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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
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)
Registrant's telephone number, including area code: (203) 222-6911
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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(Title of class)
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
-- --
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant at March 15, 1996 was $31,923,877, consisting of shares of the
registrant's Common Stock, par value $.01 per share, and Preferred Stock, par
value $.01 per share, valued as if fully converted into shares of Common Stock
at a conversion ratio of 100 shares of Common Stock for each outstanding share
of Preferred Stock.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes ___ No ___
At March 15, 1996, there were 5,638,531 outstanding shares of the Registrant's
Common Stock, par value $.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1996 Annual Meeting of Stockholders of
the registrant incorporated in Part III of this Form 10-K.
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PART I
Item 1
Business
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General
Westport Bancorp, Inc. ("Bancorp") was organized in 1983 as a Delaware
corporation for the purpose of becoming the holding company of The Westport Bank
& Trust Company (the "Bank") (collectively, the "Company"), a
Connecticut-chartered bank and trust company headquartered in Westport,
Connecticut, the deposit accounts of which are insured by the Bank Insurance
Fund of the Federal Deposit Insurance Corporation ("FDIC"). Bancorp is regulated
and examined by the Federal Reserve Board. The Bank is regulated by the FDIC and
the Banking Commissioner of the State of Connecticut (the "Commissioner").
Bancorp's principal asset is all of the capital stock of the Bank and Bancorp's
principal business is the business of the Bank. Bancorp is a separate legal
entity from the Bank; the principal sources of its revenues on an unconsolidated
basis are interest and other income received from its investments, including
dividends from the Bank.
The Bank was originally chartered in 1852. Bancorp acquired the Bank on October
9, 1984.
The principal business of the Bank is to provide a broad range of corporate and
individual banking products and services, including commercial banking,
residential mortgage origination, commercial lending, commercial real estate
lending, retail banking and trust services to individuals, and small to medium
size businesses. The Bank's operations are conducted from its home office in
Westport, Connecticut and from branch offices located in the mid-Fairfield
County, Connecticut communities of Weston, Fairfield, Redding/Georgetown, Greens
Farms and Saugatuck. In addition, the Bank's operations center is located in
Shelton, Connecticut.
Principal Market Area
The Bank's branch office network currently consists of six banking offices,
including its main office. The towns in the Bank's market area, which consists
principally of Fairfield County, Connecticut, are primarily bedroom communities
of New York City, although Stamford, Bridgeport and Norwalk are commercial
centers. Two major highways (Interstate 95 and the Merritt Parkway) traverse the
area and a number of regional airports are located within Fairfield County.
Those towns bordering I-95 have had substantial commercial office development,
particularly near the major highway intersections. This market is also
accessible by railway.
Lending Activities
The Bank's principal lending activities include the origination of conventional
and construction mortgage loans on residential, one-to-four family real
properties, as well as commercial and real estate loans to businesses. The Bank
also provides consumer loans, which include home equity credit lines,
installment loans (such as home improvement, automobile and personal loans) and
checking account related loans. See Item 6 of this Form 10-K.
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Residential Mortgage Loans. While the Bank is authorized to make loans secured
by real estate located either within or outside the State of Connecticut, its
past and present policy is to concentrate on loans secured by properties located
within Connecticut, particularly in Fairfield County. Less than 2% of the Bank's
total residential real estate loan portfolio at December 31, 1995 represented
loans on properties located outside the State of Connecticut.
The Bank currently offers adjustable and fixed rate mortgages, the majority of
which are originated to conform with the existing criteria for sale in the
secondary mortgage market. Points are generally charged on residential mortgage
loans. Interest rate adjustments on adjustable rate loans are generally
determined by reference to rates on one-year Treasury obligations published by
the Federal Reserve Board.
Commercial Mortgage Loans. The Bank's commercial mortgage investments consist of
loans made on commercial property and multi-family homes (more than four units).
In general, the Bank lends up to 75% of the appraised value of a commercial
property. Status reports on all commercial mortgage loans are reviewed by the
Bank's Management Loan Committee and Directors' Loan Committee on a regular
basis. Given the general economic downturn and the dramatic decline since the
late 1980's in real estate values in New England, and in Connecticut in
particular, real estate development and construction within the Bank's market
area has dramatically declined over the past several years. During 1995 and
1994, this trend showed signs of stabilizing and the Bank experienced some
increased demand for commercial mortgage loans.
Commercial Loans. The Bank has been engaged in commercial lending activity for
more than fifty years. Term loans to finance machinery, equipment or vehicle
purchases, short term loans for working capital needs, revolving credit
supported by accounts receivable and/or inventory, and lines of credit are
representative of these types of loans in the Bank's portfolio. These loans are
generally secured by collateral other than real property; less than 11% of the
Bank's commercial loan portfolio at December 31, 1995 was unsecured.
Home Equity Loans. Home equity loans consist of lines of credit, which are
collateralized by first or second mortgages on residential one-to-four family
real properties.
Consumer Loans. Consumer loans consist primarily of installment loans, which
include home improvement loans, automobile loans, personal loans and checking
account overdraft protection related loans.
FDIC Loans. In the fourth quarter of 1992, the Bank purchased $18.8 million in
performing commercial business loans from the FDIC, of which $12.6 million
consisted of loans to businesses located in the Bank's primary market area of
Fairfield County, with $6.2 million in the area immediately surrounding
Westport. The loans were acquired at par value; the purchase
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was funded from existing liquidity. The purchase agreement contained a three
year provision (the "put"), which ended on December 7, 1995, that required the
FDIC to repurchase any loans that became nonperforming, at a previously
negotiated price plus sixty days of accrued interest. Losses resulting from
repurchases during the three year period have been minimal due to the loans'
performing status. At December 7, 1995, the outstanding balance of these loans
retained by the Bank was $4.3 million.
Interest Rates. Interest rates charged on loans are primarily determined by the
Bank's cost of funds, comparable investment alternatives available to the Bank
and competitive conditions.
Loan Commitments. Commitments to extend commercial lines of credit and to make
mortgage loans on residential and commercial real property are made for periods
of up to 60 days from the date of commitment. Commitments on residential
transactions are generally made at the market interest rate prevailing at the
time the commitment is made to the customer. Commitments on commercial
transactions are generally made at the market interest rate in effect on or
immediately prior to the date of closing.
Deposits and Other Sources of Funds
Deposits have traditionally been the Bank's major source of funds for
investments and lending and are expected to continue to be in the foreseeable
future. The Bank also derives funds from scheduled loan principal payments, the
sale of residential mortgage loans in the secondary market, loan prepayments,
the sale or maturity of investment securities, interest income and fee income.
Other sources of funds include the sale of investment securities to securities
firms and correspondent banks under repurchase agreements, unsecured lines of
credit with correspondent banks and secured lines of credit with the Federal
Home Loan Bank. See Item 6 of this Form 10-K.
Deposits. The Bank offers a wide range of retail and commercial deposit accounts
designed to attract both short and long-term funds. It has been the Bank's
policy to offer a variety of rates and types of deposit accounts to meet its
customers' requirements. Demand deposits, certificates of deposit, regular
savings, money market deposits and NOW checking accounts have been the primary
source of deposit funds. Certificates of deposit currently offered by the Bank
have maturities which range from seven days to five years.
The Bank encounters competition for deposits from other community banks, the
branch offices of larger commercial banks and thrift institutions. The Bank also
competes for interest-bearing funds with securities firms, mutual funds and
issuers of commercial paper and other securities. Bank management anticipates
that competition for deposits in the Bank's market area will continue to
increase in the foreseeable future due to competition from securities firms,
mutual funds, and as other banks enter the Bank's market area as a result of
changes in the interstate banking law.
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Trust Operations
At December 31, 1995, the Bank's Trust department held, for the account of
others, assets under trust management and in custodial accounts having a market
value of $548.5 million. As allowed by state law, the Bank acts as executor and
administrator of decedents' estates, as trustee of inter-vivos and testamentary
trusts, as guardian and conservator of estates of minors and incapable persons,
as custodian of funds, as investment advisor and as trustee of employee benefit
plans. From its trust and related activities, the Bank generates substantial fee
income. In the trust business, the Bank competes with commercial banks, located
both in and out of state, and with individuals and entities appointed to act
under testamentary and other instruments as fiduciaries, investment managers and
financial advisors. See Item 6 of this Form 10-K.
Employees
At December 31, 1995, the Bank had a total of 133 employees, 105 on a full-time
basis and 28 on a part-time basis. Management considers the Bank's relations
with its employees to be good. The Bank's employees are not represented by any
collective bargaining group.
Competition
Competition in the financial services industry in the Bank's market area is
strong. Numerous commercial banks, savings banks and thrift institutions
maintain home offices in the area and banks headquartered elsewhere maintain
offices in the area. Commercial banks, savings banks, thrift institutions,
mutual funds, mortgage brokers, finance companies, credit unions, insurance
companies, securities firms and private lenders compete with the Bank for
deposits, loans and employees. Many of these competitors have far greater
resources than the Bank does and are able to conduct more intensive and broader
based promotional efforts to reach both commercial and individual customers.
Changes in the financial services industry resulting from fluctuating interest
rates, technological changes and deregulation have resulted in increased
competition, merger activity, failures among banking institutions and customer
awareness of product and service differences among competitors.
Regulation and Supervision
As a Connecticut-chartered state bank whose deposits are insured by the FDIC,
the Bank is subject to extensive regulation and supervision by both the
Commissioner and the FDIC. The Bank is also subject to various Federal Reserve
Board regulatory requirements applicable to FDIC insured financial institutions.
As a bank holding company, Bancorp is regulated by the Federal Reserve Board.
Such governmental regulation is intended to protect depositors, not
stockholders.
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Connecticut Regulation. As a state-chartered capital stock bank, the Bank is
subject to the applicable provisions of Connecticut law and the regulations
adopted thereunder by the Commissioner. The Commissioner administers Connecticut
banking laws, which contain comprehensive provisions for the regulation of
banks. The Bank derives its lending and investment powers from these laws, and
is subject to periodic examination by, and reporting to, the Commissioner.
Connecticut bank and trust companies are empowered by statute, subject to
limitations expressed therein, to accept savings and time deposits, to offer
checking accounts, to pay interest on such deposits and accounts, to make loans
on residential and other real estate, to make consumer and commercial loans, to
invest, with certain limitations, in equity securities and debt obligations of
banks and corporations, to issue credit cards, and to offer various other
banking services to their customers. Connecticut banking laws grant banks broad
lending authority. Such authority is limited, however, to the extent that a
bank's loans to any one obligor may not exceed 25%, if fully secured, and 15%,
if not fully secured, of the total of a bank's equity capital and loan loss
reserves.
The Connecticut Interstate Banking Act permits Connecticut banks and bank
holding companies, with the approval of the Commissioner, to engage in stock
acquisitions of banks and bank holding companies in other states with reciprocal
legislation. Many states have such legislation. Before the Interstate Banking
Act was adopted in March 1990, Connecticut banks and bank holding companies were
allowed to engage in stock acquisitions with banks and bank holding companies in
other New England states with reciprocal legislation, all of which have such
legislation. See "Recent Developments" for a discussion of recent changes to the
regulations relating to interstate banking and branching.
Several interstate mergers involving large Connecticut banks with offices in the
Bank's service area and banks headquartered out-of-state have been completed
during recent years, resulting in increased competition for the Bank. A New York
based institution acquired two failed institutions from the FDIC in the Bank's
market area in 1991 and a New Jersey based institution acquired another bank,
headquartered in the Bank's principal market, in 1993. During 1995 and early
1996, two of the largest commercial banks in the Bank's market area completed
their merger, while numerous smaller institutions were acquired by larger
in-state and out-of-state financial institutions.
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 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. During
1995, Bancorp resumed the payment of dividends after all regulatory restrictions
were removed.
Under Connecticut banking law, no person may acquire the beneficial ownership of
more than 10% of any class of voting securities of a bank chartered by the State
of Connecticut or having its principal office in Connecticut or a bank holding
company thereof, unless the Commissioner approves such acquisition.
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Any state-chartered bank meeting statutory requirements may, with the approval
of the Commissioner, establish and operate branches in any town or towns within
the state.
During January 1996, representatives of the 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.
FDIC Regulation. The deposit accounts of the Bank are insured by the Bank
Insurance Fund of the FDIC to a maximum of $100,000 for each insured depositor.
As an insured bank, the Bank is subject to supervision and examination by the
FDIC and to FDIC regulations regarding many aspects of its business, including
types of deposit instruments offered, permissible methods for acquisition of
funds, and activities of subsidiaries and affiliates. The FDIC periodically
examines insured institutions.
In December 1991, the Federal Deposit Insurance Act ("FDIA") was amended with
the enactment of the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"). Provisions of FDIA, as amended, which may have a material
effect on the Bank and Bancorp include, among others, the following:
1. FDIA classifies banks in one of five categories according to capital
levels. With respect to banks not meeting prescribed minimum capital levels, and
depending on the extent to which a bank is undercapitalized, federal bank
regulators may be required, in certain cases, to take corrective actions against
the bank, including requiring an acceptable capital restoration plan or placing
a bank into conservatorship or receivership. In addition, undercapitalized banks
may be subject to certain restrictions on their activities and operations,
including restrictions on asset growth, rates of interest paid on deposits,
transactions with affiliates, engaging in material transactions not in the
ordinary course of business, and other activities. See "Prompt Corrective
Action" below.
2. FDIA makes it more difficult for undercapitalized banks to borrow funds
from the Federal Reserve's "discount window", thus possibly limiting or
eliminating a source of liquidity for a bank. The Bank is approved to borrow
funds from the "discount window".
3. FDIA can result in higher deposit insurance premiums for banks under a
"risk-based" premium determination, with possible negative effects on a bank's
operating results and financial condition.
4. FDIA limits, with certain exceptions, the ability of banks to engage in
activities or make equity investments that are not permissible for national
banks.
In addition, the FDIC has issued regulations providing for capital guidelines
based upon the ratio of a bank's capital to total assets adjusted for risk.
Under such regulations, a bank's risk-based capital ratio is calculated by
dividing its qualifying total capital base by its risk-weighted assets. Banks
are expected to meet a minimum Tier 1 capital to risk-weighted asset ratio of
4.00% and a total capital to risk-weighted asset ratio of 8.00%. At December 31,
1995, Bancorp's Tier 1 capital to risk-weighted asset ratio was 12.77%, and its
total capital to risk-weighted asset ratio was 14.02%, well above the minimum
requirements. There are no significant differences between Bancorp's and the
Bank's capital ratios at December 31, 1995.
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Prompt Corrective Action. Pursuant to the FDIA, the federal banking agencies
established for each capital measure levels at which an insured institution is
deemed to be well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized. Federal banking
agencies are required to take prompt corrective action with respect to insured
institutions that fall below minimum capital standards. The degree of required
regulatory intervention for institutions that are not at least adequately
capitalized is tied to an insured institution's capital category, with
increasing scrutiny and more stringent restrictions, including the appointment
of a receiver, being imposed as an institution's capital declines. An insured
institution that falls below the minimum capital standards must submit a capital
restoration plan and could be subject to operating restrictions.
The prompt corrective action regulations are generally based upon an
institution's capital ratios. Under the prompt corrective action regulation
adopted by the FDIC, a bank will be considered to be (i) "well-capitalized" if
the institution has a total risk-based capital ratio of 10% or greater, a Tier 1
or core capital to risk-weighted assets ratio of 6% or greater, and a leverage
ratio of 5% or greater (provided that the institution is not subject to an
order, written agreement, capital directive or prompt corrective action
directive to meet and maintain a specific capital level for any capital
measure); (ii) "adequately capitalized" if the institution has a total
risk-based capital ratio of 8% or greater, a Tier 1 or core capital to
risk-weighted assets ratio of 4% or greater, and a leverage ratio of 4% or
greater (3% or greater if the institution is rated composite 1 under the CAMEL
rating system in its most recent report of examination); (iii)
"undercapitalized" if the institution has a total risk-based capital ratio that
is less than 8%, a Tier 1 or core capital to risk-weighted assets ratio of less
than 4%, or a leverage ratio that is less than 4% (3% if the institution is
rated composite 1 under the CAMEL rating system in its most recent report of
examination); (iv) "significantly undercapitalized" if the institution has a
total risk-based capital ratio that is less than 6%, a Tier 1 or core capital to
risk-weighted assets ratio that is less than 3%, or a leverage ratio that is
less than 3%; and (v) "critically undercapitalized" if the institution has a
ratio of tangible equity to total assets that is less than or equal to 2%. The
prompt corrective action regulations also permit the FDIC to determine that a
bank institution should be classified in a lower category based on other
information, such as the institution's examination report, after written notice.
Under the FDIC's prompt corrective action regulations, at December 31, 1995, the
Bank was classified as well-capitalized based on its capital ratios.
An institution that is not well-capitalized is prohibited from accepting
deposits through a deposit broker. However, an adequately capitalized
institution can apply for a waiver to accept brokered deposits. Institutions
that receive a waiver are subject to limits on the rates of interest they may
pay on brokered deposits. Undercapitalized institutions are prohibited from
offering rates of interest on insured deposits that significantly exceed the
prevailing rate in their normal market area or the area in which the deposits
would otherwise be accepted. Institutions classified as undercapitalized are
precluded from increasing their assets, acquiring other institutions,
establishing additional branches, or engaging in new lines of business without
an approved capital plan and an agency determination that such actions are
consistent with the plan. Institutions that are significantly undercapitalized
may be required to take one or more of the following actions: (i) raise
additional capital so that the institution will be adequately capitalized; (ii)
be acquired by, or combined with, another institution if grounds exist for
appointing a receiver; (iii) refrain from affiliate transactions; (iv) limit the
amount of interest paid on deposits to the prevailing rates of interest in the
region where the institution is located; (v) further restrict asset growth; (vi)
hold a new election for directors, dismiss any director or senior executive
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officer who held office for more than 180 days immediately before the
institution became undercapitalized, or employ qualified senior executive
officers; (vii) stop accepting deposits from correspondent depository
institutions; and (viii) divest or liquidate any subsidiary that the FDIC
determines is a significant risk to the institution. Critically undercapitalized
institutions are subject to additional restrictions.
Any company that controls an "undercapitalized" institution, must guarantee that
the institution will comply with the plan and provide appropriate assurances of
performance in connection with the submission of a capital restoration plan by
the depository institution. The aggregate liability of any such controlling
company under such guaranty is limited to the lesser of (i) 5% of the
institution's assets at the time it became undercapitalized; or (ii) the amount
necessary to bring the institution into capital compliance at the time the
institution fails to comply with the terms of its capital plan. If the Bank were
to become "undercapitalized", Bancorp would be required to guarantee performance
of any capital restoration plan submitted as a condition to FDIC approval of
that plan pursuant to the FDIA.
Safety and Soundness Guidelines. The federal banking agencies have prescribed
safety and soundness guidelines relating to (i) internal controls, information
systems, and internal audit systems; (ii) loan documentation; (iii) credit
underwriting; (iv) interest rate exposure; (v) asset growth; and (vi)
compensation and benefit standards for officers, directors, employees and
principal shareholders. Such guidelines impose standards based upon an
institution's asset quality and earnings. The guidelines are intended to set out
standards that the agencies will use to identify and address problems at
institutions before capital becomes impaired. Institutions are required to
establish and maintain a system to identify problem assets and prevent
deterioration of those assets in a manner commensurate with its size and the
nature and scope of their operations. Furthermore, institutions must establish
and maintain a system to evaluate and monitor earnings and ensure that earnings
are sufficient to maintain adequate capital and reserves in a manner
commensurate with their size and the nature and scope of its operation.
Under the guidelines, an institution not meeting one or more of the safety and
soundness guidelines is required to file a compliance plan with the appropriate
federal banking agency. In the event that an institution, such as the Bank, were
to fail to submit an acceptable compliance plan or fail in any material respect
to implement an accepted compliance plan within the time allowed by the agency,
the institution would be required to correct the deficiency and the appropriate
federal agency would be authorized to: (1) restrict asset growth; (2) require
the institution to increase its ratio of tangible equity to assets; (3) restrict
the rates of interest that the institution may pay; or (4) take any other action
that would better carry out the purpose of the corrective action. The Bank was
in compliance with all such guidelines as of December 31, 1995.
Community Reinvestment Act. Under the Community Reinvestment Act (the "CRA") and
the implementing FDIC regulations, which were amended in 1995 to provide for a
performance-based evaluation system, the Bank has a continuing and affirmative
obligation to help meet the credit needs of its local communities, including low
and moderate-income neighborhoods, consistent with the safe and sound operation
of the Bank. The CRA requires that the Board of Directors of the Bank adopt a
CRA statement for each assessment area that, among other things, describes its
efforts to help meet community credit needs and the specific types of credit
that the institution is willing to extend. The FDIC and the Federal Reserve
Board are required to take
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into account the Bank's record of meeting the credit needs of its community in
determining whether to grant approval for certain types of applications
including mergers and acquisitions.
Under CRA, the federal banking agencies established the following ratings: (i)
"outstanding" - an institution in this group has an outstanding record of, and
is a leader in, ascertaining and helping to meet the credit needs of its entire
delineated community, including low and moderate income neighborhoods, in a
manner consistent with its resources and capabilities, (ii) "satisfactory" - an
institution has a satisfactory record of ascertaining and helping to meet the
credit needs of its entire delineated community including low and moderate
income neighborhoods, in a manner consistent with its resources, (iii) "needs to
improve" - an institution in this group needs to improve its overall record of
ascertaining and helping to meet the credit needs of its entire delineated
community, including low and moderate income neighborhoods, in a manner
consistent with its resources, and (iv) "substantial noncompliance" - an
institution in this group has a substantially deficient record of ascertaining
and helping to meet the credit needs of its entire delineated community,
including low and moderate income neighborhoods, in a manner consistent with its
resources and capabilities. The Bank's current CRA rating is satisfactory.
Federal Reserve System. Pursuant to the Depository Institutions Deregulation and
Monetary Control Act of 1980 (the "Deregulation Act"), the Federal Reserve Board
adopted regulations that require the Bank to maintain reserves against its
transaction accounts and non-personal time deposits. At December 31, 1995, these
regulations generally require that reserves of 3% be maintained for aggregate
transaction accounts of up to $52.0 million and that reserves of 10% be
maintained against the portion of transaction accounts in excess of that amount.
The Deregulation Act also gives the Bank authority to borrow from the Federal
Reserve Bank's "discount window".
The Federal Reserve Board has established capital adequacy guidelines for bank
holding companies that are similar to those required by the FDICIA. Bank holding
companies are currently required to comply with the FDICIA's risk-based capital
and minimum leverage capital requirements.
Bancorp is subject to regulation by the Federal Reserve Board as a registered
bank holding company. The Bank Holding Company Act of 1956, as amended (the
"BHCA"), under which Bancorp is registered, limits the types of companies which
Bancorp may acquire or organize and the activities in which it or they may
engage. In general, Bancorp and its subsidiaries are prohibited from engaging
in, or acquiring direct control of any company engaged in, non-banking
activities unless such activities are so closely related to banking or managing
or controlling banks as to be a proper incident thereto. At this time, Bancorp
has not determined which, if any, of these or other permissible non-banking
activities it might seek to engage in.
Under BHCA, Bancorp is required to obtain the prior approval from the Federal
Reserve Board to acquire, with certain exceptions, more than 5% of the
outstanding voting stock of any bank or bank holding company, to acquire all or
substantially all of the assets of a bank or to merge or consolidate with
another bank holding company.
Under BHCA, Bancorp and the Bank and any other subsidiaries are prohibited from
engaging in certain tying arrangements among Bancorp and its subsidiaries
relating to any extension of
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credit or provision of any property or services to third parties. The Federal
Reserve Board relaxed some of these restrictions in 1994. The Bank is also
subject to certain restrictions imposed by the Federal Reserve Board on
extending credit to Bancorp or any of its subsidiaries, or on making investments
in the stock or securities thereof, and on taking such stock or securities as
collateral for loans to any borrower.
Bancorp is required under BHCA to file annually with the Federal Reserve Board a
report on its operations. Bancorp and the Bank and any other subsidiaries are
subject to examination by the Federal Reserve Board.
Pursuant to the Change in Bank Control Act of 1978, as amended, any person must
give 60 days notice to the Federal Reserve Board prior to acquiring control of a
bank holding company such as Bancorp. Control is defined as ownership of 25% of
any class of voting stock of a bank holding company, or the power to direct the
management or policies of the bank holding company. Control is presumed upon
ownership of 10% or more of any class of voting stock if (i) the bank holding
company's shares are registered pursuant to Section 12 of the Securities
Exchange Act of 1934 as amended (as are Bancorp's shares of Common Stock), or
(ii) the acquiring party would be the largest stockholder of the class of voting
stock of the bank holding company. The statute and underlying regulations
authorize the Federal Reserve Board to disapprove a proposed transaction on
certain specified grounds.
In addition to the Change in Bank Control Act, prior approval by the Federal
Reserve Board is required under the BHCA for any "company" to become a bank
holding company and to become subject to regulation as such by the Federal
Reserve Board. A company may become a bank holding company with Federal Reserve
Board approval if the company controls a bank or a bank holding company. A
"company" includes certain trusts, partnerships, corporations and other business
entities, but does not include individuals. For purposes of BHCA, control is
defined as (i) ownership, control or the power to vote 25% or more of any class
of voting securities of a bank or a bank holding company; (ii) control in any
manner of the election of a majority of the directors of a bank or a bank
holding company; or (iii) direct or indirect exercise of a controlling influence
over the management or policies of a bank or a bank holding company, as
determined by the Federal Reserve Board. A company that is required to obtain
prior approval under BHCA to become a bank holding company is exempt from the
prior approval requirement of the Change in Bank Control Act.
Recent Developments. In 1994, Congress enacted the Riegle-Neal Interstate
Banking and Branching Efficiency Act, which will remove restrictions on
interstate branching and interstate bank acquisitions. In connection with the
Riegle-Neal Act, the State of Connecticut has enacted legislation that permits
merger transactions between a Connecticut and an out-of-state bank beginning on
September 25, 1995. Moreover, restrictions on interstate branching will be
removed effective on January 1, 1997.
11
<PAGE>
Item 2
Properties
- --------------------------------------------------------------------------------
Bancorp does not directly own or lease any real property. It uses the premises
and equipment of the Bank, without payment of rental fees to the Bank. The table
below sets forth certain information relating to the Bank's properties:
<TABLE>
<CAPTION>
Owned or Leased/
Office Location Expiration Date of Lease
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Main Office 87 Post Road East Owned
Westport, CT 06880
Main Office Annex 101 Post Road East Leased - lease expires
Westport, CT 06660 June 30, 2001 (2)
Main Office Drive-In 100 Post Road East Owned
Westport, CT 06880
Trust Department 107 Post Road East Leased - lease expires
Westport, CT 06880 June 30, 2001 (2)
Fairfield Branch 1312 Post Road Leased - lease expires
Fairfield, CT 06430 April 30, 2000 (2)
Greens Farms Branch 1111 Post Road East Owned
Westport, CT 06880
Georgetown Branch 60 Redding Road Owned
Georgetown, CT 06829
Saugatuck Branch 50 Charles Street Owned
Westport, CT 06880
Weston Branch 190 Weston Road Leased - lease expires
Weston, CT 06883 February 28, 1998
Operations Center 1 Research Drive Leased - lease expires
Shelton, CT 06484 May 31, 2001
Georgetown (1) 58 Redding Road Owned
(adjacent to branch location) Georgetown, CT 06829
1599 Post Road (1) 1599 Post Road East Owned
(acquired through foreclosure Westport, CT 06880
and included in bank premises)
Post Road East (1) 24 Post Road East Leased - lease expires
(formerly bank offices) Westport, CT 06880 April 1, 1997 (2)
<FN>
(1) Not currently used in operations; leased to third parties.
(2) Lease includes renewal option beyond expiration date indicated.
</FN>
</TABLE>
12
<PAGE>
Item 3
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 4
Submission of Matters to a Vote of Security Holders
- --------------------------------------------------------------------------------
No matter was submitted to a vote of Bancorp's security holders during the
fourth quarter of 1995.
PART II
Item 5
Market For Bancorp's Common Equity and Related Stockholder Matters
- --------------------------------------------------------------------------------
Bancorp's Common Stock trades on the NASDAQ National Market tier of The NASDAQ
Stock Market under the symbol "WBAT". The following table sets forth the high
and low bid prices of the Common Stock as reported by NASDAQ for the periods
indicated. At December 31, 1995, the Company had approximately 658 stockholders
of record and 5,433,665 outstanding shares of Common Stock. The 658 estimated
stockholders does not reflect the number of persons or entities who hold their
stock in nominee or "street" name through various brokerage firms.
Price Range
---------------- Dividends Dividends
Fiscal Year High Low Declared Paid (1)
- -------------------------------------------------------------------------------
1995 First Quarter $ 5 $ 2 7/8 --- ---
Second Quarter 6 4 $.02 $.02
Third Quarter 5 3/4 4 1/2 $.02 $.02
Fourth Quarter 7 4 3/4 $.05 $.025
1994 First Quarter $ 3 1/2 $ 2 1/2 --- ---
Second Quarter 3 1/4 2 1/4 --- ---
Third Quarter 3 1/2 2 1/4 --- ---
Fourth Quarter 3 1/2 2 3/4 --- ---
(1) See Item 1 "Regulation and Supervision -- Connecticut Regulation" and Item
7 "Liquidity" for discussion regarding restriction on payment of
dividends.
13
<PAGE>
Item 6
Selected Consolidated Financial Data
- --------------------------------------------------------------------------------
The selected consolidated financial information of the Company set forth below
has been derived from the Company's audited consolidated financial statements
for such periods. This selected financial information should be read in
conjunction with the Company's consolidated financial statements and related
notes included elsewhere herein. Certain prior year amounts have been
reclassified to conform with the 1995 presentation.
<TABLE>
<CAPTION>
Years Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------
($ in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
OPERATIONS SUMMARY:
Interest income $20,725 $17,334 $15,709 $16,719 $ 20,616
Interest expense 6,027 4,749 5,684 8,034 12,218
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income 14,698 12,585 10,025 8,685 8,398
Provision for loan losses 1,500 1,800 2,890 2,500 6,232
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 13,198 10,785 7,135 6,185 2,166
Other operating income 4,005 3,928 5,384 4,996 6,207
OREO expense - net 137 319 552 462 1,141
Other operating expense 11,241 11,268 11,017 11,048 13,104
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 5,825 3,126 950 (329) (5,872)
Income taxes (benefit) (1,005) (1,236) (252) 13 15
- -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 6,830 $ 4,362 $ 1,202 $ (342) $(5,887)
=============================================================================================================================
Net income (loss) per
common share -
Primary $ 0.66 $ 0.44 $ 0.12 $(0.16) $ (2.77)
Fully diluted (1) $ 0.65 --- --- --- ---
=============================================================================================================================
December 31,
- -----------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------
($ in thousands, except per share data)
BALANCE SHEET DATA:
Total assets $312,917 $283,504 $272,657 $251,714 $244,454
Loans (2):
Mortgage 97,808 104,690 78,228 95,398 102,999
Commercial 46,422 51,462 52,841 57,048 39,610
Home equity 24,842 23,019 21,228 21,449 19,935
Consumer and other 8,980 7,477 6,645 7,738 15,709
- -----------------------------------------------------------------------------------------------------------------------------
Total loans 178,052 186,648 158,942 181,633 178,253
Allowance for loan losses 2,854 3,341 3,024 3,998 4,276
Investment securities 85,338 70,396 91,001 29,923 25,736
Other earning assets (3) 14,744 611 2,903 12,247 7,167
Deposits:
Noninterest-bearing 78,421 72,972 57,479 52,337 46,561
Interest-bearing 196,249 180,986 198,037 185,499 182,206
- -----------------------------------------------------------------------------------------------------------------------------
Total deposits 274,670 253,958 255,516 237,836 228,767
Stockholders' equity 24,282 16,398 12,405 11,017 6,125
Cash dividends declared
per common share $ .09 --- --- --- ---
Book value per share -
fully diluted (4)(5) $ 2.44 $ 1.86 $ 1.52 $ 1.38 $ 2.89
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
($ in thousands, except per share data and financial ratios)
<S> <C> <C> <C> <C> <C>
OTHER INFORMATION:
Yield on earning assets 8.0% 7.1% 7.0% 7.7% 9.1%
Cost of funds 2.3 1.9 2.4 3.5 5.1
Interest spread 5.7 5.2 4.6 4.2 4.0
Net interest margin 5.7 5.1 4.5 4.0 3.7
Weighted average number of
common shares and common
stock equivalents utilized in the
earnings per share calculation (6) -
Primary 10,365,000 10,382,000 10,513,000 2,192,000 2,122,000
Fully diluted (1) 10,469,000 --- --- --- ---
Average balances (7):
Loans (2) $181,969 $170,754 $173,182 $165,346 $185,143
Investment securities 74,134 70,859 37,583 42,443 33,324
Other earning assets (3) 2,708 3,458 13,984 8,862 7,316
Deposits:
Noninterest-bearing 67,050 60,539 49,305 42,930 41,224
Interest-bearing 176,841 183,601 183,227 184,368 194,384
- ------------------------------------------------------------------------------------------------------------------------------
Total deposits 243,891 244,140 232,532 227,298 235,608
Total assets 283,882 268,118 248,059 241,629 253,244
Stockholders' equity 20,659 13,732 11,630 9,400 8,766
FINANCIAL RATIOS:
Return on average total assets 2.41% 1.63% 0.48% (0.14)% (2.32)%
Return on average
stockholders' equity (4) 33.06 31.77 10.34 (3.64) (67.16)
Average stockholders' equity
to average total assets (4) 7.28 5.12 4.69 3.89 3.46
Dividend payout ratio 13.64 --- --- --- ---
December 31,
- ------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
Tier 1 capital to average
assets (leverage ratio) 8.18% 6.13% 4.84% 4.58% 2.60%
Tier 1 capital to
risk-weighted assets 12.77 9.20 8.22 6.74 3.50
Total capital to
risk-weighted assets 14.02 10.45 9.48 8.01 4.90
Nonaccrual loans
to total assets .64 1.52 2.18 4.21 7.30
Allowance for loan losses
to nonaccrual loans 142.99 77.41 50.82 37.73 23.95
Allowance for loan
losses to total loans 1.60 1.79 1.90 2.20 2.40
<FN>
(1) Fully diluted earnings per share were not applicable in 1994, 1993, 1992
and 1991.
(2) Loans are net of deferred loan fees amounting to $260,000, $400,000,
$337,000, $457,000 and $378,000 for 1995, 1994, 1993, 1992 and 1991,
respectively.
(3) Other earning assets consist of Federal funds sold, securities purchased
under agreement to resell and interest-bearing deposits with banks.
(4) 1995, 1994, 1993 and 1992 amounts include the convertible, noncumulative
preferred shares issued in 1992.
(5) 1995, 1994, 1993 and 1992 include the assumed issuance of additional
Common Stock and the related proceeds from the assumed exercise of certain
stock options and warrants and the assumed conversion of preferred stock.
(6) Assumes the conversion and/or exercise of preferred stock, warrants and
stock options in 1995, 1994 and 1993 using the "treasury stock method".
For 1992 and 1991, this computation excludes stock options, warrants and
preferred stock because their effect would have been antidilutive.
(7) Average balances are averages of daily closing balances.
</FN>
</TABLE>
15
<PAGE>
Item 7
Management's Discussion and
Analysis of Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
Overview
The following is a discussion and analysis of the Company's financial condition
at the end of 1995 and 1994 and of the results of its operations for the last
three years. This section should be read in conjunction with the consolidated
financial statements included in Item 8.
The Company reported net income for 1995 of $6,830,000, or $0.65 per common
share, fully diluted, as compared to net income of $4,362,000, or $0.44 per
common share, primary, in 1994, an increase of 57.0%. In 1995, primary earnings
per share were $0.66. Contributing to the improved results in 1995 was a decline
in nonperforming assets and related costs, increases in average earning assets,
an improved net interest margin and continued reductions of operating expenses.
Results of operations for 1995 included the recognition of a net deferred tax
asset of $1,122,000 and a net gain on the sale of securities and loans totaling
$58,000. Earnings from core operations (income before income taxes, excluding
non-recurring gains and losses) for 1995 have increased by more than 95% over
last year. As a result of improved operating results, the Company's Tier 1
capital (leverage) ratio increased to 8.18% at December 31, 1995 as compared to
6.13% at December 31, 1994.
At December 31, 1995, the Company had total assets of $312,917,000, an increase
of 10.4% from $283,504,000 at the end of 1994. Assets at December 31, 1994
increased 4.0% from $272,657,000 at December 31, 1993.
Net income for 1994 of $4,362,000 increased 263% over net income for 1993 of
$1,202,000, or $0.12 per common share, primary. Contributing to improved results
in 1994 was a reduction in nonperforming assets, an improvement in net interest
income and a reduction in the provision for loan losses. In addition, in 1994,
stronger fee income from trust fees, mortgage servicing fees and service charges
on deposit accounts contributed to the improved results over 1993. At December
31, 1994, Bancorp's Tier 1 Capital (leverage) ratio was 6.13% as compared to
4.84% at December 31, 1993.
The Company's results for 1995 continued to be impacted by the sluggish regional
economy and real estate market. However, during 1994 and continuing into 1995,
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.
Regulation and Supervision
In December 1994, the Federal Deposit Insurance Corporation (the "FDIC") and the
State of Connecticut Banking Commissioner (the "Commissioner") removed the Order
to Cease and Desist originally imposed on the Bank in October 1991. This action
was the result of a routine examination by the FDIC completed in the fourth
quarter of 1994.
16
<PAGE>
In March 1995, the Federal Reserve Bank of New York ("FRBNY") removed all
restrictions it had imposed on Bancorp in October 1991.
Bancorp resumed the payment of dividends in 1995 after these regulatory orders
were removed. There are certain restrictions on the ability of the Bank to
transfer funds to Bancorp in the form of dividends. See "Liquidity".
The Federal Reserve Board and the FDIC require bank holding companies and banks,
respectively, to comply with guidelines based upon the ratio of capital to total
assets adjusted for risk and the ratio of Tier 1 capital to total quarterly
average assets (leverage ratio).
The following summarizes the minimum capital requirements and Bancorp's capital
position (there are no significant differences between the Bank's and Bancorp's
capital ratios) at December 31, 1995.
<TABLE>
<CAPTION>
Bancorp's Minimum Capital
Capital Ratio Capital Position Requirements
- ----------------------------------------------------------------------------------
<S> <C> <C>
Total Capital to Risk-Weighted Assets 14.02% 8.0%
Tier 1 Capital to Risk-Weighted Assets 12.77 4.0
Tier 1 Capital to Average Assets (Leverage Ratio) 8.18 3.0(1)
<FN>
(1) An additional 1% to 2% is required for all but the most highly rated
institutions.
</FN>
</TABLE>
The Federal Deposit Insurance Act, 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 December 31, 1995, the Company was "well capitalized" under
FDIA, 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.
Financial Condition
The Company's assets totaled $312,917,000 at December 31, 1995, an increase of
$29,413,000, or 10.4.%, from $283,504,000 at December 31, 1994. Average assets
increased 5.9% during 1995 over the previous year. Total deposits aggregated
$274,670,000 at December 31, 1995, an increase of $20,712,000, from $253,958,000
at December 31, 1994.
Noninterest-bearing deposits totaled $78,421,000 at December 31, 1995, an
increase of $5,449,000, or 7.5% from $72,972,000 at year end 1994.
Interest-bearing deposits increased from $180,986,000 at December 31, 1994 to
$196,249,000 at December 31, 1995, or 8.4%. For municipalities and selected
commercial and retail customers, the Bank also offers secured
17
<PAGE>
borrowings through repurchase agreements which are included in short-term
borrowings. Securities sold under repurchase agreements were $1,050,000 at
December 31, 1995 and $7,800,000 at December 31, 1994.
The Company's entire securities portfolio of $85,338,000 was classified as
available for sale at December 31, 1995. At December 31, 1994, the available for
sale portfolio totaled $27,190,000 and the held to maturity portfolio totaled
$43,206,000. Securities available for sale are carried at fair value, with any
unrealized gains or losses included as a separate component of stockholders'
equity. The portfolio at December 31, 1995 was comprised primarily of fixed rate
U.S. Government Agency debt and mortgage-backed securities.
During the fourth quarter of 1995, the Financial Accounting Standards Board
provided companies with the opportunity to reclassify securities between the
available for sale portfolio and the held to maturity portfolio. The Company
took advantage of this opportunity and reclassified its entire $42,459,000 held
to maturity portfolio to the available for sale portfolio.
Total loans decreased by $8,596,000 or 4.6%, in 1995, to $178,052,000, net of
deferred loan fees. This decline was due, in part, to the sale during 1995 of
$18.6 million in residential mortgage loans. The Bank engages in the origination
of residential mortgage loans and the sale of such loans based upon liquidity
needs and to manage interest rate risk. In addition, the resolution of several
larger nonperforming commercial mortgage loans contributed to the decline in the
portfolio. During 1995, the Bank concentrated its commercial lending efforts on
small and medium size businesses.
18
<PAGE>
The following table sets forth the composition of the Bank's loan portfolio in
dollar amounts and percentages of total loans at December 31, 1995, 1994, 1993,
1992 and 1991. Certain amounts from prior years have been reclassified to
conform with the 1995 presentation.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------
Percent Percent Percent Percent Percent
of Total of Total of Total of Total of Total
Amount Loans Amount Loans Amount Loan Amount Loan Amount Loans
- ---------------------------------------------------------------------------------------------------------------------------
($ in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage:
Construction and
land development $ 3.3 1.8% $ 1.1 .6% $ 2.9 1.8% $ 7.4 4.0% $ 8.6 4.8%
Secured by
residential property 52.9 29.7 57.9 31.0 32.9 20.7 49.9 27.4 54.8 30.7
Secured by
commercial property 41.9 23.5 46.1 24.6 42.7 26.8 38.5 21.2 39.9 22.4
Commercial 46.4 26.0 51.5 27.5 51.9 32.6 54.8 30.1 36.4 20.3
Home equity 24.8 13.9 23.0 12.3 21.2 13.3 21.4 11.7 19.9 11.2
Consumer 8.0 4.5 6.4 3.5 6.3 4.0 8.6 4.7 12.7 7.1
Credit card --- --- --- --- --- --- --- --- 4.9 2.7
Other 1.0 .6 1.0 .5 1.3 .8 1.5 .9 1.4 .8
- ---------------------------------------------------------------------------------------------------------------------------
Total loans 178.3 100.0% 187.0 100.0% 159.2 100.0% 182.1 100.0% 178.6 100.0%
===== ===== ===== ===== =====
Less:
Allowance for loan losses 2.8 3.3 3.0 4.0 4.3
Deferred loan fees .3 .4 .3 .5 .3
- ---------------------------------------------------------------------------------------------------------------------------
Loans - net $175.2 $183.3 $155.9 $177.6 $174.0
===========================================================================================================================
</TABLE>
19
<PAGE>
The following schedule reflects the book value, net of deferred loan fees,
and before the allowance for loan losses, of selected loans segregated according
to the shorter of repricing or maturity and the related interest rate
sensitivity at
December 31, 1995:
<TABLE>
<CAPTION>
Due in 1 Due Between Due After
Year or Less 1 and 5 Years 5 Years Total
- -------------------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C>
Mortgage loans $ 62,805 $ 25,768 $ 8,052 $ 96,625
Commercial loans 38,838 6,673 98 45,609
- -------------------------------------------------------------------------------------------------------------------------
Total $101,643 $ 32,441 $ 8,150 $142,234
=========================================================================================================================
Loans due after 1 year with:
Fixed interest rates $ 28,851
Floating or adjustable interest rates 11,740
- -------------------------------------------------------------------------------------------------------------------------
Total $ 40,591
=========================================================================================================================
</TABLE>
The above schedule excludes nonaccrual loans, home equity loans and consumer
loans which amount to $35,818,000.
The following table sets forth the principal portion of loans with principal or
interest payments contractually past due 90 days or more, nonaccrual loans,
impaired loans and other real estate owned at December 31, 1995, 1994, 1993,
1992 and 1991. Certain amounts from prior years have been reclassified to
conform with the 1995 presentation.
<TABLE>
<CAPTION>
December 31,
- ----------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C>
Loans 90 days or more past due, on accrual status:
Mortgage:
Secured by residential property $ 5 $ 78 $ 433 $ 377 $ 884
Commercial and other --- --- 323 --- 1,560
Commercial --- 6 17 30 610
Home equity 149 102 --- --- ---
Consumer and other 4 14 46 96 114
- ----------------------------------------------------------------------------------------------------------------------------
158 200 819 503 3,168
- ----------------------------------------------------------------------------------------------------------------------------
Nonaccrual loans
Mortgage:
Secured by residential property 85 2,659 1,193 3,702 7,639
Commercial and other 1,098 1,098 2,595 3,004 5,237
Commercial 813 500 1,471 2,887 3,512
Home equity --- 59 471 912 1,213
Consumer and other --- --- 220 92 256
- ----------------------------------------------------------------------------------------------------------------------------
1,996 4,316 5,950 10,597 17,857
Impaired accruing loans 447 3,724 5,242 5,035 3,093
- ----------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 2,601 8,240 12,011 16,135 24,118
Other real estate owned --- 352 2,723 5,724 5,047
- ----------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 2,601 $ 8,592 $ 14,734 $ 21,859 $ 29,165
============================================================================================================================
</TABLE>
20
<PAGE>
At December 31, 1995, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS 114 and 118 totaled $2,443,000, of which
$1,996,000 were nonaccrual loans. At December 31, 1995, the valuation allowance
related to all impaired loans totaled $634,000 and is included in the allowance
for loan losses. For the year ended December 31, 1995, the average recorded
investment in impaired loans was approximately $5.2 million. During 1995 total
interest in the amount of $95,000 was recognized on accruing impaired loans.
At December 31, 1995, impaired accruing loans included $.2 million of loans with
below market interest rates. At December 31, 1995, 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 70% decline from
December 31, 1994 to December 31, 1995.
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 as a result of 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 continuing into 1995, 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.
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.
21
<PAGE>
The following table sets forth the activity on nonaccrual loans for the periods
ended December 31, 1995, 1994, and 1993.
1995 1994 1993
- --------------------------------------------------------------------------------
($ in thousands)
Balance, January 1, $ 4,316 $ 5,950 $10,597
- --------------------------------------------------------------------------------
Additions 2,089 2,868 4,160
- --------------------------------------------------------------------------------
Less:
Repayments 2,697 780 2,145
Transfer to OREO --- 450 524
Charge-offs 802 1,924 4,130
Reinstate accruing 910 1,348 2,008
- --------------------------------------------------------------------------------
Total resolved 4,409 4,502 8,807
- --------------------------------------------------------------------------------
Balance, December 31, $ 1,996 $ 4,316 $ 5,950
================================================================================
Included in additions for 1995 are two loans totaling $1.2 million, from one
borrower, which were substantially resolved in the fourth quarter of 1995.
Subsequent to December 31, 1995, loans totaling $.4 million have been placed on
nonaccrual status.
In addition to the loans classified as nonperforming in the preceding table, the
Bank's internal loan review function has identified approximately $1.4 million
of commercial and commercial real estate loans with more than normal credit
risk. While these loans, were performing according to contractual agreement at
December 31, 1995, previous payment history 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 commercial and commercial real
estate loans, have been considered in the analysis of the adequacy of the
allowance for loan losses.
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
22
<PAGE>
believes that, in the aggregate, the allowance of $2,854,000 at December 31,
1995 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 decrease in the allowance for loan losses from $3,341,000 at December 31,
1994 to $2,854,000 at December 31, 1995 reflects the decline in nonperforming
and nonaccruing loans and $2,366,000 of loan charge-offs during the period. The
charge-offs in 1995 primarily relate to loans on which a specific reserve had
been allocated at December 31, 1994 based on anticipated loss exposure.
It is the Company's policy to charge-off loans against the allowance for loan
losses when losses are certain. Such decisions are based upon an analysis of the
loan, a judgment as to the borrower's ability to repay and the adequacy of
collateral.
The following tables summarize other selected loan and allowance for loan losses
information for 1995, 1994, 1993, 1992 and 1991.
<TABLE>
<CAPTION>
December 31,
- -----------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses $ 2,854 $ 3,341 $ 3,024 $ 3,998 $ 4,276
Nonaccrual loans 1,996 4,316 5,950 10,597 17,857
Nonperforming loans (1) 2,601 8,240 12,011 16,135 24,118
Allowance for loan losses
as a % of nonaccrual loans 143% 77% 51% 38% 24%
Allowance for loan losses
as a % of nonperforming
loans 110 41 25 25 18
Allowance for loan losses
as a % of loans outstanding at
end of year 1.60 1.79 1.90 2.20 2.40
Years Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------
Net loans charged-off as a % of
average loans outstanding 1.14% .87% 2.23% 1.68% 4.03%
<FN>
(1) Includes nonaccrual loans, loans accruing 90 days or more past due and
impaired loans.
</FN>
</TABLE>
23
<PAGE>
As the volume of new loans increased and nonaccrual loans declined, the overall
credit quality of the total loan portfolio has improved which has positively
impacted management's estimate of the allowance for loan losses.
The allowance for loan losses ratio for 1994, 1993 and 1992, as a percentage of
outstanding loans, shown on the preceding page, is impacted by the loans
purchased from the FDIC in late 1992. If these loans had not been included, the
allowance-to-loans outstanding ratio would have been 1.87% at December 31, 1994,
2.07% at December 31, 1993 and 2.45% for December 31, 1992. At December 31, 1995
these loans were no longer subject to a repurchase agreement with the FDIC.
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 did not materially affect 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 on nonaccruing impaired loans are recorded as
reductions of loan principal.
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 various recent regulatory examinations of the Company have
not identified 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 could 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.
24
<PAGE>
The following table summarizes the changes in the allowance for loan losses for
the past five years.
<TABLE>
<CAPTION>
Years Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C>
Allowances for loan losses, January 1, $ 3,341 $ 3,024 $ 3,998 $ 4,276 $ 5,504
- ----------------------------------------------------------------------------------------------------------------------------
Loans charged-off:
Mortgages: (1)
Secured by residential property (347) (344) (1,091) (560) (1,397)
Commercial and other (1,054) (737) (1,153) (182) (912)
Commercial (795) (707) (1,496) (1,992) (4,146)
Home equity (35) (49) (328) (75) (275)
Consumer and other (135) (258) (305) (604) (1,128)
- ----------------------------------------------------------------------------------------------------------------------------
Total loans charged-off (2,366) (2,095) (4,373) (3,413) (7,858)
Recoveries on amounts previously charged-off 290 612 509 635 398
- ----------------------------------------------------------------------------------------------------------------------------
Net loans charged-off (2,076) (1,483) (3,864) (2,778) (7,460)
Provision charged to operating expenses 1,500 1,800 2,890 2,500 6,232
Other (2) 89 --- --- --- ---
- ----------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses, December 31, $ 2,854 $ 3,341 $ 3,024 $ 3,998 $ 4,276
============================================================================================================================
<FN>
(1) Includes write-downs of values of loans transferred to other real estate
owned of $94,000, $185,000 $312,000 and $658,000 in 1994, 1993, 1992 and
1991, respectively. No loans were transferred to OREO during 1995.
(2) Transfer from the OREO valuation allowance to the allowance for loan
losses.
</FN>
</TABLE>
25
<PAGE>
The following table sets forth an estimated allocation by loan category of the
Bank's allowance for loan losses at December 31, 1995, 1994, 1993, 1992 and
1991, along with the percentage of loans in each category to total loans.
<TABLE>
<CAPTION>
1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
($ in thousands)
Amount Percent Amount Percent
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage:
Secured by residential property $ 342 29.7% $ 364 31.0%
Commercial and other 988 25.3 1,673 25.2
Commercial 1,145 26.0 1,014 27.5
Home equity 207 13.9 171 12.3
Consumer 172 5.1 119 4.0
- ------------------------------------------------------------------------------------------------------------------------------
$ 2,854 100.0% $ 3,341 100.0%
==============================================================================================================================
1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
($ in thousands)
Amount Percent Amount Percent
- ------------------------------------------------------------------------------------------------------------------------------
Mortgage:
Secured by residential property $ 177 20.7% $ 316 27.4%
Commercial and other 1,631 28.6 1,218 25.2
Commercial 986 32.6 2,184 31.3
Home equity 104 13.3 102 11.7
Consumer 126 4.8 178 4.4
- ------------------------------------------------------------------------------------------------------------------------------
$ 3,024 100.0% $ 3,998 100.0%
==============================================================================================================================
1991
- ------------------------------------------------------------------------------------------------------------------------------
($ in thousands)
Amount Percent
- ------------------------------------------------------------------------------------------------------------------------------
Mortgage:
Secured by residential property $ 330 30.7%
Commercial and other 888 27.2
Commercial 2,109 22.1
Home equity 305 11.2
Consumer 644 8.8
- ------------------------------------------------------------------------------------------------------------------------------
$ 4,276 100.0%
==============================================================================================================================
</TABLE>
Specific reserves included in the amounts in the above table are $647,000,
$1,494,000, $1,484,000, $2,348,000 and $2,496,000 for 1995, 1994, 1993, 1992 and
1991, respectively. The unallocated portion of the allowance for loan losses was
$2,207,000, $1,847,000, $1,540,000, $1,650,000 and $1,780,000 for 1995, 1994,
1993, 1992 and 1991, respectively. Increases, in 1994 and 1995, of the
unallocated portion is attributable to the reduction in both nonperforming
assets and the specific reserve allocation attributable to these assets.
26
<PAGE>
Other Real Estate Owned
At December 31, 1995, the Company had no other real estate owned properties
("OREO") in its possession. At December 31, 1994, OREO totaled $352,000. OREO
properties are carried at the lower of cost or estimated fair value. During
1995, the Company 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 net gain of $52,000 during the 1995 period. During 1994, the
Company sold properties with a carrying value of $1,477,000 incurring losses of
$191,000, a portion of which had been previously accrued. In addition, in the
first quarter of 1994, the Company transferred a commercial office building,
carried at $1.3 million, from OREO to banking premises. Subsequent to December
31, 1995 the Company has entered into a contract for the sale of this building
at an amount that approximates book value. The sale is expected to be finalized
during the second quarter of 1996. During the third quarter of 1994, the Bank
acquired two residential properties through foreclosure, carried at $561,000. No
properties were acquired through foreclosure or acquisition during 1995. Further
material declines in the real estate market could cause increases in the level
of OREO, further losses or write-downs.
The following table summarizes the changes in OREO for the years ended December
31, 1995 and 1994.
1995 1994
- -----------------------------------------------------------------
($ in thousands)
Beginning Balance, January 1, $ 352 $ 2,723
- -----------------------------------------------------------------
Additions --- 561
Sales (270) (1,477)
Write-downs (171) (106)
Transfer --- (1,349)
Valuation allowance (1) 89 ---
- -----------------------------------------------------------------
Ending Balance, December 31, $ --- $ 352
=================================================================
(1) Transfer from the OREO valuation allowance to the allowance for loan
losses.
27
<PAGE>
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 1995 of $6,830,000 or $0.65 per common
share, fully diluted, and $0.66 per common share, primary compared to net income
of $4,362,000 or $0.44 per common share, primary, for 1994. Net income for 1995
included the recognition of additional deferred tax assets of $1,122,000 and net
gains on the sale of loans and securities amounting to $58,000. Earnings from
core operations (income before income taxes, excluding non-recurring gains and
losses) in 1995 amounted to $5,767,000. By contrast, earnings from core
operations in 1994, amounted to $2,948,000. As discussed below, the significant
improvement in results for 1995 was primarily attributable to a reduction in
nonperforming assets, an increase in the net interest margin due, in part, to an
increase in average earning assets and the yield thereon, a reduction in the
provision for loan losses as a result of the overall improvement in the credit
quality of the loan portfolio and the control of operating expenses as the
Company continued to expand in 1995. In addition, stronger income from trust
fees and a reduction in FDIC premiums contributed to improved 1995 earnings.
Negatively impacting earnings for 1995 was an increase in professional fees
related to strategic planning initiatives and an increase in salaries and
benefits due to the implementation, during 1995, of a new bonus and incentive
program, along with revisions to executive benefit plans.
Net income for 1994 of $4,362,000 increased 263% over net income for 1993 of
$1,202,000, or $0.12 per common share, primary. Contributing to improved results
in 1994 was a reduction in nonperforming assets, an improvement in net interest
income and a reduction in the provision for loan losses. In addition, in 1994,
stronger fee income from trust fees, mortgage servicing fees and service charges
on deposit accounts contributed to the improved results over 1993. At December
31, 1994, Bancorp's Tier 1 Capital (leverage) ratio was 6.13% as compared to
4.84% at December 31, 1993.
The past decline in the regional economy, particularly in the local real estate
market, has affected the ability of many of the Bank's borrowers to repay their
loans. Also, since 1989, real estate values in the Company's market area have
declined substantially. While the Bank's residential, commercial and
construction mortgage lending policies have specified a 75% or less
loan-to-value ratio, the decline in values has increased the possibility of loss
in the event of default. Management believes this decline has abated and
improvements were shown during 1994 and 1995.
28
<PAGE>
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.
During 1995, the interest rate spread improved, from 5.2% in 1994 to 5.7% in
1995, primarily due to the increase in yields earned on accruing loans and
investment securities. The yield on interest-earning assets was positively
impacted by a net increase in the prime rate during 1995, resulting in higher
yields on the Bank's commercial loan portfolio and home equity portfolio. The
yield on investment securities increased in 1995 due to sales of lower yielding
securities, which resulted in a net loss of $229,000, and purchases of higher
yielding securities.
During 1994, the interest rate spread improved to 5.2% as compared to 4.6% in
1993. This increase was due primarily to the decline of interest costs on
deposit accounts and the increase in average noninterest-bearing deposits. The
yield on earning assets was positively impacted in 1994, as compared to 1993, by
an increase in the prime rate, resulting in higher yields on the Bank's
commercial loan portfolio and home equity portfolio.
Net interest margin represents net interest income divided by average
interest-earning assets. The continued high level of nonearning assets in 1993
and 1994 had a negative impact on the net interest margin during those years.
However, the decline in nonaccruing loans and other real estate owned favorably
impacted the net interest margin in 1994 and 1995.
29
<PAGE>
The following table sets forth a three year comparison of average earning
assets, nonaccrual loans, average interest-bearing liabilities and related
interest income and expense. Average balances are averages of daily closing
balances, except for nonaccrual loans in 1993 and 1994, which are averages of
monthly closing balances. Certain amounts have been reclassified to conform with
the 1995 presentation.
<TABLE>
<CAPTION>
Years Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
Average Income/ Average Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate Balance Expense Rate
- ----------------------------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Accruing loans $178,055 $16,200 9.1% $165,330 $13,729 8.3% $163,680 $13,482 8.2%
Non-accruing loans 3,914 --- 5,424 --- 9,502 ---
- ----------------------------------------------------------------------------------------------------------------------------------
Total loans 181,969 16,200 8.9 170,754 13,729 8.0 173,182 13,482 7.8
Investment securities 74,134 4,366 5.9 70,859 3,484 4.9 37,583 1,798 4.8
Federal funds sold
and other 2,708 159 5.9 3,458 121 3.5 13,984 429 3.0
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning
assets $258,811 20,725 8.0 $245,071 17,334 7.1 $224,749 15,709 7.0
======== ------ ======== ------ ======== ------
Noninterest-bearing
demand deposits $ 67,050 --- $ 60,539 --- $ 49,305 ---
Interest-bearing
liabilities:
Money market and
NOW 68,124 1,140 1.7 73,337 1,067 1.5 71,692 1,392 1.9
Savings 51,066 1,013 2.0 62,824 1,269 2.0 57,035 1,521 2.7
Certificates of
deposit 57,651 2,918 5.1 47,440 2,079 4.4 53,650 2,695 5.0
Other 16,520 956 5.8 7,842 334 4.3 2,307 76 3.3
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 193,361 6,027 3.1 191,443 4,749 2.5 184,684 5,684 3.1
- ----------------------------------------------------------------------------------------------------------------------------------
Total noninterest-
bearing deposits and
interest-bearing
liabilities $260,411 6,027 2.3 $251,982 4,749 1.9 $233,989 5,684 2.4
======== ----- ======== ----- ======== -----
Net interest income(1) $14,698 $12,585 $10,025
==================================================================================================================================
Net interest margin(2) 5.7% 5.1% 4.5%
==================================================================================================================================
Interest rate spread (3) 5.7% 5.2% 4.6%
==================================================================================================================================
<FN>
(1) Interest income includes loan fees of $224,000, $295,000 and $266,000 in
1995, 1994, and 1993, respectively.
(2) Net interest margin is net interest income divided by total average
earning assets.
(3) Interest rate spread is the difference between the yield on total average
interest-earning assets and the cost of total average noninterest-bearing
deposits and interest-bearing liabilities.
</FN>
</TABLE>
30
<PAGE>
The following table analyzes the changes attributable to the rate and volume
components of net interest income. Interest income includes loan fees of
$224,000, $295,000 and $266,000 in 1995, 1994 and 1993, respectively.
<TABLE>
<CAPTION>
Years Ended December 31,
- -------------------------------------------------------------------------------------------------------------------------------
1995 vs 1994 1994 vs 1993
Increase/(decrease) Increase/(decrease)
due to change in (1): due to change in (1):
Total Total
Rate Volume Change Rate Volume Change
- -------------------------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans $1,368 $ 1,103 $ 2,471 $ 124 $ 123 $ 247
Investment securities 717 165 882 78 1,608 1,686
Federal funds sold and other 52 (14) 38 34 (342) (308)
- -------------------------------------------------------------------------------------------------------------------------------
Total interest income 2,137 1,254 3,391 236 1,389 1,625
- -------------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Deposits and other interest-
bearing liabilities:
Money market and NOW 137 (64) 73 (355) 30 (325)
Savings (35) (221) (256) (372) 120 (252)
Certificates of deposit 355 484 839 (340) (276) (616)
Other 175 447 622 80 178 258
- -------------------------------------------------------------------------------------------------------------------------------
Total interest expense 632 646 1,278 (987) 52 (935)
- -------------------------------------------------------------------------------------------------------------------------------
Change in Net Interest Income $ 1,505 $ 608 $ 2,113 $ 1,223 $ 1,337 $ 2,560
===============================================================================================================================
<FN>
(1) Variances were computed as follows:
Variance due to rate = change in rate multiplied by old volume.
Variance due to volume = change in volume multiplied by old rate.
Variance due to rate/volume prorated to rate and volume variances on the
basis of gross value.
</FN>
</TABLE>
31
<PAGE>
Net interest income was $14,698,000 in 1995, compared with $12,585,000 in 1994,
an increase of $2,113,000 or 16.8%. Net interest income for 1994 increased 25.5%
over $10,025,000 in 1993. Contributing factors to the changes in interest income
and expense are discussed below.
Total interest income amounted to $20,725,000 in 1995, compared to $17,334,000
for 1994, an increase of $3,391,000 or 19.6%. A key factor relating to the
higher level of total interest income for 1995, compared to the prior year, was
an increase in average interest-earning assets of $13.7 million or 5.6%, which
positively impacted earnings by $1,254,000. In addition, during this same
period, the average yield on interest-earning assets increased from 7.1% to
8.0%, resulting in an increase in interest income of $2,137,000. Total interest
income of $17,334,000 in 1994 represented an increase of 10.3% over 1993.
Contributing to the improved results in 1994 was an increase of 9.0% in average
interest-earning assets, which positively impacted earnings by $1,389,000. Total
interest income for 1995, 1994 and 1993 was negatively impacted by the level of
nonaccrual loans, averaging $3.9 million, $5.4 million and $9.5 million in 1995,
1994 and 1993, respectively.
Total interest expense for 1995 was $6,027,000, an increase of $1,278,000 or
26.9% from 1994. This increase was, in part, the result of an increase in
interest costs from 1.9% in 1994 to 2.3% in 1995, resulting in an increase in
interest expense of $632,000. Additionally, there was an increase of 1.0% in
interest-bearing liabilities during 1995, to $193,361,000 from $191,443,000 in
1994, resulting in an increase in interest expense of $646,000. Total interest
expense for 1994 declined 16.4% to $4,749,000 from $5,684,000 in 1993. This
decline was primarily the result of a reduction in interest costs from 2.4% in
1993 to 1.9% in 1994, resulting in an expense reduction of $987,000.
Positively impacting the Bank's overall funding costs was an increase of 10.8%
in 1995 and 22.8% in 1994 of average noninterest-bearing liabilities.
Further improvement in net interest income is dependent, in part, upon the
continued resolution of nonperforming assets.
Other Operating Income
The following table sets forth other operating income for the years ended
December 31, 1995, 1994, and 1993 and the percentage change from period to
period.
<TABLE>
<CAPTION>
Years Ended % Change % Change
December 31, 1995 vs 1994 vs
1995 1994 1993 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C>
Trust fees $1,880 $1,637 $1,573 14.8% 4.1%
Service charges on deposit accounts 1,344 1,403 1,284 (4.2) 9.3
Loan sale gains - net 287 175 1,287 64.0 (86.4)
Mortgage servicing fees 141 151 76 (6.6) 98.7
Realized security gains (losses) - net (229) 3 370 N/M (99.2)
Securities held for sale - lower of
aggregate cost or market adjustment --- --- 207 --- N/M
Other 582 559 587 4.1 (4.8)
- -------------------------------------------------------------------------------------------------------------------------------
Total other operating income $4,005 $3,928 $5,384 2.0% (27.0)%
===============================================================================================================================
<FN>
N/M = not measurable or not meaningful.
</FN>
</TABLE>
32
<PAGE>
Total other operating income increased 2.0% in 1995 to $4,005,000 as compared to
$3,928,000 in 1994. In 1994 total other operating income decreased 27.0% from
$5,384,000 in 1993. Contributing factors are discussed below.
Trust fees increased in 1995 to $1,880,000, or 14.8%, from 1994. This increase
is primarily attributed to new wealth management and investment services offered
in 1995 along with an increase in the volume of estate fees. Trust fees
increased in 1994 by 4.1% over 1993 as a result of an increased fee schedule and
an increase in assets held by the Bank's trust department.
Loan sale gains in 1995 were positively impacted by the adoption of Statement of
Financial Accounting Standards No. 122 ("SFAS 122"), "Accounting for Mortgage
Servicing Rights". 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 1995, the Company sold $15.0 million in residential
mortgage loans while retaining the rights to service these loans. Net gains of
$245,000 were realized from the sale of these loans which included the
recognition of a servicing asset (originated mortgage servicing rights) and
origination fees that had been previously collected and deferred in accordance
with Statement of Financial Accounting Standards No. 91. Additionally,
residential mortgage loans totaling $3.6 million were sold in 1995, servicing
released, resulting in realized net gains of $42,000. During 1994, $12.8 million
in residential mortgage loans were sold for a net gain of $175,000. The
reduction in residential mortgage loan sales in 1994, as compared to 1993, was
due, in part, to an increase in the origination of variable rate residential
mortgage loans which the Company generally retains for portfolio as part of its
asset/liability management program.
The other income category increased 4.1% in 1995 to $582,000, primarily the
result of an increase in fees related to wire transfer services, equity lines of
credit and check services. In 1994 the other operating income category decreased
4.8% from 1993 primarily as a result of net gains realized in 1993 as a result
of the sale of a bank property.
Negatively impacting other operating income for 1995 was a net loss of $229,000
on the sale of securities in the available for sale portfolio. The security
losses were incurred primarily in the first quarter of 1995 in connection with
the repositioning of the available for sale portfolio into higher yielding
government agency securities. During 1994 the Bank sold $4.2 million of
government agency securities from the available for sale portfolio resulting in
a net gain of $3,000 as compared to sales in 1993 totaling $28.3 million of
securities from the held for sale portfolio realizing a net gain of $370,000.
Service charges on deposit accounts declined 4.2% to $1,344,000 in 1995 as
compared to $1,403,000 in 1994 due, in part, to a lower volume of insufficient
funds charges. In 1994, service charges on deposit accounts increased 9.3% over
1993 as a result of an increased fee schedule implemented during 1994 and
substantial growth in commercial checking accounts.
Mortgage servicing fees declined in 1995 to $141,000 from $151,000 in 1994 due
to a decline of 5.1% in the average balance of residential mortgage loans
serviced for investors. In 1994, mortgage servicing fees increased 98.7% over
1993. During 1994, the Company became an approved seller/servicer for the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation allowing the Company to retain the servicing rights to residential
mortgage loans sold in the secondary market.
33
<PAGE>
Other Operating Expense
The following table sets forth other operating expense for the periods ended
December 31, 1995, 1994 and 1993 and the percentage change from period to
period.
<TABLE>
<CAPTION>
Years Ended % Change % Change
December 31, 1995 vs 1994 vs
1995 1994 1993 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C>
Salaries and benefits $ 5,600 $ 5,416 $ 5,217 3.4% 3.8%
Occupancy - net 1,445 1,484 1,563 (2.6) (5.1)
Professional fees 1,119 941 696 18.9 35.2
Data processing 575 782 742 (26.5) 5.4
FDIC insurance premiums 392 696 679 (43.7) 2.5
Furniture and equipment 292 337 505 (13.4) (33.3)
Other insurance premiums 220 287 329 (23.3) (12.8)
Other real estate owned - net 137 319 552 (57.1) (42.2)
Other 1,598 1,325 1,286 20.6 3.0
- ----------------------------------------------------------------------------------------------------------------------------
Total other operating expense $11,378 $11,587 $11,569 (1.8)% 0.2%
============================================================================================================================
</TABLE>
Total other operating expense declined 1.8% to $11,378,000 in 1995 from
$11,587,000 in 1994. This decline was realized despite the Company's expansion
by opening an additional branch facility during the third quarter of 1995. In
1994 total other operating expense increased 0.2% from $11,569,000 in 1993.
Contributing factors are discussed below.
FDIC insurance premiums declined 43.7% to $392,000 in 1995 from $696,000 in
1994. The decrease is, in part, attributable to a rebate of insurance premiums
from the FDIC during the third quarter of 1995. This action was required due to
statutory limits imposed on the Bank Insurance Fund by the Federal Deposit
Improvement Act of 1991. In addition, the Company's premiums were reduced in
1995 due to improved capital levels. The increase in FDIC insurance premiums of
2.5% in 1994 over 1993 was, in large part due to an increase in deposit levels
partially offset by a reduction in the Company's insurance premium. The Bank has
estimated 1996 FDIC insurance premiums to be approximately $2,000 based on the
current rate structure imposed by the FDIC on banks in the "well capitalized"
category.
Data processing expense declined 26.5% to $575,000 in 1995, primarily due to the
purchase of a new bank-wide hardware and software system during the fourth
quarter of 1994, substantially reducing maintenance and equipment costs. In 1994
data processing expense increased 5.4% over 1993, primarily due to costs
associated with the conversion to the new bank-wide hardware and software
system. During 1996, maintenance and fees related to the computer system are
expected to increase as the warranty period expires.
Other real estate owned expense declined 57.1% in 1995 and 42.2% in 1994 due to
the significant reduction in the levels of foreclosed properties.
Other insurance premiums declined 23.3% in 1995 and 12.8% in 1994 due to lower
premium costs as a result of the Company's improved financial condition and a
continued decline in commercial insurance rates.
34
<PAGE>
Furniture and equipment expense declined 13.4% in 1995 to $292,000 from $337,000
in 1994 as a result of assets becoming fully depreciated, with minimal purchases
of new furniture and equipment. Declines were realized in both furniture and
equipment expense despite additional costs related to the new branch opening.
Furniture and equipment expense declined 33.3% in 1994 from $505,000 in 1993,
primarily due to the purchase of equipment previously leased and reduced
maintenance expenses.
Occupancy expense declined in 1995, by 2.6% or $39,000 and in 1994 by 5.1% from
1993, primarily due to the consolidation of previously leased office space. In
1995 this reduction was offset , in part, by the occupancy costs associated with
the new branch facility.
Offsetting these declines in 1995 was an increase in professional fees of 18.9%
to $1,119,000 from $941,000 in 1994, primarily due to strategic planning
initiatives and costs associated with revisions to executive benefit plans. In
1994, professional fees increased 35.2% over 1993 levels due to corporate legal
costs associated with capital plans, the outsourcing of certain functions and
additional consulting services.
Salaries and benefits increased 3.4% in 1995 as compared to 1994, primarily due
to the implementation of a new bonus and incentive program and an increase in
the Company's contribution to the employee 401(k) Plan. Expenses in 1995 were
also impacted by the addition of staff for the new branch facility. In 1994,
costs associated with a staff reduction program led, in part, to an increase of
3.8% over 1993.
The other expense category increased 20.6% in 1995 to $1,598,000 from $1,325,000
in 1994, primarily the result of advertising costs associated with new Trust
products. In addition, in 1995, expenses associated with forms and supplies
increased due to the conversion of the Bank's hardware and software system, as
well as the opening of a new branch facility. In 1994 the other expense category
increased 3.0% over 1993 primarily due to forms and supplies associated with the
hardware and software system conversion.
Income Taxes
Since January 1, 1993 the Company has accounted for income taxes in accordance
with Statement of Financial Accounting Standards No. 109 ("SFAS 109"),
"Accounting for Income Taxes". As a result of net operating losses and loss
carryovers, the Company had no regular Federal tax liability for the years 1993
through 1995. The Company paid minimum federal and state income taxes in 1995,
1994 and 1993.
As of December 31, 1995, the Company has aggregate net operating loss
carryforwards of approximately $5.9 million for federal purposes and $6.5
million for state purposes to offset future income for tax return purposes.
At December 31, 1995, the Company recorded a net deferred tax asset of
$2,772,000 representing anticipated future utilization of its net operating loss
carryforwards as an offset against future taxable income. See Note 10 of the
Notes to the Consolidated Financial Statements included at Item 8 of this Form
10-K.
35
<PAGE>
Fourth Quarter Results
The Company recorded net income of $1,463,000 or $0.14 per fully diluted common
share for the fourth quarter of 1995 as compared to $1,213,000 or $0.12 per
fully diluted common share for the same period of 1994.
Results of operations for the fourth quarter of 1995, as compared to the 1994
period, were positively impacted by the continued reduction in nonperforming
assets and operating expenses along with improvements in total interest income
and other operating income. Net income for the fourth quarter of 1994 included
the recognition of an additional deferred tax asset of $200,000 as compared to
no additional deferred tax assets recognized during the same period of 1995. The
Company had previously recognized substantially all of its remaining net
deferred tax assets as of September 30, 1995.
Interest income of $5,374,000 for the fourth quarter of 1995 represented an
increase of 13.1% over the same period in 1994. This improvement in 1995 was
primarily the result of an increase of 6.3% in average interest-earning assets
over the 1994 period.
Interest expense of $1,644,000 for the fourth quarter of 1995 increased
$433,000, or 35.8%, from the 1994 total of $1,211,000. This increase was, in
large part, due to an increase in the cost of funds to 2.5% in the fourth
quarter of 1995 as compared to 1.9% for the same period in 1994. Additionally,
the average balance of interest-bearing liabilities increased 3.7% in 1995 over
the fourth quarter of 1994.
Other operating income for the fourth quarter of 1995 was $1,306,000, as
compared to $1,027,000 for the same period of 1994, an increase of 27.2%. This
increase is primarily the result of an improvement in trust fees due to new
wealth management and investment services offered in 1995. Also, the adoption of
SFAS 122 during the fourth quarter of 1995 resulted in a $171,000 gain.
Other operating expense for the fourth quarter of 1995 was $3,060,000, as
compared to $3,075,000 for the same period of 1994. This decline is due, in
part, to a reduction in other real estate owned expense, data processing expense
and FDIC insurance premiums. Partially offsetting these reductions was an
increase in professional fees due to strategic planning initiatives undertaken
in the fourth quarter of 1995.
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".
36
<PAGE>
Management's goal is to maintain a cumulative one year GAP of under 10% of total
assets. At December 31, 1995, the cumulative one year GAP as a percentage of
total assets was 6.90%. The Bank concentrates on originating adjustable rate
loans to hold in its loan portfolio to reduce interest rate risk. Deregulation
of deposit instruments has allowed the Bank to generate deposit liabilities
whose repricing more closely matches that of its loans.
The following table provides detail reflecting the approximate repricing
intervals for rate-sensitive assets and liabilities at December 31, 1995:
<TABLE>
<CAPTION>
Maturity/Repricing Interval
- ----------------------------------------------------------------------------------------------------------------------------
Over
3 Months
3 Months through 1 to 5 Over 5
or Less 1 Year Years Years Total
- ----------------------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C>
Rate-Sensitive Assets:
Loans(1) $ 84,277 $ 48,372 $ 34,505 $ 8,902 $176,056
Investment securities 38,902 24,593 13,927 7,916 85,338
Federal funds sold and other 14,500 --- --- --- 14,500
- ----------------------------------------------------------------------------------------------------------------------------
Total rate-sensitive assets 137,679 72,965 48,432 16,818 275,894
- ----------------------------------------------------------------------------------------------------------------------------
Rate-Sensitive Liabilities:
Money market and NOW deposits 69,957 --- --- --- 69,957
Savings deposits 45,455 --- --- --- 45,455
Certificates of deposit and other 45,402 20,499 14,936 --- 80,837
Short-term borrowings 7,733 --- --- --- 7,733
- ----------------------------------------------------------------------------------------------------------------------------
Total rate-sensitive liabilities 168,547 20,499 14,936 --- 203,982
- ----------------------------------------------------------------------------------------------------------------------------
Gap $(30,868) $ 52,466 $ 33,496 $ 16,818 $ 71,912
============================================================================================================================
Cumulative Gap $(30,868) $ 21,598 $ 55,094 $ 71,912
============================================================================================================================
Cumulative percentage of
rate-sensitive assets to
rate-sensitive liabilities 82% 111% 127% 135%
============================================================================================================================
<FN>
(1) Excludes nonaccrual loans of $1,996,000 and is net of deferred loan fees
of $260,000.
</FN>
</TABLE>
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 rate-sensitive assets. Regular savings
accounts, money market accounts and NOW deposits have been included in the "3
Months or Less" category. However, these deposits have historically remained
stable and are an integral part of the Bank's funding and asset/liability
management strategy.
Noninterest-bearing demand deposits of $78,421,000 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.
37
<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 $210,644,000 and
rate-sensitive liabilities that mature or reprice in one year total
$189,046,000. The resulting positive one year rate-sensitive gap is $21,598,000.
During periods of rising interest rates, a positive gap position can be an
advantage if more rate-sensitive assets than rate-sensitive liabilities reprice
at higher 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 increase, resulting in a decrease in rate-sensitive assets. During a
falling rate environment, a negative rate gap can be an advantage. 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, yields earned on
assets do not necessarily move in parallel with rates paid on liabilities.
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 $38,613,000 or
12.3% of total assets at December 31, 1995, as compared with $18,010,000 or 6.4%
of total assets at December 31, 1994. Securities available for sale were
$85,338,000 at December 31, 1995 compared with $27,190,000 at December 31, 1994.
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.
In addition, the Bank has two unsecured lines of credit with correspondent banks
totaling $5,000,000. The outstanding balance of these lines was $5,000,000 at
December 31, 1995.
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 December 31, 1995 these
available lines amounted to $17.1 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 did not have any borrowings
from the FHLBB at December 31, 1995.
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 December 31, 1995
38
<PAGE>
was $1,050,000. The discount window, if needed, would allow the Company to cover
any short-term liquidity needs without reducing earning assets. At December 31,
1995, 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 1995 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
(although no dividends were paid by the Bank in 1995). Excess proceeds from the
exercise of warrants and options may from time to time result in a loan to the
Bank by Bancorp. At December 31, 1995, Bancorp had loaned a total of $426,000 to
the Bank under such arrangement.
The Bank is prohibited by Connecticut banking law from paying dividends except
from its net profits, which are defined as the remainder of all earnings from
current operations. The total of all dividends declared by the Bank in any
calendar year may not, unless specifically approved by the State of Connecticut
Banking Commissioner, exceed the total of its net profits for that year combined
with its retained net profits from the preceding two years. These dividend
limitations can affect the amount of dividends payable to Bancorp as the sole
stockholder of the Bank, and therefore affect Bancorp's payment of dividends to
its stockholders.
Capital Resources
Stockholders' equity increased by $7,884,000 or 48.1% in 1995 to $24,282,000 as
compared to $16,398,000 at December 31, 1994. This increase is primarily due to
earnings of $6.8 million and the exercise of 1,997,000 warrants by preferred
stockholders, which resulted in additional capital of $1,498,000. Additionally,
a net change of $376,000 in the unrealized appreciation of the securities
available for sale portfolio positively impacted stockholders' equity at
December 31, 1995, as compared to December 31, 1994. Stockholders' equity was
reduced by the payment of $865,000 in dividends, which the Company resumed in
1995.
At December 31, 1995, Bancorp's Tier 1 capital to average assets ratio (leverage
ratio) was 8.18% and its total capital to risk-weighted asset ratio was 14.02%,
exceeding minimum requirements.
In the fourth quarter of 1992, the Company strengthened capital through a rights
offering to existing shareholders. All registered holders of the Company's
Common Stock as of February 21, 1992 were entitled to acquire additional shares
of Common Stock. Prior to the expiration date of May 31, 1994, a total of
$1,117,000, net of expenses of $102,000, was raised through the rights offering.
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.
During 1995 and 1994 a total of 2,009,500 warrants were exercised, resulting in
total proceeds of $1,507,125 to the Company. At December 31, 1995, there were
325,500 warrants outstanding. There is no assurance as to the number of
warrants, if any, that will be exercised in the future. All warrants expire on
December 31, 1996.
39
<PAGE>
Item 8
Financial Statements and Supplementary Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WESTPORT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
($ in thousands, except share data)
December 31,
- -----------------------------------------------------------------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 24,113 $ 18,010
Federal funds sold 14,500 ---
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 38,613 18,010
- -----------------------------------------------------------------------------------------------------------------------
Securities available for sale, at market value 85,338 27,190
Securities held to maturity, at cost
(market value: $39,678) --- 43,206
- -----------------------------------------------------------------------------------------------------------------------
Total securities 85,338 70,396
- -----------------------------------------------------------------------------------------------------------------------
Loans 178,052 186,648
Allowance for loan losses (2,854) (3,341)
- -----------------------------------------------------------------------------------------------------------------------
Loans - net 175,198 183,307
- -----------------------------------------------------------------------------------------------------------------------
Premises and equipment - net 4,933 5,137
Accrued interest receivable 2,247 1,758
Other real estate owned - net --- 352
Other assets 6,588 4,544
- -----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $312,917 $283,504
=======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Noninterest-bearing deposits $ 78,421 $ 72,972
Interest-bearing deposits 196,249 180,986
- -----------------------------------------------------------------------------------------------------------------------
Total deposits 274,670 253,958
- -----------------------------------------------------------------------------------------------------------------------
Short-term borrowings 7,733 10,484
Other liabilities 6,232 2,664
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 288,635 267,106
- -----------------------------------------------------------------------------------------------------------------------
Commitments and contingencies - Note 8
Stockholders' equity:
Preferred stock - $.01 par value; authorized 2,000,000 shares;
outstanding, 41,850 and 43,950 shares
in 1995 and 1994, respectively 1 1
Common stock - $.01 par value; authorized, 20,500,000
shares; outstanding, 5,433,665 and 3,211,752 shares
in 1995 and 1994, respectively 54 32
Additional paid in capital 22,980 21,459
Retained earnings (deficit) 1,285 (4,680)
Net unrealized depreciation on securities available
for sale, net of tax (38) (414)
- -----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 24,282 16,398
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $312,917 $283,504
=======================================================================================================================
</TABLE>
See notes to consolidated financial statements.
40
<PAGE>
<TABLE>
<CAPTION>
WESTPORT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data)
Years Ended December 31,
- -------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Loans $16,200 $13,729 $13,482
Securities 4,366 3,484 1,798
Federal funds sold and other 159 121 429
- -------------------------------------------------------------------------------------------------------------------------
Total interest income 20,725 17,334 15,709
- -------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits 5,110 4,443 5,642
Short-term borrowings 917 306 42
- -------------------------------------------------------------------------------------------------------------------------
Total interest expense 6,027 4,749 5,684
- -------------------------------------------------------------------------------------------------------------------------
Net interest income 14,698 12,585 10,025
Provision for loan losses 1,500 1,800 2,890
- -------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 13,198 10,785 7,135
- -------------------------------------------------------------------------------------------------------------------------
OTHER OPERATING INCOME:
Trust fees 1,880 1,637 1,573
Service charges on deposit accounts 1,344 1,403 1,284
Loan sale gains - net 287 175 1,287
Mortgage service fees 141 151 76
Realized security gains (losses) - net (229) 3 370
Securities held for sale - lower of aggregate
cost or market adjustment --- --- 207
Other 582 559 587
- -------------------------------------------------------------------------------------------------------------------------
Total other operating income 4,005 3,928 5,384
- -------------------------------------------------------------------------------------------------------------------------
OTHER OPERATING EXPENSE:
Salaries and benefits 5,600 5,416 5,217
Occupancy - net 1,445 1,484 1,563
Professional fees 1,119 941 696
Data processing 575 782 742
FDIC insurance premiums 392 696 679
Furniture and equipment 292 337 505
Other insurance premiums 220 287 329
Other real estate owned - net 137 319 552
Other 1,598 1,325 1,286
- -------------------------------------------------------------------------------------------------------------------------
Total other operating expense 11,378 11,587 11,569
- -------------------------------------------------------------------------------------------------------------------------
Income before income taxes 5,825 3,126 950
Income tax benefit (1,005) (1,236) (252)
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 6,830 $ 4,362 $ 1,202
=========================================================================================================================
Earnings per share:
Primary $ 0.66 $ 0.44 $ 0.12
Fully diluted $ 0.65 --- ---
=========================================================================================================================
Weighted average number of common shares
and common equivalent shares outstanding:
Primary 10,364,606 10,381,834 10,513,188
Fully diluted 10,469,299 --- ---
=========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
41
<PAGE>
<TABLE>
<CAPTION>
WESTPORT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
($ in thousands)
Net Unrealized
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
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1993 46,200 $ 1 2,865,139 $ 29 $21,231 $(10,244) --- $11,017
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income 1,202 --- 1,202
Issuance of Common Stock - --- --- --- --- --- --- --- ---
1992 Rights Offering --- --- 91,226 1 185 --- --- 186
Stock Conversion (1,250) --- 125,000 1 (1) --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 44,950 1 3,081,365 31 21,415 (9,042) --- 12,405
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income --- --- --- --- --- 4,362 --- 4,362
Issuance of Common Stock -
Warrants exercised --- --- 12,500 --- 10 --- --- 10
Employee Options exercised --- --- 17,500 --- 35 --- --- 35
1992 Rights Offering --- --- 13 --- --- --- --- ---
Dividend Reinvestment and
Stock Purchase Plan --- --- 374 --- --- --- --- ---
Stock Conversion (1,000) --- 100,000 1 (1) --- --- ---
Change in net unrealized
depreciation on securities
available for sale, net of tax --- --- --- --- --- --- $(414) (414)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 43,950 1 3,211,752 32 $21,459 (4,680) (414) 16,398
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income --- --- --- --- --- 6,830 --- 6,830
Issuance of Common Stock -
Warrants exercised --- --- 1,997,000 21 1,477 --- --- 1,498
Employee Options exercised --- --- 9,750 --- 19 --- --- 19
Stock Conversion (2,100) --- 210,000 1 (1) --- --- ---
Dividend Reinvestment and
Stock Purchase Plan --- --- 5,163 --- 26 --- --- 26
Dividends -
Preferred Stock --- --- --- --- --- (380) --- (380)
Common Stock --- --- --- --- --- (485) --- (485)
Change in net unrealized
depreciation on securities
available for sale, net of tax --- --- --- --- --- --- 376 376
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 41,850 $ 1 5,433,665 $ 54 $22,980 $ 1,285 $ (38) $24,282
====================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
42
<PAGE>
<TABLE>
<CAPTION>
WESTPORT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
Years Ended December 31,
- ---------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 6,830 $ 4,362 $ 1,202
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 1,500 1,800 2,890
Recognition of net deferred tax asset (1,122) (1,300) (350)
Depreciation, amortization and accretion 863 1,021 1,160
Provision and losses on other real estate owned - net 129 191 413
Loan sale gains - net (287) (175) (1,287)
Securities held for sale - lower of aggregate
cost or market adjustment --- --- (207)
Realized security (gains) losses - net 229 (3) (370)
Decrease (increase) in accrued interest receivable (489) 713 (994)
Decrease (increase) in other assets (896) (208) 99
Increase (decrease) in other liabilities 3,568 328 (94)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 10,325 6,729 2,462
- ---------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from maturities of securities -
Available for sale 6,500 37,890 27,039
Held to maturity 1,000 12,507 ---
Proceeds from sales of securities -
Available for sale 28,770 4,202 28,294
Principal collected on securities 5,477 1,201 1,961
Purchase of securities held to maturity (4,999) (14,454) (39,697)
Purchase of securities available for sale (51,675) (21,404) (78,171)
Increase in loans - net (13,553) (43,032) (30,728)
Loans repurchased by the FDIC 2,490 1,432 1,893
Proceeds from sales of loans 18,867 12,949 48,486
Purchase of loans (997) (817) (61)
Proceeds from sales of other real estate owned 312 1,393 3,162
Additions to other real estate owned --- (111) (50)
Purchases of premises and equipment (553) (999) (262)
Proceeds from sale of premises --- --- 152
- ---------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (8,361) (9,243) (37,982)
- ---------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Increase in noninterest-bearing deposits - net 5,449 15,493 5,142
Increase (decrease) in interest-bearing deposits - net 15,263 (17,051) 12,538
Increase (decrease) in short-term borrowings - net (2,751) 8,084 2,067
Proceeds from issuance of Common Stock - net 1,543 45 186
Dividends (865) --- ---
Other - net --- --- (98)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 18,639 6,571 19,835
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 20,603 4,057 (15,685)
Cash and cash equivalents at beginning of year 18,010 13,953 29,638
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 38,613 $ 18,010 $ 13,953
===============================================================================================================
</TABLE>
See notes to consolidated financial statements.
43
<PAGE>
WESTPORT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Summary of Significant Accounting and Reporting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Westport Bancorp,
Inc. ("Bancorp") and its subsidiary, The Westport Bank & Trust Company (the
"Bank") (collectively, the "Company"). All significant intercompany accounts and
transactions have been eliminated.
Basis of Financial Statement Presentation
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles within the banking industry.
In preparing the financial statements, management has made estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the consolidated statement of condition and the reported amounts of
revenues and expenses during the reporting period. Actual future results could
differ significantly from these estimates. Estimates that are particularly
susceptible to significant change relate to the determination of the allowance
for loan losses and the valuation of real estate acquired through foreclosures
or in satisfaction of loans. In determining the allowance for loan losses and
the valuation of other real estate owned, independent appraisals are obtained
for significant properties collateralizing loans or other real estate owned.
Future additions to the allowance for loan losses or write-downs of other real
estate owned may be necessary based on changes in economic conditions,
particularly in the Bank's service area, Fairfield County, Connecticut. In
addition, regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses and the carrying value
of other real estate owned. Such agencies may recommend that the Bank recognize
additions to the allowance for loan losses or the reserve for other real estate
owned based on their judgments and information available to them at the time of
their examinations.
Securities
Effective January 1, 1994, the Bank adopted Financial Accounting Standards
Board's ("FASB") Statement of Financial Accounting Standards No. 115 ("SFAS
115"), "Accounting for Certain Investments in Debt and Equity Securities". SFAS
115 addresses the accounting and reporting for investments in equity securities
that have readily determinable fair values and for all investments in debt
securities. Adoption of SFAS 115 did not have a material effect on the financial
statements.
In accordance with SFAS 115, at the time of purchase, investment securities are
classified as available for sale if the securities are purchased for
asset/liability management and liquidity purposes, or as held to maturity if
management has the intent and ability to hold the securities to maturity.
However, in the fourth quarter of 1995, the FASB provided companies with a one
time opportunity to reclassify securities between the available for sale
portfolio and the held to
44
<PAGE>
maturity portfolio. The Company took advantage of this opportunity and
reclassified its entire $42,459,000 held to maturity portfolio to the available
for sale portfolio. This reclassification resulted in the transfer of $146,000
to the unrealized depreciation on the securities available for sale component of
stockholder's equity, before the related tax effect. This reclassification is
not reflected in the consolidated statement of cash flows because no cash was
involved.
Securities in the available for sale portfolio are carried at fair value, with
unrealized gains and losses net of tax, adjusted for the amortization of
premiums or accretion of purchase discounts, recorded in a separate component of
stockholders' equity. Gains and losses on the sale of securities in the
available for sale portfolio are determined by specific identification and are
included in operations.
Securities which are classified as held to maturity are stated at cost, adjusted
for amortization of premiums or accretion of discounts to the date of maturity
or earlier call date or, in the case of mortgage-backed securities, over the
estimated life of the security. The Company has the ability and intention to
hold these investments until maturity.
If a security held in either the available for sale portfolio or held to
maturity portfolio has experienced a decline that is other than temporary, it is
written down to estimated fair value through a charge to operations.
Prior to the adoption of SFAS 115 on January 1, 1994, securities available for
sale were carried at the lower of aggregate cost or market while securities held
to maturity were carried at cost. In both cases, cost was adjusted for the
amortization of premiums or accretion of discount.
Loans
Effective January 1, 1995, the Bank adopted FASB's 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 certain 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. The adoption did not
materially affect the Company's consolidated financial statements or the amount
of the allowance for loan losses.
Interest income on loans is accrued based on rates applied to principal amounts
outstanding and includes loan fees, net of direct origination costs, which are
amortized over the term of the loan using the interest method. The accrual of
interest is discontinued when: 1) it appears that future collection of interest
or principal may be doubtful, or 2) when principal or interest is due and
remains unpaid for ninety days or more, unless the loan is both well secured and
in the process of collection. At the time a loan is placed on nonaccrual status,
interest accrued but not collected is generally reversed. Nonaccrual loans that
commence repayment are returned to accrual status only when, in management's
opinion, there has been demonstrated performance for a reasonable period and
continued timely repayment according to loan terms is reasonably
45
<PAGE>
assured. Restructured loans represent loans formally renegotiated as to
maturity, or at interest rates lower than market rates at the time of
restructure. To the extent these loans are currently performing and the interest
rate remains below market, they are presented as impaired accruing loans and are
included in the consolidated financial statements as nonperforming assets.
Allowance for Loan Losses
The provision for loan losses is the amount deemed appropriate by management to
maintain the allowance for loan losses at a level adequate to absorb probable
losses in the loan portfolios. The allowance for loan losses is based on
estimates; actual losses may vary from the current estimates. In estimating
losses, consideration is given to the performance of the loan, the financial
condition of the borrower or guarantor, an analysis of the borrower's cash flow,
estimates of the current value of the underlying collateral based on appraisals
or recent sale prices (net of costs of disposal), the overall risk
characteristics of the Company's portfolios, past credit experience, current
economic and real estate market conditions, and other relevant factors.
Management monitors these factors and adjustments are reported in earnings in
the period in which they become known.
When losses on specific loans are judged by management to be certain, the
portion deemed uncollectible is charged to the allowance for loan losses.
Subsequent recoveries, if any, are credited to the allowance.
In accordance with SFAS 114 and 118, effective January 1, 1995 the Company
revised the method by which the allowance for loan losses is determined for
impaired loans. The impact of this change was not material.
Mortgage Banking Activities
The Bank originates residential mortgage loans, some of which are held in
portfolio and others of which are sold to investors. Loans originated for sale
but not yet sold are carried at the lower of cost or market. Origination and
commitment fees, net of direct origination costs, relating to sold loans are
recognized as a component of the gain on loan sales. The Bank serviced, on
behalf of investors, approximately $50.7 million, $41.3 million and $45.9
million of residential mortgage loans at December 31, 1995, 1994 and 1993,
respectively.
In May 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 122 ("SFAS 122"), "Accounting for Mortgage
Servicing Rights". SFAS 122 addresses the accounting for mortgage servicing
rights for purchased as well as originated mortgages by a servicer.
Additionally, SFAS 122 requires the capitalization of the fair value of mortgage
servicing rights and amortization of these rights in proportion to the net
servicing income over the period during which servicing income is expected. The
Company adopted SFAS 122 in the fourth quarter of 1995. The adoption of SFAS 122
resulted in the recognition of a servicing asset of $171,000, which amount is
included in 1995 loan sale gains on the statement of income.
46
<PAGE>
Other Real Estate Owned
Other real estate owned ("OREO") consists of properties acquired through
foreclosure. OREO properties are recorded at the lower of cost or fair value,
less estimated disposal costs, at the date transferred to OREO. Losses arising
at the time of transfer to OREO are charged against the allowance for loan
losses. Subsequent write-downs of the carrying value of these properties may be
required to reflect the properties at the lower of cost (market value at the
date of transfer to OREO) or market value and are charged to operations.
Realized gains and losses from the sale of OREO are also included in operations.
Transfers of loans to OREO of $450,000 and $524,000 in 1994 and 1993,
respectively, are not reflected in the consolidated statement of cash flows
because no cash was involved in these transfers. No loans were transferred to
OREO during 1995. The 1994 transfer of an OREO property, valued at $1,349,000,
to bank-owned premises is also not reflected in the consolidated statement of
cash flows because no cash was involved in the transfer.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed principally on the
straight-line method over the estimated useful life of each type of asset,
ranging from 3 to 30 years, or the lease term, if shorter.
Income Taxes
In January 1993, the Company adopted Statement of Financial Accounting Standards
No. 109 ("SFAS 109"), "Accounting for Income Taxes". The adoption of SFAS 109
changed the Company's method of accounting for income taxes from the deferred
method (APB Opinion No. 11) to an asset and liability approach. The asset and
liability approach requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the financial reporting and tax basis of assets and liabilities.
Adoption of SFAS 109 had no effect on the Company's consolidated financial
statements due to the tax position of the Company at that time.
Earnings Per Share
Primary and fully diluted earnings per share were computed by dividing earnings
(adjusted, if applicable) by the weighted average number of common shares and
common share equivalents outstanding. For primary earnings per share, common
share equivalents are computed using the average closing price of the Company's
common stock for the period. For fully diluted earnings per share, common share
equivalents are computed using the closing price of the Company's common stock
at the end of the period. Fully diluted earnings per share were not applicable
in 1994 and 1993.
For the year ended December 31, 1995 and 1994, the computation includes
4,706,250 and 3,148,913 weighted average common shares outstanding and 1,483,337
and 2,787,921 weighted average common equivalent shares, (fully diluted for
1995), respectively, computed under the treasury stock method. The earnings per
share computations also include 4,279,712 and 4,445,000 weighted average common
shares in 1995 and 1994, respectively, issuable upon the adjusted conversion of
preferred stock. Adjusted earnings consist of net income and the interest effect
of the assumed reduction in short-term borrowings, computed under the treasury
stock method.
47
<PAGE>
Other
For purposes of presenting the consolidated statements of cash flows, cash
equivalents include due from banks, interest-bearing deposits with banks and
Federal funds sold, all of which have original maturities of three months or
less.
Trust income is recorded on an accrual basis. Assets held in a fiduciary or
agency capacity for customers are not included in the consolidated statements of
condition since such items are not assets of the Bank.
Certain amounts from prior years have been reclassified to conform with the 1995
presentation.
Note 2
Regulatory Matters
The Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC)
require bank holding companies and banks, respectively, to comply with capital
guidelines based upon the ratio of capital to total assets adjusted for risk.
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 December 31, 1995.
Regulatory
Bancorp Minimum
- --------------------------------------------------------------------------------
($ in thousands)
Tier 1 leverage ratio 8.18% 3.00%(1)
Tier 1 leverage capital $23,903 $8,766
Tier 1 risk-based ratio 12.77% 4.00%
Tier 1 risk-based capital $23,903 $7,487
Total risk-based ratio 14.02% 8.00%
Total risk-based capital $26,249 $14,973
Risk-weighted assets $187,167 ---
(1) An additional 1% to 2% and the corresponding additional capital is
required for all but the most highly rated institutions.
The Federal Deposit Insurance Act ("FDIA"), as amended by the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), classifies banks in
one of five categories according to capital levels. At December 31, 1995, the
Company was "well capitalized" under FDIA, as amended, based upon the above
capital ratios. Deterioration of economic conditions and real estate values
could adversely affect future results, leading to increased levels of loan
charge-offs, provision for loan losses and nonaccrual loans, affecting the
ability of the Company to maintain the well capitalized classification, and
resulting in reductions in income and total capital.
48
<PAGE>
Note 3
Investment Securities
In accordance with SFAS 115 and as discussed in Note 1, during the fourth
quarter of 1995, the Company's held to maturity portfolio was reclassified as
available for sale.
Securities Available for Sale
The aggregate amortized cost and estimated market value of securities available
for sale at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
- ----------------------------------------------------------------------------------------------------------------------------
Gross Gross
Unrealized Market Unrealized Market
Cost Losses Value Cost Losses Value
- ----------------------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
Government Agency $85,397 $(64) $85,333 $27,604 $(414) $27,190
Other 5 --- 5 --- --- ---
- ----------------------------------------------------------------------------------------------------------------------------
Total $85,402 $(64) $85,338 $27,604 $(414) $27,190
============================================================================================================================
</TABLE>
Sales of securities available for sale during 1995 consisted of $28.8 million of
U.S. Government Agency securities. During 1994, sales of securities from the
available for sale portfolio consisted of $4.2 million of U.S. Government Agency
securities. Gains of $59,000 and $3,000 for 1995 and 1994, respectively, were
realized on the sales of these securities. Losses of $288,000 were realized on
the sale of securities during 1995. No losses were realized in 1994 from sales
of securities.
The following represents the contractual maturities and weighted average yields
of securities available for sale at December 31, 1995. Expected maturities may
differ from contractual maturities due to prepayments.
<TABLE>
<CAPTION>
After 1 After 5
Within But Within But Within After
1 Year 5 Years 10 Years 10 Years Total
- -------------------------------------------------------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- -------------------------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
Government Agency $ 5,057 4.8% $64,431 6.1% $ 4,457 5.5% $11,388 6.7% $85,333 6.0%
Other 5 5.5 --- --- --- --- --- --- 5 5.5
- -------------------------------------------------------------------------------------------------------------------------------
Total $ 5,062 4.8% $64,431 6.1% $ 4,457 5.5% $11,388 6.7% $85,338 6.0%
===============================================================================================================================
</TABLE>
49
<PAGE>
Securities Held to Maturity
The table below summarizes the aggregate financial statement carrying value and
market value of securities held to maturity at December 31, 1994. The Company
had no securities in the held to maturity portfolio at December 31, 1995.
<TABLE>
<CAPTION>
December 31, 1994
- ------------------------------------------------------------------------------------------------------
Financial Gross Gross
Statement Unrealized Unrealized Market
Carrying Value Gains Losses Value
- ------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury and
Government Agency $26,993 $ --- $ (2,255) $24,738
Mortgage-backed
securities 16,208 --- (1,273) 14,935
Other 5 --- --- 5
- ------------------------------------------------------------------------------------------------------
Total $43,206 $ --- $ (3,528) $39,678
======================================================================================================
</TABLE>
Note 4
Restricted Assets
At December 31, 1995, securities with a carrying value of $12,652,000 were
pledged to secure treasury deposits, municipal deposits and repurchase
agreements.
Cash and due from banks of $5,488,000 was subject to withdrawal and usage
restrictions as of December 31, 1995, as a result of Federal Reserve
requirements to maintain certain average balances.
50
<PAGE>
Note 5
Loans
The composition of the Bank's loan portfolio at December 31, 1995 and 1994 was
as follows:
<TABLE>
<CAPTION>
1995 1994
- ---------------------------------------------------------------------------------------------------------------
Percent Percent
of of
Total Total
Amount Loans Amount Loans
- ---------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C>
Mortgage:
Construction and
land development $ 3,234 1.8% $ 1,079 .6%
Secured by
residential property 52,931 29.7 57,937 31.0
Secured by
commercial property 41,903 23.5 46,076 24.6
Commercial 46,422 26.0 51,462 27.5
Home equity 24,842 13.9 23,019 12.3
Consumer 7,982 4.5 6,451 3.5
Other 998 .6 1,026 .5
- ---------------------------------------------------------------------------------------------------------------
Total loans 178,312 100.0% 187,050 100.0%
===== =====
Less:
Allowance for loan losses 2,854 3,341
Deferred loan fees 260 402
- ---------------------------------------------------------------------------------------------------------------
Loans - net $175,198 $183,307
===============================================================================================================
</TABLE>
51
<PAGE>
Changes in the allowance for loan losses for the years ended December 31, 1995,
1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
($ in thousands)
Allowance for loan losses, January 1, $ 3,341 $ 3,024 $ 3,998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans charged-off:
Mortgage:
Secured by residential property (347) (344) (1,091)
Commercial and other (1,054) (737) (1,153)
Commercial (795) (707) (1,496)
Home equity (35) (49) (328)
Consumer and other (135) (258) (305)
- -----------------------------------------------------------------------------------------------------------
Total loans charged-off (2,366) (2,095) (4,373)
- -----------------------------------------------------------------------------------------------------------
Recoveries on amounts previously charged-off:
Mortgage:
Secured by residential property 51 23 45
Commercial and other 51 7 106
Commercial 118 400 199
Home equity 16 20 59
Consumer and other 54 162 100
- -----------------------------------------------------------------------------------------------------------
Total recoveries 290 612 509
- -----------------------------------------------------------------------------------------------------------
Net loans charged-off (2,076) (1,483) (3,864)
Provision charged to operating expenses 1,500 1,800 2,890
Other (1) 89 --- ---
- -----------------------------------------------------------------------------------------------------------
Allowance for loan losses, December 31, $ 2,854 $ 3,341 $ 3,024
===========================================================================================================
<FN>
(1) Transfer from the OREO valuation allowance to the allowance for loan
losses.
</FN>
</TABLE>
52
<PAGE>
Nonperforming assets at December 31, 1995 and 1994 were as follows:
1995 1994
- -------------------------------------------------------------------------------
($ in thousands)
Loans 90 days or more past due
on accrual status:
Mortgage:
Secured by residential property $ 5 $ 78
Commercial and other --- ---
Commercial --- 6
Home equity 149 102
Consumer and other 4 14
- -------------------------------------------------------------------------------
Total 158 200
- -------------------------------------------------------------------------------
Nonaccrual loans:
Mortgage:
Secured by residential property 85 2,659
Commercial and other 1,098 1,098
Commercial 813 500
Home equity --- 59
Consumer and other --- ---
- -------------------------------------------------------------------------------
Total 1,996 4,316
- -------------------------------------------------------------------------------
Impaired accruing loans 447 3,724
- -------------------------------------------------------------------------------
Total nonperforming loans 2,601 8,240
Other real estate owned --- 352
- -------------------------------------------------------------------------------
Total nonperforming assets $ 2,601 $ 8,592
===============================================================================
At December 31, 1995, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS 114 and 118 totaled $2,443,000, of which
$1,996,000 were nonaccrual loans. At December 31, 1995, the valuation allowance
related to all impaired loans totaled $634,000 and is included in the allowance
for loan losses on the statement of condition. For the year ended December 31,
1995, the average recorded investment in impaired loans was approximately $5.2
million. During 1995, total interest of $95,000 was recognized on accruing
impaired loans.
The Bank would have recorded an additional $214,000, $183,500 and $382,000 of
interest income in the years ended December 31, 1995, 1994 and 1993,
respectively, if loans on nonaccrual status at each year end had been current
throughout the year. At December 31, 1995, the Bank has no commitments to lend
additional funds to borrowers whose loans are classified as nonaccrual or
impaired. The Bank would have recorded an additional $7,700, $27,000 and
$113,000 of interest income during 1995, 1994 and 1993 if accruing restructured
loans had made payments in accordance with the original repayment terms.
53
<PAGE>
Certain directors, executive officers and affiliates of the Bank had loans
outstanding aggregating approximately $511,000 and $1,579,000, at December 31,
1995 and 1994,respectively. Such loans were made on substantially the same terms
as comparable loans to others and were performing in 1995 and 1994. Changes in
loans outstanding to such parties during 1995 and 1994 were as follows:
December 31,
1995 1994
- -------------------------------------------------------------------------------
($ in thousands)
Balance, January 1, $ 1,579 $ 1,324
Additional loans 205 637
Loans repaid (1,273) (244)
Other --- (138)
- -------------------------------------------------------------------------------
Balance, December 31, $ 511 $ 1,579
===============================================================================
The "other" amount primarily represents loans to directors and officers
(including members of their immediate families or associates) who resigned,
retired or changed qualifying employment status during the year ended December
31, 1994.
Note 6
Premises and Equipment
Premises and equipment and accumulated depreciation and amortization are
summarized as follows:
December 31,
1995 1994
- -------------------------------------------------------------------------------
($ in thousands)
Land $ 572 $ 572
Premises 3,817 3,847
Equipment 2,482 2,971
Leasehold improvements 1,018 1,027
- -------------------------------------------------------------------------------
Total 7,889 8,417
Less: Accumulated depreciation
and amortization (2,956) (3,280)
- -------------------------------------------------------------------------------
Premises and equipment - net $ 4,933 $ 5,137
===============================================================================
54
<PAGE>
Note 7
Deposits and Short-term Borrowings
Deposits by major classifications were as follows:
December 31,
1995 1994 1993
- --------------------------------------------------------------------------------
($ in thousands)
Demand $ 78,421 $ 72,972 $ 57,479
NOW 47,816 51,861 55,047
Savings 45,455 56,854 61,944
Money market 22,141 27,541 28,393
Certificates of deposit and other 80,837 44,730 52,653
- --------------------------------------------------------------------------------
Total deposits $274,670 $253,958 $255,516
================================================================================
Included in the table above are certificates of deposit in denominations of
$100,000 or more. These certificates and their remaining maturities were as
follows:
December 31,
1995 1994
- --------------------------------------------------------------------------------
($ in thousands)
Three months or less $34,733 $ 1,436
Three through twelve months 1,771 1,133
Over twelve months 1,150 1,568
- --------------------------------------------------------------------------------
Total $37,654 $ 4,137
================================================================================
Interest expense on certificates of deposit with denominations of $100,000 or
more was $887,000, $138,000 and $125,000 in 1995, 1994, and 1993, respectively.
Short-term borrowings aggregated $7,733,000 and $10,484,000 at December 31, 1995
and 1994, respectively. Such borrowings include securities sold under agreements
to repurchase of $1,050,000 and $7,800,000 in 1995 and 1994, respectively, and
U.S. Treasury note obligations related to treasury, tax and loan deposits in the
amount of $1,683,000 in 1995 and $2,684,000 in 1994. The weighted average
interest cost of short-term borrowings was 5.94% and 4.95% at December 31, 1995
and 1994, respectively, and the terms of the agreements ranged from one to seven
days.
In addition to the securities sold under repurchase agreements and U.S. Treasury
note obligations, the Bank entered into two unsecured Federal fund line of
credit arrangements with correspondent banks totaling $5,000,000. At December
31, 1995, the outstanding balance of these lines was $5,000,000.
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 December 31, 1995 these
available lines amounted to $17.1 million. The FHLBB also offers cash management
services, investment services, as well as lower cost advances for affordable
housing or community investment programs. During 1995, borrowings under these
lines were immaterial. The Bank did not have any borrowings from the FHLBB at
December 31, 1995.
55
<PAGE>
The following table summarizes the average balances, weighted average interest
rates and the maximum month end outstanding amounts of short-term borrowings for
1995, 1994 and 1993.
1995 1994 1993
- --------------------------------------------------------------------------------
($ in thousands)
Federal funds purchased and securities
sold under agreements to repurchase:
Average balance $13,778 $ 6,172 $ 1,420
Weighted average interest rate 6.0% 4.5% 2.6%
Maximum month end outstanding amount $28,230 $19,289 $ 3,648
U.S. Treasury note obligation related
to treasury, tax and loan deposits:
Average balance $ 1,657 $ 668 ---
Weighted average interest rate 5.6% 4.6% ---
Maximum month end outstanding amount $ 3,613 $ 3,193 ---
The Bank paid approximately $5,670,000, $4,799,000 and $5,744,000 in interest on
deposits and short-term borrowings during 1995, 1994 and 1993, respectively.
Note 8
Commitments
Long-term Leases
All noncancellable leases are operating leases at December 31, 1995, 1994 and
1993. The Bank has leases for administrative and branch offices with terms
(including renewal options) ranging from one to ten years. Under most lease
arrangements, the Bank pays property taxes, insurance, maintenance and expenses
related to the leased property. Total rental expense under operating leases was
$779,000 in 1995, $761,000 in 1994 and $844,000 in 1993.
Minimum future obligations on leases (including base rents and common area
charges) in effect at December 31, 1995 were:
Operating Leases
- --------------------------------------------------------------------------------
($ in thousands)
1996 $ 784
1997 753
1998 706
1999 710
2000 663
Thereafter 280
- --------------------------------------------------------------------------------
Total minimum obligations $3,896
================================================================================
56
<PAGE>
Employment Contracts
At December 31, 1995, the Bank was committed under employment agreements with
various key officers requiring aggregate annual salary payments of approximately
$532,000 for the terms of the contracts which expire at various dates through
1998. These agreements provide that if the key officers are terminated following
a change in control (as defined) of Bancorp, they are entitled to receive lump
sum severance payments and to continue to participate in certain benefit plans
for three years.
Note 9
Stockholders' Equity
Preferred Stock and Warrants
In February 1992, Bancorp completed a private placement of 46,700 investment
units (the "Private Placement"). Each unit consisted of 1 share of Series A
Noncumulative Convertible Preferred Stock (each share being convertible into 100
shares of Common Stock) and 50 Warrants (each Warrant being exercisable
commencing in 1994 for 1 share of Common Stock at an exercise price of $.75 per
share). Holders of record of the Series A Preferred Stock are entitled to
dividends, when and if declared by Bancorp's Board of Directors, at a rate to be
determined by Bancorp's Board of Directors. Holders of shares of Series A
Preferred Stock vote together as a class with holders of the Common Stock for
the election of directors and all other matters as to which holders of the
Common Stock are entitled to vote. Each share of Series A Preferred Stock is
entitled to 100 votes. All warrants expire on December 31, 1996.
Dividends
Connecticut banking law prohibits the Bank 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 of that year combined with its
retained net profits of 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.
Dividend Reinvestment and Stock Purchase Plan
Bancorp introduced a Dividend Reinvestment and Stock Purchase Plan on January 1,
1989. Under the terms of the plan, participating stockholders were allowed to
purchase additional shares of Common Stock by reinvesting their cash dividends.
Such plan participants could also make optional cash payments, up to $3,000 per
quarter, to purchase additional shares. Shares purchased through the plan
directly from Bancorp were priced at 95% of the average market value at the time
of purchase; shares purchased in the open market were priced at cost. Bancorp
discontinued the Dividend Reinvestment and Stock Purchase Plan in 1996.
57
<PAGE>
Stockholder Rights Offering
In the fourth quarter of 1992, holders of Bancorp's Common Stock received rights
to acquire additional shares of Common Stock. The rights entitled each
shareholder to purchase one share of Common Stock for every two shares owned as
of February 21, 1992. The purchase price was initially set at $1.50 per share
and increased to $2.00 on December 1, 1992 and $3.00 on June 1, 1993. Prior to
its expiration on May 31, 1994, the rights offering raised $1,117,000, net of
expenses. Bancorp contributed a total of $1,000,000 of the net proceeds during
1993 and 1994 to the capital of the Bank.
Stock Option Agreements
On December 17, 1992, Bancorp's Board of Directors conditionally granted certain
executive officers options to purchase a total of up to 725,000 shares of
Bancorp's Common Stock at an exercise price of $2.00 per share, which was the
fair market value of the stock on that date. The grants became effective upon
approval by the shareholders of Bancorp at the 1993 Annual Meeting of Bancorp's
shareholders. These stock options become exercisable gradually over a five year
period and expire within ten years following the date of the conditional grant.
All unexpired options become immediately exercisable if a change in control (as
defined) of Bancorp occurs.
Incentive Stock Option Plans
Under the 1995 Incentive Stock Option Plan (the "1995 Plan"), the Board of
Directors may grant options to purchase a total of up to 200,000 shares of
Bancorp's Common Stock to key employees of Bancorp and the Bank. Under the 1985
Incentive Stock Option Plan (the "1985 Plan"), for which the authority to grant
options expired on December 31, 1995, the Board was authorized to grant options
to purchase a total of up to 300,000 shares of Bancorp's Common Stock to key
employees of Bancorp and the Bank. The exercise price of options granted under
the Plans are set at the market price of Bancorp's Common Stock on the date of
the grant. Each option may be exercised as to one-half of the total number of
shares covered by such option after one year of continuous employment, and, as
to the other one-half, after two years of continuous employment. Options, in
both Plans, expire ten years after the date of their grant. No options have been
granted under the 1995 Plan.
58
<PAGE>
Activity for the 1985 Plan for the years ended December 31, 1995, 1994 and 1993
was as follows:
1995 1994 1993
- -------------------------------------------------------------------------------
Options outstanding, January 1, 276,550 274,310 129,310
Options granted 5,000 37,200 150,000
Options exercised (9,750) (17,500) ---
Options canceled --- (9,960) (5,000)
Options expired (4,850) (7,500) ---
- -------------------------------------------------------------------------------
Options outstanding, December 31, 266,950 276,550 274,310
===============================================================================
Options exercisable, December 31, 243,350 164,350 68,810
===============================================================================
Price per share of options $2.00 $2.00 $2.00
outstanding, December 31, to to to
$3.50 $19.75 $19.75
===============================================================================
At the discretion of Bancorp's Board of Directors, all outstanding unexercisable
options under the 1985 Plan may become exercisable if a change in control (as
defined) of Bancorp occurs.
Note 10
Income Taxes
At December 31, 1995, 1994 and 1993, the Company had recorded net deferred tax
assets (included in Other Assets) of $2,772,000, $1,650,000 and $350,000,
respectively, for anticipated future utilization of net operating loss
carryforwards ("NOL's") and the tax effect of other temporary differences. At
December 31, 1995, the Company has recognized substantially all of the financial
statement benefit of its deferred tax assets.
The provision (benefit) for income taxes was comprised of the following:
Years ended December 31,
1995 1994 1993
- --------------------------------------------------------------------------------
Federal - current $ 103,000 $ 48,000 $ 23,000
State - current 14,000 16,000 75,000
Federal - deferred (benefit) (1,122,000) (1,300,000) (350,000)
- --------------------------------------------------------------------------------
$(1,005,000) $(1,236,000) $(252,000)
================================================================================
Cash payments for income taxes were $111,000, $78,000 an $89,000 in 1995, 1994
and 1993, respectively.
59
<PAGE>
A reconciliation of the statutory federal income tax provision to the reported
income tax benefit for the years ended December 31, 1995, 1994 and 1993 is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C>
Statutory income tax provision at 34% $ 1,981 $ 1,063 $ 323
Reversal of deferred tax valuation
allowance to:
Eliminate the current year's Federal regular
tax provision through utilization of the NOL (1,981) (1,063) (323)
Recognize the benefit of a portion of the Federal and State
NOL expected to be realized in future years (1,122) (1,300) (350)
Alternative minimum federal tax 103 48 23
State income tax 14 16 75
- ----------------------------------------------------------------------------------------------------------------
Income tax benefit $(1,005) $(1,236) $ (252)
================================================================================================================
</TABLE>
In addition, $470,000 and $256,000 of state taxes (net of the related federal
tax benefit) were not provided in 1995 and 1994, respectively, because of the
utilization of state NOL's.
The components of and changes in the deferred tax asset during 1995, 1994 and
1993, were as follows:
<TABLE>
<CAPTION>
1993 1994 1995
Deferred Deferred Deferred
January 1, (Expense) December 31, (Expense) December 31, (Expense) December 31,
1993 Benefit 1993 Benefit 1994 Benefit 1995
- ------------------------------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Tax effect of net operating loss carryforwards:
Federal $ 4,855 $ (1) $ 4,854 $ (756) $ 4,098 $ (2,102) $ 1,996
State 1,142 --- 1,142 (183) 959 (468) 491
Other tax effected temporary differences resulting in deferred tax:
Assets 974 (348) 626 (91) 535 90 625
Liabilities (67) (256) (323) (117) (440) 98 (342)
Stockholders' equity --- --- --- --- --- 27 27
- ------------------------------------------------------------------------------------------------------------------------------------
Gross tax effected temporary
differences 6,904 (605) 6,299 (1,147) 5,152 (2,355) 2,797
Valuation allowance (6,904) 955 (5,949) 2,447 (3,502) 3,477 (25)
- ------------------------------------------------------------------------------------------------------------------------------------
Net deferred tax asset $ --- $ 350 $ 350 $ 1,300 $ 1,650 $ 1,122 $ 2,772
====================================================================================================================================
</TABLE>
At December 31, 1995, the only temporary difference which gives rise to a
significant portion of the tax effected temporary differences shown above was
the loan loss allowance, which resulted in a deferred liability of approximately
$340,000.
60
<PAGE>
As of December 31, 1995, the Company has aggregate NOL's of approximately $5.9
million for federal purposes and $6.5 million for state purposes which are
available to offset future income for tax return purposes. The NOL's are
scheduled to expire as follows:
Federal State
- --------------------------------------------------------------------------------
2006 - $5.8 million 1996 - $6.4 million
2007 - $0.1 million 1997 - $0.1 million
Note 11
Employee Benefit Plans
The Bank has a qualified noncontributory defined benefit pension plan (the
"Pension Plan") covering all employees over the age of 21 who have worked at
least 1,000 hours per year. The Pension Plan was temporarily frozen, effective
January 1, 1992, resulting in no additional benefits for future service since
that date. The Bank also has a non-qualified supplemental executive retirement
plan (the "Supplemental Plan") for certain senior officers. Under the terms of
the Supplemental Plan, if participants are terminated on or after their early
retirement date following a change in control (as defined) of Bancorp, they are
entitled to receive benefits which amount to 70% of average annual compensation,
reduced by a factor for age and any pension benefits. During 1995, several
participants were discontinued from the Supplemental Plan, resulting in a
curtailment gain.
The following table sets forth the funded status of the plans and the amounts
shown in the accompanying consolidated statements of condition at December 31,
1995 and 1994:
<TABLE>
<CAPTION>
Pension Supplemental
Plan Plan
- --------------------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $ 1,196 $ 955 $ 1,371 $ 895
Nonvested benefits 27 47 --- 471
- --------------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 1,223 1,002 1,371 1,366
Effect of anticipated future
compensation levels --- --- 155 128
- --------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation 1,223 1,002 1,526 1,494
Fair value of plan assets (2,053) (1,969) --- ---
- --------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation over
plan assets (excess assets) (830) (967) 1,526 1,494
Unamortized prior service cost --- --- (169) (291)
Net unrecognized (loss) gain from past
experience different than assumed (649) (544) (25) 36
Unamortized asset at transition 117 156 --- ---
- --------------------------------------------------------------------------------------------------------------------------------
Pension (asset) liability included in
the consolidated statement of condition $(1,362) $(1,355) $ 1,332 $ 1,239
================================================================================================================================
</TABLE>
61
<PAGE>
Pension (benefit) expense for 1995, 1994 and 1993 included the following
components:
<TABLE>
<CAPTION>
Pension Plan Supplemental Plan
- ------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Service cost of the current period $ --- $ --- $ --- $ 141 $ 156 $ 116
Interest cost of the projected benefit
obligation 79 83 76 117 101 100
Return on plan assets (173) (178) (189) --- --- ---
Amortization of unrecognized
net asset (22) (22) (22) --- --- ---
Settlement loss due to lump
sum payments 78 --- --- --- --- ---
Amortization of prior
service cost --- --- --- 79 75 75
Curtailment gain --- --- --- (117) --- ---
Amortization of loss 31 27 --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------
Pension (benefit) expense $ (7) $ (90) $(135) $ 220 $ 332 $ 291
==============================================================================================================================
</TABLE>
Key assumptions used in the above calculations at December 31, 1995, 1994 and
1993 were as follows:
<TABLE>
<CAPTION>
Pension Plan Supplemental Plan
- ------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Weighted average discount
rate used to measure the
projected benefit obligation 7.50% 8.25% 7.00% 7.50% 8.25% 7.00%
Rate of increase in
future compensation levels N/A N/A N/A 5.00% 5.00% 5.00%
Expected long-term rate
of return on assets 8.50% 9.00% 8.50% N/A N/A N/A
</TABLE>
Pension Plan assets are primarily invested in fixed income and equity
securities. The net unrecognized loss from past experience different than
assumed is being amortized on a straight line basis over 12 years. The Bank uses
the straight-line method of amortization for prior service cost (over 10.8
years) and unrecognized gains and losses (over 12 years) which aggregate more
than 10% of the value of plan assets.
The Bank also has a qualified Employee Stock Ownership Plan ("ESOP") and,
commencing in 1992, a 401(k) Plan covering all eligible employees. Contributions
to the ESOP are at the discretion of the Board of Directors of the Bank; no
contributions were made in 1995, 1994 or 1993. Participants in the 401(k) Plan
are entitled to contribute up to 20% of their compensation, subject to Internal
Revenue Service annual limitations. The Bank contributed 25% in 1993 and 1994
and 50% of annual employee contributions in 1995, up to 6% of a participants'
compensation. Employees are fully vested in the Bank's contributions after five
years of service. The Bank contributed $91,000, $49,000 and $20,000 to the
401(k) Plan in 1995, 1994 and 1993, respectively.
62
<PAGE>
Note 12
Related Party Transactions
The Bank purchases insurance from an insurance brokerage firm owned by a
director of the Bank and Bancorp. This director is the president of the
insurance firm. During 1995, the Bank made insurance payments of $364,062 to
this firm. Payments to this firm for insurance premiums were $326,791 and
$475,462 during 1994 and 1993, respectively.
The Bank leases office space from a trust of which a director of the Bank and
Bancorp serves as trustee. Rental payments of $54,584, $53,740 and $53,527 for
this office space were paid during 1995, 1994 and 1993, respectively.
The Bank also leases office space from a trust which benefits a family member of
a director of the Bank and Bancorp. The Bank made rental payments totaling
$194,196, $195,000 and $184,141 during 1995, 1994 and 1993, respectively,
relating to this office space.
Note 13
New Accounting Standards Not Yet Adopted
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". SFAS 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. SFAS 121 applies to financial statements for
fiscal years beginning after December 15, 1995. Bancorp does not anticipate that
adoption of this pronouncement will have a material impact on its consolidated
financial statements.
In October 1995, FASB issued Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation". SFAS 123 establishes
financial accounting and reporting standards for stock-based employee
compensation plans. SFAS 123 is effective for fiscal years beginning after
December 15, 1995. Bancorp does not anticipate that adoption of this
pronouncement will have a material impact on its consolidated financial
statements.
63
<PAGE>
Note 14
Westport Bancorp, Inc. (Parent Company Only)
Condensed Financial Statements
<TABLE>
<CAPTION>
Condensed statements of condition information was as follows:
December 31,
1995 1994
- ---------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C>
ASSETS:
Cash and due from banks $ 229 $ 87
Investment in and advances to subsidiary 24,318 16,560
Other assets 4 ---
- ---------------------------------------------------------------------------------------------------
TOTAL ASSETS $24,551 $16,647
===================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable and other liabilities $ 269 $ 249
Stockholders' equity (net of unrealized depreciation on
securities available for sale of subsidiary) 24,282 16,398
- ---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $24,551 $16,647
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Condensed statements of income information was as follows:
Years Ended December 31,
1995 1994 1993
- ----------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C>
Interest income $ 22 $ 4 $ 6
Other expenses 148 156 133
- ----------------------------------------------------------------------------------------------------
Loss before increase in undistributed
equity of subsidiary (126) (152) (127)
Increase in undistributed equity of subsidiary 6,956 4,514 1,329
- ----------------------------------------------------------------------------------------------------
Net income $ 6,830 $ 4,362 $ 1,202
====================================================================================================
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
Condensed cash flow information was as follows:
Years Ended December 31,
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 6,830 $ 4,362 $ 1,202
Adjustments to reconcile net income to net cash
used in operating activities:
Equity in undistributed income of subsidiary (6,956) (4,514) (1,329)
Other - net 16 40 37
- ----------------------------------------------------------------------------------------------------------
Net cash used in operating activities (110) (112) (90)
- ----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Increase in investment in and advances to subsidiary (426) --- (190)
Net decrease in securities --- --- 248
- ----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (426) --- 58
- ----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Gross proceeds from issuance of Common Stock 1,543 45 186
Dividends (865) --- ---
- ----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 678 45 186
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 142 (67) 154
Cash and cash equivalents at beginning of year 87 154 ---
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 229 $ 87 $ 154
==========================================================================================================
</TABLE>
There are various restrictions which limit the ability of a bank subsidiary to
transfer funds in the form of cash dividends, loans or advances to its parent
company. 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 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.
In addition, the Bank is subject to restrictions under Section 23A of the
Federal Reserve Act. These restrictions limit the transfer of funds to a parent
company, in the form of loans or extensions of credit, investments and purchases
of assets. Such transfers are limited to 10% of the Bank's capital and surplus.
These transfers are also subject to various collateral requirements.
Note 15
Financial Instruments with Off-Balance
Sheet Risk and Concentrations of Credit Risk
The Bank is a party to financial instruments with off-balance sheet risk entered
into in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit
(unfunded loans and unused lines of credit) and standby letters of credit.
65
<PAGE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since a portion of these commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank uses the same credit policies in
making commitments as it does for on-balance sheet instruments and evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank, upon extension of credit
is based on management's credit evaluation of the borrower. Collateral held
varies, but may include real estate, accounts receivable, inventory, property
and securities.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued at the customer's request to support various personal and/or
business obligations. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The amount of credit is based on management's credit evaluation of the
counterparty. Collateral held varies but may include real estate, accounts
receivable, inventory, property, securities and certificates of deposit.
The Bank's maximum exposure to credit loss from outstanding loan commitments and
standby letters of credit at December 31, 1995 was:
($ in thousands)
Loan commitments:
Residential mortgage $ 2,588
Commercial mortgage 260
Residential construction 1,276
- --------------------------------------------------------------------------------
Total 4,124
- --------------------------------------------------------------------------------
Lines of Credit commitments:
Commercial 15,352
Home equity 16,865
Personal 2,333
- --------------------------------------------------------------------------------
Total 34,550
- --------------------------------------------------------------------------------
Standby letters of credit 1,532
- --------------------------------------------------------------------------------
Total commitments and letters of credit $ 40,206
================================================================================
The Bank grants residential, commercial and consumer loans to customers,
principally in the town of Westport and the Fairfield County area of
Connecticut. Although the loan portfolio is diversified, a substantial portion
of its debtors' ability to honor their contracts is dependent upon the economic
conditions in the area, especially in the real estate sector. There are no other
concentrations of loans exceeding 10% of total loans.
66
<PAGE>
Note 16
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 ("SFAS 107"), "Disclosures
about Fair Value of Financial Instruments", requires disclosure of the estimated
fair value of financial instrument assets, liabilities, commitments and
guarantees. Approximately 96% of the Company's assets and 99% of its liabilities
are considered financial instruments as defined in SFAS 107. Many of the
Company's financial instruments, however, lack an available trading market as
characterized by a willing buyer and willing seller engaging in an exchange
transaction. In addition, the majority of the Company's financial instruments,
such as loans and deposits, are held to maturity and are realized or paid
according to the contractual agreement with the customer.
Significant estimations and present value calculations were used by the Company
for the purposes of this disclosure. The estimation methodologies used, the
estimated fair values, and financial statement balances at December 31, 1995 and
1994 ($ in thousands) are shown below.
Financial instrument assets actively traded in a secondary market have been
valued at quoted available market prices. For short-term financial instruments,
the financial statement balance equals fair market value.
<TABLE>
<CAPTION>
1995 1995 1994 1994
Estimated Financial Estimated Financial
Fair Value Statement Balance Fair Value Statement Balance
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and due from banks $24,113 $24,113 $18,010 $18,010
Investment securities 85,338 85,338 66,868 70,396
Federal funds sold 14,500 14,500 --- ---
Accrued interest receivable 2,247 2,247 1,758 1,758
The following financial instrument liabilities with stated maturities have been
valued using a present value discounted cash flow with a discount rate
approximating current market rates for similar liabilities:
</TABLE>
<TABLE>
<CAPTION>
1995 1995 1994 1994
Estimated Financial Estimated Financial
Fair Value Statement Balance Fair Value Statement Balance
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Time deposits with stated
maturities $81,062 $80,837 $48,306 $44,730
Short-term borrowings 7,733 7,733 10,484 10,484
</TABLE>
67
<PAGE>
The following financial instrument liabilities with no stated maturities have
been valued at an estimated fair value equal to both the amount payable on
demand and the financial statement balance:
<TABLE>
<CAPTION>
1995 1995 1994 1994
Estimated Financial Estimated Financial
Fair Value Statement Balance Fair Value Statement Balance
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Noninterest-bearing deposits $ 78,421 $ 78,421 $ 72,972 $ 72,972
Interest-bearing deposits 115,412 115,412 136,256 136,256
</TABLE>
The loan portfolio has been valued using a combination of quoted market prices
and recent comparable sales data for both home equity credit lines and
residential mortgages and discounted cash flow for commercial mortgages,
consumer loans and business loans. The discount rate used in these calculations
are current market rates for similar items.
<TABLE>
<CAPTION>
1995 1995 1994 1994
Estimated Financial Estimated Financial
Fair Value Statement Balance Fair Value Statement Balance
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net loans $177,585 $175,198 $181,968 $183,307
</TABLE>
Changes in assumptions or estimation methodologies may have a material effect on
these estimated fair values.
Management is concerned that reasonable comparability between financial
institutions may not be possible due to the wide range of permitted valuation
techniques and numerous estimates which must be made given the absence of active
secondary markets for many of the financial instruments. This lack of uniform
valuation methodologies also introduces a greater degree of subjectivity to
these estimated fair values.
All off-balance sheet items are believed to relate to quality assets. There are
no off-balance sheet items that relate to adversely classified assets. The fees
charged for off-balance sheet items are at fair values for similar transactions.
See Note 15 for further information on off-balance sheet items.
68
<PAGE>
Note 17
Quarterly Data (Unaudited)
<TABLE>
<CAPTION>
Results of operations during the indicated quarters are presented below:
Quarter Ended
March 31 June 30 September 30 December 31
- --------------------------------------------------------------------------------------------------------------------------------
($ in thousands, except per share data)
1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 5,114 $ 5,080 $ 5,157 $ 5,374
Interest expense 1,408 1,497 1,478 1,644
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income 3,706 3,583 3,679 3,730
Provision for loan losses 375 375 375 375
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 3,331 3,208 3,304 3,355
Other operating income 720 988 991 1,306
Other operating expense 2,834 2,729 2,755 3,060
- --------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,217 1,467 1,540 1,601
Income taxes (benefit) (443) (115) (585) 138
- --------------------------------------------------------------------------------------------------------------------------------
Net income $ 1,660 $ 1,582 $ 2,125 $ 1,463
================================================================================================================================
Net income per common share (1)(2) $ 0.16 $ 0.15 $ 0.20 $ 0.14
================================================================================================================================
Weighted average number of
common shares and common
equivalent shares outstanding: 10,276,000 10,377,000 10,474,000 10,528,000
================================================================================================================================
1994
- --------------------------------------------------------------------------------------------------------------------------------
Interest income $ 3,894 $ 4,084 $ 4,606 $ 4,750
Interest expense 1,222 1,157 1,159 1,211
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income 2,672 2,927 3,447 3,539
Provision for loan losses 450 450 450 450
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 2,222 2,477 2,997 3,089
Other operating income 957 929 1,015 1,027
Other operating expense 2,920 2,786 2,806 3,075
- --------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 259 620 1,206 1,041
Income taxes (benefit) 8 (320) (752) (172)
- --------------------------------------------------------------------------------------------------------------------------------
Net income $ 251 $ 940 $ 1,958 $ 1,213
================================================================================================================================
Net income per common share (1)(2) $ 0.03 $ 0.09 $ 0.19 $ 0.12
================================================================================================================================
Weighted average number of
common shares and common
equivalent shares outstanding: 10,550,000 10,292,000 10,247,000 10,270,000
================================================================================================================================
<FN>
(1) Primary and fully diluted earnings per share are the same for each quarter
in 1995. In 1994, fully diluted earnings per share were not applicable.
(2) The total of each quarter does not equal the primary earnings per common
share for the years 1995 and 1994 due to rounding.
</FN>
</TABLE>
69
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Westport Bancorp, Inc.:
We have audited the accompanying consolidated statements of condition of
Westport Bancorp, Inc. (a Delaware corporation) and subsidiary as of December
31, 1995 and 1994, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the years in the three year
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Westport Bancorp,
Inc. and subsidiary as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
New York, New York
January 25, 1996
70
<PAGE>
Item 9
Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
- --------------------------------------------------------------------------------
None.
PART III
Item 10
Directors and Executive Officers of the Registrant
- --------------------------------------------------------------------------------
The information required by this item is set forth under the captions "Election
of Directors -- Information about Nominees," "Management -- Executive Officers"
and "Management -- Section 16(a) Compliance" in Bancorp's definitive Proxy
Statement for Bancorp's 1996 Annual Meeting of Stockholders. Such information is
hereby incorporated by reference herein and specifically
made a part hereof by reference.
Item 11
Executive Compensation
- --------------------------------------------------------------------------------
The information required by this item is set forth under the captions
"Management -- Executive Compensation," "Management -- Option Exercises and
Holdings," "Management -- Pension and Retirement Plans," "Management --
Supplemental Executive Retirement Plan," "Management -- Split Dollar Life
Insurance," "Management -- Compensation of Directors," "Management -- Agreements
With Certain Executive Officers," and "Management -- Compensation Committee
Interlocks and Insider Participation" in Bancorp's definitive Proxy Statement
for Bancorp's 1996 Annual Meeting of Stockholders. Such information is hereby
incorporated by reference herein and specifically made a part hereof by
reference.
Item 12
Security Ownership of Certain Beneficial Owners and Management
- --------------------------------------------------------------------------------
The information required by this item is set forth under the caption "Security
Ownership of Management and Certain Beneficial Owners" in Bancorp's definitive
Proxy Statement for Bancorp's 1996 Annual Meeting of Stockholders. Such
information is hereby incorporated by reference herein and specifically made a
part hereof by reference.
71
<PAGE>
Item 13
Certain Relationships and Related Transactions
- --------------------------------------------------------------------------------
The information required by this item is set forth under the captions
"Management -- Compensation Committee Interlocks and Insider Participation" and
"Management -- Certain Other Transactions" in Bancorp's definitive Proxy
Statement for Bancorp's 1996 Annual Meeting of Stockholders. Such information is
hereby incorporated by reference herein and specifically
made a part hereof by reference.
PART IV
Item 14
Exhibits, Financial Statement Schedules and Reports on Form 8-K
- --------------------------------------------------------------------------------
Financial Statements.
The following financial statements are included in Item 8 of this Form 10-K:
(a) Westport Bancorp, Inc. Consolidated Statements of Condition as
at December 31, 1995 and 1994.
(b) Westport Bancorp, Inc. Consolidated Statements of Income for
years ended December 31, 1995, 1994 and 1993.
(c) Westport Bancorp, Inc. Consolidated Statements of Changes In
Stockholders' Equity as at December 31, 1995, 1994, and 1993
and January 1, 1993.
(d) Westport Bancorp, Inc. Consolidated Statements of Cash Flows
for years ended December 31, 1995, 1994, and 1993.
(e) Westport Bancorp, Inc. Notes to Consolidated Financial
Statements.
(f) Report of Independent Public Accountants, on Westport Bancorp,
Inc.'s Consolidated Financial Statements for 1995, 1994 and
1993.
Financial Statement Schedules.
Schedules are omitted either because they are not applicable or because the
information is included at Item 8 in this Form 10-K.
Exhibits.
The exhibits which are filed with this Form 10-K or which are incorporated
herein by reference are set forth below:
72
<PAGE>
Exhibit No. Exhibit Description
- --------------------------------------------------------------------------------
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.
3(d) 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.)
10(f) Fairfield branch lease dated March 20, 1995 between the
Bank and C.A.T.F. Limited Partnership.
10(g) Employment Agreement among Michael H. Flynn, Bancorp and
the Bank dated August 31, 1989, as amended December 17,
1991 and November 13, 1995. (Agreement dated August 31,
1989 and Amendment dated December 17, 1991 filed as Exhibit
10(i)(1) to 1992 Form 10-K, and incorporated herein by
reference.)
10(h) Employment Agreement among Thomas P. Bilbao, Bancorp and
the Bank dated June 16, 1992 and as amended November 13,
1995. (Agreement dated June 16, 1992 filed as Exhibit
10(i)(1) to 1992 Form 10-K, and incorporated herein by
reference.)
73
<PAGE>
10(i) Employment Agreement among Richard T. Cummings, Jr.,
Bancorp and the Bank dated January 12, 1990, as amended
December 17, 1991 and November 13, 1995. (Agreement dated
January 12, 1990 and Amendment dated December 17, 1991
filed as Exhibit (10)(i)(1) to 1992 Form 10-K, and
incorporated herein by reference.)
10(j) Employment Agreement among William B. Laudano, Jr., Bancorp
and the Bank dated February 23, 1995 and as amended
November 13, 1995. (Agreement dated February 23, 1995 filed
as Exhibit 10(g)(6) to 1994 Form 10-K, and incorporated
herein by reference.)
10(k) Employment Agreement among Richard L. Card, Bancorp and the
Bank dated November 15, 1993, and as amended November 13,
1995. (Agreement dated November 15, 1993 filed as Exhibit
10(i)(4) to 1993 Form 10-K, and incorporated herein by
reference.)
10(l) Executive Agreement between Arnold Levine and Bancorp dated
October 16, 1989 and as amended December 17, 1991. (Filed
as Exhibit 10(i)(1) to 1992 Form 10-K, and incorporated
herein by reference.)
10(m) 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(n) 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(o) 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(p) 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(q) Stock Option Agreement between Richard L. Card and Bancorp
dated November 18, 1993. (Filed as Exhibit 10(i)(5) to 1993
Form 10-K, and incorporated herein by reference.)
10(r) Split Dollar Insurance Agreement between William B.
Laudano, Jr. and the Bank.
10(s) Split Dollar Insurance Agreement between Richard T.
Cummings, Jr. and the Bank.
10(t) Split Dollar Insurance Agreement between Richard L. Card
and the Bank.
10(u) Supplemental Executive Retirement Plan of Bancorp dated
November 13, 1995, as amended November 29, 1995 and January
18, 1996.
10(v) Trust under Supplemental Executive Retirement Plan between
the Bank and People's Bank, Trustee.
10(w) Directors Retirement Plan of Bancorp. (Filed as Exhibit
10(m) to 1992 Form 10-K, and incorporated herein by
reference.)
10(x) 1985 Incentive Stock Option Plan of Bancorp, as restated.
(Filed as Exhibit 10(n) to 1992 Form 10-K, and incorporated
herein by reference.)
10(y) 1995 Incentive Stock Option Plan of Bancorp.
74
<PAGE>
11 Statement Regarding Computation of Per Share Earnings.
21 Subsidiary of Bancorp. (Filed as Exhibit 22 to 1991 Form
10-K, and incorporated herein by reference.)
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
Reports on Form 8-K.
Bancorp did not file any reports on Form 8-K during the fourth quarter of 1995.
75
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 March 21, 1996 By: /s/ Michael H. Flynn
---------------- --------------------
Michael H. Flynn
President and
Chief Executive Officer
(principal executive officer)
DATE March 21, 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)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signatures Title Date
- --------------------------------------------------------------------------------
Director
- -------------------
George H. Damman
/s/Michael H. Flynn Director March 21, 1996
- -------------------
Michael H. Flynn
/s/William L. Gault Director March 21, 1996
- -------------------
William L. Gault
/s/Kurt B. Hersher Director March 21, 1996
- -------------------
Kurt B. Hersher
76
<PAGE>
Signatures Title Date
- --------------------------------------------------------------------------------
/s/William E. Mitchell Director March 21, 1996
- -------------------------
William E. Mitchell
/s/David A. Rosow Chairman of the March 21, 1996
- ------------------------- Board of Directors
David A. Rosow
Director
- -------------------------
William D. Rueckert
/s/Jay Sherwood Director March 21, 1996
- -------------------------
Jay Sherwood
77
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Description
- --------------------------------------------------------------------------------
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.
3(d) 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.)
10(f) Fairfield branch lease dated March 20, 1995 between the
Bank and C.A.T.F. Limited Partnership.
10(g) Employment Agreement among Michael H. Flynn, Bancorp and
the Bank dated August 31, 1989, as amended December 17,
1991 and November 13, 1995. (Agreement dated August 31,
1989 and Amendment dated December 17, 1991 filed as Exhibit
(10)(i)(1) to 1992 Form 10-K, and incorporated by
reference.)
78
<PAGE>
Exhibit No. Exhibit Description
- --------------------------------------------------------------------------------
10(h) Employment Agreement among Thomas P. Bilbao, Bancorp and
the Bank dated June 16, 1992 and as amended November 13,
1995. (Agreement dated June 16, 1992 filed as Exhibit
10(i)(1) to 1992 Form 10-K, and incorporated herein by
reference.)
10(i) Employment Agreement among Richard T. Cummings, Jr.,
Bancorp and the Bank dated January 12, 1990, as amended
December 17, 1991 and November 13, 1995. (Agreement dated
January 12, 1990 and Amendment dated December 17, 1991
filed as Exhibit 10(i)(1) to 1992 Form 10-K, and
incorporated herein by reference.)
10(j) Employment Agreement among William B. Laudano, Jr., Bancorp
and the Bank dated February 23, 1995 and as amended
November 13, 1995. (Agreement dated February 23, 1995 filed
as Exhibit 10(g)(6) to 1994 from 10-K, and incorporated
herein by reference.)
10(k) Employment Agreement among Richard L. Card, Bancorp and the
Bank dated November 15, 1993, as amended November 13, 1995.
(Agreement dated November 15, 1993 filed as Exhibit
10(i)(4) to 1993 Form 10-K, and incorporated herein by
reference.)
10(l) Executive Agreement between Arnold Levine and Bancorp dated
October 16, 1989 and as amended December 17, 1991. (Filed
as Exhibit 10(i)(1) to 1992 Form 10-K, and incorporated
herein by reference.)
10(m) 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(n) 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(o) 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(p) 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(q) Stock Option Agreement between Richard L. Card and Bancorp
dated November 18, 1993. (Filed as Exhibit 10(i)(5) to 1993
Form 10-K, and incorporated herein by reference.)
10(r) Split Dollar Insurance Agreement between William B.
Laudano, Jr. and the Bank.
10(s) Split Dollar Insurance Agreement between Richard T.
Cummings, Jr. and the Bank.
10(t) Split Dollar Insurance Agreement between Richard L. Card
and the Bank.
10(u) Supplemental Executive Retirement Plan of Bancorp dated
November 13, 1995, as amended November 29, 1995 and January
18, 1996.
10(v) Trust under Supplemental Executive Retirement Plan between
the Bank and People's Bank, Trustee.
10(w) Directors Retirement Plan of Bancorp. (Filed as Exhibit
10(m) to 1992 Form 10-K, and incorporated herein by
reference.)
10(x) 1985 Incentive Stock Option Plan of Bancorp, as restated.
(Filed as Exhibit 10(n) to 1992 Form 10-K, and incorporated
herein by reference.)
79
<PAGE>
Exhibit Description
- --------------------------------------------------------------------------------
10(y) 1995 Incentive Stock Option Plan of Bancorp.
11 Statement Regarding Computation of Per Share Earnings.
21 Subsidiary of Bancorp. (Filed as Exhibit 22 to 1991 Form
10-K, and incorporated herein by reference.)
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
80
<PAGE>
PAGE 1
State of Delaware
Office of Secretary of State
_______________________
I, MICHAEL RATCHFORD, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "WESTPORT BANCORP, INC." FILED IN THIS OFFICE ON THE TWENTY-SEVENTH DAY OF
MAY, A.D. 1992, AT 9 O'CLOCK A.M.
* * * * * * * * * * *
___________________________
SECRETARY OF STATE
AUTHENTICATION: *3463721
DATE: 05/27/1992
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
WESTPORT BANCORP, INC.
Westport Bancorp, Inc., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That at a meeting of the Board of Directors of Westport Bancorp,
Inc., resolutions were duly adopted setting forth a proposed amendment to the
Certificate of Incorporation of said corporation, declaring said amendment to be
advisable and calling a meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed amendment is as
follows:
RESOLVED: that all of the officers of the Company (the "proper
officers"), or any one of them, be, and each of them hereby is,
authorized and directed to perform all acts which the proper officers
determine to be necessary or desirable to increase by 10,500,000 the
number of authorized shares of the Company's common stock, par value
$0.1 per share ("Common Stock") and to amend Article FOURTH of the
Certificate of Incorporation of the Company (the "Certificate") to read
in its entirety as provided in the form of Certificate presented to
this meeting, a copy of which shall be attached to the minutes hereof
(the "Amendment").
RESOLVED: that the Amendment be presented to the stockholders
of the Company for their approval at the next annual meeting.
SECOND: That thereafter, pursuant to resolution of the Board of
Directors, an annual meeting of the stockholders of said corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary number
of shares as required by statute were voted in favor of the Amendment, which is
set forth in Appendix A hereto.
-2-
<PAGE>
THIRD: That said Amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced under
or by reason of said Amendment.
IN WITNESS WHEREOF, said Westport Bancorp, Inc. has caused this
Certificate to be signed by Michael H. Flynn, its President, and John H. Jevne,
its Secretary, this 26th day of May 1992.
By /s/Michael H. Flynn
-----------------------------
Michael H. Flynn
Its President
Attest: /s/ John H. Jevne
-----------------------
John H. Jevne
Its Secretary
<PAGE>
Appendix A
----------
ARTICLE FOURTH OF THE WESTPORT BANCORP, INC. CERTIFICATE
OF INCORPORATION AS AMENDED TO READ IN ITS ENTIRETY
"FOURTH: The aggregate number of shares which the Corporation shall
have authority to issue is 22,500,000 shares, consisting of:
A. 2,000,000 shares of Serial Preferred Stock, par value $.01
per share; and
B. 20,500,000 shares of Common Stock, par value $.01 per
share, the holders of which shall be entitled to one vote per share.
The Board of Directors is authorized at any time, and from
time-to-time, to provide for the issuance of shares of Serial Preferred Stock in
one or more series, and to determine the designations, preferences, limitations
and relative or other rights of the Serial Preferred Stock or any series
thereof. For each series, the Board of Directors shall determine, by resolution
or resolutions adopted prior to the issuance of any shares thereof, the
designations, preferences, limitations and relative or other rights thereof
including, but not limited to, the following relative rights and preferences, as
to which there may be variations among different series:
A. The rate and manner of payment of dividends, if any;
B. Whether shares may be redeemend and, if so, the redemption
price and the terms and conditions of redemption;
C. The amount payable for shares in the event of liquidation,
dissolution or other winding-up of the Corporation;
D. Sinking fund provisions, if any, for the redemption or
purchase of shares;
E. The terms and conditions, if any, on which shares may be
converted or exchanged;
F. Voting rights, if any; and
G. Any other rights and preferences of such shares, to the
full extent now or hereafter permitted by the laws of the State of Delaware.
The Board of Directors shall have the authority to determine the number
of shares which will comprise each series.
Prior to the issuance of any shares of a series, but after adoption by
the Board of Directors of the resolutions establishing such series, the
appropriate officers of the Corporation shall file such documents with the State
of Delaware as may be required by law.
<PAGE>
INDENTURE OF LEASE
FROM
C.A.T.F. LIMITED PARTNERSHIP
TO
WESTPORT BANK & TRUST
DATED MAY 01, 1995
<PAGE>
INDEX
ARTICLE PAGE
- ------- ----
1. Grant and Term. 1
2. Additional Rent. 1
3. Purpose. 3
4. Care of the Premises. 3
5. Negative Covenants. 4
6. Mechanic's Liens. 4
7. Signs. 5
8. Floor Load. 5
9. Utilities. 5
10. Right of Inspection and Repair. 6
11. Rent Adjustment. 6
12. Rules and Regulations. 6
13. Liability. 8
14. Lessor's Services. 8
15. Bankruptcy or Involuntary Transfer. 8
16. Remedies. 8
17. Damage or Destruction. 9
18. Subordination. 10
19. Condemnation. 10
20. Holdover. 10
21. Possession. 11
22. Notices. 11
23. Quiet Enjoyment. 12
24. Brokers. 12
25. Force Majeur. 12
26. Estoppel Certificate. 12
27. Security Deposit. 12
28. Insurance. 13
29. Lessor. 13
30. Future Improvements. 14
31. Gender. 14
32. Assignment and Subletting. 14
33. Successors and Assigns. 15
34. Renewal Option. 15
35. Miscellaneous Provisions. 15
<PAGE>
This Agreement made this 20th day of March, 1995, by and between C.A.T.F.
Limited Partnership, a Connecticut partnership having its principal place of
business at 1275 Post Road, Fairfield, Connecticut, (hereinafter called
"Lessor"), and Westport Bank & Trust of, Westport, Connecticut (hereinafter
called "Lessee").
WITNESSETH:
1. Grant and Term.
---------------
(a) That Lessor, for in consideration of the covenants and agreements
hereinafter set forth and the rent hereinafter reserved, has, and does hereby
Lease, unto the Lessee, the space described as follows:
Store #1, Ground Floor Level
consisting of 2704 square feet more or less, as shown on a plan attached hereto
and made a part hereof plus existing Drive through (2 Lanes) (all of which
constitute the "Demised Premises") in the "Building and Parking Lot", The
Gateway Building, Post Road, Fairfield, Connecticut for the term of sixty (60)
months (subject to the provisions hereof) commencing on the 1st day of May, 1995
and ending at 12 o'clock noon on the 30th day of April, 2000 (the "Term") both
dates inclusive, at and for the annual rental for the ground level as follows:
TERM YEARLY BASIC RENT
---- ----------------
05/01/95 to 04/30/96 $59,488.00
05/01/96 to 04/30/97 $60,840.00
05/01/97 to 04/30/98 $62,192.00
05/01/98 to 04/30/99 $63,544.00
05/01/99 to 04/30/2000 $64,896.00
("Basic Rent") without demand or set off or deductions of any kind payable in
advance, in equal monthly installments as follows:
MONTHLY RENTAL, PLUS
DRIVE-UP RENTAL OF
TERMS $1,000.00/MONTH
----- ----------------
05/01/95 to 04/30/96 $5,957.34
05/01/96 to 04/30/97 $6,070.00
05/01/97 to 04/30/98 $6,182.67
05/01/98 to 04/30/99 $6,295.34
05/01/99 to 04/30/2000 $6,408.00
on the first day of each month during said term to and at the office of the
Lessor, at 1275 Post Road, Suite A-3 Fairfield, Connecticut or at such other
place or to such other person, firm or corporation as Lessor may from time to
time designate in writing.
(b) Lessor acknowledges receipt from Lessee of the sum of Five Thousand
Nine Hundred Fifty-Seven and 34/100 Dollars($5,957.34) by check subject to
collection, for rent to andincluding the 31st day of May, 1995.
(c) Lessee does hereby take and hold the Demised Premises at the rent
specifically reserved in this Agreement, and payable as aforesaid, upon and
subject to the terms and conditions contained in this Agreement.
2. Additional Rent.
----------------
(a) The Lessee shall pay annually as additional rent, that portion of
any real estate taxes assessed against the land and building of which the
Demised Premises are a part, which the total number of square feet of floor
space in the Demised
1
<PAGE>
Premises bears to the total number of square feet of leaseable floor space in
the entire building which the parties acknowledge at the present time is
10.8494%. Changes in the applicable floor areas shall result in a corresponding
pro rata adjustment of the aforesaid percentage. Such amount shall be paid,
without setoffs or deductions of any kind, within thirty (30) days after demand
therefor by the Lessor and shall be collectible as rent. Tax bills shall be
sufficient evidence of the amount of such taxes and shall be used for the
calculation of the amounts to be paid by the Lessee. "Real Estate Taxes" shall
mean all taxes or assessments and governmental charges whether Federal, State,
County or Municipal which are levied or charged against real estate or rents, or
on the right or privilege of leasing real estate or collecting rents thereon and
any other taxes and assessments attributable to Lessor's Building herein
described or its operation, excluding, however Federal, State or other income
taxes.
(b) Lessee shall pay to the Lessor, at the same time as the Basic Rent
is paid, without demand or setoff or deductions of any kind, as additional rent
for each month during the term of this Lease, that proportion of "Operating
Expenses" (as defined below) which the total number of square feet of floor
space in the Demised Premises bears to the total number of square feet of
leaseable floor space in the entire Building which the parties acknowledge at
the present time is 10.8494%. Changes in the applicable floor areas shall result
in a corresponding pro rata adjustment of the aforesaid percentage. The term
"Operating Expenses" shall mean all actual operating expenses paid or incurred
by Lessor for the operation of Lessor's Building.
(c) The annual charge to Tenant for Operating Expenses shall be
computed on the basis of periods of twelve (12) consecutive calendar months as
designated by Lessor and shall during the first such period of operation of
Lessor's Building be estimated by Lessor and thereafter shall be based upon the
prior period's actual expenses and shall be paid by Lessee, as additional rent
hereunder, in equal installments in advance of the first day of each calendar
month in an amount of one-twelfth (1/12th) of the amount estimated by Lessor for
the year. For any such period within the Term which is less than a full year,
the annual charge shall be appropriately prorated. Within sixty (60) days after
the end of each twelve month period, Lessor will furnish to Lessee a statement
showing in reasonable detail, the amount of Lessor's operating cost for the
preceding period, and any necessary adjustments shall thereupon be made, and the
monthly payments to be made by Lessee for the ensuing year shall be estimated
accordingly. Changes in applicable floor areas of the Building shall result in
corresponding pro rata adjustments.
(d) Lessee shall pay as additional rent to the Lessor, at the same time
as the Basic Rent is paid, without demand or setoff, and in accordance with the
terms of this Agreement, an amount determined as follows:
(i) The Core Area of the ground floor level which is 826
square feet multiplied by a fraction, the numerator of which is the square foot
area set forth in Paragraph 1(a) above (square feet), and the denominator of
which is the total leaseable square footage for the ground floor level which is
9,914 square feet. The product of this calculation shall be known as the "Core
Area Allocator".
(ii) The Core Area Allocator shall be multiplied by a
fraction, the numerator of which is the annual basic rent set forth in Paragraph
1 above and the denominator of which is the square footage area leased to Lessee
set forth in Paragraph 1(a) above.
(iii) "Core Area" for the purpose of this Paragraph shall
include, as may be applicable: Public corridors, air-conditioning shafts and
ducts where a central air- conditioning system eliminates floor fan rooms,
stairs,
2
<PAGE>
elevators, toilets, air-conditioning rooms, fan rooms, air ducts, janitors'
closets, shop sinks, electrical closets, telephone closets and all enclosing
walls for the above items, and columns and projections necessary to the
building, all of which Core Area with respect to any area serving the Demised
Premises or that floor upon which the Demised Premises are located, may be
decreased or increased from time to time as the Lessor shall in its sole
discretion find appropriate.
(e) It is the purpose and intent of Lessor and Lessee as evidenced by
Paragraphs 2(a), 2(b), 2(d) and 9 that this Lease be a net lease and that the
basic rent shall be absolutely net to Lessor so that this Lease shall yield,
net, to Lessor, the basic rent specified in Paragraph 1 above and each year
during the original term of this Lease and the basic rent provided for in
Paragraph 34 below during each renewal term of this Lease, if renewed as
provided in said Paragraph 34, and that all costs expenses and obligations of
every kind and nature whatsoever relating to the Demised Premises, which may
arise or become due during or out of the original or any renewal term of this
Lease shall be paid by Lessee, in its pro rata share, and that Lessor shall be
indemnified and saved harmless by Lessee from and against the same; provided,
however, that nothing herein contained shall be construed to require Lessee to
pay the principal of, or the interest on, any indebtedness secured by any fee
mortgage. The principal and interest of nay such mortgage shall be the sole
responsibility of Lessor.
3. Purpose. Lessee shall use and occupy the Demised Premises for the
purpose of a bank and for no other purpose whatsoever.
4. Care of the Premises.
---------------------
(a) Lessee shall not do or permit to be done in the Demised Premises,
or the Building of which they form a part, or bring or keep anything therein,
which shall in any way increase the rate of fire or other insurance on said
Building, or on the property kept therein, or obstruct, or interfere with the
rights of other tenants, or in any way, injure or annoy them, or those having
business with them, or conflict with them, or conflict with the fire laws or
regulations or with any insurance policy upon said Building or any part thereof,
or with any statutes, rules or regulations or established by the Federal
Government or by State, City or County in which the subject property is located.
Lessee agrees to pay any increase in insurance premiums resulting from Lessee's
occupancy of the premises, or any act or omission of Lessee.
(b) Lessee shall not use or permit the Demised Premises or any part
thereof to be used for any disorderly, unlawful or extra hazardous purpose nor
for any purpose other than as set forth in Paragraph 3 above, and shall not
manufacture any commodity or prepare or dispense any food or beverage therein,
without the prior written consent of Lessor.
(c) The Lessee has examined the Demised Premises, and accepts them in
their present condition and without any representations on the part of the
Lessor or its agents as to the present or future condition of the Demised
Premises. The Lessee shall keep the Demised Premises in good condition and
repair and shall redecorate, paint and renovate the Demised Premises as may be
reasonably required by Lessor to keep them in good repair and appearance;
provided, however, that Lessor shall maintain and keep in repair the walls,
foundation and roof of the Building of which the Demised Premises are a part,
the plumbing, and electrical systems, and other installations serving more than
one tenant of said building.
(d) The Lessee shall quit and surrender the Demised Premises at the end
of the Term in as good condition as the reasonable use thereof will permit. The
Lessee further agrees to
3
<PAGE>
keep said premises and all parts thereof in a clean and sanitary condition and
free from trash, inflammable material and other objectionable matter.
(e) All injury to the Demised Premises or the Building of which they
are a part, including that caused by moving property of Lessee into, in or out
of, said Building and all breakage done by Lessee or the agents, servants,
employees and visitors of lessee, shall be repaired by Lessee, at expense of
Lessee notwithstanding anything to the contrary contained in Paragraph 4 (c)
above. In the event Lessee shall fail so to do, then Lessor shall have the right
to make such necessary repairs, alterations and replacements, structural,
nonstructural or otherwise, and any charge or cost so incurred by Lessor shall
be paid by Lessee, with the right on the part of Lessor to elect in its
discretion to regard the same as additional rent in which event such cost or
charge shall become additional rent payable with the installment of rent next
becoming due or thereafter falling due under terms of this Lease. This provision
shall be construed as an additional remedy granted to Lessor and not in
limitation of any rights and remedies which Lessor has or may have in said
circumstances. The Lessee agrees to replace at the Lessee's expense any and all
glass which may become broken in and on the Demised Premises. Plate glass and
mirrors, if any, shall be insured by the Lessee at their full insurable value by
a company satisfactory to the Lessor. Said policy shall be of the full premium
type, and shall be deposited with the Lessor or its agent.
5. Negative Covenants. Lessee shall not make any alterations,
installations, changes, replacements, additions, or improvements, structural or
otherwise, in or to the Demised Premises or any part thereof, without the prior
written consent of Lessor. Any alterations, installations, changes,
replacements, additions, or improvements, structural or otherwise shall be in
conformance with all statutes, rules and regulations of any Federal, State and
municipal government or authority and any permits, licenses or other approvals
required in connection therewith shall be obtained at the sole cost and expense
of Lessee. No carpeting shall be installed in the Demised Premises until Lessee
has obtained the prior written consent of the Fire Department of the Town of
Fairfield. All alterations, installations, changes, replacements, additions to
or improvements upon the Demised Premises (whether with or without Lessor's
consent) shall be at the election of Lessor remain upon the Demised Premises,
and be surrendered with the Demised Premises at the expiration of this Lease,
without disturbance, molestation or injury. Should Lessor elect that
alterations, installations, changes, replacements, additions to or improvements
upon the Demised Premises be removed, upon termination of this Lease, Lessee
hereby agrees to cause same to be removed at Lessee's sole cost and expense and
should Lessee fail to remove the same, then, and in such event, Lessor may cause
same to be removed at Lessee's expense and Lessee hereby agrees to reimburse
Lessor for the cost of such removal together with any and all damages which
Lessor may suffer and sustain by reason of failure of Lessee to remove the same.
Lessee may partition the storage space referred in Paragraph 1 above at Lessee's
own cost, provided the plans and specifications are first approved in writing by
Lessor.
6. Mechanic's Liens. In the event that any mechanics' lien for
materials or labor is filed against the Demised Premises as a result of any
alterations, installations, changes, replacements, additions or improvements
made by the Lessee, the Lessee shall within ten (10) days after notice from
Lessor discharge said lien. If Lessee fails to discharge said lien within said
ten (10) day period, the Lessor, at its option, may terminate this Lease and/or
pay the said lien, without inquiring into the validity thereof, and the Lessee
shall forthwith reimburse the Lessor the total expense incurred by the Lessor in
discharging the said lien, as additional rent hereunder.
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7. Signs. Lessee agrees that no sign, advertisement or notice shall be
inscribed, painted or affixed on any part of the outside or inside of the
Demised Premises or Building, except on the directories and doors of offices,
and then only in such size, color and style as Lessor shall approve. Lessor
intends to have common signage. Lessor shall have the right to prohibit any such
advertisement of any sign which, in the Lessor's opinion, tends to impair the
reputation of the Building or its desirability as a Building for offices or for
financial, insurance or other institutions and businesses of like nature, and
upon written notice from Lessor, Lessee shall refrain from and discontinue any
such advertisement.
8. Floor Load. Lessor shall have the right to prescribe the weight and
method of installation and position of safes or other heavy fixtures or
equipment. All damage done to the Building by taking in or removing a safe or
any other article of Lessee's fixtures or equipment shall be repaired at the
expense of Lessee. No freight, furniture or other bulky matter of any
description will be received into the Building or carried in the elevators,
except as approved by the Lessor.
9. Utilities.
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(a) Lessee shall pay or cause to be paid all charges for gas, water,
electricity, light, power, telephone and all other utility service and heating
and air-conditioning charges used, rendered or supplied upon or in connection
with the Demised Premises and shall indemnify Lessor and save it harmless
against any liability or charges on account thereof.
(b) Lessor shall receive the statement for charges for electricity (for
light, power, heating, and air-conditioning) for the entire building within
which the Demised Premises are located. Lessee shall pay for its allocable share
of electrical usage. Lessor shall allocate Lessee's share of electrical usage,
in accordance with a determination made from time to time as to usage for each
of the Lessees of the Building by a representative of United Illuminating
Company or such other Public Service Corporation as may at any time provide
electrical service to the Building. Lessee shall pay as additional rent within
ten (10) days after mailing by Lessor to Lessee statements applicable to its
share of such charges.
(c) In the event that Lessor shall elect or be required to furnish any
additional utility or other service to Lessee, Lessee agrees to purchase the
same from Lessor and Lessee shall pay Lessor within ten (10) days after mailing
by Lessor to Lessee statements therefor at the applicable rates determined by
Lessor from time to time which Lessor agrees shall be equitable and, with
respect to utilities, not in excess of the consumer late as is charged by the
Public Service Corporation or municipal authority as the case may be supplying
similar services in the general area in which the Demised Premises are situated.
The aforesaid charges shall be collectable by Lessor as additional rent
hereunder without deduction or setoff.
(d) Lessor shall not be liable to Lessee for any damages should the
furnishing of any utilities or other services by Lessor be interrupted or
required to be terminated because of necessary repairs or improvements or any
cause beyond the reasonable control of Lessor, nor shall any such interruption
or cessation relieve Lessee from the performance of any of Lessee's covenants,
conditions, or agreements under this Lease.
(e) Regardless of whether Lessee or Lessor is paying utilities or other
charges in accordance with the foregoing provisions of this Paragraph 9, Lessee
shall not install or operate in the Demised Premises any electrically operated
equipment or other machinery or lighting, other than standard office equipment,
without first obtaining the prior consent in writing of Lessor, who may
condition such consent upon the payment by Lessee of additional rent in
compensation for such
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excess consumption of water and/or electricity or wiring as may be occasioned by
the operation of said equipment or machinery; nor shall Lessee install any other
equipment whatsoever which will or may necessitate any changes, replacements or
additions to or require the use of the water system, plumbing system, heating
system, air conditioning system or the electrical system of the Demised Premises
without the prior written consent of Lessor.
10. Right of Inspection and Repair. Lessee shall allow Lessor, its
agents or employees, to enter the Demised Premises at all times to examine or
inspect the Demised Premises or the Building or to protect the same or prevent
damage or injury to the same, or to make such alterations and repairs as Lessor
may deem necessary; or to exhibit the same to prospective tenants during the
last six (6) months of the Term.
11. Rent Adjustment. Intentionally Deleted
12. Rules and Regulations. The following rules and regulations, and
such other and further rules and regulations as Lessor may make and which in
Lessor's judgment are needed for the general well being, safety, care and
cleanliness of Demised Premises and the Building of which they are a part
together with their appurtenances, shall be faithfully kept, observed and
performed by Lessee, and by his agents, servants, employees and guests unless
waived in writing by Lessor. Lessee agrees:
(a) To store all trash and garbage in adequate containers within the
Demised Premises, maintained in a neat and clean condition and located as Lessor
shall from time to time designate, within the Demised Premises and outside the
Demised Premises on collection days, and so as not to be visible to the public
in or outside of the Building and so as not to create or permit any health or
fire hazard, and arrange for regular removal thereof at Lessee's expense. Lessor
hereby reserves the right at its sole discretion to establish trash and garbage
collection procedures on Lessee's behalf and at Lessee's expense and Lessee
hereby agrees to comply with such procedures and to pay to Lessor said charge as
additional rent hereunder at locally competitive rates. Lessor shall have the
right to cause such procedures to be established through an independent
contractor and Lessee agrees to pay therefor directly to such independent
contractor, if requested.
(b) Not to burn any papers, trash or garbage of any kind in or about
the Demised Premises or the Building.
(c) Not to overload any floor in the Demised Premises, or use or
operate any machinery that in Lessor's opinion is harmful to the Building or
disturbs other tenants in the Building.
(d) Not to use any portion of the Demised Premises as living quarters,
sleeping apartments or lodging rooms.
(e) Not to use the plumbing facilities for any purpose other than that
for which they were constructed and not to dispose of any damaging or injurious
substance therein.
(f) Not to use the parking areas, or any other common area for the
overnight parking or storage of vehicles.
(g) Not to conduct any going-out-of-business, fire, bankruptcy, auction
or other distress sale on the Demised Premises.
(h) Not to use any sidewalks, walkways or common areas of the Building
or any vestibule, entrances or returns located within the Demised Premises for
the keeping, displaying, advertising and/or sale of any merchandise or other
object, including, but not by way of limitation, the use of any of the foregoing
for any newsstand, cigar stand, sidewalk shop or any business, occupation or
undertaking.
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(i) Not to install on or about the Demised Premises any exterior
lighting, amplifiers or similar devices and/or not to use in, on or about the
Demised Premises any music system or advertising medium such as flashing lights,
searchlights, loudspeakers, phonograph, television or radio broadcasts.
(j) Not to install a television antenna upon or within the Building and
if Lessee connects with any master antenna provided by Lessor, Lessee shall
furnish and install any and all wiring and booster systems related to such
connection and the operation within the Demised Premises of television
receivers, and Lessee shall pay to Lessor such reasonable connection and/or
subscription charges as Lessor may establish.
(k) Not to operate any coin or token operated vending machine or
similar devise for the sale of any goods, wares, merchandise, food, beverages,
or services including, but not limited to pay telephones, pay lockers, pay
toilets, scales, amusement devices and machines for the sale of beverages,
foods, candy, cigarettes or other commodities, without the prior written consent
of Lessor.
(l) Not to permit the extermination of vermin to be performed in, on or
about the Demised Premises except by a person or company designated by Lessor
and at times designated by Lessor.
(m) To comply with any and all requirements of any of the constituted
public authorities and with the terms of any State or Federal statute or local
ordinance or regulation applicable to Lessee or its use of the Demised Premise,
and to save Lessor harmless from penalties, fines, costs, expenses or damages
resulting from failure to do so.
(n) To give to Lessor prompt written notice of any accident, fire or
damage occurring on or to the Demised Premises and the community areas.
(o) To perform all loading and unloading of goods only at such times,
in the area and through such entrances as may be designated for such purposes by
Lessor.
(p) To keep the Demised Premises sufficiently heated to prevent
freezing of water pipes and fixtures.
(q) To keep the outside areas immediately adjoining the Demised
Premises free from any rubbish, obstructions or merchandise in such areas.
(r) To keep the Demised Premises clean, orderly sanitary and free from
objectionable odors and from insects, vermin and other pests, and unless in the
ordinary course of Lessee's business not to keep any live animals of any kind
in, about or upon the Demised Premises.
(s) To require Lessee's employees to park their cars only in those
portions of the parking area or in such other places as are designated for that
purpose by Lessor. Lessee agrees that from time to time, upon written notice
from Lessor, it will within five (5) days, furnish Lessor with the State
automobile license numbers assigned to Lessee's cars and the cars of all
Lessee's directors, officers, employees, agents, contractors, subtenants,
licensees and concessionaires.
(t) To permit Lessor to designate, from time to time, non-employee
parking areas.
(u) Lessee shall not sell or display merchandise or store or dispose of
trash or refuse on, or otherwise obstruct any parking area, other common area,
or permit the parking of delivery vehicles so as to interfere with the use of
any parking area or common area.
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(v) To replace promptly with glass of the like kind and quality any
plate glass or window glass of the Demised Premises which may become cracked or
broken.
(w) No additional locks shall be placed upon ay doors of Demised
Premises; and doors leading to the corridors or main halls shall be kept closed
during business hours except as they may be used for ingress or egress.
13. Liability. The Lessor shall not be liable for any accident or
damage resulting from the use or operation of escalators, elevators, or heating,
cooling, electrical, plumbing or other apparatus. All personal property of the
Lessee in the Demised Premises or in the Building shall be at the sole risk of
the Lessee. The Lessor shall not be responsible for the loss of or damage to
property, or injury to persons, occurring in or about the Demised Premises, by
reason of any existing or future condition, defect, matter or thing in the
Demised Premises or the property of which the premises are a part, or for the
acts, omissions or negligence of other persons or tenants in and about the said
property. The Lessee agrees to indemnify and save the Lessor harmless from all
claims and liability for losses or damage to property, or injuries to persons
occurring in or about the Demised Premises.
14. Lessor's Services. Lessor shall furnish an automatically operated
elevator or escalator service during normal business hours and for ordinary
uses, and normal and usual cleaning service after business hours for the common
areas. The Lessor agrees to keep the Building in which the Demised Premises are
a part opened from 7 a.m. to 8 p.m., Monday through Friday and from 7 a.m.
through 4 p.m. on Saturdays. The Building may be closed on Sunday.
15. Bankruptcy or Involuntary Transfer. If at any time during the Term,
a petition shall be filed, either by or against Lessee, in any Court or pursuant
to any Federal, State, or municipal statute, whether in bankruptcy, insolvency,
or for the appointment of a receiver of Lessee's property, or if the Lessee
shall make an assignment for the benefit of creditors or if Lessee's interest in
this Lease becomes the subject of a tax lien, then immediately upon the
happening of any such event, and without any entry or other act by Lessor, this
Lease, at Lessor's option, shall cease and come to an end; however, it is
further stipulated and agreed that, in the event of termination of the Term by
the happening of any such event, Lessor shall forthwith, upon such termination,
become entitled to recover as and for liquidated damages caused by such breach
of the provisions of this Lease an amount equal to the difference between the
then cash value of the rent and charges equal to rent reserved hereunder for the
unexpired portion of the Term and the then reasonable cash rental value of the
Demised Premises, for such unexpired portion of the Term. The provisions of this
paragraph of this Lease shall be without prejudice to Lessor's right to prove in
full damages for rent accrued prior to termination of this Lease, but not paid.
In making any such computation, the then cash rental value of Demised Premises
shall be deemed prima facie be the rental realized upon any reletting, if such
reletting can be accomplished by Lessor within a reasonable time after such
termination of this Lease, and then present cash value of the future rents
hereunder, reserved to Lessor for the unexpired portion of the term hereby
demised shall be deemed to be such sum, if invested at the prime rate as will
produce the future rent over the period of time in question.
16. Remedies. It is agreed that if Lessee shall fail to pay the rent or
any installment thereof as aforesaid at the time the same shall become due and
payable and/or any additional rent as herein provided, although no demand shall
have been made for the same; or if Lessee shall violate or fail or neglect to
keep and perform any of the covenants, conditions, rules, regulations, and
agreements contained in the Lease on the part of Lessee to be kept and performed
or if this Lease shall be
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assigned or the leased premises sublet or if Demised Premises shall become
vacant or deserted, then, and in each and every such event and at all times
thereafter, at option of Lessor, Lessee's right of possession shall thereupon
cease and terminate and Lessor shall be entitled to possession of Demised
Premises and to reenter the same without notice to quit or demand of rent or
demand of possession, and the Lessor or its agents shall have the right to and
may enter the said premises as the agent of the Lessee, either by force or
otherwise, without being liable for any prosecution or damages therefor, and may
relet the premises as the agent of the Lessee, and receive the rent therefor,
upon such terms as shall be satisfactory to the Lessor, and all rights of the
Lessee to repossess the premises under this Lease shall be forfeited. Such
reentry by the Lessor shall not operate to release the Lessee from any rent to
be paid or covenant to be performed hereunder during the full Term of the Lease.
For the purpose of reletting, the Lessor shall be authorized to make such
repairs or alterations in or to the Demised Premises as may be necessary to
place the same in good order and condition. The Lessee shall be liable to the
Lessor for the cost of such repairs or alterations, and all expenses of such
reletting. If the sum realized or to be realized from the reletting is
insufficient to satisfy the monthly or term rent provided in this Lease, the
Lessor, at its option, may require the Lessee to pay such deficiency month by
month, or may hold the Lessee in advance for the entire deficiency to be
realized during the term of the reletting. The Lessee shall not be entitled to
any surplus accruing as a result of the reletting. The Lessee agrees to pay, as
additional rent, reasonable attorneys' fees and other reasonable expenses
incurred by the Lessor in enforcing any of the obligations under this Lease. No
provision of this Lease shall be deemed to have been waived by Lessor unless
such waiver shall be in writing signed by Lessor. No payment by Lessee or
receipt by Lessor of a lesser amount than the monthly installments of rent
herein stipulated shall be deemed to be other than on account of the earliest
stipulated rent, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Lessor may accept such check or payment without prejudice to
Lessor's right to recover the balance of such rent or pursue any other remedy in
this Lease provided.
17. Damage or Destruction.
(a) In the event of the destruction of the Demised Premises or the
Building containing the said premise by fire, explosion, the elements or
otherwise during the Term, or previous thereto, or such partial destruction of
the Demised Premises as to render them wholly untenantable or unfit for
occupancy, or should the Demised Premises be so badly injured that the same
cannot be repaired within ninety (90) days from the happening of such injury,
then, in any such case, the term hereby created shall, at the option of the
Lessor, cease and become null and void from the date of such damage and
destruction, the Lessee shall immediately surrender said premises and all the
Lessee's interest therein to the Lessor, and shall pay rent only to the time of
such surrender, in which event the Lessor may reenter and repossess the premises
thus discharged from this Lease and may remove all parties therefrom.
(b) If the Demised Premises are rendered untenantable and unfit for
occupancy but are repairable within ninety (90) days from the happening of said
injury, the Lessor may elect to enter and repair the same with reasonable speed,
and the rent shall not accrue after said injury or while repairs are being made,
but shall recommence immediately after said repairs shall be completed.
(c) If the Demised Premises shall be so slightly injured as not to be
rendered untenantable and unfit for occupancy, then the Lessor agrees to repair
the same with reasonable promptness and in that case the rent accrued and
accruing shall not cease or be otherwise adjusted.
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(d) The Lessee shall immediately notify the Lessor in case of fire or
other damage to the Demised Premises. No compensation, or claim, or diminution
of rent will be allowed or paid by Lessor by reason of inconvenience, annoyance
or injury to business arising from the necessity of repairing the Demised
Premises or the Building of which they are a part.
18. Subordination. This Lease is and shall be subject and subordinate
to all ground or underlying leases and to any mortgages and/or deeds of trust
(hereinafter all of the foregoing are collectively referred to as the "Other
Instruments") which may now or hereafter affect such leases or the real property
of which Demised Premises form a part, and to all renewals, modifications,
consolidations, replacements and extensions thereof. In the event of any
conflict between the provisions of the Other Instruments, on the one hand, and
this Agreement on the other, the terms of the Other Instruments shall control.
This clause shall be self-operative and no further instrument of subordination
shall be required by any mortgagee or trustee. Nevertheless, simultaneously with
the execution of this Lease, Lessee shall execute the subordination Agreement
attached hereto as an Exhibit. In confirmation of such subordination, Lessee
shall execute promptly any certificate that Lessor may request. Lessee hereby
constitutes and appoints Lessor the Lessee's attorney-in-fact to execute any
such certificate or certificates for and on behalf of Lessee. Lessee shall
attorn to any successor Lessor under such ground or underlying lease or the
holder of any such mortgage or the purchaser of the leasehold or mortgaged
premises in foreclosure of any subsequent owner of the fee, as the case may be,
as Lessee's lessor hereunder in the event that any of them shall succeed to
Lessor's interest in the Demised Premises and in the event that any such
successor lessor shall so require.
19. Condemnation.
(a) Lessee agrees that if the whole Demised Premises or any part of all
of the land and/or Building on or in which Demised Premises are located, or any
substantial portion thereof which renders the Demised Premises untenantable
shall be taken or condemned for public or quasi public use or purpose by any
competent authority, then at the option of the Lessor, this Lease shall
terminate from date of such taking or condemnation, and Lessee shall have no
claim against Lessor for the value of any unexpired term of this Lease. In the
event of a taking, Lessee shall not have any claim or rights to any portion of
the amount that may be awarded as damages or paid as a result of any
condemnation other than Lessee's right to recover moving expenses and an award
for Lessee's business fixtures from the condemning authority (or Lessor if same
be awarded Lessor) and all other rights of Lessee to damages, if any, are hereby
assigned by Lessee to Lessor other than Lessee's right to recover moving
expenses and an award for Lessee's business fixtures from the condemning
authority (or Lessor if same be awarded Lessor).
(b) If only a portion of the Demised Premises is taken by condemnation,
and Lessor has not given notice that this Lease is terminated, then this Lease
shall remain in full force and effect except that on the date of Taking the
Basic Rent set forth in Paragraph 1 above shall be reduced by an amount that is
in the same ratio to the Basic Rent as the total number of square feet in the
Demised Premises taken bears to the total number of square feet in the Demised
Premises immediately prior to the Taking.
20. Holdover. In the event that Lessee shall not immediately surrender
the Demised Premises at the end of the Term, then Lessor may, at its option,
elect to treat the Lessee as a month-to-month tenant at twice the monthly rental
being paid by Tenant for the last month of the Term. Lessee, as a monthly
tenant, shall be subject to all conditions and covenants of this Lease as though
the same had originally been a monthly tenancy; and said Lessee shall give to
Lessor at least thirty (30) days' written notice of any intention to quit said
premises, and Lessee
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shall be entitled to thirty (30) days' written notice to quit said premises,
except in the event of a breach of this Lease by said Lessee. In the event that
Lessee holds over after the expiration of the Term, and Lessor desires to regain
possession of the Demised Premises at expiration of the Term, then at any time
prior to Lessor's acceptance of rent from Lessee as a monthly tenant hereunder,
Lessor, at its option, may forthwith reenter and take possession of the Demised
Premises with or without process, in the manner set forth in Paragraph 16 above
the extent applicable.
21. Possession.
(a) If Lessor shall be unable to give possession of Demised Premises on
the date of commencement of the Term by reason of the fact that premises are
located in a Building being constructed and which has not been sufficiently
completed to make the premises ready for occupancy or by reason of the fact that
a certificate of occupancy has not been obtained or if Lessor is unable to give
possession of Demised Premises on the date of commencement of the Term by reason
of holding over or retention of possession of any tenant, or occupant, or if
repairs, improvements or decoration of the Demised Premises, or the Building of
which the Demised Premises form a part, are not completed, or for any other
reason, then the rent reserved and covenanted to be paid herein shall not
commence until possession of the Demised Premises is given, or the Demised
Premises are sufficiently complete to permit the Lessee to occupy same or
install Lessee's own improvements, and no such failure to give possession on the
date of commencement of the term shall in any other respect affect the validity
of this Lease or the obligations of Lessee hereunder, nor shall same be
construed in any way to extend the term of this Lease beyond the expiration date
set out in Paragraph 1 hereof or subject the Lessor to any liability for failure
to give possession. If such delay shall continue for more than one hundred
twenty (120) days, then Lessee may, within ten (10) days after the expiration of
said one hundred twenty (120) day period, give Lessor notice of election to
terminate this Lease. Unless possession of the Demised Premises shall be made
available to Lessee within ten (10) days of the date of such notice, then this
Lease shall terminate on the tenth (10th) day after the giving of such notice
and Lessor shall return to Lessee any consideration paid in connection with this
Lease. Lessor shall have no obligation to Lessee for failure to give possession
except as provided herein.
(b) If permission is given to Lessee to enter into the possession of
the Demised Premise or to occupy premises other than the Demised Premises prior
to the date specified as the commencement of the term of this Lease, Lessee
covenants and agrees that such occupancy shall be deemed to be under all the
terms, covenants, conditions, and provisions of this Lease. Notwithstanding the
foregoing, if any delay in giving possession is caused by Lessee or by the delay
in the completion of any improvement to be made or installed by Lessee, the rent
shall commence at the time of commencement set forth in Paragraph 1.
22. Notices. Any notice which under the Terms of this Lease or under
any statute must or may be given shall be in writing and shall be deemed to have
been given when deposited in the United States mails and sent registered mail,
return receipt requested, postage prepaid, addressed to the respective addresses
of the parties hereinafter given. Either party may designate by notice in
writing a new or other address to which such notice or demand shall be given.
Said notices shall be addressed as follows until otherwise designated in
writing:
As to Lessor:
C.A.T.F. Limited Partnership
1275 Post Road, Suite A-3
Fairfield, CT 06430
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As to Lessee:
Westport Bank & Trust
1300 Post Road
Fairfield, CT 06430
23. Quiet Enjoyment. Upon Lessee paying the rent and additional rent
and observing and performing all the terms, covenants and conditions on Lessee's
part to be observed and performed, Lessee may peaceably and quietly enjoy the
premises hereby demised free from any interference, molestation or acts of the
Lessor, or anyone claiming by, through or under the Lessor, subject,
nevertheless, to the terms and conditions of this Lease and to any ground lease,
underlying lease and mortgages.
24. Brokers. Lessee warrants and represents it has not had or dealt
with any realtor, broker, or agent, in connection with the negotiation of this
Lease and agrees to pay and to hold Lessor harmless from any cost, expense or
liability (including costs of suit and reasonable attorney's fees) for any
compensation, commission or charges claimed by any realtor, broker or agent with
respect to this Lease and the negotiation thereof.
25. Force Majuer. Lessor shall not be liable or in default hereunder if
Lessor is unable or fails to fulfill or is delayed in fulfilling any of its
obligations hereunder, including, without limitation, any obligations to supply
any service hereunder, or any obligation to make repairs or replacements
hereunder, is prevented from fulfilling or is delayed in fulfilling such
obligations by reason of fire or other casualty, strikes or labor troubles,
governmental pre-emption in connection with a national emergency, shortage of
supplies or materials, or by reason of any rule, order or regulation of any
governmental authority, or by reason of the condition of supply and demand
affected by war or other emergency, or any other cause beyond its control. Such
inability or delay by Lessor in fulfilling any of its obligations hereunder
shall not affect, impair or excuse the other party hereto from the performance
of any of the terms, covenants, conditions, limitations, provisions or
agreements hereunder on its part to be performed, nor result in any abatement of
rents or additional rents payable hereunder.
26. Estoppel Certificate. Upon request of the Lessor, the Lessee shall
execute and deliver to the Lessor, an instrument prepared by the Lessor stating,
if the same be true, that this Lease is a true and exact copy of the lease
between the parties hereto, that there are no amendments hereof (or stating what
amendments there may be), that the same is then in full force and effect and
that, to the best of Lessee's knowledge, there are then no offsets, defenses or
counterclaims with respect to the payment of rent reserved hereunder or in the
performance of the other terms, covenants and conditions hereof on the part of
the Lessee to be performed, and that as of such date no default has been
declared hereunder by either party hereto and that the Lessee at the time has no
knowledge of any facts or circumstances which it might reasonably believe would
give rise to a default by either party.
27. Security Deposit.
(a) The Lessee has deposited the sum of Five Thousand Nine Hundred
Fifty-Seven and 34/100 ($5,957.34) Dollars to secure the faithful performance of
all the terms and conditions of this Lease and any renewal term. If the Lessee
shall have complied with all the terms, conditions and obligations of this
Lease, such deposit shall be returned to the Lessee at the termination of this
Lease or any renewal thereof, without interest. In the event of the Lessee's
default hereunder, such deposit may be applied by the Lessor toward reduction of
his damages without barring the Lessor in any manner whatever from other or
additional legal or equitable course. Such deposit shall not be construed as
constituting liquidated damages. Lessor shall
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always have the right to apply said deposit, or from time to time such one or
more parts or portions thereof or part or portion thereof not previously
applied, to the curing of any default that may then exist, without prejudice to
any other remedy or remedies which the Lessor may have on account thereof. In
the event that Lessor does so apply any portion or part of said deposit, or in
the event the Basic Rent due hereunder is increased for any reason whatsoever,
including but not limited to cost of living increases or Renewal premiums, upon
request Lessee shall forthwith pay to Lessor any amount required to bring the
security deposit up to and equal with one (1) months then Basic Rent, so that
Lessor shall have a full deposit equal to one (1) months Basic Rent on hand at
all times during the term of this Lease.
(b) If the Lessor conveys its interest under this Lease, the deposit,
or the part or portion thereof not previously so applied, may be turned over by
the Lessor to the Lessor's grantee or assignee; and, if the same be turned over
as aforesaid, the Lessee hereby releases the Lessor from any and all liability
with respect to the deposit or its application or return, provided Lessor
deliveries to Lessee said grantee's or assignee's assumption of the obligations
with respect to said security.
28. Insurance.
(a) During the term of this Lease, the Lessee shall, at its sole cost
and expense, obtain general public liability insurance, with limits of at least
$1,000,000/ $1,000,000 in case of bodily injury or death, and $1,000,000 for
property damage. Such policy shall name the Lessor and Lessee as the insureds,
and within ten (10) days from the date hereof, the Lessee shall deliver to the
Lessor a certificate of insurance, certifying that such insurance is in full
force and effect. All notices of cancellation or amendment shall be delivered to
Lessor.
(b) Lessee at its own cost shall maintain on all its personal property,
Lessee's improvements and alterations, in, on, or about the Demised Premises a
policy of standard fire and extended coverage insurance, with vandalism and
malicious mischief endorsements, to the extent of at least 80% of their full
replacement value. The proceeds from any such policy shall be used by Lessee for
the replacement of personal property, the restoration of Lessee's improvements
or alterations. Such policy shall name the Lessor and Lessee as insureds, and
within ten (10) days from the date hereof, the Lessee shall deliver to the
Lessor a certificate of insurance, certifying that such insurance is in full
force and effect. All notices of cancellation or amendment shall be delivered to
Lessor. "Full Replacement Value" as used in this paragraph shall be determined
by the company issuing the insurance policy at the time the policy is initially
obtained. Not more frequently than once every three years, the Lessor shall have
the right to notify Lessee that it elects to have the Replacement Value
redetermined by an insurance company. The redetermination shall be made promptly
and in accordance with the rules and practices of the Board of Fire Underwriters
or a like board recognized and generally accepted by the insurance company, and
each party shall promptly be notified of the results by the company. The
insurance policy shall be adjusted according to any such redetermination.
29. Lessor. The term "Lessor" shall mean the owner for the time being
of the Demised Premises or the Building of which the Demised Premises are a part
and the land on which it stands; and if such land and Building or lease be sold
or transferred, the seller or assignor shall be entirely relieved of all
covenants and obligations under this Lease; and it shall be deemed without
further agreement between the parties hereto and their successors that the
purchaser on such sale has assumed and agreed to carry out all covenants and
obligations of Lessor hereunder. Neither Lessor nor any partner or principal of
Lessor shall be under any personal liability with respect to any of the
provisions of this Lease and if Lessor is otherwise under this
13
<PAGE>
Lease, Lessee shall look solely to the equity of Lessor in the Building of which
the Demised Premises are a part for the satisfaction of lessee's remedies. It is
expressly understood and agreed that the liability of Lessor and any partner or
principal of Lessor under the terms, covenants, conditions, warranties and
obligations of this Lease shall in no event exceed the loss of Lessor's equity
interest in said Building.
30. Future Improvements. Lessor shall have the right from time to time
to construct other Buildings or improvements in the parking and common areas, to
change the location or character of and to make modifications, alterations or
additions to the Building which the Demised Premises are located or parking and
common areas, and entrances and exits, and to repair and reconstruct the same.
All space, areas and facilities, not within the Demised Premises, which tenant
may be permitted to use and/or occupy, are to be used and/or occupied under a
revocable license, and if any such license be revoked, or if the amount of such
space, areas and/or facilities be diminished, this Lease shall remain in full
force and effect and Lessor shall not be subject to any compensation or
diminution of rent, nor shall such revocation or diminution be deemed
constructive or actual eviction. The Lessor reserves a right to at any time
build additional stories on the Building of which the Demised Premises is a
part, or to build additions and enlargements to any part of said Building or
parking area.
31. Gender. Feminine or neuter pronouns shall be substituted for those
of the masculine form, and the plural shall be substituted for the singular
number, in any place or places herein which the context may require such
substitution. Lessor herein for convenience has been referred to in neuter form.
32. Assignment and Subletting.
(a) Lessee shall not voluntarily, involuntarily or by operation of law,
assign, transfer, mortgage or otherwise encumber all or any part of Lessee's
interest in this Lease or in the Demised Premises or sublet the whole or any
part of the Demised Premises without first obtaining in each and every instance
the prior written consent of Lessor, which consent shall be at the uncontrolled
discretion of Lessor. The consent by Lessor to any assignment or subletting
shall not constitute a waiver of the necessity for such consent to any
subsequent assignment or subletting. Payment of rentals due hereunder by any
party other than the Lessee named herein shall not be deemed to act as a consent
to the assignment of this Lease or the subletting of the whole or any part of
the Demised Premises to such party nor relieve Lessee of its obligations to pay
the rentals provided for in this Lease.
(b) In the event that Lessee is a corporation, any dissolution, merger,
consolidation or other reorganization of such corporation, or the sale or other
transfer of any of the corporate stock of Lessee, shall constitute an assignment
of this Lease for all purposes of this Paragraph 32. If any assignment is made
as aforesaid, then Lessee shall so notify Lessor and Lessor shall have the right
at its option to terminate this Lease upon five (5) days notice to Lessee.
(c) In the event that Lessor shall agree to any transfer of Lessee's
interest in this Lease, then the term Lessee shall thereafter be deemed to
include, without further reference, the party to whom such interest was
transferred, which is, for example, without limiting the generality thereof, any
subtenant, assignee, concessionaire or licensee. If the Lease be assigned or if
the Demised Premises or any part thereof be occupied by anyone other than
Lessee, Lessor may collect rent from the assignee or other occupant and apply
the net amount collected to the rent herein reserved, but no such assignment
underletting occupancy or collection shall be deemed a waiver of this provision
or the acceptance of the assignee under tenant or occupant as Lessee or as a
release of Lessee from further
14
<PAGE>
performance by Lessee of the provisions on its part to be observed and performed
under this Lease. In the event of any assignment of this Lease made with
Lessor's consent, Lessee shall, nevertheless, remain liable for the performance
of all the terms, covenants and conditions of this Lease and shall require any
assignee to execute and deliver to Lessor, an assumption of liability agreement
in form satisfactory to Lessor, including an assumption by the assignee of all
the obligations of Lessee and the assignee's ratification of an agreement to be
bound by all the provisions of this Lease.
33. Successors and Assigns. All rights, obligations and liabilities
herein given to or imposed upon the respective parties hereto shall extend to
and bind the several and respective heirs, executors, administrators,
successors, subtenants, licensees, concessionaires and assigns of said parties
except as expressly provided in Paragraph 29 above and if here shall be more
than one Lessee, they shall all be bound jointly and severally by the terms,
covenants, conditions and agreements herein and the word "Lessee" shall be
deemed and taken to mean each and every person or party mentioned as a lessee
herein be the same one or more, and if there shall be more than one lessee, any
notice required or permitted by the terms of this Lease may be given by or to
any one of them. No rights, however, shall inure to the benefit of any assignee
of Lessee unless the assignment to such assignee has been approved by Lessor in
writing as aforesaid.
34. Renewal Option. At the expiration of the initial term, if this
Lease shall then be in full force and effect and if Lessee has fully performed
all of the terms and conditions of this Lease, then Lessee shall have the option
to extend this Lease, upon the same terms and conditions, excepting the
provision for rent, for First extended term of five (5) years, to commence on
May 01, 2000 and to end on April 30, 2005. The option for such extended term
shall be exercised by the Lessee by giving written notice to the Lessor not less
than nine (9) months, and not more than twelve (12) months, prior to the
expiration of the then current term. Such extended term shall be upon the same
conditions as provided in this Lease, except that there shall be no privilege to
extend the term of this Lease for any period of time beyond the expiration of
the extended term and except that the Basic Rent for said extended term shall be
at the initial rate of $24.50 per square foot and $1,250.00 for the Drive
Through payable monthly in advance in equal installments, and all other
provisions for additional rent and rent adjustment contained in this Lease shall
apply during the extended term. The Basic Rent shall increase $.50 per square
foot for each year of the renewal term. The Drive Through Rent shall be constant
at $1,250.00 per month. The lessee shall have two additional renewal options of
five (5) years each at a rent to be determined, but in no event, less than the
tenth year of this lease.
35. Miscellaneous Provisions.
(a) The captions of the paragraphs of this Lease are for convenience
only and shall not be considered or referred to in resolving questions of
interpretation or construction.
(b) Printed parts of this Lease shall be as binding upon the parties
hereto as the other parts hereof. Parts of this Lease which are written or
typewritten shall have no greater force or effect than and shall control parts
which are printed, but all parts shall be given equal effect.
(c) Lessee declares that Lessee has read and understands all the parts
of this Lease including all printed parts hereof. If Lessee shall default in the
performance of any covenant required to be performed by virtue of any of the
provisions of this Lease, Lessor may, as hereinbefore provided, perform the same
for the account of Lessee. If Lessor, at any time, is compelled to pay or elects
to pay any sum of money or do any acts which would require the payment of any
sum of money by reason of the failure of Lessee to comply with any provision of
this Lease, or if Lessor is compelled to incur any expense, including a
reasonable attorneys' fees, in instituting, prosecuting or defending any action
or proceeding instituted by reason of any default of Lessee hereunder, the sum
or sums so paid by Lessor with all interest, costs and damages shall be deemed
to be additional rent hereunder and shall be due from Lessee to Lessor on the
first day of the month following the incurring of such respective expenses
except as otherwise specifically provided above. If Lessee is compelled to incur
any expense, including reasonable attorneys' fees, in instituting, prosecuting
or defending any action or proceeding instituted by reason of any default of
Lessor hereunder, the sum or sums so paid by Lessee, with all interest, costs
and damages shall be due and payable from Lessor to Lessee on the first day of
the month following the incurring of such expense. Any sum accruing to Lessor or
Lessee under the terms and provisions of this Lease which shall not be paid when
due, shall bear interest at the rate of two points above the then current prime
rate of interest as determined by Connecticut Bank and Trust Company, or the
highest legal rate of interest which is payable by law, whichever is less, from
the date when the same becomes due and payable by the terms and provisions
hereof until paid.
(e) This Lease and the exhibits, riders and/or addenda, if any
attached, contain all covenants and agreements between Lessor and Lessee
relating in any manner to the rental use and occupancy of the Demised Premises
and the other matters set forth in this Lease. No prior agreement or
understanding pertaining to the same shall be valid or of any force or effect
and the covenants and agreements of this Lease cannot be altered, changed,
modified or added to, except in writing signed by Lessor and Lessee. No
representation, inducement, understanding or anything of any nature whatsoever
made, stated or represented on Lessor's behalf, either orally or in writing
15
<PAGE>
(except this Lease), has induced Lessee to enter into this Lease. The submission
of this document for examination does not constitute an offer to lease or a
reservation of an option for the Demised Premises and becomes effective only
upon execution and delivery thereof by Lessor to Lessee.
(f) Any provision or provisions of this Lease which shall prove to be
invalid, void or illegal shall in no way affect, impair or invalidate any other
provision hereof and the remaining provisions hereof shall nevertheless remain
in full force and effect.
(g) Any default by Lessee under any instrument, undertaking or
agreement executed by Lessee in favor of or with Lessor relating to this Lease
or the tenancy created hereby, shall constitute a breach of this Lease and
entitle Lessor to pursue each and all of its rights and remedies hereunder and
at law.
(h) Lessee's failure to object to any statement, invoice or billing
rendered by Lessor within a period of ninety (90) days of Lessee's receipt
thereof shall constitute Lessee's acquiescence with respect thereto and shall
render such statement, invoice or billing an account stated between Lessor and
Lessee.
(i) Exhibit A (Plan).
(j) Lessee has examined the premises and accepts them in "as is"
condition. Further, lessee shall perform all tenant improvements at its sole
cost and expense and shall obtain all necessary permits for same.
(k) The tenant shall have dedicated parking (four (4) spaces) directly
to the rear of the premises as well as parking in common with other tenants.
(l) It is understood and agreed that this lease is contingent upon the
Landlord obtaining a release of the current lease to Gateway Bank ( now Shawmut
Bank) which the Landlord agrees to pursue with due diligence.
IN WITENESS WHEREOF, the above parties have executed this Lease on the
day and year above written.
C.A.T.F. Limited Partnership
By: /s/Carmen A. Tortora
---------------------------
Carmen A. Tortora, General
Partner
Lessor
Westport Bank & Trust
/s/Thomas Bilbao
------------------------------
Thomas Bilbao, Executive Vice-
President
Lessee
36. All of the Lessee's obligations hereunder are contingent upon Lessee
obtaining approval from the Connecticut Banking Commissioner for the
establishment of a bank branch at the subject location. The Lessee agrees to
forthwith apply for such approval and to diligently pursue its application.
37. Lessee's obligation to pay rent hereunder shall commence three (3) weeks
after receiving Banking Commissioner approval for a branch bank in the subject
location and taking possession of the premises for fit-up work.
38. Wheresoever herein the Lessor's consent is required, such consent shall not
be unreasonably withheld.
16
<PAGE>
AMENDMENT
---------
This Amendment to an existing employment agreement is made as of this
13th day of November, 1995, by and among THE WESTPORT BANK & TRUST COMPANY, a
Connecticut-chartered state bank and trust company having its principal place of
business in the Town of Westport, Connecticut ("Westport Bank"), WESTPORT
BANCORP, INC., a Delaware corporation owning all of the issued and outstanding
shares of capital stock of the Bank ("Westport Bancorp"); (Westport Bank and
Westport Bancorp are collectively referred to herein as the "Bank"), and Michael
H. Flynn, an individual residing in the Town of Fairfield, Connecticut (the
"Executive").
W I T N E S S E T H:
WHEREAS, the Bank entered into an Employment Agreement ("Employment
Agreement") with the Executive on August 31, 1989; and
WHEREAS, the Board of Directors of Westport Bank and Westport Bancorp
(collectively the "Board") and the Executive wish to amend the Employment
Agreement to extend the period after termination of employment during which the
Bank will continue certain employee benefits to Executive; and
WHEREAS, the Board and the Executive further wish to amend the
Employment Agreement to provide the Executive with a so called "tax gross up"
for any excise taxes which might be levied under Sections 280G and 4999 of the
Internal Revenue Code of 1986, as amended in the event of a "change of control"
of the Bank; and
WHEREAS, the Board of Directors of Westport Bank and the Board of
Directors of Westport Bancorp have each by the affirmative vote of a majority of
the members of each said Board approved the amendments to the Employment
Agreement as required by Section 12(c) thereof; and
WHEREAS, a re-examination of the Employment Agreement revealed a need
to correct references in parts of said Agreement.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties hereto agree as follows:
1. The November 18, 1994 amendment to the Employment Agreement is
rescinded and shall be of no further force and effect.
2. The three references in subsection (e) of Section 9 to Section 9(e) are
hereby changed and corrected to read Section 9(d).
1
<PAGE>
3. The phrase "(subject to the limitations in Section 9(g) below)" as it
appears in Section 9(d) of the Employment Agreement is deleted.
4. Subsection (f) of Section 9 of the Employment Agreement is deleted in
its entirety and the following substituted in its place:
"(f) If, in the event of a change in control of the Bank, the
benefits provided by Section 11 and Section 9(d) of this
Agreement, (or, if by reason of the amount of such benefits,
any other amount in the nature of compensation payable to
Executive ("Other Compensation")) is determined to be subject
to the excise tax imposed by Section 4999 of the Code, the
Bank shall pay to Executive, as additional compensation, the
amount necessary to cause the total payments (including the
additional payment required under this Section 9(f)) and
benefits received by Executive under Section 9 and 11 and
Executive's Other Compensation (net of all federal and state
taxes, including all taxes payable under Section 4999 of the
Code) to be equal to the total payments and benefits Executive
would have received under Section 9 and 11 and Executive's
Other Compensation (net of all federal, state and local taxes)
if Section 4999 of the Code had not applied."
5. Section 11 of the Employment Agreement is deleted in its entirety and
the following substituted in its place:
"11. Certain Benefits Upon Termination. Provided Executive's
employment is terminated for other then cause, the Bank shall
maintain in full force and effect for Executive's continued
benefit from the date of termination of his employment and
thereafter for a period of three years the basic and
corporate-owned life insurance, (except in the life insurance
policy described in Section 4(b) above) accidental death and
dismemberment insurance, dental, health, and disability plans,
programs or arrangements in which Executive was entitled to
participate immediately prior to the date of termination, to
the same extent as if Executive continued to be an employee of
the Bank during the three year period following the date of
termination. The Bank shall continue to pay the cost of any
benefits provided under this Section 11; provided, however,
the Bank and Executive shall share the cost of the health
plan, program, or arrangement and each shall pay the portion
which each would have paid if Executive was employed by the
Bank. Any benefits provided under this Section 11, shall be
reduced or offset to the extent they are replaced by
substantially similar benefits provided by a new employer.
Termination for cause shall mean termination because of
Executive's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform material stated duties,
willful violation of any law, rule, or regulation (other than
traffic violations or similar offenses) or final
cease-and-desist order, the violation of which has
2
<PAGE>
a material effect on the Bank, or material breach of any
provision of this Agreement. In determining incompetence, the
acts or omissions shall be measured against standards
generally prevailing in the commercial banking industry;
provided, it shall be the Bank's burden to prove the alleged
acts and omissions and the prevailing nature of the standards
the Bank shall have alleged are violated by such acts and/or
omissions."
Except as amended by this Amendment, the Employment Agreement is ratified and
confirmed as originally signed (with the Stock Option Plan and Agreement made
effective December 17, 1992, substituted for the August 31, 1989 version in
Exhibit A, as was effected in 1993).
IN WITNESS WHEREOF, the parties hereto have set their hands and seals
on the day first above written.
THE WESTPORT BANK & TRUST COMPANY
and WESTPORT BANCORP, INC.
By /s/ Thomas P. Bilbao
------------------------------------
Thomas P. Bilbao,
Executive Vice President and
Chief Operating Officer
By /s/ William B. Laudano, Jr.
------------------------------------
William B. Laudano, Jr.,
Senior Vice President and Chief Financial Officer
By /s/ Michael H. Flynn
------------------------------------
Michael H. Flynn, Executive
Approved for
THE WESTPORT BANK & TRUST COMPANY
and WESTPORT BANCORP, INC.
By /s/ George H. Damman
------------------------------------
George H. Damman
Chairman of the Compensation Committee
of the Board of Directors
3
<PAGE>
AMENDMENT
This Amendment to an existing employment agreement is made as of this
13th day of November, 1995, by and among THE WESTPORT BANK & TRUST COMPANY, a
Connecticut-chartered state bank and trust company having its principal place of
business in the Town of Westport, Connecticut ("Westport Bank"), WESTPORT
BANCORP, INC., a Delaware corporation owning all of the issued and outstanding
shares of capital stock of the Bank ("Westport Bancorp"); (Westport Bank and
Westport Bancorp are collectively referred to herein as the "Bank"), and Thomas
P. Bilbao, an individual residing in the Town of Greenwich, Connecticut (the
"Executive").
W I T N E S S E T H:
WHEREAS, the Bank entered into an Employment Agreement ("Employment
Agreement") with the Executive on June 16, 1992; and
WHEREAS, the Board of Directors of Westport Bank and Westport Bancorp
(collectively the "Board") and the Executive wish to amend the Employment
Agreement to extend the period after termination of employment during which the
Bank will continue certain employee benefits to Executive; and
WHEREAS, the Board and the Executive further wish to amend the
Employment Agreement to provide the Executive with a so called "tax gross up"
for any excise taxes which might be levied under Sections 280G and 4999 of the
Internal Revenue Code of 1986, as amended in the event of a "change of control"
of the Bank; and
WHEREAS, the Board of Directors of Westport Bank and the Board of
Directors of Westport Bancorp have each by the affirmative vote of a majority of
the members of each said Board approved the amendments to the Employment
Agreement as required by Section 12(c) thereof.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties hereto agree as follows:
1. The phrase "(subject to the limitations in Section 9(g) below)" as it
appears in Section 9(d) of the Employment Agreement is deleted.
1
<PAGE>
2. Subsection (f) of Section 9 of the Employment Agreement is deleted in
its entirety and the following substituted in its place:
"(f) If, in the event of a change in control of the Bank, the
benefits provided by Section 11 and Section 9(d) of this
Agreement, (or, if by reason of the amount of such benefits,
any other amount in the nature of compensation payable to
Executive ("Other Compensation")) is determined to be subject
to the excise tax imposed by Section 4999 of the Code, the
Bank shall pay to Executive, as additional compensation, the
amount necessary to cause the total payments (including the
additional payment required under this Section 9(f)) and
benefits received by Executive under Sections 9 and 11 and
Executive's Other Compensation (net of all federal and state
taxes, including all taxes payable under Section 4999 of the
Code) to be equal to the total payments and benefits Executive
would have received under Section 9 and 11 and Executive's
Other Compensation (net of all federal, state and local taxes)
if Section 4999 of the Code had not applied."
3. Section 11 of the Employment Agreement is deleted in its entirety and
the following substituted in its place:
"11. Certain Benefits Upon Termination. Provided Executive's
employment is terminated for other then cause, the Bank shall
maintain in full force and effect for Executive's continued
benefit from the date of termination of his employment and
thereafter for a period of three years the basic and
corporate-owned life insurance, accidental death and
dismemberment insurance, dental, health, and disability plans,
programs or arrangements in which Executive was entitled to
participate immediately prior to the date of termination, to
the same extent as if Executive continued to be an employee of
the Bank during the three year period following the date of
termination. The Bank shall continue to pay the cost of any
benefits provided under this Section 11; provided, however,
the Bank and Executive shall share the cost of the health
plan, program, or arrangement and each shall pay the portion
which each would have paid if Executive was employed by the
Bank. Any benefits provided under this Section 11, shall be
reduced or offset to the extent they are replaced by
substantially similar benefits provided by a new employer.
Termination for cause shall mean termination because of
Executive's
2
<PAGE>
personal dishonesty, incompetence, willful misconduct, breach
of fiduciary duty involving personal profit, intentional
failure to perform material stated duties, willful violation
of any law, rule, or regulation (other than traffic violations
or similar offenses) or final cease-and-desist order, the
violation of which has a material effect on the Bank, or
material breach of any provision of this Agreement. In
determining incompetence, the acts or omissions shall be
measured against standards generally prevailing in the
commercial banking industry; provided, it shall be the Bank's
burden to prove the alleged acts and omissions and the
prevailing nature of the standards the Bank shall have alleged
are violated by such acts and/or omissions."
Except as amended by this Amendment and the amendment dated November
18, 1994, the Employment Agreement is ratified and confirmed as
originally signed.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals
on the day first above written.
THE WESTPORT BANK & TRUST COMPANY
and WESTPORT BANCORP, INC.
By /s/ Michael H. Flynn
-------------------------------------------
Michael H. Flynn
President and Chief Executive Officer
By /s/ William B. Laudano, Jr.
-------------------------------------------
William B. Laudano, Jr.
Senior Vice President and
Chief Financial Officer
/s/ Thomas P. Bilbao
-------------------------------------------
Thomas P. Bilbao, Executive
Approved for
THE WESTPORT BANK & TRUST COMPANY
and WESTPORT BANCORP, INC.
3
<PAGE>
By /s/ George H. Damman
- -------------------------------------------
George H. Damman
Chairman of the Compensation Committee
of the Board of Directors
4
<PAGE>
AMENDMENT
This Amendment to an existing employment agreement is made as of this
13th day of November, 1995, by and among THE WESTPORT BANK & TRUST COMPANY, a
Connecticut-chartered state bank and trust company having its principal place of
business in the Town of Westport, Connecticut ("Westport Bank"), WESTPORT
BANCORP, INC., a Delaware corporation owning all of the issued and outstanding
shares of capital stock of the Bank ("Westport Bancorp"); (Westport Bank and
Westport Bancorp are collectively referred to herein as the "Bank"), and Richard
T. Cummings, an individual residing in the Town of Fairfield, Connecticut (the
"Executive").
W I T N E S S E T H:
WHEREAS, the Bank entered into an Employment Agreement ("Employment
Agreement") with the Executive on January 12, 1990; and
WHEREAS, the Board of Directors of Westport Bank and Westport Bancorp
(collectively the "Board") and the Executive wish to amend the Employment
Agreement to extend the period after termination of employment during which the
Bank will continue certain employee benefits to Executive; and
WHEREAS, the Board and the Executive further wish to amend the
Employment Agreement to provide the Executive with a so called "tax gross up"
for any excise taxes which might be levied under Sections 280G and 4999 of the
Internal Revenue Code of 1986, as amended in the event of a "change of control"
of the Bank; and
WHEREAS, the Board of Directors of Westport Bank and the Board of
Directors of Westport Bancorp have each by the affirmative vote of a majority of
the members of each said Board approved the amendments to the Employment
Agreement as required by Section 12(c) thereof.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties hereto agree as follows:
1. The phrase "(subject to the limitations in Section 9(g) below)" as it
appears in Section 9(d) of the Employment Agreement is deleted.
2. Subsection (f) of Section 9 of the Employment Agreement is deleted in
its entirety and the following substituted in its place:
1
<PAGE>
"(f) If, in the event of a change in control of the Bank, the
benefits provided by Section 11 and Section 9(d) of this
Agreement, (or, if by reason of the amount of such benefits,
any other amount in the nature of compensation payable to
Executive ("Other Compensation")) is determined to be subject
to the excise tax imposed by Section 4999 of the Code, the
Bank shall pay to Executive, as additional compensation, the
amount necessary to cause the total payments (including the
additional payment required under this Section 9(f)) and
benefits received by Executive under Sections 9 and 11 and
Executive's Other Compensation (net of all federal and state
taxes, including all taxes payable under Section 4999 of the
Code) to be equal to the total payments and benefits Executive
would have received under Section 9 and 11 and Executive's
Other Compensation (net of all federal, state and local taxes)
if Section 4999 of the Code had not applied."
3. Section 11 of the Employment Agreement is deleted in its entirety and
the following substituted in its place:
"11. Certain Benefits Upon Termination. Provided Executive's
employment is terminated for other then cause, the Bank shall
maintain in full force and effect for Executive's continued
benefit from the date of termination of his employment and
thereafter for a period of three years the basic,
corporate-owned and split dollar life insurance, accidental
death and dismemberment insurance, dental, health, and
disability plans, programs or arrangements in which Executive
was entitled to participate immediately prior to the date of
termination, to the same extent as if Executive continued to
be an employee of the Bank during the three year period
following the date of termination. The Bank shall continue to
pay the cost of any benefits provided under this Section 11;
provided, however, the Bank and Executive shall share the cost
of the health plan, program, or arrangement and each shall pay
the portion which each would have paid if Executive was
employed by the Bank. Any benefits provided under this Section
11, shall be reduced or offset to the extent they are replaced
by substantially similar benefits provided by a new employer.
Termination for cause shall mean termination because of
Executive's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform material stated duties,
willful violation
2
<PAGE>
of any law, rule, or regulation (other than traffic violations
or similar offenses) or final cease-and-desist order, the
violation of which has a material effect on the Bank, or
material breach of any provision of this Agreement. In
determining incompetence, the acts or omissions shall be
measured against standards generally prevailing in the
commercial banking industry; provided, it shall be the Bank's
burden to prove the alleged acts and omissions and the
prevailing nature of the standards the Bank shall have alleged
are violated by such acts and/or omissions."
Except as amended by this Amendment and the amendment dated November
18, 1994, the Employment Agreement is ratified and confirmed as
originally signed.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals
on the day first above written.
THE WESTPORT BANK & TRUST COMPANY
and WESTPORT BANCORP, INC.
By /s/ Michael H. Flynn
------------------------------------------
Michael H. Flynn
President and Chief Executive Officer
By /s/ Thomas P. Bilbao
------------------------------------------
Thomas P. Bilbao
Executive Vice President and
Chief Operating Officer
/s/ Richard T. Cummings
------------------------------------------
Richard T. Cummings, Executive
Approved for
THE WESTPORT BANK & TRUST COMPANY
and WESTPORT BANCORP, INC.
By /s/ George H. Damman
- ------------------------------------------
George H. Damman
3
<PAGE>
Chairman of the Compensation Committee
of the Board of Directors
4
<PAGE>
AMENDMENT
This Amendment to an existing employment agreement is made as of this
13th day of November, 1995, by and among THE WESTPORT BANK & TRUST COMPANY, a
Connecticut-chartered state bank and trust company having its principal place of
business in the Town of Westport, Connecticut ("Westport Bank"), WESTPORT
BANCORP, INC., a Delaware corporation owning all of the issued and outstanding
shares of capital stock of the Bank ("Westport Bancorp"); (Westport Bank and
Westport Bancorp are collectively referred to herein as the "Bank"), and William
B. Laudano, Jr., an individual residing in the Town of Guilford, Connecticut
(the "Executive").
W I T N E S S E T H:
WHEREAS, the Bank entered into an Employment Agreement ("Employment
Agreement") with the Executive on February 23, 1995; and
WHEREAS, the Board of Directors of Westport Bank and Westport Bancorp
(collectively the "Board") and the Executive wish to amend the Employment
Agreement to extend the period after termination of employment during which the
Bank will continue certain employee benefits to Executive; and
WHEREAS, the Board and the Executive further wish to amend the
Employment Agreement to provide the Executive with a so called "tax gross up"
for any excise taxes which might be levied under Sections 280G and 4999 of the
Internal Revenue Code of 1986, as amended in the event of a "change of control"
of the Bank; and
WHEREAS, the Board of Directors of Westport Bank and the Board of
Directors of Westport Bancorp have each by the affirmative vote of a majority of
the members of each said Board approved the amendments to the Employment
Agreement as required by Section 12(c) thereof.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties hereto agree as follows:
1. The phrase "(subject to the limitations in Section 9(g) below)" as it
appears in Section 9(d) of the Employment Agreement is deleted.
1
<PAGE>
2. Subsection (f) of Section 9 of the Employment Agreement is deleted in
its entirety and the following substituted in its place:
"(f) If, in the event of a change in control of the Bank, the
benefits provided by Section 11 and Section 9(d) of this
Agreement, (or, if by reason of the amount of such benefits,
any other amount in the nature of compensation payable to
Executive ("Other Compensation")) is determined to be subject
to the excise tax imposed by Section 4999 of the Code, the
Bank shall pay to Executive, as additional compensation, the
amount necessary to cause the total payments (including the
additional payment required under this Section 9(f)) and
benefits received by Executive under Sections 9 and 11 and
Executive's Other Compensation (net of all federal and state
taxes, including all taxes payable under Section 4999 of the
Code) to be equal to the total payments and benefits Executive
would have received under Section 9 and 11 and Executive's
Other Compensation (net of all federal, state and local taxes)
if Section 4999 of the Code had not applied."
3. Section 11 of the Employment Agreement is deleted in its entirety and
the following substituted in its place:
"11. Certain Benefits Upon Termination. Provided Executive's
employment is terminated for other then cause, the Bank shall
maintain in full force and effect for Executive's continued
benefit from the date of termination of his employment and
thereafter for a period of three years the basic,
corporate-owned and split dollar life insurance, accidental
death and dismemberment insurance, dental, health, and
disability plans, programs or arrangements in which Executive
was entitled to participate immediately prior to the date of
termination, to the same extent as if Executive continued to
be an employee of the Bank during the three year period
following the date of termination. The Bank shall continue to
pay the cost of any benefits provided under this Section 11;
provided, however, the Bank and Executive shall share the cost
of the health plan, program, or arrangement and each shall pay
the portion which each would have paid if Executive was
employed by the Bank. Any benefits provided under this Section
11, shall be reduced or offset to the extent they are replaced
by substantially similar benefits provided by a new employer.
Termination for cause shall mean termination
2
<PAGE>
because of Executive's personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform material
stated duties, willful violation of any law, rule, or
regulation (other than traffic violations or similar offenses)
or final cease-and-desist order, the violation of which has a
material effect on the Bank, or material breach of any
provision of this Agreement. In determining incompetence, the
acts or omissions shall be measured against standards
generally prevailing in the commercial banking industry;
provided, it shall be the Bank's burden to prove the alleged
acts and omissions and the prevailing nature of the standards
the Bank shall have alleged are violated by such acts and/or
omissions."
Except as amended by this Amendment the Employment Agreement is ratified and
confirmed as originally signed.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals
on the day first above written.
THE WESTPORT BANK & TRUST COMPANY
and WESTPORT BANCORP, INC.
By /s/ Michael H. Flynn
-----------------------------------------
Michael H. Flynn
President and Chief Executive Officer
By /s/ Thomas P. Bilbao
-----------------------------------------
Thomas P. Bilbao
Executive Vice President and
Chief Operating Officer
/s/ William B. Laudano, Jr.
-----------------------------------------
William B. Laudano, Jr., Executive
Approved for
THE WESTPORT BANK & TRUST COMPANY
and WESTPORT BANCORP, INC.
3
<PAGE>
By /s/ George H. Damman
- -----------------------------------------
George H. Damman
Chairman of the Compensation Committee
of the Board of Directors
4
<PAGE>
AMENDMENT
This Amendment to an existing employment agreement is made as of this
13th day of November, 1995, by and among THE WESTPORT BANK & TRUST COMPANY, a
Connecticut-chartered state bank and trust company having its principal place of
business in the Town of Westport, Connecticut ("Westport Bank"), WESTPORT
BANCORP, INC., a Delaware corporation owning all of the issued and outstanding
shares of capital stock of the Bank ("Westport Bancorp"); (Westport Bank and
Westport Bancorp are collectively referred to herein as the "Bank"), and Richard
L. Card, an individual residing in the Town of Norwalk, Connecticut (the
"Executive").
W I T N E S S E T H:
WHEREAS, the Bank entered into an Employment Agreement ("Employment
Agreement") with the Executive on November 15, 1993; and
WHEREAS, the Board of Directors of Westport Bank and Westport Bancorp
(collectively the "Board") and the Executive wish to amend the Employment
Agreement to extend the period after termination of employment during which the
Bank will continue certain employee benefits to Executive; and
WHEREAS, the Board and the Executive further wish to amend the
Employment Agreement to provide the Executive with a so called "tax gross up"
for any excise taxes which might be levied under Sections 280G and 4999 of the
Internal Revenue Code of 1986, as amended in the event of a "change of control"
of the Bank; and
WHEREAS, the Board of Directors of Westport Bank and the Board of
Directors of Westport Bancorp have each by the affirmative vote of a majority of
the members of each said Board approved the amendments to the Employment
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties hereto agree as follows:
1. The phrase "(subject to the limitations in Section 6(g) below)" as it
appears in Section 6(d) of the Employment Agreement is deleted.
1
<PAGE>
2. Subsection (f) of Section 6 of the Employment Agreement is deleted in
its entirety and the following substituted in its place:
"(f) If, in the event of a change in control of the Bank, the
benefits provided by Sections 6(d) and 8 of this Agreement,
(or, if by reason of the amount of such benefits, any other
amount in the nature of compensation payable to Executive
("Other Compensation")) is determined to be subject to the
excise tax imposed by Section 4999 of the Code, the Bank shall
pay to Executive, as additional compensation, the amount
necessary to cause the total payments (including the
additional payment required under this Section 6(f)) and
benefits received by Executive under Sections 6 and 8 and
Executive's Other Compensation (net of all federal and state
taxes, including all taxes payable under Section 4999 of the
Code) to be equal to the total payments and benefits Executive
would have received under Section 6 and 8 and Executive's
Other Compensation (net of all federal, state and local taxes)
if Section 4999 of the Code had not applied."
3. Section 8 of the Employment Agreement is deleted in its entirety and
the following substituted in its place:
"8. Certain Benefits Upon Termination. Provided that
Executive's employment is terminated for other then cause, the
Bank shall maintain in full force and effect for Executive's
continued benefit from the date of termination of his
employment and thereafter for a period of three years the
basic, corporate-owned and split dollar life insurance,
accidental death and dismemberment insurance, dental, health,
and disability plans, programs or arrangements in which
Executive was entitled to participate immediately prior to the
date of termination, to the same extent as if Executive
continued to be an employee of the Bank during the three year
period following the date of termination. The Bank shall
continue to pay the cost of any benefits provided under this
Section 8; provided, however, the Bank and Executive shall
share the cost of the health plan, program, or arrangement and
each shall pay the portion which each would have paid if
Executive was employed by the Bank. Any benefits provided
under this Section 8, shall be reduced or offset to the extent
they are replaced by substantially similar benefits provided
by a new employer. Termination for cause shall mean
termination because of
2
<PAGE>
Executive's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform material stated duties,
willful violation of any law, rule, or regulation (other than
traffic violations or similar offenses) or final
cease-and-desist order, the violation of which has a material
effect on the Bank, or material breach of any provision of
this Agreement. In determining incompetence, the acts or
omissions shall be measured against standards generally
prevailing in the commercial banking industry; provided, it
shall be the Bank's burden to prove the alleged acts and
omissions and the prevailing nature of the standards the Bank
shall have alleged are violated by such acts and/or
omissions."
Except as amended by this Amendment the Employment Agreement is ratified and
confirmed as originally signed.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals
on the day first above written.
THE WESTPORT BANK & TRUST COMPANY
and WESTPORT BANCORP, INC.
By /s/ Michael H. Flynn
---------------------------------------
Michael H. Flynn
President and Chief Executive Officer
By /s/ Thomas P. Bilbao
---------------------------------------
Thomas P. Bilbao
Executive Vice President and
Chief Operating Officer
/s/ Richard L. Card
---------------------------------------
Richard L. Card, Executive
Approved for
THE WESTPORT BANK & TRUST COMPANY
and WESTPORT BANCORP, INC.
3
<PAGE>
By /s/ George H. Damman
- ---------------------------------------
George H. Damman
Chairman of the Compensation Committee
of the Board of Directors
4
<PAGE>
SPLIT DOLLAR INSURANCE AGREEMENT
(COLLATERAL ASSIGNMENT METHOD)
THIS AGREEMENT is entered into effective this 1st day of December,
1995, by and between The Westport Bank and Trust Company, a Connecticut
Chartered State Bank and Trust Company having its principal place of business in
Westport, Connecticut (hereinafter called "Employer"), and William B. Laudano,
Jr. (hereinafter called ("Employee").
WHEREAS, William B. Laudano, Jr. is a valued Employee of the Employer,
and Employer wishes to provide additional inducement for Employee's continued
employment, and as additional compensation, Employer wishes to assist Employee
with a personal life insurance program by entering into a Split Dollar Insurance
Agreement ("Agreement").
NOW, THEREFORE, Employer and Employee agree as follows:
1. The life insurance Policy with which this Agreement deals is Policy
#VL9202800 (hereinafter called "Policy"), issued by Hartford Life
Insurance Company (hereinafter called "Insurer") on the life of William
B. Laudano, in the face amount of $268,000.00.
2. Employee shall be the owner of the Policy, and may exercise all
ownership rights granted to the owner by the terms of the Policy. It is
the express intention of the parties to reserve to the Employee all
rights in the Policy granted by the terms of the Policy, including, but
not limited to, the right to borrow against the Policy, the right to
assign the owner's interest in the Policy, the right to change the
beneficiary of the Policy, the right to exercise settlement options,
and the right to surrender or cancel the Policy (in whole or in part).
The Employer shall not have nor exercise any right in and to the Policy
which could, in any way, endanger, defeat or impair any of the rights
of the Employee in the Policy. The only rights in and to the Policy
granted to the Employer shall be its security interest in the cash
value of the Policy, as defined therein, and its right to receive a
portion of the death benefit of the Policy, as provided in this
Agreement. The Employer shall not assign any of its rights in the
Policy to anyone other than the owner (or the owner's transferee, if
the owner has transferred his rights in the Policy).
3. Premiums on the Policy shall be paid by the Employer and shall be
repaid to the Employer as provided in this Agreement.
4. The Employee has, contemporaneously with the adoption of this
agreement, assigned the Policy to the Employer as collateral, under a
form of Collateral Assignment attached hereto as Exhibit A. The
Employer's interest in the Policy shall be specifically limited to the
following rights in the cash value and to a portion of the death
benefit:
1
<PAGE>
(a) Subject to paragraph 10 hereof, the right to be repaid its cumulative
premiums paid or, if less, the net cash surrender value of the Policy,
in the event the Policy is totally surrendered or cancelled by the
Employee, or the right to receive the surrender proceeds, to the extent
of its cumulative premiums paid, in the event the Policy is partially
surrendered or cancelled by the Employee, as provided in paragraph 5
below .
(b) Subject to paragraph 10 hereof, the right to be repaid its cumulative
premiums paid upon the death of the Employee, as provided in Paragraph
6 below.
(c) Subject to < paragraph 10 hereof, the right to be repaid its cumulative
premiums paid or, if less, the net cash surrender value of the Policy,
or to receive ownership of the Policy, in the event of the termination
of this Agreement, as provided in paragraphs 8 and 9 below.
(d) The right to be repaid a portion of its cumulative premiums paid if a
Policy loan or partial withdrawal made by the Employee in any year
causes the net cash surrender value of the Policy to be a sum less than
the Employer's cumulative premiums paid. In such case, Employee will
use a portion of any Policy loan proceeds or partial withdrawal to
reduce the cumulative premiums paid by the Employer so as to cause the
net cash surrender value to be equal to or greater than the Employer's
cumulative premiums paid. As used in this Agreement, the term "net cash
surrender value" means the cash surrender value of the Policy, less the
amount of any then existing loans or withdrawals against the Policy
obtained by the Employee pursuant to this paragraph.
5. The Employee shall have the sole right to surrender or cancel the
Policy (in whole or in part). In the event of a total surrender or
cancellation by the Employee, the Employer shall be entitled (subject
to paragraph 10 hereof) to receive the then outstanding balance of its
cumulative premiums paid or, if less, the net cash surrender value of
the Policy.
6. Upon the death of the Employee, the Employer shall be entitled (subject
to paragraph 10 hereof) to receive a portion of the death benefit
provided under the Policy equal to the then outstanding balance of its
cumulative premiums paid. The balance of the death benefit provided
under the Policy, if any, shall be paid directly to the beneficiary or
beneficiaries designated by the Employee, in the manner and in the
amounts provided by the beneficiary designation of the Policy.
2
<PAGE>
7. This Agreement may be terminated, subject to the provisions of
Paragraphs 8 and 9 below, by either party, with consent of the other
party, by giving notice in writing to the other party.
8. In the event of termination of this Agreement as provided in Paragraph
7 above, the Employee shall repay to the Employer, within sixty (60
days) of the date of termination, the then outstanding balance of its
cumulative premiums paid hereunder, or if less, the net cash surrender
value of the Policy, unless said amount is not payable pursuant to
paragraph 10 hereof. Upon receipt of this amount, the Employer shall
execute an appropriate release of its Collateral Assignment of the
Policy.
9. If the Employee fails to repay the Employer the amount specified in and
payable under paragraph 8 above within sixty (60) days of the date of
termination of the Agreement (unless said amount is not payable
pursuant to paragraph 10 hereof), the Employee shall execute any and
all instruments that may be required to vest ownership of the Policy in
the Employer. Thereafter, the Employee shall have no further interest
in the Policy or in this Agreement.
10. In the event the Employee's employment is terminated for any reason
other than cause (as that term is defined in paragraph 8(a) of the
Employee's Employment Agreement with the Employer), or the Employee's
employment is terminated after a change of control as a result of
actual or constructive termination (as those terms are defined in
paragraph 9(b) of the Employee's Employment Agreement with the
Employer), then, in that event, notwithstanding any other provisions in
this Agreement to the contrary, this Agreement shall terminate and the
Employer shall charge to the Employee as additional compensation the
cumulative premiums paid by the Employer pursuant to the terms of the
Policy and shall execute an appropriate release of its Collateral
Assignment of the Policy.
11. The Employee shall have the sole right to borrow against the Policy,
and the Employer shall have no right to obtain loans against the
Policy, directly or indirectly, from the insurer or any other person,
or pledge or assign the Policy as security for any loan.
12. In the event the Employee shall transfer all interest in the Policy to
a transferee, then all of the Employee's interest in the Policy and in
this Agreement shall be vested in the transferee, who shall become a
substituted party, and the Employee shall have no further interest in
the Policy or in this Agreement.
13. The Insurer shall in no way be bound by, or be deemed to have notice
of, the provisions of this Agreement.
3
<PAGE>
14. This Split Dollar Agreement may not be amended, altered or modified,
except by a written instrument signed by each of the parties.
15. Any notice, consent or demand required or permitted to be given under
the provisions of this Split Dollar Agreement by one party to another
shall be in writing, shall be signed by the party, and shall be given
either by delivery to the other party personally, or by mailing, by
United States Certified mail, postage prepaid, to the other party,
addressed to the party's last known address as shown on the Employer's
records. The date of mailing shall be deemed the date of such mailed
notice, consent or demand.
16. This Agreement shall bind the Employer, its successors and assigns and
the Employee and the Employee's heirs, personal representatives,
successors, and transferees, and any Policy beneficiary.
17. This plan is intended to qualify as a life insurance employee benefit
plan as described in Revenue Ruling 64-328.
18. This Split Dollar Agreement, and the rights of the parties hereunder
shall be governed by and construed pursuant to the laws of the State of
Connecticut.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
the day and year first above written.
THE WESTPORT BANK & TRUST COMPANY
By /s/ Michael H. Flynn
---------------------------------------------
Michael H. Flynn
President and Chief Executive Officer
By /s/ Thomas P. Bilbao
---------------------------------------------
Thomas P. Bilbao
Executive Vice President and
Chief Operating Officer
Approved for
THE WESTPORT BANK & TRUST
COMPANY and WESTPORT
BANCORP, INC.
4
<PAGE>
By /s/ David A. Rosow /s/ William B. Laudano, Jr.
-------------------------- ---------------------------
David A. Rosow William B. Laudano, Jr.
Chairman of the Board
5
<PAGE>
EXHIBIT A
(COLLATERAL ASSIGNMENT)
THIS ASSIGNMENT is made and entered into this 1st day of December,
1995, by the undersigned as owner of a certain Life Insurance Policy # VL9202800
("Policy") issued by Hartford Life Insurance Company ("Insurer"), upon the life
of William B. Laudano, Jr., and The Westport Bank & Trust Company (the
"Assignee").
WHEREAS, William B. Laudano, Jr. is a valued Employee of the Assignee,
and
WHEREAS, Employee has entered into a Split Dollar Agreement with
Assignee (the "Agreement"), and
WHEREAS, in consideration of the Assignee agreeing to make premium
payments, the Employee agrees to grant the Assignee a security interest in the
Policy as collateral security for the repayment of cumulative premiums paid by
the Assignee.
NOW, THEREFORE, the undersigned Employee hereby assigns, transfers and
sets over to the Assignee the following specific rights in the Policy subject to
the following terms and conditions:
1. This Assignment is made, and the Policy is to be held, as collateral
security for all liabilities of the Employee to the Assignee, either
now existing or that may hereafter arise, pursuant to the terms of the
Agreement.
2. The Assignee's interest in the Policy shall be strictly limited to:
(a) Subject to paragraph 10 of the Agreement, the right to be
repaid a portion of its cumulative premiums paid if a Policy
loan or partial withdrawal made by the Employee in any year
causes the net cash surrender value of Policy to be a sum less
than the Employer's cumulative premiums paid.
(b) Subject to paragraph 10 of the Agreement, the right to be
repaid its cumulative premiums paid or, if less, the net cash
surrender value of the Policy, in the event the Policy is
totally surrendered or cancelled by the Employee as provided
in Paragraph 5 of the Agreement.
6
<PAGE>
(c) Subject to paragraph 10 of the Agreement, the right to be
repaid its cumulative premiums paid, in the event of the death
of the Insured as provided in paragraph 6 of the Agreement.
(d) Subject to paragraph 10 of the Agreement, the right to be
repaid its cumulative premiums paid, or, if less, the net cash
surrender value of the Policy, or to receive ownership of the
Policy, in the event of termination of the Agreement as
provided in paragraph 8 of the Agreement.
3. The Employee shall retain all incidents of ownership in the Policy,
including, but not limited to, the sole and exclusive rights to: borrow
against the Policy; make withdrawals from the Policy; assign Employee's
interest in the Policy; change the beneficiary of the Policy; exercise
settlement options; and, surrender or cancel the Policy (in whole or in
part). All of these incidents of ownership shall be exercisable by the
Employee unilaterally and without the consent of any other person.
4. The Assignee shall, upon request, if the Policy is in the possession of
the Assignee, forward the Policy to the Insurer, without unreasonable
delay, for change of beneficiary, any election of optional mode of
settlement, of the exercise of any other right reserved by the
Employee.
5. The Insurer is hereby authorized to recognize the Assignee's claims to
rights for any action taken by the Assignee, the validity or the amount
of any of the liabilities of the Employee to the Assignee under the
Agreement, the existence of any default therein, the giving of any
notice required herein, or the application to be made by the Assignee
of any amounts to be paid to the Assignee. The receipt of the Assignee
for any sums received by it shall be a full discharge and release
therefore to the Insured.
6. The Insurer shall be fully protected in recognizing a request made by
the Employee for surrender or cancellation of the Policy, in whole or
in part, or in recognizing a request made by the Employee for any loans
against the Policy permitted by the terms of the Policy. In the event
this request is made, the Insurer may pay the proceeds of any
surrender, cancellation, or loan to the sole order of the Employee, or
as the Employee shall direct.
7. Upon the full payment of the liabilities of the Employee to the
Assignee pursuant to the Agreement or the satisfaction of these
liabilities pursuant to paragraph 10 of the Agreement, the Assignee
shall execute an appropriate release of this Collateral Assignment.
7
<PAGE>
8. It is the express intention of the Employee to assign a limited
interest in the Policy to the Assignee as Security for certain premium
payments made by the Assignee, without giving the Assignee any
incidents of ownership in the Policy within the meaning of section 2042
of the Internal Revenue Code (and regulations thereunder), or any
similar provision of subsequent law. All provisions of this Collateral
Assignment shall be construed and exercised to as to effect that
intention.
9. When the Agreement is terminated pursuant to the provisions of
paragraph 10 of the Agreement, the cumulative premiums charged by the
Assignee pursuant to the terms of the Policy shall be charged to the
Employee as additional compensation.
IN WITNESS WHEREOF the Employee has executed this Assignment effective
the day and year first above written.
/s/ William B. Laudano, Jr.
-----------------------------------
William B. Laudano, Jr.
This assignment was acknowledged and recorded by The Hartford on
January 19, 1996.
/s/ Maureen Haugh
-----------------------------------
Account Manager
8
<PAGE>
SPLIT DOLLAR INSURANCE AGREEMENT
(COLLATERAL ASSIGNMENT METHOD)
THIS AGREEMENT is entered into effective this 1st day of December,
1995, by and between The Westport Bank and Trust Company, a Connecticut
Chartered State Bank and Trust Company having its principal place of business in
Westport, Connecticut (hereinafter called "Employer"), and Richard T. Cummings
(hereinafter called ("Employee").
WHEREAS, Richard T. Cummings is a valued Employee of the Employer, and
Employer wishes to provide additional inducement for Employee's continued
employment, and as additional compensation, Employer wishes to assist Employee
with a personal life insurance program by entering into a Split Dollar Insurance
Agreement ("Agreement").
NOW, THEREFORE, Employer and Employee agree as follows:
1. The life insurance Policy with which this Agreement deals is Policy
#VL9202798 (hereinafter called "Policy"), issued by Hartford Life
Insurance Company (hereinafter called "Insurer") on the life of Richard
T. Cummings, in the face amount of $277,000.00.
2. Employee shall be the owner of the Policy, and may exercise all
ownership rights granted to the owner by the terms of the Policy. It is
the express intention of the parties to reserve to the Employee all
rights in the Policy granted by the terms of the Policy, including, but
not limited to, the right to borrow against the Policy, the right to
assign the owner's interest in the Policy, the right to change the
beneficiary of the Policy, the right to exercise settlement options,
and the right to surrender or cancel the Policy (in whole or in part).
The Employer shall not have nor exercise any right in and to the Policy
which could, in any way, endanger, defeat or impair any of the rights
of the Employee in the Policy. The only rights in and to the Policy
granted to the Employer shall be its security interest in the cash
value of the Policy, as defined therein, and its right to receive a
portion of the death benefit of the Policy, as provided in this
Agreement. The Employer shall not assign any of its rights in the
Policy to anyone other than the owner (or the owner's transferee, if
the owner has transferred his rights in the Policy).
3. Premiums on the Policy shall be paid by the Employer and shall be
repaid to the Employer as provided in this Agreement.
4. The Employee has, contemporaneously with the adoption of this
agreement, assigned the Policy to the Employer as collateral, under a
form of Collateral Assignment attached hereto as Exhibit A. The
Employer's interest in the Policy shall be specifically limited to the
following rights in the cash value and to a portion of the death
benefit:
1
<PAGE>
(a) Subject to paragraph 10 hereof, the right to be repaid its cumulative
premiums paid or, if less, the net cash surrender value of the Policy,
in the event the Policy is totally surrendered or cancelled by the
Employee, or the right to receive the surrender proceeds, to the extent
of its cumulative premiums paid, in the event the Policy is partially
surrendered or cancelled by the Employee, as provided in paragraph 5
below.
(b) Subject to paragraph 10 hereof, the right to be repaid its cumulative
premiums paid upon the death of the Employee, as provided in Paragraph
6 below.
(c) Subject to < paragraph 10 hereof, the right to be repaid its cumulative
premiums paid or, if less, the net cash surrender value of the Policy,
or to receive ownership of the Policy, in the event of the termination
of this Agreement, as provided in paragraphs 8 and 9 below.
(d) The right to be repaid a portion of its cumulative premiums paid if a
Policy loan or partial withdrawal made by the Employee in any year
causes the net cash surrender value of the Policy to be a sum less than
the Employer's cumulative premiums paid. In such case, Employee will
use a portion of any Policy loan proceeds or partial withdrawal to
reduce the cumulative premiums paid by the Employer so as to cause the
net cash surrender value to be equal to or greater than the Employer's
cumulative premiums paid. As used in this Agreement, the term "net cash
surrender value" means the cash surrender value of the Policy, less the
amount of any then existing loans or withdrawals against the Policy
obtained by the Employee pursuant to this paragraph.
5. The Employee shall have the sole right to surrender or cancel the
Policy (in whole or in part). In the event of a total surrender or
cancellation by the Employee, the Employer shall be entitled (subject
to paragraph 10 hereof) to receive the then outstanding balance of its
cumulative premiums paid or, if less, the net cash surrender value of
the Policy.
6. Upon the death of the Employee, the Employer shall be entitled (subject
to paragraph 10 hereof) to receive a portion of the death benefit
provided under the Policy equal to the then outstanding balance of its
cumulative premiums paid. The balance of the death benefit provided
under the Policy, if any, shall be paid directly to the beneficiary or
beneficiaries designated by the Employee, in the manner and in the
amounts provided by the beneficiary designation of the Policy.
7. This Agreement may be terminated, subject to the provisions of
Paragraphs 8 and 9 below, by either party, with consent of the other
party, by giving notice in writing to the other party.
8. In the event of termination of this Agreement as provided in Paragraph
7 above, the Employee shall repay to the Employer, within sixty (60
days) of the date of termination,
2
<PAGE>
the then outstanding balance of its cumulative premiums paid hereunder,
or if less, the net cash surrender value of the Policy, unless said
amount is not payable pursuant to paragraph 10 hereof. Upon receipt of
this amount, the Employer shall execute an appropriate release of its
Collateral Assignment of the Policy.
9. If the Employee fails to repay the Employer the amount specified in and
payable under paragraph 8 above within sixty (60) days of the date of
termination of the Agreement (unless said amount is not payable
pursuant to paragraph 10 hereof), the Employee shall execute any and
all instruments that may be required to vest ownership of the Policy in
the Employer. Thereafter, the Employee shall have no further interest
in the Policy or in this Agreement.
10. In the event the Employee's employment is terminated for any reason
other than cause (as that term is defined in paragraph 8(a) of the
Employee's Employment Agreement with the Employer) or the Employee's
employment is terminated after a change of control as a result of
actual or constructive termination (as those terms are defined in
paragraph 9(b) of the Employee's Employment Agreement with the
Employer), then, in that event, notwithstanding any other provisions in
this Agreement to the contrary, this Agreement shall terminate and the
Employer shall charge to the Employee as additional compensation the
cumulative premiums paid by the Employer pursuant to the terms of the
Policy and shall execute an appropriate release of its Collateral
Assignment of the Policy.
11. The Employee shall have the sole right to borrow against the Policy,
and the Employer shall have no right to obtain loans against the
Policy, directly or indirectly, from the insurer or any other person,
or pledge or assign the Policy as security for any loan.
12. In the event the Employee shall transfer all interest in the Policy to
a transferee, then all of the Employee's interest in the Policy and in
this Agreement shall be vested in the transferee, who shall become a
substituted party, and the Employee shall have no further interest in
the Policy or in this Agreement.
13. The Insurer shall in no way be bound by, or be deemed to have notice
of, the provisions of this Agreement.
3
<PAGE>
14. This Split Dollar Agreement may not be amended, altered or modified,
except by a written instrument signed by each of the parties.
15. Any notice, consent or demand required or permitted to be given under
the provisions of this Split Dollar Agreement by one party to another
shall be in writing, shall be signed by the party, and shall be given
either by delivery to the other party personally, or by mailing, by
United States Certified mail, postage prepaid, to the other party,
addressed to the party's last known address as shown on the Employer's
records. The date of mailing shall be deemed the date of such mailed
notice, consent or demand.
16. This Agreement shall bind the Employer, its successors and assigns and
the Employee and the Employee's heirs, personal representatives,
successors, and transferees, and any Policy beneficiary.
17. This plan is intended to qualify as a life insurance employee benefit
plan as described in Revenue Ruling 64-328.
18. This Split Dollar Agreement, and the rights of the parties hereunder
shall be governed by and construed pursuant to the laws of the State of
Connecticut.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
the day and year first above written.
THE WESTPORT BANK & TRUST COMPANY
By /s/ Thomas P. Bilbao
-------------------------------------
Thomas P. Bilbao,
Executive Vice President and
Chief Operating Officer
By /s/ William B. Laudano, Jr.
--------------------------------------
William B. Laudano, Jr.,
Senior Vice President and
Chief Financial Officer
Approved for
THE WESTPORT BANK & TRUST
COMPANY and WESTPORT
BANCORP, INC.
By /s/ David A. Rosow /s/ Richard T. Cummings
----------------------------- -----------------------------
David A. Rosow Richard T. Cummings
Chairman of the Board
4
<PAGE>
EXHIBIT A
(COLLATERAL ASSIGNMENT)
THIS ASSIGNMENT is made and entered into this 1st day of December,
1995, by the undersigned as owner of a certain Life Insurance Policy #VL9202798
("Policy") issued by Hartford Life Insurance Company ("Insurer"), upon the life
of Richard T. Cummings, and The Westport Bank & Trust Company (the "Assignee").
WHEREAS, Richard T. Cummings is a valued Employee of the Assignee, and
WHEREAS, Employee has entered into a Split Dollar Agreement with
Assignee (the "Agreement"), and
WHEREAS, in consideration of the Assignee agreeing to make premium
payments, the Employee agrees to grant the Assignee a security interest in the
Policy as collateral security for the repayment of cumulative premiums paid by
the Assignee.
NOW, THEREFORE, the undersigned Employee hereby assigns, transfers and
sets over to the Assignee the following specific rights in the Policy subject to
the following terms and conditions:
1. This Assignment is made, and the Policy is to be held, as collateral
security for all liabilities of the Employee to the Assignee, either
now existing or that may hereafter arise, pursuant to the terms of the
Agreement.
2. The Assignee's interest in the Policy shall be strictly limited to:
(a) Subject to paragraph 10 of the Agreement, the right to be
repaid a portion of its cumulative premiums paid if a Policy
loan or partial withdrawal made by the Employee in any year
causes the net cash surrender value of Policy to be a sum less
than the Employer's cumulative premiums paid.
(b) Subject to paragraph 10 of the Agreement, the right to be
repaid its cumulative premiums paid or, if less, the net cash
surrender value of the Policy, in the event the Policy is
totally surrendered or cancelled by the Employee as provided
in Paragraph 5 of the Agreement.
6
<PAGE>
(c) Subject to paragraph 10 of the Agreement, the right to be
repaid its cumulative premiums paid, in the event of the death
of the Insured as provided in paragraph 6 of the Agreement.
(d) Subject to paragraph 10 of the Agreement, the right to be
repaid its cumulative premiums paid, or, if less, the net cash
surrender value of the Policy, or to receive ownership of the
Policy, in the event of termination of the Agreement as
provided in paragraph 8 of the Agreement.
3. The Employee shall retain all incidents of ownership in the Policy,
including, but not limited to, the sole and exclusive rights to: borrow
against the Policy; make withdrawals from the Policy; assign Employee's
interest in the Policy; change the beneficiary of the Policy; exercise
settlement options; and, surrender or cancel the Policy (in whole or in
part). All of these incidents of ownership shall be exercisable by the
Employee unilaterally and without the consent of any other person.
4. The Assignee shall, upon request, if the Policy is in the possession of
the Assignee, forward the Policy to the Insurer, without unreasonable
delay, for change of beneficiary, any election of optional mode of
settlement, of the exercise of any other right reserved by the
Employee.
5. The Insurer is hereby authorized to recognize the Assignee's claims to
rights for any action taken by the Assignee, the validity or the amount
of any of the liabilities of the Employee to the Assignee under the
Agreement, the existence of any default therein, the giving of any
notice required herein, or the application to be made by the Assignee
of any amounts to be paid to the Assignee. The receipt of the Assignee
for any sums received by it shall be a full discharge and release
therefore to the Insured.
6. The Insurer shall be fully protected in recognizing a request made by
the Employee for surrender or cancellation of the Policy, in whole or
in part, or in recognizing a request made by the Employee for any loans
against the Policy permitted by the terms of the Policy. In the event
this request is made, the Insurer may pay the proceeds of any
surrender, cancellation, or loan to the sole order of the Employee, or
as the Employee shall direct.
7. Upon the full payment of the liabilities of the Employee to the
Assignee pursuant to the Agreement or the satisfaction of these
liabilities pursuant to paragraph 10 of the Agreement, the Assignee
shall execute an appropriate release of this Collateral Assignment.
7
<PAGE>
8. It is the express intention of the Employee to assign a limited
interest in the Policy to the Assignee as Security for certain premium
payments made by the Assignee, without giving the Assignee any
incidents of ownership in the Policy within the meaning of section 2042
of the Internal Revenue Code (and regulations thereunder), or any
similar provision of subsequent law. All provisions of this Collateral
Assignment shall be construed and exercised to as to effect that
intention.
9. When the Agreement is terminated pursuant to the provisions of
paragraph 10 of the Agreement, the cumulative premiums charged by the
Assignee pursuant to the terms of the Policy shall be charged to the
Employee as additional compensation.
IN WITNESS WHEREOF the Employee has executed this Assignment effective
the day and year first above written.
/s/ Richard T. Cummings
--------------------------
Richard T. Cummings
This assignment was acknowledged and recorded by The Hartford on
January 19th, 1996.
/s/ Maureen Haugh
------------------------
Account Manager
8
<PAGE>
SPLIT DOLLAR INSURANCE AGREEMENT
(COLLATERAL ASSIGNMENT METHOD)
THIS AGREEMENT is entered into effective this 1st day of December,
1995, by and between The Westport Bank and Trust Company, a Connecticut
Chartered State Bank and Trust Company having its principal place of business in
Westport, Connecticut (hereinafter called "Employer"), and Richard L. Card
(hereinafter called ("Employee").
WHEREAS, Richard L. Card is a valued Employee of the Employer, and
Employer wishes to provide additional inducement for Employee's continued
employment, and as additional compensation, Employer wishes to assist Employee
with a personal life insurance program by entering into a Split Dollar Insurance
Agreement ("Agreement").
NOW, THEREFORE, Employer and Employee agree as follows:
1. The life insurance Policy with which this Agreement deals is Policy
#VL9202796 (hereinafter called "Policy"), issued by Hartford Life
Insurance Company (hereinafter called "Insurer") on the life of Richard
L. Card, in the face amount of $414,200.00.
2. Employee shall be the owner of the Policy, and may exercise all
ownership rights granted to the owner by the terms of the Policy. It is
the express intention of the parties to reserve to the Employee all
rights in the Policy granted by the terms of the Policy, including, but
not limited to, the right to borrow against the Policy, the right to
assign the owner's interest in the Policy, the right to change the
beneficiary of the Policy, the right to exercise settlement options,
and the right to surrender or cancel the Policy (in whole or in part).
The Employer shall not have nor exercise any right in and to the Policy
which could, in any way, endanger, defeat or impair any of the rights
of the Employee in the Policy. The only rights in and to the Policy
granted to the Employer shall be its security interest in the cash
value of the Policy, as defined therein, and its right to receive a
portion of the death benefit of the Policy, as provided in this
Agreement. The Employer shall not assign any of its rights in the
Policy to anyone other than the owner (or the owner's transferee, if
the owner has transferred his rights in the Policy).
3. Premiums on the Policy shall be paid by the Employer and shall be
repaid to the Employer as provided in this Agreement.
4. The Employee has, contemporaneously with the adoption of this
agreement, assigned the Policy to the Employer as collateral, under a
form of Collateral Assignment attached
1
<PAGE>
hereto as Exhibit A. The Employer's interest in the Policy shall be
specifically limited to the following rights in the cash value and to a
portion of the death benefit:
(a) Subject to paragraph 10 hereof, the right to be repaid its cumulative
premiums paid or, if less, the net cash surrender value of the Policy,
in the event the Policy is totally surrendered or cancelled by the
Employee, or the right to receive the surrender proceeds, to the extent
of its cumulative premiums paid, in the event the Policy is partially
surrendered or cancelled by the Employee, as provided in paragraph 5
below .
(b) Subject to paragraph 10 hereof, the right to be repaid its cumulative
premiums paid upon the death of the Employee, as provided in Paragraph
6 below.
(c) Subject to < paragraph 10 hereof, the right to be repaid its cumulative
premiums paid or, if less, the net cash surrender value of the Policy,
or to receive ownership of the Policy, in the event of the termination
of this Agreement, as provided in paragraphs 8 and 9 below.
(d) The right to be repaid a portion of its cumulative premiums paid if a
Policy loan or partial withdrawal made by the Employee in any year
causes the net cash surrender value of the Policy to be a sum less than
the Employer's cumulative premiums paid. In such case, Employee will
use a portion of any Policy loan proceeds or partial withdrawal to
reduce the cumulative premiums paid by the Employer so as to cause the
net cash surrender value to be equal to or greater than the Employer's
cumulative premiums paid. As used in this Agreement, the term "net cash
surrender value" means the cash surrender value of the Policy, less the
amount of any then existing loans or withdrawals against the Policy
obtained by the Employee pursuant to this paragraph.
5. The Employee shall have the sole right to surrender or cancel the
Policy (in whole or in part). In the event of a total surrender or
cancellation by the Employee, the Employer shall be entitled (subject
to paragraph 10 hereof) to receive the then outstanding balance of its
cumulative premiums paid or, if less, the net cash surrender value of
the Policy.
6. Upon the death of the Employee, the Employer shall be entitled (subject
to paragraph 10 hereof) to receive a portion of the death benefit
provided under the Policy equal to the then outstanding balance of its
cumulative premiums paid. The balance of the death benefit provided
under the Policy, if any, shall be paid directly to the beneficiary or
beneficiaries designated by the Employee, in the manner and in the
amounts provided by the beneficiary designation of the Policy.
2
<PAGE>
7. This Agreement may be terminated, subject to the provisions of
Paragraphs 8 and 9 below, by either party, with consent of the other
party, by giving notice in writing to the other party.
8. In the event of termination of this Agreement as provided in Paragraph
7 above, the Employee shall repay to the Employer, within sixty (60
days) of the date of termination, the then outstanding balance of its
cumulative premiums paid hereunder, or if less, the net cash surrender
value of the Policy, unless said amount is not payable pursuant to
paragraph 10 hereof. Upon receipt of this amount, the Employer shall
execute an appropriate release of its Collateral Assignment of the
Policy.
9. If the Employee fails to repay the Employer the amount specified in and
payable under paragraph 8 above within sixty (60) days of the date of
termination of the Agreement (unless said amount is not payable
pursuant to paragraph 10 hereof), the Employee shall execute any and
all instruments that may be required to vest ownership of the Policy in
the Employer. Thereafter, the Employee shall have no further interest
in the Policy or in this Agreement.
10. In the event the Employee's employment is terminated for any reason
other than cause (as that term is defined in paragraph 8 of the
Employee's Employment Agreement with the Employer as amended by the
Amendment dated November 13, 1995), or the Employee's employment is
terminated after a change of control as a result of actual or
constructive termination (as those terms are defined in paragraph 6(b)
of the Employee's Employment Agreement with the Employer), then, in
that event, notwithstanding any other provisions in this Agreement to
the contrary, this Agreement shall terminate and the Employer shall
charge to the Employee as additional compensation the cumulative
premiums paid by the Employer pursuant to the terms of the Policy and
shall execute an appropriate release of its Collateral Assignment of
the Policy.
11. The Employee shall have the sole right to borrow against the Policy,
and the Employer shall have no right to obtain loans against the
Policy, directly or indirectly, from the insurer or any other person,
or pledge or assign the Policy as security for any loan.
12. In the event the Employee shall transfer all interest in the Policy to
a transferee, then all of the Employee's interest in the Policy and in
this Agreement shall be vested in the transferee, who shall become a
substituted party, and the Employee shall have no further interest in
the Policy or in this Agreement.
13. The Insurer shall in no way be bound by, or be deemed to have notice
of, the provisions of this Agreement.
3
<PAGE>
14. This Split Dollar Agreement may not be amended, altered or modified,
except by a written instrument signed by each of the parties.
15. Any notice, consent or demand required or permitted to be given under
the provisions of this Split Dollar Agreement by one party to another
shall be in writing, shall be signed by the party, and shall be given
either by delivery to the other party personally, or by mailing, by
United States Certified mail, postage prepaid, to the other party,
addressed to the party's last known address as shown on the Employer's
records. The date of mailing shall be deemed the date of such mailed
notice, consent or demand.
16. This Agreement shall bind the Employer, its successors and assigns and
the Employee and the Employee's heirs, personal representatives,
successors, and transferees, and any Policy beneficiary.
17. This plan is intended to qualify as a life insurance employee benefit
plan as described in Revenue Ruling 64-328.
18. This Split Dollar Agreement, and the rights of the parties hereunder
shall be governed by and construed pursuant to the laws of the State of
Connecticut.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
the day and year first above written.
THE WESTPORT BANK & TRUST COMPANY
By /s/ Thomas P. Bilbao
------------------------------------
Thomas P. Bilbao,
Executive Vice President and
Chief Operating Officer
By /s/ William B. Laudano, Jr.
------------------------------------
William B. Laudano, Jr.,
Senior Vice President and
Chief Financial Officer
Approved for
THE WESTPORT BANK & TRUST
COMPANY and
4
<PAGE>
WESTPORT BANCORP, INC.
By /s/ David A. Rosow /s/ Richard L. Card
--------------------------- --------------------------
David A. Rosow Richard L. Card
Chairman of the Board
5
<PAGE>
EXHIBIT A
(COLLATERAL ASSIGNMENT)
THIS ASSIGNMENT is made and entered into this 1st day of December,
1995, by the undersigned as owner of a certain Life Insurance Policy #VL9202796
("Policy") issued by Hartford Life Insurance Company ("Insurer"), upon the life
of Richard L. Card, and The Westport Bank & Trust Company (the "Assignee").
WHEREAS, Richard L. Card is a valued Employee of the Assignee, and
WHEREAS, Employee has entered into a Split Dollar Agreement with
Assignee (the "Agreement"), and
WHEREAS, in consideration of the Assignee agreeing to make premium
payments, the Employee agrees to grant the Assignee a security interest in the
Policy as collateral security for the repayment of cumulative premiums paid by
the Assignee.
NOW, THEREFORE, the undersigned Employee hereby assigns, transfers and
sets over to the Assignee the following specific rights in the Policy subject to
the following terms and conditions:
1. This Assignment is made, and the Policy is to be held, as collateral
security for all liabilities of the Employee to the Assignee, either
now existing or that may hereafter arise, pursuant to the terms of the
Agreement.
2. The Assignee's interest in the Policy shall be strictly limited to:
(a) Subject to paragraph 10 of the Agreement, the right to be
repaid a portion of its cumulative premiums paid if a Policy
loan or partial withdrawal made by the Employee in any year
causes the net cash surrender value of Policy to be a sum less
than the Employer's cumulative premiums paid.
(b) Subject to paragraph 10 of the Agreement, the right to be
repaid its cumulative premiums paid or, if less, the net cash
surrender value of the Policy, in the event the Policy is
totally surrendered or cancelled by the Employee as provided
in Paragraph 5 of the Agreement.
6
<PAGE>
(c) Subject to paragraph 10 of the Agreement, the right to be
repaid its cumulative premiums paid, in the event of the death
of the Insured as provided in paragraph 6 of the Agreement.
(d) Subject to paragraph 10 of the Agreement, the right to be
repaid its cumulative premiums paid, or, if less, the net cash
surrender value of the Policy, or to receive ownership of the
Policy, in the event of termination of the Agreement as
provided in paragraph 8 of the Agreement.
3. The Employee shall retain all incidents of ownership in the Policy,
including, but not limited to, the sole and exclusive rights to: borrow
against the Policy; make withdrawals from the Policy; assign Employee's
interest in the Policy; change the beneficiary of the Policy; exercise
settlement options; and, surrender or cancel the Policy (in whole or in
part). All of these incidents of ownership shall be exercisable by the
Employee unilaterally and without the consent of any other person.
4. The Assignee shall, upon request, if the Policy is in the possession of
the Assignee, forward the Policy to the Insurer, without unreasonable
delay, for change of beneficiary, any election of optional mode of
settlement, of the exercise of any other right reserved by the
Employee.
5. The Insurer is hereby authorized to recognize the Assignee's claims to
rights for any action taken by the Assignee, the validity or the amount
of any of the liabilities of the Employee to the Assignee under the
Agreement, the existence of any default therein, the giving of any
notice required herein, or the application to be made by the Assignee
of any amounts to be paid to the Assignee. The receipt of the Assignee
for any sums received by it shall be a full discharge and release
therefore to the Insured.
6. The Insurer shall be fully protected in recognizing a request made by
the Employee for surrender or cancellation of the Policy, in whole or
in part, or in recognizing a request made by the Employee for any loans
against the Policy permitted by the terms of the Policy. In the event
this request is made, the Insurer may pay the proceeds of any
surrender, cancellation, or loan to the sole order of the Employee, or
as the Employee shall direct.
7. Upon the full payment of the liabilities of the Employee to the
Assignee pursuant to the Agreement or the satisfaction of these
liabilities pursuant to paragraph 10 of the Agreement, the Assignee
shall execute an appropriate release of this Collateral Assignment.
7
<PAGE>
8. It is the express intention of the Employee to assign a limited
interest in the Policy to the Assignee as Security for certain premium
payments made by the Assignee, without giving the Assignee any
incidents of ownership in the Policy within the meaning of section 2042
of the Internal Revenue Code (and regulations thereunder), or any
similar provision of subsequent law. All provisions of this Collateral
Assignment shall be construed and exercised to as to effect that
intention.
9. When the Agreement is terminated pursuant to the provisions of
paragraph 10 of the Agreement, the cumulative premiums charged by the
Assignee pursuant to the terms of the Policy shall be charged to the
Employee as additional compensation.
IN WITNESS WHEREOF the Employee has executed this Assignment effective
the day and year first above written.
/s/ Richard L. Card
----------------------
Richard L. Card
This assignment was acknowledged and recorded by The Hartford on
January 19, 1996.
/s/ Maureen Haugh
---------------------
Account Manager
8
<PAGE>
THE WESTPORT BANK & TRUST COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
INTRODUCTION
The Westport Bank & Trust Company Supplemental Executive Retirement
Plan ("SERP") is intended to provide certain key employees, selected by the
Board of Directors, with supplemental retirement benefits in addition to those
benefits provided under The Westport Bank & Trust Company Pension Plan. The SERP
is effective as of the date that it is executed by an officer of the Bank duly
authorized by the Board of Directors.
The following terms shall have the meanings set forth below:
Article 1 - Definitions
- ------------------------
1.1 "Annual Benefit" shall mean the annual benefit payable under this
SERP as specified in Section 2.2, or 2.3.
1.2 "Average Annual Compensation" shall mean one-fifth of the
Participant's aggregate Compensation received during the five consecutive
calendar years of the Participant's employment by the Bank that will yield the
highest total aggregate Compensation. If the Participant has been employed by
the Bank for less than five years, Average Annual Compensation shall mean the
Participant's aggregate Compensation received in each of his completed full
years of employment as of the last day of such employment, divided by the number
of such years.
<PAGE>
1.3 "Bank" shall mean the Westport Bank & Trust Company or any
successor thereto.
1.4 "Board of Directors" shall mean the Board of Directors of the Bank.
1.5 "Compensation" shall mean compensation as defined in the Pension
Plan (except, the determination shall be made without regard to limitations
imposed by Section 401(a)(17) of the Internal Revenue Code of 1986.)
1.6 "Change of Control" shall mean and shall be deemed to have occurred
if: (i) 20 percent or more of ownership, control, power to vote, or beneficial
ownership of any class of voting securities of the Company is acquired by a
person either directly or indirectly or acting through one or more other
persons. A "person" shall include a natural person, corporation, or other
entity. When two or more persons act as a partnership, limited partnership,
syndicate, or other group for the purpose of acquiring, holding or disposing of
the Company stock, such partnership, syndicate, or other group shall be
considered one person. "Beneficial ownership" shall be determined under the then
current provision of Securities Exchange Act Rule 13d-3; Reg. Section 740.13d-3;
(ii) the individuals who constitute the Board of Directors of Company as of the
date hereof (the "Incumbent Board") cease for any reason to constitute at least
a majority thereof, provided that any person becoming a director subsequent to
the date set forth above whose election or nomination for election by Company's
shareholders was approved by a vote of at least three quarters of the Incumbent
Board (either by a specific vote or by approval of the proxy statement of
Company in which such person is named
2
<PAGE>
as a nominee for director, without objection to such nomination) shall be deemed
to be a member of the Incumbent Board; or (iii) Company shall be combined with
or acquired by another company and the Incumbent Board shall have determined,
either before such event or thereafter, by resolution, that a Change in Control
or Company will or has occurred.
1.7 "Early Retirement Date" shall have the same meaning as under the
Pension Plan.
1.8 "Normal Retirement Date" shall have the same meaning as under the
Pension Plan.
1.9 "Participant" shall mean a person who by written agreement with the
Bank, as authorized by the Board of Directors, is eligible to participate in the
SERP.
1.10 "Participation Agreement" shall mean the agreement between the
Bank and a Participant authorizing participation in the SERP.
1.11 "Pension Benefit" shall mean the annual benefit payable to the
Participant or his beneficiary on his Normal Retirement Date (or, if later, his
actual Termination of Employment) in the form of a life annuity with a five year
period certain ("Normal Form of Benefit") under the Pension Plan (including any
accruals as of the date of adoption of this SERP document and any new accruals
thereafter under the Pension Plan or any successor thereto). For the purposes of
this SERP, the Pension Benefit shall be computed in this manner regardless of
whether or not the benefit under the Pension Plan is paid in the Normal Form of
Benefit.
3
<PAGE>
1.12 "Pension Plan" shall mean The Westport Bank & Trust Company
Pension Plan or any successor thereto, the terms of which are incorporated
herein by this reference. Section references are to the Pension Plan as in
effect on the date of adoption of the SERP and shall be deemed to refer as well
to comparable successor or redesignated provisions of the Pension Plan.
1.13 "Permanent Disability" shall mean Permanent Disability as defined
in the Pension Plan.
1.14 "SERP" shall mean The Westport Bank & Trust Company Supplemental
Executive Retirement Plan.
1.15 "Supplemental Retirement Benefit" shall mean the benefit provided
under this SERP as described in Article 2.
1.16 "Termination of Employment" shall mean a termination of employment
as defined in Pension Plan or a Participant's Retirement or incurrence of a
Permanent Disability as these terms are defined in the Pension Plan.
1.17 "Vested Interest" shall mean the nonforfeitable portion of a
Participant's Supplemental Retirement Benefit determined under Article 2.
1.18 "Years of Service" shall mean the aggregate years of service
credited to a Participant under the Pension Plan for purposes of determining
vesting service.
4
<PAGE>
Article 2 - Supplemental Retirement Benefits
2.1 General. Unless stated otherwise in the Participation Agreement and
subject to the subsequent provisions of this SERP, a Participant shall be
entitled to receive a Supplemental Retirement Benefit under this SERP. The
Supplemental Retirement Benefit shall be equal to the Annual Benefit described
in the applicable Section 2.2 or 2.3 and shall be payable over the period
specified in Section 2.5.
A Participant's Supplemental Retirement Benefit under this SERP shall
be 100% nonforfeitable.
2.2 Annual Benefit. The Annual Benefit for a Participant who is not
eligible to receive an Annual Benefit under Section 2.3 shall be equal to the
product of the amount determined under (a) and the fraction determined under (b)
as set forth below.
(a) an amount equal to the difference between (1) and (2) as
follows: (1) 70% of the Participant's Average Annual Compensation; and (2) the
Participant's Pension Benefit.
(b) A fraction not in excess of one determined in accordance
with the following sentence. The numerator of the fraction is the Participant's
Years of Service and the denominator of the fraction is the number of Years of
Service with which a Participant would be credited if he remained employed until
his Normal Retirement Date.
2.3 Early Retirement Annual Benefit. If a Participant has a Termination
of Employment with the Bank on or after his Early Retirement Date, the
Participant will receive the Annual Benefit determined under this Section 2.3. A
Participant's Annual
5
<PAGE>
Benefit under this Section 2.3 shall be equal to the difference between (a) and
(b) as follows:
(a) 70% of the Participant's Average Annual Compensation, as
reduced by .55% for each month by which the date of the Participant's
distribution under this SERP precedes the Participant's Normal Retirement Date,
to a maximum of 60 months, plus .35% for each additional month by which the date
of the Participant's distribution under this SERP precedes the Participant's
Normal Retirement Date; and
(b) the Participant's Pension Benefit adjusted so that it is
the actuarial equivalent (based on the early retirement reduction factors
specified in the Pension Plan) of a benefit commencing on the date that payments
under this Plan begin.
2.4 Timing of Supplemental Retirement Benefits.
-----------------------------------------------
(a) In the case of a Participant whose Termination of
Employment occurs before his Early Retirement date or on or after his Normal
Retirement Date distribution of payments under Section 2.2 shall begin on the
first day of the calendar month next following the Participant's Normal
Retirement Date, or if later, his Termination of Employment. In the case of a
Participant whose Termination of Employment occurs on or after his Early
Retirement Date distribution of payments under Section 2.3 shall begin as soon
as practicable after his Termination of Employment occurs, but in no event later
than the first day of the calendar month following such Termination of
Employment.
6
<PAGE>
2.5 Form of Supplemental Retirement Benefits.
---------------------------------------------
(a) Payments of the Annual Benefits under this SERP shall be
payable to the Participant in equal monthly installment payments for a maximum
period of 180 months. If, however, the Participant dies after benefits under
this SERP have commenced but, prior to the receipt of 180 monthly payments then
payments to his designated beneficiary (and/or any contingent beneficiaries)
shall continue until a total of 120 monthly payments have been made to the
Participant and his designated beneficiary. In the case of a Participant whose
designated beneficiary is his spouse payments shall continue beyond the total
120 monthly payments until a total of 180 monthly payments have been received
or, if earlier, the date of the spouse's death.
(b) Elections of the Participant with respect to the form of
payment of his Pension Benefit shall have no effect on the form of payment of
the Supplemental Retirement Benefit.
(c) In the case of a Participant who dies prior to the time
that payments under this SERP commence neither the Participant's estate nor any
of his beneficiaries shall be entitled to any benefits under this SERP.
2.6 Designation of Beneficiary. A Participant may designate a
primary and contingent beneficiary for purposes of the SERP on a form provided
by the Bank for this purpose. A Participant may change beneficiaries for
purposes of the SERP at any time by executing a new designation of beneficiary
form. In the absence of an effective designation of a beneficiary by a
Participant or upon the death of all beneficiaries and/or
7
<PAGE>
contingent beneficiaries, the estate of the last person in receipt of benefits
under this SERP shall be deemed to be the contingent beneficiary.
Article 3 - Change of Control.
- --------------------------------
In the event of that a Change of Control occurs, Section 2.3 shall be
modified to provide that a Participant who has an Actual Termination or a
Constructive Termination on or after his Early Retirement Date and on or after
the occurrence of the Change of Control shall receive an Annual Benefit under
Section 2.3 equal to the difference between (a) and (b) as follows:
(a) 70% of the Participant's Average Annual Compensation as reduced by
.35% for each month by which the date of the Participant's distribution under
this SERP precedes age sixty (60); and
(b) the Participant's Pension Benefit adjusted so that it is the
actuarial equivalent (based on the early retirement reduction factors specified
in the Pension Plan) of a benefit commencing on the date that payments under
Section 2.3 of this Plan begin.
Actual Termination and Constructive Termination shall mean an actual or
constructive termination of employment as defined in a Participant's Employment
Agreement with the Bank or Westport Bancorp, Inc.
Article 4 - Source of Funding.
- ------------------------------
The rights of a Participant or his beneficiary under the SERP shall be solely
those of an unsecured creditor of the Bank. Benefits under the SERP shall be
paid from the general funds of the Bank, and the SERP constitutes no more than a
mere promise by the Bank
8
<PAGE>
to make benefit payments in the future. However, the Bank in its discretion may
apply for and procure, as owner and for its own benefit, life insurance and/or
establish a trust which is intended to constitute an unfunded arrangement (for
tax purposes and for purposes of Title I of the Employee Retirement Security Act
of 1974, as amended) to assist the Bank in meeting its liabilities under this
SERP. Any such trust and the assets held thereunder shall conform to the terms
of the model trust, as described in Internal Revenue Service Revenue Procedure
92-64. The existence of the trust shall in no event conflict with the other
provisions of this Article 4 or the provisions of Article 6. Any insurance
policies or other assets acquired or held by the Bank in connection with the
liabilities assumed by it under the SERP shall be and shall remain the sole
property of the Bank as unpledged and unrestricted assets of the Bank. A
Participant shall have no preferred claim on or any beneficial ownership rights
of any nature with respect to such policies or other assets including, but not
limited to, the trust.
Article 5 - Independent Benefit.
- ---------------------------------
5.1 No Employment Rights. The terms and conditions of the SERP shall
not under any circumstances be construed as a contract of employment between a
Participant and the Bank, and a Participant or his beneficiary shall have no
rights against the Bank except as may be provided specifically herein. Nothing
in the SERP shall be deemed to restrict in any way the Bank's right to
discipline a Participant or to terminate his employment, nor shall it restrict a
Participant's right to terminate employment.
9
<PAGE>
5.2 Effect of SERP Payment on Other Benefit Plans. Benefits payable
pursuant to the SERP shall not be deemed salary or other compensation for the
purpose of computing benefits to which a Participant may be entitled under any
pension plan or other benefit plan of the Bank.
Article 6 - Non-assignability.
- ------------------------------
Subject to the provisions of Article 7, neither the Participant nor any other
person shall have any right to commute, sell, assign, transfer, pledge,
anticipate, mortgage, or otherwise encumber, hypothecate or convey in advance of
actual receipt the amounts, if any, payable hereunder, or any part thereof,
which are, and all rights to which are, expressly declared to be unassignable
and non-transferable. No part of the amounts payable shall, prior to actual
payment, be subject to seizure or sequestration for the payment of any debts,
judgements, alimony or separate maintenance owed by a Participant or any other
person, nor be transferable by operation of law in the event of a Participant's
or any other person's bankruptcy or insolvency.
Article 7 - Right of Offset.
- ----------------------------
The Bank shall have the right, in its discretion, to reduce any SERP amount
payable to a Participant (or, if applicable, the Participant's spouse or
beneficiary) by the amount of any indebtedness of the Participant to the Bank.
10
<PAGE>
Article 8- Severability.
- ------------------------
If the SERP shall ever be determined by the Internal Revenue Service to bring
about immediate inclusion of benefits in the gross income of the Participant,
then such amounts and only such amounts which would be treated as income by the
Internal Revenue Service at that time shall be paid immediately over to the
Participant. All other amounts shall be distributed to the Participant as set
forth in Article 2 above.
Approved for
THE WESTPORT BANK & TRUST COMPANY
AND WESTPORT BANCORP, INC.
By: /s/ George H. Damman
- ---------------------------------------
George H. Damman
Chairman of the Compensation Committee
of the Board of Directors
THE WESTPORT BANK & TRUST COMPANY
Date: November 29, 1995 By: /s/ Michael H. Flynn
------------------------- ----------------------------------
MICHAEL H. FLYNN
President and Chief Executive Officer
By: /s/ Thomas P. Bilbao
---------------------------------
THOMAS P. BILBAO
Executive Vice President and
Chief Operating Officer
11
<PAGE>
FIRST AMENDMENT
TO THE
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
WHEREAS, at its meeting held November 13, 1995, the Board of Directors
adopted The Westport Bank & Trust Company Supplemental Executive Retirement Plan
(the "Plan"); and
WHEREAS, at its meeting held November 29, 1995, the Board of Directors
adopted an Amended Supplemental Executive Retirement Plan (the "Amended Plan")
which eliminated the actuarial early retirement reduction for a Participant who
is actually or constructively terminated on or after his early retirement date
and on or after the occurrence of a change of control of the Bank; and
WHEREAS, both the Plan and the Amended Plan provide that a Participant
will receive an early retirement benefit equivalent to the normal retirement
benefit to which he would have been entitled if he had remained in service to
age 65 without adjustment to reflect the shorter period of service completed at
the Participant's early retirement date; and
WHEREAS, the Board of Directors intended that the Amended Plan provide
Participants with an early retirement benefit unreduced to reflect the
Participant's shorter period of service only after a change of control of the
Bank; and
WHEREAS, it is necessary in the judgment of the Board of Directors to
correct the Amended Plan to reflect the intent of the Board of Directors.
NOW, THEREFORE, BE IT RESOLVED, that effective as of November 29,1995,
the Amended Plan be and it is hereby amended by deleting Section 2.3 of the
Amended Plan in its entirety and substituting the following:
2.3 Early Retirement Annual Benefit. If a Participant has a Termination
of Employment with the Bank on or after his Early Retirement Date, the
Participant will receive the Annual Benefit determined under this
Section 2.3. A Participant's Annual Benefit under this Section 2.3
shall be equal to the amount determined by subtracting (b) from (a) and
multiplying the result by (c) where:
(a) is 70% of the Participant's Average Annual Compensation, as
reduced by .55% for each month by which the date of the
Participant's distribution under this SERP precedes the
Participant's Normal Retirement Date, to a maximum of 60
months, plus .35% for each additional month by which the
<PAGE>
date of the Participant's distribution under this SERP
precedes the Participant's Normal Retirement Date;
(b) is the Participant's Pension Benefit adjusted so that it is
the actuarial equivalent (based on the early retirement
reduction factors specified in the Pension Plan) of a benefit
commencing on the date that payments under this Plan begin;
and
(c) is a fraction not in excess of one determined in accordance
with the following sentence. The numerator of the fraction is
the Participant's Years of Service and the denominator of the
fraction is the number of Years of Service with which a
Participant would be credited if he remained employed until
his Normal Retirement Date; and further
The undersigned being the Secretary of the Bank and Bancorp does hereby certify
that this First Amendment to the Supplemental Executive Retirement Plan was duly
adopted by the Board of Directors of the Bank and Bancorp at their meeting held
on January 18, 1996.
/s/ John J. Henchy
-----------------------------------------
JOHN J. HENCHY
Consented to:
/s/ Michael H. Flynn
- -------------------------------
Michael H. Flynn
/s/ Thomas P. Bilbao
- -------------------------------
Thomas P. Bilbao
/s/ Arnold Levine
- -------------------------------
Arnold Levine
<PAGE>
TRUST UNDER
THE WESTPORT BANK & TRUST COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
TABLE OF CONTENTS
SECTION 1. ESTABLISHMENT OF TRUST.......................................1
----------------------
SECTION 2. PAYMENTS TO PLAN PARTICIPANTS AND
-------------------------------------
THEIR BENEFICIARIES..........................................2
-------------------
SECTION 3. TRUSTEE RESPONSIBILITY REGARDING
--------------------------------
PAYMENTS TO TRUST BENEFICIARY WHEN
----------------------------------
COMPANY IS INSOLVENT.........................................3
--------------------
SECTION 4. PAYMENTS TO COMPANY..........................................4
-------------------
SECTION 5. INVESTMENT AUTHORITY.........................................4
--------------------
SECTION 6. DISPOSITION OF INCOME........................................7
---------------------
SECTION 7. ACCOUNTING BY TRUSTEE........................................7
---------------------
SECTION 8. RESPONSIBILITY OF TRUSTEE....................................8
-------------------------
SECTION 9. COMPENSATION AND EXPENSES OF TRUSTEE.........................9
------------------------------------
SECTION lO. RESIGNATION AND REMOVAL OF TRUSTEE..........................9
----------------------------------
SECTION 11. APPOINTMENT OF SUCCESSOR...................................10
------------------------
SECTION 12. AMENDMENT OR TERMINATION...................................10
------------------------
SECTION 13. MISCELLANEOUS..............................................10
-------------
SECTION 14. EFFECTIVE DATE.............................................12
--------------
<PAGE>
TRUST UNDER
THE WESTPORT BANK & TRUST COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
This, Agreement made this 13th day of November, 1995 by and between The
Westport Bank & Trust Company ("Company") and People's Bank ("Trustee");
WHEREAS, Company has adopted the non qualified deferred Compensation
Plan entitled the Westport Bank & Trust Company Supplemental Executive
Retirement Plan ("Plan") attached as Schedule A to this Agreement.
WHEREAS, Company has incurred or expects to incur liability under the
terms of such Plan with respect to the individuals participating in such Plan;
WHEREAS, Company wishes to establish a trust (hereinafter called
"Trust") and to contribute to the Trust assets that shall be held therein,
subject to the claims of Company's creditors in the event of Company's
Insolvency, as herein defined, until paid to Plan participants and their
beneficiaries in such manner and at such times as specified in the Plan;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974;
WHEREAS, it is the intention of Company to make contributions to the
Trust to provide itself with a source of funds to assist it in the meeting of
its liabilities under the Plan;
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
SECTION 1. ESTABLISHMENT OF TRUST
----------------------
(a) Company hereby deposits with Trustee in trust the assets set forth
in Schedule B, which shall become the principal of the Trust to be held,
administered and disposed of by Trustee as provided in this Trust Agreement.
1
<PAGE>
(b) The Trust shall become irrevocable ten (10) days following the
issuance of a favorable private letter ruling regarding the Trust from the
Internal Revenue Service.
(c) The Trust is intended to be a grantor trust, of which Company is
the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of Company and shall be used exclusively for
the uses and purposes of Plan participants and general creditors as herein set
forth. Plan participants and their beneficiaries shall have no preferred claim
on, or any beneficial ownership interest in, any assets of the Trust. Any rights
created under the Plan and this Trust Agreement shall be mere unsecured
contractual rights of Plan participants and their beneficiaries against Company.
Any assets held by the Trust will be subject to the claims of Company's general
creditors under federal and state law in the event of Insolvency, as defined in
Section 3(a) herein.
(e) Within ninety (90) days following the end of the Plan year, ending
after the Trust has become irrevocable pursuant to Section 1(b) hereof, Company
shall be required to irrevocably deposit additional cash or other property to
the Trust in an amount sufficient to pay each Plan participant or beneficiary
the benefits payable pursuant to the terms of the Plan as of the closing of the
Plan year.
(f) Upon a Change of Control, Company shall, as soon as possible, but
in no event longer than sixty (60) days following the Change of Control, as
defined herein, make an irrevocable contribution to the Trust in an amount that
is sufficient to pay each Plan participant or beneficiary the benefits to which
Plan participants or their beneficiaries would be entitled pursuant to the terms
of the Plan as of the date on which the Change of Control occurred.
SECTION 2. PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES.
-------------------------------------------------------
(a) Company shall deliver to Trustee a schedule (the "Payment
Schedule") that indicates the amounts payable in respect of each Plan
participant (and his or her beneficiaries), that provides a formula or other
instructions acceptable to Trustee for determining the amounts so payable, the
form in which such amount is to be paid (as provided for or available under the
Plan), and the time of commencement for payment of such amounts. Except as
otherwise provided herein, Trustee shall make payments to the Plan participants
and their beneficiaries in accordance with such Payment Schedule. The Trustee
shall make provision for the reporting and withholding of
2
<PAGE>
any federal, state or local taxes that may be required to be withheld with
respect to the payment of benefits pursuant to the terms of the Plan and shall
pay amounts withheld to the appropriate taxing authorities or determine that
such amounts have been reported, withheld and paid by Company.
(b) The entitlement of a Plan participant or his or her beneficiaries
to benefits under the Plan shall be determined by Company or such party as it
shall designate under the Plan, and any claim for such benefits shall be
considered and reviewed under the procedures set out in the Plan.
(c) Company may make payment of benefits directly to Plan participants
or their beneficiaries as they become due under the terms of the Plan. Company
shall notify Trustee of its decision to make payment of benefits directly prior
to the time amounts are payable to participants or their beneficiaries. In
addition, if the principal of the Trust, and any earnings thereon, are not
sufficient to make payments of benefits in accordance with the terms of the
Plan, Company shall make the balance of each such payment as it falls due.
Trustee shall notify Company where principal and earnings are not sufficient.
SECTION 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY WHEN
-------------------------------------------------------------------
COMPANY IS INSOLVENT.
- --------------------
(a) Trustee shall cease payment of benefits to Plan participants and
their beneficiaries if the Company is Insolvent. Company shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) Company is unable to pay
its debts as they become due, or (ii) Company is subject to a pending proceeding
as a debtor under the United States Bankruptcy Code, or (iii) Company is
determined to be in a troubled condition or is assigned a composite rating of 4
or 5 under the Uniform Institutions Rating System of the Federal Financial
Institution Examination Council by the Board of Governors of the Federal Reserve
System or the Federal Deposit Insurance Corporation.
(b) At all times during the continuance of this Trust, as provided in
Section l(d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of Company under federal and state law as set forth
below.
(1) The Board of Directors and the Chief Executive Officer of
Company shall have the duty to inform Trustee in writing of Company's
Insolvency. If a person claiming to be a creditor of Company alleges in writing
to Trustee that Company has become Insolvent, Trustee shall determine whether
Company is Insolvent and, pending such determination, Trustee shall discontinue
payment of benefits to Plan participants or their beneficiaries.
3
<PAGE>
(2) Unless Trustee has actual knowledge of Company's
Insolvency, or has received notice from Company or a person claiming to be a
creditor alleging that Company is Insolvent, Trustee shall have no duty to
inquire whether Company is Insolvent. Trustee may in all events rely on such
evidence concerning Company's solvency as may be furnished to Trustee and that
provides Trustee with a reasonable basis for making a determination concerning
Company's solvency.
(3) If at any time Trustee has determined that Company is
Insolvent, Trustee shall discontinue payments to Plan participants or their
beneficiaries and shall hold the assets of the Trust for the benefit of
Company's general creditors. Nothing in this Trust Agreement shall in any way
diminish any rights of Plan participants or their beneficiaries to pursue their
rights as general creditors of Company with respect to benefits due under the
Plan or otherwise.
(4) Trustee shall resume the payment of benefits to Plan
participants or their beneficiaries in accordance with Section 2 of this Trust
Agreement only after Trustee has determined that Company is not Insolvent (or is
no longer Insolvent).
(c) Provided that there are sufficient assets, if Trustee discontinues
the payment of benefits from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the terms of the Plan for the period
of such discontinuance, less the aggregate amount of any payments made to Plan
participants or their beneficiaries by Company in lieu of the payments provided
for hereunder during any such period of discontinuance.
SECTION 4. PAYMENTS TO COMPANY.
--------------------
Except as provided in Section 3 hereof, after the Trust has become
irrevocable, Company shall have no right or power to direct Trustee to return to
Company or to divert to others any of the Trust assets before all payment of
benefits have been made to Plan participants and their beneficiaries pursuant to
the terms of the Plan.
SECTION 5. INVESTMENT AUTHORITY.
---------------------
(a) In no event may Trustee invest in securities (including stock or
rights to acquire stock) or obligations issued by Company, other than a de
minimis amount held in common investment vehicles in which Trustee invests. All
rights associated with assets of the Trust shall be exercised by Trustee or the
person designated by Trustee, and shall in no event be exercisable by or rest
with Plan participants.
4
<PAGE>
(b) Subject to the limitations otherwise set forth and consistent with
the written investment guidelines established by the Company and Trustee,
Trustee shall invest and reinvest the assets of the Trust without distinction
between principal and income and in such securities or property, real or
personal, wherever situated, as Trustee in its sole discretion shall deem
advisable, including, but not limited to, stocks, common or preferred, bonds and
other evidences of indebtedness or ownership, real estate or any interest
therein or insurance on the lives of the Plan participants and employees or
former employees of the Company. Trustee shall at all times in making
investments of the assets of the Trust consider, among other factors, the
investment guidelines established by the parties and the short and long-term
financial needs of the Plan on the basis of information furnished by the
Company. In making such investments, Trustee shall not be restricted to
securities or other property of the character expressly authorized by the
applicable law for trust investments.
(c) Trustee may from time to time in its sole discretion transfer to a
common, collective, or pooled trust fund maintained by any bank or trust company
including the Company or the trustee hereunder, all or such part of the Trust
Fund as Trustee may deem advisable, and such part or all of such assets so
transferred shall be subject to all the terms and provisions of the common
collective, or pooled trust fund which contemplate the commingling for
investment purposes of such trust assets with trust assets of other trusts.
Trustee may, from time to time withdraw from such common, collective, or pooled
trust fund all or such part of the assets of the Trust as Trustee may deem
advisable.
(d) Trustee, in addition to all powers and authorities under common and
statutory law shall have the following powers and authorities, to be exercised
in the Trustee's sole discretion:
1. To purchase, or subscribe for, any securities or other
property and to retain the same. In conjunction with the purchase of securities,
margin accounts may be opened and maintained;
2. To sell, exchange, convey, transfer, grant options to
purchase, or otherwise dispose of any securities or other property held by
Trustee, by private contract or at public auction. No person dealing with
Trustee shall be bound to see to the application of the purchase money or to
inquire into the validity, expediency, or propriety of any such sale or other
disposition, with or without advertisement;
3. To vote upon any stocks, bonds, or other securities; to
give general or special proxies or powers of attorney with or without power of
substitution; to exercise any conversion privileges, subscription rights or
other options, and to make any payments
5
<PAGE>
incidental thereto; to oppose, or to consent, or otherwise participate in,
corporate reorganizations or other changes affecting corporate securities, and
to delegate discretionary powers, and to pay any assessments or charges in
connection therewith; and generally to exercise any of the powers of an owner
with respect to stocks, bonds, securities, or other property;
4. To cause any securities or other property to be registered
in Trustee's own name or in the name of one or more of the Trustee's nominees,
and to hold any investments in bearer form, but the books and records of the
Trustee shall at all times show that all such investments are part of the Trust;
5. To borrow or raise money for the purposes of the Plan in
such amount, and upon such terms and conditions, as Trustee shall deem
advisable; and for any sum so borrowed, to issue a promissory note as Trustee,
and to secure the repayment thereof by pledging all or any part, of the Trust;
and no person lending money to the Trustee shall be bound to see to the
application of the money lent or to inquire into the validity, expediency, or
propriety of any borrowing;
6. To keep such portion of the assets of the Trust in cash or
cash balances (in accounts of Trustee) as Trustee may from time to time, deem to
be in the best interests of the Plan, without liability for interest thereon;
7. To accept and retain for such time as Trustee may deem
advisable any securities or other property received or acquired as Trustee
hereunder (including but not limited to insurance policies on the lives of the
Plan participants), whether or not such securities or other property would
normally be purchased as investments hereunder;
8. To make, execute, acknowledge, and deliver any and all
documents of transfer and conveyance and any and all other instruments that may
be necessary or appropriate to carry out the powers herein granted;
9. To settle, compromise, or submit to arbitration any claims,
debts, or damages due or owing to or from the Plan, to commence or defend suits
or legal or administrative proceedings, and to represent the Plan in all suits
and legal and administrative proceedings;
10. To employ suitable agents and counsel and to pay their
reasonable expenses and compensation, and such agent or counsel may or may not
be agent or counsel for the Company;
6
<PAGE>
11. To invest funds of the Trust in time deposits or savings
accounts bearing a reasonable rate of interest in accounts of Company or
Trustee;
12. To invest in Treasury Bills and other forms of United
States government obligations;
13. To sell, purchase and acquire put or call options if the
options are traded on and purchased through a national securities exchange
registered under the Securities Exchange Act of 1934, as amended, or, if the
options are not traded on a national securities exchange, are guaranteed by a
member firm of the New York Stock Exchange.
14. To deposit monies in federally insured savings accounts or
certificates of deposit in banks or savings and loan associations including
accounts of Company or Trustee;
(e) Company shall have the right, at anytime, and from time to time in
its sole discretion, to substitute assets of equal fair market value for any
asset held by the Trust.
SECTION 6. DISPOSITION OF INCOME.
----------------------
(a) During the term of this Trust, all income received by the Trust,
net of expenses and taxes, shall be accumulated and reinvested.
SECTION 7. ACCOUNTING BY TRUSTEE.
----------------------
(a) Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements, and all other transactions required to be
made, including such specific records as shall be agreed upon in writing between
Company and Trustee. Within sixty (60) days following the close of each calendar
year and within sixty (60) days after the removal or resignation of Trustee,
Trustee shall deliver to Company a written account of its administration of the
Trust during such year or during the period from the close of the last preceding
year to the date of such removal or resignation, setting forth all investments,
receipts, disbursements and other transactions effected by it, including a
description of all securities and investments purchased and sold with the cost
or net proceeds of such purchases or sales (accrued interest paid or receivable
being shown separately), and showing all cash, securities and other property
held in the Trust at the end of such year or as of the date of such removal or
resignation, as the case may be.
7
<PAGE>
(b) Company, forthwith upon its receipt of each such statement of
account, shall acknowledge receipt thereof in writing and advise Trustee of its
approval or disapproval thereof. Failure by Company to disapprove any such
statement of account within ninety (90) days after its receipt thereof shall be
deemed an approval thereof. The approval by Company of any statement of account
shall be binding as to all matters embraced therein as between Company and
Trustee to the same extent as if the account of Trustee had been settled by
judgment or decree in an action for a judicial settlement of its account in a
court of competent jurisdiction in which Trustee, Company and all persons having
or claiming an interest in the Plan were parties; provided, however, that
nothing herein contained shall deprive Trustee of its right to have its accounts
judicially settled if Trustee so desires.
SECTION 8. RESPONSIBILITY OF TRUSTEE.
(a) Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by Company which is contemplated by, and
in conformity with, the terms of the Plan or this Trust and is given in writing
by Company. In the event of a dispute between Company and a party, Trustee may
apply to a court of competent jurisdiction to resolve the dispute.
(b) If Trustee undertakes or defends any litigation arising in
connection with this Trust, Company agrees to indemnify Trustee against
Trustee's costs, expenses and liabilities (including, without limitation,
attorneys' fees and expenses) relating thereto and to be primarily liable for
such payments. If Company does not pay such costs, expenses and liabilities in a
reasonably timely manner, Trustee may obtain payment from the Trust.
(c) Trustee may consult with legal counsel (who may also be counsel for
Company generally) with respect to any of its duties or obligations hereunder
and the cost thereof shall be paid for by the Company.
(d) Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder and the cost thereof shall
be paid for by the Company.
(e) Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law, unless expressly provided otherwise herein;
provided, however, that if an insurance policy is held as an asset of the Trust,
Trustee shall have no power to name a beneficiary of the policy other than the
Trust, to assign the policy (as distinct
8
<PAGE>
from conversion of the policy to a different form) other than to a successor
Trustee, or to loan to any person the proceeds of any borrowing against such
policy.
(f) Notwithstanding any powers granted to Trustee pursuant to this
Trust Agreement or to applicable law, Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
(g) Trustee shall have no responsibility or obligation with respect to
the administration or operation of the Plan, including without limitation any
responsibility to determine the amount or nature of the benefits to which any
participant or beneficiary may be entitled under the Plan.
SECTION 9. COMPENSATION AND EXPENSES OF TRUSTEE.
-------------------------------------
The Compensation of Trustee shall be as determined from time to time in
accordance with any agreement between Company and Trustee; provided, however,
that Trustee may amend its fee schedule with thirty (30) days written notice to
Company. All administration expenses, including Trustee's fees, and any income
taxes and other taxes of any kind levied or assessed under existing or future
laws against the Trust shall be the obligation of Company and shall be paid as
directed by Company, provided, however, if such expenses are not paid by Company
within a reasonable time, they shall be paid by Trustee from the Trust and shall
be a claim on the Trust assets to be provided for prior to making provisions for
or for paying benefits under the Plan to any participant, former participants,
or their beneficiaries.
SECTION lO. RESIGNATION AND REMOVAL OF TRUSTEE.
-----------------------------------
(a) Trustee may resign at any time by written notice to Company, which
shall be effective sixty (60) days after receipt of such notice unless Company
and Trustee agree otherwise.
(b) Trustee may be removed by Company on sixty (60) days notice or upon
shorter notice accepted by Trustee.
(c) Upon resignation or removal of Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the successor
Trustee. The transfer shall be completed within ninety (90) days after receipt
of notice of resignation removal or transfer, unless Company extends the time
limit.
9
<PAGE>
(d) If Trustee resigns or is removed, a successor shall be appointed,
in accordance with Section 11 hereof, by the effective date of resignation or
removal under paragraph (a) [or (b)] of this section. If no such appointment has
been made, Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of Trustee in
connection with the proceeding shall be allowed as administrative expenses of
the Trust.
SECTION 11. APPOINTMENT OF SUCCESSOR.
-------------------------
(a) If Trustee resigns [or is removed] in accordance with Section 10(a)
[or (b)] hereof, Company may appoint any third party, such as a bank trust
department or other party that may be granted corporate trustee powers under
state law, as a successor to replace Trustee upon resignation or removal. The
appointment shall be effective when accepted in writing by the new Trustee, who
shall have all of the rights and powers of the former Trustee, including
ownership rights in the Trust assets. The former Trustee shall execute any
instrument necessary or reasonably requested by Company or the successor Trustee
to evidence the transfer.
SECTION 12. AMENDMENT OR TERMINATION.
-------------------------
(a) This Trust Agreement may be amended by a written instrument
executed by Trustee and Company. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Plan or shall make the Trust
revocable after it become irrevocable in accordance with Section l(b) hereof.
(b) The Trust shall not terminate until the date on which Plan
participants and their beneficiaries are no longer entitled to benefits pursuant
to the terms of the Plan unless sooner revoked in accordance with Section l(b)
hereof. Upon termination of the Trust any assets remaining in the Trust shall be
returned to Company.
(c) Upon written approval of participants or beneficiaries entitled to
payment of benefits pursuant to the terms of the Plan, Company may terminate
this Trust prior to the time all benefit payments under the Plan have been made.
All assets in the Trust at termination shall be returned to Company.
(d) Sections 1, 2, 3, 4, 8, 9, and 12 of this Trust Agreement may not
be amended by Company for ten (10) years following a Change of Control, as
defined herein, except as may be necessary to obtain the issuance of a favorable
private letter ruling regarding the Trust from the Internal Revenue Service.
10
<PAGE>
SECTION 13. MISCELLANEOUS.
--------------
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Plan participants and their beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut.
(d) For purposes of this Trust, Change of Control shall mean and be
deemed to have occurred if:
(i) 20 Percent or more of ownership, control, power to vote,
or beneficial ownership of any class of voting securities of Company is acquired
by a person either directly or indirectly or acting through one or more other
persons. A "person" shall include a natural person, corporation, or other
entity. When two or more persons act as a partnership, limited partnership,
syndicate, or other group for the purpose of acquiring, holding, or disposing of
the Company stock, such partnership, syndicate, or other group shall be
considered one person. "Beneficial ownership" shall be determined under the then
current provision of Securities Exchange Act Rule 13d-3; Reg. Section 740.13d-3;
(ii) the individuals who constitute the Board of Directors of Company as of the
date hereof (the "Incumbent Board") cease for any reason to constitute at least
a majority thereof, provided that any person becoming a director subsequent to
the date set forth above whose election or nomination for election by Company's
shareholders was approved by a vote of at least three quarters of the Incumbent
Board (either by a specific vote or by approval of the proxy statement of
Company in which such person is named as a nominee for director, without
objection to such nomination) shall be deemed to be a member of the Incumbent
Board; or (iii) Company shall be combined with or acquired by another company
and the Incumbent Board shall have determined, either before such event or
thereafter, by resolution, that a Change in Control of Company will or has
occurred.
(e) Any action by Company pursuant to any of the provisions of this
Trust Agreement shall be in writing and shall be signed by an officer of
Company. Trustee and every other person shall be entitled to rely conclusively
upon any and all such notices, directions, orders, requests, certifications and
instructions received from Company and reasonably believed to be properly
executed, and shall act and be indemnified and held harmless by the Company
regarding any cost, expense or assessment incurred or made as a result of acting
in accordance with such reasonable belief. Company shall notify Trustee from
time to time in writing of the appointment and termination of any party
11
<PAGE>
designated to administer the Plan and of any successor, together with a specimen
of his authorized signature. Trustee shall be entitled to rely conclusively upon
such notice and signature as evidence of the identity of such designated party
and shall not be charged with notice of any change with respect to such
designated party until Company shall have furnished Trustee with notice of such
change.
(f) Neither Company nor Trustee, nor their successors, shall be
responsible for the validity of any insurance contract issued hereunder or for
the failure on the part of the insurer to make payments provided by any such
insurance contract or for the action of any person which may delay payment or
render an insurance contract null and void or unenforceable in whole or in part.
(g) Any insurer who shall issue insurance contacts hereunder shall not
have any responsibility for the validity of the Plan or for the tax or legal
aspects of the Plan. The insurer shall be protected and held harmless in acting
in accordance with any written direction of Trustee, and shall have no duty to
see to the application of any funds paid to Trustee, nor be required to question
any actions directed by Trustee. Regardless of any provision of this Plan, the
insurer shall not be required to take or permit any action or allow any benefit
or privilege contrary to the terms of any insurance contract which it issues
hereunder, or the rules of the insurer.
(h) Trustee shall not be liable for any loss sustained by the Trust by
reason of the Trustee's decision to purchase, retain, sell or exchange any
investment (including but not limited to life insurance policies on the lives of
Plan participants, employees and former employees of Company) made in good faith
and in accordance with the provisions of this Agreement and of any applicable
Federal or state law. Company shall indemnify and hold Trustee harmless from any
and all liability, claim, or demand asserted against Trustee with respect to, or
as a result of, or arising out of, or in connection with, directly or indirectly
any action allegedly taken by it or any failure or alleged failure by it to act
in its capacity as Trustee, except that Company shall not indemnify and hold
harmless any such Trustee if such action or failure to act is finally
adjudicated to be the result of the Trustee's gross negligence, fraud or willful
misconduct.
SECTION 14. EFFECTIVE DATE.
---------------
The effective date of this Trust Agreement shall be November 13, 1995.
Approved for Company:
The Westport Bank & Trust Company The Westport Bank & Trust
Company
and
Westport Bancorp, Inc. By /s/ Michael H. Flynn
------------------------------
Michael H. Flynn
President and Chief Executive
Officer
12
<PAGE>
By /s/ George Damman By /s/ Thomas P. Bilbao
------------------------------------ ---------------------------------
George Damman Thomas P. Bilbao
Chairman of the Compensation Executive Vice President and
Committee of the Board of Directors Chief Operating Officer
Trustee:
Attest: People's Bank
/s/ John J. Henchy By /s/ William J. Pieper
- --------------------------------------- ---------------------------------
Secretary Vice President and Sr. Trust Officer
SCHEDULE A
----------
WESTPORT BANK & TRUST COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
13
<PAGE>
1995 INCENTIVE STOCK OPTION PLAN
Westport Bancorp, Inc.
----------------------
1. Objectives of the Plan. The purposes of this 1995 Incentive Stock
Option Plan (the "Plan") are (i) to attract and retain the best
available personnel for positions of substantial responsibility with
Westport Bancorp, Inc. ("Bancorp"), or any of its subsidiaries that now
exist or that Bancorp may hereafter organize or acquire (hereinafter
collectively called the "Corporation"); (ii) to provide additional
incentive to such personnel; and (iii) to encourage the ownership of
Bancorp Common Stock by such personnel, thereby promoting the success
of the Corporation.
2. Effective Date. The Plan shall become effective on May 25, 1995, and
shall terminate as provided herein.
3. Stock Reserved for the Plan. The number of shares of the authorized but
unissued Common Stock, par value $0.01 per share, of Bancorp (the
"Common Stock") that are reserved for issue and may be issued upon the
exercise of options granted under the Plan shall be 200,000 shares.
In lieu of such unissued shares, Bancorp may, in its discretion,
transfer on the exercise of options reacquired shares or shares bought
in the market for the purposes of the Plan, provided that (subject to
the provisions of paragraph 13) the total number of shares that may be
issued or sold upon the exercise of options granted under the Plan
shall not exceed an aggregate of 200,000. Any employee or director may
hold more than one option at any time.
If any options granted under the Plan shall for any reason terminate or
expire without having been exercised in full, the stock not purchased
under such options shall be available again for the purposes of the
Plan.
4. Administration of the Plan.
(a) Procedure. The Plan shall be administered by the Board of
Directors of Bancorp (the "Board"). Members of the Board who
are eligible for options hereunder or who have been granted
options may vote on any matters affecting the administration
of the Plan or the grant of any options pursuant to the Plan
except that no such member shall act upon the granting of an
option to himself, but any such member may be counted in
determining the existence of a quorum at any meeting of the
Board during which action is taken with respect to the
granting of options to him.
(b) Powers of the Board. Subject to the provisions of the Plan,
the Board shall have the authority: (i) to grant to any
employee or director eligible hereunder an option to purchase
shares of Common Stock that shall be conditioned on the
execution by such employee or director of an Incentive Stock
Option Agreement substantially in the form of Exhibit I hereto
(with such modifications as the Board may desire, within the
terms of the Plan and the requirements of law); (ii) to
determine the purchase price for Common Stock to be issued
pursuant to an option granted under the Plan, the number of
shares to be represented by each option, the employees and
directors to whom and
<PAGE>
the time or times at which options shall be granted or
exercised, and the term of each option, which in no event
shall be more than ten (10) years from the date of the grant
of the option; (iii) to interpret the Plan; (iv) to prescribe,
amend and rescind rules and regulations relating to the Plan;
(v) to determine the terms and provisions of each option
granted under the Plan (which need not be identical) and, with
the consent of the holder thereof, to modify or amend each
option; (vi) to impose job performance conditions and any
other conditions on the exercise of any option and to
determine whether such conditions have been met; (vii) to
accelerate the exercise date of any option; (viii) to
authorize any person to execute on behalf of the Corporation
any instrument required to effectuate a grant of an option
previously granted by the Board; and (ix) to make all other
determinations deemed necessary or advisable for the
administration of the Plan. It is intended that options issued
hereunder to employees (including directors who are also
employees of the Corporation) shall qualify as "incentive
stock options" under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), and the Board shall
administer the Plan in order to preserve the characterization
of options granted pursuant hereto as incentive stock options.
(c) Effect of Board's Decision. All decisions, determinations, and
interpretations of the Board shall be final and binding on all
holders of any options granted under the Plan.
(d) Committee Recommendations. The Compensation Committee of the
Board (the "Committee") shall make recommendations to the
Board with respect to (i) the employees and directors to whom
options should be granted, (ii) the terms and provisions of
any option, (iii) whether any job performance conditions to
which the exercise of a previously granted option is subject
have been met, and (iv) any other matter described in this
paragraph; provided, however, that the final decisions on any
such matter shall rest with the Board. The Committee shall
also perform such other functions and duties with respect to
the Plan as the Board shall from time to time assign to the
Committee.
5. Eligibility; Factors to be Considered in Granting Options. An option
may be granted to any person who, at the time the option is granted, is
an employee or director of the Corporation. No option may be granted
hereunder to an employee or director who at the time such option is
granted owns, within the meaning of Section 422 of the Code, stock
possessing more than 10% of the total combined voting power of all
classes of stock of the Corporation or its subsidiaries (a "10%
Shareholder") unless the option price is at least 110% of the fair
market value of such stock on the date of grant and the option may not
be exercised more than five (5) years after the date of grant.
In determining the employees and directors to whom options shall be
granted, the term of the option, and the number of shares to be covered
by each option, the Board shall take into account the duties of the
respective employees and directors, their present and potential
contributions to the success of the Corporation, and such other factors
as it shall deem relevant in connection with accomplishing the purposes
of the Plan. An employee or director who has been granted an option may
be granted an additional option or options if the Board shall so
determine.
2
<PAGE>
6. Option Prices. The purchase price of the Common Stock covered by each
option shall be determined by the Board, but shall not be less than
100% (or 110% in the case of an option granted to a 10% Shareholder) of
the fair market value of the Common Stock on the date the option is
granted. For purposes of this Plan, the fair market value of Common
Stock shall be determined as of a particular date in the following
manner: if the stock is listed or admitted to trading on a national
securities exchange or reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"), the fair
market value per share shall be the closing price of Bancorp Common
Stock reported by such exchange or NASDAQ for such date (or, if no
closing price was reported for such date, then the closing price for
the next preceding day for which a closing price was reported); if the
stock is not then listed or admitted to trading on a national
securities exchange or reported by NASDAQ, the fair market value shall
be determined by the Board of Directors of Bancorp on the basis of such
factors as it deems relevant.
7. Terms of Options. The term of each option shall be for such period as
the Board shall determine, but not more than ten (10) years (or five
(5) years in the case of an option granted to a 10% Shareholder) from
the date of grant thereof, and shall be subject to earlier termination
as hereinafter provided. If the original term of any option is less
than ten (10) years (or five (5) years in the case of an option granted
to a 10% Shareholder) from the date of grant, the option prior to its
expiration may be amended, with the approval of the Board and the
employee or director, to extend the term to not more than ten (10)
years (or five (5) years in the case of an option granted to a 10%
Shareholder) from the original date of granting of such options. Except
as otherwise required by law, such extension shall not constitute the
grant of a new option and the purchase price specified in such option
need not be modified.
8. Conditions to the Exercisability of Options. The Board may, in its sole
discretion set conditions that must be satisfied before an option may
be exercised. These conditions may be based on the length of the
optionee's continuous employment with the Corporation subsequent to the
grant, the job performance of the optionee subsequent to the grant, the
performance of the Corporation as a whole, or any other reasonable
criteria. The Board shall determine in each case annually whether such
conditions have been satisfied for the preceding fiscal year. With
respect to performance-related conditions, the Board shall fix the
number of shares, if any, as to which each outstanding option shall
then become exercisable. No such option subject to performance-related
conditions shall become exercisable until the Board (a) determines that
such conditions have been satisfied during the fiscal year preceding
such determination and (b) fixes the number of shares as to which the
option shall thereupon become exercisable. The aggregate fair market
value (as of the date of grant) of such options exercisable by an
individual for the first time in any calendar year under the Plan and
any other incentive stock option plan of the Corporation or any parent
or subsidiary corporation shall not exceed $100,000.
9. Exercise of Options. Unless otherwise provided in the option agreement,
a holder of an option may purchase all, or from time to time any part
of, the shares of which the right to purchase has accrued in accordance
with the terms of paragraph 8; provided, however, that an option shall
not be exercised as to fewer than fifty (50) shares, or the remaining
shares covered by the option if fewer than fifty (50), at any one time.
The purchase price of the shares as to which an option shall be
exercised shall be paid in full at the time of exercise at the election
of the holder of an option (a) in cash or by certified check, (b) by
tendering to Bancorp shares of
3
<PAGE>
Bancorp's Common Stock, then owned by him, having a fair market value
equal to the cash exercise price applicable to the purchase price of
the shares as to which an option is being exercised, or (c) partly in
cash and partly in shares of Bancorp's Common Stock valued at fair
market value determined as of the close of the business day immediately
preceding the day on which the option is exercised, in the manner set
forth in paragraph 6. Fractional shares of Common Stock valued at fair
market value will not be issued. Except as provided in paragraphs 11
and 12 hereof, no option may be exercised at any time unless the holder
thereof is then an employee or director of the Corporation or one of
its subsidiaries. The holder of an option shall have none of the rights
of a stockholder with respect to the shares subject to option until
such shares shall have been registered on the transfer books of Bancorp
in the name of such holder.
Notwithstanding any other provision of this Plan or any option granted
hereunder, any option granted hereunder and then outstanding may become
immediately exercisable in full, in the discretion of the Board, in the
event of a "Change of Control". For purposes hereof, (a) the term
"Control" shall have the same meaning as is ascribed thereto in Rule
12b-2 of the Rules and Regulations promulgated by the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934 and
(b) an event or events constituting a Change of Control of the
Corporation shall be deemed to have occurred on such date as the
Corporation shall file, or shall have become obligated to file,
whichever is earlier, a Current Report on Form 8-K describing any such
Change of Control of the Corporation pursuant to Item 1 thereof or
indicating that any such Change of Control either is imminent or may
have occurred. The Committee may adopt such procedures as to notice and
exercise as may be necessary to effectuate the acceleration of the
exercisability of options as described above.
10. Non-transferability of Options. An option granted under the Plan shall
not be transferable otherwise than by will or the laws of descent and
distribution, and an option may be exercised, during the lifetime of
the employee, only by the employee.
11. Termination of Employment. In the event that the employment of an
employee, or the incumbency of a director, to whom an option has been
granted under the Plan shall be terminated (other than by reason of
death or disability), such option may subject to the provisions of
paragraph 8 be exercised, to the extent that the employee or director
was entitled to do so at the date of such termination, at any time
within three (3) months after such termination, but in no event after
the expiration of the term of the option. Options granted under the
Plan shall not be affected by any changes of duties or position so long
as the holder continues to be an employee or director of the
Corporation. Retirement pursuant to any pension plan provided by the
Corporation shall be deemed to be a termination of employment for the
purposes of this paragraph 11. Nothing in the Plan or in any option
granted pursuant to the Plan shall confer upon any employee any right
to continue in the employ of the Corporation or interfere with the
right of the Corporation to terminate his employment at any time.
12. Death or Disability of Employee. If an employee or director to whom an
option has been granted under the Plan shall die or become disabled
within the meaning of Section 422 of the Code, such option may be
exercised subject to the provisions of paragraphs 8 and 9, to the
extent that the employee or director was entitled to do so at the date
of such death or disability, by the employee or director, or the
representative of the employee's or director's estate, at any
4
<PAGE>
time within such period, not exceeding one (1) year after such death or
commencement of disability, as shall be prescribed in the option
agreement, but in no event after the expiration of the term of the
option.
13. Adjustments Upon Changes in Capitalization. Notwithstanding any other
provision of the Plan, the Board, as it deems appropriate, may adjust
the number and class of shares covered by each outstanding option, the
option prices, and the minimum number of shares as to which options
shall be exercisable at any one time in the event of changes in the
outstanding Common Stock by reason of Stock dividends, split-ups,
recapitalizations, mergers, consolidations, combinations or exchanges
of shares and the like; and, in the event of any such change in the
outstanding Common Stock, the aggregate number and class of shares
available under the Plan and the maximum number of shares as to which
options may be granted shall be appropriately adjusted.
14. No Loans to Holders of Options. Neither Bancorp nor any of its
subsidiaries may directly or indirectly lend money to any person for
the purpose of assisting such person to acquire or carry shares of the
Common Stock issued upon the exercise of options granted under the
Plan.
15. Time of Granting Options. The date of grant of an option under the Plan
shall, for all purposes, be the date on which the Board makes the
determination granting such option. Notice of the determination shall
be given to each employee to whom an option is so granted within a
reasonable time after the date of such grant.
16. Termination and Amendment of the Plan. Unless the Plan has previously
been terminated, no option shall be granted hereunder after May 24,
2005. The Board may at any time prior to that date terminate the Plan
or make such modification or amendment of the Plan as it shall deem
advisable; provided, however, that no amendment may be made to the Plan
without the approval by the holders of Common Stock, except as provided
in paragraphs 7 or 13 hereof, that would (i) increase the maximum
number of shares for which options may be granted under the Plan, (ii)
change the manner of determining the minimum option prices, (iii)
extend the period during which an option may be granted or exercised,
or (iv) amend the requirements as to the class of employees eligible to
receive options. No termination, modification, or amendment of the Plan
may, without the consent of the employee to whom an option shall
theretofore have been granted, adversely affect the right of such
employee under such option.
17. Government Regulations. The Plan and the grant and exercise of options
thereunder, and the obligation of Bancorp to sell and deliver shares
under such options, shall be subject to all applicable laws, rules and
regulations.
5
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11 - Statement Regarding Computation of Per Share Earnings
Three Months Ended December 31,
1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCOME BEFORE ADJUSTMENT $ 1,463,677 $ 1,212,304
INTEREST ADJUSTMENT (1) --- 25,431
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME $ 1,463,677 $ 1,237,735
=======================================================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 5,408,244 3,211,752
WEIGHTED AVERAGE NUMBER OF
COMMON SHARE EQUIVALENTS:
Net shares assumed to be issued for dilutive stock options and warrants:
Primary 910,854 2,663,540
Fully diluted (2) 931,057 ---
Shares assumed to be issued on conversion of
preferred stock 4,208,913 4,395,000
- -----------------------------------------------------------------------------------------------------------------------
TOTAL WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING:
Primary 10,528,011 10,270,292
Fully diluted (2) 10,548,214 ---
=======================================================================================================================
EARNINGS PER COMMON SHARE:
Primary $ 0.14 $ 0.12
Fully diluted (2) $ 0.14 ---
=======================================================================================================================
Years Ended December 31,
1995 1994
- ------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE ADJUSTMENT $ 6,830,220 $ 4,361,785
INTEREST ADJUSTMENT (1) --- 154,313
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 6,830,220 $ 4,516,098
========================================================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,706,250 3,148,913
WEIGHTED AVERAGE NUMBER OF
COMMON SHARE EQUIVALENTS:
Net shares assumed to be issued for dilutive stock options and warrants:
Primary 1,378,644 2,787,921
Fully diluted (2) 1,483,337 ---
Shares assumed to be issued on conversion of
preferred stock 4,279,712 4,445,000
- ------------------------------------------------------------------------------------------------------------------------
TOTAL WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING:
Primary 10,364,606 10,381,834
Fully diluted (2) 10,469,299 ---
- ------------------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE:
Primary $ 0.66 $ 0.44
Fully diluted (2) $ 0.65 ---
========================================================================================================================
<FN>
(1) Pursuant to the "treasury stock method" - represents an adjustment to
interest from the assumed use of a portion of the proceeds from the
exercise of options and warrants to retire a portion of short-term
borrowings in 1994.
(2) In 1994, fully diluted earnings per share was not applicable.
</FN>
</TABLE>
<PAGE>
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K into the Company's previously filed
Registsration Statements, File Nos. 33-48420 and 33-8277.
Arthur Andersen LLP
New York, New York
March 21, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 24113
<INT-BEARING-DEPOSITS> 196249
<FED-FUNDS-SOLD> 14500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 85338
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 178052
<ALLOWANCE> 2854
<TOTAL-ASSETS> 312917
<DEPOSITS> 274670
<SHORT-TERM> 7733
<LIABILITIES-OTHER> 6232
<LONG-TERM> 0
<COMMON> 54
0
1
<OTHER-SE> 24227
<TOTAL-LIABILITIES-AND-EQUITY> 312917
<INTEREST-LOAN> 16200
<INTEREST-INVEST> 4366
<INTEREST-OTHER> 159
<INTEREST-TOTAL> 20725
<INTEREST-DEPOSIT> 5110
<INTEREST-EXPENSE> 6027
<INTEREST-INCOME-NET> 14698
<LOAN-LOSSES> 1500
<SECURITIES-GAINS> (229)
<EXPENSE-OTHER> 11378
<INCOME-PRETAX> 5825
<INCOME-PRE-EXTRAORDINARY> 5825
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6830
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0.65
<YIELD-ACTUAL> 8.0
<LOANS-NON> 1996
<LOANS-PAST> 158
<LOANS-TROUBLED> 447
<LOANS-PROBLEM> 1445
<ALLOWANCE-OPEN> 3341
<CHARGE-OFFS> 2366
<RECOVERIES> 290
<ALLOWANCE-CLOSE> 2854
<ALLOWANCE-DOMESTIC> 2854
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
