,807 1,397
Borrowed funds 76 27 30 10
- ----------------------------------------------------------------------------------------------------
Total interest expense 7,576 3,881 2,837 1,407
Net interest income 13,199 7,402 4,960 2,440
Provision for possible loan losses 1,480 400 446 120
- ----------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 11,719 7,002 4,514 2,320
Noninterest income:
Service charges, fees and commissions 1,242 1,032 459 345
Investment securities losses (gains) (5) 26 26
Gain on the sales of loans 263 135 126 87
Other 240 77 39 12
- ----------------------------------------------------------------------------------------------------
Total noninterest income 1,740 1,270 624 470
Noninterest expense:
Salaries and employee benefits 5,021 3,135 1,882 1,093
Occupancy 927 528 369 180
Furniture and equipment 659 502 261 186
Outside services 418 222 202 71
Postage and supplies 409 288 174 89
Insurance and assessments 108 312 36 17
Losses, writedowns, expenses - other real estate owned 226 147 66 68
Other 1,325 944 526 297
- ----------------------------------------------------------------------------------------------------
Total noninterest expense 9,093 6,078 3,516 2,001
- ----------------------------------------------------------------------------------------------------
Income before taxes 4,366 2,194 1,622 789
Income taxes 1,323 773 445 275
- ----------------------------------------------------------------------------------------------------
NET INCOME $ 3,043 $ 1,421 $1,177 $ 514
====================================================================================================
Net income per share $ 0.93 $ 0.68 $ 0.32 $ 0.24
Weighted average shares outstanding of common stock 3,276 2,081 3,656 2,081
</TABLE>
The accompanying notes are an integral part of these statements.
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<TABLE>
<CAPTION>
NEW ENGLAND COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(thousands of dollars)
Nine Months Ended September 30, 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities:
Net income $ 3,043 $ 1,421
Adjustment for noncash charges (credits):
Provision for depreciation and amortization 537 337
Losses from sale or disposal and provisions to reduce the carrying value
of other real estate owned, net 162 106
Investment securities losses (gains), net 5 (26)
Accretion of discounts and amortization of premiums on bonds, net 91 182
Provision for possible loan losses 1,480 400
Decrease in accrued interest income and other assets, net (63) 1,264
Increase in loans held-for-sale (1,785) (1,558)
(Decrease) Increase in accrued interest and other liabilities, net (1,537) 486
- -----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,933 2,612
- -----------------------------------------------------------------------------------------------------
Financing activities:
Net decrease in noninterest-bearing accounts (3,417) (4,728)
Net (decrease) increase in interest-bearing accounts (1,571) 5,048
Increase (decrease) in short-term borrowings, net 3,599 (109)
Proceeds from issuance of common stock 170 0
Cash equivalents acquired, net 14,236 0
Cash dividends paid (561) (208)
- -----------------------------------------------------------------------------------------------------
Net cash used for financing activities 12,456 3
- -----------------------------------------------------------------------------------------------------
Investing activities:
Principal collections, net of originations 3,575 (6,188)
Proceeds from sales of loans 313 1,185
Decrease in interest-bearing time deposits 3,000 0
Purchases of securities available-for-sale (44,909) (21,171)
Proceeds from sales of securities available-for-sale 7,009 1,565
Proceeds from maturities of securities available-for-sale 24,136 14,563
Purchases of securities held-to-maturity (4,521) (2,771)
Proceeds from maturities of securities held-to-maturity 4,500 8,555
Proceeds from sales of other real estate owned 641 439
Purchases of premises and equipment, net (1,058) (540)
- -----------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities (7,314) (4,363)
- -----------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 7,075 (1,748)
Cash and cash equivalents, beginning of period 23,625 27,815
- -----------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 30,700 $ 26,067
=====================================================================================================
Schedule of noncash investing and financing activities:
Loans charged off, net of recoveries $ 2,167 $ 595
Real estate acquired through foreclosure 1,402 400
Income tax paid 1,802 590
Interest paid 7,723 3,861
</TABLE>
The accompanying notes are an integral part of these statements.
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NEW ENGLAND COMMUNITY BANCORP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
- ------------------------------
The accompanying condensed interim financial statements are unaudited and
include the accounts of New England Community Bancorp, Inc. (the "Company" or
"NECB") and its subsidiaries, New England Bank and Trust Company ("NEBT") and
The Equity Bank ("EQBK"). The consolidated financial statements have been
prepared in accordance with generally accepted accounting principals for interim
financial information and with the instructions to SEC Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. These financial statements reflect, in the opinion of
Management, all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of the Company's financial position and the
results of its operations and its cash flows for the periods presented. These
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's 1995 Annual Report on Form 10-K.
Note 2 - Purchase Accounting
- ----------------------------
On November 30, 1995, the Company consummated a reorganization with EQBK 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 EQBK. In addition, on July 11, 1996, the Company completed an
acquisition of Manchester State Bank ("MSB") by issuing 548,857 shares of the
Company's common stock and paying $3,520,000 in cash for all of the outstanding
common shares of MSB. Both transactions were accounted for as purchases, and
thus, the comparative statements do not include prior operating results of
either entity.
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Part I--FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Page -8-
<PAGE>
Financial condition
- -------------------
Total assets at September 30, 1996 were $432,161,000, an increase of
$90,600,000, or 27%, from $341,561,000 at December 31, 1995. This increase is
primarily the result of the Company's acquisition of Manchester State Bank
("MSB"); which was completed on July 11, 1996 and added approximately
$90,000,000 in assets to the Company. During the first nine months of 1996,
loans outstanding increased $61,178,000 or 28% to $283,413,000. Investment
securities increased by $16,780,000 and ended the quarter at $100,085,000.
Securities held-to-maturity were virtually unchanged and stood at $7,107,000 at
September 30, 1996 compared to $7,066,000 at December 31, 1995. Conversely,
securities available-for-sale increased $16,162,000 from $75,063,000 to
$91,225,000 during the period. Federal funds sold decreased by $1,225,000 and
stood at $7,850,000 at September 30, 1996. Federal funds, overnight loans to
other banks, represent excess reserves which are the Company's most liquid
assets and as such are available to meet short term cash flow needs of the
Company.
Total deposits, which constitute the principal funding source of the Company's
assets, increased $79,124,000 from December 31, 1995 and amounted to
$386,285,000 at September 30, 1996. Of this increase, fully 17%, or $14,000,000,
was noninterest bearing transaction accounts. Borrowed funds increased by
$3,599,000 and stood at $4,139,000 at quarter-end. Accrued interest payable and
other liabilities were $2,661,000, a decrease of $719,000 from $3,380,000 at
December 31, 1995. Total shareholders' equity was $39,076,000 at September 30,
1996, an increase of $8,596,000 over December 31, 1995. The increase included
additions from net income for the first nine months of 1996 $3,043,000,
$6,310,000 in capital acquired (from the MSB acquisition) and $170,000 related
to the exercise of options granted to certain executives in 1993. Decreases
included declared dividends of $658,000 and a $269,000 decrease in net
unrealized (loss) gain on securities available-for-sale (net of related tax
effect).
Securities held-to-maturity
- ---------------------------
Securities held-to-maturity are shown in the Company's balance sheets on an
amortized cost basis. Amortized cost is the original cost adjusted for the
effect of accumulated amortization of premiums and accretion of discounts. As
summarized in the table below, investments in securities held-to-maturity
totaled $7,107,000 at September 30, 1996 versus $7,066,000 at December 31, 1995:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
- -------------------------------------------------------------------------------------------------
Amortized Amortized
Cost Fair Cost Fair
(in thousands) Basis Value Basis Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt securities issued by...
...the U.S. Treasury and other U.S. government agencies $4,515 $4,514 $5,501 $5,560
...states of the United States and political subdivisions
of the states 2,592 2,619 1,565 1,629
- -------------------------------------------------------------------------------------------------
$7,107 $7,133 $7,066 $7,189
=================================================================================================
</TABLE>
Securities available-for-sale
- -----------------------------
Securities available-for-sale are shown in the Company's balance sheets at fair
value. The unrealized gain or loss resulting from such valuation, reduced by the
effect of income taxes, is reflected as a separately disclosed component of
shareholders' equity. At September 30, 1996, the net unrealized loss on
securities available-for-sale was $194,000 while at December 31, 1995 the net
unrealized gain was $272,000, representing an increase in net unrealized losses
of $466,000. As shown in the table below, investments in securities
available-for-sale totaled $91,225,000 at September 30, 1996 versus $75,063,000
at December 31, 1995:
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<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
- -------------------------------------------------------------------------------------------------------------------
Amortized Amortized
Cost Fair Cost Fair
(in thousands) Basis Value Basis Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Marketable equity securities $ 9,504 $ 9,656 $15,115 $15,201
Debt securities issued by...
...the U.S. Treasury and U.S. government agencies 60,812 60,496 38,734 38,806
...Corporations 8,667 8,642 9,688 9,668
Mortgage-backed securities 12,459 12,431 11,256 11,388
- -------------------------------------------------------------------------------------------------------------------
$91,442 $91,225 $74,793 $75,063
===================================================================================================================
</TABLE>
Nonperforming Assets
- --------------------
The following table sets forth information pertaining to the Company's
nonperforming assets and the level of the allowance for possible loan losses
relative to those assets.
<TABLE>
<CAPTION>
(in thousands)
September 30, 1996 December 31,1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans $6,373 $4,725
Other real estate owned 1,838 728
- --------------------------------------------------------------------------------------------------------------
Total nonperforming assets $8,211 $5,453
- --------------------------------------------------------------------------------------------------------------
Loans past due in excess of ninety days and accruing interest $ 453 $ 273
Ratio of nonperforming assets to total loans and OREO 2.9% 2.5%
Ratio of nonperforming assets and loans past due in excess of
ninety days and accruing interest to total loans and OREO 3.0% 2.6%
Ratio of allowance for loan losses to total loans 2.0% 2.0%
Ratio of allowance for loan losses to nonperforming assets and
loans in excess of ninety days past due and accruing interest 66.6% 77.6%
Ratio of nonperforming assets and loans in excess of ninety days
past due and accruing interest to total shareholders' equity 22.2% 18.8%
</TABLE>
As shown on the table below, total nonperforming assets increased $2,758,000 to
$8,211,000 at September 30, 1996 from $5,453,000 at December 31, 1995 compared
to a year-to-date decrease of $574,000 during the nine months ended September
30, 1995:
Nine Months ending September 30, 1996 1995
- ----------------------------------------------------------------------
Beginning Balance; December 31, 1995 and 1994 $5,453 $3,548
Changes incident to acquisition 4,360
Internal reclassifications 3,943 1,447
Acquired OREO 537
Sales of OREO (685) (439)
Charge-offs and writedowns (2,515) (804)
Loans returned to performing status (606) (433)
Repayments (2,276) (345)
- ----------------------------------------------------------------------
Ending Balance $8,211 $2,974
======================================================================
In large part, nonperforming assets increased due to the merger and acquisiton
(of EQBK and MSB, respectively) accounting for $4,360,000 and $537,000 in
nonaccural loans and OREO. In additon, the $3,943,000 in internal
reclassifications, $2,515,000 in charge-offs and $2,276,000 in repayments
includes nine and three months of EQBK and MSB operations, respectively.
Nonperforming loans may be returned to performing status when they have regained
compliance with their original terms and the borrower demonstrates an ongoing
ability to continue performing as agreed.
The Company's allowance for possible loan losses was $5,769,000 at September 30,
1996, as compared to $4,446,000 at December 31, 1995. Activity in the allowance
for possible loan losses for the nine months ending September 30, 1995 and 1996
was as follows:
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<PAGE>
(in thousands)
Nine months ended September 30, 1996 1995
- -------------------------------------------------------------------------
Balance beginning of period $4,446 $2,565
Changes incident to acquisition, net 2,010 0
Provisions charged to operations 1,480 400
Recoveries on loans previously charged-off 230 102
Loans charged-off (2,397) (698)
- -------------------------------------------------------------------------
Balance end of period $5,769 $2,369
=========================================================================
Provisions for possible loan losses charged to operations for the first nine
months of 1996 were $1,480,000, representing an increase of $1,080,000 from the
same period in 1995. EQBK's provision represents approximately three-quarters of
this increase as it is included for the first time. The remaining increase in
provisions primarily relates to loan growth--anticipated to result from both the
openings of new branch facilities (in the towns of Canton and West Hartford,
Connecticut by the Company's subsidiary, New England Bank) and the Company's
acquisition of MSB. During the nine month period, charge-offs increased
$1,699,000. As with the change in provisions, this increase is largely due to
the inclusion of both EQBK's and MSB's operations for the first time.
Management's assessment of the adequacy of the allowance is based upon the
composition of the loan portfolio, past due experience, current economic
conditions and other factors deemed appropriate. Management analyzes the
subsidiaries' loan portfolios as part of its risk management process to
ascertain the potential for loss from possible nonpayment by some of the Banks'
borrowers as well as the risk of loss inherent in the portfolio. Reserves are
assigned to specific loans and classes of loans, and then aggregated to
determine the total level needed.
Capital
- -------
Under currently applicable Federal Reserve Board regulations, the Company must
maintain a minimum risk based capital ratio of 8.0% of which 4.0% must be Tier 1
capital and a minimum leverage capital ratio of between 4.0% and 5.0%. In
addition, under FDIC regulations, the Company's subsidiaries must meet these
same minimum risk-based and leverage capital ratios. These requirements are
minimum ratios and banks may be required to maintain higher ratios. In addition,
the FDIC Improvement Act (FDICIA) categorizes banks, according to their capital
levels, into one of five categories ranging from "well capitalized" to
"critically undercapitalized." Each category serves to determine a bank's
deposit insurance premium as well as any mandated restrictive regulatory
actions. As of September 30, 1996, NECB's subsidiary banks were categorized as
"well capitalized," which specifies for minimum Leverage, Tier 1, and Total
Capital, ratios of 5%, 6% and 10%, respectively.
Total shareholders' equity of the Company at September 30, 1996 was $39,076,000
compared to $30,480,000 at December 31, 1995. The Company's Tier 1 leverage
capital ratio was 8.62% at September 30, 1996. The capital ratios of the Company
and each of its subsidiaries were in compliance with all applicable regulatory
requirements. Along with the regulatory minimums, the table below summarizes the
Company's leverage and risk-based ratios as well as those of its subsidiaries at
September 30, 1996:
"Well Capitialized" EQBK NEBT NECB
- --------------------------------------------------------------------------------
Leverage 5% 9.21% 7.93% 8.62%
Tier 1 Risk-Based 6% 12.99% 11.36% 12.17%
Total Risk-Based 10% 14.26% 12.62% 13.43%
Liquidity
- ---------
It is management's objective to ensure the continuous ability to meet cash needs
as they arise. Such needs may occur from time to time as a result of seasonal
declines in deposit levels, response to changes in interest rates paid on
deposits and interest rates charged for loans and fluctuations in the demand for
the Banks' various loan products. Accordingly, the Company maintains liquidity
that provides the flexibility to meet its cash needs. The liquidity objective is
achieved through the maintenance of readily marketable assets as well as a
balanced flow of asset maturities and prudent pricing on loan and deposit
agreements. The Company has alternative sources of liquidity, including
repurchase agreements and lines of credits provided by the FHLBB to both
subsidiaries, which together provide the Company with flexibility in managing
its liquidity position. The maturities of investment securities and cash flows
from the repayments of outstanding loans are expected to provide the Company
with adequate liquidity over the coming months.
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<PAGE>
RESULTS OF OPERATIONS--THREE MONTHS ENDED SEPTEMBER 30, 1996
- ------------------------------------------------------------
Note: On November 30, 1995 and July 11, 1996, the Company completed its merger
with EQBK and acquisition of MSB, respectively. Both transactions were accounted
for using the purchase method of accounting and thus, the results of operations
for both entities are only included since the effective date of each
transaction.
The Company's earnings are largely dependent upon net interest income and
noninterest income from its banking subsidiaries. Net interest income is the
difference between interest earned on the loan and investment portfolios and
interest paid on deposits and other borrowings. Noninterest revenue is primarily
derived from maintenance and transaction-based fees from commercial and personal
checking accounts and gains from the sale of loans originated for sale.
For the three months ended September 30, 1996, the Company reported net income
of $1,177,000 or $0.32 per share as compared to $514,000 or $0.24 per share for
the same period of 1995. An important factor in these results was the $2,520,000
increase in net interest income which was supplemented by the $154,000 increase
in noninterest revenue and partly offset by the $1,515,000 increase in
noninterest expenses.
Net Interest Income
- -------------------
As noted, net interest income increased by $2,520,000 and totaled $4,960,000 for
the three months ended September 30, 1996, compared to $2,440,000 for the same
period one year earlier. This increase primarily resulted from the inclusion of
EQBK's and MSB's operations for the first time--which together added
approximately $190,000,000 in interest earning assets and $150,000,000 and
interest bearing liabilities.
Noninterest Income
- ------------------
The $154,000 increase in noninterest revenue is largely the result of a $114,000
increase in service charges, fees and commissions. This 33% increase is due to
the added maintenance and transaction-based fees on deposit accounts acquired
from both EQBK and MSB. In addition, with fixed-rate mortgage rates stabilizing
in latter part of the second quarter, borrowers preference for this type of
instrument increased accordingly and resulted in a $39,000 increase in gains on
loans originated for sale.
Noninterest Expense
- -------------------
Noninterest expense increased $1,515,000 to $3,516,000 from $2,001,000 during
the same quarter last year. The increase was due to the inclusion of EQBK and
MSB's operations in the Company's financial statements for the first time. The
modest decrease in OREO related expenses reflects sale prices at or near their
carrying value and a general improvement in the condition of acquired
properties. As standard, management moves swiftly to dispose of these
non-earning assets as soon as practicable after they have been acquired.
RESULTS OF OPERATIONS--NINE MONTHS ENDED SEPTEMBER 30, 1996
- -----------------------------------------------------------
Net income for the nine months of 1996 amounted to $3,043,000, or $0.93 per
share. This represents an increase of $1,622,000 from $1,421,000, or $0.68 per
share reported for the first nine months of 1995. The year-to-date increase is
primarily the result of the $5,797,000 increase in net interest income. This
increase was added to by the $470,000 increase in noninterest income and
partially offset by the $3,015,000 increase in noninterest expenses during nine
months ended September 30, 1996.
Net Interest Income
- -------------------
The $5,797,000 increase in net interest income primarily resulted from the
inclusion of EQBK's and MSB's operations for the first time, and, to a lesser
degree, the year-to-date net interest margin (net yield on average earning
assets), was approximately 10 basis points higher in 1996 than 1995. On a
year-to-date basis, approximately 86% of the change in net interest income was
due to volume changes while 14% resulted from changes in interest rates earned
on earning assets or paid on interest bearing liabilities.
As shown in the following table, the net interest margin (on a tax-equivalent
basis) for the nine months ended September 30, 1996 was 5.35% compared to 5.24%
for the same period one year ago. The average rate paid on interest bearing
Page -12-
<PAGE>
liabilities through the first nine months of 1996 was 3.86% compared to 3.51% in
1995. At the same time, the average rate (year-to-date) earned on earning assets
was 8.38% at quarter ended September 30, 1996 from 7.97% in the same period in
1995.
AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND INTEREST RATES
- --------------------------------------------------------------
The table below presents the Company's average balance sheets (computed on a
daily basis), net interest income, and interest rates for nine months ended
September 30, 1996 and September 30, 1995. The table reports nonaccruing loans
as part of average loans outstanding and interest income is presented on a
tax-equivalent basis which reflects a federal tax rate of 34% for all periods
presented.
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1996 September 30, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
(in thousands) Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold $ 7,391 $ 282 5.10% $ 6,406 $ 273 5.70%
Interest-bearing time deposits 799 42 7.03%
Investment securities:
Held-to-maturity 7,430 387 6.96% 9,140 469 6.86%
Available-for-sale 77,846 3,496 6.00% 37,854 1,650 5.83%
Mortgages held for sale 2,239 126 7.52% 726 33 6.08%
Loans 238,909 16,628 9.31% 136,263 8,923 8.76%
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 334,614 20,961 8.38% 190,389 11,348 7.97%
Allowance for loan losses (5,201) (2,382)
Cash & due from banks 14,835 9,112
Other assets 14,646 9,109
- ----------------------------------------------------------------------------------------------------------------------------------
Total Assets $358,894 $206,228
==================================================================================================================================
LIABILITIES
Regular savings deposits $ 73,619 $ 1,123 2.04% $ 48,252 $ 799 2.21%
NOW account deposits 34,647 340 1.31% 20,618 190 1.23%
Money market deposits 5,111 42 1.10% 4,960 44 1.19%
- ----------------------------------------------------------------------------------------------------------------------------------
Total savings deposits 113,377 1,505 1.77% 73,830 1,033 1.87%
Time deposits 147,794 6,016 5.44% 73,585 2,821 5.13%
Borrowed funds 1,455 55 5.05% 599 28 6.25%
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 262,626 7,576 3.86% 148,014 3,882 3.51%
Demand deposits 59,743 37,738
Other liabilities 3,645 939
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 326,014 186,691
Equity 32,880 19,537
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities & Equity $358,894 $206,228
==================================================================================================================================
Net interest income (tax equivalent basis) $13,385 $7,466
Less adjustment for tax-exempt income (186) (64)
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income $13,199 $7,402
==================================================================================================================================
Net interest spread 4.52% 4.46%
Net interest margin 5.35% 5.24%
</TABLE>
Page -13-
<PAGE>
Rate Volume Analysis
- --------------------
The following table, which is presented on a tax-equivalent basis, reflects the
changes, for the nine months ended September 30, 1996 when compared to the same
period in 1995, in net income arising from changes in interest rates and from
asset and liability volume, including mix. The change in interest due to both
rate and volume has been allocated to rate and volume changes in proportion to
the relationship of the absolute dollar amounts of the changes in each.
<TABLE>
<CAPTION>
Change due to
Change in:
Increase -------------------------
(in thousands) (Decrease) Rate Volume
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest earned on:
Federal funds sold $ 9 $ (31) $ 40
Interest-bearing time deposits 42 21 21
Investment securities:
Held-to-maturity (154) (16) (138)
Available-for-sale 1,918 127 1,791
Mortgages held for sale 93 21 72
Loans 7,705 932 6,773
- ---------------------------------------------------------------------------------------------
Total interest-earning assets $9,613 $1,054 $8,559
Interest paid on:
Regular savings deposits $ 324 $ (90) $ 414
NOW account deposits 150 20 130
Money market deposits (2) (3) 1
- ---------------------------------------------------------------------------------------------
Total savings deposits 472 (73) 545
Time deposits 3,195 336 2,859
Borrowed funds 27 (11) 38
- ---------------------------------------------------------------------------------------------
Total interest-bearing liabilities 3,694 252 3,442
- ---------------------------------------------------------------------------------------------
Net interest income change $5,919 $ 802 $5,117
=============================================================================================
</TABLE>
As the above table indicates, for the nine months ended September 30, 1996 net
interest income (on a fully tax equivalent basis) rose $5,919,000. Of this
amount, $802,000 resulted from changes to interest rates earned on earning
assets and paid on interest bearing liabilities. The remaining portion of the
increase, $5,117,000 was derived from changes in volume of average assets and
liabilities--primarily from the inclusion of EQBK and MSB in the 1996 results.
Noninterest Income
- ------------------
Noninterest income through September 1996 increased $470,000 to $1,740,000 from
$1,270,000 in the first nine months of 1995. This increase includes the effect
of the merger with EQBK (all of 1996) and the acquisition of MSB (from July 11,
1996 on). Both transactions served to significantly increase service charges,
fees and commissions (by $210,000) and other revenue (by $163,000). In addition,
gain on the sale of loans increased by $139,000 and totaled $263,000 at
September 30, 1996.
Noninterest Expense
- -------------------
Noninterest expenses amounted to $9,093,000 during the first nine months of
1996. This represents a $3,015,000 increase, or 50%, over the $6,078,000
reported during the first nine months of 1995 and is largely the result of the
inclusion of EQBK and MSB for the first time. Beyond the effect of the merger,
expenses increased moderately in salaries and benefits, occupancy, losses and
writedowns on OREO and other expenses while insurance and assessments decreased.
Salaries and benefit expense rose in response to both merit increases and
Company-paid insurance expense. The increase in occupancy expense resulted from
the additional lease expense for new facilities and the associated amortization
of leasehold improvements and increased depreciation expense on the Company's
new Technology Center--which began operations in March 1996. Expenses related to
furniture and equipment and outside services also rose during the period, when
compared to 1995. Finally, losses and writedowns on OREO property increased to
$79,000 at September 30, 1996.
Page -14-
<PAGE>
Part II: Other Information
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Default Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information
(a) At a meeting of the Board of Directors of New England
Community Bancorp, Inc. (the "Company") held on
September 19, 1996, the Registrar and Transfer Company
was appointed as the Company's sole stock transfer
agent, sole registrar and sole dividend distribution
agent. Registrar and Transfer Company replaced the
Company's former transfer agent (ChaseMellon Shareholder
Services) at the close of business, October 11, 1996.
Item 6. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Exhibits
Exhibit Number Exhibit
27 Financial Data Schedule
(b) Form 8-K; Current Reports. The following reports were filed with
the Securities and Exchange Commission during the quarter ended September 30,
1996:
(i) On July 11, 1996, NECB filed an 8-K to report that pursuant to the
terms of the Plan and Agreement of Reorganization, dated as of December 19, 1995
by and among NECB, NEBT and MSB, NECB acquired all of the outstanding shares of
MSB Common Stock. The Reorganization became effective on Friday, July 12, 1996
at 12:01 a.m.
(ii) On July 26, 1996, NECB filed an amended 8-K (to item (i), above)
which provided for the financial statements of business acquired.
(iii) On October 3, 1996, the Company filed an 8-K to report that at a
meeting of the Board of Directors of New England Community Bancorp, Inc., held
on September 19, 1996, the board voted to change its Sole Transfer Agent, Sole
Registrar and Sole Dividend Paying Agent to the Registrar and Transfer Company
(R & T). R & T replaced the Company's former transfer agent (ChaseMellon
Shareholder Services) at the close of business, October 11, 1996.
Page -15-
<PAGE>
NEW ENGLAND COMMUNITY BANCORP, INC.
Signatures
Pursuant to the requirements 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.
NEW ENGLAND COMMUNITY BANCORP, INC.
-----------------------------------
/s/ Anson C. Hall
Date: November 13, 1996 By:------------------------------------
Anson C. Hall
Vice President and Treasurer
Page -16-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
New England Community Bancorp, Inc.
</LEGEND>
<MULTIPLIER> 1,000
<CAPTION>
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-END> Sep-30-1996
<CASH> 30,700
<INT-BEARING-DEPOSITS> 312,791
<FED-FUNDS-SOLD> 7,850
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 91,225
<INVESTMENTS-MARKET> 91,442
<LOANS> 283,413
<ALLOWANCE> 5,769
<TOTAL-ASSETS> 432,161
<DEPOSITS> 386,285
<SHORT-TERM> 4,139
<LIABILITIES-OTHER> 2,661
<LONG-TERM> 0
0
0
<COMMON> 367
<OTHER-SE> 38,709
<TOTAL-LIABILITIES-AND-EQUITY> 432,161
<INTEREST-LOAN> 16,744
<INTEREST-INVEST> 3,274
<INTEREST-OTHER> 307
<INTEREST-TOTAL> 20,775
<INTEREST-DEPOSIT> 7,500
<INTEREST-EXPENSE> 7,576
<INTEREST-INCOME-NET> 13,199
<LOAN-LOSSES> 1,480
<SECURITIES-GAINS> (5)
<EXPENSE-OTHER> 9,093
<INCOME-PRETAX> 4,366
<INCOME-PRE-EXTRAORDINARY> 4,366
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,043
<EPS-PRIMARY> 0.93
<EPS-DILUTED> 0.93
<YIELD-ACTUAL> 8.38
<LOANS-NON> 6,373
<LOANS-PAST> 453
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 20,882
<ALLOWANCE-OPEN> 4,446
<CHARGE-OFFS> 2,397
<RECOVERIES> 230
<ALLOWANCE-CLOSE> 5,769
<ALLOWANCE-DOMESTIC> 5,769
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
