EX-99.2 4 newenglandexb992-10.txt 1

4 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 5 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 ======== 6 D. PRO FORMA INCOME STATEMENT ADJUSTMENTS Pro forma income statement adjustments that were calculated for the merger are as follows (In thousands):

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.

NEW ENGLAND BANCSHARES INC 8-K/A