1
NEW ENGLAND BANCSHARES, INC.
AND WINDSOR LOCKS COMMUNITY BANK, FSL
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 2003
(IN THOUSANDS)
HISTORICAL
--------------------------------
WINDSOR
NEW LOCKS
ENGLAND COMMUNITY PRO FORMA PRO FORMA
BANCSHARES BANK ADJUSTMENTS COMBINED
--------------- ------------ --------------- -------------
ASSETS:
Cash and cash equivalents ....................... $ 15,388 $ 4,648 $ -- $ 20,036
Securities ...................................... 43,399 15,719 (106)(B) 59,012
Loans, net ...................................... 97,712 16,472 704 (B) 114,888
Accrued interest receivable ..................... 588 178 -- 766
Premises and equipment, net ..................... 2,450 416 (50)(B) 2,816
Core deposit intangible ......................... -- -- 481 (B) 481
Goodwill ........................................ -- -- 929 (C) 929
Other assets .................................... 4,928 304 -- 5,232
--------------- ------------ --------------- -------------
Total assets ............................ $164,465 $37,737 $ 1,958 $204,160
=============== ============ =============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits ........................................ $131,806 $35,142 $ 307 (B) $167,255
FHLB advances ................................... 7,541 -- -- 7,541
Advance payments by borrowers for taxes and
insurance .................................... 300 135 -- 435
Unfunded pension liability ...................... -- -- 90 (B) 90
Deferred tax liability .......................... -- -- 246 (B) 246
Other liabilities ............................... 1,528 142 -- 1,670
--------------- ------------ --------------- -------------
Total liabilities ....................... 141,175 35,419 643 177,237
--------------- ------------ --------------- -------------
Common stock .................................... 21 -- 2 (F) 23
Additional paid-in capital ...................... 9,075 -- 3,631 (E)(F) 12,706
Retained earnings ............................... 15,484 2,203 (2,203)(E) 15,484
Unearned ESOP shares ............................ (666) -- -- (666)
Unearned shares, stock-based incentive plan ..... (487) -- -- (487)
Accumulated other comprehensive income (loss).... (137) 115 (115)(E) (137)
--------------- ------------ --------------- ------------
Total stockholders' equity ............. 23,290 2,318 1,315 26,923
--------------- ------------ --------------- ------------
Total liabilities and stockholders'
equity ............................. $164,465 $37,737 $ 1,958 $204,160
=============== ============ =============== ============
See Notes to the Unaudited Pro Forma Consolidated Condensed Combined Financial Statements.
2
NEW ENGLAND BANCSHARES, INC.
AND WINDSOR LOCKS COMMUNITY BANK, FSL
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2003
(IN THOUSANDS)
HISTORICAL
-----------------------------------
WINDSOR
LOCKS
NEW ENGLAND COMMUNITY PRO FORMA PRO FORMA
BANCSHARES BANK ADJUSTMENTS COMBINED
--------------- --------------- -------------- -------------
Interest and dividend income:
Interest and fees on loans ............................. $ 3,407 $ 561 $ (36)(D) $ 3,932
Investment and mortgage-backed securities .............. 649 306 10 (D) 965
Other .................................................. 45 -- -- 45
--------------- --------------- -------------- -------------
Total interest and dividend income ................. 4,101 867 (26) 4,942
--------------- --------------- -------------- -------------
Interest expense:
Deposits and advanced payments by borrowers for taxes
and insurance ..................................... 1,264 263 (52)(D) 1,475
Federal Home Loan Bank advances ........................ 158 -- -- 158
--------------- --------------- -------------- -------------
Total interest expense ............................ 1,422 263 (52) 1,633
--------------- --------------- -------------- -------------
Net interest and dividend income .................. 2,679 604 26 3,309
Provision for loan losses .................................. 120 -- -- 120
--------------- --------------- -------------- -------------
Net interest and dividend income
after provision for loan losses ............... 2,559 604 26 3,189
--------------- --------------- -------------- -------------
Noninterest income:
Service charges on deposit accounts ................... 112 41 -- 153
Gain on sales of available-for-sale securities ........ 38 -- -- 38
Other income .......................................... 92 3 -- 95
--------------- --------------- -------------- -------------
Total noninterest income ......................... 242 44 -- 286
--------------- --------------- -------------- -------------
Noninterest expense:
Compensation and benefits ............................. 1,318 306 -- 1,624
Office occupancy and equipment ........................ 336 123 -- 459
Advertising and promotion ............................. 52 17 -- 69
Professional fees ..................................... 125 6 -- 131
Amortization of core deposit intangible ............... -- -- 24 (D) 24
Other expense ......................................... 516 66 -- 582
--------------- --------------- -------------- -------------
Total noninterest expense ........................ 2,347 518 24 2,889
--------------- --------------- -------------- -------------
Income before income tax expense ................ 454 130 2 586
Income tax expense ......................................... 138 43 -- 181
--------------- --------------- -------------- -------------
Net income ...................................... $ 316 $ 87 $ 2 $ 405
=============== =============== ============== =============
See Notes to the Unaudited Pro Forma Consolidated Condensed Combined Financial Statements.
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NEW ENGLAND BANCSHARES, INC.
AND WINDSOR LOCKS COMMUNITY BANK, FSL
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 2003
(IN THOUSANDS)
HISTORICAL
-------------------------------
NEW ENGLAND WINDSOR LOCKS PRO FORMA PRO FORMA
BANCSHARES COMMUNITY BANK ADJUSTMENTS COMBINED
------------ ---------------- ------------- ------------
Interest and dividend income:
Interest and fees on loans............................ $ 6,518 $ 1,263 $ (70)(D) $ 7,711
Investment and mortgage-backed securities............. 1,714 817 21 (D) 2,552
Other................................................. 122 -- -- 122
--------- -------- ---------- ----------
Total interest and dividend income................ 8,354 2,080 (49) 10,385
--------- -------- ---------- ----------
Interest expense:
Deposits and advanced payments by borrowers for
taxes and insurance............................... 3,055 723 (102)(D) 3,676
Federal Home Loan Bank advances....................... 291 -- -- 291
--------- -------- ---------- ----------
Total interest expense............................ 3,346 723 (102) 3,967
--------- -------- ---------- ----------
Net interest and dividend income.................. 5,008 1,357 53 6,418
Provision for loan losses................................ 240 -- -- 240
--------- -------- ---------- ----------
Net interest and dividend income
after provision for loan losses................. 4,768 1,357 53 6,178
--------- -------- ---------- ----------
Noninterest income:
Service charges on deposit accounts................... 221 62 -- 283
Gain (loss) on sales of available-for-sale securities. 78 (11) -- 67
Other income.......................................... 172 25 -- 197
--------- -------- ---------- ----------
Total noninterest income.......................... 471 76 -- 547
--------- -------- ---------- ----------
Noninterest expense:
Compensation and benefits............................. 2,354 564 -- 2,918
Office occupancy and equipment........................ 590 159 (50)(D) 699
Advertising and promotion............................. 162 54 -- 216
Professional fees..................................... 239 37 -- 276
Amortization of core deposit intangible............... -- -- 48 (D) 48
Other expense......................................... 880 304 -- 1,184
---------- -------- ---------- ----------
Total noninterest expense......................... 4,225 1,118 (2) 5,341
---------- -------- ---------- ----------
Income before income tax expense.................. 1,014 315 55 1,384
Income tax expense....................................... 306 133 21 (D) 460
---------- -------- ---------- ----------
Net income........................................ $ 708 $ 182 $ 34 $ 924
========== ======== ========== ==========
See Notes to the Unaudited Pro Forma Consolidated Condensed Combined Financial Statements.
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NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
COMBINED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The pro forma information presented is not necessarily indicative of
the results of operations or the combined financial position or results of
operation that would have resulted had the merger been consummated as of or for
the periods indicated, nor is it necessarily indicative of the results of
operations in future periods or the future financial position of the combined
company.
The unaudited pro forma consolidated financial information reflects the
application of the purchase method of accounting. Under this method, the assets
and liabilities of Windsor Locks Community Bank will be recorded at their
estimated fair values at the effective time. As described in the accompanying
notes, the estimated fair values of the assets and liabilities of Windsor Locks
Community Bank have been combined with the historical carrying amounts of the
assets and liabilities of New England Bancshares and subsidiaries. However,
changes to pro forma adjustments reflected herein are expected as valuations of
assets and liabilities are completed and additional information becomes
available. Accordingly, the final combined amounts will differ from the pro
forma combined amounts presented herein.
The unaudited pro forma consolidated condensed combined statement of
operations for the six months ended September 30, 2003 give effect to the merger
as if the merger had been consummated on April 1, 2003. The unaudited pro forma
consolidated condensed combined statement of operations for the year ended March
31, 2003 give effect to the merger as if the merger occurred on April 1, 2002.
The unaudited pro forma consolidated condensed combined balance sheet assumes
the merger was consummated on September 30, 2003. Certain reclassifications have
been included in the unaudited pro forma consolidated condensed combined balance
sheet and unaudited pro forma consolidated condensed combined statements of
operations to conform the presentation.
Assumptions relating to the pro forma adjustments set forth in the
unaudited pro forma consolidated condensed combined financial statements are
summarized as follows:
Estimated fair values for the assets and liabilities of Windsor Locks
Community Bank were obtained as follows:
CASH AND CASH EQUIVALENTS. The carrying amounts of cash and
cash equivalents approximate their fair value.
INVESTMENT AND MORTGAGE-BACKED SECURITIES. Fair values for
securities are based on quoted market prices.
STOCK IN FEDERAL HOME LOAN BANK AND OTHER RESTRICTED EQUITY
SECURITIES. No ready market exists for these stocks and they have no
quoted market value; however, redemption of these stocks has
historically been at par value. Accordingly, the carrying amount is
deemed to be a reasonable estimate of fair value.
LOANS. Fair values for loans held for investment and other
loans are estimated by segregating the portfolio by type of loan and
discounting scheduled cash flows using interest rates currently being
offered for loans with similar terms. A prepayment assumption is used
as an estimate of the portion of loans that will be repaid prior to
their scheduled maturity. The allowance for loan losses as recorded is
deemed to be a reasonable estimate of the credit adjustment.
OFFICE PROPERTIES AND EQUIPMENT. The fair value of office
properties is estimated
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based on an independent appraisal. The book value of equipment is
deemed to be a reasonable estimate of fair value.
DEPOSITS. The fair values disclosed for demand deposits (e.g.,
interest and noninterest checking, passbook savings and market
accounts) are, by definition, equal to the amount payable on demand at
the reporting date (i.e., their carrying amounts). Fair values for
fixed-rate certificate accounts are estimated using a discounted cash
flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on
certificate accounts.
IDENTIFIABLE INTANGIBLE ASSETS. A fair value for the core
deposit intangible asset was estimated by calculating a 2.77% premium
on core deposits of $17.3 million.
OTHER ASSETS AND OTHER LIABILITIES. Because these financial
instruments will typically be received or paid within three months, the
carrying amounts of such instruments are deemed to be a reasonable
estimate of fair value.
The discount on investments will be accreted to interest income over
five years so as to approximate the interest method; the premium on loans will
be amortized to interest income over three to ten years so as to approximate a
constant yield to maturity. The fair market value adjustment for deposits will
be accreted to interest expense over three years so as to approximate a constant
yield to maturity. The decrease in premises to fair value will be accreted over
a one-year period as a reduction to expense.
B. PURCHASE ACCOUNTING ADJUSTMENTS
Purchase accounting adjustments are estimated as follows (In thousands):
Decrease value of investments . . . . . . . . . . . . . . . . $ (106)
Decrease value of building . . . . . . . . . . . . . . . . .. (50)
Increase value of loans . . . . . . . . . . . . . . . . . .. 704
Increase liability for term deposits . . . . . . . . . . . . (307)
Increase pension liability . . . . . . . . . . . . . . . . .. (90)
Core deposit intangible recorded . . . . . . . . . . . . . .. 481
Deferred tax liability . . . . . . . . . . . . . . . . . . .. (246)
-----
Total . . . . . . . . . . . . . . . . . . . . . . .. 386
Equity of Windsor Locks . . . . . . .. . . . . . . . . . . .. 2,318
-------
Total fair value of net assets acquired . . . . . . $ 2,704
========
Refinements to the foregoing estimates may occur subsequent to the completion of
the merger.
C. CALCULATION OF GOODWILL
Excess of cost over the fair value of net assets acquired for the
merger was calculated as follows (In thousands):
Cost . . . . . . . . . . . . . . . . . . . .. . . . . . . . . $ 3,350
Business combination costs . . . . . . . . . . . . . . . . . . 283
--------
Total cost . . . . . . . . . . . . . . . . . . . . . . . .. 3,633
Fair value of net assets acquired . . . . . . . . . . . . . .. (2,704)
--------
Total excess of cost over the fair value of net
assets acquired . . . . . . . . . . . . . . . . . . . . . .. $ 929
========
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D. PRO FORMA INCOME STATEMENT ADJUSTMENTS
Pro forma income statement adjustments that were calculated for the merger are
as follows (In thousands):
FOR THE YEAR FOR THE SIX MONTHS
ENDED MARCH 31, ENDED SEPTEMBER 30,
2003 2003
INCOME (EXPENSE) INCOME (EXPENSE)
------------------ ---------------------
Accretion of discount on investments . . . . . . . . . . .. $ 21 $ 10
Amortization of premium on loans receivable . . . . . . . . (70) (36)
Accretion of fair value adjustment for building . . . . . . 50 --
Accretion of fair value adjustment for term deposits . . .. 102 52
Income tax expense . . . . . . . . . . . . . . . . . . . .. (21) --
Amortization of core deposit intangible asset . . . . . . . (48) (24)
-------- ------
Total adjustments . . . . . . . . . . . . . . . . . . . . . $ 34 $ 2
======== ======
Income tax expense is adjusted using a combined effective tax rate of
39%.
The following table summarizes the estimated net future impact of the
amortization of the purchase accounting adjustments made in connection with the
merger on our results of operations (In thousands):
NET INCREASE (DECREASE)
FISCAL YEARS ENDED IN NET INCOME
MARCH 31, OF AMORTIZED AMOUNTS
------------------ -----------------------
2004 . . . . . . . . . . . . . .. .. $ (3)
2005 . . . . . . . . . . . . . . . . (3)
2006 . . . . . . . . . . . . . . . . 59
2007 . . . . . . . . . . . . . . . . 59
2008 . . . . . . . . . . . . . . . . 72
2009 and thereafter . . . . . . . .. 289
E. TRANSFER OF CAPITAL.
Amounts reclassed from Retained Earnings and Accumulated Other
Comprehensive Income represent recognized value of Windsor Locks.
F. ISSUANCE OF SHARES TO ENFIELD MUTUAL HOLDING COMPANY.
Based on the average closing price of common stock of $17.75 per share,
the issuance of 188,732 shares of common stock of New England Bancshares, Inc.,
$.01 par value, is reflected by an increase of $1,887 to common stock and a
decrease of $1,887 to additional paid-in capital.
G. EARNINGS PER SHARE.
When presented, basic earnings per share is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. Because the initial
stock offering by New England Bancshares was not completed until June 4, 2002,
per share earnings data is not meaningful and is therefore not presented.