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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 34-0-25158
BANCORP CONNECTICUT, INC.
(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
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on which registered
Not applicable Not applicable
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $1.00 per share
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of Bancorp Connecticut, Inc. (5,099,948 shares) totalled $103,911,441 (based
upon the closing price of $20.375 per share as quoted on the Nasdaq National
Market tier of The Nasdaq Stock Market) on March 23, 1998.
5,097,048 shares of Bancorp Connecticut, Inc. Common Stock were
outstanding at March 18, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents and information are incorporated by reference
herein to the extent indicated under the appropriate item:
(1) The annual report to shareholders of Bancorp Connecticut,
Inc., for the fiscal year ended December 31, 1997 (hereinafter
referred to as the "1997 Annual Report"); and
(2) Management's definitive proxy statement in connection with the
1998 annual meeting of the stockholders of Bancorp
Connecticut, Inc. expected to be filed by April 10, 1998 under
Regulation 14A of the SEC's General Rules and Regulations
under the Securities Exchange Act of 1934 (hereinafter
referred to as the "1998 Proxy Statement").
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PART I
ITEM 1 - BUSINESS.
The main office of Bancorp Connecticut, Inc. (the "Company") and of
Southington Savings Bank (the "Bank") is located at 121 Main Street,
Southington, Connecticut 06489. The telephone number is 860-628-0351.
The Company was incorporated under the laws of the State of Delaware on
March 31, 1994, to operate principally as the bank holding company of the Bank.
The Company acquired all of the Bank's outstanding common stock on November 17,
1994, in a one-for-one exchange with the Bank's existing shareholders. The Bank
is the sole subsidiary of the Company and its principal asset.
General
The Bank is a Connecticut chartered capital stock savings bank. The
Bank was organized in 1860, and in 1986 it converted from a mutual to a capital
stock savings bank. The Bank is subject to supervision, examination and
regulation by the Connecticut Banking Commissioner. The Bank's deposits are
insured by the Federal Deposit Insurance Corporation (the "FDIC"), which also
has supervisory and regulatory authority over the Bank. The Bank is a member of
the Federal Home Loan Bank (the "FHLB") of Boston. The Company is subject to
regulation by the Federal Reserve Board as the registered bank holding company
of the Bank.
The Bank's primary market area consists of the Town of Southington,
Connecticut and, to a lesser extent, the contiguous Towns of Bristol, Cheshire
and Plainville. Southington is located approximately 18 miles from Hartford, 25
miles from New Haven and 9 miles from Waterbury.
The Bank's principal business consists of attracting and accepting
deposits from the general public and investing those deposits, together with
funds generated by fees and other income, in various types of loans and
investments, including residential loans, consumer loans, commercial loans and
securities.
The Bank's business strategy is to operate primarily as an innovative
full-service community financial institution, offering a wide range of consumer
and commercial services. These services include checking accounts, NOW accounts,
regular savings accounts, money market accounts, individual retirement accounts,
savings certificates, commercial demand deposit accounts, residential real
estate loans, home equity loans and lines of credit, consumer loans, secured and
unsecured commercial loans and lines of credit, letters of credit, credit card
services and cash management services. The Bank makes available Savings Bank
Life Insurance ("SBLI"). The Bank has a trust department which provides trust
services for families and individuals, as well as corporate pension and employee
benefits administration. The Bank provides investment brokerage services through
Connecticut Association Securities, Inc., an independent broker-dealer, which
sells non-deposit products, such as mutual funds, tax exempt securities and
individual stocks and bonds. The Bank also offers annuities and various
insurance products through the CTAS Insurance Group, an independently licensed
insurance agency.
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The main focus of the Bank's lending activities is the origination of
commercial and industrial loans, consumer loans and residential mortgage loans.
The Bank also makes auto loans and student loans. In recent years, the Bank has
concentrated its efforts on increasing the percentage of commercial and consumer
loans retained within its loan portfolio. Commercial loans consist primarily of
lines of credit with interest rates tied to the prime rate and fixed rate, fixed
term loans. Commercial real estate loans are primarily first mortgage loans with
adjustable rates. Consumer loan originations have been primarily fixed rate home
equity loans with maximum terms of 10 years or less. The Bank also offers home
equity lines of credit that have interest rates tied to the prime lending rate.
Within the last three years, the Bank's primary residential mortgage product has
been a loan with a rate fixed for an initial term of 3, 5, 7, or 10 years which
adjusts annually thereafter. In the future, the Bank expects to place a greater
emphasis on the growth of its commercial loan portfolio.
The Bank has procedures in place to sell selected fixed rate
residential mortgages into the secondary mortgage market. The sale of fixed rate
mortgages allows the Bank to generate both a higher volume of fixed rate
mortgages without impairing its asset/liability management and provide
additional fee income. During 1997, the Bank continued to supplement its own
loan originations by purchasing automobile loans and the guaranteed portion of
Small Business Administration loans. On February 27, 1998, the Company announced
plans to form a new majority owned subsidiary, BCI Financial Corporation
("BCIFC"), subject to regulatory approval. BCIFC will originate indirect auto
loans for sale to the Bank and other financial institutions.
The principal sources of funds for the Bank's activities are deposit
accounts, amortization and prepayment of loans, borrowings from the FHLB of
Boston, repurchase and reverse repurchase agreements and funds provided from
operations. The Bank's principal sources of income are interest on loans and
interest and dividends on investment securities. In recent years, the Bank also
has realized income from the sale of loans and investment securities. To a
lesser extent, the Bank realizes other non-interest income, including income
from service charges on deposit accounts, income from trust and brokerage
services and income from SBLI sales.
The Bank conducts its banking operations through three full service
offices, one limited purpose branch, one drive-in center, and one mortgage
origination office, all of which are located in Southington. The Bank has
submitted an application to the Connecticut Banking Commissioner to open a full
service branch facility in Wallingford, Connecticut. Pending regulatory
approval, the Bank intends to open the facility in the second quarter of 1998.
See Item 2 below. As of February 28, 1998, the Bank had 83 full-time employees
and 53 part-time employees. The Company has no paid employees.
The Bank has not obtained a material portion of its deposits from a
single person or small group of persons. No material portion of the Bank's loans
is concentrated within a single industry or group of industries.
The Bank primarily makes commercial, residential and consumer loans to
customers located within its primary market area in the State of Connecticut.
The majority of the Bank's loan portfolio is collateralized by residential real
estate.
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The Bank has not engaged in material research activities relating to
the development of new services or the improvement of existing banking services
during the past two years. However, during that time, the Bank's officers and
employees continually have engaged in marketing activities, including evaluation
and development of new services. During 1997, the Bank completed an extensive
analysis of data processing systems and has committed, for 1998, to move its
core processing system "in house" rather than continue the service bureau
environment it has been operating on. The new system is expected to provide
operating efficiencies, expand management reporting and enhance new product
development. The approximate cost of the new software and hardware, which
includes the replacement of all teller terminals, is approximately $1,560,000.
This cost will be capitalized and depreciated over the useful life of the
equipment. The Bank estimates that the annual cost of operating the new core
system will be approximately the same as the present outsourcing arrangement.
The Company's investment in the new auto financing subsidiary is
estimated at $200,000. The Bank has also committed $100,000 for leasehold
improvements on its proposed Wallingford site.
The Bank's business is not seasonal. Based upon the Bank's present
business activities, compliance with Federal, State and local provisions
regulating the discharge of materials into the environment will not materially
affect the Bank's or the Company's capital expenditures, earnings or competitive
position.
Competition
The banking business in Southington, and in Connecticut generally, is
highly competitive. Intense market demands, economic pressures, fluctuating
interest rates and increased customer awareness of product and service
differences among financial institutions have forced such institutions to
continue to diversify their services, increase returns on deposits and become
more cost effective.
The Bank experiences substantial competition in attracting and
retaining deposits and in making loans of all types. The Bank competes for
deposit accounts with other savings banks, commercial banks, savings and loan
associations, credit unions, insurance companies, securities brokerage houses
and money market mutual funds. Competition for deposits includes competition not
only from other deposit accounts, but also competition with various other
investment vehicles, such as corporate and governmental securities and mutual
funds, which may offer higher rates of return. Interest rates, convenience of
office locations, service and marketing are all significant factors in the
Bank's competition for deposits. From time to time, competing financial
institutions set rates higher than market rates to attract or retain deposits, a
fact which may cause upward pressure on the Bank's rate structure or a loss of
deposits.
Competition for loans comes from other savings banks, commercial banks,
savings and loan associations, insurance companies, consumer finance companies,
mortgage companies, credit unions and other lending institutions located
throughout the United States. Recent proposed and completed banking combinations
in New England have increased and will increase the resources of several major
banks and other financial institutions that operate many offices over a wide
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geographic area, including the Bank's primary market area. Because of their
greater capitalization, these other institutions have substantially higher
lending limits than the Bank. The Bank competes for loan originations through
the interest rates and loan fees it charges and the efficiency and quality of
services it provides. Competition is affected by the general availability of
lendable funds, general and local economic conditions, current interest rate
levels and other factors which are not readily predictable.
The Bank's market area is served by a significant number of financial
institutions, with eight offices (not including the Bank's three offices) of
banking institutions and credit unions in Southington alone. At December 31,
1997, there were approximately forty-one mortgage lenders operating in the towns
of Southington, Bristol, Cheshire and Plainville.
In addition, recent Federal and Connecticut legislation likely will
further increase competition for deposits and loans in the Bank's primary market
area. Effective June 1, 1997, unless a state prohibited before such date all
interstate mergers, Federal law generally permits interstate mergers between
banks. States also may also have "opted in" and permitted such mergers prior to
June 1, 1997. Finally, Federal law permits banks to branch into other states if
a state "opts-in" to this arrangement. In 1997, a Federal law was enacted which
provides that an insured state bank that establishes a branch in a host state
may conduct any activity at such branch that is permissible under the laws of
the home state of such bank, to the extent such activity is permissible either
for a bank chartered by the host state or for a branch in the host state of an
out-of-state national bank.
In 1995, Connecticut affirmatively "opted-in" to permit interstate
mergers and acquisitions, the establishment of Connecticut chartered banks by
foreign bank holding companies and interstate de novo branching, subject to
certain reciprocity requirements. As permitted by Federal law, Connecticut law
places a minimum permissible age of 5 years on the target bank and a 30% limit
on concentration of deposits in both interstate and intrastate acquisitions.
This legislation may result in increased competition.
Regulation and Supervision
General
As a Connecticut-chartered capital stock savings bank, the deposits of
which are insured by the FDIC, the Bank is subject to extensive regulation and
supervision by both the Connecticut Banking Commissioner and the FDIC. The
Company also is subject to certain regulations of the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"). This governmental
regulation is intended primarily to protect depositors and the FDIC's Bank
Insurance Fund, not the Company's shareholders.
Connecticut Regulation
The Connecticut Banking Commissioner regulates the Bank's internal
organization as well as its deposit, lending and investment activities. The
approval of the Connecticut Banking Commissioner is required, among other
things, for the establishment of branch offices and
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business combination transactions. The Connecticut Banking Commissioner
conducts periodic examinations of the Bank. The FDIC also regulates many of the
areas regulated by the Connecticut Banking Commissioner.
Connecticut banking laws grant 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% of
the Bank's equity capital and reserves for loan and lease losses.
Connecticut banking law prohibits the Bank from paying dividends in
certain situations. For a further description of this limitation, see Item 5
below.
Under Connecticut banking law, no person may acquire beneficial
ownership of more than 10% of any class of voting securities of a
Connecticut-chartered bank, or any bank holding company of such a bank, without
prior notification of, and lack of disapproval by, the Connecticut Banking
Commissioner. Similar restrictions apply to any person who holds in excess of
10% of any such class and desires to increase its holdings to 25% or more of
such class.
Any Connecticut-chartered bank meeting certain statutory requirements
may, with the Connecticut Banking Commissioner's approval, establish and operate
branches in any town or towns within the state. In 1996, legislation was enacted
which permits banks to establish mobile branches with the Banking Commissioner's
approval.
Connecticut law presently permits Connecticut banks to engage in stock
acquisitions of, and mergers with, depository institutions in other states with
reciprocal legislation. Many other states have enacted reciprocal legislation.
Several interstate mergers and acquisitions have been completed which involve
Connecticut bank holding companies or banks with offices in the Bank's primary
market area and bank holding companies or banks headquartered in other states.
As noted above, in 1995, Connecticut affirmatively "opted-in" to permit
interstate mergers and acquisitions, the establishment of Connecticut chartered
banks by foreign bank holding companies and interstate de novo branching,
subject to certain reciprocity requirements. Connecticut law also places a
minimum permissible age of 5 years on the target bank and a 30% limit on
concentration of deposits in both interstate and intrastate acquisitions.
Legislation was enacted in 1996 which expressly permits an out-of-state bank to
merge or consolidate with or acquire a branch of another out-of-state bank which
has a branch in Connecticut. This legislation may result in further increased
competition.
In 1996, legislation was enacted which requires the board of directors
of each Connecticut bank to adopt annually and to frequently and periodically
review an investment policy governing investments by such bank, which policy
must establish standards for the making of prudent investments. In addition,
Connecticut law now permits Connecticut banks to sell fixed and variable rate
annuities if licensed to do so by the Connecticut Insurance Commissioner.
Further, legislation was enacted in 1996 which expands the ability of
Connecticut banks to invest in debt and equity securities. Prior to the
legislation, Connecticut banks could invest in
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debt securities without regard to any other liability to the Connecticut bank
of the maker or issuer of the debt securities, if the securities were rated in
the three highest rating categories or otherwise deemed to be a prudent
investment, and so long as the total amount of such debt securities did not
exceed 15% of the bank's total equity capital and reserves for loan and lease
losses and 15% of its assets. In 1996, these percentages each were increased to
25%. In addition, prior to 1996, the percentage limitation described above also
applied to certain government and agency obligations. As a result of the 1996
legislation, this limitation was deleted for such obligations.
The 1996 legislation also expanded the ability of Connecticut banks to
invest in equity securities. Connecticut banks now may invest in such securities
without regard to any other liability to the Connecticut bank of the issuer of
such securities, so long as the total amount of equity securities of any one
issuer does not exceed 25% of the bank's total equity capital and reserves for
loan and lease losses and 25% of its assets. Prior to the enactment of this
legislation, Connecticut banks could invest up to 15% of their assets in the
equity securities of corporations incorporated and doing a major portion of
their business in the U.S., and only if the investment security was within the
top three rating categories or otherwise deemed to be a prudent investment by
the bank.
In 1997, Connecticut legislation was enacted which permits, subject to
certain limitations, Connecticut banks to sell insurance, directly or
indirectly. In addition, in 1997 other Connecticut legislation was enacted which
allows the organization of community banks with a minimum equity capital of $3
million (as opposed to the current $5 million for other Connecticut banks), and
clarified certain powers of Connecticut banks.
Proposed 1998 legislation (i) would reduce to $2.5 million the required
level of minimum capital needed to organize a community bank, (ii) would permit
out-of-state trust companies to establish and maintain offices in Connecticut
with the approval of the Banking Commissioner, provided there is reciprocity in
the home state's laws, and (iii) would expressly prohibit banks from imposing
automated teller machine transaction fees on customers who are not customers of
such banks.
FDIC Regulation
The Bank's deposit accounts are insured by the FDIC, generally, to a
maximum of $100,000 for each insured depositor. As with all state-chartered,
FDIC insured banks, the Bank is subject to extensive supervision and examination
by the FDIC. FDIC insured banks also are subject to FDIC regulations governing
many aspects of their business and operations, including types of deposit
instruments offered and permissible methods of acquisition of funds.
Pursuant to the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA"), in September, 1992, the FDIC implemented a system of
risk-related deposit insurance assessments. Under this system, for the first six
months and the second six months of 1997, insurance premiums for all banks
varied between 0.0% and .27% of total deposits, depending upon the capital level
and supervisory rating of the institution. The FDIC has stated that it will
reevaluate the adequacy of its assessment schedule every six months, and the
FDIC
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may increase or decrease premium levels by up to 5 basis points each six
months. The FDIC has announced that the assessment schedule for the first six
months of 1998 will remain the same as in 1997.
The Deposit Insurance Funds Act of 1996 also authorizes the Financing
Corporation ("FICO") to levy assessments on Bank Insurance Fund ("BIF")
- -assessable deposits and stipulates that, from 1997 to 1999, the rate must equal
one-fifth the FICO assessment rate that is applied to deposits assessable by the
Savings Association Insurance Fund. The FICO rate for the Bank is not tied to
FDIC risk classification. The FICO BIF annual rate for the Bank for first and
second quarters of 1998 is 1.256 and 1.244 basis points, respectively.
Under the FDIC's risk-based capital requirements, each FDIC-insured
bank is required to maintain minimum levels of "capital" based the institution's
total "risk-weighted assets." For purposes of these requirements, "capital" is
comprised of Tier 1 capital and Tier 2 capital. Tier 1 capital consists
primarily of common stock and limited amounts of perpetual preferred stock. Tier
2 capital consists primarily of the allowance for loan losses (subject to
certain limitations) and certain preferred stock, subordinated debt and
convertible securities. In determining total capital, the amount of Tier 2
capital may not exceed the amount of Tier 1 capital. A bank's total "risk
weighted assets" are determined by assigning the bank's assets and off-balance
sheet items (e.g., letters of credit) to one of four risk categories based upon
their relative credit risk. Under the FDIC regulations, the greater the risk
associated with an asset, the greater the amount of such assets that will be
subject to the capital requirements. Effective January 1, 1998, those banks
whose trading activities equal 10% or more of total assets or $1 billion or more
must incorporate capital charges for certain market risks into the risk-based
capital ratio. All FDIC-insured banks are required to maintain their capital at
or above certain minimum ratios. At December 31, 1997, the Bank's capital
exceeded these minimums. See "Management's Discussion and Analysis-Liquidity and
Capital Resources" in the Annual Report for a more detailed description of these
requirements and the Bank's capital position at December 31, 1997.
In addition, FDICIA categorizes banks based on five separate capital
levels and triggers certain mandatory and discretionary federal banking agency
responses for institutions that fall below certain capital levels. These
categories range from "well capitalized" for the most highly capitalized
institutions to "critically undercapitalized" for the least capitalized
institutions. Under regulatory definitions, an institution is considered "well
capitalized" (the highest rating) if its leverage capital ratio is 5% or higher,
its Tier 1 risk based capital ratio is 6% or higher, its total risk based
capital ratio is 10% or higher and it is not subject to certain regulatory
orders. On December 31, 1997, the Bank had a leverage capital ratio of 10.4%, a
Tier 1 risk based capital ratio of 15.9% and a total risk based capital ratio of
17.2%. At December 31, 1997, the Bank was not subject to any regulatory order.
FDICIA also limits the ability of FDIC-insured banks, such as the Bank,
to acquire and retain equity investments. Generally, state banks may hold equity
securities only to the extent permitted for national banks. However, FDICIA also
permits certain state banks to acquire or retain equity investments in an amount
up to 100% of Tier 1 capital in either (1) common or preferred stock listed on a
national securities exchange, or (2) shares of a registered investment company.
The Bank applied for and was granted this exception.
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Additionally, FDICIA generally prohibits a FDIC-insured bank from
making investments of more than 15% of its total capital in money market
preferred stocks and adjustable rate preferred stocks. On December 29, 1995, the
FDIC granted the Bank permission to make such investments in amounts up to 100%
of its Tier 1 leverage capital.
The FDIC regulations that implement FDICIA require an insured state
bank to obtain the FDIC's prior consent before directly, or indirectly through a
majority owned subsidiary, engaging "as principal" in any activity that is not
permissible for a national bank unless one of the exceptions contained in the
regulation applies. The Company does not believe that this regulation has had or
will have a material impact on the business of the Bank.
Pursuant to FDICIA, the federal bank regulatory agencies have issued
rules establishing standards for safety and soundness at FDIC-insured
institutions and their holding companies. These standards formalize in
regulation the fundamental standards used by the federal bank regulatory
agencies to assess the operational and managerial qualities of an institution.
The rules establish operational, managerial, asset quality and earnings
standards for FDIC-insured banks and their holding companies and standards that
prohibit as an unsafe and unsound practice the payment of compensation that is
excessive or could lead to material financial loss to such institutions. These
standards are designed to identify potential safety and soundness concerns and
ensure that action is taken to address those concerns before they pose a risk to
the deposit insurance funds.
The FDIC may terminate FDIC insurance of the Bank's deposits after
notice and a hearing upon a finding by the FDIC that the Bank has engaged in
unsafe or unsound practices or is in an unsafe and unsound condition to continue
operations or has violated any applicable law, regulation, rule or order of, or
conditions imposed by, the FDIC. The Bank is not aware of any practice,
condition or violation that might lead to termination of its deposit insurance.
Federal Reserve System Regulation
Under the regulations of the Federal Reserve System, depository
institutions such as the Bank are required to maintain reserves against their
transaction accounts. In 1997, these regulations generally required the
maintenance of reserves of 3.0% against transaction accounts of $49.3 million or
less and 10.0% of the amount of such accounts in excess of such amount. In
December, 1997, the Federal Reserve Board decreased the amount of transaction
accounts subject to the reserve requirement ratio of 3% from $49.3 million to
$47.8 million. These amounts and percentages are subject to further adjustment
by the Federal Reserve Board.
The Company is subject to regulation by the Federal Reserve Board as a
registered bank holding company. The Federal Bank Holding Company Act of 1956,
as amended (the "BHCA"), under which the Company registered, limits the types of
companies which the Company may acquire or organize and the activities in which
they may engage. In general, a bank holding company and its subsidiaries are
prohibited from engaging in or acquiring direct control of any company engaged
in non-banking activities unless such activities are so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
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The Federal Reserve Board has established capital adequacy guidelines
for bank holding companies that are similar to the FDIC's capital requirements
described above. As of December 31, 1997, the Company was in full compliance
with all applicable capital requirements, and management believes that the
Company will maintain such compliance.
The BHCA requires, with certain exceptions, a bank holding company to
obtain the Federal Reserve Board's approval prior to acquiring more than 5% of
the outstanding voting stock of any bank or bank holding company, acquiring all
or substantially all of the assets of a bank or merging or consolidating with
another bank holding company.
Effective April 21, 1997, the Federal Reserve Board adopted
comprehensive changes to certain banking regulations (the "1997 Amendments").
The 1997 Amendments include amendments to Regulation Y, which implements the
BHCA's prior approval requirements. The changes are intended to improve the
competitiveness of bank holding companies by eliminating unnecessary regulatory
burdens and operating restrictions and by streamlining the application/notice
process. Among other changes, the 1997 Amendments incorporate a streamlined and
expedited review process for bank acquisition proposals by well-run bank holding
companies; eliminate certain notice and approval requirements and streamline
others that involve non-banking proposals by well-run bank holding companies;
and reorganize and expand the list of permissible non-banking activities.
As described above, Connecticut law specifically permits Connecticut
bank holding companies and banks to acquire or be acquired by banks or bank
holding companies in other states with reciprocal merger and acquisition laws.
As also described above, recent federal and Connecticut legislation is likely to
increase competition. Federal antitrust laws place limitations on the
acquisition of banks and other businesses.
Under the BHCA, the Company, the Bank and any other subsidiaries
generally are prohibited from engaging in certain reciprocal arrangements in
connection with any extension of credit or provision of any property or
services. The 1997 Amendments contain significant amendments to the Federal
Reserve Board's rules regarding tying arrangements. The 1997 Amendments remove
certain Federal Reserve Board-imposed tying restrictions on bank holding
companies and their non-bank subsidiaries and create exceptions from the
statutory restrictions on bank tying arrangements to allow banks greater
flexibility to package products with their affiliates. These changes contained
in the 1997 Amendments are designed to enhance competitiveness in banking and
nonbanking products.
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 the Company's subsidiaries, and the taking of such stock or
securities as collateral for loans to any borrower.
The Bank also is subject to certain restrictions imposed by the Federal
Reserve Act on the amount of loans it can make to the Company or its other
affiliates. Such loans must be collateralized as provided by the Federal Reserve
Act. The amount of such loans may not exceed (when aggregated with certain other
transactions between the Bank and the Company) 10% of the
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capital stock and surplus of the Bank. Since formation of the Company, there
have been no loans made by the Bank to the Company.
The BHCA requires the Company to file reports of operations annually
with the Federal Reserve Board. The Company, the Bank and any other subsidiaries
of the Company also are subject to examination by the Federal Reserve Board. In
addition, the Company is registered as a bank holding company with the
Connecticut Banking Commissioner under the Connecticut Bank Holding Company and
Bank Acquisition Act.
Effect of Governmental Policy
Banking is a business that depends on interest rate differentials. One
of the most significant factors affecting the Company's and the Bank's earnings
is the difference between (1) the interest rates paid by the Bank on its
deposits and its other borrowings and (2) the interest rates received by the
Bank on loans extended to its customers and securities held in the Bank's
investment portfolio. The value and yields of the Bank's 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 the policies of regulatory agencies, particularly the Federal
Reserve Board, that implement national monetary policy. The nature and impact of
any future changes in monetary policies cannot be predicted.
Effective January 1, 1995, Connecticut's banking laws were recodified.
The recodification generally combined and made uniform numerous provisions
concerning the organization, administration and powers of the various types of
Connecticut-chartered banks. In so doing, it permitted, for the first time,
interstate mergers and asset acquisitions between state-chartered commercial
banks. It also liberalized the ability of out-of-state banks to make loans in
Connecticut. The recodification is likely to increase competition.
The present bank regulatory climate 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 has been significant
regulatory change in the regulation and operations of savings 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. Partly as a result of these changes, banks are competing actively with
other types of depository institutions and with non-bank financial institutions,
such as money market funds, brokerage firms, insurance companies and other
financial services enterprises. It is not possible at this time to assess what
impact these changes in the regulatory climate ultimately will have on the Bank
and/or the Company.
Moreover, certain legislative and regulatory proposals that could
affect the Bank and/or the Company and/or 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 alter further the structure, regulation and
competitive relationship of financial institutions and proposals that may
subject the Bank and/or the Company to increased regulation, disclosure and
reporting requirements. In addition, the various banking
- 10 -
<PAGE>
regulatory agencies frequently propose rules and regulations to implement and
enforce existing legislation. 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 Bank and/or the Company will be affected thereby.
Regional Economy
In 1997, the state of Connecticut experienced a modest economic
recovery. A slight increase in net interest margins, a rising stock market,
increased fee income and a decline in problem loans helped many banks improve
their profitability. The present business environment is less clear as a flat
U.S. Treasury yield curve and increased competition for both commercial and
consumer loans will place downward pressure on net interest margins. In
addition, banking institutions must deal with continued business consolidation
in the Connecticut market and continued strict bank regulation.
ITEM 2 - PROPERTIES.
The following table sets forth the location of the Bank's full service
offices and other related information:
<TABLE>
<CAPTION>
Office Location Status
- ------ -------- ------
<S> <C> <C>
Main Office 121 Main St., Southington, CT Owned
Queen Corner Office 900 Queen St., Southington, CT Owned
South-End Office 921 Meriden Waterbury Tpke., Southington, CT Owned
Drive-In Center 30 Berlin Ave., Southington, CT Owned
</TABLE>
Since January, 1995, the Bank has operated a limited purpose branch
banking facility at Southington High School, which is located at 720 Pleasant
Street, Southington, Connecticut. The High School Branch processes only deposits
and withdrawals and is open only during school hours. This branch is operated on
a cooperative basis: the Bank supplies management and equipment, the Town of
Southington provides the required space, and students staff the branch. The Bank
believes that the High School Branch is the only branch bank of its kind in the
State of Connecticut.
The Bank leases approximately 6,591 square feet at 98 Main Street in
Southington to house the administrative offices of its audit, human resources,
marketing, finance, managed assets, consumer banking, deposit services, and
information systems divisions. The lease had an original expiration date of
December 31, 1997, with an option to extend the lease for four 6 month periods.
The Bank has exercised its option to extend the lease until June 30, 1998.
The Bank leases approximately 1,200 square feet at 188 North Main
Street in Southington for its residential mortgage origination function. The
lease has an expiration date of October 31, 1998, with an option to extend the
lease for three one year periods.
- 11 -
<PAGE>
The Bank leases sufficient space at 55 Meriden Avenue in Southington
(Bradley Memorial Hospital) to support a free standing automatic teller machine.
The lease has an expiration date of July 31, 2000, with no option to extend the
lease.
The Bank owns an approximately 35,000 square foot lot located at 918
Meriden-Waterbury Turnpike, which is adjacent to the Bank's South-End office.
The lot is undeveloped except for a residential house which the Bank intends to
demolish.
The Bank also owns and is holding for future expansion two separate
properties all located adjacent to its Main Office parking facilities. The
properties consist of a residential home on an approximately 10,500 square foot
lot located at 50 Berlin Avenue, and an approximately 14,800 square foot
undeveloped lot located at 31 Vermont Avenue. The Bank uses the residential home
at 50 Berlin Avenue as a storage facility for office supplies.
The Bank also owns a two-family residential home on an approximately
11,600 square foot lot located at 43-45 Vermont Avenue which was originally
purchased for future expansion but is currently on the market for sale.
The Bank is currently negotiating a lease for approximately 1,580
square feet of space for its proposed branch in Wallingford. The terms of such
lease have not been finalized.
ITEM 3 - LEGAL PROCEEDINGS.
Neither the Company nor the Bank is presently a party to any legal
proceedings the adverse outcome of which would likely have, in management's
belief, a material effect on the Company's or the Bank's financial condition,
results of operations or cash flows.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of 1997, no matter was submitted to a vote of
stockholders of the Company.
- 12 -
<PAGE>
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock has been issued and outstanding since
November 17, 1994, when the Company acquired all of the Bank's outstanding
common stock in a one-for-one exchange with the Bank's existing shareholders. As
of March 18, 1998, 5,097,048 shares of Common Stock were issued and outstanding
and were held by approximately 1,831 shareholders of record.
The Company's Common Stock is traded in the over-the-counter market and
is quoted on the National Market tier of The National Association of Securities
Dealers Automated Quotation ("Nasdaq") Stock Market under the symbol "BKCT."
Quarterly high and low bid prices for 1996 and 1997 are included in the 1997
Annual Report under the heading "Market Price and Dividends" and are
incorporated herein by reference. Such bid prices reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
On February 1, 1996, the Company announced that its Board of Directors
had authorized the repurchase of up to fifteen percent (15%) of its currently
outstanding shares. The Company purchased 519,498 from time to time in the open
market through the period ending July 31, 1997, the termination date of the
repurchase plan. The Company intends to hold the repurchased shares in treasury
for general corporate purposes.
For the foreseeable future, the only substantial source of funds
available to the Company for the declaration of dividends will be dividends
declared and paid by the Bank on Bank common stock. As the holder of Bank common
stock, the Company is entitled to receive dividends when, as and if declared by
the Bank board of directors out of funds legally available therefor. The Bank
may pay cash dividends out of the Bank's net profits. For purposes of this
restriction, "net profits" means the remainder of all earnings from operations.
Further, the total of all dividends declared by the Bank in any calendar year
may not exceed the sum of the Bank's net profits for the year in question
combined with its retained net profits from the preceding two calendar years.
Additionally, earnings appropriated to reserves for loan losses and deducted for
federal income tax purposes are not available for cash dividends without the
payment of taxes at the then current income tax rates on the amount used. The
Connecticut Banking Commissioner and/or the FDIC may limit the Bank's ability to
pay dividends.
The Bank has paid consecutive quarterly cash dividends since the
quarter ended December 31, 1992. The Company paid its first quarterly dividend
during the quarter ended March 31, 1995. No assurances can be given that further
dividends will be paid or approved. Dividend history for the Company from
January 1, 1996 through December 31, 1997 is included in the 1997 Annual Report
under the heading "Market Price and Dividends" and is incorporated herein by
reference. The Bank also paid a 20% stock dividend on June 1, 1993, a 6-for-5
stock split effected in the form of a stock dividend on June 19, 1996, and a
2-for-1 stock split effected in the form of a stock dividend on December 1,
1997.
- 13 -
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA.
The required information is included in the 1997 Annual Report under
the heading "Selected Consolidated Financial Data," and is incorporated herein
by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The required information is included in the 1997 Annual Report under
the heading "Management's Discussion and Analysis" and is incorporated herein by
reference.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The required information is included in the 1997 Annual Report under
the heading "Management's Discussion and Analysis - Asset/Liability Management
and Market Risk" and is incorporated herein by reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The report of the Company's independent accountants and the Company's
Consolidated Statements of Condition at December 31, 1997 and 1996, and the
related Consolidated Statements of Income, Shareholders' Equity and Cash Flows
for each of the three years in the period ended December 31, 1997, and the Notes
to Consolidated Financial Statements appear in the 1997 Annual Report and are
incorporated herein by reference.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
- 14 -
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The required information is included in the 1998 Proxy Statement under
the heading "Election of Directors" and is incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION.
The required information is included in the 1998 Proxy Statement under
the heading "Election of Directors - Executive Compensation" and is incorporated
herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of February 28, 1998, there were no persons or groups (as that term
is used in Section 13(d)(3) of the Exchange Act) known to the Company who may be
deemed to own beneficially more than 5% of the Common Stock.
Certain other required information under this item is included in the
1998 Proxy Statement under the heading "Election of Directors - Stock Ownership
of Directors and Officers" and is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The required information is included in the 1998 Proxy Statement under
the headings "Election of Directors - Transactions With Management", "- Certain
Business Relationships", "- Indebtedness of Management and Others" and "-
Compensation Committee Interlocks and Insider Participation" and is incorporated
herein by reference.
- 15 -
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report.
(1) Financial Statements
The following documents filed as part of this report are
incorporated herein by reference from the indicated pages of
the 1997 Annual Report.
Financial Statement Page or Pages
Report of Independent Accountants 19
Consolidated Statements of Condition 20
Consolidated Statements of Income 21
Consolidated Statements of Shareholders' Equity 22
Consolidated Statements of Cash Flows 23
Notes to Consolidated Financial Statements 24-38
(2) Financial Statement Schedules
Information required to be included in all schedules to the
Company's Consolidated Financial Statements is included in the
1997 Annual Report or is not required under the related
instructions or is inapplicable and therefore has been
omitted.
(3) Exhibits
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
Registrant's Quarterly Report on
Form 10-Q for the quarterly period
ended June 30, 1996)
- 16 -
<PAGE>
4.1 Instruments defining the rights of security holders
(Included in Exhibits 3.1 and 3.2)
4.2 Form of Stock Certificate (Incorporated by reference
to Exhibit 4.5 to the Registrant's Registration
Statement on Form S-8 (Registration No. 33-333-2638))
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 for the
fiscal year ended December 31, 1996)
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)
13.1 Annual Report to Security Holders
21 Subsidiaries of Registrant
24 Power of Attorney
27 Financial Data Schedule
27.1 Restated Financial Data Schedule
27.2 Restated Financial Data Schedule
- ----------------------
* Management contract or compensatory plan or arrangement.
- 17 -
<PAGE>
THE COMPANY WILL PROVIDE A COPY OF ANY EXHIBIT LISTED ABOVE TO
ANY SHAREHOLDER UPON THE WRITTEN REQUEST OF SUCH SHAREHOLDER
AND UPON THE PAYMENT OF A REASONABLE FEE LIMITED TO THE
COMPANY'S EXPENSES INCURRED IN FURNISHING SUCH EXHIBIT.
REQUESTS SHOULD BE ADDRESSED TO LESLEY A. DEANGELO, BANCORP
CONNECTICUT, INC., 121 MAIN STREET, SOUTHINGTON, CONNECTICUT
06489.
(b) The Company did not file any Report on Form 8-K during the last
quarter of 1997.
(c) The exhibits required by Item 601 of Regulation S-K are filed as a
separate part of this report.
- 18 -
<PAGE>
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.
Bancorp Connecticut, Inc.
(Registrant)
Date: March 31, 1998 By: /s/ Robert D. Morton
--------------------
Robert D. Morton
Its President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
/s/ Robert D. Morton President, March 31, 1998
- ------------------------- Chief Executive
Robert D. Morton Officer and Director
(Principal Executive Officer)
/s/ Anthony Priore, Jr. Treasurer and March 31, 1998
- ------------------------- Secretary (Principal
Anthony Priore, Jr. Financial Officer and
Principal Accounting Officer)
Norbert H. Beauchemin* Director March 31, 1998
- -------------------------
Norbert H. Beauchemin
Walter J. Hushak* Director March 31, 1998
- -------------------------
Walter J. Hushak
Director
- -------------------------
Michael J. Karabin
<PAGE>
David P. Kelley* Director March 31, 1998
- -------------------------
David P. Kelley
Frederick E. Kuhr* Director March 31, 1998
- -------------------------
Frederick E. Kuhr
Joseph J. LaPorte* Director March 31, 1998
- -------------------------
Joseph J. LaPorte
Ralph G. Mann* Director March 31, 1998
- -------------------------
Ralph G. Mann
Andrew J. Meade* Director March 31, 1998
- -------------------------
Andrew J. Meade
Frank R. Miller* Director March 31, 1998
- -------------------------
Frank R. Miller
Anthony S. Pizzitola* Director March 31, 1998
- -------------------------
Anthony S. Pizzitola
Dennis J. Stanek* Director March 31, 1998
- -------------------------
Dennis J. Stanek
*By: /s/ Robert D. Morton
--------------------
Robert D. Morton
Attorney-in-fact
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
----------- ----------- ----
<S> <C> <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 Registrant's Quarterly Report on Form
10-Q for the quarterly period ended June 30,
1996)
4.1 Instruments defining the rights of security holders
(Included in Exhibits 3.1 and 3.2)
4.2 Form of Stock Certificate (Incorporated by
reference to Exhibit 4.5 to the Registrant's
Registration Statement on Form S-8 (Registration
No. 33-333-2638))
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 for the fiscal year ended December
31, 1996)
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)
13.1 Annual Report to Security Holders
21 Subsidiaries of Registrant
24 Power of Attorney
27 Financial Data Schedule
27.1 Restated Financial Data Schedule
27.2 Restated Financial Data Schedule
<FN>
- ----------------------
* Management contract or compensatory plan or arrangement.
</TABLE>
<PAGE>
Exhibit 13.1
BancorpConnecticut, Inc.
COMMUNITIES
AREN'T JUST
PLACES --
COMMUNITIES
ARE PEOPLE.
1997 ANNUAL REPORT
<PAGE>
CORPORATE PROFILE
A focused, efficient, high-performance, full service financial institution
which provides retail, commercial and investment management services in
central Connecticut.
. . . the Corporation is committed to and believes in increasing shareholder
value, the highest ethical standards and responsible corporate citizenship in
our community.
<TABLE>
<CAPTION>
STOCK PRICE*
DIVIDEND GROWTH* (at year-end close) NET INCOME** RETURN ON ASSETS**
(dollars per share) (dollars) (dollars in thousands) (percent)
<S> <C> <C> <C> <C>
93 .17 5.62 3,493 1.10
94 .21 5.42 3,748 1.11
95 .30 7.40 4,296 1.17
96 .37 11.25 5,024 1.26
97 .46 21.00 5,896 1.39
<FN>
*Per share data has been restated to reflect a 6-for-5 stock split effected in
the form of a stock dividend on June 19, 1996, and a 2-for-1 stock split
effected in the form of a stock dividend on December 1, 1997.
**1993 net income and return on assets are prior to cumulative effect of
accounting change of $2,140,000
</FN>
</TABLE>
<PAGE>
BANCORP CONNECTICUT, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
At or for the Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Condition Data:
Assets $443,025 $419,398 $383,978 $357,180 $327,793
Securities 166,712 149,611 130,549 124,372 93,975
Loans, net 255,424 246,274 230,706 213,457 206,815
Deposits 315,554 309,827 294,835 279,392 268,294
FHLB of Boston advances 20,630 21,000 19,990 22,299 16,650
Federal funds purchased and securities
sold under agreements to repurchase 55,368 41,879 22,227 15,027 2,831
Shareholders' equity 46,947 42,731 43,210 37,357 36,965
Statement of Income Data:
Net interest income $ 15,696 $ 14,754 $ 13,896 $ 12,975 $ 12,368
Provision for loan losses 600 435 180 242 881
Net gain on sale of securities 839 344 150 46 790
Other income 1,464 1,341 1,093 737 954
Other expenses 8,701 8,599 8,625 7,879 8,068
Income taxes 2,803 2,381 2,038 1,889 1,670
- -------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect
of accounting change 5,896 5,024 4,296 3,748 3,493
Cumulative effect of accounting change -- -- -- -- 2,140
- -------------------------------------------------------------------------------------------------------------------------------
Net income $ 5,896 $ 5,024 $ 4,296 $ 3,748 $ 5,633
- -------------------------------------------------------------------------------------------------------------------------------
Per Share Data:*
Earnings before cumulative effect
of accounting change-- diluted $1.08 $ .89 $ .77 $ .68 $ .65
Cumulative effect of accounting change -- -- -- -- .41
Earnings -- diluted 1.08 .89 .77 .68 1.06
Cash dividends .46 .37 .30 .21 .17
Book value 9.22 8.31 7.95 6.93 6.90
Selected Statistical Data:
Return on average assets 1.39% 1.26% 1.17% 1.11% 1.77%
Return on average equity 13.48 11.69 10.67 10.11 16.13
Average equity to average assets 10.34 10.71 10.95 10.99 10.67
Net interest spread (tax equivalent basis) 3.50 3.48 3.53 3.63 3.74
Net interest margin (tax equivalent basis) 4.14 4.10 4.15 4.14 4.20
Dividend payout ratio 39.95 39.63 37.01 30.15 16.02
<FN>
* Per share data has been restated to reflect a 6-for-5 stock split effected in
the form of a stock dividend on June 19, 1996, and a 2-for-1 stock split
effected in the form of a stock dividend on December 1, 1997.
</TABLE>
TABLE OF CONTENTS
Selected Consolidated Financial Data.........................1
Letter to Shareholders.......................................2
Consumer Banking.............................................4
Financial Services...........................................5
Technology...................................................6
Commercial Lending...........................................7
Community....................................................8
Management's Discussion and Analysis.........................9
Report of Independent Accountants...........................19
Consolidated Statements of Condition........................20
Consolidated Statements of Income...........................21
Consolidated Statements of Shareholders' Equity.............22
Consolidated Statements of Cash Flows.......................23
Notes to Consolidated Financial Statements..................24
Shareholder Information.....................................39
Bancorp Connecticut, Inc. Directors and Officers............40
Southington Savings Bank Directors and Officers..........I.B.C.
BANCORPCONNECTICUT, INC. 1
<PAGE>
TO OUR
SHAREHOLDERS:
Bancorp Connecticut, Inc. and its subsidiary SSB had another very successful
year. Net income in 1997 increased 17.4% to a record $5,896,000, or $1.08 per
share (after adjustment for the 100% stock split in December 1997), compared to
$5,024,000, or $0.89 per share, in 1996. Moreover, a number of other milestones
were reached during the year including the following: total resources exceeded
$443 million; capital funds, the best measure of financial strength, totaled
$46.9 million; and cash dividends paid to shareholders rose for the fifth
consecutive year to $0.46 per share -- again, adjusted for 20% stock
dividends/splits in 1993 and 1996 and the 100% stock split in 1997. In addition,
the Corporation's Return on Assets (ROA) increased to 1.39%, a historical high,
and market capitalization at year end was in excess of $100 million for the
first time.
In many respects, the Company and the Bank's track record as a high
performance, focused, community-based financial institution is a direct
reflection of our outstanding staff and the vibrant community of Southington.
Throughout SSB, employees and our directors are involved on many levels in
countless organizations in the greater Southington area, and more importantly,
they make a difference. One would be hard pressed to find a business our size
which gives as much back to the community in terms of time, talent and financial
contribution. Our staff, with an average tenure of 7 1/2 years, is committed to
the delivery of friendly personalized customer service -- a trademark of SSB.
Southington itself is a great place in which to do business. The town continues
to grow principally because of attractive quality-of-life issues; including, an
exemplary school system, sound municipal governance, and a propensity for trying
to attract new business through its economic development efforts. Toward this
end, economic recovery in the central Connecticut region has contributed to and
reinforced progress and prospects for the area. Against this background, the
Bank is operating in arguably the most competitive financial institution
environment outside of Fairfield County, and we are more than holding our own.
In the banking arena itself, the outlook is more than interesting. For
instance, in 1997, we witnessed the loss of the only other hometown banking
institution in town and several other area publicly-owned banks to mergers. We
expect this turmoil and consolidation to continue. Another significant
observation is that many of our acquisition-minded competitors, with the
exception of the superregional banks, are still referring to themselves as
community banks. We challenge that assertion! We think it's difficult to make
that claim without being locally owned and managed. And whether it's people or
financial involvement in the fabric of the community -- SSB has something very
special going in the Southington area. For one thing, after 137 years, we're
still here which is a feat in itself. We're here -- and we plan to be -- because
we have a dominant share of the market, we're very profitable, the Bank has an
extremely strong capital position, and we continue to execute our business
plans. These are the basic ingredients of survival in the banking industry
looking toward the next century. The Corporation also continues to assess, seek
out, and have conversations with other financial institutions which share our
philosophy -- community banking at its best.
Robert D. Morton
President and Chief Executive Officer
of Bancorp Connecticut, Inc.
"SSB employees
and directors are involved on many levels in countless organizations in the
greater Southington area, and more importantly, they make a difference."
2 BANCORPCONNECTICUT, INC.
<PAGE>
"Many of our acquisition-minded competitors . . . are still referring to
themselves as community banks. We challenge that assertion!"
BANCORP CONNECTICUT, INC. (BKCT) VS. THE FIVE YEAR TOTAL RETURN
FOR THE KBW NEW ENGLAND BANK INDEX AND S&P 500 INDEX
Index of Total Return
S&P 500 KBW New England Bank BKCT
------- -------------------- ----
1992 100.00 100.00 100.00
1993 104.35 110.93 116.19
104.85 104.57 126.31
107.52 135.41 153.74
110.02 133.51 172.03
1994 105.87 140.44 199.00
106.33 165.45 206.86
111.53 157.97 195.69
111.51 134.40 171.34
1995 122.33 150.90 173.45
133.97 171.43 225.84
144.58 197.16 253.56
153.26 209.77 244.40
1996 161.48 210.20 284.90
168.71 222.95 380.43
173.88 250.54 381.52
188.36 289.74 384.91
1997 193.44 300.88 401.25
227.14 361.53 433.88
244.13 426.65 622.30
251.12 498.12 740.62
As a shareholder of a publicly-owned company, you should be concerned about
how we're doing. The results in 1997 are explained elsewhere in this report. If
a shareholder invested $100 at year-end 1992, that investment would now be worth
$740.62, which includes the reinvestment of dividends. If one looks back over
the past five years, the following information, adjusted for stock splits of 20%
in 1993 and 1996 and 100% in 1997, should be helpful:
1997 1992
- ----------------------------------------
Net Income
(in millions) $ 5.9 $ 2.2
Dividends
Per Share $ .46 $ .02
Share Price $21.00 $3.39
This year promises to be an exciting one for SSB and the Company. In
February, we filed with the Connecticut Banking Commissioner for a branch office
on Route 5 in Wallingford. This new SSB presence is strategically located to
develop business in the Wallingford, Meriden, and Cheshire marketplace. We plan
to be operational by midyear and the challenge will be to replicate all of the
good things we do as a community bank here in Southington. In addition, we have
also filed with the Federal Reserve Bank in Boston for an investment in a new
subsidiary to be known as BCI Financial Corp., which will be principally owned
by the holding company. This new subsidiary will initially be involved in
indirect auto financing, among other things. At the Bank level, we are embracing
technology as a pathway to our continued success. Along these lines, SSB is
implementing a strategic technology plan which we hope will be completed by the
third quarter. The first initiative, which was introduced in January, was a
check-imaging system which was well received by our customers. Around midyear,
the Bank will convert its outsourced core-processing system to a totally
integrated hybrid-client-server setting which will be controlled within the
Bank. This will greatly improve customer service and responsiveness from ATMs to
teller line waiting time and faster account opening procedures, among other
things. We believe that these system changes will go a long way toward placing
our Bank close to the forefront of technological change as we prepare for the
next century.
Looking ahead, more emphasis has been, and will be placed, on generating more
commercial lending business from the greater Southington area. We have all of
the products and services that the larger banks have, as well as highly trained
professionals with in-depth experience. The difference at SSB is that we build
relationships through staff continuity in a local decision-making setting. In
addition, we expect to develop much more activity from our Financial Services
area in both the brokerage and money management activities. With over $75
million under management, the Bank's full-service Trust Department is in a
growth mode.
As a quality, community-based financial institution which provides consumer,
commercial, and investment management services to a growing base of customers,
we feel good about our prospects for the future. The directors, officers, and
staff of your Company continue to appreciate your confidence, interest and
support.
Sincerely,
/s/ Robert D. Morton
Robert D. Morton
President and Chief Executive Officer
BANCORPCONNECTICUT, INC. 3
<PAGE>
CONSUMER BANKING
CHECKING ACCOUNTS,
RESIDENTIAL MORTGAGES,
HOME EQUITY LOANS
"SSB is committed to providing outstanding customer service as well as the
products and services our customers demand."
SSB offers a complete line of traditional banking products from checking
accounts and home equity loans to mortgage programs and Money Market savings
accounts. As the only hometown bank in Southington, SSB is committed to
providing outstanding customer service, as well as the products and services
our customers demand.
SSB offers a variety of checking products including; personal checking; 50+
checking for our customers age fifty and older; NOW checking which earns
competitive interest rates; and basic checking for our customers who only need
to write a few checks a month. An extensive range of savings, IRA and CD
products are available and all are offered at competitive rates and terms.
SSB is a leader in the mortgage market of the Greater Southington area. A
variety of fixed and variable rate mortgages, as well as First Time Home Buyer
Programs are available. At SSB, we want to make the home buying process as easy
as possible for our customers. Our staff takes a personal approach to mortgage
lending, making decisions promptly at their office.
SSB also serves the borrowing needs of the community with personal and auto
loans plus home equity loans, lines of credit and cash reserve overdraft
protection. Other banking services available include life insurance products
with low monthly premiums.
SSB is making banking more convenient for its customers. With hours
beginning at 7:30 a.m. daily and late hours Thursday and Friday, there is
never a 9 - 5 workday at SSB. Convenience is also gained through our ATM and
TeleDirect Banking systems that provide customers access to their accounts
24 hours a day.
SSB's consumer lending team: (left to right) Ken Penfield,
Richard Dextraze and Sue Kasek.
A customer asks Joan Morelli for information on SSB's products and services.
4 BANCORPCONNECTICUT, INC.
<PAGE>
FINANCIAL SERVICES
INVESTMENT MANAGEMENT,
TRUST AND BROKERAGE
"We provide the best of both worlds: first rate investment management, from top
money managers and mutual funds, delivered with the community bank touch."
SSB's Financial Services division offers customers
a broad variety of investment services for the large and small investor. At SSB,
we provide the best of both worlds: first rate investment management, from top
money managers and mutual funds, delivered with the community bank touch.
At SSB, we make a point to get to know our customers and their financial
needs. A suitability analysis, a fact finding and objective setting process,
enables us to help customers make the right financial decisions through Trust
and Investments and/or Brokerage Services.
TRUST DEPARTMENT:
- -----------------
SSB's Full Service Trust Department offers Investment Management, Trust
Administration, Estate Planning and Settlement and Retirement Plans. Our
Investment Management services are provided through strategic alliances with
carefully selected money managers and mutual fund advisors: a partnership that
ensures that our clients' investment objectives are realized.
Our staff has an unparalleled commitment to service and has extensive
experience in the Financial Services area.
BROKERAGE SERVICES:
- -------------------
SSB's brokerage unit, provided through Connecticut Association Securities,
Inc. (CTAS), a registered broker/dealer, member NASD, and CTAS Insurance Group,
a licensed insurance agency, offers convenient access to:
* Mutual funds
* Fixed, indexed and variable annuities
* Individual stocks and bonds
* Retirement plans/IRA's
* Life insurance products
Our investment executive, David Smith, specializes in college and retirement
planning. He takes the time to get to know our customer's financial needs and
objectives so he can then tailor an investment plan that works with their
specific goals.
Brokerage Investments are offered through Connecticut Association Securities,
Inc., an independent broker/dealer, member NASD and insurance agency not
affiliated with this institution. Securities and insurance products are not
insured by the FDIC, not deposits of other obligations of the institution and
are not guaranteed by the institution and are subject to investment risk
including the possible loss of principal amount invested.
David Smith discusses investment objectives.
Bob Vocelli reviews investment results with client, Noreen Schumann, Vice
President of Finance for PQ Controls, Inc., a worldwide manufacturer of
electronic controls.
BANCORPCONNECTICUT, INC. 5
<PAGE>
TECHNOLOGY
PLAYING AN IMPORTANT ROLE
IN THE BANKING INDUSTRY
"The road to technology is one that must be taken if a company plans to succeed
in the next century."
"SSB is investing a significant amount of time and money in technology. For a
bank to remain viable in the 21st century it has to be able to provide its
customers with all the services they want, and deliver them efficiently and
promptly," stated Robert D. Morton, President and Chief Executive Officer of
SSB.
A significant technology initiative took place in late 1997, implemented in
the form of check image processing. This allowed leading edge technology to
improve customer service by providing faster statement turnaround, and quicker
response to customer inquiries as it provided the branch network with far more
advanced research and problem resolution capabilities. All this was done at no
cost increase to the consumer.
Another improvement was Bancorp and SSB's web site. The web site was
simplified to provide faster downloading time and was reorganized for maximum
efficiency and ease for the visitor. This site added several new services and
provides consumers better means of communication to and from Bancorp and SSB.
Looking ahead to 1998, SSB will carry out the most sweeping change by
installing a new data processing system. This system will facilitate greater
flexibility in all areas including, product and service offerings, faster and
more convenient statement renderings, and increase our ability to respond to
market conditions quickly. It will also allow SSB to introduce home banking,
cash management and bill paying services. To implement this new system, the Bank
is also upgrading local and wide area networks to meet the increased utilization
that will be required with the new data processing system.
As the Year 2000 issue continues to gain attention and concern, SSB has
already been working on a Year 2000 plan that will ensure full compliance by
December 31, 1998. This action will ensure our customers that this critical
issue will not affect their accounts and banking needs.
As with all companies, the road to technology is one that must be taken if a
company plans to succeed in the next century.
The Information Systems Department, (left to right) Lynndel Bartulis, Barry
Abramowitz and Kurt Heinrich, review the 1998 technology plan.
SSB home page: ssbonline.com
6 BANCORPCONNECTICUT, INC.
<PAGE>
COMMERCIAL LENDING
IN FULL PARTNERSHIP WITH
THE BUSINESSES WE SERVE
"We get to know our customers' unique business needs so that
we can tailor a comprehensive commercial banking package to
meet them."
We offer our business customers full-service commercial banking with a personal
touch. Our customers benefit from our unwavering commitment to outstanding
service.
TEAM APPROACH:
- --------------
At SSB we take a team approach to commercial banking: a team made up of each
customer and their SSB Community Business Banker. It is the ideal way for us to
get to know our customers' unique business needs so that we can tailor a
comprehensive commercial banking package to meet them. And to ensure that there
is never a break in service, each SSB Community Banker is always backed by
another member of our lending team, which provides maximum responsiveness and
efficiency.
COMPREHENSIVE
- -------------
COMMERCIAL
- ----------
BANKING SERVICES:
- -----------------
SSB offers a full array of business services from Equipment Financing,
Commercial Mortgages and Commercial Deposit Products to Payroll Services and
Money Management products, including Investments and Employer/Employee Benefit
Programs.
SMALL BUSINESS
- --------------
BANKING:
- --------
SSB recently formed a Small Business Banking Unit to focus on the special needs
of smaller businesses. We offer, coordinate and process Small Business
Administration (SBA) loans, Connecticut Development Authority Job Training,
Connecticut Works Programs, among others. Our Small Business Specialists are
here to enable small businesses to thrive in the competitive climate of the
1990's.
OUR LENDERS:
- ------------
Our lenders have extensive experience helping businesses to grow and prosper.
They take the time to listen and understand their customers' businesses and with
decisions made locally, customers have the assurance that they are made promptly
by people who know their business and its distinctive needs. Our Commercial
Lending Team is also committed to the communities that we serve, taking a
leading role in many civic and charitable organizations.
Robert Morton, President and Chief Executive Officer, (left) visits with Patrick
Baker, President and Founder of Patrick Baker and Sons, a worldwide distributor
of religious goods and supplies.
Royal Machine Company owners, (left to right) John Ruscio and Joseph DeBattista,
advise William Taylor of their business needs. Royal Machine is a national
manufacturer of specialized tools.
BANCORPCONNECTICUT, INC. 7
<PAGE>
COMMUNITY
INVESTING IN
OUR COMMUNITY
"The community benefits not only from the generosity of the
Bank but also from the time and dedication of our employees
and Directors."
SSB is dedicated to the communities in which we serve. SSB continues to be one
of the largest contributors to the United Way of Southington. The Bank's
employees were the highest per capita givers in 1997 with SSB ranked at the
highest leadership giving level for five consecutive years. In addition, the
Bank also supports the United Way through yearly events, including sponsoring
the "Week of Caring" which included a blood drive, a community collection and a
scavenger hunt that brought United Way Agencies computers, furniture and much
needed supplies.
The Southington/Cheshire Community YMCAs also benefit from our community
spirit. Programs such as the Camp Sloper Playscape Project; the Annual Community
Support Campaign, which provides funding for The Y in the Afternoon Outreach
Program, the Teen Center, Camp Sloper scholarships, Childcare Assistance, and
Programming and Membership; and the YMCA's Blakeslee Society receive much needed
financial support from SSB, its employees and directors.
SSB has a strong affinity for the youth of our community. As well as having a
one-of-its-kind, limited access training branch at Southington High School, the
Bank is involved in school savings programs at many area elementary schools. The
school system also receives contributions to help support athletic and musical
programs, the Southington High School All Night Graduation Party, Playscape
renovations, among many others.
The Southington community benefits not only from the generosity of the Bank
but also by the time and dedication of our employees and Directors. They are
involved in organizations ranging from the Rotary Club, Bradley Memorial
Hospital and the Employment Development Center to the Southington and other area
Chambers of Commerce. Together they help make this community a better place to
live.
SSB presents Janet Hayes (right), Executive Director of the United Way of
Southington, with their contribution to the 1997 annual drive.
Children who benefit from the many YMCA programs.
8 BANCORPCONNECTICUT, INC.
<PAGE>
BANCORP CONNECTICUT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
General
On November 17, 1994, Southington Savings Bank completed a change in its
corporate structure with the formation of its parent holding company, Bancorp
Connecticut, Inc. (the "Corporation"). The holding company structure provides
the Corporation with maximum flexibility in pursuing financial opportunities as
they present themselves. Since Southington Savings Bank (the "Bank") is the sole
subsidiary of the Corporation, the Corporation's earnings and financial
condition are predicated almost entirely on the performance of the Bank.
The Bank's results of operations depend primarily upon the difference between
the interest, dividends and fees earned on its loan and investment portfolios
and the interest paid on its deposits and borrowings. In addition, the Bank's
income is significantly affected by the provision for loan losses, the fees it
charges for its financial services, security gains and losses, administrative
expenses, other real estate expenses and income taxes.
Investments
On December 31, 1997, investment securities totaled $166,712,000 as compared
to $149,612,000 at year end 1996, an increase of 11.4%. Favorable market
conditions allowed the unrealized gains within the portfolio at year end to
increase to $3,146,000 as compared to $732,000 at year end 1996.
During 1997, management made the decision to transfer all held-to-maturity
securities to the available-for-sale category. This transfer, which totaled
$53,455,000 was made to allow the Bank to actively manage its portfolio for
optimal returns on its investments.
As part of the Bank's overall asset/liability strategy, its investments in
mortgage-backed securities increased $21,086,000 from year end 1996.
Approximately $15,000,000 of the growth came from a leveraging strategy and the
remainder from a corresponding reduction in U.S. Government and agency
securities. The increase in mortgage-backed securities provided a positive
spread over the yields that could be attained on the U.S. Treasury and agency
securities. The additional leverage was funded by an increase in various
borrowing arrangements including term repurchase agreements.
On December 31, 1997, approximately 71.2% or $44,000,000 of the marketable
equities securities portfolio was comprised of money market preferred stocks.
These securities are highly liquid, reprice every 49 days and are subject to the
tax advantages of the Federal and state dividends received deductions.
The following table sets forth the carrying amount of investment securities
at the dates indicated:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
(in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Held-to-maturity (at cost):
United States Government and agency obligations $ -- $ 22,651 $ 17,947
Municipal bonds -- 3,252 3,022
Mortgage-backed securities -- 18,194 2,691
- ------------------------------------------------------------------------------------------------------------------------------
Total held-to-maturity $ -- $ 44,097 $ 23,660
- ------------------------------------------------------------------------------------------------------------------------------
Available-for-sale (at market) :
United States Government and agency obligations $ 27,617 $ 15,067 $ 23,110
Municipal bonds 3,432 -- --
Capital trust preferreds 4,052 -- --
Mortgage-backed securities 65,496 26,216 39,265
Marketable equity securities 61,815 56,531 36,839
Mutual funds 4,300 7,701 7,675
- ------------------------------------------------------------------------------------------------------------------------------
Total available-for-sale $166,712 $105,515 $106,889
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
BANCORPCONNECTICUT, INC. 9
<PAGE>
Loans
On December 31, 1997, loans totaled $261,680,000 compared to $252,144,000 in
1996, an increase of 3.8%. During the year, loan growth was concentrated in the
commercial and consumer loans categories. Commercial real estate mortgages
increased $3,571,000 or 10% and represented approximately 15% of total loans.
Consumer loans increased $8,485,000 or 21.5% primarily from the promotion of
10-year fixed rate home equity loans. Consumer loan growth was supplemented by
the purchase of $4,097,000 in auto loans. On December 31, 1997, the consumer
loan portfolio of $47,872,000 consisted of 69.4% of home equity loans and lines
of credit, 17.4% automobile loans and 13.2% other consumer loans.
At midyear 1997, management adopted the strategy of selling newly originated
30-year fixed rate residential mortgages into the secondary mortgage market with
servicing released. Approximately, $1.7 million were sold in 1997 and as a
result, the residential mortgage portfolio remained flat as compared to 1996. On
December 31, 1997, the residential mortgage portfolio consisted of 39.2% of
fixed rate mortgages and 60.8% of variable rate mortgage loans.
At year end 1997, loans collateralized by residential real estate, including
home equity loans and lines of credit, represent 64.1% of the total loan
portfolio.
The following table shows the Bank's loan distribution at the end of the
last five years.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------
(in thousands) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Residential real estate $134,494 $134,000 $132,566 $125,833 $123,722
Commercial real estate 39,043 35,472 34,598 33,660 33,397
Real estate construction 3,003 6,234 2,463 2,233 2,513
Commercial 37,268 37,050 31,971 25,753 29,561
Consumer 47,872 39,388 35,556 33,063 24,944
- -------------------------------------------------------------------------------------------------------------------------------
Total loans $261,680 $252,144 $237,154 $220,542 $214,137
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table shows the maturity and repricing of loans (excluding real
estate mortgage and consumer loans outstanding) as of December 31, 1997. Also
provided are the amounts due after one year classified according to the
sensitivity to changes in interest rates.
<TABLE>
<CAPTION>
Maturing or Repricing
--------------------------------------------------------
Within one After one but After five
(in thousands) year within five years years Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real estate-- construction $ 1,874 $ 631 $ 498 $ 3,003
Commercial 28,380 5,444 3,444 37,268
- ------------------------------------------------------------------------------------------------------------------------------
Total $ 30,254 $ 6,075 $ 3,942 $ 40,271
- ------------------------------------------------------------------------------------------------------------------------------
Loans maturing/repricing after one year with:
Fixed interest rates $ 4,472 $ 3,329
Variable interest rates 1,603 613
- ------------------------------------------------------------------------------------------------------------------------------
Total $ 6,075 $ 3,942
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Nonperforming Assets and Allowance for Loan Losses
Nonperforming assets declined to $4,039,000 at year end 1997 as compared to
$4,306,000 at year end 1996. Nonperforming loans decreased slightly to
$2,861,000 or 1.1% of total loans as compared to $2,939,000 or 1.2% on December
31, 1996. Foreclosed real estate at year end 1997 declined to $1,178,000 from
$1,367,000 at year end 1996 primarily from the sale of 5 lots of a 17-lot
residential subdivision at a net gain of $143,000. At year end 1997, the unsold
lots in the subdivision represent 42.3% of total foreclosed real estate.
The Bank classifies loans as being in nonaccrual status when they become 90
days or more past due. Interest income is then reversed and not recognized until
received. Interest income that would have been recorded during 1997 on all
nonaccrual loans under the original loan terms was approximately $335,000.
Actual income collected on these loans was $201,000.
Management reviews the loan portfolio on a quarterly basis to identify loans
that are impaired. A loan is considered impaired if, based on current
information and events, it is probable that the Bank will be unable to collect
the scheduled payments of principal and interest when due,
according to the contractual terms of the loan agreement. Generally, nonaccrual
loans as well as classified loans past due greater than 60 days are reviewed for
impairment as well as other loans that are monitored internally due to possible
credit risk. Smaller-balance homogeneous loans which consist of residential
10 BANCORPCONNECTICUT, INC.
<PAGE>
mortgages and consumer loans are evaluated collectively and reserves established
based on historical loss experience. The measurement of impairment is based on
the fair value of collateral for collateral-dependent loans or the present value
of future cash flows for other loans. The following table illustrates the amount
of loans identified as impaired and the basis used for measuring impairment as
of December 31, 1997:
Impaired Loans
<TABLE>
<CAPTION>
Basis of measurement
-------------------------------------------
Present value
Fair value of expected
(in thousands) of collateral future cash flow Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial real estate $1,243 $ -- $1,243
Commercial 756 127 883
- --------------------------------------------------------------------------------------------------------------------------------
Total impaired loans $1,999 $ 127 $2,126
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Nonperforming Assets
December 31,
- ---------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans
Residential real estate $1,988 $2,060 $3,650 $3,392 $5,244
Commercial real estate 258 337 1,134 1,465 1,646
Commercial 387 306 1,062 1,030 1,136
Consumer 228 236 410 340 396
- ---------------------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 2,861 2,939 6,256 6,227 8,422
Accruing loans past due 90 days or more -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 2,861 2,939 6,256 6,227 8,422
Foreclosed real estate 1,178 1,367 872 641 1,002
- ---------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $4,039 $4,306 $7,128 $6,868 $9,424
- ---------------------------------------------------------------------------------------------------------------------------------
Nonperforming loans as a
percentage of total loans 1.09% 1.17% 2.64% 2.82% 3.93%
- ---------------------------------------------------------------------------------------------------------------------------------
Nonperforming assets as a
percentage of total assets .91% 1.03% 1.86% 1.92% 2.87%
- ---------------------------------------------------------------------------------------------------------------------------------
Restructured loans in compliance with
modified terms not included above -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Bank also has $5,541,000 in real estate loans and $921,003 in other loans
that are current or less than 90 days past due and not deemed impaired which are
considered potential problem loans. A loan is considered a potential problem if
the loan is risk rated "substandard," or "doubtful" in accordance with
regulatory definitions or has demonstrated a pattern of past due payments and/or
deterioration of collateral value. A decline in Connecticut's economy and local
real estate values as well as the impact of higher interest rates on adjustable
rate notes could hasten the movement of loans from potential problem loan status
to nonperforming loans and negatively impact earnings. Management is constantly
monitoring the status of these loans and reviews their classification quarterly.
The allowance for loan losses is maintained at a level that management
believes is prudent and adequate to absorb losses within the loan portfolio. As
of December 31, 1997, the allowance was $5,306,000 or 185.5% of nonperforming
loans as compared to $4,875,000 or 165.9% of nonperforming loans on December 31,
1996.
BANCORPCONNECTICUT, INC. 11
<PAGE>
Allowance For Loan Losses
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------
(dollars in thousands) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $4,875 $ 5,488 $ 6,136 $6,447 $6,050
Charge-offs:
Residential real estate (219) (264) (341) (238) (146)
Commercial real estate -- (169) (161) (172) (60)
Commercial (94) (446) (227) (225) (268)
Consumer (76) (334) (312) (141) (253)
- ---------------------------------------------------------------------------------------------------------------------------------
Total (389) (1,213) (1,041) (776) (727)
- ---------------------------------------------------------------------------------------------------------------------------------
Recoveries:
Residential real estate 14 8 2 1 --
Commercial real estate 18 20 -- 1 24
Commercial 96 51 98 89 104
Consumer 92 86 113 132 115
- ---------------------------------------------------------------------------------------------------------------------------------
Total 220 165 213 223 243
- ---------------------------------------------------------------------------------------------------------------------------------
Net charge-offs (169) (1,048) (828) (553) (484)
Provision for loan losses 600 435 180 242 881
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $5,306 $ 4,875 $ 5,488 $6,136 $6,447
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net charge-offs to
average loans outstanding .07% .43% .36% .26% .23%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table illustrates the allocation of the allowance for loan
losses to each loan category for the last five years. Actual losses from loans
of any type, however, may be charged against the total amount of the allowance
regardless of the allocations.
<TABLE>
<CAPTION>
Allocation of Allowance for Loan Losses
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993
---------------------------------------------------------------------------------------------------------------
Percent of Percent of Percent of Percent of Percent of
Loans to Loans to Loans to Loans to Loans to
(dollars in thousands) Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real estate $ 652 51% $ 659 53% $ 367 56% $ 479 57% $ 665 57%
Commercial real estate 804 15 752 14 803 15 1,129 15 1,321 16
Real estate construction 38 1 83 2 35 1 33 1 78 1
Commercial 1,194 15 1,162 15 1,209 13 1,069 12 1,511 14
Consumer 756 18 620 16 541 15 565 15 548 12
Unallocated 1,862 -- 1,599 -- 2,533 -- 2,861 -- 2,324 --
- ------------------------------------------------------------------------------------------------------------------------------------
$5,306 100% $4,875 100% $5,488 100% $6,136 100% $6,447 100%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Deposits
Total deposits increased $5,727,000 or 1.8% for 1997 as compared to 1996. The
Bank's marketing efforts concentrated on the growth of transaction accounts
including the introduction of a money fund checking account which pays a rate of
interest indexed to comparable money market mutual funds. Based on the success
of that product, NOW account deposits increased $9,934,000 or 66.4% for 1997 as
compared to 1996. Also during 1997, noninterest-bearing demand deposits, which
provide both a low cost of funding and a source of service fee income, increased
$2,380,000 or 10.1% over year end 1996.
Time certificates of deposit, which range from terms of 3 months to 5 years,
declined $6,275,000 or 3.6% at year end 1997 as compared to 1996. On December
31, 1997, approximately 63.2% of the certificates of deposit either mature or
reprice within one year. The Bank does not utilize brokered deposits as a
funding source.
12 BANCORPCONNECTICUT, INC.
<PAGE>
The average daily amount of deposits and rates paid on such deposits for
the past three years are summarized in the following table:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------
(dollars in thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
Amount Rate Amount Rate Amount Rate
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 22,248 0.00% $ 19,662 0.00% $ 15,845 0.00%
NOW accounts 19,301 2.35 14,495 1.76 13,713 1.76
Regular savings 61,650 2.25 61,690 2.25 69,289 2.25
Money market savings 33,950 3.34 35,952 3.36 29,457 3.12
Certificates of deposit 171,471 5.48 167,399 5.54 154,733 5.50
Club accounts 426 3.29 420 3.33 397 3.27
- ---------------------------------------------------------------------------------------------------------------------------------
Total $309,046 $299,618 $283,434
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Maturities of time certificates of deposit in amounts of $100,000 or more
outstanding at December 31, 1997 are summarized as follows:
(in thousands) Time Certificates of Deposit
- ------------------------------------------------------------
3 months or less $ 5,354
Over 3 months through 6 months 2,043
Over 6 months through 12 months 3,897
Over 12 months 5,460
- ------------------------------------------------------------
Total $16,754
- ------------------------------------------------------------
Borrowings
Federal funds purchased and securities sold under agreements to repurchase
increased $13,489,000 or 32.2% to $55,368,000 at year end 1997 as compared to
1996. Repurchase agreements involve the sale of securities to either
broker/dealers or retail customers under agreements to repurchase the identical
securities at a future date. The Bank uses broker/dealer repurchase agreements
to fund specific investment securities transactions. Such repurchase agreements
have maturities of up to 10 years, however, those with terms of 3 years or
greater may be callable 2 years after issuance. Retail repurchase agreements are
offered primarily to commercial customers as a method of providing collateral
for large deposits of funds which exceed the maximum regulatory insurance
coverage. As of December 31, 1997, broker/dealer repurchase agreements and
retail repurchase agreements totaled $40,510,000 and $11,818,000, respectively
(see Note 9).
The Bank also uses the Federal Home Loan Bank of Boston as an alternative
source of funds. Advances are used primarily to match certain loan originations
and securities purchases as well as extending the maturities of interest-bearing
liabilities within the Company's overall asset/liability management strategies.
Federal Home Loan Bank advances totaled $20,630,000 at year end 1997 as compared
to $21,000,000 at year end 1996.
Asset/Liability Management and Market Risk
Management is continuously fine tuning the Bank's statement of condition to
maximize net interest income while maintaining a level of interest rate risk
that is prudent and manageable. Interest rate risk is the sensitivity of net
interest income to fluctuations in interest rates over both short-term and
long-term time horizons. The Bank's Board of Directors and management
establishes overall policy and interest rate risk tolerance levels which are
administered by the Bank's Asset/Liability Committee on a monthly basis.
Interest rate risk is measured through the use of a static interest rate
sensitivity report and a dynamic simulation model.
The interest rate sensitivity report measures the difference between
interest-earning assets that reprice or mature within various time horizons and
interest-bearing liabilities that reprice or mature within the same time
horizons. Assumptions are also developed for loan and mortgage-backed
securities' principal prepayments based on the prepayment speeds of similar term
loans and investments and an estimate, based on historical trends, that regular
savings deposits will transfer to higher yielding deposits at an annual decay
rate of 3.5%. To limit exposure to fluctuating interest rates, it is the policy
of the Bank to maintain the difference (GAP) between interest rate-sensitive
assets and interest rate-sensitive liabilities within a range of +/- 20% of
total assets in the one year time frame. As of December 31, 1997, rate-sensitive
liabilities exceeded rate-sensitive assets in a one year time frame by
$15,918,000, or 3.8%, of total assets.
Although the rate sensitivity analysis indicates how well matched maturing or
repricing assets and liabilities are in a given time frame, it does not measure
the asymmetrical movement of asset and liability yields. The Bank utilizes a
"rate shock" simulation model to measure the potential change in net interest
income due to an immediate increase or decrease in market interest rates of up
to 200 basis points. Various assumptions regarding the type of yield curve,
interest rate spreads by bank product and prepayments of loans and investments
are built into the model. The following table indicates that the estimated
percentage change in net interest income for the next 12 months from a change in
interest rates of 200 basis points is within the 10% tolerance limit set by
management.
BANCORPCONNECTICUT, INC. 13
<PAGE>
Change in Rate % Change in Net Interest Income
- -----------------------------------------------------------
+200 bp -2.35%
-200 bp +1.66%
Due to the numerous assumptions built into the simulation model, actual
results will differ from estimated results. Factors other than changes in
interest rates could also impact net interest income. For example, the majority
of the Bank's deposit base is composed of local retail customers who tend to be
less sensitive to interest rate changes than other funding sources. In addition,
the entry into the Bank's market place of additional competitors could cause
loan yields to decline and deposit costs to rise.
Both the rate sensitivity analysis and simulation model indicate that a rise
in interest rates would negatively impact earnings. Strategies for maintaining
risk limits may include, but are not limited to, the purchase and sale of loans,
borrowing from the Federal Home Loan Bank of Boston, the purchase and sale of
available-for-sale securities and a change in the composition of deposits.
Although not utilized in 1997, interest rate swaps may be used to correct
interest rate mismatches. Strategies utilized in 1997 include the sale of fixed
rate 30-year mortgages, the addition of intermediate term fixed rate home equity
and automobile loans and a lengthening of deposit liabilities through the
promotion of 18-month and 2-year certificates of deposit and noninterest-bearing
demand deposits. In addition, to increase net interest income, the Bank modestly
leveraged its strong capital position by purchasing $15 million of
mortgage-backed securities which were funded by repurchase agreements.
The Bank maintains a trading account for the purpose of generating gains on
short-term fluctuations of the market price of bond and equity securities
designated as trading securities. The Bank's Board of Directors approves trading
policy limits which include the type of securities which can be purchased as
well as maximum size and maturity limits. In addition, they also establish
monthly and quarterly net trading loss limits. If the monthly or quarter to date
net trading loss exceeds the pre-determined loss limit, trading activity will
cease and will not resume until the Board approves continuance.
Interest Rate Sensitivity
<TABLE>
<CAPTION>
December 31, 1997
----------------------------------------------------------------------------------------
0-180 181-365
(dollars in thousands) days days 1-2 years 2-3 years 3-4 years 4-5 years 5+ years Total
- ------------------------------------------------------------------------------------------------------------------------------------
Assets subject to interest rate adjustment:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short-term investments $ 2,112 $ -- $ -- $ -- $ -- $ -- $ -- $ 2,112
Investment securities 49,813 2,844 7,763 8,627 6,930 3,924 88,905 168,806
Adjustable rate mortgages 34,474 39,570 18,982 7,362 7,562 7,244 4,447 119,641
Fixed rate mortgages 2,132 1,847 3,628 3,300 2,917 3,314 37,886 55,024
Consumer and commercial loans 45,539 5,840 4,301 4,092 5,689 5,401 16,154 87,016
- ------------------------------------------------------------------------------------------------------------------------------------
Total rate-sensitive assets $134,070 $ 50,101 $34,674 $ 23,381 $23,098 $ 19,883 $147,392 $432,599
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities subject to interest rate adjustment:
NOW accounts $ 8,703 $ -- $ -- $ -- $ -- $ -- $ 16,196 $ 24,899
Regular savings 1,116 1,116 2,232 2,204 2,190 2,190 50,818 61,866
Federal funds purchased and
repurchase agreements 22,668 7,940 1,880 2,880 -- 20,000 -- 55,368
Money market deposits 33,895 -- -- -- -- -- -- 33,895
Time certificates of deposit 68,678 38,227 40,645 9,054 5,811 6,550 $130 169,095
Advances from FHLB 4,000 12,000 3,800 -- 830 -- -- 20,630
Mortgagors' escrow 1,746 -- -- -- -- -- -- 1,746
- ------------------------------------------------------------------------------------------------------------------------------------
Total rate-sensitive liabilities $140,806 $ 59,283 $48,557 $ 14,138 $ 8,831 $ 28,740 $ 67,144 $367,499
- ------------------------------------------------------------------------------------------------------------------------------------
Excess (deficiency) of rate-sensitive assets
over rate-sensitive liabilities $ (6,736) $ (9,182) $(13,883) $ 9,243 $14,267 $ (8,857) $ 80,248 $ 65,100
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative excess (deficiency) $ (6,736) $(15,918) $(29,801) $(20,558) $(6,291) $(15,148) $ 65,100
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative rate-sensitive assets as a
percentage of rate-sensitive liabilities 95.2% 92.0% 88.0% 92.2% 97.7% 95.0% 117.7%
Cumulative excess (deficiency) as a
percentage of total assets (1.6)% (3.8)% (7.1)% (4.9)% (1.5)% (3.6)% 15.5%
- ------------------------------------------------------------------------------------------------------------------------------------
Excluding regular savings:
Excess (deficiency) of rate-sensitive assets
over rate-sensitive liabilities $ (5,620) $ (8,066) $(11,651) $ 11,447 $16,457 $ (6,667) $131,066 $126,966
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative excess (deficiency) $ (5,620) $(13,686) $(25,337) $(13,890) $ 2,567 $ (4,100) $126,966
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative rate-sensitive assets as a
percentage of rate-sensitive liabilities 96.0% 92.6% 88.4% 92.6% 98.1% 95.3% 118.1%
Cumulative excess (deficiency) as a
percentage of total assets (1.3)% (3.3)% (6.0)% (3.3)% .6% (1.0)% 30.3%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14 BANCORPCONNECTICUT, INC.
<PAGE>
Liquidity and Capital Resources
Liquidity represents the ability of the Bank to meet customer loan demands,
depositor requests for withdrawals and pay operating expenses. The Bank's
sources of funding are from deposit growth, loan repayments, borrowings,
reduction of its securities and income generated from operations.
The Bank also has the capacity to borrow funds from the Federal Home Loan
Bank of Boston (FHLB), of which it is a member. The Bank is eligible to borrow
against its assets an amount not to exceed collateral as defined by the FHLB. As
of December 31, 1997, qualified collateral totaled $106,294,000. The Bank's
actual borrowings on that date were $20,630,000.
As of December 31, 1997, the Corporation had liquid assets consisting of
cash, Federal funds sold, money market preferred stock and unpledged U.S.
Government and agency obligations of $66,132,000 or 14.9% of total assets which
is within an acceptable level as established in the Corporation's policy. The
Corporation also had additional marketable equity securities with a market value
of $22,115,000 that could be converted to cash if necessary. On December 31,
1997, commitments to extend credit totaled $47,489,000.
During 1997, the Bank completed an extensive analysis of its data processing
systems and has committed, in 1998, to move its core processing system "in
house" rather than continue the service bureau environment it has been operating
on. The new system will improve operating efficiencies, enhance new product
development and expand management reporting. The approximate cost of the new
software and hardware, which includes the replacement of all teller terminals,
is $1,560,000. This cost will be capitalized and depreciated over the useful
lives of the equipment. The Bank estimates that the annual cost of operating the
new core system internally will be approximately the same as the present
outsourcing arrangement.
The Bank has also filed to open a new branch in Wallingford, Connecticut
during 1998. The Bank has allocated $100,000 for leasehold improvements on the
intended site. The new branch is not expected to be profitable in its first year
of operation.
The Corporation has committed to the creation of an auto financing subsidiary
in 1998. The Corporation's investment in the subsidiary is estimated at
$200,000.
The Corporation's improvement in earnings during 1997 led to an increase in
dividend payments to shareholders. Dividends paid in 1997 totaled $2,355,000 or
$.46 per share as compared to $1,991,000 or $.37 per share in 1996 which
reflects an adjustment per share for a six-for-five stock split on June 19,
1996, and a two-for-one stock split on December 1, 1997. Both splits were
effected in the form of a stock dividend. See Note 10 to the Consolidated
Financial Statements for a description of the applicable restrictions on the
Corporation's ability to pay dividends.
In August 1997, the Corporation's 18-month stock repurchase plan of up to 15%
of its outstanding common stock terminated. The Corporation repurchased 519,498
shares at a cost of $5,744,000.
Shareholders' equity at year end increased to $46,947,000 as compared to
$42,731,000 as of the prior year end. Under regulatory definitions, an
institution is considered "well capitalized" (the highest rating) if its
leverage capital ratio is 5% or higher, its tier one risk-based capital ratio is
6% or higher and its total risk-based capital ratio is 10% or higher. On
December 31, 1997, the Corporation had a leverage capital ratio of 10.4%, a tier
one risk-based capital ratio of 15.9% and a total risk-based capital ratio of
17.2% as compared to 10.3%, 15.2% and 16.4%, respectively, for 1996.
Year 2000
An issue impacting all organizations is to ensure that application software
and operating systems will correctly process information in the Year 2000.
Management has developed a plan to assess Year 2000 risks and implement the
changes necessary to ensure that business operations will function properly in
Year 2000 and beyond. This includes a review of relationships with outside
vendors and suppliers. The target date for the Corporation to be fully Year 2000
compliant is December 31, 1998.
In 1998, the Corporation will bring its core data processing system "in
house" rather than continue to outsource the function to a service bureau. The
primary reason for the change is improved operating efficiencies, information
reporting and product enhancement. An additional benefit of the change is that
the system is already Year 2000 compliant. Other than the cost of the hardware
and software as discussed above ("see Liquidity and Capital Resources"), the
Corporation does not anticipate any additional material expenses to become Year
2000 compliant.
Comparisons of Years Ended December 31, 1997 and 1996
Overall
For 1997, the Corporation had net income of $5,896,000 as compared to
$5,024,000 in 1996, an increase of 17.4%. The increase was primarily due to
higher net interest income and net securities gains and to a lesser extent,
tight expense control. 1997 net income represents an annualized return on
average assets of 1.39% as compared to 1.26% for 1996. Return on average equity
for 1997 rose to 13.48% from 11.69% for 1996.
Interest Income
Interest income increased $1,996,000 or 6.7% to $31,923,000 in 1997 as
compared to $29,927,000 in 1996. The increase is primarily attributed to a 5.9%
increase in average interest-earning assets. In addition, higher returns on
taxable investment securities caused the tax equivalent yield on total
interest-earning assets to rise to 8.06% for 1997 as compared to 7.99% for 1996.
Interest Expense
Interest expense increased $1,053,000 or 6.94% to $16,227,000 in 1997 as
compared to $15,173,000 for 1996. The primary reason for the rise in interest
expense was a 5.9% increase in interest-bearing liabilities. In addition, a
greater
BANCORPCONNECTICUT, INC. 15
<PAGE>
utilization of repurchase agreements and FHLB borrowings as a funding
source caused the cost of funds to rise slightly to 4.56% for 1997 as compared
to 4.51% for 1996.
Net Interest Income
Net interest income increased $943,000 or 6.4% in 1997 as compared to 1996.
The tax equivalent net interest margin for 1997 was 4.14%, a slight increase
from 4.10% in 1996.
Provision for Loan Losses
The provision for loan losses for 1997 was $600,000 as compared to $435,000
in 1996, an increase of 37.9%. Management determines the provision for loan
losses based upon an evaluation of the credit risk associated with the
portfolio, current market conditions and the level of the allowance for loan
losses as compared to nonperforming loans. The increase in the provision for
1997 was primarily generated by a rise in nonperforming loans from $2,939,000 at
December 31, 1996 to $4,149,000 at June 30, 1997. Management's success in
reducing problem loans, particularly in the fourth quarter of 1997, resulted in
a decline of nonperforming loans at year end 1997 to $2,861,000, or 1.09% of
total loans, as compared to 1.17% at year end 1996. Net charge-offs for 1997
declined to $169,000 as compared to $1,048,000 for 1996. As of December 31,
1997, the ratio of loan loss reserves to nonperforming loans totaled 185.5%
compared to 165.9% for year end 1996.
Other Income
Noninterest income increased $618,000 or 36.7% to $2,303,000 in 1997 as
compared to $1,685,000 for 1996. The increase was primarily the result of a
$495,000 or 144% increase in investment securities gains and an $83,000 or 400%
increase in trading securities gains. A larger volume of investment securities
as well as favorable market conditions both contributed to the higher volume of
realized securities gains. A higher volume of assets under management, also
resulted in trust fees increasing $30,000 or 6.5% from the prior year. Brokerage
fees increased $87,000 or 160.5% for 1997 as compared to 1996 due to improved
sales.
Other Expenses
Noninterest expenses increased a modest $103,000 or 1.2% for 1997 as compared
to 1996. Salaries and benefits rose $188,000 or 4.1% primarily from normal
annual merit raises and an increase in incentive compensation related to the
Corporation's improved performance. Advertising expense increased $50,000 or
15.6% primarily from the promotion of the new money fund checking product
introduced during 1997. Data processing costs increased $50,000 or 8.0%
primarily from expanded services requested from the Corporation's computer
servicer. Noninterest expenses were favorably impacted in 1997 by a $138,000 or
74.4% reduction in foreclosed real estate expenses from 1996, resulting from a
smaller volume of properties under management and gains on the sales of "OREO"
properties. Legal expenses in 1997 also declined $115,000 or 42.4% primarily
from lower costs incurred in administering nonperforming assets in 1997. In
addition, legal expenses for 1996 were higher due to the settlement of a
lawsuit.
Income Taxes
The provision for income taxes increased to $2,803,000 for 1997 as compared
to $2,381,000 for 1996. The increase was primarily due to the generation of
income before taxes of $8,698,000 in 1997 as compared to $7,405,000 earned in
1996. The effective income tax rate for 1997 and 1996 was 32.2% and is lower
than the expected statutory rate due to the Federal and state dividends received
deduction.
As of December 31, 1997, the Corporation had a total deferred tax asset of
$1,512,000 which was comprised of two separate components. A deferred tax
liability based on the tax effect of the net unrealized holding gains in the
Corporation's available-for-sale investment portfolio totaled $1,267,000. The
change in this component directly impacts shareholders' equity. In addition, a
deferred asset representing the net effect of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
those for income tax purposes amounted to $2,779,000. The change in this
component directly impacts earnings. As of year end, the Corporation has
recorded no valuation allowance against deferred tax assets. A valuation
allowance is not considered necessary for Federal purposes based on sufficient
available Federal taxable income in the carryback period and sufficient future
earnings during the carryforward period. For state income tax purposes, the
carryback of net losses to prior years is not allowed and the basis for
recording no valuation allowance is anticipated sufficient future taxable income
during the carryforward period. The Corporation is confident that future taxable
income will be sufficient to use the deferred tax assets based upon its budget
projections for future periods.
Comparisons of Years Ended December 31, 1996 and 1995
Overall
For 1996, the Corporation had net income of $5,024,000 as compared to
$4,296,000 for 1995. Higher net interest income, higher noninterest income and
to a lesser extent, an increase in net securities gains contributed to the
improved results. 1996 net income represents an annualized return on average
assets of 1.26% as compared to 1.17% for 1995. Return on average equity for 1996
rose to 11.7% from 10.7% for 1995.
Interest Income
Interest income increased $2,407,000 or 8.7% to $29,927,000 in 1996 as
compared to $27,520,000 earned in 1995. The increase can be attributed to an
8.0% increase in average earning assets, as well as an increase in the tax
equivalent yield on earning assets from 7.92% in 1995 to 7.99% in 1996. The
increase in the yield is primarily due to the repricing of adjustable rate
mortgages at higher rates during 1996 as compared to 1995.
16 BANCORPCONNECTICUT, INC.
<PAGE>
Interest Expense
Interest expense increased $1,549,000 or 11.4% to $15,173,000 in 1996 as
compared to $13,624,000 in 1995. The primary reason for the rise in interest
expense was an 8.3% increase in average interest-bearing liabilities. In
addition, a slight rise in interest rates during the early part of 1996 caused
the cost of funds to increase to 4.51% in 1996 from 4.39% in 1995. Interest
expense also increased as deposits shifted from savings accounts to higher
yielding money market accounts and time certificates of deposit and the level of
borrowed funds increased from year to year.
Net Interest Income
Net interest income increased $858,000 or 6.2% in 1996 as compared to
1995. The tax equivalent net interest margin for 1996 was 4.10%, a slight
decline from 4.15% in 1995.
Provision for Loan Losses
The provision for loan losses for 1996 was $435,000 as compared to $180,000
in 1995. Management determines the provision based upon an evaluation of the
credit risk associated with the portfolio and current market conditions as well
as the level of the allowance for loan losses compared to nonperforming loans.
Net charge-offs for 1996 increased to $1,047,000 compared to $829,000 for 1995.
Of the total charge-offs in 1996 and 1995, $415,000 and $352,000, respectively,
relates to the reduction in fair value of the underlying collateral and past due
taxes of one group of loans which had been in litigation since 1992.
Other Income
Noninterest income increased $441,000 to $1,685,000 for 1996 as compared to
$1,244,000 for 1995. The increase was primarily the result of a $194,000
increase in securities gains as well as a $105,000 increase in trust fees due to
a higher volume of assets under management during 1996 as compared to 1995. In
addition, net trading account gains of $21,000 in 1996 compared favorably to
losses of $14,000 in 1995. Other contributions to the increase in other income
include a higher volume of sales of Savings Bank Life Insurance ("SBLI") and
increased brokerage activity.
Other Expenses
Noninterest expenses decreased $27,000 or 0.3% for 1996 as compared to 1995.
The primary reason for the decrease was a reduction in premiums assessed by the
Federal Deposit Insurance Corporation ("FDIC") which resulted in a decrease in
expense of $326,000 when comparing 1996 to 1995. In addition, the Corporation
adopted Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long Lived Assets," in 1995 which resulted in a $281,000 writedown of the
carrying amount of certain Company premises to fair value. A partial offset to
these expense reductions was a rise in salaries and benefits of $353,000 or 8.3%
for 1996 as compared to the prior year due to normal compensation increases of
approximately 4%, additional employees in managerial positions, and an increase
in incentive compensation in relation to the Bank's improved performance.
Income Taxes
The provision for income taxes increased to $2,381,000 for 1996 as compared
to $2,038,000 for 1995. The increase was primarily due to the generation of
income before taxes of $7,405,000 in 1996 as compared to $6,334,000 earned in
1995. The effective income tax rate for 1996 and 1995 was 32.2% and is lower
than the expected statutory rate due to the Federal and state dividends received
deduction.
As of December 31, 1996, the Corporation had a total deferred tax asset of
$2,196,000 which was comprised of two separate components. A deferred tax
liability based on the tax effect of the net unrealized holding gains in the
Corporation's available-for-sale investment portfolio totaled $352,000, the
change of which has an impact on shareholders' equity. In addition, a deferred
asset representing the net effect of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and those for
income tax purposes amounted to $2,548,000.
Impact of Inflation
The financial statements and related data presented herein have been prepared
in accordance with generally accepted accounting principles which require the
measurements of financial position and operating results in terms of historical
dollars without considering changes in the relative purchasing power of money
over time and due to inflation. Virtually, all assets and liabilities of a
financial institution are monetary in nature. As a result, interest rates
typically have a more significant impact on a financial institution's
performance than the effects of general levels of inflation. Inflation, however,
may impact a creditor's ability to service debt if the loan is variable in
nature or if the creditor's income stream were to be adversely affected due to
inflationary cycles. In addition, the effects of deflation on real estate values
in Connecticut have a negative impact on a creditor's ability to recover the
principal amount loaned on properties subsequently foreclosed upon. The impact
of inflationary/deflationary pressures are considered in the Bank's allowance
for loan losses. See "Non-performing Assets and Allowance for Loan Losses."
Accounting Pronouncements
In June 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 net
equity of a business enterprise during a period from non-owner 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
BANCORPCONNECTICUT, INC. 17
<PAGE>
impact the presentation of financial
information only. SFAS No. 131 requires public companies to report financial and
descriptive information about operating segments in annual 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 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 impact the way the
Corporation reports information about its operating segments but specific
determination has not yet been made as to how this will be implemented. In
February 1998, the FASB issued Statement of Financial Accounting Standards No.
132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits"("SFAS No. 132"), which revises employers' disclosures about pension
and other postretirement benefit plans. It does not change the measurement of
recognition of those plans. SFAS No. 132 is effective for years beginning after
December 15, 1997. The adoption of SFAS No. 132 is only expected to impact the
presentation of financial information.
Distribution of Assets, Liabilities and Shareholders' Equity: Interest Rates
and Interest Differential
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------------------------------------------
(dollars in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate(c) Balance Interest Rate (c) Balance InterestRate (c)
Assets
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans (a)(b) $256,929 $22,274 8.67% $244,298 $21,123 8.65% $226,335 $19,238 8.50%
Taxable investment securities
(at cost) (c) 146,263 10,469 7.16 135,457 9,461 6.98 126,188 8,814 6.98
Municipal bonds (c) 3,287 232 7.06 3,150 226 7.17 2,882 209 7.25
Federal funds sold 3,859 207 5.36 4,616 240 5.20 3,421 199 5.82
Other interest-earning assets 2,917 136 4.66 2,648 131 4.95 2,364 139 5.88
- ----------------------------------------------------------- ------------------- -------------------
Total interest-earning assets 413,255 33,318 8.06 390,169 31,181 7.99 361,190 28,599 7.92
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets 9,951 9,697 6,385
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $423,206 $399,866 $367,575
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and Equity
Interest-bearing liabilities:
NOW and savings deposits $114,901 2,975 2.59% $112,137 2,850 2.54% $112,459 2,716 2.42%
Time deposits 171,897 9,357 5.44 167,819 9,293 5.54 155,130 8,518 5.49
Mortgagors' escrow 1,092 32 2.93 1,078 32 2.97 1,054 27 2.56
FHLB of Boston advances 24,805 1,491 6.01 18,097 1,029 5.69 14,398 771 5.35
Federal funds purchased and
securities sold under
agreements to repurchase 43,244 2,371 5.48 37,124 1,969 5.30 27,575 1,592 5.77
- ----------------------------------------------------------- ------------------ ------------------
Total interest-bearing liabilities 355,939 16,226 4.56 336,255 15,173 4.51 310,616 13,624 4.39
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities:
Demand deposits 22,248 19,662 15,845
Other 1,278 1,109 870
Shareholders' equity 43,741 42,840 40,244
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $423,206 $399,866 $367,575
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income before
Federal tax equivalent adjustment 17,092 16,008 14,975
Federal tax equivalent adjustment (1,396) (1,254) (1,079)
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income $15,696 $14,754 $13,896
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest spread (tax equivalent basis) 3.50% 3.48% 3.53%
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest margin (tax equivalent basis) 4.14% 4.10% 4.15%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Nonaccruing loans are included in the average loans balance outstanding.
(b) Included in interest income are loan fees of $387,060, $379,218 and
$302,769 for the years ended December 31, 1997, 1996 and 1995,
respectively.
(c) Yields/Rates are calculated on a tax equivalent basis based on statutory
Federal and state tax rates. The tax equivalent adjustment (increase) to
net interest income was $1,396,000, $1,254,000 and $1,079,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.
</FN>
</TABLE>
18 BANCORPCONNECTICUT, INC.
<PAGE>
Net Interest Income; Rate/Volume Analysis
<TABLE>
<CAPTION>
1997 Compared to 1996 1996 Compared to 1995
Increase (Decrease) Due to Increase (Decrease) Due to
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands) Volume Rate Net (1) Volume Rate Net (1)
- ------------------------------------------------------------------------------------------------------------------------------------
Interest earned on:
<S> <C> <C> <C> <C> <C> <C>
Loans $1,095 $ 56 $1,151 $1,548 $ 337 $1,885
Taxable investment securities 769 239 1,008 647 -- 647
Municipal bonds 10 (4) 6 19 (2) 17
Federal funds sold (40) 7 (33) 64 (23) 41
Other interest-earning assets 13 (8) 5 16 (24) (8)
- ------------------------------------------------------------------------------------------------------------------------------------
1,847 290 2,137 2,294 288 2,582
- ------------------------------------------------------------------------------------------------------------------------------------
Interest paid on:
NOW and savings deposits 71 54 125 (8) 142 134
Time deposits 224 (160) 64 702 73 775
Mortgagors' escrow deposits -- -- -- 1 4 5
FHLB of Boston advances and other borrowings 400 62 462 208 50 258
Federal funds purchased and securities
sold under agreements to repurchase 334 68 402 515 (138) 377
- ------------------------------------------------------------------------------------------------------------------------------------
1,029 24 1,053 1,418 131 1,549
- ------------------------------------------------------------------------------------------------------------------------------------
Change in net interest income $ 818 $ 266 $1,084 $ 876 $ 157 $1,033
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The change in interest income due to both tax equivalent rate and volume has
been allocated to volume and tax equivalent rate changes in proportion
to the relationship of the absolute dollar amounts of the change in each.
</FN>
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Bancorp Connecticut, Inc.:
We have audited the accompanying consolidated statements of condition of
Bancorp Connecticut, Inc. and subsidiary as of December 31, 1997 and 1996, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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
Bancorp Connecticut, Inc. and subsidiary as of December 31, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements the
Corporation changed its method of accounting for long-lived assets in 1995.
Coopers & Lybrand L.L.P.
Hartford, Connecticut
January 22, 1998
BANCORPCONNECTICUT, INC. 19
<PAGE>
BANCORP CONNECTICUT, INC.
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Assets:
<S> <C> <C>
Cash and due from banks $ 7,370,448 $ 8,454,570
Federal funds sold 1,500,000 700,000
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 8,870,448 9,154,570
- -----------------------------------------------------------------------------------------------------------------------------------
Securities available-for-sale (at market value) 166,711,703 105,514,806
Securities held-to-maturity (market value: 1996-- $43,973,649) -- 44,096,667
Trading account securities 612,444 2,429,765
Federal Home Loan Bank stock 2,094,400 2,039,700
Loans 261,680,153 252,144,314
Less:
Deferred loan fees (949,694) (995,049)
Allowance for loan losses (5,306,096) (4,875,308)
- -----------------------------------------------------------------------------------------------------------------------------------
Net loans 255,424,363 246,273,957
- -----------------------------------------------------------------------------------------------------------------------------------
Premises and equipment 3,151,052 3,083,859
Accrued income receivable 2,759,537 2,716,624
Foreclosed real estate, net 1,178,418 1,367,303
Deferred taxes 1,511,908 2,196,226
Other assets 710,674 524,555
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $443,024,947 $419,398,032
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Liabilities:
Deposits $315,553,643 $309,826,725
Advances from Federal Home Loan Bank of Boston 20,630,000 21,000,000
Federal funds purchased and securities sold under agreements to repurchase 55,368,188 41,878,710
Mortgagors' escrow accounts 1,745,502 1,687,087
Accrued taxes, expenses and other liabilities 2,780,885 2,274,390
- -----------------------------------------------------------------------------------------------------------------------------------
396,078,218 376,666,912
- -----------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock, no par value: authorized 1,000,000
shares; none issued and outstanding -- --
Common stock, $1.00 par value: authorized 7,000,000 shares;
issued 5,611,586 shares at December 31, 1997 and
2,768,149 shares at December 31, 1996 5,611,586 2,768,149
Additional paid-in capital 17,050,743 19,189,194
Retained earnings 28,149,253 24,608,695
Unrealized gain on securities available-for-sale, net of tax 1,879,209 503,880
Treasury stock, at cost; 519,498 shares at
December 31, 1997 and 197,552 shares at December 31, 1996 (5,744,062) (4,338,798)
- -----------------------------------------------------------------------------------------------------------------------------------
46,946,729 42,731,120
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $443,024,947 $419,398,032
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20 BANCORPCONNECTICUT, INC.
<PAGE>
BANCORP CONNECTICUT, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest on loans, including fees $22,273,610 $21,123,152 $19,238,504
- -----------------------------------------------------------------------------------------------------------------------------------
Interest and dividends on investment securities:
Interest income 6,128,089 5,627,447 5,515,895
Dividend income 3,147,380 2,779,739 2,415,212
Interest on trading account 30,405 25,824 12,579
- -----------------------------------------------------------------------------------------------------------------------------------
9,305,874 8,433,010 7,943,686
- -----------------------------------------------------------------------------------------------------------------------------------
Interest on Federal funds sold 207,034 240,231 199,100
Other interest and dividends 136,310 130,697 138,883
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest income 31,922,828 29,927,090 27,520,173
- -----------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Savings deposits 2,553,314 2,628,068 2,502,088
Time deposits 9,356,542 9,292,756 8,518,244
NOW accounts 454,367 254,754 240,806
- -----------------------------------------------------------------------------------------------------------------------------------
12,364,223 12,175,578 11,261,138
Interest on borrowed money 3,862,354 2,997,846 2,363,220
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 16,226,577 15,173,424 13,624,358
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 15,696,251 14,753,666 13,895,815
Provision for loan losses 600,000 435,000 180,000
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 15,096,251 14,318,666 13,715,815
- -----------------------------------------------------------------------------------------------------------------------------------
Other income:
Net securities gains 838,634 343,730 150,226
Net trading account gains (losses) 103,776 20,754 (14,005)
Trust fees 487,377 457,732 352,969
Service charges on deposit accounts 555,020 534,005 515,901
Other 318,637 329,025 238,513
- -----------------------------------------------------------------------------------------------------------------------------------
2,303,444 1,685,246 1,243,604
- -----------------------------------------------------------------------------------------------------------------------------------
Other expenses:
Salaries and employee benefits 4,788,534 4,601,019 4,247,720
Occupancy expense, net 528,724 518,026 497,887
Furniture and equipment expense 388,008 349,178 319,148
Data processing expense 682,099 631,744 590,040
FDIC assessments 38,155 2,000 328,346
Legal expense 156,903 272,331 232,090
Foreclosed real estate provision and expense, net 47,462 185,320 189,863
Advertising expense 368,340 318,646 297,803
Other 1,703,008 1,720,444 1,922,815
- -----------------------------------------------------------------------------------------------------------------------------------
8,701,233 8,598,708 8,625,712
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 8,698,462 7,405,204 6,333,707
Provision for income taxes 2,802,511 2,380,841 2,038,080
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 5,895,951 $ 5,024,363 $ 4,295,627
- -----------------------------------------------------------------------------------------------------------------------------------
Per share data:
Basic earnings per share $1.16 $0.94 $0.79
- -----------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $1.08 $0.89 $0.77
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
BANCORPCONNECTICUT, INC. 21
<PAGE>
BANCORP CONNECTICUT, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the Years Ended December 31, 1997, 1996 and 1995
------------------------------------------------------------------------------------
Net
Unrealized
Gain (Loss)
Additional on Securities Total
Common Paid-In Retained Available- Treasury Shareholders'
Stock Capital Earnings for-Sale Stock Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1994 $ 2,247,873 $18,703,898 $18,869,933 $(2,464,933) $ -- $37,356,771
Net income -- -- 4,295,627 -- -- 4,295,627
Stock options exercised 15,440 118,575 -- -- -- 134,015
Cash dividends declared --
$0.295 per share -- -- (1,589,837) -- -- (1,589,837)
Decrease in net unrealized loss on
securities available-for-sale -- -- -- 2,973,493 -- 2,973,493
Tax benefits related to common stock
option exercises and restricted stock -- 39,500 -- -- -- 39,500
- -----------------------------------------------------------------------------------------------------------------------------------
Balance as of December 31, 1995 2,263,313 18,861,973 21,575,723 508,560 -- 43,209,569
Net income -- -- 5,024,363 -- -- 5,024,363
Stock options exercised 63,046 503,748 -- -- -- 566,794
Cash dividends declared --
$0.37 per share -- -- (1,991,391) -- -- (1,991,391)
6-for-5 stock split effected in the form
of a stock dividend 441,790 (441,790) -- -- -- --
Treasury stock purchased -- -- -- -- (4,338,798) (4,338,798)
Decrease in net unrealized gain on
securities available-for-sale -- -- -- (4,680) -- (4,680)
Tax benefits related to common stock
option exercises and restricted stock -- 265,263 -- -- -- 265,263
- -----------------------------------------------------------------------------------------------------------------------------------
Balance as of December 31, 1996 2,768,149 19,189,194 24,608,695 503,880 (4,338,798) 42,731,120
Net income -- -- 5,895,951 -- -- 5,895,951
Stock options exercised 40,560 474,434 -- -- -- 514,994
Cash dividends declared --
$0.4625 per share -- -- (2,355,393) -- -- (2,355,393)
2-for-1 stock split effected in the form
of a stock dividend 2,802,877 (2,802,877) -- -- -- --
Treasury stock purchased -- -- -- -- (1,405,264) (1,405,264)
Increase in unrealized gain on
securities available-for-sale -- -- -- 1,375,329 -- 1,375,329
Tax benefits related to common stock
option exercises and restricted stock -- 189,992 -- -- -- 189,992
- -----------------------------------------------------------------------------------------------------------------------------------
Balance as of December 31, 1997 $ 5,611,586 $17,050,743 $28,149,253 $ 1,879,209 $(5,744,062) $46,946,729
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
22 BANCORPCONNECTICUT, INC.
<PAGE>
BANCORP CONNECTICUT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 5,895,951 $ 5,024,363 $ 4,295,627
- ----------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Deferred income tax provision (credit) (231,114) 232,147 (105,848)
Write-down of premises and equipment 13,690 -- 281,417
Net accretion and amortization of bond premiums and discounts 78,087 123,801 (385,536)
Provision for loan losses 600,000 435,000 180,000
Provision for foreclosed real estate losses 139,687 201,730 120,404
Gain on sale of foreclosed real estate (195,697) (175,323) (45,922)
Gain on sale of loans (41,724) (15,762) --
Amortization of deferred loan points (139,328) (177,448) (127,177)
Realized investment security and trading account gains (942,410) (364,485) (136,221)
Depreciation expense 453,811 457,818 392,963
Decrease (increase) in trading account 1,921,097 (2,018,535) (390,476)
Increase in accrued income receivable (42,913) (196,419) (311,626)
Increase in other assets (225,876) (60,645) (103,542)
Addition of mortgage servicing rights -- (27,783) --
Increase in accrued expenses payable and other liabilities 696,487 477,644 461,697
- ----------------------------------------------------------------------------------------------------------------------------------
Total adjustments 2,083,797 (1,108,260) (169,867)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,979,748 3,916,103 4,125,760
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of securities held-to-maturity (19,495,531) (26,496,387) (15,402,231)
Purchases of securities available-for-sale (76,217,966) (45,396,922) (34,872,521)
Proceeds from sales of securities available-for-sale 50,352,816 24,642,498 22,221,950
Proceeds from maturities of securities 23,759,233 18,000,000 21,500,000
Paydowns on mortgage-backed securities 7,552,526 10,400,772 5,980,517
Purchases of Federal Home Loan Bank stock (54,700) (61,400) --
Proceeds from sale of loans 1,653,217 3,620,834 --
Net increase in loans (11,693,004) (22,067,707) (18,699,522)
Purchases of premises and equipment, net (494,937) (114,128) (390,400)
Proceeds from sales of foreclosed real estate, net 715,328 2,116,117 1,091,741
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (23,923,018) (35,356,323) (18,570,466)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net (decrease) increase in time deposits (6,276,948) 14,671,325 19,688,059
Net increase (decrease) in other deposits 12,003,866 320,310 (4,244,684)
Net increase in mortgagors' escrow 58,415 33,622 187,566
Proceeds from borrowings 35,351,000 42,028,000 14,602,000
Repayment of borrowings (35,721,000) (41,018,000) (16,911,000)
Net increase in Federal funds purchased and
repurchase agreements 13,489,478 19,651,222 7,200,385
Proceeds from exercise of stock options 514,994 566,794 134,015
Repurchase of common stock (1,405,264) (4,338,798) --
Cash dividends paid (2,355,393) (1,991,391) (1,589,837)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 15,659,148 29,923,084 19,066,504
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (284,122) (1,517,136) 4,621,798
Cash and cash equivalents at beginning of year 9,154,570 10,671,706 6,049,908
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 8,870,448 $ 9,154,570 $ 10,671,706
- ----------------------------------------------------------------------------------------------------------------------------------
Noncash investing and financing activities:
Change in net unrealized loss on securities available-for-sale,
net of $915,432, $3,266 and $2,019,915 of deferred taxes in
1997, 1996 and 1995, respectively $ 1,375,329 $ (4,680) $ 2,973,493
Transfer of loans to foreclosed real estate 682,333 3,259,676 1,397,575
Transfer of held-to-maturity securities to available-for-sale securities 53,454,786 -- --
</TABLE>
The accompanying notes are an integral part of the financial statements.
BANCORPCONNECTICUT, INC. 23
<PAGE>
BANCORP CONNECTICUT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Principles of Consolidation
The consolidated financial statements of Bancorp Connecticut, Inc. (the
"Corporation") include the accounts of its wholly-owned subsidiary, Southington
Savings Bank (the "Bank"). The Bank operates four branches and a mortgage
lending center in Southington, Connecticut. The Bank's primary source of revenue
is providing loans to customers, who are either small and middle-market
businesses or individuals. All significant intercompany balances and
transactions have been eliminated in consolidation.
Basis of Financial Statement Presentation
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles. In preparing the financial statements,
management is required to make extensive use of estimates and assumptions that
affect the reported amounts of assets and liabilities as of the date of the
statements of condition, and revenues and expenses for the period. Actual
results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change in
the near term relate to the valuation of investments and the determination of
the allowance for loan losses and valuation of real estate acquired in
connection with foreclosures. In connection with the determination of the
allowance for loan losses and valuation of foreclosed real estate, management
obtains independent appraisals for significant properties. A substantial portion
of the Bank's loans are collateralized by real estate in Connecticut.
Accordingly, the ultimate collectibility of a substantial portion of the Bank's
loan portfolio is particularly susceptible to changes in market conditions in
Connecticut.
Management believes that the allowance for loan losses and valuation of
foreclosed real estate are adequate. While management uses available information
to recognize losses on loans and foreclosed real estate, future additions to the
allowance or write-downs may be necessary based on changes in economic
conditions, particularly in Connecticut. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Bank's allowance for loan losses and valuation of foreclosed real estate.
Such agencies may require the Bank to recognize additions to the allowance or
additional write-downs on foreclosed real estate based on their judgments of
information available to them at the time of their examination.
Investments
Securities that the Corporation has the ability and positive intent to hold
to maturity are classified as held-to-maturity and carried at amortized cost.
Securities that may be sold as part of the Corporation's asset/liability or
liquidity management or in response to or in anticipation of changes in interest
rates and resulting prepayment risk, or for other similar factors, are
classified as available-for-sale and carried at fair market value. Unrealized
gains and losses on such securities are reported, net of tax, as a separate
component of shareholders' equity. The Corporation classifies a security as a
trading security when the intent is to sell the security in the near future to
generate profits. Any unrealized gains or losses in trading securities are
included in income. Realized gains and losses on the sales of all securities are
reported in earnings and computed using the specific identification cost basis.
Interest and Fees on Loans
Interest on loans is included in income monthly as earned based on rates
applied to principal amounts outstanding, except that interest on loans 90 or
more days past due or impaired loans is not recognized as income until received.
Loan origination fees and certain direct loan origination costs are deferred and
the net amount amortized as an adjustment to the related loan's yield over the
life of the loan or taken into income when the related loan is sold.
Loans and Allowance for Loan Losses
Loans are stated at principal balance and are net of unearned interest
income.
Management's determination of the adequacy of the allowance is based on an
evaluation of the portfolio, past loan loss experience, current economic
conditions, volume, growth and composition of the loan portfolio and other
relevant factors. The allowance is increased by provisions for loan losses
charged against income. When a loan or portion of a loan is determined to be
uncollectible, the portion deemed uncollectible is charged against the allowance
and subsequent recoveries, if any, are credited to the allowance.
Management considers a loan impaired if, based on current information and
events, it is probable that the Corporation will be unable to collect the
scheduled payments of principal and interest when due, according to the
contractual terms of the loan agreement. The measurement of impaired loans and
the related allowance for loan losses is generally based on the present value of
expected future cash flows discounted at the historical effective interest rate,
except that all collateral-dependent loans are measured for impairment based on
the fair value of the collateral. Smaller-balance homogeneous loans consisting
of residential mortgages and consumer loans are evaluated for reserves
collectively based on historical loss experience.
In May 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage
Servicing Rights - an amendment of FASB Statement No. 65" ("FAS 122"), which the
Corporation adopted on January 1, 1996. FAS 122 amends FASB Statement No. 65,
"Accounting for Certain Mortgage Banking Activities," to provide that a mortgage
banking enterprise recognize, as separate assets, rights to service mortgage
loans for others, however those servicing rights are acquired. It also requires
the Corporation to assess its capitalized mortgage servicing rights for
impairment, based on the fair value of those rights.
24 BANCORPCONNECTICUT, INC.
<PAGE>
FAS 122 requires that a portion of the cost of originating a mortgage loan
that is sold with servicing rights retained be allocated to the mortgage
servicing right, based on its fair value relative to the loan as a whole. To
determine the fair value of the servicing rights, the Corporation uses a
valuation model that calculates the present value of future cash flows to
determine the fair value of the servicing rights. Certain assumptions, such as
estimates of the cost of servicing per loan, discount rate, and prepayment were
used in the calculation which was done on an aggregate loan basis.
Mortgage servicing rights are amortized in proportion to, and over the period
of, estimated net servicing income.
FAS 122 also requires a periodic assessment of the fair value of mortgage
servicing rights. In determining fair value, the servicing rights are
disaggregated into the predominant risk characteristics, which are currently
loan type and interest rate. These segments are then valued using the same model
used to originally determine the fair value at origination, using current
assumptions. The new value is then compared to the book value to determine if a
reserve for impairment is required.
The impact of adopting FAS 122 was capitalization of $27,783 in mortgage
servicing rights.
Effective January 1, 1997, the Corporation adopted the provisions of
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Serving of Financial Assets and Extinguishment of Liabilities" ("SFAS 125").
SFAS 125 provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishing of liabilities occurring after December
31, 1996, on a prospective basis. The adoption of this standard did not have an
effect on the Corporation's financial condition or its results of operations.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation,
computed on the straight-line and declining-balance methods at rates based on
estimated useful lives of the assets.
Effective December 31, 1995, the Corporation adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"). SFAS 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable intangibles to
be disposed. As a result of adoption, an impairment write-down of $281,417 was
included in non-interest expense as of December 31, 1995. The impairment amount
was determined by comparing the carrying value of certain buildings and land
owned by the Corporation to the estimates of current fair value based on
appraisals or assessment information. The impairment was a result of a decline
in market value since the date of acquisition of such premises that management
deemed to be other than temporary.
Foreclosed Real Estate
Foreclosed real estate consists of properties acquired through mortgage loan
foreclosure proceedings. These properties are recorded at the lower of the
carrying value of the related loans, including costs of foreclosure, or
estimated fair value, less estimated costs to sell, of the real estate acquired
or repossessed. An allowance for losses on foreclosed real estate is maintained
for subsequent valuation adjustments on a specific-property basis.
Income Taxes
Deferred income taxes and tax benefits are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The Corporation provides
deferred taxes for the estimated future tax effects attributable to temporary
differences and carryforwards when realization is more likely than not.
Deferred tax expense is based on items of income and expense that are
reported in different years in the consolidated financial statements and tax
returns and are measured at the tax rate in effect the year the difference
originated.
Earnings Per Share
Effective December 31, 1997, the Corporation adopted the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"). SFAS 128 establishes standards for computing and presenting earnings per
share ("EPS"). It replaces the presentation of primary EPS with a presentation
of basic EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures.
This statement was effective for financial statements issued for periods ending
after December 15, 1997 and has been applied for all periods presented.
Basic earnings per share is computed using the weighted-average common shares
outstanding during the year. 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 three years ended December 31, were as follows:
1997 1996 1995
- --------------------------------------------------------------------
Basic 5,093,588 5,372,760 5,413,234
Effect of dilutive
stock options 384,783 268,476 165,502
- --------------------------------------------------------------------
Diluted 5,478,371 5,641,236 5,578,736
- --------------------------------------------------------------------
The number of common shares used in the calculation have been restated for
all periods presented to reflect a 6-for-5 stock split effected in the form of a
stock dividend on June 19, 1996, and a 2-for-1 stock split effected in the
form of a stock dividend on December 1, 1997.
BANCORPCONNECTICUT, INC. 25
<PAGE>
Cash Flows
Cash and cash equivalents include cash, interest and non-interest-bearing
deposits due from banks and Federal funds sold. The Bank paid interest of
$16,105,588, $15,018,515 and $13,346,669 on deposits, mortgagors' escrow
accounts and borrowings in 1997, 1996 and 1995, respectively.
Reclassification
Certain 1996 and 1995 amounts have been reclassified to conform with the
1997 presentation. These reclassifications had no impact on net income.
2. Restriction on Cash and Due
from Banks:
The Bank is required to maintain reserves against certain deposit transaction
accounts. At December 31, 1997, the Bank was required to have cash and liquid
assets of approximately $1,252,000 to meet these requirements.
3. Investment Securities:
The amortized cost, gross unrealized gains and losses and estimated market
values as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Available-for-Sale
-------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States Government obligations $ 27,577,121 $ 106,714 $ (67,358) $ 27,616,477
Municipal bonds 3,342,276 90,871 (949) 3,432,198
Mortgage-backed securities 64,987,756 573,547 (65,415) 65,495,888
Capital preferred securities 3,750,000 302,500 -- 4,052,500
Marketable equity securities 59,594,575 2,319,331 (99,115) 61,814,791
Mutual funds 4,313,803 9,400 (23,354) 4,299,849
- -----------------------------------------------------------------------------------------------------------------------------------
$163,565,531 $3,402,363 $(256,191) $166,711,703
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost, gross unrealized gains and losses and estimated market
values as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Held-To-Maturity
----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States Government agency obligations $ 22,651,085 $ 152,030 $(122,493) $ 22,680,622
Municipal bonds 3,251,878 87,903 (5,710) 3,334,071
Mortgage-backed securities 18,193,704 6,553 (241,301) 17,958,956
- -----------------------------------------------------------------------------------------------------------------------------------
$ 44,096,667 $ 246,486 $(369,504) $ 43,973,649
- -----------------------------------------------------------------------------------------------------------------------------------
Available-for-Sale
----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------------------
United States Government obligations $ 14,977,409 $ 91,799 $ (2,333) $ 15,066,875
Mortgage-backed securities 26,062,538 297,752 (144,108) 26,216,182
Marketable equity securities 55,848,223 944,026 (261,632) 56,530,617
Mutual funds 7,771,227 9,776 (79,871) 7,701,132
- -----------------------------------------------------------------------------------------------------------------------------------
$104,659,397 $ 1,343,353 $(487,944) $ 105,514,806
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
26 BANCORPCONNECTICUT, INC.
<PAGE>
The amortized cost and estimated market value of debt securities at December
31, 1997, by contractual maturity, are shown below. Actual maturities will
differ from contractual maturities because borrowers may have the right to call
or repay obligations with or without call or prepayment penalties:
1997
Available-For-Sale
- ---------------------------------------------------------------------
Estimated
Amortized Market
Cost Value
- ---------------------------------------------------------------------
Due in one year or less $ 3,982,655 $ 3,996,250
Due after one year
through five years 21,228,625 21,373,776
Due after five years
through ten years 3,084,923 3,100,303
Due after ten years 6,373,194 6,630,846
- ---------------------------------------------------------------------
34,669,397 35,101,175
Mortgage-backed securities 64,987,756 65,495,888
- ---------------------------------------------------------------------
$99,657,153 $100,597,063
- ---------------------------------------------------------------------
Proceeds from sales of securities available-for-sale were $50,352,816,
$24,642,498 and $22,221,950 in 1997, 1996 and 1995, respectively. There were no
sales of securities held-to-maturity in 1997, 1996 or 1995. Gross gains of
$1,226,509, $634,399 and $745,433, and gross losses of $387,875, $290,669 and
$595,207 were realized on sales of securities available-for-sale in 1997, 1996
and 1995, respectively.
During 1997, the entire securities held-to-maturity portfolio, which totaled
$53,454,786, was transferred to the securities available-for-sale portfolio. The
transfer was performed by the Corporation to provide the flexibility to actively
manage the investment portfolio for optimal return. The transfer resulted in a
gross unrealized gain of $162,930.
At December 31, 1997, investment securities with a carrying amount of
$80,480,253 were pledged as collateral to secure public deposits and for other
purposes.
4. Loans and the Allowance for
Loan Losses:
Loans consisted of the following as of December 31:
1997 1996
- ---------------------------------------------------------------------
Residential real estate $134,493,679 $134,000,216
Commercial real estate 39,043,168 35,471,892
Real estate construction 3,002,551 6,233,776
Commercial 37,268,233 37,049,994
Consumer 47,872,522 39,388,436
- ---------------------------------------------------------------------
261,680,153 252,144,314
Less: Deferred loan fees (949,694) (995,049)
Allowance for loan losses (5,306,096) (4,875,308)
- ---------------------------------------------------------------------
$255,424,363 $246,273,957
- ---------------------------------------------------------------------
Activity in the allowance for loan losses was as follows:
Year Ended December 31,
- -------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------
Balance at beginning
of year $4,875,308 $ 5,487,801 $ 6,136,422
Provision for
loan losses 600,000 435,000 180,000
Charge-offs (388,794) (1,212,490) (1,041,851)
Recoveries 219,582 164,997 213,230
- --------------------------------------------------------------------
Balance at end
of year $5,306,096 $ 4,875,308 $ 5,487,801
- --------------------------------------------------------------------
Information, with respect to impaired loans, consisting primarily of
commercial real estate and commercial loans, was as follows:
December 31,
- --------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------
Investment in impaired loans $2,125,923 $2,431,559
Impaired loans with no
valuation allowance 2,088,300 2,304,586
Impaired loans with a
valuation allowance 37,623 126,973
Valuation allowance 6,500 42,803
Average recorded investment
in impaired loans 2,477,185 2,482,867
Commitments to lend
additional funds for loans
considered impaired -- --
Year Ended December 31,
---------------------------------
1997 1996
- --------------------------------------------------------------------
Interest income, recognized
on a cash basis $222,415 $258,740
Information with respect to nonaccrual loans is as follows:
December 31,
-------------------------------
1997 1996
- ------------------------------------------------------------------
Nonaccrual loans $2,860,528 $2,939,000
Year Ended December 31,
- -----------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------
Interest income that
would have been
recorded under
original terms $335,244 $353,572 $443,052
Interest income
recorded during
the period 201,358 228,389 268,461
BANCORPCONNECTICUT, INC. 27
<PAGE>
Information regarding capitalized originated loan servicing assets is as
follows:
December 31,
- -----------------------------------------------------------------
1997 1996
- -----------------------------------------------------------------
Balance at beginning of year $27,783 $ --
Additions -- 27,783
Amortization (4,910) --
- -----------------------------------------------------------------
Balance at end of year $22,873 $27,783
- -----------------------------------------------------------------
In 1996, there was no amortization or impairment of the mortgage servicing
rights reflected in the results of operations, as the loan sale transaction took
place in the month of December. As of December 31, 1997 and 1996, the fair value
of the capitalized loan servicing assets approximated cost.
5. Foreclosed Real Estate:
Changes in the allowance for foreclosed real estate losses were as follows:
Year Ended December 31,
- ------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------
Balance at beginning
of year $ -- $ 35,000 $ 94,502
Provision for losses 139,687 201,730 120,404
Charge-offs, net (114,687) (236,730) (179,906)
- ------------------------------------------------------------------
Balance at end
of year $ 25,000 $ -- $ 35,000
- ------------------------------------------------------------------
6. Premises and Equipment:
Cost and accumulated depreciation of the various categories of premises and
equipment consisted of the following:
- ------------------------------------------------------------------------
December 31, 1997 December 31, 1996
- ------------------------------------------------------------------------
Accumulated Accumulated
Cost Depreciation Cost Depreciation
- ------------------------------------------------------------------------
Land $ 594,725 $ -- $ 594,725 $ --
Buildings 3,059,290 1,672,355 3,049,361 1,571,065
Furniture and
equipment 2,441,638 1,272,246 2,147,435 1,136,597
- ------------------------------------------------------------------------
$6,095,653 $2,944,601 $5,791,521 $2,707,662
- ------------------------------------------------------------------------
During the next year, the Corporation plans to expend approximately $1.6
million for premises and equipment related to the conversion to an in-house
computer system.
The Company leases office space under a noncancelable operating lease with a
renewal option for three consecutive one-year terms. Future minimum lease
payments at December 31, 1997 are as follows:
Year Amount
- ------------------------------------------------------------------
1998 $12,000
- ------------------------------------------------------------------
Total minimum lease payments $12,000
- ------------------------------------------------------------------
Total net rental expense amounted to $88,536, $75,768 and $67,405 in 1997,
1996 and 1995, respectively.
7. Deposits:
Deposits consisted of the following as of December 31:
1997 1996
- ---------------------------------------------------------------------
Noninterest-bearing
demand deposits $ 25,799,116 $ 23,419,607
NOW accounts 24,899,327 14,965,344
Regular savings 61,865,609 59,814,277
Money market savings 33,894,502 36,255,460
Certificates of deposit 168,846,130 175,120,731
Club accounts 248,959 251,306
- ---------------------------------------------------------------------
$315,553,643 $309,826,725
- ---------------------------------------------------------------------
The amount of individual certificates of deposit in excess of $100,000
included in certificates of deposit at December 31, 1997 and 1996 was
$16,753,636 and $15,324,749, respectively.
8. Advances from Federal Home Loan
Bank of Boston:
Advances from Federal Home Loan Bank of Boston consisted of the following as
of December 31:
1997 1996
- --------------------------------------------------------------------
5.41% due January 2, 1997 $ -- $ 1,000,000
5.66% due March 21, 1997 -- 1,000,000
6.19% due September 5, 1997 -- 1,000,000
6.14% due September 16, 1997 -- 1,000,000
5.87% due September 22, 1997 -- 1,000,000
5.79% due October 17, 1997 -- 1,000,000
4.89% due October 21, 1997 -- 1,000,000
5.65% due November 17, 1997 -- 2,000,000
6.05% due January 26, 1998 2,000,000 2,000,000
5.68% due March 4, 1998 1,000,000 --
5.93% due March 20, 1998 1,000,000 1,000,000
6.31% due July 20, 1998 2,000,000 2,000,000
6.08% due July 30, 1998 1,000,000 --
6.42% due September 8, 1998 1,000,000 1,000,000
5.76% due September 25, 1998 2,000,000 --
6.43% due September 30, 1998 1,000,000 1,000,000
5.99% due October 8, 1998 2,000,000 2,000,000
5.87% due October 19, 1998 2,000,000 2,000,000
5.07% due October 21, 1998 1,000,000 1,000,000
5.95% due February 4, 1999 2,000,000 --
6.03% due February 16, 1999 1,000,000 --
5.95% due August 20, 1999 800,000 --
6.70% due June 11, 2001 830,000 --
- --------------------------------------------------------------------
$20,630,000 $21,000,000
- --------------------------------------------------------------------
As a member of the Federal Home Loan Bank of Boston ("FHLBB"), and in
accordance with an agreement with them, the Bank is required to maintain
qualified collateral, as defined in the FHLBB Statement of Credit Policy, free
and clear of liens, pledges and encumbrances as collateral for the advances. The
Bank maintains qualified collateral as defined by the FHLBB in excess of the
amount required to collateralize
28 BANCORPCONNECTICUT, INC.
<PAGE>
the outstanding advances at December 31, 1997. The Bank also participates in
the IDEAL Way Line of Credit Program with the FHLBB. These advances are one-day
variable rate loans with automatic rollover. The Bank has a pre-approved line up
to 2% of total assets.
9. Other Borrowings:
Other borrowings consist of Federal funds purchased, repurchase agreements
with major brokerage firms and repurchase agreements directly with certain
customers.
The following table summarizes short-term borrowings by contractual maturity:
1997 1996
- --------------------------------------------------------------------
Federal funds purchased:
Overnight $ 1,040,000 $ 1,875,000
Within 30 days 1,000,000 --
60-90 days 1,000,000 --
- --------------------------------------------------------------------
3,040,000 1,875,000
- --------------------------------------------------------------------
Repurchase agreements with brokers - dealers:
Within 30 days -- 13,203,750
30-90 days 5,880,000 18,575,000
Over 90 days 34,630,000 --
- --------------------------------------------------------------------
40,510,000 31,778,750
- --------------------------------------------------------------------
Repurchase agreements with customers:
Overnight 7,324,753 5,049,204
Within 30 days 1,646,051 2,899,281
30-90 days 2,847,384 276,475
- --------------------------------------------------------------------
11,818,188 8,224,960
- --------------------------------------------------------------------
Total short-term borrowings $55,368,188 $41,878,710
- --------------------------------------------------------------------
The following table summarizes average outstandings, maximum month-end
outstandings, daily average interest rates and average interest rates on
year-end balances. Average interest rates during the year were computed by
dividing total interest expense by the average amount outstanding.
(dollars in thousands) 1997 1996
- ---------------------------------------------------------------
Average outstanding $43,244 $37,124
Maximum outstanding at
any month-end 57,137 47,008
Average interest rate
during the year 5.48% 5.30%
Interest rate at year-end 5.54% 5.35%
The following table summarizes repurchase agreements outstanding with
broker-dealers:
1997 1996
- ----------------------------------------------------------------------
Morgan Stanley $ 7,650,000 $ --
Salomon Brothers 30,860,000 17,460,000
Merrill Lynch 2,000,000 14,318,750
- ----------------------------------------------------------------------
$40,510,000 $31,778,750
- ----------------------------------------------------------------------
Securities sold under agreements to repurchase are generally U.S. Government
Agency obligations and mortgage-backed securities. The market value of
securities exceeds the face value of the repurchase agreements.
Accrued interest payable on short-term borrowings was $313,188 and $195,113
at December 31, 1997 and 1996, respectively.
10. Shareholders' Equity:
The Corporation's ability to pay dividends is dependent on the Bank's ability
to pay dividends to the Corporation. There are certain restrictions on the
payment of dividends and other payments by the Bank to the Corporation. Under
Connecticut law, the Bank is prohibited from declaring a cash dividend on its
common stock, except from its net earnings for the current year and retained net
profits for the preceding two years. In some instances, further restrictions on
dividends may be imposed on the Bank by the Federal Reserve Bank. At December
31, 1997, approximately $4,165,757 of the Bank's retained net profits was
available for dividends.
In February 1996, the Corporation announced that it planned to repurchase up
to 15% (788,000) of its outstanding common shares over the next 18 months.
During the 18-month period ended August 1997, the Corporation repurchased
519,498 shares. These shares were repurchased at an average price of $11.05 per
share.
11. Employee Benefit Plans:
The Corporation has a noncontributory defined benefit retirement plan under
an immediate participation guarantee contract covering all employees eligible as
to age and length of service. Benefits are based on a covered employee's final
average compensation, primary Social Security benefit and credited service. The
Corporation's funding policy is to contribute amounts to the plan sufficient to
meet the Employee Retirement Income Security Act's minimum funding requirements.
BANCORPCONNECTICUT, INC. 29
<PAGE>
The following table sets forth the plan's funded status and amounts
recognized in the financial statements at December 31:
1997 1996
- ----------------------------------------------------------------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation,
including vested benefits of
$2,621,868 in 1997 and
$2,439,643 in 1996 $(2,672,019) $(2,495,130)
- ----------------------------------------------------------------------
Projected benefit obligation
for service rendered to date $(3,512,966) $(3,201,593)
Plan assets at fair value,
primarily cash and cash
equivalents, U.S. and other
bonds and listed stocks 4,792,961 3,929,650
- ----------------------------------------------------------------------
Plan assets in excess of
projected benefit obligation 1,279,995 728,057
Unrecognized net gain from
past experience different
from that assumed and effects
of changes in assumptions (1,645,153) (1,088,373)
Unrecognized prior service cost 163,832 187,492
Unrecognized net obligation
at January 1 24,633 28,404
Contribution -- --
- ----------------------------------------------------------------------
Accrued pension cost $ (176,693) $ (144,420)
- ----------------------------------------------------------------------
The components of net pension expense are as follows:
Year Ended December 31,
- -----------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------
Service cost -
benefits earned
during the year $214,970 $208,308 $186,748
Interest cost of
projected benefits 242,043 224,362 201,368
Actual return on
plan assets (877,052) (449,628) (452,635)
Net amortization
and deferral 589,972 199,921 230,221
- -----------------------------------------------------------------
$169,933 $182,963 $165,702
- -----------------------------------------------------------------
Weighted-average
annualized actuarial
assumptions:
Discount rate 7.5% 7.75% 7.5%
Expected long-term
rate of return on
plan assets 8.5 8.5 8.0
Rate of increase
in future
compensation levels 5.0 5.0 5.0
Employees who have completed one year of service and have attained the age of
21 are eligible to participate in the Corporation's defined contribution savings
plan (401k plan). Eligible employees may contribute up to 15% of their
compensation. The Corporation may make a matching contribution of up to 6% of
the participant's compensation. Contributions by the Corporation for the years
ended December 31, 1997, 1996 and 1995 were $80,124, $76,062 and $65,783,
respectively.
The Corporation does not offer any postretirement or postemployment benefits
other than pensions.
12. Federal and State Taxes on Income:
Significant components of the provision for income taxes are as follows:
1997 1996 1995
- -------------------------------------------------------------------
Current:
Federal $2,255,348 $1,588,727 $1,575,793
State 778,277 559,967 568,135
- -------------------------------------------------------------------
Total current 3,033,625 2,148,694 2,143,928
- -------------------------------------------------------------------
Deferred:
Federal (230,219) 158,308 (105,327)
State (895) 73,839 (521)
- -------------------------------------------------------------------
Total deferred (231,114) 232,147 (105,848)
- -------------------------------------------------------------------
$2,802,511 $2,380,841 $2,038,080
- -------------------------------------------------------------------
Following is a reconcilement of the statutory Federal income tax rate applied
to pre-tax accounting income with the income tax provisions in the statements of
operations:
1997 1996 1995
- -----------------------------------------------------------------
Income tax at
statutory rate $2,957,477 $2,517,769 $2,153,460
Increase (decrease)
resulting from:
Dividends received
deduction (636,011) (550,719) (479,466)
Connecticut
corporation tax,
net of Federal
tax benefit 513,072 418,312 374,625
Other items, net (73,352) (20,982) (32,976)
Impact of state
tax rate change 41,325 16,461 22,437
- -----------------------------------------------------------------
Provision for
income taxes $2,802,511 $2,380,841 $2,038,080
- -----------------------------------------------------------------
30 BANCORPCONNECTICUT, INC.
<PAGE>
The components of net deferred tax assets at December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996
-----------------------------------------------------------------
Federal State Federal State
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
<S> <C> <C> <C> <C>
Loan loss provision $1,632,685 $504,079 $1,483,556 $511,907
Reserve - other real estate owned 7,693 2,375 -- --
Basis difference on other real estate owned 21,326 6,584 31,175 10,757
Net mortgage origination fees 162,774 50,255 200,348 69,131
Accrued interest payable 321,623 99,299 317,538 109,568
Other 220,815 68,175 183,391 63,280
- -----------------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 2,366,916 730,767 2,216,008 764,643
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Tax loan loss reserve in excess of base year 101,559 31,356 174,423 60,185
SFAS 115 mark-to-market 968,077 298,886 259,574 91,957
Other 144,439 41,458 150,886 47,400
- -----------------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 1,214,075 371,700 584,883 199,542
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets 1,152,841 359,067 1,631,125 565,101
Valuation allowance -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net deferred tax assets $1,152,841 $359,067 $1,631,125 $565,101
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The allocation of deferred tax involving items charged to current year income
and items charged directly to stockholders' equity for the year ended December
31, are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------------------------------------------
Federal State Federal State
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deferred tax (benefit) allocated to shareholders' equity $ 708,503 $206,929 $ (2,411) $ (854)
Deferred tax (benefit) allocated to income (230,219) (895) 158,308 73,839
- -----------------------------------------------------------------------------------------------------------------------------------
Total deferred tax $ 478,284 $206,034 $155,897 $ 72,985
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation will only recognize a deferred tax asset when, based upon
available evidence, realization is more likely than not. Accordingly, at
December 31, 1997, the Corporation has recorded no valuation allowance against
deferred tax assets based on sufficient available Federal taxable income in the
carryback period and anticipated future earnings.
The Corporation made Federal and state income tax payments of $2,848,158,
$1,729,533, and $2,077,494 in 1997, 1996 and 1995, respectively.
The Corporation has not provided deferred taxes for the tax reserve for bad
debts of approximately $1.2 million, that arose in tax years beginning before
1988 because it is expected that the requirements of Internal Revenue Code
Section 593 as amended by the Small Business Protection Act of 1996, will be met
in the foreseeable future.
13. Loans to Related Parties:
Certain directors and executive officers of the Corporation, including their
immediate families and companies in which they are principal owners, were loan
customers of the Bank during 1997 and 1996. Loans to such parties were made in
the ordinary course of business at the Bank's normal credit terms, including
interest rate and collateralization, and did not represent more than a normal
risk of collection. Such loans at December 31, 1997 and 1996 amounted to
$5,643,496 and $5,690,404, respectively. New loans of $1,157,925 were made, and
repayments totaled $1,204,833 during 1997. In addition, unused lines of credit
to related parties as of December 31, 1997 were $690,553.
14. Stock Option Plan:
The Corporation has a stock option plan offered to employees and directors of
the Bank (the "Plan"). A total of 1,444,416 shares can be issued to participants
at an exercise price equal to the market price of the Corporation's stock on the
date of grant with a maximum term of ten years. Options are granted upon the
approval of the Board and vest 100% in one year. As of December 31, 1997, a
total of 402,120 shares are remaining for issuance.
BANCORPCONNECTICUT, INC. 31
<PAGE>
On January 1, 1996, the Corporation adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS 123"). As
permitted by SFAS 123, the Corporation has chosen to apply APB Opinion No. 25,
"Accounting for Stock Issued to Employees," (APB 25) and related interpretations
in accounting for its Plan. Accordingly, no compensation cost has been
recognized for options granted under the Plan. Had compensation cost for the
Corporation's Plan been determined based on the fair value at the grant dates
for awards under the Plan consistent with the method of SFAS 123, the
Corporation's net income and net income per share would have been reduced to the
pro forma amounts indicated below.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $5,895,951 $5,510,219 $5,024,363 $4,588,413 $4,295,627 $4,221,820
Net income per share -
Diluted 1.08 1.01 .89 .81 .77 .75
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividend yield 3.75% 3.75% 3.75%
Expected volatility 35.00 34.84 34.84
Risk-free interest rate 6.26 6.16 5.68
Expected lives 7 years 7 years 7 years
</TABLE>
A summary of the status of the Corporation's Plan as of December 31, 1997,
1996 and 1995 and changes during the years ending on those dates is presented
below:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 890,616 $ 6.97 780,908 $ 5.29 569,188 $4.35
Granted 237,000 18.30 237,000 11.18 242,600 7.38
Exercised (76,320) 7.32 (126,092) 4.49 (30,880) 4.27
Forfeited (9,000) 11.16 (1,200) 7.40 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 1,042,296 $ 9.53 890,616 $ 6.97 780,908 $5.29
- -----------------------------------------------------------------------------------------------------------------------------------
Options exercisable at year-end 836,796 733,616 576,708
Weighted-average fair value of
options granted during the year $ 5.76 $ 3.53 $2.27
</TABLE>
The following table summarizes information about the Plan's stock options at
December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------------------------------------------------------------
Number Weighted-Average Weighted- Number Weighted-
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/31/97 Contractual Life Exercise Price at 12/31/97 Exercise Price
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 1.00 - $ 7.50 579,796 6.1 $ 5.31 579,796 $ 5.31
7.50 - 15.00 257,000 8.9 11.16 257,000 11.16
15.00 - 22.50 205,500 10.0 19.38 -- --
--------- -------
1,042,296 836,796
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
32 BANCORPCONNECTICUT, INC.
<PAGE>
15. Financial Instruments with
Off-Balance-Sheet Risk:
The Bank is party to financial instruments with off-balance-sheet credit risk
in the normal course of business to meet the financing needs of its customers.
These instruments expose the Bank to credit risk in excess of the amount
recognized in the statement of condition.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments.
Total credit exposure related to those items is summarized as follows:
1997 1996
- --------------------------------------------------------------------
Loan commitments:
Approved loan commitments $ 4,484,000 $ 1,153,340
Unadvanced portion of
construction loans 3,281,819 1,665,389
Unused home equity
lines of credit 11,510,930 11,152,058
Unused commercial
lines of credit 24,418,641 13,427,265
Standby letters of credit 3,793,939 2,212,132
- --------------------------------------------------------------------
$47,489,329 $29,610,184
- --------------------------------------------------------------------
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Bank upon extension of credit is based on management's
credit evaluation of the counterparty. Collateral held is primarily residential
property. Interest rates on home equity lines of credit are variable and are
available for terms of 10 or 15 years. All other commitments are a combination
of fixed and variable interest rates with maturities of one year or more.
16. Recent Accounting Pronouncements:
In June 1997, the FASB issued two pronouncements, Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130") and
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 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. SFAS 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 130 is
expected to impact the presentation of financial information only. SFAS 131
requires public companies to report financial and descriptive information about
operating segments in annual 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 is used internally for evaluating segment
performance and allocation of resources. SFAS 131 is effective for financial
statements for periods beginning after December 15, 1997 and requires
presentation of comparative information for prior periods presented. The
adoption of SFAS 131 is expected to impact the way the Corporation reports
information about its operating segments but specific determination has not yet
been made as to how this will be implemented. In February 1998, the FASB issued
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" ("SFAS 132"), which revises
employers' disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those plans. SFAS 132 is
effective for years beginning after December 15, 1997. The adoption of SFAS 132
is only expected to impact the presentation of financial information.
17. Significant Group Concentrations
of Credit Risk:
The Bank primarily grants residential, commercial and consumer loans to
customers located within its primary market area in the State of Connecticut.
The majority of the Bank's loan portfolio is collateralized by residential real
estate.
BANCORPCONNECTICUT, INC. 33
<PAGE>
18. Fair Value of Financial Instruments:
FASB Statement No. 107, "Disclosure about Fair Value of Financial
Instruments," requires disclosure of fair value information about financial
instruments, whether or not recognized in the statement of condition, for which
it is practicable to estimate that value. In cases where quoted market prices
are not available, fair values are based on estimates using present value or
other valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. Statement No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Corporation.
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments:
Cash and Cash Equivalents
The carrying amounts reported in the statement of condition for cash and
short-term instruments approximate those assets' fair values.
Trading Account Assets
Fair values for the Bank's trading account assets, which also are the amounts
recognized in the consolidated statement of condition, are based on quoted
market prices where available.
Securities Available-for-Sale and Held-to-Maturity
Fair values for securities available-for-sale and held-to-maturity are based
on quoted market prices, where available.
Federal Home Loan Bank Stock
The carrying value of Federal Home Loan Bank stock approximates its fair
value.
Loans Receivable
The fair values for loans (excluding non-accrual loans) are estimated using
discounted cash flow analyses, using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality. The Bank does
not believe an estimate of the fair value of non-accrual loans can be made
without incurring excessive cost. The carrying amount of accrued interest
approximates its fair value.
Off-Balance-Sheet Instruments
Fair values for the Bank's off-balance-sheet instruments (primarily lending
commitments) are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
counterparties' credit standing (guarantees, loan commitments).
Deposit Liabilities
The fair values disclosed for demand deposits (e.g., interest and
non-interest checking, regular savings and certain types of money market
accounts) are, by definition, equal to the amount payable on demand at the
reporting date (i.e., their carrying amounts). The carrying amounts for
variable-rate, fixed-term money market accounts and certificates of deposit
approximate their fair values at the reporting date. Fair values for fixed rate
certificates of deposit are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits.
Statement No. 107 defines the fair value of demand deposits as the amount
payable on demand, and prohibits adjusting fair value for any value derived from
retaining those deposits for an expected future period of time. That component
is commonly referred to as a deposit base intangible. This intangible asset is
neither considered in the fair value amounts nor is it recorded as an intangible
asset in the statement of condition. The Corporation has not performed the
calculations to estimate the amount of this intangible asset due to the absence
of certain information required and the complexity of the computation.
Advances from Federal Home Loan Bank of Boston
The fair values of the Bank's borrowings from the Federal Home Loan Bank of
Boston are estimated using discounted cash flow analyses, based on the Bank's
current incremental borrowing rates for similar types of borrowing arrangements.
Securities Sold Under Agreements to Repurchase
The carrying amount reported in the consolidated statement of condition for
securities sold under agreements to repurchase is estimated to approximate its
fair value due to the fact that they are short-term instruments that mature
within 89 days.
34 BANCORPCONNECTICUT, INC.
<PAGE>
The following table presents a comparison of the carrying value and estimated
fair value of the Corporation's financial instruments at December 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- ------------------------------------------------------------------------------------------------------------------------------
Financial assets:
<S> <C> <C> <C> <C>
Cash and due from banks $ 7,370,448 $ 7,370,448 $ 8,454,570 $ 8,454,570
Federal funds sold 1,500,000 1,500,000 700,000 700,000
Trading account 612,444 612,444 2,429,765 2,429,765
Securities available-for-sale 166,711,703 166,711,703 105,514,806 105,514,806
Securities held-to-maturity -- -- 44,096,667 43,973,649
Federal Home Loan Bank Stock 2,094,400 2,094,400 2,039,700 2,039,700
Loans, gross (excluding non-accrual loans) 258,819,625 258,852,151 249,205,314 247,961,115
Accrued income receivable 2,759,537 2,759,537 2,716,624 2,716,624
Financial liabilities:
Deposits:
Noninterest-bearing demand deposits $ 25,799,116 $ 25,799,116 $ 23,419,607 $ 23,419,607
Regular savings 61,865,609 61,865,609 59,814,277 59,814,277
Money market savings 33,894,502 33,894,502 36,255,460 36,255,460
Certificates of deposit 168,846,130 169,545,765 175,120,731 175,631,030
NOW accounts 24,899,327 24,899,327 14,965,344 14,965,344
Club accounts 249,959 249,959 251,306 251,306
Advances from the Federal Home Loan
Bank of Boston 20,630,000 20,641,311 21,000,000 20,991,116
Securities sold under agreements to repurchase 55,368,188 55,368,188 41,878,710 41,878,710
Unrecognized financial instruments:
Commitments to extend credit -- 437,071 -- 273,981
Letters of credit -- 37,939 -- 22,121
</TABLE>
19. Contingencies:
The Corporation and its subsidiaries are defendants in proceedings arising
out of, and incidental to, activities conducted in the normal course of
business. In the opinion of management, resolution of these matters will not
have a material effect on the Corporation's financial condition or results of
operations.
20. Regulatory Matters:
The Bank is subject to various regulatory capital requirements administered
by the Federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory -- and possibly additional discretionary actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classifications are also
subject to quantitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
following table) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.
BANCORPCONNECTICUT, INC. 35
<PAGE>
The Bank's actual capital amounts and ratios are also presented in the table:
<TABLE>
<CAPTION>
To Be Well Capitalized
Under Prompt Corrective
Actual Action Provisions
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------------------------
As of December 31, 1997:
<S> <C> <C> <C> <C>
Total Capital (to Risk-Weighted Assets) $48,550 17.16% greater than/= $28,299 greater than/= 10.0%
Tier I Capital (to Risk-Weighted Assets) 44,991 15.90 greater than/= $16,979 greater than/= 6.0
Tier I Capital (to Average Assets) 44,991 10.41 greater than/= $21,560 greater than/= 5.0
As of December 31, 1996:
Total Capital (to Risk-Weighted Assets) $45,561 16.44% greater than/= $27,721 greater than/= 10.0%
Tier I Capital (to Risk-Weighted Assets) 42,078 15.18 greater than/= $16,632 greater than/= 6.0
Tier I Capital (to Average Assets) 42,078 10.33 greater than/= $20,368 greater than/= 5.0
</TABLE>
21. Parent Company Only Financial Statements:
The financial statements of Bancorp Connecticut, Inc. are as follows:
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Statement of condition:
Assets:
<S> <C> <C>
Marketable equity securities $ 358,853 $ 300,000
Investment in Southington Savings Bank 45,809,297 41,777,105
Repurchase agreement 575,000 425,000
Organization costs 76,200 115,957
Due from Southington Savings Bank 134,693 113,967
Other assets 4,481 9,696
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $46,958,524 $42,741,725
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and stockholder's equity:
Accrued expenses $ 11,795 $ 10,605
Stockholders' equity 46,946,729 42,731,120
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $46,958,524 $42,741,725
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
36 BANCORPCONNECTICUT, INC.
<PAGE>
The financial statements of Bancorp Connecticut, Inc. (continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statement of income:
Dividends from subsidiary $ 3,594,005 $ 6,334,433 $ 1,684,690
Other income 29,676 34,940 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total income 3,623,681 6,369,373 1,684,690
Operating expenses 288,813 318,693 354,293
Income tax (credit) (87,487) (100,108) (146,766)
- ------------------------------------------------------------------------------------------------------------------------------------
Income before equity in undistributed net income of subsidiary 3,422,355 6,150,788 1,477,163
Equity in undistributed net income of subsidiary 2,473,596 (1,126,425) 2,818,464
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 5,895,591 $ 5,024,363 $ 4,295,627
- ------------------------------------------------------------------------------------------------------------------------------------
Statement of cash flows:
Operating activities:
Net income $ 5,895,951 $ 5,024,363 $ 4,295,627
- ------------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in undistributed net income of subsidiary (2,473,596) 1,126,425 (2,818,464)
Amortization of organization costs 39,757 39,757 12,364
Increase (decrease) in other assets 5,215 (725) (8,970)
(Decrease) increase in accrued expenses (3,343) (39,434) 50,039
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (2,431,967) 1,126,023 (2,765,031)
Investing activities:
Purchase of securities available-for-sale (47,595) -- --
Decrease (increase) in advances to subsidiaries (20,726) 38,009 (74,774)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (68,321) 38,009 (74,774)
- ------------------------------------------------------------------------------------------------------------------------------------
Financing activities:
Dividends paid (2,355,393) (1,991,391) (1,589,837)
Net increase in repurchase agreements (150,000) (425,000) --
Repurchase of common stock (1,405,264) (4,338,798) --
Issuance of common stock 514,994 566,794 134,015
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (3,395,663) (6,188,395) (1,455,822)
- ------------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash -- -- --
Cash at beginning of year -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ -- $ -- $ --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
BANCORPCONNECTICUT, INC. 37
<PAGE>
22. Quarterly Financial Data (Unaudited):
<TABLE>
<CAPTION>
Three Months Ended
- -------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) March 31 June 30 Sept. 30 Dec. 31
- -------------------------------------------------------------------------------------------------------------------------------
Fiscal 1997:
<S> <C> <C> <C> <C>
Interest income $7,709 $8,009 $8,027 $8,178
Interest expense 3,961 4,056 4,052 4,158
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income 3,748 3,953 3,975 4,020
Provision for loan losses 150 200 150 100
Net securities gains 161 175 268 235
Other income 323 376 292 473
Other expenses 1,979 2,120 2,182 2,420
Income taxes 688 690 696 728
- -------------------------------------------------------------------------------------------------------------------------------
Net income $1,415 $1,494 $1,507 $1,480
- -------------------------------------------------------------------------------------------------------------------------------
Net income per diluted share $.26 $.28 $.26 $.27
- -------------------------------------------------------------------------------------------------------------------------------
Fiscal 1996:
Interest income $7,287 $7,358 $7,579 $7,703
Interest expense 3,702 3,723 3,832 3,916
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income 3,585 3,635 3,747 3,787
Provision for loan losses 75 100 125 135
Net securities gains 201 41 65 37
Other income 329 350 320 342
Other expenses 2,118 2,171 2,114 2,196
Income taxes 638 565 610 568
- -------------------------------------------------------------------------------------------------------------------------------
Net income $1,284 $1,190 $1,283 $1,267
- -------------------------------------------------------------------------------------------------------------------------------
Net income per diluted share $.23 $.21 $.22 $.23
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Income per share calculations for each of the quarters is based on the
weighted-average number of shares outstanding, including common stock
equivalents for each period and the sum of the quarters may not necessarily be
equal to the full year income per share amount. Net income per common and common
equivalent share has been restated for all periods presented to reflect a
6-for-5 stock split effected in the form of a stock dividend on June 19, 1996,
and a 2-for-1 stock split effected in the form of a stock dividend on December
1, 1997.
38 BANCORPCONNECTICUT, INC.
<PAGE>
SHAREHOLDER INFORMATION
Annual Meeting
The Annual Meeting of Shareholders will be held at 2:00 p.m. on Wednesday,
May 13, 1998 at:
The Aqua Turf Club
556 Mulberry Street
Southington, Connecticut 06489
Form 10-K Report
A copy of the Corporation's 1997 Annual Report to the Securities and Exchange
Commission on Form 10-K may be obtained without charge by any shareholder upon
written request to:
Lesley DeAngelo
Bancorp Connecticut, Inc.
121 Main Street
Southington, Connecticut 06489-2533
Stock Transfer Agent:
American Stock Transfer & Trust Company
40 Wall Street - 46th Floor
New York, New York 10005
1-800-937-5449
Independent Accountants:
Coopers & Lybrand L.L.P.
100 Pearl Street
Hartford, Connecticut 06103
Market Makers
The following companies have generally been market makers in the trading of
Bancorp Connecticut, Inc. stock as of December 31, 1997:
Advest, Inc.
Keefe, Bruyette & Woods, Inc.
Sandler O'Neill & Partners
Tucker Anthony Incorporated
Market Price and Dividends
The Corporation's common stock trades on the Nasdaq National Market tier of
the Nasdaq Stock Market under the symbol BKCT. There were approximately 1,835
shareholders of record on February 28, 1998. The high and low bid prices and
cash dividends per share for each quarter during the last two calendar years
were as follows:
Dividend
Quarter Ended High Low per Share
- -----------------------------------------------------------
3/31/96 (a)(b) $ 8.85 $ 7.40 $.085
6/30/96 (b) 11.31 8.34 .090
9/30/96 (b) 11.88 9.75 .095
12/31/96 (b) 11.88 10.63 .100
3/31/97 (b) 12.13 10.75 .103
6/30/97 (b) 13.25 10.88 .110
9/30/97 (b) 18.50 12.00 .125
12/31/97 (b) 26.00 19.00 .125
(a) Data has been restated to reflect a 6-for-5 stock split effected in the form
of a stock dividend on June 19, 1996.
(b) Data has been restated to reflect a 2-for-1 stock split effected in the form
of a stock dividend on December 1, 1997.
Dividend Reinvestment and Stock Purchase Plan
For more information contact:
American Stock Transfer & Trust Company
Dividend Reinvestment Dept.
40 Wall Street - 46th Floor
New York, New York 10005
1-800-278-4353
BancorpConnecticut, Inc. Internet Address:
www.bkct.com
Southington Savings Bank Office Locations
Main Office
121 Main Street
Main Office Drive-In Center
Berlin Avenue behind Main Office
Queen Corner Office
900 Queen Street
South End Office
921 Meriden-Waterbury Turnpike
Southington High School Training Branch
720 Pleasant Street
Mortgage Center
188 North Main Street
SSB Internet Address:
www.ssbonline.com
BANCORPCONNECTICUT, INC. 39
<PAGE>
BANCORP CONNECTICUT, INC. DIRECTORS AND OFFICERS
Board of Directors
Walter J. Hushak
Chairman of the Board,
Southington Savings Bank
Senior Vice President,
Janazzo Services, Inc.
Andrew J. Meade
Vice Chairman,
Southington Savings Bank
President, International Security
Products, Inc. dba Lori Lock
(Manufacturer of Security Products)
Norbert H. Beauchemin
Vice President
Dudzik & Beauchemin, P.C.
(Certified Public Accountants)
Michael J. Karabin
President,
Acme-Monaco Spring Corporation
(Manufacturer of springs, stampings,
forms, orthodontic hardware and
medical assemblies)
David P. Kelley
Counsel, Southington Savings Bank
Partner, Kelley, Crispino & Kania
(Attorneys at Law)
Frederick E. Kuhr
President and controlling shareholder,
Evergreen Nursery, Inc.
Joseph J. LaPorte
Retired Manufacturers Representative,
B.C.S. Company (Distributor of
industrial metal finishing chemicals
and equipment)
Ralph G. Mann
Retired President,
Southington Savings Bank
Frank R. Miller
Managing Partner, Miller,
Moriarty and Company, L.L.C.
(Certified Public Accountants)
Robert D. Morton
President and Chief Executive Officer,
Bancorp Connecticut, Inc.
Anthony S. Pizzitola
Retired President and Treasurer,
Pizzitola Electric Co., Inc.
Dennis J. Stanek
Senior Vice President -
Investments
Tucker Anthony Incorporated
(Investment Banking Firm)
Officers
Robert D. Morton
President and Chief Executive Officer
Anthony Priore, Jr.
Treasurer/Secretary
Steven F. Nyren
Assistant Secretary
40 BANCORPCONNECTICUT, INC.
<PAGE>
SOUTHINGTON SAVINGS BANK DIRECTORS AND OFFICERS
Board of Directors
Walter J. Hushak
Chairman of the Board
Andrew J. Meade
Vice Chairman
Norbert H. Beuchemin
Michael J. Karabin
David P. Kelley
Frederick E. Kuhr
Joseph J. LaPorte
Ralph G. Mann
Frank R. Miller
Robert D. Morton
Anthony S. Pizzitola
Dennis J. Stanek
Executive and Senior Officers
Robert D. Morton
President and Chief Executive Officer
Barry J. Abramowitz
Chief Information Officer
William R. DellaVecchia
Senior Vice President
Business Development
Charles J. DeSimone, Jr.
Chief Credit Officer
Richard A. Fracasso
Senior Vice President
Consumer Banking Manager
Anthony Priore, Jr.
Senior Vice President, Treasurer and
Chief Financial Officer
William Taylor
Senior Vice President
Commercial Banking Manager
Robert P. Vocelli
Financial Services Manager
Officers
Cynthia K. Barker
Advertising and
Public Relations Manager
Lynndel M. Bartulis
Vice President
Alternative Delivery Systems Manager
Duane L. Beale
Assistant Vice President
Commercial Loan Officer
Rhonda Blanchette
Trust Administration Officer
Claudia Crooker
Assistant Treasurer
Branch Manager, Main Office
Daniel R. DeRosa
Vice President
Commercial Loan Officer
Richard P. Dextraze
Assistant Vice President
Consumer Loan Manager
Susan M. Dobratz
Assistant Vice President
Call Center Manager
Donna M. Glatz
Assistant Vice President
Retail Operations Officer
Kurt M. Heinrich
Systems Administration Officer
Diane L. Hoadley
Credit & Loan Review Officer
Raymond D. Jannelli
Vice President
Commercial Loan Officer
Sue A. Kasek
Assistant Vice President
Consumer Loan Officer
Therese G. Kelly
Assistant Vice President
Deposit Services Manager
Paul MacDonald
Vice President
Retirement Plans Manager
Diane McCoy
Commercial Loan
Documentation Officer
Joan E. Morelli
Branch Manager, South End Office
Steven Nyren
Trust and Employee Benefits Officer
Anthony Palmieri
Vice President
Commercial Loan Officer
Kenneth G. Penfield
Assistant Vice President
Mortgage Loan Officer
Annette D. Petruzzi
Loan Operations Officer
Vincent L. Ruggiero
Vice President
Managed Assets Manager
Maryanne E. Scarfo
CRA & Compliance Officer
Donna M. Schaefer
Vice President
Director of Human Resources
Carl H. Schmidt
Controller
Stephen M. Settino
Chief Auditor
Carol Vreeland
Assistant Treasurer
Branch Manager, Queen Street Office
<PAGE>
- -----------------------
BancorpConnecticut, Inc.
121 Main Street
Southington, Connecticut 06489
Exhibit 21
EXHIBIT 21: SUBSIDIARIES OF REGISTRANT
Subsidiary of Registrant State of Incorporation D/B/A's
- ------------------------ ---------------------- -------
Southington Savings Bank Connecticut None
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned directors and
officers of Bancorp Connecticut, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby constitute
and appoint Robert D. Morton and Anthony Priore, Jr., their true and lawful
attorneys and agents to do any and all acts and things and execute any and all
instruments and documents which said attorneys and agents, or any of them, may
deem necessary or advisable or may be required to enable the Corporation to
comply with the Securities Exchange Act of 1934, as amended, and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the preparation and filing as required by said Act
of the Corporation's 1997 Annual Report to Shareholders, Annual Report on Form
10-K for the year ended December 31, 1997 (the "10-K"), and Proxy Statement and
Proxy Card to be issued in connection with the Corporation's 1998 Annual
Meeting; including specifically, but without limiting the generality of the
foregoing, power and authority to sign the names of the undersigned directors
and officers thereof in the capacities indicated below to the 10-K and all
amendments and supplements thereto, or any other appropriate form about to be or
heretofore or hereafter filed with the Securities and Exchange Commission in
respect of said Annual Report to Shareholders, 10-K, Proxy Statement, Proxy Card
or Annual Meeting and all instruments or documents filed as a part thereof or in
connection therewith; and each of the undersigned hereby ratifies and confirms
all that said attorneys, agents, or any of them, shall do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has subscribed these
presents as of March 26, 1998.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Robert D. Morton President and Director March 26, 1998
- -------------------------- (Principal Executive Officer)
Robert D. Morton
/s/ Anthony Priore, Jr. Treasurer and Secretary March 26, 1998
- -------------------------- (Chief Financial and
Anthony Priore, Jr. Accounting Officer)
/s/ Norbert H. Beauchemin Director March 26, 1998
- --------------------------
Norbert H. Beauchemin
/s/ Walter J. Hushak Director March 26, 1998
- -------------------------
Walter J. Hushak
<PAGE>
Director
- -------------------------
Michael J. Karabin
/s/ David P. Kelley Director March 26, 1998
- --------------------------
David P. Kelley
/s/ Frederick E. Kuhr Director March 26, 1998
- --------------------------
Frederick E. Kuhr
/s/ Joseph J. LaPorte Director March 26, 1998
- --------------------------
Joseph J. LaPorte
/s/ Ralph G. Mann Director March 26, 1998
- --------------------------
Ralph G. Mann
/s/ Andrew J. Meade Director March 26, 1998
- --------------------------
Andrew J. Meade
/s/ Frank R. Miller Director March 26, 1998
- --------------------------
Frank R. Miller
/s/ Anthony S. Pizzitola Director March 26, 1998
- --------------------------
Anthony S. Pizzitola
/s/ Dennis J. Stanek Director March 26, 1998
- --------------------------
Dennis J. Stanek
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 7,370
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,500
<TRADING-ASSETS> 612
<INVESTMENTS-HELD-FOR-SALE> 166,712
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 261,680
<ALLOWANCE> (5,306)
<TOTAL-ASSETS> 443,025
<DEPOSITS> 315,554
<SHORT-TERM> 55,368
<LIABILITIES-OTHER> 2,781
<LONG-TERM> 20,630
0
0
<COMMON> 5,612
<OTHER-SE> 41,335
<TOTAL-LIABILITIES-AND-EQUITY> 443,025
<INTEREST-LOAN> 22,274
<INTEREST-INVEST> 9,306
<INTEREST-OTHER> 343
<INTEREST-TOTAL> 31,923
<INTEREST-DEPOSIT> 12,364
<INTEREST-EXPENSE> 16,227
<INTEREST-INCOME-NET> 15,696
<LOAN-LOSSES> 600
<SECURITIES-GAINS> 942
<EXPENSE-OTHER> 8,701
<INCOME-PRETAX> 8,698
<INCOME-PRE-EXTRAORDINARY> 8,698
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,896
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 1.08
<YIELD-ACTUAL> 7.72
<LOANS-NON> 2,861
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 6,462
<ALLOWANCE-OPEN> 4,875
<CHARGE-OFFS> 389
<RECOVERIES> 220
<ALLOWANCE-CLOSE> 5,306
<ALLOWANCE-DOMESTIC> 3,444
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,862
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-END> SEP-30-1997 JUN-30-1997 MAR-31-1997
<CASH> 5,857 6,644 5,613
<INT-BEARING-DEPOSITS> 0 0 0
<FED-FUNDS-SOLD> 4,600 3,600 2,700
<TRADING-ASSETS> 196 252 70
<INVESTMENTS-HELD-FOR-SALE> 100,058 106,884 98,934
<INVESTMENTS-CARRYING> 44,180 44,715 48,176
<INVESTMENTS-MARKET> 44,196 44,442 47,496
<LOANS> 264,023 260,743 252,049
<ALLOWANCE> (6,253) (5,145) (4,968)
<TOTAL-ASSETS> 423,800 428,362 413,729
<DEPOSITS> 311,049 311,824 303,491
<SHORT-TERM> 44,580 41,276 40,256
<LIABILITIES-OTHER> 3,123 2,298 2,423
<LONG-TERM> 19,490 27,330 23,620
0 0 0
0 0 0
<COMMON> 2,803 2,793 2,783
<OTHER-SE> 42,755 41,093 40,258
<TOTAL-LIABILITIES-AND-EQUITY> 423,800 428,362 413,729
<INTEREST-LOAN> 16,594 10,938 5,368
<INTEREST-INVEST> 6,897 4,602 2,234
<INTEREST-OTHER> 255 179 107
<INTEREST-TOTAL> 23,746 15,719 7,709
<INTEREST-DEPOSIT> 9,206 6,098 3,029
<INTEREST-EXPENSE> 12,069 8,017 3,961
<INTEREST-INCOME-NET> 11,677 7,702 3,748
<LOAN-LOSSES> 500 350 150
<SECURITIES-GAINS> 604 336 161
<EXPENSE-OTHER> 6,283 4,101 1,979
<INCOME-PRETAX> 6,490 4,287 2,103
<INCOME-PRE-EXTRAORDINARY> 6,490 4,287 2,103
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 4,415 2,908 1,415
<EPS-PRIMARY> 0.87 0.57 0.28
<EPS-DILUTED> 0.80 0.54 0.26
<YIELD-ACTUAL> 7.70 7.67 7.58
<LOANS-NON> 3,277 3,741 3,439
<LOANS-PAST> 408 408 0
<LOANS-TROUBLED> 0 0 0
<LOANS-PROBLEM> 11,036 11,117 11,000
<ALLOWANCE-OPEN> 4,875 4,875 4,875
<CHARGE-OFFS> 264 188 85
<RECOVERIES> 142 108 28
<ALLOWANCE-CLOSE> 5,253 5,145 4,968
<ALLOWANCE-DOMESTIC> 3,442 3,371 3,178
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 1,811 1,774 1,790
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-END> DEC-31-1996 SEP-30-1996 JUN-30-1996
<CASH> 8,455 4,511 7,795
<INT-BEARING-DEPOSITS> 0 0 0
<FED-FUNDS-SOLD> 700 500 0
<TRADING-ASSETS> 2,430 250 456
<INVESTMENTS-HELD-FOR-SALE> 105,515 101,495 107,886
<INVESTMENTS-CARRYING> 44,097 36,509 36,664
<INVESTMENTS-MARKET> 43,974 36,108 36,160
<LOANS> 252,144 252,020 244,448
<ALLOWANCE> (4,875) (4,961) (4,903)
<TOTAL-ASSETS> 419,398 402,397 405,761
<DEPOSITS> 309,827 299,115 301,822
<SHORT-TERM> 42,819 38,686 42,776
<LIABILITIES-OTHER> 2,274 3,188 3,587
<LONG-TERM> 20,060 17,760 14,760
0 0 0
0 0 0
<COMMON> 2,768 2,756 2,730
<OTHER-SE> 39,963 40,892 40,106
<TOTAL-LIABILITIES-AND-EQUITY> 419,398 402,397 405,761
<INTEREST-LOAN> 21,123 15,663 10,303
<INTEREST-INVEST> 8,433 6,230 4,083
<INTEREST-OTHER> 371 327 254
<INTEREST-TOTAL> 29,927 22,220 14,640
<INTEREST-DEPOSIT> 12,176 9,075 6,042
<INTEREST-EXPENSE> 15,173 11,252 7,420
<INTEREST-INCOME-NET> 14,754 10,968 7,220
<LOAN-LOSSES> 435 300 175
<SECURITIES-GAINS> 344 307 242
<EXPENSE-OTHER> 8,599 6,404 4,289
<INCOME-PRETAX> 7,405 5,570 3,677
<INCOME-PRE-EXTRAORDINARY> 7,405 5,570 3,677
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 5,024 3,757 2,474
<EPS-PRIMARY> 0.94 0.69 0.46
<EPS-DILUTED> 0.89 0.66 0.44
<YIELD-ACTUAL> 7.67 7.65 7.62
<LOANS-NON> 2,939 3,813 3,850
<LOANS-PAST> 0 0 0
<LOANS-TROUBLED> 0 1,280 0
<LOANS-PROBLEM> 6,505 11,711 11,909
<ALLOWANCE-OPEN> 5,488 5,488 5,488
<CHARGE-OFFS> 1,213 964 834
<RECOVERIES> 165 137 74
<ALLOWANCE-CLOSE> 4,875 4,961 4,903
<ALLOWANCE-DOMESTIC> 3,276 3,488 3,104
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 1,599 1,475 1,799
</TABLE>
