<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-12936
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Westport Bancorp, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 06-1094350
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
87 Post Road East, Westport, Connecticut 06880
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(Address of principal executive offices)
(Zip Code)
(203) 222-6911
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(Registrant's telephone number, including area code)
N/A
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(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 such 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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
At July 31, 1996, there were 6,068,531 outstanding shares of Westport Bancorp,
Inc.'s common stock, par value $.01 per share.
1
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Part I -- Financial Information
Item 1 -- Financial Statements.
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<TABLE>
<CAPTION>
WESTPORT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
($ in thousands, except share data)
<S> <C> <C>
June 30, December 31,
1996 1995
- -------------------------------------------------------------------------------------------------------------------------
(unaudited)
ASSETS:
Cash and due from banks $ 21,767 $ 24,113
Federal funds sold 13,500 14,500
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 35,267 38,613
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Securities available for sale, at market value 90,814 85,338
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Loans 182,680 178,052
Allowance for loan losses (3,121) (2,854)
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Loans - net 179,559 175,198
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Premises and equipment - net 3,478 4,933
Accrued interest receivable 2,251 2,247
Other assets 5,279 6,588
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TOTAL ASSETS $316,648 $312,917
=========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Noninterest-bearing deposits $ 78,953 $ 78,421
Interest-bearing deposits 179,938 196,249
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Total deposits 258,891 274,670
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Short-term borrowings 29,049 7,733
Other liabilities 3,593 6,232
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Total liabilities 291,533 288,635
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Stockholders' equity:
Preferred stock - $.01 par value; authorized 2,000,000
shares; outstanding 39,600 shares at June 30, 1996, 1 1
41,850 at December 31, 1995
Common stock - $.01 par value; authorized 20,500,000 shares;
outstanding, 6,068,531 shares at June 30, 1996,
5,433,665 shares at December 31, 1995 60 54
Additional paid in capital 23,485 22,980
Retained earnings 2,495 1,285
Net unrealized depreciation on securities
available for sale, net of tax (926) (38)
- -------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 25,115 24,282
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $316,648 $312,917
=========================================================================================================================
See notes to consolidated financial statements.
</TABLE>
2
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<TABLE>
<CAPTION>
WESTPORT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $ 4,114 $ 4,033 $ 8,123 $ 8,175
Securities 1,363 984 2,672 1,947
Federal funds sold and other 77 63 103 72
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Total interest income 5,554 5,080 10,898 10,194
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INTEREST EXPENSE:
Deposits 1,389 1,162 2,848 2,248
Short-term borrowings 227 335 405 657
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Total interest expense 1,616 1,497 3,253 2,905
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Net interest income 3,938 3,583 7,645 7,289
Provision for loan losses 300 375 600 750
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Net interest income after provision
for loan losses 3,638 3,208 7,045 6,539
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OTHER OPERATING INCOME:
Trust fees 490 465 946 869
Service charges on deposit accounts 370 344 699 686
Realized security gains (losses) - net 13 (23) 13 (233)
Loan sale gains - net --- 21 85 38
Mortgage service fees 34 34 65 65
Other 157 147 336 283
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Total other operating income 1,064 988 2,144 1,708
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OTHER OPERATING EXPENSE:
Salaries and benefits 1,466 1,346 2,975 2,760
Occupancy - net 365 331 762 690
Professional fees 283 209 557 412
Data processing 143 142 290 282
Furniture and equipment 88 63 166 139
Other insurance premiums 46 55 90 112
FDIC insurance premiums 1 177 1 353
Other 395 406 758 815
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Total other operating expense 2,787 2,729 5,599 5,563
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Income before income taxes 1,915 1,467 3,590 2,684
Income taxes (benefit) 796 (115) 1,491 (558)
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NET INCOME $ 1,119 $ 1,582 $ 2,099 $ 3,242
============================================================================================================================
Earnings Per Common Share $ 0.11 $ 0.15 $ 0.20 $ 0.32
============================================================================================================================
Weighted average number of common
shares and common equivalent
shares outstanding 10,579,196 10,377,543 10,556,441 10,191,198
============================================================================================================================
See notes to consolidated financial statements.
</TABLE>
3
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<TABLE>
<CAPTION>
WESTPORT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
($ in thousands)
(unaudited)
Net
Unrealized
Appreciation/
Preferred Stock Common Stock (Depreciation)
-------------------- ------------------- Additional Retained on Securities
Number of Number of Paid in Earnings Available for Sale,
Shares Amount Shares Amount Capital (Deficit) Net of Tax Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 43,950 $ 1 3,211,752 $ 32 $21,459 $ (4,680) $ (414) $16,398
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income --- --- --- --- --- 3,242 --- 3,242
Issuance of Common Stock -
Warrants exercised --- --- 1,972,000 20 1,459 --- --- 1,479
Employee Options exercised --- --- 9,000 --- 18 --- --- 18
Conversion of Preferred Stock (1,600) --- 160,000 1 (1) --- --- ---
Dividend Reinvestment and
Stock Purchase Plan --- --- 798 --- 4 --- --- 4
Dividends -
Preferred Stock --- --- --- --- --- (85) --- (85)
Common Stock --- --- --- --- --- (107) --- (107)
Change in net unrealized depreciation
on securities available for sale,
net of tax --- --- --- --- --- --- 417 417
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Balance, June 30, 1995 42,350 $ 1 5,353,550 $ 53 $22,939 $ (1,630) $ 3 $21,366
====================================================================================================================================
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Balance, January 1, 1996 41,850 $ 1 5,433,665 $ 54 $22,980 $ 1,285 $ (38) $24,282
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income --- --- --- --- --- 2,099 --- 2,099
Issuance of Common Stock -
Conversion of Preferred Stock (2,250) --- 225,000 2 (2) --- --- ---
Warrants exercised --- --- 325,500 3 242 --- --- 245
Dividend Reinvestment and
Stock Purchase Plan --- --- 1,116 --- 7 --- --- 7
Employee Options exercised --- --- 83,250 1 258 --- --- 259
Dividends -
Preferred Stock --- --- --- --- --- (358) --- (358)
Common Stock --- --- --- --- --- (531) --- (531)
Change in net unrealized depreciation
on securities available for sale,
net of tax --- --- --- --- --- --- (888) (888)
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Balance, June 30, 1996 39,600 $ 1 6,068,531 $ 60 $23,485 $ 2,495 $(926) $25,115
====================================================================================================================================
See notes to consolidated financial statements.
</TABLE>
4
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<TABLE>
<CAPTION>
WESTPORT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(unaudited)
Six Months Ended
June 30,
1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,099 $ 3,242
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 600 750
Deferred tax provision (benefit) 1,420 (618)
Depreciation, amortization and accretion 416 420
Provision for and losses on other real estate owned - net --- 120
Loss on sale of bank premises-net 5 ---
Loan sale gains - net (85) (38)
Realized security (gains) losses - net (13) 233
Increase in accrued interest receivable (4) (170)
Decrease (increase) in other assets 479 (1,791)
Increase decrease in other liabilities (2,609) 54
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Net cash provided by operating activities 2,308 2,202
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INVESTING ACTIVITIES:
Proceeds from maturities of securities -
Available for sale 20,494 ---
Held to maturity --- 1,000
Proceeds from sales of securities -
Available for sale 6,027 21,399
Principal collected on securities 2,180 2,313
Purchases of securities -
Available for sale (35,748) (18,268)
Held to maturity --- (4,999)
Increase in loans - net (9,733) (3,627)
Loans repurchased by the FDIC --- 1,246
Proceeds from sale of bank premises 1,199 ---
Proceeds from sales of loans 4,857 9,034
Proceeds from sales of other real estate owned --- 161
Purchases of premises and equipment (89) (307)
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Net cash (used in) provided by investing activities (10,813) 7,952
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FINANCING ACTIVITIES:
Increase (decrease) in noninterest-bearing deposits - net 532 (3,747)
Decrease in interest-bearing deposits - net (16,311) (11,563)
Increase in short-term borrowings - net 21,316 13,892
Proceeds from issuance of Common Stock - net 511 1,501
Dividends (889) (192)
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Net cash provided by (used in) financing activities 5,159 (109)
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Increase (decrease) in cash and cash equivalents (3,346) 10,045
Cash and cash equivalents at beginning of year 38,613 17,924
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Cash and cash equivalents at end of period $ 35,267 $ 27,969
=======================================================================================================================
See notes to consolidated financial statements.
5
</TABLE>
<PAGE>
WESTPORT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 - Unaudited Financial Statements
The accompanying unaudited consolidated financial statements include the
accounts of Westport Bancorp, Inc. ("Bancorp") and its subsidiary, The Westport
Bank & Trust Company (the "Bank") (together, the "Company"). The consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In preparing Bancorp's
interim financial statements, management has made estimates and assumptions that
affect the reported amounts of assets and liabilities as of the date of the
consolidated statements of condition and the reported amounts of revenues and
expenses for the periods. Actual future results could differ significantly from
these estimates. In the opinion of management, all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation have been included.
Operating results are not necessarily indicative of the results that may be
expected for the year ended December 31, 1996. For further information, refer to
the consolidated financial statements and footnotes thereto included in
Amendment No. 1 to the Company's Annual Report on Form 10-K/A for the year ended
December 31, 1995.
Certain prior year amounts have been reclassified to conform with the 1996
presentation.
Note 2 - Merger Agreement
On June 21, 1996, Bancorp and the Bank entered into an Agreement and Plan of
Merger (the "Agreement") with HUBCO, Inc. ("HUBCO"). Pursuant to the Agreement,
at the Effective Time (as defined in the Agreement), the Company will be merged
with and into HUBCO (the "Merger") and HUBCO will be the surviving corporation.
At HUBCO's option, at the Effective Time, and simultaneously with the Merger,
the Bank will be merged (the "Bank Merger") with HUBCO's principal Connecticut
bank subsidiary (the "Connecticut Bank") or with another subsidiary of HUBCO, if
HUBCO has no Connecticut bank subsidiary at the Effective Time (the Connecticut
Bank or such other HUBCO subsidiary, sometimes hereinafter referred to as the
"Surviving Bank").
Pursuant to the Agreement, in the Merger, each share of common stock, $.01 par
value, of the Company ("WBI Common Stock"), issued and outstanding immediately
prior to the Effective Time (excluding treasury shares and shares held by HUBCO)
will be converted at the Effective Time into the right to receive 0.3225 of a
share of common stock, no par value, of HUBCO ("HUBCO Common Stock"). Each share
of Series A Convertible Preferred Stock, $.01 par value, of the Company ("WBI
Preferred Stock"), issued and outstanding immediately prior to the Effective
Time (excluding treasury shares, shares held by HUBCO and dissenting shares)
will be converted at the Effective Time into the right to receive one share of a
newly created series of HUBCO preferred stock having terms substantially
identical to those of the WBI
6
<PAGE>
Preferred Stock. All shares of WBI Common Stock and WBI Preferred Stock held by
the Company in its treasury or owned by HUBCO or by any of HUBCO's wholly-owned
subsidiaries, including Hudson United Bank, (other than shares held as trustee
or in a fiduciary capacity and shares held as collateral or in lieu of a debt
previously contracted) immediately prior to the Effective Time shall be
cancelled. Cash will be paid in lieu of fractional shares of HUBCO Common Stock.
Stock options which, as of the Effective Time, are outstanding and fully vested
and exercisable as to all of the shares of WBI Common Stock that are subject to
such option (including options that became exercisable as a result of the
transactions contemplated by the Agreement) (each a "Vested Stock Option") will
be converted at the Effective Time into HUBCO Common Stock, based upon the value
of the Vested Stock Option, to the extent permitted under the plans and
agreements under which such Vested Stock Options were granted (each Vested Stock
Option so converted, a "Converting Stock Option"). If conversion of any Vested
Stock Option is not permitted under the plan or agreement under which such
Vested Stock Option was granted without the consent of the optionee affected
thereby, Bancorp, in consultation with HUBCO, will use its reasonable best
efforts to obtain the consent of the necessary parties to amend such plan and/or
agreement to permit such conversion and to cause Vested Stock Options
outstanding at the Effective Time to be Converting Stock Options. Each stock
option outstanding at the Effective Time (i) which is not a Vested Stock Option
or (ii) which is a Vested Stock Option and which is not a Converting Stock
Option will be converted into an option to purchase HUBCO Common Stock based
upon the value of the stock option.
The Agreement provides that two nominees, designated by the Company and
acceptable to HUBCO (which persons shall be Michael H. Flynn and David A. Rosow,
unless HUBCO and the Company agree in writing to the contrary), will be duly
appointed by the Board of Directors of HUBCO to HUBCO's Board of Directors
effective at the Effective Time. Provision shall have been made such that three
nominees, designated by the Company and acceptable to HUBCO (which persons shall
include Michael H. Flynn and David A. Rosow, unless HUBCO and the Company agree
in writing to the contrary) and one person designated by Josiah T. Austin and
acceptable to HUBCO each shall have been appointed as directors of the Surviving
Bank (or shall continue as directors of the Bank if the Bank Merger is not
consummated at the Effective Time). HUBCO will have caused Michael H. Flynn to
be appointed President of the Connecticut Bank, subject to the condition that
Mr. Flynn amend his employment agreement so that none of Bancorp, the Bank,
HUBCO or any subsidiary of HUBCO will be required to make any payments or
provide any benefits which, if paid or provided, would constitute an "excess
parachute payment" (as defined in Section 280G of the Internal Revenue Code of
1986, as amended). HUBCO will have caused David A. Rosow to be appointed
Chairman of the Executive Committee of the HUBCO Board of Directors.
The Agreement is subject to a number of conditions including, but not limited
to, shareholder approval and approval of regulatory agencies including the State
of Connecticut Bank Commissioner and the Federal Reserve Bank of New York. HUBCO
expects to account for the Merger as a pooling of interests.
Expenses incurred by Bancorp in connection with the Merger will be deferred
pending completion of the Merger. Such expenses amounted to approximately
$100,000 as of June 30, 1996. Bancorp's management anticipates the Merger will
close during the fourth quarter of 1996.
7
<PAGE>
Note 3 - Regulatory Matters
During January 1996, representatives of the State of Connecticut Bank
Commissioner completed a routine examination of the Bank as of October 30, 1995.
Other than minor suggestions for improvements, there were no significant
examination findings which are believed to have potentially negative
implications for the Bank.
The Federal Reserve Board and the Federal Deposit Insurance Corporation ("FDIC")
require bank holding companies and banks, respectively, to comply with
guidelines based upon the ratio of capital to total assets adjusted for risk,
and the ratio of Tier 1 capital to total quarterly average assets (leverage
ratio).
The following summarizes the minimum capital requirements and Bancorp's capital
position (there are no significant differences between the Bank's and Bancorp's
capital ratios) at June 30, 1996.
<TABLE>
<CAPTION>
<S> <C> <C>
Bancorp's Minimum Capital
Capital Ratio Capital Position Requirements
- -------------------------------------------------------------------------------------------------------------------
Total Capital to Risk-Weighted Assets 14.84% 8.0%
Tier 1 Capital to Risk-Weighted Assets 13.59 4.0
Tier 1 Capital to Average Assets (Leverage Ratio) 8.55 3.0(1)
<FN>
(1) An additional 1% to 2% is required for all but the most highly rated institutions.
</FN>
</TABLE>
The Federal Deposit Insurance Act ("FDIA"), as amended by the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), establishes five
classifications for banks on the basis of their capital levels: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. At June 30, 1996, the Company
was "well capitalized" under FDIA, as amended, based upon the above capital
ratios. Deterioration of economic conditions and real estate values could
adversely affect future results, leading to increased levels of loan
charge-offs, provision for loan losses and nonaccrual loans, affecting the
ability of the Company to maintain the well capitalized classification, and
resulting in reductions in income and total capital.
Note 4 - Income Taxes
Effective January 1, 1996, the Company began providing income taxes at regular
federal and state tax rates, having fully recognized the financial statement
benefit of its net operating loss carryforwards in 1995. The Company's federal
and state income tax provision for the first six months of 1996, totaled
$1,491,000; cash payments for income taxes during the period totaled $100,000.
The Company's tax provision for the first six months of 1995 included a current
federal and state tax provision totaling $60,000 and a $618,000 benefit
resulting from
8
<PAGE>
the reversal of a portion of the previously established deferred tax valuation
allowance. For the six month period ended June 30, 1995, the Company made cash
payments for income taxes totaling $65,000.
As of June 30, 1996, the Company has aggregate net operating loss carryforwards
of approximately $3.8 million for federal purposes and $4.4 million for state
purposes to offset future income for tax return purposes.
At June 30, 1996, the Company had a net deferred tax asset of $2.0 million
representing anticipated future utilization of its net operating loss
carryforwards as an offset against future taxable income and other temporary
differences.
The $0.9 million tax effect relating to the unrealized loss on available for
sale securities during the first six months of 1996 is excluded from the
consolidated statement of cash flows because no cash was involved.
Note 5 - Earnings Per Share
Earnings per share are computed by dividing net income by the weighted average
number of common shares and common share equivalents outstanding.
For the quarters ended June 30, 1996 and 1995, the computation includes
5,689,465 and 4,763,227 weighted average shares outstanding, respectively, and
890,720 and 1,331,844 weighted average common equivalent shares, respectively,
under the treasury stock method. The earnings per share computations also
include 3,999,011 and 4,282,472 weighted average common shares in 1996 and 1995,
respectively, issuable upon the assumed conversion of preferred stock.
For the six month periods ended June 30, 1996 and 1995, the computation includes
5,629,550 and 4,010,532 weighted average shares outstanding, respectively, and
897,111 and 1,842,241 weighted average common equivalent shares, respectively,
under the treasury stock method. The earnings per share computations also
include 4,029,780 and 4,338,425 weighted average shares in 1996 and 1995,
respectively, issuable upon the assumed conversion of preferred stock.
There was no difference between primary and fully diluted earnings per share in
the second quarters of 1996 and 1995 or in the six month periods ended June 30,
1996 and 1995.
Note 6 - New Accounting Standards
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of". SFAS 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used and for long-lived assets and certain identifiable intangibles to be
disposed of. The adoption of SFAS 121 did not have an impact on the Company's
consolidated financial statements.
9
<PAGE>
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation". SFAS
123 establishes financial accounting and reporting standards for stock-based
employee compensation plans. The adoption of SFAS 123 did not have an impact on
the Company's consolidated financial statements.
Item 2 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations.
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Results of Operations
Overview
The Company's earnings are largely dependent upon net interest income and
noninterest income from its community banking operations, including fees
generated by its Trust department. Net interest income is the difference between
interest earned on the loan and investment portfolios and interest paid on
deposits and other sources of funds. Noninterest income is primarily the result
of fees generated by the Trust department, charges related to transaction
activity from commercial and retail checking accounts and gains from loan and
securities sales.
The Company reported net income for the first six months of 1996 of $2,099,000,
or $0.20 per common share, compared to net income of $3,242,000 or $0.32 per
common share for the comparable 1995 period. Effective January 1, 1996, the
Company began providing income taxes at regular federal and state tax rates,
having fully utilized the financial statement benefit of its net operating loss
carryforwards in 1995. The 1996 second quarter and first six month period tax
provision of $0.8 and $1.5 million, respectively, compares with a $0.1 and $0.6
million tax benefit recognized during the same periods in 1995 . Excluding
non-recurring gains and losses from the sale of loans and/or investment
securities, the Company's pretax earnings from core operations were $3,492,000
for the six months ended June 30, 1996, an increase of 21% from core earnings of
$2,879,000 for the first six months of 1995. Contributing to the improved
pre-tax results for the first six months of 1996, as compared to the same period
in 1995, was a 35% decline in nonperforming assets and an increase in average
earning assets, which resulted in a 7% increase in interest income. In addition,
a reduction in the provision for loan losses as a result of the overall
improvement in the credit quality of the loan portfolio, an increase in Trust
fee income, a reduction in FDIC insurance premiums and the elimination of
realized security losses contributed to improved pre-tax earnings.
During the second quarter of 1996, net income was $1,119,000, or $0.11 per
common share, compared to net income of $1,582,000, or $0.15 per common share
for the comparable 1995 period. Excluding non-recurring gains and losses, the
Company's second quarter pre-tax earnings from core operations were $1,902,000,
which represented a 29% increase from $1,469,000 for the comparable 1995 period.
Contributing to the improvement in results in the second quarter of 1996,
compared to the same period of 1995, was an increase of 9% in average
interest-earning assets, increases in fee income, a reduction in the provision
for loan losses and a reduction in FDIC insurance premiums.
10
<PAGE>
Negatively impacting earnings for the second quarter and first six months of
1996 was an increase in the cost and volume of average interest-bearing
liabilities, an increase in salaries and benefits associated with the opening of
a new branch facility during the third quarter of 1995 and an increase in
professional fees related to executive compensation initiatives and corporate
legal fees.
Bancorp's leverage ratio at June 30, 1996 was 8.55%, and its total capital to
risk-weighted asset ratio was 14.84%, which exceeded current minimum
requirements. See Note 3 to the accompanying consolidated financial statements
for further discussion of regulatory matters.
The Company's results for 1996 continued to be impacted by the sluggish regional
economy and real estate market. However, during 1995 and the first six months of
1996, management has seen some positive trends, including the increased
stabilization of the local economy, reduction in vacancy rates, and renewed
activity in the real estate market, which have had a positive effect on
earnings. A deterioration of the economy and/or real estate values would
adversely affect results in 1996 and beyond, and could lead to increased levels
of loan charge-offs, the provision for loan losses and nonaccrual loans and
reductions in income and total capital.
On June 21, 1996, Bancorp and the Bank entered into the Agreement and Plan of
Merger with HUBCO. See Note 2 to the financial statements for a further
discussion of the Agreement.
Net Interest Income
Net interest income is the difference between interest earned on loans and other
investments and interest paid on deposits and other sources of funds. Net
interest income is affected by a number of variables. One such variable is the
interest rate spread, which represents the difference between the yield on total
average interest-earning assets and the cost of total average
noninterest-bearing and interest-bearing liabilities.
Net interest income was $7,645,000 in the first six months of 1996, compared
with $7,289,000 in the comparable 1995 period, an increase of 4.9% or $356,000.
For the second quarter of 1996, net interest income increased $355,000 to
$3,938,000, or 9.9% over the 1995 second quarter figure of $3,583,000. Factors
impacting interest income and expense are discussed below.
Total interest income amounted to $10,898,000 for the first six months of 1996,
compared to $10,194,000 for the same period in 1995, an increase of 6.9%. A key
factor relating to the higher level of total interest income for the first six
months of 1996, compared to the same period for 1995, was an increase in average
earning assets of $18.4 million or 7.2%, to $274,898,000 from $256,480,000. This
increase in volume during the 1996 period resulted in an additional $615,000 of
interest income. The average balance of investment securities, as a component of
earning assets, experienced the most significant increase from $68,372,000 in
1995 to $88,565,000 in 1996, an increase of 29.5%. During the first six month
period of 1996, the yield on average interest-earning assets decreased slightly
to 7.9% from 8.0% in 1995. Negatively impacting the first six months of 1996 was
a 24.2% increase, from December 31, 1995, in nonaccrual loans. Positively
impacting the second quarter of 1996, average earning assets increased
$23,697,000 to $279,465,000, an increase of 9.3%, increasing interest income by
$390,000. In addition, average non-accruing loans declined 40.4% to $2,635,000
in the second quarter of 1996 from $4,424,000 in the second quarter of 1995.
11
<PAGE>
Total interest expense for the first six months of 1996 was $3,253,000, an
increase of 12.0% from $2,905,000 for the same period in 1995. This increase is,
in part, the result of a 3.7% increase in average interest-bearing liabilities.
For the first six month period of 1996, average interest-bearing liabilities
increased to $201,265,000 from $194,138,000 for the comparable 1995 period,
resulting in an increase in interest expense of $261,000. In addition, average
interest costs on interest-bearing liabilities for the first six month period of
1996 increased to 3.2% from 3.0% for the comparable 1995 period, resulting in
additional interest expense of $87,000. For the second quarter of 1996, interest
expense increased $119,000 or 7.9%, primarily due to the 6.3% increase in
average interest-bearing liabilities. Positively impacting results during the
three and six month periods ended June 30, 1996 was an increase of 10.3% and
8.0%, respectively, in the average balance of noninterest-bearing liabilities as
compared to the same periods in 1995.
Net interest margin represents net interest income divided by average
interest-earning assets. For the first six months of 1996, the net interest
margin declined to 5.6% from 5.7% in the comparable 1995 period. For the second
quarter of 1996, the net interest margin remained unchanged at 5.6% as compared
to the second quarter of 1995. The net interest margin in 1996 was negatively
impacted by the increase in average interest-bearing liabilities and associated
costs offset, in part, by the increase in average interest-earning assets.
Total interest income for the comparable periods of 1996 and 1995 was negatively
impacted by the level of nonaccrual loans, averaging $2,456,000 and $4,333,000
for the first six months of 1996 and 1995, respectively. Further improvement in
net interest income is dependent, in part, upon the continued resolution of
nonperforming assets.
12
<PAGE>
The following table sets forth a comparison of average earning assets,
nonaccrual loans, average interest-bearing liabilities and related
interest-income and expense for the three months ended June 30, 1996 and 1995.
Average balances are averages of daily closing balances.
<TABLE>
<CAPTION>
Three Months Ended June 30,
- ----------------------------------------------------------------------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate
- ----------------------------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Accruing loans $181,244 $4,114 9.1% $179,459 $4,033 9.0%
Non-accruing loans 2,635 --- --- 4,424 --- ---
- ----------------------------------------------------------------------------------------------------------------------------------
Total loans 183,879 4,114 9.0 183,883 4,033 8.8
Investment securities 89,713 1,363 6.1 67,729 984 5.8
Federal funds sold
and other 5,873 77 5.2 4,156 63 6.0
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning
assets $279,465 5,554 8.0 $255,768 5,080 8.0
======== ----- ======== -----
Noninterest-bearing
demand deposits $ 72,927 --- --- $ 66,133 --- ---
Interest-bearing
liabilities:
NOW and Money market 72,710 311 1.7 66,222 273 1.7
Savings 46,424 230 2.0 52,116 257 2.0
Certificates of deposit 66,441 839 5.1 50,106 620 5.0
Other 18,139 236 5.2 23,267 347 6.0
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 203,714 1,616 3.2 191,711 1,497 3.1
- ----------------------------------------------------------------------------------------------------------------------------------
Total noninterest-bearing
deposits and interest-
bearing liabilities $276,641 1,616 2.3 $257,844 1,497 2.3
======== ----- ======== -----
Net interest income(1) $3,938 $3,583
==================================================================================================================================
Net interest margin(2) 5.6% 5.6%
==================================================================================================================================
Interest rate spread(3) 5.7% 5.7%
==================================================================================================================================
<FN>
(1) Interest income includes fees on loans of $109,000 and $49,000 for 1996 and 1995, respectively.
(2) Net interest margin is net interest income divided by total average earning assets.
(3) Interest rate spread is the difference between the yield on total average interest-earning assets and the cost of
total average noninterest-bearing deposits and interest-bearing liabilities.
</FN>
</TABLE>
13
<PAGE>
The following table sets forth a comparison of average earning assets,
nonaccrual loans, average interest-bearing liabilities and related
interest-income and expense for the six months ended June 30, 1996 and 1995.
Average balances are averages of daily closing balances.
<TABLE>
<CAPTION>
Six Months Ended June 30,
- ---------------------------------------------------------------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate
- ---------------------------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Accruing loans $179,946 $8,123 9.1% $181,375 $8,175 9.1%
Non-accruing loans 2,456 --- --- 4,333 --- ---
- ----------------------------------------------------------------------------------------------------------------------------------
Total loans 182,402 8,123 8.9 185,708 8,175 8.9
Investment securities 88,565 2,672 6.0 68,372 1,947 5.7
Federal funds sold
and other 3,931 103 5.2 2,400 72 6.0
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning
assets $274,898 10,898 7.9 $256,480 10,194 8.0
======== ------ ======== ------
Noninterest-bearing
demand deposits $ 70,928 --- --- $ 65,687 --- ---
Interest-bearing
liabilities:
NOW and Money market 70,803 614 1.7 67,814 536 1.6
Savings 45,919 454 2.0 54,413 536 2.0
Certificates of deposit 68,337 1,762 5.2 48,710 1,156 4.8
Other 16,206 423 5.2 23,201 677 5.9
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 201,265 3,253 3.2 194,138 2,905 3.0
- ----------------------------------------------------------------------------------------------------------------------------------
Total noninterest-bearing
deposits and interest-
bearing liabilities $272,193 3,253 2.4 $259,825 2,905 2.3
======== ----- ======== -----
Net interest income(1) $7,645 $7,289
==================================================================================================================================
Net interest margin(2) 5.6% 5.7%
==================================================================================================================================
Interest rate spread(3) 5.5% 5.7%
==================================================================================================================================
<FN>
(1) Interest income includes fees on loans of $180,000 and $106,000 for 1996 and 1995, respectively.
(2) Net interest margin is net interest income divided by total average earning assets.
(3) Interest rate spread is the difference between the yield on total averageinterest-earning assets and the cost of
total average noninterest-bearing deposits and interest-bearing liabilities.
</FN>
</TABLE>
14
<PAGE>
The following table analyzes the changes attributable to the rate and volume
components of net interest income.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 vs 1995 1996 vs 1995
Increase/(decrease) Increase/(decrease)
due to change in(1): due to change in(1):
Total Total
Volume Rate Change Volume Rate Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans $ 40 $ 41 $ 81 $ (27) $ (25) $ (52)
Investment securities 332 47 379 605 120 725
Federal funds sold and other 18 (4) 14 37 (6) 31
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest income 390 84 474 615 89 704
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Deposits and other interest-bearing
liabilities:
NOW & Money market 27 11 38 25 53 78
Savings (28) 1 (27) (81) (1) (82)
Certificate of deposit 206 13 219 502 104 606
Other (72) (39) (111) (185) (69) (254)
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense 133 (14) 119 261 87 348
- ------------------------------------------------------------------------------------------------------------------------------------
Change in Net Interest Income $ 257 $ 98 $ 355 $ 354 $ 2 $ 356
====================================================================================================================================
<FN>
(1) Variances were computed as follows:
Variance due to rate = change in rate multiplied by old volume.
Variance due to volume = change in volume multiplied by old rate.
Variance due to rate/volume prorated to rate and variance volumes on the basis of gross value.
</FN>
</TABLE>
15
<PAGE>
Nonperforming Assets
The following table sets forth the principal portion of loans with principal or
interest payments contractually past due 90 days or more, nonaccrual loans,
impaired loans and other real estate owned at June 30, 1996, December 31, 1995
and June 30, 1995.
<TABLE>
<CAPTION>
% Change % Change
June 30, June 30,
1996 vs 1996 vs
June 30, Dec. 31, June 30, Dec. 31, June 30,
1996 1995 1995 1995 1995
- --------------------------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C>
Loans 90 days or more past due, on accrual status:
Mortgage:
Secured by residential
property $ 50 $ 5 $ 454 N/M% (89)%
Commercial and other 628 --- --- N/M N/M
Home equity --- 149 150 (100) (100)
Consumer and other --- 4 16 (100) (100)
- --------------------------------------------------------------------------------------------------------------------------------
678 158 620 329 9
- --------------------------------------------------------------------------------------------------------------------------------
Nonaccrual loans
Mortgage:
Secured by residential
property 591 85 656 N/M (10)
Commercial and other 950 1,098 1,098 (13) (13)
Commercial 938 813 1,700 15 (45)
- --------------------------------------------------------------------------------------------------------------------------------
2,479 1,996 3,454 24 (28)
- --------------------------------------------------------------------------------------------------------------------------------
Impaired accruing loans 1,048 447 2,373 N/M (56)
- --------------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 4,205 2,601 6,447 62 (35)
Other real estate owned 60 --- 71 N/M (15)
- --------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 4,265 $ 2,601 $ 6,518 64% (35)%
================================================================================================================================
N/M = not measurable or not meaningful.
</TABLE>
The increase in nonperforming loans at June 30, 1996, as compared to December
31, 1995 is, in part, attributable to the addition of four nonaccrual loans
totaling $0.6 million which are secured by residential property. In addition,
one commercial mortgage totaling $0.8 million was added to impaired loans and
two commercial mortgage loans were ninety days past due as of June 30, 1996.
However, management believes all of these loans are well secured and is
aggressively pursuing the collection of these loans.
16
<PAGE>
On January 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 114 ("SFAS 114"), "Accounting by Creditors for Impairment of a
Loan", and Statement of Financial Accounting Standards No. 118 ("SFAS 118"),
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures". SFAS 114 and 118 address the accounting by creditors for
impairment of certain loans and the recognition of interest income on these
loans and requires that impairment of these loans be measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate or the fair value of collateral. A loan is considered impaired,
based on current information and events, if it is probable that the Company will
be unable to collect the scheduled payments of principal and interest when due
according to the contractual terms of the loan agreement. The adoption of SFAS
114 and 118 on January 1, 1995 has not materially affected the Company's
financial statements or the amount of the allowance for loan losses.
Interest payments received on accruing impaired loans are recorded as interest
income. Interest payments received on nonaccruing impaired loans are recorded as
reductions of loan principal.
At June 30, 1996, the recorded investment in loans for which impairment has been
recognized in accordance with SFAS 114 and 118 totaled $3,527,000, of which
$2,479,000 were nonaccrual loans. At June 30, 1996, the valuation allowance
related to all impaired loans totaled $790,000 and is included in the allowance
for loan losses. For the three months ended June 30, 1996, the average recorded
investment in impaired loans was approximately $3.7 million. Total interest in
the amount of $24,700 was recognized on accruing impaired loans during the
quarter.
At June 30, 1996, the Company had no commitments to lend additional funds to
borrowers with loans that have been classified as impaired. The level of
nonperforming assets has had a significant negative impact on the Company's
capital and earnings over the last five years. Although management recognizes
that the level of nonperforming assets is still high, it is encouraged by the
downward trend since 1990 and the 35% decline from June 30, 1995 to June 30,
1996.
It is the Company's policy to discontinue the accrual of interest on loans,
including impaired loans, when, in the opinion of management, a reasonable doubt
exists as to the timely collection of the amounts due. Additionally, regulatory
requirements generally prohibit the accrual of interest on certain loans when
principal or interest is due and remains unpaid for 90 days or more, unless the
loan is both well secured and in the process of collection.
Operating results since 1989 have been adversely impacted by the level of
nonperforming assets caused by the deterioration of borrowers' ability to make
scheduled interest and principal payments caused primarily by the decline in
real estate values, a severe slowdown in business activity and a high rate of
unemployment. In addition to foregone revenue, the Company has had to provide a
high level of provision for loan losses and has incurred significant collection
costs and costs associated with the management and disposition of foreclosed
properties. However, during 1994 and 1995 and continuing into 1996, management
has seen some positive trends including the increased stabilization of the local
economy, reduction in vacancy rates, and renewed activity in the real estate
market, which have had a positive effect on earnings.
17
<PAGE>
The characteristics of the real estate market since 1989 include a substantial
decline in real estate property values and a significant increase in the amount
of time that properties remain on the market prior to sale. Factors contributing
to the depressed market conditions are an over supply of properties on the
market and a continued sluggish local economy. As a result, the most significant
increases in nonperforming loans since 1989 have been in commercial mortgage
loans, residential mortgage loans and real estate related commercial loans.
Management has seen some recent improvement in the real estate market and the
local economy, which has had a positive effect on its efforts to resolve
nonperforming loans. Management is aggressively pursuing the collection of all
nonperforming loans. Management's efforts to return nonperforming loans to
performing status may be hampered by market factors.
The following table summarizes the activity on nonaccrual loans for the periods
ended June 30, 1996 and 1995.
<TABLE>
<CAPTION>
% Change
June 30,
1996 vs
June 30,
1996 1995 1995
- -------------------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C>
Balance, January 1, $ 1,996 $ 4,316 (54)%
- -------------------------------------------------------------------------------------------------------------------------
Additions 1,418 1,200 18
- -------------------------------------------------------------------------------------------------------------------------
Less:
Repayments 297 1,379 (78)
Charge-offs 318 160 99
Reinstate accruing 260 523 (50)
Transfer to OREO 60 --- N/M
- -------------------------------------------------------------------------------------------------------------------------
Total resolved 935 2,062 (55)
- -------------------------------------------------------------------------------------------------------------------------
Balance, June 30, $ 2,479 $ 3,454 (28)%
=========================================================================================================================
N/M = not measurable or not meaningful.
</TABLE>
Included in the additions for the first six months of 1996 are four loans
totaling $0.6 million which are secured by residential properties. Management
believes these loans are well secured and is aggressively pursuing the
collection of these loans.
In addition to the loans classified as nonperforming in the preceding table, the
Bank's internal loan review function has identified approximately $1.4 million
of loans with more than normal credit risk. Management believes the payment
history of these loans indicates the borrowers may have difficulty in the future
in meeting all of the terms of the contractual agreements. These loans, as well
as nonperforming loans, have been considered in the analysis of the adequacy of
the allowance for loan losses.
18
<PAGE>
Allowance for Loan Losses
Management evaluates the adequacy of the allowance for loan losses on a regular
basis by considering various factors, including past loan loss experience,
delinquent and nonperforming loans and the quality and level of collateral
securing these loans, inherent risks in the loan portfolio, and current economic
and real estate market conditions. Management has performed a loan-by-loan risk
assessment of each classified loan and of a substantial portion of the
performing commercial and commercial mortgage portfolios resulting in a specific
reserve based on loss exposure. An additional general reserve is also allocated
to each of these portfolios as well as to the residential mortgage and other
loan portfolios on an overall basis, based upon the risk category and loss
experience of the given portfolio. Based upon this review, management believes
that, in the aggregate, the allowance of $3,121,000 at June 30, 1996 is adequate
to absorb probable loan losses inherent in the loan portfolio. The adverse real
estate market in Fairfield County, the Company's past reliance upon commercial
real estate lending, the level of charge-offs during the past five years and the
level of nonperforming loans are factors which are considered when the adequacy
of the allowance for loan losses is reviewed. There is no assurance that the
Company will not be required to make increases to the allowance in the future in
response to changing economic conditions or regulatory examinations.
The increase in the allowance for loan losses from $2,854,000 at December 31,
1995 to $3,121,000 at June 30, 1996 reflects $469,000 of loan charge-offs during
the period, a provision for loan losses of $600,000 and recoveries of $136,000.
The charge-offs in 1996 primarily relate to loans on which a specific reserve
had been allocated at December 31, 1995 based on anticipated loss exposure.
It is the Company's policy to charge-off loans against the allowance for loan
losses when losses are certain. Such decisions are based upon an analysis of the
loan, a judgment as to the borrower's ability to repay and the adequacy of
collateral.
The following table summarizes other selected loan and allowance for loan losses
information at June 30, 1996, December 31, 1995 and June 30, 1995.
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1996 1995 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Allowance for loan losses $ 3,121 $ 2,854 $ 3,041
Nonaccrual loans 2,479 1,996 3,454
Nonperforming loans (1) 4,205 2,601 6,447
Allowance for loan losses
as a % of nonaccrual loans 126% 143% 88%
Allowance for loan losses
as a % of nonperforming loans 74% 110% 47%
Allowance for loan losses
as a % of loans outstanding 1.71% 1.60% 1.70%
(1) Includes nonaccrual loans, impaired loans and loans accruing 90 days or more
past due.
</TABLE>
19
<PAGE>
Management is aware of its responsibility for maintaining an adequate allowance
for loan losses and an adequate system to identify credit risk and account for
it appropriately. The recent regulatory examination of the Company did not
identify significant problem loans not already identified by management.
Management will continue to review the findings of regulatory examinations and
comply with regulatory recommendations.
A deterioration of economic conditions and real estate values would adversely
affect future results, leading to increased levels of loan charge-offs,
provision for loan losses and nonaccrual loans and reductions in income and
total capital.
The following table sets forth the activity in the allowance for loan losses for
the six months ended June 30, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C>
Balance, January 1, $2,854 $3,341
- -----------------------------------------------------------------------------------------------------------------
Loans charged-off:
Mortgage:
Secured by residential property 5 162
Commercial and other 206 648
Commercial 185 150
Home equity 25 35
Consumer and other 48 119
- -----------------------------------------------------------------------------------------------------------------
Total loans charged-off 469 1,114
Recoveries on amounts previously charged-off:
Mortgage:
Secured by residential property 4 ---
Commercial 42 27
Home equity 13 4
Consumer and other 77 33
- -----------------------------------------------------------------------------------------------------------------
Total recoveries 136 64
Net loans charged-off 333 1,050
Provision charged to operating expenses 600 750
- -----------------------------------------------------------------------------------------------------------------
Balance, June 30, $3,121 $3,041
=================================================================================================================
</TABLE>
20
<PAGE>
Other Real Estate Owned
Other real estate owned properties ("OREO") totalled $60,000 and $71,000 at June
30, 1996 and 1995, respectively, which amounts are included in Other Assets in
the consolidated statements of condition. During the second quarter of 1996, the
Company acquired a residential property through foreclosure, carried at $60,000.
No other activity occurred in 1996.
During the first six months of 1995, the Bank recorded $120,000 in write-downs
on real estate properties and sold a real estate property with a carrying value
of $161,000, which resulted in a gain of $19,000 during the second quarter of
1995. No other significant activity occurred during this period. No properties
were acquired, through foreclosure or acquisition, during the first six months
of 1995. OREO properties are carried at the lower of cost or estimated fair
value.
Further material declines in the real estate market could cause increases in the
level of OREO, further losses or writedowns.
The following table summarizes the changes in OREO for the six months ended June
30, 1996 and 1995.
1996 1995
- --------------------------------------------------------------------------------
($ in thousands)
Balance, January 1, $ --- $ 352
- --------------------------------------------------------------------------------
Additions 60 ---
Sales --- (161)
Write-downs --- (120)
- --------------------------------------------------------------------------------
Balance, June 30, $ 60 $ 71
================================================================================
21
<PAGE>
Other Operating Income
The following table sets forth other operating income for the three month and
six month periods ended June 30, 1996 and 1995, and the percentage change from
period to period.
<TABLE>
<CAPTION>
Three Months Ended % Change Six Months Ended % Change
June 30, 1996 vs June 30, 1996 vs
1996 1995 1995 1996 1995 1995
- ------------------------------------------------------------------------------------------------------------------------------------
($ in thousands) ($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Trust fees $ 490 $ 465 5.4% $ 946 $ 869 8.9%
Service charges on deposit accounts 370 344 7.6 699 686 1.9
Realized security gains (losses) - net 13 (23) N/M 13 (233) N/M
Loan sale gains --- 21 (100) 85 38 N/M
Mortgage servicing fees 34 34 --- 65 65 ---
Other 157 147 6.8 336 283 18.7
- ------------------------------------------------------------------------------------------------------------------------------------
Total other operating income $ 1,064 $ 988 7.7% $ 2,144 $ 1,708 25.5%
====================================================================================================================================
N/M = not measurable or not meaningful.
</TABLE>
Total other operating income for the first six months of 1996 increased 25.5%
from the comparable period in 1995. This increase was due, in part, to a net
loss of $233,000 realized on the sale of securities in the available for sale
portfolio during 1995. The security losses were incurred in connection with the
repositioning of the available for sale portfolio into higher yielding
government agency securities. Excluding the securities loss in 1995, other
operating income increased 10.5% in 1996 over the comparable 1995 period. For
the second quarter of 1996, total other operating income increased 7.7% to
$1,064,000 from $988,000 for the same period in 1995. Contributing factors are
discussed below.
Trust fees increased $25,000, or 5.4% to $490,000 in the second quarter of 1996
and 8.9% for the first six months of 1996 as compared to the respective 1995
periods. This increase is primarily attributable to the new wealth management
and investment services offered.
Service charges on deposit accounts increased 7.6% and 1.9% for the second
quarter of 1996 and the first six months of 1996, respectively, as compared to
the same periods in 1995. This increase was due primarily to the increased
volume of insufficient fund charges.
The other income category increased 6.8% and 18.7%, for the three month and six
month periods ended June 30, 1996, respectively, over the same periods in 1995,
primarily due to increased letter of credit fees and commissions collected from
checkbook orders.
Loan sale gains in 1996 were positively impacted by the adoption of Statement of
Financial Accounting Standards No. 122 ("SFAS 122"), "Accounting for Mortgage
Servicing Rights" in the fourth quarter of 1995. SFAS 122 requires the
capitalization of the fair value of originated mortgage servicing rights in
connection with the sale of loans in the secondary market. During 1996, the
Company sold $3.1 million in residential mortgage loans while retaining the
rights to service these loans. Net gains of $66,000 were realized from the sale
of these loans which included the recognition of a servicing asset
22
<PAGE>
(originated mortgage servicing rights) and origination fees that had been
previously collected and deferred in accordance with Statement of Financial
Accounting Standards No. 91. Additionally, residential mortgage loans totaling
$1.7 million were sold in the first six months of 1996, servicing released,
resulting in realized net gains of $19,000. During the first six months of 1995,
$9.0 million in residential mortgage loans were sold for a net gain of $38,000.
The Company utilizes loan sales as part of its asset/liability management
program.
Other Operating Expense
The following table sets forth other operating income and other operating
expense for the three month and six month periods ended June 30, 1996 and 1995,
and the percentage change from period to period.
<TABLE>
<CAPTION>
Three Months Ended % Change Six Months Ended % Change
June 30, 1996 vs June 30, 1996 vs
1996 1995 1995 1996 1995 1995
- -------------------------------------------------------------------------------------------------------------------------------
($ in thousands) ($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Salaries and benefits $ 1,466 $ 1,346 8.9% $ 2,975 $ 2,760 7.8%
Occupancy - net 365 331 10.3 762 690 10.4
Professional fees 283 209 35.4 557 412 35.2
Data processing 143 142 0.7 290 282 2.8
Furniture and equipment 88 63 39.7 166 139 19.4
Other insurance premiums 46 55 (16.4) 90 112 (19.6)
FDIC insurance premiums 1 177 (99.4) 1 353 (99.7)
Other 395 406 (2.7) 758 815 (7.0)
- -------------------------------------------------------------------------------------------------------------------------------
Total other operating expense $ 2,787 $ 2,729 2.1% $ 5,599 $ 5,563 0.6%
===============================================================================================================================
N/M = not measurable or not meaningful.
</TABLE>
For the six months ended June 30, 1996, total other operating expense increased
$36,000 or 0.6% to $5,599,000 from $5,563,000 for the comparable period in 1995.
Total other operating expense, during the second quarter of 1996, increased 2.1%
to $2,787,000 from $2,729,000 during the second quarter of 1995. Impacting both
periods was the Company's expansion by opening an additional branch facility
during the third quarter of 1995. Additional contributing factors are discussed
below.
FDIC insurance premiums declined to minimum levels in 1996 based on the current
rate structure imposed by the FDIC and the Bank's classification as well
capitalized. The FDIA, as amended, establishes classifications for banks on the
basis of their capital levels. This classification, along with statutory limits
on the Bank Insurance Fund imposed by FDICIA, impact the amount of insurance
premiums the Company must pay.
Other insurance premiums declined 16.4% to $46,000 in the second quarter of 1996
and 19.6% for the six month period ended June 30, 1996 due to lower premium
costs as a result of the Company's improved financial condition and the
continued decline in commercial insurance rates.
23
<PAGE>
Offsetting these decreases was an increase in salaries and benefits of 8.9% in
the second quarter of 1996 and 7.8% for the first six month period in 1996, as
compared to the same periods in 1995, primarily as a result of additional
staffing added in the third quarter of 1995 for the new branch facility, along
with an increase in employee benefit costs, and costs associated with incentive
programs.
Professional fees increased 35.4% and 35.2% in the second quarter and first six
months of 1996, respectively, when compared to the same periods in 1995
primarily as a result of costs associated with executive compensation
initiatives and corporate legal fees.
Occupancy expense increased 10.3% or $34,000 in the second quarter of 1996 and
10.4% or $72,000 in the first six months of 1996 over the related periods in
1995, primarily due to expenses associated with the new branch facility which
opened during the third quarter of 1995. Furniture and equipment expense
increased 39.7% and 19.4%, for the three and six month periods ended June 30,
1996, respectively, over comparable 1995 periods, primarily due to property
taxes associated with new data processing equipment purchased in 1995.
Income Taxes
Effective January 1, 1996, the Company began providing income taxes at regular
federal and state tax rates, having fully utilized the financial statement
benefit of its net operating loss carryforwards during 1995. See Note 4 to the
accompanying unaudited consolidated financial statements for further discussion.
Financial Condition
Total assets at June 30, 1996 aggregated $316,648,000 compared with $312,917,000
at December 31, 1995. Total loans were $182,680,000 at June 30, 1996, versus
$178,052,000 at December 31, 1995. Noninterest-bearing deposits increased to
$78,953,000 at June 30, 1996, compared with $78,421,000 at December 31, 1995.
Interest-bearing deposits totaled $179,938,000 at June 30, 1996 versus
$196,249,000 at December 31, 1995. The decline at June 30, 1996 in
interest-bearing deposits, as compared to December 31, 1995, can primarily be
attributed to the seasonal increase in deposits at year end, and the cyclical
decline during 1996. Short-term borrowings were $29,049,000 at June 30, 1996 and
$7,733,000 at December 31, 1995. For municipalities and selected commercial and
retail customers, the Bank also offers repurchase agreements, which are included
in short-term borrowings. Securities sold under repurchase agreements were
$20,469,000 at June 30, 1996 and $1,050,000 at December 31, 1995. As a result of
the decline in deposits at June 30, 1996, short-term borrowings, including
repurchase agreements, increased $21,316,000 from December 31, 1995 to meet the
Company's funding requirements.
At June 30, 1996, the Company's available for sale securities portfolio totaled
$90,814,000 as compared to $85,338,000 at December 31, 1995. Securities
available for sale are carried at estimated fair market value, with any
unrealized gains or losses included as a separate component of stockholder's
equity. The portfolio at June 30, 1996 was comprised primarily of fixed rate
U.S. government agency debt and mortgage-backed securities.
24
<PAGE>
Beginning December 31, 1992, banks were required to have a minimum risk-based
capital ratio of 8.00%. The Company's total capital as a percentage of
risk-weighted assets was 14.84% at June 30, 1996, as compared to 14.02% at
December 31, 1995.
An additional capital requirement is a minimum leverage ratio of Tier 1 capital
to total quarterly average assets (leverage ratio), which is intended to
supplement the risk-based capital guidelines. As discussed in Note 3 to the
accompanying unaudited consolidated financial statements, banks are expected to
meet a minimum Tier 1 leverage ratio of 3.00%. The Company's leverage ratio at
June 30, 1996 was 8.55%, exceeding the minimum requirements.
Liquidity
Liquidity management involves the ability to meet the cash flow requirements of
depositors who want to withdraw funds or borrowers who need assurance that
sufficient funds will be available to meet their credit needs. The objective of
liquidity management is to determine and maintain an appropriate level of liquid
interest-earning assets. Aside from cash on hand and due from banks, the Bank's
more liquid assets are Federal funds sold and securities available for sale. On
a daily basis, the Bank lends its excess funds to other commercial institutions
in need of Federal funds. Such cash and cash equivalents totaled $35,267,000 or
11.1% of total assets at June 30, 1996, as compared with $38,613,000 or 12.3% of
total assets at December 31, 1995. Securities available for sale were
$90,814,000 at June 30, 1996 compared with $85,338,000 at December 31, 1995.
Demand deposits, regular savings, money market accounts and NOW deposits from
consumer and commercial customers are a relatively stable, low cost source of
funds which comprise a substantial portion of funding of the Bank's
interest-earning assets. Other sources of asset liquidity include loan and
mortgage-backed security principal and interest payments, maturing securities
and loans, and earnings on investments.
During the second quarter of 1995, the Bank became a member of the Federal Home
Loan Bank of Boston ("FHLBB"). Services offered by the FHLBB include an
unsecured credit line of up to a maximum of 2% of the Bank's assets, and
collateralized fixed and variable rate borrowings. At June 30, 1996, these
available lines amounted to $18.3 million. The FHLBB also offers cash management
services, investment services, as well as lower cost advances for affordable
housing or community investment programs. The Bank had $6.0 million in
short-term borrowings from the FHLBB at June 30, 1996.
In addition, the Bank has two unsecured lines of credit with correspondent banks
totaling $5,000,000. There were no borrowings under these lines at June 30,
1996.
Additional sources of liquidity are available to the Company through the Federal
Reserve Bank's discount window and the sale of certain investment securities to
securities firms and correspondent banks under repurchase agreements. Such
agreements are generally short-term. The outstanding balance of securities sold
under repurchase agreements at June 30, 1996 was $20,469,000. The discount
window, if needed, would allow the Company to cover any short-term liquidity
needs without reducing earning assets. At June 30, 1996, the Company did not
have any borrowings from the Federal Reserve Bank's discount window.
25
<PAGE>
Management believes the above sources of liquidity are adequate to meet the
Company's funding needs in 1996 and in the foreseeable future. Bancorp has
minimal operations and therefore does not generate or utilize a significant
amount of funds. Dividends paid by the Company are funded utilizing proceeds
from the exercise of warrants and options and dividends received from the Bank.
In the second quarter of 1996, the Bank declared a dividend totaling $0.5
million which was paid to Bancorp on July 10, 1996. Proceeds from the exercise
of warrants and options may from time to time result in a loan to the Bank by
Bancorp. At June 30, 1996, Bancorp had loaned a total of $89,000 to the Bank
under such arrangement.
The Bank is prohibited by Connecticut banking law from paying dividends except
from its net profits, which are defined as the remainder of all earnings from
current operations. The total of all dividends declared by the Bank in any
calendar year may not, unless specifically approved by the State of Connecticut
Banking Commissioner, exceed the total of its net profits for that year combined
with its retained net profits from the preceding two years. These dividend
limitations can affect the amount of dividends payable to Bancorp as the sole
stockholder of the Bank, and therefore affect Bancorp's payment of dividends to
its stockholders.
The following table provides a summary of outstanding loan commitments and
standby letters of credit at June 30, 1996.
($ in thousands)
Loan commitments:
Residential mortgage $ 3,630
Commercial mortgage 152
Residential construction 2,358
- ----------------------------------------------------------------------
Total 6,140
- ----------------------------------------------------------------------
Lines of credit commitments:
Commercial 14,004
Home equity 17,389
Personal 2,352
- ----------------------------------------------------------------------
Total 33,745
- ----------------------------------------------------------------------
Commercial letters of credit 26
Standby letters of credit 3,909
- ----------------------------------------------------------------------
Total commitments and letters of credit $ 43,820
======================================================================
Asset/Liability Management
The Bank's asset/liability management program focuses on maximizing net interest
income while minimizing balance sheet risk by maintaining what management
considers to be an appropriate balance between the volume of assets and
liabilities maturing or subject to repricing within the same interval.
Asset/liability management also focuses on maintaining adequate liquidity and
capital. Interest rate sensitivity has a major impact on the Bank's earnings.
Proper asset/liability management involves the matching of short-term interest
sensitive assets and liabilities to reduce interest rate risk. Interest rate
sensitivity is measured by comparing the dollar difference between the amount of
assets maturing or repricing within a specified time period and the amount of
liabilities maturing or repricing within the same time period. This dollar
difference is referred to as the rate sensitivity or maturity "GAP".
26
<PAGE>
Management's goal is to maintain a cumulative one year GAP of under 10% of total
assets. At June 30, 1996, the cumulative one year GAP as a percentage of total
assets was 9.05%. As a result of the increase in interest rates during the first
six months of 1996, certain callable investment securities since December 31,
1995, have shifted from repricing in one year or less to maturing during the one
to five year period, causing the cumulative one year GAP to approach 10% of
total assets. Although $22.7 million in investment securities mature, reprice or
are subject to call in one year or less, the total investment securities
portfolio of $90.8 million is classified as "available for sale". Therefore,
management has the ability to reposition the portfolio at any time to manage the
impact of interest rate shifts. The Bank concentrates on originating adjustable
rate loans to hold in its loan portfolio in order to reduce interest rate risk.
Deregulation of deposit instruments has allowed the Bank to generate deposit
liabilities whose repricing more closely matches that of its loans.
The following table provides detail reflecting the approximate repricing
intervals for rate-sensitive assets and liabilities at June 30, 1996:
<TABLE>
<CAPTION>
Maturity/Repricing Intervals
- ----------------------------------------------------------------------------------------------------------------------------
Over
3 Months
3 Months through 1 - 5 Over 5
or Less 1 Year Years Years Total
- ----------------------------------------------------------------------------------------------------------------------------
$ in thousands)
<S> <C> <C> <C> <C> <C>
Loans(1) $ 78,801 $ 49,584 $ 39,437 $ 12,379 $180,201
Investment securities 17,153 5,536 57,859 10,266 90,814
Federal funds sold and other 13,927 --- --- --- 13,927
- ----------------------------------------------------------------------------------------------------------------------------
Total rate-sensitive assets 109,881 55,120 97,296 22,645 284,942
- ----------------------------------------------------------------------------------------------------------------------------
Rate-Sensitive Liabilities:
NOW and Money market deposits 77,368 --- --- --- 77,368
Certificates of deposit and other 20,198 21,109 15,326 --- 56,633
Savings deposits 45,937 --- --- --- 45,937
Short-term borrowings 29,049 --- --- --- 29,049
- ----------------------------------------------------------------------------------------------------------------------------
Total rate-sensitive liabilities 172,552 21,109 15,326 --- 208,987
============================================================================================================================
GAP $ (62,671) $ 34,011 $ 81,970 $ 22,645 $ 75,955
============================================================================================================================
Cumulative GAP $ (62,671) $ (28,660) $ 53,310 $ 75,955
============================================================================================================================
Cumulative percentage of
rate-sensitive assets to
rate-sensitive liabilities 64% 85% 125% 136%
============================================================================================================================
(1) Excludes nonaccrual loans of $2,479,000, and is net of deferred loan fees of $309,000.
</TABLE>
27
<PAGE>
The principal amount of each asset and liability is included in the above table
in the earliest period in which it matures, reprices or is subject to call.
Nonaccrual loans have been excluded from the rate-sensitive assets. Regular
savings accounts, money market accounts and NOW deposits have been included in
the "3 Months or Less" category. However, these deposits have historically
remained stable and are an integral part of the Bank's funding and
asset/liability management strategy.
Noninterest-bearing demand deposits of $78,953,000 have been excluded from the
table. These deposits, which also have historically been stable, are used to
fund net interest rate sensitive assets beyond three months.
One measure of interest rate sensitivity is the excess or deficiency of assets
that mature or reprice in one year or less. As shown in the preceding table,
rate-sensitive assets that mature or reprice in one year total $165,001,000 and
rate-sensitive liabilities that mature or reprice in one year total
$193,661,000. The resulting negative one year rate-sensitive GAP is $28,660,000.
During periods of declining interest rates, a negative GAP position can be
favorable if more rate-sensitive liabilities than rate-sensitive assets reprice
at lower rates, creating a favorable impact on net interest income. This impact
may be mitigated somewhat if the level of nonaccrual loans and other real estate
owned increases, resulting in a decrease in rate-sensitive assets. During a
rising rate environment, a negative rate GAP can be a disadvantage. However, the
impact of rising and falling interest rates on net interest income may not
directly correlate to the Company's GAP position since interest rate changes and
the timing of such changes can be impacted by management's actions as well as by
competitive and market factors. As interest rates change, rates earned on assets
do not necessarily move in parallel with rates paid on liabilities.
Capital Resources
Stockholders' equity increased to $25,115,000 at June 30, 1996 from $24,282,000
at December 31, 1995, primarily due to earnings of $2,099,000 offset by dividend
payments totaling $889,000 to stockholders and a net change of $888,000 in the
unrealized depreciation of the securities available for sale portfolio.
At June 30, 1996, Bancorp's Tier 1 capital to average assets ratio (leverage
ratio) was 8.55% and its total capital to risk-weighted asset ratio was 14.84%,
exceeding minimum requirements.
In February 1992, the Company completed a private placement of 46,700 investment
units, resulting in total proceeds of $4,670,000 and net proceeds, after
expenses, of $4,320,000. Each unit consists of one share of Series A
Noncumulative Convertible Preferred Stock and fifty warrants. These warrants
became exercisable on January 1, 1994 at an exercise price of $.75 per share. As
of June 30, 1996, all warrants totaling 2,335,000 had been exercised, resulting
in total proceeds of $1,751,250 to the Company.
28
<PAGE>
Part II - Other Information
---------------------------------------------------------------------------
Item 1. Legal Proceedings.
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to their business, to which Bancorp or
the Bank is a party or to which any of their property is subject.
Item 2. Changes In Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of the Shareholders of Westport Bancorp, Inc. was
held on May 16, 1996. The following matters were submitted to a vote:
(i) Appointment of Auditors:
The appointment of Arthur Andersen LLP as the independent
auditors for fiscal year ending December 31, 1996 was ratified.
Of 9,648,531 votes entitled to be cast, 8,702,357 were cast -
8,661,547 for, 30,134 against, 10,676 abstained.
(ii) Election of Directors:
The nominees for director set forth in the proxy statement
received the following votes out of 9,648,531 entitled to be
cast.
Name For Withheld
---- --- --------
George H. Damman 8,663,966 38,391
Michael H. Flynn 8,663,903 38,454
William L. Gault 8,663,903 38,454
Kurt B. Hersher 8,663,903 38,454
William E. Mitchell 8,659,266 43,091
David A. Rosow 8,663,903 38,454
William D. Rueckert 8,663,966 38,391
Jay Sherwood 8,663,903 38,454
29
<PAGE>
(iii) Adoption of the proposed amendment to the Restated Certificate
of Incorporation of Bancorp.
The adoption of the proposed amendment to the Restated
Certificate of Incorporation of Bancorp was approved. Of
9,648,531 votes entitled to be cast, 8,702,357 were cast -
8,245,139 for, 72,045 against, 134,720 abstained.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The exhibits that are filed with this form 10-Q, or that are incorporated
herein by reference, are set forth below:
30
<PAGE>
Exhibit No. Exhibit Description
------------------------------------------------------------------------
2 Agreement and Plan of Merger dated June 21, 1996 among HUBCO,
Inc., Bancorp and the Bank. (Filed as Exhibit 2 to Form 8-K
filed on July 3, 1996, and incorporated herein by reference.)
3(a) Restated Certificate of Incorporation of Bancorp. (Filed as
Exhibit 3(a) to Annual Report on Form 10-K for the year ended
December 31, 1991, File No. 0-12936 ("1991 Form 10-K"), and
incorporated herein by reference.)
3(b) Certificate of Designation of Series A Convertible Preferred
Stock of Bancorp. (Filed as Exhibit 3(b) to 1991 Form 10-K, and
incorporated herein by reference.)
3(c) Certificate of Amendment of Bancorp. (Filed as Exhibit 3(c) to
Annual Report on Form 10-K for the year ended December 31, 1995,
File No. 0-12936 ("1995 Form 10-K"), and incorporated herein by
reference.)
3(d) Certificate of Amendment of Restated Certificate of
Incorporation, as amended, of Bancorp. (Filed herewith.)
3(e) By-Laws of Bancorp, as amended. (Filed as Exhibit 3(d) to Annual
Report on Form 10-K for the year ended December 31, 1992, File
No. 0-12936 ("1992 Form 10-K"), and incorporated herein by
reference.)
4(a) Specimen Common Stock Certificate. (Filed as Exhibit 4 to
Registration Statement on Form S-1, File No. 2-93773, and
incorporated herein by reference.)
4(b) Specimen Series A Convertible Preferred Stock Certificate.
(Filed as Exhibit 4(b) to 1991 Form 10-K, and incorporated
herein by reference.)
4(c) Specimen Warrant Certificate. (Filed as Exhibit 4(c) to 1991
Form 10-K, and incorporated herein by reference.)
10(a) Weston lease dated June 5, 1979 between the Bank and Weston
Shopping Center, Inc. (Filed as Exhibit 10(c) to Registration
Statement on Form S-1, File No. 2- 93773, and incorporated
herein by reference.)
10(b) Weston lease dated August 23, 1979, between the Bank and Weston
Shopping Center Associates, as amended by Modification dated
July 1, 1993. (Filed as Exhibit 10(e) to Annual Report on Form
10-K for the year ended December 31, 1989, File No. 0-12936, and
as Exhibit 10(c) to Annual Report on Form 10-K for the year
ended December 31, 1993, File No. 0-12936 ("1993 Form 10-K"),
respectively, and incorporated herein by reference.)
10(c) Trust Department lease dated November 7, 1986 between the Bank
and John Sherwood, Trustee. (Filed as Exhibit 10(e) to 1992 Form
10-K, and incorporated herein by reference.)
10(d) Gault Building lease dated April 1, 1987 between the Bank and
William L. Gault, Trustee. (Filed as Exhibit 10(f) to 1992 Form
10-K, and incorporated herein by reference.)
10(e) Shelton Operations Center lease dated March 22, 1991 between the
Bank and One Research Drive Associates Limited Partnership.
(Filed as Exhibit 10(h) to 1991 Form 10-K, and incorporated
herein by reference.)
31
<PAGE>
10(f) Fairfield branch lease dated March 20, 1995 between the Bank and
C.A.T.F. Limited Partnership. (Filed as Exhibit 10(f) to 1995
Form 10-K, and incorporated herein by reference.)
10(g) Shelton branch lease dated May 20, 1996 between the Bank and
Robert D. Scinto. (Filed herewith.)
10(h) Employment Agreement among Michael H. Flynn, Bancorp and the
Bank dated April 23, 1996. (Filed as Exhibit 10(g) to Annual
Report on Form 10-K/A for the year ended December 31, 1995, File
No. 0-12936 ("1995 Form 10-K/A"), and incorporated herein by
reference.)
10(i) Employment Agreement among Thomas P. Bilbao, Bancorp and the
Bank dated April 23, 1996. (Filed as Exhibit 10(h) to 1995 Form
10-K/A, and incorporated herein by reference.)
10(j) Employment Agreement among Richard T. Cummings, Bancorp and the
Bank dated April 23, 1996. (Filed as Exhibit 10(i) to 1995 Form
10-K/A, and incorporated herein by reference.)
10(k) Employment Agreement among William B. Laudano, Jr., Bancorp and
the Bank dated April 23, 1996. (Filed as Exhibit 10(j) to 1995
Form 10-K/A, and incorporated herein by reference.)
10(l) Employment Agreement among Richard L. Card, Bancorp and the Bank
dated November 15, 1993, as amended November 13, 1995. (Filed as
Exhibit 10(i)(4) to 1993 Form 10-K and Exhibit 10(k) to 1995
Form 10-K, respectively, and incorporated herein by reference.)
10(m) Executive Agreement between Arnold Levine and Bancorp dated
October 16, 1989, as amended December 17, 1991. (Filed as
Exhibit 10(i)(1) to 1992 Form 10-K, and incorporated herein by
reference.)
10(n) Stock Option Agreement between Michael H. Flynn and Bancorp
dated December 17, 1992. (Filed as Exhibit 10(i)(3) to 1992 Form
10-K, and incorporated herein by reference.)
10(o) Stock Option Agreement between Thomas P. Bilbao and Bancorp
dated December 17, 1992. (Filed as Exhibit 10(i)(3) to 1992 Form
10-K, and incorporated herein by reference.)
10(p) Stock Option Agreement between Richard T. Cummings, Jr. and
Bancorp dated December 17, 1992. (Filed as Exhibit 10(i)(3) to
1992 Form 10-K, and incorporated herein by reference.)
10(q) Stock Option Agreement between William B. Laudano, Jr. and
Bancorp dated September 2, 1993. (Filed as Exhibit 10(i)(5) to
1993 Form 10-K, and incorporated herein by reference.)
10(r) Stock Option Agreement between Richard L. Card and Bancorp dated
November 18, 1993. (Filed as Exhibit 10(i)(5) to 1993 Form 10-K,
and incorporated herein by reference.)
10(s) Incentive Stock Option Agreement between Michael H. Flynn and
Bancorp dated May 16, 1996. (Filed herewith.)
32
<PAGE>
10(t) Incentive Stock Option Agreement between Thomas P. Bilbao and
Bancorp dated May 16, 1996. (Filed herewith.)
10(u) Split Dollar Insurance Agreement between William B. Laudano, Jr.
and the Bank dated as of December 1, 1995. (Filed as Exhibit
10(r) to 1995 Form 10-K, and incorporated herein by reference.)
10(v) Split Dollar Insurance Agreement between Richard T. Cummings,
Jr. and the Bank dated as of December 1, 1995. (Filed as Exhibit
10(s) to 1995 Form 10-K, and incorporated herein by reference.)
10(w) Split Dollar Insurance Agreement between Richard L. Card and the
Bank dated as of December 1, 1995. (Filed as Exhibit 10(t) to
1995 Form 10-K, and incorporated herein by reference.)
10(x) Supplemental Executive Retirement Plan of Bancorp dated November
13, 1995, as amended November 29, 1995, January 18, 1996 and May
16, 1996. (Plan dated November 13, 1995 and amendments dated
November 29, 1995 and January 18, 1996 filed as Exhibit 10(u) to
1995 Form 10-K, and incorporated herein by reference).
(Amendment dated May 16, 1996 filed as Exhibit 10(u) to 1995
Form 10-K/A, and incorporated herein by reference.)
10(y) Trust under Supplemental Executive Retirement Plan between the
Bank and People's Bank, Trustee, as amended June 20, 1996.
(Trust dated November 13, 1995 filed as Exhibit 10(v) to 1995
Form 10-K, and incorporated herein by reference.) (Amendment
dated June 20, 1996 filed herewith.)
10(z) Directors Retirement Plan of Bancorp. (Filed as Exhibit 10(m) to
1992 Form 10-K, and incorporated herein by reference.)
10(aa) 1985 Incentive Stock Option Plan 1990 Restatement of Bancorp.
(Filed as Exhibit 10(n) to 1992 Form 10-K, and incorporated
herein by reference.)
10(bb) Amended and Restated 1995 Incentive Stock Option Plan of
Bancorp. (Filed as Exhibit 10(y) to 1995 Form 10-K/A, and
incorporated herein by reference.)
11 Statement Regarding Computation of Per Share Earnings. (Filed
herewith.)
27 Financial Data Schedule. (Filed herewith.)
(b) Reports on Form 8-K
Bancorp filed a Form 8-K on July 3, 1996 with respect to an Agreement and
Plan of Merger by and among HUBCO, Inc., the Bank and Bancorp dated as of
June 21, 1996.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTPORT BANCORP, INC.
--------------------------------
(Registrant)
DATE August 9, 1996 BY /s/Michael H. Flynn
--------------- ----------------------------
Michael H. Flynn
President and
Chief Executive Officer
(principal executive officer)
DATE August 9, 1996 BY /s/William B. Laudano, Jr.
--------------- ------------------------------
William B. Laudano, Jr.
Senior Vice President and
Chief Financial Officer
(principal financial officer and
principal accounting officer)
34
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Description
-----------------------------------------------------------------------
2 Agreement and Plan of Merger dated June 21, 1996 among HUBCO,
Inc., Bancorp and the Bank. (Filed as Exhibit 2 to Form 8-K
filed on July 3, 1996, and incorporated herein by reference.)
3(a) Restated Certificate of Incorporation of Bancorp. (Filed as
Exhibit 3(a) to Annual Report on Form 10-K for the year ended
December 31, 1991, File No. 0-12936 ("1991 Form 10-K"), and
incorporated herein by reference.)
3(b) Certificate of Designation of Series A Convertible Preferred
Stock of Bancorp. (Filed as Exhibit 3(b) to 1991 Form 10-K, and
incorporated herein by reference.)
3(c) Certificate of Amendment of Bancorp. (Filed as Exhibit 3(c) to
Annual Report on Form 10-K for the year ended December 31, 1995,
File No. 0-12936 ("1995 Form 10-K"), and incorporated herein by
reference.)
3(d) Certificate of Amendment of Restated Certificate of
Incorporation, as amended, of Bancorp. (Filed herewith.)
3(e) By-Laws of Bancorp, as amended. (Filed as Exhibit 3(d) to Annual
Report on Form 10-K for the year ended December 31, 1992, File
No. 0-12936 ("1992 Form 10-K"), and incorporated herein by
reference.)
4(a) Specimen Common Stock Certificate. (Filed as Exhibit 4 to
Registration Statement on Form S-1, File No. 2-93773, and
incorporated herein by reference.)
4(b) Specimen Series A Convertible Preferred Stock Certificate.
(Filed as Exhibit 4(b) to 1991 Form 10-K, and incorporated
herein by reference.)
4(c) Specimen Warrant Certificate. (Filed as Exhibit 4(c) to 1991
Form 10-K, and incorporated herein by reference.)
10(a) Weston lease dated June 5, 1979 between the Bank and Weston
Shopping Center, Inc. (Filed as Exhibit 10(c) to Registration
Statement on Form S-1, File No. 2- 93773, and incorporated
herein by reference.)
10(b) Weston lease dated August 23, 1979, between the Bank and Weston
Shopping Center Associates, as amended by Modification dated
July 1, 1993. (Filed as Exhibit 10(e) to Annual Report on Form
10-K for the year ended December 31, 1989, File No. 0-12936, and
as Exhibit 10(c) to Annual Report on Form 10-K for the year
ended December 31, 1993, File No. 0-12936 ("1993 Form 10-K"),
respectively, and incorporated herein by reference.)
10(c) Trust Department lease dated November 7, 1986 between the Bank
and John Sherwood, Trustee. (Filed as Exhibit 10(e) to 1992 Form
10-K, and incorporated herein by reference.)
10(d) Gault Building lease dated April 1, 1987 between the Bank and
William L. Gault, Trustee. (Filed as Exhibit 10(f) to 1992 Form
10-K, and incorporated herein by reference.)
10(e) Shelton Operations Center lease dated March 22, 1991 between the
Bank and One Research Drive Associates Limited Partnership.
(Filed as Exhibit 10(h) to 1991 Form 10-K, and incorporated
herein by reference.)
35
<PAGE>
10(f) Fairfield branch lease dated March 20, 1995 between the Bank and
C.A.T.F. Limited Partnership. (Filed as Exhibit 10(f) to 1995
Form 10-K, and incorporated herein by reference.)
10(g) Shelton branch lease dated May 20, 1996 between the Bank and
Robert D. Scinto. (Filed herewith.)
10(h) Employment Agreement among Michael H. Flynn, Bancorp and the
Bank dated April 23, 1996. (Filed as Exhibit 10(g) to Annual
Report on Form 10-K/A for the year ended December 31, 1995, File
No. 0-12936 ("1995 Form 10-K/A"), and incorporated herein by
reference.)
10(i) Employment Agreement among Thomas P. Bilbao, Bancorp and the
Bank dated April 23, 1996. (Filed as Exhibit 10(h) to 1995 Form
10-K/A, and incorporated herein by reference.)
10(j) Employment Agreement among Richard T. Cummings, Bancorp and the
Bank dated April 23, 1996. (Filed as Exhibit 10(i) to 1995 Form
10-K/A, and incorporated herein by reference.)
10(k) Employment Agreement among William B. Laudano, Jr., Bancorp and
the Bank dated April 23, 1996. (Filed as Exhibit 10(j) to 1995
Form 10-K/A, and incorporated herein by reference.)
10(l) Employment Agreement among Richard L. Card, Bancorp and the Bank
dated November 15, 1993, as amended November 13, 1995. (Filed as
Exhibit 10(i)(4) to 1993 Form 10-K and Exhibit 10(k) to 1995
Form 10-K, respectively, and incorporated herein by reference.)
10(m) Executive Agreement between Arnold Levine and Bancorp dated
October 16, 1989, as amended December 17, 1991. (Filed as
Exhibit 10(i)(1) to 1992 Form 10-K, and incorporated herein by
reference.)
10(n) Stock Option Agreement between Michael H. Flynn and Bancorp
dated December 17, 1992. (Filed as Exhibit 10(i)(3) to 1992 Form
10-K, and incorporated herein by reference.)
10(o) Stock Option Agreement between Thomas P. Bilbao and Bancorp
dated December 17, 1992. (Filed as Exhibit 10(i)(3) to 1992 Form
10-K, and incorporated herein by reference.)
10(p) Stock Option Agreement between Richard T. Cummings, Jr. and
Bancorp dated December 17, 1992. (Filed as Exhibit 10(i)(3) to
1992 Form 10-K, and incorporated herein by reference.)
10(q) Stock Option Agreement between William B. Laudano, Jr. and
Bancorp dated September 2, 1993. (Filed as Exhibit 10(i)(5) to
1993 Form 10-K, and incorporated herein by reference.)
10(r) Stock Option Agreement between Richard L. Card and Bancorp dated
November 18, 1993. (Filed as Exhibit 10(i)(5) to 1993 Form 10-K,
and incorporated herein by reference.)
10(s) Incentive Stock Option Agreement between Michael H. Flynn and
Bancorp dated May 16, 1996. (Filed herewith.)
36
<PAGE>
10(t) Incentive Stock Option Agreement between Thomas P. Bilbao and
Bancorp dated May 16, 1996. (Filed herewith.)
10(u) Split Dollar Insurance Agreement between William B. Laudano, Jr.
and the Bank dated as of December 1, 1995. (Filed as Exhibit
10(r) to 1995 Form 10-K, and incorporated herein by reference.)
10(v) Split Dollar Insurance Agreement between Richard T. Cummings,
Jr. and the Bank dated as of December 1, 1995. (Filed as Exhibit
10(s) to 1995 Form 10-K, and incorporated herein by reference.)
10(w) Split Dollar Insurance Agreement between Richard L. Card and the
Bank dated as of December 1, 1995. (Filed as Exhibit 10(t) to
1995 Form 10-K, and incorporated herein by reference.)
10(x) Supplemental Executive Retirement Plan of Bancorp dated November
13, 1995, as amended November 29, 1995, January 18, 1996 and May
16, 1996. (Plan dated November 13, 1995 and amendments dated
November 29, 1995 and January 18, 1996 filed as Exhibit 10(u) to
1995 Form 10-K, and incorporated herein by reference).
(Amendment dated May 16, 1996 filed as Exhibit 10(u) to 1995
Form 10-K/A, and incorporated herein by reference.)
10(y) Trust under Supplemental Executive Retirement Plan between the
Bank and People's Bank, Trustee, as amended June 20, 1996.
(Trust dated November 13, 1995 filed as Exhibit 10(v) to 1995
Form 10-K, and incorporated herein by reference.) (Amendment
dated June 20, 1996 filed herewith.)
10(z) Directors Retirement Plan of Bancorp. (Filed as Exhibit 10(m) to
1992 Form 10-K, and incorporated herein by reference.)
10(aa) 1985 Incentive Stock Option Plan 1990 Restatement of Bancorp.
(Filed as Exhibit 10(n) to 1992 Form 10-K, and incorporated
herein by reference.)
10(bb) Amended and Restated 1995 Incentive Stock Option Plan of
Bancorp. (Filed as Exhibit 10(y) to 1995 Form 10-K/A, and
incorporated herein by reference.)
11 Statement Regarding Computation of Per Share Earnings. (Filed
herewith.)
27 Financial Data Schedule. (Filed herewith.)
37
CERTIFICATE OF AMENDMENT
of
RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED,
of
WESTPORT BANCORP, INC.
Westport Bancorp, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies as follows:
FIRST: This Certificate of Amendment was duly adopted in
accordance with the provisions of Section 242 of the General Corporation Law of
the State of Delaware, and was approved by the affirmative vote of the holders
of at least two-thirds of the outstanding stock of the Corporation entitled to
vote thereon.
SECOND: The Restated Certificate of Incorporation of the
Corporation, as amended, hereby is amended to insert the following new Article
Ninth, and Article Ninth currently appearing in the Restated Certificate of
Incorporation of the Corporation, as amended, hereby is renumbered Article
Tenth:
"NINTH: No director of the Corporation shall be
personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director;
provided, that nothing contained in this Article Ninth shall
eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the Corporation or
its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from
which the director derived an improper personal benefit. No
amendment to or repeal of this Article Ninth shall apply to or
have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or
omissions prior to such amendment or repeal."
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of Restated Certificate of Incorporation, as Amended, to be signed by
Michael H. Flynn, its President and Chief Executive Officer, and attested to by
John J. Henchy, its Secretary, on this 17th day of May, 1996.
WESTPORT BANCORP, INC.
By: /s/ Michael H. Flynn
-------------------------------------
Michael H. Flynn
President and Chief Executive Officer
ATTEST:
By: /s/ John J. Henchy
--------------------------------
John J. Henchy
Secretary
-2-
LEASE AGREEMENT
This Lease Agreement is made as of this 20th day of May, 1996, by and
between Robert D. Scinto, of Easton, Connecticut (hereinafter called "Landlord")
and Westport Bank & Trust, a Connecticut bank (hereinafter called "Tenant").
W I T N E S S E T H:
ARTICLE I
Data Section
Wherever this Lease refers to any item specified in this Data Section,
such reference shall be deemed to incorporate the information set forth in the
Data Section. Some terms mentioned in the Data Section are further defined by
other provisions in the Lease. Whenever a term is more specifically defined, the
more specific definition shall control.
1.01 The Leased Premises consists of 2,700 square feet of Tenant's net
rentable area.
1.02 The Leased Premises is located in Landlord's building at 675
Bridgeport Avenue, Shelton, Connecticut. The Leased Premises is further defined
by the floor area outline attached as Exhibit A.
1.03 The Initial Term of the Lease is from the Commencement Date to the
end of the 120th full calendar month from and after the Commencement Date.
1.04 The Commencement Date is the sooner of: (a) August 15, 1996; (b)
the date Tenant has moved into the Leased Premises and opened for business with
the public; and (c) 30 days after Banking Commission Approval (defined in
paragraph 20.01).
1.05 The Basic Minimum Annual Rent for the first five years of the
Initial Term is $48,600 per annum, payable in equal monthly installments of
$4,050 each. The Basic Minimum Annual Rent for the balance of the Initial Term
is the $48,600 per annum multiplied by the ratio of the CPI (defined in Article
II) for March 2001 over the CPI for March 1996, which shall also be payable in
equal monthly installments.
1.06 The Security Deposit is $8,000.
1.07 Tenant shall use the Leased Premises for the sole purpose of
operating a retail banking branch, or other use approved in advance by Landlord,
in the manner provided in paragraph 5.01.
1.08 The Notice Address for each of the parties is:
Landlord Tenant
Robert D. Scinto Westport Bank & Trust
One Corporate Drive 87 Post Road East
Shelton, Connecticut 06484 Westport, Connecticut 06880
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<PAGE>
ARTICLE II
Definitions
The following words and phrases shall have the following meanings.
2.01 "Building" means the building in which the Leased Premises is
located.
2.02 "Basic Operating Cost" means all Operating Expenses of the
Project, which shall be computed on the accrual basis and shall consist of all
costs and expenses incurred by Landlord to maintain all facilities in the
operation of the Project. All Operating Expenses shall be determined in
accordance with generally accepted accounting principles, which shall be
consistently applied (with accruals appropriate to Landlord's business). The
term "Operating Expenses" shall include the amortized cost of capital items,
provided, however, that the useful life of any item shall in no event exceed
fifteen years. The term "operating expenses" as used herein shall mean all
expenses and costs of every kind and nature which Landlord shall pay or become
obligated to pay because of or in connection with the ownership and operation of
the Project and supporting facilities of the Project. Operating Expenses shall
be limited so as not to include: specific costs which are otherwise allocated to
tenant areas under other provisions of this Lease; expenses and costs which are
billed to and paid by specific tenants; and expenses associated with any
financing indebtedness of Landlord, whether or not secured by the Project.
Operating expenses, include, but are not limited to, the following: (a) the cost
of all supplies, materials and equipment used in the operation and maintenance
of the Project; (b) the cost of utilities, including water and power, heating,
lighting, air conditioning and ventilating the entire Project; (c) management
fees at rates in accordance with the prevailing rates charged for comparable
properties in the area of the Project; (d) the cost of all maintenance,
janitorial and service agreements for the Project and the equipment therein,
including, without limitation, alarm service , window cleaning; (e) accounting
costs, including the costs of audits by certified public accountants; (f) the
cost of all insurance, including but not limited to fire, casualty, liability,
rental abatement, workers compensation and any other type of insurance
reasonably obtained, all as limited to those coverages applicable to the Project
and the employee's and Landlord's personal property used in connection
therewith; (g) the cost of repairs, replacements and general maintenance
(excluding repairs and general maintenance paid by proceeds of insurance or by
Tenant or other third parties, and alterations attributable solely to tenants of
the Project other than Tenant); (h) gardening, landscaping, planting, replanting
and replacing of flowers and shrubbery; (i) any and all General Common Area
maintenance costs relating to public areas of the Project, including sidewalks,
parking areas, landscaping and service areas, including repaving, restriping,
plowing and sanding of the walks and parking areas, and including rubbish
removal from the Project; (j) compensation to personnel to implement all of the
services set forth in this paragraph, including wages, workers compensation
insurance premiums and other items paid for the employment of said personnel;
(k) all taxes, service payments in lieu of taxes, excises, assessments, levies,
fees or charges, general and special, ordinary and extraordinary, unforeseen as
well as foreseen, of any kind which are assessed, levied, charged, confirmed, or
imposed by any public authority upon the Project, its operation or the rent
provided for in this Lease Agreement (It is agreed that Tenant will be
responsible for ad valorem taxes on Tenant's personal property, if any, and on
the value of leasehold improvements to the extent that same exceed standard
building allowances provided by Landlord under this Lease); and (l) any other
item reasonably expended for the maintenance, operation, repair and insurance of
the Project. Notwithstanding the foregoing, Operating Expenses shall not
include: [i] repairs to the structural members of the Building; [ii] replacement
of the roof of the Building; and [iii] replacement of a capital nature unless it
is determined in Landlord's reasonable discretion that the replacement is
reasonably anticipated to be more economic than a repair or is reasonably
anticipated to result in a decrease in Operating Expenses.
2.03 "Consent" or "Approval" of Landlord means approval or consent in
writing.
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<PAGE>
2.04 "CPI" means the United States Department of Labor Bureau of Labor
Statistics Consumer Price Index-All Urban Consumers-All Cities (1982-4 = 100),
except that if aforementioned index is no longer published or issued, the
Landlord shall use such other index as is then generally recognized and accepted
for similar determinations of purchasing power.
2.05 "General Common Area" means all exterior areas of the Project
which are available for the use of all tenants, including parking areas. General
Common Area does not include restricted areas such as boiler rooms, machine
rooms for elevator equipment and utility rooms of the Landlord.
2.06 "Leased Premises" means the usable area leased to Tenant in
Landlord's building. The outer vertical boundary of the Leased Premises is
outlined on the floor plan attached hereto as Exhibit A. The upper boundary of
the Leased Premises shall be the lower surface of the suspended or finished
ceiling. The lower boundary of the Leased Premises shall be the surface of the
unfinished floor. The vertical boundary of the Leased Premises shall be the
unfinished surface exposed to the Leased Premises of all walls bounding the
exterior of the building, other rentable area, building common area, and other
area not for use by Tenant (HVAC duct chases and structural column enclosures
for example).
2.07 "Notice" means only written notification given by one party to the
other. Notice may only be given by: a form of US Mail in which the recipient is
required to sign a receipt (such as certified, return receipt); a nationally
recognized courier service which requires the recipient to sign a receipt (such
as Federal Express or UPS Next Day); and, in the case of Notice to Tenant,
delivery to the Leased Premises. All Notices will be effective on receipt,
except in the case of delivery to the Leased Premises, in which event the Notice
will be effective as of the date of delivery. Notice must be given to the other
party at the party's Notice address, except in the case of Notice to Tenant,
which may always be given at the Leased Premises. The Notice address for each
party is the address listed in the preamble of this Lease, above the Article I -
Data Section, or to such other address designated by a party by Notice to the
other party, provided, that Landlord shall not be required to give Notice to
more than one address, and if more than one address is specified, Landlord may
choose any one address of those designated by Tenant.
2.08 "Project" means the 675 Bridgeport Avenue, Shelton, Connecticut
building and the real property appurtenant thereto. The boundary of the Project
is more particularly in Exhibit B, attached hereto.
2.09 "Tenant's Net Rentable Area" means the approximate area of the
Leased Premises.
2.10 "Tenant's Pro Rata Share" means the percentage obtained by
dividing Tenant's Net Rentable area by the total Net Rentable Area in the
Building, whether rented or not. Although a specific Pro Rata Share may be set
forth in the Data Section, the Pro Rata Share shall be subject to adjustment
upon increase or decrease of the total Net Rentable Area in the Building.
2.11 "Term of the Lease" means the Initial Term, and if the Lease
grants any option to extend the Term of this Lease, Term of this Lease shall
include any validly exercised option to extend.
2.12 "Wall Street Prime" means the interest rate published by the Wall
Street Journal as the base rate on corporate loans posted by at least 75% of the
nation's 30 largest banks, or a similar substitute rate selected by Landlord if
the foregoing rate is no longer published.
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<PAGE>
ARTICLE III
Grant and Term
3.01 In consideration of the rent and covenants herein reserved and
contained on the part of Tenant to be observed and performed, Landlord demises
and leases to Tenant and Tenant rents from Landlord the Leased Premises and the
improvements now or hereafter therein. Together with the Leased Premises,
Landlord grants to Tenant and Tenant's employees and invitees the right to use
the General Common Area, subject to the rules and regulations reasonably
established by Landlord.
3.02 The Initial Term is the period of time set forth in the Data
Section. The Term of this Lease shall commence on the Commencement Date.
Landlord and Tenant shall sign a written confirmation of the commencement and
termination dates of the Initial Term of this Lease if either party so requests.
ARTICLE IV
Rent
4.01 Tenant agrees to pay Landlord during the Term of this Lease the
Basic Minimum Annual Rent.
4.02 Tenant agrees to pay Landlord during the Term of this Lease
Additional Rent, consisting of: [i] Tenant's Pro Rata Share of the Basic
Operating Cost; [ii] all utility charges which are not included as items of
Basic Operating Cost but are the cost responsibility of Tenant under other
provisions of this Lease (which have not been paid by Tenant directly to the
utility providing the service under other provisions of this Lease); [iii] and
any other item specifically set forth elsewhere in this Lease as an item of
Additional Rent or as an item which is in any other manner the cost
responsibility of Tenant. Landlord shall give Tenant within a reasonable time
after the commencement of Landlord's fiscal operating year for the Project a
statement of Tenant's Pro Rata Share of estimated Basic Operating Cost for the
ensuing year. Tenant agrees to pay Tenant's Pro Rata Share of the Basic
Operating Cost for each fiscal year in monthly installments in accordance with
Landlord's statement. Landlord shall, within a reasonable period of time after
the end of each fiscal year for which Basic Operating Cost has been charged in
accordance with the estimated charges, give to Tenant a statement of the actual
Basic Operating Cost incurred for the previous year. Adjustment shall be made
for any overpayment or underpayment of the actual charges resulting from any
variance between the actual Basic Operating Cost for the previous year and the
estimated Basic Operating Cost paid by Tenant, which adjustment may be made by
increasing or decreasing the Additional Rent charges for the next year, or a
refund or lump sum billing, provided, however, that Landlord shall not be
required to make such adjustment more than once per year. If during any fiscal
operating year, Landlord shall not have delivered to Tenant the statement
mentioned for such year, Tenant shall continue to pay Landlord the sums payable
for the immediately preceding year, until the statement for the current year
shall have been delivered, at which time the monthly payments by Tenant shall be
adjusted retroactively. If during all or part of any fiscal year any particular
item or items of service or work (which would constitute an element of
Additional Rent hereunder) are not furnished to any portion of the Project due
to the fact that such portion is not completed, occupied or leased, then for the
purposes of computing Additional Rent payable hereunder, the amount of such
expenses for such items shall be increased by an amount equal to the expenses
which would have reasonably been incurred during such period if Landlord had at
his own expense furnished such items of service or work to such portion of the
Project, provided, however, Tenant shall not be charged for any services not
actually provided to the Project and Landlord shall not recoup more than 100% of
the Operating Expenses actually incurred by Landlord. Utility charges set forth
as a portion of Additional Rent, above, may be included with the statement of
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<PAGE>
estimated Basic Operating Cost and billed and adjusted in the same manner as
Tenant's Pro Rata Share of the Basic Operating Cost. If any part of the first or
last Lease Years of the Term of this Lease shall include part of a tax or
operating expense year, Tenant's liability under this paragraph shall be
apportioned so that Tenant shall pay only for such parts of such tax year and
operating expense years that shall be included in the Term of this Lease.
Landlord may elect to bill the full amount of any item of Additional Rent which
is not an item of Basic Operating Cost as such item of expense is incurred by
Landlord (repair of damage caused by Tenant, for example). All items of
Additional Rent which are capital items not specifically the immediate cost
responsibility of Tenant pursuant to other terms of the Lease shall be amortized
in accordance with generally accepted accounting principles, provided that no
item shall have a useful life of more than fifteen years. Notwithstanding the
foregoing, the "Capped Portion of Additional Rent" for each calendar year during
the Term of the Lease shall not exceed the actual amount for the "Capped Portion
of Additional Rent" for the 1995 calendar year increased by the percentage
increase in the "CPI" from the month of October, 1995 to the October of the
calendar year for which the limit is being determined, on a per square foot of
Tenant's Net Rentable Area basis. The "Capped Portion of Additional Rent" is the
Tenant's Pro Rata Share of the Basic Operating Cost (item [i] of the first
sentence of this paragraph), excluding any tax, insurance and utility component
of Basic Operating Cost. The CPI is defined in paragraph 2.04. The Capped
Portion of Additional Rent shall be pro-rated for partial calendar years during
the Term of the Lease (such as for the balance of the calendar year remaining
after the Commencement Date, if the Commencement Date is not the first day of a
calendar year.
4.03 The Basic Minimum Annual Rent and the monthly installment portion
of the Additional Rent shall be due in installments, commencing with the
Commencement Date and continuing on the first day of each month thereafter, in
advance. If the Commencement Date is not the first day of a calendar month, the
installment due on the Commencement Date shall be pro rated for the fractional
period remaining in the month of the Commencement Date. It is the intention of
the Landlord and Tenant that the rents herein specified shall be net to the
Landlord in each year during the Term of this Lease, payable without any
reduction, abatement, counterclaim or setoff, and that all costs, expenses and
obligations of every kind relating to the Leased Premises, whether or not
specifically set forth in this Lease, which may arise or become due under any
contingency whatsoever during the Term of this Lease shall be paid by the Tenant
and the Tenant shall indemnify the Landlord and save the Landlord harmless from
and against all such costs, expenses and obligations. All past due installments
of rent shall bear interest at the lesser of (a) five percentage points over
Wall Street Prime or (b) the maximum rate permitted by applicable law, from date
due until payment is received. Any liability for unpaid Basic Minimum Annual
Rent and Additional Rent shall survive the termination of the Lease.
ARTICLE V
Conduct of Tenant
5.01 Tenant and Tenant's permitted assignees or sub-lessees shall use
the Leased Premises for the sole and exclusive purpose of a retail banking
branch and for no other purpose without the prior written consent of Landlord,
which shall not be unreasonably withheld or delayed. It is recognized that at
the outset of this Lease the Building is devoted to retail uses, and Landlord's
reasonable discretion with respect to allowing a change of use may include
allowance of only such use as is compatible with the retail nature of the
Building, will maintain and/or enhance the desirability of the Project, will not
be materially detrimental to the marketability and rental value of the Leased
Premises or other tenant spaces in the Building at the time of the change or use
or in the future and will not include any use of an adult nature, all as
determined in Landlord's reasonable discretion. Tenant shall be open for
business with the public as a retail banking office during at least all days and
hours which are regular banking days and hours for state banks in the State of
Connecticut. Notwithstanding any other provision for default contained elsewhere
in this Lease, except for an "Excused Closure", Tenant shall
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<PAGE>
be considered to be in material default if: [i] Tenant has not been open for
business with the public during all regular banking hours for three consecutive
business days and if Tenant shall then fail to be open for business on a regular
basis within 72 hours after Notice from Landlord; or [ii] Tenant has not been
open for business with the public during all regular banking hours three
consecutive business days, for two or more occasions during any twelve month
period. For the purposes of the preceding sentence, and "Excused Closure" means
the time during which Tenant's office may be closed on account of: (a) any
casualty damage which is Landlord's responsibility to repair under other
provisions of this Lease; (b) during Tenant's initial fit-out or any renovations
or repair of damage during the Term of the Lease, and long as said work being
performed by Tenant is being carried out in a prompt and diligent manner; or (c)
any event which is beyond Tenant's control. The use of the Leased Premises shall
also be in accordance with the ordinances and regulations of the municipality in
which the Leased Premises is located. Tenant will comply with all rules and
regulations, of which Tenant is given notice, reasonably established by Landlord
for the governing of conduct of tenants in general in the Project. The current
rules and regulations for tenants in the Project are set forth in Exhibit C.
Tenant shall be responsible for keeping the common areas in the building free of
all trash and debris emanating from Tenant's Leased Premises. The use of the
Leased Premises shall also be in accordance with the ordinances and regulations
of the municipality in which the Leased Premises is located. Without limitation
of the foregoing, Tenant agrees that the Leased Premises will not be used for
any purpose other than that provided above. Tenant agrees to comply with all
rules and regulations, of which Tenant is given notice, reasonably established
by Landlord for the governing of conduct of tenants in general in the Project.
The current rules and regulations for tenants in the Project are set forth in
Exhibit C.
5.02 Tenant agrees that Tenant will not keep, use, sell or offer for
sale in or upon the Leased Premises any article which may be prohibited by the
standard form of fire insurance policy. Tenant agrees to pay any increase in
premiums for fire and extended and/or all risk coverage insurance that may be
charged during the Term of this Lease on the amount of such insurance which may
be carried by Landlord on the Project, resulting from the type of equipment,
merchandise or services used by Tenant in the Leased Premises, whether or not
Landlord has consented to the same. In determining whether increased premiums
are the result of Tenant's use of the Leased Premises, a schedule issued by the
organization making the insurance rate on the Leased Premises, showing the
various components of such rate, shall be conclusive evidence of the several
items and charges which make up the fire insurance rate on the Leased Premises
and the Project.
5.03 Tenant shall not commit or suffer to be committed any waste upon
the Leased Premises or Project or any nuisance or other act or thing which may
disturb the quiet enjoyment of any other tenant in the Project.
5.04 Tenant shall, at Tenant's sole cost and expense, comply with all
of the requirements of all county, municipal, state, federal and other
applicable governmental authorities, now in force or which may hereafter be in
force and not being reasonably disputed by Tenant, pertaining to the Tenant's
use of the Leased Premises or any act therein by Tenant. Tenant shall faithfully
observe in the use of the Leased Premises all federal, state, county and
municipal laws, ordinances and regulations now in force or which may hereafter
be in force not being reasonably disputed by Tenant, excepting any structural
changes required by such authorities which are not caused by the act or neglect
of the Tenant or by Tenant's specific use of the Leased Premises. Specific
reference is made to Tenant's duty to comply with all state, federal and local
laws concerning environmental protection and Tenant's conduct at the Project.
Tenant agrees to indemnify Landlord against any cost and expense which Landlord
may suffer by reason of Tenant's failure to comply with the laws governing its
conduct at the Project, including all laws concerning environmental protection.
Tenant shall undertake no acts which would result in the Leased Premises being
defined as an "Establishment" under the environmental laws of the State of
Connecticut.
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<PAGE>
5.05 Tenant will not place or maintain, or cause to be placed or
maintained, on any portion of the Project exterior to the Leased Premises or any
portion of the Project (including the Leased Premises) visible from the exterior
of the Leased Premises, any sign or advertising matter without Landlord's
written consent. Tenant shall not place any object on any portion of the Project
exterior to the Leased Premises without Landlord's written consent. Tenant shall
not install or maintain any window treatment without the prior written consent
of Landlord. Landlord may require Tenant to install window treatments with a
particular exterior appearance (color, style and quality), as viewed from the
exterior of the Leased Premises. Landlord will not unreasonably withhold or
delay consent to exterior signage for Tenant at the Project similar in type and
location to that which had been installed by the prior tenant, Fleet Bank.
Further, Landlord is familiar with Tenant's signage and decor in place at its
main office and branch office as of the outset of this Lease, and the style of
said signage and decor is acceptable to Landlord. Further, it is acknowledged
that Tenant may be required to obtain the prior approval of the Shelton Planning
& Zoning Commission for the installation of exterior signage.
5.06 Tenant shall to keep the Leased Premises in a clean and sanitary
condition and free from trash, inflammable material and other objectionable
matter and to make all interior repairs other than to Landlord's mechanical
systems. Tenant shall maintain all equipment installed by Tenant at Tenant's own
cost and expense. Tenant shall also maintain all of its drive-up and/or outside
teller system and the improvements and portions of the Building exterior to the
Leased Premises but which are a part of the drive-up and/or outside teller
system in good order and repair, at Tenant's sole cost and expense. Tenant shall
not make any building alteration or addition to the Leased Premises without
Landlord's consent, which shall not be unreasonably withheld. Tenant shall be
responsible, at Tenant's cost and expense, for repair of any damage or breakage
of any widows or doors (plate glass) in the exterior walls of the Leased
Premises, and shall maintain insurance therefor in accordance with paragraph
7.02. Tenant shall be responsible, at Tenant's cost and expense for any cleaning
of such plate glass. Tenant shall also be responsible for the proper disposal of
all trash emanating from Tenant and Tenant's agents, servants, employees. Tenant
may maintain a trash dumpster in a location approved of by Landlord, for this
purpose. All trash which is the responsibility of Tenant for disposal shall be
disposed of at Tenant's sole cost and expense, in full compliance with all laws
relating to the handling and disposal of such trash.
5.07 If Tenant refuses or neglects to perform any item of maintenance
or repair which is Tenant's responsibility within a reasonable time, Landlord
may make such repairs without liability to Tenant for any loss or damage that
may accrue to Tenant's merchandise, fixtures, or other property or to Tenant's
business by reason thereof, and upon completion thereof, Tenant shall pay
Landlord's cost for making such repairs upon presentation of an invoice
therefor, as Additional Rent, which shall include interest from the date of such
repairs at the same rate as that due for overdue rental payments. In the case of
a repair which is not an emergency repair, Landlord shall not exercise
Landlord's right to make the repair unless Tenant has not commenced the repair
within twenty days after written notice from Landlord and proceeds to complete
same with diligence.
5.08 Tenant shall promptly pay all contractors and materialmen hired by
Tenant to furnish any labor or materials which may give rise to the filing of a
mechanic's lien against the Project attributable to contracts entered into by
the Tenant. Should any such lien be made or filed, Tenant shall cause same to be
discharged as a lien against the Project within the sooner of [i] ten business
days after Tenant receives notice of such lien or [ii] ten business days after
request by Landlord to remove such lien. If bond is filed and such lien is
discharged, Tenant shall not be obligated to discharge the lien by payment.
Notwithstanding any notice and grace period before default elsewhere set forth
in this Lease, if Tenant shall fail to discharge such lien within the time
period set forth in this paragraph above, and shall further fail to discharge
such lien within ten more business days after notice of failure to discharge the
lien is given from Landlord, then Tenant shall be in material default of the
Lease, without any further notice or grace period.
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<PAGE>
ARTICLE VI
Landlord's Conduct and Services at the Project
6.01 Landlord shall keep the parking areas in the Project reasonably
free of snow, ice and debris; maintain the building heating, ventilation and air
conditioning and building mechanical systems serving the Leased Premises and
shall otherwise keep the exterior, structure and roof of the Building and the
exterior General Common Area in good condition, consistent with that of a first
class project of the type as that which the Project is classified. Landlord's
obligations to repair shall include roof repairs and the cost of Landlord's
maintenance and repairs may constitute and element of Operating Expenses.
Notwithstanding the foregoing, Landlord's maintenance and repair obligations
shall not extend any maintenance or repair which is the express responsibility
of Tenant under this Lease or any other tenant under its lease. For example,
Landlord shall not be responsible for maintenance and repair of any of Tenant's
signage or drive-up and or exterior teller system. Further, if any repair shall
be necessitated on account of damage caused by Tenant or any of Tenant's agents,
servants, employees or invitees and the same is not covered by Landlord's
insurance, Tenant shall be responsible for the full cost of the repair. For
example, if Tenant hires a contractor to install or repair equipment in
connection with its business at the Leased Premises and if such contractor
damages the roof, which damage is not covered by Landlord's insurance, Tenant
would be responsible for the cost of the roof repair necessitated by Tenant's
contractor. Tenant shall be responsible to keep all other equipment and systems
serving the Leased Premises in good repair, at Tenant's sole cost and expense.
6.02 Landlord shall have the right to make alterations and/or additions
to the Project and the Building. The exercise by Landlord of any right under
this paragraph shall be limited so that there shall be no unreasonable
interference with Tenant's use of the Leased Premises and the General Common
Area.
6.03 Landlord shall have the right to establish rules and regulations
for the use of the parking areas by Tenant and other tenants in the project, but
Landlord shall not have any duty to police the traffic in the parking areas.
Tenant shall have the use of the existing drive-up and/or exterior teller
equipment at the Project, to the extent that the same is left by the existing
tenant after it vacates. Tenant shall have the right to install Tenant's own
drive-up and/or exterior teller system, in the same nature as the drive-up
and/or exterior teller system had been operated by the prior tenant of the
Leased Premises, and Tenant shall have the reasonable use of the
parking/driveway area at the Project for the use of such system by Tenant's
customers, to the same nature and extent as had been practiced by the prior
tenant. Tenant shall also have the use of the parking areas existing from time
to time in the Project, for the benefit of Tenant's employees, visitors and
customers, in common with other tenants in the Project, which use is to be in
accordance with Tenant's Pro Rata Share of the parking areas available for all
tenants in the Project, and subject to Landlord's rules and regulations.
Notwithstanding the foregoing, Tenant shall have the right to have Landlord
designate up to 10 of Tenant's parking spaces as reserved for Tenant's staff and
customers, in which case Tenant may post signs (subject to Landlord's approval
as to placement and design, the approval not to be unreasonably withheld or
delayed) and enforce the restricted use of the spaces. Landlord shall have no
duty to police any unauthorized usage of the assigned parking.
ARTICLE VII
Insurance, Indemnity and Subrogation Waiver
7.01 Tenant shall during the entire Term of this Lease keep in full
force and effect a policy of public liability and property damages insurance.
Tenant's insurance policy shall insure against Tenant's liability for all acts
and omissions with respect to conduct in the Leased Premises and the Project of
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Tenant and Tenant's agents, servants, employees, licensees and invitees. The
policy limits of Tenant's insurance shall be at least $500,000 per occurrence,
or such other limits as to public liability and property damage as Landlord may
reasonably require. Tenant's policy shall name Landlord as an additional insured
and shall contain a clause providing that the insurer will not cancel or change
the insurance without first giving the Landlord fifteen days prior written
notice. Tenant's insurance policy shall be with an insurance company approved by
Landlord and a copy of the policy or a certificate of insurance shall be
delivered to Landlord prior to the Commencement Date.
7.02 Tenant shall during the entire Term of this Lease keep in full
force and effect a hazard and all risk insurance policy, including fire,
extended and all risk type coverage, in an amount adequate to cover the cost of
repair and replacement of all alterations, decorations, or improvements made by
Tenant in the Leased Premises and any plate glass in any exterior wall of the
Leased Premises, Tenant to be responsible for replacement of all damage to such
plate glass, at Tenant's sole cost and expense. Tenant's policy shall name
Landlord as an additional insured and shall contain a clause that the insurer
will not cancel or change the insurance without first giving the Landlord
fifteen days prior written notice. Tenant's insurance policy shall be with an
insurance company approved by Landlord and a copy of the policy or a certificate
of insurance shall be delivered to Landlord prior to the Commencement Date.
7.03 Landlord agrees to maintain or cause to be maintained hazard and
all risk insurance, with fire, extended and all risk type coverage, upon all of
the buildings, structures or improvements (excluding tenant improvements
required to be insured by Tenant under other terms of this Lease) in the
Project, in an amount adequate to cover the cost of replacing the foregoing in
the event of fire or other destruction, less a commercially reasonable
deductible. In the event of fire or other destruction to such property, Landlord
agrees, subject to the rights of any mortgagee to insurance proceeds, to
immediately collect or cause to be collected the insurance proceeds and to apply
the same to the reconstruction and repair of the damaged property. Tenant shall
pay Tenant's Pro Rata Share of the premiums for the insurance specified herein
as an item of Basic Operating Cost Additional Rent.
7.04 Each policy of public liability insurance, hazard insurance or
other insurance insuring risks arising out of any occurrence at the Project,
carried by Tenant or Landlord, shall provide that the insurer waives any rights
of subrogation against the Landlord (in the case of Tenant's policies) and
against the Tenant (in the case of Landlord's policies) in connection with or
arising out of any claim or benefit provided under such insurance policy. In no
event shall Tenant or any person or corporation claiming an interest in the
Leased Premises by, through or under Tenant and over whom Tenant shall have
control, claim, maintain or prosecute any action or suit at law or in equity
against the Landlord for any loss, cost or damage caused by or resulting from
fire or other risk or casualty in the Project for which Tenant is or may be
insured under a standard hazard and all risk insurance policy, including fire,
extended and/or all risk type coverage, whether or not the property (tangible or
intangible) is insured or required to be insured under this Lease, and whether
or not caused by the negligence of the Landlord, or the agents, or servants, or
employees of the Landlord. In no event shall Landlord or any person or
corporation claiming an interest in the Project by, through or under Landlord
and over whom Landlord shall have control, claim, maintain or prosecute any
action or suit at law or in equity against the Tenant for any property damage to
the Project caused by or resulting from fire or other risk or casualty in the
Project for which Landlord is required to be insured under the provisions of the
Lease, whether or not caused by the negligence of the Tenant or the agents,
servants and/or employees of the Tenant.
7.05 In the case of third party claims arising out of an act or
omission of Tenant or an agent, servant or employee of Tenant (a "Tenant Fault
Claim") and not out of an act or omission of Landlord or an agent, servant or
employee of Landlord (a "Landlord Fault Claim"), Tenant shall be responsible for
the Tort Indemnity of Landlord. In the event of a Landlord Fault Claim, Landlord
shall be responsible for the Tort Indemnity of Tenant. In the event of claims
which are both Tenant Fault Claims and
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Landlord Fault Claims, as between Landlord and Tenant: each party shall be
responsible for the claim in the proportion such party's fault bears to the
total fault of Landlord and Tenant; and such party shall indemnify the other
against the portion of the claim for which such party is responsible. Tort
Indemnity shall mean that the party responsible for the indemnification shall
provide the legal defense of the claim (counsel being subject to the approval of
the indemnified party, approval not to be unreasonably withheld) and the
indemnifying party shall be responsible to pay the amount of the claim (subject
to the right to defend it) up to the limits of the indemnification set forth in
this paragraph, above, except that in the case of claims which are both Tenant
Fault Claims and Landlord Fault Claims, each party shall be responsible for its
own costs of legal defense. Tort Indemnity shall not be owed to the extent that
the party owing the indemnification has been prejudiced by any failure of the
party seeking the indemnification to give notice to the other party within a
reasonable time after said party becomes aware of a claim in which the other
party may owe an indemnity obligation under this paragraph.
ARTICLE VIII
Utilities
8.01 From and after the Commencement Date, Tenant shall pay all charges
for utilities used, consumed in or allocable to the Leased Premises, including,
but not limited to, fuel, electricity, water and gas. Said utilities may be
either directly metered to Tenant or shared with other tenants. If any utility
consumption in the Leased Premises is not separately metered, Landlord may
allocate the shared utility consumption to the Leased Premises in any reasonable
manner. In the case of building systems such as HVAC, utility consumption of
such systems may be allocated in accordance with Tenant's Pro Rata Share. The
charges for all utilities not paid directly to the utility providing the service
shall be paid to Landlord as an element of Additional Rent; and Tenant shall, at
Landlord's option, either pay the separately metered utilities directly to the
utility providing the service, or pay for said separately metered utilities as
an item of Additional Rent. It is acknowledged that electricity and gas for the
Leased Premises will be separately metered and water and sanitary sewer will not
be separately metered.
ARTICLE IX
Estoppel Statement, Attornment, Subordination
9.01 Upon request of Landlord or any mortgagee of Landlord, Tenant
shall execute an estoppel certificate, certifying the status of any facts with
respect to the Lease. Estoppel certification may include: whether the Lease is
in full force and effect; the rentals due under the Lease and the degree to
which same have been paid; that there are no defenses or claims against Landlord
for any alleged violation of the Lease by Landlord, or a statement of such
defenses or claims; acknowledgement of the interpretation or meaning of any term
of the Lease, provided such acknowledgement shall not change any term or
provision hereof; and such other matters reasonably requested to be certified in
the estoppel certificate.
9.02 The Tenant agrees that the Lease and all rights of the Tenant
herein shall, at the election of Landlord or mortgagee, be subordinate to the
lien of any mortgage or mortgages now or which may hereafter be placed on the
Project or any part of the Project during the term of this Lease. In the event
any proceeding is brought for the foreclosure of the Leased Premises, Tenant
agrees to attorn to the mortgagee in the event of strict foreclosure, or to the
purchaser in the event of foreclosure by sale or deed in lieu of foreclosure,
and recognize such mortgagee or purchaser (as the case may be) as the Landlord
under this Lease. Tenant further agrees to execute any further instrument or
instruments
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which the Landlord or its successors in title may at any time require to
evidence the subordination of this Lease to the lien of any such mortgage or
mortgages and Tenant's agreement to attorn, provided, however, that the
Landlord, if Tenant so requests, obtains a standard non-disturbance agreement
from the mortgagee for the benefit of the Tenant. Notwithstanding the foregoing,
if there shall be a first mortgage placed on all or a portion of the Project,
this Lease shall not be subordinated to any other encumbrance subsequent in
right to the first mortgage unless the first mortgagee shall consent to such
subordination, in writing.
9.03 Tenant agrees to execute and deliver to Landlord or the party
designated by Landlord, within ten days after presentation of the proposed form,
any estoppel certificate and/or subordination, attornment and/or non disturbance
agreement requested to be executed by Tenant pursuant to the terms of this
Lease. Tenant further agrees to include in any such documents, if requested by
Landlord: an agreement not to pay Landlord rent for more than one month in
advance; an agreement to give any mortgagee a notice of any alleged default by
Landlord and a reasonable time for such mortgagee to have such default cured
before Tenant will exercise any right to terminate this Lease; and an agreement
that Tenant will not look to such mortgagee for the return of any security
deposit or other monies not actually received by such mortgagee. If Tenant shall
not have delivered the executed documents, required to be executed and delivered
under this Article, within the ten day period set forth above, Landlord may give
Tenant written notice of Tenant's failure to deliver such documents, and if
Tenant shall then fail to deliver said executed documents within three business
days after delivery of such written notice, notwithstanding any provision for
notice and grace period for default elsewhere contained in this Lease, Tenant
shall be in material default of the Lease, and Landlord shall have all rights
provided for in the event of such default, including termination; and Tenant
shall be liable for all resulting consequential damages to Landlord.
ARTICLE X
Destruction of Leased Premises
10.01 Landlord agrees, subject to and excepting the other provisions of
this Article, that if the Leased Premises shall be damaged by fire or other
casualty during the term of this lease, Landlord shall, at Landlord's own
expense, use best efforts to cause the damage to be promptly repaired within a
reasonable time after such damage has occurred, which period shall not exceed
six months. If by reason of such occurrence, any portion of the Leased Premises
is thereby rendered untenantable and Tenant ceases use of said portion, the rent
and other charges payable by Tenant hereunder shall be abated in proportion to
the area of the Leased Premises which is rendered untenantable and which is not
used by Tenant, said abatement to continue until the sooner of the time when the
Leased Premises is repaired or until Tenant uses the damaged portion of the
Leased Premises. Landlord's obligation to restore under this Article shall be
limited to the extent of insurance proceeds made available by any mortgagee
having control over the disposition of such proceeds.
10.02 In the event that fifty percent or more of the Leased Premises
shall be damaged or destroyed by fire or other cause during the Term of this
Lease and same shall not be repairable by Landlord within six months, Landlord
or Tenant shall have the right, to be exercised by written notice to the other
party, within sixty days from and after said occurrence, to elect to cancel and
terminate this Lease. Upon the giving of such notice, the term of this Lease
shall expire by lapse of time upon the thirtieth day after such notice is given,
and Tenant shall vacate the Leased Premises and surrender the same to Landlord
on such date of expiration.
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ARTICLE XI
Eminent Domain and Cessation of Business
11.01 In the event any portion of the Leased Premises or any portion of
the Project which renders the Leased Premises unusable is taken in condemnation
proceedings or by any right of eminent domain or for any public or quasi-public
use, this Lease shall terminate as of the date of vesting of title in the
condemning authority and all rent, including additional rent, payable under this
lease shall be paid to that date.
11.02 In the event of any taking provided for in this Article, all
proceeds of any award, judgment or settlement payable by the condemning
authority shall be and remain the sole and exclusive property of Landlord, and
Tenant waives any right to make any claim to said award, judgment or settlement
received by Landlord. Tenant may pursue its own claim against the condemning
authority permitted by statute to be paid to Tenant without diminishing or
reducing the award, judgment or settlement payable to Landlord.
ARTICLE XII
Assignment and Subletting
12.01 Tenant will not assign this Lease in whole or in part nor sublet
all or any part of the Leased Premises without the prior written consent of
Landlord, which shall not be unreasonably withheld or delayed. Landlord hereby
expressly consents to any assignment or subletting to an entity controlled by
Tenant, which controls Tenant, or is under the control of the same entity as
controls Tenant. For the purposes of the preceding sentence, "control" means
legal voting control. The consent by Landlord to any assignment or subletting
shall not constitute a waiver of the necessity for such consent to any
subsequent assignment or subletting. This prohibition against assigning or
subletting shall be construed to include a prohibition against any assignment or
subletting by operation of law. If the Leased Premises shall be occupied by
anybody other than Tenant, Landlord may collect rent from the assignee,
under-tenant or occupant and apply the net amount collected to the rent herein
reserved, but no such assignment, underletting, occupancy or collection shall be
deemed a waiver of this covenant, or the acceptance of the assignee,
under-tenant or occupant as tenant, or a release of Tenant from the further
performance by Tenant of covenants on the part of Tenant herein contained.
Notwithstanding any assignment or sublease, Tenant shall remain primarily liable
on this Lease and shall not be released from performing any of the terms,
covenants and conditions of this Lease, but Tenant and such assignee,
under-tenant or occupant shall thereafter be jointly and severally liable for
the full and faithful performance of the obligations of Tenant under this Lease.
Any attempted assignment by Tenant without the prior written consent of Landlord
shall be void. No assignment or subletting shall provide for a rental payment,
or other payment for use and occupancy or utilization, based in whole or in part
on the net income or profits derived by any person or entity from the property
assigned, subleased, occupied or utilized (other than an amount based upon a
fixed percentage of sales), and any such purported assignment or subletting
based upon such payment shall be void and any amount payable thereunder or any
rental amount therefor passed to any person or entity shall not have deducted
therefrom any expenses or costs related in any way to the leasing of such space.
12.02 In the event Tenant desires to sublet or assign this Lease in
whole or in part and the resulting agreement provides the Tenant with any gross
profit in excess of the rents payable hereunder, such profit shall be shared by
Landlord and Tenant, 50% to each.
12.03 In the event Tenant desires to sublet or assign this Lease in
whole or in part, other than to an entity permitted under the second sentence of
paragraph 12.01, then Landlord shall have the
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right of first refusal against such subletting or assignment in accordance with
the further provisions of this paragraph. Tenant shall give Landlord written
notice of the terms of any bona fide offer to sublet or assign pursuant to which
Tenant desires to consummate a subletting or assignment. Landlord shall have 15
days after receipt of said notice to notify Tenant of its acceptance of said
subletting or assignment terms. If Landlord shall not exercise its right of
refusal within the 15 day time period, the subletting or assignment shall be
free of Landlord's refusal right contained in this paragraph as to a subletting
or assignment on the terms contain in the notice from Tenant, provided that such
assignment or sublease is executed and commences within not more than 60 days
after Tenant's notice to Landlord. If Tenant wishes to sublet or assign at a
lower rent, more favorable terms to the assignee or subtenant or outside of said
60 day period, Tenant must again give written notice to Landlord the terms of
any such bona fide offer acceptable to Tenant and the above process shall be
repeated.
ARTICLE XIII
Default of the Tenant
13.01 In the event of any failure of Tenant to pay any Basic Minimum
Annual Rent, Additional Rent or any other monies payable to Landlord under this
Lease within ten (10) days after written notice of failure to pay said sums,
Tenant shall be in material default of the Lease. Tenant shall also be in
material default of this Lease upon the happening of any of the following: [i]
the failure to deliver any estoppel or subordination, non disturbance and/or
attornment agreement within the time limits set forth for default in the Article
of this Lease requiring execution and delivery of such documents; [ii] the
failure to have any mechanic's lien discharged within the time period set forth
for default in the Article requiring removal of mechanic's liens; [iii] the
failure of Tenant to comply with the continuous operation obligations in the
manner set forth in paragraph 5.01; [iv] the failure to commence within thirty
(30) days after written notice of failure to perform, and diligently pursue the
performance of, any other of the terms, conditions or covenants of this Lease to
be observed or performed by Tenant; [v] if Tenant or any guarantor shall become
bankrupt or insolvent, or file any debtor proceedings, or take or have taken
against them, in any court, pursuant to any statute either of the United States
or of any State, a petition in bankruptcy or insolvency or for the
reorganization or for the appointment of a receiver or trustee of all or a
portion of Tenant's property or make an assignment for the benefit of creditors;
or [vi] if Tenant's interest in this Lease shall be taken under any writ of
execution. The foregoing conditions of default shall be limited to the extent
required by any state or federal laws affecting this Lease and Landlord's rights
against Tenant, including the United States bankruptcy laws. To the extent
permitted by law, all payments are due on the due dates set forth in the Lease,
and there shall be no grace period for the due date of the rent other than the
above ten day period after notice from Landlord.
13.02 In the event of default, then Landlord, besides other rights or
remedies Landlord may have, shall have the right to terminate this Lease and
proceed under any law entitling Landlord to recover possession of the Leased
Premises, and to the extent permitted by law, shall be entitled the right of
immediate reentry and to eject Tenant from the Project, without resort to court
proceedings. Upon such default, to the extent permitted by law, Tenant's
property may be removed and stored in a public warehouse or elsewhere at the
cost of, and for the account of Tenant. Tenant acknowledges that this Lease is a
commercial Lease, and to the extent permitted by law, Tenant waives the
requirement of a statutory notice to quit possession prior to commencement of
summary process proceedings.
13.03 Should Landlord elect to reenter, as herein provided, or should
it take possession pursuant to legal proceedings or pursuant to any notice
provided for by law, Landlord may either terminate this Lease or Landlord may
from time to time, without terminating this Lease, make such
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alterations and repairs as may be necessary in order to relet the Leased
Premises, or any part thereof, for such term or terms (which may be for a term
extending beyond the terms of this Lease) and at such rental or rentals and upon
such other terms and conditions as Landlord in Landlord's discretion may deem
advisable. Upon each such reletting, all rentals received by the Landlord from
such reletting shall be applied first to the payment of any indebtedness other
than rent due hereunder from Tenant to Landlord; second, to the payment of any
costs and expenses of such reletting, including brokerage fees and attorney's
fees and of costs of such alterations and repairs; third, to the payment of rent
due and unpaid hereunder, and the residue, if any, shall be held by Landlord and
applied in payment of future rent as the same may become due and payable
hereunder. If such rentals received from such reletting during any month are
less than that to be paid during that month by Tenant hereunder, Tenant shall
pay any deficiency to Landlord. Such deficiency shall be calculated and paid
monthly. No such reentry or taking possession of the Leased Premises by Landlord
shall be construed as an election on Landlord's part to terminate this Lease
unless a written notice of such intention be given to Tenant or unless the
termination thereof be decreed by a court of competent jurisdiction.
Notwithstanding any such reletting without termination, Landlord may at any time
thereafter elect to terminate this Lease for such previous breach. Should
Landlord at any time terminate this Lease for any breach, in addition to any
other remedies Landlord may have, Landlord may recover from Tenant all damages
Landlord may incur by reason of such breach, including the cost of recovering
the Leased Premises, reasonable attorney's fees, and the present value of the
lost rent resulting from the failure of Landlord or Tenant to obtain another
Tenant for the Leased Premises for any period of time after Tenant's default,
and/or resulting from the fact that the reasonable rental value of the Lease
Premises at the time of Tenant's default is less than the value of the remaining
rental payments due under this Lease.
13.04 In case Landlord or Tenant shall retain an attorney to enforce
the provisions of this Lease or if suit shall be brought for recovery of
possession of the Leased Premises, for the recovery of rent or any other amount
due under the provisions of this Lease, or because of the breach of any other
covenant herein contained on the part of Tenant or Landlord to be kept or
performed, the prevailing party shall be entitled to recover of the other all
reasonable expenses incurred therefor, including a reasonable attorney's fee.
ARTICLE XIV
Security Deposit
14.01 Tenant's Security Deposit shall be due and payable to Landlord
upon execution of this Lease. The Security Deposit shall be security for the
full and faithful performance of all the covenants and conditions contained
herein during the Term of this Lease and any extension or renewal thereof. The
rights and remedies reserved to the Landlord under this Lease are cumulative,
and in the event of a default by the Tenant, the Landlord shall not be required
to resort to the Security Deposit before exercising any other remedy available
to Landlord under this Lease or by law. The Security Deposit shall be refunded
without interest to the Tenant within ten days following the expiration of this
Lease, or any renewal or extension thereof, provided the Tenant has kept and
performed all of the terms and conditions required of Tenant under the Lease. In
no event, except when the Landlord elects at Landlord's sole option to do so,
may the Tenant set off or apply any part of the Security Deposit against any
rent owing by the Tenant to the Landlord hereunder.
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ARTICLE XV
Limitation of Liability of Landlord
15.01 In the event of any alleged default of Landlord, Tenant agrees
that Tenant shall not seek to secure any claim for damages or indemnification by
any attachment, garnishment or other security proceeding against any property of
the Landlord other than the Project or property related thereto, and in the
event Tenant obtains any judgment against Landlord by virtue of an alleged
default by Landlord under this Lease, Tenant agrees that Tenant will not look to
any property of Landlord other than the Project for satisfaction of such
judgment.
15.02 Except for gross negligence or willful misconduct, Landlord shall
not be liable for any damage to property of Tenant or of others located on the
Leased Premises, or for the loss of or damage to any property of Tenant or of
others by theft or otherwise. Except for gross negligence or willful misconduct,
Landlord shall not be liable for any injury or damage to persons or property
resulting from fire, explosion, falling plaster, steam, gas, electricity, water,
rain or snow or leaks from any part of the Leased Premises or from the pipes,
appliances or plumbing works or from the roof, street or subsurface or from any
other place or by dampness or by any other cause of whatsoever nature. Landlord
shall not be liable for any such damage caused by other tenants or persons in
the Project, by occupants of adjacent property to the Project, by other members
of the public, or caused by operation or construction of any other private or
public work. All property of Tenant kept or stored on the Leased Premises shall
be so kept or stored at the risk of Tenant only.
15.03 Upon any transfer of Landlord's interest in the Project, the then
transferor Landlord shall be relieved of any and all liability to Tenant under
this Lease, except for claims of Tenant against Landlord arising out of events
occurring prior to such transfer.
ARTICLE XVI
Quiet Enjoyment
16.01 Upon payment by the Tenant of the rents herein provided, and upon
the observance and performance of all the covenants, terms and conditions on
Tenant's part to be observed and performed, Tenant shall peaceably and quietly
hold and enjoy the Leased Premises for the term hereby demised without hindrance
or interruption by Landlord, subject, nevertheless to the terms and conditions
of this Lease, and subject to the restrictions and easements or other matters as
of record appear.
ARTICLE XVII
Miscellaneous Covenants
17.01 The Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereto against the
other on any matters whatsoever arising out of or in any way connected with this
Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the
Leased Premises, and/or claim of injury or damage. In any dispute between the
parties relating to the tenancy hereby created, the exclusive forum for any such
legal action shall be the Bridgeport, Connecticut, state courthouse, if venue
shall be accepted by such court, or the nearest state courthouse to Bridgeport
having jurisdiction and venue over the matter. Connecticut law shall apply to
all state law matters arising under this Lease.
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17.02 The waiver by Landlord of any breach by Tenant of any term,
covenant or condition herein contained shall not be deemed to be a waiver of
such term, covenant or condition or any subsequent breach of the same or any
other term, covenant or condition herein contained. The subsequent acceptance of
rent hereunder by Landlord shall not be deemed to be a waiver of any preceding
breach by Tenant of any term, covenant or condition of this Lease, other than
the failure of Tenant to pay the particular rental so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of acceptance of such
rent. No covenant, term or condition of this lease shall be deemed to have been
waived by Landlord unless such waiver be in writing by Landlord.
17.03 No payment by Tenant or receipt by Landlord of a lesser amount
than the monthly rent herein stipulated shall be deemed to be other than on
account of the earliest stipulated rent, nor shall any endorsement or statement
on any check or any letter accompanying any check or payment as rent be deemed
an accord and satisfaction, and Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance of such rent or
pursue any other remedy in this Lease provided.
17.04 This Lease and the Exhibits, attached hereto and forming a part
hereof, set forth all the covenants, promises, agreements, conditions and
understandings between Landlord and Tenant concerning the Leased Premises and
there are no covenants, promises, agreements, conditions or understandings,
either oral or written, between the parties other than those herein set forth.
No subsequent alteration, amendment, change or addition to this lease shall be
binding upon Landlord or Tenant unless reduced to writing and signed by the
party to be charged.
17.05 If any term, covenant or condition of this Lease or the
application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such term, covenant or condition to persons or circumstances other than those as
to which it is held invalid or unenforceable, shall not be affected thereby and
each term, covenant or condition of this Lease shall be valid and enforced to
the fullest extent permitted by law.
17.06 If the Commencement Date is not a date certain, the Commencement
Date shall in no event be later than a time which would not violate any
applicable rule against perpetuities, determined as if all relevant lives in
being ceased as of the date of execution of this Lease.
17.07 In the event that Landlord shall be delayed in, hindered in, or
prevented from, the performance of any act required hereunder by reason of Force
Majeure, which shall mean strikes, lockouts, labor troubles, inability to
procure materials, failure of power, restrictive governmental laws or
regulations, riots, insurrection, war or other reason of a like nature not the
fault of the Landlord and despite his good faith efforts to avoid such Force
Majeure, then performance of such act shall be excused for the period of the
delay.
17.08 Tenant agrees that the Landlord and Landlord's agents and other
representatives shall have the right to enter into and upon the Leased Premises
at all reasonable hours, upon reasonable notice, consistent with Tenant's
security requirements, (without notice in the case of an emergency) for the
purpose of examining the Leased Premises, or making such repairs or alterations
therein as may be necessary for the safety and preservation of the Project.
17.09 Tenant agrees to permit the Landlord or Landlord's agents to show
the Leased Premises to persons wishing to hire or purchase the same upon
reasonable notice to Tenant and at reasonable hours.
17.10 Tenant shall not encumber or obstruct the General Common area in
the Project, nor allow the same to be obstructed or encumbered in any manner.
Landlord shall not obstruct the
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entrance to the Leased Premises and shall not unreasonably interfere with
Tenant's use of the General Common Area.
17.11 The submission of this Lease for examination does not constitute
a reservation of or option for the Leased Premises and this Lease shall become
effective only upon execution and delivery thereof by Landlord and Tenant.
17.12 Neither party shall record this Lease, but the parties hereto
agree to execute a Notice of Lease drawn in accordance with the Connecticut
statutes, and the parties agree to execute in recordable form an agreement
establishing the specific commencement date of this Lease when the same is
ascertainable.
17.13 If there shall be one or more tenants or one or more landlords,
each tenant and landlord shall be jointly and severally liable for all of the
covenants and obligations of the Tenant and Landlord hereunder, as the case may
be, except as express provision may be elsewhere made to the contrary.
17.14 The use of the neuter singular pronoun to refer to Landlord or
Tenant shall be deemed a proper reference even though Landlord or Tenant may be
an individual, a partnership, a corporation, or a group of two or more
individuals or corporations. The necessary grammatical changes required to make
the provisions of this Lease apply in the plural sense where there is more than
one Landlord or Tenant, or to either corporations, associations, partnerships,
or individuals, males or females, shall in all instances be assumed as though in
each case fully expressed.
17.15 The headings, section numbers and article numbers appearing in
this Lease are inserted only as a matter of convenience and in no way define,
limit, construe, or describe the scope or intent of such sections or articles of
this Lease nor in any way affect this Lease.
ARTICLE XVIII
Surrender and Holding Over
18.01 At the expiration of the tenancy hereby created, whether by lapse
of time or otherwise, Tenant shall surrender the Leased Premises in the same
condition as the Leased Premises were in upon delivery of possession thereto
under this Lease, reasonable wear and tear and insured casualty excepted, and
Tenant shall surrender all keys for the Leased Premises to Landlord at the place
then fixed for the payment of rent, and Tenant shall inform Landlord of all
combinations on locks, safes and vaults, if any, in the Leased Premises. Tenant
shall remove all its trade fixtures and/or, at the option of the Landlord, any
alteration or improvements installed by Tenant, before surrendering the premises
as aforesaid and shall repair any damage to the Leased Premises caused thereby.
Tenant's obligation to observe or perform this covenant shall survive the
expiration or other termination of the term of this Lease. If Tenant fails to
remove such trade fixtures and restore the Leased Premises, then upon the
expiration or sooner termination of this Lease, and upon the Tenant's removal
from the premises, all such alterations, decorations, additions and improvements
shall become the property of the Landlord.
18.02 Holding over with the written consent of Landlord shall be at the
Basic Minimum Annual Rent and the Additional Rent specified herein and shall
otherwise be on all terms and conditions set forth herein, except for the term,
which shall be month to month, and without any right of first refusal or options
to extend the term, lease other space and/or purchase property. It is
acknowledged that the damages which Landlord may suffer on account of an
unconsented to holding over may be difficult to determine, as they may include
lost marketing opportunities with respect to Landlord's ability to obtain a
replacement tenant in a timely manner and other elements of damage that may be
difficult to quantify. Accordingly, should Tenant withhold possession of the
premises from Landlord after
- 17 -
<PAGE>
termination of the within Lease, whether by lapse of time, by termination by
either party as provided herein, or in any other manner, and except in the case
where the Landlord has given written consent to holding over, the damages to
Landlord on account of Tenant's failure to vacate on time, plus the use and
occupancy for the Leased Premises, are hereby liquidated at a monthly sum equal
to any installment Additional Rent in effect as of the end of the Term (any
utility charges and Tenant's Pro Rata Share of the Basic Operating Expense, for
example) plus one and one-half times the monthly installment of Basic Minimum
Annual Rent which would have been in effect for the month immediately prior to
the end of the Term of the Lease had the Lease run the full course of the
Initial Term and any option to extend that may have been exercised prior to the
unconsented to holding over. Tenant shall also be responsible for any other item
of Additional Rent which would be owed had the Lease remained in effect
(attorney's fees and damage to Landlord's property, for example).
ARTICLE XIX
Delivery of Possession to Tenant and Tenant's Initial Fit-Out
19.01 It is acknowledged that the Leased Premises is, as of the date of
this Lease, occupied by Fleet Bank and that Landlord has an agreement with Fleet
Bank for it to vacate the Leased Premises on or before May 31, 1996. Delivery of
possession of the Leased Premises is contingent upon the date Fleet Bank
vacates, however. If Fleet Bank does not vacate on or before May 31, 1996,
Landlord shall use Landlord's best efforts to obtain possession of the Leased
Premises from Fleet Bank as soon as possible. Possession of the Leased Premises
shall be provided to Tenant as soon after May 31, 1996 and the date the Fleet
Bank has vacated as Tenant requests. It is acknowledged that possession of the
Leased Premises may be provided to Tenant prior to the Commencement Date of the
Lease, it being the object of such possible advance occupancy to allow Tenant to
perform fit-out of the Leased Premises desired to be performed by Tenant prior
to the Commencement Date.
19.02 Tenant may use any pre Commencement Date occupancy of the Leased
Premises in order for Tenant to perform its desired initial fit-out of the
Leased Premises. If, however, Tenant shall thereafter terminate this Lease on
account of failure to obtain Banking Commission Approval, then upon request of
Landlord, Tenant shall immediately restore the Leased Premises to the condition
existing upon delivery of possession to Tenant, and Tenant shall pay a use and
occupancy fee to Landlord equivalent to the Basic Minimum Annual Rent and
installment Additional Rent for the period beginning with Tenant's commencement
of Tenant's fit-out work in the Lease Premises and ending with the vacating of
the Leased Premises or such later completion of any such restoration work. If
Tenant shall perform any pre-Commencement Date fit-out work or enter into any
pre-Commencement Date occupancy of the Leased Premises, then Tenant shall first
provide Landlord with certificates of the insurance coverage required of Tenant
under this Lease, and Tenant shall be responsible for all indemnifications of
Landlord on account of any acts or omissions of Tenant or Tenant's agents,
servants, employees and/or contractors as would be in effect had the
Commencement Date occurred.
ARTICLE XX
State Banking Commission Approval Contingency
20.01 Upon execution of this Lease, Tenant shall promptly proceed to
obtain approval from the State of Connecticut Banking Commission (the "Banking
Commission") for Tenant's operation of a bank branch at the Leased Premises (the
"Banking Commission Approval"). In the event that Tenant is unable to obtain the
Banking Commission Approval on or before August 1, 1996 (the "Banking Commission
Approval Contingency Date"), then Tenant may terminate this Lease upon Notice to
Landlord, which Notice may only be given within five business days after the
Banking Commission
- 18 -
<PAGE>
Approval Contingency Date. Tenant shall use Tenant's best efforts to obtain the
Banking Commission Approval, which shall include prosecution of the application
for Banking Commission Approval with diligence. If Tenant shall receive Banking
Commission Approval, Tenant shall promptly so notify Landlord, and if Tenant
shall be denied in Tenant's request for Banking Commission Approval, Tenant
shall also promptly so notify Landlord. If Tenant shall have complied with the
provisions of this paragraph and duly given Landlord Notice of termination on
account of inability to obtain Banking Commission Approval, then this Lease
shall come to an end by lapse of time, effective on receipt of the Notice of
Termination, otherwise, this Lease to remain in full force and effect, as if
this paragraph and the termination right embodied in it did not appear in the
Lease.
This agreement shall inure for the benefit and be binding upon the
parties hereto, their respective heirs, representatives, successors and assigns,
except where provided to the contrary by express provisions contained herein.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
as of the day and year first above written.
Westport Bank & Trust
by /s/Michael H. Flynn
-------------------------------
Michael H. Flynn
its duly authorized president
/s/Robert D. Scinto
-------------------------------
Robert D. Scinto
- 19 -
<PAGE>
State of Connecticut
ss City / Town of
-------------------------------
County of
----------------------------
Personally appeared Michael H. Flynn, signer and sealer of the
foregoing instrument and the duly authorized president of Westport Bank & Trust,
who acknowledged the same to be his free act and deed and the duly authorized
free act and deed of Westport Bank & Trust, before me, this day of
---------
, 1996.
- ---------------------
---------------------------------
Commissioner of the Superior
Court / Notary Public
State of Connecticut
ss City / Town of Shelton
County of Fairfield
Personally appeared Robert D. Scinto, signer and sealer of the
foregoing instrument, who acknowledged the same to be his free act and deed,
this 22nd day of May, 1996.
/s/Eleanor M. Choate
-----------------------------------
Commissioner of the Superior
Court / Notary Public
- 20 -
WESTPORT BANCORP, INC.
AMENDED AND RESTATED
1995 INCENTIVE STOCK OPTION PLAN
INCENTIVE STOCK OPTION AGREEMENT
--------------------------------
THIS AGREEMENT is entered into by and between WESTPORT BANCORP, INC.
(the "Company") and Michael H. Flynn (the "Optionee") as of May 16, 1996.
1. This Option Agreement is subject to and governed by the terms
and conditions of the Westport Bancorp, Inc. Amended and Restated 1995 Stock
Option Plan (the "Plan"), a copy of which is attached hereto as Exhibit A and
incorporated by reference herein.
2. The date of grant of this Option is May 16, 1996.
3. Pursuant and subject to the Plan, the Company hereby grants to
the Optionee the right and option (the "Option") to purchase 27,713 shares of
the common stock, par value $.01 per share, of the Company (the "Stock").
4. The purchase price of the Stock under the Option is $6.00 per
share, which is equal to the fair market value of a share of the Stock on the
date of grant.
5. The Option shall constitute an "incentive stock option" within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, to
the extent provided in Section 8 of the Plan.
6. Subject to the provisions of the Plan, the Option may be
exercised (i) to the extent of 16,666 shares of Stock on and at any time after
the date of grant and before termination of the Option pursuant to the Plan and
(ii) to the extent of 11,047 shares of Stock on and at any time after January 1,
1997 and before termination of the Option pursuant to the Plan (except that, in
the event that a "Change of Control" (as defined in the Plan) occurs before
January 1, 1997, the Option shall be exercisable in full upon the occurrence of
the Change of Control), but in no event later than 10 years after the date of
grant. The Option may be exercised in increments of not less than 50 shares,
unless the number purchased is the total number at the time available for
purchase under the Option.
7. The rights of the Optionee to exercise the Option following
termination of employment, death, or disability are as provided in Paragraphs 11
and 12 of the Plan. The period referred to in Paragraph 12 of the Plan shall be
one year.
8. The shares subject to the Option and the purchase price
specified above are subject to adjustment in certain events as set out in
Paragraph 13 of the Plan. In the event that the Company is merged with or into
another corporation or the Company becomes a subsidiary of another corporation,
the Option may be assumed by a successor or a parent or affiliated corporation
or such corporation may substitute for the
<PAGE>
Option an option to purchase the stock of such corporation or a parent or
affiliated corporation.
9. The Option is not transferable, except upon the death of the
Optionee as provided in the Plan.
10. The Plan is administered by the Board of Directors of the
Company, whose decisions with respect to the construction or interpretation of
the Plan or this Agreement shall be final and conclusive.
11. The parties hereto recognize that the Company or a subsidiary
may be obligated to withhold federal and local income taxes and Federal
Insurance Contributions Act (social security) taxes to the extent that the
Optionee realizes ordinary income in connection with the exercise of the Option
or a disposition of shares of Stock acquired hereunder. The Optionee agrees that
the Company or a Subsidiary may withhold amounts needed to cover such taxes from
payments otherwise due and owing to the Optionee, including withholding of
shares that would otherwise be issued hereunder, and also agrees that upon
demand the Optionee will promptly pay to the Company or a subsidiary having such
obligation any additional amounts as may be necessary to satisfy such
withholding tax obligation. Such payment shall be made in cash or cash
equivalent.
12. The Optionee agrees to notify the Company in writing of any
disposition of shares of stock acquired by the Optionee pursuant to the exercise
of this Option within 30 days of such disposition.
13. The procedures for exercising this Option are as provided in
Paragraph 9 of the Plan. All communications to the Company should be addressed
to Westport Bancorp, Inc., 87 Post Road East, Westport, CT 06880, Attention:
Corporate Secretary.
WESTPORT BANCORP, INC.
By: /s/David A. Rosow
--------------------------
David A. Rosow
Chairman of the Board
OPTIONEE
/s/Michael H. Flynn
-------------------------------
ADDRESS FOR OPTIONEE:
277 Greenfield Hill Road
---------------------------------
Number Street
Fairfield, Connecticut 06430
---------------------------------
City State Zip Code
-2-
WESTPORT BANCORP, INC.
AMENDED AND RESTATED
1995 INCENTIVE STOCK OPTION PLAN
INCENTIVE STOCK OPTION AGREEMENT
--------------------------------
THIS AGREEMENT is entered into by and between WESTPORT BANCORP, INC.
(the "Company") and Thomas P. Bilbao (the "Optionee") as of May 16, 1996.
1. This Option Agreement is subject to and governed by the terms
and conditions of the Westport Bancorp, Inc. Amended and Restated 1995 Stock
Option Plan (the "Plan"), a copy of which is attached hereto as Exhibit A and
incorporated by reference herein.
2. The date of grant of this Option is May 16, 1996.
3. Pursuant and subject to the Plan, the Company hereby grants to
the Optionee the right and option (the "Option") to purchase 23,308 shares of
the common stock, par value $.01 per share, of the Company (the "Stock").
4. The purchase price of the Stock under the Option is $6.00 per
share, which is equal to the fair market value of a share of the Stock on the
date of grant.
5. The Option shall constitute an "incentive stock option" within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, to
the extent provided in Section 8 of the Plan.
6. Subject to the provisions of the Plan, the Option may be
exercised (i) to the extent of 16,666 shares of Stock on and at any time after
the date of grant and before termination of the Option pursuant to the Plan and
(ii) to the extent of 6,642 shares of Stock on and at any time after January 1,
1997 and before termination of the Option pursuant to the Plan (except that, in
the event that a "Change of Control" (as defined in the Plan) occurs before
January 1, 1997, the Option shall be exercisable in full upon the occurrence of
the Change of Control), but in no event later than 10 years after the date of
grant. The Option may be exercised in increments of not less than 50 shares,
unless the number purchased is the total number at the time available for
purchase under the Option.
7. The rights of the Optionee to exercise the Option following
termination of employment, death, or disability are as provided in Paragraphs 11
and 12 of the Plan. The period referred to in Paragraph 12 of the Plan shall be
one year.
8. The shares subject to the Option and the purchase price
specified above are subject to adjustment in certain events as set out in
Paragraph 13 of the Plan. In the event that the Company is merged with or into
another corporation or the Company becomes a subsidiary of another corporation,
the Option may be assumed by a successor or a parent or affiliated corporation
or such corporation may substitute for the
<PAGE>
Option an option to purchase the stock of such corporation or a parent or
affiliated corporation.
9. The Option is not transferable, except upon the death of the
Optionee as provided in the Plan.
10. The Plan is administered by the Board of Directors of the
Company, whose decisions with respect to the construction or interpretation of
the Plan or this Agreement shall be final and conclusive.
11. The parties hereto recognize that the Company or a subsidiary
may be obligated to withhold federal and local income taxes and Federal
Insurance Contributions Act (social security) taxes to the extent that the
Optionee realizes ordinary income in connection with the exercise of the Option
or a disposition of shares of Stock acquired hereunder. The Optionee agrees that
the Company or a Subsidiary may withhold amounts needed to cover such taxes from
payments otherwise due and owing to the Optionee, including withholding of
shares that would otherwise be issued hereunder, and also agrees that upon
demand the Optionee will promptly pay to the Company or a subsidiary having such
obligation any additional amounts as may be necessary to satisfy such
withholding tax obligation. Such payment shall be made in cash or cash
equivalent.
12. The Optionee agrees to notify the Company in writing of any
disposition of shares of stock acquired by the Optionee pursuant to the exercise
of this Option within 30 days of such disposition.
13. The procedures for exercising this Option are as provided in
Paragraph 9 of the Plan. All communications to the Company should be addressed
to Westport Bancorp, Inc., 87 Post Road East, Westport, CT 06880, Attention:
Corporate Secretary.
WESTPORT BANCORP, INC.
By: /s/Michael H. Flynn
--------------------------
Michael H. Flynn
President and Chief Executive Officer
OPTIONEE
/s/ Thomas P. Bilbao
-------------------------------
Thomas P. Bilbao
ADDRESS FOR OPTIONEE:
97 Shore Road
---------------------------------
Number Street
Old Greenwich, Connecticut 06870
---------------------------------
City State Zip Code
-2-
WESTPORT
BANK & TRUST
FIRST AMENDMENT
TO
TRUST UNDER
THE WESTPORT BANK & TRUST COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
This Agreement (this "First Amendment") is dated as of the 20th day of
June, 1996, by and between The Westport Bank & Trust Company ("Company") and
People's Bank ("Trustee").
WHEREAS, Company and Trustee have heretofore entered into an Agreement
dated November 13, 1995, (the "Trust Agreement"); and
WHEREAS, pursuant to Section 12(a) of the Trust Agreement, the Company and
Trustee may amend the Trust Agreement by a written instrument executed by both
parties; and
WHEREAS, Company and Trustee desire to amend the Trust Agreement as set
out in this First Amendment to conform the definition of "Change of Control" for
purposes of the Trust Agreement to the definition of such term in The Westport
Bank & Trust Company Supplemental Executive Retirement Plan, as amended; and
WHEREAS, this First Amendment has been approved by the Board of Directors
of Company,
NOW, THEREFORE, the parties do hereby AGREE that the Trust Agreement is
amended as follows, effective immediately:
1. Section 13(d) of the Trust Agreement is hereby amended to read in
its entirety as follows:
(d) For purposes of this Trust, Change in Control shall mean and
be deemed to have occurred if:
(i) 25 percent or more of ownership, control, power to
vote, or beneficial ownership of any class of voting
securities of Westport Bancorp, Inc., a Delaware
corporation ("Bancorp"), is acquired by any person,
either directly or indirectly or acting through one or
more persons;
<PAGE>
(ii) any person (other than any person named as a proxy in
connection with any solicitation on behalf of the
Board of Directors of Bancorp) holds revocable or
irrevocable proxies, as to the election or removal of
three or more directors of Bancorp, for 25 percent or
more of the total number of voting shares of Bancorp.
(iii) any person has received all applicable regulatory
approvals to acquire control of Bancorp;
(iv) any person has commenced a cash tender or exchange
offer, or entered into an agreement or received an
option, to acquire beneficial ownership of 25 percent
or more of the total number of voting shares of
Bancorp, whether or not any requisite regulatory
approval for such acquisition has been received,
provided that a Change of Control will not be deemed
to have occurred under this clause (iv) unless the
Board of Directors of Bancorp has made a determination
that such action constitutes or will constitute a
Change of Control;
(v) as the result of, or in connection with, any cash
tender or exchange offer, merger, or other business
combination, sale of assets or contested election, or
any combination of the foregoing transaction, (A) the
persons who were directors of Bancorp before such
transaction shall cease to constitute at least a
majority of the Board of Directors of Bancorp or its
successor or (B) the persons who were stockholders of
Bancorp immediately before such transaction do not own
more than 50 percent of the outstanding voting stock
of Bancorp or its successor immediately after such
transaction; or
(vi) Bancorp's beneficial ownership of the total number of
voting shares of Company is reduced to less than 50
percent.
For purposes of this Section, a "person" includes an individual,
corporation, partnership, trust, association, joint venture, pool,
syndicate, unincorporated organization, joint-stock company or
similar organization or entity or group acting in concert. A person
for these purposes shall be deemed to be a "beneficial owner" as
that term is used in Rule 13d-3 under the Securities Exchange Act of
1934.
2
<PAGE>
2. In all other respects, the Trust Agreement shall continue in full force
and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this First
Amendment, or caused this First Amendment to be duly executed on their behalf,
as of the date and year first above written.
Company:
THE WESTPORT BANK & TRUST
Attest: COMPANY
/s/John J. Henchy By /s/Michael H. Flynn
- ---------------------- ---------------------------
Secretary Michael H. Flynn
President and Chief Executive Officer
Trustee:
Attest: PEOPLE'S BANK
/s/Richard E. Brown III By /s/William J. Pieper
- ------------------------- ------------------------------
Title: VP Human Resources Its: VP & Sr. Trust Officer
------------------- ---------------------------
3
Exhibit 11 - Statement Regarding Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended June 30,
1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C>
NET INCOME $ 1,119,000 $ 1,582,000
=========================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 5,689,465 4,763,227
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK EQUIVALENTS:
Net shares assumed to be issued for
dilutive stock options and warrants: 890,720 1,331,844
Shares assumed to be issued on
conversion of preferred stock: 3,999,011 4,282,472
- -----------------------------------------------------------------------------------------
TOTAL WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING 10,579,196 10,377,543
=========================================================================================
EARNINGS PER COMMON SHARE (1) $ 0.11 $ 0.15
=========================================================================================
Six Months Ended June 30,
1996 1995
- -----------------------------------------------------------------------------------------
NET INCOME $ 2,099,000 $ 3,242,000
=========================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 5,629,550 4,010,532
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK EQUIVALENTS:
Net shares assumed to be issued for
dilutive stock options and warrants: 897,111 1,842,241
Shares assumed to be issued on
conversion of preferred stock: 4,029,780 4,338,425
- -----------------------------------------------------------------------------------------
TOTAL WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING 10,556,441 10,191,198
=========================================================================================
EARNINGS PER COMMON SHARE (1) $ 0.20 $ 0.32
=========================================================================================
<FN>
(1) There was no difference between primarily and fully diluted earnings per
share in 1996 and 1995.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Jun-30-1996
<EXCHANGE-RATE> 1
<CASH> 35267
<INT-BEARING-DEPOSITS> 179938
<FED-FUNDS-SOLD> 13500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 90814
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 182680
<ALLOWANCE> 3121
<TOTAL-ASSETS> 316648
<DEPOSITS> 258891
<SHORT-TERM> 29049
<LIABILITIES-OTHER> 3593
<LONG-TERM> 0
0
1
<COMMON> 60
<OTHER-SE> 25054
<TOTAL-LIABILITIES-AND-EQUITY> 316648
<INTEREST-LOAN> 8123
<INTEREST-INVEST> 2672
<INTEREST-OTHER> 103
<INTEREST-TOTAL> 10898
<INTEREST-DEPOSIT> 2848
<INTEREST-EXPENSE> 3253
<INTEREST-INCOME-NET> 7645
<LOAN-LOSSES> 600
<SECURITIES-GAINS> 13
<EXPENSE-OTHER> 5599
<INCOME-PRETAX> 3590
<INCOME-PRE-EXTRAORDINARY> 3590
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2099
<EPS-PRIMARY> 20
<EPS-DILUTED> 20
<YIELD-ACTUAL> 7.90
<LOANS-NON> 2479
<LOANS-PAST> 678
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2433
<ALLOWANCE-OPEN> 2854
<CHARGE-OFFS> 469
<RECOVERIES> 136
<ALLOWANCE-CLOSE> 3121
<ALLOWANCE-DOMESTIC> 3121
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
