NEW ENGLAND COMMUNITY BANCORP INC
10-Q, 1999-05-17
STATE COMMERCIAL BANKS
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON D. C. 20549

                                    FORM 10-Q

                   QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended March 31, 1999                  Commission File Number 0-14550




                       NEW ENGLAND COMMUNITY BANCORP, INC.
                       -----------------------------------

                       DELAWARE                 06-1116165




                                OLD WINDSOR MALL
                                  P.O. BOX 130
                           WINDSOR, CONNECTICUT 06095



                            Telephone: (860) 610-3600

Indicate by check mark whether  registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during
the  preceding  twelve  months,   and  (2)  has  been  subject  to  such  filing
requirements for the past 90 days.  YES   X     NO
                                        -----     -----



The number of shares of common stock of the  registrant  outstanding as of April
30, 1999 was 7,031,180.




The total number of pages in this report is 18.


<PAGE>

                       NEW ENGLAND COMMUNITY BANCORP, INC.

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
    Part I.   FINANCIAL INFORMATION                                                Page No.
<S>           <C>                                                                  <C>
    Item 1.   Financial Statements:

              Consolidated Balance Sheets--March 31, 1999 (unaudited) and
              December 31, 1998                                                           3

              Consolidated Statements of Income--three months ended 
              March 31, 1999 and 1998 (unaudited)                                         4

              Consolidated Statements of Cash Flows--three months ended
              March 31, 1999 and 1998 (unaudited)                                         5

              Notes to Consolidated Financial Statements                                  6

   Item 2.    Management's Discussion and Analysis of Financial Condition and
              Results of Operations                                                       7

   Part II.   OTHER INFORMATION                                                          16

   Item 6.    Exhibits, Financial Statement Schedules and Reports on Form 8-K            16

              SIGNATURES                                                                 17
</TABLE>


                                    Page -2-

<PAGE>

                          Part I--FINANCIAL INFORMATION

                          Item 1. Financial Statements

                       NEW ENGLAND COMMUNITY BANCORP, INC.
                           CONSOLIDATED BALANCE SHEETS

(Thousands of dollars; except share data)

<TABLE>
<CAPTION>
                                                     March 31,                  December 31
                                                          1999                         1998
                                                   (Unaudited)
===========================================================================================
<S>                                                              <C>              <C>
ASSETS:
     Cash and due from banks                                     $  39,256        $  39,279
     Short-term investments                                          7,120           12,080
     Federal funds sold                                              1,898            1,485
                                                                 ---------        ---------
        Cash and cash equivalents                                   48,274           52,844
     Interest bearing deposits with banks                              595              694
     Securities held-to-maturity                                     5,210            5,675
     Securities available-for-sale                                 186,293          191,867
     Federal Home Loan Bank stock, at cost                           4,881            4,881

     Loans outstanding                                             512,905          515,980
        Less: allowance for possible loan losses                   (10,267)         (10,092)
                                                                 ---------        ---------
           Net loans                                               502,638          505,888
     Loans held-for-sale                                             5,618            5,835
     Premises and equipment                                         13,677           13,932
     Other real estate owned                                         1,703            1,636
     Goodwill                                                        4,748            4,847
     Other assets                                                   14,292           14,102
                                                                 ---------        ---------
Total Assets                                                     $ 786,909        $ 803,887
                                                                 =========        =========

LIABILITIES:
     Deposits:
        Noninterest bearing                                      $ 140,406        $ 160,876
        Interest bearing                                           494,624          503,202
                                                                 ---------        ---------
           Total deposits                                          635,030          664,078
     Short-term borrowings                                          48,293           34,848
     Long-term debt                                                 27,115           27,279
     Other liabilities                                               4,292            4,332
                                                                 ---------        ---------
Total Liabilities                                                  714,730          730,537

SHAREHOLDERS' EQUITY:
     Common stock, $0.10 par value, authorized 20,000,000 shares:
        March 31, 1999,
        7,036,000 outstanding; December 31, 1998,
        7,031,000 outstanding                                          703              703
     Additional paid-in capital                                     61,817           61,811
     Retained earnings                                              10,705            9,452
     Treasury Stock -March 31, 1999, 75,000 shares                  (1,498)
     Net unrealized gain on securities
     available-for-sale                                                452            1,384
                                                                 ---------        ---------
Total Shareholders' Equity                                          72,179           73,350
                                                                 ---------        ---------
Total Liabilities & Shareholders' Equity                         $ 786,909        $ 803,887
                                                                 =========        =========

 The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                    Page -3-


<PAGE>

                       NEW ENGLAND COMMUNITY BANCORP, INC.
                         CONSOLIDATED INCOME STATEMENTS
                                   (Unaudited)

<TABLE>
<CAPTION>
(Thousands of dollars; except per share data)                                      Three Months Ended
                                                                                        March 31,
                                                                                   1999             1998
========================================================================================================
<S>                                                                             <C>               <C>
INTEREST INCOME:
     Loans, including fees                                                      $11,067           12,204
     Securities:
         Taxable interest                                                         2,317            2,480
         Interest exempt from federal income taxes                                  181              134
         Dividends                                                                  335              162
     Federal funds sold and other interest                                          217              121
                                                                                -------           ------
         Total interest income                                                   14,117           15,101

INTEREST EXPENSE:
     Deposits                                                                     4,228            5,205
     Borrowed funds                                                                 790              579
                                                                                -------           ------
         Total interest expense                                                   5,018            5,784
Net interest income                                                               9,099            9,317
Provision for possible loan losses                                                  165              439
                                                                                -------           ------
Net interest income after provision for possible loan losses                      8,934            8,879

NONINTEREST INCOME:
     Service charges, fees and commissions                                        1,077              946
     Investment securities gains, net                                               175            1,242
     Mortgage banking revenues                                                      757              541
     Other                                                                           70               78
                                                                                -------           ------
         Total noninterest income                                                 2,079            2,807

NONINTEREST EXPENSE:
     Salaries and employee benefits                                               3,864            3,795
     Occupancy                                                                      767              747
     Furniture and equipment                                                        470              426
     Outside services                                                               298              428
     Postage and supplies                                                           296              297
     Losses, writedowns, expenses - other real estate owned                          34              (78)
     Amortization of goodwill                                                        98               98
     Loss on sale of portfolio loans                                                                 715
     Restructuring provision                                                        828
     Other                                                                          923            1,145
                                                                                -------           ------
         Total noninterest expense                                                7,578            7,573
                                                                                -------           ------
Income before taxes                                                               3,435            4,112
Income taxes                                                                      1,253            1,616
                                                                                -------           ------
Net Income                                                                       $2,182           $2,496
                                                                                =======           ======
Net income per share--Basic                                                       $0.31            $0.35
Net income per share--Diluted                                                     $0.31            $0.34
Weighted average shares of Common Stock outstanding--Basic                        7,005            7,043
Weighted average shares of Common Stock outstanding--Diluted                      7,143            7,264

         The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                    Page -4-

<PAGE>



                       NEW ENGLAND COMMUNITY BANCORP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
(Thousands of dollars)                                                                         Three Months Ended
                                                                                                     March 31,
                                                                                            1999                  1998
- ----------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                   <C>
OPERATING ACTIVITIES:
     Net income                                                                       $    2,182            $    2,496
     Adjustment for noncash charges (credits):
       Provision for depreciation and amortization                                           527                   375
       Losses from sale or disposal and provisions to reduce the carrying value
          of other real estate owned, net                                                      2                   148
       Securities losses (gains), net                                                       (175)               (1,242)
       Accretion of discounts and amortization of premiums on bonds, net                     (15)                  (24)
       Accretion, net of amortization, of purchase accounting adjustments                      9                    (3)
       Amortization of goodwill                                                               98                    98
       Provision for possible loan losses                                                    165                   439
       Loss on sale of portfolio loans, net                                                                        715
       (Increase) decrease in other assets, net                                              107                   826
       Decrease (increase) in loans held-for-sale                                          3,123                (5,034)
       (Decrease) increase in other liabilities, net                                        (757)                 (122)
                                                                                       ---------             --------- 
              Net cash provided by (used for) operating activities                         5,266                (1,328)
                                                                                       ---------             ---------

FINANCING ACTIVITIES:
     Net decrease in noninterest-bearing accounts                                        (20,470)              (16,766)
     Net (decrease) increase in interest-bearing accounts                                 (8,578)                  654
     Net increase in short-term borrowings                                                13,445                14,291
     Net increase in long-term borrowings                                                   (164)               (2,729)
     Proceeds from issuance of common stock                                                  (79)                  103
     Cash dividends paid                                                                    (844)                 (465)
                                                                                       ---------             --------- 
              Net cash used for financing activities                                     (16,690)               (4,912)
                                                                                       ---------             --------- 

INVESTING ACTIVITIES:
     Loans originated, net of principal collections                                        2,459                 1,237
     Decrease in interest bearing time deposits                                               99                   285
     Proceeds from sale of portfolio loans                                                                       9,716
     Purchases of securities available-for-sale                                          (29,648)               (3,825)
     Proceeds from sales of securities available-for-sale                                    430                 8,823
     Proceeds from maturities of securities available-for-sale                            32,892                 9,829
     Proceeds from maturities of securities held-to-maturity                                 465                 1,410
     Proceeds from sales of other real estate owned                                          282                 1,510
     Purchases of premises and equipment, net                                               (168)                 (160)
     Sales of premises and equipment                                                          47
     Capitalization of expenditures on other real estate owned                                (4)                  (49)
                                                                                       ---------             --------- 
              Net cash provided by (used for) investing activities                         6,854                28,776
                                                                                       ---------             ---------
     Increase (decrease) in cash and cash equivalents                                     (4,570)               22,536
     Cash and cash equivalents, beginning of period                                       52,844                50,633
                                                                                       ---------             ---------
     Cash and cash equivalents, end of period                                          $  48,274             $  73,169
                                                                                       =========             =========

                      The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                    Page -5-


<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 ("New England
Bank"), The Equity Bank ("Equity Bank"),  Community Bank ("Community Bank"), and
Olde  Port  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 1998 Annual Report on Form 10-K.

Note 2 - Mergers and Acquisitions
- ---------------------------------

     During the third quarter of 1998, NECB completed two acquisitions.

     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.  NECB acquired Olde Port by issuing 585,986 shares of
the Company's common stock for all of the outstanding common shares of Olde Port
and all fully vested and exercisable stock options.

     On August 14, 1998, NECB acquired Bank of South Windsor ("South  Windsor"),
of South  Windsor,  Connecticut,  by issuing  1,270,720  shares of the Company's
common  stock for all of the  outstanding  common  shares of South  Windsor.  In
conjunction  with  the  transaction,   shares  of  South  Windsor  common  stock
beneficially owned by NECB were cancelled and retired.

     The  acquisitions  of Olde Port and South  Windsor  were  accounted  for as
poolings of interests  and, as such, all prior period results have been restated
as though the companies had been combined as of the earliest period presented.

Note 3 - Disclosure for Statements of Cash Flows
- ------------------------------------------------

<TABLE>
<CAPTION>
<S>                                                                      <C>          <C>
Schedule of noncash investing and financing activities:
     Loans charged off, net of recoveries                                 $(10)        $1,931
     Real estate acquired through foreclosure                              364            828
     Loans originated to facilitate sales of other real estate owned       104              0
     Income tax paid                                                     2,181          1,132
     Interest paid                                                       5,235          5,828
</TABLE>

                                    Page -6-


<PAGE>


                          Part I--FINANCIAL INFORMATION

            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 service loan portfolio. As discussed in Note 2 above,
the  acquisitions  of South Windsor and Olde Port were accounted for as poolings
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  first  quarter  of  1999  of
$2,182,000, or $0.31 per diluted share, compared to net income of $2,496,000, or
$0.34 per  diluted  share,  reported  in 1998.  This  represented  a decrease of
$314,000 or 13%  compared to net income  reported in the  previous  year.  On an
earnings per share basis, 1999 net income decreased 9% from the first quarter of
1998.  Returns on assets ("ROA") and equity ("ROE")  improved from 1998 and were
1.30%  and  13.99%,  respectively,  for  1999  compared  to  1.21%  and  12.13%,
respectively, for the comparative period.

     Net interest  income on a fully  taxable-equivalent  ("FTE")  basis totaled
$9,287,000  for the quarter ended March 31, 1999 compared to $9,461,000  for the
same period in 1998.  The net interest  margin  declined  modestly from 5.26% to
5.20% in the quarter just ended.  The decrease in net interest  income  resulted
primarily from lower interest rates  partially  offset by volume related changes
in both  assets and  liabilities.  The  average  rate  earned on earning  assets
decreased  46 basis  points  while the average rate paid for the use of interest
bearing liabilities decreased 39 basis points.

     The provisions for possible loan losses were $165,000  compared to $439,000
in the comparable period in 1998. The $274,000 decrease resulted from a decrease
in loans outstanding and improved loan quality.

     Noninterest  income excluding  security gains increased  $339,000 or 22% in
the first quarter  including a $216,000  increase in mortgage banking  revenues.
Securities gains, meanwhile,  decreased $1,067,000 when compared to the unusally
high $1,242,000 reported in the first quarter of 1998. The first quarter of 1998
included $898,000 realized by the parent company.

     Noninterest  expense  totaled  $7,578,000  in the  first  quarter  of  1999
compared to $7,573,000 in 1998.  Both periods  included  unusual events which do
not recur on a regular  basis.  In 1999 an $828,000  charge was taken related to
the  formation of a passive  investment  company,  while a $715,000  expense was
recorded in the first  quarter of 1998 to  recognize  the loss related to a bulk
sale of problem  loans.  When these  actions  are  excluded,  other  noninterest
expenses  amounted  to  $6,750,000  in the first  quarter  of 1999  compared  to
$6,858,000 a year earlier.  NECB's efficiency  ratio,  which measures how much a
dollar of revenue costs to produce, equaled 58.03% for the first quarter of 1999
compared to 61.76% for the same period in 1998.

     Loans  outstanding at March 31, 1999 amounted to  $512,905,000  compared to
$515,980,000  at December 31, 1998.  Total deposits  amounted to $635,030,000 at
March 31, 1999 compared to  $664,078,000  at December 31, 1998.  NECB's  deposit
base typically declines during the first quarter of the year from year-end highs
and is a recurring  phenomenon observed by management.  To partially offset this
outflow, NECB increased its use of alternative funding sources by increasing its
short-term  borrowings  during the  quarter  to  $48,293,000  at March 31,  1999
compared to $34,848,000 at year-end 1998.

     At March 31, 1999,  shareholders'  equity was  $72,179,000  and represented
9.17% of total assets. During the quarter NECB announced a program to repurchase
up to 5% or approximately  350,000 shares of the Company's outstanding shares of
common  stock.  By the end of the  quarter,  75,000  shares were  acquired at an
average price of $19.97 per share. Unrealized gains on securieties available for
sale decreased  $932,000 during the quarter as a moderate rise in interest rates
reduced the market  value of debt  instruments.  When  goodwill  resulting  from
several previous  acquisitions is excluded, tangible equity  capital is  reduced

                                    Page -7-

<PAGE>

to $67,431,000,  or 8.62% of total assets. The resulting tangible book value per
share  amounted  to $9.69 at March 31, 1999  compared  to $9.74 at December  31,
1998.

RESULTS OF OPERATIONS--THREE MONTHS ENDED MARCH 31, 1999 AND 1998
- -----------------------------------------------------------------

     For the three months ended March 31, 1999, the Company  reported net income
of $2,182,000,  or $0.31 per diluted share, compared to $2,496,000, or $0.34 per
diluted share, for the same period of 1998. The quarter included a net change of
$500,000  arising from the  provision of $828,000  related to the formation of a
passive  investment  corporation by the Connecticut  subsidiary banks. When this
transaction is excluded,  core operating  income amounted to $2,682,000 or $0.38
per diluted share.  This represents 7.5% increase in net operating income and an
11% increase in operating earnings per diluted share. This analysis has excluded
the  effect  of the  loan  sale in the  first  quarter  of 1998  because  it was
effectively  offset by a gain from the sale of securities by the parent company.
The largest factor in the improvement was an increase of $1,574,000, or 165%, in
noninterest income.

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.  These
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 March 31,                             1999             1998        % Change
- ----------------------------------------------------------------------------------------------
<S>                                                  <C>                <C>           <C>
Interest income (financial statements)                  $14,117         $ 15,101       (6.5)%
Tax equivalent adjustment                                   188              144       30.6%
                                                      ---------         --------            
  Total interest income (on an FTE basis)                14,305           15,245       (6.2)%
Interest expense                                         (5,018)          (5,784)     (13.2)%
                                                      ---------         --------             
Net interest income (on an FTE basis)                 $   9,287         $  9,461       (1.8)%
                                                      =========         ========             
</TABLE>

     For the  first  quarter  of 1999 net  interest  income  on an FTE basis was
$9,287,000,  a 1.8% decrease from the  $9,461,000  in the  comparable  period in
1998. A key factor in the $174,000  decrease in 1999 was the decrease in average
loans outstanding.

     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 March 31, 1999 decreased to 5.20%
from 5.26% in 1998.  The yield on earning  assets was reduced by 46 basis points
and  equaled  8.01%  compared  to  8.47%,   while  the  average  rate  paid  for
interest-bearing  liabilities decreased 39 basis points to 3.62% for the quarter
ended March 31, 1999 compared to 4.01% a year earlier.


                                    Page -8-

<PAGE>

Consolidated Average Balances/Interest Earned or Paid/Rates
- -------------------------------------------------------------

<TABLE>
<CAPTION>
Three Months Ended                                                              March 31, 1999                  March 31, 1998    
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                         Average            Average      Average             Average
(Amounts in thousands)                                                   Balance  Interest     Rate      Balance   Interest     Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>         <C>         <C>     <C>          <C>         <C>
ASSETS:
   Federal funds sold                                                 $    2,425   $    24    4.01%    $   8,938    $   122    5.54%
   Other short-term investments                                           18,789       257    5.55%
   Investment securities:
      Securities held-to-maturity                                          6,101        95    6.31%       11,509        167    5.88%
      Securities available-for-sale                                      178,049     2,862    6.52%      166,367      2,788    6.80%
   Mortgages held for sale                                                 5,257        89    6.87%        3,949         71    7.29%
   Loans (A)                                                             513,254    10,978    8.67%      538,903     12,097    9.10%
                                                                      ----------   -------             ---------    -------         
      Total interest-earning assets                                      723,875    14,305    8.01%      729,666     15,245    8.47%

   Allowance for loan losses                                            (10,188)                        (10,087)
   Cash and due from banks                                                36,781                          34,611
   Other assets                                                           33,525                          38,002
                                                                      ----------                       ---------
Total Assets                                                            $783,993                        $792,192
                                                                        ========                        ========

LIABILITIES:
   Regular savings deposits                                             $156,395   $   873    2.26%     $146,836   $    790    2.18%
   NOW account deposits                                                   85,760       310    1.47%       85,340        325    1.54%
   Money market deposits                                                   1,883        16    3.45%        8,921         82    3.73%
                                                                      ----------   -------             ---------    -------         
      Total savings deposits                                             244,038     1,199    1.99%      241,097      1,197    2.01%
   Time deposits                                                         252,503     3,029    4.87%      299,896      3,954    5.35%
   Short-term borrowings                                                  34,216       341    4.04%       17,814        237    5.40%
   Long-term borrowings                                                   30,798       449    5.91%       26,098        396    6.15%
                                                                      ----------   -------             ---------    -------         
      Total interest-bearing liabilities                                 561,555     5,018    3.62%      584,905      5,784    4.01%

   Demand deposits                                                       144,330                         128,861
   Other liabilities                                                       3,973                           7,789
                                                                      ----------                       ---------
      Total Liabilities                                                  709,858                         721,555
   Equity                                                                 74,135                          70,637
Total Liabilities & Equity                                              $783,993                        $792,192
                                                                        ========                        ========

Net interest income--FTE basis                                                     $9,287                           $9,461
Less adjustment for
     Tax-exempt income                                                               (188)                            (144)
                                                                                ----------                      -----------
Net interest income                                                                 $9,099                           $9,317
                                                                                ==========                      ===========
Net interest margin                                                                           5.20%                            5.26%
Net interest spread                                                                           4.39%                            4.46%
</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.

                                    Page -9-

<PAGE>

<TABLE>
<CAPTION>
                                                             Total                Change due to
                                                          Increase                  Change in:       
(Amounts in thousands)                                  (Decrease)               Rate          Volume
- -----------------------------------------------------------------------------------------------------
<S>                                                       <C>               <C>              <C>
INTEREST EARNED ON:
Federal funds sold                                        $    (98)         $    (27)         $   (71)
Other short-term investments                                   257                 0              257
Securities held to maturity                                    (72)               11              (83)
Securities available for sale                                   74              (117)             191
Mortgages held for sale                                         18                (4)              22
Loans                                                       (1,119)             (557)            (562)
                                                          --------          --------          -------
Total interest-earning assets                             $   (940)         $   (693)         $  (247)
                                                          --------          --------          -------

INTEREST PAID ON:
Regular savings deposits                                  $     83          $    309          $    53
NOW account deposits                                           (15)              (17)               2
Money market deposits                                          (66)               (6)             (60)
                                                          --------          --------          ------- 
     Total savings deposits                                      2                 8               (6)

Time deposits                                                 (925)             (336)            (589)
Short-term borrowings                                          104               (71)             175
Long-term borrowings                                            53               (16)              69
                                                          --------          --------          -------
Total interest-bearing liabilities                            (766)             (415)            (351)
                                                          ---------         ---------         --------
Net interest income change                                $   (174)         $   (278)         $   104
                                                          =========         ========          =======
</TABLE>


Noninterest Income
- ------------------

    For the  quarter  ended  March 31,  1999,  noninterest  income  amounted  to
$2,079,000,  compared to $2,807,000 reported for the first quarter in 1998. NECB
realized  gains from the sale of securities  during the first quarter of 1999 of
$175,000  compared to  $1,242,000  in the first  quarter of 1998. In addition to
gains recorded by the Subsidiaries,  during the first quarter of 1998 the parent
company  recorded  a gain of  $898,000  from  the  sale  of its  own  investment
securities.  This gain effectively offset the $715,000 loss recorded on the bulk
sale of problem loans during that quarter.  Mortgage Banking revenues  increased
$216,000 as New England Community  Mortgage ("NECM") expanded into New Hampshire
with  facilities  in  Portsmouth  and  Hampton.   Expansion  also  continues  in
Connecticut as NECM prepares to open a new production  facility in Middlebury to
serve a rapidly growing real estate market in that area.

    Service charges,  fees and commissions also increased $131,000 or 14% in the
first quarter of 1999.  This increase  resulted from several  factors  including
continuing  expansion of commercial  banking  services such as cash  management,
lock-box and merchant card sales processing.

Noninterest Expense
- -------------------

Noninterest  expenses  amounted to  $7,578,000  during the first quarter of 1999
compared to $7,573,000 a year earlier. These results included an $828,000 charge
related  to the  formation  of a  passive  investment  corporation  in 1999  and
$718,000  related  to the bulk sale of loans in 1998.  When  these  nonrecurring
transactions  are  excluded,  the expenses are  $6,750,000  in 1999  compared to
$6,858,000 a year earlier.  NECB's efficiency  ratio,  which measures how much a
dollar of revenue costs to produce, equaled 58.03% for the first quarter of 1999
compared to 61.76% for the same period in 1998.

                                    Page -10-

<PAGE>

FINANCIAL CONDITION
- -------------------

    Total assets at March 31, 1999 were $786,909,000,  a decrease of $16,978,000
from  $803,887,000  at December 31, 1998.  During the first quarter of 1999 loan
production remained strong,  especially  residential mortgage loans. These loans
are typically sold in the secondary market upon closing.

    Loans consisted of the following:

(Amounts in thousands)

                                                   March 31,       December 31,
                                                     1999              1998 
- -------------------------------------------------------------------------------
Commercial and financial                        $   150,840        $   146,962
Real estate:
    Construction                                     22,926             23,862
    Residential                                     116,674            123,446
    Commercial                                      180,993            176,139
Consumer                                             41,472             45,571
                                                -----------        -----------
Loans outstanding                               $   512,905        $   515,980

    Securities  available-for-sale and held-to-maturity  decreased from December
31, 1998 and ended the first  quarter of 1999 at  $186,293,000  and  $5,210,000,
respectively,   compared  to  $191,867,000  and  $5,675,000,   respectively,  at
year-end.

    At March 31, 1999 other real estate owned  amounted to $1,703,000 or 0.2% of
total assets,virtually unchanged from $1,636,000, at the end of 1998. During the
first three months of the year the Company  acquired  properties with a value of
$364,000  through  foreclosure and disposed of properties with a market value of
$282,000.

    Total  deposits,  which  constitute  the  principal  funding  source  of the
Company's assets,  decreased  $29,048,000 from December 31, 1998 and amounted to
$635,030,000  at March 31, 1999. This is consistent with past years and reflects
seasonal  cash  flows  of  NECB's  deposit   customers--especially   noninterest
deposits. During the quarter, short-term borrowings increased.

    Total shareholders'  equity was $72,179,000 at March 31, 1999, a decrease of
$1,171,000 since the start of the year. First quarter earnings, less the payment
of the increased  quarterly  dividend  added  $1,338,000  and the  repurchase of
75,000  shares of the  common  stock  under the  buyback  program  announced  in
February.

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 $5,675,000 at  December 31, 1998 to $5,210,000 at March 31, 1999.





                                    Page -11-


<PAGE>

<TABLE>
<CAPTION>
                                                                         March 31, 1999                      December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------
                                                                       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                                   $  1,500       $  1,506          $1,899         $1,914
Debt securities issued by states and
    political subdivisions of the states                                   2,838          2,949           2,813          2,969
Mortgage-backed securities                                                   607            612             672            678
Other debt securities                                                        265            270             265            270
                                                                        --------       --------          ------         ------
                                                                        $  5,210         $5,337          $5,675         $5,831
                                                                        ========       ========          ======         ======
</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.

<TABLE>
<CAPTION>
                                                                               March 31, 1999             December 31, 1998   
- ------------------------------------------------------------------------------------------------------------------------------
                                                                       Amortized                      Amortized
                                                                            Cost           Fair            Cost           Fair
(Amounts in thousands)                                                     Basis          Value           Basis          Value
- ------------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>            <C>             <C>            <C>

Marketable equity securities                                            $ 14,555       $ 14,892        $  29,826      $ 30,369
Debt securities issued by the U.S. Treasury
   and other U.S. government agencies                                    102,506        102,548         102,029        102,937
Debt securities issued by states and
   political subdivisions of states                                       13,076         13,237          13,186         13,417
Corporation debt securities                                               10,959         11,044          10,610         10,727
Asset-based securities                                                                                      986          1,019
Mortgage-backed securities                                                44,338         44,572          32,950         33,398
                                                                        --------       --------        --------       --------
                                                                        $185,434       $186,293        $189,587       $191,867
                                                                        ========       ========        ========       ========
</TABLE>


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 provision,  charge-offs and several credit quality
ratios presented in the discussion  concerning "Provision and Allowance for Loan
Losses."


                                    Page -12-



<PAGE>

(Amounts in thousands)

                                             March 31, 1999     December 31,1998
- --------------------------------------------------------------------------------
Nonaccrual loans                                    $ 6,315             $ 5,340
OREO                                                  1,703               1,636
                                                    -------             -------
Total nonperforming assets                          $ 8,018             $ 6,976
                                                    =======             =======

Loans past due in excess of ninety days and
  accruing interest                                 $   918             $   977

    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)

Three Months ending March 31,                            1999              1998
- -------------------------------------------------------------------------------
December 31, 1998 and 1997                             $7,241            13,034
    Additions                                           1,668             2,671
    Reductions:

      Payments                                           (300)             (301)
      Charge-offs and writedowns                         (233)           (2,110)
      Loans returned to accruing status                   (76)
      Sales, net                                         (282)           (6,665)
                                                     --------          --------
Ending Balance, March 31, 1999 and 1998              $  8,018          $  6,629
                                                     ========          ========

    As noted above, the decrease in nonperforming assets is primarily due to 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.

     The following  table  summarizes the activity in the allowance for possible
loan losses for the  quarters  ended March 31, 1999 and 1998.  The  allowance is
maintained  at a  level  consistent  with  identified  loss  potential  and  the
perceived risk in the portfolio.





                                    Page -13-



<PAGE>

(In thousands)

<TABLE>
<CAPTION>
Three Months Ended March 31,                                     1999                1998
- -----------------------------------------------------------------------------------------
<S>                                                            <C>                <C>
Balance beginning of period                                    $ 10,092           $12,081
Provisions charged to operations                                    165               439
Recoveries on loans previously charged-off                          174               125
Charge-offs taken in conjunction with bulk loan sale 
   (i.e., specific allocated reserves)                                             (1,392)
Loans charged-off                                                 (164)            (1,183)
                                                               -------            ------- 
Balance end of period                                          $10,267            $10,070
                                                               =======            =======
</TABLE>

Capital

    The Company endeavors to maintain an optimal amount of capital upon which an
attractive  return to shareholders  will be realized over the short and long run
while meeting all regulatory requirements for minimum levels of capital.

    As of March 31, 1999, the Company exceeded all regulatory capital ratios and
each of the banking  subsidiaries  were categorized as "well  capitalized."  The
various capital ratios of the Company for March 31, 1999 and 1998 were:

                                          Minimum Level        1999       1998
                                          -------------        ----       ----
Total Risk-Based.....................           8%            13.8%      14.5%

Tier 1 Risk-Based....................           4%            12.5%      13.2%

Leverage.............................           4%             8.6%       9.1%

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
- ---------------------

     In preparation for the year 2000 (the "Year 2000 Problem"), the Company has
developed a Year 2000 Plan (the "Plan") which has been presented to the Board of
Directors.  The Plan was developed using the guidelines  outlined in a report by
the Federal Financial  Institutions  Examination Council (FFIEC),  The Effect of
2000 on Computer Systems.  The Company assigned  responsibility  for the Plan to
the Year  2000  Coordinator  who  reports  to the Board of  Directors.  The Plan
recognizes that the Company's  operating,  processing and accounting  operations
are computer reliant and could be affected by the Year 2000 Problem.

    The  Company is reliant on both  in-house  and third  party  vendors for its
computer  output and  processing,  as well as other  significant  functions  and
services (e.g., securities safekeeping services, securities pricing information,
etc.).  The  Coordinator  completed an inventory  and  assessment  of all of the
Company's mission critical systems and completed both the renovation and testing
phases  of the  project.  In terms of the  third  party  vendors,  the Year 2000
Coordinator  is continuing to work with those to assess and test their Year 2000
readiness.   Management   presently  believes  that  these  vendors  are  taking
appropriate  steps to modify  existing  software  and  hardware  to ensure  that
critical systems will function properly. The most significant hurdle the Company
has encountered in verifying and testing all mission  critical  third parties is



                                    Page -14-

<PAGE>


the limited ability the Company has to  independently  test the  preparedness of
its telephone system and electric power providers. The Company has identified 67
mission  critical  (without  which the Company  cannot  operate)  and  necessary
(applications  that the  Company can use for a moderate  amount of time  without
requiring Year 2000  compliance)  applications  operated by third party vendors.
The list is reviewed regularly to include new applications or remove unnecessary
applications.  Of such mission critical and critical  applications,  the Company
has been  informed that  substantially  all are Year 2000  compliant.  While the
Company has received assurances from these third party vendors as to compliance,
their  assurances  are not guarantees  and may not be  enforceable.  Many of the
Company's  existing  older  contracts  with the vendors do not include Year 2000
certifications  or warranties.  Thus, in the event such vendor's products and/or
services are not actually Year 2000  compliant,  the  Company's  recourse may be
limited.

    If any required  modifications and conversions are not properly made, or are
not completed on a timely basis, there can be no assurance that potential system
interruptions or unanticipated  additional  expense incurred to obtain Year 2000
compliance would not have a material  adverse effect on the Company's  business,
financial condition, results of operations and business prospects. Nevertheless,
the Company does not believe that the costs or the consequences of incomplete or
untimely  resolution of its Year 2000 Problems  represent a known material event
or uncertainty that is reasonably likely to affect its future financial results,
or cause its  reported  financial  information  not to be  indicative  of future
operating results or future financial condition.

    The Year 2000 Problem also affects a certain limited number of the Company's
customers,  particularly in the areas of access to funds and additional  expense
incurred to achieve  compliance.  The Company has adopted a plan for  evaluating
and  assessing  the level of Year 2000  preparedness  of its large or commercial
credit customers.  While no assurance can be given that the Company's  customers
will be Year 2000 compliant,  management has taken steps to verify that they are
adequately  addressing  or that  they are not  faced  with  material  Year  2000
Problems.  The  Company's  credit  risk  related  to the Year  2000  Problem  is
mitigated by the fact that only a few of such  borrowers use networked  computer
systems  or  data  centers  to  conduct  their  operations.   In  addition,   in
substantially  all cases the credit extended to such borrowers is collateralized
by real estate which  inherently  minimizes the Company's  exposure in the event
that some  borrowers  do  experience  problems or delays in  becoming  Year 2000
compliant.  The Company has already begun to assess and make  accommodations for
addressing the liquidity  concerns that our regulators have raised.  These plans
may  include  the  off-site  retention  of  extra  cash,  lines of  credit,  and
additional liquid investment  vehicles to provide the ability to maintain smooth
operations in the event of abnormal  withdrawals of funds by consumers concerned
with the effect of the Year 2000.  In  addition,  the Company has embarked on an
extensive consumer education and awareness program regarding the Company's state
of preparedness.  The program includes multiple correspondence and communication
pieces,  in-branch  materials and the like. The Company has its own company-wide
Year  2000  contingency  plan.  The  Company  has had a  comprehensive  business
interruption and disaster recovery  contingency plan for many years. The plan is
continually  updated.  The Company has developed even more specific  contingency
plans which  address  operational  policies and  procedures in the event of data
processing,  electric power supply and/or telephone service failures  associated
with the Year 2000. Such  contingency  plans are designed to provide  documented
actions to allow the Company to maintain and/or resume normal  operations in the
event of any failure in mission  critical or critical  applications.  Such plans
identify participants,  processes and equipment that will be necessary to permit
the Company to continue  operations.  Such plans may include providing  off-line
system processing,  back-up electrical and telephone systems,  and other methods
to ensure the Company's ability to continue to operate.

    The direct costs of  modifications  to the existing  software and  hardware,
staffing,  customer  awareness  and other  issues for  completing  the Year 2000
project have been and will continue to be expensed as incurred.

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.












                                    Page -15-


<PAGE>



Part II:   Other Information

Item 1.    Legal Proceedings - None

Item 2.    Changes in Securities - None

Item 3.    Default Upon Senior Securities - None

Item 4.    Submission of Matters to a Vote of Security Holders - None

Item 5.    Other Information - None

Item 6.    Exhibits, Financial Statement Schedules and Reports on Form 8-K

   (a) Exhibits
       Exhibit Number                 Exhibit
       27                   Financial Data Schedule














                                    Page -17-




<PAGE>

                       NEW ENGLAND COMMUNITY BANCORP, INC.

                                   Signatures

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                            NEW ENGLAND COMMUNITY BANCORP, INC.
                                            -----------------------------------

Date:  May 10, 1999                    By:   
                                           -------------------------------------
                                           Anson C. Hall
                                           Vice President and Treasurer








                                    Page -18-


<TABLE> <S> <C>


<ARTICLE>                     9
<CIK>                         0000752324
<NAME>                        New England Community Bancorp, Inc.
<MULTIPLIER>                                         1,000
<CURRENCY>                                            U.S.
       
<S>                             <C>
<PERIOD-TYPE>                   3-MOS
<FISCAL-YEAR-END>                              Dec-31-1999
<PERIOD-END>                                   Mar-31-1999
<EXCHANGE-RATE>                                          1
<CASH>                                              39,256
<INT-BEARING-DEPOSITS>                                 595
<FED-FUNDS-SOLD>                                     18987
<TRADING-ASSETS>                                         0
<INVESTMENTS-HELD-FOR-SALE>                        193,413
<INVESTMENTS-CARRYING>                             114,326
<INVESTMENTS-MARKET>                               116,192
<LOANS>                                            349,344
<ALLOWANCE>                                          7,210
<TOTAL-ASSETS>                                     603,013
<DEPOSITS>                                         509,592
<SHORT-TERM>                                        14,466
<LIABILITIES-OTHER>                                  4,127
<LONG-TERM>                                         19,580
                                    0
                                              0
<COMMON>                                               517
<OTHER-SE>                                          54,731
<TOTAL-LIABILITIES-AND-EQUITY>                     603,013
<INTEREST-LOAN>                                      9,035
<INTEREST-INVEST>                                    1,912
<INTEREST-OTHER>                                        60
<INTEREST-TOTAL>                                    11,007
<INTEREST-DEPOSIT>                                   3,865
<INTEREST-EXPENSE>                                   4,227
<INTEREST-INCOME-NET>                                6,780
<LOAN-LOSSES>                                          322
<SECURITIES-GAINS>                                   1,229
<EXPENSE-OTHER>                                      5,819
<INCOME-PRETAX>                                      3,167
<INCOME-PRE-EXTRAORDINARY>                           3,167
<EXTRAORDINARY>                                          0
<CHANGES>                                                0
<NET-INCOME>                                         1,889
<EPS-PRIMARY>                                         0.37
<EPS-DILUTED>                                         0.36
<YIELD-ACTUAL>                                        5.13
<LOANS-NON>                                          5,064
<LOANS-PAST>                                           641
<LOANS-TROUBLED>                                         0
<LOANS-PROBLEM>                                     20,361
<ALLOWANCE-OPEN>                                     9,257
<CHARGE-OFFS>                                        2,494
<RECOVERIES>                                           125
<ALLOWANCE-CLOSE>                                    7,210
<ALLOWANCE-DOMESTIC>                                 7,210
<ALLOWANCE-FOREIGN>                                      0
<ALLOWANCE-UNALLOCATED>                                  0
                                               

</TABLE>


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