<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission file number 0-16193
DS BANCOR, INC.
---------------
(Exact name of registrant as specified in its charter)
Delaware 06-1162884
-------- ----------
(State or other jurisdiction of I.R.S. Employer
Incorporation or organization) Identification No.)
33 Elizabeth Street, Derby, Connecticut
---------------------------------------
(Address of principal executive offices)
06418
-----
(Zip Code)
(203) 736-1000
--------------
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class: Common Stock, par value $1.00 per share
Outstanding at May 12, 1995: 2,882,352 shares
<PAGE>
I N D E X
Page(s)
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Part 1 -- Consolidated Financial Statements
A. Consolidated Statements of Position 1
B. Consolidated Statements of Earnings 2
C. Consolidated Statements of Stockholders' Equity 3
D. Consolidated Statements of Cash Flows 4
E. Notes to Consolidated Financial Statements 5 - 24
F. Selected Consolidated Financial and Other Data 25
G. Management's Discussion and Analysis 26 - 36
Part 2 -- Other Information 37
Signatures 38
<PAGE>
DS BANCOR, INC.
CONSOLIDATED STATEMENTS OF POSITION
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
-------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks (Note 1) $10,926 $14,128
Federal funds sold (Note 1) 7,500 4,500
Securities (Notes 1 & 2)
Trading 1,020 770
Available-for-sale 196,693 216,674
Held-to-maturity (fair value: $103,568 at
March 31, 1995 and $96,928 at December 31, 1994) 108,344 104,702
Loans held-for-sale (Notes 1 & 3) -- 55,190
Loans receivable (net of allowances for credit losses
of $6,853 at March 31, 1995 and $6,803 at
December 31, 1994) (Note 1 & 3) 829,771 784,237
Federal Home Loan Bank of Boston stock, at cost (Note 8) 8,899 8,899
Accrued income receivable (Note 1) 6,834 7,227
Bank premises and equipment, net (Notes 1 & 6) 6,840 6,975
Prepaid and deferred income taxes (Notes 1 & 10) 4,068 7,247
Foreclosed assets (net of allowances of $308 at
March 31, 1995 and $439 at December 31, 1994)
(Notes 1 & 5) 5,316 5,756
Other assets (Note 13) 6,531 6,385
---------- ----------
TOTAL ASSETS $1,192,742 $1,222,690
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits (Note 7)
Non-interest bearing $29,193 $30,918
Interest bearing 997,435 996,828
---------- ----------
Total 1,026,628 1,027,746
Mortgagors' escrow 7,003 11,885
Advances from Federal Home Loan Bank of Boston (Note 8) 83,011 111,145
Other liabilities (Note 9) 3,987 4,777
---------- ----------
Total Liabilities 1,120,629 1,155,553
---------- ----------
STOCKHOLDERS' EQUITY (NOTES 1, 11 & 14)
Preferred stock, no par value; authorized
2,000,000 shares; none issued -- --
Common stock, par value $1.00; authorized 6,000,000
shares; issued--March 31, 1995--3,221,852 shares,
December 31, 1994--3,084,571 shares;
outstanding--March 31, 1995--2,882,352 shares,
December 31, 1994--2,745,071 shares 3,222 3,085
Additional paid-in capital 41,075 37,780
Retained earnings 34,548 36,362
Net unrealized losses on available-for-sale securities,
net of tax of $1,580 at March 31, 1995 and $3,970 at
Decemember 31, 1994 (2,219) (5,577)
Less: Treasury stock, at cost (339,500 shares) (4,513) (4,513)
---------- ----------
Total Stockholders' Equity 72,113 67,137
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,192,742 $1,222,690
========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- 1 -
<PAGE>
DS BANCOR, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31,
1995 1994
---------- ----------
(UNAUDITED)
<S> <C> <C>
INTEREST INCOME (NOTE 1)
Interest and fees on loans $15,390 $13,546
Taxable interest on securities 4,943 4,525
Dividends on securities 251 222
---------- ----------
Total interest income 20,584 18,293
---------- ----------
INTEREST EXPENSE
Deposits (Note 7) 10,579 8,300
Borrowed funds (Note 8) 1,152 1,675
Less: Penalties on premature time deposit withdrawals (60) (13)
---------- ----------
Net interest expense 11,671 9,962
---------- ----------
NET INTEREST INCOME 8,913 8,331
Provision for credit losses (Notes 1 & 3) 600 600
---------- ----------
Net interest income after provision for credit losses 8,313 7,731
---------- ----------
NON-INTEREST INCOME
Service charges and other income 660 583
Net realized securities gains (losses) (Note 2) (1,598) 194
Net gain on sale of loans 1,481 86
---------- ----------
Total non-interest income, net 543 863
---------- ----------
NON-INTEREST EXPENSE
Salaries and wages 1,914 1,918
Employee benefits (Note 9) 671 575
Occupancy (Note 6) 493 645
Furniture and equipment (Note 6) 256 221
Foreclosed asset expense, net (Notes 1 & 5) 448 544
Other 2,360 2,188
---------- ----------
Total non-interest expense 6,142 6,091
---------- ----------
Income before income taxes 2,714 2,503
Provision for income taxes (Note 10) 1,096 1,011
---------- ----------
NET INCOME $1,618 $1,492
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (NOTE 1)
Primary 2,938,093 2,890,368
Fully diluted 2,938,093 2,899,673
EARNINGS PER SHARE (NOTE 1)
Primary $0.55 $0.52
Fully diluted $0.55 $0.51
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- 2 -
<PAGE>
DS BANCOR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
RETAINED EARNINGS
-----------------
ADDITIONAL UNREALIZED TOTAL
COMMON PAID-IN RETAINED GAINS & TREASURY STOCKHOLDERS
STOCK CAPITAL EARNINGS LOSSES STOCK EQUITY
------ ---------- -------- ---------- -------- ------------
(NOTE 1)
<S> <C> <C> <C> <C> <C> <C>
Balance--December 31, 1993 $2,991 $36,007 $30,652 $1,303 $(4,513) $66,440
Net income 1,492 1,492
Adjustment for unrealized gains
(losses), net (1,762) (1,762)
------ ------- ------- ------ -------- -------
Balance--March 31, 1994 $2,991 $36,007 $32,144 $(459) $(4,513) $66,170
------ ------- ------- ------ -------- -------
------ ------- ------- ------ -------- -------
Balance--December 31, 1994 $3,085 $37,780 $36,362 $(5,577) ($4,513) $67,137
Net income 1,618 1,618
Stock dividend declared on common
stock (5%--March 15, 1995) 137 3,283 (3,420) 0
Shares issued for fractional interest 12 12
Cash in lieu of fractional shares (12) (12)
Adjustment of unrealized losses, net 3,358 3,358
------ ------- ------- ------ -------- -------
Balance--March 31, 1995 $3,222 $41,075 $34,548 ($2,219) ($4,513) $72,113
====== ======= ======= ======= ======== =======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- 3 -
<PAGE>
DS BANCOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH
--------------------------------
1995 1994
------- --------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,618 $ 1,492
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for credit losses 600 600
Provision for estimated losses on foreclosed assets 500 400
Depreciation and amortization 196 220
Amortization of intangible assets 178 250
Net amortization of premiums/discounts on securities 139 471
Net accretion (amortization) of deferred loan fees 1,414 (49)
Decrease in prepaid and deferred income taxes 803 711
Net securities loss (gain) 1,598 (194)
Net gain on sale of loans (1,481) (86)
Gains on sales of foreclosed assets (7) (1)
Proceeds from sale of trading securities 385 --
Purchases of trading securities (463) (314)
Decrease (Increase) in accrued income receivable 393 (25)
Benefit for deferred income taxes (14) (128)
Net (increase) decrease in other assets 184 1,491
Increase (decrease) in other liabilities (790) (369)
-------- --------
Net cash provided (used) by operating activities 5,253 4,469
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from matured available-for-sale securities 2,938 8,509
Proceeds from sale of available-for-sale securities 45,736 15,733
Proceeds from matured held-to-maturity securities 2,296 19,865
Purchase of available-for-sale securities (25,300) (6,257)
Purchase of held-to-maturity securities (6,000) (73,326)
Proceeds from loans sold to others 30,981 8,922
Purchases of loans from others (19,312) (1,154)
Net increase in loans to customers (2,643) (38,383)
Premises and equipment additions (61) (84)
Proceeds from sale of foreclosed assets 186 851
Net decrease (increase) in foreclosed assets (142) (656)
-------- --------
Net cash used in investing activities 28,679 (65,980)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits from customers (1,118) 13,579
Net increase in mortgagors' escrow (4,882) (3,441)
Net decrease in short term FHLBB advances (28,134) (11,659)
Proceeds from long term FHLBB advances 10,000 35,000
Repayment of long term FHLBB advances (10,000) --
Proceeds from issuance of common stock 12 --
Dividends paid to stockholders (12) --
-------- --------
Net cash provided (used) by financing activities (34,134) 33,479
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (202) (28,032)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 18,628 43,118
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $18,426 $15,086
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- 4 -
<PAGE>
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by DS
Bancor, Inc. (the "Company"), its wholly owned subsidiary Derby Savings Bank
(the "Bank") and Derby Financial Services Corp., the Bank's wholly owned
subsidiary, and reflected in the accompanying consolidated financial statements.
The financial statements of Derby Financial Services Corp. are not significant
to either the Bank's or the consolidated financial statements.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
accounts of the Company and the Bank. All significant intercompany accounts and
transactions have been eliminated.
BASIS OF CONSOLIDATED FINANCIAL STATEMENT PRESENTATION. The consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles and general practice within the banking industry. In
preparing the consolidated financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and income and expenses as of the date of the consolidated
statements of financial position and the consolidated statements of earnings for
the period. Actual results may differ from those estimates.
Material estimates that are particularly susceptible to significant change in
the near-term relate to the determination of the Allowance for credit losses and
the valuation of real estate acquired in settlement of loans. In connection
with the determination of the allowances for credit losses and foreclosed
assets, management utilizes the services of professional appraisers for
significant properties.
A substantial portion of the Bank's loans are collateralized by real estate in
markets in Connecticut, which have experienced significant value declines in
recent years. In addition, essentially all of the Bank's foreclosed assets are
located in those same markets. Accordingly, the ultimate collectibility of a
substantial portion of the Bank's loan portfolio and the recovery of a
substantial portion of the carrying amount of foreclosed assets are particularly
susceptible to changes in market conditions in Connecticut. While management
uses available information to recognize possible losses, future additions to the
allowances may be necessary based on changes in economic conditions,
particularly in the Bank's service area, Connecticut. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowances for losses. Such agencies may require
the Bank to recognize additions to the allowances based on their judgements of
information available to them at the time of their examination.
CASH EQUIVALENTS. For the purposes of the Consolidated Statements of Cash
Flows, cash equivalents include demand deposits at other financial institutions
and federal funds sold. Generally, federal funds are sold for one-day periods.
SECURITIES. Effective December 31, 1993, the Bank implemented the provisions of
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standard ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115"). Under SFAS 115, securities are classified upon
acquisition as Held-to-maturity, Available-for-sale or Trading. Securities that
are purchased in anticipation of short-term market gains or for resale are
classified as Trading securities and carried at fair value with unrealized gains
and losses included in earnings. Securities that the Bank has both the positive
intent and ability to hold to maturity are classified as Held-to-maturity and
carried at cost adjusted for premiums and discounts amortized to interest income
using the interest method over the period to the earlier of the maturity or call
date, if any. Securities not designated as either Trading or Held-to-maturity
are classified as Available-for-sale and carried at fair value, with unrealized
gains and losses, net of related income taxes, reported as a separate component
of Stockholders' Equity until realized. Declines in the fair value of
individual Held-to-maturity and Available-for-sale securities below their cost
that are other than temporary are recognized as write-downs of the individual
securities to their fair value, with the write-downs included in earnings as
realized losses.
Prior to the implementation of SFAS 115, investment securities which were
intended to be held until maturity or as long-term investments were stated at
cost adjusted, where applicable, for amortization of premiums and accretion of
discounts generally computed using the interest method. Marketable equity
securities which were included in investment securities were carried at the
lower of aggregate cost or market value, and a valuation allowance was recorded
as a component of retained earnings, when the aggregate cost of marketable
equity
- 5 -
<PAGE>
securities temporarily exceeded market value. A loss was recognized in
earnings when the Bank's carrying value in an investment exceeded, other than
temporarily, its market value.
Gain or loss on securities sold is computed by the specific identification
method.
Loans Held for Sale generally consist of certain first mortgage loans that
management has identified will most likely be sold for reasons of managing rate
risk, liquidity, and/or asset growth, and are reflected at the lower of
aggregate cost or estimated market value. Net unrealized losses resulting from
market value less than cost are recognized through a valuation allowance by
charges against income.
Loans Receivable that the Bank has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reflected at amortized cost
(unpaid principal balances reduced by any partial charge-offs or specific
valuation accounts) net of any net deferred fees or costs on originated loans or
any unamortized premiums or discounts on purchased loans, and less an Allowance
for credit losses.
Interest on loans is included in income as earned based on rates applied to
principal amounts outstanding. The accrual of interest income is generally
discontinued when a loan becomes past due 90 days or more as to contractual
payments of principal or interest. Income on purchased loans is adjusted for the
accretion of discounts and the amortization of premiums using the interest
method over the contractual lives of the loans, adjusted for estimated
prepayments.
Loan origination fees, net of certain direct related costs, are deferred and
amortized as an adjustment of loan yield over the life of the related loan.
Allowances for credit losses have been established by provisions charged to
income and decreased by loans charged off (net of recoveries). Beginning in
1995, the Company adopted SFAS No. 114, "Accounting by Creditors for Impairment
of a Loan." Under the new standard, the 1995 allowance for credit losses
related to loans that are identified for evaluation in accordance with SFAS 114
is based on discounted cash flows using the loan's initial effective interest
rate or the fair value of the collateral for certain collateral dependent loans.
Prior to 1995, the allowance for credit losses related to these loans was based
on undiscounted cash flows or the fair value of the collateral for collateral
dependent loans.
These Allowances represent amounts which, in management's judgment, are adequate
to absorb possible losses on loans that may become uncollectible based on such
factors as the Bank's past loan loss experience, changes in the nature and
volume of the loan portfolio, current and prospective economic conditions that
may affect the borrowers' ability to pay, overall portfolio quality, and review
of specific problem loans. This evaluation is inherently subjective as it
requires material estimates including the amounts and timing of future cash
flows expected to be received on impaired loans that may be susceptible to
significant change.
Bank Premises and Equipment are stated at cost, less accumulated depreciation
and amortization. The Bank uses primarily accelerated methods of calculating
depreciation. Leasehold improvements are amortized over the shorter of the
estimated service lives or the terms of the leases. Bank premises are
depreciated over a period of between 30 and 40 years; furniture and equipment
are depreciated over a period of between 1 and 20 years. For income tax
purposes, the Bank uses the appropriate depreciation provisions of the Internal
Revenue Code.
Foreclosed Assets are comprised of real estate acquired through foreclosure
proceedings or deeds accepted in lieu of foreclosure. Loans previously
classified as in-substance foreclosure but for which the Company had not taken
possession of the collateral have been reclassified to loans. This
reclassification did not impact the Company's financial condition or results of
operations. These properties are initially recorded at the lower of the
carrying value of the related loans or the estimated fair value of the real
estate acquired, with any excess of the loan balance over the estimated fair
value of the property charged to the Allowance for credit losses. Subsequent
changes in the net realizable value of the property are reflected by charges or
credits to the Allowance for estimated losses on foreclosed assets. Costs
relating to the subsequent development or improvement of a property are
capitalized when value is increased. All other holding costs and expenses, net
of rental income, if any, are expensed as incurred.
- 6 -
<PAGE>
CORE DEPOSIT INTANGIBLE. In connection with the Burritt transaction (Note 13),
the core deposit intangible is being amortized on a straight line basis over
seven years.
INCOME TAXES. Effective January 1, 1993, the Company adopted SFAS No. 109,
"Accounting for Income Taxes". SFAS 109 required a change from the deferred
method of accounting for income taxes of the Accounting Principles Board Opinion
11 ("APB 11") to the asset and liability method of accounting for income taxes.
Under the asset and liability method of SFAS 109, deferred income tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Pursuant to the deferred method under APB 11, which was applied in 1992 and
prior years, deferred income taxes were recognized for income and expense items
that were reported in different years for financial reporting purposes and
income tax purposes using the tax rate applicable for the year of the
calculation. Under the deferred method, deferred taxes were not adjusted for
subsequent changes in tax rates.
Provisions for income taxes are computed based on all taxable revenue and
deductible expense items included in the accompanying Consolidated Statement of
Earnings regardless of the period in which such items are recognized for income
tax filing purposes. The Company and its subsidiary file consolidated Federal
and combined Connecticut income tax returns.
Primary and Fully Diluted Earnings Per Share are based on the weighted average
number of common shares outstanding during the period and additional common
shares assumed to be outstanding to reflect the dilutive effect of common stock
equivalents. Stock options and their equivalents are included in earnings per
share computations using the treasury stock method, which assumes that the
options are exercised at the beginning of the period. Proceeds from such
exercise are assumed to be used to repurchase common stock. The difference
between the number of common shares assumed to have been issued from the
exercise of options and the number of common shares assumed to have been
purchased are added to the weighted average number of common shares outstanding.
Employee Retirement Benefits and related deferred assets and liabilities are
accounted for in accordance with SFAS 87, "Employers Accounting for Pensions"
and SFAS 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions". Pension expense and postretirement health care expense are based on
actuarial computations of current and future benefits for employees and
retirees.
CLASSIFICATION OF CERTAIN AMOUNTS. For comparative purposes, certain amounts in
prior period consolidated financial statements have been reclassified to conform
with the current period classifications.
The following is a summary of significant accounting policies followed by DS
Bancor, Inc. (the "Company"), its wholly owned subsidiary Derby Savings Bank
(the "Bank") and Derby Financial Services Corp., the Bank's wholly owned
subsidiary, and reflected in the accompanying consolidated financial statements.
The financial statements of Derby Financial Services Corp. are not significant
to the Bank's or the consolidated financial statements.
NOTE 2 - SECURITIES
A summary of the Bank's investment securities is as follows:
<TABLE>
<CAPTION>
MARCH 31, 1995
-----------------------------------------
(AMOUNTS IN THOUSANDS)
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
TRADING COST GAINS LOSSES VALUE
------- --------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Marketable equities $ 1,048 $ 25 $ 53 $ 1,020
======== ======== ======== ========
</TABLE>
- 7 -
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1995
-----------------------------------------
(AMOUNTS IN THOUSANDS)
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE-FOR-SALE COST GAINS LOSSES VALUE
------------------ --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Government and agency bonds $ 23,121 $ 18 $ 133 $ 23,006
Mortgage-backed securities 160,090 95 3,786 156,399
Other bonds and notes 10,754 10 108 10,656
-------- -------- -------- --------
Total debt securities 193,965 123 4,027 190,061
Marketable equities 6,527 147 42 6,632
-------- -------- -------- --------
Total $200,492 $ 270 $ 4,069 $196,693
======== ======== ======== ========
<CAPTION>
MARCH 31, 1995
-----------------------------------------
(AMOUNTS IN THOUSANDS)
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD-TO-MATURITY COST GAINS LOSSES VALUE
---------------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Government and agency bonds $ 2,000 $ -- $ 32 $ 1,968
Mortgage-backed securities 100,344 12 4,756 95,600
-------- -------- -------- --------
Total debt securities 102,344 12 4,788 97,568
Money market preferred stock 6,000 -- -- 6,000
-------- -------- -------- --------
Total $108,344 $ 12 $ 4,788 $103,568
======== ======== ======== ========
<CAPTION>
DECEMBER 31, 1994
------------------------------------------
(AMOUNTS IN THOUSANDS)
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
TRADING COST GAINS LOSSES VALUE
------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Marketable Equities $ 918 $ -- $ 148 $ 770
======== ========== ======== ========
<CAPTION>
DECEMBER 31, 1994
-----------------------------------------
(AMOUNTS IN THOUSANDS)
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE-FOR-SALE COST GAINS LOSSES VALUE
------------------ ---------- ---------- --------- --------
<S> <C> <C> <C> <C>
U.S. Government and agency bonds $ 21,095 $ 1 $ 677 $ 20,419
Mortgage-backed securities 174,667 7 7,832 166,842
Other bonds and notes 28,903 2 978 27,927
-------- -------- -------- --------
Total debt securities 224,665 10 9,487 215,188
Marketable equities 1,556 37 107 1,486
-------- -------- -------- --------
Total $226,221 $ 47 $ 9,594 $216,674
======== ======== ======== ========
</TABLE>
- 8 -
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------------------------------
(AMOUNTS IN THOUSANDS)
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD-TO-MATURITY COST GAINS LOSSES VALUE
---------------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Government and agency bonds $ 2,000 $ -- $ 60 $ 1,940
Mortgage-backed securities 102,702 -- 7,714 94,988
-------- -------- -------- --------
Total $104,702 $ -- $ 7,774 $ 96,928
======== ======== ======== ========
</TABLE>
The amortized cost and market value of debt securities by contractual maturity
is as follows:
<TABLE>
<CAPTION>
MARCH 31, 1995
-----------------------------------------
(AMOUNTS IN THOUSANDS)
AVAILABLE-FOR-SALE HELD-TO-MATURITY
--------------------- ------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Due in one year or less $ --- $ --- $ 2,000 $ 1,968
Due after one year through five years 10,753 10,656 --- ---
Due after five years through ten years 16,136 16,059 --- ---
Due after ten years 6,986 6,947 --- ---
------- -------- -------- -------
33,875 33,662 2,000 1,968
Mortgage-backed securities 160,090 156,399 100,344 95,600
-------- -------- -------- -------
Total $193,965 $190,061 $102,344 $97,568
======== ======== ======== =======
</TABLE>
During the three months ended March 31, 1995, proceeds and realized gains
(losses) from sales of Available-for-sale and Trading securities and unrealized
gains (losses) on securities classified as trading were as follows:
<TABLE>
<CAPTION>
GROSS GROSS NET
PROCEEDS REALIZED REALIZED GAIN
AVAILABLE-FOR-SALE FROM SALES GAINS LOSSES (LOSS)
- ------------------ ---------- -------- -------- ------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Government and agency bonds $ 27,994 $ --- $ 1,223 $(1,223)
Other bonds and notes 17,583 --- 555 (555)
-------- ------- ------- -------
Total debt securities 45,577 --- 1,778 (1,778)
Marketable equities 54 9 --- 9
------- ------- ------ ------
Total available-for-sale 45,631 9 1,778 (1,769)
TRADING
- -------
Realized gains 384 51 --- 51
-------- ------- ------- -------
Total realized $ 46,015 $ 60 $ 1,778 (1,718)
======== ======= =======
Net unrealized gains--trading 120
-------
Total $(1,598)
=======
</TABLE>
- 9 -
<PAGE>
During the three months ended March 31, 1994, proceeds and realized gains
(losses) from sales of Available-for-sale and Trading securities and unrealized
gains (losses) on securities classified as trading were as follows:
<TABLE>
<CAPTION>
GROSS GROSS NET
PROCEEDS REALIZED REALIZED GAIN
FROM SALES GAINS LOSSES (LOSS)
---------- ------- ------- -------
AVAILABLE-FOR-SALE (AMOUNTS IN THOUSANDS)
- ------------------
<S> <C> <C> <C> <C>
Other bonds and notes $ 15,631 $ 235 $ 1 $ 234
Marketable equities 92 17 47 (30)
-------- ------- ------- --------
Total available-for-sale $ 15,723 $ 252 $ 48 204
======== ======= =======
Net unrealized losses--trading (10)
--------
Total $ 194
=======
</TABLE>
At March 31, 1995, the aggregate amortized cost and fair value of securities
pledged as collateral against public funds and treasury tax and loan deposits
were approximately $7.0 million and $6.9 million, respectively.
NOTE 3 - LOANS RECEIVABLE AND LOANS HELD-FOR-SALE
The components of loans in the accompanying Consolidated Statements of Position
were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
MORTGAGE
Residential real estate $673,683 $687,582
Commercial real estate 29,867 28,731
Multi-family real estate 9,487 8,682
Residential construction 3,870 2,363
-------- --------
716,907 727,358
-------- --------
CONSUMER
Home equity lines of credit 70,364 70,358
Home equity installment 21,194 19,267
Collateral 3,202 3,014
All other 6,484 4,783
-------- --------
101,244 97,422
-------- --------
COMMERCIAL
Commercial 18,695 20,199
Real estate development 3,716 3,775
-------- --------
22,411 23,974
-------- --------
TOTAL 840,562 848,754
Net deferred loan fees, premiums & discounts (3,938) (2,524)
Allowances for credit losses (6,853) (6,803)
-------- --------
829,771 839,427
Residential real estate loans held-for-sale --- (55,190)
-------- --------
Loans receivable, net $829,771 $784,237
======== ========
</TABLE>
-10-
<PAGE>
Loans are summarized between fixed and adjustable rates as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Fixed rate $209,176 $213,669
Adjustable rate 631,386 635,085
-------- --------
Total $840,562 $848,754
======== ========
</TABLE>
The Bank has sold certain mortgage loans and retained the related servicing
rights. The principal balances of loans serviced for others, which are not
included in the accompanying Consolidated Statements of Position, were
approximately $156,700,000 and $129,300,000 at March 31, 1995 and December 31,
1994, respectively.
Loans outstanding at March 31, 1995 and December 31, 1994 included approximately
$15,736,000 and $15,042,000, respectively, of non-performing loans, which were
comprised of $12,582,000 in mortgage loans, $1,514,000 in consumer loans and
$1,640,000 in commercial loans at March 31, 1995 and $12,186,000 in mortgage
loans, $1,280,000 in consumer loans and $1,576,000 in commercial loans at
December 31, 1994. The average recorded investment in non-performing loans
during the three months ended March 31, 1995 was approximately $15,669,000. The
Company recognized interest income on those non-performing loans of
approximately $55,000 for the quarter ended March 31, 1995.
Activity in the allowances for loan losses for the periods indicated were as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1995 1994
--------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
MORTGAGE LOANS
Balance at beginning of period $ 4,495 $ 4,605
Provision for credit losses 400 350
Loan charge-offs (444) (459)
Recoveries 5 1
------- -------
Balance at end of period $ 4,456 $ 4,497
======= =======
CONSUMER LOANS
Balance at beginning of period $ 1,266 $ 1,193
Provision for credit losses 200 200
Loan charge-offs (139) (349)
Recoveries 47 3
------- -------
Balance at end of period $ 1,374 $ 1,047
======= =======
COMMERCIAL LOANS
Balance at beginning of period $ 1,042 $ 1,181
Provision for credit losses --- 50
Loan charge-offs (21) ---
Recoveries 2 2
------- -------
Balance at end of period $ 1,023 $ 1,233
======= =======
TOTAL ALLOWANCE FOR CREDIT LOSSES
Balance at beginning of period $ 6,803 $ 6,979
Provision for credit losses 600 600
Loan charge-offs (604) (808)
Recoveries 54 6
------- -------
Balance at end of period $ 6,853 $ 6,777
======= =======
</TABLE>
-11-
<PAGE>
In connection with the Burritt transaction (Note 13), the Bank purchased two
loan pools at discounts of approximately $9.0 million and $1.3 million, which
were added to the Bank's Allowance for mortgage and consumer credit losses,
respectively, in 1992. During 1993, the Bank completed a valuation analysis of
these loans and allocated approximately $6.0 million from these amounts to a
purchased loan discount, which will be accreted to interest income over the
remaining terms of the acquired loans. At March 31, 1995, the Allowances for
credit losses, which totaled approximately $6.9 million, included approximately
$1.7 million allocated to the loans acquired in the Burritt transaction.
NOTE 4 - 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 in the
normal course of business to meet the financing needs of its customers. These
instruments expose the Bank to credit risk which is not included in the
accompanying Consolidated Statements of Position.
The Bank's exposure to credit risk is represented by the contractual amount of
those instruments and is summarized below:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Loan Commitments
Commitments to extend credit $ 14,223 $ 10,783
Commitments to purchase loans 16,483 24,000
Unadvanced commercial lines of credit 10,604 8,232
Unadvanced portion of construction loans 2,832 2,904
Unused portion of Home Equity Lines of Credit 60,800 59,977
Other consumer lines of credit 1,737 994
-------- --------
Total $106,679 $106,890
======== ========
Letters of credit $ 1,212 $ 1,463
======== ========
</TABLE>
Loan commitments are agreements to lend and are subject to the same credit
policies as loans and generally have fixed expiration dates or other termination
clauses. The Bank also issues traditional letters of credit which commit the
Bank to make payments on behalf of its customers based upon specific future
events. Since many of the letters of credit are expected to expire without
being drawn upon, the total letters of credit do not necessarily represent
future cash requirements. Collateral is obtained based upon management's credit
assessment of the customer.
At March 31, 1995, the Bank had commitments to purchase approximately $2.9
million in securities. There were no outstanding commitments to sell securities
at March 31, 1995.
NOTE 5 - FORECLOSED ASSETS
Foreclosed assets consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
One-to-four family residential $ 2,475 $ 1,599
Multi-family 1,034 510
Commercial real estate 268 907
Land 1,847 3,179
------- -------
Total 5,624 6,195
Allowance for estimated losses (308) (439)
------- -------
Foreclosed assets, net $ 5,316 $ 5,756
======= =======
</TABLE>
-12-
<PAGE>
Activity in the allowance for estimated losses on foreclosed assets is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1995 1994
------ ------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Balance at beginning of period $ 439 $1,040
Provision charged to expense 500 400
Net losses charged to the allowance (631) (479)
------ ------
Balance at end of period $ 308 $ 961
====== ======
</TABLE>
Losses and expenses related to foreclosed assets are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1995 1994
------ ------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Provision charged to expense $ 500 $ 400
Gain on sale of real estate (7) (1)
Holding costs and expenses (1) 208
Rental income (44) (63)
------ ------
Foreclosed asset expense, net $ 448 $ 544
===== = ======
</TABLE>
NOTE 6 - BANK PREMISES AND EQUIPMENT
Bank premises and equipment were comprised of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Buildings and land $ 7,261 $ 7,266
Leasehold improvements 849 836
Furniture and equipment 5,700 5,656
------- -------
13,810 13,758
Accumulated depreciation and amortization 6,970 6,783
------- -------
Bank premises and equipment, net $ 6,840 $ 6,975
======= =======
</TABLE>
Depreciation and amortization included in Non-interest expense aggregated
approximately $195,600 and $188,300 for the three months ended March 31, 1995
and 1994, respectively.
LEASES.
Rent expense for banking premises of $175,700 and $232,100 is included in
Occupancy expense for the three months ended March 31, 1995 and 1994,
respectively.
-13-
<PAGE>
Future minimum payments, by year and in the aggregate, under noncancelable
operating leases with initial or remaining terms of one year or more consist of
the following at March 31, 1995 (AMOUNTS IN THOUSANDS):
1995 $ 424
1996 532
1997 436
1998 263
1999 116
Thereafter 145
------
Total future minimum lease payments $1,916
======
These leases include options to renew for periods ranging from 3 to 22 years.
NOTE 7 - DEPOSITS
Deposits were comprised of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------------------------- ------------------------------
1995 1994
----------------------------- ------------------------------
(DOLLAR AMOUNTS IN THOUSANDS)
WEIGHTED WEIGHTED
AVERAGE AVERAGE
STATED RATES AMOUNT STATED RATES AMOUNT
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Demand $ 29,193 $ 30,918
NOW 1.75-2.00%(A) 47,379 1.75-2.00%(a) 49,097
Regular and club savings 2.00 199,699 2.00 213,574
Money market deposit accounts 5.63 202,694 5.10 205,239
Time accounts 5.15 547,663 4.72 528,918
---------- ----------
Total deposits $1,026,628 $1,027,746
========== ==========
<FN>
(a) Ranges indicate tiers
</TABLE>
Time accounts at March 31, 1995 mature as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
MATURITY STATED RATE AMOUNT
-------- ---------------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C>
One year or less 4.34% $357,873
One to two years 5.36% 98,323
Two to three years 5.72% 38,048
Beyond 5.49% 53,419
--------
Total 4.72% $547,663
========
</TABLE>
Time deposit accounts of $100,000 or more approximated $32,069,000 at March 31,
1995. Of that amount, approximately $9,838,000 mature in six months or less,
$8,121,000 mature after six months to one year, and $14,110,000 mature after one
year.
-14-
<PAGE>
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1995 1994
---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
NOW $ 225 $ 224
Regular and club savings 1,014 1,109
Money market deposits 2,642 1,517
Time savings 6,661 5,412
Escrow 37 38
------- -------
Total interest expense on deposits $10,579 $ 8,300
======= =======
</TABLE>
NOTE 8 - BORROWED FUNDS
Terms of the advances from the Federal Home Loan Bank of Boston ("FHLBB") were
as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
MATURITY/REPRICE DATE 1995 1994
----------------------------- ------------------------------
(DOLLAR AMOUNTS IN THOUSANDS)
WEIGHTED AVERAGE WEIGHTED AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
1995 $ --- --- $ 1,482 ---
1995 32,051 5.88 58,703 6.02
1996 27,050 4.95 27,050 4.95
1997 19,190 5.55 19,190 5.55
1998 1,600 5.48 1,600 5.48
1999 2,200 8.60 2,200 8.60
2000 920 9.16 920 9.16
-------- --------
Total advances from the FHLBB $ 83,011 $111,145
======== ========
</TABLE>
The Bank has a cash management line of credit from the FHLBB in the amount of
$10,672,000 at March 31, 1995. At March 31, 1995 and December 31, 1994, the
Bank had book overdrafts of $0 and $1,482,000, respectively, which are included
in advances from the FHLBB.
The Company had a $3.0 million line of credit (Note 18), of which approximately
$1.4 million was outstanding at March 31, 1994, and was subsequently paid off in
June 1994.
Interest expense on borrowed funds is summarized as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1995 1994
---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
FHLBB advances $1,152 $1,649
Line of credit --- 26
------ ------
Total interest expense on borrowed funds $1,152 $1,675
====== ======
</TABLE>
Stock of the FHLBB, mortgage loans and mortgage-backed securities with fair
values, as determined in accordance with FHLBB's collateral pledge agreement, at
least equal to the outstanding advances and any unused lines of credit were
pledged against outstanding advances from the FHLBB at March 31, 1995 and
December 31, 1994.
-15-
<PAGE>
NOTE 9 - BENEFIT PLANS
A. RETIREMENT PLAN
The Bank sponsors a defined benefit pension plan which is noncontributory and
covers all full-time employees who meet certain age and length of service
requirements. Benefits are based on years of service and the employee's highest
compensation during any consecutive five year period during the last ten years
before normal retirement. The Bank's funding policy is to contribute annually
amounts at least equal to minimum required contributions under the Employee
Retirement Income Security Act of 1974 (ERISA). Contributions are intended to
provide not only for benefits attributed to service to date, but also for those
expected to be earned in the future.
The components of the net pension expense reflected in Employee benefits expense
were as follows:
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
1995 1994
---- ----
(Amounts in thousands)
<S> <C> <C>
Service cost-benefits earned during the period $ 87 $100
Interest cost on projected benefit obligation 95 76
Expected return on plan assets (100) (97)
Net amortization and deferral (2) (2)
---- ----
Net pension expense $ 80 $ 77
==== ====
</TABLE>
Assumptions used in the accounting were:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1995 1994
---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Discount/settlement rates 8.50% 7.00%
Rates of increase in compensation levels 5.00% 5.00%
Expected long-term rate of return on assets 9.50% 9.50%
</TABLE>
The following table sets forth the Plan's funded status and amounts recognized
in the Consolidated Statements of Position:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------
(AMOUNTS IN THOUSANDS)
<S> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation - vested $(3,306)
Accumulated benefit obligation - nonvested (72)
-------
Total accumulated benefit obligation (3,378)
Effect of projected future compensation levels (1,174)
-------
Projected benefit obligation ("PBO") for service
rendered to date (4,552)
Plan assets, at fair value * 4,095
-------
PBO in excess of plan assets (457)
Unrecognized net asset existing at January 1, 1987
being recognized over approximately 18 years (93)
Unrecognized prior service cost (72)
Unrecognized net loss from past experience different
from that assumed and effects of changes in assumptions 556
-------
Accrued pension cost included in Other liabilities $ (66)
=======
<FN>
* THE PLAN'S ASSETS ARE ALLOCATED AMONG EQUITY SECURITIES AND VARIOUS SHORT
AND INTERMEDIATE TERM BOND FUNDS.
</TABLE>
-16-
<PAGE>
B. DEFERRED COMPENSATION PLAN
The Bank has adopted deferred compensation agreements for its directors whereby
directors can defer earned fees to future years with benefits commencing at
retirement or pre-retirement benefits at death prior to retirement. The
deferred compensation expense for the three months ended March 31, 1995 and 1994
was $25,100 and $24,000, respectively. The Bank has purchased life insurance
policies which it intends to use to fund the retirement benefits. For income
tax purposes, no deduction is allowed for the insurance premium expense or
deferred compensation expense, but a deduction will be allowed at the time
compensation is paid to the participant. For the quarters ended March 31, 1995
and 1994, the Bank had no insurance premium expenses inasmuch as policy loans
were utilized to fund premiums due.
C. THRIFT PLAN
The Bank has established a defined contribution thrift plan (the "Thrift Plan")
covering eligible employees. Full-time employees are eligible to participate in
the Thrift Plan upon completion of six months of service. Eligible employees
participating in the Thrift Plan may contribute between one percent and ten
percent of their pre-tax annual compensation. If an employee contributes the
maximum ten percent of annual compensation, the employee may also contribute an
additional ten percent of post-tax annual compensation. The Bank contributes
$.50 out of net income to the Thrift Plan for each $1.00 contributed by
participants up to three percent of each participant's compensation. The Bank's
expense during the three months ended March 31, 1995 and 1994 was $19,100 and
$22,800, respectively.
D. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Bank provides certain health care and life insurance benefits for retired
employees. Substantially all of the Bank's employees become eligible if they
reach normal retirement age while still working for the Bank. These benefits
are provided through an insurance company whose premiums are based on the
benefits paid during the year. The premiums paid by the Bank are based on the
retiree's length of service with the Bank. The Company adopted SFAS No. 106 in
1992. The statement requires that the projected future costs of providing
postretirement benefits be recognized as an expense as employees render service,
instead of when the benefits are paid. Prior to the adoption of this statement
in 1992, the Company recognized postretirement benefit expense as paid.
The following table sets forth the accumulated postretirement benefit obligation
("APBO") reconciled to the accrued postretirement benefit cost included in the
Company's Consolidated Statements of Position:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------
(AMOUNTS IN THOUSANDS)
<S> <C>
Accumulated Postretirement Benefit Obligation
Retirees $ (488)
Fully eligible active plan participants (180)
Other active plan participants (1,561)
-------
Total APBO (2,229)
Unrecognized transition obligation 1,917
Unrecognized net gains from past experience
different from that assumed and effects
of changes in assumptions (920)
-------
Accrued postretirement benefit cost
included in Other liabilities $(1,232)
=======
</TABLE>
The APBO includes approximately $1,759,000 attributable to the Company's
postretirement health care plan.
Net periodic postretirement benefit cost reflected in Employee benefits expense
included the following components.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1995 1994
---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Service cost-benefits attributable to
service during the period $ 53 $ 70
Interest cost on APBO 47 42
Amortization of transition obligation 17 25
---- ----
Net periodic postretirement benefit cost $117 $137
==== ====
</TABLE>
-17-
<PAGE>
For measurement purposes, a 14.5% annual rate of increase in the per capita cost
of covered health care benefits was assumed in 1994. The rate was assumed to
decrease gradually to 4.0% in year 15 and remain at that level thereafter. The
health care cost trend rate assumption has a significant effect on the amounts
reported.
The weighted-average discount rates used in determining the APBO was 8.5%.
NOTE 10 - INCOME TAXES
The allocation of federal and state income taxes between current and deferred
portions, calculated using the liability method is as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1995 1994
---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Current income tax provision
Federal $ 813 $ 832
State 297 306
------ ------
Total current 1,110 1,138
------ ------
Deferred income tax benefit
Federal (10) (92)
State (4) (35)
------ ------
Total deferred (14) (127)
------ ------
Total provision for income taxes $1,096 $1,011
====== ======
</TABLE>
The Company's effective income tax rate differed from the Federal statutory tax
rate as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
-----------------------------------
1995 1994
-------------- ---------------
(DOLLAR AMOUNTS IN THOUSANDS)
Amount % Amount %
------ ---- ------ ----
<S> <C> <C> <C> <C>
Tax at statutory Federal rate $ 924 34.0 $ 851 34.0
State tax* 193 7.1 180 7.2
Dividend income exclusion (22) (0.8) (20) (0.8)
Other 1 -- -- --
------ ---- ------ -----
Effective rate on operations $1,096 40.3 $1,011 40.4
====== ==== ====== ====
<FN>
* NET OF FEDERAL TAX BENEFIT
</TABLE>
The components of the net deferred income tax asset are as follows:
<TABLE>
<CAPTION>
MARCH 31, 1995 DECEMBER 31, 1994
-------------- -----------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Deferred income tax liability:
Federal $ 292 $ 273
State 110 104
------ ------
402 377
------ ------
Deferred income tax asset:
Federal 3,849 5,549
State 1,470 2,121
------ ------
5,319 7,670
------ ------
Net deferred income tax asset $4,917 $7,293
====== ======
</TABLE>
-18-
<PAGE>
The tax effects of each item of income and expense and net unrealized gains
(losses) on securities available-for-sale that give rise to deferred income
taxes are:
<TABLE>
<CAPTION>
MARCH 31, 1995 DECEMBER 31, 1994
------------- -----------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Allowances for losses $2,023 $2,023
Depreciation (62) (62)
Deferred loan fees (81) (59)
Deferred compensation 222 215
Loan expense 287 291
Employee benefits 583 539
Trading loss 11 62
Intangible asset 354 314
------ ------
3,337 3,323
Unrealized losses 1,580 3,970
------ ------
Net deferred income tax asset $4,917 $7,293
====== ======
</TABLE>
A summary of the change in the net deferred income tax asset for the three
months ended March 31, 1995 and 1994 is as follows (AMOUNTS IN THOUSANDS):
<TABLE>
<S> <C>
Net deferred income tax asset at December 31, 1994 $7,293
Deferred tax provision:
Income and expense 14
Unrealized losses (2,390)
------
Net deferred income tax asset at March 31, 1995 $4,917
======
</TABLE>
<TABLE>
<S> <C>
Deferred tax income asset at December 31, 1993 $2,055
Deferred tax provision:
Income and expense 127
Unrealized gains 1,254
------
Net deferred tax asset at March 31, 1994 $3,436
======
</TABLE>
Deductions from taxable income in prior years have been claimed as loan loss
provisions for qualifying (real estate) loans in accordance with the Internal
Revenue Code. Retained earnings includes a tax reserve for qualifying loans.
If the reserve is used for any purpose other than to absorb losses on loans, an
income tax liability could be incurred. Management does not anticipate that
this reserve will be made available for any other purposes. In accordance with
generally accepted accounting principles, no deferred income taxes have been
provided for this temporary difference.
NOTE 11 - STOCK OPTIONS
Under the Company's stock option plans 576,797 shares, adjusted to reflect stock
dividends, if any, of common stock are reserved. At the time options are
granted, no accounting entry is made. The proceeds from the exercise of options
are credited to common stock for the par value of the shares purchased and the
excess of the option price over the par value of the shares issued is credited
to additional paid-in capital. The exercise price of options granted
approximated the fair market value of the shares on the dates granted.
Additionally, stock appreciation rights ("SARS") have been granted in tandem
with stock options under the Company's 1985 Stock Option Plan.
In accordance with generally accepted accounting principles, compensation
accruals are required for SARS when the market value exceeds the option exercise
price. However, compensation expense should be measured according to the terms
the Company's SARS holders are most likely to elect based upon the facts
available each period. Accordingly, no expense accruals have been made for the
three months ended March
-19-
<PAGE>
31, 1995 and 1994 inasmuch as management does not anticipate exercise of SARS at
this time.
The following table and the data below summarizes the shares subject to option
under the Plans which have been adjusted to reflect stock dividends declared:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1994
-----------------------------------------
<S> <C>
Outstanding at beginning of period 227,549
Granted --
Exercised (a) (1,313)
Cancelled --
-------
Outstanding at end of period 226,236
=======
<FN>
(a) INCLUDES SARS
</TABLE>
As of March 31, 1995, 226,236 options were exercisable at prices ranging from
$9.50 to $27.62.
At March 31, 1995, there were 226,236 options in the Plans that remained
outstanding. Through March 31, 1995, 129,231 options have been exercised and
229,953 options were available for grant.
During the three months ended March 31, 1995, 1,313 SARS were exercised which
resulted in payments to employees aggregating $6,200. These amounts are
included in Salary and wage expense for 1995.
NOTE 12 - CONDENSED FINANCIAL INFORMATION OF DS BANCOR, INC.
(PARENT COMPANY ONLY)
The condensed statements of position for DS Bancor, Inc. were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
-------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash in subsidiary bank $ 826 $ 860
Investment in bank subsidiary, at equity 70,981 65,985
Other assets 317 303
------- -------
TOTAL ASSETS $72,124 $67,148
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Other liabilities $ 11 $ 11
------- -------
Total Liabilities 11 11
------- -------
STOCKHOLDERS' EQUITY
Common Stock 3,222 3,085
Additional paid-in capital 41,075 37,780
Retained earnings 32,329 30,785
Less: Treasury stock, at cost (339,500 shares) (4,513) (4,513)
------- -------
Total Stockholders' Equity 72,113 67,137
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $72,124 $67,148
======= =======
</TABLE>
-20-
<PAGE>
The condensed statements of earnings were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1995 1994
---- ----
(DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATE)
<S> <C> <C>
Income:
Dividends from subsidiary $ --- $ 567
Other income 13 --
------ ------
Total income 13 567
------ ------
Expense:
Interest expense --- 25
Other expense 48 59
------ ------
Total expense 48 84
------ ------
Income before income tax and change in equity of subsidiary (35) 483
Income tax benefit 15 35
------ ------
Income before change in equity of subsidiary (20) 518
Change in equity of subsidiary 1,638 974
------ ------
Net income $1,618 $1,492
====== ======
Weighted average shares outstanding
Primary 2,938,093 2,890,368
Fully Diluted 2,938,093 2,899,673
Earnings per share
Primary $ 0.55 $ 0.52
Fully diluted $ 0.55 $ 0.51
</TABLE>
The condensed changes in the components of Stockholders' Equity for the three
months ended March 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK
------ ---------- -------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance - December 31, 1993 $2,991 $36,007 $31,955 $(4,513)
Net income 1,492
Adjustment for unrealized gains (losses), net (1,762)
------ ------- ------- -------
Balance - March 31, 1994 $2,991 $36,007 $31,685 $(4,513)
====== ======= ======= =======
Balance - December 31, 1994 $3,085 $37,780 $30,785 $(4,513)
Net income 1,618
Stock dividend declared on common stock 137 3,283 (3,420)
Shares issued for fractional interest 12
Cash in lieu of fractional shares (12)
Adjustment for unrealized losses, net 3,358
------ ------- ------- -------
Balance - March 31, 1995 $3,222 $41,075 $32,329 $(4,513)
====== ======= ======= =======
</TABLE>
-21-
<PAGE>
The condensed statements of cash flows were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1995 1994
---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Dividends received from subsidiary $ --- $ 567
Interest paid --- (25)
Interest on deposit account 13 ---
Cash paid to suppliers (47) (59)
----- ------
Net cash provided from operating activities (34) 483
----- ------
Cash flows from financing activities:
Dividends paid to stockholders (12) ---
Issuance of common stock 12 ---
----- ------
Net cash applied to financing activities --- ---
----- ------
Net increase in cash (34) 483
Cash at beginning of period 860 85
----- ------
Cash at end of period $ 826 $ 568
===== ======
</TABLE>
A reconciliation of net earnings to cash provided by operating activities was as
follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1995 1994
---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Net Income $1,618 $1,492
Items not resulting in cash flow:
Equity in undistributed earnings of subsidiary (1,638) (974)
Decrease (increase) in income tax
benefits receivable (14) (35)
------ ------
Net cash flow from operating activities $ (34) $ 483
====== ======
</TABLE>
NOTE A: THE BOARD OF DIRECTORS AUTHORIZED AND THE COMPANY ESTABLISHED A $3.0
MILLION LINE OF CREDIT TO PARTIALLY FUND THE REPURCHASE OF THE
COMPANY'S COMMON STOCK IN 1989 AND 1990. THIS LOAN, WHICH HAD AN
INTEREST RATE OF PRIME PLUS ONE PERCENT, WAS PAID IN FULL IN JUNE,
1994. (NOTES 8 AND 14).
-22-
<PAGE>
NOTE 13 - ACQUISITION OF BURRITT INTERFINANCIAL BANCORPORATION
On December 4, 1992, Derby Savings entered into an Insured Deposit Purchase and
Assumption Agreement ("P & A") with the FDIC, pursuant to which Derby purchased
certain assets and assumed the insured deposits and certain other liabilities of
Burritt Interfinancial Bancorporation, New Britain, Connecticut in an
FDIC-assisted transaction. In the transaction, the Bank assumed approximately
$460 million of insured deposits and approximately $5.5 million of other
liabilities of Burritt.
The assets of Burritt acquired included cash, various investment securities and
certain other assets totaling approximately $54.0 million and two loan pools of
one-to-four family mortgage loans and consumer loans, with par values of
approximately $139.7 million and $29.6 million, respectively. The loan pools,
at December 31, 1992, included non-accrual loans totaling approximately $6.1
million and $221,000, respectively. The loans acquired in this transaction were
purchased at a $10.4 million discount, which had been added to the Bank's
allowances for credit losses. Specific allocations of the acquired allowance
for credit losses, to reflect the fair value of loans acquired, have been made
as management of the Bank identified probable losses. During 1993, the Bank
completed a valuation analysis of the loans acquired in connection with the
Burritt transaction. As a result of this analysis, the Company allocated $6.0
million of the Burritt allowance for credit losses as a purchased loan discount
(Note 3). This amount will be accreted to interest income over the remaining
terms of the acquired loans.
Of a $6.2 million premium paid by the Bank to the FDIC for the assumption of
deposits and other customer service liabilities, the Bank recorded approximately
$5.0 million as a core deposit intangible which is included in Other assets, net
of amortization, and totaled $3.4 million at March 31, 1995 (Note 1).
As part of the transaction, the Bank acquired the right to service loans for
others which totaled approximately $107.1 million at December 31, 1992.
Approximately $1.1 million of the premium paid to the FDIC has been allocated to
the tangible value of acquired mortgage servicing rights, included in Other
assets. This amount will be amortized over the expected future life of the
serviced loans as a reduction to serviced loan fee income. Additionally, the
Bank entered into an interim management agreement with the FDIC pursuant to
which the Bank would service loans which totaled $258.9 million at December 31,
1992. The servicing of these loans for the FDIC ended September 30, 1993.
In connection with the transaction, Derby acquired an option to acquire or lease
Burritt's thirteen banking offices and related equipment. The Bank exercised
its option with respect to eleven of such banking offices. Derby did not
exercise its option with respect to two Burritt banking offices which were
closed by the FDIC and not opened by Derby. Three of Burritt's offices were
owned and in 1993, the Bank purchased two of these offices and entered into a
short-term rental agreement with the FDIC for the third. In June 1994, the Bank
relocated the operations of the former main office of Burritt, which the Bank
had been renting from the FDIC. Of the remaining eight banking offices which
had been leased by Burritt, one had been assumed by the Bank. Through December
31, 1994, the Bank entered into leases on five of the seven locations formerly
leased by Burritt and is renegotiating the terms of one of the remaining
locations. The Bank closed one of the acquired former branch offices of Burritt
in January 1994.
-23-
<PAGE>
NOTE 14 - REGULATORY MATTERS
DS Bancor and its wholly owned subsidiary Derby Savings Bank, pursuant to the
regulations of the Federal Reserve Board (the "Board") and the FDIC,
respectively, are subject to risk-based capital standards. These risk-based
standards require a minimum ratio of total capital to risk-weighted assets of
8.0%. Of the required capital, 4.0% must be tier 1 capital (primarily
stockholders' equity).
The Board has supplemented these standards with a minimum leverage ratio of 3.0%
of tier 1 capital to total assets. The Board has indicated that all but the
most highly rated bank holding companies should maintain a leverage ratio of 4%
to 5% of tier 1 capital to total assets. The FDIC has adopted a similar
leverage requirement.
In the second quarter of 1992, the Board of Directors of Derby Savings entered
into a Memorandum of Understanding (the "Memorandum") with the FDIC and the
Connecticut Commissioner of Banks. The Memorandum calls for the Board of
Directors of the Bank to develop a written plan to reduce the level of assets
classified "substandard" and to establish target levels for the reduction of
adversely classified assets to 75% of total equity capital and reserves by
December 31, 1992 and to 50% of total equity capital and reserves within a
reasonable time thereafter. At March 31, 1995, the level of assets classified
"substandard" represented 29.8% of the Bank's total equity capital and reserves.
The Memorandum also calls for the level of delinquent loans to be reduced to no
more than 7% of gross loans by December 31, 1992 and to 5% of gross loans by
December 31, 1993. At March 31, 1995, delinquent loans totaled $32.2 million or
3.8% of total loans. Additionally, the Memorandum limits the payment of cash
dividends by the Bank to DS Bancor to the Company's debt service and non-salary
expenses.
In connection with the Burritt transaction, the FDIC modified the terms of the
Memorandum which pertained to the maintenance of capital ratios. The Memorandum
initially required that the Bank maintain a leverage ratio of tier 1 capital to
total assets of at least 5.5% and if the ratio fell below 7%, the Bank was
required to notify the FDIC and the Connecticut Commissioner. The modification
required Derby to have a leverage ratio in excess of 5% of total assets by
December 31, 1993 and a leverage ratio at or above 5.75% of total assets by
December 31, 1994. However, management of the Bank has requested and the FDIC
has approved an extension of the December 31, 1994 target date to June 30, 1995.
At March 31, 1995, the Bank's leverage ratio of tier 1 capital to total assets
ratio exceeded this level and stood at 5.9%.
-24-
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE QUARTER
ENDED MARCH 31,
----------------------
1995 1994
------- -------
OPERATING DATA: (UNAUDITED)
<S> <C> <C>
Interest income $20,584 $18,293
Interest expense 11,671 9,962
------- -------
Net interest income 8,913 8,331
Provision for credit losses 600 600
------- -------
Net interest income after provision for credit losses 8,313 7,731
Non-interest income, net 543 863
Non-interest expense 6,142 6,091
------- -------
Income before income taxes 2,714 2,503
Provision for income taxes 1,096 1,011
------- -------
Net Income $1,618 $1,492
======= =======
Earnings Per Share
Primary $0.55 $0.52
Fully diluted $0.55 $0.51
STATISTICAL DATA:
Net interest rate spread (a) 2.86% 2.74%
Net yield on average interest-earning assets (a) 3.10% 2.89%
Return on average assets (a) 0.55% 0.49%
Return on average stockholders' equity (a) 9.11% 8.93%
Average stockholders' equity to average assets 5.99% 5.48%
MARKET PRICES OF COMMON STOCK:
High $27.50 $27.50
Low $21.75 $23.75
At March 31 $24.25 $25.75
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL CONDITION AND OTHER DATA AT: MARCH 31, DECEMBER 31,
1995 1994
---------- ------------
(UNAUDITED)
<S> <C> <C>
Total assets $1,192,742 $1,222,690
Loan portfolio, net 829,771 839,427
Securities portfolio 306,057 322,146
Deposits 1,026,628 1,027,746
Federal Home Loan Bank of Boston advances 83,011 111,145
Stockholders' equity 72,113 67,137
Book value per share 25.02 23.30
Leverage ratio 5.94% 5.63%
Tier 1 capital to risk-weighted assets 10.87% 10.38%
Total capital to risk-weighted assets 11.92% 11.41%
Non-performing loans 15,736 15,042
Foreclosed assets 5,316 5,756
---------- ----------
Total non-performing assets 21,052 20,798
Restructured loans 4,189 4,213
Allowance for credit losses 6,853 (b) 6,803 (b)
Allowance as a percentage of non-performing loans 43.5% 45.2%
<FN>
- ----------------
(a) ANNUALIZED.
(b) INCLUDES $1.7 MILLION AND $1.8 MILLION, ALLOCATED TO LOANS ACQUIRED AS PART
OF THE BURRITT TRANSACTION, FOR MARCH 31, 1995 AND DECEMBER 31, 1994,
RESPECTIVELY.
</TABLE>
-25-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
COMPARISON OF RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
GENERAL. Net income for the first quarter ended March 31, 1995 totaled
$1,618,000 or $.55 per share (fully diluted) compared to $1,492,000 or $.51 per
share (fully diluted) for the comparable period in 1994. Net income for the
three months ended March 31, 1995 represented an annualized return on average
assets of .55% compared to .49% for the corresponding period in 1994.
Net income for the current period represents a $126,000 or 8.5% increase
compared to net income for year earlier period. This increase essentially
resulted from a $582,000 increase in net interest income which more than offset
a $320,000 decline in non-interest income during the current quarter compared to
the year earlier period.
INTEREST INCOME. Interest and fee income from loans and interest on the
investment portfolio increased $2.3 million or 12.5% during the three months
ended March 31, 1995 compared to the corresponding period in 1994. The increase
in interest income was substantially due to the increase in the yield on average
interest-earning assets.
The average yield on interest-earning assets increased 81 basis points (100
basis points equals one percent) from 6.34% during the first quarter of 1994 to
7.15% during the current quarter. The increase in the yield reflects the
general rise in the level of interest rates between the two periods. The
Company has been pursuing an objective of allocating financial resources from
investments to loans, which is reflected in average loans outstanding increasing
$52.2 million or 6.7%, while the average of all other interest-earning assets
decreased $54.5 million or 14.8%.
INTEREST EXPENSE. Interest expense increased $1,709,000 or 17.2% during
the three months ended March 31, 1995 compared to the corresponding period in
1994. This increase was essentially due to the effect of a general increase the
level of interest rates between the two periods, which more than offset the
reduction in interest expense resulting from a decline in average interest-
bearing liabilities outstanding in the current period compared to the comparable
1994 period. Average interest-bearing liabilities outstanding declined $18.9
million or 1.7% in the current period compared to the year earlier period.
NET INTEREST INCOME. As a result of the changes in interest income and
interest expense noted above, net interest income increased $.6 million or .7%
from $8.3 million for the quarter ended March 31, 1994 to $8.9 million during
the current quarter. The net interest rate spread improved 12 basis points from
2.74% during the first quarter of 1994 to 2.86% during the first quarter of
1995.
-26-
<PAGE>
The following table summarizes the Bank's net interest income (including
dividends) and net yield on average interest-earning assets. Non-accruing
loans, for the purpose of this analysis, are included in average loans
outstanding during the periods indicated. For the purpose of these
computations, daily average amounts were used to compute average balances.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------------------
1995 1994
---- ----
(AMOUNTS IN THOUSANDS)
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 836,990 $15,390 7.35% $ 784,807 $13,546 6.90%
Taxable securities 294,392 4,873 6.62 355,153 4,567 5.14
Federal funds 11,535 163 5.65 6,146 42 2.73
FHLBB stock 8,899 158 7.10 8,022 138 6.88
---------- ------- ---- ---------- ------- ----
Total interest-earning assets $1,151,816 20,584 7.15 $1,154,128 18,293 6.34
========== ------- ---- ========== ------- ----
Interest-bearing liabilities:
Deposits $1,006,899 10,519 4.18 $ 985,942 8,287 3.36
Borrowed funds 81,877 1,152 5.63 121,748 1,675 5.50
---------- ------- ---- ---------- ------- ----
Total interest-bearing
liabilities $1,088,776 11,671 4.29 $1,107,690 9,962 3.60
========== ------- ---- ========== ------- ----
Net interest income $ 8,913 $ 8,331
======= =======
Net interest rate spread 2.86% 2.74%
==== ====
Net yield on average interest-
earning assets 3.10% 2.89%
==== ====
</TABLE>
-27-
<PAGE>
RATE/VOLUME ANALYSIS. The following table sets forth the changes in
interest earned and interest paid resulting from changes in volume and changes
in rates. Changes in interest earned or paid due to both rate and volume have
been allocated in proportion to the relationship of the absolute dollar amounts
of the changes in each. There were no material out of period items or
adjustments included in interest income or interest expense during the periods
indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1995 COMPARED TO 1994
---------------------
VOLUME RATE NET
------ ------ ------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Interest earned on:
Loans $ 930 $ 914 $1,844
Taxable securities (865) 1,171 306
Federal funds 55 66 121
FHLBB stock 15 5 20
------ ------ -------
Interest income 135 2,156 2,291
------ ------ -------
Interest paid on:
Deposits 180 2,052 2,232
Borrowed funds (560) 37 (523)
------ ------ -------
Interest expense (380) 2,089 1,709
------ ------ -------
Net interest income $ 515 $ 67 $ 582
====== ====== =======
</TABLE>
PROVISION FOR CREDIT LOSSES. The Bank provided $600,000 for credit losses
for the first quarter of 1995 and for the comparable 1994 period. At the end of
the first quarter of 1995, the Company's allowance for credit losses totaled
$6.9 million, representing 43.5% of non-performing loans (non-performing loans
includes loans past due 90 days or more and non-accruing loans). The allowance
for credit losses includes $1.7 million allocated to the loans acquired in the
Burritt transaction (see notes to Consolidated financial statements).
NON-INTEREST INCOME. Non-interest income decreased $320,000 or 37.1% from
$863,000 during the first quarter of 1994 to $543,000 during the first quarter
of 1995. Service charges and other income, comprised principally of loan
service and deposit related fees, increased $77,000 or 13.2% from $583,000 for
the first quarter of 1994 to $660,000 for the current quarter. Net securities
and loan gains (losses) decreased from a $280,000 gain in the 1994 period to a
$117,000 loss in the current 1995 period. During the current quarter, in
addition to gains of $171,000 from securities classified as trading, the Bank
sold various securities totaling $45.6 million, resulting in a loss of $1.8
million and loans totaling $29.5 million resulting in a gain of $1.5 million.
(See financial condition).
NON-INTEREST EXPENSE. Non-interest expense increased $51,000 or .8% from
$6,091,000 during the first quarter of 1994 to $6,142,000 during the
corresponding period in 1995. Salaries and employee benefits, the largest
component of the Company's cost of operations, increased $92,000 or 3.7% from
$2,493,000 during the quarter ended March 31, 1994 to $2,585,000 during the
current quarter. All other operating expenses, in the aggregate, decreased
$41,000 or 1.1% from $3,598,000 during the first quarter of 1994 to $3,557,000
for the comparable 1995 period. For the current quarter, foreclosed asset
expense totaled $448,000 compared to $544,000 for the comparable year earlier
period. Included in this expense is the provision for estimated losses on
foreclosed assets which amounted to $500,000 in the current quarter compared to
$400,000 for the year earlier period. The Company expects that until the level
of foreclosed assets declines substantially, foreclosed asset expense will
continue to be significant.
-28-
<PAGE>
As required by the Statement of Financial Accounting Standards No. 91, the
Bank deferred certain direct costs resulting from the origination of loans.
These deferred costs, which are principally comprised of salaries, employee
benefits and other loan expenses, totaled approximately $171,000 for the current
quarter compared to $445,000 for the year earlier period.
NET NON-INTEREST MARGIN. The net non-interest margin, the difference
between non-interest income and non-interest expense, as a percentage of average
assets (annualized) outstanding, decreased by 17 basis points from (1.72%)
during the quarter ended March 31, 1994 to (1.89%) during the current 1995
period. Non-interest income, as a percentage of average assets (annualized),
decreased from .28% to .18% for the quarters ended March 31, 1994 and 1995,
respectively. Non-interest expense, as a percentage of average assets
(annualized), increased 7 basis points from 2.00% during the quarter ended March
31, 1994 to 2.07% during the current quarter.
NET NON-INTEREST INCOME/EXPENSE ANALYSIS
AS A PERCENTAGE OF AVERAGE ASSETS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1995 1994
---- ----
<S> <C> <C>
Non-interest income .18 .28
----- -----
Non-interest expense
Foreclosed asset .15 .18
FDIC insurance .22 .24
Other 1.70 1.58
----- -----
Total non-interest expense 2.07 2.00
----- -----
Net non-interest margin (1.89) (1.72)
===== =====
</TABLE>
PROVISION FOR INCOME TAXES. The provision for income taxes during the
current quarter totaled $1,096,000, reflecting a 40.4% effective income tax
rate, compared to $1,011,000 or an effective income tax rate of 40.3% for the
comparable 1994 period.
FINANCIAL CONDITION
The Company's assets totaled $1.19 billion at March 31, 1995, representing
a $29.9 million or 2.5% decrease from year end 1994. The decrease in total
assets during the first quarter of 1995 was primarily attributable to the sale
of loans and securities and the use of a portion of the proceeds to reduce
Federal Home Loan Bank of Boston ("FHLBB") advances. During the current
quarter, the Bank sold $45.6 million of investment securities and $29.5 million
in mortgage loans. The investment securities sold were comprised of fixed rate
corporate and mortgaged-backed securities, and the mortgage loans sold had fixed
and adjustable interest rate features. As a result of these transactions, the
Bank incurred a net loss on the sale of these assets of $288,000. The proceeds
from these transactions have been invested in higher yielding interest rate
sensitive loans and securities, and have been used to reduce FHLBB advances.
The Bank, as of January 1, 1995, adopted the provisions of Statement of
Financial Accounting Standards Board No. 114, "Accounting by Creditors for
Impairment of a Loan ("SFAS 114"). SFAS 114 requires creditors to evaluate the
collectability of both contractual interest and principal of all loans when
assessing the need for a loss accrual. When a loan is impaired, a creditor
shall measure impairment based on the present value of the expected cash flow
discounted at the loan's effective interest rate, or the fair value of the
collateral, less estimated selling costs, if the loan is collateral dependent
and foreclosure is probable. The adoption of this pronouncement has had the
effect of eliminating the in-substance foreclosed asset category, which is
classified within non-performing loans in the accompanying financial statements.
-29-
<PAGE>
The assets of the Company are primarily invested in loans to individuals
and, to a lesser extent, the businesses located in the Bank's market area. At
March 31, 1995, approximately $836.6 million, representing 70.1% of the
Company's assets, were comprised of loans, compared to $846.2 million or 69.2%
of total assets at December 31, 1994. The predominant focus of the Bank's
lending business has been to provide financing for residential real estate. At
March 31, 1995, $669.0 million or 80.0% of the Bank's loans were for the
financing of one-to-four family residences. As residential mortgage loan
activity declined in reaction to the steady and significant increase in interest
rates during 1994, increased emphasis was given to financing the growing needs
of the consumer loan market. Major developmental efforts were undertaken to
expand the product offerings in the consumer lending area during the latter half
of 1994 to help mitigate the expected decline in residential mortgage lending
throughout the current year. A newly designed home equity line of credit and an
unsecured line of credit, combined with a concentrated effort in automobile and
boat financing, will constitute the focus of the Bank's consumer lending efforts
in 1995.
The Company continued to control the level of non-performing assets, which
include loans past due 90 days or more, non-accrual loans and foreclosed assets
(see Consolidated Financial Statements--Note 1). At March 31, 1995, non-
performing assets totaled $21.1 million, representing 1.8% of total assets,
essentially unchanged from the $20.8 million of non-performing assets, or 1.7%
of total assets, at year end 1994. At March 31, 1995, foreclosed assets totaled
$5.3 million, representing .4% of total assets, compared to $5.8 million or .5%
of total assets at year end 1994.
The following table sets forth non-accrual loans and loans past due for 90
days or more, including loans in foreclosure ("non-performing loans"), and the
allowance for credit losses at the dates indicated:
<TABLE>
<CAPTION>
MARCH 31, 1995 DECEMBER 31, 1994
--------------------------------------------------- -----------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS)
ALLOWANCE FOR ALLOWANCE FOR
NON-PERFORMING LOANS CREDIT LOSSES NON-PERFORMING LOANS CREDIT LOSSES
------------------------ ----------------------- ----------------------- -----------------------
% OF NON- % OF NON-
% OF LOANS PERFORMING % OF LOANS PERFORMING
LOAN TYPE BALANCE OUTSTANDING BALANCE LOANS BALANCE OUTSTANDING BALANCE LOANS
- --------- ------- ----------- ------- ---------- ------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage
1-4 Family $ 8,388 1.3% $ 8,095 1.2%
Commercial 1,832 6.1 1,643 5.8
Multi-family 2,362 24.1 2,448 28.2
------- -------
Total Mortgage 12,582 1.8 $ 4,456 35.4% 12,186 1.7 $ 4,495 36.9%
------- -------
Consumer
HELOC 951 1.4 816 1.2
All other 563 1.8 464 1.7
------- -------
Total Consumer 1,514 1.5 1,374 90.7 1,280 1.3 1,266 98.9
------- -------
Commercial
Real estate
development 629 16.9 788 20.9
All other 1,011 5.5 788 4.0
------- -------
Total Commercial 1,640 7.4 1,023 62.4 1,576 6.6 1,042 66.1
------- ------- ------- -------
Total $15,736 1.9 $ 6,853 43.5 $15,042 1.8 $ 6,803 45.2
======= ======= ======= =======
</TABLE>
The Company's loan portfolio is segregated into three broad categories of
loans: mortgage, consumer and commercial. The Company's investment in mortgage
loans totaled $712.4 million, representing 59.7% of total assets at March 31,
1995 compared to $669.1 million or 54.7% of total assets at year end 1994.
Mortgage loans closed during the first quarter of 1995 totaled $12.2 million.
In the first quarter of 1994, as a result of a significant rise in refinance
activity, the Bank closed $83.9 million in mortgage loans.
-30-
<PAGE>
As in prior years, and substantially due to the investment of funds
resulting from the sale of assets previously discussed, the Bank continued to
supplement local loan origination through the purchase of single family
adjustable rate mortgage loans. The Bank purchased $19.3 million of these loans
during the first quarter of 1995 compared to $1.2 million during the comparable
1994 period. The origination and purchase of adjustable rate loans is an
integral part of the Bank's management of interest rate risk.
The Bank's investment in mortgages is primarily secured by residential
properties and, to a lesser extent, multi-family housing. This portfolio also
includes financing for commercial real estate and real estate development and
construction. Loans to finance one-to-four family residences totaled $669.0
million or 80.0% of the Bank's total loan portfolio at March 31, 1995 compared
to $684.7 million, representing 80.9% of the total loan portfolio, at year end
1994. The level of non-performing loans totaled $8.4 million or 1.3% of this
portfolio at March 31, 1995 compared to $8.1 million or 1.2% of the portfolio at
year end 1994.
Multi-family housing loans totaled $9.8 million or 1.2% of the total loan
portfolio at March 31, 1995 compared to $8.7 million or 1.0% of the total loan
portfolio at year end 1994. At March 31, 1995, non-performing loans totaled
$2.4 million or 24.1% of this portfolio. At year end 1994, there were $2.5
million or 28.2% of non-performing loans included in this category. Loans to
finance commercial real estate totaled $29.8 million or 3.6% of the total loan
portfolio at March 31, 1995, of which $1.8 million or 6.1% were non-performing.
At year end 1994, this portfolio totaled $28.5 million, representing 3.4% of
total loans, of which $1.6 million or 5.8% were non-performing.
The fourth group of loans included in the Bank's mortgage portfolio were
made to finance real estate construction, primarily residential condominiums and
single family residences. This portfolio of loans totaled $3.8 million or .5%
of total loans at March 31, 1995 compared to $2.4 million or .3% of total loans
at year end 1994. At March 31, 1995, as with year end 1994, there were no non-
performing real estate construction loans. Unadvanced construction commitments
approximated $1.8 million at both March 31, 1995 and December 31, 994.
The Company's investment in consumer loans totaled $102.0 million,
representing 12.2% of total loans at March 31, 1995, compared to $98.2 million
or 11.6% of total loans at year end 1994. The consumer loan portfolio is
primarily comprised of home equity lines of credit, which complement the Bank's
primary business of providing financing for single family residences. The home
equity line of credit, which is collateralized by the equity in residential real
property, has become the Bank's second largest investment in loans. Home equity
lines of credit totaled $131.4 million, with $70.4 million in use at March 31,
1995 compared to $130.5 million, with $70.4 million in use at year end 1994. At
March 31, 1995, non-performing consumer loans totaled $1.5 million or 1.5% of
this portfolio. Home equity lines of credit included in this amount totaled
$1.0 million, representing 1.4% of HELOCs outstanding. In comparison, at year
end 1994, non-performing consumer loans totaled $1.3 million or 1.3% of the
consumer loan portfolio, including $.8 million, representing 1.2% of HELOCs
outstanding.
The Company also provides credit to businesses located within the Bank's
market area. The Bank's commercial lending department invests in loans for the
development of real estate and other business needs. The Bank's investment in
commercial loans totaled $22.2 million at March 31, 1995, reflecting a $1.5
million or 6.4% decrease from the $23.7 million invested at year end 1994. At
March 31, 1995, $3.7 million or 16.7% of this portfolio was invested in loans
for the development of real estate and $18.5 million or 83.3% was invested in
loans for various business needs. Unadvanced real estate development
commitments totaled approximately $1.1 million at both March 31, 1995 and
December 31, 1994. At March 31, 1995, non-performing commercial loans totaled
$1.6 million, representing 7.4% of the commercial loan portfolio compared to
$1.6 million or 6.6% at year end 1994.
-31-
<PAGE>
NON-PERFORMING ASSETS. The following table summarizes the Bank's
non-performing loans and foreclosed assets ("non-performing assets") and
restructured loans:
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
---------------------- -------------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------- ------- ------- ------- ------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Non-accrual loans:
Mortgage............. $10,530 $12,484 $11,000 $12,302 $18,387 $18,984 $18,081
Consumer............. 1,402 1,618 1,280 1,789 2,082 1,683 1,920
Commercial........... 1,640 2,796 1,576 3,215 3,901 8,041 3,437
------- ------- ------- ------- ------- ------- -------
Total.................. 13,572 16,898 13,856 17,306 24,370 28,708 23,438
------- ------- ------- ------- ------- ------- -------
Accruing loans past due
90 days:
Mortgage............. 2,052 2,486 1,186 2,317 3,006 4,096 4,730
Consumer............. 112 45 --- 249 1 151 230
Commercial........... --- --- --- --- --- --- ---
------- ------- ------- ------- ------- ------- -------
Total.................. 2,164 2,531 1,186 2,566 3,007 4,247 4,960
------- ------- ------- ------- ------- ------- -------
Foreclosed assets...... 5,624 9,295 6,195 9,379 10,456 7,305 5,893
Valuation allowance.... (308) (961) (439) (1,040) (438) (412) ---
------- ------- ------- ------- ------- ------- -------
Total, net............. 5,316 8,334 5,756 8,339 10,018 6,893 5,893
------- ------- ------- ------- ------- ------- -------
Total non-performing
assets............... $21,052 $27,763 $20,798 $28,211 $37,395 $39,848 $34,291
======= ======= ======= ======= ======= ======= =======
Restructured loans $ 4,189 $ 2,264 $ 4,213 $ 2,273 $ 8,262 $ 6,985 ---
======= ======= ======= ======= ======= ======= =======
</TABLE>
As detailed in the table above, the level of non-performing loans increased
from $15.0 million at year end 1994 to $15.7 million at March 31, 1995. At
March 31, 1995, the Bank had $5.3 million in foreclosed assets, consisting of 36
properties, compared to $5.8 million, consisting of 37 properties at year end
1994. During the first quarter of 1995, the Bank reclassified $1.0 million in
loans to foreclosed assets.
During the past several years, as the volume of assets acquired by the Bank
through the foreclosure process increased and the value of the underlying real
estate declined, the Bank adopted a policy of reappraising foreclosed assets on
at least an annual basis. This policy has assisted the Bank in quantifying the
net realizable value of these assets, and has provided the basis, as necessary,
for subsequent write-downs of the carrying amount of these assets.
Additionally, in order to provide for unidentified and possible future declines
in the value of foreclosed assets, the Bank maintains an allowance for estimated
losses on foreclosed assets through a provision which is charged to and included
in foreclosed asset expense. For the first quarter of 1995, the Bank provided
$500,000 to this allowance compared to $400,000 for the comparable 1994 period.
During the current quarter, the Bank charged $630,000 in specific write-downs
against this allowance compared to $480,000 during the comparable year earlier
period. At March 31, 1995, the allowance for estimated losses on foreclosed
assets totaled $.3 million compared to $.4 million at year end 1994.
The reduction of non-performing assets has been one of the primary
objectives of the Bank. A principal focus in 1995 will be a continuation of the
Bank's efforts to reduce the level of non-performing assets. Continued weakness
in the local economy suggests that progress in this area may be moderate. One
of the measures used to identify the trends in non-performing assets is the
level of loans past due 60 days. As noted in the following table, the amount of
loans past due 60 days has declined to $4.8 million at March 31, 1995,
representing .6% of the total loan portfolio compared to $6.1 million or .7% of
the total loan portfolio at year end 1994.
-32-
<PAGE>
The following table summarizes the Bank's accruing loans past due 60
days:
<TABLE>
<CAPTION>
MARCH 31, AT DECEMBER 31,
---------------------- -------------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------- ------- ------- ------- ------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Loans past due 60 days:
Mortgage............. $ 4,201 $ 4,870 $ 5,014 $ 7,369 $ 8,829 $ 9,072 $ 5,062
Consumer............. 579 1,019 1,015 651 815 525 753
Commercial........... --- 330 62 --- 95 353 870
------- ------- ------- ------- ------- ------- -------
Total.................. $ 4,780 $ 6,219 $ 6,091 $ 8,020 $ 9,739 $ 9,950 $ 6,685
======= ======= ======= ======= ======= ======= =======
</TABLE>
The foundation of the Bank's program to reduce the level of non-performing
assets is the loan collection and workout process. In addition to the personnel
assigned to the collection/workout area, the Bank has two officers responsible
for the management and sale of foreclosed assets. This crucial function of the
Bank is supported by a standing committee of the Board of Directors, comprised
of individuals experienced in the areas of real estate sales and development,
which was established to assist and give advice on the management and
disposition of troubled assets.
To the extent that the Bank ultimately takes title to troubled assets, the
Bank has established several programs to facilitate the timely disposition of
foreclosed assets. The foundation of these programs is to establish fair and
realistic value for foreclosed assets, taking into consideration the potential
opportunity cost associated with lengthy marketing time. The Bank augments this
pricing policy through preferred Bank financing, including special first-time
home-buyer programs. To further expand sales efforts and reduce marketing time,
the Bank also maintains consistent marketing programs and premium realtor
commissions. The employment of these programs has enabled the Bank to sell and
close on 17 properties for an aggregate consideration of $1.3 million in first
quarter of 1995. During the comparable 1994 period, the Bank sold and closed on
9 properties for an aggregate consideration of $900,000.
In order to maintain the quality of the loan portfolio, as well as to
provide for potential losses that are inherent in the lending process, the Bank
controls its lending activities through adherence to loan policies adopted by
the Board of Directors and stringent underwriting standards. To provide for
possible losses within the loan portfolio, the Company maintains an allowance
for credit losses. The allowance for credit losses is maintained through
provisions charged to income. These provisions are determined on a quarterly
basis, based upon management's review of the anticipated uncollectability of
loans, current economic conditions, historical trend analysis, real estate
deflation factors, overall portfolio quality, specific problem loans and an
assessment of the adequacy of the allowance for credit losses. Based on these
factors, the Company provided $600,000 to the allowance for credit losses during
both the current quarter and comparable 1994 period. During the quarter ended
March 31, 1995, the Bank wrote off $550,000 (net of recoveries). At March 31,
1995 the allowance for credit losses totaled $6.9 million, which includes $1.7
million allocated to the loans acquired in the Burritt transaction. In
comparison, the allowance for credit losses totaled $6.8 million at year end
1994, which included $1.8 million allocated to the loans acquired in the Burritt
transaction (see Consolidated Financial Statements--Note 13). The allowance for
credit losses represented 43.5% of non-performing loans at March 31, 1995,
compared to 45.2% at year end 1994.
In addition to collection and workout efforts, management also monitors and
works closely with certain borrowers that may experience financial difficulties.
The debtors may be experiencing cash flow problems which inhibit their ability
to service their debt in accordance with its terms. This may result in a
modification of loan terms in order to assist a debtor who has been adversely
affected by the state of the economy. The modification of terms may be in the
form of the waiver of principal payments, a reduction in the interest rate or
the waiver of interest payments for a specified period of time. At March 31,
1995, in addition to non-performing assets, the Bank had $4.2 million in loans
which have been restructured.
-33-
<PAGE>
The Bank's securities portfolio was $306.1 million or 25.7% of total assets
at March 31, 1995, virtually unchanged from $322.1 million or 26.4% of total
assets at December 31, 1994. The securities portfolio serves primarily as a
source of liquidity and as a vehicle to help balance the interest rate
sensitivity of the Bank. Notwithstanding the need for liquidity and interest
rate sensitivity, the portfolio is also structured for yield. The Bank adopted
Statement of Financial Accounting Standards No. 115 ("SFAS 115") as of December
31, 1993. Under the provisions of SFAS 115, the Bank's securities are
classified into one of three categories: held-to-maturity, available-for-sale or
trading (see Consolidated Financial Statements--Notes 1 & 2). At March 31,
1995, the Bank had securities totaling $108.3 million classified as held-to-
maturity compared to $104.7 million at December 31, 1994. These investments are
primarily comprised of intermediate and long-term fixed rate mortgage-backed
securities and are carried at amortized cost. Securities classified as
available-for-sale at March 31, 1995 totaled $196.7 million compared to $216.7
million at December 31, 1994. The available-for-sale category was principally
comprised of mortgage-backed securities with adjustable rate interest features.
SFAS 115 also requires that securities classified as available-for-sale be
carried at fair value, with unrealized gains and losses, net of tax effect,
reported as a separate component of stockholders' equity. At March 31, 1995, as
a result of the decline in interest rates and their effect on the market value
of investments and the sale of certain securities during the quarter, the Bank
recorded an unrealized loss, net of tax effect, of $2.2 million, which is
included in stockholders' equity. At December 31, 1994, the Bank had an
unrealized loss, net of tax effect, of $5.6 million. The trading portfolio,
which consists of equity securities, totaled $1.0 million at March 31, 1995.
This portfolio is carried at fair value with unrealized gains or losses included
in earnings. At December 31, 1994, there were $.8 million in securities
classified as trading.
Cash and cash equivalents were $18.4 million at March 31, 1995 versus
$18.6 million at December 31, 1994.
FUNDING SOURCES. The investment activities of the Bank are funded
from several sources. The primary source of funds is provided by local
depositors and is complemented by advances from the FHLBB. In addition, the
Bank is provided with a steady flow of funds from the amortization and
prepayment of loans, as well as the amortization and maturity of securities.
The Bank also derives funds, from time to time, through the sale of loans into
the secondary market and allocates the proceeds in accordance with established
asset and liability management objectives.
During the quarter ended March 31, 1995, deposits decreased by $1.1 million
or .1%, after interest credited of $10.5 million, from $1.028 billion, funding
84.1% of total assets at year end 1994, to $1.027 billion, funding 86.1% of
total assets at March 31, 1995. Retail deposits are essentially derived from
the communities in which the Bank's offices are located. The Bank offers a wide
variety of deposit accounts which include money market deposit accounts,
certificates of deposit and regular savings.
The Bank also utilizes the FHLBB as an alternative source of funds. At
March 31, 1995, FHLBB advances totaled $83.0 million, funding 7.0% of total
assets, compared to $111.1 million, funding 9.1% of total assets at year end
1994. The flexibility, pricing and repricing characteristics of the funding
alternatives offered by the FHLBB have allowed the Bank to match-fund fixed rate
commercial mortgage loans, one year adjustable rate mortgage loans and home
equity lines of credit. The Bank has also employed funds from the FHLBB to fund
the purchase of various mortgage-backed securities.
Amortization, prepayments and the sale of loans into the secondary market
supplied the Bank with an additional $35.6 million in investable funds during
the first quarter of 1995. In keeping with the Bank's asset and liability
management objectives, the Bank periodically may sell loans. The Bank sold
$29.5 million in loans in the first quarter of 1995. These loans were included
in the loans held-for-sale category at year end 1994. Loans categorized as
held-for-sale that were not sold during the quarter were returned to the
mortgage loan portfolio. The Bank has retained servicing on all loans that have
been sold and, at March 31, 1995, was servicing $156.7 million of mortgage loans
for others.
CAPITAL RESOURCES. The Federal Reserve Board (the "FRB") has adopted
risk-based capital standards which require bank holding companies to maintain a
minimum ratio of total capital to risk-weighted assets of 8.0%. Of the required
capital, 4.0% must be tier 1 capital. Tier 1 capital is primarily common
stockholders' equity and certain categories of perpetual preferred stock. As
part of the Burritt transaction (see Consolidated Financial Statements--Note
13.), Derby paid the FDIC a premium of $6.2 million. The
-34-
<PAGE>
amortized balance of $3.4 million at March 31, 1995, in addition to
approximately $148,000 of other intangible assets resulting from the
transaction, are required to be deducted from the Company's and the Bank's
capital prior to determining regulatory capital requirements. After giving
effect to the transaction, the Company had a ratio of total capital to
risk-weighted assets of 11.9% and a ratio of tier 1 capital to risk-weighted
assets of 10.9% at March 31, 1995.
The Board has supplemented the risk-based capital requirements with a
required minimum leverage ratio of 3% of tier 1 capital to total assets. The
Board indicated that all but the most highly-rated holding companies, however,
should maintain a leverage ratio of 4% to 5% of tier 1 capital to total assets.
At March 31, 1995, the Company had a ratio of tier 1 capital to total assets of
5.9%.
Derby Savings Bank is also required by the FDIC to meet risk-based ratios
the same as those adopted by the FRB for the Company. At March 31, 1995, Derby
Savings' ratio of total capital to risk-weighted assets was 11.8% and its ratio
of tier 1 capital to risk-weighted assets was 10.7%.
The FDIC has also adopted a minimum leverage ratio of 3% of tier 1 capital
to total assets. The FDIC has also indicated that all but the most highly rated
banks should maintain a leverage ratio of 4% to 5% of tier 1 capital to total
assets. Derby Savings' ratio of tier 1 capital to total assets at March 31,
1995 was 5.85%.
Derby entered into a Memorandum of Understanding (the "Memorandum") with
the FDIC in April 1992, which required Derby to maintain a minimum tier 1
capital to total asset ratio of 5.5%. In connection with the Burritt
transaction, the FDIC modified the terms of the Memorandum which pertained to
the maintenance of capital ratios. The Memorandum initially required that the
Bank maintain a ratio of leverage capital to total assets of at least 5.5% and
if the ratio fell below 7%, the Bank was required to notify the FDIC and the
Connecticut Commissioner of Banks. The modification required Derby to have
leverage capital in excess of 5% of total assets by December 31, 1993 and
leverage capital at or above 5.75% of total assets by December 31, 1994.
However, management of the Bank had requested and the FDIC had approved an
extension of the December 31, 1994 target date to June 30, 1995. As of March
31, 1995, the Bank attained the required minimum leverage capital to asset
ratio. At March 31, 1995, the leverage capital to total assets ratio was 5.85%.
Under the prompt corrective action regulation recently adopted by the FDIC,
which became effective on December 19, 1992, a savings bank will be considered:
(i) "well capitalized" if the savings bank has a total risk-based capital ratio
of 10% or greater, a tier 1 risk-based capital ratio of 6% or greater, and a
leverage ratio of 5% or greater (provided the savings bank is not subject to an
order, written agreement, capital directive or prompt corrective action to meet
and maintain a specified 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 risk-based capital ratio of 4% or greater, and a leverage
ratio of 4% or greater (3% or greater if the institution is rated composite 1 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
risk-based capital ratio that is less than 4% (3% if the institution is rated
composite 1 in its most recent report of examination), and a leverage ratio that
is less than 3%; (iv)"significantly undercapitalized" if the institution has a
total risk-based capital ratio that is less than 6%, a tier 1 risk-based capital
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 equal to or less than 2%. The regulation also permits
the FDIC to determine that a savings bank should be placed in a lower category
based on other information such as a savings institution's examination report,
after written notice. At March 31, 1995, the Bank met the "well capitalized"
criteria based on its capital ratios at that date.
ASSET/LIABILITY MANAGEMENT. Derby Savings' asset liability management
program is based upon operating the Bank within a framework of fundamentally
matching interest-sensitive assets and interest-sensitive liabilities. The
purpose of pursuing this policy is to position the Bank to produce stable net
interest income through all phases of the business cycle and resulting interest
rate levels.
The table on the following page summarizes the Company's interest-sensitive
assets and interest-sensitive liabilities that mature or reprice during the
various time periods noted. Loans are net of deferred loan fees and net of
non-accruing loans.
-35-
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1995 MORE THAN MORE THAN MORE THAN MORE THAN MORE THAN
SIX MONTHS ONE YEAR THREE YEARS FIVE YEARS 10 YEARS
SIX MONTHS TO ONE TO THREE TO FIVE TO TEN TO 20 MORE THAN
OR LESS YEAR YEARS YEARS YEARS YEARS 20 YEARS TOTAL
---------- --------- -------- ---------- ---------- --------- ---------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments:
Securities $137,107 $80,209 $37,540 $28,488 $12,229 $7,434 $411 $303,418
Federal funds sold 7,500 -- -- -- -- -- -- 7,500
--------- -------- --------- -------- -------- -------- -------- ----------
Total investments 144,607 80,209 37,540 28,488 12,229 7,434 411 310,918
--------- -------- --------- -------- -------- -------- -------- ----------
Loans:
Fixed-rate mortgages 5,032 5,313 22,869 24,659 55,562 48,153 22,394 183,982
Adjustable-rate
mortgages 243,691 239,852 23,717 9,576 1,052 -- -- 517,888
Consumer loans 80,021 6,470 4,932 4,075 3,495 1,624 -- 100,617
Commercial loans 19,017 1,341 125 32 26 23 -- 20,564
--------- -------- --------- -------- -------- -------- -------- ----------
Total loans 347,761 252,976 51,643 38,342 60,135 49,800 22,394 823,051
--------- -------- --------- -------- -------- -------- -------- ----------
TOTAL INTEREST-
SENSITIVE ASSETS $492,368 $333,185 $89,183 $66,830 $72,364 $57,234 $22,805 $1,133,969
========= ======== ========= ======== ======== ======== ======== ==========
LIABILITIES:
Regular & club savings $199,699 $ -- $ -- $ -- $ -- $ -- $ -- $199,699
Certificates of deposit 209,904 147,798 135,724 54,237 -- -- -- 547,663
Money market accounts 202,694 -- -- -- -- -- -- 202,694
NOW accounts 47,379 -- -- -- -- -- -- 47,379
FHLBB advances 22,701 30,350 25,240 4,720 -- -- -- 83,011
--------- -------- --------- -------- -------- -------- -------- ----------
TOTAL INTEREST-
SENSITIVE LIABILITIES $682,377 $178,148 $160,964 $58,957 $ -- $ -- $ -- $1,080,446
========= ======== ========= ======== ======== ======== ======== ==========
GAP (repricing
difference) ($190,009) $155,037 ($71,781) $7,873 $72,364 $57,234 $22,805
Cumulative GAP ($190,009) ($34,972) ($106,753) ($98,880) ($26,516) $30,718 $53,523
Cumulative GAP/
total assets -15.9% -2.9% -9.0% -8.3% -2.2% 2.6% 4.5%
Ratio of interest-
sensitive assets
to interest-
sensitive liabilities 72.2% 187.0% 55.4% 113.4% 105.0%
Cumulative ratio of
interest-sensitive
assets to interest-
sensitive liabilities 95.9% 89.5% 90.8% 97.5% 102.8% 105.0%
</TABLE>
-36-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Not Applicable
ITEM 2 CHANGES IN SECURITIES
Not Applicable
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5 OTHER INFORMATION
Not Applicable
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Exhibit Index
Exhibit Page of this
Number Report
------ ------
27 Financial Data Schedule 39
-37-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DS Bancor, Inc.
---------------------------------------
Registrant
Date: May 12, 1995 By: /S/ Harry P. DiAdamo, Jr.
-------------------- ---------------------------------------
Harry P. DiAdamo Jr.
President & CEO
Date: May 12, 1995 By: /S/ Alfred T. Santoro
-------------------- ---------------------------------------
Alfred T. Santoro
Vice President, Treasurer and CFO
-38-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF POSITION, THE CONSOLIDATED STATEMENTS OF EARNINGS,
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS & THE SELECTED CONSOLIDATED
FINANCIAL & OTHER DATA AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 10,926
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 7,500
<TRADING-ASSETS> 1,020
<INVESTMENTS-HELD-FOR-SALE> 196,693
<INVESTMENTS-CARRYING> 108,344
<INVESTMENTS-MARKET> 103,568
<LOANS> 836,624
<ALLOWANCE> (6,853)
<TOTAL-ASSETS> 1,192,742
<DEPOSITS> 1,026,628
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,987
<LONG-TERM> 83,011
<COMMON> 0
0
3,222
<OTHER-SE> 68,891
<TOTAL-LIABILITIES-AND-EQUITY> 1,192,742
<INTEREST-LOAN> 15,390
<INTEREST-INVEST> 5,194
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 20,584
<INTEREST-DEPOSIT> 10,519
<INTEREST-EXPENSE> 11,671
<INTEREST-INCOME-NET> 8,913
<LOAN-LOSSES> 600
<SECURITIES-GAINS> (1,598)
<EXPENSE-OTHER> 6,142
<INCOME-PRETAX> 2,714
<INCOME-PRE-EXTRAORDINARY> 1,618
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,618
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
<YIELD-ACTUAL> 3.10
<LOANS-NON> 13,572
<LOANS-PAST> 2,164
<LOANS-TROUBLED> 4,189
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,803
<CHARGE-OFFS> (604)
<RECOVERIES> 54
<ALLOWANCE-CLOSE> 6,853
<ALLOWANCE-DOMESTIC> 6,853
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
