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, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 34-0-25158
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BANCORP CONNECTICUT, INC.
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(Exact name of registrant as specified in its charter)
Delaware 06-1394443
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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
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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
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(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. (4,809,319 shares) totaled $70,937,455 (based upon the
closing price of $14.75 per share as quoted on the Nasdaq National Market tier
of The Nasdaq Stock Market) on March 17, 2000.
5,227,018 shares of Bancorp Connecticut, Inc. Common Stock were outstanding
at March 17, 2000.
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, 1999 (hereinafter referred to as
the "1999 Annual Report"); and
(2) Management's definitive proxy statement in connection with the 2000
annual meeting of the shareholders of Bancorp Connecticut, Inc.
(hereinafter referred to as the "2000 Proxy Statement").
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PART I
ITEM 1 - BUSINESS.
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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
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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. In addition, the Bank extended its market to the Wallingford
area when it opened a branch office in Wallingford in 1998. Southington is
located approximately 18 miles from Hartford, 25 miles from New Haven and 9
miles from Waterbury. Wallingford is contiguous to the City of Meriden, which
borders Southington to the south.
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 commercial loans, residential loans, consumer 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
and debit card services, Internet banking (including bill-paying services), and
cash management services. The Bank makes available Savings Bank Life Insurance
("SBLI"). The Bank provides investment brokerage and insurance services through
Infinex Financial Group, Inc. and its affiliates. Investment products such as
mutual funds, tax exempt securities and individual stocks and bonds are provided
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through Infinex Investment Group, a broker-dealer. Insurance products such as
annuities are provided through Infinex Insurance Group, a licensed insurance
agency.
In the third quarter of 1999, the Bank sold its trust operations to Trust
Company of Connecticut ("TCC"). Since the investment management component of
this activity had been outsourced by the Bank and many of the Bank's trust
customers were already working with TCC, the Bank believed the sale was in the
Bank's and in its customers' best interests, since trust services did not meet
the growth potential and return expectations of the Bank.
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 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 continue 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 1998, the Bank continued to supplement its own loan originations by
purchasing automobile loans from BCI Financial Corporation ("BCIF"), a
majority-owned subsidiary of the Bank that was formed on March 9, 1998 to
originate indirect automobile loans for sale to the Bank and other financial
institutions. In addition, the Bank continued to purchase the guaranteed portion
of Small Business Administration loans.
The principal sources of funds for the Bank's activities are deposit
accounts, amortization and prepayment of loans, borrowings from the FHLB of
Boston and from the Federal Reserve Bank of Boston, 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. The Bank also has realized income from the sale of loans and
investment securities. To a lesser extent, the Bank realizes other noninterest
income, including income from service charges on deposit accounts, income from
option call premiums written on marketable equity security holdings, brokerage
services, SBLI sales, and fee income from the sale and servicing of loans
generated by BCIF.
The Bank conducts its banking operations through four full service offices,
one limited purpose branch, one drive-in center, and one mortgage origination
office. All of the foregoing offices and branches are located in Southington,
except for one branch that is located in Wallingford. As of February 29, 2000,
the Bank had 105 full-time employees and 37 part-time employees. The Company has
no paid employees.
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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 real estate.
During the past two years, the Bank's officers and employees continually
have engaged in marketing activities, including evaluation and development of
new services. During 1999, the Bank introduced a new debit card and Internet
banking (including bill-paying services) to its customers. During 1998, the Bank
made investments in its new Wallingford branch office and BCIF. The Bank's
initial investments in the Wallingford branch and in BCIF were approximately
$151,000 and $200,000, respectively. The investment in Wallingford consisted of
leasehold improvements and equipment and the initial investment of $200,000 in
BCIF represented an 80% ownership interest.
In 1998, the Bank moved its core processing system "in house" rather than
continue the service bureau environment on which it had been operating. The new
system is expected to provide operating efficiencies, expand management
reporting and enhance new product development. The cost of the new software and
hardware, which included the replacement of all teller terminals, was
approximately $1,991,000. This cost is being capitalized and depreciated over
the useful life of the equipment. In connection with the movement of its core
processing system "in-house," the Bank also converted to and outsourced check
image processing and proof of deposit.
In 1998, the Bank formed a passive investment company, SSB Mortgage
Corporation, to take advantage of changes in Connecticut state tax statutes,
which served to reduce the Company's effective tax rate beginning in 1999.
Early in 2000, the Bank is expecting to introduce a comprehensive
Internet-based cash management system for its business customers, as well as
additional insurance product offerings for all of its customers marketed through
a separate Bank subsidiary.
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
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The banking business in Southington and in the other markets the Bank
serves, 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.
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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
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 that are not readily predictable.
The Bank's market area is served by a significant number of financial
institutions. Eighteen offices (not including the Bank's four offices) of
banking institutions are located in Southington and Wallingford alone.
Additionally, two banking organizations have publicly announced plans to open a
branch office in Southington. At December 31, 1999, there were approximately
forty mortgage lenders operating in the towns of Southington, Bristol, Cheshire,
Meriden, Plainville and Wallingford.
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 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
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concentration of deposits in both interstate and intrastate acquisitions. This
legislation may result in increased competition.
Federal legislation was recently enacted that allows broad new affiliations
among banks, securities companies and insurance firms. See "Regulation and
Supervision - Gramm-Leach-Bliley Act" below.
REGULATION AND SUPERVISION
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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 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.
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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 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 securities. Prior to the legislation,
Connecticut banks could invest in 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.
Legislation enacted in 1997, 1998 and 1999 (i) permits, subject to certain
limitations, Connecticut banks to sell insurance, directly or indirectly; (ii)
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);
(iii) permits out-of-state trust companies to establish and maintain offices in
Connecticut with the approval of the Banking Commissioner, provided there is
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reciprocity in the home state's laws; (iv) authorizes a new form of Connecticut
bank to be known as an uninsured bank (i.e., one that does not accept retail
deposits and for which insurance of deposits by the FDIC is not required); and
(v) authorizes Connecticut banks to engage in certain closely related activities
and activities permitted under federal law for federally chartered banks.
Connecticut legislation proposed in 2000 (i) would authorize all
out-of-state banks to establish automated teller machines in Connecticut and
would authorize non-banks to establish cash dispensing machines in Connecticut,
and (ii) would expand the Connecticut filing and registration provisions of
Connecticut bank holding company laws to entities that control a bank which is
not insured by the FDIC or which does not take deposits.
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 1999, 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 may increase or decrease premium levels by up to 5 basis points each six
months. The Bank Insurance Fund FDIC insurance premium for the Bank was 0.0% for
1999 and 0.0% for the first six months of 2000.
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 first quarter of 2000
is 2.120 basis points and for the second quarter of 2000 is 2.080 basis points.
Under the FDIC's risk-based capital requirements, each FDIC-insured bank is
required to maintain minimum levels of "capital" based on 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), unrealized gains on certain equity securities (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
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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, 1999, the Bank's
capital exceeded these minimums. See "Management's Discussion and
Analysis-Liquidity and Capital Resources" in the 1999 Annual Report for a more
detailed description of these requirements and the Bank's capital position at
December 31, 1999.
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, 1999, the Bank had a leverage capital ratio of 8.30%, a
Tier 1 risk-based capital ratio of 13.04% and a total risk-based capital ratio
of 14.29%. At December 31, 1999, 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.
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 generally 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.
Effective January 1, 1999, the FDIC regulations governing the activities
and investments of insured state banks were substantially revised and updated.
The new regulations provide the framework for which certain state-chartered
banks or their majority-owned subsidiaries may engage in activities that are not
permissible for national banks or their subsidiaries. All contemplated
activities must still be permitted by state law. However, if an activity or
equity investment is permissible under state law, the new regulations allow the
FDIC to move more expeditiously on requests. Subject to appropriate separations
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and limitations, the activities that may be conducted through a majority-owned
subsidiary under the expedited notice processing criteria are real estate
investment and securities underwriting.
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. During 1999 through November 3, 1999, these regulations
generally required the maintenance of reserves of 3.0% against transaction
accounts of $46.5 million or less and 10.0% of the amount of such accounts in
excess of such amount. Effective November 4, 1999, the Federal Reserve Board
decreased the amount of transaction accounts subject to the reserve requirement
ratio of 3% from $46.5 million to $44.3 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, prior to the enactment of the Gramm-Leach-Bliley
Act in November 1999, a bank holding company and its subsidiaries were
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.
With the enactment of the Gramm-Leach-Bliley Act, a financial holding company
may engage in any activity, and may acquire and retain the shares of any company
engaged in any activity, that the Federal Reserve Board has determined (i) to be
financial in nature or incidental to such financial activity or (ii) is
complementary to a financial activity and does not pose a substantial risk to
the safety and soundness of depository institutions or the financial system
generally. A bank holding company may not engage in such activities unless all
of its depository institution subsidiaries are well-capitalized and
well-managed, and the bank holding company has filed an election to engage in
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such activities with the Federal Reserve Board. A "financial holding company" is
defined to be a bank holding company that meets the requirements set forth in
the preceding sentence.
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, 1999, 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.
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 Bank
is also subject to certain restrictions imposed by the Federal Reserve Act on
making certain investments in the stock or other securities of the Company or in
certain 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 certain 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 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.
GRAMM-LEACH-BLILEY ACT
In November, 1999, the Gramm-Leach-Bliley Act of 1999 (the "Act") was
signed into federal law by President Clinton. It contains some of the most
significant reform of financial services regulation in over 60 years. The Act is
divided into seven titles, the most significant features of which are summarized
below.
Title I permits affiliations among banks, securities firms and insurance
companies. Financial institutions are able to structure these new affiliations
through a holding company structure, or through a financial subsidiary. A bank
holding company can now qualify as a financial holding company and expand into a
wide variety of financial services, provided that its subsidiary depository
institutions are well-managed, well-capitalized and have received a
"satisfactory" rating on their last Community Reinvestment Act examination. The
new powers granted to a financial holding company include the authority to
- 10 -
<PAGE>
engage in merchant banking and insurance activities. The financial subsidiary is
a subsidiary company that can be used by a national bank to engage in many of
the activities permitted for a financial holding company.
Insured state banks also are given the authority to engage in financial
activities through subsidiaries, by virtue of an amendment to the Federal
Deposit Insurance Act. Under appropriate circumstances, an insured state bank
may hold an interest in a subsidiary that is essentially equivalent to a
national bank's financial subsidiary.
The state bank and all of its insured depository institution affiliates
must be well capitalized. The bank must also comply with the same capital
deduction and financial statement requirements and financial and operational
safeguards that apply to national banks. In the bank's transactions with its
subsidiary, the bank must comply with the limits on transactions with
affiliates.
State banks are not required to divest any interests in subsidiaries that
they lawfully held when the Act was enacted, and such subsidiaries are not
required to change their activities.
State bank subsidiaries are subject to FDIC examination to the same extent
as any other state bank subsidiary. They also remain subject to the same
securities-related rules that govern national banks, as long as such rules do
not affect the state bank's interest in its equivalent of a financial
subsidiary.
Under the Act, individual states remain responsible for regulating the
business of insurance. State insurance laws, however, are preempted if they
prevent or significantly interfere with certain insurance activities of
depository institutions, namely sales and affiliation activities. State laws
governing other financial activities, except securities and insurance
activities, are not preempted provided they do not discriminate against
depository institutions.
Title II makes changes related to the securities industry. Among these
changes, the Act replaces the broad exemption banks had enjoyed from Securities
and Exchange Commission regulation with more limited exemptions and directs the
SEC and the Federal Reserve Board to work together to establish rules for future
hybrid financial products. In addition, the Act now requires banks that advise
mutual funds to register with the SEC as investment advisers, and requires banks
selling mutual funds to clearly disclose that these funds are not federally
insured.
Title III confirms that states are the regulators for the insurance
activities of all persons, including acting as the functional regulator for the
insurance activities of federally-chartered banks. However, states may not
prevent depository institutions and their affiliates from engaging in insurance
activities. In addition, the Act encourages the states to develop uniform or
reciprocal requirements for the licensing of insurance agents.
Title IV closes a loophole for unitary thrift holding companies by
outlawing the future acquisition or creation of new unitary thrifts by
commercial enterprises.
Title V provides consumers with new protections against the transfer and
use of their private personal information by financial institutions. These
provisions enable customers of financial institutions to "opt-out" of having
their personal financial information shared with unaffiliated third parties,
- 11 -
<PAGE>
subject to certain exceptions. It also is made a federal crime to obtain or
attempt to obtain private customer financial information through fraudulent or
deceptive means.
Title VI reforms the Federal Home Loan Bank system to provide small banks
with greater access to funds for making loans to small businesses, and
establishes an improved capital structure for the system.
Title VII requires automated teller machine operators who impose a fee for
use of an ATM by a noncustomer to disclose the surcharge more prominently. Title
VII also requires agreements between an insured depository institution or
affiliate and a nongovernmental entity in connection with the Community
Reinvestment Act to be disclosed both to the public and to the federal banking
agencies. For smaller institutions, the new law provides possible regulatory
relief in the form of a longer period between examinations.
The Company expects the Act to increase competition, especially because
many financial institutions (especially those larger than the Company and the
Bank) may likely take advantage of the Act to offer a range of banking and
insurance products and services to their customers. The Company's management has
not yet considered to what extent it may seek to take advantage of the change in
law. Management believes, however, that since the Bank is a community bank, the
Act will not have a significant effect on the products and services presently
offered by the Bank.
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 rates 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 has increased 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
- 12 -
<PAGE>
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 service enterprises. The impact of these changes in the regulatory
climate ultimately has resulted in downward pressure on the Bank's net interest
margin, the magnitude of which is not possible to assess. The decline in the
overall yield on earning assets was proportionately offset by the decrease in
interest rates on sources of funds which resulted in the interest rate spread,
on a tax equivalent basis, remaining relatively unchanged for 1999 compared to
1998.
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 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 1999, the State of Connecticut had strong economic growth. The
relatively flat U.S. Treasury yield curve and increased competition for both
commercial and consumer loans placed downward pressure on net interest margins,
which primarily offset the increase in loan growth and fee income. Currently,
the flat yield curve and heightened competition is expected to 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.
- 13 -
<PAGE>
ITEM 2 - PROPERTIES.
- --------------------
The following table sets forth the location of the Bank's branch offices
and other related information:
OFFICE Location Status
- ------ -------- ------
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
Wallingford Office 950 North Colony Road, Wallingford, CT Leased
The Bank leases approximately 1,580 square feet at 950 North Colony Road,
Wallingford, Connecticut to house its Wallingford branch office. The lease has
an expiration date of March 31, 2008, with an option to extend the lease for
five years.
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 human resources,
marketing, finance, managed assets, consumer banking, deposit services, and
information systems departments. 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 exercised its option to extend the lease until December 31, 1999, and
is currently renting the space on a month-to-month basis. The Bank is
considering purchasing the property, subject to necessary regulatory approvals.
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. The Bank has exercised its option to extend the lease
until October 31, 2000.
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.
- 14 -
<PAGE>
The Bank also owns and is holding for future expansion two separate
properties both 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.
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 1999, no matter was submitted to a vote of
shareholders of the Company.
- 15 -
<PAGE>
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER 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 1,
2000, 5,232,018 shares of Common Stock were issued and outstanding and were held
by approximately 1,805 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 1998 and 1999 are included in the 1999
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, markdown or commission and may not necessarily represent
actual transactions.
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, 1998 through December 31, 1999 is included in the 1999 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.
In April 1999, the Company announced that it planned to repurchase up to 5%
(260,000) of its outstanding common stock shares over the next 12 months. As of
March 20, 2000, the Company repurchased 136,338 shares at an average price of
$16.03 per share.
- 16 -
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA.
- ---------------------------------
The required information is included in the 1999 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 1999 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 1999 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, 1999 and 1998, and the
related Consolidated Statements of Income, Shareholders' Equity and Cash Flows
for each of the three years in the period ended December 31, 1999, and the Notes
to Consolidated Financial Statements appear in the 1999 Annual Report and are
incorporated herein by reference.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
- ---------------------------------------------------------------------------
Not applicable.
- 17 -
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- -------------------------------------------------------------
The required information is included in the 2000 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 2000 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 March 1, 2000, 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 2000
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 2000 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.
- 18 -
<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 1999 Annual
Report.
FINANCIAL STATEMENT PAGE OR PAGES
Report of Independent Accountants 21
Consolidated Statements of Condition 22
Consolidated Statements of Income 23
Consolidated Statements of Shareholders' Equity 24
Consolidated Statements of Cash Flows 25
Notes to Consolidated Financial Statements 26-39
(2) FINANCIAL STATEMENT SCHEDULES
Information required to be included in all schedules to the Company's
Consolidated Financial Statements is included in the 1999 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)
- 19 -
<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 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)
13.1 Annual Report to Security Holders
21 Subsidiaries of Registrant
- 20 -
<PAGE>
24 Power of Attorney
27 1999 Financial Data Schedule
- ------------------------
* Management contract or compensatory plan or arrangement.
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 THOMAS A. SEBASTIAN, 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 1999.
(c) The exhibits required by Item 601 of Regulation S-K are filed as a
separate part of this report.
- 21 -
<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 24, 2000 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.
SIGNATURES TITLE DATE
/s/ Robert D. Morton President, March 24, 2000
- ------------------------- Chief Executive
Robert D. Morton Officer and Director
(Principal Executive Officer)
/s/ Phillip J. Mucha Chief Financial Officer and March 24, 2000
- ------------------------- Treasurer/Secretary (Principal
Phillip J. Mucha Financial Officer and
Principal Accounting Officer)
Norbert H. Beauchemin* Director March 24, 2000
- -------------------------
Norbert H. Beauchemin
Walter J. Hushak* Director March 24, 2000
- -------------------------
Walter J. Hushak
Michael J. Karabin* Director March 24, 2000
- -------------------------
Michael J. Karabin
<PAGE>
David P. Kelley* Director March 24, 2000
- --------------------------
David P. Kelley
Frederick E. Kuhr* Director March 24, 2000
- --------------------------
Frederick E. Kuhr
Joseph J. Laporte* Director March 24, 2000
- --------------------------
Joseph J. LaPorte
Director
- --------------------------
Ralph G. Mann
Andrew J. Meade* Director March 24, 2000
- --------------------------
Andrew J. Meade
Frank R. Miller* Director March 24, 2000
- --------------------------
Frank R. Miller
Anthony S. Pizzitola* Director March 24, 2000
- --------------------------
Anthony S. Pizzitola
Dennis J. Stanek* Director March 24, 2000
- --------------------------
Dennis J. Stanek
*By: /s/ Robert D. Morton
---------------------
Robert D. Morton
Attorney-in-fact
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
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)
<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
ending December 31, 1998)
13.1 Annual Report to Security Holders
21 Subsidiaries of Registrant
24 Power of Attorney
27 1999 Financial Data Schedule
- ----------------------
* Management contract or compensatory plan or arrangement.
Exhibit 13.1
Bancorp Connecticut, Inc.
1999
Annual
Report
----------------
[IMAGES OMITTED]
----------------
<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
COMPANY PROFILE
Bancorp Connecticut's wholly owned subsidiary, Southington Savings Bank (SSB),
is a full-service financial institution serving Southington, Wallingford, and
the surrounding areas since 1860. SSB offers a wide range of superior consumer
products and services, business banking, and brokerage services through its
branch network. A commitment to blend high-quality service with the latest
technologies has fostered a unique brand of community banking.
----------------------------
[IMAGE OMITTED]
OUR 3RD CENTURY IN BUSINESS
SSB has been proudly serving
the needs of its customers
since 1860.
----------------------------
TABLE OF CONTENTS
1 Selected Consolidated Financial Data
2 To Our Shareholders
9 Management's Discussion and Analysis
21 Report of Independent Accountants
22 Consolidated Statements of Condition
23 Consolidated Statements of Income
24 Consolidated Statements of Shareholders' Equity
25 Consolidated Statements of Cash Flows
26 Notes to Consolidated Financial Statements
40 Shareholder Information
41 Bancorp Connecticut, Inc. Directors and Officers
42 SSB Directors and Officers
<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
SELECTED CONSOLIDATED
FINANCIAL DATA
<TABLE>
<CAPTION>
-------------------
[BAR GRAPHS OMITTED
NET INCOME AND
DIVIDEND GROWTH
DATA BELOW]
-------------------
As of or for the Year Ended December 31,
----------------------------------------------------
(dollars in thousands,
except per share data) 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF CONDITION DATA:*
Assets $568,798 $521,356 $444,863 $419,398 $383,978
Securities 214,495 217,333 166,712 149,612 130,549
Loans, net 309,710 278,420 255,448 246,274 230,706
Deposits 348,441 347,410 319,137 311,837 297,627
Funds borrowed 171,129 121,146 75,998 62,879 42,217
Shareholders' equity 41,532 49,916 46,947 42,731 43,210
STATEMENT OF INCOME DATA:*
Net interest income $ 19,335 $ 16,839 $ 15,677 $ 14,754 $ 13,896
Provision for loan losses 491 268 600 435 180
Net securities gains 505 1,272 839 344 150
Noninterest income 3,227 2,192 1,484 1,315 1,093
Noninterest expense 12,035 10,398 8,701 8,573 8,625
Provision for income taxes** 2,921 3,292 2,803 2,381 2,038
- ----------------------------------------------------------------------------------------
Net income** $ 7,620 $ 6,345 $ 5,896 $ 5,024 $ 4,296
========================================================================================
PER SHARE DATA:***
Earnings--diluted $1.38 $1.14 $1.08 $0.89 $0.77
Cash dividends 0.60 0.54 0.46 0.37 0.30
Book value 7.98 9.72 9.22 8.31 7.95
SELECTED STATISTICAL DATA:
Return on average assets 1.40% 1.28% 1.39% 1.26% 1.17%
Return on average equity 16.12 13.07 13.48 11.69 10.67
Average equity to average assets 8.67 9.83 10.34 10.71 10.95
Net interest spread
(tax equivalent basis) 3.21 3.18 3.50 3.48 3.53
Net interest margin
(tax equivalent basis) 3.79 3.80 4.13 4.10 4.15
Dividend payout ratio 40.52 43.08 39.95 39.63 37.01
</TABLE>
* Certain prior year amounts have been reclassified to conform with the 1999
presentation. These reclassifications had no impact on net income.
** Includes a $337,000 charge to 1998 earnings attributed to the formation of a
passive investment company. Excluding this charge, 1998 net income would
have been $6,682,000. This passive investment company was formed to reduce
the Corporation's effective tax rate in future years.
*** 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.
1
-------
<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
TO OUR SHAREHOLDERS:
Bancorp Connecticut, Inc. and its principal subsidiary Southington Savings
Bank (SSB) had another very good year. Net income for 1999 was $7,620,000, or
$1.38 per diluted share, compared to $6,345,000, or $1.14 per diluted share in
1998--up 20% for the year. A 7.3% expansion in earning assets, a 14.8% increase
in net interest income and a lower effective tax rate resulting from the
formation of SSB Mortgage Corporation, were primarily responsible for these
operating results. As we enter the new millennium, the Company and SSB are well
positioned to face the many challenges that lie ahead for all financial
institutions.
During 1999, we introduced a new debit card and Internet banking (including
bill-paying services) to our consumer customers. Early in 2000, we expect the
Bank will also unveil a comprehensive Internet-based cash management system for
its business customers as well as additional insurance product offerings for all
of our customers marketed through a separate subsidiary. We strongly believe
that these products and services are necessary ingredients in strengthening the
overall relationships that we have with our clients.
We continually review our ongoing strategy(s) and business model, to be
successful in a very competitive financial environment. Toward this end, in the
1999 third quarter, the Bank's trust operations were sold to the Trust Company
of Connecticut (TCC). Since the investment management component of this activity
had always been outsourced and many of SSB's customers were already working with
TCC, this business arrangement was a logical alternative for us. Trust services,
as a line of business, did not meet the growth potential and return hurdles of
our Company so this transaction made sense for our customers, employees, and
shareholders. Looking ahead, it will be very important to focus on the correct
mix of noninterest sources of revenue and traditional banking activities while
providing all of the necessary delivery channels to our customers. For instance,
our indirect auto finance subsidiary (BCI Financial), increased emphasis on
brokerage and insurance products, and the unfolding role of the Internet must be
viewed within the context of how these products should and will be delivered.
In late 1998, the Bank opened a branch facility in Wallingford, which has
been extremely successful. This office has exceeded our expectations with
respect to loan and deposit growth--the latter having exceeded $20 million
during 1999. It will be difficult, however, to replicate this feat in light of
intense price competition for both loans and deposits and the onset of at least
three start-up bank competitors in our area marketplace. Even though the number
of banks in Connecticut has declined markedly from 150 in 1992 to around 70 at
the present time, there are still over 1,100 bank branches in the state, which
is clearly "overbanked"--particularly in central Connecticut. On two occasions
last year, the Bank bid competitively on various branches being sold by a super
regional bank competitor. These branches would have provided a logical extension
of our market presence, and although we believe that our bids were competitive,
we were not successful. In any event, we will continue to address banking
opportunities like a small bank acquisition, and whatever makes the best
economic sense to extend the Company's franchise.
As we enter our third century of doing business, the Company continues to
do exceedingly well. We are among the top half-dozen publicly owned banks (in
2
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<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
- -------------------------------------
[IMAGE OMITTED]
Robert D. Morton
President and Chief Executive Officer
of Bancorp Connecticut, Inc.
- -------------------------------------
size) left in the state while the remaining players consist of out-of-state
super regional banks, much smaller banks and medium-sized mutual savings banks.
In the latter instance, quite simply put, in some cases the financial
performance requirements of some of these banks may not be as rigorous as those
of a publicly owned company and this is the genesis of increased competition.
Certainly, returns inevitably suffer when credit quality and pricing are
compromised to generate commercial loan volume. We have been, and will continue
to be, mindful of both parameters.
The Company and SSB have established a consistently excellent track record.
Since 1994, for example, net income has more than doubled while cash dividends
paid have increased each year since 1992--having almost tripled since 1994. In
terms of most financial measures, the Company continues to perform at the top of
the pack among publicly owned financial institutions based in Connecticut.
Nevertheless, we are keenly disappointed in our share price performance. Lately,
it seems as though for certain companies, there is little or no correlation
between stock price movement and earnings growth or financial performance. Banks
and financial-related stocks have, for the most part, been pummeled in 1999 and
this trend has continued into the new year. As reported in the press, bank
stocks are under a dark cloud for a litany of reasons, most of which come under
the heading of "the sky is falling." We don't believe this to be true. Although
no one can predict expectations or the stock market, our track record speaks for
itself and we plan to continue to perform at or near the top of our peer group
among publicly owned financial institutions. Only patience and time will prove
that our current operating mode is successful.
In the meantime, as SSB celebrates its 140th anniversary this year, it's
clear that we have a great full-service community-based banking company. We have
our eyes on the future as we continue to focus on improving shareholder value.
Our directors, officers, and staff appreciate your interest and support.
Sincerely,
/s/ Robert D. Morton
- --------------------------
Robert D. Morton
President and
Chief Executive Officer
3
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<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
BUILDING BUSINESS PARTNERS
SOUTHINGTON TOOL
Southington Tool & Manufacturing Corporation,
located in Southington, was founded in 1970 and
incorporated in 1975. Edward Kalat (left), President, ---------------
founder, and owner is seated with SSB's Daniel DeRosa, [IMAGE OMITTED]
Vice President and Relationship Officer. The company ---------------
specializes in manufacturing surgical staples, metal
stampings, wire forms, and springs. The company's sales
extend throughout the United States and include
international sales as well.
QS TECHNOLOGIES
Founded in 1983, QS Technologies, Incorporated is
a Meriden-based research, engineering, and
manufacturing company that produces specialized cable ---------------
and wire products, used in a wide variety of [IMAGE OMITTED]
industries, including electronics, communications, ---------------
medical, automotive, and aircraft. Don Schollin (left),
President, co-founder, and owner, is pictured with
William Taylor, Senior Vice President and Senior
Commercial Lending Officer, SSB. The company's sales
region extends across the United States.
In Central Connecticut, SSB signifies Business Banking. Since 1860, we have
established a long-standing tradition of understanding our customers' needs,
providing our clients with individual, comprehensive banking services, and,
combined with our knowledgeable professionals, producing creative solutions. SSB
offers a full array of business services, including equipment financing,
commercial lines of credit, commercial mortgages, and employer/employee benefit
programs. With another solid year of service, we continue to excel at meeting or
4
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<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
BUILDING BUSINESS PARTNERS (continued)
exceeding the needs of our customers. Decisions are made locally, not in some
remote, out-of-state location. The individuals of our lending team possess
extensive experience fostering growth and prosperity with local businesses. We
are committed to the communities we serve and lead an active role in numerous
civic and charitable organizations. In summary, SSB offers efficient,
full-service commercial banking with the personal attention only a local bank
can provide.
TOPPER & GRIGGS
Topper & Griggs Incorporated, located in
Plainville, was founded in 1926, and incorporated in
1954. Ken Fogg (left), President, is pictured with John ---------------
Cookley, Vice President and Relationship Officer, SSB. [IMAGE OMITTED]
The company fabricates structural steel and ---------------
miscellaneous metals (stairs and handrails) for
commercial use in the construction industry. Topper &
Griggs, Inc. fabricates and erects beams, columns, and
trusses, primarily within Connecticut and occasionally
in the contiguous states.
---------------
[IMAGE OMITTED]
---------------
CiDRA
CiDRA Corporation is a high-tech Wallingford-based company, founded in
1996. The company specializes in the manufacture of fiber optic sensors, used in
the oil, cable, and telecommunication industries. The firm combines research,
development, engineering, and manufacturing for an international customer base.
Pictured are Kevin Didden (left), President, Ann Iseley, Chief Financial
Officer, and SSB's Ray Jannelli, Vice President and Relationship Officer.
5
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<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
----------------------------------------
[IMAGE OMITTED]
"Working closely with my clients helps
them understand and select the best
products to meet their financial needs."
--Matt Rich, Southington Savings Bank
----------------------------------------
BROKERAGE INVESTMENTS
The financial services unit of SSB, offering products through Infinex
Financial Group, achieved notable results this year assisting clients with their
financial planning needs. Managed by Matt Rich, a seasoned investment
professional who joined our team in June 1999, our financial services unit
offers a broad range of investment options including:
o Individual stocks and bonds
o Fixed, indexed, and variable annuities
o Mutual funds
o Life insurance products
o Retirement plans/IRAs
o Long-term planning
We can provide flexible portfolios with minimal or no transaction fees.
Each portfolio is individualized and simple with no minimum or maximum
requirements to limit your investment opportunities. Developing long-term
financial plans for retirement or college education are just two of the areas in
which Matt and his staff specialize. Matt works closely with his clients,
meeting with them a minimum of twice per year to review investment strategies.
SSB's financial services unit is responsible for clients' funds in excess
of $35 million. We offer low-cost personalized stock trading with flexible
service hours to meet the demands of an active schedule. Forging partnerships
with clients, our financial services team proficiently advises on the
investments of our customers to assist our clients in achieving their financial
objectives.
6
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<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
----------------------------------------
[IMAGES OMITTED]
In 1999, SSB introduced online banking
with the ssbonline.com website, pictured
above, and the new SSB ATM/Debit card,
pictured below, which gives customers
the flexibility of a traditional ATM
card with the added purchase power of
the MasterCard logo.
----------------------------------------
21ST CENTURY BANKING
In the year 2000, SSB will remain committed to providing its customers with
distinguished service and the latest technologies. This strategy of combining
personal attention with convenient products and services has been the driving
force of success. The past year was no exception, with the bank introducing the
new SSB ATM/Debit card and launching an online banking service program.
- ---------------
[IMAGE OMITTED]
- ---------------
In August, SSB initiated a campaign to replace existing ATM cards for
checking account customers with the SSB MasterMoney card. The new offering
provided customers all the benefits of a traditional ATM card with the added
convenience to pay for purchases at over 15 million places worldwide that accept
MasterCard.
Another initiative SSB implemented at the end of 1999 was the introduction
of netBanking. NetBanking customers obtain access to pay all their bills online.
Automatic weekly or monthly bill payment schedules may be established as well as
one-time bill paying. Customers may also view account information, access online
statements, transfer funds between accounts or establish automatic transfers,
and reorder checks. With the launch of netBanking, SSB can now offer its
consumer and business customers the same convenience of an online service
provided by much larger financial institutions.
Glancing ahead, SSB intends to maximize its Internet presence in the near
future by adding the ability to apply for loans online, retrieve check images
online, and offer special products or services for netBanking customers.
Attention to technological improvements was a key factor throughout the year and
will continue to be a critical component as the financial industry evolves.
Combining old-fashioned helpfulness and service with state-of-the-art technology
will position SSB as a strong competitor in the retail banking arena.
7
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<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
SERVING THE COMMUNITY
----------------------------------
- ----------------------------- [IMAGE OMITTED]
A BANK IS ONLY AS STRONG AND Richard Fracasso, Executive Vice
VIBRANT AS ITS PEOPLE AND THE President, SSB, and Audrey Brown,
COMMUNITY THAT SURROUNDS IT. Director, Southington Public
Library, are pictured above with a
- ----------------------------- microfiche machine donated to the
library by SSB.
----------------------------------
Being a community bank means forming an affiliation with the cities and
towns that the institution services. It means connecting with residents and
businesses to stay in tune with the needs of the community. SSB is dedicated to
the areas it serves.
SSB continues to be a primary supporter of the United Way of Southington
and Wallingford through corporate donations, bank sponsorships, and employee
contributions. Many of our directors, officers, and staff are very involved in a
broad array of civic and charitable activities in the greater Southington and
Wallingford areas. Another service organization that SSB aids annually is the
YMCA. Assisting on a local level, the Southington community YMCA benefits from
SSB's association with the group and the common belief that building strong
children and families is the foundation for strong communities. SSB continually
exhibits its affinity for the youth of our community. Maintaining a unique,
limited access training branch at Southington High School and working with
school-affiliated groups like the Distributive Education Club of America (DECA),
SSB clearly demonstrates the significance of investment in our youth.
Supporting local community and civic groups has become an extension of
SSB's business philosophy over the years. Working with organizations in our
market, like the Employment Development Center (EDC), making decisions at the
local level, and being actively involved in area chambers of commerce are all an
integral part of who we are.
--------------------------------------------------------------
(from left to right): Robert Morton,
President and Chief Executive Officer,
[IMAGE OMITTED] SSB, and Donna Ierardi, Branch Manager,
Wallingford, SSB, present William
Wadsworth, representing the Wallingford
Foundation, with a check for $5,000.
--------------------------------------------------------------
8
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<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
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 financial statements
and other financial data presented elsewhere herein.
The Bank's results of operations depend primarily upon its net interest
income, which is 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 affected by the provision for loan
losses as well as the fees it charges for its financial services, security gains
and losses, administrative and foreclosed real estate expenses, and the
provision for income taxes.
The Bank has two subsidiaries, BCI Financial Corporation ("BCIF") and SSB
Mortgage Corporation. BCIF is an indirect auto finance company which commenced
operations April 23, 1998. SSB Mortgage Corporation is a passive investment
company which was formed during the fourth quarter of 1998 to take advantage of
changes in Connecticut State tax statutes, which reduced the Corporation's
effective tax rate beginning in 1999.
INVESTMENTS
Securities available-for-sale decreased $2,838,000 or 1.31% to $214,495,000
as of December 31, 1999 from $217,333,000 at year-end 1998. A reduction in the
market value of the portfolio in the amount of $18,842,000, as a result of
rising interest rates, was the primary cause of the decrease in securities
available-for-sale. Net unrealized gains totaled $1,251,000 as of December 31,
1998 compared to net unrealized losses of $17,591,000 as of December 31, 1999.
Purchases of securities net of proceeds from maturities and sales (excluding
realized gains) and paydowns on mortgage-backed securities amounting to
$13,025,000 partially offset the decrease in the securities portfolio.
Deferred income taxes increased $6,634,000 to $8,535,000 as of December 31,
1999 from $1,901,000 as of December 31, 1998 mainly as a result of the tax
benefit associated with the $18,842,000 increase in unrealized losses in the
securities portfolio noted above.
As of December 31, 1999, approximately 58.3% or $27,500,000 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 dividends received deduction in
1999, and Federal and state dividends received deduction in 1998 and 1997.
The following table sets forth the carrying amount of securities
available-for-sale at the dates indicated.
December 31,
------------------------------
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
United States Government and agency obligations $ 49,928 $ 47,755 $ 27,617
Municipal bonds 5,232 3,683 3,432
Corporate bonds 923 -- --
Mortgage-backed securities 83,568 93,132 65,496
Capital trust preferreds 26,599 12,966 4,052
Marketable equity securities 47,192 59,203 61,815
Mutual funds 1,053 594 4,300
- --------------------------------------------------------------------------------
TOTAL $214,495 $217,333 $166,712
================================================================================
LOANS
Loans increased $31,274,000 or 11.0% to $316,093,000 as of December 31,
1999 from $284,819,000 as of December 31, 1998 primarily due to a higher volume
of commercial loan originations and loans closed by BCIF, the Bank's indirect
auto loan financing subsidiary. Commercial loans and commercial real estate
loans increased $19,545,000 or 22.9% and represented 33.2% of the loan portfolio
as of December 31, 1999. Consumer loans increased $17,552,000 or 30.0% primarily
due to loans closed by BCIF. As of December 31, 1999, the consumer loan
portfolio of $76,112,000 consisted of 42.7% of home equity loans and lines of
credit, 48.9% automobile loans and 8.4% other consumer loans.
At year-end 1999, loans collateralized by residential real estate,
including home equity loans and lines of credit, represented 52.0% of the total
loan portfolio.
9
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<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
The following table summarizes the Bank's loan portfolio at the end of the
last five years.
December 31,
----------------------------------------------------
(in thousands) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Commercial $ 56,828 $ 42,837 $ 37,292 $ 37,050 $ 31,971
Commercial real estate 47,961 42,407 39,043 35,472 34,598
Residential real estate 131,942 137,326 134,494 134,000 132,566
Real estate construction 3,250 3,689 3,003 6,234 2,463
Consumer 76,112 58,560 47,872 39,388 35,556
- --------------------------------------------------------------------------------
TOTAL $316,093 $284,819 $261,704 $252,144 $237,154
================================================================================
The following table shows the maturity and repricing of loans (excluding
commercial and residential real estate mortgages and consumer loans outstanding)
as of December 31, 1999. Also provided are the amounts due after one year
classified according to the sensitivity to changes in interest rates.
Maturing or Repricing
--------------------------------------------
After one
Within but within After five
(in thousands) one year five years years Total
- --------------------------------------------------------------------------------
Commercial $37,344 $17,209 $ 2,275 $56,828
Real estate construction 3,250 -- -- 3,250
- --------------------------------------------------------------------------------
TOTAL $40,594 $17,209 $ 2,275 $60,078
================================================================================
Loans maturing/repricing after
one year with:
Fixed interest rates $10,482 $2,275
Variable interest rates 6,727 --
- --------------------------------------------------------------------------------
TOTAL $17,209 $2,275
================================================================================
NONPERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
Total nonperforming assets remained unchanged at $1,599,000 at year-end
1999 compared to 1998. Nonperforming loans increased to $1,404,000 as of
December 31, 1999 or 0.4% of total loans as compared to $1,265,000 or 0.4% of
total loans as of December 31, 1998. Foreclosed real estate at year-end 1999
declined to $195,000 from $334,000 at year-end 1998.
The following table reflects the Bank's nonperforming assets at the end of
the last five years.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
(dollars in thousands) 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans
Commercial $ 420 $ 60 $ 387 $ 306 $1,062
Commercial real estate -- 402 258 337 1,134
Residential real estate 857 705 1,988 2,060 3,650
Consumer 127 98 228 236 410
- ----------------------------------------------------------------------------------------
Total nonaccrual loans 1,404 1,265 2,861 2,939 6,256
Accruing loans past due 90 days or more -- -- -- -- --
- ----------------------------------------------------------------------------------------
Total nonperforming loans 1,404 1,265 2,861 2,939 6,256
Foreclosed real estate 195 334 1,178 1,367 872
- ----------------------------------------------------------------------------------------
TOTAL NONPERFORMING ASSETS $1,599 $1,599 $4,039 $4,306 $7,128
========================================================================================
Nonperforming loans as a
percentage of total loans 0.44% 0.44% 1.09% 1.17% 2.64%
========================================================================================
Nonperforming assets as a
percentage of total assets 0.28% 0.31% 0.91% 1.03% 1.86%
========================================================================================
Restructured loans in compliance with
modified terms not included above $ 487 -- -- -- --
========================================================================================
</TABLE>
10
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<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
The Bank classifies loans as being on 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 1999, 1998 and
1997 on all nonaccrual loans under the original loan terms was approximately
$183,000, $203,000 and $335,000, respectively. Actual income collected on these
loans during 1999, 1998 and 1997 was $73,000, $90,000 and $201,000,
respectively.
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 estimated that the Bank will be unable to collect
the scheduled payments of principal and interest when due, according to the
existing contractual terms of the loan facility. Generally, nonaccrual loans as
well as loans past due greater than 60 days are reviewed for impairment
including other loans that present a possible credit risk. Homogeneous loans
which consist of residential mortgages and consumer loans are evaluated
collectively and reserves established based on the Bank's historical loss
experience. The measurement of impairment is based on the fair market value of
respective loan collateral and 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, 1999.
Basis of measurement
------------------------------------------
Present value
of expected
Fair value future
(in thousands) of collateral cash flow Total
- --------------------------------------------------------------------------------
Commercial $ 380 $ 94 $ 474
Commercial real estate 1,170 -- 1,170
- --------------------------------------------------------------------------------
TOTAL $1,550 $ 94 $1,644
================================================================================
The Bank also has potential problem loans of $4,405,000 in real estate
loans and $727,000 in other loans that are current or less than 90 days past
due. These loans were not deemed impaired but were considered potential problem
loans. A loan is considered a potential problem loan if it 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, 1999, the allowance was $5,681,000 or 404.6% of nonperforming
loans as compared to $5,549,000 and 438.7% of nonperforming loans as of December
31, 1998.
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. In
addition to the assessment performed by management, the Bank's loan portfolio is
subjected to an external credit review function and is examined by its
regulators. The results of these examinations are incorporated into management's
assessment of the allowance for loan losses.
11
--------
<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
The following table summarizes changes in the allowance for loan losses
arising from loans charged-off and recoveries on loans previously charged-off,
by loan category, and additions to the allowance which have been charged to
expense.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
(dollars in thousands) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 5,549 $ 5,306 $ 4,875 $ 5,488 $ 6,136
Charge-offs:
Commercial (100) -- (94) (446) (227)
Commercial real estate -- -- -- (169) (161)
Residential real estate (238) (29) (219) (264) (341)
Consumer (134) (126) (76) (334) (312)
- --------------------------------------------------------------------------------------
Total (472) (155) (389) (1,213) (1,041)
- --------------------------------------------------------------------------------------
Recoveries:
Commercial 37 30 96 51 98
Commercial real estate -- -- 18 20 --
Residential real estate 2 35 14 8 2
Consumer 74 65 92 86 113
- --------------------------------------------------------------------------------------
Total 113 130 220 165 213
- --------------------------------------------------------------------------------------
Net charge-offs (359) (25) (169) (1,048) (828)
Provision for loan losses 491 268 600 435 180
- --------------------------------------------------------------------------------------
Balance at end of year $ 5,681 $ 5,549 $ 5,306 $ 4,875 $ 5,488
======================================================================================
Ratio of net charge-offs to
average loans outstanding 0.12% 0.01% 0.07% 0.43% 0.36%
======================================================================================
</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>
December 31,
-------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
to Total to Total to Total to Total to Total
(dollars in thousands) Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $1,309 18% $1,343 15% $1,194 14% $1,162 15% $1,209 13%
Commercial real estate 795 15 847 15 804 15 752 14 803 15
Residential real estate 526 42 559 48 652 52 659 53 367 56
Real estate construction 46 1 48 1 38 1 83 2 35 1
Consumer 1,425 24 962 21 756 18 620 16 541 15
Unallocated 1,580 -- 1,790 -- 1,862 -- 1,599 -- 2,533 --
- ----------------------------------------------------------------------------------------------------------------------
TOTAL $5,681 100% $5,549 100% $5,306 100% $4,875 100% $5,488 100%
======================================================================================================================
</TABLE>
DEPOSITS
Total deposits as of December 31, 1999 in the amount of $348,441,000
remained relatively unchanged compared to the $347,410,000 as of December 31,
1998. Decreases in money market savings and certificates of deposit of
$7,493,000 and $3,488,000, respectively, were offset by an increase in demand
and NOW accounts of $4,649,000 and $6,852,000, respectively. The increase in NOW
accounts principally reflects an increase in the Bank's money fund checking
product that pays a rate of interest comparable to rates paid on similar
products at other banks.
Time certificates of deposit, which range from terms of 3 months to 5
years, declined $3,488,000 or 2.2% at year-end 1999 compared to 1998. As of
December 31, 1999, approximately 74.6% of the certificates of deposit either
mature or reprice within one year. At this time, the Bank does not utilize
brokered deposits as a funding source.
12
--------
<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
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) 1999 1998 1997
- ----------------------------------------------------------------------------------------------
Amount Rate Amount Rate Amount Rate
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 35,201 0.00% $ 31,576 0.00% $ 23,368 0.00%
NOW accounts 46,893 2.77 32,846 2.94 19,301 2.35
Regular savings 69,669 2.01 65,778 2.07 62,758 2.26
Money market savings 35,999 3.31 36,555 3.54 33,950 3.34
Certificates of deposit 156,879 4.86 163,196 5.33 171,471 5.45
Club accounts 464 3.02 435 2.99 426 3.29
- ---------------------------------------------- -------- --------
TOTAL $345,105 $330,386 $311,274
============================================== ======== ========
</TABLE>
Maturities of time certificates of deposit in amounts of $100,000 or more
outstanding as of December 31, 1999 are summarized as follows:
(in thousands)
-------------------------------------------
3 months or less $ 6,495
Over 3 months through 6 months 6,013
Over 6 months through 12 months 4,703
Over 12 months 3,784
-------------------------------------------
TOTAL $20,995
===========================================
BORROWINGS
Federal funds purchased and securities sold under agreements to repurchase
increased $6,283,000 or 7.8% to $86,799,000 at year-end 1999 as compared to
year-end 1998. 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 9 years; however, those with terms of 3 years or
greater may be callable 1 year after issuance by the broker/dealer. Retail
repurchase agreements are offered primarily to commercial customers as a method
of providing collateral for funds that exceed the maximum regulatory insurance
coverage. As of December 31, 1999, broker/dealer repurchase agreements and
retail repurchase agreements totaled $67,880,000 and $16,819,000, respectively.
The Bank also uses the Federal Home Loan Bank of Boston and the Federal
Reserve Bank of Boston as sources of funds. Advances (i.e. borrowings) are used
primarily to match certain loan originations and securities purchases, to manage
the maturities of interest-bearing liabilities, and to meet certain short-term
liquidity needs as part of the Bank's overall asset/liability management
strategy. Federal Home Loan Bank advances totaled $72,830,000 at year-end 1999
as compared to $40,630,000 at year-end 1998. Federal Reserve Bank advances were
$11,500,000 as of December 31, 1999. There were no Federal Reserve Bank advances
outstanding as of year-end 1998.
ASSET/LIABILITY MANAGEMENT AND INTEREST RATE 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.
Interest rate risk is managed within an overall asset/liability framework
for the Bank. The Bank's assets and liabilities are managed 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.
13
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BANCORP CONNECTICUT, INC.
Management establishes overall policy and interest rate risk tolerance levels
which are administered by the Bank's Asset/Liability Management 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 made on the rate of prepayment of principal on
loans and mortgage-backed securities. 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,
1999, rate-sensitive liabilities exceeded rate-sensitive assets in a one-year
time frame by $74,808,000 or 13.2% 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 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. Various assumptions
regarding the shape of the yield curve, the pricing characteristics of loan and
deposit products and borrowings 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 twelve months from a
change in interest rates of 200 basis points is within the 10% tolerance limit
set by management.
Change in Rate % Change in Net Interest Income
- -------------------------------------------------
+200 bp -4.01%
- -200 bp 0.45%
Due to the numerous assumptions built into the simulation model, actual
results 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, an
increase in competitive pricing 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. Interest rate swaps may also be used to correct interest rate
mismatches. Strategies utilized in 1999 include the sale of fixed rate newly
originated 30-year mortgages into the secondary mortgage market with servicing
released, the addition of intermediate term fixed rate home equity and
automobile loans and the promotion of the Bank's money fund checking product. In
addition, to increase net interest income, in 1998 the Bank purchased $43
million of U. S. Government and agency obligations, including mortgage
participation certificates, which were funded by repurchase agreements and
Federal Home Loan Bank borrowings.
The Bank maintains a trading account, designated as trading securities, for
the purpose of generating gains on short-term fluctuations in the market price
of bond and equity securities. The Bank's Board of Directors approves trading
policy limits, which include the type of securities that 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 losses exceed the predetermined loss limit, trading activity will
cease and will not resume until the Board approves continuance.
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BANCORP CONNECTICUT, INC.
INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------------------------------------------
1-3 4-6 7-12 1-5 5+
(dollars in thousands) months months months years years Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets subject to interest rate adjustment:
Short-term investments $ -- $ -- $ -- $ -- $ 348 $ 348
Investment securities 38,903 1,793 6,514 30,218 143,489 220,917
Adjustable rate mortgages 20,624 12,804 28,040 50,056 -- 111,524
Fixed rate mortgages 6,917 3,497 6,745 35,260 25,886 78,305
Consumer and commercial loans 49,246 4,320 11,283 51,061 10,378 126,288
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RATE-SENSITIVE ASSETS $ 115,690 $ 22,414 $ 52,582 $166,595 $180,101 $537,382
=====================================================================================================================
Liabilities subject to interest rate adjustment:
NOW accounts $ 27,781 $ -- $ -- $ -- $ 21,599 $ 49,380
Regular savings -- -- -- -- 69,534 69,534
Federal funds purchased and
repurchase agreements 18,919 2,880 -- 40,000 25,000 86,799
Money market deposits 31,947 -- -- -- -- 31,947
Certificates of deposit 43,455 44,048 29,464 39,830 -- 156,797
Other borrowings 25,000 12,000 30,000 5,830 10,000 82,830
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RATE-SENSITIVE LIABILITIES $ 147,102 $ 58,928 $ 59,464 $ 85,660 $126,133 $477,287
=====================================================================================================================
Excess (deficiency) of rate-sensitive assets
over rate-sensitive liabilities $ (31,412) $(36,514) $ (6,882) $ 80,935 $ 53,968 $ 60,095
- ---------------------------------------------------------------------------------------------------------------------
Cumulative excess (deficiency) $ (31,412) $(67,926) $(74,808) $ 6,127 $ 60,095
==========================================================================================================
Cumulative rate-sensitive assets as a
percentage of rate-sensitive liabilities 78.6% 67.0% 71.8% 101.7% 112.6%
Cumulative excess (deficiency) as a
percentage of total assets (5.5)% (11.9)% (13.2)% 1.1% 10.6%
==========================================================================================================
Excluding regular savings:
Excess (deficiency) of rate-sensitive assets
over rate-sensitive liabilities $ (31,412) $(36,514) $ (6,882) $ 80,935 $123,502 $129,629
- ---------------------------------------------------------------------------------------------------------------------
Cumulative excess (deficiency) $ (31,412) $(67,926) $(74,808) $ 6,127 $129,629
==========================================================================================================
Cumulative rate-sensitive assets as a
percentage of rate-sensitive liabilities 78.6% 67.0% 71.8% 101.7% 131.8%
Cumulative excess (deficiency) as a
percentage of total assets (5.5)% (11.9)% (13.2)% 1.1% 22.8%
==========================================================================================================
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Liquidity represents the ability of the Bank to meet customer loan demand,
depositor requests for withdrawals and pay operating expenses. The Bank's
sources of funding are from deposit growth, loan repayments, borrowings,
maturities, prepayment and sales 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 (the "FHLB"), of which it is a member. The Bank is eligible to
borrow against its assets in an amount not to exceed collateral as defined by
the FHLB. As of December 31, 1999, qualified collateral totaled $117,842,000.
The Bank's actual borrowings on that date were $72,830,000.
As of December 31, 1999, the Bank had liquid assets consisting of cash,
Federal funds sold, money market preferred stock and unpledged U.S. Government
and agency obligations totaling $56,905,000 or 10.0% of total assets, indicating
an acceptable level of liquid assets and within the Bank's policy limits. The
Bank also had additional marketable equity securities with a market value of
$16,499,000 that could be converted to cash if necessary. As of December 31,
1999, commitments to extend credit totaled $41,126,000 as compared to
$33,683,000 as of December 31, 1998.
The Corporation's improvement in earnings during 1999 led to an increase in
dividend payments to shareholders. Dividends paid in 1999 totaled $3,088,000 or
$0.60 per share as compared to $2,773,000 or $0.54 per share in 1998. See Note 9
of Notes to Consolidated Financial Statements for a description of the
applicable restrictions on the Corporation's ability to pay dividends.
Shareholders' equity at year-end 1999 decreased to $41,532,000 as compared
to $49,916,000 as of the prior year-end primarily as a result of the $12,436,000
increase in unrealized losses, net of tax benefits, in the security portfolio.
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, 1999, the Bank had a leverage capital ratio of
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BANCORP CONNECTICUT, INC.
8.30%, a tier one risk-based capital ratio of 13.04% and a total risk-based
capital ratio of 14.29% as compared to 9.48%, 16.02% and 17.27% for 1998,
respectively. With the exception of marketable equity securities, the Bank's
regulatory capital is not affected by changes in unrealized gains or losses in
its securities portfolios.
YEAR 2000
PROJECT PLAN
Management recognized the major impact the Year 2000 computer chip problem
would have on all corporations doing business. The following plan was
implemented to identify critical systems that had to be modified to avoid any
disruption of daily business. The implementation of the project plan has been
successfully completed.
AWARENESS PHASE: Management created a Year 2000 project team to develop an
overall Year 2000 strategy, provide education to employees and to establish
corporate accountability. The awareness phase was completed February 28, 1998.
RISK ASSESSMENT PHASE: Beginning in March 1998, an assessment of all
hardware, software, networks and other processing platforms was performed. Year
2000 problems were identified and mission critical applications prioritized. In
July 1998, the Bank completed the conversion to a new core processing system
utilizing Jack Henry & Associates software and IBM AS400 hardware, both of which
have been certified Year 2000 compliant. This new data processing solution
addressed many of the Bank's mission critical applications. The risk assessment
phase included the development of contingency plans for all mission critical
applications. The risk assessment phase was completed on December 31, 1998 and
the contingency plan was completed by June 30, 1999.
RENOVATION PHASE: Management established a December 31, 1998 target date
for replacement or modification of the Bank's mission critical internal
applications to allow for a full year of testing. This phase was essentially
completed ahead of time with the replacement of the core data processing system.
VALIDATION PHASE: This phase provides for the testing of hardware,
software, interfaces and integration with other systems. It also included
testing and certifying third parties for Year 2000 readiness. The Bank's new
core processing system has been certified Year 2000 compliant by its
manufacturer. However, the Bank performed its own independent tests rather than
utilize proxy testing results from the vendor. In addition, the Bank retained
the services of an independent party to review overall plan effectiveness and
the results of testing. The validation phase on all critical systems was
completed by June 30, 1999.
IMPLEMENTATION PHASE: As applications became certified they were considered
to be placed into service. Management assessed the impact of any system failing
the certification tests and implemented the contingency plan developed for that
application. The Bank's primary internal technological systems including core
processing system, teller equipment and local area network have already been
placed in service. Implementation of all critical systems was completed by June
30, 1999.
COSTS
In 1997, the Bank completed an extensive analysis of its data processing
systems and decided to bring its core processing system in-house rather than
continue in a service bureau relationship environment. The decision to move to
an in-house solution was primarily based on the improved operating
effectiveness, enhanced new product development and expanded management
reporting the new system could provide. However, the additional benefit of the
decision was the purchase of a mainframe computer, banking software and
peripheral devices that have already been certified Year 2000 compliant. The
cost of the new software and hardware (which includes all new teller equipment)
acquired for the July 1998 conversion totaled $1,991,000. The cost has been
capitalized and is being depreciated over the useful lives of the assets.
Related amortization and depreciation amounts to approximately $437,000 per
year.
The Corporation does not separately track the internal costs associated
with its Year 2000 readiness project, and such costs are primarily the portion
of an employee's time spent on Year 2000 related issues.
Year 2000 external readiness costs, consisting primarily of labor costs in
the testing and validation of systems, professional consulting costs and
marketing costs to keep customers informed of Year 2000 progress, approximated
$100,000 in 1999. The Bank does not expect to incur any additional significant
Year 2000 costs.
RISKS AND CONTINGENCIES
Based upon a self-assessment of its current Year 2000 readiness, management
believed that the greatest Year 2000 uncertainties and exposures were not within
its own technological systems but within its third-party vendor relationships
and its commercial borrowers. Since the Year 2000 date change, there have been
no technological problems with third-party vendors and the Bank's loan portfolio
has not been adversely affected by Year 2000 issues related to its commercial
borrowers.
As of year-end 1998, the Bank had devoted the majority of its efforts to
convert to the new core processing system. Since the Year 2000 date change, the
Bank has not experienced any disruptions to customer service or system failures
related to its core processing system.
The Bank is also subject to the safety and soundness standards for Year
2000 readiness established by the Federal Deposit Insurance Corporation and the
State of Connecticut Banking Department and has completed the Phase 2
examinations by these agencies to date. Management believes it has complied with
all standards set forth by the regulatory agencies.
COMPARISONS OF YEARS ENDED DECEMBER 31, 1999 AND 1998
OVERALL
For the year 1999, the Corporation reported net income of $7,620,000 as
compared to $6,345,000 in 1998, an increase of 20.1%. On a diluted per common
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BANCORP CONNECTICUT, INC.
share basis, the Corporation earned $1.38 per share in 1999 compared to $1.14
per share in 1998. A higher base of earning assets led by loan growth, increased
net interest income and noninterest sources of revenue partially offset by
increases in noninterest expenses and a reduced effective tax rate resulting
from the formation of a passive investment company were principally responsible
for the improved operating results. Net income generated an annual return on
average assets of 1.40% for 1999 as compared to 1.28% for 1998 while the return
on average equity rose to 16.12% from 13.07% the previous year.
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
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 $54,136,000 or 11.3% to
$532,477,000 for 1999 from $478,341,000 in 1998. This increase was mainly due to
a rise in the average volume of the loan portfolio of $37,842,000 and to a
lesser extent a $16,294,000 higher average volume of the invested funds
portfolio.
For the year ended December 31, 1999, net interest income, on a tax
equivalent basis, increased $2,010,000 or 11.1% compared to the previous year
primarily as a result of the $37,842,000 increase in the average volume of the
loan portfolio. In addition, average noninterest-bearing demand deposits
increased by $3,625,000 or 11.5% during 1999 compared to 1998 which helped
reduce the average cost of funds and thus had a positive effect on net interest
income.
The decline in the overall yield on earning assets was proportionately
offset by the decrease in interest rates on sources of funds which resulted in
the interest rate spread, on a tax equivalent basis, remaining relatively
unchanged at 3.21% for 1999 compared to 3.18% for 1998. Similarly, the ratio of
net interest income, on a tax equivalent basis, to average interest-earning
assets was 3.79% for 1999 compared to 3.80% for 1998.
PROVISION FOR LOAN LOSSES
The provision for loan losses for 1999 was $491,000 compared to $268,000 in
1998, an increase of 83.2%. Management determines the provision for loan losses
based upon an evaluation of the credit risk associated with the portfolio,
current market conditions, the level of the allowance for loan losses as
compared to nonperforming loans and related collateral, the amount of
charge-offs during the year and other relevant factors.
Net loan charge-offs for 1999 totaled $359,000 compared to $25,000 for
1998. The allowance for loan losses was $5,681,000 or 1.8% of outstanding loans
as of December 31, 1999 compared to $5,549,000 or 1.9% as of year-end 1998.
Nonperforming loans were $1,404,000 as of December 31, 1999 and $1,265,000 as of
December 31, 1998, representing 0.44% of outstanding loans at the end of each
year. As of December 31, 1999, the ratio of loan loss reserves to nonperforming
loans was 404.6% as compared to 438.7% for year-end 1998.
Management increased the provision for loan losses during 1999 compared to
1998 in light of the increased charge-offs during the year and growth in the
loan portfolio.
NONINTEREST INCOME
Noninterest income increased $268,000 or 7.7% to $3,732,000 in 1999 as
compared to $3,464,000 for 1998. During the third quarter of 1999, a gain in the
amount of $356,000 was realized from the sale of the Bank's trust operations.
This gain was approximately offset by security losses resulting from a
restructuring of a portion of the securities portfolio. Excluding this gain and
the $767,000 decrease in net securities gains in 1999 compared to 1998,
noninterest income rose $679,000 or 31.0%. This increase was primarily the
result of a $191,000 increase in option call premiums, increased fee income of
$290,000 from the sale and servicing of loans generated by BCIF as well as
increased insurance fees recorded by the Bank in the amount of $119,000.
NONINTEREST EXPENSE
Noninterest expenses increased $1,637,000 or 15.7% in 1999 as compared to
1998. Salaries and benefits rose $1,050,000 or 18.6% in 1999 as compared to
1998. This increase reflects higher staffing levels due to the start-up of BCIF
and the new Wallingford branch facility during the second and third quarters of
1998, respectively, and scheduled employee annual salary increases. In addition,
higher group medical, group life insurance and retirement benefit costs in the
amount of $268,000 as well as increased expense from the utilization of
temporary employees during 1999 in the amount of $41,000 contributed to the
higher level of employee expense.
Expenses related to furniture and equipment totaled $999,000 in 1999
compared to $799,000 the prior year, an increase of $200,000 or 25.0%. Higher
depreciation and computer maintenance charges in 1999 of $219,000 and $84,000,
respectively, related to the Bank's maintenance of its new in-house core
processing system were partially offset by 1998 charges for scrapped data
processing equipment with a remaining book value of $57,000 and an unusable
software write-off in the amount of $49,000.
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BANCORP CONNECTICUT, INC.
Data processing expenses decreased by $134,000 or 19.4% to $557,000 in 1999
compared to $691,000 in 1998. This decrease was primarily due to the change to a
new in-house core processing system from a service bureau environment in 1998.
Foreclosed real estate expense increased $187,000 in 1999 to $110,000
compared to a net recovery of $77,000 in 1998. This increase was primarily due
to gains on the sale of foreclosed properties in 1998 of $210,000 compared to
$18,000 in 1999.
The 1999 increase in other noninterest expenses of $281,000 or 12.0%
reflected a net increase in a number of miscellaneous expense categories as
compared to 1998.
PROVISION FOR INCOME TAXES
The provision for income taxes for the years ended December 31, 1999 and
1998 was $2,921,000 and $3,292,000, respectively, representing effective tax
rates of 27.7% and 34.2%, respectively. In 1998, the Corporation recorded a
$242,000 income tax credit as a result of the receipt of an income tax
settlement from the State of Connecticut for the tax years 1992 through 1994 and
a $337,000 charge related to the recording of a state deferred tax asset
valuation allowance due to the establishment of a passive investment company as
discussed below. The effective income tax rate for 1998 exclusive of these items
was 33.2%. The effective income tax rates are below statutory rates primarily as
a result of the dividends received deduction and, in 1999, the establishment of
the passive investment company.
As of December 31, 1999, the Corporation had a net deferred tax asset of
$8,535,000 which was comprised of two separate components. A deferred tax asset
based on the tax effect of the net unrealized holding losses in the
Corporation's available-for-sale investment portfolio totaling $5,981,000. The
change in this component directly impacts shareholders' equity. In addition, a
net 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 $2,554,000. The change in this
component directly impacts earnings. As of year-end 1999 and 1998, the
Corporation has recorded no valuation allowance against Federal deferred tax
assets. A valuation allowance is not considered necessary for Federal purposes
based on sufficient available Federal taxable income in the carryback period.
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 requirements),
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. The creation of
the PIC required the recording of a valuation allowance of $477,000 against the
Bank's deferred Connecticut tax asset and a related increase in income tax
expense of $337,000 for the fourth quarter of 1998. Subsequently, for tax years
beginning January 1, 1999, the Corporation's effective state tax rate has been
eliminated resulting in the reduced effective tax rate for 1999 compared to the
same period in 1998.
COMPARISONS OF YEARS ENDED DECEMBER 31, 1998 AND 1997
OVERALL
For 1998, the Corporation had net income of $6,345,000 as compared to
$5,896,000 in 1997, an increase of 7.6%. The increase was primarily due to
higher net interest income and net security gains partially offset by increases
in noninterest expenses and establishment of a valuation allowance against state
deferred tax assets as a result of creating a passive investment company (see
"Provision for Income Taxes" and Note 11 of Notes to Consolidated Financial
Statements). Net income generated an annual return on average assets of 1.28%
for 1998 as compared to 1.39% for 1997. Return on average equity for 1998 was
13.07% as compared to 13.48% for 1997.
INTEREST INCOME
Interest income increased $3,442,000 or 10.8% to $35,345,000 in 1998 as
compared to $31,903,000 in 1997. This increase was attributed to a 15.7%
increase in average interest-earning assets partially offset by lower yields on
taxable investment securities, resulting in the tax equivalent yield on total
interest-earning assets decreasing to 7.67% for 1998 as compared to 8.06% for
1997.
INTEREST EXPENSE
Interest expense increased $2,280,000 or 14.1% to $18,506,000 in 1998 as
compared to $16,226,000 for 1997. The rise in interest expense was largely due
to a 15.7% increase in average interest-bearing liabilities, partially offset by
a reduction in the rates paid primarily resulting from a decline in the general
level of interest rates. In addition, a greater utilization of repurchase
agreements and FHLB borrowings as a funding source caused the cost of funds to
decrease slightly to 4.49% for 1998 as compared to 4.56% for 1997 as the average
rates on these borrowings declined 4 basis points and 9 basis points,
respectively, from 1997 average rates.
NET INTEREST INCOME
Net interest income increased $1,162,000 or 7.4% in 1998 as compared to
1997. The tax equivalent net interest margin for 1998 was 3.80%, down from 4.13%
in 1997.
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BANCORP CONNECTICUT, INC.
PROVISION FOR LOAN LOSSES
The provision for loan losses for 1998 was $268,000 as compared to $600,000
in 1997, a decrease of 55.3%. 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 decrease in the provision for
1998 is commensurate with the reduction in nonperforming loans to $1,265,000 at
December 31, 1998 from $2,861,000 at December 31, 1997, representing 0.44% and
1.09% of total loans, respectively. Net charge-offs for 1998 declined to $25,000
as compared to $169,000 for 1997. As of December 31, 1998, the ratio of loan
loss reserves to nonperforming loans was 438.7% as compared to 185.5% for
year-end 1997.
NONINTEREST INCOME
Noninterest income increased $1,141,000 or 49.1% to $3,464,000 in 1998 as
compared to $2,323,000 for 1997. The increase was primarily the result of a
$433,000 or 51.6% increase in investment securities gains partially offset by a
$190,000 or 182.7% decrease in net trading account gains. Favorable market
conditions and a strategic shift in the mix of securities contributed to the
higher level of net realized security gains. A higher level of assets under
management and an increase in estate settlement fees resulted in trust fees
increasing $134,000 or 27.5% from the prior year. Brokerage fees increased
$272,000 or 191.5% for 1998 as compared to 1997 due to higher sales volume and
greater fee retention.
NONINTEREST EXPENSE
Noninterest expenses increased $1,697,000 or 19.5% in 1998 as compared to
1997. Salaries and benefits rose $859,000 or 17.9% primarily from higher
brokerage commissions attributed to higher sales volume, staff additions from
the start-up of BCIF and the new Wallingford branch facility and temporary
employee cost associated with the conversion process. Furniture and equipment
expense increased $284,000 or 55.3% due to higher depreciation charges and the
write-off of data processing equipment as a result of the Bank's installation of
the new in-house core processing system. Data processing expense rose to
$691,000, an increase of $123,000 or 21.7%, due to the conversion to and
outsourcing of check image processing and proof of deposit. Advertising expense
increased $99,000 or 26.9% as compared to 1997 due to the promotion of the
Bank's demand deposit image statements, money fund checking product and new
branch facility. Other noninterest expense increased $456,000 or 27.1%,
reflecting increased fees for professional services, printing and form supplies,
telephone expense, postage and a number of miscellaneous expense categories. The
increases in these expense categories are largely associated with BCIF, the
Wallingford facility and data processing. Noninterest expenses in 1998 benefited
from a reduction of $124,000 or 263.8% in foreclosed real estate expenses,
resulting from fewer properties under management and gains on sales of
foreclosed properties.
PROVISION FOR INCOME TAXES
The provision for income taxes increased to $3,292,000 in 1998 from
$2,803,000 in 1997. The increase was primarily due to the generation of income
before taxes of $9,636,000 in 1998 as compared to $8,698,000 earned in 1997 and
a $337,000 charge related to the recording of a state deferred tax asset
valuation allowance due to the establishment of a passive investment company. As
a result, the effective income tax rates for 1998 and 1997 were 34.2% and 32.2%,
respectively, and were lower than the expected statutory rate due to the Federal
and state dividends received deduction and the Federal tax-exempt status of the
Bank's municipal bond investments.
As of December 31, 1998, the Corporation had a net deferred tax asset of
$1,901,000 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 $425,000. 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 $2,326,000. The change in this
component directly impacts earnings. As of year-end, the Corporation has
recorded no valuation allowance against Federal deferred tax assets. A valuation
allowance is not considered necessary for Federal purposes based on sufficient
available Federal taxable income in the carryback period.
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. The impact of inflationary/deflationary pressures are
considered in the Bank's allowance for loan losses. See Nonperforming Assets and
Allowance for Loan Losses.
19
--------
<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
ACCOUNTING PRONOUNCEMENTS
In June 1999, the FASB issued Statement of Financial Accounting Standards
No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral
of the Effective Date of FASB Statement No. 133" ("SFAS 137"). SFAS 137 delays
the effective date for the implementation of FASB Statement No. 133 to fiscal
years beginning after December 15, 2000 (January 1, 2001 for the Corporation)
and requires all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivative instruments are to be
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. Management anticipates that the
adoption of SFAS 133 will not have a significant effect on the Corporation's
results of operations or its financial position because the Corporation
presently does not hold or utilize any derivative instruments.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY: INTEREST RATES AND
INTEREST DIFFERENTIAL
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate (c) Balance Interest Rate (c) Balance Interest Rate (c)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans (a)(b) $303,161 $24,303 8.02% $265,319 $22,617 8.52% $256,944 $22,255 8.66%
Taxable investment securities (c) 215,156 14,353 6.67 201,542 13,372 6.63 146,263 10,469 7.16
Municipal bonds (c) 4,184 299 7.15 3,446 243 7.05 3,287 232 7.06
Federal funds sold 6,434 325 5.05 5,028 267 5.31 3,859 207 5.36
Other interest-earning assets 3,542 221 6.24 3,006 182 6.05 2,917 145 4.97
- ------------------------------------------------------ ----------------- -----------------
TOTAL INTEREST-EARNING ASSETS 532,477 39,501 7.42 478,341 36,681 7.67 413,270 33,308 8.06
- ------------------------------------------------------ ------- -------
Noninterest-earning assets 12,920 15,556 11,967
- --------------------------------------------- -------- --------
TOTAL ASSETS $545,397 $493,897 $425,237
============================================= ======== ========
LIABILITIES AND EQUITY
Interest-bearing liabilities:
NOW and savings deposits $152,561 3,891 2.55 $135,179 3,625 2.68 $116,009 3,008 2.59
Time deposits 157,343 7,646 4.86 163,631 8,703 5.32 171,897 9,356 5.44
FHLB of Boston advances 54,790 2,866 5.23 32,525 1,795 5.52 24,805 1,491 6.01
Other borrowings 93,881 4,913 5.23 80,592 4,383 5.44 43,244 2,371 5.48
- ------------------------------------------------------ ----------------- -----------------
TOTAL INTEREST-BEARING LIABILITIES 458,575 19,316 4.21 411,927 18,506 4.49 355,955 16,226 4.56
- ------------------------------------------------------ ------- -------
Noninterest-bearing liabilities:
Demand deposits 35,201 31,576 23,368
Other 4,348 1,860 2,173
Shareholders' equity 47,273 48,534 43,741
- --------------------------------------------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $545,397 $493,897 $425,237
============================================= ======== ========
Net interest income before
Federal tax equivalent adjustment 20,185 18,175 17,082
Federal tax equivalent adjustment (850) (1,336) (1,405)
- ------------------------------------------------------ ------- -------
Net interest income $19,335 $16,839 $15,677
====================================================== ======= =======
Net interest spread (tax equivalent basis) 3.21% 3.18% 3.50%
============================================================= ==== ====
Net interest margin (tax equivalent basis) 3.79% 3.80% 4.13%
============================================================= ==== ====
</TABLE>
(a) Average balances for loans include nonaccrual and renegotiated balances.
(b) Included in interest income are loan fees of $392,000, $454,000 and
$387,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
(c) Yields/Rates are calculated on a tax equivalent basis using a Federal
income tax rate of 34% and state income tax rates of 0%, 9.50% and 10.50%,
for the three years ended December 31, 1999, respectively.
20
--------
<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
NET INTEREST INCOME; RATE/VOLUME ANALYSIS
<TABLE>
<CAPTION>
1999 Compared to 1998 1998 Compared to 1997
Increase (Decrease) Due to Increase (Decrease) Due to
- ------------------------------------------------------------------------------------------------
(in thousands) Volume Rate Net (1) Volume Rate Net (1)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans $ 3,090 $(1,404) $ 1,686 $ 718 $ (356) $ 362
Taxable investment securities 908 73 981 3,714 (811) 2,903
Municipal bonds 53 3 56 11 -- 11
Federal funds sold 72 (14) 58 62 (2) 60
Other interest-earning assets 33 6 39 5 32 37
- ------------------------------------------------------------------------------------------------
Total interest income 4,156 (1,336) 2,820 4,510 (1,137) 3,373
- ------------------------------------------------------------------------------------------------
Interest paid on:
NOW and savings deposits 450 (184) 266 511 106 617
Time deposits (326) (731) (1,057) (443) (210) (653)
FHLB of Boston advances 1,169 (98) 1,071 434 (130) 304
Other borrowings 701 (171) 530 2,031 (19) 2,012
- ------------------------------------------------------------------------------------------------
Total interest expense 1,994 (1,184) 810 2,533 (253) 2,280
- ------------------------------------------------------------------------------------------------
Change in net interest income $ 2,162 $ (152) $ 2,010 $ 1,977 $ (884) $ 1,093
================================================================================================
</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.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Bancorp Connecticut, Inc.:
In our opinion, the accompanying consolidated statements of condition and
the related consolidated statements of income, shareholders' equity and cash
flows present fairly, in all material respects, the financial position of
Bancorp Connecticut, Inc. and subsidiary at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Hartford, Connecticut
January 20, 2000
21
--------
<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
CONSOLIDATED STATEMENTS OF CONDITION
December 31,
-------------------------
(dollars in thousands) 1999 1998
- -------------------------------------------------------------------------------
ASSETS:
Cash and due from banks $ 13,548 $ 11,163
Interest-bearing deposits with banks 346 15
Federal funds sold 6,725 --
- -------------------------------------------------------------------------------
Cash and cash equivalents 20,619 11,178
- -------------------------------------------------------------------------------
Securities available-for-sale
(at market value) 214,495 217,333
Trading account securities 348 172
Federal Home Loan Bank stock 4,392 2,832
Loans 316,093 284,819
Less:
Deferred loan fees (702) (850)
Allowance for loan losses (5,681) (5,549)
- -------------------------------------------------------------------------------
Net loans 309,710 278,420
- -------------------------------------------------------------------------------
Deferred income taxes 8,535 1,901
Premises and equipment, net 3,971 4,524
Accrued income receivable 3,482 3,077
Foreclosed real estate, net 195 334
Other assets 3,051 1,585
- -------------------------------------------------------------------------------
Total assets $ 568,798 $ 521,356
===============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits $ 348,441 $ 347,410
Funds borrowed 171,129 121,146
Other liabilities 7,696 2,884
- -------------------------------------------------------------------------------
Total liabilities 527,266 471,440
- -------------------------------------------------------------------------------
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 5,830,811 shares in 1999
and 5,653,406 in 1998 5,831 5,653
Additional paid-in capital 18,507 17,421
Retained earnings 36,293 31,761
Accumulated other comprehensive
(loss) income (11,611) 825
Treasury stock at cost:
625,836 shares in 1999
and 519,498 shares in 1998 (7,488) (5,744)
- -------------------------------------------------------------------------------
Total shareholders' equity 41,532 49,916
- -------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 568,798 $ 521,356
===============================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
22
--------
<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31,
--------------------------------
(in thousands, except per share data) 1999 1998 1997
- -------------------------------------------------------------------------------
INTEREST INCOME:
Interest on loans, including fees $ 24,303 $ 22,617 $ 22,255
- -------------------------------------------------------------------------------
Interest and dividends on
investment securities:
Interest income 11,520 9,074 6,128
Dividend income 2,282 3,216 3,147
Interest on trading account 7 12 30
- -------------------------------------------------------------------------------
13,809 12,302 9,305
- -------------------------------------------------------------------------------
Interest on Federal funds sold 325 267 207
Other interest and dividends 214 159 136
- -------------------------------------------------------------------------------
Total interest income 38,651 35,345 31,903
- -------------------------------------------------------------------------------
INTEREST EXPENSE:
Savings deposits 2,591 2,658 2,553
Time deposits 7,646 8,704 9,357
NOW accounts 1,300 966 454
- -------------------------------------------------------------------------------
11,537 12,328 12,364
Interest on borrowed money 7,779 6,178 3,862
- -------------------------------------------------------------------------------
Total interest expense 19,316 18,506 16,226
- -------------------------------------------------------------------------------
Net interest income 19,335 16,839 15,677
Provision for loan losses 491 268 600
- -------------------------------------------------------------------------------
Net interest income after
provision for loan losses 18,844 16,571 15,077
- -------------------------------------------------------------------------------
NONINTEREST INCOME:
Net securities gains 505 1,272 839
Net trading account (losses) gains (4) (86) 104
Service charges on deposit accounts 767 686 555
Trust fees 513 621 487
Option call premiums 439 248 (35)
Brokerage servicing fees 348 414 142
Other 1,164 309 231
- -------------------------------------------------------------------------------
Total noninterest income 3,732 3,464 2,323
- -------------------------------------------------------------------------------
NONINTEREST EXPENSE:
Salaries and employee benefits 6,698 5,648 4,789
Furniture and equipment 999 799 514
Net occupancy 594 525 537
Data processing 557 691 568
Advertising 451 467 368
Foreclosed real estate
(recoveries), net 110 (77) 47
Other 2,626 2,345 1,878
- -------------------------------------------------------------------------------
Total noninterest expense 12,035 10,398 8,701
- -------------------------------------------------------------------------------
Income before income taxes 10,541 9,637 8,699
Provision for income taxes 2,921 3,292 2,803
- -------------------------------------------------------------------------------
NET INCOME $ 7,620 $ 6,345 $ 5,896
===============================================================================
NET INCOME PER COMMON SHARE:
Basic $ 1.47 $ 1.24 $ 1.16
===============================================================================
Diluted $ 1.38 $ 1.14 $ 1.08
===============================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
23
--------
<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1999, 1998 and 1997
------------------------------------------------------------------
Accumulated
Other
Comprehensive
Income
Additional Unrealized Total
(dollars in thousands, Common Paid-In Retained Gains Treasury Shareholders'
except per share data) Stock Capital Earnings (Losses) Stock Equity
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 2,768 $ 19,189 $ 24,609 $ 504 $(4,339) $ 42,731
--------
Net income -- -- 5,896 -- -- 5,896
Increase in net unrealized gain on
securities available-for-sale -- -- -- 1,375 -- 1,375
--------
Total comprehensive income 7,271
--------
Stock options exercised (40,560 shares) 41 475 -- -- -- 516
Cash dividends declared
($0.4625 per share) -- -- (2,356) -- -- (2,356)
2-for-1 stock split effected in the form
of a stock dividend 2,803 (2,803) -- -- -- --
Treasury stock purchased (124,394 shares) -- -- -- -- (1,405) (1,405)
Tax benefits related to common stock
options exercised -- 190 -- -- -- 190
- ----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 5,612 17,051 28,149 1,879 (5,744) 46,947
Net income -- -- 6,345 -- -- 6,345
Decrease in unrealized gain on
securities available-for-sale -- -- -- (1,054) -- (1,054)
--------
Total comprehensive income 5,291
--------
Stock options exercised (41,820 shares) 41 260 -- -- -- 301
Cash dividends declared
($0.535 per share) -- -- (2,733) -- -- (2,733)
Tax benefits related to common stock
options exercised -- 110 -- -- -- 110
- ----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 5,653 17,421 31,761 825 (5,744) 49,916
--------
Net income -- -- 7,620 -- -- 7,620
Decrease in unrealized gain on
securities available-for-sale -- -- -- (12,436) -- (12,436)
--------
Total comprehensive loss (4,816)
--------
Stock options exercised (177,405 shares) 178 866 -- -- -- 1,044
Cash dividends declared
($0.595 per share) -- -- (3,088) -- -- (3,088)
Treasury stock purchased (106,338 shares) -- -- -- -- (1,744) (1,744)
Tax benefits related to common stock
options exercised -- 220 -- -- -- 220
- ----------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $ 5,831 $ 18,507 $ 36,293 $(11,611) $(7,488) $ 41,532
================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
--------
<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
--------------------------------
(in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,620 $ 6,345 $ 5,896
- -----------------------------------------------------------------------------------
Adjustments to reconcile net income
to net cash provided by operating activities:
Amortization of bond premiums
(accretion of discounts), net (2,474) (573) 78
Deferred income tax provision (benefit) (228) 452 (231)
Provision for loan losses 491 268 600
Provision for foreclosed real estate losses 93 53 140
Gain on sale of foreclosed real estate (18) (210) (196)
Gain on sale of loans (346) (79) (42)
Gain on sale of trust operations (356) -- --
Amortization of deferred loan points (219) (283) (174)
Net securities gains (505) (1,272) (839)
Net trading account losses (gains) 4 86 (104)
Depreciation and amortization 833 570 454
(Increase) decrease in trading account (180) 354 1,921
Increase in accrued income receivable (405) (317) (43)
Increase in other assets (1,258) (879) (226)
Increase (decrease) in other liabilities 5,032 (13) 2,543
- -----------------------------------------------------------------------------------
Total adjustments 464 (1,843) 3,881
- -----------------------------------------------------------------------------------
Net cash provided by operating activities 8,084 4,502 9,777
- -----------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities held-to-maturity -- -- (19,495)
Purchases of securities available-for-sale (144,988) (177,016) (76,218)
Proceeds from sales of securities
available-for-sale 91,141 83,147 50,353
Proceeds from maturities of securities
available-for-sale 26,159 23,623 23,759
Paydowns on mortgage-backed securities 14,663 19,845 7,553
Purchases of Federal Home Loan Bank stock (1,560) (737) (55)
Proceeds from sale of loans 28,146 5,172 1,653
Net increase in loans (59,499) (28,225) (11,658)
Purchases of premises and equipment, net (237) (1,943) (481)
Proceeds from sale of trust operations 106 -- --
Proceeds from sales of foreclosed real
estate, net 200 1,104 715
- -----------------------------------------------------------------------------------
Net cash used for investing activities (45,869) (75,030) (23,874)
- -----------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in time deposits (3,482) (8,816) (6,277)
Net increase in other deposits 4,513 37,089 12,062
Proceeds from borrowings 89,501 116,269 35,351
Repayment of borrowings (45,801) (96,269) (35,721)
Net increase in Federal funds purchased and
repurchase agreements 6,283 25,148 13,489
Proceeds from exercise of stock options 1,044 301 516
Repurchase of common stock (1,744) -- (1,405)
Cash dividends paid (3,088) (2,733) (2,356)
- -----------------------------------------------------------------------------------
Net cash provided by financing activities 47,226 70,989 15,659
- -----------------------------------------------------------------------------------
Net increase in cash and cash equivalents 9,441 461 1,562
Cash and cash equivalents at beginning of year 11,178 10,717 9,155
- -----------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 20,619 $ 11,178 $ 10,717
===================================================================================
NONCASH INVESTING AND FINANCING ACTIVITIES:
Increase (decrease) in net unrealized gain
on securities available-for-sale, net of
$6,406, $842 and $915 of deferred taxes
in 1999, 1998 and 1997, respectively $ (12,436) $ (1,054) $ 1,375
Transfer of loans to foreclosed real estate 137 175 682
Transfer of held-to-maturity securities to
available-for-sale securities -- -- 53,455
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
--------
<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, one branch in Wallingford,
Connecticut and BCI Financial Corporation, an indirect auto finance subsidiary
located in Southington, Connecticut. During the fourth quarter of 1998, the Bank
formed a passive investment company, SSB Mortgage Corporation, to take advantage
of changes in Connecticut State tax statutes (see Note 11). SSB Mortgage
Corporation commenced operations during the first quarter of 1999. 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 is 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 judgements 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. As
of December 31, 1999 and 1998, there were no securities classified as
held-to-maturity. 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. Amortization of premiums and accretion of discounts
is computed over the estimated term of the securities using a method which
approximates the level yield method.
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.
The allowance for loan losses is maintained at levels considered by
management to be adequate to absorb losses inherent in the loan portfolio.
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,
26
--------
<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
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.
Premises and Equipment
- ----------------------
Premises and equipment, excluding land, are stated at original cost, less
accumulated depreciation and amortization. Land is reported at original cost.
Depreciation and amortization is computed on the straight-line and
declining-balance methods over the estimated useful lives of the assets, except
for leasehold improvements which are amortized over the shorter of the terms of
the respective leases or the estimated useful lives of the improvements. Major
improvements are capitalized, and recurring repairs and maintenance are charged
to noninterest expense.
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.
Loan Servicing Rights
- ---------------------
In accordance with Statement of Financial Accounting Standards (SFAS) 125,
loan servicing rights are amortized over the period of estimated net servicing
revenue. They are evaluated for impairment by comparing the aggregate carrying
amount of the servicing rights to their fair value. Fair value is estimated
using market prices of similar loan servicing assets and discounted future net
cash flows considering market prepayment estimates, historical prepayment rates,
portfolio characteristics, interest rates and other economic factors. For
purposes of measuring impairment, the loan servicing rights are stratified by
the predominant risk characteristics which include product types of the
underlying loans and interest rates of the loan notes. Any impairment would be
recognized through a valuation reserve and included in amortization of loan
servicing rights.
Income Taxes
- ------------
The Corporation and its subsidiary file a consolidated Federal income tax
return. 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.
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, 1999
were as follows:
1999 1998 1997
- --------------------------------------------------------------------------------
Basic 5,191,550 5,110,191 5,093,588
Effects of dilutive
stock options 336,671 438,085 384,783
- --------------------------------------------------------------------------------
Diluted 5,528,221 5,548,276 5,478,371
================================================================================
The number of common shares used in the calculation have been restated for
1997 to reflect a 2-for-1 stock split effected in the form of a stock dividend
on December 1, 1997.
<PAGE>
Segments of an Enterprise and Related Information
- -------------------------------------------------
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("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 it is used internally for evaluating segment performance and
allocation of resources. The Corporation does not have any operating segments,
as defined by SFAS 131, and therefore, has not disclosed the additional
information.
Cash Flows
- ----------
For purposes of reporting cash flows, cash and cash equivalents include
cash, interest and noninterest-bearing deposits due from banks and Federal funds
sold. The Bank paid interest of $18,637,000, $19,269,000 and $16,106,000 on
deposits and borrowings in 1999, 1998 and 1997, respectively.
27
--------
<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
Reclassification
- ----------------
Certain 1998 and 1997 amounts have been reclassified to conform with the
1999 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. As of December 31, 1999, the Bank was required to have
cash and liquid assets of approximately $4,957,000 to meet these requirements.
3. INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses and estimated market
values of securities available-for-sale were as follows (in thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1999 Cost Gains Losses Value
- --------------------------------------------------------------------------------
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 740 326 (13) 1,053
- --------------------------------------------------------------------------------
$232,086 $ 1,846 $ (19,437) $214,495
================================================================================
December 31, 1998
United States Government
and agency obligations $ 47,547 $ 277 $ (69) $ 47,755
Municipal bonds 3,584 101 (2) 3,683
Mortgage-backed securities 93,034 168 (70) 93,132
Capital trust preferreds 13,174 130 (338) 12,966
Marketable equity securities 58,141 1,925 (863) 59,203
Mutual funds 602 15 (23) 594
- --------------------------------------------------------------------------------
$216,082 $ 2,616 $ (1,365) $217,333
================================================================================
The amortized cost and estimated market value of debt securities
available-for-sale as of December 31, 1999, 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:
Estimated
Amortized Market
(in thousands) Cost Value
------------------------------------------------------
Due in one year or less $ 2,999 $ 2,992
Due after one year
through five years 4,208 4,173
Due after five years
through ten years 2,500 2,450
Due after ten years 86,591 73,067
------------------------------------------------------
96,298 82,682
Mortgage-backed securities 87,378 83,568
------------------------------------------------------
$183,676 $166,250
======================================================
Proceeds from sales of securities available-for-sale were $91,141,000,
$83,147,000 and $50,353,000 in 1999, 1998 and 1997, respectively. There were no
sales of securities held-to-maturity in 1999, 1998 or 1997. Gross gains of
$1,632,000, $1,760,000 and $1,227,000 and gross losses of $1,127,000, $488,000
and $388,000 were realized on sales of securities available-for-sale in 1999,
1998 and 1997, respectively. During 1997, the entire securities held-to-maturity
portfolio, which totaled $53,455,000, 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 $163,000.
As of December 31, 1999, investment securities with a carrying amount of
$114,461,000 were pledged as collateral to secure public deposits, funds
borrowed and for other purposes.
28
--------
<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
4. LOANS AND THE ALLOWANCE FOR LOAN LOSSES
Loans consisted of the following as of December 31:
(in thousands) 1999 1998
-------------------------------------------------------------
Commercial $ 56,828 $ 42,837
Commercial real estate 47,961 42,407
Residential real estate 131,942 137,326
Real estate construction 3,250 3,689
Consumer 76,112 58,560
-------------------------------------------------------------
316,093 284,819
Less: Deferred loan fees (702) (850)
Allowance for loan losses (5,681) (5,549)
-------------------------------------------------------------
$309,710 $278,420
=============================================================
Activity in the allowance for loan losses was as follows:
Year Ended December 31,
-------------------------------
(in thousands) 1999 1998 1997
-------------------------------------------------------------
Balance, beginning of year $5,549 $5,306 $4,875
Provision for loan losses 491 268 600
Loans charged-off (472) (155) (389)
Recoveries 113 130 220
-------------------------------------------------------------
Balance, end of year $5,681 $5,549 $5,306
=============================================================
Information, with respect to impaired loans, consisting primarily of
commercial real estate and commercial loans, was as follows:
December 31,
------------------
(in thousands) 1999 1998
-------------------------------------------------------------
Investment in impaired loans $1,644 $1,946
Impaired loans with no
valuation allowance 1,546 1,375
Impaired loans with a
valuation allowance 98 571
Valuation allowance 68 92
Average recorded investment
in impaired loans 1,651 2,010
Commitments to lend additional
funds for loans considered impaired -- --
Year Ended
December 31,
----------------
(in thousands) 1999 1998
-------------------------------------------------------------
Interest income, recognized
on a cash basis $144 $195
Information with respect to nonaccrual loans is as follows:
December 31,
------------------
(in thousands) 1999 1998
-------------------------------------------------------------
Nonaccrual loans $1,404 $1,265
Year Ended December 31,
-------------------------------
(in thousands) 1999 1998 1997
-------------------------------------------------------------
Interest income that would
have been recorded under
original terms $183 $203 $335
Interest income recorded
during the period 73 90 201
Information regarding capitalized originated loan servicing assets is as
follows:
December 31,
------------------
(in thousands) 1999 1998
-------------------------------------------------------------
Balance, beginning of year $ 18 $23
Additions 45 --
Amortization (11) (5)
-------------------------------------------------------------
Balance, end of year $ 52 $18
=============================================================
As of December 31, 1999 and 1998, the fair value of the capitalized
loan servicing assets approximated cost.
29
-------
<PAGE>
5. FORECLOSED REAL ESTATE
Changes in the allowance for foreclosed real estate losses were as follows:
Year Ended December 31,
-------------------------------
(in thousands) 1999 1998 1997
-------------------------------------------------------------
Balance, beginning of year $ 50 $ 25 $ --
Provision for losses 93 53 140
Write-downs, net (93) (28) (115)
-------------------------------------------------------------
Balance, end of year $ 50 $ 50 $ 25
=============================================================
6. PREMISES AND EQUIPMENT
The net book value of premises and equipment was comprised of the following
as of December 31:
(in thousands) 1999 1998
-------------------------------------------------------------
Land $ 589 $ 589
Buildings 2,910 2,894
Leasehold improvements 247 247
Furniture and equipment 3,989 3,808
-------------------------------------------------------------
7,735 7,538
Less accumulated depreciation
and amortization (3,764) (3,014)
-------------------------------------------------------------
$ 3,971 $ 4,524
=============================================================
As of December 31, 1999, the Bank was obligated under several noncancelable
operating leases for office space which expire on various dates through 2008.
The leases contain rent escalation clauses for real estate taxes and other
operating expenses and renewal option clauses calling for increased rents.
Future minimum rental payments required under operating leases as of December
31, 1999 were as follows (in thousands):
Year Amount
------------------------------------------
2000 $ 58
2001 45
2002 45
2003 52
2004 55
After 239
------------------------------------------
Total minimum lease payments $494
==========================================
Total rental expense amounted to $142,000, $121,000 and $91,000 in 1999,
1998 and 1997, respectively, net of sublease income of $4,000 in 1999.
30
--------
<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
7. DEPOSITS
Deposits consisted of the following as of December 31:
(in thousands) 1999 1998
-------------------------------------------------------------
Noninterest-bearing
demand deposits $ 40,905 $ 36,256
NOW accounts 49,380 42,528
Regular savings 69,534 69,029
Money market savings 31,825 39,318
Certificates of deposit 156,530 160,018
Club accounts 267 261
-------------------------------------------------------------
$348,441 $347,410
=============================================================
The amount of individual certificates of deposit in excess of $100,000
included in certificates of deposit as of December 31, 1999 and 1998 was
$20,995,000 and $18,277,000, respectively.
8. FUNDS BORROWED
Funds borrowed consisted of the following as of December 31:
(in thousands) 1999 1998
-------------------------------------------------------------
Federal funds purchased $ 2,100 $ 1,775
Securities sold under
repurchase agreements 84,699 78,741
Federal Home Loan Bank advances 72,830 40,630
Federal Reserve Bank advances 11,500 --
-------------------------------------------------------------
$171,129 $121,146
=============================================================
Funds borrowed are shown below based upon contractual maturities. Actual
maturities will differ from contractual maturities because lenders may have the
right to call obligations on earlier dates. The following table summarizes
Federal funds purchased, repurchase agreements and Federal Reserve Bank of
Boston advances by contractual maturity as of December 31:
(in thousands) 1999 1998 1997
-------------------------------------------------------------
Federal funds purchased:
Overnight $ 2,100 $ 1,775 $ 1,040
Within 30 days -- -- 1,000
60--90 days -- -- 1,000
-------------------------------------------------------------
2,100 1,775 3,040
-------------------------------------------------------------
Repurchase agreements
with broker/dealers:
Within 89 days -- 1,880 5,880
90 days--one year 2,880 2,800 9,870
Over one year 65,000 57,880 24,760
-------------------------------------------------------------
67,880 62,560 40,510
-------------------------------------------------------------
Repurchase agreements
with customers:
Overnight 6,566 6,481 7,325
Within 30 days 9,526 7,580 1,646
30-90 days 727 2,120 2,847
-------------------------------------------------------------
16,819 16,181 11,818
-------------------------------------------------------------
Federal Reserve Bank
advances:
Within 30 days 11,500 -- --
-------------------------------------------------------------
$98,299 $80,516 $55,368
=============================================================
31
--------
<PAGE>
The following table summarizes average outstandings, maximum month-end
outstandings, daily average interest rates and average interest rates on
year-end balances for Federal funds purchased, repurchase agreements and Federal
Reserve Bank of Boston advances. Average interest rates during the year were
computed by dividing total interest expense by the average amount outstanding.
(dollars in thousands) 1999 1998 1997
-------------------------------------------------------------
Average outstanding $ 93,881 $80,592 $43,244
Maximum outstanding at
any month-end 104,792 89,739 57,137
Average interest rate
during the year 5.23% 5.44% 5.48%
Average interest rate
at year-end 5.18% 5.35% 5.54%
The following table summarizes repurchase agreements outstanding with
broker/dealers:
(in thousands) 1999 1998 1997
-------------------------------------------------------------
Morgan Stanley $12,880 $15,680 $ 7,650
Salomon Brothers 55,000 46,880 30,860
Merrill Lynch -- -- 2,000
-------------------------------------------------------------
$67,880 $62,560 $40,510
=============================================================
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 Federal funds purchased, repurchase agreements
and Federal Reserve Bank of Boston advances was $481,000 and $397,000 as of
December 31, 1999 and 1998, respectively.
Advances from the Federal Home Loan Bank of Boston consisted of the
following as of December 31:
(dollars in thousands) 1999 1998
----------------------------------------------------------
5.95% due February 4, 1999 $ -- $ 2,000
5.95% due August 20, 1999 -- 800
6.70% due June 11, 2001 830 830
5.79% due August 30, 2004 5,000 --
5.44% due April 25, 2005 2,000 2,000
5.27% due August 16, 2006 5,000 --
5.29% due September 1, 2006 10,000 --
5.22% due September 15, 2006 10,000 --
5.36% due October 12, 2006 5,000 --
4.99% due January 14, 2008 -- 5,000
5.09% due July 7, 2008 -- 5,000
4.99% due September 1, 2008 -- 10,000
4.59% due September 15, 2008 -- 5,000
5.29% due September 21, 2009 5,000 --
5.35% due October 8, 2009 10,000 --
5.35% due October 19, 2009 5,000 --
5.25% due August 25, 2014 15,000 --
4.99% due June 18, 2013 -- 10,000
----------------------------------------------------------
$72,830 $40,630
==========================================================
32
--------
<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
As a member of the Federal Home Loan Bank of Boston ("FHLB"), and in
accordance with an agreement with them, the Bank is required to maintain
qualified collateral, as defined in the FHLB 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 FHLB in excess of the
amount required to collateralize the outstanding advances as of December 31,
1999. The Bank also participates in the IDEAL Way Line of Credit Program with
the FHLB. 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. 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. As of
December 31, 1999, approximately $8,234,000 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 eighteen-month period ended August 1997, the Corporation repurchased
519,498 shares. These shares were repurchased at an average price of $11.05 per
share.
In April 1999, the Corporation announced that it planned to repurchase up
to 5% (260,000) of its outstanding common shares over the next 12 months. As of
December 31, 1999, the Corporation repurchased 106,338 shares at an average
price of $16.40 per share.
Statement of Financial Standards No. 130, "Reporting Comprehensive Income"
("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. The Corporation's one source of
comprehensive income is the unrealized gain or loss on investment securities.
The following table presents the components and related tax effects
allocated to other comprehensive income for the year ended December 31, 1999.
Before Tax Tax (Benefit) Net of Tax
(in thousands) Amount Expense Amount
----------------------------------------------------------------------
Net unrealized losses
on securities arising
during the year $(18,337) $(6,235) $(12,102)
Less: reclassification
adjustment for gains
realized in net income 505 171 334
----------------------------------------------------------------------
Net unrealized losses
on securities $(18,842) $(6,406) $(12,436)
======================================================================
The following table presents the components and related tax effects
allocated to other comprehensive income for the year ended December 31, 1998.
Before Tax Tax (Benefit) Net of Tax
(in thousands) Amount Expense Amount
----------------------------------------------------------------------
Net unrealized losses
on securities arising
during the year $ (624) $ (330) $ (294)
Less: reclassification
adjustment for gains
realized in net income 1,272 512 760
----------------------------------------------------------------------
Net unrealized losses
on securities $ (1,896) $ (842) $ (1,054)
======================================================================
The following table presents the components and related tax effects
allocated to other comprehensive income for the year ended December 31, 1997.
Before Tax Tax (Benefit) Net of Tax
(in thousands) Amount Expense Amount
----------------------------------------------------------------------
Net unrealized gains
on securities arising
during the year $ 3,129 $ 1,258 $ 1,871
Less: reclassification
adjustment for gains
realized in net income 839 343 496
----------------------------------------------------------------------
Net unrealized gains
on securities $ 2,290 $ 915 $ 1,375
======================================================================
10. BENEFIT PLANS
As of January 1, 1998, the Corporation adopted Statement of Financial
Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("SFAS 132"). SFAS 132 standardizes the disclosure
requirements for pensions and other postretirement benefits by requiring
additional information to facilitate financial analysis and eliminate certain
disclosures that are considered no longer useful.
33
--------
<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
Employee Pension Plan
- ---------------------
The Corporation has a trusteed noncontributory defined benefit retirement
plan 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.
The following table sets forth information regarding the plan's funded
status and amounts recognized in the financial statements as of December 31:
(in thousands) 1999 1998
----------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at beginning of year $ 4,249 $ 3,513
Service cost 299 233
Interest cost 270 257
Plan participants' contributions -- --
Actuarial (gain) loss (643) 419
Benefits paid (187) (173)
----------------------------------------------------------------------
Benefit obligation at end of year 3,988 4,249
----------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at
beginning of year 4,485 4,793
Actual return (loss) on plan assets 433 (135)
Employer contribution -- --
Plan participants' contributions -- --
Benefits paid (187) (173)
----------------------------------------------------------------------
Fair value of plan assets
at end of year 4,731 4,485
----------------------------------------------------------------------
Funded status 743 236
Unrecognized net actuarial gain (1,416) (711)
Unrecognized prior service cost 117 140
Unrecognized transition
(asset) obligation 17 21
----------------------------------------------------------------------
Accrued pension cost $ (539) $ (314)
======================================================================
The components of net periodic pension cost were as follows:
Year Ended December 31,
---------------------------------------
(in thousands) 1999 1998 1997
----------------------------------------------------------------------
Service cost $ 299 $ 233 $ 215
Interest cost 270 257 242
Actual (return) loss
on plan assets (433) 135 (877)
Net amortization and deferral 89 (487) 590
----------------------------------------------------------------------
$ 225 $ 138 $ 170
======================================================================
Weighted-average assumptions as of December 31:
1999 1998 1997
----------------------------------------------------------------------
Discount rate 7.50% 6.50% 7.50%
Expected return on plan assets 8.50% 8.50% 8.50%
Rate of compensation increase 4.00% 4.00% 5.00%
Employee Savings and Profit Sharing Plan
- ----------------------------------------
The Corporation sponsors a savings and profit sharing plan (the "Savings
Plan") under Section 401(k) of the Internal Revenue Code. 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. The Savings
Plan has a discretionary non-contributory profit sharing feature, and also
allows for voluntary employee contributions. 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, 1999, 1998 and 1997 were $91,000,
$86,000 and $80,000, respectively.
Supplemental Pension Plan
- -------------------------
In 1996 and 1998, the Corporation adopted supplemental executive retirement
plans ("SERP") to provide certain designated executives with supplemental
retirement benefits. In conjunction with the SERP, the Corporation is a
beneficiary under a life insurance policy that it has purchased on the
respective participant and has funded its obligations with assets held in a
grantor trust of $100,000 as of December 31, 1999. The assets in the grantor
trust remain assets of the Corporation but are restricted in their use until
such time as the obligation under the SERP has been satisfied. As of December
31, 1999 and 1998, the supplemental retirement plan liability was $124,000 and
$33,000, respectively. In addition, there is a minimum liability balance of
$107,000 as of December 31, 1999 offset by a corresponding intangible asset.
This asset is a result of an unrecognized prior service cost which is being
amortized over the participant's remaining service period with the Corporation.
For the years ended December 31, 1999, 1998 and 1997, supplemental retirement
plan expense was $90,000, $12,000 and $11,000, respectively.
The Corporation does not offer any postretirement or postemployment
benefits other than pensions.
34
--------
<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
11. FEDERAL AND STATE TAXES ON INCOME
For the years ended December 31, 1999, 1998 and 1997, the significant
components of the provision for income taxes were:
(in thousands) 1999 1998 1997
----------------------------------------------------------------------
Current:
Federal $ 3,149 $ 2,378 $ 2,256
State -- 462 778
----------------------------------------------------------------------
Total current 3,149 2,840 3,034
----------------------------------------------------------------------
Deferred:
Federal (228) (206) (230)
State -- 658 (1)
----------------------------------------------------------------------
Total deferred (228) 452 (231)
----------------------------------------------------------------------
$ 2,921 $ 3,292 $ 2,803
======================================================================
Following is a reconcilement of the statutory Federal income tax rate
applied to pretax accounting income with the income tax provisions in the
statements of income:
Year Ended December 31,
---------------------------------------
(in thousands) 1999 1998 1997
----------------------------------------------------------------------
Income tax at statutory rate $ 3,584 $ 3,276 $ 2,958
Increase (decrease)
resulting from:
Dividends received
deduction (506) (623) (636)
Connecticut corporation
tax, net of Federal
tax benefit -- 402 513
Impact of
establishment of
Connecticut passive
investment company -- 337 --
Other items, net (157) (145) (73)
Impact of state
tax rate change -- 45 41
----------------------------------------------------------------------
Provision for income taxes $ 2,921 $ 3,292 $ 2,803
======================================================================
The components of net deferred tax assets as of December 31 were as
follows:
1999 1998
--------------------------------------
(in thousands) Federal State Federal State
- -------------------------------------------------------------------------------
Deferred tax assets:
SFAS 115 mark-to-market $ 5,981 $ 1,319 $ -- $ --
State net operating losses -- 255 -- --
Loan loss provisions 1,931 426 1,887 472
Reserve--foreclosed real estate 17 4 17 4
Basis difference on foreclosed
real estate 27 6 -- --
Net mortgage origination fees 114 25 150 37
Accrued interest payable 444 98 324 81
Other 355 78 246 64
- -------------------------------------------------------------------------------
Total deferred tax assets 8,869 2,211 2,624 658
- -------------------------------------------------------------------------------
Deferred tax liabilities:
Tax loan loss reserve in excess
of base year 79 17 84 21
SFAS 115 mark-to-market -- -- 425 106
Other 255 53 214 54
- -------------------------------------------------------------------------------
Total deferred tax liabilities 334 70 723 181
- -------------------------------------------------------------------------------
Deferred tax assets 8,535 2,141 1,901 477
Valuation allowance -- (2,141) -- (477)
- -------------------------------------------------------------------------------
Net deferred tax assets $ 8,535 $ -- $ 1,901 $ --
===============================================================================
The allocation of deferred tax involving items charged to current year
income and items charged directly to shareholders' equity for the year ended
December 31, were as follows:
1999 1998
--------------------------------------
(in thousands) Federal State Federal State
- -------------------------------------------------------------------------------
Deferred tax (benefit) allocated
to shareholders' equity $(6,406) $ -- $ (543) $ (299)
Deferred tax (benefit) allocated
to income (228) -- (206) 658
- -------------------------------------------------------------------------------
Total deferred tax (benefit) $(6,634) $ -- $ (749) $ 359
===============================================================================
35
--------
<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
The Corporation will only recognize a deferred tax asset when, based upon
available evidence, realization is more likely than not. Accordingly, at
December 31, 1999 and 1998, the Corporation has recorded no Federal valuation
allowance against deferred tax assets based on sufficient available Federal
taxable income in the carryback period.
As of December 31, 1999 and 1998, the Corporation recorded a valuation
allowance for the entire amount of its state deferred tax asset. The valuation
allowance was established as a result of the creation of SSB Mortgage
Corporation, a Connecticut passive investment company. Income earned by a
passive investment company is exempt from Connecticut Corporation Business Tax.
In addition, dividends paid by SSB Mortgage Corporation to its parent,
Southington Savings Bank, are also exempt from Corporation income tax. The
Corporation expects the passive investment company to earn sufficient income to
eliminate Connecticut income taxes in future years. As such, the state deferred
asset has been fully reserved.
The Corporation made Federal and state income tax payments (net of refunds)
of $3,051,000, $2,912,000 and $2,848,000 in 1999, 1998 and 1997, 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.
12. 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 1999 and 1998. 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, 1999 and 1998 amounted to
$3,783,000 and $3,911,000, respectively. New loans of $1,484,000 were made, and
repayments totaled $1,612,000 during 1999. In addition, unused lines of credit
to related parties as of December 31, 1999 were $907,000.
13. STOCK OPTION PLAN
The Corporation has a stock option plan offered to employees and directors
of the Bank (the "Plan"). A total of 1,225,191 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,
1999, a total of 257,120 shares are available for future grants.
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Corporation has
chosen to apply APB Opinion No. 25, "Accounting for Stock Issued to Employees"
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 for the years
ended December 31, 1999, 1998 and 1997 would have been reduced to the pro forma
amounts indicated below.
<TABLE>
<CAPTION>
1999 1998 1997
(in thousands, --------------------------------------------------------------------------
except per share data) As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 7,620 $ 7,230 $ 6,345 $ 5,597 $ 5,896 $ 5,510
Net income per share--diluted 1.38 1.31 1.14 1.01 1.08 1.01
</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>
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividend yield 3.60% 3.60% 3.75%
Expected volatility 42.67 40.75 35.00
Risk-free interest rate 6.20 4.67 6.26
Expected lives 6 years 7 years 7 years
</TABLE>
36
--------
<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
A summary of the status of the Corporation's Plan as of December 31, 1999,
1998 and 1997 and changes during the years ended on those dates is presented
below:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of year 1,113,976 $10.23 1,042,296 $ 9.53 890,616 $ 6.97
Granted 51,000 15.79 116,000 15.625 237,000 18.30
Exercised (177,405) 5.88 (41,820) 7.22 (76,320) 7.32
Forfeited (19,500) 17.40 (2,500) 19.375 (9,000) 11.16
- ---------------------------------------------- --------- ---------
Outstanding,
end of year 968,071 $11.17 1,113,976 $ 10.23 1,042,296 $ 9.53
========================================================================================================
Options exercisable at year-end 917,071 998,976 836,796
Weighted-average fair value of
options granted during the year $ 5.67 $ 5.39 $ 5.76
</TABLE>
The following table summarizes information about the Plan's stock options
at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------------------------
Number Weighted-Average Weighted- Number Weighted-
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/31/99 Contractual Life Exercise Price at 12/31/99 Exercise Price
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.00 - $ 7.50 406,971 4.2 $ 5.52 406,971 $ 5.52
7.50 - 15.00 244,600 7.2 11.70 210,600 11.17
15.00 - 22.50 316,500 7.9 18.02 299,500 18.06
- ------------------------------ -------
968,071 917,071
============================== =======
</TABLE>
14. 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:
(in thousands) 1999 1998
-----------------------------------------------------------
Loan commitments:
Approved loan commitments $ 1,114 $ 2,311
Unadvanced portion of
construction loans 6,470 5,400
Unused home equity
lines of credit 13,623 10,977
Unused commercial
lines of credit 17,007 11,688
Standby letters of credit 2,912 3,307
-----------------------------------------------------------
$41,126 $33,683
===========================================================
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.
15. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1999, the FASB issued Statement of Financial Accounting Standards
No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral
of the Effective Date of FASB Statement No. 133" ("SFAS 137"). SFAS 137 delays
the effective date for the implementation of FASB Statement No. 133 to fiscal
years beginning after December 15, 2000 (January 1, 2001 for the Corporation)
and requires all derivative instruments be recorded on the balance sheet at
37
--------
<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
their fair value. Changes in the fair value of derivative instruments are to be
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. Management anticipates that the
adoption of SFAS 133 will not have a significant effect on the Corporation's
results of operations or its financial position because the Corporation
presently does not hold or utilize any derivative instruments.
16. 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.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement of Financial Accounting Standards No. 107, "Disclosure about
Fair Value of Financial Instruments" ("SFAS 107"), 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.
SFAS 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.
Securities Available-for-Sale
- -----------------------------
Fair values for securities available-for-sale, which also are the amounts
recognized in the consolidated statement of condition, are based on quoted
market prices, where available.
Trading Account Securities
- --------------------------
Fair values for the Bank's trading account securities, which also are the
amounts recognized in the consolidated statement of condition, 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 nonaccrual 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 nonaccrual loans can be made
without incurring excessive cost.
Accrued Income Receivable
- -------------------------
<PAGE>
The carrying amount of accrued income approximates its fair value.
Deposit Liabilities
- -------------------
The fair values disclosed for demand deposits (e.g., interest and
noninterest 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.
SFAS 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.
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase
- --------------------------------------------------------------------------
Federal funds purchased are short-term liabilities and the carrying amounts
approximate their fair values. The fair values for securities sold under
agreements to repurchase are estimated using discounted cash flow analyses,
based on the Bank's current incremental borrowing rates for similar types of
borrowing arrangements.
Other Borrowings
- ----------------
The fair values of the Bank's borrowings from the Federal Home Loan Bank of
Boston and Federal Reserve 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.
38
--------
<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
Commitments to Extend Credit and Letters of Credit
- --------------------------------------------------
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).
The following table presents a comparison of the carrying value and
estimated fair value of the Corporation's financial instruments as of December
31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------
Carrying Estimated Carrying Estimated
(in thousands) Amount Fair Value Amount Fair Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 13,548 $ 13,548 $ 11,163 $ 11,163
Interest-bearing deposits with banks 346 346 15 15
Federal funds sold 6,725 6,725 -- --
Securities available-for-sale 214,495 214,495 217,333 217,333
Trading account securities 348 348 172 172
Federal Home Loan Bank stock 4,392 4,392 2,832 2,832
Loans, gross (excluding nonaccrual loans) 314,689 313,047 283,554 285,520
Accrued income receivable 3,482 3,482 3,077 3,077
Financial liabilities:
Deposits:
Noninterest-bearing demand deposits 40,905 40,905 36,256 36,256
NOW accounts 49,380 49,380 42,528 42,528
Regular savings 69,534 69,534 69,029 69,029
Money market savings 31,825 31,825 39,318 39,318
Certificates of deposit 156,530 156,864 160,018 161,902
Club accounts 267 267 261 261
Federal funds purchased and securities sold
under agreements to repurchase 86,799 85,673 80,516 81,160
Other borrowings:
Federal Home Loan Bank of Boston 72,830 69,237 40,630 38,096
Federal Reserve Bank of Boston 11,500 11,493 -- --
Unrecognized financial instruments:
Commitments to extend credit -- 382 -- 304
Letters of credit -- 29 -- 33
</TABLE>
18. CONTINGENCIES
The Corporation and its subsidiary 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.
19. 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 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 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, 1999, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1999, the Bank is categorized 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 below. The Bank's actual
capital amounts and ratios are also presented in the table.
39
--------
<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
<TABLE>
<CAPTION>
To Be Well Capitalized
Under Prompt Corrective
Actual Action Provisions
--------------------------------------------
(dollars in thousands) Amount Ratio Amount Ratio
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital (to Risk-Weighted Assets) $51,617 14.29% >/= $36,115 >/= 10.0%
Tier I Capital (to Risk-Weighted Assets) 47,088 13.04 >/= 21,669 >/= 6.0
Tier I Capital (to Average Assets) 47,088 8.30 >/= 28,352 >/= 5.0
As of December 31, 1998:
Total Capital (to Risk-Weighted Assets) $52,942 17.27% >/= $30,648 >/= 10.0%
Tier I Capital (to Risk-Weighted Assets) 49,090 16.02 >/= 18,389 >/= 6.0
Tier I Capital (to Average Assets) 49,090 9.48 >/= 25,878 >/= 5.0
</TABLE>
20. PARENT COMPANY ONLY FINANCIAL STATEMENTS
As of December 31, 1999 and 1998, the condensed statements of condition of
Bancorp Connecticut, Inc. (parent only) were:
December 31,
--------------------
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
Assets:
Cash and due from banks $ 122 $ 156
Securities available-for-sale (at market value) 3,194 1,525
Investment in subsidiary 38,206 48,151
Due from subsidiary 80 118
Other assets 47 52
- --------------------------------------------------------------------------------
Total assets $41,649 $50,002
================================================================================
Liabilities and shareholders' equity:
Accrued expenses $ 117 $ 86
Shareholders' equity 41,532 49,916
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $41,649 $50,002
================================================================================
For the years ended December 31, 1999, 1998 and 1997, the operating results
are summarized below in the condensed statements of income:
Year Ended December 31,
--------------------------------
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Dividends from subsidiary $ 5,301 $ 3,167 $ 3,594
Interest and dividends 174 33 30
- --------------------------------------------------------------------------------
Total income 5,475 3,200 3,624
Operating expenses 317 360 289
Income tax benefit (87) (119) (87)
- --------------------------------------------------------------------------------
Income before equity in undistributed
net income of subsidiary 5,245 2,959 3,422
Equity in undistributed net income
of subsidiary 2,375 3,386 2,474
- --------------------------------------------------------------------------------
Net income $ 7,620 $ 6,345 $ 5,896
================================================================================
40
--------
<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
For the years ended December 31, 1999, 1998 and 1997, a summary of cash
flows is:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
(in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 7,620 $ 6,345 $ 5,896
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income of subsidiary (2,375) (3,386) (2,474)
Amortization of organization costs 36 40 40
(Increase) decrease in other assets (31) (11) 5
(Decrease) increase in accrued expenses (6) 8 (3)
- -----------------------------------------------------------------------------------------
Net cash provided by operating activities 5,244 2,996 3,464
- -----------------------------------------------------------------------------------------
Investing activities:
Purchase of securities available-for-sale (1,528) (1,000) (48)
Decrease (increase) in advances to subsidiary 38 17 (21)
- -----------------------------------------------------------------------------------------
Net cash used for investing activities (1,490) (983) (69)
- -----------------------------------------------------------------------------------------
Financing activities:
Dividends paid (3,088) (2,733) (2,356)
Net decrease (increase) in repurchase agreements -- 575 (150)
Repurchase of common stock (1,744) -- (1,405)
Issuance of common stock 1,044 301 516
- -----------------------------------------------------------------------------------------
Net cash used for financing activities (3,788) (1,857) (3,395)
- -----------------------------------------------------------------------------------------
Net (decrease) increase in cash (34) 156 --
Cash at beginning of year 156 -- --
- -----------------------------------------------------------------------------------------
Cash at end of year $ 122 $ 156 $ --
=========================================================================================
</TABLE>
21. QUARTERLY FINANCIAL DATA (UNAUDITED)
Three Months Ended
----------------------------------------
(in thousands, except per share data) March 31 June 30 Sept. 30 Dec. 31
- --------------------------------------------------------------------------------
1999
Interest income $ 9,073 $ 9,421 $ 9,893 $10,264
Interest expense 4,586 4,656 4,865 5,209
- --------------------------------------------------------------------------------
Net interest income 4,487 4,765 5,028 5,055
Provision for loan losses 30 35 157 269
Net securities gains (losses) 402 352 (262) 13
Noninterest income 575 674 1,213 765
Noninterest expense 2,863 2,968 3,151 3,053
Provision for income taxes 736 831 700 654
- --------------------------------------------------------------------------------
Net income $ 1,835 $ 1,957 $ 1,971 $ 1,857
================================================================================
Net income per diluted share $ 0.33 $ 0.35 $ 0.36 $ 0.34
================================================================================
1998
Interest income $ 8,589 $ 8,661 $ 8,942 $ 9,153
Interest expense 4,487 4,475 4,764 4,780
- --------------------------------------------------------------------------------
Net interest income 4,102 4,186 4,178 4,373
Provision for loan losses 100 68 50 50
Net securities gains 474 338 354 106
Noninterest income 520 624 424 624
Noninterest expense 2,310 2,477 2,852 2,759
Provision for income taxes 941 852 525 974
- --------------------------------------------------------------------------------
Net income $ 1,745 $ 1,751 $ 1,529 $ 1,320
================================================================================
Net income per diluted share $ 0.31 $ 0.31 $ 0.28 $ 0.24
================================================================================
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. The sum of the quarters may not necessarily be
equal to the full year income per share amount.
41
--------
<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
SHAREHOLDER INFORMATION
ANNUAL MEETING
The Annual Meeting of Shareholders will be held at
2:00 p.m. on Friday, April 28, 2000 at:
The Aqua Turf Club
556 Mulberry Street
Plantsville, Connecticut 06479
FORM 10-K REPORT
A copy of the Corporation's 1999 Annual Report to the Securities and Exchange
Commission on Form 10-K may be obtained without charge at www.bkct.com or upon
written request to:
Thomas A. Sebastian
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:
PricewaterhouseCoopers LLP
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, 1999:
Advest, Inc.
Keefe, Bruyette & Woods, Inc.
Sandler O'Neill & Partners
Tucker Anthony Incorporated
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
BANCORP CONNECTICUT, INC. INTERNET ADDRESS:
www.bkct.com
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 1,810
shareholders of record on February 16, 2000. The high and low bid and end of
period closing prices and cash dividends per share for each quarter during the
last two calendar years were as follows:
Dividend
Quarter Ended High Low Close per Share
-------------------------------------------------------------
3/31/98 $ 21.88 $ 17.25 $ 20.38 $ 0.130
6/30/98 21.50 19.25 19.25 0.135
9/30/98 19.75 14.94 16.50 0.135
12/31/98 17.88 14.75 15.00 0.135
3/31/99 16.63 13.00 14.00 0.140
6/30/99 17.50 13.75 17.25 0.150
9/30/99 17.88 16.25 16.50 0.150
12/31/99 17.50 14.00 15.50 0.155
SOUTHINGTON SAVINGS BANK OFFICE LOCATIONS:
SOUTHINGTON OFFICES
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
WALLINGFORD OFFICE
950 North Colony Road
MORTGAGE CENTER
188 North Main Street
Southington, Connecticut
BRADLEY MEMORIAL HOSPITAL ATM FACILITY
81 Meriden Avenue
Southington, Connecticut
SSB INTERNET ADDRESS:
www.ssbonline.com
42
--------
<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
BANCORP CONNECTICUT, INC.
DIRECTORS & OFFICERS
BOARD OF DIRECTORS
Walter J. Hushak
Chairman,
Southington Savings Bank
Retired Senior Vice President,
Janazzo Services, Inc.
Andrew J. Meade
Vice Chairman,
Southington Savings Bank
Consultant, International Security
Products, Inc. dba Lori Lock
(Manufacturer of Security Products)
Norbert H. Beauchemin
Retired
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.
President and Chief Executive Officer,
Southington Savings Bank
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
Phillip J. Mucha
Chief Financial Officer and Treasurer/Secretary
This Annual Report contains forward-looking statements, including statements
regarding the Corporation's future earnings and 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
Corporation expressly disclaims any obligation or undertaking to update publicly
any forward-looking 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.
43
--------
<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
SSB DIRECTORS & OFFICERS
BOARD OF DIRECTORS
Walter J. Hushak
Chairman
Andrew J. Meade
Vice Chairman
Norbert H. Beauchemin
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
OFFICERS
Robert D. Morton
President and Chief Executive Officer
Richard A. Fracasso
Executive Vice President
Consumer Banking
Phillip J. Mucha
Senior Vice President and Treasurer
Barry J. Abramowitz
Senior Vice President
Chief Information Officer
William R. Della Vecchia
Senior Vice President
New Business Development
Charles J. DeSimone, Jr.
Senior Vice President
Chief Credit Officer
William Taylor
Senior Vice President
Commercial Banking
ACCOUNTING AND FINANCE
Kathleen H. Demers
Senior Financial Analyst
Thomas A. Sebastian
Controller
COMMERCIAL LENDING
John E. Cookley
Vice President
Daniel R. DeRosa
Vice President
Raymond D. Jannelli
Vice President
Vincent L. Ruggiero
Vice President
Duane L. Beale
Assistant Vice President
44
--------
<PAGE>
CONSUMER BANKING
Paul E. MacDonald
Vice President
Retirement Plans Manager
Richard P. Dextraze
Assistant Vice President
Consumer Loan Manager
Community Reinvestment
Act Officer
Donna M. Ierardi
Assistant Vice President
Manager, Wallingford Office
Sue A. Kasek
Assistant Vice President
Consumer Loan Officer
Kenneth G. Penfield, Jr.
Assistant Vice President
Residential Loan Manager
Claudia A. Crooker
Assistant Treasurer
Joan E. Morelli
Assistant Treasurer
Manager, Queen Corner Office
Carol Vreeland
Assistant Treasurer
Manager, Main Office
Elizabeth K. Zimmitti
Assistant Treasurer
Manager, South End Office
Christine S. Matteo
Consumer Loan Officer
CREDIT AND LOAN ADMINISTRATION
Diane L. Hoadley
Assistant Vice President
Credit & Loan Review
Diane McCoy
Loan Operations Manager
Maria M. Goncalves
Managed Assets Manager
HUMAN RESOURCES
Donna M. Schaefer
Vice President
Director of Human Resources
OPERATIONS AND INFORMATION SYSTEMS
Donna M. Glatz
Vice President
Branch and Deposit Operations
Susan M. Dobratz
Assistant Vice President
Net Banking Manager
Therese G. Kelly
Assistant Vice President
Trainer/Analyst
INVESTMENT SERVICES
Matthew R. Rich
Brokerage Officer
BCI FINANCIAL CORPORATION
Timothy W. Rourke
President and Chief Executive Officer
Joseph M. DeAngelo
Vice President Operations
Michael J. Coleman
Loan Officer
Carol M. Montagna
Loan Officer
45
--------
<PAGE>
-------------------------
BANCORP CONNECTICUT, INC.
BANCORP CONNECTICUT, INC.
121 Main Street
Southington, Connecticut 06489-2533
Exhibit 21
SUBSIDIARIES OF REGISTRANT
Subsidiary of Registrant State of Incorporation D/B/A'S
- ------------------------ ---------------------- -------
Southington Savings Bank Connecticut None
Subsidiaries of Southington
Savings Bank State of Incorporation D/B/A'S
- ------------ ---------------------- -------
BCI Financial
Corporation Connecticut None
SSB Mortgage Corporation Connecticut None
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 Phillip J. Mucha, 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 1999 Annual Report to Shareholders, Annual Report on Form 10-K for
the year ended December 31, 1999 (the "10-K"), and Proxy Statement and Proxy
Card to be issued in connection with the Corporation's 2000 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 15, 2000.
SIGNATURE TITLE DATE
/s/ Robert D. Morton President and Director March 15, 2000
- -------------------------- (Principal Executive Officer)
Robert D. Morton
/s/ Phillip J. Mucha Chief Financial Officer and March 15, 2000
- ---------------------------- Treasurer/Secretary
Phillip J. Mucha (Chief Financial and
Accounting Officer)
/s/ Norbert H. Beauchemin Director March 15, 2000
- --------------------------
Norbert H. Beauchemin
/s/ Walter J. Hushak Director March 15, 2000
- --------------------------
Walter J. Hushak
/s/ Michael J. Karabin Director March 15, 2000
- --------------------------
Michael J. Karabin
/s/ David P. Kelley Director March 15, 2000
- --------------------------
David P. Kelley
/s/ Frederick E. Kuhr Director March 15, 2000
- --------------------------
Frederick E. Kuhr
/s/ Joseph J. Laporte Director March 15, 2000
- --------------------------
Joseph J. LaPorte
Director
- --------------------------
Ralph G. Mann
/s/ Andrew J. Meade Director March 15, 2000
- --------------------------
Andrew J. Meade
/s/ Frank R. Miller Director March 15, 2000
- --------------------------
Frank R. Miller
/s/ Anthony S. Pizzitola Director March 15, 2000
- ------------------------
Anthony S. Pizzitola
/s/ Dennis J. Stanek Director March 15, 2000
- --------------------------
Dennis J. Stanek
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 13,548
<INT-BEARING-DEPOSITS> 346
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0
0
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</TABLE>
