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, 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 October
31, 1997 was 4,662,521.
The total number of pages in this report is 19.
1
<PAGE>
NEW ENGLAND COMMUNITY BANCORP, INC.
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements:
Consolidated Balance Sheets--September 30, 1997 (unaudited)
and December 31, 1996 4
Consolidated Statements of Income--three and nine months ended
September 30, 1997 and 1996 (unaudited) 5
Consolidated Statements of Cash Flows--nine months ended
September 30, 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 9
Part II. OTHER INFORMATION 18
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits, Financial Statement Schedules and Reports on Form 8-K 18
SIGNATURES 19
2
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Part I--FINANCIAL INFORMATION
Item 1. Financial Statements
3
<PAGE>
NEW ENGLAND COMMUNITY BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(thousands of dollars)
September 30, December 31,
1997 1996
(Unaudited)
- --------------------------------------------------------------------------------
ASSETS:
Cash and due from banks $ 30,209 $ 24,729
Federal funds sold 3,500 15,125
--------- ---------
Cash and cash equivalents 33,709 39,854
Securities held-to-maturity 12,043 13,333
Securities available-for-sale 103,278 105,137
Federal Home Loan Bank stock 2,615 2,440
Loans outstanding 349,344 336,204
Less: allowance for possible loan losses (7,246) (6,660)
--------- ---------
Net loans 342,098 329,544
Mortgages held-for-sale 1,990 1,931
Accrued interest receivable 3,632 3,913
Premises and equipment 9,819 9,965
Other real estate owned 1,005 2,316
Goodwill 4,228 4,464
Other assets 3,758 3,857
--------- ---------
Total Assets $ 518,175 $ 516,754
========= =========
LIABILITIES:
Deposits:
Noninterest bearing $ 92,883 $ 89,767
Interest bearing 349,519 367,237
--------- ---------
Total deposits 442,402 457,004
Short-term borrowings 9,783 2,278
Long-term debt 11,893 3,951
Other liabilities 2,166 4,301
--------- ---------
Total Liabilities 466,244 467,534
SHAREHOLDERS' EQUITY:
Common Stock, $.10 par value,
authorized 10,000,000 shares:
September 30, 1997, 4,662,521 outstanding;
December 31, 1996, 4,622,586 outstanding 466 462
Additional paid-in capital 38,458 38,546
Retained earnings 12,620 10,003
Net unrealized gain (loss) on securities
available-for-sale 387 209
--------- ---------
Total Shareholders' Equity 51,931 49,220
--------- ---------
Total Liabilities & Shareholders' Equity $ 518,175 $ 516,754
========= =========
The accompanying notes are an integral part of these statements.
4
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NEW ENGLAND COMMUNITY BANCORP, INC.
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
(thousands of dollars; except per share data)
Nine Months Ended Three Months Ended
September 30, September 30,
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $ 23,086 $ 20,058 $ 7,840 $ 7,386
Securities:
Taxable interest 5,429 4,559 1,768 1,790
Interest exempt from federal income taxes 96 85 38 33
Dividends 244 285 93 69
Federal funds sold and other interest 325 403 88 125
-------- -------- -------- --------
Total interest income 29,180 25,390 9,827 9,403
INTEREST EXPENSE:
Deposits 9,385 8,966 3,164 3,273
Borrowed funds 629 175 261 88
-------- -------- -------- --------
Total interest expense 10,014 9,141 3,425 3,361
Net interest income 19,166 16,249 6,402 6,042
Provision for possible loan losses 1,033 1,615 475 476
-------- -------- -------- --------
Net interest income after provision for possible loan losses 18,133 14,634 5,927 5,566
NONINTEREST INCOME:
Service charges, fees and commissions 1,905 1,468 636 519
Investment securities gains, net 168 (29) 7 (24)
Gain on the sales of loans, net 590 794 175 300
Other 106 301 35 81
-------- -------- -------- --------
Total noninterest income 2,769 2,534 853 876
NONINTEREST EXPENSE:
Salaries and employee benefits 7,210 6,076 2,404 2,238
Occupancy 1,579 1,340 501 497
Furniture and equipment 1,112 796 469 312
Outside services 758 799 52 326
Postage and supplies 552 483 161 194
Insurance and assessments 139 142 45 46
Losses, writedowns, expenses - other real estate owned 336 441 175 78
Amortization of goodwill 236 85 79 71
Other 3,189 1,476 1,919 533
-------- -------- -------- --------
Total noninterest expense 15,111 11,638 5,805 4,295
-------- -------- -------- --------
Income before taxes 5,791 5,530 975 2,147
Income taxes 2,366 1,566 552 602
-------- -------- -------- --------
Net Income $ 3,425 $ 3,964 $ 423 $ 1,545
======== ======== ======== ========
Net income per share $ 0.74 $ 0.98 $ 0.09 $ 0.35
Weighted average shares of Common Stock outstanding 4,632 4,042 4,649 4,429
</TABLE>
The accompanying notes are an integral part of these statements.
5
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NEW ENGLAND COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(thousands of dollars)
Nine Months Ended September 30, 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ $ 3,425 $ 3,694
Adjustment for noncash charges (credits):
Provision for depreciation and amortization 781 701
Losses from sale or disposal and provisions to reduce
the carrying value of other real estate owned, net 160 359
Securities losses (gains), net (168) 29
Accretion of discounts and amortization of premiums on bonds, net 14 59
Accretion, net of amortization, of purchase accounting adjustments (160)
Amortization of goodwill 236 85
Provision for possible loan losses 1,033 1,615
Gain on sale of loans, net (590)
(Increase) decrease in accrued interest income and other assets, net 745 (91)
Decrease (increase) in loans held-for-sale 531 (1,825)
(Decrease) increase in accrued interest payable and
other liabilities, net (2,348) (1,428)
-------- --------
Net cash provided by operating activities 3,659 3,468
-------- --------
FINANCING ACTIVITIES:
Net decrease in noninterest-bearing accounts 3,116 (3,418)
Net (decrease) increase in interest-bearing accounts (17,504) (7,914)
Increase (decrease) in short-term borrowings 7,505 3,599
Increase (decrease) in long-term borrowings 7,942 4,343
Proceeds from issuance of common stock 26 1,210
Cash equivalents acquired, net 14,236
Cash dividends paid (1,045) (709)
-------- --------
Net cash used for financing activities 40 11,347
-------- --------
INVESTING ACTIVITIES:
Loans originated, net of principal collections (14,834) (390)
Proceeds from sales of loans 38 313
Decrease in interest-bearing time deposits 3,000
Purchases of securities available-for-sale (34,058) (54,111)
Proceeds from sales of securities available-for-sale 20,220 16,471
Proceeds from maturities of securities available-for-sale 16,148 24,136
Purchases of securities held-to-maturity (25) (5,913)
Proceeds from maturities of securities held-to-maturity 1,000 5,752
Proceeds from sales of other real estate owned 2,412 1,501
Purchases of premises and equipment, net (648) (1,108)
Capitalization of expenditures on other real estate owned (97)
--------
Net cash provided by (used for) investing activities (9,844) (10,349)
-------- --------
Increase (decrease) in cash and cash equivalents (6,145) 4,466
-------- --------
Cash and cash equivalents, beginning of period 39,854 30,764
-------- --------
Cash and cash equivalents, end of period $ 33,709 $ 35,230
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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 - Mergers and Acquisitions
- ---------------------------------
On July 11, 1996, NECB 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. MSB was merged with and
into NECB's Connecticut banking subsidiary New England Bank & Trust Company
("NEBT"). The transaction was accounted for as a purchase, and thus, the
comparative statements do not include prior operating results of the acquired
entity.
On August 8, 1997, NECB acquired First Bank of West Hartford ("FBWH") by issuing
995,355 shares of the Company's common stock for all of the outstanding common
shares of FBWH and all fully vested and exercisable stock options. FBWH was also
merged with and into NEBT. The acquisition of FBWH was accounted for as a
pooling of interests and as such all prior results have been restated as though
the companies had been combined as of the earliest period presented.
Note 3- Merger Agreement
- ------------------------
On September 17, 1997, Community Savings Bank ("CSB") entered into a Plan and
Agreement of Reorganization (the "Agreement") with NECB. Pursuant to the
Agreement, at the Effective Time (as defined in the Agreement), CSB will be
acquired by NECB and become NECB's third banking subsidiary.
Under the terms of the Agreement, CSB shareholders will receive $5.30 in cash in
exchange for each share of CSB 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 CSB. CSB operates two
locations in Bristol, Connecticut and serves the surrounding communities. At
June 30, 1997, CSB had assets of approximately $71 million, deposits of
approximately $66 million, loans of approximately $55 million, and shareholders'
equity of approximately $4 million.
The Agreement is subject to a number of conditions including, but not limited
to, approval by CSB shareholders and approval of regulatory agencies including
the State of Connecticut Banking Commissioner and is expected to close in the
fourth quarter of 1997. NECB expects to account for the transaction as a
purchase.
7
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<TABLE>
<CAPTION>
Note 4- Disclosure for Statements of Cash Flows
- -----------------------------------------------
<S> <C> <C>
Schedule of noncash investing and financing activities:
Loans charged off, net of recoveries $ 447 $2,574
Real estate acquired through foreclosure 1,164 1,802
Loans originated to facilitate sales of other real estate owned 834
Income tax paid 1,239 1,815
Interest paid 10,225 9,300
</TABLE>
8
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Part I--FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
9
<PAGE>
OVERVIEW
- --------
The Company's earnings are largely dependent upon net interest income and
noninterest income from its community banking operations--with net interest
income providing the majority of the Company's revenues. Net interest income is
the difference between interest earned on the loan and investment portfolios and
interest paid on deposits and other sources of funds. Noninterest revenue is
primarily derived from service charges, fees and commissions related to deposit
accounts and the Company's service loan portfolio. As noted in Note 2 above, the
acquisition of FBWH was accounted for as a pooling of interests. As such, all
prior results have been restated as though the companies had been combined as of
the earliest period presented.
During the third quarter of 1997, NECB reported net income of $423,000 or $0.09
per share compared to net income of $1,545,000 or $0.35 per share for the same
quarter last year. The results included onetime charges, net of related taxes,
amounting to $1,192,000 (or $0.26 per share) which reflected the cost of the
acquisition of FBWH and related restructuring expenses. Excluding these
nonrecurrring charges, net income amounted to $1,615,000 or $0.35 per share,
which on a per share basis, is unchanged from the same period a year earlier.
For the three months ended September 30, 1997, net interest income on a fully
taxable-equivalent basis totaled $6,402,000 compared to $6,042,000 in 1996. The
$360,000 increase in net interest income is largely due to growth in loans
outstanding. Provisions for possible loan losses were virtually unchanged and
amounted to $475,000 and $476,000 in 1997 and 1996, respectively.
Noninterest income decreased to $853,000 in 1997 from $876,000 in 1996. The
majority of this decrease is due to a $125,000 decrease in gains on the sale of
loans--primarily loans originated under the SBA program. Largely due to capital
constraints, the former FBWH's practice was to sell the guaranteed portion of
these loans. Conversely, NECB's strong capital position has provided management
with the opportunity to place these relatively high yielding loans in NECB's own
portfolio. The short-term effect of retaining these loans is reduced gains from
the sale of such loans. Noninterest expense totaled $5,805,000 in 1997 compared
to $4,295,000 in 1996. The increase resulted primarily from the charge taken in
conjunction with the acquisition of FBWH along with other initiatives undertaken
by NECB.
Through the nine months of 1997, NECB reported net income of $3,425,000 or $0.74
per share. Exclusive of merger related expenses, net income from operations
amounted to $4,617,000, or $1.00 per share, an increase of $653,000 compared to
$3,964,000 or $0.98 per share for the same period last year. 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. During the first nine months of 1997, net interest income on a fully
taxable-equivalent basis totaled $19,280,000 compared to $16,435,000 in 1996. A
reduction in provisions for loan losses and increases in noninterest income
(primarily service charges, fees and commissions which increased almost 30% from
last year) and gains on sale of securities also contributed significantly to the
improved earnings. Noninterest revenue increased by $235,000 and totaled
$2,769,000 in 1997 from $2,534,000 in 1996 while noninterest expense totaled
$15,111,000 in 1997 compared to $11,638,000 in 1996.
Excluding the onetime charges discussed above, returns on average assets and
average equity for the nine months ended September 30, 1997 were 1.22% and
12.05%, compared to 1.21% and 13.26% for the same period a year earlier.
Total assets at September 30, 1997 were $517,883,000 compared to $516,754,000 at
December 31, 1996. Noteworthy changes from December 31, 1996 include loans
outstanding which increased by $13,140,000 and other real estate owned ("OREO")
which decreased by $1,311,000. Total deposits decreased by $14,602,000 and total
borrowings (including long-term debt) increased by $15,447,000 from December 31,
1996. Total equity amounted to $51,578,000 at September 30, 1997 compared to
$49,220,000 at December 31, 1996.
10
<PAGE>
RESULTS OF OPERATIONS--THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
- ---------------------------------------------------------------------
For the three months ended September 30, 1997, the Company reported net income
of $423,000 or $0.09 per share as compared to $1,545,000 or $0.35 per share for
the same period of 1996. The largest factor in the change was the onetime charge
of $1,192,000 which, as noted above, reflected the cost of the acquisition of
FBWH and related restructuring expenses--net of related taxes.
Net interest income increased $360,000 and noninterest revenue decreased
$23,000. Noninterest expenses, which included $1,253,000 related to the FBWH
merger, increased by $1,510,000.
Net Interest Income
- -------------------
The principal earning asset of the Company is its loan portfolio--which is
comprised of loans to finance operations of businesses located primarily 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.
<TABLE>
<CAPTION>
(amounts in thousands)
Three Months Ended September 30, 1997 1996 % Change
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income (financial statements) $9,827 $9,403 4.51%
Tax equivalent adjustment 33 54 (38.89%)
------ ------
Total interest income (on an FTE basis) 9,860 9,457 4.26%
Interest expense (3,425) (3,361) 1.90%
------ ------
Net interest income (fully taxable equivalent) $6,435 $6,096 5.56%
====== ======
</TABLE>
For the third quarter of 1997, net interest income on an FTE basis was
$6,435,000, a 5% increase over the $6,096,000 in the comparable period in 1996.
A key factor in the $339,000 increase in 1997 was the increase in average loans
outstanding. Internal growth and the acquisition of MSB (which provided an
additional $77,000,000 in loans outstanding) served to increase the quarterly
average by approximately $16,000,000 and $8,000,000, respectively.
11
<PAGE>
The net interest margin measures the difference in yield on, and the mix of,
interest-earning assets and interest-bearing liabilities. As shown in the table
below, the margin for the quarter ended September 30, 1997 increased to 5.40%
from 5.31% in 1996. The yield on earning assets improved from 8.23% to 8.28%
while the yield on interest-bearing liabilities was unchanged at 3.68%.
<TABLE>
<CAPTION>
Consolidated Average Balances/Interest Earned or Paid/Rates
- -----------------------------------------------------------
Three Months Ended September 30, 1997 September 30, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
(amounts in thousands) Balance Interest Rate Balance Interest Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Federal funds sold $ 6,352 $ 88 5.50% $ 9,263 $ 125 5.35%
Securities held-to-maturity 9,294 177 7.56% 13,586 225 6.57%
Securities available-for-sale 109,521 1,755 6.36% 108,310 1,656 6.07%
Mortgages held for sale 2,031 36 7.03% 3,329 65 7.75%
Loans (A) 345,351 7,804 8.97% 321,357 7,386 9.12%
-------- ------ -------- ------
Total interest-earning assets 472,549 9,860 8.28% 452,095 9,457 8.23%
Allowance for loan losses (7,003) (7,711)
Cash and due from banks 21,636 19,941
Other assets 23,764 21,519
-------- --------
Total Assets $510,946 $489,594
======== ========
LIABILITIES:
Regular savings deposits $108,155 $ 629 2.31% $102,399 $ 585 2.27%
NOW account deposits 58,799 200 1.35% 59,156 194 1.30%
Money market deposits 3,811 11 1.15% 4,860 15 1.22%
-------- ------ -------- ------
Total savings deposits 170,765 840 1.95% 166,415 794 1.89%
Time deposits 180,457 2,324 5.11% 190,211 2,487 5.19%
Short-term borrowings 6,344 81 5.07% 1,118 15 5.32%
Long-term borrowings 11,407 180 6.26% 4,150 65 6.21%
-------- ------ -------- ------
Total interest bearing liabilities 368,973 3,425 3.68% 361,894 3,361 3.68%
Demand deposits 86,550 79,641
Other liabilities 2,974 4,034
-------- --------
Total Liabilities 458,497 445,569
Equity 52,449 44,025
Total Liabilities & Equity $510,946 $489,594
======== ========
Net interest income--FTE basis $6,435 $6,096
====== ======
Net interest margin 5.40% 5.31%
Net interest spread 4.60% 4.55%
</TABLE>
(A) AVERAGE LOANS INCLUDE NONACCRUING LOANS.
Rate/Volume Analysis
- --------------------
Changes in net interest income are divided into two components--the changes
resulting from the changes in average balances of earning assets and
interest-bearing liabilities (or "volume") and the changes in the rates earned
or paid on those balances. The changes in interest income and interest expense
attributable to changes in both volume and rate, which cannot be segregated,
have been allocated proportionately to the absolute values of the changes due to
volume and rate. The following table is presented on a FTE basis.
12
<PAGE>
<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 $ (37) $ 3 $ (40)
Securities held-to-maturity (48) 30 (78)
Securities available-for-sale 99 80 19
Mortgages held for sale (29) 0 3
Loans 418 (126) 544
----- ----- ----
Total interest-earning assets 403 (12) 447
----- ----- ----
INTEREST PAID ON:
Regular savings deposits $ 44 $ 11 $ 33
NOW account deposits 6 7 (1)
Money market deposits (4) (1) (3)
----- ----- ----
Total savings deposits 46 17 29
Time deposits (163) (37) (126)
Short-term borrowings 66 (1) 67
Long-term borrowings 115 0 115
----- ----- ----
Total interest-bearing liabilities 64 (20) 84
----- ----- ----
Net interest income change $ 339 $ 8 $363
===== ===== ====
</TABLE>
Noninterest Income
- ------------------
For the quarter ended September 30, 1997, noninterest income decreased $23,000,
or 3%, from 1996 and totaled $853,000. Service charges, fees and commissions
increased 23% and totaled $636,000 in 1997 compared to $519,000 in 1996.
Included in service charges, fees and commissions are fees on deposits, loan
servicing fees and other fees and charges. Gains on the sale of loans and other
income decreased by $125,000 and $46,000, respectively. The decrease in gains on
the sale loans primarily reflect NECB's decision to retain the guaranteed
portion of loans originated under the SBA program. As noted previously, prior to
its acquisition, FBWH usually sold these assets as they were originated.
Noninterest Expense
- -------------------
Noninterest expenses amounted to $5,805,000 during the third quarter of 1997.
This is a $1,510,000 increase, or 35%, over $4,295,000 reported during the same
period in 1996. This increase is largely the result of the charges taken in
conjunction with the acquisition of FBWH net of the initial savings achieved
from the consolidation of FBWH. Excluding these effect of this charges,
noninterest expense increased $257,000 when compared to the same period a year
earlier. This increase resulted primarily from increases in salaries and benefit
expense, which rose in response to both merit increases and Company-paid
insurance expense, and increased furniture and equipment expense.
Results of Operations--Nine Months ended September 30, 1997
- -----------------------------------------------------------
For the nine months ended September 30, 1997, the Company reported net income of
$3,425,000 or $0.74 per share. Exclusive of merger related expenses, net income
from operations amounted to $4,617,000 or $1.00 per share an increase of
$653,000 compared to $3,964,000 or $0.98 per share for the first nine months of
1996. Increases in net interest income and noninterest revenue of $2,917,000 and
$235,000, respectively, were offset by the $3,473,000 increase in noninterest
expenses--which includes the $1,253,000 charge discussed previously.
13
<PAGE>
Net Interest Income
- -------------------
<TABLE>
<CAPTION>
(amounts in thousands)
Nine Months Ended September 30, 1997 1996 % Change
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income (financial statements) $29,180 $25,390 14.93%
Tax equivalent adjustment 114 186 (38.71%)
------- -------
Total interest income (on an FTE basis) 29,294 25,576 14.54%
Interest expense (10,014) (9,141) 9.55%
------- -------
Net interest income (fully taxable equivalent) $19,280 $16,435 17.31%
</TABLE>
Noninterest Income
- ------------------
For the first nine months of 1997, noninterest income increased $235,000, or 9%,
and totaled $2,769,000 compared to $2,534,000 in the previous year. Contributing
significantly to this increase was the 30% increase in service charges, fees and
commissions which is largely due to the MSB acquisition. Also contributing to
the increase were gains on the sale of securities which increased $197,000 and
totaled $168,000 compared to a loss of $29,000 in 1996. These increases were
offset by the $204,000 decrease in gains on the sale of loans and the $195,000
decrease in other income.
Noninterest Expense
- -------------------
Through the first nine months of 1997, noninterest expenses amounted to
$15,111,000. Exclusive of the FBWH charge, noninterest expense rose $2,220,000
increase, or 16%, over the $11,638,000 reported during the same period in 1996.
This increase is largely the result of NECB's acquisition of MSB in July 1996.
Beyond the effect of the acquisition, noteworthy changes occurred in furniture
and equipment and amortization of goodwill which increased by $316,000 and
$151,000, respectively, from there 1996 levels. Furniture and equipment expense
rose in response to the acquisition and additional lease and maintenance expense
associated with the deployment of new systems and technology. In the last twelve
months, the Company has introduced several new programs including: New England
ACCESS, a cash management system; TELEBANK, a interactive voice response system
which allows account access via the telephone; and check imaging. Helping to
offset the effect of the above increases was a $105,000 decrease in OREO related
expense, which amounted to $336,000 compared to $441,000 for the same period a
year earlier.
Financial Condition
- -------------------
Total assets at September 30, 1997 were $517,883,000, an increase of $1,129,000
from $516,754,000 at December 31, 1996. During the first nine months of 1997
loans outstanding increased $13,140,000 or 4% to $349,344,000. Aided by moderate
interest rates (with the benchmark Prime Rate at 8.50%) and its innovative
marketing programs, NECB was able to continue attracting many new customers to
its bank subsidiaries. Both securities available-for-sale and held-to-maturity
decreased from December 31, 1996 and ended the period at $103,278,000 and
$12,043,000, respectively, compared to $105,137,000 and $13,333,000,
respectively, at year-end. Federal funds were reduced by $11,625,000 from
$15,125,000 at December 31, 1996 to $3,500,000 at September 30, 1997. 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 and its customers.
The $1,311,000 reduction in other real estate owned to $1,005,000 at September
30, 1997. During the first nine months of the year the Company acquired
properties with a value of $1,164,000 through foreclosure and sold properties
with a market value of $2,442,000.
Total deposits, which constitute the principal funding source of the Company's
assets, decreased $14,602,000 from December 31, 1996 and amounted to
$442,402,000 at September 30, 1997. During the year, management increased
borrowings--primarily from the Federal Home Loan Bank of Boston. Short-term
borrowings increased by $7,505,000 and stood at $9,783,000 at quarter-end while
long-term debt increased by $7,942,000 from December 31, 1996 and stood at
$11,893,000 at September 30, 1997. Other liabilities were $2,227,000, a decrease
of $2,074,000 from $4,301,000 at December 31, 1996 and is primarily the result
of the payment made to dissenting shareholders of EQBK. Total shareholders'
equity was $51,578,000 at September 30, 1997, an increase of $2,358,000 over
December 31, 1996.
14
<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
decreased from December 31, 1996 and totaled $12,043,000 at September 30, 1997
compared to $13,333,000 at December 31, 1996.
<TABLE>
<CAPTION>
September 30, 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 $ 9,203 $ 9,243 $10,317 $10,319
Debt securities issued by states and
political subdivisions of the states 2,840 2,924 3,016 3,067
------- ------- ------- -------
$12,043 $12,167 $13,333 $13,386
======= ======= ======= =======
</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, 1997, the net unrealized gain on
securities available-for-sale was $655,000 while at December 31, 1996 the net
unrealized gain was $368,000, representing a decrease in net unrealized gains of
$287,000. As shown in the table below, investments in securities
available-for-sale totaled $103,278,000 at September 30, 1997 versus
$105,137,000 at December 31, 1996:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
- -------------------------------------------------------------------------------------------------------------
Amortized Amortized
Cost Fair Cost Fair
(in thousands) Basis Value Basis Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Marketable equity securities $ 8,141 $ 8,173 $ 3,710 $ 4,002
Debt securities issued by the U.S. Treasury
and other U.S. government agencies 72,091 72,536 82,647 82,638
Corporation debt securities 9,521 9,582 8,122 8,117
Mortgage-backed securities 12,871 12,987 10,311 10,380
-------- -------- -------- --------
$102,624 $103,278 $104,790 $105,137
======== ======== ======== ========
</TABLE>
Nonperforming Assets
- --------------------
Nonperforming assets are assets on which income recognition in the form of
interest payments 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.
15
<PAGE>
As shown on the table below, total nonperforming assets decreased $2,688,000 to
$6,069,000 at September 30, 1997 from $8,757,000 at December 31, 1996.
<TABLE>
<CAPTION>
(in thousands)
September 30, 1997 December 31,1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $5,064 $6,441
OREO 1,005 2,316
------ ------
Total nonperforming assets $6,069 $8,757
====== ======
Loans past due in excess of ninety days and accruing interest $ 585 $ 395
Ratio of nonperforming assets to total loans and OREO 1.7% 2.6%
Ratio of nonperforming assets and loans past due in excess of
ninety days and accruing interest to total loans and OREO 1.9% 2.7%
Ratio of allowance for loan losses to total loans 2.1% 2.0%
Ratio of allowance for loan losses to nonperforming assets and
loans in excess of ninety days past due and accruing interest 108.9% 72.8%
Ratio of nonperforming assets and loans in excess of ninety days
past due and accruing interest to total shareholders' equity 12.9% 18.6%
Ratio of nonperforming assets to total assets 1.2% 1.7%
</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 when necessary are charged to
operating income.
Activity in Nonperforming Assets
(Amounts in thousands)
Nine Months ending September 30, 1997 1996
- ----------------------------------------------------------------------------
December 31, 1996 and 1995 $8,757 $8,314
Changes incident to acquisition of MSB 0 4,897
Additions 2,861 4,143
Reductions:
Payments (1,557) (2,311)
Loans returned to performing status (496) (1,228)
Charge-offs and writedowns (1,198) (3,154)
Sales, net (2,298) (1,545)
------ ------
Ending Balance, September 30, 1997 and 1996 $6,069 $9,116
====== ======
The decrease in nonperforming assets is primarily due to the resolution of
problem assets acquired from the MSB acquisition which added $4,360,000 and
$537,000 in nonaccural loans and OREO, respectively. In addition, reduced
reclassifications and increased sales of OREO served to reduce nonperforming
assets during 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.
The following table summarizes the activity in the allowance for possible loan
losses for the nine months ending September 30, 1997 and 1996 was as follows:
16
<PAGE>
(in thousands)
Nine Months Ended September 30, 1997 1996
- ------------------------------------------------------------------------
Balance beginning of period $6,660 $5,875
Changes incident to acquisition of MSB 2,010
Provisions charged to operations 1,033 1,615
Recoveries on loans previously charged-off 477 265
Loans charged-off (924) (2,839)
------ ------
Balance end of period $7,246 $6,926
====== ======
Provisions for possible loan losses charged to operations for the first nine
months of 1997 were $1,033,000, representing an decrease of $582,000 from the
same period in 1996. During the nine month period, charge-offs decreased by
$1,915,000. 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 September 30, 1997, the Company exceeded all regulatory capital ratios and
the subsidiaries were categorized as "well capitalized." The various capital
ratios of the Company for September 30, 1997 and 1996 were:
Minimum Level 1997 1996
------------- ---- ----
Total Risk-Based..... 8% 14.38% 13.99%
Tier 1 Risk-Based.... 4% 13.12% 12.71%
Leverage............. 4% 9.33% 8.88%
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.
17
<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 - None
Item 6. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Exhibits
Exhibit Number Exhibit
3 Bylaws of NECB, as amended
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 Sept-
ember 30, 1997:
(i) Special Meeting of Stockholders
On August 5, 1997 it was reported under Item 5, Other Events, that
at a special meeting of Stockholders of NECB held on July 28, 1997, its Stock-
holders voted to approve the acquisition of FBWH by NECB.
(ii) Acquisition of FBWH
In an initial report filed on August 15, 1997 (and amended on
October 14, 1997) it was reported that NECB had completed its acquisition of
FBWH and the required financial statements and pro forma financial information
related to the transaction provided.
(iii) Acquisition of CSB
On September 19, 1997 it was reported, under Item 5, that at
separate meetings on September 16, 1997 and September 17, 1997 the Boards of
Directors of NECB and CSB), respectively, approved a definitive agreement
whereby CSB will be acquired by NECB. The Agreement was then executed on
September 17, 1997. CSB will become NECB's third banking subsidiary
18
<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: November 13, 1997 By: s/s Anson C. Hall
-----------------
Anson C. Hall
Vice President and Treasurer
19
BYLAWS
OF
NEW ENGLAND COMMUNITY BANCORP, INC.
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE IN DELAWARE. The principal office of New
England Community Bancorp, Inc. (the "Corporation") in the State of Delaware
shall be c/o The Corporation Trust Company, 1209 Orange Street, Wilmington, DE
19801.
Section 2. OTHER OFFICES. The Corporation may have a principal or
other office at such other place or places, either within or without the State
of Delaware, as the Board of Directors may from time to time determine or as
shall be necessary or appropriate for the conduct of the business of the
Corporation.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS. All meetings of the stockholders for
the election of directors shall be held in the County of Hartford and State of
Connecticut. The Board of Directors shall fix the place within said county for
the holding of such meetings, and at least ten (10) days notice shall be given
to the stockholders of the place so fixed in the manner set forth in Section 6
of this Article II. All other meetings of the stockholders shall be held at such
place or places, within or without the State of Delaware, as may from time to
time be fixed by the Board of Directors, or as shall be specified in the
respective notices or waivers of notice thereof.
Section 2. ANNUAL MEETINGS. The annual meeting of the stockholders
for the election of directors and the transaction of other business shall be
held on a date fixed by the Board of Directors, but no later than the third
Tuesday in May. If this date shall fall upon a legal holiday, the meeting shall
be held on the next succeeding business day. At each annual meeting the
stockholders entitled to vote shall elect a Board of Directors and may transact
such other corporate business as may be brought before the meeting.
Section 3. NOTICE OF STOCKHOLDER BUSINESS. At an annual meeting of
the stockholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting business must be: (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before the meeting by a
stockholder of record. For business to be properly brought before an annual
meeting by a stockholder, the stockholder must have given timely notice thereof
in writing to the Secretary of the Corporation. To be timely, a stockholder's
notice must be delivered
<PAGE>
to or mailed and received at the principal executive offices of the Corporation,
not less than sixty (60) days nor more than ninety (90) days prior to the
meeting; provided, however, that if both (i) fewer days than seventy (70) days
notice of the meeting is given to stockholders, and (ii) such meeting is held
more than thirty (30) days before or after the corresponding date of the annual
meeting held in the preceding year, then such written notice shall be received
not later than the close of the tenth day following the day on which notice of
the meeting was mailed to stockholders. As used herein, notice to the
stockholders shall be deemed to have been given on the date of the Corporation's
quarterly report, letter to stockholders or other communication to stockholders
disclosing the date of the next annual meeting and provided that the annual
meeting is in fact held on such date or within thirty (30) days after such date.
A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting: (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the Corporation's books, of the stockholder proposing
such business, (c) the class and number of shares of stock of the Corporation of
which the stockholder is the Beneficial Owner (as that term is defined in the
Restated Certificate of Incorporation of the Corporation), and (d) any material
interest of the stockholder in such business. Notwithstanding anything in the
Bylaws to the contrary, no business shall be conducted at any annual meeting
except in accordance with the procedures set forth in this Section 3. The
Chairman of the annual meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 3, and any such business not
properly brought before the meeting shall not be transacted.
Section 4. SPECIAL MEETINGS. A special meeting of the stockholders
(or of any class thereof entitled to vote) for any purpose or purposes may be
called at any time by the Chairman of the Board, the President or by order of a
majority of the Board of Directors. Special meetings may not be called by any
other person or persons.
Section 5. QUALIFICATIONS OF DIRECTORS. No person shall be elected,
or hold a position as a director of the Corporation, if such person has been
convicted of a felony, been held in an administrative proceeding or the courts
of the United States or any state thereof to have violated the securities or
blue sky laws of the United States or any such state, has not attended at least
75% of the meetings of the Board of the Corporation or of any other public
corporation while a director, unless such absences were excused by such board,
or after the close of the fiscal year in which such person's 68th birthday
occurs. In addition, each nominee shall meet any qualifications or requirements
promulgated by any agency regulating the Corporation.
Section 6. NOMINATION OF DIRECTORS. In addition to the right of the
Board of Directors of the Corporation to make nominations for the election of
directors, nominations for the election of directors may be made by any
stockholder entitled to vote for the election of directors if that stockholder
complies with all of the provisions of this Section 6.
<PAGE>
(a) Advance notice of such proposed nomination shall be
received by the Chairman of the Governance Committee of the Board of
Directors of the Corporation (which notice may be sent in care of
the Secretary of the Corporation) or, in the absence of such a
Committee, by the Secretary of the Corporation, not less than sixty
(60) days nor more than ninety (90) days prior to any meeting of the
stockholders called for the election of directors; provided,
however, that if both (i) fewer than seventy (70) days notice of the
meeting is given to stockholders, and (ii) such meeting is held more
than thirty (30) days before or after the corresponding date of the
annual meeting held in the preceding year, then such written notice
shall be received not later than the close of the tenth day
following the day on which notice of the meeting was mailed to
stockholders. As used herein, notice to the stockholders shall be
deemed to have been given on the date of the Corporation's quarterly
report, letter to stockholders or other communication to
stockholders disclosing the date of the next annual meeting,
provided that the annual meeting is in fact held on such date or
within thirty (30) days after such date.
(b) Each notice under Section 6(a) shall set forth (i)
the name, age, business address, and, if known, residence address of
the nominee proposed in such notice, (ii) the principal occupation
or employment of such nominee, (iii) the class and number of shares
of stock of the Corporation of which the nominee is the Beneficial
Owner (as that term is defined in the Restated Certificate of
Incorporation of the Corporation), (iv) a statement to the effect
that the nominee meets the qualifications set forth in Section 5 of
this Article II, and (v) any other information relating to such
person which would be required to be disclosed in public
solicitations of proxies for election of directors, or would be
otherwise required, in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934. In addition, the stockholder
making such nomination shall promptly provide any other information
reasonably requested by the Corporation.
(c) The nomination made by the stockholder may only be
made in a meeting of the stockholders of the Corporation called for
the election of directors at which such stockholder is present in
person or by proxy, and may only be made by a stockholder who has
therefore complied with the notice provisions of Section 6(a) and
(b) above.
(d) The Chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was
not made in accordance with the foregoing procedures, and the
defective nomination shall be disregarded.
Section 7. NOTICE OF MEETINGS. Except as otherwise expressly
required by law, notice of each meeting of stockholders, whether annual or
special, shall be given at least ten (10) days before the date on which the
meeting is to be held to each stockholder of record entitled to vote by
delivering a notice thereof to such stockholder personally or by mailing such
notice in a postage prepaid envelope directed to such stockholder at the address
as it appears on the stock ledger of the Corporation, unless there shall be
filed
<PAGE>
with the Secretary of the Corporation a written request that notices intended
for such stockholder be directed to another address, in which case such notice
shall be directed to the address designated in such request. Every notice of a
special meeting of the stockholders, besides stating the time and place of the
meeting, shall state briefly the objects or purposes thereof. Notices of any
meeting of stockholders shall not be required to be given to any stockholder who
shall attend such meeting in person or by proxy; provided, however, that if any
stockholder shall in person or by attorney thereunto authorized, in writing or
by telegraph, cable or wireless, waive notice of any meeting of the
stockholders, whether prior to or after such meeting, no such notice need be
given. Notice of any adjourned meeting of the stockholders shall not be required
to be given, except as expressly required by law.
Section 8. LIST OF STOCKHOLDERS. It shall be the duty of the
Secretary or other officer of the Corporation who shall have charge of the stock
ledger to prepare and make, at least ten (10) days before every election of
directors, a complete list of the stockholders entitled to vote, arranged in
alphabetical order, and showing the address, and the number of shares registered
in, the name of each stockholder. Such list shall be open for ten (10) days at
the place where said election is to be held or at some other specified place
within the City of Windsor, State of Connecticut to the examination of any
stockholder during ordinary business hours and shall be produced and kept at the
time and place of the election during the whole time thereof and subject to the
inspection of any stockholder who may be present. The original or duplicate
stock ledger shall be the only evidence as to who are the stockholders entitled
to examine such list or the books of the Corporation or to vote in person or by
proxy at such election.
Section 9. QUORUM. At each meeting of the stockholders, the holders
of record of one third (1/3) of the issued and outstanding stock of the
Corporation entitled to vote at such meeting, present in person or by proxy,
shall constitute a quorum for the transaction of business, except where
otherwise provided by law, the Restated Certificate of Incorporation or these
Bylaws. In the absence of a quorum, any officer entitled to preside at, or act
as Secretary of, such meeting shall have the power to adjourn the meeting from
time to time until a quorum shall be constituted. At any such adjourned meeting
at which a quorum shall be present any business may be transacted which might
have been transacted at the meeting as originally called, but only those
stockholders entitled to vote at the meeting as originally noticed shall be
entitled to vote at any adjournment or adjournments thereof.
Section 10. VOTING. Except as otherwise provided in the Restated
Certificate of Incorporation, at every meeting of the stockholders each holder
of record of the issued and outstanding stock of the Corporation entitled to
vote at such meeting shall be entitled to one vote in person or by proxy for
each such share of stock entitled to vote held by such stockholder, but no proxy
shall be voted after three (3) years from its date unless the proxy provides for
a longer period, and, except where the transfer books of the Corporation shall
have been closed for a date shall have been fixed as the record date for the
determination of stockholders entitled to vote, no share of stock shall be voted
at any election for directors which shall have been transferred on the books of
the Corporation within twenty
<PAGE>
(20) days next preceding such election of directors. Shares of its own capital
stock belonging to the Corporation directly or indirectly shall not be voted
upon directly or indirectly. At all meetings of the stockholders, a quorum being
present, all matters shall be decided by majority vote of the shares of stock
entitled to vote held by stockholders present in person or by proxy, except as
otherwise required by the laws of the State of Delaware. Unless otherwise
provided in the Restated Certificate of Incorporation, all elections of
directors shall be by ballot. Unless demanded by a stockholder of the
Corporation present in person or by proxy at any meeting of the stockholders and
entitled to vote thereat or as so directed by the Chairman of the meeting or
required by the laws of the State of Delaware, the vote thereat on any other
question need not be by ballot. On a vote by ballot, each ballot shall be signed
by the stockholder voting, or in his name by his proxy, if there be such proxy,
and shall state the number of shares voted by him and the number of votes to
which each share is entitled.
ARTICLE III
BOARD OF DIRECTORS
Section 1. GENERAL POWERS. The property, business and affairs of the
Corporation shall be managed by the Board of Directors.
Section 2. NUMBER AND TERM OF OFFICE. The number of directors shall
be fixed from time to time by resolution of the Board of Directors but shall not
be less than three (3). Directors shall be stockholders. Each director shall
hold office until the annual meeting of the stockholders next following election
and until a successor shall have been elected and shall qualify, or until such
director's death, resignation or removal.
Section 3. QUORUM AND MANNER OF ACTING. Unless otherwise provided by
law, the presence of one third (1/3) of the whole Board of Directors, and in any
case not less than two (2) directors, shall be necessary to constitute a quorum
for the transaction of business. In the absence of a quorum, a majority of the
directors present may adjourn the meeting from time to time until a quorum shall
be present. Notice of any adjourned meeting need not be given. At all meetings
of the directors, a quorum being present, all matters shall be decided by the
affirmative vote of a majority of the directors present, except as otherwise
required by the laws of the State of Delaware.
Section 4. PLACE OF MEETINGS, BOOKS AND RECORDS. The Board of
Directors may hold its meetings, and keep the books and records of the
Corporation, at such place or places within or without the State of Delaware as
the Board may from time to time determine.
Section 5. ANNUAL MEETING. As promptly as practicable after each
annual meeting of the stockholders for the election of directors, the Board of
Directors shall meet for the purpose of organization, the election of officers
and the transaction of other business. Notice of such meeting need not be given.
Such meeting may be held at any other time or place as shall be specified in a
notice given as hereinafter provided for special meetings of
<PAGE>
the Board of Directors or in a waiver of notice thereof signed by all the
directors.
Section 6. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held at such time and place, within or without the State of
Delaware, as shall from time to time be determined by the Board of Directors.
After there has been such determination, and notice thereof has been given to
each member of the Board of Directors, regular meetings may be held without
further notice.
Section 7. SPECIAL MEETINGS AND NOTICE THEREOF. Special meetings of
the Board of Directors shall be held whenever called by the Chairman of the
Board, the President or by a majority of the directors. Notice of each such
meeting shall be mailed to each director, addressed to such director's residence
or usual place of business, at least two (2) days before the date on which the
meeting is to be held, or shall be sent to such place by telegraph, cable, radio
or wireless, or be delivered personally or by telephone, not later than the day
before the day on which such meeting is to be held. Each such notice shall state
the time and place of the meeting and the purpose thereof. In lieu of the notice
to be given as set forth above, a waiver thereof in writing, signed by the
director or directors entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto for purposes of this Section
7. No notice to or waiver by any director with respect to any special meeting
shall be required if such director shall be present at said meeting.
Section 8. RESIGNATION. Any director of the Corporation may resign
at any time by giving written notice thereof to the Chairman of the Board, the
President or the Secretary of the Corporation. The resignation of any director
shall take effect upon receipt of notice thereof or at such later time as shall
be specified in such notice; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective. When
one or more directors shall resign from the Board, effective at a future date, a
majority of the directors then in office including those who have so resigned
shall have the power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective.
Section 9. REMOVAL. Any director may be removed if two thirds (2/3)
of the whole Board determines that the director in question is or has engaged in
activities, the nature of which have or would bring disrepute upon the
Corporation, at a meeting called for that purpose.
Section 10. VACANCIES. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, although less than a quorum, or
by a sole remaining director, unless otherwise provided by the Restated
Certificate of Incorporation or the laws of the State of Delaware.
Section 11. COMPENSATION OF DIRECTORS. By resolution of the Board,
directors may receive a stated salary for their services and a specific sum may
be allowed for attendance at each regular or special meeting of the Board or a
specific sum may be allowed for attendance at a meeting of any committee
thereof; provided that nothing herein contained
<PAGE>
shall be construed to preclude any director from serving the Corporation or any
subsidiary thereof in any other capacity and receiving compensation therefore.
Section 12. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees. Each
committee shall consist of two or more directors of the Corporation, which, to
the extent provided in the resolution or in these Bylaws, shall have and may
exercise such powers of the Board in the management of the business and affairs
of the Corporation (including the power to authorize the seal of the Corporation
to be affixed to all papers which may require it), as the Board may by
resolution determine and specify in the respective resolutions appointing them,
subject to such restrictions as may be contained in the Restated Certificate of
Incorporation, but no such committee shall have power or authority in reference
to the following matters: (i) approving, adopting or recommending to the
stockholders, any action or matter expressly required by Section 141 of the
General Corporation Law of the State of Delaware (the "GCL") to be submitted to
stockholders for approval or (ii) adopting, amending or repealing any Bylaw of
the Corporation. Such committee or committees shall keep regular minutes of
their proceedings and report them to the Board when required. A majority of all
the members of any such committee may fix its rules of procedure, determine its
action and fix the time and place, whether within or without the State of
Delaware, of its meetings and specify what notice thereof, if any, shall be
given, unless the Board of Directors shall otherwise by resolution provide. The
Board of Directors shall have power to change the membership of any such
committee, to fill vacancies thereon and to discharge any such committee, or any
person thereon, at any time. The President of the Corporation shall be an ex
officio member of each committee of the Board. Each member of any such committee
shall be paid such fee, if any, as shall be fixed by the Board of Directors for
each meeting of such committee attended.
The following shall be the permanent committees of the Board, and
the duties and powers of each.
(a) EXECUTIVE COMMITTEE. The Executive Committee shall
be composed of members of the Board. It shall take such action as
may be necessary or required between meetings of the Board of
Directors in instances where it is not necessary or convenient to
hold meetings of the full Board. Prior to any such meeting, an
attempt shall be made to contact all of the members of the Board by
telephone, facsimile or e-mail. It shall have the full power of the
Board, except as set forth in Section 141, GCL. All of its actions
shall be reported in written minutes, which shall be reviewed and
approved or disapproved by the Board after each meeting and filed
with the Board minutes. Any action taken by such Committee shall be
final, unless disapproved by the Board, and in such instance they
shall be final, and actions taken pursuant thereto shall be valid,
until such disapproval is evidenced by the Board.
(b) LOAN COMMITTEE AND SPECIAL ASSET COMMITTEE. The Loan
Committee shall review all loans proposed to be made by the
subsidiaries of the Corporation which are in excess of an amount to
be determined from time to time by the Board,
<PAGE>
or which have other characteristics that the Board determines from
time to time should be reviewed on behalf of the Corporation. The
Committee shall report to the Board when it seeks direction or
believes the Board should know of particular transactions, but will
not regularly report. It shall keep its own records of its actions.
(c) INVESTMENT COMMITTEE. The Investment Committee shall
review the investment portfolios of the Corporation and its
subsidiaries. The Committee shall report to the Board when it seeks
direction or believes the Board should know of particular
transactions, but will not regularly report. It shall keep its own
records of its actions.
(d) COMPENSATION COMMITTEE. The Compensation Committee
shall review the compensation offered by the Corporation to its
senior executives, including stock option, bonus, retirement,
deferred compensation, insurance and similar matters. It shall
establish objectives and evaluate each senior executive in writing,
and make its objectives, evaluations and compensation
recommendations to the Board as to such matters not less than
annually. Its proceedings, and any Board discussion of them, shall
be kept on a strictly confidential basis.
(e) AUDIT COMMITTEE. The Audit Committee shall have at
least two outside directors as members. It shall recommend the
Auditors to be hired by the Corporation and shall negotiate the
terms of their engagement. It shall, assisted by the Auditors of the
Corporation, determine whether the Corporation maintains proper
checks and deterrences against fraud and inaccurate reporting of
financial results. It shall, at the conclusion of each year's audit,
review the management letter prepared by the Auditors, discuss it
with them and, with the assistance of management, prepare a reply
which shall be circulated to, and discussed with, the Board.
(f) CORPORATE GOVERNANCE COMMITTEE. The Corporate
Governance Committee shall:
(i) Consider and recruit members of the
Board. It shall seek to maintain an active and effective
Board. Potential nominees will be interviewed, screened
and nominated by them. Each nominee will normally own
Common Stock of the Corporation, but such ownership may
be waived by such Committee. The activities of present
members of the Board will be reviewed by this Committee
to determine if they are actively assisting the
Corporation in its mission. Any member of the Board who
knows of a person who would be a desirable candidate for
election to the Board shall contact this Committee.
(ii) Together with the management of the
Corporation, it will evaluate candidates for principal
officers of the Corporation.
(iii) On an ongoing basis, it will review
the Restated Certificate of
<PAGE>
Incorporation, Bylaws, the internal procedures and
policies of the Corporation and other governing
documents and recommend amendments when it feels they
are required to ensure that such procedures and policies
do not hinder, but assist the Corporation in carrying
out its mission, and in redefining that mission when
necessary.
The records of this Committee will be confidential. It will not
itself take any independent action, but make recommendations to the
Board.
Section 13. ACTION WITHOUT MEETING. Any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if prior to such action a written consent thereto
is signed by all members of the Board or of such committee, as the case may be,
and such written consent is filed with the minutes or proceedings of the Board
or committee.
ARTICLE IV
OFFICERS
Section 1. NUMBER. The principal officers of the Corporation shall
be a Chairman of the Board, a President, one or more Vice Presidents, a
Treasurer and a Secretary. The Corporation may also have, at the discretion of
the Board of Directors, such other officers as may be appointed in accordance
with the provisions of these Bylaws. One person may hold the offices and perform
the duties of any two or more of said offices, except the offices and duties of
President and Secretary.
Section 2. ELECTION OR APPOINTMENT AND TERM OF OFFICE. The principal
officers of the Corporation shall be chosen annually by the Board of Directors
at the annual meeting thereof. Each such officer shall hold office until a
successor shall have been duly chosen and shall qualify, or until death,
resignation or removal.
Section 3. SUBORDINATE OFFICERS. In addition to the principal
officers enumerated in Section 1 of this Article IV, the Corporation may have
one or more Assistant Treasurers, one or more Assistant Secretaries and such
other officers, agents and employees as the Board of Directors may deem
necessary, each of whom shall hold office for such period, have such authority,
and perform such duties as the President or the Board of Directors may from time
to time determine. The Board of Directors may delegate to any principal officer
the power to appoint and to remove any such subordinate officers, agents or
employees.
Section 4. REMOVAL. Any officer may be removed, either with or
without cause, at
<PAGE>
any time, by resolution adopted by the Board of Directors at any regular meeting
of the Board or at any special meeting of the Board at which a quorum is
present.
Section 5. RESIGNATIONS. Any officer may resign at any time by
giving written notice to the Chairman of the Board or to the Board of Directors
or to the President or to the Secretary. Any such resignation shall take effect
upon receipt of such notice or at any later time specified therein; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 6. VACANCIES. A vacancy in any office may be filled for the
unexpired portion of the term in the manner prescribed in these Bylaws for
election or appointment to such office for such term.
Section 7. CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of stockholders and at all meetings of the Board of
Directors and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
Section 8. PRESIDENT. The President shall be the chief executive
officer of the Corporation and as such shall have general supervision of the
affairs of the Corporation, subject to the control of the Board of Directors. In
the absence of the Chairman of the Board, the President shall preside at all
meetings of stockholders and at all meetings of the Board of Directors. Subject
to the control and discretion of the Board of Directors, the President may enter
into any contract or execute and deliver any instrument in the name and on
behalf of the Corporation, and in general, shall perform all duties incident to
the office of President, as herein defined, and all such other duties as from
time to time may be assigned by the Board of Directors.
Section 9. VICE PRESIDENTS. The Vice Presidents in the order of
their seniority, unless otherwise determined by the Board of Directors, shall,
in the absence or disability of the President, perform the duties and exercise
the powers of the President. They shall perform such other duties and have such
other powers as the President or the Board of Directors may from time to time
prescribe.
Section 10. TREASURER. The Treasurer shall have charge and custody
of, and be responsible for, all funds and securities of the Corporation and
shall deposit all such funds in the name of the Corporation in such banks or
other depositories as shall be selected by the Board of Directors. The Treasurer
shall exhibit at all reasonable times the books of accounts and records to any
of the directors of the Corporation upon application during business hours at
the office of the Corporation where such books and records shall be kept; when
requested by the Board of Directors, shall render a statement of the condition
of the finances of the Corporation at any meeting of the Board or at the annual
meeting of stockholders; shall receive, and give receipt for, moneys due and
payable to the Corporation from any source whatsoever; and in general, shall
perform all the duties incident to the office of Treasurer and such other duties
as from time to time may be assigned by the President or the Board of Directors.
The Treasurer shall give such bond,
<PAGE>
if any, as the Board of Directors may require.
Section 11. SECRETARY. The Secretary, if present, shall act as
secretary at all meetings of the Board of Directors and of the stockholders and
keep the minutes thereof in a book or books to be provided for that purpose;
shall see that all notices required to be given by the Corporation are duly
given and served; unless otherwise directed shall have charge of the stock
records of the Corporation; shall see that all reports, statements and other
documents required by law are properly kept and filed; and in general, shall
perform all the duties incident to the office of Secretary and such other duties
as from time to time may be assigned by the President or the Board of Directors.
Section 12. SALARIES. The salaries of the principal officers shall
be fixed from time to time by the Board of Directors, and the salaries of any
other officers may be fixed by the President.
ARTICLE V
INDEMNIFICATION
The Corporation shall indemnify any person who has or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that such person is or was a director or officer to the maximum extent
permitted by Section 145 of the GCL.
ARTICLE VI
SHARES AND THEIR TRANSFER
Section 1. CERTIFICATE OF STOCK. Every stockholder of the
Corporation shall be entitled to a certificate or certificates, to be in such
form as the Board of Directors shall prescribe, certifying the number of shares
of the capital stock of the Corporation owned by such stockholder.
Section 2. STOCK CERTIFICATES. Any stock certificate which certifies
the number of shares owned by any holder of stock of the Corporation shall be
numbered in the order in which it shall be issued and shall be signed by the
Chairman of the Board or the President or any Vice President, and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary
of the Corporation and shall have the seal of the Corporation affixed thereto;
provided, however, that, where any such certificate is signed (i) by a transfer
agent or an assistant transfer agent or (ii) by a transfer clerk acting on
behalf of the Corporation and a registrar, if the Board shall by resolution so
authorize, the signature of such Chairman of the Board, President, Vice
President, Treasurer, Secretary, Assistant Treasurer or Assistant Secretary and
the seal of the Corporation may be facsimiles
<PAGE>
thereof. In case any officer or officers of the Corporation who shall have
signed, or whose facsimile signature or signatures shall have been used on, any
such certificate shall cease to be such officer or officers, whether by reason
of death, resignation or otherwise, before such certificate shall have been
delivered by the Corporation, such certificate may nevertheless be adopted by
the Corporation and be issued and delivered as though the person or persons who
signed such certificate, or whose facsimile signature or signatures shall have
been affixed thereto, had not ceased to be such officer or officers.
Section 3. STOCK LEDGER. A record shall be kept by the Secretary,
transfer agent or by any other officer, employee or agent designated by the
Board of Directors of the name of the person, firm or corporation holding the
stock represented by such certificate, the number of shares represented by such
certificate, and the date thereof, and in case of cancellation, the date of
cancellation.
Section 4. CANCELLATION. Every certificate surrendered to the
Corporation for exchange or transfer shall be canceled, and no new certificate
or certificates shall be issued in exchange for any existing certificate until
such existing certificate shall have been so canceled, except in cases provided
for in Section 7 of this Article VI.
Section 5. TRANSFER OF STOCK. Transfers of shares of the capital
stock of the Corporation shall be made only on the books of the Corporation by
the registered holder thereof, or by an attorney thereunto authorized by power
of attorney duly executed and filed with the Secretary of the Corporation or
with a transfer clerk or a transfer agent appointed as in Section 6 of this
Article VI provided, and on surrender of the certificate or certificates for
such shares properly endorsed and the payment of all taxes thereon. The person
in whose name shares of stock stand on the books of the Corporation shall be
deemed the owner thereof for all purposes as regards the Corporation; provided,
however that whenever any transfer of shares shall be made for collateral
security, and not absolutely, such fact, if known to the Secretary of the
Corporation, shall be so expressed in the entry of transfer.
Section 6. REGULATIONS. The Board of Directors may make such rules
and regulations as it may deem expedient, not inconsistent with the Restated
Certificate of Incorporation or these Bylaws, concerning the issue, transfer and
registration of certificates for shares of the stock of the Corporation. It may
appoint, or authorize any principal officer or officers to appoint, one or more
transfer clerks or one or more transfer agents and one or more registrars, and
may require all certificates of stock to bear the signature or signatures of any
of them.
Section 7. LOST, STOLEN, MUTILATED OR DESTROYED CERTIFICATES. As a
condition to the issue of a new certificate of stock in the place of any
certificate theretofore issued and alleged to have been lost, stolen, mutilated
or destroyed, the Board of Directors, in its discretion, may require the owner
of any such certificate, or a legal representative, to give the Corporation a
bond in such sum and in such form as it may direct to indemnify the Corporation
against any claim that may be made against it on account of the alleged loss,
theft, mutilation or destruction of any such certificate or the issuance of such
new
<PAGE>
certificate. Proper evidence of such loss, theft, mutilation or destruction
shall be procured for the Board of Directors, if required. The Board of
Directors, in its discretion, may authorize the issuance of such new
certificates without any bond when in its judgment it is proper to do so.
Section 8. RECORD DATE. The Board may fix a date in advance of not
exceeding fifty (50) days preceding the date of any meeting of stockholders (nor
less than ten (10) days before the date of such meeting), or the date for the
payment of any dividend, or the date for the allotment of rights, or the date
when any change or conversion or exchange of capital stock shall go into effect
or a date in connection with obtaining any written consent to corporate action
without a meeting, as a record date for the determination of the stockholders
entitled to notice of, and to vote at, such meeting, and any adjournment
thereof, or to receive payment of any dividend, or to receive any such allotment
of rights, or to exercise the rights in respect of any such change, conversion,
or exchange of capital stock or to give such written consent, as the case may
be, notwithstanding any transfer of any stock on the books of the Corporation
after any record date so fixed.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 1. CORPORATE SEAL. The Board of Directors shall provide a
corporate seal, which shall be in the form of a circle and shall bear the name
of the Corporation and words and figures showing that it was incorporated in the
State of Delaware in the year 1984. The Secretary shall be the custodian of the
seal. The Board of Directors may authorize a duplicate seal to be kept and used
by any other officer.
Section 2. FISCAL YEAR. The fiscal year of the Corporation shall be
specified by the Board of Directors.
Section 3. VOTING OF STOCK OWNED BY THE CORPORATION. The Board of
Directors may authorize any person on behalf of the Corporation to attend, vote
and grant proxies to be used at any meeting of stockholders of any corporation
in which the Corporation may hold stock.
Section 4. DIVIDENDS. Subject to the provisions of the Restated
Certificate of Incorporation, the Board of Directors may, out of funds legally
available therefor, at any regular or special meeting declare dividends upon the
capital stock of the Corporation as and when they deem expedient. Before
declaring any dividend there may be set apart out of any funds of the
Corporation available for dividends such sum or sums as the directors from time
to time in their discretion may deem proper for working capital or as a reserve
fund to meet contingencies or for such other purposes as the directors may deem
conducive in the interests of the Corporation.
ARTICLE VIII
<PAGE>
AMENDMENTS
Except as provided in Section 11.8 of the Restated Certificate of
Incorporation, the Bylaws of the Corporation may be altered, amended or repealed
either by the affirmative vote of the holders of a majority of the stock issued
and outstanding and entitled to vote in respect thereof and represented in
person or by proxy at any annual or special meeting of the stockholders, or by
the Board of Directors at any regular or special meeting of the Board of
Directors. Bylaws, whether made or altered by the stockholders or by the Board
of Directors, shall be subject to alteration or repeal by the stockholders as in
this Article VIII above provided.
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