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 June 30, 1998
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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.
-----------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 061394443
- ---------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
121 Main Street, Southington, CT 06489
- ---------------------------------------------------------------------------
(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 July 31, 1998 was 5,114,808 .
(Excluding treasury shares)
<PAGE>
BANCORP CONNECTICUT, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
- ------- --------------------- ----
<S> <C> <C>
Item 1. Financial Statements (unaudited)
(a) Consolidated Condensed Balance Sheets - June 30, 1998
and December 31, 1997 1
(b) Consolidated Condensed Statements of Income - Three
months and six months ended June 30, 1998 and 1997 2
(c) Consolidated Condensed Statements of Changes in
Capital Accounts - six months ended June 30,
1998 and 1997 4
(d) Consolidated Condensed Statements of Cash Flows -
six months ended June 30, 1998 and 1997 5
(e) Notes to the Consolidated Condensed Financial Statements -
June 30, 1998 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 18
Item 6. Exhibits and Reports on Form 8-K 19
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BANCORP CONNECTICUT, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CONDITION
(dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
(unaudited)
<S> <C> <C>
Assets:
Cash and due from banks $ 6,858 $ 7,370
Federal funds sold 10,200 1,500
--------- ---------
Cash and cash equivalents 17,058 8,870
Trading account securities 536 612
Investment securities:
Available-for-sale (at market value) 208,654 166,712
Loans 262,469 261,681
Less: Allowance for loan losses (5,485) (5,306)
Deferred loan fees (879) (950)
--------- ---------
256,105 255,425
Federal Home Loan Bank stock 2,365 2,094
Bank premises and equipment 4,107 3,151
Accrued income receivable 2,877 2,760
Other real estate owned 617 1,178
Deferred taxes 1,736 1,512
Other assets 1,123 711
--------- ---------
Total assets $ 495,178 $ 443,025
========= =========
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Demand and Now $ 63,176 $ 50,698
Savings 99,191 95,760
Time 161,583 169,095
--------- ---------
323,950 315,553
Advances from Federal Home Loan Bank 31,630 20,630
Federal funds purchased and securities sold
under agreements to repurchase 86,015 55,368
Mortgagors' escrow accounts 1,669 1,746
Accrued taxes, expenses and other liabilities 2,918 2,781
--------- ---------
Total liabilities 446,182 396,078
--------- ---------
Shareholders' Equity:
Preferred stock -- --
Common stock 5,633 5,612
Additional paid-in capital 17,289 17,051
Retained earnings 30,295 28,149
Accumulated other comprehensive income 1,523 1,879
Treasury stock, at cost, 519,498 shares
in 1998 and 1997 (5,744) (5,744)
--------- ---------
48,996 46,947
--------- ---------
Total liabilities and shareholders'
equity $ 495,178 $ 443,025
========= =========
</TABLE>
See notes to unaudited consolidated condensed financial statements.
1
<PAGE>
BANCORP CONNECTICUT, AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ---------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 5,628 $ 5,570 $ 11,248 $ 10,938
Interest and dividends on securities:
U.S. Government and agency securities 1,995 1,441 3,848 2,869
Other bonds and notes 139 81 262 120
Marketable equity securities 818 845 1,656 1,613
------- ------- -------- --------
2,952 2,367 5,766 4,602
Interest on trading account 3 1 3 19
Interest on Federal funds sold 40 37 161 93
Other interest and dividend income 38 34 72 67
------- ------- -------- --------
Total interest income 8,661 8,009 17,250 15,719
------- ------- -------- --------
Interest Expense:
Interest on NOW deposits 239 96 451 161
Interest on savings deposits 634 641 1,362 1,264
Interest on time deposits 2,180 2,332 4,419 4,673
------- ------- -------- --------
3,053 3,069 6,232 6,098
Interest on borrowed funds 1,422 987 2,730 1,919
------- ------- -------- --------
Total interest expense 4,475 4,056 8,962 8,017
------- ------- -------- --------
Net interest income 4,186 3,953 8,288 7,702
Provision for loan losses 68 200 168 350
------- ------- -------- --------
Net interest income after
provision for loan losses 4,118 3,753 8,120 7,352
Other Income:
Net securities gains 338 175 812 336
Net trading account gains 15 28 41 50
Trust fees 139 108 280 209
Service charges on deposit accounts 158 132 310 257
Other 312 108 513 184
------- ------- -------- --------
962 551 1,956 1,036
------- ------- -------- --------
Other Expenses:
Salaries and employee benefits 1,446 1,169 2,700 2,293
Occupancy 130 131 255 274
Furniture and equipment expense 96 97 195 193
Data processing 206 167 424 336
Legal expense 44 42 83 84
OREO expense (8) (5) (18) (18)
Advertising expense 111 113 214 168
Other 452 406 934 771
------- ------- -------- --------
2,477 2,120 4,787 4,101
------- ------- -------- --------
Income before taxes 2,603 2,184 5,289 4,287
Provision for income taxes 852 690 1,793 1,379
------- ------- -------- --------
Net income $ 1,751 $ 1,494 $ 3,496 $ 2,908
======= ======= ======== ========
</TABLE>
2
<PAGE>
BANCORP CONNECTICUT, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME - CONTINUED
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ---------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic:
Average shares 5,107,334 5,080,300 5,101,494 5,104,658
Net income per share $0.34 $0.29 $0.69 $0.57
Diluted:
Average shares & common stock equivalents 5,575,028 5,393,116 5,566,587 5,416,024
Net income per share $0.31 $0.28 $0.63 $0.54
Cash dividend per share $0.135 $0.110 $0.265 $0.213
</TABLE>
Average shares outstanding and per share data have been restated for all periods
presented to reflect a 2-for-1 stock split effected in the form of a stock
dividend paid on December 1, 1997.
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>
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME TOTAL
COMMON PAID-IN RETAINED UNREALIZED TREASURY SHAREHOLDERS
STOCK CAPITAL EARNINGS GAINS(LOSSES) STOCK EQUITY
-------- ------- -------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $2,768 $19,189 $ 24,609 $ 504 ($4,339) $ 42,731
Net income -- -- 2,908 -- -- 2,908
Change in unrealized gains(losses) -- -- -- 313 -- 313
------ ------- -------- ------- ------- --------
Total comprehensive income -- -- 2,908 313 3,221
Stock options exercised 25 297 -- -- -- 322
Cash dividends declared -- -- -- -- -- --
($.213 per share) -- -- (1,086) -- -- (1,086)
Treasury stock purchased -- -- -- -- (1,405) (1,405)
Tax benefits related to common stock -- -- -- -- -- --
option exercises and restricted stock -- 103 -- -- -- 103
------ ------- -------- ------- ------- --------
Balance at June 30, 1997 $2,793 $19,589 $ 26,431 $ 817 ($5,744) $ 43,886
====== ======= ======== ======= ======= ========
Balance at December 31, 1997 $5,612 $17,051 $ 28,149 $ 1,879 ($5,744) $ 46,947
Net income -- -- 3,496 -- -- 3,496
Change in unrealized gains(losses) -- -- -- (356) -- (356)
------ ------- -------- ------- ------- --------
Total comprehensive income -- -- 3,496 (356) -- 3,140
Stock options exercised 21 161 -- -- -- 182
Cash dividends declared -- -- -- -- -- --
($.265 per share) -- -- (1,350) -- -- (1,350)
Tax benefits related to common stock -- -- -- -- -- --
option exercises and restricted stock -- 77 -- -- -- 77
------ ------- -------- ------- ------- --------
Balance at June 30, 1998 $5,633 $17,289 $ 30,295 $ 1,523 ($5,744) $ 48,996
====== ======= ======== ======= ======= ========
</TABLE>
See notes to unaudited consolidated financial statements
4
<PAGE>
BANCORP CONNECTICUT, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,496 $ 2,908
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation/amortization expense 230 229
Deferred income tax (provision) benefit 44 (78)
Gain on sale of OREO (123) (149)
Net accretion and amortization of bond
premium and discount (257) 99
Provision for loan losses 168 350
Provision for foreclosed real estate losses 53 75
Amortization of deferred loan points (144) (92)
Realized gains on available-for-sale securities (812) (336)
Net trading account gains (41) (50)
Decrease in trading account 118 2,228
Increase in accrued income receivable (117) (54)
Increase in accrued expenses payable
and other liabilities 214 23
Increase in other assets (338) (231)
--------- --------
Total adjustments (1,005) 2,014
--------- --------
Net cash provided by operating activities 2,491 4,922
--------- --------
Cash flows from investing activities:
Purchases of securities held-to-maturity -- (6,042)
Purchases of securities available-for-sale (109,695) (25,163)
Proceeds from sales of securities available-for-sale 46,299 15,090
Proceeds from maturities of securities 12,623 11,255
Paydowns on mortgage-backed securities 9,275 3,643
Purchases of Federal Home Loan Bank stock (271) (55)
Net increase in loans (836) (8,703)
Purchases of premises and equipment, net (1,165) (146)
Proceeds from sale of foreclosed real estate, net 669 673
--------- --------
Net cash used in investing activities (43,101) (9,448)
--------- --------
Cash flows from financing activities:
Net decrease in time deposits (7,512) (2,687)
Net increase in other deposits 15,909 4,684
Net (decrease) increase in mortgagors' escrow (77) 61
Proceeds from borrowings 50,201 9,735
Repayment of borrowings (39,201) (5,105)
Net decrease in Federal funds purchased (800) (400)
Net increase in repurchase agreements 31,446 1,497
Repurchase of common stock -- (1,405)
Proceeds from exercise of stock options 183 322
Cash dividends paid (1,351) (1,086)
--------- --------
Net cash provided by financing activities 48,798 5,616
--------- --------
Net increase in cash and cash equivalents 8,188 1,090
--------- --------
Cash and cash equivalents at beginning of period 8,870 9,154
--------- --------
Cash and cash equivalents at end of period $ 17,058 $ 10,244
========= ========
Schedule of noncash investing and financing activities:
Change in unrealized gain on investment securities, gross $ (623) $ 313
Transfer of loans to other real estate owned 131 158
Foreclosed real estate sales financed -- 212
</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 June 30, 1998 and the results of
operations and cash flows for the three month and six month periods ended June
30, 1998 and 1997. The results of its operations for the periods shown are not
necessarily indicative of the results to be expected for the full year.
Certain 1997 amounts have been reclassified to conform with the 1998
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 June 30, 1998 and December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
Available-for-sale
--------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(000's) June 30, 1998 Cost Gains Losses Value
- ------------------------------------------- -------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
United States Government and federal agency
obligations $49,635 $132 $(31) $49,736
Municipal bonds 3,337 85 (1) 3,421
Mortgage-backed securities 80,724 320 (175) 80,869
Capital preferred securities 2,000 307 - 2,307
Marketable equity securities 59,926 2,215 (302) 61,839
Mutual funds 10,510 30 (58) 10,482
-------------- --------------- --------------- --------------
$ 206,132 $3,089 $(567) $ 208,654
============== =============== =============== ==============
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Available-for-sale
--------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(000's) December 31, 1997 Cost Gains Losses Value
- ------------------------------------------- -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
United States Government and federal agency
obligations $27,577 $106 $(67) $27,616
Municipal bonds 3,342 91 (1) 3,432
Mortgage-backed securities 64,988 574 (66) 65,496
Capital preferred securities 3,750 303 - 4,053
Marketable equity securities 59,595 2,319 (99) 61,815
Mutual funds 4,314 9 (23) 4,300
-------------- -------------- --------------- --------------
$ 163,566 $3,402 $(256) $ 166,712
============== ============== =============== ==============
</TABLE>
NOTE 3. Activity in the Allowance for Loan Losses
<TABLE>
<CAPTION>
(dollars in thousands) 1998 1997
---- ----
<S> <C> <C>
Balance at beginning of year $5,306 $4,875
Provision for loan losses 168 350
Charge-offs (69) (188)
Recoveries 80 108
------ ------
Balance at June 30, $5,485 $5,145
====== ======
</TABLE>
NOTE 4. Nonperforming Assets
<TABLE>
<CAPTION>
June 30, December 31,
(dollars in thousands) 1998 1997
---------------------- -------- ------------
<S> <C> <C>
Nonaccrual loans
Residential real estate $1,924 $1,988
Commercial real estate 163 258
Commercial 254 387
Consumer 67 228
------ ------
Total nonaccrual loans 2,408 2,861
Accruing loans past due 90 days or more -- --
Total nonperforming loans 2,408 2,861
Other real estate owned 617 1,178
------ ------
Total nonperforming assets $3,025 $4,039
====== ======
Nonperforming loans as percentage
of total loans .92% 1.09%
====== ======
Nonperforming assets as a percentage
of total assets .61% .91%
====== ======
</TABLE>
7
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. Earnings Per Share
Effective December 31, 1997, the Corporation adopted the provisions of Statement
of Financial Standards No. 128, "Earnings per Share" ("SAS 128"). SFAS 128
establishes standards for computing and presenting earnings per share ("EPS").
It replaces the presentation of primary earnings per share with a presentation
of basic earnings per share. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures. The statement was effective for financial statements issued
for the periods ending after December 31, 1997 and has been applied for all
periods presented.
Basic earnings per share is computed using the weighted average common shares
outstanding during the period presented. The computation of diluted earnings per
share is similar to the computation of basic earnings per share except the
denominator is increased to include the number of additional common shares that
would have been outstanding if dilutive potential common shares had been issued.
The shares used in the computations for the quarterly and six month periods
ended June 30, were as follows:
<TABLE>
<CAPTION>
Quarter ended Six months ended
June 30, June 30,
----------------- -----------------
(in thousands) 1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic 5,107 5,080 5,101 5,105
Effect of dilutive stock options 468 313 466 311
----- ----- ----- -----
Diluted 5,575 5,393 5,567 5,416
===== ===== ===== =====
</TABLE>
The number of common shares used in the calculation have been restated for all
periods presented to reflect a 2-for-1 stock split effected in the form of a
stock dividend on December 1, 1997.
NOTE 6. Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
No. 130, "Reporting Comprehensive Income" (FAS 130). FAS 130 establishes
standards for reporting and display of comprehensive income, which is defined as
the change in net equity of a business enterprise during a period from non-owner
sources. The Corporation adopted FAS 130 as of January 1, 1998. The
Corporation's one source of comprehensive income is the unrealized gain(loss) on
investment securities.
8
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. Continued
The following table represents the components and the related tax effects
allocated to other comprehensive income for the six months ended June 30, 1998:
<TABLE>
<CAPTION>
Before Tax Net of
Tax (Expense) Tax
Amount Benefit Amount
------ ------- ------
<S> <C> <C> <C> <C>
Net unrealized gains (losses) on
securities arising during the period $ 216 $ (87) $ 129
Less: reclassification adjustment for
gains realized in net income $ 812 $ (327) $ 485
----- ------ -----
Net unrealized gains (losses) on
securities $(596) $ (240) $(356)
===== ====== =====
</TABLE>
The following table represents components and the related tax effects allocated
to other comprehensive income for the six months ended June 30, 1997:
<TABLE>
<CAPTION>
Before Tax Net of
Tax (Expense) Tax
Amount Benefit Amount
------ ------- ------
<S> <C> <C> <C>
Net unrealized gains (losses) on
securities arising during the period $ (866) $ (354) $ (511)
Less: reclassification adjustment for
gains realized in net income $ 336 $ (138) $ 198
------ ------ ------
Net unrealized gains (losses) on
securities $ 530 $ (217) $ 313
====== ====== ======
</TABLE>
On June 15, 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities (FAS 133).
FAS 133 is effective for all fiscal years beginning after June 15, 1999 (January
1, 2000 for the Corporation). FAS 133 requires that all derivative instruments
be recorded on the balance sheet at their fair value. Changes in the fair value
of derivative instruments are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, the type of hedge transaction. Management
anticipates that, due to its limited use of derivative instruments, the adoption
of FAS 133 will not have a significant effect on the Corporation's results of
operations or its financial position.
9
<PAGE>
NOTE 7. Establishment of New Subsidiary
On April 23, 1998, the Bank began operation of a new subsidiary, BCIF Financial.
The primary function of BCIF Financial is to act as an auto finance sales
company. The operation of the new subsidiary had minimal impact on the financial
statements of the Corporation for the quarter ended June 30, 1998.
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, 1997 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.
Second Quarter Ended June 30, 1998
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
Federal Funds
Federal funds increased to $10,200,000 on June 30 1998 from $1,500,000 on
December 31, 1998 primarily due to a $10 million 4.99% advance from the Federal
Loan Bank of Boston in late June to be used to purchase investment securities in
July.
Investments
Total investment securities increased from $166,712,000 as of December 31, 1997
to $208,654,000 as of June 30, 1998 primarily due to the implementation of
approximately $20 million in leveraging strategies involving the purchase of
U.S. Government obligations and agency securities including mortgage
participation certificates. The investments were funded by broker repurchase
agreements to provide a positive net interest spread. A $12.8 million growth in
retail repurchase agreements since the beginning of the year was also primarily
invested in these securities. Investment in U.S. Government obligations,
mortgage backed securities and mutual funds increased $22,058,000, $15,736,000
and $6,196,000, respectively, from year end 1997.
Bank Premises and Equipment
Bank premises and equipment increased to $4,107,000 on June 30, 1998 as compared
to $3,151,000 on December 31, 1997 or 30.3% due to the capitalization of
hardware and software costs associated with bringing the Bank's core processing
system "in-house" from the current service bureau environment it is operating
on. The new core processing system is scheduled be placed in service by month
end July 1998.
Deposits
Total deposits increased by $8,397,000 or 2.7% during the first six months of
1998 as compared to December 31, 1997 due to the promotion of the Bank's money
fund checking product as well as increases in both consumer and commercial
checking accounts.
11
<PAGE>
Borrowings
Federal funds purchased and securities sold under agreements to repurchase
increased approximately $30.6 million or 55.4% due to the financing of the above
mentioned hedging strategies as well as an increase in retail repurchase
agreements. Advances from the Federal Home Loan Bank of Boston also increased
$11 million.
Changes in Results of Operation
Earnings
Net income for the quarter ended June 30, 1998 was $1,751,000 as compared to
$1,494,000 for the same quarter of 1997, an increase of 17.2%. Increases in net
interest income, net investment securities gains and other noninterest income
were the primary reasons for the higher earnings. The annualized return on
average assets for the quarter ended June 30, 1998 was 1.46% as compared to
1.42% for the quarter ended June 30, 1997.
Net income for the six months ended June 30, 1998 was $3,496,000 as compared to
$2,908,000 the same period of 1997, an increase of 20.2%. Increases in net
interest income, net investment securities gains and other noninterest income
contributed to the higher earnings. The annualized return on average assets for
the six months ended June 30, 1998 was 1.48% as compared to 1.39% for the six
months ended June 30, 1997. Return on equity also increased to 14.6% as compared
to 13.7% for the prior year period.
Net Interest Income
Net interest income increased $233,000 or 5.9% for the second quarter of 1998 as
compared to the same quarter of 1997. Interest income increased $652,000 for the
second quarter of 1998 primarily from an increase in average interest earning
assets of $53,282,000 or 12.9% as compared to the prior year's quarter. The tax
equivalent yield on earning assets decreased to 7.71% for the current quarter as
compared to 8.12% for the same quarter of 1997. Interest expense increased
$419,000 or 10.3%, primarily from a $44,588,000 or 12.5% increase in average
interest bearing liabilities as compared to the prior year's quarter. The
overall cost of interest bearing liabilities declined to 4.46% for the second
quarter of 1998 as compared to 4.55% for the same quarter of 1997.
Net interest income increased $586,000 or 7.6% for the six months ended June 30,
1998 as compared to the same period of 1998. Interest income increased
$1,531,000 for the six months ended June 30, 1998 primarily from an increase in
average interest earning assets of $51,043,000 or 12.5% as compared to the same
period of 1998. The tax equivalent yield on earning assets decreased to 7.78%
for the current six month period as compared to 8.03% for the same six month
period of 1997. The overall cost of interest bearing liabilities decreased
slightly to 4.52% for the first six months of 1998 as compared from 4.53% for
the same period of 1997.
12
<PAGE>
Provision for Loan Losses
The provision for loan losses decreased to $68,000 for the second quarter of
1998 as compared to $200,000 for the same quarter of 1997. The decrease is
commensurate with the reduction in nonperforming loans to $2,408,000 or .92% of
total loans as of June 30, 1998 as compared to $4,149,000 or 1.59% on June 30,
1997.
The allowance for loan losses as a percentage of nonperforming loans was 227.8%
as of June 30, 1998 as compared to 185.5% on December 31, 1998. Net loan
recoveries for the second quarter of 1998 were $33,000 as compared to
charge-offs $23,000 for the same quarter of 1997.
For the six months ended June 30, 1998, the provision for loan losses was
$168,000 as compared to $350,000 for the same period in 1997. Net recoveries for
the first six months of 1998 totaled $11,000 as compared to net charge-offs of
$80,000 for the same period of 1997.
Nonperforming assets decreased to $3,025,000 or .6% of total assets as of June
30, 1998 as compared to $4,039,000 or 1.1% as of December 31, 1997, a decrease
of 25.1%. (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 $962,000 for the second quarter of 1998 as compared to
$551,000 for the same quarter of 1997, an increase of 74.6%. The increase was
primarily due to net securities gains of $338,000 in the current quarter as
compared to $175,000 for the same quarter of 1997. In addition, commissions on
brokerage services increased $103,000 or 257.5% primarily from higher sales
volume and greater fee retention from a renegotiated contract from the Bank's
third party provider. Income from option call premiums also increased to $87,000
as compared to $13,000 for the same quarter of 1997.
Noninterest income for the six month period ended June 30, 1998 was $1,956,000
as compared to $1,036,000 for the same period of 1997, an increase of 88.8%. The
increase was primarily due to net securities gains for the current period of
$812,000 as compared to $336,000 for the same period of 1997. Commissions on
brokerage services increased $166,000 or 291.2% primarily from higher sales
volume and greater fee retention from a renegotiated contract from the Bank's
third party provider. Income from option call premiums increased $102,000 or
392.3%. Additionally, trust fees increased $71,000 or 34.0% primarily from a
higher volume of assets under management and service charges on deposit accounts
rose $53,000 or 20.6% primarily from an increase in pricing.
13
<PAGE>
Other Expenses
Noninterest expenses increased by $357,000 or 16.8% for the second quarter of
1998 as compared to the same quarter of 1997. Salaries and employee benefits
increased $277,000 or 23.7% during the current quarter as compared to the same
quarter of last year due to salaries from the start up of the new auto financing
subsidiary of the Bank, BCI Financial, staffing and overtime related to
preparation for the conversion to a new core processing system and the addition
of the Bank's investment brokerage counselor to the Bank's payroll. Under a
previous arrangement, the brokerage counselor's salary had been paid for by the
Bank's third party provider of brokerage services. Data processing services
increased $39,000 or 23.4% during the quarter due a higher volume of accounts
serviced and the conversion to check image processing.
Noninterest expenses increased $686,000 or 16.7% for the six months ended June
30, 1998 as compared to the same period of 1997. Salaries and benefits increased
$407,000 or 17.7% on a year to date basis for 1998 as compared to 1997 primarily
from the addition of the Bank's brokerage counselor to the payroll, addition of
the staff of BCI Financial, data processing conversion costs and an increase in
the Bank's profit sharing contribution. Data processing services increased
$88,000 or 26.2% due to a higher volume of accounts serviced and the conversion
to check image processing. Advertising expenses increased $46,000 or 27.4% as
compared to the first six months of the prior year due to promotion of the
Bank's demand deposit image statements and money fund checking product. The
increase in other expenses for the first six months of 1998 as compared to 1997
included higher consulting fees and printed forms and supplies.
Income Taxes
Estimated income taxes for the second quarter of 1998 were $852,000 as compared
to $690,000 for the same quarter of 1997. The increase was primarily due to the
generation of income before taxes of $2,603,000 during the second quarter of
1998 as compared to $2,184,000 for the same period of 1997. The effective tax
rate for the second quarter of 1998 was 32.7% as compared to 31.6% for the same
period of 1997. The increased effective rate for the current quarter reflects
the smaller impact that the Federal and State dividends received deduction had
on reducing taxable income for the current quarter as compared to the same
quarter in 1997.
Estimated income taxes for the six months ended June 30, 1998 were $1,793,000 as
compared to $1,379,000 for the same period of 1997. The increase was primarily
due to the generation of income before taxes of $5,289,000 during the current
six month period as compared to $4,287,000 for the same period of 1997. The
effective tax rate for the first six months of 1998 was 33.9% as compared to
32.2% for the same period of 1997.
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>
<CAPTION>
Three months ended Three months ended 1998 Compared to 1997
June 30, 1998 June 30, 1997 Increase (Decrease) Due to
--------------------------- ---------------------------- -----------------------------
(dollars in thousands) Average Yield/ Average Yield/
Balance Interest Date Balance Interest Rate Volume Rate Net(1)
------- -------- ---- ------- -------- ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans $260,534 $5,628 8.64% $254,630 $5,570 8.75% $128 ($70) $58
Taxable investment securities (at cost) 196,261 3,224 6.57% 149,467 2,683 7.18% 784 (243) 541
Municipal bonds 3,339 59 7.07% 3,249 55 6.77% 2 2 4
Federal funds sold 2,872 40 5.57% 2,790 37 5.30% 1 2 3
Other interest-earning assets 3,049 38 4.99% 2,637 35 5.31% 5 (2) 3
----------------- ------------------- ----------------------------
Total interest-earning assets 466,055 8,989 7.71% 412,773 8,380 8.12% 920 (311) 609
----------------- ------------------- ----------------------------
Noninterest-earning assets:
Cash and due from banks 6,624 4,992
Premises and equipment, net 3,803 3,060
Other assets 7,395 5,882
Less loan loss allowance (5,435) (5,048)
---------- --------
TOTAL ASSETS $478,442 $421,659
========== ========
LIABILITIES AND EQUITY
Interest-bearing liabilities:
NOW and savings deposits $133,086 $864 2.60% $114,520 $727 2.54% $120 $17 $137
Time deposits 163,510 2,180 5.33% 172,078 2,332 5.42% (115) (37) (152)
Mortgagors' escrow deposits 1,344 9 2.68% 1,348 10 2.97% 0 (1) (1)
FHLB of Boston advances 23,929 338 5.65% 25,001 375 6.00% (16) (21) (37)
Federal funds purchased and securities
sold under agreement to repurchase 79,270 1,084 5.47% 43,604 612 5.61% 488 (16) 472
----------------- -------------------- ----------------------------
Total interest-bearing
liabilities 401,139 4,475 4.46% 356,551 4,056 4.55% 477 (58) 419
----------------- -------------------- ----------------------------
Noninterest-bearing liabilities:
Demand deposits 27,514 21,191
Other 1,644 1,212
Stockholders' equity 48,145 42,705
---------- ---------
TOTAL LIABILITIES AND EQUITY $478,442 $421,659
========== =========
Net interest income before Federal
tax equivalent adjustment 4,514 4,324 $443 ($253) $190
============================
Federal tax equivalent adjustment (328) (371)
------- ----------
Net interest income $4,186 $3,953
======= ==========
Net interest spread (tax equivalent basis) 3.25% 3.57%
====== ======
Net interest margin (tax equivalent basis) 3.87% 4.19%
====== ======
</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>
<CAPTION>
Six months ended Six months ended 1998 Compared to 1997
June 30, 1998 June 30, 1997 Increase (Decrease) Due to
----------------------------- ---------------------------- --------------------------
(dollars in thousands) Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Volume Rate Net(1)
------- -------- ---- ------- -------- ------ ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans $260,629 $11,248 8.63% $252,503 $10,938 8.66% $351 ($41) $310
Taxable investment securities 188,094 6,320 6.72% 147,453 5,215 7.07% 1,377 (272) 1,105
Municipal bonds 3,340 118 7.07% 3,250 114 7.02% 3 1 4
Federal funds sold 5,957 161 5.41% 3,543 93 5.25% 65 3 68
Other interest-earning assets 2,773 72 5.19% 3,001 86 5.73% (6) (8) (14)
---------------------- -------------------- ------------------------
Total interest-earning assets 460,793 17,919 7.78% 409,750 16,446 8.03% 1,790 (317) 1,473
---------------------- -------------------- ------------------------
Noninterest-earning assets:
Cash and due from banks 6,736 4,952
Premises and equipment, net 3,525 3,080
Other assets 7,701 6,166
Less loan loss allowance (5,389) (4,976)
----------- ---------
TOTAL ASSETS $473,366 $418,972
=========== =========
LIABILITIES AND EQUITY
Interest-bearing liabilities:
NOW and savings deposits $132,005 $1,798 2.72% $112,072 $1,410 2.52% $265 123 $388
Time deposits 165,803 4,419 5.33% 173,071 4,673 5.40% (194) (60) (254)
Mortgagors' escrow deposits 1,188 15 2.53% 1,100 15 2.73% 1 (1) 0
FHLB of Boston advances
and other borrowings 23,500 694 5.91% 24,282 748 6.16% (24) (30) (54)
Securities sold under agreements
to repurchase 74,601 2,036 5.46% 43,797 1,171 5.35% 840 25 865
--------------------- -------------------- ------------------------
Total interest-bearing
liabilities 397,097 8,962 4.52% 354,322 8,017 4.53% 888 57 945
--------------------- -------------------- ------------------------
Noninterest-bearing liabilities:
Demand deposits 26,962 20,818
Other 1,558 1,233
Stockholders' equity 47,749 42,599
---------- ---------
TOTAL LIABILITIES AND EQUITY $473,366 $418,972
========== =========
Net interest income before Federal
tax equivalent adjustment $8,957 $8,429 $902 ($374) $528
========================
Federal tax equivalent adjustment (669) (727)
---------- ----------
Net interest income 8,288 7,702
========== ==========
Net interest spread (tax equivalent basis) 3.26% 3.50%
===== ====
Net interest margin (tax equivalent basis) 3.89% 4.11%
===== ====
</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.
a. Wednesday May 13,1998
b. Directors elected at this meeting:
Norbert H. Beauchemin
Walter J. Hushak
Frederick E. Kuhr
Joseph J. Laporte
c. Directors whose term of office as director continued
after this meeting:
Michael J. Karabin
David P. Kelley
Ralph G. Mann
Anthony S. Pizzitola
Andrew J. Meade
Frank R. Miller
Robert D. Morton
Dennis J. Stanek
c.1. The election of four directors for a three year term who, with
the eight directors whose term of office do not expire at this
meeting, will constitute the full Board of Directors.
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
Norbert H. Beauchemin 3,546,023 22,057
Walter J. Hushak 3,553,615 13,466
Frederick E. Kuhr 3,553,003 14,078
Joseph J. LaPorte 3,553,107 13,974
</TABLE>
17
<PAGE>
2. The ratification of the appointment of Coopers & Lybrand, L.L.P.
as independent accountants for the fiscal year ending December 31,
1998.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
Total Votes 3,537,796 4,696 24,589
</TABLE>
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.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
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).
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).
</TABLE>
18
<PAGE>
<TABLE>
<S> <C>
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).
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
The Registrant did not file any Report on Form 8-K during the first
quarter of 1998.
19
<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: August 10 , 1998 By: / s / Robert D. Morton
---------------------- --------------------------------
Robert D. Morton
Its President and Chief Executive
Officer (A duly authorized officer)
Date: August 10 , 1998 By: / s / Anthony Priore, Jr.
---------------------- --------------------------------
Anthony Priore, Jr.
Its Treasurer and Secretary
(Chief Accounting Officer)
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
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).
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Condensed Statements of Condition at June 30, 1998 (unaudited)
and the Consolidated Condensed Statements of Income for the Six Months
Ended June 30, 1998 (unaudited) and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,858
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 10,200
<TRADING-ASSETS> 536
<INVESTMENTS-HELD-FOR-SALE> 208,654
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 262,469
<ALLOWANCE> (5,485)
<TOTAL-ASSETS> 495,178
<DEPOSITS> 323,950
<SHORT-TERM> 66,134
<LIABILITIES-OTHER> 4,587
<LONG-TERM> 51,511
0
0
<COMMON> 5,633
<OTHER-SE> 43,363
<TOTAL-LIABILITIES-AND-EQUITY> 495,178
<INTEREST-LOAN> 11,248
<INTEREST-INVEST> 5,766
<INTEREST-OTHER> 236
<INTEREST-TOTAL> 17,250
<INTEREST-DEPOSIT> 6,232
<INTEREST-EXPENSE> 8,962
<INTEREST-INCOME-NET> 8,288
<LOAN-LOSSES> 168
<SECURITIES-GAINS> 812
<EXPENSE-OTHER> 4,787
<INCOME-PRETAX> 5,289
<INCOME-PRE-EXTRAORDINARY> 5,289
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,496
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.63
<YIELD-ACTUAL> 7.49
<LOANS-NON> 2,408
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,691
<ALLOWANCE-OPEN> 5,306
<CHARGE-OFFS> 69
<RECOVERIES> 80
<ALLOWANCE-CLOSE> 5,485
<ALLOWANCE-DOMESTIC> 3,422
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,063
</TABLE>
