UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 1994
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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 0-16193
DS BANCOR, INC.
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(Exact name of registrant as specified in its charter)
Delaware 06-1162884
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
33 Elizabeth Street, Derby, Connecticut
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(Address of principal executive offices)
06418 (203) 736-1000
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(Zip Code) (Registrant's telephone #)
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
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. [ ]
Based upon the market price of the registrant's common stock as of March 23,
1995, the aggregate market value of the voting stock held by non-affiliates of
the registrant is $55,026,694 *
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class: Common Stock, par value $1.00 per share
Outstanding at March 23, 1995: 2,882,324 shares
DOCUMENTS INCORPORATED BY REFERENCE:
Parts I and II:
Portions of the Annual Report to Stockholders for the year ended December 31,
1994.
Part III:
Portions of the definitive proxy statement for the Annual Meeting of
Stockholders to be held April 26, 1995.
* Solely for purposes of this calculation, all executive officers and
directors of the registrant are considered affiliates. Excludes all other
shareholders beneficially owning more than 5% of the registrant's common
stock.
Item 1. BUSINESS
GENERAL
On August 31, 1987, DS Bancor, Inc. (the "Company" or "DS Bancor") became the
holding company for Derby Savings Bank ("Derby Savings" or the "Bank"). The
Company was formed in 1986 at the direction of the Board of Directors of the
Bank for the purpose of becoming the Bank's holding company, and the Company
engaged in no business until it became the holding company for the Bank in
August 1987. At that time, each of the outstanding shares of Derby Savings
common stock was automatically converted and exchanged into one share of the
Company's common stock. The Company's principal assets consist of all of the
outstanding shares of Derby Savings. The Company's business consists mainly of
the business of Derby Savings. Derby Savings is a Connecticut-chartered stock
savings bank operating through 22 full-service banking offices in western New
Haven and eastern Fairfield counties and Hartford County. The Bank obtained its
Connecticut charter as a mutual savings bank in 1846. On December 4, 1985, the
Bank converted to a stock savings bank, selling 2,217,856 shares of common
stock, and receiving net proceeds of approximately $28.8 million. Deposits at
Derby Savings are federally insured by the Bank Insurance Fund ("BIF"), which is
administered by the Federal Deposit Insurance Corporation (the "FDIC"). The
Bank is subject to comprehensive regulation, examination and supervision by the
FDIC and the Banking Commissioner of the State of Connecticut (the
"Commissioner"). The Company, as a bank holding company, is subject to
regulation and examination by the Board of Governors of the Federal Reserve
System (the "FRB").
Derby Savings is primarily engaged in the business of attracting deposits from
and providing loans to the residents and businesses located within the Bank's
market area. The Bank's customer base includes long-time customers mainly
employed in manufacturing and service industries as well as newer customers
employed by high technology industries in the northern and western parts of the
Bank's market area. At December 31, 1994, the Bank had deposits of $1.03
billion, funding 84.1% of the Bank's $1.22 billion in assets. The Bank offers a
variety of deposit products to meet the various investment objectives of its
depositors, including regular savings, certificates of deposit, money market
accounts, individual retirement accounts and keogh accounts. In addition to
deposits, which serve as the Bank's primary source of funds, the Bank augments
its lending and investment activities through borrowings from the Federal Home
Loan Bank of Boston ("the FHLBB"), which serves as a credit facility for its
members. At December 31, 1994, the Bank had borrowings from this source of
$111.1 million, funding 9.1% of assets.
The lending activities of the Bank are primarily focused upon meeting the credit
needs of the consumer segment of the Bank's market area. The Bank's consumer
orientation has evolved into essentially two primary products which are secured
by residential real estate and represent the core business of the Bank. At
December 31, 1994, $683.6 million, representing 55.9% of the Company's assets,
were invested in loans secured by first liens on one-to-four family residences.
Complementing the Bank's financing of residential real estate is the home equity
line of credit (the "HELOC") which is also secured by residential real estate
and utilized by consumers to finance various purchases and expenditures. The
flexibility of this means of consumer finance is reflected in the demand for
this product which has enabled the Bank to allocate $70.2 million or 5.7% of its
assets to this product. In addition to these primary products, the Bank also
provides financing for other consumer needs, multi-family housing, as well as
1.
financing for commercial real estate, construction and local businesses. The
Bank's investment in these product lines in the aggregate totaled $87.9 million,
representing 7.2% of the Company's assets at December 31, 1994. The Company's
corporate headquarters are located at 33 Elizabeth Street, Derby, Connecticut
06418 (telephone: 203-736-1000).
RESULTS OF OPERATIONS. Net income for totaled $5,710,000 or $1.95 per share
(fully diluted) compared to $6,474,000 or $2.25 per share (fully diluted) for
the prior year. Net income for 1993 includes $1,548,000 or $.54 per share
(fully diluted) resulting from the adoption of Financial Accounting Standards
Board Statement 109. This amount represents the cumulative effect of a change
in accounting for income taxes effective January 1, 1993. Net income for the
year ended December 31, 1993 before the cumulative effect of the change in
accounting principle totaled $4,926,000 or $1.71 per share (fully diluted). The
Company declared a 5% stock dividend on February 15, 1995. The per share
amounts for the current and prior periods have been retroactively adjusted to
give effect to this stock dividend.
Net interest income for 1994 increased $4.0 million or 12.9% from $30.5 million
for 1993 to $34.5 million for 1994. The increase in net interest income of the
Company resulted from an improvement in the net yield on interest-earning
assets. For 1994, the net yield on interest-earning assets increased to 2.94%,
from 2.68% for 1993.
Stockholders' equity totaled $67.1 million or $23.30 per share at December 31,
1994 and represented 5.5% of total assets. In accordance with Financial
Accounting Standards Board Statement No. 115, stockholders' equity at December
31, 1994 included a $5.6 million unrealized loss, net of tax effect, on
securities classified as available for sale (see "Consolidated Financial
Statements contained in the 1994 Annual Report to Stockholders"). For 1994, net
income represented a return on average assets and a return on average
stockholders' equity of .47% and 8.34%, respectively, compared to .54% and
10.30% respectively, for 1993.
During 1994, the Company made further progress in reducing the level of
non-performing assets, which includes non-performing loans and foreclosed and
in-substance foreclosed assets. At December 31, 1994, non-performing assets
totaled $20.8 million or 1.7% of total assets, reflecting a $7.4 million or 26%
decline from $28.2 million or 2.4% of total assets at year end 1993. However,
the volume and flow of non-performing assets continued to dampen the performance
of the Company throughout the year through for losses and the expenses attendant
to the management and disposition of these assets.
During 1994, the Bank charged off loans, net of recoveries, totaling $2.5
million against the allowances for credit losses. For 1994, the provision for
credit losses totaled $2.3 million compared to $2.5 million for 1993. At
December 31, 1994, the allowances for credit losses totaled $6.8 million
representing 64.9% of non-performing loans.
For 1994, the Bank provided $2.2 million to the allowance for estimated losses
on foreclosed assets compared to $4.3 million for 1993. The allowance for
estimated losses on foreclosed assets totaled $439,000 at December 31, 1994,
after foreclosed asset charge-offs of $2.8 million during the year.
2.
BURRITT TRANSACTION. On December 4, 1992, Derby Savings entered into an Insured
Deposit Purchase and Assumption Agreement ("P & A") with the FDIC, pursuant to
which Derby purchased certain assets and assumed the insured deposits and
certain other liabilities of Burritt Interfinancial Bancorporation, New Britain,
Connecticut in an FDIC-assisted transaction. In the transaction, the Bank
assumed approximately $460 million of insured deposits and approximately $5.5
million of other liabilities of Burritt.
The assets of Burritt acquired included cash, various securities and certain
other assets totaling approximately $54.0 million and two loan pools of one-to-
four family mortgage loans and consumer loans, with book values of approximately
$139.7 million and $29.6 million, respectively. The loans acquired in this
transaction were purchased at a $10.4 million discount, which was initially
allocated to the specific allowance for credit losses. Specific allocations of
the acquired allowance for credit losses, to reflect the fair value of loans
acquired, have been made as management of the Bank identified probable losses.
During 1993, the Bank completed a valuation analysis of the loans acquired in
connection with the Burritt transaction. As a result of this analysis, the
Company allocated $6.0 million of the Burritt allowance for credit losses as a
purchased loan discount (Note 3). This amount is being accreted to interest
income over the remaining terms of the acquired loans.
The FDIC paid $240.4 million in cash to Derby in settlement of the difference
between the amount of deposits and liabilities assumed and the assets acquired
by Derby, less the $6.2 million premium paid by Derby in the transaction.
As a result of the Burritt transaction, Derby added 11 banking offices located
in the greater New Britain area.
MEMORANDUM OF UNDERSTANDING. During 1992, the Board of Directors of Derby
Savings entered into a Memorandum of Understanding (the "Memorandum") with the
FDIC and the Connecticut Commissioner of Banks. The Memorandum called for the
Board of Directors of the Bank to develop a written plan to reduce the level of
assets classified "substandard" and to establish target levels for the reduction
of adversely classified assets to 75% of total equity capital and reserves by
December 31, 1992 and to 50% of total equity capital and reserves within a
reasonable time thereafter. The Memorandum also called for the level of
delinquent loans to be reduced to no more than 5% of gross loans by December 31,
1993. At December 31, 1994, delinquent loans totaled $32.0 million or 3.8% of
total loans. Additionally, the Memorandum limits the payment of cash dividends
by the Bank to DS Bancor to the Company's debt service and non-salary expenses.
In connection with the Burritt transaction, the FDIC modified the terms of the
Memorandum which pertained to the maintenance of capital ratios. The Memorandum
initially required that the Bank maintain a ratio of tier 1 capital to total
assets of at least 5.5% and if the ratio fell below 7%, the Bank was required to
notify the FDIC and the Connecticut Commissioner. The modification required
Derby to have tier 1 capital in excess of 5% of total assets by December 31,
1993 and tier 1 capital at or above 5.75% of total assets by December 31, 1994.
However, management of the Bank has requested and the FDIC has approved an
extension of the December 31, 1994 target date to June 30, 1995. The Bank's
tier 1 capital ratio at December 31, 1994 was 5.5%. The Bank expects to achieve
the June 30, 1995 capital target of 5.75% through maintaining asset size at
current levels and earnings retention.
3.
BRANCH OFFICES. During the second quarter of 1994, the Bank relocated the
operations of the former New Britain main office of Burritt. Since the
acquisition of Burritt in December 1992, the Bank had been renting the former
main office of Burritt from the FDIC. The move to the new facility has allowed
the Bank to expand the level of services provided to include drive-up and
automated teller machine ("ATM") facilities.
In January 1994, the Bank closed one of its five branch offices located in New
Britain, which was acquired in the Burritt transaction. The customers of this
office can be serviced by any one of the Bank's other offices in New Britain or
the surrounding communities. (See Item 2 -- Properties.)
DERBY FINANCIAL SERVICES. In order to broaden the scope of available financial
services to the communities served by the Company, the Bank, through it's
subsidiary, Derby Financial Services ("DFS"), began offering brokerage services
in 1993. The former Burritt had been providing this type of service to the
greater New Britain area for several years. The products offered through DFS
include various equity securities, bonds and mutual funds.
MARKET AREA
The Bank currently operates twenty-two banking offices located in western New
Haven, eastern Fairfield and Hartford counties. The Bank has ATM's at 16 of its
offices. The Bank primarily generates deposits and originates loans in these
geographic areas.
The Company is headquartered in Derby, which is located in close proximity to
New Haven, Bridgeport and Danbury. This area is served by an excellent highway
system, which allows both east/west (Interstates 95 and 84 and the Merritt
Parkway) and north/south (Route 8) travel both within the state and access to
New York City, Hartford and Boston. Long distance travel is facilitated by
service at three airports. The ports of New Haven and Bridgeport are active
entry points to the Northeast.
The Route 8 corridor has experienced an influx of high technology and service
companies. Such companies include Southern New England Telephone, Tetley Tea,
Philips Medical Systems and Black & Decker. This influx has contributed to a
shift in the employment mix away from traditional industries, including
machinery, metal working and chemical processing. Additionally, the area is
known for its educational and medical facilities, such as Yale University.
LENDING ACTIVITIES
GENERAL. Derby Savings, like most other savings institutions, traditionally
concentrates its lending activities on the origination of loans secured by first
mortgage liens for the construction, purchase or refinancing of residential real
property. Also during the past several years, the Bank has enhanced its
consumer lending through the origination of HELOC's. While residential first
mortgage loans and HELOC's are the primary focus of Derby Savings' lending
activities, the Bank also originates other consumer loans, commercial real
estate mortgages and commercial business loans. At December 31, 1994, the
Bank's loan portfolio totaled $841.7 million and represented 68.8 % of total
assets.
4.
ONE-TO-FOUR FAMILY UNITS. At December 31, 1994, Derby Savings' total mortgage
loan portfolio was $721.0 million, of which $55.2 million is identified as held
for sale, compared to $660.6 million, with no loans identified as held-for-sale
at December 31, 1993. At December 31, 1994, Derby Savings Bank held in its
portfolio $683.6 million of first mortgage loans secured by one-to-four family
residential units which represented 94.8% of its total mortgage loan portfolio.
Of this amount, $6.9 million or 1.0 % were non-performing loans. These include
loans which are non-accruing or past due 90 days.
During 1994, Derby Savings offered adjustable-rate residential mortgage loans
having one-year and three-year adjustment periods, each for a maximum term of 30
years. The interest rate on the one-year adjustable-rate loans is 3.00% above
the One-Year Treasury Index. The payment and interest rate adjust annually with
a maximum interest rate adjustment of 2% per adjustment and 6.00% above the
original interest rate over the term of the loan. Derby Savings Bank also
offers a convertible mortgage program which allows the borrower to convert their
one year adjustable rate mortgage to a fixed rate mortgage between the 13th and
60th payment. Interest rates on the three-year adjustable-rate loans are fixed
for the first three years and either adjust every three years thereafter or
adjust annually thereafter on the same basis as the one-year adjustable-rate
loans. The Bank offers adjustable-rate loans to finance non-owner occupied
residences at a somewhat higher margin above the One-Year Treasury Index.
The Bank offers special mortgage programs to assist first time home-buyers
purchasing one and two family homes, or condominium units, including a five year
fixed rate mortgage priced below the regular 30 year fixed rate product. There
are no points, and the Bank will accept applications up to 40 years in term and
financing of up to 90%. Additionally, the Bank offers a 30-year fixed rate
program with financing of up to 95%.
Derby Savings does not originate residential mortgage loans which exceeded 95%
of the value of the security for the loan. In the event that the amount of a
mortgage loan exceeds 80% of the value of the real estate and improvements, the
Bank requires that the loan be insured against default by private mortgage
insurance, which effectively reduces the loss exposure to a 75% loan-to-value
ratio.
The Bank originates fixed-rate mortgage loans which, from time to time, are sold
in the secondary market in order to achieve the desired balance between
interest-sensitive assets and liabilities and to be able to continue to meet the
credit needs of the local community. The Bank pools such mortgages to
facilitate their sale to investors, primarily the Federal Home Loan Mortgage
Corporation (the "FHLMC") under its forward commitment programs and, to a lesser
extent, the Federal National Mortgage Association (the "FNMA"). The Bank
retains the servicing rights on loans sold in the secondary market.
Most of the mortgage loans originated by Derby Savings include a "due-on-sale"
clause, giving the Bank the right to declare a loan immediately due and payable
in the event, among other things, that the borrower sells or transfers title of
the real property subject to the mortgage. Due-on-sale clauses contained in
residential real estate mortgages have been ruled enforceable in Connecticut by
the state's highest court. Federal legislation also provides for the
enforceability of due-on-sale clauses.
5.
MULTI-FAMILY AND COMMERCIAL REAL ESTATE LOANS. At December 31, 1994, loans
secured by multi-family residences totaled $8.0 million or 1.1% of the Bank's
mortgage loan portfolio. At December 31, 1994, $1.8 million or 22.1% of loans
secured by multi-family residences were non-performing. Loans to finance
commercial real estate totaled $27.0 million and represented 3.7% of the Bank's
mortgage loan portfolio at year end 1994. There were $.2 million or .7% of
commercial real estate loans that were non-performing at year end 1994. The
interest rate on multi-family and commercial real estate loans generally ranges
from 3.75% to 4.0% above the One-Year Treasury Index and adjusts every year with
annual adjustment limits ranging from 2% to 3% and total adjustments over the
life of the loan generally limited from 5% to 7.5% above the initial interest
rate. Multi-family and commercial real estate loans generally amortize over
terms of 15 to 25 years, but may be called or modified by the Bank after ten
years. Derby Savings generally limits multi-family and commercial real estate
loans to 75% of the value of the property securing the loan.
CONSTRUCTION LOANS. In the area of real estate development and construction
lending, which is primarily for residential and condominium construction, the
Bank, at December 31, 1994, had commitments to lend $4.2 million, of which $2.4
million was outstanding at year end 1994, representing .3% of the mortgage loan
portfolio. In comparison, at year end 1993, $3.3 million was committed to
construction projects, of which $2.8 million was advanced, which represented .4%
of the mortgage loan portfolio. At December 31, 1994, there were no
construction and development loans that were non-performing.
The allowance for credit losses specifically allocated to the mortgage loan
portfolio totaled $4.5 million at December 31, 1994, which represented 50.7% of
the non-performing mortgage loans. This allowance includes $1.3 million
allocated to the loans acquired in the Burritt transaction.
CONSUMER LOANS. Connecticut savings banks are currently authorized by statute
to invest in secured and unsecured consumer loans without limitation as to
dollar amount. Savings banks are also authorized to issue credit cards and lend
money to individuals in connection with related lines of credit and to make
student loans under the Connecticut Guaranteed Student Loan program (the
"CGSL"). At December 31, 1994, the Bank had $98.0 million or 11.6% of its total
loan portfolio invested in consumer loans.
To enable home owners to utilize some of the equity in the value of their homes,
Derby Savings offers basically two types of second mortgage loans. Under the
home equity loan program, loans amortizing up to 20 years are made at rates
designed to be competitive in the market place. At December 31, 1994 and 1993,
the Bank had $19.3 million and $18.9 million, respectively in home equity loans.
Under the Home Equity Line of Credit ("HELOC") program, loans are made for an
original term of twenty years at either fixed rates or an interest rate
adjusting monthly at 1.5% to 2.5%, above a commercial bank prime rate as
published under key rates in the New York Times ("Derby Savings Prime").
During 1994, the Bank originated HELOC's at Derby Savings Prime for the first
six months, and thereafter at 1.5% to 2.5% over prime. These loans typically
require payment of interest only for ten years at which point the note requires
amortization to maturity. The amortizing second mortgage loan and the home
equity line of credit loan are made up to 75% and 90% respectively of the
appraised value of the home including prior encumbrances. Home Equity Lines of
Credit outstanding totaled $130.5 million with $70.2 million in use at year end
6.
1994 compared to $124.8 million with $68.4 million in use at year end 1993.
These loans represented 71.6% of the consumer loan portfolio and 8.3% of total
loans at December 31, 1994.
The Bank offers both marine loans and automobile loans to its customers. Marine
loans are made up to 75% of the sale price on new boats and 75% of the appraised
value of used boats and are personally guaranteed by the principals of any
corporate borrowers. The rates on these loans are generally fixed for a maximum
of fifteen years. The Bank, at December 31, 1994, had $1.4 million in marine
loans. Automobile loans on new vehicles are made up to 90% of the sales price,
while used vehicles are limited to 80%. Loans are generally made up to five
years at fixed rates on new vehicles.
Under the Connecticut Guaranteed Student Loan (CGSL) program, the Bank is
authorized to loan annually up to $4,000 to qualifying parents. At December 31,
1994, the Bank had $146,000 in parent loans. The interest rate on these loans
is partially subsidized and the principal and interest are fully guaranteed by
the federal government. Additionally the Bank also accepts loan applications
for student loans. These applications are forwarded to CGSL for processing.
At December 31, 1994, $1.1 million or 1.1% of the consumer loan portfolio was
non-performing. Of this amount, $635,000 or 57.8% are HELOC loans. The
allowance for credit losses specifically allocated to consumer loans totaled
$1.3 million at December 31, 1994, which represented 115.3% of the non-
performing consumer loans. This allowance includes $497,000 allocated to loans
acquired in the Burritt transaction.
COMMERCIAL LENDING. The Bank has developed a commercial loan portfolio which
totaled $22.7 million or 2.7% of the total loan portfolio at December 31, 1994.
The Bank targets businesses with $1 million to $5 million in annual revenues.
The Bank's commercial lending personnel, including a credit analyst, have
considerable experience in commercial lending.
Derby Savings also offers traditional line of credit loans to businesses which
are secured by inventories and receivables. At December 31, 1994, $13.3 million
was committed to such lines of credit, $5.1 million of which was being used.
These lines of credit, which individually range from $10,000 to $4.0 million,
had an average amount outstanding of $106,000 at December 31, 1994. The
interest rate on these loans varies monthly at a margin above Derby Savings
Prime. Each loan on the credit line must be repaid within 11 months of its
origination.
The commercial loan portfolio at December 31, 1994, in part, consisted of loans
to local real estate developers and builders. Land improvement loans are made
up to 75% of the value of the land. When construction loans are made to an
experienced developer who already has a signed purchase contract with a buyer,
and a 10% deposit, the loan is classified as a commercial loan rather than a
construction loan. Such loans are made up to 100% of construction cost,
exclusive of the developer's equity in the land. All such loans are short-term
with an interest rate floating at a margin above Derby Savings Prime.
At December 31, 1994, $3.3 million or 14.5% of the Company's investment in
commercial loans was for the development of real estate, with the remaining
portfolio comprised of loans for various business needs.
7.
At year end 1994, $527,000, representing 2.3% of the commercial loan portfolio,
was non-performing. The allowance for credit losses allocated to commercial
loans totaled $1.0 million at December 31, 1994, which represented 197.7% of the
non-performing commercial loans.
LOAN MATURITIES. The following table sets forth certain information at December
31, 1994 regarding maturities and repricing in the Bank's loan portfolio. Loans
are net of deferred loan fees and of non-accruing loans.
One Year One through Over
or Less Five Years Five Years
-------- ----------- ----------
(Amounts in thousands)
Permanent mortgage loans $493,611 $ 82,293 $135,119
Construction loans 2,272 --- ---
Commercial loans 21,904 177 53
Consumer loans 85,376 7,515 4,054
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Total loans receivable $603,163 $ 89,985 $139,226
======== ======== ========
The following table sets forth, as of December 31, 1994, the principal dollar
amount of performing loans due after one year, net of deferred fees which have
pre-determined interest rates and floating or adjustable interest rates.
Due After December 31, 1995
--------------------------------------
Predetermined Floating or
Rates Adjustable Rates
------------- ----------------
(Amounts in thousands)
Permanent mortgage loans $181,206 $ 36,094
Construction loans 112 ---
Commercial loans 230 ---
Consumer loans 10,970 599
-------- --------
Total loans receivable $192,518 $ 36,693
======== ========
LOAN ORIGINATIONS. Loan originations are developed by the Bank's mortgage,
consumer and commercial loan departments from a number of sources including
realtor, builder and customer referrals. Bank personnel routinely call on
various real estate firms and attend regular monthly meetings of the local real
estate board. Commercial loan originations are primarily developed by direct
solicitation of both present and new customers by commercial loan officers.
Consumer loan services are solicited by direct mail to existing depositors and
mortgage loan customers. Advertising is also used to promote various consumer
loans.
Applications for all types of loans are taken at all of the Bank's offices. The
Bank's commercial banking and loan representatives go to borrowers' homes or
businesses to assist with the preparation of loan applications. All mortgage
and commercial loan application underwriting is centralized.
The Bank's staff underwriters have individual lending authority with limits
ranging up to $250,000; the senior lending officer has a $500,000 limit. The
management loan committee, which is composed of the Bank's president, executive
vice president, senior lending officer, chief financial officer and the senior
officer of each lending department, can approve loans of up to $1.5 million.
8.
Loans in excess of $1.5 million require approval by the Board of Directors.
Loans to one entity, which aggregate $4.0 million, may be approved by the
management loan committee.
All property securing real estate loans made by Derby Savings is appraised by
staff appraisers or an independent appraiser selected by the Bank. For all real
estate loans, Derby Savings requires the borrower to obtain title, fire and
extended casualty insurance and, where appropriate, flood insurance.
The Bank encounters certain environmental risks in its lending activities.
Under federal and state environmental laws, lenders may become liable for the
costs of cleaning up hazardous materials found on security properties. Certain
states may also impose liens with higher priorities than first mortgages on
properties to recover funds used in such efforts. Although the foregoing
environmental risks are more usually associated with industrial and commercial
loans, environmental risks may be substantial for residential lenders, like
Derby Savings, since environmental contamination may render the security
property unsuitable for residential use. In addition, the value of residential
properties may become substantially diminished by contamination of nearby
properties. In accordance with the guidelines of FNMA and FHLMC, appraisals for
single-family homes on which the Bank lends include comment on environmental
influences and conditions. The Bank attempts to control its exposure to
environmental risks with respect to loans secured by larger properties by
requiring an environmental survey and/or audit. No assurance can be given,
however, that the value of properties securing loans in Derby Savings' portfolio
will not be adversely affected by the presence of hazardous materials or that
future changes in federal or state laws will not increase the Bank's exposure to
liability for environmental cleanup.
Derby Savings issues commitments to prospective borrowers to make loans subject
to various conditions. Loan commitments are generally issued to finance
residential properties, commercial loans and for construction loans secured by
commercial and multi-family residential properties. With respect to fixed rate
single-family residential mortgage loans, it is the policy of the Bank either to
issue 30-day commitments to lend at the prevailing rate of interest at the time
of commitment, or to lock in the interest rate after the time of application.
In order to lock in the interest rate, the applicant must pay an origination fee
of one half of one percent of the loan amount. This fee is deducted from the
mortgage origination fee due at closing. On adjustable rate mortgages, it is
the policy of the Bank to hold the prevailing interest rate at the time of
application and to issue a 60 day commitment when the loan is approved, or to
lock in the interest rate after the time of application, for 60 days. In order
to lock in the interest rate for 60 days, the applicant must pay an origination
fee of one half of one percent of the loan amount. This fee is deducted from
the mortgage origination fee due at closing. The proportion of the total volume
of commitments derived from any particular category of loan varies from time to
time and depends upon market conditions. At December 31, 1994, Derby Savings
had $10.8 million of loan origination commitments outstanding.
9.
LOAN COMPOSITION. The following table summarizes the types of loans held by the
Bank at the dates indicated and the percentage of loans in each category to net
loans:
At December 31,
----------------------------------------------------
Types of Loans: 1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Amount Amount Amount Amount Amount
% % % % %
----------------------------------------------------
(Amounts in thousands)
MORTGAGES
One-to-Four Family $683,557 $621,561 $553,453 $366,047 $391,019
81.9 79.8 78.2 72.0 71.1
Multi-Family 8,007 8,544 7,278 7,508 7,639
1.0 1.1 1.0 1.5 1.4
Commercial 27,043 27,747 29,848 29,596 29,543
3.2 3.6 4.2 5.8 5.4
Construction 2,364 2,753 2,782 2,825 4,597
.3 .3 .4 .5 .8
-------- -------- -------- -------- --------
Total 720,971 660,605 593,361 405,976 432,798
86.4 84.8 83.8 79.8 78.7
CONSUMER LOANS
HELOC 70,177 68,386 71,428 60,158 62,629
8.4 8.8 10.1 11.8 11.3
Other Consumer 27,866 27,134 34,239 14,206 16,367
3.3 3.5 4.8 2.8 3.0
-------- -------- -------- -------- --------
Total 98,043 95,520 105,667 74,364 78,996
11.7 12.3 14.9 14.6 14.3
COMMERCIAL LOANS 22,660 30,141 22,931 31,994 40,769
2.7 3.8 3.2 6.3 7.4
-------- -------- -------- -------- --------
Total Loans 841,674 786,266 721,959 512,334 552,563
100.8 100.9 101.9 100.7 100.4
Less Allowances For
Credit Losses 6,803 6,979 13,937 3,674 2,313
.8 .9 1.9 .7 .4
-------- -------- -------- -------- --------
Loans Receivable,Net $834,871 $779,287 $708,022 $508,660 $550,250
======== ======== ======== ======== ========
PURCHASE AND SALE OF LOANS AND LOAN SERVICING. The Bank, from time to time,
sells loans in the secondary mortgage market while retaining servicing rights.
The loans that are sold are predominantly fixed rate mortgage loans. The
Company sold $12.1 million in fixed rate mortgage loans in 1994, compared to
$30.0 million in 1993, in order to achieve the desired balance between interest-
sensitive assets and liabilities and to provide additional funds to meet the
credit needs of the local community. Loan servicing on loans sold is performed
by the Bank, which retains a portion (normally 3/8 of 1%, exclusive of any
excess servicing fees) of the interest paid by the borrower in consideration for
the servicing of the loan.
10.
In order to supplement local mortgage loan originations, the Bank has purchased
single family adjustable rate mortgage loans. These purchases totaled $21.9
million during 1994 and $8.8 million during 1993. At year end 1994,
approximately 73% of the mortgage portfolio was invested in adjustable rate
loans, compared to 70% in 1993.
The following table sets forth information as to Derby Savings' loan servicing
portfolio at the dates shown.
At December 31,
------------------------------------------------------
1994 1993 1992
---------------- ---------------- ------------------
(Amounts in thousands)
Loans owned by
the Bank $796,138 86.0% $743,197 83.2% $ 615,638 58.0%
Loans Serviced
For Others 129,345 14.0 149,868 16.8 445,184 42.0
-------- ----- -------- ----- ---------- -----
Total Loans Serviced $925,483 100.0 $893,065 100.0 $1,060,822 100.0
======== ===== ======== ===== ========== =====
LOAN ACTIVITIES. During 1994, the Bank originated $164.9 million in mortgage
loans and $91.2 million in other loans, compared to $188.6 million in mortgage
loans and $78.5 million in other loans during 1993.
The table below shows real estate mortgage loan origination, sale and repayment
activities of Derby Savings for the periods indicated.
At December 31,
----------------------------
1994 1993 1992
-------- -------- --------
(Amounts in thousands)
Loans originated:
Construction loans originated $ 1,981 $ 1,580 $ 1,757
Purchase/refinance 162,875 187,056 138,909
-------- -------- --------
Total loans originated 164,856 188,636 140,666
Loans purchased 21,938 8,663 152,090
-------- -------- --------
Total loans originated and purchased 186,794 197,299 292,756
Loans sold:
Participations --- 111 927
Whole loans 12,139 29,875 24,904
-------- -------- --------
Total loans sold 12,139 29,986 25,831
Loan principal reductions 118,301 94,156 79,337
-------- -------- --------
Total loans sold and principal reductions 130,440 124,142 105,168
-------- -------- --------
Increase (decrease) in real estate
mortgage loans (before net items) $ 56,354 $ 73,157 $187,588
======== ======== ========
11.
The following table shows non-real estate loan originations and purchases and
principal reductions of the Bank for the periods indicated.
At December 31,
----------------------------
1994 1993 1992
-------- -------- --------
(Amounts in thousands)
Loans originated and purchased:
Personal $ 637 $ 331 $ 1,150
Home improvement 243 88 18,775
Home equity credit line 43,784 43,236 40,666
Auto 1,879 58 3,164
Education 111 545 498
Collateral 2,194 2,246 3,186
Marine --- 13 571
Leeway --- -- --
Commercial 42,324 32,002 12,653
-------- -------- --------
Total loans originated and purchased 91,169 78,519 80,663
-------- -------- --------
Loan principal reductions:
Personal 583 1,326 448
Home improvement 342 2,647 2,594
Home equity credit line 41,224 47,192 29,396
Auto 1,116 1,704 206
Education 389 491 461
Collateral 2,200 2,203 2,043
Marine 646 1,247 904
Leeway 61 -- 74
Commercial 49,866 24,389 22,529
-------- -------- --------
Total principal reductions 96,427 81,199 58,655
-------- -------- --------
Increase (decrease) in loans
(before net items) $ (5,258) $(2,680) $ 22,008
======== ======== ========
FEE INCOME FROM LENDING ACTIVITIES. Fee income from lending activities is
primarily generated from origination fees on one-to-four family mortgage loans.
These fees range from 1% to 3% of the total loan amount and vary depending on
the mortgage program. Origination fee income is also generated from home
improvement loans, commercial loans, multi-family loans and other
non-residential loans.
As required by the Statement of Financial Accounting Standards No. 91 ("SFAS
91"), "Accounting for Non-refundable Fees and Costs Associated with Originating
or Acquiring Loans and Initial Direct Costs of Leases," the Bank defers certain
direct costs and loan fees resulting from the origination of loans, which will
be amortized as an adjustment of yield over the contractual term of the related
loans.
In addition to origination fees, Derby Savings charges annual fees for HELOC
loans, and fees for loan modifications, late payments, changes of property
ownership and for related miscellaneous services.
USURY LIMITATIONS. Federal legislation preempted all state usury laws
concerning residential first mortgage loans unless the state legislature acted
to override the pre-emption by April 1, 1983. The Connecticut legislature did
not act to override the federal pre-emption. Connecticut law currently imposes
no ceiling on interest rates on loans made by the Bank.
12.
COLLECTION PROCEDURES AND ALLOWANCE FOR CREDIT LOSSES. When a borrower fails to
make a required payment by the 20th day after the payment is due, Derby Savings
attempts to cause the delinquency to be cured by corresponding with the
borrower. If the delinquency continues, the Bank corresponds further with the
borrower and, through telephone calls and letters, attempts to determine the
reason for and cure the delinquency. If the delinquency cannot be cured, the
Bank institutes appropriate legal action.
When Derby Savings acquires real estate through foreclosure or by deed in lieu
of foreclosure ("foreclosed assets"), the real estate is placed on the Bank's
books at the lower of the carrying value of the loan or the fair value of the
real estate based upon a current appraisal. Any reduction below the value
previously recorded on the books is charged against the allowance for estimated
losses on foreclosed assets.
The allowance for credit losses has been established through provisions for
credit losses and is a valuation allowance which is reflected as a deduction
from loans. The allowance represents amounts which, in management's judgement,
will be adequate to absorb possible losses on loans that may become
uncollectible, based on such factors as changes in the nature and volume of the
loan portfolio, current economic conditions that may affect the borrowers'
ability to pay, overall portfolio quality, the average of the Bank's credit
losses less recoveries for the current and preceding five years, and review of
specific problem loans. At December 31, 1994, the allowance for credit losses
totaled $6.8 million, which represented 64.9% of the $10.5 million of
non-performing loans.
Included in loans outstanding at December 31, 1994 and 1993 were $10.5 million
and $12.1 million, respectively, in non-performing loans. Included in these
amounts were $8.9 million in mortgage loans, $1.1 million in consumer loans and
$527,000 in commercial loans at December 31, 1994 and $9.0 million in mortgage
loans, $1.7 million in consumer loans and $1.4 million in commercial loans at
December 31, 1993. At December 31, 1994 and 1993, non-accrual interest on these
loans totaled approximately $640,000 and $810,000, respectively.
13.
Transactions in the allowance for credit losses for each of the five years in
the period ended December 31, 1994 were as follows.
At And For The Years Ended December 31,
-------------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------ ------
(Amounts in thousands)
Balance at beginning
of period $ 6,979 $13,937 $ 3,674 $2,313 $1,507
Charge-offs:
Mortgage loans (1,848) (2,857) (941) (1,325) (1,641)
Consumer loans (573) (860) (211) (267) (447)
Commercial loans (195) (114) (660) (1,606) (570)
------- ------- ------- ------ ------
(2,616) (3,831) (1,812) (3,198) (2,658)
------- ------- ------- ------ ------
Recoveries:
Mortgage loans 63 329 76 45 ---
Consumer loans 46 21 41 43 34
Commercial loans 6 11 229 71 ---
------- ------- ------- ------ ------
115 361 346 159 34
------- ------- ------- ------ ------
Net charge-offs 2,511 3,470 1,466 3,039 2,624
Provision for credit losses 2,325 2,475 1,375 4,400 3,430
Acquired allowance --- (5,963) 10,354 --- ---
------- ------- ------- ------ ------
Balance at end of period $ 6,803 $ 6,979 $13,937 $3,674 $2,313
======== ======== ======== ======= =======
Ratio of net charge-offs to
average loans outstanding .31% .47% .27% .57% .48%
During 1993, the Bank completed the valuation analysis of the loans acquired in
the Burritt transaction. As a result of this analysis, the Bank allocated $6.0
million of the Burritt allowance for credit losses as a purchased loan discount.
This amount is being accreted to interest income over the remaining terms of the
acquired loans.
14.
NON-PERFORMING AND RESTRUCTURED LOANS. The following table summarizes the
Bank's non-performing and restructured loans. For a discussion of
non-performing loans see "Management's Discussion and Analysis - Financial
Condition" contained in the 1994 Annual Report to Stockholders pages 6 - 11,
which are incorporated herein by reference.
At December 31,
--------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
(Amounts in thousands)
Non-accrual loans:
Mortgage $7,675 $6,657 $9,631 $6,904 $6,097
Construction --- --- 125 125 427
Consumer 1,098 1,446 1,197 1,000 1,741
Commercial 527 1,399 293 3,412 3,437
Accruing loans past
due 90 days:
Mortgage 1,186 2,317 3,006 4,096 4,660
Construction --- --- --- --- 70
Consumer --- 249 1 151 230
Commercial --- --- --- --- ---
The following table summarizes the allocation of the Bank's allowance for credit
losses and the percentage of loans in each category to total loans.
Allocation of Allowance for Credit losses:
--------------------------------------------------
At December 31,
--------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Amount Amount Amount Amount Amount
% % % % %
------- ------- ------- ------- -------
(Amounts in thousands)
Balance at end of period
applicable to:
Mortgage loans $ 4,495 $ 4,605 $11,166 $ 2,180 $ 1,130
85.7 84.0 82.2 79.2 78.3
Consumer loans 1,266 1,193 1,987 704 568
11.6 12.2 14.6 14.5 14.3
Commercial loans 1,042 1,181 784 790 615
2.7 3.8 3.2 6.3 7.4
------- ------- ------- ------- -------
Total $ 6,803 $ 6,979 $13,937 $ 3,674 $ 2,313
100.0 100.0 100.0 100.0 100.0
======= ======= ======= ======= =======
15.
Comparative information with respect to non-accrual loans is as follows:
At December 31,
----------------
1994 1993
---- ----
(Amounts in thousands)
Interest income that would have been recorded
under original terms: $640 $810
Interest income recorded during the period: $487 $960
It is the Bank's general policy that no additional interest income is accrued
with respect to loans on which a default of interest has existed for a period in
excess of 90 days, at which time previously accrued interest is reversed.
Foreclosed and in-substance foreclosed assets consisted of the following:
At December 31,
----------------
1994 1993
---- ----
(Amounts in thousands)
Foreclosed assets $ 6,195 $ 9,379
In-substance foreclosed assets 4,556 7,804
------- -------
Subtotal 10,751 17,183
Valuation allowance (439) (1,040)
------- -------
Net carrying amount $10,312 $16,143
========= ========
At December 31, 1994 and 1993, there were 37 and 44 properties, respectively,
included in foreclosed assets and 26 and 50 properties, respectively, in
in-substance foreclosed assets. See "Management's Discussion and Analysis -
Financial Condition" contained in the 1994 Annual Report to Stockholders pages
9 - 10, which is incorporated herein by reference.
SECURITIES PORTFOLIO (See "Management's Discussion and Analysis" contained
in the 1994 Annual Report to Stockholders).
Savings banks chartered in Connecticut have authority to make a wide range of
securities deemed to be prudent by a bank's board of directors. Subject to
various restrictions, including limitations on the aggregate dollar amount which
may be invested in each category as a percentage of total assets, the Bank may
own commercial paper, corporate bonds, certain mutual fund shares, debt and
equity obligations issued by credit worthy entities, whether traded on public
securities exchanges or placed privately for investment purposes, bonds of
government agencies and interests in real estate located in or outside of
Connecticut without limitations as to use. Recent federal legislation limits
the Bank's ability to exercise certain of the foregoing investment powers. See
"Regulation--Impact of the FDICIA on State Powers." The Bank's securities
portfolio totaled $322.1 million or 26.3% of total assets at December 31, 1994.
Of such amount, $292.0 million, or 90.7% of the securities portfolio consisted
of U.S. government and agency bonds and mortgage-backed securities.
Derby Savings increases or decreases its liquid investments depending upon,
among other things, the availability of funds and loan demand. Historically,
the Bank has maintained its liquid assets at levels believed adequate to meet
requirements of normal business activities.
16.
The securities portfolio remained essentially unchanged from $322.6 million or
27.0% of total assets at year end 1993 to $322.1 million, representing 26.4% of
total assets at year end 1994. In addition to mortgage-backed securities, the
Company's securities portfolio is comprised of investment grade corporate bonds
and marketable equity securities.
At December 31, 1994, securities, including Federal funds sold, maturing or
repricing within 12 months represented 25.3% of the Bank's interest-sensitive
assets maturing or repricing during 1995.
At December 31, 1994, the Bank had common stock securities totaling $1.6 million
with a fair value of $1.5 million managed by an outside investment firm under
the Bank's general direction for maximum return. Additionally, the Bank
maintains a trading portfolio comprised of common stocks. At year end 1994,
there were $770,000 of common stocks in this portfolio.
The following table sets forth the composition and carrying amount of the Bank's
securities portfolio and other money market securities, including securities
available for sale, at the dates indicated:
At December 31,
-----------------------------------
1994 1993 1992
-------- -------- --------
(Amounts in thousands)
Bonds and money market securities:
Federal funds $ 4,500 $ 30,500 $126,925
U.S. Government and agency bonds 22,419 2,000 25,629
Mortgage-backed-securities 269,543 243,848 163,481
Other bonds and notes 27,927 66,352 73,263
Money market preferred stock --- 9,000 7,000
Marketable equity securities 2,256 1,399 2,142
-------- -------- --------
Total $326,645 $353,099 $398,440
======== ======== ========
The following table sets forth certain information at December 31, 1994
regarding maturities and yields in the Bank's securities portfolio:
One Five Over
One Year Through Through Ten
or Less Five Years Ten Years Years Total
-------- -------- -------- -------- --------
(Amounts in Thousands)
US Government & $ --- $ 2,000 $ 15,600 $ 4,819 $ 22,419
Agencies --- 4.34 7.08 7.00 6.82
Mortgage-Backed 1 28,456 62,908 178,179 269,544
Securities 7.25 5.97 6.11 6.78 6.54
Other Notes & Bonds 12,391 15,536 --- --- 27,927
5.02 5.56 --- --- 5.32
-------- -------- -------- -------- ---------
Total $ 12,392 $ 45,992 $ 78,508 $182,998 $319,890
5.02 5.76 6.30 6.79 6.45
======== ======== ======== ======== ========
The stated yields on mortgage backed securities in the preceding table may vary,
based on changes in the level of prepayments experienced over the remaining term
of the securities.
17.
The securities constituting the Bank's investments in other bonds and notes are
all publicly traded. All of these securities are rated in one of the top four
rating categories by a nationally recognized rating firm.
The Bank adopted Financial Accounting Standards Board Statement No. 115 as of
December 31, 1993. This statement requires, in part, that certain securities
that are classified as available-for-sale be recorded at fair value, with
unrealized gains and losses, net of tax, reported in a separate component of
stockholders' equity. As a result, at December 31, 1994, the Bank recorded an
unrealized loss, net of tax effect, of $5.6 million which is included in
stockholders' equity. (See 1994 Annual Report to Stockholders).
The following table summarizes the Bank's security investments by portfolio
type:
Trading Account
December 31, 1994
----------------------------------
(Amounts in thousands)
Net
Amortized unrealized Market
cost losses value
--------- -------- ---------
Marketable Equities $ 918 $ 148 $ 770
========= ======== =========
Available-For-Sale
December 31, 1994
----------------------------------
(Amounts in thousands)
Net
Amortized unrealized Market
cost losses value
--------- --------- ---------
U.S. Government and agency bonds $ 21,095 $ 676 $ 20,419
Mortgage-backed securities $ 174,667 $ 7,825 $ 166,842
Other bonds and notes 28,903 976 27,927
--------- --------- ---------
Total bonds 224,665 9,477 215,188
Marketable equities 1,556 70 1,486
Total securities $ 226,221 $ 9,547 $ 216,674
========= ========= =========
Held-to-Maturity
December 31, 1994
----------------------------------
(Amounts in thousands)
Net
Amortized unrealized Market
cost losses value
--------- --------- ---------
U.S. Government and agency bonds $ 2,000 $ 60 $ 1,940
Mortgage-backed securities 102,702 7,714 94,988
--------- -------- ---------
Total securities $ 104,702 $ 7,774 $ 96,928
========= ======== =========
See Note 2 to the Consolidated Financial Statements in the Company's Annual
Report to Stockholders for the year ended December 31, 1994 for information
concerning the fair values and other information regarding the Bank's securities
portfolio, incorporated herein by reference.
18.
SOURCES OF FUNDS
GENERAL. Deposits are the primary source of Derby Savings' funds for use in its
lending and investment activities. In addition, the Bank derives funds from
interest and principal payments on loans and other investments and from FHLBB
advances and other borrowings (See "Management's Discussion and Analysis -
Financial Condition" contained in the 1994 Annual Report to Stockholders,
incorporated herein by reference). Loan repayments are a relatively stable
source of funds, while deposit inflows and outflows are significantly influenced
by prevailing interest rates, money market conditions and competitive factors.
Borrowings may be used on a short-term basis to compensate for reductions in
normal sources of funds or on a longer term basis to support expanded lending
and investment activities. During the past several years, the use of FHLBB
advances has played a significant part in the overall funding of the Bank's
growth.
DEPOSIT ACTIVITIES. Derby Savings has developed a variety of deposit products
ranging in maturity from demand-type accounts to certificates with maturities of
up to five years. The Bank's deposits are primarily derived from the areas
where its offices are located. Derby Savings does not solicit deposits outside
of Connecticut.
In addition to traditional certificates of deposit, the Bank offers two types of
money market deposit accounts. At December 31, 1994, one of the money market
accounts paid 2.25% for balances of $10,000 or more. The other money market
account, which has been marketed under the name of the No Maturity CD, pays a
minimum rate of interest equal to 2.5 percentage points below the Bank's prime
rate on balances of $25,000 or more. During 1993, Derby Savings Bank ceased
offering this account type. At December 31, 1994, $161.7 million of the Bank's
deposits, or 15.7% of total deposits were held in the No Maturity CD, which paid
interest at the rate of 6.0% per annum at year end.
The Bank seeks to price its deposits in order to meet its need for liquidity to
fund loans and make other investments. The Bank reviews and establishes its
rates weekly.
Derby Savings promotes the establishment of IRA and Keogh accounts because
management believes the Bank's relationship with such depositors tends to be
stable. Additionally, the Bank seeks to act as trustee, administrator or, in
conjunction with an investment advisor, the manager of corporate pension funds
and actively solicits this business from smaller businesses in its market area.
At December 31, 1994, $132.0 million of the Bank's deposits, or 12.8% of total
deposits, were held in retirement accounts.
19.
The following table sets forth the average dollar amounts of deposits of the
Bank by type and the weighted average rates paid for the periods indicated:
For the Years Ended December 31,
---------------------------------------------------------
1994 1993 1992
------------------ ------------------ -----------------
Weighted Weighted Weighted
Average Average Average Average Average Average
Type Amount Rate Amount Rate Amount Rate
---- ------- -------- ------- -------- ------- --------
(Amounts in Thousands)
Non-interest
bearing:
Demand Deposit $ 30,179 --- $ 26,409 --- $ 12,495 ---
======== ======= ======== ======= ======== =======
Interest bearing
deposits:
Demand Deposits $ 47,794 1.95% $ 45,678 2.43% $ 12,849 3.24%
Savings Deposits 231,318 2.01 237,846 2.58 130,570 3.61
Money Market
Deposits 203,867 3.91 186,983 3.19 122,611 3.72
Time
Deposits 513,471 4.37 515,368 4.73 289,848 5.45
-------- -------- --------
Total interest
bearing Deposits $996,450 3.61% $985,875 3.81% $555,878 4.59%
======== ======= ======== ======= ======== =======
The following table sets forth the deposit flows for Derby Savings during the
periods indicated.
At December 31,
------------------------------------------------
1994 1993 1992
---------- ---------- ---------
(Amounts in thousands)
Deposits $1,741,505 $1,803,245 $ 984,316
Withdrawals 1,755,921 1,829,414 996,507
---------- ---------- ---------
Net Cash Inflow (outflow) (14,416) (26,169) (12,191)
Deposits Acquired --- --- 459,550
Interest Credited 35,941 37,459 25,392
---------- ---------- ---------
Net increase in deposits $ 21,525 $ 11,290 $ 472,751
========== ========== =========
The following table presents, by various interest-rate categories, the amounts
of certificate accounts as of the dates indicated.
At December 31,
-----------------------------------------------
1994 1993 1992
-------- -------- --------
(Amounts in thousands)
2.01- 4.00% $189,891 $289,841 $180,098
4.01- 6.00% 282,210 148,873 229,605
6.01- 8.00% 55,655 54,509 107,058
8.01-10.00% 1,112 8,824 22,266
10.01-12.00% 50 143 132
-------- -------- --------
$528,918 $502,190 $539,159
======== ======== ========
20.
The following table presents the maturities of the Bank's certificates of
deposit in amounts of $100,000 or more at December 31, 1994 by time remaining to
maturity.
At December 31, 1994
--------------------
(Amounts in thousands)
Matures:
Less than 6 months $ 11,501
Over 6 through 12 months 6,923
Over 12 months 13,745
---------
Total $ 32,169
=========
BORROWINGS. The FHLB System functions in a reserve credit capacity for savings
institutions and certain other financial institutions. As a member of the FHLB
System, Derby Savings is required to own capital stock in the FHLBB and is
authorized to apply for advances on the security of such stock and other
qualified collateral, which includes certain of its home mortgages and other
assets (principally securities which are obligations of, or guaranteed by, the
United States), provided certain credit worthiness standards have been met. See
"Regulation - Federal Home Loan Bank System". Under its current credit
policies, the FHLBB limits advances to a member's qualified collateral. At year
end 1994 the Bank had a borrowing capacity with the FHLBB of approximately $770
million, of which $111.1 million was outstanding. FHLBB advances are used for
several separate programs. First, FHLBB advances are used to match fund five to
ten year fixed-rate commercial real estate mortgage loans at a spread of at
least 200 basis points. At December 31, 1994, advances primarily for this
purpose totaled $11.2 million. Second, the Bank uses these advances to match
fund both one year adjustable-rate mortgages and Home Equity Lines of Credit
through floating rate advances. In addition to cash management, these advances
have been used to fund purchases of various mortgage-backed securities.
At December 31, 1994 and 1993, respectively, the Company had total borrowings
outstanding of $111.1 million and $106.4 million, respectively.
In 1990, the Board of Directors authorized and the Company established a $3.0
million line of credit to partially fund the repurchase of the Company's common
stock in 1989 and 1990. This line of credit was paid off in June 1994.
21.
The following table summarizes the Company's borrowings:
At And For The Years Ended December 31,
---------------------------------------
1994 1993 1992
-------- -------- --------
(Amounts in thousands)
Repurchase agreements $ --- $ --- $ 158
Notes payable--Bank --- 1,450 1,933
FHLBB advances 111,145 104,991 120,771
-------- -------- --------
Total $111,145 $106,441 $122,862
======== ======== ========
Weighted average interest rate on
FHLBB advances 5.52% 5.47% 6.13%
Weighted average interest rate on total
borrowings during the period 5.53% 5.48% 6.15%
Highest month-end balance of total
borrowings $142,451 $144,340 $134,586
Average balance of total borrowings $123,190 $113,376 $103,886
See Note 7 to Consolidated Financial Statements in the 1994 Annual Report to
Stockholders for further information regarding the Company's borrowings.
See Management's Discussion and Analysis and Selected Financial and Other Data
in the 1994 Annual Report to Stockholders for the average balance sheet, rate
volume analysis, interest rate sensitivity analysis and selected financial
ratios which are herein incorporated by reference.
EMPLOYEES
At December 31, 1994, Derby Savings had 312 employees, of whom 75 were part-time
and none of whom were represented by a collective bargaining group. Employee
benefits include the Bank's pension plan, life, health and dental insurance, and
long-term disability insurance which are supplied by the Bank for all employees.
Management considers its relations with its employees to be excellent.
COMPETITION
Derby Savings experiences substantial competition in attracting and retaining
deposits and in making mortgage and other loans. The primary factors in
competing for deposits are interest rates, the quality and range of financial
services offered, convenience of office locations and office hours. Competition
for deposits comes primarily from other savings institutions and commercial
banks and money market funds. Additional competition for deposits comes from
various types of corporate and government borrowers and credit unions.
The primary factors in competing for loans are interest rates, loan origination
fees and the quality and range of lending services offered. Competition for
origination of first mortgage loans comes primarily from other savings
institutions, mortgage banking firms, commercial banks, insurance companies and
real estate investment trusts.
22.
Connecticut enacted legislation, effective March 19, 1990, which permits
interstate stock acquisitions between Connecticut depository institutions (i.e.,
commercial banks, savings banks, and savings and loan associations) and
depository institutions in other states that have adopted reciprocal
legislation, subject to the approval of the Connecticut Banking Commissioner.
This legislation also permits out-of-state bank holding companies or savings and
loan holding companies in states which have adopted reciprocal legislation to
acquire the stock of Connecticut holding companies or depository institutions.
Such activity was previously limited to stock acquisitions among depository
institutions or holding companies located in New England states with reciprocal
laws. On or after February 1, 1992, a bank holding company or savings and loan
holding company in a state which has adopted reciprocal legislation may charter
and operate a de novo Connecticut depository institution or holding company upon
the approval of the Connecticut Commissioner. Connecticut law also authorizes
bank holding companies from any state to establish non-bank offices (including
loan production offices) in Connecticut on a limited basis. Such legislation
may increase the number and/or size of the financial institutions competing with
the Company in its market area.
The Financial Institutions Recovery Reform and Enforcement Act ("FIRREA"),
expressly authorizes the FRB to approve acquisitions of savings associations by
bank holding companies. Additionally, FIRREA would permit the acquired savings
association to be converted to a bank or merged with a bank subsidiary of the
acquiring bank holding company, under certain circumstances. These provisions
of FIRREA may also increase competition from other financial institutions within
Derby Savings' market areas.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"IBBEA") authorized the acquisition of banks in any state by bank holding
companies, subject to compliance with federal and state antitrust laws, the
Community Reinvestment Act ("CRA") and specific deposit concentration limits.
The IBBEA removes most state barriers to interstate acquisitions of banks and
ultimately will permit multi-state banking operations to merge into a single
bank. Enactment of the IBBEA may result in increase competition and financial
institution acquisition from out of state financial institutions and their
holding companies.
REGULATION
FEDERAL BANK HOLDING COMPANY REGULATION
The Company is a registered bank holding company under the Bank Holding Company
Act of 1956, as amended (the "BHCA"), and is subject to FRB regulations,
examination, supervision and reporting requirements. Among other things, the
Company is required to file with the FRB annual reports and such additional
information regarding the business and operations of the Company and its
subsidiaries as the FRB may require pursuant to the BHCA. The FRB may conduct
examinations of the Company and its subsidiaries. Under the BHCA and
regulations adopted by the FRB, the Company and its subsidiaries are prohibited
from requiring certain tie-in arrangements in connection with any extension of
credit, lease, or sale of property or furnishing of services.
Under the BHCA, FRB approval is required for any action which causes a bank or
other company to become a bank holding company for any action which causes a
bank to become a subsidiary of a bank holding company. Under the BHCA, a bank
holding
23.
company such as the Company, must obtain FRB approval before (i) it acquires
direct or indirect ownership or control of any voting shares of any bank if,
after such acquisition, it will own or control directly or indirectly more than
5% of the voting stock of such bank unless it already owns a majority of the
voting stock of such bank; (ii) it or any of its subsidiaries, other than a
bank, acquires all or substantially all of the assets of a bank; or (iii) it
merges or consolidates with another bank holding company. Any application by a
bank holding company or its subsidiaries to acquire any voting shares of, or
interest in, or all or substantially all of the assets of any bank located
outside of the state in which the operations of the bank holding company's
banking subsidiaries are principally conducted, may not be approved by the FRB
unless the laws of the state in which the bank to be acquired is located
expressly authorize such an acquisition. Additionally, the Change in Bank
Control Act generally requires persons who at any time intend to acquire control
of a bank holding company, acting directly or indirectly or through or in
concert with one or more persons, to give 60 days prior written notice to the
FRB. "Control" exists when the acquiring party has voting control of at least
25% of the bank holding company's voting securities, or the power directly or
indirectly to direct the management or policies of such company.
Under the FRB's regulations, a rebuttable presumption of acquisition of control
arises with respect to an acquisition where, after the transaction, the
acquiring party has ownership, control or the power to vote at least 10% (but
less than 25%) of any class of the holding company's voting securities if (i)
the holding company has securities registered under Section 12 of the Securities
Exchange Act of 1934 or (ii) immediately after the transaction no other person
will own a greater proportion of that class of voting securities. The FRB may
disapprove proposed acquisitions of control on certain specified grounds.
A bank holding company is prohibited, except in certain statutorily prescribed
instances, from acquiring direct or indirect ownership or control of more than
5% of the voting shares of any company which is not a bank or bank holding
company, and from engaging directly or indirectly in activities other than
banking, managing or controlling banks, or furnishing services to its
subsidiaries. A bank holding company may, however, subject to the approval of
the FRB, engage in, or acquire shares of companies engaged in, activities which
are deemed by the FRB to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. In making any such
determination, the FRB is required to consider whether the performance of such
activities by the holding company or an affiliate can reasonably be expected to
produce benefits to the public, such as greater convenience, increased
competition, or gains in efficiency, that outweigh possible adverse affects,
such as undue concentration of resources, decreased or unfair competition,
conflicts of interest, or unsound banking practices.
The principal activities that the FRB has determined by regulation to be so
closely related to banking as to be a proper incident thereto include, among
other things: (1) making, acquiring or servicing loans; (2) performing certain
data processing services; (3) providing certain securities brokerage services;
(4) acting as a fiduciary or an investment or financial advisor; (5) leasing
personal or real property; (6) performing appraisals of real estate and tangible
and intangible personal property; (7) making investments in corporations or
projects designed primarily to promote community welfare; and (8) owning or
operating a savings association, if the savings association's activities are
limited to those permissible for a bank holding company. In addition, a bank
24.
holding company may also file an application with the FRB for approval to engage
in other activities that the holding company reasonably believes are so closely
related to banking as to be a proper incident thereto.
Bank holding companies with consolidated assets of $150 million or more such as
the Company, are required under FRB regulations to maintain minimum levels of
leverage-based capital. Bank holding companies that have a composite rating of 1
under the uniform CAMEL rating system are required to maintain a minimum ratio
of 3% tier 1 capital to total assets. All other bank holding companies are
required to maintain tier 1 capital levels ranging from 4% to 5% of total
assets. Higher capital ratios may be required by the FRB if warranted by
particular circumstances or risk profiles of the bank holding company. For
purposes of the leverage-based standard, tier 1 capital includes common equity,
minority interests in equity accounts of consolidated subsidiaries and
qualifying noncumulative perpetual preferred stock less goodwill. The FRB may
exclude certain other intangibles and investments in subsidiaries as
appropriate. At December 31, 1994, the Company had a ratio of tier 1 capital to
total assets of 5.6%.
The FRB has also adopted a risk-based capital measure to assist in the
assessment of the capital adequacy of bank holding companies. The FRB's risk-
based capital guidelines require bank holding companies to maintain a minimum
ratio of capital to total risk-weighted assets of 8%.
The risk-based capital guidelines include a definition of capital and a
framework for calculating risk-weighted assets by assigning assets and off-
balance-sheet items to broad risk categories. Qualifying total capital consists
of two types of capital components: "core capital elements" (comprising tier 1
capital) and "supplementary capital elements" (comprising tier 2 capital). Core
capital elements consist of common stock, surplus, undivided profits, capital
reserves, foreign currency translation adjustments, perpetual preferred stock
within certain limits, and minority interests in consolidated subsidiaries,
minus goodwill. At least 50% of a bank holding company's qualifying capital
must consist of tier 1 capital.
Supplementary capital elements consist of allowances for loan and lease losses
(up to a maximum of 1.25% of risk-weighted assets), perpetual preferred stock
and related surplus, hybrid capital instruments, perpetual debt, mandatory
convertible debt securities, term subordinated debt, and intermediate term
preferred stock including related surplus. The maximum amount of tier 2 capital
that may be included in an organization's qualifying total capital is limited to
100 percent of tier 1 capital (net of goodwill). At December 31, 1994, the
Company had a ratio of total capital to total risk-weighted assets of 11.4%.
In accordance with the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"), the FRB has proposed to modify its risk-based capital adequacy
guidelines to take account of interest-rate risk, concentration of credit risk
and the risks of non-traditional activities. The interest-rate risk proposal
would attempt to estimate the effect that changes in market interest rates might
have on the net economic value of an institution. An institution with interest-
rate risk exposure in excess of an as yet to be determined threshold level would
be required to have additional capital equal to the dollar amount of the
estimated change in its net economic value that is in excess of the threshold
level. The FDIC has proposed similar changes to its risk-based capital
guidelines that would apply to the Bank. Management does not anticipate that
the
25.
proposals will have a material effect on the ability of the Company or the Bank
to meet applicable risk-based capital standards. The federal banking agencies
have proposed to treat concentration of credit risk and the risks of
nontraditional activities as additional factors in assessing whether to impose
higher capital requirements for individual bank holding companies and banks.
FDICIA also requires the federal bank regulatory agencies to prescribe safety
and soundness regulations relating to (i) internal controls, information systems
and internal audit systems; (ii) loan documentation; (iii) credit underwriting;
(iv) interest rate exposure; (v) asset growth; (vi) compensation and benefit
standards for officers, directors, employees and principal shareholders. The
FRB and FDIC have issued proposed safety and soundness regulations that would
apply to the Company and the Bank, respectively. The proposed safety and
soundness regulations contain general guidelines relating to the foregoing
operational, managerial and compensation issues that holding companies and
insured depository institutions are to follow to ensure that they are operating
in a safe and sound manner.
In addition, FDICIA requires the federal bank regulatory agencies to adopt
regulations specifying: (i) a maximum ratio of classified assets to capital;
(ii) minimum earnings sufficient to absorb losses without impairing capital; and
(iii) to the extent feasible, a minimum ratio of fair value to book value for
publicly traded shares of institutions and holding companies. The proposed
safety and soundness regulations would establish a maximum ratio of classified
assets to total capital (which for this purpose would include any allowances for
credit losses that would otherwise be excluded from total capital under the
risk-based capital guidelines) of 1.0%. For purposes of the proposed
regulation, classified assets include assets classified as substandard, doubtful
and loss (but only to the extent that losses have not been recognized).
The proposed safety and soundness regulations also require that an institution
continue to meet minimum capital standards assuming that any losses experienced
over the past four quarters were to continue over the next four quarters. If an
institution has an aggregate net loss over the past four quarters, the
institution's capital ratios would be recalculated under the assumption that
those losses will continue over the next four quarters. The federal banking
agencies have determined that establishing a minimum fair value to book value
ratio is not a feasible means to address the safety and soundness concerns
identified by Congress in adopting FDICIA and do not propose to take any further
action with respect to such a ratio.
Any depositary institution or holding company that fails to comply with the
requirements of the proposed safety and soundness regulations would be required
to submit a compliance plan within 30 days after a request from the appropriate
federal banking agency (the FRB, in the case of the Company, and the FDIC, in
the case of the Bank) to submit such a plan. In the event that a depository
institution or holding company fails to submit or implement an acceptable
compliance plan, the appropriate federal banking agency must order the
depository institution or holding Company to correct the deficiency and may: (i)
restrict asset growth; (ii) require the depository institution or holding
company to increase its ratio of tangible equity to assets; (iii) restrict the
rates of interest that the depository institution or holding company may pay; or
(iv) take any other action that would better achieve prompt corrective action.
26.
CONNECTICUT BANK HOLDING COMPANY REGULATION
The Company is subject to registration and filing requirements, as well as
general supervision by the Connecticut Commissioner, under the Connecticut Bank
Holding Company and Bank Acquisition Act ("CBHCA").
In the event that a Company seeks to acquire a Connecticut capital stock bank or
savings and loan association, the acquirer must file with the Connecticut
Commissioner a plan of acquisition approved by its board of directors and the
holders of two-thirds of the common stock of the bank or association to be
acquired. The plan of acquisition must be approved by the Connecticut
Commissioner before it becomes effective.
Under the CBHCA, an acquirer is required to file with the Connecticut
Commissioner an acquisition statement prior to acquiring or offering to acquire
the stock of a Connecticut bank or savings and loan association or a holding
company thereof if the acquisition would result in the acquirer being the
beneficial owner of 10% or more of any class of the voting securities of such
bank or savings and loan association. The acquirer may proceed with the tender
offer or acquisition only if the acquisition statement has not been disapproved
by the Connecticut Commissioner within a statutorily prescribed period. Under
the CBHCA, the Connecticut Commissioner may seek to enjoin an unlawful offer or
acquisition.
The payment of dividends by Derby Savings to the Company is subject to the
discretion of the Board of Directors of Derby Savings and depends upon a variety
of factors, including Derby Savings' operating results and financial conditions,
regulatory limitations and tax considerations. The amount which a Connecticut-
chartered capital stock savings bank, such as Derby Savings, may pay out in
dividends in any calendar year may not exceed the total of its net profits of
that year combined with its retained net profits of the preceding two years,
unless the Connecticut Commissioner approves the dividend. Additionally, Derby
Savings may not pay cash dividends on its stock if its net worth would thereby
be reduced below the amount required for the liquidation account established in
connection with Derby Savings' conversion from mutual to stock form in December
1985, or as may be required by the Connecticut Commissioner or the FDIC. In
May, 1991, during the second quarter of 1991, the Bank was informed by the
regional office of the FDIC that it will be permitted to pay dividends to the
Company in an amount limited to the holding company's non-salary expenses and
debt service payments. In April 1992, the Bank entered into a Memorandum of
Understanding with the FDIC and the Connecticut Commissioner of Banks, which
included a similar limitation on the payment of cash dividends. Since the Bank
is the sole source of funds for cash dividend payments by the Company to its
stockholders, the Memorandum restriction has resulted in the Company being
unable to pay cash dividends to stockholders.
The Company is registered as a holding company under the CBHCA and is subject to
general supervision and examination by the Connecticut Commissioner, including
the requirement that it file such reports as the Connecticut Commissioner may
require. The CBHCA provides that submission to the Connecticut Commissioner of
reports prepared for federal authorities will satisfy the reporting requirement
for bank holding companies. Under the CBHCA, the Connecticut Commissioner has
the power to issue rules and regulations necessary for the administration of the
CBHCA but to date no such regulations have been issued.
27.
CONNECTICUT SAVINGS BANK REGULATION
As a state-chartered savings bank, Derby Savings is subject to the applicable
provisions of Connecticut law and the regulations adopted thereunder by the
Commissioner. The Commissioner administers Connecticut banking laws, which
contain comprehensive provisions for the regulation of savings banks. Derby
Savings is subject to periodic examination by and reporting requirements of the
Commissioner.
Savings banks in Connecticut are empowered by statute, subject to certain
limitations, to take savings and time deposits, to accept checking accounts, to
pay interest on such deposits and accounts, to make loans on residential and
other real estate, to make consumer and commercial loans, to invest, with
certain limitations, in equity securities and debt obligations of banks and
corporations, to issue credit cards, to establish an insurance department to
issue life insurance and grant annuities and to offer various other banking
services to their customers. In addition, Connecticut savings banks may accept
demand deposits in connection with any commercial, corporate or business loan
relationship upon such terms and conditions as such savings bank may from time
to time require. Savings banks may exercise trust powers and make limited
commercial, corporate and business loans.
Under the Connecticut banking statutes, Connecticut savings banks may invest up
to 6% of its total assets in the equity securities of banks, bank holding
companies and certain corporations, subject to certain limitations, including
the requirement that the equity securities of any such bank, bank holding
company or corporation shall not exceed 10% of the total equity securities of
such bank, bank holding company or corporation. This limitation does not apply
to the acquisition of the stock of a Connecticut institution approved by the
Connecticut Commissioner of Banking. A Connecticut savings bank may also invest
(subject to certain limitations) up to 10% of its total assets in the debt
obligations of banks and bank holding companies, and up to 6% of its total
assets in the stock of certain investment companies, within the definition of
the Investment Company Act of 1940, owned by banks or by a savings bank life
insurance company.
In addition to otherwise authorized securities, a Connecticut savings bank may
invest (subject to certain limitations) up to 20% of its total assets in
securities that are the debt obligations or equity securities of corporations
incorporated and doing a major portion of their business in the United States,
and up to 8% of its total assets in any securities, except securities of state
banks and trust companies, national banking associations having their principal
offices in Connecticut, or bank holding companies, and except certain
commercial, corporate and business loans. Securities under this unrestricted
authority must be prudent in the opinion of the Bank given the circumstances
surrounding the investment. Recent federal legislation limits the Bank's
ability to exercise certain of the foregoing investment powers. (See "Impact of
the FDICIA on State Powers").
IMPACT OF THE FDICIA ON STATE POWERS
Pursuant to FDICIA, Derby Savings, as an insured state bank, may not engage as
principal in any activity that is not permissible for a national bank, unless
the FDIC has determined that the activity would pose no significant risk to the
BIF and the state bank is in compliance with applicable capital standards.
Activities of subsidiaries of insured state banks are similarly restricted to
28.
those activities permissible for subsidiaries of national banks, unless the FDIC
has determined that the activity would pose no significant risk to the BIF and
the state bank is in compliance with applicable capital standards. The FDICIA
also provides that, except for subsidiaries of which the insured state bank is a
majority owner and except for certain investments in qualified housing projects,
an insured state bank may not, directly or indirectly, acquire or retain any
equity investment of a type that is not permissible for a national bank.
Insured state banks are required to divest any equity investment the retention
of which is not permissible as quickly as can be prudently done, but in no event
later than the end of the five year period ending on December 19, 1996.
Notwithstanding the foregoing, an insured state bank may, to the extent
permitted by the FDIC, acquire and retain ownership of common or preferred stock
listed on a national securities exchange, provided that the insured state bank
made or maintained an investment in such securities during the period beginning
on September 30, 1990 and ending on November 26, 1991 and provided further that
the aggregate amount of the investment does not exceed 100% of the bank's
capital. In accordance with the provisions of the FDICIA, during each year in
the three year period beginning on the date of enactment, each insured state
bank is required to reduce by not less than one-third of its shares (as of the
date of enactment) its ownership of securities in excess of the amount equal to
100% of the capital of such bank. This exception would cease to apply with
respect to any insured state bank upon any change in control of such bank or any
conversion of the charter of such bank. Under the FDICIA, determinations under
these provisions by the FDIC must be made by regulation or order.
The foregoing provisions do not apply to savings bank life insurance activities
of certain state banks, including those state banks. like Derby Savings, that
are chartered in Connecticut. The FDICIA, however, grants the FDIC the
authority to restrict savings bank life insurance activities if the FDIC
determines that the activities pose a significant risk to the insured bank or to
the insurance fund of which such bank is a member.
At December 31, 1994, the Bank had common stock investments totaling $2.5
million with a fair value of $2.3 million. In accordance with the FDIC
regulation implementing the equity investment restrictions under FDICIA, the
Bank filed a notice and request for approval to retain its investment in common
stock and for permission to continue to invest in listed and/or registered
shares. In March 1993, the FDIC granted such approval, subject to the following
conditions: (i) the maximum investment in listed and/or registered shares shall
not exceed 100% of the Bank's Tier 1 capital as measured in the Bank's most
recent consolidated report of condition; (ii) the Bank follows reasonable
procedures limiting concentrations in listed and/or registered shares; and (iii)
the FDIC retains the right to alter, suspend or withdraw this approval.
INSURANCE OF ACCOUNTS
Derby Savings' deposit accounts are insured by the FDIC up to a maximum of
$100,000 per insured depositor. The FDIC issues regulations, requires the
filing of reports, and generally supervises the operations of its insured banks.
The FDIC periodically conducts examinations of insured banks and, based upon its
evaluation, may revalue assets of an insured bank and require establishment of
specific reserves in amounts equal to the difference between such revaluation
and the book value of the assets. The approval of the FDIC is required prior to
any
29.
merger or consolidation or the establishment or relocation of an office
facility. This supervision and regulation is intended primarily for the
protection of depositors. Any insured bank which does not operate in accordance
with or conform to FDIC regulations, policies and directives may be sanctioned
for noncompliance. Under the Federal Deposit Insurance Act, Derby Savings is
required to pay annual insurance premiums and is prohibited from paying
dividends on its capital stock if it is in default in the payment of a premium
assessed by the FDIC.
The FDIC has adopted a revised premium schedule for insurance of deposit
accounts for banks and savings institutions, including the Bank. Such premium
schedule is based upon the institution's capital level and supervisory rating
and became effective January 1, 1993. The deposit insurance assessment rate is
subject to adjustment on semi-annual basis. In February 1995, the FDIC proposed
to reduce the current deposit insurance assessment rate range of .23% to .31% of
insured deposits to a range of .04% to .31% once the reserve ratio for BIF
reaches 1.25% of total insured deposits. Under the proposal, "well-capitalized"
banks, such as the Bank, would pay insurance premiums within a range of .04% to
.21% of insured deposits, compared to the current assessment rate range for such
institutions of .23% to .29%. The proposal also would permit the FDIC to adjust
the assessment rate schedule by up to .05% for all risk classifications.
Pursuant to FDICIA, effective December 31, 1993, insured banks will be examined
no less frequently than every 12 months (as opposed to no less frequently than
every 18 months previously.) Derby Savings is subject to assessments by the
FDIC to cover the costs of such examinations.
The FDIC has adopted regulations which define and establish minimum requirements
for capital adequacy, including a minimum leverage capital requirement and a
minimum risk-based capital requirement. Under the leverage capital requirement
adopted by the FDIC, state non-member banks must maintain "core" or "Tier 1"
capital of at least 3% of total assets. For all but the most highly rated
banks, the minimum leverage requirement will be 4% to 5% of total assets. At
December 31, 1994, Derby Savings had a ratio of Tier 1 or core capital to total
assets of 5.5%. For purposes of the leverage ratio, Tier 1 or core capital is
defined in a manner consistent with the risk-based capital requirement. The
FDIC's risk-based guidelines require state non-member banks to achieve a ratio
of total capital to total risk-weighted assets of 8% and a ratio of core capital
to total risk-weighted assets of 4%. At December 31, 1994, Derby Savings' ratio
of total capital to total risk-weighted assets was approximately 11.2% and its
ratio of Tier 1 capital to risk-weighted assets was approximately 10.2%.
Under the FDIC's regulations, a bank's total capital base consists of two types
of capital elements, "core capital elements" (Tier 1) and "supplementary capital
elements" (Tier 2). Core capital or Tier 1 elements consist of common stock,
surplus, undivided profits, capital reserves, foreign currency translation
adjustments, noncumulative perpetual preferred stock, minority interests in
consolidated subsidiaries, minus intangible assets (other than mortgage
servicing rights) and net-unrealized losses on marketable equity securities. At
least 50% of the bank's qualifying total capital must consist of Tier 1 capital.
Supplementary or Tier 2 capital consists of allowances for loan and lease losses
(up to a maximum of 1.25% of risk-weighted assets), cumulative perpetual
preferred stock, long-term preferred stock, perpetual preferred stock with
adjustable dividends (whether cumulative or noncumulative), mandatory
convertible debt securities, and term subordinated debt or intermediate-term
preferred stock.
30.
The maximum amount of Tier 2 elements that may be counted in determining total
capital may not, in the aggregate, exceed 50% of Tier 1 capital. For purposes
of the risk-based capital requirement, a bank's risk-weighted asset base is
determined by assigning each of the bank's assets and the credit equivalent
amount of off-balance sheet items to one of four separate risk categories.
Under FDICIA, the FDIC is required to amend its risk-based capital standards to
ensure that those standards provide adequately for interest-rate risk,
concentration of credit risk, and nontraditional activities. The FDIC has
proposed amending its risk-based capital guidelines in a manner similar to that
proposed by the FRB. See "Regulation - Holding Company Regulation - Federal
Bank Holding Company Regulation."
Banks with capital ratios below the minimum do not have adequate capital and
will be subject to appropriate administrative actions, including the issuance by
the FDIC of a capital directive requiring that the bank restore its capital to
the minimum required level within a specified period of time and the denial or
conditioning of certain applications, including merger and branch applications.
Additionally, failure to achieve or maintain the minimum capital requirements
may be the basis for an action by the FDIC to terminate deposit insurance.
Capital requirements higher than the generally applicable minimum requirements
may be established for a particular bank if the FDIC determines that the Bank's
capital was or may become inadequate in view of its particular circumstances.
Individual minimum capital requirements may be appropriate where a bank is
receiving special supervisory attention, has a high degree of exposure to
interest rate risk, or poses other safety or soundness concerns.
Any insured depository institution which falls below the minimum capital
standards must submit a capital restoration plan. Effective December 19, 1992,
any company that has control of an undercapitalized institution, in connection
with the submission of a capital restoration plan, is required to guarantee that
the institution will comply with the plan and provide appropriate assurances of
performance. The aggregate liability of any such controlling company under such
guaranty is limited to the lesser of (i) 5% of the institution's assets at the
time it became undercapitalized; or (ii) the amount necessary to bring the
institution into capital compliance at the time it failed to comply with its
capital plan. If Derby Savings were to become undercapitalized, the Company
would be required to guarantee performance of the capital plan submitted under
the FDICIA as a condition of FDIC approval.
Undercapitalized institutions are precluded from increasing their assets,
acquiring other institutions, establishing additional branches, or engaging in
new lines of business without an approved capital plan and a determination by
the FDIC that such actions are consistent with the plan. Institutions that are
significantly undercapitalized or critically undercapitalized are subject to
additional restrictions and may be required to (i) raise additional capital;
(ii) limit asset growth; (iii) limit the amount of interest paid on deposits to
the prevailing rate of interest in the region where the bank is located; (iv)
divest or liquidate any subsidiary which the FDIC determines poses a significant
risk; (v) order a new election of members of the board of directors; (vi)
require the dismissal of a director or senior executive officer; or (vii) take
such other action that the FDIC determines is appropriate. The FDIC is required
to appoint a conservator or receiver for a critically undercapitalized bank no
later than nine months after the bank becomes critically undercapitalized,
subject to a
31.
limited exception for banks which are in compliance with an approved capital
plan and which the FDIC certifies are not likely to fail.
Under the prompt corrective action regulation adopted by the FDIC, which became
effective on December 19, 1992, a savings bank is considered: (1) "well
capitalized" if the savings bank has a risk based capital ratio of 10% or
greater, a tier one or core capital to risk-weighted assets ratio of 6% or
greater, and a leverage ratio to adjusted total assets of 5% of greater
(provided the savings bank is not subject to an order, written agreement,
capital directive or prompt corrective action to meet and maintain a specified
capital level for any capital measure); (ii)"adequately capitalized" if the
institution has a risk-based capital ratio of 8% or greater, a tier 1 or core
capital to risk weighted assets ratio of 4% or greater, and a leverage ratio to
adjusted total assets of 4% or greater (3% or greater if the institution is
rated composite 1 in its most recent report of examination);
(iii)"undercapitalized" if the institution has a risk based capital ration
that is less than 8%, a tier 1 or core capital to risk weighted assets
ratio that is less than 4% (3% if the institution is rated composite 1 in its
most recent report of examination); (iv)"significantly undercapitalized" if the
institution has a risk-based capital ratio that is less than 6%, a tier one or
core capital to risk weighted assets ratio that is less than 3%, or a leverage
ratio to adjusted total assets ratio that is less than 3%; and (v) "critically
undercapitalized" if the institution has a ratio of tangible equity to total
assets that is less than 2%. The regulation also permits the FDIC to determine
that a savings bank should be placed in a lower category based on other
information such as a savings institution's examination report, after written
notice. At December 31, 1994, the Bank met the "well capitalized" criteria
based on its capital ratios at that date. At December 31, 1994, the Bank had a
ratio of total capital to risk-weighted assets of 11.2%, and a ratio of tier 1
capital to risk weighted assets of 10.2%. The Bank's ratio of tier one capital
to total assets at December 31, 1994 was 5.5%.
FDIC insurance of deposits may be terminated by the FDIC, after notice and
hearing, upon a finding by the FDIC that the insured bank has engaged in unsafe
or unsound practices, or is in an unsafe or unsound condition to continue
operations, or has violated any applicable law, regulation, rule or order of, or
condition imposed by the FDIC. The FDIC may temporarily suspend an insured
bank's insurance without a hearing if the insured bank has no tangible capital
under the FDIC's capital adequacy regulations or guidelines. The management of
Derby Savings does not know of any practice, condition, or violation that might
lead to termination or suspension of Derby Savings' deposit insurance.
Under Sections 23A and 23B of the Federal Reserve Act, as incorporated by the
Federal Deposit Insurance Act, transactions between FDIC-insured banks, such as
Derby Savings, and their "affiliates" (which term includes, with respect to
Derby Savings, the Company) are subject to restrictions which, among other
things, limit the amount of certain transactions with affiliates, prescribe
collateralization requirements for loans by a bank to its affiliates and
generally require that transactions with an affiliate be on terms and
conditions, including credit standards, that are substantially the same, or at
least as favorable to the bank as those prevailing at the time for comparable
transactions with or involving unaffiliated parties or, in the absence of
comparable transactions, on terms and under circumstances, including credit
standards, that in good faith would be offered or would apply to unaffiliated
parties. The same restrictions apply to transactions between subsidiaries of a
bank and the bank's affiliates. Further, neither a bank nor any of its
subsidiaries or affiliates
32.
may publish any advertisement or enter into any agreement stating or suggesting
that the bank is in any way responsible for the obligation of its affiliates.
FEDERAL HOME LOAN BANK SYSTEM.
Derby Savings is a member of the FHLBB, which is one of 12 regional Federal Home
Loan Banks, each subject to Federal Housing Finance Board ("FHFB") supervision
and regulation. The FHLBB provides a central credit facility for member
institutions. As a member of the FHLBB, Derby Savings is required to own shares
of capital stock in that bank in an amount equal to the greater of (i) one
percent of assets secured by residential housing; (ii) .3% of total assets; or
(iii) 1/20 of outstanding advances. Derby Savings is in compliance with this
requirement with an investment in FHLBB stock at December 31, 1994 of $8.9
million.
At December 31, 1994, FHLBB advances to the Bank were $111.1 million. The
maximum amount which the FHLBB will advance for purposes other than meeting
deposit withdrawals fluctuates from time to time in accordance with changes in
policies of the FHFB and the FHLBB, and the maximum amount generally is reduced
by borrowings from any other source.
As required by FIRREA, the FHFB has promulgated regulations that establish
standards of community service or support as a basis for FHLB members to
maintain continued access to long-term advances. Pursuant to the regulations,
each FHLB member will provide a Community Support Statement ("CSS") to its FHLB
for review on a schedule established by the FHFB. The CSS is to include
information regarding the member's Community Reinvestment Act Evaluation,
evidence of assistance to first-time home buyers, documentation of any
judgements based on violations of the Fair Housing and Equal Credit Opportunity
Acts, and evidence of community support. The FHFB will review certain of the
statements and will require a Community Support Action Plan ("CSAP") if it
disapproves the CSS. If the member has failed to submit a CSS, submits a CSAP
that is not approved, or fails to substantially meet its CSAP within one year,
the FHFB may restrict the member's access to long-term advances.
FEDERAL RESERVE SYSTEM
The FRB adopted regulations that require savings institutions to maintain
non-earning reserves against their net transaction accounts (primarily NOW and
regular checking accounts less certain permitted deductions), non-personal time
deposits (those which are transferable or held by a depositor other than a
natural person) with an original maturity or notice period of less than 18
months, and Eurocurrency liabilities. At December 31, 1994, Derby Savings was
in compliance with the FRB's reserve requirement.
Savings institutions have authority to borrow from the Federal Reserve Bank
"discount window", but FRB regulations require institutions to exhaust all FHLB
sources before borrowing from the Federal Reserve Bank. The FDICIA prevents
Federal Reserve Banks from providing a discount window advance to an
"undercapitalized" institution for more than 60 days in any 120-day period,
except in limited circumstances.
33.
TAXATION
FEDERAL
For federal income tax purposes, the Company and Derby Savings file a
consolidated calendar tax year income tax return and report their income and
expenses using the accrual method of accounting. Prior to its 1987 tax year
Derby Savings used the cash method of accounting but it was required by the Tax
Reform Act of 1986 (the "Tax Act") to switch to the accrual method of
accounting. The adjustment to its income resulting from this change must be
recognized ratably over a period not to exceed four years.
Savings institutions are generally taxed in the same manner as other
corporations. Unlike other corporations, however, qualifying savings
institutions such as Derby Savings, that meet certain definition tests relating
to the nature of their supervision, income, assets and business operations, are
allowed to establish a reserve for bad debts and are permitted to deduct
additions to that reserve for losses on "qualifying real property loans" using
one of two alternative methods.
"Qualifying real property loans" are, in general, loans secured by interests
in improved real property. For each tax year, a qualifying institution may
compute the addition to its bad debt reserve for qualifying real property loans
using the more favorable of the following methods: (i) a method based on the
institution's actual loss experience (the "experience method") or (ii) a
method based on a specified percentage of an institution's taxable income (the
"percentage of taxable income method"). The addition to the reserve for losses
on non-qualifying loans must be computed under the experience method.
Derby Savings has generally computed its annual deduction for additions to its
allowance for losses on qualifying real property loans using the percentage of
taxable income method. Under the percentage of taxable income method, a
qualifying institution may deduct up to a maximum of 8% of its taxable income
after certain adjustments, subject to the limitations discussed below. The net
effect of the percentage of taxable income method deduction is that the maximum
effective federal income tax rate on income computed without regard to actual
bad debts and certain other factors for qualifying institutions using the
percentage of taxable income method is 31.28% (and at least 32.2% of taxable
income above $10 million for tax years after 1992), assuming a tax rate of 34%.
For 1994, the Bank computed its addition to the reserve for qualifying real
property loans under the experience method. Under the experience method, a
savings institution is permitted to deduct an amount based on average yearly
credit losses over the current and previous five years.
The amount of the bad debt deduction that a savings institution may claim with
respect to additions to its reserve for bad debts is subject to certain
limitations. First, the deduction may be eliminated entirely (regardless of the
method of computation) and the existing reserve will be recaptured into taxable
income and the institution will be permitted a deduction only for specific
charge-offs unless at least 60% of the savings institution's assets fall within
certain designated categories. Second, the bad debt deduction attributable to
"qualifying real property loans" cannot exceed the greater of (i) the amount
deductible under the experience method or (ii) the amount which, when added to
the bad debt deduction for non-qualifying loans, equals the amount by which 12%
of the sum of the total deposits or withdrawable accounts at the end of the
taxable year exceeds the sum of the surplus, undivided profits, and reserves at
34.
the beginning of the taxable year. Third, the amount of the bad debt deduction
attributable to qualifying real property loans computed using the percentage of
taxable income method is permitted only to the extent that the institution's
reserve for losses on qualifying real property loans at the close of the taxable
year taking into account the addition to the reserve for that taxable year does
not exceed 6% of such loans outstanding at such time. Fourth, the amount of the
bad debt deduction under the percentage of taxable income method is reduced, but
not below zero, by the amount of the addition to reserves for losses on non-
qualifying loans for the taxable year. Finally, a savings institution that
computes its bad debt deduction using the percentage of taxable income method
and files its federal income tax return as part of a consolidated group, as
Derby Savings does, is required to reduce proportionately its bad debt deduction
for losses attributable to activities of non-savings institution members of the
consolidated group that are "functionally related" to the savings institution
member. (The savings institution member is permitted, however, to
proportionately increase its bad debt deduction in subsequent years to recover
any such reduction to the extent the non-savings institution members realize
income in future years from their "functionally related" activities.)
As of December 31, 1994, Derby Savings' bad debt reserve for tax purposes
totaled approximately $5.8 million. To the extent that (i) Derby Savings'
reserve for losses on qualifying real property loans using the percentage of
taxable income method exceeds the amount that would have been allowed under the
experience method and (ii) Derby Savings makes distributions to its stockholders
that are considered to result in withdrawals from its excess bad debt reserve,
then the amounts considered to be withdrawn will be included in Derby Savings'
taxable income. The amount considered to be withdrawn by a distribution will be
the amount of the distribution plus the amount necessary to pay the federal
income tax, with respect to the withdrawal. Dividends paid out of Derby
Savings' current or accumulated earnings and profits as calculated for federal
income tax purposes will not be considered to result in withdrawals from Derby
Savings' bad debt reserves. Distributions in excess of Derby Savings' current
and accumulated earnings and profits, distributions in redemption of stock, and
distributions in partial or complete liquidation of Derby Savings will generally
be considered to result in withdrawals from Derby Savings' bad debt reserves.
At December 31, 1994, Derby Savings had approximately $39.2 million in earnings
and profits for tax purposes that would be available for distribution to the
Company, it's sole stockholder, subject to various restrictions imposed by the
Commissioner, without the imposition of this additional tax. The Company does
not intend to cause Derby Savings to make any distribution that would be
considered to be made out of its bad debt reserve.
Depending on the composition of its items of income and expense, a corporation
may be subject to alternative minimum tax. For tax years beginning after 1986,
a corporation must pay an alternative minimum tax equal to the amount (if any)
by which 20% of alternative minimum taxable income ("AMTI"), as reduced by an
exemption varying with AMTI, exceeds the regular tax due. AMTI equals regular
taxable income increased or decreased by certain adjustments and increased by
certain tax preferences, including depreciation deductions in excess of that
allowable for alternative minimum tax purposes, tax-exempt interest on most
private activity bonds issued after August 7, 1986 (reduced by any related
interest expense disallowed for regular tax purposes), the amount of the bad
debt reserve deduction claimed in excess of the deduction based on the
experience method and, for tax years after 1989, 75% of the excess of adjusted
current earnings over AMTI. AMTI may be reduced only up to 90% by net operating
loss
35.
carryovers, but the payment of alternative minimum tax will give rise to a
minimum tax credit which will be available with an indefinite carry-forward
period, to reduce the federal income taxes of the institution in future years
(but not below the level of alternative minimum tax arising in each of the
carry-forward years).
The Internal Revenue Service ("IRS") is currently conducting an examination of
the Company's federal income tax returns for 1990.
STATE
State income taxation for the Company and Derby Savings is in accordance with
the corporate income tax laws of Connecticut, which require a tax to be paid
equal to the largest of amounts computed under three formulas. The first is a
minimum tax of $250. The second is a tax based on the average level of deposits
and other borrowed money on which interest is paid. The third is a tax based on
11.5% (scheduled to decrease in increments, to 10% by 1998), of the year's
taxable income which, with certain exceptions, is equal to taxable income for
federal purposes. The Connecticut General Assembly passed a deficit reduction
package, signed by the Governor on March 23, 1989, which, in part, increased the
Connecticut Corporation Business Tax. The Corporation Business Tax rate has
been increased through the imposition of a 20% surcharge for taxable years
beginning on or after January 1, 1989. This has had the effect of increasing
the effective Connecticut Corporation Business Tax rate from 11.5% at 13.8%.
The 20% surcharge has been reduced to 10% in 1992 and eliminated in 1993,
resulting in effective Connecticut Corporation Business Tax rates of 12.65% for
1992 and 11.5% for 1993. In addition, operating losses in any year may be
carried forward to reduce taxable income over the succeeding five years.
INCOME TAX ACCOUNTING STANDARD. In February 1992, the FASB issued Statement of
Financial Accounting Standards No. 109 ("SFAS 109") "Accounting For Income
Taxes", which superseded SFAS 96, as amended, which established financial
accounting and reporting standards for the effects of income taxes. The
Statement requires the use of the liability method in determining the tax effect
of temporary differences in the recognition of items of income and expense
reported in the consolidated financial statements and those reported for income
tax purposes.
The Company adopted this statement for the year ended December 31, 1993, and the
cumulative effect of the change in accounting principal is reflected in net
income for 1993.
36.
EXECUTIVE OFFICERS OF REGISTRANT
The following table sets forth information with respect to the persons who have
been designated executive officers of the Company.
Age at Officer
December 31, 1994 Since Positions Held with Company
----------------- ------- ---------------------------
Harry P. DiAdamo Jr. 51 1987 President, Chief Executive
Officer and Director
John F. Costigan 64 1987 Executive Vice President,
Secretary and Director
Alfred T. Santoro 45 1987 Vice President, Treasurer
and Chief Financial Officer
Thomas H. Wells 62 --- Senior Vice President and
Chief Lending Officer of
Derby Savings Bank
Harry P. DiAdamo Jr., President and Chief Executive Officer of the Company and
the Bank, has been a Director of Derby Savings since 1980 and served as Chairman
of the Board from March 1984 to March 1985. He became President, Treasurer and
Chief Executive Officer of the Bank in October 1984. Mr DiAdamo is also a
member of the Executive Committee of the Company. He is serving his second two
year term on the Board of the Federal Home Loan Bank of Boston, and is chairman
of its audit committee. Mr DiAdamo is a member of the Mortgage Finance
Committee of America's Community Bankers and the Executive and Legislative
Committees of the Connecticut Bankers Association as well as a director of the
Griffin Health Services and the New Haven Symphony Orchestra and president of
the Shelton Educational Fund. He previously served as president of the board of
Notre Dame High School in West Haven and chairman of the Valley United Way
Campaign. Mr. DiAdamo is also a member of the New Britain Downtown Council.
John F. Costigan, Executive Vice President and Secretary of the Company and the
Bank, joined the staff of Derby Savings in 1961 and has been a Director of the
Bank since 1975. He has served in various capacities of increasing
responsibility and since October 1984 has been the Bank's Executive Vice
President and Chief Operating Officer. Mr. Costigan serves on the Nominating
Committee of the Company. He is president of Friend A. Russ Fund, Inc. of
Shelton, an educational and charitable organization, and the secretary and past
chairman of the Tele-Media of Western Connecticut Advisory Council, located in
Seymour, Connecticut. He serves on the Finance Committee of St. Mary's Parish
in Derby, and is past trustee and past vice chairman of Griffin Health Services
Corporation, and past trustee and past chairman of Griffin Hospital, a community
hospital located in Derby. In 1994 he received the Charles H. Flynn
Humanitarian Award for volunteer service that has raised the quality of life in
some areas of the community.
Alfred T. Santoro, Vice President, Treasurer and Chief Financial Officer of the
Company, joined Derby Savings in September 1985 as Vice President, Finance, and
was elected Chief Financial Officer in April 1987, and Executive Vice President
in January, 1994. Mr Santoro holds an M.B.A. in finance from the University of
New Haven, is a member and past president of the Connecticut Chapter of the
37.
Financial Managers Society, and is a member of the Board of Trustees and the
Finance Committee of the New Britain YWCA.
Thomas H. Wells, Senior Vice President and Chief Lending Officer of Derby
Savings Bank, joined the staff of Derby Savings Bank in April 1974 bringing with
him 11 years of mortgage banking experience. He became Vice President in
January 1975 and in March 1985 was named Senior Vice President, Loans. As Chief
Lending Officer, Mr. Wells is responsible for all aspects of lending (mortgage,
consumer and commercial), as well as the Bank's CRA, real estate management and
collection areas. A Director of the Connecticut Appraisal Education Foundation,
Inc. and member of its Investment Committee, he is also a member of the
Appraisal Institute, holds the SRPA and SRA designations, and is an licensed
appraiser in the state of Connecticut. Mr. Wells also serves on the Banks'
Committee of Neighborhood Housing Services in New Britain, as Chairman of the
Finance Committee at Seymour Congregational Church, and is a member of the
American Legion. His past affiliations include teaching residential appraisal
and real estate finance for Fairfield University, past President of Connecticut
Chapter #38 of the Society of Real Estate Appraisers, past Chairman of the
Seymour Planning and Zoning Commission and Chairman of the commercial division
of the Valley United Way campaign.
38.
Item 2. PROPERTIES
At December 31, 1994, Derby Savings had 22 banking offices located in New Haven,
Fairfield and Hartford Counties. ATM's are currently in operation in 16 of the
Bank's offices. The Bank is currently a member of Infinet, Inc. and Cirrus, a
shared national ATM network.
Original Current Percent
Office Office of Total
New Haven County: Opened Opened Deposits Owned or Leased Note
----------------- ------ ------ -------- --------------- ----
Derby 1846 1976 14.44% Owned --
Derby (HQ) 1985 1985 --- Owned --
Orange Derby 1969 1985 6.92 Land leased, bldg. owned 1
Orange 1987 1987 4.99 Leased 2
Seymour 1981 1981 4.38 Owned --
Southbury 1988 1988 1.26 Leased 3
Fairfield County:
-----------------
Shelton 1964 1975 5.01 Owned --
Huntington 1970 1973 7.74 Owned --
Stratford 1989 1989 5.66 Leased 4
Trumbull 1990 1990 4.84 Leased 5
Fairfield 1993 1993 1.86 Leased 6
Hartford County:
----------------
Avon 1987 1992 1.83 Leased 7
East Hartford 1992 1992 1.50 Leased 8
Glastonbury 1992 1992 2.82 Owned --
New Britain:
Main Street 1992 1992 9.12 Leased 9
South Main Street 1992 1992 3.89 Owned --
Newington Avenue 1992 1992 4.87 Leased 10
West Main Street 1992 1992 3.38 Leased 11
Newington 1992 1992 3.22 Leased 12
Plainville 1992 1992 2.03 Leased 13
Rocky Hill 1992 1992 4.13 Leased 14
West Hartford 1992 1992 5.23 Leased 15
W. Hartford Central 1992 1992 .88 Leased 16
------
100.00%
Notes:
------
1. Lease expires August 2004. Subject to three five-year renewal options
followed by one seven-and-a-half year renewal option.
2. Lease expires July 1997. Subject to one ten-year renewal option.
3. Lease expires November 1996. Subject to three five-year renewal options.
4. Lease expires August 1995. Subject to two three-year renewal options.
5. Lease expires June 1996. Subject to one three-year renewal option.
6. Lease expires April 1996. Subject to two five-year renewal options.
7. Lease expires September, 1997. Subject to one five-year renewal option.
8. Leased expires September 1999. Subject to two five year renewal options.
9. Leased expires April 1999. Subject to one five year renewal option.
10. Lease expires February 1998. Subject to three three-year renewal options.
11. Lease expires February, 1998. Subject to three five-year renewal options.
12. Lease expires December 2000. Subject to one ten-year renewal option.
13. Lease expires June 1998. Subject to three five-year renewal options.
14. Lease expires November 1998. Subject to two five-year renewal options.
15. Leased on a month-to-month basis.
16. Lease expires June 1997. Subject to one five-year renewal option.
39.
The aggregate net book value of properties owned and used for offices at
December 31, 1994 was $4.3 million and the aggregate net book value of
lease-hold improvements on properties used for branch offices was $549,000.
The data processing for Derby Savings is supplied by an unaffiliated data
processing company. The primary internal data processing equipment at Derby
Savings consists of teller terminals, ATM's and other automated equipment with a
net book value of $2.2 million at December 31, 1994.
Item 3. LEGAL PROCEEDINGS
The Company is involved as a plaintiff or defendant in various legal actions
incidental to its business, all of which in the aggregate are believed by
management not to be material to the financial condition or operations of the
Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year ended December 31, 1994, no matters were
submitted to a vote of security holders through the solicitation of proxies or
otherwise.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information as to the principal market on which the stock is traded, the
Company's and the Bank's dividend policy, and the high and low closing sales
prices for the stock are included on page 27 of the 1994 Annual Report to
Stockholders and incorporated herein by reference. There were approximately 921
holders of record of the stock as of December 31, 1994.
Item 6. SELECTED FINANCIAL DATA
Selected financial data for the five years ended December 31, 1994, consisting
of data captioned "Selected Financial and Other Data" on page 2 of the 1994
Annual Report to Stockholders, is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's Discussion and Analysis on pages 4 through 27 of the 1994 Annual
Report to Stockholders is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated statements of position of DS Bancor, Inc. and Subsidiary as of
December 31, 1994 and 1993, the related consolidated statements of earnings and
stockholders' equity and the consolidated statements of cash flows for each of
the three years in the period ended December 31, 1994 together with the related
notes and the report of Friedberg, Smith & Co., P.C., independent certified
public accountants, all contained on pages 28 - 61 in the Company's 1994 Annual
Report to Stockholders, are incorporated herein by reference.
40.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information regarding the directors of the Company is omitted from this report
as the Company intends to file a definitive proxy statement not later than 120
days after the end of the fiscal year and the information to be included therein
is incorporated herein by reference. Information regarding the executive
officers of the Company is set forth in Part I above under the caption
"Executive Officers of the Registrant."
Item 11. EXECUTIVE COMPENSATION
Information regarding remuneration of executive officers and directors of the
Company is omitted from this report as the Company intends to file a definitive
proxy statement not later than 120 days after the end of the fiscal year and the
information to be included therein (excluding the report on executive
compensation and the Comparative Performance Information) is incorporated herein
by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is omitted from this report as the Company intends to file a
definitive proxy statement not later than 120 days after the end of the fiscal
year and the information to be included therein is incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is omitted
from this report as the Company intends to file a definitive proxy statement not
later than 120 days after the end of the fiscal year and the information to be
included therein is incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1). The following financial statements of the Company included in the
Annual Report to Stockholders for the year ended December 31, 1994 are
incorporated herein by reference in Item 8. The remaining information
in said Annual Report is not deemed to be filed as part of this
report, except as expressly provided herein.
(i) Consolidated Statements of Position as of December 31, 1994
and 1993.
(ii) Consolidated Statements of Earnings for years ended December
31, 1994, 1993 and 1992.
(iii) Consolidated Statements of Stockholders' Equity for years
ended December 31, 1994, 1993 and 1992.
41.
(iv) Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992.
(vi) Notes to Financial Statements.
(vii) Auditor's Opinion.
(a)(2). All financial statement schedules for which provision is made in
applicable accounting regulations are inapplicable and have therefore
been omitted.
(b) EXHIBITS AND REPORTS ON FORM 8. There were no Form 8 filings during
the quarter ended December 31, 1994.
(c) The following exhibits are either filed as part of this Report or are
incorporated herein by reference.
EXHIBIT 3.1(a). Restated Certificate of Incorporation (incorporated
herein by reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-4 (Registration No. 33-3699), filed March 3,
1986).
EXHIBIT 3.1(b). Amendment to restated Certificate of Incorporation.
(incorporated herein by reference to the exhibit contained in the
Company's annual report on Form 10-K for the year ended December 31,
1989).
EXHIBIT 3.2. Bylaws (incorporated herein by reference to the Exhibit
to the Company's Current Report on Form 8-K filed on February 8,
1988).
EXHIBIT 10.1(a). Employment Agreement with Harry P. DiAdamo Jr.
(incorporated herein by reference to Exhibit 10.1(a) to the Company's
Registration Statement on Form S-4 (Registration No. 33-3699) filed on
March 3, 1986).
EXHIBIT 10.1(b). Employment Agreement with John F. Costigan
(incorporated herein by reference to Exhibit 10.2(b) to the Company's
Registration Statement on Form S-4 (Registration No. 33-3699) filed on
March 3, 1986).
EXHIBIT 10.1(c). Severance Agreement with Alfred T. Santoro
(incorporated herein by reference to the exhibit contained in the
Company's annual report on Form 10-K for the year ended December 31,
1989).
EXHIBIT 10.1(d). Amendment to employment agreement with Harry P.
DiAdamo (incorporated herein by reference to the exhibit contained in
the Company's annual report on Form 10-K for the year ended December
31, 1989).
EXHIBIT 10.1(e). Amendment to employment agreement with John F.
Costigan (incorporated herein by reference to the exhibit contained in
the Company's annual report on Form 10-K for the year ended December
31, 1989).
EXHIBIT 10.1(f). Amendment to severance agreement with Alfred T.
Santoro (incorporated herein by reference to the exhibit contained in
42.
the Company's annual report on Form 10-K for the year ended December
31, 1989).
EXHIBIT 10.1(g). Severance agreement with Thomas H. Wells, as
amended.
EXHIBIT 10.2. Stock Option Plan, as amended (incorporated herein by
reference to the exhibit contained in the Company's annual report on
Form 10-K for the year ended December 31, 1987).
EXHIBIT 10.3. 1994 Stock Option Plan (incorporated herein by
reference to Exhibit 4 contained in the Company's Form S-8
Registration Statement (Registration No. 33-53803) filed on March 25,
1994).
EXHIBIT 10.4(a). Form of Deferred Compensation Agreement with
Management Directors (incorporated herein by reference to the exhibit
contained in the Company's annual report on Form 10-K for the year
ended December 31, 1987).
EXHIBIT 10.4(b). Form of Deferred Compensation Agreement with
Non-Management Directors (incorporated herein by reference to the
exhibit contained in the Company's annual report on Form 10-K for the
year ended December 31, 1987).
EXHIBIT 10.4(c). Insured Deposit Purchase and Assumption agreement
pursuant to which Derby purchased certain assets and assumed the
insured deposits and certain other liabilities of Burritt
Interfinancial Bancorporation, New Britain, CT (incorporated herein by
reference to the exhibit contained in the Company's Form 8-K dated
December 4, 1992).
EXHIBIT 13. Annual Report to Stockholders for the year ended December
31, 1994.
EXHIBIT 21. Subsidiaries of the Company. (Incorporated by reference
to the exhibit contained in the Company's annual report on Form 10-K
for the year ended December 31, 1990.)
EXHIBIT 23(a). Consent of Friedberg, Smith & Co., P.C. (Registrant
No.33-3699).
EXHIBIT 23(b). Consent of Friedberg, Smith & Co., P.C. (Registrant
No.33-71206).
EXHIBIT 23(c). Consent of Friedberg, Smith & Co., P.C. (Registrant
No.33-53803).
EXHIBIT 27. Financial Data Schedule.
(d) None.
43.
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DS BANCOR, INC.
Date: March 30, 1995 By: /S/ Harry P. DiAdamo Jr.
---------------------- ------------------------------------
Harry P. DiAdamo Jr.
President and Chief Executive Officer
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.
Chief Executive Officer:
/S/ Harry P. DiAdamo Jr. Date: March 30, 1995
------------------------------------------------- ---------------
Harry P. DiAdamo Jr.
Director, President and Chief Executive Officer
(Principal executive officer)
Chief Financial Officer:
/S/ Alfred T. Santoro Date: March 30, 1995
------------------------------------------------- ---------------
Alfred T. Santoro
Vice President, Treasurer and Chief Financial Officer
(Principal financial and accounting officer)
44.
Directors:
/S/ Michael F. Daddona Jr. Date: March 30, 1995
------------------------------------------------- ---------------
Michael F. Daddona Jr.
Chairman of the Board
/S/ Harry P. DiAdamo Jr. Date: March 30, 1995
------------------------------------------------- ---------------
Harry P. DiAdamo Jr.
Director, President and Chief Executive Officer
/S/ John F. Costigan Date: March 30, 1995
------------------------------------------------- ---------------
John F. Costigan
Director, Executive Vice President and Secretary
/S/ Achille A. Apicella Date: March 30, 1995
------------------------------------------------- ---------------
Achille A. Apicella
Director
/S/ Walter R. Archer Jr. Date: March 30, 1995
------------------------------------------------- ---------------
Walter R. Archer Jr.
Director
/S/ John J. Brennan Date: March 30, 1995
------------------------------------------------- ---------------
John J. Brennan
Director
/S/ Angelo E. Dirienzo Date: March 30, 1995
------------------------------------------------- ---------------
Angelo E. Dirienzo
Director
/S/ Laura J. Donahue Date: March 30, 1995
------------------------------------------------- ---------------
Laura J. Donahue
Director
/S/ Christopher H.B. Mills Date: March 30, 1995
------------------------------------------------- ---------------
Christopher H.B. Mills
Director
/S/ John M. Rak Date: March 30, 1995
------------------------------------------------- ---------------
John M. Rak
Director
/S/ John P. Sponheimer Date: March 30, 1995
------------------------------------------------- ---------------
John P. Sponheimer
Director
45.
INDEX TO EXHIBITS
Page (by
Exhibit Sequential
Number Identity of Exhibit Numbering)
------- ------------------- ----------
3.1(a) Certificate of Incorporation (incorporated by *
reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-4 filed March 3, 1986).
3.1(b) Amendment to restated Certificate of Incorporation. *
(incorporated herein by reference to the exhibit contained
in the Company's annual report on Form 10-K for the year
ended December 31, 1989).
3.2 Bylaws (incorporated herein by reference to the exhibit *
to the Company's Current Report on Form 8-K filed on
February 8, 1988).
10.1(a) Employment Agreement with Harry P. DiAdamo, Jr. (incorporated *
herein by reference to Exhibit 10.1(a) to the Company's
Registration Statement on Form S-4 filed on March 3, 1986).
10.1(b) Employment Agreement with John F. Costigan (incorporated *
herein by reference to Exhibit 10.1(b) to the Company's
Registration Statement on Form S-4 filed on March 3, 1986).
10.1(c) Severance Payment Agreement with Alfred T. Santoro *
(incorporated herein by reference to Exhibit 10.1(c) to the
Company's annual report on Form 10K for the year ended
December 31, 1989).
10.1(d) Amendment to employment agreement with Harry P. DiAdamo *
(incorporated herein by reference to the exhibit contained
in the Company's annual report on Form 10-K for the year
ended December 31, 1989).
10.1(e) Amendment to employment agreement with John F. Costigan *
(incorporated herein by reference to the exhibit contained
in the Company's annual report on Form 10-K for the year
ended December 31, 1989).
10.1(f) Amendment to severance agreement with Alfred T. Santoro *
(incorporated herein by reference to the exhibit contained
in the Company's annual report on Form 10-K for the year
ended December 31, 1989).
10.1(g) Severance agreement with Thomas H. Wells, as amended. 48
10.2 Stock Option Plan (incorporated herein by reference to *
to Exhibit 10.3 to the Company's Registration Statement
on Form S-4 filed March 3, 1986).
46.
10.3 1994 Stock Option Plan (incorporated herein by reference to *
Exhibit 4 contained in the Company's Form S-8 Registration
Statement (Registration No. 33-53803) filed on March 25, 1994).
10.4(a) Form of Deferred Compensation Agreement with Management *
Directors (incorporated herein by reference to the exhibit
contained in the Company's annual report on Form 10-K for
the year ended December 31, 1987).
10.4(b) Form of Deferred Compensation Agreement with Non-Management *
Directors (incorporated herein by reference to the exhibit
contained in the Company's annual report on Form 10-K for the
year ended December 31, 1987).
10.4(c) Insured Deposit Purchase and Assumption agreement pursuant to *
which Derby purchased certain assets and assumed the
insured deposits and certain other liabilities of Burritt
Interfinancial Bancorporation, New Britain, CT (incorporated
herein by reference to the exhibit contained in the Company's
Form 8-K dated December 4, 1992).
13 Annual Report to Stockholders for the year ended
December 31, 1994.
21 Subsidiaries of the Company (incorporated by reference to the *
exhibit contained in the Company's annual report on Form 10-K
for the year ended December 31, 1990).
23(a) Consent of Friedberg, Smith & Co., P.C. (Registrant 51
No. 33-3699).
23(b) Consent of Friedberg, Smith & Co., P.C. (Registrant 52
No. 33-71206).
23(c) Consent of Friedberg, Smith & Co., P.C. (Registrant 53
No. 33-53803).
27 Financial Data Schedule. 54
* Previously filed.
47.