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 September 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
_____________
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 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 October 31, 1996, there were 6,070,281 outstanding shares of Westport
Bancorp, Inc.'s common stock, par value $.01 per share.
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
WESTPORT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
($ in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
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(unaudited)
<S> <C> <C>
ASSETS:
Cash and due from banks $ 19,423 $ 24,113
Federal funds sold 8,500 14,500
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Cash and cash equivalents 27,923 38,613
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Securities available for sale, at market value 92,995 85,338
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Loans 185,487 178,052
Allowance for loan losses (3,115) (2,854)
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Loans - net 182,372 175,198
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Premises and equipment - net 3,418 4,933
Accrued interest receivable 2,380 2,247
Other assets 3,664 6,588
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TOTAL ASSETS $312,752 $312,917
========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Noninterest-bearing deposits $ 72,437 $ 78,421
Interest-bearing deposits 188,795 196,249
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Total deposits 261,232 274,670
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Short-term borrowings 22,681 7,733
Other liabilities 3,207 6,232
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Total liabilities 287,120 288,635
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Stockholders' equity:
Preferred stock - $.01 par value; authorized 2,000,000
shares; outstanding 39,600 shares at September 30, 1996, 1 1
41,850 at December 31, 1995
Common stock - $.01 par value; authorized 20,500,000 shares;
outstanding, 6,070,281 shares at September 30, 1996,
5,433,665 shares at December 31, 1995 60 54
Additional paid in capital 23,488 22,980
Retained earnings 2,662 1,285
Net unrealized depreciation on securities
available for sale, net of tax (579) (38)
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Total stockholders' equity 25,632 24,282
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $312,752 $312,917
========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
WESTPORT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $ 4,068 $ 3,977 $12,191 $12,152
Securities 1,416 1,132 4,087 3,079
Federal funds sold and other 43 48 147 120
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Total interest income 5,527 5,157 16,425 15,351
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INTEREST EXPENSE:
Deposits 1,388 1,349 4,236 3,597
Short-term borrowings 213 129 618 786
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Total interest expense 1,601 1,478 4,854 4,383
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Net interest income 3,926 3,679 11,571 10,968
Provision for loan losses 250 375 850 1,125
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Net interest income after provision
for loan losses 3,676 3,304 10,721 9,843
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OTHER OPERATING INCOME:
Trust fees 513 486 1,459 1,355
Service charges on deposit accounts 369 324 1,068 1,010
Realized security gains (losses) - net 24 4 37 (229)
Loan sale gains - net 68 7 153 45
Mortgage service fees 32 36 97 101
Other 148 134 484 417
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Total other operating income 1,154 991 3,298 2,699
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OTHER OPERATING EXPENSE:
Salaries and benefits 1,469 1,411 4,444 4,171
Professional fees 803 211 1,360 623
Occupancy - net 373 366 1,135 1,057
Data processing 135 141 425 423
Furniture and equipment 78 73 244 211
Other insurance premiums 45 54 135 166
FDIC insurance premiums 1 17 2 370
Other 330 482 1,088 1,297
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Total other operating expense 3,234 2,755 8,833 8,318
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Income before income taxes 1,596 1,540 5,186 4,224
Income taxes (benefit) 876 (585) 2,367 (1,143)
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NET INCOME $ 720 $ 2,125 $ 2,819 $ 5,367
======================================================================================================================
Earnings Per Common Share $ 0.07 $ 0.20 $ 0.27 $ 0.52
======================================================================================================================
Weighted average number of common
shares and common equivalent
shares outstanding 10,905,309 10,474,022 10,584,240 10,295,922
======================================================================================================================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
WESTPORT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
($ in thousands)
(unaudited)
<TABLE>
<CAPTION>
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 --- --- --- --- --- 5,367 --- 5,367
Issuance of Common Stock -
Warrants exercised --- --- 1,997,000 21 1,477 --- --- 1,498
Employee Options exercised --- --- 9,000 --- 18 --- --- 18
Conversion of Preferred Stock (1,600) --- 160,000 1 (1) --- --- ---
Dividend Reinvestment and
Stock Purchase Plan --- --- 2,615 --- 12 --- --- 12
Dividends -
Preferred Stock --- --- --- --- --- (170) --- (170)
Common Stock --- --- --- --- --- (215) --- (215)
Change in net unrealized depreciation
on securities available for sale,
net of tax --- --- --- --- --- --- 324 324
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1995 42,350 $ 1 5,380,367 $ 54 $22,965 $ 302 $ (90) $23,232
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1996 41,850 $ 1 5,433,665 $ 54 $22,980 $ 1,285 $ (38) $24,282
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income --- --- --- --- --- 2,819 --- 2,819
Issuance of Common Stock -
Warrants exercised --- --- 325,500 3 242 --- --- 245
Employee Options exercised --- --- 85,000 1 261 --- --- 262
Conversion of Preferred Stock (2,250) --- 225,000 2 (2) --- --- ---
Dividend Reinvestment and
Stock Purchase Plan --- --- 1,116 --- 7 --- --- 7
Dividends -
Preferred Stock --- --- --- --- --- (576) --- (576)
Common Stock --- --- --- --- --- (866) --- (866)
Change in net unrealized depreciation
on securities available for sale,
net of tax --- --- --- --- --- --- (541) (541)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1996 39,600 $ 1 6,070,281 $ 60 $23,488 $ 2,662 $ (579) $25,632
====================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
WESTPORT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,819 $ 5,367
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 850 1,125
Deferred tax provision (benefit) 2,254 (1,218)
Depreciation, amortization and accretion 613 626
Provision for and losses on other real estate owned - net --- 162
Loss on sale of bank premises-net 5 ---
Loan sale gains - net (153) (45)
Realized security (gains) losses - net (37) 229
Increase in accrued interest receivable (133) (254)
Decrease (increase) in other assets 959 (382)
Increase (decrease) in other liabilities (3,007) 1,190
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Net cash provided by operating activities 4,170 6,800
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INVESTING ACTIVITIES:
Proceeds from maturities of securities -
Available for sale 22,493 ---
Held to maturity --- 1,000
Proceeds from sales of securities -
Available for sale 8,587 28,859
Principal collected on securities 3,519 4,100
Purchases of securities -
Available for sale (43,245) (43,904)
Held to maturity --- (4,999)
Increase in loans - net (17,321) (6,390)
Loans repurchased by the FDIC --- 1,988
Proceeds from sales of loans 9,450 12,763
Proceeds from sale of bank premises 1,199 ---
Purchase of loans --- (997)
Proceeds from sales of other real estate owned 60 279
Purchases of premises and equipment (184) (496)
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Net cash used in investing activities (15,442) (7,797)
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FINANCING ACTIVITIES:
Decrease in noninterest-bearing deposits - net (5,984) (1,144)
Decrease in interest-bearing deposits - net (7,454) (5,958)
Increase in short-term borrowings - net 14,948 251
Proceeds from issuance of Common Stock - net 514 1,528
Dividends (1,442) (385)
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Net cash provided by financing activities 582 6,208
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Increase (decrease) in cash and cash equivalents (10,690) 5,211
Cash and cash equivalents at beginning of year 38,613 17,924
-----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 27,923 $ 23,135
=======================================================================================================================
</TABLE>
See notes to consolidated financial statements.
5
<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 the 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.
Under the Agreement at HUBCO's option, at the Effective Time, the Bank will be
merged (the "Bank Merger") with HUBCO's principal Connecticut bank subsidiary or
with another subsidiary of HUBCO, if HUBCO has no Connecticut bank subsidiary at
the Effective Time. In this connection, the Bank entered into an agreement and
plan of merger, dated as of July 15, 1996, with Lafayette American Bank and
Trust Company, a Connecticut bank and trust company wholly-owned by HUBCO
("Lafayette"), pursuant to which the Bank will be merged with and into
Lafayette, with Lafayette as the surviving bank. The Bank Merger is subject,
among other things, to the consummation of the Merger and to the receipt of
appropriate regulatory approvals.
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 .332175 of a
share of HUBCO common stock, no par value (representing an adjusted ratio under
the Agreement based on HUBCO's recent declaration of a 3% stock dividend). Each
outstanding share of Westport Bancorp Series A convertible
6
<PAGE>
preferred stock will be converted into one share of a newly created series of
HUBCO convertible preferred stock having substantially identical terms to the
Westport Bancorp preferred stock. Stock options which, as of the Effective Time,
are outstanding and vested (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 is subject to a number of conditions including, but not limited
to, approval by Bancorp's shareholders and approval (or waiver, as appropriate)
of regulatory agencies. On October 24, 1996, at a special meeting, the Agreement
was approved and adopted by Bancorp's shareholders. In addition, HUBCO and
Bancorp have received all necessary approvals (or waiver, as appropriate) from
Federal regulators and the Connecticut Bank Commissioner.
Professional fees incurred by Bancorp in connection with the Merger amounted to
$582,000 as of September 30, 1996, which have been expensed during the third
quarter of 1996. Bancorp's management anticipates the Merger will close in
mid-December 1996, subject to the satisfaction or waiver of other customary
closing conditions. HUBCO expects to account for the merger as a pooling of
interests.
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).
7
<PAGE>
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 September 30, 1996.
<TABLE>
<CAPTION>
Bancorp's Minimum Capital
Capital Ratio Capital Position Requirements
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total Capital to Risk-Weighted Assets 14.91% 8.0%
Tier 1 Capital to Risk-Weighted Assets 13.65 4.0
Tier 1 Capital to Average Assets (Leverage Ratio) 8.68 3.0(1)
</TABLE>
(1) An additional 1% to 2% is required for all but the most highly rated
institutions.
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 September 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 nine months of 1996 totaled
$2,367,000; cash payments for income taxes during the period totaled $150,000.
The Company's tax provision for the first nine months of 1995 included a current
federal and state tax provision totaling $75,000 and a $1,218,000 benefit
resulting from the reversal of a previously established deferred tax valuation
allowance. For the nine month period ended September 30, 1995, the Company made
cash payments for income taxes totaling $78,000.
As of September 30, 1996, the Company has aggregate net operating loss
carryforwards of approximately $1.1 million for federal purposes and $1.7
million for state purposes to offset future income for tax return purposes.
8
<PAGE>
At September 30, 1996, the Company had a net deferred tax asset of approximately
$1.0 million representing anticipated future utilization of its net operating
loss carryforwards as an offset against future taxable income and other
temporary differences.
The $0.6 million unrealized loss on available for sale securities during the
first nine 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 September 30, 1996 and 1995, the computation includes
6,069,273 and 5,373,006 weighted average shares outstanding, respectively, and
876,036 and 866,016 weighted average common equivalent shares, respectively,
under the treasury stock method. The earnings per share computations also
include 3,960,000 and 4,235,000 weighted average common shares in 1996 and 1995,
respectively, issuable upon the assumed conversion of preferred stock.
For the nine month periods ended September 30, 1996 and 1995, the computation
includes 5,777,194 and 4,469,681 weighted average shares outstanding,
respectively, and 800,696 and 1,522,669 weighted average common equivalent
shares, respectively, under the treasury stock method. The earnings per share
computations also include 4,006,350 and 4,303,571 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 third quarters of 1996 and 1995 or in the nine month periods ended September
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.
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.
9
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
- --------------------------------------------------------------------------------
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 nine months of 1996 of $2,819,000,
or $0.27 per common share after third quarter merger related expenses of
$582,000 or $0.05 per common share, compared to net income of $5,367,000 or
$0.52 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 third quarter and nine month tax
provisions of $0.9 million and $2.4 million, respectively, compares with a $0.6
million and $1.1 million net tax benefit recognized during the same periods in
1995. Excluding non-recurring gains and losses from the sale of loans and/or
investment securities and merger related expenses, the Company's pretax earnings
from core operations were $5,578,000 for the nine months ended September 30,
1996, an increase of 27% from core earnings of $4,408,000 for the first nine
months of 1995. Contributing to the improved pre-tax results for the first nine
months of 1996, as compared to the same period in 1995, was a 33% 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 third quarter of 1996, net income was $720,000, or $0.07 per common
share, compared to net income of $2,125,000, or $0.20 per common share for the
comparable 1995 period. The Company's third quarter pre-tax earnings from core
operations were $2,086,000, which represented a 36% increase from $1,529,000 for
the comparable 1995 period. Contributing to the improvement in results in the
third quarter of 1996, compared to the same period of 1995, was an increase of
8% in average interest-earning assets, increases in fee income, a reduction in
the provision for loan losses and, excluding merger related expenses, a
reduction in operating expenses.
Negatively impacting earnings for the third quarter and first nine 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 1996 and an increase in
professional fees related to the merger and executive compensation initiatives.
10
<PAGE>
Bancorp's leverage ratio at September 30, 1996 was 8.68%, and its total capital
to risk-weighted asset ratio was 14.91%, 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 nine 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 $11,571,000 for the first nine months of 1996, compared
with $10,968,000 for the comparable 1995 period, an increase of 5.5% or
$603,000. For the third quarter of 1996, net interest income increased $247,000
to $3,926,000, or 6.7% over the 1995 third quarter figure of $3,679,000. Factors
impacting interest income and expense are discussed below.
Total interest income amounted to $16,425,000 for the first nine months of 1996,
compared to $15,351,000 for the same period in 1995, an increase of 7.0%. A key
factor relating to the higher level of total interest income for the first nine
months of 1996, compared to the same period for 1995, was an increase in average
earning assets of $19.7 million or 7.7%, to $275,968,000 from $256,244,000. This
increase in volume during the 1996 period resulted in an additional $1,019,000
of interest income. The average balance of investment securities, as a component
of earning assets, experienced the most significant increase from $70,385,000 in
1995 to $89,622,000 in 1996, an increase of 27.3%. In addition, positively
impacting the first nine months of 1996 was a 41.4% decrease in average
nonaccrual loans compared to the nine months ended September 30, 1995. However,
during the first nine months of 1996, the yield on average interest-earning
assets decreased slightly to 7.9% from 8.0% in 1995. Positively impacting the
second quarter of 1996, average earning assets increased $22,305,000 to
$278,083,000, an increase of 8.7%, increasing interest income by $424,000. In
addition, average nonaccrual loans declined 37.1% to $2,367,000 in the third
quarter of 1996 from $3,766,000 in the third quarter of 1995.
11
<PAGE>
Total interest expense for the first nine months of 1996 was $4,854,000, an
increase of 10.7% from $4,383,000 for the same period in 1995. This increase is,
in part, the result of a 4.7% increase in average interest-bearing liabilities.
For the first nine months of 1996, average interest-bearing liabilities
increased to $201,035,000 from $192,041,000 for the comparable 1995 period,
resulting in an increase in interest expense of $396,000. In addition, average
interest costs on interest-bearing liabilities for the first nine months of 1996
increased to 3.2% from 3.1% for the comparable 1995 period, resulting in
additional interest expense of $75,000. For the third quarter of 1996, interest
expense increased $123,000 or 8.3%, primarily due to the 6.7% increase in
average interest-bearing liabilities. Positively impacting results during the
three and nine month periods ended September 30, 1996 was an increase of 6.3%
and 7.4%, 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 nine months of 1996, the net interest
margin declined to 5.6% from 5.7% in the comparable 1995 period. For the third
quarter of 1996, the net interest margin also declined to 5.6% from 5.7% as
compared to the third 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 $2,426,000 and $4,141,000
for the first nine months of 1996 and 1995, respectively. Further improvement in
net interest income is dependent, in part, upon the continued resolution of
nonperforming loans.
12
<PAGE>
The following table sets forth a comparison of average earning assets,
nonaccrual loans, average interest-bearing liabilities and related
interest-income and expense for the three months ended September 30, 1996 and
1995. Average balances are averages of daily closing balances.
<TABLE>
<CAPTION>
Three Months Ended September 30,
---------------------------------------------------------------------------------------------------------------------------------
1996 1995
---------------------------------------------------------------------------------------------------------------------------------
Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate
---------------------------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Accruing loans $180,688 $4,068 9.0% $174,383 $3,977 9.1%
Non-accruing loans 2,367 --- --- 3,766 --- ---
---------------------------------------------------------------------------------------------------------------------------------
Total loans 183,055 4,068 9.0 178,149 3,977 8.9
Investment securities 91,714 1,416 6.2 74,344 1,132 6.1
Federal funds sold
and other 3,314 43 5.1 3,285 48 5.7
---------------------------------------------------------------------------------------------------------------------------------
Total interest-earning
assets $278,083 5,527 7.9 $255,778 5,157 8.0
======== ----- ======== -----
Noninterest-bearing
demand deposits $ 72,937 --- --- $ 68,599 --- ---
Interest-bearing
liabilities:
NOW and Money market 73,845 325 1.8 68,210 296 1.7
Savings 45,607 228 2.0 49,334 247 2.0
Certificates of deposit 64,348 826 5.1 60,616 792 5.2
Other 16,779 222 5.3 9,754 143 5.8
---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 200,579 1,601 3.2 187,914 1,478 3.1
---------------------------------------------------------------------------------------------------------------------------------
Total noninterest-bearing
deposits and interest-
bearing liabilities $273,516 1,601 2.3 $256,513 1,478 2.3
======== ----- ======== -----
Net interest income(1) $3,926 $3,679
=================================================================================================================================
Net interest margin(2) 5.6% 5.7%
=================================================================================================================================
Interest rate spread(3) 5.6% 5.7%
=================================================================================================================================
</TABLE>
(1) Interest income includes fees on loans of $79,000 and $57,000 for 1996 and
1995, respectively.
(2) Net interest margin is net interest income divided by total average earning
assets.
(3) Interest rate spread is the difference between the yield on total average
interest-earning assets and the cost of total average noninterest-bearing
deposits and interest-bearing liabilities.
13
<PAGE>
The following table sets forth a comparison of average earning assets,
nonaccrual loans, average interest-bearing liabilities and related
interest-income and expense for the nine months ended September 30, 1996 and
1995. Average balances are averages of daily closing balances.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------------------------------------------------------------------------------------------
1996 1995
--------------------------------------------------------------------------------------------------------------------------------
Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate
--------------------------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Accruing loans $180,195 $12,191 9.0% $179,020 $12,152 9.1%
Non-accruing loans 2,426 --- --- 4,141 --- ---
--------------------------------------------------------------------------------------------------------------------------------
Total loans 182,621 12,191 8.9 183,161 12,152 8.9
Investment securities 89,622 4,087 6.1 70,385 3,079 5.8
Federal funds sold
and other 3,725 147 5.2 2,698 120 5.9
--------------------------------------------------------------------------------------------------------------------------------
Total interest-earning
assets $275,968 16,425 7.9 $256,244 15,351 8.0
======== ------ ======== ------
Noninterest-bearing
demand deposits $ 71,602 --- --- $ 66,668 --- ---
Interest-bearing
liabilities:
NOW and Money market 71,824 939 1.7 67,948 832 1.6
Savings 45,815 681 2.0 52,701 783 2.0
Certificates of deposit 66,997 2,588 5.2 52,723 1,948 4.9
Other 16,399 646 5.3 18,669 820 5.9
--------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 201,035 4,854 3.2 192,041 4,383 3.1
--------------------------------------------------------------------------------------------------------------------------------
Total noninterest-bearing
deposits and interest-
bearing liabilities $272,637 4,854 2.4 $258,709 4,383 2.3
======== ----- ======== -----
Net interest income(1) $11,571 $10,968
================================================================================================================================
Net interest margin(2) 5.6% 5.7%
================================================================================================================================
Interest rate spread(3) 5.5% 5.7%
================================================================================================================================
</TABLE>
(1) Interest income includes fees on loans of $259,000 and $163,000 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.
14
<PAGE>
The following table analyzes the changes attributable to the rate and volume
components of net interest income.
<TABLE>
<CAPTION>
Three Months Ended Sept. 30, Nine Months Ended Sept. 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 $ 154 $ (63) $ 91 $ 120 $ (81) $ 39
Investment securities 270 14 284 856 152 1,008
Federal funds sold and other --- (5) (5) 43 (16) 27
-----------------------------------------------------------------------------------------------------------------------------------
Total interest income 424 (54) 370 1,019 55 1,074
-----------------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Deposits and other interest-bearing
liabilities:
NOW & Money market 25 4 29 41 66 107
Savings (19) --- (19) (94) (8) (102)
Certificate of deposit 48 (14) 34 540 100 640
Other 93 (14) 79 (91) (83) (174)
-----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 147 (24) 123 396 75 471
-----------------------------------------------------------------------------------------------------------------------------------
Change in Net Interest Income $ 277 $ 30 $ 247 $ 623 $ (20) $ 603
===================================================================================================================================
</TABLE>
(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.
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 September 30, 1996, December 31,
1995 and September 30, 1995.
<TABLE>
<CAPTION>
% Change % Change
Sept. 30, Sept. 30,
1996 vs 1996 vs
Sept. 30, Dec. 31, Sept. 30, Dec. 31, Sept. 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 $ --- $ 5 $ 105 (100)% (100)%
Commercial and other 187 --- --- N/M N/M
Commercial 144 --- 59 N/M 144
Home equity 40 149 --- (73) N/M
Consumer and other --- 4 6 (100) (100)
-------------------------------------------------------------------------------------------------------------------------------
371 158 170 135 118
-------------------------------------------------------------------------------------------------------------------------------
Nonaccrual loans
Mortgage:
Secured by residential
property 590 85 529 N/M 12
Commercial and other 1,390 1,098 1,098 27 27
Commercial 461 813 1,770 (43) (74)
-------------------------------------------------------------------------------------------------------------------------------
2,441 1,996 3,397 22 (28)
-------------------------------------------------------------------------------------------------------------------------------
Impaired accruing loans 1,048 447 2,172 134 (52)
-------------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 3,860 2,601 5,739 48 (33)
Other real estate owned --- --- --- --- ---
-------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 3,860 $ 2,601 $ 5,739 48% (33)%
===============================================================================================================================
</TABLE>
N/M = not measurable or not meaningful.
The increase in nonperforming loans at September 30, 1996, as compared to
December 31, 1995, is in part attributable to the addition of five nonaccrual
loans of which four totaling $0.6 million are secured by residential property
and one totaling $0.4 million is secured by commercial property. In addition,
one commercial mortgage totaling $0.8 million was added to impaired loans.
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 September 30, 1996, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS 114 and 118 totaled $3,489,000, of which
$2,441,000 were nonaccrual loans. At September 30, 1996, the valuation allowance
related to all impaired loans totaled $840,000 and is included in the allowance
for loan losses. For the three months ended September 30, 1996, the average
recorded investment in impaired loans was approximately $3.4 million. Total
interest in the amount of $26,000 was recognized on accruing impaired loans
during the quarter.
At September 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 33% decline from September 30, 1995 to
September 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 September 30, 1996 and 1995.
<TABLE>
<CAPTION>
% Change
Sept. 30,
1996 vs
Sept. 30,
1996 1995 1995
- -------------------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C>
Balance, January 1, $ 1,996 $ 4,316 (54)%
- -------------------------------------------------------------------------------------------------------------------------
Additions 1,858 2,089 (11)
- -------------------------------------------------------------------------------------------------------------------------
Less:
Repayments 485 2,080 (77)
Charge-offs 608 405 50
Reinstate accruing 260 523 (50)
Transfer to OREO 60 --- 100
- -------------------------------------------------------------------------------------------------------------------------
Total resolved 1,413 3,008 (53)
- -------------------------------------------------------------------------------------------------------------------------
Balance, September 30, $ 2,441 $ 3,397 (28)%
=========================================================================================================================
</TABLE>
N/M = not measurable or not meaningful.
Included in the additions for the first nine months of 1996 are four loans
totaling $0.6 million which are secured by residential properties and one loan
totaling $0.4 million secured by commercial property. Management believes these
loans are well secured and is aggressively pursuing the collection of these
loans. The remaining $0.9 million of loans placed on nonaccrual status during
the first nine months of 1996 includes $0.6 million of commercial loans, which
loans have subsequently been resolved by repayment or chargeoff.
In addition to the loans classified as nonperforming in the preceding table, the
Bank's internal loan review function has identified approximately $0.7 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 $3,115,000 at September 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 $3,115,000 at September 30, 1996 reflects $820,000 of loan charge-offs
during the period, a provision for loan losses of $850,000 and recoveries of
$231,000. 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 September 30, 1996, December 31, 1995 and September 30, 1995.
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1996 1995 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Allowance for loan losses $ 3,115 $ 2,854 $ 3,277
Nonaccrual loans 2,441 1,996 3,397
Nonperforming loans (1) 3,860 2,601 5,739
Allowance for loan losses
as a % of nonaccrual loans 128% 143% 96%
Allowance for loan losses
as a % of nonperforming loans 81% 110% 57%
Allowance for loan losses
as a % of loans outstanding 1.68% 1.60% 1.84%
</TABLE>
(1) Includes nonaccrual loans, impaired loans and loans accruing 90 days or
more past due.
19
<PAGE>
The change in allowance for loan losses since December 31, 1995 in relation to
nonaccrual and nonperforming loans is based primarily upon the quality and level
of collateral securing nonaccrual and nonperforming loan activity during the
nine months ended September 30, 1996.
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 nine months ended September 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 5 227
Commercial and other 206 648
Commercial 505 420
Home equity 46 35
Consumer and other 58 123
- -----------------------------------------------------------------------------------------------------------------
Total loans charged-off 820 1,453
Recoveries on amounts previously charged-off:
Mortgage:
Secured by residential property 13 1
Commercial and other --- 51
Commercial 68 57
Home equity 47 16
Consumer and other 103 50
- -----------------------------------------------------------------------------------------------------------------
Total recoveries 231 175
Net loans charged-off 589 1,278
Provision charged to operating expenses 850 1,125
Other (1) --- 89
- -----------------------------------------------------------------------------------------------------------------
Balance, September 30, $3,115 $3,277
=================================================================================================================
</TABLE>
(1) Reclassification of unutilized OREO reserve.
20
<PAGE>
OTHER REAL ESTATE OWNED
At September 30, 1996 and 1995, the Company had no other real estate owned
properties ("OREO") in its possession. During the second quarter of 1996, the
Company acquired a residential property through foreclosure, carried at $60,000
and during the third quarter of 1996 the property was sold. No other activity
occurred in 1996.
During the first nine months of 1995, the Bank recorded $171,000 of additional
write-downs on real estate properties and sold real estate properties with a
carrying value of $270,000, which resulted in a gain of $9,000 during the 1995
period. OREO properties are carried at the lower of cost or estimated fair
value.
Further material declines in the real estate market could cause increases in the
level of OREO, further losses or writedowns.
The following table summarizes the changes in OREO for the nine months ended
September 30, 1996 and 1995.
1996 1995
- -------------------------------------------------------------------------------
($ in thousands)
Balance, January 1, $ --- $ 352
- -------------------------------------------------------------------------------
Additions 60 ---
Sales (60) (270)
Write-downs --- (171)
Valuation allowance --- 89
- -------------------------------------------------------------------------------
Balance, September 30, $ --- $ ---
===============================================================================
21
<PAGE>
OTHER OPERATING INCOME
The following table sets forth other operating income for the three month and
nine month periods ended September 30, 1996 and 1995, and the percentage change
from period to period.
<TABLE>
<CAPTION>
Three Months Ended % Change Nine Months Ended % Change
Sept. 30, 1996 vs Sept. 30, 1996 vs
1996 1995 1995 1996 1995 1995
--------------------------------------------------------------------------------------------------------------------------------
($ in thousands) ($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Trust fees $ 513 $ 486 5.6% $ 1,459 $ 1,355 7.7%
Service charges on deposit accounts 369 324 13.9 1,068 1,010 5.7
Realized security gains (losses) - net 24 4 N/M 37 (229) N/M
Loan sale gains - net 68 7 N/M 153 45 N/M
Mortgage servicing fees 32 36 (11.1) 97 101 (4.0)
Other 148 134 10.4 484 417 16.1
--------------------------------------------------------------------------------------------------------------------------------
Total other operating income $ 1,154 $ 991 16.4% $ 3,298 $ 2,699 22.2%
================================================================================================================================
</TABLE>
N/M = not measurable or not meaningful.
Total other operating income for the first nine months of 1996 increased 22.2%
from the comparable period in 1995. This increase was due, in part, to a net
loss of $229,000 realized on the sale of securities in the available for sale
portfolio during 1995 compared to a net gain of $37,000 during the 1996 period.
The security losses during 1995 were incurred in connection with the
repositioning of the available for sale portfolio into higher yielding
government agency securities. Excluding the securities gains and losses for both
periods, other operating income increased 11.4% in 1996 over the comparable 1995
period. For the third quarter of 1996, total other operating income increased
16.4% to $1,154,000 from $991,000 for the same period in 1995. Contributing
factors are discussed below.
Trust fees increased $27,000, or 5.6% to $513,000 in the third quarter of 1996
and 7.7% for the first nine 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 13.9% and 5.7% for the third
quarter of 1996 and the first nine 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 10.4% and 16.1% for the three month and nine
month periods ended September 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 $7.6 million in residential mortgage loans while retaining the
rights to service these loans. Net gains of $134,000 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. An additional $1.7 million in residential mortgage
loans were sold in the first nine months of 1996, servicing released, resulting
in realized net gains of $19,000. During the first nine months of 1995, $12.7
million in residential mortgage loans were sold for a net gain of $45,000. The
Company utilizes loan sales as part of its asset/liability management program.
Negatively impacting results was a decline in mortgage servicing fees of 11.1%
and 4.0% during the three and nine month periods of 1996, respectively, as
compared to the same periods in 1995. This decline was primarily the result of
the amortization of the servicing asset recorded in connection with SFAS 122.
OTHER OPERATING EXPENSE
The following table sets forth other operating income and other operating
expense for the three month and nine month periods ended September 30, 1996 and
1995, and the percentage change from period to period.
<TABLE>
<CAPTION>
Three Months Ended % Change Nine Months Ended % Change
Sept. 30, 1996 vs Sept. 30, 1996 vs
1996 1995 1995 1996 1995 1995
--------------------------------------------------------------------------------------------------------------------------------
($ in thousands) ($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Salaries and benefits $ 1,469 $ 1,411 4.1% 4,444 $ 4,171 6.5%
Professional fees 803 211 N/M 1,360 623 N/M
Occupancy - net 373 366 1.9 1,135 1,057 7.4
Data processing 135 141 (4.3) 425 423 0.5
Furniture and equipment 78 73 6.8 244 211 15.6
Other insurance premiums 45 54 (16.7) 135 166 (18.7)
FDIC insurance premiums 1 17 (94.1) 2 370 (99.5)
Other 330 482 (31.5) 1,088 1,297 (16.1)
--------------------------------------------------------------------------------------------------------------------------------
Total other operating expense $ 3,234 $ 2,755 17.4% $ 8,833 $ 8,318 6.2%
================================================================================================================================
</TABLE>
N/M = not measurable or not meaningful.
For the nine months ended September 30, 1996 total other operating expense
increased 6.2% to $8,833,000 from $8,318,000 for the comparable 1995 period.
Included in results were expenses totaling $582,000 related to the merger with
HUBCO, Inc. as discussed in Note 2.
Excluding merger expenses, total other operating expense decreased $67,000 or
0.8% to $8,251,000 for the nine months ended September 30, 1996, as compared to
the 1995 period. Total other operating expense, excluding merger related
expenses, during the third quarter of 1996, decreased 3.7% to $2,652,000 from
$2,755,000 during the third quarter of 1995. Impacting both periods was the
Company's expansion by opening an additional branch facility during the third
quarter of 1996.
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.
23
<PAGE>
Other insurance premiums declined 16.7% to $45,000 in the third quarter of 1996
and 18.7% to $135,000 for the nine month period ended September 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.
The other expense category declined 31.5% and 16.1%, respectively, for the three
and nine month periods ended September 30, 1996 as compared to the prior year.
Contributing to the decline was a reduction in advertising expense, ATM
interchange fees and director's pension expense.
Offsetting these decreases was an increase in salaries and benefits of 4.1% in
the third quarter of 1996 and 6.5% for the nine 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 1996 for the new branch facility, along
with an increase in employee benefit costs, and costs associated with incentive
programs.
Professional fees, excluding merger related expenses of $582,000, increased 4.7%
and 24.9% in the third quarter and first nine months of 1996, respectively, when
compared to the same periods in 1995 primarily as a result of costs associated
with executive compensation initiatives.
Occupancy expense increased 1.9% or $7,000 in the third quarter of 1996, as
compared to the third quarter of 1995, primarily due to expenses associated with
the new branch facility which opened during the third quarter of 1996. The
increase of 7.4% in occupancy expense for the nine months ended September 30,
1996, as compared to the same period in 1995, was primarily the result of a new
branch facility opened in the third quarter of 1995. Furniture and equipment
expense increased 6.8% and 15.6%, for the three and nine month periods ended
September 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 September 30, 1996 aggregated $312,752,000 compared with
$312,917,000 at December 31, 1995. Total loans were $185,487,000 at September
30, 1996, versus $178,052,000 at December 31, 1995. Noninterest-bearing deposits
were $72,437,000 at September 30, 1996, compared with $78,421,000 at December
31, 1995. Interest-bearing deposits totaled $188,795,000 at September 30, 1996
versus $196,249,000 at December 31, 1995. The decline at September 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 $22,681,000 at September 30,
1996 and $7,733,000 at December 31, 1995. For municipalities and selected
commercial and retail
24
<PAGE>
customers, the Bank also offers repurchase agreements, which are included in
short-term borrowings. Securities sold under repurchase agreements were
$10,380,000 at September 30, 1996 and $1,050,000 at December 31, 1995. As a
result of the decline in deposits at September 30, 1996, short-term borrowings,
including repurchase agreements, increased $14,948,000 from December 31, 1995 to
meet the Company's funding requirements.
At September 30, 1996, the Company's available for sale securities portfolio
totaled $92,995,000 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 September 30, 1996 was comprised primarily of fixed
rate U.S. government agency debt and mortgage-backed securities.
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 14.91% at September 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
September 30, 1996 was 8.68%, 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 $27,923,000 or
8.9% of total assets at September 30, 1996, as compared with $38,613,000 or
12.3% of total assets at December 31, 1995. Securities available for sale were
$92,995,000 at September 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 September 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 $10.0 million in
short-term borrowings from the FHLBB at September 30, 1996.
25
<PAGE>
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 September 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 September 30, 1996 was $10,380,000. The discount
window, if needed, would allow the Company to cover any short-term liquidity
needs without reducing earning assets. At September 30, 1996, the Company did
not have any borrowings from the Federal Reserve Bank's discount window.
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 third quarter of 1996, the Bank declared a dividend totaling $0.6 million
which was paid to Bancorp on September 5, 1996. Proceeds from the exercise of
warrants and options may from time to time result in a loan to the Bank by
Bancorp. At September 30, 1996 there was no outstanding loan to the Bank by
Bancorp.
The Bank is prohibited by Connecticut banking law from paying dividends except
from its net profits, which are defined as the remainder of all earnings from
current operations. The total of all dividends declared by the Bank in any
calendar year may not, unless specifically approved by the State of Connecticut
Banking Commissioner, exceed the total of its net profits for that year combined
with its retained net profits from the preceding two years. These dividend
limitations can affect the amount of dividends payable to Bancorp as the sole
stockholder of the Bank, and therefore affect Bancorp's payment of dividends to
its stockholders.
The following table provides a summary of outstanding loan commitments and
standby letters of credit at September 30, 1996.
($ in thousands)
Loan commitments:
Residential mortgage $ 3,926
Commercial mortgage 1,000
Residential construction 1,151
- --------------------------------------------------------------------------------
Total 6,077
- --------------------------------------------------------------------------------
Lines of credit commitments:
Commercial 14,046
Home equity 17,947
Personal 2,279
- --------------------------------------------------------------------------------
Total 34,272
- --------------------------------------------------------------------------------
Standby letters of credit 4,044
- --------------------------------------------------------------------------------
Total commitments and letters of credit $ 44,393
================================================================================
26
<PAGE>
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".
Management's goal is to maintain a cumulative one year GAP of under 10% of total
assets. At September 30, 1996, the cumulative one year GAP as a percentage of
total assets was 7.27%. As a result of the decrease in interest rates during the
third quarter of 1996, certain callable investment securities have shifted from
maturing during the one to five year period to repricing in one year or less,
causing the cumulative one year GAP to improve from 9.05% at June 30, 1996 to
7.27% at September 30, 1996. Although $36.4 million in investment securities
mature, reprice or are subject to call in one year or less, the total investment
securities portfolio of $93.0 million is classified as "available for sale".
Therefore, management has the ability to reposition the portfolio at any time to
manage the impact of interest rate shifts. The Bank concentrates on originating
adjustable rate loans to hold in its loan portfolio in order to reduce interest
rate risk. Deregulation of deposit instruments has allowed the Bank to generate
deposit liabilities whose repricing more closely matches that of its loans.
27
<PAGE>
The following table provides detail reflecting the approximate repricing
intervals for rate-sensitive assets and liabilities at September 30, 1996:
<TABLE>
<CAPTION>
Maturity/Repricing Intervals
- ----------------------------------------------------------------------------------------------------------------------------
Over
3 Months
3 Months through 1 - 5 Over 5
or Less 1 Year Years Years Total
- ----------------------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C>
Rate-Sensitive Assets:
Loans(1) $ 80,530 $ 46,986 $ 42,633 $ 12,897 $183,046
Investment securities 17,174 19,216 45,843 10,762 92,995
Federal funds sold and other 8,684 --- --- --- 8,684
- ----------------------------------------------------------------------------------------------------------------------------
Total rate-sensitive assets 106,388 66,202 88,476 23,659 284,725
- ----------------------------------------------------------------------------------------------------------------------------
Rate-Sensitive Liabilities:
NOW and Money market deposits 70,331 --- --- --- 70,331
Certificates of deposit and other 34,081 23,207 16,157 --- 73,445
Savings deposits 45,019 --- --- --- 45,019
Short-term borrowings 22,681 --- --- --- 22,681
- ----------------------------------------------------------------------------------------------------------------------------
Total rate-sensitive liabilities 172,112 23,207 16,157 --- 211,476
============================================================================================================================
GAP $ (65,724) $ 42,995 $ 72,319 $ 23,659 $ 73,249
============================================================================================================================
Cumulative GAP $ (65,724) $ (22,729) $ 49,590 $ 73,249
============================================================================================================================
Cumulative percentage of
rate-sensitive assets to
rate-sensitive liabilities 62% 88% 123% 135%
============================================================================================================================
</TABLE>
(1) Excludes nonaccrual loans of $2,441,000, and is net of deferred loan fees
of $330,000.
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 $72,437,000 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.
28
<PAGE>
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 $172,590,000 and
rate-sensitive liabilities that mature or reprice in one year total
$195,319,000. The resulting negative one year rate-sensitive GAP is $22,729,000.
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 $25,632,000 at September 30, 1996 from
$24,282,000 at December 31, 1995, primarily due to earnings of $2,819,000 offset
by dividend payments totaling $1,442,000 to stockholders and a net change of
$541,000 in the unrealized depreciation of the securities available for sale
portfolio.
At September 30, 1996, Bancorp's Tier 1 capital to average assets ratio
(leverage ratio) was 8.68% and its total capital to risk-weighted asset ratio
was 14.91%, 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 September 30, 1996, all warrants totaling 2,335,000 had been exercised,
resulting in total proceeds of $1,751,250 to the Company.
29
<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.
A special meeting of the shareholders of Westport Bancorp, Inc. was
held on October 24, 1996. At such special meeting, the Agreement and
Plan of Merger, dated June 21, 1996, by and among HUBCO, Inc.,
Westport Bancorp, Inc., and The Westport Bank and Trust Company was
approved and adopted. Of 10,030,281 votes entitled to be cast,
8,654,134 voted for, 94,802 voted against, 4,764 voted to abstain and
805,563 were broker non-votes.
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 as Exhibit
3(d) to Form 10-Q for the period ended June 30, 1996, File
No. 0-12936 and incorporated herein by reference.)
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 as Exhibit 10(g) to Form 10-Q
for the period ended June 30, 1996, File No. 0-12936 and
incorporated herein by reference.)
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.)
32
<PAGE>
10(s) Incentive Stock Option Agreement between Michael H. Flynn
and Bancorp dated May 16, 1996. (Filed as Exhibit 10(s) to
Form 10-Q for the period ended June 30, 1996, File No.
0-12936 and incorporated herein by reference.)
10(t) Incentive Stock Option Agreement between Thomas P. Bilbao
and Bancorp dated May 16, 1996. (Filed as Exhibit 10(t) to
Form 10-Q for the period ended June 30, 1996, File No.
0-12936 and incorporated herein by reference.)
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 as Exhibit 10(y) to
Form 10-Q for the period ended June 30, 1996, File No.
0-12936 and incorporated herein by reference.)
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
None.
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 November 12, 1996 BY /s/Michael H. Flynn
----------------- ---------------------
Michael H. Flynn
President and
Chief Executive Officer
(principal executive officer)
DATE November 12, 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 as Exhibit
3(d) to Form 10-Q for the period ended June 30, 1996, File
No. 0-12936 and incorporated herein by reference.)
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 as Exhibit 10(g) to Form 10-Q
for the period ended June 30, 1996, File No. 0-12936 and
incorporated herein by reference.)
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.)
36
<PAGE>
10(s) Incentive Stock Option Agreement between Michael H. Flynn
and Bancorp dated May 16, 1996. (Filed as Exhibit 10(s) to
Form 10-Q for the period ended June 30, 1996, File No.
0-12936 and incorporated herein by reference.)
10(t) Incentive Stock Option Agreement between Thomas P. Bilbao
and Bancorp dated May 16, 1996. (Filed as Exhibit 10(t) to
Form 10-Q for the period ended June 30, 1996, File No.
0-12936 and incorporated herein by reference.)
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 as Exhibit 10(y) to
Form 10-Q for the period ended June 30, 1996, File No.
0-12936 and incorporated herein by reference.)
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
Exhibit 11 - Statement Regarding Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended September 30,
1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET INCOME $ 720,000 $ 2,125,000
=======================================================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 6,069,273 5,373,006
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK EQUIVALENTS:
Net shares assumed to be issued for
dilutive stock options and warrants: 876,036 866,016
Shares assumed to be issued on
conversion of preferred stock: 3,960,000 4,235,000
- -----------------------------------------------------------------------------------------------------------------------
TOTAL WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING 10,905,309 10,474,022
=======================================================================================================================
EARNINGS PER COMMON SHARE (1) $ 0.07 $ 0.20
=======================================================================================================================
Nine Months Ended September 30,
1996 1995
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME $ 2,819,000 $ 5,367,000
=======================================================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 5,777,194 4,469,681
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK EQUIVALENTS:
Net shares assumed to be issued for
dilutive stock options and warrants: 800,696 1,522,669
Shares assumed to be issued on
conversion of preferred stock: 4,006,350 4,303,571
- -----------------------------------------------------------------------------------------------------------------------
TOTAL WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING 10,584,240 10,295,922
=======================================================================================================================
EARNINGS PER COMMON SHARE (1) $ 0.27 $ 0.52
=======================================================================================================================
</TABLE>
(1) There was no difference between primarily and fully diluted earnings per
share in 1996 and 1995.
38
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 27,923
<INT-BEARING-DEPOSITS> 188,795
<FED-FUNDS-SOLD> 8,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 92,995
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 185,487
<ALLOWANCE> 3,115
<TOTAL-ASSETS> 312,752
<DEPOSITS> 261,232
<SHORT-TERM> 22,681
<LIABILITIES-OTHER> 3,207
<LONG-TERM> 0
0
1
<COMMON> 60
<OTHER-SE> 25,571
<TOTAL-LIABILITIES-AND-EQUITY> 312,752
<INTEREST-LOAN> 12,191
<INTEREST-INVEST> 4,087
<INTEREST-OTHER> 147
<INTEREST-TOTAL> 16,425
<INTEREST-DEPOSIT> 4,236
<INTEREST-EXPENSE> 4,854
<INTEREST-INCOME-NET> 11,571
<LOAN-LOSSES> 850
<SECURITIES-GAINS> 37
<EXPENSE-OTHER> 8,833
<INCOME-PRETAX> 5,186
<INCOME-PRE-EXTRAORDINARY> 5,186
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,819
<EPS-PRIMARY> 27
<EPS-DILUTED> 27
<YIELD-ACTUAL> 7.90
<LOANS-NON> 2,441
<LOANS-PAST> 371
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,711
<ALLOWANCE-OPEN> 2,854
<CHARGE-OFFS> 820
<RECOVERIES> 231
<ALLOWANCE-CLOSE> 3,115
<ALLOWANCE-DOMESTIC> 3,115
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
