ITEM 1 - BUSINESS.
The main office of Bancorp Connecticut, Inc. (the "Company") and of Southington Savings Bank (the "Bank") is located at 121 Main Street, Southington, Connecticut 06489. The telephone number is 860-628-0351.
The Company was incorporated under the laws of the State of Delaware on March 31, 1994, to operate principally as the bank holding company of the Bank. The Company acquired all of the Bank's outstanding common stock on November 17, 1994, in a one-for-one exchange with the Bank's existing shareholders. The Bank is the sole subsidiary of the Company and its principal asset.
General
The Bank is a Connecticut chartered capital stock savings bank. The Bank was organized in 1860, and in 1986 it converted from a mutual to a capital stock savings bank. The Bank is subject to supervision, examination and regulation by the Connecticut Banking Commissioner. The Bank's deposits are insured by the Federal Deposit Insurance Corporation (the "FDIC"), which also has supervisory and regulatory authority over the Bank. The Bank is a member of the Federal Home Loan Bank (the "FHLB") of Boston. The Company is subject to regulation by the Federal Reserve Board as the registered bank holding company of the Bank.
The Bank's primary market area consists of the Town of Southington, Connecticut and, to a lesser extent, the contiguous Towns of Bristol, Cheshire and Plainville. Southington is located approximately 18 miles from Hartford, 25 miles from New Haven and 9 miles from Waterbury.
The Bank's principal business consists of attracting and accepting deposits from the general public and investing those deposits, together with funds generated by fees and other income, in various types of loans and investments, including residential loans, consumer loans, commercial loans and securities.
The Bank's business strategy is to operate primarily as an innovative full-service community financial institution, offering a wide range of consumer and commercial services. These services include checking accounts, NOW accounts, regular savings accounts, money market accounts, individual retirement accounts, savings certificates, commercial demand deposit accounts, residential real estate loans, home equity loans and lines of credit, consumer loans, secured and unsecured commercial loans and lines of credit, letters of credit, credit card services and cash management services. The Bank makes available Savings Bank Life Insurance ("SBLI"). The Bank has a trust department which provides trust services for families and individuals, as well as corporate pension and employee benefits administration. The Bank provides investment brokerage services through Connecticut Association Securities, Inc., an independent broker-dealer, which sells non-deposit products, such as mutual funds, tax exempt securities and individual stocks and bonds. The Bank also offers annuities and various insurance products through the CTAS Insurance Group, an independently licensed insurance agency.
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The main focus of the Bank's lending activities is the origination of commercial and industrial loans, consumer loans and residential mortgage loans. The Bank also makes auto loans and student loans. In recent years, the Bank has concentrated its efforts on increasing the percentage of commercial and consumer loans retained within its loan portfolio. Commercial loans consist primarily of lines of credit with interest rates tied to the prime rate and fixed rate, fixed term loans. Commercial real estate loans are primarily first mortgage loans with adjustable rates. Consumer loan originations have been primarily fixed rate home equity loans with maximum terms of 10 years or less. The Bank also offers home equity lines of credit that have interest rates tied to the prime lending rate. Within the last three years, the Bank's primary residential mortgage product has been a loan with a rate fixed for an initial term of 3, 5, 7, or 10 years which adjusts annually thereafter. In the future, the Bank expects to place a greater emphasis on the growth of its commercial loan portfolio.
The Bank has procedures in place to sell selected fixed rate residential mortgages into the secondary mortgage market. The sale of fixed rate mortgages allows the Bank to generate both a higher volume of fixed rate mortgages without impairing its asset/liability management and provide additional fee income. During 1997, the Bank continued to supplement its own loan originations by purchasing automobile loans and the guaranteed portion of Small Business Administration loans. On February 27, 1998, the Company announced plans to form a new majority owned subsidiary, BCI Financial Corporation ("BCIFC"), subject to regulatory approval. BCIFC will originate indirect auto loans for sale to the Bank and other financial institutions.
The principal sources of funds for the Bank's activities are deposit accounts, amortization and prepayment of loans, borrowings from the FHLB of Boston, repurchase and reverse repurchase agreements and funds provided from operations. The Bank's principal sources of income are interest on loans and interest and dividends on investment securities. In recent years, the Bank also has realized income from the sale of loans and investment securities. To a lesser extent, the Bank realizes other non-interest income, including income from service charges on deposit accounts, income from trust and brokerage services and income from SBLI sales.
The Bank conducts its banking operations through three full service offices, one limited purpose branch, one drive-in center, and one mortgage origination office, all of which are located in Southington. The Bank has submitted an application to the Connecticut Banking Commissioner to open a full service branch facility in Wallingford, Connecticut. Pending regulatory approval, the Bank intends to open the facility in the second quarter of 1998. See Item 2
ITEM 2 - PROPERTIES.
The following table sets forth the location of the Bank's full service offices and other related information:
Since January, 1995, the Bank has operated a limited purpose branch banking facility at Southington High School, which is located at 720 Pleasant Street, Southington, Connecticut. The High School Branch processes only deposits and withdrawals and is open only during school hours. This branch is operated on a cooperative basis: the Bank supplies management and equipment, the Town of Southington provides the required space, and students staff the branch. The Bank believes that the High School Branch is the only branch bank of its kind in the State of Connecticut.
The Bank leases approximately 6,591 square feet at 98 Main Street in Southington to house the administrative offices of its audit, human resources, marketing, finance, managed assets, consumer banking, deposit services, and information systems divisions. The lease had an original expiration date of December 31, 1997, with an option to extend the lease for four 6 month periods. The Bank has exercised its option to extend the lease until June 30, 1998.
The Bank leases approximately 1,200 square feet at 188 North Main Street in Southington for its residential mortgage origination function. The lease has an expiration date of October 31, 1998, with an option to extend the lease for three one year periods.
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The Bank leases sufficient space at 55 Meriden Avenue in Southington (Bradley Memorial Hospital) to support a free standing automatic teller machine. The lease has an expiration date of July 31, 2000, with no option to extend the lease.
The Bank owns an approximately 35,000 square foot lot located at 918 Meriden-Waterbury Turnpike, which is adjacent to the Bank's South-End office. The lot is undeveloped except for a residential house which the Bank intends to demolish.
The Bank also owns and is holding for future expansion two separate properties all located adjacent to its Main Office parking facilities. The properties consist of a residential home on an approximately 10,500 square foot lot located at 50 Berlin Avenue, and an approximately 14,800 square foot undeveloped lot located at 31 Vermont Avenue. The Bank uses the residential home at 50 Berlin Avenue as a storage facility for office supplies.
The Bank also owns a two-family residential home on an approximately 11,600 square foot lot located at 43-45 Vermont Avenue which was originally purchased for future expansion but is currently on the market for sale.
The Bank is currently negotiating a lease for approximately 1,580 square feet of space for its proposed branch in Wallingford. The terms of such lease have not been finalized.
ITEM 3
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
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of 1997, no matter was submitted to a vote of stockholders of the Company.
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PART II
ITEM 5
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock has been issued and outstanding since November 17, 1994, when the Company acquired all of the Bank's outstanding common stock in a one-for-one exchange with the Bank's existing shareholders. As of March 18, 1998, 5,097,048 shares of Common Stock were issued and outstanding and were held by approximately 1,831 shareholders of record.
The Company's Common Stock is traded in the over-the-counter market and is quoted on the National Market tier of The National Association of Securities Dealers Automated Quotation ("Nasdaq") Stock Market under the symbol "BKCT." Quarterly high and low bid prices for 1996 and 1997 are included in the 1997 Annual Report under the heading "Market Price and Dividends" and are incorporated herein by reference. Such bid prices reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
On February 1, 1996, the Company announced that its Board of Directors had authorized the repurchase of up to fifteen percent (15%) of its currently outstanding shares. The Company purchased 519,498 from time to time in the open market through the period ending July 31, 1997, the termination date of the repurchase plan. The Company intends to hold the repurchased shares in treasury for general corporate purposes.
For the foreseeable future, the only substantial source of funds available to the Company for the declaration of dividends will be dividends declared and paid by the Bank on Bank common stock. As the holder of Bank common stock, the Company is entitled to receive dividends when, as and if declared by the Bank board of directors out of funds legally available therefor. The Bank may pay cash dividends out of the Bank's net profits. For purposes of this restriction, "net profits" means the remainder of all earnings from operations. Further, the total of all dividends declared by the Bank in any calendar year may not exceed the sum of the Bank's net profits for the year in question combined with its retained net profits from the preceding two calendar years. Additionally, earnings appropriated to reserves for loan losses and deducted for federal income tax purposes are not available for cash dividends without the payment of taxes at the then current income tax rates on the amount used. The Connecticut Banking Commissioner and/or the FDIC may limit the Bank's ability to pay dividends.
The Bank has paid consecutive quarterly cash dividends since the quarter ended December 31, 1992. The Company paid its first quarterly dividend during the quarter ended March 31, 1995. No assurances can be given that further dividends will be paid or approved. Dividend history for the Company from January 1, 1996 through December 31, 1997 is included in the 1997 Annual Report under the heading "Market Price and Dividends" and is incorporated herein by reference. The Bank also paid a 20% stock dividend on June 1, 1993, a 6-for-5 stock split effected in the form of a stock dividend on June 19, 1996, and a 2-for-1 stock split effected in the form of a stock dividend on December 1, 1997.
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ITEM 6
ITEM 6 - SELECTED FINANCIAL DATA.
The required information is included in the 1997 Annual Report under the heading "Selected Consolidated Financial Data," and is incorporated herein by reference.
ITEM 7
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The required information is included in the 1997 Annual Report under the heading "Management's Discussion and Analysis" and is incorporated herein by reference.
ITEM 7A
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The required information is included in the 1997 Annual Report under the heading "Management's Discussion and Analysis - Asset/Liability Management and Market Risk" and is incorporated herein by reference.
ITEM 8
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The report of the Company's independent accountants and the Company's Consolidated Statements of Condition at December 31, 1997 and 1996, and the related Consolidated Statements of Income, Shareholders' Equity and Cash Flows for each of the three years in the period ended December 31, 1997, and the Notes to Consolidated Financial Statements appear in the 1997 Annual Report and are incorporated herein by reference.
ITEM 9
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
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PART III
ITEM 10
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The required information is included in the 1998 Proxy Statement under the heading "Election of Directors" and is incorporated herein by reference.
ITEM 11
ITEM 11 - EXECUTIVE COMPENSATION.
The required information is included in the 1998 Proxy Statement under the heading "Election of Directors - Executive Compensation" and is incorporated herein by reference.
ITEM 12
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of February 28, 1998, there were no persons or groups (as that term is used in Section 13(d)(3) of the Exchange Act) known to the Company who may be deemed to own beneficially more than 5% of the Common Stock.
Certain other required information under this item is included in the 1998 Proxy Statement under the heading "Election of Directors - Stock Ownership of Directors and Officers" and is incorporated herein by reference.
ITEM 13
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The required information is included in the 1998 Proxy Statement under the headings "Election of Directors - Transactions With Management", "- Certain Business Relationships", "- Indebtedness of Management and Others" and "- Compensation Committee Interlocks and Insider Participation" and is incorporated herein by reference.
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PART IV
ITEM 14
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report.
(1) Financial Statements
The following documents filed as part of this report are incorporated herein by reference from the indicated pages of the 1997 Annual Report.
Financial Statement Page or Pages
Report of Independent Accountants 19 Consolidated Statements of Condition 20 Consolidated Statements of Income 21 Consolidated Statements of Shareholders' Equity 22 Consolidated Statements of Cash Flows 23 Notes to Consolidated Financial Statements 24-38
(2) Financial Statement Schedules
Information required to be included in all schedules to the Company's Consolidated Financial Statements is included in the 1997 Annual Report or is not required under the related instructions or is inapplicable and therefore has been omitted.
(3) Exhibits
Exhibit No. Description
3.1 Certificate of Incorporation of Registrant (Incorporated by reference to Exhibit 3.1 to the Registrant's Registration Statement on Form S-4 (Registration No. 33-77696) (the "Registration Statement"))
3.2 Bylaws of Registrant (Incorporated by reference to Exhibit 3.2 to the Registration Statement)
3.3 Certificate of Amendment of Certificate of Incorporation dated May 20, 1996 (Incorporated by reference to Exhibit 3.3 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996)
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4.1 Instruments defining the rights of security holders (Included in Exhibits 3.1 and 3.2)
4.2 Form of Stock Certificate (Incorporated by reference to Exhibit 4.5 to the Registrant's Registration Statement on Form S-8 (Registration No. 33-333-2638))
10.1* Employment Agreement dated as of January 1, 1997, by and between the Bank and Robert D. Morton (Incorporated by reference to Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996)
10.2* Southington Savings Bank 1986 Stock Option Plan (Incorporated by reference to Exhibit 10.2 to the Registration Statement)
10.3* Southington Savings Bank 1993 Stock Option Plan (Incorporated by reference to Exhibit 10.3 to the Registration Statement)
10.4* Pension Plan of Southington Savings Bank, as amended (Incorporated by reference to Exhibit 10.4 to the Registration Statement)
10.5* Southington Savings Bank Supplemental Retirement Plan (Incorporated by reference to Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1996)
10.6* Bancorp Connecticut, Inc. 1997 Stock Option Plan (Incorporated by reference to Exhibit 10.6 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997)
13.1 Annual Report to Security Holders
21 Subsidiaries of Registrant
24 Power of Attorney
27 Financial Data Schedule 27.1 Restated Financial Data Schedule 27.2 Restated Financial Data Schedule - ---------------------- * Management contract or compensatory plan or arrangement.
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THE COMPANY WILL PROVIDE A COPY OF ANY EXHIBIT LISTED ABOVE TO ANY SHAREHOLDER UPON THE WRITTEN REQUEST OF SUCH SHAREHOLDER AND UPON THE PAYMENT OF A REASONABLE FEE LIMITED TO THE COMPANY'S EXPENSES INCURRED IN FURNISHING SUCH EXHIBIT. REQUESTS SHOULD BE ADDRESSED TO LESLEY A. DEANGELO, BANCORP CONNECTICUT, INC., 121 MAIN STREET, SOUTHINGTON, CONNECTICUT 06489.
(b) The Company did not file any Report on Form 8-K during the last quarter of 1997.
(c) The exhibits required by Item 601 of Regulation S-K are filed as a separate part of this report.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Bancorp Connecticut, Inc. (Registrant)
Date: March 31, 1998 By: /s/ Robert D. Morton -------------------- Robert D. Morton Its President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
EXHIBIT INDEX