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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-16193
DS BANCOR, INC.
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(Exact name of registrant as specified in its charter)
Delaware 06-1162884
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
33 Elizabeth Street, Derby, Connecticut
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(Address of principal executive offices)
06418 (203) 736-1000
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(Zip Code) (Registrant's telephone #)
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Based upon the market price of the registrant's common stock as of March 19,
1996, the aggregate market value of the voting stock held by non-affiliates of
the registrant is $66,911,694 *
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 March 19, 1996: 3,029,027 shares
DOCUMENTS INCORPORATED BY REFERENCE:
Parts I and II:
Portions of the Annual Report to Stockholders for the year ended December
31, 1995.
Part III:
Portions of the definitive proxy statement for the Annual Meeting of
Stockholders to be held April 24, 1996.
* Solely for purposes of this calculation, all executive officers and
directors of the registrant are considered affiliates. Excludes
all other shareholders beneficially owning more than 5% of the
registrant's common stock.
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ITEM 1. BUSINESS
GENERAL
On August 31, 1987, DS Bancor, Inc. (the "Company" or "DS Bancor") became the
holding company for Derby Savings Bank ("Derby Savings" or the "Bank"). The
Company was formed in 1986 at the direction of the Board of Directors of the
Bank, and became the holding company for the Bank in August 1987. At that time,
each of the outstanding shares of Derby Savings common stock was automatically
converted and exchanged into one share of the Company's common stock. The
Company's principal asset consists of all of the outstanding shares of Derby
Savings. The Company's business consists mainly of the business of Derby
Savings. Derby Savings is a Connecticut-chartered stock savings bank operating
through 22 full-service banking offices in western New Haven and eastern
Fairfield counties and Hartford County. The Bank obtained its Connecticut
charter as a mutual savings bank in 1846. On December 4, 1985, the Bank
converted to a stock savings bank, selling 2,217,856 shares of common stock, and
receiving net proceeds of approximately $28.8 million. Deposits at Derby
Savings are federally insured by the Bank Insurance Fund ("BIF"), which is
administered by the Federal Deposit Insurance Corporation (the "FDIC"). The
Bank is subject to comprehensive regulation, examination and supervision by the
FDIC and the Banking Commissioner of the State of Connecticut (the
"Commissioner"). The Company, as a bank holding company, is subject to
regulation and examination by the Board of Governors of the Federal Reserve
System (the "FRB").
Derby Savings is primarily engaged in the business of attracting deposits from
and providing loans to the residents and businesses located within the Bank's
market area. The Bank's customer base includes long-time customers mainly
employed in manufacturing and service industries as well as newer customers
employed by high technology industries in the northern and western parts of the
Bank's market area. At December 31, 1995, the Bank had deposits of $1.06
billion, funding 84.3% of the Bank's $1.25 billion in assets. The Bank offers a
variety of deposit products to meet the various investment objectives of its
depositors, including regular savings, certificates of deposit, money market
accounts, individual retirement accounts and keogh accounts. In addition to
deposits, which serve as the Bank's primary source of funds, the Bank augments
its lending and investment activities through borrowings from the Federal Home
Loan Bank of Boston ("the FHLBB"), which serves as a credit facility for its
members. At December 31, 1995, the Bank had borrowings from this source of
$96.9 million, funding 7.7% of assets.
The lending activities of the Bank are primarily focused upon meeting the credit
needs of the consumer segment of the Bank's market area. The Bank's consumer
orientation has evolved into essentially two primary products which are secured
by residential real estate and represent the core business of the Bank. At
December 31, 1995, $691.6 million, representing 55.1% of the Company's assets,
were invested in loans secured by first liens on one-to-four family residences.
Complementing the Bank's financing of residential real estate is the home equity
line of credit (the "HELOC") which is also secured by residential real estate
and utilized by consumers to finance various purchases and expenditures. The
flexibility of this means of consumer finance is reflected in the demand for
this product which has enabled the Bank to allocate $78.5 million or 6.3% of its
assets to this product. In addition to these primary products, the Bank also
provides financing for other consumer needs, multi-family housing, as well as
financing for commercial real estate, construction and local businesses. The
1.
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Bank's investment in these product lines in the aggregate totaled $112.1
million, representing 8.9% of the Company's assets at December 31, 1995. The
Company's corporate headquarters are located at 33 Elizabeth Street, Derby,
Connecticut 06418 (telephone: 203-736-1000).
RESULTS OF OPERATIONS. Net income 1995 for totaled $7,613,000 or $2.45 per
share (fully diluted) compared to $5,710,000 or $1.86 per share (fully diluted)
for the prior year. The Company paid 5% stock dividends on March 29, 1995 and
November 24, 1995. The per share amounts for the prior period have been
retroactively adjusted to give effect to these stock dividends.
Net interest income for 1995 increased $.5 million or 1.4% from $34.5 million
for 1994 to $35.0 million for 1995. For 1995, the net yield on interest-earning
assets increased to 2.97%, from 2.94% for 1994.
Stockholders' equity totaled $80.8 million or $26.68 per share at December 31,
1995 and represented 6.5% of total assets. In accordance with Financial
Accounting Standards Board Statement No. 115, Stockholders' equity at December
31, 1995 included an unrealized gain on securities classified as available-for-
sale, net of tax effect, of $426,000 compared to an unrealized loss, net of tax
effect, of $5.6 million at December 31, 1994. (see "Consolidated Financial
Statements contained in the 1995 Annual Report to Stockholders").
For 1995, net income represented a return on average assets and a return on
average stockholders' equity of .63% and 9.95%, respectively, compared to .47%
and 8.34% respectively, for 1994.
During 1995, the Company made further progress in reducing the level of
non-performing assets, which includes non-performing loans and foreclosed
assets. At December 31, 1995, non-performing assets totaled $17.5 million or
1.4% of total assets, reflecting a $3.3 million or 16% decline from $20.8
million or 1.7% of total assets at year end 1994.
During 1995, the Bank charged off loans, net of recoveries, totaling $2.4
million against the allowances for credit losses. For 1995, the provision for
credit losses totaled $2.5 million compared to $2.3 million for 1994. At
December 31, 1995, the allowances for credit losses totaled $6.9 million
representing 50.2% of non-performing loans.
For 1995, the Bank provided $1.5 million to the allowance for estimated losses
on foreclosed assets compared to $2.2 million for 1994. The allowance for
estimated losses on foreclosed assets totaled $230,000 at December 31, 1995,
after foreclosed asset charge-offs of $1.7 million during the year.
BURRITT TRANSACTION. 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.
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The assets of Burritt acquired included, among others, loans totaling
approximately $169.3 million. These loans were purchased at a $10.4 million
discount, which had been added to the Bank's allowance for credit losses.
During the year ended December 31, 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. This amount is being accreted
to interest income over the remaining terms of the acquired loans.
As a result of the Burritt transaction, Derby added 11 banking offices located
in the greater New Britain area.
REGULATORY MATTERS. In August 1995, the Federal Deposit Insurance Corporation
and the Connecticut Banking Commissioner terminated the Memorandum of
Understanding (the "Memorandum") originally entered into with Derby Savings in
1992. The Memorandum, as amended, required among other things that the Bank
achieve a tier 1 capital to total assets ratio of at least 5.75% and that
adversely classified assets and delinquent loans be reduced to certain targeted
levels. Additionally, the Memorandum had limited 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 termination of the Memorandum, the Bank's Board of
Directors has adopted a policy that limits the payment of cash dividends by the
Bank to the Company of up to 10% of the Bank's net income.
BRANCH OFFICES. In January 1996, the Bank relocated its Stratford branch
office. The original Stratford office, opened in 1989 as a Savings Center,
experienced significant growth in its deposit base and corresponding customer
transaction activity, outstripping the physical capacity of the facility. To
better serve existing customers, and to provide for continued growth, the office
was relocated within Stratford to a high traffic retail area known as Paradise
Green. The new facility, which is in close proximity to the former office, is a
traditional branch offering full teller and platform customer service and an
automated teller machine.
In keeping with the Bank's overall strategy as a broad-based community bank, the
Bank has filed an application for the establishment of a new, full service
branch office in the town of Hamden. The Hamden location will expand the Bank's
service area within New Haven county and complement the Bank's existing branch
network. It is anticipated that the Hamden branch will be opened in mid-1996.
In addition, the Bank is actively searching for new branch sites which will
offer an opportunity to increase earnings, build upon the Bank's existing retail
network and enhance the franchise value of the Company. (See Item 2 --
Properties.)
DERBY FINANCIAL SERVICES. Complementing the financial services offered to the
communities served by the Company, the Bank, through it's wholly owned
subsidiary, Derby Financial Services, began offering brokerage services in 1993.
Through an arrangement with Liberty Securities Corporation, a NASD registered
broker-dealer, the products offered include various equity securities, bonds and
mutual funds.
MARKET AREA. The Bank currently operates twenty-two banking offices located in
western New Haven, eastern Fairfield and Hartford counties. The Bank has ATM's
at 18 of its offices. The Bank primarily generates deposits and originates
loans in these geographic areas.
3.
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The Company is headquartered in Derby, which is located in close proximity to
New Haven, Bridgeport and Danbury. This area is served by an excellent highway
system, which allows both east/west (Interstates 95 and 84 and the Merritt
Parkway) and north/south (Route 8) travel both within the state and access to
New York City, Hartford and Boston. Long distance travel is facilitated by
service at three airports. The ports of New Haven and Bridgeport are active
entry points to the Northeast.
The Route 8 corridor has experienced an influx of high technology and service
companies. Such companies include Southern New England Telephone, Tetley Tea,
Philips Medical Systems and Black & Decker. This influx has contributed to a
shift in the employment mix away from traditional industries, including
machinery, metal working and chemical processing. Additionally, the area is
known for its educational and medical facilities, such as Yale University.
LENDING ACTIVITIES
GENERAL. Derby Savings, like most other savings institutions, traditionally
concentrates its lending activities on the origination of loans secured by first
mortgage liens for the construction, purchase or refinancing of residential real
property. Also during the past several years, the Bank has enhanced its
consumer lending through the origination of HELOC's. While residential first
mortgage loans and HELOC's are the primary focus of Derby Savings' lending
activities, the Bank also originates other consumer loans, commercial real
estate mortgages and commercial business loans. At December 31, 1995, the
Bank's loan portfolio totaled $882.2 million and represented 70.3 % of total
assets.
ONE-TO-FOUR FAMILY UNITS. At December 31, 1995, Derby Savings' total mortgage
loan portfolio was $737.4 million, of which $2 million is identified as held-
for-sale, compared to $724.3 million, with $55.2 million identified as held-for-
sale at December 31, 1994. At December 31, 1995, Derby Savings Bank held in its
portfolio $691.6 million of first mortgage loans secured by one-to-four family
residential units which represented 78.4% of its total mortgage loan portfolio.
Of this amount, $7.3 million or 1.0 % were non-performing loans. These include
loans which are non-accruing or past due 90 days.
During 1995, Derby Savings offered adjustable-rate residential mortgage loans
having one-year and three-year adjustment periods, each for a maximum term of 30
years. The interest rate on the one-year adjustable-rate loans is 3.00% above
the One-Year Treasury Index. The payment and interest rate adjust annually with
a maximum interest rate adjustment of 2% per adjustment and 6.00% above the
original interest rate over the term of the loan. Derby Savings Bank also
offers a convertible mortgage program which allows the borrower to convert their
one year adjustable rate mortgage to a fixed rate mortgage between the 13th and
60th payment. Interest rates on the three-year adjustable-rate loans are fixed
for the first three years and either adjust every three years thereafter or
adjust annually thereafter on the same basis as the one-year adjustable-rate
loans. The Bank offers adjustable-rate loans to finance non-owner occupied
residences at a somewhat higher margin above the One-Year Treasury Index.
The Bank offers special mortgage programs to assist first time home-buyers
purchasing one and two family homes, or condominium units, including a five year
fixed rate mortgage priced below the regular 30 year fixed rate product. There
are no points, and the Bank will accept applications up to 40 years in term and
financing of up to 90%. Additionally, the Bank offers a 30-year fixed rate
4.
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program with financing of up to 95% with private mortgage insurance coverage
(PMI).
Derby Savings does not originate residential mortgage loans which exceeded 95%
of the value of the security for the loan. In the event that the amount of a
mortgage loan exceeds 80% of the value of the real estate and improvements, the
Bank requires that the loan be insured against default by private mortgage
insurance, which effectively reduces the loss exposure to a 75% loan-to-value
ratio.
The Bank originates fixed-rate mortgage loans which, from time to time, are sold
in the secondary market in order to achieve the desired balance between
interest-sensitive assets and liabilities and to be able to continue to meet the
credit needs of the local community. The Bank pools such mortgages to
facilitate their sale to investors, primarily the Federal Home Loan Mortgage
Corporation (the "FHLMC") under its forward commitment programs and, to a lesser
extent, the Federal National Mortgage Association (the "FNMA"). The Bank
retains the servicing rights on loans sold in the secondary market.
Most of the mortgage loans originated by Derby Savings include a "due-on-sale"
clause, giving the Bank the right to declare a loan immediately due and payable
in the event, among other things, that the borrower sells or transfers title of
the real property subject to the mortgage. Due-on-sale clauses contained in
residential real estate mortgages have been ruled enforceable in Connecticut by
the state's highest court. Federal legislation also provides for the
enforceability of due-on-sale clauses.
MULTI-FAMILY AND COMMERCIAL REAL ESTATE LOANS. At December 31, 1995, loans
secured by multi-family residences totaled $11.2 million or 1.5% of the Bank's
mortgage loan portfolio. At December 31, 1995, $2.4 million or 21.1% of loans
secured by multi-family residences were non-performing. Loans to finance
commercial real estate totaled $31.1 million and represented 4.2% of the Bank's
mortgage loan portfolio at year end 1995. There were $1.5 million or 4.8% of
commercial real estate loans that were non-performing at year end 1995. The
interest rate on multi-family and commercial real estate loans generally ranges
from 3.75% to 4.0% above the One-Year Treasury Index and adjusts every year with
annual adjustment limits ranging from 2% to 3% and total adjustments over the
life of the loan generally limited from 5% to 7.5% above the initial interest
rate. Multi-family and commercial real estate loans generally amortize over
terms of 15 to 25 years, but may be called or modified by the Bank after ten
years. Derby Savings generally limits multi-family and commercial real estate
loans to 75% of the value of the property securing the loan.
CONSTRUCTION LOANS. In the area of real estate development and construction
lending, which is primarily for residential and condominium construction, the
Bank, at December 31, 1995, had commitments to lend $5.6 million, of which $3.5
million was outstanding at year end 1995, representing .5% of the mortgage loan
portfolio. In comparison, at year end 1994, $4.2 million was committed to
construction projects, of which $2.4 million was advanced, which represented .3%
of the mortgage loan portfolio. At December 31, 1995, there were no
construction and development loans that were non-performing.
The allowance for credit losses specifically allocated to the mortgage loan
portfolio totaled $4.2 million at December 31, 1995, which represented 37.7% of
the non-performing mortgage loans. This allowance includes $.9 million
allocated
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to the loans acquired in the Burritt transaction.
CONSUMER LOANS. Connecticut savings banks are currently authorized by statute
to invest in secured and unsecured consumer loans without limitation as to
dollar amount. Savings banks are also authorized to issue credit cards and lend
money to individuals in connection with related lines of credit and to make
student loans under the Connecticut Guaranteed Student Loan program (the
"CGSL"). At December 31, 1995, the Bank had $125.9 million or 14.3% of its
total loan portfolio invested in consumer loans.
To enable home owners to utilize some of the equity in the value of their homes,
Derby Savings offers basically two types of second mortgage loans. Under the
HELOC program, loans amortizing up to 20 years are made at rates designed to be
competitive in the market place. At December 31, 1995 and 1994, the Bank had
$21.7 million and $19.3 million, respectively in home equity loans. Under the
Home Equity Line of Credit ("HELOC") program, loans are made for an original
term of twenty years at an interest rate adjusting monthly at 1.0% to 1.5%,
above a commercial bank prime rate as published under key rates in the New York
Times ("Derby Savings Prime").
During 1995, the Bank originated HELOC's at a discount for the first six months,
and thereafter at 1.5% to 2.5% over prime. These loans typically require
payment of interest only for ten years at which point the note requires
amortization to maturity. The amortizing second mortgage loan and the home
equity line of credit loan have loan to value ratios of 75% to 90% on owner
occupied homes. Home Equity Lines of Credit outstanding totaled $144.0 million
with $78.5 million in use at year end 1995 compared to $130.5 million with $70.4
million in use at year end 1994. These loans represented 62.4% of the consumer
loan portfolio and 8.9% of total loans at December 31, 1995.
The Bank offers both marine loans and automobile loans to its customers. Marine
loans are made up to 75% of the sale price on new boats and 75% of the appraised
value of used boats and are personally guaranteed by the principals of any
corporate borrowers. The rates on these loans are generally fixed for a maximum
of fifteen years. The Bank, at December 31, 1995, had $1.1 million in marine
loans. Automobile loans on new vehicles are made up to 90% of the sales price,
while used vehicles are limited to 80%. Loans are generally made up to five
years at fixed rates on new vehicles. During 1995, the Bank purchased
approximately $16.6 million of automobile loans from a third party provider.
Under the Connecticut Guaranteed Student Loan (CGSL) program, the Bank is
authorized to loan annually up to $4,000 to qualifying parents. At December 31,
1995, the Bank had $181,000 in parent loans. The interest rate on these loans
is partially subsidized and the principal and interest are fully guaranteed by
the federal government. Additionally the Bank also accepts loan applications
for student loans. These applications are forwarded to CGSL for processing.
At December 31, 1995, $1.5 million or 1.2% of the consumer loan portfolio was
non-performing. Of this amount, $978,000 or 67.1% are HELOC loans. The
allowance for credit losses specifically allocated to consumer loans totaled
$1.8 million at December 31, 1995, which represented 120.1% of the non-
performing consumer loans. This allowance includes $356,000 allocated to loans
acquired in the Burritt transaction.
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COMMERCIAL LENDING. The Bank has developed a commercial loan portfolio which
totaled $19.0 million or 2.2% of the total loan portfolio at December 31, 1995.
The Bank targets businesses with $1 million to $5 million in annual revenues.
The Bank's commercial lending personnel, including a credit analyst, have
considerable experience in commercial lending.
Derby Savings also offers traditional line of credit loans to businesses which
are secured by inventories and receivables. At December 31, 1995, $14.2 million
was committed to such lines of credit, $4.2 million of which was being used.
These lines of credit, which individually range from $10,000 to $4.0 million,
had an average amount outstanding of $100,900 at December 31, 1995. The
interest rate on these loans varies monthly at a margin above Derby Savings
Prime. Each loan on the credit line must be repaid within 11 months of its
origination.
The commercial loan portfolio at December 31, 1995, in part, consisted of loans
to local real estate developers and builders. Land improvement loans are made
up to 75% of the value of the land. When construction loans are made to an
experienced developer who already has a signed purchase contract with a buyer,
and a 10% deposit, the loan is classified as a commercial loan rather than a
construction loan. Such loans are made up to 100% of construction cost,
exclusive of the developer's equity in the land. All such loans are short-term
with an interest rate floating at a margin above Derby Savings Prime.
At December 31, 1995, $3.6 million or 18.9% of the Company's investment in
commercial loans was for the development of real estate, with the remaining
portfolio comprised of loans for various business needs.
At year end 1995, $1.2 million, representing 6.4% of the commercial loan
portfolio, was non-performing. The allowance for credit losses allocated to
commercial loans totaled $1.0 million at December 31, 1995, which represented
80.3% of the non-performing commercial loans.
LOAN MATURITIES. The following table sets forth certain information at December
31, 1995 regarding maturities and repricing in the Bank's loan portfolio. Loans
are net of deferred loan fees and of non-accruing loans.
One Year One Through Over
or Less Five Years Five Years
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(AMOUNTS IN THOUSANDS)
Permanent mortgage loans $512,552 $ 77,929 $131,822
Construction loans 3,046 426 923
Commercial loans 17,487 113 160
Consumer loans 97,176 20,145 7,176
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Total loans receivable $630,261 $ 98,613 $140,081
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The following table sets forth, as of December 31, 1995, the principal dollar
amount of performing loans due after one year, net of deferred fees which have
pre-determined interest rates and floating or adjustable interest rates.
Due After December 31, 1996
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Predetermined Floating or
Rates Adjustable Rates
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(AMOUNTS IN THOUSANDS)
Permanent mortgage loans $172,819 $36,932
Construction loans 945 404
Commercial loans 273 ---
Consumer loans 27,054 267
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Total loans receivable $201,091 $37,603
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LOAN ORIGINATIONS. Loan originations are developed by the Bank's mortgage,
consumer and commercial loan departments from a number of sources including
realtor, builder and customer referrals. Bank personnel routinely call on
various real estate firms and, from time to time, attend meetings of the local
real estate board. Commercial loan originations are primarily developed by
direct solicitation of both present and new customers by commercial loan
officers. Consumer loan services are solicited by direct mail to existing
depositors and mortgage loan customers. Also, newspaper and television
advertising is also used to promote various consumer loans.
Applications for all types of loans are taken at all of the Bank's offices. The
Bank's commercial banking and loan representatives go to borrowers' homes or
businesses to assist with the preparation of loan applications. All mortgage
and commercial loan application underwriting is centralized.
The Bank's staff underwriters have individual lending authority with limits
ranging up to $250,000; the senior lending officer has a $500,000 limit. The
management loan committee, which is composed of the Bank's president, executive
vice president, senior lending officer, chief financial officer and the senior
officer of each lending department, can approve loans of up to $1.5 million.
Loans in excess of $1.5 million require approval by the Board of Directors.
Loans to one entity, which aggregate over $750,000 and up to $4.0 million, must
be approved by the management loan committee.
All property securing real estate loans made by Derby Savings is appraised
primarily by an independent appraiser selected by the Bank. For all real estate
loans, Derby Savings requires the borrower to obtain title, fire and extended
casualty insurance and, where appropriate, flood insurance.
The Bank encounters certain environmental risks in its lending activities.
Under federal and state environmental laws, lenders may become liable for the
costs of cleaning up hazardous materials found on security properties. Certain
states may also impose liens with higher priorities than first mortgages on
properties to recover funds used in such efforts. Although the foregoing
environmental risks are more usually associated with industrial and commercial
loans, environmental risks may be substantial for residential lenders, like
Derby Savings, since environmental contamination may render the security
property unsuitable for residential use. In addition, the value of residential
properties may become substantially diminished by contamination of nearby
properties. In accordance with the guidelines of FNMA and FHLMC, appraisals for
single-family homes on
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which the Bank lends include comment on environmental influences and conditions.
The Bank attempts to control its exposure to environmental risks with respect to
loans secured by larger properties by requiring an environmental survey and/or
audit. No assurance can be given, however, that the value of properties
securing loans in Derby Savings' portfolio will not be adversely affected by the
presence of hazardous materials or that future changes in federal or state laws
will not increase the Bank's exposure to liability for environmental cleanup.
Derby Savings issues commitments to prospective borrowers to make loans subject
to various conditions. Loan commitments are generally issued to finance
residential properties, commercial loans and for construction loans secured by
commercial and multi-family residential properties. With respect to fixed rate
single-family residential mortgage loans, it is the policy of the Bank either to
issue 30-day commitments to lend at the prevailing rate of interest at the time
of commitment, or to lock in the interest rate after the time of application.
In order to lock in the interest rate, the applicant must pay an origination fee
of one half of one percent of the loan amount. This fee is deducted from the
mortgage origination fee due at closing. On adjustable rate mortgages, it is
the policy of the Bank to hold the prevailing interest rate at the time of
application and to issue a 60 day commitment when the loan is approved, or to
lock in the interest rate after the time of application, for 60 days. In order
to lock in the interest rate for 60 days, the applicant must pay an origination
fee of one half of one percent of the loan amount. This fee is deducted from
the mortgage origination fee due at closing. The proportion of the total volume
of commitments derived from any particular category of loan varies from time to
time and depends upon market conditions. At December 31, 1995, Derby Savings
had $15.6 million of loan origination commitments outstanding.
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LOAN COMPOSITION. The following table summarizes the types of loans held by the
Bank at the dates indicated and the percentage of loans in each category to net
loans:
At December 31,
---------------------------------------------
Types of Loans: 1995 1994 1993 1992 1991
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Amount Amount Amount Amount Amount
% % % % %
---------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS)
MORTGAGES
One-to-Four Family $691,629 $684,745 $623,110 $555,821 $369,327
79.0 81.6 79.2 77.1 70.2
Multi-Family 11,172 8,682 10,323 9,998 11,276
1.3 1.0 1.3 1.3 2.2
Commercial 31,056 28,506 30,064 33,391 34,503
3.5 3.4 3.8 4.6 6.6
Construction 3,499 2,363 2,753 2,782 2,825
.4 .3 .3 .4 .5
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Total 737,356 724,296 666,250 601,992 417,931
84.2 86.3 84.6 83.4 79.5
CONSUMER LOANS
HELOC 78,523 70,358 68,687 72,313 60,774
9.0 8.4 8.7 10.0 11.5
Other Consumer 47,396 27,866 27,176 34,239 14,206
5.4 3.3 3.5 4.8 2.7
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Total 125,919 98,224 95,863 106,552 74,980
14.4 11.7 12.2 14.8 14.2
COMMERCIAL LOANS 18,970 23,710 31,957 26,539 36,690
2.2 2.8 4.1 3.7 7.0
-------- -------- -------- -------- --------
Total Loans 882,245 846,230 794,070 735,083 529,601
100.8 100.8 100.9 101.9 100.7
Less Allowances For
Credit Losses 6,906 6,803 6,979 13,937 3,674
.8 .8 .9 1.9 .7
-------- -------- -------- -------- --------
Loans Receivable,Net $875,339 $839,427 $787,091 $721,146 $525,927
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
PURCHASE AND SALE OF LOANS AND LOAN SERVICING. The Bank, from time to time,
sells loans in the secondary mortgage market while retaining servicing rights.
The loans that are sold are predominantly fixed rate mortgage loans. The
Company sold $32.6 million, of which $7.4 million were fixed rate, in 1995,
compared to $12.1 million in 1994, in order to achieve the desired balance
between interest-sensitive assets and liabilities and to provide additional
funds to meet the credit needs of the local community. Loan servicing on loans
sold is performed by the Bank, which retains a portion (normally 3/8 of 1%,
exclusive of any excess servicing fees) of the interest paid by the borrower in
consideration for the servicing of the loan.
10.
<PAGE>
In order to supplement local mortgage loan originations, the Bank has purchased
single family adjustable rate mortgage loans. These purchases totaled $97.1
million during 1995 and $21.9 million during 1994. At year end 1995,
approximately 75% of the mortgage portfolio was invested in adjustable rate
loans, compared to 73% in 1994.
The following table sets forth information as to Derby Savings' loan servicing
portfolio at the dates shown.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------
1995 1994 1993
------------------- -------------------- --------------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Loans owned by
the Bank $ 789,382 84.3% $ 796,138 86.0% $ 743,197 83.2%
Loans Serviced
For Others 147,122 15.7 129,345 14.0 149,868 16.8
---------- ----- ---------- ----- ---------- -----
Total Loans Serviced $ 936,504 100.0 $ 925,483 100.0 $ 893,065 100.0
---------- ----- ---------- ----- ---------- -----
---------- ----- ---------- ----- ---------- -----
</TABLE>
LOAN ACTIVITIES. During 1995, the Bank originated $44.9 million in mortgage
loans and $93.9 million in other loans, compared to $164.9 million in mortgage
loans and $91.2 million in other loans during 1994. Even though the Bank
remained competitive in its loan pricing, the decline in mortgage loan
originations in 1995 compared to 1994 was reflective of the soft real estate
market in Connecticut and the sluggish demand for both home purchases and
refinancings.
The table below shows real estate mortgage loan origination, sale and repayment
activities of Derby Savings for the periods indicated.
At December 31,
------------------------------
1995 1994 1993
--------- -------- ---------
Loans originated: (AMOUNTS IN THOUSANDS)
Construction loans originated $ 7,169 $ 1,981 $ 1,580
Purchase/refinance 37,701 162,875 187,056
-------- -------- --------
Total loans originated 44,870 164,856 188,636
Loans purchased 97,101 21,938 8,663
-------- -------- --------
Total loans originated and purchased 141,971 186,794 197,299
Loans sold:
Participations --- --- 111
Whole loans 32,612 12,139 29,875
-------- -------- --------
Total loans sold 32,612 12,139 29,986
Loan principal reductions 95,309 118,301 94,156
-------- -------- --------
Total loans sold and principal reductions 127,921 130,440 124,142
-------- -------- --------
Increase in real estate mortgage
loans (before net items) $ 14,050 $ 56,354 $ 73,157
-------- -------- --------
-------- -------- --------
11.
<PAGE>
The following table shows non-real estate loan originations and purchases and
principal reductions of the Bank for the periods indicated.
At December 31,
--------------------------------
1995 1994 1993
---- ---- ----
(AMOUNTS IN THOUSANDS)
Loans originated and purchased:
Personal $ 3,009 $ 637 $ 331
Home improvement 160 243 88
Home equity credit line 57,390 43,781 43,236
Auto 18,169 1,879 58
Education 51 111 545
Collateral 2,853 2,194 2,246
Marine 61 --- 13
Leeway --- --- --
Commercial 26,386 42,324 32,002
--------- -------- -------
Total loans originated and purchased 108,079 91,169 78,519
--------- -------- -------
Loan principal reductions:
Personal 1,855 583 1,326
Home improvement 449 342 2,647
Home equity credit line 46,059 41,224 47,192
Auto 2,549 1,116 1,704
Education 19 389 491
Collateral 2,718 2,200 2,203
Marine 386 646 1,247
Leeway 46 61 --
Commercial 31,248 49,866 24,389
--------- -------- -------
Total principal reductions 85,329 96,427 81,199
--------- -------- -------
Increase (decrease) in loans
(before net items) $ 22,750 $ (5,258) $(2,680)
--------- -------- -------
--------- -------- -------
FEE INCOME FROM LENDING ACTIVITIES. Fee income from lending activities is
primarily generated from origination fees on one-to-four family mortgage loans.
These fees range from 1% to 3% of the total loan amount and vary depending on
the mortgage program. Origination fee income is also generated from home
improvement loans, commercial loans, multi-family loans and other
non-residential loans.
As required by the Statement of Financial Accounting Standards No. 91 ("SFAS
91"), "Accounting for Non-refundable Fees and Costs Associated with Originating
or Acquiring Loans and Initial Direct Costs of Leases," the Bank defers certain
direct costs and loan fees resulting from the origination of loans, which will
be amortized as an adjustment of yield over the contractual term of the related
loans.
In addition to origination fees, Derby Savings charges annual fees for HELOC
loans, and fees for loan modifications, late payments, changes of property
ownership and for related miscellaneous services.
USURY LIMITATIONS. Federal legislation preempted all state usury laws
concerning residential first mortgage loans unless the state legislature acted
to override the pre-emption by April 1, 1983. The Connecticut legislature did
not act to override the federal pre-emption. Connecticut law currently does not
impose a ceiling on interest rates on loans made by the Bank.
12.
<PAGE>
COLLECTION PROCEDURES AND ALLOWANCE FOR CREDIT LOSSES. When a borrower fails to
make a required payment by the 20th day after the payment is due, Derby Savings
attempts to cause the delinquency to be cured by corresponding with the
borrower. If the delinquency continues, the Bank corresponds further with the
borrower and, through telephone calls and letters, attempts to determine the
reason for and cure the delinquency. If the delinquency cannot be cured, the
Bank institutes appropriate legal action.
When Derby Savings acquires real estate through foreclosure or by deed in lieu
of foreclosure ("foreclosed assets"), the real estate is placed on the Bank's
books at the lower of the carrying value of the loan or generally 90% of the
fair value of the real estate based upon a current appraisal. Any reduction
below the value previously recorded on the books is charged against the
allowance for estimated losses on foreclosed assets.
The allowance for credit losses has been established through provisions for
credit losses and is a valuation allowance which is reflected as a deduction
from loans. The allowance represents amounts which, in management's judgment,
will be adequate to absorb possible losses on loans that may become
uncollectible, based on such factors as changes in the nature and volume of the
loan portfolio, current economic conditions that may affect the borrowers'
ability to pay, overall portfolio quality, the average of the Bank's credit
losses less recoveries for the current and preceding five years, and review of
specific problem loans. At December 31, 1995, the allowance for credit losses
totaled $6.9 million, which represented 50.2% of the $13.8 million of
non-performing loans.
Transactions in the allowance for credit losses for each of the five years in
the period ended December 31, 1995 were as follows.
<TABLE>
<CAPTION>
At And For The Years Ended December 31,
-------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
(DOLLAR AMOUNTS IN THOUSANDS)
Balance at beginning
of period $ 6,803 $ 6,979 $ 13,937 $ 3,674 $ 2,313
Charge-offs:
Mortgage loans (2,306) (1,848) (2,857) (941) (1,325)
Consumer loans (399) (573) (860) (211) (267)
Commercial loans (78) (195) (114) (660) (1,606)
--------- --------- --------- -------- ---------
(2,783) (2,616) (3,831) (1,812) (3,198)
--------- --------- --------- -------- ---------
Recoveries:
Mortgage loans 269 63 329 76 45
Consumer loans 84 46 21 41 43
Commercial loans 8 6 11 229 71
--------- --------- --------- -------- ---------
361 115 361 346 159
--------- --------- --------- -------- ---------
Net charge-offs 2,422 2,501 3,470 1,466 3,039
Provision for credit losses 2,525 2,325 2,475 1,375 4,400
Acquired allowance --- --- (5,963) 10,354 ---
--------- --------- --------- -------- ---------
Balance at end of period $ 6,906 $ 6,803 $ 6,979 $13,937 $3,674
--------- --------- --------- -------- ---------
--------- --------- --------- -------- ---------
Ratio of net charge-offs to
average loans outstanding .29% .31% .47% .27% .57%
</TABLE>
13.
<PAGE>
During 1993, the Bank completed a valuation analysis of the loans acquired in
the Burritt transaction and allocated approximately $6.0 million from these
amounts to a purchased loan discount which is being accreted to interest income
over the remaining terms of the acquired loans. At December 31, 1995 and 1994,
the Allowance for credit losses, which totaled approximately $6.9 million and
$6.8 million, respectively, included approximately $1.2 million and $1.8
million, respectively, allocated to the loans acquired in the Burritt
transaction.
NON-PERFORMING ASSETS.
NON-PERFORMING AND RESTRUCTURED LOANS. The following table summarizes the
Bank's non-performing and restructured loans. For a discussion of
non-performing loans see "Management's Discussion and Analysis - Financial
Condition" contained in the 1995 Annual Report to Stockholders on pages 16 - 18,
which are incorporated herein by reference.
At December 31,
---------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(AMOUNTS IN THOUSANDS)
Non-accrual loans:
Mortgage $10,658 $11,000 $12,302 $18,262 $18,859
Construction --- --- --- 125 125
Consumer 1,421 1,280 1,789 2,082 1,616
Commercial 1,210 1,576 3,215 3,901 8,108
------- ------- ------- ------- -------
Total 13,289 13,856 17,306 24,370 28,708
------- ------- ------- ------- -------
Accruing loans past
due 90 days:
Mortgage 442 1,186 2,317 3,006 4,096
Construction --- --- --- --- ---
Consumer 37 --- 249 1 151
Commercial --- --- --- --- ---
------- ------- ------- ------- -------
Total 479 1,186 2,566 3,007 4,247
------- ------- ------- ------- -------
Total non-performing
loans $13,768 $15,042 $19,872 $27,377 $32,955
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Restructured loans $ 4,385 $ 4,213 $ 2,273 $ 8,262 $ 6,985
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Effective January 1, 1995, the Bank implemented the provisions of SFAS Nos.
114/118, "Accounting by Creditors for Impairment of a Loan." The basic
provisions of these statements eliminate the financial statement classification
of in-substance foreclosed assets as foreclosed assets, resulting in the
classification of such amounts and related specific allowance for credit losses
as Loans receivable. Additionally, these statements address the accounting for
loans considered impaired and the recognition of impairment. A loan is
considered impaired when, in management's judgement, current information and
events indicate it is probable that collection of all amounts due according to
the contractual terms of the loan agreement will not be met. In-substance
foreclosed assets prior to January 1, 1995 have been reclassified to Loans
receivable for comparability purposes.
14.
<PAGE>
The recorded investment in impaired loans at December 31, 1995 approximated
$13.8 million and includes approximately $11.1 million in mortgage loans, $1.5
million in consumer loans and $1.2 million in commercial loans. The amount of
the related Allowance for credit losses on these loans at December 31, 1995
approximated $1.6 million. The average recorded investment in impaired loans
during the year ended December 31, 1995 was approximately $14.6 million. During
the year ended December 31, 1995, amounts recognized as interest income on
impaired loans were not significant.
The recorded investment in impaired loans at January 1, 1995 was approximately
$15.1 million and included approximately $12.2 million in mortgage loans, $1.3
million in consumer loans and $1.6 million in commercial loans. These loans
were reflected as non-performing loans at December 31, 1994 in accordance with
accounting principles in effect at that date.
The following table summarizes the allocation of the Bank's allowance for credit
losses and the percentage of loans in each category to total loans.
Allocation of Allowance for Credit Losses:
--------------------------------------------
At December 31,
--------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Amount Amount Amount Amount Amount
% % % % %
------ ------ ------ ------ ------
Balance at end of period (DOLLAR AMOUNTS IN THOUSANDS)
applicable to:
Mortgage loans $ 4,183 $ 4,495 $ 4,605 $11,166 $2,180
83.6 85.6 83.9 81.9 78.9
Consumer loans 1,751 1,266 1,193 1,987 704
14.3 11.6 12.1 14.5 14.2
Commercial loans 972 1,042 1,181 784 790
2.1 2.8 4.0 3.6 6.9
------- ------- ------- ------- -------
Total $ 6,906 $ 6,803 $ 6,979 $13,937 $ 3,674
100.0 100.0 100.0 100.0 100.0
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Comparative information with respect to non-accrual loans is as follows:
At December 31,
-------------------------
1995 1994
-------- --------
(AMOUNTS IN THOUSANDS)
Interest income that would have been recorded
under original terms: $2,468 $1,116
Interest income recorded during the period: $ 715 $ 487
It is the Bank's general policy that no additional interest income is accrued
with respect to loans on which a default of interest has existed for a period in
excess of 90 days, at which time previously accrued interest is reversed.
15.
<PAGE>
FORECLOSED ASSETS. Foreclosed assets consisted of the following:
At December 31,
------------------
1995 1994
---- ----
(AMOUNTS IN THOUSANDS)
Foreclosed assets $ 3,942 $ 6,195
Allowance for estimated losses (230) (439)
------- --------
Net carrying amount $ 3,712 $ 5,756
------- --------
------- --------
At December 31, 1995 and 1994, there were 27 and 37 properties, respectively,
included in foreclosed assets. See "Management's Discussion and Analysis -
Financial Condition" contained in the 1995 Annual Report to Stockholders pages
16 - 17, which is incorporated herein by reference.
SECURITIES PORTFOLIO. The Bank's securities portfolio totaled $320.2 million or
25.5% of total assets at December 31, 1995. Of such amount, $295.4 million, or
92.3% of the securities portfolio consisted of U.S. government and agency bonds
and mortgage-backed securities. In addition, the Company's securities portfolio
also includes investment grade corporate bonds and marketable equity securities.
At December 31, 1995, the Bank had common stock securities totaling $3.8 million
with a fair value of $4.0 million managed by an outside investment firm under
the Bank's general direction for maximum return. Additionally, the Bank
maintains a trading portfolio comprised of common stocks. At year end 1995,
there were $1.2 million of common stocks in this portfolio.
Derby Savings increases or decreases its liquid investments depending upon,
among other things, the availability of funds and loan demand. Historically,
the Bank has maintained its liquid assets at levels believed adequate to meet
requirements of normal business activities.
At December 31, 1995, securities, including Federal funds sold, maturing or
repricing within 12 months represented 28.3% of the Bank's interest-sensitive
assets maturing or repricing during 1996.
The following table sets forth the composition and carrying amount of the Bank's
securities portfolio and other money market securities, including securities
available-for-sale, at the dates indicated:
At December 31,
------------------------------
1995 1994 1993
-------- ------- --------
(AMOUNTS IN THOUSANDS)
Bonds and money market securities:
Federal funds $ 2,305 $ 4,500 $ 30,500
U.S. Government and agency bonds 10,406 22,419 2,000
Mortgage-backed securities 284,971 269,544 243,848
Other bonds and notes 4,167 27,927 66,352
Mutual funds 1,131 --- ---
Money market preferred stock 5,000 --- 9,000
Marketable equity securities 14,513 2,256 1,399
-------- -------- --------
Total $322,493 $326,646 $353,099
-------- -------- --------
-------- -------- --------
16.
<PAGE>
The following table sets forth certain information at December 31, 1995
regarding maturities and yields in the Bank's securities portfolio:
<TABLE>
<CAPTION>
One Five Over
One Year Through Through Ten
Or Less Five Years Ten Years Years Total
-------- ---------- --------- ------ -------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
US Government & $ 2,000 $ --- $ 5,322 $ 2,975 $ 10,297
Agencies 4.34 --- 7.34 8.00 6.95
Mortgage-Backed --- 36,964 35,340 212,114 284,418
Securities --- 5.96 5.79 6.83 6.59
Other Notes & Bonds --- 4,175 --- --- 4,175
--- 5.34 --- --- 5.34
------- -------- -------- -------- --------
Total $ 2,000 $ 41,139 $ 40,662 $215,089 $298,890
4.34 5.90 5.99 6.85 6.58
------- -------- -------- -------- --------
------- -------- -------- -------- --------
</TABLE>
The stated yields on mortgage backed securities in the preceding table may vary,
based on changes in the level of prepayments experienced over the remaining term
of the securities.
The securities constituting the Bank's investments in other bonds and notes are
all publicly traded. All of these securities are rated in one of the top four
rating categories by a nationally recognized rating firm.
The Bank adopted Financial Accounting Standards Board Statement No. 115 as of
December 31, 1993. This statement requires, in part, that certain securities
that are classified as available-for-sale be recorded at fair value, with
unrealized gains and losses, net of tax, reported in a separate component of
stockholders' equity. As a result, at December 31, 1995, the Bank recorded an
unrealized gain, net of tax effect, of $426,000 compared to an unrealized loss,
net of tax effect, of $5.6 million at December 31, 1994, which is included in
Stockholders' Equity. (See 1995 Annual Report to Stockholders).
The Financial Accounting Standards Board issued a "Special Report" in November
1995, "A Guide to Implementation of SFAS 115" (Note 1). This guide provided
additional guidance as to the criteria for the financial statement
classifications prescribed in SFAS 115. As a result of this additional
guidance, the Bank could reassess the appropriateness of the classification of
all its securities held. Accordingly, the Bank reclassified securities Held-to-
maturity with an aggregate amortized cost of approximately $20.4 million, which
approximated fair value, to the classification of Available-for-sale.
17.
<PAGE>
The following table summarizes the Bank's security investments by portfolio
type:
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------------------
Gross unrealized holding
Amortized ------------------------ Fair
Cost Gains Losses Value
--------- ---------- ------ --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
TRADING
Marketable equities $ 1,148 $ 23 $ --- $ 1,171
-------- -------- -------- --------
-------- -------- -------- --------
AVAILABLE-FOR-SALE
U.S. Government and agency
obligations $ 8,297 $ 109 $ --- $ 8,406
Mortgage-backed securities 213,538 2,378 1,826 214,090
Other bonds and notes 4,175 3 11 4,167
-------- -------- -------- --------
Total debt securities 226,010 2,490 1,837 226,663
Marketable equities 13,329 307 294 13,342
Mutual funds 1,070 61 --- 1,131
-------- -------- -------- --------
Total $240,409 $ 2,858 $ 2,131 $241,136
-------- -------- -------- --------
-------- -------- -------- --------
HELD-TO-MATURITY
U.S. Government and agency
obligations $ 2,000 $ --- $ --- $ 2,000
Mortgage-backed securities 70,881 62 549 70,394
-------- -------- -------- --------
Total debt securities 72,881 62 549 72,394
Money market preferred stock 5,000 --- --- 5,000
-------- -------- -------- --------
Total $ 77,881 $ 62 $ 549 $ 77,394
-------- -------- -------- --------
-------- -------- -------- --------
<CAPTION>
December 31, 1995
--------------------------------------------
Gross unrealized holding
Amortized ------------------------ Fair
Cost Gains Losses Value
--------- ---------- ------ --------
(AMOUNTS IN THOUSANDS)
TRADING
Marketable equities $ 918 $ --- $ 148 $ 770
-------- -------- -------- --------
-------- -------- -------- --------
AVAILABLE-FOR-SALE
U.S. Government and agency obligations $ 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
-------- -------- -------- --------
-------- -------- -------- --------
HELD-TO-MATURITY
U.S. Government and agency obligations $ 2,000 $ --- $ 60 $ 1,940
Mortgage-backed securities 102,702 --- 7,714 94,988
-------- -------- -------- --------
Total $104,702 $ --- $ 7,774 $ 96,928
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See Note 2 to the Consolidated Financial Statements in the Company's Annual
Report to Stockholders for the year ended December 31, 1995 for information
concerning the fair values and other information regarding the Bank's securities
portfolio, incorporated herein by reference.
18.
<PAGE>
SOURCES OF FUNDS
GENERAL. Deposits are the primary source of Derby Savings' funds for use in its
lending and investment activities. In addition, the-Bank derives funds from
interest and principal payments on loans and other investments and from FHLBB
advances and other borrowings (See "Management's Discussion and Analysis -
Financial Condition" contained in the 1995 Annual Report to Stockholders,
incorporated herein by reference). Loan repayments are a relatively stable
source of funds, while deposit inflows and outflows are significantly influenced
by prevailing interest rates, money market conditions and competitive factors.
Borrowings may be used on a short-term basis to compensate for reductions in
normal sources of funds or on a longer term basis to support expanded lending
and investment activities. During the past several years, the use of FHLBB
advances has played a significant part in the overall funding of the Bank's
growth.
DEPOSIT ACTIVITIES. Derby Savings has developed a variety of deposit products
ranging in maturity from demand-type accounts to certificates with maturities
of up to five years. The Bank's deposits are primarily derived from the areas
where its offices are located. Derby Savings does not solicit deposits
outside of Connecticut.
In addition to traditional certificates of deposit, the Bank offers two types of
money market deposit accounts. At December 31, 1995, one of the money market
accounts paid 2.25% for balances of $10,000 or more. The other money market
account, which has been marketed under the name of the No Maturity CD, pays a
minimum rate of interest equal to 2.5 percentage points below the Bank's prime
rate on balances of $25,000 or more. During 1993, Derby Savings Bank ceased
offering this account type. At December 31, 1995, $176.6 million of the Bank's
deposits, or 16.7% of total deposits were held in the No Maturity CD, which paid
interest at the rate of 6.25% per annum at year end.
The Bank seeks to price its deposits in order to meet its need for liquidity to
fund loans and make other investments. The Bank reviews and establishes its
rates weekly.
Derby Savings promotes the establishment of IRA and Keogh accounts because
management believes the Bank's relationship with such depositors tends to be
stable. Additionally, the Bank seeks to act as trustee, administrator or, in
conjunction with an investment advisor, the manager of corporate pension funds
and actively solicits this business from smaller businesses in its market area.
At December 31, 19954, $137.3 million of the Bank's deposits, or 13.0% of total
deposits, were held in retirement accounts.
19.
<PAGE>
The following table sets forth the average dollar amounts of deposits of the
Bank by type and the weighted average rates paid for the periods indicated:
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------------------------------
1995 1994 1993
--------------------------- ---------------------- ---------------------
Weighted Weighted Weighted
Average Average Average Average Average Average
Type Amount Rate Amount Rate Amount Rate
- ------------------------- ---------- ------- -------- --------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Non-interest-bearing:
Demand Deposit $ 32,121 --- $ 30,179 --- $ 26,409 ---
---------- ------- -------- --------- -------- --------
---------- ------- -------- --------- -------- --------
Interest-bearing deposits:
Demand Deposits $ 46,336 1.94% $ 47,794 1.95% $ 45,678 2.43%
Savings Deposits 203,963 2.02 231,318 2.01 237,846 2.58
Money Market
Deposits 205,086 5.47 203,867 3.91 186,983 3.19
Time
Deposits 556,628 5.40 513,471 4.37 515,368 4.73
---------- ------- -------- --------- -------- --------
Total interest-
bearing Deposits $1,012,013 4.57% $996,450 3.61% $985,875 3.81%
---------- ------- -------- --------- -------- --------
---------- ------- -------- --------- -------- --------
</TABLE>
The following table sets forth the deposit flows for Derby Savings during the
periods indicated.
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------
1995 1994 1993
----------- ---------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Deposits $1,758,078 $1,741,505 $1,803,245
Withdrawals 1,773,895 1,755,921 1,829,414
----------- ---------- -----------
Net cash inflow (outflow) (15,817) (14,416) (26,169)
Interest credited 46,216 35,941 37,459
----------- ---------- -----------
Net increase in deposits $ 30,399 $ 21,525 $ 11,290
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
The following table presents, by various interest-rate categories, the amounts
of certificate accounts as of the dates indicated.
At December 31,
-------------------------------------
1995 1994 1993
-------- -------- --------
(AMOUNTS IN THOUSANDS)
2.01- 4.00% $ 1,076 $189,891 $289,841
4.01- 6.00% 462,206 282,210 148,873
6.01- 8.00% 116,393 55,655 54,509
8.01-10.00% 136 1,112 8,824
10.01-12.00% --- 50 143
-------- -------- --------
$579,811 $528,918 $502,190
-------- -------- --------
-------- -------- --------
21.
<PAGE>
The following table presents the maturities of the Bank's certificates of
deposit in amounts of $100,000 or more at December 31, 1995 by time remaining to
maturity.
At December 31, 1995
----------------------
(AMOUNTS IN THOUSANDS)
Matures:
Less than 6 months $ 14,620
Over 6 through 12 months 7,765
Over 12 months 15,663
---------
Total $ 38,048
---------
---------
BORROWINGS. The FHLB System functions in a reserve credit capacity for savings
institutions and certain other financial institutions. As a member of the FHLB
System, Derby Savings is required to own capital stock in the FHLBB and is
authorized to apply for advances on the security of such stock and other
qualified collateral, which includes certain of its home mortgages and other
assets (principally securities which are obligations of, or guaranteed by, the
United States), provided certain credit worthiness standards have been met. See
"Regulation - Federal Home Loan Bank System". Under its current credit
policies, the FHLBB limits advances to a member's qualified collateral. At year
end 1995 the Bank had a borrowing capacity with the FHLBB of approximately $760
million, of which $96.9 million was outstanding. FHLBB advances are used for
several separate programs. First, FHLBB advances are used to match fund five to
ten year fixed-rate commercial real estate mortgage loans at a spread of at
least 200 basis points. At December 31, 1995, advances primarily for this
purpose totaled $6.3 million. Second, the Bank uses these advances to match
fund both one year adjustable-rate mortgages and Home Equity Lines of Credit
through floating rate advances. In addition to cash management, these advances
have been used to fund purchases of various mortgage-backed securities.
At December 31, 1995 and 1994, respectively, the Company had total borrowings
outstanding of $96.9 million and $111.1 million, respectively.
In 1990, 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 line of credit was paid off in June 1994.
21.
<PAGE>
The following table summarizes the Company's borrowings:
<TABLE>
<CAPTION>
At And For The Years Ended December 31,
--------------------------------------
1995 1994 1993
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Notes payable--Bank $ --- $ --- $ 1,450
FHLBB advances 96,876 111,145 104,991
-------- -------- --------
Total $ 96,876 $111,145 $106,441
-------- -------- --------
-------- -------- --------
Weighted average interest rate on
FHLBB advances 5.65% 5.52% 5.47%
Weighted average interest rate on total
borrowings during the period 5.70% 5.53% 5.48%
Highest month-end balance of total
borrowings $113,627 $142,451 $144,340
Average balance of total borrowings $ 93,097 $123,190 $113,376
</TABLE>
See Note 7 to Consolidated Financial Statements in the 1995 Annual Report to
Stockholders for further information regarding the Company's borrowings.
See Management's Discussion and Analysis and Selected Financial and Other Data
in the 1995 Annual Report to Stockholders for the average balance sheet, rate
volume analysis, interest rate sensitivity analysis and selected financial
ratios which are herein incorporated by reference.
EMPLOYEES
At December 31, 1995, Derby Savings had 300 employees, of whom 74 were
part-time and none of whom were represented by a collective bargaining group.
Employee benefits include the Bank's pension plan, life, health and dental
insurance, and long-term disability insurance which are supplied by the Bank
for all employees. Management considers its relations with its employees to
be excellent.
COMPETITION
Derby Savings experiences substantial competition in attracting and retaining
deposits and in making mortgage and other loans. The primary factors in
competing for deposits are interest rates, the quality and range of financial
services offered, convenience of office locations and office hours.
Competition for deposits comes primarily from other savings institutions and
commercial banks and money market funds. Additional competition for deposits
comes from various types of corporate and government borrowers and credit
unions.
The primary factors in competing for loans are interest rates, loan
origination fees and the quality and range of lending services offered.
Competition for origination of first mortgage loans comes primarily from other
savings institutions, mortgage banking firms, commercial banks, insurance
companies and real estate investment trusts.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"IBBEA") authorized the acquisition of banks in any state by bank holding
22.
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companies, subject to compliance with federal and state antitrust laws, the
Community Reinvestment Act ("CRA") and specific deposit concentration limits.
The IBBEA removes most state barriers to interstate acquisitions of banks and
ultimately will permit multi-state banking operations to merge into a single
bank. Enactment of the IBBEA may result in increase competition and financial
institution acquisition from out of state financial institutions and their
holding companies.
REGULATION
FEDERAL BANK HOLDING COMPANY REGULATION
The Company is a registered bank holding company under the Bank Holding
Company Act of 1956, as amended (the "BHCA"), and is subject to FRB
regulations, examination, supervision and reporting requirements. Among other
things, the Company is required to file with the FRB annual reports and such
additional information regarding the business and operations of the Company
and its subsidiaries as the FRB may require pursuant to the BHCA. The FRB may
conduct examinations of the Company and its subsidiaries. Under the BHCA and
regulations adopted by the FRB, the Company and its subsidiaries are
prohibited from requiring certain tie-in arrangements in connection with any
extension of credit, lease, or sale of property or furnishing of services.
Under the BHCA, FRB approval is required for any action which causes a bank or
other company to become a bank holding company for any action which causes a
bank to become a subsidiary of a bank holding company. Under the BHCA, a bank
holding company such as the Company, must obtain FRB approval before (i) it
acquires direct or indirect ownership or control of any voting shares of any
bank if, after such acquisition, it will own or control directly or indirectly
more than 5% of the voting stock of such bank unless it already owns a
majority of the voting stock of such bank; (ii) it or any of its subsidiaries,
other than a bank, acquires all or substantially all of the assets of a bank;
or (iii) it merges or consolidates with another bank holding company. Any
application by a bank holding company or its subsidiaries to acquire any
voting shares of, or interest in, or all or substantially all of the assets of
any bank located outside of the state in which the operations of the bank
holding company's banking subsidiaries are principally conducted, may not be
approved by the FRB unless the laws of the state in which the bank to be
acquired is located expressly authorize such an acquisition. Additionally,
the Change in Bank Control Act generally requires persons who at any time
intend to acquire control of a bank holding company, acting directly or
indirectly or through or in concert with one or more persons, to give 60 days
prior written notice to the FRB. "Control" exists when the acquiring party
has voting control of at least 25% of the bank holding company's voting
securities, or the power directly or indirectly to direct the management or
policies of such company.
Under the FRB's regulations, a rebuttable presumption of acquisition of
control arises with respect to an acquisition where, after the transaction,
the acquiring party has ownership, control or the power to vote at least 10%
(but less than 25%) of any class of the holding company's voting securities if
(i) the holding company has securities registered under Section 12 of the
Securities Exchange Act of 1934 or (ii) immediately after the transaction no
other person will own a greater proportion of that class of voting securities.
The FRB may disapprove proposed acquisitions of control on certain specified
grounds.
23.
<PAGE>
A bank holding company is prohibited, except in certain statutorily prescribed
instances, from acquiring direct or indirect ownership or control of more than
5% of the voting shares of any company which is not a bank or bank holding
company, and from engaging directly or indirectly in activities other than
banking, managing or controlling banks, or furnishing services to its
subsidiaries. A bank holding company may, however, subject to the approval of
the FRB, engage in, or acquire shares of companies engaged in, activities
which are deemed by the FRB to be so closely related to banking or managing
or controlling banks as to be a proper incident thereto. In making any such
determination, the FRB is required to consider whether the performance of such
activities by the holding company or an affiliate can reasonably be expected
to produce benefits to the public, such as greater convenience, increased
competition, or gains in efficiency, that outweigh possible adverse affects,
such as undue concentration of resources, decreased or unfair competition,
conflicts of interest, or unsound banking practices.
The principal activities that the FRB has determined by regulation to be so
closely related to banking as to be a proper incident thereto include, among
other things: (1) making, acquiring or servicing loans; (2) performing
certain data processing services; (3) providing certain securities brokerage
services; (4) acting as a fiduciary or an investment or financial advisor; (5)
leasing personal or real property; (6) performing appraisals of real estate
and tangible and intangible personal property; (7) making investments in
corporations or projects designed primarily to promote community welfare; and
(8) owning or operating a savings association, if the savings association's
activities are limited to those permissible for a bank holding company. In
addition, a bank holding company may also file an application with the FRB for
approval to engage in other activities that the holding company reasonably
believes are so closely related to banking as to be a proper incident thereto.
Bank holding companies with consolidated assets of $150 million or more such
as the Company, are required under FRB regulations to maintain minimum levels
of leverage-based capital. Bank holding companies that have a composite rating
of 1 under the uniform CAMEL rating system are required to maintain a minimum
ratio of 3% tier 1 capital to total assets. All other bank holding companies
are required to maintain tier 1 capital levels ranging from 4% to 5% of total
assets. Higher capital ratios may be required by the FRB if warranted by
particular circumstances or risk profiles of the bank holding company. For
purposes of the leverage-based standard, tier 1 capital includes common
equity, minority interests in equity accounts of consolidated subsidiaries and
qualifying noncumulative perpetual preferred stock less goodwill. The FRB may
exclude certain other intangibles and investments in subsidiaries as
appropriate. At December 31, 1995, the Company had a ratio of tier 1 capital
to total assets of 6.2%.
The FRB has also adopted a risk-based capital measure to assist in the
assessment of the capital adequacy of bank holding companies. The FRB's risk-
based capital guidelines require bank holding companies to maintain a minimum
ratio of capital to total risk-weighted assets of 8%.
The risk-based capital guidelines include a definition of capital and a
framework for calculating risk-weighted assets by assigning assets and off-
balance-sheet items to broad risk categories. Qualifying total capital
consists of two types of capital components: "core capital elements"
(comprising tier 1 capital) and "supplementary capital elements" (comprising
tier 2 capital). Core capital
24.
<PAGE>
elements consist of common stock, surplus, undivided profits, capital
reserves, foreign currency translation adjustments, perpetual preferred stock
within certain limits, and minority interests in consolidated subsidiaries,
minus goodwill. At least 50% of a bank holding company's qualifying capital
must consist of tier 1 capital.
Supplementary capital elements consist of allowances for loan and lease losses
(up to a maximum of 1.25% of risk-weighted assets), perpetual preferred stock
and related surplus, hybrid capital instruments, perpetual debt, mandatory
convertible debt securities, term subordinated debt, and intermediate term
preferred stock including related surplus. The maximum amount of tier 2
capital that may be included in an organization's qualifying total capital is
limited to 100 percent of tier 1 capital (net of goodwill). At December 31,
1995, the Company had a ratio of total capital to total risk-weighted assets
of 11.9%.
In accordance with the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA"), the FRB has proposed to modify its risk-based capital
adequacy guidelines to take account of interest-rate risk, concentration of
credit risk and the risks of non-traditional activities. The interest-rate
risk proposal would attempt to estimate the effect that changes in market
interest rates might have on the net economic value of an institution. An
institution with interest-rate risk exposure in excess of an as yet to be
determined threshold level would be required to have additional capital equal
to the dollar amount of the estimated change in its net economic value that is
in excess of the threshold level. The FDIC has proposed similar changes to
its risk-based capital guidelines that would apply to the Bank. Management
does not anticipate that the proposals will have a material effect on the
ability of the Company or the Bank to meet applicable risk-based capital
standards. The federal banking agencies have proposed to treat concentration
of credit risk and the risks of nontraditional activities as additional
factors in assessing whether to impose higher capital requirements for
individual bank holding companies and banks.
CONNECTICUT BANK HOLDING COMPANY REGULATION
The Company is subject to registration and filing requirements, as well as
general supervision by the Connecticut Commissioner, under the Connecticut
Bank Holding Company and Bank Acquisition Act ("CBHCA").
In the event that a Company seeks to acquire a Connecticut capital stock bank
or savings and loan association, the acquirer must file with the Connecticut
Commissioner a plan of acquisition approved by its board of directors and the
holders of two-thirds of the common stock of the bank or association to be
acquired. The plan of acquisition must be approved by the Connecticut
Commissioner before it becomes effective.
Under the CBHCA, an acquirer is required to file with the Connecticut
Commissioner an acquisition statement prior to acquiring or offering to
acquire the stock of a Connecticut bank or savings and loan association or a
holding company thereof if the acquisition would result in the acquirer being
the beneficial owner of 10% or more of any class of the voting securities of
such bank or savings and loan association. The acquirer may proceed with the
tender offer or acquisition only if the acquisition statement has not been
disapproved by the Connecticut Commissioner within a statutorily prescribed
period. Under the CBHCA, the Connecticut Commissioner may seek to enjoin an
unlawful offer or acquisition.
25.
<PAGE>
The payment of dividends by Derby Savings to the Company is subject to the
discretion of the Board of Directors of Derby Savings and depends upon a
variety of factors, including Derby Savings' operating results and financial
conditions, regulatory limitations and tax considerations. The amount which a
Connecticut- chartered capital stock savings bank, such as Derby Savings, may
pay out in dividends in any calendar year may not exceed the total of its net
profits of that year combined with its retained net profits of the preceding
two years, unless the Connecticut Commissioner approves the dividend.
Additionally, Derby Savings may not pay cash dividends on its stock if its net
worth would thereby be reduced below the amount required for the liquidation
account established in connection with Derby Savings' conversion from mutual
to stock form in December 1985, or as may be required by the Connecticut
Commissioner or the FDIC. In May, 1991, during the second quarter of 1991,
the Bank was informed by the regional office of the FDIC that it will be
permitted to pay dividends to the Company in an amount limited to the holding
company's non-salary expenses and debt service payments. In April 1992, the
Bank entered into a Memorandum of Understanding with the FDIC and the
Connecticut Commissioner of Banks, which included a similar limitation on the
payment of cash dividends. Since the Bank is the sole source of funds for
cash dividend payments by the Company to its stockholders, the Memorandum
restriction has resulted in the Company being unable to pay cash dividends to
stockholders.
The Company is registered as a holding company under the CBHCA and is subject
to general supervision and examination by the Connecticut Commissioner,
including the requirement that it file such reports as the Connecticut
Commissioner may require. The CBHCA provides that submission to the
Connecticut Commissioner of reports prepared for federal authorities will
satisfy the reporting requirement for bank holding companies. Under the
CBHCA, the Connecticut Commissioner has the power to issue rules and
regulations necessary for the administration of the CBHCA but to date no such
regulations have been issued.
CONNECTICUT SAVINGS BANK REGULATION
As a state-chartered savings bank, Derby Savings is subject to the applicable
provisions of Connecticut law and the regulations adopted thereunder by the
Commissioner. The Commissioner administers Connecticut banking laws, which
contain comprehensive provisions for the regulation of savings banks. Derby
Savings is subject to periodic examination by and reporting requirements of
the Commissioner.
Savings banks in Connecticut are empowered by statute, subject to certain
limitations, to take savings and time deposits, to accept checking accounts,
to pay interest on such deposits and accounts, to make loans on residential
and other real estate, to make consumer and commercial loans, to invest, with
certain limitations, in equity securities and debt obligations of banks and
corporations, to issue credit cards, to establish an insurance department to
issue life insurance and grant annuities and to offer various other banking
services to their customers. In addition, Connecticut savings banks may
accept demand deposits in connection with any commercial, corporate or
business loan relationship upon such terms and conditions as such savings bank
may from time to time require. Savings banks may exercise trust powers and
make limited commercial, corporate and business loans.
26.
<PAGE>
In addition to otherwise authorized securities, a Connecticut savings bank may
invest (subject to certain limitations) up to 20% of its total assets in
securities that are the debt obligations or equity securities of corporations
incorporated and doing a major portion of their business in the United States,
and up to 8% of its total assets in any securities, except securities of state
banks and trust companies, national banking associations having their
principal offices in Connecticut, or bank holding companies, and except
certain commercial, corporate and business loans. Securities under this
unrestricted authority must be prudent in the opinion of the Bank given the
circumstances surrounding the investment. Recent federal legislation limits
the Bank's ability to exercise certain of the foregoing investment powers.
(See "Impact of Recent Federal Legislation on State Powers").
IMPACT OF RECENT FEDERAL LEGISLATION ON STATE POWERS
Pursuant to FDICIA, Derby Savings, as an insured state bank, may not engage as
principal in any activity that is not permissible for a national bank, unless
the FDIC has determined that the activity would pose no significant risk to
the BIF and the state bank is in compliance with applicable capital standards.
Activities of subsidiaries of insured state banks are similarly restricted to
those activities permissible for subsidiaries of national banks, unless the
FDIC has determined that the activity would pose no significant risk to the
BIF and the state bank is in compliance with applicable capital standards.
The FDICIA also provides that, except for subsidiaries of which the insured
state bank is a majority owner and except for certain investments in qualified
housing projects, an insured state bank may not, directly or indirectly,
acquire or retain any equity investment of a type that is not permissible for
a national bank. Insured state banks are required to divest any equity
investment the retention of which is not permissible as quickly as can be
prudently done, but in no event later than the end of the five year period
ending on December 19, 1996.
Notwithstanding the foregoing, an insured state bank may, to the extent
permitted by the FDIC, acquire and retain ownership of common or preferred
stock listed on a national securities exchange, provided that the insured
state bank made or maintained an investment in such securities during the
period beginning on September 30, 1990 and ending on November 26, 1991 and
provided further that the aggregate amount of the investment does not exceed
100% of the bank's capital. In accordance with the provisions of the FDICIA,
during each year in the three year period beginning on the date of enactment,
each insured state bank is required to reduce by not less than one-third of
its shares (as of the date of enactment) its ownership of securities in excess
of the amount equal to 100% of the capital of such bank. This exception would
cease to apply with respect to any insured state bank upon any change in
control of such bank or any conversion of the charter of such bank.
Determinations under these provisions by the FDIC must be made by regulation
or order.
The foregoing provisions do not apply to savings bank life insurance
activities of certain state banks, including those state banks, like Derby
Savings, that are chartered in Connecticut. The FDICIA, however, grants the
FDIC the authority to restrict savings bank life insurance activities if the
FDIC determines that the activities pose a significant risk to the insured
bank or to the insurance fund of which such bank is a member.
27.
<PAGE>
At December 31, 1995, the Bank had common stock investments totaling $5.0
million with a fair value of $5.2 million. In accordance with the FDIC
regulation implementing the equity investment restrictions under FDICIA, the
Bank filed a notice and request for approval to retain its investment in
common stock and for permission to continue to invest in listed and/or
registered shares. In March 1993, the FDIC granted such approval, subject to
the following conditions: (i) the maximum investment in listed and/or
registered shares shall not exceed 100% of the Bank's Tier 1 capital as
measured in the Bank's most recent consolidated report of condition; (ii) the
Bank follows reasonable procedures limiting concentrations in listed and/or
registered shares; and (iii) the FDIC retains the right to alter, suspend or
withdraw this approval.
INSURANCE OF ACCOUNTS
Derby Savings' deposit accounts are insured by the FDIC up to a maximum of
$100,000 per insured depositor. The FDIC issues regulations, requires the
filing of reports, and generally supervises the operations of its insured
banks. The FDIC periodically conducts examinations of insured banks and,
based upon its evaluation, may revalue assets of an insured bank and require
establishment of specific reserves in amounts equal to the difference between
such revaluation and the book value of the assets. The approval of the FDIC
is required prior to any merger or consolidation or the establishment or
relocation of an office facility. This supervision and regulation is intended
primarily for the protection of depositors. Any insured bank which does not
operate in accordance with or conform to FDIC regulations, policies and
directives may be sanctioned for noncompliance. Under the Federal Deposit
Insurance Act, Derby Savings is required to pay annual insurance premiums and
is prohibited from paying dividends on its capital stock if it is in default
in the payment of a premium assessed by the FDIC.
The FDIC announced in 1995 that the Bank Insurance Fund ("BIF") was fully
capitalized as of May 31, 1995. As a result, the FDIC refunded insurance
premium overpayments and interest to member banks for the period from June 1,
1995 through September 30, 1995 and the deposit insurance premiums assessed
most BIF member banks, including the Bank, were reduced effective June 1,
1995. Additionally, the Bank has been notified by the FDIC that its deposit
insurance premium assessment will be essentially eliminated for 1996.
Pursuant to FDICIA, effective December 31, 1993, insured banks will be
examined no less frequently than every 12 months (as opposed to no less
frequently than every 18 months previously.) Derby Savings is subject to
assessments by the FDIC to cover the costs of such examinations.
The FDIC has adopted regulations which define and establish minimum
requirements for capital adequacy, including a minimum leverage capital
requirement and a minimum risk-based capital requirement. Under the leverage
capital requirement adopted by the FDIC, state non-member banks must maintain
"core" or "Tier 1" capital of at least 3% of total assets. For all but the
most highly rated banks, the minimum leverage requirement will be 4% to 5% of
total assets. At December 31, 1995, Derby Savings had a ratio of Tier 1 or
core capital to total assets of 6.1%. For purposes of the leverage ratio,
Tier 1 or core capital is defined in a manner consistent with the risk-based
capital requirement. The FDIC's risk-based guidelines require state
non-member banks to achieve a ratio of total capital to total risk-weighted
assets of 8% and a ratio of core capital to total risk-weighted assets of 4%.
At December 31, 1995, Derby Savings' ratio of total
28.
<PAGE>
capital to total risk-weighted assets was approximately 11.8% and
its ratio of Tier 1 capital to risk-weighted assets was approximately 10.8%.
Under the FDIC's regulations, a bank's total capital base consists of two
types of capital elements, "core capital elements" (Tier 1) and "supplementary
capital elements" (Tier 2). Core capital or Tier 1 elements consist of common
stock, surplus, undivided profits, capital reserves, foreign currency
translation adjustments, noncumulative perpetual preferred stock, minority
interests in consolidated subsidiaries, minus intangible assets (other than
mortgage servicing rights) and net-unrealized losses on marketable equity
securities. At least 50% of the bank's qualifying total capital must consist
of Tier 1 capital. Supplementary or Tier 2 capital consists of allowances for
loan and lease losses (up to a maximum of 1.25% of risk-weighted assets),
cumulative perpetual preferred stock, long-term preferred stock, perpetual
preferred stock with adjustable dividends (whether cumulative or
noncumulative), mandatory convertible debt securities, and term subordinated
debt or intermediate-term preferred stock. The maximum amount of Tier 2
elements that may be counted in determining total capital may not, in the
aggregate, exceed 50% of Tier 1 capital. For purposes of the risk-based
capital requirement, a bank's risk-weighted asset base is determined by
assigning each of the bank's assets and the credit equivalent amount of
off-balance sheet items to one of four separate risk categories.
The FDIC is required to amend its risk-based capital standards to ensure that
those standards provide adequately for interest-rate risk, concentration of
credit risk, and nontraditional activities. The FDIC has proposed amending
its risk-based capital guidelines in a manner similar to that proposed by the
FRB. See "Regulation - Holding Company Regulation - Federal Bank Holding
Company Regulation."
Banks with capital ratios below the minimum do not have adequate capital and
will be subject to appropriate administrative actions, including the issuance
by the FDIC of a capital directive requiring that the bank restore its capital
to the minimum required level within a specified period of time and the denial
or conditioning of certain applications, including merger and branch
applications. Additionally, failure to achieve or maintain the minimum
capital requirements may be the basis for an action by the FDIC to terminate
deposit insurance.
Capital requirements higher than the generally applicable minimum requirements
may be established for a particular bank if the FDIC determines that the
Bank's capital was or may become inadequate in view of its particular
circumstances. Individual minimum capital requirements may be appropriate
where a bank is receiving special supervisory attention, has a high degree of
exposure to interest rate risk, or poses other safety or soundness concerns.
Any insured depository institution which falls below the minimum capital
standards must submit a capital restoration plan. Effective December 19,
1992, any company that has control of an undercapitalized institution, in
connection with the submission of a capital restoration plan, is required to
guarantee that the institution will comply with the plan and provide
appropriate assurances of performance. The aggregate liability of any such
controlling company under such guaranty is limited to the lesser of (i) 5% of
the institution's assets at the time it became undercapitalized; or (ii) the
amount necessary to bring the institution into capital compliance at the time
it failed to comply with its capital plan. If Derby Savings were to become
undercapitalized, the Company would be required to guarantee performance of
the capital plan submitted under
29.
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the FDICIA as a condition of FDIC approval.
Undercapitalized institutions are precluded from increasing their assets,
acquiring other institutions, establishing additional branches, or engaging in
new lines of business without an approved capital plan and a determination by
the FDIC that such actions are consistent with the plan. Institutions that
are significantly undercapitalized or critically undercapitalized are subject
to additional restrictions and may be required to (i) raise additional
capital; (ii) limit asset growth; (iii) limit the amount of interest paid on
deposits to the prevailing rate of interest in the region where the bank is
located; (iv) divest or liquidate any subsidiary which the FDIC determines
poses a significant risk; (v) order a new election of members of the board of
directors; (vi) require the dismissal of a director or senior executive
officer; or (vii) take such other action that the FDIC determines is
appropriate. The FDIC is required to appoint a conservator or receiver for a
critically undercapitalized bank no later than nine months after the bank
becomes critically undercapitalized, subject to a limited exception for banks
which are in compliance with an approved capital plan and which the FDIC
certifies are not likely to fail.
Under the prompt corrective action regulation adopted by the FDIC, which
became effective on December 19, 1992, a savings bank is considered: (1)
"well capitalized" if the savings bank has a risk based capital ratio of 10%
or greater, a tier one or core capital to risk-weighted assets ratio of 6% or
greater, and a leverage ratio to adjusted total assets of 5% of 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 risk-based capital ratio of 8% or
greater, a tier 1 or core capital to risk weighted assets ratio of 4% or
greater, and a leverage ratio to adjusted total assets 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 risk based
capital ration that is less than 8%, a tier 1 or core capital to risk
weighted assets ratio that is less than 4% (3% if the institution is rated
composite 1 in its most recent report of examination); (iv)"significantly
undercapitalized" if the institution has a risk-based capital ratio that is
less than 6%, a tier one or core capital to risk weighted assets ratio that
is less than 3%, or a leverage ratio to adjusted total assets ratio that is
less than 3%; and (v) "critically undercapitalized" if the institution has a
ratio of tangible equity to total assets that is less than 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 December 31,
1995, the Bank met the "well capitalized" criteria based on its capital
ratios at that date. At December 31, 1995, the Bank had a ratio of total
capital to risk-weighted assets of 11.8%, and a ratio of tier 1 capital to
risk weighted assets of 10.8%. The Bank's ratio of tier one capital to total
assets at December 31, 1995 was 6.1%.
The federal banking agencies have prescribed safety and soundness guidelines
relating to (i) internal controls, information systems, and internal audit
systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest
rate exposure; (v) asset growth; and (vi) compensation and benefit standards
for officers, directors, employees and principal shareholders. Such
guidelines impose standards based upon an institution's asset quality and
earnings. The guidelines are intended to set out standards that the agencies
will use to identify and address problems at institutions before capital
becomes impaired.
30.
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Institutions are required to establish and maintain a system to identify
problem assets and prevent deterioration of those assets in a manner
commensurate with its size and the nature and scope of their operations.
Further, institutions must establish and maintain a system to evaluate and
monitor earnings and ensure that earnings are sufficient to maintain adequate
capital and reserves in a manner commensurate with their size and the nature
and scope of its operation.
Under the guidelines, an institution not meeting one or more of the safety and
soundness guidelines is required to file a compliance plan with the
appropriate federal banking agency. In the event that an institution, such as
Derby Savings, were to fail to submit an acceptable compliance plan or fail in
any material respect to implement an accepted compliance plan within the time
allowed by the agency, the institution would be required to correct the
deficiency and the appropriate federal agency would also be authorized to:
(1) restrict asset growth; (2) require the institution to increase its ratio
of tangible equity to assets; (3) restrict the rates of interest that the
institution may pay; or (4) take any other action that would better carry out
the purpose of the corrective action.
FDIC insurance of deposits may be terminated by the FDIC, after notice and
hearing, upon a finding by the FDIC that the insured bank has engaged in
unsafe or unsound practices, or is in an unsafe or unsound condition to
continue operations, or has violated any applicable law, regulation, rule or
order of, or condition imposed by the FDIC. The FDIC may temporarily suspend
an insured bank's insurance without a hearing if the insured bank has no
tangible capital under the FDIC's capital adequacy regulations or guidelines.
The management of Derby Savings does not know of any practice, condition, or
violation that might lead to termination or suspension of Derby Savings'
deposit insurance.
Under Sections 23A and 23B of the Federal Reserve Act, as incorporated by the
Federal Deposit Insurance Act, transactions between FDIC-insured banks, such
as Derby Savings, and their "affiliates" (which term includes, with respect to
Derby Savings, the Company) are subject to restrictions which, among other
things, limit the amount of certain transactions with affiliates, prescribe
collateralization requirements for loans by a bank to its affiliates and
generally require that transactions with an affiliate be on terms and
conditions, including credit standards, that are substantially the same, or at
least as favorable to the bank as those prevailing at the time for comparable
transactions with or involving unaffiliated parties or, in the absence of
comparable transactions, on terms and under circumstances, including credit
standards, that in good faith would be offered or would apply to unaffiliated
parties. The same restrictions apply to transactions between subsidiaries of
a bank and the bank's affiliates. Further, neither a bank nor any of its
subsidiaries or affiliates may publish any advertisement or enter into any
agreement stating or suggesting that the bank is in any way responsible for
the obligation of its affiliates.
FEDERAL HOME LOAN BANK SYSTEM.
Derby Savings is a member of the FHLBB, which is one of 12 regional Federal
Home Loan Banks, each subject to Federal Housing Finance Board ("FHFB")
supervision and regulation. The FHLBB provides a central credit facility for
member institutions. As a member of the FHLBB, Derby Savings is required to
own shares of capital stock in that bank in an amount equal to the greater of
(i) one percent of assets secured by residential housing; (ii) .3% of total
assets; or (iii) 1/20 of outstanding advances. Derby Savings is in compliance
with this
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<PAGE>
requirement with an investment in FHLBB stock at December 31, 1995
of $9.8 million.
At December 31, 1995, FHLBB advances to the Bank were $96.9 million. The
maximum amount which the FHLBB will advance for purposes other than meeting
deposit withdrawals fluctuates from time to time in accordance with changes in
policies of the FHFB and the FHLBB, and the maximum amount generally is
reduced by borrowings from any other source.
The FHFB has promulgated regulations that establish standards of community
service or support as a basis for FHLB members to maintain continued access to
long-term advances. Pursuant to the regulations, each FHLB member will
provide a Community Support Statement ("CSS") to its FHLB for review on a
schedule established by the FHFB. The CSS is to include information regarding
the member's Community Reinvestment Act Evaluation, evidence of assistance to
first-time home buyers, documentation of any judgments based on violations of
the Fair Housing and Equal Credit Opportunity Acts, and evidence of community
support. The FHFB will review certain of the statements and will require a
Community Support Action Plan ("CSAP") if it disapproves the CSS. If the
member has failed to submit a CSS, submits a CSAP that is not approved, or
fails to substantially meet its CSAP within one year, the FHFB may restrict
the member's access to long-term advances.
FEDERAL RESERVE SYSTEM
The FRB adopted regulations that require savings institutions to maintain
non-earning reserves against their net transaction accounts (primarily NOW and
regular checking accounts less certain permitted deductions), non-personal
time deposits (those which are transferable or held by a depositor other than
a natural person) with an original maturity or notice period of less than 18
months, and Eurocurrency liabilities. At December 31, 1995, Derby Savings was
in compliance with the FRB's reserve requirement.
Savings institutions have authority to borrow from the Federal Reserve Bank
"discount window", but FRB regulations require institutions to exhaust all
FHLB sources before borrowing from the Federal Reserve Bank. The FDICIA
prevents Federal Reserve Banks from providing a discount window advance to an
"undercapitalized" institution for more than 60 days in any 120-day period,
except in limited circumstances.
TAXATION
FEDERAL
For federal income tax purposes, the Company and Derby Savings file a
consolidated calendar tax year income tax return and report their income and
expenses using the accrual method of accounting. Prior to its 1987 tax year
Derby Savings used the cash method of accounting but it was required by the
Tax Reform Act of 1986 (the "Tax Act") to switch to the accrual method of
accounting. The adjustment to its income resulting from this change must be
recognized ratably over a period not to exceed four years.
Savings institutions are generally taxed in the same manner as other
corporations. Unlike other corporations, however, qualifying savings
institutions such as Derby Savings, that meet certain definition tests
relating to the nature of their supervision, income, assets and business
operations, are
32.
<PAGE>
allowed to establish a reserve for bad debts and are permitted to deduct
additions to that reserve for losses on "qualifying real property loans"
using one of two alternative methods.
"Qualifying real property loans" are, in general, loans secured by interests
in improved real property. For each tax year, a qualifying institution may
compute the addition to its bad debt reserve for qualifying real property
loans using the more favorable of the following methods: (i) a method based
on the institution's actual loss experience (the "experience method") or
(ii) a method based on a specified percentage of an institution's taxable
income (the "percentage of taxable income method"). The addition to the
reserve for losses on non-qualifying loans must be computed under the
experience method.
Derby Savings has generally computed its annual deduction for additions to its
allowance for losses on qualifying real property loans using the percentage of
taxable income method. Under the percentage of taxable income method, a
qualifying institution may deduct up to a maximum of 8% of its taxable income
after certain adjustments, subject to the limitations discussed below. The
net effect of the percentage of taxable income method deduction is that the
maximum effective federal income tax rate on income computed without regard to
actual bad debts and certain other factors for qualifying institutions using
the percentage of taxable income method is 31.28% (and at least 32.2% of
taxable income above $10 million for tax years after 1992), assuming a tax
rate of 34%. For 1995, the Bank computed its addition to the reserve for
qualifying real property loans under the experience method. Under the
experience method, a savings institution is permitted to deduct an amount
based on average yearly credit losses over the current and previous five
years.
The amount of the bad debt deduction that a savings institution may claim with
respect to additions to its reserve for bad debts is subject to certain
limitations. First, the deduction may be eliminated entirely (regardless of
the method of computation) and the existing reserve will be recaptured into
taxable income and the institution will be permitted a deduction only for
specific charge-offs unless at least 60% of the savings institution's assets
fall within certain designated categories. Second, the bad debt deduction
attributable to "qualifying real property loans" cannot exceed the greater of
(i) the amount deductible under the experience method or (ii) the amount
which, when added to the bad debt deduction for non-qualifying loans, equals
the amount by which 12% of the sum of the total deposits or withdrawable
accounts at the end of the taxable year exceeds the sum of the surplus,
undivided profits, and reserves at the beginning of the taxable year. Third,
the amount of the bad debt deduction attributable to qualifying real property
loans computed using the percentage of taxable income method is permitted only
to the extent that the institution's reserve for losses on qualifying real
property loans at the close of the taxable year taking into account the
addition to the reserve for that taxable year does not exceed 6% of such loans
outstanding at such time. Fourth, the amount of the bad debt deduction under
the percentage of taxable income method is reduced, but not below zero, by the
amount of the addition to reserves for losses on non-qualifying loans for the
taxable year. Finally, a savings institution that computes its bad debt
deduction using the percentage of taxable income method and files its federal
income tax return as part of a consolidated group, as Derby Savings does, is
required to reduce proportionately its bad debt deduction for losses
attributable to activities of non-savings institution members of the
consolidated group that are "functionally related" to the savings institution
member. (The savings institution member is permitted, however, to
33.
<PAGE>
proportionately increase its bad debt deduction in subsequent years to
recover any such reduction to the extent the non-savings institution members
realize income in future years from their "functionally related" activities.)
As of December 31, 1995, Derby Savings' bad debt reserve for tax purposes
totaled approximately $5.8 million. To the extent that (i) Derby Savings'
reserve for losses on qualifying real property loans using the percentage of
taxable income method exceeds the amount that would have been allowed under
the experience method and (ii) Derby Savings makes distributions to its
stockholders that are considered to result in withdrawals from its excess bad
debt reserve, then the amounts considered to be withdrawn will be included in
Derby Savings' taxable income. The amount considered to be withdrawn by a
distribution will be the amount of the distribution plus the amount necessary
to pay the federal income tax, with respect to the withdrawal. Dividends paid
out of Derby Savings' current or accumulated earnings and profits as
calculated for federal income tax purposes will not be considered to result in
withdrawals from Derby Savings' bad debt reserves. Distributions in excess of
Derby Savings' current and accumulated earnings and profits, distributions in
redemption of stock, and distributions in partial or complete liquidation of
Derby Savings will generally be considered to result in withdrawals from Derby
Savings' bad debt reserves. At December 31, 1994, Derby Savings had
approximately $39.2 million in earnings and profits for tax purposes that
would be available for distribution to the Company, it's sole stockholder,
subject to various restrictions imposed by the Commissioner, without the
imposition of this additional tax. The Company does not intend to cause Derby
Savings to make any distribution that would be considered to be made out of
its bad debt reserve.
Depending on the composition of its items of income and expense, a corporation
may be subject to alternative minimum tax. For tax years beginning after
1986, a corporation must pay an alternative minimum tax equal to the amount
(if any) by which 20% of alternative minimum taxable income ("AMTI"), as
reduced by an exemption varying with AMTI, exceeds the regular tax due. AMTI
equals regular taxable income increased or decreased by certain adjustments
and increased by certain tax preferences, including depreciation deductions in
excess of that allowable for alternative minimum tax purposes, tax-exempt
interest on most private activity bonds issued after August 7, 1986 (reduced
by any related interest expense disallowed for regular tax purposes), the
amount of the bad debt reserve deduction claimed in excess of the deduction
based on the experience method and, for tax years after 1989, 75% of the
excess of adjusted current earnings over AMTI. AMTI may be reduced only up to
90% by net operating loss carryovers, but the payment of alternative minimum
tax will give rise to a minimum tax credit which will be available with an
indefinite carry-forward period, to reduce the federal income taxes of the
institution in future years (but not below the level of alternative minimum
tax arising in each of the carry-forward years).
The Internal Revenue Service ("IRS") is currently conducting an examination of
the Company's federal income tax returns for 1990.
STATE
State income taxation for the Company and Derby Savings is in accordance with
the corporate income tax laws of Connecticut, which require a tax to be paid
equal to the largest of amounts computed under three formulas. The first is a
minimum tax of $250. The second is a tax based on the average level of
deposits and
34.
<PAGE>
other borrowed money on which interest is paid. The third is a tax based on
11.25% (scheduled to decrease in increments, to 7.5% by 2000), of the year's
taxable income which, with certain exceptions, is equal to taxable income for
federal purposes. Operating losses in any year may be carried forward to
reduce taxable income over the succeeding five years.
INCOME TAX ACCOUNTING STANDARD. In February 1992, the FASB issued Statement
of Financial Accounting Standards No. 109 ("SFAS 109") "Accounting For Income
Taxes", which superseded SFAS 96, as amended, which established financial
accounting and reporting standards for the effects of income taxes. The
Statement requires the use of the liability method in determining the tax
effect of temporary differences in the recognition of items of income and
expense reported in the consolidated financial statements and those reported
for income tax purposes.
The Company adopted this statement for the year ended December 31, 1993, and
the cumulative effect of the change in accounting principal is reflected in
net income for 1993.
EXECUTIVE OFFICERS OF REGISTRANT
The following table sets forth information with respect to the persons who
have been designated executive officers of the Company.
<TABLE>
<CAPTION>
Age at Officer
December 31, 1995 Since Positions Held with Company
----------------- ------- ---------------------------
<S> <C> <C> <C>
Harry P. DiAdamo Jr. 52 1987 President,Chief Executive
Officer and Director
Alfred T. Santoro 46 1987 Vice President, Treasurer
and Chief Financial Officer
Thomas H. Wells 63 --- Senior Vice President and
Chief Lending Officer of
Derby Savings Bank
</TABLE>
Harry P. DiAdamo Jr., President and Chief Executive Officer of the Corporation
and the Bank, has been a Director of Derby Savings since 1980 and served as
Chairman of the Board from March 1984 to March 1985. He became President,
Treasurer and Chief Executive Officer of the Bank in October 1984.
Mr. DiAdamo is also a member of the Executive Committee of the Corporation.
He recently completed his second two-year term on the Board of the Federal
Home Loan Bank of Boston where he also served as chairman of its Audit
Committee and as a member of the Finance Committee. Mr. DiAdamo is a member
of the Mortgage Finance Committee of America's Community Bankers, and the
Executive and Legislative Committees of the Connecticut Bankers Association,
as well as a director of the Savings Bank Life Insurance Company and Griffin
Health Services, and treasurer and Advisory Board member for WSHU Public
Radio. He is president of the Shelton Educational Fund, and Endowment Fund
chairman and past president of the board of Notre Dame High School in West
Haven. Mr. DiAdamo is also a member of the New Britain Downtown Council and a
Corporator of the Valley United Way, as well as past chairman of that
organization's annual campaign.
35.
<PAGE>
Alfred T. Santoro, Vice President, Treasurer and Chief Financial Officer
of the Corporation, joined Derby Savings in September 1985 as Vice President,
Finance, was elected Senior Vice President and Chief Financial Officer in
April 1987, and Executive Vice President and Chief Financial Officer in
February 1993. In September 1995, he assumed responsibility for all operating
and financial functions of the Company. Mr. Santoro, who holds an M.B.A. in
finance from the University of New Haven, is a member and past president of
the Connecticut Chapter of the Financial Managers Society. He currently
serves on the Board of Trustees of the New Britain YWCA and is a member of its
Finance Committee.
Thomas H. Wells joined the staff of Derby Savings in April 1974 bringing with
him 11 years of mortgage banking experience. He became Vice President in
January 1975 and in March 1985 was named Senior Vice President, Loans. As
Chief Lending Officer, Mr. Wells is responsible for all aspects of retail
lending (mortgage and consumer) as well as the Bank's Community Reinvestment
Act programs. A Director of the Connecticut Appraisal Foundation, he is a
licensed appraiser in the state of Connecticut, and is also a member and past
president of the Appraisal Institute and holds the SRPA and SRA designations.
Mr. Wells is on the Loan Committee of Neighborhood Housing Services in New
Britain and the Prospect Review Committee of United Methodist Homes, Chairman
of the Finance Committee at Seymour Congregational Church, and a member of the
American Legion. His past affiliations include teaching residential appraisal
and real estate finance for Fairfield University, and serving as President of
Connecticut Chapter #38 of the Society of Real Estate Appraisers, Chairman of
the Seymour Planning and Zoning Commission and chairman of the commercial
division of the Valley United Way campaign.
36.
<PAGE>
ITEM 2. PROPERTIES
At December 31, 1995, Derby Savings had 22 banking offices located in New
Haven, Fairfield and Hartford Counties. ATM's are currently in operation in
18 of the Bank's offices. The Bank is currently a member of NYCE and Cirrus,
a shared national ATM network.
<TABLE>
<CAPTION>
Original Current Percent
Office Office of Total
New Haven County: Opened Opened Deposits Owned or Leased Note
- ----------------- ------- ------ -------- ------------------------ ----
<S> <C> <C> <C> <C> <C>
Derby 1846 1976 14.00% Owned --
Derby (HQ) 1985 1985 --- Owned --
Orange Derby 1969 1985 6.96 Land leased, bldg. owned 1
Orange 1987 1987 5.68 Leased 2
Seymour 1981 1981 4.46 Owned --
Southbury 1988 1988 1.23 Leased 3
FAIRFIELD COUNTY:
- -----------------
Shelton 1964 1975 5.19 Owned --
Huntington 1970 1973 7.70 Owned --
Stratford 1989 1996 6.20 Leased 4
Trumbull 1990 1990 5.26 Leased 5
Fairfield 1993 1993 2.60 Leased 6
HARTFORD COUNTY:
- ----------------
Avon 1987 1992 1.64 Leased 7
East Hartford 1992 1992 1.38 Leased 8
Glastonbury 1992 1992 2.79 Owned --
New Britain:
Main Street 1992 1992 8.03 Leased 9
South Main Street 1992 1992 3.81 Owned --
Newington Avenue 1992 1992 5.07 Leased 10
West Main Street 1992 1992 3.31 Leased 11
Newington 1992 1992 2.95 Leased 12
Plainville 1992 1992 1.93 Leased 13
Rocky Hill 1992 1992 4.03 Leased 14
West Hartford 1992 1992 4.85 Leased 15
W. Hartford Central 1992 1992 .93 Leased 16
------
100.00%
</TABLE>
NOTES:
1. Lease expires August, 2004. Subject to three five-year renewal options
followed by one seven-and-a-half year renewal option.
2. Lease expires July, 1997. Subject to one ten-year renewal option.
3. Lease expires November, 1996. Subject to three five-year renewal options.
4. Lease expires December, 2000. Subject to three three-year renewal
options.
5. Lease expires June, 1996. Subject to one three-year renewal option.
6. Lease expires April, 1996. Subject to two five-year renewal options.
7. Lease expires September, 1997. Subject to one five-year renewal option.
8. Leased expires September, 1999. Subject to two five year renewal options.
9. Leased expires April, 1999. Subject to one five year renewal option.
10. Lease expires February, 1998. Subject to three three-year renewal
options.
11. Lease expires February, 1998. Subject to three five-year renewal options.
12. Lease expires December, 2000. Subject to one ten-year renewal option.
13. Lease expires June, 1998. Subject to three five-year renewal options.
14. Lease expires November, 1998. Subject to two five-year renewal options.
15. Lease expires May, 2000. Subject to two five-year renewal options.
16. Lease expires June, 1997. Subject to one five-year renewal option.
37.
<PAGE>
The aggregate net book value of properties owned and used for offices at
December 31, 1995 was $4.2 million and the aggregate net book value of
lease-hold improvements on properties used for branch offices was $452,000.
The data processing for Derby Savings is supplied by an unaffiliated data
processing company. The primary internal data processing equipment at Derby
Savings consists of teller terminals, ATM's and other automated equipment with
a net book value of $460,000 at December 31, 1995.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved as a plaintiff or defendant in various legal actions
incidental to its business, all of which in the aggregate are believed by
management not to be material to the financial condition or operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year ended December 31, 1994, no matters were
submitted to a vote of security holders through the solicitation of proxies or
otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information as to the principal market on which the stock is traded, the
Company's and the Bank's dividend policy, and the high and low closing sales
prices for the stock are included on page 31 of the 1995 Annual Report to
Stockholders and incorporated herein by reference. There were approximately
890 holders of record of the stock as of December 31, 1995.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the five years ended December 31, 1995, consisting
of data captioned "Selected Financial and Other Data" on page 1 of the 1995
Annual Report to Stockholders, is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Management's Discussion and Analysis on pages 9 through 31 of the 1995 Annual
Report to Stockholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated statements of position of DS Bancor, Inc. and Subsidiary as
of December 31, 1995 and 1994, the related consolidated statements of earnings
and stockholders' equity and the consolidated statements of cash flows for
each of the three years in the period ended December 31, 1995 together with
the related notes and the report of Friedberg, Smith & Co., P.C., independent
certified public accountants, all contained on pages 32 - 60 in the Company's
1995 Annual Report to Stockholders, are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
38.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information regarding the directors of the Company is omitted from this report
as the Company intends to file a definitive proxy statement not later than 120
days after the end of the fiscal year and the information to be included
therein is incorporated herein by reference. Information regarding the
executive officers of the Company is set forth in Part I above under the
caption "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Information regarding remuneration of executive officers and directors of the
Company is omitted from this report as the Company intends to file a
definitive proxy statement not later than 120 days after the end of the fiscal
year and the information to be included therein (excluding the report on
executive compensation and the Comparative Performance Information) is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is omitted from this report as the Company intends to file a
definitive proxy statement not later than 120 days after the end of the fiscal
year and the information to be included therein is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
omitted from this report as the Company intends to file a definitive proxy
statement not later than 120 days after the end of the fiscal year and the
information to be included therein is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1). The following financial statements of the Company included in the
Annual Report to Stockholders for the year ended December 31, 1995
are incorporated herein by reference in Item 8. The remaining
information in said Annual Report is not deemed to be filed as part
of this report, except as expressly provided herein.
(i) Consolidated Statements of Position as of December 31, 1995 and
1994.
(ii) Consolidated Statements of Earnings for years ended December
31, 1995, 1994 and 1993.
(iii) Consolidated Statements of Stockholders' Equity for years ended
December 31, 1995, 1994 and 1993.
(iv) Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993.
(vi) Notes to Financial Statements.
(vii) Auditor's Opinion.
(a)(2). All financial statement schedules for which provision is made in
applicable accounting regulations are inapplicable and have therefore
been omitted.
(b) EXHIBITS AND REPORTS ON FORM 8-K. There were no Form 8-K filings
during the quarter ended December 31, 1995.
39.
<PAGE>
(c) The following exhibits are either filed as part of this Report or are
incorporated herein by reference.
EXHIBIT 3.1. Restated Certificate of Incorporation, as amended.
EXHIBIT 3.2. Bylaws
EXHIBIT 10.1(a). Employment Agreement, dated December 3, 1985, with
Harry P. DiAdamo Jr., as amended on August 31, 1987.
EXHIBIT 10.1(b). Severance Agreement, dated November 28, 1986, with
Alfred T. Santoro, as amended on August 31, 1987.
EXHIBIT 10.1(c). Severance agreement with Thomas H. Wells, as
amended (incorporated herein by reference to the exhibit contained in
the Company's annual report on Form 10-K for the year ended December
31, 1994).
EXHIBIT 10.2. Stock Option Plan, as amended.
EXHIBIT 10.3. 1994 Stock Option Plan (incorporated herein by
reference to Exhibit 4 contained in the Company's Form S-8
Registration Statement (Registration No. 33-53803) filed on March 25,
1994).
EXHIBIT 10.4(a). Form of Deferred Compensation Agreement with
Management Directors.
EXHIBIT 10.4(b). Form of Deferred Compensation Agreement with
Non-Management Directors.
EXHIBIT 10.5. DS Bancor, Inc. Deferred Compensation Plan for Directors.
EXHIBIT 10.6. Derby Savings Bank Deferred Compensation Plan for
Directors.
EXHIBIT 10.7. Split Dollar Insurance Agreement, dated as of October
5, 1995 by and between Derby Savings Bank and Alfred T. Santoro.
EXHIBIT 13. Annual Report to Stockholders for the year ended
December 31, 1995.
EXHIBIT 21. Subsidiaries of the Company.
EXHIBIT 23(a). Consent of Friedberg, Smith & Co., P.C. (Registrant
No.33-3699).
EXHIBIT 23(b). Consent of Friedberg, Smith & Co., P.C. (Registrant
No.33-71206).
EXHIBIT 23(c). Consent of Friedberg, Smith & Co., P.C. (Registrant
No.33-53803).
EXHIBIT 27. Financial Data Schedule.
(d) None.
40.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
DS BANCOR, INC.
Date: March 28, 1996 By: /S/ Harry P. DiAdamo Jr.
----------------- -----------------------------------
Harry P. DiAdamo Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Chief Executive Officer:
/S/ Harry P. DiAdamo Jr. Date: March 28, 1996
---------------------------------------- ------------------
Harry P. DiAdamo Jr.
Director, President and Chief Executive Officer
(Principal executive officer)
Chief Financial Officer:
/S/ Alfred T. Santoro Date: March 28, 1996
---------------------------------------- ------------------
Alfred T. Santoro
Vice President, Treasurer and
Chief Financial Officer
(Principal financial and accounting officer)
41.
<PAGE>
Directors:
/S/ Michael F. Daddona Jr. Date: March 28, 1996
---------------------------------------- ------------------
Michael F. Daddona Jr.
Chairman of the Board
/S/ Harry P. DiAdamo Jr. Date: March 28, 1996
---------------------------------------- ------------------
Harry P. DiAdamo Jr.
Director, President and
Chief Executive Officer
/S/ John F. Costigan Date: March 28, 1996
---------------------------------------- ------------------
John F. Costigan
Director and Corporate Secretary
/S/ Achille A. Apicella Date: March 28, 1996
---------------------------------------- ------------------
Achille A. Apicella
Director
/S/ Walter R. Archer Jr. Date: March 28, 1996
---------------------------------------- ------------------
Walter R. Archer Jr.
Director
/S/ Angelo E. Dirienzo Date: March 28, 1996
---------------------------------------- ------------------
Angelo E. Dirienzo
Director
/S/ Laura J. Donahue Date: March 28, 1996
---------------------------------------- ------------------
Laura J. Donahue
Director
/S/ Christopher H.B. Mills Date: March 28, 1996
---------------------------------------- ------------------
Christopher H.B. Mills
Director
/S/ John M. Rak Date: March 28, 1996
---------------------------------------- ------------------
John M. Rak
Director
/S/ John P. Sponheimer Date: March 28, 1996
---------------------------------------- ------------------
John P. Sponheimer
Director
/S/ Gary M. Tompkins Date: March 28, 1996
---------------------------------------- ------------------
Gary M. Tompkins
Director
42.
<PAGE>
INDEX TO EXHIBITS
Page (by
Exhibit Sequential
Number Identity of Exhibit Numbering)
- -------- ------------------------ ----------
3.1 Restated Certificate of Incorporation, as amended 43
3.2 Bylaws 58
10.1(a) Employment Agreement, dated December 31, 985, with Harry P. 82
DiAdamo, Jr., as amended on August 31, 1987.
10.1(b) Severance Payment Agreement, dated November 28, 1986, 94
with Alfred T. Santoro, as amended on August 31, 1987.
10.1(c) Severance agreement with Thomas H. Wells, as amended *
(incorporated herein by reference to the exhibit contained in
the Company's annual report on Form 10-K for the year ended
December 31, 1994).
10.2 Stock Option Plan, as amended 100
10.3 1994 Stock Option Plan (incorporated herein by reference to *
Exhibit 4 contained in the Company's Form S-8 Registration
Statement (Registration No. 33-53803) filed on March 25, 1994).
10.4(a) Form of Deferred Compensation Agreement with Management 139
Directors
10.4(b) Form of Deferred Compensation Agreement with Non-Management 149
Directors.
10.5 DS Bancor, Inc. Deferred Compensation Plan for Directors 159
10.6 Derby Savings Bank Deferred Compensation Plan for Directors 164
10.7 Split Dollar Insurance Agreement, dated as of October 5, 1995, 169
by and between Derby Savings Bank and Alfred T. Santoro
13 Annual Report to Stockholders for the year ended December 31, 1995
21 Subsidiaries of the Company 175
23(a) Consent of Friedberg, Smith & Co., P.C. 176
(Registrant No. 33-3699).
23(b) Consent of Friedberg, Smith & Co., P.C. 177
(Registrant No. 33-71206).
23(c) Consent of Friedberg, Smith & Co., P.C. 178
(Registrant No. 33-53803).
27 Financial Data Schedule. 179
* Previously filed.
43.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
DS BANCOR, INC.
-------------------------------------------------
ARTICLE 1. CORPORATE TITLE. The name of the corporation is DS Bancor,
Inc. (the "Corporation").
ARTICLE 2. DURATION. The duration of the Corporation is perpetual.
ARTICLE 3. POWERS. The purpose or purposes for which the Corporation
is organized are to engage in any lawful act or activity for which corporations
may be organized under the Delaware General Corporation Law.
ARTICLE 4. CAPITAL STOCK. The total number of shares of all classes of
the capital stock which the Corporation has authority to issue is eight million
(8,000,000) of which six million (6,000,000) shall be common stock, par value
$1.00 per share, and two million (2,000,000) shall be serial preferred stock, no
par value. The shares may be issued by the Corporation from time to time as
approved by its board of directors without the approval of its shareholders.
The consideration for the issuance of the shares shall be paid in full before
their issuance and shall not be less than the par value per share. Neither
promissory notes nor future services shall constitute payment or part payment
for the issuance of the shares of the Corporation. The consideration for the
shares shall be cash, services actually performed for the Corporation, personal
property, real property, leases of real property or any combination of the
foregoing. In the absence of actual fraud in the transaction, the value of such
property, labor or services, as determined by the board of directors of the
Corporation, shall be conclusive. Upon payment of such consideration such
shares shall be deemed to be fully paid and nonassessable. In the case of a
stock dividend, the designation as capital in respect of the issuance of shares
as a share dividend shall be deemed to be the consideration for their issuance.
Nothing contained in this Article 4 (or in any resolution or resolutions
adopted by the board of directors pursuant hereto) shall entitle the holders of
any class or series of capital stock to more than one vote per share.
A description of the different classes and series of the Corporation's
capital stock and a statement of the designations, and the powers, preferences
and rights, and the qualifications, limitations and restrictions of the shares
of each class of and series of capital stock are as follows:
A. COMMON STOCK. Except as provided in this Article 4 (or in any
resolution or resolutions adopted by the board of directors pursuant
hereto), the holders of the common stock shall exclusively possess all
voting power. Each holder of shares of common stock shall be entitled to
one vote for each share held by such holder, including the election of
directors. There shall be no cumulative voting rights in the election of
directors. Each share of common stock shall have the same relative
rights as and be identical in all respects with all the other shares of
common stock.
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Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock
having preference over the common stock as to the payment of dividends,
the full amount of dividends and of sinking fund or retirement fund or
other retirement payments, if any, to which such holders are respectively
entitled in preference to the common stock, then dividends may be paid on
the common stock and on any class or series of stock entitled to
participate therewith as to dividends, out of any assets legally
available for the payment of dividends; but only when and as declared by
the board of directors.
In the event any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid to or set aside for the
holders of any class having preferences over the common stock in the
event of liquidation, dissolution or winding up of the full preferential
amounts of which they are respectively entitled, the holders of the
common stock, and of any class or series of stock entitled to participate
therewith, in whole or in part, as to distribution of assets, shall be
entitled after payment or provision for payment of all debts and
liabilities of the Corporation, to receive the remaining assets of the
Corporation available for distribution, in cash or in kind.
B. SERIAL PREFERRED STOCK. Except as provided in Article 4 and
Article 5 hereof, the board of directors of the Corporation is authorized
by resolution or resolutions from time to time adopted and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
provide for the issuance of serial preferred stock in series and to fix
such designations, preferences and relative, participating, optional or
other special rights of the shares of each such series and the
qualifications, limitations and restrictions thereof. Each share of each
series of serial preferred stock shall have the same relative rights as
and be identical in all respects with all the other shares of the same
series.
ARTICLE 5. PREEMPTIVE RIGHTS. Holders of the capital stock of the
Corporation shall not be entitled to preemptive rights with respect to any
shares or other securities of the Corporation which may be issued.
ARTICLE 6. DIRECTORS. The Corporation shall be under the direction of
a board of directors. The board of directors shall consist of not less than
nine directors nor more than 16 directors. The number of directors within this
range shall be as stated in the Corporation's bylaws, as may be amended from
time to time, and shall initially consist of 12 directors. The board of
directors shall divide the directors into three classes and, when the number of
directors is changed, shall determine the class or classes to which the
increased or decreased number of directors shall be apportioned; provided, that
the directors in each class shall be as nearly equal in number as possible;
provided, further, that no decrease in the number of directors shall affect the
term of any director then in office.
The classification shall be such that the term of one class shall expire
each succeeding year. The Corporation's board of directors shall initially be
divided into three classes named Class I, Class II and Class III, each class
initially consisting of four directors. The terms, classifications,
qualifications and election of the board of directors and the filling of
vacancies thereon shall be as provided herein and in the bylaws. The names and
addresses of those persons of each class to serve on the initial board of
directors shall be as follows:
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Class I: Terms of office expire at 1986 annual meeting of shareholders:
Name Address
---- -------
John J. Brennan 33 Elizabeth Street, Derby, Connecticut 06418
Harry P. DiAdamo Jr. 33 Elizabeth Street, Derby, Connecticut 06418
Angelo E. Dirienzo 33 Elizabeth Street, Derby, Connecticut 06418
Bronislaw Winnick 33 Elizabeth Street, Derby, Connecticut 06418
Class II: Terms of office expire at 1987 annual meeting of shareholders:
Name Address
---- -------
Achille A. Apicella 33 Elizabeth Street, Derby, Connecticut 06418
John F. Costigan 33 Elizabeth Street, Derby, Connecticut 06418
John B. Dearborn 33 Elizabeth Street, Derby, Connecticut 06418
Laura J. Donahue 33 Elizabeth Street, Derby, Connecticut 06418
Class III. Terms of office expire at 1988 annual meeting of shareholders:
William M. Miller 33 Elizabeth Street, Derby, Connecticut 06418
Frank M. Osak Jr. 33 Elizabeth Street, Derby, Connecticut 06418
John M. Rak 33 Elizabeth Street, Derby, Connecticut 06418
G. Jeffrey Reynolds 33 Elizabeth Street, Derby, Connecticut 06418
Subject to the foregoing, at each annual meeting of shareholders the
successors to the class of directors whose term shall then expire shall be
elected to hold office for a term expiring at the third succeeding annual
meeting and until their successors shall be elected and qualified.
Any vacancy occurring in the board of directors, including any vacancy
created by reason of an increase in the number of directors, shall be filled for
the unexpired term by the concurring vote of a majority of the directors then in
office, whether or not a quorum, and any director so chosen shall hold office
for the remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified.
No director may be removed except for cause and then only by an affirmative
vote of at least two-thirds of the total votes eligible to be voted by
shareholders at a duly constituted meeting of shareholders called for such
purpose; provided, however, that if there are at the time one or more Interested
Shareholders (as defined in Article 12 hereof), in addition to such two-thirds
vote, there must also be an affirmative vote for the removal of not less than a
majority of the voting power of the issued and outstanding shares entitled to
vote thereon held by shareholders other than such Interested Shareholders. At
least 30, but not more than 60, days prior to such meeting of shareholders,
written notice shall be sent to the director or directors whose removal will be
considered at such meeting.
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ARTICLE 7. BYLAWS. The board of directors or the shareholders may from
time to time amend the bylaws of the Corporation. Such action by the board of
directors shall require the affirmative vote of at least two-thirds of the
directors then in office at a duly constituted meeting of the board of directors
called for such purpose. Such action by the shareholders shall require the
affirmative vote of at least two-thirds of the total votes eligible to be voted
at a duly constituted meeting of shareholders called for such purpose; provided,
however, that if there are at the time one or more Interested Shareholders (as
defined in Article 12 hereof), in addition to such two-thirds vote, there must
also be an affirmative vote for such action of not less than a majority of the
voting power of the issued and outstanding shares entitled to vote thereon held
by shareholders other than such Interested Shareholders.
ARTICLE 8. SPECIAL MEETINGS. Special meetings of shareholders may be
called at any time but only by the chairman of the board or the president of the
Corporation or by the board of directors of the Corporation.
ARTICLE 9. REGISTERED OFFICE. The street address of the Corporation's
initial registered office in the State of Delaware is 229 South State Street,
Dover, Delaware 19901, and the name of its initial registered office agent at
such address is United States Corporation Company.
ARTICLE 10. APPROVAL FOR ACQUISITIONS OF CONTROL AND OFFERS TO ACQUIRE
CONTROL.
SUBSECTION 1. Three-Year Restrictions on Offers to
Acquire and Acquisitions of Control.
Until December 10, 1988, which is a period of three years from the
consummation of the conversion of Derby Savings Bank to a capital stock savings
bank, no Person shall acquire Control or make any Offer to acquire Control of
the Corporation, unless such acquisition or Offer has received the prior
approval of both the Banking Commissioner of the State of Connecticut
("Connecticut Banking Commissioner") and the board of directors of the
Corporation. The terms "Person", "Control" and "Offer" as used in this Article
10 are defined in Subsection 5 hereof.
SUBSECTION 2. Shareholder Vote and Regulatory Approval
Required for Acquisition of
Control at any Time.
No Person shall acquire Control of the Corporation at any time, unless such
acquisition has been approved prior to its consummation by the affirmative vote
of the holders of at least two-thirds of the outstanding shares of Voting Stock
(as defined in Subsection 5 hereof) entitled to vote at a duly constituted
meeting of shareholders called for such purpose. In addition, no Person shall
acquire Control of the Corporation at any time without obtaining prior thereto
all federal and state regulatory approvals required under the Change in Bank
Control Act of 1978 (the "Change in Control Act"), the Bank Holding Company Act
of 1956 (the "Holding Company Act" and the Connecticut Bank Holding Company and
Bank Acquisition Act and in the manner provided by all applicable regulations of
the Federal Deposit Insurance Corporation (the "FDIC"), the Federal Reserve
Board (the "FRB") and the Connecticut Banking Commissioner. In the event that
Control is acquired without obtaining all such regulatory approvals, such
acquisition shall constitute a violation of this Article 10 and the Corporation
shall be entitled to institute a private right of action to enforce such
statutory and regulatory provisions.
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SUBSECTION 3. Excess Shares.
In the event that Control of the Corporation is acquired in violation of
this Article 10, all shares of Voting Stock owned by the Person so acquiring
Control in excess of the number of shares the beneficial ownership of which is
deemed under Subsection 5 hereof to confer Control of the Corporation shall be
considered from and after the date of their acquisition by such Person to be
"excess shares" for purposes of this Article 10. Such excess shares shall
thereafter no longer be entitled to vote on any matter or to take other
shareholder action or be counted in determining the total number of outstanding
shares for purposes of any matter involving shareholder action, and the board of
directors of the Corporation may cause such excess shares to be transferred to
an independent trustee for sale on the open market or otherwise, with the
expenses of such trustee to be paid out of the proceeds from such sale.
SUBSECTION 4. Approval Required for Offers to
Acquire Control after Three Years.
After December 10, 1988, no Person shall make any Offer to acquire Control
of the Corporation if any class of Voting Stock is then traded on a national
securities exchange or quoted on the National Association of Securities Dealers,
Inc. Automated Quotation System, unless such Person has received prior approval
to make such Offer by complying with the following procedures:
1. The Offer shall have been approved by the board of directors
of the Corporation, or
2. The Person proposing to make such Offer shall have:
(a) obtained authority from the FDIC or the FRB, pursuant to
the Change in Control Act, the Holding Company Act, or any successor
provisions of law, and from the Connecticut Banking Commissioner
pursuant to the Connecticut Bank Holding Company and Bank Acquisition
Act or any successor provisions of law, and in the manner provided by
all applicable regulations of the FDIC, the FRB and the Connecticut
Banking Commissioner, to acquire Control of the Corporation; such
authority to have been obtained by (i) filing with the FDIC or the
FRB, as the case may be, and the Connecticut Banking Commissioner all
notices, submissions and other documents or information required by
such applicable law and regulations and (ii) receiving the FDIC's or
FRB's approval, and the Connecticut Banking Commissioner's approval,
of, or upon the FDIC's or FRB's, or the Connecticut Banking
Commissioner's, failure to disapprove following the expiration of all
notice periods and extensions thereof, the acquisition of Control of
the Corporation by such Person, and
(b) furnished to the board of directors of the Corporation,
concurrently with such Person's filing thereof with the FDIC or the
FRB, as the case may be, and the Connecticut Banking Commissioner a
complete copy of all notices, submissions and documents (including all
exhibits thereto) and other information filed by such Person with the
FDIC or the FRB, as the case may be, and the Connecticut Banking
Commissioner pursuant to such applicable law and regulations.
SUBSECTION 5. Certain Definitions.
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For purposes of this Article 10:
A. "Control" means the sole or shared power to vote or to
direct the voting of, or to dispose or to direct the disposition of, ten
percent or more of the Voting Stock; provided, that the solicitation,
holding and voting of proxies obtained by the board of directors of the
Corporation pursuant to a solicitation under Regulation 14A of the General
Rules and Regulations under the Securities and Exchange Act of 1934, as
amended (the Exchange Act") shall not constitute "Control".
B. "Group Acting in Concert" includes Persons seeking to
combine or pool their voting or other interests in the Voting Stock for a
common purpose, pursuant to any contract, understanding, relationship,
agreement or other arrangement, whether written or otherwise; provided,
that a "Group Acting in Concert" shall not include the board of directors
of the Corporation in its solicitation, holding and voting of proxies
obtained by it pursuant to a solicitation under Regulation 14A of the
General Rules and Regulations under the Exchange Act.
C. "Offer" means every offer to buy or acquire, solicitation of
an offer to sell, tender offer for, or request or invitation for tender of,
Voting Stock.
D. "Person" means any individual, firm, corporation or other
entity including a Group Acting in Concert.
E. "Voting Stock" means the then outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of
directors.
SUBSECTION 6. Inapplicability to Public Offering.
This Article 10 shall not apply to the purchase of securities of the
Corporation by underwriters in connection with a public offering of such
securities.
SUBSECTION 7. References to FDIC.
In the event that the accounts of an insured institution subsidiary become
insured by the Federal Savings and Loan Insurance Corporation ("FSLIC") in lieu
of the FDIC, all references in this Article 10 to the FDIC shall be deemed to
refer to, in place of or in addition to, the FSLIC, and related references to
the Control Act and the Holding Company Act shall be deemed to be references to,
in place of or in addition to, applicable statutes relating to banks the
accounts of which are insured by the FSLIC.
ARTICLE 11. CRITERIA FOR EVALUATING CERTAIN OFFERS. The board of
directors of the Corporation, when evaluating any offer to (i) make a tender or
exchange offer for the common stock of the Corporation, (ii) merge or
consolidate the Corporation with another institution, or (iii) purchase or
otherwise acquire all or substantially all of the properties and assets of the
Corporation, shall, in connection with the exercise of its judgment in
determining what is in the best interests of the Corporation and its
shareholders, give due consideration to all relevant factors, including without
limitation the economic effects of acceptance of such offer on (a) depositors,
borrowers and employees of the insured institution subsidiary or subsidiaries of
the Corporation, and on the communities in which such subsidiary or subsidiaries
operate or are located and (b) the ability of such subsidiary or subsidiaries to
fulfill the objectives of an insured institution under applicable Connecticut
statutes and regulations.
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ARTICLE 12. CERTAIN BUSINESS COMBINATIONS. The votes of shareholders
and directors required to approve any Business Combination shall be as set forth
in this Article 12. The term "Business Combination" is used as defined in
Subsection 1 of this Article 12. All other capitalized terms not otherwise
defined in this Article 12 or elsewhere in this Certificate of Incorporation are
used as defined in Subsection 3 of this Article 12.
SUBSECTION 1. Vote Required for Certain Business
Combinations.
A. HIGHER VOTE FOR CERTAIN BUSINESS COMBINATIONS. In addition
to any affirmative vote required by law or this Certificate of
Incorporation, and except as otherwise expressly provided in Subsection 2
of this Article 12:
(i) any merger, consolidation or share exchange of the
Corporation or any Subsidiary (as hereinafter defined) with
(a) any Interested Shareholder (as hereinafter defined) or
(b) any other corporation (whether or not itself an Interested
Shareholder) which is, or after the merger, consolidation or
share exchange would be, an Affiliate or Associate (as the terms
are hereinafter defined) of such Interested Shareholder prior to
the transaction; or
(ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition other than in the usual and regular
course of business (in one transaction or a series of
transactions in any twelve-month period) to any Interested
Shareholder or any Affiliate or Associate of such Interested
Shareholder, other than the Corporation or any of its
Subsidiaries, of any assets of the Corporation or any Subsidiary
having, measured at the time the transaction or transactions are
approved by the board of directors of the Corporation, an
aggregate book value as of the end of the Corporation's most
recent fiscal quarter of ten percent or more of the total Market
Value (as hereinafter defined) of the outstanding shares of the
Corporation or of its net worth as of the end of its most recent
fiscal quarter; or
(iii) the issuance or transfer by the Corporation, or
any Subsidiary (in one transaction or a series of transactions)
of any equity securities of the Corporation or any Subsidiary
having an aggregate Market Value of five percent or more of the
total Market Value of the outstanding shares of the Corporation
to any Interested Shareholder or any Affiliate or Associate of
any Interested Shareholder, other than the Corporation or any of
its Subsidiaries, except pursuant to the exercise of warrants,
rights or options to subscribe to or purchase securities offered,
issued or granted pro rata to all holders of the Voting Stock (as
hereinafter defined) of the Corporation or any other method
afforded substantially proportionate treatment to the holders of
Voting Stock; or
(iv) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation or any Subsidiary
proposed by or on behalf of an Interested Shareholder or any
Affiliate or Associate of such Interested Shareholder, other than
the Corporation or any of its Subsidiaries; or
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(v) any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation, or
any merger or consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not with or
into or otherwise involving an Interested Shareholder) which has
the effect, directly or indirectly, in one transaction or a
series of transactions, of increasing the proportionate amount of
the outstanding shares of any class of equity or convertible
securities of the Corporation or any Subsidiary which is directly
or indirectly owned by any Interested Shareholder or any
Affiliate or Associate of any Interested Shareholder, other than
the Corporation or any of its Subsidiaries;
shall first be approved by the board of directors and then be approved by
affirmative vote of at least (a) the holders of 80 percent of the total
number of outstanding shares of Voting Stock and (b) the holders of
two-thirds of the voting power of the outstanding shares of Voting Stock,
excluding for purposes of calculating the affirmative vote and the total
number of outstanding shares of Voting Stock under this clause (b), all
shares of Voting Stock of which the beneficial owner is the Interested
Shareholder involved in the Business Combination or any Affiliate or
Associate of such Interested Shareholder. Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that a
lesser percentage may be specified by law.
B. DEFINITION OF "BUSINESS COMBINATION". The term "Business
Combination" as used in this Article 12 shall mean any transaction which is
referred to in any one or more of clauses (i) through (v) of paragraph A of
this Subsection 1.
SUBSECTION 2. When Higher Vote Is Not Required.
The provisions of Subsection 1 of this Article 12 shall not be applicable
to any particular Business Combination, and such Business Combination shall
require only such affirmative vote as is required by law and any other provision
of this Certificate of Incorporation, if all of the conditions specified in
either paragraph A or paragraph B are met:
A. APPROVAL BY CONTINUING DIRECTORS. The Business Combination
shall have been approved by at least two-thirds of the Continuing Directors
(as hereinafter defined) then in office at a duly constituted meeting of
the board of directors of the Corporation called for such purpose.
B. PRICE AND PROCEDURE REQUIREMENTS. All of the following
conditions shall have been met:
(i) The aggregate amount of the cash and the Market
Value as of the Valuation Date (as hereinafter defined) of the
Business Combination of consideration other than cash to be
received per share by holders of common stock in such Business
Combination shall be at least equal to the highest of the
following:
(a) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Interested Shareholder for
any shares of common stock acquired by it (1) within the two-year
period immediately prior to the first public announcement of the
proposal of the Business Combination (the "Announcement Date") or
(2) in the
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transaction in which it became an Interested Shareholder, whichever
is higher; or
(b) the Market Value per share of common stock of
the same class or series on the Announcement Date or on the date
on which the Interested Shareholder became an Interested
Shareholder (such latter date is referred to in this Article 12
as the "Determination Date"), whichever is higher; or
(c) the price per share equal to the Market Value
per share of common stock of the same class or series determined
pursuant to subdivision (i)(b) hereof, multiplied by the fraction
of (1) the highest per share price (including brokerage
commissions, transfer taxes and soliciting dealer's fees) paid by
the Interested Shareholder for any shares of common stock of the
same class or series acquired by it within the two-year period
immediately prior to the Announcement Date, over (2) the Market
Value per share of common stock of the same class or series on
the first day in such two-year period on which the Interested
Shareholder acquired shares of common stock.
(iii) The consideration to be received by holders of a
particular class or series of outstanding Voting Stock shall be
in cash or in the same form as the Interested Shareholder has
previously paid for shares of such class or series of Voting
Stock. If the Interested Shareholder has paid for shares of any
class or series of Voting Stock with varying forms of
consideration, the form of consideration for such class or series
of Voting Stock shall be either cash or the form used to acquire
the largest number of shares of such class or series of Voting
Stock previously acquired by it.
(iv) After such Interested Shareholder has become an
Inter-ested Shareholder and prior to the consummation of such
Business Combination: (a) there shall have been no failure to
declare and pay at the regular date therefor any full quarterly
dividends (whether or not cumulative) on any outstanding
preferred stock of the Corporation; (b) there shall have been (1)
no reduction in the annual rate of dividends paid on any class or
series of the capital stock of the Corporation (except as
necessary to reflect any sub-division of the capital stock), and
(2) an increase in such annual rate of dividends as necessary to
reflect any reclassification (including any reverse stock split),
recapitalization, reorganiza-tion or any similar transaction
which has the effect of reducing the number of outstanding shares
of common stock; and (c) such Interested Shareholder shall have
not become the beneficial owner of any additional shares of
capital stock except as part of the transaction which results in
such Interested Shareholder becoming an Interested Shareholder or
by virtue of proportionate stock splits or stock dividends.
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The provisions of subdivision (iv)(a) and (iv)(b) of this subsection
do not apply if the Interested Shareholder or any Affiliate or Associate of
the Interested Shareholder voted as a director of the Corporation in a
manner inconsistent with such subdivisions, and the Interested Shareholder,
within ten days after any act or failure to act inconsistent with such
subdivisions, notifies the board of directors of the Corporation in writing
that the Interested Shareholder disapproves thereof and requests in good
faith that the board of directors rectify such act or failure to act.
(v) After such Interested Shareholder has become an
Interested Shareholder, such Interested Shareholder shall not
have received the benefit, directly or indirectly (except
proportionately as a shareholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by the Corporation or
any of its Subsidiaries (whether in anticipation of or in
connection with such Business Combination or otherwise).
(vi) A proxy or information statement describing the
proposed Business Combination and complying with the requirements
of the Securities Exchange Act of 1934 and the rules and
regulations thereunder (or any subsequent provisions replacing
such Act, rules or regulations) shall be mailed to public
shareholders of the Corporation at least 20 days prior to the
consummation of such Business Combination (whether or not such
proxy or information statement is required to be mailed pursuant
to such Act or subsequent provisions).
SUBSECTION 3. Certain Definitions.
For the purposes of this Article 12:
A. A "person" shall mean any individual, firm, corporation or other
entity.
B. "Interested Shareholder" shall mean any person (other than the
Corporation or any Subsidiary) who or which:
(i) is the beneficial owner, directly or indirectly, of 10
percent or more of the voting power of the then outstanding Voting
Stock; or
(ii) is an Affiliate of the Corporation and at any time
within the two-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly, of ten
percent or more of the voting power of the then outstanding
Voting Stock.
C. "Beneficial owner", when used with respect to any Voting Stock,
means a person:
(i) that, individually or with any of its Affiliates or
Associates, beneficially owns Voting Stock directly or
indirectly; or
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(ii) that, individually or with any of its Affiliates or
Associates, has (a) the right to acquire Voting Stock (whether such
right is exercisable immediately or only after passage of time),
pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options,
or otherwise; (b) the right to vote or direct the voting of Voting
Stock pursuant to any agreement, arrangement or understanding; or (c)
the right to dispose of or to direct the disposition of Voting Stock
pursuant to any agreement, arrangement or understanding; or
(iii) that, individually or with any of its Affiliates or
Associates, has any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or disposing of Voting
Stock with any other person that beneficially owns, or whose
Affiliates or Associates beneficially own, directly or
indirectly, such shares of Voting Stock.
D. For the purposes of determining whether a person is an Interested
Shareholder pursuant to paragraph B of this subsection 3, the number of
shares of Voting Stock deemed to be outstanding shall include shares deemed
owned through application of paragraph C of this subsection 3 but shall not
include any other shares of Voting Stock which may be issuable pursuant to
any agreement, arrangement or understanding, or upon exercise of conversion
rights, warrants or options, or otherwise.
E. "Affiliate" means a person that directly or indirectly through
one or more intermediaries controls, or is controlled by, or is under
common control, with a specified person.
F. "Associate", when used to indicate a relationship with any
person, means: (1) any domestic or foreign corporation or organization,
other than the Corporation or a subsidiary of the Corporation, of which
such person is an officer, director or partner or is, directly or
indirectly, the beneficial owner of ten percent or more of any class of
equity securities; (2) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as a
trustee or in a similar fiduciary capacity; and (3) any relative or spouse
of such person, or any relative of such spouse who has the same home as
such person or who is a director or officer of the Corporation or any of
its Affiliates.
G. "Subsidiary" means any corporation of which Voting Stock having a
majority of the votes entitled to be cast is owned, directly or indirectly,
by the Corporation.
H. "Continuing Director" means any member of the board of directors
of the Corporation who is unaffiliated with the Interested Shareholder and
was a member of the board of directors of the Corporation prior to the time
that the Interested Shareholder (including any Affiliate or Associate of
such Interested Shareholder) became an Interested Shareholder, and any
successor of a Continuing Director who is unaffiliated with the Interested
Shareholder and is recommended to succeed a Continuing Director by a
majority of Continuing Directors then on the board of directors of the
Corporation.
I. "Market Value" means:
(i) in the case of stock, the highest closing sale price
during the 30-day period immediately preceding the date in
question
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of a share of such stock on the composite tape for New York Stock
Exchange - listed stocks, or, if such stock is not quoted on the
composite tape, or the New York Stock Exchange, or, if such stock
is not listed on such exchange, the principal United States
securities exchange registered under the Securities Exchange Act
of 1934 on which such stock is listed, or, if such stock is not
listed on any such exchange, the highest closing sales price or
bid quotation with respect to a share of such stock during the
30-day period preceding the date in question on the National
Association of Securities Dealers, Inc. Automated Quotations
System or any system then in use, or if no such quotations are
available, the fair market value on the date in question of a
share of such stock as determined by the board of directors of
the Corporation in good faith; and
(ii) in the case of property other than cash or stock, the
fair market value of such property on the date in question as
determined by a majority of the board of directors of the
Corporation in good faith.
J. "Valuation Date" means: (a) for a business combination voted on
by shareholders, the latter of the day prior to the date of the
shareholders vote or the date twenty-days prior to the consummation of the
Business Combination; and (b) for a Business Combination not voted upon by
the shareholders, the date of the consummation of the Business Combination.
K. "Voting Stock" means the then outstanding shares of capital stock
of the Corporation entitled to vote generally in the election of directors.
L. In the event of any Business Combination in which the Corporation
is the surviving corporation, the phrase "consideration other than cash to
be received" as used in paragraphs B(i) and B(ii) of Subsection 2 of this
Article 12 shall include the shares of common stock and/or the shares of
any other class or series of outstanding Voting Stock retained by the
holders of such shares.
SUBSECTION 5. No Effect on Fiduciary Obligations
of Interested Shareholders.
Nothing contained in this Article 12 shall be construed to relieve any
Interested Shareholder from any fiduciary obligation imposed by law.
ARTICLE 13. ANTI-GREENMAIL. Any direct or indirect purchase or other
acquisition by the Corporation of any Voting Stock (as defined in Article 12
hereof) from any Significant Shareholder (as hereinafter defined) who has been
the beneficial owner (as defined in Article 12 hereof) of such Voting Stock for
less than two years prior to the date of such purchase or other acquisition
shall, except as hereinafter expressly provided, require the affirmative vote of
the holders of at least a majority of the total number of outstanding shares of
Voting Stock, excluding in calculating such affirmative vote and the total
number of outstanding shares all Voting Stock beneficially owned by such
Significant Shareholder. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law, but no such affirmative vote shall be
required with respect to any purchase or other acquisition of Voting
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Stock made as part of a tender or exchange offer by the Corporation to purchase
Voting Stock on the same terms from all holders of the same class of Voting
Stock on the same terms from all holders of the same class of Voting Stock and
complying with the applicable requirements of the Securities Exchange Act of
1934 and the rules and regulations thereunder.
For the purposes of this Article 13, "Significant Shareholder" shall mean
any person (other than the Corporation or any corporation of which a majority of
any class of Voting Stock is owned, directly or indirectly, by the Corporation)
who or which is the beneficial owner, directly or indirectly, of five percent or
more of the voting power of the outstanding Voting Stock.
ARTICLE 14. SHAREHOLDER ACTION. Any action required or permitted to be
taken by the shareholders of the Corporation must be effected at a duly called
annual or special meeting of such holders and may not be affected by any consent
in writing by such holders.
ARTICLE 15. AMENDMENT OF CERTIFICATE OF INCORPORATION. Except as set
forth in this Article 15 or as otherwise specifically required by law, no
amendment of any provision of this Certificate of Incorporation shall be made
unless such amendment has been first proposed by the board of directors of the
Corporation upon the affirmative vote of at least two-thirds of the directors
then in office at a duly constituted meeting called for such purpose and
thereafter approved by the shareholders of the Corporation by the affirmative
vote of the holders of at least a majority of the shares entitled to vote
thereon at a duly called annual or special meeting; provided, however, that if
such amendment is to the provisions set forth in this Article 15 or in Article
6, 7, 8, 10, 11, 12, 13 or 14 hereof, such amendment must be approved by the
affirmative vote of the holders of at least two-thirds of the shares entitled to
vote thereon rather than a majority; provided, further, that if there are one or
more Interested Shareholders (as defined in Article 12 hereof), the provisions
set forth in Article 12 may be repealed or amended only with the affirmative
vote both of (a) the holders of at least 80 percent of the total number of
outstanding shares of Voting Stock (as defined in Article 12 hereof), and (b)
the holders of at least two-thirds of the total number of outstanding shares of
Voting Stock, excluding for purposes of calculating both the affirmative vote
and the number of outstanding shares of Voting Stock under this clause (b) all
the shares of Voting Stock of which the beneficial owner is an Interested
Shareholder or an Affiliate or Associate of such Interested Shareholder (as such
terms are defined in Article 12 hereof).
ARTICLE 16. LIMITATION ON DIRECTOR LIABILITY. No director of the
Corporation shall be personally liable to the Corporation or its shareholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of director's duty of loyalty to the Corporation or
its shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the General Corporation Law of Delaware for approval of an unlawful dividend or
an unlawful stock purchase or redemption, or (iv) for any transaction from which
the director derived an improper personal benefit. Any repeal or modification
of this paragraph by the shareholders of the Corporation shall be prospective
only, and shall not adversely affect any limitation on the personal liability of
a director of the Corporation for acts or omissions occurring prior to the
effective date of such repeal or modification.
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IN WITNESS WHEREOF, DS Bancor, Inc. has caused this certificate to be
signed by Harry P. DiAdamo Jr., its President and Chief Executive Officer, and
attested by John F. Costigan, its Corporate Secretary, this 10th day of July ,
1987.
DS BANCOR, INC.
By: (signed)
-------------------------------------
Harry P. DiAdamo Jr.
President and Chief Executive Officer
ATTEST:
By: (signed)
----------------------------------
John F. Costigan
Corporate Secretary
Amendments approved by Shareholders 5/05/88,
7/27/88 and 4/25/90 are incorporated herein
57.
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EXHIBIT 3.2
BYLAWS
OF
DS BANCOR, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICE. The registered office of the Corporation
shall be in the city of Dover, County of Kent, State of Delaware.
Section 2. OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the State of Delaware as the board of
directors may from time to time determine.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders for the election
of directors or for any other purpose shall be held at such time and place,
either within or without the State of Delaware, as shall be designated from time
to time by the board of directors and stated in the notice of the meeting or in
a duly executed waiver of notice thereof.
Section 2. ANNUAL MEETINGS. The annual meetings of shareholders shall be
held at 306 South State Street, Dover, Delaware, on the fourth Wednesday of
April at 4:00 p.m. or at such other place, within or without the State of
Delaware, date and hour time as shall be designated from time to time by the
board of directors and stated in the notice of the meeting, at which meetings
the shareholders shall elect by a plurality vote successors to that class of
directors whose terms shall have expired and transact such other business as may
properly be brought before the meeting. Written notice of the annual meeting
stating the place, date and hour of the meeting shall be given to each
shareholder entitled to vote at such meeting not less than 20 nor more than 50
days before the date of the meeting.
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Section 3. BUSINESS AT ANNUAL MEETING. At an annual meeting of the share-
holders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the board of directors, (b) otherwise
properly brought before the meeting by or at the direction of the board of
directors or (c) otherwise properly brought before the meeting by a shareholder.
For business to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof in writing to
the secretary of the Corporation. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than 30 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 45 days' notice or prior
public disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be so received not later than the
close of business on the 15th day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure was made. A
shareholder's notice to the secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (a) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (b) the name and address, as
they appear on the Corporation's books, of the shareholder proposing such
business, (c) the class and number of shares of the Corporation which are
beneficially owned by the shareholder and (d) any material interest of the
shareholder in such business. Notwithstanding anything in these bylaws to the
contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 3. The chairman of an
annual meeting shall, if the facts warrant, determine and declare to the annual
meeting that a matter of business was not properly brought before the meeting in
accordance with the provisions of this Section 3, and if he should so determine,
he shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted.
Section 4. SPECIAL MEETINGS. Unless otherwise prescribed by law or by the
Certificate of Incorporation, special meetings of shareholders, for any purpose
or purposes, may be called by the president and shall be called at the request
of a majority of the directors then in office. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the
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meeting is called shall be given not less than 20 nor more than 50 days before
the date of the meeting to each shareholder entitled to vote at such meeting.
Section 5. QUORUM. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of one-third of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
shareholders for the transaction of business. If, however, such quorum shall
not be present or represented at any meeting of the shareholders, the
shareholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time to another time
and place, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might have
been transacted at the meeting as originally noticed. If the adjournment is for
more than 30 days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
shareholder entitled to vote at the meeting.
Section 6. VOTING. Except as otherwise required by law, the Certificate
of Incorporation or these bylaws, any matter brought before any meeting of
shareholders shall be decided by the affirmative vote of the majority of the
votes cast on the matter at a meeting at which a quorum is present. Each
shareholder represented at a meeting of shareholders shall be entitled to cast
one vote for each share of the capital stock entitled to vote thereat held by
such shareholder. The board of directors, in its discretion, may require that
any votes cast at such meeting shall be cast by written ballot.
Section 7. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of shareholders, a complete
list of the shareholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each shareholder and the number
and class of shares registered in the name of each shareholder. Such list shall
be open to the examination of any shareholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held.
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The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any shareholder of the
Corporation who is present.
Section 8. STOCK LEDGER. The stock ledger of the Corporation shall be the
only evidence as to who are the shareholders entitled to examine the list
required by Section 7 of this Article II or to vote in person or by proxy at any
meeting of shareholders.
Section 9. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or his duly authorized
attorney-in-fact. Proxies solicited on behalf of the board of directors shall
be voted as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid
after three years from its date, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is irrevocable
and if, only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power.
Section 10. VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS. If
shares or other securities having voting power stand of record in the names of
two or more persons, whether fiduciaries, members of a partnership, joint
tenants, tenants in common, tenants by the entirety or otherwise, or if two or
more persons have the same fiduciary relationship respecting the same shares,
unless the secretary of the Corporation is given written notice to the contrary
and is furnished with a copy of the instrument or order appointing them or
creating the relationship wherein it is so provided, their acts with respect to
voting shall have the following effect: (1) if only one votes, his act binds
all; (2) if more than one vote, the act of the majority so voting binds all; (3)
if more than one vote, but the vote is evenly split on any particular matter,
each faction may vote the securities in question proportionally, or any person
voting the shares, or a beneficiary, if any, may apply to the Court of Chancery
of the State of Delaware or such other court as may have jurisdiction to appoint
an additional person to act with the persons so voting the shares, which shall
then be voted as determined by a majority of such persons and the person
appointed by the Court. If the instrument so filed shows that any such tenancy
is held in unequal interests, a majority or even-split for the purposes of this
subsection shall be a majority or even-split in interest.
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Section 11. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the
name of another corporation may be voted by any officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him, but no
trustee shall be entitled to vote shares held by him without a transfer of such
shares into his name. Shares standing in the name of a receiver may be voted by
such receiver, and shares held by or under the control of a receiver may be
voted by such receiver without the transfer into his name if authority so to do
is contained in an appropriate order of the court or other public authority by
which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares unless in the transfer by the pledgor on the books of the Corporation he
has expressly empowered the pledgee to vote thereon, in which case only the
pledgee, or his proxy, may represent such stock and vote thereon.
Neither treasury shares of its own stock held by the Corporation, nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the
Corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
Section 12. INSPECTORS OF ELECTION. In advance of any meeting of share-
holders, the board of directors may appoint any persons other than nominees for
office as inspectors of election to act at such meeting or any adjournment
thereof. The number of inspectors shall be either one or three. If the board of
directors so appoints either one or three such inspectors, that appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, and on the request of
not less than ten percent of the votes represented at the meeting shall, make
such appointments at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting or by the chairman of the board or the
president.
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Unless otherwise prescribed by law, the duties of such inspectors shall
include: determining the number of shares of stock entitled to vote, the voting
power of each share, the shares of stock represented at the meeting, the
existence of a quorum, the authenticity, validity and effect of proxies;
receiving votes, ballots or consents; hearing and determining all challenges and
questions in any way arising in connection with the right to vote; counting and
tabulating all votes or consents; determining the result; and such acts as may
be proper to conduct the election or the vote with fairness to all shareholders.
Section 13. CONDUCT OF MEETINGS. Annual and special meetings shall be
conducted in accordance with rules prescribed by the presiding officer of the
meeting, unless otherwise prescribed by law or these bylaws. The board of
directors shall designate, when present, either the chairman of the board or the
president to preside at such meetings.
ARTICLE III
DIRECTORS
Section 1. NUMBER AND ELECTION OF DIRECTORS. The number of directors which
shall constitute the whole board shall not be less than 9 nor more than 16 as
provided in the Certificate of Incorporation. The current board shall consist of
16 directors. Thereafter, within the limits specified, the number of directors
shall be determined by resolution of the board of directors adopted by not less
than two-thirds of the directors then in office. Directors need not be residents
of the State of Delaware.
Directors shall be elected only by shareholders at annual meetings of
shareholders, other than the initial board of directors and except as provided
in Section 2 of this Article III in the case of vacancies and newly created
directorships. Each director elected shall hold office for the term for which he
is elected and until his successor is elected and qualified or until his earlier
resignation or removal. After May 31, 1986 each director is required to own not
less than 500 shares of the common stock of the Corporation.
Section 2. CLASSES; TERMS OF OFFICE; VACANCIES. The board of directors
shall divide the directors into three classes. When the number of directors is
changed, the board of directors shall determine the class or classes to which
the increased or decreased number of directors shall be apportioned; provided,
that the directors in
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each class shall be as nearly equal in number as possible; provided, further,
that no decrease in the number of directors shall affect the term of any
director then in office.
The terms of office of the directors named in the Certificate of
Incorporation of the Corporation shall be as named therein. At the 1987 annual
meeting of shareholders and at each subsequent annual meeting of shareholders,
directors elected to succeed those whose terms are expiring shall be elected for
a term of office to expire at the third succeeding annual meeting of
shareholders and when their respective successors are elected and qualified.
Vacancies and newly created directorships resulting from any increase in
the authorized number of directors may be filled, for the unexpired term, by the
concurring vote of a majority of the directors then in office, whether or not a
quorum, and any director so chosen shall hold office for the remainder of the
full term of the class of directors in which the new directorship was created or
the vacancy occurred and until such director's successor shall have been elected
and qualified.
Section 3. DUTIES AND POWERS. The business of the Corporation shall be
managed by or under the direction of the board of directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these bylaws
directed or required to be exercised or done by the shareholders.
Section 4. MEETINGS. The board of directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. The annual regular meeting of the board of directors shall be held
without other notice than this bylaw immediately after, and at the same place
as, the annual meeting of the shareholders or upon notice at such other time and
place as may be fixed by the board of directors. Additional regular meetings of
the board of directors may be held without notice at such time and at such place
as may from time to time be determined by resolution of the board of directors.
Special meetings of the board of directors may be called by the chairman of the
board, the president or a majority of directors then in office. Notice thereof
stating the place, date and hour of the meeting shall be given to each director
either by mail not less than 48 hours before the date of the meeting, or by
telephone or telegram on 24 hours' notice.
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Section 5. QUORUM AND VOTING AT MEETINGS. Except as may be otherwise
specifically provided by law, the Certificate of Incorporation or these bylaws,
at all meetings of the board of directors, a majority of the directors then in
office shall constitute a quorum for the transaction of business and the act of
a majority of the directors present at any meeting at which there is a quorum
shall be the act of the board of directors. If a quorum shall not be present at
any meeting of the board of directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 6. ACTIONS WITHOUT MEETING. Any action required or permitted to be
taken at any meeting of the board of directors or of any committee thereof may
be taken without a meeting, if all the members of the board of directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the board of directors or
committee.
Section 7. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Members of the board
of directors of the Corporation, or any committee designated by the board of
directors, may participate in a meeting of the board of directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 7 shall constitute
presence in person at such meeting.
Section 8. COMPENSATION. The board of directors shall have the authority to
fix the compensation of directors and to provide for reasonable benefits or to
delegate such authority to an appropriate committee, irrespective of any
personal interest of one of its members. The directors may be paid their
reasonable expenses, if any, of attendance at each meeting of the board of
directors and may be paid a reasonable fixed sum for actual attendance at each
meeting of the board of directors. Directors, as such, may receive a stated
salary for their services. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
Section 9. INTERESTED DIRECTORS. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial
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interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
board of directors or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose
if (i) the material facts as to his or their relationship or interest and as to
the contract or transaction are disclosed or are known to the board of directors
or the committee, and the board of directors or committee in good faith
authorizes the contract or transaction by the affirmative votes of a majority of
the disinterested directors, even though the disinterested directors be less
than a quorum; or (ii) the material facts as to his or their relationship or
interest and as to the contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the shareholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the board of directors, a committee thereof
or the shareholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the board of directors or
of a committee which authorizes the contract or transaction.
Section 10. CORPORATE BOOKS. The directors may keep the books of the
Corporation outside of the State of Delaware at such place or places as they may
from time to time determine.
Section 11. PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the board of directors at which action on any matter is
taken shall be presumed to have assented to the action taken unless his dissent
or abstention shall be entered in the minutes of the meeting or unless he shall
file his written dissent to such action with the person acting as the secretary
of the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the secretary of the Corporation within five days after the
date he receives a copy of the minutes of the meeting. Such right to dissent
shall not apply to a director who voted in favor of such action.
Section 12. RESIGNATION. Any director may resign at any time by sending a
written notice of such resignation to the principal executive office of the
Corporation addressed to the chairman of the board, the president or the
secretary. Unless otherwise specified therein such resignation shall take effect
upon receipt thereof by the chairman or the president or the secretary.
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Section 13. NOMINEES. Only persons who are nominated in accordance with the
procedures set forth in this Section 13 shall be eligible for election as
directors. Nominations of persons for election to the board of directors of the
Corporation may be made at a meeting of shareholders by or at the direction of
the board of directors or by any shareholder of the Corporation entitled to vote
for the election of directors at the meeting who complies with the notice
procedures set forth in this Section 13. Such nominations, other than those made
by or at the direction of the board of directors, shall be made pursuant to
timely notice in writing to the secretary of the Corporation. To be timely, a
shareholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 30 days nor more
than 90 days prior to the meeting; provided, however, that in the event that
less than 45 days' notice or prior public disclosure of the date of the meeting
is given or made to shareholders, notice by the shareholder to be timely must be
so received not later than the close of business on the 15th day following the
day on which such notice of the date of the meeting was mailed or such public
disclosure was made. Such shareholder's notice shall set forth (a) as to each
person whom the shareholder proposes to nominate for election or re-election as
a director, (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the Corporation which are beneficially owned by
such person and (iv) any other information relating to such person that is
required to be disclosed in solicitations or proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including without limitation such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director, if elected); and (b) as to the shareholder giving
notice (i) the name and address, as they appear on the Corporation's books, of
such shareholder and (ii) the class and number of shares of the Corporation
which are beneficially owned by such shareholder. At the request of the board of
directors, any person nominated by the board of directors for election as a
director shall furnish to the secretary of the Corporation that information
required to be set forth in a shareholder's notice of nomination which pertains
to the nominee. No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 13. The chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with
procedures prescribed by the bylaws, and if he should so determine, he shall so
declare to the meeting and the defective nomination shall be disregarded.
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Section 14. AGE LIMITATION. No person shall be eligible for election or
re-election as a director after he has reached the age of 69 years. When any
director has reached the age of 69 years, and regardless of his remaining term
of office, he shall retire as a director at the annual meeting of shareholders
immediately following his 69th birthday, and shall be classified as an honorary
director from that time until his term as a director expires, and in the
capacity of honorary director shall retain the privilege of attending meetings,
receiving fees and participating in discussions, but shall have no vote.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
Section 1. APPOINTMENT. The board of directors, by resolution adopted by a
majority of the full board, shall designate the chief executive officer and two
or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority thereto shall not operate to relieve the board of directors, or any
director, of any responsibility imposed by law or regulation.
Section 2. AUTHORITY. The executive committee, when the board of directors
is not in session, shall have and may exercise all the powers and authority of
the board of directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it, except to the extent, if any, that such powers and
authority shall be limited by the resolution appointing the executive committee;
and except also that the executive committee shall not have the power or
authority of the board of directors with reference to amending the Certificate
of Incorporation; adopting an agreement of merger or consolidation; recommending
to the shareholders the sale, lease or exchange of all or substantially all of
the Corporation's property and assets; recommending to the shareholders a
dissolution of the Corporation or a revocation of a dissolution; amending the
bylaws of the Corporation; filling a vacancy or creating a new directorship; or
approving a transaction in which any member of the executive committee, directly
or indirectly, has any material beneficial interest; and unless the resolution
or bylaws expressly so provide, the executive committee shall not have the power
or authority to declare a dividend or to authorize the issuance of stock or
securities convertible into or exercisable for stock.
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Section 3. TENURE. Subject to the provisions of Section 8 of this Article
IV, each member of the executive committee shall hold office until the next
annual regular meeting of the board of directors following his designation and
until his successor is designated as a member of the executive committee.
Section 4. MEETINGS. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by the chairman of the executive committee, the chief executive
officer or any two members thereof upon not less than one day's notice stating
the place, date and hour of the meeting, which notice may be written or oral.
Any member of the executive committee may waive notice of any meeting and no
notice of any meeting need be given to any member thereof who attends in person.
The notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
Section 5. QUORUM AND VOTING. A majority of the members of the executive
committee shall constitute a quorum for the transaction of business at any
meeting thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present. The board of directors may elect one or more directors as
alternate members of the executive committee, who may take the place of any
absent member or members at a meeting of the committee. If a member of the
executive committee shall be absent from any meeting, or disqualified from
voting thereat, the remaining member or members present and not disqualified
from voting, whether or not such member or members constitute a quorum, may, by
unanimous vote, appoint another member of the board of directors to act at the
meeting in place of an absent or disqualified member.
Section 6. ACTION WITHOUT A MEETING. Any action required or permitted to be
taken by the executive committee at a meeting may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be signed by all
of the members of the executive committee and the writing or writings are filed
with the minutes of the proceedings of the committee.
Section 7. VACANCIES. Any vacancy in the executive committee may be filled
by a resolution adopted by a majority of the full board of directors.
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Section 8. RESIGNATIONS AND REMOVAL. Any member of the executive committee
may be removed at any time with or without cause by resolution adopted by a
majority of the full board of directors. Any member of the executive committee
may resign from the executive committee at any time by giving written notice to
the chairman of the executive committee or to the secretary of the Corporation.
Unless otherwise specified therein, such resignation shall take effect upon
receipt.
Section 9. PROCEDURE. The executive committee shall elect a chairman from
its members and may fix its own rules of procedure which shall not be
inconsistent with these bylaws. It shall keep regular minutes of its proceedings
and report the same to the full board of directors for its information at the
meeting thereof held next after the proceedings shall have been taken.
Section 10. OTHER COMMITTEES. The board of directors by resolution may
establish an audit committee and a stock option committee, composed in each case
only of directors who are not employees of the Corporation or any subsidiary
thereof. The board of directors by resolution may also establish such other
committees composed of directors as they may determine to be necessary or
appropriate for the conduct of the business of the Corporation and may prescribe
the duties and powers thereof. Such other committees shall be governed by the
provisions set forth in this Article IV for action by the executive committee.
ARTICLE V
OFFICERS
Section 1. GENERAL. The officers of the Corporation shall be chosen by the
board of directors and shall be a chairman of the board, a president, a
secretary and a treasurer. The board of directors may also designate one or more
executive vice presidents, senior vice presidents, vice presidents, assistant
vice presidents, assistant secretaries, assistant treasurers and other officers.
The offices of secretary and treasurer may be held by the same person and a vice
president may also be either the secretary or the treasurer. In no event shall
the chairman of the board, the president or the secretary be the same person.
Section 2. ELECTION. The board of directors at its first meeting held after
the annual meeting of shareholders shall elect annually the officers of the
Corporation who shall exercise such powers and perform such duties as shall be
set forth in these
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bylaws and as determined from time to time by the board of directors; and all
officers of the Corporation shall hold office until their successors are chosen
and qualified, or until their earlier resignation or removal. Any officer
elected by the board of directors may be removed at any time by the affirmative
vote of a majority of the board of directors. Any vacancy occurring in any
office of the Corporation shall be filled by the board of directors. The
salaries of all officers of the Corporation shall be fixed by the board of
directors or delegated to an appropriate committee.
Section 3. REMOVAL. Any officer may be removed by the board of directors
whenever in its judgment the best interests of the Corporation will be served
thereby, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed.
Section 4. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of attorney,
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation by the chairman of the board, the president or any
vice president and any such officer may, in the name of and on behalf of the
Corporation, take all such action as any such officer may deem advisable to vote
in person or by proxy at any meeting of security holders of any corporation in
which the Corporation may own securities and at any such meeting shall possess
and may exercise any and all rights and powers incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have exercised
and possessed if present. The board of directors may, by resolution, from time
to time confer like powers upon any other person or persons.
Section 5. CHAIRMAN OF THE BOARD. The directors shall appoint a director to
the position of chairman of the board. The chairman shall, when present, preside
at all meetings of the board of directors and shall perform such other duties
and have such other power as may be vested in the chairman of the board by the
board of directors.
Section 6. PRESIDENT. The president shall be a director of the Corporation
and shall serve as the chief executive officer of the Corporation. The president
shall, subject to the control of the board of directors, exercise general
supervision and direction over the business and affairs of the Corporation and
shall see that all orders and resolutions of the board of directors are carried
into effect. He shall execute all bonds, mortgages, contracts and other
instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted
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by law to be otherwise signed and executed and except that the other officers
of the Corporation may sign and execute documents when so authorized by these
bylaws, the board of directors or the president. The president shall be an ex
officio member of all committees of the board of directors, except the audit
committee and the stock option committee, and shall preside at all meetings
of the shareholders. The president shall also perform such other duties and
may exercise such other powers as from time to time may be assigned to him by
these bylaws or by the board of directors.
Section 7. VICE PRESIDENTS. At the request of the president or in his
absence or inability to act, the vice president or the vice presidents if
there is more than one (in the order designated by the board of directors)
shall perform the duties of the president. Each vice president shall perform
such other duties and have such other powers as the board of directors or the
president from time to time may prescribe.
Section 8. SECRETARY. The secretary shall attend all meetings of the board
of directors and all meetings of shareholders and record all the proceedings
thereat in a book or books to be kept for that purpose; the secretary shall also
perform like duties for the standing committees when required. The secretary
shall give, or cause to be given, notice of all meetings of the shareholders and
of the board of directors, and shall perform such other duties as may be
prescribed by the board of directors or the president, under whose supervision
the secretary shall serve. The secretary shall have custody of the seal of the
Corporation and shall have authority to affix the same to any instrument
requiring it and when so affixed, it may be attested by the signature of the
secretary. The board of directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
signature. The secretary shall see that all books, reports, statements,
certificates and other documents and records required by law to be kept or filed
are properly kept or filed, as the case may be.
Section 9. TREASURER. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the board of directors. The treasurer
shall disburse the funds of the Corporation as may be ordered by the president
or the board of directors, taking proper vouchers for such disbursements, and
shall render to the president and to the board of directors, at its regular
meetings, or when the president
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or the board of directors so requires, an account of all his transactions as
treasurer and of the financial condition of the Corporation.
Section 10. ASSISTANT SECRETARIES. Assistant secretaries, if there be any,
shall perform such duties and have such powers as from time to time may be
assigned to them by the board of directors, the president or the secretary. At
the request of the secretary or in his absence or inability the assistant
secretary shall perform the duties of the secretary.
Section 11. ASSISTANT TREASURERS. Assistant treasurers, if there be any,
shall perform such duties and have such powers as from time to time may be
assigned to them by the board of directors, the president or the treasurer. At
the request of the treasurer, or in his absence or inability to act, the
assistant treasurer shall perform the duties of the treasurer.
Section 12. OTHER OFFICERS. Such other officers as the board of directors
may choose shall perform such duties and have such powers as from time to time
may be assigned to them by the board of directors or the president. The board of
directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE VI
STOCK
Section 1. FORM OF CERTIFICATES. Every holder of stock in the Corporation
shall be entitled to have a certificate signed by, or in the name of the
Corporation by (i) the chairman of the board or the president and (ii) by the
secretary or an assistant secretary of the Corporation, representing the number
of shares registered in certificate form.
Section 2. SIGNATURES. Any or all of the signatures on a certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer at the date of
issue.
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Section 3. LOST CERTIFICATES. The president may direct a new certificate to
be issued in place of any certificate theretofore issued by the Corporation
alleged to have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming the certificate of stock to be lost, stolen
or destroyed. When authorizing such issue of a new certificate, the president
may, in his discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate, or his legal
representative to advertise the same in such manner as the president may require
and/or to give the Corporation a bond in such sum as he may direct as indemnity
against any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
Section 4. TRANSFERS. Stock of the Corporation shall be transferable in the
manner prescribed by law and in these bylaws. Transfers of stock shall be made
on the books of the Corporation only by the person named in the certificate or
by his attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be cancelled before a new certificate shall be
issued.
Section 5. RECORD DATE. In order that the Corporation may determine the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the board of directors may fix, in advance, a record
date, which shall not be more than 60 days nor less than 25 days before the date
of such meeting, nor more than 60 days prior to any other action. A
determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
Section 6. BENEFICIAL OWNERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not the Corporation shall
have express or other notice thereof, except as otherwise required by law.
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ARTICLE VII
NOTICES
Section 1. NOTICES. Whenever written notice is required by law, the
Certificate of Incorporation or these bylaws, to be given to any director,
member of a committee or shareholder, such notice may be given by mail,
addressed to such director, member of a committee or shareholder, at his address
as it appears on the records of the Corporation, with postage thereon prepaid,
and such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Written notice may also be given personally
or by telegram, telex or cable.
Section 2. WAIVERS OF NOTICE. Whenever any notice is required by law, the
Certificate of Incorporation or these bylaws, to be given to any director,
member of a committee or shareholder, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
Attendance of a person at a meeting shall constitute a waiver of notice of
such meeting, except when the person attends a meeting with the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the shareholders, directors, or members of a committee of directors need be
specified in any waiver of notice unless so required by the Certificate of
Incorporation or these bylaws.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. DIVIDENDS. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation and the laws of
the State of Delaware, may be declared by the board of directors at any regular
or special meeting and may be paid in cash, in property, or in shares of the
capital stock.
Subject to the provisions of the General Corporation Law of the State of
Delaware, such dividends may be paid either out of surplus, out of the net
profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year.
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Section 2. DISBURSEMENTS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
Section 3. FISCAL YEAR. The fiscal year of the Corporation shall be
December 31.
Section 4. CORPORATE SEAL. The corporate seal shall have inscribed thereon
the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE IX
INDEMNIFICATION
Section 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER THAN
THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this
Article IX, the Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, and any appeal therein, whether civil, criminal,
administrative, arbitrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that he is or was a
director, officer, trustee, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer,
trustee, employee or agent of another corporation, association, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines, penalties and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit
or proceeding, and any appeal therein, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The termination
of any action, suit or proceeding, and any appeal therein, by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in
or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
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Section 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR IN THE
RIGHT OF THE CORPORATION. Subject to Section 3 of this Article IX, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, trustee, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against amounts paid in
settlement and expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit, if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation; provided, however, that
no indemnification shall be made against expenses in respect of any claim, issue
or matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his duty to the Corporation or
against amounts paid in settlement unless and only to the extent that there is a
determination (as set forth in Section 3 of this Article IX) that despite the
adjudication of liability or the settlement, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses or amounts paid in settlement.
Section 3. AUTHORIZATION OF INDEMNIFICATION. Any indemnification under this
Article IX (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, trustee, employee or agent is proper in the circumstances
because such director, officer, trustee, employee or agent has met the
applicable standard of conduct set forth in Section 1 or Section 2 of this
Article IX and, if applicable, is fairly and reasonably entitled to indemnity as
set forth in the proviso in Section 2 of this Article IX, as the case may be.
Such determination shall be made (i) by the board of directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding, (ii) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (iii) by the shareholders. To the extent,
however, that a director, officer, trustee, employee or agent of the Corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith, without the necessity of
authorization in the
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specific case. No director, officer, trustee, employee or agent of the
Corporation shall be entitled to indemnification in connection with any action,
suit or proceeding voluntarily initiated by such person unless the action, suit
or proceeding was authorized by a majority of the entire board of directors.
Section 4. GOOD FAITH DEFINED. For purposes of any determination under
Section 3 of this Article IX, a person shall be deemed to have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his conduct was
unlawful, if his action is based on the records or books of account of the
Corporation or another enterprise, or on information supplied to him by the
officers of the Corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the Corporation or another
enterprise or on information or records given or reports made to the
Corporation or another enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care
by the Corporation or another enterprise. The term "another enterprise" as
used in this Section 4 shall mean any other corporation or any association,
partnership, joint venture, trust or other enterprise of which such person is
or was serving at the request of the Corporation as a director, officer,
trustee, employee or agent. The provisions of this Section 4 shall not be
deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standards of conduct set
forth in Sections 1 or 2 of this Article IX, as the case may be.
Section 5. INDEMNIFICATION BY A COURT. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article IX, and
notwithstanding the absence of any determination thereunder, any director,
officer, trustee, employee or agent may apply to any court of competent
jurisdiction in the State of Delaware for indemnification to the extent
otherwise permissible under Sections 1 and 2 of this Article IX. The basis of
such indemnification by a court shall be a determination by such court that
indemnification of the director, officer, trustee, employee or agent is proper
in the circumstances because he has met the applicable standards of conduct set
forth in Sections 1 and 2 of this Article IX, as the case may be. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. Notwithstanding any of
the foregoing, unless otherwise required by law, no director, officer, trustee,
employee or agent of the Corporation shall be entitled
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to indemnification in connection with any action, suit or proceeding voluntarily
initiated by such person unless the action, suit or proceeding was authorized by
a majority of the entire board of directors.
Section 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred in connection
with a threatened or pending action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the board of directors in the specific case upon
receipt of an undertaking by or on behalf of the director, officer, trustee,
employee or agent to repay such amount unless it shall be determined that he is
entitled to be indemnified by the Corporation as authorized in this Article IX.
Section 7. CONTRACT, NON-EXCLUSIVITY AND SURVIVAL OF INDEMNIFICATION. The
indemnification provided by this Article IX shall be deemed to be a contract
between the Corporation and each director, officer, employee and agent who
serves in such capacity at any time while this Article IX is in effect, and any
repeal or modification thereof shall not affect any rights or obligations then
existing with respect to any state of facts then or theretofore existing or any
action, suit or proceeding theretofore or thereafter brought based in whole or
in part upon any such state of facts. Further, the indemnification provided by
this Article IX shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any certificate of incorporation,
bylaw, agreement, contract, vote of shareholders or disinterested directors or
pursuant to the direction (howsoever embodied) of any court of competent
jurisdiction or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, it being the policy of the
Corporation that, subject to the limitation in Section 3 of this Article IX
concerning voluntary initiation of actions, suits or proceedings,
indemnification of the persons specified in Sections 1 and 2 of this Article IX
shall be made to the fullest extent permitted by law. The provisions of this
Article IX shall not be deemed to preclude the indemnification of any person who
is not specified in Sections 1 or 2 of this Article IX but whom the Corporation
has the power or obligation to indemnify under the provisions of the law of the
State of Delaware. The indemnification provided by this Article IX shall
continue as to a person who has ceased to be a director, officer, trustee,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such person.
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Section 8. INSURANCE. The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, trustee, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, trustee, employee or agent of another corporation,
association, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have the
power or the obligation to indemnify him against such liability under the
provisions of this Article IX.
Section 9. MEANING OF "CORPORATION" FOR PURPOSES OF ARTICLE IX. For
purposes of this Article IX, references to "the Corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, association,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Article IX with respect to the resulting
or surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
ARTICLE X
AMENDMENTS
The board of directors or the shareholders may from time to time amend the
bylaws of the Corporation. Such action by the board of directors shall require
the affirmative vote of at least two-thirds of the directors then in office at a
duly constituted meeting of the board of directors called for such purpose. Such
action by the shareholders shall require the affirmative vote of at least
two-thirds of the total votes eligible to be voted at a duly constituted meeting
of shareholders called for such purpose; provided, however, that if there are at
the time one or more Interested Shareholders (as defined in Article 12 of the
Certificate of Incorporation), in addition to such two-thirds vote, there must
be an affirmative vote for such action of not less than a majority of the voting
power of the issued and outstanding shares entitled to vote thereon held by
shareholders other than such Interested Shareholders.
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The foregoing bylaws were adopted by the board of directors on March 6,
1986.
(Signed) John F. Costigan
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Secretary
Amended 1/27/88
4/25/90
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EXHIBIT 1O.1 (a)
HARRY P. DiADAMO, JR. EMPLOYMENT AGREEMENT
AGREEMENT, dated as of December 3, 1985, between Derby Savings Bank, a
Connecticut-chartered savings bank located in Derby, Connecticut, (the "Bank")
and Harry P. DiAdamo, Jr., of Orange, Connecticut (the "Employee").
WHEREAS, the Employee is currently serving as President (Chief
Executive Officer) and Treasurer of the Bank;
WHEREAS, the Board of Directors of the Bank has approved and
authorized the entry into this Agreement with the Employee;
WHEREAS, this Agreement shall supercede the existing employment
agreement, dated December 21, 1984, between the Bank and the Employee;
WHEREAS, the parties desire to enter into this Agreement setting forth
the terms and conditions for the employment relationships of the Employee with
the Bank.
NOW, THEREFORE, it is AGREED as follows:
1. EMPLOYMENT. The Employee is employed as President (Chief
Executive Officer and Treasurer of the Bank from the date hereof through the
term of this Agreement. As the Chief Executive Officer of the Bank, the
Employee shall render executive, policy, and other management services to the
Bank of the type customarily performed by persons serving in similar executive
officer capacities with savings banks. The Employee shall also perform such
duties as the Board of Directors of the Bank may from time to time reasonably
direct. During the term of this Agreement, there shall be no material
increase or decrease in the duties and responsibilities of the Employee
otherwise than as provided herein, unless the parties otherwise agree in
writing. During the term of this Agreement, the Employee shall not be
required to relocate outside of New Haven County in order to perform the
services hereunder.
2. COMPENSATION. The Bank agrees to pay the Employee during the
term of this Agreement a salary as follows: from the date hereof through
December 31, 1985, a salary at an annual rate equal to $95,000, with the salary
to be increased on January 1 of each year during the term of this Agreement as
determined by the Board of Directors of the Bank, but not less than by 6% over
the prior year's salary. In determining salary increases, the Board of
Directors of the
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Bank shall compensate the Employee for increases in the cost of living and may
also provide for performance or merit increases. The salary of the Employee
shall not be decreased at any time during the term of this Agreement from the
amount then in effect, unless the Employee otherwise agrees in writing.
Participation in deferred compensation, discretionary bonus, retirement, and
other employee benefit plans and in fringe benefits shall not reduce the salary
payable to the Employee under this Section 2. The salary under this Section 2
shall be payable to the Employee not less frequently than bi-weekly.
3. DISCRETIONARY BONUSES. During the term of this Agreement, the
Employee shall be entitled to participate in an equitable manner with all other
executive employees of the Bank in such discretionary bonuses as may be
authorized, declared, and paid by the Board of Directors of the Bank to its
executive employees. No other compensation provided for in this Agreement shall
be deemed a substitute for the Employee's right to participate in such bonuses
when and as declared by the Board of Directors.
4. PARTICIPATION IN RETIREMENT AND EMPLOYEE BENEFIT
PLANS; FRINGE BENEFITS.
(a) The Employee shall be entitled to participate in any
plan of the Bank and its parent relating to stock options, stock purchases,
pension, thrift, profit sharing, group life insurance, medical coverage,
education, or other retirement or employee benefits that the Bank has adopted or
may adopt for the benefit of its executive employees. The Bank intends to adopt
a Stock Option Plan in connection with the conversion to stock form. If such
Stock Option Plan is adopted and the Employee is not granted options (intended
to qualify as incentive stock options) in December 1985 to purchase shares of
common stock with a fair market value of $150,000 and in January 1986 to
purchase shares of common stock with a fair market value of $100,000, the Bank
will pay to the Employee compensation equal to the fair market value of such
options, taking into account the tax benefits to the Employee of the receipt of
incentive stock options.
(b) The Employee shall also be entitled to participate in any other
fringe benefits which are now or may be or become applicable to the Bank's
executive employees, including the payment of reasonable expenses for attending
seminars and educational programs relating to the Bank's business and attending
annual and periodic meetings of trade associations or conventions (including the
associated expenses
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of his spouse), as well as any other benefits which are commensurate with the
duties and responsibilities to be performed by the Employee under this
Agreement.
(c) The Employee shall also have an expense account in the amount of
$7,500 per year, commencing on January 1 of each year, against which he may draw
to meet expenses which he has incurred in connection with his services
hereunder.
(d) The Bank shall provide the Employee with the use of an automobile
and shall pay directly, or by promptly reimbursing the Employee, all costs
incident to such use, including gas, oil, repair and maintenance.
(e) The Bank shall continue to pay the premiums on a certain whole
life insurance policy in the face amount of $125,000 owned by the Employee. The
annual premiums are approximately $1750.
(f) The Bank shall continue to pay the premiums on disability
insurance policies with Aetna Insurance Company and Federal Home Life Insurance
Company which presently cover the Employee.
5. TERM. The initial term of employment under this Agreement shall
be from the date hereof through December 31, 1989. This Agreement shall be
automatically renewed for one additional year on December 31, 1986 and on each
December 31 thereafter, unless either the Employee or the Bank gives contrary
written notice to the other party hereto prior to such anniversary date. Each
initial term and all such renewed terms are collectively referred to herein as
the term of this Agreement.
6. STANDARDS. The Employee shall perform the Employee's duties and
responsibilities under this Agreement in accordance with such reasonable
standards as may be established from time to time by the Board of Directors of
the Bank. The reasonableness of such standards shall be measured against
standards for executive performance generally prevailing in the savings bank
industry.
7. VOLUNTARY ABSENCES; VACATIONS. The Employee shall be entitled,
without loss of pay, to be absent voluntarily for reasonable periods of time
from the performance of the duties and responsibilities under this Agreement.
All such voluntary absences shall count as paid vacation time, unless the Board
of Directors of the Bank otherwise approves. The Employee shall be entitled to
an annual paid vacation of at
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<PAGE>
least four weeks per year or such longer period as the Board of Directors of the
Bank may approve. The timing of paid vacations shall be scheduled in a
reasonable manner by the Employee. The Employee shall be entitled to receive
cash compensation in lieu of two weeks of paid vacation per year. He shall not
be entitled to receive any additional compensation from the Bank on account of
failure to take the remaining two weeks of paid vacation.
8. TERMINATION OF EMPLOYMENT.
(a) (i) The Board of Directors of the Bank may terminate the
Employee's employment at any time, but any termination by the Board of Directors
other than termination for cause shall not prejudice the Employee's right to
compensation or other benefits under this Agreement. The Employee shall have no
right to receive compensation or other benefits for any period after termination
for cause. The term "termination for cause" shall mean termination because of
the Employee's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement. In determining incompetence, the acts
or omissions shall be measured against standards generally prevailing in the
savings bank industry; PROVIDED, that it shall be the Bank's burden to prove the
alleged acts and omissions and the prevailing nature of the standards the Bank
shall have alleged are violated by such acts and/or omissions.
(ii) The parties acknowledge and agree that damages which
will result to Employee for termination without cause shall be extremely
difficult or impossible to establish or prove, and agree that, unless the
termination is for cause, the Bank shall be obligated, concurrently with such
termination, to make a lump sum cash payment to the Employee as liquidated
damages of an amount equal to the Employee's then current salary under Section 2
of this Agreement calculated for a period equal to the remaining term of this
Agreement; provided, however, that if the termination of employment occurs in
connection with or as a result of a "change in control," as defined in Section
9(b) hereof, the amount payable to the Employee under this Section 8(a)(ii)
shall not exceed the amount that will be payable under Section 9(a) as limited
by Section 9(c). Employee agrees that, except for such other payments and
benefits to which the Employee may be entitled as expressly provided by the
terms of this Agreement, such
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<PAGE>
liquidated damages shall be in lieu of all other claims which Employee may make
by reason of such termination. Such payment to the Employee shall be made on or
before the Employee's last day of employment with the Bank. The liquidated
damages amount shall not be reduced by any compensation which the Employee may
receive for other employment with another employer after termination of
employment with the Bank.
(iii) In addition to the liquidated damages above
described that are payable to the Employee for termination without cause or in
the event of any termination subject to Section 9 hereof, the Employee shall
also be entitled to have all vested retirement or employee benefits and then
existing fringe benefits of the type referred to in Section 4 hereof continue
for the remaining term of this Agreement, except as otherwise required by law or
provided in the related retirement or other employee benefit plans or
agreements; PROVIDED, that, upon such termination or at the earliest date
thereafter which shall be permitted by applicable law, the Bank shall pay all
amounts necessary to fully fund as to the Employee, each and every pension,
retirement, profit-sharing, or other similar plan or fringe benefit as provided
above; and, PROVIDED further, that all insurance or other provisions for
indemnification, defense or hold-harmless of officers or directors of the Bank
which are in effect on the date the notice of termination is sent to the
Employee shall continue for the benefit of the Employee with respect to all acts
and omissions while serving as an officer or director as fully and completely as
if such termination had not occurred, and until the final expiration or running
of all periods of limitation against action which may be applicable to such acts
or omissions.
(b) The Employee shall have no right to terminate employment
under this Agreement prior to the end of the term of this Agreement, unless such
termination is approved by the Board of Directors of the Bank or is in
connection with or within two years after a change in control (as defined in
Section 9(b) hereof) of the Bank. In the event that the Employee violates this
Provision, the Bank shall be entitled, in addition to its other legal remedies,
to enjoin the employment of the Employee with any significant competitor of the
Bank for a period of one year or the remaining term of this Agreement plus six
months, whichever is less. The term "significant competitor" shall mean any
commercial bank, savings bank, savings and loan association, or mortgage banking
company, or a holding company affiliate of any of the foregoing, which at the
date of its employment of the Employee has total consolidated assets, or a loan
servicing portfolio,
- 5 -
<PAGE>
of $150 million or more and an office within thirty miles of any office of the
Bank.
(c) In the event the employment of the Employee is terminated
by the Bank without cause under Section 8(a) hereof or the Employee's employment
is terminated voluntarily or involuntarily in accordance with Section 9 hereof
and the Bank fails to make timely payment of the amounts then owed to the
Employee under this Agreement, the Employee shall be entitled to reimbursement
for all reasonable costs, including attorneys' fees, incurred by the Employee in
taking action to collect such amounts or otherwise to enforce this Agreement,
plus interest on such amounts at the rate of one percent above the prime rate
(defined as the base rate on corporate loans at large U.S. money center
commercial banks as published by the WALL STREET JOURNAL), compounded monthly,
for the period from the date of employment termination until payment is made to
the Employee. Such reimbursement and interest shall be in addition to all
rights which the Employee is otherwise entitled to under this Agreement.
(iv) Notwithstanding any other provision in this Agreement,
the Bank may terminate or suspend this Agreement and the employment of the
Employee hereunder to the extent required by the saving bank law of the State of
Connecticut, by applicable federal law relating to deposit insurance or by
regulations or orders issued by the Banking Commissioner of the State of
Connecticut or the Federal Deposit Insurance Corporation.
9. CHANGE IN CONTROL.
(a) If during the term of this Agreement there is a change in
control of the Bank, the Employee shall be entitled to receive as a severance
payment for services previously rendered to the Bank a lump sum cash payment as
provided for herein (subject to Section 9(c) below) in the event the Employee's
employment is terminated, voluntarily or involuntarily, in connection with or
within two years after the change in control of the Bank. Subject to Section
9(c) below, the amount of this payment shall equal three times the Employee's
average annual compensation which was payable by the Bank and was includible in
the Employee's gross income for federal income tax purposes with respect to the
five most recent taxable years of the Bank ending prior to such change in
control of the Bank (or such portion of such period during which the Employee
was a full-time employee of the Bank), less one dollar. Payment under this
Section 9(a) shall be in lieu of any amount owed to the Employee as liquidated
damages for
-6-
<PAGE>
termination without cause under Sections 8(a)(i) and (ii) hereof. However,
payment under this Section 9(a) shall not be reduced by any compensation which
the Employee may receive from other employment with another employer after
termination of the Employee's employment with the Bank. In addition, Section
8(a)(iii) shall apply in the case of any termination of employment within the
scope of this Section 9(a).
(b) A "change in control," for purposes of this Agreement, shall
be deemed to have taken place if: (i) any person becomes the beneficial owner of
20 percent or more of the total number of voting shares of the Bank; (ii) any
person becomes the beneficial owner of 10 percent or more, but less than 20
percent of the total number of voting shares of the Bank, if the Board of
Directors of the Bank has made a determination that such beneficial ownership
constitutes or will constitute control of the Bank; (iii) any person (other than
the persons named as proxies solicited on behalf of the Board of Directors of
the Bank) holds revocable or irrevocable proxies, as to the election or removal
of two or more directors of the Bank, for 25 percent or more of the total number
of voting shares of the Bank; (iv) any person has commenced a tender or exchange
offer, or entered into an agreement or received an option, to acquire beneficial
ownership of 20 percent or more of the total number of voting shares of the
Bank, whether or not the requisite regulatory approval for such acquisition has
been received; or (v) as the result of, or in connection with, any cash tender
or exchange offer, merger, or other business combination, sale of assets or
contested election, or any combination of the foregoing transactions, the
persons who were directors of the Bank before such transaction shall cease to
constitute at least two-thirds of the Board of Directors of the Bank or any
successor institution. For purposes of this Section 9(b), a "person" includes
an individual, corporation, partnership, trust or group acting in concert. A
person for these purposes shall be deemed to be a beneficial owner as that term
is used in Rule 13d-3 under the Securities Exchange Act of 1934.
(c) Not withstanding any other provisions of this Agreement or
of any other agreement, contract, or understanding heretofore or hereafter
entered into between the Employee and the Bank, except an agreement, contract,
or understanding hereafter entered into that expressly modifies or excludes
application of this Section 9(c) (the "Other Agreements"), and notwithstanding
any formal or informal plan or other arrangement heretofore or hereafter adopted
by the Bank for the direct or indirect provision of compensation to the Employee
(including groups or classes of participants or beneficiaries
- 7 -
<PAGE>
of which the Employee is a member), whether or not such compensation is
deferred, is in cash, or is in the form of a benefit to or for the Employee (a
"Benefit Plan"), the Employee shall not have any right to receive any payment or
other benefit under this Agreement, any Other Agreement, or any Benefit Plan if
such payment or benefit, taking into account all other payments or benefits to
or for the Employee under this Agreement, all Other Agreements, and all Benefit
Plans, would cause any payment to the Employee under this Agreement to be
considered a "parachute payment" within the meaning of Section 28OG(b)(2) of the
Internal Revenue Code of 1954, as amended (the "Code") (a "Parachute Payment").
In the event that the receipt of any such payment or benefit under this
Agreement, any Other Agreement, or any Benefit Plan would cause the Employee to
be considered to have received a Parachute Payment under this Agreement, then
the Employee shall have the right, in the Employee's sole discretion, to
designate those payments or benefits under this Agreement, any Other Agreements,
and/or any Benefit Plans, which should be reduced or eliminated so as to avoid
having the payment to the Employee under this Agreement be deemed to be a
Parachute Payment.
10. DISABILITY. If the Employee shall become disabled or
incapacitated to the extent that the Employee is unable to perform the
Employee's duties and responsibilities hereunder, the Employee shall be entitled
to receive disability benefits of the type provided for other executive
employees of the Bank.
11. NO ASSIGNMENTS. This Agreement is personal to each of the
parties hereto. No party may assign or delegate any rights or obligations
hereunder without first obtaining the written consent of the other party hereto.
However, in the event of the death of the Employee all rights to receive
payments hereunder shall become rights of the Employee's estate.
12. OTHER CONTRACTS. The Employee shall not, during the term of
this Agreement, have any other paid employment other than with a subsidiary
of the Bank, except with the prior approval of the Board of Directors of the
Bank.
13. AMENDMENTS OR ADDITIONS; ACTION BY BOARD OF DIRECTORS. No
amendments or additions to this Agreement shall be binding unless in writing and
signed by all parties hereto. The prior approval by a two-thirds affirmative
vote of the full Board of Directors of the Bank shall be required in order for
the Bank to authorize any amendments or additions to this Agreement, to give any
consents or waivers of provisions of this Agreement, or to take any other action
under this
-8-
<PAGE>
Agreement including any termination of employment with or without cause under
Section B(a) hereof.
14. SECTION HEADINGS. The section headings used in this Agreement
are included solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.
15. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. GOVERNING LAW, This Agreement shall be governed by the laws of
the State of Connecticut.
DERBY SAVINGS BANK
ATTEST: /S/ JANET B. WILLIAMS BY:
--------------------- -------------------------
Asst. (Secretary) Chairman
/S/ HARRY P. DiADAMO, JR.
-------------------------
HARRY P. DiADAMO, JR.
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<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (this "Amendment") is made as
of August 31, 1987 between DERBY SAVINGS BANK (the "Bank") and Harry P. DiAdamo,
Jr. (the "Employee").
WHEREAS, the Employee is presently serving as President, Chief
Executive Officer and Treasurer of the Bank pursuant to that certain Employment
Agreement dated as of December 3, 1985 (the "Agreement") between the Employee
and the Bank;
WHEREAS, effective August 31, 1987 the Bank became a wholly-owned
subsidiary of DS Bancor, Inc. ("Bancor");
WHEREAS, the Employee is also presently serving as President and Chief
Executive officer of Bancor;
WHEREAS, the parties hereto desire to make clarifying amendments to
the Agreement to reflects the holding company formation and the acquisition of
the Bank by Bancor; and
WHEREAS, the Boards of Directors of Bancor and the Bank have approved
and authorized the entry of Bancor and the Bank into this Amendment;
NOW, THEREFORE, it is AGREED as follows:
1. Section 1 of the Agreement is amended in its entirety to read as
follows:
1. EMPLOYMENT. The Employee is employed as President (Chief
Executive Officer) and Treasurer of the Bank from the date hereof
through the term of this Agreement. Effective as of August 31, 1987,
the Employee is also employed as President (Chief Executive Officer)
of DS Bancor, Inc. ("Bancor"). Bancor and the Bank are sometimes
referred to herein collectively and individually as the "Employers."
As the Chief Executive Officer of the Employers, the Employee shall
render executive, policy, and other management services to the
Employers of the type customarily performed by persons serving in
similar executive officer capacities with savings banks and holding
companies thereof.
<PAGE>
EXHIBIT 10.1 (b)
SEVERANCE PAYMENT AGREEMENT
THIS AGREEMENT, dated November 28, 1986, between DERBY SAVINGS BANK (the
"Bank"), a Connecticut corporation having its office and principal place of
business in the City of Derby, County of New Haven, State of Connecticut,
and ALFRED T. SANTORO, of the Town of North Branford, County of New Haven,
State of Connecticut (the "Employee").
WHEREAS, the Employee is currently serving as Vice President-Finance of the
Bank;
WHEREAS, the Board of Directors of the Bank believes that it is in the best
interests of the Bank to encourage the Employee's continued employment with and
dedication to the Bank in the face of potentially distracting circumstances
arising from the possibility of a change in control of the Company, although no
such change is now contemplated;
WHEREAS, the Board of Directors of the Bank has approved and authorized the
entry into this Agreement with the Employee; and
WHEREAS, the parties desire to enter into this agreement setting forth the
terms and conditions for the payment of special compensation to the Employee in
the event of a termination of the Employee's employment in connection with or
as the result of a change in control of the Company;
NOW, THEREFORE, it is AGREED as follows:
1. TERM. The initial term of this Agreement shall be for a one (1) year
period from the date hereof. This Agreement shall be automatically renewed for
one additional year on each anniversary date of this Agreement, unless the Bank
gives contrary written notice to the Employee prior to such anniversary date.
References herein to the term of this Agreement shall include the initial term
and any additional years for which this Agreement is renewed.
2. TERMINATION OF EMPLOYMENT IN CONNECTION WITH A CHANGE IN CONTROL.
(a) If during the term of this Agreement there is a change in control
of the Company, the Employee shall be entitled to receive as a severance payment
from the Bank for services previously rendered to the Bank a lump sum cash
payment as provided for herein (subject to Section 2(c) below) in the event the
Employee's employment is terminated, voluntarily or involuntarily, in connection
with or within two years after a change in control of the Company, unless such
termination occurs by virtue of a normal retirement, permanent and total
disability (as defined in Section 22(e) of the Internal Revenue Code) or death.
Subject to Section 2(c) below, the amount of this payment shall be equal to
three times the Employee's average annual compensation which was payable by the
Bank and was includible in the Employee's gross income for federal income tax
purposes with respect to the five most
<PAGE>
recent taxable years of the Bank ending prior to such change in control of the
Company (or such portion of such period during which the Employee was a full-
time employee of the Bank), less one dollar. Payment under this Section 2(a)
shall be in lieu of any amount which may be otherwise owed to the Employee as
damages for such termination. Payment under this Section 2(a) shall not be
reduced by any compensation which the Employee may receive from other employment
with another employer after termination of the Employee's employment with the
Bank. No payment hereunder shall affect the Employee's entitlement to any
vested retirement benefits or other compensation payments.
(b) A "change in control", for purposes of this Agreement, shall be
deemed to have taken place if: (i) any person becomes the beneficial owner of 20
percent or more of the total number of voting shares of the Company; (ii) any
person becomes the beneficial owner of 10 percent or more (but less than 20
percent) of the total number of voting shares of the Company; provided that, if
the Board of Governors of the Federal Reserve System ("FRB") has approved a
rebuttal agreement filed by such person, or such person has filed a
certification with the FRB, a change in control will not be deemed to have
occurred unless the Board of Directors of the Company has made a determination
that such beneficial ownership constitutes or will constitute control of the
Company; (iii) any person (other than the persons named as proxies solicited on
behalf of the Board of Directors of the Company) holds revocable or irrevocable
proxies, as to the election or removal of two or more directors of the Company,
for 20 percent or more of the total number of voting shares of the Company; (iv)
any person has received the approval of the FRB under Section 3 of the Bank
Holding Company Act of 1956, as amended (the "Holding Company Act"), or
regulations issued thereunder, to acquire control of the Company or the Bank;
(v) any person has received approval of the FRB under the Change in Bank Control
Act of 1978 (the "Control Act"), or regulations issued thereunder, to acquire
control of the Company; (vi) any person has commenced a tender or exchange
offer, or entered into an agreement or received an option, to acquire beneficial
ownership of 20 percent or more of the total number of voting shares of the
Company, whether or not the requisite approval for such acquisition has been
received under the Holding Company Act, the Control Act, or the respective
regulations issued thereunder; or (vii) as the result of, or in connection with,
any cash tender or exchange offer, merger, or other business combination, sale
of assets or contested election, or any combination of the foregoing
transactions, the persons who were directors of the Company before such
transaction shall cease to constitute at least two-thirds of the Board of
Directors of the Company or any successor institution. For purposes of this
Section 2(b), a "person" includes an individual, corporation, partnership, trust
or group acting in concert. A person for these purposes shall be deemed to be a
beneficial owner as that term is used in Rule 13d-3 under the Securities
Exchange Act of 1934.
- 2 -
<PAGE>
(c) Notwithstanding any other provisions of this Agreement or of any
other agreement, contract, or understanding heretofore or hereafter entered into
between the employee and the Bank, except an agreement, contract, or
understanding hereafter entered into that expressly modifies or excludes
application of this Section 2(c) (the "Other Agreements"), and notwithstanding
any formal or informal plan or other arrangement heretofore or hereafter adopted
by the Bank for the direct or indirect provision of compensation to the Employee
(including groups or classes of participants or beneficiaries of which the
Employee is a member), whether or not such compensation is deferred, is in cash,
or is in the form of a benefit to or for the Employee (a "Benefit Plan"), the
Employee shall not have any right to receive any payment or other benefit under
this Agreement, any Other Agreement, or any Benefit Plan if such payment or
benefit, taking into account all other payments or benefits to or for the
Employee under this Agreement, all Other Agreements, and all Benefit Plans would
cause any payment to the Employee under this Agreement to be considered a
"parachute payment" within the meaning of Section 280G(b)(2) of the Internal
Revenue Code of 1954, as amended (the "Code") (a "Parachute Payment"). In the
event that the receipt of any such payment or benefit under this Agreement, any
Other Agreement, or any Benefit Plan would cause the Employee to be considered
to have received a Parachute Payment under this Agreement, then the Employee
shall have the right, in the Employee's sole discretion, to designate those
payments or benefits under this Agreement, or Other Agreements, and/or any
Benefit Plans, which should be reduced or eliminated so as to avoid having the
payment to the Employee under this Agreement be deemed to be a Parachute
Payment.
3. NO ASSIGNMENTS. This Agreement is personal to each of the parties
hereto. No party may assign or delegate any rights or obligations hereunder
without first obtaining the written consent of the other party hereto. However,
in the event of the death of the Employee, all rights to receive payments
hereunder shall become rights of the Employee's estate.
4. AMENDMENTS OR ADDITIONS; ACTION BY BOARD OF DIRECTORS. No amendments
or additions to this Agreement shall be binding unless in writing and signed by
both parties hereto. The prior approval by a two-thirds affirmative vote of the
full Board of Directors of the Bank shall be required in order for the Bank to
authorize any amendments or additions to this Agreement.
5. SECTION HEADINGS. The section headings used in this Agreement are
included solely for convenience and shall not affect, or be used in connection
with, the interpretation of this Agreement.
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<PAGE>
6. GOVERNING LAW. This Agreement shall be governed by the laws of
United States to the extent applicable and otherwise by the laws of the State of
Connecticut.
DERBY SAVINGS BANK
ATTEST: /s/ John F. Costigan BY: /s/ Harry P. DiAdamo, Jr.
------------------------ -----------------------------
JOHN F. COSTIGAN HARRY P. DiADAMO, JR.
Secretary President
EMPLOYEE:
/s/ Alfred T. Santoro
-----------------------------
ALFRED T. SANTORO
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<PAGE>
AMENDMENT TO SEVERANCE AGREEMENT
This Amendment to Severance Payment Agreement (this "Amendment") is
made as of August 31, 1987 between DERBY SAVINGS BANK (the "Bank") and Alfred T.
Santoro (the "Employee").
WHEREAS, the Employee is serving as Senior Vice President, Finance,
and Chief Financial Officer of the Bank;
WHEREAS, effective August 31, 1987 the Bank became a wholly-owned
subsidiary of DS Bancor, Inc. ("Bancor");
WHEREAS, the Employee is also presently serving as Vice President,
Treasurer and Chief Financial Officer of Bancor; and
WHEREAS, the parties hereto desire to make clarifying amendments to
the Severance Payment Agreement of November 28, 1986, between the Employee and
the Bank (the "Agreement") to reflect the formation of Bancor and its
acquisition of the Bank.
NOW, THEREFORE, it is AGREED as follows:
1. CHANGE IN CONTROL. All references to the Company in Section 2(b) of
the Agreement shall be deemed to refer to Bancor. All other references in the
Agreement to a change in control of the Company shall be deemed to refer to a
change in control of Bancor or of the Bank. All references to the Bank in
Section 2(c) of the Agreement shall be deemed to refer to Bancor or the Bank.
In addition, the following paragraph is added at the end of Section 2(b), as
amended:
For purposes of this Agreement, a "change in control" of the Bank
shall be deemed to have taken place if Bancor's beneficial ownership
of the total number of voting shares of the Bank is reduced to less
than 50 percent; provided, however, the foregoing transaction shall
not be deemed to constitute a "change in control" if the transaction
has received the prior approval of two-thirds of the Board of
Directors of the Bank.
2. RECODIFICATION OF THE INTERNAL REVENUE CODE. The reference to the
Internal Revenue Code of 1954, as amended, in Section 2(c) shall be deemed to
refer to the Internal Revenue Code of 1986, as amended.
<PAGE>
3. NO OTHER CHANGES. Except as expressly provided herein, the terms and
conditions of the Agreement shall remain in full force and effect and shall be
binding on the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Amendment, or have
caused this amendment to be executed on their behalf, as of the date first above
written.
DERBY SAVINGS BANK
ATTEST: /s/ Ann M. Mester By: Illegible
-------------------- -------------------------
Ann M. Mester Its Chairman of the Board
-------------------------
EMPLOYEE:
/s/ Alfred T. Santoro
-----------------------------
ALfred T. Santoro
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<PAGE>
EXHIBIT 10.2
------------
DERBY SAVINGS BANK
STOCK OPTION PLAN
Derby Savings Bank (the "Bank") sets forth herein the terms of this
Stock Option Plan (the "Plan") as follows:
1. PURPOSE
THE Plan is intended to advance the interests of the Bank by
providing eligible individuals (as designated pursuant to Section 4 below) with
an opportunity to acquire or increase a proprietary interest in the Bank, which
thereby will create a stronger incentive to expend maximum effort for the growth
and success of the Bank and its subsidiaries, and will encourage such eligible
individuals to remain in the employ or service of the Bank or that of one or
more of its subsidiaries. Each stock option granted under the Plan (an
"Option") is intended to be an "incentive stock option" within the meaning of
Section 422A of the Internal Revenue Code of 1986, as amended from time to time
(the "Code"), except to the extent that any such Option would exceed the
limitations set forth in Section 7 below and except for (i) Options specifically
designated at the time of grant as not being "incentive stock options", and (ii)
Options granted to directors who are not officers or other full-time employees
of the Bank or any of its subsidiaries. Options may be accompanied by stock
appreciation rights ("SARs"), as defined in Section 11 below.
2. ADMINISTRATION
(a) BOARD. The Plan shall be administered by the Board of
Directors of the Bank (the "Board"), which shall have the full power and
authority to take all actions, and to make all determinations required or
provided for under this Plan or any Option or SAR granted or Option Agreement
(as defined in Section 8 below) entered into hereunder and all such other
actions and determinations not inconsistent with the specific terms and
provisions of this Plan deemed by the Board to be necessary or appropriate to
the administration of the Plan or any Option or SAR granted or Option Agreement
entered into hereunder. All such actions and determinations shall be by the
affirmative vote of a majority of the members of the Board present at a meeting
at which any issue relating to the Plan is properly raised for consideration or
by unanimous consent of the Board executed in writing in accordance with the
<PAGE>
Bank's Certificate of Incorporation and By-Laws, and with applicable law. The
interpretation and construction by the Board of any provision of the Plan or of
any Option or SAR granted or Option Agreement entered into hereunder shall be
final and conclusive.
(b) COMMITTEE. The Board may from time to time appoint a Stock
Option/Compensation Committee (the "Committee") consisting of not less than
three members of the Board, none of whom shall be" an officer or other salaried
employee of the Bank or any of its subsidiaries, and each of whom shall qualify
in all respects as a "disinterested person" as defined in Rule 16b-3 of the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
The Board, in its sole discretion, may provide that the role of the Committee
shall be limited to making recommendations to the Board concerning any
determinations to be made and actions to be taken by the Board pursuant to or
with respect to the Plan, or the Board may delegate to the Committee such powers
and authorities related to the administration of the Plan, as set forth in
Section 2(a) above, as the Board shall determine, consistent with the
Certificate of Incorporation and By-Laws of the Bank and applicable law. The
Board may remove members, add members, and fill vacancies on the Committee from
time to time, all in accordance with the Bank's Certificate of Incorporation and
By-Laws, and with applicable law. The majority vote of the Committee, or acts
reduced to or approved in writing by a majority of the members of the Committee,
shall be the valid acts of the Committee.
(c) NO LIABILITY. No member of the Board or of the Committee
shall be liable for any action or determination made in good faith with respect
to the Plan or any Option or SAR granted or Option Agreement entered into
hereunder.
(d) DELEGATION TO THE COMMITTEE. In the event that the Plan or
any Option or SAR granted or Option Agreement entered into hereunder provides
for any action to be taken by or determination to be made by the Board, such
action may be taken by or such determination may be made by the Committee if the
power and authority to do so has been delegated to the Committee by the Board as
provided for in Section 2(b) above. Unless otherwise expressly determined by
the Board, any such action or determination by the Committee shall be final and
conclusive.
(e) ACTION BY THE BOARD. The Board may act under this Plan
other than by, or in accordance with the recommendations of, the Committee,
constituted as set forth in
- 2 -
<PAGE>
Section 2(b) above, only if a majority of the Board and a majority of the
directors acting in any matter hereunder are "disinterested persons" as defined
in Rule 16b-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934.
3. STOCK
The stock that may be issued pursuant to Options granted under
the Plan shall be shares of Common Stock, par value $1.00 per share, of the
Bank (the "Stock"), which shares may be treasury shares or authorized but
unissued shares. The number of shares of Stock that may be issued pursuant to
Options granted under the Plan shall not exceed in the aggregate 221,786
shares (ten percent of the shares issued in the conversion, including the
underwriters' overallotment option), which number of shares is subject to
adjustment as provided in Section 18 below. If any Option expires,
terminates, or is terminated for any reason prior to exercise in full, the
shares of Stock that were subject to the unexercised portion of such Option
shall be available for future Options granted under the Plan, except that
such shares shall not be so available whenever such Option has been
surrendered as a result of the exercise of the related SARs.
4. ELIGIBILITY
(a) EMPLOYEES. Options or SARs may be granted under the Plan to
any officer or other full-time employee of the Bank or any "subsidiary
corporation" thereof within the meaning of Section 425(f) of the Code (a
"Subsidiary") (including any such employee who is an officer of the Bank or any
Subsidiary) as the Board shall determine and designate from time to time prior
to expiration or termination of the Plan.
(b) NON-EMPLOYEE DIRECTORS. On the effective date of this Plan
as described in Section 5(a) hereof, each member then serving on the Board of
Directors of the Bank who is not an employee of the Bank or any Subsidiary (a
"Non-Employee Director") shall be granted an Option to purchase 1,000 shares of
Stock, and related SARs, at the price and upon the other terms and conditions
specified in the Plan. In the case of the Chairman of the Board on such
effective date, such grant shall be for 1,500 shares rather than 1,000 shares.
Thereafter, an Option to purchase 1,000 shares of Stock, and related SARs, at
the price and upon the other terms and conditions specified in the Plan, shall
be granted under the
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Plan to each Non-Employee Director who was not a director on such effective
date, upon the later of the commencement of his election to a second term on the
Board or the completion of three years' service as a director. Any Non-Employee
Director who is granted an Option to purchase 1,000 shares hereunder shall be
granted an Option for an additional 500 shares upon his election, subsequent to
such effective date, as Chairman of the Board. Except as provided in this
Section 4(b), no Non-Employee Director shall be eligible to be granted Options
or SARs under this Plan. The maximum number of Options that may be granted to
all Non-Employee Directors shall not exceed 15 percent of the shares covered by
the Plan.
(c) MULTIPLE OPTIONS OR SARs. An individual may hold more than
one Option or SAR, subject to such restrictions as are provided herein;
PROVIDED, HOWEVER, that during the period commencing on the date that conversion
from mutual to stock form is completed and ending on three years from such date,
no individual shall be eligible to receive or exercise any Option or SAR if such
exercise would result in such individual owning, directly or indirectly, shares
of stock of the Bank possessing more than ten percent of any class of stock of
the Bank.
5. EFFECTIVE DATE AND TERM OF THE PLAN
(a) EFFECTIVE DATE. This Plan shall be effective as of the
date of adoption by the Board, which date is set forth below, subject to
approval of the Plan within one year of such effective date by an affirmative
vote of shareholders who hold at least a majority of the outstanding shares of
stock of the Bank entitled to vote thereon, in person or by proxy, at a duly
called meeting of the shareholders; PROVIDED, HOWEVER, that upon approval of the
Plan by the shareholders of the Bank as set forth above, all Options and SARs
granted under the Plan on or after the effective date shall be fully effective
as if the shareholders of the Bank had approved the Plan on the effective date.
If the shareholders fail to approve the Plan within one year of such effective
date, any options and SARs granted hereunder shall be null and void and of no
effect.
(b) TERM. This Plan shall terminate on the date ten years from
the effective date.
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6. GRANT OF OPTIONS
Subject to the terms and conditions of the Plan, the Board may, at
any time and from time to time, prior to the date of termination of the Plan,
grant to such eligible individuals as the Board may determine ("Optionees"),
Options to purchase such number of shares of Stock on such terms and conditions
as the Board may determine, including any terms or conditions which may be
necessary to qualify such Options as "incentive stock options" under Section
422A of the Code. The date on which the Board approves the grant of an Option
shall be considered the date on which such Option is granted.
7. LIMITATION ON OPTIONS RECEIVED IN CALENDAR YEAR
(a) OPTIONS GRANTED BEFORE 1987. The aggregate fair market
value (determined as of the date the Option is granted) of Stock for which any
Optionee may be granted "incentive stock options" within the meaning of Section
422A of the Code in any calendar year before 1987 (under the Plan and all other
stock option plans of the Bank, its Subsidiaries, and any parent or subsidiary
corporation within the meaning of Section 422A(b)(8) of the Internal Revenue
Code of 1954, as amended (the "1954 Code")) shall not exceed $100,000 plus any
"unused limit carryover" to such year (as defined in Section 422A(c)(4) of the
1954 Code).
(b) OPTIONS GRANTED AFTER 1986. With respect to options
granted after 1986, the aggregate fair market value (determined as of the date
the option is granted) of the stock covered by "incentive stock options" that
are exercisable for the first time by any employee in any calendar year (under
the Plan and all other stock option plans of the Optionee's employer corporation
and its parent or subsidiary corporations within the meaning of Section
422A(b)(7) of the Code) shall not exceed $100,000.
(c) SEPARATE AGREEMENT FOR NON-INCENTIVE OPTIONS. If an Option
is granted which would exceed the limitations of this Section 7, the excess
shares shall be included under a separate Option which shall be designated as
not being an "incentive stock option" (within the meaning of Section 422A of the
Code).
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8. OPTION AGREEMENTS
All Options granted pursuant to the Plan shall be evidenced by
written agreements ("Option Agreements"), to be executed by the Bank and by
the Optionee, in such form or forms as the Board shall from time to time
determine. Option Agreements covering Options granted from time to time or
at the same time need not contain similar provisions; PROVIDED, HOWEVER, that
all such Option Agreements shall comply with all terms of the Plan.
9. OPTION PRICE
The purchase price of each share of Stock subject to an Option
(the "Option Price") shall be fixed by the Board and stated in each Option
Agreement, and shall be not less than the greater of par value or 100 percent
of the fair market value of a share of Stock on the date the Option is
granted (as determined in good faith by the Board); PROVIDED, HOWEVER, that
in the event the Optionee would otherwise be ineligible to receive an
"incentive stock option" by reason of the provisions of Sections 422A(b)(6)
and 425(d) of the Code (relating to stock ownership of more than ten
percent), the Option Price of an Option which is intended to be an "incentive
stock option" (within the meaning of Section 422A of the Code) shall be not
less than the greater of par value or 110 percent of the fair market value of
a share of Stock at the time such Option is granted. In the event that the
Stock is listed on an established national or regional stock exchange, is
admitted to quotation on the National Association of Securities Dealers
Automated Quotation System, or is publicly traded in an established
securities market, in determining the fair market value of the Stock, the
Board shall use the closing price of the Stock on such exchange or System or
in such market (the highest such closing price if there is more than one such
exchange or market) on the trading date immediately before the Option is
granted (or, if there is no such closing price, then the Board shall use the
mean between the highest bid and lowest asked prices or between the high and
low prices on such date), or, if no sale of the Stock has been made on such
day, on the next preceding day on which any such sale shall have been made.
10. TERM AND EXERCISE OF OPTIONS
(a) TERM. Each Option granted under the Plan shall terminate
and all rights to purchase shares thereunder
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shall cease upon the expiration of ten years from the date such Option is
granted, or on such date prior thereto as may be fixed by the Board and stated
in the Option Agreement relating to such Option; PROVIDED, HOWEVER, that in the
event the optionee would otherwise be ineligible to receive an "incentive stock
option" by reason of the provisions of Sections 422A(b)(6) and 425(d) of the
Code (relating to stock ownership of more than ten percent), an Option granted
to such Optionee which is intended to be an "incentive stock option" (within the
meaning of Section 422A of the Code) shall in no event be exercisable after the
expiration of five years from the date it is granted.
(b) OPTION PERIOD AND LIMITATIONS ON EXERCISE. Each Option
granted under the Plan shall be exercisable, in whole or in part, at any time
and from time to time, over a period commencing on or after the date of grant
and ending upon the expiration or termination of the Option, as the Board shall
determine and set forth in the Option Agreement relating to such Option.
Without limiting the foregoing, the Board, subject to the terms and conditions
of the Plan, may in its sole discretion provide that an Option may not be
exercised in whole or in part for any period or periods of time during which
such Option is outstanding; PROVIDED, HOWEVER, that any such limitation on the
exercise of an Option contained in any Option Agreement may be rescinded,
modified or waived by the Board, in its sole discretion, at any time and from
time to time after the date of grant of such Option, so as to accelerate the
time at which the Option may be exercised. Notwithstanding any other provisions
of this Plan, (i) no Option granted to an Optionee under this Plan shall be
exercisable in whole or in part prior to the date the Plan is approved by the
shareholders of the Bank as provided in Section 5 above, and (ii) no Option
granted to an Optionee under this Plan before January 1, 1987 which is
specifically designated as an "incentive stock option" (within the meaning of
Section 422A of the 1954 Code) shall be exercisable in whole or in part while
there is outstanding (within the meaning of Section 422A(c)(7) of the 1954 Code)
any "incentive stock option" (within the meaning of Section 422A of the 1954
Code) which was previously granted to such Optionee by the Bank or by a
Subsidiary or by a parent, subsidiary, or predecessor corporation (within the
meaning of Section 422A(b)(7) of the 1954 Code), whether under this Plan or
under any other stock option plan heretofore or hereafter maintained by the Bank
or by a Subsidiary or by a parent, subsidiary, or predecessor corporation
(within the meaning of Section 422A(b)(7) of the 1954 Code); and (iii) an Option
granted to an Optionee under this Plan after December 31, 1986
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<PAGE>
which is specifically designated as an "incentive stock option" shall be
exercisable only to the extent permitted under Section 7(b) above.
(c) METHOD OF EXERCISE. An Option that is exercisable
hereunder may be exercised by delivery to the Bank on any business day, at its
principal office, addressed to the attention of the Committee, of written notice
of exercise, which notice shall specify the number of shares with respect to
which the Option is being exercised, and shall be accompanied by payment in full
of the Option Price of the shares for which the Option is being exercised. The
minimum number of shares of Stock with respect to which an Option may be
exercised, in whole or in part, at any time shall be the lesser of 100 shares or
the maximum number of shares available for purchase under the Option at the time
of exercise. Payment of the Option Price for the shares of Stock purchased
pursuant to the exercise of an Option shall be made, as determined by the Board
and set forth in the Option Agreement pertaining to an Option, either (i) in
cash or in cash equivalents; (ii) through the tender to the Bank of shares of
Stock, which shares shall be valued, for purposes of determining the extent to
which the Option Price has been paid thereby, at their fair market value
(determined in the manner described in Section 9 above) on the date of exercise;
or (iii) by a combination of the methods described in (i) and (ii); PROVIDED,
HOWEVER, that the Board may in its discretion impose and set forth in the
Option Agreement pertaining to an Option such limitations or prohibitions on the
use of shares of Stock to exercise Options as it deems appropriate. An attempt
to exercise any Option granted hereunder other than as set forth above shall be
invalid and of no force and effect. Promptly after the exercise of an Option
and the payment in full of the Option Price of the shares of Stock covered
thereby, the individual exercising the Option shall be entitled to the issuance
of a Stock certificate or certificates evidencing his ownership of such shares.
A separate Stock certificate or certificates shall be issued for any shares
purchased pursuant to the exercise of an Option which is an "incentive stock
option" (within the meaning of Section 422A of the Code), which certificate or
certificates shall not include any shares which were purchased pursuant to the
exercise of an Option which is not an "incentive stock option" (within the
meaning of Section 422A of the Code). An individual holding or exercising an
option shall have none of the rights of a shareholder until the shares of Stock
covered thereby are fully paid and issued to him and, except as provided in
Section 18 below, no adjustment shall be made for dividends or other rights for
which the record date is prior to the date of such issuance.
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11. STOCK APPRECIATION RIGHTS (SARs)
(a) IN GENERAL. Subject to the terms and conditions of the
Plan, the Board may, in its sole and absolute discretion, grant to an Optionee
rights to surrender to the Bank, in whole or in part, an Option, and to receive
in exchange therefor payment by the Bank of an amount equal to the excess of the
fair market value of the shares of Stock subject to such Option, or portion
thereof, so surrendered (determined in the manner described in Section 9 above
as of the date the SARs are exercised) over the Option Price of such shares.
Such payment may be made, as determined by the Board in accordance with Sections
11(d) and 11(e) below and set forth in the Option Agreement, either in shares of
Stock or in cash or in any combination thereof. SARs may be granted to
Optionees only at the same time and with respect to the same number of shares of
Stock as such Optionees are granted Options under the Plan. All SARs shall be
evidenced by provisions in the Option Agreement pertaining to the related
Option, which provisions shall comply with and be subject to the terms and
conditions set forth in this Section 11.
(b) GRANT. Each SAR shall relate to a specific Option granted
under the Plan and shall be awarded to the Optionee concurrently with the grant
of such Option pursuant to Section 6 above. The number of SARs granted to an
Optionee shall be equal to the number of shares of Stock which such Optionee is
entitled to purchase pursuant to the related Option. The number of SARs held by
an Optionee shall be reduced by (i) the number of SARs exercised for Stock or
cash under the provisions of the Option Agreement pertaining to the related
Option, and (ii) the number of shares of Stock purchased pursuant to the
exercise of the related Option.
(c) EXERCISE. SARs that are exercisable hereunder may be
exercised by delivering to the Bank on any business day, at its principal
office, addressed to the attention of the Committee, written notice of exercise,
which notice shall specify the number of SARs being exercised. The date upon
which such written notice is received by the Bank shall be the exercise date of
the SARs. Except to the extent that SARs are exercised for cash as provided in
Section 11(e) below, the individual exercising SARs shall receive, without
payment therefor to the Bank, the number of shares of Stock determined under
Section 11(d) below. Promptly after the exercise of SARs, the individual
exercising the SARs shall be entitled to the issuance of a Stock certificate or
certificates evidencing ownership of such shares. An individual holding or
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<PAGE>
exercising SARs shall have none of the rights of a shareholder with respect to
any shares of Stock covered by the SARs until shares of Stock are issued to him
or her, and, except as provided in Section 18 below, no adjustment shall be made
for dividends or other rights for which the record date is prior to the date of
such issuance.
(d) NUMBER OF SHARES. The number of shares of Stock which
shall be issued pursuant to the exercise of SARs shall be determined by dividing
(i) the total number of SARs being exercised, multiplied by the amount by which
the fair market value (determined in the manner described in Section 9 above)
of a share of Stock on the exercise date exceeds the Option Price of the related
Option, by (ii) the fair market value (determined in the manner described in
Section 9 above) of a share of Stock on the exercise date of the SARs; PROVIDED,
HOWEVER, that no fractional share shall be issued on exercise of SARs, and that
cash shall be paid by the Bank to the individual exercising SARs in lieu of any
such fractional share.
(e) EXERCISE OF SARs FOR CASH. The Board shall have sole
discretion to determine whether, and shall set forth in the Option Agreement
pertaining to the related Option the circumstances under which, payment in
respect of SARs granted to any Optionee shall be made in shares of Stock, or in
cash, or in a combination thereof. Promptly after the exercise of an SAR for
cash, the individual exercising the SAR shall receive in respect of said SAR an
amount of money equal to the difference between the fair market value
(determined in the manner described in Section 9 above) of a share of Stock on
the exercise date and the Option Price of the related Option.
(f) LIMITATIONS. SARs shall be exercisable at such times and
under such terms and conditions as the Board, in its sole and absolute
discretion, shall determine and set forth in the Option Agreements pertaining to
the related Options; PROVIDED, HOWEVER, that an SAR may be exercised only at
such times and by such individuals as the related Option under the Plan may be
exercised; and PROVIDED, FURTHER, that an SAR may be exercised only at such
times as the fair market value (determined in the manner described in Section 9
above) of a share of Stock on the exercise date exceeds the Option Price of the
related Option. Adjustments in the number, kind, or Option Price of shares of
Stock for which Options are granted pursuant to Section 18 below shall also be
made as necessary to the related SARs held by each Optionee. Any amendment,
suspension or termination of the Plan pursuant to Section 17 below shall be
deemed an amendment, suspension or termination of SARs to the same extent.
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<PAGE>
12. TRANSFERABILITY OF OPTIONS OR SARs
During the lifetime of an Optionee to whom an Option is granted,
only such optionee (or, in the event of legal incapacity or incompetency, the
Optionee's guardian or legal representative) may exercise the Option or SAR. No
Option or SAR shall be assignable or transferable by the Optionee to whom it is
granted, other than by will or the laws of descent and distribution.
13. TERMINATION OF SERVICE OR EMPLOYMENT
Upon the termination of the service or employment of an Optionee
with the Bank or a Subsidiary, other than by reason of the death or "permanent
and total disability" (within the meaning of Section 22(e)(3) of the Code) of
such Optionee, any Option or SAR granted to such Optionee pursuant to this Plan
shall terminate, and such Optionee shall have no-further right to purchase
shares of Stock pursuant to such Option; PROVIDED, HOWEVER, that in the event
that such termination of service or employment is by reason of the Optionee's
retirement in accordance with the normal retirement policies of the Bank or a
Subsidiary, as the case may be, then such Optionee shall have the right (subject
to the limitations on exercise set forth in the third sentence of Section 10(b)
and Section 11(f) above), at any time within three months after such retirement
and prior to termination of the Option as provided in Section 10(a) above, to
exercise, in whole or in part, any Option or SAR held by such Optionee at the
date of such retirement, whether or not such Option or SAR was exercisable
immediately prior to such retirement; and PROVIDED, FURTHER, that the Board may
(but shall not be required to) provide, by inclusion of appropriate language in
any Option Agreement, that an Optionee may (subject to the limitations on
exercise set forth in the third sentence of Section 10(b) and Section 11(f)
above), in the event of termination of service or employment of the Optionee
with the Bank or a Subsidiary, exercise an Option or SAR, in whole or in part,
at any time subsequent to such termination of service or employment and prior to
termination of the Option as provided in Section 10(a) above, either subject to
or without regard to any limitation on exercise imposed pursuant to the first
and second sentences of Section 10(b) above, as the Board, in its sole and
absolute discretion, shall determine and set forth in the Option Agreement.
Whether a termination of service or employment is to be considered by reason of
retirement in accordance with the normal retirement policies of the Bank or a
Subsidiary, as the
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case may be, and whether a leave of absence or leave on military or government
service shall constitute a termination of service or employment for purposes of
this Plan shall be determined by the Board, which determination shall be final
and conclusive. For purposes of this Plan, a termination of service or
employment with the Bank or a Subsidiary shall not be deemed to occur if the
Optionee is immediately thereafter in the employ or service of the Bank or any
Subsidiary.
14. RIGHTS IN THE EVENT OF DEATH OR DISABILITY
(a) DEATH. If an Optionee dies while in the employ or service
of the Bank or a Subsidiary, the executors or administrators or legatees or
distributees of such Optionee's estate shall have the right (subject to the
limitations on exercise set forth in the third sentence of Section 10(b) and
Section 11(f) above), at any time within one year after the date of such
Optionee's death and prior to termination of the Option as provided in Section
10(a) above, to exercise any Option or SAR held by such Optionee at the date of
such Optionee's death, whether or not such Option or SAR was exercisable
immediately prior to such Optionee's death; PROVIDED, HOWEVER, that the Board
may (but shall not be required to) provide, by inclusion of appropriate language
in any Option Agreement, that, in the event of the death of an Optionee, the
executors or administrators or legatees or distributees of such Optionee's
estate may exercise an Option or SAR (subject to the limitations on exercise set
forth in the third sentence of Section 10(b) and Section 11(f) above), in whole
or in part, at any time subsequent to such Optionee's death and prior to
termination of the Option as provided in Section 10(a) above, either subject to
or without regard to any limitations on exercise imposed pursuant to the first
and second sentences of Section 10(b) above, as the Board, in its sole and
absolute discretion, shall determine and set forth in the Option Agreement.
(b) DISABILITY. If an Optionee terminates service or
employment with the Bank or a Subsidiary by reason of the "permanent and
total disability" (within the meaning of Section 22(e)(3) of the Code) of
such Optionee, then such Optionee shall have the right (subject to the
limitations on exercise set forth in the third sentence of Section 10(b) or
Section 11(f) above), at any time within one year after such termination of
service or employment and prior to termination of the Option as provided in
Section 10(a) above, to exercise, in whole or in part, any Option or SAR held
by such Optionee
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<PAGE>
at the date of such termination of service or employment, whether or not such
Option or SAR was exercisable immediately prior to such termination of service
or employment; PROVIDED, HOWEVER, that the Board may (but shall not be required
to) provide, by inclusion of appropriate language in any Option Agreement, that
an Optionee who is an employee of the Bank or a subsidiary may (subject to the
limitations on exercise set forth in the third sentence of Section 10(b) and
Section 11(f) above), in the event of the termination of service or employment
of the Optionee with the Bank or a Subsidiary by reason of the "permanent and
total disability" (within the meaning of Section 22(e)(3) of the Code) of such
Optionee, exercise an Option or SAR, in whole or in part, at any time subsequent
to such termination of service or employment and prior to termination of the
Option as provided in Section 10(a) above, either subject to or without regard
to any limitation on exercise imposed pursuant to the first and second sentences
of Section 10(b) above, as the Board, in its sole and absolute discretion, shall
determine and set forth in the Option Agreement. Whether a termination of
service or employment is to be considered by reason of "permanent and total
disability" for purposes of this Plan shall be determined by the Board, which
determination shall be final and conclusive.
15. USE OF PROCEEDS
The proceeds received by the Bank from the sale of Stock pursuant
to Options granted under the Plan shall constitute general funds of the Bank.
16. REQUIREMENTS OF LAW
The Bank shall not be required to sell or issue any shares of Stock
under any Option or SAR if the sale or issuance of such shares would constitute
a violation by the individual exercising the Option or SAR or the Bank of any
provisions of any law or regulation of any governmental authority, including
without limitation any federal or state securities laws or regulations. Any
determination in this connection by the Board shall be final, binding, and
conclusive. The Bank shall not be obligated to take any affirmative action in
order to cause the exercise of an Option or SAR or the issuance of shares
pursuant thereto to comply with any law or regulation of any governmental
authority. As to any jurisdiction that expressly imposes the requirement that
an Option or SAR shall not be exercisable unless and until the
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shares of Stock covered by such Option or SAR are registered or are subject to
an available exemption from registration, the exercise of such Option or SAR
(under circumstances in which the laws of such jurisdiction apply) shall be
deemed conditioned upon the effectiveness of such registration or the
availability of such an exemption.
17. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend, suspend
or terminate the plan as to any shares of Stock as which options or SARs have
not been granted; PROVIDED, HOWEVER, that no amendment by the Board shall,
without approval by the affirmative vote of shareholders who hold at least a
majority of outstanding shares of stock of the Bank entitled to vote thereon and
who vote in person or by proxy at a duly constituted shareholders' meeting, (a)
materially change the requirements as to eligibility to receive Options or SARs;
(b) increase the maximum number of shares of Stock in the aggregate that may be
sold pursuant to Options or SARs granted under the Plan (except as permitted
under section 18 hereof); (c) change the minimum Option Price set forth in
Section 9 hereof (except as permitted under Section 18 hereof); (d) increase the
maximum period during which Options or SARs may be exercised; (e) extend the
term of the Plan; or (f) materially increase the benefits accruing to eligible
individuals under the Plan. Except as permitted under Section 18 hereof, no
amendment, suspension or termination of the Plan shall, without the consent of
the holder of the Option or SAR, alter or impair rights or obligations under any
Option or SAR theretofore granted under the Plan.
18. EFFECT OF CHANGES IN CAPITALIZATION
(a) CHANGES IN STOCK. If the outstanding shares of Stock are
increased or decreased or changed into or exchanged for a different number or
kind of shares or other securities of the Bank by reason of any
recapitalization, reclassification, stock split-up, combination of shares,
exchange of shares, stock dividend or other distribution payable in capital
stock, or other increase or decrease in such shares effected without receipt of
consideration by the bank, occurring after the effective date of the Plan, the
number and kinds of shares for the purchase of which Options may be granted
under the Plan shall be adjusted proportionately and accordingly by the Bank.
In addition, the number and kind of
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Shares for which Options or SARs are outstanding shall be adjusted
proportionately and accordingly so that the proportionate interest of the holder
of the Option or SAR immediately following such event shall, to the extent
practicable, be the same as immediately prior to such event. Any such
adjustment in outstanding Options or SARs shall not change the aggregate Option
Price payable with respect to shares subject to the unexercised portion of the
Option or SAR outstanding but shall include a corresponding proportionate
adjustment in the Option Price per share.
(b) REORGANIZATION IN WHICH THE BANK IS THE SURVIVING
CORPORATION. Subject to subsection (c) hereof, if the Bank shall be a surviving
corporation in any reorganization, merger, or consolidation of the Bank with one
or more other corporations, any Option or SAR theretofore granted pursuant to
the Plan shall pertain to and apply to the securities to which a holder of the
number of shares of Stock subject to such Option or SAR would have been entitled
immediately following such reorganization, merger, or consolidation, with a
corresponding proportionate adjustment of the Option Price per share so that the
aggregate Option Price thereafter shall be the same as the aggregate Option
Price of the shares remaining subject to the Option or SAR immediately prior to
such reorganization, merger, or consolidation.
(c) REORGANIZATION IN WHICH THE BANK IS NOT THE SURVIVING
CORPORATION OR SALE OF ASSETS OR STOCK. Upon the dissolution or liquidation of
the Bank, or upon a merger, consolidation or reorganization of the Bank with one
or more other corporations in which the Bank is not a surviving Corporation, or
upon a sale of substantially all of the assets of the bank to another
corporation, or upon any transaction (including, without limitation, a merger or
reorganization in which the Bank is the surviving corporation) approved by the
Board which results in any person or entity owning 80 percent or more of the
combined voting power of all classes of stock of the Bank, the Plan and all
Options and SARs outstanding hereunder shall terminate, except to the extent
provision is made in writing in connection with such transaction for the
continuation of the Plan and/or the assumption of the Options and SARs
theretofore granted, or for the substitution for such Options or SARs of new
options or stock appreciation rights covering the stock of a successor
corporation, or a parent or subsidiary thereof, with appropriate adjustments as
to the number and kinds of shares and exercise prices, in which event the Plan
and Options and SARs theretofore granted shall continue in the manner and under
the terms so provided.
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<PAGE>
In the event of any such termination of the Plan, each individual holding an
Option or SAR shall have the right (subject to the limitations on exercise set
forth in the third sentence of Section 10(b) and Section 11(f) above),
immediately prior to the occurrence of such termination and during such period
occurring prior to such termination as the Board in its sole discretion shall
determine and designate, to exercise such Option or SAR in whole or in part,
whether or not such Option or SAR was otherwise exercisable at the time such
termination occurs and without regard to any limitation on exercise imposed
pursuant to the first and second sentences of Section 10(b) above. The Board
shall send written notice of an event that will result in such a termination to
all individuals who hold Options or SARs not later than the time at which the
Bank gives notice thereof to its shareholders.
(d) ADJUSTMENTS. Adjustments under this Section 18 related to
stock or securities of the Bank shall be made by the Board, whose determination
in that respect shall be final, binding, and conclusive. No fractional shares
of Stock or units of other securities shall be issued pursuant to any such
adjustment, and any fractions resulting from any such adjustment shall be
eliminated in each case by rounding downward to the nearest whole share or unit.
(e) NO LIMITATIONS ON BANK. The grant of an Option or SAR
pursuant to the Plan shall not affect or limit in any way the right or power of
the Bank to make adjustments, reclassifications, reorganizations or changes of
its capital or business structure or to merge, consolidate, dissolve or
liquidate, or to sell or transfer all or any part of its business or assets.
19. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Option or SAR granted or
Option Agreement entered into pursuant to the Plan shall be construed to confer
upon any individual the right to remain in the employ of the Bank or any
subsidiary, or to interfere in any way with the right and authority of the Bank
or any subsidiary either to increase or decrease the compensation of any
individual at any time, or to terminate any employment or other relationship
between any individual and the Bank or any Subsidiary.
- 16 -
<PAGE>
20. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan nor the submission of the Plan
to the shareholders of the Bank for approval shall be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individuals or specifically to a particular
individual or individuals) as the Board in its discretion determines desirable,
including, without limitation, the granting of stock options or stock
appreciation rights otherwise than under the plan.
* * *
This Plan was duly adopted and approved by the Board of Directors
of the Bank by resolution at a meeting held on the 22nd day of November, 1985,
the effective date of the Plan.
John F. Costigan
----------------
Secretary of the Bank
This Plan was duly approved by the shareholders of the Bank at a
meeting of the shareholders held on the 23rd day of April, 1986.
John F. Costigan
----------------
Secretary of the Bank
- 17 -
<PAGE>
DERBY SAVINGS BANK
INCENTIVE STOCK OPTION AND
STOCK APPRECIATION RIGHTS AGREEMENT
This Stock Option and Stock Appreciation Rights Agreement (the
"0ption Agreement") is made as of the _____ day of ___________________, 1987,
by and between Derby Savings Bank, a Connecticut-chartered savings bank (the
"Bank"), and ____________________, an employee of the Bank (the "Optionee").
WHEREAS, the Board of Directors of the Bank has duly adopted, and the
shareholders of the Bank have approved, a Stock Option Plan (the "Plan"), which
authorizes the Bank to grant to eligible individuals options for the purchase of
shares of the Bank's Common Stock, $1.00 par value (the "Stock"), and also to
grant related stock appreciation rights ("SARs"); and
WHEREAS, the Bank has determined that it is desirable and in its best
interests to grant to the Optionee, pursuant to the Plan, an option to purchase
a certain number of shares of Stock, and also to grant related SARs, in order to
provide the Optionee with an incentive to advance the interests of the Bank, all
according to the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereto do hereby agree as follows:
1. GRANT OF OPTION AND SARs. Subject to the terms of the Plan
(attached hereto as Exhibit A, the terms of which are incorporated by reference
herein), the Bank hereby grants to the Optionee the right and option (the
"Option") to purchase from the Bank, on the terms and subject to the conditions
hereinafter set forth, ____________ shares of Stock. This Option shall
constitute an incentive stock option within the meaning of Section 422A of the
Internal Revenue Code of 1986, as amended (the "Code"). Subject to the terms
of the Plan, the Bank hereby concurrently grants to the Optionee
__________________ SARs, which may be exercised in accordance with the terms and
subject to the conditions hereinafter set forth. The date of grant of this
option and the SARs is ______________________, the date on which the grant of
the Option and the SARs was approved by the Stock Option Committee of the Board
of Directors of the Bank (the "Committee").
<PAGE>
2. PRICE. The purchase price (the "Option Price") for the shares
of Stock subject to the Option granted by this Option Agreement is $____________
per share, which price is not less than 100 percent of the fair market value of
the Stock, as determined by the Bank, on the date of grant of this Option. 1/
3. EXERCISE OF OPTION. Except as otherwise provided herein, the
Option granted pursuant to this Option Agreement shall be subject to exercise as
follows:
A. TIME OF EXERCISE OF OPTION. The Optionee may exercise the
Option (subject to the limitations on exercise set forth in Subsection H below),
in installments as follows:
Installment Exercise Dates Number of Shares
- -------------------------- ----------------
- -------------------------- ----------------
- -------------------------- ----------------
- -------------------------- ----------------
- -------------------------- ----------------
- -------------------------- ----------------
The foregoing installments, to the extent not exercised, shall accumulate and be
exercisable, in whole or in part, at any time and from time to time, on and
after the date first exercisable and prior to the termination of the Option as
provided for in Subsection G below; PROVIDED, that no single exercise of the
Option shall be for less than 100 shares, unless the number of shares purchased
is the total number at the time available for purchase under this Option.
Notwithstanding the foregoing installment limitations, in the event of
a "change in control" of the Bank, as defined in the next sentence below, the
Option shall become immediately exercisable in full, except to the extent that
the foregoing waiver of installment limitations, taking into account all other
payments or benefits to or for the Optionee under all other agreements,
understandings, and formal or informal plans or arrangements for the direct or
indirect provision of
- ----------------------
1/ 110 percent for Optionees who own more than ten percent of the total combined
voting power of all classes of stock.
-2-
<PAGE>
compensation to the Optionee, would cause the Optionee to be considered to have
received a "parachute payment" within the meaning of Section 28OG(b)(2) of the
Code that would reduce the total after-tax compensation, as determined for
purposes of Section 28OG of the Code, received by the Optionee by reason of such
change in control to an amount which is less than that which would be received
in the absence of such waiver. For purposes of this Option Agreement, a "change
in control" of the Bank shall be deemed to have taken place if (i) any person
becomes the beneficial owner of 20 percent or more of the total number of voting
shares of the Bank; (ii) any person becomes the beneficial owner of 10 percent
or more, but less than 20 percent of the total number of voting shares of the
Bank, if the Board of Directors of the Bank has made a determination that such
beneficial ownership constitutes or will constitute control of the Bank; (iii)
any person (other than the persons named as proxies solicited on behalf of the
Board of Directors of the Bank) holds revocable or irrevocable proxies, as to
the election or removal of two or more directors of the Bank, for 25 percent or
more of the total number of voting shares of the Bank; (iv) any person has
commenced a tender or exchange offer, or entered into an agreement or received
an option, to acquire beneficial ownership of 20 percent or more of the total
number of voting shares of the Bank, whether or not the requisite regulatory
approval for such acquisition has been received; or (v) as the result of, or in
connection with, any cash tender or exchange offer, merger, or other business
combination, sale of assets or contested election, or any combination of the
foregoing transactions, the persons who were directors of the Bank before such
transaction shall cease to constitute at least two-thirds of the Board of
Directors of the Bank or any successor institution. For purposes hereof, a
"person" includes an individual, corporation, partnership, trust or group acting
in concert. A person for these purposes shall be deemed to be a beneficial
owner as that term is used in Rule 13d-3 under the Securities Exchange Act of
1934. [This Option Agreement shall not be considered an "Other Agreement" for
purposes of Section 9(c) of the employment agreement dated __________________,
198_ between the Optionee and the Bank.] 2/
- ---------------------------
2/ Change reference to "Section 2(c) of the severance agreement" if employee
has a severance agreement with the Bank; delete the sentence if employee has
neither an employment agreement nor a severance agreement.
-3-
<PAGE>
B. EXERCISE BY OPTIONEE. During the lifetime of the Optionee,
only the Optionee (or, in the event of the Optionee's legal incapacity or
incompetency, the Optionee's guardian or legal representative) may exercise the
Option.
C. TERMINATION OF EMPLOYMENT. The Optionee may exercise the
Option only while the Optionee is an employee of the Bank or any "subsidiary
corporation" thereof within the meaning of Section 425(f) of the Code
(a "Subsidiary") or for 30 days thereafter, after which the Option shall
terminate, except as provided in Subsections D, E and F of this Section. Upon
the Optionee's termination of employment, the Optionee may (subject to the
limitations on exercise set forth in Subsection H below) exercise all or any
part of the Option, to the extent it was exercisable at the time of the
termination of employment, at any time within 30 days after the termination of
employment and prior to the termination of the Option, as provided for in
Subsection G below.
D. RETIREMENT. If the Optionee's termination of employment is
due to retirement with the consent of the Board of Directors of the Bank, the
Optionee may (subject to the limitations on exercise set forth in Subsection H
below) exercise all or any part of the Option, whether or not it was exercisable
at the time of the termination of employment, at any time within three months
after the termination of employment and prior to the termination of the Option,
as provided for in Subsection G below.
E. DEATH. In the event of the Optionee's death either while
employed by the Bank or a Subsidiary or within the period following the
termination of employment with the Bank or a Subsidiary during which the Option
was exercisable pursuant to Subsection D or F of this Section, the personal
representative or legatees or distributees of the Optionee's estate, as the case
may be, shall have the right (subject to the limitations on exercise set forth
in Subsection H below) to exercise all or any part of the Option, whether or not
the option was exercisable on the date of the Optionee's death, at any time
within one year after the date of the Optionee's death.
F. DISABILITY. If the Optionee's termination of employment is
by reason of "permanent and total disability" (within the meaning of Section
22(e)(3) of the Code), the Optionee or the guardian or legal representative
shall have the right (subject to the limitations on exercise set forth in
Subsection H below) to exercise all or any part of the Option, whether or not
the Option was exercisable at the time of the termination of employment, at any
time within one year after termination of employment.
-4-
<PAGE>
G. TERMINATION OF OPTION. The Option shall terminate upon
the earlier of (i) the expiration of a period of ten years 3/ from the date
of grant of the the expiration of in Section 1 above, (ii) 30 days after the
termination of employment with the Bank or a Subsiary, unless such
termination falls within the scope of this Subsection D, E, or F of Section,
or (iii) in the event the termination of employment falls within the
Subsection D, E or F of this Section, upon the expiration of the period after
the Optionee's termination of employment with the Bank or a Subsidiary within
which the Option is exercisable as specified in Subsection D, E or F of this
Section, whichever is applicable.
H. LIMITATIONS ON EXERCISE OF OPTION. Notwithstanding the
foregoing Subsections of this Section, in no event may the Option be exercised,
in whole or in part, after ten years 4/ following the date upon which the Option
is granted, as set forth in Section 1 above, or after the occurrence of an event
referred to in Section 9 below which results in termination of the Option. In
no event may the Option be exercised for a fractional share.
I. REDUCTION IN NUMBER OF SHARES SUBJECT TO OPTION. The number
of shares of Stock which may be purchased upon exercise of the Option pursuant
to this Section shall be reduced by (i) the number of shares of Stock previously
purchased upon exercise of the Option pursuant to this Section and (ii) the
number of SARs previously exercised pursuant to Section 5 below.
4. METHOD OF EXERCISE OF OPTION. Subject to the terms and
conditions of this Option Agreement, the Option may be exercised by delivering
written notice of exercise to the Bank, at its principal office, addressed to
the attention of the Committee, which notice shall specify the number of shares
for which the Option is being exercised, and shall be accompanied by payment in
full of the Option Price of the shares for which the Option is being exercised.
Payment of the Option Price for the shares of Stock purchased pursuant to the
- -----------------------------
3/ Five years for Optionees who own more than ten percent of the total
combined voting power of all classes of stock.
4/ Five years for Optionees who own more than ten percent of the total
combined voting power of all classes of stock.
-5-
<PAGE>
exercise of the Option shall be made either (i) in cash or in cash equivalent;
(ii) through the tender to the Bank of shares of Stock, which shares shall be
valued, for purposes of determining the extent to which the Option Price has
been paid thereby, at their fair market value (determined in the manner
specified in the Plan) on the date of exercise; or (iii) by a combination of the
methods described in (i) and (ii). If the person exercising the Option is not
the Optionee, such person shall also deliver with the notice of exercise
appropriate proof of his or her right to exercise the Option. An attempt to
exercise the Option granted hereunder other than as set forth above shall be
invalid and of no force and effect. Promptly after exercise of the Option as
provided for above, the Bank shall deliver to the person exercising the Option a
certificate or certificates for the shares of Stock being purchased.
5. EXERCISE OF SARs. The SARs granted pursuant to this Option
Agreement shall be subject to exercise as follows:
A. TIME OF EXERCISE OF SARs. The Optionee may exercise the
SARs, in whole or in part, only during the period commencing on the third
business day following the date of release by the Bank for publication of
quarterly or annual summary statements of sales and earnings and ending on the
twelfth business day following such release date, provided that such data
appears on a wire service, in a financial news service, in a newspaper of
general circulation, or is otherwise made publicly available; PROVIDED, HOWEVER,
that the SARs may be exercised by the Optionee only at such times and in such
amounts as the Optionee may exercise the Option granted pursuant to this Option
Agreement and in no event after the termination of the Option as set forth in
Subsections A and G of Section 3 above; provided, further, that in no event may
the SARs be exercised, in whole or in part, before the expiration of one year
from the date on which the Bank became subject to the reporting requirements of
Section 13 of the Securities Exchange Act of 1934; PROVIDED, FURTHER, that in no
event may the SARs be exercised, in whole or in part, before the expiration of
six months from the date of grant of the SARs, as set forth in Section 1 above,
and PROVIDED, FURTHER, that the SARs may be exercised only at such times as the
fair market value (determined in the manner specified in the Plan) of a share of
Stock on the exercise date of the SARs exceeds the Option Price.
B. EXERCISE BY OPTIONEE. During the lifetime of the Optionee,
only the Optionee or the Optionee's guardian or legal representative may
exercise the SARs.
-6-
<PAGE>
C. EXERCISE FOLLOWING DEATH OR OTHER TERMINATION OF EMPLOYMENT.
In the event of the Optionee's death or other termination of employment with the
Bank or a Subsidiary, the SARs may be exercised, in whole or in part, during the
period described in Subsection A above, by the Optionee or the Optionee's
guardian or legal representative, or by the personal representatives or
administrators or legatees or distributees of the Optionee's estate, as the case
may be; PROVIDED, HOWEVER, that the SARs may be exercised only at such times
following the Optionee's death or other termination of employment and in such
amounts and by such individuals as the Option may be exercised pursuant to
Subsections C, D, E or F of Section 3 above and in no event after the
termination of the Option as provided for in Subsection G of Section 3 above.
D. REDUCTION IN NUMBER OF SARs AVAILABLE FOR EXERCISE. The
number of SARs which may be exercised pursuant to this Section shall be reduced
by (i) the number of shares of Stock previously purchased upon exercise of the
Option pursuant to Section 3 or 9(C) and (ii) the number of SARs previously
exercised pursuant to this Section.
6. METHOD OF EXERCISE OF SARs AND PAYMENT. Subject to the terms and
conditions of this Option Agreement, the SARs may be exercised by delivering
written notice of exercise to the Bank, at its principal office, addressed to
the attention of the Committee, which notice shall specify the number of SARs
being exercised. The date upon which such written notice is received by the
Bank shall be the exercise date of the SARs. If the individual exercising the
SARs is not the Optionee, such individual shall also deliver with the notice of
exercise appropriate proof of his or her right to exercise the SARs. Promptly
after the exercise of the SARs, the individual exercising the SARs shall receive
from the Bank in cash an amount equal to the difference between the fair market
value (determined in the manner specified in the Plan) of a share of Stock on
the exercise date and the Option Price, multiplied by the number of SARs being
exercised.
7. LIMITATIONS ON TRANSFER. Neither the Option nor the SARs are
transferable by the Optionee, other than by will or the laws of descent and
distribution in the event of death of the Optionee.
8. RIGHTS AS SHAREHOLDER. Neither the Optionee nor any executor,
administrator, distributee or legatee of the Optionee's estate shall be, or have
any of the rights or privileges of, a shareholder of the Bank in respect of any
shares of Stock transferable hereunder unless and until such
-7-
<PAGE>
shares have been fully paid and certificates representing such shares have been
endorsed, transferred and delivered, and the name of the Optionee (or of such
personal representative, administrator, distributee or legatee of the Optionee's
estate) has been entered as the shareholder of record on the books of the Bank.
9. EFFECT OF CHANGES IN CAPITALIZATION.
A. CHANGES IN STOCK. If the outstanding shares of Stock are
increased or decreased or changed into or exchanged for a different number or
kind of shares or other securities of the Bank by reason of any
recapitalization, reclassification, stock split-up, combination of shares,
exchange of shares, stock dividend or other distribution payable in capital
stock, or other increase or decrease in such shares effected without receipt of
consideration by the Bank occurring after the date the Option and SARs are
granted, a proportionate and appropriate adjustment shall be made by the Bank in
the number and kind of shares subject to the Option and SARs, so that the
proportionate interest of the Optionee immediately following such event shall,
to the extent practicable, be the same as immediately prior to such event. Any
such adjustment in the Option and SARs shall not change the total Option Price
with respect to shares subject to the unexercised portion of the Option and SARs
but shall include a corresponding proportionate adjustment in the Option Price
per share.
B. REORGANIZATION IN WHICH THE BANK IS THE SURVIVING
CORPORATION. Subject to Subsection C of this Section, if the Bank shall be the
surviving corporation in any reorganization, merger or consolidation of the Bank
with one or more other corporations, the Option and SARs shall pertain to and
apply to the securities to which a holder of the number of shares of Stock
subject to the Option and SARs would have been entitled immediately following
such reorganization, merger or consolidation, with a corresponding proportionate
adjustment of the Option Price per share so that the aggregate Option Price
thereafter shall be the same as the aggregate Option Price of the shares
remaining subject to the Option and SARs immediately prior to such
reorganization, merger or consolidation.
C. REORGANIZATION IN WHICH THE BANK IS NOT THE SURVIVING
CORPORATION OR SALE OF ASSETS OR STOCK. Upon the dissolution or liquidation of
the Bank, or upon a merger, consolidation or reorganization of the Bank with one
or more other corporations in which the Bank is not the surviving corporation,
or upon a sale of substantially all of the assets
-8-
<PAGE>
of the Bank to another corporation, or upon any transaction (including, without
limitation, a merger or reorganization in which the Bank is the surviving
corporation) approved by the Board which results in any person or entity owning
80 percent or more of the combined voting power of all classes of stock of the
Bank, the Option and SARs hereunder shall terminate, except to the extent
provision is made in connection with such transaction for the continuation
and/or the assumption of the option or SARs, or for the substitution for the
Option or SARs of new options or stock appreciation rights covering the stock of
a successor company, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kinds of shares and exercise prices, in which
event the Option and SARs shall continue in the manner and under the terms so
provided. In the event of any such termination of the Option and SARs, the
Optionee shall have the right (subject to the limitations on exercise set forth
in Subsection H of Section 3 and Section 5 above), for 30 days immediately prior
to the occurrence of such termination, to exercise the Option and SARs in whole
or in part, whether or not the Optionee was otherwise entitled to exercise such
Option or SARs at the time such termination occurs. The Bank shall send written
notice of an event that will result in such a termination to the Optionee not
later than the time at which the Bank gives notice thereof to its shareholders.
D. ADJUSTMENTS. Adjustments specified in this Section relating
to stock or securities of the Bank shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive. No
fractional shares of Stock or units of other securities shall be issued pursuant
to any such adjustment, and any fractions resulting from any such adjustment
shall be eliminated in each case by rounding downward to the nearest whole share
or unit.
10. GENERAL RESTRICTIONS. The Bank shall not be required to sell or
issue any shares of Stock under the Option or to pay cash under the SARs if the
sale or issuance of such shares or the exercise of the SARs would constitute a
violation by the individual exercising the Option or SARs or by the Bank of any
provision of any law or regulation of any governmental authority, including
without limitation any federal or state securities laws or regulations. If at
any time the Bank shall determine, in its discretion, that the listing,
registration or qualification of any shares subject to the Option upon any
securities exchange or under any state or federal law, or the consent or
approval of any government regulatory body, is necessary or desirable as a
condition of, or in connection with, the issuance or purchase of shares or the
exercise of
-9-
<PAGE>
SARs hereunder, the Option or SARs may not be exercised in whole or in part
unless such listing, registration, qualification, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the Bank, and
any delay caused thereby shall in no way affect the date of termination of the
Option or SARs. Any determination in this connection by the Bank shall be
final, binding, and conclusive. The Bank shall not be obligated to take any
affirmative action in order to cause the exercise of the Option or the issuance
of shares pursuant thereto or the exercise of the SARs to comply with any law or
regulation of any governmental authority. As to any jurisdiction that expressly
imposes the requirement that the Option or SARs shall not be exercisable unless
and until the shares of Stock covered by the Option are registered or are
subject to an available exemption from registration, the exercise of the Option
or SARs (under circumstances in which the laws of such jurisdiction apply) shall
be deemed conditioned upon the effectiveness of such registration or the
availability of such an exemption.
11. WITHHOLDING OF TAXES. The parties hereto recognize that the
Bank or a Subsidiary may be obligated to withhold federal and local income taxes
and Social Security taxes to the extent that the Optionee realizes ordinary
income in connection with the exercise of the Option or SARs or in connection
with a disposition of any shares of Stock acquired by exercise of the Option.
The Optionee agrees that the Bank or a Subsidiary may withhold amounts needed to
cover such taxes from payments otherwise due and owing to the Optionee, and also
agrees that upon demand the Optionee will promptly pay to the Bank or a
Subsidiary having such obligation any additional amounts as may be necessary to
satisfy such withholding tax obligation. Such payment shall be made in cash or
cash equivalent.
12. NOTIFICATION OF DISPOSITION. The Optionee agrees to notify the
Bank in writing of any disposition of shares of stock acquired by the Optionee
pursuant to the exercise of this Option within 30 days of such disposition.
13. DISCLAIMER OF RIGHTS. No provision in this Option Agreement
shall be construed to confer upon the Optionee the right to be employed by the
Bank or any Subsidiary, or to interfere in any way with the right and authority
of the Bank or any Subsidiary either to increase or decrease the compensation of
the Optionee at any time, or to terminate any employment or other relationship
between the Optionee and the Bank or any Subsidiary.
-10-
<PAGE>
14. INTERPRETATION OF THIS OPTION AGREEMENT. All decisions and
interpretations made by the Committee or the Board of Directors of the Bank with
regard to any question arising under the Plan or this Option Agreement shall be
binding and conclusive on the Bank and the Optionee and any other person
entitled to exercise the Option or SARs as provided for herein. In the event
that there is any inconsistency between the provisions of this Option Agreement
and of the Plan, the provisions of the Plan shall govern.
15. GOVERNING LAW. This Option Agreement is executed pursuant to and
shall be governed by the laws of the State of Connecticut (but not including the
choice of law rules thereof).
16. BINDING EFFECT. Subject to all restrictions provided for in this
Option Agreement and by applicable law relating to assignment and transfer of
this Option Agreement and the option and stock appreciation rights provided for
herein, this Option Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, executors, administrators,
successors, and assigns.
17. NOTICE. Any notice hereunder by the Optionee to the Bank shall
be in writing and shall be deemed duly given if mailed or delivered to the Bank
at its principal office, addressed to the attention of the Committee, or if so
mailed or delivered to such other address as the Bank may hereafter designate by
notice to the Optionee. Any notice hereunder by the Bank to the Optionee shall
be in writing and shall be deemed duly given if mailed or delivered to the
Optionee at the address specified below by the Optionee for such purpose, or if
so mailed or delivered to such other address as the Optionee may hereafter
designate by written notice given to the Bank.
18. ENTIRE AGREEMENT. This Option Agreement constitutes the entire
agreement and supersedes all prior understandings and agreements, written or
oral, of the parties hereto with respect to the subject matter hereof. Neither
this Option Agreement nor any term hereof may be amended, waived, discharged or
terminated except by a written instrument signed by the Bank and the Optionee;
PROVIDED, HOWEVER, that the Bank unilaterally may waive any provision hereof in
writing to the extent that such waiver does not adversely affect the interests
of the Optionee hereunder or otherwise cause the Option granted hereunder not to
qualify as an "incentive stock option" within the meaning of Section 422A of the
Code, but no such waiver shall operate as or be construed to be a subsequent
waiver of the same provision or a waiver of any other provision hereof.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Option
Agreement, or caused this Option Agreement to be duly executed on their behalf,
as of the day and year first above written.
ATTEST: DERBY SAVINGS BANK
By:
- ----------------------------------- ------------------------------------
Title:
---------------------------------
OPTIONEE:
----------------------------------------
ADDRESS FOR NOTICE TO OPTIONEE:
----------------------------------------
Number Street
----------------------------------------
City State Zip Code
-12-
<PAGE>
DERBY SAVINGS BANK
INCENTIVE STOCK OPTION AGREEMENT
This Stock Option Agreement (the "Option Agreement") is made as of
the _________ day of _______________________ 1987, by and between Derby Savings
Bank, a Connecticut-chartered savings bank (the "Bank"), and __________________,
an employee of the Bank (the "Optionee").
WHEREAS, the Board of Directors of the Bank has duly adopted, and the
shareholders of the Bank have approved, a Stock Option Plan (the "Plan"), which
authorizes the Bank to grant to eligible individuals options for the purchase of
shares of the Bank's Common Stock, $1.00 par value (the "Stock"); and
WHEREAS, the Bank has determined that it is desirable and in its best
interests to grant to the Optionee, pursuant to the Plan, an option to purchase
a certain number of shares of Stock, in order to provide the Optionee with an
incentive to advance the interests of the Bank, all according to the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereto do hereby agree as follows:
1. GRANT OF OPTION. Subject to the terms of the Plan (attached
hereto as Exhibit A, the terms of which are incorporated by reference herein),
the Bank hereby grants to the Optionee the right and option (the "Option') to
purchase from the Bank, on the terms and subject to the conditions
hereinafter set forth, _____________________ shares of Stock. This Option
shall constitute an incentive stock option within the meaning of Section 422A of
the Internal Revenue Code of 1986, as amended (the Code"). The date of grant of
this Option is __________________________, _________________________ the date on
which the grant of the Option was approved by the Stock Option Committee of the
Board of Directors of the Bank (the "Committee").
2. PRICE. The purchase price (the "Option Price") for the
shares of Stock subject to the Option granted by this Option Agreement is
$_______________________ per share, which price is not less than 100 percent
of the fair market value of the Stock, as
<PAGE>
determined by the Bank, on the date of grant of this Option. */
3. EXERCISE OF OPTION. Except as otherwise provided herein, the
Option granted pursuant to this Option Agreement shall be subject to exercise as
follows:
A. TIME OF EXERCISE OF OPTION. The Optionee may exercise the
Option (subject to the limitations on exercise set forth in Subsection H below),
in installments as follows: the Option may be exercised in respect of 20 percent
of the aggregate number of shares specified in Section 1 above on each of the
first, second, third, fourth, and fifth anniversaries of the date of grant of
the Option, as set forth in Section 1 above; PROVIDED, HOWEVER, that in the
event of a "change in control" of the Bank, as defined in the next sentence
below, the Option shall become immediately exercisable in full, except to the
extent that the foregoing waiver of installment limitations, taking into account
all other payments or benefits to or for the Optionee under all other
agreements, understandings, and formal or informal plans or arrangements for the
direct or indirect provision of compensation to the Optionee, would cause the
Optionee to be considered to have received a "parachute payment" within the
meaning of Section 28OG(b)(2) of the Code that would reduce the total after-tax
compensation, as determined for purposes of Section 28OG of the Code, received
by the Optionee by reason of such change in control to an amount which is less
than that which would be received in the absence of such waiver. For purposes
of this Option Agreement, a "change in control" of the Bank shall be deemed to
have taken place if (i) any person becomes the beneficial owner of 20 percent or
more of the total number of voting shares of the Bank; (ii) any person becomes
the beneficial owner of 10 percent or more, but less than 20 percent of the
total number of voting shares of the Bank, if the Board of Directors of the Bank
has made a determination that such beneficial ownership constitutes or will
constitute control of the Bank; (iii) any person (other than the persons named
as proxies solicited on behalf of the Board of Directors of the Bank) holds
revocable or irrevocable proxies, as to the election or removal of two or more
directors of the Bank, for 25 percent or more of the total number of voting
shares of the Bank; (iv) any person has commenced a tender or exchange offer, or
entered into an agreement or received an option, to acquire beneficial ownership
of 20 percent or more of the total number of voting shares of the Bank, whether
or not the requisite
- ----------------
- -*/ 110 percent for Optionees who own more than ten percent of the total
combined voting power of all classes of stock.
-2-
<PAGE>
regulatory approval for such acquisition has been received; or (v) as the
result of, or in connection with, any cash tender or exchange offer, merger,
or other business combination, sale of assets or contested election, or any
combination of the foregoing transactions, the persons who were directors of
the Bank before such transaction shall cease to constitute at least
two-thirds of the Board of Directors of the Bank or any successor
institution. For purposes hereof, a "person" includes an individual,
corporation, partnership, trust or group acting in concert. A person for
these purposes shall be deemed to be a beneficial owner as that term is used
in Rule 13d-3 under the Securities Exchange Act of 1934. This Option
Agreement shall not be considered an "Other Agreement" for purposes of
Section 9(c) of the employment agreement dated ______________________, 198_,
between the Optionee and the Bank. The foregoing installments, to the
extent not exercised, shall accumulate and be exercisable, in whole or in
part, at any time and from time to time, after becoming exercisable and prior
to the termination of the Option as provided for in Subsection G below;
PROVIDED, that no single exercise of the Option shall be for less than 100
shares, unless the number of shares purchased is the total number at the time
available for purchase under this Option.
B. EXERCISE BY OPTIONEE. During the lifetime of the Optionee,
only the Optionee (or, in the event of the Optionee's legal incapacity or
incompetency, the Optionee's guardian or legal representative) may exercise the
Option.
C. TERMINATION OF EMPLOYMENT. The Optionee may exercise the
Option only while the Optionee is an employee of the Bank or any "subsidiary
corporation" thereof within the meaning of Section 425(f) of the Code (a
"Subsidiary"), and upon the Optionee's termination of employment with the Bank
or a Subsidiary, the Option shall terminate, except as provided in Subsections
D, E and F of this Section.
D. RETIREMENT. If the Optionee's termination of employment is
due to retirement with the consent of the Board of Directors of the Bank, the
Optionee may (subject to the limitations on exercise set forth in Subsection H
below) exercise all or any part of the Option, whether or not it was exercisable
at the time of the termination of employment, at any time within three months
after the termination of employment and prior to the termination of the Option,
as provided for in Subsection G below.
E. DEATH. In the event of the Optionee's death either while
employed by the Bank or a Subsidiary or within the
-3-
<PAGE>
period following the termination of employment with the Bank or a Subsidiary
during which the Option was exercisable pursuant to Subsection D or F of this
Section, the personal representative or legatees or distributees of the
Optionee's estate, as the case may be, shall have the right (subject to the
limitations on exercise set forth in Subsection H below) to exercise all or any
part of the Option, whether or not the Option was exercisable on the date of the
Optionee's death, at any time within one year after the date of the Optionee's
death.
F. DISABILITY. If the Optionee's termination of employment is
by reason of "permanent and total disability" (within the meaning of Section
22(e)(3) of the Code), the Optionee or the guardian or legal representative
shall have the right (subject to the limitations on exercise set forth in
Subsection H below) to exercise all or any part of the Option, whether or not
the Option was exercisable at the time of the termination of employment, at any
time within one year after termination of employment.
G. TERMINATION OF 0PTION. The Option shall terminate upon the
earlier of (i) the expiration of a period of ten years */ from the date of grant
of the Option, as set forth in Section 1 above, (ii) the Optionee's termination
of employment with the Bank or a Subsidiary, unless such termination falls
within the scope of Subsection D, E or F of this Section, or (iii) in the event
the Optionee's termination of employment falls within the scope of Subsection D,
E or F of this Section, upon the expiration of the period after the Optionee's
termination of employment with the Bank or a Subsidiary within which the Option
is exercisable as specified in Subsection D, E or F of this Section, whichever
is applicable.
H. LIMITATIONS ON EXERCISE OF OPTION. Notwithstanding the
foregoing Subsections of this Section, in no event may the Option be exercised,
in whole or in part, after ten years */ following the date upon which the Option
is granted, as set forth in Section 1 above, or after the occurrence of an event
referred to in Section 7 below which results in termination of the Option. In
no event may the Option be exercised for a fractional share. Notwithstanding
any other provision of this Option Agreement, to the extent required by Section
422A of the Code, the aggregate fair market value (determined at the time the
option is granted) of the
- -----------------
*/ Five years for Optionees who own more than ten percent of the total combined
voting power of all classes of stock.
-4-
<PAGE>
stock with respect to which "incentive stock options" (within the meaning of
Section 422A of the Code) are exercisable for the first time by the Optionee in
any calendar year (under the Plan and all other stock option plans of the
Optionee's employer corporation and its parent and subsidiary corporations
within the meaning of Section 422A(b)(7) of the Code) shall not exceed $100,000.
4. METHOD OF EXERCISE OF Option. Subject to the terms and
conditions of this Option Agreement, the Option may be exercised by
delivering written notice of exercise to the Bank, at its principal office,
addressed to the attention of the Committee, which notice shall specify the
number of shares for which the Option is being exercised, and shall be
accompanied by payment in full of the Option Price of the shares for which
the Option is being exercised. Payment of the Option Price for the shares of
Stock purchased pursuant to the exercise of the Option shall be made either
(i) in cash or in cash equivalent; (ii) through the tender to the Bank of
shares of Stock, which shares shall be valued, for purposes of determining
the extent to which the Option Price has been paid thereby, at their fair
market value (determined in the manner specified in the Plan) on the date of
exercise; or (iii) by a combination of the methods described in (i) and (ii).
if the person exercising the Option is not the Optionee, such person shall
also deliver with the notice of exercise appropriate proof of his or her
right to exercise the Option. An attempt to exercise the Option granted
hereunder other than as set forth above shall be invalid and of no force and
effect. Promptly after exercise of the Option as provided for above, the
Bank shall deliver to the person exercising the Option a certificate or
certificates for the shares of Stock being purchased.
5. LIMITATIONS ON TRANSFER. The Option is not transferable by the
Optionee, other than by will or the laws of descent and distribution in the
event of death of the Optionee.
6. RIGHTS AS SHAREHOLDER. Neither the Optionee nor any executor,
administrator, distributee or legatee of the Optionee's estate shall be, or have
any of the rights or privileges of, a shareholder of the Bank in respect of any
shares of Stock transferable hereunder unless and until such shares have been
fully paid and certificates representing such shares have been endorsed,
transferred and delivered, and the name of the Optionee (or of such personal
representative, administrator, distributee or legatee of the Optionee's estate)
has been entered as the shareholder of record on the books of the Bank.
-5-
<PAGE>
7. EFFECT OF CHANGES IN CAPITALIZATION.
A. CHANGES IN STOCK. If the outstanding shares of Stock are
increased or decreased or changed into or exchanged for a different number or
kind of shares or other securities of the Bank by reason of any
recapitalization, reclassification, stock split-up, combination of shares,
exchange of shares, stock dividend or other distribution payable in capital
stock, or other increase or decrease in such shares effected without receipt of
consideration by the Bank occurring after the date the Option is granted, a
proportionate and appropriate adjustment shall be made by the Bank in the number
and kind of shares subject to the Option, so that the proportionate interest of
the Optionee immediately following such event shall, to the extent practicable,
be the same as immediately prior to such event. Any such adjustment in the
Option shall not change the total Option Price with respect to shares subject to
the unexercised portion of the Option but shall include a corresponding
proportionate adjustment in the Option Price per share.
B. REORGANIZATION IN WHICH THE BANK IS SURVIVING CORPORATION.
Subject to Subsection C of this Section, if the Bank shall be the surviving
corporation in any reorganization, merger or consolidation of the Bank with one
or more other corporations, the Option shall pertain to and apply to the
securities to which a holder of the number of shares of Stock subject to the
Option would have been entitled immediately following such reorganization,
merger or consolidation, with a corresponding proportionate adjustment of the
option Price per share so that the aggregate Option Price thereafter shall be
the same as the aggregate Option Price of the shares remaining subject to the
Option immediately prior to such reorganization, merger or consolidation.
C. REORGANIZATION IN WHICH THE BANK IS NOT THE SURVIVING
CORPORATION OR SALE OF ASSETS OR STOCK. Upon the dissolution or liquidation of
the Bank, or upon a merger, consolidation or reorganization of the Bank with one
or more other corporations in which the Bank is not the surviving corporation,
or upon a sale of substantially all of the assets of the Bank to another
corporation, or upon any transaction (including, without limitation, a merger or
reorganization in which the Bank is the surviving corporation) approved by the
Board which results in any person or entity owning 80 percent or more of the
combined voting power of all classes of stock of the Bank, the Option hereunder
shall terminate, except to the extent provision is made in connection with such
transaction for the continuation and/or the assumption of the Option, or
-6-
<PAGE>
for the substitution for the Option of new options covering the stock of a
successor company, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kinds of shares and exercise prices, in which
event the Option shall continue in the manner and under the terms so provided.
In the event of any such termination of the Option, the Optionee shall have the
right (subject to the limitations on exercise set forth in Subsection H of
Section 3 above), for 30 days immediately prior to the occurrence of such
termination, to exercise the Option in whole or in part, whether or not the
Optionee was otherwise entitled to exercise such Option at the time such
termination occurs. The Bank shall send written notice of an event that will
result in such a termination to the Optionee not later than the time at which
the Bank gives notice thereof to its shareholders.
D. ADJUSTMENTS. Adjustments specified in this Section
relating to stock or securities of the Bank shall be made by the Committee,
whose determination in that respect shall be final, binding and conclusive. No
fractional shares of Stock or units of other securities shall be issued pursuant
to any such adjustment, and any fractions resulting from any such adjustment
shall be eliminated in each case by rounding downward to the nearest whole share
or unit.
8. GENERAL RESTRICTIONS. The Bank shall not be required to sell or
issue any shares of Stock under the Option if the sale or issuance of such
shares would constitute a violation by the individual exercising the Option or
by the Bank of any provision of any law or regulation of any governmental
authority, including without limitation any federal or state securities laws or
regulations. If at any time the Bank shall determine, in its discretion, that
the listing, registration or qualification of any shares subject to the Option
upon any securities exchange or under any state or federal law, or the consent
or approval of any government regulatory body, is necessary or desirable as a
condition of, or in connection with, the issuance or purchase of shares
hereunder, the Option may not be exercised in whole or in part unless such
listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Bank, and any
delay caused thereby shall in no way affect the date of termination of the
Option. Any determination in this connection by the Bank shall be final,
binding, and conclusive. The Bank shall not be obligated to take any
affirmative action in order to cause the exercise of the Option or the issuance
of shares pursuant thereto to comply with any law or regulation of any
governmental authority. As to any jurisdiction that expressly
-7-
<PAGE>
imposes the requirement that the Option shall not be exercisable unless and
until the shares of Stock covered by the Option are registered or are subject to
an available exemption from registration, the exercise of the Option (under
circumstances in which the laws of such jurisdiction apply) shall be deemed
conditioned upon the effectiveness of such registration or the availability of
such an exemption.
9. WITHHOLDING OF TAXES. The parties hereto recognize that the Bank
or a Subsidiary may be obligated to withhold federal and local income taxes and
Social Security taxes to the extent that the Optionee realizes ordinary income
in connection with the exercise of the Option or in connection with a
disposition of any shares of Stock acquired by exercise of the Option. The
Optionee agrees that the Bank or a Subsidiary may withhold amounts needed to
cover such taxes from payments otherwise due and owing to the Optionee, and also
agrees that upon demand the Optionee will promptly pay to the Bank or a
Subsidiary having such obligation any additional amounts as may be necessary to
satisfy such withholding tax obligation. Such payment shall be made in cash or
cash equivalent.
10. NOTIFICATION OF DISPOSITION. The Optionee agrees to notify the
Bank in writing of any disposition of shares of stock acquired by the Optionee
pursuant to the exercise of this Option within 30 days of such disposition.
11. DISCLAIMER OF RIGHTS. No provision in this Option Agreement
shall be construed to confer upon the Optionee the right to be employed by the
Bank or any Subsidiary, or to interfere in any way with the right and authority
of the Bank or any Subsidiary either to increase or decrease the compensation of
the Optionee at any time, or to terminate any employment or other relationship
between the Optionee and the Bank or any Subsidiary.
12. INTERPRETATION OF THIS OPTION AGREEMENT. All decisions and
interpretations made by the Committee or the Board of Directors of the Bank with
regard to any question arising under the Plan or this Option Agreement shall be
binding and conclusive on the Bank and the Optionee and any other person
entitled to exercise the Option as provided for herein. In the event that there
is any inconsistency between the provisions of this Option Agreement and of the
Plan, the provisions of the Plan shall govern.
13. GOVERNING LAW. This Option Agreement is executed pursuant to and
shall be governed by the laws of the State of Connecticut (but not including the
choice of law rules thereof).
-8-
<PAGE>
14. BINDING EFFECT. Subject to all restrictions provided for in
this Option Agreement and by applicable law relating to assignment and transfer
of this Option Agreement and the option provided for herein, this Option
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, executors, administrators, successors, and assigns.
15. NOTICE. Any notice hereunder by the Optionee to the Bank shall
be in writing and shall be deemed duly given if mailed or delivered to the Bank
at its principal office, addressed to the attention of the Committee, or if so
mailed or delivered to such other address as the Bank may hereafter designate by
notice to the Optionee. Any notice hereunder by the Bank to the Optionee shall
be in writing and shall be deemed duly given if mailed or delivered to the
Optionee at the address specified below by the Optionee for such purpose, or if
so mailed or delivered to such other address as the Optionee may hereafter
designate by written notice given to the Bank.
16. ENTIRE AGREEMENT. This Option Agreement constitutes the entire
agreement and supersedes all prior understandings and agreements, written or
oral, of the parties hereto with respect to the subject matter hereof. Neither
this Option Agreement nor any term hereof may be amended, waived, discharged or
terminated except by a written instrument signed by the Bank and the Optionee;
PROVIDED, HOWEVER, that the Bank unilaterally may waive any provision hereof in
writing to the extent that such waiver does not adversely affect the interests
of the Optionee hereunder or otherwise cause the Option granted hereunder not to
qualify as an "incentive stock option" within the meaning of Section 422A of the
Code, but no such waiver shall operate as or be construed to be a subsequent
waiver of the same provision or a waiver of any other provision hereof.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Option
Agreement, or caused this Option Agreement to be duly executed on their behalf,
as of the day and year first above written.
ATTEST: DERBY SAVINGS BANK
- ----------------------------------- By: -----------------------------
Title: --------------------------
OPTIONEE:
---------------------------------
ADDRESS FOR NOTICE TO OPTIONEE:
---------------------------------
Number Street
---------------------------------
City State Zip Code
-10-
<PAGE>
EXHIBIT 10.4 (a)
DIRECTORS' VOLUNTARY DEFERRAL AGREEMENT
for
DERBY SAVINGS BANK
<PAGE>
TABLE OF CONTENTS
Paragraph Subject Page
- --------- ------- ----
INTRODUCTION 1
1 DIRECTOR'S FEES 2
2 RETIREMENT BENEFIT 2
3 PRE-RETIREMENT DISABILITY BENEFIT 2
4 PRE-RETIREMENT DEATH BENEFIT 3
5 DESIGNATION OF BENEFICIARY 4
6 FORFEITURE OF BENEFITS 4
7 BANK'S REPRESENTATIONS TO DIRECTOR 5
8 MAINTENANCE OF RESERVES 5
9 UNSECURED CREDITOR STATUS 6
10 SPENDTHRIFT CLAUSE 6
11 SEVERABILITY OF BENEFITS AND RIGHTS 6
12 TWO-YEAR RESTRICTION PERIOD 7
13 BINDING EFFECT 7
14 ARBITRATION 7
15 APPLICABLE LAW 7
<PAGE>
INTRODUCTION
THIS AGREEMENT is made this day of between the Derby Savings
Bank, a corporation of the State of Connecticut with its principal place of
business at 33 Elizabeth Street, Derby, Connecticut 06418-0414 (hereinafter
referred to as "Bank") and
a director of the Bank.
Director has been a Director of the Bank since .
In order to achieve a measure of financial security, the Bank is willing to
participate in a voluntary deferral as to future compensation specified by this
Agreement.
THEREFORE, in consideration of the Director's continued service to the Bank
and the mutual promises and obligations set forth hereafter, Director and Bank
agree as follows:
<PAGE>
1. DIRECTOR'S FEES
As of the Bank, is not paid Director's fees. His
participation in the program is through salary reduction.
2. RETIREMENT BENEFIT
Subject to the conditions and limitations of this Agreement, upon
reaching the Retirement Date while still active, Director shall be entitled
to receive, and Bank agrees to pay Director a series of one-hundred twenty
(120) equal monthly payments representing installments of an Annual
Retirement Benefit of payable for a period of ten (10) years
commencing upon the Retirement Date. For purposes of this Agreement,
"retirement date" shall mean the latter of the attainment of age 65 or the
fourth (4th) anniversary date of this Agreement.
3. PRE-RETIREMENT DISABILITY BENEFIT
If, prior to the Retirement Date, Director should become disabled to such
an extent that as a result of accidental bodily injury or sickness, Director is
wholly and continuously unable to perform Director's usual service for the Bank,
as determined at any time by a majority of its Board of Directors, such
disability shall be treated similarly to a retirement on the Retirement Date.
Bank shall make payments to Director in the same manner it would have done
following normal retirement, except that Director shall only be entitled to
receive that
-2-
<PAGE>
percentage of the Annual Retirement Benefit which corresponds to Director's
total consecutive full years of participation under this Agreement as found
in the following table:
<TABLE>
<CAPTION>
Disability
Years of Participation Retirement Benefit
- ---------------------- ------------------
<S> <C>
0 - 4 100% of deferred fees at 10% interest
4 and greater 100% of retirement benefit hereunder
</TABLE>
4. PRE-RETIREMENT DEATH BENEFIT
In the event of Director's death while a Director of Bank and prior to the
Retirement Date, Bank agrees that it will pay to such beneficiary or
beneficiaries as Director may have designated pursuant to Paragraph 6, or in the
absence of any such designation, to Director's surviving spouse, if any, or if
none, to Director's estate, a series of one hundred twenty (120) equal monthly
payments representing installments of an annual payment of payable for a
period of ten (10) years commencing upon the first day of the month immediately
following Director's death, except a single sum equal to the present value of
the future stream of payments discounted at 7% net, shall be paid upon the first
day of the month following a Director's death, where his estate is the
beneficiary hereunder. In the event of
-3-
<PAGE>
director's death while entitled to payments under either paragraphs 2 or 3, any
amount not yet paid at director's death, shall be payable instead in the same
manner as if payable to director, to director's designated beneficiary or
beneficiaries, or in the absence of a designation, to director's surviving
spouse, if any, or if none, to director's estate in a lump sum as described
hereinbefore.
S. DESIGNATION OF BENEFICIARY
to designate a beneficiary or beneficiaries to receive any amounts due
under this agreement, Director shall file with Bank a written notice specifying
the name, address and relationship to Director of each beneficiary. Any such
designation may be changed by director with a new written notice.
6. FORFEITURE OF BENEFITS
if bank should terminate the service of director prior to either the
retirement date, or a determination of disability under paragraph 3, by
discharging director for malfeasance, dishonesty, or such other cause as a
majority of the board of directors of the bank, in its sole discretion, deems
sufficient, this agreement shall automatically terminate, and the bank shall
have no obligation to make any payments whatsoever hereunder other than a return
of all fees deferred plus interest thereon at 10%. this agreement shall also
terminate, and the Bank shall be
-4-
<PAGE>
immediately relieved of all obligation to make payments hereunder if Director's
service to the Bank should voluntarily terminate prior to the Retirement Date.
Voluntary termination shall result in return of all fees deferred plus interest
thereon at 10%.
7. BANK'S REPRESENTATIONS TO DIRECTOR
Bank agrees that it will not merge or consolidate with any other
corporation or organization, or permit its business activities to be taken over
by any other organization, unless and until the succeeding or continuing
corporation or other organization shall expressly assume the rights and
obligations of Bank under this Agreement. Bank further agrees that it will not
cease its business activities or terminate its existence, other than as
heretofore set forth in this paragraph, without having made adequate provision
for its obligations under this Agreement to be fulfilled.
B. MAINTENANCE OF RESERVES
it is the intention of the bank to maintain adequate reserves for the
satisfaction of its obligations under this agreement. nothing in this
agreement, however, shall create an obligation on the bank's part to set aside
or earmark any monies or other assets specifically for this purpose. should the
bank elect to purchase life insurance or annuity contracts or establish a fund
as a means of satisfying its obligations under this agreement, in whole or in
part, it reserves the absolute right, in its sole discretion, to terminate any
such contracts, as well as any other funding program hereunder at any time, in
whole or in part.
-5-
<PAGE>
9. UNSECURED CREDITOR STATUS
At no time shall Director, Director's spouse, estate, or any other
beneficiary Director may have designated under this Agreement, be deemed to have
any right, title or interest in or to any specific fund or assets of the Bank or
any fund hereunder, except as hereinbefore provided, including, but not limited
to, any life insurance or annuity contracts which the the Bank may at any time
have purchased. As to any claim for unpaid benefits under this Agreement,
Director, Director's spouse, estate, or any other beneficiary designated
hereunder, shall be an unsecured creditor of Bank in the same manner as any
other creditor having a general claim for unpaid compensation.
10. SPENDTHRIFT CLAUSE
It is expressly agreed that neither Director, Director's spouse, estate,
nor any other beneficiary shall have any right to commute, sell, pledge, assign,
transfer, or otherwise convey the right to receive any payments under this
Agreement, which payments and the right thereto being hereby expressly made non-
assignable and non-transferable. Such payments shall not be subject to legal
process or levy of any kind.
11. SEVERABILITY OF BENEFITS AND RIGHTS
the benefits under this agreement shall be independent of, and in addition
to, benefits payable under any other employment agreement that may exist from
time to time between the parties hereto, or any other compensation payable by
the bank to director, whether as salary or otherwise. this agreement shall not
be deemed to constitute a contract of employment between the
-6-
<PAGE>
parties, nor shall any provision hereof restrict the right of the bank to
discharge director, or restrict the right of director to terminate his
employment.
12. TWO-YEAR RESTRICTION PERIOD
if, during the first two years of this agreement, the director shall die by
committing suicide or become disabled under the terms of paragraph 3 by his own
hand, the only obligation of bank shall be to return to director all fees
deferred.
13. BINDING EFFECT
This Agreement shall be binding upon the parties hereto, their heirs,
executors, administrators, and successors in interest.
14. ARBITRATION
unless otherwise provided in this agreement, any controversy or claim
arising out of or relating to this contract, or the breach thereof, shall be
settled by arbitration in accordance with the rules of the american arbitration
association, and judgment upon the award rendered by the arbitrator may be
entered in any court in new haven county, state of connecticut, having
jurisdiction thereof.
15. APPLICABLE LAW
This Agreement shall be interpreted under and governed by the laws of the
State of Connecticut. If any provision under this Agreement is deemed void, it
shall not void the remaining provisions of this Agreement.
-7-
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement the day and
year first above written.
DERBY SAVINGS BANK
In the presence of:
By
- ----------------------------------- --------------------------------
--------------------------------
Title
In the presence of: DIRECTOR:
- ----------------------------------- --------------------------------
-8-
<PAGE>
EXHIBIT 10.4(b)
DIRECTORS' VOLUNTARY DEFERRAL AGREEMENT
for
DERBY SAVINGS BANK
<PAGE>
TABLE OF CONTENTS
Paragraph Subject Page
--------- ------- ----
INTRODUCTION 1
1 DIRECTOR'S FEES 2
2 RETIREMENT BENEFIT 2
3 PRE-RETIREMENT DISABILITY BENEFIT 2
4 PRE-RETIREMENT DEATH BENEFIT 3
5 DESIGNATION OF BENEFICIARY 4
6 FORFEITURE OF BENEFITS 4
7 BANK'S REPRESENTATIONS TO DIRECTOR 5
8 MAINTENANCE OF RESERVES 5
9 UNSECURED CREDITOR STATUS 6
10 SPENDTHRIFT CLAUSE 6
11 SEVERABILITY OF BENEFITS AND RIGHTS 6
12 TWO-YEAR RESTRICTION PERIOD 7
13 BINDING EFFECT 7
14 ARBITRATION 7
15 APPLICABLE LAW 7
<PAGE>
INTRODUCTION
THIS AGREEMENT is made this 1st day of April, 1986, between the Derby
Savings Bank, a corporation of the State of Connecticut with its principal place
of business at 33 Elizabeth Street, Derby, Connecticut 06418-0414 (hereinafter
referred to as "Bank") and S , I a
director of the Bank.
Director has been a Director of the Bank since .
In order to achieve a measure of financial security, the Bank is willing to
participate in a voluntary deferral as to future compensation specified by this
Agreement.
THEREFORE, in consideration of the Director's continued service to the Bank
and the mutual promises and obligations set forth hereafter, Director and Bank
agree as follows:
<PAGE>
1. DIRECTOR'S FEES
During the period of Director's service, Bank will pay Director for
services rendered, valuable consideration in form and at the rates and times
mutually agreed upon.
2. RETIREMENT BENEFIT
Subject to the conditions and limitations of this Agreement, upon reaching
the Retirement Date while still active, Director shall be entitled to receive,
and Bank agrees to pay Director a series of one-hundred twenty (120) equal
monthly payments representing installments of an Annual Retirement Benefit of
payable for a period of ten (10) years commencing upon the
Retirement Date. For purposes of this Agreement, "retirement date" shall mean
the latter of the attainment of age 65 or the fourth (4th) anniversary date of
this Agreement.
3. PRE-RETIREMENT DISABILITY BENEFIT
If, prior to the Retirement Date, Director should become disabled to such
an extent that as a result of accidental bodily injury or sickness, Director is
wholly and continuously unable to perform Director's usual service for the Bank,
as determined at any time by a majority of its Board of Directors, such
disability shall be treated similarly to a retirement on the Retirement Date.
Bank shall make payments to Director in the same manner it would have done
following normal retirement, except that Director shall only be entitled to
receive that
- 2 -
<PAGE>
percentage of the Annual Retirement Benefit which corresponds to Director's
total consecutive full years of participation under this Agreement as found in
the following table:
Disability
Years of Participation Retirement Benefit
- ---------------------- ------------------
0 - 4 100% of deferred fees at 10% interest
4 and greater 100% of retirement benefit hereunder
4. PRE-RETIREMENT DEATH BENEFIT
In the event of Director's death while a Director of Bank and prior to the
Retirement Date, Bank agrees that it will pay to such beneficiary or
beneficiaries as Director may have designated pursuant to Paragraph 6, or in the
absence of any such designation, to Director's surviving spouse, if any, or if
none, to Director's estate, a series of one hundred twenty (120) equal monthly
payments representing installments of an annual payment of payable for
a period of ten (10) years commencing upon the first day of the month
immediately following Director's death, except a single sum equal to the present
value of the future stream of payments discounted at 7% net, shall be paid upon
the first day of the month following a Director's death, where his estate is the
beneficiary hereunder. In the event of
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Director's death while entitled to payments under either Paragraphs 2 or 3, any
amount not yet paid at Director's death, shall be payable instead in the same
manner as if payable to Director, to Director's designated beneficiary or
beneficiaries, or in the absence of a designation, to Director's surviving
spouse, if any, or if none, to Director's estate in a lump sum as described
hereinbefore.
5. DESIGNATION OF BENEFICIARY
To designate a beneficiary or beneficiaries to receive any amounts due
under this agreement, Director shall file with Bank a written notice specifying
the name, address and relationship to Director of each beneficiary. Any such
designation may be changed by Director with a new written notice.
6. FORFEITURE OF BENEFITS
If Bank should terminate the service of Director prior to either the
Retirement Date, or a determination of disability under Paragraph 3, by
discharging Director for malfeasance, dishonesty, or such other cause as a
majority of the Board of Directors of the Bank, in its sole discretion, deems
sufficient, this Agreement shall automatically terminate, and the Bank shall
have no obligation to make any payments whatsoever hereunder other than a return
of all fees deferred plus interest thereon at 10%. This Agreement shall also
terminate, and the Bank shall be
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immediately relieved of all obligation to make payments hereunder if Director's
service to the Bank should voluntarily terminate prior to the Retirement Date.
Voluntary termination shall result in return of all fees deferred plus interest
thereon at 10%.
7. BANK'S REPRESENTATIONS TO DIRECTOR
Bank agrees that it will not merge or consolidate with any other
corporation or organization, or permit its business activities to be taken over
by any other organization, unless and until the succeeding or continuing
corporation or other organization shall expressly assume the rights and
obligations of Bank under this Agreement. Bank further agrees that it will not
cease its business activities or terminate its existence, other than as
heretofore set forth in this paragraph, without having made adequate provision
for its obligations under this Agreement to be fulfilled.
8. MAINTENANCE OF RESERVES
It is the intention of the Bank to maintain adequate reserves for the
satisfaction of its obligations under this Agreement. Nothing in this Agreement,
however, shall create an obligation on the Bank's part to set aside or earmark
any monies or other assets specifically for this purpose. Should the Bank elect
to purchase life insurance or annuity contracts or establish a fund as a means
of satisfying its obligations under this Agreement, in whole or in part, it
reserves the absolute right, in its sole discretion, to terminate any such
contracts, as well as any other funding program hereunder at any time, in whole
or in part.
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<PAGE>
9. UNSECURED CREDITOR STATUS
At no time shall Director, Director's spouse, estate, or any other
beneficiary Director may have designated under this Agreement, be deemed to have
any right, title or interest in or to any specific fund or assets of the Bank or
any fund hereunder, except as hereinbefore provided, including, but not limited
to, any life insurance or annuity contracts which the Bank may at any time have
purchased. As to any claim for unpaid benefits under this Agreement, Director,
Director's spouse, estate, or any other beneficiary designated hereunder, shall
be an unsecured creditor of Bank in the same manner as any other creditor having
a general claim for unpaid compensation.
10. SPENDTHRIFT CLAUSE
It is expressly agreed that neither Director, Director's spouse, estate,
nor any other beneficiary shall have any right to commute, sell, pledge, assign,
transfer, or otherwise convey the right to receive any payments under this
Agreement, which payments and the right thereto being hereby expressly made non-
assignable and non-transferable. Such payments shall not be subject to legal
process or levy of any kind.
11. SEVERABILITY OF BENEFITS AND RIGHTS
The benefits under this Agreement shall be independent of, and in addition
to, benefits payable under any other employment agreement that may exist from
time to time between the parties hereto, or any other compensation payable by
the Bank to Director, whether as salary or otherwise. This Agreement shall not
be deemed to constitute a contract of employment between the
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<PAGE>
parties, nor shall any provision hereof restrict the right of the Bank to
discharge Director, or restrict the right of Director to terminate his
employment.
12. TWO-YEAR RESTRICTION PERIOD
If, during the first two years of this Agreement, the Director shall die
by committing suicide or become disabled under the terms of Paragraph 3 by
his own hand, the only obligation of Bank shall be to return to Director all
fees deferred.
13. BINDING EFFECT
This Agreement shall be binding upon the parties hereto, their heirs,
executors, administrators, and successors in interest.
14. ARBITRATION
Unless otherwise provided in this Agreement, any controversy or claim
arising out of or relating to this contract, or the breach thereof, shall be
settled by arbitration in accordance with the Rules of the American Arbitration
Association, and judgment upon the award rendered by the Arbitrator may be
entered in any Court in New Haven County, State of Connecticut, having
jurisdiction thereof.
15. APPLICABLE LAW
This Agreement shall be interpreted under and governed by the laws of the
State of Connecticut. If any provision under this Agreement is deemed void, it
shall not void the remaining provisions of this Agreement.
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<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement the day and
year first above written.
DERBY SAVINGS BANK
In the presence of:
________________________________ By ___________________________________
___________________________________
Title
In the presence of: DIRECTOR:
________________________________ By ___________________________________
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<PAGE>
EXHIBIT 10.5
DS BANCOR, INC.
DEFERRED COMPENSATION PLAN
FOR DIRECTORS
ARTICLE I
PURPOSE
1.1 PURPOSE. The DS BANCOR, INC. DEFERRED COMPENSATION PLAN FOR DIRECTORS (the
"Plan") is a nonqualified deferred compensation plan designed to enable members
of the Board of Directors of DS Bancor, Inc. (the "Corporation") who are not
executive officers or employees of the Corporation, Derby Savings Bank (the
"Bank") or any subsidiary of the Corporation or the Bank ("Directors") to defer
receipt of compensation on a tax deferred basis. The Plan is also expected to
encourage the continued service of such individuals and to facilitate the
recruiting of Directors in the future.
1.2 EFFECTIVE DATE. The Plan shall be effective as of October 1, 1995.
ARTICLE II
DEFINITIONS
2.1 DEFINITIONS. As used herein, the following terms shall have the following
meanings:
(a) BANK. Derby Savings Bank, its successors and assigns.
(b) BENEFICIARY. The person designated by the Participant to receive Plan
benefits in the event of the Participant's death.
(c) BOARD. The Board of Directors of the Corporation.
(d) COMMITTEE. Any Committee authorized by the Board to administer the
Plan.
(e) CORPORATION. DS Bancor, Inc., the parent corporation of the Bank.
(f) DIRECTOR. A member of the Board of Directors of the Corporation who
is not an executive officer or employee of the Corporation, the Bank or any
subsidiary of the Corporation or the Bank.
(g) DISABILITY. A Participant's permanent and total incapacity to perform
any substantial services for the Corporation by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months. Disability shall be deemed to exist only when a
written application has been filed with the Board by or on behalf of the
Participant and when such Disability is certified to the Board by a licensed
physician approved by the Board. However, in the event the Participant meets
the requirement for disability benefits under the Social Security law then in
effect, he or she shall thereafter be deemed to have incurred a Disability
within the meaning of this definition.
159
<PAGE>
(h) PARTICIPANT. A Director who elects to defer compensation under the
Plan pursuant to Article IV.
(i) PLAN. The DS BANCOR, INC. DEFERRED COMPENSATION PLAN FOR DIRECTORS,
including any amendments, rules and regulations adopted pursuant hereto.
ARTICLE III
ELIGIBILITY
Eligibility to participate in the Plan will be limited to Directors, as
defined in Article II, Section 2.1 (i.e. an "outside" director).
ARTICLE IV
DEFERRED COMPENSATION
4.1 DEFERRAL OF DIRECTORS' FEES. A Director may elect to defer all or any
portion of any retainer fees or any board and committee meeting fees (or such
other compensation) he or she might earn with respect to his or her services
to the Corporation during any single calendar year provided that the Participant
irrevocably elects to defer such amounts prior to the commencement of such
calendar year (except that, for 1995, such election shall be made on or before
October 31, 1995).
4.2 ELECTION OF ALTERNATIVE FORM OF BENEFIT. At the time the Participant makes
any individual election pursuant to this Article IV to defer amounts earned
during a calendar year, the Participant may also elect that any amounts deferred
pursuant to such election be distributed upon termination of service pursuant to
subsection 5.1(b) in ten annual installments. Otherwise, all distributions upon
termination of service will be made in a lump sum pursuant to subsection 5.1(a).
4.3 ACCOUNTING FOR DEFERRED COMPENSATION. The amount of compensation deferred
under Section 4.1 above (collectively, "Deferred Compensation") by the
Participant shall be credited by the Corporation to an Individual Deferred
Compensation Account ("IDCA") maintained for each Participant (collectively, the
"Deferred Compensation Accounts"). A deferral shall be credited to the
appropriate IDCA at the end of the calendar month with respect to which the
deferral is made. A payment to a Participant or Beneficiary shall be charged to
the appropriate IDCA as of the time the payment is made. Interest shall be
compounded and credited monthly to each Participant's IDCA (i) as of the last
day of each calendar month during the period beginning when the Deferred
Compensation is first so credited, and ending on the last day of the calendar
year preceding the date described in (ii) below, and (ii) as of the date of
distribution of a final installment payment (pursuant to Section 5.1(b) or
Section 5.3) or a lump sum payment (pursuant to Sections 5.1(a), 5.2 or 5.3) of
the amounts credited to the Participant's IDCA. The rate of interest shall be
the interest rate on one year United States Treasury obligations, as reported
from time to time in THE WALL STREET JOURNAL, plus .50 basis points, adjusted
monthly.
160
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ARTICLE V
DISTRIBUTION OF DEFERRED COMPENSATION
5.1 PAYMENT UPON TERMINATION OF SERVICE. Except as provided in Sections 5.2
and 5.3 and Article VIII, upon the termination of service of the Participant as
a Director, amounts in the Participant's IDCA shall be distributed as follows:
(a) LUMP SUM ELECTION: Amounts credited to the Participant's IDCA shall
be paid to such Participant in a single lump sum within 60 days following the
date on which the Participant terminates service with the Corporation.
(b) INSTALLMENT ELECTION: Amounts credited to the Participant's IDCA
shall be distributed in ten substantially equal, annual installments. The first
installment shall be paid to the Participant 60 days following the Participant's
termination of service. Subsequent installments shall be paid to the
Participant annually on the 60th day of the calendar year commencing with the
calendar year immediately following the calendar year in which the Participant
received the first installment. Each installment shall be equal to the balance
credited to the IDCA multiplied by a fraction, the numerator of which is 1 and
the denominator of which is 10 minus the number of annual installments
previously paid the Participant (so that the first installment will be 1/10th of
the account, the second installment will be 1/9th of the account and so on).
5.2 PAYMENT UPON DISABILITY. Upon a Participant's Disability, the aggregate
amount credited to the Participant's IDCA shall be paid to the Participant
within 60 days following the Participant's termination of service on account of
such Disability.
5.3 PAYMENT UPON DEATH. Upon a Participant's death, if the Participant had
elected a lump sum distribution, the entire amount credited to the Participant's
IDCA shall be paid to the Beneficiary within 60 days following the Participant's
death. If a Participant had elected installment distributions, installment
distributions of the balance remaining in the Participant's IDCA, if any, shall
continue or commence, within 60 days following the Participant's death, to the
Beneficiary pursuant to subsection 5.1(b). If the Participant has not
designated a Beneficiary, or if the Beneficiary does not survive the
Participant, the aggregate amount credited to the Participant's IDCA shall be
distributed in a single lump sum to the Participant's estate.
ARTICLE VI
FUNDING
The obligation of the Corporation to pay benefits under this Plan shall be
interpreted as a contractual obligation to pay only those amounts described in
Article IV in the manner and under the conditions prescribed in Article V.
The Corporation shall not have any obligation to fund these benefits. If the
Corporation determines that Deferred Compensation under the Plan should be
funded, it may utilize, singly or in combination, any method of funding it may
deem appropriate, including, but not limited to, terminal funding, a group or
individual trust, annuity contracts or life insurance contracts. Any assets set
aside to fund Deferred Compensation shall be subject to the claims of general
creditors, and no person other than the Corporation shall, by virtue of the
provisions of the Plan, have any interest in such funds.
161
<PAGE>
ARTICLE VII
ADMINISTRATION
7.1 ADMINISTRATION. The Plan will be administered by the Board or the
Committee. The Board or the Committee will have absolute discretion to:
(a) interpret the Plan,
(b) create and revise rules and procedures for the administration of the
Plan, and
(c) take any other actions and make any other determinations as it may
deem necessary and proper for the administration of the Plan. Any expenses
incurred in the administration of the Plan will be paid by the Corporation.
7.2 DETERMINATIONS. All decisions and determinations by the Board or the
Committee shall be final and binding upon all Participants and Beneficiaries.
ARTICLE VIII
AMENDMENT, DISCONTINUANCE, AND TERMINATION
The Board retains the right to modify, amend, discontinue or terminate the
Plan at any time; provided, however, that no modification, amendment,
discontinuance or termination shall adversely affect the rights of Participants
to amounts credited to the Deferred Compensation Accounts maintained on behalf
of such Participants before such modification, amendment, discontinuance or
termination. Notice of every such modification, amendment, discontinuance or
termination shall be given in writing to each Participant. In the case of
termination of the Plan, any amounts credited to the IDCA of a Participant shall
be distributed in full to such Participant as soon as reasonably practicable
following such termination.
ARTICLE IX
MISCELLANEOUS
9.1 NON-GUARANTEE OF CONTINUED SERVICE AS A DIRECTOR. Participation in the
Plan does not give any person any right to be retained in the service of the
Corporation.
9.2 RIGHTS OF PARTICIPANTS AND BENEFICIARIES TO BENEFITS. All rights of a
Participant or Beneficiary under the Plan to amounts credited to his or her IDCA
are mere unsecured contractual rights of the Participant or Beneficiary and are
solely those of unsecured, general creditors of the Corporation.
9.3 NO ASSIGNMENT. No rights or benefits under the Plan shall be subject in
any way to voluntary or involuntary alienation, sale, transfer, assignment,
pledge, attachment, garnishment, execution, or encumbrance, and any attempt to
accomplish the same shall be void.
9.4 WITHHOLDING. The Corporation shall have the right to deduct from any
distribution any taxes required by law to be withheld from a Participant with
respect to such award.
162
<PAGE>
9.5 ACCOUNT STATEMENTS. On a monthly basis, each Participant shall receive
from the Corporation a statement indicating the amounts credited to and
distributed from the Participant's IDCA during such period.
9.6 MASCULINE, FEMININE, SINGULAR AND PLURAL. The masculine shall be read in
the feminine, the singular in the plural, and vice versa, whenever the context
shall so require.
9.7 GOVERNING LAW. Except to the extent preempted by applicable federal laws,
the Plan shall be construed according to the laws of the State of Connecticut,
other than its choice of law principles.
9.8 TITLES. The titles to Articles and Sections in this Plan are placed herein
for convenience of reference only, and the Plan is not to be construed by
reference thereto.
9.9 OTHER PLANS. Nothing in this Plan shall be construed to affect the rights
of a Participant, his or her Beneficiaries, or his or her estate to receive any
retirement or death benefit under any tax-qualified or nonqualified pension
plan, deferred compensation agreement, insurance agreement, tax-deferred annuity
or other retirement plan of the Corporation.
163
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EXHIBIT 10.6
DERBY SAVINGS BANK
DEFERRED COMPENSATION PLAN
FOR DIRECTORS
ARTICLE I
PURPOSE
1.1 PURPOSE. The DERBY SAVINGS BANK DEFERRED COMPENSATION PLAN FOR DIRECTORS
(the "Plan") is a nonqualified deferred compensation plan designed to enable
members of the Board of Directors of Derby Savings Bank (the "Bank") who are not
executive officers or employees of DS Bancor, Inc. (the "Corporation"), the Bank
or any subsidiary of the Corporation or the Bank ("Directors") to defer receipt
of compensation on a tax deferred basis. The Plan is also expected to encourage
the continued service of such individuals and to facilitate the recruiting of
Directors in the future.
1.2 EFFECTIVE DATE. The Plan shall be effective as of October 1, 1995.
ARTICLE II
DEFINITIONS
2.1 DEFINITIONS. As used herein, the following terms shall have the
following meanings:
(a) BANK. Derby Savings Bank, its successors and assigns.
(b) BENEFICIARY. The person designated by the Participant to receive
Plan benefits in the event of the Participant's death.
(c) BOARD. The Board of Directors of the Bank.
(d) COMMITTEE. Any Committee authorized by the Board to administer
the Plan.
(e) CORPORATION. DS Bancor, Inc., the parent corporation of the
Bank.
(f) DIRECTOR. A member of the Board of Directors of the Bank who is
not an executive officer or employee of the Corporation, the Bank or any
subsidiary of the Corporation or the Bank.
(g) DISABILITY. A Participant's permanent and total incapacity to
perform any substantial services for the Bank by reason of any medically deter-
minable physical or mental impairment which can be expected to result in death
or which has lasted or can be expected to last for a continuous period of not
less than 12 months. Disability shall be deemed to exist only when a written
application has been filed with the Board by or on behalf of the Participant and
when such Disability is certified to the Board by a licensed physician approved
by the Board. However, in the event the Participant meets the requirement for
disability benefits under the Social Security law then in effect, he or she
shall thereafter be deemed to have incurred a Disability within the meaning of
this definition.
164.
<PAGE>
(h) PARTICIPANT. A Director who elects to defer compensation under
the Plan pursuant to Article IV.
(i) PLAN. The DERBY SAVINGS BANK DEFERRED COMPENSATION PLAN FOR
DIRECTORS, including any amendments, rules and regulations adopted pursuant
hereto.
ARTICLE III
ELIGIBILITY
Eligibility to participate in the Plan will be limited to Directors, as
defined in Article II, Section 2.1 (i.e. an "outside" director).
ARTICLE IV
DEFERRED COMPENSATION
4.1 DEFERRAL OF DIRECTORS' FEES. A Director may elect to defer all or any
portion of any retainer fees or any board and committee meeting fees (or such
other compensation) he or she might earn with respect to his or her services
to the Bank during any single calendar year provided that the Participant
irrevocably elects to defer such amounts prior to the commencement of such
calendar year (except that, for 1995, such election shall be made on or before
October 31, 1995).
4.2 ELECTION OF ALTERNATIVE FORM OF BENEFIT. At the time the Participant
makes any individual election pursuant to this Article IV to defer amounts
earned during a calendar year, the Participant may also elect that any amounts
deferred pursuant to such election be distributed upon termination of service
pursuant to subsection 5.1(b) in ten annual installments. Otherwise, all
distributions upon termination of service will be made in a lump sum pursuant to
subsection 5.1(a).
4.3 ACCOUNTING FOR DEFERRED COMPENSATION. The amount of compensation
deferred under Section 4.1 above (collectively, "Deferred Compensation") by the
Participant shall be credited by the Bank to an Individual Deferred Compensation
Account ("IDCA") maintained for each Participant (collectively, the "Deferred
Compensation Accounts"). A deferral shall be credited to the appropriate IDCA
at the end of the calendar month with respect to which the deferral is made. A
payment to a Participant or Beneficiary shall be charged to the appropriate IDCA
as of the time the payment is made. Interest shall be compounded and credited
monthly to each Participant's IDCA (i) as of the last day of each calendar month
during the period beginning when the Deferred Compensation is first so credited,
and ending on the last day of the calendar year preceding the date described in
(ii) below, and (ii) as of the date of distribution of a final installment
payment (pursuant to Section 5.1(b) or Section 5.3) or a lump sum payment
(pursuant to Sections 5.1(a), 5.2 or 5.3) of the amounts credited to the
Participant's IDCA. The rate of interest shall be the interest rate on one year
United States Treasury obligations, as reported from time to time in THE WALL
STREET JOURNAL, plus .50 basis points, adjusted monthly.
165.
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ARTICLE V
DISTRIBUTION OF DEFERRED COMPENSATION
5.1 PAYMENT UPON TERMINATION OF SERVICE. Except as provided in Sections 5.2
and 5.3 and Article VIII, upon the termination of service of the Participant as
a Director, amounts in the Participant's IDCA shall be distributed as follows:
(a) LUMP SUM ELECTION: Amounts credited to the Participant's IDCA
shall be paid to such Participant in a single lump sum within 60 days following
the date on which the Participant terminates service with the Bank.
(b) INSTALLMENT ELECTION: Amounts credited to the Participant's IDCA
shall be distributed in ten substantially equal, annual installments. The first
installment shall be paid to the Participant 60 days following the Participant's
termination of service. Subsequent installments shall be paid to the
Participant annually on the 60th day of the calendar year commencing with the
calendar year immediately following the calendar year in which the Participant
received the first installment. Each installment shall be equal to the balance
credited to the IDCA multiplied by a fraction, the numerator of which is 1 and
the denominator of which is 10 minus the number of annual installments
previously paid the Participant (so that the first installment will be 1/10th of
the account, the second installment will be 1/9th of the account and so on).
5.2 PAYMENT UPON DISABILITY. Upon a Participant's Disability, the aggregate
amount credited to the Participant's IDCA shall be paid to the Participant
within 60 days following the Participant's termination of service on account of
such Disability.
5.3 PAYMENT UPON DEATH. Upon a Participant's death, if the Participant had
elected a lump sum distribution, the entire amount credited to the Participant's
IDCA shall be paid to the Beneficiary within 60 days following the Participant's
death. If a Participant had elected installment distributions, installment
distributions of the balance remaining in the Participant's IDCA, if any, shall
continue or commence, within 60 days following the Participant's death, to the
Beneficiary pursuant to subsection 5.1(b). If the Participant has not
designated a Beneficiary, or if the Beneficiary does not survive the
Participant, the aggregate amount credited to the Participant's IDCA shall be
distributed in a single lump sum to the Participant's estate.
ARTICLE VI
FUNDING
The obligation of the Bank to pay benefits under this Plan shall be
interpreted as a contractual obligation to pay only those amounts described in
Article IV in the manner and under the conditions prescribed in Article V. The
Bank shall not have any obligation to fund these benefits. If the Bank
determines that Deferred Compensation under the Plan should be funded, it may
utilize, singly or in combination, any method of funding it may deem
appropriate, including, but not limited to, terminal funding, a group or
individual trust, annuity contracts or life insurance contracts. Any assets set
aside to fund Deferred Compensation shall be subject to the claims of general
creditors, and no person other than the Bank shall, by virtue of the provisions
of the Plan, have any interest in such funds.
166.
<PAGE>
ARTICLE VII
ADMINISTRATION
7.1 ADMINISTRATION. The Plan will be administered by the Board or the
Committee. The Board or the Committee will have absolute discretion to:
(a) interpret the Plan,
(b) create and revise rules and procedures for the administration of
the Plan, and
(c) take any other actions and make any other determinations as it
may deem necessary and proper for the administration of the Plan. Any expenses
incurred in the administration of the Plan will be paid by the Bank.
7.2 DETERMINATIONS. All decisions and determinations by the Board or the
Committee shall be final and binding upon all Participants and Beneficiaries.
ARTICLE VIII
AMENDMENT, DISCONTINUANCE, AND TERMINATION
The Board retains the right to modify, amend, discontinue or terminate
the Plan at any time; provided, however, that no modification, amendment,
discontinuance or termination shall adversely affect the rights of Participants
to amounts credited to the Deferred Compensation Accounts maintained on behalf
of such Participants before such modification, amendment, discontinuance or
termination. Notice of every such modification, amendment, discontinuance or
termination shall be given in writing to each Participant. In the case of
termination of the Plan, any amounts credited to the IDCA of a Participant shall
be distributed in full to such Participant as soon as reasonably practicable
following such termination.
ARTICLE IX
MISCELLANEOUS
9.1 NON-GUARANTEE OF CONTINUED SERVICE AS A DIRECTOR. Participation in the
Plan does not give any person any right to be retained in the service of the
Bank.
9.2 RIGHTS OF PARTICIPANTS AND BENEFICIARIES TO BENEFITS. All rights of a
Participant or Beneficiary under the Plan to amounts credited to his/her IDCA
are mere unsecured contractual rights of the Participant or Beneficiary and are
solely those of unsecured, general creditors of the Bank.
9.3 NO ASSIGNMENT. No rights or benefits under the Plan shall be subject in
any way to voluntary or involuntary alienation, sale, transfer, assignment,
pledge, attachment, garnishment, execution, or encumbrance, and any attempt to
accomplish the same shall be void.
9.4 WITHHOLDING. The Bank shall have the right to deduct from any
distribution any taxes required by law to be withheld from a Participant with
respect to such award.
167.
<PAGE>
9.5 ACCOUNT STATEMENTS. On a monthly basis, each Participant shall receive
from the Bank a statement indicating the amounts credited to and distributed
from the Participant's IDCA during such period.
9.6 MASCULINE, FEMININE, SINGULAR AND PLURAL. The masculine shall be read in
the feminine, the singular in the plural, and vice versa, whenever the context
shall so require.
9.7 GOVERNING LAW. Except to the extent preempted by applicable federal
laws, the Plan shall be construed according to the laws of the State of
Connecticut, other than its choice of law principles.
9.8 TITLES. The titles to Articles and Sections in this Plan are placed
herein for convenience of reference only, and the Plan is not to be construed by
reference thereto.
9.9 OTHER PLANS. Nothing in this Plan shall be construed to affect the
rights of a Participant, his or her Beneficiaries, or his or her estate to
receive any retirement or death benefit under any tax-qualified or nonqualified
pension plan, deferred compensation agreement, insurance agreement, tax-deferred
annuity or other retirement plan of the Bank.
168.
<PAGE>
EXHIBIT 10.7
SPLIT DOLLAR LIFE INSURANCE PLAN
ENDORSEMENT
Policy No. 020002973 Insured/Annuitant Alfred T. Santoro
Supplementing and amending the application of the date to Sun Life Insurance
Company of Canada (the "Insurance Company"), the applicant requests and directs
that:
1. The Owner of the policy will be Derby Savings Bank, a state-chartered stock
savings bank. The Owner alone may exercise all policy rights, except that
the Owner will not have the rights specified in 2 below. Any collateral
assignment made by the Owner will be deducted only from the proceeds
payable to the Owner. Any indebtedness on the policy will first be
deducted from the proceeds payable to the Owner. The exercise by the Owner
of the right to surrender the policy or to change the Insured will
terminate the rights of the Owner to collaterally assign the policy.
Said Owner designates itself or its successors as direct beneficiary of the
greater of an amount equal to (a) the cash value as of the date to which
premiums have been paid, less any policy and premium loans and any other
indebtedness secured by the Policy, or (b) its premiums paid to the
Insurance Company for the Policy.
The Insurance Company will have the right to rely on any statement signed
by said Owner setting forth the amount referred to above, and any decisions
made by the Insurance Company in reliance upon such statements will be
conclusive and will fully protect the Insurance Company.
2. The Insured will have the rights to designate and change the beneficiaries
of and, with the prior written consent of the Owner, assign the proceeds
not payable in 1. (This paragraph will not limit the rights of the Owner
as specified in 1 above.) Any assignment of the proceeds will be limited
to the death proceeds only.
Unless otherwise designated, the Insured designates his Estate
_____________ as direct beneficiary of the proceeds specified in 2 above.
All prior designations of beneficiaries of the death proceeds are revoked.
3. The policy rights specified in paragraphs 1 and 2 may be exercised by the
respective Owner and Insured named in 1 and 2, or their successors or
transferees.
169.
<PAGE>
4. If no beneficiaries named in 1 or 2 are alive when the Insured dies,
payment will be paid to the Owner of that portion to which entitled, and
the remainder of the proceeds will be paid to the Insured's Estate.
5. Each of Owner and the Insured specified in 1 and 2 will have the right to
exercise the conversion privilege if applicable to the extent of their
interest in the policy and will be the Owner of any new policy issued in
lieu of such benefit.
6. Taxpayer No. (Employer's ID No.): 06-0320565.
7. This form will not be effective until signed by proper parties. The signed
original of this form must be returned to the Home Office of the Insurance
Company.
DERBY SAVINGS BANK
(Signed - Ann M. Mester)
- -------------------------------- BY: (Signed)
Witness ------------------------------
Name: Harry P. DiAdamo Jr.
----------------------------
Title: President & CEO
---------------------------
10/5/95 (Signed - Alfred T. Santoro)
- ---------------------- ---------------------------------
Date Insured
170.
<PAGE>
SPLIT-DOLLAR INSURANCE AGREEMENT
(Endorsement Method)
THIS AGREEMENT is entered into this 5th day of October, 1995 by and between
Derby Savings Bank, a state-chartered stock savings bank, hereinafter called
Employer, and Alfred T. Santoro, hereinafter called Employee.
WHEREAS, Employee, is a valued employee of Employer and Employer wishes to
retain him in its employ, and
WHEREAS, Employer, as an inducement to such continued employment, wishes to
assist Employee with his personal life insurance program.
NOW, THEREFORE, Employer and Employee agree as follows:
1. The life insurance policy with which this Agreement deals is Policy
Number 020002973 (hereinafter called Policy) issued by the Sun Life Insurance
Company of Canada (hereinafter called Insurer) on the life of Employee.
Employer shall be the sole Owner of the Policy and the direct beneficiary of the
greater of an amount of the death proceeds equal to (a) the cash value of the
Policy as of the date to which premiums have been paid, less any policy and
premium loans and any other indebtedness secured by the Policy, or (b) its
premiums paid to Insurer. Any indebtedness on the Policy will first be deducted
from the proceeds payable to the Employer. Also, any collateral assignment made
by the Employer will be deducted from the proceeds payable to it.
2. Employee shall have the right to designate and change direct and
contingent beneficiaries of any remaining proceeds and to elect and change a
payment plan for such beneficiaries. Any assignment of the proceeds by the
Employee shall be limited to the death proceeds only.
3. The entire premium on the Policy shall be paid by Employer as it
becomes due.
4. Policy dividends shall be applied to purchase paid-up additional
insurance protection.
5. Employer shall not sell, surrender or change the Insured while this
Agreement is in effect without first giving Employee the option to purchase the
Policy during a period of 30 days from notice to Employee of such intention.
The purchase price of the Policy shall be the greater of (a) the cash value of
the Policy as of the date of transfer to Employee, less any policy and premium
loans and any other indebtedness secured by the Policy, or (b) the premiums paid
by the Employer to Insurer. This restriction shall not impair the right of
Employer to terminate this Agreement pursuant to Section 6 hereof. The exercise
by the Employer of the right to surrender the Policy or to change the Insured
will terminate the rights of the Employee.
171.
<PAGE>
6. This Agreement may be terminated by either party hereto, with or
without the consent of the other, by giving notice of termination in writing to
the other party. This Agreement shall terminate automatically upon termination
of Employee's employment with Employer for any reason whatsoever other than
Employee's death. In the event of termination of the Agreement, Employee shall
have the right to purchase the Policy from Employer on the same terms and
conditions as specified in Section 5 hereof.
7. The Insurer shall be bound only by the provisions of any endorsements
on the Policy, and any payments made or action taken by it in accordance
therewith shall fully discharge it from all claims, suits and of all persons
whatsoever.
8. The Employee shall not have the right to assign any part or all of the
Employee's interest in the Policy and this Agreement to any person, entity or
trust, except with the prior written approval of the Employer and by execution
of a written assignment delivered to the Employer and to the Insurer.
9. The Employer and Employee can mutually agree to amend this Agreement
and such amendment shall be in writing and signed by the Employer and Employee.
10. This Agreement shall bind and insure to the benefit of the Employer
and its successors and assigns; the Employee and his heirs, executors,
administrators and assigns; and any Policy beneficiary.
11. The following provisions are part of this Agreement and are intended
to meet the requirements of the Employee Retirement Income Security Act of 1974:
(a) The named fiduciary: The Employer.
(b) The funding policy under this Plan is that all premiums on the Policy
be remitted to the Insurer when due.
(c) Direct payment by the Insurer is the basis of payment of benefits
under this Plan, with those benefits in turn being based on the
payment of premiums as provided in the Plan.
(d) For claims procedure purposes, the "Claims Manager" shall be Sun Life
Insurance Company of Canada.
(i) If for any reason a claim for benefits under this Plan is denied
by the Employer, the Claims Manager shall deliver to the claimant
a written explanation setting forth the specific reasons for the
denial, pertinent references to the Plan section on which the
denial is based, such other data as may be pertinent and
information on the procedures to be followed by the claimant in
obtaining a review of his claim, all written in a manner
calculated to be understood by the claimant. For this purpose:
(A) The claimant's claim shall be deemed filed when presented
orally in writing to the Claims Manager.
(B) The Claims Manager's explanation shall be in writing
delivered to the claimant within 90 days of the date the
claim is filed.
172.
<PAGE>
(ii) The claimant shall have 60 days following his receipt of the
denial of the claim to file with the Claims Manager a
written request for review of the denial. For such review,
the claimant or his representative may submit pertinent
documents and written issues and comments.
(iii) The Claims Manager shall decide the issue on review and
furnish the claimant with a copy within 60 days of receipt
of the claimant's request for review of his claim. The
decision on review shall be in writing and shall include
specific reasons for the decision, written in a manner
calculated to be understood by the claimant, as well as
specific references to the pertinent Plan provisions on
which the decision is based. If a copy of the decision is
not so furnished to the claimant within such 60 days, the
claim shall be deemed denied on review.
IN WITNESS WHEREOF the parties have signed and sealed this Agreement.
In the presence of DERBY SAVINGS BANK
(Signed - Ann M. Mester) BY: (Signed)
- ------------------------------ ------------------------------
Witness
Name: Harry P. DiAdamo Jr.
----------------------------
Title: President & CEO
---------------------------
10/5/95 (SIGNED - Alfred T. Santoro)
- ---------------------- ---------------------------------
Date Employee
173.
<PAGE>
EXHIBIT 13
174.
<PAGE>
FELLOW SHAREHOLDERS:
During 1996 Derby Savings Bank will celebrate it's 150th anniversary. This
annual report addresses some of the reasons for our success.
PRESIDENT DIADAMO. A key perspective is PEOPLE. As President of Derby
Savings, I would like to offer a few insights. As a society, Americans have
always recognized and appreciated the values of perseverance and hard work.
Ultimately, these attributes have become virtues incorporated into the self-
appraisal of every successful individual. These characteristics, I feel, have
been, and continue to be, particularly prominent in the people that have guided
and served Derby Savings.
When I joined the Bank over 15 years ago as a member of the Board of
Directors, I did so because I wished to be part of a living, vital and integral
segment of The Greater Valley Community. Since becoming President, my staff and
I have worked with a goal of making Derby Savings an even greater contributor to
The Valley and Connecticut, as a whole. It is my feeling that collectively all
of our people ... from those who founded the Company in 1846 to those who have
made it the tenth largest financial institution in Connecticut today ... have
provided exceptional service. DERBY SAVINGS HAS SURVIVED AND PROSPERED FOR 150
YEARS. We have done so because we cared enough about the Company, as well as
ourselves, to work hard.
As we celebrate our 150th anniversary, I am pleased to report that the
Company had net income for 1995 of $7,613,000 or $2.45 per share, a 33.3%
increase from net income for 1994 of $5,710,000 or $1.86 per share.
Stockholders' equity totaled $80.8 million at December 31, 1995 and represented
6.5% of total assets. This equated to a book value of $26.68 per share compared
to $22.19 at year end 1994. The Company's Tier 1 capital ratio at December 31,
1995 was 6.2%. Additionally, the Company's ratio of total capital to risk-
weighted assets was 11.9% and its ratio of Tier 1 capital to risk-weighted
assets was 11.0%.
CHAIRMAN DADDONA. As Chairman of the Board, I was pleased when the Board
of Directors recently declared a cash dividend of $.06 per share, the first cash
dividend declared by the Company since 1992. The restoration of the cash
dividend was due to our 1995 earnings performance and the lifting in August 1995
by the FDIC and the Connecticut Banking Department of the Memorandum of
Understanding entered into by the Bank in April 1992.
Going forward the Company's goal will be to continue to improve earnings.
In this regard, although the Connecticut economy continues to show signs of
economic weakness, in 1996 we expect to focus on consumer, commercial and
business lending and on controlling expenses.
In closing, we are both honored and privileged to serve this fine
institution and to acknowledge that without our top-notch employees we would not
be where we are today. Also, we thank our loyal customers ... both old and new
... for banking with DSB. And on behalf of the Board of Directors, we thank
you, our stockholders, for your support of the Company.
Michael F. Daddona Jr. Harry P. DiAdamo Jr.
Chairman President & CEO
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OTHER DATA
(Dollar amounts in thousands, except per share data)
DS BANCOR, INC. AND SUBSIDIARY
- ------------------------------------------------------------------------------------------------------------------------
AT AND FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
--------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income $86,589 $77,282 $74,335 $54,144 $57,796
Interest expense 51,575 42,818 43,816 31,885 39,469
-------- -------- -------- -------- --------
Net interest income 35,014 34,464 30,519 22,259 18,327
Provision for credit losses 2,525 2,325 2,475 1,375 4,400
-------- -------- -------- -------- --------
Net interest income after provision
for credit losses 32,489 32,139 28,044 20,884 13,927
Non-interest income 3,684 3,101 7,343 3,071 1,695
Non-interest expense 23,540 25,610 27,113 15,897 13,166
-------- -------- -------- -------- --------
Income before income taxes and
cumulative effect
of a change in accounting principle 12,633 9,630 8,274 8,058 2,456
Provision for income taxes 5,020 3,920 3,348 3,217 1,645
-------- -------- -------- -------- --------
Income before cumulative effect of
a change in accounting principle 7,613 5,710 4,926 4,841 811
Cumulative effect of a change in method
of accounting for income taxes -- -- 1,548 -- --
-------- -------- -------- -------- --------
NET INCOME $7,613 $5,710 $6,474 $4,841 $811
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
EARNINGS PER SHARE--PRIMARY (a):
Income before cumulative effect of a
change in accounting principle $2.46 $1.86 $1.65 $1.65 $0.28
Cumulative effect of a change in method
of accounting for income taxes -- -- 0.52 -- --
-------- -------- -------- -------- --------
Net Income $2.46 $1.86 $2.17 $1.65 $0.28
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
EARNINGS PER SHARE--FULLY DILUTED (a):
Income before cumulative effect of a
change in accounting principle $2.45 $1.86 $1.63 $1.65 $0.28
Cumulative effect of a change in method
of accounting for income taxes -- -- 0.51 -- --
-------- -------- -------- -------- --------
Net Income $2.45 $1.86 $2.14 $1.65 $0.28
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
PER SHARE (a):
Book value $26.68 $22.19 $22.66 $19.98 $18.13
Dividend -- -- -- -- $0.19
MARKET PRICES OF COMMON STOCK:
High $29.13 $33.75 $22.75 $18.50 $14.00
Low $21.75 $21.00 $14.25 $8.00 $6.00
At December 31, $25.50 $22.25 $22.50 $18.25 $8.50
FINANCIAL CONDITION AND OTHER DATA:
Total assets $1,254,483 $1,222,690 $1,194,121 $1,190,707 $669,545
Loans, net 875,339 839,427 787,091 721,146 525,927
Securities 320,188 322,146 322,599 271,515 101,212
Deposits 1,058,145 1,027,746 1,006,221 994,931 522,180
Federal Home Loan Bank of Boston advances 96,876 111,145 104,991 120,771 83,136
Other borrowings -- -- 1,450 2,091 2,936
Stockholders' equity 80,809 67,137 66,440 58,585 53,104
Leverage ratio 6.19% 5.63% 5.11% 4.51% 7.93%
Tier 1 capital to risk-weighted assets 10.94% 10.38% 8.87% 7.87% 10.66%
Total capital to risk-weighted assets 11.91% 11.41% 9.89% 9.12% 11.40%
Non-performing loans 13,768 15,042 19,872 27,377 32,955
Foreclosed assets, net 3,712 5,756 8,339 10,018 6,893
-------- -------- -------- -------- --------
Total non-performing assets 17,480 20,798 28,211 37,395 39,848
Allowance for credit losses 6,906 (b) 6,803 (b) 6,979 (b) 13,937 (b) 3,674
Allowance as a percentage of non-performing loans 50.2% 45.2% 35.1% 50.9% 11.1%
Number of banking offices 22 22 23 22 10
STATISTICAL DATA:
Net interest rate spread 2.67% 2.76% 2.55% 3.04% 2.68%
Net yield on average interest-earning assets 2.97 2.94 2.68 3.24 3.02
Return on average assets 0.63 0.47 0.54 0.66 0.13
Return on average stockholders' equity 9.95 8.34 10.30 8.44 1.47
Average stockholders' equity to average assets 6.31 5.58 5.26 7.80 8.54
Dividend payout ratio (a) -- --- --- --- 69.79
</TABLE>
(a) Adjusted retroactively to reflect stock dividends declared.
(b) Includes $1.2 million, $1.8 million, $2.3 million and
$10.4 million, allocated to loans acquired as part of the Burritt
transaction, for December 31, 1995, 1994, 1993 and 1992, respectively.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
DS Bancor, Inc. (the "Company" or "DS Bancor") is the holding company for
Derby Savings Bank ("Derby Savings" or the "Bank"). The Company's principal
asset consists of all of the outstanding shares of Derby Savings Bank. Derby
Savings is a state chartered savings bank headquartered in Derby, Connecticut.
The Bank, which was organized in 1846, conducts business from 22 banking offices
located in New Haven, Fairfield and Hartford counties.
Deposits at Derby Savings are federally insured by the Bank Insurance Fund
("BIF") administered by the Federal Deposit Insurance Corporation (the "FDIC")
and the Bank is subject to comprehensive regulation, examination and supervision
by the FDIC and the Banking Commissioner of the State of Connecticut. The
Company, as a bank holding company, is subject to regulation by the Board of
Governors of the Federal Reserve System.
BUSINESS. Derby Savings is primarily engaged in the business of obtaining
funds in the form of deposits and borrowings and investing such funds in
residential and commercial mortgage loans, other consumer and commercial loans,
and a variety of investment securities.
Deposits are the primary source of funds for the Bank. In obtaining
deposits, Derby Savings faces strong competition from other financial
institutions both inside and outside of its primary market areas. In order to
attract and retain deposits, management has continually broadened the line of
products and related services to meet the diverse investment objectives of its
depositors. The Bank offers a variety of deposit products including consumer
and commercial checking accounts, money market accounts, flexible term
certificates of deposit, retirement accounts, regular savings and automated
teller machines with a link to regional and international shared networks.
As a Connecticut chartered savings bank, Derby Savings has statutory
authority to invest funds in a multiplicity of assets. The Bank has
historically concentrated its lending activities in the consumer segment of the
Bank's market area, primarily in the origination of first mortgage loans for the
purchase, refinance or construction of one-to-four family homes. Complementing
the business of financing residential real estate, the Bank also has emphasized
the origination of home equity lines of credit ("HELOC's"). Apart from
residential mortgage loans, HELOC's represent the single most significant loan
product offered by the Bank.
While the Bank expects that residential first mortgage loans and HELOC's
will continue to constitute the preponderance of new loan originations, the Bank
has begun implementing strategies and allocating resources to increase the level
of commercial real estate lending and small business lending within
<PAGE>
its market area. During 1995 the Bank converted to a new commercial loan data
processing system and added employees experienced in commercial real estate
lending and commercial and industrial lending, including Small Business
Administration (SBA) loans. Going forward the Bank will focus on growing
revenues, improving interest margins and diversifying the loan portfolio through
enhanced business development efforts in these areas.
BRANCH OFFICES. During the past several years, the Bank has pursued a
diversified branching strategy which departs from the design of traditional
banking facilities. The focus of this strategy is to design branch facilities
to meet the demographic needs of the Bank's target market while minimizing the
Bank's cost of operations and maximizing customer service. All of the Bank's
branches offer a full range of deposit and loan products. Seventeen of the
Bank's branches are traditional full-service offices which, among other things,
offer full teller and platform customer service, drive-up window service and
automated teller machines. The design of five of the Bank's branch offices
departs from traditional banking facilities with the absence of conventional
teller stations and drive-up windows. These "Savings Centers" are designed to
emphasize the issuance of certificate of deposit products through the delivery
of superior personalized service in a non-traditional banking environment.
In January 1996, the Bank relocated its Stratford branch office. The
original Stratford office, opened in 1989 as a Savings Center, experienced
significant growth in its deposit base and corresponding customer transaction
activity, outstripping the physical capacity of the facility. To better serve
existing customers, and to provide for continued growth, the office was
relocated within Stratford to a high traffic retail area known as Paradise
Green. The new facility, which is in close proximity to the former office, is a
traditional branch offering full teller and platform customer service and an
automated teller machine.
In keeping with the Bank's overall strategy as a broad-based community
bank, the Bank has filed an application for the establishment of a new, full
service branch office in the town of Hamden. The Hamden location will expand
the Bank's service area within New Haven county and complement the Bank's
existing branch network. It is anticipated that the Hamden branch will be
opened in mid-1996. In addition, the Bank is actively searching for new branch
sites which will offer an opportunity to increase earnings, build upon the
Bank's existing retail network and enhance the franchise value of the Company.
TECHNOLOGY. The technology revolution taking place in the banking industry
today is having a dramatic impact on the delivery of quality customer
<PAGE>
service and products. Recognizing the vital role that technology plays in the
Bank's ability to compete effectively, the Bank undertook and completed a
comprehensive review and analysis of its data processing systems in 1995. The
systems study culminated in the selection of a third party data processing
provider and a commitment by the Company to invest in system improvements.
These enhancements, already underway at year-end, will serve as the platform
allowing the Bank to deliver quality products and services in a cost effective
and efficient manner as we approach the 21st century.
REGULATORY MATTERS. In August 1995, the Federal Deposit Insurance
Corporation and the Connecticut Banking Commissioner terminated the Memorandum
of Understanding (the "Memorandum") originally entered into with Derby Savings
in 1992. The Memorandum, as amended, required, among other things, that the
Bank achieve a tier 1 capital to total assets ratio of at least 5.75% and that
adversely classified assets and delinquent loans be reduced to certain targeted
levels. Additionally, the Memorandum had limited the payment of cash dividends
by the Bank to DS Bancor to the Company's debt service and non-salary expenses.
DIVIDENDS. The Company paid 5% stock dividends in March and November
1995. The per share amounts for the current and prior periods have been
retroactively adjusted to give effect to this stock dividend. On January 23,
1996, the Board of Directors of the Company declared a cash dividend of $.06 per
share on its common stock, payable March 1, 1996 to stockholders of record on
February 16, 1996.
DERBY FINANCIAL SERVICES. Complementing the financial services offered to
the communities served by the Bank, Derby Financial Services, the Bank's wholly
owned subsidiary, began offering brokerage services in 1993. Through an
arrangement with Liberty Securities Corporation, a NASD registered broker-
dealer, the products offered include various equity securities, bonds and mutual
funds.
FINANCIAL CONDITION
GENERAL. The Company's assets totaled $1,254.5 million at December 31,
1995, representing a $31.8 million or 2.6% increase from year end 1994. This
level of growth was consistent with the $28.6 million or 2.4% increase
experienced in 1994. Asset growth in 1995 was attributable to growth in the
Bank's loan portfolio which was essentially funded by an increase in the Bank's
deposit base.
In determining the appropriate type and mix of the Company's assets and
liabilities, management seeks to maximize current and future net interest income
within acceptable levels of interest rate and credit risk, while
<PAGE>
simultaneously meeting customer needs and satisfying liquidity and capital
requirements. The Company's statement of position reflects management's
continuous pursuit of an allocation of resources and funding sources necessary
to achieve these objectives.
SOURCES AND USES OF FUNDS. 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 December 31, 1995, loans totaled approximately
$882.2 million, representing 70.3% of the Company's assets, compared to $846.2
million or 69.2% of total assets at December 31, 1994. Investment securities of
$320.2 million or 25.5% of total assets remained virtually unchanged from $322.1
million or 26.3% of total assets at prior year end. Cash and cash equivalents
were $20.7 million at December 31, 1995 compared to $18.6 million at December
31, 1994. All other assets of $38.2 million at year end 1995 reflected a
decline from $42.5 million at year end 1994. The decline in other assets was
primarily attributable to a $2.0 million reduction in foreclosed assets and a
$4.0 million reduction in the net deferred income tax asset during 1995
resulting from the tax effect attributable to the change in the unrealized
gain/loss on securities available-for-sale.
LOANS. 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 $737.4 million, representing 58.8% of total
assets and 83.6% of total loans at year end 1995. Mortgage loans, including
$2.0 million of loans held-for-sale at December 31, 1995 and $55.2 million of
loans held-for-sale at December 31, 1994, increased by $13.1 million or 1.8%
during 1995.
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 $691.6
million or 78.4% of the Bank's total loan portfolio at year end 1995 compared to
$684.7 million, or 80.9% of the total loan portfolio, at year end 1994.
During 1995, the volume of residential mortgage loan originations in the
Bank's market area, at requisite rates of return and interest rate sensitivity,
was inadequate to support the Bank's demand. As in prior years, the Bank
supplemented its own local loan originations with the purchase of single family
adjustable rate mortgage loans. The Bank purchased $97.1 million of these loans
during 1995 compared to $21.9 million in 1994.
Multi-family housing loans totaled $11.2 million or 1.3% of the total loan
portfolio at year end 1995 compared to $8.7 million or 1.0% of the total
<PAGE>
loan portfolio at year end 1994. Loans to finance commercial real estate
totaled $31.1 million or 3.5% of the total loan portfolio at December 31, 1995,
representing an increase of $2.6 million from the prior year end. In an effort
to expand this portfolio, the Bank added an experienced commercial real estate
loan officer to its staff in the fourth quarter of 1995.
Loans to finance real estate construction, primarily residential
condominiums and single family residences, increased slightly to $3.5 million or
0.4% of total loans at December 31, 1995 from $2.4 million or 0.3% of total
loans at year end 1994. Unadvanced construction commitments approximated $2.1
million at year end 1995 compared to $1.8 million at year end 1994.
As local residential mortgage loan origination activity declined, increased
emphasis was given by the Bank to financing the growing needs of the consumer
loan market. The Company's investment in consumer loans increased by 28.2%
from $98.2 million at December 31, 1994 to $125.9 million at December 31, 1995.
The Company's investment in consumer loans represented 10.0% of total assets at
year end 1995 compared to 8.0% 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. HELOC's totaled $144.0 million, with $78.5
million in use at year end 1995 compared to $130.5 million, with $70.3 million
in use at year end 1994. HELOC's in use accounted for 62.4% of consumer loans
and 8.9% of total loans at December 31, 1995 compared to 71.6% and 8.3%,
respectively, at December 31, 1994.
The remainder of the consumer loan portfolio is substantially comprised of
home equity loans and automobile loans. Home equity loans increased by $2.5
million or 12.8% to $21.7 million at December 31, 1995 compared to the prior
year end. Automobile loans increased from $2.3 million at December 31, 1994 to
$17.9 million at December 31, 1995. The growth in the Bank's automobile loan
portfolio was attributable to the periodic purchase of $16.6 million of loans
from a third party provider.
In addition to mortgage and consumer lending, 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 $19.0 million at year end 1995, reflecting a $4.7 million or 20.0%
decrease from the $23.7 million invested at year end 1994. At December 31,
1995, $3.6 million or 18.9% of this portfolio was invested in loans for the
development of real estate and $15.4 million or 81.1% was invested in loans
<PAGE>
for various business needs. Unadvanced real estate development commitments
totaled $1.6 million at year end 1995 compared to $1.1 million at year end 1994.
In an effort to diversify the assets of the Company, in tandem with
increasing the allocation of resources in interest rate sensitive loans, the
Bank increased its commercial lending staff with the addition of a loan officer
experienced in SBA lending and accounts receivable financing. The Bank has
established two regional offices, located in Derby and New Britain, to pursue
the origination of commercial loans. Each location is staffed with loan
officers as well as support staff. In addition to business calls made by
commercial loan officers, the Bank also relies on branch managers to assist in
the development of new business activity and to service existing relationships.
INVESTMENT SECURITIES. The Bank's securities portfolio was $320.2 million
or 25.5% of total assets at December 31, 1995, virtually unchanged from $322.1
million or 26.4% 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 and 2). At December 31, 1995, the Bank had securities
totaling $77.9 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 December 31, 1995 totaled
$241.1 million compared to $216.7 million at December 31, 1994. The available-
for-sale category at year end 1995 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 December 31, 1995, the Bank had unrealized gains,
net of tax effect, of $0.4 million compared to net unrealized losses, net of tax
effect, of $5.6 million at December 31, 1994. The $6.0 million adjustment of
unrealized gains reflected in Stockholders' Equity was, in part, the result of
the sale of $52.9 million of investment securities at a net loss of $1.1 million
and the decline in interest rates
<PAGE>
that occurred during 1995.
The Financial Accounting Standards Board (FASB) issued a Special Report, "A
Guide to Implementation of Statement 115 on Accounting for Certain Investments
in Debt and Equity Securities," that provided additional guidance relating to
the application of SFAS 115. In connection with the issuance of this Special
Report, the FASB allowed financial institutions to review their portfolio
classification between held-to-maturity, available-for-sale and trading and make
a one-time reclassification of securities between categories during the period
from November 15, 1995 to December 31, 1995. As a result of the reassessment
between classifications of its portfolio, the Bank reclassified $20.4 million of
securities from the held-to-maturity category to the available-for-sale
category. The reallocated securities were mortgage-backed passthroughs that
exhibited certain levels of price volatility given movements in interest rates.
The trading portfolio, which consists of equity securities, totaled $1.2
million at year end 1995 compared to $0.8 million at December 31, 1994. During
1995, the Bank recognized a net trading gain of $516,000 from securities sales
of $5.9 million. This portfolio is carried at fair value with changes in
unrealized gains or losses reflected in earnings. At December 31, 1995, the
trading portfolio had unrealized holding gains of $23,000 compared to unrealized
holding losses of $148,000 at December 31, 1994. These amounts are reflected in
the Company's Consolidated Statements of Earnings for the years ended December
31, 1995 and 1994, respectively.
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 Federal Home Loan Bank of Boston
("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 the sale of
securities.
In 1995, deposits increased by $30.4 million or 3.0%, after interest
credited of $46.2 million, from $1.027.7 million, funding 84.1% of total assets
at year end 1994, to $1.058.1 million, funding 84.3% of total assets at year end
1995. In comparison, deposits increased by $21.5 million or 2.1% after interest
credited of $35.9 million in 1994. 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
<PAGE>
year end 1995, FHLBB advances totaled $96.9 million, funding 7.7% 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 $211.9 million in investable funds in 1995,
compared to $123.0 million in 1994. In keeping with the Bank's asset and
liability management objectives (see "Asset/Liability Management"), the Bank
periodically may sell loans. The Bank has retained servicing on all loans that
have been sold and was servicing $147.1 million of mortgage loans for others at
December 31, 1995.
ASSET/LIABILITY MANAGEMENT. The primary function of the Company's asset
and liability management program is to identify and manage interest rate risk
and allocate the resources of the Bank to stabilize and increase the level of
net interest income through all phases of the business cycle and resulting
interest rate levels. This objective is administered through the matching of
the interest rate sensitivity of the Bank's sources and uses of funds. The
Bank's Asset Liability Management Committee is responsible for managing interest
rate risk within tolerable variances as established in the Company's
Asset/Liability Policy.
The Bank monitors the overall interest rate sensitivity of its financial
structure through simulation modeling under various levels of interest rates and
attendant volumes. Interest rate sensitivity is measured and managed based on
information provided by an earnings simulation model that is used to evaluate
the effect of prospective upward and downward changes in interest rates on net
interest income and net income. The model includes maturity and repricing
information as well as additional assumptions which affect balances under
various interest rate scenarios, such as the susceptibility of loans and
mortgage-related securities to prepayment variations. At December 31, 1995, the
simulated impact of rising and falling interest rate environments on net
interest income was within the Board-approved tolerance levels.
The Company also monitors its exposure to interest rate risk as reflected
in the difference between rate sensitive assets and rate sensitive liabilities
repricing within various time frames, commonly referred to as "static gap."
While this evaluation of interest rate sensitivity is useful, it fails to
accurately reflect the impact of volumes and timing of interest rate
sensitivity. Although the Bank does not rely on the static gap analysis as an
<PAGE>
accurate measure of interest rate risk, it does in general strive to maintain a
ratio of rate sensitive assets to rate sensitive liabilities over a time horizon
of one year, within a range of 90% to 110%. The ratio of interest-sensitive
assets to interest-sensitive liabilities, as measured over a twelve month
horizon at December 31, 1995, was 97.7% compared to 91.1% at year end 1994.
To minimize the interest rate risk associated with its loan portfolio, the
Company emphasizes the origination of interest rate sensitive loans. In 1995,
the Bank originated $44.9 million in mortgage loans, of which $29.1 million or
64.8% had adjustable rate features, compared to $127.2 million or 77.0% with
adjustable rate features for 1994. Even though the Bank remained competitive in
its loan pricing, the decline in mortgage loan originations in 1995 compared to
1994 was reflective of the soft real estate market in Connecticut and the
sluggish demand for both home purchases and refinancings. In response to the
inadequate local loan demand, the Bank supplemented mortgage loan originations
with the purchase of single family adjustable rate mortgage loans. These
purchases totaled $97.1 million during 1995 compared to $21.9 million during
1994. At December 31, 1995, adjustable rate mortgage loans of $554.4 million
comprised 74.8% of total mortgage loans. In addition, the Bank originated $50.8
million of HELOC's in 1995 which adjust to changes in the prime rate, compared
to $31.3 million in 1994. At December 31, 1995, adjustable rate HELOC's
outstanding of $78.5 million accounted for 62.4% of consumer loans compared to
$70.4 million or 71.6% at year end 1994.
As an integral part of interest rate risk, the Bank closely monitors the
composition of fixed and variable rate loans in the loan portfolio. From time
to time, in order to achieve the desired balance between interest sensitive
assets and liabilities and to be able to meet the credit needs of the local
community, the Bank sells mortgage loans in the secondary market. The Company
sold $32.6 million in loans in 1995 of which $7.4 million were fixed rate and
$25.2 million were adjustable rate. In 1994 the Company sold $12.1 million in
mortgage loans, all of which were fixed rate. At December 31, 1994, the Bank
had $55.2 million in loans which were identified as held-for-sale, of which $7.6
million were fixed rate and $47.6 million were adjustable rate. Of the $55.2
million in loans identified as held-for-sale at December 31, 1994, $29.3 million
were sold in 1995 with the remainder returned to the Bank's loan portfolio.
During 1995, as interest rates trended downward, the interest rate
sensitivity of deposits increased slightly as customers opted to shorten the
maturity of their term deposit accounts. By the latter half of the year, the
decline in interest rates reached a level at which interest rates on maturing
<PAGE>
deposit accounts approximated then current deposit interest rates and, as such,
indicated a stabilization in the cost of this funding source. The steady flow
of funds from regular savings to higher yielding deposit accounts, however,
caused a rise in the overall cost of deposits. The regular savings account type
has historically been classified as a fixed rate long-term core deposit funding
source. However, as rates declined and the rate on this account type was
reduced, the account took on characteristics of a variable rate product.
Regular savings accounts declined from $213.6 million or 20.8% of total deposits
at year end 1994 to $185.6 million or 17.5% of total deposits at year end 1995.
Term certificates of deposit increased $50.9 million or 9.6% during 1995,
representing 54.8% of total deposits compared to 51.5% of total deposits at year
end 1994.
The Company manages the interest rate sensitivity of its source of funds by
attracting longer term certificates of deposit when the market will permit,
emphasizing core deposits which are less sensitive to changes in interest rates,
and borrowing longer term FHLBB advances. At December 31, 1995, interest-
sensitive liabilities subject to interest rate adjustments in the next twelve
months, primarily comprised of deposits, and to a lesser extent, advances from
the FHLBB, totaled $902.7 million. In comparison, at year end 1994, this amount
totaled $886.0 million. The $16.7 million increase in rate sensitive
liabilities was more than offset by an increase in rate sensitive assets during
this period, resulting in a more evenly matched static gap position relative to
year end 1994. At December 31, 1995, rate sensitive assets subject to interest
rate adjustments in the next twelve months, primarily comprised of adjustable
rate loans, and to a lesser extent, variable rate securities, totaled $879.4
million compared to $807.1 million at year end 1994.
The following table summarizes the Company's interest-sensitive assets and
interest-sensitive liabilities at December 31, 1995 that mature or reprice
during the various time periods noted. Loans are net of deferred loan fees,
premiums and discounts, and non-accruing loans.
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 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 $182,760 $64,029 $38,569 $18,783 $4,903 $4,632 $198 $313,874
Federal funds sold 2,305 -- -- -- -- -- -- 2,305
--------- --------- --------- --------- --------- --------- --------- ----------
Total investments 185,065 64,029 38,569 18,783 4,903 4,632 198 316,179
--------- --------- --------- --------- --------- --------- --------- ----------
Loans:
Fixed-rate mortgages 5,283 5,510 23,872 24,280 53,451 47,311 24,850 184,557
Adjustable-rate mortgages 286,666 218,139 17,955 12,248 4,029 3,104 -- 542,141
Consumer loans 87,977 9,199 16,276 3,869 5,104 2,072 -- 124,497
Commercial loans 17,472 15 85 28 141 19 -- 17,760
--------- --------- --------- --------- --------- --------- --------- ----------
Total loans 397,398 232,863 58,188 40,425 62,725 52,506 24,850 868,955
--------- --------- --------- --------- --------- --------- --------- ----------
TOTAL INTEREST-SENSITIVE ASSETS $582,463 $296,892 $ 96,757 $ 59,208 $ 67,628 $ 57,138 $ 25,048 $1,185,134
--------- --------- --------- --------- --------- --------- --------- ----------
--------- --------- --------- --------- --------- --------- --------- ----------
LIABILITIES:
Regular & club savings $185,610 $ -- $ -- $ -- $ -- $ -- $ -- $ 185,610
Certificates of deposit 228,352 156,769 137,999 56,691 -- -- -- 579,811
Money market accounts 209,265 -- -- -- -- -- -- 209,265
NOW accounts 47,460 -- -- -- -- -- -- 47,460
FHLBB advances 54,412 18,554 20,790 3,120 -- -- -- 96,876
--------- --------- --------- --------- --------- --------- --------- ----------
TOTAL INTEREST-SENSITIVE LIABILITIES $725,099 $175,323 $158,789 $59,811 $ -- $ -- $ -- $1,119,022
--------- --------- --------- --------- --------- --------- --------- ----------
--------- --------- --------- --------- --------- --------- --------- ----------
GAP (repricing difference) ($142,636) $121,569 ($62,032) ($603) $67,628 $ 57,138 $ 25,048
Cumulative GAP ($142,636) ($21,067) ($83,099) ($83,702) ($16,074) $ 41,064 $ 66,112
Cumulative GAP/total assets -11.4% -1.7% -6.6% -6.7% -1.3% 3.3% 5.3%
Ratio of interest-sensitive assets
to interest-sensitive liabilities 80.3% 169.3% 60.9% 99.0% 105.9%
Cumulative ratio of interest-sensitive
assets to interest-sensitive liabilities 97.7% 92.2% 92.5% 98.6% 103.7% 105.9%
</TABLE>
<PAGE>
ASSET QUALITY. The Connecticut economy, although showing some signs of
economic vitality, continues to lag behind the national recovery. Nonetheless,
the Company has experienced continued success in 1995 in the reduction of non-
performing assets. Non-performing assets, which include loans past due 90 days
or more, non-accrual loans, and foreclosed assets (see Consolidated Financial
Statements - Note 1) declined by $3.3 million or 16% during the year ended
December 31, 1995 compared to the prior year period. Non-performing assets
comprised 1.4% of the Company's total assets at year end 1995 compared to 1.7%
at prior year end.
The following table summarizes the Bank's non-performing loans and
foreclosed assets ("non-performing assets"), and restructured loans:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
Non-accrual loans:
Mortgage $10,658 $11,000 $12,302 $18,387 $18,984
Consumer 1,421 1,280 1,789 2,082 1,616
Commercial 1,210 1,576 3,215 3,901 8,108
------- ------- ------- ------- -------
Total 13,289 13,856 17,306 24,370 28,708
------- ------- ------- ------- -------
Accruing loans past
due 90 days:
Mortgage 442 1,186 2,317 3,006 4,096
Consumer 37 --- 249 1 151
------- ------- ------- ------- -------
Total 479 1,186 2,566 3,007 4,247
------- ------- ------- ------- -------
Total non-performing
loans 13,768 15,042 19,872 27,377 32,955
------- ------- ------- ------- -------
Foreclosed assets 3,942 6,195 9,379 10,456 7,305
Valuation allowance (230) (439) (1,040) (438) (412)
------- ------- ------- ------- -------
Total, net 3,712 5,756 8,339 10,018 6,893
------- ------- ------- ------- -------
Total non-performing
assets $17,480 $20,798 $28,211 $37,395 $39,848
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Restructured loans $ 4,385 $ 4,213 $ 2,273 $ 8,262 $ 6,985
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
NON-PERFORMING LOANS. Non-performing loans include non-accrual loans and
accruing loans past due 90 days or more. It is the Company's general policy to
account for a loan as non-accrual when the loan becomes 90 days delinquent or
when collection of interest becomes doubtful. In certain cases, loans may
remain on accrual status past 90 days when it is determined that continued
accrual is warranted because the loan is well secured and in the process of
collection.
As detailed in the table above, the level of non-performing loans declined
by $1.2 million or 8.5% from $15.0 million at year end 1994 to $13.8 million at
year end 1995. Non-performing mortgage loans of $11.1 million or 80.6% of total
non-performing loans at December 31, 1995, declined $1.1
<PAGE>
million from prior year end. Non-performing consumer loans of $1.5 million or
10.6% of total non-performing loans at December 31, 1995 increased by $0.2
million from prior year end. Commercial non-performing loans of $1.2 million or
8.8% of total non-performing loans, declined by $0.4 million during 1995.
FORECLOSED ASSETS. During 1995 the Bank continued to make significant
progress in reducing the level of foreclosed assets. At year end 1995, the Bank
had $3.7 million in foreclosed assets, consisting of 27 properties compared to
$5.8 million, consisting of 37 properties at year end 1994.
In addition to the personnel assigned to loan review and the
collection/workout area, the Bank has an officer 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 59 properties for an aggregate consideration of $4.6 million in 1995.
During the prior year, the Bank sold and closed on 60 properties for an
aggregate consideration of $6.2 million.
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. In 1995, the Bank provided $1.5 million to this
allowance compared to $2.2 million in 1994. During 1995, the Bank charged $1.7
million in specific write-downs against this allowance compared to $2.8 million
during the prior year. At December
<PAGE>
31, 1995, the allowance for estimated losses on foreclosed assets totaled $0.2
million compared to $0.4 million at year end 1994.
RESTRUCTURED LOANS. In addition to non-performing assets, the Company also
had $4.4 million of restructured loans at year end 1995 compared to $4.2 million
at year end 1994. Loans are considered restructured when the Bank, for economic
or legal reasons related to the borrower's financial difficulties, grants a
concession that it would not otherwise grant. Restructured debt may include
changing repayment terms, reducing stated interest rates and reducing the
amounts of principal and/or interest due, or extending the maturity date. The
restructuring of a loan is intended to recover as much of the Company's
investment as possible. Restructured loans do not include $1.8 million of
modified one-to-four family residential mortgage loans at December 31, 1995.
Residential loans are considered modified when the original terms of the loan
are changed to accommodate short-term financial difficulties of the borrower.
The terms of the modified one-to-four family residential mortgage loans are
consistent with loans then currently written on purchase money mortgages and
refinances and the borrowers meet income guidelines and other underwriting
criteria based on the terms of the modified loan.
DELINQUENT LOANS. 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 table
below, the amount of loans past due 60 days has increased to $9.3 million at
December 31, 1995, representing 1.1% of the total loan portfolio compared to
$6.1 million or 0.7% of the total loan portfolio at year end 1994. This
increase suggests that the level of non-performing assets may increase in 1996.
However, management believes that the increase is temporary and does not
indicate a trend toward higher levels of non-performing assets.
The following table summarizes the Bank's accruing loans past due 60 days:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
Loans past due 60 days:
Mortgage $ 8,111 $ 5,014 $ 7,369 $ 8,829 $ 9,072
Consumer 994 1,015 651 815 525
Commercial 203 62 --- 95 353
------- ------- ------- ------- -------
Total $ 9,308 $ 6,091 $ 8,020 $ 9,739 $ 9,950
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
ALLOWANCE FOR CREDIT LOSSES. 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.
<PAGE>
The Company maintains an allowance for credit losses to provide for possible
losses within the loan portfolio.
The following table sets forth non-performing loans and the Allowance for
credit losses at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------------------------------
1995 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 $ 7,251 1.0% $ 8,095 1.2%
Commercial 1,495 4.8 1,643 5.8
Multi-family 2,354 21.1 2,448 28.2
------- -------
Total 11,100 1.5 $ 4,183 37.7% 12,186 1.7 $ 4,495 36.9%
------- -------
Consumer
HELOC 978 1.2 816 1.2
All other 480 1.0 464 1.7
------- -------
Total 1,458 1.2 1,751 120.1 1,280 1.3 1,266 98.9
------- -------
Commercial
Real estate
development 314 8.7 788 20.9
All other 896 5.8 788 4.0
------- -------
Total 1,210 6.4 972 80.3 1,576 6.6 1,042 66.1
------- ------- --------
Total Loans $13,768 1.6 $ 6,906 50.2 $15,042 1.8 $ 6,803 45.2
------- ------- --------
------- ------- --------
</TABLE>
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 analyses, 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 $2.5 million to the Allowance for credit losses during 1995
compared to $2.3 million during 1994. During the year ended December 31, 1995,
the Bank wrote off $2.4 million (net of recoveries). At December 31, 1995, the
Allowance for credit losses totaled $6.9 million which includes $1.2 million
allocated to the loans acquired in the Burritt transaction (see Consolidated
Financial Statements--Note 13). 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. The Allowance for credit losses
represented 50.2% of non-performing loans at year end 1995, compared to 45.2% at
year end 1994.
<PAGE>
The following table summarizes the transactions in the Allowance for credit
losses for the periods indicated:
<TABLE>
<CAPTION>
AT AND FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1995 1994 1993
------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Mortgage Loans
Balance at beginning of period $ 4,495 $ 4,605 $11,166
Provision for credit losses 1,725 1,675 1,925
Acquired allowance --- --- (5,958)
Loan charge-offs (2,306) (1,848) (2,857)
Recoveries 269 63 329
------- ------- -------
Balance at end of period $ 4,183 $ 4,495 $ 4,605
------- ------- -------
------- ------- -------
Consumer Loans
Balance at beginning of period $ 1,266 $ 1,193 $1,987
Provision for credit losses 800 600 50
Acquired allowance --- --- (5)
Loan charge-offs (399) (573) (860)
Recoveries 84 46 21
------- ------- -------
Balance at end of period $ 1,751 $ 1,266 $ 1,193
------- ------- -------
------- ------- -------
Commercial Loans
Balance at beginning of period $ 1,042 $ 1,181 $784
Provision for credit losses --- 50 500
Loan charge-offs (78) (195) (114)
Recoveries 8 6 11
------- ------- -------
Balance at end of period $ 972 $ 1,042 $ 1,181
------- ------- -------
------- ------- -------
Total Allowance for Credit Losses
Balance at beginning of period $ 6,803 $ 6,979 $13,937
Provision for credit losses 2,525 2,325 2,475
Acquired allowance --- --- (5,963)
Loan charge-offs (2,783) (2,616) (3,831)
Recoveries 361 115 361
------- ------- -------
Balance at end of period $ 6,906 $ 6,803 $ 6,979
------- ------- -------
------- ------- -------
</TABLE>
<PAGE>
LIQUIDITY. The Bank monitors its liquidity position to ensure that it is
able to meet its need for funds. In general, the Bank maintains a level of
asset-based liquidity which is consistent with its current business plan. The
volume of liquid assets carried by the Bank will vary from time to time based on
management's business objectives, which in part, will be influenced by expected
economic activity. During periods of economic expansion, coupled with a
commensurate increase in loan demand, or during a period of disintermediation,
financial resources may be allocated from asset-based liquidity to fund these
demands. In the event that asset-based liquidity is at a minimum, the Bank will
rely upon liability based liquidity to augment its funding needs. This source
of liquidity is primarily provided by the FHLBB. As a member of the FHLBB, the
Bank is eligible to borrow against certain qualifying collateral assets as
defined by the FHLBB. At December 31, 1995, the Bank had $759.7 million in
qualifying collateral against which actual borrowings were $96.9 million.
As of December 31, 1995, the Company had short-term liquid assets
consisting of cash, due from banks, federal funds, unpledged available-for-sale
securities, and loans held-for-sale of $252.6 million. The Company's short-term
liquid assets represented 22.4% of the Company's liquidity base, defined as all
withdrawable deposit accounts, less the unpaid balance of loans secured by such
accounts, and the principal amount of all borrowings payable on demand in one
year or less.
CAPITAL RESOURCES. Stockholders' Equity at December 31, 1995
increased to $80.8 million from $67.1 million at December 31, 1994. The $13.7
million or 20.4% increase in Stockholders' Equity was primarily attributable to
net income of $7.6 million for the year ended December 31, 1995 and a positive
change in the unrealized gain/loss on securities available-for-sale, net of tax
effect, of $6.0 million.
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. Of the premium paid, $5.0 million was recorded
as a core deposit intangible. At December 31, 1995, the core deposit intangible
totaled $2.8 million. This amount, in addition to approximately $142,000 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
<PAGE>
of tier 1 capital to risk-weighted assets of 10.9% at December 31, 1995.
The FRB has supplemented the risk-based capital requirements with a
required minimum leverage ratio of 3% of tier 1 capital to total assets. The
FRB 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 December 31, 1995, the Company had a ratio of tier 1 capital to total assets
of 6.2%.
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 December 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 10.8%.
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 December 31,
1995 was 6.1%.
Under the FDIC's prompt corrective action regulation, a savings bank
is 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); (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
December 31, 1995, the Bank met the "well capitalized" criteria based on its
capital ratios at that date.
<PAGE>
RESULTS OF OPERATIONS
GENERAL. The net income of the Company is principally derived from the
banking operation of its wholly owned subsidiary, Derby Savings Bank. The net
income of Derby Savings is dependent to a substantial extent on the difference
between interest and fee income on its loans plus interest and dividends on its
securities portfolio and its cost of money, consisting principally of the
interest paid on its deposit accounts and, to a lesser extent, interest paid on
its borrowings.
The difference between interest income and interest expense is referred to
as net interest income. The difference between the combined weighted average
yield on loans and securities and the combined weighted average cost of deposits
and borrowings is referred to as the net interest rate spread. Interest income
from interest-earning assets depends primarily on the volume of such assets
outstanding during the period and the interest rates and fees earned thereon.
Derby Savings' interest expense is a function of the average amount of deposits
and borrowed money outstanding during the period and the interest rates paid
thereon.
The following table reflects average yields and costs during the periods
indicated:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Average yield:
Mortgage loans 7.41% 6.73% 7.23% 8.47% 9.75%
Other loans 9.36 8.25 7.61 7.79 9.87
Securities 6.40 5.75 5.17 6.25 7.86
All interest-earning assets 7.34 6.58 6.54 7.87 9.51
Average cost:
Deposits 4.57 3.61 3.81 4.59 6.71
Borrowings 5.70 5.53 5.48 6.15 7.45
All interest-bearing liabilities 4.67 3.82 3.99 4.83 6.83
Net interest rate spread 2.67 2.76 2.55 3.04 2.68
Net yield on average
interest-earning assets (a) 2.97 2.94 2.68 3.24 3.02
</TABLE>
(a) NET INTEREST INCOME DIVIDED BY AVERAGE INTEREST-EARNING ASSETS.
<PAGE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994
NET INCOME. Net income for the year ended December 31, 1995 was a record
$7,613,000 or $2.45 per share (fully diluted) compared to $5,710,000 or $1.86
per share (fully diluted) for the prior year. Net income for 1995 represents a
$1,903,000 or 33.3% increase above 1994 net income. The improvement in net
income was primarily attributable to $0.5 million or 1.6% increase in net
interest income, a $0.6 million or 18.8% increase in non-interest income and a
$2.1 million or 8.1% decline in non-interest expense.
For 1995, net income represented a return on average assets and a return on
average stockholders' equity of 0.63% and 9.95%, respectively, compared to 0.47%
and 8.34%, respectively, for 1994.
INTEREST INCOME. Interest and fee income on loans and interest and
dividends on the securities portfolio increased $9.3 million or 12.0% from $77.3
million during 1994 to $86.6 million during 1995. The increase in interest
income realized in 1995 compared to 1994 highlights the success of the Company's
strategy to place greater emphasis on variable rate loan products as opposed to
securities, and also the continued reduction of non-performing assets. Average
loans outstanding increased by $27.7 million or 3.4% and average investment
securities decreased by $28.3 million or 8.2% in 1995 compared to 1994. The
average yield on the Company's loan portfolio increased by 76 basis points (100
basis points equals 1%) from 6.95% for 1994 to 7.71% for 1995. The average
yield on the Company's investment securities increased 58 basis points from
5.72% to 6.40%. The change in the mix of earning assets, combined with higher
yields experienced on both loans and securities during 1995, resulted in an
increase in the overall yield on earning assets from 6.58% in 1994 to 7.34% in
1995.
The volume of average earning assets increased by $6.4 million or 0.5% from
$1,173.8 million in 1994 to $1,180.2 million in 1995. Contributing to the
growth in average earning assets, non-performing assets, which includes non-
performing loans and foreclosed assets, declined 15.9% from $20.8 million or
1.7% of total assets at December 31, 1994 to $17.5 million or 1.4% of total
assets at December 31, 1995. Average non-earning assets declined by $19.0
million or 36.5% between 1994 and 1995.
INTEREST EXPENSE. Interest expense increased $8.8 million or 20.5% from
$42.8 million during 1994 to $51.6 million during 1995. The increase in
interest expense was due to a change in the mix of interest-bearing liabilities
and an increase in the average cost of funds. Mitigating these factors, in
part, was a decline in average interest-bearing liabilities outstanding during
the year. Average interest-bearing liabilities decreased by $14.5 million or
1.3% from $1,119.6 million in 1994 to $1,105.1 million in 1995.
Average interest-bearing deposits increased by $15.6 million between 1994
<PAGE>
and 1995. The average cost of deposits rose from 3.61% in 1994 to 4.57% in
1995. This rise in the average cost of deposits resulted from a shift in
deposit funds from lower costing regular savings to higher costing certificates
of deposit and an increase in the interest rate paid on money market deposit
accounts linked to the prime rate, which increased during 1995. Additionally,
the cost of certificate of deposit accounts increased as accounts that matured
during the first half of the year renewed at interest rates higher than those
that were previously being paid. Average borrowed funds declined by $30.1
million or 24.4% from $123.2 million in 1994 to $93.1 million in 1995. The
average cost of borrowings increased 17 basis points during this period to
5.70%. The cost of total interest-bearing liabilities for the Bank increased 85
basis points to 4.67% in 1995.
NET INTEREST INCOME. Net interest income, the primary component of the
Company's earnings, increased $.5 million or 1.6% to $35.0 million for 1995 from
$34.5 million for 1994. As a result of the 76 basis point improvement in the
average yield on interest-earning assets and the 85 basis point increase in the
average cost of interest-bearing liabilities, the net interest rate spread
decreased 9 basis points to 2.67% for 1995 from 2.76% for 1994. The combined
effect of an increase in average interest-earning assets and a decrease in
average interest-bearing liabilities improved the Company's net yield on
interest-earning assets by 3 basis points from 2.94% for 1994 to 2.97% for 1995.
The following table summarizes net interest income:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans $65,148 $56,802 $53,428 $44,568 $51,208
Securities 21,441 20,480 20,907 9,576 6,588
------- ------- ------- ------- -------
Total 86,589 77,282 74,335 54,144 57,796
------- ------- ------- ------- -------
Interest expense:
Deposits 46,267 36,008 37,599 25,493 32,585
Borrowings 5,308 6,810 6,217 6,392 6,884
------- ------- ------- ------- -------
Total 51,575 42,818 43,816 31,885 39,469
------- ------- ------- ------- -------
Net interest income $35,014 $34,464 $30,519 $22,259 $18,327
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
RATE/VOLUME ANALYSIS. The most significant impact on the Company's net
income between periods is derived from the interaction of changes in the volume
of, and rates earned or paid, on interest-earning assets and interest-bearing
liabilities.
<PAGE>
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, which cannot be segregated, have
been allocated in proportion to the relationship of the absolute dollar amounts
of the changes in each.
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------
1995 Compared to 1994
---------------------
Volume Rate Net
------ ------ -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Interest earned on:
Loans $ 1,976 $ 6,370 $ 8,346
Taxable investment securities (1,695) 2,248 553
Federal funds 316 102 418
FHLBB stock 61 (71) (10)
------- ------- -------
Interest income 658 8,649 9,307
------- ------- -------
Interest paid on:
Deposits 571 9,688 10,259
Borrowed funds (1,710) 208 (1,502)
------- ------- -------
Interest expense (1,139) 9,896 8,757
------- ------- -------
Net interest income $ 1,797 $(1,247) $ 550
------- ------- -------
------- ------- -------
</TABLE>
PROVISION FOR CREDIT LOSSES. During 1995, the Bank provided $2.5 million
for credit losses compared to $2.3 million during 1994. In addition to the
provision for credit losses, the Bank also provided $1.5 million for estimated
losses on foreclosed assets during 1995 compared to $2.2 million during 1994.
These provisions are included in foreclosed asset expense (see "Non-interest
Expense").
NON-INTEREST INCOME. Non-interest income is derived from fees which the
Bank charges for various loan and deposit account services, fees generated from
other ancillary services provided by the Bank, and net securities and loan
gains. During 1995, the income generated from these sources totaled $3.7
million compared to $3.1 million for the prior year, reflecting an increase of
$0.6 million or 19.4%.
Service charges and other fee income increased $0.3 million or 10.3% and
totaled $2.7 million for 1995 compared to $2.4 million earned in 1994.
During the first quarter of 1995, the Bank sold $47.7 million of
investment securities and $29.5 million in mortgage loans. The Bank recorded
a loss of $1.8 million on the sale of the securities and a gain of $1.5
million on the sale of the loans, resulting in a net loss on the combined
sale of assets of $0.3 million. The proceeds from these transactions were
invested in higher yielding interest rate sensitive loans and securities, and
were used to reduce FHLBB advances. As a result of subsequent transactions
within the securities portfolio, the Company recognized net gains on the sale
of securities, which reduced the loss on the sale of securities for 1995 to
$0.5 million compared to a
<PAGE>
net gain on the sale of securities of $0.5 million during 1994.
NON-INTEREST EXPENSE. Non-interest expense totaled $23.5 million or 1.94%
of average assets during 1995 compared to $25.6 million or 2.09% of average
assets in 1994. The $2.1 million or 8.1% decrease in the Company's cost of
operations was due to a decline in the cost associated with managing foreclosed
properties and in the cost of FDIC insurance.
Salaries and employee benefits, the largest component of the Company's cost
of operations, increased $0.4 million or 4.2% from $10.1 million during 1994 to
$10.6 million during 1995. Salaries increased $0.3 million or 3.3% during 1995
compared to the prior year. Included in salary expense in 1995 was $178,000 in
compensation expense resulting from the exercise of stock appreciation rights.
Compensation expense resulting from the exercise of stock appreciation rights in
1994 totaled $122,000. Employee benefit expense increased $0.2 million or 7.5%
during the year from $2.3 million for 1994 to $2.5 million in 1995.
During 1995, the Bank continued to incur expenses with the foreclosure
process and the management of foreclosed assets. These expenses include all of
the direct costs associated with acquiring, holding, managing, marketing and
disposing of these assets. In 1995, the Bank incurred foreclosed asset
expenses, net of gains on sale of foreclosed property, of $0.3 million compared
to $0.7 million in 1994 (see Consolidated Financial Statements--Note 4).
Subsequent to an initial estimate of value of the underlying real estate
securing loans in the foreclosure process, the Bank updates appraisals at least
on an annual basis. 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. For the year ended December 31, 1995,
the Bank provided $1.5 million to this allowance compared to $2.2 million for
the prior year. The Company expects that until the level of foreclosed assets
declines substantially, foreclosed asset expense will continue to be
significant.
The FDIC insurance premium paid by the Bank in 1995 totaled $1.5 million
compared to $2.8 million in 1994. The FDIC announced in 1995 that the Bank
Insurance Fund ("BIF") was fully capitalized as of May 31, 1995. As a result,
the FDIC refunded insurance premium overpayments and interest to member banks
for the period from June 1, 1995 through September 30, 1995 and the deposit
insurance premiums assessed most BIF member banks, including the Bank, were
reduced effective June 1, 1995. The refund received by Derby Savings Bank
totaled $653,000, which increased the Company's net income by $385,000 or $.12
per share (fully diluted) for 1995. Additionally, the Bank has been notified by
the FDIC that its deposit insurance premium assessment will be essentially
eliminated for 1996.
As required by the Statement of Financial Accounting Standards No. 91 ("SFAS
<PAGE>
91"), "Accounting for Non-refundable Fees and Costs Associated with Originating
or Acquiring Loans and Initial Direct Costs of Leases," the Bank defers certain
direct costs resulting from the origination of loans, which will be amortized as
an adjustment of yield over the contractual term of the related loans. These
deferred costs, which are principally comprised of salaries, employee benefits
and other loan expenses, totaled approximately $0.9 million during 1995 compared
to $1.5 million during 1994.
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, increased by 20 basis points during 1995 compared to 1994. Non-interest
income increased 5 basis points from .25% during 1994 to .30% during 1995. Non-
interest expense decreased 15 basis points from 2.09% during 1994 to 1.94%
during 1995.
<TABLE>
<CAPTION>
NET NON-INTEREST INCOME/EXPENSE ANALYSIS
(As a percent of average assets)
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Non-interest income .30 .25 .61 .42 .26
----- ----- ----- ----- -----
Non-interest expense
Foreclosed asset expense .15 .24 .40 .51 .39
FDIC insurance premium .12 .23 .20 .16 .16
Other 1.67 1.62 1.67 1.49 1.49
----- ----- ----- ----- -----
Total non-interest expense 1.94 2.09 2.27 2.16 2.04
----- ----- ----- ----- -----
Net non-interest margin (1.64) (1.84) (1.66) (1.74) (1.77)
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
PROVISION FOR INCOME TAXES. The provision for income taxes for 1995
totaled $5.0 million, reflecting a 39.7% effective income tax rate compared to
$3.9 million, representing an effective income tax rate of 40.7% for 1994 (see
Consolidated Financial Statements--Note 9)
COMPARISON OF YEARS ENDED DECEMBER 31, 1994 AND 1993
GENERAL. Net income for the year ended December 31, 1994 totaled
$5,710,000 or $1.86 per share (fully diluted) compared to $6,474,000 or $2.14
per share (fully diluted) for the prior year. Net income for 1993 includes
$1,548,000 or $.51 per share (fully diluted) attributable to the adoption of
Financial Accounting Standards Board Statement No. 109. This amount represents
the cumulative effect of a change in accounting for income taxes effective
January 1, 1993. Net income for 1994 represents a $784,000 or 15.9% increase
above 1993 income before the cumulative effect of the change in accounting
principle of $4,926,000 or $1.63 per share (fully diluted). As a result of the
5% stock
<PAGE>
dividend paid by the Company on March 29, 1995 and November 24, 1995, the per
share amounts for the current and prior periods have been retroactively
adjusted. The improvement in net income was primarily attributable to $4.0
million or 12.9% increase in net interest income and a $1.5 million or 5.5%
decline in non-interest expense. These improvements were offset, in part, by a
$4.2 million or 57.8% decline in non-interest income.
For 1994, net income represented a return on average assets and a return on
average stockholders' equity of 0.47% and 8.34%, respectively, compared to 0.54%
and 10.30%, excluding the effect of the change in accounting principle,
respectively, for 1993.
INTEREST INCOME. Interest and fee income on loans and interest and
dividends on the securities portfolio increased $3.0 million or 4.0% from $74.3
million during 1993 to $77.3 million during 1994. The increase in interest
income was essentially due to the increased volume of interest-earning assets
resulting from a modest growth in the volume of average assets and a decline in
the volume of average non-interest-earning assets.
Average interest-earning assets increased $36.5 million or 3.2% during
1994 compared to the prior year. The increase in average interest-earning
assets was concentrated within the loan portfolio which increased $85.1 million
or 11.6%, while the average of all other interest-earning assets declined $48.6
million or 12.0%. These changes highlight the Bank's efforts, during 1994, to
place greater emphasis on loans as opposed to securities. The average yield on
interest-earning assets improved by 4 basis points from 6.54% during 1993 to
6.58% during 1994.
INTEREST EXPENSE. Interest expense decreased $1.0 million or 2.3% from
$43.8 million during 1993 to $42.8 million during 1994. The decline in interest
expense was due to a decline in the average cost of funds during the current
year which was partially offset by the interest expense resulting from an
increase in average interest-bearing liabilities.
Average interest-bearing liabilities increased $20.4 million or 1.9%
during 1994 compared to the prior year. The growth was essentially evenly
divided between average deposits which increased $10.6 million or 1.1% and
average borrowed funds, consisting of FHLBB advances, which increased $9.8
million or 8.7%. Although the level of interest rates trended upward through
most of 1994, the Bank's average cost of funds lagged behind this trend. In
addition to the lag effect of repricing certificates of deposit throughout 1994,
the interest rates paid by the Bank were, for the most part, at levels less than
the general level of interest rates. As a result, the Bank's average cost of
funds declined 17 basis points from 3.99% for 1993 to 3.82% for 1994.
<PAGE>
NET INTEREST INCOME. Net interest income, the primary component of the
Company's earnings, increased $4.0 million or 12.9% to $34.5 million for 1994
from $30.5 million for 1993. As a result of the 4 basis point improvement in
the average yield on interest-earning assets and the 17 basis point decline in
the average cost of interest-bearing liabilities, the net interest rate spread
increased 21 basis points to 2.76% for 1994 from 2.55% for 1993. Additionally,
the Company's net yield on interest-earning assets averaged 2.94% for 1994
compared to 2.68% for 1993.
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, which cannot be segregated, have been allocated in proportion to the
relationship of the absolute dollar amounts of the changes in each.
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------
1994 Compared to 1993
---------------------
Volume Rate Net
------ ------ ------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Interest earned on:
Loans $5,994 $(2,620) $ 3,374
Taxable investment securities (1,175) 1,473 298
Federal funds (734) 90 (644)
FHLBB stock 74 16 90
Other interest-earning assets (86) (85) (171)
------ ------ ------
Interest income 4,073 (1,126) 2,947
------ ------ ------
Interest paid on:
Deposits 400 (1,991) (1,591)
Borrowed funds 542 51 593
------ ------ ------
Interest expense 942 (1,940) (998)
------ ------ ------
Net interest income $3,131 $ 814 $3,945
------ ------ ------
------ ------ ------
</TABLE>
PROVISION FOR CREDIT LOSSES. During 1994, the Bank provided $2.3
million for credit losses compared to $2.5 million during 1993. In addition
to the provision for credit losses, the Bank also provided $2.2 million for
estimated losses on foreclosed assets during 1994 compared to $4.3 million
during 1993. These provisions are included in foreclosed asset expense (see
"Non-interest expense").
NON-INTEREST INCOME. Non-interest income is derived from fees which
the Bank charges for various loan and deposit account services, fees
generated from other ancillary services provided by the Bank, and net
securities and loan gains. During 1994, the income generated from these
sources totaled $3.1 million compared to $7.3 million for the prior year,
reflecting a decrease of $4.2 million or 57.8%.
Service charges and other fee income declined $3.6 million or 59.7% and
totaled $2.5 million for 1994 compared to $6.1 million earned in 1993. During
1993, as part of the Burritt transaction (see Consolidated Financial
Statements--
<PAGE>
Note 13), the Bank was servicing loans for the FDIC on an interim basis (through
September 30, 1993), which resulted in $3.7 million in fee income.
Net securities and loan gains totaled $648,000 in 1994 compared to
$1,256,000 in 1993, reflecting a decline of $608,000 or 48.4%. This decline
was due to a decline in the volume of loans sold at net gains during 1994
compared to 1993. In keeping with the Bank's asset and liability management
objectives (see "Asset/Liability Management"), the Bank may sell fixed rate
mortgage loans in the secondary markets. In 1994, the Bank sold $12.1
million in fixed rate mortgage loans, resulting in gains of $102,000 compared
to fixed rate mortgage loan sales of $30.0 million in 1993, resulting in
gains of $834,000. The Bank, during 1994, realized net gains of $546,000 on
the sale of various securities compared to net gains of $422,000 in 1993.
The proceeds from these transactions have been allocated to fund the Bank's
loan demand and other securities purchases.
NON-INTEREST EXPENSE. Non-interest expense totaled $25.6 million or
2.09% of average assets during 1994 compared to $27.1 million or 2.27% of
average assets in 1993. The $1.5 million or 5.5% decrease in the Company's
cost of operations was due to a decline in foreclosed asset expense which
more than offset increases in several other categories of expense during 1994
compared to 1993.
Salaries and employee benefits, the largest component of the Company's
cost of operations, increased $0.5 million or 5.2% from $9.6 million during
1993 to $10.1 million during 1994. Salaries increased $74,000 or 1.0% during
1994 compared to the prior year. This increase resulted from the exercise of
stock appreciation rights which resulted in compensation expense of $122,000.
Employee benefits increased $0.4 million or 21.1% during the year from $1.9
million for 1993 to $2.3 million in 1994. The increased cost of employee
benefits was primarily in pension and postretirement benefit costs,
reflecting the increased number of eligible participants resulting from the
Burritt transaction.
During 1994, the Bank continued to incur expenses with the foreclosure
process and the management of foreclosed and in-substance foreclosed assets.
These expenses include all of the direct costs associated with acquiring,
holding, managing, marketing and disposing of these assets. In 1994, the
Bank incurred foreclosed asset expenses of $0.8 million compared to $0.9
million in 1993 (see Consolidated Financial Statements--Note 7). Subsequent
to an initial estimate of value of the underlying real estate securing loans
in the foreclosure process, the Bank updates appraisals at least on an annual
basis. 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. For the year ended December 31, 1994, the Bank
provided $2.2 million to this allowance compared to $4.3 million for the
prior year. The Company expects that
<PAGE>
until the level of foreclosed assets declines substantially, foreclosed asset
expense will continue to be significant.
The FDIC insurance premium paid by the Bank in 1994 totaled $2.8
million compared to $2.4 million in 1993. The increased volume of insured
deposits assumed in connection with the Burritt transaction and the lag in
computing the FDIC insurance premium, in large part, accounted for the
increase in the premium paid in 1994 compared to 1993.
Data processing expense totaled $1.3 million in 1994, reflecting a
decrease of $0.7 million or 35.0% compared to the $2.0 million incurred in
1993. The decline is largely attributable to the elimination, in the third
quarter of 1993, of the former data processing center operated by Burritt.
The Bank continued to operate the center through August 1993 in order to
service loans for the FDIC. (See Consolidated Financial Statements--Note 13).
Marketing expense increased $.5 million or 62.5% from $0.8 million for
1993 to $1.3 million for 1994. The increase reflects the increased promotion
of the Bank's products and services to the markets it serves.
As required by SFAS 91, the Bank defers certain direct costs resulting
from the origination of loans, which will be amortized as an adjustment of
yield over the contractual term of the related loans. These deferred costs,
which are principally comprised of salaries, employee benefits and other loan
expenses, totaled approximately $1.5 million during 1994 compared to $1.8
million during 1993.
NET NON-INTEREST MARGIN. The net non-interest margin declined by 18
basis points during 1994 compared to 1993. Non-interest income decreased 36
basis points from .61% during 1993 to .25% during 1994. Non-interest expense
decreased 18 basis points from 2.27% during 1993 to 2.09% during 1994.
PROVISION FOR INCOME TAXES. The provision for income taxes for 1994
totaled $3.9 million, reflecting a 40.7% effective income tax rate compared
to $3.3 million, representing an effective income tax rate of 40.5% for 1993
(see Consolidated Financial Statements--Note 9)
The following table summarizes the Company'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.
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------
1995 1994 1993
-------------------------------- ------------------------------ ---------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
--------- ---------- ------- -------- ---------- ------- --------- --------- ------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans $845,423 $65,148 7.71% $817,699 $56,802 6.95% $732,635 $53,428 7.29%
Taxable securities 316,508 20,269 6.40 344,778 19,716 5.72 366,216 19,418 5.30
Federal funds 8,810 508 5.77 2,700 90 3.33 25,080 734 2.93
FHLBB stock 9,461 664 7.02 8,636 674 7.80 7,682 584 7.60
Other interest-earning
assets -- -- -- -- -- -- 5,747 171 2.98
---------- ------- --------- -------- --------- -------
Total interest-earning
assets 1,180,202 86,589 7.34 1,173,813 77,282 6.58 1,137,360 74,335 6.54
---------- ------- ---- --------- -------- ---- --------- ------- ----
NON-INTEREST-EARNING ASSETS:
Cash and due from banks 15,793 14,382 16,156
Premises and equipment, net 6,710 7,028 5,960
Accrued income receivable 6,856 6,424 6,700
Other assets 10,381 30,979 41,422
Less allowance for credit
losses (6,717) (6,814) (12,701)
---------- ---------- ---------
Total non-interest-
earning assets 33,023 51,999 57,537
---------- ---------- ---------
TOTAL ASSETS $1,213,225 $1,225,812 $1,194,897
---------- ---------- ---------
---------- ---------- ---------
INTEREST-BEARING
LIABILITIES:
Deposits $1,012,013 46,267 4.57 $996,450 36,008 3.61 $985,875 37,599 3.81
Borrowed funds 93,097 5,308 5.70 123,190 6,810 5.53 113,376 6,217 5.48
---------- ------- --------- -------- --------- -------
Total interest-bearing
liabilities 1,105,110 51,575 4.67 1,119,640 42,818 3.82 1,099,251 43,816 3.99
---------- ------- ---- --------- -------- ---- --------- ------- ----
NON-INTEREST-BEARING
LIABILITIES:
Demand deposits 32,121 30,179 26,409
Other (503) 7,568 6,390
---------- ---------- ---------
Total non-interest-
bearing liabilities 31,618 37,747 32,799
---------- ---------- ---------
STOCKHOLDERS' EQUITY 76,497 68,425 62,847
---------- ---------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,213,225 $1,225,812 $1,194,897
---------- ---------- ---------
---------- ---------- ---------
NET INTEREST INCOME $35,014 $34,464 $30,519
------- -------- -------
------- -------- -------
NET INTEREST RATE SPREAD 2.67% 2.76% 2.55%
---- ---- ----
---- ---- ----
NET YIELD ON AVERAGE
INTEREST-EARNING ASSETS 2.97% 2.94% 2.68%
---- ---- ----
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1992 1991
------------------------------- ---------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
--------- ---------- ------- -------- ---------- -------
(DOLLAR AMOUNTS IN THOUSANDS)
INTEREST-EARNING ASSETS:
Loans $534,606 $44,568 8.34% $523,720 $51,208 9.78%
Taxable securities 123,562 8,301 6.72 69,183 5,580 8.07
Federal funds 18,235 555 3.04 8,171 469 5.74
FHLBB stock 5,601 439 7.84 5,104 458 8.97
Other interest-earning
assets 5,865 281 4.79 1,353 81 5.99
---------- ------- --------- --------
Total interest-earning
assets 687,869 54,144 7.87 607,531 57,796 9.51
---------- ------- ---- --------- -------- ----
NON-INTEREST-EARNING ASSETS:
Cash and due from banks 6,504 5,227
Premises and equipment, net 5,513 5,911
Accrued income receivable 5,296 5,682
Other assets 34,837 24,099
Less allowance for credit
losses (4,491) (3,075)
---------- ----------
Total non-interest-
earning assets 47,659 37,844
---------- ----------
TOTAL ASSETS $735,528 $645,375
---------- ----------
---------- ----------
INTEREST-BEARING
LIABILITIES:
Deposits $555,878 25,493 4.59 $485,853 32,585 6.71
Borrowed funds 103,886 6,392 6.15 92,430 6,884 7.45
---------- ------- --------- --------
Total interest-bearing
liabilities 659,764 31,885 4.83 578,283 39,469 6.83
---------- ------- ---- --------- -------- ----
NON-INTEREST-BEARING
LIABILITIES:
Demand deposits 12,495 9,667
Other 5,917 2,303
---------- ----------
Total non-interest-
bearing liabilities 18,412 11,970
---------- ----------
STOCKHOLDERS' EQUITY 57,352 55,122
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $735,528 $645,375
---------- ----------
---------- ----------
NET INTEREST INCOME $22,259 $18,327
------- --------
------- --------
NET INTEREST RATE SPREAD 3.04% 2.68%
---- ----
---- ----
NET YIELD ON AVERAGE
INTEREST-EARNING ASSETS 3.24% 3.02%
---- ----
---- ----
</TABLE>
<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES
The impact of inflation is reflected in the increased cost of the Company's
operations. Since the primary assets and liabilities of the Bank are monetary
in nature, to the extent that inflation affects interest rates, it will in turn
affect the net income of the Company.
NEWLY ADOPTED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("SFAS 121"). SFAS 121 requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If the carrying
amount of an asset is deemed to not be recoverable, an estimate of the future
cash flows will be computed and compared to the carrying amount of the asset.
If such amount is less than the carrying amount, an impairment loss will be
recognized and measured as the amount by which the carrying amount of the asset
exceeds the fair value. This statement also requires that long-lived assets and
certain identifiable intangibles to be disposed of be reported at the lower of
carrying amount or fair value less cost to sell. The Bank will be required to
adopt this statement on a prospective statement beginning January 1, 1996.
Management does not expect the adoption of SFAS 121 to have a material effect on
the Bank's financial condition.
In May 1995, the FASB issued Statement of Financial Accounting Standards
No. 122, "Accounting for Mortgage Rights an Amendment to SFAS 65" ("SFAS 122").
SFAS 122 amends SFAS 65, "Accounting for Certain Mortgage Banking Activities,"
to require recognition as a separate asset of the value of the rights to service
mortgage loans for others, however those servicing rights are acquired.
Mortgage servicing rights acquired through either servicing or origination of
mortgage loans and the subsequent sale or securitization of those loans with
servicing retained will require that those rights be allocated a cost as part of
the total cost of the mortgage loan based on their relative fair values if it is
practicable to estimate those fair values. If it is not practicable to estimate
the fair values, the entire cost of purchasing or originating the loans will be
allocated to the mortgage loans and no cost will be allocated to the mortgage
servicing rights. Loans purchased or originated with a definitive plan to sell
or securitize and retain the mortgage servicing rights will require the
provision of this statement to be applied at the date of origination or
purchase. Additionally, this statement requires that capitalized mortgage
servicing rights be assessed for impairment based on the fair value of those
rights; any
<PAGE>
impairment should be recognized through a valuation allowance. The Bank will be
required to adopt this statement on a prospective basis beginning January 1,
1996. Management has not yet determined the effect, if any, which the adoption
will have on the Bank's financial condition.
In October 1995, the FASB issued Statement No. 123, "Accounting for Stock-
Based Compensation." The new rules are effective for calendar-year 1996.
However, companies will be required to include in that year's financial
statements information about options granted in 1995. The standard encourages
but does not require companies to account for stock compensation awards based on
their fair value at the date the awards are granted, with the resulting
compensation cost shown as an expense. If they continue to apply current
accounting requirements, companies will have to disclose in a note to the
financial statements what the net income and earnings per share would have been
had they followed the new accounting method. Management has not yet determined
how the Bank will apply the provisions of the pronouncement nor the effect, if
any, the application would have on the Bank's financial statements.
MARKET FOR COMMON STOCK
The Company's common stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market under the symbol "DSBC".
The following table sets forth, for the periods indicated, market price
information regarding the Company's common stock as reported by Nasdaq:
<TABLE>
<CAPTION>
STOCK PRICE
-----------------
HIGH LOW
----- ------
<S> <C> <C>
1994
First Quarter $27.50 $21.25
Second Quarter 33.75 25.00
Third Quarter 30.50 25.75
Fourth Quarter 28.50 21.00
1995
First Quarter 27.50 21.75
Second Quarter 26.75 23.00
Third Quarter 29.13 25.25
Fourth Quarter 26.50 23.33
1996
First Quarter
(through March 12) 30.50 24.75
</TABLE>
As of December 31, 1995, the Company had approximately 890 stockholders
of record for the 3,029,027 outstanding shares of its common stock. This does
not reflect the number of persons or entities who hold their stock in nominee
or "street" name through various brokerage firms.
<PAGE>
DIVIDENDS
Payment of dividends by the Company on its stock is subject to various
restrictions. Under Delaware law, the Company may pay dividends out of
surplus or, in the event there is no surplus, out of net profits for the
fiscal year in which the dividend is declared and/or the preceding fiscal
year. Dividends may not be paid out of net profits, however, if the capital
of the Company has been diminished to an amount less than the aggregate
amount of capital represented by all classes of preferred stock. Pursuant to
Connecticut law, cash dividends may be paid by the Bank to the Company out of
net profits, defined as the remainder of earnings from current operations
plus actual recoveries on loans and investments and other assets, after
deducting all current operating expenses, actual losses, accrued dividends on
preferred stock and all federal and state taxes. The total dividends
declared by the Bank in any calendar year may not exceed the total of its net
profits for that year combined with its net profits for the preceding two
years.
The Company paid 5% stock dividends on its common stock on March 29,
1995 and November 24, 1995. Additionally, a cash dividend of $.06 per share
was paid on March 1, 1996.
<PAGE>
CONSOLIDATED STATEMENTS OF POSITION
<TABLE>
<CAPTION>
DS BANCOR, INC. AND SUBSIDIARY
- ---------------------------------------------------------------------------------------------------------------
DECEMBER 31,
------------------------------
1995 1994
------------ ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks (Note 1) $18,425 $14,128
Federal funds sold (Note 1) 2,305 4,500
Securities (Notes 1, 2 & 7)
Trading 1,171 770
Available-for-sale 241,136 216,674
Held-to-maturity (fair value: $77,394 in 1995 and $96,928 in 1994) 77,881 104,702
Loans held-for-sale (Notes 1, 3 & 7) 2,035 55,190
Loans receivable (net of allowances for credit losses of $6,906 in 1995
and $6,803 in 1994) (Notes 1, 3, 7 & 15) 873,304 784,237
Federal Home Loan Bank of Boston stock, at cost (Note 7) 9,793 8,899
Accrued income receivable (Note 1) 7,746 7,227
Bank premises and equipment, net (Notes 1 & 5) 6,504 6,975
Deferred income tax asset, net (Notes 1 & 9) 3,293 7,293
Foreclosed assets (net of allowances of $230 in 1995 and
$439 in 1994) (Notes 1, 4 & 15) 3,712 5,756
Other assets (Note 13) 7,178 6,339
------------ ------------
TOTAL ASSETS $1,254,483 $1,222,690
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits (Note 6)
Non-interest bearing $35,999 $30,918
Interest bearing 1,022,146 996,828
------------ ------------
Total 1,058,145 1,027,746
Mortgagors' escrow 11,193 11,885
Advances from Federal Home Loan Bank of Boston (Note 7) 96,876 111,145
Other liabilities (Note 8) 7,460 4,777
------------ ------------
Total Liabilities 1,173,674 1,155,553
------------ ------------
Commitments & Contingent Liabilities (Notes 5 & 10)
Stockholders' Equity (Notes 1, 11, 12 & 19)
Preferred stock, no par value; authorized
2,000,000 shares; none issued -- --
Common stock, par value $1.00; authorized 6,000,000 shares;
issued: 3,368,527 shares in 1995, 3,084,571 in 1994;
outstanding: 3,029,027 in 1995, 2,745,071 in 1994 3,368 3,085
Additional paid-in capital 44,514 37,780
Retained earnings 37,014 36,362
Net unrealized gains (losses) on securities available-for-sale,
net of tax effect of ($301) in 1995 and $3,970 in 1994 426 (5,577)
Less: Treasury stock, at cost (339,500 shares) (4,513) (4,513)
------------ ------------
Total Stockholders' Equity 80,809 67,137
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,254,483 $1,222,690
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
DS BANCOR, INC. AND SUBSIDIARY
- ---------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
---------- ---------- ----------
(DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Interest Income (Note 1)
Interest and fees on loans $65,148 $56,802 $53,428
Taxable interest on securities 20,147 19,528 20,020
Dividends on securities 1,294 952 887
---------- ---------- ---------
Total interest income 86,589 77,282 74,335
---------- ---------- ---------
Interest Expense
Deposits (Note 6) 46,408 36,102 37,679
Borrowed funds (Note 7) 5,308 6,810 6,217
Less: Penalties on premature time deposit withdrawals (141) (94) (80)
---------- ---------- ---------
Net interest expense 51,575 42,818 43,816
---------- ---------- ---------
Net interest income 35,014 34,464 30,519
Provision for credit losses (Notes 1 & 3) 2,525 2,325 2,475
---------- ---------- ---------
Net interest income after provision for credit losses 32,489 32,139 28,044
---------- ---------- ---------
Non-interest Income
Service charges and other income (Note 14) 2,705 2,453 6,087
Net securities (losses) gains (Note 2) (520) 546 422
Net gain on sale of loans 1,499 102 834
---------- ---------- ---------
Total non-interest income, net 3,684 3,101 7,343
---------- ---------- ---------
Non-interest Expense
Salaries and wages 8,074 7,820 7,746
Employee benefits (Note 8) 2,485 2,312 1,868
Occupancy (Note 5) 1,814 2,094 2,148
Furniture and equipment (Note 5) 1,363 1,039 907
Foreclosed asset expense, net (Notes 1 & 4) 1,776 2,904 4,801
Other (Note 14) 8,028 9,441 9,643
---------- ---------- ---------
Total non-interest expense 23,540 25,610 27,113
---------- ---------- ---------
Income before income taxes and cumulative effect
of a change in accounting principle 12,633 9,630 8,274
Provision for income taxes, net (Note 9) 5,020 3,920 3,348
---------- ---------- ---------
Income before cumulative effect of a change in accounting principle 7,613 5,710 4,926
Cumulative effect of a change in method of accounting for
income taxes (Notes 1 & 9) -- -- 1,548
---------- ---------- ---------
Net Income $7,613 $5,710 $6,474
---------- ---------- ---------
---------- ---------- ---------
Weighted average number of shares outstanding (Notes 1 & 12)
Primary 3,091,578 3,070,492 2,978,004
Fully Diluted 3,103,253 3,072,672 3,019,457
Earnings per share--Primary (Notes 1 & 12)
Income before cumulative effect of a change in accounting principle $2.46 $1.86 $1.65
Cumulative effect of a change in method of accounting for
income taxes -- -- 0.52
---------- ---------- ---------
Net Income $2.46 $1.86 $2.17
---------- ---------- ---------
---------- ---------- ---------
Earnings per share--Fully diluted (Notes 1 & 12)
Income before cumulative effect of a change in accounting principle $2.45 $1.86 $1.63
Cumulative effect of a change in method of accounting for
income taxes -- -- 0.51
---------- ---------- ---------
Net Income $2.45 $1.86 $2.14
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DS BANCOR, INC. AND SUBSIDIARY
- -----------------------------------------------------------------------------------------------------------------------
REATAINED EARNINGS
------------------
ADDITIONAL UNREALIZED TOTAL
COMMON PAID-IN RETAINED GAINS TREASURY STOCKHOLDERS'
STOCK CAPITAL EARNINGS (LOSSES) STOCK EQUITY
------- ------- ------- ------- ------- -------
NOTE 1
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance--January 1, 1993 $2,865 $33,971 $26,340 ($78) ($4,513) $58,585
Net income 6,474 6,474
Stock dividend declared on
common (5%--
February 26, 1993)
(Note 12) 126 2,029 (2,155) --
Shares issued for fractional
interest 7 7
Cash in lieu of fractional
shares (7) (7)
Adjustment of unrealized
gains, net 1,381 1,381
------- ------- ------- ------- ------- -------
Balance--December 31, 1993 2,991 36,007 30,652 1,303 (4,513) 66,440
Net income 5,710 5,710
Stock options exercised
(93,455 shares) (Notes
11 & 12) 94 1,773 1,867
Adjustment of unrealized
losses, net (6,880) (6,880)
------- ------- ------- ------- ------- -------
Balance--December 31, 1994 3,085 37,780 36,362 (5,577) (4,513) 67,137
Net income 7,613 7,613
Stock dividend declared
on common stock
(5%--March 15, 1995 and
5%--November 10, 1995)
(Note 12) 280 6,658 (6,938) --
Shares issued for fractional
interest 12 12
Cash in lieu of fractional
shares (23) (23)
Stock options exercised
(3,062 shares) (Notes
11 & 12) 3 64 67
Adjusted of unrealized
gains, net 6,003 6,003
------- ------- ------- ------- ------- -------
Balance--December 31, 1995 $3,368 $44,514 $37,014 $426 ($4,513) $80,809
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DS BANCOR, INC. AND SUBSIDIARY
- ----------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $7,613 $5,710 $6,474
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses 2,525 2,325 2,475
Provision for estimated losses on foreclosed assets 1,500 2,235 4,250
Depreciation and amortization 1,111 807 692
Amortization of intangible assets 716 956 1,255
Net amortization of premiums/discounts on securities 601 1,208 2,077
Net amortization (accretion) of deferred loan fees 30 (83) (557)
Benefit for deferred income taxes (271) (340) (879)
Decrease (increase) in deferred income tax asset -- 492 112
Net securities losses (gains) 1,059 (625) (422)
Net gain on sale of loans (1,499) (102) (834)
Gains on sales of foreclosed assets (120) (93) (349)
Net increase in securities trading (401) (770) --
Increase in accrued income receivable (519) (686) (2,280)
Cumulative effect of change in accounting principle -- -- (1,548)
Net (increase) decrease in other assets (1,555) 1,507 19,234
Net increase (decrease) in other liabilities 2,683 234 (1,307)
Other, net -- 74 --
-------- -------- --------
Net cash provided by operating activities 13,473 12,849 28,393
-------- -------- --------
Cash Flows from Investing Activities
Proceeds from sale of securities -- -- 62,175
Proceeds from matured securities available-for-sale 54,928 43,553 --
Proceeds from sale of securities available-for-sale 52,908 39,020 --
Proceeds from matured securities held-to-maturity 15,178 34,895 145,708
Purchase of securities available-for-sale (103,541) (54,779) --
Purchase of securities held-to-maturity (8,500) (73,827) (261,069)
Purchase of FHLBB stock (894) (877) (1,405)
Proceeds from loans sold to others 34,111 12,245 30,820
Purchases of loans from others (97,112) (21,938) (8,813)
Net decrease (increase) in loans receivable 24,527 (47,714) (95,400)
Bank premises and equipment additions (640) (794) (2,259)
Proceeds from sale of foreclosed assets 2,170 3,328 3,590
Net decrease in foreclosed assets -- 44 552
-------- -------- --------
Net cash used by investing activities (26,865) (66,844) (126,101)
-------- -------- --------
Cash Flows from Financing Activities
Net increase in deposits 30,399 21,525 11,290
Net increase (decrease) in mortgagors' escrow (692) 1,409 1,997
Net decrease in repurchase agreements & other borrowings -- (1,450) (641)
Net increase (decrease) in short term FHLBB advances (26,822) 11,754 12,745
Proceeds from long term FHLBB advances 54,604 35,000 13,000
Repayment of long term FHLBB advances (42,051) (40,600) (41,525)
Proceeds from issuance of common stock 79 1,867 7
Dividends paid to stockholders (23) -- (7)
-------- -------- --------
Net cash provided (used) by financing activities 15,494 29,505 (3,134)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (Note 1) 2,102 (24,490) (100,842)
Cash and cash equivalents at beginning of year 18,628 43,118 143,960
-------- -------- --------
Cash and cash equivalents at end of year $20,730 $18,628 $43,118
-------- -------- --------
-------- -------- --------
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest $51,716 $42,912 $43,838
Income taxes 3,493 3,089 4,208
Loans transferred to foreclosed assets 3,414 3,208 12,081
Foreclosed assets transferred to loans -- 1,173 3,499
Loans transferred to loans held-for-sale -- 55,190 --
Bank-financed foreclosed asset sales 1,908 2,352 2,427
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NOTE 1 - SIGNIFICANT 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 accompanying
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 disclosure of contingent assets and liabilities as of
the dates of the Consolidated Statements of Financial Position and reported
amounts of income and expenses in the Consolidated Statements of Earnings for
the periods then ended. 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 satisfaction of loans (foreclosed
assets). Such estimates reflect the realization that the Bank's foreclosed
assets and a substantial portion of the Bank's mortgage loans receivable are
related to real estate located in markets in Connecticut, which have experienced
value fluctuations in recent years.
While management uses available information to recognize possible losses on
loans and foreclosed assets, including the services of professional appraisers
for significant properties, future adjustments to the Allowance for credit
losses and the Allowance for estimated losses on foreclosed assets may be
necessary based on changes in economic and real estate market conditions in and
around the Bank's service area. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Bank's
Allowance for credit losses and the Allowance for estimated losses on foreclosed
assets and may require the Bank to recognize adjustments based on their
judgement 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 are accounted for in accordance with the provisions of Statement of
Financial Accounting Standard ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). SFAS 115 requires the
classification of investment securities into categories of Held-to-maturity,
Available-for-sale or Trading. Investments in debt securities are classified as
Held-to-maturity only if there is a positive intent and ability to hold those
securities to maturity. Carrying basis is measured at amortized cost adjusted
for amortization of premiums and accretion of discounts generally computed using
the level yield method. Equity securities and debt securities not classified as
Held-to-maturity are classified as either Available-for-sale or Trading.
Classifications as Available-for-sale are measured at fair value, with
unrealized holding gains and losses, net of related income taxes, reported net
as a separate component of Stockholders' Equity until realized. Trading
securities are measured at fair value with unrealized holding gains and losses
reflected in Non-interest income.
<PAGE>
Declines in the fair value below amortized cost that are other than temporary
for individual securities Available-for-sale and Held-to-maturity are recognized
as write-downs of the individual securities to their fair value, with the
write-downs included as a charge to operations as realized losses.
Mortgage-backed securities are accounted for in the same manner as debt
securities and consist of certificates that are participation interests in pools
of long-term first mortgage loans.
Gain or loss on dispositions of securities is based on the net proceeds and
adjusted carrying amount of the securities sold using 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, if any,
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.
Effective January 1, 1995, the Bank implemented the provisions of SFAS Nos.
114/118, "Accounting by Creditors for Impairment of a Loan." The basic
provisions of these statements eliminate the financial statement classification
of in-substance foreclosed assets as foreclosed assets, resulting in the
classification of such amounts and related specific allowance for credit losses
as Loans receivable. Additionally, these statements address the accounting for
loans considered impaired and the recognition of impairment. A loan is
considered impaired when, in management's judgement, current information and
events indicate it is probable that collection of all amounts due according to
the contractual terms of the loan agreement will not be met. The provisions of
these statements are prospective, with any adjustments resulting from initial
application reflected as an adjustment to the provision for credit losses. In-
substance foreclosed assets prior to January 1, 1995 have been reclassified to
Loans receivable for comparability purposes (Note 3). The effect on the
accompanying Consolidated Financial Statements of adopting these statements was
not significant.
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 and all previously unpaid accrued interest is reversed when a loan
becomes past due 90 days or more as to contractual payment of principal or
interest, or is determined to be impaired. Interest 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 and certain direct related costs are deferred, and the net
fee or cost is 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). 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.
<PAGE>
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 include real estate properties acquired through foreclosure
proceedings or deeds accepted in lieu of foreclosure. 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 values
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.
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. 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 income tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
income tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Provisions for income taxes are computed based on all taxable revenue and
deductible expense items included in the accompanying Consolidated Statements of
Earnings regardless of the period in which such items are recognized for income
tax filing purposes. The Company and it subsidiary file consolidated Federal
and combined Connecticut income tax returns.
The Company adopted the provisions of SFAS No. 109, "Accounting for Income
Taxes" ("SFAS 109") effective January 1, 1993. As a result, the Company
recorded a cumulative one-time benefit in the accompanying Consolidated
Statements of Earnings for the year ended December 31, 1993, which reflects the
change in method of accounting for income taxes.
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 No. 87, "Employers' Accounting for
Pensions" and SFAS No. 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.
FINANCIAL INSTRUMENTS include substantially all of the Bank's financial assets
and liabilities, and certain off-balance-sheet rights and/or obligations. Such
items generally reflect cash and cash equivalents and contractual rights or
obligations to receive cash or other financial instruments, respectively.
<PAGE>
Derivative financial instruments are financial instruments used to construct a
transaction that is derived from and reflects the underlying value of assets,
other instruments or various indices. The primary purpose of derivative
financial instruments is to transfer price risk associated with the fluctuations
in asset values rather than borrow or lend funds. Such items include forward
contracts, interest rate swap contracts, options and futures, and other
financial instruments with similar characteristics, which include the Bank's
off-balance-sheet financial instruments. All derivative financial instruments
held or issued by the Bank are held or issued for purposes other than trading.
In accordance with SFAS No. 105, "Disclosure of Information About Financial
Instruments with Off-Balance-Sheet Risk and Concentrations of Credit Risk," SFAS
No. 107, "Disclosures About Fair Value of Financial Instruments," and SFAS No.
119, "Disclosure About Derivative Financial Instruments and Fair Value of
Financial Instruments," the Bank is required to disclose information about
financial instruments with off-balance-sheet market or credit risk and
concentrations of credit risk associated with its financial instruments, (Notes
15 and 16), fair values of its financial instruments (Note 16), and information
about its derivative financial instruments (Note 16), respectively.
RECLASSIFICATION. Certain reclassifications have been made to the accompanying
1994 and 1993 Consolidated Financial Statements to conform to the 1995
presentation.
NOTE 2 - SECURITIES
Securities have been classified in the accompanying Consolidated Statements of
Financial Position according to management's intent. Carrying amounts and
approximate fair values of Securities were as follows (amounts in thousands):
<TABLE>
<CAPTION>
December 31, 1995
-----------------------------------------------------
Gross unrealized holding
Amortized ------------------------ Fair
Cost Gains Losses Value
---------- -------- -------- --------
<S> <C> <C> <C> <C>
TRADING
Marketable equities $ 1,148 $23 $ --- $ 1,171
-------- -------- -------- --------
-------- -------- -------- --------
AVAILABLE-FOR-SALE
U.S. Government and agency obligations $ 8,297 $ 109 $ --- $ 8,406
Mortgage-backed securities 213,538 2,378 1,826 214,090
Other bonds and notes 4,175 3 11 4,167
-------- -------- -------- --------
Total debt securities 226,010 2,490 1,837 226,663
Marketable equities 13,329 307 294 13,342
Mutual funds 1,070 61 --- 1,131
-------- -------- -------- --------
Total $240,409 $ 2,858 $ 2,131 $241,136
-------- -------- -------- --------
-------- -------- -------- --------
HELD-TO-MATURITY
U.S. Government and agency obligations $ 2,000 $ --- $ --- $ 2,000
Mortgage-backed securities 70,881 62 549 70,394
-------- -------- -------- --------
Total debt securities 72,881 62 549 72,394
Money market preferred stock 5,000 --- --- 5,000
-------- -------- -------- --------
Total $ 77,881 $ 62 $ 549 $ 77,394
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31, 1994
-----------------------------------------------------
Gross unrealized holding
Amortized ------------------------ Fair
Cost Gains Losses Value
---------- -------- -------- --------
<S> <C> <C> <C> <C>
TRADING
Marketable equities $ 918 $ --- $ 148 $ 770
-------- -------- -------- --------
-------- -------- -------- --------
AVAILABLE-FOR-SALE
U.S. Government and agency obligations $ 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
-------- -------- -------- --------
-------- -------- -------- --------
HELD-TO-MATURITY
U.S. Government and agency obligations $ 2,000 $ --- $ 60 $ 1,940
Mortgage-backed securities 102,702 --- 7,714 94,988
-------- -------- -------- --------
Total $104,702 $ --- $ 7,774 $ 96,928
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The scheduled contractual maturities of debt securities at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Available-for-sale Held-to-maturity
-------------------- --------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less $ --- $ --- $ 2,000 $ 2,000
Due after one year through five years 4,175 4,167 --- ---
Due after five years through ten years 5,322 5,359 --- ---
Due after ten years 2,975 3,047 --- ---
-------- -------- -------- --------
12,472 12,573 2,000 2,000
Mortgage-backed securities 213,538 214,090 70,881 70,394
-------- -------- -------- --------
Total $226,010 $226,663 $ 72,881 $ 72,394
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
Proceeds from sales of securities, realized gains (losses) from sales of
securities, and unrealized holding gains (losses) on securities classified as
Trading were as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995
-----------------------------------------------------
Gross realized Net
Proceeds -------------------------- (losses)
from sales Gains Losses gains
---------- --------- ---------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Government and agency obligations $ 27,964 $ --- $ 1,223 $(1,223)
Other bonds and notes 17,583 --- 555 (555)
-------- ------- ------- -------
45,547 --- 1,778 (1,778)
Marketable equities 7,361 720 1 719
-------- ------- ------- -------
Total 52,908 720 1,779 (1,059)
TRADING
Net trading gains realized 5,946 --- --- 516
Net trading unrealized holding gains --- --- --- 23
-------- ------- ------- -------
Total, net $ 58,854 $ 720 $ 1,779 $ (520)
-------- ------- ------- -------
-------- ------- ------- -------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1994
-------------------------------------------------------
Gross realized Net
Proceeds -------------------------- gains
from sales Gains Losses (losses)
---------- --------- ---------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Government and agency obligations $ 4,020 $ 20 $ --- $ 20
Other bonds and notes 33,929 455 3 452
-------- ------- ------- -------
37,949 475 3 472
Marketable equities 1,071 208 55 153
-------- ------- ------- -------
Total 39,020 683 58 625
TRADING
Net trading gains realized 772 --- --- 69
Net trading unrealized holding losses --- --- --- (148)
-------- ------- ------- -------
Total, net $ 39,792 $ 683 $ 58 $ 546
-------- ------- ------- -------
-------- ------- ------- -------
</TABLE>
Proceeds from the sales of debt securities during the year ended
December 31, 1993 were approximately $59.2 million. Gross gains of
approximately $497,000 and gross losses of approximately $365,000 were realized
on those sales.
At December 31, 1995, the aggregate amortized cost, which approximated fair
value, of securities pledged as collateral against public funds and treasury tax
and loan deposits was approximately $7.0 million.
The aggregate amortized cost and fair value of securities issued by a single
issuer, excluding obligations of the U.S. Government and its agencies, which
exceeded 10% of Stockholders' Equity at December 31, 1995, are as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Cumbs Inc. $12,696 $12,856
Greenwich Capital Acceptance Inc. 14,311 14,739
Salomon Brothers Mortgage
Securities VII, Inc. 16,507 16,713
------- -------
$43,514 $44,308
------- -------
------- -------
</TABLE>
The Financial Accounting Standards Board issued a "Special Report" in November
1995, "A Guide to Implementation of SFAS 115" (Note 1). This guide provided
additional guidance as to the criteria for the financial statement
classifications prescribed in SFAS 115. As a result of this additional
guidance, the Bank could reassess the appropriateness of the classification of
all its securities held. Accordingly, the Bank reclassified securities Held-to-
maturity with an aggregate amortized cost of approximately $20.4 million, which
approximated fair value, to the classification of Available-for-sale.
<PAGE>
NOTE 3 - LOANS RECEIVABLE AND LOANS HELD-FOR-SALE
The components of Loans receivable, net in the accompanying Consolidated
Statements of Position were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1994
-------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
MORTGAGE
Residential real estate $695,419 $687,582
Commercial real estate 31,234 28,731
Multi-family real estate 11,237 8,682
Residential construction 3,518 2,363
-------- --------
741,408 727,358
-------- --------
CONSUMER
Home equity lines of credit 78,523 70,358
Home equity installment 21,735 19,267
Collateral 3,330 3,014
All other 21,492 4,783
-------- --------
125,080 97,422
-------- --------
COMMERCIAL
Commercial 15,463 20,199
Real estate development 3,603 3,775
-------- --------
19,066 23,974
-------- --------
885,554 848,754
Net deferred loan fees, premiums &
discounts (3,309) (2,524)
Allowance for credit losses (6,906) (6,803)
-------- --------
875,339 839,427
Residential real estate loans
held-for-sale (2,035) (55,190)
-------- --------
Loans receivable, net $873,304 $784,237
-------- --------
-------- --------
Loans are summarized between fixed and adjustable rates as follows:
DECEMBER 31,
-----------------------------
1995 1994
-------- ---------
(AMOUNTS IN THOUSANDS)
Fixed rate $224,741 $213,669
Adjustable rate 660,813 635,085
-------- --------
Total $885,554 $848,754
-------- --------
-------- --------
</TABLE>
The Bank has sold certain mortgage loans and retained the related servicing
rights (Note 20). The principal balances of loans serviced for others, which
are not included in the accompanying Consolidated Statements of Position, were
approximately $147.1 million and $129.3 million at December 31, 1995 and 1994,
respectively.
The recorded investment in impaired loans (Note 1) at December 31, 1995
approximated $13.8 million and included approximately $11.1 million in mortgage
loans, $1.5 million in consumer loans and $1.2 million in commercial loans. The
amount of the related Allowance for credit losses on these loans at December 31,
1995 approximated $1.6 million. The average recorded investment in impaired
loans during the year ended December 31, 1995 was approximately $14.6 million.
During the year ended December 31, 1995, amounts recognized as interest income
on impaired loans were not significant.
<PAGE>
The recorded investment in impaired loans at January 1, 1995 was approximately
$15.1 million and included approximately $12.2 million in mortgage loans, $1.3
million in consumer loans and $1.6 million in commercial loans. These loans
were reflected as non-performing loans at December 31, 1994 in accordance with
accounting principles in effect at that date (Note 1).
Activity in the Allowances for credit losses for each of the three years in the
period ended December 31, 1995 was as follows:
<TABLE>
<CAPTION>
MORTGAGE CONSUMER COMMERCIAL TOTAL
-------- -------- ---------- ------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance - January 1, 1993 $11,166 $1,987 $ 784 $13,937
Provision for credit losses 1,925 50 500 2,475
Acquired allowance adjustment * (5,958) (5) --- (5,963)
Loans charged off (2,857) (860) (114) (3,831)
Recoveries of loans previously
charged off 329 21 11 361
------- ------ ------ -------
Balance - December 31, 1993 4,605 1,193 1,181 6,979
Provision for credit losses 1,675 600 50 2,325
Loans charged off (1,848) (573) (195) (2,616)
Recoveries of loans previously
charged off 63 46 6 115
------- ------ ------ -------
Balance - December 31, 1994 4,495 1,266 1,042 6,803
Provision for credit losses 1,725 800 --- 2,525
Loans charged off (2,306) (399) (78) (2,783)
Recoveries of loans previously
charged off 269 84 8 361
------- ------ ------ -------
Balance - December 31, 1995 $ 4,183 $1,751 $ 972 $ 6,906
------- ------ ------ -------
------- ------ ------ -------
</TABLE>
* In connection with the Burritt transaction (Note 13), the Bank purchased
loans at a discount of approximately $10.4 million, which was added to the
Bank's Allowance for credit losses as of December 31, 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 is being
accreted to interest income over the remaining terms of the acquired loans. At
December 31, 1995 and 1994, the Allowance for credit losses, which totaled
approximately $6.9 million and $6.8 million, respectively, included
approximately $1.2 million and $1.8 million, respectively, allocated to the
loans acquired in the Burritt transaction.
NOTE 4 - FORECLOSED ASSETS
Foreclosed assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
One-to-four family residential $ 1,384 $ 1,599
Multi-family --- 510
Commercial real estate 10 907
Land 2,548 3,179
------- -------
3,942 6,195
Allowance for estimated losses (230) (439)
------- -------
Foreclosed assets, net $ 3,712 $ 5,756
------- -------
------- -------
</TABLE>
<PAGE>
Activity in the Allowance for estimated losses on Foreclosed assets was as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
---- ---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Balance at January 1 $ 439 $1,040 $ 438
Provision charged to expense 1,500 2,235 4,250
Net losses charged to the allowance (1,709) (2,836) (3,648)
------- ------- -------
Balance at December 31 $ 230 $ 439 $1,040
------- ------- -------
------- ------- -------
</TABLE>
Losses and expenses related to Foreclosed assets are summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
---- ---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Provision charged to expense $1,500 $2,235 $4,250
Gain on sales (120) (93) (349)
Holding costs and expenses 532 1,005 1,057
Rental income (136) (243) (157)
------- ------- -------
Foreclosed asset expense, net $1,776 $2,904 $4,801
------- ------- -------
------- ------- -------
</TABLE>
NOTE 5 - BANK PREMISES AND EQUIPMENT
Bank premises and equipment were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
-------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Buildings and land $ 7,381 $ 7,266
Leasehold improvements 870 836
Furniture and equipment 6,077 5,656
------- -------
14,328 13,758
Accumulated depreciation and amortization 7,824 6,783
------- -------
Bank premises and equipment, net $ 6,504 $ 6,975
------- -------
------- -------
</TABLE>
Depreciation and amortization included in Non-interest expense aggregated
approximately $1.1 million, $806,900 and $692,100 for the years ended December
31, 1995, 1994 and 1993, respectively.
Rent expense for banking premises of $705,400, $847,100 and $792,500 is included
in Occupancy expense in the accompanying Consoliated Statements of Earnings for
the years ended December 31, 1995, 1994 and 1993, respectively.
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 December 31, 1995 (amounts in thousands):
<TABLE>
<CAPTION>
Years Ending December 31, Amount
------------------------- ------
<S> <C>
1996 $ 628
1997 536
1998 366
1999 224
2000 105
Thereafter 101
------
Total future minimum lease payments $1,960
------
------
</TABLE>
These leases include options to renew for periods ranging from 3 to 22 years.
<PAGE>
NOTE 6 - DEPOSITS
Deposits were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1995 1994
---------------------- -------------------------
(DOLLAR AMOUNTS IN THOUSANDS)
RATES % AMOUNT RATES % AMOUNT
----------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Demand $ 35,999 $ 30,918
NOW 1.75-2.00(a) 47,460 1.75-2.00(a) 49,097
Regular and club savings 2.00 185,610 2.00 213,574
Money market deposit accounts 5.57 (b) 209,265 5.10 (b) 205,239
Time accounts 5.66 (b) 579,811 4.72 (b) 528,918
---------- ----------
Total deposits $1,058,145 $1,027,746
---------- ----------
---------- ----------
</TABLE>
(a) Ranges indicate tiers
(b) Weighted average stated rate
Time accounts at December 31, 1995 mature as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
YEAR OF MATURITY STATED RATE AMOUNT
---------------- ---------------- ---------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C>
1996 5.47% $385,121
1997 6.10% 113,438
1998 5.54% 24,561
Beyond 6.11% 56,691
--------
Total 5.66% $579,811
--------
--------
</TABLE>
Time deposit accounts of $100,000 or more approximated $38.0 million at December
31, 1995. Of that amount, approximately $14.6 million mature in six months or
less, $7.8 million mature after six months to one year, and $15.6 million mature
after one year.
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
NOW $ 901 $ 931 $ 1,108
Regular and club savings 3,937 4,488 5,928
Money market deposits 11,320 7,979 5,970
Time accounts 30,058 22,530 24,453
Escrow 192 174 220
------- ------- -------
Total interest expense on deposits $46,408 $36,102 $37,679
------- ------- -------
------- ------- -------
</TABLE>
<PAGE>
NOTE 7 - BORROWED FUNDS
Terms of the Advances from the Federal Home Loan Bank of Boston ("FHLBB") were
as follows:
<TABLE>
<CAPTION>
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 --- --- 58,703 6.02
1996 1,011 --- --- ---
1996 71,955 5.45 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 $ 96,876 $111,145
-------- --------
-------- --------
</TABLE>
The Bank has a cash management line of credit from the FHLBB in the amount of
$20.0 million at December 31, 1995. At December 31, 1995 and 1994, the Bank had
book overdrafts of approximately $1.0 million and $1.5 million, respectively,
which are included in Advances from the FHLBB in the accompanying Consolidated
Statements of Position.
The Company had a $3.0 million line of credit (Note 18) which was paid off in
June 1994.
The Bank had borrowings during the year ended December 31, 1995 from Securities
Sold under Agreements to Repurchase ("Repurchase agreements"). There were no
outstanding Repurchase agreements at December 31, 1995. The approximate average
daily balance, maximum month-end balance and weighted average interest rate for
Repurchase agreements for the year ended December 31, 1995 were $12.2 million,
$36.3 million and 5.96%, respectively.
Interest expense on borrowed funds is summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
------ ------ ------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
FHLBB $4,579 $6,767 $6,098
Line of credit --- 43 112
Repurchase agreements 729 --- 7
------ ------ ------
Total interest expense on borrowed funds $5,308 $6,810 $6,217
------ ------ ------
------ ------ ------
</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 December 31, 1995 and
1994.
NOTE 8 - 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.
<PAGE>
The components of the net pension expense reflected in Employee benefits expense
were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---- ---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned during the period $347 $400 $264
Interest cost on projected benefit obligation 381 305 272
Actual return on plan assets (637) 67 (400)
Net amortization and deferral 229 (466) 75
---- ---- ----
Net pension expense $320 $306 $211
---- ---- ----
---- ---- ----
</TABLE>
Assumptions used in the accounting were:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Discount/settlement rates 7.00% 7.00% 7.00%
Rates of increase in compensation levels 5.00% 5.00% 5.50%
Long-term rate of return on assets 9.50% 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,
--------------------------------
1995 1994
-------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation - vested $(4,543) $(3,306)
Accumulated benefit obligation - nonvested (120) (72)
-------- --------
Total accumulated benefit obligation (4,663) (3,378)
Effect of projected future compensation levels (1,964) (1,174)
-------- --------
Projected benefit obligation (PBO) for service
rendered to date (6,627) (4,552)
Plan assets, at fair value * 4,801 4,095
-------- --------
PBO in excess of plan assets (1,826) (457)
Unrecognized net asset existing at January 1, 1987
being recognized over approximately 18 years (84) (93)
Unrecognized net loss resulting from past experience different
from that assumed, and effects of changes in assumptions 1,785 484
-------- --------
Accrued pension cost included in Other liabilities $ (125) $(66)
-------- --------
-------- --------
</TABLE>
* The plan's assets are allocated among equity securities and various
short and intermediate term bond funds.
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 years ended December 31, 1995, 1994 and
1993 was $115,300, $96,100 and $92,600, 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 years ended December 31,
1995, 1994 and 1993, the Bank had no insurance premium expenses inasmuch as
policy loans were utilized to fund premiums due.
In September 1995, both the Bank and the Company adopted a deferred compensation
plan for non-employee directors. Under the plan, non-employee directors may
elect to defer the payment of all or any portion of their Board or Committee
fees, with deferred amounts to be payable commencing upon the director's death,
disability or termination of service for reason other than death or disability.
Deferred amounts bear interest at a rate equal to the one year U.S. Treasury
rate, plus 50 basis points, adjusted monthly.
<PAGE>
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 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
years ended December 31, 1995, 1994 and 1993 was $91,700, $85,800 and $71,600,
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 following table sets forth the accumulated postretirement benefit obligation
("APBO") reconciled to the accrued postretirement benefit cost included in the
accompanying Consolidated Statements of Position:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
-------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ (518) $ (488)
Fully eligible active plan participants (213) (180)
Other active plan participants (1,973) (1,561)
-------- --------
Total APBO (2,704) (2,229)
Unrecognized transition obligation 1,812 1,917
Unrecognized net gain resulting from past experience
different from that assumed, and effects
of changes in assumptions (780) (920)
-------- --------
Accrued postretirement benefit cost
included in Other liabilities $(1,672) $(1,232)
-------- --------
-------- --------
</TABLE>
The APBO includes approximately $2.1 million attributable to the Company's
postretirement health care plan.
Net periodic postretirement benefit cost reflected in Employee benefits expense
in the accompanying Consolidated Statements of Earnings included the following
components:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
------ ------ ------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits attributable to
service during the period $ 212 $ 280 $ 168
Interest cost on APBO 187 168 176
Amortization 68 102 105
------ ------ ------
Net periodic postretirement benefit cost $ 467 $ 550 $ 449
------ ------ ------
------ ------ ------
</TABLE>
For measurement purposes, a 13.0% annual rate of increase in the per capita cost
of covered health care benefits was assumed in 1995. The rate was assumed to
decrease gradually to 4.0% in year 12 and remain at that level thereafter. The
health care cost trend rate assumption has a significant effect on the amounts
reported. To illustrate, increasing the assumed health care cost trend rates by
1% in each year would increase the accumulated postretirement benefit obligation
as of December 31, 1995 by approximately $406,000 and the aggregate of the
service and interest cost components of net periodic postretirement benefit
expense for the year then ended by approximately $73,000.
The weighted-average discount rates used in determining the accumulated
postretirement benefit obligation were 7.0%, 8.5% and 7.0% in 1995, 1994 and
1993, respectively.
<PAGE>
NOTE 9 - INCOME TAXES
The components of federal and state income tax provisions consisted of the
following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Current income tax provision
Federal $3,872 $3,102 $3,070
State 1,419 1,158 1,157
------- ------- -------
Total current income tax provision 5,291 4,260 4,227
------- ------- -------
Deferred income tax benefit
Federal (214) (246) (636)
State (57) (94) (243)
------- ------- -------
Total deferred income tax benefit (271) (340) (879)
------- ------- -------
Provision for income taxes, net $5,020 $3,920 $3,348
------- ------- -------
------- ------- -------
</TABLE>
The Company's effective income tax rate differed from the Federal statutory tax
rate as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1995 1994 1993
---- ---- ----
(DOLLAR AMOUNTS IN THOUSANDS)
AMOUNT % AMOUNT % AMOUNT %
------- ----- ------- ----- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory Federal rate $4,296 34.0 $3,274 34.0 $2,814 34.0
State tax* 899 7.1 703 7.3 603 7.3
Dividend income exclusion (150) (1.2) (67) (0.7) (72) (0.9)
Other (25) (0.2) 10 0.1 3 0.1
------- ----- ------- ----- ------- ----
Effective rate on operations $5,020 39.7 $3,920 40.7 $3,348 40.5
------- ----- ------- ----- ------- ----
------- ----- ------- ----- ------- ----
</TABLE>
* NET OF FEDERAL TAX BENEFIT
The components of the net deferred income tax asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
------ ------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Deferred income tax liability
Federal $ 677 $ 273
State 253 104
------ ------
930 377
------ ------
Deferred income tax asset
Federal 3,077 5,549
State 1,146 2,121
------ ------
4,223 7,670
------ ------
Net deferred income tax asset $3,293 $7,293
------ ------
------ ------
</TABLE>
<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 as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Allowances for losses $2,141 $2,023
Depreciation (122) (62)
Deferred loan fees (185) (59)
Deferred compensation 244 215
Loan expense 311 291
Employee benefits 745 539
Trading (gains) losses (10) 62
Intangible asset 470 314
------- -------
3,594 3,323
Unrealized (gains) losses (301) 3,970
------- -------
Net deferred income tax asset $3,293 $7,293
------- -------
------- -------
</TABLE>
A summary of the change in the net deferred income tax asset is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Net deferred income tax asset -- beginning $7,293 $2,055 $ 556
Cumulative effect of a change in accounting principle --- --- 1,548
Deferred income tax provision:
Income and expense 271 340 879
Unrealized (gains) losses (4,271) 4,898 (928)
------- ------- -------
Net deferred income tax asset -- ending $3,293 $7,293 $2,055
------- ------- -------
------- ------- -------
</TABLE>
The Company has recorded a net deferred income tax asset of approximately $3.3
million.Realization is dependent on various factors and is not assured.
However, management is of the opinion that it is more likely than not that all
of the net deferred tax asset will be realized.
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.
Effective January 1, 1993, the Company adopted SFAS 109. As a result, the
Company recorded a cumulative one-time benefit of this change in accounting
principle of approximately $1.5 million or $.52 per share (fully diluted) in the
accompanying Consolidated Statements of Earnings for the year ended December 31,
1993.
NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES
The accompanying Consolidated Financial Statements do not reflect various
commitments and contingent liabilities which arise in the normal course of
business and which involve elements of credit risk, interest-rate risk and
liquidity risk. These commitments and contingent liabilities are described in
Note 16.
The Company is party to litigation and claims arising from the normal course of
business. After consultation with legal counsel, management is of the opinion
that the liabilities, if any, arising from such litigation and claims will not
be material to the consolidated financial position.
<PAGE>
NOTE 11 - STOCK OPTIONS
Under the Company's stock option plans 456,682 shares, adjusted to reflect stock
dividends, if any, of common stock were reserved at December 31, 1995. 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 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
years ended December 31, 1995, 1994 and 1993 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 plan which have been adjusted to reflect stock dividends declared:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994
-------- --------
<S> <C> <C>
Outstanding at beginning of period 237,918 292,290
Granted 135,918 47,512
Exercised (22,696) (101,884)
-------- --------
Outstanding at end of period 351,140 237,918
-------- --------
-------- --------
</TABLE>
As of December 31, 1995, 351,140 options were exercisable at prices ranging from
$9.03 to $26.30.
At December 31, 1995, there were 351,140 options in the plan that remained
outstanding. Through December 31, 1995, 150,614 options have been exercised and
45,590 options, adjusted to reflect subsequent stock dividends, have been
cancelled. 105,542 options are available for grant.
During the year ended December 31, 1995, 19,634 SARS were exercised which
resulted in payments to employees aggregating $177,900. During 1994, 8,429 SARS
were exercised which resulted in payments to employees aggregating $121,700.
These amounts are included in Salary and wage expense in the accompanying
Consolidated Statements of Earnings for the years ended December 31, 1995 and
1994. During the year ended 1993, there were no SARS exercised.
NOTE 12 - STOCKHOLDERS' EQUITY
A. DIVIDENDS.
Pursuant to Connecticut law, cash dividends may be paid by the Bank to the
Company out of net profits, defined as the remainder of earnings from current
operations plus actual recoveries on loans and investments and other assets,
after deducting all current operating expenses, actual losses, accrued dividends
on preferred stock and all federal and state taxes. The total dividends
declared by the Bank in any calendar year shall not exceed the total of its net
profits for that year combined with its net profits for the preceding two years.
In connection with the termination of the Memorandum of Understanding (the
"Memorandum") with the Connecticut Commissioner of Banking and the FDIC, the
Bank's Board of Directors has adopted a policy that limits the payment of cash
dividends by the Bank to the Company to 10% of the Bank's net income (Note 19).
A cash dividend of $.06 per share, aggregating approximately $182,000, will be
paid by the Company on March 1, 1996 to stockholders of record at February 16,
1996.
<PAGE>
The Board of Directors declared 5% stock dividends on March 15, 1995 and
November 10, 1995. Cash was paid in lieu of fractional shares for the November
10, 1995 dividend. For the March 15, 1995 dividend, due to the restrictions
stipulated under the Memorandum regarding dividends, the Company arranged for
the sale of the aggregate fractional interests and distributed the cash proceeds
to the stockholders. In accordance with generally accepted accounting
principles, weighted average shares outstanding, and thus earnings per share,
for each of the periods have been retroactively adjusted.
B. STOCK OPTIONS EXERCISED.
During the year ended December 31, 1995, 3,062 stock options were exercised,
resulting in an increase to Additional paid-in capital of approximately $64,000.
During the year ended December 31, 1994, 93,455 stock options were exercised,
resulting in an increase to Additional paid-in capital of approximately $1.8
million, which includes tax benefits of approximately $678,000.
NOTE 13 - ACQUISITION OF BURRITT INTERFINANCIAL BANCORPORATION
On December 4, 1992, Derby Savings entered into an Insured Deposit Purchase and
Assumption Agreement 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, among others, loans totaling approximately
$169.3 million that were purchased at a $10.4 million discount (Note 3). The
Bank recorded approximately $5.0 million as a core deposit intangible, which is
included in Other assets and approximated $2.8 million, net of amortization, at
December 31, 1995 (Note 1).
As part of the transaction, the Bank entered into an interim management
agreement with the FDIC pursuant to which the Bank would service loans which at
December 31, 1992 totaled approximately $258.9 million. The fees earned by the
Bank for providing this service amounted to approximately $3.7 million in 1993.
The servicing of these loans for the FDIC ended September 30, 1993.
NOTE 14 - NON-INTEREST INCOME AND NON-INTEREST EXPENSE
Included in Service charges and other income were the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
------ ------ ------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Fees on loans $ 729 $ 552 $ 551
Fees on loans serviced for the FDIC (Note 13) --- --- 3,681
Deposit service charges 784 814 867
All other, none greater than 1% of income 1,192 1,087 988
------ ------ ------
Total $2,705 $2,453 $6,087
------ ------ ------
------ ------ ------
</TABLE>
Included in Other Non-interest expense were the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
------ ------ ------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Data processing $1,345 $1,266 $2,035
FDIC insurance premium 1,518 2,770 2,435
Marketing 1,285 1,291 821
Amortization of intangible assets (Note 13) 709 711 712
All other, none greater than 1% of income 3,171 3,403 3,640
------ ------ ------
Total $8,028 $9,441 $9,643
------ ------ ------
------ ------ ------
</TABLE>
<PAGE>
NOTE 15 - SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK
The Bank is primarily engaged in the business of providing credit secured by
residential real estate to the consumer segment of the Bank's market area within
Connecticut. The concentration of the Bank's loan portfolio by type of loan at
December 31, 1995 and 1994, is set forth in Note 3. These loans include
one-to-four family mortgages, construction loans and home equity loans
aggregating approximately $802.8 million and $783.3 million at December 31, 1995
and 1994, respectively, or approximately 90.7% and 92.3% of total loans,
respectively. Approximately 85.6% and 95.8% of these loans are secured by
residential real estate located in Connecticut at December 31, 1995 and 1994,
respectively.
The Bank also has loan commitments, including unused lines of credit and amounts
not yet advanced on construction loans, secured by Connecticut real estate. In
addition, at December 31, 1995 a substantial portion of the Bank's foreclosed
assets (Note 4) is 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 real estate market conditions in
Connecticut.
In the normal course of business, the Bank may have deposits in correspondent
accounts substantially in excess of depository insurance limits. To reduce the
credit risk associated with such activities, the Bank periodically reviews the
financial condition of such correspondent banks.
NOTE 16 - FINANCIAL INSTRUMENTS
A. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET 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 and
manage its interest rate risk. These financial instruments substantially
include commitments to extend credit and commitments to sell mortgage loans.
These instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of amounts recognized in the accompanying Consolidated
Statements of Position. The contract or notional amounts of these instruments
reflect the extent of the Bank's involvement in particular classes of financial
instruments.
The Bank's exposure to credit loss in the event of non-performance by the
counterparty for commitments to extend credit is represented by the contractual
notional amount of those instruments. The Bank's exposure to market risk
associated with commitments to sell residential mortgage loans relates to the
possible inability of counterparties to meet contract terms or the Bank's
inability to originate loans to fulfill these commitments.
COMMITMENTS TO EXTEND CREDIT. Loan commitments are agreements to lend to a
customer as long as there is no violation of any condition established in the
contract. These financial instruments are recorded in the financial statements
when they are funded or when related fees are incurred or received. Loan
commitments are subject to the same credit policies as loans and generally have
fixed expiration dates or other termination clauses. Since commitments may
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of the collateral obtained
is based on management's credit evaluation of the counterparty. Collateral held
is primarily residential and commercial real property. Interest rates are
generally variable with the exception of the unadvanced portions of construction
loans, which have fixed rates of interest and generally mature within one year.
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.
<PAGE>
The Bank's exposure to credit risk is represented by the contractual notional
amount of those instruments and is summarized below:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
-------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Loan Commitments
Commitments to extend credit $ 15,648 $ 10,783
Commitments to purchase loans 6,151 24,000
Unadvanced commercial lines of credit 10,021 8,232
Unadvanced portion of construction loans 3,751 2,904
Unused portion of home equity lines of credit 65,458 59,977
Other consumer lines of credit 1,263 994
-------- --------
Total $102,292 $106,890
-------- --------
-------- --------
Letters of credit $ 2,291 $ 1,463
-------- --------
-------- --------
</TABLE>
COMMITMENTS TO SELL RESIDENTIAL MORTGAGE LOANS. The Bank enters into forward
commitments to sell residential mortgage loans to reduce market risk associated
with originating loans for sale in the secondary market. In order to fulfill a
forward commitment, the Bank delivers originated loans at prices specified by
the contracts. At December 31, 1995, the Bank had no commitments to sell
mortgage loans.
B.FAIR VALUES OF FINANCIAL INSTRUMENTS
Estimating the fair values of the Bank's financial instruments includes the use
of information that is highly subjective. The subjective factors include, among
other things, the estimated timing and amount of cash flows, risk
characteristics, and credit quality and interest rates, all of which are subject
to change. As a result, fair values estimated could be significantly different
from amounts actually realized or paid at settlement or maturity of the
financial instruments. The following methods and assumptions were used to
estimate the fair value of each class of financial instruments.
CASH AND SHORT-TERM INVESTMENTS.
For those short-term instruments, the carrying amount is a reasonable estimate
of fair value.
SECURITIES.
Fair values for investment securities are based on quoted market prices.
LOANS HELD-FOR-SALE AND LOANS RECEIVABLE.
The fair values for loans are estimated using discounted cash flow analyses.
Discount rates used are comprised of the risk-free rate associated with the
remaining term to maturity, adjusted for risk and the expenses associated with
servicing the loans. Fair values of purchased mortgages are estimated using the
quoted market prices for securities collateralized by similar loans.
FHLBB STOCK AND ACCRUED INCOME RECEIVABLE.
The carrying amount approximates fair value.
DEPOSITS.
The fair values disclosed for interest and non-interest checking, passbook
savings, money market deposit accounts and mortgagors' escrow are equal to the
amount payable on demand at the reporting date. The fair values of certificates
of deposit are estimated using rates currently offered for deposits of similar
remaining maturities.
ADVANCES FROM THE FHLBB.
The fair values of advances from the FHLBB are estimated using rates which
approximate the rates currently being offered by the FHLBB for similar remaining
maturities.
OFF-BALANCE-SHEET INSTRUMENTS.
The fair values of commitments to extend credit and unadvanced lines of credit
are estimated based on interest rates and fees currently charged to enter into
similar
<PAGE>
transactions, considering the remaining terms of the commitments and the
creditworthiness of the potential borrowers. The fair value of commitments to
sell residential mortgage loans are estimated based on secondary market prices
available for commitments with similar terms.
Using the preceding assumptions, the estimated fair values of the Bank's
financial instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------
1995 1994
----------------------------- ----------------------------
(AMOUNTS IN THOUSANDS)
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Financial Assets
Cash and short term investments $ 20,730 $ 20,730 $ 18,628 $ 18,628
Securities 320,188 319,701 322,146 314,372
Loans held-for-sale 2,035 2,035 55,190 57,951
Loans receivable, net 873,304 885,002 784,237 769,951
FHLBB stock 9,793 9,793 8,899 8,899
Accrued income receivable 7,746 7,746 7,227 7,227
Financial Liabilities
Deposits and escrow 1,069,338 1,071,988 1,039,631 1,037,556
Advances from FHLBB 96,876 97,471 111,145 111,322
Off-Balance-Sheet Financial Instruments
Commitments to extend credit --- * --- *
Commitments to sell mortgage loans --- --- --- *
</TABLE>
* AMOUNTS WERE NOT SIGNIFICANT.
NOTE 17 - RELATED PARTY TRANSACTIONS
At December 31, 1995 and 1994 loans to directors aggregated approximately
$558,000 and $1.2 million, respectively. During the year ended December 31,
1995, no new loans were granted to directors, former directors' loans totaled
approximately $394,000, and repayments totaled approximately $239,000. During
the years ended December 31, 1995, 1994 and 1993, payments aggregating
approximately $190,000, $364,000 and $509,000, respectively, were made for
legal, insurance and appraisal services to entities in which certain directors
have an interest. These loans and payments were made in the ordinary course of
business. The loans were granted on substantially the same terms, including
interest rates and collateral on loans, as those prevailing at the same time for
comparable transactions with others.
<PAGE>
NOTE 18 - CONDENSED FINANCIAL INFORMATION OF DS BANCOR, INC.
(PARENT COMPANY ONLY)
The condensed Statements of Position for DS Bancor, Inc. were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
-------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash in subsidiary bank $812 $860
Investment in bank subsidiary, at equity 79,658 65,985
Other assets 344 303
-------- --------
TOTAL ASSETS $80,814 $67,148
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Other liabilities $5 $11
-------- --------
STOCKHOLDERS' EQUITY
Common stock 3,368 3,085
Additional paid-in capital 44,514 37,780
Retained earnings 37,440 30,785
Less: Treasury stock, at cost (339,500 shares) (4,513) (4,513)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 80,809 67,137
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $80,814 $67,148
-------- --------
-------- --------
</TABLE>
<PAGE>
The condensed Statements of Earnings were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1995 1994 1993
------- ------- -------
(DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
INCOME
Dividends from subsidiary $ --- $ 567 $ 873
Other 50 39 ---
------- ------- -------
Total income 50 606 873
------- ------- -------
EXPENSE
Interest expense * --- 43 113
Other 148 265 181
------- ------- -------
Total expense 148 308 294
------- ------- -------
Income (loss) before income taxes and change
in equity of subsidiary (98) 298 579
Income tax benefit 41 109 119
------- ------- -------
Income (loss) before change in equity
of subsidiary (57) 407 698
Change in equity of subsidiary 7,670 5,303 4,228
------- ------- -------
Income before cumulative effect of a change
in accounting principle 7,613 5,710 4,926
Cumulative effect of change in
accounting principle (Note 9) --- --- 1,548
------- ------- -------
NET INCOME $7,613 $5,710 $6,474
------- ------- -------
------- ------- -------
WEIGHTED AVERAGE SHARES OUTSTANDING (NOTES 1 & 12)
Primary 3,091,578 3,070,492 2,978,004
Fully Diluted 3,103,253 3,072,672 3,019,457
EARNINGS PER SHARE--PRIMARY (NOTES 1 & 12)
Income before cumulative effect of a
change in accounting principle $ 2.46 $ 1.86 $ 1.65
Cumulative effect of a change in
accounting principle --- --- .52
------- ------- -------
Net income $ 2.46 $ 1.86 $ 2.17
------- ------- -------
------- ------- -------
EARNINGS PER SHARE--FULLY DILUTED (NOTES 1 & 12)
Income before cumulative effect of a
change in accounting principle $ 2.45 $ 1.86 $ 1.63
Cumulative effect of a change in
accounting principle --- --- .51
------- ------- -------
Net income $ 2.45 $ 1.86 $ 2.14
------- ------- -------
------- ------- -------
</TABLE>
* 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 7 & 19).
<PAGE>
The condensed changes in the components of Stockholders' Equity for the years
ended December 31, 1995, 1994 and 1993 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 - January 1, 1993 $2,865 $33,971 $26,262 $(4,513)
Net income 6,474
Stock dividend declared on common stock (Note 12) 126 2,029 (2,155)
Shares issued for fractional interest 7
Cash in lieu of fractional shares (7)
Adjustment for unrealized security gains of
subsidiary (Note 2) 1,381
------ ---------- --------- ---------
Balance - December 31, 1993 2,991 36,007 31,955 (4,513)
Net income 5,710
Stock options exercised (93,455 shares) (Note 11) 94 1,773
Adjustment for unrealized security losses of
subsidiary (Note 2) (6,880)
------ ---------- --------- ---------
Balance - December 31, 1994 3,085 37,780 30,785 (4,513)
Net income 7,613
Stock dividend declared on common stock (Note 12) 280 6,658 (6,938)
Shares issued for fractional interest 12
Cash in lieu of fractional shares (23)
Stock options exercised (3,062 shares) (Note 11) 3 64
Adjustment for unrealized security gains of
subsidiary (Note 2) 6,003
------ ---------- --------- ---------
Balance - December 31, 1995 $3,368 $44,514 $37,440 $(4,513)
------ ---------- --------- ---------
------ ---------- --------- ---------
</TABLE>
The condensed Statements of Cash Flows were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------
1995 1994 1993
------ ------- ------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Dividends received from subsidiary $ --- $ 567 $ 873
Interest income 50 39 ---
Tax benefit received from subsidiary --- 80 ---
Interest paid --- (68) (123)
Cash paid to suppliers (154) (260) (205)
------ ------- ------
Net cash (used) provided by
operating activities (104) 358 545
------ ------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable--Bank --- (1,450) (483)
Dividends paid to stockholders (23) --- (7)
Issuance of common stock 79 1,867 7
------ ------- ------
Net cash provided (used) by financing
activities 56 417 (483)
------ ------- ------
NET INCREASE (DECREASE) IN CASH (48) 775 62
CASH AT BEGINNING OF YEAR 860 85 23
------ ------- ------
CASH AT END OF YEAR $ 812 $ 860 $ 85
------ ------- ------
------ ------- ------
</TABLE>
<PAGE>
A reconciliation of net income to cash (used) provided by operating activities
was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Net income $ 7,613 $ 5,710 $ 6,474
Items not resulting in cash flow:
Equity in undistributed earnings of subsidiary (7,670) (5,303) (5,776)
Increase in income tax benefits receivable (41) (29) (119)
Decrease in accrued expenses (6) (20) (34)
-------- -------- --------
Net cash flow from operating activities $ (104) $ 358 $ 545
-------- -------- --------
-------- -------- --------
</TABLE>
NOTE 19 - REGULATORY MATTERS
DS Bancor and 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 August 1995, the FDIC and the Connecticut Banking Commissioner terminated the
Memorandum entered into by the Bank in April 1992. The Memorandum, as amended,
required that the Bank achieve a tier 1 capital to total assets ratio of at
least 5.75% by June 30, 1995. Additionally, the Memorandum limited the payment
of cash dividends by the Bank to DS Bancor to the Company's debt service and
non-salary expenses.
By June 30, 1995, the Bank had achieved a tier 1 capital to total assets ratio
of 5.9%, which led to the termination of the Memorandum by the FDIC and the
Connecticut Banking Commissioner. At December 31, 1995, this ratio stood at
6.1%. In connection with the termination of the Memorandum, the Bank's Board of
Directors has adopted a policy that limits the payment of cash dividends by the
Bank to the Company up to 10% of the Bank's net income.
The following table summarizes the capital ratios of DS Bancor and Derby Savings
Bank at December 31, 1995:
RISK-BASED
----------------
LEVERAGE RATIO TIER 1 TOTAL
-------------- ------ ------
DS Bancor 6.2% 10.94% 11.91%
Derby Savings Bank 6.1% 10.78% 11.76%
<PAGE>
NOTE 20 - RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the FASB issued Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("SFAS 121"). SFAS 121 requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If the carrying
amount of an asset is deemed to not be recoverable, an estimate of the future
cash flows will be computed and compared to the carrying amount of the asset.
If such amount is less than the carrying amount, an impairment loss will be
recognized and measured as the amount by which the carrying amount of the asset
exceeds the fair value. This statement also requires that long-lived assets and
certain identifiable intangibles to be disposed of be reported at the lower of
carrying amount or fair value less cost to sell. The Bank will be required to
adopt this statement on a prospective basis beginning January 1, 1996.
Management does not expect the adoption of SFAS 121 to have a material effect on
the Bank's financial condition.
In May 1995, the FASB issued Statement of Financial Accounting Standards No.
122, "Accounting for Mortgage Rights an Amendment to SFAS 65" ("SFAS 122").
SFAS 122 amends SFAS 65, "Accounting for Certain Mortgage Banking Activities,"
to require recognition as a separate asset of the value of the rights to service
mortgage loans for others, however those servicing rights are acquired.
Mortgage servicing rights acquired through either servicing or origination of
mortgage loans and the subsequent sale or securitization of those loans with
servicing retained will require that those rights be allocated a cost as part of
the total cost of the mortgage loan based on their relative fair values if it is
practicable to estimate those fair values. If it is not practicable to estimate
the fair values, the entire cost of purchasing or originating the loans will be
allocated to the mortgage loans and no cost will be allocated to the mortgage
servicing rights. Loans purchased or originated with a definitive plan to sell
or securitize and retain the mortgage servicing rights will require the
provision of this statement to be applied at the date of origination or
purchase. Additionally, this statement requires that capitalized mortgage
servicing rights be assessed for impairment based on the fair value of those
rights; any impairment should be recognized through a valuation allowance. The
Bank will be required to adopt this statement on a prospective basis beginning
January 1, 1996. Management has not yet determined the effect, if any, which
the adoption will have on the Bank's financial condition.
In October 1995, the FASB issued Statement No. 123, "Accounting for Stock-Based
Compensation." The new rules are effective for calendar-year 1996. However,
companies will be required to include in that year's financial statements
information about options granted in 1995. The standard encourages but does not
require companies to account for stock compensation awards based on their fair
value at the date the awards are granted, with the resulting compensation cost
shown as an expense. If they continue to apply current accounting requirements,
companies will have to disclose in a note to the financial statements what the
net income and earnings per share would have been had they followed the new
accounting method. Management has not yet determined how the Bank will apply
the provisions of the pronouncement nor the effect, if any, the application
would have on the Bank's financial statements.
<PAGE>
NOTE 21 - QUARTERLY RESULTS OF EARNINGS
(UNAUDITED)
The following is a summary of the quarterly results of consolidated earnings for
the years ended December 31, 1995 and 1994 (AMOUNTS IN THOUSANDS, EXCEPT PER
SHARE DATA):
<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------------------
12/31/95 9/30/95 6/30/95 3/31/95
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income $22,670 $22,059 $21,276 $20,584
Interest expense 13,790 13,486 12,628 11,671
-------- ------- ------- -------
Net interest income 8,880 8,573 8,648 8,913
Provision for credit losses 700 625 600 600
-------- ------- ------- -------
Net interest income after
provision for credit losses 8,180 7,948 8,048 8,313
Non-interest income, net 1,335 944 862 543
Non-interest expense 5,752 5,414 6,232 6,142
-------- ------- ------- -------
Income before income taxes 3,763 3,478 2,678 2,714
Provision for income taxes, net 1,439 1,429 1,056 1,096
-------- ------- ------- -------
Net income $ 2,324 $ 2,049 $ 1,622 $ 1,618
-------- ------- ------- -------
-------- ------- ------- -------
Earnings per share--Primary (a) $ 0.75 $ 0.66 $ 0.53 $ 0.53
Earnings per share--Fully Diluted (a) $ 0.75 $ 0.66 $ 0.52 $ 0.53
<CAPTION>
12/31/94 9/30/94 6/30/94 3/31/94
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income $ 20,414 $19,794 $18,781 $18,293
Interest expense 11,427 10,985 10,444 9,962
-------- ------- ------- -------
Net interest income 8,987 8,809 8,337 8,331
Provision for credit losses 700 625 400 600
-------- ------- ------- -------
Net interest income after
provision for credit losses 8,287 8,184 7,937 7,731
Non-interest income, net 545 683 1,010 863
Non-interest expense 6,507 6,480 6,532 6,091
-------- ------- ------- -------
Income before income taxes 2,325 2,387 2,415 2,503
Provision for income taxes, net 977 966 966 1,011
-------- ------- ------- -------
Net income $ 1,348 $ 1,421 $ 1,449 $ 1,492
-------- ------- ------- -------
-------- ------- ------- -------
Earnings per share--Primary (a) $ 0.44 $ 0.46 $ 0.47 $ 0.49
Earnings per share--Fully Diluted (a) $ 0.44 $ 0.46 $ 0.47 $ 0.49
</TABLE>
(a) ADJUSTED RETROACTIVELY TO REFLECT STOCKS DIVIDEND DECLARED (NOTE 12).
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
DS Bancor, Inc.
Derby, Connecticut
We have audited the accompanying consolidated statements of position of
DS Bancor, Inc. and Subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the accompanying consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of DS Bancor, Inc. and Subsidiary as of December 31, 1995 and
1994, and the results of their operations, changes in their stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the accompanying consolidated financial
statements, effective January 1, 1995, the Bank adopted the provisions of
Statements of Financial Accounting Standards Nos. 114 and 118, "Accounting by
Creditors for Impairment of a Loan."
Friedberg, Smith & Co., P.C.
Bridgeport, Connecticut
February 23, 1996
<PAGE>
DIRECTORS - DS BANCOR, INC. & DERBY SAVINGS BANK
Michael F. Daddona Jr. Angelo E. Dirienzo
CHAIRMAN OF THE BOARD; RETIRED SUPERINTENDENT OF SCHOOLS
OWNER/GENERAL MANAGER Sherman Board of Education
Automated Services
Laura J. Donahue, Esq.
John F. Costigan ATTORNEY
CORPORATE SECRETARY; Donahue & Donahue
RETIRED EXECUTIVE VICE PRESIDENT
Derby Savings Bank Christopher H.B. Mills (1)
CHIEF EXECUTIVE
Achille A. Apicella, CPA North Atlantic Small Companies Trust
PRESIDENT PLC
Apicella, Testa & Co.
John M. Rak
OWNER
Walter R. Archer Jr. John M. Rak Real Estate
PRESIDENT
Burtville Associates & John P. Sponheimer, Esq.
Archer Landfill Service Co. PARTNER
Hoyle & Sponheimer
Harry P. DiAdamo Jr.
PRESIDENT, TREASURER & CEO Gary M. Tompkins
Derby Savings Bank EXECUTIVE ASSISTANT/OPERATIONS
DIRECTOR
Automated Services
(1) DIRECTOR, DS BANCOR, INC., ONLY
================================================================================
ADVISORY BOARDS
NEW BRITAIN/HARTFORD REGION NEW HAVEN/FAIRFIELD REGION
Anthony M. Arcesi Clifford D. Hoyle
Anthony J. Bafundo Morton A. Miller
Maryann E. Cichowski Patricia A. Morgan
Sal N. Gionfriddo David M. Rifkin
Nancy B. Heiser Leon Sylvester
Allan J. Kleban Peter J. Vartelas
Daniel J. O'Connell
Janusz S. Podlasek
Annelisa Santoro
================================================================================
BANK COUNSEL INVESTOR RELATIONS
Hoyle & Sponheimer Katherine C. Partesano
Assistant Vice President
Telephone (203) 736-5127
SPECIAL COUNSEL
Hogan & Hartson L.L.P.
COMMON STOCK INFORMATION
Listing: NASDAQ NMS Symbol: DSBC
INDEPENDENT PUBLIC ACCOUNTANTS
Friedberg, Smith & Co., P.C.
ANNUAL MEETING OF STOCKHOLDERS
REGISTRAR AND TRANSFER AGENT April 24, 1996, 10:00 a.m.
American Stock Transfer & Trust Co. Grassy Hill Lodge
40 Wall Street, 46th Floor 77 Sodom Lane
New York, NY 10005 Derby, CT 06418
1-800-937-5449
<PAGE>
DS BANCOR, INC.
OFFICERS:
Harry P. DiAdamo Jr. John F. Costigan
PRESIDENT & CEO CORPORATE SECRETARY
Alfred T. Santoro
VICE PRESIDENT,
TREASURER & CFO
- --------------------------------------------------------------------------------
DERBY SAVINGS BANK
OFFICERS:
Harry P. DiAdamo Jr.
PRESIDENT,
TREASURER & CEO
Alfred T. Santoro
EXECUTIVE VICE PRESIDENT
& CFO
Thomas H. Wells
SENIOR VICE PRESIDENT &
CHIEF LENDING OFFICER
Lynn A. Miller
SENIOR VICE PRESIDENT
BRANCH ADMINISTRATION
Nina M. Allen
VICE PRESIDENT
RETAIL LOAN SERVICING
William W. Cote'
VICE PRESIDENT
LEGAL SERVICES
John Dada
VICE PRESIDENT
MARKETING
David A. Dedman
VICE PRESIDENT
COMMERCIAL REAL ESTATE LENDING
Kenneth J. Doughty
VICE PRESIDENT
RETAIL LENDING
Jason M. Gordon
VICE PRESIDENT
COMMERCIAL LENDING
Donald E. Keagan
VICE PRESIDENT & CONTROLLER
Thomas J. Laskowski
VICE PRESIDENT
DEPOSIT SERVICING
Robert V. Ouellette
VICE PRESIDENT
COMMERCIAL LENDING
Janice A. Sheehy
VICE PRESIDENT
COMMERCIAL LENDING
Bonita L. Smith
VICE PRESIDENT
HUMAN RESOURCES
Elmina G. Taylor
VICE PRESIDENT
REGIONAL BRANCH MANAGER
Gary M. Toole
VICE PRESIDENT
COMMERCIAL REAL ESTATE LENDING
Frederick I. Wilson
VICE PRESIDENT
OPERATIONS
Rita L. Finnegan
AUDITOR
<PAGE>
SUBSIDIARY:
DERBY FINANCIAL SERVICES
- --------------------------------------------------------------------------------
OFFICES
CORPORATE HEADQUARTERS
33 Elizabeth Street
Derby, CT 06418
AVON
Tri-Town Plaza
320 West Main Street
Avon, CT 06001
DERBY
One Elizabeth Street
Derby, CT 06418
Orange-Derby Shopping Center
Derby, CT 06418
EAST HARTFORD
471 Main Street
East Hartford, CT 06118
FAIRFIELD
1919 Black Rock Turnpike
Fairfield, CT 06430
GLASTONBURY
119 Hebron Avenue
Glastonbury, CT 06033
NEW BRITAIN
185 Main Street
New Britain, CT 06050
435 South Main Street
New Britain, CT 06051
275 Newington Avenue
New Britain, CT 06053
681 West Main Street
New Britain, CT 06050
NEWINGTON
260 Hartford Avenue
Newington, CT 06111
ORANGE
35 Old Tavern Road
Orange, CT 06477
PLAINVILLE
54 East Street
Plainville, CT 06062
ROCKY HILL
2049 Silas Dean Highway
Rocky Hill, CT 06067
SEYMOUR
15 New Haven Road
Seymour, CT 06483
SHELTON
502 Howe Avenue
Shelton, CT 06484
506 Shelton Avenue
Shelton, CT 06484
SOUTHBURY
325 Main Street South
Southbury, CT 06488
STRATFORD
3520 Main Street
Stratford, CT 06497
TRUMBULL
952 White Plains Road
Trumbull, CT 06611
WEST HARTFORD
1253 New Britain Avenue
West Hartford, CT 06110
970 Farmington Avenue
West Hartford, CT 06107
Member FDIC
Equal Housing Lender
Equal Opportunity Employer
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE COMPANY
Jurisdiction of
Name of Subsidiary Incorporation
- ------------------ ---------------
Derby Savings Bank Connecticut
Subsidiaries of Derby Savings Bank
- ----------------------------------
Derby Financial Services
<PAGE>
Exhibit 23(a)
FRIEDBERG, SMITH & CO., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
855 MAIN STREET
BRIDGEPORT, CT 06604
Phone (203) 366-5876
Fax (203) 366-1924
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
DS Bancor, Inc.
We consent to incorporation by reference in the Post-Effective Amendment No. 1
on Form S-8 to the Registration Statement on Form S-4 (No. 33-3699) of DS
Bancor, Inc. of our report dated February 23, 1996 relating to the consolidated
statements of condition of DS Bancor, Inc. and Subsidiary as of December 31,
1995 and 1994, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1995, which report appears in the December 31, 1995
annual report to shareholders of DS Bancor, Inc. which is incorporated by
reference in the annual report on Form 10-K of DS Bancor, Inc. for the year
ended December 31, 1995.
Friedberg, Smith & Co., P.C.
Bridgeport, Connecticut
March 18, 1996
<PAGE>
EXHIBIT 23(b)
FRIEDBERG, SMITH & CO., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
855 MAIN STREET
BRIDGEPORT, CT 06604
Phone (203) 366-5876
Fax (203) 366-1924
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
DS Bancor, Inc.
We consent to incorporation by reference in the Post-Effective Amendment No. 1
on Form S-8 to the Registration Statement on Form S-4 (No. 33-71206) of DS
Bancor, Inc. of our report dated February 23, 1996 relating to the consolidated
statements of condition of DS Bancor, Inc. and Subsidiary as of December 31,
1995 and 1994, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1995, which report appears in the December 31, 1995
annual report to shareholders of DS Bancor, Inc. which is incorporated by
reference in the annual report on Form 10-K of DS Bancor, Inc. for the year
ended December 31, 1995.
Friedberg, Smith & Co., P.C.
Bridgeport, Connecticut
March 18, 1996
<PAGE>
EXHIBIT 23(c)
FRIEDBERG, SMITH & CO., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
855 MAIN STREET
BRIDGEPORT, CT 06604
Phone (203) 366-5876
Fax (203) 366-1924
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
DS Bancor, Inc.
Derby, Connecticut
We consent to the incorporation by reference in the registration statement on
Form S-8 (No. 33-53803) of the DS Bancor, Inc. 1994 Stock Option Plan of our
report dated February 23, 1996 relating to the consolidated statements of
position of DS Bancor, Inc. and Subsidiary as of December 31, 1995 and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1995, which report
appears in the December 31, 1995 annual report on Form 10-K of DS Bancor, Inc.
and Subsidiary.
Friedberg, Smith & Co., P.C.
Bridgeport, Connecticut
March 18, 1996
<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 THE CONSOLIDATED FINANCIAL STATEMENTS, AND THE SELECTED FINANCIAL
AND OTHER DATA AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 18,425
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,305
<TRADING-ASSETS> 1,171
<INVESTMENTS-HELD-FOR-SALE> 241,136
<INVESTMENTS-CARRYING> 77,881
<INVESTMENTS-MARKET> 77,394
<LOANS> 882,245
<ALLOWANCE> 6,906
<TOTAL-ASSETS> 1,254,483
<DEPOSITS> 1,058,145
<SHORT-TERM> 0
<LIABILITIES-OTHER> 7,460
<LONG-TERM> 96,876
0
0
<COMMON> 3,368
<OTHER-SE> 77,441
<TOTAL-LIABILITIES-AND-EQUITY> 1,254,483
<INTEREST-LOAN> 65,148
<INTEREST-INVEST> 21,441
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 86,589
<INTEREST-DEPOSIT> 46,267
<INTEREST-EXPENSE> 51,575
<INTEREST-INCOME-NET> 35,014
<LOAN-LOSSES> 2,525
<SECURITIES-GAINS> (520)
<EXPENSE-OTHER> 23,540
<INCOME-PRETAX> 12,633
<INCOME-PRE-EXTRAORDINARY> 7,613
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,613
<EPS-PRIMARY> 2.46
<EPS-DILUTED> 2.45
<YIELD-ACTUAL> 2.97
<LOANS-NON> 13,289
<LOANS-PAST> 479
<LOANS-TROUBLED> 4,385
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,803
<CHARGE-OFFS> 2,783
<RECOVERIES> 361
<ALLOWANCE-CLOSE> 6,906
<ALLOWANCE-DOMESTIC> 6,906
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
