Exhibit 13.2
FORM F-4
QUARTERLY REPORT PURSUANT TO SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
for QUARTER ENDED, MARCH 31, 1997
FDIC CERTIFICATE NO. #19702-5
THE GLASTONBURY BANK & TRUST COMPANY
Connecticut
IRS EMPLOYER IDENTIFICATION NO. 06-0363160
2461 Main Street, Glastonbury, Connecticut
06033
(860) 633-4695
Indicate by check mark whether the bank (1) has filed all reports required to be
filed by Section 13 of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the bank was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
------- --------
Common Stock Par Value $2.50 Per Share
1,829,920 Shares Outstanding (as of March 31, 1997)
THE GLASTONBURY BANK & TRUST COMPANY
Notes to Consolidated Financial Statements
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of The Glastonbury Bank & Trust Company ("The Bank") and its
subsidiary, The GBT Insurance Group, Inc. The consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form F-4.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair representation have been included.
Operating results are not necessarily indicative of the results that may be
expected for year end December 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in the Bank's
annual report filed in form F-2 for the year ended December 31, 1996.
NOTE B - RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the current
year presentation.
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Management's Discussion and Analysis
Of
Financial Condition and Results of Operations
FINANCIAL CONDITION
-------------------
At March 31, 1997, total assets increased $3,912,000 or 1.6% to $252,510,000
from December 31, 1996. The increase was concentrated in an increase of
$20,099,000 or 62.7% in the securities available for sale portfolio, while loan
growth was flat, growing less than 1%. Securities available for sale were
funded in part by a decrease of $17,300,000 in interest bearing deposits in
depository institutions. Security purchases were primarily in Collateralized
Mortgage Obligations ("CMOs") with average lives of less than two years, money
market preferred stock, and tax-exempt municipal bonds that are non-calleable
for 10 years. The shorter term CMOs are "defensive" in that they are expected
to outperform other alternative securities in a rising interest rate environment
and perform equally well if interest rates should decline. The money market
preferred stock reprice every 49 days and their dividends are 70% exempt from
federal income taxes, providing attractive yields over the bank's cost of funds.
The tax-exempt municipal bonds that were purchased are "offensive" in that they
are expected to perform well in a declining interest rate environment. Given
the level of interest rates and the interest rate spread differential between
shorter term and longer term investments, as reflected in U.S. Treasury rates,
the bank's investment strategy for the first quarter of 1997 was to invest
approximately 80% in securities with average lives of two years or less and the
remaining 20% in tax-exempt municipal bonds. If interest rates should rise from
levels existing at March 31, 1997, the bank's strategy is to extend the shorter
term maturity range from two years or less to two through five years and to
increase the percentage of tax-exempt municipal bonds purchased.
Deposits at March 31, 1997 were basically unchanged as compared to December 31,
1996, as a seasonal decline in demand and non-interest bearing deposits was
partially offset by primarily an increase in savings and NOW deposits.
Federal Home Loan Bank ("FHLB") borrowings increased $3,691,000 from the year
ended December 31, 1996, consisting primarily of borrowings maturing in less
than three months.
Cash and cash equivalents increased to $10,088,000 at March 31, 1997, an
increase of $1,245,000 from December 31, 1996. This temporary increase was
primarily due to interchange cash flows from the merchant processing business
line that can occur the last day of a quarter.
The increase of $203,000 in deferred income taxes from December 31, 1996 was
primarily due to tax effecting the increase in the net unrealized loss on
available for sale securities.
The decrease of $816,000 in other assets was primarily the result of a decrease
in accrued merchant processing income. Accrued income for merchant processing
activity is typically higher at the fourth quarter end than at any other quarter
end.
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Accrued expenses and other liabilities increased $281,000 primarily due to an
accrual for income taxes, as the bank is expected to be in a taxable position
for 1997.
CAPITAL RESOURCES
- -----------------
At March 31, 1997, the Bank's Tier 1 leverage capital ratio was 7.22% as
compared to 7.07% at December 31, 1996. At March 31, 1997, the Bank's Tier 1
risk-based capital ratio was 12.00% and its Total risk-based capital ratio was
13.34% as compared to 12.16% and 13.42%, respectively, at December 31, 1996.
The board of directors of the bank declared a quarterly cash dividend of $0.07
per share payable on February 15, 1997. In April 1997, the board of directors
declared a $0.09 per share cash dividend, an increase of 29% in the quarterly
cash dividend, payable on May 15, 1997 to shareholders of record on April 30,
1997.
Total stockholders' equity increased $88,000 to $16,957,000 at March 31, 1997
from $16,869,000 at December 31, 1996. The increase was due to net income of
$510,000 in the current quarter, partially offset by the quarterly dividend of
$128,000 and a tax effected increase of $294,000 in the net unrealized holding
loss on available for sale securities. The increase in the net holding loss on
available for sale securities was attributed to an increase of approximately 55
basis points in the general level of interest rates.
NONPERFORMING ASSETS AND THE ALLOWANCE FOR LOAN LOSSES
- ------------------------------------------------------
Information concerning the Bank's nonperforming assets for the periods ended
March 31, 1997 and December 31, 1996 are summarized below:
March 31, 1997 December 31, 1996
-------------- ------------------
(000's omitted)
Nonaccrual Loans $1,510 $1,464
Loans Past Due in excess
of 90 Days and still
accruing interest 0 0
------ ------
Total Nonperforming Loans 1,510 1,464
Other Real Estate Owned 1,040 1,159
------ ------
Total Nonperforming Assets $2,550 $2,623
====== ======
Allowance for Loan Losses $3,443 $3,352
====== ======
During the current three month period ended March 31, 1997, nonperforming assets
decreased $73,000. The decrease resulted from a decrease of $119,000 in other
real estate owned ("OREO"), resulting from the sale of three properties,
partially offset by an increase of $46,000 resulting primarily from the addition
of one loan relationship. The
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OREO properties that were sold produced a recovery, and the remaining properties
were principally from a relationship with a single borrower. These two
properties currently provide cash flow to the bank in the form of rental
payments and recent appraisals indicate values that exceed current book value.
All OREO has been written down to current appraised values, less anticipated
selling costs, and are being actively marketed by the bank.
At March 31, 1997, the ratio of the allowance for loan losses to nonperforming
loans was 228%, the percentage of loans delinquent was less than 2%, and the
ratio of nonperforming assets to total assets was at 1%. The bank had
recoveries of 31,000 and provided a provision of $60,000 in the quarter ended
March 31, 1997.
The adequacy of the allowance for loan losses is reviewed by management monthly
and was considered to be adequate as of March 31, 1997. Management's
methodology in evaluating the adequacy of the allowance for loan losses
considers specific credit reviews, recommendations made by external auditors and
examiners, results from independent loan reviews, current local, state and
national economic conditions and trends, past loan loss and delinquency
experience and the volume, growth and composition of the loan portfolio. In
addition, a portion of the allowance for loan losses is maintained for losses
which may be inherent within the loan portfolio.
5
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
- ----------------------------------------
Liquidity
- ---------
As of March 31, 1997, the Bank's liquidity was determined to be sufficient to
meet the borrowing needs of its customers and to meet unexpected deposit
withdrawals. On a daily basis, management monitors the Bank's liquidity
position by analyzing the cash flows from loan and deposit activity, the amount
of investment securities available for repurchase agreements, and the amount the
Bank is allowed to borrow from the FHLB. Additionally, management determines an
estimate of the expected level of cash flows from maturing loans and the
expected prepayments on loans and securities.
Asset/Liability Management
- --------------------------
Management's objective is to minimize the Bank's exposure to changing interest
rates, while maintaining the flexibility to take advantage of opportunities
resulting from those changes. The Bank's exposure to interest rate risk, or
changes in interest rates, is managed by strategically matching the rate
sensitivity or repricing characteristics of loans and securities with those of
interest-bearing liabilities.
With regard to measuring the Bank's interest rate risk exposure, the Bank's one
year GAP as of March 31, 1997 was .79, indicating that the Bank was liability
sensitive over a cumulative one year time frame. Within 90 days, the Bank was
slightly asset sensitive, and as a result, the Bank's net interest margin has
benefited from the rise in interest rates in the current quarter. Additionally,
the current increase of 25 basis points in the prime rate is expected to provide
an additional benefit to the net interest margin. At the current level of
interest rates, the bank's strategy has been to fund the bank with shorter term
borrowings of less than three months and with retail CDs of 18 months or less.
In addition, the bank has had success in raising the level of core deposits
(defined as demand and savings deposits), which are a lower cost source of funds
than either FHLB borrowings or retail CDs. These core deposits are largely
considered long term funding as the interest rates paid on savings accounts
typically lag, sometimes significantly, the movement in the general level of
interest rates. Demand deposits, which pay no interest, have proven to have a
low sensitivity to interest rate changes and therefore are considered longer
term sources of funds.
If interest rates should continue to increase through the end of 1997, the
Bank's liability sensitive position in one year indicates that the net interest
margin could decline beginning approximately in the third quarter of 1997. A
decline in the bank's net interest margin could result as the Bank's cost of
funds would be expected to increase in a higher interest rate environment, while
the yields on earning assets would not be expected to increase as rapidly. If
interest rates should increase and then begin to decline by the third or fourth
quarter of this year, the bank's net interest margin would be expected to
stabilize at higher levels. Additionally, the Bank's ability to continue to
generate or purchase quality earning assets at adequate spreads over the bank's
incremental cost of funds will provide for
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stability and possibly growth in the margin. Moreover, mitigating any rise in
the bank's cost of funds will depend largely on the bank's continued success at
raising the level of its core deposits.
Management measures the impact of various interest rate scenarios on the bank's
net interest margin to determine which scenario(s) present the greatest risk and
opportunities to the bank. Strategies are formulated based on management's
assessment of the risk, whereby opportunities can be identified and taken
advantage of, while excessive risk levels can be mitigated.
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RESULTS OF OPERATIONS
For the three month period ended March 31, 1997, the Bank had a net income of
510,000 or $0.28 per share as compared to $486,000 or $0.27 per share for the
same period last year. (The average number of shares outstanding was 1,829,920
in both periods.) The increase of 24,000 or 4.9% was primarily due to a
reduction of $165,000 in the provision for loan losses, a decline of $229,000 in
other operating expenses, partially offset by primarily an income tax provision
of $320,000 as compared to no provision for the first quarter of 1996. The
bank's 38.6% effective tax rate in the current quarter is expected to prevail
throughout 1997 as the bank is now in a taxable position, having reduced nearly
all of the valuation allowance that had been reserved in prior years against net
operating loss carryforwards.
NET INTEREST INCOME
- -------------------
The Bank's net interest income increased $29,000 or 1.2% in the quarter ended
March 31, 1997 as compared to the same period last year. The increase resulted
from an increase of $246,000 in interest income, partially offset by an increase
of $217,000 in interest expense.
The increase in interest income was primarily due to an increase of $18,577000
or 8.9% in the average daily earning assets to $227,209,000 in the current
quarter as compared to the same period last year, partially offset by a decline
of 20 basis points in the average daily yield on earning assets to 7.92% in the
current quarter as compared to 8.12% in the same period last year. The increase
in interest expense was primarily attributed to an increase in higher costs CDs
and FHLB borrowings. The average daily rate on interest-bearing liabilities
increased to 4.26% in the current quarter as compared to 4.06% in the same
period last year.
PROVISION FOR LOAN LOSSES
- -------------------------
The provision for loan losses was reduced by $165,000 to $60,000 in the current
quarter as compared to the same period last year. The reduction was justified
based on improvement in credit quality, while the ratio of the allowance for
loan losses to nonperforming loans increased to 228% at March 31, 1997 from 181%
at March 31, 1996.
OTHER OPERATING INCOME
- ----------------------
Other operating income, excluding net security losses, amounted to $656,000 in
the quarter ended March 31, 1997, a decrease of 9.4% from the quarter ended
March 31, 1996. The decrease was due primarily to a decline in service charges
on deposit accounts and a decline in rental income from equipment that was
rented by customers of the bank's merchant processing business line. The
decline in service charges resulted from a reduction in certain deposit account
fees as part of a strategy to increase core deposits. Rental income declined as
more merchant customers decided to purchase equipment rather than rent.
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OTHER OPERATING EXPENSES
- ------------------------
Total other operating expenses amounted to $2,205,000 in the current quarter, a
decline of $229,000 or 9.4% as compared to the same period last year. The
decline was primarily attributed to a reduction in legal fees, resulting from
legal fees recorded in the first quarter of 1996 related to a former director's
lawsuit and an elimination of expenses associated with the bank's Cease and
Desist Order (the "Order") which was terminated by the FDIC in May 1996.
Additionally, occupancy and equipment and related costs declined a total of
$48,000 or 8.9% due to lower snow removal costs and lower depreciation expense
in the current quarter as compared to the same period last year.
The increase of $30,000 in the benefit on other real estate owned and related
expenses was primarily the result of a gain on the sale of three properties,
partially offset by expenses associated with the sale of these properties and
maintenance cost on existing OREO properties.
The increase of $52,000 or 25.1% in pensions, other employee benefits and
related expenses was primarily due to an increase in 401K and pension benefits,
including expenses associated with a supplemental retirement program for
executive officers.
FDIC assessment declined $39,000 or 84.8% as a result of an improvement in the
bank's financial condition, particular credit quality and an increase in capital
levels.
Other operating expenses declined $186,000 or 24.9% largely due to a decline in
legal fees and in expenses related to the termination of the Order, as
discussed. Additionally, the bank experienced significant declines in its
blanket bond insurance and director and officer liability coverage largely as a
result of the termination of the Order.
INCOME TAXES
- ------------
The income tax provision was $320,000 for the quarter ended March 31, 1997 as
compared to no provision for taxes in the quarter ended March 31, 1996. The
bank expects to be in a taxable position for 1997, having reduced nearly all of
the valuation allowance established in prior years against net operating
carryforward losses.
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Glastonbury Bank & Trust Company
Consolidated Balance Sheets
(Unaudited) (in thousands)
March 31, December 31,
Assets 1997 1996
========= =============
Cash and cash equivalents $ 10,088 $ 8,843
Interest bearing deposits in depository institutions -- 17,300
--------- ---------
Total cash and cash equivalents 10,088 26,143
Federal funds sold -- 0
Investment securities:
Taxable 27,664 28,287
Tax-exempt 185 185
--------- ---------
Total (fair value: 1997 - $27,447; 1996 - $28,294) 27,849 28,472
Federal Home Loan Bank stock 2,220 2,220
Securities available for sale:
Taxable 47,574 31,214
Tax-exempt 4,596 857
--------- ---------
Total 52,170 32,071
Assets held in trading 468 458
Loans (net of allowance for loan losses:
1997 - $3,443; 1996 - $3,352) 146,303 145,381
Premises and fixed assets - net 7,543 7,441
Other real estate owned 1,040 1,159
Accrued interest receivable 1,624 1,435
Deferred income taxes 1,809 1,606
Income tax receivable -- --
Other assets 1,396 2,212
--------- ---------
TOTAL $ 252,510 $ 248,598
========= =========
Liabilities and Stockholders' Equity
Deposits:
Demand and non-interest bearing $ 34,309 $ 35,814
Savings and NOW deposits 82,843 81,903
Time deposits 90,920 90,703
--------- ---------
Total deposits 208,072 208,420
Other liabilities:
Federal Home Loan Bank borrowings 24,691 21,000
Securities sold under agreements to repurchase 550 350
Accrued expenses and other liabilities 2,240 1,959
--------- ---------
Total deposits and other liabilities 235,553 231,729
--------- ---------
Stockholders' equity:
Capital Stock - par value $2.50; 2,000,000 shares authorized
1,829,920 issued and outstanding 4,575 4,575
Capital surplus 6,609 6,609
Retained earnings 6,509 6,127
Net unrealized loss on available for sale securities (736) (442)
--------- ---------
Total Stockholders' Equity 16,957 16,869
--------- ---------
TOTAL $ 252,510 $ 248,598
========= =========
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Glastonbury Bank & Trust Company
Consolidated Statements of Operations
(Unaudited) (in thousands, except per share data)
For the three months ended
March 31 March 31,
1997 1996
======= =========
Interest income:
Interest and fees on loans $ 3,294 $ 3,179
Interest and dividends on securities:
Taxable:
U.S. Treasury securities -- 55
U.S. Government agencies 967 944
Dividend income 74 32
Non-agency collateralized mortgage obligations 41 --
Corporate debt 2 3
Other securities 4 5
Tax-exempt - state and municipal obligations 43 4
Interest on deposits 64 7
Interest on federal funds sold 2 16
------- -------
Total interest income 4,491 4,245
------- -------
Interest expense:
Interest on deposits:
Time deposits of $100,000 or more 136 119
Savings and time deposits under $100,000 1,583 1,400
Interest on securities sold under agreements to repurchase 5 --
Interest on Federal Home Loan Bank borrowing 317 305
------- -------
Total interest expense 2,041 1,824
------- -------
Net interest income 2,450 2,421
Provision (benefit) for loan losses 60 225
------- -------
Net interest income after provision (benefit) for loan losses 2,390 2,196
------- -------
Other operating income:
Trust department income 5 4
Service charges on deposit accounts 133 157
Gains on assets held in trading - net (11) --
Gain (loss) on securities available for sale - net -- --
Merchant income 367 399
Other 151 164
------- -------
Total other operating income 645 724
------- -------
Other operating expenses:
Salaries 936 914
Occupancy, including depreciation on Bank premises 224 254
Equipment, including maintenance, rent and depreciation 265 283
Provision for losses on other real estate and related costs (46) (16)
Pensions, other employee benefits and related expenses 259 207
FDIC assessment 7 46
Other 560 746
------- -------
Total other operating expenses 2,205 2,434
------- -------
Income before income taxes 830 486
Income tax benefit 320 --
------- -------
Net income (loss) $ 510 $ 486
======= =======
Earnings (loss) per share:
Per share data based on 1,829,920 average shares
outstanding for 1996 and 1995 $ 0.28 $ 0.27
======= =======
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Glastonbury Bank & Trust Company
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited) (in thousands, except per share data)
Net Unrealized Holding Total
Three months ended Capital Capital Retained Gain (Loss) on Securities Stockholders'
March 31, 1997 Stock Surplus Earnings Available for Sale Equity
- -------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1997 $ 4,575 $ 6,609 $ 6,127 ($442) $16,869
Net income 510 510
Stock dividend declared on common stock
($0.07 on January 8, 1997) (128) (128)
Net change in unrealized holding loss on
securities available for sale (294) (294)
-------------------------------------------------------------------------------------
Balance March 31, 1997 $ 4,575 $ 6,609 $ 6,509 ($736) $16,957
=====================================================================================
Three months ended
March 31, 1996
- --------------------------------------
Balance, January 1, 1996 $4,575 $6,609 $4,114 ($324) $14,974
Net income 486 486
Net change in unrealized holding loss on
securities available for sale (214) (214)
-------------------------------------------------------------------------------------
Balance March 31, 1996 $4,575 $6,609 $4,600 ($538) $15,246
=====================================================================================
See notes to consolidated financial statements
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Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1997 and 1996
(Unaudited) (in thousands)
3/31/97 3/31/96
======== ========
Cash flows from operating activities:
Net income $ 510 $ 486
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 60 225
Provision for losses on other real estate owned 0 10
Provision for income taxes 320 --
Depreciation 241 257
Net amortization on securities held to maturity 19 18
Net amortization on securities available for sale 92 14
(increase) decrease in net deferred loan fees and costs (17) --
Increase in trading securities (10) (422)
Loss (gain) on sale of securities available for sale -- --
Gain on disposition of real estate and equipment (86) (60)
Decrease (Increase) in accrued interest receivable (189) (149)
Decrease in other assets 830 495
(Decrease) Increase in accrued expenses and other liabilities (40) 116
-------- --------
Net cash provided by operating activities 1,730 990
-------- --------
Cash flows from investing activities:
Net increase in Federal funds sold -- 4,350
Proceeds from maturities of securities held to maturity 634 757
Proceeds from sales of securities available for sale -- --
Proceeds from maturities of securities available for sale 1,437 1,500
Purchases of securities held to maturity -- (2,025)
Purchases of securities available for sale (22,169) (3,264)
Purchases of Federal Home Loan Bank Stock --
Net (increase) in loans (965) (445)
Proceeds from the sale of real estate and equipment 209 98
Purchase of fixed assets (346) (70)
-------- --------
Net cash provided by investing activities (21,200) 901
-------- --------
Cash flows from financing activities:
Net increase in Federal Home Loan Bank borrowings short-term 4,691 2,000
Net decrease in Federal Home Loan Bank borrowings long-term (1,000) --
Net increase in securities sold under agreements to repurchase 200 --
Net decrease in demand deposits, money market and savings accounts (565) (5,793)
Net increase in time deposits 217 3,737
Dividends paid (128) --
-------- --------
Net cash used in financing activities 3,415 (56)
-------- --------
Net increase (decrease) in cash and cash equivalents (16,055) 1,835
Cash and cash equivalents beginning of period 26,143 8,435
-------- --------
Cash and cash equivalents end of period $ 10,088 $ 10,270
======== ========
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Bank
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
THE GLASTONBURY BANK & TRUST COMPANY
Date: 5/14/97 /s/ J. Gilbert Soucie
------------------ --------------------------------------------------
J. Gilbert Soucie,
President & Chief Executive Officer
Date: 5/14/97 /s/ Wayne F. Patenaude
------------------ --------------------------------------------------
Wayne F. Patenaude,
Senior Vice President, Treasurer & Chief Financial
Officer
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