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 March 31, 1997 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) 610-3600
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 April
30, 1997 was 3,667,166.
The total number of pages in this report is 17.
<PAGE>
NEW ENGLAND COMMUNITY BANCORP, INC.
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements:
Consolidated Balance Sheets--March 31,
1997 and 1996 (unaudited) and December 31, 1996 4
Consolidated Statements of Income--three months
ended March 31, 1997 and 1996 (unaudited) 5
Consolidated Statements of Cash Flows--three
months ended March 31, 1997 and 1996 (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 16
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits, Financial Statement Schedules and Reports on Form 8-K 16
SIGNATURES 17
<PAGE>
Part I--FINANCIAL INFORMATION
Item 1. Financial Statements
3
<PAGE>
NEW ENGLAND COMMUNITY BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(thousands of dollars)
March 31, March 31, December 31,
1997 1996 1996
(Unaudited) (Unaudited)
<S> <C> <C> <C>
________________________________________________________________________________________________________________________
ASSETS:
Cash and due from banks $ 25,058 $ 15,738 $ 21,629
Federal funds sold 2,725 8,300 9,675
-------- -------- --------
Cash and cash equivalents 27,783 24,038 31,304
Securities held-to-maturity 7,357 6,595 7,357
Securities available-for-sale 86,933 67,839 85,958
Federal Home Loan Bank stock 1,753 1,176 1,753
Loans outstanding 287,291 219,236 288,996
Less: allowance for possible loan losses (5,577) (4,520) (5,514)
-------- -------- --------
Net loans 281,714 214,716 283,482
Mortgages held-for-sale 1,853 2,046 1,755
Accrued interest receivable 3,088 2,444 3,206
Premises and equipment 9,457 7,290 9,369
Other real estate owned 1,167 720 2,109
Goodwill 4,385 395 4,464
Other assets 2,589 1,746 2,402
-------- -------- --------
Total Assets $428,079 $329,005 $433,159
======== ======== ========
LIABILITIES:
Deposits:
Noninterest bearing $ 72,435 $ 52,110 $ 78,792
Interest bearing 300,947 241,737 308,105
-------- -------- --------
Total deposits 373,382 293,847 386,897
Short-term borrowings 5,569 1,151 2,003
Long term debt 6,000
Other liabilities 2,281 3,098 3,848
-------- -------- --------
Total Liabilities 387,232 298,096 392,748
-------- -------- --------
SHAREHOLDERS' EQUITY:
Common Stock, $.10 par value, authorized
10,000,000 shares:
March 31, 1997 and
December 31, 1996, 3,667,166 outstanding;
March 31, 1996, 3,084,309 outstanding 367 308 367
Additional paid-in capital 27,943 21,522 27,943
Retained earnings 12,700 9,230 11,802
Net unrealized (loss) gain on securities
available-for-sale (163) (151) 299
-------- -------- --------
Total Shareholders' Equity 40,847 30,909 40,411
--------- -------- --------
Total Liabilities & Shareholders' Equity $428,079 $329,005 $433,159
======== ======== =======
The accompanying notes are an integral part of these statements.
</TABLE>
4
<PAGE>
NEW ENGLAND COMMUNITY BANCORP, INC.
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
(thousands of dollars; except per share data)
Quarter ended March 31, 1997 1996
- -------------------------------------------------------------------------------
INTEREST INCOME:
Loans, including fees $6,423 $5,419
Securities:
Taxable interest 1,425 942
Interest exempt from federal income taxes 36 24
Dividends 83 170
Federal funds sold and other interest 48 86
------- ------
Total interest income 8,015 6,641
INTEREST EXPENSE:
Deposits 2,670 2,395
Borrowed funds 100 10
------- ------
Total interest expense 2,770 2,405
Net interest income 5,245 4,236
Provision for possible loan losses 243 532
------- ------
Net interest income after provision for possible
loan losses 5,002 3,704
NONINTEREST INCOME:
Service charges, fees and commissions 532 411
Investment securities losses, net (4) (1)
Gain on the sales of loans, net 135 20
Other 35 10
------- ------
Total noninterest income 698 440
NONINTEREST EXPENSE:
Salaries and employee benefits 2,061 1,558
Occupancy 409 257
Furniture and equipment 262 187
Outside services 171 117
Postage and supplies 181 122
Insurance and assessments 34 36
Losses, writedowns, expenses - other real estate
owned 30 47
Amortization of goodwill 79 7
Other 568 456
------- ------
Total noninterest expense 3,795 2,787
------- ------
Income before taxes 1,905 1,357
Income taxes 713 434
------- ------
Net income $1,192 $ 923
======= ======
Net income per share $ 0.33 $ 0.30
Weighted average shares outstanding of common stock 3,667 3,084
The accompanying notes are an integral part of these statements.
5
<PAGE>
NEW ENGLAND COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(thousands of dollars)
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended March 31, 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 1,192 $ 923
Adjustment for noncash charges (credits):
Provision for depreciation and amortization 256 67
Losses from sale or disposal and provisions to reduce the carrying value
of other real estate owned, net 47 10
Securities losses (gains), net 4 (1)
Accretion of discounts and amortization of premiums on bonds, net 13 62
Accretion, net of amortization, of purchase accounting adjustments (53)
Amortization of goodwill 79
Provision for possible loan losses 243 532
Gain on sale of loans, net (135)
(Increase) decrease in accrued interest income and other assets, net (127) 421
Decrease (increase) in loans held-for-sale 37 (1,258)
(Decrease) increase in accrued interest payable and other liabilities, net (1,229) (320)
------- -------
Net cash provided by operating activities 327 436
------- -------
FINANCING ACTIVITIES:
Net decrease in noninterest-bearing accounts (6,357) (7,835)
Net (decrease) increase in interest-bearing accounts (7,087) (5,479)
Increase (decrease) in short-term borrowings 3,566 611
Increase (decrease) in long-term borrowings 6,000
Cash dividends paid (294) (170)
------- -------
Net cash used for financing activities (4,217) 12,456
------- -------
INVESTING ACTIVITIES:
Loans originated, net of principal collections 1,260 1,963
Proceeds from sales of loans 3 258
Decrease in interest-bearing time deposits 3,000
Purchases of securities available-for-sale (10,787) (9,586)
Proceeds from sales of securities available-for-sale 4,559 6,008
Proceeds from maturities of securities available-for-sale 4,443 10,947
Purchases of securities held-to-maturity (527)
Proceeds from maturities of securities held-to-maturity 925
Proceeds from sales of other real estate owned 1,162 259
Purchases of premises and equipment, net (296) (397)
Capitalization of expenditures on other real estate owned (20)
------- -------
Net cash provided by (used for) investing activities 324 12,850
------- -------
Increase (decrease) in cash and cash equivalents (3,521) 413
------- -------
Cash and cash equivalents, beginning of period 31,304 23,625
------- -------
Cash and cash equivalents, end of period $27,783 $24,038
======= =======
Schedule of noncash investing and financing activities:
Loans charged off, net of recoveries $180 $511
Real estate acquired through foreclosure 247 267
Loans originated to facilitate sales of other real estate owned 653
Income tax paid 253 143
Interest paid 2,877 2,511
The accompanying notes are an integral part of these statements.
</TABLE>
6
<PAGE>
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 1996 Annual Report on Form 10-K.
NOTE 2 - PURCHASE ACCOUNTING
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. The
transaction was accounted for as a purchase, and thus, the comparative
statements do not include prior operating results of the acquired entity.
7
<PAGE>
Part I--FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
8
<PAGE>
OVERVIEW
NECB reported net income for the quarter ended March 31, 1997 of $1,192,000 or
$0.33 per share. This represents a 29% increase over the $923,000 earned in the
first quarter of 1996. On an earnings per share basis, 1997 increased 10% over
the $0.30 earnings per share for 1996. Growth in net income and earnings per
share during 1997 primarily reflects the additional revenue and savings achieved
in conjunction with the Company's acquisition of MSB (the "acquisition").
Returns on average assets and average equity for the quarter were 1.14% and
11.84%, compared to 1.12% and 11.99% for the same period a year earlier.
Through the first three months of 1997, net interest income on a fully
taxable-equivalent basis totaled $5,245,000 compared to $4,236,000 in 1996. The
net interest margin for 1997 was 5.47% versus 5.55% in 1996. The increase in net
interest income is largely due to the acquisition together with an improved mix
of interest-earning assets and interest-bearing liabilities.
Provisions for possible loan losses amounted to $243,000 in 1997 compared to
$532,000 in 1996. The provision recorded in 1996 primarily related to the growth
experienced in conjunction with the acquisition of EQBK which was completed on
November 30, 1995.
Noninterest income increased to $698,000 in 1997 from $440,000 in 1996. The
increase is largely the result of the acquisition coupled with a $115,000
increase in the gain on the sale of loans originated for sale.
Noninterest expense totaled $3,795,000 in 1997, compared to $2,787,000 in 1996.
The increase is primarily the result of the increased size of the Company from
both internal growth and from the acquisition, net of the cost reductions
derived from the elimination of duplicate operations.
Total assets at March 31, 1997 were $428,079,000 compared to $433,159,000 at
December 31, 1996. Total loans at March 31, 1997 amounted to $287,291,000
compared to $288,996,000 at December 31, 1996 while total deposits amounted to
$373,382,000 at March 31, 1997 compared to $386,897,000 at December 31, 1996.
RESULTS OF OPERATIONS--THREE MONTHS ENDED MARCH 31, 1997
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 March 31, 1997, the Company reported net income of
$1,192,000 or $0.33 per share as compared to $923,000 or $0.30 per share for the
same period of 1996. An important factor in these results was the $1,374,000
increase in net interest income which was supplemented by the $258,000 increase
in noninterest revenue and partly offset by the $1,008,000 increase in
noninterest expenses.
NET INTEREST INCOME
Net interest income, which is the difference between interest earned on earning
assets and interest paid on deposits and borrowings, represents the largest
component of NECB's operating income. The principal earning asset of the Company
is its loan portfolio--which is comprised of loans to finance operations of
businesses located within our market area, mortgage loans to finance the
purchase or improvement of properties used by businesses and mortgage and
personal loans to individuals. Representing a quarter of the Company's earning
assets, NECB's investment portfolio also plays an important part in the
management of the Company's balance sheet. While providing a source of revenue,
these funds are used to provide reserves and meet the liquidity needs of the
Company. Excess reserves are available to meet the borrowing needs of the
communities we serve. For the following discussion, interest income is presented
on a fully taxable-equivalent ("FTE") basis. FTE interest income restates
reported interest income on tax exempt loans and securities as if such interest
were taxed at the statutory Federal income tax rate of 34% for all periods
presented.
9
<PAGE>
(amounts in thousands)
March 31, 1997 1996
- -------------------------------------------------------------------------------
Interest income (financial statements) $8,015 $6,641
Tax equivalent adjustment 46 53
Interest expense (2,770) (2,405)
------ -------
Net interest income (fully taxable equivalent) $5,291 $4,289
====== ======
For the first three months of 1997, net interest income on a FTE basis was
$5,291,000, a 23% increase over the $4,289,000 reported in same period in 1996.
The $1,002,000 increase in 1997 was primarily the result of the MSB
acquisition--which added approximately $77,000,000 in interest earning assets
and $67,000,000 and interest bearing liabilities.
CONSOLIDATED AVERAGE BALANCES/INTEREST EARNED OR PAID/RATES
<TABLE>
<CAPTION>
Three Months Ended March 31, 1997 March 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
(amounts in thousands) Balance Interest Rate Balance Interest Rate
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold $ 3,819 $ 48 5.10% $ 6,543 $ 86 5.29%
Interest-bearing time deposits 2,407 42 1.74%
Securities held-to-maturity 7,357 127 7.00% 6,890 114 6.65%
Securities available-for-sale 91,716 1,463 6.47% 71,578 1,033 5.80%
Mortgages held for sale 1,243 20 6.53% 1,076 19 7.10%
Loans (A) 288,469 6,403 9.00% 222,122 5,400 9.78%
-------- ----- -------- -----
Total interest-earning assets 392,604 8,061 8.33% 310,616 6,694 8.67%
Allowance for loan losses (5,594) (4,541)
Cash and due from banks 16,558 12,937
Other assets 20,889 12,333
-------- --------
Total Assets $424,457 $331,345
======== ========
LIABILITIES:
Regular savings deposits $ 83,518 $ 436 2.12% $ 69,077 $ 354 2.06%
NOW account deposits 47,866 155 1.31% 28,051 72 1.03%
Money market deposits 4,254 12 1.14% 4,949 14 1.14%
-------- ----- -------- -----
Total savings deposits 135,638 603 1.80% 102,077 440 1.73%
Time deposits 163,720 2,067 5.12% 139,467 1,955 5.64%
Borrowed funds 7,364 100 5.51% 897 10 4.48%
-------- ----- -------- -----
Total interest bearing liabilities 306,722 2,770 3.66% 242,441 2,405 3.99%
Demand deposits 74,313 54,653
Other liabilities 2,519 3,294
-------- --------
Total Liabilities 383,554 300,388
Equity 40,903 30,957
-------- --------
Total Liabilities & Equity $424,457 $331,345
======== ========
Net interest income--FTE basis $5,291 $4,289
====== ======
Net interest margin 5.47% 5.55%
Net interest spread 4.66% 4.68%
(A) Average loans include nonaccruing loans.
</TABLE>
10
<PAGE>
The net interest margin measures the difference in yield on, and the mix of,
interest-earning assets and interest-bearing liabilities. Net interest margin is
affected by a number of factors including the volume, pricing and maturity of
earning assets and interest-bearing liabilities and interest rate fluctuations.
Changes in nonperforming assets, together with interest lost and recovered on
those assets also affect comparisons of net interest income.
Several factors served to decrease the net interest margin to 5.47% in 1997 from
5.55% in 1996. Noteworthy was the effect of combining NECB's balances with those
of MSB. Prior to the acquisition, MSB had an interest rate structure which, when
compared to the Company's existing structure, generally included higher rates
earned and paid. Incorporating this structure into the Company's had the effect
of increasing the average rates of the combined Company. Added to this was a
general reduction in market interest rates compared to the last year which also
served to compress the Company's margin.
RATE/VOLUME ANALYSIS
Changes in net interest income between years is divided into two components--the
change resulting from the change in average balances of earning assets and
interest-bearing liabilities (or "volume") and the change in the rates earned or
paid on these balances. The change in interest income and interest expense
attributable to changes in both volume and rate, which cannot be segregated, has
been allocated proportionately to the absolute values of the changes due to
volume and rate. The following table is presented on a FTE basis.
<TABLE>
<CAPTION>
Total Change due to
Increase Change in:
--------------------------
(amounts in thousands) (Decrease) Rate Volume
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST EARNED ON:
Federal funds sold $ (38) $ (3) $ (35)
Interest-bearing time deposits (42) 0 (42)
Securities held-to-maturity 13 6 7
Securities available-for-sale 430 124 306
Mortgages held for sale 1 (2) 3
Loans 1,003 (461) 1,464
------- ------ ------
Total interest-earning assets $1,367 $ (336) $1,703
------- ------ ------
INTEREST PAID ON:
Regular savings deposits $ 82 $ 9 $ 73
NOW account deposits 83 23 60
Money market deposits (2) 0 (2)
------ ------ ------
Total savings deposits 163 33 130
Time deposits 112 (194) 306
Borrowed funds 90 3 87
------ ------ ------
Total interest-bearing liabilities 365 (159) 524
------ ------ ------
Net interest income change $1,002 $ (177) $1,179
====== ====== ======
</TABLE>
As the above table indicates, for the three months ended March 31, 1997 net
interest income (on a fully tax equivalent basis) rose $1,002,000. Of this
amount, $1,179,000 resulted from changes in volume of average assets and
liabilities--primarily from the inclusion of MSB in the 1997 results. The
remaining portion of the change, a decrease of $177,000, was derived from
changes to interest rates earned on earning assets and paid on interest bearing
liabilities.
NONINTEREST INCOME
For the first three months of 1997, noninterest income increased $258,000, or
59%, from 1996 and totaled $698,000 compared to $440,000 in the previous year.
Service charges, fees and commissions totaled $532,000 in 1997 compared to
$411,000 in 1996, an increase of 29%. Included in service charges, fees and
commissions are fees on deposits, loan servicing fees and other fees and
charges. While most of the increase in this category can be attributed to the
acquisition, the Company's new on-line cash management product ("Access") has
been very well received by the market place and is beginning to contribute to
noninterest income.
11
<PAGE>
Gains on sales of loans increased by $115,000 and totaled $135,000 for the first
quarter of 1997 compared to $20,000 for 1996. With fixed rate conventional
mortgage rates generally below 8% for most of the first quarter of 1997,
borrowers preference for financing home purchases with fixed rate mortgages
remained strong. As part of its asset/liability management process, NECB
generally sells these mortgages in the secondary market. This taken together
with the Company's expanded market area enabled NECB to dramatically increase
its originations in the first quarter of 1997.
NONINTEREST EXPENSE
Noninterest expenses amounted to $3,795,000 during the first three months of
1997. This represents a $1,008,000 increase, or 36%, over the $2,787,000
reported during the first three months of 1996 and is largely the result of the
growth related to the addition of MSB. Beyond the effect of the acquisition,
expenses increased moderately in salaries and benefits, occupancy and other
expenses while insurance and assessments and losses and writedowns on OREO
decreased modestly from same period in 1996. 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 1996. In
addition, goodwill amortization resulting from the use of the purchase method of
accounting for the EQBK and MSB acquisitions, amounted to $79,000 in 1997
compared to $7,000 in 1996.
FINANCIAL CONDITION
Total assets at March 31, 1997 were $428,079,000, a decrease of $5,080,000, or
2%, from $433,159,000 at December 31, 1996. During the first three months of
1997, loans outstanding decreased $1,705,000 or 1% to $287,291,000. The decrease
in loans was partially offset by an increase in securities
available-for-sale--which increased $975,000 to $86,933,000 at quarter end from
$85,958,000 at December 31, 1996. Securities held-to-maturity were unchanged and
stood at $7,357,000 at March 31, 1997. Federal funds sold decreased by
$6,950,000 and stood at $2,725,000 at March 31, 1997 compared to $9,675,000.
Federal funds--which are 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, decreased $13,515,000 from December 31, 1996 and amounted to
$373,382,000 at March 31, 1997. The Company normally experiences some seasonal
outflow of deposits--particularly in transaction accounts--during the first
quarter of the year.
Short-term borrowings increased by $3,566,000 and stood at $5,569,000 at
quarter-end. In addition, during the quarter the Company borrowed $6,000,000 in
long term debt with maturities ranging from 2 to 6 years from the Federal Home
Loan Bank of Boston. Other liabilities were $2,281,000, a decrease of $1,567,000
from $3,848,000 at December 31, 1996 and is primarily the result of the payment
made to dissenting shareholders of EQBK. Total shareholders' equity was
$40,847,000 at March 31, 1997, an increase of $436,000 over December 31, 1996.
The change included net income for the first three months of 1997 of $1,192,000
and decreases from declared dividends of $294,000 and a $462,000 decrease in net
unrealized loss on securities available-for-sale (net of related tax effect).
12
<PAGE>
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 were
unchanged from December 31, 1996 and totaled $7,357,000 at March 31, 1997:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------
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 $4,516 $4,502 $4,516 $4,563
Debt securities issued by states and
political subdivisions of the states 2,841 2,852 2,841 2,892
------ ------ ------ ------
$7,357 $7,354 $7,357 $7,455
====== ====== ====== ======
</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 March 31, 1997, the net unrealized loss on securities
available-for-sale was $275,000 while at December 31, 1996 the net unrealized
gain was $521,000, representing an increase in net unrealized losses of
$796,000. As shown in the table below, investments in securities
available-for-sale totaled $86,933,000 at March 31, 1997 versus $85,958,000 at
December 31, 1996:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
- -------------------------------------------------------------------------------------------------------------------------------
Amortized Amortized
Cost Fair Cost Fair
(in thousands) Basis Value Basis Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Marketable equity securities $ 4,473 $ 4,877 $ 3,689 $ 4,002
Debt securities issued by the U.S. Treasury
and other U.S. government agencies 63,778 63,233 63,315 63,459
Corporation debt securities 7,082 7,026 8,122 8,117
Mortgage-backed securities 11,875 11,797 10,311 10,380
------- ------- ------- -------
$87,208 $86,933 $85,437 $85,958
======= ======= ======= =======
</TABLE>
NONPERFORMING ASSETS
Nonperforming assets are assets on which income recognition in the form of
principal and/or interest has either ceased or is limited, thereby reducing the
Company's earnings. Nonperforming assets include nonaccrual loans and other real
estate owned ("OREO"). Generally, loans are placed in nonaccrual status when
they are past due greater than ninety days or the repayment of interest or
principal is considered to be in doubt. In addition to nonperforming assets, the
asset quality of the Company can be measured by the amount of the provision,
charge-offs and several credit quality ratios presented in the discussion
concerning Provision and Allowance for Loan Losses.
13
<PAGE>
As shown on the table below, total nonperforming assets decreased $961,000 to
$6,907,000 at March 31, 1997 from $7,868,000 at December 31, 1996.
<TABLE>
(in thousands)
<CAPTION>
March 31, 1997 December 31,1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $5,740 $5,759
Other real estate owned 1,167 2,109
------ ------
Total nonperforming assets $6,907 $7,868
====== ======
Loans past due in excess of ninety days and accruing interest $ 10 $ 395
Ratio of nonperforming assets to total loans and OREO 2.4% 2.7%
Ratio of nonperforming assets and loans past due in excess of
ninety days and accruing interest to total loans and OREO 2.4% 2.8%
Ratio of allowance for loan losses to total loans 1.9% 1.9%
Ratio of allowance for loan losses to nonperforming assets and
loans in excess of ninety days past due and accruing interest 80.6% 66.7%
Ratio of nonperforming assets and loans in excess of ninety days
past due and accruing interest to total shareholders' equity 17.0% 20.4%
Ratio of nonperforming assets to total assets 1.6% 1.8%
</TABLE>
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 made to reduce the carrying amount of loans to the
fair market value of the properties less estimated selling expenses upon
reclassification as OREO. Subsequent reductions are charged to operating income.
Activity in Nonperforming Assets
(Amounts in thousands)
Three Months Ending March 31, 1997 1996
- -------------------------------------------------------------------------------
Beginning Balance; December 31, 1996 and 1995 $7,868 $5,453
Additions 906 1,181
Reductions:
Payments (431) (308)
Loans returned to performing status 0 (416)
Charge-offs and writedowns (328) (527)
Sales/other, net (1,108) (219)
------ --------
Ending Balance $6,907 $5,164
====== ======
Compared to first quarter of 1996, nonperforming assets primarily increased due
to the acquisition which accounted for $4,360,000 and $585,000 in nonaccural
loans and OREO, respectively. In addition, reduced reclassifications and
increased sales of OREO served to reduce nonperforming assets during the first
quarter of 1997.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
NECB's allowance for loan losses represents amounts available for future credit
losses. Management continually assesses the adequacy of their allowances for
loan losses in response to current and anticipated economic conditions, specific
problem loans, historical net charge-offs and the overall risk profile of their
loan portfolios. Management allocates specific allowances to individual problem
loans based upon its analysis of the potential for loss perceived to exist
related to such loans. In addition to the specific allowances for individual
loans, a portion of the allowance is maintained as a general allowance. The
amount of the general allowance 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. Based upon these analyses, the Company believes
that its allowance for loan losses at year-end is adequate.
14
<PAGE>
The following table summarizes the activity in the allowance for possible loan
losses for the three months ending March 31, 1997 and 1996 was as follows:
(in thousands)
Three Months Ended March 31, 1997 1996
- -------------------------------------------------------------------------------
Balance beginning of period $5,514 $4,446
Provisions charged to operations 243 532
Recoveries on loans previously charged-off 67 53
Loans charged-off (247) (511)
------ ------
Balance end of period $5,577 $4,520
====== ======
Provisions for possible loan losses charged to operations for the first three
months of 1997 were $247,000, representing an decrease of $289,000 from the same
period in 1996. During the three month period, charge-offs decreased by
$264,000. 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
The Company endeavors to maintain an optimal amount of capital upon which an
attractive return to shareholders will be realized over the short and long run
while meeting all regulatory requirements for minimum levels of capital.
As of March 31, 1997, the Company exceeded all regulatory capital ratios and the
subsidiaries were categorized as "well capitalized." The various capital ratios
of the Company for March 31, 1997 and 1996 were:
MINIMUM LEVEL 1997 1996
------------- ---- ----
Total Risk-Based.......... 8% 13.69% 13.43%
Tier 1 Risk-Based......... 4% 12.44% 12.18%
Leverage.................. 4% 8.71% 9.37%
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.
15
<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) In an agreement dated February 25, 1997, the Company and
First Bank of West Hartford ("First Bank") agreed to
consummate a business combination transaction in which
First Bank will merge with and into NECB's New England
Bank subsidiary. The agreement is subject to the
approval of regulators and the shareholders of both the
Company and First Bank and is expected to close in third
quarter of 1997.
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 March 31, 1997:
(i) On January 22, 1997, the Board of Directors
of NECB accepted the retirement of John A. Coccomo, Sr. effective
January 16, 1997, as a Director and Corporate Secretary of the Company and sub-
sidiary NEBT.
(ii) On February 24, 1997, NECB announced that
its Annual Meeting of Shareholders will be held on Tuesday May 20, 1997 at
10:00 a.m. at La Renaissance, 53 Prospect Hill Road (Route 5), East Windsor,
Connecticut. NECB's Board of Directors fixed the close of business on March 31,
1997 as the record date for determination of shareholders entitled to notice of
and to vote at the Annual Meeting.
(iii) On February 25, 1997, NECB and First Bank of West
Hartford ("First Bank") issued a joint press release announc- ing the signing of
a definitive agreement (the "Agreement") between NECB and First Bank whereby
First Bank will be acquired by NECB ("the Acquisi- tion"). NECB anticipates that
First Bank will be merged with and into its Connecticut bank subsidiary, New
England Bank & Trust Company. Under the term of the Agreement, First Bank
shareholders willreceive 0.62 of a share of common stock of NECB in exchange for
each share of First Bank common stock. The Acquisition is subject to customary
conditions, including but not limited to the approval by federal and state bank
regulatory authorities and the shareholders of First Bank and NECB. First Bank,
operates out of a single office located in West Hartford, Connecticut and at
December 31, 1996--had assets of approx- imately $84 million, deposits of
approxima- tely $70 million, loans of approximately $47 million and
shareholders' equity of approxima- tely $9 million. The management of NECB and
First Bank anticipate that the Acquisition will close during the third quarter
of 1997 and will be accounted for as a pooling of interests.
16
<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.
Date: May 14, 1997 By: S/S ANSON C. HALL
-----------------
Anson C. Hall
Vice President and Treasurer
17
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