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, 1998 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, 1998 was 5,171,626
The total number of pages in this report is 19.
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NEW ENGLAND COMMUNITY BANCORP, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Part I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements:
Consolidated Balance Sheets--June 30, 1998 (unaudited) and
December 31, 1997 4
Consolidated Statements of Income--three and six months ended June 30, 1998
and 1997 (unaudited) 5
Consolidated Statements of Cash Flows--six months ended June 30, 1998
and 1997 (unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Part II. OTHER INFORMATION 18
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits, Financial Statement Schedules and Reports on Form 8-K 18
SIGNATURES 19
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<TABLE>
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Part I--FINANCIAL INFORMATION
Item 1. Financial Statements
NEW ENGLAND COMMUNITY BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1998 1997
(thousands of dollars) (Unaudited)
====================================================================================================================
Assets:
<S> <C> <C>
Cash and due from banks $ 32,112 $ 35,201
Short-term investments 4,557 7,858
Federal funds sold 6,600 4,650
---------- ----------
Cash and cash equivalents 43,269 47,709
Securities held-to-maturity 9,738 11,336
Securities available-for-sale 115,699 112,590
Federal Home Loan Bank stock 2,977 2,977
Loans outstanding 400,356 408,535
Less: allowance for possible loan losses (7,186) (9,257)
---------- ----------
Net loans 393,170 399,278
Loans held-for-sale 8,622 2,966
Accrued interest receivable 4,500 4,395
Premises and equipment 11,167 11,064
Other real estate owned 1,624 2,870
Goodwill 5,042 5,238
Other assets 6,614 5,747
---------- ----------
Total Assets $ $ 602,422 $ 606,170
========== ==========
Liabilities:
Deposits:
Noninterest bearing $ 101,425 $ 114,510
Interest bearing 401,586 408,134
---------- ----------
Total deposits 503,011 522,644
Short-term borrowings 18,617 14,036
Long-term debt 19,448 11,612
Other liabilities 4,727 4,055
---------- ----------
Total Liabilities 545,803 552,347
Shareholders' Equity:
Common Stock--$0.10 par value, authorized 20,000,000 shares:
June 30, 1998, 5,171,626 outstanding; December 31, 1997
5,160,626 outstanding 517 516
Additional paid-in capital 51,165 51,064
Retained earnings 3,966 1,107
Net unrealized gain (loss) on securities available-for-sale 971 1,136
---------- ----------
Total Shareholders' Equity 56,619 53,823
---------- ----------
Total Liabilities & Shareholders' Equity $ 602,422 $ 606,170
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
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NEW ENGLAND COMMUNITY BANCORP, INC.
CONSOLIDATED INCOME STATEMENTS (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
(thousands of dollars; except per share data) 1998 1997 1998 1997
====================================================================================================================================
Interest income:
<S> <C> <C> <C> <C>
Loans, including fees $ 18,069 $ 15,246 $ 9,034 $ 7,652
Securities:
Taxable interest 3,799 3,661 1,987 1,843
Interest exempt from federal income taxes 97 58 60 22
Dividends 91 151 28 74
Federal funds sold and other interest 107 237 47 153
--------- --------- -------- -------
Total interest income 22,163 19,353 11,156 9,744
Interest expense:
Deposits 7,654 6,221 3,789 3,100
Borrowed funds 792 368 430 202
--------- --------- -------- -------
Total interest expense 8,446 6,589 4,219 3,302
Net interest income 13,717 12,764 6,937 6,442
Provision for possible loan losses 562 558 240 285
--------- --------- -------- -------
Net interest income after provision for possible loan losses 13,155 12,206 6,697 6,157
Noninterest income:
Service charges, fees and commissions 1,541 1,269 827 647
Investment securities gains, net 1,403 161 174 163
Gain on the sales of loans, net 1,367 415 826 118
Other 99 71 55 34
--------- --------- -------- -------
Total noninterest income 4,410 1,916 1,882 962
Noninterest expense:
Salaries and employee benefits 5,860 4,806 3,060 2,390
Occupancy 1,042 1,078 507 532
Furniture and equipment 772 643 418 341
Outside services 541 706 324 417
Postage and supplies 445 391 221 178
Insurance and assessments 166 94 79 49
Losses, writedowns, expenses - other real estate owned 27 161 (41) 130
Amortization of goodwill 195 157 97 78
Loss on sale of portfolio loans 715
Other 1,336 1,270 618 594
--------- --------- -------- -------
Total noninterest expense 11,099 9,306 5,283 4,709
--------- --------- -------- -------
Income before taxes 6,466 4,816 3,296 2,410
Income taxes 2,622 1,814 1,344 910
--------- --------- -------- -------
Net Income $ 3,844 $ 3,002 $ 1,952 $ 1,500
========= ========= ======== =======
Net income per share--Basic $ 0.74 $ 0.59 $ 0.38 $ 0.29
Net income per share--Diluted $ 0.73 $ 0.59 $ 0.37 $ 0.29
Weighted average shares of
Common Stock outstanding--Basic 5,167 5,086 5,172 5,086
Weighted average shares of
Common Stock outstanding--Diluted 5,301 5,086 5,288 5,086
</TABLE>
The accompanying notes are an integral part of these statements.
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NEW ENGLAND COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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<CAPTION>
Six Months Ended June 30,
(thousands of dollars) 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
Operating activities:
<S> <C> <C>
Net income $ 3,844 $ 3,002
Adjustment for noncash charges (credits):
Provision for depreciation and amortization 450 541
Losses from sale or disposal and provisions to reduce the carrying value
of other real estate owned, net (95) 55
Securities losses (gains), net (1,403) (161)
Accretion of discounts and amortization of premiums on bonds, net 11 (15)
Accretion, net of amortization, of purchase accounting adjustments (107)
Amortization of goodwill and other intangibles 195 157
Provision for possible loan losses 562 558
Loss on sale of portfolio loans, net 440 0
(Increase) decrease in accrued interest income and other assets, net (1,024) 416
Decrease (increase) in loans held-for-sale (5,656) 217
(Decrease) increase in accrued interest payable and other liabilities, net 748 (2,139)
--------- ---------
Net cash provided by (used for) operating activities (1,928) 2,283
---------- ---------
Financing activities:
Net decrease in noninterest-bearing accounts (13,085) 2,510
Net (decrease) increase in interest-bearing accounts (6,506) (8,626)
Net increase in short-term borrowings 4,581 4,531
Net increase in long-term borrowings 7,843 6,000
Proceeds from issuance of common stock 103 21
Cash dividends paid (934) (751)
--------- ---------
Net cash used for financing activities (8,005) 3,685
--------- ---------
Investing activities:
Loans originated, net of principal collections (7,607) (7,537)
Proceeds from sale of portfolio loans 11,988
Purchases of securities available-for-sale (32,624) (18,855)
Proceeds from sales of securities available-for-sale 12,603 12,142
Proceeds from maturities of securities available-for-sale 18,012 9,681
Purchases of securities held-to-maturity (25)
Proceeds from maturities of securities held-to-maturity 1,598 258
Proceeds from sales of other real estate owned 2,403 1,749
Purchases of premises and equipment, net (599) (519)
Sales of premises and equipment 46
Capitalization of expenditures on other real estate owned (327) (65)
--------- ---------
Net cash provided by (used for) investing activities 5,493 3,133
--------- ---------
Increase (decrease) in cash and cash equivalents (4,440) 2,835
Cash and cash equivalents, beginning of period 47,709 39,892
--------- ---------
Cash and cash equivalents, end of period $ 43,269 $ 42,727
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
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NEW ENGLAND COMMUNITY BANCORP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying condensed interim financial statements are unaudited and
include the accounts of New England Community Bancorp, Inc. (the "Company" or
"NECB") and its subsidiaries, New England Bank and Trust Company ("New England
Bank"), The Equity Bank ("Equity Bank") and Community Bank ("Community Bank")
(together the "Subsidiaries"). The consolidated financial statements have been
prepared in accordance with generally accepted accounting principles 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 1997 Annual Report on Form 10-K.
Note 2 - Mergers and Acquisitions
On August 8, 1997, NECB acquired First Bank of West Hartford ("First Bank")
by issuing 995,355 shares of the Company's common stock for all of the
outstanding common shares of First Bank and all fully vested and exercisable
stock options. First Bank was also merged with and into New England Bank. The
acquisition of First Bank was accounted for as a pooling of interests and as
such all prior results have been restated as though the companies had been
combined as of the earliest period presented.
On December 31, 1997, NECB acquired Community Bank (formally known as
Community Savings Bank) by paying $4,832,000 in cash for all of the outstanding
common shares of Community Bank. The acquisition of Community Bank was accounted
for as a purchase. Accordingly, the consolidated financial statements of the
Company do not include prior operating results of Community Bank.
On, July 10, 1998, Olde Port Bank & Trust Company ("Olde Port"), a New
Hampshire state-chartered bank and trust company, became NECB's fourth wholly
owned banking subsidiary. Under the terms of the Plan and Agreement of Merger,
for each share of Olde Port Common Stock, holders were to receive NECB Common
Stock with a market value of $200.00. The final exchange ratio was computed
based upon the average closing price of NECB shares for the ten (10) trading
days preceding final regulatory approval. Based upon this average ($23.075), at
the Effective Time each share of Olde Port Common Stock outstanding immediately
prior to the Effective Time was converted into the right to receive 8.6674
shares of NECB common stock for each share of Olde Port common stock owned. The
resulting transaction value was $13.7 million. The transaction was accounted for
as a pooling of interests. It occurred after June 30, 1998 and as such NECB's
consolidated financial statements included in this quarterly report do not
reflect the results of Olde Port's operations.
Olde Port serves Portsmouth and the surrounding communities. At June 30,
1998, Olde Port had assets of $49 million, deposits of $41 million, $30 million
in loans outstanding, and shareholders' equity of $5 million.
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Note 3- Merger Agreements
On March 19, 1998, Bank of South Windsor ("South Windsor"), of South
Windsor, Connecticut, and NECB entered into a Plan and Agreement of Merger (the
"Merger Agreement") whereby South Windsor will be acquired by NECB and merged
with and into New England Bank. Under the terms of the Merger Agreement, NECB
will acquire South Windsor on a stock-for-stock basis in a tax-free exchange
fixed at 1.3204 shares of NECB common stock for each share of South Windsor
common stock. Using NECB's closing price on March 18, 1998 of $25.50 per share,
the transaction would have a value of $33.67 per share to South Windsor
shareholders and an aggregate transaction value of approximately $32.8 million.
In the event that the average closing price of NECB stock, for the twenty days
ending on the date of final regulatory approval, is less than $23.48, the
exchange ratio will (subject to certain qualifications) be adjusted to result in
the receipt by South Windsor shareholders of NECB shares having a value of
$31.00 per share of South Windsor common stock.
At June 30, 1998, South Windsor had assets of $000 million, deposits of
$000 million, loans of $00 million, and shareholders' equity of $00 million.
South Windsor is a Connecticut-chartered commercial bank with banking offices in
South Windsor, Vernon and East Hartford, Connecticut.
Note 4- Disclosure for Statements of Cash Flows
<TABLE>
Schedule of noncash investing and financing activities:
<S> <C> <C>
Loans charged off, net of recoveries $2,633 $515
Real estate acquired through foreclosure 735 952
Income tax paid 3,723 1,041
Interest paid 7,743 6,788
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
The Company's earnings are largely dependent upon net interest income and
noninterest income from its community banking operations--with net interest
income providing the majority of the Company's revenues. Net interest income is
the difference between interest earned on the loan and investment portfolios and
interest paid on deposits and other sources of funds. Noninterest revenue is
primarily derived from service charges, fees and commissions related to deposit
accounts and the Company's serviced loan portfolio. As noted in Note 2 above,
the acquisition of FBWH was accounted for as a pooling of interests. As such,
all prior results have been restated as though the companies had been combined
as of the earliest period presented.
NECB reported record net income for the second quarter of 1998 of
$1,952,000, or $0.37 per diluted share, compared to net income of $1,500,000, or
$0.29 per diluted share, reported in 1997. This represents an increase of
$476,000 or 32% over net income reported in the previous year. On an earnings
per share basis, second quarter 1998 net income increased 27% over the second
quarter of 1997. Two important measures of performance also increased
significantly when compared to the same period last year. Return on assets
("ROA") rose 11% while equity ("ROE") increased 22%. The ROA and ROE amounted to
1.33% and 14.12%, respectively, for 1998 compared to 1.20% and 11.62%, for the
second quarter of 1997. Growth in net income and earnings per share reflects the
additional revenue and savings achieved in conjunction with the Company's
acquisitions of First Bank and Community Bank and strong growth in noninterest
income.
Net interest income on a fully taxable-equivalent ("FTE") basis totaled
$6,983,000 for 1998 compared to $6,483,000 in 1997. Reflecting the downward
trend in interest rates during much of 1998 (e.g., the benchmark 30-year
treasury declined 30 basis points from 5.92% in December 1997 to 5.62% in June
1998), NECB's consolidated net interest margin
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remained a strong 5.14% in the second quarter of 1998. This compared to an
historically high 5.61% net interest margin achieved during the second quarter
of 1997.
The provisions for possible loan losses were $240,000 compared to $285,000
in the comparable period in 1997. Improving loan performance and increased use
of government guaranteed loan programs slowed the need for new loan loss
reserves in quarter ended June 30, 1998 compared to last year. With regard to
loan performance, the ratio of nonperforming assets to total assets decreased to
1.04% at June 30, 1998 compared to 1.27% a year earlier.
Noninterest income rose sharply and totaled $1,882,000 in 1998 compared to
$962,000 in 1997--an increase of $920,000, or 96%. Noteworthy increases occurred
in gains from the sale of mortgage loans and service charges, fees and
commissions which rose $920,000 and $180,000, respectively. More significantly,
in the aggregate noninterest sources of income accounted for 21% of operating
income (net interest income plus noninterest income) in the second quarter
compared to 13% for the same quarter in 1997.
Noninterest expense totaled $5,283,000 in the second quarter of 1998
compared to $4,709,000 in 1997. The increase primarily resulted from the
addition of Community Bank which was accounted for as a purchase and thus the
results of its operations are only included from the date of the acquisition.
NECB's efficiency ratio, which measures how much a dollar of revenue costs to
produce, equaled 59.3% for the second quarter of 1998 compared to 61.0% for the
same period in 1997.
Through the first six months of 1998, NECB reported net income of
$3,844,000 or $0.73 per diluted share, an increase of $842,000 compared to
$3,002,000 or $0.59 per diluted share for the same period last year. Returns on
average assets and average equity for the six months ended June 30, 1998 were
1.31% and 13.95%, compared to 1.20% and 11.87% for the same period a year
earlier.
During the first six months of 1998, net interest income on a fully
taxable-equivalent basis totaled $13,821,000 compared to $12,845,000 in 1997.
While provisions for loan losses were essentially unchanged from 1997,
noninterest income increased $2,494,000, or more than 130% above last year's
total, and amounted to $4,410,000 compared to $1,916,000 for the same period in
1997. Gains from the sale of securities and gains for the sale of mortgage loans
each increased significantly compared to a year ago. Noninterest expense totaled
$11,099,000 in 1998 compared to $9,306,000 in 1997.
Total assets at June 30, 1998 were $602,422,000 compared to $606,170,000 at
December 31, 1997. Total loans at June 30, 1998 amounted to $400,356,000
compared to $408,535,000 at December 31, 1997. Absent the effect of the bulk
loan sale completed at the end of the first quarter of 1998, loans would have
increased slightly during the first half of 1998. Total deposits amounted to
$503,011,000 at June 30, 1998 compared to $522,644,000 at December 31, 1997. A
decline in NECB's deposit base during the first half of the year is a recurring
phenomenon observed by management. Offsetting this outflow, NECB increased its
use of alternative funding sources by increasing its long-term debt outstanding
during the year to $19,448,000 at June 30 1998 compared to $11,612,000 at
year-end 1997. Short-term borrowings (primarily repurchase agreements) also
increased substantially totaling $18,617,000 compared to $14,036,000 at December
31, 1997.
Shareholders' equity increased $2,796,000 from $53,823,000 at December 31,
1997 to $56,619,000 at quarter-end. At June 30, 1998, the ratio of equity to
total assets equaled 9.40%. When goodwill resulting from the Equity Bank,
Manchester State Bank and Community Bank acquisitions is excluded, tangible
equity capital is reduced to $51,577,000,or 8.56% of total assets. The resulting
tangible book value per share amounted to $9.88 at June 30, 1998 compared to
$8.92 at December 31, 1997.
Note: During the second quarter management reclassified short-term
investments (e.g., money market funds) to cash and cash equivalents from
securities available-for-sale. These short-term instruments (with original
maturities of three months or less) are highly liquid and readily convertible to
known amounts of cash. The consolidated statements of cash flows have also been
adjusted to reflect this reclassification.
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Results of Operations--three months ended June 30, 1998 and 1997
For the three months ended June 30, 1998, the Company reported net income
of $1,952,000, or $0.37 per diluted share, compared to $1,500,000, or $0.29 per
diluted share, for the same period of 1997. Strong growth in noninterest sources
of income fueled much of this improvement which, as noted previously, increased
96% over the same period in 1997. Also showing improvement was net interest
income, which on an FTE basis increased $500,000, or 7.7%, from the same period
in 1997. The acquisition of Community Bank, increased commission payments and
expenses related to systems and technology upgrades served to increase
noninterest expense by $574,000, or 12%, to $5,283,000 in the second quarter of
1998 compared to 1997.
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
its market area, mortgage loans to finance the purchase or improvement of
properties used by businesses and mortgage and personal loans to individuals.
Representing approximately 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 NECB
serves. 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)
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998 1997 % Change
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income (financial statements) $11,156 $ 9,744 14.5%
Tax equivalent adjustment 46 41 12.2%
--------- --------
Total interest income (on an FTE basis) 11,202 9,785 14.5%
Interest expense (4,219) (3,302) 27.8%
--------- --------
Net interest income (on an FTE basis) $ 6,983 $ 6,483 7.7%
========= ========
</TABLE>
For the second quarter of 1998, net interest income on an FTE basis was
$6,983,000, a 7.7% increase over the $6,483,000 in the comparable period in
1997. A key factor in the $500,000 increase in 1998 was the increase in average
loans outstanding. Internal growth and the acquisition of Community Bank (which
provided an additional $55,000,000 in loans outstanding) served to increase
interest income on loans by $1,715,000 during the second quarter of 1998
compared to the same period a year earlier.
The net interest margin measures the difference in yield on, and the mix
of, interest-earning assets and interest-bearing liabilities. As shown in the
table below, the margin for the quarter ended June 30, 1998 decreased to 5.14%
from the historic high of 5.61% in 1997. With the economy still performing well,
competition among area lenders remains intense. This coupled with a general
decline in borrowing rates served to reduce the yield on earning assets to 8.25%
in the quarter ended June 30, 1998 compared to 8.47% for the same period a year
ago. Helping to lessen the effect of the loan pricing pressure was an improved
mix of interest-earning assets. During the quarter ended June 30, 1998, average
loans outstanding represented 74% of earning assets compared to 72% for the same
period last year. Meanwhile, the yield on interest-bearing liabilities increased
13 basis points and equaled 3.96% for the quarter ended June 30, 1998 compared
to 3.83% a year earlier. The acquisition of Community Bank, which typically paid
depositors higher rates than NECB's other affiliates, served to increase NECB's
consolidated yield on interest-bearing liabilities. Management has observed that
its depositors have become increasingly rate sensitive--with a greater
percentage of its customers actively seeking out the "best" deal. To minimize
this effect, the Company has increased it use of alternative funding sources
(e.g., FHLB borrowings). Without the use of these borrowings, NECB's yield on
interest-bearing liabilities would have increased further.
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<TABLE>
<CAPTION>
Consolidated Average Balances/Interest Earned or Paid/Rates
Three Months Ended June 30, 1998 June 30, 1997
- ----------------------------------------------------------------------------------------------------------------------
Average Average Average Average
(Amounts in thousands) Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------------
Assets:
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold $ 3,523 $ 47 5.35% $ 11,319 $ 153 5.42%
Securities held-to-maturity 9,887 174 7.06% 10,567 195 7.40%
Securities available-for-sale 123,397 1,947 6.33% 115,651 1,785 6.19%
Mortgages held for sale 6,998 90 5.16% 1,866 30 6.45%
Loans (A) 400,863 8,944 8.95% 323,991 7,622 9.44%
---------- ------- --------- -------
Total interest-earning assets 544,668 11,202 8.25% 467,216 9,785 8.47%
Allowance for loan losses (8,949) (7,337)
Cash and due from banks 25,373 16,615
Other assets 26,264 22,796
---------- ---------
Total Assets $587,356 $ 495,467
======== ========
Liabilities:
Regular savings deposits $ 121,376 $ 670 2.15% $ 104,843 $ 514 1.97%
NOW account deposits 52,951 215 1.63% 45,306 210 1.86%
Money market deposits 2,211 14 2.54% 4,252 24 2.26%
---------- ------- --------- -------
Total savings deposits 176,537 878 2.04% 154,402 748 1.94%
Time deposits 218,360 2,987 5.31% 177,633 2,352 5.31%
Short-term borrowings 12,070 146 4.25% 3,966 51 5.16%
Long-term borrowings 20,204 216 6.00% 9,919 151 6.11%
---------- ------- --------- -------
Total interest bearing liabilities 427,171 4,227 3.96% 345,919 3,302 3.83%
Demand deposits 100,703 95,963
Other liabilities 4,059 2,629
---------- ---------
Total Liabilities 531,933 444,512
Equity 55,422 50,956
Total Liabilities & Equity $ 587,356 $ 495,467
========= ========
Net interest income--FTE basis $ 6,983 $ 6,483
======= =======
Net interest margin 5.14% 5.61%
Net interest spread 4.29% 4.64%
</TABLE>
(A) Average loans include nonaccruing loans.
Rate/Volume Analysis
Changes in net interest income are divided into two components--the changes
resulting from the changes in average balances of earning assets and
interest-bearing liabilities (or "volume") and the changes in the rates earned
or paid on those balances. The changes in interest income and interest expense
attributable to changes in both volume and rate, which cannot be segregated,
have been allocated proportionately to the absolute values of the changes due to
volume and rate. The following table is presented on a FTE basis.
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<TABLE>
<CAPTION>
Change due to
Total Change in:
Increase --------------------
(amounts in thousands) (Decrease) Rate Volume
- ----------------------------------------------------------------------------------------------------------
Interest earned on:
<S> <C> <C> <C>
Federal funds sold $ (106) $ (2) $ (104)
Securities held-to-maturity (21) (9) (12)
Securities available-for-sale 162 40 122
Mortgages held for sale 60 (6) 66
Loans 1,322 (393) 1,715
-------- -------- -------
Total interest-earning assets 1,417 (370) 1,787
-------- -------- -------
Interest paid on:
Regular savings deposits $ 156 $ 65 $ 91
NOW account deposits 5 (26) 31
Money market deposits (10) 3 (13)
-------- -------- -------
Total savings deposits 151 42 109
Time deposits 538 (1) 539
Short-term borrowings 77 (9) 86
Long-term borrowings 151 (3) 154
-------- --------- -------
Total interest-bearing liabilities 917 (29) 888
-------- -------- -------
Net interest income change $ 500 $ (399) $ 899
======== ========= =======
</TABLE>
Noninterest Income
For the quarter ended June 30, 1998, noninterest income increased $920,000
and totaled $1,882,000, compared to the second quarter in 1997. Much of this
increase, $708,000, was the result of increased revenues from origination and
sale of mortgage loans. NECB considers mortgage lending an important part of its
core community banking franchise. New England Community Mortgage Corp. ("NECM"),
was formed earlier in the year to take better advantage of the company's ability
to originate residential loans within the communities served by our banking
operations in Connecticut while allowing expansion into other communities not
served by our Banks. With an emphasis on efficiently serving the home buying
public, during first half of 1998 the mortgage company originated $98 million in
mortgage loans and was ranked 21st among all lenders in Connecticut.
Also contributing to the growth in noninterest income was service charges,
fees and commissions. While the acquisitions have served to increase noninterest
income, NECB's broader, more comprehensive product choices delivered with a
commitment to service have allowed the Company to forge many new small business
relationships. Reflecting the combined effect of the acquisitions and new and
expanded relationships, service charges, fees and commissions rose $180,000 or
28% to $827,000 in the quarter ended June 30, 1998 compared to a year earlier.
Noninterest Expense
Noninterest expenses amounted to $5,283,000 during the second quarter of
1998. This is a $574,000 increase, or 12%, over $4,709,000 reported during the
same quarter in 1997. In addition to the effect of Community Bank, increased
commission payments--related to growth in both the mortgage subsidiary and
mutual fund sales--and expenses related to systems and technology upgrades
offset the economies achieved following the August, 1997 acquisition of First
Bank.
Results of Operations--six months ended June 30, 1998
Through the first six months of 1998, NECB reported net income of
$3,844,000 or $0.73 per diluted share, an increase of $842,000 compared to
$3,002,000 or $0.59 per diluted share for the same period last year. Returns on
average assets and average equity for the six months ended June 30, 1998 were
1.31% and 13.95%, compared to 1.20% and 11.87% for the same period a year
earlier. Growth in net income and earnings per share during the first half of
1998
Page-11-
<PAGE>
reflects new revenue and cost savings achieved in conjunction with the Company's
acquisitions and strong growth in noninterest income. In particular, gains from
the sale of mortgage loans and gains from investment securities rose sharply
compared to the previous year. Provisions for loan losses were essentially
unchanged from 1997.
During the first six months of 1998, net interest income on a fully
taxable-equivalent basis increased $976,000 and totaled $13,821,000 compared to
$12,845,000 in 1997.
<TABLE>
<CAPTION>
Net Interest Income
(amounts in thousands)
Nine Months Ended June 30, 1998 1997 % Change
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income (financial statements) $22,163 $19,353 14.52%
Tax equivalent adjustment 104 81 28.40%
--------- ---------
Total interest income (on an FTE basis) 22,267 19,434 14.58%
Interest expense (8,446) (6,589) 28.18%
--------- ---------
Net interest income (fully taxable equivalent) $13,821 $12,845 7.60%
======= =======
</TABLE>
Noninterest Income
Through the first six months of 1998, noninterest income increased sharply
and totaled $4,410,000, compared to $1,916,000 reported for the same period in
1997. Aided by moderate interest rates (the bellwether 30-year bond remained
under 6% for the quarter), demand for home purchase financing remained strong
and enabled NECB's subsidiary to originate a record $98,000,000 in loans during
the first half of 1998. With the vast majority of these loans being fixed rate,
gains from their sale increased accordingly. Compared to first half of 1997,
gains form the sale of mortgage loans more than doubled and totaled $1,367,000.
Gains from the sale of securities also increase sharply compared to a year ago.
During the first half of 1998, NECB realized gains from the sale of securities
of $1,403,000. In addition to gains recorded by the Subsidiaries, the parent
company recorded a gain of $898,000 from the sale of its own investment
securities.
Service charges, fees and commissions also increased substantially,
totaling $1,541,000 in the first half of 1998. This represents a $272,000, or
21%, increase compared to the $1,269,000 recorded through the first six months
of 1997. This increase resulted from several factors. The inclusion of Community
Bank (which, as noted earlier, was accounted for as a purchase), selected price
increases and increased volume of services provided to our growing base of
customers all contributed to this increase.
Noninterest Expense
Noninterest expenses amounted to $11,099,000 during the first half of 1998.
Excluding the one-time charge of $715,000 related to the bulk sale of loans,
other noninterest expenses increased by $1,078,000 or 11% from the same period
in 1997. The inclusion of the expenses of Community Bank, for the first time,
accounted for $865,000 of this increase. The remaining $213,000 increase
represented a modest 2% on a year to year basis and was achieved through gaining
efficiencies following the acquisitions of First Bank of West Hartford and
Community Bank within the last 12 months.
Financial Condition
Total assets at June 30, 1998 were $602,422,000, a largely seasonal
decrease of $3,748,000 from $606,170,000 at year-end. During the first six
months of 1998 loan production remained strong, especially residential mortgage
loans. These loans are typically sold in the secondary market upon closing. As
interest rates declined during the first half of 1998 the Company experienced a
moderate rise in prepayments, which has been noted throughout the industry. When
the effect of the March 30th bulk loan sale is excluded, loans outstanding rose
$1,977,000. Loans consisted of the following:
Page-12-
<PAGE>
(Amounts in thousands)
June 30, December 31,
1998 1997
- ----------------------------------------------------------------------
Commercial and financial $ 116,424 $ 102,105
Real estate:
Construction 17,940 19,620
Residential 98,766 111,32
Commercial 129,253 133,803
Consumer 37,973 41,686
----------- -----------
Gross loans outstanding $ 400,356 $ 408,535
=========== ===========
Securities available-for-sale increased from December 31, 1997 and ended
the second quarter at $115,699,000 while held-to-maturity decreased and totaled
$9,738,000 at quarter end. This compares to $120,448,000 and $11,336,000 for
available-for-sale and held-to-maturity, respectively, at year-end. Federal
funds increased and totaled $6,600,000 at quarter-end compared to $4,650,000 at
December 31, 1997. Federal funds--which are overnight loans to other
banks--represent excess reserves that are the Company's most liquid assets and
as such are available to meet short-term cash flow needs of the Company and its
customers.
The $1,246,000 reduction in other real estate owned brought this account
down to $1,624,000, or 0.27% of total assets, at June 30, 1998. During the first
six months of the year the Company acquired properties with a value of
$1,062,000 through foreclosure and disposed of properties with a market value of
$2,308,000.
Total deposits, which constitute the principal funding source of the
Company's assets, decreased $19,633,000 from December 31, 1997 and amounted to
$503,011,000 at June 30, 1998. This is consistent with past years and reflects
seasonal cash flows of NECB's deposit customers--especially noninterest
deposits. In February, management increased long-term debt (from the Federal
Home Loan Bank of Boston) with two amortizing notes:
<TABLE>
Term Rate Maturity Date Amount
- --------------------------- ------------------------- ------------------------- -----------------
<S> <C> <C> <C>
5-Year 5.95% February 18, 2003 $4,000,000
10-Year 5.93% February 19, 2008 $4,000,000
- --------------------------- ------------------------- ------------------------- ------------------
</TABLE>
Total shareholders' equity was $56,619,000 at June 30, 1998, an increase of
$2,796,000 over December 31, 1997.
Securities held-to-maturity
Securities held-to-maturity are shown in the Company's balance sheets on an
amortized cost basis. Amortized cost is the original cost adjusted for the
effect of accumulated amortization of premiums and accretion of discounts. As
summarized in the table below, investments in securities held-to-maturity
decreased from $11,336,000 at December 31, 1997 to $9,738,000 at June 30, 1998.
Page-13-
<PAGE>
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------
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 $ 5,399 $ 5,416 $6,398 $6,430
Debt securities issued by states and
political subdivisions of the states 2,839 2,930 2,841 2,944
Mortgage-backed securities 1,285 1,293 1,882 1,885
Other debt securities 215 221 215 219
--------- --------- --------- ---------
$ 9,738 $ 9,860 $11,336 $11,478
========= ========= ========= =========
</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, 1998, the net unrealized gain on securities
available-for-sale was $1,630,000 while at December 31, 1997 the net unrealized
gain was $1,923,000, representing a decrease in net unrealized gains of
$293,000. As shown in the table below, investments in securities
available-for-sale totaled $114,069,000 at June 30, 1998 versus $112,590,000 at
December 31, 1997:
<TABLE>
<CAPTION>
June 30 1998 December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------
Amortized Amortized
Cost Fair Cost Fair
(Amounts in thousands) Basis Value Basis Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Marketable equity securities $ 10,894 $ 11,637 $ 11,214 $ 12,323
Debt securities issued by the U.S. Treasury
and other U.S. government agencies 78,714 79,351 76,373 76,948
Corporation debt securities 10,511 10,617 9,968 10,053
Asset-based securities 1,312 1,314 527 527
Mortgage-backed securities 12,638 12,780 12,585 12,730
---------- ---------- ---------- ----------
$114,069 $115,699 $110,657 $112,590
========== ========== ========== ==========
</TABLE>
Note: During the second quarter management reclassified short-term
investments (e.g., money market funds) to cash and cash equivalents from
securities available-for-sale. These short-term instruments (with original
maturities of three months or less) are highly liquid and readily convertible to
known amounts of cash.
Nonperforming Assets
Nonperforming assets ("NPAs") are assets on which income recognition in the
form of principal and/or interest has either ceased or is limited, thereby
reducing the Company's earnings. Maintaining a low level of NPAs is important to
the ongoing success of NECB. The Company's comprehensive credit review and
approval process is critical to the ability to minimize NPAs on a long-term
basis. In addition to the negative impact on net interest income and credit
losses, NPAs also increase operating expenses due to the costs associated with
collection efforts.
NPAs 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. 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, if needed, are charged to
operating income. In addition to NPAs, the asset quality of the Company can be
measured by the amount of the
Page-14-
<PAGE>
provision, charge-offs and several credit quality ratios presented in the
discussion concerning "Provision and Allowance for Loan Losses."
<TABLE>
<CAPTION>
(Amounts in thousands)
June 30, 1998 December 31,1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $ 4,635 $ 9,075
OREO 1,624 2,870
---------- ----------
Total nonperforming assets $ 6,259 $ 11,945
========== ==========
Loans past due in excess of ninety days
and accruing interest $ 640 $ 951
</TABLE>
NPAs decreased $5,686,000 or 48% in the six months ended June 30, 1998 and
represented 1.04% of total assets. compared to 1.97%, at December 31, 1997. This
decrease in nonperforming assets primarily resulted from a bulk sale of loans
completed at the end of the first quarter. Taking advantage of a favorable
secondary market for such loans, NECB sold $11,988,000 of problem assets to an
investor that specializes in workout loans. The majority of the assets sold had
been obtained in several recent acquisitions (e.g., the Community Bank
acquisition brought with it approximately $4,209,000 in NPAs). The sale had two
positive effects upon NECB's second quarter: (i) net interest income was helped
by the reemployment of the sale proceeds and (ii) certain costs related to the
effort to work-out and/or collect these loans was avoided.
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, 1998 1997
- ------------------------------------------------------------------------------
December 31, 1997 and 1996 $11,945$8,757
Additions 4,755 1,306
Reductions:
Payments (482) (853)
Charge-offs and writedowns (3,409) (877)
Sales, net (6,550) (1,687)
--------- ---------
Ending Balance, June 30, 1998 and 1997 $ 6,259 $ 6,646
========= =========
As noted above, much of the decrease in nonperforming assets results from
the bulk sale.
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 the allowance for
loan losses in response to current and anticipated economic conditions, specific
problem loans, historical net charge-offs and the overall risk profile of the
loan portfolio. 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. The allowance for loan losses is not a precise
amount but is derived from judgments based on the above factors.
Page-15-
<PAGE>
The following table summarizes the activity in the allowance for possible
loan losses for the quarters ended March 31, 1998 and 1997. The allowance is
maintained at a level consistent with identified loss potential and the
perceived risk in the portfolio.
<TABLE>
<CAPTION>
(In thousands)
Six Months Ended June 30, 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance beginning of period $ 9,257 $ 6,660
Provisions charged to operations 562 558
Recoveries on loans previously charged-off 340 280
Charge-offs taken in conjunction with bulk loan sale
(i.e., specific allocated reserves) (1,392) 0
Loans charged-off (1,581) (795)
------- ---------
Balance end of period $ 7,186 $ 6,703
======== =========
</TABLE>
Provisions for possible loan losses charged to operations for the first six
months of 1998 were essentially unchanged from a year earlier and totaled
$562,000 compared to $558,00 for the same period in 1997. During the six-month
period, total charge-offs increased by $2,178,000 and is largely due to the bulk
loan sale.
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, 1998, 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, 1998 and 1997 were:
<TABLE>
<CAPTION>
Minimum Level 1998 1997
------------- ---- ----
<S> <C> <C> <C>
Total Risk-Based............................ 8% 13.2% 14.4%
Tier 1 Risk-Based........................... 4% 12.0% 13.2%
Leverage.................................... 4% 8.5% 9.4%
</TABLE>
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 the
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.
The Year 2000 Problem
NECB, like all institutions that utilize computer technology, is facing
challenges associated with the possibility that some existing computer systems
will be unable to process time-sensitive data accurately beyond the year 1999
(referred to as the "Year 2000 Problem"). The Year 2000 Problem is the result of
computer programs using two digits rather than four in date fields that define
the year. Any computer programs used by NECB that have time-sensitive software
may recognize a date field using "00" as the year 1900 rather than the year
2000. If not modified or replaced, these programs could cause system failures or
miscalculations, which could adversely affect NECB's ability to process customer
transactions or provide customer service.
Page-16-
<PAGE>
NECB is performing a comprehensive review of both its information technology
("IT") and non-IT systems (e.g., embedded technology such as micro-controllers)
to identify those systems that could be affected by the Year 2000 Problem.
Further, NECB is developing a comprehensive multi-phase project management
process to modify or replace all affected IT systems and test them for Year 2000
compliance. Thus far, NECB has completed its written testing strategies and
plans.
NECB largely relies upon third-party providers for its IT software. NECB is
monitoring the activities of its providers to ensure that appropriate
development and implementation plans to address the Year 2000 Problem are in
place. NECB has taken steps to identify alternative vendors in the event that
one or more of these providers fail to become Year 2000 compliant. While NECB
expects its Year 2000 plan to be completed on a timely basis (to allow for
adequate testing in late 1998 and 1999), there can be no assurance that the
systems of other companies on which NECB's systems may rely also will be
completed in a timely fashion. In addition, NECB exchanges data with a number of
other entities, such as credit bureaus and governmental entities. The failure of
these entities to adequately address the Year 2000 Problem could adversely
affect NECB's ability to conduct its business.
Costs associated with modifying existing system applications have been and
will continue to be expensed as incurred. While some analysis remains to be
completed, NECB does not expect incremental costs associated with any IT systems
modifications and/or IT equipment for Year 2000 compliance to be material.
Forward Looking Statements
Certain statements contained in this Quarterly Report on Form 10-Q,
including those contained in this Item 1, are forward looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 and 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.
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
The Annual Meeting of Stockholders of New England Community Bancorp,
Inc. was held on Tuesday, April 21, 1998. Stockholders voted on and approved
each of the following proposals:
1. To elect the following eight (8) individuals to the Company's Board of
Directors until the next Annual Meeting and the election and qualification of
their successors:
<TABLE>
<CAPTION>
Number of Number of Shares
Individual Shares For Withholding Authority
---------- ---------- ---------------------
<S> <C> <C>
John C. Carmon 3,958,999 64,501
Gary J. DeNino 3,926,188 97,312
Frank A. Falvo 3,926,425 97,075
Dominic J. Ferraina 3,959,329 64,171
John R. Harvey 3,959,329 64,171
David A. Lentini 3,938,780 84,720
Angelina J. McGillivray 3,924,950 98,550
Michael P. Solimene 3,916,171 107,329
</TABLE>
Page-17-
<PAGE>
2. To approve a stock option plan of the Company for non-officer
directors:
<TABLE>
<CAPTION>
For Approval Against Approval Abstain Non-Vote
------------ ---------------- ------- --------
<S> <C> <C> <C>
3,373,232 470,010 130,783 49,475
</TABLE>
3. To increase the number of shares of Common Stock the Company is
authorized to issue from 10,000,000 to 20,000,000:
For Approval Against Approval Abstain
------------ ---------------- -------
3,733,379 260,853 29,268
4. To eliminate the present Article XI, relating to business
combinations:
<TABLE>
<CAPTION>
For Approval Against Approval Abstain Non-Vote
------------ ---------------- ------- --------
<S> <C> <C> <C>
3,082,950 76,206 119,102 745,242
</TABLE>
5. To incorporate prior amendments, reflect revisions in the General
Corporation Law of Delaware and make minor changes in wording:
For Approval Against Approval Abstain
------------ ---------------- -------
3,933,486 50,384 39,630
6. To ratify 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, 1999
For Approval Against Approval Abstain
------------ ---------------- -------
3,954,711 15,599 53,190
7. Conduct other such business properly brought before the meeting:
For Approval Against Approval Abstain
------------ ---------------- -------
3,907,893 75,373 40,234
Item 5. Other Information - None
Item 6. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Exhibits
Exhibit Number Exhibit
3 Amended and Restated Articles
of Incorporation of New
England Community Bancorp, Inc.
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, 1998:
(i) South Windsor Financial Statements
Page-18-
<PAGE>
In connection with NECB's acquisition of the South Windsor, certain
documents filed by South Windsor were incorporated by reference into NECB's
Registration Statement filed on Form S-4. As such, South Windsor's Annual Report
on Form 10-K for the year ended December 31, 1997 and South Windsor Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998 were filed on Form 8-K.
Page-19-
<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, 1998 By: -------------------------------------
Anson C. Hall
Vice President and Treasurer
Exhibit 3, Amended and Restated Articles of Incorporation of New England
Community Bancorp, Inc.
The Amended and Restated Articles of Incorporation of New England
Community Bancorp, Inc. were file on June 26, 1998 as Exhibit 3.1 to NECB's
Registration Statement on Form S-4 and are incorporated herein by reference.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Jun-30-1998
<EXCHANGE-RATE> 1
<CASH> 43,269
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 128,414
<INVESTMENTS-MARKET> 128,536
<LOANS> 400,356
<ALLOWANCE> 7,186
<TOTAL-ASSETS> 602,422
<DEPOSITS> 503,011
<SHORT-TERM> 18,617
<LIABILITIES-OTHER> 4,727
<LONG-TERM> 19,448
0
0
<COMMON> 517
<OTHER-SE> 55,905
<TOTAL-LIABILITIES-AND-EQUITY> 602,422
<INTEREST-LOAN> 9,034
<INTEREST-INVEST> 2,075
<INTEREST-OTHER> 47
<INTEREST-TOTAL> 11,156
<INTEREST-DEPOSIT> 3,789
<INTEREST-EXPENSE> 4,219
<INTEREST-INCOME-NET> 6,937
<LOAN-LOSSES> 240
<SECURITIES-GAINS> 174
<EXPENSE-OTHER> 5,283
<INCOME-PRETAX> 3,296
<INCOME-PRE-EXTRAORDINARY> 3,296
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,952
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.37
<YIELD-ACTUAL> 5.14
<LOANS-NON> 4,635
<LOANS-PAST> 640
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 19,385
<ALLOWANCE-OPEN> 9,257
<CHARGE-OFFS> 2,973
<RECOVERIES> 340
<ALLOWANCE-CLOSE> 7,186
<ALLOWANCE-DOMESTIC> 7,186
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
