As filed with the Securities and Exchange Commission on June 27, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------------
NEW ENGLAND COMMUNITY BANCORP, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 0-14550 06-1116165
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Classification Code Identification No.)
incorporation or Number)
organization)
------------
Old Windsor Mall
P.O. Box 130
Windsor, Connecticut 06095
Tel. (860) 610-3600
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
ANSON C. HALL
Old Windsor Mall
P.O. Box 130
Windsor, Connecticut 06095
Tel. (860) 683-4610
(Name, address, including zip code, and
telephone number, including area code,
of agent for service)
With copies of all communications to:
M. LOUISE TURILLI
Day, Berry & Howard
CityPlace I
Hartford, Connecticut 06103-3499
Telephone (860) 275-0100
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered:
in connection with the Formation of a holding company and there is compliance
with General Instruction G, check the following box: [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
======================================================================================
<CAPTION>
Title of Each Proposed Proposed
Class of Maximum Amount Maximum Amount of
Securities to to be Offering Price Aggregate Registration
Be Registered Registered Per Unit(1) Offering Price Fee (1)
------------- ---------- ----------- -------------- -------
<S> <C> <C> <C> <C>
Common Stock
par value $.10
per share....... 998,000 $5.78 $5,768,440 $600.30
=======================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculation of the registration fee
based on the aggregate book value of the shares of common stock of First
Bank of West Hartford as of March 31, 1997. Fees payable herewith have been
reduced by fees of $1,147.70, previously paid with the filing of
preliminary proxy materials of the Registrant.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
NEW ENGLAND COMMUNITY BANCORP, INC.
OLD WINDSOR MALL
P.O. BOX 130
WINDSOR, CT 06095
(860) 610-3600
----------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 28, 1997
----------
NOTICE IS HEREBY GIVEN that the Special Meeting of Stockholders (the
"Special Meeting") of New England Community Bancorp, Inc. ("NECB") will be held
on Monday, July 28, 1997 at 8:00 a.m. at the Windsor office of New England Bank,
176 Broad Street, Windsor, Connecticut for the following purpose:
1. To consider and vote upon a proposal (i) to adopt a Plan and Agreement
of Reorganization, dated as of February 25, 1997 (the "Reorganization
Agreement") by and among New England Community Bancorp, Inc. ("NECB"),
New England Bank and Trust Company, a wholly owned subsidiary of NECB,
and First Bank of West Hartford ("FBWH") which provides, among other
things, for NECB to acquire all of the outstanding common stock of
FBWH (the "FBWH Common Stock") in exchange for 0.62 shares of Common
Stock of NECB for each share of FBWH Common Stock, subject to
adjustment as provided in the Reorganization Agreement, and (ii) the
issuance of shares of NECB Common Stock pursuant thereto.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment or adjournments thereof.
Only holders of NECB Common Stock of record at the close of business on
June 20, 1997 will be entitled to notice of and to vote at the Special Meeting
or any adjournment thereof.
By Order of the Board of Directors,
/s/ Angelina J. McGillivray
-----------------------------
Angelina J. McGillivray
Secretary
Windsor, Connecticut
June 27, 1997
WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE SPECIAL MEETING, PLEASE SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED. ANY PROXY GIVEN MAY
BE REVOKED BY YOU IN WRITING OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE
THEREOF.
<PAGE>
FIRST BANK OF WEST HARTFORD
1013 FARMINGTON AVENUE
WEST HARTFORD, CT 06107
(860) 561-4620
----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 28, 1997
----------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the "Annual
Meeting") of First Bank of West Hartford ("FBWH") will be held on Monday, July
28, 1997 at 8:00 a.m. at the principal offices of FBWH, 1013 Farmington Avenue,
West Hartford, Connecticut for the following purpose:
1. To consider and vote upon a proposal to adopt a Plan and Agreement of
Reorganization, dated as of February 25, 1997 (the "Reorganization
Agreement") by and among New England Community Bancorp, Inc. ("NECB"),
New England Bank and Trust Company, a wholly owned subsidiary of NECB,
and FBWH which provides, among other things, for NECB to acquire all
of the outstanding common stock of FBWH (the "FBWH Common Stock") in
exchange for 0.62 shares of Common Stock of NECB for each share of
FBWH Common Stock, subject to adjustment as provided in the
Reorganization Agreement.
2. To elect five (5) directors, who with the nine (9) directors whose
terms of office do not expire at this meeting, will constitute the
full Board.
3. To ratify the appointment of Snyder & Haller as independent
accountants for the year ending December 31, 1997.
4. To transact such other business as may properly come before the Annual
Meeting or any adjournment or adjournments thereof.
Only holders of FBWH Common Stock of record at the close of business on
June 18, 1997 will be entitled to notice of and to vote at the Annual Meeting or
any adjournment thereof.
By Order of the Board of Directors,
Horace C. Burton
Secretary
West Hartford, Connecticut
June 27, 1997
WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE ANNUAL MEETING, PLEASE SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED. ANY PROXY GIVEN MAY
BE REVOKED BY YOU IN WRITING OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE
THEREOF.
<PAGE>
NEW ENGLAND COMMUNITY BANCORP, INC.
998,000 SHARES OF COMMON STOCK, PAR VALUE $.10 PER SHARE
FIRST BANK OF WEST HARTFORD
JOINT PROXY STATEMENT-PROSPECTUS
----------
This Joint Proxy Statement-Prospectus is being furnished to the
shareholders of New England Community Bancorp, Inc. ("NECB") and First Bank of
West Hartford ("FBWH"), in connection with the solicitation of proxies by their
respective Boards of Directors for use at the Special Meeting of Stockholders of
NECB (the "NECB Special Meeting") to be held on July 28, 1997 at the Windsor
office of New England Bank, 176 Broad Street, Windsor, Connecticut, and the
Annual Meeting of Shareholders of FBWH (the Annual Meeting) to be held on July
28, 1997 at the principal offices of FBWH, 1013 Farmington Avenue, West
Hartford, Connecticut, and at any adjournments or postponements thereof (the
"FBWH Annual Meeting").
At the FBWH Annual Meeting, the shareholders of FBWH will consider and
vote upon a proposal to approve the Plan and Agreement of Reorganization, dated
as of February 25, 1997 (the "Reorganization Agreement"), by and among FBWH,
NECB, and New England Bank & Trust Company ("NEBT"), a Connecticut chartered
commercial bank and subsidiary of NECB, which provides, among other things, for
the acquisition of all outstanding shares of common stock, par value $.01 per
share, of FBWH (the "FBWH Common Stock") by NECB in a merger transaction (the
"Reorganization"). At the Effective Time (as hereinafter defined) of the
Reorganization, each share of FBWH Common Stock issued and outstanding
immediately prior to the Effective Time (except for shares held by FBWH as
treasury shares, shares owned by any subsidiary of FBWH, shares held by NECB or
NEBT other than in a fiduciary capacity for the benefit of third parties, and
shares as to which dissenters' rights have been perfected) shall be converted
into and exchangeable for consideration ("Per Share Consideration") consisting
of 0.62 shares (the "Exchange Ratio") of Common Stock, par value $.10 per share,
of NECB (the "NECB Common Stock"). In addition, FBWH may terminate the
Reorganization Agreement if the FBWH Board so determines by majority vote of the
entire FBWH Board at any time during the two-day period commencing with the date
all conditions to the Merger are satisfied (the "Determination Date"), if the
Average Price of the NECB Common Stock for the 20 consecutive days ending on the
Determination Date (the "Average Price") is less than $12.80 per share. If FBWH
elects to terminate the Reorganization Agreement, it is required to give prompt
notice to NECB. During the seven-day period following receipt of the notice,
NECB may increase the consideration to be incurred by holders of FBWH Common
Stock by increasing the Exchange Ratio to equal a number (rounded to four
decimals) equal to a quotient, the numerator of which is $12.80 multiplied by
the Exchange Ratio and the denominator of which is the Average Price. If NECB
elects to increase the Exchange Ratio, the Reorganization Agreement will not
terminate. For a description of the Reorganization Agreement, which is included
in its entirety as Appendix A to this Joint Proxy Statement-Prospectus, see "THE
REORGANIZATION." It is expected that a number of shares equaling approximately
27% of the outstanding shares of NECB Common Stock will be issued in the
Reorganization.
Shareholders of FBWH are entitled to dissenters' rights under the
Connecticut General Statutes. Shareholders who wish to exercise their
dissenters' rights must follow the procedures described under "THE
REORGANIZATION AGREEMENT--Dissenters' Rights."
In addition, at the FBWH Annual Meeting, shareholders will be asked to
vote on the election of directors and the ratification of the selection of
independent auditors for the fiscal year ending December 31, 1997. This election
of directors will have limited significance if the FBWH shareholders approve the
Reorganization Agreement and the Reorganization is consummated. Similarly, the
ratification of independent auditors will be superseded should the FBWH
shareholders approve the Reorganization Agreement and the Reorganization is
consummated, as expected, prior to December 31, 1997.
At the NECB Special Meeting, the stockholders of NECB will consider and
vote upon a proposal to approve the Reorganization Agreement and the issuance of
shares of NECB Common Stock pursuant thereto.
This Joint Proxy Statement-Prospectus also constitutes a prospectus of
NECB in respect of the shares of NECB Common Stock to be issued in the
Reorganization. NECB Common Stock is not insured by the Federal Deposit
Insurance Corporation, Bank Insurance Fund or any other government agency, nor
is such stock guaranteed by any bank or bank holding company.
The outstanding shares of NECB Common Stock are traded over the counter
on the Nasdaq National Market System (the "Nasdaq NM") under the symbol "NECB."
This Joint Proxy Statement-Prospectus and the accompanying proxy
materials are first being mailed to shareholders of NECB and FBWH on or about
June 30, 1997.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT-PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE
SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL INVESTED.
----------
THE DATE OF THIS JOINT PROXY STATEMENT-PROSPECTUS IS JUNE 27, 1997.
<PAGE>
AVAILABLE INFORMATION
NECB is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by NECB with the Commission can be
inspected and copied at public reference facilities maintained by the Commission
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices at 7 World Trade Center, New York, New York 10048
and Northwestern Atrium Center, 500 West Madison, Suite 1400, Chicago, Illinois
60661. The Commission also maintains a Web site that contains reports, proxy
statements and other information. The address of the site is http://www.sec.gov.
Copies of such material also can be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, material filed by NECB can be inspected at the
offices of the National Association of Securities Dealers, 1735 K Street, N.W.,
Washington, D.C. 20006.
FBWH is also subject to the information requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements, and other
information with the Federal Deposit Insurance Corporation (the "FDIC"). The
reports, proxy statements and other information filed by FBWH with the FDIC can
be inspected and copied at public reference facilities maintained by the FDIC at
its Public Files in the Registration and Disclosure Section at Room F-643, 1776
F Street, N.W., Washington, D.C. 20006. Copies of such material may be ordered
from such Section by telephone request at prescribed rates by calling (202)
898-8920.
NECB has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereof, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
shares of NECB Common Stock to be issued pursuant to the Reorganization
Agreement. This Joint Proxy Statement-Prospectus does not contain all the
information set forth in the first paragraph in the Registration Statement and
exhibits thereto. Such additional information may be inspected and copied as set
forth above. Statements contained in this Joint Proxy Statement-Prospectus or in
any document incorporated by reference in this Joint Proxy Statement-Prospectus
as to the contents of any contract or other document referred to herein or
therein are not necessarily complete, and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement or such other document, each such statement being
qualified in all respects by such reference.
No dealer, salesperson or other individual has been authorized to give
any information or make any representations not contained in this Joint Proxy
Statement-Prospectus in connection with the Reorganization and offering covered
by this Joint Proxy Statement-Prospectus. If given or made, such information or
representations must not be relied upon as having been authorized by NECB or
FBWH. This Joint Proxy Statement-Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy, the NECB Common Stock in any
jurisdiction where, or to any person to whom, it is unlawful to make such offer
or solicitation. Neither the delivery of this Joint Proxy Statement-Prospectus
nor any issuance of securities made hereunder shall, under any circumstances,
create an implication that there has not been any change in the facts set forth
in this Joint Proxy Statement-Prospectus or in the affairs of NECB or FBWH since
the date hereof.
<PAGE>
TABLE OF CONTENTS
Page
----
SUMMARY
Parties to the Reorganization ......................................... 1
The Meetings .......................................................... 1
Vote Required and Record Date ......................................... 1
Reasons for the Reorganization; Recommendation of Boards of
Directors; Opinions of Financial Advisors ........................... 2
Effective Time ........................................................ 2
Interests of Certain Persons in the Reorganization;
Shareholders' Agreements ............................................ 2
Conditions, Regulatory Approvals ...................................... 3
Fees and Expenses under Certain Circumstances ......................... 3
Anticipated Accounting Treatment ...................................... 4
Federal Income Tax Consequences ....................................... 4
Certain Differences in Shareholders' Rights ........................... 4
Dissenters' Rights .................................................... 4
Markets and Market Prices ............................................. 4
Capital Ratios ........................................................ 5
COMPARATIVE PER SHARE DATA ................................................ 6
SELECTED CONSOLIDATED FINANCIAL DATA OF NECB .............................. 7
SELECTED FINANCIAL DATA OF FBWH ........................................... 9
THE MEETINGS
General ............................................................... 11
Record Dates; Votes Required .......................................... 11
Revocation of Proxies ................................................. 12
Recommendations of the Boards of Directors ............................ 12
THE REORGANIZATION
Background of the Reorganization ...................................... 13
Recommendation of the NECB Board and NECB Reasons
for the Reorganization .............................................. 14
Opinion of NECB's Financial Advisor ................................... 14
Recommendation of the FBWH Board and FBWH Reasons
for the Reorganization .............................................. 17
Opinion of FBWH's Financial Advisor ................................... 18
THE REORGANIZATION AGREEMENT
General ............................................................... 22
Effective Time ........................................................ 22
Effect of the Reorganization .......................................... 22
Shareholders' Agreements .............................................. 23
Procedures for Exchange of Certificates ............................... 23
Conditions to Consummation of the Reorganization ...................... 24
Regulatory Approvals Required for the Reorganization .................. 26
Conduct of Business Pending the Reorganization ........................ 27
Amendment and Termination ............................................. 29
Employee Matters ...................................................... 30
Interests of Certain Persons in the Reorganization .................... 30
Fees and Expenses Under Certain Circumstances ......................... 31
Anticipated Accounting Treatment ...................................... 31
Resales of NECB Common Stock Received in the Reorganization ........... 31
Trading Market for NECB Common Stock .................................. 32
Federal Income Tax Consequences ....................................... 32
Dissenters' Rights .................................................... 33
iii
<PAGE>
TABLE OF CONTENTS--CONTINUED
Page
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INFORMATION REGARDING NECB
General ............................................................... 35
Business .............................................................. 36
Competition and General Business Conditions ........................... 37
Regulatory Matters .................................................... 38
Properties ............................................................ 41
Legal Proceedings ..................................................... 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF NECB
Overview .............................................................. 42
Acquisition Summary ................................................... 43
Net Interest Income ................................................... 44
Consolidated Average Balances/Interest Earned or
Paid/Rates 1994-1996 ................................................ 44
Average Earning Asset Mix ............................................. 45
Consolidated Average Balances/Interest Earned
or Paid/Rates ....................................................... 46
Rate/Volume Analysis .................................................. 46
Noninterest Income .................................................... 48
Noninterest Expense ................................................... 48
Income Taxes .......................................................... 49
Financial Condition ................................................... 49
Loans ................................................................. 49
Securities Held-to-Maturity ........................................... 50
Securities Available-for-Sale ......................................... 50
Nonperforming Assets .................................................. 51
Activity in Nonperforming Assets ...................................... 52
Provision and Allowance for Loan Losses ............................... 53
Deposits .............................................................. 55
Asset Liability Management ............................................ 55
Interest-Rate Risk .................................................... 55
Liquidity Risk ........................................................ 56
Capital ............................................................... 57
Recent Accounting Pronouncements ...................................... 57
Forward Looking Statements ............................................ 57
CERTAIN STATISTICAL INFORMATION
Deposits .............................................................. 58
Return on Equity and Assets ........................................... 58
Investment Portfolio .................................................. 58
Loan Portfolio ........................................................ 60
MANAGEMENT OF NECB
Directors and Executive Officers of NECB .............................. 61
Meetings and Committees ............................................... 62
Compensation of Directors ............................................. 62
NECB EXECUTIVE COMPENSATION
Pension Plan .......................................................... 64
Employment Agreements ................................................. 64
iv
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TABLE OF CONTENTS--CONTINUED
Page
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OTHER INFORMATION RELATING TO DIRECTORS AND EXECUTIVE OFFICERS ............ 65
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF NECB ................... 66
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS OF NECB ............ 66
INFORMATION REGARDING FBWH
Business .............................................................. 67
Properties ............................................................ 67
Legal Proceedings ..................................................... 67
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF FBWH
Summary ............................................................... 68
Interest-Earning Assets ............................................... 69
Source of Funds ....................................................... 69
Net Interest Income ................................................... 69
Provision and Allowance for Loan Losses ............................... 71
Nonaccruing Loans and Accruing Loans Past Due 90 Days or More ......... 72
Investment Securities ................................................. 73
Other Real Estate Owned ............................................... 74
Other Income .......................................................... 74
Other Expense ......................................................... 75
Liquidity ............................................................. 76
Interest Rate Sensitivity ............................................. 76
Impact of Inflation and Changing Prices ............................... 77
Capital Resources ..................................................... 78
Regulatory Matters .................................................... 78
ITEM 2. ELECTION OF DIRECTORS OF FBWH .................................... 78
Board and Committee Structure ......................................... 81
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF FBWH ...................................................... 82
MANAGEMENT COMPENSATION AND TRANSACTIONS
Director Compensation ................................................. 83
Executive Compensation ................................................ 83
Employment Agreements ................................................. 83
1994 Officers and Employees Stock Option Plan ......................... 84
1994 Director Stock Option Plan ....................................... 85
Certain Business Relationships ........................................ 85
Indebtedness of Management and Others ................................. 85
Compliance with Section 16(a) of the Securities Exchange Act .......... 85
ITEM 3. RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS OF FBWH ... 86
DESCRIPTION OF NECB'S CAPITAL STOCK
NECB Common Stock ..................................................... 87
Preferred Stock ....................................................... 87
Absence of Cumulative Voting .......................................... 87
Market for NECB Common Stock and Related Security Holder Matters ...... 88
Market for the FBWH Common Stock ...................................... 88
v
<PAGE>
TABLE OF CONTENTS--CONTINUED
Page
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COMPARISON OF THE RIGHTS OF SHAREHOLDERS
Authorized Capital Stock .............................................. 89
Issuance of Capital Stock ............................................. 89
Voting Rights ......................................................... 89
Dividends and Other Distributions ..................................... 89
Size of Board of Directors ............................................ 90
Director Vacancies and Removal of Directors ........................... 90
Annual Meetings of Shareholders ....................................... 90
Shareholder Action Without a Meeting .................................. 90
Amendment of Governing Instruments .................................... 90
Reorganization, Consolidations and Sale of Assets ..................... 91
Appraisal Rights ...................................................... 91
Dissolution ........................................................... 92
Limitation of Director Liability ...................................... 92
Indemnification of Directors and Officers ............................. 92
LEGAL MATTERS ............................................................. 93
EXPERTS ................................................................... 93
OTHER MATTERS ............................................................. 93
SHAREHOLDER PROPOSALS ..................................................... 93
INDEX TO FINANCIAL STATEMENTS ............................................. 94
Appendix A--Plan and Agreement of Reorganizaiton .......................... A-1
Appendix B--Fairness Opinion of HAS Associates, Inc. ...................... B-1
Appendix C--Fairness Opinion of Ostrowski & Company, Inc. ................. C-1
Appendix D--Dissenters' Rights ............................................ D-1
vi
<PAGE>
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SUMMARY
The following is a brief summary of certain information contained
elsewhere in the Joint Proxy Statement-Prospectus. Reference is made to, and
this summary is qualified in all respects by, the more detailed information
appearing elsewhere in this Joint Proxy Statement-Prospectus, the Appendices
hereto and the documents referred to herein.
PARTIES TO THE REORGANIZATION
NECB. NECB is the bank holding company for New England Bank & Trust
Company ("NEBT"), a Connecticut-chartered commercial bank located in Windsor,
Connecticut, and The Equity Bank ("EQBK"), a Connecticut-chartered commercial
bank located in Wethersfield, Connecticut. NECB's principal executive offices
are located at Old Windsor Mall, P.O. Box 130, Windsor, Connecticut 06095;
telephone: (860) 610-3600.
NEBT's and EQBK's deposits are insured by the Federal Deposit Insurance
Corporation in accordance with the Federal Deposit Insurance Act.
NECB provides a wide range of commercial and consumer banking services
through a branch network located in North Central Connecticut. NEBT's branch
offices are located in the towns of Canton, East Windsor, Ellington, Enfield,
Manchester (3), Somers, Suffield, West Hartford and Windsor (2). EQBK's office
is located in Wethersfield, Connecticut and serves the surrounding communities.
FBWH. FBWH was incorporated under the laws of the State of Connecticut on
August 19, 1987. It commenced operation as a Connecticut state-chartered bank on
January 11, 1988. FBWH offers standard commercial bank products and services.
FBWH is an insured bank under the Federal Deposit Insurance Act. Like most
state-chartered banks in Connecticut, FBWH is not a member of the Federal
Reserve System.
The Bank conducts business from its office located at 1013 Farmington
Avenue, West Hartford, Connecticut, 06107; telephone: (860) 561-4620.
THE MEETINGS
NECB. The NECB Special Meeting will be held at 8:00 a.m. on July 28, 1997
at the executive offices of NECB, 176 Broad Street, Windsor, Connecticut. The
purpose of the NECB Special Meeting is to consider and vote upon the
Reorganization Agreement and the issuance of shares of NECB Common Stock
pursuant thereto (the "Merger Proposal").
FBWH. The FBWH Annual Meeting will be held at 8:00 a.m. on July 28, 1997
at the principal offices of FBWH, 1013 Farmington Avenue, West Hartford,
Connecticut. The purpose of the FBWH Annual Meeting is to consider and vote upon
the following proposals: (i) the approval of the Reorganization Agreement and
the transactions contemplated thereby; (ii) the election of the nominees named
herein as directors of FBWH; and (iii) the ratification of the selection of
Snyder & Haller as auditors of FBWH for the year ending December 31, 1997.
VOTE REQUIRED AND RECORD DATE
NECB. Only NECB stockholders of record at the close of business on June
20, 1997 (the "NECB Record Date") will be entitled to vote at the NECB Special
Meeting. Each stockholder is entitled to one vote for each share held. The
affirmative vote of a majority of the votes cast at the NECB Special Meeting by
the holders of NECB Common Stock is required to approve the Merger Proposal
under the rules of the Nasdaq NM in order for NECB to maintain its listing on
the Nasdaq NM.
The directors and executive officers of NECB beneficially owned 487,347
shares or 13.1% of the NECB Common Stock as of the NECB Record Date. All of the
executive officers and directors who are also stockholders of NECB have
indicated that they intend to vote in favor of the Merger Proposal.
FBWH. Only FBWH shareholders of record at the close of business on June
18, 1997 (the "FBWH Record Date") will be entitled to vote at the FBWH Annual
Meeting. Each shareholder is entitled to one vote for each share of FBWH Common
Stock held. The affirmative vote of the holders of two-thirds of the shares
outstanding on such
- --------------------------------------------------------------------------------
1
<PAGE>
- --------------------------------------------------------------------------------
date is required to approve the Reorganization Agreement. The nominees for
directors must receive the affirmative vote of a plurality of the votes cast at
the FBWH Annual Meeting in order to be elected, and the auditors must receive
more "FOR" votes than "AGAINST" votes in order to be ratified. As of the FBWH
Record Date, there were 1,549,518 shares of FBWH Common Stock outstanding and
entitled to be voted.
The directors and executive officers of FBWH beneficially owned, as of
January 31, 1997, 462,955 shares (including 120,400 shares subject to
outstanding options) or 34.4% of the outstanding FBWH Common Stock. All of the
executive officers and all of the directors of FBWH who are shareholders have
agreed to vote for the Reorganization and have executed Shareholder Agreements
indicating that they intend to vote in favor of the Reorganization. See "THE
REORGANIZATION--Shareholders' Agreements."
REASONS FOR THE REORGANIZATION; RECOMMENDATION OF BOARDS OF DIRECTORS;
OPINIONS OF FINANCIAL ADVISORS
NECB. The Board of Directors of NECB (the "NECB Board") believes that the
Reorganization is fair to and in the best interests of the stockholders of NECB
and unanimously recommends that the stockholders vote "FOR" the approval of the
Merger Proposal. In reaching its decision, the NECB Board was advised by HAS
Associates, Inc. ("HAS Associates" or "HAS"), NECB's financial advisor, to the
effect that as of the date of its opinion and based upon and subject to the
matters stated therein, the consideration to be paid by NECB to FBWH
shareholders in the Reorganization was fair, from a financial point of view, to
the holders of NECB Common Stock. A copy of HAS' opinion is attached to this
Joint Proxy Statement-Prospectus as Appendix B. NECB stockholders are urged to
read HAS' opinion and the discussion of the opinion set forth under "THE
REORGANIZATION--Opinion of NECB's Financial Advisor" in their entirety.
FBWH. The Board of Directors of FBWH (the "FBWH Board") has unanimously
approved the Reorganization Agreement and has determined that the Reorganization
is fair to and in the best interests of FBWH and its shareholders. The FBWH
Board therefore unanimously recommends that holders of FBWH Common Stock vote
"FOR" the approval of the Reorganization Agreement. The FBWH Board believes that
the Reorganization will provide an opportunity for FBWH shareholders to receive
consideration well in excess of the book value of their shares. In reaching its
decision to approve the Reorganization, the FBWH Board consulted with its legal
and financial advisors regarding the terms of the proposed transaction. In
reaching its decision, the FBWH Board was advised by Ostrowski & Company, Inc.
("O&Co"), FBWH's financial advisor, to the effect that as of the date of its
opinion and based upon and subject to the matters stated therein, the
consideration to be paid by NECB to FBWH shareholders in the Reorganization was
fair, from a financial point of view, to the holders of FBWH Common Stock. A
copy of O&Co's opinion is attached to this Joint Proxy Statement-Prospectus as
Appendix C. FBWH stockholders are urged to read O&Co's opinion and the
discussion of the opinion set forth under "THE REORGANIZATION--Opinion of FBWH's
Financial Advisor" in their entirety. See "THE REORGANIZATION--Recommendation of
the FBWH Board and FBWH Reasons for the Reorganization", and "--Opinion of
FBWH's Financial Advisor"; "THE MEETINGS--Recommendations of the Boards of
Directors."
EFFECTIVE TIME
The Reorganization will become effective upon the filing of a copy of the
Reorganization Agreement with the Secretary of State of the State of
Connecticut, certified by the Connecticut Banking Commissioner (the
"Commissioner"), along with his approval of the Reorganization (the "Effective
Time"). If the Effective Time does not occur by October 31, 1997, either FBWH or
NECB may abandon the Reorganization and terminate the Reorganization Agreement.
See "THE REORGANIZATION AGREEMENT--Conditions to Consummation of the
Reorganization" and "--Regulatory Approvals Required for the Reorganization."
If the Reorganization is approved by the shareholders of NECB and FBWH
and NECB and FBWH receive the required state and federal regulatory approvals,
subject to certain conditions described herein, the Effective Time is expected
to occur early in the third quarter of 1997.
INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION; SHAREHOLDERS' AGREEMENTS
Directors and executive officers of FBWH have personal interests which
will be affected by the Reorganization, including the following: FBWH Directors
and executive officers collectively owned, as of January 31, 1997,
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2
<PAGE>
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462,955, shares of FBWH Common Stock to be exchanged for NECB Common Stock in
the Reorganization (assuming a $10.385 FBWH equivalent share price, these shares
would have a market value of approximately $4,807,788); after the consummation
of the Reorganization, one Director of FBWH will be named to the NECB Board of
Directors and two FBWH Directors will be named to the Board of Directors of
NEBT; FBWH's three executive officers have change of control agreements with
FBWH which will entitle them to 12-18 months of change of control payments
should they not continue employment after the Reorganization; Dennis T.
Cardello, President and CEO of FBWH, will become head of retail banking of NEBT
and Mr. Horace C. Burton, Senior Vice President and Secretary of FBWH, will
continue to manage the Small Business Administration lending program after
consummation of the Reorganization; and as of January 31, 1997, Directors and
executive officers held FBWH stock options for a total of 120,400 shares at
exercise prices of $3.00 to $3.50 per share. See "THE REORGANIZATION
AGREEMENT--Interest of Certain Persons in the Reorganization."
Concurrently with the execution of the Reorganization Agreement, the
directors of FBWH executed shareholders' agreements (the "Shareholders'
Agreements") which contain provisions agreed to by NECB, FBWH and each director
of FBWH to vote in favor of the Reorganization. See "THE REORGANIZATION
AGREEMENT--Shareholders' Agreements." Pursuant to Connecticut law, such
agreements may not be enforceable without the approval of the Banking
Commissioner. Such approval was obtained on April 1, 1997.
CONDITIONS, REGULATORY APPROVALS
Consummation of the Reorganization is subject to various conditions,
including receipt of the shareholder approvals solicited hereby, receipt of the
necessary regulatory approvals, and satisfaction of other customary closing
conditions.
The regulatory approvals and consents necessary to consummate the
Reorganization include the approval of the Federal Deposit Insurance Corporation
(the "FDIC") and the Commissioner of Banking of the State of Connecticut (the
"Banking Commissioner"). See "THE REORGANIZATION AGREEMENT--Regulatory Approvals
Required for the Reorganization."
FEES AND EXPENSES UNDER CERTAIN CIRCUMSTANCES
NO SOLICITATION OF TRANSACTIONS. FBWH has agreed in the Reorganization
Agreement that FBWH shall not solicit, approve or recommend to its shareholders,
or undertake or enter into with or without shareholder approval, either as the
surviving or disappearing or the acquiring or acquired corporation, any other
reorganization, consolidation, assets acquisition, tender offer or other
takeover transaction, or furnish or cause to be furnished any information
concerning its business, properties or assets to any person or entity (other
than NECB) interested in any such transaction (except for directors and
executive officers of FBWH and such other persons as may be required by law),
and FBWH will not authorize or permit any officer, director, employee,
investment banker or other representative, directly or indirectly, to solicit,
encourage or support any offer from any person or entity (other than NECB) to
acquire substantially all of the assets of FBWH, to acquire 10% or more of the
outstanding stock of FBWH, to enter into an agreement to merge with FBWH, or to
take any other action that would have substantially the same effect as the
foregoing, without the written consent of NECB (any such solicitation, approval,
undertaking, authorization, permission or other action referred to in this
sentence being sometimes referred to as an "unauthorized action"). If the
Reorganization is not consummated in accordance with the terms set forth in the
Reorganization Agreement because of any such action or omission by FBWH, FBWH
shall on demand pay to NECB the sum of (a) NECB's out-of-pocket expenses,
including without limitation, reasonable attorney, accountant and investment
banker fees and expenses, incurred by NECB in connection with the Reorganization
and the transaction provided for in the Reorganization Agreement (provided that
the amount of such fees shall not exceed $250,000), plus (b) $750,000 as
liquidated damages.
BREACHES OF REPRESENTATIONS AND WARRANTIES. If either FBWH or NECB fails
to perform any material covenant or agreement in the Reorganization Agreement,
or if any representation or warranty by FBWH or NECB is determined to be
materially untrue (the party which fails to perform or who makes the untrue
representation or warranty being the "Breaching Party"), and if at the time of
the failure or untrue representation or warranty by the Breaching Party, the
other party is not a Breaching Party (the "Non-Breaching Party"), and if the
Agreement is thereafter terminated prior to the Effective Time, then the
Breaching Party shall on demand pay to the Non-Breaching Party an
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3
<PAGE>
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amount equal to 5% of the Breaching Party's Tier 1 leverage capital (calculated
as of the end of the most recently completed fiscal quarter) as liquidated
damages, such amount to be deemed to include whatever expenses the Non-Breaching
Party may have incurred; provided, however, that the amount of such liquidated
damages shall not exceed $2,000,000 if NECB is the Breaching Party and
$1,000,000 if FBWH is the Breaching Party.
PROHIBITED TRANSACTIONS WITH THIRD PARTIES. In addition, if FBWH does not
take any unauthorized action, if FBWH shareholders do not approve the
Reorganization, and so long as NECB does not breach the Reorganization
Agreement, if an agreement to acquire or merge with FBWH is executed on or
before February 25, 1998 with an entity that makes an offer during the term of
the Reorganization Agreement, FBWH shall pay to NECB upon execution of such
agreement the sum of all out-of-pocket expenses, incurred by NECB in connection
with the Reorganization and the transactions provided for in the Reorganization
Agreement up to $250,000; provided that if the transaction agreed to with such
other entity shall not close, NECB shall thereupon promptly repay such amount to
FBWH.
ANTICIPATED ACCOUNTING TREATMENT
It is anticipated that the Reorganization will be treated as a "pooling"
for accounting and financial reporting requirements. The unaudited pro forma
condensed consolidated financial information contained in this Joint Proxy
Statement-Prospectus has been prepared using the pooling method of accounting to
account for the Reorganization. See "Unaudited Pro Forma Condensed Combined
Financial Information."
FEDERAL INCOME TAX CONSEQUENCES
It is intended that the Reorganization will be treated as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"). Consummation of the Reorganization is
conditioned upon receipt of an opinion of tax counsel stating that, on the basis
of facts, representations and assumptions set forth in such opinion, which are
consistent with the facts existing at the Effective Time, (i) the Reorganization
will be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code; (ii) no gain or loss will be recognized
by NECB, NEBT or FBWH as a result of the Reorganization, and (iii) gain or loss
if any will be recognized by the shareholders of FBWH who exchange their FBWH
Common Stock for NECB Common Stock pursuant to the Reorganization only to the
extent of the Cash Portion of the Per Share Consideration received and any cash
received in lieu of a fractional share of NECB Common Stock. See "THE
REORGANIZATION--Federal Income Tax Consequences."
CERTAIN DIFFERENCES IN SHAREHOLDERS' RIGHTS
At the Effective Time, shareholders of FBWH, except shareholders who
perfect dissenters' rights in accordance with Connecticut law, automatically
will become shareholders of NECB and their rights as stockholders of NECB will
be determined by the Delaware Corporation Law and by NECB's Certificate of
Incorporation and Bylaws. The rights of the present stockholders of NECB differ
from rights of the present shareholders of FBWH with respect to certain matters.
For a summary of these differences, see "COMPARISON OF THE RIGHTS OF
SHAREHOLDERS."
DISSENTERS' RIGHTS
Dissenters' rights are available to shareholders of FBWH who object to
the Reorganization. Under the Connecticut General Statutes, shareholders can
obtain payment of the value of their shares if certain procedures contained in
those statutes are complied with by the shareholder. The procedures to be
followed are summarized under "THE REORGANIZATION AGREEMENT--Dissenters'
Rights."
MARKETS AND MARKET PRICES
NECB Common Stock is quoted on the Nasdaq NM. FBWH Common Stock is quoted
by brokers who facilitate trades on the FBWH Common Stock from time to time.
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4
<PAGE>
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FBWH
NECB FBWH EQUIVALENT
COMMON COMMON PER SHARE
STOCK STOCK PRICE
--------- --------- ---------
Market Value Per Share at:
February 24, 1997 (a) ................... $16.75 $7.75 $10.385
- ----------------
(a) The last trading day preceding the public announcement of the
Reorganization.
The closing price of NECB Common Stock as quoted on the Nasdaq NM was
$17.00 per share on June 6, 1997. The closing bid price for FBWH Common Stock
was $9.75 per share on that date. FBWH Common Stock is traded infrequently and
the bid price does not reflect actual trades.
FBWH shareholders are advised to obtain current market quotations for
NECB Common Stock and FBWH Common Stock. No assurance can be given concerning
the market price of NECB Common Stock before or after the Effective Time of the
Reorganization (as defined below). The market price for NECB Common Stock will
fluctuate between the date of this Joint Proxy Statement-Prospectus and the
Effective Time of the Reorganization. Because the Exchange Ratio is fixed, it
will not be affected by changes in the market value of NECB or FBWH Common
Stock. The Exchange Ratio may be increased by NECB if the Average Price (as
defined herein) of NECB Common Stock is less than $12.80 per share in certain
circumstances and the FBWH Board gives written notice of its intention to
exercise its right of termination. See "THE REORGANIZATION AGREEMENT--Amendment
and Termination."
CAPITAL RATIOS
The regulatory capital ratios at March 31, 1997 and December 31, 1996 of
NECB (current and pro forma) and FBWH are summarized below:
<TABLE>
<CAPTION>
MINIMUM NECB
REGULATORY HISTORICAL HISTORICAL FBWH
CAPITAL LEVEL NECB FBWH PRO FORMA
------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
MARCH 31, 1997 (Unaudited)
Tier 1 leverage capital ratio ........... 4.0% 8.7% 11.2% 9.1%
Tier 1 risk-based capital ratio ......... 4.0% 12.4% 13.2% 13.2%
Total risk-based capital ratio ......... 8.0% 13.7% 14.5% 14.5%
DECEMBER 31, 1996
Tier 1 leverage capital ratio ........... 4.0% 8.5% 10.5% 8.8%
Tier 1 risk-based capital ratio ......... 4.0% 12.2% 16.7% 12.9%
Total risk-based capital ratio .......... 8.0% 13.5% 17.9% 14.1%
</TABLE>
For a detailed discussion of the capital of NECB and FBWH, respectively,
see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF NECB--Capital" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF FBWH--Capital Resources."
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5
<PAGE>
- --------------------------------------------------------------------------------
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share, pro forma
combined per share and pro forma equivalent per share information with respect
to NECB Common Stock and FBWH Common Stock for the three-months ended March 31,
1997 and the years ended December 31, 1996, 1995 and 1994. The pro forma
combined per share information for the NECB Common Stock reflects the pro forma
effects of the Reorganization. The information set forth below should be read in
conjunction with the historical and financial information of NECB and FBWH
appearing elsewhere in this Joint Proxy Statement-Prospectus and in conjunction
with the Unaudited Pro Forma Condensed Combined Financial Information contained
elsewhere of this Joint Proxy Statement-Prospectus.
<TABLE>
<CAPTION>
PER COMMON SHARE
------------------------------------------------------
PRO FORMA
EXCHANGE RATIO 0.62 PER SHARE
HISTORICAL OF NECB TO 1 SHARE OF FBWH
----------------------- ----------------------------
EQUIVALENT
NECB PER FBWH
NECB FBWH COMBINED SHARE (1)
----------- --------- ------------ ----------
<S> <C> <C> <C> <C>
For the three months ended March 31, 1997
Income from continuing operations ..... $ 0.33(2) $ 0.20 (2) $ 0.32 (3) $ 0.20
Cash dividends declared ............... $ 0.080 $ 0.050 $ 0.080(4) $ 0.050
Book value at end of period ........... $11.14 (5) $ 5.78(5) $10.43 (6) $ 6.47
For the year ended December 31, 1996
Income from continuing operations ..... $ 1.26 $ 0.88 (7) $ 1.26 $ 0.78
Cash dividends declared ............... $ 0.28 $ 0.17 $ 0.28 $ 0.17
Book value at end of period ........... $11.02 (9) $ 5.72 (9) $10.32 (10) $ 6.40
For the year ended December 31, 1995
Income from continuing operations ..... $ 0.91 (7) $ 1.60 (7) $ 1.17 (8) $ 0.72
Cash dividends declared ............... $ 0.205 $ 0.030 $ 0.205 $ 0.127
For the year ended December 31, 1994
Income from continuing operations ..... $ 0.82 (7) $ 0.50 (7) $ 0.65 (8) $ 0.40
Cash dividends declared ............... $ 0.050 $ -- $ 0.050 $ 0.031
</TABLE>
- ------------------
(1) Equivalent per FBWH share data is derived by applying the Exchange Ratio of
0.62 to 1 pro forma NECB data.
(2) Amount is based upon average shares outstanding for the quarter ended March
31, 1997.
(3) Amount is based upon pro forma average shares outstanding for the quarter
ended March 31, 1997.
(4) Cash dividend declared for NECB Combined reflects actual historical
dividend payment on NECB Common Stock.
(5) Amount is based upon actual shares outstanding at March 31, 1997.
(6) Amount is based upon pro forma capital and pro forma shares outstanding at
March 31, 1997.
(7) Amount is based upon average shares outstanding for the year ended December
31.
(8) Amount is based upon pro forma average shares outstanding for the year
ended December 31.
(9) Amount is based upon actual shares outstanding at December 31, 1996.
(10) Amount is based upon pro forma capital and pro forma shares outstanding at
December 31, 1996.
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<PAGE>
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SELECTED CONSOLIDATED FINANCIAL DATA OF NECB
The following tables set forth selected consolidated financial data of
NECB at the dates and for the periods indicated. The data at December 31, 1996,
1995 and 1994, and for the years then ended have been derived from the audited
Consolidated Financial Statements and related Notes of NECB included elsewhere
herein. The selected consolidated financial data set forth below should be read
in conjunction with, and are qualified in its entirety by, the more detailed
information, including the Consolidated Financial Statements and related Notes,
included elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
(AMOUNTS IN THOUSANDS; EXCEPT PER SHARE DATA) 1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
EARNINGS:
Net interest income .................... $ 18,415 $ 10,564 $ 8,577 $ 8,223 $ 8,846
Provision for loan losses .............. 1,854 700 530 764 2,679
Noninterest income ..................... 2,378 1,692 1,616 2,115 2,350
Noninterest expense .................... 12,701 8,591 7,895 9,337 7,272
Income before effect of change in
accounting principle ................. 4,262 1,980 1,103 181 373
Cumulative effect of change in
accounting principle ................. 228
Net income ............................. 4,262 1,980 1,103 409 373
PER SHARE DATA:
Income before effect of change in
accounting principle ................. $ 1.26 $ 0.91 $ 0.82 $ 0.14 $ 0.29
Cumulative effect of change in
accounting principle ................. 0.17
Net income ............................. 1.26 0.91 0.82 0.31 0.29
Dividends declared ..................... 0.28 0.205 0.05 -- --
BALANCE SHEET DATA (AS OF END OF YEAR):
Loans .................................. $288,996 $222,235 $132,624 $115,696 $135,322
Assets ................................. 433,159 341,561 216,690 203,184 211,727
Deposits ............................... 386,897 307,161 196,872 188,466 196,178
Shareholders' equity ................... 40,411 30,480 18,473 13,012 12,334
OPERATING RATIOS:
Return on average assets ............... 1.14% 0.91% 0.56% 0.20% 0.18%
Return on average equity ............... 12.28 9.61 8.34 3.26 3.08
Net interest margin .................... 5.34 5.28 4.80 4.60 4.80
</TABLE>
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7
<PAGE>
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(SELECTED CONSOLIDATED FINANCIAL DATA OF NECB, CONTINUED)
MARCH 31, 1997 MARCH 31, 1996
(AMOUNTS IN THOUSANDS; EXCEPT PER SHARE DATA) (UNAUDITED) (UNAUDITED)
--------------- --------------
EARNINGS:
Net interest income ...................... $ 5,245 $ 4,236
Provision for loan losses ................ 243 532
Noninterest income ....................... 698 440
Noninterest expense ...................... 3,795 2,787
Net income ............................... 1,192 923
PER SHARE DATA:
Net income ............................... $ 0.33 $ 0.30
Dividends declared ....................... 0.08 0.06
BALANCE SHEET DATA (AS OF END OF QUARTER):
Loans .................................... $287,291 $219,236
Assets ................................... 428,079 329,005
Deposits ................................. 373,382 293,847
Shareholders' equity ..................... 40,847 30,909
OPERATING RATIOS:
Return on average assets ................. 1.14% 1.12%
Return on average equity ................. 11.84 11.99
Net interest margin ...................... 5.47 5.55
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8
<PAGE>
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SELECTED FINANCIAL DATA OF FBWH
The following tables set forth financial data of FBWH at the dates and
for the periods indicated. The data for December 31, 1996, 1995, and 1994 and
for the years then ended have been derived from the Financial Statements and
related Notes of FBWH included elsewhere herein. The selected financial data set
forth below should be read in conjunction with, and are qualified in its
entirety by, the more detailed Financial Statements and related Notes included
elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(AMOUNTS IN THOUSANDS; EXCEPT PER SHARE DATA) 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EARNINGS:
Net interest income .................... $ 4,130 $ 3,831 $ 3,576 $ 3,428 $ 3,277
Provision for loan losses .............. 355 500 906 1,850 807
Noninterest income ..................... 1,038 652 740 946 797
Noninterest expense .................... 3,263 3,281 3,200 3,282 2,822
Net income (loss) ...................... 1,226 1,710 407 (773) 435
PER SHARE DATA:
Primary ................................ $ 0.88 $ 1.60 $ 0.50 $ (0.96) $ 0.54
Fully diluted .......................... 0.88 1.30 0.50 (0.96) 0.54
Dividends declared ..................... 0.17 0.03
BALANCE SHEET DATA (AS OF END OF YEAR):
Loans .................................. $ 47,208 $ 41,527 $ 46,972 $ 55,388 $ 63,919
Assets ................................. 83,595 77,307 73,784 78,417 83,560
Deposits ............................... 70,106 70,242 69,766 74,313 78,871
Shareholders' equity ................... 8,809 6,668 3,353 4,338 3,892
OPERATING RATIOS:
Return on average assets ............... 1.12% 2.34% 0.54% -0.90% 0.50%
Return on average equity ............... 16.30 37.14 11.98 -19.00 11.80
Net interest margin .................... 5.66 5.74 5.21 4.61 4.19
</TABLE>
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9
<PAGE>
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(SELECTED FINANCIAL DATA OF FBWH, CONTINUED)
MARCH 31, 1997 MARCH 31, 1996
(AMOUNTS IN THOUSANDS; EXCEPT PER SHARE DATA) (UNAUDITED) (UNAUDITED)
--------------- --------------
EARNINGS:
Net interest income........................ $ 1,078 $ 960
Provision for loan losses.................. 30 75
Noninterest income......................... 256 221
Noninterest expense........................ 803 838
Net income................................. 310 248
PER SHARE DATA:
Primary and fully diluted.................. $ 0.20 $ 0.17
Dividends declared......................... 0.05 0.04
BALANCE SHEET DATA (AS OF END OF QUARTER):
Loans...................................... $46,467 $43,150
Assets..................................... 81,544 78,468
Deposits................................... 67,611 70,061
Shareholders' equity....................... 8,918 6,763
OPERATING RATIOS:
Return on average assets................... 1.52% 1.29%
Return on average equity................... 13.77 13.93
Net interest margin........................ 5.79 5.47
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10
<PAGE>
THE MEETINGS
GENERAL
NECB. This Joint Proxy Statement-Prospectus is being furnished to the
holders of NECB Common Stock, in connection with the solicitation of proxies by
the NECB Board for use at the NECB Special Meeting to be held on July 28, 1977,
at 8:00 a.m., at the Windsor office of New England Bank, 176 Broad Street,
Windsor, Connecticut and at any adjournments or postponements thereof to
consider and vote upon the Merger Proposal.
The costs of soliciting proxies from holders of NECB Common Stock will be
borne by NECB and is not expected to exceed $7,500. Such solicitation will be
made by mail but also may be made by telephone or in person by the directors,
officers, and employees of NECB (who will receive no additional compensation for
such efforts). In addition, NECB will make arrangements with brokerage firms and
other custodians, nominees and fiduciaries to send proxy materials to their
principals.
FBWH. This Joint Proxy Statement-Prospectus is being furnished to the
holders of FBWH Common Stock, in connection with the solicitation of proxies by
the FBWH Board for use at the Annual Meeting of FBWH shareholders to be held on
July 28, 1997, at 8:00 a.m., at the principal offices of FBWH, 1013 Farmington
Avenue, West Hartford, Connecticut and at any adjournments or postponements
thereof to consider and vote upon the following proposals: (i) the approval of
the Reorganization Agreement and the transactions contemplated thereby; (ii) the
election of the nominees named herein as directors of FBWH; and (iii) the
ratification of the selection of Snyder & Haller as auditors of FBWH for the
year ending December 31, 1997.
The costs of soliciting proxies from holders of FBWH Common Stock will be
borne by FBWH and is not expected to exceed $7,500. Such solicitation will be
made by mail but also may be made by telephone or in person by the directors,
officers, and employees of FBWH (who will receive no additional compensation for
such efforts). In addition, FBWH will make arrangements with brokerage firms and
other custodians, nominees and fiduciaries to send proxy materials to their
principals.
RECORD DATES; VOTES REQUIRED
NECB. The NECB Board has fixed June 20, 1997 as the record date (the
"NECB Record Date") for determining shareholders entitled to notice of and to
vote at the NECB Special Meeting. Only holders of record of shares of NECB
Common Stock on the NECB Record Date will be entitled to notice of and to vote
at the Special Meeting. The affirmative vote of a majority of the votes cast at
the NECB Special Meeting is required in order to approve the Merger Proposal. As
of the NECB Record Date, there were 3,667,166 shares of NECB Common Stock
outstanding and entitled to vote at the NECB Special Meeting, with each share
being entitled to one vote. Abstentions and broker non-votes are counted for
purposes of determining the presence of a quorum at the NECB Special Meeting and
are not considered votes cast. Consequently, a failure to vote will have no
effect on the outcome of the vote.
The directors of NECB unanimously approved the Reorganization Agreement
and the issuance of shares pursuant thereto and all of the executive officers
and directors of NECB, who are stockholders, representing 487,347 shares or
13.1% of the outstanding NECB Common Stock as of the NECB Record Date, have
indicated that they intend to vote FOR the Merger Proposal.
FBWH. The FBWH Board has fixed June 18, 1997 as the record date (the
"FBWH Record Date") for determining shareholders entitled to notice of and to
vote at the FBWH Annual Meeting. Only holders of record of shares of FBWH Common
Stock on the FBWH Record Date will be entitled to notice of and to vote at the
FBWH Annual Meeting. The affirmative vote of two-thirds of the holders of the
shares of FBWH Common Stock outstanding on such date is required in order to
approve the Reorganization Agreement. A failure to return a properly executed
proxy card or to vote in person at the FBWH Annual Meeting will have the same
effect as a vote against the Reorganization Agreement. The nominees for
directors must receive the affirmative vote of a plurality of the votes cast at
the FBWH Annual Meeting in order to be elected, and the auditors must receive
more "FOR" votes than "AGAINST" votes in order to be ratified. A failure to
return a properly executed proxy card or to vote in person on either or both of
those two items will have a neutral effect on the proposals. As of the FBWH
Record Date, there were 1,549,518 shares of FBWH Common Stock outstanding and
entitled to vote at the FBWH Annual Meeting, with each share being entitled to
one vote. Abstentions and broker non-votes are not treated as having voted in
favor of any proposal. Consequently, a failure to vote will have the same effect
as a vote against the proposal to approve the Reorganization, and will have a
neutral effect on the other two voting items.
11
<PAGE>
The directors of FBWH unanimously approved the Reorganization Agreement
and all of the executive officers and directors of FBWH, who are shareholders,
representing 462,955 (including 120,400 shares subject to outstanding options)
shares or 34.4% of the outstanding common stock of FBWH as of January 31, 1997,
have agreed to vote FOR the Reorganization.
REVOCATION OF PROXIES
NECB. Any holder of NECB Common Stock who has delivered a proxy may
revoke it at any time before it is voted by giving notice of revocation in
writing, or submitting a signed proxy card bearing a later date to NECB, Old
Windsor Mall, Windsor, Connecticut 06095, Attention: Anson C. Hall, Vice
President, Chief Financial Officer and Treasurer, provided that such notice or
proxy card is actually received by NECB before the vote of stockholders or by
casting a contrary vote at the NECB Special Meeting. The shares of NECB Common
Stock represented by properly executed proxies received at or prior to the NECB
Special Meeting and not subsequently revoked will be voted as directed in such
proxies. If instructions are not given, shares represented by proxies received
will be voted "FOR" approval of the Merger Proposal. If any other matters are
properly presented at the NECB Special Meeting for consideration, the persons
named in the NECB proxy card enclosed herewith will have discretionary authority
to vote on such matters in accordance with their best judgment; provided,
however, that such discretionary authority will only be exercised to the extent
permissible under applicable federal and state securities, corporation and
banking laws. As of the date of this Joint Proxy Statement-Prospectus, NECB is
unaware of any other matter to be presented at the NECB Special Meeting.
FBWH. Any holder of FBWH Common Stock who has delivered a proxy may
revoke it at any time before it is voted by giving notice of revocation in
writing, or submitting a signed proxy card bearing a later date to FBWH, 1013
Farmington Avenue, West Hartford, Connecticut 06107, Attention: Brian J. Hull,
provided that such notice or proxy card is actually received by FBWH before the
vote of shareholders or by casting a contrary vote at the FBWH Annual Meeting.
The shares of FBWH Common Stock represented by properly executed proxies
received at or prior to the FBWH Annual Meeting and not subsequently revoked
will be voted as directed in such proxies. If instructions are not given, shares
represented by proxies received will be voted "FOR" approval of the
Reorganization Agreement and the exchange of shares, "FOR" the election of the
nominees named herein as directors of FBWH and "FOR" the ratification of the
selection of Snyder & Haller as auditors of FBWH for the year ending December
31, 1997. If any other matters are properly presented at the FBWH Annual Meeting
for consideration, the persons named in the FBWH proxy card enclosed herewith
will have discretionary authority to vote on such matters in accordance with
their best judgment; provided, however, that such discretionary authority will
only be exercised to the extent permissible under applicable federal and state
securities, corporation and banking laws. As of the date of this Joint Proxy
Statement-Prospectus, FBWH is unaware of any other matter to be presented at the
Special Annual Meeting.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
NECB. The NECB Board has unanimously approved the Reorganization
Agreement and the issuance of shares pursuant thereto and has determined that
the Reorganization is in the best interests of NECB and its stockholders. The
NECB Board unanimously recommends that stockholders vote "FOR" the Merger
Proposal. The NECB Board has also received the opinion of its financial advisor,
HAS, to the effect that the Per Share Consideration to be received by FBWH
shareholders in the proposed Reorganization is fair, from a financial point of
view, to NECB stockholders. The NECB Board therefore unanimously recommends that
NECB shareholders vote "FOR" approval of the Merger Proposal. For the reasons
described below, the NECB Board believes that the Reorganization will provide
significant value to NECB stockholders.
FBWH. The FBWH Board has unanimously approved the Reorganization
Agreement and has determined that the Reorganization is in the best interests of
FBWH and its shareholders and unanimously recommends that shareholders vote
"FOR" the Reorganization. The FBWH Board has also received the opinion of its
financial advisor, O&Co, to the effect that the Per Share Consideration to be
received by FBWH shareholders in the proposed Reorganization is fair, from a
financial point of view, to such shareholders. For the reasons described below,
the FBWH Board believes that the Reorganization will provide significant value
to FBWH shareholders and also enable them to participate in enhanced
opportunities for growth in shareholder value. The FBWH Board therefore
unanimously recommends that FBWH shareholders vote "FOR" approval of the
Reorganization Agreement and the transactions contemplated thereby. The FBWH
Board also unanimously recommends that FBWH shareholders vote "FOR" the election
of the nominees named herein as directors of FBWH and "FOR" the ratification of
the selection of Snyder & Haller as auditors of FBWH for the year ending
December 31, 1997.
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THE REORGANIZATION
BACKGROUND OF THE REORGANIZATION
In the late 1980s and through 1993, FBWH experienced significant
operating losses and became subject to a Cease and Desist Order issued by the
FDIC (the "Order"). In late 1992, FBWH commenced efforts to recapitalize. The
recapitalization increased FBWH's capital, but not to the 6.0% Tier 1 level
required in the Order. FBWH continued thereafter to focus on compliance with the
Order and on building the earnings of its core banking operations. As FBWH began
to restore both earnings and core franchise value, it also was periodically
approached by various potential merger and acquisition parties. However, the
Board of Directors continued to pursue FBWH's business plan on an independent
basis believing that the long range potential of the franchise was more valuable
to shareholders than a potential sale at such time.
The year ended December 31, 1994 represented real progress for FBWH. It
reported net income after a loss in 1993. However, FBWH's capital levels
continued to be below those required in the Order, and FBWH developed a two
phase recovery plan to sell common stock and dispose of problem assets on an
accelerated basis. Both phases were successfully completed in 1995 as more than
$1,100,000 of new capital was raised in a stock offering, earnings totalled
$1,710,443, ratios of non-accruing loans and other real estate owned were
substantially reduced, and the Order was removed by the FDIC as FBWH's Tier 1
capital level exceeded 6.0%.
Throughout 1995 and 1996, FBWH continued to focus on continued growth of
profitability and core banking operations while at the same time generally
making known its willingness to discuss enhancement of shareholder value with
potentially interested acquirors. FBWH was assisted in this effort by O&Co, its
financial advisor in the 1995 Offering, which continued to act as FBWH's
financial advisor after the Offering. Among other considerations, FBWH working
with O&Co, sought to identify one or more franchise expanding merger partners
which would enhance both long term core franchise value as well as earnings.
Those discussions did not result in any potential transactions attractive enough
to FBWH's Board of Directors, and FBWH did not enter into any negotiations with
any parties during 1995 and 1996. Other considerations included formation of a
bank holding company and/or merger of equal transactions; however, the cost of
the foregoing was deemed to be too great, and the short and medium-term benefits
to shareholders to be too small, to seriously pursue such alternatives.
In late 1996, FBWH was approached by another institution expressing
interest in a combination with FBWH. Discussions were subsequently terminated by
the other party. In January 1997, FBWH received a letter from NECB indicating an
interest in performing due diligence on FBWH and suggesting a possible stock
exchange acquisition. While NECB had previously approached FBWH in 1995, FBWH
was in the process of executing its recovery plan and determined that, at the
time, it was in the best interest of FBWH shareholders to remain independent. At
a special meeting of FBWH's Board of Directors on January 21, 1997, the Board
considered NECB's proposal but determined to defer any decision to proceed until
hearing the views of O&Co.
At its regular meeting on January 28, 1997, the FBWH Board explored on a
preliminary basis with O&Co whether the NECB proposal should be pursued as it
presented attractive financial consideration for FBWH shareholders. The Board
authorized NECB to proceed with its due diligence effort. A Negotiating
Committee was appointed by the Chairman for the purpose of supervising
negotiations by FBWH's professionals with NECB.
In early February, representatives of FBWH, along with Peter J. Ostrowski
of O&Co, met with NECB to discuss, among other things, NECB's performance,
technology and operational strategies, the Connecticut banking market and other
industry issues. Shortly thereafter, NECB's merger subcommittee was briefed on
the discussions. With the consent of the subcommittee, representatives of FBWH
and NECB began negotiations on the terms of a merger and NECB began to conduct
on-site due diligence of FBWH.
On February 6, 1997, the NECB Board met to discuss developments. The
following items were addressed, including banking business opportunities in the
West Hartford market, potential cost savings of the in-market merger, benefit to
NECB of FBWH's expertise and experience with SBA loan programs, FBWH asset
quality and loan loss reserve requirements, merger structure and possible
pricing scenarios including earnings impact and dilutive effect to NECB Common
Stock. Additionally, a summary of the results of the due diligence was presented
by management and NECB's financial advisor, HAS. The NECB Board approved
management's going forward with drafting a definitive agreement of
reorganization.
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On February 12, 1997, a meeting was held with both parties and their
respective financial advisors to negotiate the price and terms of the
Reorganization. With a preliminary valuation analysis, including market pricing,
balance sheet and income comparisons for a peer group of Connecticut banks, and
a summary of comparable acquisitions of banking institutions, a range of
exchange ratios to book value and earnings were discussed. The parties also
reviewed the results of the on-site and other due diligence and considered other
business and financial information of FBWH. The outcome of these negotiations
led to a proposed transaction whereby NECB would acquire FBWH and FBWH would
merge with and into NEBT.
On February 25, 1996, the FBWH Board met to discuss the results of the
negotiations with NECB. O&Co updated its valuation analysis to that date and
provided the FBWH Board with its opinion that the terms of the Reorganization
were fair to the shareholders of FBWH from a financial point of view. A copy of
the Reorganization Agreement, including all schedules and exhibits, was
distributed to the FBWH Board members. After discussion and further questions
and answers, the Reorganization Agreement was unanimously approved by the FBWH
Board and the Board authorized Dennis T. Cardello, President and Chief Executive
Officer of FBWH, to execute the definitive Reorganization Agreement.
On the same day, the NECB Board also met to discuss the results of the
negotiations with FBWH. HAS updated its valuation analysis to that date and
provided the NECB Board with its opinion that the terms of the Reorganization
were fair to the shareholders of NECB from a financial point of view. A copy of
the Reorganization Agreement, including all schedules and exhibits, was
distributed to NECB Board members. After discussion and further questions and
answers, the Reorganization Agreement was unanimously approved by the NECB Board
and the Board authorized David A. Lentini, President and Chief Executive Officer
of NECB, to execute the definitive Reorganization Agreement with FBWH.
Later that day, the definitive Reorganization Agreement was executed and
public announcement was made of the proposed acquisition.
RECOMMENDATION OF THE NECB BOARD AND NECB REASONS FOR THE REORGANIZATION
The NECB Board unanimously approved the Reorganization and the issuance
of shares of NECB Common Stock pursuant thereto and recommends that the
stockholders of NECB approve the Merger Proposal.
NECB's growth strategy consists of three principal elements--growth
within NECB's existing banking franchises, adding branches through de novo
expansion and selected acquisitions. NECB considers financial institutions as
potential acquisitions if they (i) have compatible business philosophies; (ii)
operate in markets which are geographically within or near to those of NECB;
and, (iii) if, by their inclusion, NECB shareholder value would be enhanced. The
potential enhancement to shareholder value typically takes the form of economies
achieved subsequent to a possible combination coupled with NECB's ability to
offer expanded services to acquired markets. Acquisition candidates are also
evaluated in terms of asset quality, interest rate risk and core deposit base
stability. The NECB Board of Directors believes that FBWH meets the criteria
described above and as such will contribute positively to NECB's net income over
an acceptable period following consummation of the transaction.
In the view of the NECB Board, the Reorganization constitutes an
acquisition which is in line with NECB's aforementioned strategy and complements
the Company's existing franchise. Through a combination of cost savings derived
from the consolidation of FBWH's back-office and support services taken together
with NECB's ability to offer expanded services to FBWH's customers, the NECB
Board expects that earnings capacity of NECB will be enhanced as a result of the
Reorganization.
OPINION OF NECB'S FINANCIAL ADVISOR
NECB retained HAS Associates of Nashua, New Hampshire to provide NECB
with an opinion on the proposed reorganization between FBWH and NEBT. HAS
Associates is a regional bank consulting firm which, as part of its business, is
engaged in the valuation of bank and bank holding companies' securities in
connection with mergers and acquisitions and for various other purposes. HAS has
provided financial advisory and consulting services to NECB and its subsidiary
banks since 1992. NECB selected HAS as its financial advisor on the basis of its
experience and expertise in transactions similar to the Reorganization and its
reputation in the banking and investment community.
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On February 25, 1997, HAS delivered its written opinion to the NECB Board
to the effect that, as of February 25, 1997, the consideration being offered in
the Reorganization Agreement by and among NECB, NEBT and FBWH was fair, from a
financial point of view, to the holders of NECB Common Stock. This opinion was
reconfirmed in writing as of the date of this Joint Proxy Statement-Prospectus.
The full text of the HAS opinion is attached as Appendix B to this Proxy
Statement-Prospectus and is incorporated herein by reference. The description of
the opinion set forth herein is qualified in its entirety by reference to
Appendix B.
The HAS opinion does not constitute a recommendation to any NECB
shareholder as to how such shareholder should vote at the Special Meeting.
In connection with its opinion, HAS reviewed, analyzed and relied upon
material relating to the financial and operating conditions of FBWH including,
among other things, the following: (i) the Reorganization Agreement; (ii) Annual
Reports to Stockholders and Annual Reports on Form F-2 for the three years ended
December 31, 1994, 1995, and 1996, of FBWH; (iii) certain Quarterly Reports on
Form F-4, proxy solicitation material of FBWH and certain other communications
from FBWH to its shareholders; (iv) other financial information concerning the
business and operations of FBWH furnished to HAS by FBWH for purpose of its
analysis, including certain internal financial analyses and forecasts for FBWH
prepared by the senior management of FBWH; (v) corporate minutes of FBWH for
three years; (vi) audit reports certified by the independent accountants of FBWH
for three years; (vii) regulatory filings of FBWH for three years; (viii) FBWH
policies and procedures, certain loan files, its investment portfolio; and (ix)
certain publicly available information with respect to banking companies and the
nature and terms of certain other transactions HAS considered relevant to its
inquiry. In addition, HAS reviewed certain market information concerning FBWH,
analyzed data concerning private and publicly owned banks in New England,
reviewed stock market data of other banks generally deemed comparable whose
securities are publicly traded, publicly available information concerning
certain recent business combinations, and such additional financial and other
information as HAS deemed necessary. Furthermore, HAS reviewed the public
financial information available concerning NECB. In addition, HAS reviewed
certain internal reports and documents of FBWH including loan lists grouped by
risk rating, past due and non-accrual loan reports, internal loan watch list,
loan relationship reports, restructured loan reports, OREO and ISF reports, loan
loss reserve analysis reports, 1997 operating budget and forecast, securities
portfolio-book value and market value reports, and schedule of threatened or
pending litigations. HAS also held discussions with senior management of FBWH
concerning their past and current operations, financial condition and prospects,
as well as the results of regulatory examinations.
In conducting its review and arriving at its opinion, HAS relied upon and
assumed the accuracy and completeness of all of the financial and other
information provided to it or publicly available, and HAS did not attempt to
verify such information independently or undertake an independent appraisal of
the assets and liabilities of FBWH. HAS relied upon the accuracy and opinion of
the audit reports prepared by FBWH's independent accountants. HAS assumes no
responsibility for the accuracy and completeness of the financial and other
information relied upon.
The preparation of a fairness opinion involves various methods and
determinations which vary from bank to bank and the use of different factors
depending upon location, size, method of operation, etc. The determination of
the opinion is a subjective process which uses qualitative judgements, but does
not rely solely upon one approach. The analyses should be considered as a whole,
and considering any portion of such analyses and of the factors considered
without considering all analyses and factors could create a misleading or
incomplete view of the process underlying the process of developing a fairness
opinion.
The fairness opinion process made numerous assumptions concerning the
economy, banking industry performance, and general business conditions which may
or may not have an impact on NECB. Any estimates counted in these analyses are
not necessarily indicative of actual values or predictive of future result or
value, which may be significantly more or less favorable than is set forth
therein.
The following is a summary of all material analyses performed by HAS in
connection with its opinion dated February 25, 1997 and reconfirmed as of the
date of this Joint Proxy Statement-Prospectus.
A. OVERALL FINANCIAL AND ENVIRONMENTAL ASSESSMENT
FBWH's main office is located in downtown West Hartford, Connecticut.
FBWH does not have additional branch banking offices.
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As of December 31, 1996, FBWH had total assets of $83.6 million, total
shareholder equity of $8.8 million and year to date earnings of $1,225,676.
During the three-year period prior to 1996, FBWH had minimal earnings averaging
0.56% ROAA which was the result of increased contributions to loan loss reserves
and writedowns on OREO. During 1996, earnings improved significantly and are
above peer group levels. In 1996, earnings of $1.2 million resulted in a return
on average assets of 1.57% and a return on average equity of 16.30%.
The New England and Connecticut economy has stabilized and is showing
some signs of economic growth with a small recovery in real estate values.
B. STOCK PRICE AND TRADING HISTORY
The FBWH Common Stock is not listed on the Nasdaq NM or any other major
stock exchange. As a result, accurate trading history is not available.
C. SELECTED GROUP ANALYSIS
Using publicly available information, HAS compared the financial
performance and stock market valuation of FBWH with 21 selected banks (the
"Comparable Group") deemed relevant by HAS. Indications of financial performance
evaluated by HAS included profitability expressed as a return on average assets
of 0.75% for the Comparable Group and 1.43% for FBWH; return on average equity
of 8.0% for the Comparable Group and 15.53 % for FBWH; a ratio of equity capital
to average assets of 8.92% for the Comparable Group and 10.21% for FBWH; the
ratio of non-performing assets to equity plus loan loss reserve of 19.2% for the
Comparable Group and 9.21 % for FBWH; a net interest margin of 4.48% for the
Comparable Group and 5.74% for FBWH; the loan to deposit ratio of 76.25% for the
Comparable Group and 64.29% for FBWH; non-interest income as a percent of
average assets of 0.61 % for the Comparable Group and 1.34% for FBWH; and
non-interest expense as a percent of average assets of 3.44% for the Comparable
Group and 4.20% for FBWH.
The above ratios are based on the most recent publicly available
financial information for the Comparable Group. In this comparison, HAS
concluded that FBWH compares favorably in return on average assets, return on
average equity, ratio of equity capital to average assets, net interest margin,
the ratio of non-performing loans to equity plus loan loss reserves and
noninterest income as a percent of average assets. HAS further concluded that
FBWH compares less favorably in non-interest expense as a percent of average
assets.
Because of the inherent differences between the operations of FBWH and
the Comparable Group, HAS believed that a purely quantitative comparable
analysis would not be the sole criteria in developing its opinion in the context
of the proposed Reorganization. HAS believed that an appropriate use of
comparable analysis in this instance would involve qualitative judgements
concerning differences between the financial and operating characteristics of
FBWH and the selected companies which would affect the market value of FBWH and
the selected companies. The qualitative judgements made by HAS in connection
with its opinion included HAS' views as to business conditions and prospects in
various markets in which these selected companies operate, and business mix,
sources of revenue and risk profile for these selected companies.
D. COMPARABLE TRANSACTION ANALYSIS
Using publicly available information, HAS reviewed certain terms and
financial characteristics of sixteen bank merger and acquisition transactions
completed in 1996 and 1997 (the "1996-1997 Comparable Transaction Group") and
ten pending bank merger and acquisition transactions announced in 1996 and 1997
but not yet concluded (the "1996-1997 Comparable Pending Group"), which HAS
deemed to be comparable to the Reorganization. The average values for the
1996-1997 Comparable Transaction Group for price to trailing twelve-month
earnings ratio and price to book value ratio at announcement were 16.07 times
and 1.77 times, respectively. The average values for the 1996 Comparable Pending
Group for price to trailing twelve-month earnings ratio and price to book value
ratio were 17.39 times and 1.68 times, respectively. The price to trailing
twelve-month earnings ratio and price to book value ratio for the Reorganization
are 12.36 times and 2.14 times, respectively, at announcement. The price to
trailing twelve-month earnings ratio for the Reorganization was less than the
1996-1997 Comparable Transaction Group and the 1996-1997 Comparable Pending
Group average. The price to book value for the Reorganization was more than both
the 1996-1997 Comparable Transaction Group and the 1996-1997 Comparable Pending
Group. Because the reasons for and circumstances surrounding each of the
transactions analyzed were so diverse and because of the inherent differences
between the operations of FBWH and the selected companies, HAS believed that a
purely quantitative comparable analysis would not be the sole criteria in
developing its opinion in the context of the merger. HAS believed that an
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appropriate use of a comparable transaction analysis in this instance would
involve qualitative judgements concerning differences between the
characteristics of these transactions and the Reorganization which would affect
the acquisition value of FBWH. The qualitative judgements made by HAS in
connection with its opinion included HAS' views as to the universe of potential
buyers in each of these transactions, their potential levels of interest in an
acquisition of these companies and the ability of the acquirers to implement
cost savings at and business synergies with the acquired companies and, in
addition, HAS' views as to the business conditions and prospects in the various
markets in which these acquired companies operate and business mix, sources of
revenue, risk profile and prospects for these acquired companies.
The summary set forth above does not purport to be a complete description
of the presentations by HAS to NECB of the analyses performed by HAS, although
the analyses summarized all of the material analyses performed by HAS. The
preparation of a fairness opinion is not necessarily susceptible to partial
analysis or summary description. HAS believes that its analyses and the summary
set forth above must be considered as a whole and that selecting portions of its
analyses without considering all analyses, or selecting part or all of the above
summary without considering all factors and analyses, would create an incomplete
view of the process underlying the analyses set forth in HAS' presentations and
opinion. In addition, HAS may have given various analyses more or less weight
than other analyses and may have deemed various assumptions more or less
probable than other assumptions, so that the valuations resulting from any
particular analysis described above should not be taken to be HAS's view of the
actual value of FBWH. The fact that any specific analysis has been referred to
in the summary above is not meant to indicate that such analysis was given
greater weight than any other analysis.
In performing its analyses, HAS made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of NECB. The analyses performed by
HAS are not necessarily indicative of actual values or actual future results
which may be significantly different than those suggested by analyses. Such
analyses were prepared solely as part of HAS' analysis of the fairness of the
Per Share Consideration and were provided to NECB's Board in connection with the
delivery of HAS' opinion. The analyses do not purport to be appraisals or to
reflect the prices at which a company actually might be sold or the prices at
which any securities may trade at the present time or at any time in the future.
In addition, as described above, HAS' opinion, along with its presentations to
the NECB Board of Directors, is just one of many factors taken into
consideration by the NECB Board. The HAS opinion did not address an increase in
the Exchange Ratio in the event NECB might elect such an increase if the Average
Price is less than $12.80 per share. The inability to predict specific market
price conditions would make such financial analysis speculative in nature.
E. CONCLUSION
In conducting its review, HAS relied upon the accuracy, fairness and
completeness of all information reviewed by it. HAS did not independently verify
any such information or undertake an independent appraisal of the assets and/or
liabilities of FBWH. HAS also relied upon the accuracy of the audit reports
provided by FBWH's certified public accountants. HAS did not assume
responsibility for the accuracy and completeness of any financial or other
financial information that it relied on.
The HAS Opinion is directed to the NECB Board and does not constitute a
recommendation to an NECB shareholder as to how such shareholder should vote at
the Special Meeting.
HAS received no instructions from NECB or any of its affiliates. Neither
NECB nor any of its affiliates imposed any limitation on HAS or the scope of
HAS' investigation in connection with the preparation or rendering of the HAS
Opinion.
The total fee payable to HAS in connection with the HAS Opinion is
$82,500, plus reasonable out-of-pocket expenses.
RECOMMENDATION OF THE FBWH BOARD AND FBWH REASONS FOR THE REORGANIZATION
The FBWH Board of Directors has unanimously approved the Reorganization
Agreement and has determined that the Reorganization is fair to, and in the best
interests of FBWH and its shareholders. The FBWH Board therefore unanimously
recommends that holders of FBWH Common Stock vote to approve and adopt the
Reorganization Agreement. The FBWH Board believes that the Reorganization will
enable holders of FBWH stock to realize increased value due to the premium over
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market price, net income per share of FBWH Stock and book value per share of
FBWH Stock. The FBWH Board also believes that the Reorganization may enable FBWH
shareholders to participate in opportunities for appreciation of NECB Common
Stock. In reaching its decisions to approve the Reorganization Agreement, the
FBWH Board consulted with its outside counsel regarding the legal terms of the
Reorganization and the FBWH Board's fiduciary obligations in its consideration
of the proposed Reorganization, its financial advisor, O&Co, regarding the
financial aspects and fairness of the proposed Reorganization Agreement (see
"Opinion of FBWH's Financial Advisor" below), as well as with management of FBWH
and, without assigning any relative or specific weight, considered the following
material factors, both from a short-term and long-term prospective.
(i) The FBWH Board's familiarity with, and review of, FBWH's business,
financial condition, results of operations and prospects,
including, but not limited to, its potential growth, development,
productivity and profitability and the business risks associated
therewith;
(ii) The current and prospective environment in which FBWH operates,
including national and local economic conditions, the highly
competitive environment for financial institutions generally, the
increased regulatory burden on financial institutions, and the
trend toward consolidation in the financial services industry;
(iii) The potential appreciation in market and book value of FBWH Common
Stock on both the short- and long-term basis, as a stand alone
entity;
(iv) Information concerning the business, financial condition, results
of operations, asset quality and prospects of NECB, including the
long-term growth potential of NECB Common Stock, the future growth
prospects of NECB, combined with FBWH, following the proposed
Reorganization and the potential synergies expected from the
Reorganization and the business risks associated therewith;
(v) The potential for appreciation and growth for the market and book
value of NECB Common Stock, following the proposed Reorganization;
(vi) The oral presentation and opinion of O&Co that the terms of the
Reorganization Agreement are fair to the holders of FBWH Common
Stock from a financial point of view (see "--Opinion of FBWH's
Financial Advisor" below);
(vii) The difficulty of FBWH surviving as an independent institution,
providing value to shareholders, and serving as a source of credit
to its community given the increasingly complex bank regulatory
environment and the existing competitive bank environment;
(viii) The long- and short-term interests of FBWH and its shareholders,
the interests of FBWH's employees, customer, creditors and
suppliers, and the interests of FBWH's community that may be served
to advantage by an appropriate affiliation with a larger
institution with a stronger capital base, increased economies of
scale, and with a greater capacity to serve all of the banking
needs of the community; and
(ix) The compatibility with respect to businesses and management
philosophies of FBWH and NECB and NECB's strong commitment to the
communities it serves.
ON THE BASIS OF THESE CONSIDERATIONS, THE REORGANIZATION AGREEMENT WAS
APPROVED, AND THE FBWH BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR THE APPROVAL OF THE REORGANIZATION AGREEMENT.
OPINION OF FBWH'S FINANCIAL ADVISOR
O&Co has provided advisory services to FBWH since 1994, including, among
other services, advice and assistance relating to the evaluation and execution
of mergers and acquisitions. FBWH selected O&Co as its advisor on the basis of
O&Co's in-depth knowledge of the bank and thrift industry; the qualifications,
experience and reputation of its personnel in the banking and investment
communities; as well as its experience in the valuation of bank and thrift
institutions and their securities in connection with mergers and acquisitions
and other corporate transactions.
As part of the advisory services described above, the Board of Directors
of FBWH requested O&Co's opinion as to the fairness, from a financial point of
view, of the terms of the Reorganization Agreement to the holders of FBWH Common
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Stock. Pursuant to the terms of the Reorganization Agreement, each share of FBWH
Common Stock will be converted into the right to receive 0.62 of a share of NECB
Common Stock, subject to adjustment in certain circumstances as described in the
Reorganization Agreement. On February 25, 1997, O&Co delivered its opinion to
the Board of Directors of FBWH that, as of such date, the consideration to be
received by the holders of FBWH Common Stock was fair from a financial point of
view.
THE FULL TEXT OF O&Co's FAIRNESS OPINION IS ATTACHED AS APPENDIX (C) TO
THIS JOINT PROXY STATEMENT-PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE.
THE DESCRIPTION OF THE FAIRNESS OPINION SET FORTH HEREIN IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO APPENDIX (C). HOLDERS OF FBWH COMMON STOCK ARE URGED TO
READ THE OPINION IN ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED,
ASSUMPTIONS MADE, MATTERS CONSIDERED AND QUALIFICATIONS OF THE REVIEW UNDERTAKEN
BY O&Co IN CONNECTION THEREWITH. O&Co's OPINION IS DIRECTED SOLELY TO THE
FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE TERMS OF THE REORGANIZATION
AGREEMENT AND DOES NOT CONSTITUTE ANY RECOMMENDATION TO THE BOARD OF DIRECTORS
OF FBWH OR TO THE HOLDERS OF FBWH COMMON STOCK WITH RESPECT TO ANY VOTE AT THE
FBWH ANNUAL MEETING.
In connection with providing its opinion, O&Co examined and relied upon,
among other things, the Reorganization Agreement, annual reports to
shareholders, proxy statements and related audited financial statements for FBWH
and NECB for the three fiscal years ended December 31, 1993, 1994, and 1995;
audited financial statements for FBWH and NECB for the fiscal year ended
December 31, 1996; certain other financial information for FBWH and NECB,
including pro forma financial statements and managements' estimates relating to,
among other things, earnings, asset quality and capital. O&Co conducted
discussions with executive management of both FBWH and NECB concerning
historical financial performance and condition, market area economic conditions,
and future business prospects and financial forecasts. O&Co reviewed market
prices and trading activity for the common stock of FBWH and NECB. O&Co also
reviewed comparable financial, operating and market data for the banking
industry and selected peer groups; compared the terms of the Reorganization
Agreement with other bank merger and acquisition transactions; and considered
such additional financial and other information it deemed relevant.
In preparing its opinion, O&Co relied upon the accuracy, completeness and
fair presentation of all information supplied or otherwise made available to it
by, or on behalf of, FBWH and NECB. O&Co did not independently verify such
information or undertake an independent evaluation or appraisal of the assets or
liabilities of FBWH or NECB, nor was O&Co furnished any such evaluations or
appraisals. With respect to forecasts of expected future financial performance,
O&Co was advised that they reflected the best currently available estimates and
judgements of the executive managements of FBWH and NECB. O&Co's opinion was
necessarily based upon the information available to it and the market, economic
and other conditions as they existed, and could be calculated, as of the date of
its opinion.
In connection with providing its fairness opinion to the Board of
Directors of FBWH, O&Co performed a variety of financial analyses. The following
is a summary of the material terms of such analyses but does not purport to be a
complete description of O&Co's analyses or presentations to the FBWH Board of
Directors. The preparation of a fairness opinion is a complex process involving
subjective judgements and does not lend itself to partial analyses or summary
description. O&Co believes that its analyses must be considered as a whole and
that selecting portions of such analyses and the factors considered therein,
without considering all factors and analyses, could create an incomplete view of
the analyses and the processes underlying O&Co's opinion.
In performing its analyses, O&Co made numerous assumptions with respect
to industry performance, business and economic conditions and various other
matters, many of which may be more or less favorable than actual results.
Estimates of values of companies do not purport to be appraisals or necessarily
reflect the prices at which companies or their securities may actually be sold.
No company or transaction utilized in O&Co's analyses was identical to FBWH or
NECB or to the terms of the Reorganization Agreement. Because such estimates are
inherently subject to uncertainty, O&Co assumes no responsibility for their
accuracy.
STOCK TRADING HISTORY. O&Co examined the history of trading prices for
NECB Common Stock for the period from February 21, 1996 through February 21,
1997. During that time period, NECB Common Stock appreciated from $9.88 to a
high of $18.38. NECB Common Stock traded at the low end of the range in the
early part of the time period. During June 1996, there was some price
appreciation and the stock traded as high as $13.00. The price declined slightly
during July and August but by September 30, the stock price rebounded to $12.81
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and continued to appreciate in concert with the overall rise in bank stocks
until February 19, 1997, when the price increased from the $15 range to its high
of $18.38. On February 21, 1997, NECB Common Stock closed at $17.50.
FBWH Common Stock is not listed on a national exchange and limited
trading activity takes place. Due to the illiquid trading nature of FBWH Common
Stock, the quoted price of $8.25 on February 21, 1997 is not necessarily an
indication that the stock traded at that price on that day.
CONTRIBUTION ANALYSIS. O&Co prepared a contribution analysis showing the
percentage contributed by FBWH to the combined company on a pro forma basis of
assets, deposits, and equity at December 31, 1996. Net income contributions were
considered for the year ended December 31, 1996 and were also based upon
management's estimates for the twelve months ended December 31, 1997. The 1997
estimates were deemed to more appropriately reflect the improved earnings levels
for both FBWH and NECB when compared to 1996 results. O&Co compared these
percentages to the FBWH shareholders' pro forma ownership of NECB. This analysis
showed that FBWH shareholders would contribute 16.2% of pro forma consolidated
assets, 15.3% of pro forma consolidated deposits, 18.6% of pro forma
consolidated equity and 20.7% of pro forma estimated net income for the year
ended December 31, 1996. FBWH shareholders would receive 22.16% of the pro forma
ownership of the combined company based on the 0.62 Exchange Ratio.
COMPARABLE COMPANY ANALYSIS. O&Co compared the financial condition,
financial operating performance and trading market performance of FBWH with a
peer group of 11 community banks in the Northeast with assets less than $250
million. FBWH reported a return on average assets of 1.57% and a return on
average equity of 16.31% for the year ended December 31, 1996, and an equity to
assets ratio of 10.53% at December 31, 1996. Based on trailing twelve-month
operating results for September 30, 1996, the peer group reported an average
return on average assets of 1.09%; an average return on average equity of 12.07%
and an equity to assets ratio of 8.66% at September 30, 1996. FBWH reported
better performance than the peer group, with a higher equity to assets ratio.
At February 21, 1997, FBWH's Common Stock price was quoted at $8.25, or
8.9 times trailing twelve-months earnings and 147% of reported September 30,
1996 book value, compared to the peer group average of 16.1 times trailing
twelve-months earnings and 165% of book value. FBWH's trading level was below
the peer levels on an earnings multiple basis. This is believed to reflect
FBWH's utilization of net operating loss carry forwards to reduce taxes
resulting in higher 1996 earnings. FBWH's trading level was only slightly below
its peer on a percent of book value basis.
O&Co also compared the financial condition, financial operating
performance and trading performance of NECB with a peer group of 18 community
banks in the Northeast with assets between $300 million and $600 million. NECB
reported a return on average assets of 1.08% and a return on average equity of
11.78% based on September 30, 1996 trailing twelve- months earnings, and an
equity to assets ratio of 9.04% at September 30, 1996. Based on trailing
twelve-months operating results for September 30, 1996, the peer group had an
average return on average assets of 1.30%, an average return on average equity
of 13.81%, and an equity to assets ratio of 9.60% at September 30, 1996. NECB's
operating performance was somewhat below the peer group with a slightly lower
equity to assets ratio.
At February 21, 1997, NECB's Common Stock price closed at $17.50, or 15.1
times trailing twelve-months earnings and 164% of reported September 30, 1996
book value, compared to the peer group average for these same measures of 14.0
times and 183%, respectively. NECB's trading performance was slightly above its
peers on an earnings multiple basis but below its peers as a percent of book
value.
DISCOUNTED CASH FLOW ANALYSIS. O&Co performed an analysis which estimated
the future cash flows to FBWH shareholders over the next two years under various
scenarios, assuming FBWH performed in accordance with management's earnings
forecasts. To approximate the terminal value of FBWH Common Stock at the end of
the two-year period, O&Co applied price to earnings multiples ranging from 15.0
times to 18.0 times, which resulted in values that equated to percentages of
book value ranging from 184% to 221%. The terminal values along with projected
dividends were then discounted to present values using discount rates ranging
from 12.5% to 20.0% which were chosen to reflect assumptions regarding rates of
return and risk premiums required by holders or prospective buyers of FBWH
Common Stock. This analysis resulted in a range of present values per share of
$6.86 to $11.15.
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ANALYSIS OF SELECTED MERGER TRANSACTIONS. O&Co reviewed certain financial
data for acquisitions of commercial banks and thrifts in the Northeast announced
between September 1995 and December 1996. O&Co also reviewed acquisitions of
commercial banks and thrifts in Connecticut between January 1995 and January 31,
1997. O&Co calculated, as of the date of announcement, the average multiple of
price to target's earnings for trailing twelve months, the average percentage of
price to book value and the average premium (price in excess of reported equity)
as a percentage of deposits, on a quarterly basis beginning September 1, 1995
through December 31, 1996. For transactions announced in the fourth quarter of
1996, the calculations resulted in the following averages: (i) price as a
multiple to earnings for Northeast banks of 20.6 times, Northeast thrifts of
14.6 times, and Connecticut transactions of 15.2 times, compared with the value
of the NECB proposal as of February 21, 1997 which equates to 14.9 times FBWH's
1996 earnings; (ii) price as a percentage of book value for Northeast banks of
219%, Northeast thrifts of 157%, and Connecticut transactions of 162%, compared
with the relative value of the NECB proposal which equates to 198% of FBWH's
fully converted book value at December 31, 1996; (iii) premium (acquisition
value in excess of tangible equity) as a percentage of deposits for Northeast
banks of 13.4%, Northeast thrifts of 6.4%, and Connecticut transactions of 5.3%,
compared with the value of the NECB proposal which equates to a premium of 12.9%
of FBWH's deposits.
IMPACT ANALYSIS. O&Co analyzed the changes in the amount of fully diluted
earnings per share and book value represented by the issuance of 0.62 of a share
of NECB Common Stock for each share of FBWH fully converted Common Stock. The
analysis considered, among other things, the impact on fully diluted earnings
per share and book value per share of NECB. The analysis was based upon reported
December 31, 1996 balance sheet data for FBWH and NECB and earnings for twelve
months ended December 31, 1996 for FBWH and NECB. These analyses indicated that
the Reorganization would be approximately 1.66% dilutive to NECB's pro forma
fully diluted earnings per share, and approximately 4.34% dilutive to NECB's pro
forma book value.
O&Co also analyzed certain per share values for fully converted FBWH
Common Stock on an independent basis as well as the equivalent values based on
the exchange ratio of 0.62 of a share of NECB Common Stock for each share of
fully converted FBWH Common Stock as proposed in the Reorganization. The 1996
annual earnings per equivalent share of FBWH Common Stock was $0.77 or 5.76%
greater than FBWH's 1996 earnings per share; the book value per equivalent share
of FBWH Common Stock as of December 31, 1996, was $6.54 or 18.99% greater than
FBWH's book value per share as of the same date; and the annual cash dividend
for each equivalent share of FBWH Common Stock was $0.198 per share, slightly
less than FBWH's indicated annual cash dividend of $0.20 per share.
Pursuant to O&Co's advisory agreement with FBWH, O&Co will receive an
advisory fee for its services in connection with the Reorganization equal to
1.5% of the aggregate value of the consideration received by FBWH Shareholders
upon the Closing, or approximately $274 thousand based upon the aggregate value
of $18.265 million calculated on NECB's February 21, 1997 closing price. FBWH
has made interim payments to O&Co totaling $90 thousand which will be credited
against the advisory fee. FBWH has also agreed to reimburse O&Co for its
reasonable out-of-pocket expenses, including legal fees, incurred in connection
with its engagement and to indemnify O&Co and its affiliates and their
respective directors, officers, employees, agents and controlling persons
against certain expenses and liabilities. O&Co or its principals beneficially
own an aggregate of 50,000 shares of FBWH Common Stock.
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THE REORGANIZATION AGREEMENT
The following information, insofar as it relates to matters contained in
the Reorganization Agreement, is qualified in its entirety by the Reorganization
Agreement, which is incorporated herein by reference and attached hereto as
Appendix A. Shareholders are urged to read carefully the Reorganization
Agreement.
GENERAL
In accordance with the provisions of the Reorganization Agreement and
Connecticut law, at the Effective Time, FBWH will be merged with and into NEBT,
the separate corporate existence of FBWH will cease and NEBT will continue its
corporate existence as the resulting bank in the Reorganization (the "Resulting
Bank") as a Connecticut-chartered commercial bank under the name New England
Bank & Trust Company. In addition, at the Effective Time, all of the outstanding
shares of FBWH Common Stock (except for shares held by FBWH as treasury shares,
shares owned by any direct or indirect subsidiary of FBWH, shares held by NECB
or FBWH other than in a fiduciary or trust capacity for the benefit of third
parties and shares as to which dissenters' rights have been perfected) will be
converted into and exchangeable for consideration ("Per Share Consideration")
consisting of 0.62 shares (the "Exchange Ratio") of NECB Common Stock, subject
to adjustment as provided in the Reorganization Agreement. See "-- Amendment and
Termination." Each certificate previously representing a share of FBWH Common
Stock will represent the right to receive the Per Share Consideration into which
the share of FBWH Common Stock represented by the certificate has been converted
plus cash in lieu of any fractional share.
Vested stock options under FBWH's stock option plans will be converted at
the Effective Time into a number of shares of NECB Common Stock equal to the
aggregate option value for all of the optionee's stock options divided by the
Median Pre-Closing Price of NECB Common Stock, as defined below under "Effect of
the Reorganization." The option value for an option is determined by multiplying
the Median Pre-Closing Price of NECB Common Stock by the Exchange Ratio and
subtracting the exercise price of the option from the product therefrom.
EFFECTIVE TIME
The Reorganization will become effective upon the filing with the
Secretary of State of the State of Connecticut a copy of the Reorganization
Agreement certified by the Banking Commissioner, along with the Banking
Commissioner's approval of the Reorganization. The closing (the "Closing") of
the Reorganization will take place on the third business day after the mutual
conditions to the obligations of NECB and FBWH are satisfied or on such other
day as the parties may agree.
EFFECT OF THE REORGANIZATION
The shares of the capital stock of NECB issued and outstanding
immediately prior to the Effective Time shall continue to be issued and
outstanding from and after the Effective Time, shall not be converted, and shall
not be changed by the Reorganization.
Shares of FBWH Common Stock with respect to which dissenters' rights are
perfected in accordance with Connecticut law will not be converted into the
right to receive the Per Share Consideration. In addition, all shares of FBWH
Common Stock that are owned by FBWH as Treasury Shares, all shares of FBWH
Common Stock that are owned directly or indirectly by any subsidiary of FBWH and
shares of FBWH Common Stock held by NECB or NEBT other than in a fiduciary or
trust capacity for the benefit of third parties will be canceled and cease to
exist, and no stock of NECB or other consideration will be delivered in exchange
therefor.
On and after the Effective Time, the shares of FBWH Common Stock shall
cease to exist. Holders of certificates for shares of FBWH Common Stock shall
cease to have any rights as shareholders of FBWH, and the holders of such shares
shall thereafter be entitled only to the shares of NECB Common Stock and the
right to receive the Per Share Consideration, subject to any rights of
dissenting shareholders. Until certificates for FBWH Common Stock are presented
to NECB, each such certificate shall be deemed for all purposes to represent
ownership of the number of shares of NECB Common Stock equal to the Per Share
Consideration and cash in lieu of any fractional share. The price to be paid for
any fractional share shall be determined by multiplying (i) the Median
Pre-Closing Price (as defined below) of the NECB Common Stock as quoted on the
Nasdaq NM by (ii) the fraction of a share of NECB Common Stock which the holder
would otherwise be entitled to receive pursuant to the Reorganization Agreement.
The Median Pre-Closing Price of NECB Common Stock means the Median Price (as
defined below) calculated based on the Closing Price (as defined below) of NECB
Common Stock during the first 20 of the 25 consecutive trading days immediately
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preceding the date of the Closing. The Closing Price means the closing price of
the NECB Common Stock as supplied by the Nasdaq NM and published in THE WALL
STREET JOURNAL during the first 20 of the 25 consecutive trading days
immediately preceding the date of the Closing. The Median Price is determined by
taking the price half-way between the Closing Prices left after discarding the
nine lowest and nine highest Closing Prices in the 20-day period. A trading day
is a day for which a Closing Price is so supplied and published.
Unless or until such outstanding certificates are surrendered, no
dividend or other distribution, if any, payable to holders of record of NECB
Common Stock will be paid to the holder of such outstanding certificate, but
upon surrender of such outstanding certificate there will be paid to the record
holder thereof the amount, without interest thereon, of dividends and other
distributions, if any, which were declared and became payable with respect to
the number of shares of NECB Common Stock represented thereby.
SHAREHOLDERS' AGREEMENTS
Concurrently with the execution of the Reorganization Agreement, the
directors of FBWH executed shareholders' agreements (the "Shareholders'
Agreements") which contain provisions to support the Reorganization. More
specifically, FBWH's directors have agreed to vote their FBWH Common Stock "FOR"
approval of the Reorganization and have agreed to vote against approval of any
other agreement providing for any reorganization, consolidation, sale of assets
or other business combination of FBWH and any other person, entity or bank.
The directors of FBWH also agreed that they will not, prior to the
closing of the transaction, transfer any of their FBWH Common Stock except by
will or operation of law unless such transfer is agreed to in writing by NECB.
Moreover, the directors have agreed not to solicit, encourage or initiate any
communication with any other person or entity with respect to any proposal for a
reorganization, consolidation, sale of assets or other business combination
involving FBWH or encourage any person, firm, corporation, group or other entity
to engage in such a transaction.
Pursuant to Connecticut law, such agreements may not be enforceable
without the approval of the Banking Commissioner. Such approval was obtained on
April 1, 1997.
In addition, under the terms of the Reorganization Agreement, at the
Effective Time, NECB will provide for the election of one FBWH Director, as
selected by NECB, to the Board of Directors of NECB and two FBWH Directors, as
selected by NECB, to the Board of Directors of the Resulting Bank. NECB has
further agreed to nominate the FBWH Director for re-election at the 1998 Annual
Meeting of the shareholders of NECB and to elect the two FBWH Directors as
Directors of the Resulting Bank subject to their continued qualification under
NECB's and the Resulting Bank's general criteria for Directors.
PROCEDURES FOR EXCHANGE OF CERTIFICATES
Promptly after the Effective Time, each holder of record of FBWH Common
Stock will be provided with transmittal materials, together with instructions
for the exchange of such holder's certificates representing shares of FBWH
Common Stock for the number of shares of NECB Common Stock together with a check
in payment for any fractional share.
HOLDERS OF FBWH COMMON STOCK SHOULD NOT SEND IN THEIR STOCK CERTIFICATES
UNTIL THEY RECEIVE THE TRANSMITTAL MATERIALS AND THE INSTRUCTIONS FROM NECB.
Upon transmittal of one or more certificates of FBWH Common Stock,
together with transmittal materials duly executed and completed in accordance
with the instructions thereto (or upon completion of reasonable procedures
pertaining to lost certificates), NECB shall promptly cause to be issued to the
persons entitled thereto the Per Share Consideration to which such persons are
entitled.
After the Effective Time, there will be no transfers on FBWH's stock
transfer books of shares of FBWH Common Stock issued and outstanding immediately
prior to the Effective Time. If certificates representing shares of FBWH Common
Stock are presented to NECB after the Effective Time they will be canceled and
exchanged for the number of shares of FBWH and cash in lieu of fractional
shares, if any, in respect thereof in accordance with the foregoing procedures.
Dissenters' rights will be satisfied in accordance with the procedures
described under "Dissenters' Rights" which is set forth in Appendix D to this
Joint Proxy Statement-Prospectus.
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CONDITIONS TO CONSUMMATION OF THE REORGANIZATION
The respective obligations of NECB and FBWH to effect the Reorganization
are subject to the satisfaction of the following conditions at or prior to the
Effective Time, which conditions may not be waived: (i) the Reorganization
Agreement and the transactions contemplated thereby shall have been approved by
the affirmative vote of the holders of at least two-thirds of the outstanding
shares of FBWH Common Stock entitled to vote thereon; (ii) the shares of NECB
Common Stock issuable to holders of FBWH Common Stock pursuant to the
Reorganization shall have been authorized for inclusion for quotation on the
Nasdaq NM, subject to official notice of issuance; (iii) the Reorganization
Agreement and the transactions contemplated thereby shall have been approved by
the appropriate governmental authorities, including the FDIC, the Board of
Governors of the Federal Reserve System unless it waives jurisdiction, and the
Banking Commissioner (all such governmental authorities being referred to as the
"Governmental Entities"), none of such approvals shall contain any term or
condition which would have a material adverse effect on the business,
operations, properties, assets or financial condition of FBWH or the Resulting
Bank or otherwise materially impair the value of FBWH or the Resulting Bank, and
any statutory waiting periods shall have expired (See "Regulatory Approvals
Required for the Reorganization"); (iv) the Registration Statement on Form S-4
of which this Joint Proxy Statement-Prospectus forms a part shall have become
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the
Commission; and (v) no order, injunction or decree shall have been issued by any
court or agency of competent jurisdiction or other legal restraint or
prohibition (an "Injunction") which prohibits the consummation of the
Reorganization, or any of the other transactions contemplated by the
Reorganization Agreement.
In addition, NECB's obligations under the Reorganization Agreement are
subject to the satisfaction, at or prior to the Effective Time, of the following
conditions, any one or more of which may be waived by NECB:
(a) Each of the obligations of FBWH required to be performed by it at
or prior to the Effective Time pursuant to the terms of the
Reorganization Agreement shall have been duly performed and
complied with in all material respects and the representations and
warranties of FBWH contained in the Reorganization Agreement shall
be true and correct in all material respects as of the date of the
Reorganization Agreement and as of the Effective Time as though
made at and as of the Effective Time, and NECB shall have received
a certificate to that effect signed by the President and by the
Chief Financial Officer of FBWH.
(b) All actions required to be taken by, or on the part of, FBWH to
authorize the execution, delivery and performance of the
Reorganization Agreement by FBWH and the consummation of the
transactions contemplated by the Reorganization Agreement shall
have been duly and validly taken by the FBWH Board and the FBWH
shareholders, and NECB shall have received certified copies of the
resolutions evidencing such authorization.
(c) NECB shall have received certificates as of a day as close as
practicable to the date of the Effective Time from appropriate
authorities as to the good standing of, and of the payment of
franchise taxes, if any, in Connecticut by, FBWH.
(d) Any and all permits and approvals of governmental bodies and
material consents (including all consents of landlords) and
authorizations of other third parties shall have been obtained by
FBWH and NECB which are required with respect to and are necessary
in connection with (i) the consummation of the Reorganization and
the other transactions contemplated by the Reorganization
Agreement, (ii) the ownership by the Resulting Bank of all of the
properties and assets of FBWH, and (iii) the conduct by the
Resulting Bank of the business of FBWH as conducted by FBWH at the
Effective Time.
(e) NECB shall have received an opinion from counsel to FBWH regarding
certain legal matters.
(f) FBWH shall have caused to be delivered to NECB a letter from FBWH's
independent public accountants with respect to FBWH, and dated the
date of the Closing, and addressed to NECB and FBWH, regarding
certain accounting matters.
(g) FBWH shall have caused to be delivered a letter from tax counsel,
in form and substance reasonably satisfactory to NECB.
(h) Holders of more than 85% of the outstanding shares of FBWH shall
not have exercised their statutory appraisal or dissenters' rights.
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(i) Neither NECB nor FBWH shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which
would impose limitations on the ability of NEBT to exercise full
rights of ownership of the assets or business of FBWH, and no
action, suit, proceeding or investigation shall be pending or
threatened that is reasonably likely to result in any such order,
decree or injunction.
(j) Except as otherwise provided for in the Reorganization Agreement,
any agreement to which FBWH is a party which takes effect upon, or
which provides a penalty or payment conditioned upon or related to,
a change of control of FBWH shall have been duly terminated with no
cost or expense to FBWH, NEBT or NECB.
(k) The real property leases to which FBWH is a party shall have
remained in full force and effect as of the Effective Time and
shall not be terminated by reason of the consummation of the
Reorganization.
(l) NECB shall have received, prior to the date of the Reorganization
Agreement and updated for inclusion in this Joint Proxy
Statement-Prospectus, in form and substance reasonably satisfactory
to NECB, an opinion from HAS Associates, Inc., that the terms of
the Reorganization are fair to NECB from a financial point of view.
(m) NECB shall have received rulings from the Internal Revenue Service,
or an opinion of counsel for NECB, to the effect that, for federal
income tax purposes, (i) the transactions will qualify for
treatment as a tax-free reorganization under Section 368 of the
Code and (ii) except to the extent of cash consideration received,
no gain or loss will be recognized by the shareholders of NECB upon
consummation of the Reorganization.
(n) NECB shall have received from Shatswell, MacLeod & Company, P.C.,
its certified public accountants, an opinion that the
Reorganization will be accounted for as a pooling of interests.
FBWH's obligations under the Reorganization Agreement are subject to the
satisfaction, at or prior to the Effective Time, of the following conditions,
any one or more of which may be waived by FBWH:
(a) Each of the obligations of NECB required to be performed by it at
or prior to the Effective Time shall have been duly and validly
performed and complied with in all material respects and the
representations and warranties of NECB contained in the
Reorganization Agreement shall be true and correct in all respects
as of the date of the Reorganization Agreement and as of the
Effective Time as though made at and as of the Effective Time, and
FBWH shall have received a certificate to that effect signed by the
President and Chief Financial Officer of NECB.
(b) All actions required to be taken by or on behalf of NECB and NEBT
to authorize the execution, delivery and performance of the
Reorganization Agreement by NECB and NEBT and the consummation of
the transactions contemplated thereby shall have been duly and
validly taken by the Boards of Directors of NECB and NEBT and by
NECB as sole shareholder of NEBT, and FBWH shall have received
certified copies of the resolutions evidencing such authorization.
(c) Any and all permits and approvals of governmental bodies and
material consents (including all consents of landlords) and
authorizations of other third parties shall have been obtained by
FBWH and NECB which are required with respect to and are necessary
in connection with (i) the consummation of the Reorganization and
the other transactions contemplated by the Reorganization
Agreement, (ii) the ownership by the Resulting Bank of all of the
properties and assets of FBWH, and (iii) the conduct by the
Resulting Bank of the business of FBWH as conducted by FBWH at the
Effective Time.
(d) FBWH shall have received, prior to the date of the Reorganization
Agreement and updated for inclusion in this Joint Proxy
Statement-Prospectus, in form and substance reasonably satisfactory
to FBWH, an opinion from O&Co, that the terms of the Reorganization
are fair to FBWH and its shareholders from a financial point of
view. In addition, NECB and/or NEBT shall not have taken any action
or suffered any expense which causes O&Co to withdraw its fairness
opinion prior to closing.
(e) FBWH shall have received an opinion from counsel to NECB regarding
certain legal matters.
(f) FBWH shall have received rulings from the Internal Revenue Service,
or an opinion of counsel, to the effect that, for federal income
tax purposes, (i) the transactions will qualify for treatment as a
tax-free reorganization under Section 368 of the Code; and (ii)
except to the extent of cash consideration received, no gain or
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loss will be recognized by shareholders of FBWH upon consummation
of the Reorganization. FBWH will resolicit its shareholders to
approve the Reorganization if (i) it does not receive the
aforementioned ruling or opinion because the Reorganization does
not qualify for the tax treatment described in the previous
sentence, and (ii) it considers the transaction still to be in the
best interests of FBWH shareholders."
No assurance can be provided as to when, or whether, the regulatory
consents and approvals necessary to consummate the Reorganization will be
obtained or whether all of the other conditions precedent to the Reorganization
will be satisfied or waived by the party permitted to do so. See "Regulatory
Approvals Required for the Reorganization." If the Reorganization is not
effected on or before October 31, 1997, the Reorganization Agreement may be
terminated by a vote of a majority of the Board of Directors of either NECB or
FBWH, unless the failure to effect the Reorganization by such date is due to the
breach of the Reorganization Agreement by the party seeking to terminate the
Reorganization Agreement.
REGULATORY APPROVALS REQUIRED FOR THE REORGANIZATION
The Reorganization is subject to the prior approval of the FDIC under the
Bank Merger Act, as amended (the "BMA"), and an application for such approval
has been filed with the FDIC. In reviewing the BMA application, the FDIC must
take into consideration, among other factors, the financial and managerial
resources and future prospects of the institutions and the convenience and needs
of the communities to be served. In addition, the BMA prohibits the FDIC from
approving the Reorganization if it would result in a monopoly or be in
furtherance of any combination or conspiracy to monopolize or to attempt to
monopolize the business of banking in any part of the United States, or if its
effect in any section of the country may be substantially to lessen competition
or to tend to create a monopoly, or if it would in any other manner be a
restraint of trade, unless the FDIC finds that the anticompetitive effects of
the Reorganization are clearly outweighed by the public interest and the
probable effect on the transaction in meeting the convenience and needs of the
communities to be served. In addition, under the BMA, the Reorganization may not
be consummated until the fifteenth day following the date of FDIC approval of
the Reorganization, during which time the United States Department of Justice
may challenge the Reorganization on antitrust grounds. The commencement of an
antitrust action during the waiting period would stay the effectiveness of such
approval unless a court specifically orders.
Because the Reorganization is subject to the prior approval of the FDIC
under the BMA, NECB does not anticipate that it will need to obtain any approval
of the Federal Reserve Board to effectuate the Reorganization. A request for
confirmation that no Federal Reserve Board approval is required has been filed
with the Federal Reserve Bank of Boston.
The Reorganization also is subject to the approval of the Banking
Commissioner pursuant to Section 36a-125 of the Connecticut General Statutes and
an application for such approval has been filed with the Banking Commissioner.
Under applicable Connecticut law, in considering the Reorganization, the Banking
Commissioner is required to determine whether the terms of the Reorganization
are reasonable and in accordance with law and sound public policy and whether
benefits to the public clearly outweigh possible adverse effects, including, but
not limited to, an undue concentration of resources and decreased or unfair
competition. The Banking Commissioner shall not approve the Reorganization,
however, unless the Banking Commissioner considers whether: (i) the investment
and lending policies of the constituent corporations, or the proposed investment
and lending policies of each subsidiary bank, are consistent with safe and sound
banking practices and will benefit the economy of the state; (ii) the services
or proposed services of each subsidiary bank are consistent with safe and sound
banking practices and will benefit the economy of the state; (iii) the
constituent corporations have sufficient capital to ensure, and agree to ensure,
that each subsidiary bank will comply with applicable minimum capital
requirements; (iv) the parent corporation has sufficient managerial resources to
operate each subsidiary bank in a safe and sound manner; and (v) the proposed
acquisition will not substantially lessen competition in the banking industry of
the state. The Banking Commissioner shall not approve the Reorganization unless
the Banking Commissioner finds, in accordance with applicable regulations, that
the subsidiary banks have a record of compliance with the requirements of the
Community Reinvestment Act of 1977, 12 U.S.C. ss.2901 et seq., as from time to
time amended, Section 36a-34 of the General Statutes of Connecticut, as amended,
inclusive, and applicable consumer protection laws; and the subsidiary bank will
provide adequate services to meet the banking needs of all community residents,
including low income residents and moderate income residents, in accordance with
a plan submitted by NECB, NEBT and FBWH in such form and containing such
information as the Banking Commissioner may require. The Banking Commissioner
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shall not approve the Reorganization if it would result in a monopoly, or would
be in furtherance of any combination or conspiracy to monopolize or attempt to
monopolize the business of banking in the State of Connecticut or if the Banking
Commissioner determines that the effect of the Reorganization may be to
substantially lessen competition, or would tend to create a monopoly, or would
be in restraint of trade, unless the Banking Commissioner finds that the
anti-competitive effects of the Reorganization are clearly outweighed in the
public interest by the probable effect of the Reorganization in meeting the
convenience and needs of the community to be served.
Although there can be no assurances that all required regulatory
approvals will be received for the Reorganization, NECB and FBWH believe that
all required regulatory approvals will be obtained.
NECB and FBWH are not aware of any other regulatory approvals that are
required for consummation of the Reorganization, except as described above.
Should any other approvals be required, it is presently contemplated that such
approvals would be sought. There can be no assurance that any other approvals,
if required, would be obtained.
The Reorganization will not be consummated unless all of the requisite
regulatory approvals for the transactions contemplated by the Reorganization
Agreement are obtained. See "Conditions to Consummation of the Reorganization"
above.
CONDUCT OF BUSINESS PENDING THE REORGANIZATION
Pursuant to the Reorganization Agreement, FBWH has agreed that until the
Effective Time, FBWH will conduct its business only in the ordinary course and
consistent with prudent banking practice, will use all reasonable efforts to
preserve FBWH's properties wherever located, and will comply in all material
respects with all laws applicable to FBWH or the conduct of its business. FBWH
will use all reasonable efforts to preserve its business organization intact, to
keep available the present services of its employees, and to preserve the
goodwill of its customers and others with whom business relationships exist. In
addition, FBWH has agreed that, except as otherwise consented to or approved by
a duly authorized officer of NECB or as permitted or required by the
Reorganization Agreement, FBWH will not:
(a) enter into or amend certain contracts designated in the
Reorganization Agreement;
(b) change any provision of its Certificate of Incorporation or Bylaws
or similar governing documents;
(c) change the number of issued shares of its capital stock, or issue
or grant any option, warrant, call, commitment, subscription, right
to purchase or agreement of any character relating to its
authorized or issued capital stock, or any securities convertible
into shares of such stock, or split, combine or reclassify any
shares of its capital stock, declare, set aside or pay any dividend
or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock or redeem or
otherwise acquire any shares of its capital stock; provided that
FBWH may declare, set aside or pay cash dividends per share of FBWH
Common Stock at the rate currently paid by FBWH, which rate may be
increased to reflect the same percentage rate increase as any
increase in the dividend rate paid by NECB from its current
dividend rate, provided that in no event may any dividend declared,
set aside or paid by FBWH exceed 25% of FBWH's net earnings for the
then most recently completed quarter;
(d) make unsecured loans in excess of $25,000 for any individual loan
or in excess of $25,000 in the aggregate to any one borrower, other
than renewals in the ordinary course of business and not involving
any change in terms;
(e) make any loan or loans described as Undesirable or Prohibited as
designated in the Reorganization Agreement; make any secured loan
or loans, other than residential mortgage loans with a loan to
value ratio in excess of 80%, except with the prior notice to NECB,
in an aggregate amount to any one borrower (including members of
his/her immediate family or affiliates of such borrower with an
exposure to FBWH in excess of $250,000) in excess of $250,000,
except for loans sold to investors and renewals in the ordinary
course of business and not involving any change in terms; make any
junior mortgage loan in excess of $100,000 behind first mortgages
if the resulting loan to value ratio of the combined mortgages
would exceed 70% or if prior mortgage loans are in excess of
$250,000; make any commercial loan or loans in excess of $250,000
unless fully secured by readily marketable collateral or real
estate with a maximum loan to value ratio of 80%; or honor or
extend any overdraft in excess of $25,000 unless fully secured by
readily marketable collateral;
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(f) make any new loans to any director or employee of FBWH, or any
member or affiliate of their respective families other than in the
ordinary course of business;
(g) other than with respect to residential mortgage loans, renew or
otherwise reinstate any loan that has been in default for a period
of 30 days or more which, when added to any loans outstanding to
the families or affiliates of any maker or surety of the defaulted
loans (whether or not such other loans are in default) has a
balance outstanding in excess of $20,000, except that FBWH may
accept payments for the purpose of bringing loans current, so long
as there is no amendment or restructuring of the loans;
(h) offer rates on deposits that are set in deviation from past
practice and procedure employed by FBWH or are materially higher
than those of its competitors in the local market, or offer loan
pricing which is materially different relative to its competitors
in the local market;
(i) hire or retain any new employees, consultants or contractors, or
increase the compensation of current employees, consultants or
contractors, except that FBWH may hire replacements for current
employees who are not officers or managers if such employees cease
to be employees of FBWH;
(j) make any capital expenditures in excess of $25,000;
(k) enter into any real property lease or any lease of personal
property or extend or modify any existing lease of real or personal
property;
(1) acquire or agree to acquire, by merging or consolidating with, or
by purchasing a substantial equity interest in or a substantial
portion of the assets of, or by any other manner, any business or
any corporation, partnership, association or other business
organization or division thereof or otherwise acquire any assets,
other than in connection with foreclosures, settlements in lieu of
foreclosure or troubled loan or debt restructurings in the ordinary
course of business, which would be material to FBWH;
(m) take any action that is intended to or would result in any of its
representations and warranties set forth in the Reorganization
Agreement being or becoming untrue in any material respect, or in
any of the conditions to the Reorganization not being satisfied, or
in a violation of any provision of the Reorganization Agreement
except, in every case, as may be required by applicable law;
(n) change its methods of accounting in effect at December 31, 1996,
except as required by changes in GAAP or regulatory accounting
principles which changes are concurred in by FBWH's independent
auditors;
(o) take or cause to be taken any action which would disqualify the
Reorganization as a tax-free reorganization under Section 368 of
the Code;
(p) take or cause to be taken any action which would, or may reasonably
be expected to, significantly delay or otherwise adversely affect
the regulatory approvals required to consummate the Reorganization;
(q) other than activities in the ordinary course of business consistent
with prior practice, sell, lease, encumber, assign or otherwise
dispose of, or agree to sell, lease, encumber, assign or otherwise
dispose of, any of its material assets, properties or other rights
or agreements;
(r) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money, assume,
guarantee, endorse or otherwise as an accommodation become
responsible for the obligations of any other individual,
corporation or other entity;
(s) file any application to open, relocate or terminate the operations
of any banking office;
(t) make any equity investment or commitment to make such an investment
in real estate or in any real estate development project, other
than in connection with foreclosures, settlements in lieu of
foreclosure or troubled loan or debt restructurings in the ordinary
course of business;
(u) purchase or sell loans in bulk;
(v) foreclose upon or take deed or title to any commercial real estate
without first conducting a Phase I environmental assessment of the
property; and shall not foreclose upon such commercial real estate
if such environmental assessment indicates the likely presence of
hazardous material;
(w) terminate the employment of, or decrease in any material respect,
the duties, obligations, responsibilities, or position of any
senior officer of FBWH; or
(x) agree to do any of the foregoing.
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Pursuant to the Reorganization Agreement, NECB has also agreed that until
the Effective Time, except as provided in the Reorganization Agreement or with
the prior consent of FBWH, NECB and NEBT will carry on their respective
businesses in the ordinary course consistent with prudent banking practices and
will use all reasonable efforts to preserve intact their present business
organizations and relationships. The Reorganization Agreement also provides,
among other things, that neither NECB nor any of its subsidiaries will (i) take
any action that is intended or may reasonably be expected to result in any of
its representations and warranties set forth in the Reorganization Agreement
being or becoming untrue in any material respect, or in any of the conditions to
the Reorganization not being satisfied, or in a violation of any provision of
the Reorganization Agreement, except as may be required by applicable law; (ii)
change its methods of accounting in effect on December 31, 1995, subject to
certain exceptions; (iii) take or cause to be taken any action that would cause
the Reorganization to fail to qualify as a tax-free reorganization under Section
368 of the Code; (iv) take any action that would materially adversely affect or
materially delay or otherwise adversely affect the regulatory approvals required
to consummate the Reorganization; or (v) agree to do any of the foregoing.
AMENDMENT AND TERMINATION
AMENDMENT. Prior to the Effective Time, the Reorganization Agreement may
be amended by an agreement in writing approved by the NECB Board and the FBWH
Board provided that after the approval by the shareholders of NECB or FBWH, the
Reorganization Agreement may not be amended to change the Per Share
Consideration to be received by shareholders of FBWH.
TERMINATION. The Reorganization Agreement may be terminated at any time
prior to the Effective Time, either before or after its approval by
shareholders, as follows: (i) by the mutual consent of NECB and FBWH if the
Board of Directors of each so determines; (ii) by either NECB or FBWH upon
written notice to the other 90 days after the date on which any request or
application for a required regulatory approval is denied or withdrawn at the
request of the governmental entity which must grant such approval, unless within
such 90-day period a petition for rehearing or an amended application has been
filed with the applicable governmental entity (or unless the failure to obtain
the necessary regulatory approval is due to the failure of the party seeking to
terminate the Reorganization Agreement to perform or observe its covenants and
agreements set forth in the Reorganization Agreement); (iii) by either NECB or
FBWH if the Reorganization has not been consummated by October 31, 1997, unless
the failure to consummate the Reorganization is due to a breach of the
Reorganization Agreement by the party seeking to terminate the Reorganization
Agreement; (iv) by either NECB or FBWH, if any approval of the shareholders of
either party required for consummation of the Reorganization shall not have been
obtained by reason of the failure to obtain the required vote at a duly held
meeting of shareholders and at any adjournment or postponement thereof; (v) by
either NECB or FBWH (provided that the terminating party is not then in material
breach of the Reorganization Agreement), if there shall have been a material
breach of any of the representations or warranties set forth in the
Reorganization Agreement on the part of the other party, which breach is not
cured within 45 days following written notice to the party committing such
breach, or which breach, by its nature, cannot be cured prior to the closing of
the Reorganization (the "Closing"); (vi) by NECB or FBWH by reason of the
institution by any governmental agency of any litigation or proceeding to
restrain or prohibit the consummation of the Reorganization; (vii) by NECB if at
the time of such termination the audited financial statements of FBWH for the
year ended December 31,1996 disclose a reduction in the capital of FBWH of 5% or
more below the levels for that period disclosed in the December 31, 1996
unaudited financial statements (the "Unaudited Financial Statements") previously
provided to NECB or if there shall have been a reduction of FBWH's capital of 5%
or more below the levels disclosed to NECB in the Unaudited Financial
Statements, unless such change shall have resulted from conditions affecting the
banking industry generally; (ix) by FBWH if at the time of such termination
there shall have been a material adverse change in NECB's financial condition;
(x) by NECB if the results of any regulatory examination indicate any action or
actions the net effect of which is likely to result in a reduction of the
capital of FBWH of 5% or more below levels disclosed to the NECB in the
Unaudited Financial Statements or any other action that is likely to result in a
significant restriction on FBWH, its business or operations unless such
reduction or restriction has been requested in writing by NECB, unless such
change shall have resulted from conditions affecting the banking industry
generally; or (xi) by NECB if, in order to obtain any required permit, consent,
approval or authorization of any governmental authority having jurisdiction,
NECB or the Resulting Bank will be required to agree to, or will be subjected
to, a limitation upon its activities following the Effective Time which NECB or
NEBT reasonably regards as materially adverse.
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In addition, FBWH may terminate the Reorganization Agreement if the FBWH
Board so determines by majority vote of the entire FBWH Board at any time during
the two-day period commencing with the date all conditions to the Merger are
satisfied (the "Determination Date"), if the Average Price of the NECB Common
Stock for the 20 consecutive days ending on the Determination Date (the "Average
Price") is less than $12.80 per share. If FBWH elects to terminate the
Reorganization Agreement, it is required to give prompt notice to NECB. During
the seven-day period following receipt of the notice, NECB may increase the
consideration to be incurred by holders of FBWH Common Stock by increasing the
Exchange Ratio to equal a number (rounded to four decimals) equal to a quotient,
the numerator of which is $12.80 multiplied by the Exchange Ratio and the
denominator of which is the Average Price. If NECB elects to increase the
Exchange Ratio, the Reorganization Agreement will not terminate. FBWH does not
intend to resolicit its shareholders to approve or ratify the Reorganization if
NECB increases the Exchange Ratio consistent with the previous sentence. In
determining whether to increase the Exchange Ratio, NECB would consider the
following two factors: (i) the dilutive effect of issuing additional shares of
NECB Common Stock and (ii) the corresponding effect of such issuance on earnings
per share.
NECB believes that all conditions to the Reorganization will occur on or
prior to the date of the FBWH Annual Meeting and NECB Special Meeting, so that
the Determination Date will occur on such date.
If either NECB or FBWH terminates the Reorganization Agreement, neither
NECB nor FBWH will have any further obligations under the Reorganization
Agreement except (i) for certain specified provisions of the Reorganization
Agreement relating to confidentiality and expenses and (ii) that no party will
be relieved or released from any liabilities or damages arising out of its
willful breach of any provisions of the Reorganization Agreement.
EMPLOYEE MATTERS
NECB will provide the employees of FBWH who are offered employment with
NECB or NEBT, and who accept such employment, with benefits comparable to those
provided to its own employees in similar positions and with comparable terms of
service with NECB or NEBT, as reasonably determined by NECB and NEBT. Certain
non-executive employees of FBWH who remain in the employ of FBWH through the
Effective Date will be entitled to cash bonuses of up to 15% of their annual
salaries.
INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION
Directors and executive officers of FBWH have the following interests in
the Reorganization. FBWH directors and executive officers collectively owned, as
of January 31, 1997, 462,955 shares of FBWH Common Stock to be exchanged for
NECB Common Stock in the Reorganization (assuming a $10.385 FBWH equivalent
share price, these shares will have a market value of approximately $4,807,788).
Under the terms of the Reorganization Agreement, at the Effective Time,
NECB will provide for the election for one FBWH director, as selected by NECB,
to the Board of Directors of NECB and two FBWH directors, as selected by NECB,
to the Board of Directors of the Resulting Bank. The foregoing FBWH directors
have not yet been selected. NECB has further agreed to nominate the FBWH
director for re-election at the 1998 annual meeting of stockholders of NECB and
to elect the two FBWH directors as directors of the Resulting Bank, subject to
their continued qualification under NECB's and the Resulting Bank's general
criteria for directors.
FBWH has entered into change of control agreements with Dennis T.
Cardello, President and Chief Executive Officer, Brian J. Hull, Senior Vice
President and Treasurer, and Horace C. Burton, Senior Vice President and
Secretary. Each agreement provides for severance payments to be paid to the
executive within 30 days of termination of employment in an amount based on his
annual salary if certain events transpire. Those events must include both a
change of control and a termination of the executives employment other than for
good cause as defined in the agreement or the executive self-termination with
good reason, also as defined in the agreement. A change of control is defined as
beneficial ownership of 50% or more of the voting power of outstanding
securities of FBWH, or a merger or a consolidation or sale of substantially all
of FBWH's asset, unless the survivor entity is 50% or more owned by FBWH's
shareholders. The Reorganization qualifies as a change of control for these
purposes. After the Reorganization is consummated, Mr. Cardello will become head
of retail banking for NEBT and Mr. Burton will continue to manage the Small
Business Administration lending program. Other management changes will be
determined after consummation of the Reorganization.
As of January 31, 1997, directors and executive officers of FBWH held
FBWH stock options for a total of 120,400 shares at exercise prices of $3.50 per
share. All such options are vested. Vested stock options will be converted at
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the Effective Time into a number of shares of NECB Common Stock equal to the
aggregate option value for all of the optionee's stock options divided by the
Median Pre-Closing Price of NECB Common Stock as defined above under "Effect of
the Reorganization". The option value for an option is determined by multiplying
the Median Pre-Closing Price of NECB Common Stock by the Exchange Ratio and
subtracting the exercise price of the option from the product therefrom.
FEES AND EXPENSES UNDER CERTAIN CIRCUMSTANCES
NO SOLICITATION OF TRANSACTIONS. FBWH has agreed in the Reorganization
Agreement that FBWH shall not solicit, approve or recommend to its shareholders,
or undertake or enter into with or without shareholder approval, either as the
surviving or disappearing or the acquiring or acquired corporation, any other
reorganization, consolidation, assets acquisition, tender offer or other
takeover transaction, or furnish or cause to be furnished any information
concerning its business, properties or assets to any person or entity (other
than NECB) interested in any such transaction (except for directors and
executive officers of FBWH and such other persons as may be required by law),
and FBWH will not authorize or permit any officer, director, employee,
investment banker or other representative, directly or indirectly, to solicit,
encourage or support any offer from any person or entity (other than NECB) to
acquire substantially all of the assets of FBWH, to acquire 10% or more of the
outstanding stock of FBWH, to enter into an agreement to merge with FBWH, or to
take any other action that would have substantially the same effect as the
foregoing, without the written consent of NECB (any such solicitation, approval,
undertaking, authorization, permission or other action referred to in this
sentence being sometimes referred to as an "unauthorized action"). If the
Reorganization is not consummated in accordance with the terms set forth in the
Reorganization Agreement because of any such action or omission by FBWH, FBWH
shall on demand pay to NECB the sum of (a) out-of-pocket expenses, including
without limitation, reasonable attorney, accountant and investment banker fees
and expenses, incurred by NECB in connection with the Reorganization and the
transaction provided for the Reorganization Agreement (up to a maximum of
$250,000), plus (b) $750,000 as liquidated damages.
BREACHES OF REPRESENTATIONS AND WARRANTIES. If either FBWH or NECB fails
to perform any material covenant or agreement in the Reorganization Agreement,
or if any representation or warranty by FBWH or NECB is determined to be
materially untrue (the party which fails to perform or who makes the untrue
representation or warranty being the "Breaching Party"), and if, at the time of
the failure or untrue representation or warranty by the Breaching Party, the
other party is not a Breaching Party (the "Non-Breaching Party"), and if the
Agreement is thereafter terminated prior to the Effective Time, then the
Breaching Party shall on demand pay to the Non-Breaching Party an amount equal
to 5% of the Breaching Party's Tier 1 leverage capital (calculated as of the end
of the most recently completed fiscal quarter) as liquidated damages; provided,
however, that the amount of such liquidated damages shall not exceed $2,000,000
if NECB is the Breaching Party and $1,000,000 if FBWH is the Breaching Party.
PROHIBITED TRANSACTIONS WITH THIRD PARTIES. In addition, in the event
FBWH does not take any unauthorized action, if FBWH shareholders do not approve
the Reorganization, and so long as NECB does not breach the Reorganization
Agreement, should an agreement to acquire or merge with FBWH be executed on or
before February 27, 1998 with an entity that makes an offer during the term of
the Reorganization Agreement, FBWH shall pay to NECB upon execution of such
agreement the sum of all out-of-pocket expenses (up to a maximum of $250,000)
incurred by NECB in connection with the Reorganization and the transactions
provided for in the Reorganization Agreement; provided that if the transaction
agreed to with such other entity shall not close, NECB shall thereupon promptly
repay such amount to FBWH.
ANTICIPATED ACCOUNTING TREATMENT
It is anticipated that the Reorganization will be treated as a "pooling
of interests" for accounting and financial reporting requirements. The Unaudited
Pro Forma Condensed Combined Financial Information contained in this Joint Proxy
Statement-Prospectus has been prepared using the pooling accounting method to
account for the Reorganization. See "Unaudited Pro Forma Condensed Combined
Financial Information."
RESALES OF NECB COMMON STOCK RECEIVED IN THE REORGANIZATION
The shares of NECB Common Stock to be issued in the Reorganization will
be registered under the Securities Act and will be freely transferable under the
Securities Act, except for shares issued to any FBWH shareholder who may be
deemed to be an "affiliate" of FBWH for purposes of Rule 145 under the
Securities Act. Affiliates may not sell their shares of NECB Common Stock
acquired in connection with the Reorganization except pursuant to an effective
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registration statement under the Securities Act covering such shares or in
compliance with Rule 145 or another applicable exemption from the registration
requirements of the Securities Act. This Joint Proxy Statement-Prospectus does
not cover any resales of NECB Common Stock received by persons who may be deemed
to be affiliates of FBWH. Persons who may be deemed to be affiliates of FBWH
generally include individuals or entities that control, are controlled by or are
under common control with FBWH, and may include certain officers and directors
as well as principal shareholders of FBWH.
TRADING MARKET FOR NECB COMMON STOCK
NECB Common Stock is listed on the Nasdaq NM. NECB has agreed to cause
the shares of NECB Common Stock to be issued in the Reorganization to be
approved for listing on the Nasdaq NM, subject to official notice of issuance,
prior to the Effective Time. The obligations of the parties to consummate the
Reorganization are subject to approval for listing by the Nasdaq NM of such
shares. See "Conditions to the Reorganization."
FEDERAL INCOME TAX CONSEQUENCES
Neither NECB nor FBWH has requested an advance ruling from the Internal
Revenue Service as to the tax consequences of the Reorganization.
NECB and FBWH have received opinions from Day, Berry & Howard and Tyler
Cooper & Alcorn, L.L.P., their respective legal counsels, regarding the material
federal income tax consequences of the Reorganization, including certain
consequences to shareholders of FBWH who are citizens or residents of the United
States and who hold their shares as capital assets. This summary does not
discuss every aspect of federal income taxation that may be relevant to a
particular FBWH shareholder in light of his or her personal circumstances or to
FBWH shareholders subject to special federal income tax treatment such as
insurance companies, dealers in securities, certain retirement plans, financial
institutions, tax exempt organizations or foreign persons. In addition, this
summary does not address any aspects of state, local, or foreign tax laws that
may be relevant to holders of FBWH Common Stock.
The Reorganization will be treated as a reorganization within the meaning
of Section 368(a) of the Code and, accordingly, for federal income tax purposes:
(1) no gain or loss will be recognized by NECB, NEBT or FBWH as a
result of the Reorganization;
(2) gain, if any, will be recognized by the holders of FBWH Common
Stock upon the receipt of NECB Common Stock and cash in exchange
for their FBWH Common Stock pursuant to the Reorganization only to
the extent of the Cash Portion of the Per Share Consideration
received and any cash received in lieu of a fractional share of
NECB Common Stock; loss will not be recognized by the shareholders
of FBWH as a result of the Reorganization. FBWH shareholders who
dissent should consult their own legal and tax advisors;
(3) the tax basis of the NECB Common Stock received by each holder of
FBWH Common Stock will be the same as such holder's basis in his,
her or its FBWH Common Stock surrendered in exchange therefor,
reduced by the amount of cash received by such holder for the FBWH
Common Stock so surrendered and increased by the amount of dividend
income and other gain recognized to such shareholder; and
(4) the holding period for the shares of the NECB Common Stock received
by each holder of FBWH Common Stock in the Reorganization will
include the period during which such holder held the FBWH Common
Stock which he, she or it surrendered in exchange for NECB Common
Stock, provided that such shares of FBWH Common Stock were held as
capital assets at the Effective Time of the Reorganization.
Gain recognized to a holder of FBWH Common Stock in the Reorganization
should be long-term capital gain if certain "reduction of ownership" tests are
met and such shares of FBWH Common Stock have been held as a capital asset for
more than one year at the Effective Time of the Reorganization.
Holders of FBWH Common Stock who receive cash in lieu of fractional share
interests of NECB Common Stock will be treated as having received such fraction
of any share of NECB Common Stock and then as having received cash in redemption
of the fractional share interest, subject to the provisions of Section 302 of
the Internal Revenue Code and Rev. Ruling 66-365, 1966-2 C.B. 116.
The determination of whether cash received in the Reorganization by an
FBWH shareholder has the effect of the distribution of a dividend will be made
by comparing the proportionate interest of such shareholder after the
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Reorganization with the proportionate interest the shareholder would have had if
the shareholder had received solely NECB Common Stock in the Reorganization.
This comparison is made as though NECB had issued in the Reorganization to such
shareholder solely NECB Common Stock, and in a hypothetical redemption under the
Rules of Section 302 of the Code considered with all hypothetical redemptions
from other FBWH shareholders participating in the Reorganization, NECB had then
redeemed such portion of NECB Common Stock with a value, at the time of the
Reorganization, equal to the amount of cash the shareholder received. For this
purpose, the constructive ownership rules in Section 318 of the Internal Revenue
Code apply.
If the tests under Sections 302(b)(2) of the Code are met, the gain will
be characterized as short- or long-term loan gain depending upon the holding
period of the FBWH Common Stock and whether the stock has been held as a capital
asset.
The discussion set forth above is based on currently existing provisions
of the Code, existing U.S. Treasury regulations thereunder and current
administrative rulings and court decisions. All of the foregoing are subject to
change and any such change could affect the continuing validity of this
discussion. FBWH will resolicit its shareholders to approve the Reorganization
if (i) it does not receive the aforementioned opinion and the material federal
income tax consequences are materially different from those described above and
(ii) it considers the transaction still to be in the best interests of FBWH
shareholders.
HOLDERS OF FBWH COMMON STOCK SHOULD CONSULT THEIR TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE REORGANIZATION, INCLUDING THE
APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER
TAX LAWS.
DISSENTERS' RIGHTS
Any FBWH shareholder who objects to the Reorganization Agreement shall
have the right to be paid the fair value of all shares of FBWH Common Stock
owned by such shareholder in accordance with the provisions of Sections 33-855
to 33-872 of the Connecticut Business Corporation Act (the "CBCA"), a copy of
which is set forth in Appendix D to this Joint Proxy Statement-Prospectus. The
right to be paid the value of such shares shall be such shareholder's exclusive
remedy as holder of such shares with respect to the Reorganization, whether or
not such shareholder proceeds as provided in CBCA Sections 33-855 to 33-872.
Any FBWH shareholder may elect to exercise such right by giving written
notice to FBWH of such shareholder's intent to demand payment of such
shareholder's shares as provided in CBCA Section 33-861(a) prior to the voting
of the FBWH shareholders on the proposal to approve the Reorganization Agreement
and must not vote such shares in favor of the proposal.
If the Reorganization Agreement is approved, any such shareholder so
notifying FBWH, provided none of such shareholder's shares shall have been voted
in favor thereof, may require FBWH to purchase such shareholder's shares at fair
value. As provided in CBCA Section 33-862, FBWH shall send a dissenters' notice
to shareholders who have complied with CBCA Section 33-861 no later than ten
days after the consummation of the Reorganization. The dissenters' notice sent
by FBWH shall state where the demand for payment must be sent and where and when
certificates for certificated shares must be deposited; inform holders of
uncertificated shares to what extent transfer of the shares will be restricted
after the payment demand is received; supply a form for demanding payment that
includes the date of the first announcement to news media or to shareholders of
the terms of the Reorganization Agreement; and require that each shareholder
asserting dissenters' rights certify whether or not such shareholder acquired
beneficial ownership of the shares before that date. Finally, FBWH shall set a
date by which FBWH must receive the payment demand, which date may not be fewer
than 30 nor more than 60 days after the date that the written dissenters' notice
is delivered by FBWH, and FBWH shall ensure that each such dissenters' notice is
accompanied by a copy of CBCA Sections 33-855 to 33-872.
After a FBWH shareholder receives such written dissenters' notice by
FBWH, such shareholder must demand payment for such shareholder's shares and
certify whether such shareholder acquired beneficial ownership of such shares
prior to the date of the first announcement to the news media or to shareholders
of the terms of the Reorganization Agreement in accordance with the terms of the
dissenters' notice, as provided in CBCA Section 33-863(a). Such shareholder who
demands payment shall also be required to submit the certificate or certificates
representing such shareholder's shares to FBWH in accordance with the terms of
the dissenters' notice. Such shareholder's failure to demand payment or deposit
his share certificates shall terminate such shareholder's rights under CBCA
Sections 33-855 to 33-872.
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If a FBWH shareholder makes such demand for payment and submits such
share certificates to FBWH, such shareholder shall retain all other rights of a
FBWH shareholder until these rights are canceled or modified by the consummation
of the Reorganization as provided in CBCA Section 33-863(b). Any shareholder
failing to make such demand as described above shall be bound by the terms of
the Reorganization Agreement if it is approved.
Pursuant to CBCA Section 33-864, FBWH is further entitled to restrict the
transfer of uncertificated shares from the date the demand for payment by such
shareholders is received until FBWH either consummates the Reorganization or
fails to do so within 60 days after the date set for demanding payment and
depositing share certificates. A FBWH shareholder who has asserted dissenters'
rights as to uncertificated securities retains all rights (other than the
foregoing potential restriction on transfer) of a FBWH shareholder until such
rights are canceled or modified by the consummation of the Reorganization.
After FBWH either receives such demand for payment by a FBWH shareholder,
or upon consummation of the Reorganization, FBWH shall pay each shareholder who
makes a proper demand for payment pursuant to CBCA Section 33-863 the amount
FBWH estimates to be the fair value of such shareholder's shares, plus accrued
interest as provided in CBCA Section 33-865(a). The payment by FBWH to such
shareholder shall be accompanied by: FBWH's balance sheet as of the fiscal year
ending not more than 16 months before the date of payment; an income statement
for that year; a statement of changes in shareholders' equity for that year; and
the latest available interim financial statements, if any; a statement of FBWH's
estimate of the fair value of the shares; an explanation of how the interest was
calculated; a statement of the dissenting shareholder's right to demand payment
under CBCA Section 33-860; and a copy of CBCA Sections 33-855 to 33-872.
Pursuant to CBCA Section 33-866, if the Reorganization is not consummated
within 60 days after the date set for such shareholders' demand for payment and
deposit of share certificates, FBWH shall return the deposited certificates and
release the transfer restrictions imposed on uncertificated shares. If the
Reorganization is consummated after the deposited certificates have been
returned and the transfer restrictions have been released, FBWH shall send a new
dissenters' notice under CBCA Section 33-862 and repeat the payment demand
procedure.
FBWH may elect to withhold payment to a shareholder who makes a demand
for payment pursuant to CBCA Section 33-863 if such shareholder was not the
beneficial owner of such shares before the date set forth in the dissenters'
notice as the date of the first announcement to the news media or to
shareholders of the terms of the Reorganization Agreement. Pursuant to CBCA
Section 33-867(b), if FBWH elects to withhold payment to such shareholder and
the Reorganization is consummated, FBWH shall estimate the fair value of such
shareholder's, shares, plus accrued interest, and shall pay this amount to such
shareholder if such shareholder agrees to accept such payment in full
satisfaction of such shareholder's demand. FBWH's offer to such shareholder
shall be accompanied by a statement of FBWH's estimate of the fair value of such
shares, an explanation of how the interest was calculated and a statement of
such shareholder's right to demand payment under CBCA Section 33-868.
Pursuant to CBCA Section 33-868, a dissenting FBWH shareholder may notify
FBWH in writing of such shareholder's own estimate of the fair value of his
shares and the amount of interest due, and demand payment of his estimate, less
any payment by FBWH under CBCA Section 33-865, or may reject FBWH's offer to
purchase such shareholder's shares, and demand payment for the fair value of
such shareholder's shares and interest owing, if: such shareholder believes that
the amount paid under CBCA Section 33-865 or offered under CBCA Section 33-867
is less than the fair value of such shareholder's shares or that the interest
due is incorrectly calculated; FBWH fails to make payment under CBCA Section
33-865 within 60 days after the date set for such shareholder's demand for
payment; or if the Reorganization is not consummated, and FBWH fails to return
the deposited certificates or release the transfer restrictions imposed on
uncertificated shares within 60 days after the date set for such shareholder's
demand for payment. Such dissenting FBWH shareholder must make a demand for
payment pursuant to CBCA Section 33-868(a) within 30 days after FBWH makes or
offers payment for such shareholder's shares.
If a FBWH's shareholder's demand for payment under CBCA Section 33-868
remains unsettled, FBWH shall commence a proceeding within 60 days after receipt
of such shareholder's demand for payment and file a petition in the Hartford,
Connecticut Superior Court or before any judge thereof, requesting that the fair
value of the shares of such shareholder and the accrued interest thereon be
found and determined as provided in CBCA Section 33-871(a). If FBWH fails to
timely commence such proceeding, FBWH shall pay each dissenting shareholder
whose demand remains unsettled the amount demanded. All shareholders making such
demand for payment as described above, whose demands remain unsettled, wherever
residing, shall be made parties to the proceeding. A copy of the petition shall
be served on each such shareholder who is a resident of Connecticut.
Non-resident dissenting shareholders may be served by registered or certified
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mail or by publication as provided by law. The jurisdiction of the court shall
be exclusive. The court may, if it so elects, appoint one or more persons as
appraisers to receive evidence and recommend a decision on the question of fair
value. The appraisers shall have such power and authority as shall be specified
in the order of their appointment or an amendment thereof. Each FBWH shareholder
made a party to the proceeding is entitled to judgment for the amount, if any,
by which the court finds the fair value of such shareholders' shares, plus
interest, exceeds the amount paid by FBWH, or for the fair value, plus accrued
interest, of the after-acquired shares of such shareholders for which FBWH
elected to withhold payment under CBCA Section 33-867. The costs and expenses,
including the reasonable compensation and expenses of court-appointment
appraisers, of any such proceeding shall be determined by the court and shall be
assessed against FBWH, but all or any part of such costs and expenses may be
apportioned and assessed as the court may deem equitable against any or all
shareholders who are parties to the proceeding to whom FBWH has made an offer to
pay for the shares if the court finds that the action of such shareholders was
arbitrary or vexatious or not in good faith in demanding payment under CBCA
Section 33-868. Such expenses also may include the fees and expenses of counsel
and experts employed by any party, and be entered against (a) FBWH in favor of
any or all dissenting shareholders who are parties to the proceeding if FBWH
failed to substantially comply with the requirements of CBCA Sections 33-860 to
33-868, inclusive, or (b) either FBWH or a dissenter, in favor of any other
party, if the party against whom the fees and expenses are assessed acted
arbitrarily, vexatiously or not in good faith with respect to rights provided by
CBCA Sections 33-855 to 33-872, inclusive. If the court finds that the services
of counsel for any shareholder were of substantial benefit to other dissenting
shareholders similarly situated, and that such fees should not be assessed
against FBWH, the court may find that such fees should be paid out of the
amounts awarded to the dissenting shareholders who were benefitted.
The foregoing is only a summary of the rights of an objecting holder of
FBWH Common Stock. Any holder of FBWH Common Stock who intends to object to the
Reorganization Agreement should carefully review the text of the applicable
provisions of the CBCA set forth in Appendix D to this Joint Proxy
Statement-Prospectus and should also consult with such holder's attorney. The
failure of a holder of FBWH Common Stock to follow precisely the procedures
summarized above and set forth in Appendix D may result in loss of dissenters'
rights. No further notice of the events giving rise to dissenters' rights or any
steps associated therewith will be furnished to holders of FBWH Common Stock,
except as otherwise required by law.
In general, any objecting shareholder who perfects such holder's right to
be paid the fair value of such holder's FBWH Common Stock in cash will recognize
taxable gain or loss for federal income tax purposes upon receipt of such cash.
(See "THE REORGANIZATION AGREEMENT--Federal Income Tax Consequences.")
INFORMATION REGARDING NECB
GENERAL
NECB, formerly known as Olde Windsor Bancorp, Inc., is a bank holding
company registered under the Bank Holding Company Act of 1956, as amended. NECB
was organized under the laws of Delaware in 1984 and directly owns both NEBT and
EQBK (together the "Subsidiaries"), both Connecticut-chartered commercial banks.
NECB has built its community banking network through both internal growth
and acquisitions. In 1985, NECB was formed by the shareholders of Windsor Bank
and Trust Company ("Windsor Bank") a Connecticut-chartered bank and trust
company. NECB subsequently acquired all of the capital stock and became the sole
shareholder of Windsor Bank. In 1986, NECB acquired a second bank subsidiary,
NEBT. In 1988, the two subsidiaries were combined retaining the NEBT name. In
1995, NECB created a second banking subsidiary when it acquired all of the
outstanding common stock of EQBK, which was founded in 1987. In 1996, the
Company acquired all the outstanding common stock of Manchester State Bank
("MSB"), which was merged with and into NEBT. Both the EQBK and MSB transactions
were accounted for as purchases and, as such, prior year comparative data
contained herein was not revised to include information about either entity.
NECB currently maintains its executive offices in Windsor, Connecticut.
At December 31, 1996, the Subsidiaries operated out of 13 offices located
primarily in north central Connecticut. In November 1995, NECB purchased an
18,000 square foot building in East Hartford, Connecticut to house the Company's
data processing and other support operations.
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At March 31, 1997 and December 31, 1996, NECB through its Subsidiaries
had deposits of $373,382,000 and $386,897,000, respectively, net loans of
$281,714,000 and $283,482,000, respectively, and total assets of $428,079,000
and $433,159,000, respectively. As of March 12, 1997, NECB ranked 20th among all
banks and thrifts in Connecticut in terms of total deposits--reflecting pending
acquisitions (source: SNL Securities).
BUSINESS
The strategy of NECB is to operate its Subsidiaries as community-oriented
banking institutions dedicated to providing personalized service. NECB believes
that its maintenance of professional, personalized service has resulted in its
ability to obtain and service many of the small-to medium-sized desirable
commercial credits in its market area. As part of its growth strategy, NECB
intends to continue to provide personalized banking services whether expansion
occurs through internal growth, de novo expansion, reorganization or
acquisition. As indicated above, the Company's profitability and its financial
condition may be significantly impacted by the continuing implementation of its
acquisition strategy and by the consummation of its recent and/or pending
acquisitions.
The Subsidiaries are full service commercial banks and offer the services
generally performed by commercial banks of similar size and character, including
checking, savings, and time deposit accounts, 24-hour telephone banking, cash
management services, safe deposit boxes, secured and unsecured personal and
commercial loans, residential and commercial real estate loans and letters of
credit. The Subsidiaries' deposit accounts are competitive in the current
environment and include money market accounts and a variety of interest and
noninterest-bearing transaction accounts. NECB provides these services to a
diverse range of customers and neither institution relies on any one depositor
for a significant percentage of deposits made in their respective institutions.
Management believes that the business of each institution will continue to be
broadly based and will not depend on the business of one or a few customers, the
loss of any or all of which would materially and adversely affect its business.
The lending policy of NECB's subsidiary banks is designed to correspond
with its mission of remaining a community-oriented bank. The loan policy sets
forth accountability for lending functions in addition to standardizing the
underwriting, credit and documentation procedures. The typical loan customer is
an individual or small business which has a deposit relationship. NECB, through
its subsidiary banks, strives to provide an appropriate mix in its loan
portfolios of commercial loans and loans to individual consumers.
The largest sector of consumer lending has traditionally been mortgage
loans secured by single-family residential properties. This includes both first
and second mortgages. Second mortgages consist of equity lines of credit and
closed-end loans, such as home improvement and construction loans. Historically,
single-family mortgage loans are considered to involve the least risk to a
lending institution. Applications for mortgage loans are received primarily
through the branch office network. NEBT and EQBK will lend up to 95% of the
value of the collateral. On loans in excess of 80% of the value of collateral,
borrowers are required to obtain mortgage insurance covering the portion over
80%. Interest rates charged for mortgage loans are primarily set according to
secondary market conditions, and terms generally follow the underwriting
requirements of the FHLMC in the granting of residential mortgage loans and
sells residential mortgage loans to the agency when market conditions permit.
The sale of fixed rate mortgage loans in the secondary market provides liquidity
to make additional loans, revenues for servicing the sold loans, and premiums
and discounts to par upon the sale of such loans.
NEBT and EQBK originate a variety of other consumer loans such as
short-term demand loans, automobile and boat loans and student loans. Consumer
loans are made both on an unsecured basis and a secured basis. Interest rates
charged on consumer loans are primarily determined by competitive loan rates
offered in their lending areas. The primary risk in such loans is the borrower's
ability to repay. Such loans are typically made for small amounts, which
provides for risk diversification.
The portfolio of commercial loans of NEBT and EQBK includes various
products. NEBT's target market with respect to commercial lending consists of
small businesses with annual sales up to eight million dollars. Commercial
mortgages are granted on owner occupied and investment properties up to 75% of
the lesser of the cost or appraised value of the property. Short-term business
loans are made on a demand basis to finance various cash needs of customers.
Construction and land development financing is available to qualified borrowers
for development of sub-divisions or single-family residences. Financing for
capital expenditures, such as equipment, is provided on an amortizing basis for
terms up to five years. NEBT and EQBK offer revolving credit lines and
commercial letters of credit primarily used for performance bonding.
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NEBT's and EQBK's deposits are insured by the FDIC and are primarily
invested in investment securities and loans to borrowers within the NEBT's and
EQBK's respective market area. A variety of loan products are available to
potential borrowers including secured and unsecured loans, inventory financing,
term loans, interim construction financing, mortgage loans and home equity
loans. NEBT is an approved Federal Home Loan Mortgage Corporation ("FHLMC")
lender, thereby allowing it to make mortgage loans, sell such loans in the
secondary market and retain the servicing rights to these loans.
Both subsidiaries are members of the Federal Home Loan Bank ("FHLB")
through the Federal Home Loan Bank of Boston. The FHLB encourages and supports
residential mortgage lending by allowing member banks to borrow money long-term
at favored rates based on certain lending ratios and the ownership of shares in
the FHLB.
Fee income is generated through traditional deposit related services such
as checking account charges, overdraft fees, stop payment and returned item
fees. Twelve of NEBT's eighteen automated teller machines ("ATMs"), which also
generate fee income, are located at NEBT's offices. Two ATMs are located within
the terminal areas at Bradley International Airport in Windsor Locks,
Connecticut and four are installed in retail stores throughout its market area.
The ATMs at branch locations are primarily for efficient utilization of branch
personnel resources and customer convenience, while machines located away from
NEBT premises are primarily utilized by non-customers and provide NEBT with
greater revenues than do the ATMs located at branch locations. The servicing of
mortgage loans sold to the FHLMC and the rental of safe deposit boxes to
customers also provide revenues.
NECB and its Subsidiaries had 185 full-time equivalent employees as of
December 31, 1996, compared to 115 employees at the end of 1995. Employees are
not represented by a collective bargaining unit and the relationships with
employees of the Company are considered to be good.
COMPETITION AND GENERAL BUSINESS CONDITIONS
The banking business in Connecticut is intensely competitive. During the
past several years the focus of the industry has shifted from improvement in
asset quality and expense reduction to growth in market share. Connecticut-based
financial institutions had been adversely affected by the economic downturn and
devaluation of real estate. Many of the banks in Connecticut and the region had
spent much of the early 1990's strengthening their balance sheets in order to
either position themselves for future opportunities or, in some cases, simply to
survive. While this created an attractive opportunity for expansion for
well-capitalized institutions, many banks have not maintained a capital cushion
adequate enough to pursue these opportunities. Accordingly, the total number of
competitors within the market has been decreasing. However, NECB has come into
competition with new banks as a result of the erosion of the previous barriers
to interstate banking.
Recently adopted Federal legislation permits banks to establish branches
across state lines. In light of this change in the law, it will be possible for
large super-regional organizations to enter many new markets including the
market served by NEBT and EQBK. Certain of these competitors, by virtue of their
size and resources, may enjoy certain efficiencies and competitive advantages
over NEBT and EQBK in the pricing, delivery, and marketing of their products and
services.
There are approximately 28 commercial banks throughout Connecticut. In
addition, large out-of-state banks compete for the business of Connecticut
residents and businesses located in NECB's primary market. A number of other
depository institutions compete for the business of individuals and commercial
enterprises in Connecticut including savings banks, savings and loan
associations, brokerage houses, financial subsidiaries of other industries and
credit unions. Other financial institutions, such as mutual funds, consumer
finance companies, factoring companies, and insurance companies, also compete
with NECB for both loans and deposits. Competition for depositors' funds and for
creditworthy loan customers is intense. Competition among financial institutions
is based upon interest rates and other credit and service charges, the quality
of services rendered, the convenience of banking facilities and in the case of
loans to larger commercial borrowers, relative lending limits. As in the past,
NECB's future earnings will be affected by changes in the prevailing interest
rates, as well as other financial market developments and regulatory controls
beyond the control of NECB's Management.
During the 1990s, the Connecticut banking industry has become more
concentrated with over 30 banks ceasing operations as a result of reorganization
or failure. Increasingly, the industry consists of a few very large, regional or
super-regional institutions, and a number of smaller community-based banks whose
success depends upon providing customer focused, responsive products and
services.
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The continued growth of super-regional institutions and the potential for
large out-of-area banking organizations to enter the local banking market may
create significant opportunities for efficiently operated, service-oriented,
community-based banking organizations. NECB is optimistic regarding the
opportunities available to prudent, well capitalized community-based banks to
serve successfully and profitably the banking needs of their constituents.
NECB believes that to be successful, community banks must be able to
offer their customers competitive products and services of their own initiation
or through strategic alliances and contractual relationships with third parties.
While offering desired products and services is important in attracting and
maintaining customer relationships, the delivery of such products in a
convenient, friendly, professional and responsive manner is essential to the
success of a community bank. NECB's management team and staff continue to strive
to meet the needs of customers and the community with innovative products and
friendly, responsive service at convenient locations.
Despite this competition with institutions commanding greater financial
resources, neither of the Subsidiaries' supply of funds has imposed any
substantial impediment to its normal lending functions. While each of the banks
is limited to making commercial loans to a single borrower in an amount not to
exceed fifteen percent of its capital and has a "house limit" significantly
below that level, the banks have, on occasion, arranged for participation by
other banks in larger loan accommodations.
NECB operates banks which are community-oriented with a commitment to
customer service, sound community relations and professional excellence. The
target market of NEBT and EQBK consists of individual consumers and locally
based businesses. Emphasis is placed upon "relationship banking" as NECB's banks
strive to provide the majority (if not all) of their clients' borrowing and
deposit needs. NEBT's primary market area is located in north central
Connecticut. The primary market area of EQBK consists of the Towns of
Wethersfield and Rocky Hill. The area of Hartford south of Park Street forms the
secondary market of EQBK.
Each of the Subsidiaries has focused on becoming an integral part of the
communities it serves. Officers and employees are trained to meet the needs of
their customers and emphasis is placed on addressing the needs of the local
communities served.
REGULATORY MATTERS
Legislation adopted in recent years has substantially increased the
regulation of banks and bank holding companies. Virtually every aspect of the
business of banking is subject to regulation with respect to such matters as the
amount of reserves that must be established against various deposits, the
establishment of branches, reorganization, non-banking activities and other
operations. Numerous laws and regulations also set forth special restrictions
and procedural requirements with respect to the extension of credit, credit
practices, the disclosure of credit terms and discrimination in credit
transactions.
The descriptions of the statutory provisions and regulations applicable
to banks and bank holding companies set forth below do not purport to be a
complete description of such statutes and regulations and their effects upon
NECB or its Subsidiaries. Proposals to change the laws and regulations governing
the banking industry are frequently introduced in Congress, in the state
legislatures and before the various bank regulatory agencies. The likelihood and
timing of any changes and the impact such changes might have on NECB and/or its
Subsidiaries are difficult to determine.
There are a variety of statutory and regulatory restrictions governing
the activities of NECB and its Subsidiaries. They include:
CAPITAL ADEQUACY GUIDELINES AND DEPOSIT INSURANCE. The Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), which became law in
December of 1991, required each federal banking agency to revise its risk-based
capital standards to ensure that those standards take adequate account of
interest rate risk, concentration of credit risk and the risks of
non-traditional activities. In addition, pursuant to FDICIA, each federal
banking agency has promulgated regulations, specifying the levels at which a
financial institution would be considered "well capitalized", "adequately
capitalized", "undercapitalized", "significantly undercapitalized" or
"critically undercapitalized", and to take certain mandatory and discretionary
supervisory actions based on the capital level of the institution.
Bank holding companies must comply with the Federal Reserve Board's
("FRB") risk-based capital guidelines. Under the guidelines, risk weighted
assets are calculated by assigning assets and certain off-balance sheet items to
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broad risk categories. The total dollar value of each category is then weighted
by the level of risk associated with that category. A minimum risk-based capital
to risk based assets ratio of 8.00% must be attained. At least one-half of an
institution's total risk based capital must consist of Tier 1 capital, and the
balance may consist of Tier 2, or supplemental, capital. Tier 1 capital consists
primarily of common shareholders' equity along with preferred or convertible
preferred stock, minus goodwill. Tier 2 capital consists of an institution's
allowance for loan losses, subject to limitation, hybrid capital instruments and
certain subordinated debt. The allowance for loan losses which is considered
Tier 2 capital is limited to l.25% of an institution's risk-based assets. As of
December 31, 1996, NECB's total risk-based capital ratio was 13.5%. The
risk-based Tier 1 capital ratio was 12.2% and the leverage capital ratio was
8.5%. All ratios exceed the requirements under these regulations.
In addition, the Federal Reserve Board has promulgated a leverage capital
standard, with which bank holding companies must comply. Bank holding companies
must maintain a minimum Tier l capital to total assets ratio of 3%. However,
institutions which are not among the most highly rated by federal regulators
must maintain a ratio 100 to 200 basis points above the 3% minimum. As of
December 31, 1996, NECB had a leverage capital ratio of 8.5%.
See also "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION OF NECB--Capital" for additional discussion.
The FDIC, through the Bank Insurance Fund ("BIF"), insures NEBT's and
EQBK's deposit accounts in amounts up to $100,000 for each insured depositor.
NEBT and EQBK, as Connecticut-chartered, FDIC-insured banks, are regulated by
the FDIC in many of the areas also regulated by the Connecticut Banking
Commissioner. The FDIC also conducts its own periodic examinations of NEBT and
EQBK, and each institution is required to submit financial and other reports to
the FDIC on a quarterly and annual basis, or as otherwise required by the FDIC.
FDICIA also required that the FDIC insurance assessments move from
flat-rate premiums to a system of risk-based premium assessments, in order to
recapitalize the BIF at a reserve ratio specified in FDICIA. In August 1995, the
FDIC, in anticipation of BIF's imminent achievement of a required 1.25% reserve
ratio, reduced the deposit insurance premium rates paid on BIF-insured banks
from a range of $.23 to $.31 per $100 of deposits to a range of $.04 to $.31 per
$100 of deposits. The new rate schedule for the BIF was made effective June 1,
1995. The FDIC refunded to BIF-insured institutions the excess premiums they had
paid for the period beginning on June 1, 1995. On November 14, 1995, the FDIC
voted to reduce annual assessments for the semi-annual period beginning January
1, 1996 to the legal minimum of $2,000 for BIF-insured institutions, except for
institutions that are not well capitalized and are assigned to higher
supervisory risk categories.
The provisions of FDICIA and the risk-based insurance assessment have had
the effect of reducing deposit premiums paid by the Subsidiaries since each
Subsidiary qualifies for the lowest assessment rate.
FDIC insurance of deposits may be terminated by the FDIC, after notice
and a hearing, upon a finding by the FDIC that the insured institution has
engaged in unsafe or unsound practices, or is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, rule, or
order of, or condition imposed by, the FDIC. A bank's failure to meet the
minimum capital and risk-based capital guidelines set forth above would be
considered to be unsafe and unsound banking practices.
NEBT and EQBK are also subject to FRB regulations regarding the
maintenance of reserves. Under such regulations, NEBT and EQBK must maintain
reserves against their transaction accounts and non-personal time deposits.
RESTRICTIONS ON DIVIDEND PAYMENTS. The holders of NECB Common Stock are
entitled to receive dividends, when, as and if declared by the Board of
Directors of NECB out of funds legally available, subject to the preferential
dividend rights of any preferred stock that may be outstanding from time to
time.
The only statutory limitation restricting the payment of dividends is
that such dividends may not be paid when NECB is insolvent. Because funds for
the payment of dividends by NECB come primarily from the earnings of NECB's
Subsidiaries, as a practical matter, restrictions on the ability of NEBT and
EQBK to pay dividends act as restrictions on the amount of funds available for
the payment of dividends by NECB.
NECB is also subject to FRB policies which may, in certain circumstances,
limit its ability to pay dividends. The FRB policies require, among other
things, that a bank holding company maintain a minimum capital base. The FRB
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would most likely seek to prohibit any dividend payment which would reduce a
holding company's capital below these minimum amounts.
RESTRICTIONS ON TRANSACTIONS BETWEEN NECB AND THE SUBSIDIARY BANKS. The
Banking Affiliates Act of 1982, as amended, severely restricts loans and
extensions of credit by the subsidiaries to NECB and NECB affiliates (except
affiliates which are banks). In general, such loans must be secured by
collateral having a market value ranging from 100% to 130% of the loan,
depending upon the type of collateral. Furthermore, the aggregate of all loans
from the Subsidiaries to NECB and its affiliates may not exceed 20% of that
Subsidiary's capital stock and surplus and, singly to NECB or any affiliate, may
not exceed 10% of the Bank's capital stock and surplus. Similarly, the Banking
Affiliates Act of 1982 also restricts the Bank in the purchase of securities
issued by, the acceptance from affiliates of loan collateral consisting of
securities issued by, the purchase of assets from, and the issuance of a
guarantee or standby letter-of-credit on behalf of, NECB or any of its
affiliates.
HOLDING COMPANY SUPERVISION. NECB is a bank holding company registered
pursuant to the provisions of the Bank Holding Company Act of 1956, as amended
(the "Holding Company Act"), and consequently is subject to regulation and
examination by the FRB. Bank holding companies are required to file annually
with the FRB a report of their operations and they and their subsidiaries are
subject to examination by the Board of Governors of the Federal Reserve System.
The Holding Company Act also requires prior approval by the FRB before a
bank holding company (i) merges or consolidates with another bank holding
company, (ii) acquires, directly or indirectly, ownership or control of voting
shares of a bank if after such acquisition it would own or control directly or
indirectly more than five percent of the voting stock of such bank, except where
50 percent or more is already owned, or (iii) acquires substantially all of the
assets of any bank.
The Holding Company Act further provides that the FRB shall not approve
any acquisition, reorganization or consolidation which would result in a
monopoly or which would be in furtherance of any combination or conspiracy to
monopolize or attempt to monopolize the business of banking in any part of the
United States. Further, the FRB may not approve any other proposed acquisition,
reorganization or consolidation, the effect of which may be substantially to
lessen competition or to tend to create a monopoly in any section of the
country, or which in any other manner would be in restraint of trade, unless the
anti-competitive effects of the proposed transaction are clearly outweighed in
the public interest by the probable effect of the transaction in meeting the
convenience and needs of the community to be served.
A bank holding company and its subsidiaries are prohibited from engaging
in certain tie-in arrangements in connection with any extension of credit or
sale of any property or services. Subsidiary banks of a bank holding company are
subject to certain restrictions imposed by the Federal Reserve Act on any
extension of credit to the bank holding company or any of its subsidiaries, or
investments in the stock or other securities thereof, and on the taking of such
stock or securities as collateral for loans to any borrower.
In general, the Federal Reserve Board, under its regulations and the Bank
Holding Company Act, regulates the activities of bank holding companies and
non-bank subsidiaries of banks. The regulation of the activities of banks,
including bank subsidiaries of bank holding companies, generally has been left
to the authority of the supervisory government agency, which for the Bank is the
FDIC and the Connecticut Department of Banking (the "Department").
INTERSTATE BANKING AUTHORITY. The Riegle-Neale Interstate Banking and
Branching Efficiency Act of 1994 (the "Interstate Banking and Branching Act")
passed by Congress and signed into law on September 29, 1994, significantly
changed interstate banking rules. Pursuant to the Interstate Banking and
Branching Act, a bank holding company is able to acquire banks in states other
than its home state beginning September 29, 1995, regardless of applicable state
law.
The Interstate Banking and Branching Act also authorizes banks to merge
across state lines, thereby creating interstate branches, beginning June 1997.
Under such legislation, each state has the opportunity either to "opt out" of
this provision, thereby prohibiting interstate branching in such states, or to
"opt in" at an earlier time, thereby allowing interstate branching within that
state prior to June 1, 1997. Furthermore, a state may "opt in" with respect to
de novo branching, thereby permitting a bank to open new branches in a state in
which the bank does not already have a branch. Without de novo branching, an
out-of-state bank can enter the state only by acquiring an existing bank.
40
<PAGE>
In addition, in 1995, the Connecticut General Assembly revised its
Interstate Banking Act to "opt-in" to full interstate banking and branching. It
is likely that such legislative authority will increase the number or the size
of financial institutions competing with NEBT and EQBK for deposits and loans in
its market place, although it is impossible to predict the effect upon
competition of such legislation.
CROSS GUARANTEE PROVISIONS AND SOURCE OF STRENGTH DOCTRINE. Under the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"),
a depository institution insured by the FDIC can be held liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC in connection
with the default of a commonly controlled FDIC-insured depository institution in
danger of default. "Default" is defined generally as the appointment of a
conservator or receiver and "in danger of default" is defined generally as the
existence of certain conditions, including a failure to meet minimum capital
requirements, indicative that a "default" is likely to occur in the absence of
regulatory assistance. These provisions have commonly been referred to as
FIRREA's "cross guarantee" provisions. Further, under FIRREA the failure to meet
capital guidelines could subject a banking institution to a variety of
enforcement remedies available to federal regulatory authorities, including the
termination of deposit insurance by the FDIC.
According to Federal Reserve Board policy, bank holding companies are
expected to act as a source of financial strength to each subsidiary bank and to
commit resources to support each such subsidiary. This support may be required
at times when a bank holding company may not be able to provide such support.
CONNECTICUT REGULATION. As state-chartered banks and members of the FDIC,
NEBT and EQBK are subject to regulation both by the Department and by the FDIC.
Applicable laws and the regulations impose restrictions and requirements in many
areas, including interest rates on selected instruments, capital requirements,
maintenance of reserves, establishment of new branch offices, making of loans
and investments, consumer protection, employment practices and other matters.
Any new regulations or amendments to existing regulations may materially affect
the services offered, expenses incurred and/or income generated by the
subsidiaries.
The Department regulates NEBT's and EQBK's internal organization as well
as their deposit, lending and investment activities. The approval of the
Connecticut Banking Commissioner is required, among other things, to open branch
offices and to consummate merger transactions and other business combinations.
The Department conducts periodic examinations of NEBT and EQBK. The Connecticut
banking statutes also restrict the ability of NEBT and EQBK to declare cash
dividends to their sole shareholder, NECB.
Subject to certain limited exceptions, loans made to any one obligor may
not exceed 15% of a bank's capital, surplus, undivided profits and loan
reserves.
Connecticut banks and bank holding companies, with the approval of the
Connecticut Banking Commissioner, are permitted to engage in stock acquisitions
of banks and bank holding companies in other states with reciprocal legislation.
Several interstate mergers involving large Connecticut banks with offices in
NEBT's and EQBK's service area and banks headquartered in other states have been
completed which have resulted in increased competition for NEBT and EQBK. In
addition, under Connecticut law, the beneficial ownership of more than 10% of
any class of voting securities of a bank or bank holding company may not be
acquired by any person or groups of persons acting in concert without the
approval of the Connecticut Banking Commissioner.
FDIC REGULATION. As FDIC-insured banks, the Subsidiaries also are subject
to the regulation and supervision of the FDIC. FDIC regulations include many of
the areas regulated by state law. The Community Reinvestment Act ("CRA")
requires lenders to identify the communities served by the institution's offices
and to identify the types of credit the institution is prepared to extend within
such communities. The FDIC conducts examinations of insured institutions' CRA
compliance and rates such institutions as "Outstanding", "Satisfactory", "Needs
to Improve" and "Substantial Noncompliance." As of their last CRA examinations,
NEBT received a rating of "Outstanding" and EQBK received a rating of
"Satisfactory". Failure to receive at least a "Satisfactory" rating may inhibit
an institution from undertaking certain activities, including acquisitions of
other financial institutions, which require regulatory approval based, in part,
on CRA compliance considerations.
PROPERTIES
NECB is the owner of an operations center in East Hartford,
Connecticut--located at 20 Founders Plaza, East Hartford, Connecticut. The
18,000 square foot facility houses the data and item processing and customer
service functions and is adequate to support the foreseeable processing and
support needs of NECB.
41
<PAGE>
NEBT's designated main office is located at Old Windsor Mall, Windsor,
Connecticut. In addition to the designated main office in Windsor, NEBT has
branches in Canton, East Windsor, Ellington, Enfield, Manchester (3), Somers,
Suffield and West Hartford. EQBK's sole office is located in Wethersfield.
During the year ended December 31, 1996, the aggregate rental expenses
paid by NECB for all its office properties was approximately $336,000. All
properties are considered to be in good condition and adequate for the purposes
for which they are used.
LEGAL PROCEEDINGS
There are no pending material adverse legal proceedings other than
ordinary routine litigation incidental to normal business to which NECB, NEBT or
EQBK is a party or to which any of their properties are subject. In connection
with the consummation of its acquisition of EQBK, certain shareholders of EQBK
gave notice of their intention to exercise their dissenters' rights and receive
cash rather than stock in NECB. The arbitration process concluded in January
1997 with the Company making payment to the dissenters for the amount it had
reserved for such payment.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF NECB
The following is Management's discussion of the financial condition and
results of operations on a consolidated basis for the three years ended December
31, 1996, 1995 and 1994 and for the three months ended March 31, 1997 and 1996,
respectively, of NECB. The consolidated financial statements of NECB include the
accounts of NECB and its wholly-owned subsidiaries, NEBT and EQBK which became a
subsidiary of NECB on November 30, 1995. Management's discussion should be read
in conjunction with the consolidated financial statements and the related notes
of NECB presented elsewhere herein.
OVERVIEW
NECB reported net income for 1996 of $4,262,000 or $1.26 per share. This
represents a 115% increase over the $1,980,000 earned in 1995. On an earnings
per share basis, 1996 increased 38% over the $0.91 earnings per share for 1995.
The earnings and earnings per share for 1995 represented an 80% and 11%
improvement, respectively, over the $1,103,000 or $0.82 per share earned in
1994. Growth in net income and earnings per share during 1996 primarily reflects
the impact of NECB's merger with The Equity Bank and the acquisition of
Manchester State Bank ("MSB") (together the "acquisitions") coupled with a
strong net interest margin. Both transactions were accounted for as purchases
and, as such, prior year comparative data were not restated to include
information about either entity.
For the quarter ended March 31, 1997 NECB reported net income 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 NECB's acquisition of MSB.
Returns on average assets for 1996, 1995 and 1994 were 1.14%, 0.91% and
0.56%, respectively, while returns on average equity were 12.28%, 9.61% and
8.34%. Returns on average assets and average equity for the quarters ending
March 31, 1997 and 1996 were 1.14% and 11.84%, compared to 1.12% and 11.99% for
the same period a year earlier. These widely-used performance benchmarks are
illustrative of NECB's improving performance during the last three years.
Net interest income on a fully taxable-equivalent basis totaled
$18,655,000 for 1996 compared to $10,685,000 in 1995. The net interest margin
for 1996 was 5.34% versus 5.28% in 1995. Through the first three months of 1997,
net interest income on a fully taxable-equivalent basis totaled $5,291,000
compared to $4,289,000 in 1996. In the first quarter of 1997, the net interest
margin was 5.47% versus 5.55% for the same period in 1996. In both 1996 and the
first quarter of 1997, the increase in net interest income is largely due to the
acquisitions together with an improved mix of interest-earning assets and
interest-bearing liabilities.
The provision for possible loan losses was $1,854,000 in 1996 compared to
$700,000 in 1995. For the first quarter of 1997 provisions for possible loan
losses amounted to $243,000 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.
42
<PAGE>
Noninterest income increased to $2,378,000 in 1996 from $1,692,000 in
1995. The increase is largely the result of the acquisitions, which provided an
additional $275,000 of recurring noninterest income in 1996. Other factors which
served to increase noninterest income in 1996 included a 100% increase in the
gain on sale of loans and a nonrecurring payment from the State of Connecticut
for the settlement of a class action suit brought by financial institutions
concerning the taxability of certain investments.
Noninterest income increased to $698,000 in the first quarter of 1997
from $440,000 in the first quarter of 1996. The increase is largely the result
of the MSB acquisition coupled with a $115,000 increase in the gain on the sale
of loans.
Noninterest expense totaled $12,701,000 in 1996, compared to $8,591,000
in 1995. The increase is primarily the result of the acquisitions, net of the
cost reductions derived from the elimination of duplicate operations.
For the first quarter of 1997, noninterest expense totaled $3,795,000,
compared to $2,787,000 in the first quarter of 1996. The increase is primarily
the result of the increased size of NECB from both internal growth and from the
MSB acquisition, net of the cost reductions derived from the elimination of
duplicate operations.
Total loans at December 31, 1996 amounted to $288,996,000 compared to
$222,235,000 at December 31, 1995 while total deposits amounted to $386,897,000
at December 31, 1996 compared to $307,161,000 at December 31, 1995. In both
cases, the increases were largely attributable to the acquisition of MSB which
provided $68,659,000 in loans and $84,115,000 in deposits.
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.
ACQUISITION SUMMARY
In November 1995, NECB created a second bank subsidiary when it merged
with EQBK. At the time of the transaction, EQBK had approximately $116 million
in assets and operated out of a single office in Wethersfield, Connecticut. In
July 1996, NECB completed its acquisition of MSB which was subsequently merged
with and into NEBT. MSB was a $91 million bank headquartered in Manchester,
Connecticut, and operated three branches in the Town of Manchester. On February
25, 1997, NECB entered into Reorganization Agreement pursuant to which it will
acquire FBWH subject to the terms and conditions more fully described elsewhere
in this Joint Proxy Statement-Prospectus.
43
<PAGE>
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
NECB 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 NECB's earning assets,
NECB's investment portfolio also plays an important part in the management of
NECB's balance sheet. While providing a source of revenue, these funds are used
to provide reserves and meet the liquidity needs of NECB. 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>
<S> <C> <C> <C>
(AMOUNTS IN THOUSANDS) 1996 1995 1994
------- ------- -------
Interest income (financial statements) .................... $28,828 $16,300 $12,551
Tax equivalent adjustment ................................. 240 121 48
Interest expense .......................................... (10,413) (5,736) (3,974)
------ ------ ------
Net interest income (fully taxable equivalent) ............ $18,655 $10,685 $ 8,625
======= ======= =======
</TABLE>
In 1996, net interest income on a FTE basis was $18,655,000, a 75%
increase over the $10,685,000 reported in 1995. The $10,685,000 for 1995
represented an increase of $2,060,000 or 24% from 1994. The $7,970,000 increase
in 1996 was primarily the result of the acquisitions--which together helped
serve to increase interest-earning assets by approximately $146,800,000 and
interest-bearing liabilities by $116,900,000 in 1996.
CONSOLIDATED AVERAGE BALANCES/INTEREST EARNED OR PAID/RATES 1994-1996
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------- ---------------------------- -------------------------
INTEREST INTEREST INTEREST
AVERAGE EARNED/ AVERAGE EARNED/ AVERAGE EARNED/
(AMOUNTS IN THOUSANDS) BALANCE PAID RATE BALANCE PAID RATE BALANCE PAID RATE
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Federal funds sold ................. $ 6,637 $ 354 5.33% $ 7,246 $ 407 5.62% $ 6,760 $ 279 4.13%
Investment securities .............. 89,258 5,485 6.15% 50,962 3,079 6.04% 52,892 2,813 5.32%
Loans (A) .......................... 253,242 23,229 9.17% 144,138 12,935 8.97% 119,690 9,507 7.94%
-------- ------- -------- ------- -------- -------
Total interest-earning assets .... 349,137 29,068 8.33% 202,346 16,421 8.12% 179,342 12,599 7.03%
------- ------- -------
Allowance for loan losses ............ (5,360) (2,543) (2,777)
Cash and due from banks .............. 15,417 9,466 9,542
Other assets ......................... 16,299 9,282 9,349
-------- -------- --------
Total Assets ....................... $375,493 $218,551 $195,456
======== ======== ========
LIABILITIES:
Interest-bearing liabilities:
Regular savings deposits ........... $ 76,310 $ 1,543 2.02% $ 47,746 $ 1,033 2.16% $ 56,819 $ 1,149 2.02%
NOW accounts ....................... 38,370 480 1.25% 23,405 266 1.14% 23,197 307 1.32%
Money market deposits .............. 5,014 55 1.10% 5,047 92 1.82% 4,396 120 2.73%
-------- ------- -------- ------- -------- -------
Total savings deposits ........... 119,694 2,078 1.74% 76,198 1,391 1.83% 84,412 1,576 1.87%
Time deposits ...................... 153,004 8,242 5.39% 80,615 4,312 5.35% 63,619 2,377 3.74%
Borrowed funds ..................... 1,583 93 5.87% 532 33 6.20% 589 21 3.57%
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities .................... 274,281 10,413 3.80% 157,345 5,736 3.65% 148,620 3,974 2.67%
------- ------- -------
Demand deposits ...................... 62,707 39,395 32,754
Other liabilities .................... 3,807 1,206 854
-------- -------- --------
Total Liabilities ................ 340,795 197,946 182,228
Equity ............................... 34,698 20,605 13,228
-------- -------- --------
Total Liabilities and Equity ..... $375,493 $218,551 $195,456
======== ======== ========
Net interest income--FTE basis ....... $18,655 $10,685 $ 8,625
======= ======= =======
Net interest spread .................. 4.53% 4.47% 4.35%
Net interest margin .................. 5.34% 5.28% 4.81%
- ----------------
(A) AVERAGE LOANS INCLUDE NONACCRUING LOANS.
</TABLE>
44
<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 increase the net interest margin to 5.34% in
1996 from 5.28% in 1995. Noteworthy was the effect of combining NECB's balances
with those of the acquired banks. Added to this was a general reduction in
market interest rates and changes in the mix of assets and liabilities.
Each of the acquired banks brought with them an interest rate structure
which, when compared to NECB's existing structure, generally included higher
rates earned and paid. This had the effect of increasing the average rates of
the combined Company. Management believes that, absent the general decrease in
market rates in 1996, the effect of the acquisitions would have been a modestly
reduced net interest margin when compared to 1995.
The overall decrease in market rates is most evident in the change to the
average prime rate which occurred during 1996. The prime rate is generally
defined as the rate banks charge on loans to their most creditworthy borrowers
and other interest rates are frequently indexed to the prime rate. The prime
rate averaged 8.27% during 1996 compared to 8.50% for 1995 (source: THE WALL
STREET JOURNAL).
Finally, the increase in the percentage of earning assets represented by
loans coupled with an increase in demand deposits (noninterest bearing) helped
serve to increase the net interest margin.
AVERAGE EARNING ASSET MIX
1996 1995
-------- --------
Securities ................................ 25.6% 25.2%
Loans ..................................... 72.0% 70.8%
Other ..................................... 2.4% 4.0%
Average interest-bearing liabilities increased to $274,281,000 in 1996,
from $157,345,000 in 1995, primarily due to the acquisitions. The interest rates
paid on these liabilities averaged 3.80% in 1996 compared to 3.65% in 1995. The
15 basis point increase in rates paid on interest-bearing liabilities--time
deposits in particular--reflects the generally higher rate structure of the
acquired institutions. Overall, NECB expects that given thE current interest
rate environment and the competitive costs of attracting and retaining core
deposits the net interest margin will decrease modestly during 1997.
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.
MARCH 31,
------------------------
(AMOUNTS IN THOUSANDS) 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
======== ========
45
<PAGE>
CONSOLIDATED AVERAGE BALANCES/INTEREST EARNED OR PAID/RATES
<TABLE>
<CAPTION>
(UNAUDITED) THREE MONTHS ENDED
-----------------------------------------------------------------------
MARCH 31, 1997 MARCH 31, 1996
-------------------------------- --------------------------------
INTEREST INTEREST
AVERAGE EARNED/ AVERAGE EARNED/
(AMOUNTS IN THOUSANDS) BALANCE PAID RATE BALANCE PAID RATE
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
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:
Interest-bearing liabilities:
Regular savings deposits.......................... $ 83,518 $ 436 2.12% $ 69,077 $ 354 2.06%
NOW accounts...................................... 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 and Equity.................... $424,457 $331,345
======== ========
Net interest income--FTE basis....................... $5,291 $4,289
====== ======
Net interest spread................................. 4.67% 4.68%
Net interest margin................................. 5.47% 5.55%
- ----------------
(A) AVERAGE LOANS INCLUDE NONACCRUING LOANS.
</TABLE>
Several factors served to decrease the net interest margin to 5.47% in
the first quarter of 1997 from 5.55% in same period 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 NECB's existing
structure, generally included higher rates earned and paid. Incorporating this
structure into NECB'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 NECB'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.
46
<PAGE>
<TABLE>
<CAPTION>
1996 1995
-------------------------------------- -----------------------------------------
TOTAL CHANGE DUE TO TOTAL CHANGE DUE TO
INCREASE CHANGE IN: INCREASE CHANGE IN:
---------------------- -----------------------
(AMOUNTS IN THOUSANDS) (DECREASE) RATE VOLUME (DECREASE) RATE VOLUME
---------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold ..................... $ (53) $ (19) $ (34) $ 128 $ 107 $ 21
Investment securities .................. 2,406 97 2,309 266 372 (106)
Loans .................................. 10,294 501 9,793 3,428 1,332 2,096
------- ---- ------- ------ ------ ------
Total interest income change ......... 12,647 579 12,068 3,822 1,811 2,011
------- ---- ------- ------ ------ ------
Interest-bearing liabilities:
Regular savings deposits ............... 510 (103) 613 (116) 76 (192)
NOW account deposits ................... 214 41 173 (41) (44) 3
Money market deposits .................. (37) (37) 0 (28) (44) 16
------- ---- ------- ------ ------ ------
Total savings deposits ............... 687 (99) 786 (185) (12) (173)
Time deposits .......................... 3,930 58 3,872 1,935 1,195 740
Borrowed funds ......................... 60 (5) 65 12 14 (2)
------- ---- ------- ------ ------ ------
Total interest expense change ........ 4,677 (46) 4,723 1,762 1,197 565
------- ---- ------- ------ ------ ------
Net interest income change ............... $ 7,970 $625 $ 7,345 $ 2,060 $ 614 $ 1,446
======= ==== ======= ====== ====== ======
</TABLE>
As is shown above, the majority of the increase in net interest income in
1996 is attributable to changes in volume which is primarily the result of the
acquisitions.
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH
31, 1996
<TABLE>
<CAPTION>
TOTAL
INCREASE CHANGE DUE TO CHANGE IN:
(UNAUDITED) ----------------------------------
(AMOUNTS IN THOUSANDS) (DECREASE) RATE VOLUME
---------- ------- -------
<S> <C> <C> <C>
Interest-earning assets:
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 income change ................. 1,367 (336) 1,703
------ ----- ------
Interest-bearing liabilities:
Regular savings deposits ....................... 82 9 73
NOW account deposits ........................... 83 23 60
Money market deposits .......................... (2) 0 (2)
------ ----- ------
Total savings deposits ....................... 163 32 131
Time deposits .................................. 112 (194) 306
Borrowed funds ................................. 90 3 87
------ ----- ------
Total interest expense change ................ 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.
47
<PAGE>
NONINTEREST INCOME
For 1996, noninterest income increased 41% from 1995 and totaled
$2,378,000 compared to $1,692,000 and $1,616,000 for 1995 and 1994,
respectively. Service charges, fees and commissions totaled $1,703,000 in 1996
compared to $1,385,000 in 1995, an increase of 23%. Included in service charges,
fees and commissions are fees on deposits, loan servicing fees and other fees
and charges. Most of the increase in this category can be attributed to the
acquisitions which together provided an additional $275,000 of recurring fee
income in 1996. ATM usage fees and fee income from NECB's debit card program
(MasterMoney(TM)) together rose 61% from $90,000 in 1995 to $145,000 in 1996.
Gains on sales of loans increased by $192,000 and totaled $385,000 for
1996 compared to $193,000 for 1995. For 1996, NECB increased its production of
mortgages originated for sale by $11,000,000, from $23,000,000 in 1995 to
$34,000,000 in 1996. The 48% increase is largely due to NECB's expanded market
area taken together with the relatively favorable interest rate environment
experienced in 1996. With fixed rate conventional mortgage rates below 8% for
most of 1996, 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. Correspondingly,
the related servicing income increased approximately 10% and totaled $263,000 in
1996 compared to $241,000 in 1995.
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, NECB'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.
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 NECB's expanded market area enabled NECB to dramatically increase
its originations in the first quarter of 1997.
NONINTEREST EXPENSE
Total noninterest expense was $12,701,000 in 1996 and $8,591,000 in 1995.
The increase of $4,110,000 or 48% is primarily the result of the acquisitions.
In 1995, total noninterest expense increased $696,000 or 9% to $8,591,000 from
$7,895,000 in 1994. The largest component of the increase in noninterest expense
in 1996 resulted from the $2,557,000 increase in salaries and employee benefits
which again is primarily due to the acquisitions. Occupancy expense and
furniture and equipment rose in response to capital outlays for technological
upgrades and improvements in conjunction with the purchase and outfitting of
NECB's new Technology Center in East Hartford. The Center, which opened in March
1996, was created to serve the changing information and systems needs of NECB
and its customers and is staffed by professionals drawn from both subsidiary
banks. Outside services rose $319,000 in 1996 due to the integration of the
acquired banks and for other initiatives. Reflecting both the improved financial
condition of NECB and the savings derived from aggregating coverages made
possible from the acquisitions, insurance and assessments decreased $226,000 or
62% from $363,000 in 1995 to $137,000 in 1996. Intangible asset amortization
amounted to $155,000 in 1996, as $4,592,000 of goodwill was recognized in
connection with the acquisitions.
Management maintains control over noninterest expenses by assigning
authority for expense-incurring activities to specific managers and by providing
these managers with tools for planning and monitoring the performance of their
duties. In working with senior officers, line managers are able to anticipate
and minimize the expense of the goods and services needed to perform
efficiently. This ongoing management process coupled with the cost reductions
derived from the acquisitions is illustrated by the improvement in NECB's
efficiency ratio which reached 59.99% in 1996.
Efficiency Ratio:
1996 1995 1994
------ ------ ------
59.99% 68.26% 74.85%
48
<PAGE>
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. Excluding 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 NECB'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.
INCOME TAXES
In 1996, NECB recognized income tax expense of $1,976,000, an effective
tax rate of 31.68%. This compares to income tax expense of $985,000 in 1995, an
effective rate of 33.19%. The decrease in the effective tax rate is attributable
to increased investment in tax-exempt securities and a reduction in the
valuation reserve for deferred tax assets.
FINANCIAL CONDITION
Total assets increased to $433,159,000 at December 31, 1996 compared to
$341,561,000 at December 31, 1995. The $68,659,000 in loans and $84,115,000 in
deposits NECB acquired in connection with the MSB acquisition is primarily
responsible for the increased asset size.
(AMOUNTS IN THOUSANDS) 1996 1995 CHANGE
---------- ---------- ----------
Total Assets ....................... $433,159 $341,561 26.8%
Earning Assets ..................... 395,494 318,458 24.2%
Securities ......................... 93,315 82,129 13.6%
Loans .............................. 288,996 222,235 30.0%
Total Deposits ..................... 386,897 307,161 26.0%
Equity ............................. 40,411 30,480 32.6%
NECB's securities portfolio increased $11,186,000 or 14% from $82,129,000
at December 31, 1995 to $93,315,000 at December 31, 1996. While the amortized
cost of securities available-for-sale increased from $74,793,000 at December 31,
1995 to $85,437,000 at December 31, 1996, securities held to maturity remained
virtually unchanged and totaled $7,066,000 and $7,357,000 at December 31, 1995
and 1996, respectively. The continued emphasis on holding securities
available-for-sale allows NECB to increase its commitment to intermediate term
loans while maintaining sufficient liquidity to meet the continuing needs of its
customers. The unrealized gain on securities available-for-sale increased to
$521,000 at December 31, 1996, from $270,000 at December 31, 1995.
LOANS
NECB's loan portfolio inherently includes credit risk. NECB attempts to
control this risk in three principal ways: i) through a thorough analysis of
applications for credit; ii) maintaining an appropriate level of loan
diversification; and iii) continuing examinations of both outstanding and
delinquent loans. NECB endeavors to identify potential problem loans early, to
take charge-offs promptly based upon realistic assessment of likely losses and
to maintain adequate reserves for possible loan losses. NECB's portfolio is
diversified by borrower, industry and product.
1996 1995
--------- ---------
Commercial and financial ....................... 19.24% 17.76%
Real estate:
Construction ................................. 4.24% 5.78%
Residential .................................. 26.63% 28.36%
Commercial ................................... 39.51% 36.35%
Consumer ....................................... 10.38% 11.75%
49
<PAGE>
Total loans increased $66,761,000 from $222,235,000 at December 31, 1995
to $288,996,000 at December, 31, 1996. This increase is largely the result of
the MSB acquisition. In addition to the acquisition, NECB added to outstanding
loans by originating new loans which exceeded repayments and payoffs by
$2,260,000 and purchasing loans of $828,000 from another lender. In a market
best characterized by moderate loan demand and highly competitive pricing, NECB
continued to target the small business market for both owner occupied real
estate and for commercial and financial loans. Through both aggressive marketing
and responsive loan officers, this effort is reflected in the change in NECB's
loan composition in 1996. It is NECB's goal to become the preferred small
business lender in its service area and thus the percentage of commercial and
financial and commercial real estate loans should increase further in 1997.
Total assets at March 31, 1997 were $428,079,000, a decrease of
$5,080,000, or 1%, 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 NECB's most liquid assets and as such are available to
meeT short term cash flow needs of NECB.
Total deposits, which constitute the principal funding source of NECB's
assets, decreased $13,515,000 from December 31, 1996 and amounted to
$373,382,000 at March 31, 1997. NECB 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 NECB 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 change in net
unrealized gain or loss on securities available-for-sale (net of related tax
effect).
SECURITIES HELD-TO-MATURITY
Securities held-to-maturity are shown in NECB'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>
(UNAUDITED)
MARCH 31, 1997 DECEMBER 31, 1996
------------------------ ------------------------
AMORTIZED AMORTIZED
COST FAIR COST FAIR
(AMOUNTS 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 NECB'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 unrealized loss on securities
available-for-sale was $275,000 while at December 31, 1996 the unrealized gain
was $521,000, representing an increase in 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:
50
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, 1997 DECEMBER 31, 1996
------------------------- ------------------------
AMORTIZED AMORTIZED
COST FAIR COST FAIR
(AMOUNTS 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
NECB'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 NECB 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.
NECB's nonperforming assets at December 31, 1992 through 1996 are
presented below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
(AMOUNTS IN THOUSANDS) 1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans .................................... $5,759 $4,725 $2,975 $3,176 $3,144
Other real estate owned ............................. 2,109 728 573 1,048 5,761
------ ------ ------ ------ ------
Total nonperforming assets ........................ $7,868 $5,453 $3,548 $4,224 $8,905
====== ====== ====== ====== ======
Loans past due in excess of ninety
days and accruing interest ........................ $ 395 $ 273 $ 16 $ 193 $ 4
</TABLE>
Nonperforming assets increased $2,415,000 or 44% to $7,868,000 at
December 31, 1996 from $5,453,000 at December 31, 1995. At December 31, 1996,
nonperforming assets as a percentage of total loans and other real estate owned
and as a percentage of total assets were 2.70% and 1.81%, respectively, compared
to 2.5% and 1.60% at December 31, 1995. The increase in total nonperforming
assets in the year ended December 31, 1996 primarily resulted from the
acquisitions.
Had nonaccrual loans performed in accordance with their original terms,
gross interest income would have increased by:
YEARS ENDED DECEMBER 31,
---------------------------------------------------
(AMOUNTS IN THOUSANDS) 1996 1995 1994 1993 1992
------ ------ ------ ------ ------
$492 $120 $194 $193 $621
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.
51
<PAGE>
ACTIVITY IN NONPERFORMING ASSETS
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS) 1996 1995
------- -------
<S> <C> <C>
Balance at beginning of year ........................ ............................... $5,453 $3,548
Additions ........................................... ............................... 5,341 2,443
Changes incident to acquisitions ................... ................................ 4,945 3,393
Reductions
Payments ......................................... ................................ (2,654) (1,623)
Returned to performing Status .................... ................................ (943) (598)
Charge-offs/writedowns ........................... ................................ (3,268) (1,014)
Sales/other, net ................................. ................................ (1,006) (696)
------ ------
Balance at end of year ............................. ................................ $7,868 $5,453
====== ======
</TABLE>
At December 31, 1996, loans past due in excess of ninety days and
accruing interest amounted to $395,000 compared to $273,000 at December 31,
1995. Although these loans are not included in nonperforming assets, Management
reviews these loans when considering risk elements to determine the overall
adequacy of the loan loss reserve.
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>
<CAPTION>
(UNAUDITED)
(AMOUNTS IN THOUSANDS) 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% 63.9%
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>
ACTIVITY IN NONPERFORMING ASSETS
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
--------------------------------------
(AMOUNTS IN THOUSANDS) 1997 1996
---------- -----------
<S> <C> <C>
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
====== ======
</TABLE>
52
<PAGE>
Compared to first quarter of 1996, nonperforming assets primarily
increased due to the acquisition which accounted for $4,360,000 and $585,000 in
nonaccrual 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, NECB 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 years ended December 31, 1992 through 1996. The allowance is
maintained at a level consistent with identified loss potential and the
perceived risk in the portfolio. It is not considered meaningful to allocate the
allowance according to geographic area as NECB's market area is homogeneous and
limited in size.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
(AMOUNTS IN THOUSANDS) 1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Loans charged-off:
Commercial and financial ............................. $ 945 $ 154 $ 92 $ 216 $ 539
Real estate .......................................... 2,063 750 892 930 2,348
Installment loans to individuals ..................... 141 74 17 80 121
------ ------ ------ ------ ------
Total charge-offs .................................. 3,149 978 1,001 1,226 3,008
------ ------ ------ ------ ------
Recoveries on loans charged-off:
Commercial and financial ............................. 66 150 51 17 4
Real estate .......................................... 254 27 163 22 54
Installment loans to individuals ..................... 33 22 37 10 26
------ ------ ------ ------ ------
Total recoveries ................................... 353 199 251 49 84
------ ------ ------ ------ ------
Net loans charged-off .................................. 2,796 779 750 1,177 2,924
Provision charged to operations ........................ 1,854 700 530 764 2,679
Balance, at beginning of year .......................... 4,446 2,564 2,784 3,197 3,442
Changes incident to acquisitions ....................... 2,010 1,961
------ ------ ------ ------ ------
Balance, at end of year ................................ $5,514 $4,446 $2,564 $2,784 $3,197
====== ====== ====== ====== ======
Ratio of net charge-offs during the period to
average loans outstanding during the period .......... 1.1% 0.5% 0.6% 0.9% 2.0%
Ratio of allowance for loan losses to total loans ...... 1.9 2.0 1.9 2.4 2.4
Ratio of allowance for loan losses to
nonperforming assets ................................. 70.1 81.5 72.3 65.9 35.9
Ratio of allowance for loan losses to nonaccrual loans . 95.7 94.1 86.2 87.7 101.7
</TABLE>
NECB's allowance for loan losses increased $1,068,000 from December 31,
1995 to $5,514,000 at December 31, 1996. The 1996 provision for loan losses was
$1,854,000 compared to $700,000 for 1995. This increase is primarily the result
of the acquisitions together with a higher level of delinquencies. During 1996,
net charge-offs increased $2,017,000 to $2,796,000 from $779,000 in 1995. Of
this increase, approximately $1,200,000 was from loans acquired from MSB. The
majority of these loans had been specifically reserved by MSB in anticipation of
the need to be charged-off. The ratio of net charge-offs to average loans
increased to 1.10% in 1996 compared to .54% in 1995. The allowance for loan
losses decreased to 1.91% of total loans at December 31, 1996 from 2.00% at
December 31, 1995. At December 31, 1996, the allowance as a percentage of
nonperforming assets and as a percentage of nonaccrual loans was 70.1% and
95.7%, respectively, compared to 81.5% and 94.1% at December 31, 1995.
53
<PAGE>
NECB's allowance for loan losses with allocations categorized by loan type
and percentage of loan type to total loans at December 31, 1992 through 1996 are
presented below:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------------- ------------------- ------------------- ------------------- -------------------
(AMOUNTS IN THOUSANDS) ALLOCATION OF ALL(1) ALLOCATION OF ALL(1) ALLOCATION OF ALL(1) ALLOCATION OF ALL(1) ALLOCATION OF ALL(1)
Loans by Type $ % $ % $ % $ % $ %
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial & Financial.. $ 849 19.3% $ 541 16.1% $ 526 20.4% $ 411 12.5% $ 941 14.4%
Real Estate:
Construction.......... 141 4.2% 254 5.8% 51 1.4% 22 0.7% 147 2.9%
Residential........... 1,702 26.6% 1,090 36.4% 780 38.0% 1,405 44.5% 1,116 44.0%
Commercial............ 2,502 39.5% 2,388 38.3% 815 30.8% 740 33.0% 735 28.2%
Consumer................ 320 10.4% 173 3.4% 392 9.4% 204 9.3% 258 10.5%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total................... $5,514 100.0% $4,446 100.0% $2,564 100.0% $2,782 100.0% $3,197 100.0%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
- ----------------
(1) ALLOWANCE FOR LOAN LOSSES.
</TABLE>
As noted, NECB's subsidiaries perform ongoing reviews of loans to
determine the required allowance for possible loan losses at any given date. To
facilitate this process, an individual loan rating system is utilized. In the
review process, the subsidiaries assess factors including the borrower's past
and current financial condition, repayment ability and liquidity, the nature of
collateral and changes in its value, current and anticipated economic conditions
and other factors deemed appropriate. These reviews are dependent upon
estimates, appraisals and judgments which can change quickly because of changing
economic conditions and Management's perception as to how these factors affect
the financial condition of debtors. The loan rating process classifies loans
according to the subsidiaries' uniform classification system. The subsidiaries
consider performing loans rated as "substandard" and "doubtful" to be potential
problem loans. "Substandard" loans are characterized by well-defined weaknesses
such as deteriorating or inadequate collateral or impaired repayment ability. A
loan is considered "doubtful" when similar conditions exist but are more severe
in nature.
At December 31, 1996, NECB considered loans totaling approximately
$15,635,000 to be potential problems compared to $14,067,000 at December 31,
1995. Included in these totals were loans totaling $9,877,000 and $9,342,000,
respectively, which were not classified as nonperforming loans because such
loans are performing according to their terms.
The following table summarizes the activity in the allowance for possible
loan losses for the three months ending March 31, 1997 and 1996:
(UNAUDITED)
THREE MONTHS
ENDED MARCH 31,
------------------------------
(AMOUNTS IN THOUSANDS) 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 a 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.
54
<PAGE>
DEPOSITS
Total deposits increased $79,736,000 or 26% from $307,161,000 at December
31, 1995 to $386,897,000 at December 31, 1996. This increase is largely
attributable to the acquisition of MSB which provided $84,115,000 in deposits.
As discussed earlier, the interest rate structures of the acquired banks were
frequently at or near the top end of the rates offered throughout their markets.
This often attracted funds from depositors who only sought the highest rates
then being offered. Since the need for such funds was less prevalent after the
acquisitions (primarily due to moderate loan demand and a strong liquidity
position), much of these funds did not stay with NECB. As a result, absent the
effect of the acquisition, time deposits would have decreased by approximately
$10,000,000 from 1995. This taken together with NECB's focus on small-business
development helped shift the mix of deposits from higher priced time deposits to
noninterest-bearing demand deposits and NOW accounts. The percentage of
noninterest-bearing demand deposits to total deposits increased to 20.4% from
19.5% at December 31, 1996 and 1995, respectively.
ASSET LIABILITY MANAGEMENT
Asset liability management provides for a structured process for
prudently managing NECB's liquidity, capital and market risk. Asset/liability
management is guided by policies reviewed and approved annually by NECB's Board
of Directors. Among other things, the policy delegates responsibility for
asset-liability management to the Asset/Liability Committee ("ALCO") within each
subsidiary bank. The committees guide all the day-to-day asset/liability
management activities of the respective subsidiary.
INTEREST-RATE RISK
Interest-rate risk is defined as the sensitivity of NECB's income to
short and long-term changes in interest rates. The principal objective of
interest rate risk management is to control this risk within the limits and
guidelines indicated in NECB's asset/liability policy. NECB identifies and
manages its interest-rate risk through both simulation models and gap analysis.
The simulation analysis is used to both measure and analyze NECB's net interest
income sensitivity over one and two-year time horizons. The simulation process
involves the modeling of interest income and expense from NECB's balance sheet
during a specified period of time and under a variety of interest-rate
scenarios. The model is used to examine the impact on earnings given an
immediate 200 basis point rise or fall in interest rates (a "shock") or a
gradual 200 basis point rise or fall in interest rates (a "ramp") as well as
other forecasted interest change scenarios. Each model includes assumptions as
to the effect of volume changes, prepayment rates and repricing characteristics
for both contractual and noncontractual assets and liabilities.
Gap analysis provides a point-in-time "snapshot" of the maturity and
repricing characteristics of NECB's balance sheet. The report is prepared by
allocating all assets and liabilities according to either contractual or
anticipated maturity or repricing. NECB's policy specifies that the cumulative
one-year gap should be less than 10% of total assets. As is shown in the table
below, as of December 31, 1996, NECB was .50% liability sensitive at the
cumulative one-year gap.
55
<PAGE>
INTEREST-RATE GAP ANALYSIS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
CUMULATIVELY REPRICED WITHIN
---------------------------------------------------------------------------------
3 MONTHS 4 TO 12 1 TO 5 AFTER 5
(AMOUNTS IN THOUSANDS, BY REPRICING DATE) OR LESS MONTHS YEARS YEARS TOTAL
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cash........................................... $ 9,675 $ $ $ 21,954 $ 31,629
Securities..................................... 5,354 6,783 56,817 26,114 95,068
Loans.......................................... 51,526 106,283 92,160 39,027 288,996
Loans held-for sale............................ 1,755 1,755
Other assets................................... 15,711 15,711
------- -------- -------- -------- --------
Total assets............................... 68,310 113,066 148,977 102,806 433,159
------- -------- -------- -------- --------
Deposits:
Demand....................................... $ 3,940 $ $ 3,940 $ 70,913 $ 78,793
Savings...................................... 14,161 28,323 49,565 49,565 141,614
Time......................................... 48,536 86,567 31,060 328 166,491
------- -------- -------- -------- --------
Total deposits............................. 66,637 114,890 84,565 120,806 386,898
Short-term borrowings.......................... 2,003 2,003
Other liabilities.............................. 3,847 3,847
Equity......................................... 40,411 40,411
------- -------- -------- -------- --------
Total liabilities and
shareholders' equity..................... 68,640 114,890 84,565 165,064 433,159
------- -------- -------- -------- --------
Periodic....................................... $ (330) $ (1,824) $ 64,412 $ (62,258)
------- -------- -------- --------
Cumulative gap................................. $ (330) $ (2,154) $ 62,258
======= ======== ========
Cumulative gap as % of total assets............ (0.08)% (0.50)% 14.37%
</TABLE>
Through both the modeling process and the complementary gap analysis,
Management believes that the exposure of NECB's income to either a rate shock or
gradual change in interest rates is modest.
LIQUIDITY RISK
Management's objective for liquidity risk is to ensure the ability of
NECB and its subsidiaries to meet their obligations. These obligations include
the withdrawal of deposits on demand or at maturity, the repayment of borrowings
as they mature and the ability to fund existing and new loan commitments.
Accordingly, NECB's subsidiaries have liquidity policies which provide
flexibility to meet cash needs. The liquidity objective is achieved through the
maintenance of readily marketable investment securities as well as a balanced
flow of asset maturities, prudent pricing on loan and deposit products and the
sale of mortgage loans in the secondary market. Liquidity at NECB is measured
and monitored daily, enabling Management to identify and respond to trends
occurring in NECB's balance sheet.
In 1995 NEBT joined the Federal Home Loan Bank of Boston (FHLBB) to
further enhance its liquidity position. The FHLBB provides its member banks with
credit by accepting as collateral the member bank's mortgage assets. Through its
membership, NEBT has available a line of credit for $3,500,000 and also has the
ability to pledge up to $60,000,000 of its assets to meet its credit needs. EQBK
has available a line of credit for $2,100,000 and has the ability to pledge up
to $25,000,000 of its assets to meet its credit needs. NECB has alternative
sources of liquidity available including federal funds purchased and repurchase
agreements. Purchases of federal funds and borrowing on repurchase agreements
may be utilized to meet short-term borrowing needs. NECB believes that its
policies will enable it to maintain adequate liquidity and to prudently commit
funds to loans or investments, depending upon underlying risk, demand and rate
of return.
As shown in the Consolidated Statements of Cash Flows, NECB experienced
an increase of $7,679,000 in the amount of cash and cash equivalents at December
31, 1996 compared to December 31, 1995. This compares to a decrease of
$4,091,000 in 1995, compared to December 31, 1994. The increase in 1996 was
largely due to the acquisition of MSB coupled with a decrease throughout the
year in interest-bearing account balances.
56
<PAGE>
CAPITAL
At December 31, 1996, total shareholders' equity was $40,411,000, an
increase of $9,931,000 compared to $30,480,000 at December 31, 1995. In July
1996, in acquiring MSB, 549,300 shares of common stock were issued by NECB at a
value of $6,310,000. Also increasing capital in 1996 was the retention of
$3,310,000 in earned income, $170,000 from shares issued in conjunction with
exercise of stock options and a $141,000 increase in the unrealized holding gain
on securities available for sale. During 1995, shareholders' equity increased
$12,007,000 to $30,480,000 from $18,473,000 at December 31, 1994. In November
1995, capital increased $9,507,000 when NECB issued 1,004,000 shares of its
common stock in exchange for all of the outstanding shares of EQBK. Following
the acquisition, EQBK has been operating as a subsidiary of NECB.
NECB 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 December 31, 1996, NECB exceeded all regulatory capital ratios and
the subsidiaries were categorized as "well capitalized." The various capital
ratios of NECB for December 31, 1996 and 1995 were:
MINIMUM LEVEL 1996 1995
-------------- ------ ------
Total Risk-Based ............ 8.0% 13.5% 13.5%
Tier 1 Risk-Based ........... 4.0% 12.2% 12.3%
Leverage .................... 4.0% 8.5% 11.9%
As of March 31, 1997, NECB exceeded all regulatory capital ratios and the
subsidiaries were categorized as "well capitalized." The various capital ratios
of NECB for March 31, 1997 and 1996 were:
(UNAUDITED)
MINIMUM LEVEL 1997 1996
-------------- ------ ------
Total Risk-Based ............ 8.0% 13.7% 13.4%
Tier 1 Risk-Based ........... 4.0% 12.4% 12.2%
Leverage .................... 4.0% 8.7% 9.4%
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfer and
Servicing of Financial Assets and Extinguishments of Liabilities." This Standard
is based on a financial-components approach under which an entity recognizes the
financial and servicing assets it controls and the liabilities it has incurred
as a result of a transfer of financial assets, and recognizes financial assets
when control has been surrendered, and derecognizes liabilities when
extinguished. This standard is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996 (except for certain provisions deferred for one year by SFAS No. 127,
"Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125"), and must be applied prospectively. NECB does not expect that, upon
adoption, this statement will have a material effect on its consolidated
financial statements.
FORWARD LOOKING STATEMENTS
Certain statements contained in this Joint Proxy Statement-Prospectus,
including those contained in "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND IN RESULTS OF OPERATIONS OF NECB" AND "INFORMATION REGARDING
NECB," are forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 are thus prospective. Such forward
looking statements are subject to risks, uncertainties and other factors which
could cause actual results to differ materially from future results express or
implied by such statements. Such factors include, but are not limited to changes
in interest rates, regulation, competition and the local and regional economy.
57
<PAGE>
CERTAIN STATISTICAL INFORMATION
DEPOSITS
The following table sets forth average deposits and average rates for
each of the years indicated:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- -------------------- --------------------
AVERAGE AVERAGE AVERAGE
(AMOUNTS IN THOUSANDS) BALANCE RATE BALANCE RATE BALANCE RATE
-------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Demand deposits...................... $ 62,707 $ 39,395 $ 32,754
-------- -------- --------
Regular savings deposits............. 76,310 2.02% 47,746 2.16% 56,819 2.02%
NOW accounts......................... 38,370 1.25% 23,405 1.14% 23,197 1.32%
Money market deposits................ 5,014 1.10% 5,047 1.82% 4,396 2.73%
-------- -------- --------
Total savings deposits............. 119,694 1.74% 76,198 1.83% 84,412 1.87%
-------- -------- --------
Time deposits........................ 153,004 5.39% 80,615 5.35% 63,619 3.74%
-------- -------- --------
Total Deposits..................... $335,405 $196,208 $180,785
======== ======== ========
</TABLE>
RETURN ON EQUITY AND ASSETS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Return on average assets ....................................... 1.14% 0.91% 0.56% 0.20% 0.18%
Return on average equity ....................................... 12.28 9.61 8.34 3.26 3.08
Dividend payout ratio .......................................... 22.22 22.52 6.10 0.00 0.00
Equity to assets ............................................... 9.33 8.92 8.53 6.40 5.83
</TABLE>
INVESTMENT PORTFOLIO
The following tables present maturities and weighted average yields at
December 31, 1996, 1995 and 1994. The weighted average yields were calculated
based on the cost and effective yields to maturity of each security. The
weighted average yields on income from municipal obligations and equity
securities were adjusted to a tax-equivalent basis.
<TABLE>
<CAPTION>
1996
------------------------------------------------------------------------------------------
AFTER ONE AFTER FIVE WEIGHTED
WITHIN BUT WITHIN BUT WITHIN AFTER NO AVERAGE
(AMOUNTS IN THOUSANDS) ONE YEAR FIVE YEARS TEN YEARS TEN YEARS MATURITY TOTAL YIELD
--------- --------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE(1):
Debt securities issued by the
U.S. Treasury and other U.S.
government agencies ................ $ 6,124 $46,168 $11,022 $ $ $63,314 6.74%
Mortgage-backed securities ........... 259 2,446 1,148 6,458 10,311 6.98%
Corporate debt securities ............ 2,503 5,620 8,123 6.22%
Marketable equity securities 3,689 3,689
------- ------- ------- ------ ------- -------
$ 8,886 $54,234 $12,170 $6,458 $ 3,689 $85,437
------- ------- ------- ------ ------- -------
Weighted average yield ............... 6.64% 6.40% 7.34% 6.99% 6.81%
------- ------- ------- ------ ------- -------
HELD TO MATURITY:
Debt securities issued by the
U.S. Treasury and other U.S.
government agencies ................ $ $ 3,507 $ 1,009 $ $ $ 4,516 6.91%
Debt securities issued by states and
political subdivisions of the states 720 1,347 774 2,841 5.00%
------- ------- ------- ------ ------- -------
$ 0 $ 4,227 $ 2,356 $ 774 $ 0 $ 7,357
------- ------- ------- ------ ------- -------
Weighted average yield ............... 6.36% 5.99% 5.14% 5.96%
------- ------- ------- ------ ------- -------
Total portfolio ...................... $ 8,886 $58,461 $14,526 $7,232 $ 3,689 $92,794
======= ======= ======= ====== ======= =======
Total weighted average yield ......... 6.64% 6.39% 7.12% 6.88% 6.73%
======= ======= ======= ====== ======= =======
- ----------------
(1) Amounts shown at amortized cost.
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
1995
-------------------------------------------------------------------------------------------
AFTER ONE AFTER FIVE WEIGHTED
WITHIN BUT WITHIN BUT WITHIN AFTER NO AVERAGE
(AMOUNTS IN THOUSANDS) ONE YEAR FIVE YEARS TEN YEARS TEN YEARS MATURITY TOTAL YIELD
--------- --------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE (1):
Debt securities issued by the
U.S. Treasury and other U.S.
government agencies ................ $ 5,000 $ 29,035 $ 4,448 $ $ $ 38,483 6.2%
Obligations of states and
political subdivisions ............. 251 251 10.9%
Mortgage-backed securities 4,735 313 6,208 11,256 7.4%
Corporate debt securities ............ 6,288 3,400 9,688 7.1%
Marketable equity securities ......... 15,115 15,115
-------- ------- ------- ------ ------- -------
$ 11,539 $ 37,170 $ 4,761 $ 6,208 $ 15,115 $ 74,793
-------- ------- ------- ------ ------- -------
Weighted average yield ............... 6.7% 6.0% 7.5% 7.4% 4.4% 6.9%
-------- ------- ------- ------ ------- -------
HELD TO MATURITY:
Debt securities issued by the
U.S. Treasury and other U.S.
government agencies ................ $ 1,500 $ 4,001 $ $ $ $ 5,501 6.4%
Debt securities issued by states
and political subdivisions
of the states ...................... 622 697 246 1,565 8.1%
-------- ------- ------- ------ ------- -------
$ 1,500 $ 4,623 $ 697 $ 246 $ 0 $ 7,066
-------- ------- ------- ------ ------- -------
Weighted average yield ............... 5.9% 6.6% 7.6% 9.2% 7.1%
-------- ------- ------- ------ ------- -------
Total portfolio ...................... $ 13,039 $ 41,793 $ 5,458 $ 6,454 $ 15,115 $ 81,859
======== ======= ======= ====== ======= =======
Total weighted average yield ......... 6.7% 6.1% 7.5% 7.5% 4.4% 6.9%
======== ======= ======= ====== ======= =======
- --------------
(1) Amounts shown at amortized cost.
1994
------------------------------------------------------------------------------------------
AFTER ONE AFTER FIVE WEIGHTED
WITHIN BUT WITHIN BUT WITHIN AFTER NO AVERAGE
(AMOUNTS IN THOUSANDS) ONE YEAR FIVE YEARS TEN YEARS TEN YEARS MATURITY TOTAL YIELD
--------- --------- --------- --------- --------- -------- --------
AVAILABLE FOR SALE (1):
Debt securities issued by the
U.S. Treasury and other U.S.
government agencies ................ $ 9,980 $ 11,984 $ 1,013 $ $ $ 22,977 6.1%
Mortgage-backed securities ........... 5,123 228 3,694 9,045 6.8%
Corporate debt securities ............ 512 2,331 523 3,366 9.0%
Marketable equity securities ......... 2,120 2,120 5.8%
-------- -------- ------- ------- ------- --------
$ 10,492 $ 19,438 $ 1,764 $ 3,694 $ 2,120 $ 37,508
-------- -------- ------- ------- ------- --------
Weighted average yield ............... 5.0% 6.4% 7.7% 6.9% 4.9% 6.7%
-------- -------- ------- ------- ------- --------
HELD TO MATURITY:
Debt securities issued by the
U.S. Treasury and other U.S.
government agencies ................. $ 3,910 $ 6,976 $ $ $ $ 10,886 6.9%
Debt securities issued by states
and political subdivisions
of the states ....................... 450 100 306 856 5.00%
-------- -------- ------- ------- ------- -------
$ 4,360 $ 7,076 $ 306 $ 0 $ 0 $ 11,742 10.2%
-------- -------- ------- ------- ------- --------
Weighted average yield ................ 5.7% 7.1% 9.8% 7.2%
-------- -------- ------- ------- ------- --------
Total portfolio ....................... $ 14,852 $ 26,514 $ 2,070 $ 3,694 $ 2,120 $ 49,250
======== ======== ======= ======= ======= ========
Total weighted average yield .......... 5.1% 6.6% 8.0% 6.9% 4.9% 6.7%
======== ======== ======= ======= ======= ========
- ---------------
(1) Amounts shown at amortized cost.
</TABLE>
59
<PAGE>
LOAN PORTFOLIO
Types of loans at the end of each reporting period.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS) 1996 1995 1994 1993 1992
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Commercial and financial ................ $ 55,601 $ 39,474 $ 27,033 $ 14,439 $ 19,490
Real estate:
Construction .......................... 12,250 12,841 1,883 830 3,929
Residential ........................... 76,970 63,025 50,382 51,433 59,609
Commercial ............................ 114,174 80,793 40,863 38,234 38,140
Consumer ................................ 30,001 26,102 12,464 10,760 14,154
-------- -------- -------- -------- --------
Loans outstanding ....................... $288,996 $222,235 $132,625 $115,696 $135,322
======== ======== ======== ======== ========
The following table shows the maturity and sensitivity of the Company's
loan portfolio outstanding as of December 31, 1996.
AFTER ONE
ONE YEAR YEAR THROUGH AFTER
(AMOUNTS IN THOUSANDS) OR LESS FIVE YEARS FIVE YEARS TOTAL LOANS
--------- ------------- ---------- -----------
Commercial and financial................. $ 34,092 $15,083 $ 6,426 $ 55,601
Real estate:
Construction........................... 9,393 414 2,443 12,250
Residential............................ 35,995 22,012 18,963 76,970
Commercial............................. 57,049 48,693 8,432 114,174
Consumer................................. 21,280 5,958 2,763 30,001
-------- ------- ------- --------
Total Loans.............................. $157,809 $92,160 $39,027 $288,996
-------- ------- -------
Less: allowance for possible loan losses. (5,514)
--------
Total loans, net......................... $283,482
========
At December 31, 1996, loans maturing after one year include $51,971,000
in fixed rate loans and $79,216,000 in variable rate loans.
</TABLE>
60
<PAGE>
MANAGEMENT OF NECB
DIRECTORS AND EXECUTIVE OFFICERS OF NECB
The following table sets forth the name and age of each Director and
Executive Officer, his/her principal occupation for the last five years and the
year in which he/she was first elected as a Director or appointed an Executive
Officer of NECB, NEBT or EQBK.
<TABLE>
<CAPTION>
POSITIONS DIRECTOR OR
AND PRINCIPAL COMMITTEE EXECUTIVE OFFICER
AGE OCCUPATION(1) MEMBERSHIP OF NECB SINCE:
---- ------------ ----------- ---------------
<S> <C> <C> <C> <C>
Tadeus J. Buczkowski 70 Loss Control Director (Retired) Executive 1986
Hartford Insurance Group
John C. Carmon 49 President, Carmon Executive 1985
Funeral Homes, Inc.
Gary J. DeNino 42 President of IMSCO, Compensation 1995
Inc. a domestic market and Finance
representative of
international products
Frank A. Falvo 54 Executive Vice President of Executive 1995
NECB since December 1995
and President and CEO of
EQBK since its formation
Dominic J. Ferraina 64 Chairman of the Executive 1986
Boards of NECB and and Compensation
NEBT; Practicing Attorney
Donat A. Fournier 48 Vice President and Senior 1993
Loan Officer of NECB(2)
Charles D. Gersten 73 Partner, Gersten & Executive 1995
Clifford (law firm)
John R. Harvey 49 Partner, Harvey & Horowitz, Audit 1995
P.C. (Certified Public Accountants)
Anson C. Hall 58 Vice President, Chief Financial 1993
Officer and Treasurer of NECB(3)
David A. Lentini 49 President and Chief Executive Executive 1993
Officer of NECB and NEBT(4)
Angelina J. McGillivray 47 Manager, Executive, 1993
Coccomo Associates Compensation
Realtors, LLC and Audit
Edward J. Szewczyk 66 President, Governance 1985
Southwood and Audit
Pharmacy, Inc.
- -----------------
(1) All the Directors and Executive Officers have been engaged in their
respective positions for more than five years except for Messrs. Lentini,
Hall and Fournier.
(2) In June 1993, the Board of Directors appointed Mr. Fournier to serve as
Executive Vice President and Chief Lending Officer of NEBT. NEBT entered
into an employment agreement with Mr. Fournier in August of 1994, for a
period of two years. Prior to his appointment by the Board of Directors,
Mr. Fournier served as Chief Operations Officer, Senior Executive Vice
President and Corporate Secretary of Eastland Financial Corporation in
Woonsocket, Rhode Island. Mr. Fournier does not serve as a director of NECB.
(3) In June 1993, the Board of Directors appointed Mr. Hall to serve as
Treasurer of NECB and as Senior Vice President and Chief Financial Officer
of NEBT. NEBT entered into an employment agreement with Mr. Hall in August
of 1994, for a period of two years. Between August 1992 and June 1993, Mr.
Hall owned and operated a business, Bestway Management, a management
consulting firm serving small banks and businesses. Prior to that
time, Mr. Hall served as Senior Vice President, Treasurer and Controller
of Fleet Bank, N.A., Hartford, Connecticut until 1992. Mr. Hall does not
serve as a director of NECB.
(4) Mr. Lentini was appointed to serve as President and Chief Executive
Officer of NEBT and NECB in May 1993. Prior to joining NEBT and NECB,
Mr. Lentini served as President and Chief Executive Officer of the
Connecticut Bank of Commerce, Woodbridge, Connecticut from September 1992
through May 1993. Mr. Lentini was employed by the Bank of South Windsor
as President and Chief Executive Officer from December 1987 until September
1992.
</TABLE>
61
<PAGE>
MEETINGS AND COMMITTEES
During 1996, the NECB Board met twelve times. The Audit Committee met
five times and the Executive, Compensation and the Governance Committees each
met once. In 1996, all NECB Board members attended more than 75% of the meetings
of the NECB Board and its committees on which they serve.
The Executive Committee consists of seven members and had broad
responsibilities and reviews all matters which may significantly affect NECB.
Its primary focus is upon strategic interests providing guidance for development
and implementation of NECB's strategic plan. During 1996, the Committee only met
once because all matters otherwise reviewable by it were reviewed by the entire
Board.
The Audit Committee assists the Boards of Directors of NEBT and EQBK in
fulfilling their fiduciary responsibilities relating to corporate accounting and
reporting practices of NEBT and EQBK, respectively. Additionally, the Audit
Committee reviews the records and affairs of NECB to determine its financial
condition, reviews with management and the independent auditors NECB's internal
control systems, and monitors NECB's adherence in accounting and financial
reporting to generally accepted accounting principles.
The Compensation Committee, composed of three independent non-employee
members of the NECB Board, determines issues related to compensation programs
and policies including compensation actions for the Chief Executive Officer and
reviews the compensation for all executive officers.
The Governance Committee consists of four members. The Governance
Committee was formed to assist the Board with issues related to its membership
as well as issues related to the Articles of Incorporation and By-laws of the
Corporation. Issues related to membership include but are not limited to, issues
such as the size and membership of the Board of Directors and its standing
committees.
The Governance Committee will consider additional nominees during the
year as corporate needs dictate, and will advise the Board of Directors as to
its recommendations. The Governance Committee will consider recommendations by
shareholders for nomination as directors, provided such recommendations are
submitted in accordance with certain procedures set forth in NECB's By-laws. A
shareholder's notice must be delivered or mailed and received at the principal
executive offices of NECB not less than 60 days nor more than 90 days prior to
the meeting. However, if fewer than 70 days notice of the date of the meeting is
given or made to shareholders, and the meeting is held in the preceding year,
then notice of the nomination by the shareholder to be timely must be received
not later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed to shareholders. Notice to
shareholders' meeting will be deemed to be given on the date of NECB's quarterly
report, letter to shareholders or other communications to shareholders
disclosing the meeting date, if the meeting is in fact held on that date or
within 30 days thereafter. A shareholder's notice must set forth as to each
person whom the shareholder proposes to nominate for election or re-election as
a director: (i) the name, age, business address and, if know, residence address,
(ii) the principal occupation or employment, (iii) the number of shares of stock
of NECB that are beneficially owned, and (iv) any other information relating to
such person that is required to be disclosed in solicitation of proxies for
election of directors, or otherwise required, in each case, pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended. In
addition, any shareholder making the nomination must promptly provide any other
information reasonably requested by NECB.
COMPENSATION OF DIRECTORS
For their service on the NECB Board during 1996, Directors (other than
Executive Officers of NECB who are Board members) received an annual retainer of
$1,500, plus $300 for each Board meeting attended and $150 for each committee
meeting attended. The Chairman of the Board and each Committee Chairman received
an additional annual compensation of $3,500 and $500, respectively.
62
<PAGE>
NECB EXECUTIVE COMPENSATION
The following table provides certain information regarding the
compensation paid to certain Executive Officers (the "Named Executive Officers")
of NECB for services rendered in capacities to NECB and NEBT during the fiscal
years ended December 31, 1996, 1995 and 1994. No other current Executive Officer
of NECB received cash compensation in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------------- ------------
OPTION'S/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS($) SAR(#) COMPENSATION($)
- --------------------------- --------- --------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
David A. Lentini 1996 $175,000 $30,800 40,000 $20,785(1)
President and Chief Executive Officer 1995 140,000 13,500 15,000 22,837
1994 135,000 20,000 17,647
Frank A. Falvo 1996 $150,000 $26,400 30,000 $4,167(2)
Executive Vice President 1995(3) 125,000 12,325
Donat A. Fournier 1996 $125,000 $26,400 30,000 $15,549(4)
Vice President and Senior Loan 1995 95,000 10,500 10,000 17,138
Officer 1994 93,484 14,000 8,062
Anson C. Hall 1996 $100,000 $17,600 30,000 $11,472(5)
Vice President, Chief Financial Officer 1995 80,000 6,500 5,000
and Treasurer 1994 75,000
</TABLE>
- ---------------
(1) During 1996, NECB contributed $9,000 and $2,288, respectively, into NECB's
former pension plan and NECB's 401(k) plan. Additionally, NECB paid life
and disability insurance premiums in the amounts of $2,689 and $6,818,
respectively, for the benefit of Mr. Lentini.
(2) During 1996, NECB contributed $4,167 pursuant to the 401(k) plan.
(3) Amounts shown in the table for 1995 include amounts paid by EQBK to Mr.
Falvo prior to the acquisition of EQBK by NECB.
(4) During 1996, NECB contributed $9,000 and $1,635, respectively, into NECB's
former pension plan and NECB's 401(k) plan. Additionally, NECB paid
disability insurance premiums in the amount of $3,914 for the benefit of
Mr. Fournier.
(5) During 1996, NECB contributed $5,279 and $1,308, respectively, into NECB's
former pension plan and NECB's 401(k) plan. Additionally, NECB paid
disability insurance premiums in the amount of $4,885 for the benefit of
Mr. Hall.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options made during the year ended December 31, 1996 to the Named Executive
Officers.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/ SARS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED (#)(1) FISCAL YEAR (2) ($/SH) DATE ($)(3)
- ---- ----------------- ------------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
David A. Lentini...................... 40,000 28.6% $10.25 1/31/2006 $127,200
Frank A. Falvo........................ 30,000 21.4% $10.25 1/31/2006 $95,400
Donat A. Fournier..................... 30,000 21.4% $10.25 1/31/2006 $95,400
Anson C. Hall......................... 30,000 21.4% $10.25 1/31/2006 $95,400
</TABLE>
- -------------------
(1) Under the 1996 Incentive and Nonqualified Compensatory Stock Option Plan
(the "1996 Plan"), the Committee may grant either Incentive Stock Options
or Non-Statutory Stock Options to key managerial employees to purchase
shares of NECB Common Stock. The option price is fixed by the
Compensation Committee (the "Committee") at the time of the grant and may
not be less than 100 percent of the fair market value of the stock, as
determined by the Committee, in good faith as of the grant date. Each
option may be first exercised in five equal annual installments
commencing from the date set forth in the Stock Option Agreement for such
options; provided, however, that no option be exercised beyond ten years
after the date of the grant.
(2) The percentages in the tables are based upon a total of 140,000 options
granted to NECB employees in 1996--all of which were granted under the
1996 Plan.
(3) The grant date present values shown in the table are determined using the
Black-Scholes option pricing model. The assumptions used in calculating
the Black-Scholes present value of approximately $3.18 per option for new
option grants were as follows: (a) a dividend yield of 2.1 percent; (b)
expected volatility of 25 percent; (c) a risk-free interest rate of 5.17
percent; and (d) expected lives of 8 years.
63
<PAGE>
The Black-Scholes option pricing model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option pricing models require the use of highly
subjective assumptions, including the expected stock price volatility. Because
NECB's employee options have characteristics significantly different from those
traded options, and because changes in subjective assumptions can materially
affect the fair value estimates, the Black-Scholes model does not necessarily
provide a reliable single measure of the fair value of NECB's employee options.
The amount realized from an employee option ultimately depends on the market of
the NECB Common Stock on the date of the exercise.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTIONS/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
SHARES ACQUIRED VALUE REALIZED AT FY-END (#) AT FY-END ($)(2)
----------------------------- ----------------------------
NAME ON EXERCISE (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David A. Lentini.................. 20,000 $140,000 23,000 32,000 $155,375 $164,000
Frank A. Falvo.................... 6,000 24,000 $ 30,750 $123,000
Donat A. Fournier................. 14,000 $ 98,000 16,000 24,000 $107,000 $123,000
Anson C. Hall..................... 11,000 24,000 $ 68,875 $123,000
</TABLE>
- --------------------
(1) Value realized is the difference between the fair market value of the
Common Stock on the date of exercise and the exercise price of the option
exercised.
(2) Value is the difference between the fair market value of the Common
Stock at year end and the exercise price of the option.
PENSION PLAN
During 1996, the Company converted its defined contribution plan into a
401(k) plan (the "Plan"). Employees over the age of 21 and with one year of
service are eligible to participate in the Plan. The Company matches employee
contributions to the Plan on the following basis: 100% of the first 3% of
employee contributions and 50% of the next 2%. Both employee and Company matches
immediately vest in the Plan. Additionally, funds which were previously not
vested in the defined contribution plan vested upon transfer into the Plan.
EMPLOYMENT AGREEMENTS
NECB entered into employment agreements with Messrs. Lentini, Fournier
and Hall in August, 1994 and with Mr. Falvo in August 1996.
Mr. Lentini's employment agreement provides for his employment as
President and Chief Executive Officer until July 30, 1996. Beginning August 1,
1995, and annually thereafter, the agreement automatically extends for one
additional year unless canceled by either party. The agreement will terminate
two years from the date of the last extension. Under the agreement, Mr. Lentini
receives an annual base salary which is fixed by the Board each year. The
employment agreement also provides that the Board of Directors of NECB may pay
an incentive bonus to Mr. Lentini at its option, and the amount of such bonus is
discretionary and will be determined by the Board of Directors.
Mr. Falvo's employment agreement provides for his employment by NECB as
Executive Vice President until July 30, 1998. Beginning August 1, 1998, and
annually thereafter, the agreement automatically extends for one additional year
unless canceled by either party. The agreement will terminate two years from the
date of the last extension. Under the agreement, Mr. Falvo's annual salary is
$165,000. The employment agreement also provides that the Board of Directors of
NECB may pay an incentive bonus to Mr. Falvo at its option, and the amount of
such bonus is discretionary and will be determined by the Board of Directors.
Mr. Fournier's employment agreement provides for his employment by NECB
as its Executive Vice President and Chief Loan Officer until July 30, 1996.
Beginning August 1, 1996, and annually thereafter, the agreement automatically
extends for one additional year unless canceled by either party. The agreement
will terminate two years from the date of the last extension. Under the
agreement, Mr. Fournier receives an annual base salary which is fixed by the
Board each year. The employment agreement also provides that the Board of
Directors of NECB may pay an incentive bonus to Mr. Fournier at its option, and
the amount of such bonus is discretionary and will be determined by the Board of
Directors.
64
<PAGE>
Mr. Hall's employment agreement provides for his employment by NECB as
its Vice President and Chief Financial Officer until July 30, 1996. Beginning
August 1, 1996, and annually thereafter, the agreement automatically extends for
one additional year unless canceled by either party. The agreement will
terminate two years from the date of the last extension. Under the agreement,
Mr. Hall receives an annual base salary which is fixed by the Board each year.
The employment agreement also provides that the Board of Directors of NECB may
pay an incentive bonus to Mr. Hall at its option, and the amount of such bonus
is discretionary and will be determined by the Board of Directors.
OTHER INFORMATION RELATING TO DIRECTORS
AND EXECUTIVE OFFICERS
Some of the Directors and Executive Officers of NECB, NEBT and EQBK and
companies or organizations with which they are associated, have had, and may
have in the future, banking transactions with NEBT and EQBK in the ordinary
course of NEBT's and EQBK's business. All such loans are currently performing in
accordance with their terms. Total loans to Directors and Executive Officers of
NECB, NEBT and EQBK and associates of such Executive Officers and Directors
outstanding during the past three years were as follows:
DECEMBER 31, TOTAL INDEBTEDNESS OUTSTANDING
- ------------ ----------------------------------
1996........................................ $4,704,000
1995........................................ $6,971,000
1994........................................ $3,337,000
Federal banking laws and regulations limit the aggregate amount of
indebtedness which banks may extend to bank insiders. Pursuant to such laws and
regulations, NEBT and EQBK may extend credit to executive officers, directors,
principal shareholders or any related interest of such persons, if the extension
of credit to such persons is in an amount that, when aggregated with the amount
of all outstanding extensions of credit to such individuals, does not exceed
NEBT's and EQBK's unimpaired capital and unimpaired surplus. As of December 31,
1996, 1995 and 1994 the aggregate amounts of extensions of credit to insiders
were well below this limit.
NEBT and EQBK have had, and are expected to have in the future, banking
transactions in the ordinary course of business with directors, executive
officers and their associates, on the same terms, including interest rates and
collateral on loans, as those prevailing at the same time for comparable
transactions with others and, on terms that do not involve more than the normal
risk of collectibility or present other unfavorable features.
During 1996, NECB retained Dominic J. Ferraina, Chairman of the Boards of
NECB and NEBT, to perform certain legal services.
Charles D. Gersten, a director of NECB and EQBK, is the lessor of the
property leased by EQBK at 1160 Silas Deane Highway, Wethersfield, Connecticut.
EQBK's lease, which commenced in 1989, provides that space in the building will
be leased for ten years with three five-year renewal options. Beginning in 1994,
until the end of the term of the lease, the rent is subject to an annual
increase equal to one-half of the prevailing cost of living rate adjustment.
Rent expense under this lease amounted to $224,576 during 1996. EQBK considers
the lease to have been written on terms comparable to the general market at the
time the lease was entered into and to have terms and conditions as would have
been negotiated with an outside party.
65
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF NECB
The following table includes certain information as of the NECB Record
Date regarding the shareholders known to NECB to own beneficially more than five
percent (5%) of the NECB Common Stock.
NAME AND
ADDRESS OF AMOUNT OF SHARES PERCENTAGE
BENEFICIAL OWNERS BENEFICIALLY OWNED OF CLASS
- ---------------- ----------------- ---------
Wellington Management Co.............. 344,300 9.4%
75 State Street, 19th Floor
Boston, MA 02119
Angelina J. McGillivray............... 231,979(1)(2) 6.3%
195 Ethan Drive
Windsor, CT 06095
Bay Pond Partners, L.P................ 230,900 6.3%
75 State Street
Boston, MA 02119
John Hancock Advisers, Inc............ 185,000 5.0%
101 Huntington Avenue
Boston, MA 02119
- --------------------
(1) Includes 85,167 shares owned by John A. Coccomo, Sr., a former Director
of NECB, for which Mrs. McGillivray holds power of attorney to vote
and which ownership has been disclaimed by Mrs. McGillivray.
(2) Includes 34,012 shares owned by John A. Coccomo, Sr. Foundation for the
Blind, Inc., a charitable trust of which Mrs. McGillivray is a trustee
and for which ownership has been disclaimed by Mrs. McGillivray.
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS OF NECB
The following table shows, as of the NECB Record Date, the number of
shares of NECB Common Stock and the percent of outstanding NECB Common Stock
beneficially owned by (i) each of the current Directors, (ii) each of the Named
Executive Officers and (iii) all Directors and Executive Officers as a group.
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME OWNERSHIP (1) OF CLASS (2)
- ----- ------------ ----------
Tadeus J. Buczkowski......................... 17,988 0.5%
John C. Carmon............................... 18,360(3) 0.5%
Gary J. DeNino............................... 25,587 0.7%
Frank A. Falvo............................... 19,034 0.7%
Dominic J. Ferraina.......................... 15,000 0.4%
Donat A. Fournier............................ 20,656(3) 0.6%
Charles D. Gersten........................... 100,525(3) 2.7%
Anson C. Hall................................ 12,486(3) 0.3%
John R. Harvey............................... 13,786(3) 0.4%
David A. Lentini............................. 33,600(3) 0.9%
Angelina J. McGillivray...................... 231,979(4)(5) 6.3%
Edward J. Szewcyzk........................... 12,358 0.3%
All Directors and Executive Officers
as Group (12 persons)...................... 487,347 13.1%
- -----------------
(1) Amounts shown include 6,000, 16,000, 11,000 and 23,000 shares, respectively,
that may be acquired by Messrs. Falvo, Fournier, Hall and Lentini.
(2) For purposes of this calculation, the number of shares of Common Stock used
includes shares outstanding as of the NECB Record Date of 3,667,166 plus any
shares subject to options granted to that individual and exercisable within
60 days of the NECB Record Date.
(3) Includes shares owned by, or as to which voting power is shared with,
spouse, children, or affiliates.
(4) Includes 85,167 shares owned by John A. Coccomo, Sr., a former Director of
NECB, for which Mrs. McGillivray holds power of attorney to vote and which
ownership has been disclaimed by Mrs. McGillivray.
(5) Includes 34,012 shares owned by John A. Coccomo, Sr. Foundation for the
Blind, Inc., a charitable trust of which Mrs. McGillivray is a trustee and
for which ownership has been disclaimed by Mrs. McGillivray.
66
<PAGE>
INFORMATION REGARDING FBWH
BUSINESS
FBWH was incorporated under the laws of the State of Connecticut on
August 19, 1987. It commenced operation as a Connecticut state-chartered bank on
January 11, 1988. FBWH offers standard commercial bank products and services.
FBWH is an insured bank under the Federal Deposit Insurance Act. Like most
state-chartered banks in Connecticut, FBWH is not a member of the Federal
Reserve System
FBWH conducts business from its office located at 1013 Farmington Avenue,
West Hartford, Connecticut, 06107; Telephone: (860) 561-4620. There are no
branches. FBWH has defined its primary market as the Town of West Hartford, and
its secondary market areas as the Towns of Avon, Bloomfield, Farmington,
Newington and the City of Hartford. FBWH is located in West Hartford Town
Center, traditionally the commercial center of West Hartford. Farmington Avenue,
where the office is located, is a major traffic corridor for both West Hartford
Town Center and for commuters heading to and from the City of Hartford.
West Hartford has a number of institutions which offer varied and
innovative financial products. West Hartford is served by 10 banking
institutions (banks and thrifts) with approximately 23 offices. The types of
institutions range from large regional banks to various institutions of smaller
size. No other bank is headquartered in West Hartford.
Competition may also be increased generally by virtue of recent changes
to State and Federal Banking laws. State law generally confers substantially
similar powers on banks and thrifts. State and federal law currently allow
out-of-state institutions to acquire Connecticut institutions. Federal law will
allow such institutions to merge with Connecticut institutions, and State law
may be amended in the near future to allow out-of-state institutions to branch
on their own into Connecticut. FBWH cannot predict the long-range effect of this
legislation on operations at this time.
Connecticut legislation also permits any savings bank or commercial bank
to establish a branch office in any Connecticut town.
A material portion of FBWH's deposits have not been obtained from a
single person. A material portion of FBWH's loans are not concentrated on one
industry or group of related industries.
FBWH conducts substantially the same business operations as are typical
for an independent Connecticut commercial bank.
It operates as a hometown, or community-type bank focusing on the banking
needs of and providing personal services to local customers. The range of
services offered includes business and personal checking accounts,
interest-bearing "NOW" accounts, saving accounts, certificates of deposit, money
market accounts, IRA accounts, an on-site automatic teller machine, safe deposit
box facilities, money orders, travelers' checks, the extension of long- and
short-term, secured and unsecured, business, student and personal loans,
mortgages on commercial and residential real estate, home equity lines of
credit, direct deposit of payroll and Social Security checks, Treasurer's
checks, food stamps, welfare check cashing, foreign transfers and remittances,
night deposit lock bags, wire transfers, investment transactions, Christmas
Club, credit cards and saving bonds. FBWH provides non-deposit products through
a third party contract arrangement and by making Small Business Administration
commercial loans. FBWH is an SBA Preferred Lender.
PROPERTIES
FBWH leases its main and only office at 1013 Farmington Avenue, West
Hartford, Connecticut. See "ITEM 2. ELECTION OF DIRECTORS OF FBWH -- Certain
Transactions."
LEGAL PROCEEDINGS
There are no material adverse legal proceedings, other than ordinary
routine litigation incidental to normal business, to which FBWH is a party or to
which its properties are subject.
In January of 1992, FBWH voluntarily entered into a Stipulation and
Consent for Issuance of a Cease and Desist Order (the "Order") with the FDIC.
67
<PAGE>
The Order required that FBWH take specific action to correct certain
deficiencies addressed by the FDIC as a result of its examination of FBWH as of
June 10, 1991. The Order addressed issues such as deterioration in asset
quality, deficiencies in credit administration and documentation, inadequate
allowance for loan losses, inadequate capital and management qualifications.
FBWH took corrective actions and the Order was unconditionally released in
August 1995. FBWH is not subject to any regulatory enforcement proceeding at
this time.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF FBWH
SUMMARY
FBWH commenced operations as a Connecticut chartered state bank and trust
company on January 11, 1988. FBWH conducts its operations from its offices at
1013 Farmington Avenue, West Hartford, Connecticut.
FBWH's principal business is to attract deposits from the general public
and to make loans of various types, including commercial, commercial real
estate, personal and residential permanent and home equity loans.
During 1994 FBWH was awarded Certified Lender Status under the Small
Business Administration ("SBA") Lending Program. FBWH also began offering non
deposit investment products such as mutual funds and annuities through a third
party business partner. Both of these events are consistent with FBWH's goal of
increasing non interest fee income. In February 1996, FBWH's Preferred Lender
Status under the SBA Lending Program was awarded.
FBWH reported net income of $1,225,676 or $.88 per share for the year
ended December 31, 1996, compared with net income of $1,710,443 or $1.60 per
share for the prior year, and a net income of $407,402 or $.50 per share, for
1994. Net income in 1995 included a net income tax benefit of $1,008,580.
For the quarter ended March 31, 1997, FBWH reported net income of
$309,179 or $0.19 per share. This compares to net income of $247,628 or $0.17
per share for the first quarter of 1996. Earnings for the quarter were
positively affected by an increased level of earning assets, a decreased level
of non-performing assets and a higher level of non-interest income due to the
origination and sale of SBA loans. These items were somewhat offset by increases
in FBW's income tax expense due to the full utilization of net operating loss
carryforwards.
For the quarter ended March 31, 1996, FBWH reported net income of
$247,628 or $0.17 per share. This compares to net income of $151,588 or $0.19
per share for the first quarter of 1995. Earnings for the quarter were largely
attributed an increase in premiums recognized from the sale of the guaranteed
portion of Small Business Administration loans to $129,708 as compared to
$84,492 in 1995. FBWH also lowered its provision for loan losses to $75,000 from
$220,000 at March 31, 1995 and realized a marginal $491 gain on securities sold
as compared to $31,992 in losses during the first quarter of 1995. FDIC
assessments were also decreased by $51,110. These were offset by a continued
decrease in mortgage origination income and higher net costs associated with
foreclosed property due to management's intention to accelerate the disposition
of the assets.
The allowance for loan losses represented 2.43% and 3.44% of total loans
at December 31, 1996 and 1995, respectively. The provision for loan losses was
$355,000 and $500,000 for 1996 and 1995, respectively. Net charge-offs in 1996
were $638,494 and in 1995 were $644,029 representing 1.4% and 1.5% of the
respective years' average loans outstanding.
Other real estate owned decreased to $207,000 at December 31, 1996 from
$1,818,218 at December 31, 1995. Total non accruing loans and other real estate
owned decreased by $1,971,949 to $889,815 at December 31,1996 from $2,861,764 at
December 31, 1995. As a result, the ratio of non accruing loans and other real
estate owned to total loans and other real estate owned decreased to 1.88% at
December 31, 1996 compared with 6.60% at December 31, 1995.
Shareholders' equity totaled $8,808,640 at December 31, 1996 compared
with $6,667,535 at the prior year end. The significant increase for 1996 was due
to improved earnings, and proceeds from the exercise of common stock warrants.
Included in the equity amounts at the end of 1996 were unrealized losses on
available-for-sale securities, net of tax, of $90,109.
Deposits at March 31, 1997 decreased to $67,611,110 compared to
$70,060,740 at March 31, 1996. Other funding was provided by an increase in
68
<PAGE>
borrowings from the Federal Home Loan Bank as well as an increase in equity
capital. Federal Home Loan Bank borrowings have been used to match fund longer
term fixed rate loans. Equity capital has increase by $2,156,125 from the level
at March 31, 1996.
INTEREST-EARNING ASSETS
Interest-earning assets averaged $72,944,000 in 1996, a 9.4% increase
from $66,673,000 in 1995 which was a 2.8% decrease from $68,578,000 in 1994.
During 1996, with its improved capital position FBWH began efforts to increase
its level of earning assets. The decrease in the level of interest-earning
assets during 1995 was a result of FBWH's decision to maintain or decrease
FBWH's asset levels until capital ratios were improved.
Average total loans were $44,808,000 in 1996 compared with $43,855,000 in
1995, a increase of 2%. In 1994 total loans averaged $52,959,000. Average total
loans were 61% of average interest earning assets in 1996. In 1995 and 1994,
average total loans were 66% and 77%, respectively, of average interest-earning
assets.
Investment securities principally consist of US Government and agency
mortgage backed securities. In 1996 investment securities averaged $25,229,000,
an increase of 43% from 1995 levels of $17,641,000, which in turn was an
increase of 38% from 1994 investment securities of $12,770,000. FBWH decided
early in 1994 to reallocate its balance sheet to include a higher percentage of
investment securities. This continued into 1996. This reduces the credit risk
inherent in FBWH's earning assets.
SOURCE OF FUNDS
In 1996, total average interest-bearing liabilities were $60,079,000 an
increase of 4.8% from 1995 average interest-bearing liabilities of $57,334,000,
which were 4.7% below 1994 average interest-bearing liabilities of $60,169,000.
Core deposits averaged $66,160,000 in 1996, a $2,754,000 or 4.3% increase
from 1995 core deposit levels of $63,406,000, which in turn were $4,161,000 less
than 1994 levels of $67,567,000. Core deposits consist of demand deposits, time
deposits, savings deposits, and money market deposit accounts. Not included in
core deposits are large denomination certificates of deposit.
Demand deposits were $10,125,000 on average in 1996, $10,149,000 in 1995
and $10,815,000 in 1994. NOW, savings and money market deposit average balances
increased during 1996 to $34,040,000, up $1,115,000 from 1995 average balances
of $32,925,000, which were $2,904,000 below 1994 average balances of
$35,829,000. Time deposit balances, including large denomination certificates of
deposit averaged $23,377,000 in 1996 compared with $24,130,000 in 1995, and
$24,085,000 in 1994.
Other borrowed funds averaged $2,662,000 during 1996 compared with
$279,000 during 1995, and $255,000 in 1994. During 1996 FBWH become a member of
the Federal Home Loan Bank. This has allowed FBWH to borrow funds of longer
duration to match fund fixed rate loans with longer maturities.
NET INTEREST INCOME
Net interest income is the difference between the interest earned on
assets and the interest paid on liabilities. Interest income and expense are
affected by changes in the volume and mix of average interest-earning assets and
interest-bearing liabilities, as well as changes in the level of interest rates.
Interest income on interest-earning assets was $6,221,357 in 1996
compared with $5,806,760 and $5,313,134 in 1995 and 1994, respectively. Interest
expense was $2,091,841 in 1996 compared with $1,975,912 in 1995 and $1,737,555
in 1994.
FBWH's net interest income was $4,129,516 in 1996 which represented an
increase of $298,668 or 7.8% over 1995. The increase was a result of a higher
level of interest bearing assets. In 1995, net interest income was $3,830,848,
an increase of $255,269 over $3,575,579 in 1994. This was due primarily to the
result of the increased interest rate spread.
During 1996 the yield on average interest-earning assets was 8.53%, a
decrease of 17 basis points from 8.70% during 1995. The 1996 decrease in the
yield on earning assets was due to decreases in the general level of interest
rates. Interest earned on prime-based commercial loans, home equity loans and
69
<PAGE>
federal funds sold contributed to this decrease. The yield on investments
increased as FBWH increased the size of the portfolio at higher yields. The rate
paid on average interest bearing liabilities during 1996 was 3.48%, an increase
of 3 basis points from 3.45% during 1995. Deposit rates did not change at the
same overall level of interest rates. This was due primarily to a lack of
competitive industry pressure stemming from weak loan demand in Connecticut.
Certificates of Deposit issued with higher rate increased at a greater level
than other core deposits. The resulting interest rate spread decreased to 5.05%
for 1996, down 20 basis points from 1995's spread of 5.25%.
During 1995, the yield on average interest-earning assets was 8.70%, an
increase of 95 basis points over 7.75% during 1994. The 1995 increase in the
yield on earning assets was due to increases in the general level of interest
rates. Interest earned on prime based commercial loans, home equity loans and
federal funds sold contributed to this increase. The yield on investments also
increased as FBWH increased the size of the portfolio at higher yields. The rate
paid on average interest bearing liabilities during 1995 was 3.45%, an increase
of 56 basis points from 2.89% during 1994. Deposit rates did not increase at the
same overall level of interest rates. This was due primarily to a lack of
competitive industry pressure stemming from weak loan demand in Connecticut.
Certificates of Deposit issued with lower rates increased at a greater level
than other core deposits. The resulting interest rate spread increased to 5.25%
for 1995, up 39 basis points over 1994's spread of 4.86%.
FBWH's net interest margin for 1996 was 5.66%, compared with 5.74% in
1995 and 5.21% in 1994. The margin decreased slightly during 1996 as FBWH
increased the level of investment securities as a percentage of earning assets.
Investment securities generally provide a lower rate of return than FBWH's loan
portfolio. As funds provided by non-interest sources did not change much during
1995 and 1994, the 1995 increase was due to the increased interest rate spread.
Net interest income for the three months ended March 31, 1997 was
$1,078,121 compared to $959,753 for the three months ended March 31, 1996. This
increase is attributed to a higher level of interest earning assets,
particularly in the loan portfolio. The significant drop in the level of
non-performing assets has allowed FBWH to redeploy those funds into both the
loan and investment portfolios.
The following table summarizes the components of FBWH's net interest
income, net interest spread and net interest margin.
<TABLE>
<CAPTION>
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
($000'S)
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
---------------------------- ---------------------------- -----------------------
AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
------- ------- ----- ------- ------- ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans ................... $44,808 $4,486 10.01% $43,855 $4,425 10.09% $52,959 $4,546 8.58%
Investment Securities ... 25,229 1,585 6.28% 17,641 1,077 6.10% 12,770 642 5.03%
Federal Funds Sold ...... 2,907 150 5.16% 5,267 305 5.79% 2,849 125 4.39%
------- ------ ------- ------ ------- ------
Total Earning Assets .... 72,944 6,221 8.53% 66,763 5,807 8.70% 68,578 5,313 7.75%
------ ------ ------
Cash and Due from Banks
and Other Assets ..... 5,169 6,327 6,546
------- ------- -------
Total Assets ............ $78,113 $73,090 $75,124
======= ======= =======
NOW, Savings and Money
Market Deposits ...... $34,040 $ 677 1.99% $32,925 $ 743 2.26% $35,829 $ 788 2.20%
Time Deposits ........... 23,377 1,248 5.34% 24,130 1,217 5.04% 24,085 938 3.89%
Borrowed Funds .......... 2,662 167 6.27% 279 16 5.73% 255 11 4.31%
------- ------ ------- ------ ------- ------
Total Interest-Bearing
Liabilities .......... 60,079 2,092 3.48% 57,334 1,976 3.45% 60,169 1,737 2.89%
------ ------ ------
Demand Deposits ......... 10,125 10,149 10,815
Other Liabilities ....... 391 1,002 300
Shareholders' Equity .... 7,518 4,605 3,840
------- ------- -------
Total Liabilities
and Equity ........... $78,113 $73,090 $75,124
======= ======= =======
Net Interest Income ..... $4,129 $3,831 $3,576
====== ====== ======
Net Interest Spread ..... 5.05% 5.25% 4.86%
Net Interest Margin ..... 5.66% 5.74% 5.21%
</TABLE>
70
<PAGE>
For the purposes of these computations, nonaccruing loans are included in
the daily average loan amounts outstanding. Also included in the daily average
loan amounts outstanding were real estate loans held for sale.
The following table sets forth changes in FBWH's interest income and
interest expense resulting from changes in rates and changes in volumes.
<TABLE>
<CAPTION>
RATE/VOLUME ANALYSIS ($000'S)
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1996 COMPARED TO 1995 1995 COMPARED TO 1994
INCREASE (DECREASE) INCREASE (DECREASE)
----------------------------------- ------------------------------------
RATE VOLUME NET RATE VOLUME NET
---- ------ ---- ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans ........................ $(35) $ 96 $ 61 $728 $(849) $(121)
Investment Securities ........ 32 476 508 156 279 435
Federal Funds Sold ........... (30) (125) (155) 49 131 180
---- ---- ---- ----- ----- -----
(33) 447 414 933 (439) 494
---- ---- ---- ----- ----- -----
Interest Expense:
NOW, Savings and
Money Market Deposits ...... (90) 24 (66) 20 (65) (45)
Time Deposits ................ 70 (39) 31 277 2 279
Borrowed Funds ............... 2 149 151 4 1 5
---- ---- ---- ---- ----- ----
(18) 134 116 301 (62) 239
---- ---- ---- ---- ----- ----
Changes in Net Interest Income . $(15) $313 $298 $632 $(377) $255
==== ==== ==== ==== ===== ====
</TABLE>
The change in interest due to both rate and volume has been allocated in
proportion to the relationship of the absolute dollar amounts of the change in
each. Interest income on real estate loans held for sale is included in interest
income on loans.
FBWH originates residential mortgage loans for sale into the secondary
market. During 1996 mortgages with a combined principal balance of $1,800,000
were originated and sold to investors on a non recourse servicing released
basis. FBWH also originates loans under the SBA 7(a) Lending Program. These
loans receive a guarantee from the federal government of up to 80% of their
principal balances. FBWH sells the guaranteed portion of these loans to
qualified investors, generally for a premium, and retains the servicing rights
for which it continues to receive servicing fees. During 1996 FBWH originated
$10,512,000 of loans with SBA guarantees. Guaranteed portions totaling
$8,185,000 were sold. The SBA program has undergone considerable scrutiny by
Congress. FBWH cannot predict whether and to what extent future changes may be
made to the SBA program or the affect of such potential changes on FBWH.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
FBWH regards the allowance for loan losses as a general reserve, which is
maintained at a level believed to be adequate by management to absorb potential
losses from all types of loans. Management's determination of the adequacy of
the allowance is based on the extent of existing risks in the loan portfolio and
prevailing economic conditions. The process includes utilizing a credit risk
grading process in addition to specific reviews of individual problem loans.
Management also considers trends in delinquencies, levels of non performing
assets and forecasted economic conditions. The allowance is increased by
provisions for loan losses charged against operations and recoveries of loans
previously charged-off and is decreased by loans considered to be uncollectible.
The provision for loan losses was $355,000, $500,000 and $906,000 in
1996, 1995, and 1994, respectively. The allowance for loan losses totaled
$1,145,915 at December 31, 1996 compared with $1,429,409 at December 31, 1995
and $1,573,438 at December 31, 1994.
At December 31, 1996, 1995 and 1994, the ratios of the allowance to total
loans outstanding were 2.43%, 3.44% and 3.35%, respectively. At year end 1996,
the allowance for loan losses represented 168% of non accruing loans compared to
137% at December 31, 1995 and 72% at December 31, 1994.
71
<PAGE>
The provision for possible loan losses for the three months ended March
31, 1997 was $30,000 compared to $75,000 for three months ended March 31, 1996.
At March 31, 1997, non-performing loans amounted to $716,245 equal to 0.87% of
total assets compared to $1,122,271 or 1.43% of total assets at March 31, 1996.
At December 31, 1996, non-performing loans amounted to $682,815. Other real
estate owned totaled $207,000 at March 31, 1997 and December 31, 1996. Other
real estate owned totaled $1,642,652 at March 31, 1995. The provision reflects
the FBWH's ongoing assessment of the risk inherent in its loan portfolio. In
view of the effects of the New England economy on a number of borrowers FBWH
considered it prudent to maintain a conservative posture with respect to its
provision for possible loan losses during the current and prior years. The
continued uncertainties in the Connecticut economy, particularly the commercial
real estate sector, may lead to future increases in the Bank's non-performing
asset amounts and the need to increase the allowance for loan losses.
The allowance for loan losses of $1,150,044 at March 31, 1997 represents
161% coverage of non-accruing loans and 125% coverage of total non-performing
assets. The reserve levels have been stable since December 31, 1996 while the
Bank showed a decrease in non-performing loans as compared to March 31, 1996.
The Bank also charged off $32,000 of loans but recovered $6,000 as of March 31,
1997. The Bank believes the current allowance amount is adequate, but will
continue to maintain a conservative loan reserve policy.
The following table sets forth an analysis of FBWH's loan loss experience
for the years ended December 31, 1996, 1995, and 1994.
1996 1995 1994
---------- ---------- ----------
BEGINNING BALANCE ........... $1,429,409 $1,573,438 $1,629,132
---------- ---------- ----------
CHARGE-OFFS:
Commercial ................ 121,467 527,818 360,322
Commercial Mortgage ....... 546,552 295,897 595,844
Installment ............... 103,378 44,157 75,232
---------- ---------- ----------
Total Charge-Offs ....... 771,397 867,872 1,031,398
---------- ---------- ----------
RECOVERIES:
Commercial ................ 121,524 213,894 50,584
Commercial Mortgage ....... 4,359 1,038 19,000
Installment ............... 7,020 8,911 120
---------- ---------- ----------
Total Recoveries ........ 132,903 223,843 69,704
---------- ---------- ----------
NET CHARGE-OFFS ............. 638,494 644,029 961,694
PROVISION CHARGED TO
OPERATIONS ................ 355,000 500,000 906,000
---------- ---------- ----------
BALANCE AT END OF YEAR ...... $1,145,915 $1,429,409 $1,573,438
========== ========== ==========
Ratio of net charge-offs
during the year to
average loans outstanding
during the year ............. 1.4% 1.5% 1.8%
NONACCRUING LOANS AND ACCRUING LOANS PAST DUE 90 DAYS OR MORE
In determining interest income recognition on nonperforming loans, FBWH
follows the policy that no interest shall be accrued unless principal and
interest are collectible. Loans that are delinquent as to principal or interest
for a period of 90 days or more are carefully reviewed with respect to
collectibility and collateral. If the collateral is sufficient, or if it is
evident that the loan will return to current status within a reasonably short
period of time, the loan may remain on accrual status. Otherwise, previously
accrued interest is reversed from income.
At December 31, 1996, nonaccruing loans were $682,815 as compared to
$1,043,546 at December 31, 1995. This decrease in nonaccruing loans is
attributable to collection activity and the charge-off of loans considered
uncollectible.
72
<PAGE>
Gross interest income would have been increased by $83,056 in 1996,
$132,620 in 1995 and $209,867 in 1994 had these nonaccruing loans remained
current. Gross interest income recorded on these loans totaled $45,345 in 1996,
$17,674 in 1995 and $63,261 in 1994.
There were no accruing loans past due 90 days or more at December 31,
1996, 1995, or 1994.
FBWH identifies certain credits ("Watch List") that include performing
loans which management believes exhibit a higher than normal degree of risk due
to a variety of factors, such as geographic and industry related weaknesses, a
downturn in operations in recent years, bankruptcy of a related company, or
other loans to the same borrower that are classified as nonperforming. This
Watch List included loans totaling $5,286,531 at December 31, 1996, a decrease
of $2,653,912 from $7,940,443 at December 31, 1995. Although FBWH has reduced
the level of these loans, there can be no assurance that the decline will
continue or that these loans will not be classified as non-performing at a
future date.
Troubled debt restructurings are loans as to which FBWH has granted
certain concessions in light of the borrower's financial difficulty. The
objective of FBWH in granting these concessions, through a modification of
terms, is to maximize the recovery of its investment. This modification of terms
may include a reduction in the stated rate, an extension of maturity at a more
favorable rate and a reduction of accrued interest. At December 31, 1996 FBWH
had no such loans.
INVESTMENT SECURITIES
The primary objectives of FBWH's investment policies are to provide a
stable source of interest income, to provide adequate liquidity necessary to
meet short and long-term changes in the mix of its assets, to provide a means to
achieve goals set forth in FBWH's interest rate risk policy and to provide a
balance of quality and diversification to its assets. The investment portfolio
is expected to provide funds when demand for acceptable loans increases and is
expected to absorb funds when loan demand decreases.
At December 31, 1996, FBWH's investment portfolio was $25,154,623, or
30.1% of total assets. Federal Funds sold were $5,450,000, or 6.5% of total
assets at December 31, 1996. Stock in the Federal Home Loan Bank totaled
$686,700 at December 31, 1996. FBWH implemented Statement of Financial
Accounting Standards No.115 (SFAS 115), "Accounting for Certain Investments in
Debt and Equity Securities," effective January 1, 1994. SFAS 115 provides for
the categorization of investments into three groups and further provides for the
accounting and reporting treatment of each group. Investments may be classified
as held-to-maturity, available-for-sale, or trading. FBWH does not currently
purchase or hold any investment securities for the purpose of trading.
FBWH's available-for-sale securities at December 31, 1996 include
$430,000 of structured notes. "Structured notes" is a term used to describe
generally a diverse group of investments, many of which are more complex than
fixed-rate instruments with a simple maturity or call structure. FBWH's
portfolio of structured notes is issued by the Federal Home Loan Bank and credit
risk is very low.
FBWH's investment strategy has included the purchase of structured notes
in the form of step-up notes and dual-index notes. FBWH believes that devoting a
portion of its investment portfolio to this type of investment is desirable in
an attempt to increase yields and to diversify the portfolio. Step-up notes
initially pay an above market yield for a short non-call period and, if not
called, "step-up" to a higher coupon rate. A multi-step note has a series of
fixed and successively higher coupons over its life. At each call date, if the
note is not called, the coupon rate increases. Dual-index notes have coupon
rates that are determined by the difference between two market indexes,
typically the Constant Maturity Treasury (CMT) and London Interbank Offered Rate
(LIBOR).
The risk of owning step-up notes is analogous to risks involved in owning
adjustable-rate mortgages. These risks are prepayment if market interest rates
decrease and continuation if current market interest rates increase above the
new adjusted rate. Risks involved in owning dual-index notes include inversion
of the yield curve that causes interest rates on the notes to decrease instead
of increasing as expected. Structured notes have uncertain cash flows which are
driven by interest rate movements. Credit risk is typically very low. The recent
precipitous rise in interest rates and adverse publicity have combined to affect
negatively the marketability of structured notes in general.
FBWH has traditionally purchased investments to obtain a positive spread
between FBWH's cost of funds and the yield on investments. Structured notes can
73
<PAGE>
serve this purpose as they generally offer interest rates at the time of
purchase that are higher than prevailing interest rates and also increase in
yield as time passes. FBWH believes that structured notes that have adjustable
coupons are an appropriate complement to its balance sheet and that the market
risk associated with the structured notes is not considered to be material to
FBWH's financial position, results of operations or liquidity.
The table below presents the contractual maturities of FBWH's investment
securities at December 31, 1996 and the weighted average yields of such
securities. The weighted average yields were calculated based on the carrying
value and effective yields to maturity of each security.
<TABLE>
<CAPTION>
CARRYING AMOUNT
--------------------------------------------------------------------------------------------
LESS THAN ONE YEAR ONE THROUGH FIVE YEARS AFTER FIVE YEARS TOTALS
--------------------- ---------------------- ------------------ ---------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
---------- ---------- ----------- ------ --------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE:
U.S. Treasury Notes .............. $1,004,375 5.51% $ 7,936,250 5.94% $-- -- $ 8,940,625 5.89%
U.S. Government Agencies ......... -- -- 7,490,034 6.42% 1,737,459 7.19% 9,227,493 6.56%
Mortgage Backed Securities ....... -- -- -- -- 1,010,928 6.54% 1,010,928 6.54%
---------- ----------- ---------- -----------
1,004,375 5.51% 15,426,284 6.17% 2,748,387 6.95% 19,179,046 6.25%
---------- ----------- ---------- -----------
SECURITIES HELD-TO-MATURITY:
U.S. Government Agencies ......... -- -- 3,394,916 6.38% -- -- 3,394,916 6.38%
Other Debt Securities ............ -- -- 50,000 7.85% 125,000 7.65% 175,000 7.71%
Mortgage Backed Securities ....... -- -- 1,230,313 4.87% 1,175,348 6.43% 2,405,661 5.63%
---------- ----------- ---------- -----------
-- -- 4,675,229 6.00% 1,300,348 6.55% 5,975,577 6.12%
---------- ----------- ---------- -----------
$1,004,375 5.51% $20,101,513 6.13% $4,048,735 6.82% $25,154,623 6.22%
========== =========== ========== ===========
</TABLE>
OTHER REAL ESTATE OWNED
Other real estate owned is composed of real property acquired through
foreclosure or in partial or total satisfaction of problem loans.
At December 31, 1996, FBWH had $207,000 in other real estate owned
compared to $1,818,218 at December 31, 1995. The net decrease in other real
estate owned is due to the disposal of a number of properties during the year.
Other real estate owned at the end of 1996 is composed of undeveloped
land.
Total non accruing loans and other real estate owned at December 31, 1996
were $889,815 or 1.88% of total loans and other real estate owned, compared to
$2,861,764 or 6.60% at December 31, 1995. As a percentage of total assets,
nonperforming assets were 1.10% and 3.70% at December 31, 1996 and 1995,
respectively.
As FBWH's portfolio of other real estate owned decreased from 1996
levels, costs associated with management and upkeep of the properties, as they
occur, will have less of an impact for non-interest expenses. In addition, FBWH
does expect that the legal fees and other related expenses associated with
managing non-performing assets will decrease as a result. However, any future
decreases in market value may still affect non-interest expense as FBWH moves to
sell its remaining portfolio.
OTHER INCOME
Total other income for 1996 was $1,038,168 which represents an increase
of $386,442 from $651,726 in 1995.
Net security losses in 1996 totaled $12,642. During 1995 FBWH had net
security gains of $5,361.
Mortgage origination fees for 1996 totaled $17,031 compared to the 1995
amount of $43,960 and 1994 of $133,140. Mortgage origination fees represent fees
earned by FBWH for originating residential mortgages that have been sold in the
secondary market. The rising rate environment combined with increasing
competitive pressure resulted in FBWH originating fewer mortgage loans and a
decrease in 1996 and 1995 origination fees.
Gains on the sale of the guaranteed portion of SBA loans totaled $673,858
for 1996 as compared to $261,283 for 1995 and $320,231 during 1994. During 1996
FBWH increased its staff in the SBA area. The decrease during 1995 was related
74
<PAGE>
to a delay in FBWH receiving confirmation of the full faith and credit guarantee
of the Federal Government on over $1,000,000 of SBA loans due to the shutdown of
Federal Government operations during December 1995. FBWH achieved Preferred
Lender status under the SBA program during 1996. This certification, which
permits FBWH to process loan requests through the SBA on an expedited basis and
FBWH's increased emphasis on this type of lending has allowed FBWH to
significantly increase its presence in the SBA market.
Other operating income totaled $359,921 in 1996 compared with $341,122 in
1995 and $318,411 in 1994. The 1996 growth was the result of increased servicing
income and packaging fees for SBA loans and increased deposit related fees.
Non-interest income for the three months ended March 31, 1997 was
$256,266 compared with $221,093 for three months ended March 31, 1996. This
increase was largely the result of FBWH realizing a higher premium from the sale
of the guaranteed portion of Small Business Administration loans of $162,455 as
compared to $129,708 in 1995. FBWH also realized a marginal gain on the sale of
securities of $2,235 in the first quarter of 1997 as compared to $491 in 1996
and recognized increases in its deposit fee income during 1996.
OTHER EXPENSE
Total other expenses for 1996 were $3,262,531 compared with $3,280,711 in
1995 and $3,199,665 in 1994.
Salaries and employee benefits for 1996 totaled $1,385,013, an increase
of 18.8% from $1,165,498 in 1995, which was a decrease of 2.6% from $1,197,144
in 1994. The 1996 increase was due to the addition of staff in FBWH's SBA
program, the establishment of a targeted incentive program and increases in
employee benefit costs.
Occupancy expense for 1996 was $551,854 compared with $497,113 for 1995
and $406,592 in 1994. The increase during 1996 resulted from decreased sublease
payments received by FBWH.
The assessment by the FDIC for insurance of qualified deposits was $2,000
for 1996, $196,108 for 1995 and $216,026 for 1994. This assessment is related to
the level of average deposits held by FBWH and the assessment factor as
determined by the FDIC. The decrease in the assessment for 1996 was due to a
significant reduction in the assessment rate imposed by the FDIC on banks, and
FBWH's improved capital position. The decrease in 1995 as compared to 1994 was
due to the lower average level of deposits. Assessment factors are a function of
FBWH's capital ratios and safety and soundness concerns.
Expenses related to systems and technology increased by $56,624 during
1996 to $301,648. During 1995 and 1994 these expenses were $245,024 and
$222,368, respectively. The increase in the expense for 1996 was related to
continued enhancements of systems for customer service and support, including
twenty-four hour interactive voice response. This expense category includes data
processing, telephones and ATM related charges.
Furniture and equipment expense totaled $171,690 in 1996, $174,587 in
1995 and $179,669 in 1994.
Net expenses related to foreclosed properties decreased by $137,949 to
$141,678 in 1996. A summary of income and expenses for foreclosed property
during 1996, 1995 and 1994 is as follows:
1996 1995 1994
----- ---------- ---------
Rental Income ....................... $(160,316) $(194,739) $(189,127)
Operating Expenses .................. 65,219 142,612 162,439
Valuation Adjustments ............... 236,775 331,754 289,612
--------- --------- ---------
Foreclosed Property, Net Expense .... $ 141,678 $ 279,627 $ 262,924
========= ========= =========
Other expense in 1996 was $708,648 compared with $722,754 in 1995 and
$714,942 in 1994. Contributing to the decrease in other expense were decreased
costs incurred for professional fees related to loan work out situations and
compliance with regulatory requirements.
Non-interest expenses for the three months ended March 31, 1997 were
$803,436 compared with $837,943 for the three months ended March 31, 1996. The
decrease was caused primarily by lower net costs associated with carrying
foreclosed real estate.
75
<PAGE>
LIQUIDITY
On December 31, 1996, 33% of FBWH's assets were maintained in cash, bank
deposits, federal funds sold and available-for-sale securities. At December 31,
1995, 33% of FBWH's assets were also maintained in similar assets.
The following table reflects the maturity distribution of
Available-for-Sale investment securities at December 31, 1996.
AMORTIZED FAIR
COST VALUE
----------- -----------
Due within one year ....................... $ 1,004,705 $ 1,004,375
Due after one year through five years ..... 15,516,998 15,426,285
Due after five years through ten years .... 2,810,317 2,748,386
----------- -----------
$19,332,020 $19,179,046
=========== ===========
The loan portfolio is monitored for both maturity distribution and
interest rate sensitivity. The maturity distribution provides a primary source
for liquidity to FBWH. The following table shows both the maturity and interest
rate sensitivity of the commercial loan portfolio at December 31, 1996.
COMMERCIAL LOAN MATURITY AND SENSITIVITY ANALYSIS
COMMERCIAL
COMMERCIAL MORTGAGE TOTAL
--------- ---------- -----------
Due within one year ................... $3,408,767 $ 4,358,497 $ 7,767,264
Due after one year through five years . 2,513,924 12,783,824 15,297,748
Due after five years .................. 3,020,757 9,871,974 12,892,731
---------- ----------- -----------
$8,943,448 $27,014,295 $35,957,743
========== =========== ===========
Total due after one year:
Fixed rate .......................... $1,616,549 $13,262,646 $14,879,195
Variable rate ....................... 3,918,132 9,393,152 13,311,284
---------- ----------- -----------
$5,534,681 $22,655,798 $28,190,479
========== =========== ===========
During 1996 deposits, the major source of funds for FBWH, decreased
$136,008, or less than 1% to end the year at $70,106,370. Time certificates of
deposit over $100,000, which are generally more volatile than core deposits,
totaled $3,780,673 at December 31, 1996 as compared to $4,032,690 at December
31, 1995. The following table shows maturities of time certificates of deposit
over $100,000 at December 31, 1996.
Three months or less ................. $1,705,390
Four through six months .............. 633,661
Seven through twelve months .......... 324,476
Over one year ........................ 1,117,146
----------
$3,780,673
==========
At March 31, 1997, 32% of FBWH's assets were held in cash, bank deposits,
federal funds sold, and available for sale securities. This compares with a
ratio of 33% at December 31, 1996.
INTEREST RATE SENSITIVITY
FBWH's cumulative one year gap as a percentage of total earning assets at
December 31, 1996 was a negative 0.45%. A negative gap will generally result in
FBWH's funding sources repricing at a faster rate than its earning assets. In a
76
<PAGE>
period of rising interest rates this will generally result in a decrease in
FBWH's net interest income. In a period of declining rates a negative gap will
generally result in an increase of net interest income. The following table sets
forth certain information at December 31, 1996 regarding the rate sensitivity of
FBWH's earning assets and sources of funds.
<TABLE>
<CAPTION>
` DECEMBER 31, 1996 ($000'S)
-----------------------------------------------------------------------------
3 MONTHS 4 TO 6 7 MONTHS 1 TO 5 OVER 5
OR LESS MONTHS TO 1 YEAR YEARS YEARS TOTAL
-------- ------ --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Federal Funds Sold--
Interest Bearing Due from Banks ... $ 5,475 $ -- $ -- $ -- $ -- $ 5,475
Investment Securities ............... 4,594 1,125 2,705 15,901 1,516 25,841
Loans ............................... 28,195 530 1,955 8,738 7,791 47,209
Loans Held for Sale ................. 176 -- -- -- -- 176
------- ------- ------- ------- ------- -------
Total Earning Assets .................. $38,440 $ 1,655 $ 4,660 $24,639 $ 9,307 $78,701
======= ======= ======= ======= ======= =======
Source of Funds:
NOW, Savings and
Money Market Deposits ............. $28,142 $ -- $ -- $ -- $ 8,914 $37,056
Time Deposits ....................... 5,636 4,799 5,179 6,462 -- 22,076
Borrowed Funds ...................... 294 19 1,038 2,364 511 4,226
Other ............................... -- -- -- -- 15,343 15,343
------- -------- ------- ------- -------- -------
Total Sources ......................... $34,072 $ 4,818 $ 6,217 $ 8,826 $ 24,768 $78,701
======= ======== ======= ======= ======== =======
Net Gap ............................... $ 4,368 $(3,163) $(1,557) $15,813 $(15,461)
Cumulative Gap ........................ 4,368 1,205 (352) 15,461 --
Cumulative Gap as a % of
Total Earning Assets ............... +5.55% +1.53% -.45% +19.65% 0%
</TABLE>
FBWH continually monitors its exposure to possible interest rate changes.
FBWH strives to fund its assets with liabilities that possess substantially
matching rate sensitivity characteristics which tends to minimize the impact of
future changes in interest rates. The effect of fluctuations in interest rates
is not expected to have a significant effect on FBWH operations.
One tool that FBWH uses to measure its exposure to possible interest rate
changes is simulation analysis. Results produced by simulation analysis may
differ from that expected by static gap interest rate sensitivity information.
This is because simulation analysis takes into account interest rate caps and
floors that static gap results may not measure.
FBWH is sensitive to changes in interest rates for the periods under
three months and under one year. A parallel increase in interest rates of 2.00%
would increase net interest income approximately $34,000 during the ensuing
three months, a 2.00% decrease would decrease net interest income by $38,000.
Between four and twelve months the same 2.00% increase would increase net
interest income by approximately an additional $216,000 while a decrease of
2.00% would decrease net interest income by an additional $229,000.
IMPACT OF INFLATION AND CHANGING PRICES
The Financial Statements and related notes presented elsewhere have been
prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative power of money
over time due to inflation. Unlike many industrial companies, most of the assets
and virtually all of the liabilities of FBWH are monetary in nature. As a
result, interest rates have a more significant impact on FBWH's performance than
the general level of inflation. Over short periods of time, interest rates may
not necessarily move in the same direction or in the same magnitude as
inflation.
77
<PAGE>
CAPITAL RESOURCES
The Federal Deposit Insurance Corporation ("FDIC") considers a bank's
capital adequacy to be a principal factor in evaluating a bank's condition. The
FDIC has statutory authority to restrict a bank's operations based upon its
level of capital and to take other actions, including revocation of deposit
insurance and/or closing the bank, if satisfactory capital levels are not
maintained. The FDIC has promulgated regulations and adopted a statement of
policy regarding the capital adequacy of state-chartered, non-member banks, such
as FBWH.
The FDIC capital regulations establish a minimum of 3.0% Tier 1 leverage
capital requirement for the most highly rated state-chartered, non-member banks.
Additional capital of at least 100 to 200 basis points in this ratio is required
for all other state-chartered, non-member banks, which effectively increases the
minimum Tier 1 leverage capital ratio for such other banks to 4.0% to 5.0% or
more. Under the FDIC's regulation, the highest-rated banks are those that the
FDIC determines are not anticipating or experiencing significant growth and have
well diversified risks, excellent asset quality, high liquidity, good earnings
and, in general, are considered strong banking organizations rated "composite 1"
under the Uniform Financial Institution Rating System. FDIC guidelines also
require state non-member banks to maintain a ratio of total capital to
risk-weighted assets of 8.0% and a ratio of Tier 1 capital to total
risk-weighted assets of 4.0%. Capital requirements higher than the generally
applicable minimum requirements may be established for a particular bank if the
FDIC determines that the bank's capital is or may become inadequate in view of
its particular circumstances. Individual minimum capital requirements may be
appropriate where a bank is receiving special supervisory attention, has a high
degree of exposure to interest rate risk or poses other safety or soundness
concerns. At December 31, 1996, FBWH's Tier 1 leverage capital ratio was 10.53%,
and its total risk-based capital ratio was 17.93%.
During the second quarter of 1995, FBWH completed a secondary offering of
common stock offering. FBWH sold 412,987 shares at a price of $3.00 per share.
Proceeds to FBWH, after all offering costs amounted to $1,100,000. The stock was
offered to a group of accredited investors, including FBWH's three senior
officers, and then through a shareholder rights offering. The capital raised
from this offering allowed FBWH to exceed minimum regulatory capital ratios and
was used for working capital purposes.
During 1993, FBWH sold 371,501 warrants at a price of $1.00 to the
general public. Each warrant allowed the holder to purchase one share of common
stock for the price of $4.00. The warrants expired on October 1, 1996. Proceeds
from this sale, net of issuance costs of $50,000, were $321,501 which have been
included in surplus. As of October 1, 1996, 311,097 warrants were exercised
netting FBWH $1,244,386 in new capital.
REGULATORY MATTERS
During August of 1995, following a concurrent examination of FBWH by the
FDIC and State Banking Commissioner, FBWH was unconditionally released from a
Cease and Desist Order to which FBWH voluntarily consented in 1992 (the
"Order"). The Order required that FBWH take specific action to correct certain
deficiencies addressed by the FDIC as a result of its examination of FBWH as of
June 10, 1991.
ITEM 2. ELECTION OF DIRECTORS OF FBWH
FBWH's Articles of Incorporation provide that FBWH shall have not less
than five (5) and not more than twenty-five (25) directors. The Board has fixed
the number of directors to serve after the Meeting at fourteen (14). FBWH's
Articles of Incorporation provide for a Board which has approximately one-third
of its number elected each year for a three-year term. Accordingly, the Board of
Directors has nominated the following four (4) individuals to serve as Directors
for a three-year term until the annual meeting expected to take place in April,
2000 and until their successors are elected and have qualified: Dennis T.
Cardello, Lewis Cohen, Samuel K. Lavery, and Howard J. Siegal. In addition, the
Board has nominated Thomas P. Bilbao for election as a director for a term
expiring in 1998. Mr. Bilbao was appointed to the Board in January 1997 at the
request of Kurt B. Hersher pursuant to his agreement with FBWH enabling him to
have up to three representatives on the Board through 1997.
78
<PAGE>
<TABLE>
<CAPTION>
NOMINEES FOR ELECTION AT THIS MEETING FOR A THREE-YEAR TERM
SHARES OF
FBWH PERCENT OF
HAS COMMON FBWH
PRINCIPAL OCCUPATION DURING SERVED TERM WILL STOCK COMMON
THE PAST FIVE YEARS AS A EXPIRE AT BENEFICIALLY STOCK
DIRECTORSHIPS AND POSITIONS DIRECTOR THE ANNUAL OWED AS OF BENEFICIALLY
NAME HELD WITH FBWH AGE SINCE MEETING IN FEB.1, 1997 OWNED(1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dennis T. Cardello President and Chief Executive 48 1993 2000 49,250(2) 3.2%
Officer, First Bank of West
Hartford; and Member of
Marketing and Board Loan and
Investment Committees.
Lewis Cohen Certified Public Accountant 52 1995 2000 6,000 0.4%
and partner in the firm of
Capossela, Cohen, Engelson and
Coleman, P.C.; Board Loan and
Investment Committee.
Samuel K. Lavery President and Owner, S.K. 65 1988 2000 20,000(3) 1.3%
Lavery Appliance Company,
Audit, Marketing (Chairperson),
Board Loan and Investment,
and Personnel Committees.
Howard J. Siegal Vice President EDART Truck 41 1988 2000 33,743(4) 2.2%
Rental Corp., Board Loan and
Investment Committee.
Thomas P. Bilbao Retired since January 1997, 59 1997 1998 -0- -0-
Executive Vice President of
Westport Bank & Trust Co. for
more than five years prior, Audit
and Board Loan and Investment
Committees.
</TABLE>
(1) Figures have been rounded to the nearest 0.1% and are based upon shares
issued and outstanding plus the number of warrants and stock options deemed
to be beneficially owned by each individual.
(2) Includes options to purchase 15,900 shares.
(3) Includes 1,000 shares held by S.K. Lavery Pension Plan, 500 shares held by
spouse, and options to purchase 10,000 shares.
(4) Includes options to purchase 10,000 shares.
79
<PAGE>
<TABLE>
<CAPTION>
DIRECTORS CONTINUING IN OFFICE
SHARES OF
FBWH PERCENT OF
HAS COMMON FBWH
PRINCIPAL OCCUPATION DURING SERVED TERM WILL STOCK COMMON
THE PAST FIVE YEARS AS A EXPIRE AT BENEFICIALLY STOCK
DIRECTORSHIPS AND POSITIONS DIRECTOR THE ANNUAL OWED AS OF BENEFICIALLY
NAME HELD WITH FBWH AGE SINCE MEETING IN FEB. 7, 1997 OWNED (1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
George C. Flynn, D.D.S. Dentist in private practice; 62 1995 1998 33,334(2) 2.2%
Audit Committee.
Richard Rubenstein President, Plymouth Spring 49 1988 1998 25,800(3) 1.7%
Company (spring manufacturer);
President and Director, Certified
Record Storage Corporation (providers of
warehouse management services);
Chairman of the Board of Directors,
Board Loan and Investment and Marketing
Committees.
Joan L. Rusconi Vice President, The Rusconi 55 1988 1998 32,300(4) 2.1%
Company (a Hartford investment
banking company); Director of
The Rusconi Company, and
President and Director of The
Shetland Company; Audit
(Chairperson), Marketing and
Board Loan and Investment
Committees.
George A. Scott Co-owner, President and 69 1988 1998 24,700(5) 1.6%
Treasurer of Hartford West
Indian Bakery, Inc. and
Boonoonoonoos, Inc.;
Audit, Marketing and
Personnel (Chairperson)
Committees.
Edward N. Zieky Vice President, General 45 1988 1998 33,440(6) 2.2%
Building Supply, a division
of The Strober Organization,
Inc. (building supplies),
Marketing and Personnel
Committee
Gerard P. Barrieau, Jr. President, Barrieau Moving & 38 1995 1999 3,020(7) 0.2%
Storage; Board Loan and
Investment Committees.
Bruce A. Fischman Principal, The Cornerstone 48 1988 1999 58,900(8) 3.8%
Companies (a real estate
development and investment
company). Board Loan and
Investment Committee.
Robert F. Rossini President and owner, Quaker 54 1988 1999 22,084(9) 1.4%
Lane Shell Corp. (owner and
operator of several service
stations in the greater Hartford
area); alternate member of West
Hartford Town Planning and
Zoning Commission; Audit,
Board Loan and Investment
(Chairperson) and Personnel Committees.
80
<PAGE>
Michael P. Solimene President and Director, 49 1988 1999 89,100(10) 5.7%
Semac Electrical Co., Inc.
(an electrical contracting
concern); Board Loan and
Investment Committees.
</TABLE>
(1) Figures have been rounded to the nearest 0.1% and are based upon 1,226,522
shares issued and outstanding plus the number of warrants and stock options
deemed to be beneficially owned by each individual.
(2) Includes 33,334 shares held in trust by WEBAT & Co.
(3) Includes 2,850 shares held by spouse, 3,100 shares held by controlled
corporations, 7,000 shares held in Prospect Trust, and option to purchase
10,000 shares.
(4) Includes 13,300 shares held in trust and option to purchase 10,000 shares.
(5) Includes option to purchase 10,000 shares.
(6) Includes 3,340 shares held by minor children and option to purchase 10,000
shares.
(7) Includes 1,700 shares for minor children.
(8) Includes 10,000 shares held by Cornerstone Companies, 7,100 shares held
for his minor children, 15,700 shares held by his spouse, and option to
purchase 10,000 shares.
(9) Includes 1,750 shares held by his spouse and option to purchase 10,000
shares.
(10) Includes 500 shares held by Semac Profit Sharing Plan of which Mr. Solimene
is a trustee and option to purchase 10,000 shares.
There are no other family relationships between or among the directors,
nor have there been any legal proceedings involving such persons, which would be
required to be disclosed here. No director holds a directorship in any company
with a class of securities registered under Section 12 of the Securities
Exchange Act of 1934. Mr. Cohen and Mr. Flynn were appointed to the Board in
1995, and Mr. Bilbao in 1997 as designees of Kurt B. Hersher in connection with
Mr. Hersher's agreement to serve as a standby investor and to purchase 200,000
shares of FBWH Common Stock in FBWH's 1995 recapitalization offering. Pursuant
to that agreement, Mr. Hersher has the right to designate up to three directors
to FBWH's Board until 1997.
BOARD AND COMMITTEE STRUCTURE
During 1996, the full Board of Directors held a total of fifteen
meetings. All of the directors attended at least 75% of the meetings of the full
Board and of the committees of the Board on which each director served, except
Mr. Siegal. The Board of Directors has established the following committees, the
members of which are appointed by the Board of Directors.
THE AUDIT COMMITTEE, comprised of Ms. Rusconi (Chairperson) and Messrs.
Bilbao, Flynn, Lavery, Rossini, and Scott, is responsible for reviewing the
adequacy of internal accounting procedures and controls, for reviewing the
results of regulatory examinations and external audits, and for the
implementation of appropriate recommendations of FBWH's independent accountants.
The Audit Committee also recommends the appointment of the FBWH's independent
accountants subject to shareholder ratification. There were four Audit Committee
meetings in 1996.
THE BOARD LOAN AND INVESTMENT COMMITTEE, which includes Messrs. Rossini
(Chairperson), Bilbao, Barrieau, Cardello, Cohen, Fischman, Lavery, Rubenstein,
Siegal, Solimene, and Ms. Rusconi, reviews and adopts loan policy, reviews
delinquent loans, reviews all new loans for compliance with FBWH policy and
government regulations and reviews investments and investment policy. The Loan
and Investment Committee met nineteen times in 1996.
THE MARKETING COMMITTEE, which includes Messrs. Lavery (Chairperson) and
Cardello, Rubenstein, Scott, Zieky and Ms. Rusconi, is responsible for
establishing FBWH's marketing policies. The Marketing Committee did not meet in
1996.
THE PERSONNEL AND NOMINATING COMMITTEE includes Messrs. Scott
(Chairperson), Lavery, Rossini, Rubenstein, and Zieky. The Committee oversees
certain personnel matters for FBWH, and acts as a nominating committee for
nominations to the Board of Directors. This Committee met four times in 1996.
The Committee will consider nominees for director recommended by shareholders of
FBWH provided that such nominations are in writing and are received by the
Secretary at the principal office of the Bank between 20 and 130 days prior to a
shareholder's meeting. The notice must provide the name, age, business address,
residence address, and principal occupation of the nominee; the class and number
of shares the nominee beneficially owns; and other information as may be
required by law. The notice must also provide the name and address of the
shareholder making the nomination, the class and number of shares beneficially
81
<PAGE>
owned by the shareholder, and certain representations of the shareholder
concerning his or her intention to make the nomination and any understandings
between the nominee and the shareholder.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF FBWH
The following table shows, as of the most recent practicable date
(January 31, 1997), those persons known to FBWH who own beneficially more than
five percent of FBWH Common Stock.
NAME AND ADDRESS OF AMOUNT, NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ------------------- -------------------- --------
Kurt B. Hersher 216,667(1) 13.9%
Easton, Connecticut
Michael P. Solimene (Director) 89,100(2) 5.7%
West Hartford, Connecticut
- ----------------------------
(1) Includes 16,667 shares held by his spouse.
(2) Includes 500 shares held by Semac Profit Sharing Plan and 10,000 option
shares.
As of January 31, 1997, all directors and principal officers of FBWH as a
group (16 in total) have advised FBWH that they are deemed to beneficially own
an aggregate of 462,955 shares of FBWH Common Stock (including options to
purchase 120,400 shares of stock) representing approximately 34.4% of the total
number of such shares issued and outstanding. Of that aggregate, non-employee
directors are deemed to beneficially own 382,421 shares (including options to
purchase 90,000 shares of stock), and principal officers are deemed to
beneficially own 80,534 shares (including options to purchase 30,400 shares).
All shares listed (except for the options) are common stock and are entitled to
one vote. "Beneficial ownership" is defined pursuant to regulations of the
Federal Deposit Insurance Corporation as shares over which a person has direct
or indirect sole or shared voting or investment (purchase and sale) power, and
options and warrants which are exercisable within 60 days. The foregoing figures
do not include the 200,000 shares owned by Kurt B. Hersher, who has designated
Messrs. Bilbao, Cohen and Flynn as directors pursuant to his agreement with
FBWH.
82
<PAGE>
MANAGEMENT COMPENSATION AND TRANSACTIONS
DIRECTOR COMPENSATION
Each outside director of FBWH receives $300 for each Board meeting he or
she attends and $250 for each Committee meeting attended.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation of
the Chief Executive Officer and the two other most highly compensated executive
officers of FBWH (the "Named Executive"), for each of FBWH's last three
completed fiscal years. During such period, FBWH had no other principal officer
whose total annual salary and bonus for any fiscal year therein exceeded
$100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------- -------------
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#)
- ------------------------- ------- ---------- -------- -------------
<S> <C> <C> <C> <C>
Dennis T. Cardello .......................... 1996 $130,000 $19,019 0
President and Chief Executive Officer ....... 1995 119,625 0 8,000
1994 111,906 0 10,000
Brian J. Hull ............................... 1996 91,520 10,369 0
Senior Vice President and Treasurer ......... 1995 84,000 0 4,000
1994 80,000 0 5,000
Horace C. Burton ............................ 1996 91,520 14,704 0
Senior Vice President and Secretary ......... 1995 84,000 5,613 4,000
1994 80,000 3,345 5,000
</TABLE>
EMPLOYMENT AGREEMENTS
Mr. Cardello and FBWH entered into an Employment Agreement in 1997
pursuant to which Mr. Cardello serves as FBWH's President and Chief Executive
Officer. This agreement generally has a three-year term expiring in February,
2000. The agreement provides for an annual salary of $140,000 and right to
participate in all group insurance and employee benefit plans maintained by FBWH
for the benefit of its full time employees generally. The agreement also
provides for a severance payable if FBWH terminates him "without cause" equal to
the amount of salary that would have been paid to him for the remainder of the
period of employment had the agreement remained in effect. In the event of a
Change-of Control (defined below), Mr. Cardello's employment agreement would
terminate and his continued employment by FBWH would be subject to his Change-of
Control Agreement as described below.
FBWH also has entered into Change-of-Control Agreements with Mr. Cardello
and Messrs. Brian J. Hull and Horace C. Burton. Each Agreement provides for
severance payments to be paid to the executive within 30 days of termination of
employment in an amount based on his annual salary if certain events transpire.
Those events must include both a Change-of-Control and a termination of the
executive's employment other than for "good cause" as defined in the Agreement
or the executive's self-termination with "good reason", also as defined in the
Agreement. A Change-of-Control is defined as beneficial ownership of 50% or more
of the voting power of outstanding securities of FBWH, or a merger or
consolidation or sale of substantially all of FBWH's assets, unless the survivor
entity is 50% or more owned by FBWH's shareholders.
83
<PAGE>
1994 OFFICERS AND EMPLOYEES STOCK OPTION PLAN
The 1994 Officers' and Employees' Stock Option Plan (the "Officers'
Plan") was adopted by the Board and approved by FBWH's shareholders at the 1994
Annual Meeting. The maximum number of shares of FBWH Common Stock reserved for
issuance pursuant to the Officers' Plan is 50,000 shares. The options granted
under the Officers' Plan may be either Incentive Stock Options pursuant to
Section 422A of the Internal Revenue Code or Non-Qualified Options at the
discretion of the Board of Directors.
The aggregate number of shares subject to options under the Officers'
Plan is 50,000 or 6.2% of the total number of such shares currently issued and
outstanding. The plan is to be administered by the "disinterested" members of
the Board of Directors (e.g., those directors who are ineligible to receive
options under the plan) and options may be granted by the Board to key officers
and employees (including employee directors) who, in the judgment of the Board,
are and/or will be in a position to contribute significantly to the future
growth and prosperity of FBWH. Options may be issued by the Board at any time
until February 22, 2004, with an option price per share no less than the "Fair
Market Value" on the grant date. The "Fair Market Value" of such stock on any
particular date shall mean the last reported sales price of such shares on the
NASDAQ National Market (or its successor) or the mean between the bid and asked
quotations reported by NASDAQ on that date. At present, FBWH's stock is not
quoted on NASDAQ. Therefore, until it is quoted, or if such prices or quotes are
unavailable or are unreliable, Fair Market Value shall be determined by the
Board based upon available evidence. Each such option shall not be exercisable
until one year after the grant date. All options are for shares of FBWH Common
Stock.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-----------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS/
UNDERLYING SARS GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE OR BASE EXPIRATION
NAME GRANTED (#) FISCAL YEAR PRICE ($/SH) DATE
---- ------------ --------------- -------------- ---------
<S> <C> <C> <C> <C>
Dennis T. Cardello -0- -0- -0- -0-
Brian J. Hull -0- -0- -0- -0-
Horace C. Burton -0- -0- -0- -0-
</TABLE>
The following table provides detailed information concerning stock
options exercised by Messrs. Cardello, Hull and Burton during the fiscal year
ended December 31, 1996. This table also provides information concerning the
number and value of specified exercisable ("vested") and unexercisable
("unvested") stock options at December 31, 1996. Finally, this table reports the
value of unexercised "in-the-money" stock options at December 31, 1996, which
represents the positive spread between the exercise price of any such existing
stock options and the fair market value of FBWH Common Stock on December 31,
1996 (the average of the mean between the bid and asked quotations as reported
by FBWH's market maker for the five business days preceding December 31, 1996
was $7.75).
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
VALUE OF
NUMBER OF UNEXCERCISED
SHARES UNDERLYING IN-THE-MONEY
UNEXCERCISED OPTIONS/SARS OPTIONS/SARS AT
SHARES ACQUIRED AT DECEMBER 31, 1996 DECEMBER 31, 1996
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- --------------- ------------ ------------------------- ---------------
<S> <C> <C> <C> <C>
Dennis T. Cardello 2,100 $ 9,975 15,900/-0- $71,525/-0-
Brian J. Hull 2,500 $11,875 6,500/-0- $28,875/-0-
Horace C. Burton 1,000 $ 4,750 8,000/-0- $36,000/-0-
</TABLE>
84
<PAGE>
1994 DIRECTOR STOCK OPTION PLAN
The 1994 Directors' Stock Option Plan (the "Directors' Plan") was adopted
by the Board and approved by shareholders at the 1994 Annual Meeting. The
aggregate number of shares subject to options under the Directors' Plan is
100,000 with each of FBWH's ten (10) non-employee directors granted options on
February 22, 1994 to purchase 10,000 shares. These options are currently
exercisable, and may be exercised until February 22, 1999. The option exercise
price per share of common stock is $3.00, the Fair Market Value on their date of
grant. All options are for shares of FBWH Common Stock. All directors, except
those directors who were full-time employees of FBWH, were eligible to and did
receive options. All options granted under the Directors' Plan are Non-Qualified
Options. No stock options previously granted had been exercised as of January
31, 1997.
CERTAIN BUSINESS RELATIONSHIPS
FBWH leases its offices at 1013 Farmington Avenue, West Hartford,
Connecticut from Samuel Lavery, a Director, and his brother, Robert Lavery. The
building was specially constructed to FBWH's specifications. The lease is for a
forty-year term, commencing February 1, 1990. The lease was re-negotiated in
1994. FBWH may terminate the lease after ten years and every five years after
that. The lease is for approximately 18,000 square feet of space. The lease is a
triple net lease and provides for FBWH to make initial base rental payments of
$342,000 annually for ten years. The rent will increase in year 11 (2001) unless
FBWH exercises its option to terminate the lease. FBWH believes that this
transaction was on terms at least as favorable to FBWH as those available from
other sources at the time of lease signing.
INDEBTEDNESS OF MANAGEMENT AND OTHERS
Several of the directors and officers of FBWH are or have been customers
of FBWH. Mr. Lavery (and his associates) had an aggregate amount of extensions
of credit in 1996 in excess of 10% of FBWH's equity capital accounts.
The largest aggregate extension of credit to Mr. Lavery and his
associates during 1996 was $2,225,702, or approximately 29% of FBWH's equity
capital accounts at year end. FBWH and NEBT entered into a participation
agreement in 1994 with respect to the largest of these loans on customary terms
and at arm's length. On December 31, 1996, $2,219,916 was outstanding
($1,252,002.93 of which is attributed to FBWH pursuant to the participation
agreement). The loans consisted of a $150,000 home equity line of credit secured
by a second mortgage on real property, and a $2,239,687.19 loan to Samuel and
Robert Lavery ($1,252,000 of which is attributed to FBWH pursuant to the
participation agreement) which is secured by a first mortgage on the building
owned by them and which houses FBWH's offices.
The aggregate amount of the extensions of credit committed to officers
and directors and their associates as a group in 1996 was $3,770,511 or
approximately 43% of FBWH's total equity accounts as of December 31, 1996. At
year end, $3,354,632 or approximately 38% of FBWH's total equity accounts was
outstanding. FBWH has and expects to continue to have banking transactions in
the ordinary course of its business with directors, officers, principal
stockholders and their associates. These transactions are and will continue to
be entered into on substantially the same terms, including interest rates and
collateral on loans, as those prevailing at the time for comparable transaction
with others and which do not involve more than the normal risk of collectability
or represent other unfavorable features.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
FDIC regulations, which require compliance with Section 16(a) of the
Securities Exchange Act, require FBWH's directors and executive officers, and
persons who own more than ten percent (10%) of FBWH Common Stock, to file with
the FDIC initial reports of ownership and reports of changes in ownership of
FBWH Common Stock. Officers, directors, and ten percent (10%) shareholders are
required by FDIC regulations to furnish FBWH with copies of all Section 16(a)
forms they file.
To FBWH's knowledge, based solely upon a review of the copies of such
reports furnished to FBWH and written representations that no other reports were
required, during the fiscal year ended December 31, 1996, all Section 16(a)
filing requirements applicable to its officers, directors, and ten percent (10%)
beneficial owners were complied with.
85
<PAGE>
THE AFFIRMATIVE VOTE OF A PLURALITY OF THE VOTES CAST BY THE SHARES WHICH
ARE ENTITLED TO VOTE ON THE MATTER, PRESENT AT THE MEETING IN PERSON OR BY
PROXY, IS REQUIRED FOR THE ELECTION OF EACH DIRECTOR.
ITEM 3. RATIFICATION OF APPOINTMENT OF INDEPENDENT
ACCOUNTANTS OF FBWH
The Board of Directors recommends ratification of the appointment of
Snyder & Haller as independent accountants for the year ending December 31, 1997
and, unless otherwise directed, the proxies will be voted in favor of such
ratification.
It is expected that a representative of Snyder & Haller will be present
at the FBWH Annual Meeting to respond to appropriate questions.
AUDITOR RATIFICATION WILL BE APPROVED IF THE VOTES CAST IN FAVOR OF
RATIFICATION OF AUDITORS EXCEED THE VOTES CAST AGAINST.
86
<PAGE>
DESCRIPTION OF NECB'S CAPITAL STOCK
NECB COMMON STOCK
NECB is authorized to issue 10,000,000 shares of NECB Common Stock, of
which 3,667,166 Shares were issued and outstanding as of March 31, 1997. Each
share of NECB Common Stock has the same relative rights and is identical in all
respects to each other share of the NECB Common Stock. Shares of NECB Common
Stock are not deposits and are not insured by the FDIC.
Holders of the NECB Common Stock are entitled to one vote per share on
each matter properly submitted to shareholders, including the election of
directors. Holders of the NECB Common Stock do not have the right to cumulate
votes for the election of directors, and they have no preemptive rights with
respect to any shares that may be issued. All shares of the NECB Common Stock
currently outstanding and when issued in accordance with this Prospectus are or
will be fully paid and nonassessable. Holders of the NECB Common Stock are
entitled to receive dividends when and as declared by the Board of Directors out
of funds legally available for distribution.
In the event of any liquidation or dissolution of NECB, the holders of
the NECB Common Stock would be entitled to receive, after payment or provision
for payment of all debts and liabilities of NECB, and after payment of the
liquidation preferences of all outstanding shares of preferred stock, all
remaining assets of NECB available for distribution, in cash or in kind.
The transfer agent and registrar for the NECB Common Stock is Chemical
Mellon Shareholder Services, 111 Founders Plaza, Suite 1110, East Hartford, CT
06108.
PREFERRED STOCK
Pursuant to NECB's Restated Certificate of Incorporation, the Board of
Directors may, without action of the shareholders of NECB, issue from time to
time shares of NECB's preferred stock in one or more series with distinctive
serial designations, preferences, limitations and other rights.
The Board of Directors is authorized to determine, among other things,
with respect to each series which may be issued: (i) the dividend rate,
conditions of payment of dividends, and dividend preferences, if any; (ii)
whether, and upon what terms, such series would be redeemable and, if so, the
redemption price and terms and conditions of redemption; (iii) the preference,
if any, to which such series would be entitled in the event of voluntary or
involuntary liquidation, dissolution or winding up the NECB; (iv) whether or not
a sinking fund would be provided for the redemption of such series and, if so,
the terms and conditions thereof; (v) whether, and upon what terms, such series
would be convertible into or exchangeable for shares of any other class of
capital stock or other series of preferred stock; and (vi) whether, and to what
extent, the holders of such series would enjoy voting rights, if any, in
addition to those prescribed by law.
NECB has no present plans for the issuance of any shares of preferred
stock. Accordingly, it is not possible to state the actual effect of the
issuance of the preferred stock upon the rights of holders of the NECB Common
Stock, until the Board of Directors determines the specific rights of the
holders of a series of the preferred stock. However, such effect might include:
(a) restrictions on dividends on the NECB Common Stock if dividends on preferred
stock have not been paid; (b) dilution of the voting power of the NECB Common
Stock to the extent that the preferred stock has voting rights; (c) dilution of
the equity interest of the NECB Common Stock to the extent that the preferred
stock is converted into NECB Common Stock; or (d) reduction in the extent to
which the Common Stock is entitled to share in NECB's assets upon liquidation
until satisfaction of any liquidation preference granted the holders of the
preferred stock is satisfied. Issuance of preferred stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could make it more difficult for a third party to acquire a
majority of the outstanding voting stock. Accordingly, the issuance of preferred
stock may be used as an "anti-takeover" device without further action on the
part of the shareholders of NECB.
ABSENCE OF CUMULATIVE VOTING
NECB's Restated Certificate of Incorporation does not provide for
cumulative voting in the election of Directors. Under the Delaware corporation
law, shareholders do not have cumulative voting rights unless such rights are
specifically provided for in the Restated Certificate of Incorporation.
87
<PAGE>
Without cumulative voting, holders of a majority of the voting shares
present at an annual meeting will be able to elect all of the Directors to be
elected at that meeting, and no persons holding shares or proxies representing
less than a majority of the shares present will be able to elect any Director,
as they might if cumulative voting were applicable. The absence of cumulative
voting is intended to prevent any entity or group which has accumulated a
significant minority block of shares from obtaining representation on the Board
of Directors of NECB, unless and until such entity or group is able to persuade
enough of the remaining stockholders of NECB to vote for its representatives so
that it controls a majority of the votes.
MARKET FOR NECB COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
As of December 31, 1996, there were 3,667,166 shares of NECB Common Stock
issued and outstanding which were held by approximately 3,000 stockholders of
record.
NECB's Common Stock is listed on the Nasdaq NM. The following represents
the high and low sale prices from each quarter during the last two years and per
share dividends declared during such period:
1996
- ----
HIGH LOW DIVIDENDS
------ ------- ---------
1st Quarter ............ $11 1/4 $ 9 3/4 $0.06
2nd Quarter ............ 13 10 1/2 0.07
3rd Quarter ............ 13 11 1/2 0.07
4th Quarter ............ 15 3/8 12 5/8 0.08
1995
- ----
HIGH LOW DIVIDENDS
------- ------- ----------
1st Quarter ............ $ 8 1/2 $ 7 1/2 $0.05
2nd Quarter ............ 8 1/2 7 3/4 0.05
3rd Quarter ............ 10 7 3/4 0.05
4th Quarter ............ 10 1/4 9 1/4 0.055
Dividends are generally declared within 45 days prior to the payable
date, to stockholders of record 10 to 15 days after the declaration date.
MARKET FOR THE FBWH COMMON STOCK
FBWH Common Stock is traded as FWEH over the counter. As of February 12,
1997 there were 606 shareholders of record. During the first nine months of 1996
and during 1995, FBWH Common Stock, like that of a number of community banks,
did not actively trade. Therefore, reliable high and low bid prices are not
available for those periods. During the fourth quarter of 1996, the high and low
bid prices for FBWH Common Stock were $8 and $5.50 respectively. The closing bid
price on December 31, 1996 was $7.75.
FBWH paid its first dividend on December 1, 1995 to shareholders of
record on November 14, 1995 in the amount of $.03 per share. During 1996, FBWH
paid total dividends of $.17 per share.
COMPARISON OF THE RIGHTS OF SHAREHOLDERS
NECB is a Delaware corporation subject to the provisions of the Delaware
Corporation Law and FBWH is a Connecticut-chartered commercial bank subject to
the provisions of the Banking Laws of Connecticut ("Connecticut Banking Law").
Upon consummation of the Reorganization, shareholders of FBWH will become
stockholders of NECB and their rights as stockholders of NECB will be governed
by the Restated Certificate of Incorporation (the "NECB Certificate") and Bylaws
of NECB (the "NECB Bylaws") and the Delaware General Corporation Law (the
"DGCL").
The following summary is not intended to be complete statement of the
differences affecting the rights of FBWH's shareholders, but rather summarizes
all material differences affecting the rights of such shareholders and certain
important similarities.
88
<PAGE>
AUTHORIZED CAPITAL STOCK
The NECB Certificate authorizes the issuance of up to 10,000,000 shares
of NECB Common Stock, of which 3,084,309 shares were outstanding as of the NECB
Record Date and up to 200,000 shares of NECB Preferred Stock, of which no shares
are issued and outstanding. The NECB Preferred Stock is issuable in series, each
series having such rights and preferences as NECB Board of Directors may fix and
determine by resolution.
The FBWH Articles of Incorporation (the "FBWH Articles") authorize the
issuance of up to 2,000,000 shares of FBWH Common Stock, of which 1,541,000 were
outstanding as of the FBWH Record Date and up to 200,000 shares of FBWH
Preferred Stock, of which no shares are issued and outstanding. The FBWH
Preferred Stock is issuable in series, each series having such rights and
preferences as FBWH's Board of Directors may fix and determine by resolution.
ISSUANCE OF CAPITAL STOCK
Under the DGCL, NECB may issue rights or options for the purchase of
shares of capital stock of NECB, provided that such rights or options may be
issued to directors, officers or employees of NECB or its subsidiaries and the
issuance or plan pursuant to which they are issued need not be approved by the
holders of NECB Common Stock. However, the Bylaws of the National Association of
Securities Dealers, Inc. generally require corporations, such as NECB, with
securities which are quoted on the Nasdaq NM to obtain stockholder approval for
most stock compensation plans for directors, officers and key employees of the
corporation. Stockholder approval of stock-related compensation plans may be
sought in certain instances in order to qualify such plans for favorable federal
income tax treatment under current laws and regulations. FBWH may also issue
rights or options for the purchase of capital stock of FBWH, provided that
issuance of rights or options to directors, officers or employees (or the
adoption of a plan therefor) requires the approval of shareholders. Neither the
stockholders of NECB nor the shareholders of FBWH have preemptive rights.
VOTING RIGHTS
Each share of FBWH Common Stock and NECB Common Stock is entitled to one
vote per share on all matters properly presented at meetings of shareholders of
FBWH and NECB, respectively. Neither the FBWH Articles and FBWH's Bylaws (the
"FBWH Bylaws") nor the NECB Certificate and NECB Bylaws permit shareholders to
cumulate their votes in an election of directors.
DIVIDENDS AND OTHER DISTRIBUTIONS
Under Connecticut Banking Law, subject to any restrictions contained in
its articles of incorporation, a bank such as FBWH may not declare a dividend on
its capital stock except from its net profits. "Net Profits" is defined as the
remainder of all earnings from current operations. The total of all dividends
declared by a bank in any calendar year may not, unless specifically approved by
the banking commissioner, exceed the total of its net profits of that year
combined with its retained net profits of the preceding two years.
Under the DGCL, NECB may, unless otherwise restricted by the NECB
Certificate, pay dividends in cash, property or shares of capital stock out of
surplus or, if no surplus exists, out of net profits for the fiscal year in
which declared or out of net profits for the preceding fiscal year (provided
that such payment will not reduce capital below the amount of capital
represented by classes of stock having a preference upon distribution of
assets).
Under the DGCL, a corporation may repurchase or redeem its shares only
out of surplus and only if such purchase does not impair capital. However, a
corporation may redeem preferred stock out of capital if such shares will be
retired upon redemption and the stated capital of the corporation is thereupon
reduced in accordance with Delaware law.
Under Connecticut Banking Law, FBWH may, subject to the approval of the
Banking Commissioner, acquire and dispose of its common stock, provided no such
acquisition reduces FBWH's capital below the minimum required for a Connecticut
capital stock bank.
Under Delaware law, stockholders are not liable for any improper
dividends, repurchase or issuance of options made by a corporation. Under
Connecticut law, a shareholder is, in certain circumstances, liable for
knowingly receiving an illegal distribution.
89
<PAGE>
For a description of the regulatory capital requirements which are
applicable to FBWH and NECB and regulatory limitations on the ability of NECB's
banking subsidiaries to pay dividends, see Management's Discussion and Analysis
of Financial Condition and Results of Operations of FBWH and NECB, respectively.
SIZE OF BOARD OF DIRECTORS
The NECB Certificate provides that the size of NECB's Board would be
initially between nine and twenty directors but may be increased or decreased by
Board or stockholder action. The NECB Bylaws provide that the Board may not
consist of less than three members.
The FBWH Articles provide that the size of FBWH's Board shall be between
five and twenty-five directors as determined from time to time by a two-thirds
vote of directors.
DIRECTOR VACANCIES AND REMOVAL OF DIRECTORS
Under the NECB Bylaws, vacancies on the Board may be filled by the
remaining Directors then in office, though less than a quorum, and Directors
chosen by the Board to fill vacancies or newly created directorships hold office
until the next election of directors.
A similar provision applies to FBWH's Board under the CBCA.
ANNUAL MEETINGS OF SHAREHOLDERS
Nominations of persons for election to NECB's Board of Directors may be
made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of NECB entitled to vote for the election of
Directors, who is present in person or by proxy at the meeting and who complies
with certain notice procedures set forth in the NECB Bylaws. Such nominations,
other than those made by or at the direction of the Board of Directors, must be
made pursuant to timely notice in writing to the Chairman of the Nominating
Committee, which may be sent in care of the Secretary of NECB.
A similar provision applies to shareholder nominations of persons for
election to FBWH's Board, except that notice must be given to FBWH's Secretary
20 to 130 days prior to the meeting with detailed information on the nominee and
nominator.
SHAREHOLDER ACTION WITHOUT A MEETING
The NECB Bylaws provide that any action to be taken or which may be taken
at any annual or special meeting of stockholders may be taken if a consent in
writing, setting forth the actions so taken, is given by the holders of all
outstanding shares entitled to vote.
FBWH has no comparable provision in the FBWH Bylaws.
AMENDMENT OF GOVERNING INSTRUMENTS
The NECB Bylaws may be amended by a majority vote of the full Board of
Directors of NECB or by a majority vote of the capital stock of NECB entitled to
vote thereon at any legal meeting.
A similar provision is contained in the FBWH Bylaws.
No amendment to the NECB Certificate generally may be made unless it is
first proposed by the Board of Directors of NECB and thereafter approved by the
holders of at least a majority of outstanding shares entitled to vote thereon,
with the exception of certain sections thereof which may only be amended by the
holders of at least 75% of the shares of NECB entitled to vote generally in the
election of directors. The section in the NECB Certificate requiring such higher
vote of stockholder relates to procedures for certain business combinations. See
"Procedures for Certain Business Combinations."
The FBWH Articles may be amended only by FBWH's shareholders in
accordance with the provisions of Connecticut Banking Law and the CBCA which
generally require an affirmative vote of a majority of the shares entitled to be
cast.
90
<PAGE>
REORGANIZATION, CONSOLIDATIONS AND SALE OF ASSETS
Connecticut Banking Law requires the approval of the majority of the
Board of Directors and the approval of an affirmative vote of the holders of at
least two-thirds of the issued and outstanding shares of each class of the
capital stock for mergers, consolidations and share exchanges in which a bank is
a participating bank and for sales of all or substantially all of its property
and assets.
The NECB Certificate provides that certain combinations between NECB and
a 5% or more shareholder or its affiliates (collectively "Related Person") may
not take place unless: (1) such combination is approved by the holders or not
less than 80% of the outstanding voting shares, voting separately as a class,
and (2) by the holders of the majority of the outstanding voting shares that are
not beneficially owned or controlled, directly or indirectly, by the Related
Person. If a business combination satisfies certain fair price provisions and
certain other requirements, then the business combination must be approved by
(i) the holders of not less than 67% of the outstanding voting shares, and (ii)
by the holders of a majority of the outstanding voting shares that are not
beneficially owned or controlled, directly or indirectly, by the Related Person.
Examples of certain other requirements which will allow a lesser vote are as
follows: the Related Person has not received the benefit of any loans, advances,
guarantees, pledges or other financial tax credits provided by NECB; the Related
Person has not made any change in NECB's business or capital structure; and
prior to the consummation of the business combination, the Related Person has
taken steps to ensure that the Board of Directors includes representation by
directors (who were elected by stockholders prior to the time the Related Person
acquired five percent or more of the stock of NECB) proportionate to the ratio
of voting shares of NECB owned by stockholders who are not Related Persons,
bears to all voting shares of NECB outstanding at the time in question.
The types of business combinations with a Related Person covered by this
provision include: mergers, consolidations, stock exchanges, a sale, lease,
exchange, mortgage, pledge or other transfer of assets other than in the regular
course of business. An amendment to this provision of the NECB Certificate
generally requires an 80% affirmative vote of the outstanding stock of NECB and
by the holders of a majority of the outstanding voting shares that are not
beneficially owned or controlled, directly or indirectly, by the Related Person.
NECB believes these increased votes and fair price provisions for
business combinations will help increase the likelihood that any such proposed
transaction will be on terms fair to all of the stockholders of NECB,
particularly if the transaction is proposed by a dominant stockholder who might
be able to obtain approval by a simply majority primarily on the basis of its
own share holdings, even if the transaction were not in the best interest of or
were opposed by a majority of the remaining stockholders. On the other hand, the
increased vote requirement may in effect grant a minority of the stockholders a
veto over a transaction favored by a majority of the stockholders, even if it
were also favored by all or a majority of the Board of Directors of NECB.
FBWH has a substantially similar provision in the FBWH Articles regarding
the above business combinations.
In the event that the fair price and procedure requirements were met or
the requisite approval of NECB Board were given with respect to a particular
business combination, the normal voting requirements of Delaware law would
apply. Under Delaware law the following corporate acts require the approval by a
majority of the outstanding stock of the corporation entitled to vote thereon:
(i) a merger or consolidation, (ii) an amendment to the NECB Certificate or the
NECB Bylaws, (iii) dissolution of NECB or (iv) the sale, lease or exchange of
all or substantially all of the property or assets of NECB. A sale of less than
substantially all of the assets of NECB, a merger of NECB with a company in
which it owns 90% or more of the outstanding capital stock or a reclassification
of NECB's securities not involving an amendment to NECB Certificate would not
require stockholder approval.
APPRAISAL RIGHTS
Connecticut law provides dissenters' rights for shareholders of banks
such as FBWH, who dissent in a reorganization or consolidation. See "THE
REORGANIZATION--Dissenters' Rights".
Delaware Corporation Law provides appraisal rights for shareholders who
dissent in a reorganization or consolidation, subject to certain circumstances.
Where the right of appraisal is available to a shareholder objecting to such a
transaction, appraisal is his or her exclusive remedy as a holder of such shares
against such transactions.
91
<PAGE>
DISSOLUTION
Under Connecticut Banking Law, voluntary dissolution of FBWH may be
effectuated by the adoption of a resolution by the Board of Directors which is
adopted by at least a two-thirds vote of the shareholders.
Under Delaware Corporation Law, voluntary dissolution of NECB requires
the adoption of a resolution by a majority of the Board of Directors and by the
affirmative vote of a majority of the holders of the voting power of the
outstanding shares entitled to vote thereon.
LIMITATION OF DIRECTOR LIABILITY
Under Connecticut Banking Law, banks are permitted to include in their
Articles provisions limiting the personal liability of their directors. FBWH's
Articles contain such a provision limiting the personal liability of its
directors, to the fullest extent permitted by law, to the institution or its
shareholders, for monetary damages for breach of duty as a director, to an
amount equal to the compensation received by the director for serving FBWH
during the year of the violation. Under Connecticut banking law, such limitation
cannot apply in certain situations.
NECB's Certificate contains a provision which provides that to the
fullest extent permitted by law, no director of NECB shall have any personal
liability to NECB or its stockholders for monetary damages for breach of their
fiduciary duty as a director, provided that the provision will not eliminate or
limit the liability of a director in certain circumstances. Specifically,
liability will not be eliminated or limited (i) for any breach of the director's
duty of loyalty to NECB or its stockholders; (ii) for acts or omissions not in
good faith or which involve intentional misconduct or knowing violations of law;
(iii) for any unlawful payment of dividends, unlawful stock purchase or unlawful
redemption; or (iv) for any transaction from which the director derived an
improper personal benefit.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware law and NECB's Bylaws and Restated Certificate of Incorporation
authorize NECB to indemnify officers, directors and certain individuals
associated with NECB. In general, Article V of NECB's Bylaws and Article VII of
NECB's Restated Certificate of Incorporation authorize NECB to indemnify any
person who was or is a party to any threatened, pending or completed action,
suit or proceeding, and any appeal therein, whether civil, criminal,
administrative, arbitrative or investigative (other than an action by or in the
right of NECB) by reason of the fact that he is or was a director, officer,
trustee, employee or agent of NECB, or is or was serving at the request of NECB
as a director, officer, trustee, employee or agent of another corporation,
association, partnership, venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines, penalties and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, and any appeal therein, if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of NECB, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of NECB, and, with respect to any criminal action
or proceeding, that he or she had reasonable cause to believe that his or her
conduct was unlawful.
The FBWH Bylaws provide for indemnification pursuant to the provisions of
Connecticut law, which provides for indemnification of FBWH's directors,
officers, employees and certain other individuals associated with FBWH under
certain circumstances. Connecticut law requires FBWH to indemnify a director who
was wholly successful on the merits or otherwise in the defense of any
proceeding to which he or she was made a party because he or she was a Director
of FBWH. Under Connecticut law, the FBWH may also indemnify its Directors,
officers, and employees who are made parties to a proceeding because such
Director is or was a Director in good faith in what he or she reasonably
believed were the best interests of FBWH, as appropriate or, in certain cases,
not opposed to its best interests. FBWH may indemnify against judgments, fines,
penalties, amounts paid in settlement and reasonable expenses.
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<PAGE>
LEGAL MATTERS
The legality of the NECB Common Stock to be issued in connection with the
Reorganization will be passed on by Messrs. Day, Berry & Howard, Hartford,
Connecticut.
EXPERTS
The financial statements of NECB, as of December 31, 1996, 1995 and 1994
and for the years then ended included in this Joint Proxy Statement-Prospectus,
have been so included in reliance on the report of Shatswell, MacLeod & Company,
P.C., independent accountants, given on the authority of said firm as experts in
auditing and accounting.
Shatswell, MacLeod & Company, P.C. has been appointed to serve as
auditors for NECB and NEBT for the year ending December 31, 1997.
The financial statements of FBWH, as of December 31, 1996, 1995 and 1994
and for the years then ended included in this Joint Proxy Statement-Prospectus,
have been so included in reliance on the report of Snyder & Haller, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
OTHER MATTERS
As of the date of this Joint Proxy Statement-Prospectus, the FBWH Board
does not know of any other matters which may come before the FBWH Annual
Meeting. If any matters other than those referred to in this Joint Proxy
Statement-Prospectus should come before the meeting, it is the intention of each
person named in the enclosed form of proxy to vote each proxy with respect to
such matters in accordance with his or her best judgement.
SHAREHOLDER PROPOSALS
If the Reorganization is consummated as anticipated, FBWH will cease to
exist as an independent entity and shareholders of FBWH will become shareholders
of NECB. Shareholders of NECB who desire to present a proposal for action at the
1998 Annual meeting of Shareholders of NECB, must present such proposal to NECB
on or before December 19, 1997 for inclusion in NECB's Proxy Statement and Form
of Proxy. In the event that the Reorganization is not consummated as currently
anticipated, and FBWH continues as an independent entity, shareholders who
desire to present a proposal for action at FBWH's 1998 Annual Meeting of
Shareholders must present such proposal on or before December 19, 1997 for
inclusion in FBWH's Proxy Statement and Form of Proxy.
93
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Pro Forma Financial Information.................................... F-1
Unaudited Pro Forma Condensed Combined Balance Sheet at
March 31, 1997 ................................................ F-2
Unaudited Pro Forma Condensed Combined Balance Sheet at
December 31, 1996 ............................................. F-3
Unaudited Pro Forma Condensed Combined Statement of Income for the
Three Months Ended March 31, 1997.............................. F-4
Unaudited Pro Forma Condensed Combined Statement of Income for the
Year Ended December 31, 1996..................................... F-5
Unaudited Pro Forma Condensed Combined Statement of Income for the
Year Ended December 31, 1995................................... F-6
Unaudited Pro Forma Condensed Combined Statement of Income for the
Year Ended December 31, 1994................................... F-7
Notes to Unaudited Pro Forma Condensed Combined Financial Statements F-8
NECB AND SUBSIDIARIES:
Consolidated Balance Sheets at March 31, 1997 and 1996 (Unaudited).. F-9
Consolidated Statements of Income for the Three Months Ended
March 31, 1997 and 1996 (Unaudited)............................. F-10
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1997 and 1996 (Unaudited)............................. F-11
Notes to Consolidated Condensed Financial Statements (Unaudited).... F-12
Report of Independent Certified Public Accountants for the Years
Ended December 31, 1996, 1995 and 1994......................... F-13
Consolidated Balance Sheets at December 31, 1996 and 1995........... F-14
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994................................ F-15
Consolidated Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 1996, 1995 and 1994.................... F-16
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996, 1995 and 1994.......................... F-17
Notes to Consolidated Financial Statements for the
Years Ended December 31, 1996, 1995 and 1994.................... F-18-F-34
FBWH:
Statements of Condition--March 31, 1997 (Unaudited) and
December 31, 1996............................................... F-35
Statements of Operations for Periods Ended March 31, 1997
and 1996 (Unaudited)............................................ F-36
Statements of Cash Flows for the Three Months Ended March 31, 1997
and 1996 (Unaudited)............................................ F-37
Report of Independent Accountants for the Years
Ended December 31, 1996, 1995 and 1994.......................... F-38
Statements of Condition -- December 31, 1996 and 1995............... F-39
Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994................................ F-40
Statements of Changes in Shareholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994.......................... F-41
Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994................................ F-42
Notes to Financial Statements....................................... F-43-F-53
94
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed combined balance sheets
combine the historical consolidated balance sheets of NECB and FBWH and give
effect to the Reorganization--which will be accounted for as a pooling of
interests--as if the Reorganization became effective on March 31, 1997 and
December 31, 1996. Under the pooling of interests method of accounting, NECB's
consolidated financial statements will be retroactively adjusted after the
Reorganization to combine the results of operations of NECB and FBWH for periods
prior to the Effective Time. The pro forma condensed combined statements of
income cover (i) the three months ended March 31, 1997, (ii) the year ended
December 31, 1996, (iii) the year ended December 31, 1995 and (iv) the year
ended December 31, 1994.
The unaudited pro forma information presented herein has been
prepared by NECB management based upon the historical financial statements and
related notes thereto of NECB and FBWH included herein. The unaudited pro forma
information should be read in conjunction with such historical financial
statements and notes. The pro forma condensed combined statements of income are
not necessarily indicative of the results of operations which would have been
achieved had the Reorganization been consummated as of the beginning of the
periods for which such data presented and should not be construed as being
representative of future periods.
F-1
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED
BALANCE SHEET
AT
MARCH 31, 1997
<TABLE>
<CAPTION>
COMBINED
NECB FIRST BANK ADJUSTMENT PRO
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (HISTORICAL) (HISTORICAL) + OR - FORMA
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Cash and due from banks ........................ $ 25,058 $ 3,854 $ $ 28,912
Federal funds sold ............................. 2,725 3,750 6,475
Investments .................................... 96,043 24,792 (110) (c) 120,725
Loans outstanding .............................. 287,291 46,447 333,738
Less: allowance for possible losses ......... (5,577) (1,150) (6,727)
-------- ---------- -------- -----------
Net loans ................................ 281,714 45,297 0 327,011
Mortgages held-for-sale ........................ 1,853 855 2,708
Premises and equipment ......................... 9,457 596 10,053
Other real estate owned ........................ 1,167 207 1,374
Goodwill ....................................... 4,385 4,385
Other assets ................................... 5,677 2,193 7,870
--------- ---------- -------- -----------
Total Assets ....................................... $ 428,079 $ 81,544 $ (110) $ 509,513
========= ========== ======== ===========
LIABILITIES:
Deposits:
Noninterest bearing ............................ $ 72,435 $ 11,043 $ $ 83,478
Interest bearing ............................... 300,947 56,568 357,515
--------- ---------- -------- -----------
Total deposits ........................... 373,382 67,611 0 440,993
Short-term borrowings .......................... 5,569 525 6,094
FHLB borrowings ................................ 6,000 3,932 9,932
Other liabilities 2,281 558 480 (a)
500 (b) 3,819
--------- ---------- -------- -----------
Total Liabilities .................................. 387,232 72,626 980 460,838
--------- ---------- -------- -----------
SHAREHOLDERS' EQUITY:
Common stock ................................... 367 15 84 (d) 466
Additional paid-in capital ..................... 27,943 10,685 (84) (e)
(110) (c) 38,434
Retained earnings (accumulated
deficit) .................................... 12,700 (1,567) (500) (b)
(480) (a) 10,153
Net unrealized loss on
securities available-for-sale ............... (163) (215) (378)
--------- ---------- -------- -----------
Total Shareholders' Equity ......................... 40,847 8,918 (1,090) 48,675
--------- ---------- -------- -----------
Total Liabilities & Shareholders' Equity ........... $ 428,079 $ 81,544 $ (110) $ 509,513
========= ========== ======== ===========
Number of common shares outstanding ................ 3,667,000 1,542,000 (544,000) 4,665,000 (f)
Book value/per share ............................... $ 11.14 $ 5.78 $ 10.43
Tangible book value/per share ...................... $ 9.94 $ 5.78 $ 9.49
Tangible equity/assets ............................. 8.52% 10.94% 8.69%
</TABLE>
F-2
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED
BALANCE SHEET
AT
DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMBINED
NECB FIRST BANK ADJUSTMENT PRO
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (HISTORICAL) (HISTORICAL) + OR - FORMA
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Cash and due from banks ........................ $ 21,629 $ 3,100 $ $ 24,729
Federal funds sold ............................. 9,675 5,450 15,125
Investments .................................... 95,068 25,841 (110) (c) 120,799
Loans outstanding .............................. 288,996 47,208 336,204
Less: allowance for possible losses ......... (5,514) (1,146) (6,660)
--------- --------- -------- ---------
Net loans ................................ 283,482 46,062 329,544
Mortgages held-for-sale ........................ 1,755 176 1,931
Premises and equipment ......................... 9,369 596 9,965
Other real estate owned ........................ 2,109 207 2,316
Goodwill ....................................... 4,464 4,464
Other assets ................................... 5,608 2,163 7,771
--------- --------- -------- ---------
Total Assets ....................................... $ 433,159 $ 83,595 $ (110) $ 516,644
========= ========= ======== =========
LIABILITIES:
Deposits:
Noninterest bearing ......................... $ 78,792 $ 10,974 $ $ 89,766
Interest bearing ............................ 308,105 59,132 367,237
--------- --------- -------- --------
Total deposits ........................... 386,897 70,106 457,003
Short-term borrowings .......................... 2,003 275 2,278
FHLB borrowings ................................ 3,951 3,951
Other liabilities 3,848 454 480 (a)
500 (b) 5,282
--------- --------- -------- ---------
Total Liabilities .................................. 392,748 74,786 980 468,514
--------- --------- -------- ---------
SHAREHOLDERS' EQUITY:
Common stock ................................... 367 15 84 (d) 466
Additional paid-in capital ..................... 27,943 10,683 (84) (e)
(110) (c) 38,432
Retained earnings (accumulated deficit) ........ 11,802 (1,799) (500) (b)
(480) (a) 9,023
Net unrealized gain (loss) on securities
available-for-sale .......................... 299 (90) 209
--------- --------- -------- -----------
Total Shareholders' Equity ......................... 40,411 8,809 (1,090) 48,130
--------- --------- -------- -----------
Total Liabilities & Shareholders' Equity ........... $ 433,159 $ 83,595 $ (110) $ 516,644
========== ======== ======== ==========
Number of common shares outstanding ................ 3,667,000 1,541,000 (546,000) 4,662,000 (g)
Book value/per share ............................... $ 11.02 $ 5.72 $ 10.32
Tangible book value/per share ...................... $ 9.80 $ 5.72 $ 9.36
Tangible equity/assets ............................. 8.30% 10.54% 8.45%
</TABLE>
F-3
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF INCOME
FOR THE
THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
COMBINED
NECB FIRST BANK ADJUSTMENT PRO
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (HISTORICAL) (HISTORICAL) + OR - FORMA
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Interest income .................................. $ 8,015 $ 1,594 $ $ 9,609
Interest expense ................................. 2,770 516 3,286
--------- --------- -------- ----------
Net interest income .............................. 5,245 1,078 0 6,323
Provision for possible loan losses ............... 243 30 273
--------- --------- -------- ----------
Net interest income after provision for
possible loan losses ........................ 5,002 1,048 0 6,050
--------- --------- -------- ----------
Noninterest income:
Service fees ................................. 532 35 567
Securities gains (losses) .................... (4) 2 (2)
Gain on sales of loans, net .................. 135 162 297
Other ........................................ 35 57 92
--------- --------- -------- ----------
Total noninterest income .................. 698 256 0 954
--------- --------- -------- ----------
Noninterest expense:
Salaries and employee benefits ............... 2,061 355 2,416
Occupancy .................................... 409 137 546
Furniture and equipment ...................... 262 40 302
Outside services ............................. 171 118 289
Postage and supplies ......................... 181 32 213
Insurance and assessments .................... 34 11 45
OREO related expenses ........................ 30 1 31
Goodwill amortization ........................ 79 79
Other ........................................ 568 109 677
--------- --------- -------- ----------
Total noninterest expense ................. 3,795 803 0 4,598
--------- --------- -------- ----------
Income before taxes .............................. 1,905 501 0 2,406
Income taxes ..................................... 713 191 904
--------- --------- -------- ----------
Net income ....................................... $ 1,192 $ 310 $ 0 $ 1,502
========= ========= ======== ==========
Net income per share ............................. $ 0.33 $ 0.20 $ 0 $ 0.32
========= ========= ======== ==========
Weighted average shares of Common
Stock outstanding ............................ 3,667,000 1,542,000 4,665,000 (h)
========= ========= =========
</TABLE>
F-4
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF INCOME
FOR THE
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMBINED
NECB FIRST BANK ADJUSTMENT PRO
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (HISTORICAL) (HISTORICAL) + OR - FORMA
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Interest income ................................... $ 28,828 $ 6,222 $ $ 35,050
Interest expense .................................. 10,413 2,092 12,505
--------- --------- -------- ---------
Net interest income ............................... 18,415 4,130 0 22,545
Provision for possible loan losses ................ 1,854 355 2,209
--------- --------- -------- ---------
Net interest income after provision
for possible loan losses ...................... 16,561 3,775 0 20,336
--------- --------- -------- ---------
Noninterest income:
Service fees .................................. 1,703 256 1,959
Securities gains (losses) ..................... 20 (13) 7
Gain on sales of loans, net ................... 385 691 1,076
Other ......................................... 270 104 374
--------- --------- -------- ---------
Total noninterest income ................... 2,378 1,038 0 3,416
--------- --------- -------- ---------
Noninterest expense:
Salaries and employee benefits ................ 6,935 1,385 8,320
Occupancy ..................................... 1,284 552 1,836
Furniture and equipment ....................... 979 172 1,151
Outside services .............................. 641 511 1,152
Postage and supplies .......................... 650 109 759
Insurance and assessments ..................... 137 43 180
OREO related expenses ......................... 255 142 397
Goodwill amortization ......................... 155 155
Other ......................................... 1,665 349 2,014
--------- --------- -------- ---------
Total noninterest expense .................. 12,701 3,263 0 15,964
--------- --------- -------- ---------
Income before taxes ............................... 6,238 1,550 0 7,788
Income taxes ...................................... 1,976 324 2,300
--------- --------- -------- ---------
Net income ........................................ $ 4,262 $ 1,226 $ 0 $ 5,488
========= ========= ======== =========
Net income per share .............................. $ 1.26 $ 0.88 $ 0 $ 1.26
========= ========= ======== =========
Weighted average shares of Common
Stock outstanding ............................. 3,374,000 1,399,000 4,371,000 (h)
========= ========= =========
</TABLE>
F-5
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF INCOME
FOR THE
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMBINED
NECB FIRST BANK ADJUSTMENT PRO
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (HISTORICAL) (HISTORICAL) + OR - FORMA
---------- ---------- ----------- -------
<S> <C> <C> <C> <C>
Interest income ................................... $ 16,300 $ 5,807 $ $ 22,107
Interest expense .................................. 5,736 1,976 7,712
--------- --------- -------- ---------
Net interest income ............................... 10,564 3,831 0 14,395
Provision for possible loan losses ................ 700 500 1,200
--------- --------- -------- ---------
Net interest income after provision
for possible loan losses ...................... 9,864 3,331 0 13,195
--------- --------- -------- ---------
Noninterest income:
Service fees .................................. 1,385 226 1,611
Securities gains .............................. 21 5 26
Gain on sales of loans, net ................... 193 305 498
Other ......................................... 93 115 208
--------- --------- -------- ---------
Total noninterest income ................... 1,692 651 0 2,343
--------- --------- -------- ---------
Noninterest expense:
Salaries and employee benefits ................ 4,378 1,165 5,543
Occupancy ..................................... 729 497 1,226
Furniture and equipment ....................... 686 175 861
Outside services .............................. 322 548 870
Postage and supplies .......................... 391 110 501
Insurance and assessments ..................... 363 267 630
OREO related expenses ......................... 225 280 505
Other ......................................... 1,497 239 1,736
--------- --------- -------- ---------
Total noninterest expense .................. 8,591 3,281 0 11,872
--------- --------- -------- ---------
Income before taxes (benefit) ..................... 2,965 701 0 3,666
Income taxes (benefit) ............................ 985 (1,009) 0 (24)
--------- --------- -------- ---------
Net income ........................................ $ 1,980 $ 1,710 $ 0 $ 3,690
========= ========= ======== =========
Net income per share .............................. $ 0.91 $ 1.60 $ 0 $ 1.17
========= ========= ======== =========
Weighted average shares of Common
Stock outstanding ............................. 2,166,000 1,066,000 3,163,000 (h)
========= ========= ======== =========
</TABLE>
F-6
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF INCOME
FOR THE
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
COMBINED
NECB FIRST BANK ADJUSTMENT PRO
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (HISTORICAL) (HISTORICAL) + OR - FORMA
----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Interest income ................................... $ 12,551 $ 5,313 $ $ 17,864
Interest expense .................................. 3,974 1,737 5,711
--------- -------- -------- ---------
Net interest income ............................... 8,577 3,576 0 12,153
Provision for possible loan losses ................ 530 906 1,436
--------- -------- -------- ---------
Net interest income after provision
for possible loan losses ..................... 8,047 2,670 0 10,717
--------- -------- -------- ---------
Noninterest income:
Service fees .................................. 1,509 203 1,712
Securities losses (31) (31)
Gain on sales of loans, net ................... 45 453 498
Other ............................................. 62 115 177
--------- -------- -------- ---------
Total noninterest income ................... 1,616 740 0 2,356
--------- -------- -------- ---------
Noninterest expense:
Salaries and employee benefits ................ 3,830 1,197 5,027
Occupancy ..................................... 658 407 1,065
Furniture and equipment ....................... 682 180 862
Outside services .............................. 311 525 836
Postage and supplies .......................... 343 105 448
Insurance and assessments ..................... 639 300 939
OREO related expenses ......................... 265 263 528
Other ......................................... 1,167 223 1,390
--------- -------- -------- ---------
Total noninterest expense .................. 7,895 3,200 0 11,095
--------- -------- -------- ---------
Income before taxes (benefit) ..................... 1,768 210 0 1,978
Income taxes (benefit) ............................ 665 (197) 468
--------- -------- -------- ---------
Net income ........................................ $ 1,103 $ 407 $ 0 $ 1,510
========= ======== ======== =========
Net income per share .............................. $ 0.82 $ 0.50 $ 0 $ 0.64
========= ======== ======== =========
Weighted average shares of Common
Stock outstanding ............................. 1,345,000 809,000 2,342,000 (h)
========= ======== =========
</TABLE>
F-7
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(a) Expenses related to offering
(b) Anticipated expenses for restructuring net of tax effect
(c) Retirement of 34,000 shares of FBWH owned by NECB
(d) Issuance of NECB Common Stock (par value $0.10 per share)
(e) Difference in par value of common stock ($.10 per share for NECB Common
Stock versus $0.01 per share for FBWH Common Stock)
<TABLE>
<CAPTION>
(f) Calculation of pro forma number of shares of NECB Common Stock
outstanding:
<S> <C>
FBWH Common Stock outstanding at March 31, 1997................................................. 1,542,000
FBWH Common Stock owned by NECB................................................................. (34,000)
---------
Net FBWH Common Stock outstanding and exchangeable............................................ 1,508,000
Exchange Ratio.................................................................................. 0.62
NECB Common Stock to be issued in the Reorganization............................................ 935,000
NECB Common Stock to be issued in lieu of exercise
of FBWH options............................................................................... 63,000
---------
Total shares to be issued in the Reorganization................................................. 998,000
NECB Common Stock outstanding at March 31, 1997................................................. 3,667,000
---------
Total NECB Common Stock outstanding, pro forma.................................................. 4,665,000
=========
Difference between the sum of the number of outstanding shares of NECB
Common Stock and FBWH Common Stock at March 31, 1997 and the total
NECB Common Stock outstanding, pro forma...................................................... (544,000)
(g) Calculation of pro forma number of shares of NECB Common Stock
outstanding:
FBWH Common Stock outstanding at December 31, 1996.............................................. 1,541,000
FBWH Common Stock owned by NECB................................................................. (34,000)
---------
Net FBWH Common Stock outstanding and exchangeable............................................ 1,507,000
Exchange Ratio.................................................................................. 0.62
NECB Common Stock to be issued in the Reorganization............................................ 934,000
NECB Common Stock to be issued in lieu of exercise of
FBWH options.................................................................................. 61,000
---------
Total shares to be issued in the Reorganization................................................. 995,000
NECB Common Stock outstanding at December 31, 1996.............................................. 3,667,000
---------
Total NECB Common Stock outstanding, pro forma.................................................. 4,662,000
=========
Difference between the sum of the number of outstanding shares of NECB
Common Stock and FBWH Common Stock at December 31, 1996 and the
total NECB Common Stock outstanding, pro forma................................................ (546,000)
</TABLE>
(h) Calculation of pro forma shares outstanding: Total shares to be issued in
the Reorganization, plus NECB historical weighted average shares of common
stock outstanding.
F-8
<PAGE>
NEW ENGLAND COMMUNITY BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
(AMOUNTS IN THOUSANDS) 1997 1996
----------- -----------
ASSETS:
<S> <C> <C>
Cash and due from banks...................................................... $ 25,058 $ 15,738
Federal funds sold........................................................... 2,725 8,300
-------- --------
Cash and cash equivalents.................................................. 27,783 24,038
Securities held-to-maturity.................................................. 7,357 6,595
Securities available-for-sale................................................ 86,933 67,839
Federal Home Loan Bank stock................................................. 1,753 1,176
Loans outstanding............................................................ 287,291 219,236
Less: allowance for possible loan losses................................... (5,577) (4,520)
-------- --------
Net loans ................................................................. 281,714 214,716
Mortgages held-for-sale...................................................... 1,853 2,046
Accrued interest receivable.................................................. 3,088 2,444
Premises and equipment....................................................... 9,457 7,290
Other real estate owned...................................................... 1,167 720
Goodwill ................................................................. 4,385 395
Other assets................................................................. 2,589 1,746
-------- --------
Total Assets ................................................................. $428,079 $329,005
======== ========
LIABILITIES:
Deposits:
Noninterest bearing........................................................ $ 72,435 $ 52,110
Interest bearing........................................................... 300,947 241,737
-------- --------
Total deposits.......................................................... 373,382 293,847
Short-term borrowings........................................................ 5,569 1,151
Long term debt............................................................... 6,000
Other liabilities............................................................ 2,281 3,098
-------- --------
Total Liabilities.............................................................. 387,232 298,096
-------- --------
SHAREHOLDERS' EQUITY:
Serial preferred stock, $.10 par value, 200,000 shares authorized;
no shares issued
Common Stock, $.10 par value, authorized 10,000,000 shares:
March 31, 1997, 3,667,166 shares outstanding:
March 31, 1996, 3,084,309 shares outstanding................................. 367 308
Additional paid-in capital................................................... 27,943 21,522
Retained earnings............................................................ 12,700 9,230
Net unrealized loss on securities available-for-sale......................... (163) (151)
-------- --------
Total Shareholders' Equity..................................................... 40,847 30,909
-------- --------
Total Liabilities & Shareholders' Equity....................................... $428,079 $329,005
======== ========
</TABLE>
F-9
<PAGE>
NEW ENGLAND COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996
----------- -----------
<S> <C> <C>
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 of common stock outstanding............................ 3,667,000 3,084,000
</TABLE>
F-10
<PAGE>
NEW ENGLAND COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
(AMOUNTS IN THOUSANDS) 1997 1996
--------- ---------
<S> <C> <C>
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 receivable and other assets,
net........................................................................ (127) 421
Decrease (increase) in mortgages held-for-sale............................... 37 (1,258)
Decrease 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 in interest-bearing accounts.................................... (7,087) (5,479)
Increase in short-term borrowings............................................ 3,566 611
Increase in long-term borrowings............................................. 6,000
Cash dividends paid.......................................................... (294) (170)
------- -------
Net cash (used for) provided by financing activities....................... (4,172) (12,873)
------- -------
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 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
</TABLE>
The accompanying notes are an integral part of these statements.
F-11
<PAGE>
NEW ENGLAND COMMUNITY BANCORP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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 548,547 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.
F-12
<PAGE>
Shatswell, MacLeod & Company, P.C.
83 Pine Street
West Peabody, Massachusetts 01960
To the Board of Directors
New England Community Bancorp, Inc.
Windsor, Connecticut
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of New
England Community Bancorp, Inc. and Subsidiaries as of December 31, 1996 and
1995 and the related consolidated statements of income, changes in shareholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
New England Community Bancorp, Inc. and Subsidiaries as of December 31, 1996 and
1995, and the consolidated results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
s/s Shatswell, MacLeod & Company, P.C.
- --------------------------------------
SHATSWELL, MACLEOD & COMPANY, P.C.
West Peabody, Massachusetts
January 30, 1997, except for Note 13,
as to which the date is February 25, 1997
F-13
<PAGE>
NEW ENGLAND COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995
----------- -----------
ASSETS:
<S> <C> <C>
Cash and due from banks...................................................... $ 21,629 $ 14,550
Federal funds sold........................................................... 9,675 9,075
-------- --------
Cash and cash equivalents.................................................. 31,304 23,625
Interest-bearing time deposits with other banks.............................. 3,000
Securities held-to-maturity, fair values of $7,455 and $7,189 at
December 31, 1996 and 1995, respectively................................... 7,357 7,066
Securities available-for-sale, at fair value................................. 85,958 75,063
Federal Home Loan Bank stock, at cost........................................ 1,753 1,176
Loans outstanding............................................................ 288,996 222,235
Less: allowance for possible loan losses................................... (5,514) (4,446)
-------- --------
Net loans................................................................ 283,482 217,789
Mortgages held-for-sale...................................................... 1,755 788
Accrued interest receivable.................................................. 3,206 2,538
Premises and equipment....................................................... 9,369 6,960
Other real estate owned...................................................... 2,109 728
Goodwill..................................................................... 4,464 402
Other assets................................................................. 2,402 2,426
-------- --------
Total Assets................................................................... $433,159 $341,561
======== ========
LIABILITIES:
Deposits:
Noninterest bearing........................................................ $ 78,792 $ 59,945
Interest bearing........................................................... 308,105 247,216
-------- --------
Total deposits........................................................... 386,897 307,161
Short-term borrowings........................................................ 2,003 540
Other liabilities............................................................ 3,848 3,380
-------- --------
Total Liabilities.............................................................. 392,748 311,081
-------- --------
SHAREHOLDERS' EQUITY:
Serial preferred stock, $.10 par value, 200,000 shares authorized;
no shares issued
Common stock, $.10 par value, authorized 10,000,000 shares:
December 31, 1996, 3,667,166 outstanding;
December 31, 1995, 3,084,309 outstanding................................... 367 308
Additional paid-in capital................................................... 27,943 21,522
Retained earnings............................................................ 11,802 8,492
Net unrealized gain on securities available-for-sale......................... 299 158
-------- --------
Total Shareholders' Equity................................................. 40,411 30,480
-------- --------
Total Liabilities & Shareholders' Equity....................................... $433,159 $341,561
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-14
<PAGE>
NEW ENGLAND COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995 1994
----------- ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees .......................................... $ 23,229 $ 12,935 $ 9,507
Securities:
Taxable interest ............................................. 4,775 2,721 2,668
Interest exempt from federal income taxes .................... 120 49 32
Dividends .................................................... 350 188 63
Federal funds sold and other interest .......................... 354 407 281
--------- --------- ---------
Total interest income ........................................ 28,828 16,300 12,551
--------- --------- ---------
INTEREST EXPENSE:
Deposits ....................................................... 10,320 5,703 3,953
Borrowed funds ................................................. 93 33 21
--------- --------- ---------
Total interest expense ....................................... 10,413 5,736 3,974
--------- --------- ---------
Net interest income .............................................. 18,415 10,564 8,577
Provision for possible loan losses ............................... 1,854 700 530
--------- --------- ---------
Net interest income after provision for possible loan losses ..... 16,561 9,864 8,047
--------- --------- ---------
NONINTEREST INCOME:
Service charges, fees and commissions .......................... 1,703 1,385 1,509
Securities gains, net .......................................... 20 21
Gain on sales of loans, net .................................... 385 193 45
Other .......................................................... 270 93 62
--------- --------- ---------
Total noninterest income ..................................... 2,378 1,692 1,616
--------- --------- ---------
NONINTEREST EXPENSE:
Salaries and employee benefits ................................. 6,935 4,378 3,830
Occupancy ...................................................... 1,284 729 658
Furniture and equipment ........................................ 979 686 682
Outside services ............................................... 641 322 311
Postage and supplies ........................................... 650 391 343
Insurance and assessments ...................................... 137 363 639
Losses, writedowns, expenses - other real estate owned ......... 255 225 265
Amortization of goodwill ....................................... 155
Other .......................................................... 1,665 1,497 1,167
--------- --------- ---------
Total noninterest expense .................................... 12,701 8,591 7,895
--------- --------- ---------
Income before taxes .............................................. 6,238 2,965 1,768
Income taxes ..................................................... 1,976 985 665
--------- --------- ---------
Net Income ....................................................... $ 4,262 $ 1,980 $ 1,103
========= ========= =========
Net income per share ............................................. $ 1.26 $ 0.91 $ 0.82
========= ========= =========
Weighted average shares of common stock outstanding .............. 3,374,000 2,166,000 1,345,000
========= ========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-15
<PAGE>
NEW ENGLAND COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET UNREALIZED
GAIN (LOSS)
ADDITIONAL ON SECURITIES
COMMON STOCK PAID-IN RETAINED AVAILABLE TOTAL
(AMOUNTS IN THOUSANDS) SHARES VALUE CAPITAL EARNINGS FOR SALE EQUITY
--------- -------- --------- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 ................. 1,302 $130 $ 6,622 $ 5,994 $ 266 $13,012
Net income ............................... 1,103 1,103
Dividends declared--$0.050 per share ..... (104) (104)
Net change in unrealized gain on
securities available-for-sale .......... (1,109) (1,109)
Common stock offering .................... 778 78 5,493 5,571
----- ---- ------ ------ ------ -------
Balance, December 31, 1994 ................. 2,080 208 12,115 6,993 (843) 18,473
Net income ............................... 1,980 1,980
Dividends declared--$0.205 per share ..... (481) (481)
Shares issued pursuant to the acquisition
of The Equity Bank ..................... 1,004 100 9,407 9,507
Net change in unrealized loss on
securities available-for-sale .......... 1,001 1,001
----- ---- ------ ------ ------ -------
Balance, December 31, 1995 ................. 3,084 308 21,522 8,492 158 30,480
Net income ............................... 4,262 4,262
Dividends declared--$0.280 per share ..... (952) (952)
Shares issued pursuant to the acquisition
of Manchester State Bank ............... 549 56 6,254 6,310
Shares issued in conjunction with
exercise of stock options .............. 34 3 167 170
Net change in unrealized gain on
securities available-for-sale .......... 141 141
----- ---- ------ ------ ------ -------
Balance, December 31, 1996 ................. 3,667 $367 $27,943 $11,802 $ 299 $40,411
===== ==== ====== ====== ====== =======
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-16
<PAGE>
NEW ENGLAND COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(AMOUNTS IN THOUSANDS) 1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income .................................................... $ 4,262 $ 1,980 $ 1,103
Adjustment for noncash charges (credits):
Provision for depreciation and amortization ................. 757 508 425
Losses from sale or disposal and provisions to reduce
the carrying value of other real estate owned, net ........ 175 169 174
Securities gains, net ....................................... (20) (21)
Accretion of discounts and amortization of premiums
on bonds, net ............................................. 145 108 229
Accretion, net of amortization, of purchase
accounting adjustments .................................... (191)
Amortization of goodwill .................................... 155
Provision for possible loan losses .......................... 1,854 700 530
Gain on sales of loans, net ................................. (45)
(Increase) decrease in accrued interest receivable and
other assets, net ......................................... (69) 832 (891)
(Increase) decrease in mortgages held-for-sale .............. (967) (788) 3,512
Increase (decrease) in accrued interest payable and
other liabilities, net .................................... (926) 640 (465)
-------- -------- --------
Net cash provided by operating activities ................. 5,175 4,128 4,572
-------- -------- --------
FINANCING ACTIVITIES:
Net increase (decrease) in noninterest-bearing accounts ..... 1,881 (2,861) 14,841
Net increase (decrease) in interest-bearing accounts ........ (6,186) 5,754 (6,435)
Increase (decrease) in short-term borrowings, net ........... 1,463 (260)
Issuance of common stock .................................... 170 5,571
Cash equivalents acquired in the acquisitions, net .......... 14,236 7,790
Cash dividends paid ......................................... (817) (415)
-------- -------- --------
Net cash provided by financing activities ................. 10,747 10,008 13,977
-------- -------- --------
INVESTING ACTIVITIES:
Loans originated, net of principal collections .............. (2,260) (6,694) (24,666)
Loans purchased from other lenders .......................... (828) (4,871)
Net (increase) decrease in interest-bearing time deposits ... 3,000 (2,802) (99)
Purchase of Federal Home Loan Bank stock .................... (810)
Proceeds from sales of loans ................................ 456 6,063
Purchases of securities available-for-sale .................. (49,380) (31,575) (12,955)
Proceeds from sales of securities available-for-sale ........ 10,940 4,535 7,301
Proceeds from maturities of securities available-for-sale ... 30,652 18,824 14,192
Purchases of securities held-to-maturity .................... (3,275) (3,742) (11,297)
Proceeds from maturities of securities held-to-maturity ..... 3,005 8,556 12,099
Proceeds from sales of other real estate owned .............. 767 969 1,131
Purchases of premises and equipment, net .................... (1,275) (1,427) (924)
Capitalization of expenditures on other real estate owned ... (45) (148)
Other 17
-------- -------- --------
Net cash used for investing activities .................... (8,243) (18,227) (10,096)
-------- -------- --------
Increase (decrease) in cash and cash equivalents ............ 7,679 (4,091) 8,453
Cash and cash equivalents, beginning of year .................. 23,625 27,716 19,263
-------- -------- --------
Cash and cash equivalents, end of year ........................ $ 31,304 $ 23,625 $ 27,716
======== ======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION
New England Community Bancorp, Inc. (the "Company"), a Delaware
Corporation, is a multi-bank holding company. It operates two wholly-owned
subsidiary banks chartered by the State of Connecticut. New England Bank & Trust
Company ("New England Bank") is headquartered in Windsor, Connecticut, and
provides commercial and consumer banking services from its twelve offices
located in the towns of Canton, East Windsor, Ellington, Enfield, Manchester
(3), Somers, Suffield, West Hartford and Windsor (2), Connecticut. The Equity
Bank, acquired in November 1995, provides commercial and consumer banking
services from its office in Wethersfield, Connecticut.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION
The consolidated financial statements of the Company have been
prepared in conformity with generally accepted accounting principles and include
its accounts and those of its subsidiaries, after elimination of significant
intercompany balances and transactions.
In preparing the consolidated financial statements, Management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities as of
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from the
estimates.
PURCHASE ACCOUNTING
In November 1995, the Company acquired The Equity Bank.
Additionally, in July 1996, the Company completed an acquisition of Manchester
State Bank. In both transactions, the purchase method of accounting was employed
and thus, the comparative statements do not include prior operating results of
either entity.
SECURITIES, IN GENERAL
Investments in debt securities are adjusted for amortization of
premiums and accretion of discounts computed on the effective interest method.
Gains or losses on sales of investment securities are computed on a specific
asset basis.
The Company classifies debt and equity securities into one of two
categories: held-to-maturity or available-for-sale. This security classification
may be modified after acquisition only under certain specified conditions. In
general, securities may be classified as held-to-maturity only if the Company
has the positive intent and ability to hold them to maturity. All other
securities must be classified as available-for-sale. With respect to how the
Company accounts for and reports these securities, refer to the table below:
SECURITY CLASSIFICATION ACCOUNTING AND REPORTING
TREATMENT
- ----------------------- ---------------------------------
Held-to-maturity These securities are measured
at amortized cost on the
balance sheet. Unrealized
holding gains and losses are
not included in earnings or in
a separate component of
capital. They are merely
disclosed in the notes to the
financial statements.
Available-for-sale These securities are carried at
fair value on the balance
sheet. Unrealized holding
gains and losses are not
included in earnings, but are
reported as a net amount (less
expected tax) in a separate
component of capital until
realized.
LOANS RECEIVABLE
Loans are stated at their principal amount outstanding and are net
of unearned income on discounted loans. Interest on nondiscounted loans is
recognized on the simple interest method based upon the principal amount
outstanding except for those loans in a nonaccrual status. Loans are generally
placed in a nonaccrual status when they become past due ninety days or whenever
the ultimate collection of principal or interest is considered to be in doubt.
When the accrual of interest ceases, previously recognized and uncollected
interest is reversed against interest income. Payments received on nonaccrual
F-18
<PAGE>
loans are first applied to the remaining principal balance and are next applied
to interest income.
Loan origination and commitment fees and certain direct loan
origination costs are deferred and the net amount amortized as adjustments to
the related loans' yield. These amounts are being amortized over the contractual
life of the related loans. Upon sale of loans in the secondary market, the
related deferred fees or costs are recorded in income. Commitment fees based on
a percentage of a customer's unused line of credit and fees related to standby
letters of credit are recognized over the commitment period.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible losses on loans is established through
charges against income and is maintained at a level considered adequate to
provide for probable loan losses based on management's evaluation of known and
inherent risks in the loan portfolio. When a loan or a portion of a loan is
considered uncollectible, it is charged-off against the allowance. Recoveries of
loans previously charged-off are credited to the allowance when received.
Management's evaluation of the allowance is based on a continuing
review of the loan portfolio which includes many factors, such as utilization of
an individual loan rating system to assess trends in asset quality;
identification and review of individual problem situations which may affect the
borrower's ability to repay; review of overall portfolio quality through
analytical review of current charge-offs, delinquency and nonperforming loan
data; review of regulatory authority examinations and evaluation of loans; an
assessment of current economic conditions; and changes in the size and character
of the loan portfolio. These reviews are dependent upon estimates, appraisals
and judgments which can change quickly because of changing economic conditions
and Management's perception as to how these factors affect the financial
condition of debtors.
In May 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan" (SFAS No. 114) which was amended in October 1994 by
SFAS No. 118, "Accounting by Creditors for Impairment of a Loan--Income
Recognition and Disclosure." The Statements are effective for fiscal years
beginning after December 15, 1994. The Company adopted SFAS No. 114 and SFAS No.
118 on January 1, 1995. These Statements apply to all loans, except large groups
of smaller balance homogeneous loans that are collectively evaluated for
impairment, or loans otherwise carried at fair value or the lower of cost or
fair value. Both Statements specifically exclude leases and other debt
securities from its valuation standards. These Statements require that loans
which are impaired (due to the inability to collect all contractual amounts due)
be measured and valued based upon (i) the present value of expected future cash
flows discounted at the loan's effective interest rate, (ii) the loan's
observable market price, or (iii) the fair value of the collateral if the loan
is collateral dependent. Because the methods required by SFAS No. 114 and SFAS
No. 118 and those previously used by the Company to evaluate impaired loans, the
adoption of the Statements did not have a material impact on the Company's
financial statements. Interest income on impaired loans is generally recognized
in accordance with the Company's existing income recognition policy. Management
believes that the valuation allowance for impaired loans is adequate.
MORTGAGES HELD-FOR-SALE
Mortgages held-for-sale are carried at the lower of aggregate cost
or fair value.
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights". This Statement requires that a mortgage banking enterprise recognize as
a separate asset rights to service mortgage loans for others--either through the
acquisition of those rights or from the sale or securitization of loans with the
servicing rights retained on those loans--based on their relative market value.
To determine the fair value of the servicing rights created, the Company uses
(when available) market prices under comparable servicing sale contracts, or
alternatively uses a valuation model that calculates the present value of future
cash flows to determine the fair value of the servicing rights. In using this
valuation method, the Company incorporates assumptions that market participants
would use in estimating future net servicing income, which includes estimates of
the cost of servicing loans, the discount rate, ancillary income, prepayment
speeds and default rates.
The cost of mortgage servicing rights is amortized on a
straight-line basis which has substantially the same effect as amortizing the
F-19
<PAGE>
rights in proportion to and over the period of the estimated net servicing
revenues. Impairment of mortgage servicing rights is assessed based upon the
fair value of those rights. Fair values are estimated using discounted cash
flows based upon a current market interest rate. For the purposes of measuring
impairment, the rights are stratified based primarily upon the interest rate
risk characteristics of the underlying loans. The amount of impairment
recognized is the amount by which the capitalized mortgage servicing rights for
a stratum exceed their fair value.
OTHER REAL ESTATE OWNED
Other real estate owned consists of properties acquired through, or
in lieu of, mortgage loan foreclosure proceedings. These properties are recorded
at the lower of the carrying value of the related loans or the estimated fair
market value less estimated selling costs. Charges to the allowance for loan
losses are the measure by which properties are reduced to fair market value less
estimated selling costs upon reclassification as other real estate owned.
Subsequent reductions in carrying value, as well as operating expenses, are
included in losses, writedowns, expenses--other real estate owned.
Beginning in 1995, in accordance with Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan," the Company classifies loans as in-substance repossessed or foreclosed if
the Company receives physical possession of the debtor's assets regardless of
whether formal foreclosure
proceedings take place.
PREMISES AND EQUIPMENT
Land is carried at cost. Premises and equipment are stated at cost
less accumulated depreciation and amortization computed by the straight-line
method for financial reporting and under accelerated methods for income tax
purposes. Asset lives for premises are from 15 to 30 years and for furniture and
equipment from 3 to 7 years while leasehold improvements are amortized over the
shorter of the estimated useful life or the life of the lease.
INTANGIBLES
Intangible assets arising from the acquisitions under the purchase
method of accounting consist of goodwill. Goodwill is amortized on a
straight-line basis over a period of 14 years.
INCOME TAXES
The Company recognizes income taxes under the asset and liability
method. Under this method, deferred tax assets and liabilities are established
for the temporary differences between the accounting basis and the tax basis of
the Company's assets and liabilities at enacted tax rates expected to be in
effect when the amounts related to such temporary differences are realized or
settled. The Company's policy is to continually evaluate the realizability of
any deferred tax assets resulting from the use of the asset and liability
method.
PER SHARE DATA
Earnings per share have been computed based on the weighted average
number of shares outstanding. Shares issuable upon the exercise of stock option
grants have not been included in the per share computation because they did not
have a significant dilutive effect.
CASH FLOWS
For the purpose of the statements of cash flows, the Company has
defined cash equivalents as those amounts included in cash and due from banks
and federal funds sold.
STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation," was issued
in October 1995 and introduces a fair value method of accounting for employee
stock options, restricted stock grants, stock appreciation rights or similar
equity instruments. In accordance with SFAS No. 123, entities can recognize
stock-based compensation expense in the basic financial statements using either
(i) the intrinsic value approach set forth in Accounting Principles Board
("APB") Opinion No. 25 or (ii) the fair value method introduced in SFAS No. 123.
F-20
<PAGE>
Entities electing to remain with the accounting in Opinion No. 25 must make pro
forma disclosure of net income and, if presented, earnings per share, as if the
fair value based method of accounting in SFAS No. 123 had been applied.
Management will continue to measure stock-based compensation cost in accordance
with APB Opinion No. 25 and accordingly has made the pro forma disclosure
requirements of SFAS No. 123 for 1996 and 1995.
NOTE 3--SECURITIES
Debt and equity securities have been classified in the consolidated
balance sheets according to Management's intent. The carrying amount of
securities and their approximate fair values at December 31 follow:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
(AMOUNTS IN THOUSANDS) COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES:
December 31, 1996
Marketable equity securities............................ $ 3,689 $ 329 $ 16 $ 4,002
Debt securities issued by the U.S. Treasury
and other U.S. government agencies..................... 63,315 417 273 63,459
Corporate debt securities............................... 8,122 15 20 8,117
Mortgage-backed securities.............................. 10,311 109 40 10,380
-------- ----- ----- --------
$ 85,437 $ 870 $ 349 $ 85,958
======== ===== ===== ========
December 31, 1995
Marketable equity securities............................ $ 15,115 $ 93 $ 7 $ 15,201
Debt securities issued by the U.S. Treasury
and other U.S. government agencies................... 38,734 275 203 38,806
Corporate debt securities............................... 9,688 8 28 9,668
Mortgage-backed securities.............................. 11,256 159 27 11,388
-------- ----- ----- --------
$ 74,793 $ 535 $ 265 $ 75,063
======== ===== ===== ========
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
(AMOUNTS IN THOUSANDS) COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
HELD-TO-MATURITY SECURITIES:
December 31, 1996
Debt securities issued by the U.S. Treasury
and other U.S. government agencies..................... $ 4,516 $ 64 $ 17 $ 4,563
Debt securities issued by states and political
subdivisions of the states............................. 2,841 64 13 2,892
-------- ----- ----- --------
$ 7,357 $ 128 $ 30 $ 7,455
======== ===== ===== ========
December 31, 1995
Debt securities issued by the U.S. Treasury
and other U.S. government agencies..................... $ 5,501 $ 71 $ 12 $ 5,560
Debt securities issued by states and political
subdivisions of the states............................. 1,565 65 1 1,629
-------- ----- ----- --------
$ 7,066 $ 136 $ 13 $ 7,189
======== ===== ===== ========
</TABLE>
F-21
<PAGE>
Gross realized gains and gross realized losses on sales of
available-for-sale securities were $49,000 and $29,000, respectively, in 1996;
$38,000 and $17,000, respectively, in 1995; and $63,000 and $63,000,
respectively, in 1994. The scheduled maturities of securities held-to-maturity
and securities available-for-sale (other than equity securities) at December 31,
1996 is summarized as follows:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
---------------- ---------------
AMORTIZED AMORTIZED
(AMOUNTS IN THOUSANDS) COST FAIR VALUE COST FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Debt securities other than mortgage-backed
securities:
Due within one year................................ $ 8,627 $ 8,640 $ $
Due after one year through five years.............. 51,788 51,838 4,227 4,269
Due after five years through ten years............. 11,022 11,098 2,356 2,406
Due after ten years................................ 774 780
Mortgage-backed securities........................... 10,311 10,380
-------- ------- -------- --------
$ 81,748 $ 81,956 $ 7,357 $ 7,455
======== ======== ======== ========
</TABLE>
There were no securities of issuers whose aggregate carrying amount
exceeded 10% of shareholders' equity at December 31, 1996.
Securities having an amortized cost of $5,597,000 and $5,020,000 at
December 31, 1996 and 1995, respectively, were pledged to secure treasury, tax
and loan deposits, public deposits or securities sold under agreements to
repurchase.
NOTE 4--LOANS RECEIVABLE
Loans consisted of the following at December 31,
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS) 1996 1995
--------- ---------
<S> <C> <C>
Commercial and financial............................................... $ 55,601 $ 39,474
Real estate:
Construction......................................................... 12,250 12,841
Residential.......................................................... 76,970 63,025
Commercial........................................................... 114,174 80,793
Consumer............................................................... 30,001 26,102
--------- --------
Loans outstanding...................................................... $ 288,996 $ 222,235
========= ========
</TABLE>
The Company's loans receivable consists primarily of residential and
commercial real estate loans within its primary market area in Connecticut.
There are no concentrations of credit to borrowers that have similar economic
characteristics. The Company's policy for collateral requires that, at the time
of origination, the amount of the loan may not exceed 80% of the appraised value
of the property. In cases where the loan exceeds this percentage, private
mortgage insurance is generally required for that portion of the loan in excess
of 80% of the appraised value of the property.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
Changes in the allowance for possible loan losses for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS) 1996 1995 1994
--------- -------- ---------
<S> <C> <C> <C>
Balance, beginning of year .............................. $ 4,446 $ 2,564 $ 2,784
Changes incident to acquisitions ........................ 2,010 1,961
Provision charged to operations ......................... 1,854 700 530
Recoveries .............................................. 353 199 251
Charge-offs ............................................. (3,149) (978) (1,001)
-------- -------- --------
Balance, end of year .................................... $ 5,514 $ 4,446 $ 2,564
======== ======== ========
</TABLE>
F-22
<PAGE>
RESTRUCTURED LOANS
As of December 31, 1996, loans restructured in a troubled debt
restructuring before the effective date of SFAS No. 114 that are not impaired
based upon the terms specified by the restructuring agreement totaled $699,398.
The gross interest income that would have been recorded in the year ended
December 31, 1996, if such restructured loans had been current in accordance
with their original terms, was $44,896. The amount of interest income on such
restructured loans that was included in net income for the year ended December
31, 1996 was $12,061.
IMPAIRED LOANS
Information about loans that meet the definition of an impaired loan
in Statement of Financial Accounting Standards No. 114 for the years ended
December 31 is as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------- -----------------------------
RECORDED RELATED RECORDED RELATED
INVESTMENT ALLOWANCE INVESTMENT ALLOWANCE
IN IMPAIRED FOR CREDIT IN IMPAIRED FOR CREDIT
(AMOUNTS IN THOUSANDS) LOANS LOSSES LOANS LOSSES
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Loans for which there is a related allowance
for credit losses............................................ $4,394 $669 $2,267 $634
Loans for which there is no related allowance
for credit losses............................................ 840 869
------ ---- ------ ----
Totals..................................................... $5,234 $669 $3,136 $634
====== ==== ====== ====
Average recorded investment in impaired loans
during the year ended December 31,........................... $4,359 $ 870
====== ======
Related amount of interest income recognized during the time,
in the year ended December 31, that the loans were impaired:
Amount recognized (none of which is recognized using a
cash-basis method of accounting)............................. $ 3 $ 1
====== ======
</TABLE>
The Company considers residential real estate loans and consumer loans
that are not individually significant to be large groups of smaller balance
homogeneous loans. These loans are collectively evaluated for impairment.
Factors considered by Management in determining impairment include payment
status, net worth and collateral value. An insignificant payment delay or an
insignificant shortfall in payment does not in itself result in the review of a
loan for impairment. The Company applies SFAS No. 114 on a loan-by-loan basis.
The Company does not apply SFAS No. 114 to aggregations of loans that have risk
characteristics in common with other impaired loans. Interest on a loan is not
generally accrued when the loan becomes ninety or more days past due. The
Company may place a loan on nonaccrual status but not classify it as impaired,
if (i) it is probable that the Company will collect all amounts due in
accordance with the contractual terms of the loan or (ii) the loan is an
individually insignificant residential mortgage loan or consumer loan. Impaired
loans are charged-off when Management believes that the collectibility of the
loan's principal is remote. Substantially all of the Company's loans that have
been identified as impaired have been measured by the fair value of the existing
collateral.
RELATED PARTIES
Loans to executive officers, directors, principal shareholders and their
associates of the Company aggregated $4,704,000 at December 31, 1996 as compared
to $6,971,000 at December 31, 1995. The following table summarizes the related
party loan activity for the year ended December 31, 1996:
(AMOUNTS IN THOUSANDS)
Balance, beginning of year............................... $ 6,971
Additions................................................ 1,105
Repayments............................................... 3,372
-------
Balance, end of year..................................... $ 4,704
=======
F-23
<PAGE>
LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
balance sheets. The unpaid principal balances of mortgage loans serviced for
others was $70,093,000 and $64,635,000 as of December 31, 1996 and 1995,
respectively.
Mortgage servicing rights of $186,000 were capitalized in 1996.
Amortization of mortgage servicing rights totaled $3,000 in 1996 which reduced
their value down to $183,000 as of December 31, 1996. No valuation allowance for
capitalized mortgage servicing rights was required in 1996.
NOTE 5--PREMISES AND EQUIPMENT
Components of properties and equipment in the consolidated balance sheets
at December 31, were as follows:
(AMOUNTS IN THOUSANDS)
Cost: 1996 1995
------ -------
Land........................................... $ 1,651 $ 1,035
Premises....................................... 7,602 5,877
Furniture and equipment........................ 5,360 3,042
Leasehold improvements......................... 1,274 646
------- -------
Total cost................................... 15,887 10,600
Less accumulated depreciation and amortization... (6,518) (3,640)
------- -------
Net book value................................. $ 9,369 $ 6,960
======= =======
NONCANCELABLE LEASES
The Company and its subsidiaries occupy certain premises and are provided
equipment under noncancelable leases that are accounted for as operating leases
and that have expiration dates through 2011. These leases are renewable for
either three or five-year terms at the Company's option. Certain of the leases
contain escalation clauses for additional rentals based upon increases in local
property taxes and inflationary measures. Rental expense under these leases
aggregated $486,000 in 1996, $197,000 in 1995 and $188,000 in 1994 and is
recorded in occupancy expenses.
The aggregate minimum rental commitments under all leases at December 31,
1996 are $2,775,000 as indicated below:
(AMOUNTS IN THOUSANDS)
IN YEAR... THE MINIMUM COMMITMENT IS...
-------- ---------------------------
1997....................... $ 470
1998....................... 446
1999....................... 399
2000....................... 353
2001....................... 245
and subsequent years,...... 862
------
$2,775
======
The Equity Bank leases its premises from one of its directors. The lease,
which has two five-year renewal options, expires in 1999.
NOTE 6--DEPOSITS
The aggregate amounts of time deposit accounts (including CDs) with a
minimum denomination of $100,000 or more were $25,315,000 and $19,222,000 as of
December 31, 1996 and 1995, respectively. For all time deposits as of December
31, 1996, the aggregate amount of maturities for each of the following two years
ended December 31, and thereafter are:
(AMOUNTS IN THOUSANDS)
1997................................ $135,104
1998................................ 14,684
1999, and thereafter................ 16,374
--------
$166,162
========
F-24
<PAGE>
NOTE 7--SHORT-TERM BORROWINGS
Short-term borrowings consisted of treasury, tax and loan deposits
generally repaid within one to 120 days from the transaction date and securities
sold under agreements to repurchase. Short-term borrowings consisted of the
following as of December 31:
(AMOUNTS IN THOUSANDS) 1996 1995
---- ----
Treasury, tax and loan deposits....................... $1,871 $540
Securities sold under agreements to repurchase........ 132
------ ----
Total............................................... $2,003 $540
====== ====
Information concerning securities sold under agreements to repurchase is
summarized as follows:
(AMOUNTS IN THOUSANDS) 1996
----
Average balance during the year............................. $185
Maximum month-end balance during the year................... 293
Average interest rate during the year....................... 3.47%
US Treasury obligation underlying the
agreements at year-end:
Carrying value and estimated fair value................... $498
The underlying security was under the control of the Company as of
December 31, 1996.
NOTE 8--EMPLOYEE BENEFITS
STOCK COMPENSATION
During 1993, the Board of Directors of the Company voted to grant stock
options to two executive officers to purchase 34,000 shares of common stock at
$5.00 per share. These options were exercised in 1996. In January 1995, the
Board of Directors of the Company voted to grant stock options to three
executive officers to purchase 30,000 shares of common stock at $7.75 per share
after January 24, 1996 and prior to January 24, 1998. On January 31, 1996, the
Board of Directors formed an Executive Compensation Committee (the "Committee")
to administer the 1996 Incentive and Nonqualified Compensatory Stock Option Plan
(the "1996 Plan"), which is described below. The Committee and the 1996 Plan
were approved by shareholders on May 21, 1996.
Under the 1996 Plan, the Committee may grant either Incentive Stock
Options or Non-Statutory Stock Options to key managerial employees to purchase
shares of common stock of the Company. The 1996 Plan expires on January 31,
2006. The aggregate number of shares which may be optioned is 750,000 shares of
the Company's common stock. The option price is fixed by the Committee at the
time of the grant and may not be less than 100 percent of the fair market value
of the stock, as determined by the Committee, in good faith as of the grant
date. Each option may be first exercised in five equal annual installments
commencing from the date set forth in the Stock Option Agreement for such
options; provided, however, that no option be exercised beyond ten years after
the date of the grant.
The fair value of each option grant is estimated on the date of grant
using the Black-Sholes Option Pricing Model with the following weighted-average
assumptions used for grants in 1996 and 1995:
Dividend yield........................ 2.1 percent for both years
Expected volatility................... 25 percent for both years
Risk-free interest rate............. 5.17 percent in 1996 and 7.43
percent in 1995
Expected lives........................ 8 years for the 1996 options granted
and 3 years for the 1995 options
granted
F-25
<PAGE>
A summary of the status of all the Company's stock options as of December
31, 1996 and 1995 and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
-------- --------- -------- ----------
<S> <C> <C> <C> <C>
Outstanding, beginning of year...................... 64,000 $ 6.29 34,000 $5.00
Granted............................................. 140,000 10.25 30,000 7.75
Exercised........................................... (34,000) 5.00 0
Forfeited........................................... 0 0
--------- --------
Outstanding, end of year............................ 170,000 9.81 64,000 6.29
========= ========
Options exercisable at year-end..................... 30,000 34,000
Weighted-average fair value of options
granted during the year........................... $ 3.18 $ 1.76
</TABLE>
The following table summarizes information about fixed stock options
outstanding as of December 31, 1996:
<TABLE>
<CAPTION>
NUMBER NUMBER WEIGHTED
OUTSTANDING WEIGHTED WEIGHTED EXERCISABLE AVERAGE
AS OF AVERAGE REMAINING AVERAGE AS OF EXERCISE
EXERCISE PRICE 12/31/96 CONTRACTUAL LIFE EXERCISABLE PRICE 12/31/96 PRICE
------------- ----------- ------------------- ----------------- ----------- ----------
<C> <C> <C> <C> <C> <C>
$ 7.75 30,000 1 year $ 7.75 30,000 $7.75
10.25 140,000 9 years 10.25 0
------- ------
170,000 7.5 years 9.81 30,000 7.75
======= ======
</TABLE>
As indicated in Note 2, the Company applies APB Opinion No. 25 and
related interpretations in accounting for stock options. Accordingly, no
compensation expense has been recognized for the fixed stock options granted.
Had compensation expense been determined based on the fair value at the grant
dates for awards consistent with the method of SFAS No. 123 (also discussed in
Note 2), the Company's net income and earnings per share would have been reduced
to the pro forma amounts indicated below:
1996 1995
---- ----
Net income (in thousands) As reported........... $ 4,262 $ 1,980
Pro forma............. 4,200 1,970
Net income per share As reported........... $ 1.26 $ 0.91
Pro forma............. 1.24 0.91
During 1996, the Company converted its defined contribution plan into a
401(k) plan (the "Plan"). Employees over the age of 21 and with one year of
service are eligible to participate in the Plan. To encourage systematic savings
by employees, the Company matches employee contributions to the Plan on the
following basis: 100% of the first 3% of employee contributions and 50% of the
next 2%. Both employee and Company matches immediately vest in the Plan.
Additionally, funds which were previously not vested in the defined contribution
plan vested with the transfer into the Plan. Expense for both the 401(k) as well
as the defined contribution plan amounted to approximately $160,000, $227,000
and $86,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
F-26
<PAGE>
NOTE 9--INCOME TAXES
The components of income tax provision are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(AMOUNTS IN THOUSANDS) 1996 1995 1994
---- ---- ----
Current:
<S> <C> <C> <C>
Federal..................................................................... $1,240 $706 $112
State....................................................................... 433 270 45
------ ---- ----
1,673 976 157
------ ---- ----
Deferred:
Federal..................................................................... 499 145 387
State....................................................................... 164 50 157
------ ---- ----
663 195 544
------ ---- ----
Change in valuation allowance (360) (186) (36)
------ ---- ----
Total income tax provision................................................ $1,976 $985 $665
====== ==== ====
</TABLE>
The following reconciles the income tax provision from the statutory rate
to the amount reported in the consolidated statements of income:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal income tax at statutory rate.......................................... 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
Tax-exempt income......................................................... (.7) (.6) (.8)
Dividends received deduction.............................................. (1.4) (1.7) (.8)
Exercise of non-qualified stock options................................... (1.3)
Alternative minimum tax................................................... (.7)
Unallowable expenses...................................................... .6 .7 .4
Change in valuation allowance............................................. (5.8) (6.3) (2.0)
State tax, net of federal tax benefit......................................... 6.3 7.1 7.5
---- ---- ----
31.7% 33.2% 37.6%
==== ==== ====
</TABLE>
The major components of deferred income tax expense attributable to
income are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(AMOUNTS IN THOUSANDS) 1996 1995 1994
---- ---- ----
<S> <C> <C>
Purchase accounting........................................................... $ 8 $ $
Other real estate valuation................................................... 45 118 131
Contribution carryover........................................................ 5 3
Fair value of loans available-for-sale........................................ (14)
Accrued expenses.............................................................. 104 (104)
Other temporary differences................................................... 43 5 43
Alternative minimum tax credit................................................ (12)
Operating loss carryover-state................................................ 4
Deferred loan fees............................................................ 60 35 37
Provision for loan losses..................................................... 400 97 380
Accelerated depreciation...................................................... 29 9 12
Accrued interest nonperforming loans.......................................... (26) 30 (40)
---- ---- ----
$663 $195 $544
==== ==== ====
</TABLE>
F-27
<PAGE>
At December 31, the Company had gross deferred tax assets and gross
deferred tax liabilities as follows:
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS) 1996 1995
---- ----
Deferred tax assets:
<S> <C> <C>
Accrued interest on nonperforming loans..................................... $ 145 $ 118
Accrued deferred compensation............................................... 63 63
Accrued expenses............................................................ 103
Allowance for loan losses................................................... 821 1,221
Loan origination fees....................................................... 182 242
Depreciation................................................................ 59 88
Other real estate owned valuation........................................... 339 384
------ ------
Gross deferred tax assets.................................................. 1,609 2,219
Valuation allowance........................................................... (324) (684)
------ ------
1,285 1,535
------ ------
Deferred tax liabilities:
Purchase accounting......................................................... (261) (253)
Other adjustments........................................................... (76) (31)
Net unrealized holding gain on securities available-for-sale................ (221) (112)
------ ------
Gross deferred tax liabilities............................................. (558) (396)
------ ------
Net deferred tax assets....................................................... $ 727 $ 1,139
====== =======
</TABLE>
NOTE 10--CONDENSED FINANCIAL INFORMATION OF NEW ENGLAND COMMUNITY
BANCORP, INC.
The condensed balance sheets of New England Community Bancorp, Inc.
(parent company only) as of December 31, 1996 and 1995 and statements of income
and cash flows for each of the three years in the period ended December 31, 1996
follow:
BALANCE SHEETS
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS) 1996 1995
---- ----
Assets:
<S> <C> <C>
Investment in bank subsidiaries, at equity in net assets.............. $39,884 $25,855
Investments........................................................... 548 4,951
Cash.................................................................. 284 58
Other assets.......................................................... 12 147
------ -------
Total Assets............................................................ $40,728 $31,011
======= =======
Other liabilities....................................................... $ 317 $ 531
Shareholders' equity.................................................... 40,411 30,480
------- -------
Total Liabilities & Shareholders' Equity................................ $40,728 $31,011
======= =======
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Equity in undistributed net income of bank subsidiaries................. $ 3,830 $ 2,027 $1,097
Net interest and dividend income........................................ 591 293 16
Securities gains, net................................................... 1
Income tax benefit (expense)............................................ 177 33 (4)
Other expense........................................................... (337) (373) (6)
------ ------- -------
Net income.............................................................. $4,262 $ 1,980 $ 1,103
====== ======= =======
</TABLE>
F-28
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS) 1996 1995 1994
---- ---- ----
Operating activities:
<S> <C> <C> <C>
Net income............................................................ $4,262 $ 1,980 $ 1,103
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Equity in undistributed net income of bank subsidiaries............. (3,830) (2,027) (1,097)
Securities gains, net............................................... (1)
Net change in other liabilities..................................... (297) 355
Net change in other assets.......................................... 59 (72)
(Decrease) increase in taxes payable................................ (70) (101) 4
------ ------- -------
Net cash provided by operating activities........................... 123 135 10
------ ------- -------
Investing activities:
Purchases of securities............................................... (98) (235) (5,500)
Cost of acquisitions.................................................. (277) (396)
Sales of securities................................................... 4,650 850
Cash paid to shareholders of Manchester State Bank.................... (3,520)
Other................................................................. (5) (3)
------ ------- -------
Net cash provided by (used for) investing activities................ 750 216 (5,500)
------ ------- -------
Financing activities:
Net proceeds from issuance of common stock............................ 170 5,571
Dividends paid........................................................ (817) (415)
------ ------- --------
Net cash provided by (used for) financing activities................ (647) (415) 5,571
------ ------- --------
Increase (decrease) in cash............................................. 226 (64) 81
Cash, beginning of year................................................. 58 122 41
------ ------- --------
Cash, end of year....................................................... $ 284 $ 58 $ 122
====== ======= ========
</TABLE>
NOTE 11--FINANCIAL INSTRUMENTS
The Company is party to financial instruments with off-balance-sheet risk
to satisfy the financing needs of its borrowers. These financial instruments
include commitments to extend credit, standby letters of credit and financial
guarantees. The Company does not anticipate any material losses as a result of
these transactions.
Commitments to extend credit are agreements to lend to a borrower as long
as there is not a violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitments do not necessarily
represent future cash requirements. The Company evaluates each borrower's
creditworthiness on a case-by-case basis using the same credit policies as for
on-balance-sheet financial instruments. The amount of collateral obtained, if
deemed necessary upon extension of credit, is based on Management's credit
evaluation of the counterparty. Collateral held varies but may include real
estate, accounts receivable, inventory, property, plant and equipment and
income-producing property.
Standby letters of credit and financial guarantees are conditional
commitments issued by the Company's subsidiaries to guarantee the performance of
a borrower to a third party. The evaluations of creditworthiness, consideration
of need for collateral and credit risk involved in issuing letters of credit are
essentially the same as that involved in extending loans to borrowers.
Of the total standby letters of credit outstanding at December 31, 1996,
$407,000 are secured by deposit accounts held with the Company's subsidiaries.
F-29
<PAGE>
DISCLOSURES OF FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," (SFAS No. 107) requires disclosure of
estimated fair values of financial instruments. A financial instrument is
defined as cash, evidence of an ownership interest in an entity, or a contract
that conveys or imposes the contractual right or obligation to receive or
deliver cash or another financial instrument. Fair value is defined as the
amount at which a financial instrument can be exchanged in a current exchange
between willing parties, other than in a forced sale or liquidation, and is best
evidenced by a quoted market price, if one exists.
The Company has estimated fair value based on quoted market prices where
available. In cases where quoted market prices were not available, fair value is
based on estimates using the present value of expected future cash flows and
certain other techniques. These techniques are based on certain assumptions
which are subjective and judgmental in nature. Accordingly, the results may not
be substantiated by comparison with independent market prices and, in some
cases, cannot be realized in immediate settlement of the financial instrument.
Furthermore, SFAS No. 107 excludes certain financial instruments and all
non-financial instruments from its disclosure requirements. Accordingly, the
fair values disclosed should not be interpreted as the aggregate current fair
market value of the Company.
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
FINANCIAL INSTRUMENT METHODS AND ASSUMPTIONS
------------------- ------------------------
Cash and cash equivalents The carrying amounts reported in the balance
sheet for cash and due from banks and federal
funds sold approximate fair value.
Securities The fair value of securities are based on
prices obtained through brokers and
independent pricing services.
Loans The fair value of loans was estimated for
groups of similar loans based on the type of
loan, interest rate characteristics and
maturity. The fair value of performing
commercial, commercial real estate,
installment loans and residential mortgage
loans was estimated by discounting expected
future cash flows using interest rates
currently being offered for loans with
similar terms to borrowers of similar credit
quality. The fair value of nonaccruing loans
was estimated by determining expected future
principal cash flows, adjusted for credit
risk.
Deposits The fair value of demand deposits, savings,
money market and NOW deposits and
certificates of deposits having variable
interest rates approximate their carrying
value. The fair value of certificates of
deposits with fixed maturities and interest
rates was estimated by discounting expected
future cash flows utilizing interest rates
currently being offered on deposits with
similar characteristics and maturities.
Short-term borrowings The carrying amounts reported for short-term
borrowings approximate fair value.
F-30
<PAGE>
The estimated fair values of the Company's financial instruments, all of
which are held or issued for purposes other than trading, were as follows at
December 31:
<TABLE>
<CAPTION>
1996 1995
--------------------- ------------------------
CARRYING FAIR CARRYING FAIR
(AMOUNTS IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents............. $ 31,304 $ 31,304 $ 23,625 $ 23,625
Securities available-for-sale......... 85,958 85,958 75,063 75,063
Securities held-to-maturity........... 7,357 7,455 7,066 7,189
Federal Home Loan Bank stock.......... 1,753 1,753 1,176 1,176
Loans................................. 283,482 283,048 217,789 218,516
Accrued interest receivable........... 3,206 3,206 2,538 2,538
Interest-bearing time deposits
with other banks..................... 3,000 3,000
Mortgages held-for-sale............... 1,755 1,755 788 788
Financial liabilities:
Deposits.............................. 386,897 388,064 307,161 308,164
Short-term borrowings................. 2,003 2,003 540 540
</TABLE>
The carrying amounts of financial instruments in the above table are
included in the consolidated balance sheets under the individual captions.
Off-balance-sheet liabilities:
1996 1995
---- ----
NOTIONAL NOTIONAL
(AMOUNTS IN THOUSANDS) AMOUNT AMOUNT
-------- --------
Commitments to extend credit................... $38,292 $44,753
Standby letters of credit and financial
guarantees................................... 1,841 1,715
There is no material difference between the notional amount and the
estimated fair value of loan commitments and unadvanced portions of loans. The
fair value of letters of credit approximates the notional value.
NOTE 12--DISCLOSURE FOR STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
Supplemental disclosure of cash paid during the period for: 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income tax paid.............................................................. $2,052 $797 $344
Interest paid................................................................ 10,812 5,678 3,974
Supplemental disclosure of noncash investing and financing activities:
Loans charged off, net of recoveries......................................... 2,796 779 750
Real estate acquired through foreclosure..................................... 1,882 796 743
Loans originated to facilitate sales of other real estate owned.............. 183 564
Assets acquired and liabilities assumed in business combinations were as
follows:
Fair value of assets acquired, excluding cash and cash
equivalents................................................................ 77,063 111,242
Cash and cash equivalents acquired........................................... 14,236 7,790
------ ------
91,299 119,032
Liabilities assumed.......................................................... 84,989 109,525
------ ------
Value of Company common stock issued for the acquisitions.................. 6,310 9,507
</TABLE>
F-31
<PAGE>
NOTE 13--ACQUISITIONS
On November 30, 1995, the Company acquired The Equity Bank by issuing
1,003,617 shares of the Company's common stock in exchange for all of the
outstanding common shares (less 69,486 shares not exchanged by dissenting
shareholders) of The Equity Bank. The value of the Company's shares of common
stock issued to effect the acquisition and the direct costs of the acquisition
was $9,507,000. On July 11, 1996, the Company acquired Manchester State Bank by
issuing 549,300 shares of the Company's common stock and paying $3,525,000 in
cash for all of the outstanding common shares of Manchester State Bank. The
value of the Company's shares of common stock issued to effect the acquisition
and direct costs of the acquisition was $6,834,000.
The acquisitions were accounted for as purchases, and thus the results of
operations for both entities are only included in the consolidated financial
statements since the date of the respective transactions. Goodwill reflected by
purchase accounting amounted to $840,000 and $3,752,000 for The Equity Bank and
Manchester State Bank, respectively, and in both cases is being amortized over
fourteen (14) years. During 1996, the amount due to dissenting shareholders of
The Equity Bank was increased to $1,639,000, from $1,221,000, and is reflected
in other liabilities in the consolidated balance sheet of the Company as of
December 31, 1996. Subsequently, in January 1997, the Company and the dissenting
shareholders settled at the amount the Company had reserved.
The following summary, prepared on an unaudited pro forma basis,
approximates the consolidated results of operations as if The Equity Bank and
Manchester State Bank had been acquired as of the beginning of 1995 and 1996,
respectively, and includes purchase accounting adjustments.
(AMOUNTS IN THOUSANDS) 1996 1995
---- ----
Net interest income after provision
for loan losses................................ $ 18,371 $ 18,840
Noninterest income............................... 2,624 2,389
-------- --------
Total............................................ 20,995 21,229
Noninterest expense.............................. 14,315 15,795
-------- --------
Income before income taxes....................... 6,680 5,434
Income taxes..................................... 2,172 2,123
-------- --------
Pro forma net income............................. $ 4,508 $ 3,311
======== ========
The pro forma results are not necessarily indicative of what actually
would have occurred if the acquisitions had been in effect for the entire
periods presented. In addition, they are not intended to be a projection of
future results and do not reflect any synergies that might be achieved from
combined operations.
In an agreement dated February 25, 1997, the Company and FBWH of West
Hartford ("FBWH") agreed to consummate a business combination transaction in
which FBWH will merge with and into New England Bank. The agreement is subject
to the approval of regulators and the shareholders of both the Company and FBWH.
NOTE 14--REGULATORY MATTERS
RESTRICTIONS ON DIVIDENDS
The Company's principal assets are its investments in its bank
subsidiaries. As such, the Company's ability to pay dividends to its
shareholders is largely dependent on the ability of the Banks to pay dividends
to the Company. The declaration of cash dividends is dependent on a number of
factors, including regulatory limitations, and the Banks+ operating results and
financial conditions. The Shareholders of the Company will be entitled to
dividends only when, and if, declared by the Company's Board of Directors out of
funds legally available therefore. The declaration of future dividends will be
subject to favorable operating results, financial conditions, tax considerations
and other factors. The Federal Deposit Insurance Corporation regulations require
banks to maintain certain capital ratios as noted below which may otherwise
restrict the ability of the Banks to pay dividends to the Company.
F-32
<PAGE>
MINIMUM CAPITAL REQUIREMENTS
The Company and its subsidiary Banks are subject to various
regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory--and
possibly discretionary--actions by regulators that, if undertaken, could have a
direct material effect on the Company's and the Banks+ financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and the Banks must meet specific capital
guidelines that involve quantitative measures of their assets, liabilities and
certain off-balance sheet items as calculated under regulatory accounting
practices. Their capital amounts and classifications are also subject to
qualitative judgments by the regulators about components, risk weighting and
other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Banks to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier 1 capital to
risk-weighted assets and of Tier 1 capital to average assets. Management
believes, as of December 31, 1996, that the Company and the Banks meet all
capital adequacy requirements to which they are subject.
As of December 31, 1996, the most recent notification from the
Federal Deposit Insurance Corporation categorized the Banks as well capitalized
under the framework for prompt corrective action. To be categorized as well
capitalized Banks must maintain minimum total risk-based, Tier 1 risk-based and
Tier 1 leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the Banks+
categories. The actual capital amounts and ratios are also presented in the
following table:
<TABLE>
<CAPTION>
FOR CAPITAL TO BE WELL
ACTUAL ADEQUACY PURPOSES CAPITALIZED
---------------- ---------------------------- ----------------------
RATIO RATIO
(AMOUNTS IN THOUSANDS) AMOUNT RATIO AMOUNT [Greater than or =] AMOUNT [Greater than or =]
------- ----- ------- ------------------- ------ ------------------
<S> <C> <C> <C> <C>
As of December 31, 1996
Risk-Based Total Capital:
CONSOLIDATED ..................... $39,304 13.5% $23,369 8.0% N/A
New England Bank.................. 27,405 13.1 16,774 8.0 $20,968 10.0%
The Equity Bank................... 11,529 13.8 6,671 8.0 8,340 10.0
Risk-Based Tier 1 Capital:
CONSOLIDATED ..................... 35,630 12.2 11,685 4.0 N/A
New England Bank.................. 24,770 11.8 8,387 4.0 12,581 6.0
The Equity Bank................... 10,478 12.6 3,336 4.0 5,003 6.0
Leverage:
CONSOLIDATED ..................... 35,630 8.5 16,818 4.0 N/A
New England Bank.................. 24,770 8.1 12,307 4.0 15,383 5.0
The Equity Bank................... 10,478 9.3 4,523 4.0 5,654 5.0
</TABLE>
Under Federal Reserve regulation, the Company's subsidiaries are limited as
to the amount they may lend or advance to the Company, unless such loans and
advances are collateralized by specific obligations. No advances were made to
the Company by either subsidiary at December 31, 1996 or 1995.
NOTE 15--RECLASSIFICATION
Certain amounts in the prior years have been reclassified to be consistent
with the current year's statement presentation.
F-33
<PAGE>
SUPPLEMENTAL FINANCIAL INFORMATION
QUARTERLY SUMMARIZED FINANCIAL INFORMATION
(UNAUDITED)
<TABLE>
<CAPTION>
BY QUARTER
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995
------------------------------------------------- ------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
1 2 3 4 Year 1 2 3 4 Year
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Interest income.............. $6,641 $6,337 $7,797 $8,053 $28,828 $3,685 $3,750 $3,848 $5,017 $16,300
Interest expense............. 2,405 2,334 2,837 2,837 10,413 1,145 1,328 1,407 1,856 5,736
------ ------ ------ ------ ------- ------ ------ ------ ------ ------
Net interest income.......... 4,236 4,003 4,960 5,216 18,415 2,540 2,422 2,441 3,161 10,564
Provision for loan losses.... 532 502 446 374 1,854 130 150 120 300 700
------ ------ ------ ------ ------- ------ ------ ------ ------ ------
Net interest income after
provision for loan losses.. 3,704 3,501 4,514 4,842 16,561 2,410 2,272 2,321 2,861 9,864
Noninterest income........... 440 666 624 648 2,378 346 454 470 422 1,692
------ ------ ------ ------ ------- ------ ------ ------ ------ ------
4,144 4,167 5,138 5,490 18,939 2,756 2,726 2,791 3,283 11,556
------ ------ ------ ------ ------- ------ ------ ------ ------ ------
Noninterest expense.......... 2,787 2,780 3,516 3,618 12,701 2,075 2,002 2,001 2,513 8,591
------ ------ ------ ------ ------- ------ ------ ------ ------ ------
Income before income
taxes...................... 1,357 1,387 1,622 1,872 6,238 681 724 790 770 2,965
Income taxes................. 434 444 445 653 1,976 242 256 275 212 985
------ ------ ------ ------ ------- ------ ------ ------ ------ ------
Net income................... $ 923 $ 943 $1,177 $1,219 $ 4,262 $ 439 $ 468 $ 515 $ 558 $1,980
====== ====== ====== ====== ======= ====== ====== ====== ====== =======
Earnings per share........... $ 0.30 $ 0.31 $ 0.32 $ 0.33 $ 1.26 $ 0.21 $ 0.23 $ 0.24 $ 0.23 $ 0.91
====== ====== ====== ====== ======= ====== ====== ====== ====== =======
</TABLE>
F-34
<PAGE>
FIRST BANK OF WEST HARTFORD
STATEMENTS OF CONDITION
MARCH 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
ASSETS
Cash and due from banks:
Non-interest bearing........................................... $ 3,853,780 $ 3,075,279
Interest bearing............................................... 0 24,975
Federal funds sold............................................... 3,750,000 5,450,000
----------- -----------
Total cash and cash equivalents ............................... 7,603,780 8,550,254
Investment securities:
Available for sale, at fair value.............................. 18,155,950 19,179,046
Held to maturity, at amortized cost............................ 5,850,386 5,975,577
Federal Home Loan Bank Stock, at cost.......................... 785,700 686,700
----------- -----------
Total securities .............................................. 24,792,036 25,841,323
Loans ........................................................... 46,446,487 47,208,360
Allowance for loan losses........................................ (1,150,044) (1,145,915)
----------- -----------
Net loans ..................................................... 45,296,443 46,062,445
Loans held for sale.............................................. 855,000 176,089
Premises and equipment........................................... 595,695 595,878
Other real estate owned.......................................... 207,000 207,000
Accrued interest receivable...................................... 791,299 706,849
Deferred tax assets.............................................. 892,496 997,125
Other assets..................................................... 510,449 458,458
----------- -----------
Total Assets .................................................. $81,544,198 $83,595,421
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing demand.................................... $11,042,555 $10,974,161
Interest bearing demand........................................ 15,180,562 16,687,433
Savings........................................................ 10,681,438 11,534,458
Money market................................................... 7,340,801 8,834,208
Time........................................................... 23,365,754 22,076,110
----------- -----------
Total Deposits ................................................ 67,611,110 70,106,370
Other borrowed funds............................................. 525,471 275,317
Federal Home Loan Bank borrowings................................ 3,931,566 3,950,705
Accrued interest payables........................................ 85,909 114,126
Other liabilities................................................ 471,416 340,263
----------- -----------
Total Liabilities ............................................. 72,625,472 74,786,781
----------- -----------
SHAREHOLDERS' EQUITY
Common stock................................................... 15,415 15,407
Surplus........................................................ 10,684,766 10,682,600
Accumulated deficit............................................ (1,566,619) (1,799,258)
Unrealized loss on securities
available for sale........................................... (214,836) (90,109)
----------- -----------
Total Shareholders' Equity .................................... 8,918,726 8,808,640
----------- -----------
Total Liabilities and Shareholders' Equity .................... $81,544,198 $83,595,421
=========== ===========
</TABLE>
F-35
<PAGE>
<TABLE>
<CAPTION>
FIRST BANK OF WEST HARTFORD
STATEMENTS OF OPERATIONS
FOR PERIODS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Interest and dividend income:
Loans ......................................................................... $1,165,262 $1,059,417
Investment securities.......................................................... 392,919 385,881
Federal funds sold and interest bearing deposits............................... 36,099 36,810
---------- ----------
Total interest and dividend income ............................................ 1,594,280 1,482,108
---------- ----------
Interest expense:
Deposits....................................................................... 450,658 515,322
Borrowed funds................................................................. 65,501 7,031
---------- ----------
Total interest expense ........................................................ 516,159 522,353
---------- ----------
Net interest income.............................................................. 1,078,121 959,755
Provision for loan losses........................................................ 30,000 75,000
---------- ----------
Net interest income after provision for loan losses.............................. 1,048,121 884,755
---------- ----------
Other income:
Net securities gains........................................................... 2,235 491
Gains on commercial loan sales................................................. 162,455 129,708
Mortgage origination fees...................................................... 1,068 3,103
Deposit fees and servicing income.............................................. 69,174 62,762
Other non-interest income...................................................... 21,334 25,029
---------- ----------
256,266 221,093
---------- ----------
Other expenses:
Salaries and employee benefits................................................. 355,429 331,388
Occupancy...................................................................... 136,702 145,097
FDIC assessment ............................................................... 1,499 1,000
Systems and technology......................................................... 85,191 63,769
Furniture and equipment........................................................ 39,887 37,478
Foreclosed property, net....................................................... 1,455 106,892
Other.......................................................................... 183,273 152,319
---------- ----------
803,436 837,943
---------- ----------
Income before income taxes....................................................... 500,951 267,905
Income tax expenses.............................................................. 191,232 20,277
---------- ----------
Net Income ...................................................................... $ 309,719 $ 247,628
========== ==========
Per Share Data:
Average Number of Common Shares
Outstanding and Share Equivalents.............................................. 1,635,087 1,456,835
Primary Earnings Per Share..................................................... $ 0.19 $ 0.17
</TABLE>
F-36
<PAGE>
<TABLE>
<CAPTION>
FIRST BANK OF WEST HARTFORD
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
Net Income....................................................................... $ 309,719 $ 247,628
Adjustments to Reconcile Net Income to Net
Cash from Operating Activities:
Depreciation............................................................... 51,892 47,445
Provision for Loan Losses.................................................. 30,000 75,000
Valuation Adjustments for Other Real Estate Owned.......................... 0 105,820
Net Gain on Sale of Investment Securities.................................. (2,235) (491)
Amortization of Premium on Investments..................................... 2,087 12,907
Accretion of Discounts on Investments and Loan Fees........................ (12,261) (27,197)
Decrease (Increase) in Interest Receivable................................. (84,450) (9,324)
Decrease in Interest Payable............................................... (28,217) (14,670)
Increase in Accrued Expenses............................................... 131,153 40,332
Decrease (Increase) in Loans Held for Sale................................. (678,911) 830,900
Decrease (Increase) in Other Assets........................................ 139,241 (71,899)
--------- ---------
Net Cash from (for) Operating Activities......................................... (141,982) 1,236,451
--------- ---------
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:
Purchases of Held-to-Maturity Securities..................................... (25,000) (1,392,000)
Proceeds from Maturities of Held-to-Maturity Securities...................... 150,593 1,081,836
Purchases of Available for Sale Securities .................................. (99,000) (5,209,156)
Proceeds from Sales of Available
for Sale Securities........................................................ 1,003,281 2,996,753
Proceeds from Maturities of Available
for Sale Securities........................................................ 2,646 1,000,000
Net Decrease (Increase) in Loan Receivables.................................. 549,288 (1,613,194)
Deferred Loan Fees........................................................... 4,560 1,025
Proceeds from Sales of Other Real Estate Owned............................... 0 69,746
Capital Expenditures......................................................... (51,709) (15,010)
--------- ---------
Net Cash from (for) Investing Activities......................................... 1,534,659 (3,080,000)
--------- ---------
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:
Net Increase (Decrease) in Demand
Deposits and Savings Accounts................................................ (3,784,904) 222,972
Increase (Decrease) in Certificate of Deposit.................................. 1,289,644 (404,610)
Increase in Other Borrowed Money............................................... 231,015 1,306,049
Dividends Paid................................................................. (77,080) (49,013)
Proceeds from Exercise of Common Stock Options................................. 2,174 0
Proceeds from Exercise of Common Stock Warrants................................ 0 16,800
--------- ---------
Net Cash from (for) Financing Activities......................................... (2,339,151) 1,092,198
--------- ---------
Net decrease in Cash and Cash Equivalents........................................ (946,474) (751,351)
Cash and Cash Equivalents at Beginning of Period................................. 8,550,254 7,139,156
--------- ---------
Cash and Equivalents at End of Period............................................ $7,603,780 $6,387,805
========== ==========
Interest Paid.................................................................... $ 544,376 $ 537,023
Taxes Paid....................................................................... $ 0 $ 1,277
</TABLE>
F-37
<PAGE>
Report of Independent Accountants
SNYDER & HALLER
Certified Public Accountants
To the Board of Directors and Shareholders of
First Bank of West Hartford
We have audited the accompanying statements of condition of First Bank of West
Hartford as of December 31, 1996 and 1995, and the related statements of
operations, changes in shareholders' equity and cash flows for the years ended
December 31, 1996, 1995 and 1994. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Bank of West Hartford at
December 31, 1996 and 1995, and the results of its operations, and its cash
flows for the years ended December 31, 1996, 1995 and 1994 in conformity with
generally accepted accounting principles.
As discussed in Note Q to the financial statements, on February 25, 1997, the
Bank announced the signing of a definitive agreement to merge with New England
Community Bancorp.
Hartford, Connecticut
January 21, 1997, except for Note Q, as to which the date is February 25, 1997.
F-38
<PAGE>
FIRST BANK OF WEST HARTFORD
STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------- ----------------
<S> <C> <C>
ASSETS
Cash and Due from Banks
Non-Interest Bearing.................................................. $ 3,075,279 $ 2,764,156
Interest Bearing...................................................... 24,975 0
Federal Funds Sold........................................................ 5,450,000 4,375,000
----------- -----------
Total Cash and Cash Equivalents..................................... 8,550,254 7,139,156
----------- -----------
Investment Securities
Available for Sale at, Fair Value....................................... 19,179,046 18,340,688
Held to Maturity at, Amortized Cost..................................... 5,975,577 5,898,762
Federal Home Loan Bank Stock at, Cost................................... 686,700 0
----------- -----------
Total Securities.................................................... 25,841,323 24,239,450
----------- -----------
Loans .................................................................... 47,208,360 41,527,257
Allowance for Loan Losses................................................. (1,145,915) (1,429,409)
----------- -----------
Net Loans........................................................... 46,062,445 40,097,848
Loans Held for Sale....................................................... 176,089 1,071,150
Premises and Equipment.................................................... 595,878 702,627
Other Real Estate Owned................................................... 207,000 1,818,218
Accrued Interest Receivable............................................... 706,849 678,612
Deferred Tax Assets....................................................... 997,125 1,240,000
Other Assets.............................................................. 458,458 320,029
----------- -----------
TOTAL ASSETS ....................................................... $83,595,421 $77,307,090
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits
Non-Interest Bearing Demand........................................... $10,974,161 $10,382,177
Interest Bearing Demand............................................... 16,687,433 14,193,541
Savings............................................................... 11,534,458 11,020,964
Money Market.......................................................... 8,834,208 9,533,034
Time.................................................................. 22,076,110 25,112,662
----------- -----------
Total Deposits........................................................ 70,106,370 70,242,378
Federal Home Loan Bank Borrowings......................................... 3,950,705 0
Other Borrowings.......................................................... 275,317 76,527
Accrued Interest Payable.................................................. 114,126 106,418
Other Liabilities......................................................... 340,263 214,232
----------- -----------
TOTAL LIABILITIES .................................................. 74,786,781 70,639,555
----------- -----------
SHAREHOLDERS' EQUITY:
Common Stock............................................................ 15,407 12,238
Surplus................................................................. 10,682,600 9,424,583
Accumulated Deficit..................................................... (1,799,258) (2,799,981)
Unrealized Gains/(Losses) on Securities
Available for Sale.................................................... (90,109) 30,695
----------- -----------
TOTAL SHAREHOLDERS' EQUITY ......................................... 8,808,640 6,667,535
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY ............................................. $83,595,421 $77,307,090
=========== ===========
See Notes to Financial Statements.
</TABLE>
F-39
<PAGE>
<TABLE>
<CAPTION>
FIRST BANK OF WEST HARTFORD
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
INTEREST INCOME:
Loans........................................... $4,486,330 $4,425,330 $4,545,928
Investment Securities........................... 1,585,240 1,076,497 641,785
Federal Funds Sold.............................. 149,787 304,933 125,421
---------- ---------- ----------
Total Interest Income....................... 6,221,357 5,806,760 5,313,134
INTEREST EXPENSE:
Deposits........................................ 1,925,269 1,959,641 1,726,794
Borrowed Funds.................................. 166,572 16,271 10,761
---------- ---------- ---------
Total Interest Expense...................... 2,091,841 1,975,912 1,737,555
---------- ---------- ---------
Net Interest Income......................... 4,129,516 3,830,848 3,575,579
PROVISION FOR LOAN LOSSES .......................... 355,000 500,000 906,000
---------- ---------- ---------
Net Interest Income After
Provision for Loan Losses................. 3,774,516 3,330,848 2,669,579
---------- ---------- ---------
OTHER INCOME:
Net Investment Securities Gains (Losses)........ (12,642) 5,361 (31,432)
Gains on SBA Loan Sales......................... 673,858 261,283 320,231
Mortgage Origination Fees....................... 17,031 43,960 133,140
Other Operating Income.......................... 359,921 341,122 318,411
---------- ---------- ---------
1,038,168 651,726 740,350
---------- ---------- ---------
OTHER EXPENSES:
Salaries and Employee Benefits.................. 1,385,013 1,165,498 1,197,144
Occupancy....................................... 551,854 497,113 406,592
FDIC Assessment................................. 2,000 196,108 216,026
Systems and Technology.......................... 301,648 245,024 222,368
Furniture and Equipment......................... 171,690 174,587 179,669
Foreclosed Property, Net........................ 141,678 279,627 262,924
Other........................................... 708,648 722,754 714,942
---------- ---------- ---------
3,262,531 3,280,711 3,199,665
---------- ---------- ---------
INCOME BEFORE INCOME TAXES ......................... 1,550,153 701,863 210,264
Income Tax Expense (Benefit)........................ 324,477 (1,008,580) (197,138)
---------- ---------- ---------
NET INCOME ......................................... $1,225,676 $1,710,443 $ 407,402
========== ========== =========
PER SHARE DATA:
Average Number of Common Shares...................
Outstanding..................................... 1,310,912 1,065,941 808,820
Primary Earnings Per Share........................ $ 0.88 $ 1.60 $ 0.50
Fully Diluted Earnings Per Share.................. $ 0.88 $ 1.30 $ 0.50
See Notes to Financial Statements.
</TABLE>
F-40
<PAGE>
FIRST BANK OF WEST HARTFORD
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
GAINS
(LOSSES)
ON
AVAILABLE-
COMMON ACCUMULATED FOR-SALE
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 STOCK SURPLUS DEFICIT SECURITIES
--------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
BALANCE JANUARY 1, 1994 .................................... $ 8,088 $ 8,320,613 $ (4,881,155) $
Exercise of Common Stock Warrants........................... 60
Change in Unrealized Loss on
Securities Available-for-Sale............................. (502,163)
Net Income--Year Ended
December 31, 1994......................................... 407,402
------- ----------- ----------- ----------
BALANCE DECEMBER 31, 1994 .................................. 8,088 8,320,673 (4,473,753) (502,163)
Common Stock Offering....................................... 4,130 1,095,890
Exercise of Common Stock Warrants........................... 20 8,020
Change in Unrealized Gain on
Securities Available-for-Sale............................. 532,858
Net Income--Year Ended
December 31, 1995......................................... 1,710,443
Dividends Declared.......................................... (36,671)
------- ----------- ----------- ----------
BALANCE DECEMBER 31, 1995 .................................. 12,238 9,424,583 (2,799,981) 30,695
Exercise of Common Stock Warrants........................... 3,113 1,241,273
Exercise of Common Stock Options............................ 56 16,744
Change in Unrealized Gain (Loss) on
Securities Available-for-Sale............................. (120,804)
Net Income--Year Ended
December 31, 1996......................................... 1,225,676
Dividends Declared.......................................... (224,953)
------- ----------- ----------- ----------
BALANCE DECEMBER 31, 1996 .................................. $15,407 $10,682,600 $(1,799,258) $ (90,109)
======= =========== =========== ==========
See Notes to Financial Statements.
</TABLE>
F-41
<PAGE>
FIRST BANK OF WEST HARTFORD
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net Income ........................................................ $ 1,225,676 $ 1,710,443 $ 407,402
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Deferred Taxes.................................................. 315,497 (1,040,000) (200,000)
Depreciation.................................................... 202,025 213,098 221,893
Provision for Loan Losses....................................... 355,000 500,000 906,000
Valuation Adjustments for Other Real Estate Owned............... 196,906 250,627 289,612
Net (Gain) Loss on Available-for-Sale Securities................ 12,642 (5,361) 31,432
Net Gain on Sale of Premise of Equipment........................ (11,500) -- --
Amortization of Premiums on Investments......................... 28,375 59,237 74,324
Accretion of Discounts on Investments
and Loan Fees................................................. (73,139) (62,983) (57,073)
Increase in Accrued Interest Receivable......................... (28,237) (15,788) (136,800)
Increase in Accrued Interest Payable............................ 7,708 35,273 3,686
Increase (Decrease) in Other Liabilities........................ 126,031 48,690 (44,881)
Decrease (Increase) in Loans Held for Sale...................... 895,061 (888,972) 1,463,727
Increase in Other Assets........................................ (126,771) (72,708) (107,965)
----------- ---------- ----------
Net Cash Provided by Operating Activities........................... 3,125,274 731,556 2,851,357
----------- ---------- ----------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of Held-to-Maturity Securities........................ (1,392,000) (5,023,281) (527,969)
Proceeds from Maturities of Held-to-Maturity Securities......... 2,306,899 1,500,000 456,617
Purchases of Available-for-Sale Securities...................... (15,192,961) (25,550,809) (13,357,830)
Proceeds from Sales and Maturities of
Available-for-Sale Securities................................. 12,464,925 23,289,776 8,462,842
Net (Increase) Decrease in Loan Receivables..................... (6,740,453) 4,551,954 7,022,850
Deferred Loan Fees.............................................. 59,158 17,813 9,946
Proceeds from Sale of Other Real Estate Owned................... 1,814,312 1,008,676 727,177
Superior Lien Buyout of Other Real Estate Owned................. (163,973)
Proceeds from Sale of Premise of Equipment...................... 11,500 -- --
Capital Expenditures............................................ (95,276) (89,462) (54,331)
----------- ---------- -----------
Net Cash Provided by (Used in) Investing Activities................. (6,763,896) (295,333) 2,575,329
----------- ---------- -----------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Increase (Decrease) in Demand Deposits, Money
Market, and Savings Accounts.................................. 2,900,544 (2,355,467) (416,230)
Increase (Decrease) in Time Deposits............................ (3,036,552) 2,831,972 (4,131,288)
Increase (Decrease) in Borrowed Funds........................... 4,149,495 (373,473) 50,000
Sale of Common Stock............................................ -- 1,100,000 --
Dividends Paid.................................................. (224,953) (36,672) --
Proceeds from Exercise of Common Stock Options.................. 16,800 -- --
Proceeds from Exercise of Common Stock Warrants................. 1,244,386 8,060 60
----------- ---------- -----------
Net Cash Provided by (Used in) Financing Activities................. 5,049,720 1,174,420 (4,497,458)
----------- ---------- -----------
Net Increase in Cash and Cash Equivalents........................... 1,411,098 1,610,643 929,228
Cash and Cash Equivalents at Beginning of Year...................... 7,139,156 5,528,513 4,599,285
----------- ---------- -----------
Cash and Cash Equivalents at End of Year............................ $ 8,550,254 $7,139,156 $ 5,528,513
=========== ========== ===========
SUPPLEMENTAL INFORMATION:
Interest Paid................................................... $ 2,084,133 $1,940,639 $ 1,733,869
Taxes Paid...................................................... $ 38,477 $ 15,590 $ 5,401
</TABLE>
See Notes to Financial Statements.
F-42
<PAGE>
FIRST BANK OF WEST HARTFORD
NOTES TO FINANCIAL STATEMENTS
NOTE A -- ORGANIZATION
First Bank of West Hartford (the "Bank") commenced operations as a
Connecticut-chartered state bank and trust company on January 11, 1988. The Bank
conducts its operations from its offices at 1013 Farmington Avenue, West
Hartford, Connecticut.
The Bank's principal business is to attract deposits from the general
public and to make loans of various types, including commercial loans,
commercial real estate mortgages, consumer loans, residential mortgages and home
equity loans. The Bank markets itself as "West Hartford's Community Bank". It is
the only bank with its headquarters in West Hartford. The Bank's primary market
area is the Town of West Hartford and the neighboring towns of Avon, Bloomfield,
Farmington, Hartford, and Newington. The qualified deposits of the Banks'
customers are insured by the Federal Deposit Insurance Corporation.
NOTE B -- SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Bank and the methods
of applying those policies are summarized below:
CASH FLOWS: For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, amounts due from banks and federal funds sold.
INVESTMENT SECURITIES: Investments in debt securities are adjusted for
amortization of premiums and accretion of discounts computed on the effective
interest method. Gains or losses on sales of investment securities are computed
on a specific asset basis.
The Bank classifies debt and equity securities into one of three
categories: held-to-maturity, available-for-sale, or trading. This security
classification may be modified after acquisition only under certain specified
conditions. In general, securities may be classified as held-to-maturity only if
the Bank has the positive intent and ability to hold them to maturity. Trading
securities are defined as those bought and held principally for the purpose of
selling them in the near term. All other securities must be classified as
available-for-sale.
o Held-to-maturity securities are measured at amortized cost on the
balance sheet. Unrealized holding gains and losses are not
included in earnings or as a separate component of capital but are
disclosed in the notes to the financial statements.
o Available-for-sale securities are carried at fair value on the
balance sheet. Unrealized holding gains and losses are not
included in earnings, but are reported as a net amount (less
expected tax) as a separate component of capital until realized.
o Trading securities are carried at fair value on the balance sheet.
Unrealized holding gains and losses for trading securities are
included in earnings. The Bank does not hold any investment
securities for the purpose of trading.
LOANS: Interest on loans is accrued and credited to operations based on
principal amounts outstanding. Loan origination fees are deferred and credited
to income as an adjustment to yield over the life of the loan. Direct loan
origination costs are immaterial for deferral.
In determining interest income recognition on nonperforming loans, the
Bank follows the policy that no interest shall be accrued unless principal and
interest are collectible. Loans which are delinquent as to principal or interest
for a period of 90 days or more are carefully reviewed with respect to
collectibility and collateral. If the collateral is sufficient or if it is
evident that the loan will return to current status within a reasonably short
period of time, the loan may remain on accrual status. Otherwise, previously
accrued interest is reversed from income.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is maintained at
a level believed adequate by Management to absorb probable losses in the loan
portfolio. Management's determination of the adequacy of the allowance is based
on the extent of existing risks in the loan portfolio and prevailing economic
conditions. The process includes utilizing a credit risk grading procedure and
F-43
<PAGE>
FIRST BANK OF WEST HARTFORD
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
specific review of individual problem loans. These reviews are dependent upon
estimates, appraisals and judgment, which can change quickly because of changing
economic conditions and the Bank's perception as to how these factors affect the
financial condition of debtors. Management also considers trends in
delinquencies, levels of nonperforming assets and forecasted economic
conditions. The allowance for loan losses related to loans that are identified
as impaired is based on discounted cash flows using the loan's effective
interest rate, or the fair value of the collateral for collateral-dependent
loans, or the observable market price of the impaired loan. The allowance is
increased by provisions for loan losses charged against operations and
recoveries of loans previously charged-off and is decreased by loans considered
to be uncollectible.
REAL ESTATE LOANS HELD FOR SALE: Real estate loans held for sale are
valued at the lower of cost or market as determined by outstanding commitments
from investors.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed on the straight-line method based on estimated useful lives. One half
year's depreciation or amortization expense is taken in the year of acquisition
and the year of disposal. Expenditures for maintenance and repairs are charged
to operations as incurred.
OTHER REAL ESTATE OWNED: Other real estate owned is comprised of real
property acquired through foreclosure or in partial or total satisfaction of
problem loans.
The properties are recorded at the lower of cost or fair market value
less estimated disposal costs at the date acquired. Losses arising at the time
of acquisition of such properties are charged against the allowance for loan
losses. Subsequent write-downs in the carrying value and expenses incurred to
maintain the properties are charged to foreclosed property expense.
INCOME TAXES: The Bank recognizes income taxes under the asset and
liability method. Under this method, deferred tax assets and liabilities are
established for the temporary differences between the accounting basis and the
tax basis of the Bank's assets and liabilities at enacted tax rates expected to
be in effect when the amounts related to such temporary differences are realized
or settled. The Bank's policy is to continually evaluate the realizability of
any deferred tax assets resulting from the use of the asset and liability
method.
INCOME PER SHARE: Income per share on common stock is based on weighted
average common shares outstanding during the year.
NOTE C -- INVESTMENT SECURITIES
The carrying amounts and quoted fair values of investment securities at
December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------------- ---------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Available-for-sale.................... $19,179,046 $19,179,046 $18,340,688 $18,340,688
Held-to-maturity...................... 5,975,577 5,930,518 5,898,762 5,913,972
Federal Home Loan Bank Stock.......... 686,700 686,700 -- --
----------- ------------ ----------- -----------
$25,841,323 $25,796,264 $24,239,450 $24,254,660
=========== ============ =========== ===========
</TABLE>
INVESTMENTS IN AVAILABLE-FOR-SALE SECURITIES
Investments in available-for-sale securities at December 31, 1996 are
carried at fair value on the balance sheet and are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
------------ ----------- --------------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury Notes............................ $ 8,973,532 $ 133 $ 33,040 $ 8,940,625
U.S. Government Agencies....................... 10,358,488 28,194 148,261 10,238,421
------------ ----------- --------------- -----------
$19,332,020 $ 28,327 $181,301 $19,179,046
============ =========== =============== ===========
</TABLE>
F-44
<PAGE>
FIRST BANK OF WEST HARTFORD
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Investments in available-for-sale securities at December 31, 1995 are
carried at fair value on the balance sheet and are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury Notes............................ $ 7,487,937 $ 18,312 $ -- $ 7,506,249
U.S. Government Agencies....................... 9,800,282 103,097 76,940 9,826,439
Municipal Security............................. 1,000,360 7,640 -- 1,008,000
------------ --------- ------- ------------
$ 18,288,579 $129,049 $76,940 $ 18,340,688
============ ========= ======= ============
</TABLE>
Information about the contractual maturities of investments in debt
securities classified as available-for-sale at December 31, 1996 is summarized
as follows:
AMORTIZED FAIR
COST BASIS VALUE
----------- -----------
Due within one year....................... $ 1,004,705 $ 1,004,375
Due after one year through five years..... 14,513,961 14,415,357
Due after five years through ten years.... 2,810,317 2,748,386
Mortgage backed securities................ 1,003,037 1,010,928
----------- ----------
$19,332,020 $19,179,046
=========== ===========
During the period from January 1, 1996 to December 31, 1996, proceeds
from sales of available-for-sale securities amounted to $12,464,925. Gross
realized gains and gross realized losses on those sales amounted to $30,032 and
$41,795, respectively.
INVESTMENTS IN SECURITIES HELD-TO-MATURITY
Investments in securities held-to-maturity at December 31, 1996 are
carried at amortized cost on the balance sheet and are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
----------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
U.S. Government Agencies....................... $5,800,577 $1,039 $46,098 $5,755,518
Other Debt Securities.......................... 175,000 -- -- 175,000
----------- ----------- ------------- ----------
$5,975,577 $1,039 $46,098 $5,930,518
=========== =========== ============= ==========
</TABLE>
Investments in securities held-to-maturity at December 31, 1995 are
carried at amortized cost on the balance sheet and are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. Government Agencies....................... $5,723,762 $19,664 $4,454 $5,738,972
Other Debt Securities.......................... 175,000 -- -- 175,000
----------- ------- --------- ----------------
$5,898,762 $19,664 $4,454 $5,913,972
=========== ======= ========= ================
</TABLE>
F-45
<PAGE>
FIRST BANK OF WEST HARTFORD
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Information about the contractual maturities of investments in debt
securities classified as held-to-maturity at December 31, 1996 is summarized as
follows:
AMORTIZED FAIR
COST BASIS VALUE
----------- ----------
Due after one year through five years......... $ 2,269,568 $ 2,256,730
Due after five years through ten years........ 1,300,348 1,288,085
Mortgage backed securities.................... 2,405,661 2,385,703
----------- -----------
$ 5,975,577 $ 5,930,518
=========== ===========
The Bank realized a loss of $879 on the early redemption through a call
option on a held to maturity investment during 1996.
NOTE D -- LOANS
The loan portfolio at December 31, 1996 and 1995, consisted of the
following:
1996 1995
------------ -------------
Commercial................................ $ 8,943,448 $ 9,336,904
Commercial Mortgage....................... 27,014,295 20,797,366
Home Equity............................... 8,397,186 9,309,933
Residential Mortgage...................... 1,539,806 1,185,263
Installment............................... 1,313,625 897,791
------------ -------------
47,208,360 41,527,257
Less-Allowance for Loan Losses ........... 1,145,915 1,429,409
------------ -------------
$46,062,445 $40,097,848
============ =============
At December 31, 1996 and 1995 nonaccrual loans amounted to $682,815 and
$1,043,546, respectively. If loans in nonaccrual status had been current, gross
interest income would have been increased in 1996 and 1995 by $83,056 and
$132,620, respectively. Gross interest income recorded on these loans totaled
$45,345 in 1996 and $17,674 in 1995. At December 31, 1996 and 1995 there were no
accruing loans past due 90 days.
At December 31, 1996 the recorded investment in loans considered to be
impaired under SFAS No. 114 was $682,815 all of which were on nonaccrual basis.
The allowance for loan losses related to these impaired assets was $63,500.
During 1996, $400,000 of loans were transferred into other real estate
owned. This compares to $253,433 transferred during 1995 and $463,879
transferred during 1994.
At December 31, 1996 the maturity of the Loan Portfolio was as follows:
Due within one year....................................... $ 8,238,742
Due after one year through five years..................... 21,105,552
Due after five years...................................... 17,864,066
------------
$ 47,208,360
============
NOTE E -- LOAN PARTICIPATIONS AND SERVICING
Commercial loans participated to and serviced for others are not included
in the accompanying Statements of Financial Condition. The principal portion of
loans participated to and serviced for others was $16,048,648 and $9,676,756 at
December 31, 1996 and 1995, respectively.
Loans participated with SBA guarantees are sold with recourse of ninety
days following the sale. At December 31, 1996, participations totaling
$1,923,950 on which gains of $165,811 were recognized, remained subject to the
recourse provisions of the sale.
F-46
<PAGE>
FIRST BANK OF WEST HARTFORD
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Gains of $195,018 and $81,474 were recognized on the capitalization of
excess servicing fees during 1996 and 1995, respectively and are included in
Gains on SBA Loan Sales on the Statements of Operations. Amortization of the
capitalized fees reduced servicing income by $54,323 and $33,214 for each of
those years.
NOTE F -- ALLOWANCE FOR LOAN LOSSES
Following are the changes affecting the allowance for loan losses:
1996 1995 1994
---------- ---------- ----------
Balance at Beginning of Year....... $1,429,409 $1,573,438 $1,629,132
Provision Charged to Operations.... 355,000 500,000 906,000
Loans Charged Off.................. (771,397) (867,872) (1,031,398)
Recoveries......................... 132,903 223,843 69,704
------- --------- -----------
Balance at End of Year............. $1,145,915 $1,429,409 $1,573,438
========== ========== ==========
NOTE G -- PREMISES AND EQUIPMENT
Major classifications for the premises and equipment accounts are as
follows:
DECEMBER 31
----------------------------
1996 1995
---------- -------------
Furniture and Equipment..................... $ 722,054 $ 837,656
Construction in Progress.................... 9,878 2,506
Lease Acquisition Costs..................... 977,808 951,022
---------- ----------
1,709,740 1,791,184
Less Accumulated Depreciation
and Amortization......................... 1,113,862 1,088,557
---------- ----------
Net Premises and Equipment................. $ 595,878 $ 702,627
========== ==========
Depreciation and amortization expense charged to operating expenses was
$202,025 in 1996, $213,098 in 1995, and $221,893 in 1994.
The Bank leases its office at 1013 Farmington Avenue, West Hartford, from
a director and his brother. The lease is for a ten year term expiring in 2000
with options for six additional five year periods. The Bank also elected to pay
certain costs directly which are being amortized over a ten year period. Rentals
under this lease aggregated $342,000 in 1996 and 1995. The Bank received
sublease payments at the same site of $70,356 during 1996 and $111,300 during
1995.
At December 31, 1996, the minimum rental commitments under the terms of
this lease agreement are $342,000 annually for the next three years.
NOTE H -- TIME DEPOSITS
The amount of certificates of deposit in excess of $100,000 at December
31, 1996 and 1995 were $3,780,673 and $4,032,692, respectively. Interest expense
for these deposits was $205,865 in 1996, $190,278 in 1995 and $122,229 in 1994.
F-47
<PAGE>
FIRST BANK OF WEST HARTFORD
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE I -- FEDERAL HOME LOAN BANK BORROWINGS
Borrowings from the Federal Home Loan Bank of Boston ("FHLBB") consisted
of the following at December 31, 1996:
5.89% Advance, due 1997........................... $1,000,000
6.61% Advance, due 1999........................... 1,000,000
6.60% Advance, due 2000........................... 1,000,000
5.97% Amortizing Loan, due 2006................... 950,705
----------
$3,950,705
===========
In accordance with an agreement with the FHLBB, the Bank is required to
maintain qualified collateral, as defined in the FHLBB Statement of Credit
Policy, free and clear of liens, pledges and encumbrances as collateral for the
advances. The Bank maintains adequate qualified collateral as defined by the
FHLBB.
NOTE J -- STOCK OPTION PLANS
During 1994, the Bank's shareholders approved two stock option plans
whereby certain employees and directors have been granted options to purchase
the Bank's common stock at the fair market value of the shares at the date of
the grant.
<TABLE>
<CAPTION>
SHARES UNDER OPTION
OPTION
PRICE
EMPLOYEE DIRECTOR RANGE PER
PLAN PLAN TOTAL SHARE
---------- -------- ------ ------------
<S> <C> <C> <C> <C>
Granted during 1994................... 35,000 100,000 135,000 $3.00
Cancelled during 1994................. 4,300 -- 4,300 $3.00
------ ------- -------
Outstanding at December 31, 1994...... 30,700 100,000 130,700 $3.00
Granted during 1995................... 18,700 -- 18,700 $3.50
Cancelled during 1995................. 700 -- 700 $3.50
------ ------- -------
Outstanding at December 31, 1995...... 48,700 100,000 148,700 $3.00-$3.50
Cancelled during 1996................. 300 -- 300 $3.00
Exercised during 1996................. 5,600 -- 5,600 $3.00
------ ------- -------
Outstanding at December 31, 1996...... 42,800 100,000 142,800 $3.00-$3.50
====== ======= =======
Exercisable at December 31, 1996
(expiring during the period
February 22, 1999 to May 22, 1999).... 24,100 100,000 124,100 $3.00
(expiring August 22, 2000)............ 18,700 -- 18,700 $3.50
Shares reserved for issuance at
December 31, 1996.................... 1,600 -- 1,300
</TABLE>
NOTE K -- SHAREHOLDERS' EQUITY
On January 11, 1988, the Bank issued 807,010 shares of common stock at
$10 per share. Proceeds from the sale, net of issuance costs of $70,100, were
$8,000,000, which has been included in common stock and surplus.
During 1993, the Bank issued 371,501 common stock warrants at a price of
$1.00 per warrant. Each warrant is convertible into one share of common stock
with an exercise price of $4.00. The warrants originally were to expire on April
F-48
<PAGE>
FIRST BANK OF WEST HARTFORD
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1, 1996 but had been extended to October 1, 1996. Proceeds from this sale, net
of issuance cost of $50,000, were $321,501 which has been included in Surplus.
As of October 1,1996, 311,097 warrants were exercised netting the Bank 1,244,386
in new capital.
The Bank paid its first dividend in the amount of $.03 per share on
December 1, 1995 to shareholders of record on November 14, 1995 and paid
dividends of $.04 on March 1, 1996, June 1, 1996, and September 3, 1996 to
shareholders of record as of February 14, 1996, May 14, 1996, and August 14,
1996. A dividend of $.05 was paid on December 2, 1996 to shareholders of record
as of November 14, 1996.
NOTE L -- REGULATORY MATTERS
The Bank is subject to regulation by the FDIC as well as state
regulators. Under capital adequacy guidelines and the regulatory framework to be
well capitalized under the prompt corrective action framework, the Bank must
meet specific capital guidelines that involve quantitative measures of assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. These regulatory capital requirements are set forth in
terms of [al Risk-based Total Capital (Total Capital to risk-weighted assets),
[b] Risk-based Tier 1 Capital (Tier 1 Capital to risk-weighted assets), and [c]
Tier 1 Leverage (Tier 1 Capital to average assets).
To meet all minimum regulatory capital requirements, the Bank must
maintain a minimum risk-based Total Capital ratio of at least 8%, a risk-based
Tier 1 Capital ratio of at least 4% and a Tier 1 Leverage ratio of at least 4%.
Failure to meet minimum capital requirements can initiate certain mandatory
actions and possibly discretionary actions by regulators that, if undertaken,
could have a direct material effect on the financial statements. To be
categorized as well capitalized under the prompt corrective action provision,
the Bank must maintain a risk-based Total Capital ratio of at least 10%, a
risk-based Tier 1 Capital ratio of at least 6% and a Tier 1 Leverage ratio of at
least 5%, and not be subject to a written agreement, order or capital directive.
The Bank has not entered into formal written agreements with the state and
federal regulators, nor is it subject to any orders or capital directives.
The Bank's regulatory capital ratios as of December 31, 1996 are as
follows:
AMOUNT RATIO
---------- ------
Actual:
Risk-Based Total Capital.............................. $9,019,000 17.93%
Risk-Based Tier 1 Capital............................. 8,384,000 16.67%
Tier 1 Leverage Capital............................... 8,384,000 10.53%
Required to meet regulatory minimum Capital Standards:
Risk-Based Total Capital.............................. 4,023,360 8.00%
Risk-Based Tier 1 Capital............................. 2,011,680 4.00%
Tier 1 Leverage Capital............................... 3,183,720 4.00%
As of December 31, 1996, the Bank is categorized as well-capitalized
under the regulatory framework for prompt corrective action. Thee are no
conditions or events since that notification that management believe have
changed the Bank's category.
F-49
<PAGE>
FIRST BANK OF WEST HARTFORD
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE M -- INCOME TAXES
The components of income tax expense (benefit) are as follows:
YEARS ENDED DECEMBER 31,
1996 1995 1994
----- -------- -------
Current:
Federal.......................... $ 8,289 $ 19,420 $ --
State............................ 691 12,000 2,862
-------- ------------ ----------
Total Current.................. 8,980 31,420 2,862
-------- ------------ ----------
Deferred:
Federal.......................... 227,988 (865,000) (175,000)
State............................ 87,509 (175,000) (25,000)
-------- ------------ ----------
Total Deferred................. 315,497 (1,040,000) (200,000)
-------- ------------ ----------
Total Tax Expense (Benefit).... $324,477 $ (1,008,580) $ (197,138)
======== ============ ==========
The Bank has Federal and State tax loss carryforwards of approximately
$2,400,000 and $725,000, respectively at December 31, 1996. These amounts are
available to reduce future taxable income through the year 2010 for Federal
purposes and the year 2000 for State purposes.
The principal reasons for the income tax expense (benefit) differing from
the amount of the "expected" tax expense (benefit) (computed by applying the
Federal statutory tax rate of 34% to reported income (loss) before income taxes)
are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 1994
------------- --------------------- -----------------------
AMOUNT % AMOUNT % AMOUNT %
------- --- ------------ ---- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Income tax expense (benefit)
at statutory rate........................ $527,052 34 $ 238,633 34 $ 71,490 34
Increase (decrease) in income tax
resulting from:
State income taxes, net of federal
income tax benefit..................... 136,668 9 82,667 12 28,708 14
Decrease in valuation allowance.......... (420,788) (27) (1,300,413) (185) (282,715) (135)
Other, net............................... 81,545 5 (29,467) (4) (14,621) (7)
-------- --- ------------ ---- --------- ----
Income tax expense (benefit)............. $324,477 21 $ (1,008,580) (143) $ (197,138) (94)
======== === ============ ==== ========= ====
</TABLE>
F-50
<PAGE>
FIRST BANK OF WEST HARTFORD
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
components of the deferred tax assets and deferred tax liabilities at December
31, 1996 and 1995.
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
Deferred tax assets:
Allowance for loan losses.................... $ -- $ 191,337
Net operating losses for which no current
benefit is available....................... 841,724 1,297,648
Other real estate owned...................... 9,414 127,754
Loan fees and deferred income................ 23,014 14,594
Available-for-sale securities................ 62,613 --
Depreciation................................. 78,459 61,275
Other........................................ 652 657
---------- ------------
Gross deferred tax assets.................. 1,015,876 1,693,265
Less valuation allowance..................... 10,977 431,765
---------- ------------
Deferred tax assets, net of valuation
allowance............................... 1,004,899 1,261,500
---------- ------------
Deferred tax liabilities:
Allowance for loan losses.................... 7,774 --
Available-for-sale securities................ -- 21,500
---------- -----------
Net deferred tax asset......................... $ 997,125 $ 1,240,000
========== ===========
The valuation allowance for deferred tax assets is allocated to the net
operating loss carryforwards.
NOTE N -- RELATED PARTIES
Certain directors and officers of the Bank were loan customers of the
Bank during 1996. Loans made to directors and/or officers were made in the
ordinary course of business and were granted on the same terms, including
interest rates and collateral, as those prevailing at the same time for
comparable transactions with others. At December 31, 1996 and 1995 total loans
to directors or to any of their associates totaled $3,617,125 and $2,372,044,
respectively. During 1996, new loans or advances totaling $489,423 were made and
$163,698 was repaid. The Bank also repurchased a participated loan from a third
party that was previously made to a director of the Bank.
NOTE O -- COMMITMENTS AND CONTINGENCIES
In the normal course of business, there exist various outstanding
commitments to extend credit which are not reflected in the accompanying
financial statements. These commitments amounted to $7,727,263 at December 31,
1996 and $7,081,493 at December 31, 1995. This amount includes outstanding
standby letters of credit which totaled $164,208, and $233,103, at December 31,
1996 and 1995, respectively. The Bank does not anticipate any losses as a result
of fulfilling these commitments.
The Bank originates commercial loans, commercial real estate loans and
consumer loans to customers located primarily in Hartford County. At December
31,1996, the loan portfolio has no specific industry concentration. The Bank has
no exposure to highly leveraged transactions, foreign credits or other
off-balance sheet financial instruments.
NOTE P -- FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates, methods and assumptions are set forth below for the Bank's
financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the balance sheet
for cash and cash equivalents approximate those assets' fair values.
F-51
<PAGE>
FIRST BANK OF WEST HARTFORD
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
INVESTMENT SECURITIES: Fair values for investment securities were based on
quoted market prices.
LOANS HELD FOR SALE: The current market price of similar loans sold was used to
estimate the fair value of loans held for sale.
LOAN RECEIVABLES: For variable rate loans that reprice frequently and with no
significant change in credit risk, fair values were based on carrying values.
The fair values of commercial, consumer, real estate-mortgage, and real
estate-construction loans were estimated using discounted cash flow analyses,
using interest rates currently being offered for loans with similar terms to
borrowers with similar credit quality and for the same remaining maturities.
DEPOSIT LIABILITIES: The fair value of demand deposits, including interest and
non-interest checking, passbook savings and certain types of money market
accounts, are assumed to be equal to the amount payable on demand at the
reporting date. Fair values for fixed-rate certificates of deposit are estimated
using a discounted cash flow calculation that applies interest rates currently
being offered on certificates with similar remaining maturities.
OTHER BORROWINGS: The carrying amounts of other borrowings approximate their
fair values.
LONG-TERM BORROWINGS: The fair value of long-term borrowings was estimated using
discounted cash flow calculation that applies current rates to remaining
maturities.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT: The carrying values
of these financial instruments are based on fees charged to enter into the
agreements and approximate their fair values. The carrying values are
insignificant to the Bank's balance sheet and have been included in the carrying
values of loans and other assets for commitments and standby letters of credit,
respectively.
The estimated fair values of the Bank's financial instruments at December 31 are
as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------------------- -------------------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------- -------------- --------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents......... $ 8,550,254 $ 8,550,254 $ 7,319,156 $ 7,139,156
Investment securities............. 25,841,323 25,796,264 24,239,450 24,254,660
Loans held for sale............... 176,089 192,378 1,071,150 1,181,060
Loans, net of allowance for
loan losses..................... 46,062,445 46,278,220 40,097,848 40,199,279
Financial liabilities:
Deposits.......................... 70,106,370 70,232,265 70,242,378 70,485,137
FHLB borrowing.................... 3,950,705 3,945,072 -- --
Other borrowings.................. 275,317 275,317 76,527 76,527
</TABLE>
The fair value estimates consider relevant market information when
available. Because no market exists for a significant portion of the Bank's
financial instruments, fair value estimates are determined judgmentally and
consider various factors, including current economic conditions and risk
characteristics of certain financial instruments. Changes in factors, or the
weight assumed for the various factors, could significantly affect the estimated
values.
The fair estimates are presented for existing on- and off-balance sheet
financial instruments without attempting to estimate the value of the Bank's
long-term relationships with depositors and the benefit that results from the
low cost funding provided by deposit liabilities. In addition, significant
assets which were not considered financial instruments and were, therefore, not
a part of the fair value estimates include excess loan servicing rights,
deferred taxes, and premises and equipment.
F-52
<PAGE>
FIRST BANK OF WEST HARTFORD
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE Q -- SUBSEQUENT EVENTS (UNAUDITED)
On February 25, 1997, the Bank announced the signing of a definitive
agreement under which the Bank will be acquired by New England Community Bancorp
(NECB) in a tax-free stock-for-stock transaction. NECB is the holding company
for New England Bank & Trust Company and Equity Bank. First Bank of West
Hartford will be merged into New England Bank & Trust Company.
Under terms of the agreement, shareholders of First Bank of West Hartford
will receive 0.62 shares of NECB common stock for each share of First Bank of
West Hartford common stock they own. Under certain circumstances, First Bank of
West Hartford has the right to terminate the agreement if the price of NECB's
common stock should fall below $12.80 per share unless NECB agrees to adjust the
exchange ratio.
Based upon NECB's closing price per share of $16.75 on February 24, 1997,
the proposed merger has a transaction value of $10.39 per share of First Bank of
West Hartford stock, or an aggregate value of $17.1 million. The purchase price
is approximately 185% of the Bank's book value as of December 31, 1996 and 13.9
time the Bank's earnings for 1996. The transaction is subject to the approval by
shareholders of both the Bank and NECB as well as various regulatory agencies.
It is anticipated that the transaction will close by July, 1997 and will be
accounted for by the pooling-of-interest method of accounting.
QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the quarterly results of operations:
<TABLE>
<CAPTION>
FISCAL YEAR 1996, QUARTER ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Interest Income................. $1,482,106 $1,526,230 $1,608,338 $1,604,681
Interest Expense................ 522,353 518,490 523,838 527,140
----------- ---------- ---------- ----------
Net Interest Income........... 959,753 1,007,740 1,084,500 1,077,541
Provision for Loan Losses....... 75,000 30,000 30,000 220,000
Other Income.................... 221,093 321,133 252,892 243,050
Other Expenses.................. 837,943 927,174 781,421 715,993
Income Tax Expense (Benefit).... 20,277 66,100 156,600 81,500
----------- ---------- ---------- ----------
Net Income (Loss)............... $ 247,626 $ 305,599 $ 369,371 $ 303,098
=========== =========== ========== ==========
FISCAL YEAR 1995, QUARTER ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- ---------- ------------- ------------
Interest Income................. $ 1,433,517 $1,439,309 $1,464,900 $1,469,034
Interest Expense................ 427,047 471,810 935,906 920,973
----------- ---------- ---------- ---------
Net Interest Income........... 1,006,470 967,499 528,994 548,061
Provision for Loan Losses....... 220,000 130,000 100,000 50,000
Other Income.................... 147,645 197,697 159,387 146,997
Other Expenses.................. 781,937 882,801 803,167 812,806
Income Tax Expense (Benefit).... 590 (71,825) (598,000) (339,345)
----------- ---------- ---------- ----------
Net Income (Loss)............... $ 151,588 $ 224,220 $ 383,214 $ 171,597
=========== ========== ========== ==========
</TABLE>
This statement has not been reviewed by, or confirmed for accuracy or relevance,
by the Federal Deposit Insurance Corporation.
F-53
<PAGE>
APPENDIX A
PLAN AND AGREEMENT OF REORGANIZATION
By and Among
New England Community Bancorp, Inc.
and
New England Bank & Trust Company
and
First Bank of West Hartford
----------------------------------
Dated as of February 25, 1997
----------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1--THE REORGANIZATION............................................. A-1
1.01. The Reorganization...................................... A-1
1.02. Effective Time.......................................... A-1
1.03. Effect of the Reorganization............................ A-1
1.04. Conversion of First Bank Common Stock................... A-2
1.05 Dissenters' Rights...................................... A-2
1.06. Converting Stock Options................................ A-2
1.07. Other Matters........................................... A-3
1.08. Directors............................................... A-3
1.09. Accountholder Accounts.................................. A-3
1.10. Tax Consequences........................................ A-3
1.11. Certain Agreements...................................... A-3
ARTICLE II--EXCHANGE OF SHARES............................................ A-3
2.01. The Company to Make Reorganization Consideration
Available ............................................ A-3
2.02. Exchange of Shares...................................... A-4
ARTICLE III--REPRESENTATIONS AND WARRANTIES OF FIRST BANK................. A-5
3.01. Corporate Organization.................................. A-5
3.02. Capitalization.......................................... A-5
3.03. Authority; No Violation................................. A-5
3.04. Consents and Approvals.................................. A-6
3.05. Financial Statements.................................... A-6
3.06. Absence of Undisclosed Liabilities...................... A-6
3.07. Absence of Certain Changes or Events.................... A-6
3.08. Loan Portfolio.......................................... A-8
3.09. Investments............................................. A-8
3.10. Title to Properties..................................... A-9
3.11. Leases.................................................. A-9
3.12. Trademarks; Trade Names................................. A-9
3.13. Legal Proceedings....................................... A-9
3.14. Compliance with Applicable Laws......................... A-9
3.15. Absence of Questionable Payments........................ A-10
3.16. Taxes................................................... A-10
3.17. Employee Benefit and Other Plans........................ A-10
3.18. Contracts and Commitments; No Defaults.................. A-10
3.19. First Bank Reports...................................... A-12
3.20. Environmental Matters................................... A-12
3.21. First Bank Information.................................. A-12
3.22. Insurance............................................... A-12
3.23. Powers of Attorney; Guarantees.......................... A-12
3.24. Broker's Fees........................................... A-12
3.25. Agreements with Regulatory Agencies..................... A-12
3.26. Material Interests of Certain Persons................... A-13
ARTICLE IV--REPRESENTATIONS AND WARRANTIES OF THE COMPANY................. A-13
4.01. Corporate Organization.................................. A-13
4.02. Capitalization.......................................... A-13
4.03. Authority; No Violation................................. A-14
4.04. Consents and Approvals.................................. A-14
4.05. Financial Statements.................................... A-14
4.06. Broker's Fees........................................... A-15
4.07. Absence of Certain Changes or Events.................... A-15
4.08. Legal Proceedings....................................... A-15
i
<PAGE>
Page
----
4.09. SEC Reports............................................. A-16
4.10. Company Information..................................... A-16
4.11. Compliance with Applicable Law.......................... A-16
4.12. Absence of Questionable Payments........................ A-16
4.13. Taxes................................................... A-16
4.14. Employee Benefit and Other Plans........................ A-17
4.15. No Defaults............................................. A-17
4.16. Agreements with Regulatory Agencies..................... A-17
4.17. Regulatory Approvals.................................... A-17
4.18. Environmental Matters................................... A-17
ARTICLE V--COVENANTS RELATING TO CONDUCT OF BUSINESS...................... A-18
5.01. Covenants of First Bank................................. A-18
5.02. Covenants of the Company................................ A-19
ARTICLE VI--ADDITIONAL AGREEMENTS......................................... A-20
6.01. Regulatory Matters...................................... A-20
6.02. Access to Information................................... A-21
6.03. Shareholder Approvals................................... A-21
6.04. Legal Conditions to Reorganization...................... A-22
6.05. Affiliates.............................................. A-22
6.06. Stock Listing........................................... A-22
6.07. Employee Matters........................................ A-22
6.08. Financial Statements.................................... A-22
6.09. Additional Agreements................................... A-22
6.10. Disclosure Supplements.................................. A-23
6.11. Current Information..................................... A-23
6.12. Environmental Assessment................................ A-23
6.13. Public Announcements.................................... A-23
ARTICLE VII--CONDITIONS PRECEDENT......................................... A-24
7.01. Conditions to Each Party's Obligations Under This
Agreement. ........................................... A-24
7.02. Conditions to the Obligations of the Company Under This
Agreement............................................. A-24
7.03. Conditions to the Obligations of First Bank Under This
Agreement............................................. A-26
ARTICLE VIII--CLOSING...................................................... A-27
8.01. Time and Place.......................................... A-27
8.02. Deliveries at the Closing............................... A-27
ARTICLE IX--TERMINATION AND AMENDMENT...................................... A-27
9.01. Termination............................................. A-27
9.02. Effect of Termination................................... A-28
9.03. Amendment............................................... A-28
9.04. Extension; Waiver....................................... A-29
ARTICLE X--MISCELLANEOUS................................................... A-29
10.01. Expenses................................................ A-29
10.02. Fees and Expenses Under Certain Circumstances........... A-29
10.03. Non-Survival of Representations and Warranties.......... A-30
10.04. Indemnification and Directors' and Officers' Insurance.. A-30
10.05. Notification of Certain Matters......................... A-30
10.06. Notices................................................. A-31
10.07. Parties in Interest..................................... A-31
10.08. Complete Agreement...................................... A-31
10.09. Counterparts............................................ A-31
10.10. Governing Law........................................... A-31
10.11. Headings................................................ A-32
ii
<PAGE>
PLAN AND AGREEMENT OF REORGANIZATION
PLAN AND AGREEMENT OF REORGANIZATION, dated as of February 25, 1997, by
and among New England Community Bancorp, Inc., a Delaware corporation (the
"Company"), New England Bank & Trust Company, a Connecticut-chartered commercial
bank and a wholly-owned subsidiary of the Company (the "Bank"), and First Bank
of West Hartford, a Connecticut-chartered commercial bank ("First Bank").
WHEREAS, the Boards of Directors of the Company, the Bank and First Bank
have determined that it is in the best interests of their respective
institutions and shareholders to consummate the business combination transaction
provided for herein in which First Bank will, subject to the terms and
conditions set forth herein, merge with and into the Bank, with the Bank being
the surviving corporation in the Reorganization (the "Reorganization"); and
WHEREAS, the parties desire to make certain representations, warranties
and agreements in connection with the Reorganization and also to prescribe
certain conditions to the Reorganization.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE I
THE REORGANIZATION
1.01. The Reorganization. In accordance with the provisions of this
Agreement and of the banking laws of Connecticut, including Section 36a-125 of
the Connecticut General Statutes ("C.G.S."), at the Effective Time as defined by
Section 1.02, First Bank shall be merged with and into the Bank, the separate
corporate existence of First Bank shall cease, and the Bank shall continue its
corporate existence as the resulting corporation in the Reorganization (the
"Resulting Corporation") as a Connecticut-chartered commercial bank under the
name "New England Bank & Trust Company" with all of the powers provided to such
banks under the laws of the State of Connecticut. Also at the Effective Time,
all the outstanding shares of common stock, $0.01 par value, of First Bank
("First Bank Common Stock") (except for (i) shares held by First Bank as
treasury shares, (ii) shares owned by any direct or indirect subsidiary of First
Bank, (iii) shares held by the Company or the Bank other than in a fiduciary or
trust capacity for the benefit of third parties, and (iv) shares as to which
dissenters' rights have been perfected) will be converted into the right to
receive consideration in shares of the Class A common stock, $.l0 par value, of
the Company ("Company Common Stock"), without interest, in the manner specified
in Section 1.04 and Article II hereof, and each outstanding share of common
stock, $5.00 par value, of the Bank ("Bank Common Stock") and Company Common
Stock, respectively, shall remain outstanding and continue to be one fully paid
and nonassessable share of Common Stock of the Resulting Corporation and of the
Company, respectively.
1.02. Effective Time. The Reorganization shall become effective upon the
filing with the Secretary of State of the State of Connecticut (the "Secretary")
of a copy of this Agreement certified by the Banking Commissioner of the State
of Connecticut (the "Commissioner"), along with the Commissioner's approval of
the Reorganization.
1.03. Effect of the Reorganization. At and after the Effective Time and
by virtue of the Reorganization, the Resulting Corporation shall possess all the
rights, privileges, powers and franchises of First Bank and the entire assets,
business and franchises of First Bank shall be vested in the Resulting
Corporation without any deed or transfer, provided the parties may execute such
deeds or instruments of conveyance as may be convenient to confirm the same. The
Resulting Corporation shall assume and be liable for all debts, accounts,
undertakings, contractual obligations and liabilities of First Bank and shall
exercise and be subject to all the duties, relations, obligations, and trusts of
First Bank, whether as debtor, depository, registrar, transfer agent, executor,
administrator, trustee or otherwise, and shall be liable to pay and discharge
all such debts and liabilities, to perform such duties and to administer all
such trusts in the same manner and to the same extent as if the Resulting
Corporation had itself incurred the obligation or liability or assumed the duty,
relation or trust, and all rights of creditors and all liens upon the property
of First Bank shall be preserved unimpaired and the Resulting Corporation shall
be entitled to receive, accept, collect, hold and enjoy any and all gifts,
bequests, devises, conveyances, trusts and appointments in favor of or in the
name of First Bank whether made or created to take effect prior to or after the
Reorganization and the same shall inure to and vest in the Resulting
Corporation. In addition to the foregoing, the Reorganization shall have such
other effects as may be provided under the laws of the State of Connecticut.
A-1
<PAGE>
1.04. Conversion of First Bank Common Stock.
(a) At the Effective Time, each share of First Bank Common Stock
issued and outstanding immediately prior to the Effective Time (except
for (i) shares held by First Bank as treasury shares, (ii) shares owned
by any direct or indirect subsidiary of First Bank, (iii) shares held by
the Company, or the Bank, other than in a fiduciary or trust capacity for
the benefit of third parties, and (iv) shares as to which dissenters'
rights have been perfected) shall, by virtue of this Agreement and
without any action on the part of the holder thereof, be converted into
and exchangeable for Reorganization consideration ("Per Share
Reorganization Consideration") consisting of 0.62 shares (the "Exchange
Ratio") of Company Common Stock.
(b) At the Effective Time, all of the shares of First Bank Common
Stock converted into Company Common Stock pursuant to Article I shall no
longer be outstanding and shall automatically be canceled and shall cease
to exist, and each certificate (each a "Certificate") previously
representing any such shares of First Bank Common Stock shall thereafter
represent the right to receive the Per Share Reorganization Consideration
into which the share of First Bank Common Stock represented by such
Certificate has been converted pursuant to this Section 1.04 and Section
2.02(d) hereof. Certificates previously representing shares of First Bank
Common Stock shall be exchanged for certificates representing whole
shares of Company Common Stock and cash in lieu of fractional shares
issued in consideration therefor upon the surrender of such Certificates
in accordance with Section 2.02 hereof, without any interest thereon. If
prior to the Effective Time the Company should split or combine its
common stock, or pay a stock dividend or other distribution in such
common stock, then the Exchange Ratio shall be appropriately adjusted to
reflect such split, combination, dividend or distribution.
(c) At the Effective Time, (i) all shares of First Bank Common
Stock that are owned by First Bank as treasury shares, (ii) all shares of
First Bank Common Stock that are owned directly or indirectly by any
subsidiary of First Bank, and (iii) shares of First Bank Common Stock
held by the Company or the Bank other than in a fiduciary or trust
capacity for the benefit of third parties shall be canceled and shall
cease to exist and no stock of the Company or other consideration shall
be delivered in exchange therefor.
1.05. Dissenters' Rights. Notwithstanding anything in this Agreement to
the contrary and unless otherwise provided by applicable law, shares of First
Bank Common Stock which are issued and outstanding immediately prior to the
Effective Time and which are owned by shareholders who: (a) pursuant to
applicable law, deliver to First Bank, before the taking of the vote of First
Bank's shareholders on the Reorganization, written demand for the appraisal of
their shares, if the Reorganization is effected; and (b) whose shares are not
voted in favor of the Reorganization, nor consented thereto in writing (the
"Dissenting Shares"), shall not be converted into Reorganization consideration
as provided in Section 1.04, unless and until such holders shall have failed to
perfect or shall have effectively withdrawn or lost their right of appraisal and
payment under applicable law. If any such holder shall have failed to perfect or
shall have effectively withdrawn or lost such right of appraisal, First Bank
Common Stock of such holder shall thereupon be deemed to have been converted
into the right to receive and become exchangeable for, at the Effective Time,
Reorganization Consideration determined pursuant to Section 1.04 and Section
2.02(d) hereof.
1.06. Converting Stock Options. Stock Options (as defined in Section
3.02) which, as of the Effective Time, are outstanding and fully vested and
exercisable as to all of the shares of First Bank Common Stock that are subject
to such option (including options that become exercisable as a result of the
transactions contemplated by this Agreement) (each, a "Vested Stock Option"),
shall be converted at the Effective Time into Company Common Stock in accordance
with the formula set forth below, to the extent permitted under the First Bank
Stock Option Plans (as defined in Section 3.2) and the agreement pursuant to
which such Vested Stock Options were granted (each, an "Option Grant
Agreement"). Each Vested Stock Option to be so converted is referred to herein
as a "Converting Stock Option." If conversion of any Vested Stock Option would
not be permitted under the related First Bank Stock Option Plan or Option Grant
Agreement without the consent of the optionee affected thereby, First Bank, in
consultation with the Company, shall use its reasonable best efforts to obtain
the consent of the necessary parties to amend the related First Bank Stock
Option Plan or Option Grant Agreement, or both, as necessary to permit such
conversion, and to cause Vested Stock Options outstanding as the Effective Time
to be Converting Stock Options.
(i) Each outstanding Converting Stock Option shall be valued on
the basis of the Median Pre-Closing Price of Company Common Stock (as
defined below) multiplied by the Exchange Ratio and subtracting the
stated exercise price for each Converting Stock Option from the
product therefrom (the "Option Value"), and
A-2
<PAGE>
(ii) Each holder of Converting Stock Options shall receive at the
Effective Time, a number of shares of Company Common Stock equal to
the aggregate Option Value for all of such holder's Converting Stock
Options, divided by the Median Pre-Closing Price of Company Common
Stock.
(iii) Cash shall be paid in lieu of fractional shares, based upon
the Median Pre-Closing Price of Company Common Stock.
The "Median Pre-Closing Price" of Company Common Stock shall mean the
Median Price (as hereinafter defined) calculated based upon the Closing Price
(as hereinafter defined) of Company Common Stock during the first 20 of the 25
consecutive trading days immediately preceding the date of the Closing. The
"Closing Price" shall mean the closing price of Company Common Stock as supplied
by the National Association of Securities Dealers Automated Quotations System
("NASDAQ") and published in The Wall Street Journal during the first 20 of the
25 consecutive trading days immediately preceding the date of the Closing. The
"Median Price" shall be determined by taking the price half-way between the
Closing Prices left after discarding the 9 lowest and 9 highest Closing Prices
in the 20 day period. A trading day shall mean a day for which a Closing Price
is so supplied and published.
1.07. Other Matters. At and after the Effective Time: (i) the Resulting
Corporation's main office shall continue to be located in Windsor, Connecticut,
(ii) except as provided in Section 1.08 hereof, the Directors and officers of
the Bank who are holding office immediately prior to the Effective Time shall
continue to be the Resulting Corporation's Directors and officers, (iii) the
Certificate of Incorporation and Bylaws of the Bank existing immediately prior
to the Effective Time shall continue to be the Certificate of Incorporation and
Bylaws of the Resulting Corporation, (iv) the authorized capital stock of the
Resulting Corporation at the Effective Time shall consist of 350,000 shares of
common stock, $5.00 par value per share, and no shares of preferred stock, as
provided in the Certificate of Incorporation of the Bank, and (v) the minimum
and maximum number of Directors of the Resulting Corporation shall be as set
forth in the Certificate of Incorporation and Bylaws of the Resulting
Corporation.
1.08. Directors. At the Effective Time, the Company shall provide for the
election of one First Bank Director, as selected by the Company, to the Board of
Directors of the Company and two First Bank Directors, as selected by the
Company, to the Board of Directors of the Resulting Corporation. The Company
further agrees to nominate said First Bank Directors for re-election at the 1998
Annual Meeting of the shareholders of the Company and of the shareholder of the
Resulting Corporation, subject to their continued qualification under the
Company's and the Resulting Corporation's general criteria for Directors.
1.09. Accountholder Accounts. Upon the Effective Time, subject to any
contractual provisions in effect between First Bank and its accountholders, the
Resulting Corporation shall provide to each accountholder of First Bank, without
charge, an account or accounts in the Resulting Corporation which shall be equal
in value to the deposit account or accounts held by such accountholder in First
Bank at such time. To the extent practicable, but without requiring that the
Resulting Corporation establish any new types of accounts, or to change the
terms of the types of accounts which the Bank had established prior to the
Effective Time, the accounts provided by the Resulting Corporation to the
accountholders of First Bank shall be selected from among the types of accounts
which were made available by the Bank to its depositors prior to the Effective
Time with a view toward ensuring that the accounts provided by the Resulting
Corporation to the accountholders of First Bank shall be comparable to the
deposit accounts which were held by such accountholders in First Bank prior to
the Reorganization
1.10. Tax Consequences. It is intended that the Reorganization shall
constitute a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and that this Agreement shall
constitute a tax-free "plan of reorganization" for the purposes of Section 368
of the Code.
1.11. Certain Agreements. In order to protect the integrity of this
Agreement, as of the date of this Agreement, the Company and certain
shareholders of First Bank are entering into agreements (the "Shareholder
Agreements") whereby such shareholders agree to take or refrain from certain
actions.
ARTICLE II
EXCHANGE OF SHARES
2.01. The Company to Make Reorganization Consideration Available. At or
prior to the Effective Time, the Company shall deposit, or shall cause to be
deposited, with a bank or trust company selected by the Company (the "Exchange
Agent"), for the benefit of the holders of Certificates, for exchange in
accordance with this Article II, certificates representing the shares of Company
Common Stock sufficient to pay the Reorganization consideration provided for in
Section 1.04 (the"Reorganization Consideration") (such certificates for shares
of Company Com-
A-3
<PAGE>
mon Stock, together with any dividends or distributions with respect thereto,
being hereinafter referred to as the "Exchange Fund") to be issued and paid
pursuant to Section 2.02(a) in exchange for outstanding shares of First Bank
Common Stock.
2.02. Exchange of Shares.
(a) As soon as practicable after the Effective Time, and in no
event later than five business days thereafter, the Exchange Agent shall
mail to each holder of record of a Certificate or Certificates a letter
of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery
of the Certificates to the Exchange Agent) and instructions for use in
effecting the surrender of the Certificates in exchange for
Reorganization Consideration into which the shares of First Bank Common
Stock represented by such Certificate or Certificates shall have been
converted pursuant to this Agreement. Upon surrender of a Certificate for
exchange and cancellation to the Exchange Agent, together with such
letter of transmittal, duly executed, the holder of such Certificates
shall be entitled to receive in exchange therefor (x) a certificate
representing that number of whole shares of Company Common Stock to which
such holder of First Bank Common Stock shall have become entitled
pursuant to the provisions of Article I hereof and (y) a check
representing the amount of cash in lieu of fractional shares, if any,
which such holder has the right to receive in respect of the Certificate
surrendered pursuant to the provisions of this Article II, and the
Certificate so surrendered shall forthwith be canceled. No interest will
be paid or accrued on any cash payable hereunder or on unpaid dividends
and distributions, if any, payable to holders of Certificates.
(b) At the Effective Time and until so surrendered and exchanged,
each such Certificate other than Certificates representing (i) all shares
of First Bank Common Stock that are owned by First Bank as treasury
shares, (ii) all shares of First Bank Common Stock that are owned
directly or indirectly by any subsidiary of First Bank, (iii) shares of
First Bank Common Stock held by the Company or the Bank other than in a
fiduciary or trust capacity for the benefit of third parties, and (iv)
shares of First Bank as to which dissenters' rights have been perfected,
shall represent solely the right to receive Reorganization Consideration
as provided for in this Agreement. If Reorganization Consideration (or
any portion thereof) is to be delivered to any person other than the
person in whose name the certificate representing shares of First Bank
Common Stock surrendered in exchange therefor is registered, it shall be
a condition to such exchange that the Certificate so surrendered shall be
properly endorsed or otherwise be in proper form for transfer and that
the person requesting such exchange shall pay to the Exchange Agent any
transfer or other taxes required by reason of the payment of
Reorganization Consideration to a person other than the registered holder
of the Certificate surrendered, or shall establish to the satisfaction of
the Exchange Agent that such tax has been paid or is not applicable.
(c) After the Effective Time, there shall be no transfers on the
stock transfer books of First Bank of the shares of First Bank Common
Stock which were issued and outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates representing
such shares are presented for transfer to the Exchange Agent, they shall
be canceled and exchanged for Reorganization Consideration as provided in
this Article II.
(d) Notwithstanding anything to the contrary contained herein, no
certificates or scrip representing fractional shares of Company Common
Stock shall be issued upon the surrender for exchange of Certificates, no
dividend or distribution with respect to Company Common Stock shall be
payable on or with respect to any fractional share, and such fractional
share interests shall not entitle the owner thereof to vote or to any
other rights of a shareholder. In lieu of the issuance of any such
fractional share, each former shareholder of First Bank who otherwise
would be entitled to receive a fractional share of Company Common Stock
shall be entitled to receive an amount in cash determined by multiplying
(i) the Median Pre-Closing Price of Company Common Stock as defined in
Section 1.06 hereof by (ii) the fraction of a share of Company Common
Stock to which such holder would otherwise be entitled to receive
pursuant to Section 1.04 hereof.
(e) Any portion of the Exchange Fund that remains unclaimed by the
shareholders of First Bank for 12 months after the Effective Time shall
be paid to the Company. Any shareholders of First Bank who have not
theretofore complied with this Article II shall thereafter look only to
the Company for payment of Reorganization Consideration deliverable in
respect of each share of First Bank Common Stock such shareholder holds
as determined pursuant to this Agreement, in each case, without any
interest thereon. Notwithstanding the foregoing, none of the Company, the
Bank, First Bank, the Exchange Agent or any other person shall be liable
to any former holder of shares of First Bank Common Stock for any amount
properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
A-4
<PAGE>
(f) In the event that any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if
required by the Company, the posting by such person of a bond in such
amount as the Company may direct as indemnity against any claim that may
be made against it with respect to such Certificate, the Exchange Agent
will issue in exchange for such lost, stolen or destroyed Certificate,
the Reorganization Consideration deliverable in respect thereof pursuant
to this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FIRST BANK
First Bank hereby represents and warrants to the Bank and the Company as
follows:
3.01. Corporate Organization.
(a) First Bank is a state bank and trust company duly organized,
validly existing and in good standing under the laws of the State of
Connecticut. First Bank has the corporate power and authority to own or
lease all of its properties and assets and to carry on its business as it
is now being conducted. First Bank has all necessary federal, state and
local banking authorization to own or lease its properties and assets and
to carry on its business as it is being conducted. The accounts of
depositors of First Bank are insured by the Bank Insurance Fund ("BIF")
of the Federal Deposit Insurance Corporation (the "FDIC") in accordance
with law and with the regulations of the FDIC and all premiums and
assessments required in connection therewith have been paid. The copies
of First Bank's Certificate of Incorporation and Bylaws, each certified
by its Secretary as of the date of this Agreement, which are being
delivered to the Company herewith, are complete and correct copies in
effect as of the date of this Agreement. Except as listed on the attached
Schedule 3.0l(a), First Bank does not have any wholly owned subsidiaries
or capital stock or other equity ownership interest in any corporation,
partnership or other entity which totals 5% or more of such entity's
total equity.
(b) As used in this Agreement, the word "Subsidiary", when used
with respect to any party, means any corporation, partnership or other
organization, whether incorporated or unincorporated, which is
consolidated with such party for financial purposes. Each such subsidiary
of First Bank is wholly owned by First Bank and is duly organized,
validly existing and in good standing under the laws of the State of its
incorporation and has all corporate power and authority required to own
or lease all of its properties and assets and to carry on its business as
then conducted. For purposes of this Agreement, all representations and
warranties of First Bank pertaining to its business, operations and
financial condition shall be deemed to include the business, operations
and financial condition of each subsidiary of First Bank.
(c) First Bank's minute books contains complete and accurate
records of all meetings through January 31, 1997, and other corporate
actions of its shareholders and its Board of Directors (including
committees of its Board of Directors).
3.02. Capitalization. The authorized capital stock of First Bank consists
solely of 4,000,000 shares of common stock, $0.01 par value ("First Bank Common
Stock"). As of the date of this Agreement, there were 1,541,593 shares of First
Bank Common Stock issued and outstanding, no shares held in First Bank's
treasury and 141,800 shares reserved for issuance upon exercise of outstanding
stock options (the "Stock Options") pursuant to the 1994 Directors' Stock Option
Plan and the 1994 Officers' and Employees' Stock Option Plan (the "First Bank
Stock Option Plans"). All issued and outstanding shares of First Bank Common
Stock have been duly authorized and validly issued and are fully paid and
nonassessable. Except as provided in this Section 3.02, First Bank does not have
and is not bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the purchase or issuance
of any shares of First Bank capital stock or any security representing the right
to purchase or otherwise receive any capital stock of First Bank. None of the
shares of capital stock of First Bank has been issued in violation of the
preemptive rights of any person. Except as provided for in this Agreement, there
are no agreements of record or of which First Bank is aware among any of the
First Bank shareholders relating to rights to own, vote or dispose of First Bank
Common Stock.
3.03. Authority; No Violation.
(a) First Bank has all necessary corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by
First Bank and the consummation by First Bank of the transactions
contemplated by this Agreement have been duly and validly approved by the
Board of Directors of First Bank and a certified copy of the Board
resolution
A-5
<PAGE>
reflecting such approval is attached hereto as Schedule 3.03(a). The
Board of Directors of First Bank has directed that this Agreement and the
transactions contemplated hereby be submitted to First Bank's
shareholders for consideration at a meeting of such shareholders and,
except for the adoption of this Agreement by the requisite vote of First
Bank's shareholders, no other corporate proceedings on the part of First
Bank are necessary to approve this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by First Bank and (assuming adoption of
the Agreement by the requisite vote of First Bank's shareholders and the
due authorization, execution and delivery by the Bank and the Company,
and also subject to the receipt of the requisite regulatory approvals)
constitutes a valid and binding obligation of First Bank, enforceable
against First Bank in accordance with its terms, except as enforcement
may be limited by general principles of equity, whether applied in a
court of law or a court of equity, and by bankruptcy, insolvency and
similar laws affecting creditors' rights and remedies generally.
(b) Neither the execution and delivery of this Agreement by First
Bank, nor the consummation by First Bank of the transactions contemplated
hereby, nor compliance by First Bank with any of the terms or provisions
hereof, will (i) violate any provision of the Certificate of
Incorporation or Bylaws of First Bank or (ii) assuming that the consents
and approvals referred to in Section 3.04 hereof are duly obtained, (x)
violate any statute, code, ordinance, rule, regulation, judgment, order,
writ, decree or injunction applicable to First Bank, or (y) violate,
result in a breach of any provision of, constitute a default under, or
result in the creation of any material lien, pledge, security interest,
charge or other encumbrance upon any of the properties or assets of First
Bank under any of the terms, conditions of any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument
or obligation to which First Bank is a party, or by which it or any of
its properties or assets may be bound or affected.
3.04. Consents and Approvals. Except for consents, approvals, filings or
registrations which may be required of or with the Commissioner, the FDIC, any
other applicable governmental authorities and the shareholders of First Bank, no
consents or approvals of or filings or registrations with any third party or any
public body or authority are necessary in connection with (a) the execution and
delivery by First Bank of this Agreement or (b) the consummation of the
Reorganization and the other transactions contemplated hereby, insofar as they
relate to any actions required of First Bank.
3.05. Financial Statements. First Bank has previously delivered to the
Company accurate and complete copies of (a) the balance sheets of First Bank as
of December 31 of each of the four fiscal years 1993 through 1995, inclusive,
and the related statements of operations, statements of shareholders' equity,
and statements of cash flows for the periods then ended, in each case
accompanied by the report of First Bank's independent certified public
accountants, (b) all management letters from such accountants delivered to First
Bank since January 1, 1993, and (c) the unaudited balance sheet of First Bank as
of December 31, 1996 and the related unaudited statements of operations,
statements of shareholders' equity, and statements of cash flows for the twelve
month period then ended. Within 30 days of the date of this Agreement, First
Bank will deliver to the Company the audited financial statements of First Bank
as of and for the year ended December 31, 1995. Each of the financial statements
referenced above ("Financial Statements") has been and will be prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with other periods, except as otherwise noted therein or in notes
thereto, and fairly presents in all material respects the financial condition or
income of First Bank as at the date thereof and for the period covered thereby.
Except as and to the extent reflected or reserved in the balance sheets included
in the Financial Statements or notes thereto, First Bank did not have, as of the
dates of such balance sheets, any material liabilities or obligations (absolute
or contingent) of a nature customarily reflected in balance sheets or notes
thereto prepared in accordance with generally accepted accounting principles
("GAAP"). The books and records of First Bank have been, and are being,
maintained in all material respects in accordance with applicable legal and
accounting requirements and reflect only valid transactions.
3.06. Absence of Undisclosed Liabilities. Except for the transactions
contemplated by this Agreement, First Bank has not incurred any liability
(contingent or otherwise) that is material to First Bank or that, when combined
with all similar liabilities, would be material to First Bank, except as
disclosed in the notes to First Bank's December 31, 1996 balance sheet, and
except for commitments and contingencies incurred in the ordinary course of
business.
3.07. Absence of Certain Changes or Events.
(a) Except as set forth in Schedule 3.07(a) or elsewhere in the
Schedules delivered by First Bank, since December 31, 1996, there has not
been:
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(1) any material adverse change in the business,
operations, properties, assets or financial condition of First
Bank and no fact or condition exists which First Bank believes
will cause such a material adverse change in the future,
(2) any loss (for purposes of this subsection 3.07(a)(2),
"loss" shall not mean a loan loss), damage, destruction or other
casualty materially and adversely affecting any of the significant
properties, assets or business of First Bank (whether or not
covered by insurance);
(3) any increase in the compensation payable by First Bank
to any of its employees whose total compensation after such
increase was in excess of $50,000 per annum, or to any of its
Directors, officers, agents, consultants, or any bonus, service
award or other like benefit granted, made or accrued to the credit
of any such Director, officer, agent, consultant or employee, or
any welfare, pension, retirement, severance or similar payment or
arrangement made or agreed to by First Bank for the benefit of any
such Director, officer, agent, consultant or employee;
(4) any change in any method of accounting or accounting
practice of First Bank;
(5) any rescheduling or moratorium on payments, or writing
off as uncollectible of any individual loan in excess of $10,000,
or loans in the aggregate in excess of $50,000, or any portion
thereof; or
(6) any agreement or understanding, whether in writing or
otherwise, of First Bank to do any of the foregoing.
(b) Except as set forth in Schedule 3.07(b) since December 31,
1996, First Bank has not:
(1) issued or sold any promissory notes, stock, bonds or
other corporate securities of which it is the issuer;
(2) discharged or satisfied any lien or encumbrance or paid
or satisfied any obligation or liabilities (whether absolute,
accrued, contingent or otherwise and whether due or to become due)
in an amount greater than $25,000, other than current liabilities
shown on the December 31, 1996 balance sheet (the "1996 Balance
Sheet") and current liabilities incurred since December 31, 1996
in the ordinary course of business;
(3) declared, paid or set aside for payment any dividend or
other distribution (whether in cash, stock or property) in respect
of its capital stock;
(4) split, combined or reclassified any shares of its
capital stock, or redeemed, purchased or otherwise acquired any
shares of its capital stock or other securities;
(5) sold, assigned, or transferred any of its assets (real,
personal or mixed, tangible or intangible), canceled any debts or
claims or waived any rights of substantial value, except, in each
case, in the ordinary course of business;
(6) sold, assigned, transferred or permitted to lapse any
patents, trademarks, trade names, copyrights or other similar
assets, including applications or licenses therefor;
(7) paid any amounts or incurred any liability to or in
respect of, or sold any properties or assets (real, personal or
mixed, tangible or intangible) to, or engaged in any transaction
or entered into any agreement or arrangement with, any corporation
or business in which First Bank or any of its officers or
Directors, or any "affiliate" or "associate" (as such terms are
defined in the rules and regulations promulgated under the
Securities Act of 1933, as amended (the "Securities Act")) of any
such person, has any direct or indirect interest;
(8) entered into or amended any collective bargaining
agreement or suffered any material strike, work stoppage, slow
down, or other labor disturbance;
(9) amended its Certificate or Incorporation or Bylaws, or
any provision thereof, or proposed any such amendment;
(10) borrowed or agreed to borrow any funds or incurred, or
become subject to, any obligation or liability (absolute or
contingent), except for borrowings from the Federal Home Loan Bank
of Boston or other borrowings in the ordinary course of business;
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(11) waived any rights of value which in the aggregate are
material considering the business of First Bank taken as a whole;
(12) except in the ordinary course of business, made or
permitted any amendment or termination of any contract, agreement
or license to which it is a party if such amendment or termination
would have a material adverse effect on First Bank, or its
business or operations taken as a whole;
(13) made any material investment or commitment therefor in
any person, corporation, association, partnership, joint venture
or other entity;
(14) permitted the occurrence of any change or event within
its control which would render any of its representations and
warranties contained herein untrue in any material respect at and
as of the Effective Time;
(15) incurred any liability that has had, or to the
knowledge of First Bank, any liability that could reasonably be
expected to have, a material adverse effect on First Bank, or its
business or operations taken as a whole; or
(16) entered into any other transaction other than in the
ordinary course of business or in connection with the transactions
contemplated by this Agreement.
3.08. Loan Portfolio. Except as set forth in Schedule 3.08, all evidences
of indebtedness reflected as assets of First Bank in First Bank's Financial
Statements are in all respects binding obligations of the respective primary
obligors named therein and no material amount thereof is subject to any defenses
known to First Bank which may be asserted against First Bank. Except as set
forth on Schedule 3.08, First Bank has delivered to the Company a true and
complete list in all material respects and brief description of all real
property in which First Bank has an interest as creditor or mortgagee securing
an amount or amounts greater than $250,000 to one borrower, or a series of
related borrowers. Except as set forth in such list, First Bank has no loans
reflected as assets in such Financial Statements which have principal balances
in excess of $25,000, except for fully secured mortgage loans. For the purposes
hereof, "default" shall include but not be limited to a failure of an obligor to
make any payments with respect to any loans for 30 days or more past the due
date for such payment. Schedule 3.08 sets forth all of the loans in the original
principal amount in excess of $100,000 of First Bank that as of the date of this
Agreement are classified by First Bank as "Special Mention," "Substandard,"
"Doubtful," "Loss" or "Classified," together with the aggregate principal amount
of and accrued and unpaid interest on such loans by category. Except for normal
examinations conducted by (i) the FDIC, and (ii) the Commissioner, in the
regular course of the business of First Bank, and except for the Stipulation and
Consent to the Issuance of an Order to Cease and Desist, now terminated, issued
by the FDIC and consented to by the Commissioner, which became effective January
25, 1992, and the Resolutions adopted by the Board of Directors of First Bank on
September 27, 1995, no agency has initiated any proceeding into the business or
operations of First Bank since December 31, 1992. The amount established by
First Bank as a reserve for loan losses on the date hereof is sufficient in all
material respects to cover losses in First Bank's loan portfolio as it now
exists.
3.09. Investments.
(a) Except as set forth in Schedule 3.09, First Bank has no
subsidiaries other than as listed on Schedule 3.01(a) and no equity
interest or other investment, direct or indirect, in any corporation,
partnership, joint venture or other entity other than interests that have
been pledged to First Bank as collateral for loans or obligations made by
First Bank in the ordinary course of its lending business. To the extent
any such interest has been foreclosed or otherwise thereafter become
owned by First Bank, no filing with any regulatory authority is
necessary.
(b) Except as disclosed in the notes to First Bank's December 31,
1996 balance sheet and on Schedule 3.09 and except for pledges to secure
public funds or for other purposes required by law, none of the
investments reflected under the heading "Investment Securities" in First
Bank's 1996 Balance Sheet which are owned by First Bank at the Effective
Time and none of the investments made by First Bank since December 31,
1996 are subject to any investment or other restriction, whether
contractual or statutory, which materially impairs the ability of the
holder freely to dispose thereof in the open market at any time.
(c) Schedule 3.09 sets forth the book and market value as of
December 31, 1996 of the investment securities, mortgage backed
securities and securities held for sale of First Bank.
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3.10. Title to Properties. Except as set forth in Schedule 3.10, First
Bank has good, valid and marketable title to (a) all its owned real properties,
and (b) all other properties and assets reflected in the 1996 Balance Sheet or
acquired since December 31, 1996, other than any of such properties or assets
which have been sold or otherwise disposed of since December 31, 1996 in the
ordinary course of business and consistent with past practice. Except as set
forth in Schedule 3.10, and except for First Bank's loans which are described in
Section 3.08 all of such properties and assets are free and clear of title
defects and obligations, mortgages, pledges, liens, claims, charges, security
interests or other encumbrances of any nature whatsoever, including, without
limitation, leases, options to purchase, conditional sales contracts, collateral
security arrangements and other title or interest retention arrangements, and
are not, in the case of owned real property, subject to any easements, building
use restrictions, exceptions, reservations or limitations of any nature
whatsoever except those having no material adverse effect upon the operations of
First Bank or which would involve no material expense to correct or remove. All
personal property material to the business, operations or financial condition of
First Bank, and all buildings, structures and fixtures used by First Bank in the
conduct of its business, are in good operating condition and have been properly
maintained. Except as set forth in Schedule 3.10, First Bank has not received
any notification of any violation (which has not been cured) of any building,
zoning or other law, ordinance or regulation in respect of such property or
structures or First Bank's use thereof.
3.11. Leases. First Bank owns no real property used in the operation of
its business, except as listed in Schedule 3.11, and First Bank has delivered to
the Company an accurate and complete list of all leases pursuant to which First
Bank, as lessee, leases real or personal property, including, without
limitation, all leases of computer or computer services and all arrangements for
time-sharing or other data processing services, describing for each lease First
Bank's financial obligations under such lease, its expiration date and renewal
terms. Except as set forth in Schedule 3.11, (a) all such leases are valid and
binding and are enforceable in accordance with their terms, and (b) there exists
on the part of First Bank no event of default or event, occurrence, condition or
act which with the giving of notice, the lapse of time or the happening of any
further event or condition would become a default under any such lease.
3.12. Trademarks; Trade Names. To the best knowledge of First Bank, set
forth in Schedule 3.12 is an accurate and complete list and brief description of
all trademarks (either registered or common law), trade names and copyrights
(and all applications and licenses therefor) owned by First Bank or in which it
has any interest. First Bank owns, or has the right to use, all trademarks,
trade names and copyrights used in or necessary for the ordinary conduct of its
existing business as heretofore conducted, and the consummation of the
transactions contemplated hereby will not alter or impair any such rights.
Except as set forth in Schedule 3.12, no claims are pending by any person for
the use of any trademarks, trade names or copyrights or challenging or
questioning the validity or effectiveness of any license or agreement relating
to the same, nor, to the best knowledge of First Bank, is there any valid basis
for any such claim, challenge or question, and use of such trademarks, trade
names and copyrights by First Bank does not infringe on the rights of any
person.
3.13. Legal Proceedings. Except as set forth in the attached Schedule
3.13, First Bank is not a party to any, and there are no pending or, to the best
knowledge of First Bank's management, threatened legal, administrative,
arbitration or other proceedings, claims, actions, suits or governmental
investigations of any nature involving, affecting or relating to First Bank
other than such matters arising in the ordinary course of First Bank's business
which, individually and in the aggregate, are not material, or challenging the
validity or propriety of the transactions contemplated in this Agreement; and
there is not known to First Bank any reasonable basis for any such proceedings,
claim, action or governmental investigation. First Bank is not a party to any
order, judgment or decree which will, or might reasonably be expected to, affect
its business, operations, properties, assets, financial condition, prospects or
results of operations or its ability to acquire any property or conduct business
in any area in which it presently does business.
3.14. Compliance with Applicable Laws. First Bank holds, and has at all
times held, all material licenses, franchises, permits and authorizations
necessary for the lawful conduct of its business under and pursuant to all, and
has complied in all materials respects with and is not in default in any
material respect under, any applicable law, statute, order, rule, regulation,
policy or guideline of any federal, state or local governmental authority
relating to it, and which may materially affect the business, operations, or
financial condition of First Bank, and has not received notice of violation of,
and does not know of any violations of, any of the above. To the best knowledge
of First Bank, no suspension or cancellation of any material license, franchise,
permit or authorization is threatened.
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3.15. Absence of Questionable Payments. First Bank has not, nor has any
Director, officer, agent, employee, consultant or other person associated with,
or acting on behalf of, First Bank, (a) used any First Bank corporate funds for
unlawful contributions, gifts, entertainment or other unlawful expenses relating
to political activity, or (b) made any direct or indirect unlawful payments to
government officials from any First Bank corporate funds, or established or
maintained any unlawful or unrecorded accounts with funds received from First
Bank.
3.16. Taxes. First Bank properly and accurately completed and duly filed
in correct form all federal, state and local information and tax returns
required to be filed by it (all such returns being accurate and complete in all
material respects) and has duly paid or made provisions for the payment of all
taxes and other charges which have been incurred or are due or claimed to be due
from it by federal, state or local taxing authorities (including, without
limitation, those due in respect of its properties, income, business, capital
stock, deposits, franchises, licenses, sales and payrolls). The amounts set up
as reserves for taxes on the 1996 Balance Sheet are, to the best of First Bank's
knowledge, sufficient in the aggregate for the payment of all unpaid federal,
state and local taxes (including any interest or penalties thereon and including
reserves for local real estate or other property taxes in an amount which is at
least as great as the amount of such taxes paid in any prior year), whether or
not disputed, accrued or applicable for the period ended December 31, 1996 or
for any year or period prior thereto, and for which First Bank may be liable in
its own right or as transferee of the assets of, or successor to, any
corporation, person, association, partnership, joint venture or other entity.
The federal and state income tax returns of First Bank have never been examined
by the Internal Revenue Service.
To the best of First Bank's knowledge, there are no pending questions
relating to, or claims asserted for, taxes or assessments upon First Bank nor
has First Bank been requested to give any waivers extending the statutory period
of limitation applicable to any federal, state or local income tax return for
any period. Proper and accurate amounts have been withheld by First Bank from
its employees for all prior periods in compliance with the tax withholding
provisions of applicable federal, state and local laws; federal, state and local
returns, accurate and complete in all material respects, have been filed by
First Bank for all periods for which returns were due with respect to income tax
withholding, Social Security, property, sales, retirement plan and unemployment
taxes; and the amounts shown on such returns to be due and payable have been
paid in full or adequate provision therefor has been included by First Bank in
its financial statements as of December 31, 1996.
3.17. Employee Benefit and Other Plans. Except as set forth in Schedule
3.17, First Bank neither maintains nor contributes to any "employee pension
benefit plan" or "employee welfare benefit plan," as such terms are defined in
Section 3 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). With respect to any such plan listed on Schedule 3.17, First Bank is
in compliance with, and such plans comply with, ERISA. In this connection, (i)
no "reportable event" has occurred and is continuing with respect to any such
plans; (ii) the statements of assets and liabilities of such plans as of the
close of the most recent plan year for which financial statements are available,
and the statements of changes in fund balance and in financial position, or the
statements of changes in net assets available for each plan's benefits, for the
plan year then ended, fairly present the financial condition of such plan for
such plan year; (iii) except as disclosed in the annual reports of the plans, no
"prohibited transaction" (as defined in Section 406 of ERISA) resulting in
material liability of First Bank has occurred with respect to the plans; (iv) no
breach of fiduciary responsibility under Part 4 of Title I of ERISA resulting in
material liability of First Bank has occurred with respect to the plans; (v) all
contributions required to be made to the plans have been made; (vi) no waiver of
the minimum funding standards under ERISA or the Code is in effect or has been
applied for with respect to the plans; (vii) as of the latest valuation date,
the present value of the assets of First Bank's plans listed on the attached
Schedule 3.17 which are subject to Title IV of ERISA (other than "Multiemployer
Plans," as defined in Section 3 of ERISA), exceeds the present value of all
vested accrued benefits under such plans, based upon actuarial assumptions
currently utilized for such plans; (viii) First Bank does not currently maintain
or contribute to a Multiemployer Plan; (ix) each of First Bank's plans listed on
the attached Schedule 3.17 which is intended to be a qualified plan within the
meaning of Section 401(a) of the Code has been determined by the Internal
Revenue Service to be so qualified to the extent required under current law, and
First Bank is not aware of any fact or circumstance which would adversely affect
the qualified status of any such plan; and (x) no liability under Title IV of
ERISA has been incurred by First Bank that has not been satisfied in full.
3.18. Contracts and Commitments; No Defaults.
(a) Set forth in or attached to Schedule 3.18 are true and correct
copies of the following documents or summary descriptions of the
following information relating to First Bank:
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(1) subject to applicable law, any bank regulatory agency
reports or other communication relating to the examination of
First Bank which have been made available to First Bank;
(2) the name of each bank with which First Bank has an
account or safekeeping or custodial arrangement or correspondent
relationship and the names of all persons who are authorized with
respect thereto;
(3) all mortgages, indentures, promissory notes, deeds of
trust, loan or credit agreements or similar instruments under
which First Bank is indebted in an amount greater than $100,000
for borrowed money or the price of purchased property, accompanied
by copies thereof including all amendments or modifications of any
thereof;
(4) any loans or other credit arrangements by First Bank
to, with or for the benefit of any holder of 5% or more of First
Bank Common Stock, any of First Bank's Directors or officers, or,
to the best of First Bank's knowledge, any members of the
immediate families of any of such persons or any corporation, firm
or other entity in which any of such Directors or officers has a
financial interest; and
(5) any pending application, including any documents or
materials relating thereto, which has been filed by First Bank
with any bank regulatory authority in order to obtain the approval
of such bank regulatory authority for the establishment of a new
branch bank or for any other purpose.
(b) Except as set forth in Schedule 3.18, First Bank is not a
party to or bound by, nor have any bids or proposals been made by or to
First Bank with respect to, any written or oral, express or, to the best
of First Bank's knowledge, implied:
(1) contract relating to the matters referred to in
paragraph (a) above;
(2) contract with or arrangement for Directors, officers,
employees, former employees, agents or consultants with respect to
salaries, bonuses, percentage compensation, pensions, deferred
compensation or retirement payments, or any profit sharing, stock
option, stock purchase or other employee benefit plan or
arrangement;
(3) collective bargaining or union contract or agreement;
(4) contract, commitment or arrangement for the borrowing
of money or for obtaining a line of credit (except for federal
funds purchases and FHLB advances);
(5) contract or agreement for the future purchase by it of
any materials, equipment, services, or supplies, which continues
for a period of more than 12 months (including periods covered by
any option to renew by either party), or which provides for a
price in excess of the prevailing market price or is in excess of
normal operating requirements over its remaining term;
(6) contract containing covenants purporting to limit its
freedom to compete;
(7) contract or commitment for the acquisition,
construction or refurbishment of any owned real property, branch
or significant equipment;
(8) contract or commitment upon which its total business is
substantially dependent;
(9) contract or commitment to which present or former
Directors or officers of First Bank or any of their "affiliates"
or "associates" (as such terms are defined in the rules and
regulations promulgated under the Securities Act) are parties;
(10) agreement or arrangement for the sale of any of First
Bank stock, tangible assets, or rights or for the grant of any
preferential rights to purchase any of First Bank stock, tangible
assets, or rights or which requires the consent of any third party
to the transfer and assignment of any of First Bank stock,
significant tangible assets, or rights; or
(11) contract, agreement, arrangement or commitment not
elsewhere specifically disclosed pursuant to this Agreement,
involving the payment or receipt by First Bank of more than
$50,000.
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(c) First Bank has not committed a default with respect to any
material contract, agreement or commitment to which it is a party, and
First Bank has not received notice of any such default, nor has First
Bank knowledge of any facts or circumstances which would reasonably
indicate that First Bank will be or may be in such default under any such
contract, agreement, arrangement, commitment or other instrument
subsequent to the date hereof.
3.19. First Bank Reports. First Bank has previously delivered or will
deliver to, or made or will make available for inspection by, the Company an
accurate and complete copy of each final offering circular, registration
statement, prospectus, report and definitive proxy statement filed by First Bank
with the FDIC, pursuant to the Exchange Act since January 1, 1992, and each
communication concerning the financial condition of First Bank mailed by First
Bank to its shareholders or its depositors since January 1, 1993, and each
annual report on Form F-2 for and since the year ended December 31, 1993, if
any. The most recently mailed offering circular, report, communication and proxy
statement did not contain, and no other such offering circular, report, proxy
statement or communication has contained, any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading.
3.20. Environmental Matters. Except as set forth in Schedule 3.20:
(a) First Bank is in compliance, and has in the last three years
been in compliance, with all applicable laws, rules, regulations,
standards and requirements adopted or enforced by the United States
Environmental Protection Agency (the "EPA") and of state and local
agencies with jurisdiction over pollution or protection of the
environment, except where such noncompliance or violations could not
reasonably be expected to have a material adverse effect on First Bank
taken as a whole; and
(b) There is no suit, claim, action or proceeding pending before
any court or governmental entity (and, to the best of First Bank's
knowledge, no basis exists for the assertion or commencement thereof) in
which First Bank has been named as a defendant (x) for alleged
noncompliance with any environmental law, rule or regulation or (y)
relating to the release into the environment of any Hazardous Material
(as hereinafter defined) or oil at or on a site presently or formerly
owned, leased, or operated by First Bank or to First Bank's knowledge, on
a site with respect to which First Bank has made a commercial real estate
loan and has a mortgage or security interest in, except where such
noncompliance or release would not have a material adverse effect on
First Bank taken as a whole. "Hazardous Material" means any pollutant,
contaminant, or hazardous substance under the Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. Section 9601 et
seq., or any similar state law.
3.21. First Bank Information. No representation or warranty contained in
this Agreement, and no statement or information contained in any certificate,
list or other writing furnished to the Company by First Bank pursuant to the
provisions hereof, including without limitation for inclusion in the S-4 (as
defined in Section 6.01(a)) or any regulatory application, filing or report,
contains or will contain any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements herein or
therein not misleading. No information material to the Reorganization and which
is necessary to make the representations and warranties herein contained not
misleading, has been withheld from, or has not been delivered in writing to, the
Company.
3.22. Insurance. Set forth in Schedule 3.22 is an accurate and complete
list in all material respects of all policies of insurance, including the
amounts thereof, owned by First Bank or in which First Bank is named as the
insured party. All such policies are valid, outstanding and enforceable.
3.23. Powers of Attorney; Guarantees. First Bank does not have any power
of attorney outstanding, nor any obligation or liability, either actual,
accruing or contingent, as guarantor, surety, co-signer, endorser, co-maker or
indemnitor in respect of the obligation of any person, corporation, partnership,
joint venture, association, organization or other entity, except for letters of
credit issued in the ordinary course of business which are listed in Schedule
3.23.
3.24. Broker's Fees. Neither First Bank nor any of its officers,
Directors or employees has employed any broker or finder or incurred any
liability for any broker's fees, commissions or finder's fees in connection with
the transactions contemplated herein, except as disclosed in Schedule 3.24.
3.25. Agreements with Regulatory Agencies. Except as set forth in
Schedule 3.25, First Bank is not subject to any cease and desist or other order
issued by, or is a party to any written agreement, consent agreement or
memorandum of understanding (each a "Regulatory Agreement"), with any regulatory
agency or other governmental entity
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that restricts in any material respect the conduct of its business or that
relates to its capital adequacy, its credit policies or its management, nor has
First Bank been notified by any regulatory agency or other governmental entity
that it is considering issuing or requesting any Regulatory Agreement.
3.26. Material Interests of Certain Persons. Except as set forth in
Schedule 3.26, no officer or Director of First Bank, or any "associate" (as such
term is defined in Rule 14a-1 under the Exchange Act) of any such officer or
Director, has any material interest in any material contract or property (real
or personal), tangible or intangible, used in or pertaining to the business of
First Bank that would he required to be disclosed in a proxy statement to
shareholders under Form F-5 of the FDIC Act regulations..
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company and Bank hereby represent and warrant to First Bank as
follows:
4.01. Corporate Organization.
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. The Company
has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it
makes such licensing or qualification necessary. The Company is duly
registered as a bank holding company under the Bank Holding Company Act
(the "BHC Act"). The Certificate of Incorporation and Bylaws of the
Company, copies of which have previously been made available to First
Bank, are true and complete copies of such documents as in effect as of
the date of this Agreement. Except for the Bank and The Equity Bank,
which is a Connecticut-chartered commercial bank duly organized, validly
existing and in good standing under the laws of the State of Connecticut
and which became a subsidiary of the Company on November 30, 1995, the
Company does not have any wholly-owned subsidiaries or capital stock or
other equity ownership interest in any corporation, partnership or other
entity which totals 5% or more of such entity's total equity.
(b) The Bank is a Connecticut-chartered commercial bank duly
organized, validly existing and in good standing under the laws of the
State of Connecticut. The Bank has the corporate power and authority to
own or lease all of its properties and assets and to carry on its
business as it is now being conducted. The Bank has all necessary
federal, state and local banking authorization to own or lease its
properties and assets and to carry on its business as it is being
conducted. The Bank is a Subsidiary of the Company. The accounts of
depositors of the Bank are insured by BIF of the FDIC in accordance with
law and with the regulations of the FDIC and all premiums and assessments
required in connection therewith have been paid. The copies of the Bank's
Certificate of Incorporation and Bylaws, each certified by its Secretary
as of the date of this Agreement, which are being delivered to First Bank
herewith, are complete and correct copies in effect as of the date of
this Agreement. Except as listed on the attached Schedule 4.0l(b), the
Bank does not have any wholly-owned subsidiaries or capital stock or
other equity ownership interest in any corporation, partnership or other
entity which totals 5 % or more of such entity's total equity.
4.02. Capitalization. The authorized capital stock of the Company
consists of 10,200,000 shares, consisting of 10,000,000 shares of Company Class
A Common Stock, $.l0 par value and 200,000 shares of preferred stock, $.10 par
value ("Preferred Stock"). As of the date of this Agreement, there are
approximately 3,667,000 shares of Company Common Stock issued and outstanding,
no shares held in the Company's treasury, and (except as described below or in
Schedule 4.02) no shares reserved for issuance upon exercise of outstanding
stock options. At the date of this Agreement, no shares of preferred stock are
outstanding and no shares of Company preferred stock have heretofore been issued
or are outstanding. All issued and outstanding shares of Company Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable. Except for 750,000 shares of Company Common Stock reserved for
issuance upon exercise of outstanding stock options that have been granted to
certain of the Bank's and the Company's Executive Officers, the Company does not
have and is not bound by any outstanding subscriptions, options, warrants,
calls, commitments or agreements of any character calling for the purchase or
issuance of any shares of Company capital stock or any security representing the
right to purchase or otherwise receive any capital stock of the Company. None of
the shares of capital stock of the Company has been issued in violation of the
preemptive rights of any person.
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4.03. Authority; No Violation.
(a) The Company has all necessary corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions
contemplated hereby have been duly and validly approved by the Board of
Directors of the Company, a certified copy of the Board Resolution
reflecting such approval is attached hereto as Schedule 4.03(a), and no
other corporate proceedings on the part of the Company are necessary to
consummate the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by the Company and (assuming due
authorization, execution and delivery by First Bank) constitutes a valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as enforcement may be limited by
general principles of equity whether applied in a court of law or a court
of equity and by bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally.
(b) The Bank has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated
hereby. Upon the due and valid approval of this Agreement by the Company
as the sole shareholder of the Bank, no other corporate proceedings on
the part of the Bank will be necessary to consummate the transactions
contemplated thereby. This Agreement has been duly and validly executed
and delivered by the Bank and will (assuming due authorization, execution
and delivery by First Bank) constitute a valid and binding obligation of
the Bank, enforceable against the Bank in accordance with its terms,
except as enforcement may be limited by general principles of equity,
whether applied in a court of law or a court of equity and by bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies
generally.
(c) Neither the execution and delivery of this Agreement by the
Company or the Bank, nor the consummation by the Company or the Bank, as
the case may be, of the transactions contemplated hereby, nor compliance
by the Company or the Bank with any of the terms or provisions hereof,
will (i) violate any provision of the Certificate of Incorporation or
Bylaws of the Company or the Bank, as the case may be, or (ii) assuming
that the consents and approvals referred to in Section 4.04 are duly
obtained, (x) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to the Company or
any of its Subsidiaries, or (y) violate, result in a breach of any
provision of, constitute a default under, or result in the creation of
any material lien, pledge, security interest, charge or other encumbrance
upon any of the respective properties or assets of the Company or any of
its Subsidiaries under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, license, lease, agreement
or other instrument or obligation to which the Company or any of its
Subsidiaries is a party, or by which they or any of their respective
properties or assets may be bound or affected.
4.04. Consents and Approvals. Except for (i) the filing of applications
and notices, as applicable, with the FDIC under the Bank Merger Act and with the
Board of Governors of the Federal Reserve System under the Bank Holding Company
Act and approval of such applications and notices, (ii) the filing of
applications with the Commissioner under Section 36a-125 and 36a-183 of the
Connecticut General Statutes and approvals of such applications, (iii) the
filing with the SEC of the Proxy Statement and the S-4, (iv) the filing of this
Agreement by the Commissioner, with his approval thereon, with the Secretary,
(v) such filings and approvals as are required to be made or obtained under the
securities or "Blue Sky" laws of various states in connection with the issuance
of the shares of Company Common Stock pursuant to this Agreement, (vi) the
approval of this Agreement by the Company as the sole shareholder of the Bank,
(vii) the approval of this Agreement by the shareholders of the Company, and
(viii) such filings, authorizations or approvals as may be set forth in Schedule
4.04, no consents or approvals of or filings or registrations with any
governmental entity or with any third party are necessary in connection with the
execution and delivery by the Company and the Bank of this Agreement and the
consummation by the Company and the Bank of the Reorganization and the other
transactions contemplated hereby, except where the failure to obtain such
consents or approvals, or to make such filings or registrations, would not
prevent or delay the Reorganization or otherwise prevent the Company from
performing its obligations under this Agreement.
4.05. Financial Statements. The Company has previously made available to
First Bank accurate and complete copies of (a) the consolidated balance sheets
of the Company and its Subsidiaries as of December 31 for the fiscal years 1992
through 1995 and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the fiscal years 1993 through 1995,
inclusive, as reported in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 filed with the SEC under the Exchange Act,
and (b) the unaudited
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consolidated balance sheet of the Company and its Subsidiaries as of December
31, 1996 and the related unaudited consolidated statement of income, changes in
shareholders' equity and cash flows for the twelve-month period then ended.
Within 30 days of the date of this Agreement, the Company will deliver to First
Bank the audited financial statements of the Company as of and for the year
ended December 31, 1996. The December 31, 1995 consolidated balance sheet of the
Company (including the related notes, where applicable) fairly presents in all
material respects the consolidated financial position of the Company and its
Subsidiaries as of the date thereof, and the other financial statements referred
to in this Section 4.05 (including the related notes where applicable) fairly
present in all material respects the results of the consolidated operations and
changes in shareholders' equity and consolidated financial position of the
Company and its Subsidiaries for the respective fiscal periods or as of the
respective dates therein set forth and each of such statements (including the
related notes, where applicable) has been and will be prepared in accordance
with GAAP consistently applied during the periods involved, except as indicated
in the notes thereto or, in the case of unaudited statements, as permitted by
Form l0-Q. Without limiting the generality of the foregoing, the financial
statements as of, and for, the twelve-month period ending December 31, 1996 were
prepared on a basis consistent with the Company's audited financials for the
year ended December 31, 1995. The books and records of the Company and of its
Subsidiaries have been, and are being, maintained in all material respects in
accordance with applicable legal and accounting requirements and reflect only
valid transactions.
4.06. Broker's Fees. Neither the Company nor the Bank nor any Company
Subsidiary, nor any of their respective officers, Directors, or employees has
employed any broker or finder or incurred any liability for any broker's fees,
commissions or finder's fees in connection with any of the transactions
contemplated by this Agreement except as disclosed in Schedule 4.06.
4.07. Absence of Certain Changes or Events.
(a) Except for the transactions contemplated by this Agreement or
as a result of the consummation of its Plan and Agreement of
Reorganization with Manchester State Bank, which became effective July
11, 1996, the Company has not incurred any liability (contingent or
otherwise) that is material to Company or that, when combined with all
similar liabilities, would be material to Company, except as disclosed in
the notes to Company's December 31, 1996 balance sheet, and except for
commitments and contingencies incurred in the ordinary course of
business.
(b) Except as may be set forth in Schedule 4.07, since December
31, 1996:
(i) there has not been any material adverse change in the
Company, its loan portfolio, and its Subsidiaries, their
businesses or operations taken as a whole, and no fact or
condition exists which the Company believes will cause such a
material adverse change;
(ii) there has not been any occurrence by the Company of
any liability that has had, or to the knowledge of the Company,
could reasonably be expected to have, a material adverse effect on
the Company and its Subsidiaries taken as a whole;
(iii) there has not been any change in any of the accounting
methods or practices of the Company or any of its Subsidiaries
other than changes required by applicable law or generally
accepted accounting principles;
(iv) there has not been any agreement or understanding,
whether in writing or otherwise, of the Company of any of its
Subsidiaries to do any of the foregoing; and
(v) there has not been any loss, damage, destruction or
other casualty, materially and adversely affecting any of the
significant properties, assets or business of the Company of any
of its Subsidiaries.
(c) For purposes of this Section 4.07, no transaction, event or
condition or series or combination of transactions, events or conditions
shall be materially adverse with respect to the Company or the Bank, if
the net adverse effect thereof on the capital of the Company and the Bank
is not in excess of $1,500,000.
4.08. Legal Proceedings. Except as set forth in the attached Schedule
4.08, neither the Company nor any of its Subsidiaries is a party to any, and
there are no pending or, to the best knowledge of the Company's management,
threatened legal, administrative, arbitration or other proceedings, claims,
actions, suits or governmental investigations of any nature involving, affecting
or relating to the Company or any of its Subsidiaries other than such matters
arising in the ordinary course of business which, individually and in the
aggregate, are not material, or challenging the validity or propriety of the
transactions contemplated in this Agreement; and there is not known to the
Company
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or any of its Subsidiaries any reasonable basis for any such proceedings, claim,
action or governmental investigation. Neither the Company nor any of its
Subsidiaries is a party to any order, judgment or decree which will, or might
reasonably be expected to, affect its business, operations, properties, assets,
financial condition, prospects or results of operations or its ability to
acquire any property or conduct business in any area in which it presently does
business.
4.09. SEC Reports. The Company has previously made available to First
Bank a true and complete, in all material respects, copy of each (a) final
registration statement, prospectus, report, schedule and definitive proxy
statement filed since January 1, 1995 by the Company with the SEC pursuant to
the Securities Act or the Exchange Act (the "Company Reports") and (b)
communication mailed by the Company to its shareholders since January 1, 1995,
and, as of their respective dates, no such Company Reports contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances in which they were made, not misleading.
4.10. Company Information. No Representation or warranty contained in
this Agreement, and no statement or information contained in any certificate,
list or other writing furnished to First Bank pursuant to the provisions hereof,
including without limitation for inclusion in the Proxy Statement and the S-4
(as defined in Section 6.01(a)) or any regulatory application, filing or report,
contains or will contain any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements herein or
therein not misleading. No information material to the Reorganization and which
is necessary to make the representations and warranties herein contained not
misleading has been withheld from, or has not been delivered in writing to,
First Bank.
4.11. Compliance with Applicable Law. The Company and each of its
Subsidiaries holds, and have at all times held, all material licenses,
franchises, permits and authorizations necessary for the lawful conduct of their
respective businesses under and pursuant to all, and have complied with and are
not in default under any, applicable law, statute, order, rule, regulation,
policy or guideline of any governmental entity relating to the Company or any of
its Subsidiaries, except where the failure to hold such license, franchise,
permit or authorization or such noncompliance or default would not have a
material adverse effect on the Company, and neither the Company nor any of its
Subsidiaries has received notice of any material violation of, or knows of any
material violation of, any of the above.
4.12. Absence of Questionable Payments. Neither the Company nor any of
its Subsidiaries has, nor has any Director, officer, agent, employee, consultant
or other person associated with, or acting on behalf of, the Company or any of
its Subsidiaries, (a) used any of the Company's or any of its Subsidiaries'
corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, or (b) made any direct or
indirect unlawful payments to government officials from any corporate funds of
the Company or any of its Subsidiaries, or established or maintained any
unlawful or unrecorded accounts with funds received from the Company or any of
its Subsidiaries.
4.13. Taxes. The Company and its Subsidiaries properly and accurately
completed and duly filed in correct form all federal, state and local
information and tax returns required to be filed by it (all such returns being
accurate and complete in all material respects) and have duly paid or made
provisions for the payment of all taxes and other charges which have been
incurred or are due or claimed to be due from them by federal, state or local
taxing authorities (including, without limitation, those due in respect of its
properties, income, business, capital stock, deposits, franchises, licenses,
sales and payrolls). The amounts set up as reserves for taxes on the 1996
Balance Sheet are, to the best knowledge of the Company and its Subsidiaries,
sufficient in the aggregate for the payment of all unpaid federal, state and
local taxes (including any interest or penalties thereon and including reserves
for local real estate or other property taxes in an amount which is at least as
great as the amount of such taxes paid in any prior year), whether or not
disputed, accrued or applicable for the period ended December 31, 1996 or for
any year or period prior thereto, and for which the Company and its Subsidiaries
may be liable in its own right or as transferee of the assets of, or successor
to, any corporation, person, association, partnership, joint venture or other
entity. Neither the federal and state income tax returns of the Company nor any
of its Subsidiaries have ever been examined by the Internal Revenue Service.
To the best knowledge of the Company and its Subsidiaries, there are no
pending questions relating to, or claims asserted for, taxes or assessments upon
the Company or any of its Subsidiaries nor has the Company or any of its
Subsidiaries been requested to give any waivers extending the statutory period
of limitation applicable to any federal, state or local income tax return for
any period. Proper and accurate amounts have been withheld by the Company and
its Subsidiaries from its employees for all prior periods in compliance with the
tax withholding provisions of applicable federal, state and local laws; federal,
state and local returns, accurate and complete in all material respects, have
been filed by the Company and its Subsidiaries for all periods for which returns
were due
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with respect to income tax withholding, Social Security, property, sales,
retirement plan and unemployment taxes; and the amounts shown on such returns to
be due and payable have been paid in full or adequate provision therefor has
been included by the Company and its Subsidiaries in their financial statements
as of December 31, 1996.
4.14. Employee Benefit and Other Plans. Except as set forth in Schedule
4.14, neither the Company nor any of its Subsidiaries maintains nor contributes
to any "employee pension benefit plan" or "employee welfare benefit plan," as
such terms are defined in Section 3 of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"). With respect to any such plan listed on
Schedule 4.14, the Company and its Subsidiaries are in compliance with, and such
plans comply with, ERISA. In this connection, (i) no "reportable event" has
occurred and is continuing with respect to any such plans; (ii) the statements
of assets and liabilities of such plans as of the close of the most recent plan
year for which financial statements are available, and the statements of changes
in fund balance and in financial position, or the statements of changes in net
assets available for each plan's benefits, for the plan year then ended, fairly
present the financial condition of such plan for such plan year; (iii) except as
disclosed in the annual reports of the plans, no "prohibited transaction" (as
defined in Section 406 of ERISA) resulting in material liability of the Company
or any of its Subsidiaries has occurred with respect to the plans; (iv) no
breach of fiduciary responsibility under Part 4 of Title I of ERISA resulting in
material liability of the Company or its Subsidiaries has occurred with respect
to the plans; (v) all contributions required to be made to the plans have been
made; (vi) no waiver of the minimum funding standards under ERISA or the Code is
in effect or has been applied for with respect to the plans; (vii) as of the
latest valuation date, the present value of the assets of the Company's and its
Subsidiaries' plans listed on the attached Schedule 4.14 which are subject to
Title IV of ERISA (other than "Multiemployer Plans," as defined in Section 3 of
ERISA), exceeds the present value of all vested accrued benefits under such
plans, based upon actuarial assumptions currently utilized for such plans;
(viii) neither the Company nor its Subsidiaries currently maintains or
contributes to a Multiemployer Plan; (ix) each of the Company's and its
Subsidiaries' plans listed on the attached Schedule 4.14 which are intended to
be qualified plans within the meaning of Section 401(a) of the Code has been
determined by the Internal Revenue Service to be so qualified to the extent
required under current law, and neither the Company nor any of its Subsidiaries
is aware of any fact or circumstance which would adversely affect the qualified
status of any such plan; and (x) no liability under Title IV of ERISA has been
incurred by either the Company or any of its Subsidiaries that has not been
satisfied in full.
4.15. No Defaults. Neither the Company nor any of its Subsidiaries has
committed a default with respect to any material contract, agreement or
commitment to which it is a party, and neither the Company nor any of its
Subsidiaries has received notice of any such default, nor has the Company or any
of its Subsidiaries knowledge of any facts or circumstances which would
reasonably indicate that the Company or any of its Subsidiaries will be or may
be in such default under any such contract, agreement, arrangement, commitment
or other instrument subsequent to the date hereof.
4.16. Agreements with Regulatory Agencies. Neither the Company nor any of
its Subsidiaries is subject to any cease and desist or other order issued by, or
is a party to any written agreement, consent agreement or memorandum of
understanding (each a "Company Regulatory Agreement") with, any regulatory
agency or other governmental entity that restricts in any material respect the
conduct of its business or that relates in any manner to its capital adequacy,
its credit policies or its management, nor has the Company or any of its
Subsidiaries been notified by any regulatory agency or other governmental entity
that it is considering issuing or requesting any Regulatory Agreement.
4.17. Regulatory Approvals. The Company is not, as of the date hereof,
aware of any reason why the regulatory approvals required to be obtained by it
or any of its Subsidiaries to consummate the Reorganization would not be
satisfied within the time frame customary for transactions of the nature
contemplated thereby.
4.18. Environmental Matters. Except as set forth in Schedule 4.18:
(a) The Company and the Bank are in compliance, and have in the
last three years been in compliance, with all applicable laws, rules,
regulations, standards and requirements adopted or enforced by the EPA
and of state and local agencies with jurisdiction over pollution or
protection of the environment, except where such noncompliance or
violations could not reasonably be expected to have a material adverse
effect on the Company;
(b) There is no suit, claim, action or proceeding pending before
any court or governmental entity (and, to the best of the Company's
knowledge, no basis exists for the assertion or commencement thereof) in
which the Company or any of its Subsidiaries has been named as a
defendant (x) for alleged noncompliance with any
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environmental law, rule or regulation or (y) relating to the release into
the environment of any Hazardous Material (as defined in Section 3.20(b))
or oil at or on a site presently or formerly owned, leased, or operated
by the Company or any of its Subsidiaries or, to the Company's knowledge,
on a site with respect to which the Company or any of its Subsidiaries
has made a commercial real estate loan and has a mortgage or security
interest in, except where such noncompliance or release would not have a
material adverse effect on the Company and its Subsidiaries taken as a
whole.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.01. Covenants of First Bank. During the period from the date of this
Agreement to the Effective Time, First Bank will conduct its business only in
the ordinary course and consistent with prudent banking practice, will use all
reasonable efforts to preserve First Bank's properties wherever located, and
will comply in all material respects with all laws applicable to First Bank and
to the conduct of its business, and to the transactions contemplated by this
Agreement. First Bank will use all reasonable efforts to preserve its business
organization intact, to keep available the present services of its employees,
and to preserve the goodwill of its customers and others with whom business
relationships exist. First Bank will, from the date hereof until at least
through the consummation of the transactions contemplated by this Agreement,
keep all insurance policies set forth in Schedule 3.22 in full force and effect.
In addition, First Bank agrees that from the date hereof to the consummation of
the Reorganization, and except as otherwise consented to or approved by a duly
authorized officer of the Company in writing, which consent shall not be
unreasonably withheld, or as permitted or required by this Agreement, First Bank
will not:
(a) enter into or amend any contract of the nature required to be set
forth in Schedule 3.18;
(b) change any provision of its Certificate of Incorporation or Bylaws or
similar governing documents;
(c) change the number of issued shares of its capital stock, or issue or
grant any option, warrant, call, commitment, subscription, right to purchase or
agreement of any character relating to its authorized or issued capital stock,
or any securities convertible into shares of such stock, or split, combine or
reclassify any shares of its capital stock, declare, set aside or pay any
dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock or redeem or otherwise
acquire any shares of its capital stock, provided, however, from the date hereof
to the Effective Time, First Bank may declare, set aside or pay cash dividends
per share of First Bank Common Stock at the rate currently paid by First Bank,
which rate may be increased by First Bank to reflect the same percentage rate
increase as any increase in the dividend rate paid by the Company from its
current dividend rate, provided that in no event may any dividend declared, set
aside or paid by First Bank exceed 25% of First Bank's net earnings for the then
most recently completed quarter. Without limiting the foregoing, nothing herein
shall prevent First Bank from paying quarterly dividends prior to the Effective
Time such that its shareholders shall receive a total of four quarterly
dividends in 1997 from First Bank and the Company;
(d) make unsecured loans in excess of $25,000 for any individual loan or
in excess of $25,000 in the aggregate to any borrower or group of borrowers,
other than renewals in the ordinary course of business and not involving any
change in terms;
(e) (i) make any loan or loans described as an "Undesirable" or
"Prohibited" Loan; (ii) make any secured loan or loans, other than residential
mortgage loans with a loan to value of in excess of 80% except with the prior
notice to the Company, in an aggregate amount to any one borrower (including
members of his/her immediate family or affiliates of such borrower with an
exposure to First Bank in excess of $250,000) in excess of $250,000, except for
loans sold to investors and renewals in the ordinary course of business and not
involving any change in terms; (iii) make any junior mortgage loan in excess of
$100,000 behind first mortgages if the resulting loan to value ratio of the
combined mortgages would exceed 70% or if prior mortgage loans are in excess of
$250,000; (iv) make any commercial loan or loans in excess of $250,000 unless
fully secured by readily marketable collateral or real estate with a maximum
loan to value ratio of 80%; or (v) honor or extend any overdraft in excess of
$25,000 unless fully secured by readily marketable collateral;
(f) make any new loans to any Director or employee of First Bank, or any
member or affiliate of their respective families other than in the ordinary
course of business;
(g) other than with respect to residential mortgage loans, renew or
otherwise reinstate any loan that has been in default for a period of 30 days or
more which, when added to any loans outstanding to the families or affiliates of
any maker or surety of the defaulted loans (whether or not such other loans are
in default) has a balance outstanding in
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excess of $20,000, except that First Bank may accept payments for the
purpose of bringing loans current, so long as there is no amendment or
restructuring of the loans;
(h) offer rates on deposits that are set in deviation from past
practice and procedure employed by First Bank or are materially higher
than those of its competitors in the local market, or offer loan pricing
which is materially different relative to its competitors in the local
market;
(i) hire or retain any new employees, consultants or contractors,
or increase the compensation of current employees, consultants or
contractors, except that First Bank may hire replacements for current
employees who are not officers or managers if such employees cease to be
employees of First Bank;
(j) make any capital expenditures in excess of $25,000;
(k) enter into any real property lease or any lease of personal
property or extend or modify any existing lease of real or personal
property;
(l) acquire or agree to acquire, by merging or consolidating with,
or by purchasing a substantial equity interest in or a substantial
portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or
division thereof or otherwise acquire any assets, other than in
connection in with foreclosures, settlements in lieu of foreclosure or
troubled loan or debt restructurings in the ordinary course of business,
which would be material to First Bank;
(m) take any action that is intended or would result in any of its
representations and warranties set forth in this Agreement being or
becoming untrue in any material respect, or in any of the conditions to
the Reorganization set forth in Article VII not being satisfied, or in a
violation of any provision of this Agreement except, in every case, as
may be required by applicable law;
(n) change its methods of accounting in effect at December 31,
1995, except as required by changes in GAAP or regulatory accounting
principles as concurred to by First Bank's independent auditors;
(o) take or cause to be taken any action which would disqualify
the Reorganization as a tax-free reorganization under Section 368 of the
Code;
(p) take or cause to be taken any action which would, or may
reasonably be expected to, significantly delay or otherwise adversely
affect the regulatory approvals required to consummate the
Reorganization;
(q) other than activities in the ordinary course of business
consistent with prior practice, sell, lease, encumber, assign or
otherwise dispose of, or agree to sell, lease, encumber, assign or
otherwise dispose of, any of its material assets, properties or other
rights or agreements;
(r) other than in the ordinary course of business consistent with
past practice, incur any indebtedness for borrowed money, assume,
guarantee, endorse or otherwise as an accommodation become responsible
for the obligations of any other individual, corporation or other entity;
(s) file any application to open, relocate or terminate the
operations of any banking office;
(t) make any equity investment or any commitment to make such an
investment in real estate or in any real estate development project,
other than in connection with foreclosures, settlements in lieu of
foreclosure or troubled loan or debt restructurings in the ordinary
course of business;
(u) purchase or sell loans in bulk;
(v) foreclose upon or take deed or title to any commercial real
estate without first conducting a Phase I environmental assessment of the
property; and shall not foreclosure upon such commercial real estate if
such environmental assessment indicates the presence of Hazardous
Material;
(w) terminate the employment of, or decrease in any material
respect, the duties, obligations, responsibilities, or position of any
senior officer of First Bank; or
(x) agree to do any of the foregoing.
5.02. Covenants of the Company. During the period from the date of this
Agreement to the Effective Time, except as expressly contemplated or permitted
by this Agreement or with the prior written consent of First Bank, which shall
not be unreasonably withheld, the Company and its Subsidiaries shall carry on
their respective businesses in the ordinary course consistent with past practice
and use all reasonable efforts to preserve intact their
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present business organizations and relationships. Without limiting the
generality of the foregoing and as otherwise contemplated by this Agreement or
consented to in writing by First Bank, which shall not be unreasonably withheld,
the Company shall not and shall not permit any of its Subsidiaries to:
(a) take any action that is intended or would result in any of its
representations and warranties set forth in this Agreement being or
becoming untrue in any material respect, or in any of the conditions to
the Reorganization set forth in Article VII not being satisfied, or in a
violation of any provision of this Agreement, except, in every case, as
may be required by applicable law;
(b) change its methods of accounting in effect at December 31,
1995, except in accordance with changes in GAAP or regulatory accounting
principles as concurred in by the Company's independent certified public
accountants;
(c) take or cause to be taken any action which would disqualify
the Reorganization as a tax-free reorganization under Section 368 of the
Code;
(d) take or cause to be taken any action which would, or may
reasonably be expected to, significantly delay or otherwise adversely
affect the regulatory approvals required to consummate the
Reorganization; or
(e) agree to do any of the foregoing.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.01. Regulatory Matters.
(a) Following the review by the Company and First Bank of all
information and material provided to each in accordance with this
Agreement, First Bank shall promptly prepare and file with the FDIC a
proxy statement for the meeting of its shareholders called for the
purpose of approving this Agreement (the "Proxy Statement") and the
Company, with First Bank's best efforts cooperation, shall promptly
prepare and file with the SEC a registration statement on Form S-4 with
respect to the shares of Company Common Stock to be issued in the
Reorganization (the "S-4"), in which the Proxy Statement will be included
as a prospectus. The Company shall use its best efforts to have the S-4
declared effective under the Securities Act as promptly as practicable
after such filing, and First Bank shall thereafter promptly mail the
Proxy Statement to its shareholders. The Company shall also use its best
efforts to obtain all necessary state securities law or "Blue Sky"
permits and approvals required to carry out the transactions contemplated
by this Agreement, and First Bank shall furnish all information
concerning First Bank and the holders of First Bank Common Stock as may
be reasonably requested in connection with any such action.
(b) The parties hereto shall cooperate with each other and use
their best efforts to prepare and file promptly all necessary
documentation to effect all applications, notices, petitions and filings,
and to obtain as promptly as practicable all permits, consents, approvals
and authorizations of all third parties and governmental entities which
are necessary or advisable to consummate the transactions contemplated by
this Agreement including, without limitation, approval of the
Reorganization by the FDIC, approval of the Reorganization by the
Commissioner, and approval by the Board of Governors of the Federal
Reserve System if it elects to exercise jurisdiction. The parties hereto
agree that they will consult with each other with respect to the
obtaining of all permits, consents, approvals and authorizations of all
third parties and governmental entities necessary or advisable to
consummate the transactions contemplated by this Agreement and each party
will keep the other apprised of the status of matters relating to
completion of the transactions contemplated herein.
(c) The Company and First Bank shall, upon request, furnish each
other with all information concerning themselves, their respective
Subsidiaries, directors, officers and shareholders and such other matters
as may be reasonably necessary or advisable in connection with the Proxy
Statement, the S-4 or any other statement, filing, notice or application
made by or on behalf of the Company, First Bank or any of their
respective Subsidiaries to any governmental entity in connection with the
Reorganization and the other transactions contemplated hereby.
(d) The Company and First Bank shall promptly furnish each other
with copies of written communications received by the Company or First
Bank, as the case may be, or any of their respective Subsidiaries from,
or delivered by any of the foregoing to, any governmental entity in
respect of the transactions contemplated hereby.
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6.02. Access to Information.
(a) Upon reasonable notice and subject to applicable laws relating
to the exchange of information and so as not to unreasonably interfere
with the ordinary proper conduct of its business, First Bank shall afford
to the officers, employees, accountants, counsel and other
representatives of the Company access, during normal business hours
during the period prior to the Effective Time, to all its properties,
books, contracts, commitments and records relating to the ownership,
operation, obligations and liabilities of First Bank, including, but not
limited to, its books of account (including its general ledger), tax
records, minute books of Directors' and shareholders' meetings,
Certificate of Incorporation, Bylaws, contracts and agreements, public
filings with any regulatory authority, examination reports of any
regulatory authority, including preliminary and partial reports (subject
to applicable law), plans affecting its employees, and any other business
activities or prospects in which the Company may have a reasonable
interest. During such period, First Bank shall make available to the
Company (i) a copy of each report, schedule, and other document filed or
received by it during such period pursuant to the requirements of federal
securities laws or federal or state banking laws and (ii) all other
information concerning its business, properties and personnel as the
Company may reasonably request (other than information which First Bank
is not permitted to disclose under applicable law). As to information
which First Bank is not permitted by law to disclose, First Bank will,
upon request from the Company, use all reasonable efforts to obtain any
consent, approval or waiver that may be required for such disclosure.
(b) Upon reasonable notice and subject to applicable laws relating
to the exchange of information and so as not to unreasonably interfere
with the ordinary proper conduct of its business, the Company shall and
shall cause its Subsidiaries to, afford to the officers, employees,
accountants, counsel and other representatives of First Bank access,
during normal business hours during the period prior to the Effective
Time, to all its properties, books, contracts, commitments and records
relating to the ownership, operation, obligations and liabilities of the
Company and its Subsidiaries, including, but not limited to, its books of
account (including its general ledger), tax records, minute books of
Directors' and shareholders' meetings, Certificate of Incorporation,
Bylaws, contracts and agreements, public filings with any regulatory
authority, examination reports of any regulatory authority, including
preliminary and partial reports (subject to applicable law), plans
affecting its employees, and any other business activities or prospects
in which the First Bank may have a reasonable interest. During such
period, the Company and its Subsidiaries shall make available to First
Bank (i) a copy of each report, schedule, and other document filed or
received by it during such period pursuant to the requirements of federal
securities laws or federal or state banking laws and (ii) all other
information concerning its business, properties and personnel as First
Bank may reasonably request (other than information which the Company or
its Subsidiaries are not permitted to disclose under applicable law). As
to information which the Company or its Subsidiaries are not permitted by
law to disclose, the Company or its Subsidiaries will, upon request from
the First Bank, use all reasonable efforts to obtain any consent,
approval or waiver that may be required for such disclosure.
(c) Neither the Company nor any of its Subsidiaries, nor First
Bank shall be required to provide access to or to disclose information
where such access or disclosure would violate or prejudice the rights of
the customers of such party, jeopardize the attorney-client privilege of
the institution in possession or control of such information or
contravene any law, rule, regulation, order, judgment, decree, fiduciary
duty or binding agreement entered into prior to the date of this
Agreement. The parties hereto will make appropriate substitute disclosure
arrangements under circumstances in which the restrictions of the
preceding sentence apply.
(d) All information furnished pursuant to this Agreement shall be
held in confidence to the extent required by, and in accordance with, the
provisions of the confidentiality agreements, dated November 1, 1996,
among the Company, the Bank and First Bank (the "Confidentiality
Agreements").
6.03. Shareholder Approvals.
(a) The Company and First Bank shall each take all steps necessary
to duly call, give notice of, convene and hold a meeting of its
shareholders to be held as soon as is reasonably practicable after the
date on which the S-4 becomes effective for the purpose of voting upon
the approval of this Agreement. First Bank and the Company will, through
its Board of Directors, recommend to its shareholders approval of this
Agreement and the transactions contemplated hereby and such other matters
as may be submitted to its shareholders in connection with this
Agreement.
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(b) The Company, as sole shareholder of the Bank, shall take all
steps necessary to duly call, give notice of, convene and hold a meeting
of the shareholder(s) of the Bank (or take action by written consent) for
the purpose of voting upon the approval of this Agreement.
6.04. Legal Conditions to Reorganization. Each of the Company and First
Bank shall, and the Company shall cause each of its Subsidiaries to, use its
best efforts (a) to take, or cause to be taken, all actions necessary, proper or
advisable to comply promptly with all legal requirements which may be imposed on
such party or its Subsidiaries with respect to the Reorganization and, subject
to the conditions set forth in Article VII hereof, to consummate the
transactions contemplated by this Agreement and (b) to obtain (and to cooperate
with the other party to obtain) any consent, authorization, order or approval
of, or any exemption by, any governmental entity and any other third party which
is required to be obtained by First Bank or the Company or any of the Company's
Subsidiaries in connection with the Reorganization and the other transactions
contemplated by this Agreement.
6.05. Affiliates. First Bank shall cause each Director, executive officer
and other person who is an "affiliate" (for purposes of Rule 145 under the
Securities Act) of First Bank to deliver to the Company, prior to the signing of
this Agreement, a signed written agreement, in the form of Schedule 6.05 hereto,
providing that such person will not sell, pledge, transfer or otherwise dispose
of any shares of Company Common Stock to be received by such "affiliate" in the
Reorganization except in compliance with the applicable provisions of the
Securities Act and the rules and regulations thereunder, including, without
limitation, Rule 145. The Company agrees to file the financial results of the
combined operations of the Company, the Bank and First Bank on a Form 8-K or
other appropriate SEC form for the first full monthly period commencing after
the Effective Time and to make such filing within thirty-five (35) days of the
end of such first full month period commencing after the Effective Time.
6.06. Stock Listing. The Company shall cause the shares of Company Common
Stock to be issued in the Reorganization to be approved for inclusion for
quotation on the NASDAQ National Market, subject to official notice of issuance,
prior to the Effective Time.
6.07. Employee Matters.
(a) From and after the Effective Time and subject to applicable
law, the Company shall provide the employees of First Bank (other than
those officers of First Bank with existing Change in Control Agreements
as disclosed in Schedule 3.18) who are offered employment with the
Company or any of its Subsidiaries, and who accept such employment, with
benefits comparable to those provided to its own employees in similar
positions and with comparable terms of service with the Company or its
Subsidiaries, as reasonably determined by the Company and its
Subsidiaries. For employees of First Bank who are not offered employment
with the Company or any of its Subsidiaries, the Company shall provide
two weeks of severance pay per full or partial year of service.
(b) A final distribution will be made from First Bank's Target
Incentive Program to each eligible First Bank employee employed through
the Effective Time. Such payment will be prorated based on the number of
months in 1997 through the Effective Time.
(c) immediately prior to the Effective Time, First Bank may pay to
the individuals named in Schedule 6.07(c) who remain in the employ of
First Bank continuously through that date, "stay bonuses" in cash up to
15% of each individual's current annual base salary.
6.08. Financial Statements.
(a) As soon as reasonably available, the Company will deliver to
First Bank and First Bank will deliver to the Company their respective
Annual Reports on Form 10-K or F-2, as appropriate, as filed with the SEC
or the FDIC, as appropriate, under the Exchange Act.
(b) As soon as reasonably available, the Company will deliver to
First Bank and First Bank will deliver to the Company their respective
Quarterly Reports on Form 10-Q or F-4, as appropriate, as filed with the
SEC or the FDIC, as appropriate, under the Exchange Act.
6.09. Additional Agreements. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purpose of this
Agreement, or to vest the Resulting Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of any of the
parties to the Reorganization, the proper officers and Directors of each party
to this Agreement and their respective Subsidiaries shall take all such
necessary action as may be reasonably requested by, and at the sole expense of,
the Company.
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6.10. Disclosure Supplements. From time to time prior to the Effective
Time, each party will promptly supplement or amend the Schedules delivered in
connection with the execution of this Agreement to reflect any matter which, if
existing, occurring or known at the date of this Agreement, would have been
required to be set forth or described in such Schedules or which is necessary to
correct any information in such Schedules which has been rendered inaccurate
thereby. No supplement or amendment to such Schedules shall have any effect for
the purposes of determining satisfaction of the conditions set forth in Sections
7.02(a) or 7.03(a) hereof, as the case may be, or the compliance by First Bank
or the Company, as the case may be, with the respective covenants set forth in
Sections 5.01 and 5.02 hereof.
6.11. Current Information.
(a) During the period from the date of this Agreement to the
Effective Time, First Bank will cause one or more of its designated
representatives to be available, upon the reasonable request of the
Company, to confer on a regular and frequent basis with representatives
of the Company and to report the general status of the ongoing operations
of First Bank. First Bank will promptly notify the Company of any
significant change in the normal course of business of First Bank or in
the operation of its properties, and of any governmental complaints,
investigations or hearings (or communications indicating that the same
may be contemplated) or the institution or the threat of any significant
litigation involving First Bank and will keep the Company reasonably
informed of such events and permit the Company access to all significant
materials prepared in connection therewith. With respect to any
regulatory examination of First Bank, First Bank will keep the Company
advised of all reports, preliminary or otherwise, received from
examiners, subject to applicable disclosure laws, and will use all
reasonable efforts to obtain any consent, approval or waiver that may be
required for such disclosure.
(b) The Company will promptly notify First Bank of any material
change in the normal course of business of the Company or any of its
Subsidiaries and of any governmental complaints, investigations or
hearings, or the institution or threat of significant litigation
involving the Company or any of its Subsidiaries, and will keep First
Bank reasonably informed of such events and permit First Bank access to
all significant materials for a reasonable period in connection
therewith. With respect to the regulatory examination of the Company
currently in progress or just recently ended, the Company will keep First
Bank advised of all reports, preliminary or otherwise, received from
examiners, subject to applicable disclosure laws, and will use all
reasonable efforts to obtain any consent, approval, or waiver that may be
required for such disclosure.
6.12. Environmental Assessment. First Bank agrees, to the extent it is
legally permitted, to allow the Company, its agents and representatives, during
the sixty days subsequent to execution of this Agreement at the Company's
expense, to conduct an environmental site assessment of any real property owned
(including assets held as other real estate owned) or leased by First Bank, and
agrees to cooperate in providing information and other assistance to the
Company, its agents and representatives in connection therewith, including,
without limitation, providing access and entry onto such real property for the
purpose of making appropriate environmental and related inspections; provided,
however that the Company agrees to enter into a confidentiality agreement with
the party(ies) conducting any environmental testing that said party shall not
disclose its findings to any third party unless required by state or federal
law. Company agrees that it shall also be bound by this restriction. An
environmental site assessment may include sampling and intrusive studies if the
Company's representative deems them advisable in light of the current standards.
First Bank shall be entitled, as a condition to its obligations hereunder, to
notice within 60 days of signing this Agreement of any material environmental
problems identified by the Company and to be indemnified to its reasonable
satisfaction from and against any loss or damage incurred from the conducting of
any such site assessment (but not the findings thereof). The Company shall
contract for any site assessment desired by it not later than 30 days after the
later of the date hereof or, with respect to property acquired alter the date
hereof, the date First Bank notified the Company of such acquisition.
6.13. Public Announcements. Except to the extent required otherwise by
applicable state or federal securities laws or any applicable Connecticut or
federal banking laws, with respect to which First Bank and the Company may act
upon the advice of their respective legal counsel, neither First Bank nor the
Company or any of its Subsidiaries shall issue any press release or otherwise
make any public statement with respect to this Agreement or any of the
transactions contemplated hereby prior to the Effective Time without obtaining
the consent to or approval thereof from the other party, which consent or
approval shall not be unreasonably withheld.
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ARTICLE VII
CONDITIONS PRECEDENT
7.01. Conditions to Each Party's Obligations Under This Agreement. The
respective obligations of each party under this Agreement shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions,
none of which may be waived:
(a) This Agreement and the transaction contemplated hereby shall
have been approved and adopted by the affirmative vote of the holders of
at least two-thirds of the outstanding shares of First Bank Common Stock
and, if legally required, by the requisite shareholder vote of Bank
Common Stock and Company Common Stock.
(b) This Agreement and the transactions contemplated hereby shall
have been approved by the Commissioner, by the FDIC and by the Board of
Governors of the Federal Reserve System unless it waives jurisdiction,
and by any other regulatory authority having appropriate jurisdiction,
none of such approvals shall contain any term or condition which would
(i) have a material adverse effect on the business, operations,
properties, assets or financial condition of First Bank or Resulting
Corporation, or (ii) otherwise materially impair the value of First Bank
or Resulting Corporation, and all appropriate waiting periods shall have
expired.
(c) Neither the Company nor First Bank shall be subject to any
order, decree or injunction of a court or agency of competent
jurisdiction which prevents or delays the consummation of the
Reorganization.
(d) The shares of Company Common Stock which shall be issued to
the shareholders of First Bank upon consummation of the Reorganization
shall have been authorized for inclusion for quotation on the NASDAQ
National Market, subject to official notice of issuance.
(e) The S-4 shall have become effective under the Securities Act
and no stop order suspending the effectiveness of the S-4 shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC.
7.02. Conditions to the Obligations of the Company Under This Agreement.
The obligations of the Company under this Agreement shall be further subject to
the satisfaction, at or prior to the Effective Time, of the following
conditions, any one or more of which may be waived by the Company:
(a) Each of the obligations of First Bank required to be performed
by it at or prior to the Effective Time pursuant to the terms of this
Agreement shall have been duly performed and complied with in all
material respects and the representations and warranties of First Bank
contained in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Effective Time as
though made at and as of the Effective Time (except as otherwise
contemplated by this Agreement), and the Company shall have received a
certificate to that effect signed by the President and by the Chief
Financial Officer of First Bank.
(b) All action required to be taken by, or on the part of, First
Bank to authorize the execution, delivery and performance of this
Agreement by First Bank and the consummation of the transactions
contemplated hereby shall have been duly and validly taken by the Board
of Directors of First Bank and First Bank shareholders and the Company
shall have received certified copies of the resolutions evidencing such
authorization.
(c) The Company shall have received certificates as of a day as
close as practicable to the date of the Effective Time from appropriate
authorities as to the good standing of, and of the payment of franchise
taxes, if any, by First Bank.
(d) Any and all permits and approvals of governmental bodies and
material consents (including all consents of landlords) and
authorizations of other third parties shall have been obtained by First
Bank and the Company which are required with respect to and are necessary
in connection with (i) the consummation of the Reorganization and the
other transactions contemplated hereby, (ii) the ownership by the
Resulting Corporation of all of the properties and assets of First Bank,
or (iii) the conduct by the Resulting Corporation of the business of
First Bank as conducted by First Bank at the Effective Time.
(e) The Company shall have received an opinion, dated the date of
Closing, from counsel to First Bank, in form and substance reasonably
satisfactory to the Company.
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(f) First Bank shall have caused to be delivered to the Company a
letter from First Bank's independent public accountants with respect to
First Bank, and dated the date of the Closing, and addressed to the
Company and First Bank, in form and substance reasonably satisfactory to
the Company to the effect that:
(1) they are independent public accountants with respect to
First Bank;
(2) in their opinion the audited financial statements of
First Bank examined by them comply as to form in all material
respects with the applicable published rules and regulations of
the FDIC with respect to proxy statements and of the SEC with
respect to registration statements; and
(3) at the request of First Bank they have carried out
procedures to a specified date not more than 10 business days
prior to the date of each such letter as follows: (i) read the
unaudited financial statements of First Bank for the period from
the date of the most recent audited financial statements ("Audit
Date") through the date of the most recent financial statements
available in the ordinary course of business; (ii) read the
minutes of the meetings of the Board of Directors of First Bank
from the date of the most recent audited financial statements to
the date not more than 10 days prior to the date of each such
letter, and (iii) consulted with the Chief Financial Officer of
First Bank as to whether there has been an increase or decrease in
total assets of $500,000 or more, an increase in nonperforming
loans of more than $500,000, an increase in foreclosed real estate
of more than $500,000, an increase or decrease in total deposits
of more than $500,000, and a decrease in total shareholders'
equity, each as compared to the audited financial statements of
First Bank as of the Audit Date and, based on such procedures and
except as disclosed in such letter, nothing has come to their
attention which would cause them to believe that said financial
statements and the financial statements referred to in (i) above
and the most recent unaudited financial statements are not
presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with that
of the audited financial statements of First Bank at the Audit
Date.
(g) Holders of more than 85% of the outstanding shares of First
Bank shall have not exercised their statutory appraisal or dissenters'
rights.
(h) Neither the Company nor First Bank shall be subject to any
order, decree or injunction of a court or agency of competent
jurisdiction which would impose limitations on the ability of the
Resulting Corporation to exercise full rights of ownership of the assets
or business of First Bank and no action, suit, proceeding or
investigation shall be pending or threatened which, in the opinion of
counsel to the Company, is reasonably likely to result in any such order,
decree or injunction.
(i) Except as otherwise provided for in this Agreement, and except
for the three Change In Control Agreements dated as of May 29, 1996 by
and between First Bank and each of Dennis T. Cardello, Brian J. Hull and
Horace C. Burton, any agreement to which First Bank is a party on the
date hereof or hereafter which takes effect upon, or which provides a
payment or penalty conditioned upon or related to, a change of control of
First Bank, shall have been duly terminated without cost or expense to
First Bank, the Resulting Corporation or the Company.
(j) The Company shall have received the results of any
environmental site assessment contracted for in accordance with Section
6.12 hereof, and based upon such environmental site assessment, not more
than $100,000 shall be needed to be expended to correct any deficiency
cited in such assessment and, in the case of property used for First Bank
bank operations, it shall not be necessary to cease using the cited
location for a period in excess of 30 days in order to complete such
corrections, provided, that, as to any deficiency that can be corrected
reasonably promptly and before the Effective Time, First Bank shall have
the option of correcting such deficiency.
(k) The real property leases to which First Bank is a party shall
have remained in full force and effect as of the Effective Time and shall
not have been terminated by reason of the consummation of the
Reorganization.
(l) The Company shall have received, prior to the execution of
this Agreement and such opinion to be updated upon reasonable request by
the Company for inclusion in the Registration/Proxy Solicitation
materials in form and substance reasonably satisfactory to the Company,
an opinion from HAS Associates, Inc., or such other investment banker as
may be selected by the Company, that the terms of the Reorganization are
fair to the Company from a financial point of view.
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(m) Rulings from the Internal Revenue Service, in form and
substance satisfactory to counsel for the Company and the Bank, or an
opinion of counsel for the Company and the Bank, shall have been received
to the effect that, for federal income tax purposes, (i) the transactions
described in this Agreement will qualify for treatment as a tax-free
reorganization under Section 368 of the Code; (ii) except to the extent
of cash consideration received, no gain or loss will be recognized by the
Company or the Bank upon the Reorganization; (iii) no gain or loss will
be recognized by the shareholders of the Company upon consummation of the
Reorganization; and (iv) such other matters as the Company or the Bank
deems appropriate and necessary.
(n) The Company shall have received from Shatswell, MacLeod &
Company, P.C., its certified public accountants, a written opinion dated
the date of the Closing that the Reorganization will be accounted for as
a pooling of interests.
First Bank will furnish the Company with such certificates of its
officers or others and such other documents to evidence fulfillment of the
conditions set forth in this Section 7.02 as the Company may reasonably request.
7.03. Conditions to the Obligations of First Bank Under This Agreement.
The obligations of First Bank under this Agreement shall be further subject to
the satisfaction, at or prior to the Effective Time, of the following
conditions, any one or more of which may be waived by First Bank:
(a) Each of the obligations of the Company and the Bank required
to be performed by them at or prior to the Effective Time shall have been
duly performed and complied with and the representations and warranties
of the Company contained in this Agreement shall be true and correct in
all respects as of the date of this Agreement and as of the Effective
Time as though made at and as of the Effective Time (except as otherwise
contemplated by this Agreement), and First Bank shall have received a
certificate to that effect signed by the President and Chief Financial
Officer of the Company.
(b) All action required to be taken by, or on the part of, the
Company and the Bank to authorize the execution, delivery and performance
of this Agreement by the Company and the Bank and the consummation of the
transactions contemplated hereby shall have been duly and validly taken
by the Board of Directors of the Company and the Bank, and by the Company
as sole shareholder of the Bank, and First Bank shall have received
certified copies of the resolutions evidencing such authorization.
(c) The conditions in Section 7.02(d) shall have been satisfied.
(d) First Bank shall have received from Ostrowski & Company, Inc.,
or such other investment banker as may be selected by First Bank, prior
to execution of this Agreement an opinion to be updated for inclusion in
Registration and Proxy Solicitation materials, in form and substance
reasonably satisfactory to First Bank, that the terms of the
Reorganization are fair to First Bank and its shareholders from a
financial point of view. In addition, the Company and/or the Bank shall
not have taken any action, or suffered any experience, which causes First
Bank's investment banker to withdraw its fairness opinion.
(e) First Bank shall have received an opinion, dated the date of
Closing, from counsel to the Company, in form and substance reasonably
satisfactory to First Bank.
(f) Rulings from the Internal Revenue Service, in form and
substance satisfactory to counsel for First Bank, or an opinion of
counsel for First Bank or the Company, shall have been received, rendered
on the basis of facts, representations, and assumptions set forth in such
opinions or in writing elsewhere and referred to therein, substantially
to the effect that for federal income tax purposes (i) the Reorganization
constitutes a reorganization within the meaning of Section 368(a) of the
Code, and (ii) accordingly, no gain or loss will be recognized by
shareholders of First Bank with respect to Company Common Stock received
solely in exchange for First Bank Common Stock pursuant to this Agreement
(noting, however, that non-taxability does not extend to cash received in
lieu of a fractional share interest in Company Common Stock, or by
dissenters, if any). In rendering any such opinion, such counsel may
require and, to the extent they deem necessary or appropriate may rely
upon, opinions of other counsel and upon representations made in
certificates of officers of First Bank, the Company, affiliates of the
foregoing, and others.
The Company will furnish First Bank with such certificates of its
officers or others and such other documents to evidence fulfillment of the
conditions set forth in this Section 7.03 as First Bank may reasonably request.
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ARTICLE VIII
CLOSING
8.01. Time and Place. Subject to the satisfaction of the conditions of
Section 7.01 hereof, the closing (the "Closing") of the transactions
contemplated hereby shall take place at the offices of Day, Berry & Howard,
CityPlace I, Hartford, Connecticut at 10:00 A.M., on the third business day
after the date on which all of the conditions contained in Section 7.01 hereof,
to the extent not waived, are satisfied, unless extended pursuant to the
procedure described in Article 9.01(k) below, or at such other place, at such
other time, or on such other date as the Company and First Bank may mutually
agree upon for the Closing to take place.
8.02. Deliveries at the Closing. At the Closing, there shall be delivered
to the Company and First Bank the opinions, certificates, and other documents
and instruments required to be delivered under Articles VI and VII hereof.
ARTICLE IX
TERMINATION AND AMENDMENT
9.01. Termination. Notwithstanding any other provision of this Agreement,
this Agreement may be terminated at any time prior to the Effective Time,
whether before or after approval of the matters presented in connection with the
Reorganization by the shareholders of First Bank and the Company:
(a) by mutual consent of the Company and First Bank in a written
instrument, if the Board of Directors of each so determines by a vote of
a majority of the members of its entire Board;
(b) by either the Company or First Bank upon written notice to the
other party 90 days after the date on which any request or application
for a regulatory approval required to consummate the Reorganization shall
have been denied or withdrawn at the request or recommendation of the
governmental entity which must grant such requisite regulatory approval,
unless within the 90-day period following such denial or withdrawal a
petition for rehearing or an amended application has been filed with the
applicable governmental entity; provided, however, that no party shall
have the right to terminate this Agreement pursuant to this Section
9.01(b) if such denial or request or recommendation for withdrawal shall
be due to the failure of the party seeking to terminate this Agreement to
perform or observe the covenants and agreements of such party set forth
herein;
(c) by either the Company or First Bank if the Reorganization
shall not have been consummated on or before October 31, 1997, unless the
failure of the Closing to occur by such date shall be due to the failure
of the party seeking to terminate this Agreement to perform or observe in
any material respect the covenants and agreements of such party set forth
herein;
(d) by either the Company or First Bank (provided that the
terminating party is not in material breach of any of its obligations
under this Agreement) if any approval of the shareholders of either party
required for the consummation of the Reorganization shall not have been
obtained by reason of the failure to obtain the required vote at a duly
held meeting of shareholders or at any adjournment or postponement
thereof;
(e) by either the Company or First Bank (provided that the
terminating party is not in material breach of any representation,
warranty, covenant or other agreement contained herein) if there shall
have been a material breach of any of the representations or warranties
set forth in this Agreement on the part of the other party, which breach
is not cured within 45 days following written notice to the party
committing such breach, or which breach, by its nature, cannot be cured
prior to the Closing;
(f) by the Company or First Bank, in the event of the institution
by any governmental agency of any litigation or proceeding to restrain or
prohibit the consummation of the Reorganization;
(g) by the Company if at the time of such termination, (1) the
audited financial statements of First Bank for the year ended December
31, 1996 delivered to the Company as provided for in Section 3.05
disclose a reduction in First Bank's capital of 5% or more below the
levels disclosed to the Company in the December 31, 1996 unaudited
financial statements of First Bank referred to in Section 3.05 or (2)
there shall have been a reduction in First Bank's capital of 5% or more
below the levels disclosed to the Company in the December 31, 1996
unaudited financial statements of First Bank referred to in Section 3.05
unless such change shall have resulted from conditions affecting the
banking industry generally;
A-27
<PAGE>
(h) by First Bank if at the time of such termination there shall
have been a material adverse change in the Company's financial condition
unless such change shall have resulted from conditions affecting the
banking industry generally. For purposes of this Section 9.01(h), (1) no
bulk sale of non-performing assets by the Company or the Bank approved by
the Board of Directors of the Company or the Bank, and made in all
material respects in accordance with such approval after the date of this
Agreement, shall be counted except to the extent the net adverse effect
thereof (after considering any tax benefits) on the capital of the
Company exceeds $1,500,000, and (2) no other transaction, event or
condition, or series or combination of transactions, events or conditions
shall be considered as resulting in a material adverse change with
respect to the Company if the net adverse effect thereof, together with
any net adverse effect counted under (1), on the capital of the Company
is not in excess of $1,500,000;
(i) by the Company if the results, preliminary or other, of any
regulatory examination of First Bank indicates (1) any action or actions
the net effect of which is likely to result in a reduction in First
Bank's capital of 5% or more below levels disclosed to the Company in the
December 31, 1996 unaudited financial statements of First Bank referred
to in Section 3.05, or (2) any other action that is likely to result in a
significant restriction on First Bank, its business or operations, unless
such reduction or restriction has been requested in writing by the
Company;
(j) by the Company if, in order to obtain any required permit,
consent, approval or authorization of any governmental authority having
jurisdiction, the Company or Resulting Corporation will be required to
agree to, or will be subjected to, a limitation upon its activities
following the Effective Time which the Company or the Bank reasonably
regards as materially adverse; or
(k) by First Bank, if its Board of Directors so determines by a
vote of a majority of the members of its entire Board, at any time during
the two-day period commencing with the Determination Date ("Determination
Date" means the date on which all of the conditions contained in Section
7.01 hereof, to the extent not waived, are satisfied), if the Company
Common Stock Average Price ("Company Common Stock Average Price" means
the average of the daily closing sales prices of Company Common Stock as
reported on NASDAQ (as reported in The Wall Street Journal or, if not
reported thereby, another authoritative source as chosen by the Company)
for the 20 consecutive full trading days in which such shares are quoted
on NASDAQ ending at the close of trading on the Determination Date) on
the Determination Date shall be less than $12.80 per share.
Notwithstanding the foregoing, if First Bank elects to exercise its
termination right pursuant to this subsection (k), it shall give prompt
written notice to the Company (provided that such notice of election to
terminate may be withdrawn at any time within the aforementioned two-day
period). During the seven-day period commencing with its receipt of such
notice, the Company shall have the option of increasing the consideration
to be received by the holders of First Bank Common Stock hereunder by
increasing the Exchange Ratio to equal a number (rounded to four
decimals) equal to a quotient, the numerator of which is $12.80
multiplied by the Exchange Ratio and the denominator of which is the
Company Common Stock Average Price. If the Company makes an election
contemplated by the preceding sentence, within such seven-day period, it
shall give prompt written notice to First Bank of such election and the
revised Exchange Ratio, whereupon no termination shall have occurred
pursuant to this subsection (k) and this Agreement shall remain in effect
in accordance with its terms (except as the Exchange Ratio shall have
been so modified), and any references in this Agreement to "Exchange
Ratio" shall thereafter be deemed to refer to the Exchange Ratio as
adjusted pursuant to this subsection (k).
9.02. Effect of Termination. In the event of termination of this
Agreement by either the Company or First Bank as provided in Section 9.01, this
Agreement shall forthwith become void and have no further effect, except (i)
Sections 6.02(d), 9.02, 10.01 and 10.02 shall survive any termination of this
Agreement, and (ii) notwithstanding anything to the contrary contained in this
Agreement, no party shall be relieved or released from any liabilities or
damages arising out of its breach of any representation, warranty, or other
provision of this Agreement.
9.03. Amendment. Subject to compliance with applicable law, this
Agreement may be amended by the parties hereto, by action taken or authorized by
their respective Boards of Directors, at any time before or after approval of
the matters presented in connection with the Reorganization by the shareholders
of First Bank or the Company; provided, however, that after any approval of the
transactions contemplated by this Agreement by First Bank's or the Company's
shareholders, there may not be, without further approval of such shareholders,
any amendment of this Agreement which reduces the amount or changes the form of
the consideration to be delivered to such shareholders hereunder in any material
respect other than as contemplated by this Agreement. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
A-28
<PAGE>
9.04. Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein (other than Section
7.01). Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in a written instrument signed on behalf
of such party, but such extension or waiver shall not operate as a waiver of, or
estoppel with respect to, any subsequent or other failure.
ARTICLE X
MISCELLANEOUS
10.01. Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall, except to the extent
and under the circumstances set forth in Section 10.02 below to the contrary, be
paid by the party incurring such costs and expenses.
10.02. Fees and Expenses Under Certain Circumstances.
(a) First Bank and its Directors shall vote for the Reorganization
and recommend this Reorganization to the Shareholders of First Bank and
shall not solicit, approve or recommend to its shareholders, or undertake
or enter into with or without shareholder approval, either as the
surviving or disappearing or the acquiring or acquired corporation, any
other reorganization, consolidation, assets acquisition, tender offer or
other takeover transaction, or furnish or cause to be furnished any
information concerning its business, properties or assets to any person
or entity, other than the Company, interested in any such transaction
(except for Directors and executive officers of First Bank and such other
persons as may be required by law), and First Bank will not authorize or
permit any officer, Director, employee, investment banker or other
representative directly or indirectly to solicit, encourage or support
any offer from any person or entity (other than the Company) to acquire
substantially all of the assets of First Bank, to acquire 10% or more of
the outstanding stock of First Bank, to enter into an agreement to merge
with First Bank, or to take any other action that would have
substantially the same effect as the foregoing, without the written
consent of the Company (any such solicitation, approval, undertaking,
authorization, permission or other action referred to in this sentence
being sometimes referred to as an "Unauthorized Action"). If the
Reorganization is not consummated in accordance with the terms hereof
because of any action or omission by First Bank as set forth above in
this Section, then First Bank shall on demand pay to the Company the sum
of (a) the out-of-pocket expenses, including, without limitation,
reasonable attorney, accountant and investment banker fees and expenses,
incurred by the Company in connection with the proposed Reorganization
and the transactions provided for in this Agreement; provided, however,
that the amount of such fees shall not exceed $250,000, plus (b)
$750,000, as liquidated damages. The above restrictions shall not
preclude the Directors from taking actions which they determine, in the
exercise of their fiduciary duties, are in the best interests of the
shareholders; however, if they take any Unauthorized Action, First Bank
will be responsible for the aforementioned fees and liquidated damages.
(b) If either First Bank or the Company fails to perform any
material covenant or agreement in this Agreement, or if any
representation or warranty by First Bank or the Company is determined to
be materially untrue (the party which fails to perform or which makes the
untrue representation or warranty being referred to as a "Breaching
Party"), and if, at the time of the failure or untrue representation or
warranty by the Breaching Party, the other party is not a Breaching Party
(the "Non-Breaching Party"), and if the Agreement is thereafter
terminated prior to the Effective Time, then the Breaching Party shall on
demand pay to the Non-Breaching Party an amount equal to 5% of the
Breaching Party's Tier 1 leverage capital (calculated as of the end of
the most recently completed fiscal quarter) as liquidated damages, such
amount to be deemed to include whatever expenses the Non-Breaching Party
may have incurred; provided, however, that the amount of such liquidated
damages shall not exceed $2,000,000 if the Company is the Breaching Party
and $1,000,000 if First Bank is the Breaching Party.
(c) If First Bank does not take any unauthorized action, if First
Bank shareholders do not approve the Reorganization, and if the Company
does not breach this Agreement and if an agreement to acquire or merge
with First Bank is executed, within the twelve months following the date
of the execution of this Agreement, with an entity that makes an offer
during the term of the Agreement, First Bank shall pay to the Company
upon execution of such agreement the sum of all out-of-pocket expenses,
including without limitation, reasonable
A-29
<PAGE>
attorney, accountant and investment banker fees and expenses, incurred by
the Company in connection with the proposed Reorganization and the
transactions provided for in the Agreement; provided, however, that the
amount of such fees shall not exceed $250,000 and provided that if the
transaction agreed to with such other entity shall not close, the Company
shall thereupon promptly repay such amount to First Bank.
10.03. Non-Survival of Representations and Warranties. The respective
representations and warranties of the Company and First Bank contained in this
Agreement or in any instrument or certificate delivered pursuant hereto by the
Company or First Bank shall expire on and be terminated and extinguished at the
Effective Time; provided, however, that after the Effective Time, any such
representation or warranty of the Company or First Bank shall not be deemed to
be terminated or extinguished so as to deprive the Company of any defense at law
or in equity which it would otherwise have to any claim against it by any
person, firm, corporation or other legal entity, including, without limitation,
any shareholder or former shareholder of First Bank.
10.04. Indemnification and Directors' and Officers' Insurance.
(a) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or administrative,
including, without limitation, any such claim, action, suit proceeding or
investigation in which any person who is now, or has been at any time
prior to the date of this Agreement, or who becomes prior to the
Effective Time, a director or officer or employee of First Bank (the
"Indemnified Parties") is, or is threatened to be, made a party based in
whole or in part on, or arising in whole or in part out of, or pertaining
to (i) the fact that he or she is or was a director, officer or employee
of First Bank or (ii) this Agreement or any of the transactions
contemplated hereby, whether in any case asserted or arising before or
after the Effective Time, the parties hereto agree to cooperate and use
their best efforts to defend against and respond thereto. It is
understood and agreed that First Bank shall indemnify and hold harmless,
and that after the Effective Time the Resulting Corporation and the
Company shall indemnify and hold harmless, as and to the fullest extent
permitted by applicable law and by the provisions of their respective
Certificates of Incorporation and Bylaws, each such Indemnified Party
against any losses, claims, damages, liabilities, costs, expenses
(including reasonable attorney's fees and expenses), judgments, fines and
amounts paid in settlement in connection with any such threatened or
actual claim, action, suit proceeding or investigation.
(b) At and after the Effective Time, the Company shall maintain
First Bank's current directors' and officers' liability insurance run-off
and tail coverage and will use its best efforts to procure directors' and
officers' liability insurance run-off and tail coverage so as to increase
the term of coverage to a date not earlier than three years from the
Effective Date.
(c) In the event the Company or the Resulting Corporation or any
of their successors or assigns (i) consolidates with or merges into any
other person and shall not be the continuing or surviving corporation or
entity of such consolidation or merger, or (ii) transfers or conveys all
or substantially all of its property and assets to any person, then, and
in each such case proper provision shall be made so that the successors
and assigns of the Company or the Resulting Corporation, as the case may
be, assume the obligations set forth in this Section 10.04.
10.05. Notification of Certain Matters.
(a) First Bank shall give prompt notice to the Company and the
Company shall give prompt notice to First Bank, of (i) the occurrence, or
failure to occur, of any event which occurrence or failure would be
likely to cause any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect at any time
from the date hereof to the Effective Time, and (ii) any material failure
of First Bank or the Company, as the case may be, or of any officer,
Director, employee or agent thereof, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder, provided, however, that no such notifications shall affect the
representations or warranties of the parties or the conditions to the
obligations of the parties hereunder,
(b) First Bank agrees to notify the Company by telephone within 24
hours of receipt of any inquiry with respect to a proposed
Reorganization, consolidation, assets acquisition, tender offer or other
takeover transaction with another person or receipt of a request for
information from the FDIC, the Commissioner, or other governmental
authority with respect to a proposed acquisition of First Bank by another
party. First Bank will promptly communicate to the Company the terms of
any such proposal, discussion, negotiation, or inquiry, including the
identity of the party making such proposal or inquiry.
A-30
<PAGE>
10.06. Notices. All notices or other communications hereunder shall be in
writing and shall be deemed given if delivered personally or mailed by prepaid
certified first class mail (return receipt requested) or by recognized overnight
delivery service addressed as follows:
(a) If to the Company or the Bank, to:
New England Community Bancorp, Inc. and
New England Bank and Trust Company
P.O. Box 130
Old Windsor Mall
Windsor, CT 06095
Attention: David A. Lentini
President and Chief Executive Officer
Copy to:
Day, Berry & Howard
CityPlace I
Hartford, CT 06103-3499
Attention: Robert M. Taylor, III
(b) If to First Bank, to:
First Bank of West Hartford
1013 Farmington Avenue
West Hartford, CT 06107
Attention: Dennis T. Cardello
President and Chief Executive Officer
Copy to:
Tyler, Cooper & Alcorn
CityPlace I
Hartford, CT 06103
Attention: William W. Bouton, III
or such other address as shall be furnished in writing by either party, and any
such notice or communication shall be deemed to have been given as of the date
so mailed.
10.07. Parties in Interest. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by either party
hereto without the prior written consent of the other party, and that nothing in
this Agreement is intended to confer, expressly or by implication, upon any
other person any rights or remedies under or by reason of this Agreement.
10.08. Complete Agreement. This Agreement, including the documents and
other writings referred to herein or delivered pursuant thereto, contains the
entire agreement and understanding of the parties with respect to its subject
matter, other than the Confidentiality Agreements. There are no restrictions,
agreements, premises, warranties, covenants or undertakings other than those
expressly set forth herein or therein. This Agreement supersedes all prior
agreements and understandings between the parties, both written and oral, with
respect to its subject matter. If any provision or part of this Agreement is
deemed unenforceable, the enforceability of the other provisions and parts shall
not be affected.
10.09. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
10.10. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Connecticut.
A-31
<PAGE>
10.11. Headings. The Article and Section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, First Bank, the Company and the Bank have caused this
Agreement to be executed by their duly authorized officers as of the day and
year first above written.
NEW ENGLAND COMMUNITY BANCORP, INC.
By /s/ David A. Lentini
-----------------------------------
David A. Lentini
Attest: Its President
/s/ Angelina J. McGillivray
- ------------------------------------------
Secretary
NEW ENGLAND BANK & TRUST COMPANY
By /s/ David A. Lentini
-----------------------------------
David A. Lentini
Attest: Its President
/s/ Angelina J. McGillivray
- ------------------------------------------
Secretary
FIRST BANK OF WEST HARTFORD
By /s/ Dennis T. Cardello
-----------------------------------
Dennis T. Cardello
Attest: Its President
/s/ Horace C. Burton
- ------------------------------------------
Secretary
A-32
<PAGE>
DIRECTORS OF NEW ENGLAND COMMUNITY BANCORP, INC.
We hereby confirm, as of this 25th day of February, 1997, our approval of
the foregoing Agreement and Plan of Reorganization by and between New England
Community Bancorp, Inc., New England Bank & Trust Company and First Bank of West
Hartford.
/s/ Tadeus J. Buczkowski /s/ John C. Carmon
- ---------------------------------------- -------------------------------------
Tadeus J. Buczkowski John C. Carmon
/s/ Edward J. Szewczyk /s/ George A. Colli, Jr.
- ---------------------------------------- -------------------------------------
Edward J. Szewczyk George A. Colli, Jr.
/s/ Gary J. DeNino /s/ Frank A. Falvo
- ---------------------------------------- -------------------------------------
Gary J. DeNino Frank A. Falvo
/s/ Dominic J. Ferraina /s/ Charles D. Gersten
- ---------------------------------------- -------------------------------------
Dominic J. Ferraina Charles D. Gersten
/s/ John R. Harvey /s/ David A. Lentini
- ---------------------------------------- -------------------------------------
John R. Harvey David A. Lentini
/s/ Angelina J. McGillivray
- ----------------------------------------
Angelina J. McGillivray
A-33
<PAGE>
DIRECTORS OF NEW ENGLAND BANK & TRUST COMPANY
We hereby confirm, as of this 25th day of February, 1997, our approval of
the foregoing Agreement and Plan of Reorganization by and between New England
Community Bancorp, Inc., New England Bank & Trust Company and First Bank of West
Hartford.
/s/ Tadeus J. Buczkowski /s/ John C. Carmon
- -------------------------------------- -------------------------------------
Tadeus J. Buczkowski John C. Carmon
/s/ Andrew Ansaldi, Jr. /s/ George A. Colli, Jr.
- -------------------------------------- -------------------------------------
Andrew Ansaldi, Jr. George A. Colli, Jr.
/s/ Lester R. Daddario /s/ Dominic J. Ferraina
- -------------------------------------- -------------------------------------
Lester R. Daddario Dominic J. Ferraina
/s/ Russell A. Ferrigno, D.D.S. /s/ Hulburt R. Frew
- -------------------------------------- -------------------------------------
Russell A. Ferrigno, D.D.S. Hulburt R. Frew
/s/ David A. Lentini /s/ Angelina J. McGillvray
- -------------------------------------- -------------------------------------
David A. Lentini Angelina J. McGillvray
/s/ John J. Narkiewicz /s/ Edward J. Szewczyk
- -------------------------------------- -------------------------------------
John J. Narkiewicz Edward J. Szewczyk
/s/ Nathan G. Agostinelli
- --------------------------------------
Nathan G. Agostinelli
A-34
<PAGE>
DIRECTORS OF FIRST BANK OF WEST HARTFORD
We hereby confirm, as of this 25th day of February, 1997, our approval of
the foregoing Agreement and Plan of Reorganization by and between New England
Community Bancorp, Inc., New England Bank & Trust Company and First Bank of West
Hartford..
/s/ Gerard P. Barrieau, Jr. /s/ George C. Flynn, D.D.S.
- ---------------------------------------- -------------------------------------
Gerard P. Barrieau, Jr. George C. Flynn, D.D.S.
/s/ Bruce A. Fischman /s/ Samuel K. Lavery
- ---------------------------------------- -------------------------------------
Bruce A. Fischman Samuel K. Lavery
/s/ Robert F. Rossini /s/ Richard Rubenstein
- ---------------------------------------- -------------------------------------
Robert F. Rossini Richard Rubenstein
/s/ Michael P. Solimene /s/ Joan L. Rusconi
- ---------------------------------------- -------------------------------------
Michael P. Solimene Joan L. Rusconi
/s/ Dennis T. Cardello /s/ George A. Scott
- ---------------------------------------- -------------------------------------
Dennis T. Cardello George A. Scott
/s/ Lewis Cohen /s/ Howard J. Siegal
- ---------------------------------------- -------------------------------------
Lewis Cohen Howard J. Siegal
/s/ Edward N. Zieky /s/ Thomas P. Bilbao
- ---------------------------------------- -------------------------------------
Edward N. Zieky Thomas P. Bilbao
A-35
<PAGE>
APPENDIX B
================================================================================
HAS ASSOCIATES, INC. Northbridge Business Center P.O. Box 84
76 Northeastern Blvd., Suite 34 Boston, MA 02171
Nashua, NH 03062 (617) 472-5086
(603) 880-4529 FAX (617) 472-6903
FAX (603) 880-4351
June 27, 1997
Board of Directors
New England Community Bancorp, Inc.
176 Broad Street, Olde Windsor Mall
Windsor, CT 06105
Members of the Board:
You have requested our opinion as to the fairness to the stockholders of
New England Community Bancorp, Inc., Windsor, Connecticut ("NECB"), from a
financial point of view, of the terms of the Agreement and Plan of
Reorganization dated February 25, 1997 ("the Agreement") which will ultimately
provide for the merger (the "Reorganization") of First Bank of West Hartford,
West Hartford, Connecticut ("First Bank") into New England Bank and Trust
Company ("NEB&T"), a wholly-owned subsidiary of NECB. Shareholders of First Bank
will receive the Per Share Merger Consideration upon consummation of the Merger.
The Per Share Merger Consideration will be .620 shares of NECB common stock.
In connection with its opinion, HAS Associates, Inc. ("HAS") reviewed,
analyzed and relied upon material relating to the financial and operating
conditions of First Bank including, among other things, the following: (i) the
Agreement; (ii) Annual Reports to Stockholders and Annual Report on Form F-2 for
the three years ended December 31, 1993, 1994, and 1995, of First Bank; (iii)
certain Quarterly Reports on Form F-4, and proxy solicitation material of First
Bank and certain other communications from First Bank to its stockholders; (iv)
other financial information concerning the business and operations of First Bank
furnished to HAS by First Bank for purposes of its analysis, including certain
internal financial analyses and forecasts for First Bank prepared by the senior
management of First Bank; (v) corporate minutes of First Bank for three years;
(vii) regulatory filings of First Bank for three years; (viii) First Bank
policies and procedures, certain loan files, its investment portfolio; and (ix)
certain publicly available information with respect to banking companies and the
nature and terms of certain other transactions that HAS considered relevant to
its inquiry. In addition, HAS reviewed certain market information concerning
First Bank, analyzed data concerning private and publicly owned banks in New
England, reviewed stock market data of other banks generally deemed comparable
whose securities are publicly traded, publicly available information concerning
certain recent business combinations, and such additional financial and other
information as HAS deemed necessary. Furthermore, HAS reviewed the public
financial information available concerning NECB. In addition, HAS reviewed
certain internal reports and documents of First Bank including loan lists
grouped by risk rating, past due and non-accrual loan reports, internal loan
watch list, loan relationship reports, restructured loan reports, OREO and ISF
reports, loan loss reserve analysis reports, 1996 operating budget and forecast,
securities portfolio-book value and market value reports, and schedule of
threatened or pending litigations. HAS also held discussions with senior
management of First Bank concerning their past and current operations, financial
condition and prospects, as well as the results of regulatory examinations.
B-1
<PAGE>
In conducting its review and arriving at its opinion, HAS relied upon and
assumed the accuracy and completeness of all of the financial and other
information provided to it or publicly available, and HAS did not attempt to
verify such information independently or undertake an independent appraisal of
the assets and liabilities of First Bank. HAS relied upon the accuracy and
opinion of the audit reports prepared by the First Bank's independent
accountants. HAS assumes no responsibility for the accuracy and completeness of
the financial and other information relied upon.
We have acted as financial advisor to the Board of NECB in connection
with the Reorganization and will receive a fee for this service.
In reliance upon and subject to the foregoing, it is our opinion that, as
of February 25, 1997, the financial terms of the Agreement were, and as of the
date hereof, such terms are, fair, from a financial point of view, to the
current shareholders of NECB.
This letter is furnished to you in connection with the Reorganization and
we consent to its inclusion in the Registration Statement and proxy solicitation
material.
Sincerely,
/s/HAS Associates, Inc.
- -----------------------
HAS Associates, Inc.
================================================================================
Nashua, NH Boston
B-2
<PAGE>
OSTROWSKI & COMPANY, INC. APPENDIX C
Bank and Thrift Advisors
ONE WORLD TRADE CENTER WESTGATE OFFICE CENTER
SUITE 2135 700 WEST JOHNSON AVENUE
NEW YORK, NY 10048-0202 CHESHIRE, CT 06410-1135
212-432-0055 203-699-1445
FAX: 212-432-1254 FAX: 203-699-1447
June 25, 1997
Board of Directors
First Bank of West Hartford
1013 Farmington Avenue
West Hartford, CT 06107
Members of the Board:
You have requested an update of our opinion dated February 25, 1997 as to
the fairness, from a financial point of view, of the terms of a Plan and
Agreement of Reorganization dated February 25, 1997 (the "Agreement"), by and
among New England Community Bancorp ("NECB"), New England Bank & Trust Company
and First Bank of West Hartford ("First Bank"), to the holders of First Bank
common stock, par value $0.01 ("First Bank Shareholders"). Pursuant to the terms
of the Agreement, each share of First Bank common stock will be converted into
the right to receive 0.62 shares of NECB Class A common stock, par value $0.10,
subject to adjustment in certain circumstances as described in the Agreement.
Ostrowski & Company, Inc., as part of its bank and thrift advisory
business, is regularly engaged in the valuation of financial institutions and
their securities in connection with mergers and acquisitions and other corporate
purposes. We are familiar with First Bank, having provided financial advisory
services to the Board of Directors since 1994, and we participated in the
negotiations leading to the Agreement. We have received and will receive fees
from First Bank for advisory services, and will receive fees for advisory
services in connection with the completion of the transactions contemplated in
the Agreement.
In connection with providing this opinion, we have examined and relied
upon, among other things: the Agreement; the NECB Preliminary Proxy Statement on
Schedule 14A dated June 12, 1997 annual reports to shareholders, proxy
statements and related audited financial statements for First Bank and NECB for
each of the four fiscal years ended December 31, 1993, 1994, 1995 and 1996;
certain unaudited financial reports for First Bank and NECB for the quarter
ended March 31, 1997; certain other financial information for First Bank and
NECB, including pro forma financial statements and managements' estimates
relating to, among other things, earnings, asset quality, and capital. We have
conducted discussions with executive management of both First Bank and NECB
concerning historical financial performance and condition, market area economic
conditions, future business prospects and financial forecasts. We have reviewed
stock market prices and trading activity for the common shares of First Bank
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OSTROWSKI & COMPANY, INC.
Board of Directors
June 25, 1997
Page 2
and NECB. We have reviewed comparable financial, operating and market data for
the banking industry and selected peer groups; compared the terms of the
Agreement with other bank and thrift merger and acquisition transactions; and
have considered such additional financial and other information deemed relevant.
In preparing our opinion, we have relied upon the accuracy, completeness
and fair presentation of all information supplied or otherwise made available to
us by, or on behalf of, First Bank and NECB. We have not independently verified
such information or undertaken an independent evaluation or appraisal of the
assets or liabilities of First Bank or NECB, nor have we been furnished any such
evaluations or appraisals. With respect to forecasts of expected future
financial performance, we have been advised that they reflect the best currently
available estimates and judgement of the executive managements of First Bank and
NECB. This opinion is necessarily based upon the information available to us and
the market, economic and other conditions, as they exist and can be evaluated,
as of the date of this letter.
This opinion is directed solely to the fairness, from a financial point of
view, of the terms of the Agreement to First Bank Shareholders and does not
constitute a recommendation to any First Bank Shareholder as to how such First
Bank Shareholder should vote with respect to the Agreement.
In reliance upon and subject to the foregoing, it is our opinion that as of
the date hereof, the terms of the Agreement are fair, from a financial point of
view, to First Bank Shareholders.
Very truly yours,
OSTROWSKI & COMPANY, INC.
------------------------------------
/s/OSTROWSKI & COMPANY, INC.
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APPENDIX D
DISSENTERS' RIGHTS
(A) RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
#33-855. DEFINITIONS
As used in sections 33-855 to 33-872, inclusive:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action or the surviving or acquiring corporation by merger
or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 33-856 and who exercises that right when and in
the manner required by sections 33-860 to 33-868, inclusive.
(3) "Fair value", with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans, or, if none, at a rate that is fair,
and equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name are registered
in the records of a corporation or the beneficial owner of shares to the extent
of the rights granted by a nominee certificate on file with a corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
#33-856. RIGHT TO DISSENT
(a) A shareholder is entitled to dissent from, and obtain payment of
the fair value of his shares in the event of, any of the following corporation
actions:
(1) Consummation of a plan of merger to which the corporation is a
party (A) if shareholder approval is required for the merger by section 33-817
or the articles of incorporation and the shareholder is entitled to vote on the
merger or (B) if the corporation is a subsidiary that is merged with its parent
under section 33-818;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
year after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it: (A)
Alters or abolishes a preferential right of the shares; (B) creates, alters or
abolishes a right in respect of redemption, including a provision respecting a
sinking fund for the redemption or repurchase, of the shares; (C) alters or
abolishes a preemptive right of the holder of the shares to acquire shares or
other securities; (D) excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights; or (E)
reduces the number of shares owned by the shareholder to a fraction of a share
if the fractional share so created is to be acquired for cash under section
33-668; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
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(b) Where the right to be paid the value of shares is made available to
a shareholder by this section, such remedy shall be his exclusive remedy as
holder of such shares against the corporate transactions described in this
section, whether or not he proceeds as provided in sections 33-855 to 33-872,
inclusive.
#33-857. DISSENT BY NOMINEES AND BENEFICIAL OWNERS
(a) A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the corporation in
writing of the name and address of each person on whose behalf he asserts
dissenters' rights. the rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if: (1) He submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and (2) he does so with
respect to all shares of which he is the beneficial shareholder or over which he
has power to direct the vote.
#33-858, 33-859. RESERVED FOR FUTURE USE
(B) PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
##33-860. NOTICE OF DISSENTERS' RIGHTS
(a) If proposed corporate action creating dissenters' rights under
section 33-856 is submitted to a vote at a shareholders' meeting, the meeting
notice shall state that shareholders are or may be entitled to assert
dissenters' right under sections 33-855 to 33-872, inclusive, and be accompanied
by a copy of said sections.
(b) If corporate action creating dissenters' rights under section
33-856 is taken without a vote of shareholders, the corporation shall notify in
writing all shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters' notice described in section 33-862.
#33-861. NOTICE OF INTENT TO DEMAND PAYMENT
(a) If proposed corporate action creating dissenters' rights under
section 33-856 is submitted to a vote at a shareholders' meeting, a shareholder
who wishes to assert dissenters' rights (1) shall deliver to the corporation
before the vote is taken written notice of his intent to demand payment for his
shares if the proposed action is effectuated and (2) shall not vote his shares
in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection
(a) of this section is not entitled to payment for his shares under sections
33-855 to 33-872, inclusive.
##33-862. DISSENTERS' NOTICE
(a) If proposed corporate action creating dissenters' rights under
section 33-856 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of section 33-861.
(b) The dissenters' notice shall be sent no later than ten days after
the corporate action was taken an shall:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty nor more than sixty days after
the date the subsection (a) of this section notice is delivered; and
(5) Be accompanied by a copy of sections 33-855 to 33-872, inclusive.
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#33-863. DUTY TO DEMAND PAYMENT
(a) A shareholder sent a dissenters' notice described in section 33-862
must demand payment, certify whether he acquired beneficial ownership of the
shares before the date required to be set forth in the dissenters' notice
pursuant to subdivision (3) of subsection (b) of said section and deposit his
certificates in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits his share
certificates under subsection (a) of this section retains all other rights of a
shareholder until these rights are cancelled or modified by the taking of the
proposed corporate action.
(c) Shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under sections 33-855 to 33-872,
inclusive.
#33-864. SHARE RESTRICTIONS
(a) The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received until the proposed
corporate action is taken or the restrictions released under section 33-866.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate action.
#33-865. PAYMENT
(a) Except as provided in section 33-867; as soon as the proposed
corporate action is taken, or upon receipt of a payment demand, the corporation
shall pay each dissenter who complied with section 33-863 the amount the
corporation estimates to be the fair value of his shares, plus accrued interest.
(b) The payment shall be accompanied by: (1) The corporation's balance
sheet as of the end of a fiscal year ending not more than sixteen months before
the date of payment, an income statement for that year, a statement of changes
in shareholders' equity for that year and the latest available interim financial
statements, if any; (2) a statement of the corporation's estimate of the fair
value of the shares; (3) an explanation of how the interest was calculated; (4)
a statement of the dissenter's right to demand payment under section 33-860; and
(5) a copy of sections 33-855 to 33-872, inclusive.
#33-866. FAILURE TO TAKE ACTION
(a) If the corporation does not take the proposed action within sixty
days after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 33-862 and repeat the payment demand procedure.
#3 33-867. AFTER-ACQUIRED SHARES
(a) A corporation may elect to withhold payment required by section
33-865 from a dissenter unless he was the beneficial owner of the shares before
the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of his demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated and a statement of the dissenter's right to demand payment under
section 33-868.
#33-868. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER
(a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and demand
payment of his estimate, less any payment under section 33-865, or reject the
corporation's offer under section 33-867 and demand payment of the fair value of
his shares and interest due, if:
(1) The dissenter believes that the amount paid under section 33-865 or
offered under section 33-867 is less than the fair value of his shares or that
the interest due is incorrectly calculated;
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(2) The corporation fails to make payment under section 33-865 within
sixty days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection (a)
of this section within thirty days after the corporation made or offered payment
for his shares.
##33-869, 33-870. RESERVED FOR FUTURE USE
(C) JUDICIAL APPRAISAL OF SHARES
#33-871. COURT ACTION
(a) If a demand for payment under section 33-868 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and, petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the sixty-day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(b) The corporation shall commence the proceeding in the superior court
for the judicial district where a corporation's principal office or, if none in
this state, its registered office is located. If the corporation is a foreign
corporation without a registered office in this state, it shall commence the
proceeding in the superior court for the judicial district where the registered
office of the domestic corporation merged with r whose shares were acquired by
the foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not residents
of this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to it. The dissenters are
entitled to the same discovery rights as panties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to
judgment (1) for the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the corporation, or (2)
for the fair value, plus accrued interest, of his after-acquired shares for
which the corporation elected to withhold payment under section 33-867.
#33-872. COURT COSTS AND COUNSEL FEES
(a) The court in an appraisal proceeding commenced under section 33-871
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously or not
in good faith in demanding payment under section 33-868.
(b) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable: (1)
Against the corporation and in favor of any or all dissenters if the court finds
the corporation did not substantially comply with the requirements of sections
33-860 to 33-868, inclusive; or (2) against either the corporation or a
dissenter, in favor of any other arty, if the court finds that the party against
whom the fees and expenses are assessed acted arbitrarily, vexatiously or not in
good faith with respect to the rights provided by sections 33-855 to 33-872,
inclusive.
(c) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware law and NECB's Bylaws and Restated Certificate of
Incorporation authorize NECB to indemnify Officers, Directors and certain
individuals associated with NECB. In general, Article V of NECB's Bylaws and
Article VII of NECB's Restated Certificate of Incorporation authorize NECB to
indemnify any person who was or is a party to any threatened, pending or
completed action, suit or proceeding, and any appeal therein, whether civil,
criminal, administrative, arbitrative or investigative (other than an action by
or in the right of NECB) by reason of the fact that he is or was a director,
officer, trustee, employee or agent of NECB, or is or was serving at the request
of NECB as a director, officer, trustee, employee or agent of another
corporation, association, partnership, venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines, penalties and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding, and any appeal therein, if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of NECB, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of NECB, and, with respect to any criminal action
or proceeding, that he or she had reasonable cause to believe that his or her
conduct was unlawful.
ITEM 21. EXHIBIT AND FINANCIAL STATEMENTS SCHEDULES
(a) List of Exhibits
The exhibits filed as a part of this Registration Statement are as
follows:
EXHIBIT NO. DESCRIPTION LOCATION
---------- ----------- --------
2.1 Plan and Agreement of Reorganization, (1)
dated as of February 25, 1997, among
New England Community Bancorp, Inc.,
New England Bank & Trust Company and
FBWH of West Hartford included as
Appendix A hereto.
3.1 Amended and Restated Certificate of (2)
Incorporation of New England Community
Bancorp, Inc.
3.2 Amended and Restated Bylaws of New (3)
England Community Bancorp, Inc.
4. Specimen Common Stock Certificate (4)
of New England Community Bancorp, Inc.
5. Opinion of Day, Berry & Howard (1)
regarding legality of securities
being registered.
8.1 Opinion of Tyler Cooper & Alcorn, L.L.P. (1)
regarding certain federal income tax
consequences.
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8.2 Opinion of Day, Berry & Howard (1)
regarding certain federal income tax
consequences.
10.1 Employment Agreement between New (5)
England Bank and Trust Company and David
A. Lentini dated August 9, 1994.
10.2 Employment Agreement by and between (6)
New England Bank and Trust Company and
David A. Lentini dated August 31, 1993.
10.3 Employment Agreement by and between (7)
New England Bank and Trust Company and
Donat A. Fournier dated August 31, 1993.
10.4 Employment Agreement by and between (8)
New England Bank and Trust Company and
Donat A. Fournier dated August 9, 1994.
10.5 Employment Agreement by and between (9)
New England Bank and Trust Company and
Anson C. Hall dated August 25, 1994.
10.6 Employment Agreement by and between (10)
The Equity Bank and Frank A.
Falvo dated December 6, 1996.
21. List of Subsidiaries of New England (11)
Community Bancorp, Inc.
22. Power of Attorney (See Signature Page.) (1)
23.1 Consent of Day, Berry & Howard (See Exhibits 5 and 8.2.) (1)
23.2 Consent of Shatswell, MacLeod (1)
& Company, P.C.
23.3 Consent of Tyler Cooper & Alcorn, L.L.P. (See (1)
Exhibit 8.1.)
23.4 Consent of Snyder & Haller (1)
23.5 Consent of HAS Associates, Inc. (1)
23.6 Consent of Ostrowski & Company, Inc. (1)
99.1 Form of Proxy for the Special Meeting of (1)
Stockholders of NECB
99.2 Form of Proxy for the Annual Meeting (1)
of Shareholders of FBWH
99.3 Form of Letter to NECB Stockholders (1)
99.4 FBWH Proxy Materials (1)
- ----------
(1) Filed herewith.
(2) Exhibit was filed on June 20, 1995 as Exhibit 3.1 to New England
Community Bancorp, Inc.'s Registration Statement on Form S-4 (No.
33-93640) and is incorporated herein by reference.
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(3) Exhibit was filed as Exhibit 3.2 to New England Community Bancorp,
Inc.'s Annual Report on Form 10-K for the year ended December 31, 1994,
filed with the SEC on March 31, 1995 and is incorporated herein by
reference.
(4) Exhibit was filed on June 20, 1995 as Exhibit 4 to New England
Community Bancorp, Inc.'s Registration Statement on Form S-4 (No.
33-93640) and is incorporated herein by reference.
(5) Exhibit was filed on September 2, 1994 as Exhibit 10.3 to Olde Windsor
Bancorp, Inc.'s, now known as New England Bancorp, Inc.'s, Registration
Statement on Form S-1 (No. 33-83622) and is incorporated herein by
reference.
(6) Exhibit was filed on September 2, 1994 as Exhibit 10.4 to Olde Windsor
Bancorp, Inc.'s, now known as New England Community Bancorp, Inc.'s,
Registration Statement on Form 5-1 (No. 33-83622) and is incorporated
herein by reference.
(7) Exhibit was filed on September 2, 1994 as Exhibit 10.5 to Olde Windsor
Bancorp, Inc.'s, now known as New England Community Bancorp, Inc.'s,
Registration Statement on Form 5-1 (No. 33-83622) and is incorporated
herein by reference.
(8) Exhibit was filed on October 20, 1994 as Exhibit 10.6 to New England
Community Bancorp, Inc.'s Registration Statement on Form 5-1 (No.
33-83622), Amendment 1, and is incorporated herein by reference.
(9) Exhibit was filed on October 20,1994 as Exhibit 10.7 to New England
Community Bancorp, Inc.'s Registration Statement on Form S-1 (No.
33-83622), Amendment Number 1, and is incorporated herein by reference.
(10) Exhibit was filed on March 31, 1997 as Exhibit 10f to New England
Community Bancorp, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 (the "1996 10-K"), and is incorporated
herein by reference.
(11) Exhibit was filed on March 31, 1997 as Exhibit 21 to the 1996 Form
10-K, and is incorporated herein by reference.
(b) Financial Statement Schedules.
No financial statement schedules are filed because the required
information is not applicable or is included in the consolidated financial
statements or related notes.
(c) See Appendix B and Appendix C.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes as follows:
(1) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through
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the use of a prospectus which is a part of this registration statement,
by a person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes
of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of this form, within one business
day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to
the request.
(4) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired therein, that was not the subject of and
included in the registration statement when it became effective.
(5) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the questions whether
such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
(6) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
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(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on From S-3, Form S-8 or Form F-3, and
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of Windsor,
State of Connecticut, on June 27, 1997.
NEW ENGLAND COMMUNITY BANCORP, INC.
(Registrant)
By/S/ DAVID A. LENTINI
----------------------
David A. Lentini
Its President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby constitutes David A. Lentini and Anson C. Hall and each of them singly,
such person's true and lawful attorneys, with full power to them and each of
them to sign for such person and in such person's name and capacity indicated
below any and all amendments to this Registration Statement, hereby ratifying
and confirming such person's signature as it may be signed by said attorneys to
any and all such amendments.
NAME TITLE DATE
---- ----- ----
/S/ DOMINIC J. FERRANIA Chairman and Director June 27, 1997
- -----------------------
/S/ DAVID A. LENTINI Director, President and Chief June 27, 1997
- -------------------- Executive Officer (Principal
Executive Officer)
/S/ ANSON C. HALL Vice President, Chief Financial June 27, 1997
- ----------------- Officer and Treasurer
(Principal Financial Officer)
/S/ TADEUS J. BUCZKOWSKI Director June 27, 1997
- ------------------------
/S/ CHARLES D. GERSTEN Director June 27, 1997
- ----------------------
/S/ JOHN C. CARMON Director June 27, 1997
- ------------------
/S/ GARY J. DENINO Director June 27, 1997
- ------------------
/S/ ANGELIA J. MCGILLIVRAY Director June 27, 1997
- --------------------------
/S/ FRANK A. FALVO Director June 27, 1997
- ------------------
/S/ JOHN R. HARVEY Director June 27, 1997
- ------------------
/S/ EDWARD J. SWEWCZYK Director June 27, 1997
- ----------------------
II-6
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION LOCATION
---------- ----------- --------
2.1 Plan and Agreement of Reorganization, (1)
dated as of February 25, 1997, among
New England Community Bancorp, Inc.,
New England Bank & Trust Company and
FBWH of West Hartford included as
Appendix A hereto.
3.1 Amended and Restated Certificate of (2)
Incorporation of New England Community
Bancorp, Inc.
3.2 Amended and Restated Bylaws of New (3)
England Community Bancorp, Inc.
4. Specimen Common Stock Certificate (4)
of New England Community Bancorp, Inc.
5. Opinion of Day, Berry & Howard (1)
regarding legality of securities
being registered.
8.1 Opinion of Tyler Cooper & Alcorn, L.L.P. (1)
regarding certain federal income tax
consequences.
8.2 Opinion of Day, Berry & Howard (1)
regarding certain federal income tax
consequences.
10.1 Employment Agreement between New (5)
England Bank and Trust Company and David
A. Lentini dated August 9, 1994.
10.2 Employment Agreement by and between (6)
New England Bank and Trust Company and
David A. Lentini dated August 31, 1993.
10.3 Employment Agreement by and between (7)
New England Bank and Trust Company and
Donat A. Fournier dated August 31, 1993.
10.4 Employment Agreement by and between (8)
New England Bank and Trust Company and
Donat A. Fournier dated August 9, 1994.
10.5 Employment Agreement by and between (9)
New England Bank and Trust Company and
Anson C. Hall dated August 25, 1994.
10.6 Employment Agreement by and between (10)
The Equity Bank and Frank A.
Falvo dated December 6, 1996.
21. List of Subsidiaries of New England (11)
Community Bancorp, Inc.
22. Power of Attorney (See Signature Page.) (1)
23.1 Consent of Day, Berry & Howard (See Exhibits 5 and 8.2.) (1)
23.2 Consent of Shatswell, MacLeod (1)
& Company, P.C.
23.3 Consent of Tyler Cooper & Alcorn, L.L.P. (See (1)
Exhibit 8.1.)
23.4 Consent of Snyder & Haller (1)
23.5 Consent of HAS Associates, Inc. (1)
23.6 Consent of Ostrowski & Company, Inc. (1)
<PAGE>
99.1 Form of Proxy for the Special Meeting of (1)
Stockholders of NECB
99.2 Form of Proxy for the Annual Meeting (1)
of Shareholders of FBWH
99.3 Form of Letter to NECB Stockholders (1)
99.4 FBWH Proxy Materials (1)
- ----------
(1) Filed herewith.
(2) Exhibit was filed on June 20, 1995 as Exhibit 3.1 to New England
Community Bancorp, Inc.'s Registration Statement on Form S-4 (No.
33-93640) and is incorporated herein by reference.
(3) Exhibit was filed as Exhibit 3.2 to New England Community Bancorp,
Inc.'s Annual Report on Form 10-K for the year ended December 31, 1994,
filed with the SEC on March 31, 1995 and is incorporated herein by
reference.
(4) Exhibit was filed on June 20, 1995 as Exhibit 4 to New England
Community Bancorp, Inc.'s Registration Statement on Form S-4 (No.
33-93640) and is incorporated herein by reference.
(5) Exhibit was filed on September 2, 1994 as Exhibit 10.3 to Olde Windsor
Bancorp, Inc.'s, now known as New England Bancorp, Inc.'s, Registration
Statement on Form S-1 (No. 33-83622) and is incorporated herein by
reference.
(6) Exhibit was filed on September 2, 1994 as Exhibit 10.4 to Olde Windsor
Bancorp, Inc.'s, now known as New England Community Bancorp, Inc.'s,
Registration Statement on Form 5-1 (No. 33-83622) and is incorporated
herein by reference.
(7) Exhibit was filed on September 2, 1994 as Exhibit 10.5 to Olde Windsor
Bancorp, Inc.'s, now known as New England Community Bancorp, Inc.'s,
Registration Statement on Form 5-1 (No. 33-83622) and is incorporated
herein by reference.
(8) Exhibit was filed on October 20, 1994 as Exhibit 10.6 to New England
Community Bancorp, Inc.'s Registration Statement on Form 5-1 (No.
33-83622), Amendment 1, and is incorporated herein by reference.
(9) Exhibit was filed on October 20, 1994 as Exhibit 10.7 to New England
Community Bancorp, Inc.'s Registration Statement on Form S-1 (No.
33-83622), Amendment Number 1, and is incorporated herein by reference.
(10) Exhibit was filed on March 31, 1997 as Exhibit 10f to New England
Community Bancorp, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 (the "1996 10-K"), and is incorporated
herein by reference.
(11) Exhibit was filed on March 31, 1997 as Exhibit 21 to the 1996 Form
10-K, and is incorporated herein by reference.
EXHIBIT 5
June 27, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
We are counsel to New England Community Bancorp, Inc. ("NECB"), a Delaware
corporation with its principal office in Windsor, Connecticut, and have acted as
such in connection with the proposed merger (the "Reorganization") of First Bank
of West Hartford ("FBWH"), a Connecticut state chartered bank, into New England
Bank & Trust Company, a Connecticut chartered commercial bank and wholly owned
subsidiary of NECB ("NEBT"), pursuant to a Plan and Agreement of Reorganization,
dated as of February 25, 1997, by and among NECB, NEBT and FBWH (the
"Reorganization Agreement").
In rendering our opinion, we have reviewed such documents as we have deemed
necessary and, in connection therewith, we have examined originals or copies,
authenticated to our satisfaction, of the following: (i) the Certificate of
Incorporation of NECB, as amended to date, (ii) the By-laws of NECB, as amended
to date, (iii) the Reorganization Agreement, (iv) resolutions of the Board of
Directors of NECB, (v) the Registration Statement on Form S-4 of NECB (the
"Registration Statement") relating to 998,000 shares of common stock of NECB,
par value $.10 per share (the "NECB Common Stock"), to be issued in connection
with the Reorganization and (vi) such other documents and instruments as we have
deemed necessary or appropriate for purposes of this opinion. In our
examination, we have assumed the genuineness of all signatures, the legal
capacity of natural persons, the authenticity of documents submitted to us as
originals, the conformity to original documents of all documents submitted to us
as certified or photostatic copies and the authenticity of the originals of such
latter documents. As to any facts material to this opinion which we did not
independently establish or verify, we have relied upon statements and
representations of officers and other representatives of NECB and FBWH and
others. The opinions set forth herein are based on the corporate laws of the
State of Delaware, and no opinion is expressed as to the laws of any other
jurisdiction.
Based upon the foregoing, we are of the opinion that upon consummation of
the Reorganization, the shares of NECB Common Stock that will be issued to the
shareholders of FBWH will be duly and validly authorized, legally issued, fully
paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to us under the caption "Legal
Matters" in the Joint Proxy Statement-Prospectus contained therein. In giving
this consent we do not thereby admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
Day, Berry & Howard
MLT/fld
TYLER COOPER & ALCORN, LLP
COUNSELLORS AT LAW
CityPlace / 35th Floor
Hartford CT 06103-3488
860 725-6200
Telecopier 860 178.3802
William W. Bouton III
860 725.6210
June 26, 1997
First Bank of West Hartford
1013 Farmington Avenue
West Hartford, CT 06107
Re: Plan and Agreement of Reorganization, dated as of February 25,
1997, by and among New England Community Bancorp, Inc., New England
Bank & Trust Company, and First Bank of West Hartford
Ladies and Gentlemen:
We have acted as counsel for First Bank of West Hartford in connection with
the transactions contemplated by the Plan and Agreement of Reorganization, dated
as of February 25, 1997 (the "Agreement"), by and among New England Community
Bancorp, Inc., New England Bank & Trust Company, and First Bank of West
Hartford. This opinion is being delivered to you pursuant to Section 7.03(f) of
the Agreement. All capitalized terms used herein and not otherwise defined
herein shall have the same meanings assigned to them in the Agreement.
In preparing this opinion, we have examined the documents indicated below
and made such investigations of law as we have considered necessary or proper to
render the opinions expressed below. We have assumed (a) the genuineness of all
signatures of all persons executing agreements, instruments, or documents
examined or relied upon by us, (b) the due execution and delivery, pursuant to
due authorization, of all agreements, instruments or documents by parties
thereto other than First Bank, (c) the authenticity of all documents submitted
to us as originals and the conformity to authentic original documents of all
documents submitted to us as certified, conformed to photostatic copies, and (d)
the legal capacity of natural persons.
In connection with this opinion, we have examined the following documents:
(a) The Agreement and the schedules thereto; and
(b) The certification addressed to us and to Messrs. Day, Berry & Howard
attached hereto as Exhibit A.
We have assumed the authenticity and accuracy of the certification on which
we are relying and have made no independent investigations thereof.
In rendering our opinion, we have considered the applicable provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, pertinent judicial authorities, interpretive rulings of the
Internal Revenue Service and such other authorities as we have considered
relevant.
<PAGE>
First Bank of West Hartford
June 26, 1997
Page 2
Based upon and subject to the foregoing, we are of the opinion that the
Reorganization will, under current law, constitute a tax-free reorganization
under Section 368(a) of the Code, and the Company, the Bank, and First Bank will
each be a party to the Reorganization within the meaning of Section 368(a) of
the Code.
As a tax-free reorganization, the Reorganization will have the following
Federal income tax consequences for First Bank shareholders and First Bank:
1. No gain or loss will be recognized by holders of common stock, par
value of $.01 per share of First Bank ("First Bank Common Stock") as a result of
the exchange of such shares for shares of Company common stock, with a par value
of $.10 per share ("Company Common Stock") pursuant to the Reorganization,
except that gain or loss will be recognized on the receipt of cash, if any,
received in lieu of fractional shares. Any cash received by a shareholder of
First Bank in lieu of a fractional share will be treated as received in exchange
for such fractional share and not as a dividend, and any gain or loss recognized
as a result of the receipt of such cash will be capital gain or loss equal to
the difference between the cash received and the portion of the shareholder's
basis in First Bank Common Stock allocable to such fractional share interest.
2. The aggregate tax basis of the shares of Company Common Stock received
by each shareholder of First Bank will equal the aggregate tax basis of such
shareholder's shares of First Bank Common Stock (reduced by any amount allocable
to fractional share interests for which cash is received) exchanged in the
Reorganization.
3. The holding period for the shares of Company Common Stock receive by
each shareholder of First Bank will include the holding period for the shares of
First Bank Common Stock of such shareholder exchanged in the Reorganization,
provided that such shares are held as capital assets at the Effective Time.
4. First Bank will not recognize gain or loss as a result of the
Reorganization.
Except as set forth above, we express no opinion as to the tax
consequences, whether Federal, state, local or foreign to any party, of the
Reorganization or of any transactions related to the Reorganization or
contemplated by the Agreement.
We bring to your attention the fact that our legal opinions are an
expression of professional judgment and are not a guarantee of a result.
The information set forth herein is as of the date hereof. We assume no
obligation to advise you of changes which may thereafter be brought to our
attention. Our opinion is based on statutory laws, agency rules, regulations and
policies and judicial decisions that are effective on the date hereof, and we do
not opine with respect to any law, regulation, rule or governmental policy which
may be enacted or adopted after the date hereof, not do we assume any
responsibility to advise you of future changes in our opinion. The opinion is
also based upon the Reorganization occurring in strict compliance with the
Agreement and upon the accuracy at all times of the certification attached
hereto as Exhibit A.
<PAGE>
First Bank of West Hartford
June 26, 1997
Page 3
In rendering this opinion, we have assumed that you have the power and
authority to execute, deliver, and perform all agreements and documents executed
by you; that you have duly and validly executed and delivered such agreements
and documents; and that such agreements and documents are legally valid and
binding on and enforceable against you.
This opinion is solely for your benefit in connection with the consummation
of the Reorganization. This opinion may not be quoted, relied upon or furnished
to any other person or entity, including any governmental entity, or be used for
any other purpose, without the prior written consent of this firm.
We hereby consent to the use of this opinion in connection with the
registration of the offering and sale of Company Common Stock with the
Securities and Exchange Commission under the Securities Act of 1933, and to the
reference to us in the Proxy Statement-Prospectus which constitutes a portion of
said registration.
Very truly yours,
TYLER COOPER & ALCORN, LLP
By: William W. Bouton III
---------------------
Partner
DAY, BERRY & HOWARD
CityPlace
Hartford
Connecticut 06103-3499
Telephone (860) 275-0100
Facsimile (860) 275-0343
COUNSELLORS AT LAW
HARTFORD, STAMFORD AND BOSTON
June 26, 1997
New England Community Bancorp, Inc.
New England Bank & Trust Company
176 Broad Street
P.O. Box 130
Windsor, CT 06095
Ladies and Gentlemen:
We have acted as counsel to New England Community Bancorp, Inc. (the
"Company"), a Delaware corporation, and New England Bank & Trust Company (the
"Bank"), a Connecticut-chartered commercial bank and a wholly-owed subsidiary of
the Company, in connection with a proposed transaction with First Bank of West
Hartford ("First Bank"), a Connecticut-chartered commercial bank pursuant to a
Plan and Agreement of Reorganization dated as of February 25, 1997 (the
"Agreement"). The Agreement provides for the merger (the "Reorganization") of
First Bank with and into the Bank, the cancellation of all of the outstanding
shares of First Bank's stock, and the receipt by First Bank's shareholders of
shares of Company Common Stock and cash (to dissenters or for fractional shares)
in exchange therefor. Unless otherwise indicated, all capitalized terms used
herein shall have the same meanings assigned to them in the Agreement.
You have requested our opinion regarding the federal income tax
consequences of the proposed Reorganization. In rendering our opinion, we have
examined and are familiar with such documents, records, and other instruments,
provisions of law, judicial decisions, and other authorities, as we have deemed
appropriate for such purpose. We have assumed that the Reorganization will be
effected in compliance with all of the terms of the Agreement, and that the
following representations can be confirmed at the time of the Reorganization,
which such confirmation is a condition to the continuing effectiveness of this
opinion. We have relied on the following representations, which the Company, the
Bank and First Bank have made to us in connection with the preparation of this
opinion:
<PAGE>
DAY, BERRY & HOWARD
NEW ENGLAND COMMUNITY BANCORP, INC.
NEW ENGLAND BANK & TRUST COMPANY
JUNE 26, 1997
PAGE 2
(a) The fair market value of the Company Common Stock and cash received by
each First Bank shareholder will be approximately equal to the fair
market value of First Bank Common Stock surrendered in the exchange.
(b) There is no plan or intention by the shareholders of First Bank who
own five percent or more of First Bank Common Stock, and to the best
of the knowledge of the management of First Bank, there is no plan or
intention on the part of the remaining shareholders of First Bank to
sell, exchange or otherwise dispose of a number of shares of Company
Common Stock received in the Reorganization that would reduce First
Bank shareholders' ownership of Company Common Stock to a number of
shares having a value, as of the date of the Reorganization, of less
than 50 percent of the value of all of the formerly outstanding stock
of First Bank as of the same date. For purposes of this
representation, shares of First Bank Common Stock exchanged for cash
or other property, surrendered by dissenters or exchanged for cash in
lieu of fractional shares of Company Common Stock, will be treated as
outstanding First Bank Common Stock on the date of the Reorganization.
Moreover, shares of First Bank Common Stock and shares of Company
Common Stock held by First Bank shareholders and otherwise sold,
redeemed, or disposed of prior or subsequent to the Reorganization
will be considered in making this representation.
(c) The Bank will acquire at least 90 percent of the fair market value of
the net assets (which we assume to be equal to the value of the total
consideration paid by the Company in the Reorganization) and at least
70 percent of the fair market value of the gross assets held by First
Bank immediately prior to the Reorganization. For purposes of this
representation, amounts paid by First Bank to dissenters, amounts paid
by First Bank to shareholders who receive cash or other property,
First Bank assets used to pay its reorganization expenses, and all
redemptions and distributions (except for regular, normal dividends)
made by First Bank immediately preceding the Reorganization, will be
included as assets of First Bank held immediately prior to the
Reorganization.
(d) Prior to the Reorganization, the Company will be in control of the
Bank within the meaning of Section 368(c) of the Internal Revenue Code
of 1986, as amended (the "Code").
<PAGE>
DAY, BERRY & HOWARD
NEW ENGLAND COMMUNITY BANCORP, INC.
NEW ENGLAND BANK & TRUST COMPANY
JUNE 26, 1997
PAGE 3
(e) The Bank has no plan or intention to issue additional shares of its
stock that would result in the Company losing control of the Bank
within the meaning of Section 368(c) of the Code.
(f) The Company has no plan or intention to reacquire any of its stock
issued in the Reorganization.
(g) The Company has no plan or intention to liquidate the Bank, to merge
the Bank with or into another corporation; to sell or otherwise
dispose of the stock of the Bank or to cause the Bank to sell or
otherwise dispose of any of the assets of First Bank acquired in the
Reorganization except for dispositions made in the ordinary course of
business or transfers described in Section 368(a)(2)(C) of the Code.
(h) The liabilities of First Bank assumed by the Bank and the liabilities
to which the transferred assets of First Bank are subject were
incurred by First Bank in the ordinary course of its business.
(i) Following the Reorganization, the Bank intends to continue the
historic business of First Bank or to use a significant portion of
First Bank's business assets in a business.
(j) The Company, the Bank and First Bank and the shareholders of First
Bank will pay their respective expenses, if any, incurred in
connection with the Reorganization.
(k) There is no intercorporate indebtedness existing between the Company
and First Bank or between the Bank and First Bank that was issued, was
acquired, or will be settled at a discount.
(l) No two parties to the transaction are investment companies as defined
in Section 368(a)(2)(F)(iii) and (iv) of the Code.
(m) First Bank is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
<PAGE>
DAY, BERRY & HOWARD
NEW ENGLAND COMMUNITY BANCORP, INC.
NEW ENGLAND BANK & TRUST COMPANY
JUNE 26, 1997
PAGE 4
(n) On the date of the Reorganization, the fair market value of the assets
of First Bank transferred to the Bank will equal or exceed the sum of
the liabilities assumed by the Bank, plus the amount of liabilities,
if any, to which the transferred assets are subject.
(o) No stock of the Bank will be issued in the Reorganization.
(p) The payment of cash in lieu of fractional shares of Company Common
Stock is solely for the purpose of avoiding the expense and
inconvenience to the Company of issuing fractional shares and does not
represent separately bargained-for consideration. The total cash
consideration that will be paid in the transaction to First Bank
shareholders instead of issuing fractional shares of Company Common
Stock will not exceed one percent of the total consideration that will
be issued in the transaction to First Bank shareholders in exchange
for their shares of First Bank Common Stock. No First Bank shareholder
will receive cash in lieu of fractional shares in an amount equal to
or greater than the value of one full share of Company Common Stock.
(q) None of the compensation received by any shareholder-employees of
First Bank will be separate consideration for, or allocable to, any of
their shares of First Bank Common Stock; none of the shares of Company
Common Stock received by any shareholder-employees of First Bank will
be separate consideration for, or allocable to, any employment
agreement; and the compensation paid to any shareholder-employees
First Bank will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's
length for similar services.
(r) The amount of cash (referred to herein as "boot") to be received by
First Bank shareholders pursuant to the Agreement, including the
amount of cash to be received in lieu of fractional shares and the
amount of cash to be received by dissenting shareholders, will not
equal more than 50 percent of the aggregate consideration to be
received by all First Bank shareholders in exchange for their First
Bank Common Stock.
Based on the foregoing authorities and on the information and
representations set forth above, as well as on the occurrence of the proposed
Reorganization in compliance
<PAGE>
DAY, BERRY & HOWARD
NEW ENGLAND COMMUNITY BANCORP, INC.
NEW ENGLAND BANK & TRUST COMPANY
JUNE 26, 1997
PAGE 5
with the terms of the Agreement, we are of the opinion that the Reorganization
will have the following federal income tax consequences:
1. Provided that the Bank continues the historic business of First Bank
or uses a significant portion of First Bank's business assets in a
business following the Reorganization, the acquisition by the Bank in
the Reorganization of substantially all of the assets of First Bank in
exchange for shares of Company Common Stock and cash and the
assumption by the Bank of the liabilities of First Bank will
constitute a reorganization within the meaning of Sections
368(a)(1)(A) and 368(a)(2)(D) of the Code. The Company, the Bank and
First Bank will each be a "party to a reorganization" within the
meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized by the shareholders of the Company,
the Company or the Bank upon the acquisition by the Bank in the
Reorganization of substantially all of the assets of First Bank in
exchange for Company Common Stock, cash and the assumption of First
Bank's liabilities by the Bank. Rev. Rul. 57-278, 1957-1 C.B. 124.
We hereby consent to the use of this opinion in connection with the
registration of the offering and sale of the Company Common Stock with the
Securities and Exchange Commission under the Securities Act of 1933, and to the
reference to us in the joint Proxy Statement-Prospectus which constitutes a
portion of said registration.
Very truly yours,
DAY, BERRY & HOWARD
SHATSWELL, MACLEOD & COMPANY, P.C.
Certified Public Accountants
83 Pine Street
West Peabody, Massachusetts 01890-3635
Telephone (508) 535-0208
Facsimile (508) 536-9908
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation in this Registration Statement on Form S-4 of
New England Community Bancorp. Inc., of our report dated January 30, 1997,
except for Note 13, as to which the date is February 25, 1997. We also consent
to the reference to us under the heading "Experts" in such Proxy Statement,
which is part of such Registration Statement.
/s/Shatswell, MacLeod & Company, P.C.
-------------------------------------
Shatswell, MacLeod & Company, P.C.
West Peabody, Massachusetts
June 27, 1997
Snyder & Haller P.C.
30 Atwood Street,
Hartford, CT 06105-1801
860 249-3900
860 247-8071 Fax
SNYDER & HALLER
Certified Public Accountants
Philip H. Snyder
John C. Haller
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent accountants, we hereby consent to the inclusion in this
Registration Statement of our report dated January 21, 1997 and February 25,
1997 for Note Q, on the financial statements of First Bank of West Hartford and
to all references to our firm included in this Registration Statement.
Snyder & Haller
Hartford, Connecticut
June 27, 1997
================================================================================
HAS ASSOCIATES, INC. Northbridge Business Center
76 Northeastern Blvd., Suite 34
Nashua, NH 03062
(603) 880-4529
FAX (603) 880-4351
P.O. Box 84
Boston, MA 02171
(617) 472-5086
FAX (617) 472-6903
June 27, 1997
Board of Directors
New England Community Bancorp, Inc.
176 Broad Street
Windsor, CT 06095
Members of the Board:
HAS Associates, Inc. consents to the inclusion of its Fairness
Opinion dated June 27, 1997 in this Registration Statement. In addition, HAS
Associates, Inc. also consents to the inclusion in the Registration Statement of
the related discussion of the Fairness Opinion and to all references to HAS
Associates, Inc. contained therein.
Sincerely,
/S/HAS Associates, Inc.
HAS Associates, Inc.
================================================================================
Nashua, NH Boston
OSTROWSKI & COMPANY, INC.
CONSENT OF OSTROWSKI & COMPANY, INC.
We hereby consent to the use of our firm's name in the Form S-4
Registration Statement of New England Community Bancorp, Inc. ("NECB") and
amendments thereto relating to the registration of shares of NECB's common stock
to be issued in connection with the proposed acquisition of First Bank of West
Hartford. We also consent to the inclusion of our opinion letter dated June 25,
1997 as an Appendix to the Proxy Statement/Prospectus included as part of the
Form S-4 Registration Statement, and to the references to our opinion included
in the Proxy Statement/Prospectus.
Date: June 25, 1997
OSTROWSKI & COMPANY, INC.
/s/OSTROWSKI & COMPANY, INC.
PROXY
NEW ENGLAND COMMUNITY BANCORP, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF NEW
ENGLAND COMMUNITY BANCORP, INC.
The undersigned holder(s) of the Common Stock of New England Community
Bancorp, Inc. ("NECB" or the "Company") do hereby nominate, constitute and
appoint Tadeus J. Buczkowski and Gary J. DeNino, jointly and severally, proxies
with full power of substitution, for us and in our name, place and stead to vote
all the Common Stock of NECB, standing in our name on its books on June 20, 1997
at the Special Meeting of its stockholders to be held at the Windsor office of
New England Bank, 176 Broad Street, Windsor, Connecticut, on July 28, 1997 at
8:00 a.m. or at any adjournment thereof with all the powers the undersigned
would possess if personally present, as specified hereon.
Approval of the Reorganization Agreement and the issuance of NECB Common
Stock pursuant thereto as described in the accompanying Joint Proxy
Statement-Prospectus.
FOR AGAINST ABSTAIN
/ / / / / /
If any other matters are properly brought before the meeting, the persons
named in this proxy or their substitutes are authorized to vote in accordance
with their best judgment.
Please be sure to sign and date this Proxy in the box below.
Date: _______________________________________
___________________________________________
Shareholder
-------------------------------------------
Co-holder (if any)
NEW ENGLAND COMMUNITY BANCORP, INC.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ABOVE PROPOSAL.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATION INDICATED. IF NO SPECIFICATION IS INDICATED, THIS PROXY WILL BE
VOTED "FOR" THE ABOVE PROPOSAL.
THIS PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE MEETING BY WRITTEN NOTICE TO
THE COMPANY OR MAY BE WITHDRAWN AND YOU MAY VOTE IN PERSON SHOULD YOU ATTEND THE
SPECIAL MEETING.
ALL joint owners must sign. When signing as attorney, executor, administrator,
trustee or guardian, please give FULL TITLE. If more than one trustee, ALL must
sign.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
FIRST BANK OF WEST HARTFORD
1013 FARMINGTON AVENUE
WEST HARTFORD, CONNECTICUT 06107
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert Rossini and Gerard P. Barrieau,
and each of them, with full power of substitution, the proxies of the
undersigned to vote all the shares of the Common Stock of First Bank of West
Hartford held of record by the undersigned on June 18, 1997 at the Annual
Meeting of Shareholders to be held on July 28, 1997 or any adjournment thereof.
In their discretion the proxies are authorized to vote upon such other
business as may properly come before the meeting.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, the shares will
be voted "FOR" all nominees for director and will be voted "FOR" Proposals 1, 2,
and 3. The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and the related Proxy Statement.
(Please Vote, sign and date on the reverse side)
................................................................................
Fold and Detach Here
The Board of Directors recommends that you vote "FOR" items 1, 2, and 3.
1. Approval of Reorganization Agreement:
For Against Abstain
/ / / / / /
2. Election of Directors:
Nominees for election by holders of Common Stock: Dennis T. Cardello,
Lewis Cohen, Samuel K. Lavery, Howard J. Siegal and Thomas P. Bilbao.
FOR all nominees listed above except as marked (to the contrary)
WITHHOLD AUTHORITY to vote for all nominees listed above
Instruction: To withhold your vote for any nominee(s) write that nominee's
name on the line below.
-------------------------------------------------------------------------------
3. Ratification of the appointment of Snyder & Haller as the Bank's
Independent Auditors for fiscal 1997.
For Against Abstain
/ / / / / /
I plan to attend the meeting / /
Please sign exactly as your name appears at left. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership please sign in partnership name by authorized person.
Date: __________________________________ , 1997
___________________________________________
Signature
-------------------------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING
THE ENCLOSED ENVELOPE.
[Logo] Old Windsor Mall
New England Windsor, CT 06095
Community Bancorp 860 688-5251
June 30, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
New England Community Bancorp, Inc. ("NECB") to be held on Monday, July 28, 1997
at 8:00 a.m. at the Windsor Office of New England Bank at 176 Broad Street,
Windsor, Connecticut.
The purpose of the meeting is to consider and vote upon the enclosed Plan
and Agreement of Reorganization dated February 25, 1997 (the "Reorganization
Agreement") pursuant to which NECB will acquire all of the outstanding common
stock of First Bank of West Hartford ("FBWH"). Shareholders of FBWH will receive
0.62 shares of NECB common stock (the "Per Share Consideration") in exchange for
each share of FBWH common stock which they own, subject to adjustment as
described in the Joint Proxy Statement-Prospectus.
Consummation of the Reorganization is subject to certain conditions,
including the approval of the Reorganization Agreement by both NECB and FBWH
shareholders and the approval of the Reorganization by various regulatory
agencies. Subject to the these conditions, the Reorganization is currently
expected to be completed in August 1997.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE PROPOSED REORGANIZATION IS IN
THE BEST INTERESTS OF NECB AND ITS STOCKHOLDERS AND HAS UNANIMOUSLY APPROVED THE
REORGANIZATION AGREEMENT. The Board has also received the opinion of HAS
Associates, Inc. to the effect that the Per Share Consideration to be paid by
NECB in the proposed Reorganization is fair, from a financial point of view, to
the stockholders of NECB. Attached are a Notice of Special Meeting of
Stockholders and a Joint Proxy Statement-Prospectus containing information about
NECB, FBWH and the proposed Reorganization.
The Reorganization is another important step for NECB and its
stockholders. On behalf of the Board of Directors, I urge you to vote "FOR" the
proposal.
Very truly yours,
/s/David A. Lentini
- -------------------
David A. Lentini
President and Chief
Executive Officer
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, I URGE YOU TO READ THIS
MATERIAL CAREFULLY; SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY
CARD.
EXHIBIT 99.4
SELECTED QUESTIONS AND ANSWERS
ABOUT THE FBWH/NECB REORGANIZATION
The following are plain language answers to questions shareholders may
have about the Reorganization. This information is not intended to be complete
and does not include the very important additional information contained in the
rest of this Proxy Statement. PLEASE READ THE ENTIRE PROXY STATEMENT to have a
better understanding of the Reorganization.
WHAT IS THE REORGANIZATION?
The Reorganization involves the merger of First Bank of West Hartford
("FBWH") into New England Bank & Trust Company ("NEBT") a banking subsidiary of
New England Community Bancorp, Inc. ("NECB"). At the end of the transaction,
FBWH will lose its separate existence and become part of NEBT.
WHAT IS NECB?
NECB is a multi-bank holding company based in Windsor, Connecticut. Its
two banking subsidiaries are NEBT, also based in Windsor, and The Equity Bank,
based in Wethersfield, Connecticut.
WHAT ARE SHAREHOLDERS OF FBWH BEING ASKED TO DO?
The Board of Directors of FBWH have approved the Reorganization, caused
the Bank to execute the Reorganization Agreement, and recommend that
shareholders also approve the Reorganization. The Reorganization requires the
approval of at least two-thirds of all of the shares of FBWH Common Stock
entitled to vote on this matter.
WHAT HAPPENS IF FBWH SHAREHOLDERS DON'T VOTE?
If two-thirds of the shares of FBWH Common Stock entitled to vote on the
Reorganization are not voted in favor of the Reorganization, the Reorganization
can not be completed as contemplated. Accordingly, each FBWH shareholder should
make every effort to return his or her proxy card.
WHAT IF MY SHARES ARE HELD IN MY BROKER'S NAME?
Copies of the Proxy Statement are being sent to all shareholders of
record. If your shares are held by a broker, he or she will be sent a Proxy
Statement which will in turn be forwarded to you. The broker will request
instructions from you as to how you want your shares to be voted, and he or she
will vote your shares accordingly.
WHAT WILL I RECEIVE FOR MY FBWH STOCK?
FBWH stockholders will receive 0.62 shares of NECB Common Stock for each
share of FBWH they exchange in the Reorganization. The 0.62 exchange ratio will
not change unless the average price of NECB Common Stock for the 20 consecutive
trading days prior to the date all conditions to the Reorganization are
satisfied is less than $12.80 per share. In that case, the FBWH Board of
Directors can determine not to proceed with the Reorganization unless NECB
increases the exchange ratio. In any case, fractional share interests will be
paid to shareholders in cash.
DO I SEND IN MY FBWH STOCK CERTIFICATES NOW?
No. A letter will be sent by NECB following the completion of the
Reorganization with appropriate instructions.
WILL I BE TAXED ON MY EXCHANGE OF FBWH STOCK FOR NECB STOCK?
You should review this transaction with your tax advisor for the answer
to this question. However, generally, the transaction is subject to receipt of
an Internal Revenue Service private letter ruling or opinion of counsel to FBWH
to the effect that shareholders will not be subject to recognition of federal
income taxation on the exchange, except to the extent of cash received instead
of fractional shares.
ARE SHARES OF NECB'S COMMON STOCK LISTED ON AN EXCHANGE?
NECB's Common Stock is listed on the NASDAQ National Market.
WHY SHOULD I VOTE FOR THE MERGER?
The Board of Directors of FBWH and NECB unanimously approved the
Reorganization. The Board of Directors of FBWH recommends that FBWH shareholders
approve the Reorganization, and they and FBWH's principal officers and FBWH's
largest shareholder have signed agreements in which they agree to vote all of
their shares in favor of the Reorganization. After considering other
alternatives, the FBWH Board of Directors believes that NECB is paying a fair
price for FBWH shares, that it is an appropriate time for FBWH to become part of
a larger institution, and that the Reorganization is generally in the best
interests of FBWH shareholders.
