SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 8-A
FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
PURSUANT TO CERTAIN 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
ALLIANCE BANCORP OF NEW ENGLAND, INC.
(Exact name of registrant as specified in its charter)
Delaware Applied For
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(State of Incorporation of Organization) (I.R.S. Employer Identification No.)
348 Hartford Turnpike 06066
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(Address of Principal Executive Offices) (Zip Code)
If this form relates to the registration of a class of debt securities and is
effective upon filing pursuant to General Instruction A(c)(1), please check the
following box. |_|
If this form relates to the registration of a class of debt securities and is to
become effective simultaneously with the effectiveness of a concurrent
registration statement under the Securities Act of 1933 pursuant to General
Instruction Act A(c)(2), please check the following box. |_|
Securities to be registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class to be so Registered Which Each Class is to be Registered
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Common Stock, par value $.01 per share American Stock Exchange, Inc.
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Securities to be registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
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(Title of Class)
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Item 1. Description of Registrant's Securities to be Registered.
General
Pursuant to an Agreement and Plan of Reorganization dated as of January 10, 1997
(the "Plan of Reorganization") between Tolland Bank, a savings bank chartered by
the State of Connecticut (the "Bank"), and Alliance Bancorp of New England,
Inc., a newly-formed Delaware corporation organized at the direction of the Bank
(the "Company"), the Company will acquire all of the outstanding common stock,
par value $1.00 per share, of the Bank other than shares held by stockholders,
if any, exercising dissenters rights, in a share-for-share exchange for the
common stock, par value $.01 per share, of the Company ("Common Stock"). The
Bank will thereby become a wholly-owned subsidiary of the Company and the Bank's
stockholders will become, subject to their exercise of dissenters rights,
stockholders of the Company. Under the Certificate of Incorporation of the
Company (the "Certificate"), the Company will be authorized to issue up to
4,000,000 shares of Common Stock and up to 100,000 shares of preferred stock,
par value $0.01 per share.
Preferred Stock
The Board of Directors of the Company is authorized to issue shares of preferred
stock in series and to fix the voting powers, designations, preferences, or
other special rights of the shares of each such series and the qualifications,
limitations, and restrictions thereon. The issuance of preferred stock by the
Company is subject to the approval of a majority vote of the Board of Directors
of the Company. Preferred stock issued by the Company may rank prior to the
Common Stock as to dividend rights, or liquidation preferences, or both, may
have full or limited voting rights (including multiple voting rights and voting
rights as a class), and may be convertible into shares of Common Stock.
Common Stock
Voting Rights. Stockholders are entitled to one vote per share on any matters
subject to stockholder approval, including the election of Directors. The
Certificate does not provide for cumulative voting in connection with the
election of Directors, and therefore holders of a majority of the Common Stock
will be able to elect all of the Directors standing for election in each year,
subject to the rights of the holders of shares of preferred stock, if and when
issued.
Preemptive Rights. Holders of Common Stock have no preemptive rights as to the
purchase of any shares issued in the future. Therefore, the Board of Directors
may sell shares of capital stock without first offering them to the then
stockholders of the Company.
Assessability. Under Delaware law, the Common Stock is non-assessable.
Dividend Rights; Repurchase of Shares. A Delaware business corporation, such as
the Company, may pay dividends or repurchase its shares of capital stock.
However, the Company is also subject to the requirements of the Federal Reserve
Board. It is the policy of the Federal Reserve Board that bank holding companies
should pay cash dividends on common
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stock only out of the past year's net income, and only if prospective earnings
retention is consistent with the organization's expected future needs. The
policy further provides that a bank holding company should not maintain a level
of cash dividends that undermines the bank holding company's ability to serve as
a source of strength to its subsidiary banks, here the Bank. The Federal Reserve
Board also requires by regulation that a bank holding company seeking to
purchase or redeem any of its equity securities must provide prior notice to the
appropriate regional Federal Reserve Bank, which may disapprove of such proposed
purchase or redemption, if the gross consideration for such purchase or
redemption, when aggregated with the net consideration paid by the holding
company for all such purchases or redemptions during the preceding twelve
months, exceeds 10% of the holding company's consolidated net worth, except that
such prior notice requirements do not apply to any holding company that is "well
capitalized" in accordance with Federal Reserve Board regulations, has received
a composite "1" or "2" rating in its most recent examination and is not subject
to any unresolved regulatory issues.
Any issuance of preferred stock with a preference over Company Common Stock as
to dividends may affect the dividend rights of Common Stock holders.
Directors
Number and Staggered Terms. The Certificate and By-laws of the Company (the
"By-laws") provide that, subject to the rights of holders of preferred stock, if
and when issued, a majority of the Board of Directors of the Company shall fix
from time to time the number of Directors of the Company, which number shall not
be less than five. The Board of Directors of the Company will initially be
composed of 11 Directors. The Certificate provides for three classes of
Directors with one class elected each year for three year staggered terms, so
that ordinarily no more than approximately one-third of the Directors will stand
for election in any one year, and that there will be no cumulative voting in the
election of Directors.
Removal. The Certificate provides that Directors may be removed from office, but
only for cause as defined under Delaware law, and then only by the affirmative
vote of not less than 80% of the outstanding shares entitled to vote at a duly
constituted meeting of stockholders.
Vacancies. The Certificate and By-laws provide that any vacancy occurring in the
Board of Directors, including a vacancy resulting in death, resignation,
retirement, disqualification or removal from office or other cause, shall be
filled for the remainder of the unexpired term exclusively by a majority vote of
the Directors then in office.
Meetings of Stockholders
The Certificate and By-laws provide that a special meeting of stockholders may
be called only by a majority of the Directors then in office. The Certificate
and By-laws also set forth certain advance notice and informational requirements
and time limitations on any Director nomination or any new business which a
stockholder wishes to propose for consideration at an annual meeting of
stockholders. Any such nomination, to be timely, shall be delivered to, or
mailed and received at, the principal executive offices of the Company at least
90 days prior to
2
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the annual meeting, provided that in the event that less than 70 days' notice or
prior public disclosure of the date of the annual meeting is given or made to
stockholders, notice by the close of business on the tenth day following the day
on which such notice of the date of the meeting was mailed or such public
disclosure was made must be given. For new business to be properly brought
before the annual meeting by a shareholder, the shareholder's notice of such new
business must be received by the Company not later than 120 days prior to the
anniversary date of the immediately preceding annual meeting. The notice must
set forth a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting. The name and record address of the shareholder proposing such business,
the class number of shares of the Company which is beneficially owned by the
shareholder and any material interest of the shareholder in such business must
also be set forth.
Stockholder Vote Required to Approve Certain Transactions
The Certificate requires the approval of the holders of at least 80% of the
Company's outstanding shares of voting stock to approve certain "Business
Combinations," as defined therein, and related transactions. Under Delaware law,
absent this provision, Business Combinations, including mergers, consolidations
and sales of all or substantially all of the assets of a corporation must,
subject to certain expenses, be approved by the vote of the holders of only a
majority of the outstanding shares of common stock of the Company's and any
other affected class of stock. Additionally, under the Certificate, at least 80%
approval of shareholders is required in connection with any transaction
involving an Interested Shareholder (as defined below) except (i) in cases where
the proposed transaction has been approved in advance by a majority of those
members of the Company's Board of Directors who are unaffiliated with the
Interested Shareholder or (ii) if the proposed transaction meets certain
conditions set forth therein which are designed to afford the shareholders a
fair price in consideration for their shares in which case, if a shareholder
vote is required, approval of only a majority of the outstanding shares of
voting stock would be sufficient. The term "Interested Shareholder" is defined
to include any individual, corporation, partnership or other entity (other than
the Company or its subsidiary) which owns beneficially or controls, directly or
indirectly, 15% or more of the outstanding shares of voting stock of the
Company. This provision of the Certificate applies to any "Business
Combination," which is defined to include (i) any merger or consolidation of the
Company's or any of its subsidiaries with or into any Interested Shareholder or
the Company's (as defined in the Certificate) of an Interested Shareholder; (ii)
any sale, lease, exchange, mortgage, pledge, transfer, or other disposition to
or with any Interested Shareholder or the Company's of 10% or more of the assets
of the Company's or combined assets of the Company's and its subsidiary; (iii)
the issuance or transfer to any Interested Shareholder or its the Company by the
Company (or any subsidiary) of any securities of the Company's in exchange for
any assets, cash or securities the value of which equals or exceeds 10% of the
fair market value of the Common Stock of the Company; (iv) the adoption of any
plan for the liquidation or dissolution of the Company proposed by or on behalf
of any Interested Shareholder or the Company thereof and (v) any
reclassification of securities, recapitalization, merger or consolidation
Shareholder or the Company which has the effect of increasing the proportionate
share of common stock or any class of equity or convertible securities of the
Company owned directly or indirectly by an Interested Shareholder or the Company
thereof.
3
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Beneficial Ownership Limitation
The Certificate contain a prohibition against any person directly or indirectly
offering to acquire, or acquiring, beneficial ownership (as defined in the
Certificate) of more than 10% of any class of outstanding equity securities of
the Company. In the event shares are acquired in violation of this provision,
all shares beneficially owned by any person in excess of 10% shall be considered
excess shares and shall not be counted as shares entitled to vote and shall not
be voted by any person or counted as voting shares in connection with any matter
submitted to the stockholders of the Company for a vote. The Certificate
contains an exception from this limitation for any Employee Stock Ownership Plan
established by the Company.
Amendment of Certificate and Bylaws
Amendments to the Company's Certificate must be approved by a majority vote of
its Board of Directors and also by a majority of the outstanding shares of its
voting stock; provided, however, that an affirmative vote of at least 80% of the
outstanding voting stock entitled to vote (after giving effect to the provision
limiting voting rights) is required to amend or repeal certain provisions of the
Certificate, including the provision limiting voting rights, the provisions
relating to approval of certain business combinations, calling special meetings,
the number and classification of directors, director and officer indemnification
by the Company and amendment of the Company bylaws and Certificate. The
Company's bylaws may be amended by its Board of Directors, or by the vote of a
majority of the shares present in person or by proxy and entitled to a vote at
any annual or special meeting except for those instances where the Certificate
requires a vote of 80% of the total votes eligible to be voted at a duly
constituted meeting of shareholders for amendment.
Anti-Takeover Provisions
Certain provisions of the Certificate and By-laws may be deemed to have an
"anti-takeover" effect. For example: (i) the Board of Directors' authority to
fix the designations, powers, preferences and relative rights of the authorized
and unissued shares of preferred stock could be used in the event of an attempt
by an unsolicited third party to gain control of the Company to impede such
attempt to acquire control; (ii) the three-year staggered terms for Directors,
the Board of Directors, authority to fix the number of Directors who may serve
from time to time, the ability to remove Directors only for cause, and the
advanced notice requirements pertaining to the nomination by shareholders of
candidates for election to the Board of Directors all may make it more difficult
to change a majority of the Board of Directors; (iii) the requirements that
special meetings of shareholders may be called only by a majority of the Board
of Directors and that shareholder proposals must satisfy certain advance notice
and informational requirements to be considered at any meeting may make it more
difficult for shareholders to take action independent of the Board of Directors;
(iv) the requirements that Business Combinations that are not approved by the
disinterested Directors must either satisfy certain "fair price, provisions or
be approved by a "super majority" stockholder vote may make it more difficult to
effect any such transaction that is not supported by the Board of Directors; (v)
the requirement that shareholder action to amend the Certificate or By-laws must
generally be preceded by the approval of the Board of Directors of such proposed
amendment may limit shareholders, ability to effect such amendments without the
support of the Board of Directors.
4
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Item 2. Exhibits.
The following exhibits are filed as a part of this Registration Statement:
Exhibit Number Description
99.1 Certificate of Incorporation of the Registrant, attached as
Exhibit B to Exhibit 99.4
99.2 Bylaws of the Registrant, attached as Exhibit C to Exhibit
99.4
99.3 Annual Report on F.D.I.C. Form F-2 of Tolland Bank (the
"Bank") for the fiscal year ended December 31, 1996 and Annual
Report to the Bank's stockholders
99.4 Notice and Proxy Statement dated February 21, 1997 for the
Annual Meeting of Shareholders of the Bank
99.5 Quarterly Report on F.D.I.C. Form F-4 of the Bank for the
fiscal quarters ended March 31, 1997 and June 30, 1997.
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
ALLIANCE BANCORP OF NEW ENGLAND, INC.
By: /S/
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David H. Gonci
Vice President
Dated September 19, 1997
Tolland Bank Selected Financial Highlights
<TABLE>
<CAPTION>
December 31 1996 1995 1994 1993 1992
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For the Year (in thousands)
<S> <C> <C> <C> <C> <C>
Net interest income $7,663 $ 7,364 $6,954 $6,923 $7,352
Provision for loan losses 978 1,975 639 191 1,245
Service charges and fees 1,115 1,005 789 828 723
Net gain (loss) on securities (40) 22 (16) 66 258
Net gain (loss) on assets 200 (967) (28) (438) (194)
Non-interest expense 6,640 6,582 6,545 6,850 6,605
Income (loss) before income taxes 1,320 (1,133) 515 338 289
Income tax expense (benefit) (118) 12 61 94 106
Cumulative effect of change in accounting
principle -- -- -- 189 --
Net income (loss) $1,438 $(1,145) $ 454 $ 433 $ 183
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Per Share
Earnings (loss) $ 1.22 $ (.97) $ .38 $ .37 $ .16
Dividends declared .03 -- -- -- --
Book value 13.30 11.47 11.41 12.77 12.56
Common stock price:
High 13.38 10.38 9.63 9.88 7.75
Low 9.25 7.00 7.25 6.38 3.13
Close 12.00 9.50 7.63 7.25 7.00
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At Year End (in millions)
Total assets $232.3 $ 214.1 $201.1 $193.7 $194.1
Total loans 146.5 152.9 131.4 115.2 127.5
Other earning assets 72.5 47.8 52.1 58.0 43.4
Deposits 205.6 193.4 180.4 166.2 169.1
Borrowings 10.4 6.9 6.9 12.0 10.1
Shareholders' equity 15.6 13.3 13.2 14.8 14.4
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Operating Ratios (in percent)
Return (loss) on average assets .65% (.54)% .24% .22% .09%
Return (loss) on average equity 9.84 (8.37) 3.19 2.90 1.27
Equity % total assets (period end) 6.71 6.20 6.57 7.63 7.44
Net interest spread (fully taxable equivalent) 3.34 3.35 3.72 3.90 4.10
Net interest margin (fully taxable equivalent) 3.78 3.71 3.95 4.00 4.21
Dividend payout ratio 2.43 -- -- -- --
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</TABLE>
Contents
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Selected Financial Highlights 1
President's Message 2
Management's Discussion 4
Independent Auditors' Report 13
Financial Statements 14
Supplementary Financial Data 33
Form F-2 35
Corporate Information Back Page
Shareholder Information Back Page
Tolland Bank 1 Annual Report 1996
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Tolland Bank 2 Annual Report 1996
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Tolland Bank 3 Annual Report 1996
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MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS &
FINANCIAL CONDITION
1996 SUMMARY
Tolland Bank ("the Bank") earned a record $1.44 million ($1.22 per share) for
the year ended December 31, 1996. This compared to a loss of $1.15 million ($.97
per share) in 1995, reflecting significant write-downs and reserves on problem
assets. The Bank also made significant progress in reducing problem assets
during 1996. Total problem assets decreased to $5.6 million from $8.5 million,
representing 2.4% of total assets by year-end 1996. As a result of the improved
condition and earnings at the Bank in 1996, the regulators agreed to terminate
the Memorandum of Understanding under which the Bank had been operating since
June 26, 1991.
The record earnings in 1996 resulted largely from the Bank's strategy of
increasing the asset size of the Bank and its volume of business, while
minimizing increases in expenses. On a fully taxable equivalent (FTE) basis,
1996 earnings included an 8.0% increase in net interest income and a 10.9%
increase in service charge and fee income, while non-interest expense increased
by only 0.9%. Additionally, the Bank recognized an income tax benefit of $118
thousand for the year. This benefit was primarily related to a reduction of $554
thousand in the valuation allowance on the Bank's deferred tax asset due to the
restoration of profitability, and to the resolution of problem assets.
In the fourth quarter of 1996, the Bank reinstated a quarterly cash dividend,
which had been suspended in 1990. The Bank declared a quarterly dividend of
three cents per share following the close of the third quarter of 1996, and then
increased the dividend to five cents per share in January, 1997. The Bank's
capital increased by $2.3 million (17.4%) during the year, due to retained
earnings and a reduction in the unrealized loss on the market value of
securities. Year-end 1996 equity measured 6.7% of assets and the Bank continues
to exceed all regulatory capital requirements. Book value per share increased to
$13.30 at December 31, 1996 from $11.47 at the previous year-end.
Joseph H. Rossi was named President/Chief Executive Officer and a Director in
January, 1996, following his appointment as Acting President in November, 1995.
Mr. Rossi had joined the Bank as Chief Financial Officer in 1993. In the fourth
quarter of 1996, the Bank initiated steps to form a bank holding company in
order to facilitate future growth and expansion of business lines. Tolland Bank
will continue to operate with its existing offices and employees. This step will
allow the Bank additional flexibility to both increase the products and services
that it offers to its customers, and to pursue new market opportunities. Pending
approval and completion of the formation process, Tolland Bank shareholders
will, on a one-for-one basis, become shareholders of the new holding company.
Total assets were $232.3 million at December 31, 1996, representing an 8.5%
increase from the previous year-end. Total loans decreased by 4.2% due primarily
to paydowns and to the resolution of problem assets. Total deposits increased by
6.3% due largely to growth in checking accounts and time deposits. Funds from
deposit growth and problem asset resolutions were primarily invested in
investment securities during the year.
Net loan charge-offs totaled $468 thousand in 1996, measuring about .31% of
total average loans. The loan loss allowance increased to $2.85 million at
December 31, 1996, measuring 1.95% of total loans, compared to $2.34 million at
year end 1995. The loan loss provision declined to $978 thousand in 1996,
compared to $1.975 million in the previous year. Additionally, the Bank realized
a net gain on assets of $200 thousand in 1996, primarily from the sale of
foreclosed land. Total loans nonaccruing and/or delinquent ninety days or more
at year-end 1996 included $1.5 million which was paid off in January, 1997. Net
of this amount, these loans totaled $3.7 million, which was down from $4.5
million at the previous year-end.
Quarterly earnings comparisons have improved in each successive quarter from
$302 thousand in the first quarter to $420 thousand in the fourth quarter.
During the fourth quarter, the Bank recognized an income tax net benefit of $451
thousand, related primarily to the reduction in the valuation allowance on the
deferred tax asset, discussed above. For the fourth quarter, before taxes, the
Bank recorded a loss of $31 thousand. Contributing to this result was a charge
of $132 thousand on the writedown of foreclosed assets, problem asset related
expenses totaling $226 thousand, and a similar amount of one time operating
accruals.
Tolland Bank 4 Annual Report 1996
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RESULTS OF OPERATIONS -- 1996 VERSUS 1995
Net Interest Income -- Fully Taxable Equivalent (FTE) Basis
<TABLE>
<CAPTION>
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(dollars in thousands) Average Balance Rate (FTE Basis)
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Years ended December 31 1996 1995 1994 1996 1995 1994
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<S> <C> <C> <C> <C> <C> <C>
Loans $150,636 $148,605 $117,960 8.20% 8.19% 7.79%
Securities available for sale 32,663 16,926 27,815 7.29 5.38 4.04
Securities held to maturity 22,204 31,270 23,616 5.73 5.95 6.88
Other earning assets 4,876 1,897 7,085 5.43 5.17 3.90
Total earning assets 210,379 198,698 176,476 7.73 7.57 6.92
Other assets 11,744 13,460 16,450
Total assets $222,123 $212,158 $192,926
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Interest bearing deposits $182,379 $170,038 $156,447 4.33 4.08 3.13
Borrowings 7,012 11,876 7,337 5.92 6.25 4.62
Interest bearing liabilities 189,391 181,914 163,784 4.39 4.22 3.19
Other Liabilities 18,116 16,567 14,939
Shareholder's equity 14,616 13,677 14,203
Total liabilities and equity $222,123 $212,158 $192,926
Net Interest Spread 3.34% 3.35% 3.72%
Net Interest Margin 3.78% 3.71% 3.95%
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</TABLE>
Note: The average balance of loans included nonaccruing loans and deferred
costs. Also, the balance and yield on all securities is based on amortized cost
and not on fair value.
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Net Interest Income FTE (in thousands) 1996 1995 1994
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Loan interest $12,347 $12,170 $ 9,187
Securities available for sale(FTE) 2,380 911 1,123
Securities held to maturity 1,272 1,860 1,625
Other earning assets interest (FTE) 265 98 276
Total interest income(FTE) 16,264 15,039 12,211
Total interest expense 8,309 7,675 5,236
Net interest income (FTE) 7,955 7,364 6,975
Less tax equivalent adjustment (292) -- (21)
Net interest income (Book) $ 7,663 $ 7,364 $ 6,954
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Net interest income on an FTE basis increased by $591 thousand (8.0%) in 1996
due almost entirely to an $11.7 million (5.9%) increase in average earning
assets. Interest income and average balances increased for total loans, total
securities, and all other earning assets. Net interest income also benefited
from a $2.5 million (17.3%) decrease in average non-interest bearing assets, due
primarily to sales of foreclosed assets. The Bank's interest-bearing liabilities
grew by only $7.5 million (4.1%).
The above favorable shift in the balance of earning assets versus interest
bearing liabilities produced a 7 basis point increase in the net interest margin
to 3.78% in 1996 from 3.71% in 1995. However, the net interest spread was little
changed at 3.34% in 1996 compared to 3.35% in 1995. The average yield on
interest bearing assets increased by 16 basis points in 1996, while the average
cost of interest bearing liabilities increased by 17 basis points. The increase
in the yield on earning assets was primarily related to an increase in the
securities yield due to higher rates on securities. The increase in the cost of
liabilities was primarily due to higher costs of time deposits. The Bank
promoted time deposits throughout the year, with more emphasis on higher cost
time deposits over one year.
Tolland Bank 5 Annual Report 1996
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Provision for Loan Losses
The provision for loan losses is made to establish the allowance for loan losses
at a level estimated to be adequate by Management and the Board. The provision
for loan losses in 1996 totaled $978 thousand, compared to $1.975 million in
1996. The loan loss allowance increased to $2.850 million at year-end 1996,
compared to $2.340 million at year-end 1995. Please see the later discussion on
the Allowance for Loan Losses.
Non-Interest Income
Years ended December 31 (in thousands) 1996 1995 Change
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Loan related income $ 412 $ 344 $ 68
Deposit related income 510 502 8
Miscellaneous charges and other income 193 159 34
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Total service charges and fees 1,115 1,005 110
Gross gains on securities 12 31 (19)
Gross losses on securities (52) (9) (43)
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Net gains (losses) on securities (40) 22 (62)
Gross gains on assets 341 92 249
Gross losses on assets (141) (1,059) 918
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Net gains (losses) on assets 200 (967) 1,167
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Total non-interest income $1,275 $ 60 $1,215
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Total service charges and fees increased by $110 thousand (11.0%) primarily due
to a $62 thousand increase in mortgage banking related income as a result of
higher originations fees on residential mortgages. Most newly originated
mortgages are sold on a servicing-released basis to investors. The net loss on
securities in 1996 was due to the sale of two held to maturity securities at a
loss. These two securities evidenced significant deterioration in the issuer's
creditworthiness through the downgrading by a credit agency and other relevant
factors. Under state statutes the Bank was required to evaluate these securities
for sale, and the Bank made a determination that they be sold due to
uncertainties about their credit quality. The net gain on assets in 1996 was
primarily due to the sale of foreclosed land, partly offset by write-downs on
foreclosed assets. The loss on assets in 1995 was due to write-downs associated
with the accelerated disposition of foreclosed properties.
Non-Interest Expense
Years ended December 31 (dollars in thousands) 1996 1995 Change %
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Staff $3,253 $3,444 $(191) (5.6)
Occupancy 597 576 21 3.7
Equipment 285 296 (11) (3.7)
Data processing services 476 518 (42) (8.1)
FDIC insurance 57 255 (198) (77.6)
Office and other insurance 452 497 (45) (9.1)
Other 971 717 254 35.4
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Subtotal - operating non-interest expense 6,091 6,303 (212) (3.4)
Problem asset related expense 549 279 272 97.5
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Total non-interest expense $6,640 $6,582 $ 60 0.9
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Total non-interest expense was little changed, increasing by .9% in 1996.
However, operating non-interest expense decreased by $212 thousand (3.4%) during
the year. The decrease in operating expense was primarily due to reductions in
staff expense and FDIC insurance expense. The decrease in staff expense resulted
from a work force reduction which the Bank implemented in the fourth quarter of
1995. The decrease in FDIC insurance expense was due to a general premium
reduction granted by the FDIC to the banking industry in June, 1995. The above
reductions were partially offset by an increase in other operating expense due
to increases in consulting fees, consumer loan processing expense, advertising
expense, and one-time charges. The one-time charges relate primarily to charges
in connection with an agreement described in the Commitments and Contingencies
note to the financial statements. The increase in problem asset related expense
resulted from actions taken to accelerate the resolution of problem assets and
delinquent loan situations. Problem asset related expenses included net legal
expenses totalling $297 thousand and purchased collections servicing expenses
totalling $173 thousand. Problem asset related expenses included fourth quarter
charges totaling $226 thousand which were primarily related to problem asset
related
Tolland Bank 6 Annual Report 1996
<PAGE>
dispositions which were successfully completed in December, 1996 and January,
1997. Due to the successful conclusion of these situations, these higher problem
asset related expenses are not expected to be recurring.
Income Tax Expense
The Bank recorded a net benefit of $118 thousand related to income taxes in
1996. This benefit primarily resulted from a $554 thousand reduction in the
valuation allowance on the deferred tax asset due to the restoration of taxable
earnings in 1996, along with the resolution of problem assets. The Bank's
deferred tax asset (net of deferred tax liabilities) was $801 thousand at
year-end 1996. The valuation allowance was $305 thousand, resulting in a $496
thousand net asset included in the balance sheet. The valuation allowance
included a $150 thousand allowance on the tax effect of the net unamortized loss
on securities held to maturity. Management believes that it is more likely than
not that the net deferred tax asset is realizable. Future reductions in the
valuation allowance will be based on future income and tax events. Any changes
in the allowance are reported as adjustments to the current effective tax rate.
FINANCIAL CONDITION -- FISCAL YEAR-END 1996 VERSUS 1995
Securities
Available for sale (AFS) securities doubled to $45.4 million at year-end 1996
compared to year-end 1995. The $22.9 million increase in AFS securities was due
to a $13.3 million increase in U.S. agency securities and a $14.6 million
investment in preferred equity securities. The growth in U.S. agency securities
was due to purchases of callable debt securities. These securities have short
term call provisions, with final maturities between five and fifteen years. In
addition to the callable agency securities purchased in 1996, the AFS agency
security portfolio includes structured agency securities totaling $9.9 million
at year-end 1996, consisting primarily of deleveraged notes. Held to maturity
(HTM) securities declined by $2.7 million (11.5%) to $20.7 million in 1996,
including the sale of two asset-backed securities totaling $0.9 million in the
second quarter. The primary component of HTM securities is U.S. agency
mortgage-backed securities, which consist principally of planned amortization
class collateralized mortgage obligations. All of the Bank's securities
investments at December 31, 1996 were publicly traded securities rated A or
better by at least one rating agency, except for the investment in stock of the
Federal Home Loan Bank of Boston (FHLBB).
Lending Activities
- --------------------------------------------------------------------------------
December 31 (in millions) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
Residential mortgages $ 40.3 $ 44.0 $ 44.6 $ 42.1 $ 43.5
Commercial mortgages 40.5 40.7 37.2 38.0 34.9
Other commercial loans 15.3 18.8 20.0 13.7 29.7
Consumer loans 26.1 22.4 23.6 21.4 19.4
Total regular loans 122.2 125.9 125.4 115.2 127.5
SBA guaranteed loan certificates 24.3 27.0 6.0 -- --
Total loans $146.5 $152.9 $131.4 $115.2 $127.5
- --------------------------------------------------------------------------------
Total loans decreased by $6.4 million (4.2%) in 1996. Regular loans decreased by
$3.7 million (2.9%) to $122.2 million in 1996 due to the liquidation of problem
commercial loans and to runoff of residential mortgages. Regular loans are all
loans excluding purchased 100% SBA guaranteed loan certificates. Despite an
increase in residential mortgage originations, total residential mortgages
declined by $3.7 million (8.4%) in 1996. Most newly originated mortgages are
sold to the secondary market. The decrease in the mortgage portfolio reflected
amortizations and prepayments of existing mortgages. This decrease was offset by
an equal $3.7 million (16.5%) increase in consumer loans in 1996. This growth
was due to ongoing promotions of home equity loans and lines of credit, which
more than outweighed continued amortization of the bank's installment loan
portfolio.
SBA loan certificates declined by $2.7 million (10.0%) due to amortization and
prepayments. The Bank's portfolio of purchased loan certificates 100% guaranteed
by the U.S. Small Business Administration (SBA) was primarily accumulated in
1995. These loans are fully backed by the SBA, which is backed by the full faith
and credit of the U.S. Treasury.
Tolland Bank 7 Annual Report 1996
<PAGE>
Total real estate secured loans were $107.4 million at year-end 1996 or about
73.3% of total loans. The Bank conducts an overall review of real estate market
trends on at least an annual basis, and real estate lending activities are
governed by real estate and appraisal lending policies. Local residential real
estate prices stabilized in 1996. Commercial real estate market conditions have
been mixed depending on the type of collateral. New construction has remained
active in certain residential markets, along with commercial retail, medical
office, and lodging properties.
The Bank conducts an ongoing program of commercial loan reviews on significant
loans, and quality control sample inspections of residential and consumer loan
originations. The Bank's policy is to assign a risk rating to all commercial
loans. Loan review results and related risk ratings are reviewed monthly by
Management and quarterly by the Board. The Bank's Credit Committee meets weekly,
or more frequently, to approve all loans to relationships above a size
established by loan policy. The Bank's loan policy sets certain limits on
concentrations of credit related to one borrower. In 1996, the Bank created new
commercial and consumer loan administration functions in order to further
strengthen the management of loan originations and servicing.
Problem Assets
- --------------------------------------------------------------------------------
December 31 (dollars in millions) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
Nonaccruing loans $3.4 $4.4 $ 0.7 $ 1.1 $ 1.3
Restructured loans 1.2 2.1 6.6 2.6 2.1
Foreclosed assets 1.0 2.0 5.4 9.8 10.8
Total problem assets $5.6 $8.5 $12.7 $13.5 $14.2
Problem assets as a
percentage of total assets 2.4% 4.0% 6.3% 7.0% 7.3%
- --------------------------------------------------------------------------------
Total problem assets decreased to 2.4% of total assets at year-end 1996,
compared to 4.0% at the previous year-end. All categories of problem assets were
reduced. Nonaccruing loans declined due to the liquidation of certain commercial
nonaccruing loans. Nonaccruing loans at year-end 1996 totaled $3.4 million and
included two commercial loans totaling $1.9 million. Both of these loans were in
the process of collection and were covered by the fair value of their collateral
except for a $186 thousand shortfall which was recognized as an impairment
reserve which is part of the allowance for loan losses. Restructured loans
declined to $1.2 million in 1996, primarily due to the reclassification of one
loan which performed satisfactorily during the year and which is no longer
earning interest at a rate deemed to be below market. Foreclosed assets declined
to $1.0 million in 1996, primarily due to the sale of foreclosed land.
Foreclosed assets at year-end 1996 included five properties, with the largest
being a fully occupied commercial property with a net carrying value of $319
thousand.
Problem assets do not include delinquent loans maintained on an accrual status.
Loans delinquent more than 30 days totaled $6.3 million at year-end 1996 (4.3%
of total loans), compared to $5.9 million (3.8% of total loans) at the prior
year-end. Included in 1996 delinquencies were loans totaling $1.8 million over
ninety days delinquent which remained on accrual because they were well secured
and in the process of collection. These loans included a total of $1.5 million
which was paid off in January, 1997.
The Bank monitors all adversely classified assets and sets plans to achieve
reductions in this category over time. As of December 31, 1996, classified
assets totaled $6.5 million, compared to $8.1 million at the prior year-end.
Included in the 1996 total was the $1.5 million in delinquent loans paid off in
January 1997. Net of these loans, adversely classified assets totaled $5.1
million, or 2.2% of total assets.
Tolland Bank 8 Annual Report 1996
<PAGE>
Allowance for Loan Losses
- --------------------------------------------------------------------------------
December 31 (in thousands) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
Beginning balance $2,340 $2,090 $2,070 $2,100 $2,215
- --------------------------------------------------------------------------------
Charge-offs:
Residential mortgages (74) (102) (177) (6) (71)
Consumer (273) (252) (251) (230) (330)
Commercial (220) (1,438) (288) (106) (1,182)
Total Charge-offs (567) (1,792) (716) (342) (1,583)
- --------------------------------------------------------------------------------
Recoveries:
Residential mortgages 12 8 1 -- 13
Consumer 61 53 89 96 210
Commercial 26 6 7 25 --
Total Recoveries 99 67 97 121 223
- --------------------------------------------------------------------------------
Net Charge-offs (468) (1,725) (619) (221) (1,360)
- --------------------------------------------------------------------------------
Provision for losses 978 1,975 639 191 1,245
- --------------------------------------------------------------------------------
Ending balance $2,850 $2,340 $2,090 $2,070 $2,100
- --------------------------------------------------------------------------------
Allowance for loan losses
by type of loan:
Residential mortgage $ 304 $ 173 $ 118 $ 96 $ 113
Consumer 416 276 300 371 471
Commercial 2,130 1,891 1,672 1,603 1,516
Total $2,850 $2,340 $2,090 $2,070 $2,100
- --------------------------------------------------------------------------------
Management increased the allowance by $510 thousand in 1996. This increase is
partially attributable to the $464 thousand in reserves on the two commercial
loans which account for $1.9 million of the nonaccruing loan balance discussed
above. The increase in the allowance also included a $225 thousand general
reserve on accruing commercial loans delinquent more than ninety days.
- --------------------------------------------------------------------------------
Net charge-offs as a percentage
of average loans by type: 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
Residential mortgage 0.15% 0.21% 0.42% 0.01% 0.14%
Consumer 0.84 0.88 0.77 0.52 0.34
Commercial 0.34 1.77 0.50 0.15 2.09
Total 0.31 1.16 0.52 0.18 1.02
- --------------------------------------------------------------------------------
Allowance as a percentage
of outstanding loans by type:
- --------------------------------------------------------------------------------
Residential mortgage 0.75% 0.39% 0.26% 0.23% 0.26%
Consumer 1.59 1.23 1.29 1.76 1.59
Commercial 3.82 3.18 2.65 3.10 2.84
Subtotal Regular Loans 2.33 1.86 1.67 1.80 1.66
SBA guaranteed certificates -- -- -- -- --
Total 1.95 1.53 1.59 1.80 1.66
- --------------------------------------------------------------------------------
Tolland Bank 9 Annual Report 1996
<PAGE>
The ratio of the allowance to regular loans increased to 2.33% at year-end 1996,
compared to 1.86% at year-end 1995. No reserves are assigned to the 100% SBA
guaranteed loan certificates, which are backed by the full faith and credit of
the U.S. Treasury. The allowance measured 84% of total nonaccruing loans as of
December 31, 1996, an increase compared to 53% at year-end 1995. The 1996
allowance was equal to 609% of 1996 total net charge-offs, compared to a ratio
of 136% in 1995. Charge-offs were elevated in 1995, primarily due to one large
commercial relationship. 1996 net loan charge-offs measured 37 basis points in
relationship to average regular loans, which is about half the level over the
previous five year period.
In general, charge-offs have resulted from declines in collateral values over
the past several years. Most loan categories continue to season, and most
problem loans result from older loans where borrowers encounter payment
difficulties due to the soft economy. The highest category of net loan
charge-offs in 1996 was consumer loans, with $212 thousand in net charge-offs.
These loan losses were primarily related to ongoing elevated charge-offs of
mobile home loans. Management allocated higher reserves to residential mortgages
and to consumer loans at year-end 1996 based on a moderate increase in
classified loans in these categories. Commercial loan charge-offs were primarily
related to commercial nonaccruing loans which were liquidated in 1996.
Deposits and Borrowings
- --------------------------------------------------------------------------------
December 31 (dollars in millions) 1996 1995 % change
- --------------------------------------------------------------------------------
Demand deposits $ 19.7 $ 17.7 $11.3
NOW deposits 20.5 20.8 (1.6)
Money market deposits 6.5 5.5 17.6
Savings deposits 38.1 38.2 (0.2)
Time deposits less than $100 thousand 105.4 98.5 7.0
Time deposits greater or equal to $100 thousand 15.4 12.7 21.5
Total deposits $205.6 $193.4 6.3
- --------------------------------------------------------------------------------
Personal $173.9 $164.2 5.9
Commercial 26.0 25.2 5.0
Municipal 5.7 4.0 27.8
Total deposits $205.6 $193.4 $ 6.3
- --------------------------------------------------------------------------------
Total deposits increased by $12.2 million (6.3%) at year-end 1996 compared to
year-end 1995. Time deposits increased by $9.6 million (8.6%) due to ongoing
promotions. In 1996, the Bank promoted time accounts in the one year to three
year maturity ranges, whereas in 1995 the promotions were primarily of six month
and one year accounts. The Bank also experienced ongoing growth of demand
deposit accounts, reflecting growth in the number of households serviced. During
the year, the Bank introduced a Young Americans relationship package targeted
toward children up to college age. Savings balances at year-end were little
changed from the previous year-end, and money market account balances were
higher by $1.0 million. Savings and money market balances had declined in 1995
due to shifts into time accounts.
Total borrowings increased by $3.5 million (51.1%) to $10.4 million at year-end
1996 compared to the prior year-end. The Bank had paid down short-term
borrowings during the year, but borrowings were increased in the fourth quarter
as short-term investments were increased. Borrowings at year-end 1996 included
$3.9 million of FHLBB loans due after two years.
Tolland Bank 10 Annual Report 1996
<PAGE>
Interest Rate Sensitivity
At December 31, 1996, the Bank had a positive twelve month gap of $16 million,
which was down from $25 million at the previous year-end. The gap declined
because investment securities due after one year increased by $17 million to $40
million, reflecting the purchase of securities. This was partially offset by a
$5 million increase in time deposits over one year. The one year interest rate
gap had decreased to near break-even during 1996. However, a decline in interest
rates near the end of the year caused some callable agency securities to become
potentially callable, thereby shifting these assets to under one year. With
$13.8 million in callable agency securities, the Bank's one year interest rate
gap at year-end 1996 was more sensitive to large shifts based on small changes
in interest rates.
The Bank generally targets a one year gap that is near break-even or slightly
positive. This provides protection to net interest income in case interest rates
increase. With interest rates near record lows in recent years, the Bank's
priority has been to protect against increases rather than decreases in interest
rates. Because the one year gap was near break-even for much of the year, the
net interest spread did not increase despite the general increase in interest
rates during the year. Additionally, the yield on loans was also affected by a
$143 thousand increase in foregone interest income on nonaccruing loans in 1996.
With the Bank's position of a positive one year gap at year-end 1996, net
interest income should increase in a rising rate environment and should decrease
in a falling rate environment, all other things being equal.
The following table presents a breakdown of the Bank's interest rate sensitive
assets and liabilities on December 31, 1996 by specific time frames and
cumulatively. Balances of fixed rate assets are reported by their expected
prepayment schedules or by their expected remaining lives taking into account
call provisions. These estimates are provided by a correspondent bank and are
based on market estimates. Balances of deposit liabilities without a contractual
maturity are reported by their repricing characteristics. These repricing
characteristics are determined by Management in accordance with an analysis of
the market sensitivity of specific deposit product types.
Total
Interest Rate Sensitivity -- Repricing Horizon Within 1-5 Over 5
(dollars in millions) One Year Years Years
- --------------------------------------------------------------------------------
December 31, 1996
Earning Assets:
Loans $105 $ 12 $ 30
Securities available for sale 24 16 5
Securities held to maturity 2 15 4
Other assets 6 -- --
Total earning assets $137 $ 43 $ 39
- --------------------------------------------------------------------------------
Funds Supporting Earning Assets:
NOW deposits $ 14 $ 7 $ --
Savings & Money Market 18 27 --
Time deposits less than $100,000 70 35 --
Time deposits greater or equal to $100,000 13 3 --
Borrowings 6 4 --
Non-interest bearing funds -- -- 22
Total funds supporting earning assets $121 $ 76 $ 22
- --------------------------------------------------------------------------------
December 31, 1996
Gap for period $ 16 $(33) $ 17
Cumulative gap 16 (17) --
Cumulative gap as percent of total earning assets 7% (8) --
- --------------------------------------------------------------------------------
December 31, 1995
Cumulative gap $ 25 $(16) --
Cumulative gap as percent of total earning assets 12% (8)% --
- --------------------------------------------------------------------------------
Tolland Bank 11 Annual Report 1996
<PAGE>
Liquidity And Cash Flows
Liquidity is the Bank's ability to meet its cash needs promptly and at a
reasonable cost. Liquidity is needed to fund loan originations and the use of
credit commitments, along with deposit withdrawals and maturing borrowings. The
Bank manages its day-to-day liquidity by maintaining overnight investments
and/or utilizing short term borrowings. In addition to its FHLBB relationship,
the Bank maintains $8.8 million in credit facilities for short term borrowings
and repurchase agreements. Over the year, loan originations and asset purchases
are funded by amortizations of loans and investments , as well as by deposit
growth and FHLBB borrowings. In 1996, the primary use of funds was the purchase
of securities investments and the primary source of funds was growth in time
deposits. In the event of additional funds needs, the Bank could choose to sell
securities from the securities available for sale portfolio. Additionally, the
portfolio of SBA guaranteed loan certificates represents a readily marketable
pool of assets.
Capital Resources
Tolland Bank met all regulatory capital requirements through December 31, 1996.
The Tier 1 Leverage Capital ratio measured 6.8% at year-end 1996, which was up
from 6.4% a year ago. The Bank's Tier 1 Leverage Capital totaled $15.3 million
at year-end 1996, exceeding by $1.7 million the level necessary to achieve the
Bank's minimum 6.0% target for the Tier 1 Leverage ratio. Year-end 1996 Tier 1
Leverage Capital increased by $1.7 million (12.4%) compared to the previous
year-end. Total shareholders' equity increased by $2.3 million (17.4%) in 1996
due to improved earnings and to a reduction in the unrealized loss on the market
value of securities. The Bank restored the quarterly cash dividend in the fourth
quarter of 1996. Dividends on the Bank's stock are subject to certain statutory
and regulatory limitations which are more fully described in the Notes to the
Financial Statements.
COMPARISON OF 1995 AND 1994
Tolland Bank reported a net loss of $1.15 million in 1995, compared to a net
profit of $454 thousand in 1994. The loss in 1995 stemmed from charge-offs and
write-downs on problem assets, most of which were recorded at the end of the
second quarter. The Bank's earnings, exclusive of loan loss provisions, losses
on assets and taxes, increased by $627 thousand (53%) to $1.81 million in 1995.
This was a result of growth in the Bank's basic business lines, combined with
the impact of lower expenses in the second half of the year.
Problem asset related losses included net losses on foreclosed assets of $967
thousand, together with net loan charge-offs of $1.72 million. The losses on
foreclosed assets were recorded mostly in conjunction with accelerated
dispositions of foreclosed properties. As a result, total foreclosed assets
decreased during 1995 by $3.4 million to $2.0 million, measuring 0.9% of total
assets at year-end 1995. The net loan charge-offs primarily related to one
commercial loan situation. The Bank recorded a loan loss provision of $1.975
million in 1995, which both replenished and augmented the loan loss allowance.
At year-end 1995, the carrying value of all impaired loans was fully covered by
the net fair value of their collateral. Total nonaccruing and restructured loans
decreased from $7.3 million at year-end 1994 to $6.5 million at year-end 1995,
measuring 3.0% of total assets at December 31, 1995.
Growth in the Bank's business lines was most evident in the growth in deposits,
which increased by $13.0 million (7.2%) during 1995, with most of the increase
consisting of time deposits. Proceeds from new deposits were primarily invested
in purchased loan certificates which are 100% guaranteed by the U.S. Small
Business Administration ("SBA"). The Bank also recorded a $2.4 million increase
in total commercial mortgages and commercial loans. Total assets were $214.1
million at December 31, 1995, representing a 6.5% increase from the previous
year-end.
Net interest income increased by $410 thousand (5.9%) during 1995 due to the
growth in loans and deposits, and to the reinvestment of proceeds from
foreclosed asset sales. Total fees and service charges grew by $216 thousand
(27.4%), primarily due to increased originations and sales of residential
mortgage loans. Non-interest expense increased by 1% in 1995, with increases
related to mortgage originations mostly offset by decreases in FDIC insurance
premiums and in problem asset related expenses. After the end of the third
quarter, the Bank announced a 14% reduction in its work force which resulted
from system enhancements and the centralization of several back-office
departments.
The Bank's equity capital increased by $79 thousand to $13.3 million during the
year. A decline in the net unrealized losses on securities offset the reduction
in shareholders' equity resulting from the loss. Tolland Bank's Tier 1 leverage
capital ratio stood at 6.4% at December 31, 1995, and the Bank met all
regulatory capital requirements.
Tolland Bank 12 Annual Report 1996
<PAGE>
Management's Report on the Financial Statements
The Management of Tolland Bank is responsible for the accuracy and content of
the financial statements and other information in this annual report. The
financial statements have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis in all material respects,
and information presented relies on Management's judgment where material
estimates are required. The financial statement disclosures include the fair
values of financial instruments, which include many assets and liabilities. They
are not a representation of the fair values or liquidation values of total
assets and liabilities, or the value of present and future business activities
of the Bank.
The accounting systems which record, summarize, and report data are supported by
a system of internal controls that is augmented by written policies, internal
audits and staff training programs. The Audit, Budget and Risk Management
Committee of the Board of Directors is made up solely of outside directors who
are not employees of the Bank. It directs and reviews the activities of the
internal audit function and meets at least annually with representatives of KPMG
Peat Marwick LLP, the Bank's independent auditors. KPMG Peat Marwick LLP, a firm
of Certified Public Accountants, has been appointed by the Board of Directors
with the approval of the Shareholders to conduct an independent audit and to
express an opinion as to the fairness of the presentation of the financial
statements of Tolland Bank, in accordance with generally accepted accounting
principles.
Independent Auditors' Report
To the Shareholders and Board of Directors of Tolland Bank:
We have audited the accompanying balance sheets of Tolland Bank as of December
31, 1996 and 1995, and the related statements of income, changes in
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1996. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tolland Bank as of December 31,
1996 and 1995, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
January 27, 1997
Tolland Bank 13 Annual Report 1996
<PAGE>
Tolland Bank Balance Sheets
- --------------------------------------------------------------------------------
December 31 (in thousands except share data) 1996 1995
- --------------------------------------------------------------------------------
Assets
Cash and due from banks $ 7,463 $ 6,408
Short-term investments 5,100 35
Total cash and cash equivalents 12,563 6,443
Securities available for sale (at fair value) 45,386 22,522
Securities held to maturity
(fair value of $20,649 in 1996 and $23,573 in 1995) 20,690 23,377
Residential mortgage loans 40,346 43,996
Commercial mortgage loans 40,494 40,694
Other commercial loans 15,287 18,751
Consumer loans 26,118 22,381
SBA guaranteed loan certificates 24,263 27,040
Total loans 146,508 152,862
Less: Allowance for loan losses (2,850) (2,340)
Net loans 143,658 150,522
Premises and equipment, net 4,416 4,663
Foreclosed assets, net 980 2,012
Other assets 4,589 4,537
Total assets $232,282 $214,076
Liabilities and Shareholders' Equity
Demand deposits $ 19,673 $ 17,680
NOW deposits 20,522 20,847
Money market deposits 6,469 5,503
Savings deposits 38,102 38,162
Time deposits 120,842 111,246
Total deposits 205,608 193,438
Borrowings 10,406 6,885
Other liabilities 679 472
Total liabilities 216,693 200,795
Commitments and contingencies
Preferred stock, ($1.00 par value;
1,000,000 shares authorized, none issued) -- --
Common stock, ($1.00 par value; authorized
4,000,000 shares; issued and outstanding
1,172,500 in 1996 and 1,157,500 in 1995) 1,173 1,158
Additional paid-in capital 8,918 8,795
Retained earnings 5,731 4,328
Net unrealized loss on securities (233) (1,000)
Total shareholders' equity 15,589 13,281
Total liabilities and shareholders' equity $232,282 $214,076
- --------------------------------------------------------------------------------
See accompanying notes to financial statements
Tolland Bank 14 Annual Report 1996
<PAGE>
Tolland Bank Statements of Income
- --------------------------------------------------------------------------------
Years ended December 31
(dollars in thousands except share data) 1996 1995 1994
- --------------------------------------------------------------------------------
Interest Income
Loans $12,347 $12,170 $ 9,187
Securities (including dividend income) 3,381 2,771 2,748
Other earning assets 244 98 255
Total interest and dividend income 15,972 15,039 12,190
Interest Expense
Deposits 7,894 6,933 4,897
Borrowings 415 742 339
Total interest expense 8,309 7,675 5,236
Net interest income 7,663 7,364 6,954
Provision For Loan Losses 978 1,975 639
Net interest income after provision for
loan losses 6,685 5,389 6,315
Non-Interest Income
Service charges and fees 1,115 1,005 789
Net gain (loss) on securities (40) 22 (16)
Net gain (loss ) on assets 200 (967) (28)
Total non-interest income 1,275 60 745
Non-Interest Expense
Compensation and benefits 3,253 3,444 3,181
Occupancy 597 576 605
Equipment 285 296 272
Data processing services 476 518 564
FDIC insurance 57 255 428
Office and other insurance 452 497 458
Problem asset related expense 549 279 351
Other 971 717 686
Total non-interest expense 6,640 6,582 6,545
Income (loss) before income taxes 1,320 (1,133) 515
Income tax expense (benefit) (118) 12 61
Net Income (Loss) $ 1,438 $(1,145) $ 454
Per Share Data
Earnings (loss) per share $ 1.22 $ (0.97) $ 0.38
Average shares outstanding 1,176,326 1,182,887 1,180,607
- --------------------------------------------------------------------------------
See accompanying notes to financial statements
Tolland Bank 15 Annual Report 1996
<PAGE>
Tolland Bank Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Net
Additional unrealized Total
Years ended December 31 Common paid-In Retained loss on shareholders'
(in thousands except share data) stock capital earnings securities equity
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $1,158 $8,795 $5,019 $ (193) $14,779
- ------------------------------------------------------------------------------------------------
Net Income -- -- 454 -- 454
Change in net unrealized loss
on securities -- -- -- (2,031) (2,031)
- ------------------------------------------------------------------------------------------------
Balance, December 31, 1994 1,158 8,795 5,473 (2,224) 13,202
- ------------------------------------------------------------------------------------------------
Net Loss -- -- (1,145) -- (1,145)
Change in net unrealized loss
on securities -- -- -- 1,224 1,224
- ------------------------------------------------------------------------------------------------
Balance, December 31, 1995 1,158 8,795 4,328 (1,000) 13,281
- ------------------------------------------------------------------------------------------------
Net Income -- -- 1,438 -- 1,438
Dividends declared and paid
($0.03 per share) -- -- (35) -- (35)
Issuance of shares pursuant to
exercise of stock options 15 123 -- -- 138
Change in net unrealized loss
on securities -- -- -- 767 767
- ------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $1,173 $8,918 $5,731 $ (233) $15,589
- ------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements
Tolland Bank 16 Annual Report 1996
<PAGE>
Tolland Bank Statements of Cash Flows
- --------------------------------------------------------------------------------
Years ended December 31 (in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Operating Activities:
Net income (loss) $ 1,438 $ (1,145) $ 454
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Provision for loan losses 978 1,975 639
Depreciation and amortization 513 509 600
Net investment security (gains) losses 40 (22) 16
Net asset (gains) losses (200) 967 28
Increase (decrease) in other liabilities 207 (109) (106)
(Increase) in other assets (292) (1,817) (435)
Net cash provided by operating activities 2,684 358 1,196
Investing Activities:
Securities available for sale:
Proceeds from amortization and maturities 2,447 214 383
Proceeds from sales of securities 3,759 3,461 1,270
Purchases of securities (28,422) (3,067) (9,581)
Securities held to maturity:
Proceeds from amortization and maturities 2,060 3,681 8,634
Proceeds from sales of securities 806 -- --
Purchases of securities -- (959) (2,590)
Net (increase) decrease in loans 5,517 (23,312) (17,553)
Proceeds from sales of foreclosed assets 1,530 2,620 5,672
(Increase) decrease in foreclosed assets -- (151) (54)
Purchases of premises and equipment (157) (232) (188)
Proceeds from sales of premises and equipment 102 -- --
Net cash used by investing activities (12,358) (17,745) (14,007)
Financing Activities:
Net increase in interest-bearing deposits 10,177 11,415 10,581
Net increase in demand deposits 1,993 1,622 3,629
Net increase in borrowings 3,521 (7) (5,108)
Proceeds from issuance of common stock 138 -- --
Cash dividends paid (35) -- --
Net cash provided by financing activities 15,794 13,030 9,102
Net Change in cash and cash equivalents 6,120 (4,357) (3,709)
Cash and cash equivalents at beginning of the year 6,443 10,800 14,509
Cash and cash equivalents at end of the year $12,563 $ 6,443 $10,800
Supplemental Information On Cash Payments
Interest expense $ 8,309 $ 7,577 $ 5,213
Income taxes 460 37 270
Supplemental Information On Non-cash Transactions
Net loans transferred to foreclosed assets 369 93 967
Securities transferred from (to) available for
sale to (from) held to maturity, net -- (5,942) 21,982
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
Tolland Bank 17 Annual Report 1996
<PAGE>
Tolland Bank Notes to Financial Statements
1. Summary Of Significant Accounting Policies
Principles of Business. The Bank is a savings bank chartered by the State of
Connecticut. The Bank's deposits are insured up to applicable limits by the
Federal Deposit Insurance Corporation ("FDIC"). The primary regulators of the
Bank are the Connecticut Department of Banking and the FDIC. The Bank provides
commercial and consumer banking services from its seven offices located in the
Connecticut towns of Tolland, Vernon, Coventry, Ellington, Stafford Springs, and
Willington.
Basis of Preparation and Presentation. The financial statements have been
prepared and presented in conformity with generally accepted accounting
principles. Unless otherwise noted, all dollar amounts presented in the
financial statements are rounded to the nearest thousand dollars, except share
data. Certain prior period amounts have been reclassified to conform with
current financial statement presentation.
The Bank uses the accrual method of accounting for all material items of income
and expense. The Bank is required to make certain estimates and assumptions in
preparing these statements. The most material estimates are those necessary in
determining the allowance for loan losses, the valuation of foreclosed assets,
and the valuation allowance associated with the net deferred tax asset, as
discussed in following sections. Additionally, the Bank has made extensive
estimates in determining fair values of financial instruments, as discussed
below.
Securities. Debt securities that the Bank has the positive intent and ability to
hold to maturity are classified as held to maturity securities and reported at
amortized cost. Debt and equity securities that are bought and held principally
for the purpose of selling them in the near term to benefit from interest rate
or other market changes are classified as trading securities and reported at
fair value, with unrealized gains and losses included in earnings. Debt and
equity securities not classified as either held to maturity securities or
trading securities are classified as available for sale securities and reported
at fair value, with unrealized net gains or losses excluded from earnings and
reported in a separate component of shareholders' equity net of applicable
income taxes. These securities may be sold when the Bank's financial management
strategies change, or when conditions change such that, when compared with
alternative investments, the securities no longer satisfactorily meet the Bank's
objectives and guidelines of the Federal Financial Institutions Examination
Council (FFIEC). Any decline in the value of a security below its cost
considered to be other than temporary is reflected as a realized loss in the
statement of income. Realized gains or losses on the sale of securities are
generally computed on a specific identified cost basis and reported as Net Gains
(Losses) on Securities in the Statements of Income. Premiums and discounts are
recognized as an adjustment of yield by the interest method.
Loans. Total loans are reported at the principal amount outstanding, and
adjusted for the net amount of deferred fees and costs, premiums and discounts,
except for charged-off loans as discussed below. Net loans are total loans less
the amount of the allowance for loan losses. Residential mortgage loans held for
sale, included in other assets on the balance sheet, are stated at the lower of
amortized cost or market value. Gains or losses are determined using the
specific identification method.
Premiums and discounts are recognized as an adjustment of yield by the interest
method based on the contractual terms of the loan. Commitment fees are
considered to be an adjustment to the loan yield. Loan origination fees and
certain direct costs of loan origination are also deferred and accounted for as
an adjustment to yield. The unamortized balance of deferred fees and costs is
credited or charged to the income statement at the time a loan repays.
Interest income receivable is included in Other Assets on the Statement of
Financial Condition. Most of the Bank's loans require interest payments monthly
in arrears. The Bank generally places loans on non-accrual when a payment
becomes more than three months past due. The Bank may also place a loan on
non-accrual sooner if a concern develops as to the ultimate collection of
principal or interest. The Bank may grant a waiver from non-accrual status on
certain commercial loans which are well secured and in the process of
collection. Generally, when a commercial loan is placed on non-accrual status,
any interest receivable over 90 days is charged-off; interest receivable on all
other loans is charged off entirely. Payments received on non-accruing loans are
normally applied first against unpaid interest.
Effective January 1, 1995, the Bank adopted Statement of Financial Accounting
Standards No. 114, Accounting by Creditors for Impairment of a Loan (SFAS 114),
and Statement of Financial Accounting Standards No. 118, Accounting by Creditors
for Impairment of a Loan-Income Recognition and Disclosure (SFAS 118). A loan is
considered impaired when it is probable that the Bank will not be able to
collect all amounts due according to the contractual terms of the agreement. In
accordance with these statements, Management has excluded large groups of
smaller balance homogeneous loans, including residential mortgages and consumer
loans, which are evaluated collectively for impairment. The amount of impairment
for all impaired loans is determined by the difference between the present value
of the expected cash flows related to the loan,
Tolland Bank 18 Annual Report 1996
<PAGE>
using the original contractual interest rate, and its recorded value, or as a
practical expedient, for collateral dependent loans, the difference between the
appraised value of the collateral and the recorded amount of the loan. When
foreclosure is probable, impairment is measured based on the fair value of the
collateral. The Bank's method of recognition of interest income on impaired
loans is consistent with the method of recognition of interest on all loans.
Effective January 1, 1996, the Bank adopted Statement of Financial Accounting
Standard No. 122, Accounting for Mortgage Servicing Rights which amends SFAS No.
65, Accounting for Certain Mortgage Banking Activities. The Statement requires
that a mortgage banking enterprise recognize as separate assets, rights to
service mortgage loans for others, regardless of how those servicing rights are
acquired. Additionally, the Statement requires that the capitalized mortgage
servicing rights be assessed for impairment based on the fair value of those
rights, and that impairment be recognized through a valuation allowance.
Mortgage servicing rights are amortized in proportion to and over the period of,
estimated net servicing income. All related amortization and impairment
valuations are charged to mortgage servicing income.
Loan Charge-offs. Most non-accruing consumer loans are automatically charged-off
once they become past due for longer than 150-180 days depending on the
circumstances, regardless of how well secured they are. Other non-accruing loans
are charged off in whole or in part when it has been determined that there has
been a loss of principal. For real estate secured loans, this determination is
normally made in conjunction with a current appraisal analysis and the transfer
of the loan to foreclosed assets. Charge-offs and recoveries are booked to the
allowance for loan losses. Initial write-downs on recently acquired foreclosed
assets are also booked to the allowance for loan losses.
Allowance for Loan Losses and Provision for Loan Losses. The allowance for loan
losses is maintained at a level estimated by the Bank to be adequate to absorb
estimated credit losses associated with the loan portfolio, including all
binding commitments to lend. The Bank's estimation of the adequacy of the
allowance is based on an evaluation of the portfolio, past loan loss and
recovery experience, current economic conditions, the age and composition of the
portfolio, loan loss experience at peer group competitors and other relevant
factors. The provision for loan losses is the charge or credit to current period
income necessary to establish the loan loss allowance at the level estimated to
be adequate by the Bank.
Economic and real estate market conditions in New England have contracted since
the late 1980's. This contraction has also been evident in the Bank's primary
market of Tolland County. The Bank's estimates of the collectibility of
principal and interest rely in many cases on estimates of future borrower cash
flows and market conditions and expectations. In addition, federal and state
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for losses on loans. Based on
information available to them at the time of their examination, and on
regulatory guidelines then in effect, such agencies may require the Bank to
recognize additions to the allowance for loan losses. Accordingly, current
estimates of loan losses may vary from future estimates and from ultimate loan
loss experience.
Foreclosed Assets. Foreclosed assets include foreclosed real estate, real estate
deeded to the Bank, and personal property repossessed by the Bank, net of a
valuation allowance for specific properties. Foreclosed assets are transferred
from loans at the lower of cost or fair value less selling costs, with any
necessary write down from carrying value being charged against the allowance for
loan losses.
The Bank periodically obtains and analyzes appraisals of foreclosed real estate.
If the fair value less selling costs is less than the carrying value of these
assets, these assets are written down to that value by increasing the amount of
the valuation allowance. Additionally, the Bank may recognize a gain or loss on
the ultimate disposition of foreclosed assets. The net amount of these gains and
provisions to increase the valuation allowance are shown as Net Gain (Loss) on
Assets in the Statements of Income. The carrying value of foreclosed real estate
is subject, in general, to the same uncertainties discussed above regarding the
Allowance for Loan Losses. Net receipts and disbursements related to the
operations of foreclosed real estate are included in Problem Asset Related
Expense in the Statements of Income.
Property and Equipment. Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is charged to operations
on a straight-line basis over the estimated useful lives of the related assets.
Amortization of leasehold improvements is accumulated on a straight-line basis
over the initial term of the respective leases. Expenditures for maintenance and
repairs are charged to operations as incurred.
Intangible Assets. Intangible assets related to branch acquisitions are being
amortized on a straight line basis over 10--15 years. On a periodic basis, the
Bank reviews the intangible assets for events or changes in circumstances that
may indicate the carrying value of the assets may not be recoverable.
Income Taxes. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss carry-forwards. Deferred tax assets are
reduced by a valuation allowance which takes into account Management's
assessment of the realizability of deferred tax assets. In assessing the
realizability of deferred tax assets, Management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. In making the assessment, Management considers the estimated reversal
of deferred tax liabilities, projected future taxable income, taxes paid in
prior years that are recoverable, and tax planning strategies. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Tolland Bank 19 Annual Report 1996
<PAGE>
Stock Options. Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation (SFAS 123) became effective on January 1, 1996 for
the Bank. This Statement establishes a fair value based method of accounting for
stock-based compensation plans under which compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period. However, the Statement allows a company to continue to measure
compensation cost for such plans under Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees. Under APB 25, no compensation
cost is recorded if, at the grant date, the exercise price of the options is
equal to the fair market value of the company's common stock. SFAS 123 requires
companies which elect to continue to follow the accounting provisions of APB 25
to disclose in the notes to their financial statements pro forma net income and
earnings per share as if the fair value based method of accounting had been
applied. The Bank has elected to continue to follow the accounting provisions of
APB 25.
Disclosures of Fair Values of Financial Instruments. Fair value estimates are
made at a specific point in time, based on relevant market information and
information about the financial instrument. These estimates do not reflect any
premium or discount that could result from offering for sale, at one time, the
Bank's entire holdings of a particular financial instrument. Because no market
exists for a significant portion of the Bank's financial instruments, fair value
estimates were based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and, therefore, cannot
be determined with precision. Changes in assumptions could effect the estimates
significantly. Fair value estimates were based on existing on and off-balance
sheet financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that are not
considered financial instruments. In addition, the tax ramifications relating to
the realization of the unrealized gains and losses may have a significant effect
on fair value estimates and have not been considered in the estimates. Fair
value methods and assumptions are set forth below for the Bank's financial
instruments.
The carrying amounts reported in the balance sheets for cash and short-term
instruments approximate those assets' fair values. Fair values of investment
securities were based on quoted market prices where available. If quoted market
prices were not available, fair values were based on quoted market prices of
comparable instruments. The carrying values, reduced by estimated inherent
credit losses, of variable-rate loans and other loans with short-term
characteristics were considered fair values. The fair value of residential
mortgages was based on quoted market prices of similar loans sold in conjunction
with securitization transactions, adjusted for differences in loan
characteristics and credit losses inherent in the portfolio. For other loans,
the fair market values were calculated by discounting scheduled future cash
flows using current interest rates offered on loans with similar terms adjusted
to reflect the estimated credit losses inherent in the portfolio. The carrying
amounts of accrued interest receivable approximates fair values.
The fair values of deposits with no stated maturity, was, by definition, equal
to their carrying value. The fair value of time deposits was based on the
discounted value of contractual cash flows, calculated using the discount rates
that equaled the interest rates offered at the valuation date for deposits of
similar remaining maturities. The carrying amounts of short-term borrowings
approximated their fair values. Rates currently available for debt with similar
terms and remaining maturities were used to estimate fair value of long-term
borrowings. The carrying amount of accrued interest payable approximates fair
value. The fair value of off balance sheet instruments is based on fees
currently charged for such instruments, which consisted primarily of credit
commitments described in Note 12.
Transfers and Servicing of Financial Assets and Extinguishers of Liabilities. In
June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities (SFAS 125). SFAS 125 is
effective for servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996. The transfer and collateral provisions of
SFAS 125 are effective for transfers occuring after December 31, 1997. The
provisions of the statement are to be applied prospectively. This Statement
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on consistent
application of a financial-components approach that focuses on control. It
distinguishes transfers of financial assets that are sales from transfers that
are secured borrowings. The Bank does not expect that adoption of SFAS 125 will
have a material impact on the Bank's financial position, results of operations,
or liquidity.
<PAGE>
Earnings Per Share. Earnings per share are computed by dividing net income by
the weighted average number of common shares outstanding, including common stock
equivalents, during each period.
Cash Flow Reporting. The Bank uses the indirect method to report cash flows from
operating activities. Under this method, net income is adjusted to reconcile it
to net cash flow from operating activities. Net reporting of cash transactions
affecting balance sheet items has been used where permitted. The Bank considers
due from banks and short-term investments to be cash equivalents.
Tolland Bank 20 Annual Report 1996
<PAGE>
2. Cash And Cash Equivalents
- --------------------------------------------------------------------------------
Short-term investments at December 31 (in thousands) 1996 1995
- --------------------------------------------------------------------------------
Federal funds sold $4,000 $ --
Money market preferred stock 1,000 --
Interest bearing deposits due from other banks 100 --
FHLBB Ideal Way account -- 35
Total short-term investments $5,100 $ 35
- --------------------------------------------------------------------------------
The Bank is required to maintain certain average vault cash and cash reserve
balances with the Federal Reserve Bank of Boston. Cash and Due from Banks
included amounts so required of $677,000 and $636,000 at December 31, 1996 and
December 31, 1995, respectively.
3. Securities
- --------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
December 31, 1996 (in thousands) Cost Gains Losses Value
- --------------------------------------------------------------------------------
Securities available for sale
U.S. Government and agency $25,314 $ 34 $(366) $24,982
U.S. Agency mortgage-backed 3,375 20 (5) 3,390
Other debt-securities 1,745 -- (11) 1,734
Marketable equity 13,989 598 (27) 14,560
FHLBB stock 720 -- -- 720
Total available for sale $45,143 $652 $(409) $45,386
- --------------------------------------------------------------------------------
Securities held to maturity
U.S. Government and agency $ 2,876 $ 19 $ -- $ 2,895
U.S. Agency mortgage-backed 15,757 -- (47) 15,710
Other debt-securities 2,057 -- (13) 2,044
Total held to maturity $20,690 $ 19 $ (60) $20,649
- --------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
December 31, 1995 (in thousands) Cost Gains Gains Value
- --------------------------------------------------------------------------------
Securities available for sale
U.S. Government and agency $15,561 $ 20 $(493) $15,088
U.S. Agency mortgage-backed 4,166 42 (21) 4,187
Other debt-securities 2,255 49 -- 2,304
FHLBB stock 943 -- -- 943
Total available for sale $22,925 $111 $(514) $22,522
- --------------------------------------------------------------------------------
Securities held to maturity
U.S. Government and agency $ 2,851 $ 89 $ -- $ 2,940
U.S. Agency mortgage-backed 17,026 163 (36) 17,153
Other debt securities 3,500 -- (20) 3,480
Total held to maturity $23,377 $252 $ (56) $23,573
- --------------------------------------------------------------------------------
Tolland Bank 21 Annual Report 1996
<PAGE>
The amortized cost, estimated fair value and average yield of debt securities
are shown below by contractual maturity, except for mortgage-backed (including
collateralized mortgage obligations) and asset-backed instruments, which are
classified based on their expected average lives. The expected average lives
have been determined based on prepayment and related assumptions. Accordingly,
the expected average lives may differ from actual lives.
- --------------------------------------------------------------------------------
Amortized Fair Average
December 31, 1996 (in thousands) Cost Value Yield
- --------------------------------------------------------------------------------
Securities available for sale
Due in 1 year or less $ 2,738 $ 2,720 4.90%
Due after 1 to 5 years 16,088 15,790 5.67
Due after 5 to 10 years 6,120 6,148 7.44
Due after 10 years 5,488 5,448 7.40
Total available for sale $30,434 $30,106 6.27%
- --------------------------------------------------------------------------------
Securities held to maturity
Due after 1 to 5 years $18,081 $18,031 5.89%
Due after 5 to 10 years 2,609 2,618 6.20
Total held to maturity $20,690 $20,649 5.93%
- --------------------------------------------------------------------------------
As of December 31, 1996, securities having an amortized cost of $2,146,000 were
pledged to secure treasury, tax and loan and other deposits, and securities with
an amortized cost of $4,521,000 were pledged to secure federal funds borrowings.
At December 31, 1995, securities with an amortized cost of $5,942,000 were
transferred to available for sale from held to maturity due to a one-time
opportunity to reassess security classifications in accordance with guidelines
issued by the Financial Accounting Standards Board (FASB). At the time of
transfer, the gross book value of those securities was $5,942,000 and the net
unrealized gain was $85,000.
Two held to maturity securities with an amortized cost totaling $856,000 were
sold in 1996 at a total loss of $50 thousand. These two securities evidenced
significant deterioration in the issuer's creditworthiness through the
downgrading by a credit agency and other relevant factors. Under state statutes
the Bank was required to evaluate these securities for sale, and the Bank made a
determination that they be sold due to uncertainties about their credit quality.
All other securities sold in 1996 and all securities sold in 1995 were
securities available for sale. The book value of debt and equity securities
sold, together with gross gains and gross losses, were as follows:
- --------------------------------------------------------------------------------
Years ended December 31 (in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Debt securities sold
Book value at sale $4,267 $3,439 $1,286
Gross gains 11 31 --
Gross losses (52) (9) (16)
Equity securities sold
Book value at sale $338 -- --
Gross gains 1 -- --
Gross losses -- -- --
- --------------------------------------------------------------------------------
Tolland Bank 22 Annual Report 1996
<PAGE>
4. Total Loans
- --------------------------------------------------------------------------------
December 31 (in thousands) 1996 1995
- --------------------------------------------------------------------------------
Residential mortgage loans $ 40,346 $ 43,996
Commercial mortgage loans 40,494 40,694
Other commercial loans:
Construction 3,827 3,446
Other commercial real estate secured 3,004 5,871
Other commercial, not real estate secured 8,456 9,434
Total other commercial loans 15,287 18,751
Consumer loans:
Installment 10,736 12,195
Home equity loan 13,828 9,151
Other consumer loans 1,554 1,035
Total consumer loans 26,118 22,381
Total regular loans 122,245 125,822
Purchased SBA guaranteed loan certificates 24,263 27,040
Total loans $146,508 $152,862
Net deferred costs included in total loans $ 290 $ 122
- --------------------------------------------------------------------------------
The majority of the Bank's loans are secured by real estate located within
Tolland County or surrounding communities. Real estate loan activities are
governed by the Bank's loan policies, and loan to value ratios are based on an
analysis of the collateral backing each loan. Following is additional
information about the Bank's nonaccruing loans, delinquent loans, impaired
loans, and loans restructured prior to January 1, 1995.
- --------------------------------------------------------------------------------
December 31 (in thousands) 1996 1995
- --------------------------------------------------------------------------------
Total nonaccruing loans $3,381 $4,353
Accruing loans past due 90 days or more 1,857 152
Impaired loans:
Impaired loans -- valuation allowance required 1,856 --
Impaired loans -- no valuation allowance required 2,859 4,751
Total Impaired Loans $4,715 $4,751
Total valuation allowance on impaired loans 186 --
Commitments to lend additional funds for impaired loans -- --
Restructured loans, all of which are performing:
Loans restructured prior to January 1, 1995 531 2,110
Commitments to lend additional funds for restructured
loans -- --
- --------------------------------------------------------------------------------
Years ended December 31 (in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Additional interest income that would have been
earned on year-end loans if they had been accruing
based on originals terms:
Nonaccruing loans $ 198 $ 55 $ 14
Loans restructured prior to January 1, 1995 23 34 45
Total income recognized on impaired loans (1996 and 1995) 311 366 --
Average recorded investment in impaired loans (1996 and
1995) 5,779 3,517 --
- --------------------------------------------------------------------------------
In the ordinary course of business, the Bank makes loans to its directors and
officers and their related interests for substantially the same terms prevailing
at the time of origination for comparable transactions with others. As of
December 31, 1996, and 1995, loans to related parties totaled $639,000 and
$752,000 respectively. During 1996 originations of related party loans totaled
$41,000 and payments on related party loans totaled $154,000 . Loans serviced
for others totaled $4,110,000 and $2,684,000 at December 31, 1996 and 1995,
respectively.
Tolland Bank 23 Annual Report 1996
<PAGE>
5. Allowance For Loan Losses
- --------------------------------------------------------------------------------
Years ended December 31 (in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Balance at beginning of year $2,340 $2,090 $2,070
Charge-offs (567) (1,792) (716)
Recoveries 99 67 97
Provision for loan losses 978 1,975 639
Balance at end of year $2,850 $2,340 $2,090
- --------------------------------------------------------------------------------
6. Premises and Equipment, Net
- --------------------------------------------------------------------------------
December 31 (in thousands) 1996 1995
- --------------------------------------------------------------------------------
Land $ 1,195 $ 1,215
Buildings 4,292 4,278
Furniture, fixtures, and equipment 3,013 2,903
Total property and equipment 8,500 8,396
Less: accumulated depreciation and amortization (4,084) (3,733)
Property and equipment, net $ 4,416 $ 4,663
- --------------------------------------------------------------------------------
7. Foreclosed Assets, Net
- --------------------------------------------------------------------------------
December 31 (in thousands) 1996 1995
- --------------------------------------------------------------------------------
Foreclosed real-estate $ 1,086 $ 2,196
Repossessed personal property assets 116 157
Foreclosed asset valuation allowance (222) (341)
Total foreclosed assets $ 980 $ 2,012
- --------------------------------------------------------------------------------
Transactions in the valuation allowance for foreclosed assets, and gains and
losses included in net gains (loss) on assets in the statements of income, were
as follows:
- --------------------------------------------------------------------------------
Years ended December 31 (in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Transactions in the valuation allowance:
Balance at beginning of year $ 341 $ 582 $ 776
Write-downs, net (188) (1,208) (222)
Provision for losses, net 69 967 28
Balance at end of year $ 222 $ 341 $ 582
- --------------------------------------------------------------------------------
Gains and losses included in net gain (loss)
on assets in the statements of income:
Gross gains $ 270 $ 92 $ 210
Gross losses (141) (1,059) (238)
Net gain (loss) $ 129 $ (967) $ (28)
- --------------------------------------------------------------------------------
Tolland Bank 24 Annual Report 1996
<PAGE>
8. Other Assets
- --------------------------------------------------------------------------------
December 31 (in thousands) 1996 1995
- --------------------------------------------------------------------------------
Residential mortgage loans held for sale $1,323 $1,834
Accrued loan interest receivable 1,132 1,067
Other accrued interest and dividends receivable 538 338
Purchased deposit premium, net 330 441
Goodwill, net 199 229
Mortgage servicing rights 17 --
Net deferred tax asset, net 496 220
Income tax receivable 305 195
All other assets 249 213
Total other assets $4,589 $4,537
- --------------------------------------------------------------------------------
9. Deposits
- --------------------------------------------------------------------------------
1996 1995
-------------------- --------------------
December 31 (dollars in thousands) Amount Avg. Rate Amount Avg. Rate
- --------------------------------------------------------------------------------
Demand deposits $ 19,673 0.00% $ 17,680 0.00%
NOW deposits 20,522 1.80 20,847 1.80
Money market deposits 6,469 2.58 5,503 2.61
Savings deposits 38,102 2.31 38,162 2.31
Total non-time deposits 84,766 1.67 82,192 1.70
Time deposits, by remaining
period to maturity:
Within 1 year 83,299 5.27 78,000 5.51
After 1, but within 2 years 19,511 5.60 22,015 5.78
After 2, but within 3 years 6,606 6.13 8,154 5.82
After 3 years 11,426 6.16 3,077 6.37
Total time deposits 120,842 5.45 111,246 5.61
Total deposits $205,608 3.89% $193,438 3.95%
Time deposits of $100,000 or more $ 15,444 5.49% $ 12,707 5.84%
- --------------------------------------------------------------------------------
Interest expense and interest paid on deposits is summarized as follows:
- --------------------------------------------------------------------------------
Years ended December 31 (in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Interest Expense
NOW deposits $ 342 $ 332 $ 339
Money market deposits 143 149 190
Savings deposits 880 919 1,010
Time deposits 6,529 5,533 3,358
Total interest expense $7,894 $6,933 $4,897
Interest Paid
Time deposits of $100,000 or more $ 915 $ 801 $ 531
Total deposit interest paid 7,883 6,898 4,895
- --------------------------------------------------------------------------------
Tolland Bank 25 Annual Report 1996
<PAGE>
10. Borrowings
- --------------------------------------------------------------------------------
December 31 (dollars in thousands) 1996 1995
--------------- --------------
Due Date Amount Rate Amount Rate
- --------------------------------------------------------------------------------
FHLB advances by remaining period to maturity:
Within 1 year $ 3,545 7.25% $2,190 5.15%
After 1, but within 2 years -- -- 612 6.44
After 2, but within 3 years 361 6.94 -- --
After 3 years 3,500 6.11 3,973 6.21
Total FHLB advances 7,406 6.70 6,775 5.90
Federal funds purchased 3,000 6.65 110 5.55
Total Borrowings $10,406 6.68% $6,885 5.89%
- --------------------------------------------------------------------------------
The Bank has a line of credit equal to 2% of total assets with the Federal Home
Loan Bank of Boston (FHBB). The Bank may borrow additional funds from the FHLBB
subject to certain limitations. To secure advances from the FHLBB, the Bank has
pledged certain qualifying assets, as defined in the FHLBB Statement of Credit
Policy. To obtain additional loan advances, the Bank may be required to invest
in additional amounts of FHLBB stock, per FHLBB guidelines. At December 31,
1996, the Bank had a $5,000,000 facility for repurchase agreements, a $3,000,000
line of credit for secured federal funds borrowings and a $750,000 line of
credit for unsecured federal funds borrowings. The Bank maintains compensating
balances of $30,000 related to the secured line of credit. The Bank paid
$426,000, $679,000, and $318,000, in interest on borrowings during the years
ended December 31, 1996, 1995, and 1994, respectively.
11. Shareholders' Equity
Net Unrealized Loss on Securities
- --------------------------------------------------------------------------------
December 31 (dollars in thousands) 1996 1995
- --------------------------------------------------------------------------------
Net (gain) loss on securities available for sale $(243) $ 403
Net unamortized loss on securities held to maturity 376 597
Income tax effect 100 --
Total Net Unrealized Loss $ 233 $1,000
- --------------------------------------------------------------------------------
The net unamortized loss on securities held to maturity relates to securities
transferred in 1994 from securities available for sale to securities held to
maturity.
Rights Plan
Under the terms of a Shareholder Rights Plan adopted in 1989, each outstanding
share of the Bank's common stock bears with it a stock purchase right to
purchase one share of common stock under certain circumstances. These rights
will become exercisable once a person or group owns 20% of the Bank's stock, a
person or group commences an offer which would result in 20% ownership, or the
Board declares a person "adverse," as defined.
Once exercisable, each right will entitle its holder to purchase a share of Bank
common stock for $40, subject to adjustment as follows. In the event of a merger
in which the Bank is not the surviving corporation or certain other mergers,
holders of rights not made void will be entitled to buy $80 worth of the
surviving company for $40. In the event a person or group acquires more than 20%
of the Bank's stock or if a person is determined by the Board to be "adverse,"
holders of rights not made void will be entitled to buy $80 worth of Bank common
stock for $40. The Board may redeem the rights at a price of $0.001 per right at
any time before a person or group acquires 20% ownership or is declared
"adverse." The rights expire on June 30, 1999. The Board has reserved 1,150,000
shares of common stock for issuance pursuant to the exercise of these rights.
Tolland Bank 26 Annual Report 1996
<PAGE>
Liquidation Account
At the time of the Bank's 1986 conversion from a mutual savings bank to a stock
savings bank, the Bank established a liquidation account as required by
regulations in an amount equal to its retained earnings on September 30, 1986.
The liquidation account is maintained for the benefit of the then existing
account holders who continue to maintain their accounts after the conversion. In
the event of a complete liquidation, and only in such event, eligible account
holders will be entitled to receive a distribution from the liquidation account
equal to the then current adjusted qualifying interest in the liquidation
account.
Dividends
In January, 1997 the Board of Directors declared a cash dividend of $.05 per
share payable in February, 1997. As a state capital stock bank subject to
Connecticut banking law, the Bank may not declare a cash dividend on its common
stock in an amount in excess of its net profits (as defined by state statute)
for the year in which the dividend is declared plus its retained net profits
from the prior two years. The Bank may not declare or pay a cash dividend or
repurchase any of its outstanding shares if the effect thereof would reduce its
capital below the amount required for the aforementioned liquidation account or
the capital required by federal and state regulations.
Regulatory Capital Requirements
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory--and possibly additional discretionary--actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classifications are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Whereas the regulatory requirement for Tier I Capital to
Average Assets is a minimum ratio of 4.0%, a minimum ratio of 6.0% is shown in
the table based on the Bank's Board Resolution at December 31, 1996 and its
Memorandum of Understanding at December 31, 1995. The Memorandum of
Understanding was removed in 1996. Management believes, as of December 31, 1996,
that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the FDIC categorized
the Bank as Well Capitalized under the regulatory framework for prompt
corrective action. To be categorized as Well Capitalized the Bank must maintian
minimum total risk-based, Tier I risk-based, Tier I leverage ratios as set forth
in the table. There are no conditions or events since that notification that
management believes have changed the institution's category. The Bank's actual
capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions:
---------------- ---------------------- ----------------------
greater or greater or greater or greater or
equal to equal to equal to equal to
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996:
Total Capital
(to Risk Weighted Assets) $17,044 12.3% $11,118 8.0% $13,898 10.0%
Tier I Capital
(to Risk Weighted Assets) 15,293 11.0 5,559 4.0 8,339 6.0
Tier I Capital
(to Average Assets) 15,293 6.8 13,592 6.0 11,327 5.0
December 31, 1995:
Total Capital
(to Risk Weighted Assets) $15,343 11.1% $11,042 8.0% $13,803 10.0%
Tier I Capital
(to Risk Weighted Assets) 13,611 9.9 5,521 4.0 8,282 6.0
Tier I Capital
(to Average Assets) 13,611 6.4 12,780 6.0 10,650 5.0
- ------------------------------------------------------------------------------------------------
</TABLE>
Tolland Bank 27 Annual Report 1996
<PAGE>
Stock Options
At December 31, 1996, the Bank had two stock option plans, which are described
below. The Bank applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for its stock option plans. Had compensation cost for the Bank's stock options
been determined consistent with FASB Statement No. 123, the Bank's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below. There were no stock options granted in 1995.
- --------------------------------------------------------------------------------
Year ended December 31 (in thousands except share data) 1996
- --------------------------------------------------------------------------------
Net income As Reported $1,438
Pro forma 1,392
Earnings per share As Reported 1.22
Pro forma 1.18
- --------------------------------------------------------------------------------
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996: dividend yield of 2.0%; expected volatility
of 27%; risk free interest rate of 5.91%; and expected lives of ten years.
The Bank maintains a Stock Option Plan for the benefit of officers and other key
employees of the Bank. Under the terms of this Plan, 100,000 shares may be
issued or transferred pursuant to the exercise of options to purchase shares of
common stock and stock appreciation rights (SARs) and awards of restricted
stock. The exercise price of the option is equal to the market price of the
common stock on the date of grant. Options granted to officers and other
full-time salaried employees may be accompanied by SARs and awards of restricted
stock. No SARs or awards of restricted stock have been granted as of December
31, 1996.
The Bank also maintains a Stock Option Plan for Non-Employee Directors which was
approved by the Board of Directors and the shareholders in 1988. The exercise
price of the option is equal to the market price of the common stock on the date
of grant. Under this plan, up to 100,000 shares of common stock may be issued or
transferred to members of the Bank's Board of Directors who are not employees of
the Bank on the date the options are exercised.
A summary of the status of the Bank's stock option plans and changes in them is
presented below. All options granted in 1996 were immediately exercisable.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Years ended December 31 1996 1995 1994
---------------------- ---------------------- ----------------------
Weighted-Avg. Weighted-Avg. Weighted-Avg.
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 122,081 $10.19 128,581 $10.16 122,081 $10.19
Granted 20,419 9.96 -- -- 6,500 9.50
Exercised (15,000) 9.20 -- -- -- --
Forfeited (5,000) 12.50 (6,500) 9.50 -- --
Outstanding at end of year 122,500 $10.18 122,081 $10.19 128,581 $10.16
Options exercisable at year-end 122,500 $10.18 120,415 $10.23 110,748 $10.30
Weighted-average fair value of
options granted during 1996 $3.78 -- --
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Tolland Bank 28 Annual Report 1996
<PAGE>
The following table summarizes information about stock options outstanding at
December 31, 1996:
Options Outstanding and Exercisable
- --------------------------------------------------------------------------------
Range of Number Outstanding Weighted-Avg. Weighted-Avg.
Exercise and Exercisable Remaining Exercise
Prices at 12/31/96 Contractual Life Price
- --------------------------------------------------------------------------------
$3 to 6 12,280 4.5 years $ 4.02
6 to 9 15,910 4.4 7.83
9 to 12 59,310 4.6 10.71
Over $12 35,000 1.2 12.50
Total 122,500 3.6 years $10.18
- --------------------------------------------------------------------------------
12. Financial Instruments With Off-Balance Sheet Risk
- --------------------------------------------------------------------------------
December 31 (in thousands) 1996 1995
- --------------------------------------------------------------------------------
Commitments to extend credit:
Commitments to originate new loans $5,385 $6,635
Unadvanced construction lines of credit 2,380 4,812
Unadvanced home equity credit lines 9,995 6,748
Unadvanced commercial lines of credit 4,951 7,965
Unadvanced reserve credit lines 427 449
Standby letters of credit 1,462 463
Commitments to purchase SBA/FMHA guaranteed loans 1,492 217
- --------------------------------------------------------------------------------
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Since many
of the commitments are expected to expire without being drawn on, the total
commitment amounts do not necessarily represent future cash requirements or
credit risk. Standby letters of credit are commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
generally payable only if the customer fails to perform some specified
contractual obligation. Standby letters of credit are generally unconditional
and irrevocable, and are generally not expected to be drawn upon. For the above
types of financial instruments, the Bank evaluates each customer's
creditworthiness on a case-by-case basis, and collateral is obtained, if deemed
necessary, based on the Bank's credit evaluation. In general, the Bank uses the
same credit policies in providing these financial instruments as it does in
making funded loans.
13. Derivative Financial Instruments With Off-Balance Sheet Risk
The Bank had entered into a $4,000,000 interest rate swap agreement with the
Federal Home Loan Bank of Boston (FHLBB) as a hedge against a $4,000,000 advance
from the FHLBB. The swap agreement matured in the third quarter of 1995. The
swap interest income and expense were recorded as borrowing interest expense.
The net interest paid was $83,000 in 1995.
14. Fair Values Of Financial Instruments
- --------------------------------------------------------------------------------
Years ended December 31 (in thousands) 1996 1995
------------------ ------------------
Carrying Fair Carrying Fair
Value Value Value Value
- --------------------------------------------------------------------------------
Financial assets:
Cash and cash equivalents $ 12,563 $ 12,563 $ 6,443 $ 6,443
Securities available for sale 45,386 45,386 22,522 22,522
Securities held to maturity 20,690 20,649 23,377 23,573
Net loans 143,658 142,631 150,522 151,258
Accrued interest receivable 1,670 1,670 1,405 1,405
Mortgages held for sale 1,323 1,343 1,834 1,861
Financial liabilities:
Deposits with no stated maturity 84,766 84,766 82,192 82,192
Time deposits 120,842 120,844 111,246 111,466
Borrowings 10,406 10,413 6,885 6,973
Accrued interest payable 82 82 83 83
Off balance sheet financial instruments -- 192 -- 223
- --------------------------------------------------------------------------------
Tolland Bank 29 Annual Report 1996
<PAGE>
15. Retirement Plans
The Bank sponsors a noncontributory defined benefit pension plan covering all
employees who meet certain eligibility requirements. Benefits are based on
length of service and qualifying compensation. The Bank's policy is to fund the
plan in accordance with the requirements of applicable regulations. Plan assets
are invested in stock, bond, and money market mutual funds. The plan valuation
date is October 1. The pension plan's funded status and amounts recognized in
the Bank's financial statements are as follows:
- --------------------------------------------------------------------------------
December 31 ( in thousands) 1996 1995
- --------------------------------------------------------------------------------
Accumulated benefit obligation
Vested benefits $1,423 $1,324
Non-vested benefits 70 65
Accumulated benefit obligation $1,493 $1,389
Effect of projected future compensation levels 295 275
Projected benefit obligation for services rendered to date $1,788 $1,664
Plan assets at fair value 2,085 1,775
Plan assets in excess of projected benefit obligation 297 111
Unrecognized net asset being recognized over 15 years (108) (125)
Unrecognized net loss (62) 77
Unrecognized past service liability (105) (123)
Accrued prepaid pension cost 22 (60)
Assumptions used as of October 1:
Assumed discount rate 7.75% 7.50%
Assumed rate of increase in compensation 5.00% 5.00%
Expected long-term rate of return on assets 9.25% 9.25%
- --------------------------------------------------------------------------------
Components of net pension expense cost (excluding administrative cost):
- --------------------------------------------------------------------------------
Years ended December 31 (in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Service costs earned during the year $ 98 $ 85 $ 98
Interest cost on projected benefit obligation 124 115 100
Actual return on plan assets (238) (272) (7)
Net amortization and deferral 39 109 (145)
Net periodic pension expense $ 23 $ 37 $ 46
- --------------------------------------------------------------------------------
The Bank also sponsors a defined contribution 401(k) savings plan. This plan
includes a discretionary matching contribution by the Bank which was 35% of the
employees' contribution up to 6% for the years 1996, 1995, and 1994.
Additionally, the Bank offers retirees participation in its medical insurance
benefit program. The cost of offering this participation is not material to the
financial condition or results of operations of the Bank.
Tolland Bank 30 Annual Report 1996
<PAGE>
16. Income Tax Expense (Benefit)
Charges (credits) for income taxes (benefits) in the Statements of Income are
composed of the following:
- --------------------------------------------------------------------------------
Years ended December 31 ( in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Current:
Federal $ 246 $(230) $ 47
State 9 12 9
Total current 255 (218) 56
Deferred:
Federal (9) (121) 98
State 190 (90) 55
Total deferred 181 (211) 153
Change in valuation allowance for the gross
deferred tax asset (554) 441 (148)
Total income tax expense $(118) $ 12 $ 61
- --------------------------------------------------------------------------------
The actual income tax expense (benefit) differs from the "expected" income tax
expense (benefit), (computed by applying the statutory U.S. Federal corporate
tax rate of 34%) in 1996, 1995 and 1994 to income (loss) before income taxes, as
follows:
- --------------------------------------------------------------------------------
Years ended December 31 (in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Expected income tax expense (benefit) at statutory rate $ 449 $(385) $ 175
Increase (decrease) in income tax resulting from:
Connecticut state tax 131 (51) 42
Purchase premium not deductible for tax purposes 10 10 --
Dividend received deduction (132) -- (7)
Change in valuation allowance for deferred tax assets (554) 441 (148)
Other, net (22) (3) (1)
Total income tax expense (benefit) $(118) $ 12 $ 61
- --------------------------------------------------------------------------------
The Bank made income tax payments of $460,000, $37,000 and $270,000 during the
years ended December 31, 1996, 1995, and 1994, respectively. The tax effects of
temporary differences that give rise to significant portions of the deferred tax
assets and deferred tax liabilities are presented below:
- --------------------------------------------------------------------------------
Years ended December 31 (in thousands) 1996 1995
- --------------------------------------------------------------------------------
Deferred tax asset:
Allowance for loan losses $ 754 $ 911
State NOL carry forward 10 97
Foreclosed assets 128 159
Unrealized loss on securities 54 416
Other, net 101 68
Total gross deferred tax asset 1,047 1,651
Less: valuation allowance (305) (1,124)
Gross asset, net of valuation allowance 742 527
Less: deferred tax liability
Depreciation expense (3) (30)
Core deposit amortization (77) (126)
Other (166) (151)
Total gross deferred tax liability (246) (307)
Net deferred tax asset $ 496 $ 220
- --------------------------------------------------------------------------------
The valuation allowance decreased by $819,000 in 1996, which was comprised of a
decrease of $265,000 relating to the decrease in net unrealized losses on
securities available for sale, and a $554,000 decrease due to Management's
assessment of the realizability of deferred tax assets.
Tolland Bank 31 Annual Report 1996
<PAGE>
In assessing the realizability of deferred tax assets, Management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. In making the assessment, Management considers the
estimated reversal of deferred tax liabilities, projected future taxable, income
taxes paid in prior years that are recoverable, and tax planning strategies.
Based on the level of historical taxable income, and projections for future
taxable income over the periods in which the deferred tax assets are deductible,
Management believes it is more likely than not that the Bank will realize the
benefits of the deductible temporary difference, net of the existing valuation
allowance at December 31, 1996.
17. Commitments and Contingencies
Future minimum rental payments required under operating leases that have
remaining noncancellable lease terms in excess of one year as of December 31,
1996 total $351,000, due by years ending December 31 as follows: 1997 - $68,000;
1998 - $68,000; 1999 - $69,000; 2000 - $27,000; 2001 - $27,000; and $92,000
thereafter. Total rental expense under these leases and prior leases was
$77,000, $64,000, and $63,000 for the years ended December 31, 1996, 1995 and
1994 respectively.
In 1995, the Bank entered into an employment agreement with its former
President. During 1996 and 1995, the Bank charged $272,000 and $14,000 to
operations in connection with this agreement. Included in other liabilities at
December 31, 1996, was approximately $186,000 representing total future amounts
due under this agreement.
There are various legal proceedings against the Bank arising out of its
business. Although the outcome of these cases is uncertain, in the opinion of
Management, based on discussions with legal counsel, these matters are not
expected to result in a material adverse effect on the financial position or
future operating results of the Bank.
18. Holding Company Formation
The Bank has initiated steps to form a bank holding company in order to
facilitate future growth and expansion of business lines. Tolland Bank will
continue to operate with its existing offices and employees. This step will
allow the Bank additional flexibility to both increase the products and services
that it offers to its customers, and to pursue new market opportunities. Pending
approval and completion of the formation process, Tolland Bank shareholders
will, on a one-for-one basis, become shareholders of the new holding company.
Tolland Bank 32 Annual Report 1996
<PAGE>
Tolland Bank Supplementary Financial Data (unaudited)
<TABLE>
<CAPTION>
Selected Quarterly Financial Data
- --------------------------------------------------------------------------------------------------------------
1996 1995
------------------------------------ ------------------------------------
(in thousands except share data) 4 3 2 1 4 3 2 1
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $1,982 $1,943 $1,872 $1,866 $1,848 $1,794 $ 1,843 $1,878
Provision for loan losses 165 493 134 186 178 72 1,594 131
Non-interest income (loss) 140 603 225 307 228 270 (629) 190
Non-interest expense 1,988 1,570 1,531 1,551 1,535 1,689 1,641 1,717
Income tax expense (benefit) (451) 109 90 134 -- -- (65) 78
Net income (loss) $ 420 $ 374 $ 342 $ 302 $ 363 $ 303 $(1,956) $ 142
Per Share Data:
Earnings (loss) per share $ 0.35 $ 0.32 $ 0.29 $ 0.26 $ 0.30 $ .26 $ (1.66) $ 0.12
Cash dividends declared .03 -- -- -- -- -- -- --
Common stock price:
High 13.38 12.38 10.38 10.50 10.13 10.38 8.25 8.00
Low 11.00 9.63 9.50 9.25 8.13 7.38 7.50 7.00
Close 12.00 11.75 10.03 10.00 9.50 8.75 7.75 7.69
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Quarterly operating data may not sum to annual data due to rounding. Results in
the second quarter of 1995 included non-interest losses on foreclosed asset
writedowns and an increase in loan charge-offs and the provision for loan losses
related to accelerated plans for problem asset dispositions. The higher
provision for loan losses in the third quarter of 1996 and the higher
non-interest expense in the fourth quarter of 1996 were primarily related to the
completion of liquidation of problem assets and delinquent loans. Also, in the
fourth quarter of 1996, the Bank recognized a tax benefit related to a reduction
in the valuation allowance on the deferred tax asset due to the Bank's improved
earnings and condition.
<TABLE>
<CAPTION>
Volume and Rate Analysis -- FTE Basis
- ---------------------------------------------------------------------------------------------------
1996 versus 1995 Change due to 1995 versus 1994 Change due to
------------------------------ ------------------------------
(in thousands) Volume Rate Total Volume Rate Total
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income
Loans $ 166 $ 11 $ 177 $2,489 $ 494 $2,983
Securities available for sale 1,064 405 1,469 (519) 307 (212)
Securities held to maturity (521) (67) (588) 476 (241) 235
Other earning assets 162 5 167 (248) 70 (178)
Total Change 871 354 1,225 2,198 630 2,828
Interest expense
Deposits 520 441 961 454 1,582 2,036
Borrowings (290) (37) (327) 257 146 403
Total Change 230 404 634 711 1,728 2,439
Net Change $ 641 $ (50) $ 591 $1,487 $(1,098) $ 389
- ---------------------------------------------------------------------------------------------------
</TABLE>
Note: Changes attributable jointly to volume and rate have been allocated
proportionately.
Tolland Bank 33 Annual Report 1996
<PAGE>
Construction and Commercial Loans
- --------------------------------------------------------------------------------
1 Year 1-5 Over 5
December 31, 1996 (in millions) or Less Years Years Total
- --------------------------------------------------------------------------------
Contractual maturity:
Construction loans:
Commercial $1.2 $2.6 $ -- $ 3.8
Commercial loans 1.6 4.9 5.0 11.5
Total $2.8 $7.5 $5.0 $15.3
Interest rate sensitivity:
Predetermined rates $0.1 $0.4 $0.5 $ 1.0
Variable rates 2.7 7.1 4.5 14.3
Total $2.8 $7.5 $5.0 $15.3
- --------------------------------------------------------------------------------
Securities Cost and Fair Value
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
December 31 1996 1995 1994
- --------------------------- ------------------- ------------------- -------------------
Amortized Fair Amortized Fair Amortized Fair
(in thousands) Cost Value Cost Value Cost Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Available for sale
U.S. Government and agency $25,314 $24,982 $15,561 $15,088 $14,374 $13,037
U.S. Agency mortgage-backed 3,375 3,390 4,166 4,187 2,425 2,380
Other debt securities 1,745 1,734 2,255 2,304 -- --
Marketable equity 13,989 14,560 -- -- -- --
FHLBB stock 720 720 943 943 716 716
Total available for sale $45,143 $45,386 $22,925 $22,522 $17,515 $16,133
- ---------------------------------------------------------------------------------------------
Held to maturity
U.S. Government and agency $ 2,876 $ 2,895 $ 2,851 $ 2,940 $ 4,934 $ 4,625
U.S. Agency mortgage-backed 15,757 15,710 17,026 17,153 19,403 18,098
Other debt securities 2,057 2,044 3,500 3,480 7,513 7,265
Total held to maturity $20,690 $20,649 $23,377 $23,573 $31,850 $29,988
- ---------------------------------------------------------------------------------------------
</TABLE>
Tolland Bank 34 Annual Report 1996
<PAGE>
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D.C. 20429
------------
ANNUAL REPORT UNDER SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934
FORM F-2
For The Fiscal Year-ended: December 31, 1996
FDIC Certificate No.: 18205
TOLLAND BANK
- -------------------------------------------------------------------------------
(Exact name of Bank as specified in its charter)
Connecticut 06-0523950
- ----------------------------- ---------------------------------------
(State of incorporation) (I.R.S. Employer Identification Number)
P.O. Box 156
Olde Tolland Common
Tolland, Connecticut 06084
- ----------------------------- ---------------------------------------
(Address of principal office) (Zip Code)
Bank's telephone number, including area code: (860)-875-2500
Securities registered under Section 12(b) of the Act:
Common Stock, par value $1.00 per share
---------------------------------------
(Title of class)
Securities registered under Section 12(g) of the Act: None
----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 10 is
not contained herein, and will not be contained, to the best of the Bank's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form F-2 or any amendment of this Form F-2. [ ]
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 .
--- ---
The aggregate market value of the shares of common stock held by non-affiliates
of the Bank, computed by reference to the last sale price of $13.13 per share
quoted through the American Stock Exchange on January 31, 1997, was $15,395,000.
As of January 31, 1997, there were issued and outstanding 1,172,500 shares of
the Bank's common stock.
Tolland Bank 35 Annual Report 1996
<PAGE>
DOCUMENT INCORPORATED BY REFERENCE
This Annual Report and Form F-2 incorporate into a single document the
requirements of the accounting profession and the Federal Deposit Insurance
Corporation. Portions of the Tolland Bank Proxy Statement/Prospectus for the
1997 Annual Meeting of Shareholders are incorporated by reference into Parts I,
III, and IV.
- --------------------------------------------------------------------------------
TOLLAND BANK
ANNUAL REPORT FOR 1996 ON FORM F-2
TABLE OF CONTENTS
PAGE
----
PART I ITEM 1. Business 36
ITEM 2. Properties 37
ITEM 3. Legal Proceedings 37
ITEM 4. Security Ownership of Certain Beneficial Owners
and Management 37
- --------------------------------------------------------------------------------
PART II ITEM 5. Market for the Bank's Common Stock and Related
Security Holder Matters 37
ITEM 6. Selected Financial Data 1
ITEM 7. Management's Discussion and Analysis of Results
of Operations and Financial Condition 4
ITEM 8. Financial Statements and Supplementary Data 14
- --------------------------------------------------------------------------------
PART III ITEM 9. Directors and Principal Officers of the Bank 37
ITEM 10. Management Compensation and Transactions 38
- --------------------------------------------------------------------------------
PART IV ITEM 11. Exhibits, Financial Statement Schedules and
Reports on Form F-3 38
SIGNATURES 39
- --------------------------------------------------------------------------------
PART I
ITEM 1. BUSINESS
Tolland Bank (the "Bank") is a savings bank chartered by the State of
Connecticut. Its deposits are insured up to applicable limits by the Bank
Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC"). Its
primary regulators are the Connecticut Department of Banking and the FDIC. The
Bank was operating under an informal regulatory agreement known as a Memorandum
of Understanding which was terminated in 1996 due to improvements in the Bank's
condition and performance.
The Bank operates seven offices in Tolland County and is a community-based bank
that provides retail and commercial banking services primarily in Tolland County
and surrounding towns. The Bank's marketplace is served by a variety of
aggressive financial institutions, and many residents work in the Greater
Hartford area which gives them access to banking opportunities in that market as
well. The financial services industry is in a period of consolidation and
regulatory reform that is affecting the participants, products, and pricing in
the Bank's markets.
The banking business in Tolland County is reflective of the overall Northeast
economic situation. The area is recovering slowly from the most severe economic
recession in fifty years, with Connecticut's economy having had the most
depressed economy in the region. Local labor and real estate markets continue to
reflect weakness related to lay-offs and relocations. About 47% of the Bank's
assets are loans secured by local area real estate.
At December 31, 1996, the Bank had total assets of $232.3 million, deposits of
$205.6 million, loans of $146.5 million, and shareholders' equity of $15.6
million. A detailed discussion of the Bank's financial condition and results of
operations is contained in Item 7 of this report. At December 31, 1996, the Bank
had 86 full-time equivalent employees.
Tolland Bank 36 Annual Report 1996
<PAGE>
ITEM 2. PROPERTIES
The properties of Tolland Bank are located in Connecticut as follows (see the
notes "Premises and Equipment, Net" and "Commitments and Contingencies" in Item
8 for additional information about the Bank's premises):
Year Lease
Location -- Town (Street) Owned / Leased Expires
- --------------------------------------------------------------------------------
o Tolland -- (Olde Tolland Common) Owned
o Vernon -- (348 Hartford Turnpike) Owned
o Coventry -- (Routes 31 and 44) Owned
o Ellington -- (287 Somers Road) Owned
o Stafford Springs -- (34 West Stafford Road) Leased 1999
o Willington -- (Routes 74 and 32) Leased 2005
o Tolland -- (Merrow Road) Leased 2000
o Approximately 9 acres of land adjacent to the Bank's office on Olde Tolland
Common in Tolland.
o A commercial property leased to a child care operation adjacent to the Bank's
office on Olde Tolland Common in Tolland.
o Approximately 10 acres of land adjacent to the Bank's office in Coventry,
Connecticut.
ITEM 3. LEGAL PROCEEDINGS
The Bank is not involved in any material legal proceedings other than ordinary
routine litigation incidental to its business.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT
The information contained under the captions "Principal Holders of Common
Stock", "Nominees", and "Continuing Directors" in the Proxy Statement/Prospectus
is incorporated herein by reference.
ITEM 5. MARKET FOR THE BANK'S COMMON STOCK & RELATED SECURITY HOLDER MATTERS
The Bank's common stock is listed on the American Stock Exchange (AMEX) under
the symbol "TBK." A total of 459,300 shares of the Bank's stock, or 40% of
outstanding shares, were traded on AMEX in 1996. As of January 31, 1997, the
Bank had 546 holders of record of its common stock. This does not reflect the
number of persons or entities who hold their stock in nominee or "street" name.
The closing sale price of the stock on January 31, 1997 was $13.13. The bank
declared and paid a $0.03 cent dividend in the fourth quarter of 1996. No
dividends were declared or paid in 1995. Dividends are subject to the
restrictions of applicable regulations. See the "Shareholders' Equity" note in
Item 8 for additional information. See also the information contained in Item 6.
The following table presents quarterly information on the range of high and low
prices for the past two years.
Quarter Ended High Low Dividends Declared Per Share
- --------------------------------------------------------------------------------
March 31, 1995 $ 8.00 $ 7.00 $ 0
June 30, 1995 8.25 7.50 0
September 30, 1995 10.38 7.38 0
December 31, 1995 10.13 8.13 0
March 31, 1996 10.50 9.25 0
June 30, 1996 10.38 9.50 0
September 30, 1996 12.38 9.63 0
December 31, 1996 13.38 11.00 .03
PART III
ITEM 9. DIRECTORS AND PRINCIPAL OFFICERS OF THE BANK
The information contained in the following sections of the Proxy
Statement/Prospectus is incorporated herein by reference: "Election of
Directors", "Nominees", and "Continuing Directors."
Principal Officers Who Are Not Directors:
Patrick J. Logiudice (age 50) joined Tolland Bank in 1991 as Senior Vice
President/Chief Lending Officer. Previously, he was Senior Vice President at
Recoll Management Corporation (a subsidiary of Fleet Norstar, N.A.) in Hartford,
Connecticut. He also served as Senior Vice President and Regional Commercial
Loan Manager at Connecticut Bank & Trust, N.A. in Hartford, Connecticut, a
subsidiary of Bank of New England Corporation.
Tolland Bank 37 Annual Report 1996
<PAGE>
David H. Gonci (age 44) joined Tolland Bank in 1990 as Vice President/Controller
and Director of Strategic Planning. He is currently Vice President/Chief
Financial Officer/Treasurer/Controller. Previously, he was Senior Vice President
of Finance and Treasurer at BancNewEngland Mortgage Company, a subsidiary of
Bank of New England Corporation.
Cynthia S. Harris (age 49) joined Tolland Bank in 1976. She is currently Vice
President/Human Resources and Secretary. She was previously the Loan Servicing
Officer.
Joyce M. Joy (age 54) joined Tolland Bank in 1988 as Vice President/Marketing.
Prior to 1988, she was employed by the Savings Bank of Rockville, Vernon,
Connecticut, as Vice President of Retail Banking.
William S. Weigand (age 56) joined Tolland Bank in 1986 as Vice
President/Operations. Previously he was Vice President of Operations at Union
Savings Bank, Long Island, New York.
ITEM 10. MANAGEMENT COMPENSATION AND TRANSACTIONS
The information contained in the following sections of the Proxy Statement is
incorporated herein by reference: Executive Compensation, Change in Control
Agreements, Pension Plan, 401(k) Plan, Aggregate Option Exercises and Year-End
Option Values, Cash Bonus Plan and Certain Transactions.
PART IV
ITEM 11. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM F-3
(a) All schedules have been omitted as the required information is either
included herein or in the Proxy Statement, or is inapplicable.
(b) Reports on Form F-3
No reports on Form F-3 were filed during the quarter ended December 31,
1996.
(c) Exhibits Description
-------- -----------
1A Articles of Incorporation, as amended (by reference to Exhibit
1A to Form F-2 dated March 25, 1992).
1B Bylaws, revised as to Article II, Section 4 (by reference to
Exhibit 1B to Form F-2 dated March 8, 1994).
3A Employment Agreements (by reference to Exhibit 3A to Form F-2
filed March 24, 1991 and to Exhibit 3A to Form F-2 filed March
29, 1988).
3B Tolland Bank 1986 Stock Option and Restricted Stock Plan (by
reference to Exhibit 3B to Form F-2 filed March 29, 1988).
3C Tolland Bank 1988 Stock Option Plan for Non-Employee Directors
(by reference to Exhibit A to Form F-5 filed in definitive form
March 15, 1988).
3D Escrow Agreement dated December 21, 1989 (by reference to
Exhibit 3D to Form F-2 dated March 20, 1990).
3E Shareholder Rights Agreement dated June 20, 1989 (by reference
to Form F-3 filed June 29, 1989).
3F Employment Agreements (by reference to Exhibit 3F to Form F2
dated March 8, 1995).
3G Employment Agreements dated January 26, 1995 and October 31,
1995 for Guy Cambria, Jr., and Change in Control Agreement for
Guy Cambria, Jr. dated January 26, 1995 for Guy Cambria, Jr.
8 Proxy Statement/Prospectus for the 1997 Annual Meeting.
Tolland Bank 38 Annual Report 1996
<PAGE>
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 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 on February 7, 1997 .
/s/ JOSEPH H. ROSSI /s/ DAVID H. GONCI
- ------------------------------------ ---------------------------------------
Joseph H. Rossi David H. Gonci
President/CEO Vice President/Chief Financial Officer/
Treasurer/Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following directors on behalf of the Bank on
February 7, 1997:
/s/ DR. HOWARD G. ABBOTT /s/ D. ANTHONY GUGLIELMO
- ------------------------------------ ---------------------------------------
Dr. Howard G. Abbott D. Anthony Guglielmo
/s/ LAWRENCE J. BECKER /s/ THOMAS S. MOORE
- ------------------------------------ ---------------------------------------
Lawrence J. Becker Thomas S. Moore
/s/ ROBERT C. BOARDMAN /s/ DOUGLAS J. MOSER
- ------------------------------------ ---------------------------------------
Robert C. Boardman Douglas J. Moser
/s/ THERESA L. DANSKY /s/ KENNETH R. PETERSON
- ------------------------------------ ---------------------------------------
Theresa L. Dansky Kenneth R. Peterson
/s/ WILLIAM E. DOWTY, JR. /s/ FRANCIS J. PRICHARD
- ------------------------------------ ---------------------------------------
William E. Dowty, Jr. Francis J. Prichard
/s/ JOSEPH H. ROSSI
---------------------------------------
Joseph H. Rossi
Tolland Bank 39 Annual Report 1996
TOLLAND BANK
348 Hartford Turnpike
Vernon, CT 06066
(860) 875-2500
February 21, 1997
Dear Shareholders:
You are cordially invited to attend the 1997 Annual Meeting of Shareholders
of Tolland Bank on March 26, 1997 at 10:30 a.m. at The Colony, Route 83,
Talcottville, Vernon, CT 06066.
Enclosed is Tolland Bank's Annual Report to Shareholders for 1996 which
presents financial data for the fiscal year ended December 31, 1996, and
discusses the Bank's accomplishments in 1996. Please see my letter at the front
of the Annual Report for additional information about the progress of Tolland
Bank.
Also, I would like to point out that this year's enclosed proxy statement
is different than those you have received in the past. The reason for the
difference is that Tolland Bank's Board of Directors has voted to form a holding
company known as Alliance Bancorp of New England, Inc. ("Alliance") to
facilitate future growth. The reasons for and nature of that transaction are
described in the enclosed Proxy Statement/Prospectus. This transaction requires
shareholder approval and you are being asked to vote on such approval, since
upon its completion shareholders of Tolland Bank will, through a one-for-one
exchange, become shareholders of Alliance. I encourage you to carefully read the
full description of this transaction in the Proxy Statement/Prospectus and the
other matters to come before shareholders, also described in our Proxy
Statement/Prospectus.
The Plan of Reorganization will create a corporate structure used by
hundreds of banks throughout the United States. The Bank will continue to
operate in the same offices and with the same directors, officers and other
employees. The formation of Alliance creates a corporate structure which we
believe will facilitate further growth and allow for expansion in complementary
lines of business. We recommend that you vote "FOR" the Plan of Reorganization
and all of the other actions summarized in the Annual Meeting Notice.
It is important that your shares be represented at the annual meeting.
Whether or not you plan to attend the annual meeting, you are requested to
complete, date and sign and return the enclosed proxy card in the enclosed
envelope for which postage has been paid.
Sincerely,
Joseph H. Rossi
President and CEO
<PAGE>
TOLLAND BANK
348 Hartford Turnpike
Vernon, CT 06066
(860) 875-2500
--------------------------
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS TO BE HELD
MARCH 26, 1997
--------------------------
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Shareholders (the
"Annual Meeting") of Tolland Bank ("the Bank") will be held on Wednesday, March
26, 1997, at 10:30 a.m., at the Colony, Route 83, Talcottville Road, Vernon,
Connecticut 06066 for the following purposes:
1. To elect four (4) directors of the Bank for three-year terms.
2. To approve an Agreement and Plan of Reorganization (the "Plan of
Reorganization") pursuant to which a proposed new stock holding
company, Alliance Bancorp of New England, Inc., a Delaware stock
corporation ("Alliance") will be formed. Alliance will in a
one-for-one exchange with the Bank's shareholders acquire all the
issued and outstanding common stock of the Bank. Shareholders of the
Bank will have dissenters' rights in connection with the Plan of
Reorganization.
3. To approve the Tolland Bank 1997 Stock Incentive Plan (the "Stock
Incentive Plan").
4. To ratify the appointment by the Bank's Board of Directors of the firm
of KPMG Peat Marwick LLP, as independent public accountants of the
Bank for the fiscal year ending December 31, 1997.
5. Approval of an adjournment of the Annual Meeting if necessary to
permit solicitation of proxies in the event that there are not
sufficient votes at the time of the Annual Meeting to approve one or
more of the foregoing matters.
6. To transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.
Pursuant to the Bank's bylaws, the Board of Directors of the Bank has fixed
the close of business on February 10, 1997, as the record date for the
determination of shareholders entitled to notice of and to vote at the Annual
Meeting. Only holders of common stock of record at the close of business on that
date will be entitled to notice of and to vote at the Annual Meeting or any
adjournments thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT YOU
PLAN TO BE PRESENT IN PERSON AT THE ANNUAL MEETING, PLEASE DATE, SIGN AND
COMPLETE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOU MAY REVOKE YOUR PROXY
AND VOTE IN PERSON IF YOU DO ATTEND THE ANNUAL MEETING.
By Order of the Board of Directors
Cynthia S. Harris
Secretary
February 21, 1997
<PAGE>
TOLLAND BANK
ALLIANCE BANCORP OF NEW ENGLAND, INC.
348 Hartford Turnpike
Vernon, CT 06066
(860) 875-2500
PROXY STATEMENT/PROSPECTUS
This Proxy Statement/Prospectus is being furnished in connection with the
solicitation of proxies by the Board of Directors of Tolland Bank, ("the Bank")
for use at its Annual Meeting of Shareholders to be held on Wednesday, March 26,
1997. It is also the Prospectus of Alliance Bancorp of New England, Inc.
("Alliance") with respect to the issuance of up to 1,322,500 shares of
Alliance's common stock in connection with the reorganization (the
"Reorganization") described herein. The approximate date of mailing of this
Proxy Statement/Prospectus is February 21, 1997.
This Proxy Statement does not cover any resales of Alliance's common stock
received by the Bank's shareholders upon completion of the Reorganization
described herein. No person is authorized to make any use of this Proxy
Statement/Prospectus in connection with the offer or sale of any other
securities.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION ("FDIC") OR THE STATE OF CONNECTICUT OR ANY STATE
SECURITIES COMMISSION NOR HAS SUCH COMMISSION, CORPORATION OR STATE
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------------------
THE SHARES OF COMMON STOCK ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT
INSURED OR GUARANTEED BY THE SAVINGS ASSOCIATION INSURANCE FUND OR THE
BANK INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY AND ARE NOT GUARANTEED BY ALLIANCE
OR THE BANK. THE COMMON STOCK IS SUBJECT TO INVESTMENT RISK
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL INVESTED.
-----------------------------
The date of this Proxy Statement/Prospectus is February 21, 1997.
<PAGE>
AVAILABLE INFORMATION
The Bank is subject to the information, reporting and proxy statement
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and, in accordance therewith, with the rules and regulations applicable to
all state nonmember banks, files reports, proxy statements and other information
with the FDIC. Copies of such materials may be obtained at prescribed rates from
the FDIC's Registration Disclosure and Securities Operations Unit, Room F-643,
550 17th Street, N.W., Washington, D.C. 20429. Although Alliance is not
presently subject to the requirements of the Exchange Act, upon completion of
the Reorganization Alliance will become subject to the same information,
reporting and proxy statement requirements under the Exchange Act as currently
apply to the Bank, except that such filings will be required to be made with the
Securities and Exchange Commission (the "Commission") rather than the FDIC and
will be available for inspection and copying at the offices of the Commission.
The common stock of the Bank is quoted on the American Stock Exchange (the
"AMEX"). Upon completion of the Reorganization, such stock will be held solely
by Alliance and, as a result, will not be quoted on the AMEX. Alliance will
apply to and anticipates that the common stock of Alliance will be included on
the AMEX upon completion of the Reorganization. However, there is no assurance
that Alliance common stock will be included on the AMEX, or that a public
trading market will develop in its common stock, although a market has existed
for the common stock of the Bank.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following document and information filed with the FDIC is incorporated
by reference into this Proxy Statement/Prospectus: the Tolland Bank 1996 Annual
Report including the Bank's Annual Report under Section 13 of the Securities
Exchange Act of 1934 on Form F-2. This document contains the Bank's audited
statement of financial condition as of December 31, 1996 and 1995, and the
related statements of income, changes in shareholders' equity, and cash flows
for each of the years in the three year period ended December 31, 1996. It also
contains management's discussion and analysis of results of operations and
financial condition.
The Bank is herewith furnishing to all shareholders without charge a copy
of the Bank's annual report on Form F-2 for the fiscal year ended December 31,
1996, and a list of the exhibits thereto. This report has been filed with the
FDIC under the Exchange Act. The Bank's Annual Report constitutes its annual
report on Form F-2. It also serves as the Bank's Annual Disclosure Statement
required byss. 350 of the FDIC's rules. Additional copies may be obtained, free
of charge, by contacting Joyce M. Joy, Vice President/Marketing, Tolland Bank,
P.O. Box 156, Tolland, CT 06084, (860) 875-2500.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS SHOULD NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE
SECURITIES OFFERED BY THIS PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A
PROXY, TO OR FROM ANY PERSON IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION OF AN OFFER OR PROXY SOLICITATION. NEITHER THE
DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE
SECURITIES MADE UNDER THIS PROXY STATEMENT/PROSPECTUS SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE BANK OR ALLIANCE SINCE THE DATE OF THIS PROXY
STATEMENT/PROSPECTUS.
2
<PAGE>
TOLLAND BANK
PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................. 2
SUMMARY..................................................................... 5
Formation of the Holding Company......................................... 5
Reasons for Reorganization............................................. 5
Description of Reorganization.......................................... 5
Tax Consequences....................................................... 6
Accounting Treatment................................................... 6
Comparison of Shareholder Rights....................................... 6
Shareholder Rights Agreement........................................... 7
Interest of Directors and Officers..................................... 7
Market for Alliance Common Stock....................................... 7
Management of Alliance................................................. 8
Required Shareholder Vote.............................................. 8
Regulatory Approvals and Regulation.................................... 8
Dividends.............................................................. 8
Dissenters' Rights..................................................... 8
Changes in Shareholders' Rights and Takeover........................... 9
Changes in Shareholders' Rights and Takeover........................... 9
Information Concerning Stock Incentive Plan............................ 9
Other Information Concerning Annual Meeting............................ 9
Market for Common Stock.................................................. 10
INFORMATION CONCERNING THE ANNUAL MEETING OF SHAREHOLDERS................... 10
Matters to be Considered at the Annual Meeting........................... 10
SOLICITATION OF PROXIES..................................................... 11
REVOCATION OF PROXIES....................................................... 11
VOTING SECURITIES........................................................... 11
VOTING PROCEDURES........................................................... 11
PRINCIPAL HOLDERS OF COMMON STOCK........................................... 12
PROPOSAL I - ELECTION OF DIRECTORS.......................................... 12
Board Meetings and Committees............................................ 15
Directors' Fees.......................................................... 16
Executive Compensation................................................... 16
Cash Bonus Plan.......................................................... 16
Option Grants in Last Fiscal Year........................................ 17
Aggregate Option Exercises and Year-End Option Values.................... 17
Compensation Committee Interlocks and Insider Participation.............. 18
401(k) Plan.............................................................. 18
Change in Control Agreement.............................................. 18
Certain Transactions..................................................... 19
Pension Plan............................................................. 19
Supplemental Executive Retirement Plan and Agreement..................... 20
Tolland Bank 1997 Employee Stock Purchase Plan........................... 20
Directors' Deferred Compensation Plan.................................... 20
Section 16(a) Beneficial Ownership Reporting Compliance.................. 21
PROPOSAL II - FORMATION OF THE HOLDING COMPANY.............................. 21
Reasons for and Risks of the Reorganization.............................. 22
Description of the Reorganization........................................ 23
Effective Date........................................................... 24
Business of Alliance and the Bank........................................ 24
Management of Alliance and the Bank after the Reorganization............. 26
3
<PAGE>
Income Tax Consequences of the Reorganization............................ 27
Dissenters' Rights....................................................... 28
Dividend Policy.......................................................... 29
Conditions of Plan of Reorganization..................................... 29
Amendment or Termination of Plan of Reorganization....................... 29
Stock Certificates Need Not But May Be Exchanged; Transfer Agent......... 30
Effect on Stock Benefit Programs......................................... 30
Approval by Regulatory Authorities Required.............................. 30
Regulation of the Bank................................................... 30
Regulation of Alliance................................................... 36
Description of Alliance Capital Stock.................................... 38
Anti-Takeover Provisions................................................. 39
Delaware Corporate Law................................................... 41
Indemnification.......................................................... 41
Limitations on Director Liability........................................ 42
Changes in Shareholders' Rights.......................................... 43
Shareholder Rights Agreement............................................. 45
Federal Securities Laws.................................................. 46
LEGAL PROCEEDINGS........................................................... 46
MARKET FOR COMMON STOCK..................................................... 46
PROPOSAL III - APPROVAL OF TOLLAND BANK 1997 STOCK INCENTIVE PLAN.......... 47
PROPOSAL IV - APPROVAL OF APPOINTMENT OF INDEPENDENT AUDITORS............... 51
PROPOSAL V - APPROVAL OF ADJOURNMENT OF THE ANNUAL MEETING.................. 52
General.................................................................. 52
OTHER BUSINESS.............................................................. 52
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING............................... 52
FURTHER INFORMATION......................................................... 53
LEGAL OPINION............................................................... 53
EXHIBIT A - AGREEMENT AND PLAN OF REORGANIZATION............................ A-1
EXHIBIT B - CERTIFICATE OF INCORPORATION OF ALLIANCE BANCORP
OF NEW ENGLAND, INC....................................................... B-1
EXHIBIT C - BYLAWS OF ALLIANCE OF NEW ENGLAND, INC.......................... C-1
EXHIBIT D - BANKING LAW OF CONNECTICUT, SECTION 36A-181(C),
DISSENTERS' RIGHTS ....................................................... D-1
EXHIBIT E - TOLLAND BANK 1997 STOCK INCENTIVE PLAN.......................... E-1
4
<PAGE>
SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE HEREIN.
Formation of the Holding Company
Alliance Bancorp of New England, Inc. ("Alliance") was recently
incorporated under Delaware law by Tolland Bank (the "Bank"). Upon completion of
the reorganization described herein (the "Reorganization"), the Bank will become
the wholly owned subsidiary of Alliance. Under the terms of the Reorganization
each outstanding share of the Bank common stock, par value $1.00 per share, will
be exchanged for one share of Alliance common stock, par value $0.01 per share,
and the holders of all of the outstanding shares of the Bank's common stock will
become the owners of all of the outstanding shares of common stock of Alliance.
See "FORMATION OF HOLDING COMPANY -- Regulation of the Bank," "--Regulation of
Alliance."
After the Reorganization, the Bank will continue its current business and
operations as a state chartered stock savings bank under its current name. The
Bank will continue such operations with the same management, branch structure
and subject to all rights, obligations and liabilities of the Bank existing
immediately prior to the Reorganization. See "FORMATION OF HOLDING COMPANY --
Description of the Reorganization."
The principal executive offices of the Bank and Alliance are located at 348
Hartford Turnpike, Vernon, CT 06066 and each of their telephone numbers is (860)
875-2500.
Reasons for Reorganization The Board of Directors of the Bank believes that
the stock holding company structure effected
through the Reorganization is in the best long
term interests of shareholders in that it
will facilitate growth, including potential
acquisitions of financial institutions, permit
measured growth, and allow for expansion into
complementary lines of business. No specific
acquisitions are presently planned. This
structure allows the holding company to
strengthen and increase the capital of the Bank
by the issuance of holding company common stock,
preferred stock or debt securities. Issuance of
such securities by Alliance permits increases in
the Bank's capital and helps foster growth
through additional lending in the residential,
consumer or commercial areas. There can be no
assurance that business conditions at the time
the proposed reorganization is completed will be
favorable to permit the Bank's capital to be
increased through Alliance or whether, even if
its capital is increased, that business and
economic conditions will support such growth.
See "FORMATION OF HOLDING COMPANY -- Reasons for
and Risks of the Reorganization" and "-- Income
Tax Consequences of the Reorganization."
Description of Reorganization Alliance will become a stock holding company of
the Bank pursuant to the Agreement and Plan of
Reorganization (the "Plan of Reorganization")
described herein. Under the Plan of
Reorganization: (i) an interim state chartered
stock savings bank, Interim Tolland Bank
("Interim") will be organized as a wholly-owned
subsidiary of Alliance; (ii) Interim will be
merged into the Bank with the Bank being the
survivor; and (iii) upon such merger, all the
outstanding shares of common stock of the Bank
will be converted into common stock of Alliance
on a one share for one share basis. The
shareholders of the Bank will thus become
5
<PAGE>
the sole shareholders of Alliance. Alliance's
initial working capital will consist primarily
of cash provided by the Bank, not exceeding
$100,000. If Alliance makes acquisitions of
other financial institutions in the future, it
may need to issue additional common or preferred
stock or debt securities. Alliance will be
required to give notice to the Federal Reserve
Board (the "FRB") prior to issuing any
additional debt or equity securities. See
"FORMATION OF HOLDING COMPANY -- Description of
the Reorganization" and "-- Reasons for and
Risks of the Reorganization."
Tax Consequences The Reorganization is conditioned upon receipt
of opinions of counsel and other tax advisers to
the effect, among other things, that no gain or
loss will be recognized by Alliance or the
shareholders of the Bank, for purposes of
Federal and Connecticut income taxes, when the
Bank shares are converted into shares of common
stock of Alliance. Alliance will receive
opinions of counsel to this effect which are not
binding on the Internal Revenue Service ("IRS")
or the State of Connecticut. See "FORMATION
OF HOLDING COMPANY -- Income Tax Consequences of
the Reorganization."
Accounting Treatment The Bank believes the Reorganization will be
characterized and accounted for at historical
cost similar to a "pooling of interest" for
financial reporting and related purposes.
Comparison of Shareholder Upon consummation of the Reorganization, there
Rights will be certain differences in the rights of
shareholders of Alliance, a Delaware
corporation, and those of shareholders of the
Bank, a state bank chartered by the State of
Connecticut. The rights of the shareholders of
the Bank are currently governed by the
Connecticut Business Corporation Act and
regulations and the Bank's Articles of
Incorporation and bylaws. After the
Reorganization, these rights will be governed by
the Delaware General Corporation Law and the
Certificate of Incorporation and bylaws of
Alliance. The Certificate of Incorporation and
bylaws of Alliance and the Articles of
Incorporation and bylaws of the Bank each
contain anti-takeover protections,
indemnification provisions and limitations on
Director liability which differ in certain
important respects. Alliance's Certificate of
Incorporation contains provisions limiting the
liability of directors and officers of Alliance
for monetary damages under certain specified
circumstances; for certain breaches of fiduciary
duty; eliminating cumulative voting for the
election of directors; indemnifying directors
and officers in certain proceedings against
them; providing for staggered terms of
directors; prohibiting action by shareholders by
written consent in lieu of meeting and providing
a supermajority vote requirement in order to
remove a director. These provisions allow the
Board of Directors flexibility to analyze and
consider corporate transactions in order to
maximize the benefits to shareholders. However,
they may also serve to prevent individual
shareholders from participating in a transaction
if the Board does not deem the transaction to be
beneficial to shareholders. Further, while
management serves at the pleasure of the Board
of Directors and has entered into Change in
Control Agreements, the above provisions may
have the effect of rendering the removal or
change of management more difficult. See
"ELECTION OF DIRECTORS -- Change in Control
Agreement. Directors and Officers of the Bank
6
<PAGE>
thus have a personal interest in the completion
of the Reorganization. See "FORMATION OF HOLDING
COMPANY -- Changes in Shareholders' Rights," "--
Anti-Takeover Provisions," "--Indemnification,"
and "-- Limitations on Director Liability."
Shareholder Rights Agreement The Bank currently has a Shareholder Rights
Agreement (the "Rights Plan") which was adopted
by the Board of Directors of the Bank on June
20, 1989. The Rights Plan provides that upon the
occurrence of certain events, the rights, which
are currently attached to Bank common stock,
will detach, entitling the holders of the rights
to purchase additional shares of Bank common
stock at a discount. The consummation of the
Plan of Reorganization, and the approvals
thereto, will not cause the rights to detach
from the Bank's common stock. Upon consummation
of the Plan of Reorganization, all of the rights
under the Rights Plan will be held by Alliance,
as the holder of 100% of the Bank's common
stock. However, the Board of Directors of
Alliance currently intends to adopt a
substantially similar plan to the Rights Plan
after the consummation of the Reorganization. No
assurance can be given that the Board of
Directors of Alliance will in fact adopt such a
plan, or that its terms will be substantially
similar to those of the Rights Plan. See
"FORMATION OF HOLDING COMPANY -- Shareholder
Rights Agreement."
Interest of Directors and The Directors and officers of the Bank have a
Officers personal interest in the Reorganization to the
extent that the exemptions from liability for
monetary damages under certain specified
circumstances provided for in Alliance's
Certificate of Incorporation and permitted under
Delaware General Corporation Law may provide
greater protection than the protection afforded
under the Bank's Articles of Incorporation and
bylaws indemnifying the Bank's Directors and
officers. The Directors and officers of the
Bank, who will also be the Directors and
officers of Alliance, also may have a personal
interest in the Reorganization because of
provisions of Alliance's Certificate of
Incorporation and bylaws and provisions of
Delaware law, which may be considered to provide
increased anti-takeover protection, and may make
the removal of management more difficult and
deter takeovers that the Board of Directors does
not deem to be beneficial to shareholders, but
that some shareholders may consider beneficial.
See "FORMATION OF HOLDING COMPANY --
Indemnification" and "-- Anti-Takeover
Provisions." The Directors and officers of the
Bank also have a personal interest in the
approval of the Stock Incentive Plan to the
extent they may be awarded stock or options
under the Stock Incentive Plan. See "APPROVAL OF
TOLLAND BANK 1997 STOCK INCENTIVE PLAN."
Market for Alliance Alliance common stock to be received by the Bank
Common Stock shareholders in the Reorganization is expected
to trade on the AMEX as the Bank common stock
does currently. There is no assurance that
Alliance common stock will be included on the
AMEX or that a public trading market will
develop in its common stock. See "FORMATION OF
HOLDING COMPANY -- Description of
Reorganization."
7
<PAGE>
Management of Alliance The directors of Alliance will initially consist
of eleven persons, all of whom currently serve
as directors of the Bank. See "FORMATION OF
HOLDING COMPANY -- Management of Alliance and
the Bank after the Reorganization."
Required Shareholder Vote The affirmative vote of two-thirds of the issued
and outstanding shares of the Bank is required
to approve the Plan of Reorganization. See
"VOTING SECURITIES." The Bank's directors,
executive officers and their affiliates intend
to vote in favor of the Plan of Reorganization.
Regulatory Approvals and Completion of the Reorganization is conditioned
Regulation upon, among other things, obtaining the prior
approval of the FRB, the FDIC, and the State of
Connecticut. Applications to obtain these
approvals will be filed. After the holding
company formation, Alliance, as a bank holding
company, will be subject to FRB regulation.
Alliance will also be regulated, with respect to
certain matters arising under the federal
securities laws, by the Securities and Exchange
Commission (the "SEC" or "Commission.") Prior to
the Reorganization, such federal securities
laws, insofar as they apply to the Bank, have
been administered by the FDIC pursuant to the
rules and regulations applicable to state
chartered nonmember banks. The Bank will
continue to be subject to FDIC regulation. The
Bank will also be required to obtain FDIC
approval to form an acquisition subsidiary to
complete the Reorganization on a tax-free basis.
See "FORMATION OF HOLDING COMPANY -- Approval by
Regulatory Authorities Required," "-- Regulation
of the Bank" and "-- Regulation of Alliance."
Dividends No change in the current dividend policy is
anticipated or planned. Alliance's principal
source of income initially will consist of
dividends from the Bank. Payment of such
dividends by the Bank to Alliance will depend on
a number of factors including the Bank's results
of operations, financial, regulatory and tax
considerations as well as general economic
conditions. See "FORMATION OF HOLDING COMPANY
--Dividend Policy," "-- Income Tax Consequences
of the Reorganization," "-- Regulation of the
Bank," and "-- Regulation of Alliance."
Dissenters' Rights Shareholders of Connecticut chartered savings
banks such as the Bank have dissenters rights
and must take certain actions prescribed by law
in Connecticut to exercise those rights. In
order to dissent and receive payment for their
shares, shareholders must deliver written notice
to the Bank of their intent to demand payment,
at or before the Annual Meeting, and may not
vote in favor of the Reorganization. See
"FORMATION OF HOLDING COMPANY -- Dissenters'
Rights." A copy of the relevant section of the
Banking Laws of Connecticut is attached hereto
as Exhibit D. Pursuant to the Plan of
Reorganization, the Board of Directors may
determine not to proceed with the Reorganization
if the number of shares which exercise
dissenters' rights in connection with the Plan
of Reorganization is material, as determined in
the sole discretion of the Board of Directors.
See "FORMATION OF THE HOLDING COMPANY --
Conditions of Plan of Reorganization."
8
<PAGE>
Changes in Shareholders' The Bank is subject to the Connecticut Business
Rights Corporation Act. Alliance, as a Delaware
corporation, is governed by the corporate laws
of Delaware. The governing instruments of
Alliance are similar in most material respects
to those of the Bank, except that the Directors
of Alliance have greater protection against
liability for monetary damages to shareholders
under Alliance's Certificate of Incorporation
than do the Directors of the Bank under the
Bank's Articles of Incorporation and Alliance's
Certificate of Incorporation contains different
takeover defense provisions. See "FORMATION OF
HOLDING COMPANY -- Changes in Shareholders'
Rights" and "-- Anti-Takeover Provisions."
Information Concerning Stock At the Annual Meeting, management is also
Incentive Plan submitting for shareholder approval the Tolland
Bank 1997 Stock Incentive Plan (the "Stock
Incentive Plan"). If the Stock Incentive Plan is
approved, it will be implemented regardless of
whether the Plan of Reorganization is approved.
If both the Stock Incentive Plan and the Plan of
Reorganization are approved, the Stock Incentive
Plan will become, upon the consummation of the
Reorganization, the Stock Incentive Plan of
Alliance. If the Plan of Reorganization is not
approved, or if the Board of Directors
subsequently determines not to consummate the
Reorganization for any reason, the Stock
Incentive Plan will remain the Stock Incentive
Plan of the Bank. The directors and officers of
the Bank have a personal interest in the Stock
Incentive Plan to the extent they will
participate in the Stock Incentive Plan.
Other Information Concerning Without regard to the proposed Plan of
Annual Meeting Reorganization and the Stock Incentive Plan,
shareholders are also being asked: (i) to elect
four (4) directors of the Bank for three-year
terms; (ii) to approve the appointment of the
Bank's independent public accountants; and (iii)
to approve an adjournment of the Annual Meeting
if necessary to permit further solicitation of
proxies in the event there are not sufficient
votes at the time of the Annual Meeting to
approve one or more of the foregoing matters.
See "FORMATION OF HOLDING COMPANY -- Management
of Alliance and the Bank after the
Reorganization," "ELECTION OF DIRECTORS,"
"APPROVAL OF APPOINTMENT OF INDEPENDENT PUBLIC
ACCOUNTANTS" and "APPROVAL OF ADJOURNMENT OF
ANNUAL MEETING." If the Plan of Reorganization
is approved at the Annual Meeting, all existing
stock benefit plans of the Bank and the Stock
Incentive Plan will become the stock benefit
plans of Alliance, with appropriate amendments
to reflect that Alliance's common stock will be
substituted for the Bank common stock
thereunder. See "ELECTION OF DIRECTORS OF THE
BANK" and "FORMATION OF HOLDING COMPANY --
Effect on Existing Stock Benefit Programs." The
Annual Meeting of Shareholders will be held at
10:30 a.m. on Wednesday, March 26, 1997, at the
Colony, Route 83, Talcottville Road, Vernon, CT
06066. Shareholders of record on February 10,
1997, will be entitled to vote at the Annual
Meeting, in person or by proxy.
9
<PAGE>
Market for Common Stock
The common stock of the Bank is quoted on the AMEX. The following table
presents quarterly information on the range of high and low prices for the past
two (2) years.
Quarter Ended High Low Dividends Declared Per Share
------------- ---- --- ----------------------------
March 31, 1995 $ 8.00 $ 7.00 $ 0
June 30, 1995 8.25 7.50 0
September 30, 1995 10.38 7.38 0
December 31, 1995 10.13 8.13 0
March 31, 1996 10.50 9.25 0
June 30, 1996 10.38 9.50 0
September 30, 1996 12.38 9.63 0
December 31, 1996 13.38 11.00 .03
On January 31, 1997, the closing price for the Bank's common stock as
reported in The Wall Street Journal was $13.13. On that date, there were
approximately 546 holders of such common stock, excluding holders in "street
name." On the day preceding announcement of the plan to form the holding
company, the high and low of the Bank's common stock were $12.38 and $12.38,
respectively.
INFORMATION CONCERNING THE ANNUAL MEETING OF SHAREHOLDERS
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors of Tolland Bank (the "Bank")
to be used at the Annual Meeting of Shareholders of the Bank (the "Annual
Meeting") which will be held at The Colony, Route 83, Talcottville, Road,
Vernon, Connecticut on Wednesday, March 26, 1997 at 10:30 a.m. and at any
adjournment thereof. This Proxy Statement is expected to be first mailed to
shareholders on or about February 21, 1997.
Matters to be Considered at the Annual Meeting
The Annual Meeting has been called for the following purposes: (1) to elect
four (4) directors of the Bank for three-year terms; (2) to approve the Plan of
Reorganization pursuant to which a proposed new holding company, Alliance
Bancorp of New England, Inc., a Delaware Corporation ("Alliance") will be
formed. Alliance will, in a one-for-one exchange with the Bank's shareholders,
acquire all the issued and outstanding common stock of the Bank; (3) to approve
the Stock Incentive Plan; (4) to approve the appointment by the Bank's Board of
Directors of the firm of KPMG Peat Marwick LLP as independent public accountants
of the Bank for the fiscal year ending December 31, 1997; (5) to approve an
adjournment of the Annual Meeting if necessary to permit further solicitation of
proxies in the event there are not sufficient votes at the time of the Annual
Meeting to approve one or more foregoing matters; and (6) to transact such other
business as may properly come before the Annual Meeting or any adjournments
thereof.
At the Annual Meeting, shareholders of the Bank will be asked to approve
the Plan of Reorganization. Under the Plan of Reorganization Alliance will
organize Interim Tolland Bank ("Interim"). Interim will be merged into the Bank.
Each share of the Bank common stock will be converted and exchanged
automatically into one share of Alliance common stock, and the Bank will become
a wholly-owned subsidiary of Alliance. The Plan of Reorganization is subject to
various regulatory approvals including those of the FRB and the State of
Connecticut. Applications for such approvals will be filed. Assuming approval by
the requisite authority and the satisfaction of the other conditions set forth
in the Plan of Reorganization, attached hereto as Exhibit A, the Plan of
Reorganization will be implemented and the Bank's shares will be exchanged for
those of Alliance.
10
<PAGE>
SOLICITATION OF PROXIES
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors of the Bank to be used at the
Annual Meeting to be held on Wednesday, March 26, 1997 at the Colony, Route 83,
Talcottville Road, Vernon, CT 06066 and at any adjournment thereof. This Proxy
Statement/Prospectus is first being mailed to shareholders on or about February
21, 1997.
All costs of the solicitation of proxies will be borne by the Bank. In
addition to solicitation by mail, directors, officers and other employees of the
Bank may solicit proxies personally or by telephone or other means without
additional compensation. The Bank will reimburse brokerage firms and other
custodians, nominees and fiduciaries for reasonable expenses incurred by them in
sending proxy materials to the beneficial owners of the Bank's common stock.
The Bank anticipates engaging Corporate Investors Communication, Inc.
("CIC") to assist in the solicitation of proxies. CIC will be paid approximately
$5,000 plus its reasonable out-of-pocket expenses in connection with its
assistance in the solicitation of proxies.
REVOCATION OF PROXIES
Shareholders who execute proxies retain the right to revoke them. A
shareholder giving a proxy may revoke it at any time prior to its exercise by
(i) filing with the Secretary of the Bank written notice of revocation, (ii)
submitting a duly-executed proxy bearing a later date, or (iii) appearing at the
Annual Meeting and voting in person. Unless so revoked, the shares represented
by the proxies will be voted according to the shareholder's instructions on the
proxy or, if no instructions are given, in favor of all Proposals described in
this Proxy Statement. In addition, shares represented by proxies will be voted
as directed by the Board of Directors with respect to any other matters that may
properly come before the Annual Meeting or any adjournment. Proxies solicited by
this Proxy Statement may be exercised only at the Annual Meeting and any
adjournment thereof and will not be used for any other meeting.
VOTING SECURITIES
Only shareholders of record as of the close of business on February 10,
1997, are entitled to vote at the Annual Meeting. As of that date, the Bank had
1,172,500 shares of common stock issued and outstanding. Each share of common
stock is entitled to one vote. All votes, whether voted in person or by proxy,
will be tabulated by the Bank's Inspector of Elections, the Bank of Boston.
Abstentions are counted for purposes of establishing a quorum. Broker non-votes
are not counted for the purposes of establishing a quorum. Pursuant to the
Bank's Articles of Incorporation, shareholders are not entitled to cumulate
their votes for the election of directors. The presence, in person or by proxy,
of the holders of at least a majority of the total number of outstanding shares
of common stock entitled to vote at the Annual Meeting is necessary to
constitute a quorum.
VOTING PROCEDURES
The affirmative vote of two thirds of the issued and outstanding shares of
common stock of the Bank is required to approve the Plan of Reorganization and
formation of the holding company. All other proposals described in the Proxy
Statement require the affirmative vote of a majority of the shares present or
represented by proxy, except that directors can be elected by a plurality of
shareholders. An abstention with respect to a Proposal by a shareholder present
or represented at the Annual Meeting will have the same effect as a vote against
that Proposal.
Executed but unmarked proxies will be voted FOR all proposals.
11
<PAGE>
Except for procedural matters incident to the conduct of the Annual
Meeting, the Bank does not know of any matters other than those described in the
Notice of Annual Meeting that are to come before the Annual Meeting. If any
other matters properly come before the Annual Meeting, the persons named as
proxies will vote upon such matters as determined by a majority of the Board of
Directors.
Enclosed with this Proxy Statement/Prospectus is the Bank's Annual Report
to Shareholders for its fiscal year ended December 31, 1996 (the "Annual
Report").
PRINCIPAL HOLDERS OF COMMON STOCK
The following table sets forth information as of December 31, 1996, with
respect to ownership of Common Stock by any person (including any "group" as
that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934)
who is known to the Bank to be the beneficial owner of more than 5% of the
Common Stock and with respect to ownership of Common Stock by all directors and
officers of the Bank as a group.
Name and Address Number of Shares Percent
of Beneficial Owners Beneficially Owned (1) of Class
-------------------- ---------------------- --------
Franklin Mutual Advisers, Inc. 100,300 8.55%
777 Mariner's Island Blvd.
P.O. Box 7777
San Mateo, CA 94403-7777
Towle & Company 60,900 5.19
12855 Flushing Meadow Drive
St. Louis, Missouri 63131
All directors and senior officers 264,545(2) 20.6(2)
as a group (16 persons)
(1) Based on information provided by the respective beneficial owners and on
filings with the Federal Deposit Insurance Corporation made pursuant to the
Securities Exchange Act of 1934.
(2) Includes currently exercisable options granted to directors and certain
principal officers to purchase an aggregate of 112,834 shares. The figures
are based on beneficial ownership information provided by the directors and
officers.
---------------
PROPOSAL I - ELECTION OF DIRECTORS
If the Plan of Reorganization is approved at the Annual Meeting and
consummated thereafter, the Board of Directors of Alliance will be as set forth
herein at "FORMATION OF HOLDING COMPANY -- Management of Alliance and the Bank
after the Reorganization."
The Articles of Incorporation of the Bank provide that the number of
directors shall be as stated in the Bank's Bylaws but shall not be fewer than
seven nor more than 15. The Articles of Incorporation further provide that the
number of directors shall only be increased or decreased by the Board of
Directors. Currently, the Bylaws of the Bank provide that the Board of Directors
consists of 11 members and is divided into three classes of approximately equal
size. The members of each class are elected for a term of three years. One class
is elected annually.
12
<PAGE>
Four directors will be elected at the Annual Meeting to serve for
three-year terms and until their successors are elected and qualified. The Board
of Directors acts as a nominating committee for the Bank pursuant to the Bylaws
of the Bank, has nominated the following four current Board members for
re-election as directors: Howard G. Abbott, M.D., Lawrence J. Becker, Theresa L.
Dansky, CPA, and Thomas S. Moore.
The Board of Directors will not consider nominees recommended by
shareholders. Shareholder nominations must be made directly by the shareholder
in accordance with the requirements and procedures provided in the Bylaws. Those
procedures require stockholders to make nominations in writing and deliver them
to the Secretary of the Bank not fewer than 60 nor more than 90 days prior to
the Annual Meeting, or if less than 70 days notice of the meeting is given to
stockholders, on the seventh business day following the mailing of the notice of
the Annual Meeting. There are no arrangements known to Management between the
persons named and any other person pursuant to which such nominees were
selected.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE ABOVE NOMINEES
FOR DIRECTOR UNDER PROPOSAL I.
The persons named on the enclosed proxy intend to vote for the election of
the named nominees, unless the proxy is marked by the shareholder to the
contrary. If any nominee is unable to serve, all valid proxies will be voted for
the election of such substitute as the Board of Directors may recommend, or the
Board of Directors may amend the Bylaws to reduce the size of the Board to
eliminate the resulting vacancy. The Board knows of no reason why any nominee
might be unavailable to serve. The following table sets forth certain
information with respect to each nominee and each director continuing in office.
The figures are based on beneficial ownership information provided by the
directors by questionnaire.
NOMINEES (TERM TO EXPIRE IN 2000)
Amount of Common Stock
Beneficially Owned (1)
Director ----------------------
Age Since Amount Percent
--- ----- ------ -------
Howard G. Abbott, M.D. 71 1982 15,870 1.35(3)(5)
Dr. Abbott was an orthopedic
surgeon with Rockville Orthopedic
Associates, P.C., until his retirement
in June 1990.
Lawrence J. Becker 73 1979 40,688 3.45(3)(10)
Mr. Becker is the owner of Becker
Construction Co., President of the
Joseph J. Mottes Co., President of
Ace Equipment Sales, Inc., and Vice
President of Rock Crushers, Inc.
Theresa L. Dansky, CPA 34 1996 1,290 *(11)
Ms. Dansky is a partner in the firm
Magdefrau & Dansky LLC, CPAs in
Vernon, Connecticut.
13
<PAGE>
Thomas S. Moore 73 1977 9,674 *(3)(9)
Mr. Moore was Director of
Finance/Controller for the Town of
Manchester, Connecticut until his
retirement in 1985.
CONTINUING DIRECTORS (TERM TO EXPIRE IN 1998)
Robert C. Boardman 64 1980 8,250 *(2)(3)
Mr. Boardman is President of the
Capital Area Health Consortium.
Prior to this he served as Executive
Director of Rockville General
Hospital from 1974 through 1987.
William E. Dowty, Jr. 71 1977 17,870 1.52(3)(5)
Mr. Dowty was Vice President/
Data Processing Functions for
Connecticut Mutual Companies, a
life insurance company, where he
had been employed since 1950, until
his retirement in 1987.
Kenneth R. Peterson 51 1982 12,555 1.07(3)(6)
Mr. Peterson is a partner in Gardner
and Peterson Associates, a land
surveying and civil engineering firm
where he has practiced since 1968.
CONTINUING DIRECTORS (TERM TO EXPIRE IN 1999)
Douglas J. Moser 52 1991 11,513 *(3)(4)
Mr. Moser is a partner in the
architectural firm of Moser Pilon &
Nelson, which he established in
1980.
D. Anthony Guglielmo 56 1985 30,001 2.55(3)(8)
Mr. Guglielmo, Vice Chairman of
the Board, is currently President and
owner of Penny-Hanley and Howley
Co., Inc., an insurance agency where
he has served since 1968. Mr.
Guglielmo currently serves as a
Connecticut State Senator.
14
<PAGE>
Francis J. Prichard, Jr. 68 1989 31,700 2.69(3)
Mr. Prichard, Chairman of the
Board, is the owner of Star True
Value Hardware Stores located in
Ellington and Tolland, and he is
President of Kuhnly Plumbing and
Heating Company, Inc., in Ellington.
Joseph H. Rossi 46 1996 29,144 2.42(7)
Mr. Rossi serves as President and
Chief Executive Officer of Tolland
Bank since January 1, 1996.
Previously he served as Chief
Financial Officer/Treasurer.
(1) Except as otherwise noted, all beneficial ownership is direct and each
beneficial owner exercises sole voting and investment power over the
shares.
(2) Includes 2,000 shares with shared voting and investment power and 500
shares held by his wife.
(3) Includes currently exercisable options to purchase 5,000 shares.
(4) Includes 5,513 shares with shared voting and investment power, 500 shares
held by son and 500 shares held by daughter.
(5) Shared voting and investment power.
(6) Includes 2,250 shares held by his children.
(7) Includes currently exercisable options to purchase 19,144 shares, and
10,000 shares with shared voting power.
(8) Includes 2,174 shares with shared voting and investment power, 11,957
shares held by his wife.
(9) Includes 2,500 shares held by his wife.
(10) Includes 27,355 shares with shared voting power.
(11) Includes 240 shares held by daughter who is a minor child.
* Less Than One Percent
---------------
Board Meetings and Committees
The Board of Directors meets at least monthly and may have additional
special meetings. During the year ended December 31, 1996, the Board met 16
times. Each director attended at least 75% of the Board and Committee meetings
during the period he was a director and committee member. Certain of the
standing committees of the Board of Directors of the Bank are discussed below.
The Personnel Committee consists of six members of the Board. This
Committee reviews potential candidates for election to the Board at the annual
meeting and handles personnel and compensation issues. The
15
<PAGE>
Committee, which met 3 times in 1996, presently consists of Messrs. Dowty,
Abbott, Becker, Prichard, Boardman and Guglielmo.
The Audit, Budget and Risk Management Committee directs and reviews the
activities of the Bank's internal audit function, meets with the Bank's
independent auditors in connection with its annual audit, approves the annual
expense budget, and monitors the corporation's insurance risk management
program. This Committee, composed of Messrs. Moore, Guglielmo, Boardman, Moser,
Dansky and Abbott met 6 times during the fiscal year ended December 31, 1996.
The Executive Committee meets in the absence of the full board and may
exercise all of the authority of the board except as set forth in the bylaws.
This Committee, which did not meet during 1996, presently consists of Messrs.
Moore, Dowty, Becker, Peterson, Prichard and Rossi.
Directors' Fees
Directors of the Bank receive a retainer fee of $1,800 per year and a fee
of $200 per meeting attended. Members of the committees receive $150 per
committee meeting attended, while the chairman of the board and each committee
receive $250 per committee meeting attended. It is the policy of the Bank not to
pay directors' fees to principal officers who also serve as directors.
Executive Compensation
The following table sets forth the compensation paid by the Bank to Joseph
H. Rossi for each of the last three fiscal years. No other executive officer of
the Bank earned a total salary and bonus in excess of $100,000 or served as
Chief Executive Officer of the Bank during the last fiscal year.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Name and -------------------- ---------------------- All Other
Principal Position Year (2) Salary ($) Bonus ($) Options(#) Compensation(1)
- ------------------ -------- ---------- --------- ---------- ---------------
Joseph H. Rossi (3) 1996 $115,330 $0 11,144 $3,247.03
President and CEO 1995 85,941 0 0 2,477.80
1994 82,377 0 0 1,718.03
(1) Consists of 401(k) contributions by the Bank and other perquisites.
(2) The Bank's fiscal year ends December 31.
(3) Mr. Rossi served as CFO and Treasurer of the Bank until November 1, 1995,
when he was appointed acting President. On January 1, 1996, he was
appointed President and CEO.
----------------------
Cash Bonus Plan
The Bank has a discretionary policy of granting cash bonuses on an annual
basis to those officers and employees who contribute to the success and
profitability of the Bank. The amount of each cash bonus depends on various
performance criteria for the Bank and the participants, which criteria are
selected by the Personnel Committee and are subject to change from year to year.
16
<PAGE>
Option Grants in Last Fiscal Year
The following table provides information on option grants in fiscal 1996 to
Mr. Rossi:
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annualized Rates
of Stock Price
Appreciation
Individual Grants for Option Term(1)
-------------------------------------------------- ------------------
% of Total
Options
Number of Granted to Exercisable
Date of Options Employees in Price Per Expiration
Name Grant(2) Granted Fiscal Year Share(3) Date 5% 10%
---- -------- ------- ----------- -------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Joseph H. Rossi 1/4/96 10,000 48.97% $ 9.50 1/4/06 $59,700 $151,400
10/24/96 1,144 5.60% $11.50 9/24/06 $ 8,271 $ 20,970
</TABLE>
(1) "Potential Realized Value" is disclosed in response to the Securities and
Exchange Commission rules which require such disclosure for illustration
purposes and is based on the difference between the potential market value
of shares issuable upon exercise of such options and the exercise price of
such options. The values disclosed are not intended to be, and should not
be interpreted by shareholders as, representations or projections of future
value of the Bank's common stock or of the stock price. To lend perspective
to the illustrative potential realized value, if the Bank's stock price
increased 5% per year for ten years from its closing price on January 4,
1996, or $9.50 per share, or September 24, 1996, or $11.50 per share,
(disregarding dividends and assuming for purposes of the calculation a
constant number of shares outstanding) the stock price at the end of ten
years would be $15.47 or $18.73 per share, respectively, for an increase of
$5.97 or $6.93 per share, respectively; and if the stock increased 10% per
year over such period, the ending stock price would be $24.64 or $29.83 per
share, respectively, for an increase of $15.14 or $18.33 per share,
respectively.
(2) All options granted are immediately exercisable.
(3) The exercise price is equal to the closing price on the date of the grant.
----------------------
Aggregate Option Exercises and Year-End Option Values
The following table sets forth the number of shares acquired on the
exercise of stock options and the aggregate gains realized on the exercise
during fiscal 1996 by Mr. Rossi. The table also sets forth the number of shares
covered by exercisable and unexercisable options held by Mr. Rossi on December
31, 1996, and the aggregate gains that would have been realized had these
options been exercised on December 31, 1996, even though these options were not
exercised, on December 31, 1996.
17
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Shares Acquired Covered by Unexercised In-The-Money
On Exercise Options on 12/31/96 Options As Of 12/31/96(1)
During Fiscal Value --------------------------- ---------------------------
Name 1996 Realized Exercisable Unexercisable Exercisable Unexercisable
---- ---- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joseph H. Rossi 0 0 19,144 0 $44,532 0
</TABLE>
- ---------------
(1) Equals the difference between the aggregate exercise price of such options
and the aggregate fair market value of the common stock that will be
received upon exercise, assuming such exercise occurred on Tuesday,
December 31, 1996, at which date the last sale of the common stock as
quoted on the AMEX was $12.00 per share.
----------------------
Compensation Committee Interlocks and Insider Participation
The Personnel Committee determines the compensation policy for the Bank and
consists of Directors Dowty, Abbott, Becker, Prichard, Boardman, and Guglielmo,
none of whom have ever been an officer or employee of the Bank. None of the
above are members of a compensation committee of the Board of Directors of any
company other than the Bank.
401(k) Plan
In 1991, the Bank established the Tolland Bank 401(k) Savings Plan (the
"401(k) Plan"), a defined contribution contributory profit sharing plan designed
to comply with Section 401(k) of the Code. Each full-time and regular part-time
employee with 30 days of service is eligible to participate in this plan.
Under the 401(k) Plan, a participant may defer between 2% and 15% of his or
her before-tax compensation from the Bank (subject to certain limitations) as a
contribution under this plan. The Bank will make matching contributions equal to
35% of the first 6% of each participant's contributions and participants are
offered six different investment vehicles for their accounts. Participants are
100% vested at all times in their contributions and the income earned thereon.
Participants become 100% vested in the Bank's matching contributions after four
years of service or earlier if they retire, become permanently disabled, die or
attain age 65. Benefits under the 401(k) Plan will be paid at retirement,
disability, death or other termination of employment with the Bank. Benefits may
be paid in a lump sum or in installments, depending on certain factors. The
401(k) Plan also permits participants to make early withdrawals from their
accounts (subject to certain limitations) in case of hardship and to borrow
against their accounts. In 1996 the following amounts, representing Bank
matching contributions and earnings thereon, accrued for Mr. Rossi under the
401(k) Plan: $3,209.81.
Change in Control Agreement
The Bank maintains change of control agreements with Mr. Rossi and others
(collectively, the "Agreements"). These Agreements continue in effect through
December 31, 1998, and are automatically extended each year for an additional
period of one (1) year unless either party elects to the contrary. The
Agreements provide, among other things, that after a change in control as
defined in the Agreements, if the employee's employment is terminated without
cause, or if the employee terminates his employment with good reason, as defined
in the Agreements, the employee will be entitled to $25,000 and the Bank shall
continue to pay his/her full
18
<PAGE>
salary at a rate of compensation until such payments, including the $25,000
payment, have reached 2.9 times the sum of the employee's average annual salary
and bonuses for the preceding five years. The consummation of the Plan of
Reorganization, and the approvals thereto, will not constitute a change in
control as defined in the Agreements. The Bank shall also provide the employee
with other benefits equal to those the employee was receiving for two years
immediately before his/her termination. Assuming a January 1, 1997, termination
date after a change in control, these payments would have equaled $283,647 for
Mr. Rossi (plus the cost of benefits).
Certain Transactions
The Bank has had, and expects to have in the future, banking transactions
with directors, officers and their associates on substantially the same terms,
including interest rates and collateral on loans, as those prevailing at the
same time for comparable transactions with others, which do not involve more
than the normal risk of collectibility or present other unfavorable features.
In the past, the Bank's policy and state and federal regulations permitted
loans to officers at a lower interest rate than that available to the public at
that time and without loan origination fees. Only one such loan was outstanding
in 1996, that being a mortgage loan to Vice President Cynthia S. Harris, which
had a high balance in 1996 of $73,656 and a balance of $70,309 at December 31,
1996. This loan is priced at 100 basis points below the prime rate, adjusted
annually, and at December 31, 1996 the rate was 7.25%. However, should Mrs.
Harris leave the Bank's employ, the rate will revert to prime.
The aggregate of all extensions of credit to directors, officers and their
associates had a high balance of $1,049,000 in 1996 (representing 7.72% of the
Bank's equity capital at that time), and a balance of $874,000 at December 31,
1996 (representing 5.61% of the Bank's equity capital at that time) including
$235,000 of unused lines of credit.
Pension Plan
The Bank maintains a defined benefit pension plan (the "Pension Plan") that
is designed to satisfy the requirements for tax qualification set forth in the
Internal Revenue Code of 1986, as amended (the "Code"). Under the Pension Plan,
the Bank makes annual contributions, which are actuarially determined, for the
benefit of eligible employees. Expenses for administering the Pension Plan are
paid out of Pension Plan assets and also directly by the Bank. Employee
contributions are not required.
The Pension Plan covers each full-time and regular part-time employee who
was hired prior to his or her 60th birthday, who has completed at least one year
of service and worked a minimum of 1,000 hours in that year, and who has
attained age 21. The Pension Plan contains automatic spousal coverage for all
eligible participants.
The Pension Plan generally provides for monthly benefit payments (in
straight line annuity amounts) to the participant as of the date the participant
retires. For employees who made contributions, the normal form of benefit
payment is a modified cash refund. A Pension Plan participant is eligible to
receive an actuarially-reduced early retirement benefit if he or she is within
ten years of his or her normal retirement date, has separated from service and
has completed at least ten years of service. In most cases, an employee will
become a fully-vested participant when he or she completes five years of
service. Participants who remain in service past their normal retirement date
are eligible for an actuarially-increased retirement benefit based on the amount
of their normal retirement benefit. If a participant terminates service after he
or she becomes eligible for early retirement, the vested percentage will be
100%. The Pension Plan is integrated with the Social Security System.
The amount of a participant's benefit is based on average yearly earnings
(including base salary and bonus) during the participant's highest five
consecutive years during his or her last ten years of credited service
multiplied by his or her credited service as an active participant in the
eligible class (not to exceed 30 years of service).
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The table set forth below illustrates annual pension benefits payable for
life at age 65 in 1996 under the Pension Plan provisions for various levels of
compensation and years of service.
Years of Credited Service at Age 65
Final Average ----------------------------------------------------------
Compensation 10 15 20 30
------------ -- -- -- --
$ 15,000.00 $ 1,800.00 $ 2,700.00 $ 3,600.00 $ 5,400.00
25,000.00 3,000.00 4,500.00 6,000.00 9,000.00
50,000.00 7,445.00 11,167.00 14,890.00 22,334.00
75,000.00 11,945.00 17,917.00 23,890.00 35,834.00
100,000.00 16,445.00 24,667.00 32,890.00 49,334.00
125,000.00 20,945.00 31,417.00 41,890.00 62,834.00
150,000.00 25,445.00 38,167.00 50,890.00 76,334.00
Mr. Rossi has 2 credited years of service as of December 31, 1996
Supplemental Executive Retirement Plan and Agreement
The Bank and Mr. Rossi have entered into a Supplemental Executive
Retirement Plan and Agreement (the "SERP") that will provide Mr. Rossi with a
payment as if he were fully vested under the Pension Plan and the 401(k) plan if
he is terminated by the Bank for any reason, other than voluntary resignation,
prior to the dates when he becomes fully vested in the Pension Plan and the
401(k) plan. Mr. Rossi will be fully vested in the Pension Plan on October 13,
1998, and he will be fully vested in the Bank's contributions to the 401(k) plan
on October 31, 1997. Once full vesting has occurred in each plan, the SERP will
be terminated.
Tolland Bank 1997 Employee Stock Purchase Plan
The Bank has established the Tolland Bank 1997 Employee Stock Purchase Plan
(the "Stock Purchase Plan").
The Stock Purchase Plan provides an opportunity for full-time employees of
the Bank and Alliance to purchase Bank or Alliance stock through payroll
deduction. Employees would be able to purchase Bank or Alliance stock at fair
market value, pursuant to the terms of the Stock Purchase Plan. The Bank and
Alliance will utilize the Bank of Boston to administer the Stock Purchase Plan.
Amounts will be withheld from payroll of participants, pooled and forwarded to
the Bank of Boston (the "Administrat ") to purchase shares of common stock of
the Bank's or Alliance's in the open market for accounts of all participants
under the Stock Purchase Plan on a monthly basis. The Bank or Alliance, as the
case may be, pays the Administrator's service charges, commissions of broker
dealers and other expenses incurred by the Administrator associated with the
purchase of stock. Participation in the Stock Purchase Plan is completely
voluntary and all full-time and regular part-time employees of the Bank and/or
Alliance are eligible to participate at their election, except for persons who
own, either individually or through the attribution provisions of Section
424(d)(4) of the Code, 5% or more of the total combined voting power of the Bank
and/or Alliance or any parent or subsidiary corporation. No employee of the Bank
currently owns 5% or more of the total combined voting power of the Bank. Also
not eligible are employees who have been employed for less than 30 days or
part-time employees, who are defined by the Stock Purchase Plan as those whose
customary employment is 20 hours or less per week, or for not more than five
months in any calendar year. The minimum payroll deduction for the Plan is $10
per pay period, the maximum $300 per pay period, or $1,000 per month.
Directors' Deferred Compensation Plan
The Bank also expects to implement a Directors' Deferred Compensation Plan
(the "Deferred Compensation Plan") during 1997 to permit directors to defer
recognition of income on fees that they receive as
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directors of the Bank. Under the Deferred Compensation Plan directors of the
Bank can defer receipt of annual retainer fees and defer federal income taxation
on deferred amounts until the year in which benefits are actually received by a
participating director. Directors may benefit from the ability to defer taxes to
a date when their taxable income is less and tax brackets lower.
Under the Code, deferred fees will be deemed to be assets of the Bank. As
Bank funds they would be available to general creditors. Deferred directors'
fees will be held until a director ceases to be a director for any reason. Thus,
upon the director's death, retirement or resignation, such fees shall be paid in
the form of stock in a lump sum within 60 days after the participant terminated
his services as a director. In the event of a participant's death, any remaining
funds in the director's account balance shall be paid to his beneficiary in a
lump sum as soon as administratively practicable after his death. The Deferred
Compensation Plan will be administered by a committee of the Board. Stock
purchases which will be made on the open market or by issuance of authorized but
unissued shares will be credited on the date such fees are earned and will be
based on the closing prices of the Bank or Alliance stock for such dates. At
this juncture the number of Directors who will participate in the Deferred
Compensation Plan is expected to be at least seven, and the overall benefit to
directors is expected to be nominal.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of Forms F-7, F-8 and F-8A and amendments
thereto furnished to the Bank pursuant to Rule 16a-3(e) during the fiscal year
ended December 31, 1996, no person who is a director, officer or beneficial
owner of 10% of the Bank common stock failed to file on a timely basis reports
required by Section 16(a) of the Securities Exchange Act except Theresa L.
Dansky, who owned 200 shares of common stock prior to her appointment to the
Board of Directors and Douglas J. Moser, who through his personal broker
reinvested a dividend of Bank common stock to purchase additional Bank common
stock. In these instances Director Dansky failed to file 1 report for 200 shares
and Director Moser 1 report for 13 shares. Reports for both directors have been
subsequently filed.
PROPOSAL II -- FORMATION OF THE HOLDING COMPANY
The following descriptions are qualified in their entirety by reference to
the Plan of Reorganization, the Certificate of Incorporation of Alliance, and
the Bylaws of Alliance which are attached hereto as Exhibits A, B, and C,
respectively.
The Board of Directors of the Bank has unanimously approved the formation,
subject to necessary shareholder and regulatory approvals, of a stock holding
company to be known as Alliance (the "Reorganization"), pursuant to the Plan of
Reorganization by and among the Bank, Alliance and Interim. A copy of the Plan
of Reorganization is attached as Exhibit A hereto and is incorporated herein by
reference. The following discussion is qualified in its entirety by reference to
the Plan of Reorganization
Upon completion of the Reorganization, the shareholders of the Bank will
become the shareholders of Alliance by conversion of their shares of the Bank
common stock into Alliance common stock on a one-for-one basis. The Bank will
continue its existing business and operations after the Reorganization under its
present name as a wholly-owned subsidiary of Alliance. The consolidated
capitalization, assets, liabilities and financial statements of Alliance
immediately following the Reorganization will be the same as those of the Bank
immediately prior to the Reorganization. After the Reorganization, the deposits
of the Bank will continue to be insured by the FDIC through the Bank Insurance
Fund (the "BIF") to the maximum amount provided by law.
THE BOARD OF DIRECTORS OF THE BANK UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
OF THE BANK VOTE FOR APPROVAL OF THE REORGANIZATION. THE
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AFFIRMATIVE VOTE OF TWO THIRDS OF THE SHARES OF COMMON STOCK ISSUED AND
OUTSTANDING IS REQUIRED TO APPROVE THE REORGANIZATION.
Reasons for and Risks of the Reorganization
Management of the Bank believes that by adopting a holding company
structure the Bank will have additional flexibility to diversify its business
activities through existing or newly formed subsidiaries or through acquisitions
of other financial institutions or financial services-related companies. In
addition, management believes that Alliance will be in a position after the
Reorganization, subject to regulatory limitations and Alliance's financial
position to take advantage of any expansion and acquisition opportunities that
may arise. There are no current arrangements, understandings or agreements,
written or oral, regarding any such opportunities or transactions. The initial
activities of Alliance are anticipated to be provided for by funds from the Bank
including $100,000 to meet certain organizational and administrative expenses.
Management believes that a holding company structure will enable Alliance
to strengthen the Bank's capital through future increases in lending and also
facilitate the issuance of debt or equity securities of the holding company
which will enable the Bank to increase its capital and its opportunities for
measured growth. Subject to general business conditions, interest rates, and
opportunities for growth, the Board will use the holding company structure to
increase the Bank's capital and to increase the Bank's assets. The Board
believes that growth in the Bank's capital will permit the Bank to increase
lending activity in several key areas including mortgage finance, consumer loans
and commercial or business loans. Increased capital will also permit Bank
expansion into complementary lines of business as permitted by the rules and
regulations of the FRB. At this juncture the method by which capital may be
increased has not been determined. Also undetermined is whether increased
capital of the Bank can be supported by sufficient growth in Bank assets through
Alliance.
The Bank's Board of Directors recognizes that there will be increased costs
that will be incurred in the operation of a stock holding company and that the
securities of Alliance, unlike those of the Bank, must be registered with the
Commission and may not be legal investments for institutions as fiduciaries in
certain jurisdictions. Nevertheless, for the reasons stated above, the Board of
Directors believes that the holding company formation is in the best interests
of the Bank and its shareholders.
Following this transaction the Bank's securities will be subject to the
jurisdiction of the Securities and Exchange Commission. In addition, following
completion of the Reorganization, all of the common stock of the Bank will be
owned by Alliance which will be a bank holding company and will be subject to
the jurisdiction of the Federal Reserve Board. The holding company will be
subject to examination by the Federal Reserve Board and periodic reports
relating to the holding company will also be required to be filed. The FDIC and
the State of Connecticut will retain their jurisdiction over the Bank.
The Bank's Board of Directors chose Delaware as the state of incorporation
of Alliance because of the flexibility and predictability which the corporate
law of Delaware provides to the shareholders and management of a Delaware
corporation and because of the authority Delaware law provides to limit the
liability of Directors for monetary damages to shareholders. See "FORMATION OF
HOLDING COMPANY -- Limitations on Director Liability."
Below is a pro forma capitalization table showing, as of December 31, 1996,
the audited historical capitalization of Tolland Bank and the pro forma
unaudited consolidated capitalization of Alliance, after giving effect to the
Reorganization.
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December 31, 1996 Tolland Bank Alliance*
(dollars in thousands) (Historic) (Pro Forma)
---------------------- ---------- -----------
Deposits $205,608 $205,608
Borrowed Funds 10,406 10,406
Total deposits and borrowed funds $216,014 $216,014
======== ========
Shareholders' Equity
Preferred Stock -- --
Par value of common stock 1,173 12
Additional paid-in capital 8,918 10,079
Retained earnings 5,731 5,731
Net unrealized loss on securities (233) (233)
-------- --------
Total shareholders' equity $ 15,589 $ 15,589
======== ========
Equity/Assets 6.71% 6.71%
* No adjustments have been made for expenses. Such expenses are anticipated
to be $65,000.
Description of the Reorganization
The Bank caused Alliance to be incorporated as a Delaware corporation on
January 9, 1997, with authorized capitalization of 4,000,000 shares of common
stock, $0.01 par value, and 100,000 shares of preferred stock, $0.01 par value.
The Bank will, prior to the effectiveness of the Reorganization, provide the
initial working capital for Alliance, not to exceed $100,000. Alliance will
organize Interim as a corporation with an Interim Connecticut Certificate of
Incorporation. Alliance will be the sole shareholder of Interim. Contingent upon
regulatory and shareholder approvals, the Reorganization will be accomplished as
follows:
1. Interim as a wholly owned acquisition subsidiary of Alliance will
merge with and into the Bank with the Bank being the surviving corporation
(the "Merger"). All shares of common stock of the Bank outstanding
immediately before the Merger will be converted in the Merger, on a
share-for-share basis, into shares of common stock of Alliance. All shares
of common stock of Interim outstanding immediately before the Merger (which
will be held by Alliance) will be converted in the Merger into shares of
common stock of the Bank on a one share for one share basis. All shares of
common stock of Alliance outstanding immediately before the Merger (which
will be held by the Bank) will be cancelled in the Merger.
(a) the Bank, as the surviving corporation, will retain all
incidents of its corporate existence prior to the Reorganization,
including its Articles of Incorporation, bylaws, deposits, loans and
other assets and its operating offices. The Bank will carry on its
business and activities, as before the Merger, under the name Tolland
Bank.
(b) The directors and officers of the Bank in office immediately
before the Reorganization will, immediately after the Reorganization,
be directors and officers of the Bank as the surviving corporation.
2. As a result of the Merger, the persons who held all of the Bank's
outstanding common stock immediately before the Merger will, immediately
thereafter, hold instead all of the outstanding shares of common stock of
Alliance. Certificates representing outstanding shares of the Bank's common
stock outstanding immediately before the Merger will, immediately after the
Merger, represent the same number of shares of Alliance's common stock and
may be traded as such. Upon surrender of such stock certificates, the
holder will be entitled to receive stock certificates for shares of common
stock of Alliance.
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Shareholders will not be required to surrender their Bank stock
certificates until they desire to make a transfer.
3. As a result of the Merger, the shares of common stock of the Bank
held by Alliance immediately after the Merger will constitute the only
issued and outstanding shares of common stock of the Bank. Accordingly, the
Bank will be a wholly-owned subsidiary of Alliance.
4. As a result of the Merger, Interim will cease to exist as a legal
entity.
5. As a result of the Merger and the Reorganization, Alliance will be
a publicly held corporation. Alliance will register its common stock under
the Exchange Act and will seek to have its shares included on the AMEX.
There is no assurance that Alliance common stock will be included on the
AMEX, or that a public trading market will develop in its common stock,
although a market has existed in the past for the common stock of the Bank.
Upon completion of the Reorganization, the capital of Alliance, excluding
its ownership of Bank common stock, will consist solely of the amount with which
it will be capitalized by the Bank before completion of the Reorganization,
which will not exceed $100,000. Subject to certain regulatory restrictions,
additional funds may be obtained from the Bank after the completion of the
Reorganization by payment of dividends by the Bank to Alliance. Should
acquisitions or other business ventures be proposed, Alliance may need to issue
additional common or preferred stock or debt instruments in the future. Alliance
has no plans to make any such acquisitions or engage in any other business at
this time. The Bank believes that the Reorganization will be accounted for in a
manner similar to a "pooling of interest" for accounting and other financial
reporting purposes.
Effective Date
The Effective Date of the Reorganization (the "Effective Date") will be the
date upon which all the conditions set forth in the Plan of Reorganization are
satisfied, including, but not limited to, receipt of shareholder approval and
all required regulatory approvals and the filing of required documents with the
FDIC, the FRB and the State of Connecticut.
Business of Alliance and the Bank
Alliance. Alliance is a general business corporation formed under the laws
of Delaware on January 9, 1997, for the purpose of becoming the stock holding
company of the Bank. The principal executive offices of Alliance are located at
the principal executive offices of Tolland Bank, 348 Hartford Turnpike, Vernon,
CT 06066. Its telephone number is (860) 875-2500. Upon completion of the holding
company formation, the Bank will become a wholly owned subsidiary of Alliance.
Alliance will be regulated by the FRB. See "FORMATION OF HOLDING COMPANY --
Reasons for and Risks of the Reorganization." "-- Regulation of Alliance."
Following the holding company formation, the primary business of Alliance will
be the ongoing business of the Bank, and the competitive conditions to be faced
by Alliance will be the same as those faced by the Bank.
At the present time, Alliance does not intend to have any employees.
Alliance will make occasional use of staff of the Bank from time to time. If
Alliance acquires other financial institutions it may at such time hire
employees.
It is currently expected that unless and until Alliance becomes actively
involved in the operation or acquisition of additional financial institutions no
separate compensation will be paid to the directors and officers of Alliance.
However, Alliance may determine that separate compensation is appropriate in the
future.
The Bank is also submitting the Stock Incentive Plan for approval by
shareholders. See "APPROVAL OF THE TOLLAND BANK 1997 STOCK INCENTIVE PLAN." If
approved, the Stock Incentive Plan will be the plan of the Bank with Bank
officers, employees and directors eligible to participate. If the Reorganization
is consummated, it, along with the other stock benefit plans of the Bank, will
become the plans of Alliance.
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However, if the Stock Incentive Plan is approved and for any reason the
directors of the Bank determine not to consummate the Reorganization, the Stock
Incentive Plan will remain in full force and effect as the plan of the Bank. See
"FORMATION OF HOLDING COMPANY -- Conditions for Approval of Reorganization."
Initially, Alliance will neither own nor lease any real property. Alliance
intends instead to use certain premises, equipment and furniture of the Bank.
The Bank will request regulatory approval to enable it to provide Alliance
with an initial capitalization of up to $100,000 for working capital purposes.
Upon formation of the holding company, the assets of Alliance will consist of
the initial capitalization plus all of the then outstanding shares of Bank
common stock. Alliance, on an unconsolidated basis, will initially have no
indebtedness or other liabilities. Additional financial resources may be
available to Alliance in the future through cash dividends from the Bank,
borrowings from third parties, and the public or private sale of equity or debt
securities of Alliance.
There can be no assurance, however, as to the amount of additional
financial resources that will be available to Alliance. There will be
substantial regulatory limitations on borrowings by Alliance and any non
financial institution subsidiaries as well as on cash dividends paid by the Bank
to Alliance. In addition, Alliance might have taxable income as the result of
the initial capitalization of Alliance, and any subsequent transfers by the Bank
to Alliance, in the form of cash dividends or otherwise. See "FORMATION OF
HOLDING COMPANY -- Income Tax Consequences of the Reorganization" "-- Dividend
Policy."
The Bank. The Bank, a savings bank chartered by the State of Connecticut,
conducts business from its main office in Tolland, Connecticut and six (6)
branch offices in Tolland County, Connecticut, in suburban Hartford. At December
31, 1996, the Bank had total assets of approximately $232.3 million and net
worth of approximately $15.6 million or 6.71% of total assets. Net income for
the fiscal year ended December 31, 1996 was approximately $1.438 million. The
Bank was originally established in 1841. In 1986 it converted into the stock
form of organization. It has one subsidiary, Asset Recovery Systems, Inc., which
was formed in 1996 to facilitate the disposal of troubled assets of the Bank. As
the level of these assets decrease, the activities of Asset Recovery Systems,
Inc. will, correspondingly, decrease.
The Bank's primary business consists of attracting deposits mainly from the
business community and general public and using these funds to originate
consumer, commercial, commercial real estate and residential loans. The Bank
obtains funds for such lending and investment through growth in deposits,
repayment of outstanding loans and the sale of other investments. The Bank's
principal source of income is interest received from loans and investments. Its
principal expenses are interest paid on deposit accounts and employee
compensation and benefits.
The Bank's deposits are insured by the FDIC through the BIF. It is subject
to comprehensive examination and regulation by the State of Connecticut and the
FDIC and to regulations governing such matters as capital standards, mergers,
establishing of branch offices, subsidiary investments and investment authority
in general. Such examination and regulation is intended primarily for the
protection of the BIF and of depositors. The regulatory structure provides
regulatory officials with extensive discretion in connection with their
supervisory and enforcement activities and examination policies.
The Bank competes for loans with other banks, and with thrift institutions,
mortgage companies, insurance companies, governmental agencies, real estate
investment trusts and credit unions. The Bank competes for loans primarily
through the interest rates and loan fees it charges, by convenient office
locations and through personal contact by its officers with members of the
community served by the Bank. Competition for loans is affected by, among other
matters, the availability of lendable funds, economic conditions, and prevailing
interest rate levels.
The Bank competes for savings deposits with other banks, and with money
market mutual funds, thrift institutions, credit unions, and corporate and
government securities. The Bank competes for deposit accounts
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primarily through the interest rates it offers, the convenience of its office
locations and personal contacts by its officers with members of the communities
served by the Bank.
Large national or regional financial institutions operate in the areas
where the Bank conducts its business. Many of these institutions have greater
financial resources than the Bank.
At December 31, 1996, the Bank had a total of approximately 86 full-time
equivalent employees, none of whom were represented by a collective bargaining
unit. The Bank considers its relations with its employees to be good.
Management of Alliance and the Bank after the Reorganization
No change will occur in the directors of the Bank by reason of the
Reorganization.
The following table sets forth the name and the year of expiration of the
term of office of each director of Alliance.
Term of
Name Office Expires
---- --------------
Robert C. Boardman 1998
William E. Dowty, Jr. 1998
Kenneth R. Peterson 1998
Douglas J. Moser 1999
D. Anthony Guglielmo 1999
Francis J. Prichard, Jr. 1999
Joseph H. Rossi 1999
Howard G. Abbott, M.D. 2000
Lawrence J. Becker 2000
Theresa L. Dansky 2000
Thomas S. Moore 2000
Each director of Alliance is also a director of the Bank. For additional
information concerning the directors of Alliance and information concerning the
directors of the Bank, see "ELECTION OF DIRECTORS."
The Certificate of Incorporation of Alliance, like the Articles of
Incorporation of the Bank, provide that the directors shall serve for terms of
three years and that the terms shall be staggered to provide for the election of
approximately one-third of the board members each year. Approval of the
Reorganization by the holders of the Bank common stock will ratify the
appointment of the persons set forth herein as directors of Alliance for their
respective terms, without further action by the shareholders of the Bank.
No change will occur in the persons who are officers of the Bank by reason
of the Reorganization.
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The executive officers of Alliance are, and upon completion of the
Reorganization will be the following:
Name Position
---- --------
Joseph H. Rossi President and Chief Executive Officer
Patrick J. Logiudice Executive Vice President
David H. Gonci Vice President and Chief Financial Officer
Cynthia S. Harris Secretary
At the present time, Alliance does not intend to employ any persons other
than its management and the employees of the Bank. No compensation will be paid
to its directors and officers in their capacities as directors and officers of
Alliance. Alliance may determine that such separate compensation is appropriate
in the future, however.
For additional information concerning the Directors and officers of
Alliance, see "ELECTION OF DIRECTORS."
Income Tax Consequences of the Reorganization
The Bank will not seek a ruling from the Internal Revenue Service (the
"IRS") concerning the federal income tax consequences of the Reorganization, but
will instead rely upon an opinion from counsel or a tax advisor. It is
anticipated that the Bank will be advised that:
1. Provided that the proposed merger of Interim with and into the Bank
qualifies as a statutory merger, the transaction will qualify as a
reorganization within the meaning of Section 368(a)(1)(A) of the Code.
2. The Bank, Alliance and Interim will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
3. No gain or loss will be recognized for federal income tax purposes
by Interim upon the transfer of its assets to the Bank solely in exchange
for the transfer to Alliance of the stock of the Bank.
4. No gain or loss will be recognized for federal income tax purposes
by Interim upon the receipt of the assets of Interim in exchange for the
transfer to Alliance of Interim stock.
5. The basis of Interim's assets in the hands of the Bank will be the
same for federal income tax purposes as the basis of those assets in the
hands of Interim immediately prior to the merger.
6. No gain or loss will be recognized for federal income tax purposes
by Alliance upon the receipt of the Bank stock solely in exchange for
Interim stock.
7. No gain or loss will be recognized for federal income tax purposes
by the Bank shareholders upon the receipt of Alliance stock solely in
exchange for their shares of the Bank stock.
8. The basis of Alliance stock to be received by the Bank shareholders
will be the same for federal income tax purposes as the basis of the Bank
stock surrendered in exchange therefor.
9. The holding period of Alliance stock to be received by the Bank
shareholders will include for federal income tax purposes the holding
period of the Bank stock surrendered in exchange therefor, provided that
the Bank stock is held as a capital asset on the date of the exchange.
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10. The holding period of the assets of Interim in the hands of the
Bank will include for federal income tax purposes the period during which
such assets were held by Interim.
11. No gain or loss will be recognized for federal income tax purposes
by the Bank upon the receipt of the assets of Interim in exchange for the
Bank stock.
The Bank is expected to be advised that the conclusions reached above with
respect to the effect of the Reorganization on the Bank, Interim and Alliance
and their shareholders for federal income tax purposes shall also apply for
Connecticut income tax purposes.
An opinion of counsel has no binding effect on the IRS or the State of
Connecticut.
Alliance and the Bank intend to file consolidated federal income tax
returns, which would have the effect of eliminating intercompany distributions,
including dividends from the Bank stock, in the computation of consolidated
taxable income. If Alliance and the Bank were not permitted to file consolidated
federal income tax returns, they would be adversely affected because, among
other things, intercompany dividends paid out of earnings and profits of the
Bank prior to the Reorganization would be subject to federal tax.
As a general rule, income of Alliance or any subsidiaries other than the
Bank would not be taken into account in determining the bad debt deduction
allowed the Bank, whether or not consolidated tax returns are filed. However,
certain "functionally related" losses of Alliance or subsidiaries (if any) other
than the Bank included in the consolidated tax returns will reduce the
percentage of taxable income bad debt deduction allowed the Bank.
The Bank is subject to the Connecticut Corporation Business Tax. The tax is
computed on the basis of whichever of the following three formulas results in
the greatest amount of tax: (i) a tax based upon the average level of savings
accounts of depositors or account holders on which interest is paid; (ii) a tax
of 11 1/2% of the federal taxable income derived from Connecticut sources as
adjusted for Connecticut modifications; or (iii) a minimum tax of $100.
Dissenters' Rights
The following description of dissenters' rights is qualified in its
entirety by reference to the relevant sections of the Banking Laws of
Connecticut which is attached hereto as Exhibit D. Any shareholder wishing to
exercise such rights must take certain actions as described hereunder and set
forth in more detail in Exhibit D.
The Banking Laws of Connecticut provides for dissenters' rights.
Specifically, in order to make use of the dissenters' rights provided by
Connecticut law, any shareholder who wishes to demand payment for their shares,
if the Reorganization is consummated, must deliver to the Bank written notice of
their intent to demand payment for shares if the Reorganization is effectuated
at or before the Annual Meeting, and may not vote in favor of the
Reorganization, regardless of whether such vote is in person or by proxy. Those
shareholders who gave proper notice may then demand payment for their shares by
notifying the Bank in writing within ten (10) days of the Plan being filed with
the Secretary of State of the State of Connecticut. Within three (3) months of
the receipt of the demand for payment, Alliance will forward the payment for the
shares based on their value on the day the Reorganization is consummated. If a
shareholder is not satisfied with Alliance's determination of fair value of the
shares, the shareholder can, in accordance with Connecticut banking law call for
a determination of the value by three disinterested persons, one selected by the
shareholder, one by the Bank and one by the other two. If the award of the three
disinterested persons is not paid within 60 days it shall become a debt of the
Bank and may be collected as such. Once the payment is made the shareholder is
required to surrender his shares.
The consummation of the Reorganization is subject to certain conditions.
Among these conditions is that the Board of Directors may, in its sole
discretion, terminate the transaction if it determines that the number of
shareholders seeking to exercise dissenters' rights with respect to their shares
of common stock of the Bank are in excess of an amount the Board determines is
material. See "FORMATION OF HOLDING COMPANY -- Conditions of Plan of
Reorganization."
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Dividend Policy
The Bank declared a cash dividend of .03(cent) on October 22, 1996, payable
to shareholders of record at the close of business on October 31, 1996. It is
the intention of Alliance at this time to continue to pay cash dividends
provided that conditions continue to permit such payment. Dividends paid by
Alliance will be determined by Alliance's Board of Directors and will be based
upon its consolidated financial condition, results of operations, tax
considerations, economic conditions, regulatory actions which affect the payment
of dividends by the Bank to Alliance, and other factors including the
limitations on the Bank's ability to pay dividends under Connecticut law and
federal law. There can be no assurance that dividends will be paid on the common
stock of Alliance or that, if paid, such dividends will not be reduced or
eliminated in the future. See "FORMATION OF HOLDING COMPANY -- Regulation of the
Bank" and "-- Dividends and Other Capital Distribution Limitations" for
information regarding regulatory restrictions on the ability to pay dividends.
Alliance, as a Delaware corporation, is not subject to FDIC regulatory
restrictions or Connecticut law on the payment of dividends to its shareholders,
although the source of such dividends will be dependent upon the factors set
forth above. Additionally the FRB can, under its cease and desist powers,
require a bank holding company such as Alliance to halt the payment of
dividends. Alliance is subject, however, to the requirements of Delaware law,
which generally limit dividends to an amount equal to the excess of the net
assets of Alliance (the amount by which total assets exceed total liabilities)
over the stated par value of its capital, or if there is no such excess, to its
net profits for the current and/or immediately preceding year.
Conditions of Plan of Reorganization
The Plan of Reorganization will not become effective until all of the
following conditions have been satisfied: (i) the Plan of Reorganization is
approved by the shareholders of the Bank; (ii) in the sole discretion of the
Bank's Board of Directors, the number of shares exercising dissenters' rights
with respect to the Reorganization is not material; (iii) all regulatory and
other approvals required by the Plan of Reorganization for the consummation of
the Reorganization have been obtained; (iii) the parties to the Plan of
Reorganization have received favorable opinions of counsel concerning the
federal and state income tax consequences of the transaction; and (iv) in the
sole discretion of the Bank's Directors the regulatory and other approvals
contain no unduly burdensome or unfavorable conditions of approval or
restrictions on operations.
Applications will be filed with the FRB, the FDIC and State of Connecticut
to obtain approval of the Plan of Reorganization and the transactions
contemplated therein. The parties to the Plan of Reorganization will receive
favorable opinions of counsel regarding the federal and state income tax
consequences of the Merger.
Amendment or Termination of Plan of Reorganization
The Plan of Reorganization may be abandoned by the Bank at any time before
the Effective Date in the event that, for any reason, consummation of the
formation of the holding company contemplated by the Plan of Reorganization
becomes inadvisable in the sole judgment of the Bank's Board of Directors. In
the event of such abandonment the Bank will pay the fees and expenses incurred
in connection with the Plan of Reorganization and the proposed holding company
formation.
The Plan of Reorganization may be amended at any time by the Boards of
Directors of the Bank and Alliance either prior to or after its approval by the
Bank's shareholders, provided that after the Plan of Reorganization is approved
by the Bank's shareholders, there shall be no amendment or modification which
would result in a material adverse effect on the benefits intended to be
received by the holders of the Bank's common stock in the Merger pursuant to the
Plan of Reorganization.
If the Plan of Reorganization is approved by the shareholders of the Bank
at the Annual Meeting, the Reorganization is expected to become effective as
soon as possible thereafter. If the Reorganization is not approved, the Bank
will continue to operate without a holding company structure. All expenses in
connection with
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the Reorganization, estimated to be approximately $65,000, will be paid by the
Bank whether or not the Plan of Reorganization is approved by its shareholders
or the Reorganization is completed.
Stock Certificates Need Not But May Be Exchanged; Transfer Agent
After the effectiveness of the Reorganization, the former holders of the
Bank common stock may, but are not required, to exchange their the Bank stock
certificates for new certificates evidencing the same number of shares of
Alliance common stock. Until exchanged, the Bank stock certificates will, for
all purposes, represent the same number of shares of Alliance common stock as
the number of shares of the Bank common stock previously represented. The
holders of such certificates will have all the rights of holders of common stock
of Alliance. Boston EquiServe, the transfer agent and registrar for the Bank's
common stock, is expected to serve in the same capacities for Alliance's common
stock.
Effect on Stock Benefit Programs
The Plan of Reorganization provides that upon consummation of the
Reorganization all stock benefit plans of the Bank will, by virtue of the
Reorganization, become the stock benefit plans of Alliance. Stock options for
the Bank common stock granted prior to the consummation of the Reorganization
will, immediately upon such consummation, automatically become stock options for
Alliance common stock with identical terms and conditions and exercise prices.
Stock options covering 122,500 shares are outstanding but unexercised. The
Bank's Directors, officers and employees will continue to participate in the
stock benefit plans as before the Reorganization.
The Board of Directors has also submitted the Stock Incentive Plan for the
shareholders approval. See "APPROVAL OF THE TOLLAND BANK 1997 STOCK INCENTIVE
PLAN." If approved by the shareholders, the Stock Incentive Plan will become
effective regardless of whether or not the Reorganization is approved. If the
Reorganization is approved by shareholders and consummated, the Stock Incentive
Plan will become the plan of Alliance. If not, it will remain the plan of the
Bank.
All other employee benefit plans of the Bank will be unchanged by the
Reorganization.
Approval by Regulatory Authorities Required
The Reorganization requires the approvals of the FRB, the FDIC and the
State of Connecticut. The Reorganization will utilize an interim, or phantom,
bank which is a non-operating acquisition subsidiary created for the purpose of
effecting the reorganization on a tax-free basis. Alliance will file an
application seeking approval to organize an interim bank with the State of
Connecticut. It will also submit an application to the FDIC regarding its
Connecticut interim bank. No assurance can be given that approval for the
interim bank, or to any other aspect of the Reorganization, will be granted or
that they will be obtained prior to a substantial period of time after the
Annual Meeting.
Regulation of the Bank
General. The Bank is a Connecticut state chartered savings bank and its
deposit accounts are insured up to applicable limits by the FDIC under the BIF.
The Bank is subject to extensive regulation by the State of Connecticut and by
the FDIC, as its deposit insurer. The Bank must file reports with the
Connecticut Commissioner of Banking (the "Commissioner") and the FDIC concerning
its activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as establishing
branches and mergers with, or acquisitions of, other depository institutions.
There are periodic examinations by the Commissioner and the FDIC to assess the
Bank's compliance with various regulatory requirements and financial condition.
This regulation and supervision establishes a framework of activities in which a
savings bank can engage and is intended primarily for the protection of the BIF
and depositors. This structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of
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adequate loan loss reserves for regulatory purposes. Any change in such
regulation, whether by the Commissioner, the FDIC or through legislation, could
have a material adverse impact on the Bank and their operations and
shareholders. Until 1996, the Bank was operating under an informal supervisory
agreement, a Memorandum of Understanding, imposed by its regulators with regard
to certain aspects of the operation. The Memorandum of Understanding was imposed
on June 17, 1991. The regulators removed the Memorandum of Understanding in 1996
in light of significant reduction in troubled assets and improved earnings and
pursuant to the resolution of the Board Directors in which the Bank agreed to
maintain capital at required levels, lessen the level of troubled assets and
adopt plans to improve earnings performance.
Connecticut State Law.
As a state-chartered savings bank, the Bank is subject to the applicable
provisions of Connecticut law and the regulations adopted thereunder by the
Commissioner. The Commissioner administers Connecticut banking laws, which
contain comprehensive provisions for the regulation and supervision of savings
banks. The Bank is subject to periodic examination by and reporting requirements
of the Commissioner.
Savings banks in Connecticut are empowered by statute, subject to
limitations expressed therein to take savings and time deposits, to accept
checking accounts, to pay interest on such deposits and accounts, to make loans
on residential and other real estate, to make consumer and commercial loans, to
invest, with certain limitations, in equity securities and debt obligations of
banks and corporations, to issue credit cards, to establish an insurance
department to issue savings bank life insurance and grant annuities and to offer
various other banking services to their customers.
Under applicable Connecticut law, a Connecticut savings bank has authority
to invest up to 6% of its total assets in the equity securities of banks, bank
holding companies and certain corporations, subject to certain limitations,
including the requirement that the equity securities of any such bank, bank
holding company, or corporation are less than 10% of the total equity securities
of such bank, bank holding company or corporation. This limitation does not
apply to the acquisition of the stock of a Connecticut institution approved by
the Commissioner. A Connecticut savings bank may also invest (subject to certain
limitations) up to 15% of its total assets in debt securities, without the prior
approval of the Commissioner. Certain types of debt securities are not subject
to asset limitations. In addition, a Connecticut savings bank may invest in
certain investment companies, within the definition of the Investment Company
Act of 1940, subject to certain limitations.
In addition to otherwise authorized investments, a Connecticut savings bank
may invest (subject to certain limitations) up to 15% of its total assets in
investment securities that are the equity securities of corporations
incorporated and doing a major portion of their business in the United States.
Generally, investments in debt and equity securities by a state chartered
savings bank must be within certain designated rating categories or deemed to be
prudent by the bank's board of directors and must comply with the bank's
investment policy. A Connecticut savings bank may also invest up to 8% of its
total assets in any investments, except securities of state banks and trust
companies, national banking associations having their principal offices in
Connecticut, or bank holding companies, and except certain commercial, corporate
and business loans. Investments under this unrestricted authority must be
prudent in the opinion of the bank given the circumstances surrounding the
investment. Certain of the investment powers authorized under Connecticut law
have recently been restricted by federal law to permit only investments that
would be permissible for national banks.
The approval of the Commissioner is required, among other things, to
establish or close branches, merge with another bank, form a bank holding
company or to undertake certain other activities.
FDIC Regulations.
Capital Requirements. The FDIC has adopted risk-based capital guidelines to
which the Bank is subject. The guidelines establish a systematic analytical
framework that makes regulatory capital requirements more sensitive to
differences in risk profiles among banking organizations. The Bank is required
to maintain certain levels of regulatory capital in relation to regulatory
risk-weighted assets. The ratio of such regulatory
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capital to regulatory risk-weighted assets is referred to as the Bank's
"risk-based capital ratio." Risk-based capital ratios are determined by
allocating assets and specified off-balance sheet items to four risk-weighted
categories ranging from 0% to 100%, with higher levels of capital being required
for the categories perceived as representing greater risk.
These guidelines divide a savings bank's capital into two tiers. The first
tier ("Tier I") includes common equity, retained earnings, certain
non-cumulative perpetual preferred stock (excluding auction rate issues) and
minority interests in equity accounts of consolidated subsidiaries, less
goodwill and other intangible assets (except mortgage servicing rights and
purchased credit card relationships subject to certain limitations).
Supplementary ("Tier II") capital includes, among other items, cumulative
perpetual and long-term limited-life preferred stock, mandatory convertible
securities, certain hybrid capital instruments, term subordinated debt and the
allowance for loan and lease losses, subject to certain limitations, less
required deductions. Savings banks are required to maintain a total risk-based
capital ratio of 8%, of which at least 4% must be Tier I capital.
In addition, the FDIC has established regulations prescribing a minimum
Tier I leverage ratio (Tier I capital to adjusted total assets as specified in
the regulations). These regulations provide for a minimum Tier 1 leverage ratio
of 3% for banks that meet certain specified criteria, including that they have
the highest examination rating and are not experiencing or anticipating
significant growth. All other banks are required to maintain a Tier I leverage
ratio of 3% plus an additional cushion of at least 100 to 200 basis points. The
FDIC may, however, set higher leverage and risk-based capital requirements on
individual institutions when particular circumstances warrant. Savings banks
experiencing or anticipating significant growth are expected to maintain capital
ratios, including tangible capital positions, well above the minimum levels.
The following is a summary of the Bank's regulatory capital at December 31,
1996:
GAAP Capital to Total Assets 6.71%
Total Capital to Risk-Weighted Assets 12.26%
Tier I Leverage Ratio 6.75%
In August 1995, the FDIC, along with the other federal banking agencies,
adopted a regulation providing that the agencies will take account of the
exposure of a bank's capital and economic value to changes in interest rate risk
in assessing a bank's capital adequacy. According to the agencies, applicable
considerations include the quality of the bank's interest rate risk management
process, the overall financial condition of the bank and the level of other
risks at the bank for which capital is needed. Institutions with significant
interest rate risk may be required to hold additional capital. The agencies
recently issued a joint policy statement providing guidance on interest rate
risk management, including a discussion of the critical factors affecting the
agencies' evaluation of interest rate risk in connection with capital adequacy.
The agencies have determined not to proceed with a previously issued proposal to
develop a supervisory framework for measuring interest rate risk and an explicit
capital component for interest rate risk.
Standards for Safety and Soundness. Federal law requires each federal
banking agency to prescribe for depository institutions under its jurisdiction
standards relating to, among other things, internal controls; information
systems and audit systems; loan documentation; credit underwriting; interest
rate risk exposure; asset growth; compensation; fees and benefits; and such
other operational and managerial standards as the agency deems appropriate. The
federal banking agencies adopted final regulations and Interagency Guidelines
Establishing Standards for Safety and Soundness (the "Guidelines") to implement
these safety and soundness standards. The Guidelines set forth the safety and
soundness standards that the federal banking agencies use to identify and
address problems at insured depository institutions before capital becomes
impaired. The Guidelines address internal controls and information systems;
internal audit system; credit underwriting; loan documentation; interest rate
risk exposure; asset growth; asset quality; earnings and compensation; fees and
benefits. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the Guidelines, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard, as required by the Federal Deposit
Insurance Act, as amended, ("FDI Act"). The
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final regulation establishes deadlines for the submission and review of such
safety and soundness compliance plans.
Real Estate Lending Standards. The FDIC and the other federal banking
agencies have adopted regulations that prescribe standards for extensions of
credit that (i) are secured by real estate or (ii) are made for the purpose of
financing the construction or improvements on real estate. The FDIC regulations
require each savings bank to establish and maintain written internal real estate
lending standards that are consistent with safe and sound banking practices and
appropriate to the size of the bank and the nature and scope of its real estate
lending activities. The standards also must be consistent with accompanying FDIC
guidelines, which include loan-to-value limitations for the different types of
real estate loans. Banks are also permitted to make a limited amount of loans
that do not conform to the proposed loan-to-value limitations so long as such
exceptions are reviewed and justified appropriately. The guidelines also list a
number of lending situations in which exceptions to the loan-to-value standard
are justified.
Dividend Limitations. The FDIC has authority to use its enforcement powers
to prohibit a savings bank from paying dividends if, in its opinion, the payment
of dividends would constitute an unsafe or unsound practice. Federal law
prohibits the payment of dividends by a bank that will result in the bank
failing to meet applicable capital requirements on a pro forma basis.
Additionally, the Bank, as a state capital stock bank, is subject to Connecticut
banking law. Pursuant to Connecticut banking law, the Bank may not declare a
cash dividend on its common stock in an amount in excess of its net profits (as
defined by state statute) for the year in which the dividend is declared plus
its retained net profits from the prior two years. The Bank may not declare or
pay a cash dividend and repurchase any of its outstanding shares if the effect
thereof would reduce its capital below the amount required by federal and state
regulations.
Investments and Activities. Since the enactment of the Federal Deposit
Insurance Corporation Improvement Act of 1991, all state chartered financial
institutions, including savings banks and their subsidiaries, have generally
been limited to activities as principal and equity investments of the type and
in the amount authorized for national banks, notwithstanding state law. FDICIA
and the FDIC regulations thereunder permit certain exceptions to these
limitations. In addition, the FDIC is authorized to permit such institutions to
engage in state authorized activities or, investments that do not meet this
standard (other than non-subsidiary equity investments) for institutions that
meet all applicable capital requirements if it is determined that such
activities or investments do not pose a significant risk to the BIF. All
non-subsidiary equity investments, unless otherwise authorized or approved by
the FDIC, must be divested by December 19, 1996, pursuant to a FDIC-approved
divestiture plan unless such investments were grandfathered by the FDIC. Such
grandfathering authority is subject to termination upon the FDIC's determination
that such investments pose a safety and soundness risk to the Bank or in the
event the Bank converts its charter or undergoes a change in control.
Prompt Corrective Regulatory Action. Federal law requires, among other
things, that federal bank regulatory authorities take "prompt corrective action"
with respect to banks that do not meet minimum capital requirements. For these
purposes, the law establishes five capital tiers: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized, and critically
undercapitalized. The Bank is considered "well capitalized."
The FDIC has adopted regulations to implement the prompt corrective action
legislation. Among other things, the regulations define the relevant capital
measures for the five capital categories. An institution is deemed to be "well
capitalized" if it has a total risk-based capital ratio of 10% or greater, a
Tier I risk-based capital ratio of 6% or greater, and a leverage ratio of 5% or
greater, and is not subject to a regulatory order, agreement or directive to
meet and maintain a specific capital level for any capital measure. An
institution is deemed to be "adequately capitalized" if it has a total
risk-based capital ratio of 8% or greater, a Tier I risk-based capital ratio of
4% or greater, and generally a leverage ratio of 4% or greater. An institution
is deemed to be "undercapitalized" if it has a total risk-based capital ratio of
less than 8%, a Tier I risk-based capital ratio of less than 4%, or generally a
leverage ratio of less than 4%. An institution is deemed to be "significantly
undercapitalized" if it has a total risk-based capital ratio of less than 6%, a
Tier I risk-based capital ratio of less than 3%, or a leverage ratio of less
than
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3%. An institution is deemed to be "critically undercapitalized" if it has a
ratio of tangible equity (as defined in the regulations) to total assets that is
equal to or less than 2%.
"Undercapitalized" banks are subject to growth, capital distribution
(including dividend) and other limitations and are required to submit a capital
restoration plan. A bank's compliance with such plan is required to be
guaranteed by any company that controls the undercapitalized institutions. If an
"undercapitalized" bank fails to submit an acceptable plan, it is treated as if
it is "significantly undercapitalized." "Significantly undercapitalized" banks
are subject to one or more of a number of additional restrictions, including but
not limited to an order by the FDIC to sell sufficient voting stock to become
adequately capitalized, requirements to reduce total assets and cease receipt of
deposits from correspondent banks or dismiss directors or officers, and
restrictions on interest rates paid on deposits, compensation of executive
officers and capital distributions by the parent holding company. "Critically
undercapitalized" institutions also may not, beginning 60 days after becoming
"critically undercapitalized," make any payment of principal or interest on
certain subordinated debt or extend credit for a highly leveraged transaction or
enter into any material transaction outside the ordinary course of business. In
addition, "critically undercapitalized" institutions are subject to appointment
of a receiver or conservator. Generally, subject to a narrow exception, the
appointment of a receiver or conservator is required for a "critically
undercapitalized" institution within 270 days after it obtains such status.
Transactions with Affiliates. Under current federal law, transactions
between depository institutions and their affiliates are governed by Sections
23A and 23B of the Federal Reserve Act. An affiliate of a savings bank is any
company or entity that controls, is controlled by, or is under common control
with the savings bank, other than a subsidiary. In a holding company context, at
a minimum, the parent holding company of a savings bank and any companies which
are controlled by such parent holding company are affiliates of the savings
bank. Generally, Section 23A limits the extent to which the savings bank or its
subsidiaries may engage in "covered transactions" with any one affiliate to an
amount equal to 10% of such savings bank's capital stock and surplus, and
contains an aggregate limit on all such transactions with all affiliates to an
amount equal to 20% of such capital stock and surplus. The term "covered
transaction" includes the making of loans or other extensions of credit to an
affiliate; the purchase of assets from an affiliate, the purchase of, or an
investment in, the securities of an affiliate; the acceptance of securities of
an affiliate as collateral for a loan or extension of credit to any person; or
issuance of a guarantee, acceptance, or letter of credit on behalf of an
affiliate. Section 23A also establishes specific collateral requirements for
loans or extensions of credit to, or guarantees, acceptances on letters of
credit issued on behalf of an affiliate. Section 23B requires that covered
transactions and a broad list of other specified transactions be on terms
substantially the same, or no less favorable, to the savings bank or its
subsidiary as similar transactions with nonaffiliates.
Further, Section 22(h) of the Federal Reserve Act restricts a savings bank
with respect to loans to directors, executive officers, and principal
shareholders. Under Section 22(h), loans to directors, executive officers and
shareholders who control, directly or indirectly, 10% or more of voting
securities of a savings bank, and certain related interests of any of the
foregoing, may not exceed, together with all other outstanding loans to such
persons and affiliated entities, the savings bank's total capital and surplus.
Section 22(h) also prohibits loans above amounts prescribed by the appropriate
federal banking agency to directors, executive officers, and shareholders who
control 10% or more of voting securities of a stock savings bank, and their
respective related interests, unless such loan is approved in advance by a
majority of the board of directors of the savings bank. Any "interested"
director may not participate in the voting. The loan amount (which includes all
other outstanding loans to such person) as to which such prior board of director
approval is required, is the greater of $25,000 or 5% of capital and surplus or
any loans over $500,000. Further, pursuant to Section 22(h), loans to directors,
executive officers and principal shareholders must be made on terms
substantially the same as offered in comparable transactions to other persons.
Section 22(g) of the Federal Reserve Act places additional limitations on loans
to executive officers.
Enforcement. The FDIC has extensive enforcement authority over insured
savings banks, including the Bank. This enforcement authority includes, among
other things, the ability to assess civil money penalties, to issue cease and
desist orders and to remove directors and officers. In general, these
enforcement actions may be initiated in response to violations of laws and
regulations, unsafe or unsound practices, and breaches of fiduciary duty.
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The FDIC has authority under federal law to appoint a conservator or
receiver for an insured savings bank under certain circumstances. The FDIC is
required, with certain exceptions, to appoint a receiver or conservator for an
insured state savings bank if that savings bank was "critically
undercapitalized" on average during the calendar quarter beginning 270 days
after the date on which the savings bank became "critically undercapitalized."
For this purpose, "critically undercapitalized" means having a ratio of tangible
capital to total assets of less than 2%. See "-Prompt Corrective Regulatory
Action." The FDIC may also appoint a conservator or receiver for a state savings
bank on the basis of the institution's financial condition or upon the
occurrence of certain events, including: (i) insolvency (the assets of the
savings bank are less than its liabilities to depositors and others); (ii)
substantial dissipation of assets or earnings through violations of law or
unsafe or unsound practices; (iii) existence of an unsafe or unsound condition
to transact business; (iv) likelihood that the savings bank will be unable to
meet the demands of its depositors or to pay its obligations in the normal
course of business; and (v) insufficient capital, or the incurring or likely
incurring of losses that will deplete substantially all of the institution's
capital with no reasonable prospect of replenishment of capital without federal
assistance.
Insurance of Deposit Accounts. The FDIC has adopted a risk-based insurance
assessment system. The FDIC assigns an institution to one of three capital
categories based on the institution's financial information, as of the reporting
period ending seven months before the assessment period: (1) well capitalized,
(2) adequately capitalized or (3) undercapitalized, and one of three supervisory
subcategories within each capital group. The supervisory subgroup to which an
institution is assigned is based on a supervisory evaluation provided to the
FDIC by the institution's primary federal regulator and information which the
FDIC determines to be relevant to the institution's financial condition and the
risk posed to the deposit insurance funds. An institution's assessment rate
depends on the capital category and supervisory category to which it is
assigned. Assessment rates for BIF deposits currently range from 0 basis points
to 27 basis points. The FDIC is authorized to raise the assessment rates in
certain circumstances, including to maintain or achieve the designated reserve
ratio of 1.25%, which requirement the BIF currently meets. The FDIC has
exercised its authority to raise rates in the past and may raise insurance
premiums in the future. If such action is taken by the FDIC, it could have an
adverse effect on the earnings of the Bank.
In addition, recent legislation requires BIF-insured institutions like the
Bank to assist in the payment of Financing Corporation ("FICO") bonds. Beginning
in January, 1997, the interest on FICO bonds will be shared between BIF insured
institutions and SAIF insured institutions. The Bank will pay 20% of the amount
paid by SAIF-insured institutions for a three-year period through the earlier of
December 31, 1999, or the time the last savings association charter ceases to
exists. When either of these events occur, the responsibility for FICO bonds
will be shared pro rata between the thrift institutions and members of the BIF
such as the Bank.
Under the FDI Act, insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
Division. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
Federal Reserve System. The Federal Reserve Board regulations require
depository institutions to maintain non-interest-earning reserves against their
transaction accounts (primarily NOW and regular checking accounts). The Federal
Reserve Board regulations generally require that reserves be maintained against
aggregate transaction accounts as follows: for that portion of transaction
accounts aggregating $49.3 million or less (subject to adjustment by the Federal
Reserve Board) the reserve requirement is 3%; and for accounts greater than
$49.3 million, the reserve requirement is $1.5 million plus 10% (subject to
adjustment by the Federal Reserve Board between 8% and 14%) against that portion
of total transaction accounts in excess of $49.3 million. The first $4.4 million
of otherwise reservable balances (subject to adjustments by the Federal Reserve
Board) are exempted from the reserve requirements. The Bank is in compliance
with the foregoing requirements. Because required reserves must be maintained in
the form of either vault cash, a non-interest-bearing account at a Federal
Reserve Bank or a pass through account as defined by the Federal Reserve Board,
the effect of this reserve requirement is to reduce the Bank's interest-earning
assets. Federal Home Loan Bank ("FHLB") System members such as the Bank are also
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authorized to borrow from the Federal Reserve "discount window," but Federal
Reserve Board regulations require institutions to exhaust all FHLB sources
before borrowing from a Federal Reserve Bank.
Community Reinvestment Act. Under the Community Reinvestment Act, as
amended, ("CRA"), as implemented by FDIC regulations, a savings bank has a
continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including low
and moderate income neighborhoods. The CRA does not proscribe specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The CRA requires the FDIC, in connection with its examination of a savings
institution, to assess the institution's record of meeting the credit needs of
its community and to take such record into account in its evaluation of certain
applications by such institution. The Financial Institutions Reform, Recovery
and Enforcement Act of 1989 ("FIRREA") amended the CRA to require, effective
July 1, 1990, public disclosure of an institution's CRA rating and require the
FDIC to provide a written evaluation of an institution's CRA performance
utilizing a four-tiered descriptive rating system which replaced the five-tiered
numerical rating system. The Bank's latest CRA rating, received from the FDIC,
was "satisfactory."
Regulation of Alliance
General. Upon consummation of the Reorganization, Alliance, as the sole
shareholder of the Bank, will become a bank holding company and will register as
such with the Federal Reserve Board. Bank holding companies are subject to
regulation by the Federal Reserve Board under the Bank Holding Company Act of
1956, as amended (the "BHCA"), and the regulations of the Federal Reserve Board.
As a bank holding company, Alliance will be required to file with the Federal
Reserve Board annual reports and such additional information as the Federal
Reserve Board may require, and will be subject to regular examinations by the
Federal Reserve Board. The Federal Reserve Board also has extensive enforcement
authority over bank holding companies, including, among other things, the
ability to assess civil money penalties, to issue cease and desist or removal
orders and to require that a holding company divest non-bank subsidiaries. In
general, enforcement actions may be initiated for violations of law and
regulations and unsafe or unsound practices.
Under the BHCA, a bank holding company must obtain Federal Reserve Board
approval before: (i) acquiring, directly or indirectly, ownership or control of
any voting shares of another bank or bank holding company if, after such
acquisition, it would own or control more than 5% of such shares (unless it
already owns or controls the majority of such shares); (ii) acquiring all or
substantially all of the assets of another bank or bank holding company; or
(iii) merging or consolidating with another bank holding company.
The BHCA also prohibits a bank holding company, with certain exceptions,
from acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any company which is not a bank or bank holding company, or
engaging directly or indirectly in activities other than those of banking,
managing or controlling banks, or providing services for its subsidiaries. The
principal exceptions to these prohibitions involve certain nonbank activities
which, by statute or by Federal Reserve Board regulation or order, have been
identified as activities "closely related to banking or managing or controlling
banks." The list of activities permitted by the Federal Reserve Board includes,
among other things, operating a savings institution, mortgage company, finance
company, credit card company or factoring company; performing certain data
processing operations; providing certain investment and financial advice;
underwriting and acting as an insurance agent for certain types of
credit-related insurance; leasing property on a full-payout, non-operating
basis; selling money orders, travelers' checks and United States Savings Bonds;
real estate and personal property appraising; providing tax planning and
preparation services; and, subject to certain limitations, providing securities
brokerage services for customers.
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. The
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Riegle-Neal") was enacted to ease restrictions on interstate banking.
Effective September 29, 1995, Riegle-Neal allows the Federal Reserve Board to
approve an application of an adequately capitalized and adequately managed bank
holding company to acquire control of, or acquire all or substantially all of
the assets of, a bank located in a state other than such holding company's home
state, without regard to whether the transaction is prohibited by the laws of
any state. The Federal Reserve Board may not
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approve the acquisition of bank that has not been in existence for the minimum
time period (not exceeding five years) specified by the statutory law of the
host state. Riegle-Neal also prohibits the Federal Reserve Board from approving
an application if the applicant (and its depository institution affiliates)
controls or would control more than 10% of the insured deposits in the United
States or 30% or more of the deposits in the target bank's home state or in any
state in which the target bank maintains a branch. Riegle-Neal does not affect
the authority of states to limit the percentage of total insured deposits in the
state which may be held or controlled by a bank or bank holding company to the
extent such limitation does not discriminate against out-of-state banks or bank
holding companies. Individual states may also waive the 30% state-wide
concentration limit contained in Riegle-Neal.
Pursuant to the Act, the Federal Reserve Board may approve an application
of an adequately capitalized and adequately managed non-Connecticut bank holding
company to acquire control of, or acquire all or substantially all of the assets
of, a Connecticut bank, as long as certain requirements of the Act are met.
Dividends. The Federal Reserve Board has issued a policy statement on the
payment of cash dividends by bank holding companies, which expresses the Federal
Reserve Board's view that a bank holding company should pay cash dividends only
to the extent that a bank holding company's net income for the past year is
sufficient to cover both the cash dividends and a rate of earnings retention
that is consistent with a bank holding company's capital needs, asset quality
and overall financial condition. The Federal Reserve Board also indicated that
it would be inappropriate for a company experiencing serious financial problems
to borrow funds to pay dividends. Furthermore, under the prompt corrective
action regulations adopted by the Federal Reserve Board pursuant to FDICIA, the
Federal Reserve Board may prohibit a bank holding company from paying any
dividends if the holding company's bank subsidiary is classified as
"undercapitalized". See "-- Regulation of the Bank -- Prompt Corrective
Regulatory Action."
Bank holding companies are required to give the Federal Reserve Board prior
written notice of any purchase or redemption of its outstanding equity
securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, is equal to 10% or more of the their
consolidated retained earnings. The Federal Reserve Board may disapprove such a
purchase or redemption if it determines that the proposal would constitute an
unsafe or unsound practice or would violate any law, regulation, Federal Reserve
Board order, or any condition imposed by, or written agreement with, the Federal
Reserve Board.
Capital Requirements. The Federal Reserve Board has established capital
requirements for bank holding companies with consolidated assets of $150 million
or more. Alliance's level of consolidated regulatory capital, assuming
consummation of the Reorganization, are as follows:
Amount Percent
------ -------
(Dollars in thousands)
Tier 1 capital $15,293 6.75%
Minimum Tier 1 (leverage)
requirement 9,061 4.00%
-------
Excess $ 6,232 2.75%
Risk-based capital $17,044 12.26%
Minimum risk-based capital
requirement 11,118 8.00%
-------
Excess $ 5,926 4.26%
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Description of Alliance Capital Stock
The 4,100,000 shares of capital stock authorized by the Certificate of
Incorporation of Alliance are divided into two classes consisting of 4,000,000
shares of common stock (par value $0.01 per share) and 100,000 shares of
preferred stock (par value $0.01 per share). By comparison the Bank's Articles
of Incorporation authorize 4,000,000 shares of common stock (par value $1.00 per
share) and 1,000,000 shares of preferred stock (par value $1.00 per share). On
December 31, 1996, the Bank had 1,172,500 outstanding shares of common stock and
no shares of preferred stock outstanding. The number of shares of Alliance
common stock to be outstanding upon consummation of the Plan of Reorganization
will be the same as the number of shares of the Bank's common stock outstanding
immediately prior to such consummation, except for shares delivered to Alliance
pursuant to Dissenters' Rights. See "FORMATION OF HOLDING COMPANY -- Dissenters'
Rights." Each share of common stock of Alliance will have the same relative
rights and will be identical in all respects with each other share of its common
stock.
There are no material differences between the common stock of Alliance and
of the Bank as to voting, liquidation, preemptive or redemption rights.
Each holder of the common stock of Alliance will be entitled to one vote
for each share held on all matters voted upon by shareholders.
In the event of any liquidation or dissolution of Alliance, the holders of
the common stock would be entitled to receive -- after payment or provision for
payment of all debts and liabilities of Alliance and the full preferential
amounts to which holders of any preferred stock may be entitled -- all remaining
assets of Alliance available for distribution, in cash or in kind. Distributions
of the assets of the Bank upon liquidation are subject to the payment of the
Bank's debts and liabilities, including all deposits and accrued interest
thereon.
The holders of common stock of Alliance will not be entitled to preemptive
rights with respect to any shares which may be issued. The common stock will not
be subject to call for redemption. Upon receipt by Alliance of the full
consideration therefor each share of the common stock will be fully paid and
nonassessable.
Alliance has no present plans for the issuance of the additional authorized
shares of common or preferred stock (other than pursuant to the exercise of
outstanding stock options). In the future, the authorized but unissued and
unreserved shares of common stock of Alliance will be available for general
corporate purposes, including, but not limited to, possible issuance as stock
dividends or stock splits, in future mergers or other acquisitions, under a cash
dividend reinvestment and stock purchase plan, in a future public offering or
private placement or under the stock benefit plans of the Bank.
No shareholder approval would be required after the Merger for the issuance
of additional shares of common stock. Accordingly, the Board of Directors of
Alliance (as is currently the case for the Board of Directors of the Bank),
without shareholder approval, could in the future issue additional shares of
common stock on a dilutive basis and could also issue debt securities or shares
of serial preferred stock with voting or other rights that might adversely
affect the rights of holders of common stock. See "FORMATION OF HOLDING COMPANY
- -- Dividend Policy," "-- Income Tax Consequences of the Reorganization," "--
Regulation of Alliance" and "-- Regulation of the Bank" for a description of
certain matters relating to the future payment of dividends on Alliance's common
stock.
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Anti-Takeover Provisions
General. A number of provisions of Alliance's Certificate of Incorporation
and Bylaws deal with matters of corporate governance and certain rights of
shareholders. These provisions allow the Board of Directors flexibility to
analyze and consider corporate transactions in order to maximize benefits to
shareholders. However, they may also serve to prevent individual shareholders
from participating in a transaction if the Board does not deem the transaction
to be beneficial to shareholders, even if individual shareholders desire to do
so. The following discussion is a general summary of certain provisions of
Alliance's Certificate of Incorporation and Bylaws and certain other statutory
and regulatory provisions relating to stock ownership and transfers, the Board
of Directors and business combinations, which might be deemed to have a
potential "anti-takeover" effect. Such provisions may have the effect of
rendering the removal of the current Board of Directors of Alliance more
difficult. The following description of certain of the provisions of the
Certificate of Incorporation and bylaws of Alliance is necessarily general and
reference should be made in each case to such Certificate of Incorporation and
bylaws, which are incorporated herein by reference and attached as Exhibit B and
C, respectively.
Additionally, the Bank currently has a Shareholder Rights Agreement.
Shareholder rights plans such as the Bank's may be deemed to have a potential
"anti-takeover" effect. The Board of Directors of Alliance currently intends to
adopt a substantially similar plan to the current Shareholder Rights Agreement
after the consummation of the Reorganization. No assurance can be given that the
Board of Directors of Alliance will in fact adopt such a plan, or that its terms
will be substantially similar to those of the Bank's Shareholder Rights
Agreement. See "FORMATION OF HOLDING COMPANY -- Shareholder Rights Agreement."
Limitation on Voting Rights. The Certificate of Incorporation of Alliance
provides that in no event shall any record owner of any outstanding Common Stock
which is beneficially owned, directly or indirectly, by a person who
beneficially owns in excess of 10% of the then outstanding shares of Common
Stock (the "Limit") be entitled or permitted to any vote in respect of the
shares held in excess of the Limit. Beneficial ownership is determined pursuant
to Rule 13d-3 of the General Rules and Regulations promulgated pursuant to the
Exchange Act, and includes shares beneficially owned by such person or any of
his affiliates (as defined in the Certificate of Incorporation), shares which
such person or his affiliates have the right to acquire upon the exercise of
conversion rights or options and shares as to which such person and his
affiliates have or share investment or voting power, but shall not include
shares beneficially owned by the benefit plans of the Board or directors,
officers and employees of the Bank or Alliance as a group or shares that are
subject to a revocable proxy and that are not otherwise beneficially owned, or
deemed by Alliance to be beneficially owned, by such person and his affiliates.
The Certificate of Incorporation of Alliance further provides that this
provision limiting voting rights may only be amended upon the vote of 80% of the
outstanding shares of voting stock (after giving effect to the limitation on
voting rights).
Board of Directors. The Board of Directors of Alliance is divided into
three classes, each of which shall contain approximately one-third of the whole
number of members of the Board. Each class shall serve a staggered term, with
approximately one-third of the total number of directors being elected each
year. Alliance's Certificate of Incorporation and bylaws provide that the size
of the Board shall be determined by a majority of the directors. The Certificate
of Incorporation and the bylaws provide that any vacancy occurring in the Board,
including a vacancy resulting from death, resignation, retirement,
disqualification, removal from office or other cause, shall be filled for the
remainder of the unexpired term exclusively by a majority vote of the directors
then in office. The classified Board is intended to provide for continuity of
the Board of Directors and to make it more difficult and time consuming for a
shareholder group to fully use its voting power to gain control of the Board of
Directors without the consent of the incumbent Board of Directors of Alliance.
The Certificate of Incorporation of Alliance provides that a director may be
removed from the Board of Directors prior to the expiration of his term only for
cause, upon the vote of 80% of the outstanding shares of voting stock.
In the absence of these provisions, the vote of the holders of a majority
of the shares could remove the entire Board, with or without cause, and replace
it with persons of such holders' choice.
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Cumulative Voting, Special Meetings and Action by Written Consent. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, special meetings of shareholders of Alliance may be called
only by the Board of Directors of Alliance. The Certificate of Incorporation
also provides that any action required or permitted to be taken by the
shareholders of Alliance may be taken only at an annual or special meeting and
prohibits shareholder action by written consent in lieu of a meeting.
Authorized Shares. The Certificate of Incorporation authorizes the issuance
of 4,000,000 shares of common stock and 100,000 shares of preferred stock. The
shares of common stock and preferred stock were authorized in an amount greater
than that to be issued pursuant to the Reorganization to provide Alliance's
Board of Directors with as much flexibility as possible to effect, among other
transactions, financings, acquisitions, stock dividends, stock splits and
employee stock options. However, these additional authorized shares may also be
used by the Board of Directors consistent with its fiduciary duty to deter
future attempts to gain control of Alliance. The Board of Directors also has
sole authority to determine the terms of any one or more series of Preferred
Stock, including voting rights, conversion rates, and liquidation preferences.
As a result of the ability to fix voting rights for a series of Preferred Stock,
the Board has the power, to the extent consistent with its fiduciary duty, to
issue a series of Preferred Stock to persons friendly to management in order to
attempt to block a post-tender offer merger or other transaction by which a
third party seeks control, and thereby assist management to retain its position.
Alliance's Board of Directors currently has no plans for the issuance of
additional shares, other than the issuance of additional shares pursuant to the
terms of the Stock Incentive Plan.
Shareholder Vote Required to Approve Business Combinations with Principal
Shareholders. The Certificate of Incorporation requires the approval of the
holders of at least 80% of Alliance's outstanding shares of voting stock to
approve certain "Business Combinations," as defined therein, and related
transactions. Under Delaware law, absent this provision, Business Combinations,
including mergers, consolidations and sales of all or substantially all of the
assets of a corporation must, subject to certain exceptions, be approved by the
vote of the holders of only a majority of the outstanding shares of common stock
of Alliance and any other affected class of stock. Under the Certificate of
Incorporation, at least 80% approval of shareholders is required in connection
with any transaction involving an Interested Shareholder (as defined below)
except (i) in cases where the proposed transaction has been approved in advance
by a majority of those members of Alliance's Board of Directors who are
unaffiliated with the Interested Shareholder and were directors prior to the
time when the Interested Shareholder became an Interested Shareholder or (ii) if
the proposed transaction meets certain conditions set forth therein which are
designed to afford the shareholders a fair price in consideration for their
shares in which case, if a shareholder vote is required, approval of only a
majority of the outstanding shares of voting stock would be sufficient. The term
"Interested Shareholder" is defined to include any individual, corporation,
partnership or other entity (other than Alliance or its subsidiary) which owns
beneficially or controls, directly or indirectly, 15% or more of the outstanding
shares of voting stock of Alliance. This provision of the Certificate of
Incorporation applies to any "Business Combination," which is defined to include
(i) any merger or consolidation of Alliance or any of its subsidiaries with or
into any Interested Shareholder or Affiliate (as defined in the Certificate of
Incorporation) of an Interested Shareholder; (ii) any sale, lease, exchange,
mortgage, pledge, transfer, or other disposition to or with any Interested
Shareholder or Affiliate of 10% or more of the assets of Alliance or combined
assets of Alliance and its subsidiary; (iii) the issuance or transfer to any
Interested Shareholder or its Affiliate by Alliance (or any subsidiary) of any
securities of Alliance in exchange for any assets, cash or securities the value
of which equals or exceeds 10% of the fair market value of the Common Stock of
Alliance; (iv) the adoption of any plan for the liquidation or dissolution of
Alliance proposed by or on behalf of any Interested Shareholder or Affiliate
thereof and (v) any reclassification of securities, recapitalization, merger or
consolidation of Alliance which has the effect of increasing the proportionate
share of common stock or any class of equity or convertible securities of
Alliance owned directly or indirectly by an Interested Shareholder or Affiliate
thereof.
Amendment of Certificate of Incorporation and Bylaws. Amendments to
Alliance's Certificate of Incorporation must be approved by a majority vote of
its Board of Directors and also by a majority of the outstanding shares of its
voting stock; provided, however, that an affirmative vote of at least 80% of the
outstanding voting stock entitled to vote (after giving effect to the provision
limiting voting rights) is required to amend or repeal certain provisions of the
Certificate of Incorporation, including the provision limiting voting rights,
the provisions relating to approval of certain business combinations, calling
special meetings, the number
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and classification of directors, director and officer indemnification by
Alliance and amendment of Alliance's bylaws and Certificate of Incorporation.
Alliance's bylaws may be amended by its Board of Directors, or by the vote of a
majority of the shares present in person or by proxy and entitled to a vote at
any annual or special meeting except for those instances where the Certificate
of Incorporation requires a vote of 80% of the total votes eligible to be voted
at a duly constituted meeting of shareholders for amendment.
Certain Bylaw Provisions. The Bylaws of Alliance also require a shareholder
who intends to nominate a candidate for election to the Board of Directors, or
to raise new business at a shareholder meeting to give at least 120 days advance
notice to the Secretary of Alliance. The notice provision requires a shareholder
who desires to raise new business to provide certain information to Alliance
concerning the nature of the new business, the shareholder and the shareholder's
interest in the business matter. Similarly, a shareholder wishing to nominate
any person for election as a director must provide Alliance with certain
information concerning the nominee and the proposing shareholder.
Delaware Corporate Law
In addition, the state of Delaware has a statute designed to provide
Delaware corporations with additional protection against hostile takeovers. The
takeover statute, which is codified in Section 203 of the Delaware General
Corporation law ("Section 203"), is intended to discourage certain takeover
practices by impeding the ability of a hostile acquiror to engage in certain
transactions with the target company.
In general Section 203 provides that a "Person" (as defined therein) who
owns 15% or more of the outstanding voting stock of a Delaware corporation (an
"Interested Shareholder") may not consummate a merger or other business
combination transaction with such corporation at any time during the three-year
period following the date such "Person" became an Interested Shareholder. The
term "business combination" is defined broadly to cover a wide range of
corporate transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person became
an Interested Shareholder, the Board of Directors approved either the business
combination or the transaction which resulted in the shareholder becoming an
Interested Shareholder; (ii) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he became an Interested Shareholder, with the number of shares outstanding
calculated without regard to those shares owned by the corporation's directors
who are also officers and by certain employee stock plans; (iii) any business
combination with an Interested Shareholder that is approved by the Board of
Directors and by a two-thirds vote of the outstanding voting stock not owned by
the Interested Shareholder; and (iv) certain business combinations that are
proposed after the corporation had received other acquisition proposals and
which are approved or not opposed by a majority of certain continuing members of
the Board of Directors. A corporation may exempt itself from the requirements of
the statute by adopting an amendment to its Certificate of Incorporation or
Bylaws electing not to be governed by Section 203. At the present time, the
Board of Directors does not intend to propose any such amendment.
Indemnification
Alliance's Certificate of Incorporation or bylaws provide that it will
indemnify its directors and officers and may indemnify its employees and agents
to the full extent authorized by Delaware law in connection with certain matters
in which they may be involved because of their positions with Alliance,
including criminal, civil, administrative or investigative proceedings. Delaware
law permits indemnification against expenses (including attorneys' fees),
judgments, fines, penalties and amounts paid in settlement in third-party
actions involving such persons, provided there is a determination by a majority
vote of the disinterested directors, by independent legal counsel, by the
shareholders or by a court that the person seeking indemnification acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of Alliance and, in the case of any criminal action, had no reason to
believe his conduct was unlawful.
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In the case of derivative actions on behalf of Alliance, Delaware law
generally permits indemnification for expenses (including attorneys' fees) in
defending oneself, assuming a determination as to the conduct of the person
seeking to be indemnified similar to that required for third-party actions.
Delaware law provides for advances of legal expenses as they are incurred
to persons seeking to be indemnified, provided that the person receiving the
advances undertakes to repay such amounts if it is subsequently determined that
he or she is not entitled to indemnification.
The obligation of Alliance to provide indemnification as described above
will continue, even if the Certificate of Incorporation or bylaws are
subsequently amended to restrict or eliminate the right to indemnification, with
respect to any state of facts existing at or before the time of such amendment
and any proceeding, whenever brought, based in whole or in part upon any such
state of facts. Alliance is presently unaware of any actual or threatened
actions or proceedings that might result in a claim for indemnification under
Alliance's bylaws.
In recent years, there has been a significant increase in the number and
amount of claims brought against Directors and officers of corporations. As a
result, certain corporations have experienced difficulties in attracting and
retaining qualified persons to serve on their Boards of Directors. To date, the
Bank has not encountered a problem in attracting or retaining qualified
Directors, nor has the Bank encountered a problem in obtaining adequate
insurance coverage. It is expected that such insurance will be extended to cover
Directors and officers of Alliance upon completion of the holding company
formation. If liability insurance coverage for Directors and officers of
Alliance were to become unavailable or prohibitively expensive in the future,
Alliance would be required to act as a self-insurer and bear the full cost of
any indemnification provided.
Limitations on Director Liability
In performing their duties, Directors, and officers acting in the capacity
of Directors, of a Delaware corporation such as Alliance are obligated as
fiduciaries to exercise their business judgment and to act in what they
reasonably believe in good faith, after consideration, to be in the best
interests of the corporation and its shareholders. Such actions are generally
protected by the so-called "business judgment" rule and will normally be upheld
by a court in the event of a lawsuit challenging them. Under Delaware law
Directors can be held liable for gross negligence, as that term may be defined
by the Delaware courts, in connection with decisions made in the performance of
their duties, but generally not for ordinary negligence in most circumstances.
Alliance has included in its Certificate of Incorporation a provision which
eliminates the personal liability of Directors and officers acting in the
capacity of Directors or performing duties as a Director, for monetary damages
to Alliance and its shareholders for breach of their fiduciary duty except for
liability for: (i) willful or negligent violations of certain provisions of the
Delaware General Corporation Law with respect to the unlawful payment of
dividends or unlawful stock purchases or redemptions; (ii) a breach of a
Director's duty of loyalty to Alliance or its shareholders; (iii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; or (iv) a transaction from which the Director derived improper
personal benefit. This provision relieves Alliance's directors of liability to
Alliance and to shareholders for negligence in the performance of their duties,
including gross negligence, subject to the limitations specified below. It thus
could eliminate liability of Directors, and officers acting as Directors, even
for grossly negligent business decisions in certain circumstances. It does not
eliminate or limit liability of Directors arising in connection with causes of
action brought under the federal securities laws or to parties other than
Alliance or its shareholders. The provision has no effect on the availability of
equitable remedies, such as an injunction or rescission, based upon a Director's
breach of his fiduciary duty to Alliance and to shareholders. At present, there
are no pending or contemplated actions or proceedings against any Directors of
Alliance, and Alliance knows of no threatened litigation against its Directors
that would be affected by the foregoing provisions of law.
The SEC takes the position that similar provisions limiting the liability
of directors under state laws would not protect those corporations' directors
from liability for violations of the federal securities laws. Federal
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banking regulators may also take the same position with respect to violations of
federal banking laws and regulations.
Changes in Shareholders' Rights
As a result of the holding company formation, shareholders of the Bank,
whose rights are presently governed by Connecticut law and the Bank's Articles
of Incorporation and bylaws, will become shareholders of Alliance. As such,
their rights will be governed by the Delaware General Corporation Law and
Alliance's Certificate of Incorporation and bylaws.
Although the governing instruments of the Bank and Alliance are similar in
most material respects, there are certain material differences. The following
discussion does not purport to be a complete statement of the differences
affecting the rights of shareholders but summarizes those differences that are
deemed by the Bank to be material. See the Certificate of Incorporation and
bylaws of the Bank attached as Exhibits B and C to this Proxy
Statement/Prospectus.
Purpose Clause. The Certificate of Incorporation of Alliance provides that
it may engage in any lawful act or activity for which corporations may be formed
under the Delaware General Corporation Law. The Bank's Articles of Incorporation
state that its business shall be to accumulate and invest funds pursuant to the
laws of the State of Connecticut and to engage in any activity or business
permitted by the State of Connecticut. See "FORMATION OF HOLDING COMPANY --
Regulation of Alliance."
Dividend Rights and Policies. The shareholders of both the Bank and
Alliance are entitled to dividends if, when and as declared by their respective
Boards of Directors. The declaration of future dividends, whether by the Board
of Directors of the Bank or of Alliance, will be subject to favorable operating
results, financial conditions, regulatory limitations and other relevant
factors. Accordingly, no assurance can be given as to the likelihood, amount or
timing of any future dividend payments
The Bank as a Connecticut chartered stock bank may not declare cash
dividends on its common stock in an amount in excess of its net profits (as
defined by state statute) for the year in which the dividend is declared, plus
its retained net profits from the prior two years. The Bank may not declare or
pay a cash dividend or repurchase any of its outstanding shares if the effect
thereof would reduce its capital below the amount by federal and state
regulations. In addition, the FDIC places certain restrictions on the payment of
dividends. See "FORMATION OF HOLDING COMPANY -- Regulation of the Bank."
Delaware law permits the Board of Directors of Alliance generally to pay
dividends out of Alliance's net income and surplus. Alliance's principal income
source initially will be dividends from the Bank. See "FORMATION OF HOLDING
COMPANY -- Dividend Policy" and "--Dividend and Other Capital Distribution
Limitations." The declaration of dividends by Alliance and the Bank are subject
to favorable operating results, the financial condition of Alliance and the
Bank, tax and regulatory limitations and other factors.
Voting Rights. All voting rights are currently vested in the holders of the
Bank's common stock. Each share of common stock is currently entitled to one
vote on all matters voted upon by shareholders. Cumulative voting is not
currently permitted. Holders of Alliance's common stock will have the same
voting rights except that shares held in excess of the Limit may not be voted.
See "FORMATION OF THE HOLDING COMPANY -- Anti-Takeover Provisions."
Call of Special Meetings. The Bank's Articles of Incorporation provide that
special meetings of shareholders relating to changes in control of the Bank or
amendments to the Articles of Incorporation shall be called only upon the
direction of the Board of Directors except as required by law. The bylaws
provide that special meetings for other purposes may be called by the Chairman
of the Board, the President or a majority of the Board of Directors or upon the
written request of holders of not less than one tenth of all outstanding capital
stock of the Bank entitled to vote at a meeting. Alliance's bylaws provide that
special meetings for any purpose may be called only by a majority of the Board
of Directors.
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Quorum for Shareholder Meeting. Both the Bank's bylaws and Alliance's
provide that generally a majority of the outstanding shares entitled to vote,
represented in person or by proxy, constitutes the necessary quorum for a
shareholder meeting. Additionally, the Bank's bylaws provide that a quorum for a
special meeting called by or upon the written request of shareholders shall be
90% of the outstanding shares of the Bank entitled to vote at a shareholder
meeting.
Inspection of Stock Ledger and Corporate Books and Records. Alliance's
bylaws and Delaware law require a list of shareholders as of the applicable
record date to be made available for inspection by any shareholder at any
meeting of shareholders. Connecticut law has a substantially identical
requirement which additionally requires such list to be available five (5) days
before the meeting.
Business Combinations. The Bank may affect a merger or stock exchange or
other fundamental corporate change if authorized by holders of at least two
thirds of its issued and outstanding common stock. Additionally, certain
business combinations between the Bank and an interested shareholder as such
terms are defined by the Articles of Incorporation may only be entered into if
approved by the Board of Directors and an affirmative vote of the holders of at
least 80% of the voting power of the then outstanding shares of voting stock of
the Bank and at least two thirds of the voting power of the then outstanding
shares of voting stock of the Bank exclusive of any shares of voting stock held
by or on behalf of such interested shareholder. Additionally, under the Bank's
Articles of Incorporation, the Board of Directors may evaluate a business
combination considering, in addition to the amount of the consideration to be
paid in connection with such transaction, all of the following factors or any
other factors it deems relevant: (i) the social and economic effects of the
transaction on the Bank, employees, depositors and other customers, or other
elements of the communities in which Bank operates; (ii) the business and
financial obligations to be incurred in connection of the acquisition and other
likely financial obligations of the acquiring person or persons and the possible
effect of such conditions upon the Bank and elements of the communities in which
the Bank operates or is located; and (iii) the experience and integrity of the
acquiring person or persons and its or their management. Under Delaware law the
approval of the holders of at least a majority of the voting shares of the
corporation is required for Alliance to merge or consolidate with other
companies. In addition, Delaware law and Alliance's Certificate of Incorporation
requires the approval of the holders of at least 80% of the voting shares
(excluding those of the interested shareholder), when a business combination,
which is defined to include a merger, is with an interested shareholder (defined
generally as a holder of more than 15% of the outstanding voting shares or an
affiliate of such a shareholder). Additionally, Alliance's Certificate of
Incorporation does not permit any person or entity, except for certain benefit
plans of the Bank or Alliance, to vote shares held in excess of the Limit.
Amendment of Certificate and Articles of Incorporation. Delaware law
requires that any amendment to the Certificate of Incorporation must be approved
by the affirmative vote of a majority of the votes which all shareholders are
entitled to cast thereon and the affirmative vote of the holders of at least a
majority of the outstanding shares in each class of shares entitled to vote as a
class thereon. Alliance's Certificate also requires certain amendments be
approved by 80% of the shares eligible to vote for the election of Directors.
Connecticut law and the Bank's Articles of Incorporation have similar
provisions, except that certain amendments require approval similar to that in
the event of a Business Combination, as defined above.
Amendment of Bylaws. The Bank's bylaws provide they may be amended by a
majority vote of the full Board of Directors or by the majority of votes cast by
the shareholders at any legal meeting. Alliance's bylaws allow the shareholders
or the Board of Directors to amend or repeal the bylaws or adopt new bylaws.
Alliance's bylaw provisions governing the calling of special meetings of
shareholders and governing the numbers, terms, replacement, removal and
nomination of Directors may only be amended or repealed by a vote of 80% of all
the votes entitled to be cast in the election of Directors.
Shareholder Nomination and New Business. The Bank's Board of Directors
selects the management nominees for election as directors. Except where a
nominee is substituted as a result of the death or incapacity of a management
nominee, the Bank's bylaws require the nominating committee to submit
nominations to the secretary of the Bank at least 30 days prior to the date of
the shareholder meeting at which directors are to be elected.
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Nominations may be made by shareholders, provided they are made in writing and
delivered to the secretary of the Bank not more than 90 or less than 60 calendar
days before the date of such meeting. Alliance's bylaws require that nominations
for Director made by the Board of Directors shall be made not less than 5 days
prior to the date of the meeting at which Directors are to be elected. If made
by shareholders, such nominations must be made at least 90 days prior to such
meeting, if it is the Annual Meeting, or within 7 days following the date of
notice of the meeting, if a special meeting.
Directors. The Articles of Incorporation of the Bank provides for a Board
of not less than seven (7) nor more than 15 Directors. Currently the Bank's
Bylaws require a number of 11, and provide that the number can be increased or
decreased. The Certificate of Incorporation of Alliance provides for a minimum
of 5 Directors and a maximum of 15 Directors.
Under the Articles of Incorporation of the Bank, vacancies existing on the
Board of Directors arising from death, resignation, retirement,
disqualification, removal from office or other cause are filled by a majority
vote of the Directors then in office. A Director who is appointed by the Board
of Directors to fill a vacancy on the Board serves for the unexpired term of the
class in which the vacancy occurs.
Alliance's Certificate of Incorporation provides that a Director who is
appointed by the Board of Directors to fill a vacancy on the board serves for
the unexpired term of the class in which the vacancy occurs but that a Director
who has been appointed to fill a vacancy caused by an increase in the number of
directors shall serve only until the next Annual Meeting of shareholders.
Alliance's Certificate of Incorporation provides for removal of a Director
only for cause and only with the affirmative vote of 80% of the voting power of
Alliance's outstanding stock. The Bank's Articles of Incorporation provide that
any director may be removed from office, only for cause, at any time with cause
by an affirmative vote of the holders of not less than 80% of the voting power
of the issued and outstanding shares entitled to vote thereon at any meeting of
shareholders called for that purposes provided, however, if there is an
interested shareholder, as defined by the Articles of Incorporation, such 80% of
the vote must include the affirmative vote of not less than two thirds of the
voting power of the issued and outstanding shares entitled to vote thereon held
by shareholders other than the interested shareholder. Under Delaware law, any
Director or the entire Board of Directors may be removed with or without cause
by the holders of a majority of the shares then entitled to vote at an election
of Directors, except where a Board is classified, such removal can be only for
cause (unless the Certificate of Incorporation otherwise provides). Alliance's
Board will be classified and its Certificate does not provide for removal for
other than cause.
Alliance's bylaws permit Directors to participate in any Board meetings
telephonically as long as all parties to the meeting can hear each other.
Telephonic participation will qualify as presence at the meeting for all
purposes. The Bank's bylaws permit attendance at Board meetings by means of
conference telephone but provide that such participation does not constitute
attendance for the purpose of compensation for service on the Board.
Shareholder Rights Agreement
On June 20, 1989, the Board of Directors of the Bank authorized and
directed the issuance of one common stock purchase right (a "Right") for each
outstanding share of Bank common stock pursuant to a Shareholders Rights
Agreement (the "Rights Plan"). Each Right entitles the holder to purchase from
the Bank one share of Bank common stock at a discount under certain conditions.
None of these triggering conditions has occurred, nor will the consummation of
the Plan of Reorganization, or the approvals thereto, cause the Rights to detach
and become exercisable. The Rights have certain anti-takeover effects and can
cause substantial dilution to a person who attempts to acquire the Bank without
conditioning the offer on redemption of the Rights by the Board of Directors of
the Bank or on the acquisition by such person of a substantial number of rights.
Upon ten (10) days after the earlier of (i) the acquisition of 20% or more
of common stock of the Bank by any person or group (other than then the Bank or
any subsidiary of the Bank such as Alliance); (ii) an offer by any person or
group (other than the Bank or any subsidiary of the Bank such as Alliance) to
acquire 20% or more of
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the outstanding common shares of the Bank; (iii) the time any person or group of
persons acquires a substantial amount of Bank common stock, in excess of 10%,
which the Board of Directors believes will facilitate certain abusive takeover
practices or is likely to have a material adverse impact on the business of the
Bank, the Rights will be distributed (the "Distribution Date"). Until that time,
the registered holder of common shares of Bank stock is also the registered
holder of an equivalent amount of Rights which can only be transferred with Bank
stock. Until a Right is exercised and distributed, the holder of the Rights will
have no rights as the shareholder of the Bank including, without limitation, the
right to vote or to receive dividends. At any time before the distribution of
the Rights, the Board of Directors may redeem the Rights in whole, but not in
part, at a price of .001(cent) per Right, rounded upward for each holder to the
nearest cent payable in cash, Bank stock or other securities or other property
or a combination thereof.
The terms of the Rights, other than key economic terms, may be amended by
the Board of Directors of the Bank without consent of the holders of the Rights
prior to the Distribution Date. Following the Distribution Date, the Board may
also amend the terms of the Rights Plan without consent of the holders of the
Rights so long as such amendment does not adversely affect the interests of the
holders of the outstanding Rights. The price at which Rights holders, after the
Distribution Date may exercise their Rights, is dependent upon the market price
of Bank stock at the time of exercise and certain other factors, including the
percentage of outstanding Bank common stock held by certain individuals.
The consummation of the Plan of Reorganization will not give rise to a
Distribution Date as defined in the Rights Plan.
Upon consummation of the Plan of Reorganization, all Bank common stock will
be held by Alliance. As such, all Rights will also be held by Alliance. The
Board of Directors of Alliance currently intends to adopt a substantially
similar plan to the Rights Plan after the consummation of the Reorganization. No
assurance can be given that the Board of Directors of Alliance will in fact
adopt such a plan, or that its terms will be substantially similar to those of
the Rights Plan.
Federal Securities Laws
The common stock of Alliance is exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to Section
3(a)(12) of the Securities Act. The common stock of Alliance will be registered
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
pursuant to Section 12(b) of the Exchange Act.
This Proxy Statement/Prospectus also constitutes proxy material of the Bank
and has been filed with the FDIC under the Exchange Act. Upon completion of the
Reorganization, the common stock of the Bank will be deregistered with the FDIC
under the Exchange Act.
LEGAL PROCEEDINGS
The Bank is involved in various legal proceedings occurring in the ordinary
course of its business. None is believed by management to be material to the
financial condition of the Bank.
MARKET FOR COMMON STOCK
The common stock of the Bank is quoted on the AMEX. The following table
presents quarterly information on the range of high and low prices for the past
two (2) years.
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Quarter Ended High Low Dividends Declared Per Share
------------- ---- --- ----------------------------
March 31, 1995 $ 8.00 $ 7.00 $ 0
June 30, 1995 8.25 7.50 0
September 30, 1995 10.38 7.38 0
December 31, 1995 10.13 8.13 0
March 31, 1996 10.50 9.25 0
June 30, 1996 10.38 9.50 0
September 30, 1996 12.38 9.63 0
December 31, 1996 13.38 11.00 .03
On January 31, 1997, the closing price for the Bank's common stock as
reported in The Wall Street Journal was $13.13. On that date, there were
approximately 546 holders of such common stock, except for the shares held in
"street name". On the day preceding announcement of the plan to form the holding
company, the high and low of the Bank's common stock were $12.38 and $12.38,
respectively.
PROPOSAL III -- APPROVAL OF TOLLAND BANK 1997 STOCK INCENTIVE PLAN
The Tolland Bank 1997 Stock Incentive Plan (the "Stock Incentive Plan")
authorizes up to 150,000 shares of Bank common stock to be made available to key
executives as options (incentive or nonqualified), restricted stock or stock
appreciation rights. Another section of the Stock Incentive Plan provides stock
options for nonemployee directors based solely on years of service. Options
under the Stock Incentive Plan are rights to purchase stock at a fixed price set
forth in the option agreement, generally the fair market value at the date of
grant. Restricted stock is an award of actual stock subject to forfeiture
provisions if the executive leaves before a specified number of years. Stock
appreciation rights are awards of units denominated as stock which gives the
executive the right to receive appreciation in value in either cash or stock. A
copy of the Stock Incentive Plan is attached hereto as Exhibit E.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE TOLLAND
BANK 1997 STOCK INCENTIVE PLAN UNDER THIS PROPOSAL III
General. The Bank has had a stock option plan for employees (the "Option
Plan") since December 1986, the date of the Bank's conversion to stock form.
Pursuant to the Option Plan, shares equal to 10% of the Bank's common stock
issued in the conversion, or 100,000 shares, were reserved for issuance by the
Bank upon exercise of options and/or restricted stock awards to be granted to
officers and employees of the Bank and its subsidiaries. The Option Plan had a
10 year term and expired on November 6, 1996. All of the options for which
shares were reserved in the Option Plan have been granted. No restricted stock
awards were granted under the Option Plan.
The Board of Directors intends to continue to provide stock benefit
programs for officers, employees and Directors of the Bank. The Board believes
stock benefit programs provide long-term performance incentives to such officers
and employees as well as encouraging extended service and continuity in the
Board of Directors.
The Board of Directors has recently adopted a unified benefit program which
contains a new stock option plan for employees and also permits restricted stock
awards for key employees and self-executing nonemployee director stock options
(the "Stock Incentive Plan"). The Plan provides two distinct methods of awarding
options to nonemployee directors and employees. Nonemployee directors options
are nondiscretionary, nonqualified options based on years of service. These are
the only options nonemployee directors may receive. Such options will not be
granted at less than fair market value. Nonemployee directors may not receive
restricted stock awards nor, if they are members of the Personnel Committee,
stock appreciation rights. The Personnel Committee consists of directors of the
Bank who were not employees of the Bank one year prior to appointment.
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The Stock Incentive Plan permits key employees to receive options under
more flexible circumstances including options at less than fair market value, as
stock appreciation rights or restricted stock awards, and as either incentive or
nonqualified options. Like the Option Plan, the Stock Incentive Plan will
authorize up to 150,000 shares of the Bank's or Alliance's common stock to be
made available for grants to employees and nonemployee directors as either
incentive or nonqualified options or restricted stock awards. Stock options for
directors will be non-qualified. Up to 20% of such stock, or 30,000 shares, may
be used for restricted stock awards for key executives but not for nonemployee
directors. The Stock Incentive Plan also permits the use of Stock Appreciation
Rights ("SARs"), the use of stock already owned to purchase shares subject to
options ("reload options") and the issuance of options at less than their fair
market value. Nonemployee directors and employees are permitted to utilize SARs.
The stock options and restricted stock awards are designed to attract and retain
qualified personnel in key positions, provide officers and key employees with a
proprietary interest in the Bank and Alliance as an incentive to contribute to
the success of the Bank and Alliance and to reward key employees for outstanding
performance and, in the case of directors, continuous service. At present no
awards to officers or employees are planned under the Stock Incentive Plan.
Awards to directors are contemplated as detailed below.
Directors Options Under the Stock Incentive Plan. Approximately two years
after the conversion of Tolland Bank from mutual to stock form in 1986, the
Board of Directors adopted the 1988 Nonemployee Director Stock Option Plan (the
"1988 Directors Plan"). Pursuant to the 1988 Directors Plan, a number of shares
equal to approximately 10% of the Bank's common stock issued in the public
offering, or 100,000 shares, were reserved for issuance by the Bank upon
exercise of stock options to be granted to nonemployee directors. Under the
terms of the 1988 Directors Plan, each director elected by the shareholders was
eligible to receive a one-time grant of options for 5,000 shares of stock which
vested over a three year period. The purpose of the 1988 Directors Plan was to
provide an incentive for nonemployee directors to assist the Bank in attracting
new directors and encourage continuity in the Board. At the present time all the
Directors of the Bank, except Theresa L. Dansky, each hold exercisable but
unexercised options for 5,000 shares of Bank stock, or 45,000 total options.
The 1988 Directors' Plan awarded options for Bank common stock on the basis
of a single event, election to the Board by the shareholders. The 1988 Directors
Plan has a ten year term. After February 15, 1998, no further options may be
awarded under its terms. Any director who is elected by shareholders at an
annual or special meeting prior to February 15, 1998 would also be eligible to
receive options for 5,000 shares. Given the current configuration of the Board
of Directors it is unlikely that any new directors other than Theresa L. Dansky
will be eligible for shares under the 1988 Directors Plan before its expiration
on February 15, 1998. Upon expiration, expected unawarded options representing
approximately 50,000 shares will be allowed to expire. In light of the impending
expiration of the 1988 Directors Plan and the expiration of certain options, the
Board has concluded that it is desirable to award additional options to
directors who have continuously served as a director for prescribed terms.
Accordingly, the Stock Incentive Plan will permit a nonemployee director to
receive non-qualified options for one thousand shares of Bank or Alliance common
stock on the date he or she completes a fifth anniversary as director of the
Bank. The plan provides a similar award upon the completion of each additional
five years as a director and will include current Directors' past service. All
options will be non-qualified and immediately exercisable. The exercise price of
such options shall be the closing price of Bank or Alliance stock on the day of
grant. If the Stock Incentive Plan is adopted, Directors will be eligible to
receive one thousand options on the date the Director completes five years of
service as a Director. Current directors with service exceeding five years will
receive options upon implementation of the Stock Incentive Plan as outlined
below.
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NEW BENEFIT PLAN
Tolland Bank
Stock Incentive Plan
--------------------
In-the-Money(1) Number
Name and Position Dollar Value of Options
----------------- ------------ ----------
Howard G. Abbott, M.D. $0 3,000
Director
Lawrence J. Becker 0 3,000
Director
Richard C. Boardman 0 3,000
Director
William E. Dowty, Jr. 0 4,000
Director
D. Anthony Guglielmo 0 2,000
Director
Thomas S. Moore 0 4,000
Director
Douglas J. Moser 0 1,000
Director
Kenneth R. Peterson 0 3,000
Director
Francis J. Prichard, Jr. 0 1,000
Director ------
Non-executive Directors as 24,000
a Group
(1) All options awarded to Directors under the Stock Incentive Plan are
exercisable upon grant. The exercise price for these options will be the
closing price of Bank or Alliance common stock on the day of the grant.
----------------------
As nonqualified options, the Directors would not be required to recognize
income upon receipt. Income would be recognized at the time the option is
exercised, and the Director would recognize income to the extent of the
difference between the fair market value of the common stock and the
consideration paid for the option. The Bank would be permitted a tax deduction
expense equal to the amount of the gain received by the Director exercising the
option.
The Board of Directors believes that the inclusion of directors in the
Stock Incentive Plan will be beneficial in that it will enable the Board to
recognize and reward existing directors for years of service to the Bank and
because it will encourage recently elected directors to remain on the Board. The
Board believes that by having continuity on its Board of Directors and having
directors who are familiar with the Bank and its community, the Bank's
visibility and business prospects are enhanced.
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Stock Option Awards. The Stock Incentive Plan permits the award of stock
options to employees and officers of the Bank or Alliance in the form of either
incentive options qualified under ss. 422 of the Code (the "Incentive Stock
Options" or "ISO") or as nonqualified stock options. Under the Stock Incentive
Plan, the Personnel Committee of the Board of Directors will determine which
officers and employees will be granted options, whether such options will be
incentive or nonqualified stock options, the exercise price of each nonqualified
stock option, and when such options can be exercised. The Committee will also
determine the number of shares to be granted or awarded each year, except that
the number may not exceed 20,000 shares times the number of years the Stock
Incentive Plan has been in effect. The Stock Incentive Plan permits, if
permitted by state and federal regulatory officials, acceleration of the annual
amounts in the event of a takeover or threatened takeover. It is anticipated
that options granted under the Stock Incentive Plan, if approved by the
shareholders, will, in general, be granted at fair market value as nonqualified
stock options with ten year terms and without a vesting period. The Stock
Inventive Plan permits the Personnel Committee to grant, in its discretion,
options at less than fair market value to employees and officers. Nonemployee
directors are not eligible to receive options at less than fair market value. No
awards of any nature are specifically contemplated at this time. The Stock
Incentive Plan permits the award of options as ISOs or non-qualified stock
options. The Board believes, however, that nonqualified options allow for
greater flexibility in terms of pricing and structure than incentive stock
options. Unless sooner terminated, the Stock Incentive Plan will be in effect
for a period of ten years from the date of approval by the Bank's shareholders.
For nonqualified stock options and in the case of a disqualifying
disposition of an Incentive Stock Option, an employee will be deemed to receive
ordinary income upon exercise of the stock option in an amount equal to the
amount by which the exercise price of the option is exceeded by the fair market
value of the Common Stock purchased by exercising an option on the date of
exercise. The amount of any ordinary income deemed to be received by an optionee
upon the exercise of a nonqualified stock option or due to a disqualifying
disposition of an Incentive Stock Option would be a deductible expense for tax
purposes by Alliance or the Bank.
The Stock Incentive Plan permits both non-qualified stock options and
incentive stock options to be utilized. The Personnel Committee anticipates that
the options utilized will be non-qualified stock options. A non-qualified stock
option granted to an individual has no tax effect at the time of grant. However,
upon the exercise of the option, the individual recipient will recognize income
to the extent of the difference between the fair market value of the stock and
the consideration paid for the option. The grantor of the option would normally
receive a tax deduction equal to the amount of the gain on the option to the
individual. Any future appreciation in the stock would be treated as a capital
gain of the individual and recognized at the time the stock is sold. If the
options granted are granted in the form of incentive stock options, no gain
would be recognized upon the grant of the stock to the individual and no income
would be recognized upon the exercise of the option. When the stock is sold, a
capital gain would be recognized assuming the stock had been held for the
requisite period. Neither the bank nor the bank holding company would be
entitled to any deduction for incentive stock options.
The Stock Incentive Plan also contain SARs. SARs may be granted by the
Personnel Committee in tandem with options or separately. A recipient of a SAR
obtains the right to receive, after the grant of a SAR, the appreciated value of
the Bank or Alliance's stock in either stock or cash. The Board of Directors
anticipates that the Committee will use SARs primarily in connection with the
grant of options, although the Stock Incentive Plan permits the use of SARs
without a corresponding grant of options. SARs may be granted to both employees
and nonemployee directors who are not members of the Personnel Committee and are
limited to 20% of the shares in the Stock Incentive Plan or 30,000 shares.
Restricted Stock Awards. The Stock Incentive Plan also permits the use of
restricted stock awards for key employees of the Bank or Alliance or any of its
subsidiaries. Nonemployee directors will not be eligible to receive restricted
stock. Under the terms of the Stock Incentive Plan up to 20% of the shares, i.e.
30,000 shares in the aggregate, contained in the Stock Incentive Plan are
available for awards as restricted stock or SARs. The terms of the restricted
stock awards shall be set by the Personnel Committee at the time of grant;
however the Personnel Committee anticipates that any awards of restricted stock
shall contain a five year vesting schedule and shall vest at the rate of 20% per
year. Under the terms of the Stock Incentive Plan, the Personnel Committee may,
in its sole
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discretion, waive all or a portion of the restrictions remaining on any of the
restricted stock which is awarded pursuant to the Stock Incentive Plan. The use
of restricted stock awards will enable the Bank to retain personnel of
experience and ability in key positions of responsibility. No awards of
restricted stock are specifically contemplated at this time.
Restricted stock awards to key employees will be granted based upon a
number of factors to be determined by the Personnel Committee, including
seniority, job duties and responsibilities, job performance, and a comparison of
similar awards by companies comparable to the Bank and Alliance. At this
juncture it is impossible to determine how many employees will be deemed key
employees and receive restricted stock awards. The shares utilized for the
restricted stock awards will be authorized but unissued shares.
Recipients of the shares will recognize income for the taxable years in
which stock becomes vested without restriction unless the recipients elect to be
taxed in an earlier year before the shares are vested. The Bank will receive a
tax deduction for the fair market value of the shares when included in income by
recipients. If all of the shares eligible to be utilized for the restricted
stock awards were utilized, based on the fair market value of the common stock
as of December 1, 1996, the value of the shares would be approximately $260,000,
which would be deducted as a compensation expense for the periods in which the
shares are taxable to the recipients. Any increase in the value of the Bank's or
Alliance's common stock would increase the contribution of funds. Likewise a
decrease in the value of the common stock would decrease the amount of the
contribution.
Amendment, Termination or Revision of the Stock Incentive Plan. The
Personnel Committee may amend or terminate the Stock Incentive Plan at any time.
Such amendments are required to be approved by shareholders in accordance with
applicable law and regulation if such approval is required to satisfy
requirements of the Securities and Exchange Commission under Rule 16b-3 under
the Securities Exchange Act of 1934 or other regulatory requirements. The Stock
Incentive Plan terminates on March 31, 2007. Options cannot be revised unless,
consistent with the terms of the Stock Incentive Plan, the recipient consents.
The Stock Incentive Plan also permits options which expire to be reissued. The
Stock Incentive Plan permits adjustment by the Personnel Committee of the number
of shares to reflect reclassification, recapitalization or similar capital
change. The adjustments by the Personnel Committee shall be conclusive and
binding on the Bank and any participants. The Personnel Committee's adjustments
are designed to maintain the same proportion for the number of shares which
existed before the event requiring adjustment.
PROPOSAL IV -- APPROVAL OF APPOINTMENT
OF KPMG PEAT MARWICK LLP
AS INDEPENDENT AUDITORS
The Board of Directors of the Bank has appointed the firm of KPMG Peat
Marwick LLP, Certified Public Accountants, to continue as independent auditors
for the Bank for the fiscal year ending December 31, 1997, subject to approval
of such appointment by the shareholders. A representative of KPMG Peat Marwick
LLP will be present at the Annual Meeting, will be given an opportunity to make
a statement if he or she desires to do so and will be available to respond to
appropriate questions.
In 1996, KPMG Peat Marwick LLP provided the Bank certain non-audit
consulting services in addition to conducting the annual audit. These non-audit
services consisted primarily of income tax advice and return preparation. The
Audit, Budget and Risk Management committee of the Board of Directors approved
these non-audit services and considered their possible effect on the
independence of KPMG Peat Marwick LLP before these services were rendered.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE BANK'S INDEPENDENT AUDITORS FOR
FISCAL 1997 UNDER THIS PROPOSAL IV.
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PROPOSAL V -- APPROVAL OF ADJOURNMENT OF THE ANNUAL MEETING
General
In the event that there are not sufficient votes to approve one or more of
the foregoing proposals at the time of the Annual Meeting, such proposals could
not be approved unless the Annual Meeting were adjourned in order to permit
further solicitation of proxies. In order to allow proxies that have been
received by the Bank at the time of the Annual Meeting to be voted for such
adjournment, if necessary, the Bank has submitted as Proposal V the question of
adjournment under such circumstances to its shareholders as a separate matter
for their consideration. The Board of Directors recommends that shareholders
vote their proxies in favor of such adjournment under this Proposal V so that
their proxies may be used for such purpose in the event it should become
necessary. If it is necessary to adjourn the Annual Meeting and the adjournment
is for a period of fewer than 30 days, no notice of the time and place of the
adjourned meeting or of the business to be transacted at the adjourned meeting
is required to be given to shareholders other than an announcement of such at
the Annual Meeting.
Approval of adjournment, if necessary, under this Proposal V requires the
affirmative vote by the holders of a majority of the shares of common stock
represented at the Annual Meeting and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE
FOR THE ADJOURNMENT OF THE MEETING UNDER PROPOSAL V.
OTHER BUSINESS
As of the date of this Proxy Statement/Prospectus, the Board of Directors
of the Bank knows of no matters to be brought before the Annual Meeting other
than procedural matters incident to the conduct of the Annual Meeting. If
further business is properly presented, the proxy holders will vote proxies, as
determined by a majority of the Board of Directors.
All costs of the solicitation of proxies will be borne by the Bank. In
addition to solicitation by mail, directors, officers and other employees of the
Bank may solicit proxies personally by telephone or telegraph without additional
compensation. The Bank will reimburse brokerage firms and other custodians,
nominees and fiduciaries for reasonable expenses incurred by them in sending
proxy material to the beneficial owners of the common stock.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Pursuant to the proxy solicitation regulations of the Securities and
Exchange Commission (the "Commission"), if the holding company formation is
consummated, any shareholder proposal intended for inclusion in Alliance's proxy
statement and form of proxy relating to Alliance's 1998 Annual Meeting of
Shareholders must be received by Alliance by November 24, 1997 pursuant to the
proxy solicitation regulation of the Commission. If the holding company
formation is not consummated, any shareholder proposal intended for inclusion in
the Bank's proxy statement and form of proxy relating to the Bank's 1998 Annual
Meeting of shareholders must be received by the Bank by November 24, 1997
pursuant to the proxy solicitation regulations of the FDIC. Nothing in this
paragraph shall be deemed to require Alliance or the Bank to include in its
proxy statement and form of proxy any shareholder proposal which does not meet
the requirements of the Commission or the FDIC in effect at the time.
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FURTHER INFORMATION
This proxy statement is also a prospectus of Alliance delivered in
compliance with securities law requirement. The summaries or descriptions of
documents, statutes or regulations in this Proxy Statement/Prospectus do not
purport to be complete. Reference is made to the copies of such documents
attached to this Proxy Statement/Prospectus and to such statutes or regulations
for a full and complete statement of their provisions, and such summaries and
descriptions are qualified in their entirety by such reference.
This proxy statement has been filed by the Bank with the FDIC under the
Exchange Act. The Bank has also filed reports and other information with the
FDIC under the Exchange Act. Such information can be inspected and copied at the
FDIC.
LEGAL OPINION
The legality of the Alliance common stock to be issued pursuant to the
Reorganization will be passed upon for Alliance by Peabody & Brown, Washington,
D.C. 20037.
The Board of Directors of the Bank urges each shareholder, whether or not
he or she intends to be present at the Annual Meeting, to complete, sign and
return the enclosed proxy as promptly as possible.
By Order of the Board of Directors of
Tolland Bank
Cynthia S. Harris
Secretary
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), dated as of
January 10, 1997, is between Tolland Bank, a savings bank chartered by the state
of Connecticut (the "Bank") and Alliance Bancorp of New England, Inc., a
Delaware corporation (the "Holding Company") which is wholly-owned by the Bank.
Promptly after its incorporation, Interim Tolland Bank ("Interim"), an interim
corporation to be organized by the Holding Company under Connecticut law for the
sole purpose of consummating the reorganization provided herein, will execute
and deliver this Agreement and, thereby, become a Party hereto.
BACKGROUND
The Board of Directors of the Bank has determined that it is in the best
interests of the Bank and its stockholders for the Bank to be reorganized into a
stock holding company form of ownership in accordance with the terms of this
Agreement as follows:
A. Upon the organization of Interim, the Holding Company will be the sole
stockholder of Interim.
B. Interim will thereafter merge into the Bank, on terms whereby the
stockholders of the Bank will exchange all of the outstanding shares of common
stock of the Bank for Shares of the Holding Company, and the Holding Company (as
the former sole stockholder of Interim) will receive all of the outstanding
shares of common stock of the Bank.
C. Whereupon, the former stockholders of the Bank will be all of the
stockholders of the Holding Company which, in turn, will own all of the
outstanding shares of stock of the Bank.
TERMS
The parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE ONE
DEFINITIONS
The following terms used herein have the meanings specified below:
1.1 "Agreement" means this Agreement and Plan of Reorganization.
1.2 The "Bank" means Tolland Bank, a savings bank chartered by the state
of Connecticut.
1.3 "Bank Common Stock" means the shares of $1.00 par value common stock
of the Bank.
1.4 "Benefit Plans" means the stock option plans, stock purchase plans and
the stock incentive plans of the Bank.
1.5 "Effective Date" means that the date provided for in Section 8.1 on
which the Merger shall become effective.
1.6 "Rights Plan" means the Tolland Bank Shareholder Rights Agreement
adopted June 20, 1989.
1.7 "Effective Time" means the time on the Effective Date when the Merger
shall become effective.
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1.8 "FDIC" mean the Federal Deposit Insurance Corporation.
1.9 "FRB" means the Federal Reserve Board.
1.10 "Holding Company" means Alliance Bancorp of New England, Inc., a
corporation organized under Delaware law.
1.11 "Holding Company Common Stock" means the shares of $0.01 par value
common stock of the Holding Company.
1.12 "Interim" means Interim Tolland Bank, an interim corporation to be
organized under Connecticut law.
1.13 "Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended.
1.14 "Merger" means the merger of Interim with and into the Bank provided
for in Section 2.1 of this Agreement.
1.15 "Party" means each of the Bank, the Holding Company and Interim, as a
Party to this Agreement.
1.16 "SEC" means the Securities and Exchange Commission.
1.17 "State" means the state of Connecticut.
ARTICLE TWO
MERGER OF INTERIM INTO THE BANK AND RELATED MATTERS
2.1 The Merger. On the Effective Date, Interim will merge with and into the
Bank pursuant to the terms of this Agreement, and thereupon the separate
existence of Interim will cease. The Bank, as the Resulting Institution, will
possess all of the rights, privileges, powers and franchises, and be subject to
all the restrictions, duties and liabilities of Interim, and all property, real,
personal and mixed, and all debts due to Interim on whatever account, shall be
vested in the Bank, and all such property, rights, privileges, powers and
franchises, and all and every other interest of Interim shall be as effectively
the property of the Bank as they were of Interim.
2.2 Continued Existence of the Bank. Following the Merger, the existence of
the Bank will continue unaffected and unimpaired by the Merger, with all the
rights, privileges, immunities and powers, and subject to all the duties and
liabilities of a savings bank organized under the laws of Connecticut. The home
and branch offices of the Bank will be at the location of the home and branch
offices of the Bank immediately prior to the Effective Time. The Articles of
Incorporation and bylaws of the Bank, as presently in effect, will continue in
full force and effect and shall not be changed in any manner whatsoever by the
Merger. The Bank will continue to operate immediately after the Effective Time
under its present name, "Tolland Bank."
2.3 Continued Business of the Bank. From and after the Effective Time, the
business presently conducted by the Bank will continue to be conducted by it as
a wholly-owned subsidiary of the Holding Company, subject to the management and
control of the board of directors of the Bank and, subject to such action as the
board of directors of the Bank might take hereafter, the present officers of the
Bank will continue in their present positions. It is the Parties' intention that
a continuity of operation of the Bank business and a continuity of present
management will be maintained.
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2.4 Directors of the Holding Company. On the Effective Date, the directors
of the Holding Company who will serve until the expiration of the respective
terms for which they were elected and until their respective successors are
elected and duly qualified will be as follows:
Name and Address Term
---------------- ----
Howard G. Abbott, M.D. 2000
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
Lawrence J. Becker 2000
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
Robert C. Boardman 1998
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
Theresa L. Dansky 2000
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
William E. Dowty, Jr. 1998
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
D. Anthony Guglielmo 1999
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
Thomas S. Moore 2000
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
Douglas J. Moser 1999
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
Kenneth R. Peterson 1998
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
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Francis J. Prichard, Jr. 1999
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
Joseph H. Rossi 1999
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
2.5 Directors of the Bank. On the Effective Date, the directors of the
Bank, who will serve until the expiration of the respective terms for which they
were elected and until their respective successors are duly elected and
qualified, will be as follows:
Name and Address Term
---------------- ----
Howard G. Abbott, M.D. 2000*
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
Lawrence J. Becker 2000*
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
Robert C. Boardman 1998
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
Theresa L. Dansky 2000*
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
William E. Dowty, Jr. 1998
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
D. Anthony Guglielmo 1999
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
Thomas S. Moore 2000*
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
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Douglas J. Moser 1999
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
Kenneth R. Peterson 1998
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
Francis J. Prichard, Jr. 1999
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
Joseph H. Rossi 1999
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
* Assumes election at the 1997 Annual Meeting of Stockholders of the Bank.
2.6 Savings Accounts. Immediately after the Effective Time, the Bank will
continue to issue savings accounts on the same basis as immediately prior
thereto.
ARTICLE THREE
CONVERSION OF SHARES
3.1 Terms and Conditions of Merger. The manner and basis of converting the
shares of the Bank and Interim in the Merger will be as follows:
(a) The Bank's Common Stock.
(i) Conversion. Each share of Bank Common Stock issued and
outstanding immediately prior to the Effective Time shall immediately
and by virtue of the Merger, without any action on the part of the
Bank or the holder of such share, be converted into and become one
fully paid and nonassessable share of Holding Company Common Stock.
Such shares of Bank Common Stock shall thereupon, without any further
action on the part of the Bank, be cancelled and retired, shall no
longer be outstanding and the number of such shares shall be restored
to the number of authorized but unissued shares of Bank Common Stock.
(ii) Stock Certificates. At any time after the Effective Time,
the holder of an outstanding certificate which prior to the Effective
Time represented shares of Bank Common Stock may surrender the same to
the Holding Company's Stock Registrar and Transfer Agent, or to its
corporate Secretary, and such holder thereupon shall be entitled to
receive, in exchange therefor, one or more certificates representing
the number of shares of Holding Company Common Stock into which such
shares of Bank Common Stock shall have been converted. Until so
surrendered, each outstanding certificate which, prior to the
Effective Time represented shares of Bank Common Stock, shall be
deemed for all purposes (including the payment of dividends) to
evidence ownership of the number of shares of Holding Company Common
Stock into which such shares of Bank Common Stock shall have been so
converted.
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(iii) Satisfaction of All Rights. All shares of Holding Company
Common Stock into which shares of Bank Common Stock shall have been
converted pursuant to the Merger shall be deemed to have been issued
in full satisfaction of all rights pertaining to such converted
shares.
(iv) Sole Right, Etc. At the Effective Time, the holders of
certificates formerly representing shares of Bank Common Stock
outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to Bank Common Stock and their sole
rights on and following the Effective Time shall be with respect to
the shares of Holding Company Common Stock into which their shares of
Bank Common Stock shall have been converted by the Merger.
(b) Holding Company Stock Owned Directly or Indirectly by the Bank. At
the Effective Time, all shares of Holding Company Common Stock issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the Holding Company or the
holder of any such share, be cancelled and returned, shall no longer be
outstanding, and the number of such shares shall be restored to the number
of authorized but unissued shares of Holding Company Common Stock. All such
shares of Holding Company Common Stock outstanding at the date of this
Agreement are owned by the Bank.
(c) Interim Common Stock. Each share of Interim common stock issued
and outstanding immediately prior to the Effective Time shall immediately
and by virtue of the Merger, without any action on the part of Interim or
the holder of such share, be converted into and become one fully paid and
nonassessable share of Bank Common Stock, whereupon the Holding Company as
the holder of such shares of common stock of Interim will be the holder of
all of the outstanding shares of common stock of the Bank.
3.2 The Bank's Employee Stock Benefit Programs. At the Effective Time, the
Benefit Plans shall automatically, by operation of law, be continued as and
become the Benefit Plans of the Holding Company. Each option to purchase shares
of the Bank Common Stock under any option plan outstanding at that time will
automatically be converted into an identical option with identical exercise
price, terms and conditions to purchase identical number of share of Holding
Company Common Stock in lieu of shares of Bank Common Stock. The Holding Company
and the Bank may make appropriate amendments to the Benefit Plans to reflect the
adoption of the Benefit Plans as plans of the Holding Company without adverse
effect on the Benefit Plans and their participants.
3.3 Reservation or Issuance of Stock. At the Effective Time, the Board of
Directors of the Holding Company shall be deemed to have reserved for issuance
or to have authorized the issuance of a number of shares of Holding Company
Common Stock, and such shares shall automatically be so reserved and so
authorized in respect of the Benefit Plans mentioned in Section 3.2, equal to
the number of shares of the Bank Common Stock that the Bank had reserved for
issuance and had authorized the issuance of in respect of such Benefit Plans
immediately prior to the Effective Time.
3.4 Employment Agreements. At the Effective Time all employment agreements
between any officer of the Bank and the Bank shall remain in full force and
effect and any references in such agreements to shares of stock under any
Benefit Plans of the Bank shall be deemed to apply to shares of Holding Company
Common Stock.
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ARTICLE FOUR
REPRESENTATIONS AND WARRANTIES
4.1 Representation and Warranties of the Bank. The Bank represents and
warrants as follows:
(a) The Bank Corporate Standing. The Bank is a Connecticut chartered
stock savings bank organized, existing and in good standing under the laws
of Connecticut, and it has all requisite corporate power, licenses and
authority to own its property and to carry on its business as now
conducted.
(b) Authorized Stock of the Bank. The Bank is authorized to issue
4,000,000 shares of common stock, par value $1.00 per share, of which
1,172,500 shares are issued and outstanding, and 1,000,000 shares of
preferred stock, par value $1.00 per share, of which no shares are issued
and outstanding.
(c) Financial Information of the Bank. The balance sheet of the Bank
at December 31, 1995, and 1996 and the related consolidated statements of
operations, stockholders' equity and changes in financial position will be
audited by independent certified public accountants, and be contained in
the 1996 Annual Report of the Bank, and will fairly present the financial
condition of the Bank and the results of its operations, as of the dates
and for the periods indicated, in accordance with generally accepted
accounting principles consistently applied.
(d) Legal Proceedings of the Bank. The Bank is not a party to, nor has
it been threatened with, any litigation or governmental proceedings which,
if adversely decided, would have a material adverse effect upon the
transactions contemplated hereby or upon the financial condition,
regulatory capital or business of the Bank or which would create a material
liability of the Bank.
4.2 Representations and Warranties of the Holding Company. The Holding
Company represents and warrants as follows:
(a) Corporate Standing of the Holding Company. The Holding Company is
a corporation organized, existing and in good standing under the laws of
the State of Delaware and has all requisite corporate power, licenses and
authority to own its own property and to carry on its business as now
conducted.
(b) Authorized Stock of the Holding Company. The Holding Company is
authorized to issue 4,000,000 shares of common stock, par value $0.01 per
share of which 10 shares are issued and outstanding and are owned by the
Bank and 100,000 shares of preferred stock, none of which are issued or
outstanding.
(c) Legal Proceedings of the Holding Company. The Holding Company is
not a party to, nor has it been threatened with, any litigation or
governmental proceedings which if adversely decided would have a material
adverse effect upon the transactions contemplated hereby or upon the
financial condition, regulatory capital or business of the Holding Company,
or which would create a material liability of the Holding Company.
(d) Interim Corporate Standing. Before the Effective Date, the Holding
Company will take all necessary or appropriate action to organize and
incorporate Interim in accordance with Connecticut law for the sole purpose
of facilitating the merger of Interim with and into the Bank pursuant
hereto, and at the Effective Time Interim will be duly organized and
existing in good standing under the laws of Connecticut, will have all
requisite corporate power, licenses and authority to own its property, and
carry on its business as then conducted and all its outstanding shares of
common stock will be owned by the Holding Company.
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ARTICLE FIVE
TRANSACTIONS PRIOR TO EFFECTIVE DATE
5.1 Restrictions on Certain Activities. Except as contemplated by this
Agreement, prior to the Effective Time none of the Parties will, without the
prior consent of the others, do any of the following:
(a) Amend its Articles of Incorporation or Certificate of
Incorporation or bylaws, or merge into or consolidate with any other
corporation, or change in any manner the rights of its outstanding shares
of capital stock or the character of its principal business.
(b) Issue or sell, or issue options or rights to acquire, or enter
into any contract or commitment to issue or sell, any shares of its capital
stock, or subdivide or in any way reclassify any shares of its capital
stock, except for (i) shares of common stock issued or options granted
pursuant to the Benefit Plans and, (ii) the shares of its common stock to
be issued by Interim to the Holding Company;
(c) Acquire or agree to acquire any shares of its capital stock;
(d) Make or contract for any substantial acquisition of assets except
in the ordinary course of business; or
(e) Sell, dispose of or encumber any substantial and material property
or assets, or engage in any material activity or transaction, except in the
ordinary course of business.
5.2 Stockholder Approvals. The execution and delivery of this Agreement has
been duly authorized and approved by the Boards of Directors of the Bank and the
Holding Company. A meeting of the stockholders of the Bank will be held, inter
alia, for the purpose of adopting and approving this Agreement. In addition, the
incorporators of Interim, and the Holding Company as the sole owner of all the
outstanding shares of capital stock of Interim, will execute such written
consents and take all such other action as may be required for the adoption and
approval of this Agreement.
ARTICLE SIX
CONDITIONS
6.1 Conditions to Performance by the Holding Company and Interim. The
obligations of each of the Parties to effect the Merger pursuant hereto is
subject to the following conditions:
(a) Representations and Warranties and Covenants of Each Party. The
representations and warranties of each Party contained herein shall be true
on and as of the Effective Time with the same effect as though made as of
such time, except for such variations as may be permitted hereby or
pursuant hereto. Each Party shall have performed all covenants and
obligations and complied with all conditions required by this Agreement to
be performed or complied with by it prior to the Effective Time.
(b) Approval by the Bank's Stockholders. The holders of 66.67% of the
issued and outstanding shares of the Bank Common Stock present in person or
by proxy shall, at a meeting thereof duly called, inter alia, for the
purpose of considering and acting upon this Agreement, have voted in favor
of this Agreement and the consummation of the Merger contemplated hereby.
(c) Listing of Holding Company Common Stock. The shares of Holding
Company Common Stock shall have been approved for trading, when issued, on
the American Stock Exchange.
(d) Government Approval. All approvals by the FDIC, FRB, State and the
SEC and such other governmental agency as may be required for the lawful
consummation of the Merger and the issuance and delivery of Holding Company
Common Stock as contemplated by this Agreement shall have
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been obtained. If any approval contains any restriction or condition which,
in the sole discretion of the Board of Directors of the Bank, is deemed to
be not beneficial to the Bank, the Holding Company or the stockholders
thereof, the Board of Directors may terminate the transaction pursuant to
the Article Seven hereof.
(e) Federal Tax Ruling or opinion. The Bank shall have received either
(i) a ruling from the Internal Revenue Service or (ii) an opinion of its
counsel in form and substance satisfactory to it that:
(1) The proposed merger will constitute a tax-free reorganization
under the Internal Revenue Code and the Bank, the Holding Company and
Interim will each be "a party to a reorganization" within the meaning
of the Internal Revenue Code.
(2) No gain or loss will be recognized by Interim upon the
transfer of its assets to the Bank solely in exchange for the transfer
to the Holding Company of the Bank Common Stock.
(3) No gain or loss will be recognized by the Bank upon the
receipt of the assets of Interim in the Merger.
(4) The basis of Interim's assets in the hands of the Bank will
be the same as the basis of those assets in the hands of Interim
immediately prior to the Merger.
(5) No gain or loss will be recognized by the Holding Company
upon the receipt of the Bank Common Stock in the Merger.
(6) No gain or loss will be recognized by the holders of shares
of Bank Common Stock upon their receipt of Holding Company Common
Stock as a result of the Merger.
(7) The basis of the shares of Holding Company Common Stock
received as a result of the Merger by each holder of shares of Bank
Common Stock will be the same as the basis of such shares of Bank
Common Stock converted therefor pursuant to the Merger.
(8) For purposes of determining whether any disposition thereof
results in a long term or short term capital gain or loss, the holding
period of the shares of Bank Common Stock will include the holding
period of the shares of Bank Common Stock converted in the Merger into
such shares of Holding Company Common Stock, provided that such shares
of Bank Common Stock were held as a capital asset at the Effective
Time.
(f) Connecticut Tax Ruling or Opinion. The Bank shall have received
either a ruling or an opinion in form and substance satisfactory to it with
respect to Connecticut income taxation as to the matters set forth in
paragraph (f) of this Section.
(g) Accounting Treatment. The reorganization will be characterized and
accounted for at historical cost in a manner similar to a "pooling of
interest" for financial reporting and related purposes.
(h) Consents of Third Parties. Each of the Parties shall have received
such approvals, permits or consents of third parties, including
governmental bodies or agencies, as may be required to permit them to
perform this Agreement in accordance with its terms, except for such
consents with regard to agreements and arrangements which are not in the
aggregate material to the Bank, the Holding Company and Interim, considered
on a consolidated basis.
(i) Dissenters' Rights. In the sole discretion of the Board of
Directors of the Bank, the number of shares exercising dissenters' rights
pursuant to the Connecticut Business Corporation Act is not material. If,
in the sole discretion of the Board of Directors of the Bank, the number of
shares
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exercising dissenters' rights is deemed material, the Board may terminate
this agreement pursuant to Section 7.1.
ARTICLE SEVEN
TERMINATION
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time (i) at the election of any Party if any of the conditions
specified in Article Six shall not have been fulfilled and shall have become
incapable of fulfillment or (ii) by mutual consent of the respective boards of
directors of the parties.
7.2 No Further Liability. In the event of the termination of this Agreement
pursuant to any of the foregoing provisions, the Bank will pay all the costs and
expenses incurred by the Parties in connection with this Agreement and the
transactions contemplated hereby, and no Party shall have any further liability
or obligation of any nature to any other Party.
ARTICLE EIGHT
EFFECTIVE DATE OF MERGER
8.1 Effective Date and Effective Time. Upon satisfaction of the conditions
set forth in Article Six (unless waived in accordance with this Agreement) the
Parties shall execute and cause to be filed (i) articles of merger, consistent
with the terms hereof, and such other agreements, certificates and other
documents as may be required by applicable law and (ii) with such other federal
and state government agencies or authorities, such other agreements,
certificates and documents as may be required by applicable law to cause the
Merger to become effective. The date and time by which all of such filings are
completed and the Merger becomes effective are referred to in this Agreement,
respectively, as the "Effective Date" and the "Effective Time."
ARTICLE NINE
MISCELLANEOUS
9.1 Waiver, Amendment, etc. Any of the terms or conditions of this
Agreement which legally may be waived may be waived at any time by any Party
hereto which is, or the shareholders of which are, entitled to the benefit
thereof, by action taken or authorized by the Board of Directors of such Party,
or any of such terms or conditions may be amended or modified in whole or in
part at any time, to the extent authorized by applicable law, by an agreement in
writing, executed in the same manner as this Agreement after authorization to do
so by the Boards of Directors of the Parties hereto; provided, however that no
such waiver, amendment or modification shall have a material adverse effect on
the benefits intended to be received in the Merger pursuant to this Agreement by
the holders of shares of Bank Common Stock.
9.2 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts together
shall constitute one and the same instrument.
9.3 Governing Law. This Agreement is made pursuant to, and shall be
construed under and be governed by the laws of Delaware, unless in conflict with
federal law and if so, then by such federal law, including the rules and
regulations of the FDIC.
9.4 Execution by Interim. At the date hereof, Interim is in the process of
organization and has not been granted a stock charter under Connecticut law and
therefore does not have the legal capacity to execute this Agreement. The
Holding Company agrees to cause Interim to execute this Agreement promptly
following the issuance of Interim's stock charter. The Bank and the Holding
Company agree to be bound by this Agreement prior to and following such
execution by Interim.
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9.5 Gender. If the context requires, the use of any gender shall also refer
to the other gender.
IN WITNESS WHEREOF, each of the Parties hereto have caused this Agreement
and Plan of Reorganization to be signed on its behalf by its officers thereunto
duly authorized, all as of the date first set forth above.
ALLIANCE
TOLLAND BANK BANCORP OF NEW ENGLAND, INC.
By: /s/ By: /s/
------------------------------- -------------------------------
Joseph H. Rossi Joseph H. Rossi
President and CEO President and CEO
INTERIM TOLLAND BANK
By:
-------------------------------
Joseph H. Rossi
President and CEO
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CERTIFICATE OF INCORPORATION
OF
ALLIANCE BANCORP OF NEW ENGLAND, INC.
ARTICLE I
Name
The name of the corporation is ALLIANCE BANCORP OF NEW ENGLAND, INC. (the
"Corporation").
ARTICLE II
Registered Office
The address of the Corporation's registered office in the State of Delaware
is Corporation Service Company, 1013 Centre Road, Wilmington, County of New
Castle, Delaware 19805. The name of the Corporation's registered agent at such
address is the Corporation Service Company.
ARTICLE III
Purpose and Powers
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
Capital Stock
SECTION 1. Authorized Shares. The total number of shares of all classes of
stock which the Corporation shall have authority to issue is 4,100,000 shares,
divided into two classes consisting of 4,000,000 shares of Common Stock, par
value $0.01 per share ("Common Stock"), and 100,000 shares of Preferred Stock,
par value $0.01 per share ("Preferred Stock"). The Board of Directors shall have
authority by resolution to issue shares of Common Stock from time to time on
such terms as it may determine. The Board of Directors shall have authority by
resolution to issue the shares of Preferred Stock from time to time on such
terms as it may determine and to divide the Preferred Stock into one or more
series and, in connection with the creation of any such series, to determine and
fix by the resolution or resolutions providing for the issuance of shares
thereof:
(a) the distinctive designation of such series, the number of shares
which shall constitute such series, which number may be increased or
decreased (but not below the number of shares then outstanding) from time
to time by action of the Board of Directors, and the stated value thereof,
if different from the par value thereof;
(b) the dividend rate, the times of payment of dividends on the shares
of such series, whether dividends shall be cumulative, and, if so, from
what date or dates, and the preference or relation which such dividends
will bear to the dividends payable on any shares of stock of any other
class or any other series of this class;
(c) the price or prices at which, and the terms and conditions on
which, the shares of such series may be redeemed;
(d) whether or not the shares of such series shall be entitled to the
benefit of a retirement or sinking fund to be applied to the purchase or
redemption of such shares and, if so entitled the amount of such fund and
the terms and provisions relative to the operation thereof;
(e) whether or not the shares of such series shall be convertible
into, or exchangeable for, any other shares of stock of the Corporation or
any other securities and, if so convertible or exchangeable, the conversion
price or prices, or the rates of exchange, and any
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adjustments thereof, at which such conversion or exchange may be made, and
any other terms and conditions of such conversion or exchange;
(f) the rights of the shares of such series in the event of voluntary
or involuntary liquidation, dissolution or winding up or upon any
distribution of the assets of the Corporation;
(g) whether or not the shares of such series shall have priority over
or parity with or be junior to the shares of any other class or series in
any respect, or shall be entitled to the benefit of limitations restricting
(i) the creation of indebtedness of the Corporation, (ii) the issuance of
shares of any other class or series having priority over or being on a
parity with the shares of such series in any respect, or (iii) the payment
of dividends on, the making of other distributions in respect of, or the
purchase or redemption of shares of any other class or series on parity
with or ranking junior to the shares of such series as to dividends or
assets, and the terms of any such restrictions, or any other restriction
with respect to shares of any other class or series on parity with or
ranking junior to the share of such series in any respect;
(h) whether such series shall have voting rights, in addition to any
voting rights provided by law, and, if so, the terms of such voting rights,
which may be general or limited; and
(i) any other powers, preferences, privileges, and relative
participating, optional, or other special rights of such series, and the
qualifications, limitations or restrictions thereof, to the full extent now
or hereafter permitted by law.
The powers, preferences and relative participating, optional and other
special rights of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding. All shares of any one series of
Preferred Stock shall be identical in all respects with all other shares of such
series, except that shares of any one series issued at different times may
differ as to the dates from which dividends thereon shall be cumulative.
SECTION 2. Rights of Holders of Common Stock. Each holder of Common Stock
shall be entitled to one vote for each share of Common Stock held of record on
all matters on which stockholders generally are entitled to vote. Subject to the
provisions of law and the rights of the holders of the Preferred Stock and any
other class or series of stock having a preference as to dividends over the
Common Stock then outstanding, dividends may be paid on the Common Stock at such
times and in such amounts as the Board of Directors may determine. Upon the
dissolution, liquidation or winding up of the Corporation, after any
preferential amounts to be distributed to the holders of the Preferred Stock and
any other class or series of stock having a preference over the Common Stock
then outstanding have been paid or declared and set apart for payment, the
holders of the Common Stock shall be entitled to receive all the remaining
assets of the Corporation available for distribution to its stockholders ratably
in proportion to the number of shares held by them, respectively.
There shall be no cumulation of votes for the election of Directors or for
any other purpose.
Every share of Common Stock shall have the same relative rights as, and be
identical in all respects with, all the other shares of Common Stock.
ARTICLE V
Business Combinations
The provisions of Section 203 of the Delaware General Corporation Law or
any successor provision shall govern the Corporation.
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ARTICLE VI
Board of Directors
SECTION 1. Number. The business and affairs of the Corporation shall be
managed under the direction of the Board of Directors which, subject to any
right of the holders of any series of Preferred Stock then outstanding to elect
additional Directors under specified circumstances, shall consist of not less
than five nor more than 15 persons. The exact number of Directors within the
minimum and maximum limitations specified in the preceding sentence shall be
fixed from time to time by the Board of Directors pursuant to a resolution
adopted by a majority of the entire Board of Directors.
SECTION 2. Terms. Beginning with the first annual meeting of stockholders
held after the filing of this Certificate of Incorporation, the Board of
Directors, other than those who may be elected by the holders of any class or
series of stock having a preference over the Common Stock as to dividends or
upon liquidation, shall be divided into three classes, class I, class II and
class III, as nearly equal in number as possible. The terms of office of the
classes of Directors elected at the initial annual meeting shall expire as
follows: the term of office of class I will expire at the 1998 Annual Meeting of
Stockholders, the term of office of class II will expire at the 1999 Annual
Meeting of Stockholders and the term of office of class III will expire at the
2000 Annual Meeting of Stockholders. At each Annual Meeting of Stockholders
following such initial classification and election, Directors elected to succeed
those Directors whose terms expire shall be elected for a term of office to
expire at the third succeeding Annual Meeting of Stockholders after their
election.
SECTION 3. Stockholder Nomination of Director Candidates. Stockholder
nominations for the election of Directors shall be given in the manner provided
in the Bylaws of the Corporation.
SECTION 4. Newly Created Directorships and Vacancies. Subject to the rights
of the holders of any series of Preferred Stock then outstanding, Directors
serving in newly created Directorships resulting from any increase in the
authorized number of Directors shall serve until the next Annual Meeting of
Stockholders. Vacancies on the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause
shall be filled by a majority vote of the Directors then in office, and
Directors so chosen shall hold office for a term expiring at the Annual Meeting
of Stockholders at which the term of the class to which they have been elected
expires. No decrease in the number of Directors constituting the Board of
Directors shall shorten the term of any incumbent Director.
SECTION 5 . Removal. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any Director, or the entire Board of
Directors, may be removed from office at any time, but only for cause and only
by the affirmative vote of the holders of at least 80% of the voting power of
all of the shares of the Corporation entitled to vote generally in the election
of Directors, voting together as a single class.
SECTION 6. Initial Directors. The names and addresses of the persons who
are to serve as Directors until the first annual meeting of stockholders or
until their successors are elected and qualified are as follows:
Name and Address Term
---------------- ----
Howard G. Abbott, M.D. 2000
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
Lawrence J. Becker 2000
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
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Robert C. Boardman 1998
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
Theresa L. Dansky 2000
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
William E. Dowty, Jr. 1998
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
D. Anthony Guglielmo 1999
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
Thomas S. Moore 2000
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
Douglas J. Moser 1999
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
Kenneth R. Peterson 1998
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
Francis J. Prichard, Jr. 1999
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
Joseph H. Rossi 1999
P. O. Box 156
Olde Tolland Common
Tolland, CT 06084
ARTICLE VII
Stockholder Action
Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders. Except as otherwise required by law and subject to
the rights of the holders of any class of preferred stock having a preference
over the Common Stock as to dividends or upon liquidation, special
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meetings of stockholders of the Corporation may be called only by the Board of
Directors pursuant to a resolution approved by a majority of the entire Board of
Directors.
ARTICLE VIII
Bylaw Amendments
The Board of Directors shall have power to make, alter, amend and repeal
the Bylaws of the Corporation (except so far as the Bylaws of the Corporation
adopted by the stockholders shall otherwise provide). Any Bylaws made by the
Board of Directors under the powers conferred hereby may be altered, amended or
repealed by the Board of Directors or by the stockholders. Notwithstanding the
foregoing and anything contained in this Certificate of Incorporation or the
Bylaws to the contrary, Section 2 of Article I and Sections 1 through 5 of
Article II of the Bylaws shall not be altered, amended or repealed and no
provision inconsistent therewith shall be adopted without the affirmative vote
of the holders of 80% of all votes entitled to be cast in the election of
Directors, voting together as a single class.
ARTICLE IX
Purchase of Equity Securities of the Corporation
SECTION 1. Prevention of "Greenmail". Any direct or indirect purchase or
other acquisition by the Corporation of any Equity Security of any class from
any Substantial Securityholder who has beneficially owned such securities for
less than two years prior to the date of such purchase or any agreement in
respect thereof shall, except as hereinafter expressly provided, require the
affirmative vote of the holders of at least a majority of all votes entitled to
be cast in the election of Directors, excluding Voting Stock beneficially owned
by such Substantial Securityholder, voting together as a single class. Such
affirmative vote shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage may be specified, by law or any agreement
with any national securities exchange, or otherwise, but no such affirmative
vote shall be required with respect to any purchase or other acquisition of
securities made as part of a tender or exchange offer by the Corporation to
purchase securities of the same class made on the same terms to all holders of
such securities and complying with the applicable requirements of the Securities
Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations).
SECTION 2. Certain Definitions. For the purposes of this Article IX:
(a) A "Person" shall mean any individual, firm, corporation or other
entity.
(b) "Substantial Securityholder" shall mean any person (other than the
Corporation or any corporation of which a majority of any class of Equity
Security is owned, directly or indirectly, by the Corporation) who or
which:
(i) is the beneficial owner, directly or indirectly, of five
percent or more of the class or securities to be acquired;
(ii) is an Affiliate of the Corporation and at any time within
the two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of five percent or more of
the class of securities to be acquired;
(iii) is an assignee or has otherwise succeeded to any shares of
the class of securities to be acquired which were at any time within
the two-year period immediately prior to the date in question
beneficially owned by a Substantial Securityholder, if such assignment
or succession shall have occurred in the course of a transaction or
transactions not involving a public offering within the meaning of the
Securities Act of 1933.
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(c) A person shall be a "beneficial owner" of any security of any
class of the Corporation:
(i) which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly;
(ii) which such person or any of its Affiliates or Associates has
(A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise,
or (B) any right to vote pursuant to any agreement, arrangement or
understanding; or
(iii) which is beneficially owned, directly or indirectly, by any
such person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing any security of any
class of the Corporation.
(d) For the purposes of determining whether a person is a Substantial
Securityholder pursuant to paragraph (b) of this Section 2, the relevant
class of securities outstanding shall be deemed to comprise all such
securities deemed owned through application of paragraph (c) of this
Section 2, but shall not include other securities of such class which may
be issuable pursuant to any agreement, arrangement or understanding, or
upon exercise of conversion rights, warrants or options, or otherwise.
(e) "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on December 31,
1996.
(f) "Equity Security" shall have the meaning ascribed to such term in
Section 3(a)(11) of the Securities Exchange Act of 1934, as in effect on
December 31, 1996.
ARTICLE X
Acquisition of Stock
Notwithstanding anything contained in this Certificate of Incorporation to
the contrary:
SECTION 1. Restriction. No person shall directly or indirectly offer to
acquire or acquire the beneficial ownership of more than 10% of any class of any
equity security of the Corporation. This limitation shall not apply to any tax
qualified employee stock benefit plan of the Corporation.
In the event shares are acquired in violation of this Article X, all shares
beneficially owned by any person in excess of 10% shall be considered "excess
shares" and shall not be counted as shares entitled to vote and shall not be
voted by any person or counted as voting shares in connection with any matters
submitted to the stockholders for a vote.
SECTION 2. Certain Definitions. For the purposes of this Article X, the
following definitions apply:
(a) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock
company, a trust, and any unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring, holding
or disposing of securities of the Corporation.
(b) The term "offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for, or request or
invitation for tenders of, a security or interest in a security for value.
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(c) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(d) The term "acting in concert" means (i) knowing participation in a
joint activity or conscious parallel action towards a common goal whether
or not pursuant to an express agreement, or (ii) a combination or pooling
of voting or other interests in the securities of an issuer or a common
purpose pursuant to any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise.
ARTICLE XI
Director Liability
No Director of officer acting in the capacity of a Director or performing
duties as Director shall be personally liable to the Corporation or any
stockholder for monetary damages for a breach of fiduciary duty as a Director,
except for any matter in respect of which such Director or officer acting as a
Director shall be liable under Section 174 of Title 8 of the Delaware Code
(relating to the Delaware Corporation Law) or any amendment thereto or successor
provision thereto or shall be liable by reason that, in addition to any and all
other requirements for such liability, he (i) shall have breached his duty of
loyalty to the Corporation or its stockholders, (ii) shall not have acted in
good faith or, in failing to act, shall not have acted in good faith, (iii)
shall have acted in a manner involving intentional misconduct or a knowing
violation of law or, in failing to act, shall have acted in a manner involving
intentional misconduct or a knowing violation of law or (iv) shall have derived
an improper personal benefit. Neither the Amendment nor repeal of this Article,
nor the adoption of any provision of the Certificate of Incorporation
inconsistent with this Article, shall eliminate or reduce the effect of this
Article in respect of any matter occurring, or any cause of action, suit or
claim, that, but for this Article, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
ARTICLE XII
Amendments to Certificate of Incorporation
Notwithstanding any other provisions of this Certificate of Incorporation
or the Bylaws of the Corporation (and notwithstanding the fact that a lesser
percentage may be specified by law, this Certificate of Incorporation or the
Bylaws of the Corporation), the affirmative vote of the holders of at least 80%
of all votes entitled to be cast in the election of Directors, voting together
as a single class, shall be required to amend or repeal, or adopt any provisions
inconsistent with, Articles V, VI, VII, VIII, IX or this Article XII of this
Certificate of Incorporation.
ARTICLE XIII
Certain Business Combinations
SECTION 1. Vote Required for Certain Business Combinations.
(a) Higher Vote for Certain Business Combinations. Unless otherwise
required by law, in addition to any affirmative vote required by law or
this Certificate of Incorporation or the Bylaws of the Corporation, and
except as otherwise expressly provided in Section 2 of this Article XIII, a
Business Combination with, or proposed by or on behalf of, any Interested
Stockholder or any Affiliate or Associate of any Interested Stockholder or
any person who after such Business Combination would be an Affiliate or
Associate of such Interested Stockholder, shall require the approval of the
Board of Directors and the affirmative vote of the holders of at least 80%
of the voting power of the then outstanding Voting Stock which is not owned
by the Interested Stockholder or any Affiliate or Associate of such
Interested Stockholder. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
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(b) Definition of "Business Combination". The term "Business
Combination" as used in this Article XIII shall mean:
(i) any merger, consolidation or share exchange of the
Corporation or any Subsidiary with (A) any Interested Stockholder or
(B) any other corporation (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation would be,
an Affiliate or Associate of an Interested Stockholder;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions),
except proportionately as a stockholder of such corporation, to or
with any Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder of any assets of the Corporation or any
Subsidiary having an aggregate Market Value equal to 10% or more of
either the aggregate market value of all the assets of the Corporation
determined on a consolidated basis or the aggregate market value of
all of the outstanding stock of the Corporation;
(iii) any transaction which results in the issuance or transfer
by the Corporation or any Subsidiary (in one transaction or a series
of transactions) of any securities of the Corporation or any
Subsidiary to any Interested Stockholder or any Affiliate or Associate
of any Interested Stockholder except (A) pursuant to the exercise,
exchange or conversion of securities exercisable for, exchangeable for
or convertible into stock of the Corporation or any Subsidiary which
securities were outstanding prior to the time the Interested
Stockholder became such, (B) pursuant to a dividend or distribution
paid or made, or the exercise, exchange or conversion of securities
exercisable for, exchangeable for or convertible into stock of the
Corporation or any Subsidiary which security is distributed pro rata
to all holders of a class or series of stock of the Corporation
subsequent to the time the Interested Stockholder became such, (C)
pursuant to an exchange offer by the Corporation to purchase stock
made on the same terms to all holders of such stock or (D) any
issuance or transfer of stock by the Corporation, provided, however,
that in no case under (B) through (D) above shall there be an increase
in the Interested Stockholder's proportionate share of the stock of
any class or series of the Corporation or of the Voting Stock of the
Corporation;
(iv) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation or any Subsidiary proposed by or on
behalf of an Interested Stockholder or any Affiliate or Associate of
any Interested Stockholder; or
(v) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger,
consolidation or share exchange of the Corporation with any of its
Subsidiaries or any other transaction (whether or not with or into or
otherwise involving an Interested Stockholder) which in any such case
has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of equity
or convertible securities of the Corporation or any Subsidiary which
is directly or indirectly owned by any Interested Stockholder or any
Affiliate or Associate of any Interested Stockholder;
(vi) any transaction involving the Corporation or any Subsidiary
which has the effect, directly or indirectly, of increasing the
proportionate share of the stock of any class or securities
convertible into the stock of any class or series owned by the
Interested Stockholder of the Corporation or of any Subsidiary, except
as a result of immaterial changes due to fractional share adjustments
or as a result of any purchase or redemption of any shares of stock
not caused, directly or indirectly, by the Interested Stockholder; or
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(vii) any receipt by the Interested Stockholder of the benefit,
directly or indirectly (except proportionately as a stockholder of
such corporation) of any loans, advances, guarantees, pledges, or
other financial benefits (other than those expressly permitted in
subparagraphs (i)-(vi) above) provided by or through the Corporation
or any Subsidiary.
SECTION 2. When Higher Vote is Not Required. The provisions of Section 1 of
this Article XIII shall not be applicable to any particular Business
Combination, and such Business Combination shall require only such affirmative
vote as is required by law and any other provisions of this Certificate of
Incorporation or the bylaws of the Corporation, if all of the conditions
specified in either the following paragraphs (a) or (b) are met:
(a) Approval by Disinterested Directors. The Business Combination
shall have been approved by a majority of the Disinterested Directors.
(b) Price and Procedure Requirements. All of the following conditions
shall have been met:
(1) Minimum Price Requirements. With respect to every class or
series of Voting Stock of the Corporation, whether or not the
Interested Stockholder has previously acquired beneficial ownership of
any shares of such class or series of Voting Stock:
(i) The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the Business
Combination of consideration other than cash to be received per
share by holders of Common Stock in such Business Combination
shall be at least equal to the higher of the following:
(A) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by or on behalf of the
Interested Stockholder for any share of Common Stock in
connection with the acquisition by the Interested
Stockholder of beneficial ownership of shares of Common
Stock (1) within the two-year period immediately prior to
the first public announcement of the proposal of the
Business Combination (the "Announcement Date"), or (2) in
the transaction or series of related transactions in which
it became an Interested Stockholder, whichever is higher, in
either case as adjusted for any subsequent stock split,
stock dividend, subdivision or reclassification with respect
to Common Stock; and
(B) the Fair Market Value per share of Common Stock on
the Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (such latter
date is referred to in this Article XIII as the
"Determination Date"), whichever is higher, as adjusted for
any subsequent stock split, stock dividend, subdivision or
reclassification with respect to Common Stock.
(ii) The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the Business
Combination of consideration other than cash to be received per
share by holders of shares of any other class or series of
outstanding Voting Stock shall be at least equal to
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the highest of the following (it being intended that the
requirements of this paragraph (b)(ii) shall be required to be
met with respect to every class or series of outstanding Voting
Stock, whether or not the Interested Stockholder has previously
acquired any shares of a particular class or series of Voting
Stock):
(A) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by or on behalf of the
Interested Stockholder for any shares of such class or
series of Voting Stock in connection with the acquisition by
the Interested Stockholder of beneficial ownership of such
shares (1) within the two-year period immediately prior to
the Announcement Date, or (2) in the transaction in which it
became an Interested Stockholder, whichever is higher, in
either case as adjusted for any subsequent stock split,
stock dividend, subdivision or reclassification with respect
to such class or series of Voting Stock;
(B) (if applicable) the highest preferential amount per
share to which the holders of shares of such class or series
of Voting Stock are entitled in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the
Corporation; and
(C) the Fair Market Value per share of such class or
series of Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher, in either case as
adjusted for any subsequent stock split, stock dividend,
subdivision or reclassification with respect to such class
or series of Voting Stock.
(2) Other Requirements.
(i) The consideration to be received by holders of a
particular class or series of outstanding Voting Stock (including
Common Stock) shall be in cash or in the same form as the
Interested Stockholder has previously paid for shares of such
class or series of Voting Stock. If the Interested Stockholder
has paid for shares of any class or series of Voting Stock with
varying forms of consideration, the form of consideration for
such class or series of Voting Stock shall be either cash or the
form used to acquire the largest number of shares of such class
or series of Voting Stock previously acquired by it.
(ii) After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such
Business Combination: (A) except as approved by a majority of the
Disinterested Directors, there shall have been no failure to
declare and pay at the regular date therefor any full periodic
dividends (whether or not cumulative) on any outstanding
Preferred Stock; (B) there shall have been (1) no reduction in
the annual rate of dividends paid on the Common Stock (except as
necessary to reflect any subdivision of the Common Stock), except
as approved by a majority of the Disinterested Directors, and (2)
an increase in such annual rate of dividends as necessary to
reflect any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which
has the effect of reducing the number of outstanding shares of
the Common Stock, unless the failure so to increase such annual
rate is approved by a majority of the Disinterested Directors;
and (C) such Interested Stockholder shall have not become the
beneficial owner of any additional shares of Voting Stock except
as part of the
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transaction which results in such Interested Stockholder becoming
an Interested Stockholder or by virtue of proportionate stock
splits or stock dividends.
(iii) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall not
have received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by the Corporation or
any Subsidiary, whether in anticipation of or in connection with
such Business Combination or otherwise.
(iv) A proxy or information statement describing the
proposed Business Combination and complying with the requirements
of the Securities Exchange Act of 1934 and the rules and
regulations thereunder (or any subsequent provisions replacing
such Act, rules or regulations) shall be mailed to the
stockholders of the Corporation at least 30 days prior to the
consummation of such Business Combination (whether or not such
proxy or information statement is required to be mailed pursuant
to such Act or subsequent provisions).
(v) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall not
have made any major change in the Corporation's business or
capital structure without the approval of a majority of the
Disinterested Directors.
SECTION 3. Certain Definitions. For the purpose of this Article XIII:
(a) A "person" shall mean any individual or firm, corporation,
partnership, limited partnership, joint venture, trust, unincorporated
association, government or any political subdivision or agency or
instrumentality of a government or other entity and shall include any group
comprised of any person and any other person with whom such person or any
Affiliate or Associate of such person has any agreement, arrangement or
understanding, directly or indirectly, for the purpose of acquiring,
holding, voting or disposing of Voting Stock.
(b) "Interested Stockholder" shall mean any person (other than the
Corporation or any Subsidiary) who or which:
(i) is the beneficial owner, directly or indirectly, of Voting
Stock entitled to cast more than 15% of the votes in the election of
Directors; is an Affiliate or Associate of the Corporation and at any
time within the two-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly, of 15% or
more of the combined voting power of the then outstanding Voting
Stock; or
(ii) is an assignee of or has otherwise succeeded to any shares
of Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by any
Interested Stockholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions not
involving a public offering within the meaning of the Securities Act
of 1933.
(c) A person shall be a "beneficial owner" of any Voting Stock:
(i) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly;
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(ii) which such person or any of its Affiliates or Associates has
(A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise,
or (B) the right to vote or direct the voting pursuant to any
agreement, arrangement or understanding, or (C) the right to dispose
of or direct the disposition of pursuant to any agreement, arrangement
or understanding; or
(iii) which is beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of
Voting Stock.
(d) For the purpose of determining whether a person is an Interested
Stockholder pursuant to paragraph (b) of this Section 3, the number of
shares of Voting Stock deemed to be outstanding shall include shares deemed
owned through application of paragraph (c) of this Section 3 but shall not
include any other shares of Voting Stock which may be issuable pursuant to
any agreement, arrangement or understanding, or upon exercise of conversion
rights, warrants or options, or otherwise.
(e) "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on December 31,
1996, except that the Corporation or any Subsidiary shall not be deemed to
be an Affiliate or an Associate of any Interested Stockholder.
(f) "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the definition of
Interested Stockholder set forth in paragraph (b) of this Section 3, the
term "Subsidiary" shall mean only a corporation of which a majority of each
class of equity security is owned, directly or indirectly, by the
Corporation.
(g) "Disinterested Director" means any member of the Board of
Directors of the Corporation who is unaffiliated with the Interested
Stockholder and was a member of the Board of Directors prior to the time
that the Interested Stockholder became an Interested Stockholder, and any
successor of a Disinterested Director who is not an Affiliate of the
Interested Stockholder and is recommended to succeed a Disinterested
Director by a majority of Disinterested Directors then serving on the Board
of Directors.
(h) "Fair Market Value" means: (i) in the case of stock, the highest
closing sale price during the 30-day period immediately preceding the date
in question of a share of such stock on the Composite Tape for New York
Stock Exchange-Listed Stocks, or, if such stock is not quoted on the
Composite Tape, on such exchange, or, if such stock is not listed on such
exchange, on the principal United States securities exchange registered
under the Securities Exchange Act of 1934 on which such stock is listed,
or, if such stock is not listed on such exchange, on the National
Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ") National Market ("NMS"), or if such stock is not included on
NASDAQ-NMS, the highest closing bid quotation with respect to a share of
such stock during the 30-day period preceding the date in question on the
NASDAQ or any system then in use, or if no such quotations are available,
the fair market value on the date in question of a share of such stock as
determined by the Board of Directors in good faith; and (ii) in the case of
property other than cash or stock, the fair market value of such property
on the date in question as determined by the Board of Directors in good
faith.
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(i) In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be
received" as used in paragraphs (b)(1)(i) and (ii) of Section 2 of
this Article XIII shall include the shares of Common Stock and/or the
shares of any other class or series of outstanding Voting Stock
retained by the holders of such shares.
(ii) "Voting Stock" means the then outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of
Directors.
SECTION 4. Powers of the Board of Directors. A majority of the Directors of
the Corporation shall have the power and duty to determine for the purposes of
this Article XIII, on the basis of information known to them after reasonable
inquiry (a) whether a person is an Interested Stockholder, (b) the number of
shares of Voting Stock beneficially owned by any persons, (c) whether a person
is an Affiliate or Associate of another, and (d) whether the requirements of
Section 2(b) have been met.
SECTION 5. No Effect on Fiduciary Obligations of Interested Stockholders.
Nothing contained in this Article XIII shall be construed to relieve any
Interested Stockholder from any fiduciary obligation imposed by law.
SECTION 6. Amendment, Repeal, Etc. Notwithstanding any other provision of
this Certificate of Incorporation or the bylaws of the Corporation (and
notwithstanding the fact that a lesser percentage or separate class vote may be
specified by law, this Certificate of Incorporation or the bylaws of the
Corporation), any proposal to amend or repeal this Article XIII or adopt any
provision of this Certificate of Incorporation inconsistent with it which is
proposed by or on behalf of an Interested Stockholder or any Affiliate or
Associate of such Interested Stockholder shall require the affirmative vote of
the holders of at least 80% of the Voting Stock entitled to be cast at the
election of Directors, excluding Voting Stock beneficially owned by such
Interested Stockholder, unless such amendment, repeal or adoption is declared
advisable by the affirmative vote of two thirds of the entire Board of Directors
and a majority of the Disinterested Directors.
ARTICLE XIV
Indemnification
Indemnification shall be provided for to the fullest extent authorized in
the Bylaws. Any repeal or amendment of this Article XIV shall not effect
indemnification provided under this Article with respect to any state of facts
existing at or before the time of such amendment and any proceeding, whenever
brought, based in whole or in part upon any such state of facts.
ARTICLE XV
Gender
If the context requires, the use of any gender shall also refer to the
other gender.
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ARTICLE XVI
Incorporator
The name and mailing address of the incorporator of the Corporation is
Anthony Johnson, Corporation Service Company, 1090 Vermont Avenue, N.W., 4th
Floor, Washington, D.C. 20005.
The undersigned being the sole incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, makes this certificate, hereby declaring and certifying that
this is my act and deed and the facts herein stated are true, and accordingly
have hereunto set my hand this 8th day of January, 1997.
/s/
----------------------------------
Anthony Johnson
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BYLAWS
OF
ALLIANCE BANCORP OF NEW ENGLAND, INC.
ARTICLE I
Name
SECTION 1. Annual Meeting of Shareholders.
(a) The annual meeting of shareholders of the Corporation, for the
purpose of electing Directors and of transacting such other business as may
properly come before the meeting, shall be held on such date, at such place
and such time as shall be designated by the Board of Directors.
(b) To be properly brought before an annual meeting, business must be
either (i) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, (ii) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (iii) otherwise properly brought before the meeting by a
shareholder.
(c) In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a shareholder, the
shareholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice must be
delivered to or mailed to the Secretary of the Corporation and received at
the principal executive office of the Corporation by the Secretary, not
later than 120 days prior to the anniversary date of the immediately
preceding annual meeting. A shareholder's notice to the Secretary shall set
forth as to each matter the shareholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at
the annual meeting, (ii) the name and record address of the Shareholder
proposing such business, (iii) the class and number of shares of the
Corporation which are beneficially owned by the shareholder, and (iv) any
material interest of the shareholder in such business.
(d) Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at the annual meeting except in accordance with
the procedures set forth in this Article I, provided, however, that nothing
in this Article I shall be deemed to preclude discussion by any shareholder
of any business properly brought before the annual meeting.
(e) The Chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Article 1, and
if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
SECTION 2. Special Meetings of Shareholders.
Subject to the rights of the holders of any class or series of stock having
a preference over the Common Stock as to dividends or upon liquidation, special
meetings of the shareholders for any purpose may be called only by a majority of
the entire Board of Directors.
SECTION 3. Notice of Meeting.
The Secretary shall cause written notice of the time, place and purposes of
each meeting to be mailed, or delivered personally, not less than 10 nor more
than 60 days before the date of the meeting, to each shareholder of record
entitled to vote at the meeting.
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Attendance of a person at a meeting of shareholders, in person or by proxy,
constitutes a waiver of notice of the meeting, except when the shareholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened.
SECTION 4. Quorum.
At any meeting of shareholders the holders of a majority of the shares of
the capital stock of the Corporation issued and outstanding and entitled to
vote, present in person or represented by proxy, shall constitute a quorum of
the shareholders for all purposes unless a greater or lesser quorum shall be
provided by law or by the Certificate of Incorporation and in such case the
representation of the number so required shall constitute a quorum. The
shareholders present in person or by proxy at a meeting at which a quorum is
present may continue to do business until adjournment, notwithstanding
withdrawal of enough shareholders to leave less than a quorum.
Whether or not a quorum is present, the meeting may be adjourned from time
to time by a vote of the shares present. At any such adjourned meeting, at which
a quorum shall be present, any business may be transacted which might have been
transacted at the meeting if held at the time specified in the notice thereof.
SECTION 5. Organization.
The Chairman of the Board of Directors, the Vice Chairman of the Board of
Directors, the President, Executive Vice President or Vice President as the
Chairman of the Board of Directors may designate, shall act as Chairman of
meetings of the shareholders.
The Secretary of the Corporation shall act as Secretary at all meetings of
the shareholders; but in the absence of the Secretary, the Chairman of the
meeting may appoint any person to act as Secretary of the meeting.
SECTION 6. Voting.
Each holder of Common Stock and any series of Preferred Stock having voting
rights shall be entitled to one vote for each share of Common Stock or such
Preferred Stock held of record on all matters on which shareholders generally
are entitled to vote.
Directors shall be elected by ballot and upon demand of any shareholder the
vote upon any question before the meeting shall be by ballot.
Directors shall be elected by a plurality of the votes cast at an election.
All other action shall be authorized by a majority of the votes cast by the
holders of shares entitled to vote thereon, unless a greater vote is required by
law, by the Certificate of Incorporation or these Bylaws.
A shareholder entitled to vote at a meeting of shareholders may authorize
another person to act for him by written proxy.
SECTION 7. Inspectors of Elections.
The Board of Directors or Chairman of the meeting of shareholders shall
appoint one or more inspectors to count and tabulate the votes and to perform
such other acts or duties as may be required by the Chairman or required by law.
On request of the Chairman of the meeting, or as otherwise required by law, the
inspectors shall make and execute a written report to the Chairman of the
meeting of any facts found by them and matters determined by them. The report is
prima facie evidence of the facts stated and of the vote certified by the
inspectors.
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ARTICLE II
Directors
SECTION 1. Number.
The business and affairs of the Corporation shall be managed under the
direction of the Board of Directors which, subject to any right of the holders
of any series of Preferred Stock then outstanding to elect additional directors
under specified circumstances, shall consist of not less than five nor more than
15 persons. The exact number of directors within the minimum and maximum
limitations specified in the preceding sentence shall be fixed from time to time
by the majority of the entire Board of Directors.
SECTION 2. Terms.
The Directors shall be divided into such classes and shall have such terms
as are set forth in the Certificate of Incorporation.
SECTION 3. Newly Created Directorships and Vacancies.
Newly created Directorships and vacancies in the Board of Directors shall
be filled in the manner set forth in the Certificate of Incorporation.
SECTION 4. Removal.
Removal of Directors shall be effected in the manner set forth in the
Certificate of Incorporation.
SECTION 5. Nominations of Director Candidates.
(a) Nominations of candidates for election as Directors of the Corporation
can only be made at any meeting of shareholders called for election of Directors
and may be made by the Board of Directors or by any shareholder entitled to vote
at such meeting.
(b) Nominations made by the Board of Directors shall be made at a meeting
of the Board of Directors, or by written consent of Directors in lieu of a
meeting, not less than 30 days prior to the date of the meeting of shareholders,
and such nominations shall be reflected in the minute books of the Corporation
as of the date made. At the request of the Secretary of the Corporation each
proposed nominee shall provide the Corporation with such information concerning
himself as is required under the rules of the Securities and Exchange
Commission, to be included in the Corporation's proxy statement soliciting
proxies for his election as a Director.
(c) Not less than 90 days prior to the date of the meeting in the case of
an annual meeting, and not more than seven days following the date of notice of
the meeting in the case of a special meeting, any shareholder who intends to
make a nomination at the meeting shall deliver a notice to the Secretary of the
Corporation setting forth (i) the name, age, business address and residence
address of each nominee proposed in such notice, (ii) the principal occupation
or employment of each such nominee, (iii) the number of shares of capital stock
of the Corporation which are beneficially owned by each such nominee, (iv) a
statement that the nominee is willing to be nominated, (v) a representation that
the shareholder is a holder of record of the capital stock of the Corporation
entitled to vote at such meeting and intends to appear in person or by proxy at
the meeting to nominate the person or persons specified in the notice, (vi) a
description of all arrangements or understandings between the shareholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
shareholder, and (vii) such other information concerning each such nominee as
would be required, under the rules of the Securities and Exchange Commission, in
a proxy statement soliciting proxies for the election of such nominees. The
presiding officer of the meeting may refuse to acknowledge the nomination by a
shareholder of any person not made in compliance with the foregoing procedures.
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(d) In the event that a person is validly designated as a nominee in
accordance with paragraph (b) or paragraph (c) hereof and shall thereafter
become unable or unwilling to stand for election to the Board of Directors, the
Board of Directors or the shareholder who proposed such nominee, as the case may
be, may designate a substitute nominee.
(e) If the Chairman of the meeting determines that a nomination was not
made in accordance with the procedures as set forth in these Bylaws, such
nomination shall be void.
SECTION 6. Place and Manner of Meeting.
All meetings of the Board of Directors shall be held at the principal
office of the Corporation or at any other place within or without the State of
Delaware as the Board of Directors may from time to time fix therefor. Any
meeting of the Board of Directors, regular or special, may be held by conference
telephone or similar communication equipment so long as all Directors
participating in the meeting can hear one another, and all such Directors shall
be deemed to be present in person at the meeting.
SECTION 7. Regular Meetings.
A regular meeting of the Board of Directors, of which no notice shall be
required to be given, shall be held, if a quorum be present, in each and every
year immediately after the adjournment of the annual meeting of shareholders for
the purpose of electing officers and transacting such other business as might be
transacted at any regular meeting of the Board of Directors. The Board of
Directors may provide, by resolution, the time and place for the holding of
additional regular meetings without other notice, except that the scheduled date
of any meeting may be changed by the Chairman of the Board or the President, in
the discretion of either, provided that notice of such change shall be given to
all Directors personally or by mail, telephone or telegraph at least 24 hours
prior to such scheduled date upon which such meeting is to be held.
SECTION 8. Special Meetings.
Special meetings of the Board of Directors shall be called by the Secretary
at the direction of the Chairman of the Board, the President, or a majority of
the Directors. Notice of the time and place of any special meeting of the Board
of Directors shall be given by serving the same personally or by telephone or by
telegram addressed to each Director at his post office address as the same shall
appear on the books of the Corporation at least two hours before such meeting.
Each member of the Board of Directors shall, by writing filed with the
Secretary, designate his post office address to which notices or meetings of the
Board of Directors of the Corporation shall be directed, and in the event of any
change therein shall likewise designate his new post office address.
SECTION 9. Quorum.
A majority of the members of the Board of Directors then in office, or of a
committee thereof, shall constitute a quorum for the transaction of business,
and the vote of a majority of the members present at a meeting at which a quorum
is present shall be the act of the Board of Directors or of the Committee
thereof, except for the amendment of the Bylaws which shall require a vote of
not less than a majority of the members of the Board of Directors then in
office.
SECTION 10. Action Without a Meeting.
Action required or permitted to be taken at a meeting of the Board of
Directors, or a committee thereof, may be taken without a meeting, if all
members of the Board of Directors or of the committee consent thereto in
writing. The written consent shall be filed with the minutes of the proceedings
of the Board of Directors or Committee. The consent shall have the same effect
as a vote of the Board of Directors or Committee thereof for all purposes.
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SECTION 11. Organization.
At all meetings of the Board of Directors, the Chairman of the Board of
Directors, the Vice Chairman of the Board of Directors, the President, a Senior
Vice President or a Vice President or in their absence a member of the Board to
be selected by the members present, shall preside as Chairman of the meeting.
The Secretary or an Assistant Secretary of the Corporation shall act as
secretary of all meetings of the Board, except that in their absence the
Chairman of the meeting may designate any other person to act as secretary.
At meetings of the Board of Directors business shall be transacted in such
order as from time to time the Board may determine.
SECTION 12. Committees of the Board.
The Board of Directors may designate one or more Committees, including an
Executive Committee, each consisting of one or more Directors of the Corporation
as members, with such power and authority as prescribed by the Bylaws or as
provided in a resolution of the Board of Directors. Each Committee, and each
member thereof, shall serve at the pleasure of the Board of Directors.
ARTICLE III
Officers
SECTION 1. Officers.
The officers of the Corporation shall be a President, one or more Executive
Vice Presidents, one or more Vice Presidents, a Secretary, Chief Financial
Officer, and such additional officers, if any, as shall be elected by the Board
of Directors in accordance with these Bylaws. The Board of Directors,
immediately after each annual meeting of shareholders, shall select a President
and one or more Executive Vice Presidents and Vice Presidents, a Secretary, and
a Chief Financial Officer. The failure to hold such election shall not of itself
terminate the term of office of any officer. All officers shall hold office at
the pleasure of the Board of Directors. Any officer may resign at any time upon
written notice to the Corporation. Officers may, but need not, be Directors. Any
two or more of the above offices may be held by the same persons except as
prohibited by law, but no officer shall execute, acknowledge or verify an
instrument in more than one capacity if the instrument is required by law to be
acknowledged or verified by two or more officers. The President shall be the
Chief Executive Officer unless the Board of Directors designates otherwise. The
Chief Executive Officer shall be a member of the Board of Directors.
All officers shall be subject to removal with or without cause at any time
by the affirmative vote of a majority of the members of the Board of Directors
then in office. The removal of an officer without cause shall be without
prejudice to his contract rights, if any. The election or appointment of an
officer shall not of itself create contract rights. All agents and employees
other than officers elected by the Board of Directors shall also be subject to
removal, with or without cause, at any time by the officers appointing them.
Any vacancy caused by the death of any officer, his resignation, his
removal or otherwise, may be filled by the Board of Directors, and any officer
so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the Corporation as
set forth in these Bylaws, the officers shall have such authority and shall
perform such duties as from time to time may be determined by the Board of
Directors. In the absence of action by the Board of Directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
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ARTICLE IV
Capital Stock
SECTION 1. Certificates of Stock.
The certificates for shares of the capital stock of the Corporation shall
be in such form as shall be approved by the Board of Directors. The certificates
shall be signed by the President or any Vice President and also by the Chief
Financial Officer or the Secretary, and may be sealed with the seal of the
Corporation, or a facsimile thereof.
The signatures of the aforesaid officers may be facsimiles if the
certificate is countersigned by a transfer agent or registered by a registrar
other than the Corporation or its employee. The validity of any stock
certificate of the Corporation signed and executed by or in the name of duly
qualified officers of the Corporation shall not be affected by the subsequent
death, resignation, or the ceasing for any other reason of any such officer to
hold such office, whether before or after the date borne by or the actual
delivery of such certificates.
All certificates for shares of stock shall be consecutively numbered as the
same are issued. The name of the person owning the shares represented thereby,
with the number of such shares and the date of issue, shall be entered on the
Corporation's capital stock records.
Except as hereinafter provided, all certificates surrendered to the
Corporation shall be cancelled, and no new certificates shall be issued until
the former certificate for the same number of shares shall have been surrendered
and cancelled except in case of a lost or destroyed certificate.
The Corporation may treat the holder of record of any share or shares of
stock as the holder in fact thereof, and shall not be bound to recognize any
equitable or other claim to or interest in any such share or shares on the part
of any other person, whether or not it shall have express or other notice
thereof, save as expressly provided by law.
SECTION 2. Lost Certificate.
The Corporation may issue a new certificate for shares in place of a
certificate theretofore issued by it, alleged to have been lost or destroyed,
and the Board of Directors may require the owner of the lost or destroyed
certificate, or his legal representative, to give the Corporation a bond in form
satisfactory to the Corporation sufficient to indemnify the Corporation, its
transfer agents and registrars against any claim that may be made against them
on account of the alleged lost or destroyed certificate or the issuance of such
a new certificate.
SECTION 3. Transfer of Shares.
Shares of the capital stock of the Corporation shall be transferable by the
owner thereof in person or by a duly authorized attorney, upon surrender of the
certificates therefor properly endorsed. The Corporation may appoint a transfer
agent and registrar or one or more transfer agents and one or more registrars,
or either, for the stock of the Corporation.
SECTION 4. Regulations.
The Board of Directors shall have power and authority to make all such
rules and regulations as they may deem expedient concerning the issue, transfer
and registration of certificates for shares of the capital stock of the
Corporation.
SECTION 5. Record Date.
In order that the Corporation may determine the shareholders entitled to
notice of or to vote at any meeting of shareholders or any adjournment thereof,
or entitled to receive payment of any dividend or other
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distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, as the case may be, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other such action.
If no record date is fixed, the record date for determining shareholders
entitled to notice of or to vote at a meeting of shareholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held; and the record date for determining
shareholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto. A
determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
SECTION 6. Dividends and Stock Repurchases.
Subject to the provisions of the Certificate of Incorporation, the Board of
Directors shall have the power to declare and pay dividends upon shares of, and
authorize repurchase programs for, stock of the Corporation, but only out of
funds available for the payment of dividends or repurchase of shares as provided
by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall upon a Saturday, Sunday or a
legal holiday, then the dividend payable on such date shall be paid on the next
day not a Saturday, Sunday or a legal holiday.
SECTION 7. Corporate Seal.
The Board of Directors shall provide a suitable seal, containing the name
of the Corporation, which seal shall be kept in the custody of the Secretary. A
duplicate of the seal may be kept and be used by any officer of the Corporation
designated by the Board or the President.
SECTION 8. Fiscal Year.
The fiscal year of the Corporation shall end on December 31 or shall be
such other fiscal year as the Board of Directors from time-to time by resolution
shall determine.
ARTICLE V
Miscellaneous Provisions
SECTION 1. Contracts.
To the extent permitted by law, and except as otherwise prescribed by these
Bylaws with respect to certificates for shares, the Board of Directors may
authorize any officer, employee, or agent of the Corporation to enter into any
contract or execute and deliver any instrument in the name of and on behalf of
the Corporation. Such authority may be general or confined to specific
instances.
SECTION 2. Loans.
No loans shall be contracted on behalf of the Corporation and no evidence
of indebtedness shall be issued in its name unless authorized by the Board of
Directors. Such authority may be general or confined to specific instances.
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SECTION 3. Checks, Drafts, Etc.
All checks, drafts or other order for the payment of money, notes, or other
evidences of indebtedness issued in the name of the Corporation shall be signed
by one or more officers, employees or agents of the Corporation in such manner
as shall from time to time be determined by the Board of Directors.
SECTION 4. Deposits.
All funds of the Corporation not otherwise employed shall be deposited from
time to time to the credit of the Corporation in any duly authorized
depositories as the Board of Directors may select.
SECTION 5. Waivers of Notice.
Whenever any notice whatever is required to be given by law, by the
Certificate of Incorporation or by these Bylaws to any person or persons, a
waiver thereof in writing, signed by the person or persons entitled to the
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
SECTION 6. Offices Outside of Delaware.
Except as otherwise required by the laws of the State of Delaware, the
Corporation may have an office or offices and keep its books, documents and
papers outside of the State of Delaware at such place or places as from time to
time may be determined by the Board of Directors or the President.
SECTION 7. Gender.
If the context requires, the use of any gender shall also refer to the
other gender.
ARTICLE VI
Indemnification
SECTION 1. Indemnification of Directors, Officers and Employees.
The Corporation shall indemnify to the full extent authorized by law any
Director or officer made or threatened to be made a party to an action, suit or
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that he, his testator or intestate is or was a Director or officer
of the Corporation or is or was serving, at the request of the Corporation, as a
Director or officer of another corporation, partnership, joint venture, trust or
other enterprise.
The Corporation may, at the discretion of the Board of Directors, indemnify
to the full extent authorized by law any employee or agent made or threatened to
be made a party to an action, suit or proceeding, whether criminal, civil,
administrative or investigative by reason of the fact that he, his testator or
intestate is or was an employee or agent of the Corporation or is or was serving
at the request of the Corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise.
SECTION 2. Expenses Advanced.
Expenses incurred with respect to any claim, action or proceeding of the
character, actual or threatened, described in Section 1 of this Article VI, may
be advanced by the Corporation prior to the final disposition thereof upon
receipt of an undertaking by such person to repay the amount so advanced if and.
to the extent it shall ultimately be determined by a court of competent
jurisdiction that he was not entitled to indemnification under this Bylaw.
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SECTION 3. Automatic Conformity to Law.
The intention of this Bylaw is to provide indemnification with the broadest
and most inclusive coverage permitted by law (a) at the time of the act or
omission to be indemnified against, or (b) so permitted at the time of carrying
out such indemnification, whichever of (a) or (b) may be broader or more
inclusive and permitted by law to be applicable. If the indemnification
permitted by law at this present time, or at any future time, shall be broader
or more inclusive than the provisions of this Bylaw, then indemnification shall
nevertheless extend to the broadest and most inclusive permitted by law at any
time and this Bylaw shall be deemed to have been amended accordingly. If any
provision or portion of this Article shall be found, in any action, suit or
proceeding, to be invalid or ineffective, the validity and effect of the
remaining parts shall not be affected.
ARTICLE VII
Amendments
The shareholders or the Board of Directors of the Corporation may amend or
repeal the Bylaws or adopt new Bylaws. Except as otherwise required by law, the
Certificate of Incorporation or these Bylaws, the vote of a majority of the
shares present or represented by proxy and entitled to vote at any annual or
special meeting shall be required to amend or repeal the Bylaws or to adopt new
Bylaws. Except as otherwise required by law, the Certificate of Incorporation or
these Bylaws, such action by the Board of Directors requires an affirmative vote
of not less than a majority of the members of the Board of Directors then in
office.
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Sec. 36a-181. (Formerly Sec. 36-420). Plan to acquire all the common stock
of other Connecticut banks. A corporation having capital stock divided into
shares referred to in this section as the "parent corporation", which desires to
acquire directly or indirectly all the common capital stock of one or more
capital stock Connecticut banks referred to in this section as the "subsidiary
banks", shall, together with each subsidiary bank, submit to the commissioner a
written plan of acquisition of such stock. Such plan shall be in form
satisfactory to the commissioner, shall identify each subsidiary bank the stock
of which is to be acquired by the parent corporation, and shall prescribe the
terms and conditions of the acquisition and the mode of carrying it into effect,
including the manner of exchanging the shares of each of the subsidiary banks
for shares or other securities of the parent corporation and provision for
issuance of shares of each of the subsidiary banks to directors as qualifying
shares, if required by law. Any such plan may provide for the payment of cash in
lieu of the issuance of shares or fractional shares of the parent corporation.
Such plan may further provide that the Certificates of stock of any subsidiary
bank may be deemed to be certificates of stock of the parent corporation,
provided the holders of certificates of stock of a subsidiary bank shall be
entitled to receive certificates of stock of the parent corporation in exchange
for certificates of stock of such subsidiary bank.
(b) There shall be submitted to the commissioner with the plan of
acquisition, a certificate of the secretary of the parent corporation,
certifying that such plan has been approved by the governing board by vote of a
majority of all the directors, and a certificate of the secretary of each
subsidiary bank certifying that such plan has been submitted to the holders of
the shares of common stock of such bank at a meeting held upon at least five
days' notice, specifying the time, place and object of such meeting and
addressed to each such shareholder at the address appearing upon the books of
the bank and that at such shareholders' meeting at least two-thirds of all the
outstanding common capital stock of the bank voted to approve such plan. In lieu
of the vote by shareholders required by this subsection, the commissioner may
certify in writing that the protection of depositors and creditors of the
subsidiary bank requires that the acquisition proceed without delay. The
commissioner shall determine whether the terms of such plan of acquisition are
reasonable and in accordance with law and sound public policy and whether
benefits to the public clearly outweigh possible adverse effects, including, but
not limited to, an undue concentration of resources and decreased or unfair
competition. The commissioner, if the commissioner so determines, shall
thereupon certify the commissioner's findings and approval upon such plan. Such
plan, when filed in the office of the secretary of the state, shall evidence the
terms and conditions of such acquisitions. The commissioner shall not approve
such plan of acquisition unless the commissioner considers whether: (1) The
investment and lending policies of each subsidiary bank are consistent with safe
and sound banking practices and will benefit the economy of this state; (2) the
services or proposed services of each subsidiary bank are consistent with safe
and sound banking practices and will benefit the economy of this state; (3) the
parent corporation has sufficient capital to ensure, and agrees to ensure, that
each subsidiary bank will comply with applicable minimum capital requirements;
(4) the parent corporation has sufficient managerial resources to operate each
subsidiary bank in a safe and sound manner, and (5) the proposed acquisition
will not substantially lessen competition in the banking industry of this state.
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The commissioner shall not approve such plan of acquisition unless the
commissioner makes the findings required pursuant to section 36a-34. Upon such
filing in the office of the secretary of the state, the plan and the
acquisitions provided for therein shall become effective, unless a later date is
specified in the plan, in which event the plan and acquisitions shall become
effective upon such later date.
(c) Upon the effective date of the plan and the acquisitions provided for
therein, the shareholders of each subsidiary bank shall, except to the extent
that they have received other securities of the corporation or cash in lieu of
shares or fractional shares, be shareholders of the parent corporation. Unless
such plan otherwise provides, a subsidiary bank may require each shareholder to
surrender such shareholder's certificates of stock in such subsidiary bank and,
in that event, no shareholder, until such surrender of the shareholder's
certificates, shall be entitled to vote thereon or to collect dividends declared
thereon or to receive cash in lieu of shares or fractional shares or the shares
or other securities of the parent corporation. Any shareholder of any subsidiary
bank whose stock has been so acquired who, on or before the date of such
shareholders' meeting, gave written notice to such subsidiary bank of such
shareholder's objection thereto, may, within ten days after the plan of
acquisition has been filed in the office of the secretary of the state, demand
in writing from such subsidiary bank payment for such shareholder's stock and
such subsidiary bank shall, within three months thereafter, pay such shareholder
the value of such shareholder's stock at the date upon which such acquisition
became effective. In case of disagreement as to the value of the stock of the
subsidiary to be acquired, such value shall be ascertained by three
disinterested persons to be chosen one by the shareholder, one by such
subsidiary bank and the third by the two thus selected, and, if their award is
not paid within sixty days from its date, it shall become a debt of such
subsidiary bank and may be collected as such and such shareholder, upon
receiving payment therefor, shall transfer such shareholder's stock to such
subsidiary bank.
(d) This section does not apply to mergers or consolidations of banks.
(19169, P.A. 598, Members. 3; 1971, P.A. 322, Members. 2; P.A. 82-194,
Members. 2. 14; P.A. 83-406, Members. 8, 11; P.A. 91-189, Members. 5, 13; P.A.
92-12, Members. 83; P.A. 93-24, Members. 1, 9; P.A. 94-122, Members. 74, 340.)
History: 1971 act referred to "common" stockholders and "common capital"
stock in Subsec. (b) and made other minor language changes; P.A. 82-194 amended
Subsec. (a) by adding "capital stock savings and loan associations" to the
definition or "subsidiary bank", amended Subsec. (b) by authorizing the
commissioner's certification in lieu of a stockholders' vote, clarified the
provisions of Subsec. (c), and amended Subsec. (d) by providing that the section
does not apply to mergers or consolidations "of banks or associations"; P.A.
83-406 amended Subsec. (a) to add capital stock savings banks; P.A. 91-189
amended Subsec. (b) by adding factors to be considered and findings to be made
by the commissioner prior to approving a plan of acquisition; P.A. 92-12 made
technical changes in Subsec. (b); (Note: The words "of banking" were deleted
editorially after "commissioner" in Subsec. (b) for consistency); P.A. 93-24
amended Subsec. (b) to include the consideration of the parent corporation of a
banking institution in the banking institution's record of compliance for the
Community Reinvestment Act in the commissioner's granting approval of a plan of
acquisition, effective May 4, 1993; P.A. 94-122 deleted community reinvestment
and approval standards in Subsec. (b) and made technical changes, effective
January 1, 1995; Sec. 36-420 transferred to Sec. 36a-181 in 1995.
See Sec. 36a-34 re community reinvestment and approval standards.
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TOLLAND BANK
1997 Stock Incentive Plan for Directors, Officers and Key Employees
This 1997 Stock Incentive Plan (the "Plan") governs grants of options to
purchase shares of the Common Stock, $1.00 par value (the "Stock") of Tolland
Bank (the "Bank"), awards of restricted stock, and awards of stock appreciation
rights by the Bank to officers and certain key executives of the Bank. The Plan
also provides for certain non-discretionary grants of options to directors. The
Plan is intended to provide additional incentives to promote the future success
and growth of the Bank by providing participants with a direct stake in the Bank
and, in the case of officers and key executives, to encourage qualified persons
to seek and accept employment with the Bank. The Plan is effective April 1,
1997.
1. Administration of the Plan.
(a) The Plan shall be administered by the Personnel Committee (the
"Committee") as appointed from time to time by the Board of Directors of the
Bank, a majority of which Committee shall consist of members of the Board of
Directors who are not, and were not at any time during the one-year period prior
to such appointment, employees of the Bank or any affiliate of the Bank. No
director of the Bank serving as a member of the Committee shall be eligible, at
any time, to be granted options or awarded restricted stock or stock
appreciation rights under the Plan, except for the non-discretionary grants of
options to directors pursuant to paragraph 4(d), below.
(b) Within the limits of the Plan, except for the non-discretionary grants
of options to directors pursuant to paragraph 4(d), below, the Committee shall
determine the individuals to whom, and the times at which, options shall be
granted and awards made, the type of option to be granted and the number of
shares subject to each option. The Committee may establish such rules as it
deems necessary for the proper administration of the Plan, make such
determinations and interpretations with respect to the Plan and options granted
hereunder as may be necessary or desirable and include such further provisions
or conditions in such options as it deems advisable. Any determination or
interpretation made by the Committee hereunder shall be conclusive and binding
upon both the Bank and the participant.
2. Shares Subject to the Plan.
(a) The maximum aggregate number of shares of Stock that may be issued
under the Plan is 150,000 shares of Common Stock. However, the number of shares
that may be issued per year shall not exceed 20,000 multiplied by the number of
years the Plan has been in effect, rounding up any fractional years to the next
whole year, and no more than 20,000 shares in the aggregate may be awarded as
restricted stock or stock appreciation rights. Subject to any required approvals
by state or federal bank regulatory authorities, the limits specified in the
immediately preceding sentence may be waived by the Committee if there is either
(i) a change in control within the meaning of the Bank Holding Company Act of
1958 or the Change in Bank Control Act of 1978 (each as amended) or (ii) a
determination by the Committee that such a change in control has been threatened
and that such threat of change in control is not in the best long-term interests
of the Bank and its stockholders.
(b) In the event of a stock dividend, split-up, combination or
reclassification of shares, recapitalization or other similar capital change
relating to the Stock, the aggregate number and kind of shares or securities of
the Bank that may be issued under the Plan and the price of such shares, shall
be appropriately adjusted by the Committee (whose determination shall be
conclusive and binding upon both the Bank and the participant) so that the
proportionate number of shares or securities shall be maintained as before the
occurrence of such event.
(c) Whenever options under the Plan lapse or terminate or otherwise become
unexercisable, the shares of Stock that were subject to such options may again
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be made subject to options under the Plan. The Bank shall at all times while the
Plan is in force reserve such number of shares of Stock as will be sufficient to
satisfy the requirements of the Plan.
3. Participants.
Options (other than the non-discretionary grants of options to directors
pursuant to paragraph 4(d), below), stock appreciation rights and restricted
stock awards may be granted only to officers and other key employees who are
employed by the Bank or one of its subsidiaries ("Key Executives"), provided
that the Committee may exclude any individual from eligibility under the Plan.
Options or stock appreciation rights (but not restricted stock) may be granted
or awarded to a non-employee director of the Bank who is not also a member of
the Committee. The foregoing notwithstanding, Incentive Stock Options may be
awarded only to persons eligible under the Internal Revenue Code.
4. Options.
(a) Options may be granted under the Plan either as Incentive Stock Options
under Section 422 of the Internal Revenue Code of 1986, as amended from time to
time (the "Code") (or any successor section) other than the non-discretionary
grants of options to directors pursuant to paragraph 4(d), or as non-statutory
stock options. Options may be granted from time to time by the Committee,
provided that no Incentive Stock Option shall be granted hereunder after 10
years from the date hereof, or if the limitation of $100,000 set forth in the
Code on the aggregate fair market value of Stock underlying Incentive Stock
Options exercisable for the first time by a participant in any calendar year (or
such other limitation as the Code may prescribe) would be exceeded. The granting
date for each option shall be the date on which it is approved by the Committee,
or such later date as the Committee may specify. Options granted hereunder shall
be evidenced by stock option certificates in such form not inconsistent with the
Plan (which in the case of Incentive Stock Options shall conform to the
requirements for an Incentive Stock Option contained in the Code) as the
Committee may from time to time determine. The form of such options may vary
among optionees.
(b) (i) In the case of Incentive Stock Options, the price per share at
which Stock may from time to time be optioned shall be determined by the
Committee at the time of grant, provided that such price shall not be less
than 100 percent of the fair market value (110 percent in the case of
employees who own or are deemed to own more than 10 percent of the total
combined voting power of all classes of stock of the Bank or any subsidiary
of the Bank) of a share of Stock on the granting date as reasonably
determined by the Committee in good faith (or such other minimum price as
the Committee may prescribe).
(ii) In the case of non-statutory stock options, other than the
non-discretionary grants of options to directors pursuant to paragraph
4(d), the price per share at which Stock may from time to time be optioned
shall be determined by the Committee at the time of grant.
(iii) Stock purchased upon exercise of an option under the Plan shall
be paid for in cash or by certified check payable to the order of the Bank,
provided that the Committee may in its discretion permit the option price
to be paid in whole or in part with shares of Stock of the Bank having a
fair market value as determined by the Bank equal in amount to the option
price, by a recourse note, in installments, or by delivery of a properly
executed notice together with an undertaking by a broker to deliver
promptly to the Bank sale or loan proceeds equal in amount to the option
price.
(c) Other than with regard to the non-discretionary grants of options to
directors pursuant to paragraph 4(d), below, the Committee shall determine the
term of all options (provided in the case of an Incentive Stock Option that the
term shall not be greater than the term prescribed by the Code, which is
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currently by 5 years in the case of employees who own or are deemed to own more
than 10 percent of the total combined voting power of all classes of stock of
the Bank or any subsidiary of the Bank and 10 years in the case of other
employees), the time or times that options are exercisable and whether they are
exercisable in installments. In the case of an option made exercisable in
installments, the Committee may later determine to accelerate the time at which
one or more of such installments may be exercised.
(d) Notwithstanding any other provision of the Plan to the contrary, the
only grants or awards to directors of the Bank who are not also Key Executives
shall be the following non-discretionary grants of stock options. On April 1,
1997 each director shall be granted non-statutory stock options to purchase a
number of shares of stock equal to 1,000 shares multiplied by the number
(rounded down to the nearest whole number) of whole five-year periods of service
as a director completed as of such date. Thereafter during the term of this
Plan, each director shall be granted non-statutory stock options to purchase
1,000 shares of Stock on each date that marks completion of a whole five-year
period of service as a director. The price of such options shall be the fair
market value of the Stock on the date of grant (determined by the average of the
high and low trading values, on such date), shall be for a term of no longer
than ten years from the date of grant, and shall be immediately exercisable upon
grant.
5. Other Provisions Relating to Options.
(a) Options granted under the Plan shall not be transferable by the holder
thereof otherwise than by will or the laws of descent and distribution. Each
option shall be exercisable, during a participant's lifetime, only by him or
her. After a participant's death, an option shall be exercisable only by the
executor, administrator or other legal representative of the estate of the
participant (the "Representative") and only to the extent provided in Section
5(c) hereof.
(b) In the event of a consolidation or merger of the Bank with another
corporation, the sale or exchange of all or substantially all the assets of the
Bank or a reorganization or liquidation of the Bank, each holder of any
outstanding option shall be entitled to receive upon exercise and payment in
accordance with the terms of the option the same shares, securities or property
that such holder would have been entitled to receive upon the occurrence of such
event if such holder had been, immediately prior to such event, the holder of
the number of shares of Stock purchasable under his or her option or, if another
corporation shall be the survivor, such corporation shall substitute therefor
substantially equivalent shares, securities or property of such other
corporation; provided, however, that in lieu of the foregoing the Committee may
upon written notice to each holder of an outstanding option provide that such
option shall terminate on a date not less than 20 days after the date of such
notice unless theretofore exercised. In connection with such notice, the
Committee may in its discretion accelerate or waive any deferred exercise
period.
(c) Options granted under the Plan may contain such provisions as the
Committee shall approve permitting part or all of the options to become
exercisable without regard to any deferred exercise period in the event of any
change in control of the Bank.
(d) In the event that the Committee shall at any time prior to the exercise
in full by a participant of options held by him or her (and regardless of
whether such participant is then in the employ of or is a director of the Bank)
determine that such participant either before or after the termination of his or
her employment or directorship with the Bank has committed an act of misconduct
for which such participant could have been discharged for cause by the Bank or
has participated or engaged in any business activity determined by the Committee
to be in any way harmful or prejudicial to the interests of the Bank, such
options shall forthwith terminate, and notwithstanding any other provisions
hereof, such participant shall not thereafter be entitled to exercise such
options in whole or in part. Any determination made by the Committee hereunder
shall be conclusive and binding upon both the Bank and the participant.
(e) In the case of a participant who is a director granted options pursuant
to paragraph 4(d), above, and who terminates service as a director for any
reason before having exercised all such granted options, such options may be
exercised in whole or in part within one year of the date of termination. If a
participant's employment with the Bank or any subsidiary corporation, or a
corporation (or parent or subsidiary corporation of such corporation) issuing or
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<PAGE>
assuming a stock option in a transaction to which Section 424(a) of the Code (or
any successor section) applies, is terminated for any reason otherwise than by
his or her death or disability (within the meaning of Section 22(e)(3) of the
Code (or any successor section)), he or she may exercise the options that he or
she had been granted hereunder to the extent exercisable at the time of such
termination only within 30 days from the date of termination. If a participant's
employment is terminated by reason of disability, such options may be exercised
within 90 days from the date of termination to the extent exercisable on the
date of termination. Upon the death of a participant, the particpant's
Representative shall have the right, at any time within one year after the date
of death, to exercise in whole or in part any options that were available to the
participant at the time of his or her death. Notwithstanding the foregoing, no
option shall be exercisable after the expiration of the applicable exercise
period.
(f) Other than the non-discretionary grants of options to directors
pursuant to paragraph 4(d), above, the Committee may modify or extend, subject
to the terms and conditions and within the limitations of the Plan, and subject
to the Code in the case of incentive stock options, outstanding options (to the
extent unexercised) and authorize the granting of new options in substitution
therefor. Without limiting the generality of the foregoing, the Committee may
grant to a participant, if he or she is otherwise eligible and consents thereto,
a new or modified option in lieu of an outstanding option for a number of shares
at an exercise price and for a term that are greater or less than under the
earlier option and may do so by cancellation and regrant, amendment,
substitution or otherwise, subject only to the general limitations and
conditions of the Plan. No modification of an option shall, without the consent
of the participant, adversely affect his or her rights under any option
theretofore granted under the Plan.
(g) Options may be granted under the Plan in substitution for options held
by employees of a corporation who become employees of the Bank or any subsidiary
corporation of the Bank eligible to receive options under the Plan as a result
of an acquisition transaction. The terms and conditions of the substitute
options granted may vary from those set forth in the Plan to the extent deemed
appropriate by the Committee to conform to the provisions of the options for
which they are substituted.
6. Restricted Stock Awards.
(a) Notice. The Committee shall promptly provide each Key Executive
designated by the Committee to receive a restricted stock award ("Recipient")
with written notice setting forth the amount of the award and such other terms
and conditions of the award as may be considered appropriate by the Committee.
(b) Restrictions on Transfer. The shares of Common Stock transferred
pursuant to a restricted stock award shall be subject to the following
restrictions:
(i) No shares of Common Stock subject to awards granted under the Plan
may be sold, transferred, assigned, pledged, encumbered or otherwise
alienated or hypothecated unless, until and then only to the extent that
the restrictions set forth in this paragraph 6(b)(i) shall have lapsed in
accordance with paragraph 6(c).
(ii) Stock certificates evidencing shares of Common Stock transferred
pursuant to a registered stock award shall be issued in the sole name of
the Recipient (but shall be held by the Bank until the restrictions shall
have lapsed in accordance with the terms of the award and the Plan) and
shall bear a legend which, in part, shall provide that:
"The shares of Common Stock of Tolland Bank, evidenced by this
certificate are subject to the terms and restrictions of the Tolland
Bank 1997 Stock Incentive Plan. Such shares are subject to forfeiture
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<PAGE>
or cancellation under the terms of said Plan, and such shares shall not
be sold, transferred, assigned, pledged, encumbered or otherwise
alienated or hypothecated except pursuant to the provisions of said
Plan, a copy of which is available from Tolland Bank upon request."
(c) Lapse of Restrictions. The restrictions set forth in paragraph 6(b)
shall lapse as follows:
(i) Such restrictions shall lapse with respect to the shares of Common
Stock awarded pursuant to a specific restricted stock award at the times
determined by the Committee and on the terms stated in the notice of the
award. Such restrictions shall lapse only if on the date restrictions are
to lapse the Recipient has been a Key Executive continuously from the time
of the award to such date of lapse. The purpose of the restrictions is to
provide an incentive to each Recipient to remain with the Bank and to
perform assigned tasks and responsibilities in a manner consistent with the
best interests of the Bank and its stockholders.
(ii) In the event of the termination of employment of a Recipient,
except as specified in paragraph 6(c)(iii) below, all shares of Common
Stock still subject to restrictions shall be returned to or canceled by the
Bank and shall be deemed to have been forfeited by the Recipient unless and
then only to the extent that the Committee shall, in its sole discretion,
elect in writing to waive said return and forfeiture in accordance with
paragraph 6(c)(iv) below.
(iii) In the event of the termination of employment of a Recipient by
reason of death or permanent and total disability within the meaning of
Section 22(e)(3) of the Code, any outstanding restrictions in respect of
any restricted stock awarded to such Recipient will automatically lapse,
and the shares of Common Stock subject to the award shall be distributed to
the Recipient or, in the case of death, to his or her estate.
(iv) The Committee may at any time in its sole discretion accelerate
the lapse of, or waive, all or any portion of the restrictions remaining in
respect of any restricted stock award.
(d) Rights as a Shareholder. Upon issuance of the stock certificates
evidencing a restricted stock award and subject to the restrictions set out in
paragraph 6(b), the Recipient of an award shall have all of the rights of a
shareholder of the Bank with respect to the shares of Common Stock represented
by such award, including the right to vote the shares and receive all dividends
and other distributions paid or made with respect to such shares, provided that
any stock dividends received on shares of restricted stock shall be subject to
the same restrictions as such underlying shares until the restrictions on such
underlying shares lapse.
7. Stock Appreciation Rights
(a) Stock appreciation rights ("SAR"s) may be granted by the Committee
independent of or in tandem with any stock option at the time of grant of such
option.
(b) SARs granted in tandem with options shall be subject to the following
terms and conditions, plus any other conditions not inconsistent with the Plan.
(i) Stock appreciation rights shall be exercisable, in whole or in
part, at such time or times and to the extent that the option to which they
relate shall be exercisable, and shall expire simultaneously with the
option to which they relate.
(ii) Upon exercise of an SAR, the related option or portion thereof
shall be surrendered to the Bank in exchange for payment by the Bank of
shares of Common Stock (at the fair market value thereof) or cash or a
combination thereof, as the Committee may determine in its own discretion,
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<PAGE>
in an amount equal to the excess of the aggregate fair market value of the
shares subject to the option or portion thereof being surrendered over the
aggregate option price thereof; provided, however, that fractional shares
shall not be issued. Any option, to the extent surrendered, shall thereupon
cease to be exercisable.
(iii) An officer who holds exercisable stock appreciation rights and
who desires to receive cash or a combination of cash and shares of Common
Stock must exercise such stock appreciation rights during a restricted
period beginning on the third business day following the date of the public
announcement of the quarterly or annual earnings of the Bank and ending on
the twelfth business day following such date. Upon exercise of a stock
appreciation right pursuant to this paragraph, the officer shall be
entitled to receive the exercise value of the number of stock appreciation
rights being exercised in cash, shares of Common Stock valued at their fair
market, or a combination of cash and shares of Common Stock, as the
Committee may determine in its sole discretion.
(iv) Stock appreciation rights shall be transferable only when the
options to which they relate are transferable, and under the same
conditions.
(v) A stock appreciation right may be exercised only when the market
price of Common Stock exceeds the option price of the option to which the
stock appreciation right relates.
(c) SARs granted independently of options shall be exercisable at such time
or times, and on such conditions, as the Committee may specify.
(d) The Committee may at any time accelerate the time at which all or any
part of the SARs may be exercised.
8. Withholding Taxes.
(a) Upon the exercise of non-statutory stock options, the participant shall
be required to pay to the Bank or authorize the Bank to deduct from other
amounts payable to the participant the amount of any taxes that the Bank is
required to withhold with respect to such exercise. The participant may elect to
satisfy such withholding obligation by (a) delivering to the Bank Stock owned by
such individual having a fair market value equal to such withholding obligation
or (b) requesting that the Bank withhold from the shares of Stock to be
delivered a number of shares of Stock having a fair market value equal to such
withholding obligation.
(b) In the case of an Incentive Stock Option, the participant shall be
required (a) to inform the Bank promptly of any disposition (within the meaning
of Section 424(c) of the Code (or any successor section) and the rules
thereunder) of Stock received upon exercise, and (b) to pay to the Bank or
authorize the Bank to deduct from other amounts payable to the participant the
amount of any taxes that the Bank is required to withhold with respect to such
disposition.
(c) In the case of Restricted Stock Awards or Stock Appreciation Rights,
the Bank shall have the right to withhold the amount of taxes the Bank is
required to withhold from the amount awarded, or from the amount paid, or from
other amounts payable to the participant.
9. Amendment or Termination.
The Committee may amend or terminate the Plan at any time, provided that any
such amendment shall be subject to the approval of the stockholders of the Bank
in accordance with applicable law and regulations if such approval is necessary
to satisfy the requirements of Rule 16b-3 (or any successor rule) under the
Exchange Act or other regulatory requirements. Unless hereafter amended to
provide for a different termination date, the Plan shall terminate on March 31,
2007.
E-6
Exhibit 99.5
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D.C. 20429
FORM F-4
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1997 FDIC Certificate No. 18205-2
-------------------- -------
TOLLAND BANK
(Exact name of Registrant as specified in its charter)
Connecticut 06-0523950
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Olde Tolland Common, P.O. Box 156, Tolland, Connecticut 06084
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (860) 875-2500
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the 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 12 months (or for shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Indicate the number of shares outstanding of the issuer's class of common stock,
as of the latest practicable date.
Class Outstanding at August 12, 1997
- --------------------------------------------------------------------------------
Common Stock (par value $1.00) 1,593,754 shares
<PAGE>
TOLLAND BANK
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS:
Consolidated Statements of Financial Condition as of June 30, 1997,
December 31, 1996, and June 30, 1996.
Consolidated Statements of Income for the Three Months and Six Months
Ended June 30, 1997 and 1996.
Consolidated Statements of Cash Flows for the Six Months Ended June 30,
1997 and 1996.
Consolidated Statements of Changes in Equity Capital for the Six Months
Ended June 30, 1997 and 1996.
Notes to the Consolidated Financial Statements
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
2
<PAGE>
TOLLAND BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The foregoing financial statements are unaudited. However, in the opinion of
Management, all material adjustments, consisting primarily of normal recurring
accruals, necessary for a fair presentation of the financial statements have
been included. The Bank is required to make certain estimates and assumptions in
preparing these statements. The most material estimates are those necessary in
determining the allowance for loan losses, the valuation of foreclosed assets,
the valuation of investment securities available for sale, and the valuation
allowance associated with the net deferred tax asset. Operating results for any
interim period are not necessarily indicative of results for any other interim
period or for the entire year. Unless otherwise noted, all dollar amounts
presented in the financial statements are rounded to the nearest thousand
dollars, except per share data. Certain prior period amounts have been
reclassified to conform with current financial statement presentation.
Management's Discussion and Analysis of Financial Condition and Results of
Operations accompany these financial statements. Additional information and
financial disclosures are contained in the Bank's 1996 Annual Report.
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities (SFAS 125). SFAS 125 is
effective for servicing of financial assets and extinguishments of liabilities
beginning January 1, 1997. The transfer and collateral provisions of SFAS 125
are effective for transfers occuring after December 31, 1997. The provisions of
the statement are to be applied prospectively. This Statement provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are secured
borrowings. The adoption of SFAS 125 did not have a material impact on the
Bank's financial position, results of operations, or liquidity, and no material
impact is expected for those provisions effective for transfers occuring after
December 31, 1997.
Holding Company Formation
The Bank has initiated steps to form a bank holding company in order to
facilitate future growth and expansion of business lines. Tolland Bank will
continue to operate with its existing offices and employees. This step will
allow the Bank additional flexibility to both increase the products and services
that it offers to its customers, and to pursue new market opportunities. Pending
regulatory approval and completion of the formation process, Tolland Bank
shareholders will, on a one-for-one basis, become shareholders of the new
holding company.
Stock Split
In June, 1997, the Bank declared a four-for-three common stock split, which was
effected as a stock dividend paid on July 17, 1997. The financial statements as
of June 30, 1997 include the effects of this split, and all items related to
outstanding shares, share prices, and amounts per share have been restated for
the effect of this split for all periods in the statements. The stock dividend
was recorded based on the $1 par value of the common stock. After the stock
split, common stock par value totaled $1.560 million, an increase of $387
thousand from year-end 1996.
7
<PAGE>
TOLLAND BANK - ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Management's Discussion and Analysis of Results of Operations and Financial
Condition is based on the Bank's financial statements in Item 1. These
statements should be read along with Management's Discussion. Tolland Bank
(AMEX: TBK) is a Connecticut chartered savings bank serving Tolland County and
the surrounding communities.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA As of and for the Three Months As of and for the Six Months
Ended June 30, Ended June 30,
OPERATING DATA (in thousands): 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net interest income $2,008 $1,872 $3,968 $3,738
Provision for loan losses 64 134 137 320
Service charge and fee income 285 262 545 569
Net gain/(loss) on investment services 6 (41) 6 (41)
Net gain/(loss) on assets (41) 4 (41) 4
Non-interest expense 1,587 1,531 3,163 3,082
----- ----- ----- -----
Income before income taxes 607 432 1,178 868
Income tax expense 126 90 247 224
--- -- --- ---
Net income $481 $342 $931 $644
==== ==== ==== ====
BALANCE SHEET DATA (in millions):
Total assets $238.2 $224.0 $238.2 $224.0
Total loans 147.1 152.5 147.1 152.5
Other earning assets 79.7 57.0 79.7 57.0
Deposits 213.6 198.5 213.6 198.5
Borrowings 7.4 11.4 7.4 11.4
Shareholders' equity 16.5 13.6 16.5 13.6
STATISTICAL DATA (in percent):
Net interest spread (fully taxable equivalent) 3.42% 3.33% 3.42% 3.30%
Net interest margin (fully taxable equivalent) 3.90% 3.75% 3.90% 3.72%
Return on average assets 0.84% 0.62% 0.82% 0.59%
Return on average equity 11.83% 9.78% 11.59% 9.38%
Equity % total assets (period end) 6.94% 6.09% 6.94% 6.09%
PER SHARE DATA (in dollars):
Net income (fully diluted) $0.30 $0.21 $0.58 $0.40
Cash dividends declared 0.05 -- 0.10 --
Book Value (period-end) 10.60 8.84 10.60 8.84
Common stock price:
High 15.00 7.79 15.00 7.88
Low 10.31 7.13 8.63 6.94
Close 15.00 7.52 15.00 7.52
COMMON SHARES OUTSTANDING (in thousands):
Period-end 1,560 1,158 1,560 1,158
Average fully diluted 1,624 1,631 1,617 1,629
</TABLE>
8
<PAGE>
SUMMARY
Tolland Bank reported a $139 thousand (40.6%) increase in net income for the
second quarter to $481 thousand ($.30 per share) compared to net income of $342
thousand ($.21 per share) in last year's second quarter. Net income for the six
months totaled $931 thousand ($.58 per share) compared to $644 thousand ($.40
per share) in the first half of 1996, representing a $287 thousand (44.6%)
increase.
Also, the Directors maintained the quarterly dividend at five cents per share,
representing a 33.33% increase over the preceding quarter after taking into
account the recent 4 for 3 stock split. This represents a more than doubling of
the quarterly cash dividend to shareholders, since the dividend was reinstated
in October, 1996. President Joseph Rossi said, "We're pleased to increase the
number of Tolland Bank shares in the market. Our stock price has been improving,
and we want to make sure it continues to be affordable for our community
shareholders and that the stock enjoys a liquid market."
The Bank's earnings growth was primarily due to higher net interest income. This
is attributable to both higher levels of earning assets and to an increase in
the net interest margin. Net interest income for the first six months grew by
$230 thousand (6.2%) compared to last year, while non-interest expense growth
was held to $81 thousand (2.6%). President Joseph Rossi stated that,"We are
continually enhancing our loan and deposit products to provide more benefits to
our customers and sound growth for the Bank".
Earnings growth has also resulted from a more than 50% reduction in the
provision for loan losses. This is due to the Bank's progress in reducing
problem assets in the last several quarters.
At June 30, 1997, the Bank had total assets of $238.2 million, $14.2 million
(6.4%) higher than a year ago. Total deposits were $213.6 million, up $15.0
million (7.6%) for the same date.
Shareholders' equity increased by $2.9 million (21.2%) from a year earlier to
$16.5 million, representing a book value per share of $10.60 , after taking into
account the 4 for 3 stock split. The Bank's capital remains in excess of all
regulatory requirements.
RESULTS OF OPERATIONS
Net Interest Income: Net interest income increased by $136 thousand (7.3%) for
the second quarter and by $230 thousand (6.2%) for the first half of 1997
compared to the comparable periods of 1996. This growth was due both to higher
earning assets, as well as improvement in the net interest margin. Total earning
assets increased by $17.3 million (8.3%) over the twelve months ended June 30,
1997, and the net interest margin (fully taxable equivalent) rose to 3.90% in
the second quarter of 1997 compared to 3.75% in the same quarter of 1996. The
improvement in net interest income was primarily related to growth in securities
available for sale, as funds raised from deposit promotions were reinvested
primarily in investment securities.
The overall cost of interest bearing liabilities increased to 4.41.% in the
second quarter of 1997 from 4.35% in the same quarter of 1996. This increase was
due to the ongoing promotion of time deposits, which bear a higher rate of
interest. The fully taxable equivalent yield on earning assets
9
<PAGE>
increased to 7.83% in the second quarter of 1997 compared to 7.68% in the same
quarter of 1996, due to the aforementioned growth in investment securities. The
.15% improvement in asset yields more than offset the .06% increase in liability
costs, thereby producing a .09% improvement in the net interest spread.
Additionally, the Bank benefited from growth in non-interest bearing demand
deposit balances due to growth in total customer relationships, and the Bank
also benefited from a decrease in non-earning foreclosed assets due to asset
sales in the second half of 1996. As a result, the net interest margin improved
by .15% in the second quarter of 1997 compared to the same quarter of the
previous year.
The Bank has maintained an asset-sensitive one year interest rate sensitivity
profile for the past two years to minimize the risk to earnings of an increase
in interest rates from the comparatively low levels of the past few years. The
positive one year gap position benefited the Bank in 1997 due to the .25%
increase in the prime rate in the first quarter. The one year interest rate gap
increased to $34 million at June 30, 1997 (15.0% of total earning assets),
compared to $16 million at year-end 1996 and to $6 million at mid-year 1996. The
one year gap at the most recent quarter-end was higher than the Bank customarily
targets. In part, this is due to a time deposit promotion in 1997 which
emphasized deposit maturities of 24 months and higher. Additionally, the Bank
reports its callable agency security maturities based on market estimates of
remaining lives, and most of these securities changed to under one year due to a
sharp decrease in rates near the end of the second quarter. The one year gap is
expected to decrease due to new loan bookings and upcoming time deposit
maturities.
Provision for Loan Losses: The provision is made to maintain the allowance for
loan losses at a level deemed adequate by management. The allowance is discussed
in Management's Discussion of Financial Condition. The provision for loan losses
declined by $70 thousand (52.2%) for the second quarter and by $183 thousand
(57.2%) for the first half of 1997, compared to the same periods of 1996.
Non-Interest Income: Total non-interest income increased by $25 thousand (11.1%)
in the second quarter and decreased by $22 thousand (4.1%) in the first six
months of 1997, compared to the same periods of 1996. The increase in the second
quarter was due to the recovery of commercial loan late fees. The decrease for
the first half was due to lower residential mortgage secondary market fees.
During 1997, the Bank has retained a higher proportion of residential mortgage
originations in portfolio to contribute to growth in earning assets, and
accordingly the Bank recorded lower fees on sales of mortgages into the
secondary market.
Non-Interest Expense: Non-interest expense increased by $56 thousand (3.7%) in
the second quarter and by $81 thousand (2.6%) in the first half of 1997,
compared to the same periods in 1996. This increase was primarily due to data
processing expense increases of $47 thousand and $82 thousand in the second
quarter and first half related to the utilization of certain credits in 1996.
For the first half of the year, a $47 thousand increase in compensation related
expenses due to annual merit increases was offset by reductions in occupancy and
total other expenses. During the first half, the Bank benefited from a reduction
in problem asset related expenses as a result of the recovery in 1997 of certain
expenses charged in 1996. This included $108 thousand in recovered legal
expenses and a $64 thousand reduction in net collections costs. This was offset
in part by a $50 thousand increase in consulting expenses related to purchased
investment and loan administration services and a $32 thousand increase in
marketing expenses related primarily to more frequent advertising.
10
<PAGE>
Income Tax Expense: The ratio of the Bank's income tax expense to income before
income taxes was about 21% in the second quarter of both 1997 and 1996. For the
first half, it was about 21% in 1997 and 26% in 1996. This lower effective tax
rate is primarily due to growth in investments with income subject to a lower
net tax rate. Additionally, net income tax expense in both years benefited from
a reduction in the valuation allowance for the deferred tax asset which totaled
$85 thousand and $90 thousand in the first half of 1997 and 1996, respectively.
FINANCIAL CONDITION
Cash and Cash Equivalents: Short term investments increased at June 30, 1997 as
funds supplied from deposit growth were being held in anticipation of increased
loan closings and additional purchases of investments and SBA guaranteed loan
certificates in the second half of the year. Short term investments normally
include bank qualifying money market mutual funds and federal funds sold to the
Federal Home Loan Bank of Boston.
Investment Securities: Total securities available for sale increased by $4.0
million (8.9%) for the first half of 1997 and by $14.8 million (42.7%) for the
twelve months ended June 30, 1997. Growth in 1997 was recorded primarily in the
first quarter and consisted primarily of purchases of callable U.S. Agency and
mortgage backed debt securities rated A or better. The net unrealized loss on
investment securities reported as a component of shareholders' equity declined
to $90 thousand as of June 30, 1997 due to improved capital market prices in the
second quarter; this net unrealized loss included a $287 thousand net
unamortized transfer loss on securities held to maturity and a $197 thousand net
unrealized gain on securities available for sale.
Total Loans: Total loans decreased by $0.7 million (0.5%) for the first half of
1997 and by $5.3 million (3.5%) for the twelve months ended June 30, 1997. The
decreases in both periods have been primarily due to the liquidation of
adversely classified assets, as well as to general runoff of seasoned loans.
Based on the status of new loan pipelines at June 30, 1997, management expects
total loans to increase in the second half of the year, reflecting higher loan
bookings in all areas of the portfolio. The Bank has been promoting several
types of home equity loans throughout 1997. The mortgage originations staff was
increased in the second quarter, and additional commercial loan originations
staff increases are planned for the second half of 1997. During the second
quarter of 1997, the Bank reclassified residential mortgages held for sale from
total other assets and they are now included with total residential mortgage
loans.
Allowance for Loan Losses: The allowance for loan losses totaled $2.75 million
(1.87% of total loans) at June 30, 1997, compared to $2.850 million (1.93% of
total loans) at year-end 1996 and to $2.50 million (1.64% of total loans) twelve
months ago. Excluding loan certificates 100% guaranteed by the SBA, the
allowance measured 2.25% of total regular loans at June 30, 1997. Net
charge-offs against the allowance were $237 thousand for the first half of 1997
(.32% annualized charge-off rate), compared to $161 thousand (.22% rate) for the
first half of 1996. Impaired loans totaled $3.0 million at June 30, 1997,
compared to $4.7 million at year-end 1996 and to $5.54 million a year ago. The
valuation allowance on impaired loans increased to $580 thousand at the most
recent quarter-end, compared to $186 thousand at year-end 1996; there was no
valuation allowance required at June 30, 1996. The increase in the valuation
allowance is primarily due to one commercial loan relationship totaling $1.1
million which is collateralized, but the Bank's
11
<PAGE>
collateral position is being challenged in a bankruptcy proceeding. The Bank
increased the impairment reserve to more specifically reserve for this
uncertainty. The Bank recorded a $100 thousand write-down on this relationship
in the most recent quarter.
Problem Assets: Problem assets totaled $5.1 million at June 30, 1997, a decrease
of $0.5 million (8.9%) from year-end 1996 and a decrease of $6.2 million (54.9%)
from a year ago. The components of problem assets at June 30, 1997 included $3.1
million of non-accruing loans, $1.2 million of restructured loans, and $0.8
million of foreclosed assets. The total amount of adversely classified assets
was $5.2 million at June 30, 1997, compared to $6.5 million at year-end 1996 and
to $8.8 million at June 30, 1996.
Deposits and Borrowings: Total deposits increased by $8.0 million (3.9%) since
year-end 1996 and by $15.0 million (7.6%) over the past twelve months. This
growth was primarily in time deposits, resulting from ongoing promotions.
Deposit growth has also resulted from growth in transactions account balances
(demand deposits and NOW accounts) due to growth in total customer
relationships. Borrowings have been reduced over the last twelve months, as
deposit growth has provided a more attractive source of additional funds.
Cash Flows and Liquidity: For the year-to-date, the primary source of funds has
been deposit growth and the primary use of funds has been the purchase of
investment securities and the placement of short-term investments in
anticipation of future loan bookings. Borrowings and deposit growth are the
primary sources of liquidity for additional balance sheet growth, and securities
available for sale and government guaranteed loan certificates provide
additional sources of potential liquidity, in addition to short-term
investments.
Capital Resources: At the most recent quarter-end, Tier 1 Capital totaled $16.2
million and the Tier 1 Leverage Capital Ratio measured 7.0%. The Risk Based
Capital Ratio measured 13.2%. The Bank's capital remains in excess of all
regulatory requirements. During 1997, the Bank has declared and paid a five cent
cash dividend to common shareholders in each quarter.
In June, 1997, the Bank declared a four-for-three stock split, which was
effected as a stock dividend paid on July 17, 1997. The financial statements as
of June 30, 1997 include the effects of this split, and all items related to
outstanding shares, share prices, and amounts per share have been restated for
the effect of this split for all periods in the statements.
12
<PAGE>
TOLLAND BANK
SIGNATURE
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.
TOLLAND BANK
(Registrant)
Date: August 14, 1997
---------------------- ---------------------
Joseph H. Rossi
President/CEO
--------------------
David H. Gonci
Vice President/CFO
13
<PAGE>
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D.C. 20429
FORM F-4
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1997 FDIC Certificate No. 18205-2
------------------------ -------
TOLLAND BANK
(Exact name of Registrant as specified in its charter)
Connecticut 06-0523950
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Olde Tolland Common, P.O. Box 156, Tolland, Connecticut 06084
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (860) 875-2500
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the 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 12 months (or for shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Indicate the number of shares outstanding of the issuer's class of common stock,
as of the latest practicable date.
Class Outstanding at May 12, 1997
- --------------------------------------------------------------------------------
Common Stock (par value $1.00) 1,172,500 shares
1
<PAGE>
TOLLAND BANK
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS:
Statements of Financial Condition as of March 31, 1997, December 31,
1996, and March 31, 1996.
Statements of Income for the Three Months Ended March 31, 1997 and
1996.
Statements of Cash Flows for the Three Months Ended March 31, 1997 and
1996.
Statements of Changes in Equity Capital for the Three Months Ended
March 31, 1997 and 1996.
Notes to the Financial Statements
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
2
<PAGE>
TOLLAND BANK
NOTES TO FINANCIAL STATEMENTS
The foregoing financial statements are unaudited. However, in the opinion of
Management, all material adjustments, consisting primarily of normal recurring
accruals, necessary for a fair presentation of the financial statements have
been included. The Bank is required to make certain estimates and assumptions in
preparing these statements. The most material estimates are those necessary in
determining the allowance for loan losses, the valuation of foreclosed assets,
the valuation of investment securities available for sale, and the valuation
allowance associated with the net deferred tax asset. Operating results for any
interim period are not necessarily indicative of results for any other interim
period or for the entire year. Unless otherwise noted, all dollar amounts
presented in the financial statements are rounded to the nearest thousand
dollars, except per share data. Certain prior period amounts have been
reclassified to conform with current financial statement presentation.
Management's Discussion and Analysis of Financial Condition and Results of
Operations accompany these financial statements. Additional information and
financial disclosures are contained in the Bank's 1996 Annual Report.
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities (SFAS 125). SFAS 125 is
effective for servicing of financial assets and extinguishments of liabilities
beginning January 1, 1997. The transfer and collateral provisions of SFAS 125
are effective for transfers occuring after December 31, 1997. The provisions of
the statement are to be applied prospectively. This Statement provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are secured
borrowings. The adoption of SFAS 125 did not have a material impact on the
Bank's financial position, results of operations, or liquidity, and no material
impact is expected for those provisions effective for transfers occuring after
December 31, 1997.
Holding Company Formation
The Bank has initiated steps to form a bank holding company in order to
facilitate future growth and expansion of business lines. Tolland Bank will
continue to operate with its existing offices and employees. This step will
allow the Bank additional flexibility to both increase the products and services
that it offers to its customers, and to pursue new market opportunities. Pending
regulatory approval and completion of the formation process, Tolland Bank
shareholders will, on a one-for-one basis, become shareholders of the new
holding company.
3
<PAGE>
TOLLAND BANK - ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Management's Discussion and Analysis of Results of Operations and Financial
Condition is based on the Bank's financial statements in Item 1. These
statements should be read along with Management's Discussion. Tolland Bank
(AMEX: TBK) is a Connecticut chartered savings bank serving Tolland County and
the surrounding communities.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA As of and for the Three Months
Ended March 31,
OPERATING DATA (in thousands): 1997 1996
---- ----
<S> <C> <C>
Net interest income $1,961 $1,866
Provision for loan losses 74 186
Service charge and fee income 260 307
Net gain/(loss) on investment services 0 0
Net gain/(loss) on assets 0 0
Non-interest expense 1,577 1,551
Income tax expense 120 134
--- ---
Net income $450 $302
==== ====
BALANCE SHEET DATA (in Millions):
Total assets $237.3 $217.2
Total loans 146.2 151.2
Other earning assets 79.2 51.8
Deposits 208.7 195.5
Borrowings 11.9 7.7
Shareholders' equity 16.0 13.6
STATISTICAL DATA (in percent):
Net interest spread (fully taxable equivalent) 3.44% 3.26%
Net interest margin (fully taxable equivalent) 3.90% 3.68%
Return on average assets 0.80% 0.56%
Return on average equity 11.40% 8.93%
Equity % total assets (period end) 6.73% 6.25%
PER SHARE DATA (in dollars):
Net income (fully diluted) $0.37 $0.25
Cash dividends declared 0.05 --
Book value 13.63 11.73
Common stock price:
High 16.13 10.50
Low 11.50 9.25
Close 14.25 10.00
</TABLE>
8
<PAGE>
SUMMARY
Tolland Bank reported net income of $450 thousand ($.37 per share) for the first
quarter ended March 31, 1997 compared to net income of $302 thousand ($.25 per
share) in the first quarter of 1996. The Bank also declared a dividend of five
cents per share payable on May 20, 1997 to shareholders of record as of May 6,
1997.
First quarter earnings increased by $148 thousand due to growth in interest
income and to a lower provision for loan losses. Net interest income increased
by $95 thousand due to growth in earning assets. The provision for loan losses
declined by $112 thousand due to reductions in problem assets.
President Joseph Rossi stated, "The Bank has enjoyed a strong market response to
new loan and deposit offerings in the most recent quarter. Additionally, the
return on shareholders' equity rose to 11.40%, and we are maintaining our trend
of steadily improving earnings."
At quarter-end, total assets were $237.3 million, an increase of $20.1 million
(9.2%) from a year ago, and total deposits were $208.7 million, an increase of
$13.2 million (6.7%) from a year ago. Shareholders' equity rose 17.7% from a
year ago to $16.0 million, resulting in a book value of $13.63 per share, and
the Bank's capital remained in excess of all regulatory requirements.
RESULTS OF OPERATIONS
Net Interest Income: Net interest income increased by $95 thousand (5.1%) in the
first quarter of 1997 compared to the same period of 1996. This reflects an
increase in earning assets, which grew by $22.4 million (11.0%) over the twelve
months ended March 31, 1997. This increase was primarily in investment
securities and was funded by growth in deposits, as well as the reinvestment of
proceeds from problem asset dispositions. The Bank also benefited from improved
margins on a fully taxable equivalent (FTE) basis, with the FTE net interest
margin improving to 3.90% in the first quarter of 1997, compared to 3.68% in the
same quarter of the previous year.
Provision for Loan Losses: The provision is made to maintain the allowance for
loan losses at a level deemed adequate by management. The provision was $74
thousand in the most recent quarter, compared to $186 thousand in the same
quarter of 1996. Net loan chargeoffs were $74 thousand in the most recent
quarter, little changed from $76 thousand a year ago. The decrease in the
provision was related to a reduction in the overall level of problem assets
during the last year.
Non-Interest Income: First quarter service charge and fee income was $260
thousand in 1997, compared to $307 thousand in the same quarter of the previous
year. This decrease was primarily due to the Bank's decision to hold a portion
of newly originated residential mortgages in portfolio to contribute to growth
in earning assets in the most recent quarter. As a result, the Bank recorded
lower fees on sales of mortgages into the secondary market.
9
<PAGE>
Non-Interest Expense and Tax Expense: Non-interest expense increased by $26
thousand (1.7%) in the first quarter of 1997 compared to the same period in
1996. This increase included a $37 thousand increase in staff expenses due to
annual merit increases and a $20 thousand increase in equipment and EDP related
expenses. Offsetting these increases was a $21 thousand decrease in other
expense, which benefited from recoveries of collections expenses recorded in
1996. Income tax expense decreased by $14 thousand due to a higher level of tax
exempt securities income, which contributed to the improvement in the Bank's tax
equivalent net interest margin. First quarter income tax expense also benefited
from decreases in the valuation allowance related to the net deferred tax asset,
which totaled $40 thousand and $45 thousand in 1997 and 1996, respectively.
FINANCIAL CONDITION
Cash and Cash Equivalents: Short term investments increased by $3.0 million at
March 31, 1997 compared to the previous year. The Bank kept a higher level of
short term investments at the most recent quarter-end in anticipation of
increased loan closings.
Investment Securities: Total securities available for sale increased by $6.4
million (14.1%) in the most recent quarter and by $27.0 million (108.9%) in the
past twelve months. The growth in the most recent quarter has been primarily due
to purchases of callable U.S. Agency and mortgage backed debt securities rated A
or better. The $234 thousand net unrealized loss on investment securities
reported as a component of shareholders' equity on March 31, 1997 included a
$332 thousand net unamortized transfer loss on securities held to maturity and a
$98 thousand net unrealized gain on securities available for sale.
Total Loans: Total loans decreased by $0.4 million (0.2%) in the most recent
quarter and by $5.0 million (3.3%) in the past twelve months due to the
liquidation of delinquent and nonaccruing commercial loans. Residential
mortgages increased in the most recent quarter due to the targeted retention of
some new loan originations, and consumer loans have increased over the past year
due to ongoing home equity loan promotions. The loan pipeline at March 31, 1997
increased due to higher applications in all lending areas as a result of current
marketing efforts. As of March 31, 1997, problem assets totaled $5.5 million
(2.3% of total assets), and included $3.3 million of nonaccruing loans, $1.2
million of renegotiated loans, and foreclosed assets totaling $1.0 million.
Total problem assets have decreased from $5.6 million at year-end 1996 and from
$9.0 million one year ago.
Allowance for Loan Losses: The allowance measured 1.95% of total loans and 2.37%
of total loans excluding SBA guaranteed loan certificates as of March 31, 1997.
The allowance measured 85% of nonaccruing loans and 962% of annualized net loan
chargeoffs at that date. Total impaired loans were $3.1 million at March 31,
1997; specific impairment reserves associated with these loans were $183
thousand.
10
<PAGE>
Deposits and Borrowings: Total deposits increased by $3.1 million (1.5%) during
the most recent quarter and by $13.2 million (6.8%) during the last twelve
months. This growth was primarily in time deposits, resulting from ongoing
promotions as well as seasonal increases in municipal deposits. Additionally,
borrowings increased due to higher levels of short term investments which were
held at March 31, 1997.
Cash Flows and Liquidity: For the most recent quarter, deposit growth was the
primary source of funds and purchases of investment securities was the primary
use of funds. Loan growth is anticipated in the coming quarter based on loan
pipelines at quarter-end. Borrowings and time deposit growth are the primary
sources of liquidity for additional balance sheet growth.
Capital Resources: The Bank declared and paid a five cent dividend during the
first quarter of 1997. At the most recent quarter-end, Tier 1 Capital totaled
$15.7 million , and the Tier 1 Leverage Capital Ratio measured 6.9%. The Risk
Based Capital Ratio measured 12.9%. The Bank's capital remains in excess of all
regulatory requirements. The weighted average number of common and common
equivalent shares outstanding was 1,207,515 and 1,220,414 for the first quarter
of 1997 and 1996, respectively.
11
<PAGE>
TOLLAND BANK
SIGNATURE
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.
TOLLAND BANK
(Registrant)
Date: May 14, 1997
--------------------- --------------------
Joseph H. Rossi
President/CEO
--------------------
David H. Gonci
Vice President/CFO
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