SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1997 Commission File Number 0-14550
NEW ENGLAND COMMUNITY BANCORP, INC.
DELAWARE 06-1116165
OLD WINDSOR MALL
P.O. BOX 130
WINDSOR, CONNECTICUT 06095
Telephone: (860) 610-3600
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
------ ------
The number of shares of common stock of the registrant outstanding as of July
31, 1997 was 3,667,166.
The total number of pages in this report is 19.
Page -1-
<PAGE>
NEW ENGLAND COMMUNITY BANCORP, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<C> <C> <C>
Part I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements:
Consolidated Balance Sheets--June 30, 1997 and 1996 (unaudited)
and December 31, 1996 4
Consolidated Statements of Income--three and six months ended June 30, 1997
and 1996 (unaudited) 5
Consolidated Statements of Cash Flows--six months ended June 30, 1997
and 1996 (unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Part II. OTHER INFORMATION 18
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits, Financial Statement Schedules and Reports on Form 8-K 18
SIGNATURES 19
</TABLE>
Page -2-
<PAGE>
Part I--FINANCIAL INFORMATION
Item 1. Financial Statements
<PAGE>
NEW ENGLAND COMMUNITY BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(thousands of dollars)
June 30, June 30, December 31,
1997 1996 1996
(Unaudited) (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Cash and due from banks $ 23,798 $ 16,262 $ 21,629
Federal funds sold 9,650 9,097 9,675
-------- -------- --------
Cash and cash equivalents 33,448 25,359 31,304
Securities held-to-maturity 7,355 5,594 7,357
Securities available-for-sale 85,345 77,264 85,958
Federal Home Loan Bank stock 1,753 1,176 1,753
Loans outstanding 293,562 215,722 288,996
Less: allowance for possible loan losses (5,521) (4,454) (5,514)
-------- -------- --------
Net loans 288,041 211,268 283,482
Mortgages held-for-sale 1,955 2,730 1,755
Accrued interest receivable 3,068 2,475 3,206
Premises and equipment 9,411 7,539 9,369
Other real estate owned 1,173 436 2,109
Goodwill 4,308 388 4,464
Other assets 2,254 2,531 2,402
-------- -------- --------
Total Assets $438,109 $336,760 $433,159
======== ======== ========
LIABILITIES:
Deposits:
Noninterest bearing $ 77,220 $ 54,294 $ 78,792
Interest bearing 304,170 241,954 308,105
-------- -------- --------
Total deposits 381,390 296,248 386,897
Short-term borrowings 6,510 6,940 2,003
Long-term debt 6,000
Other liabilities 1,796 2,204 3,848
-------- -------- --------
Total Liabilities 395,696 305,392 392,748
SHAREHOLDERS' EQUITY:
Common Stock, $.10 par value, authorized 10,000,000 shares:
June 30, 1997 and December 31, 1996, 3,667,166 outstanding;
June 30, 1996, 3,084,309 outstanding 367 308 367
Additional paid-in capital 27,943 21,522 27,943
Retained earnings 13,697 9,957 11,802
Net unrealized (loss) gain on securities available-for-sale 406 (419) 299
-------- -------- --------
Total Shareholders' Equity 42,413 31,368 40,411
-------- -------- --------
Total Liabilities & Shareholders' Equity $438,109 $336,760 $433,159
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
Page -4-
<PAGE>
NEW ENGLAND COMMUNITY BANCORP, INC.
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
(thousands of dollars; except per share data)
Six Months Ended Three Months Ended
June 30, June 30,
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $12,912 $10,524 $6,489 $5,105
Securities:
Taxable interest 2,880 1,979 1,455 1,037
Interest exempt from federal income taxes 58 52 22 28
Dividends 151 216 68 46
Federal funds sold and other interest 140 207 92 121
------- ------- ------ ------
Total interest income 16,141 12,978 8,126 6,337
INTEREST EXPENSE:
Deposits 5,306 4,693 2,636 2,298
Borrowed funds 237 46 137 36
------- ------- ------ ------
Total interest expense 5,543 4,739 2,773 2,334
Net interest income 10,598 8,239 5,353 4,003
Provision for possible loan losses 498 1,034 255 502
------- ------- ------ ------
Net interest income after provision for possible loan losses 10,100 7,205 5,098 3,501
NONINTEREST INCOME:
Service charges, fees and commissions 1,080 783 548 372
Investment securities gains, net 159 (5) 163 (4)
Gain on the sales of loans, net 241 137 106 117
Other 64 191 29 181
------- ------- ------ ------
Total noninterest income 1,544 1,106 846 666
NONINTEREST EXPENSE:
Salaries and employee benefits 4,134 3,139 2,073 1,581
Occupancy 804 558 395 301
Furniture and equipment 545 398 283 211
Outside services 384 216 213 99
Postage and supplies 338 235 157 113
Insurance and assessments 70 72 36 36
Losses, writedowns, expenses - other real estate owned 144 160 114 113
Amortization of goodwill 157 14 78 7
Other 1,089 775 521 319
------- ------- ------ ------
Total noninterest expense 7,665 5,567 3,870 2,780
------- ------- ------ ------
Income before taxes 3,979 2,744 2,074 1,387
Income taxes 1,497 878 784 444
------- ------- ------ ------
Net Income $ 2,482 $ 1,866 $1,290 $ 943
------- ------- ------ ------
Net income per share $ 0.68 $0.61 $ 0.35 $0.31
Weighted average shares of Common Stock outstanding 3,667 3,084 3,667 3,084
The accompanying notes are an integral part of these statements.
</TABLE>
Page -5-
<PAGE>
NEW ENGLAND COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(thousands of dollars)
Six Months Ended June 30, 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net income $ 2,482 $ 1,866
Adjustment for noncash charges (credits):
Provision for depreciation and amortization 438 329
Losses from sale or disposal and provisions to reduce the carrying value
of other real estate owned, net 29 114
Securities losses (gains), net (159) 6
Accretion of discounts and amortization of premiums on bonds, net 14 113
Accretion, net of amortization, of purchase accounting adjustments (107)
Amortization of goodwill 157
Provision for possible loan losses 498 1,034
Gain on sale of loans, net (241) (137)
(Increase) decrease in accrued interest income and other assets, net 164 (40)
Decrease (increase) in loans held-for-sale 41 (1,805)
(Decrease) increase in accrued interest payable and other liabilities, net (2,090) (1,176)
----------- -----------
Net cash provided by operating activities 1,226 304
----------- -----------
Financing activities:
Net decrease in noninterest-bearing accounts (1,572) (5,651)
Net (decrease) increase in interest-bearing accounts (3,792) (5,262)
Increase (decrease) in short-term borrowings 4,507 6,400
Increase (decrease) in long-term borrowings 6,000
Cash dividends paid (597) (346)
----------- -----------
Net cash used for financing activities (4,172) (4,859)
----------- -----------
Investing activities:
Loans originated, net of principal collections (5,811) 4,657
Proceeds from sales of loans 38 313
Decrease in interest-bearing time deposits 3,000
Purchases of securities available-for-sale (20,070) (32,025)
Proceeds from sales of securities available-for-sale 12,142 12,850
Proceeds from maturities of securities available-for-sale 8,856 15,009
Purchases of securities held-to-maturity (1,144)
Proceeds from maturities of securities held-to-maturity 4,000
Proceeds from sales of other real estate owned 1,749 537
Purchases of premises and equipment, net (467) (908)
Capitalization of expenditures on other real estate owned (65)
----------- -----------
Net cash provided by (used for) investing activities (3,628) 6,289
----------- -----------
Increase (decrease) in cash and cash equivalents 2,144 1,734
----------- -----------
Cash and cash equivalents, beginning of period 31,304 23,625
----------- -----------
Cash and cash equivalents, end of period $ 33,448 $ 25,359
=========== ===========
Schedule of noncash investing and financing activities:
Loans charged off, net of recoveries $ 491 $ 1,384
Real estate acquired through foreclosure 777 433
Loans originated to facilitate sales of other real estate owned 834
Income tax paid 986 1,228
Interest paid 5,742 5,001
The accompanying notes are an integral part of these statements.
</TABLE>
Page -6-
<PAGE>
NEW ENGLAND COMMUNITY BANCORP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying condensed interim financial statements are unaudited and
include the accounts of New England Community Bancorp, Inc. (the "Company" or
"NECB") and its subsidiaries, New England Bank and Trust Company ("NEBT") and
The Equity Bank ("EQBK"). The consolidated financial statements have been
prepared in accordance with generally accepted accounting principals for interim
financial information and with the instructions to SEC Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. These financial statements reflect, in the opinion of
Management, all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of the Company's financial position and the
results of its operations and its cash flows for the periods presented. These
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's 1996 Annual Report on Form 10-K.
Note 2 - Purchase Accounting
On July 11, 1996, the Company completed an acquisition of Manchester State Bank
("MSB") by issuing 548,857 shares of the Company's common stock and paying
$3,520,000 in cash for all of the outstanding common shares of MSB. The
transaction was accounted for as a purchase, and thus, the comparative
statements do not include prior operating results of the acquired entity.
Note 3 - Merger Agreement
On February 25, 1997, First Bank of West Hartford ("First Bank") entered into a
Plan and Agreement of Reorganization (the "Agreement") with NECB. Pursuant to
the Agreement, at the Effective Time (as defined in the Agreement), First Bank
will be merged with and into NECB's Connecticut banking subsidiary New England
Bank & Trust Company.
Pursuant to the Agreement, each share of common stock, $0.10 par value, of First
Bank ("First Bank Common Stock") issued and outstanding immediately prior to the
Effective Time (excluding dissenting shares and shares held by NECB) will be
converted at the Effective Time into the right to receive 0.62 shares of common
stock, $0.01 par value, of NECB ("NECB Common Stock").
Stock options 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 transaction contemplated by the Agreement) (each, a "Vested Stock Option")
shall be converted at the Effective Time into NECB Common Stock in accordance
with a formula set forth in the Agreement, to the extent permitted under the
First Bank Stock Option Plans and the Agreement pursuant to which such Vested
Stock Options were granted.
The Agreement is subject to a number of conditions including, but not limited
to, shareholder approval and approval of regulatory agencies including the State
of Connecticut Banking Commissioner. NECB expects to account for the Merger as a
pooling of interests.
Expenses incurred by NECB in connection with the Merger will be deferred pending
completion of the transaction. Such expenses amounted to approximately $125,000
as of June 30, 1997. It is anticipated that the Merger will close in third
quarter.
Page -7-
<PAGE>
Part I--FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
<PAGE>
Overview
The Company's earnings are largely dependent upon net interest income and
noninterest income from its community banking operations--with net interest
income providing the majority of the Company's revenues. Net interest income is
the difference between interest earned on the loan and investment portfolios and
interest paid on deposits and other sources of funds. Noninterest revenue is
primarily derived from fees earned on commercial and personal checking accounts
and from gains on loan and securities sales.
During the second quarter of 1997, NECB reported net income of $1,290,000 or
$0.35 per share. This represents a 37% increase over the $943,000 or $0.31 per
reported in the comparable period a year earlier. The increased net income and
earnings per share during the quarter primarily reflect both the Company's
acquisition of MSB (the "MSB acquisition") and growth in loans outstanding.
Returns on average assets and average equity for the quarter were 1.22% and
12.47%, compared to 1.13% and 12.14% for the same period a year earlier.
For the three months ended June 30, 1997, net interest income on a fully
taxable-equivalent basis totaled $5,353,000 compared to $4,003,000 in 1996. The
net interest margin for 1997 was 5.48% versus 5.28% in 1996. The increase in net
interest income and net interest margin is largely due to the MSB acquisition
together with an improved mix of interest-earning assets and interest-bearing
liabilities. Provisions for possible loan losses amounted to $255,000 in 1997
compared to $502,000 in 1996.
Noninterest income increased to $846,000 in 1997 from $666,000 in 1996. The
increase is largely the result of the acquisition coupled with a $167,000
increase in the gain on the sale of securities which offset decreases in gains
from the sale of loans and other revenue. Noninterest expense totaled $3,870,000
in 1997, compared to $2,780,000 in 1996. The increase resulted from both
internal growth and from the MSB acquisition, net of the cost reductions derived
from the elimination of duplicate operations and other expense management
programs.
Through the first six months of 1997, NECB reported net income of $2,482,000 or
$0.68 per share. This represents a $616,000 increase or 33% over the $1,866,000
or $0.61 per share reported for the same period a year earlier. Growth in net
income and earnings per share during 1997 primarily reflects the additional
revenue and savings achieved in conjunction with the Company's acquisition of
MSB. During the first six months of 1997, net interest income on a fully
taxable-equivalent basis totaled $10,598,000 compared to $8,239,000 in 1996. A
reduction in provisions for loan losses and increases in noninterest income
(primarily service charges and gains on sale of securities) contributed to the
improved earnings. Noninterest revenue increased by $438,000 and totaled
$1,544,000 in 1997 from $1,106,000 in 1996 while noninterest expense totaled
$7,665,000 in 1997 compared to $5,567,000 in 1996.
Total assets at June 30, 1997 were $438,109,000 compared to $433,159,000 at
December 31, 1996. Noteworthy changes from December 31, 1996 include loans
outstanding which increased by $4,566,000, Other Real Estate Owned ("OREO")
which decreased by $936,000, total deposits which decreased by $5,507,000 and
total borrowings (including $6,000,000 in long-term debt) which increased by
$10,507,000 from December 31, 1997. Total equity amounted to $42,413,000 at June
30, 1997 compared to $40,411,000 at December 31, 1996.
Results of Operations--Three Months Ended June 30, 1997 and 1996
For the three months ended June 30, 1997, the Company reported net income of
$1,290,000 or $0.35 per share as compared to $943,000 or $0.31 per share for the
same period of 1996. The largest factor in these results was the $1,350,000
increase in net interest income which was supplemented by $180,000 increase in
noninterest revenue and partly offset by the $1,090,000 increase in noninterest
expenses. Factors impacting interest income and expense are discussed below.
Page -9-
<PAGE>
Net Interest Income
The principal earning asset of the Company is its loan portfolio--which is
comprised of loans to finance operations of businesses located primarily within
our market area, mortgage loans to finance the purchase or improvement of
properties used by businesses and mortgage and personal loans to individuals.
Representing a quarter of the Company's earning assets, NECB's investment
portfolio also plays an important part in the management of the Company's
balance sheet. While providing a source of revenue, these funds are used to
provide reserves and meet the liquidity needs of the Company. Excess reserves
are available to meet the borrowing needs of the communities we serve. For the
following discussion, interest income is presented on a fully taxable-equivalent
("FTE") basis. FTE interest income restates reported interest income on tax
exempt loans and securities as if such interest were taxed at the statutory
Federal income tax rate of 34% for all periods presented.
(amounts in thousands)
Three Months Ended June 30, 1997 1996
- -----------------------------------------------------------------------------
Interest income (financial statements) $8,126 $6,337
Tax equivalent adjustment 35 79
Interest expense (2,773) (2,334)
---------- ----------
Net interest income (fully taxable equivalent) $5,388 $4,082
========== ==========
For the second quarter of 1997, net interest income on an FTE basis was
$5,388,000, a 32% increase over the $4,082,000 in the comparable period in 1996.
A key factor in the $1,306,000 increase in 1997 was the MSB acquisition--which
added approximately $77,000,000 in interest earning assets and $67,000,000 and
interest bearing liabilities. In addition, internally produced loan growth added
significantly to interest income. The gradual improvement in the regional
economy coupled with the Company's innovative marketing programs served to
increase loans outstanding by approximately $7,000,000 during the second quarter
of 1997.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCES/INTEREST EARNED OR PAID/RATES
Three Months Ended June 30, 1997 June 30, 1996
- --------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
(amounts in thousands) Balance Interest Rate Balance Interest Rate
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Federal funds sold $ 6,862 $ 92 5.38% $ 9,886 $ 121 4.91%
Securities held-to-maturity 7,353 128 6.98% 5,813 91 6.28%
Securities available-for-sale 89,134 1,452 6.53% 74,524 1,099 5.91%
Mortgages held for sale 1,866 33 7.10% 3,058 58 7.58%
Loans (A) 288,823 6,456 8.97% 217,836 5,047 9.29%
-------- ------ -------- -------
Total interest-earning assets 394,038 8,161 8.31% 311,115 6,416 8.27%
Allowance for loan losses (5,684) (4,538)
Cash and due from banks 16,463 13,997
Other assets 20,827 13,047
-------- --------
Total Assets $425,644 $333,621
======== ========
Liabilities:
Regular savings deposits $ 92,544 $ 487 2.11% $ 68,779 $ 368 2.15%
NOW account deposits 47,440 154 1.30% 30,619 116 1.52%
Money market deposits 4,252 12 1.13% 5,527 14 1.02%
-------- ------ -------- -------
Total savings deposits 144,236 653 1.82% 104,925 498 1.90%
Time deposits 155,487 1,983 5.12% 136,339 1,800 5.30%
Short-term borrowings 3,374 43 5.11% 2,809 36 5.14%
Long-term borrowings 6,001 94 6.28% 0 0 0.0%
-------- ------ -------- -------
Total interest bearing liabilities 309,098 2,773 3.60% 244,072 2,334 3.84%
Demand deposits 71,292 54,482
Other liabilities 3,774 3,923
-------- --------
Total Liabilities 384,164 302,477
Equity 41,480 31,143
Total Liabilities & Equity $425,644 $333,621
======== ========
Net interest income--FTE basis $5,388 $4,082
====== ======
Net interest margin 5.48% 5.28%
Net interest spread 4.71% 4.44%
(A) Average loans include nonaccruing loans.
</TABLE>
Page -11-
<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 5.48% in 1997 from
5.28% in 1996. Most noteworthy was the improved mix of interest-earning assets
and interest-bearing liabilities. The percentage of loans, as a component of
earning assets, increased to 73% of earning assets in the second quarter of 1997
compared to 70% in the same quarter a year earlier. In addition, improvement in
the yield on securities for sale in the second quarter of 1997 helped offset the
effect of a 32 basis point decrease in the yield on the loan portfolio. This,
taken together with a 24 basis point decrease in the cost of funding (from 3.60%
for the second quarter of 1997 compared to 3.84% a year earlier) which
translated into a $74,000 decrease in interest expense, helped boost the
Company's margin.
Rate/Volume Analysis
Changes in net interest income is divided into two components--the change
resulting from the change in average balances of earning assets and
interest-bearing liabilities (or "volume") and the change in the rates earned or
paid on these balances. The change in interest income and interest expense
attributable to changes in both volume and rate, which cannot be segregated, has
been allocated proportionately to the absolute values of the changes due to
volume and rate. The following table is presented on a FTE basis.
<TABLE>
<CAPTION>
Change due to
Total Change in:
Increase ---------------------------
(amounts in thousands) (Decrease) Rate Volume
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest earned on:
Federal funds sold $ (29) $ 12 $ (41)
Securities held-to-maturity 37 10 27
Securities available-for-sale 353 115 238
Mortgages held for sale (25) 12 (37)
Loans 1,409 (178) 1,587
---------- --------- ----------
Total interest-earning assets 1,745 (29) 1,774
---------- --------- ----------
Interest paid on:
Regular savings deposits $ 119 $ (6) $ 125
NOW account deposits 38 (17) 55
Money market deposits (2) 2 (4)
---------- --------- ----------
Total savings deposits 155 (21) 176
Time deposits 183 (61) 244
Borrowed funds 58 8 50
---------- --------- ----------
Total interest-bearing liabilities 396 (74) 470
---------- --------- ----------
Net interest income change $ 1,349 $ 46 $ 1,303
========== ========= ==========
</TABLE>
As the above table indicates, for the three months ended June 31, 1997 net
interest income (on a fully tax equivalent basis) rose $1,349,000. Of this
amount, $1,303,000 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, an increase of $46,000, was derived from
changes to interest rates earned on earning assets and paid on interest bearing
liabilities.
Noninterest Income
For the quarter ended June 30, 1997, noninterest income increased $180,000, or
27%, from 1996 and totaled $846,000 compared to $666,000 in the previous year.
Largely in response to the acquisition, service charges, fees and commissions
increased 47% and totaled $548,000 in 1997 compared to $372,000 in 1996.
Included in service charges, fees and commissions are fees on deposits, loan
servicing fees and other fees and charges. In addition, during the second
quarter, realized security gains, chiefly from equity securities, increased
$167,000 from the same period a year earlier and totaled $163,000 compared to a
loss of $4,000 in 1996. This increase offset the $152,000 decrease in other
(nonrecurring) income.
Page -12-
<PAGE>
The Company continues to seek out opportunities for enhancing noninterest
revenue. One such opportunity is the subsidiary banks' cash management product
("Access") for business. Introduced to the market place in later part of 1996,
Access is proving to be a hit with small-business and beginning contribute
significantly to noninterest income. This, and other initiatives, together with
an expanded market area should help NECB continue to grow noninterest revenue.
Gains on sales of loans decreased by $11,000 and totaled $106,000 for the second
quarter of 1997 compared to $117,000 for 1996. While demand for fixed rate
conventional mortgage remains strong, the run-up in rates during the Spring of
1997 hindered the Company's loan origination effort.
Noninterest Expense
Noninterest expenses amounted to $3,870,000 during the second quarter of 1997.
This represents a $1,090,000 increase, or 39%, over the $2,780,000 reported
during the same period in 1996. This increase is largely the result of the
growth related to the addition of MSB as well as other Company initiatives.
Beyond the effect of the acquisition, expenses increased moderately in salaries
and benefits, occupancy and other expenses while insurance and assessments and
losses and writedowns on OREO remained substantially the same as compared to the
second quarter of 1996. Salaries and benefit expense rose in response to both
merit increases and Company-paid insurance expense. The increase in occupancy
expense resulted primarily from additional lease expense for new
facilities--from both the acquisition of MSB and the opening of New England
Bank's West Hartford office last summer. 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 both the EQBK and MSB acquisitions, amounted to $78,000
in 1997 compared to $7,000 in 1996.
Results of Operations--six months ended June 30, 1997
For the six months ended June 30, 1997, the Company reported net income of
$2,482,000 or $0.68 per share as compared to $1,866,000 or $0.61 per share for
the same period of 1996. Increases in net interest income and noninterest
revenue of $2,359,000 and $438,000, respectively, were partly offset by the
$2,098,000 increase in noninterest expenses.
Net Interest Income
(amounts in thousands)
Six months ended June 30, 1997 1996
- ----------------------------------------------------------------------------
Interest income (financial statements) $16,141 $12,978
Tax equivalent adjustment 81 132
Interest expense (5,543) (4,739)
------- -------
Net interest income (fully taxable equivalent) $10,598 $ 8,239
======= =======
Year-to-date 1997, net interest income on a FTE basis was $10,598,000, a 29%
increase over the $8,239,000 reported in same period in 1996. The $2,359,000
increase in 1997 resulted largely from the acquisition added approximately
$77,000,000 in interest earning assets and $67,000,000 and interest bearing
liabilities--and the increase in loans outstanding.
Noninterest Income
For the first six months of 1997, noninterest income increased $438,000, or 40%,
from 1996 and totaled $1,544,000 compared to $1,106,000 in the previous year.
Contrbuting significantly to this increase was the 38% increase in service
charges, fees and commissions which is largely due to the MSB acquisition. Also
contributing to the increase were gains on the sale of securities which
increased $164,000 and totaled $159,000 compared to a loss of $5,000 in 1996.
These increases offset the $127,000 decrease in other (nonrecurring) income.
Reflecting a benign interest rate envirnment (with the benchmark 30-year fixed
rate mortgage generally less than 8% for most of 1997) and the Company's
expanded market area, gains on sales of loans increased by $104,000 and totaled
$241,000 for the six months ended June 30, 1997 compared to $137,000 for 1996.
Page -13-
<PAGE>
Noninterest Expense
Through the first six months of 1997, noninterest expenses amounted to
$7,665,000. This represents a $2,098,000 increase, or 38%, over the $5,567,000
reported during the same period in 1996. This increase is largely the result of
the growth related to the addition of MSB. Beyond the effect of the acquisition,
noteworthy changes occurred in furniture and equipment and outside services
which increased by $147,000 and $168,000, respectively and goodwill amortization
which amounted to $157,000 in 1997 compared to $14,000 in 1996.
Financial Condition
Total assets at June 30, 1997 were $438,109,000, an increase of $4,950,000 from
$433,159,000 at December 31, 1996. During the first six months of 1997 loans
outstanding increased $4,566,000 or 2% to $293,562,000. Much of the increase
occurred in the second quarter when loans outstanding grew at an annualized rate
of 9%. Aided moderate interest rates and NECB's innovative marketing programs
helped to attract many new customers to the bank subsidiaries. Both securities
available-for-sale and held-to-maturity changed modestly and ended the period at
$85,345,000 and $7,355,000, respectively, compared to $85,958,000 and
$7,357,000, respectively, at December 31, 1996. Federal funds were also
virtually unchanged from December 31. Federal funds--which are overnight loans
to other banks--represent excess reserves which are the Company's most liquid
assets and as such are available to meet short term cash flow needs of the
Company and its customers.
Noteworthy was the $936,000 reduction in other real estate owned, from
$2,109,000 at December 31, 1996 to $1,173,000 at June 30, 1997. During the first
six months of the year the Company foreclosed on fewer properties and sold
properties with a market value of $1,749,000.
Total deposits, which constitute the principal funding source of the Company's
assets, decreased $5,507,000 from December 31, 1996 and amounted to $381,390,000
at June 30, 1997. The Company normally experiences seasonal fluctuations of
deposits--particularly in transaction accounts--which accounts for this change.
Short-term borrowings increased by $4,507,000 and stood at $6,510,000 at
quarter-end. In addition, in February the Company borrowed $6,000,000 in long
term debt with maturities ranging from 2 to 6 years from the Federal Home Loan
Bank of Boston. Other liabilities were $1,796,000, a decrease of $2,052,000 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 $42,413,000
at June 30, 1997, an increase of $2,2002,000 over December 31, 1996. The change
included net income for the first six months of 1997 of $2,482,000 and decreases
from declared dividends of $587,000 and a $107,000 increase in net unrealized
loss on securities available-for-sale (net of related tax effect).
<PAGE>
Securities held-to-maturity
Securities held-to-maturity are shown in the Company's balance sheets on an
amortized cost basis. Amortized cost is the original cost adjusted for the
effect of accumulated amortization of premiums and accretion of discounts. As
summarized in the table below, investments in securities held-to-maturity
changed modestly from December 31, 1996 and totaled $7,355,000 at June 30, 1997
compared to $7,357,000 at December 31, 1996.
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
- -------------------------------------------------------------------------------------------------------------------------------
Amortized Amortized
Cost Fair Cost Fair
(in thousands) Basis Value Basis Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt securities issued by the U.S. Treasury
and other U.S. government agencies $4,515 $4,541 $4,516 $4,563
Debt securities issued by states and
political subdivisions of the states 2,840 2,887 2,841 2,892
------ ------ ------ ------
$7,355 $7,428 $7,357 $7,455
====== ====== ====== ======
</TABLE>
Securities available-for-sale
Securities available-for-sale are shown in the Company's balance sheets at fair
value. The unrealized gain or loss resulting from such valuation, reduced by the
effect of income taxes, is reflected as a separately disclosed component of
shareholders' equity. At June 30, 1997, the net unrealized gain on securities
available-for-sale was $684,000 while at December 31, 1996 the net unrealized
gain was $521,000, representing an increase in net unrealized losses of
$163,000. As shown in the table below, investments in securities
available-for-sale totaled $85,345,000 at June 30, 1997 versus $85,958,000 at
December 31, 1996:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Amortized Amortized
Cost Fair Cost Fair
(in thousands) Basis Value Basis Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Marketable equity securities $ 6,409 $ 7,002 $ 3,689 $ 4,002
Debt securities issued by the U.S. Treasury
and other U.S. government agencies 56,272 56,328 63,315 63,459
Corporation debt securities 9,004 9,004 8,122 8,117
Mortgage-backed securities 12,976 13,011 10,311 10,380
------- ------- ------- -------
$84,661 $85,345 $85,437 $85,958
======= ======= ======= =======
</TABLE>
Nonperforming Assets
Nonperforming assets are assets on which income recognition in the form of
interest payments has either ceased or is limited, thereby reducing the
Company's earnings. Nonperforming assets include nonaccrual loans and other real
estate owned ("OREO"). Generally, loans are placed in nonaccrual status when
they are past due greater than ninety days or the repayment of interest or
principal is considered to be in doubt. In addition to nonperforming assets, the
asset quality of the Company can be measured by the amount of the provision,
charge-offs and several credit quality ratios presented in the discussion
concerning Provision and Allowance for Loan Losses.
Page -15-
<PAGE>
As shown on the table below, total nonperforming assets decreased $2,213,000 to
$5,655,000 at June 30, 1997 from $7,868,000 at December 31, 1996.
<TABLE>
<CAPTION>
(in thousands)
June 30, 1997 December 31,1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $4,482 $5,759
Other real estate owned 1,173 2,109
------ ------
Total nonperforming assets $5,655 $7,868
====== ======
Loans past due in excess of ninety days and accruing interest $ 509 $ 395
Ratio of nonperforming assets to total loans and OREO 1.9% 2.7%
Ratio of nonperforming assets and loans past due in excess of
ninety days and accruing interest to total loans and OREO 2.1% 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 89.6% 66.7%
Ratio of nonperforming assets and loans in excess of ninety days
past due and accruing interest to total shareholders' equity 14.5% 20.4%
Ratio of nonperforming assets to total assets 1.3% 1.8%
</TABLE>
OREO consists of properties acquired through foreclosure proceedings. These
properties are recorded at the lower of the carrying value of the related loans
or the estimated fair market value less estimated selling costs. Charges to the
allowance for loan losses are made to reduce the carrying amount of loans to the
fair market value of the properties less estimated selling expenses upon
reclassification as OREO. Subsequent reductions when necessary are charged to
operating income.
Activity in Nonperforming Assets
(Amounts in thousands)
Six Months ending June 30, 1997 1996
- -------------------------------------------------------------------------------
December 31, 1996 and 1995 $7,868 $5,453
Additions 1,152 3,202
Reductions:
Payments (823) (1,381)
Loans returned to performing status 0 (416)
Charge-offs and writedowns (853) (1,216)
Sales, net (1,687) (581)
------ ------
Ending Balance, June 30, 1997 and 1996 $5,655 $5,061
====== ======
Compared to 1996, nonperforming assets primarily increased due to the
acquisition which accounted for $4,360,000 and $585,000 in nonaccural loans and
OREO, respectively. In addition, reduced reclassifications and increased sales
of OREO served to reduce nonperforming assets during 1997.
Provision and Allowance for Loan Losses
NECB's allowance for loan losses represents amounts available for future credit
losses. Management continually assesses the adequacy of their allowances for
loan losses in response to current and anticipated economic conditions, specific
problem loans, historical net charge-offs and the overall risk profile of their
loan portfolios. Management allocates specific allowances to individual problem
loans based upon its analysis of the potential for loss perceived to exist
related to such loans. In addition to the specific allowances for individual
loans, a portion of the allowance is maintained as a general allowance. The
amount of the general allowance is determined through Management's analysis of
the potential for loss inherent in those loans not considered problem loans.
Among the factors considered by Management in this analysis are the number and
type of loans, nature and amount of collateral pledged to secure such loans and
current economic conditions. Based upon these analyses, the Company believes
that its allowance for loan losses at year-end is adequate.
The following table summarizes the activity in the allowance for possible loan
losses for the six months ending June 30, 1997 and 1996 was as follows:
Page -16-
<PAGE>
(in thousands)
Six Months Ended June 30, 1997 1996
- --------------------------------------------------------------------------------
Balance beginning of period $5,514 $4,446
Provisions charged to operations 498 1,034
Recoveries on loans previously charged-off 272 73
Loans charged-off (763) (1,098)
------ ------
Balance end of period $5,521 $4,454
====== ======
Provisions for possible loan losses charged to operations for the first six
months of 1997 were $498,000, representing an decrease of $536,000 from the same
period in 1996. During the six month period, charge-offs decreased by $335,000.
Management's assessment of the adequacy of the allowance is based upon the
composition of the loan portfolio, past due experience, current economic
conditions and other factors deemed appropriate. Management analyzes the
subsidiaries' loan portfolios as part of its risk management process to
ascertain the potential for loss from possible nonpayment by some of the Banks'
borrowers as well as the risk of loss inherent in the portfolio. Reserves are
assigned to specific loans and classes of loans, and then aggregated to
determine the total level needed.
Capital
The Company endeavors to maintain an optimal amount of capital upon which an
attractive return to shareholders will be realized over the short and long run
while meeting all regulatory requirements for minimum levels of capital.
As of June 30, 1997, the Company exceeded all regulatory capital ratios and the
subsidiaries were categorized as "well capitalized." The various capital ratios
of the Company for June 30, 1997 and 1996 were:
Minimum Level 1997 1996
------------- ---- ----
Total Risk-Based......... 8% 13.64% 14.79%
Tier 1 Risk-Based........ 4% 12.39% 13.68%
Leverage................. 4% 8.94% 9.50%
Liquidity
It is management's objective to ensure the continuous ability to meet cash needs
as they arise. Such needs may occur from time to time as a result of seasonal
declines in deposit levels, response to changes in interest rates paid on
deposits and interest rates charged for loans and fluctuations in the demand for
the Banks' various loan products. Accordingly, the Company maintains liquidity
that provides the flexibility to meet its cash needs. The liquidity objective is
achieved through the maintenance of readily marketable assets as well as a
balanced flow of asset maturities and prudent pricing on loan and deposit
agreements. The Company has alternative sources of liquidity, including
repurchase agreements and lines of credits provided by the FHLBB to both
subsidiaries, which together provide the Company with flexibility in managing
its liquidity position. The maturities of investment securities and cash flows
from the repayments of outstanding loans are expected to provide the Company
with adequate liquidity over the coming months.
Page -17-
<PAGE>
Part II: Other Information
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Default Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Exhibits
Exhibit Number Exhibit
27 Financial Data Schedule
(b) Form 8-K; Current Reports. The following reports were
filed with the Securities and Exchange Commission during
the quarter ended June 30, 1997:
(i) Annual Meeting of Shareholders
The Annual Meeting of Stockholders of New England
Community Bancorp, Inc. was held on Tuesday, May 20, 1997. Stockholders approved
the following proposals:
1. Elected ten (10) individuals to the Company's Board
of Directors until the next Annual Meeting and the election and qualification of
their successors:
2. Ratified the resolution adopted by the Board of
Directors appointing the independent public accounting firm of Shatswell,
MacLeod & Company, P.C. as independent auditors of the Company for the fiscal
year ending December 31, 1997.
<PAGE>
NEW ENGLAND COMMUNITY BANCORP, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEW ENGLAND COMMUNITY BANCORP, INC.
Date: August 12, 1997 By: s/s Anson C. Hall
-----------------------------------
Anson C. Hall
Vice President and Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000752324
<NAME> NEW ENGLAND COMMUNITY BANCORP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 23,798
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9,650
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 85,345
<INVESTMENTS-MARKET> 84,661
<LOANS> 293,562
<ALLOWANCE> 5,521
<TOTAL-ASSETS> 438,109
<DEPOSITS> 381,390
<SHORT-TERM> 6,510
<LIABILITIES-OTHER> 1,796
<LONG-TERM> 6,000
0
0
<COMMON> 367
<OTHER-SE> 42,046
<TOTAL-LIABILITIES-AND-EQUITY> 438,109
<INTEREST-LOAN> 12,912
<INTEREST-INVEST> 3,089
<INTEREST-OTHER> 140
<INTEREST-TOTAL> 16,141
<INTEREST-DEPOSIT> 5,306
<INTEREST-EXPENSE> 5,543
<INTEREST-INCOME-NET> 10,598
<LOAN-LOSSES> 498
<SECURITIES-GAINS> 159
<EXPENSE-OTHER> 7,665
<INCOME-PRETAX> 3,979
<INCOME-PRE-EXTRAORDINARY> 3,979
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,482
<EPS-PRIMARY> 0.68
<EPS-DILUTED> 0.68
<YIELD-ACTUAL> 8.31
<LOANS-NON> 4,482
<LOANS-PAST> 509
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 17,982
<ALLOWANCE-OPEN> 5,514
<CHARGE-OFFS> 763
<RECOVERIES> 272
<ALLOWANCE-CLOSE> 5,521
<ALLOWANCE-DOMESTIC> 5,521
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
