As Filed with the Securities and Exchange Commission
on February 23, 1995
Registration No. 33-55201
UNITED STATES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
To
FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CBC BANCORP, INC.
(Exact name of Registrant as specified in its charter)
CONNECTICUT 06-1179862
(State of incorporation) (I.R.S. Employer I.D. No.)
128 AMITY ROAD, WOODBRIDGE, CONNECTICUT 06525
(203) 389-2800
(Address, including zip code, and Telephone Number, including
area code of Registrant's Principal Executive Offices)
Charles Pignatelli
President and Chief Executive Officer
128 Amity Road
Woodbridge, Connecticut 06525
(203) 389-2800
(Name, Address, including zip code, and telephone number,
including area code, of Agent for Service)
With Copies to:
Thomas S. Gallagher, Esq.
66 Larchmont Avenue
Larchmont, New York 10538
Approximate date of commencement of proposed sales to the public:
As soon as practicable after the Registration Statement becomes
effective.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box:
/x/
If the registrant elects to deliver its latest annual report to
security-holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(i) of this form, check the following box:
/x/
CALCULATION OF REGISTRATION FEE
Title of Each Proposed Proposed
Class of Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Offering Registration
Registered (1) Registered Per Unit Price Fee
Common Stock,
par value 5,109,507 (3) $5,748,197 (4) $1,982.15
$0.01 per
share (2)
Series I 13,000 (3) $1,300,000 (6) $448.24
Cumulative
Convertible
Preferred
Stock, no par
value(5)
Series II 50,000 (3) $3,700,000 (6) $1,724.15
Cumulative
Preferred
Stock, no par
value
Series III 383 (3) $3,830,000 (6) $1,196.88
Cumulative
Convertible
Preferred
Stock, no
par value(7)
Mandatory $1,090,000 (3) $1,090,000 (9) $375.86
Convertible
Subordinated
Capital Notes(8)
Subordinated $220,000 (3) $220,000 (9) $75.86
Capital Notes
Short-Term $3,500,000 (3) $3,500,000 (9) $1,206.91
Senior Notes(10)
Common Stock 1 (3)
Warrant (11)
Common Stock, (3)
par value
$0.01 per
share (12)
(1) This Registration Statement covers the maximum number of
Registrant's securities that would be issued in the
transactions described herein.
(2) Includes a maximum of 3,000,000 shares of newly issued
Common Stock to be sold by the Company in the Offering,
1,813,507 shares of Common Stock issued and sold by the
Company in a private placement in August 1992, 46,000 shares
of Common Stock reserved for issuance upon conversion of all
23,000 issued and outstanding shares of Series I Preferred
Stock (which includes the 13,000 shares of Series I Preferred
Stock being registered hereunder), 100,626 shares (or such
greater or lesser amount as shall equal 5 percent of the issued
and outstanding shares of Company Common Stock) and 149,374
shares (or such lesser number as may be required) to be
reserved by the Company for issuance pursuant to the Company's
1994 Incentive Stock Option Plan.
(3) Not applicable.
(4) Computed in accordance with Rule 457(c), based on the last
sale price of the Company's Common Stock on August 19, 1994
of $1.125 per share as reported on the NASDAQ Small-Cap
Market.
(5) Each share of Series I Cumulative Convertible Preferred
Stock ("Series I Preferred Stock") is convertible, at the
option of the holder, into two shares of Common Stock (after
giving effect to the one-for-five reverse stock split). This
Prospectus covers the maximum number of the shares of Common
Stock issuable upon conversion of the entire Series I
Preferred Stock, including the number of shares of Common
Stock issuable upon conversion of the 13,000 shares of
Series I Preferred Stock being registered hereunder. The
amount of the registration fee attributable to the 13,000
shares of Series I Preferred Stock is included in the
calculation of the registration fee due for registration of
the shares of Common Stock hereunder.
(6) Estimated solely for purposes of calculating the registration
fee based on the stated value and liquidation preference of
the preferred stock.
(7) The shares of Series III Preferred Stock are convertible, at
the option of the holders, into shares of the Company Common
Stock, Preferred Stock or other capital instrument
of the Company,
or into a combination of such shares and shares of Common Stock,
Preferred Stock or other capital instrument of the Company's
principal subsidiary, Connecticut Bank of Commerce, with a market
value equal to the stated value of the Series III
Preferred Stock,
plus accrued and unpaid dividends. This Registration Statement
covers the maximum number of shares of Common, Preferred or other
capital instrument into which the Series III Preferred Stock is
convertible. Based on the $1 per share average of the
bid and ask
price of the Company's Common Stock on February 17, 1995 and
assuming conversion of all of the Series III Preferred Stock on
that date into shares of Company Common Stock,
the holders of the
Series III Preferred Stock would be entitled to receive a total
of 3,830,000 shares of Company Common Stock upon conversion.
Pursuant to Rule 458(i), the registration fee has been calculated
on the basis of the offering price of the Series III Preferred
Stock alone, since no additional consideration will be received
by the Company in connection with the holders' exercise of the
conversion privilege.
(8) The Mandatory Convertible Subordinated Capital Notes
("Convertible Debt Securities") are convertible at any time
prior to July 1, 1997 (the "Maturity Date") and are
mandatorily convertible at the Maturity Date into shares of
Common Stock with a market value equal to the outstanding
principal amount plus accrued and unpaid interest. This
Registration Statement covers such number of shares of
Common Stock as may be issued upon conversion of the
Convertible Debt Securities at or prior to the Maturity
Date. Based on the August 19, 1994 last sale price of the
Common Stock of $1.125 per share, 968,889 shares of Common
Stock would be issuable by the Company pursuant to the
Convertible Debt Securities.
(9) Estimated solely for purposes of calculating the registration
fee based on the aggregate principal amount of the debt
securities.
(10) Includes a maximum of $3,354,000 of Short-Term Notes to be
offered for sale by the Company in the Offering and $148,000 of
principal amount of Short-Term Senior Notes currently
outstanding.
(11) Such indeterminate number of shares of Common Stock as may
be issued upon exercise of the Warrant. The Warrant is not
exercisable unless and until Mr. Lenz's ownership of Common
Stock falls below 51% and then only for such number of
shares of Common Stock as necessary to maintain his
ownership at the 51 percent level.
(12) Such indeterminate number of shares of Common Stock as may
be issued upon conversion of the Convertible Capital
Notes or of the Series III Preferred Stock, or upon exercise of
the Common Stock Warrant or of the Options.
CBC BANCORP, INC.
(Cross-Reference Sheet for Registration Statement on Form S-2 and
Prospectus
Item Number Caption Caption of Prospectus
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus Outside Front Cover Page
2. Inside Front and Outside Available Information;
Back Cover Pages of Incorporation of Certain Document
Prospectus by Reference; Table of Contents
3. Summary Information, Risk The Company; Risk Factors
Factors and Ratio of and Investment Considerations;
Earnings to Fixed Charges Ratio of Earnings to Fixed
Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Risk Factors and Investment
Price Considerations, Description of
the Securities
6. Dilution Dilution
7. Selling Security-Holders Selling Securities Holders
8. Plan of Distribution Plan of Distribution
9. Description of Securities
to be Registered Description of the Securities
10. Interests of Named Experts
and Counsel Legal Matters; Experts
11. Information With Respect Delivery of Latest Annual Report
to the Registrant on Form 10-K and Quarterly
Report on Form 10-Q;
Incorporation of Certain
Documents by Reference
12. Incorporation of Certain
Information by Reference Delivery of Latest Annual Report
on Form 10-K and Quarterly
Report on Form 10-Q with
Prospectus; Incorporation of
Certain Documents by Reference
13. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities Not Applicable
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to Section 8(a), may determine.
SUBJECT TO COMPLETION DATED FEBRUARY 23, 1995
PROSPECTUS
CBC BANCORP, INC.
Common Stock (par value $0.01), Series I Cumulative Convertible Preferred
Stock (without par value), Series II Cumulative Preferred Stock (without par
value), Series III Cumulative Convertible Preferred Stock (without par value),
Mandatory Convertible Subordinated Capital Notes, Subordinated Capital Notes,
Short-Term Senior Notes and Common Stock Warrant
This Prospectus relates to 5,109,507 shares of Common Stock, par value
$0.01 per share (the "Common Stock") of CBC Bancorp, Inc. (the "Company"),
13,000 shares of Series I Cumulative Convertible Preferred Stock, without par
value, liquidation preference of $100 per share ("Series I Preferred Stock"),
50,000 shares of Series II Cumulative Preferred Stock, without par value,
liquidation preference of $74 per share ("Series II Preferred Stock"), 383
shares of Series III Cumulative Convertible Preferred Stock, without par value,
liquidation preference of $10,000 per share ("Series III Preferred Stock"),
$1,090,000 of Mandatory Convertible Subordinated Capital Notes due July 1, 1997
("Convertible Debt Securities"), $220,000 of Subordinated Capital Notes, due
March 31, 1999 ("Term Debt Securities"), $3,500,000 of Short-Term Senior
Notes ("Short-Term Notes") and a warrant to purchase shares of Company Common
Stock (the "Warrant"). The Common Stock, the Series I Preferred Stock, the
Series II Preferred Stock, the Series III Preferred Stock, the Convertible Debt
Securities, the Term Debt Securities, the Short-Term Notes and the Warrant
offered hereby are hereinafter collectively referred to as the "Securities."
Of the 5,109,507 shares of Common Stock being registered, 3,000,000 shares (the
"New Common Stock") represent newly-issued shares being offered by the Company
in a public or private offering along with or separately from the $3,352,000 of
Short-Term Notes (the "Offering"), 1,813,507 shares represent previously issued
shares sold by the Company in a private placement completed in August of 1992,
46,000 shares represent the number of shares issuable upon conversion of all
23,000 issued and outstanding shares of Series I Preferred Stock, 149,374
shares represent the maximum number of shares of Common Stock issuable to
selected employees of the Company and the Bank (exclusive of the President and
Chief executive Officer of the Company and the Bank) under the Company's 1994
Incentive Stock Option Plan (the "Plan Options") and 100,626 shares
representing 5% of the issued and outstanding shares of Company Common Stock
(subject to upward adjustment in the event of an increase in the number of
issued and outstanding shares), issuable under the Stock Option Agreement, by
and between the Company and the Company's President and Chief Executive
Officer, dated as of December 13, 1994 (the "Compensatory Options") assuming
full vesting and exercise of the Compensatory Options. The Plan Options and the
Compensatory Options shall be referred to herein collectively as the "Options"
and the shares issuable under the Options shall be referred to herein
collectively as the "Option Shares".
The Company intends to sell the New Common Stock and up to $3,352,000 of
Short-Term Notes directly or through one or more registered broker-dealers in a
private placement or in an underwritten public offering. See "Plan of
Distribution." All of the Securities offered hereby, except for the New Common
Stock and $3,352,000 of Short-Term Notes, are being registered for the account
of the holder of the respective Securities (the "Selling Securities Holders").
The Company will not receive any of the proceeds from the sale of the Selling
Securities Holders' Securities. See "Selling Securities Holders." Upon exercise
of the Options, however, the Company will receive the applicable exercise price
for the Option Shares.
This Prospectus also relates to shares of Common Stock issuable upon
conversion of the Series I and Series III Preferred Stock, shares of Common
Stock issuable upon the conversion of the Convertible Debt Securities, shares
of Common Stock issuable upon exercise of the Warrant and shares of Common
Stock issuable upon the exercise of the Incentive Options and the Compensatory
Options.
The Common Stock is listed on the National Association of
Securities Dealers Automated Quotations Small-Cap Market ("NASDAQ
Small-Cap Market") under the symbol "CBCB." As of February 17, 1995, the
closing average bid and ask price of the Common Stock, as reported by the
NASDAQ Small-Cap Market, was $1.00 per share.
Application has been made to list the shares of Common Stock
offered hereby on the NASDAQ Small-Cap Market. Prior to this
offering, there has not been an active market for the Common
Stock or any of the other Securities. There can be no assurance
that an active market will develop in the future for any of the
Securities or that any such market will continue after the sale
of the Securities covered hereby.
The Securities being offered hereby may be sold to underwriters for
public offering pursuant to the terms of an
offering established at the time of sale. In addition, the
Securities may be sold by the Company or the Selling Securities
Holders directly or through normal brokerage channels by dealers
or agents. Any underwriters, dealers or agents participating in
the offering of the Securities may be deemed "underwriters"
within the meaning of the Securities Act of 1933, as amended (the
"Securities Act").
See "Risk Factors and Investment Considerations" for a discussion of
certain factors that should be considered by each
prospective investor in the Securities.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATES SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATES SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY.
The date of this Prospectus is February 23, 1995
The Company does not contemplate any underwriting being utilized in
connection with the offering and sale of the Securities being registered
hereunder. The New Common Stock and the $3,352,000 of Short-Term Notes may be
sold in one or more transactions in a public or private offering (the
"Offering") as soon as practicable following the effectiveness of the
Registration Statement of which this Prospectus is a part. In the event an
underwriter is utilized by the Company in connection with the Offering, this
Prospectus or a supplement thereto (the "Prospectus Supplement") shall set
forth the names of the underwriters, any applicable commissions or discounts,
the net proceeds to the Company and any other terms of the offering. Except as
may be indicated herein or in a Prospectus Supplement, the Securities are
being offered without any underwriting discounts. All expenses of registration
of the Securities shall be borne by the Company. Normal brokerage commissions,
discounts and fees are payable individually by the Selling Securities Holders.
See "Plan of Distribution."
DELIVERY OF LATEST ANNUAL REPORT ON FORM 10-K AND
LATEST QUARTERLY REPORT ON FORM 10-Q WITH THE PROSPECTUS
A copy of the Company's latest Annual Report on Form 10-K
(without exhibits) and latest Quarterly Report (if any) on Form 10-Q
accompanies this Prospectus. A prospective investor in any of
the Securities offered hereby should carefully review the information contained
therein as well as the information contained in this Prospectus prior to
making an investment decision. The Company will furnish without charge a copy
of these documents to each person to whom this Prospectus is delivered upon
written or oral request of such person. See "Incorporation of Certain Documents
By Reference."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1994, previously filed by the Company with the Securities and Exchange
Commission ("Commission"), pursuant to Section 13 of the Securities Exchange
Act of 1934, as amended ("Exchange Act"), is incorporated herein by reference.
All reports and definitive proxy or information statements filed by the
Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the offering of the Securities offered hereby shall be deemed
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
The Company will provide without charge to each person to
whom this Prospectus is delivered, on written or oral request of
any such person, a copy of any or all of the documents incorporated herein by
reference (other than exhibits to such
documents which are not specifically incorporated by reference in
such documents). Written requests for such copies shall be directed to
Corporate Secretary, CBC Bancorp, Inc., 128 Amity Road, Woodbridge, Connecticut
06525. Telephone requests may be
directed to the Company's Corporate Secretary at (203) 389-2800.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Exchange Act and in accordance therewith, files reports,
proxy statements and other information with the Commission. Such
reports, proxy statements and other information can be inspected
and copied at the following public reference facilities maintained by
the Commission: 450 Fifth Street, N.W., Washington, D.C. 20549;
Seven World Trade Center, New York, New
York 10048; and the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material may also be obtained by mail from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, upon payment of prescribed rates.
Reports, proxy statements and other information concerning the
Company can also be inspected at the offices of the National
Association of Securities Dealers, 1735 K Street, N.W.,
Washington, D.C. 20006.
Additional information regarding the Company and the
Securities offered hereby is contained in the Registration
Statement, and the exhibits relating thereto, filed with
Commission under the Securities Act. For further information
concerning the Company and the Securities offered hereby,
reference is made to the Registration Statement and the exhibits
thereto, which may be inspected without charge at the office of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies thereof may be obtained from the Commission at
prescribed rates.
THE COMPANY
CBC Bancorp, Inc. (the "Company") is a registered bank
holding company. The Company's principal subsidiary is Connecticut Bank of
Commerce (the "Bank"), a Connecticut chartered commercial bank. The Company
also owns an immaterial subsidiary, Amity Loans, Inc. The Bank is a
full-service commercial bank with its main office in Woodbridge, Connecticut,
and four other branch offices located in Branford, Greenwich, Norwalk and
Stamford, Connecticut. From its main office and other banking offices, the
Bank provides a broad range of commercial and consumer banking services to
businesses and consumers located in New Haven and Fairfield counties and
throughout Connecticut, including checking and savings accounts and loans to
small and medium-sized businesses, professional organizations and individuals.
All deposits in the Bank are insured by the Federal Deposit Insurance
Corporation ("FDIC") to the extent permitted by law.
Commencing in the second quarter of 1994, the Bank established a
financial lease program. The Bank's leasing business includes providing
short-term financing leases, which are subsequently placed with permanent
lenders, purchasing accounts receivable resulting from leasing transactions and
purchasing equipment for lease to prospective lessees. During 1994, the Bank
disbursed $15.2 million in financial lease related transactions. As of December
31, 1994, $9.6 million in funds deployed in financial lease transactions have
been repaid and $5.6 million in funds remain outstanding. The Bank anticipates
continuing its participation in financial lease transactions in the future.
In efforts to strengthen the financial condition of the Bank, on October
26, 1994, the Bank sold $9.6 million of installment loans made to overseas U.S.
military personnel, representing substantially all of the remaining portfolio
of this type of extension of credit. While the transaction resulted in a net
loss of approximately $818,000, the transaction permits the Bank to exit this
line of business, significantly improves the Bank's short-term liquidity and is
expected to reduce loan charge-offs and operating costs over the long-term.
As of December 31, 1994, the Company had consolidated total
assets of approximately $92.7 million, total deposits of approximately $87.5
million and total shareholders' equity of approximately $1.5 million.
The Company is a Connecticut corporation with its executive
offices located at 128 Amity Road, Woodbridge, Connecticut 06525
(telephone 203/389-2800).
REGULATION AND SUPERVISION
OF THE COMPANY AND THE BANK
In General
The Company is a legal entity separate and distinct from the
Bank. There are legal limitations to the extent to which the Bank can lend or
otherwise supply funds to the Company or certain of its affiliates. Federal
law limits the ability of the Company to borrow from, or sell its securities
to, its subsidiary bank unless the loans are secured by specified collateral
and such loans and extensions of credit by the subsidiary bank are generally
limited to 10% of the subsidiary bank's capital and surplus.
Federal Reserve Board policy requires every bank holding
company to act as a source of financial strength to its subsidiary bank and to
commit resources in support of such subsidiary. The Federal Reserve Board
could seek to restrict the Company from paying cash dividends on the Company's
common or preferred stock or interest payments on its subordinated capital
notes or other debt securities in accordance with this policy.
In addition, in an effort to restore and maintain the financial soundness
of the Company, the Company entered into a written agreement (the "Written
Agreement") with the Federal Reserve Bank of Boston ("Reserve Bank"), effective
as of November 2, 1994. The Written Agreement requires the Company to seek the
prior written approval of the Reserve Bank prior to the Company's declaration
or payment of dividends on its outstanding common or preferred stock,
increasing its outstanding borrowings or incurring additional holding company
indebtedness, engaging in material transactions with the Bank (other than
capital contributions) or making cash disbursements in excess of certain agreed
upon amounts. The Written Agreement also requires the Company to submit (i) a
tax allocation agreement between the Company and the Bank, (ii) a debt service
plan and (ii) a capital restoration plan for the Bank. The Federal Reserve Bank
approved the proposed tax allocation agreement as of December 23, 1994 and
approved the debt service and capital restoration plans as of December 30,
1994. In addition, the Written Agreement also requires the Company to revise or
develop certain select policies. All such actions required by the Written
Agreement have been taken by the Company.
The Connecticut Banking Commissioner (the "Banking Commissioner") and the
Connecticut Department of Banking regulate the Bank's internal operations as
well as its deposit, lending and investment activities. The approval of the
Banking Commissioner is required, among other things, for the establishment of
branch offices and business combination transactions. In addition, the Banking
Commissioner conducts periodic examinations of the Bank. Many of the areas
regulated by the Banking Commissioner are subject to similar and concurrent
regulation by the FDIC.
Connecticut banking laws grant Connecticut chartered banks broad lending
authority. Subject to certain limited exceptions,
however, total secured and unsecured loans made to any one
obligor pursuant to this statutory authority may not exceed 25
percent of a bank's capital, surplus, undivided profits and loss
reserves.
Cash dividends by the Bank to the Company represent the primary source of
cash income to the Company. The payment of dividends to the Company by the Bank
is subject to various regulatory limitations. In general, the Bank must obtain
the approval of the Banking Commissioner if the total of all dividends declared
by the Bank in any calendar year exceeds the Bank's net profits (as defined)
for the current year combined with its retained net profits for the preceding
two calendar years. The ability of the Bank to pay dividends could be affected
by its financial condition, including the maintenance of adequate capital and
other factors. The FDIC and Banking Commissioner also have the statutory
authority to prohibit the Bank from paying dividends if they deem such payment
to represent an unsafe or unsound practice in light of the financial condition
of the Bank.
The FDIC Improvement Act of 1991 ("FDIC Improvement Act") and the FDIC's
regulations promulgated thereunder prohibit any bank from making capital
distributions if to do so would leave the institution undercapitalized as
defined in the FDIC Improvement Act. Under the terms of the 1991 Order to Cease
and Desist ("1991 Order"), the Bank is prohibited from paying any cash
dividends to the Company without the prior written approval of the FDIC and
the Banking Commissioner.
These statutory and regulatory restrictions--coupled with the requirement
in the Written Agreement that the Company obtain the prior approval of the
Reserve Bank before declaring or paying dividends--effectively prevent the
Company from paying cash dividends on its outstanding common or preferred stock
or interest on the Company's subordinated capital notes or other debt
instruments in the foreseeable future. The Company does not anticipate that it
will be permitted, nor does the Company anticipate that the Bank will be
permitted, to pay cash dividends until the Bank has reported net profits, has
attained the capital levels mandated in the 1991 Order, has reduced
significantly the level of nonperforming loans and has otherwise complied with
the terms of the Bank's Revised Capital Plan. See "The Bank's Initial and
Revised Capital Plans." There can be no assurance, however, that the Company
and the Bank will receive such regulatory approvals even after the Bank
achieves the foregoing financial and operational benchmarks. During 1994,
neither the Company nor the Bank paid any dividends.
Regulatory Capital Requirements
The Federal Reserve Board and the FDIC have issued substantially similar
risk-based and leverage capital guidelines applicable to bank holding
companies and state-chartered nonmember banks. The Federal Reserve Board's
capital adequacy guidelines are not applicable to bank holding companies with
consolidated assets of under $150 million. Thus, until the Company's
consolidated assets reach or exceed this level, the Federal Reserve Board's
capital guidelines are not applicable to the Company. The FDIC's capital
adequacy guidelines are applicable to the Bank irrespective of the Bank's asset
size.
Under the FDIC's risk-based capital guidelines applicable to nonmember
banks, the minimum ratio of total capital ("Total Capital") to risk-weighed
assets (including certain off-balance sheet items, such as standby letters of
credit) is 8 percent. At least half of the Total Capital is to be comprised of
common stock, retained earnings, minority interests in the equity accounts of
consolidated subsidiaries, noncumulative preferred stock, less goodwill and
certain other intangibles ("Tier 1 Capital"). The remainder may consist of
other preferred stock, certain other instruments, limited amounts of
subordinated debt and a limited amount of loan and lease loss allowances ("Tier
2 Capital"). A nonmember bank's total "risk-weighted assets" are determined by
assigning the nonmember bank's assets and off-balance sheet items to one of
four risk categories based upon their relative credit risk ranging from 100
percent risk weight for assets with the greatest risk to zero percent risk
weight for assets with little or no risk. The higher the percentage of riskier
assets an institution has the more Tier 1 and Total Capital required for the
institution to satisfy the risk-based capital requirements.
In addition, the FDIC has established a minimum leverage ratio
requirement for nonmember banks. The FDIC regulations provide for a minimum
ratio of Tier 1 Capital to total average assets, less goodwill (the "Leverage
Ratio") of 3 percent for nonmember banks that meet certain specified criteria,
including having the highest regulatory rating. All other nonmember banks
generally are required to maintain a Leverage Ratio of at least 3 percent plus
an additional cushion of 100 to 200 basis points with a minimum Leverage Ratio
of 4 percent. The FDIC regulations also provide that nonmember banks
experiencing internal growth or making acquisitions will be expected to
maintain strong capital positions substantially above the minimum supervisory
levels without significant reliance on intangible assets. The 1991 Order
requires the Bank to maintain a Leverage Ratio of at least 6 percent for as
long as the 1991 Order remains in effect; however, under the terms of the
Bank's approved Revised Capital Plan, the Bank has until December 31, 1996 to
achieve the 6 percent Leverage Ratio in the 1991 Order. See "The Bank's Initial
and Revised Capital Plans". Furthermore, the FDIC has adopted regulations
implementing the prompt corrective action provisions of the FDIC Improvement
Act. The FDIC Improvement Act and its impact on the Company and the Bank are
discussed below. See "The FDIC Improvement Act."
At December 31, 1994, the Bank complies with the Tier 1 Capital to
risk-weighted assets requirement, but does not comply with the Total Capital to
risk-weighted assets requirement or the Leverage Ratio requirement of the
FDIC's regulations. Accordingly, the Bank is deemed to be in the
"undercapitalized" category as defined by the FDIC Improvement Act. As an
"undercapitalized" nonmember bank, the Bank is subject to certain restrictions
on its operations mandated by the FDIC Improvement Act and the FDIC's
regulations promulgated thereunder. See "The FDIC Improvement Act." In
addition, with a Tier 1 Leverage Ratio of 3.95 percent for the last quarter of
1994 (4.08 percent at December 31, 1994), the Bank does not comply with the 6
percent Tier 1 Leverage Ratio requirement set forth in the 1991 Order. Because
the Bank is deemed "undercapitalized" and is not in compliance with the Tier 1
Leverage Ratio mandated by the 1991 Order, the FDIC directed the Bank to revise
its previously approved March 21, 1994 Capital Plan (the "Initial Capital
Plan"). The Bank submitted its revised capital plan (the "Revised Capital
Plan") to the FDIC and the Banking Commissioner on December 13, 1994. On
December 28, 1994, the FDIC approved the Bank's Revised Capital Plan. On
December 29, 1994, the Banking Commissioner also approved the Revised Capital
Plan. See "The Bank's Initial and Revised Capital Plans." The following table
sets forth the regulatory capital ratios of the Bank as of December 31, 1994
and 1993:
YEAR ENDED
DECEMBER 31,
1994 1993
CAPITAL RATIOS
OF THE BANK:
Tier 1 risk-based capital(1) 5.97% (2.53%)
Total risk-based capital(1) 7.26% (2.53%)
Tier 1 Leverage Ratio(2) 3.95% (1.82%)
_____________________
(1) Under the FDIC risk-based capital regulations, regulatory
required minimums are 4% and 8% for Tier 1 and Total Capital
ratios, respectively.
(2) The FDIC capital regulations require a minimum Tier 1
Leverage Ratio of 4%. The 1991 Order mandates a 6% Tier 1 Leverage Ratio. The
Bank's Tier 1 Leverage Ratio on a spot- basis at December 31, 1994 was
4.08%.
Further, in connection with the September 1993 FDIC regulatory
examination of the Bank, the FDIC issued an additional order to cease and
desist in December 1993 (the "1993 Order"). The Bank consented to the issuance
of the 1993 Order. Among other things, the 1993 Order requires that
affirmative action be taken by the Bank and its Board of Directors to correct
certain bank policies, practices and alleged violations of law. The Bank and
its Board of Directors believe that the Bank has complied fully with each of
the terms of the 1993 Order.
The FDIC is empowered to terminate FDIC insurance of deposits, after
notice and hearing, upon a finding by the FDIC that the nonmember bank has
engaged in unsafe or unsound practices, is in an unsafe or unsound condition to
continue operations or has
violated any applicable law, regulation, rule or order of, or
conditions imposed by, the FDIC. The Bank's violation of the 1991 or 1993
Orders or the Bank's failure to comply with the Revised Capital Plan or
applicable FDIC regulatory capital requirements could result in a determination
by the FDIC to commence such termination proceedings.
The FDIC recently adopted a risk-based insurance assessment
system to replace the existing flat-rate system. The new system
imposes insurance premiums based upon a matrix that takes into
account a bank's capital level and supervisory rating. Under
this risk-based system, the assessment rate imposed on banks
ranges from 23 cents for each $100 of domestic deposits (for well
capitalized banks with the highest of three supervisory rating
categories) to 31 cents (for inadequately capitalized banks with
the lowest of the three supervisory rating categories). The
Company does not believe that the implementation of the risk-
based system will have a material effect on the Bank's or the
Company's earnings. Because of decreases in the reserves of the
Bank Insurance Fund due to the increased number of bank failures
in recent years, it is possible that deposit insurance premiums
will be further increased. The Bank expects to lessen the impact
of any changes in insurance premiums through the pricing of
products.
The FDIC Improvement Act
On December 19, 1991, the FDIC Improvement Act was enacted. The FDIC
Improvement Act substantially revises the depository
institution regulatory and funding provisions of the Federal
Deposit Insurance Act and makes revisions to several other
federal banking statutes. Among other things, the FDIC
Improvement Act requires the federal banking regulators to take
prompt corrective action in respect of depository institutions
that do not meet minimum capital requirements. The FDIC
Improvement Act establishes five capital tiers: "well
capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically
undercapitalized." Under recently adopted regulations of the
FDIC, a nonmember bank, such as the Bank, is defined to be well
capitalized if it maintains a Leverage Ratio of at least 5
percent, a risk-adjusted Tier 1 Capital Ratio of at least 6
percent and a risk-adjusted Total Capital Ratio of at least 10
percent and it is not otherwise in a "troubled condition" as
specified by the FDIC. A bank is defined to be adequately
capitalized if it is not deemed to be well capitalized but meets
all of its minimum capital requirements. A bank will be
considered undercapitalized if it fails to meet any minimum
required capital measure, significantly undercapitalized if it is
significantly below such measure and critically undercapitalized
if it fails to maintain a level of tangible equity equal to not
less than 2 percent of total assets. A bank may be deemed to be
in a capitalization category lower than that indicated by its
capital position if the institution receives an unsatisfactory
examination rating.
The FDIC Improvement Act provides that a bank cannot accept brokered
deposits unless (i) it is well capitalized or (ii) it is adequately capitalized
and receives a waiver from the FDIC. A bank that cannot receive brokered
deposits also cannot offer "pass-through" insurance on certain employee benefit
accounts. In addition, a bank that is not well capitalized cannot offer rates
of interest on deposits which are more than 75 basis points above prevailing
rates. The Company anticipates that the application of these restrictions will
not have a material adverse effect on the Bank's operations.
Undercapitalized banking institutions are subject to restrictions on
borrowing from the Federal Reserve System, as well as certain growth
limitations, and are required to submit capital
restoration plans, a portion of which must be guaranteed by the
institutions's holding company. As indicated earlier, the Bank
submitted, and the FDIC approved, the Initial and Revised Capital Plans. See
"The Bank's Initial and Revised Capital Plans." The Company provided the
required guaranties mandated by the FDIC Improvement Act. Significantly,
undercapitalized banking institutions may be subject to a number of other
requirements and restrictions, including orders to sell sufficient voting stock
to become adequately capitalized, reduce total assets and cease taking deposits
from other banks. Critically undercapitalized banking institutions are subject
to appointment of a receiver or conservator.
The FDIC Improvement Act generally prohibits a bank from making any
capital distribution (including payment of a dividend) to its holding company
or paying any management fees to any person with control over the bank if,
after making the distribution or paying the fee, the bank would thereafter be
undercapitalized. In addition, the Federal Reserve Board may impose
restrictions against the holding companies of significantly undercapitalized
banks, such as prohibiting holding company dividends or requiring divestiture
of holding company affiliates or banks.
Apart from the prescribed restrictions contained in the FDIC
Improvement Act and implementing regulations, the FDIC is
empowered to issue a prompt corrective action directive ("PCA
directive") imposing certain other restrictions on
undercapitalized, significantly undercapitalized and critically
undercapitalized banks. Among the discretionary requirements
that could be imposed include recapitalization of the bank,
dismissal of officers and directors and divestiture of
subsidiaries. Before issuing a PCA directive, the FDIC, in the
case of a nonmember bank, and the Federal Reserve Board, in the
case of a bank holding company, must provide the banking
organization with notice and opportunity to comment on the
proposed action. A banking organization's response to a letter
of intent to issue a PCA directive may include the reasons why
the directive should not be issued, modifications to the
directive or mitigating circumstances to support the banking
organization's position regarding the directive. A PCA directive
is enforceable as a final order in federal district court and
civil money penalties may be assessed for violating a PCA
directive.
Based on the findings of the FDIC's regulatory examination of the Bank
commenced in September 1993, the Bank, as of December 31, 1993, significantly
increased its provision for loan losses and reduced the carrying values of
certain loans and foreclosed assets, thereby seriously depleting its regulatory
capital. In December 1993, the FDIC issued a Prompt Corrective Action directive
to the Bank informing the Bank that it was "critically undercapitalized",
requiring the prompt recapitalization of the Bank and prohibiting, among other
things, the payment of capital distributions or management fees to the Company
or to any company controlled by a controlling shareholder of the Bank. The PCA
directive also required the Bank to obtain the prior approval of the FDIC
before entering into any material transaction other than in the ordinary course
of business, including the purchase and sale of assets and the payment of
interest on the Bank's subordinated debentures. The PCA directive further
required the Bank to submit an acceptable capital restoration plan setting
forth the Bank's specific plans and timing for recapitalization.
The Bank submitted its Initial Capital Plan on March 21, 1994. The FDIC
approved the Initial Capital Plan on March 24, 1994. The Bank's Initial Capital
Plan provided for the recapitalization of the Bank in two stages. See "The
Bank's Initial and Revised Capital Plans". The Bank implemented the Initial
Capital Plan during the first three quarters of 1994 raising approximately $8.9
million in additional Tier 1 Capital. As a result of the Bank's improved
regulatory capital position, the PCA restrictions on the Bank's operations set
forth in the PCA directive applicable to "significantly undercapitalized" and
"critically undercapitalized" institutions were eliminated.
Subsequent to completion of the Bank's recapitalization as provided in
the Initial Capital Plan, during the third quarter of 1994, the FDIC completed
its periodic examination of the Bank. Based on the findings of the 1994 FDIC
examination, the Bank's capital was reduced by $1,752,000, caused principally
by an increase in the Bank's provision for loan losses of approximately
$1,457,000 resulting from the reduction in the carrying values of certain loans
and foreclosed real estate of approximately $2,030,000. In addition, on October
26, 1994, the Bank sold the bulk of its remaining overseas U.S. military
installment loan portfolio resulting in a net loss of $818,000. The Bank also
recorded as of December 31, 1994 a loss of $90,000 associated with the Bank's
closure of its Greenwich branch, which closure is expected to be completed by
March 1, 1995. As a consequence, the Bank became "undercapitalized" as defined
in the FDIC Improvement Act and was not in compliance with the 6 percent Tier 1
Leverage Ratio contained in the 1991 Order.
In accordance with the provisions of the FDIC Improvement Act, the Bank
was required to submit an acceptable Revised Capital Plan to the FDIC. The
Bank's Revised Capital Plan was submitted to the FDIC and the Banking
Commissioner on December 13, 1994. Both the FDIC and the Banking Commissioner
approved the Bank's Revised Capital Plan in late December 1994. See "The Bank's
Initial and Revised Capital Plans."
Until the second equity offering contained in the Bank's Revised Capital
Plan is completed, the Bank is prohibited by the FDIC Improvement Act from
making any capital distribution to the Company or paying any management fees to
the Company or any other entity or person with control over the Bank.
The Company cannot determine the ultimate effect that the FDIC
Improvement Act and the FDIC's implementing regulations will have upon its and
the Bank's financial condition or operations.
The Bank's Initial and Revised Capital Plans
On March 24, 1994, the FDIC approved the Initial Capital Plan of the
Bank. The Bank's Initial Capital Plan provided for the recapitalization of the
Bank in two parts. The first part consisted of: (i) the modification of the
terms of the existing mandatory convertible subordinated debentures of the Bank
("Bank Debentures ") to convert the Bank Debentures into, or exchange the Bank
Debentures for (the "Exchange"), mandatory convertible subordinated capital
notes of the Company ("Company Capital Notes"), with substantially similar
terms as the Bank Debentures; (ii) the injection of $5 million of additional
equity capital into the Bank by Randolph W. Lenz, the majority shareholder of
the Company (the "Investor"), through the Investor's exchange of marketable
securities for 13,000 shares of Company Series I preferred stock and 50,000
shares of Series II perpetual preferred stock (collectively, the "Company
Securities") and the Investor's separate purchase for cash of a warrant (the
"Warrant") to purchase shares of the Company common stock, par value $0.01 per
share (the "Common Stock"); and (iii) the sale of the Bank's leasehold interest
("Leasehold Interest") in a parcel of land adjacent to the Bank's main office
for cash. The Exchange was approved by the holders of the Bank Debentures
sufficient to effect a conversion of 100 percent of the Bank Debentures. The
Exchange was deemed to occur on March 23, 1994, resulting in the immediate
increase in the Bank's Tier 1 Capital by $1,090,000 (the principal amount of
the Bank Debentures at the time of the Exchange). The Investor's $5 million
equity contribution and the issuance to the Investor of the Company Securities
occurred on March 24, 1994. The Investor's purchase of the Warrant from
Company also occurred on March 24, 1994. The Bank and the purchaser of the
Leasehold Interest executed a definitive Agreement to Convey and Assign on
March 25, 1994 and the closing occurred as of March 31, 1994.
The $5 million equity contribution made to the Company by the Investor
was recognized as additional equity capital by the Bank subsequent to the March
24, 1994 transaction as the marketable securities were sold by the Company.
Under federal law, the Bank is precluded from investing in these marketable
securities. Accordingly, the Company was required to sell the marketable
securities for cash and contribute the net proceeds from such sale to the Bank
as additional paid-in capital. All of the marketable securities were sold
within the second quarter of 1994. Subsequent to the equity contribution, the
market value of the securities declined and resulting in a loss on the sale in
the amount of $852,000.
The Warrant, issued to the Investor on March 24, 1994, and amended as of
July 25, 1994, entitles the Investor to purchase from the Company, at an
exercise price of $0.05 per share (adjusted to reflect the one for five reverse
stock split effective July 25, 1994), in the aggregate, such number of shares
of Company Common Stock as may be necessary for the Investor to maintain a
level of Common Stock ownership equal to 51 percent of the issued and
outstanding shares of Company Common Stock on a fully diluted basis (the
"Threshold Level"). The Warrant was restated as of March 24, 1994 to correct
certain drafting errors. In addition, the Warrant was amended and restated as
of July 25, 1994, to lower the Threshold Level in the Warrant from 66 percent
to 51 percent. The Company anticipates that the amended terms of the Warrant
will facilitate the issuance of additional Common Stock in the future,
particularly in light of the $1 million equity offering proposed in the Revised
Capital Plan. The Warrant is exercisable by the Investor at any time commencing
on July 26, 1994 (the "Initial Exercise Date") (the first business day
following the reduction in the number of issued and outstanding shares of
Common Stock resulting from the reverse stock split) and continuing until the
date ten years following the Initial Exercise Date (the "Warrant Exercise
Period") provided, however, that a triggering event ("Triggering Event") has
occurred of the Company is on notice that a Triggering Event will occur within
thirty days thereof, whichever is earlier. The Warrant defines a Triggering
Event to include any of the following: (i) the Company has entered into an
agreement to issue additional shares of Common Stock for cash or other
consideration which would result in the Investor's ownership following below
the Threshold Level; or (ii) one or more holders of the Company's Common Stock
warrants, options or rights gives notice of exercise, or exercises, any such
warrant, option or rights which, upon exercise thereof, would cause the
Investor's ownership of Common Stock to fall below the Threshold Level; or
(iii) one or more holders of the Company's equity or debt instruments
convertible or exchangeable into Common Stock, gives notice of exercise or
exercises, any conversion or exchange right, or such instrument by its terms
converts through the happening of certain events or at maturity or otherwise
into Common Stock, which, in either case, after giving effect to any such
conversion or exchange, would cause the Investor's ownership of Common Stock to
fall below the Threshold Level; or (iv) any other issuance of Common Stock
which would directly or indirectly cause or result in the Investor's ownership
of Common Stock to fall below the Threshold Level. The holder of the Warrant is
required to receive any necessary regulatory approval prior to exercising the
Warrant.
The second part of the recapitalization of the Bank as set forth in the
Bank's Initial Capital Plan was completed on September 2, 1994. On that date,
the Investor purchased, for cash, $3,638,000 of the Company's short-term senior
notes (the "Short-Term Notes"). The Company immediately contributed $3,500,000
of the proceeds from the sale of the Short-Term Notes to the Bank as additional
paid-in capital. The Short-Term Notes are due on September 1, 1996 and bear
interest payable quarterly at the annual rate of five percentage points above
the Wall Street Journal Prime Rate. In the event the Company is unable to pay
the interest on the Short-Term Notes due to the absence of dividends from the
Bank or a regulatory restriction on the Company's payment of interest on its
senior indebtedness, the unpaid interest will accrue until the Company has the
resources or regulatory approval to make such payments. The failure of the
Company to pay cash dividends on the Short-Term Notes on these grounds will not
result in a default thereunder. Subsequent to the sale of the Short-Term Notes,
the Investor agreed to exchange $260,000 of principal amount of the Short-Term
Notes for 26 shares of the Company's Series III preferred stock. The exchange
was deemed to occur as of September 2, 1994. Further, pursuant to an Exchange
Agreement by and between the Company and the Investor, dated and effective as
of December 31, 1994, the Investor exchanged the $3,370,000 of outstanding
principal amount of the Short-Term Notes for 337 shares of the Company's Series
III Preferred Stock. The accrued and unpaid interest on the Short-Term Notes
from the date of issuance until December 31, 1994 (the effective date of the
exchange) in the amount of $140,000 and $8,000 of principal were evidenced by a
new Short-Term Note in the amount of $148,000. Because of certain changes to
the terms of the Series III Preferred Stock, the existing 46 shares of Series
III Preferred Stock were converted into and exchanged for the new Series III
Preferred Stock effective as of December 31, 1994.
Subsequent to the completion of the Initial Capital Plan, the Bank's
equity capital was reduced below the minimum level required by the FDIC
regulations and the 1991 Order as a result of the adverse impact of the FDIC's
1994 regulatory examination of the Bank, the sale of the overseas U.S. military
installment loan portfolio and the closure of the Greenwich branch. The FDIC
directed the Bank to submit a Revised Capital Plan on or before December 14,
1994. As indicated earlier, the Bank's Revised Capital Plan was submitted to
the FDIC and the Banking Commissioner on December 13, 1994 and approved by the
FDIC and Banking Commissioner on December 28 and 29, 1994, respectively.
Under the terms of the Bank's Revised Capital Plan, the Bank's Tier 1
capital was projected to be augmented in the amount of $200,000 by December 31,
1994 and in the amount of $1 million by June 30, 1995. The additional $1.2
million of equity capital is to be raised in two separate equity offerings
undertaken by the Bank's parent holding company. Upon completion of these two
equity offerings, the Bank's Total Capital to risk-weighted assets ratio is
projected to exceed 8 percent, thereby resulting in the Bank being deemed
"adequately capitalized" as defined in the FDIC Improvement Act. In addition,
the Bank's Tier 1 Leverage Ratio is projected to be above 5 percent.
Thereafter, the Revised Capital Plan provides for the Bank's attainment of the
6 percent Tier 1 Leverage Ratio contained in the 1991 Order by December 31,
1996 through retained earnings.
On December 30, 1994, the Bank successfully completed the first of two
required equity offerings contained in the Revised Capital Plan when the
Company sold 20 shares of Company Series III preferred stock for $200,000 and
contributed the proceeds of this equity offering to the Bank as additional
paid-in capital. Management and the Board of Directors of the Company and
the Bank are currently considering various actions to augment the Company's and
the Bank's capital beyond the Revised Capital Plan. These plans include
increased fee income, cost control, continued improvement of asset quality,
asset sales and pursuing additional capital, including but not limited to the
sale of the New Common Stock and up to $3,352,000 of Short-Term Notes.
Notwithstanding the foregoing, the ability of the Company and the Bank to
complete the second required equity offering or to otherwise maintain and
increase regulatory capital as projected in the Revised Capital Plan is
dependent upon, among other factors, the market conditions for the Company's
equity securities, the Bank's ongoing profitability, the future levels of
nonperforming assets and the local and the regional economy in which the Bank
and its customers operate.
Moreover, certain legislative and regulatory proposals that
could affect the Company, the Bank and the banking business in general are
pending, or may be introduced, before the United
States Congress, the Connecticut General Assembly and various
governmental agencies. These proposals include measures that may
further alter the structure, regulation and competitive relationship of
financial institutions and that may subject the
Company and the Bank to increased regulation, disclosure and
reporting requirements. In addition, the various bank regulatory agencies
frequently propose rules and regulations to implement and enforce already
existing legislation, such as the FDIC Improvement Act. It cannot be predicted
whether or in what form any legislation or regulations will be enacted or the
extent to which the business of the Company and the Bank will be affected
thereby.
USE OF PROCEEDS
The net proceeds to the Company from the Offering of the New
Common Stock are estimated to be $1 million. The Company intends to use all of
the net proceeds from the Offering of New Common Stock to provide additional
equity capital to the Bank, pursuant to the Bank's Revised Capital Plan. Such
additional equity capital will permit the Bank to satisfy the terms of its
Revised Capital Plan and will result in the Bank being deemed "adequately
capitalized" under the FDIC's capital regulations. The Bank will utilize such
proceeds for its lending and investment activities.
All of the Securities other than the New Common Stock and $3,352,000 of
Short-Term Notes are being registered for the account of the Selling Securities
Holders and, accordingly, the Company will not receive any proceeds from the
sale of the Securities by the Selling Security Holders.
RATIO OF EARNINGS TO FIXED CHARGES
The following are the consolidated ratios of earnings to fixed charges
for each of the years in the five-year period ended
December 31, 1994.
Year Ended December 31,
1994 1993 1992 1991 1990
Ratio of
Earnings to
Fixed Charges(1):
Excluding Interest on - - 20.66 5.84 8.59
Deposits
Including Interest on - - 0.33 0.50 0.72
Deposits
Ratio of Earnings to
Combined Fixed
Charges and Preferred
Stock Dividends(2):
Excluding Interest on
Deposits - - 12.76 5.38 7.94
Including Interest on
Deposits - - 0.32 0.49 0.71
1 The Company had insufficient earnings to cover fixed
charges (including interest on deposits) for each of
the years ended December 31, 1994, 1993, 1992, 1991 and
1990. The Company also had insufficient earnings to
cover fixed charges (excluding interest on deposits) for
the years ended December 31, 1994 and 1993. The
short-fall of earnings to fixed charges (including
interest on deposits) was $3,568,000, $6,231,000,
$4,731,000, $4,849,000 and $2,867,000 for the years
ended December 31, 1994, 1993, 1992, 1991 and 1990,
respectively. In addition, the short-fall of earnings to
fixed charges (excluding interest on deposits) was
$357,000 and $1,748,000 for the years ended December 31,
1994 and 1993, respectively.
2 The Company had insufficient earnings to cover combined
fixed charges and preferred stock dividends (including
interest on deposits) for each of the years ended
December 31, 1994, 1993, 1992, 1991 and 1990. The
Company also had insufficient earnings to cover combined
fixed charges and preferred stock dividends (excluding
interest on deposits) for the years ended December 31,
1994 and 1993. The deficiency of earnings to
fixed charges and preferred stock dividends (including
interest on deposits) was $3,568,000, $6,231,000,
$4,731,000, $4,849,000 and $2,867,000, respectively, for
the years ended December 31, 1994, 1993, 1992, 1991 and
1990. The amount of deficiency of earnings to fixed
charges and preferred stock dividends (excluding
interest on deposits) was $826,000 and $1,818,000 for
the years ended December 31, 1994 and 1993, respectively.
For purposes of computing the ratio of earnings to fixed charges, income
before income taxes plus fixed charges has been
divided by fixed charges. Fixed charges, excluding interest on
deposits, consist of interest on federal funds purchased, security repurchase
agreements, other borrowed funds, long-term debt, and that portion of rental
expense which is deemed representative of the interest factor. Fixed charges,
including interest on deposits, consist of the same items plus interest on
deposits.
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data for the five years ended December
31, 1994 are derived from the audited financial
statements of the Company. This information should be read in
conjunction with the Consolidated Financial Statements and notes
thereto included in the Form 10-K accompanying this Prospectus.
($ in thousands, except per
share data) Years Ended
December 31, 1994 1993 1992 1991 1990
Net Interest Income $4,093 $5,673 $6,768 $6,063 $6,457
Provision for loans
losses 1,773 6,298 3,533 6,541 6,320
Net interest income (loss)
after provisions for
losses 2,320 (625) 3,235 (478) 137
Investment securities
(losses) (811) 49 421 457 5
Other operating income 1,053 5,078 1,775 2,031 2,022
Other real estate owned
expenses 990 3,558 3,331 1,334 20
Other operating expense 5,461 7,366 6,944 6,508 6,220
Income (loss) before
income taxes (3,889) (6,422) (4,844) (5,832) (4,076)
Provision (benefit) for
income taxes - - - - (1,469)
Net income (loss) ($3,889) ($6,422) ($4,844) ($5,832) ($2,607)
Common Stock per share
data1
Book value - at year end ($4.16) ($1.80) $2.00 $13.60 $48.10
Net income (loss) primary (1.93) (4.10) (7.45) (29.75) (13.65)
Net income fully diluted - - - - -
Cash dividends - - - - 0.50
At Year End
Total Assets $92,722 $123,359 $151,125 $171,518 $188,040
Net loans 59,070 84,215 106,728 128,006 140,916
Allowance for loan
losses 2,637 5,012 3,291 4,319 4,547
Securities 14,189 13,200 27,751 25,223 25,913
Deposits 87,474 121,081 141,192 159,928 161,573
Short-term borrowings - - - 812 7,664
Stockholders' equity 1,465 (2,627) 3,688 3,703 9,554
Outstanding shares1 2,012,514 2,012,514 1,344,707 198,706 198,706
Financial Ratios
Yield on interest-
bearing assets 8.54% 8.17% 9.38% 10.66% 11.71%
Cost of funds 3.80 3.94 5.08 7.40 8.80
Interest rate spread 4.74 4.23 4.30 3.26 2.91
Net interest margin 4.58 4.48 4.55 3.67 3.75
Return on average assets (3.75) (4.57) (2.96) (3.21) (1.32)
Return on average equity - (110.17) (98.18) (72.80) (22.26)
Average equity to
average assets (1.47) 4.15 2.98 4.41 5.93
Cash dividend to
primary EPS N/A N/A N/A N/A N/A
Cash dividend to net
income N/A N/A N/A N/A N/A
Ratio of Earnings to
Fixed Charges:
Excluding Interest on
Deposits - - 20.66 5.84 8.59
Including Interest on
Deposits - - 0.33 0.50 0.72
Ratio of Earnings to
Combined Fixed
Charges and Preferred
Stock Dividends:
Excluding Interest on
Deposits - - 12.76 5.38 7.94
Including Interest on
Deposits - - 0.32 0.49 0.71
At year end:
Loans (net) to deposits 67.53 69.55 75.59 80.04 87.22
Non-performing loans to
total loans (net) 15.56 13.66 10.15 11.12 9.15
Allowance for loan
losses to nonperforming
loans 28.67 43.59 30.39 30.34 35.28
Capital ratios of Bank:
Total risk-based 7.26 (2.53) 5.73 4.88 7.45
Tier 1 risk-based 5.97 (2.53) 3.52 2.57 4.52
Tier 1 leverage 3.95 (1.82) 2.61 2.06 3.70
1 The per share data and the outstanding shares of Common Stock have been
adjusted to reflect the one-for-five reverse stock split, which was effective
July 25, 1994.
RISK FACTORS AND INVESTMENT CONSIDERATIONS
In making an investment decision, purchasers of the Securities should
carefully consider the following facts in addition to those described elsewhere
in this Prospectus.
OPERATING HISTORY AND FINANCIAL CONDITION
The Company had significant losses in each of the past five years,
resulting primarily from the deterioration in the Bank's loan portfolio. These
losses totaled $2.6 million, $5.8 million, $4.8 million, $6.4 million and $3.9
million for the 1990, 1991, 1992, 1993 and 1994 fiscal years. The economy in
the Bank's market area, New Haven and Fairfield Counties, Connecticut, and in
New
England generally, had been affected severely by declining real estate market
values, as well as by a significant decline in economic activity and a
resulting increase in unemployment. The decline in real estate values has had a
material, negative effect on the condition of the Bank's loan portfolio, as
real estate that collateralizes the Bank's loans has decreased in value, and as
borrowers, affected by the deterioration in the regional economy, have become
less able to meet their obligations to make principal and interest payments to
the Bank. Accordingly, non-performing assets, past due loans, provisions for
loan losses and charge-offs of loans have all increased significantly.
In light of current conditions and the possibility of further deterioration
in the real estate market, additional loan loss provisions may be necessary,
and additional charge-offs of loans may occur. The Company cannot predict the
strength or timing of the economic recovery in the Bank's market area or in New
England in the foreseeable future, and if the regional economy starts to
deteriorate again, the financial condition and results of operations of the
Company will likely be adversely impacted.
The proceeds from the Company's various issuances of equity and debt
securities during 1994 were contributed to the Bank to increase its regulatory
capital levels as provided in the Bank's Initial and Revised Capital Plans, and
the bulk of the net proceeds from the Company's offering of the New Common
Stock or the Short-Term Notes will be so contributed. See "Use of Proceeds."
Notwithstanding such capital infusions to the Bank, the financial condition of
the Bank may deteriorate based on the economic conditions prevailing in the
Bank's market place. Non-performing assets, which include nonaccrual loans,
loans 90 days or more past due on accrual status and other real estate owned,
were $13,503,000 at December 31, 1994 a decrease of approximately 32% from the
$19,878,000 of non-performing assets at December 31, 1993. Whether additional
loans will become classified as non-performing will depend, among other things,
on whether economic conditions and real estate values continue to deteriorate.
The level of non-performing assets will also depend on the extent to which
loans return to performing assets and the Bank is successful in disposing of
other real estate owned ("OREO").
Earnings for 1995 will continue to be constrained by the high level of
non-performing assets, the expenses of collecting problem loans and the
carrying costs of OREO. The Company believes that the allowance for loan
losses is adequate. While the Company uses available information to recognize
possible loan losses, future additions to the allowance may be necessary based
on changes in economic conditions particularly in the Bank's service area, New
Haven and Fairfield Counties, Connecticut. In addition, regulatory agencies, as
an integral part of their examination process, periodically review the Bank's
allowance for loan losses. Such agencies may recommend that the Bank recognize
additions to the allowance based on their judgments of information available to
them at the time of their examination.
The future success of the Bank is significantly dependent upon the
quality of its assets. Although management of the Bank
has devoted substantial time and resources to the identification,
collection and workout of non-performing and other classified assets, the
quality of the Bank's loan portfolio in future periods and, thus, the Bank's
financial condition and results of
operations will continue to depend significantly upon conditions in the local
real estate market and the overall economy in the
Bank's market area. The Bank's future results of operations will
continue to be significantly affected if the current high level
of non-performing assets cannot be further reduced without incurring additional
material losses. The Bank's ability to
further reduce its current level of non-performing assets without
additional losses will be highly dependent on factors outside the
control of the Bank's management, including but not limited to,
conditions in the relevant real estate markets, prevailing interest rates and
economic trends. Although management utilizes its best judgment in providing
for losses with respect to such non-performing assets, there can be no
assurance that the Bank
will be able to dispose of its non-performing assets without establishing
additional provisions for losses on loans or further
reductions in the carrying value of its ISFs and OREO, which
could be material.
INDEPENDENT AUDITORS' REPORT
The independent auditors' report on the 1994 Consolidated
Financial Statements of the Company set forth in the Company's
Financial Report on Form 10-K expresses an unqualified opinion
that includes an explanatory paragraph relating to circumstances
that raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans for addressing these issues are discussed
in "REGULATION AND SUPERVISION OF THE
COMPANY AND THE BANK - The Bank's Initial and Revised Capital Plans."
FUTURE SALE OF SECURITIES AND CONTROL
Under the Company's Certificate of Incorporation (the
"Certificate"), the Board of Directors is authorized, without further
shareholder action, to provide for the issuance of additional shares of Common
Stock and of preferred stock in one or more series and with such designations,
number of shares, relative rights, preferences and limitations as set forth in
duly adopted resolutions of the Board of Directors providing for such issuance.
In addition, the Board of Directors is authorized, without shareholder
approval, to grant options and warrants to third parties to acquire shares of
Company Common Stock. If the Board of Directors issues any additional
Securities or grants any options, warrants or similar rights in the future the
prevailing market price of the Company's issued and outstanding Securities
could be adversely affected.
Mr. Randolph W. Lenz, the Chairman of the Board of the Company and the
Bank, owns approximately 90 percent of the issued and outstanding shares of
Common Stock and will own at least 51 percent of the issued and outstanding
shares of Common Stock following the Offering. Mr. Lenz, pursuant to the terms
of the Warrant will have the ability to maintain his Common Stock ownership
at the 51 percent level. See "Description of the Securities -- Warrant."
Accordingly, Mr. Lenz will be able, for
so long as he owns a majority of the issued and outstanding shares of Common
Stock, to elect all of the Company's directors, to effect an amendment to the
Company's Certificate or to effect a merger, sale of assets or other
significant corporate transactions without the approval of the Company's other
stockholders and to render more difficult or to discourage unsolicited
attempts to acquire the Company.
COMPLIANCE WITH REGULATORY CAPITAL REQUIREMENTS
In July 1991, the Bank entered into the 1991 Order with the FDIC and the
Banking Commissioner pursuant to which the Bank agreed to increase its Tier 1
Leverage Ratio to 6 percent by July 1993 and to maintain its Tier 1 Leverage
Ratio at that level until such regulatory order is modified or terminated.
Under the terms of the Bank's approved Revised Capital Plan, the Bank is
required to increase its Tier 1 Leverage Ratio to 5 percent by June 30, 1995
and to 6 percent by December 31, 1996.
The future success of the Company is dependent upon the Bank's ability to
comply with the terms of the Revised Capital Plan and the 1991 Order which
require, among other things, that the Bank meet prescribed capital levels,
continue to maintain sufficient liquidity and ultimately return to profitable
operation. The Bank's ability to comply with the terms of the Revised Capital
Plan and the 1991 Order is largely dependent upon the Bank's ability to
continue the resolution and conversion of its non-performing loans into
performing loans.
A comparison of the Bank's minimum regulatory capital levels
and the Bank's actual capital at December 31, 1993 and at December 31, 1994 is
set forth in the table below:
($ in
thousands) Minimum Minimum
Regulatory Capital Actual Capital Actual
Capital Required Capital Required Capital
Requirements: December 31, December 31, December 31, December 31,
1993 1993 1994 1994
Total risk-
based capital 8.00% (2.53%) 8.00% 7.26%
percentage
Total risk-
based capital 7,592 (2,397) 5,059 4,590
Tier 1
risk-based 4.00% (2.53%) 4.00% 5.97%
capital
percentage
Tier 1
risk-based 3,896 (2,397) 2,530 3,777
capital
Leverage
(per order) 6.00% (1.82%) 6.00% 3.95%
percentage
Leverage
(per order) 7,895 (2,397) 5,725 3,799
The Bank's Revised Capital Plan is predicated on the Bank's ability to
raise its capital levels through a combination of retained earnings and an
equity or debt offering by the Company. Although the Bank expects that the
capital raised in the sale of the New Common Stock will be sufficient to enable
the Bank to achieve compliance with applicable regulatory capital requirements,
any failure by the Bank to maintain such compliance or comply with minimum
regulatory capital requirements or the capital requirements imposed by the
Revised Capital Plan and the 1991 Order could lead to further action by bank
regulators, which may include, under certain circumstances, the appointment of
a conservator or receiver for the Bank. Section 38 of the Federal Deposit
Insurance Act, as added by the FDIC Improvement Act, requires, among other
things, that the federal banking agencies establish five capital levels for
insured depository institutions ("well-capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized") and requires or permits such agencies to take certain
supervisory actions as an insured institution's capital level falls. Under
regulations adopted by the federal banking agencies to implement these
requirements, which were effective as of December 19, 1992, the Bank is
considered "undercapitalized" for this purpose. Undercapitalized and lower
rated institutions are subject to a number of mandatory and discretionary
supervisory actions. These powers and authorities are in addition to the
traditional powers of the federal banking agencies that deal with
undercapitalized institutions. In addition, the FDIC deposit insurance
premiums required to be paid by institutions beginning with the first
semi-annual assessment period of 1993 depend, in part, on their capital levels.
If at least $1 million of net proceeds is raised in the sale
of the New Common Stock, management believes that the Bank will be in
compliance with the Revised Capital Plan and will have a Tier 1 Leverage Ratio
of greater than 5 percent and a Total risked-based Capital of in excess of 8
percent. As a result, upon completion of the sale of the New Common Stock, the
Bank should be deemed "adequately capitalized" for purposes of Section 38 of
the FDIA. However, no assurance can be given that the Bank will be able to
achieve compliance with all applicable regulatory capital requirements
following the sale of the New Common Stock. The Bank's ability to comply with
all applicable capital requirements depends upon the net proceeds from the
sale, the Bank's future results of operations, as well as its ability to reduce
its levels of ISFs, OREO and other problem assets without recognizing
additional significant losses or reductions in carrying values. If the Bank is
unable to achieve or maintain regulatory capital requirements, or if the Bank
fails to comply with the provisions of the Revised Capital Plan and the 1991
Order, the FDIC and the Banking Commissioner could impose additional
restrictions on the Bank's operations and could take actions which give such
authorities greater control over the Bank. There also can be no assurance that
the Bank will not be subject to additional capital requirements in the future,
either as a result of regulations, guidelines and policies of general
applicability or individual regulatory capital requirements which are applied
to the Bank. Furthermore, if the Bank's tangible capital drops below 2% of
total assets, the FDIC is required, pursuant to the FDIC Improvement Act,
except under certain limited circumstances, to appoint a conservator or
receiver for the Bank, in which case the value of a holder's investment in any
of the Securities, including the New Common Stock, would, in all likelihood,
have little or no value.
ECONOMIC CONDITIONS
Prevailing economic conditions, as well as government policies and
regulations concerning, among other things, monetary
and fiscal affairs, significantly affect the operations of financial
institutions such as the Bank. Excess real estate inventory, coupled with a
general economic decline, adversely
affected the real estate markets in general and the Bank's market
areas in particular in recent years and contributed to the increases in the
Bank's non-performing assets during such years.
Poor economic conditions and real estate markets could continue
to adversely affect the financial condition and results of operations of the
Bank in the future. If there is a significant sustained increase in interest
rates, such increase could adversely affect the ability of the Bank's borrowers
and prospective purchasers of OREO to service real estate-related indebtedness,
which in turn could adversely impact the Bank's loan loss provision, carrying
values of OREO and the Bank's operating results. The Bank's net interest
income, which is the difference between interest income received on its
interest-earning assets, including loans and securities, and the interest
expense incurred in connection with its interest-bearing liabilities, including
deposits and borrowings, can be significantly affected by changes in market
interest rates. The period of falling interest rates over the past few years
has resulted in widened interest rate spreads for many financial institutions,
including the Bank. While interest rate spreads remain high by historical
measures, it is likely that they will narrow as evidenced over the past year.
Also, the low interest rate environment experienced in 1993 has resulted in an
increase in principal repayments and refinancing of loans in
the Bank's portfolio. These trends, along with sales of higher
yielding loans and investment securities, have resulted in decreases in the
weighted average yield on the Bank's loan and
investment portfolios, which will reduce the Bank's income from
interest-earning assets and thus, its net interest income, in the
future. The Bank's high level of non-performing assets has adversely impacted
the Bank's ratio of average interest-earning
assets to average interest-bearing liabilities. These trends have contributed
to a decrease in the amount of, and weighted average yield on, the Bank's
loan portfolio, which could adversely affect the Bank's income from
interest-earning assets and thus its net interest income in future periods.
COMPETITION
Intense competition exists in all major lines of business in
which the Bank is presently engaged. The Bank faces significant
competition from other banks, mortgage companies and various financial
institutions, many of which have substantially greater
resources and capital than does the Bank. Particularly intense
competition exists for mortgage loans and deposits.
INTEREST RATE RISK
The Company's net interest income, a significant component of operating
results, is subject to fluctuation as a result of changes in interest rates
which are neither predictable nor controllable. A portion of the Company's
assets are long-term, fixed-rate mortgage loans, whereas its liabilities
consist primarily of short- and medium-term deposits and borrowings. As
interest rates change, the Company's liabilities will tend to reprice faster
than its assets. The Bank's negative "one-year gap" (the difference between
interest-sensitive assets and interest-sensitive liabilities, as a percent of
total assets that reprice within one year) at December 31, 1994 and December
31, 1993 was 25% and 75%, respectively. Although the Bank has benefitted from
the recent decreasing interest rate environment, a significant and sustained
rate increase could have an adverse effect on the Company's net interest income
by decreasing the spread between the rates earned on assets and paid on
liabilities. During 1994, interest rates have increased sharply resulting in a
decrease in the Bank's spread between rates earned on assets and rates paid on
liabilities. The continued increase in interest rates could thus have a
material negative impact on the Bank's and the Company's earnings.
DEPENDENCE ON KEY PERSONNEL
During the fourth quarter of 1993, the Bank hired several senior
management officials, including a new President and Chief Executive Officer and
a new Chief Financial Officer. In the fourth quarter of 1994, the Company and
the Bank also hired a Chief Accounting Officer. The Bank's success is dependent
to a large extent upon the continued efforts and success of its President and
Chief Executive Officer and the senior loan officers who have primary
responsibility for the administration and resolution of the Bank's
non-performing assets. The loss of the services of any one of these officers
could adversely affect the Bank's operation.
DILUTION
At December 31, 1994, the net tangible book value of the Company and
based on shares of Common Stock outstanding was ($4.16) per share of Common
Stock. Net tangible book value per share of Common Stock represents the amount
of the Company's tangible common equity after deduction of preferred stock
divided by the total number of shares of Common Stock outstanding. After giving
effect to the Offering of 470,000 shares of Common Stock at a price of $2.50
per share and after deducting estimated expenses associated with the Offering
and based on shares of Common Stock outstanding, the pro forma net tangible
book value of the Company at December 31, 1994 would have been ($2.96) per
share. This represents an immediate dilution in net book value of $5.46 per
share to investors in the New Common Stock and an increase in net book value of
$1.20 per share to existing holders of Company Common Stock. The following
table illustrates this per share dilution:
Assumed offering price per share of New
Common Stock $2.50
Net tangible book value at December 31,
1994 before the Offering ($4.16)
Increase per share attributable to the
Offering assuming sale of 470,000
shares of New Common Stock $1.20
Pro forma net tangible book value per share
after Offering ($2.96)
Dilution per share to investors in the New
Common Stock $5.46
The following table summarizes the number of shares of Common Stock to be
owned by current stockholders of the Company and by new investors in the New
Common Stock and the total consideration paid and the average price per share
paid by current stockholders and to be paid by new investors purchasing shares
of the New Common Stock in the Offering after giving effect to the Offering.
Total Average
Share Ownership Consideration Price
Number Percent Amount Percent Per Share
Current
Stockholders 2,012,514 81% $11,702,000 91% $5.81
New Investors 470,000 9% $1,175,000 9% $2.50
Total 2,482,514 100% $12,877,000 100% $5.19
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company (i) as of December 31, 1994 and (ii) as adjusted to give effect to the
sale by the Company of the New
Common Stock offered hereby and the application of the net proceeds therefrom
as set forth above. This information should be read in conjunction with the
detailed information in the Company's consolidated financial statements and
notes thereto appearing in the Company's latest Annual Report on Form 10-K and
latest quarterly reports on Form 10-Q, if any, which accompany this Prospectus.
December 31, 1994
(in thousands)
As adjusted for
New Common Stock
Actual issuance (1)
LONG-TERM DEBT
Term Capital Notes $220 $220
Senior Notes 148 148
Mandatory Convertible
Capital Notes 1,090 1,090
Total long-term debt 1,458 1,458
STOCKHOLDERS' EQUITY
Preferred Stock, authorized --
100,000; issued: (a) Series I
Cumulative Convertible Preferred
Stock, without par value (stated
value $100 per share) -- 23,000
shares; (b) Series II Cumulative
Preferred Stock, without par value
(stated value $74 per share) --
50,000 shares; (c) Series III
Preferred Stock, without par value
(stated value $10,000 per share) --
383 shares 9,830 9,830
Common Stock, par value $0.01
per share, authorized 20,000,000
shares; issued and outstanding --
2,012,514 shares 20 24
Additional Paid-in Capital 11,032 12,028
Unrealized Loss on Investment
Securities (218) (218)
Retained Earnings (19,207) (19,207)
Total stockholders' equity 1,457 2,457
Total capitalization 2,915 3,915
(1) Assumes 470,000 shares of New Common Stock are sold by the
Company at a price of $2.50 per share in the Offering and the
Company receives net proceeds from the Offering of $1 million
(after deduction of $175,000 in estimated offering expenses).
SELLING SECURITIES HOLDERS
The following table sets forth information regarding the Selling
Securities Holders:
Number or
Number or Principal
Name and Principal Amount of
Type of Address of Amount Percentage Securities
Security Beneficial of Class Being Registered
Owner
Common Randolph W. 1,900,407 94.1% 1,900,407
Stock Lenz(1) (2) (2)
500 Post Road East
Suite 320
Westport, CT 06880
Charles
Pignatelli(1) 100,626 5.0% 100,626
128 Amity Road (3) (3)
Woodbridge, CT 06525
Series I Randolph W. Lenz
Preferred 500 Post Road 18,450 80.2% 13,000
Stock East, Suite 320
Westport, CT 6880
Series II Randolph W. Lenz
Preferred 500 Post Road East 50,000 100.0% 50,000
Stock Suite 320
Westport, CT 06880
Series III Randolph W. Lenz 363 94.8% 363
Preferred 500 Post Road East
Stock(4) Suite 320
Westport, CT 06880
Alass Investment 20 5.2% 20
Partners, Ltd.
500 Post Road East
Suite 320
Westport, CT 06880
Convertible Marilyn Antinozzi $6,000 0.55% $6,000
Debt 5555 Heron Point Drive
Securities Apt. 1501
Naples, Fl 33963
W. Wallace Rubin $12,000 1.1% $12,000
Rita E. Rubin
414 Rob Roy Lane
New Haven, CT 06515
Robert A./Greta $65,000 5.9% $65,000
E. Slavitt
618 West Avenue
Norwalk, CT 06850
Dengel & Co. $75,000 6.9% $75,000
c/o Fiduciary Trust
Co., International
P.O. Box 3199
Church Street Station
New York, N.Y. 10008
Jay Levine $25,000 2.3% $25,000
14 Wall Street,
Room 2150
New York, NY 10005
Victoria Lusk $25,000 2.3% $25,000
157 West 57th Street
Suite 1400
New York, NY 10019
Joseph Liguori $17,000 1.6% $17,000
Julia Liguori
19 Landin Street
Woodbridge, CT 06525
Eugene Leavy $50,000 4.6% $50,000
5 Toga Court
E. Northport,
NY 11731
William Hoffman $2,000 0.2% $2,000
Frieda Hoffman
Tally Ho Lane, RD#1
Chester Springs,
PA 19425
Maurice Sturm $20,000 1.8% $20,000
222 Tom Hunter Rd
Ft. Lee, NJ 07024
Arthur $2,000 0.2% $2,000
Sorensen, Jr.
Barbara Sorensen
37 Danny's Way
Wallingford, CT 06492
Robert Levine $50,000 4.6% $50,000
14 Wall Street
Suite 2150
New York, NY 10005
Ernest Nives $25,000 2.3% $25,000
157 West 57th
Suite 1400
New York, NY 10019
David Nives $11,000 1.0% $11,000
157 West 57th
Suite 1400
New York, NY 10019
Prudential- $190,000 17.4% $190,000
Bache Securities
One New York Plaza
New York, NY 10273
Leo Brittholz $5,000 0.5% $5,000
42 Preston Lane
Syosset, NY 11791
Merril Lynch, $22,000 2.0% $22,000
Pierce, Fenner
& Smith, Inc.
P.O. Box 2656
Jersey City, NJ 07303
Crab & Co. $150,000 13.8% $150,000
c/o Fleet Bank
of Massachusetts
One East Avenue
Rochester, NY 14638
Saul Ripps $62,000 5.7% $62,000
Florence Ripps
Old Barnabas Road
Woodbridge, CT 06525
Barry Traub $100,000 9.2% $100,000
1735 Union St.
San Francisco,
CA 94123
Gloria Schaffer $15,000 1.4% $15,000
51 Tumblebrook Rd
Woodbridge, CT 06525
Julie Nives $5,000 0.5% $5,000
157 West 57th
Street
Suite 1400
New York, NY 10019
Charles Channel $2,000 0.2% $2,000
Isabelle Channel
93 Bon Air Avenue
New Rochelle,
NY 10804
Edward $5,000 0.5% $5,000
Maloney, Jr.
426 Thoreau Street
Branford, CT 06405
Arnold Weber $23,000 2.1% $23,000
5 Chestnut Lane
Woodbury, NY 11797
A.G. Edwards & $3,000 0.3% $3,000
Sons, Inc.
One North Jefferson
St. Louis, MO
63103
Randolph W. Lenz $50,000 4.6% $50,000
500 Post Road East
Westport, CT 06880
John Musto $9,000 0.8% $9,000
Moira Musto
320 E. 92nd St.
New York, NY 10128
Lewco $50,000 4.6% $50,000
Securities
P.O. Box 999
Bowling Green
Station
New York, NY 10274
Carolyn $6,000 0.6% $6,000
Degennaro
Louis Degennaro
71 Pease Road
Woodbridge, CT 06525
Smith Barney, Inc. $8,000 0.8% $8,000
368 Greenwich St.
New York, NY 10013
Term Debt Alass Investment $220,000 100% $220,000
Securities Partners, Ltd.
500 Post Road East
Suite 320
Westport, CT 06880
Short-Term Randolph W. Lenz $148,000 100% $148,000
Notes 500 Post Road East
Westport, CT 06880
Warrant Randolph W. Lenz 1 100% 1
500 Post Road East
Suite 320
Westport, CT 06880
(1) Mr. Randolph W. Lenz is the Chairman of the Board of the
Company and the Bank, positions he has held since August of
1992. Mr. Charles Pignatelli is the President and Chief Executive
Officer of the Company and the Bank, positions he has held since
November of 1993.
(2) Includes 1,813,507 shares of Common Stock issued to Mr. Lenz
in August 1992, such indeterminate number of shares of
Common Stock issuable upon exercise of the Warrant and the Series
III Preferred Stock, 36,900 shares of Common Stock issuable upon
conversion of the Series I Preferred Stock and 50,000 shares of
Common Stock issuable upon conversion of the $50,000 principal
amount of Convertible Debt Securities (utilizing the average of
the bid and ask price of the Common Stock on February 17, 1995 of
$1.00 per share as reported on the NASDAQ Small-Cap Market).
(3) Includes 100,626 shares of Common Stock (representing 5 percent
of the issued and outstanding shares) issuable to Mr. Pignatelli
upon exercise of the Compensatory Options, which Options vest at
the rate of 1 percent per year for five years of employment as an
executive officer of the Company and the Bank. As of the date of
this Prospectus, Mr. Pignatelli has the right to acquire such
number of shares of Common Stock representing 1.0 percent of the
issued and outstanding shares at a price of $1.250 per share.
(4) The shares of Series III Preferred Stock are convertible or
exchangeable, at the option of the holders, into shares of
Company's Common Stock, Preferred Stock or other capital
instrument or into a combination of such shares and shares
of the Bank's Common Stock, Preferred Stock or other
capital instrument of the Bank with a market value equal
to the stated value of the Series III Preferred Stock being
converted. Assuming conversion of all of the Series III
Preferred Stock into Company Common Stock and utilizing the
average of the bid and ask price of the Common Stock
on February 17, 1995 of $1.00 per share as reported on the NASDAQ
Small-Cap Market, the holders of the Series III Preferred Stock
would be entitled to receive a total of 3,830,000 shares of
Company Common Stock.
PLAN OF DISTRIBUTION
The Company intends to sell the New Common Stock and the Short-Term Notes
in one or more transactions in a public or private offering as soon as
practicable following the effectiveness of the Registration Statement of which
this Prospectus is a part.
The Company has been advised by the Selling Securities Holders that such
holders of the Company's Securities may sell, from time to time, all or any
amount of the Securities following
the effectiveness of the Registration Statement.
The Company or the Selling Security Holders, as appropriate,
may sell the Securities to one or more underwriters for public
offering and sale by them or may sell the Securities to investors
directly or through agents (which agents may be affiliates of the
Company) that solicit or receive offers on behalf of the Company
or the Selling Security Holders, as applicable, or through dealers or through a
combination of any such method of sale. Any such underwriter, dealer or agent
involved in the offer and sale of the Securities is named in the Prospectus
Supplement.
The Securities may be distributed in one or more transactions from time
to time at a fixed price or prices (which may be changed from time to time) at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Company or the Selling
Security Holders also may, from time to time, authorize agents of the Company
or the Selling Security Holders acting on a best efforts or other basis to
solicit or receive offers to purchase the Securities upon the terms and
conditions as are set forth in the Prospectus or in a Prospectus Supplement. In
connection with the sale of the Securities, underwriters may be deemed to have
received compensation from the Company in the form of underwriting discounts
or commissions and may also receive commissions from purchasers of Securities
for whom they may act as agent. Underwriters may sell the Securities to or
through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters
and/or commissions from the purchasers for whom they act as agent.
Any underwriting compensation paid by the Company or the Selling Security
Holders to underwriters or agents in connection
with the offering of the Securities, and any discounts, concessions or
commissions allowed by underwriters to participating dealers, will be set forth
in the Prospectus or in a Prospectus Supplement. Underwriters, dealers and
agents participating in the distribution of the Securities (including agents
only soliciting or receiving offers to purchase Securities on behalf of the
Company) may be deemed to be underwriters, and any discounts and commissions
received by them and any profit realized by them on resale of the Securities
may be deemed to be underwriting discounts and commissions, under the
Securities Act. Underwriters, dealers and agents may be entitled, under
agreements entered into with the Company, to indemnification against and
contribution toward certain civil liabilities, including liabilities under the
Securities Act.
Certain of the underwriters and their associates may be customers of,
engage in transactions with and perform services for the Company or the Bank in
the ordinary course of business.
All expenses of registration of the Securities, estimated to
be approximately $175,000, shall be borne by the Company. Normal commission
expense and brokerage fees, as well as any applicable transfer taxes are
payable individually by the Company or the Selling Securities Holders, as
applicable.
DESCRIPTION OF THE SECURITIES
The following statements are summaries of certain provisions
of the Company's Securities and are qualified in their entirety by reference
to the complete texts of the Company's Certificate of Incorporation (the
"Certificate") and the Securities themselves, copies of which are filed as
exhibits to the Registration Statement of which this Prospectus is a part.
Under the Company's Certificate, the Company is authorized to issue
20,000,000 shares of common stock, par value $0.01 per share, and 100,000
shares of preferred stock, without par value. As of February 17, 1995, there
were 2,012,514 shares of the Company's Common Stock outstanding, 23,000 shares
of Series I Preferred, 50,000 shares of Shares II Preferred and 383 shares of
Series III Preferred outstanding. On June 28, 1994, the Company's shareholders
approved a one-for-five reverse stock split of the Common Stock which reverse
stock split was declared effective on July 25, 1994.
Under the Company's Certificate, the Board of Directors is
authorized, without further shareholder action, to provide for the issuance of
the preferred stock in one or more series, with such designations, number of
shares, relative rights, preferences and limitations as shall be set forth in
resolutions providing for the issuance thereof adopted by the Board of
Directors.
The Company is authorized to issue, from time to time, senior and
subordinated debt. In March of 1993, the Company issued $220,000 of principal
amount of Term Debt Securities, due March 31, 1999. In March of 1994, the
Company, in connection with the Bank's Capital Plan, issued $1,090,000 of
principal amount of Convertible Debt Securities in exchange for the
outstanding Bank Capital Notes which resulted in an increase in the Bank's Tier
1 Capital by the principal amount of the Bank Capital Notes. In September and
December of 1994, the Company issued $3,638,000 and $148,000, respectively, of
Short-Term Notes. As of the date of this Prospectus, $148,000 of Short-Term
Notes remains issued and outstanding. The Convertible Debt Securities, the Term
Capital Notes and the Short-Term Notes rank senior to the Company's Common
Stock and Series I, II and III Preferred Stock, the Convertible Debt Securities
and the Term Capital Notes rank on a par with each other and rank junior to the
Short-Term Notes and any other Senior Indebtedness of the Company (as defined
therein).
In addition, the Board of Directors of the Company is authorized to grant
warrants and options to acquire Company
Common Stock on such terms and conditions as the Board deems
appropriate. In March 1994, as part of the Bank's Capital Plan,
the Company issued the Warrant to Mr. Randolph W. Lenz, the investor in the
Series I, Series II and Series III Preferred Stock. The Warrant was amended
and restated as of July 25, 1994. In December 1994, the Company entered into a
Stock Option Agreement with the Company's and the Bank's President and Chief
Executive Officer, which agreement provided for the issuance of the
Compensatory Options. Also in December 1994, the Board of Directors of the
Company approved the Company's Incentive Stock Option Plan, subject to approval
and ratification of the Plan by the Company's shareholders at the 1995 Annual
Shareholders Meeting.
COMPANY COMMON STOCK
Voting Rights. Holders of the Common Stock are entitled to
one vote for each share held and have no cumulative voting rights.
Dividends. Subject to such preferences, limitations and relative rights
as may be fixed for any series of preferred stock
that may be issued, including the Series I Preferred Stock, the Series II
Preferred Stock and the Series III Preferred Stock, holders of Common Stock are
entitled to receive such dividends, when, as and if declared by the Board of
Directors out of funds legally available therefor.
Under Connecticut law, the Company may pay dividends only if
the payment thereof would allow the Company to pay its debts as they become due
in the usual course of business and the Company's
total assets would not be less than its total liabilities.
Cash available for dividend distribution to the holders of the Company's
Common Stock and preferred stock, including the presently outstanding shares of
Series I, II and III Preferred Stock, must initially come from dividends paid
to the Company by the Bank. Accordingly, restrictions on the Bank's cash
dividend
payments directly affect the payment of cash dividends by the
Company.
The Bank is subject to certain limitations on the amount of
cash dividends that it can pay, without the prior approval of the
Banking Commissioner. The FDIC and the Banking Commissioner are
authorized to determine under certain circumstances relating to
the financial condition of a state non-member bank that the
payment of dividends would be an unsafe or unsound practice and
to prohibit payment thereof. In addition, the Bank is currently
prohibited by the 1991 Order from paying any cash dividends without the prior
written approval of the FDIC and the Banking Commissioner.
Liquidation. In the event of liquidation, after payment of
or provision for all debts and liabilities and subject to the rights of any
series of preferred stock which may be outstanding, including the Series I, the
Series II and the Series III Preferred Stock, the holders of Common Stock would
share pro rata in all assets distributable to shareholders in respect of shares
held by them.
Preemptive Rights. Holders of Common Stock have no preemptive rights.
Transfer Agent and Registrar. The transfer agent and registrar
for the Common Stock is Continental Stock Transfer & Trust Company, 2 Broadway,
New York, New York 10004.
SERIES I PREFERRED STOCK
Voting Rights. Except as required by applicable law, the
Series I Preferred Stock does not have any voting rights.
If any amendment to the Company's Certificate would create
(or increase the authorized number of shares of) any class of
stock ranking senior to the Series I Preferred Stock in any respect, then the
affirmative vote of the holders of a majority of all outstanding shares of
Series I Preferred Stock, voting as a separate class, would be required for its
adoption.
Dividends. Holders of the Series I Preferred Stock are entitled to
cumulative quarterly dividends accruing from the date of issue, when, as and if
declared by the Board of Directors out
of funds legally available therefor, at the annual rate of Wall
Street Journal Prime Rate, provided, however, that such rate shall not exceed
fifteen percent and shall not be less than seven percent per annum. If all
accrued dividends on the Series I Preferred Stock have not been paid or set
apart for payment, (i) no dividends or other distributions may be paid or set
apart for payment on the Common Stock or any other class of capital stock
ranking on parity with or junior to the Series I Preferred Stock as to
dividends or other distributions, (ii) the Company is prohibited from
purchasing, redeeming or otherwise acquiring the Common Stock or any other
class of capital stock ranking on parity with or junior to the Series I
Preferred Stock as to dividends, and (iii) the Company is prohibited from
issuing any preferred stock which ranks senior to the Series I Preferred Stock.
Liquidation. In the event of any liquidation, dissolution or winding up
of the affairs of the Company, whether voluntary or
otherwise, after payment or provision for payment of the debts and other
liabilities of the Company, the holders of the Series I Preferred Stock are
entitled to receive, out of the assets of the
Company legally available for distribution to its shareholders, the amount of
$100 in cash for each share of Series I Preferred Shares, plus an amount equal
to all dividends accrued and unpaid on each such share up to the date fixed for
distribution, before any distribution may be made to the holders of the Common
Stock or any other class of capital stock ranking junior to the Series I
Preferred Stock as to dividends or other distributions.
Redemption. The Series I Preferred Stock is redeemable in
whole or in part, at the option of the Company, at $100 per share
on or after January 1, 1990, plus in each case any accumulated and unpaid
dividends to the date fixed for redemption, subject to receipt of any required
regulatory approvals.
Conversion. At any time prior to redemption, shares of Series I
Preferred Stock are convertible at the option of the
holders into Common Stock at the current conversion rate of two
shares of the Common Stock for each shares of Series I Preferred
Stock (after giving effect to the five-for-one reverse stock split), except
that, with respect to shares of Series I Preferred
Stock called for redemption, the right to convert ceases at the
close of business on the last business day before the redemption
date. No payment or adjustment on account of dividends accrued or
in arrears will be made on the shares of Series I Preferred Stock surrendered
for conversion.
The conversion rate is subject to adjustment in the event of
payment of a dividend in shares of capital stock of the Company, any
subdivision or combination of the Common Stock or a reclassification of the
Common Stock. The conversion rate also is subject to adjustment in case of any
issuance of rights to holders of Common Stock to subscribe for shares of Common
Stock at less than the then current market price or any distribution to holders
of Common Stock of evidences or indebtedness or assets.
No fractional shares of Common Stock will be issued on conversion, but if
such conversion results in a fraction, a cash
adjustment will be paid.
Preemptive Rights. The holders of Series I Preferred Stock are not
entitled to any preemptive rights.
Transfer Agent, Conversion Agent and Registrar. The transfer agent,
conversion agent and registrar for the Series I Preferred Stock, and the
transfer agent and registrar of the Common Stock issuable upon conversion
thereof, is the Bank.
SERIES II PREFERRED STOCK
Voting Rights. Except as required by applicable law, the Series II
Preferred Stock does not have any voting rights.
If any amendment to the Company's Certificate would create
(or increase the authorized number of shares of) any class of stock ranking
senior to the Series II Preferred Stock in any respect, then the affirmative
vote of the holders of a majority of all outstanding shares of Series II
Preferred Stock, voting as a separate class, would be required for its
adoption.
Dividends. Holders of the Series II Preferred Stock are
entitled to cumulative quarterly dividends accruing from the date
of issue, when, as and if declared by the Board of Directors out
of funds legally available therefor, at the annual rate of the
Wall Street Journal Prime Rate plus four percent. If all accrued
dividends on the Series II Preferred Stock have not been paid or
set apart for payment, (i) no dividends or other distributions
may be paid or set apart for payment on the Common Stock or any
other class of capital stock ranking on parity with or junior to
the Series II Preferred Stock as to dividends or other distributions, (ii) the
Company is prohibited from repurchasing,
redeeming or otherwise acquiring the Common Stock or any other
class of capital stock ranking on parity with or junior to the
Series II Preferred Stock as to dividends, and (iii) the Company
is prohibited from issuing any preferred stock which ranks senior
to the Series II Preferred Stock.
Liquidation. In the event of any liquidation, dissolution
or winding up of the affairs of the Company, whether voluntary or
otherwise, after payment or provision for payment of the debts
and other liabilities of the Company, the holders of the Series
II Preferred Stock are entitled to receive, out of the assets of
the Company legally available for distribution to its shareholders, the amount
of $74 in cash for each share of Series II Preferred Shares, plus an amount
equal to all dividends accrued and unpaid on each such share up to the date
fixed for distribution, before any distribution may be made to the holders of
the Common Stock or any other class of capital stock ranking junior to the
Series II Preferred Stock as to dividends or other distributions.
Redemption. The Series II Preferred Stock is redeemable in
whole or in part, at the option of the Company, at $74 per share
plus in each case any accumulated and unpaid dividends to the date fixed for
redemption, subject to receipt of any required regulatory approvals.
Conversion. The holders of Series II Preferred Stock have
no conversion privileges.
Preemptive Rights. The holders of Series II Preferred Stock
are not entitled to any preemptive rights.
Transfer Agent and Registrar. The transfer agent and
registrar for the Series II Preferred Stock, is the Bank.
SERIES III PREFERRED STOCK
Voting Rights. Except as required by applicable law, the Series III
Preferred Stock does not have any voting rights.
If any amendment to the Company's Certificate would create
(or increase the authorized number of shares of) any class of stock ranking
senior to the Series III Preferred Stock in any respect, then the affirmative
vote of the holders of a majority of all outstanding shares of Series III
Preferred Stock, voting as a separate class, would be required for its
adoption.
Dividends. Holders of the Series III Preferred Stock are
entitled to cumulative quarterly dividends accruing from the date
of issue, when, as and if declared by the Board of Directors out
of funds legally available therefor, at the annual rate of the
Wall Street Journal Prime Rate plus five percent. If all accrued
dividends on the Series III Preferred Stock have not been paid or
set apart for payment, (i) no dividends or other distributions
may be paid or set apart for payment on the Common Stock or any
other class of capital stock ranking on parity with or junior to
the Series III Preferred Stock as to dividends or other distributions, (ii) the
Company is prohibited from repurchasing,
redeeming or otherwise acquiring the Common Stock or any other
class of capital stock ranking on parity with or junior to the
Series III Preferred Stock as to dividends, and (iii) the Company
is prohibited from issuing any preferred stock which ranks senior
to the Series III Preferred Stock.
Liquidation. In the event of any liquidation, dissolution
or winding up of the affairs of the Company, whether voluntary or
otherwise, after payment or provision for payment of the debts
and other liabilities of the Company, the holders of the Series
III Preferred Stock are entitled to receive, out of the assets of
the Company legally available for distribution to its shareholders, the amount
of $10,000 in cash for each share of Series III Preferred Shares, plus an
amount equal to all dividends accrued and unpaid on each such share up to the
date fixed for distribution, before any distribution may be made to the holders
of the Common Stock or any other class of capital stock ranking junior to the
Series III Preferred Stock as to dividends or other distributions.
Redemption. The Series III Preferred Stock is redeemable in
whole or in part, at the option of the Company, at $10,000 per share plus in
each case any accumulated and unpaid dividends to the date fixed for
redemption, subject to receipt of any required regulatory approvals.
Conversion. The shares of Series III Preferred Stock are convertible into
the Company's Common Stock, Preferred Stock or any other capital instrument of
the Company, or, at the option of the holders, into a combination of such
shares and shares of Common Stock, Preferred Stock or other capital instrument
of the Bank, with a market value equal to the stated value. At the option of
the holders, the Company shall pay accrued and unpaid dividends in shares of
Common Stock, Preferred Stock or other capital instrument of the Company or of
the Bank with a market value at the time of payment equal to the dividend being
paid.
Preemptive Rights. The holders of Series III Preferred Stock
are not entitled to any preemptive rights.
Transfer Agent and Registrar. The transfer agent and
registrar for the Series III Preferred Stock, is the Bank.
CONVERTIBLE DEBT SECURITIES
Principal Amount and Form of Debt Security. The Convertible
Debt Securities were issued by the Company on March 23, 1994 in
an exchange of the Convertible Debt Securities for all of the
outstanding mandatory convertible subordinated capital notes of
the Bank (the "Bank Capital Notes"). The Convertible Debt Securities are
mandatory convertible subordinated capital notes
of the Company in the aggregate principal amount of $1,090,000.
The Convertible Debt Securities have been issued without coupons in
denominations of $1,000 and integral multiples thereof.
Maturity and Conversion. The principal amount of the Convertible Debt
Securities will be due on July 1, 1997 (the
"Maturity Date") and will be convertible at the Maturity Date or
at any time prior thereto at the option of the holder (the "Conversion Date")
into shares of the Company's Common Stock with
a market value equal to the principal amount of the Convertible Debt
Securities. At the option of the Company and subject to receipt of regulatory
approval, the Convertible Debt Securities
will be payable or convertible into perpetual preferred stock or
other primary equity securities having a market value equal to
their principal amount. For purposes of the Convertible Debt
Securities, the market value of the Company's Common Stock will
be determined based on the 60 trading day average of the closing
bid price for the period immediately preceding the Maturity Date
or the Conversion Date. If the trading volume is insufficient,
the Company will utilize such other reasonable indices of market
value as it selects.
Interest Rate. The Convertible Debt Securities bear interest
payable quarterly at the annual rate of 125 percent of the Wall
Street Journal Prime Rate plus one. In the event the Company is
unable to pay the interest on the Convertible Debt Securities due
to the absence of cash dividends from the Bank or a regulatory
restriction on the Company's payment of interest on its subordinated or other
debt securities, the unpaid interest will
accrue until the Company has the resources or regulatory approval
to make such payments. The failure of the Company to pay cash
interest on the Convertible Debt Securities on these grounds will
not result in a default under the Convertible Debt Securities.
Redemption. The Convertible Debt Securities are redeemable,
at the option of the Company and with such regulatory approval as
may be necessary in cash in whole or in part upon 30 days' notice
at 100 percent of the unpaid principal amount of the Convertible
Debt Securities, plus accrued and unpaid interest to the date of
redemption.
Subordination. The Convertible Debt Securities are subordinated in the
right of payment of interest and principal to
the prior payment of all senior indebtedness of the Company. The
Convertible Debt Securities are on a par with other subordinated
capital notes of the Company, such as the Term Debt Securities,
and are senior to all equity interests in the Company, including
the Common Stock and Series I, II and III Preferred Stock.
Registration Rights. The Company is obligated to include
the Convertible Debt Securities and the shares of Common Stock
into which the Convertible Debt Securities are convertible in the
next registration statement filed by the Company with the Commission pursuant
to the Securities Act.
Modification and Amendment. The holders of not less than
66-2/3 percent of the outstanding principal amount of the Convertible Debt
Securities may modify or amend the terms of the
Convertible Debt Securities, except that each holder must consent
to any modification that extends the Maturity Date or reduces the
principal amount or the interest rate or impairs the conversion
rights of the holders of the Convertible Debt Securities.
TERM DEBT SECURITIES
Principal Amount and Form of Debt Security. The Term Debt
Securities were issued by the Company on March 31, 1993 in the
aggregate principal amount of $220,000. The Term Debt Securities
have been issued without coupons in denominations of $1,000 and
integral multiples thereof.
Maturity and Conversion. The principal amount of the Term
Debt Securities will be due and payable in cash by the Company on
March 31, 1999 (the "Maturity Date"). The Term Debt Securities have no
conversion rights or feature.
Interest Rate. The Term Debt Securities bear interest payable quarterly
at the annual rate of four percentage points
above the Wall Street Journal Prime Rate. In the event the
Company is unable to pay the interest on the Term Debt Securities
due to the absence of cash dividends from the Bank or a regulatory restriction
on the Company's payment of interest on its subordinated or other debt
securities, the unpaid interest will accrue until the Company has the resources
or regulatory approval to make such payments. The failure of the Company to pay
cash interest on the Term Debt Securities on these grounds will not result in a
default under the Term Debt Securities.
Redemption. The Term Debt Securities are redeemable, at the
option of the Company and with such regulatory approval as may be
necessary, in cash in whole or in part upon 30 days' notice at 100 percent of
the unpaid principal amount of the Term Debt Securities, plus accrued and
unpaid interest to the date of redemption.
Subordination. The Term Debt Securities are subordinated in
the right of payment of interest and principal to the prior payment of all
senior indebtedness of the Company. The Term Debt Securities are on a par with
other subordinated capital notes of the Company, such as the Convertible Debt
Securities, and are senior to all equity interests in the Company, including
the Common Stock and Series I, II and III Preferred Stock.
SHORT-TERM NOTES
Principal Amount and Form of Debt Security. The Company has $148,000 of
Short-Term Notes issued and outstanding. The Company proposes to issue
Short-Term Notes in the aggregate principal amount of up to $3,354,000. The
Short-Term Notes will be issued without coupons in denominations of $1,000 and
integral multiples thereof.
Maturity and Conversion. The principal amount of the Short-
Term Notes will be due and payable in cash by the Company on September 1, 1996
(the "Maturity Date"). The Short-Term Notes will have no conversion rights or
feature.
Interest Rate. The Short-Term Notes will bear interest
payable quarterly at the annual rate of five percentage points above the Wall
Street Journal Prime Rate. In the event the Company is unable to pay the
interest on the Short-Term Notes due to the absence of cash dividends from the
Bank or a regulatory restriction on the Company's payment of interest on its
senior debt securities, the unpaid interest will accrue until the Company has
the resources or regulatory approval to make such payments. The failure of the
Company to pay cash interest on the Short-Term Debt Securities on these grounds
will not result in a default thereunder.
Redemption. The Short-Term Notes will be redeemable, at the
option of the Company and with such regulatory approval as may be
necessary, in cash in whole or in part upon 30 days' notice at 100 percent of
the unpaid principal amount of the Short-Term Notes, plus accrued and unpaid
interest to the date of redemption.
Subordination. The Short-Term Notes will be senior indebtedness of the
Company. The Short-Term Notes will rank senior in right of payment of interest
and principal to: (i) future senior indebtedness of the Company, (ii) all
existing or future junior or other subordinated indebtedness of the Company,
including but not limited to the Convertible Debt Securities and the Term Debt
Securities, and (iii) all equity interests in the Company, including the Common
Stock and Series I, II and III Preferred Stock.
WARRANT
The Warrant, issued to Mr. Randolph Lenz (the "Holder") on
March 24, 1994, and amended as of July 25, 1994, entitles the Holder to
purchase, from the Company, at an exercise price of
$0.05 per share (adjusted for the one-for-five reverse stock split), in the
aggregate, such number of shares of Company Common
Stock as may be necessary for the Holder to maintain a level of
Common Stock ownership equal to 51 percent of the issued and
outstanding shares of Company Common Stock on a fully diluted
basis ("Threshold Level"). The Warrant was restated as of March
24, 1994 to correct certain drafting errors. In addition, the
Warrant was amended and restated as of July 25, 1994, to lower
the Threshold Level in the Warrant from 66 percent to 51 percent.
The Company anticipates that the amended terms of the Warrant
will facilitate the issuance of the New Common Stock. The Warrant
is exercisable by the Holder at any time commencing on the first
business day following the reduction in the number of issued and
outstanding shares of Company Common Stock through the one-for-
five reverse stock split (the "Initial Exercise Date") and continuing until the
date ten years following the Initial
Exercise Date (the "Warrant Exercise Period") provided, however,
that a triggering event ("Triggering Event") has occurred or the
Company is on notice that a Triggering Event will occur within
thirty days thereof, whichever is earlier. The Warrant defines a
Triggering Event to include any of the following: (i) the Company
has entered into an agreement to issue additional shares of Common Stock for
cash or other consideration which would result in the Holder's ownership
falling below the Threshold Level; or (ii) one or more holders of the Company's
outstanding Common Stock warrants, options or rights gives notice of exercise,
or exercises, any such warrant, option or rights which, upon exercise thereof,
would cause the Holder's ownership of Common Stock to fall below the Threshold
Level; or (iii) one or more holders of the Company's equity or debt
instruments convertible or exchangeable into Common Stock, or such instrument
by its terms converts through the happening of certain events or at maturity or
otherwise into Common Stock, which after giving effect to any such conversion
or exchange, would cause the
Holder's ownership of Common Stock to fall below the Threshold
Level; or (iv) any other issuance of Common Stock which would
directly or indirectly cause or result in the Holder's ownership
of Common Stock to fall below the Threshold Level. The Holder of
the Warrant is required to receive any necessary regulatory
approval prior to exercising the Warrant.
COMPENSATORY OPTIONS
In December 1994, the Company entered into an agreement with its
President and Chief Executive Officer to issue the Compensatory Options. Under
the terms of the Compensatory Options, the Chief Executive Officer has been
granted the right to acquire, for a price of $1.25 per share, a total of 5
percent of the issued and outstanding shares of Company Common Stock, which
vest at the rate of 1 percent per year for each year of service. As of the date
of this Prospectus, the Chief Executive Officer is entitled to exercise
Compensatory Options representing 1 percent of the issued and outstanding
shares of Common Stock.
LEGAL MATTERS
Certain legal matters in connection with the Securities
offered hereby will be passed upon for the Company by Thomas S.
Gallagher, Esq., 66 Larchmont, Larchmont, New York, including an
opinion to the effect that the shares of New Common Stock and the
Short-Term Notes will, when issued as contemplated in this Prospectus, be
validly issued, fully paid and non-assessable.
EXPERTS
The Consolidated Financial Statements of the Company as of
December 31, 1994 and December 31, 1993 included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1994, and incorporated by
reference in this Prospectus, have been audited by BDO Seidman as set forth in
its reports appearing therein. The Consolidated Financial Statements of the
Company as of December 31, 1992 included in the Company's Annual Report on Form
10-K for the year ended December 31, 1994 and incorporated by reference in this
Prospectus have been audited by Coopers & Lybrand as set forth in its report
appearing therein. Such Consolidated Financial Statements have been
incorporated herein by reference in reliance upon such reports given upon the
authority of such firms as experts in accounting and auditing.
No dealer, salesman or other
person has been authorized to
give any information or to
make representations other
than those contained in this
Prospectus, and, if given or
made, such information or
representations must not be
relied upon as having been
authorized by the Company.
Neither the delivery of this
Prospectus nor any sale made
hereunder shall, under any
circumstances, create an
implication that the
information herein is correct
as of any time subsequent to
this date. This Prospectus
does not constitute an offer
or solicitation by anyone in
any jurisdiction in which such
offer or solicitation is not
qualified or in which the
person making such offer or
solicitation is not qualified
to do so or to anyone to whom
it is unlawful to make such
offer or solicitation.
TABLE OF CONTENTS
Page
Delivery of Latest Annual
Report on Form 10-K and Quarterly
Report on Form 10-Q With the
Prospectus
Incorporation of Certain
Documents by Reference
Available Information
The Company
Regulation and Supervision
of the Company and the Bank
Use of Proceeds
Ratio of Earnings to Fixed Charges
Selected Consolidated Financial Data
Risk Factors and Investment
Considerations
Dilution
Recent Developments
Capitalization
Selling Securities Holders
Plan of Distribution
Description of the Securities
Legal Matters
Experts
CBC BANCORP, INC.
Common Stock (par value
$0.01), Series I Cumulative
Convertible Preferred Stock
(without par value), Series II
Cumulative Preferred Stock
(without par value), Series III
Cumulative Convertible Preferred
Stock (without par value),
Mandatory Convertible Subordinated
Capital Notes, Subordinated
Capital Notes,
Short-Term Senior Notes
and Common Stock Warrant
PROSPECTUS
February , 1995
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Securities and Exchange Commission registration fee . . $7,010.05
Fees and expenses of Transfer Agent and Registrar . . 2,000.00
Printing and engraving expenses . . . . . . . . . . . . 20,000.00
Legal fees and expenses . . . . . . . . . . . . . . . 100,000.00
Accounting fees and expenses . . . . . . . . . . . . . 25,000.00
Blue Sky fees and expenses . . . . . . . . . . . . . . 5,000.00
Miscellaneous expenses . . . . . . . . . . . . . . . . 15,989.95
Total . . . . . . . . . . . . . . . . . . . . . . $175,000.00
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Connecticut Stock Corporation Act permits a Connecticut
corporation to indemnify any person who was or is a party or is
threatened to be made a party to any action (other than an action
by or in the right of the corporation, i.e., a "derivative action") by reason
of the fact that he is or was a director, officer, employee or agent of the
corporation against expenses (including attorneys' fees), judgments, fines, and
amounts paid in settlement reasonably incurred by such person if he or she
acted in good faith and in a manner such individual reasonably believed to be
in or not opposed to the best interests of the corporation and, with respect to
a criminal action, which he or she had no reason to believe was unlawful. A
similar standard of care is applicable in the case of derivative actions,
except that indemnification only extends to expenses incurred in connection
with the defense or settlement of such an action and requires court approval
before there can be any indemnification if the person seeking indemnification
has been found liable to the corporation. Consequently, directors and officers
of the Company may be entitled under those provisions to indemnification for
grossly negligent business decisions. Employees and agents of the Company may
be indemnified and granted an advancement of litigation expenses to the extent
authorized from time to time by the Board of Directors of the Company.
Indemnification may be made by the Company only upon the
determination that such director, officer, employee or agent has
complied with the standard of conduct set forth above. Such
determination must be made on a case-by-case basis by: (i) a
majority vote of disinterested directors; (ii) in instances where
a quorum of disinterested directors is unavailable, then by independent legal
counsel in a written opinion; or (iii) by a
vote of the Company's stockholders.
Connecticut corporate law permits corporations, such as the
Company, to maintain indemnification insurance against any liability asserted
against an officer or director and arising out
of the individual's position, whether or not pursuant to Connecticut law the
particular corporation would have the power
to indemnify such individual. The Company does not maintain director and
officer liability insurance for the benefit of the
directors and officers of the Company.
Any indemnification rights set forth under Connecticut law
continue after such person has ceased to hold office and such
rights inure to the benefit of the heirs, executors and administrators of any
person so eligible for indemnification.
ITEM 16. EXHIBITS
Exhibit Number ______________
2 Stock Purchase Agreement, dated as of March 16, 1992,
by and between Amity Bancorp, Inc. and Randolph W. Lenz
(Filed as Exhibit A to the Company's 8-K filed March
26, 1992 and incorporated herein by reference).
3(a)(1) Articles of Incorporation of the Company (Filed as
Exhibit 3(a) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1987 and incorporated herein by reference).
3(a)(2) Amendment to Article Third of the Certificate of
Incorporation of the Company (Filed as Exhibit
3(a)(2) to the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1992 and
incorporated herein by reference).
3(a)(3) Amendment to Article First of the Certificate of
Incorporation of the Company (Filed as Exhibit
3(a)(3) to the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1993 and
incorporated herein by reference).
3(a)(4) Amendment to Article Third of the Certificate of
Incorporation of the Company (Filed as Exhibit
3(a)(4) to the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1993 and
incorporated herein by reference).
3(a)(5) Amendment to Article Third of the Certificate of
Incorporation of the Company (Filed as Exhibit
3(a)(4) to the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1993 and
incorporated herein by reference).
3(a)(6) Amendment to Article Third of the Certificate of
Incorporation of the Company (Filed as Exhibit 3(a)(6) to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994 and incorporated herein by
reference).
3(a)(7) Amendment to Article Third of the Certificate of
Incorporation of the Company (Filed as Exhibit 3(a)(7) to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994 and incorporated herein by
reference).
3(b) Bylaws of the Company (Filed as Exhibit 3(b) to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1987 and incorporated herein by
reference).
4(a) Debentures Agreement (Filed as Exhibit 4(a) to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1987 and incorporated herein by
reference).
4(b) Preferred Stock Agreement (Filed as Exhibit 4(b) to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1987 and incorporated herein by
reference).
4(c) Capital Note Dated March 31, 1993, Due March 31,
1999.*
4(d) Form of Mandatory Convertible Subordinated Capital
Note, Due July 1, 1997.*
4(e) Form of Series I Preferred Stock Certificate.*
4(f) Form of Series II Preferred Stock Certificate.*
4(g) Amended and Restated Warrant, effective as of July 25,
1994.*
4(h) Stock Option Agreement, by and between the Company and EQ
Corporation, dated as of June 23, 1994.*
4(i) Form of Short-Term Senior Notes*
4(j) Form of Series III Preferred Stock Certificate (Filed as
Exhibit 4(g) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 and
incorporated herein by reference).
5 Opinion of Thomas S. Gallagher, Esq., as to the
legality of the Securities being registered, including
consent of such counsel.
9 Voting Trust Agreement (Filed as Exhibit 9 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1987 and incorporated herein by
reference).
10(a) Incentive Stock Option Plan (Filed as Exhibit 10 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1987 and incorporated herein by
reference).
10(b) Employment Agreement, by and between the Bank and an
executive officer of the Bank and the Company,
effective January 1, 1989 (Filed as Exhibit 10(b) to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1988 and incorporated herein by
reference).
10(c) Deferred Compensation Agreement, by and between the
Bank and an executive officer of the Bank and the
Company, dated as of February 8, 1990 (Filed as Exhibit
10(c) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992 and
incorporated herein by reference).
10(d) Amended Employment Agreement, by and between the Bank
and an executive officer of the Bank and the Company,
dated as of October 30, 1992 (Filed as Exhibit 10(d) to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992 and incorporated herein by
reference).
10(e) Consulting Agreement, by and between the Bank and a
company affiliated with a director of the Company,
dated as of December 1, 1992 (Filed as Exhibit 10(e) to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992 and incorporated herein by
reference).
10(f) Employment Agreement, by and between the Bank and an
executive officer of the Bank and the Company, dated as
of July 21, 1994.*
10(g) Stock Option Agreement, by and between the Company and an
executive officer of the Company and the Bank, dated as of
December 13, 1994 (Filed as Exhibit 10(g) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by reference).
10(h) 1994 Incentive Stock Option Plan of the Company (Filed as
Exhibit 10(i) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 and
incorporated herein by reference).
10(i) Exchange Agreement, by and between the Company and the
Company's principal shareholder, dated and effective as of
December 31, 1994 (Filed as Exhibit 10(l) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by reference).
10(j) Agreement, by and between the Company and EQ Corporation,
dated January 18, 1995, canceling the Option (Filed as
Exhibit 10(m) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 and
incorporated herein by reference).
12 Computation of Earnings to Fixed Charges.
16(a) Letter dated October 23, 1992 from Deloitte & Touche
regarding resignation of certifying accountants (Filed
as Exhibit 16(a) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference).
16(b) Letter dated November 6, 1992 from Deloitte & Touche
regarding comments on Form 8-K of the Company dated
October 22, 1992 (Filed as Exhibit 16(b) to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992 and incorporated herein by
reference).
16(c) Letter dated December 15, 1993 from Coopers & Lybrand
regarding resignation of certifying accountants (Filed
as Exhibit 16(c) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1993 and
incorporated herein by reference).
16(d) Letter dated January 11, 1994 from Coopers & Lybrand
regarding comments on Form 8-K of the Company dated
December 15, 1993 (Filed as Exhibit 16(d) to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993 and incorporated herein by
reference).
22(a) Subsidiaries of the Registrant as of December 31, 1992
(Filed as Exhibit 22 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992
and incorporated herein by reference).
22(b) Subsidiaries of the Registrant (Filed as Exhibit 22(b)
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 and incorporated
herein by reference).
23(i) Consent of Thomas S. Gallagher, Esq. (contained in
Exhibit 5).
23(ii)(a) Consent of BDO Seidman with regard to the incorporation
by reference into this Registration Statement of its
report on the Company's 1994 and 1993 Consolidated
Financial Statements dated January 27, 1995 which was
incorporated by reference by the Company into its Annual
Report on Form 10-K for the fiscal year ended December
31, 1994.
23(ii)(b) Consent of Coopers & Lybrand with regard to the
incorporation by reference into this Registration
Statement of its report on the Company's 1992
Consolidated Financial Statements dated April 19, 1993
which was incorporated by reference by the Company
into its Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.
27 Financial Data Schedule (Filed as Exhibit 27 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by
reference).
28(ii)(1) Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.
______________________________
* Previously filed with the Commission.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and
(iii) to include any material information with respect to
the plan of distribution not previously disclosed
in the Registration Statement or any material change
to such information in the Registration Statement.
Provided, however, that paragraphs 1(i) and 1(ii) do not apply if the
Registration Statement is on Form S-3 or Form S-8 and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 (and where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to deliver, or
cause to be delivered, with the prospectus to each person to whom the
prospectus is sent or given, the latest annual report to
security-holders that
is incorporated by reference in the prospectus and furnished
pursuant to and meeting the requirements
of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and
where interim financial information required to be presented
by Article 3 of Regulation S-X is not set forth in the
prospectus, to deliver, or cause to be delivered, to each person
to whom the prospectus is sent or given, the latest quarterly
report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described in Item 15
above, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant certifies that it has reasonable grounds to believe that it
meets the requirements for filing on Form S-2 and has duly caused this
Amendment No. 2 to its Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the Town of Woodbridge, State of
Connecticut, on February 22, 1995.
CBC BANCORP, INC.
By: /s/ Charles Pignatelli
Charles Pignatelli
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
Signature Title
/s/ Charles Pignatelli Director, President and
Charles Pignatelli Chief Executive Officer
(Principal executive officer)
/s/ David Munzer Senior Vice President
David Munzer and Chief Financial Officer
of Connecticut Bank of Commerce
(Principal financial officer)
/s/ Barbara H. Van Bergen Vice President of Finance of
Barbara H. Van Bergen CBC Bancorp, Inc.
(Principal accounting officer)
/s/ Randolph W. Lenz Chairman of the Board of
Randolph W. Lenz Directors
/s/ Marcial Cuevas Director
Marcial Cuevas
/s/ Jack Wm. Dunlap Director
Jack Wm. Dunlap
Date: February 22, 1995
EXHIBIT INDEX
Exhibit Number Description
2 Stock Purchase Agreement, dated as of March 16, 1992,
by and between Amity Bancorp, Inc. and Randolph W. Lenz
(Filed as Exhibit A to the Company's 8-K filed March
26, 1992 and incorporated herein by reference).
3(a)(1) Articles of Incorporation of the Company (Filed as
Exhibit 3(a) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1987 and incorporated herein by reference).
3(a)(2) Amendment to Article Third of the Certificate of
Incorporation of the Company (Filed as Exhibit
3(a)(2) to the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1992 and
incorporated herein by reference).
3(a)(3) Amendment to Article First of the Certificate of
Incorporation of the Company (Filed as Exhibit
3(a)(3) to the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1993 and
incorporated herein by reference).
3(a)(4) Amendment to Article Third of the Certificate of
Incorporation of the Company (Filed as Exhibit
3(a)(4) to the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1993 and
incorporated herein by reference).
3(a)(5) Amendment to Article Third of the Certificate of
Incorporation of the Company (Filed as Exhibit
3(a)(4) to the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1993 and
incorporated herein by reference).
3(a)(6) Amendment to Article Third of the Certificate of
Incorporation of the Company (Filed as Exhibit 3(a)(6) to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994 and incorporated herein by
reference).
3(a)(7) Amendment to Article Third of the Certificate of
Incorporation of the Company (Filed as Exhibit 3(a)(7) to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994 and incorporated herein by
reference).
3(b) Bylaws of the Company (Filed as Exhibit 3(b) to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1987 and incorporated herein by
reference).
4(a) Debentures Agreement (Filed as Exhibit 4(a) to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1987 and incorporated herein by
reference).
4(b) Preferred Stock Agreement (Filed as Exhibit 4(b) to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1987 and incorporated herein by
reference).
4(c) Capital Note Dated March 31, 1993, Due March 31,
1999.*
4(d) Form of Mandatory Convertible Subordinated Capital
Note, Due July 1, 1997.*
4(e) Form of Series I Preferred Stock Certificate.*
4(f) Form of Series II Preferred Stock Certificate.*
4(g) Amended and Restated Warrant, effective as of July 25,
1994.*
4(h) Stock Option Agreement, by and between the Company and EQ
Corporation, dated as of June 23, 1994.*
4(i) Form of Short-Term Senior Notes*
4(j) Form of Series III Preferred Stock Certificate (Filed as
Exhibit 4(g) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 and
incorporated herein by reference).
5 Opinion of Thomas S. Gallagher, Esq., as to the
legality of the Securities being registered, including
consent of such counsel.
9 Voting Trust Agreement (Filed as Exhibit 9 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1987 and incorporated herein by
reference).
10(a) Incentive Stock Option Plan (Filed as Exhibit 10 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1987 and incorporated herein by
reference).
10(b) Employment Agreement, by and between the Bank and an
executive officer of the Bank and the Company,
effective January 1, 1989 (Filed as Exhibit 10(b) to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1988 and incorporated herein by
reference).
10(c) Deferred Compensation Agreement, by and between the
Bank and an executive officer of the Bank and the
Company, dated as of February 8, 1990 (Filed as Exhibit
10(c) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992 and
incorporated herein by reference).
10(d) Amended Employment Agreement, by and between the Bank
and an executive officer of the Bank and the Company,
dated as of October 30, 1992 (Filed as Exhibit 10(d) to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992 and incorporated herein by
reference).
10(e) Consulting Agreement, by and between the Bank and a
company affiliated with a director of the Company,
dated as of December 1, 1992 (Filed as Exhibit 10(e) to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992 and incorporated herein by
reference).
10(f) Employment Agreement, by and between the Bank and an
executive officer of the Bank and the Company, dated as
of July 21, 1994.*
10(g) Stock Option Agreement, by and between the Company and an
executive officer of the Company and the Bank, dated as of
December 13, 1994 (Filed as Exhibit 10(g) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by reference).
10(h) 1994 Incentive Stock Option Plan of the Company (Filed as
Exhibit 10(i) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 and
incorporated herein by reference).
10(i) Exchange Agreement, by and between the Company and the
Company's principal shareholder, dated and effective as of
December 31, 1994 (Filed as Exhibit 10(l) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by reference).
10(j) Agreement, by and between the Company and EQ Corporation,
dated January 18, 1995, canceling the Option (Filed as
Exhibit 10(m) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 and
incorporated herein by reference).
12 Computation of Earnings to Fixed Charges.
16(a) Letter dated October 23, 1992 from Deloitte & Touche
regarding resignation of certifying accountants (Filed
as Exhibit 16(a) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference).
16(b) Letter dated November 6, 1992 from Deloitte & Touche
regarding comments on Form 8-K of the Company dated
October 22, 1992 (Filed as Exhibit 16(b) to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992 and incorporated herein by
reference).
16(c) Letter dated December 15, 1993 from Coopers & Lybrand
regarding resignation of certifying accountants (Filed
as Exhibit 16(c) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1993 and
incorporated herein by reference).
16(d) Letter dated January 11, 1994 from Coopers & Lybrand
regarding comments on Form 8-K of the Company dated
December 15, 1993 (Filed as Exhibit 16(d) to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993 and incorporated herein by
reference).
22(a) Subsidiaries of the Registrant as of December 31, 1992
(Filed as Exhibit 22 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992
and incorporated herein by reference).
22(b) Subsidiaries of the Registrant (Filed as Exhibit 22(b)
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 and incorporated
herein by reference).
23(i) Consent of Thomas S. Gallagher, Esq. (contained in
Exhibit 5).
23(ii)(a) Consent of BDO Seidman with regard to the incorporation
by reference into this Registration Statement of its
report on the Company's 1994 and 1993 Consolidated
Financial Statements dated January 27, 1995 which was
incorporated by reference by the Company into its Annual
Report on Form 10-K for the fiscal year ended December
31, 1994.
23(ii)(b) Consent of Coopers & Lybrand with regard to the
incorporation by reference into this Registration
Statement of its report on the Company's 1992
Consolidated Financial Statements dated April 19, 1993
which was incorporated by reference by the Company
into its Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.
27 Financial Data Schedule (Filed as Exhibit 27 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by
reference).
28(ii)(1) Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.
____________________
*Previously filed with the Commission.
LAW OFFICES
THOMAS S. GALLAGHER
66 LARCHMONT AVENUE
LARCHMONT, NEW YORK 10538
Tel. (203) 222-5907
Fax. (203) 222-7976
February 22, 1995
CBC Bancorp, Inc.
128 Amity Road
Woodbridge, Connecticut 06525
Re: Registration Statement on Form S-2 with respect to
Common Stock, Series I Cumulative Convertible
Preferred Stock (without par value), Series II
Cumulative Preferred Stock (without par value),
Series III Cumulative Convertible Preferred Stock,
Mandatory Convertible Subordinated Capital Notes,
Subordinated Capital Notes, Short-Term Senior Notes
and Common Stock Warrant
Gentlemen:
I am acting as counsel to CBC Bancorp, Inc. (the "Company")
in connection with the issuance and sale of shares of Common
Stock, par value $0.01 per share ("Common Stock"), Series I
Cumulative Convertible Preferred Stock ("Series I Preferred
Stock"), Series II Cumulative Preferred Stock ("Series II
Preferred Stock"), Series III Cumulative Convertible Preferred Stock ("Series
III Preferred Stock"), Mandatory Convertible Subordinated Capital Notes
("Convertible Debt Securities"), Subordinated Capital Notes ("Term Debt
Securities"), Short-Term Senior Notes ("Short-Term Notes") and Common Stock
Warrant ("Warrant")(the Common Stock, Series I Preferred Stock, Series II
Preferred Stock, the Series III Preferred Stock, the Convertible Debt
Securities, the Term Debt Securities, the Short-Term Notes and the Warrant are
referred to herein as the "Securities"), pursuant to Amendment No. 2 to the
Registration Statement on Form S-2, all filed as of this date by the Company
with the Securities and Exchange Commission ("Commission") to effect
registration under the Securities Act of 1933, as amended, of the Securities
(the "Registration Statement"). (The equity Securities are referred to
collectively as the "Equity Securities" and the debt Securities are referred to
collectively as the "Debt Securities"). The Company proposes to issue and sell
up to 3 million shares of Common Stock and up to $3,354,000 of Short-Term Notes
and the remaining equity and debt securities are being registered for the
account of certain holders of those Securities. I am familiar with the
proceedings heretofore taken or proposed to be taken by the Company in
connection with the authorization, issuance and sale of the Securities.
I have examined such documents, records and matters of law
as I have deemed necessary for purposes of this opinion. In my
examination, I have assumed the genuineness of all signatures,
the legal capacity of all natural persons, the authenticity of
all documents submitted to me as originals, the conformity to
original documents of all documents submitted to me as certified
or photostatic copies, and the authenticity of the originals of
such copies.
Based on the foregoing, I am of the opinion that:
1. The previously-issued Equity Securities (i.e., the
1,813,508 shares of Common Stock, the 13,000 shares
of Series I Preferred Stock, the 50,000 shares of
Series II Stock, the 383 shares of Series III Preferred
Stock and the Warrant)(filed as exhibits to the
Registration Statement) are validly-issued, fully paid
and nonassessable.
2. The previously-issued Debt Securities (i.e., the
$1,090,000 of Convertible Debt Securities, the
$220,000 of Term Debt Securities and the $148,000 of
Short-Term Notes) have been duly authorized, executed and
issued, and constitute valid and binding obligations of
the Company enforceable in accordance with the respective
terms of the instruments (filed as exhibits to the
Registration Statement).
3. The up to 3 million shares of newly-issued Common Stock
to be issued and sold by the Company (the "New Common
Stock") are duly authorized and, upon issuance and sale
thereof against payment therefor in the manner provided
in the Registration Statement, will be validly issued,
fully paid and nonassessable.
4. The shares of Common Stock issuable upon conversion of
the Series I Preferred Stock, the shares of Common
Stock issuable upon exercise of the Options and the
shares of Common Stock issuable upon exercise of the
Warrant are duly authorized and, upon issuance thereof
in the manner provided in the Registration Statement and
the respective constituent instruments (filed as
exhibits to the Registration Statement), will be validly
issued, fully paid and nonassessable.
5. The up to $3,354,000 of Short-Term Notes to be issued
and sold by the Company are duly authorized and, when
duly executed, delivered and paid for in the manner
provided in the Registration Statement and the
constituent instrument (filed as an exhibit to the
Registration Statement), will constitute valid and
binding obligations of the Company enforceable in
accordance with its terms.
I hereby consent to the filing of this opinion as Exhibit 5
to the Registration Statement and to the reference to me under
the caption "Legal Matters" in the Prospectus comprising a part
of the Registration Statement.
This opinion is being rendered pursuant to Item 16 of Form
S-2 and Item 601 of Regulation S-K, may be relied upon only by
you and the Commission and may not be used, quoted or referred to
or filed with any other person without my prior written
permission.
Very truly yours,
/S/ THOMAS S. GALLAGHER
Thomas S. Gallagher
EXHIBIT 12
RATIO OF EARNINGS TO FIXED CHARGES
December 31,
1994 1993 1992 1991 1990
Fixed Charges:
Interest on indebtedness 321 191 113 983 1,209
Interest on deposits 3,211 4,483 7,066 10,589 13,255
Total fixed charges 3,532 4,674 7,179 11,572 14,464
Earnings:
Income before taxes (3,889) (6,422) (4,844) (5,832) (4,076)
Fixed charges excluding
Interest on deposits 321 191 113 983 1,209
Subtotal (3,568) (6,231) (4,731) (4,849) (2,867)
Interest on deposits 3,211 4,483 7,066 10,589 13,255
Total earnings (357) (1,748) 2,335 5,740 10,388
RATIO OF EARNINGS TO
FIXED CHARGES:
Excluding interest
on deposits (1.11) (9.15) 20.66 5.84 8.59
Including interest
on deposits (0.10) (0.37) 0.33 0.50 0.72
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
December 31,
1994 1993 1992 1991 1990
Fixed Charges:
Preferred dividends 469 70 70 84 100
Interest on indebtedness 321 191 113 983 1,209
Fixed charges excluding
interest on deposits 790 261 183 1,067 1,309
Interest on deposits 3,211 4,483 7,066 10,589 13,255
Total fixed charges 4,001 4,744 7,249 11,656 14,564
Earnings:
Income before taxes (3,889) (6,422) (4,844) (5,832) (4,076)
Fixed charges excluding
Interest on deposits 321 191 113 983 1,209
Subtotal (3,568) (6,231) (4,731) (4,849) (2,867)
Interest on deposits 3,211 4,483 7,066 10,589 13,255
Total earnings (357) (1,748) 2,335 5,740 10,388
RATIO OF EARNINGS TO
COMBINED FIXED
CHARGES AND PREFERRED
STOCK DIVIDENDS:
Excluding interest
on deposits (0.45) (6.70) 12.76 5.38 7.94
Including interest
on deposits (0.09) (0.37) 0.32 0.49 0.71
EXHIBIT 23(ii)a
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in Registration Statement
No. 33-55201 our report dated January 27, 1995, relating to the consolidated
statements of CBC Bancorp, Inc. and Subsidiaries (the "Company") appearing in
the Company's 1994 Annual Report to Stockholders and in the Company's Annual
Report on From 10-K for the year ended December 31, 1994, respectively. We also
consent to the reference to us under the caption "Experts" in the Prospectus.
BDO Seidman
Valhalla, New York
February 22, 1995
EXHIBIT 23(ii)b
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-2 (File
No. 33-55201) of our report, dated April 19, 1993, on our audit of the
consolidated financial statements of operations, changes in stockholders'
equity and cash flows of CBC Bancorp, Inc. and Subsidiaries for the year ended
December 31, 1992. We also consent to the reference to our firm under the
caption "Experts."
Coopers & Lybrand, L.L.P.
Hartford, Connecticut
February 22, 1995
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 (FEE REQUIRED)
For the Fiscal year ended December 31, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File number 0-15600
CBC BANCORP, INC.
(Exact name of Registrant as specified in its charter)
CONNECTICUT
(State of incorporation)
06-1179862
(I.R.S. Employer Identification No.)
128 AMITY ROAD
WOODBRIDGE, CONNECTICUT 06525
(Address of principal executive offices)
(203) 389-2800
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of Class)
Preferred Stock, Series I, stated value $100.00
(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 and (2) has been subject to such
filing requirements for the past 90 days.
Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in the definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or in any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 6, 1995 was approximately $149,000 based on
the last sale price on that date.
The number of shares of Registrant's Common Stock outstanding was
2,012,514 as of February 6, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
Portion's of the 1995 CBC Bancorp, Inc. Proxy Statement are incorporated
by reference into Part III.
CBC BANCORP, INC.
PART I
ITEM 1. BUSINESS
GENERAL
CBC Bancorp, Inc. (the "Company") is a registered bank holding company.
The Company's subsidiary is Connecticut Bank of Commerce (the "Bank"), a
Connecticut chartered commercial bank.
The Bank is a full-service commercial bank with its main office in
Woodbridge, Connecticut, and with four other offices located in Branford,
Greenwich, Norwalk and Stamford, Connecticut. All deposits in the Bank
are insured by the Federal Deposit Insurance Corporation ("FDIC") to the
extent permitted by law. From its main office and other offices, the Bank
provides a broad range of commercial and consumer banking services to
businesses and consumers located in New Haven and Fairfield Counties and
throughout Connecticut, including checking and savings accounts and loans
to small and medium-sized businesses, professional organizations and
individuals.
In the second quarter of 1994, the Bank established a financial lease
program. The Bank's leasing business includes providing short-term
financing of leases, which are subsequently placed with permanent lenders,
purchasing accounts receivable resulting from leasing transactions and
purchasing equipment for lease to prospective lessees. During 1994, the
Bank disbursed $15.2 million in financial lease related transactions. As
of December 31, 1994, $9.6 million in funds deployed in financial lease
transactions have been repaid and $5.6 million in funds remain
outstanding. The Bank anticipates continuing its participation in
financial lease transactions in the future.
In efforts to strengthen the financial condition of the Bank, on October
26, 1994 the Bank sold $9.6 million of installment loans made to overseas
U.S. military personnel, representing substantially all of the remaining
portfolio of this type of extension of credit. While the transaction
resulted in a net loss of approximately $818,000, the transaction permits
the Bank to exit this line of business, significantly improves the Bank's
short-term liquidity and is expected to reduce loan charge-offs and
operating costs over the long-term.
EMPLOYEES
On December 31, 1994, the Company and subsidiaries had 50 employees, 49
on a full-time equivalent basis. On December 31, 1993, the Company and
subsidiaries had 76 employees, 72 on a full-time equivalent basis.
COMPETITION
The banking industry in Connecticut is highly competitive. The Bank faces
strong competition in attracting deposits and in making commercial and
consumer loans from regulated and unregulated financial services
organizations. Other commercial banks, savings banks, savings
institutions and credit unions actively compete with the Bank for deposits
and money market funds and brokerage houses offer deposit-like services.
These institutions, as well as consumer and commercial financial
companies, mortgage banking companies, national retail chains and
insurance companies, are important competitors for various types of loans.
Interest rates, convenience of office locations and marketing are
significant factors in the Bank's competition for deposits. The Bank does
not rely upon any individual, group or entity for a material portion of
its deposits nor does the Bank obtain any deposits through deposit brokers.
Factors which affect competition for loans include the interest rates and
loan fees charged and the efficiency and quality of services.
Competition for loans is also affected by the availability of credit,
general and local economic conditions, current interest rates, volatility
in the mortgage markets and various other factors. The majority of the
Bank's lending activities are concentrated in the State of Connecticut.
REGULATION AND SUPERVISION
As a bank holding company, the Company is subject to the regulation and
supervision of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") under the Bank Holding Company Act of 1956, as
amended (the "BHC Act"). The Company is also subject to regulation by
the Connecticut Banking Commissioner (the "Banking Commissioner").
The Bank is a Connecticut chartered, FDIC insured commercial bank, which
is not a member of the Federal Reserve System (a "nonmember bank"). As a
Connecticut chartered nonmember bank, the Bank is principally subject to
regulation and supervision by the FDIC and the Banking Commissioner. The
Bank is also subject to various regulatory requirements of the Federal
Reserve Board applicable to all federally insured financial institutions.
Federal Reserve System Regulation
The Company, as a bank holding company, is subject to extensive regulation
and supervision by the Federal Reserve Board. The Federal Reserve Board
has established capital adequacy guidelines for bank holding companies
that are nearly identical to the FDIC capital requirements described
below. These capital adequacy guidelines are not applicable to bank
holding companies with consolidated assets of under $150 million. Until
the Company's consolidated assets reach or exceed this level, the Federal
Reserve Board's capital guidelines are not applicable to the Company.
See Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Capital Resources."
Federal Reserve Board policy requires every bank holding company to act as
a source of financial strength to its subsidiary bank and to commit
resources in support of such subsidiary. The Federal Reserve Board could
seek to restrict the Company from paying cash dividends on the Company's
common or preferred stock or interest on its subordinated capital notes
or other indebtedness in accordance with this policy.
In addition, in an effort to restore and maintain the financial soundness
of the Company, the Company entered into a written agreement (the
"Written Agreement") with the Federal Reserve Bank of Boston (the
"Reserve Bank"), effective as of November 2, 1994. The Written Agreement
requires the Company to seek the prior written approval of the Reserve
Bank prior to the Company's declaration or payment of dividends on its
outstanding common or preferred stock, increasing its outstanding
borrowings or incurring additional holding company indebtedness, engaging
in material transactions with the Bank (other than capital contributions)
or making cash disbursements in excess of certain agreed upon amounts.
The Written Agreement also requires the Company to submit (i) a tax
allocation agreement between the Company and the Bank, (ii) a debt
service plan and (iii) a capital restoration plan for the Bank. The
Federal Reserve Bank approved the proposed tax allocation agreement as of
December 23, 1994 and approved the debt service and capital restoration
plans as of December 30, 1994. In addition, the Written agreement also
required the Company to revise or develop certain select policies. All
such actions required by the Written Agreement have been taken by the
Company.
The Company is required to filed periodic and annual reports with the
Federal Reserve Board on the operations of the Company and its
subsidiaries. In addition, the Company is registered with the Banking
Commissioner under the Connecticut Bank Holding Company Act.
Under the BHC Act, bank holding companies may not directly or indirectly
acquire ownership or control of more than five percent of the voting
shares or substantially all of the assets of any company, including a
bank, without the prior approval of the Federal Reserve Board. In
addition, bank holding companies are generally prohibited under the BHC
Act from engaging in nonbanking activities, subject to certain exceptions.
The Connecticut Interstate Banking Act specifically permits Connecticut
bank holding companies and banks to acquire or be acquired by banks or
bank holding companies in other states with reciprocal interstate banking
laws. The recently enacted Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 is expected to greatly facilitate interstate
acquisitions and mergers involving Connecticut bank holding companies and
Connecticut banks and out-of-state bank holding companies and out-of-state
banks. See "The Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994." The BHC Act requires the prior approval of the Federal
Reserve Board of any acquisition of control of a bank or bank holding
company by a company. Under the Change in Bank Control Act (the "Control
Act"), any person acquiring control of a bank holding company must provide
advance notice to, and obtain the prior approval of, the Federal Reserve
Board. No further approval is necessary for the acquisition of additional
voting securities by a company or person that has received the approval
under the BHC Act or the Control Act. In addition to the BHC Act and
the Control Act, federal antitrust laws place limitations on the
acquisition of banks and other businesses.
Under the BHC Act, the Company, the Bank and any other subsidiaries of the
Company are prohibited or restricted in connection with any extension of
credit or provision of any property or services. The Bank is subject to
certain restrictions imposed by the Federal Reserve Act on making any
investments in the stock or other securities of the Company or any of its
subsidiaries, and the taking of such stock or securities as collateral for
loans to any borrower. The Bank is also subject by the Federal Reserve
Act to certain collateralization requirements and restrictions on the
amount of loans it can make to the Company. The amount of such loans may
not exceed (when aggregated with certain other transactions between the
Bank and the Company) 10 percent of the capital stock and surplus of the
Bank.
Connecticut Regulation
The Banking Commissioner and the Connecticut Department of Banking
regulate the Bank's internal operations as well as its deposit, lending
and investment activities. The approval of the Banking Commissioner is
required, among other things, for the establishment of branch offices and
business combination transactions. In addition, the Banking Commissioner
conducts periodic examinations of the Bank. Many of the areas regulated
by the Banking Commissioner are subject to similar and concurrent
regulation by the FDIC.
Connecticut banking laws grant Connecticut chartered banks broad lending
authority. Subject to certain limited exceptions, however, total secured
and unsecured loans made to any one obligor pursuant to this statutory
authority may not exceed 25 percent of a bank's capital, surplus,
undivided profits and loss reserves.
The Bank is prohibited by Connecticut banking law from paying dividends
except from its net profits, which are defined as the remainder of all
earnings from current operations plus actual recoveries on loans and
investments and other assets after deducting from the total thereof all
current operating expenses, actual losses, accrued dividends on preferred
stock, if any, and all federal and state taxes. The total of all
dividends declared by the Bank in any calendar year may not, unless
specifically approved by the Banking Commissioner, exceed the total of its
net profits for that year combined with its retained net profits for the
preceding two years.
The ability of the Bank to pay dividends is also limited by provisions of
federal law and by the terms of the Cease and Desist Order, effective as
of July 19, 1991 (the "1991 Order"). See "FDIC Regulation" and "The FDIC
Improvement Act". The Federal Deposit Insurance Corporation Improvement
Act of 1991 (the "FDIC Improvement Act") and the FDIC's regulations
promulgated thereunder prohibit any bank from making capital distributions
if to do so would leave the institution undercapitalized as defined in the
FDIC Improvement Act. Under the terms of the 1991 Order, the Bank is
prohibited from paying any cash dividends to the Company without the prior
written approval of the FDIC and the Banking Commissioner. It should be
noted that cash dividends by the Bank to the Company represent the
primary source of cash income to the Company. These statutory and
regulatory restrictions -- coupled with the requirement in the Written
Agreement that the Company obtain the prior approval of the Reserve Bank
before declaring or paying dividends -- effectively prevent the Company
from paying cash dividends on its outstanding common or preferred stock or
interest on the Company's subordinated capital notes or other debt
instruments in the foreseeable future. The Company does not anticipate
that it will be permitted, nor does the Company anticipate that the Bank
will be permitted, to pay cash dividends until the Bank has reported net
profits, has attained the capital levels mandated in the 1991 Order, has
reduced significantly the level of nonperforming loans and has otherwise
complied with the terms of the Bank's Revised Capital Plan. See "The
Bank's Initial and Revised Capital Plans." There can be no assurance,
however, that the Company and the Bank will receive such regulatory
approvals even after the Bank achieves the foregoing financial and
operational benchmarks. During 1994, neither the Company nor the Bank
paid any dividends.
FDIC Regulation
As an FDIC-insured nonmember bank, the Bank is subject to extensive
supervision and examination by the FDIC, covering nearly every aspect of
its business and operations, including capital adequacy. The FDIC has
adopted risk-based capital requirements for nonmember banks. The minimum
guidelines for the ratio of total capital ("Total Capital") to risk-
weighted assets (including certain off-balance sheet items, such as
standby letters of credit) is 8 percent. At least half of the Total
Capital is to be comprised of common stock, retained earnings, minority
interests in the equity accounts of consolidated subsidiaries,
noncumulative preferred stock, less goodwill and certain other intangibles
("Tier 1 Capital"). The remainder may consist of other preferred stock,
certain other instruments, limited amounts of subordinated debt and a
limited amount of loan and lease loss allowances ("Tier 2 Capital"). A
nonmember bank's total "risk-weighted assets" are determined by assigning
the nonmember bank's assets and off-balance sheet items to one of four
risk categories based upon their relative credit risk ranging from 100
percent risk weight for assets with the greatest risk to zero percent risk
weight for assets with little or no risk. The higher the percentage of
riskier assets an institution has the more Tier 1 and Total Capital
required for the institution to satisfy the risk-based capital
requirements.
In addition, the FDIC has established a minimum leverage ratio requirement
for nonmember banks. The FDIC regulations provide for a minimum ratio of
Tier 1 Capital to total average assets, less goodwill (the "Leverage
Ratio") of 3 percent for nonmember banks that meet certain specified
criteria, including having the highest regulatory rating. All other
nonmember banks generally are required to maintain a Leverage Ratio of at
least 3 percent plus an additional cushion of 100 to 200 basis points with
a minimum Leverage Ratio of 4 percent. The FDIC regulations also provide
that nonmember banks experiencing internal growth or making acquisitions
will be expected to maintain strong capital positions substantially above
the minimum supervisory levels without significant reliance on intangible
assets. The 1991 Order currently requires the Bank to maintain a Leverage
Ratio of at least 6 percent for as long as the 1991 Order remains in
effect. Furthermore, the FDIC recently adopted regulations implementing
the prompt corrective action provisions of the FDIC Improvement Act. The
FDIC Improvement Act and its impact on the Company and the Bank are
discussed below. See "The FDIC Improvement Act."
At December 31, 1994, the Bank complies with the Tier 1 Capital to risk-
weighted assets requirement, but does not comply with the Total Capital to
risk-weighted assets requirement or the Leverage Ratio requirement of the
FDIC regulations or the 1991 Order. Accordingly, the Bank was deemed to
be in the "undercapitalized" category as defined by the FDIC Improvement
Act. As an "undercapitalized" nonmember bank, the Bank is subject to
certain restrictions on its operations mandated by the FDIC Improvement
Act and the FDIC's regulations promulgated thereunder. See "The FDIC
Improvement Act." In addition, with a Tier 1 Leverage Ratio of 3.95
percent for the last quarter of 1994 (4.08 percent at December 31, 1994),
the Bank does not comply with the 6 percent Tier 1 Leverage Ratio set
forth in the 1991 Order. Because the Bank is deemed "undercapitalized"
and is not in compliance with the Tier 1 Leverage Ratio mandated by the
1991 Order, the FDIC directed the Bank to revise its previously approved
March 21, 1994 Capital Plan (the "Initial Capital Plan"). The Bank
submitted its revised capital plan (the "Revised Capital Plan") to the
FDIC and the Banking Commissioner on December 13, 1994. On December 28,
1994, the FDIC approved the Bank's Revised Capital Plan. On December 29,
1994, the Banking Commissioner also approved the Revised Capital Plan.
See "The Bank's Initial and Revised Capital Plans."
<TABLE>
The following table sets forth the regulatory capital ratios of the Bank
as of December 31, 1994 and 1993:
<CAPTION>
Year Ended December 31, 1994 1993
<S> <C> <C>
Tier 1 risk-based capital <F1> 5.97% (2.53%)
Total risk-based capital <F1> 7.26% (2.53%)
Tier 1 Leverage Ratio <F2> 3.95% (1.82%)
<FN>
<F1>
Under the FDIC risk-based capital regulations, regulatory required
minimums are 4% and 8% for Tier 1 and Total Capital ratios, respectively.
<F2>
The FDIC capital regulations require a minimum Tier 1 Leverage Ratio
of 4%. The 1991 Order mandates a 6% Tier 1 Leverage Ratio. The Bank's
Tier 1 Leverage Ratio on a spot-basis at December 31, 1994 was 4.08%.
</FN>
</TABLE>
Further, in connection with the September 1993 FDIC regulatory examination
of the Bank, the FDIC issued an additional order to cease and desist in
December 1993 (the "1993 Order"). The Bank consented to the issuance of
the 1993 Order. Among other things, the 1993 Order required that
affirmative action be taken by the Bank and its Board of Directors to
correct certain bank policies, practices and alleged violations of law.
The Bank and its Board of Directors believe that the Bank has complied
fully with each of the terms of the 1993 Order.
The FDIC is empowered to terminate FDIC insurance of deposits, after
notice and hearing, upon a finding by the FDIC that the nonmember bank has
engaged in unsafe or unsound practices, is in an unsafe or unsound
condition to continue operations or has violated any applicable law,
regulation, rule or order of, or conditions imposed by, the FDIC.
Violation of the 1991 Order or failure to meet regulatory capital
requirements could result in a determination by the FDIC to commence such
termination proceedings.
The FDIC recently adopted a risk-based insurance assessment system to
replace the existing flat-rate system. The new system imposes insurance
premiums based upon a matrix that takes into account a bank's capital
level and supervisory rating. Under this risk-based system, the
assessment rate imposed on banks ranges from 23 cents for each $100 of
domestic deposits (for well-capitalized banks with the highest of three
supervisory rating categories) to 31 cents (for inadequately capitalized
banks with the lowest of the three supervisory rating categories). The
Company does not believe that the implementation of the risk-based system
will have a material effect on the Bank's or the Company's earnings.
Because of decreases in the reserves of the Bank Insurance Fund due to the
increased number of bank failures in recent years, it is possible that
deposit insurance premiums will be further increased. The Bank expects to
lessen the impact of any changes in insurance premiums through the pricing
of products.
The FDIC Improvement Act
On December 19, 1991, the FDIC Improvement Act was enacted. The FDIC
Improvement Act substantially revises the depository institution
regulatory and funding provisions of the Federal Deposit Insurance Act and
makes revisions to several other federal banking statutes. Among other
things, the FDIC Improvement Act requires the federal banking regulators
to take prompt corrective action in respect of depository institutions
that do not meet minimum capital requirements. The FDIC Improvement Act
establishes five capital tiers: "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." Under recently adopted regulations of the
FDIC, a nonmember bank, such as the Bank, is defined to be well
capitalized if it maintains a Leverage Ratio of at least 5 percent, a
risk-adjusted Tier 1 Capital Ratio of at least 6 percent and a risk-
adjusted Total Capital Ratio of at least 10 percent and is not otherwise
in a "troubled condition" as specified by the FDIC. A bank is defined to
be adequately capitalized if it is not deemed to be well capitalized but
meets all of its minimum capital requirements. A bank will be considered
undercapitalized if it fails to meet any one of the minimum required
capital measures, significantly undercapitalized if it is significantly
below such measures and critically undercapitalized if it fails to
maintain a level of tangible equity equal to not less than 2 percent of
total assets. A bank may be deemed to be in a capitalization category
lower than that indicated by its capital position if the institution
receives an unsatisfactory examination rating.
The FDIC Improvement Act further provides that a bank cannot accept
brokered deposits unless (i) it is well capitalized or (ii) it is
adequately capitalized and receives a waiver from the FDIC. A bank that
cannot receive brokered deposits also cannot offer "pass-through"
insurance on certain employee benefit accounts. In addition, a bank that
is not well capitalized cannot offer rates of interest on deposits which
are more than 75 basis points above prevailing rates. The Company
anticipates that the application of these restrictions will not have a
material adverse effect on the Bank's operations.
Undercapitalized banking institutions are subject to restrictions on
borrowing from the Federal Reserve System, as well as certain growth
limitations, and are required to submit capital restoration plans, a
portion of which must be guaranteed by the institution's holding company.
As indicated earlier, the Bank submitted, and the FDIC approved, the
Initial and Revised Capital Plans. See "The Bank's Initial and Revised
Capital Plans." The Company provided the required guaranties mandated by
the FDIC Improvement Act. Significantly undercapitalized banking
institutions may be subject to a number of other requirements and
restrictions, including orders to sell sufficient voting stock to become
adequately capitalized, reduce total assets and cease taking deposits from
other banks. Critically undercapitalized banking institutions are subject
to appointment of a receiver or conservator.
The FDIC Improvement Act generally prohibits a bank from making any
capital distribution (including payment of a dividend) to its holding
company or paying any management fees to any person with control over the
bank if, after making the distribution or paying the fee, the bank would
thereafter be undercapitalized. Until the second phase of the Bank's
Capital Plan is completed, the Bank is prohibited by the FDIC Improvement
Act from making any capital distribution to the Company or paying any
management fees to the Company or any other entity or person with control
over the Bank. In addition, the Federal Reserve Board may impose
restrictions against the holding companies of significantly
undercapitalized banks, such as prohibiting holding company dividends or
requiring divestiture of holding company affiliates or banks.
Apart from the prescribed restrictions contained in the FDIC Improvement
Act and implementing regulations, the FDIC is empowered to issue a prompt
corrective action directive ("PCA directive") imposing certain other
restrictions on undercapitalized, significantly undercapitalized and
critically undercapitalized banks. Among the discretionary requirements
that could be imposed include recapitalization of the bank, dismissal of
officers and directors and divestiture of subsidiaries. Before issuing a
PCA directive, the FDIC, in the case of a nonmember bank, and the Federal
Reserve Board, in the case of a bank holding company, must provide the
banking organization with notice and opportunity to comment on the
proposed action. A banking organization's response to a letter of intent
to issue a PCA directive may include the reasons why the directive should
not be issued, modifications to the directive or mitigating circumstances
to support the banking organization's position regarding the directive. A
PCA directive is enforceable as a final order in federal district court
and civil money penalties may be assessed for violating a PCA directive.
Based on the findings of the FDIC's regulatory examination of the Bank
commenced in September 1993, the Bank, as of December 31, 1993
significantly increased its provision for loan losses and reduced the
carrying values of certain loans and foreclosed assets, thereby seriously
depleting its regulatory capital. In December 1993, the FDIC issued a
Prompt Corrective Action directive to the Bank informing the Bank that it
was "critically undercapitalized", requiring the prompt recapitalization
of the Bank and prohibiting, among other things, the payment of capital
distributions or management fees to the Company or to any company
controlled by a controlling shareholder of the Bank. The PCA directive
also required the Bank to obtain the prior approval of the FDIC before
entering into any material transaction other than in the ordinary course
of business, including the purchase and sale of assets and the payment of
interest on the Bank's subordinated debentures. The PCA directive further
required the Bank to submit an acceptable capital restoration plan setting
forth the Bank's specific plans and timing for recapitalization.
The Bank submitted its Initial Capital Plan on March 21, 1994. The FDIC
approved the Initial Capital Plan on March 24, 1994. The Bank's Initial
Capital Plan provided for the recapitalization of the Bank in two stages.
See "The Bank's Initial and Revised Capital Plans." The Bank implemented
the Initial Capital Plan during the first three quarters of 1994 raising
approximately $8.9 million in additional Tier 1 Capital. As a result of
the Bank's improved regulatory capital position, the PCA restrictions on
the Bank's operations set forth in the PCA directive applicable to
"significantly undercapitalized" and "critically undercapitalized"
institutions were eliminated.
Subsequent to completion of the Bank's recapitalization as provided in the
Initial Capital Plan, during the third quarter of 1994, the FDIC completed
its periodic examination of the Bank. Based on the findings of the 1994
FDIC examination, the Bank's capital was reduced by $1,752,000, caused
principally by an increase in the Bank's provision for loan losses of
approximately $1,457,000 resulting from the reduction in the carrying
values of certain loans and foreclosed real estate of approximately
$2,030,000. In addition, on October 26, 1994, the Bank sold the bulk of
its remaining overseas U.S. military installment loan portfolio resulting
in a net loss of $818,000. The Bank also recorded as of December 31,
1994 a loss of $90,000 associated with the Bank's closure of its Greenwich
branch, which closure is expected to be completed by March 1, 1995. As a
consequence, the Bank became "undercapitalized" as defined in the FDIC
Improvement Act and was not in compliance with the 6 percent Tier 1
Leverage Ratio contained in the 1991 Order.
In accordance with the provisions of the FDIC Improvement Act, the Bank
was required to submit an acceptable Revised Capital Plan to the FDIC.
The Bank's Revised Capital Plan was submitted to the FDIC and the Banking
Commissioner on December 13, 1994. Both the FDIC and the Banking
Commissioner approved the Bank's Revised Capital Plan in late December
1994. See "The Bank's Initial and Revised Capital Plans."
Until the second equity offering contained in the Bank's Revised Capital
Plan is completed, the Bank is prohibited by the FDIC Improvement Act from
making any capital distribution to the Company or paying any management
fees to the Company or any other entity or person with control over the
Bank.
The Company cannot determine the ultimate effect that the FDIC Improvement
Act and the FDIC's implementing regulations will have upon its and the
Bank's financial condition or operations.
The Bank's Initial and Revised Capital Plans
On March 24, 1994, the FDIC approved the Initial Capital Plan of the Bank.
The Initial Capital Plan provided for the recapitalization of the Bank in
two parts. The first part consisted of: (i) the modification of the terms
of the existing mandatory convertible subordinated debentures of the Bank
("Bank Debentures") to convert the Bank Debentures into, or exchange the
Bank Debentures for (the "Exchange"), mandatory convertible subordinated
capital notes of the Company ("Company Capital Notes"), with substantially
similar terms as the Bank Debentures; (ii) the injection of $5 million of
additional equity capital into the Bank by Mr. Randolph W. Lenz, the
majority shareholder of the Company (the "Investor") through the Investor's
exchange of marketable securities for 13,000 shares of Company Series I
preferred stock and 50,000 shares of Series II perpetual preferred stock
(collectively, the "Company Securities") and the Investor's separate
purchase for cash of a warrant to purchase shares of Company common stock
(the "Warrant"); and (iii) the sale of the Bank's leasehold interest
("Leasehold Interest") in a parcel of land adjacent to the Bank's main
office for cash. The Exchange was approved by the holders of the Bank
Debentures sufficient to effect a conversion of 100 percent of the Bank
Debentures. The Exchange was deemed to occur on March 23, 1994, resulting
in the immediate increase in the Bank's Tier 1 Capital by $1,090,000 (the
principal amount of the Bank Debentures at the time of the Exchange). The
Investor's $5 million equity contribution and the issuance to the Investor
of the Company Securities occurred on March 24, 1994. The Investor's
purchase of the Warrant from Company also occurred on March 24, 1994. The
Bank and the purchaser of the Leasehold Interest executed a definitive
Agreement to Convey and Assign on March 25, 1994 and the closing occurred
as of March 31, 1994.
The $5 million equity contribution made to the Company by the Investor was
recognized as additional equity capital by the Bank subsequent to the
March 24, 1994 transaction as the marketable securities were sold by the
Company. Under federal law, the Bank is precluded from investing in these
marketable securities. Accordingly, the Company was required to sell the
marketable securities for cash and contribute the net proceeds from such
sale to the Bank as additional paid-in capital. All of the marketable
securities were sold within the second quarter of 1994. Subsequent to the
equity contribution, the market value of the securities declined,
resulting in a loss on the sale in the amount of $852,000.
The Warrant, issued to the Investor on March 24, 1994, and amended as of
July 25, 1994, entitles the Investor to purchase from the Company, at an
exercise price of $0.05 per share (adjusted to reflect the one for five
reverse stock split effective July 25, 1994), in the aggregate, such
number of shares of Company Common Stock ownership equal to 51 percent of
the issued and outstanding shares of Company Common stock on a fully
diluted basis (the "Threshold Level"). The Warrant was restated as of
March 24, 1994 to correct certain drafting errors. In addition, the
Warrant was amended and restated as of July 25, 1994, to lower the
Threshold Level in the Warrant from 66 percent to 51 percent. The Company
anticipates that the amended terms of the Warrant will facilitate the
issuance of additional Common Stock in the future, particularly in light
of the $1 million equity offering proposed in the Revised Capital Plan.
The Warrant is exercisable by the Investor at any time commencing on July
26, 1994 (the "Initial Exercise Date") (the first business day following
the reduction in the number of issued and outstanding shares of Common
Stock resulting from the reverse stock split) and continuing until the
date ten years following the Initial Exercise Date (the "Warrant Exercise
Period") provided, however, that a Triggering Event has occurred or the
Company is on notice that a Triggering Event will occur within thirty days
thereof, whichever is earlier. The Warrant defines a Triggering Event to
include any of the following: (i) the Company has entered into an
agreement to issue additional shares of Common Stock for cash or other
consideration which would result in the Investor's ownership falling below
the Threshold Level; or (ii) one or more holders of the Company's Common
Stock warrants, options or rights gives notice of exercise, or exercises,
any such warrant, option or rights which, upon exercise thereof, would
cause the Investor's ownership of Common Stock to fall below the Threshold
Level; or (iii) one or more holders of the Company's equity or debt
instruments convertible or exchangeable into Common Stock, gives notice of
exercise or exercises, any conversion of exchange right, or such
instrument by its terms converts through the happening of certain events
or at maturity or otherwise into Common Stock, which, in either case,
after giving effect to any such conversion or exchange, would cause the
Investor's ownership of Common Stock to fall below the Threshold Level; or
(iv) any other issuance of Common Stock which would directly or indirectly
cause or result in the Investor's ownership of Common Stock to fall below
the Threshold Level. The holder of the Warrant is required to receive any
necessary regulatory approval prior to exercising the Warrant.
The second part of the recapitalization as set forth in the Bank's Initial
Capital Plan was completed on September 2, 1994. On that date, the
Investor purchased, for cash, $3,638,000 of the Company's short-term
senior notes (the "Senior Notes"). The Company immediately contributed
$3,500,000 of the proceeds from the sale of the Senior Notes to the Bank
as additional paid-in capital. The Senior Notes are due on September 1,
1996 and bear interest payable quarterly at the annual rate of five
percentage points above the Wall Street Journal Prime Rate. In the event
the Company is unable to pay the interest on the Senior Notes due to the
absence of dividends from the Bank or a regulatory restriction on the
Company's payment of interest on its senior indebtedness, the unpaid
interest will accrue until the Company has the resources or regulatory
approval to make such payments. The failure of the Company to pay cash
interest on the Senior Notes on these grounds will not result in a default
thereunder. Subsequent to the sale of the Senior Notes, the Investor
agreed to exchange $260,000 of principal amount of the Senior Notes for
26 shares of the Company's Series III preferred stock. The exchange was
deemed to occur as of September 2, 1994. Further, pursuant to an Exchange
Agreement by and between the Company and the Investor, dated and effective
as of December 31, 1994, the Investor exchanged the $3,378,000 remaining
outstanding principal amount of the Senior Notes for 337 shares of the
Company's Series III nonvoting cumulative convertible preferred stock.
The accrued and unpaid interest on the Senior Notes from the date of
issuance until December 31, 1994 (the effective date of the exchange) was
evidenced by a Senior Note in that amount. Because of certain changes to
the terms of the Series III preferred stock, the existing 46 shares of
Series III preferred stock were converted into and exchanged for the new
Series III preferred stock effective as of December 31, 1994.
Subsequent to the completion of the Initial Capital Plan, the Bank's
equity capital was reduced below the minimum level required by the FDIC
regulations and the 1991 Order as a result of the adverse impact of the
FDIC's 1994 regulatory examination of the Bank, the sale of the overseas
U.S. military installment loan portfolio and the closure of the Greenwich
branch. The FDIC directed the Bank to submit a Revised Capital Plan on or
before December 14, 1994. As indicated earlier, the Bank's Revised
Capital Plan was submitted to the FDIC and the Banking Commissioner on
December 13, 1994 and approved by the FDIC and Banking Commissioner on
December 28 and 29, 1994, respectively.
Under the terms of the Bank's Revised Capital Plan, the Bank's Tier 1
capital was projected to be augmented in the amount of $200,000 by
December 31, 1994 and in the amount of $1 million by June 30, 1995. The
additional $1.2 million of equity capital is to be raised in two separate
equity offerings undertaken by the Bank's parent holding company. Upon
completion of these two equity offerings, the Bank's Total Capital to
risk-weighted assets ratio is projected to exceed 8 percent, thereby
resulting in the Bank being deemed "adequately capitalized" as defined in
the FDIC Improvement Act. In addition, the Bank's Tier 1 Leverage Ratio
is projected to be above 5 percent. Thereafter, the Revised Capital Plan
provides for the Bank's attainment of the 6 percent Tier 1 Leverage Ratio
contained in the 1991 Order by December 31, 1996 through retained
earnings.
On December 30, 1994, the Bank successfully completed the first of two
required equity offerings contained in the Revised Capital Plan when the
Company sold 20 shares of Company Series III preferred stock for $200,000
to an entity substantially owned by the Company's majority shareholder and
contributed the proceeds of this equity offering to the Bank as additional
paid-in capital. Notwithstanding the foregoing, the ability of the
Company and the Bank to complete the second required equity offering or to
otherwise maintain and increase regulatory capital as projected in the
Revised Capital Plan is dependent upon, among other factors, the market
conditions for the Company's equity securities, the Bank's ongoing
profitability, the future levels of nonperforming assets and the local and
the regional economy in which the Bank and its customers operate. See
Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Capital Resources."
The Riegle-Neal Interstate Banking and Branching Efficiency Act
In September 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Banking Act") became law. The
Interstate Banking Act provides that, effective September 29, 1995,
adequately capitalized and managed bank holding companies will be
permitted to acquire banks in any state. State laws prohibiting
interstate banking or discriminating against out-of-state banks will be
preempted as of the effective date. States cannot enact laws opting out
of this provision; however, states may adopt a minimum age restriction
requiring that target banks located within the state be in existence for a
period of years, up to a maximum of five years, before such bank may be
subject to the Interstate Banking Act. The Interstate Banking Act
establishes deposit caps which prohibit acquisitions that would result in
the acquirer controlling 30% or more of the deposits of insured banks and
thrift institutions held in the state in which the target maintains a
branch or 10% or more of the deposits nationwide. States will have the
authority to waive the 30% deposit cap. State-level deposit caps are not
preempted as long as they do not discriminate against out-of-state
acquirers, and the federal deposit caps apply only to initial entry
acquisitions.
In addition, the Interstate Banking Act provides that as of June 1, 1997,
adequately capitalized and managed banks will be able to engage in
interstate branching by merging banks in different states. States may
enact legislation authorizing interstate mergers earlier than June 1,
1997, or, unlike the interstate banking provision discussed above, states
may opt out of the application of the interstate merger provision by
enacting specific legislation before June 1, 1997. If a state does opt
out of this provision, banks will be required to comply with the state's
laws regarding branching across state lines. Effective with the date of
enactment of the Interstate Banking Act, states can also choose to permit
out-of-state banks to open new branches within their borders. In
addition, if a state chooses to allow interstate acquisition of branches,
then an out-of-state bank may similarly acquire branches by merger.
Interstate branches that primarily siphon off deposits without servicing
a community's credit needs will be prohibited. If loans are less than 50%
of the average of all institutions in the state, the branch will be
reviewed to see if it is meeting community needs. If the branch is
determined not to be meeting community needs, the branch may be closed and
the bank will be restricted from opening a new branch in the state.
Further, the Interstate Banking Act modifies certain controversial
provisions of the FDIC Improvement Act. Specifically, the Interstate
Banking Act modifies the safety and soundness provisions contained in
Section 39 of the FDIC Improvement Act which required the federal banking
agencies to write regulations governing such topics as internal loan
controls, loan documentation, credit underwriting, interest rate exposure,
asset growth, compensation and fees and whatever else the agencies
determined to be appropriate. The Interstate Banking Act exempts bank
holding companies from these provisions and requires the federal banking
agencies to write guidelines, as opposed to regulations, dealing with
these areas. The federal banking agencies are also given more discretion
with regard to prescribing standards for banks' asset quality, earnings
and stock evaluation.
The Interstate Banking Act also expands current exemptions from the
requirement that banks be examined on a 12-month cycle. Exempted banks
will be examined every 18 months. Other provisions of the Interstate
Banking Act address paperwork reduction and regulatory improvements, small
business and commercial real estate loan securitization, truth-in-lending
amendments on high cost mortgages, strengthening of the independence of
certain financial regulatory agencies, money laundering, flood insurance
reform and extension of certain statutes of limitation.
At this time, the Company and the Bank are unable to predict how the
Interstate Banking Act may affect their operations.
Effect of Government Policy
Banking is a business that depends on interest rate differentials. One of
the most significant factors affecting the earnings of the Bank is the
difference between the interest rate paid by the Bank on its deposits and
other borrowings, on the one hand, and the interest rates received by the
Bank on loans extended to its customers and securities held in its
portfolio, on the other hand. The value and yields of its assets and the
rate paid on its liabilities are sensitive to changes in prevailing market
rates of interest. Thus, the earnings and growth of the Bank will be
influenced by general economic conditions, the monetary and fiscal
policies of the federal government and policies of regulatory agencies,
particularly the Federal Reserve Board, which implements national monetary
policy. The nature and impact of any future changes in monetary policies
cannot be predicted.
The present bank regulatory environment is undergoing significant change,
both as it affects the banking industry itself and as it affects
competition between banks and non-banking financial institutions. There
have been significant changes in the regulation and operation of capital
stock associations, in the bank merger and acquisition area, in the
products and services banks can offer and in the non-banking activities
in which bank holding companies can engage. In part as a result of these
changes, banks are now actively competing with other types of depository
institutions and with non-banking financial institutions, such as money
market funds, brokerage firms, insurance companies and with other
financial service enterprises. It is not possible at this time to assess
what impact these changes in the regulatory scheme will ultimately have on
the Company or the Bank.
Moreover, certain legislative and regulatory proposals that could affect
the Company, the Bank and the banking business in general are pending, or
may be introduced, before the United States Congress, the Connecticut
General Assembly and various governmental agencies. These proposals
include measures that may further alter the structure, regulation and
competitive relationship of financial institutions and that may subject
the Company and the Bank to increased regulation, disclosure and reporting
requirements. In addition, the various banking regulatory agencies
frequently propose rules and regulations to implement and enforce already
existing legislation, such as the FDIC Improvement Act. It cannot be
predicted whether or in what form any legislation or regulations will be
enacted or the extent to which the business of the Company and the Bank
will be affected thereby.
STATISTICAL INFORMATION
The supplementary information required under Guide 3 (Statistical
Disclosure by Bank Holding Companies) is set forth in Item 7,
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and in Item 14, "Exhibits, Financial Statement Schedules
and Reports on Form 8-K."
ITEM 2. PROPERTIES
The Company, operating through the Bank, conducts its banking business at
various owned and leased premises. The executive offices of the Company
and the Bank and the Bank's main office are situated in a 6,300 square
foot two-story building owned by the Bank and located at 128 Amity Road,
Woodbridge, Connecticut. The main office building has a banking floor,
executive offices and two drive-up teller facilities. On March 31, 1994,
the Bank sold for cash its leasehold interest in the property adjacent to
the Bank headquarters' building. The Bank owns its branch office in
Branford, Connecticut, which is located at 620 West Main Street. The
Branford office is a one-story 1,484 square foot structure with three
drive-up teller facilities. The Bank's branch offices in Norwalk,
Stamford and Greenwich, Connecticut, are walk-in facilities with leases of
varying terms and amounts. The Bank also leases approximately 4,600
square feet of office space for the consumer lending division and
operations department at a building located in Woodbridge, Connecticut.
The owned and leased properties and facilities being employed by the
Company and the Bank are suitable and adequate for the Company's and
Bank's use.
ITEM 3. LEGAL PROCEEDINGS
The information required by Item 3 appears in Note 15 of the Company's
Consolidated Financial Statements. See Item 14, "Exhibits, Financial
Statement Schedules and Reports on Form 8-K."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security
holders during the fourth quarter of 1994 or thereafter through the date
of this Form 10-K.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
The shares of the Company's common stock, par value $0.01 per share, are
traded on the NASDAQ Small-Cap Market under the symbol "CBCB".
Over-the-counter market quotations reflect inter-dealer prices without
retail mark-up, mark-down or commission, and may not necessary represent
actual transactions.
<TABLE>
QUARTERLY MARKET PRICES
<CAPTION>
1994 1993
Common Stock Prices (Bid) <F1> Low High Low High
In dollars
<S> <C> <C> <C> <C>
First Quarter 1.25 2.50 5.00 8.75
Second Quarter 1.25 1.25 6.25 12.50
Third Quarter 1.25 1.25 5.00 10.00
Fourth Quarter .75 1.00 1.85 5.00
<FN>
<F1>
Prices have been adjusted to reflect the one-for-five reverse stock
split, which was effective July 25, 1994.
</FN>
</TABLE>
HOLDERS OF COMMON STOCK
At February 6, 1995, there were approximately 259 registered shareholders
of the Company's common stock.
DIVIDENDS
The Company has omitted the cash dividend on its common stock and
preferred stock since the third quarter of 1990 in order to preserve
capital. In addition, the Bank has been restricted by the terms of the
1991 Order and by certain regulatory provisions from paying any dividends
to the Company. Since dividends from the Bank represent the exclusive
source of funds for the Company's payment of dividends on its common and
preferred stock and debt service on its capital notes, the Company does
not anticipate having the ability to pay cash dividends on its preferred
or common stock or to pay interest on its capital notes in the foreseeable
future. The Company is also subject under separate regulatory
restrictions which may restrict such payments in the foreseeable future.
See discussion of dividend restrictions on the Company and the Bank in
Item 1, "Business -- Regulation and Supervision -- Federal Reserve System
Regulation, Connecticut Regulation, FDIC Regulation and the FDIC
Improvement Act."
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
Condensed Statement Of Operations:
<CAPTION>
($ in thousands, except per share data)
Years Ended December 31, 1994 1993 1992
1991 1990
<S> <C> <C> <C>
<C> <C>
Net interest income 4,093 5,673
6,768 6,063 6,457
Provision for loan losses 1,773 6,298
3,533 6,541 6,320
Net interest income (loss) after provision for losses 2,320 (625)
3,235 (478) 137
Investment securities gains (losses) (811) 49
421 457 5
Other operating income 1,053 5,078
1,775 2,031 2,022
Other real estate owned expense 990 3,558
3,331 1,334 20
Other operating expense 5,461 7,366
6,944 6,508 6,220
Net income (loss) before income taxes (3,889) (6,422)
(4,844) (5,832) (4,076)
Provision (benefit) for income taxes 0 0
0 0 (1,469)
Net income (loss) (3,889) (6,422)
(4,844) (5,832) (2,607)
<CAPTION>
Common Stock Per Share Data <F1>:
Years Ended December 31, 1994 1993 1992
1991 1990
<S> <C> <C> <C>
<C> <C>
Book value at year end (4.16) (1.80)
2.00 13.60 48.10
Net income (loss) primary (1.93) (4.10)
(7.45) (29.75) 13.65
Net income fully diluted 0 0
0 0 0
Cash dividends 0 0
0 0 0.50
<CAPTION>
At year end ($ in thousands):
Years Ended December 31, 1994 1993 1992
1991 1990
<S> <C> <C> <C>
<C> <C>
Total assets 92,722 123,359
151,125 171,518 188,040
Net loans 59,070 84,215
106,728 128,006 140,916
Allowance for loan losses 2,637 5,012
1,291 4,319 4,547
Securities 14,189 13,200
27,751 25,223 25,913
Deposits 87,474 121,081
141,192 159,928 161,573
Short-term borrowings 0 0
0 812 7,664
Stockholders' equity 1,465 (2,627)
3,688 3,703 9,554
<CAPTION>
Outstanding shares
Years Ended December 31, 1994 1993
1992 1991 1990
<S> <C> <C>
<C> <C> <C>
Outstanding shares 2,012,514 2,012,514
1,344,707 198,706 198,706
<CAPTION>
Financial Ratios (as a percentage):
Years Ended December 31, 1994 1993 1992
1991 1990
<S> <C> <C> <C>
<C> <C>
Yield on interest-bearing assets 8.54 8.17
9.38 10.66 11.71
Cost of funds 3.80 3.94
5.08 7.40 8.80
Interest rate spread 4.74 4.23
4.30 3.26 2.91
Net interest margin 4.58 4.48
4.55 3.67 3.75
Earnings to fixed charges with interest 0 0
20.66 5.84 8.59
Earnings to fixed charges without interest 0 0
0.33 0.50 .72
Combined fixed charges with interest 0 0
12.76 5.38 7.94
Combined fixed charges without interest 0 0
0.32 0.49 0.71
Return on average assets (3.75) (4.57)
(2.96) (3.21) 1.32
Return on average equity 0 (110.17)
(98.18) (72.80) (22.26)
Average equity to average assets (1.47) 4.15
2.98 4.41 5.93
Cash dividend to primary EPS 0 0
0 0 0
Cash dividend to net income 0 0
0 0 0
Loans (net) to deposits 67.53 69.55
75.59 80.04 87.22
Nonperforming loans to total loans (net) 15.56 13.66
10.15 11.12 9.15
Allowance for loan losses to nonperforming loans 28.67 43.59
30.39 30.34 35.28
<CAPTION>
Capital Ratios of Bank (as a percentage):
Years Ended December 31, 1994 1993 1992
1991 1990
<S> <C> <C> <C>
<C> <C>
Total risk-based 7.26 (2.53) 5.73
4.88 7.45
Tier 1 risk-based 5.97 (2.53) 3.52
2.57 4.52
Tier 1 leverage 3.95 (1.82) 2.61
2.06 3.70
<FN>
<F1>
The per share data and the outstanding shares of Common Stock have
been adjusted to reflect the one-for five reverse stock split, which was
effective July 25, 1994
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with
the consolidated financial statements of the Company and subsidiaries for
the year ended December 31, 1994, including notes thereto, and other
financial information included elsewhere in this report.
The Company is a registered bank holding company, headquartered in
Woodbridge, Connecticut. The Company operates the Bank, a Connecticut
chartered bank and trust company. The operations of the Company are not
significant. The principal business of the Bank is to attract deposits
from the general public and to invest these deposits in loans and certain
investment securities. The Bank operates under Connecticut law and is
subject to supervision, examination and regulation by the Banking
Commissioner. Deposits are insured by the FDIC. The FDIC has supervisory
and regulatory authority over the Bank. In addition, the Federal Reserve
Board, acting through the Reserve Bank, has supervisory and regulatory
authority over the Company.
During 1994, the local real estate market and the Connecticut economy
continued to have an adverse impact on the customers of the Company and
the value of collateral supporting many of the Company's loans. As in
1993 and 1992, these economic and business conditions affected the
Company's operating performance in 1994. However, the impact was offset
by a combination of income from lease-related transactions and a reduction
in operating expenses and OREO expenses due to management's focus on
decreasing the level of nonperforming assets. The Company reported a net
loss of $3,889,000 or $1.93 per share for the year ended December 31, 1994
compared to a net loss of $6,422,000 or $4.10 per share in 1993 and a net
loss of $4,844,000 or $7.45 per share in 1992. The Bank attributes its
losses over the prior two years principally to (i) an increasing level of
nonperforming assets, (ii) its provision for loan losses, and (iii)
expenses incurred in connection with other real estate owned.
The Bank's Initial and Revised Capital Plans
A detailed discussion of the Bank's Initial and Revised Capital Plans
appears in Item 1. The Revised Capital Plan provides for the Bank's
attainment of the 6 percent Tier 1 Leverage Ratio contained in the 1991
Order by December 31, 1996. The ability of the Company and the Bank to
complete the second required equity offering or to otherwise maintain and
increase regulatory capital as projected in the Revised Capital Plan is
dependent upon, among other factors, the market conditions for the
Company's equity securities, the Bank's ongoing profitability, the future
levels of nonperforming assets and the local and the regional economy in
which the Bank and its customers operate.
Regulatory and Current Operating Matters
The 1991 Order required that by July 19, 1992, the Bank have a Tier 1
Leverage Ratio at or in excess of five percent and by July 19, 1993, have
a Leverage Ratio of at least six percent. The 1991 Order also requires
the Bank to maintain its Leverage Ratio at or above such level while the
1991 Order is in effect. The 1991 Order prohibits the Bank from payment
of, or declaration of, any dividends without the prior written consent of
the FDIC and the Banking Commissioner. This provision effectively
prohibits the Company from paying any cash dividends on its outstanding
common or preferred stock at this time. This provision also effectively
prevents the Company from paying interest on its subordinated capital
notes at this time. The 1991 Order, moreover, restricts the Bank's
lending to specified borrowers, directed the Bank to correct certain
technical exceptions and mandated the reduction of certain concentrations
of credit. The 1991 Order required management to develop specific
programs and prepare and submit for approval written plans, reports and
assessments relating to various areas of the Bank's operation.
Substantially, all such plans, programs and assessments have been
submitted to the FDIC. The 1993 Order similarly required the Bank to
implement or modify certain policies and practices and to correct alleged
violations of law.
The Bank believes it is in compliance with every provision of the 1991
Order and the 1993 Order except that, as a result of the recorded 1994
loss of $2,743,000 which included a provision for loan losses of
$1,773,000, OREO expenses of $990,000, and an $818,000 loss on the sale of
the U.S. Military Portfolio, the Bank's capital ratios were not in
compliance with the minimum requirements under the FDIC regulations and
the 1991 Order.
The possible consequences of non-compliance with the 1991 Order or the
1993 Order include modification of the 1991 Order or the 1993 Order,
respectively, the imposition of civil money penalties against the Bank or
institution-affiliated parties, further cease and desist proceedings and,
in the most severe case, revocation of deposit insurance or appointment of
a conservator or receiver. No such actions are pending or anticipated at
this time.
The enactment in recent years of such major banking legislation as the
Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") and the FDIC Improvement Act have added significantly to the
regulatory and enforcement powers of the FDIC. FIRREA significantly
expanded the authority of the FDIC to initiate enforcement proceedings
against banks and thrifts that do not maintain minimum required capital
ratios or that have engaged, are engaging, or are about to engage in an
unsafe or unsound practice. For a discussion of the FDIC Improvement Act
see Item 1, "Regulation and Supervision - The FDIC Improvement Act," and
"Capital Resources" in this Item 7. Under these rules, the Bank as of
December 31, 1994, is in the "undercapitalized" category, and therefore
is subject to certain mandatory provisions of the FDIC Improvement Act.
Capital Resources
The Bank is subject to the capital adequacy rules of the FDIC. Because
the consolidated assets of the Company are less than $150 million, the
Company is not subject to the capital adequacy rules of the Federal
Reserve Board. Effective December 19, 1992, each federal banking agency
issued final rules to carry out the Prompt Corrective Action provisions
(the "PCA regulations") of the FDIC Improvement Act. The PCA regulations
adopted by the FDIC for nonmember banks such as the Bank, define capital
measures and the capital thresholds for each of the five capital
categories established in the statute and establish a uniform schedule for
the filing of capital restoration plans by undercapitalized institutions
and other matters. The following table identifies the capital and
thresholds as defined under the FDIC and PCA regulations.
Total Risk-Based
Capital Categories Capital (RBC) Tier 1 (RBC) Leverage
Ratio Ratio Ratio
Well Capitalized (A) not <10% not < 6% not < 5%
Adequately Capitalized (A) not < 8% not < 4% not < 4%
Undercapitalized (B) < 8% < 4% < 4%
Significantly Undercapitalized < 6% < 3% < 3%
Critically Undercapitalized (C)
(A) applies if all three criteria are met
(B) applies if any of the three criteria are met
(C) institution's tangible equity to total assets ratio is < or = 2%
At December 31, 1994, the Bank's total risk-based capital ratio was less
than 8 percent and the leverage ratio was 3.95% for the last quarter of
1994 (4.08% as of December 31, 1994); accordingly, the Bank was deemed to
be undercapitalized. The minimum regulatory capital requirements
applicable to the Bank and the Bank's regulatory capital at December 31,
1994, are set forth in Item 8, Note 17 to the Company's Consolidated
Financial Statements. See Item 1, "Business -- Regulation and Supervision
- -- FDIC Regulation" and Item 14, Note 17 to the Company's Consolidated
Financial Statements.
Management and the Board of Directors of the Company and Bank are
currently considering various actions to augment the capital beyond the
Revised Capital Plan. These other plans include increased fee income,
cost control, continued improvement of asset quality, asset sales and
pursuing additional capital. If, however, the Bank does not comply with
the approved Revised Capital Plan or otherwise achieve the minimum
regulatory capital levels or comply with the 1991 Order, further
regulatory action could result, as described in Item 1, "Regulation and
Supervision, FDIC Regulation and The FDIC Improvement Act," and in Item
14, Note 17 to the Company's Consolidated Financial Statements.
LOANS
<TABLE>
Loans consisted of the following:
<CAPTION>
December 31, 1994 1993
1992
($ in thousands) % of % of
% of
Amount Total Amount Total Amount Total
<S> <C> <C> <C> <C>
<C> <C>
Commercial collateralized 34,044 55 43,119 49
53,562 50
by real estate
Commercial Other 12,757 21 15,832 18
20,082 18
Real estate mortgage - residential 12,663 21 11,272 13
1,813 2
Consumer 2,331 3 18,282 20
33,406 30
Total loans - gross 61,795 100 88,505 100
108,863 100
Average annual outstanding loans -
net of allowance 74,283 102,319
117,801
</TABLE>
The table above illustrates the Company's emphasis on commercial, consumer
and residential mortgage lending. At year end 1994, commercial loans
comprised 76% and consumer loans comprised 3% of the total loan portfolio
compared with commercial loans of 67% and 68% and consumer loans of 20%
and 30%, respectively, during the prior two years. The commercial loan
portfolio is made up principally of commercial loans collateralized by
real estate amounting to $34,044,000 in 1994, $43,119,000 in 1993, and
$53,562,000 in 1992. In prior years, the consumer loan portfolio
primarily consisted of loans to military personnel within the U.S. and
abroad. These installment loans were generally collateralized by
automobiles. In October 1994, the Company sold substantially all of the
Military Loan Portfolio. The elimination of this line of business improved
the Bank's liquidity in the short-term, and in the long-term will reduce
loan charge-offs and operating costs. The table also reflects the
significant increase in residential mortgage loan originations from 1992
to 1994, which was due to the Bank's continued emphasis on this type of
lending. Residential mortgage loans have increased as a percentage of the
total loan portfolio from 2% in 1992 to 21% in 1994.
Average annual net loans outstanding, have consistently decreased over
the past three years, from $117,801 in 1992 to $74,283 in 1994. The loan
to deposits ratio for 1994 of 70.13% increased slightly compared to 69.55%
and 75.59% in 1993 and 1992, respectively.
As part of its interest rate risk management program, the Company centers
its lending activities on adjustable-rate loans. The interest rates
charged on a majority of these loans generally adjust on a monthly basis
based upon the Bank's base rate set by the management of the Bank. The
base rate has historically exceeded the prime rate and was 10% at December
31, 1994. It is anticipated that this base rate will move in relation to
decreases and increases in prime. By focusing on adjustable-rate lending,
the Company can partially mitigate the adverse impact of increases in its
cost of funds.
<TABLE>
As the following table shows, $32,299,000 or 60% of the total $53,911,000
performing loan portfolio is comprised of floating or adjustable
interest rate loans.
<CAPTION>
At December 31, 1994 Time Remaining to
Maturity
($ in thousands) of Total Performing
Portfolio
Under One to Over
One Year Five Years Five Years Total
<S> <C> <C> <C>
<C>
Commercial and commercial mortgage 10,428 7,152 7,857
25,437
All other loans with adjustable 388 317 6,157
6,862
rates
Total loans with adjustable rates 10,816 7,469 14,014
32,299
Commercial and commercial mortgage 2,731 7,061 3,723
13,515
All other loans with fixed rates 1,293 1,455 5,349
8,097
Total loans with fixed rates 4,024 8,516 9,072
21,612
Total performing portfolio 14,840 15,985 23,086
53,911
</TABLE>
NONPERFORMING ASSETS
<TABLE>
The Bank's nonperforming assets are as follows:
<CAPTION>
($ in thousands)
December 31, 1994 1993 1992
<S> <C> <C> <C>
Non-accrual loans 7,885 10,218
10,117
Accruing loans past due 90 days or more 1,305 1,283
714
Total Non-accrual and past due loans 9,190 11,501
10,831
Foreclosed properties 3,088 4,630
7,238
In-substance foreclosure 1,225 3,747
2,887
OREO allowance 0 0
(500)
Total OREO (net) 4,313 8,377
9,625
Total non-performing assets 13,503 19,878
20,456
<CAPTION>
Ratios
<S> <C> <C> <C>
Non-performing assets to total loans (net) 21.30 21.47
17.58
and OREO (net)
Allowance for loan losses to total loans
past due 90 days or more 28.69 43.59
30.39
<CAPTION>
As a percentage of total loans:
<S> <C> <C> <C>
Non-accrual and past due loans 14.89 12.89
9.84
Allowance for loan losses 4.27 5.62
2.99
</TABLE>
The Bank has reduced the amount of nonperforming assets from $19,878,000
at December 31, 1993, to $13,503,000 at December 31, 1994, representing a
32% reduction. While $4,064,000 of the reduction is due to the Bank's sale
of OREO, total non-accrual and past due loans also declined by $2,311,000
or 20% as of December 31, 1994 from the level at December 31, 1993.
Approximately 86% of total loans delinquent 90 days or more were on a
non-accrual status at December 31, 1994. Generally, the Company
discontinues the accrual of interest income on commercial and residential
real estate loans whenever reasonable doubt exists as to the ultimate
collectability of the loan, or when the loan is past due 90 days or more.
If interest income on non-accrual loans had been recorded on an accrual
basis, these loans would have generated an additional $764,000, $794,000
and $939,000 for the years ended December 31, 1994, 1993 and 1992,
respectively.
When the accrual of interest income is discontinued, all previously
accrued interest income is generally reversed against the current period's
interest income. A non-accrual loan is restored to an accrual status when
it is no longer delinquent and collectability of interest and principal is
no longer in doubt.
Restructured loans, that is, loans whose original contractual terms that
have been restructured to provide for a reduction or deferral of interest
or principal payments due to a weakening in the financial condition of the
borrower, amounted to $3,954,000, $3,308,000 and $4,342,000 at December
31, 1994, 1993, and 1992, respectively. Had the original terms been in
force, interest income would have increased by approximately $150,000,
$109,000 and $401,000 in 1994, 1993 and 1992, respectively. The Company
has no commitments to lend additional funds to these borrowers.
<TABLE>
OREO consisted of the following:
<CAPTION>
($ in thousands) December 31, 1994 Balance % of Total
<S> <C> <C>
1-4 Family Residential properties 1,233 29
Multifamily residential properties 331 7
Commercial real estate 1,846 43
Construction and Land Development 903 21
Total OREO 4,313 100
</TABLE>
In 1994, the Bank increased its focus on restructuring delinquent loans
and disposing of OREO and other nonperforming assets. As of the end of
1994, the Bank has reduced OREO by approximately $4,064,000 or 49% from
December 31, 1993.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through charges against
income and maintained at a level that management considers adequate to
absorb potential losses in the loan portfolio. Management's estimate of
the adequacy of the allowance for loan losses is based on evaluations of
individual loans, estimates of current collateral values and the results
of the most recent regulatory examination. Management also evaluates the
general risk characteristics inherent in the loan portfolio, prevailing
and anticipated conditions in the real estate market and the general
economy, and historical loan loss experience. Loans are charged against
the allowance for loan losses when management believes that collection is
unlikely. Any subsequent recoveries are credited back to the allowance
for loan losses when received.
<TABLE>
The changes in the allowance for loan losses were as follows:
<CAPTION>
($ in thousands) December 31, 1994 1993 1992
<S> <C> <C> <C>
Beginning Balance 5,012 3,219 4,319
Transfer of OREO/ISF allowance 0 500 0
<CAPTION>
Charge-offs:
<S> <C> <C> <C>
Military installment loans (1,919) (1,392) (2,421)
Commercial loans (2,921) (4,084) (3,136)
Total Charge-offs (4,840) (5,476) (5,557)
Recoveries 692 399 996
Net loan charge-offs (4,148) (5,077) (4,561)
Provision for loan losses 1,773 6,298 3,533
Ending balance 2,637 5,012 3,291
<CAPTION>
Ratios:
<S> <C> <C> <C>
Net loan charge-offs to average 5.58 4.96 3.87
loans outstanding (net)
</TABLE>
<TABLE>
The allowance for loan losses was allocated as follows:
<CAPTION>
($ in thousands) December 31, 1994 1993 1992
<S> <C> <C> <C>
Military installment loans 35 1,102 825
Commercial loans and other 2,602 3,910 2,466
Total 2,637 5,012 3,291
</TABLE>
While the Company believes its year end allowance for loan losses is
adequate in light of present economic conditions and the current
regulatory environment, there can be no assurance that the Company's
banking subsidiary will not be required to make future adjustments to its
allowance and charge-off policies in response to changing economic
conditions or future regulatory examinations.
SECURITIES
The book value of the securities portfolio totaled $14,408,000 at December
31, 1994, up from $13,030,000 at December 31, 1993. The increase in the
securities portfolio is largely attributed to the investment of proceeds
from the Military Loan Portfolio sale in U. S. Treasury securities. At
December 31, 1994, $6,909,000 of securities were classified as held to
Maturity.
<TABLE>
Securities consisted of the following:
<CAPTION>
($ in thousands) December 31, 1994 1993 1992
Investments Held-to-Maturity
<S> <C> <C> <C>
U.S. Treasury securities 6,909 0 9,989
U.S. Government agency securities 0 0 10,000
Marketable equity securities 0 0 642
Other 0 0 750
Total 6,909 0 21,381
<CAPTION>
Investments Available-for-Sale
<S> <C> <C> <C>
U.S. Treasury securities 6,294 8,006 6,370
U.S. Government agency securities 0 3,960 0
Marketable equity securities 205 564 0
Other 1,000 500 0
Total 7,499 13,030 6,370
<CAPTION>
Total Securities
<S> <C> <C> <C>
Total Securities 14,408 13,030 27,751
<CAPTION>
Ratios:
<S> <C> <C> <C>
Securities to total assets 15.54 10.56 18.36
</TABLE>
<TABLE>
The summary of debt securities at December 31, 1994 by contractual
maturity is presented below. Expected maturities may differ from
contractual maturities because issuers have the right to call or repay
obligations with or without prepayment penalties.
<CAPTION>
($ in thousands) December 31, 1994
Securities Held Securities Held
to Maturity for Sale
Amortized Estimated Amortized
Estimated
Cost Market Value Cost
Market Value
Maturity:
<S> <C> <C> <C>
<C>
Within one (1) year 6,909 6,869
2,811 2,872
After one (1) but within five (5) years 0 0
4,483 4,226
Marketable equity securities 0 0
205 182
Totals 6,909 6,869
7,499 7,280
</TABLE>
As of December 31, 1993, the Company adopted the requirements of Statement
of Financial Accounting Standards No. 115 (SFAS No. 115) "Accounting for
Certain Investments in Debt and Equity Securities." The specific
accounting policies pertaining to SFAS No. 115 are detailed in the Summary
of Accounting Policies to the Company's Consolidated Statements included
in Item 14 of this Form 10-K.
Additional information on securities is also included in Item 14, Note 1
to the Consolidated Financial Statements.
DEPOSITS
Deposits totaled $87,475,000 at December 31, 1994, down $33,607,000, or
27.76% from $121,081,000 at year end 1993. The decrease is due to a
combination of migration of customer deposits to other markets and
management's intention to downsize the Bank.
The Company's deposit acquisition strategies aim at attracting long-term
retail deposit relationships that are generally less sensitive to market
interest rate changes, along with attracting low cost transaction and
demand deposits. In keeping with this strategy, the Company does not
accept highly volatile brokered deposits.
<TABLE>
The table below sets forth the maturity distribution and weighted average
yield of time deposits in amounts of $100,000 or more and of time deposits
under $100,000 at December 31, 1994.
<CAPTION>
December 31, 1994 CD's $100,000 and over CD's
under $100,000
($ in thousands) Balance Yield Balance
Yield
(Yield - as percentage)
Time remaining to maturity:
<S> <C> <C> <C>
<C>
Three months or less 2,040 3.77 14,654
3.92
Over three months to six months 1,311 4.25 14,026
4.20
Over six months to twelve months 1,622 4.80 16,150
4.59
Over twelve months 600 4.90 7,754
5.24
Total 5,573 4.30 52,584
4.39
</TABLE>
A tightening in monetary policy by the Federal Reserve tempered the rate
of decline in the Company's average cost of interest-bearing deposits,
which fell from 3.91% in 1993 to 3.56% in 1994. Also, an increase in
borrowed funds by the Company resulting from the Senior Notes issued in
conjunction with the recapitalization of the Bank produced a large
increase in the cost of interest bearing non-deposit liabilities, for the
period prior to the exchange of senior notes for preferred stock. The
cost rose from 5.06% during 1993 to 11.68% in 1994.
<TABLE>
Average balances and rates paid were as follows:
<CAPTION>
December 31, 1994 1993
1992
($ in thousands) Average Average
Average
(Yield - as percentage) Amount Yield Amount Yield
Amount Yield
Interest-bearing deposits:
<S> <C> <C> <C> <C> <C>
<C>
Time Certificates 65,325 4.07 80,992 4.44
101,490 5.59
Savings, NOW and Money Market 25,007 2.22 33,757 2.63
38,415 3.61
Total interest-bearing deposits 90,332 3.56 114,749 3.91
139,905 5.05
Non-interest-bearing deposits 9,986 0.00 12,811 0.00
12,434 0.00
Total other interest-bearing 2,749 11.68 3,778 5.06
1,400 8.07
liabilities
</TABLE>
ASSET/LIABILITY MANAGEMENT
The Company's asset/liability management program focuses on minimizing
interest rate risk by maintaining what management considers to be an
appropriate balance between the volume of assets and liabilities maturing
or subject to repricing within the same time interval. Interest rate
sensitivity has a major impact on the earnings of the Company. As
interest rates change in the market, rates earned on assets do not
necessarily move identically with rates paid on liabilities. Proper asset
and liability management involves the matching of short-term interest
sensitive assets and liabilities to reduce interest rate risk. Interest
rate sensitivity is measured by comparing the dollar difference between
the amount of assets repricing within a specified time period and the
amount of liabilities repricing within the same time period. This dollar
difference is referred to as the rate sensitivity or maturity "GAP."
Management's goal is to maintain a cumulative one year GAP in a range
between plus or minus 15% of assets. The Company concentrates on
adjustable rate loans in order to reduce interest rate risk.
The table below illustrates the ratio of rate sensitive assets to rate
sensitive liabilities as they mature and or reprice within the periods
indicated. As of December 31, 1994, the Company had equality in the
matching of earning assets and interest bearing liabilities within a 90
day period, resulting in a 0% cumulative GAP position. Approximately 43%
of interest sensitive assets and 42% of interest sensitive liabilities are
available to reprice within ninety days. With the one year period, the
Company had a liability sensitive balance sheet resulting in a negative
cumulative GAP of $17,349 or a 25 % variance of rate sensitive assets to
rate sensitive liabilities. Approximately 61% of interest sensitive
assets and 80% of interest sensitive liabilities are available to reprice
within the one year period. In an increasing rate environment, the short-
term liability sensitive position is expected to result in increasing
deposit costs in relationship to increases in market rates and negatively
impacted earnings. In a decreasing interest rate environment, the
Company's one year cumulative liability sensitive position could
positively impact earnings.
<TABLE>
<CAPTION>
December 31, 1994 Maturity/Repricing Interval
($ in thousands) Less Than 4 to 6 7 to 12 Over 1
Year or
3 Months Months Months Non-Repricable
Total
Earning Assets:
<S> <C> <C> <C> <C>
<C>
Loans 25,847 2,454 4,124
$29,281 61,706
Investment securities 500 1,992 7,189
4,508 14,189
Short-term investments 10,363 0 0
0 10,363
Total earning assets 36,710 4,446 11,313
33,789 86,258
<CAPTION>
Interest-bearing liabilities:
<S> <C> <C> <C> <C>
<C>
Time deposit 16,668 15,336 17,772 8,382
58,158
All other rate-sensitive 20,042 0 0 0
20,042
deposits
Demand 0 0 0 9,248
9,248
Total interest-bearing 36,710 15,336 17,772 17,630
87,448
liabilities
<CAPTION>
Repricing GAPs
<S> <C> <C> <C> <C>
<C>
Periodic repricing GAP 0 (10,890) (6,459) 16,159
(1,190)
Cumulative repricing GAP 0 (10,890) (17,349) (1,190)
0
<CAPTION>
Cumulative GAP variance as a percent of rate sensitive assets to rate
sensitive liabilities
<S> <C> <C> <C> <C>
<C>
Cumulative GAP variance 0 21 25 1
</TABLE>
LIQUIDITY
Liquidity measures the ability of the Company to meet its maturing
obligations and existing commitments, to withstand fluctuations in its
deposit levels, to fund its operations and to provide for customers'
credit needs. The principal sources of liquidity include vault cash,
Federal Funds sold, short-term and maturing investments and loan
repayments.
Management has improved the overall liquidity position of the Company
during 1994 by reducing volatile liabilities, which consist primarily of
time deposits of $100,000 or more, from $5,863,000 at December 31, 1993 to
$5,573,000 at December 31, 1994. Further, management improved the quality
and liquidity of the investment securities by investing in U.S. Treasury
issues. At December 31, 1994, cash and investments maturing within three
months totaled $9,325,000 and approximately $14,840,000 of performing
loans are scheduled to mature in one year or less.
The Company has developed a formal asset/liability management policy in
order to achieve and maintain a reasonable short-term maturity GAP that
will accommodate the Company's liquidity needs.
The Company believes its present liquidity position is adequate to meet
its current and future needs.
DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
In December 1991 the Financial Accounting Standards Board adopted
Statement of Financial Standards No. 107 ("SFAS 107"), requiring
disclosures about the Fair Values of Financial Instruments, beginning
on December 31, 1992. SFAS and the Bank's policy for adopting this
Statement are described in Item 14, Note 15 to the Company's Consolidated
Financial Statements. SFAS 107 provides only limited guidance for
estimating fair value when quoted market prices are not available and for
disclosing methodologies and assumptions. Because of the subjectivity of
the fair value estimation process, there will likely be considerable
variance among institutions in the initial implementation of SFAS 107.
The primary balance sheet categories covered by SFAS 107 are investments,
loans and deposits. The fair value of demand, savings and money market
deposits equals book value, while the fair value of time deposits exceeds
book value. The fair value of most loans approximates book value.
However, non-accrual loans have a fair value below book value, reflecting
their higher potential for loss. Under the 1991 Order, the Bank is
working to reduce all classified assets, including substandard loans.
Except for cash and investment securities the Bank expects to hold its
financial instruments until maturity. The fair value of these instruments
is highly dependent on interest rates, which frequently change due to
market conditions. Therefore, the current fair value of financial
instruments is not normally a component of management's operating
strategies, and its planning processes for earnings, liquidity and capital
resources. Further, the process of analyzing current market conditions
and making the numerous estimates required to establish fair values is
too burdensome and imprecise to be a regular or valuable contribution to
normal management processes. SFAS 107 also excludes foreclosed assets and
other significant balance sheet accounts. This accounting standard does
not address the total value of present and projected business activities.
NET INTEREST INCOME
In 1994, net interest income totaled $4,093,000, down $1,580,000 from
$5,673,000, or 27.85% from 1993. This compares to a $1,095,000 or 16.18%
decrease from $6,768,000 in 1992 to $5,673,000 in 1993. In 1994, the
Company had a slight increase in its net interest margin to 4.58% compared
to 4.48% in 1993. As shown in the following table, the increase in 1994
of the net interest margin resulted from a 14 basis points decrease in the
cost of funds and a 37 basis points increase in the yield on earning
assets. The increase in spread is also attributed to the significant
decrease in nonperforming assets of $6,375,000 or 32% from 1993 to 1994.
This increase was tempered by a decline in average loan volume of
$26,710,000 or 30% from 1993 to 1994. The primary reasons for the
decrease in cost of funds was the decrease in the cost of time
certificates.
<TABLE>
The following table presents condensed average statements of condition,
total loans including non-accrual loans, the components of net interest
income and selected statistical data, with investment securities presented
on a tax equivalent basis:
<CAPTION>
Year ended December 31,
1994 1993 1992
Avg Avg Avg Avg Avg Avg
Bal Int Rate Bal Int Rate Bal Int Rate
($ in thousands)
(Rate as a percentage)
Assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<C>
Loans 74,283 6,886 9.27 105,530 9,425 8.93 121,853 12,534
10.29
Securities 9,975 533 5.35 19,493 874 4.48 24,092 1,307
5.43
Federal funds sold 5,057 206 4.08 1,567 48 3.07 2,779 106
3.81
Total earnings 89,315 7,625 8.54 126,590 10,347 8.17 148,724 13,947
9.38
assets
Cash and due from 3,204 0 0 2,604 0 0 3,242 0
0
banks
Other assets 11,444 0 0 11,278 0 0 11,826 0
0
Total assets 103,963 0 0 140,472 0 0 163,792 0
0
<CAPTION>
Liabilities and stockholders' equity:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<C>
Time certificates 65,325 2,657 4.07 80,992 3,594 4.44 101,490 5,678
5.59
Savings deposits 25,007 554 2.22 33,757 889 2.63 38,415 1,388
3.61
Total interest- 90,332 3,211 3.56 114,749 4,483 3.91 139,905 7,066
5.05
bearing deposits
Other interest- 2,749 321 11.68 3,778 191 5.06 1,400 113
8.07
bearing
liabilities
Total interest- 93,081 3,532 3.80 118,527 4,674 3.94 141,305 7,179
5.08
bearing
liabilities
Demand Deposits 9,986 0 0 12,811 0 0 12,434 0
0
Other Liabilities 2,417 0 0 3,305 0 0 5,169 0
0
Stockholders' (1,521) 0 0 5,829 0 0 4,884 0
0
equity
Total liabilities 103,963 0 0 140,472 0 0 163,792 0
0
and stockholders'
equity
<CAPTION>
Net interest
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<C>
Net interest income/ 0 4,093 4.74 0 5,673 4.23 0 6,768
4.30
rate spread
Net interest margin 0 0 4.58 0 0 4.48 0 0
4.55
</TABLE>
<TABLE>
The following table presents the changes in interest income and expense
for each major category of interest-bearing assets and interest-bearing
liabilities, and the amount of the change attributable to changes in
average balances (volume) and rates. Changes attributable to both volume
and rate changes have been allocated in proportion to the relationship of
the absolute dollar of the changes in volume and rate. Investment
securities are presented on a tax equivalent basis.
<CAPTION>
Changes from 1993 to 1994 Changes from 1992 to 1993
Changes from 1991 to 1992
Attributable to: Attributable to:
Attributable to:
($ in thousands) Volume Rate Total Volume Rate
Total Volume Rate Total
<S> <C> <C> <C> <C> <C>
<C> <C> <C> <C>
Loans (2,914) 375 (2,539) (1,565) (1,544)
(3,109) (1,954) (1,258) (3,212)
Securities (567) 226 (341) (226) (207)
(433) 18 (537) (519)
Federal funds sold 137 21 158 (40) (18)
(58) 47 (25) 22
Total interest income (3,344) 622 (2,722) (1,831) (1,769)
(3,600) (1,889) (1,820) (3,709)
Time certificates (654) (283) (937) (1,033) (1,051)
(2,084) (1,066) (2,232) (3,298)
Savings deposits (209) (126) (335) (154) (345)
(499) 303 (528) (225)
Total interest expense (863) (409) (1,272) (1,187) (1,396)
(2,583) (763) (2,760) (3,523)
on deposits
Other interest-bearing (34) 164 130 83 (5)
78 (621) (250) (871)
liabilities
Total interest expense (897) (245) (1,142) (1,104) (1,401)
(2,505) (1,384) (3,010) (4,394)
Net interest income (2,447) 867 (1,580) (727) (368)
(1,095) (505) 1,190 685
</TABLE>
<TABLE>
The following are the consolidated ratios of earnings to fixed charges for
each of the years in the five-year period ended December 31, 1994.
<CAPTION>
Year ended December 31, 1994 1993 1992 1991
1990
Ratio of earnings to fixed charges:<F1>
<S> <C> <C> <C> <C>
<C>
Excluding interest on deposits 0 0 20.66 5.84
8.59
Including interest on deposits 0 0 0.33 0.50
0.72
<CAPTION>
Ratio of earnings to combined fixed charges
and preferred stock dividends:<F2>
<S> <C> <C> <C> <C>
<C>
Excluding interest on deposits 0 0 12.76 5.38
7.94
Including interest on deposits 0 0 0.32 0.49
0.71
<FN>
<F1>
The Company had insufficient earnings to cover fixed charges (including
interest on deposits) for each of the years ended December 31, 1994, 1993,
1992, 1991 and 1990. The Company also had insufficient earnings to cover
fixed charges (excluding interest on deposits) for the years ended
December 31, 1994 and 1993. The short-fall of earnings to fixed charges
(including interest on deposits) was $3,568,000, $6,231,000, $4,731,000,
$4,849,000 and $2,867,000 for the years ended December 31, 1994, 1993,
1992, 1991 and 1990, respectively. In addition, the short-fall of
earnings to fixed charges (excluding interest on deposits) was $357,000
and $1,748,000 for the years ended December 31, 1994 and 1993,
respectively.
<F2>
The Company had insufficient earnings to cover combined fixed charges and
preferred stock dividends (including interest on deposits) for each of
the years ended December 31, 1994, 1993,1992, 1991 and 1990. The
Company also had insufficient earnings to cover fixed charges and
preferred stock dividends (excluding interest on deposits) for the years
ended December 31, 1994 and 1993. The deficiency of earnings to fixed
charges and preferred stock dividends (including interest on deposits)
was $3,568,000, $6,231,000, $4,731,000, $4,849,000 and $2,867,000,
respectively, for the years ended December 31, 1994, 1993, 1992, 1991 and
1990. The amount of deficiency of earnings to fixed charges and
preferred stock dividends (excluding interest on deposits) was $826,000
and $1,818,000 for the years ended December 31, 1994 and 1993,
respectively.
</FN>
</TABLE>
<TABLE>
COMPOSITION OF NON-INTEREST INCOME
<CAPTION>
Year Ended December 31, 1994 1993
1992
($ in thousands) Amount % Change Amount %
Change Amount % Change
<S> <C> <C> <C> <C>
<C> <C>
Service fees on deposits 525 (36.4) 826
8.7 760 7.2
Processing and transfer fees 58 (40.2) 97
(45.8) 179 (40.3)
Net gain (loss) on sale of securities (811) (1,755.1) 49
(86.4) 421 (7.9)
Net gain (loss) on sale of assets (403) (112.5) 3,226
100.0 0 --
Credit life insurance 138 (61.0) 354
(21.5) 451 (1.5)
Insurance commissions 0 0 0
(100.0) 66 (61.6)
Income from leasing operations 567 100.0 0
0 0 --
Other 168 170.8 575
11.6 319 (18.6)
Total other non-interest income 242 (95.3) 5,127
133.5 2,196 (11.7)
</TABLE>
The decrease in non-interest income of $4,885,000 from 1993 to 1994 was
largely attributable to a non-operating gain on the sale of the rights to
recoveries of charged-off loans of $2,700,000 in the first quarter of 1993
as opposed to a non operating loss of $1,670,000 resulting from a second
quarter loss in 1994 of $852,000 incurred on the sale of securities
comprising the $5 million equity contribution and a third quarter loss of
$818,000 from the sale of the Military Loan Portfolio. These losses were
offset by a first quarter gain of approximately $227,000 on the sale of
the Bank's leasehold interest in a parcel of land adjacent to the Bank's
main office and income from leasing related transactions of $567,000.
In July 1994 in connection with the Bank's establishment of its financial
lease program, the Company issued an option to an unaffiliated company
with extensive experience and expertise in leasing, to acquire shares of
Company Common Stock. By mutual agreement the option was canceled in
January 1995.
<TABLE>
COMPOSITION OF NON-INTEREST EXPENSE
<CAPTION>
Year Ended December 31, 1994 1993
1992
($ in thousands) Amount % Change Amount %
Change Amount % Change
<S> <C> <C> <C> <C>
<C> <C>
Salaries and Employee Benefits 2,394 (17.3) 2,895 7.7
2,688 (6.6)
Occupancy 469 (28.4) 655 12.2
584 (12.4)
Supplies and communications 216 (34.3) 329 7.9
305 1.7
Professional services 1,201 (36.4) 1,888 9.4
1,725 96.5
Depreciation furniture and equipment 239 5.3 227
(14.0) 264 (32.0)
Credit life insurance 18 (58.1) 43 4.9
41 (37.9)
FDIC insurance 344 (18.9) 424 16.8
363 3.4
Other insurance 109 (7.6) 118
(65.1) 338 10.8
Other real estate owned 990 (72.2) 3,558 6.8
3,331 149.7
Other 471 (40.2) 787 24.2
636 (5.9)
Total other non-interest expense 6,451 (40.9) 10,924 6.3
10,275 31.0
</TABLE>
Operating expenses decreased by $4,473,000 or 41% in 1994. Salaries and
employee benefits decreased $501,000 or 17% due to staff reductions.
Professional services decreased $687,000 or 36% from 1993 to 1994
primarily due to decreased legal and accounting expenses associated with
loan workouts and related matters. Expense associated with the
foreclosure and carrying of OREO decreased significantly from $3,558,000
in 1993 to $990,000 in 1994 due primarily to the Bank's successful efforts
in disposing of the OREO portfolio.
Operating expenses increased by $651,000 or 41% in 1993. Salaries and
employee benefit expenses increased $207,000 or 7.7% due to a increase in
salaries. Professional services increased $163,000 or 9.4% from 1992 to
1993 primarily due to increased legal and accounting expenses associated
with loan workouts and related matters. Expense associated with the
foreclosure and carrying of OREO increased from $3,331,000 in 1992 to
$3,557,000 in 1993 due primarily to the increased cost to carry OREO,
legal expense and the decrease in property values.
IMPACT OF INFLATION
The Company's financial statements and related data are prepared in
accordance with generally accepted accounting principles which require
the measurement of financial position and operating results in terms of
historic dollars, without considering changes in the relative purchasing
power of money over time due to inflation.
Unlike most businesses, virtually all of the assets and liabilities of
financial institutions are monetary in nature. As a result, interest
rates have a more direct impact on a bank's performance than general
levels of inflation. Interest rates do not necessarily move in the same
direction of, or change to the same degree as, the prices of goods and
services. In the current interest rate environment, liquidity and the
maturity structure of the Bank's assets and liabilities are critical to
the maintenance of acceptable performance levels. Notwithstanding the
above, inflation can directly affect the value of loan collateral, in
particular real estate. Sharp decreases in real estate prices, as
discussed previously have resulted in significant loan losses and losses
on other real estate owned. Deflation, or disinflation, could continue
to significantly affect the Bank's earnings in future periods.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 112, "Employers' Accounting for Post Employment
Benefits" effective for year ends beginning after December 15, 1993.
The Company generally does not provide benefits to former or inactive
employees after employment but before retirement. Accordingly, this
Statement will not have a material effect on the Consolidated Financial
Statements.
In May 1993 and October 1994, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards Nos. 114 and 118
(SFAS Nos. 114 and 118) "Accounting by Creditors for Impairment of a
Loan." These statements require that impaired loans be measured based on
the present value of expected future cash flows discounted at the loan's
effective interest rate or at the loan's observable market price or at the
fair value of collateral, if the loan is collateral dependent. SFAS Nos.
114 and 118 are effective for fiscal years beginning after December 15,
1994. Management believes adoption of these statements will not have a
material effect on the financial position or results of operations of the
Bank.
In October 1994, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard 119 ( SFAS No. 119) "Disclosure About
Derivative Financial Instruments and Fair Value of Financial Instruments"
effective for year ends beginning after December 15, 1994, except for
entities with less than $150 million in total assets in the current
statement of financial position. For these entities, the statement shall
be effective for financial statements issued for fiscal years ending after
December 15, 1995. The Company does not hold or issue any derivative
financial instruments and, accordingly, the statement will not have a
material effect on the consolidated financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CBC Bancorp, Inc. and Subsidiaries
Consolidated Financial Statements
Years Ended December 31, 1994, 1993 and 1992
Contents
Independent auditors' report
Consolidated financial statements:
Statements of financial condition
Statements of operations
Statements of changes in stockholders' equity (deficit)
Statements of cash flows
Summary of accounting policies
Notes to consolidated financial statements
Independent Auditors' Report
To the Board of Directors
CBC Bancorp, Inc. and Subsidiaries
We have audited the accompanying consolidated statements
of financial condition of CBC Bancorp, Inc. and subsidiaries
(the "Company") as of December 31, 1994 and 1993, and the
related consolidated statements of operations, changes in
stockholders' equity (deficit), and cash flows for the years
then ended. These financial statements are the responsibility
of management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made
by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of CBC Bancorp, Inc. and
subsidiaries at December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows
for the years then ended in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have
been prepared assuming that CBC Bancorp, Inc. and
subsidiaries will continue as a going concern. As discussed
in Note 17, the Bank subsidiary, which is the Company's
primary asset (see Note 16), did meet the minimum tier 1 risk-
based capital requirements as of December 31, 1994; however,
it did not meet the minimum leverage and total risk-based
capital requirements. The Bank also has suffered recurring
losses from operations. These matters raise substantial doubt
about the ability of the Bank to continue as a going concern.
The ability of the Bank to continue as a going concern is
dependent on many factors including regulatory action and
ultimate achievement of its capital plan. Management's plans in
regard to these matters are described in Note 17. The
consolidated financial statements do not include any
adjustments that might result from the outcome of this
uncertainty. The Bank has filed a capital plan with the FDIC
outlining its plans for attaining the required levels of
regulatory capital. The FDIC approved the Bank's capital plan
on December 28, 1994.
BDO Seidman
January 27, 1995
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
($ IN THOUSANDS, EXCEPT SHARE DATA)
December 31, 1994 1993
Assets
Cash and due from banks $3,130 $4,305
Federal funds sold 5,700 10,650
Investment securities 14,189 13,200
Loans receivable, net 59,070 84,215
Accrued interest receivable 858 1,075
Property and equipment 973 1,082
Other assets held for lease 3,894 -
Other real estate owned 4,313 8,377
Other assets 595 455
----------------------
$92,722 $123,359
Liabilities and Stockholders' Equity (Deficit)
Liabilities:
Deposits $87,474 $121,081
Accrued interest payable 941 1,972
Accounts payable and accrued expenses 1,392 1,623
Notes payable 368 -
Total liabilities 90,175 124,676
Convertible debt 1,090 1,310
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock 9,830 1,000
Common stock - $.01 par value, shares
authorized 20,000,000; issued and
outstanding 2,012,514 and 10,061,068 20 100
Additional paid-in capital 11,032 11,421
Unrealized gain (loss) on (218) 170
investment securities
Accumulated deficit (19,207) (15,318)
Total stockholders' equity (deficit) 1,457 (2,627)
-----------------------
$92,722 $123,359
Year ended December 31, 1994 1993 1992
Interest income:
Loans $6,886 $9,425 $12,534
Investment securities 533 874 1,307
Federal funds sold 206 48 106
Total interest income 7,625 10,347 13,947
Interest expense:
Deposits 3,211 4,483 7,066
Other 321 191 113
Total interest expense 3,532 4,674 7,179
Net interest income 4,093 5,673 6,768
Provision for loan losses 1,773 6,298 3,533
Net interest income (loss) after 2,320 (625) 3,235
provision for losses
Other income:
Fees for customer services 583 923 760
Gain (loss) on sales (811) 49 421
of investment securities
Net gain (loss) on sale of assets (404) 3,226 -
Credit life insurance 138 354 451
Other income 736 575 564
Total other income 242 5,127 2,196
Operating expenses:
Salaries and employee benefits 2,394 2,895 2,688
Professional fees 1,201 1,888 1,725
Other real estate owned 990 3,558 3,331
Supplies and communications 216 329 305
Net occupancy 469 655 584
Equipment rentals, depreciation 239 227 264
and maintenance
Deposit insurance premiums 344 424 338
Other insurance 109 118 363
Other expenses 489 830 677
Total operating expenses 6,451 10,924 10,275
Net loss $(3,889) $(6,422) $(4,844)
Net loss per common share $(1.93) $(4.10) $(7.45)
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
($ in thousands)
<CAPTION>
Years ended December 31, 1994, 1993 and 1992
Common stock
-------------------------------- Additional
Unrealized (Accumulated
Preferred Number of Amount paid-in gain
(loss) deficit) Total
stock shares capital on
securities
<S> <C> <C> <C> <C>
<C> <C> <C>
Balance, December 31, 1991 1,000 994 2,484 4,333
(62) (4,052) 3,703
Preferred dividends accrued 0 0 0 (70)
0 0 (70)
($7.00 per share)
Change in unrealized loss on 0 0 0 0
55 0 55
marketable equity securities
Change in par value 0 0 (2,474) 2,474
0 0 0
- common stock
Issuance of common stock, net 0 5,730 57 4,787
0 0 4,844
of $156 of issuance costs
Net loss 0 0 0 0
0 (4,844) (4,844)
Balance, December 31, 1992 1,000 6,724 67 11,524
(7) (8,896) 3,688
Preferred dividends accrued 0 0 0 (70)
0 0 (70)
(7.00 per share)
Change in unrealized gain 0 0 0 0
177 0 177
(loss) on investment
securities available
for sale
Issuance of common stock 0 3,337 33 (33)
0 0 0
Net loss 0 0 0 0
0 (6,422) (6,422)
Balance, December 31, 1993 1,000 10,061 100 11,421
170 (15,318) (2,627)
Reverse stock split 0 (8,048) (80) 80
0 0 0
Preferred dividends accrued 0 0 0 (469)
0 0 (469)
Issuance of preferred stock 8,830 0 0 0
0 0 8,830
Change in unrealized gain 0 0 0 0
(388) 0 (388)
(loss) on investment
securities held for sale
Net loss 0 0 0 0
0 (3,889) (3,889)
Balance, December 31, 1994 9,830 2,013 20 11,032
(218) (19,207) 1,457
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
Year ended December 31, 1994 1993 1992
Cash flows from operating activities:
Net loss (3,889) (6,422) (4,844)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Provision for loan losses 1,773 6,298 3,533
Provision for depreciation and amortization 227 233 272
Decrease (increase) in deferred loan fees 236 153 (64)
and costs - net
Amortization of loan purchase premiums 435 674 982
Amortization (accretion) of investment 152 461 351
security premiums (discounts), net
(Gain) loss on sale of investment securities 811 (49) (421)
Loss (gain) on disposal of property and (218) 3 (14)
equipment
Loss on sale and provision for write-downs
of other real estate owned 829 3,121 3,037
(Gain) loss on sale of loans 818 (3,294) -
Changes in operating assets and liabilities:
Prepaid and other assets 216 1,169 1,551
Deferred charges (138) - -
Income tax refund receivable - - 1,016
Accrued interest payable (892) (1,140) (103)
Account payable and accrued expenses (158) (930) (297)
Net cash provided by operating activities 202 277 4,999
Cash flows from investing activities:
Net (increase) decrease in Federal funds 4,950 (10,375) (275)
sold
Proceeds from sales and maturities of 15,511 11,826 34,780
investment securities (includes
maturities of $4,208, $5,348 and
$8,003 in 1994, 1993 and 1992,
respectively)
Purchases of investment securities (13,383) (483) (37,708)
Principal payments on mortgage-backed
securities 491 2,969 525
Proceeds from sale of loans 8,801 7,650 422
Net decrease in loans 12,498 7,338 11,125
Proceeds from sale of other real estate 3,749 1,825 875
owned
Purchases of property and equipment (130) (320) (121)
Proceeds from sale of property and 240 10 -
equipment
Purchase of assets held for lease (3,894) - -
Net cash provided by investing activities 28,833 20,440 9,623
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
Year ended December 31, 1994 1993 1992
Cash flows from financing activities:
Net increase (decrease) in deposit (17,141) (4,670) 1,056
accounts
Net decrease on time deposits (16,465) (15,442) (19,792)
Net increase (decrease) in treasury (442) 442 (500)
demand note account
Proceeds from issuance of common stock - - 4,844
- net
Repayment of line of credit borrowings - - (812)
Proceeds from issuance of capital notes - 220 -
Proceeds from issuance of preferred stock 200 - -
Proceeds from issuance of senior debt 3,638 - -
Net cash used by financing activities (30,210) (19,450) (15,204)
Increase (decrease) in cash and due (1,175) 1,267 (582)
from banks
Cash and due from banks, beginning of year 4,305 3,038 3,620
Cash and due from banks, end of year 3,130 4,305 3,038
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest on deposits and borrowed money 4,103 5,813 7,282
Income taxes 2 12 (891)
Noncash investing activities:
Issuance of preferred stock in exchange 5,000 - -
for marketable securities
Transfers of loans to other real estate 515 3,698 3,854
owned
Dividends declared and unpaid 469 70 70
Unrealized gain (loss) on valuation of (389) 170 55
investments - available for sale
Noncash financing activity:
Issuance of preferred stock in exchange 3,630 - -
for debt
Issuance of Senior Notes for accrued 140 - -
interest payable
Principles of Consolidation
The consolidated financial statements include the accounts of CBC Bancorp,
Inc. (the "Company") and its subsidiaries, Connecticut Bank of Commerce
(the "Bank"), and Amity Loans, Inc., an immaterial subsidiary. The Bank
operates as a Connecticut state chartered bank and trust company. These
financial statements are prepared in conformity with generally accepted
accounting principles and with general practices within the banking
industry. All material intercompany accounts and transactions have been
eliminated in consolidation.
Operations
The Bank, which has five branches in Connecticut, grants business,
consumer and real estate secured loans and accepts deposits primarily in
New Haven and Fairfield Counties and surrounding communities. Virtually
all of the Company's business activity is with customers located within
the State of Connecticut, with approximately 75% of the Company's loans
collateralized by real estate in the Connecticut market. Although
lending activities are diversified, a substantial portion of the
Company's customers' net worth is dependent on local real estate values;
such values generally declined significantly during the past three years.
Investment Securities
Investments are recorded in accordance with Statement of Financial
Accounting Standards No. 115 ("SFAS No. 115") "Accounting for Certain
Investments in Debt and Equity Securities". This statement requires
entities to classify debt and equity securities into one of the following
categories: held to maturity, available for sale, or trading. Investments
held-to-maturity are stated at cost adjusted for amortization of premiums,
and accretion of discount on purchase using the level yield method.
Investments classified as trading or available-for-sale are stated at
fair value. Changes in fair value of trading investments are included in
current earnings while changes in fair value of available-for-sale
investments are excluded from current earnings and reported, net of taxes
as a separate component of stockholders' equity.
Loans and Allowance for Loan Losses
Loans are stated at their unpaid principal balances adjusted for deferred
loan fees, deferred loan costs, unearned income and allowance for loan
losses. Interest is recognized using the simple interest method or a
method which approximates the simple interest method.
Nonrefundable loan origination and commitment fees in excess of certain
direct costs associated with the originating or acquiring loans are
deferred and amortized over the contractual life of the loan using the
interest method.
The allowance for loan losses is established through a provision for
loan losses charged to expense. The allowance is maintained at an amount
that management currently believes will be adequate to absorb potential
losses in the loan portfolio. Management's estimate of the adequacy of the
allowance for loan losses is based on evaluations of the collectibility
of loans and prior loan loss experience. The evaluations take into
consideration such factors as changes in the nature and volume of the
loan portfolio, overall portfolio quality, review of specific loans,
appraisals for significant properties and current economic conditions
that may affect borrowers' ability to repay. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the allowance for loan losses. Such agencies may
recommend that management recognize additions to the allowance based on
their judgements of information available to them at the time of their
examinations. Loans are charged against the allowance for loan losses
when management believes that collection is unlikely. Any subsequent
recoveries are credited to the allowance for loan losses when realized.
In May 1993 and October 1994, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards Nos. 114 and 118
("SFAS Nos. 114 and 118") "Accounting by Creditors for Impairment of a
Loan". These statements require that impaired loans be measured based on
the present value of expected future cash flows discounted at the
loan's effective interest rate or at the loan's observable
market price or at the fair value of collateral, if the loan is
collateral dependent. SFAS Nos. 114 and 118 are effective for
fiscal years beginning after December 15, 1994. Management
believes adoption of this statement will not have a material
effect on the financial position or results of operations of
the Bank.
Nonperforming Loans
Commercial and residential real estate loans are generally placed on
nonaccrual status when: (1) principal or interest is past due 90 days or
more; (2) partial chargeoffs are taken; or (3) there is reasonable doubt
that interest or principal will be collected. Accrued interest is
generally reversed when a loan is placed on nonaccrual status. Interest
and principal payments received on nonaccrual loans are generally applied
to the recovery of principal and then to interest income. Loans are not
restored to accruing status until principal and interest are current and
the borrower has demonstrated the ability for continued performance.
Consumer loans are not placed in nonperforming status, but are charged-
off when they become over 180 days past due.
Other Real Estate Owned
Real estate acquired by foreclosure or deed in lieu of foreclosure and
properties which are classified as insubstance foreclosures are included
in other real estate owned at the lower of cost or fair value minus
estimated costs to sell. Insubstance foreclosures represent loans in which
a borrower with little or no equity in the underlying collateral
effectively abandons control of the property or has no economic interest
to continue involvement in the property based on the borrower's current
financial condition. Substantially all other real estate owned is located
in the Connecticut market. Upon classification as other real estate owned,
the excess of the recorded investment over the estimated fair value of the
collateral, if any, is charged to the allowance for loan losses.
Subsequent valuations are periodically performed by management and the
carrying value is adjusted by a charge to other real estate owned expense
to reflect any subsequent decreases in the estimated fair value. Further,
regulatory agencies may recommend write-downs on other real estate owned
at the time of periodic examination. Routine holding costs are charged to
expense as incurred. Expenditures to complete or improve properties are
capitalized only if reasonably expected to be recovered, otherwise they
are expensed as incurred.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation or amortization is provided over the
estimated useful lives of the assets or, for leasehold improvements, the
lease term if shorter, principally using the straight-line method as
follows:
Buildings 25 years
Improvements 3 - 25 years
Furniture 3 - 25 years
Credit Life Insurance
Revenues from premiums on credit life insurance are deferred and
recognized as income over the term of the loan when using a method which
approximates the interest method. Losses resulting from credit life
insurance claims are recognized as incurred.
Dealers' Reserves
In connection with the purchase of retail installment contracts from
consumer products dealers, the Company, depending on the agreement with
the dealer, allowed the dealer to share in the gross finance income on
contracts originated by them and held back a portion of the proceeds of
the loan to a reserve account for each dealer. Such "dealer reserves" were
charged with losses on the related loans. Under the terms of the
agreements, any balance remaining in the dealer's reserve account was
available to the dealer, subject to the Company's assessment of the
adequacy of the reserve account to absorb potential losses on the
remaining portfolio. To the extent that the Company considered the
dealers' reserve account to be deficient, an addition was made to the
allowance for loan losses. During 1994, substantially all of this
portfolio was sold.
Taxes on Income
Deferred income taxes for 1994 and 1993 are provided on the differences
between the financial reporting and income tax basis of assets and
liabilities based upon statutory tax rates enacted for future periods.
The 1992 consolidated financial statements reflect income taxes based on
the previously used deferral method, whereby deferred income taxes were
provided on the difference in earnings determined for tax and financial
reporting purposes.
Statements of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and amounts due from banks.
Reclassification
Certain amounts in the 1993 and 1992 consolidated financial statements
have been reclassified to conform with the current year presentation.
1. Investment Securities
At December 31, 1994, the amortized cost and estimated fair value of
investment securities were as follows:
(a) Held-to-Maturity
Gross Gross
Amortized unrealized unrealized Estimated
cost gain loss fair value
U.S. Treasury 6,908,545 - 39,171 6,869,374
Notes
(b) Available-for-Sale
Gross Gross
Amortized unrealized unrealized Estimated
cost gain loss fair value
U.S. Treasury 6,293,521 - 194,911 6,098,610
Notes
Certificate of 500,000 - - 500,000
deposit
State of 500,000 - - 500,000
Israel Bond
Marketable 205,000 - 23,000 182,000
equity
securities
Total 7,498,521 - 217,911 7,280,610
The amortized cost and estimated fair value of securities held-to-maturity
and available-for-sale, by contractual maturity, at December 31, 1994 are
as follows:
Securities Securities
held-to-maturity available-for-sale
---------------------- ----------------------
Amortized Estimated Amortized Estimated
cost fair value cost fair value
Due in one year or 6,908,545 6,869,374 2,810,851 2,772,188
less
Due from one to five - - 4,482,670 4,326,422
years
Due from one to ten - - - -
years
Equity securities - - 205,000 182,000
Total 6,908,545 6,869,374 7,498,521 7,280,610
At December 31, 1994, investment securities with a carrying value of
approximately $600,000 were pledged to secure public deposits, the
treasury demand note and for other purposes as required or permitted by
law.
In connection with an agreement entered into in August 1994 to acquire a
residual interest in equipment having a market value of approximately
$5,000,000 as of August 1994, for $3,700,000. The Bank has secured its
obligation to perform on the agreement with securities having a carrying
value of $4,500,000 at December 31, 1994. See Note 15(d).
A summary of investment securities, all of which were available-for-sale,
at December 31, 1993 follows:
($ in thousands) Gross unrealized
--------------------
Amortized Gains Losses Estimated
cost market value
Taxable:
U.S. Treasury Securities $8,006 $115 $- $8,121
U.S. Government Agency 3,960 70 - 4,030
mortgage-backed
securities
Marketable equity 564 - 15 549
securities
Other 500 - - 500
Total investment $13,030 $185 $15 $13,200
securities
Proceeds and gross realized gains and losses from the sale of investment
securities were as follows:
Year ended December 31, 1994 1993 1992
($ in thousands)
Sales proceeds $11,404 $6,478 $26,777
Realized gains 55 50 421
Realized losses 14 1 -
2. Loans Receivable
Loans receivable are summarized as follows:
($ in thousands) 1994 1993
Commercial - collateralized by real estate $34,044 $43,119
Commercial - other 12,757 15,832
Residential and real estate mortgage 12,663 11,272
Consumer 2,331 18,282
Total - gross 61,795 88,505
Unearned income (49) (134)
Deferred loan fees (39) (190)
Deferred loan costs - 1,046
Allowance for loan losses (2,637) (5,012)
Total - net $59,070 $84,215
At December 31, 1994 and 1993, the carrying value of loans with fixed
interest rates were approximately $17,740,000 and $37,639,000,
respectively.
Loans on which the accrual of interest has been discontinued amounted
to approximately $7,884,000, $10,218,000 and $10,117,000 at December 31,
1994, 1993 and 1992, respectively, At December 31, 1994, there were no
commitments to extend additional credit to borrowers in
nonaccrual status. If these loans had been current throughout
their terms, interest income would have increased by
approximately $764,000, $794,000 and $939,000 for the years
ended December 31, 1994, 1993 and 1992, respectively.
Loans for which the terms were restructured as defined in Statement
of Financial Accounting Standards No. 15, "Troubled Debt Restructurings",
totaled $3,953,000, $3,308,000 and $4,342,000 at December 31, 1994,
1993 and 1992, respectively. Had the original terms been in
force, interest income would have increased by approximately $150,000,
$109,000 and $401,000 in 1994, 1993 and 1992, respectively.
The allowance for loan losses is summarized as follows:
($ in thousands) 1994 1993 1992
Balance, beginning of year $5,012 $3,291 $4,319
Provision charged to expense 1,773 6,298 3,533
Loans charged off (4,840) (4,976) (5,557)
Recoveries 692 399 996
Balance, end of year $2,637 $5,012 $3,291
3. Property and Equipment
At December 31, 1994 and 1993, property and equipment are summarized as
follows:
($ in thousands) 1994 1993
Land $136 $136
Buildings and improvements 1,049 1,178
Furniture and equipment 1,718 1,715
Software 235 193
Total cost 3,138 3,222
Less: Accumulated depreciation 2,165 2,140
Total - net $973 $1,082
4. Other Real Estate Owned
Changes in the other real estate owned (OREO) are summarized as follows:
($ in thousands) 1994 1993
Beginning balance $8,377 $9,625
Transfers in 515 3,698
Proceeds from sales and (4,579) (4,946)
write-downs
Ending balance $4,313 $8,377
The carrying costs of other real estate owned were approximately $160,000,
$674,000 and $294,000 for the years ended December 31, 1994, 1993 and
1992, respectively.
5. Deposits
Deposits (in thousands) are summarized as follows:
December 31, 1994 1993
Demand deposits 9,248 14,350
Money market deposits 5,090 9,935
NOW checking accounts 4,013 5,939
Savings deposits 10,966 16,233
Certificates of deposit 52,584 68,761
Certificates in excess of $100,000 5,573 5,863
Total Deposits $87,474 $121,081
6. Income Taxes
There were no taxes on income for 1994, 1993 or 1992.
The 1993 consolidated financial statements reflect adoption of the
liability method of accounting for income taxes pursuant to Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"), issued February 1992. There was no cumulative
effect of this change in accounting method as the Bank had no
deferred income taxes at December 31, 1992.
Deferred income taxes for 1994 and 1993 reflect the impact of temporary
differences between amounts of assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws. These
temporary differences are determined in accordance with SFAS 109 and are
more inclusive in nature than "timing differences" as
determined under previously applicable accounting principles.
Temporary differences which give rise to deferred tax assets at
December 31, 1994 and 1993 are as follows:
1994 1993
NOL carryforward $4,853,000 $2,672,000
Allowance for loan losses 140,000 827,000
OREO basis 484,000 847,000
Other 215,000 215,000
Total 5,692,000 4,561,000
Valuation allowance (5,692,000) (4,561,000)
Total $- $-
At December 31, 1994, there is a deferred tax asset of approximately
$5,692,000 consisting of Federal net operating loss carryforwards and the
impact of temporary differences between amounts of assets and liabilities
for financial reporting purposes and such amounts as measured by tax laws.
This deferred tax asset is fully offset by a valuation allowance of the
same amount.
For income tax return purposes, the Company has capital loss carryforwards
of approximately $850,000 expiring in 1999 and Federal net operating loss
carryforwards of approximately $14.3 million, of which
approximately $1 million is subject to limitation under the
change of ownership rules outlined in Section 382 of the
Internal Revenue Code. The amount of future income which can be
offset with net operating losses incurred prior to a change in
ownership of a corporation is limited under Section 382. The
Company's net operating loss subject to limitation can be
utilized to the extent of approximately $65,000 per year and
expires in 2007. The remaining net operating loss carryforward
of approximately $13.3 million can be used without limitation
and expires as follows: $2.8 million in 2007, $4.3 million in
2008 and $6.2 million in 2009.
The Company has state capital loss and net operating loss carryforwards
of approximately $20.1 million which expire in years 1995 through 1999.
7. Borrowings
Notes Payable
In connection with the majority stockholder's capital infusion on
September 1, 1994, floating interest rate senior notes (the "Senior
Notes") due September 1, 1996 in the amount of $3,638,000 were issued by
the Company. The Senior Notes bear interest at a floating rate
equal to 5% above the prime rate (as defined), payable
quarterly. On September 2, 1994, an exchange agreement was
entered into between the Company and the majority stockholder
whereby 26 shares of Preferred Series III Stock of the Company,
with a stated value of $10,000 per share, were exchanged for
$260,000 of Senior Notes (see Note 17). Further, on
December 31, 1994, $3,370,000 of Senior Notes were exchanged
for 337 shares of Preferred Series III Stock of the Company
with a stated value of $10,000 per share (see Note 17).
During 1993, the Company sold $220,000 of
capital notes to an entity substantially owned by the Company's
majority stockholder, the proceeds of which were contributed to
the Bank as additional paid-in capital. The notes are due March
31, 1999 and bear interest at 15% payable quarterly. The notes
are subordinated to all senior indebtedness.
Accordingly, at December 31, 1994, notes payable consisted of the
following:
Capital Notes 220,000
Senior Notes issued September 2, 1994 8,000
Senior Notes issued December 31, 1994 140,000
in exchange for accrued interest
Total notes payable 368,000
Mandatory Convertible Capital Notes
In connection with the capital restoration plan (see Note 17) $1,090,000
of convertible subordinated debentures of the Bank were exchanged for
$1,090,000 of mandatory convertible capital notes (the "Notes")
of the Company.
The principal amount of the Notes is due July 1, 1997 and will be
converted into 1) shares of Company common stock with a market value
equal to the principal amount at such date plus accrued and unpaid
interest if any; or 2) at the option of the Company and subject to
receipt of any necessary regulatory approvals, shares of perpetual
preferred stock or other primary equity securities of the Company with
a market value equal to the principal amount at such date plus
accrued and unpaid interest, if any.
The Notes bear interest at the floating rate equal to 1% above the
daily prime rate (as defined) plus an additional 25% of this rate.
Interest is payable on a quarterly basis. The Notes are subordinated to
the senior indebtedness of the Company.
8. Stockholders' Equity (Deficit) and Earnings (Loss) Per Common Share
Common Stock
At December 31, 1994, approximately 22,000 shares were reserved for
outstanding stock options, 1,601,000 shares were reserved for conversion
of the remaining convertible capital notes (Notes 7 and 18) and 5,780,000
shares were reserved for conversion of preferred stock. On June 28,
1994, the Company stockholders voted to approve a one-for-five
reverse stock split, which was effective as of July 25, 1994.
Preferred Stock
The Board of Directors of the Company is authorized to issue up to 100,000
shares of preferred stock without par value in series and to determine the
designation of each series, dividend rates, redemption provisions,
liquidation preferences and all other rights.
Preferred Series I
The Preferred Series I Stock as of December 31, 1994 consists of 23,000
shares of its nonvoting, no par value Preferred Series I Stock at a stated
value of $100 per share. In 1994, 13,000 of these shares were issued to
the principal stockholder (see Note 17).
The Preferred Series I shares of the Company are cumulative as to
dividends. The average dividend rate for the year ended December 31,
1994 was 7.15% per annum. At December 31, 1994, there were $324,656 in
dividends accrued and unpaid. See Note 17 for discussion of the dividends
restriction.
This series of preferred stock is redeemable, at the option of the
Company, at $100 per share plus all accumulated and unpaid dividends.
The preferred shares are convertible, at the option of the holders, into
common stock of the Company, at the rate of two shares of common per
each share of preferred (as adjusted for reverse stock split).
Preferred Series II
On March 24, 1994, in connection with the capital restoration plan (see
Note 17), the Company issued 50,000 shares of nonvoting Preferred
Series II Stock with a stated value of $74 per shares to the majority
stockholders.
The Preferred Series II shares are cumulative as to dividends at a rate
equal to 4% above the prime rate (as defined). At December 31, 1994, there
were $313,729 in dividends accrued and unpaid.
Preferred Series III
On September 2, 1994, December 30, 1994 and December 31, 1994, the Company
issued 26 shares, 20 shares and 337 shares, respectively, of its
nonvoting, no par value Preferred Series III Stock with a stated value
of $10,000 per share to the majority stockholder.
The Preferred Series III shares are convertible into Company common stock,
preferred stock or any other capital instrument of the Company or, at the
option of the holders, into a combination of such shares and shares of
common stock, preferred stock or other capital instrument of
the Bank, with a market value equal to the stated value, and
cumulative as to dividends at a rate equal to 5% above the
prime rate (as defined). At the option of the holder, the
Company shall pay accrued and unpaid dividends in shares of
Company common or preferred stock with a market value at the
time of payment equal to the dividend being paid. At
December 31, 1994, there were $10,836 in dividends accrued and
unpaid.
Warrant
The Warrant, issued March 24, 1994 and amended as of July 25, 1994,
entitles the majority stockholder to purchase from the Company, at an
exercise price of $0.05 (adjusted to reflect the reverse one for five
stock split effective July 25, 1994) per share, in aggregate, such number
of shares of Company common stock as may be necessary for the
majority stockholder to maintain a level of common stock
ownership equal to 51 percent of the issued and outstanding
shares of Company common stock on a fully diluted basis (the
"threshold level"). The Company anticipates that the amended
terms of the Warrant will facilitate the issuance of additional
common stock in the future. The Warrant is exercisable at any
time following the one-for-five reverse stock split and
continuing until the date ten years after provided, however,
that the majority stockholder's ownership level fall below the
threshold level due to the issuance of additional shares of
common stock. The holder of the Warrant is required to receive
any necessary regulatory approval prior to exercising the
Warrant.
Earnings (Loss) Per Share of Common Stock
Primary earnings per share amounts are computed by dividing net income
(loss), as adjusted for preferred stock dividends, by the weighted average
number of shares outstanding plus the shares that would be outstanding
assuming the exercise of dilutive stock options, which are
considered common stock equivalents using the treasury stock
method. The weighted average number of common and common
equivalent shares outstanding (adjusted to reflect the one-for-
five reverse stock split) for the year ended December 31, 1994
was 2,012,514.
Fully diluted earnings per share amounts are based on the increase number
of shares that would be outstanding assuming conversion of the Company's
convertible capital notes and convertible preferred stock when the result
is dilutive. Since the Company reported a net loss for the year
ended December 31, 1994, diluted earnings per share are not
presented for the year.
9. Stock Options (See Note 12(b))
The Company, in prior years, has adopted two incentive stock option plans.
Under the terms of these plans, the option price equals the market value
of the shares on the dates granted and the plans provide for an adjustment
for stock dividends and stock splits. Options granted are generally
exercisable only in accordance with specific vesting provisions as
determined by the Board of Directors.
The following summarizes the combined activity of both plans' stock option
information (adjusted to reflect the one-for-five reverse stock split) for
the years ended December 31, 1994, 1993 and 1992.
1994 1993
Options outstanding and exercisable, 2,343 10,606
January 1
Options expired (1,005) (8,263)
Options outstanding and exercisable, 1,338 2,343
December 31
Price range per share of options $12.50 $12.50
outstanding to $80.00 to $80.00
10. Employee Benefit Plan
In June 1988, the Company adopted a Savings Plan (the "Plan") under
Section 401(k) of the Internal Revenue Code. The Plan covers all
employees who meet certain eligibility requirements. The Plan requires
the Company to match 50% of employee contributions up to the first 10%
(amended to 6% effective July 1, 1994) of each employee's compensation
contributed to the Plan. In 1992, and prior thereto, participants were
immediately vested in the Company's contributions. The Plan was amended
in February 1993 whereby new participants vest over a two year period, and
again in November 1993 whereby participants vest over a five year period.
Prior to one year's employment, contributions are not matched by the
employer but, employees may contribute to the Plan after ninety days.
uring 1994, 1993 and 1992, the Company contributed approximately $22,500,
$58,100 and $52,800, respectively, to the Plan.
11. Related Party Transactions
Changes in loans outstanding to related parties during 1994 and 1993 were
as follows:
($ in thousands) 1994 1993
Balance, beginning of year $85 $198
Additional loans 10 20
Loans repaid (10) (67)
Other (29) (66)
Balance, end of year $56 $85
The amount noted above as "other" primarily represents loans to officers
who resigned during the years presented, and members of their immediate
families or associates and, therefore, are no longer considered related
parties.
12.Employment Agreements
(a) The Company has a deferred compensation agreement with a former
President and Chief Executive Officer, to provide for the payment of
$520,000 over a ten-year period to him or his estate commencing in 1994.
The Company has purchased a life insurance policy to fund the deferred
compensation obligation. At December 31, 1994, the cash surrender value
of the life insurance policy was $311,000 with an accrued deferred
compensation liability of $299,000. For the years ended December 31,
1994, 1993 and 1992, deferred compensation expense, including interest
was approximately $24,000, $86,000 and $78,000, respectively.
(b) On December 13, 1994, the Company entered into a stock option
agreement with its President and Chief Executive Officer. Under the
agreement, the Company granted an option to purchase in the aggregate such
number of shares of $.01 par value common stock as shall represent 5
percent of the total common stock issued and outstanding at the time of
exercise at a price of $1.25 per share. The number of shares of common
stock that may be received upon exercise of the option is subject to
further adjustment. The option vests and is exercisable by the individual
at the rate of 1 percent of the issued and outstanding shares of common
stock for each year of employment. The individual's option will be fully
vested on the fifth anniversary of the individual's employment.
13. Leases
The Bank leases certain land, building, office space and equipment for use
in its operations. The leases generally provide that the Bank pay taxes,
insurance and maintenance expenses related to the leased property. Some of
the leases contain renewal options, and rent payments change in
accordance with changes in the Consumer Price Index. Rental
expense relating to cancelable and noncancelable operating
leases amounted to $241,000, $340,000 and $320,000 in 1994,
1993 and 1992, respectively.
As of December 31, 1994, future minimum rental payments required under
non-cancelable operating leases are as follows:
Year ending December 31,
($ in thousands)
1995 $185
1996 157
1997 141
1998 133
1999 119
Thereafter 221
Total $956
14. Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" ("SFAS No. 107"), requires that the
Bank disclose estimated fair values for its financial instruments.
The methods and assumptions used to estimate the fair values of each class
of financial instruments are as follows:
Cash, Due from Banks and Federal Funds Sold
These items are generally short term in nature and, accordingly, the
carrying amounts reported in the balance sheet are reasonable
approximations of their fair value.
Investments and Mortgage-Backed Securities
The carrying amount for short-term investments approximate fair value
because they mature in three months or less and do not present
unanticipated credit concerns. The fair value of longer term investments
and mortgage-backed securities is estimated based on bid prices
published in financial newspapers or bid quotations received
from securities dealers.
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type, such as commercial,
commercial real estate, residential mortgage, and consumer. Each loan is
further segmented into fixed and adjustable rate interest terms, and by
performing, and nonperforming categories.
The fair value of performing loans, except residential mortgage loans, is
calculated by discounting contractual cash flows using the estimated
market discountrates which reflect the credit and interest risk inherent
in the loan. For performing residential mortgage loans, fair value
is estimated by discounting contractual cash flows adjusted for
prepayment estimates using discount rates based on secondary
market sources adjusted to reflect differences in servicing and
credit costs.
Fair value for nonperforming loans is based on estimated cash flows
discounted using a rate commensurate with the risk associated with the
estimated cash flows. Assumptions regarding credit risk, cash flow, and
discount rates are judgmentally determined using available
market information and specific borrower information.
Deposit Liabilities
The fair value of deposits with no stated maturity, such as noninterest
bearing demand deposits, savings and NOW accounts, and money market and
checking accounts, is equal to the amount payable on demand. The fair
value of certificates of deposit is based on the discounted value of
contractual cash flows. The discount rate is estimated using
the rates currently offered for deposits of similar remaining
maturities.
Long-Term Debt
Fair values are estimated by discounting contractual cash flows using
discount rates for like borrowings with the same remaining maturity.
The estimated fair values of the Bank's financial instruments are as
follows:
December 31, 1994
($ in thousands)
Carrying Estimated
amount fair value
Financial assets:
Loans, net $59,070 $55,000
Investment securities 14,189 14,150
Cash and short-term investments 8,830 8,830
Financial liabilities:
Deposits:
Demand 9,248 9,248
Savings 10,966 10,966
Money market deposit accounts 9,103 9,103
Time deposits 58,158 57,710
December 31, 1993
($ in thousands)
Carrying Estimated
amount fair value
Financial assets:
Loans, net $84,215 $77,455
Investment securities 13,200 13,200
Cash and short-term investments 14,955 14,955
Financial liabilities:
Deposits:
Demand 14,350 14,350
Savings 22,172 22,172
Money market deposit accounts 9,935 9,935
Time deposits 74,623 74,919
Convertible debt 1,310 1,100
Commitments to Extend Credit, and Standby Letters of Credit
The estimated fair value of off-balance sheet financial instruments is not
material and there are no estimated losses.
Limitations of the Estimation Process
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Bank's entire holdings
of a particular financial instrument. In addition, these estimates
do not reflect any premium or discount that could result in an
equity offering by the Bank, since SFAS 107 specifies that fair
values of financial instruments be calculated independently
based on the value of one unit without regard to such factors
as concentrations of ownership, possible tax ramifications or
transaction costs. Because no market exists for a significant
portion of the Bank's financial instruments, fair value
estimates are based on judgements regarding further expected
loss experience, current economic conditions, risk
characteristics of various financial instruments, and other
factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgement and,
therefore, cannot be determined with exact precision. Also,
changes in assumptions could significantly affect the
estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities
that are not considered financial instruments. Other significant assets
and liabilities that are not considered financial instruments
include premises and equipment, real estate held for
investment, foreclosed real estate, and advances from borrowers
for taxes and insurance. In addition, the tax ramifications
related to the realization of the unrealized gains and losses
can have a significant effect on fair value estimates and have
not been considered in many of the estimates.
15. Commitments, Contingencies, and Financial Instruments with Off-
Balance Sheet Risk
(a) 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. These financial instruments include commitments to extend
credit and standby letters of credit.
Commitments to extend credit were $192,000 at December 31, 1994.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any conditions established in the contract.
Since many of the commitments are expected to expire without being
drawn on, the total commitment amounts do not necessarily
represent future cash requirements or credit risk.
Letters of credit totaled $224,000 at December 31, 1994. Letters of
credit are commitments issued by the Bank to guarantee the performance of
a customer to a third party. These guarantees are generally payable only
if the customer fails to perform some specified contractual
obligation. Letters of credit are generally unconditional and
irrevocable, and are generally not expected to be drawn upon.
For the above types of financial instruments, the Bank evaluates each
customer's creditworthiness on a case-by-case basis, and collateral is
obtained, if deemed necessary, based on the Bank's credit
evaluation. In general, the Bank uses the same credit policies
for these financial instruments as it does in making funded
loans.
(b) Legal Proceedings
In June 1992, two stockholders brought a civil action against the
Company and certain of its officers in the U.S. District Court for the
District of Connecticut. The amended complaint alleges violations of the
anti-fraud provisions of the Federal securities laws for purported
misrepresentations or omissions in certain public filings as
well as various claims under state law. The Company and the
individual defendants have filed motions to dismiss the amended
complaint. The U.S. District Civil Court for the District of
Connecticut denied the Company's and individuals' motions. The
defendants believe that the allegations of wrongdoing set forth
in the plaintiffs' amended complaint are without merit and
intend to contest all claims vigorously.
The Company and the Bank are also involved in various legal proceedings
which have arisen in the ordinary course of business. Management, after
consultation with legal counsel, does not anticipate that the ultimate
liability, if any, resulting from the settlement of the amended
complaint and other pending and threatened lawsuits will have a
material effect of the financial condition or results of
operations of the Company.
(c) Required Reserve Balances
The Bank is required to maintain certain average cash reserve balances as
specified by the Federal Reserve Bank. The amount of the reserve balance
at December 31, 1994 was approximately $246,000.
(d) Purchase and Sale Agreement
The Bank entered into an agreement in August 1994 to acquire certain
interest on equipment for $3,700,000 within one year from the date of the
agreement. The Bank has the right to terminate the agreement at any time
within the one-year period. Investment securities in the amount of
$4,500,000 at December 31, 1994 have been pledged in connection with
this agreement.
16. CBC Bancorp, Inc. (Parent Company Only) Financial Information
The condensed financial statements of the Company are as follows:
Balance Sheet Information
December 31, 1994 1993
($ in thousands)
Assets:
Cash on deposit with Connecticut Bank $1 $3
of Commerce
Investment in Connecticut Bank of Commerce 3,581 -
Other assets 138 7
Total assets $3,720 $10
Liabilities and stockholders' equity (deficit):
Accrued interest $156 $11
Dividend payable 649 180
Debt 1,458 220
Accumulated stockholders' 1,457 (401)
equity (deficit)
Total liabilities and
stockholders' equity (deficit) $3,720 $10
At December 31, 1993, investment in Connecticut Bank of Commerce has not
been reduced below zero.
Statement of Operations Information
Year ended December 31, 1994 1993 1992
($ in thousands)
Interest - net $(284) $(15) $-
Operating expenses (862) (21) (13)
Other income - 338 -
Income (loss) before taxes (1,146) 302 (13)
and equity in undistributed
earnings (loss) of
subsidiaries
Equity in loss of subsidiaries (2,743) (6,724) (4,831)
Net loss $(3,889) $(6,422) $(4,844)
Cash Flow Information
Year ended December 31, 1994 1993 1992
($ in thousands)
Operating activities:
Net loss $(3,889) $(6,422) $(4,844)
Adjustments to reconcile
net loss to net cash
provided by operating
activities:
Loss in investments 852 - -
Amortization of organization
costs - - 13
Equity in loss of 2,743 6,724 4,831
subsidiaries
(Increase) decrease in other (138) (324) 12
assets
Increase in accrued expenses 292 11 -
Net cash provided by (used in) (140) (11) 12
operating activities
Investing activities:
Capital contribution to Bank (7,849) (220) (4,844)
Proceeds from sale of 4,149 - -
investments
Net cash used in investing (3,700) (220) (4,844)
activities
Financing activities:
Proceeds from issuance of - 220 -
subordinated debentures
Proceeds from issuance of - - 4,844
common stock - net
Proceeds from issuance of 200 - -
preferred stock
Proceeds from issuance of 3,638 - -
debt
Net cash provided by financing 3,838 220 4,844
activities
Increase (decrease) in cash (2) (11) 12
Cash, beginning of year 3 14 2
Cash, end of year $1 $3 $14
Supplemental disclosures of
cash flow information:
Issuance of preferred stock $5,000 $- $-
in exchange for marketable
securities
Dividends declared and unpaid $469 $70 $70
Issuance of preferred stock $3,630 $- $-
in exchange for debt
Issuance of Senior Notes for $140 $- $-
accrued interest payable
Supplemental Disclosures of Cash Flow Information
The Company's principal asset is its investment in its wholly-owned
subsidiary, Connecticut Bank of Commerce. As described in Note 18, under
certain regulatory orders, the Bank is precluded from paying further
dividends to the Company without obtaining prior regulatory approval.
Under Federal Reserve regulations, the Bank is limited as to the amount
it may loan to the Company or members of its affiliated group, unless such
loans are collateralized by specific obligations.
17. Regulatory Actions
Under the terms of the July 1991 Cease and Desist Order (the "1991
Order"), the Bank must obtain the prior approval of the Federal Deposit
Insurance Corporation ("FDIC") and the Connecticut Banking Commissioner
(the "Banking Commissioner") before paying any cash dividends to the
Company. The 1991 Order also requires the Bank to maintain a Tier 1
leverage ratio of 6 percent. In connection with the September 1993 FDIC
regulatory examination of the Bank, the FDIC issued an additional order
to cease and desist in December 1993 (the "1993 Order"). Among other
things, the 1993 Order required affirmative action be taken by the Bank
to correct certain Bank policies, practices and alleged violations of
law. The Bank and its Board of Directors believe that the Bank has
complied fully with each of the terms of the 1991 and 1993 Orders, except
for the 6 percent leverage ratio. Under the Bank's Revised Capital
Restoration Plan, which was approved by the FDIC and the Banking
Commissioner in December 1994, the Bank has until December 31, 1996 to
achieve the 6 percent Tier 1 leverage capital ratio mandated by the 1991
Order.
Further, as of December 31, 1993, the Bank increased its provision for
loan losses and reduced the carrying values of certain loans and
foreclosed real estate, thereby seriously depleting its regulatory
capital. In December 1993, the FDIC issued a Prompt Corrective Action
("PCA") directive to the Bank informing the Bank that it was
"critically undercapitalized", requiring the prompt
recapitalization of the Bank and prohibiting, among other
things, the payment of capital distributions or management fees
to the Company or to any company controlled by a controlling
shareholder of the Bank. In addition, the PCA directive
required the Bank to submit an acceptable capital restoration
plan setting forth the Bank's specific plans and timing for
recapitalization.
On March 24, 1994, FDIC approved the Capital Restoration Plan ("Initial
Capital Plan") of the Bank. The Initial Capital Plan provided for the
recapitalization of the Bank in two parts. The first part consisted of (1)
modification of the terms of the existing mandatory convertible
subordinated debentures of the Bank ("Bank Debentures") to
convert the Bank Debentures into, or exchange the Bank
Debentures for (the "Exchange"), mandatory convertible
subordinated capital notes of Bancorp ("Company Capital Notes")
with substantially similar terms as the Bank Debentures; (2)
the injection of $5 million of additional equity capital into
the Bank by the majority stockholder of Bancorp through the
exchange of marketable securities for 13,000 shares of Company
Series I preferred stock and 50,000 shares of Series II
preferred stock (collectively, the "Company Securities") and
the majority stockholder's separate purchase for cash of a
warrant to purchase shares of Company common stock (the
"Warrant"); and (3) the sale of the Bank's leasehold interest
("Leasehold Interest") in a parcel of land adjacent to the
Bank's main office for cash.
The Exchange was deemed to occur on March 24, 1994, resulting in the
immediate increase in the Bank's Tier 1 capital by $1,090,000 (the
principal amount of the Bank Debentures at the time of the Exchange).
The majority stockholder's $5 million equity contribution and the issuance
of the Company securities also occurred on March 24, 1994. The
$5 million equity contribution made to the Company by the
majority stockholder was recognized as additional equity
capital by the Bank subsequent to the March 24, 1994
transaction as the marketable securities were sold by the
Company. The Company was required to sell the securities in
order for the Bank to recognize the value or the equity
contribution made by the majority stockholder. Under Federal
law, the Bank is precluded from investing in these marketable
securities. Accordingly, the Company was required to sell the
marketable securities for cash and contribute the net proceeds
from such sale to the Bank as additional paid-in capital. All
of the marketable securities were sold within the second
quarter of 1994. Subsequent to the equity contribution, the
market value of the securities declined and resulted in a loss
on the sale of the amount of $852,000. The Bank and the
purchaser of the leasehold interest executed a definitive
Agreement to Convey and Assign on March 25, 1994 and the
closing occurred as of March 31, 1994.
On September 2, 1994, the majority stockholder lent $3,638,000 to the
Company, of which $3,500,000 was contributed to the Bank as additional
paid-in capital. The Company's obligation was evidenced by the senior
notes. This transaction completed the second part of the recapitalization
in accordance with the approved Initial Capital Plan.
Subsequent to completion of the Bank's recapitalization as provided in
the Initial Capital Plan, during the third quarter of 1994, the FDIC
completed its periodic examination of the Bank. Based on the findings of
the 1994 FDIC examination, results of operations, the sale of the
U.S. Military installment loan portfolio and closure of the
Greenwich branch, the Bank became "under capitalized" as
defined in the FDIC Improvement Act and was not in compliance
with the 6% Tier 1 Leverage Ratio contained in the 1991 Order.
In accordance with provisions of the FDIC Improvement Act, the
Bank was required to submit an acceptable Revised Capital Plan
to the FDIC. The Bank's Revised Capital Plan was submitted to
the FDIC and the Banking Commissioner on December 13, 1994.
Both the FDIC and the Banking Commissioner approved the Bank's
Revised Capital Plan in late December 1994.
Under the terms of the Bank's Revised Capital Plan, the Bank's Tier 1
capital is projected to be augmented in the amount of $200,000 by
December 31, 1994 and in the amount of $1 million by June 30, 1995.
The additional $1.2 million of equity capital is to be raised in two
separate equity offerings undertaken by the Bank's parent holding
company. Upon completion of these two equity offerings, the
Bank's Total Capital to risk-weighted assets ratio is projected
to exceed 8%, thereby resulting in the Bank being deemed
"adequately capitalized" as defined in the FDIC Improvement
Act. In addition, the Bank's Tier 1 Leverage Ratio is projected
to be above 5%. Thereafter, the Revised Capital Plan provides
for the Bank's attainment of the 6% Tier 1 Leverage Ratio
contained in the 1991 order by December 31, 1996 through
retained earnings.
On December 31, 1994, the Bank successfully completed the first of two
required equity offerings contained in the Revised Capital Plan when the
Company sold 20 shares of Company Series III preferred stock of
$200,000 and contributed the proceeds of this equity offering
to the Bank as additional paid-in capital.
Further, pursuant to an exchange agreement by and between the Company and
the majority stockholder, dated and effective as of December 31, 1994, the
majority stockholder exchanged the $3,378,000 remaining
outstanding principal amount of the Senior Notes for 337 shares
of the Company's Series III nonvoting, cumulative, convertible
preferred stock. The accrued and unpaid interest on the Senior
Notes from the date of issuance until December 31, 1994 (the
effective date of the exchange) and $8,000 of principal was
evidenced by a new Senior Note in the same amount. Because of
certain changes to the terms of the Series III preferred stock,
the existing 46 shares of Series III preferred stock were
converted into and exchanged for the new Series III preferred
stock effective as of December 31, 1994.
In an effort to restore and maintain the financial soundness of
the Company, a written agreement (the "Agreement") was entered into with
the Federal Reserve Bank of Boston ("FRB") effective November 2, 1994. The
Agreement requires the Company to seek written approval of the FRB prior
to declaring or paying dividends, increasing borrowings or
incurring debt, engaging in material transactions with the
Bank, or making cash disbursements in excess of agreed upon
amounts.
At December 31, 1994, the minimum regulatory capital
requirements of the Bank were as follows:
($ in thousands) Minimum Actual capital
capital December 31,
required 1994 1993
Total risk-based capital percentage 8.00% 7.26% (2.53)%
Total risk-based capital $5,059 $4,590 $(2,397)
Tier 1 risk-based capital percentage 4.00% 5.97% (2.53)%
Tier 1 risk-based capital $2,530 $3,777 $(2,397)
Leverage (per order) percentage 6.00% 3.95% (1.82)%
Leverage (per order) $5,725 $3,799 $(2,397)
Notwithstanding the foregoing, the ability of the Company and the Bank to
maintain regulatory levels is dependent upon, among other factors, the
Bank's ongoing profitability, the future levels of nonperforming
assets and the condition of the economy in which it operates.
The ability of the Bank to continue as a going concern is dependent on
many factors including regulatory action and ultimate achievement of its
capital plan. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
INDEPENDENT AUDITORS' REPORT
The Board of Director's and Shareholders of Amity Bancorp Inc.
We have audited the accompanying consolidated statement of operations,
changes in shareholders' equity and cash flows of CBC Bancorp, Inc. and
Subsidiaries ("the Company"), formerly Amity Bancorp Inc. and Subsidiaries
for the year ended December 31, 1992. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and
cash flows of CBC Bancorp, Inc. and Subsidiaries, formerly Amity Bancorp
Inc. and Subsidiaries for the year ended December 31, 1992, in coformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed
in Note 3 to the 1992 financial statements, the Company and its wholly-
owned subsidiary (the "Bank") have incurred significant losses from
operations and, as of December 31, 1992, did not meet the minimum
regulatory leverage, and tier 1 and total risk-based capital requirements
established by the Federal Reserve Board and the Federal Deposit Insurance
Corporation and are therefore subject to the mandatory provisions of the
FDIC Improvement Act and Prompt Corrective Action regulations including,
among other items, submission of a capital restoration plan. In addition,
the Bank is subject to a Cease and Desist Order (the "Order") with banking
regulators which requires, among other things, that it achieve and
maintain certain minimum capital ratios. These matters raise substantial
doubt about the ability of the Company to continue as a going concern.
Management's plans in regard to these matters are also described in
Note 3. The consolidated financial statements do not include any
adjustment that might result from the outcome of this uncertainty.
Coopers & Lybrand
Hartford, Connecticut
April 19, 1993
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
The information required by Regulation S-K Item 304 is as follows:
(a) Previous independent Accountants-
(i) By letter dated December 15, 1993, Coopers & Lybrand, the
independent auditors for the Company and its subsidiaries for the
fiscal year ended December 31, 1992, notified the Company in
writing that the client-auditor relationship had ceased. The
Company is not aware of any disagreements, disputes or other
matters pertaining to the Company or its financial statements
which would have prompted or caused the cessation of Coopers &
Lybrand's relationship as the Company's independent accountant
(See responses to Item 9(a)(iv) and (v) below). Information
pertaining to the resignation of Coopers & Lybrand and other
matters required by Item 304(a) of Registration S-K has previously
been filed on Form 8-K and Form 8, dated December 21, 1993 and
January 11, 1994, respectively.
(ii) The report of Coopers & Lybrand on the financial statements of the
Company and its subsidiaries for the fiscal year ended December
31, 1992 contained an explanatory paragraph pertaining to the
uncertainty involving the ability of the Company and its principal
subsidiary, the Bank, to comply with regulatory capital
requirements imposed by federal banking law and by the terms of
the 1991 Order issued by the FDIC and effective as of July 19,
1991. See Form 8-K and Form 8, dated December 21, 1993 and
January 11, 1994, respectively.
(iii) The Company's Audit Committee and Board of Directors accepted the
resignation of Coopers & Lybrand as the Company's independent
auditors.
(iv) In connection with Coopers & Lybrand's audit of the Company for
the 1992 fiscal year up through December 15, 1993, there were no
disagreements with Coopers & Lybrand on any matters of accounting
principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements if not resolved
to the satisfaction of Coopers & Lybrand would have caused them
to make reference thereto in their report on the financial
statements for such year. See Form 8-K and Form 8, dated December
21, 1993 and January 11, 1994, respectively.
(v) During the two most recent fiscal years and through January 25,
1995, there have been no reportable events (as defined in
Regulation S-K Item 304(a)(1)(v).
(vi) The Company requested that Coopers & Lybrand furnish it with a
letter addressed to the Securities and Exchange Commission stating
whether it agrees with the above statements and, if not, stating
the respects in which it does not agree. A copy of such letter
was filed by the Company on Form 8 on January 11, 1994. See
Exhibit 16(c) and 16(d) to the Company's Annual Report and Form
10-K for the fiscal year ended December 31, 1993.
(b) New independent accountants
The Company engaged BDO Seidman as its new independent accountants for
the fiscal year ended December 31, 1993. During the 1992 and 1993
fiscal years and through January 12, 1994, the Company did not consult
with BDO Seidman on items which (1) were or should have been subject to
SAS 50 or (2) concerned the subject matter of a disagreement or a
reportable event with the former accountants (as described in Regulation
S-K Item 304(a)(2), with respect to items (1) and (2)).
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The material responsive to such item in the Company's definitive Proxy
Statement for its 1995 Annual Meeting of Shareholders is incorporated by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The material responsive to such item in the Company's definitive Proxy
Statement for its 1995 Annual Meeting of Shareholders is incorporated by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The material responsive to such item in the Company's definitive Proxy
Statement for its 1995 Annual Meeting of Shareholders is incorporated by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The material responsive to such item in the Company's definitive Proxy
Statement for its 1995 Annual Meeting of Shareholders is incorporated by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
Financial Statement Schedules:
Financial statement schedules are omitted since the required information
is either not applicable, not deemed material or is shown in the
respective financial statements or in the notes thereto.
Listing of Exhibits:
See Exhibit Index on page E-1.
Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended December 31,
1994 or thereafter through the date of this Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized in
Woodbridge, Connecticut, on the 16th day of February, 1995.
CBC BANCORP, INC.
(Registrant)
By:/s/ CHARLES PIGNATELLI
Charles Pignatelli
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been duly signed below by the following persons on behalf of
the registrant and in the capacities indicated on this 16th day of
February, 1995.
Signature Title
/s/ RANDOLPH W. LENZ
Randolph W. Lenz Chairman of the Board
/s/ JACK WM. DUNLAP
Jack Wm. Dunlap Director
/s/ MARCIAL CUEVAS
Marcial Cuevas Director
/s/ CHARLES PIGNATELLI
Charles Pignatelli Director
President and Chief Executive Officer
(Principal executive officer)
/s/ DAVID MUNZER
David Munzer Senior Vice President and Chief Financial Officer
of Connecticut Bank of Commerce
(Principal financial officer)
/s/ BARBARA VAN BERGEN
Barbara H. Van Bergen Vice President of Finance of CBC Bancorp, Inc.
(Principal accounting officer)
EXHIBIT INDEX
Exhibit Number Description
2 Stock Purchase Agreement, dated as of March 16, 1992,
by and between Amity Bancorp Inc. and Randolph W. Lenz
(Filed as Exhibit A to the Company's 8-K filed March 26,
1992 and incorporated herein by reference).
3(a)(1) Articles of Incorporation of the Company (Filed as
Exhibit 3(a) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1987 and
incorporated herein by reference).
3(a)(2) Amendment to Article Third of the Certificate of
Incorporation of the Company (Filed as Exhibit 3(a)(2)
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992 and incorporated
herein by reference).
3(a)(3) Amendment to Article First of the Certificate of
Incorporation of the Company (Filed as Exhibit 3(a)(3) to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993 and incorporated herein by
reference).
3(a)(4) Amendment to Article Third of the Certificate of
Incorporation of the Company (Filed as Exhibit 3(a)(4)
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 and incorporated
herein by reference).
3(a)(5) Amendment to Article Third of the Certificate of
Incorporation of the Company (Filed as Exhibit 3(a)(5)
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993 and incorporated herein by
reference).
3(a)(6) Amendment to Article Third of the Certificate of
Incorporation of the Company. *
3(a)(7) Amendment to Article Third of the Certificate of
Incorporation of the Company. *
3(b) Bylaws of the Company (Filed as Exhibit 3(b) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1987 and incorporated herein by
reference).
4(a) Debentures Agreement (Filed as Exhibit 4(a) to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1987 and incorporated herein
by reference).
4(b) Preferred Stock Agreement (Filed as Exhibit 4(b) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1987 and incorporated herein by
reference).
4(c) Capital Note, dated March 31, 1993, due March 31, 1999
(Filed as Exhibit 4(c) to the Company's Registration
Statement on Form S-2, Registration No. 33-55201, filed
August 19, 1994 and incorporated herein by reference).
4(d) Form of Mandatory Convertible Subordinated Capital Note,
due July 1, 1997 (Filed as Exhibit 4(d) to the Company's
Registration Statement on Form S-2, Registration No.
33-55201, filed August 19, 1994 and incorporated herein
by reference).
4(e) Form of Series I Preferred Stock Certificate (Filed as
Exhibit 4(e) to the Company's Registration Statement on
Form S-2, Registration No. 33-55201, filed August 19, 1994
and incorporated herein by reference).
4(f) Form of Series II Preferred Stock Certificate (Filed as
Exhibit 4(g) to the Company's Registration Statement on
Form S-2, Registration No. 33-55201, filed August 19, 1994
and incorporated herein by reference).
4(g) Form of Series III Preferred Stock Certificate. *
9 Voting Trust Agreement (Filed as Exhibit 9 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1987 and incorporated herein by
reference).
10(a) Incentive Stock Option Plan (Filed as Exhibit 10 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1987 and incorporated herein by
reference.)
10(b) Employment Agreement, by and between the Bank and an
executive officer of the Bank and the Company, effective
January 1, 1989 (Filed as Exhibit 10(b) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1988 and incorporated herein by reference).
10(c) Deferred Compensation Agreement, by and between the Bank
and an executive officer of the Bank and the Company,
dated as of February 8, 1990 (Filed as Exhibit 10(c) to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992 and incorporated herein by
reference).
10(d) Amended Employment Agreement, by and between the Bank and
an executive officer of the Bank and the Company, dated as
of October 30, 1992 (Filed as Exhibit 10(d) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992 and incorporated herein by
reference).
10(e) Consulting Agreement, by and between the Bank and a
company affiliated with a director of the Company, dated
as of December 1, 1992 (Filed as Exhibit 10(e) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992 and incorporated herein by
reference).
10(f) Employment Agreement, by and between the Bank and an
executive officer of the Bank and Company, dated as of
July 21, 1994 (Filed as Exhibit 10(f) to the Company's
Registration Statement on Form S-2, Registration No.
33-55201, dated August 19, 1994 and incorporated herein
by reference).
10(g) Stock Option Agreement, by and between the Company and an
executive officer of the Company and the Bank, dated as of
December 13, 1994. *
10(h) Stock Option Agreement, by and between the Company and EQ
corporation, dated as of June 23, 1994 (Filed as Exhibit
4(h) to the Company's Registration Statement on Form S-2,
Registration No. 33-55201, filed August 19, 1994 and
incorporated herein by reference).
10(i) 1994 Incentive Stock Option Plan of the Company. *
10(j) Amended and Restated Warrant, dated as of July 25, 1994
(Filed as Exhibit 4(g) to the Company's Registration
Statement on Form S-2, Registration No. 33-55201, filed
August 19, 1994 and incorporated herein by reference).
10(k) Company Short-Term Senior Notes due September 1996 (Filed
as Exhibit 4(i) to the Company's Registration Statement on
Form S-2, Registration No. 33-55201, filed August 19, 1994
and incorporated herein by reference).
10(l) Exchange Agreement, by and between the Company and the
Company's principal shareholder, dated and effective as of
December 31, 1994. *
10(m) Agreement by and between the Company and EQ Corporation,
dated January 18, 1995, canceling the Option. *
16(a) Letter dated October 23, 1992 from Deloitte & Touche
regarding resignation of certifying accountants (Filed as
Exhibit 16(a) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992 and
incorporated herein by reference).
16(b) Letter dated November 6, 1992 from Deloitte & Touche
regarding comments on Form 8-K of the Company dated
October 22, 1992 (Filed as Exhibit 16(b) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1992 and incorporated herein by reference).
16(c) Letter dated December 15, 1993 from Coopers & Lybrand
regarding resignation of certifying accountants. (Filed
as Exhibit 16(c) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1993 and
incorporated herein by reference.)
16(d) Letter dated January 11, 1994 from Coopers & Lybrand
regarding comments on Form 8-K of the Company dated
December 15, 1993. (Filed as Exhibit 16(d) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 and incorporated herein by
reference.)
22(a) Subsidiaries of the Registrant (Filed as Exhibit 22 to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992 and incorporated herein by
reference).
22(b) Subsidiaries of the Registrant (Filed as Exhibit 22(b)
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 and incorporated
herein by reference).
27 Financial Data Schedule
* Filed herewith.
EXHIBIT 3(a)(6)
AMENDMENT TO ARTICLE THIRD OF CBC BANCORP, INC.'S
CERTIFICATE OF INCORPORATION
RESOLVED, THAT Article Third of the Certificate of Incorporation
of CBC Bancorp, Inc. (the "Corporation") be amended by adding the
following to the end of such Article:
Also of such 100,000 authorized shares of Preferred Stock,
no par value, there shall be designated an additional 170 shares
thereof and named "Series III", having a stated value of Ten
Thousand Dollars ($10,000) each, the terms, limitations and
relative rights and preferences of which shall be as follows and
as otherwise set forth in this Certificate of Incorporation:
(1) Dividends: The holders of the Series III Preferred
Stock shall be entitled to receive cumulative quarterly dividends
at the annual rate of the Wall Street Journal Prime Rate or
substitute rate plus five percentage points. Dividends shall be
of equal priority with dividends payable on Series I and Series
II Preferred Stock and shall be prior in right to dividends
payable to holders of the Common Stock. At the option of the
holder of the Series III Preferred Stock, the Corporation shall
pay accrued and unpaid dividends in shares of Corporation Common
Stock with a market value at the time of payment equal to the
dividend being paid.
(2) Voting Rights: The holders of the Series III Preferred
Stock shall not have any voting rights.
(3) Conversion Rights: The holders of the Series III
Preferred Stock shall have the right, exercisable at any time
following issuance, to convert shares of Series III Preferred
Stock into shares of Common Stock with a market value equal to
the stated value, plus accrued and unpaid dividends to the date
of conversion. The market value of the Common Stock is determined
based on the seven trading day average of the closing sale price
(or, if no sales, the closing bid price) of the Corporation
Common Stock immediately preceding the conversion date.
(4) Redemption Rights: The holders of the Series III
Preferred Stock shall not have the right to redeem the stock
unless expressly authorized by the Board of Directors of the
Corporation. The Corporation shall have the right to redeem the
Series III Preferred Stock at any time following issuance at the
price paid for such stock, without interest except for payment of
accumulated dividends, subject to receipt of approval from state
or federal banking regulatory agencies as may be required by law.
(5) Sinking Fund: No sinking fund shall be established for
the Series III Preferred Stock.
(6) Liquidation Preference: The Series III Preferred Stock
shall have a liquidation preference of $10,000 per share, the
payment of which shall be of equal priority with the payment of
any liquidation preferences of the Series I and II Preferred
Stock and shall be prior in right to any payments to holders of
the Common Stock upon liquidation.
EXHIBIT 3(a)(7)
AMENDMENT TO ARTICLE THIRD OF CBC BANCORP, INC.'S
CERTIFICATE OF INCORPORATION
RESOLVED, THAT Article Third of the Certificate of Incorporation
of CBC Bancorp, Inc. (the "Corporation") be amended by deleting
the last paragraph of such Article and by substituting in lieu
thereof the following:
Also of such 100,000 authorized shares of Preferred Stock,
no par value, there shall be designated an additional 1,000
shares thereof and named "Series III", having a stated value of
Ten Thousand Dollars ($10,000) each, the terms, limitations and
relative rights and preferences of which shall be as follows and
as otherwise set forth in this Certificate of Incorporation:
(1) Dividends: The holders of the Series III Preferred
Stock shall be entitled to receive cumulative quarterly dividends
at the annual rate of the Wall Street Journal Prime Rate or
substitute rate plus five percentage points. Dividends shall be
of equal priority with dividends payable on Series I and Series
II Preferred Stock and shall be prior in right to dividends
payable to holders of the Common Stock. At the option of the
holder of the Series III Preferred Stock, the Corporation shall
pay accrued and unpaid dividends in shares of Corporation Common
or Preferred Stock with a market value at the time of payment
equal to the dividend being paid.
(2) Voting Rights: The holders of the Series III Preferred
Stock shall not have any voting rights.
(3) Conversion and Exchange Rights: The holders of the
Series III Preferred Stock shall have the right, exercisable at
any time following issuance but subject to any required
regulatory approvals, if any, to convert or exchange shares of
Series III Preferred Stock into shares of Common Stock, Preferred
Stock or any other capital instrument of the Company or, at the
option of the holders, into a combination of such shares and
shares of Common Stock, Preferred Stock or other capital
instrument of the Corporation's subsidiary (the "Subsidiary"),
with a market value equal to the stated value, plus accrued and
unpaid dividends to the date of conversion or exchange; provided,
however, that in no event shall the holders be entitled to
receive, in any conversion or exchange, more than 179,096 shares
of the Subsidiary's Common Stock. The market value of the
Corporation's Common Stock is determined based on the seven
trading day average of the closing sale price (or, if no sales,
the closing bid price) of the Corporation Common Stock
immediately preceding the conversion or exchange date and the
market value of the Subsidiary's Common Stock shall be the par
value thereof.
(4) Redemption Rights: The holders of the Series III
Preferred Stock shall not have the right to redeem the stock
unless expressly authorized by the Board of Directors of the
Corporation. The Corporation shall have the right to redeem the
Series III Preferred Stock at any time following issuance at the
price paid for such stock, without interest except for payment of
accumulated dividends, subject to receipt of approval from state
or federal banking regulatory agencies as may be required by law.
(5) Sinking Fund: No sinking fund shall be established for
the Series III Preferred Stock.
(6) Liquidation Preference: The Series III Preferred Stock
shall have a liquidation preference of $10,000 per share, the
payment of which shall be of equal priority with the payment of
any liquidation preferences of the Series I and II Preferred
Stock and shall be prior in right to any payments to holders of
the Common Stock upon liquidation.
EXHIBIT 4(g)
NUMBER SHARES
Incorporated under the laws of the State of Connecticut
CBC BANCORP, INC.
128 Amity Road, Woodbridge, Connecticut
PERPETUAL PREFERRED STOCK
Without Par Value
Third Series
Nonvoting, Cumulative, Convertible,
Floating Rate, $10,000 Stated Value
This certifies that __________ is the owner of record of
_____ shares of the Third Series (Nonvoting, Cumulative,
Convertible, Floating Rate and having a Stated Value of $10,000)
of the Perpetual Preferred Stock without par value of CBC
Bancorp, Inc. (the "Corporation"), a Connecticut corporation,
transferable on the books of the Corporation by the holder
thereof in person or by his duly authorized attorney, upon
surrender of this certificate properly endorsed.
The Corporation will furnish to any shareholder, upon
request and without charge, a full statement of the designations,
terms, limitations and relative rights and preferences between
the shares of each series of Preferred Stock without par value as
far as the same have been fixed and determined and the authority
of the Board of Directors to fix and determine the relative
rights and preferences of subsequent series thereof.
WITNESS the seal of the Corporation and the signature of its
authorized officers, affixed December 28, 1994.
(Corporate Seal)
Title: Corporate Secretary,
Treasurer or Assistant to either
Title: President
EXHIBIT 10(g)
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (the "Agreement"), dated and
effective as of __________, 1994, by and between Charles
Pignatelli (the "Optionee") and CBC Bancorp, Inc. ("CBC"), a
Connecticut corporation and parent company of the Connecticut
Bank of Commerce (the "Bank").
WHEREAS, the Optionee is regarded as a key employee of CBC
and the Bank, and the respective Board of Directors of CBC and of
the Bank has each determined that it would be to the advantage
and in the interest of CBC and the Bank and the shareholders of
CBC to grant the option provided for herein to the Optionee as an
inducement to remain in the service of CBC and the Bank as an
incentive for increased effort during such service; and
WHEREAS, CBC and the Optionee wish to set forth the terms
and conditions of the option granted to Optionee hereunder.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements set forth herein, the parties
hereto hereby agree as follows:
1. Grant of Option. On the terms and conditions contained
in this Agreement and subject to the vesting requirements
contained in Section 2 hereof, CBC hereby grants to Optionee an
option (the "Option") to purchase in the aggregate such number of
shares of common stock, par value $0.01 per share (the "Common
Stock") of CBC as shall represent 5 percent of the total Common
Stock issued and outstanding at the time of exercise at a price
of $1.25 per share. Any shares of Common Stock issued upon
exercise of all or part of the Option are referred to herein as
the "Option Shares". The number of shares of Common Stock that
may be received upon exercise of the Option is subject to further
adjustment from time to time as provided for herein.
2. Exercise of Option. The Option shall vest and be
exercisable by the Optionee at the rate of 1 percent of the
issued and outstanding shares of Common Stock for each year of
employment. The first anniversary of Optionee's employment is
November 22, 1994. The Optionee's Option will fully vest on
November 22, 1998, the fifth anniversary of the Optionee's
employment. The Option shall be exercisable during the period
commencing on the date the Option vests and ending ten years from
the date of such vesting (the "Option Period"). Any Option not
exercised by the Optionee during the Option Period shall
terminate. In the event Optionee wishes to exercise the Option,
Optionee shall send a written notice to CBC specifying the total
number of Option Shares it wishes to purchase and a place and
date between one and ten business days inclusive from the date
such notice is given for the closing of such purchase (the
"Closing"), provided, however, that the Closing shall not occur
prior to the receipt of all required regulatory approvals, if
any, in respect of such exercise.
3. Termination This Option shall terminate and be of no
force or effect upon the happening of whichever of the following
events occurs first:
(a) The expiration of the Option Period.
(b) The termination of the Optionee's employment with CBC
or the Bank; provided, however, that, to the extent the Option is
exercisable immediately prior to such termination of employment,
this Option shall remain exercisable by the Optionee for all
Options which have vested pursuant to Section 2 hereof.
(c) The expiration of thirty-six months after the death of
the Optionee, provided, however, that the Optionee's estate,
personal representative or beneficiary, as the case may be, shall
have the right to exercise the Option to the extent the Option
was exercisable immediately prior to the Optionee's death and the
Option is exercised by the Optionee's estate, personal
representative or beneficiary during the thirty-six month period.
4. Registration Rights. Under the terms set forth in
Section 4(b) hereof, the Optionee shall have the right to demand
registration by CBC of the Option Shares in a registration
statement under the Securities Act (the "Registration Statement")
and CBC shall cause such Registration Statement to become
effective and remain current in order to permit the sale of other
disposition of this Option and any Option Shares in accordance
with any plan of disposition adopted by Optionee. In connection
with such registration, CBC shall cause to be delivered to
Optionee such certificates, opinions, accountants' letters and
other documents as Optionee shall reasonably request. All
expenses incurred by CBC in complying with the provisions of this
Section 4, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel
for CBC and blue sky fees and expenses shall be paid by CBC,
except that all underwriting discounts and selling commissions
and all fees and disbursements of counsel for Optionee shall be
paid by Optionee whose Option or Option Shares are the subject of
such registration.
5. Payment and Delivery of Certificates. At any Closing
hereunder, Optionee will make payment to CBC of the aggregate
price for the Option Shares so purchased by delivery of cash,
certified check or money order and CBC will deliver to Optionee a
stock certificate or certificates representing the number of
Option Shares so purchased, registered in the name of Optionee or
Optionee's designee in such denominations as were specified by
Optionee in his notice of exercise.
6. Representations and Warranties of CBC. CBC hereby
represents and warrants to Optionee as follows:
(a) Authority Relative to this Agreement. CBC has
full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of CBC and no other
corporate proceedings on the part of CBC are necessary to
authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed
and delivered by CBC and constitutes a valid and binding
agreement of CBC, enforceable against CBC in accordance with its
terms.
(b) Option Shares. CBC has taken all necessary
corporate action to authorize and reserve and to permit it to
issue, and at all times, from the date hereof through the
termination of this Agreement in accordance with its terms, will
have reserved for issuance upon the exercise of the Option such
number of shares of Common Stock as may be required to be issued
under this Option. All Option Shares, upon issuance pursuant
hereto, shall be duly authorized, validly issued, fully paid,
nonassessable, and shall be delivered free and clear of all
claims, liens, encumbrances and security interests and not
subject to any preemptive rights.
7. Adjustment Upon Changes in Capitalization. In the
event of any change in the shares of Common Stock by reason of a
stock dividend, stock split, merger, recapitalization,
combination, conversion, exchange of shares or the like, the
number and kind of Option Shares subject to the Option and the
purchase price per Option Share shall be appropriately adjusted.
8. Filings and Consents. Optionee and CBC each will use
its best efforts to make all filings with, and to obtain consents
of, CBC's shareholders and all other third parties and
governmental authorities necessary to the consummation of the
transactions contemplated by this Agreement.
9. Specific Performance. The parties hereto acknowledge
that damages would constitute an inadequate remedy for a breach
of this Agreement and that the obligations of the parties hereto
shall be specifically enforceable.
10. Assignability. This Option is not assignable or
transferable by the Optionee otherwise than by will or the laws
of descent and distribution and is exercisable during Optionee's
lifetime only by the Optionee.
11. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not effect the validity or
enforceability of any other provision of this Agreement, which
shall remain in full force and effect.
12. Notices. All notices, requests, claims, demands and
other communications hereunder shall be deemed to have been duly
given when delivered in person, by cable, telegram or telex, or
by registered or certified mail (postage prepaid, return receipt
requested) to the respective parties as follows:
(a) If to Optionee, to:
Charles Pignatelli
c/o Connecticut Bank of Commerce
128 Amity Road
Woodbridge, Connecticut 06525
(b) If to CBC, to:
Corporate Secretary
CBC Bancorp, Inc.
128 Amity Road
Woodbridge, Connecticut 06525
or to such other address as the person to whom notice is to be
given may have previously furnished to the others in writing in
the manner set forth above (provided that notice of any change of
address shall be effective only upon receipt thereof).
13. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of
Connecticut, regardless of the laws that might otherwise govern
under applicable principles of conflicts of laws thereof.
14. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an
original, but all of which shall constitute one and the same
agreement.
IN WITNESS WHEREOF, CBC has caused this Agreement to be duly
executed by its duly authorized officer, and the Optionee has
hereunto set his hand, all as of the day and year first above
written.
OPTIONEE
BY:___________________________
Charles Pignatelli
CBC BANCORP, INC.
BY:___________________________
EXHIBIT 10(i)
1994 CBC BANCORP, INC.
LONG-TERM INCENTIVE PLAN
ARTICLE I
Purpose
The purpose of the 1994 CBC Bancorp, Inc. Long-Term
Incentive Plan (hereinafter referred to as the "Plan") is to
advance the interests of CBC Bancorp, Inc. (the "Corporation")
and its subsidiary, Connecticut Bank of Commerce (the "Bank"), as
well as the Corporation's shareholders by providing incentives
and rewards to the Corporation's employees who are in a position
to contribute to the long-term growth and profitability of the
Corporation and the Bank, assist the Corporation and the Bank in
attracting, retaining and motivating highly qualified employees
for the successful conduct of their business and make the
Corporation's and the Bank's compensation program competitive
with those of other financial services companies.
ARTICLE II
Definitions
2.1 "Change in Control of the Corporation" shall be deemed
to occur in the event that any "person" or "group", within the
meaning of Section 13(d) and 14(d)(2) of the Exchange Act,
acquires, directly or indirectly, beneficial ownership of 51
percent or more of the then outstanding voting securities of the
Corporation and such person on the effective date of this Plan
did not own or control 51 percent or more of the voting
securities of the Corporation.
2.2 "Code" means the Internal Revenue Code of 1986, as now
or hereafter amended.
2.3 "Committee" means the committee established pursuant to
Article IV.
2.4 "Disability" means a Participant's inability to engage
in any substantial gainful activity because 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 six (6) months of longer.
2.5 "Employee" shall mean all officers of the Corporation
and of the Bank or other persons serving in a managerial capacity
with the Corporation and the Bank, including officers who are
also directors of the Corporation or of the Bank.
2.6 "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
2.7 "Incentive Stock Option" means any stock option granted
pursuant to this Plan which is designated as such by the
Committee and which complies with Section 422 of the Code.
2.8 "Market Price" shall mean the closing sale price of a
share of Stock as reported on the NASDAQ Small-Cap Market on the
particular day in question or, if no trading occurred on that
day, then, on the last trading day immediately prior to such
date.
2.9 "Non-Qualified Stock Option" means any stock option
granted pursuant to this Plan which is not an Incentive Stock
Option.
2.10 "Outside Director" means a member of the Board of
Directors of the Corporation who is not an Employee.
2.11 "Participant" means a Participant as defined in Article
III.
2.12 "Stock" means the common stock, par value $0.01 per
share, of the Corporation.
ARTICLE III
Participation
The participants ("Participants") in the Plan shall be the
Corporation's or the Bank's Employees serving in an executive or
managerial position who are selected to participate in the Plan
by the Committee of the Board of Directors of the Corporation
named to administer the Plan pursuant to Article IV or the
President of the Corporation or of the Bank acting under
delegated authority pursuant to Article IV hereof.
ARTICLE IV
Administration
The Plan shall be administered and interpreted by a
committee of two or more members of the Board of Directors who
are outside directors (hereinafter referred to as the
"Committee") appointed by the Board. If the Board has appointed a
Compensation Committee, the Committee shall be comprised of the
members of the Compensation Committee that are Outside Directors.
All decisions and acts of the Committee shall be final and
binding upon all Participants. The Committee shall: (i)
determine the number and types of awards to be made under the
Plan; (ii) select the awards to be made to the Participants;
(iii) set the number of options to be awarded and the number of
shares to be awarded out of the total number of shares available
for award; (iv) delegate to the President of the Corporation or
the President of the Bank the right to select the Participants,
to determine the number and types of awards to be made under the
Plan and the allocation of the awards among Employees (other than
the President), such delegation to be subject to such terms and
conditions as the Committee shall provide in such delegation; (v)
establish administrative regulations to further the purpose of
the Plan; and (vi) take any other action desirable or necessary
to interpret, construe or implement properly the provisions of
the Plan.
ARTICLE V
Awards
5.1 Form of Awards. Awards under this Plan may be in any
of the following forms (or a combination thereof): (i) stock
option awards in accordance with Article VI; or (ii) Performance
Awards in accordance with Article VII. All awards (other than
Performance Awards) shall be made pursuant to award agreements
between the Participant and the Corporation substantially in the
form of Exhibit A hereto or in such form as the Participant and
the Corporation may otherwise mutually agree.
5.2 Maximum Amount Available. The total number of shares
of Stock optioned under this Plan during the term of the Plan
shall not exceed 250,000 shares except as increased or otherwise
adjusted in accordance with Section 5.3. No Participant may be
granted option awards which would result in the Participant
receiving, in the aggregate, more than 50% of the maximum number
of shares available for award under the Plan. Solely for purpose
of computing the total number of shares of Stock optioned under
this Plan, there shall not be counted any shares which have been
forfeited if the Participant received no benefits of ownership
from the Stock and any shares covered by an option which, prior
to such computation, has been terminated in accordance with its
terms or has been canceled by the Participant or the Corporation.
5.3 Adjustment in the Event of Recapitalization, Etc. In
the event of any change in the capital structure of the
Corporation by reason of any stock split, stock dividend,
recapitalization, merger, consolidation, combination or exchange
of shares or other similar corporate change (including the
exercise of warrants and the conversion of any equity or debt
securities of the Corporation convertible into shares of Stock)
or in the event of any special distribution to stockholders, the
number of shares and prices per share applicable to options then
outstanding and in the number of shares which are available
thereafter for Stock Option Awards (as defined in Section 6.1) or
other awards, both under the Plan as a whole and with respect to
individuals, shall be proportionately adjusted for any increase
or decrease in the number of issued shares of Stock; provided,
however, that any fractional shares resulting from any such
adjustment shall be eliminated.
ARTICLE VI
Stock Options
6.1 Grant of Award. The Corporation may award options to
purchase Stock (hereinafter referred to as "Stock Option Awards")
to such Participants (other than Outside Directors) as the
Committee or the President of the Corporation or of the Bank,
acting under delegated authority pursuant to Article IV,
authorizes and under such terms as the Committee establishes. The
Committee shall determine with respect to each Stock Option Award
and designate in the grant whether a Participant is to receive an
Incentive Stock Option or a Non-Qualified Option.
6.2 Option Price. Except as otherwise provided in this
Section 6.2, the option price of each share of Stock subject to a
Stock Option Award shall be (i) the Market Price of a share of
Stock on the trading date immediately preceding the date of grant
and (ii) specified in the grant. Notwithstanding the preceding
sentence to the contrary, if the Participant to whom an Incentive
Stock Option is granted owns, at the time of the grant, more than
ten percent (10%) of the combined voting power of the
Corporation, the option price shall not be less than one hundred
ten percent (110%) of the Market Price described in the preceding
sentence.
6.3 Terms of Option. A stock option by its terms shall not
be transferable by the Participant other than by will or the laws
of descent and distribution, and, during the Participant's
lifetime, shall be exercisable only by the Participant. In
addition, a stock option by its terms shall be of ten years'
duration, except that an Incentive Stock Option granted to a
Participant who, at the time of the grant, owns Stock
representing more than ten percent (10%) of the combined voting
power of the Corporation shall by its terms be of no more than
five years' duration. A stock option by its terms shall be
exercisable only after the earliest of: (i) such period of time
as the Committee (or its delegatee) shall determine and specify
in the grant, but in no event more than one year following the
date of grant of such award; (ii) the Participant's death or
Disability; or (iii) a Change in Control of the Corporation.
An option is only exercisable by a Participant while the
Participant is in active employment with the Corporation or the
Bank, except (i) in the case of the Participant's death or
Disability, at any time during the thirty-six month period
following the Participant's death or Disability; (ii) during a
six-month period commencing on the date of a Participant's
termination of employment by the Corporation or the Bank other
than for cause; (iii) during the three-year period commencing on
the date of the Participant's termination of employment, by the
Participant or the Corporation or Bank, as the case may be, after
a Change in Control of the Corporation, unless such termination
of employment is for cause; or (iv) if the Committee decides that
it is in the best interest of the Corporation or the Bank to
permit individual exceptions. An option may not be exercised
pursuant to this Section 6.3 after the expiration date of the
option.
6.4 Exercise of the Option. An option may be exercised
with respect to part or all of the shares subject to the option
by giving written notice to the Corporation of the exercise of
the option. The option price for the shares for which an option
is exercised shall be paid on or within ten (10) business days
after the date of exercise in cash, by certified check or money
order, in whole shares of Stock owned by the Participant prior to
exercising the option, or in a combination of cash and such
shares of Stock or on such terms and conditions as the Committee
determines. The value of any share of Stock delivered in payment
of the option price shall be its Market Price on the date the
option is exercised.
6.5 Dividends on Shares Covered By Options. The Committee
may, in its discretion, grant to Participants holding stock
options the right to receive, with respect to each share covered
by an option, payments of amounts equal to the regular cash
dividends paid to holders of Stock during the period that the
option is outstanding.
ARTICLE VII
Performance Awards
Subject to compliance with applicable provisions of law, the
Committee or the President of the Corporation or of the Bank
acting under delegated authority pursuant to Article IV hereof,
may grant, either alone or in addition to other awards granted
under the Plan, cash awards based on a Participant's job
performance ("Performance Awards") to such Participants as the
Committee or the President of the Corporation or of the Bank (as
to Employees other than the President), acting under delegated
authority pursuant to Article IV hereof, authorizes and under
such terms as the Committee or the President of the Corporation
or of the Bank, as the case may be, establishes. Performance
Awards may be paid in cash or any other form of property as the
Committee (or its delegatee) shall determine. Performance Awards
shall entitle the Participant to receive an award if the measures
of performance or other criteria established by the Committee or
the President of the Corporation or the Bank, acting under
delegated authority, are met. The measures of performance or
other criteria shall be established by the Committee or by the
President of the Corporation or of the Bank, acting pursuant to
delegated authority. The Committee or the President of the
Corporation or of the Bank, acting pursuant to delegated
authority, shall determine the times at which Performance Awards
are to be made and all conditions of such awards. Performance
Awards shall be subject to any applicable federal, state or local
withholding tax requirements.
ARTICLE VIII
Withholding
In order to enable the Corporation to meet any applicable
federal, state or local withholding tax requirements arising as a
result of the exercise of a stock option, a Participant shall pay
to the Corporation the amount of tax to be withheld. In the
alternative, the Participant may elect to satisfy such obligation
(i) by having the Corporation withhold shares that otherwise
would be delivered to the Participant pursuant to the exercise of
the Option for which the tax is being withheld, (ii) by
delivering to the Corporation other shares of Stock owned by the
Participant prior to exercising the option or (iii) by making a
payment to the Corporation consisting of a combination of cash
and such shares of Stock. Such election shall be subject to the
following: (a) the election shall be made in such manner as may
be prescribed by the Committee; (b) the election shall be made
prior to the date to be used to determine the tax to be withheld;
and (c) if the Participant is a person subject to Section 16 of
the Exchange Act, the election shall be irrevocable and shall be
made within six months after the grant of the option, except that
this six-month limitation shall not apply in the event the
Participant delivers to the Corporation previously owned shares
of Stock, and shall be made either at least six months prior to
the date to be used to determine the tax to be withheld or during
a ten-day period beginning on the third business day following
the date of release of the quarterly or annual consolidated
balance sheets and statements of operations and ending on the
12th business day following such date.
ARTICLE IX
General Provisions
9.1 Any assignment or transfer of any awards without the
written consent of the Corporation shall be null and void.
9.2 Nothing contained herein shall require the Corporation
or the Bank to segregate any monies from its general funds, or to
create any trusts or to make any special deposits for any
immediate or deferred amounts payable to a Participant for any
year.
9.3 Participation in this Plan shall not affect the
Corporation's right to discharge a Participant or constitute an
agreement of employment between a Participant and the Corporation
or the Bank, as the case may be.
ARTICLE X
Amendment, Suspension or Termination of the Plan
10.1 General Rule. The Board of Directors may suspend,
terminate or amend the Plan, including but not limited to such
amendments as may be necessary or desirable resulting from
changes in the federal income tax laws and other applicable laws,
but may not, without the approval by the holders of a majority of
all outstanding shares entitled to vote on the subject at a
meeting of the stockholders of the Corporation, (i) increase the
total number of shares of Stock that may be optioned under the
Plan or (ii) amend any provision of the Plan which, with respect
to officers (as defined in Rule 16a-1(f) of the Exchange Act) of
the Corporation or of the Bank, materially modifies the
eligibility requirements, materially increases the benefits or
materially increases the number of shares issuable. No
suspension, termination or amendment of the Plan shall affect the
rights of Participants under options granted prior to any such
event.
10.2 Compliance with Rule 16b-3. With respect to persons
subject to Section 16 of the Exchange Act, transactions under the
Plan are intended to comply with the requirements of Rule 16b-3
under the Exchange Act, as applicable during the term of the
Plan. To the extent that any provision of the Plan or action by
the Committee or its delegees fail to so comply, it shall be
deemed null and void, to the extent permitted by law. Should the
requirements of Rule 16b-3 change, the Board of Directors may
amend this Plan to comply with the requirements of that rule or
its successor provision or provisions.
ARTICLE XI
Effective Date and Duration of the Plan
This Plan shall be effective on the date of the approval of
the Plan by the holders of a majority of the shares of Stock;
provided, however, that the adoption of the Plan is subject to
such stockholder approval within twelve (12) months before or
after the date of adoption of the Plan by the Board of Directors.
The Plan shall be null and void and of no effect if the foregoing
condition is not fulfilled, and in such event each Stock Option
Award hereunder shall, notwithstanding any of the preceding
provisions of the Plan, be null and void and of no effect.
EXHIBIT A
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (the "Agreement"), dated as of
__________, 199__, by and between __________ (the "Optionee") and
CBC Bancorp, Inc. ("CBC"), a Connecticut corporation and parent
company of the Connecticut Bank of Commerce (the "Bank").
WHEREAS, the Optionee is regarded as a key employee of CBC
and the Bank, and the respective Board of Directors of CBC and of
the Bank has each determined that it would be to the advantage
and in the interest of CBC and the Bank and the shareholders of
CBC to grant the option provided for herein to the Optionee as an
inducement to remain in the service of CBC and the Bank as an
incentive for increased effort during such service; and
WHEREAS, CBC and the Optionee wish to set forth the terms
and conditions of the option granted to Optionee hereunder.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements set forth herein, the parties
hereto hereby agree as follows:
1. Grant of Option. On the terms and conditions contained
in this Agreement, CBC hereby grants to Optionee an option (the
"Option") to purchase __________ shares of CBC common stock, par
value $0.01 per share (the "Common Stock") at a purchase price of
$_____ per share (the "Option Price") representing the Market
Price (as hereinafter defined) of a share of Common Stock on the
trading day immediately preceding the date of grant. If the
Optionee to whom an Option is granted owns, at the time of the
grant, more than ten percent (10%) of the combined voting power
of CBC, the Option Price shall not be less than one hundred ten
percent (110%) of the Market Price described in the preceding
sentence. For purposes of this Agreement, "Market Price" shall
mean the closing sale price of a share of CBC Common Stock as
reported on the NASDAQ Small-Cap Market on the particular day in
question, or, if no trading occurred on that day, then, on the
last trading day immediately prior to such day. Any shares of
Common Stock issued upon exercise of all or part of the Option
are referred to herein as the "Option Shares". The number of
shares of Common Stock that may be received upon exercise of the
Option is subject to further adjustment from time to time as
provided for herein.
2. Terms of Option. The Option shall not be transferable
by the Optionee other than by will or the laws of descent and
distribution, and, during the Optionee's lifetime, shall be
exercisable only by the Optionee. In addition, the Option shall
be of ten years' duration, except that an Option granted to an
Optionee who, at the time of the grant, owns Common Stock
representing more than ten percent (10%) of the combined voting
power of CBC shall by its terms be of no more than five years'
duration. The Option shall be exercisable only after the earliest
of: (i) __________, 199__ (a date no more than one year
following the date of grant of the Option), (ii) the Optionee's
death or Disability (as hereinafter defined); or (iii) a Change
in Control of CBC (as hereinafter defined). For purposes of this
Agreement the term "Disability" shall mean an Optionee's
inability to engage in any substantial gainful activity because
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 six (6) months of
longer. For purposes of this Agreement, a "Change in Control of
CBC" shall be deemed to have occurred in the event that any
"person" or "group", within the meaning of Section 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), acquires, directly or indirectly, beneficial
ownership of 51 percent or more of the then outstanding voting
securities of CBC and such person on the effective date of CBC's
Long-Term Incentive Plan (the "Plan") did not own or control 51
percent or more of the voting securities of CBC.
3. Exercise and Termination of the Option. (a) The Option
is only exercisable by the Optionee while the Optionee is in
active employment with CBC or the Bank, except (i) in the case of
the Optionee's death or Disability, at any time during the thirty-
six month period following the Optionee's death or Disability;
(ii) during a six-month period commencing on the date of the
Optionee's termination of employment by CBC or the Bank other
than for cause; (iii) during the three-year period commencing on
the date of the Optionee's termination of employment, by the
Optionee or CBC or Bank, as the case may be, after a Change in
Control of CBC, unless such termination of employment is for
cause; or (iv) if the members of CBC's Compensation Committee who
are outside directors or, if no such Committee has been
established, the Committee of two or more members of CBC's Board
of Directors who are outside directors appointed by the Board of
Directors to administer the Plan (the "Committee"), decide that
it is in the best interest of CBC or the Bank to permit
individual exceptions. The Option may not be exercised pursuant
to this Section 3 after the expiration date of the Option. (b)
The Option may be exercised by the Optionee with respect to part
or all of the Option Shares subject to the Option by giving
written notice to CBC of the exercise of the Option. The Option
Price for the shares of Common Stock for which the Option is
exercised shall be paid on or within ten (10) business days after
the date of exercise in cash, by certified check or money order,
in whole shares of Common Stock owned by the Optionee prior to
exercising the Option, or in a combination of cash and such
shares of Common Stock or on such terms and conditions as the
Committee determines. The value of any share of Stock delivered
in payment of the option price shall be its Market Price on the
date the option is exercised. (c) In order to enable CBC to meet
any applicable federal, state or local withholding tax
requirements arising as a result of the exercise of the Option,
the Optionee shall pay to CBC the amount of tax to be withheld.
In the alternative, the Optionee may elect to satisfy such
obligation (i) by having CBC withhold shares of Common Stock that
otherwise would be delivered to the Optionee pursuant to the
exercise of the Option for which the tax is being withheld, (ii)
by delivering to CBC other shares of Common Stock owned by the
Optionee prior to exercising the Option or (iii) by making a
payment to CBC consisting of a combination of cash and such
shares of Common Stock. Such election shall be subject to the
following: (a) the election shall be made in such manner as may
be prescribed by the Committee; (b) the election shall be made
prior to the date to be used to determine the tax to be withheld;
and (c) if the Optionee is a person subject to Section 16 of the
Exchange Act, the election shall be irrevocable and shall be made
within six months after the grant of the Option, except that this
six-month limitation shall not apply in the event the Optionee
delivers to CBC previously owned shares of Common Stock, and
shall be made either at least six months prior to the date to be
used to determine the tax to be withheld or during a ten-day
period beginning on the third business day following the date of
release of the quarterly or annual consolidated balance sheets
and statements of operations and ending on the 12th business day
following such date.
4. Adjustment Upon Changes in Capitalization. In the
event of any change in the capital structure of CBC by reason of
any stock split, stock dividend, recapitalization, merger,
consolidation, combination or exchange of shares or other similar
corporate change (including the exercise of warrants and the
conversion of any equity or debt securities of CBC convertible
into shares of Common Stock) or in the event of any special
distribution to stockholders, the number of Option Shares and the
Option Price per share applicable to the Option granted
hereunder, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock;
provided, however, that any fractional shares resulting from any
such adjustment shall be eliminated.
5. Specific Performance. The parties hereto acknowledge
that damages would constitute an inadequate remedy for a breach
of this Agreement and that the obligations of the parties hereto
shall be specifically enforceable.
6. Assignability. This Option is not assignable or
transferable by the Optionee otherwise than by will or the laws
of descent and distribution and is exercisable during Optionee's
lifetime only by the Optionee.
7. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not effect the validity or
enforceability of any other provision of this Agreement, which
shall remain in full force and effect.
8. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of
Connecticut, regardless of the laws that might otherwise govern
under applicable principles of conflicts of laws thereof.
9. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original,
but all of which shall constitute one and the same agreement.
IN WITNESS WHEREOF, CBC has caused this Agreement to be duly
executed by its duly authorized officer, and the Optionee has
hereunto set his hand, all as of the day and year first above
written.
OPTIONEE
BY:___________________________
CBC BANCORP, INC.
BY:___________________________
EXHIBIT 10(l)
EXCHANGE AGREEMENT
By and Between
CBC BANCORP, INC.
and
RANDOLPH W. LENZ
Dated and Effective as of December 31, 1994
EXCHANGE AGREEMENT
EXCHANGE AGREEMENT (the "Exchange Agreement"), dated and
effective as of December 31, 1994, by and between CBC Bancorp,
Inc. ("Bancorp"), and Randolph W. Lenz (the "Investor").
RECITALS
WHEREAS, Bancorp desires to issue to the Investor 337 shares
of Bancorp's newly-issued Series III nonvoting cumulative
convertible preferred stock, stated value and liquidation
preference of $10,000 per share with such terms and conditions
described on Schedule A hereto (the "New Preferred Stock") and a
Senior Note in the principal amount of the accrued and unpaid
interest on the Senior Notes and $8,000 of principal (the "New
Senior Note") in exchange for Bancorp's Short-Term Senior Notes,
in the principal amount of $3,370,000, held by the Investor (the
"Senior Notes"), and the Investor desires to effect the Exchange
of the Senior Notes for the shares of New Preferred Stock and the
New Senior Note (the "Exchange"); and
WHEREAS, the parties hereto wish to set forth the terms and
conditions of the Exchange.
AGREEMENT
NOW, THEREFORE, in order to implement the foregoing and in
consideration of the mutual representations, warranties,
covenants and agreements contained herein and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
EXCHANGE OF
NEW PREFERRED STOCK AND NEW SENIOR NOTE
FOR SENIOR NOTES
Section 1.1 The Exchange.. Upon the terms of this
Exchange Agreement, the Investor hereby agrees to exchange,
effective December 31, 1994 (the "Effective Date"), the Senior
Notes in the principal amount of $3,370,000 for 337 shares of
Bancorp New Preferred Stock and a New Senior Note with the same
terms and conditions as the Senior Notes and in the aggregate
principal amount equal to the accrued and unpaid interest on the
Senior Notes from the date of issuance until the Effective Date
of the Exchange plus $8,000 of principal of the Senior Notes.
Bancorp agrees to issue to the Investor the 337 shares of New
Preferred Stock and the New Senior Note in exchange for the
Senior Notes held by the Investor in the principal amount of
$3,370,000 effective as of the Effective Date. The material terms
and conditions of the shares of New Preferred Stock to be
acquired by the Investor hereunder are described in Schedule A
hereto.
Section 1.2 Issuance of New Preferred Stock and New
Senior Note; Deliveries. (a) As soon as practicable after the
Effective Date, Bancorp will deliver to the Investor, against
delivery of the original Senior Notes, (i) a duly authorized and
issued certificate or certificates (the "New Preferred Stock
Certificate") representing 337 shares of New Preferred Stock,
which shares will be fully paid and nonassessable and free and
clear of all liens, and (ii) a New Senior Note in the principal
amount equal to the sum of the accrued and unpaid interest on the
Senior Notes from the date of issuance up to and including the
Effective Date of the Exchange and $8,000 of principal amount of
the Senior Notes. (b) The Investor will deliver to Bancorp,
against delivery of the New Preferred Stock Certificate and the
New Senior Note, the Senior Notes.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF BANCORP
Bancorp hereby represents and warrants to the Investor as
follows:
Section 2.1. Execution, Delivery and Performance. Bancorp
has full right, power and authority to execute and deliver this
Exchange Agreement and to perform its obligations hereunder. This
Exchange Agreement has been duly authorized, executed and
delivered by or on behalf of Bancorp and is valid, binding and
enforceable against Bancorp in accordance with its terms.
Section 2.2. Registration of New Preferred Stock and New
Senior Note. Bancorp agrees to register the shares of New
Preferred Stock and the New Senior Note in a separate
registration statement, or, at Bancorp's option, to include the
shares of New Preferred Stock and the New Senior Note in the
pending registration statement which has been filed with the
Securities and Exchange Commission under the Securities Act of
1933, as amended ("Securities Act"). Bancorp will bear the costs
of registration of the New Preferred Stock and the New Senior
Note and the Investor will bear the costs of brokerage
commissions, discounts, fees and expenses of its counsel and
other selling expenses associated with the registration.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE INVESTOR
Investor hereby represents and warrants to Bancorp as
follows:
Section 3.1. Execution, Delivery and Performance.
Investor has full right, power and authority to execute and
deliver this Exchange Agreement and to perform his obligations
hereunder. This Exchange Agreement has been duly authorized,
executed and delivered by or on behalf of the Investor and is
valid, binding and enforceable against Investor in accordance
with its terms.
ARTICLE IV
TERMINATION
Section 4.1. Termination of the Agreement. This Exchange
Agreement may be terminated only by mutual written consent of
Bancorp and the Investor.
ARTICLE V
MISCELLANEOUS
Section 5.1. Any notice, request, demand or other
communication permitted or required to be given hereunder shall
be in writing, shall be signed by the party giving it, shall be
sent to the addressee at the address set forth hereinbelow (or at
such address as shall be designated hereunder by notice to the
other parties and persons receiving copies) and shall be deemed
conclusively to have been given: (i) upon confirmation of
transmission, when sent by telex, telegram or facsimile; (ii) on
the day following the day on which it is sent by United States
Express Mail, postage prepaid and return receipt requested or by
any other reputable overnight courier service; (iii) on the fifth
day following the day sent by certified or registered United
States mail, postage prepaid and return receipt requested; or
(iv) when received by the addressee, if sent otherwise.
(a) If to Bancorp:
Charles Pignatelli
President
CBC Bancorp, Inc.
128 Amity Road
Woodbridge, Connecticut 06525
(b) If to the Investor:
Randolph W. Lenz
c/o Terex Corporation
500 Post Road East, Suite 320
Westport, Connecticut 06880
Section 5.2. Further Assurances. Each party hereto agrees
that, upon the request of the other parties, it will do such
further acts and things and execute, acknowledge, deliver and
record such other agreements, instruments and statements as from
time to time may be reasonably necessary or desirable to
evidence, confirm or carry out the intent and purpose of this
Exchange Agreement.
Section 5.3. Section and Other Headings. The section and
other headings contained in this Exchange Agreement are for
reference purposes only and shall not affect the meaning or
interpretation of this Exchange Agreement.
Section 5.4. Governing Law. This Exchange Agreement shall
be governed by and construed in accordance with the laws of the
State of Connecticut.
Section 5.5. Severability. In the event that any term or
provision of this Exchange Agreement shall be finally determined
to be superseded, invalid, illegal or otherwise unenforceable
pursuant to applicable law by a governmental authority having
jurisdiction and venue, that determination shall not impair or
otherwise affect the validity, legality or enforceability (a) by
or before that authority of the remaining terms and provisions of
this Exchange Agreement, which shall be enforced as if the
unenforceable term or provision were deleted, or (b) by or before
any other authority of any of the terms and provisions of this
Exchange Agreement, unless to do so would deprive a party of a
substantial benefit under this Exchange Agreement.
Section 5.6. Counterparts. This Exchange Agreement may be
executed in counterparts, each of which may be executed by one or
more of the parties hereto, but all of which, when taken
together, shall constitute but one agreement binding upon all of
the parties hereto.
Section 5.7 Successors and Assigns; Assignments. Whenever
in this Exchange Agreement reference is made to any party, such
reference shall be deemed to include the successors, assigns,
heirs and legal representatives of such party.
Section 5.8. No Third Party Rights. Except as otherwise
provide in Section 5.7 above, the terms and provisions of this
Exchange Agreement are for the exclusive benefit of the parties
hereto, and no other person, including creditors of any party
hereto, shall have any right or claim against any party by reason
of those terms and provisions or be entitled to enforce any of
those terms and provisions against any party.
Section 5.9. No Waiver by Actions, Etc. Any waiver of, and
consent to any departure from, any term or provision of this
Exchange Agreement shall be in writing and signed by each party
adversely affected thereby. Any waiver or consent respecting any
term or provision of this Exchange Agreement shall be effective
only in the specific instance and for the specific purpose for
which given and shall not be deemed, regardless of frequency
given, to be a further or continuing waiver or consent. The
failure or delay of a party at any time or times to require
performance of, or to exercise or enforce any of its rights,
powers, privileges, remedies and interests with respect to, any
term or provision of this Exchange Agreement in no manner (except
as otherwise expressly provided herein) shall affect that party's
rights at a later time to enforce any such provision. No notice
to or demand on a party in any event shall entitle such party to
any other or further notice or demand in the same, similar or
other circumstances. All rights, powers, privileges, remedies
and interests of a party under this Exchange Agreement are
cumulative and not alternatives, and they are in addition to and
shall not limit (except as otherwise expressly provided herein)
any other right, power, or privilege granted herein or pursuant
to applicable law.
Section 5.10. Modification, Amendment, Etc. Any
modification or amendment of this Exchange Agreement, except as
otherwise expressly provided herein or as otherwise required by
applicable law, shall be in writing and signed or consented to in
writing by each of the parties hereto.
Section 5.11 Survival of Representations and Warranties.
All of the covenants, agreements, representations and warranties
made herein shall survive the execution and delivery of this
Exchange Agreement and the delivery of the New Preferred Stock
Certificates and the New Senior Note in exchange for the Senior
Notes and shall continue in full force and effect.
Section 5.12. Entire Agreement. This Exchange Agreement
contains the entire agreement of the parties and supersedes all
other representations, agreements and understandings, oral or
otherwise, between the parties with respect to the matters
contained herein.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Exchange Agreement as of the date first written
above.
CBC BANCORP, INC.
By: /s/ CHARLES PIGNATELLI
Charles Pignatelli
President
RANDOLPH W. LENZ
By: /S/ RANDOLPH W. LENZ
Randolph W. Lenz
SCHEDULE A
DESCRIPTION OF TERMS OF
CBC BANCORP, INC.'S
SERIES III PREFERRED STOCK
Also of such 100,000 authorized shares of Preferred Stock,
no par value, there shall be designated an additional 1,000
shares thereof and named "Series III", having a stated value of
Ten Thousand Dollars ($10,000) each, the terms, limitations and
relative rights and preferences of which shall be as follows and
as otherwise set forth in this Certificate of Incorporation:
(1) Dividends: The holders of the Series III Preferred
Stock shall be entitled to receive cumulative quarterly dividends
at the annual rate of the Wall Street Journal Prime Rate or
substitute rate plus five percentage points. Dividends shall be
of equal priority with dividends payable on Series I and Series
II Preferred Stock and shall be prior in right to dividends
payable to holders of the Common Stock. At the option of the
holder of the Series III Preferred Stock, the Corporation shall
pay accrued and unpaid dividends in shares of Corporation Common
or Preferred Stock with a market value at the time of payment
equal to the dividend being paid.
(2) Voting Rights: The holders of the Series III Preferred
Stock shall not have any voting rights.
(3) Conversion and Exchange Rights: The holders of the
Series III Preferred Stock shall have the right, exercisable at
any time following issuance but subject to any required
regulatory approvals, if any, to convert or exchange shares of
Series III Preferred Stock into shares of Common Stock, Preferred
Stock or any other capital instrument of the Company or, at the
option of the holders, into a combination of such shares and
shares of Common Stock, Preferred Stock or other capital
instrument of the Corporation's subsidiary (the "Subsidiary"),
with a market value equal to the stated value, plus accrued and
unpaid dividends to the date of conversion or exchange; provided,
however, that in no event shall the holders be entitled to
receive, in any conversion or exchange, more than 179,096 shares
of the Subsidiary's Common Stock. The market value of the
Corporation's Common Stock is determined based on the seven
trading day average of the closing sale price (or, if no sales,
the closing bid price) of the Corporation Common Stock
immediately preceding the conversion or exchange date and the
market value of the Subsidiary's Common Stock shall be the par
value thereof.
(4) Redemption Rights: The holders of the Series III
Preferred Stock shall not have the right to redeem the stock
unless expressly authorized by the Board of Directors of the
Corporation. The Corporation shall have the right to redeem the
Series III Preferred Stock at any time following issuance at the
price paid for such stock, without interest except for payment of
accumulated dividends, subject to receipt of approval from state
or federal banking regulatory agencies as may be required by law.
(5) Sinking Fund: No sinking fund shall be established for
the Series III Preferred Stock.
(6) Liquidation Preference: The Series III Preferred Stock
shall have a liquidation preference of $10,000 per share, the
payment of which shall be of equal priority with the payment of
any liquidation preferences of the Series I and II Preferred
Stock and shall be prior in right to any payments to holders of
the Common Stock upon liquidation.
EXHIBIT 10(m)
January 18, 1995
Mr. Charles Pignatelli
President and Chief Executive Officer
CBC Bancorp, Inc.
128 Amity Road
Woodbridge, Connecticut 06525
Dear Mr. Pignatelli:
This letter agreement shall confirm our mutual understanding
and agreement pertaining to the Option Agreement (the "Option
Agreement"), dated as of June 23, 1994, by and between CBC
Bancorp, Inc. ("Bancorp") and EQ Corporation ("EQ").
Specifically, the parties to this letter agreement hereby agree
as follows:
1. For value received, the receipt and sufficiency of
which is hereby acknowledged, EQ hereby agrees to the
cancellation of the Option Agreement. EQ also agrees to
relinquish any and all options or rights heretofore granted, or
to be granted in the future, under the Option Agreement.
2. As of the date of this letter agreement, the Option
Agreement will be deemed void, canceled and of no further legal
effect or import.
3. This letter agreement shall be governed by the laws of
the State of Connecticut. This letter may be executed in
counterparts each of which shall constitute one and the same
agreement.
If the foregoing accurately reflects our agreement with
respect to the matters set forth above, please return one
executed copy of this letter agreement to me for my records.
Very truly yours,
EQ CORPORATION
By: /s/ Richard Parkes
Its: President
AGREED TO AND ACCEPTED BY
CBC BANCORP, INC.
By: /s/ Charles Pignatelli
Its: President
[ARTICLE] 9
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1994
[PERIOD-END] DEC-31-1994
[CASH] 3,130
[INT-BEARING-DEPOSITS] 0
[FED-FUNDS-SOLD] 5,700
[TRADING-ASSETS] 0
[INVESTMENTS-HELD-FOR-SALE] 7,281
[INVESTMENTS-CARRYING] 6,908
[INVESTMENTS-MARKET] 0
[LOANS] 59,070
[ALLOWANCE] 0
[TOTAL-ASSETS] 92,722
[DEPOSITS] 87,474
[SHORT-TERM] 0
[LIABILITIES-OTHER] 2,333
[LONG-TERM] 1,458
[COMMON] 20
[PREFERRED-MANDATORY] 0
[PREFERRED] 9,830
[OTHER-SE] (8,393)
[TOTAL-LIABILITIES-AND-EQUITY] 92,722
[INTEREST-LOAN] 6,886
[INTEREST-INVEST] 533
[INTEREST-OTHER] 206
[INTEREST-TOTAL] 7,625
[INTEREST-DEPOSIT] 3,211
[INTEREST-EXPENSE] 3,532
[INTEREST-INCOME-NET] 4,093
[LOAN-LOSSES] 1,773
[SECURITIES-GAINS] (811)
[EXPENSE-OTHER] 5,461
[INCOME-PRETAX] (3,889)
[INCOME-PRE-EXTRAORDINARY] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (3,889)
[EPS-PRIMARY] (1.93)
[EPS-DILUTED] 0
[YIELD-ACTUAL] 4.58
[LOANS-NON] 7,885
[LOANS-PAST] 1,305
[LOANS-TROUBLED] 3,954
[LOANS-PROBLEM] 0
[ALLOWANCE-OPEN] 5,012
[CHARGE-OFFS] 4,840
[RECOVERIES] 692
[ALLOWANCE-CLOSE] 2,637
[ALLOWANCE-DOMESTIC] 2,637
[ALLOWANCE-FOREIGN] 0
[ALLOWANCE-UNALLOCATED] 0
</TABLE>
