SECURITIES EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 34-0-25158
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BANCORP CONNECTICUT, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 061394443
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
121 Main Street, Southington, CT 06489
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 860-628-0351
----------------------
Indicate by a check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date. The number of shares of common
stock, par value $1.00 per share, outstanding on October 28, 1997 was 2,544,016.
(Excluding treasury shares)
<PAGE>
BANCORP CONNECTICUT, INC.
INDEX TO FORM 10-Q
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PART I. FINANCIAL INFORMATION PAGE
- ------- --------------------- ----
Item 1. Financial Statements (unaudited)
(a) Consolidated Condensed Balance Sheets - September 30, 1997
and December 31, 1996 1
(b) Consolidated Condensed Statements of Income - Three
months and nine months ended September 30, 1997
and 1996 2
(c) Consolidated Condensed Statements of Changes in
Capital Accounts - nine months ended September 30,
1997 and 1996 4
(d) Consolidated Condensed Statements of Cash Flows -
nine months ended September 30, 1997 and 1996 5
(e) Notes to the Consolidated Condensed Financial Statements -
September 30, 1997 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BANCORP CONNECTICUT, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CONDITION
(dollars in thousands)
September 30, December 31,
1997 1996
-------------- -------------
(unaudited)
Assets:
Cash and due from banks $ 5,857 $ 8,454
Federal funds sold 4,600 700
--------- ---------
Cash and cash equivalents 10,457 9,154
Trading account securities 196 2,430
Investment securities:
Available-for-sale (at market value) 100,058 105,515
Held-to-maturity 44,180 44,096
--------- ---------
144,238 149,611
Loans 264,023 252,144
Less: Allowance for loan losses (5,253) (4,875)
Deferred loan fees (961) (995)
--------- ---------
257,809 246,274
Federal Home Loan Bank stock 2,094 2,040
Bank premises and equipment 2,924 3,084
Accrued income receivable 2,899 2,717
Other real estate owned 739 1,367
Deferred taxes 1,705 2,196
Other assets 739 525
--------- ---------
Total assets $ 423,800 $ 419,398
========= =========
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Demand and Now $ 44,351 $ 38,385
Savings 95,058 96,070
Time 171,640 175,372
--------- ---------
311,049 309,827
Advances from Federal Home Loan Bank 27,630 21,000
Federal funds purchased and securities sold
under agreements to repurchase 36,440 41,879
Mortgagors' escrow accounts 873 1,687
Accrued taxes, expenses and other liabilities 2,250 2,274
--------- ---------
Total liabilities 378,242 376,667
--------- ---------
Shareholders' Equity:
Preferred stock -- --
Common stock 2,803 2,768
Additional paid-in capital 19,765 19,189
Retained earnings 27,304 24,609
Unrealized gain on investment securities, net 1,430 504
Treasury stock, at cost, 259,749 shares in
1997 and 197,552 shares in 1996 (5,744) (4,339)
--------- ---------
45,558 42,731
--------- ---------
Total liabilities and
shareholders' equity $ 423,800 $ 419,398
========= =========
See notes to unaudited consolidated condensed financial statements.
-1-
<PAGE>
BANCORP CONNECTICUT, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(dollars in thousands)
(unaudited)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
1997 1996 1997 1996
---- ---- ---- ----
Interest Income:
Interest and fees on loans $5,656 $5,360 $16,594 $15,663
Interest and dividends on securities:
U.S. Government and agency securities 1,412 1,405 4,281 4,088
Other bonds and notes 91 39 211 114
Marketable equity securities 792 703 2,405 2,028
------ ------ ------ ------
2,295 2,147 6,897 6,230
Interest on trading account 9 5 28 25
Interest on Federal funds sold 32 34 125 204
Other interest and dividend income 35 33 102 98
------ ------ ------ ------
Total interest income 8,027 7,579 23,746 22,220
------ ------ ------ ------
Interest Expense:
Interest on NOW deposits 130 63 291 190
Interest on savings deposits 635 654 1,899 1,984
Interest on time deposits 2,343 2,316 7,016 6,901
------ ------ ------ ------
3,108 3,033 9,206 9,075
Interest on borrowed funds 944 799 2,863 2,177
------ ------ ------ ------
Total interest expense 4,052 3,832 12,069 11,252
------ ------ ------ ------
Net interest income 3,975 3,747 11,677 10,968
Provision for loan losses 150 125 500 300
------ ------ ------ ------
Net interest income after
provision for loan losses 3,825 3,622 11,177 10,668
Other Income:
Net securities gains 268 65 604 307
Net trading account gains 24 (67) 74 (3)
Trust fees 134 150 343 342
Service charges on deposit accounts 130 135 387 405
Other 4 102 188 255
------ ------ ------ ------
560 385 1,596 1,306
------ ------ ------ ------
Other Expenses:
Salaries and employee benefits 1,193 1,173 3,486 3,393
Occupancy 120 119 394 397
Furniture and equipment expense 101 89 294 258
Data processing 171 161 507 472
FDIC assessments 9 1 28 2
Legal expense 42 56 126 215
OREO expense (5) 33 (23) 120
Advertising expense 91 68 259 226
Other 460 414 1,212 1,321
------ ------ ------ ------
2,182 2,114 6,283 6,404
------ ------ ------ ------
Income before taxes 2,203 1,893 6,490 5,570
Provision for income taxes 696 610 2,075 1,813
------ ------ ------ ------
Net income $1,507 $1,283 $4,415 $3,757
====== ====== ====== ======
</TABLE>
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<PAGE>
BANCORP CONNECTICUT, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - CONTINUED
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary:
Average shares & common stock equivalents 2,758,937 2,860,726 2,740,380 2,851,230
Net income per share $0.55 $0.45 $1.61 $1.32
Fully Diluted:
Average shares & common stock equivalents 2,794,897 2,865,174 2,808,758 2,866,308
Net income per share $0.54 $0.45 $1.57 $1.31
Cash dividend per share $0.250 $0.190 $0.675 $0.540
</TABLE>
See notes to unaudited consolidated condensed financial statements.
-3-
<PAGE>
BANCORP CONNECTICUT, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN CAPITAL ACCOUNTS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS) ON
COMMON PAID-IN RETAINED INVESTMENT TREASURY
STOCK CAPITAL EARNINGS SECURITIES STOCK
------------ ------------ ------------ ---------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $2,263 $18,862 $21,575 $509 $0
Net income 3,757
Stock options exercised 51 366
Cash dividends declared
($.54 per share) (1,463)
6-for-5 stock split effected in
the form of a stock dividend 442 (442)
Treasury stock purchased (1,998)
Decrease in net unrealized gain
on investment securities (494)
Tax benefits related to
common stock option exercises 220
------ ------- ------- --- -------
Balance at September 30, 1996 $2,756 $19,006 $23,869 $15 ($1,998)
====== ======= ======= ====== =======
Balance at December 31, 1996 $2,768 $19,189 $24,609 $504 ($4,339)
Net income 4,415
Stock options exercised 35 416
Cash dividends declared
($.675 per share) (1,720)
Treasury stock purchased (1,405)
Increase in net unrealized gain
on investment securities $926
Tax benefits related to
common stock option exercises 160
------ ------- ------- --- -------
Balance at September 30, 1997 $2,803 $19,765 $27,304 $1,430 ($5,744)
====== ======= ======= ====== =======
</TABLE>
See notes to unaudited consolidated condensed financial statements
-4-
<PAGE>
BANCORP CONNECTICUT, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1997 1996
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Net income $4,415 $3,757
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation/amortization expense 342 341
Deferred income tax provision (benefit) (121) 205
Gain on sale of OREO (196) (85)
Net accretion and amortization of bond
premium and discount 64 100
Provision for loan losses 500 300
Provision for foreclosed real estate losses 94 89
Amortization of deferred loan points (113) (123)
Realized gains on available-for-sale securities (604) (307)
Net trading account gains (74) (3)
Decrease in trading account 2,308 143
Increase in accrued income receivable (182) (261)
(Decrease) increase in accrued expenses payable and
other liabilities (24) 328
Increase in other assets (213) (97)
------- ------
Total adjustments 1,781 630
------- ------
Net cash provided by operating activities 6,196 4,387
------- ------
Cash flows from investing activities:
Purchases of securities held-to-maturity (8,142) (18,741)
Purchases of securities available-for-sale (41,494) (29,171)
Proceeds from sales of securities available-for-sale 31,056 14,388
Proceeds from maturities of securities 20,260 17,000
Paydowns on mortgage-backed securities 5,772 8,440
Purchases of Federal Home Loan Bank stock (55) (61)
Net increase in loans (11,988) (18,521)
Purchases of premises and equipment, net (152) (8)
Proceeds from sale of foreclosed real estate, net 925 2,018
------- ------
Net cash used in investing activities (3,818) (24,656)
------- ------
Cash flows from financing activities:
Net (decrease) increase in time deposits (3,732) 7,717
Net increase (decrease) in other deposits 4,954 (3,438)
Net decrease in mortgagors' escrow (814) (855)
Proceeds from borrowings 32,361 30,971
Repayment of borrowings (25,731) (32,361)
Net (decrease) increase in Federal funds purchased (625) 675
Net (decrease) increase in repurchase agreements (4,814) 14,943
Repurchase of common stock (1,405) (1,998)
Proceeds from exercise of stock options 451 417
Cash dividends paid (1,720) (1,463)
------- ------
Net cash (used in) provided by financing activities (1,075) 14,608
------- ------
Net increase (decrease) in cash and cash equivalents 1,303 (5,661)
------- ------
Cash and cash equivalents at beginning of period 9,154 10,672
------- ------
Cash and cash equivalents at end of period $10,457 $5,011
======= ======
Schedule of noncash investing and financing activities:
Change in unrealized loss on investment securities $926 ($494)
Transfer of loans to other real estate owned 158 2,890
Foreclosed real estate sales financed 212 622
</TABLE>
See notes to unaudited consolidated condensed financial statements.
-5-
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1. Basis of Presentation
In the opinion of Bancorp Connecticut, Inc. (the "Corporation"), the
accompanying unaudited consolidated condensed financial statements contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly its financial position as of September 30, 1997 and the results
of operations and cash flows for the three month and nine month periods ended
September 30, 1997 and 1996. The results of its operations for the periods shown
are not necessarily indicative of the results to be expected for the full year.
Certain 1996 amounts have been reclassified to conform with the 1997
presentation. These reclassifications had no impact on net income.
NOTE 2. Investment Securities
The amortized cost, gross unrealized gains and losses and estimated market
values of investment securities as of September 30, 1997 and December 31, 1996
are as follows:
<TABLE>
<CAPTION>
Held-to-Maturity
--------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(000's), September 30, 1997 Cost Gains Losses Value
- ------------------------------------------- -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
United States Government
agency obligations $ 19,090 $ 38 $ (114) $ 19,014
Municipal bonds 3,345 85 (3) 3,427
Mortgage-backed securities 21,745 81 (71) 21,755
-------- ------- --------- ---------
$ 44,180 $ 204 $ (188) $ 44,196
======== ======= ========= =========
Available-for-sale
--------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- ------------------------------------------- -------------- -------------- --------------- --------------
United States Government
obligations $ 7,986 $ 55 $ - $ 8,041
Mortgage-backed securities 29,991 419 (56) 30,354
Capital trust securities 2,000 115 - 2,115
Marketable equity securities 53,057 1,763 (84) 54,736
Mutual funds 4,630 186 (4) 4,812
-------- ------- --------- ---------
$ 97,664 $ 2,538 $ (144) $ 100,058
======== ======= ========= =========
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
Held-to-Maturity
------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(000's), December 31, 1996 Cost Gains Losses Value
- -------------------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
United States Government
agency obligations $ 22,651 $ 152 $ (123) $ 22,680
Municipal bonds 3,252 88 (6) 3,334
Mortgage-backed securities 18,193 6 (240) 17,959
-------- --------- -------- --------
$ 44,096 $ 246 $ (369) $ 43,973
======== ========= ======== ========
Available-for-sale
----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
United States Government
obligations $ 14,977 $ 92 $ (2) $ 15,067
Mortgage-backed securities 26,063 298 (144) 26,216
Marketable equity securities 55,848 944 (262) 56,531
Mutual funds 7,771 9 (79) 7,701
---------- ---------- ----------- --------
$ 104,659 $ 1,343 $ (487) $105,515
========== ========== =========== ========
</TABLE>
NOTE 3. Activity in the Allowance for Loan Losses
(dollars in thousands) 1997 1996
---- ----
Balance at beginning of year $4,875 $5,488
Provision for loan losses 500 300
Charge-offs (264) (964)
Recoveries 142 137
------ ------
Balance at September 30 $5,253 $4,961
====== ======
-7-
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. Nonperforming Assets
September 30, December 31,
(dollars in thousands) 1997 1996
--------------------- ------------ -----------
Nonaccrual loans
Residential real estate $ 2,523 $ 2,060
Commercial real estate 172 337
Commercial 340 306
Consumer 242 236
------- -------
Total nonaccrual loans 3,277 2,939
Accruing loans past due 90 days or more 408 -
------- -------
Total nonperforming loans 3,685 2,939
Other real estate owned 739 1,367
------- -------
Total nonperforming assets $ 4,424 $ 4,306
======= =======
Nonperforming loans as percentage
of total loans 1.40% 1.17%
======= =======
Nonperforming assets as a percentage
of total assets 1.04% 1.03%
======= =======
NOTE 5. Earnings Per Share
In February, 1997, the FASB issued Statement of Financial Accounting Standards
No. 128 "Earnings Per Share" ("SFAS 128"). SFAS 128 provides accounting and
reporting standards for the calculation of earnings per share intended to
simplify the computation by replacing the presentation of primary earnings per
share with a presentation of basic earnings per share. The Corporation will be
required to adopt SFAS 128 in the fourth quarter of 1997. The following
indicates what the earnings per share would have been if computed in accordance
with SFAS 128 for the periods indicated:
Quarter ended Nine months ended
September 30, September 30,
------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
Basic earnings per share $0.59 $0.48 $1.73 $1.39
Diluted earnings per share $0.54 $0.45 $1.57 $1.31
-8-
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. Declaration of Stock Split
On October 14, 1997, the Board of Director's declared a two for one stock split
effected in the form of a 100% stock dividend to shareholders of record on
November 10, 1997, payable December 1, 1997. The following indicates the impact
of the stock split on earnings per share calculations for the periods indicated:
<TABLE>
<CAPTION>
Quarter ended Nine months ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary:
Average shares and common stock equivalents 5,517,874 5,721,452 5,460,760 5,702,460
Net income per share $ .275 $ .225 $ .805 $ .660
Fully Diluted:
Average shares and common stock equivalents 5,589,794 5,730,348 5,617,516 5,732,616
Net income per share $ .270 $ .225 $ .785 $ .665
</TABLE>
NOTE 7. Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 129, "Disclosure of Information
about Capital Structure." This pronouncement establishes standards for the
disclosure of information about an entity's capital structure and is effective
for financial statements issued for periods ending after December 15, 1997. The
adoption of this pronouncement is expected to have no impact on the financial
statements of the Corporation.
In June of 1997, the FASB issued two pronouncements, Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," (SFAS No. 130)
and No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS No. 131). SFAS No. 130 establishes standards for reporting
and display of comprehensive income, which is defined as the change in equity of
a business enterprise during a period from nonowner sources. SFAS No. 130 is
effective for years beginning after December 15, 1997 and requires
reclassification of financial statements for all prior years presented. The
adoption of SFAS No. 130 is expected to impact the presentation of financial
information only.
SFAS No. 131 requires public companies to report financial and descriptive
information about operating segments in their financial statements and requires
selected information about operating segments to be reported in interim
financial reports issued to shareholders. Operating segment financial
information is required to be reported on the basis that it is used internally
for evaluating segment performance and allocation of resources. SFAS No. 131 is
effective for financial statements
-9-
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. Continued
for periods beginning after December 15, 1997 and requires presentation of
comparative information for prior periods presented. The adoption of SFAS No.
131 is expected to have no impact on the financial statements of the Bank.
FOR FURTHER INFORMATION AND FOR ASSISTANCE IN READING THIS REPORT, REFER TO THE
FINANCIAL STATEMENTS AND FOOTNOTES INCLUDED IN THE REGISTRANT'S ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 AND TO THE MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION INCLUDED
IN THIS REPORT.
-10-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Third Quarter Ended September 30, 1997
Bancorp Connecticut, Inc. ("the Corporation") is the holding company of
Southington Savings Bank (the "Bank"). Since the Bank is the Corporation's sole
subsidiary, the Corporation's earnings and financial condition are predicated
almost entirely on the performance of the Bank.
Changes in Financial Condition
Investments
- -----------
Total investments decreased from $149,611,000 at December 31, 1996 to
$141,238,000 at September 30, 1997. The decrease was primarily due to the sales
and maturities of U.S. Government obligations and agency securities in the
available for sale category, the proceeds of which were reinvested in mortgage
backed securities and loans. Additionally, federal funds have increased
temporarily until the funds can be redeployed into additional investments. The
unrealized gain on available-for-sale securities increased by $1,538,000 during
the period due to favorable market conditions.
Loans
- -----
Total loans increased from $252,144,000 at December 31, 1996 to $264,023,000 at
September 30, 1997 primarily as a result of an increase in consumer home equity
loans and automobile loans as well as owner-occupied commercial real estate
loans.
Other real estate owned
- -----------------------
Other real estate owned decreased by $628,000 or 45.9% from December 31, 1996 to
September 30, 1997 due to disposition of certain properties held by the Bank.
Borrowings
- ----------
Advances from the Federal Home Loan Bank of Boston increased by $6,630,000 or
31.6% from December 31, 1996 to September 30, 1997. The additional borrowings
consisted primarily of short-term advances which have replaced repurchase
agreements as a funding source.
-11-
<PAGE>
Changes in Results of Operations
Net Income
- ----------
Net income for the quarter ended September 30, 1997 was $1,507,000 as compared
to $1,283,000 for the third quarter of 1996, an increase of 17.5%. The increase
was primarily due to higher net interest income and net securities gains. The
annualized return on average assets for the quarter ended September 30, 1997 was
1.42% as compared to 1.27% for the quarter ended September 30, 1996.
Net income for the nine months ended September 30, 1997 was $4,415,000 as
compared to $3,757,000 for the same period of 1996, an increase of 17.5%. The
increase was primarily due to higher net interest income, a higher level of net
securities gains and a reduction in noninterest expense. The annualized return
on average assets for the nine months ended September 30, 1997 was 1.40% as
compared to 1.26% for nine months ended September 30, 1996.
Net Interest Income
- -------------------
Net interest income increased $228,000 or 6.1% for the third quarter of 1997 as
compared to the same quarter of 1996. Interest income increased $448,000 or 5.9%
for the three month period ended September 30, 1997 as compared to the same
period in 1996. This was primarily the result of an increase in average interest
earning assets of $19,823,000 or 5.0% as compared to the prior year's quarter.
The tax equivalent yield on earning assets increased to 8.10% for the current
quarter as compared to 8.03% for the same quarter of 1996. Interest expense
increased $220,000 or 5.7%, primarily from an increase in average interest
bearing liabilities of $14,799,000 or 4.4% for the current year's quarter. The
Bank's cost of funds increased to 4.58% for the current quarter as compared to
4.52% for the same quarter of 1996.
Net interest income increased $709,000 or 6.5% for the nine months ended
September 30, 1997 as compared to the same period in 1996. Interest income
increased $1,526,000 or 6.9% as compared to the same nine month period of 1996,
primarily due to a rise in average interest earning assets of 6.4% during the
current year's period. In addition, the tax equivalent yield on earning assets
increased to 8.04% as compared to 7.96% for the same nine month period in 1996.
Interest expense increased $817,000 or 7.3% for the first nine months of 1997 as
compared to the first nine months of 1996. This was primarily due from a rise in
average interest bearing liabilities of 6.0% for the current year's period. The
Bank's cost of funds increased to 4.54% for the first nine months of 1997 as
compared to 4.49% for the same period of 1996.
-12-
<PAGE>
Provision for Loan Losses
- -------------------------
The provision for loan losses increased to $150,000 for the third quarter of
1997 as compared to $125,000 for the same quarter of 1996 in response to an
increase in nonperforming loans since December 31, 1996. As of September 30,
1997, nonperforming loans totaled $3,685,000 or 1.40% of total loans as compared
to $2,939,000 or 1.17% on December 31, 1996.
Net loan charge-offs for the third quarter of 1997 were $42,000 as compared to
$66,000 for the same quarter of 1996. Overall, the allowance for loan losses
increased to $5,253,000 on September 30, 1997 as compared to $4,961,000 on
September 30 1996. The allowance for loan losses as a percentage of
nonperforming loans is currently 142.6% as compared to 130.1% on September 30,
1996.
For the nine months ended September 30, 1997, the provision for loan losses was
$500,000 as compared to $300,000 for the same period in 1996. Net charge-offs
for the first nine months of 1997 totaled $122,000 as compared to $827,000 for
the same period in 1996.
Nonperforming assets increased to $4,424,000 or 1.0% of total assets as of
September 30, 1997 as compared to $4,306,000 or 1.0% as of December 31, 1996.
(See note 4 to the unaudited consolidated financial statements.)
Management believes the allowance for loan losses is maintained at a level that
is adequate to absorb losses within the loan portfolio. (See notes 3 and 4 to
the unaudited consolidated financial statements.)
Other Income
- ------------
Noninterest income was $560,000 for the third quarter of 1997 as compared to
$385,000 for the same quarter of 1996, an increase of 45.5%. The increase was
primarily due to net securities and trading account gains of $292,000 in the
current quarter as compared to net securities and trading account losses of
$2,000 for the same quarter of 1996. Brokerage income also increased to $33,000
for the current quarter or approximately twice that of the same quarter of the
prior year. Other income declined $98,000 during the current quarter as compared
to the same quarter of 1996 primarily due to the cost of closing covered call
option contracts. The option contracts were closed to prevent the option from
being called since the rise in the market value of the underlying securities
exceeded the cost of closing the contracts.
Noninterest income for the nine months ended September 30, 1997 totaled
$1,596,000 as compared to $1,306,000 for the same period in 1996, an increase of
22.2%. The primary reason for the rise in income was an increase in net
securities and trading account gains to $678,000 for the nine month period ended
September 30, 1997 from $304,000 for the same period of 1996. Other income
declined $67,000 for the current nine month period as compared to the same
period of 1996 primarily due to
-13-
<PAGE>
the cost of closing covered call option contracts. The Bank did not participate
in a covered option program during 1996. Finally, brokerage fees increased by
$40,000 or 81.3% on a year to date basis compared to 1996.
Other Expenses
- --------------
Noninterest expenses increased $68,000 or 3.2% for the third quarter of 1997 as
compared to the same quarter of 1996. Advertising expense increased $23,000 or
33.8% during the third quarter of 1997 as compared to the same quarter of 1996
primarily due to the promotion of an overdraft line of credit product. Other
expenses increased $46,000 or 11.1% primarily from an increase in consulting
services. During the current quarter, gains on the sales of OREO properties
resulted in net OREO income of $5,000 as compared to net OREO expense of $33,000
for the third quarter of 1996.
Noninterest expenses decreased $121,000 or 1.9% for the nine months ended
September 30, 1997 as compared to the same period in 1996. This was primarily
the result of OREO income of $23,000 for the first nine months of 1997 as
compared to OREO expense of $120,000 for the same period in 1996 due to gains on
sales of certain OREO properties during 1997. In addition, legal expense
decreased $89,000 or 41.3% for the nine month period ended September 30, 1997 as
compared to the same period in 1996 due primarily to additional costs resulting
from the settlement of a lawsuit during 1996. Consulting fees also decreased by
$71,000 or 43.3% on a year to date basis in 1997 as compared to 1996 as there
were non-recurring consulting fees relating to a technology assessment in 1996.
Income Taxes
- ------------
Estimated income taxes for the third quarter of 1997 were $696,000 as compared
to $610,000 for the same quarter of 1996. The increase was primarily due to the
generation of income before taxes of $2,203,000 for the quarter ended September
30, 1997 as compared to $1,893,000 for the same quarter of 1996. The effective
tax rate for the second quarter of 1997 was 31.6% as compared to 32.2% for the
same quarter of 1996, and is lower than the expected statutory rate due to the
Federal and State dividends received deduction.
Estimated income taxes for the nine months ended September 30, 1997 were
$2,075,000 as compared to $1,813,000 for the same period in 1996. The increase
was primarily due to the generation of income before taxes of $6,490,000 for the
nine months ended September 30, 1997 as compared to $5,570,000 for the same
period in 1996. The effective rate for the first nine months of 1997 was 32.0%
as compared to 32.5% for the same period of 1996.
-14-
<PAGE>
Average Balances, Interest, Yields and Rates (Fully Taxable Equivalent Basis)(2)
- --------------------------------------------------------------------------------
The following table presents daily average statements of condition, which
include nonaccrual loans, the components of net interest income and selected
statistical data on a fully taxable equivalent basis.
<TABLE>
Three months ended Three months ended 1997 Compared to 1996
September 30, 1997 September 30, 1996 Increase (Decrease) Due to
----------------------------- -------------------------- ---------------------------
(dollars in thousands) Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Volume Rate Net(1)
------- -------- ---- ------- -------- ------ -------- ----- ------
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $261,116 $5,656 8.66% $247,367 $5,360 8.67% $298 ($2) $296
Taxable investment securities (at cost) 143,462 2,594 7.23% 137,805 2,412 7.00% 101 81 182
Municipal bonds 3,305 58 7.02% 3,148 57 7.24% 3 (2) 1
Federal funds sold 2,303 32 5.56% 2,630 34 5.17% (4) 2 (2)
Other interest-earning assets 3,141 34 4.33% 2,554 33 5.17% 7 (6) 1
-------------------- ------------------ ------------------------
Total interest-earning assets 413,327 8,374 8.10% 393,504 7,896 8.03% 405 73 478
-------------------- ------------------ ------------------------
Noninterest-earning assets:
Cash and due from banks 5,651 5,222
Premises and equipment, net 2,989 3,406
Other assets 6,304 6,856
Less loan loss allowance (5,201) (4,911)
----------- ---------
TOTAL ASSETS $423,070 $404,077
=========== =========
LIABILITIES AND EQUITY
Interest-bearing liabilities:
NOW and savings deposits $115,755 $760 2.63% $111,385 $711 2.55% $28 $21 $49
Time deposits 170,963 2,343 5.48% 168,583 2,316 5.50% 33 (6) 27
Mortgagors' escrow deposits 863 6 2.78% 919 6 2.61% 0 0 0
FHLB of Boston advances 27,367 414 6.05% 16,699 242 5.80% 161 11 172
Federal funds purchased and securities
sold under agreements to repurchase 39,195 529 5.40% 41,758 557 5.34% (35) 7 (28)
--------------------- ----------------- ------------------------
Total interest-bearing
liabilities 354,143 4,052 4.58% 339,344 3,832 4.52% 187 33 220
--------------------- ----------------- ------------------------
Noninterest-bearing liabilities:
Demand deposits 23,663 21,011
Other 1,174 1,086
Stockholders' equity 44,090 42,636
----------- ---------
TOTAL LIABILITIES AND EQUITY $423,070 $404,077
=========== =========
Net interest income before Federal
tax equivalent adjustment 4,322 4,064 $218 $40 $258
(347) (317) =========================
------- -------
Net interest income $3,975 $3,747
======= =======
Net interest spread (tax equivalent basis) 3.52% 3.51%
===== =====
Net interest margin (tax equivalent basis) 4.18% 4.13%
===== =====
</TABLE>
(1) The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
(2) Fully taxable equivalent income was calculated based on statutory federal
and state tax rates
15
<PAGE>
Average Balances, Interest, Yields and Rates (Fully Taxable Equivalent Basis)(2)
- --------------------------------------------------------------------------------
The following table presents daily average statements of condition, which
include nonaccrual loans, the components of net interest income and selected
statistical data on a fully taxable equivalent basis.
<TABLE>
Nine months ended Nine months ended 1997 Compared to 1996
September 30, 1997 September 30, 1996 Increase (Decrease) Due to
------------------------------ -------------------------- --------------------------
(dollars in thousands) Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Volume Rate Net(1)
------- -------- ---- ------- -------- ------ ------ ---- ------
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $255,406 $16,594 8.66% $241,563 $15,663 8.65% $600 $21 $621
Taxable investment securities 146,276 7,807 7.12% 134,810 7,000 6.92% 405 133 538
Municipal bonds 3,268 172 7.02% 3,115 168 7.19% 5 (3) 2
Federal funds sold 3,125 125 5.33% 5,240 204 5.19% (56) 4 (52)
Other interest-earning assets 3,049 102 4.46% 2,756 97 4.69% 7 (3) 4
-------------------- ------------------- -----------------------
Total interest-earning assets 411,124 24,800 8.04% 387,484 23,132 7.96% 961 152 1,113
-------------------- ------------------- -----------------------
Noninterest-earning assets:
Cash and due from banks 5,187 4,659
Premises and equipment, net 3,049 3,447
Other assets 6,045 6,796
Less loan loss allowance (5,052) (5,125)
--------- ---------
TOTAL ASSETS $420,353 $397,261
========= =========
LIABILITIES AND EQUITY
Interest-bearing liabilities:
NOW and savings deposits $113,313 $2,168 2.55% $112,830 $2,152 2.54% $ 6 5 $11
Time deposits 172,361 7,016 5.43% 166,257 6,901 5.53% 167 (90) 77
Mortgagors' escrow deposits 1,020 22 2.88% 1,012 22 2.90% 0 0 0
FHLB of Boston advances 25,322 1,136 5.98% 17,418 727 5.57% 234 39 273
Federal funds purchased and securities
sold under agreements to repurchase 42,246 1,727 5.45% 36,689 1,450 5.27% 151 34 185
-------------------- ------------------- -----------------------
Total interest-bearing
liabilities 354,262 12,069 4.54% 334,206 11,252 4.49% 558 (12) 546
-------------------- ------------------- -----------------------
Noninterest-bearing liabilities:
Demand deposits 21,777 19,145
Other 1,213 1,061
Stockholders' equity 43,101 42,849
--------- --------
TOTAL LIABILITIES AND EQUITY $420,353 $397,261
========= ========
Net interest income before Federal
tax equivalent adjustment $12,731 $11,880 $403 $164 $567
=======================
Federal tax equivalent adjustment (1,054) (912)
------- --------
Net interest income $11,677 $10,968
====== = ========
Net interest spread (tax equivalent basis) 3.50% 3.47%
======= =====
Net interest margin (tax equivalent basis) 4.13% 4.09%
======= =====
</TABLE>
(1) The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
(2) Fully taxable equivalent income was calculated based on statutory federal
and state tax rates
16
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security-Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits Required by Item 601 of Regulation S-K.
Exhibit No. Description
3.1 Certificate of Incorporation of Registrant
(Incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-4
(Registration No. 33-77696) (the "Registration
Statement")).
3.2 Bylaws of Registrant (Incorporated by reference to
Exhibit 3.2 to the Registration Statement).
3.3 Certificate of Amendment of Certificate of
Incorporation dated May 20, 1996 (Incorporated by
reference to Exhibit 3.3 to the Quarterly Report
on Form 10-Q for the quarterly period ended June
30, 1996).
17
<PAGE>
4 Instruments defining the rights of security
holders (Included in Exhibits 3.1 and 3.2).
10.1 Employment Agreement dated as of January 1, 1997,
by and between the Bank and Robert D. Morton
(Incorporated by reference to Exhibit 10.1 to the
Registrant's Annual Report on Form 10-K)
10.2 Southington Savings Bank 1986 Stock Option Plan
(Incorporated by reference to Exhibit 10.2 to the
Registration Statement).
10.3 Southington Savings Bank 1993 Stock Option Plan
(Incorporated by reference to Exhibit 10.3 to the
Registration Statement).
10.4 Pension Plan of Southington Savings Bank, as
amended (Incorporated by reference to Exhibit 10.4
to the Registration Statement).
10.5 Southington Savings Bank Supplemental Retirement
Plan (Incorporated by reference to Exhibit 10.5 to
the Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1996).
10.6 Bancorp Connecticut, Inc. 1997 Stock Option Plan
11.1 Statement re computation of per share earnings.
27 Financial Data Schedule
(b) Reports on Form 8-K.
The Registrant did not file any Report on Form 8-K during the third
quarter of 1997.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANCORP CONNECTICUT, INC.
---------------------------------------
(Registrant)
Date: November 10, 1997 By:/s/ Robert D. Morton
--------------------- ---------------------------------------
Robert D. Morton
Its President and Chief Executive
Officer (A duly authorized officer)
Date: November 10, 1997 By:/s/ Anthony Priore, Jr.
--------------------- ---------------------------------------
Anthony Priore, Jr.
Its Treasurer and Secretary
(Chief Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1 Certificate of Incorporation of Registrant (Incorporated by
reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-4 (Registration No. 33-77696) (the
"Registration Statement")).
3.2 Bylaws of Registrant (Incorporated by reference to Exhibit 3.2
to the Registration Statement).
3.3 Certificate of Amendment of Certificate of Incorporation dated
May 20, 1996 (Incorporated by reference to Exhibit 3.3 to the
10-Q for the quarterly period ended June 30, 1996).
4 Instruments defining the rights of security holders (Included
in Exhibits 3.1 and 3.2).
10.1 Employment Agreement dated as of January 1, 1997, by and
between the Bank and Robert D. Morton (Incorporated by
reference to Exhibit 10.1 to the Registrant's 1996 Annual
Report on Form 10-K).
10.2 Southington Savings Bank 1986 Stock Option Plan (Incorporated
by reference to Exhibit 10.2 to the Registration Statement).
10.3 Southington Savings Bank 1993 Stock Option Plan (Incorporated
by reference to Exhibit 10.3 to the Registration Statement).
10.4 Pension Plan of Southington Savings Bank, as amended
(Incorporated by reference to Exhibit 10.4 to the Registration
Statement).
10.5 Southington Savings Bank Supplemental Retirement Plan
(Incorporated by reference to Exhibit 10.5 to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1996).
10.6 Bancorp Connecticut, Inc. 1997 Stock Option Plan (Incorporated
by reference to Exhibit 10.6 to the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended June 30,
1997).
11.1 Statement re computation of per share earnings.
27 Financial Data Schedule
Exhibit 11.1: Computation of Per Share Earnings
<TABLE>
<CAPTION>
Quarter ended Nine months ended
September 30, September 30,
(dollar amounts in thousands except ----------------------- -----------------
per share)
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income - primary and fully diluted $1,507 $1,283 $4,415 $3,757
====== ====== ====== ======
Weighted Average Common Stock
and Common Equivalent Stock
Weighted average common stock outstanding 2,539 2,691 2,548 2,704
Assumed conversion (as of the beginning of each period
or upon issuance during a period) of stock options outstanding at
the end of each period 220 170 192 147
------ ------ ------ ------
Weighted average common stock outstanding -
primary 2,759 2,861 2,740 2,851
====== ====== ====== =====
Weighted average common stock outstanding 2,539 2,691 2,548 2,704
Assumed conversion (as of the beginning of each period
or upon issuance during a period) of stock options outstanding at
the end of each period 256 174 261 162
------ ------ ------ ------
Weighted average common stock outstanding -
fully diluted 2,795 2,865 2,809 2,866
====== ====== ====== ======
Earnings per Weighted Average Common Share $0.594 $0.477 $1.733 $1.389
------ ------ ------ ------
Earnings per Common and Common Equivalent Share
Primary $0.546 $0.448 $1.611 $1.318
------ ------ ------ ------
Fully Diluted $0.539 $0.448 $1.572 $1.311
------ ------ ------ ------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,857
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,600
<TRADING-ASSETS> 196
<INVESTMENTS-HELD-FOR-SALE> 100,058
<INVESTMENTS-CARRYING> 44,180
<INVESTMENTS-MARKET> 44,196
<LOANS> 264,023
<ALLOWANCE> (5,253)
<TOTAL-ASSETS> 423,800
<DEPOSITS> 311,049
<SHORT-TERM> 44,580
<LIABILITIES-OTHER> 3,123
<LONG-TERM> 19,490
0
0
<COMMON> 2,803
<OTHER-SE> 42,755
<TOTAL-LIABILITIES-AND-EQUITY> 423,800
<INTEREST-LOAN> 16,594
<INTEREST-INVEST> 6,897
<INTEREST-OTHER> 255
<INTEREST-TOTAL> 23,746
<INTEREST-DEPOSIT> 9,206
<INTEREST-EXPENSE> 12,069
<INTEREST-INCOME-NET> 11,677
<LOAN-LOSSES> 500
<SECURITIES-GAINS> 604
<EXPENSE-OTHER> 6,283
<INCOME-PRETAX> 6,490
<INCOME-PRE-EXTRAORDINARY> 6,490
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,415
<EPS-PRIMARY> 1.61
<EPS-DILUTED> 1.57
<YIELD-ACTUAL> 7.70
<LOANS-NON> 3,277
<LOANS-PAST> 408
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 11,036
<ALLOWANCE-OPEN> 4,875
<CHARGE-OFFS> 264
<RECOVERIES> 142
<ALLOWANCE-CLOSE> 5,253
<ALLOWANCE-DOMESTIC> 3,442
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,811
</TABLE>
