SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JUNE 30, 2000
-------------
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 06-1394443
--------------------------------- ------------------------------------
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
121 Main Street, Southington, Connecticut 06489
--------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (860) 628-0351
-----------------------------
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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common stock, $1.00 Par value -- 5,179,456 shares as of August 9, 2000
--------------------------------------------------------------------------------
1
<PAGE>
BANCORP CONNECTICUT, INC.
FORM 10-Q
INDEX
PART I.
Page
Item 1. Financial Statements
Consolidated Condensed Statements of Condition as of
June 30, 2000 (unaudited) and December 31, 1999............... 3
Consolidated Condensed Statements of Income for the
Three Months Ended June 30, 2000 and 1999 (unaudited)......... 4
Consolidated Condensed Statements of Income for the
Six Months Ended June 30, 2000 and 1999 (unaudited)........... 5
Consolidated Condensed Statements of Changes in
Shareholders' Equity for the Six Months Ended
June 30, 2000 and 1999 (unaudited)............................ 6
Consolidated Condensed Statements of Cash Flows for the
Six Months Ended June 30, 2000 and 1999 (unaudited)........... 7
Notes to Consolidated Condensed Financial Statements
(unaudited)................................................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 24
PART II.
Item 1. Legal Proceedings............................................... 25
Item 2. Changes in Securities and Use of Proceeds....................... 25
Item 3. Defaults Upon Senior Securities................................. 25
Item 4. Submission of Matters to a Vote of Security Holders............. 25
Item 5. Other Information............................................... 26
Item 6. Exhibits and Reports on Form 8-K................................ 26
Signatures................................................................. 28
2
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF CONDITION
BANCORP CONNECTICUT, INC.
<TABLE>
<CAPTION>
June 30, December 31,
(dollars in thousands, except per share data) 2000 1999
------------------------------------------------------------------------------------------
(unaudited) (Note 1)
<S> <C> <C>
ASSETS
Cash and due from banks $ 13,151 $ 13,548
Interest bearing deposits with banks 5 346
Federal funds sold 17,450 6,725
--------- ---------
Cash and cash equivalents 30,606 20,619
--------- ---------
Securities available-for-sale (at market value) 228,786 214,595
Trading account securities 207 348
Federal Home Loan Bank stock 5,592 4,392
Loans 323,727 316,093
Less:
Deferred loan fees (728) (702)
Allowance for loan losses (5,828) (5,681)
--------- ---------
Net loans 317,171 309,710
--------- ---------
Deferred income taxes 9,623 8,535
Premises and equipment, net 4,204 3,971
Accrued income receivable 3,854 3,482
Foreclosed real estate, net 74 195
Other assets 5,064 2,951
--------- ---------
Total assets $ 605,181 $ 568,798
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits $ 386,658 $ 348,441
Funds borrowed 165,509 171,129
Other liabilities 11,908 7,696
--------- ---------
Total liabilities 564,075 527,266
--------- ---------
COMMITMENTS AND CONTINGENCIES -- --
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 5,895,004 shares in 2000 and
5,830,811 shares in 1999 5,895 5,831
Additional paid-in capital 18,859 18,507
Retained earnings 38,821 36,293
Accumulated other comprehensive loss (13,662) (11,611)
Treasury stock, at cost: 715,836 shares in 2000 and
625,836 shares in 1999 (8,807) (7,488)
--------- ---------
Total shareholders' equity 41,106 41,532
--------- ---------
Total liabilities and shareholders' equity $ 605,181 $ 568,798
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
BANCORP CONNECTICUT, INC.
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-----------------------
(dollars in thousands, except per share data) 2000 1999
------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INTEREST INCOME:
Interest on loans, including fees $ 6,573 $ 5,970
---------- ----------
Interest and dividends on investment securities:
Interest income 3,709 2,819
Dividend income 509 487
Interest on trading account -- --
---------- ----------
4,218 3,306
---------- ----------
Interest on federal funds sold 57 98
Other interest and dividends 108 47
---------- ----------
Total interest income 10,956 9,421
---------- ----------
INTEREST EXPENSE:
Savings deposits 596 665
Time deposits 2,108 1,888
NOW accounts 352 311
---------- ----------
3,056 2,864
Interest on borrowed money 2,692 1,792
---------- ----------
Total interest expense 5,748 4,656
---------- ----------
Net interest income 5,208 4,765
Provision for loan losses 118 35
---------- ----------
Net interest income after provision for loan losses 5,090 4,730
---------- ----------
NONINTEREST INCOME:
Net securities gains 119 352
Net trading account gains 20 18
Service charges on deposit accounts 203 173
Call options premiums 155 74
Gains on sales of loans, originated for sale 146 75
Brokerage servicing fees 135 64
Trust fees -- 149
Other 149 121
---------- ----------
Total noninterest income 927 1,026
---------- ----------
NONINTEREST EXPENSE:
Salaries and employee benefits 1,658 1,682
Furniture and equipment 268 243
Net occupancy 144 142
Data processing 145 162
Advertising 115 101
Other 555 638
---------- ----------
Total noninterest expense 2,885 2,968
---------- ----------
Income before income taxes 3,132 2,788
Provision for income taxes 933 831
---------- ----------
NET INCOME $ 2,199 $ 1,957
========== ==========
AVERAGE COMMON SHARES OUTSTANDING:
Basic 5,211,544 5,211,496
Diluted 5,443,674 5,550,721
NET INCOME PER COMMON SHARE:
Basic $ 0.42 $ 0.38
Diluted $ 0.40 $ 0.35
CASH DIVIDEND PER SHARE $ 0.17 $ 0.15
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
BANCORP CONNECTICUT, INC.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
(dollars in thousands, except per share data) 2000 1999
---------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INTEREST INCOME:
Interest on loans, including fees $ 12,978 $ 11,758
----------- -----------
Interest and dividends on investment securities:
Interest income 7,109 5,465
Dividend income 977 1,069
Interest on trading account 6 2
----------- -----------
8,092 6,536
----------- -----------
Interest on federal funds sold 133 108
Other interest and dividends 200 92
----------- -----------
Total interest income 21,403 18,494
----------- -----------
INTEREST EXPENSE:
Savings deposits 1,182 1,295
Time deposits 4,099 3,868
NOW accounts 693 599
----------- -----------
5,974 5,762
Interest on borrowed money 5,079 3,480
----------- -----------
Total interest expense 11,053 9,242
----------- -----------
Net interest income 10,350 9,252
Provision for loan losses 236 65
----------- -----------
Net interest income after provision for loan losses 10,114 9,187
----------- -----------
NONINTEREST INCOME:
Net securities gains 277 754
Net trading account losses (44) (9)
Service charges on deposit accounts 397 355
Call options premiums 322 168
Gains on sales of loans, originated for sale 296 113
Brokerage servicing fees 242 119
Trust fees -- 302
Other 268 201
----------- -----------
Total noninterest income 1,758 2,003
----------- -----------
NONINTEREST EXPENSE:
Salaries and employee benefits 3,342 3,281
Furniture and equipment 529 483
Net occupancy 303 298
Data processing 280 285
Advertising 230 173
Other 1,165 1,311
----------- -----------
Total noninterest expense 5,849 5,831
----------- -----------
Income before income taxes 6,023 5,359
Provision for income taxes 1,796 1,567
----------- -----------
NET INCOME $ 4,227 $ 3,792
=========== ===========
AVERAGE COMMON SHARES OUTSTANDING:
Basic 5,218,381 5,184,218
Diluted 5,459,252 5,537,363
NET INCOME PER COMMON SHARE:
Basic $ 0.81 $ 0.73
Diluted $ 0.77 $ 0.68
CASH DIVIDEND PER SHARE $ 0.325 $ 0.290
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
5
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
BANCORP CONNECTICUT, INC.
(unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Additional Income Total
Common Paid-In Retained Unrealized Treasury Shareholders'
(dollars in thousands, except per share data) Stock Capital Earnings Gains(Losses) Stock Equity
---------------------------------------------- ------- ---------- -------- -------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 $ 5,653 $17,421 $ 31,761 $ 825 $(5,744) $ 49,916
--------
Net income -- -- 3,792 -- -- 3,792
Decrease in net unrealized gain on securities
available-for-sale -- -- -- (5,771) -- (5,771)
--------
Total comprehensive loss (1,979)
--------
Stock options exercised (114,664 shares) 115 543 -- -- -- 658
Cash dividends declared ($0.29 per share) -- -- (1,500) -- -- (1,500)
Treasury stock purchased (25,500 shares) -- -- -- -- (400) (400)
Tax benefits related to common stock options
exercised -- 84 -- -- -- 84
------- ------- -------- -------- ------- --------
BALANCE, JUNE 30, 1999 $ 5,768 $18,048 $ 34,053 $ (4,946) $(6,144) $ 46,779
======= ======= ======== ======== ======= ========
BALANCE, DECEMBER 31, 1999 $ 5,831 $18,507 $ 36,293 $(11,611) $(7,488) $ 41,532
--------
Net income -- -- 4,227 -- -- 4,227
Increase in net unrealized loss on securities
available-for-sale -- -- -- (2,051) -- (2,051)
--------
Total comprehensive income 2,176
--------
Stock options exercised (64,163 shares) 64 257 -- -- -- 321
Cash dividends declared ($0.325 per share) -- -- (1,699) -- -- (1,699)
Treasury stock purchased (90,000 shares) -- -- -- -- (1,319) (1,319)
Tax benefits related to common stock options
exercised -- 95 -- -- -- 95
------- ------- -------- -------- ------- --------
BALANCE, JUNE 30, 2000 $ 5,895 $18,859 $ 38,821 $(13,662) $(8,807) $ 41,106
======= ======= ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
6
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
BANCORP CONNECTICUT, INC.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
(in thousands) 2000 1999
-----------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,227 $ 3,792
--------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of bond premiums (accretion of
discounts), net (1,735) (1,001)
Deferred income tax provision (benefit) (31) 144
Provision for loan losses 236 65
Provision (credit) for foreclosed real estate losses (45) 13
Gain on sale of foreclosed real estate (52) (9)
Gains on sales of loans, originated for sale (296) (113)
Proceeds from sales of loans, originated for sale 15,685 7,716
Loans originated for sale (15,643) (7,621)
Amortization of deferred loan points (53) (131)
Net securities gains (277) (754)
Net trading account losses 44 9
Depreciation and amortization 403 390
Decrease (Increase) in trading account 97 (105)
Increase in accrued income receivable (372) (172)
Increase in other assets (2,132) (545)
Increase in other liabilities 4,307 1,209
--------- --------
Total adjustments 136 (905)
--------- --------
Net cash provided by operating activities 4,363 2,887
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available-for-sale (56,501) (71,597)
Proceeds from sales of securities available-for-sale 37,384 51,549
Proceeds from maturities of securities -- 15,774
Paydowns on mortgage-backed securities 3,830 10,488
Purchases of Federal Home Loan Bank stock (1,200) --
Net increase in loans (7,519) (22,181)
Purchases of premises and equipment, net (633) (143)
Proceeds from sales of foreclosed real estate, net 363 66
--------- --------
Net cash used for investing activities (24,276) (16,044)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in time deposits 33,979 (646)
Net increase in other deposits 4,238 4,540
Net (decrease) increase in Federal funds purchased and
repurchase agreements (18,620) 12,544
Proceeds from other borrowings 263,000 3,000
Repayment of other borrowings (250,000) (2,000)
Proceeds from exercise of stock options 321 658
Repurchase common stock (1,319) (400)
Cash dividends paid (1,699) (1,500)
--------- --------
Net cash provided by financing activities 29,900 16,196
--------- --------
Net increase in cash and cash equivalents 9,987 3,039
Cash and cash equivalents at beginning of period 20,619 11,178
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 30,606 $ 14,217
========= ========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Increase/decrease in net unrealized loss/gain on
securities available-for-sale $ (2,051) $ (5,771)
Transfer of loans to foreclosed real estate 129 57
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
7
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
BANCORP CONNECTICUT, INC.
Note 1 - Basis of Presentation
------------------------------
The consolidated condensed 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 and one branch in
Wallingford, Connecticut. It has three subsidiaries, BCI Financial Corporation
("BCIF"), SSB Mortgage Corporation ("SSBM") and SSB Insurance Services, Inc.
("SSBI"). BCIF is an indirect auto finance subsidiary located in Southington,
Connecticut. SSBM, which commenced operations during the first quarter of 1999,
is a passive investment company formed to take advantage of changes in
Connecticut state tax statutes. SSBI, which commenced operations during the
second quarter of 2000, is a subsidiary which distributes insurance products.
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.
The consolidated condensed statement of condition as of June 30, 2000, the
consolidated condensed statements of income for the three and six month periods
ended June 30, 2000 and 1999, and the consolidated condensed statements of
changes in shareholders' equity and consolidated condensed statements of cash
flows for the six month periods ended June 30, 2000 and 1999 have been prepared
by the Corporation without audit. Certain amounts for prior periods have been
reclassified to conform to the current period presentation.
In the opinion of management, the financial statements have been prepared in
conformity with generally accepted accounting principles for interim financial
statements and include all adjustments necessary to present fairly the financial
position of the Corporation as of June 30, 2000 and the results of operations
for the three and six month periods ended June 30, 2000 and 1999, and the
changes in shareholders' equity and cash flows for the six month periods ended
June 30, 2000 and 1999. Results of operations for the three and six month
periods ended June 30, 2000 are not necessarily indicative of results for any
other period.
The statement of condition as of December 31, 1999, which has been included for
comparative purposes, has been condensed from the audited statements for the
year then ended. Certain information and footnote disclosures normally included
in financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted. These consolidated
condensed financial statements should be read in conjunction with the financial
statements and notes thereto included in the Corporation's annual report on Form
10-K for the year ended December 31, 1999.
8
<PAGE>
Note 2 - Securities
-------------------
The amortized cost, gross unrealized gains and losses and estimated market
values of securities available-for-sale as of June 30, 2000 and December 31,
1999 were as follows:
June 30, 2000
---------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
(in thousands)
United States Government
and agency obligations $ 65,069 $ -- $ (13,336) $ 51,733
Municipal bonds 5,707 5 (155) 5,557
Corporate bonds 988 -- (65) 923
Mortgage-backed securities 106,650 103 (3,341) 103,412
Capital trust preferreds 32,302 10 (3,664) 28,648
Marketable equity securities 37,985 1,056 (1,622) 37,419
Mutual funds 784 310 -- 1,094
-------- -------- --------- --------
$249,485 $ 1,484 $ (22,183) $228,786
======== ======== ========= ========
December 31, 1999
---------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
(in thousands)
United States Government
and agency obligations $ 60,867 $ -- $ (10,939) $ 49,928
Municipal bonds 5,356 8 (132) 5,232
Corporate bonds 944 -- (21) 923
Mortgage-backed securities 87,378 1 (3,811) 83,568
Capital trust preferreds 29,131 50 (2,582) 26,599
Marketable equity securities 47,670 1,461 (1,939) 47,192
Mutual funds 840 326 (13) 1,153
-------- -------- --------- --------
$232,186 $ 1,846 $ (19,437) $214,595
======== ======== ========= ========
9
<PAGE>
Note 3 - Loans
--------------
The composition of the loan portfolio was:
June 30, December 31,
2000 1999
--------- ---------
(in thousands)
Commercial $ 65,748 $ 56,828
Commercial real estate 50,100 47,961
Residential real estate 127,325 131,942
Real estate construction 2,284 3,250
Consumer 78,270 76,112
--------- ---------
323,727 316,093
Less:
Deferred loan fees (728) (702)
Allowance for loan losses (5,828) (5,681)
--------- ---------
Total loans $ 317,171 $ 309,710
========= =========
Note 4 - Allowance for Loan and Foreclosed Real Estate Losses
-------------------------------------------------------------
Changes in the allowances were:
Six Months Ended
June 30,
------------------------
2000 1999
--------- ---------
(in thousands)
Allowance for loan losses:
Balance, beginning of year $ 5,681 $ 5,549
Provision for loan losses 236 65
Loans charged-off (191) (91)
Recoveries 102 61
--------- ---------
Balance, end of period $ 5,828 $ 5,584
========= =========
Allowance for foreclosed
real estate losses:
Balance, beginning of year $ 50 $ 50
Provision (credit) for losses (45) 13
Write-downs, net -- (13)
--------- ---------
Balance, end of period $ 5 $ 50
========= =========
10
<PAGE>
Note 5 - Nonperforming Assets
-----------------------------
The balances of nonperforming assets were:
June 30, December 31,
2000 1999
------------ ------------
(dollars in thousands)
Nonaccrual loans:
Commercial $ 140 $ 420
Commercial real estate 21 --
Residential real estate 740 857
Consumer 53 127
------ ------
Total nonaccrual loans 954 1,404
Accruing loans past due 90 days or more -- --
------ ------
Total nonperforming loans 954 1,404
Foreclosed real estate, net 74 195
------ ------
Total nonperforming assets $1,028 $1,599
====== ======
Nonperforming loans as a
percentage of total loans 0.29% 0.44%
====== ======
Nonperforming assets as a
percentage of total assets 0.17% 0.28%
====== ======
Note 6 - Deposits
-----------------
Deposits consisted of the following:
June 30, December 31,
2000 1999
------------ ------------
(in thousands)
Noninterest-bearing demand deposits $ 41,605 $ 40,905
NOW accounts 50,924 49,380
Regular savings 72,329 69,534
Money market savings 31,024 31,825
Certificates of deposit - under $100,000 137,618 135,535
Certificates of deposit - $100,000 and over 52,578 20,995
Club accounts 580 267
-------- --------
Total deposits $386,658 $348,441
======== ========
11
<PAGE>
Note 7 - Funds Borrowed
-----------------------
Funds borrowed consisted of the following:
June 30, December 31,
2000 1999
------------ ------------
(in thousands)
Federal funds purchased $ 2,500 $ 2,100
Securities sold under repurchase agreements 65,679 84,699
Federal Home Loan Bank advances 97,330 72,830
Federal Reserve Bank advances -- 11,500
-------- --------
Total funds borrowed $165,509 $171,129
======== ========
Note 8 - Per Common Share Data
------------------------------
Basic earnings per share is computed using the weighted average common shares
outstanding during the periods presented. The computation of diluted earnings
per share is similar to the computation of basic earnings per share except the
denominator is increased to include the number of additional common shares that
would have been outstanding if dilutive potential common shares had been issued.
The shares used in the computations for the three and six month periods ended
June 30, 2000 and 1999 were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
----------------- ---------------
2000 1999 2000 1999
---- ---- ---- ----
(in thousands) (in thousands)
Basic 5,212 5,211 5,218 5,184
Effect of dilutive stock options 232 340 241 353
----- ----- ----- -----
Diluted 5,444 5,551 5,459 5,537
===== ===== ===== =====
12
<PAGE>
Note 9 - Shareholders' Equity
-----------------------------
The following table presents the components and related tax effects allocated to
other comprehensive income for the six month period ended June 30, 2000.
Before Tax Net
Tax (Benefit) of Tax
Amount Expense Amount
------- ------- -------
(in thousands)
Net unrealized losses on securities
arising during the period $(2,831) $ (963) $(1,868)
Less: reclassification adjustment for
gains realized in net income 277 94 183
------- ------- -------
Net unrealized losses on securities $(3,108) $(1,057) $(2,051)
======= ======= =======
The following table presents the components and related tax effects allocated to
other comprehensive income for the six month period ended June 30, 1999.
Before Tax Net
Tax (Benefit) of Tax
Amount Expense Amount
------- ------- -------
(in thousands)
Net unrealized losses on securities
arising during the period $(7,990) $(2,717) $(5,273)
Less: reclassification adjustment for
gains realized in net income 754 256 498
------- ------- -------
Net unrealized losses on securities $(8,744) $(2,973) $(5,771)
======= ======= =======
On April 21, 1999, the Corporation announced that it planned to repurchase up to
5% (260,000) of its outstanding common shares over the next twelve months. On
April 20, 2000, this share buyback program was terminated. Pursuant to that
program, the Corporation purchased 136,338 shares of its outstanding shares of
common stock, or 2.6% of its outstanding shares as of April 21, 1999 and April
20, 2000.
On April 19, 2000, the Corporation's Board of Director's voted to authorize a
new share buyback program of up to 5% (262,000) of its outstanding shares of
common stock over the next year. Purchases are made from time to time in the
open market and through private transactions. The timing and amount of these
transactions, funded through available corporate funds, will depend upon market
conditions and corporate requirements. Shares repurchased are held in treasury
for general corporate purposes including reissue to satisfy the exercise of
outstanding stock options. Through August 9, 2000, the Corporation repurchased
60,000 shares at an average price of $14.63.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF THE THREE AND SIX MONTH PERIODS
---------------------------------------------
ENDED JUNE 30, 2000 AND 1999
----------------------------
The following discussion and analysis presents a review of the financial
condition and results of operations of Bancorp Connecticut, Inc. (the
"Corporation"). 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. This
review should be read in conjunction with the consolidated condensed financial
statements and other financial data presented elsewhere herein.
CHANGES IN FINANCIAL CONDITION
INVESTMENTS - Securities available-for-sale increased $14,191,000 or 6.6% to
$228,786,000 as of June 30, 2000 from $214,595,000 as of December 31, 1999.
Purchases of securities net of proceeds from maturities and sales (excluding
realized gains) and paydowns on mortgage-backed securities amounted to
$15,287,000 during the first six months of 2000. In addition, Federal funds sold
increased $10,725,000 to $17,450,000 at quarter end from $6,725,000 as of year
end 1999. This increase in investments, principally funded by additional
borrowings during the first quarter which were replaced by an inflow of
certificates of deposit during the second quarter, helped to enhance net
interest income. Net unrealized losses in the securities portfolio totaled
$20,699,000 as of June 30, 2000, an increase of $3,108,000, compared to
unrealized losses of $17,591,000 as of December 31, 1999. The increase in the
net unrealized losses was primarily attributable to the higher level of interest
rates in effect at the end of the second quarter. The majority of these
unrealized losses are concentrated in United States Federal agency and
mortgage-backed securities and are not deemed to be other than temporary losses.
As of June 30, 2000, approximately 47.3% or $17,700,000 of the marketable equity
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 dividends received deduction in 2000 and 1999.
Deferred income taxes increased $1,088,000 to $9,623,000 as of June 30, 2000
from $8,535,000 as of December 31, 1999 mainly as a result of the $3,108,000
increase in unrealized losses in the securities portfolio noted above.
LOANS - Loans increased $7,634,000 or 2.4% to $323,727,000 as of June 30, 2000
from $316,093,000 as of December 31, 1999 primarily due to increased commercial
loan volume partially offset by a reduction in residential real estate loans.
Commercial loans and commercial real estate loans increased $11,059,000 or 10.6%
and represented 35.8% of the loan portfolio as of June 30, 2000. The guaranteed
portion of Small Business Administration loans purchased accounted for
$5,727,000 of this commercial loan increase. Residential real estate loans
decreased by $4,617,000 or 3.5% as the Bank's focus with respect to residential
real estate loans shifted to loans originated for sale, on a servicing released
basis, or referral to third parties.
DEPOSITS - Total deposits increased $38,217,000 or 11.0% to $386,658,000 as of
June 30, 2000 from $348,441,000 as of December 31, 1999 primarily due to a net
inflow of $33,666,000 in certificates of deposit. This net inflow in
certificates is mainly attributable to an increase in large time deposits over
$100,000 with maturities under one year.
BORROWINGS - Advances from the Federal Home Loan Bank of Boston (the "FHLB")
increased by $24,500,000 or 33.6% to $97,330,000 as of June 30, 2000 compared to
$72,830,000 as of year end 1999. Federal funds purchased increased $400,000 to
$2,500,000 as of June 30, 2000. Federal Reserve Bank advances decreased by
$11,500,000 during the same period resulting in no outstanding advances as of
June 30, 2000. Securities sold under agreements to repurchase decreased
$19,020,000 or 22.5% to $65,679,000 from $84,699,000. The resultant net decrease
14
<PAGE>
in borrowings of $5,620,000 was primarily funded by the increase in certificates
of deposit. As of June 30, 2000, broker/dealer repurchase agreements and retail
repurchase agreements totaled $46,500,000 and $19,179,000, respectively.
CHANGES IN RESULTS OF OPERATIONS
EARNINGS - Net income for the quarter ended June 30, 2000 was $2,199,000
compared to $1,957,000 for the second quarter of 1999, an increase of 12.4%. On
a diluted per common share basis, the Corporation earned $.40 per share in 2000
compared to $.35 per share in 1999. Increases in net interest income and
noninterest income (exclusive of securities gains) coupled with a decrease in
noninterest expense, partially offset by a higher provision for loan losses,
were principally responsible for the improved operating results. The annualized
return on average assets for the quarter ended June 30, 2000 was 1.52% compared
to 1.46% for the same quarter last year while the return on average equity rose
to 20.61% from 15.65% the previous year. The increase in the return on average
equity was due to the increase in net income compared to the prior year quarter
as well as the increase in net unrealized losses in the securities portfolio and
the common stock purchases under the Corporation's share repurchase program
which reduced average equity.
Net income for the six months ended June 30, 2000 was $4,227,000 compared to
$3,792,000 for the same period in 1999, an increase of 11.5%. An increase in net
interest income and noninterest income (exclusive of securities gains),
partially offset by reduced securities gains and a higher provision for loan
losses, were the principal reasons for the increased earnings. The annualized
return on average assets was 1.48% for the six months ended June 30, 2000
compared to 1.43% for the same period in 1999 while the return on average equity
rose to 20.07% from 15.17% for the prior year period.
NET INTEREST INCOME - Net interest income, the difference between interest
earned on interest earning assets and interest expense incurred on interest
bearing liabilities, is a significant component of the Corporation's
consolidated condensed statements of income. Net interest income is affected by
changes in the volumes of and rates on interest earning assets and interest
bearing liabilities, the volume of interest earning assets funded with
noninterest bearing deposits and shareholders' equity, and the level of
nonperforming assets.
Average interest earning assets increased by $51,763,000 or 9.9% to $574,386,000
for the three months ended June 30, 2000 from $522,623,000 for the same quarter
in 1999.
For the three months ended June 30, 2000 net interest income, on a tax
equivalent basis, increased $467,000 or 9.4% compared to the same period in 1999
primarily as a result of increases in the average volume of the loan and
invested funds portfolios of $22,256,000 and $29,507,000, respectively, and
favorable rate variances mainly with respect to investments. In addition,
average noninterest bearing demand deposits increased by $4,531,000 or 13.5%
during 2000 compared to 1999 which helped reduce the average cost of funds and
thus had a positive effect on net interest income.
The ratio of net interest income, on a tax equivalent basis, to average interest
earning assets was 3.77% for the quarter ended June 30, 2000 compared to 3.79%
for the same period in 1999. The interest rate spread, on a tax equivalent
basis, was 3.11% in 2000 compared to 3.21% in 1999. A proportionately greater
rise in interest rates on sources of funds compared with yields on earning
assets caused the decrease in the interest rate spread and margin in 2000
compared to 1999. If short-term interest rates continue to rise, some additional
compression in the net interest spread and margin is expected to occur. Average
yields were computed on a tax equivalent basis using a Federal income tax rate
of 34% for 2000 and 1999 and a state income tax rate of 0.0% for both periods,
due to the formation of a passive investment company in 1999.
Average interest earning assets increased by $51,191,000 or 9.9% to $567,052,000
for the six months ended June 30, 2000 from $515,861,000 for the same period in
1999.
15
<PAGE>
For the six months ended June 30, 2000 net interest income, on a tax equivalent
basis, increased $1,094,000 or 11.3% compared to the same period in 1999 mainly
due to increases in the average volume of the loan and invested funds portfolios
of $24,628,000 and $26,563,000, respectively, and favorable rate variances
primarily with respect to investments. In addition, average noninterest bearing
demand deposits were $3,818,000 or 11.3% higher during 2000 compared to 1999
which helped reduce the average cost of funds and thus had a positive effect on
net interest income. The interest rate spread, on a tax equivalent basis,
remained relatively unchanged at 3.15% for the six months ended June 30, 2000
compared to 3.17% for the same period in 1999. Similarly, the ratio of net
interest income, on a tax equivalent basis, to average interest earning assets
was 3.79% for the six months ended June 30, 2000 compared to 3.74% for the same
period in 1999. As noted above, if short-term interest rates continue to rise,
some compression in the net interest spread and margin is expected to occur.
PROVISION FOR LOAN LOSSES - For the three months ended June 30, 2000 and 1999,
the provisions for loan losses were $118,000 and $35,000, respectively. Net loan
charge-offs totaled $77,000 for the second quarter of 2000 compared to $31,000
for the same period in 1999.
For the six months ended June 30, 2000 and 1999, the provisions for loan losses
were $236,000 and $65,000, respectively. Net loan charge-offs totaled $89,000
for the six months ended June 30, 2000 compared to $30,000 during the same
period in 1999. The allowance for loan losses was $5,828,000 or 1.80% of
outstanding loans as of June 30, 2000 compared to $5,584,000 or 1.82% of
outstanding loans as of June 30, 1999. Nonperforming loans were $954,000 as of
June 30, 2000 and $1,351,000 as of June 30, 1999, representing .29% and .44%,
respectively, of outstanding loans.
Management regularly monitors and has established a formal process for
determining the adequacy of the allowance for loan losses. This process results
in an allowance that consists of two components, allocated and unallocated. The
allocated component includes allowance estimates that result from analyzing
certain individual loans (including impaired loans), and specific loan types.
The policy of the Bank is to review all commercial loans and delinquent consumer
loans quarterly. Up to a total of nine risk rating classifications are used to
describe the credit risk associated with commercial and consumer loans. Of these
classifications, the problem loan categories are: "substandard," "doubtful" and
"loss." Loans designated loss are charged-off quarterly. A risk factor is
assigned by loan type to loans within each classification in determining the
respective allowance. For loans that are analyzed individually, third-party
information such as appraisals may be used to supplement management's analysis.
For loans that are analyzed on a pool basis, such as residential mortgage loans
(1-4 family), management's analysis consists of reviewing delinquency trends,
historical charge-off experience, prevailing economic conditions, size and
current composition of the loan portfolio, collateral value trends and other
relevant factors. The unallocated component of the allowance for loan losses is
intended to compensate for the subjective nature of estimating an adequate
allowance for loan losses, economic uncertainties, and other factors. The
unallocated portion of the allowance for loan losses was $1,441,000 as of June
30, 2000 compared to $1,580,000 as of December 31, 1999 and $1,406,000 as of
June 30, 1999. The decrease in the unallocated portion of the allowance for loan
losses as of June 30, 2000 compared to December 31, 1999 primarily reflects a
refinement in the determination of the allocated component of the allowance for
loan losses.
16
<PAGE>
NONINTEREST INCOME - Total noninterest income, excluding net securities gains,
net trading account gains and trust fees, increased by $281,000 or 55.4% to
$788,000 in the second quarter of 2000 from $507,000 for the same period in
1999. The following table presents a comparison of the components of noninterest
income.
Three Months Ended Increase
June 30, (Decrease)
------------------ -----------------
2000 1999 Amount Percent
------- ------- ------ -------
(dollars in thousands)
Service charges on deposit accounts $ 203 $ 173 $ 30 17.3%
Call options premiums 155 74 81 109.5%
Gains on sales of loans, originated
for sale 146 75 71 94.7%
Brokerage servicing fees 135 64 71 110.9%
Other 149 121 28 23.1%
------- ------- -----
788 507 281 55.4%
Net securities gains 119 352 (233) -66.2%
Net trading account gains 20 18 2 11.1%
Trust fees -- 149 (149) -100.0%
------- ------- -----
Total noninterest income $ 927 $ 1,026 $ (99) -9.6%
======= ======= =====
The gains on sales of loans, originated for sale, increased $71,000 primarily as
a result of loans generated for sale into the secondary market by BCIF, the
Bank's indirect auto finance company. Brokerage servicing fees increased $71,000
due to higher sales volume. The increase in other income reflects increased fee
income of $17,000 from brokered commissions on residential mortgages. The trust
operations of the Bank were sold during the third quarter of 1999.
Near the end of the second quarter of 2000, the Bank launched a separate
subsidiary, SSB Insurance Services, Inc. (SSBI), which was formed to distribute
a range of insurance products to its customers. SSBI entered into a joint
marketing agreement with a local insurance agency and will earn commissions on
insurance coverage referrals.
Total noninterest income, excluding net securities gains, net trading account
losses and trust fees, increased by $569,000 or 59.5% to $1,525,000 for the six
months ended June 30, 2000 from $956,000 for the same period in 1999. The
following table presents a comparison of the components of noninterest income.
Six Months Ended Increase
June 30, (Decrease)
------------------ -----------------
2000 1999 Amount Percent
------- ------- ------ -------
(dollars in thousands)
Service charges on deposit accounts $ 397 $ 355 $ 42 11.8%
Call options premiums 322 168 154 91.7%
Gains on sales of loans, originated
for sale 296 113 183 161.9%
Brokerage servicing fees 242 119 123 103.4%
Other 268 201 67 33.3%
------- ------- -----
1,525 956 569 59.5%
Net securities gains 277 754 (477) -63.3%
Net trading account gains (44) (9) (35) 388.9%
Trust fees -- 302 (302) -100.0%
------- ------- -----
Total noninterest income $ 1,758 $ 2,003 $(245) -12.2%
======= ======= =====
The gains on sales of loans, originated for sale, increased $183,000 primarily
as a result of loans generated for sale into the secondary market by BCIF, the
Bank's indirect auto finance company. Brokerage servicing fees increased
$123,000 due to higher sales volume. The increase in other income reflects
increased fee income of $17,000 from brokered commissions on residential
mortgages and $35,000 from insurance fees recorded by the Bank.
17
<PAGE>
NONINTEREST EXPENSE - Operating expenses decreased $83,000 or 2.8% to $2,885,000
in the second quarter of 2000 from $2,968,000 in 1999.
Salaries and employee benefits were $24,000 or 1.4% less in 2000 compared to
1999. This decrease reflects no trust operation salaries and benefits in 2000 as
compared to approximately $68,000 in 1999 partially offset by higher commission
salaries of $28,000 and scheduled employee annual salary increases. Higher group
medical and retirement benefit costs of $8,200 were more than offset by
decreased utilization of temporary employees during 2000 in the amount of
$21,000.
The expenses related to furniture and equipment increased $25,000 or 10.3% to
$268,000 for the second quarter of 2000 compared to $243,000 for the same period
in 1999. Higher depreciation and amortization charges of $4,000 and furniture
and equipment write-offs totaling $13,000 in 2000 versus a $5,000 gain in 1999
were the primary reasons for the increase.
Advertising expense increased $14,000 or 13.9% to $115,000 for the second
quarter of 2000 compared to $101,000 for the same period in 1999 primarily as a
result of increases in advertising expenditures to promote the Bank and its
products including Internet banking to its consumer customers.
The decrease in other noninterest expenses of $83,000 or 13.0% reflected a net
decrease in a number of miscellaneous expense categories. The most significant
decreases in these categories were $55,000 of expenses incurred in 1999 for
outside fund management fees and other operating expenses for the internal trust
operations of the Bank, which was sold during the third quarter of 1999, and net
foreclosed real estate recoveries which amounted to $57,000 in the second
quarter of 2000 versus $1,000 for the same period in 1999.
Operating expenses increased $18,000 or .3% to $5,849,000 for the six months
ended June 30, 2000 from $5,831,000 in 1999.
Salaries and employee benefits were $61,000 or 1.9% higher in 2000 compared to
1999. This increase reflects higher commission salaries of $65,000 and scheduled
employee annual salary increases partially offset by no trust operation salaries
and benefits in 2000 as compared to approximately $139,000 in 1999. Higher group
medical and retirement benefit costs of $40,000 were more than offset by a
decreased utilization of temporary employees during 2000 in the amount of
$69,000.
The expenses related to furniture and equipment totaled $529,000 for the six
months ended June 30, 2000 compared to $483,000 for the same period in 1999, an
increase of $46,000 or 9.5%. Higher depreciation and amortization charges and
computer maintenance expenses totaling $9,000 and $10,000, respectively, as well
as furniture and equipment write-offs totaling $13,000 in 2000 versus a $5,000
gain in 1999 were the primary reasons for the increase.
Advertising expense increased $57,000 or 32.9% to $230,000 for the first six
months of 2000 compared to $173,000 for the same period in 1999 primarily as a
result of increases in advertising expenditures to promote the Bank and its
products including Internet banking to its consumer customers.
The decrease in other noninterest expenses of $146,000 or 11.1% reflected a net
decrease in a number of miscellaneous expense categories. The most significant
decreases in these categories were $97,000 of expenses incurred in 1999 for
outside fund management fees and other operating expenses for the internal trust
operations of the Bank, which was sold during the third quarter of 1999, and net
foreclosed real estate recoveries of $52,000 versus $21,000 of expenses in 1999.
PROVISION FOR INCOME TAXES - The provision for income taxes for the three months
ended June 30, 2000 and 1999 was $933,000 and $831,000, respectively,
representing effective tax rates of 29.8% for both periods.
18
<PAGE>
The provision for income taxes for the six months ended June 30, 2000 and 1999
was $1,796,000 and $1,567,000, respectively, representing effective tax rates of
29.8% and 29.2%, respectively.
The effective income tax rates noted above are below statutory rates primarily
as a result of the dividends received deduction and the establishment of the
passive investment company.
On May 19, 1998, the Connecticut state legislature enacted legislation which
permits financial services companies which maintain an office in Connecticut,
and have a minimum of five employees (among other provisions), the authority to
create a limited passive investment company ("PIC") for the purpose of holding
for investment loans collateralized by real estate free from Connecticut
corporation business tax. The regulation is effective for income tax years
beginning January 1, 1999. During the fourth quarter of 1998, the Bank formed a
passive investment company, SSB Mortgage Corporation. Subsequently, for tax
years beginning January 1, 1999, the Corporation's state tax expense has been
eliminated resulting in the lower effective tax rates mentioned above.
LIQUIDITY - The liquidity of a banking institution reflects its ability to
provide funds to meet loan requests, to accommodate possible outflows in
deposits and to take advantage of interest rate market opportunities. Funding of
loan requests, providing for liability outflows and management of interest rate
fluctuations require continuous analysis in order to match the maturities of
specific categories of short-term loans and investments with specific types of
deposits and borrowings. Bank liquidity is thus normally considered in terms of
the nature and mix of a banking institution's sources and uses of funds. The
Bank's Asset Liability Committee is responsible for implementing the policies
and guidelines for the maintenance of prudent levels of liquidity.
The Bank's principal sources of funds for operations are cash flows generated
from earnings, deposits, loan repayments, borrowings from correspondent banks
and securities sold under repurchase agreements. Such sources are supplemented
by interest bearing deposits with banks, Federal funds sold and unencumbered
securities available-for-sale. Brokered deposits were not utilized as a source
of funds during 2000 or 1999, and none were outstanding as of June 30, 2000.
The Bank is a member of the Federal Home Loan Bank of Boston (the "FHLB"), which
makes substantial borrowings available to its members. The Bank is eligible to
borrow against its assets in an amount not to exceed collateral as defined by
the FHLB. As of June 30, 2000, qualified collateral totaled $159,017,000. The
Bank's actual borrowings on that date were $97,330,000.
The inflow and outflow of funds is detailed in the consolidated condensed
statements of cash flows for the six months ended June 30, 2000 and 1999 and is
summarized below.
During the current period, cash and cash equivalents increased by $9,987,000, as
net cash provided by operating activities and financing activities of
$34,263,000 exceeded the $24,276,000 of net cash used for investing activities.
Net cash used for investing activities, which primarily reflects the net
redeployment of funds into the loan and securities portfolios, was $24,276,000
for the six months ended June 30, 2000. During this period, the Corporation
experienced net originations of loans totaling $7,519,000 and a net increased
investment in securities in the amount of $15,287,000, which were funded
primarily by increased certificates of deposit.
The net cash provided by financing activities of $29,900,000 for the six months
ended June 30, 2000 primarily reflected net increases in deposits of $38,217,000
and funds borrowed from the FHLB of $24,500,000 partially offset by decreases in
funds borrowed from the Federal Reserve Bank of $11,500,000 and Federal funds
purchased and repurchase agreements of $18,620,000.
Closely related to the concept of liquidity is the management of interest
earning assets and interest bearing liabilities, which focuses on maintaining
stability in the interest rate spread, an important factor in earnings growth
and stability. Emphasis is placed on maintaining a controlled rate sensitivity
position to avoid wide swings in interest rate spreads and to minimize risk due
19
<PAGE>
to changes in interest rates. An asset or liability is considered rate sensitive
within a specified period when it matures or could be repriced within such
period in accordance with its contractual terms. Management establishes overall
policy and interest rate risk tolerance levels which are administered by the
Bank's Asset Liability Committee on a monthly basis.
CAPITAL RESOURCES - 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 judgements 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 table
below) of total and Tier 1 capital (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of June 30,
2000, that the Bank meets all capital adequacy requirements to which it is
subject.
To be categorized as well capitalized, the Bank must maintain the ratios set
forth in the table below. Management believes that there are no events or
conditions that have occurred that would change its category. The Bank's actual
capital amounts and ratios were (dollars in thousands):
<TABLE>
<CAPTION>
To Be Well Capitalized
Under Prompt Corrective
Actual Action Provisions
----------------- -----------------------
Amount Ratio Amount Ratio
-------- ------- -------- --------
<S> <C> <C> <C> <C>
As of June 30, 2000:
Total Capital (to Risk Weighted Assets) $ 51,771 14.07% >/= $ 36,797 >/= 10.0%
Tier I Capital (to Risk Weighted Assets) 47,156 12.82% >/= 22,078 >/= 6.0%
Tier I Capital (to Average Assets) 47,156 8.17% >/= 28,872 >/= 5.0%
</TABLE>
On April 19, 2000, the Board of Directors of the Corporation declared a cash
dividend of $.17 per common share which was paid on May 16, 2000 to shareholders
of record on May 1, 2000. Subsequent to June 30, 2000, the Board of Directors of
the Corporation declared a cash dividend of $.17 per common share payable on
August 15, 2000 to shareholders of record on August 1, 2000.
On April 21, 1999, the Corporation announced that it planned to repurchase up to
5% (260,000) of its outstanding common shares over the next twelve months. On
April 20, 2000, this share buyback program was terminated. Pursuant to that
program, the Corporation purchased 136,338 shares of its outstanding shares of
common stock, or 2.6% of its outstanding shares as of April 21, 1999 and April
20, 2000.
On April 19, 2000, the Corporation's Board of Director's voted to authorize a
new share buyback program of up to 5% (262,000) of its outstanding shares of
common stock over the next year. Purchases are made from time to time in the
open market and through private transactions. The timing and amount of these
transactions, funded through available corporate funds, will depend upon market
conditions and corporate requirements. Shares repurchased are held in treasury
for general corporate purposes including reissue to satisfy the exercise of
outstanding stock options. Through August 9, 2000, the Corporation repurchased
60,000 shares at an average price of $14.63.
20
<PAGE>
Average Balance Sheets, Net Interest Income and Interest Rates(a)
-----------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended June 30,
----------------------------------------------------------------
2000 1999
------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/
(dollars in thousands) Balance Interest Rate(c) Balance Interest Rate(c)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans(b) $320,770 $ 6,573 8.20% $298,514 $ 5,970 8.00%
Taxable investment securities(c) 238,988 4,315 7.22% 209,128 3,429 6.56%
Municipal bonds - tax exempt(c) 5,607 110 7.85% 3,495 60 6.87%
Federal funds sold 3,160 57 7.22% 8,433 98 4.65%
Other interest-earning assets 5,861 108 7.37% 3,053 47 6.16%
-------- -------- -------- -------
Total interest-earning assets 574,386 11,163 7.77% 522,623 9,604 7.35%
-------- -------
Noninterest-earning assets 6,092 14,795
-------- --------
TOTAL ASSETS $580,478 $537,418
======== ========
LIABILITIES AND EQUITY
Interest-bearing liabilities:
NOW and savings deposits $150,952 948 2.51% $154,070 976 2.53%
Time deposits 160,003 2,108 5.27% 157,416 1,888 4.80%
Federal funds purchased and
repurchase agreements 69,737 1,004 5.76% 97,207 1,261 5.19%
Other borrowings 112,397 1,688 6.01% 41,632 531 5.10%
-------- -------- -------- -------
Total interest-bearing liabilities 493,089 5,748 4.66% 450,325 4,656 4.14%
-------- -------
Noninterest-bearing liabilities:
Demand deposits 38,202 33,671
Other 6,505 3,406
Shareholders' equity 42,682 50,016
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $580,478 $537,418
======== ========
Net interest income on a tax
equivalent basis(c) 5,415 4,948
Tax equivalent adjustment (207) (183)
-------- -------
Net interest income $ 5,208 $ 4,765
======== =======
Net interest spread
(tax equivalent basis) 3.11% 3.21%
==== ====
Net interest margin
(tax equivalent basis) 3.77% 3.79%
==== ====
</TABLE>
(a) Computed on an annualized basis.
(b) Average balances for loans include nonaccrual and renegotiated balances.
(c) Yields/Rates are computed on a tax equivalent basis using a Federal income
tax rate of 34% for 2000 and 1999 and a state income tax rate of 0% in 2000
and 1999, respectively.
21
<PAGE>
Average Balance Sheets, Net Interest Income and Interest Rates(a)
-----------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------------------------------------
2000 1999
------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/
(dollars in thousands) Balance Interest Rate(c) Balance Interest Rate(c)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans(b) $318,063 $ 12,978 8.16% $293,435 $11,758 8.01%
Taxable investment securities(c) 233,286 8,264 7.08% 211,087 6,813 6.46%
Municipal bonds - tax exempt(c) 5,581 219 7.85% 3,519 122 6.93%
Federal funds sold 4,281 133 6.21% 4,656 108 4.64%
Other interest-earning assets 5,841 206 7.05% 3,164 94 5.94%
-------- -------- -------- -------
Total interest-earning assets 567,052 21,800 7.69% 515,861 18,895 7.33%
-------- -------
Noninterest-earning assets 5,475 15,544
-------- --------
TOTAL ASSETS $572,527 $531,405
======== ========
LIABILITIES AND EQUITY
Interest-bearing liabilities:
NOW and savings deposits $149,290 1,875 2.51% $150,970 1,894 2.51%
Time deposits 159,626 4,099 5.14% 158,490 3,868 4.88%
Federal funds purchased and
repurchase agreements 69,275 1,927 5.56% 92,882 2,409 5.19%
Other borrowings 108,476 3,152 5.81% 42,113 1,071 5.09%
-------- -------- -------- -------
Total interest-bearing liabilities 486,667 11,053 4.54% 444,455 9,242 4.16%
-------- -------
Noninterest-bearing liabilities:
Demand deposits 37,503 33,685
Other 6,244 3,272
Shareholders' equity 42,113 49,993
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $572,527 $531,405
======== ========
Net interest income on a tax
equivalent basis(c) 10,747 9,653
Tax equivalent adjustment (397) (401)
-------- -------
Net interest income $ 10,350 $ 9,252
======== =======
Net interest spread
(tax equivalent basis) 3.15% 3.17%
==== ====
Net interest margin
(tax equivalent basis) 3.79% 3.74%
==== ====
</TABLE>
(a) Computed on an annualized basis.
(b) Average balances for loans include nonaccrual and renegotiated balances.
(c) Yields/Rates are computed on a tax equivalent basis using a Federal income
tax rate of 34% for 2000 and 1999 and a state income tax rate of 0% in 2000
and 1999, respectively.
22
<PAGE>
Rate/Volume Analysis
--------------------
<TABLE>
<CAPTION>
Three Months Ended June 30, 2000 Six Months Ended June 30, 2000
Compared to 1999 Compared to 1999
-------------------------------- -------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
--------------------- ---------------------
(in thousands) Volume Rate Net(1) Volume Rate Net(1)
------------------------------------------------------------------ -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans $ 453 $ 150 $ 603 $ 1,002 $218 $ 1,220
Taxable investment securities 519 367 886 753 698 1,451
Municipal bonds - tax exempt 40 10 50 79 18 97
Federal funds sold (79) 38 (41) (9) 34 25
Other interest-earning assets 50 11 61 92 20 112
------- ----- ------- ------- ---- -------
Total interest income 983 576 1,559 1,917 988 2,905
------- ----- ------- ------- ---- -------
Interest paid on:
NOW and savings deposits (20) (8) (28) (21) 2 (19)
Time deposits 31 189 220 28 203 231
Federal funds purchased and
repurchase agreements (385) 128 (257) (647) 165 (482)
Other borrowings 1,048 109 1,157 1,908 173 2,081
------- ----- ------- ------- ---- -------
Total interest expense 674 418 1,092 1,268 543 1,811
------- ----- ------- ------- ---- -------
Change in net interest income $ 309 $ 158 $ 467 $ 649 $445 $ 1,094
======= ===== ======= ======= ==== =======
</TABLE>
(1) The change in interest due to both tax equivalent rate and volume has been
allocated to changes due to volume and changes due to tax equivalent rate in
proportion to the relationship of the absolute dollar amounts of the change in
each.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements, including statements
regarding the Corporation's future operations. All forward-looking statements
are subject to risks and uncertainties that could cause actual results to differ
materially from those projected. Factors that could cause such a difference
include, without limitation, general risks associated with the delivery of
financial products and services, fluctuating investment returns, rapid
technological change, and competition, as well as other risks set forth in the
Corporation's filings with the Securities and Exchange Commission. The
forward-looking statements contained herein speak only as of the date of this
Form 10-Q. The Corporation expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any such statement to reflect any
change in the Corporation's expectations or any change in events, conditions or
circumstances on which any such statement is based.
23
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the exposure to loss resulting from changes in interest rates,
foreign currency exchange rates, commodity prices and equity prices. The primary
market risk to which the Bank is exposed is interest rate risk. The majority of
the Bank's interest rate risk arises from the instruments, positions and
transactions entered into for purposes other than trading. They include loans,
securities available-for-sale, deposit liabilities, short-term borrowings and
long-term debt. Interest rate risk occurs when assets and liabilities reprice at
different times as interest rates change.
The Bank manages interest rate risk through an Asset Liability Committee
comprised of senior management. The committee monitors exposure to interest rate
risk on a quarterly basis using both a traditional gap analysis and simulation
analysis. Traditional gap analysis identifies short and long-term interest rate
positions or exposure. Simulation analysis measures the amount of short-term
earnings at risk under both rising and falling rate scenarios. The Bank's
interest rate risk as of June 30, 2000 and December 31, 1999 utilizing a
simulation model to measure the estimated percentage change in net interest
income due to an increase or decrease in market interest rates of up to 200
basis points, spread evenly over the next twelve months, is within the Bank's
established 10% of net interest income tolerance limit.
24
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PART II.
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. Friday, April 28, 2000 - Annual Meeting
b. Directors elected at this meeting:
Andrew J. Meade
Frank R. Miller
Robert D. Morton
Dennis J. Stanek
Directors whose term of office as director continued after this
meeting:
Norbert H. Beauchemin
Walter J. Hushak
Frederick E. Kuhr
Joseph J. Laporte
Michael J. Karabin
David P. Kelly
Ralph G. Mann
Anthony S. Pizzitola
c.1. The election of four directors for a three year term who, with
the eight directors whose term of office do not expire at this
meeting, will constitute the full Board of Directors.
FOR WITHHELD
--------- --------
Andrew J. Meade 3,979,866 42,371
Frank R. Miller 3,978,349 43,888
Robert D. Morton 3,975,533 46,704
Dennis J. Stanek 3,978,349 43,888
25
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c.2. The ratification of the appointment of PricewaterhouseCoopers LLP
as independent accountants for the fiscal year ending December
31, 2000.
FOR AGAINST ABSTAIN
--------- ------- -------
Total votes 4,000,618 6,834 14,785
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
Exhibit No. Description
----------- -----------
3.1 Certificate of Incorporation of Registrant
(Incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-4
(Registration No. 33-77696 the "Registration
Statement"))
3.2 Bylaws of Registrant (Incorporated by reference
to Exhibit 3.2 to the Registration Statement)
3.3 Certificate of Amendment of Certificate of
Incorporation dated May 20, 1996 (Incorporated
by reference to Exhibit 3.3 to the Quarterly
Report on Form 10-Q for the quarterly period
ended June 30, 1996)
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)
26
<PAGE>
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 4.3 to the
Registrant's Registration Statement on Form S-8
(Registration No. 33-30146))
10.7 Southington Savings Bank Supplemental Executive
Retirement Plan (effective December 21, 1998)
(Incorporated by reference to Exhibit 10.7 to
the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998)
27 Financial Data Schedule
(b) Reports on Form 8-K
The registrant filed one Report on Form 8-K during the second
quarter of 2000.
1. Report Date: April 19, 2000
Item 5. Other Events
The Corporation reported its share buyback program
adopted on April 21, 1999 terminated. It also reported
the adoption of a new share buyback program of up to 5%
of its outstanding shares of common stock over the next
year.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANCORP CONNECTICUT, INC.
----------------------------------
(Registrant)
Date: August 9, 2000 /s/ Robert D. Morton
------------------------ ----------------------------------
Robert D. Morton
President and Chief
Executive Officer
(Principal Executive Officer)
Date: August 9, 2000 /s/ Phillip J. Mucha
------------------------ ----------------------------------
Phillip J. Mucha
Chief Financial Officer
and Treasurer/Secretary
(Principal Accounting Officer)
28
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
3.1 Certificate of Incorporation of Registrant (Incorporated by
reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-4 (Registration No. 33-77696 the
"Registration Statement"))
3.2 Bylaws of Registrant (Incorporated by reference to Exhibit 3.2
to the Registration Statement)
3.3 Certificate of Amendment of Certificate of Incorporation dated
May 20, 1996 (Incorporated by reference to Exhibit 3.3 to the
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 4.3 to the Registrant's Registration
Statement on Form S-8 (Registration No. 33-30146))
10.7 Southington Savings Bank Supplemental Executive Retirement Plan
(effective December 21, 1998) (Incorporated by reference to
Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998)
27 Financial Data Schedule
