UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission file number 0-16193
DS BANCOR, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1162884
(State or other jurisdiction of I.R.S. Employer
Incorporation or organization) Identification No.)
33 ELIZABETH STREET, DERBY, CONNECTICUT
(Address of principal executive offices)
06418
(Zip Code)
(203) 736-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class: Common Stock, par value $1.00 per share
Outstanding at May 12, 1996: 3,031,527 shares
I N D E X
Page(s)
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Part 1 -- Consolidated Financial Statements
A. Consolidated Statements of Position 1
B. Consolidated Statements of Earnings 2
C. Consolidated Statements of Stockholders' Equity 3
D. Consolidated Statements of Cash Flows 4
E. Notes to Consolidated Financial Statements 5 - 23
F. Selected Consolidated Financial and Other Data 24
G. Management's Discussion and Analysis 25 - 34
Part 2 -- Other Information 35
Signatures 36
DS BANCOR, INC.
CONSOLIDATED STATEMENTS OF POSITION
(DOLLAR AMOUNTS IN THOUSANDS)
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
ASSETS
Cash and due from banks (Note 1) $15,091 $18,425
Federal funds sold (Note 1) 2,445 2,305
Securities (Notes 1 & 2)
Trading 1,680 1,171
Available-for-sale 220,643 241,136
Held-to-maturity (fair value: $75,079 at
March 31, 1995 and $77,394 at December 31, 1995) 76,787 77,881
Loans held-for-sale (Notes 1 & 3) 4,053 2,035
Loans receivable (net of allowances for credit losses of $7,142
at March 31, 1996 and $6,906 at December 31, 1995)(Notes 1 & 3) 888,995 873,304
Federal Home Loan Bank of Boston stock, at cost (Note 8) 9,793 9,793
Accrued income receivable (Note 1) 7,321 7,746
Bank premises and equipment, net (Notes 1 & 6) 6,600 6,504
Deferred income tax asset, net (Notes 1 & 10) 2,826 3,293
Foreclosed assets (net of allowances of $102 at March 31, 1996
and $230 at December 31, 1995)(Notes 1 & 5) 3,359 3,712
Other assets (Note 13) 8,146 7,178
----------- ------------
TOTAL ASSETS $1,247,739 $1,254,483
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits (Note 7)
Non-interest bearing $35,144 $35,999
Interest bearing 1,035,039 1,022,146
----------- ------------
Total 1,070,183 1,058,145
Mortgagors' escrow 6,205 11,193
Advances from Federal Home Loan Bank of Boston (Note 8) 84,612 96,876
Other liabilities (Note 9) 5,000 7,460
----------- ------------
Total Liabilities 1,166,000 1,173,674
----------- ------------
STOCKHOLDERS' EQUITY (NOTES 1, 11 & 14)
Preferred stock, no par value; authorized
2,000,000 shares; none issued -- --
Common stock, par value $1.00; authorized 6,000,000 shares;
issued: 3,368,527; outstanding: 3,029,027 3,368 3,368
Additional paid-in capital 44,514 44,514
Retained earnings 38,988 37,014
Net unrealized (losses) gains on available-for-sale securities, net of
tax of $432 at March 31, 1996 and ($301) at December 31, 1995 (618) 426
Less: Treasury stock, at cost (339,500 shares) (4,513) (4,513)
----------- ------------
Total Stockholders' Equity 81,739 80,809
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,247,739 $1,254,483
----------- ------------
----------- ------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- 1 -
DS BANCOR, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTER ENDED
MARCH 31,
1996 1995
----------- ------------
(UNAUDITED)
INTEREST INCOME (NOTE 1)
Interest and fees on loans $17,257 $15,390
Taxable interest on securities 4,609 4,943
Dividends on securities 381 251
----------- ------------
Total interest income 22,247 20,584
----------- ------------
INTEREST EXPENSE
Deposits (Note 7) 12,174 10,579
Borrowed funds (Note 8) 1,228 1,152
Less: Penalties on premature time deposit withdrawals (26) (60)
----------- ------------
Net interest expense 13,376 11,671
----------- ------------
NET INTEREST INCOME 8,871 8,913
Provision for credit losses (Notes 1 & 3) 650 600
----------- ------------
Net interest income after provision for credit losses 8,221 8,313
----------- ------------
NON-INTEREST INCOME
Service charges and other income 693 660
Net realized securities gains (losses) (Note 2) 257 (1,598)
Net (loss) gain on sale of loans (56) 1,481
----------- ------------
Total non-interest income, net 894 543
----------- ------------
NON-INTEREST EXPENSE
Salaries and wages 1,945 1,914
Employee benefits (Note 9) 693 671
Occupancy (Note 6) 540 493
Furniture and equipment (Note 6) 243 256
Foreclosed asset expense, net (Notes 1 & 5) 495 448
Other 1,589 2,360
----------- ------------
Total non-interest expense 5,505 6,142
----------- ------------
Income before income taxes 3,610 2,714
Provision for income taxes (Note 10) 1,453 1,096
----------- ------------
NET INCOME $2,157 $1,618
----------- ------------
----------- ------------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (NOTE 1)
Primary 3,135,406 3,081,171
Fully diluted 3,173,128 3,081,171
EARNINGS PER SHARE (NOTE 1)
Primary $0.69 $0.53
Fully diluted $0.68 $0.53
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- 2 -
DS BANCOR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
RETAINED EARNINGS
-----------------
ADDITIONAL UNREALIZED TOTAL
COMMON PAID-IN RETAINED GAINS & TREASURY STOCKHOLDERS'
STOCK CAPITAL EARNINGS LOSSES STOCK EQUITY
------ ------- ------- -------- -------- -------
(NOTE 1)
Balance--December 31, 1994 $3,085 $37,780 $36,362 ($5,577) ($4,513) $67,137
Net income 1,618 1,618
Stock dividend declared on common
stock (5%--March 15, 1995) 137 3,283 (3,420) 0
Shares issued for fractional interest 12 12
Cash in lieu of fractional shares (12) (12)
Adjustment of unrealized losses, net 3,358 3,358
------ ------- ------- -------- -------- -------
Balance--March 31, 1995 $3,222 $41,075 $34,548 ($2,219) ($4,513) $72,113
------ ------- ------- -------- -------- -------
------ ------- ------- -------- -------- -------
Balance--December 31, 1995 $3,368 $44,514 $37,014 $426 ($4,513) $80,809
Net income 2,157 2,157
Cash dividend declared on common
stock ($.06 per share)(Note ) (183) (183)
Adjustment of unrealized losses, net (1,044) (1,044)
------ ------- ------- -------- -------- -------
Balance--March 31, 1996 $3,368 $44,514 $38,988 ($618) ($4,513) $81,739
------ ------- ------- -------- -------- -------
------ ------- ------- -------- -------- -------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- 3 -
DS BANCOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1996 1995
---------- ----------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,157 $1,618
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses 650 600
Provision for estimated losses on foreclosed assets 300 500
Depreciation and amortization 198 196
Amortization of intangible assets 181 178
Net amortization of premiums/discounts on securities 208 139
Net accretion (amortization) of deferred loan fees (121) 1,414
Benefit for deferred income taxes (226) (14)
Decrease in deferred income tax asset 1,426 803
Net securities (gain) loss (153) 1,598
Net gain on sale of loans (19) (1,481)
Gains on sales of foreclosed assets (77) (7)
Net (increase) decrease in trading securities (509) 78
Decrease in accrued income receivable 425 393
Net decrease in other assets 1,981 184
Decrease in other liabilities (2,460) (790)
---------- ----------
Net cash provided by operating activities 3,961 5,409
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from matured securities available-for-sale 18,479 2,938
Proceeds from sale of securities available-for-sale 863 45,736
Proceeds from matured securities held-to-maturity 4,051 2,296
Purchase of securities available-for-sale (3,768) (25,300)
Purchase of securities held-to-maturity (3,000) (6,000)
Proceeds from loans sold to others 1,604 30,981
Purchases of loans from others (37,382) (19,312)
Net decrease (increase) in loans receivable 17,092 (2,643)
Premises and equipment additions (294) (61)
Proceeds from sale of foreclosed assets 320 186
Net decrease (increase) in foreclosed assets 277 (142)
---------- ----------
Net cash used in investing activities (1,758) 28,679
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 12,038 (1,118)
Net increase in mortgagors' escrow (4,988) (4,882)
Net decrease in short term FHLBB advances (1,264) (28,134)
Proceeds from long term FHLBB advances 55,000 10,000
Repayment of long term FHLBB advances (66,000) (10,000)
Proceeds from issuance of common stock -- 12
Dividends paid to stockholders (183) (12)
---------- ----------
Net cash provided (used) by financing activities (5,397) (34,134)
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,194) (46)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 20,730 18,628
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $17,536 $18,582
---------- ----------
---------- ----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- 4 -
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by DS
Bancor, Inc. (the "Company"), its wholly owned subsidiary Derby Savings Bank
(the "Bank") and Derby Financial Services Corp., the Bank's wholly owned
subsidiary, and reflected in the accompanying Consolidated Financial
Statements. The financial statements of Derby Financial Services Corp. are not
significant to either the Bank's or the Consolidated Financial Statements.
PRINCIPLES OF CONSOLIDATION. The Consolidated Financial Statements include the
accounts of the Company and the Bank. All significant intercompany accounts and
transactions have been eliminated.
BASIS OF CONSOLIDATED FINANCIAL STATEMENT PRESENTATION. The accompanying
Consolidated Financial Statements have been prepared in accordance with
generally accepted accounting principles and general practice within the banking
industry. In preparing the Consolidated Financial Statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities as of
the dates of the Consolidated Statements of Financial Position and reported
amounts of income and expenses in the Consolidated Statements of Earnings for
the periods then ended. Actual results may differ from those estimates.
MATERIAL ESTIMATES that are particularly susceptible to significant change in
the near-term relate to the determination of the Allowance for credit losses and
the valuation of real estate acquired in satisfaction of loans (foreclosed
assets). Such estimates reflect the realization that the Bank's foreclosed
assets and a substantial portion of the Bank's mortgage loans receivable are
related to real estate located in markets in Connecticut, which have experienced
value fluctuations in recent years.
While management uses available information to recognize possible losses on
loans and foreclosed assets, including the services of professional appraisers
for significant properties, future adjustments to the Allowance for credit
losses and the Allowance for estimated losses on foreclosed assets may be
necessary based on changes in economic and real estate market conditions in and
around the Bank's service area. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Bank's
Allowance for credit losses and the Allowance for estimated losses on foreclosed
assets and may require the Bank to recognize adjustments based on their
judgement of information available to them at the time of their examination.
CASH EQUIVALENTS. For the purposes of the Consolidated Statements of Cash
Flows, cash equivalents include demand deposits at other financial institutions
and federal funds sold. Generally, federal funds are sold for one-day periods.
SECURITIES are accounted for in accordance with the provisions of Statement of
Financial Accounting Standard ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). SFAS 115 requires the
classification of investment securities into categories of Held-to-maturity,
Available-for-sale or Trading. Investments in debt securities are classified as
Held-to-maturity only if there is a positive intent and ability to hold those
securities to maturity. Carrying basis is measured at amortized cost adjusted
for amortization of premiums and accretion of discounts generally computed using
the level yield method. Equity securities and debt securities not classified as
Held-to-maturity are classified as either Available-for-sale or Trading.
Classifications as Available-for-sale are measured at fair value, with
unrealized holding gains and losses, net of related income taxes, reported net
as a separate component of Stockholders' Equity until realized. Trading
securities are measured at fair value with unrealized holding gains and losses
reflected in Non-interest income.
Declines in the fair value below amortized cost that are other than temporary
for individual securities Available-for-sale and Held-to-maturity are recognized
as write-downs of the individual securities to their fair value, with the
write-downs included as a charge to operations as realized losses.
Mortgage-backed securities are accounted for in the same manner as debt
securities and consist of certificates that are participation interests in pools
of long-term first mortgage loans.
- 5 -
Gain or loss on dispositions of securities is based on the net proceeds and
adjusted carrying amount of the securities sold using the specific
identification method.
LOANS HELD-FOR-SALE generally consist of certain first mortgage loans that
management has identified will most likely be sold for reasons of managing rate
risk, liquidity, and/or asset growth, and are reflected at the lower of
aggregate cost or estimated market value. Net unrealized losses, if any,
resulting from market value less than cost are recognized through a valuation
allowance by charges against income.
LOANS RECEIVABLE that the Bank has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reflected at amortized cost
(unpaid principal balances reduced by any partial charge-offs or specific
valuation accounts) net of any net deferred fees or costs on originated loans or
any unamortized premiums or discounts on purchased loans, and less an Allowance
for credit losses.
Effective January 1, 1995, the Bank implemented the provisions of SFAS Nos.
114/118, "Accounting by Creditors for Impairment of a Loan." The basic
provisions of these statements eliminate the financial statement classification
of in-substance foreclosed assets as foreclosed assets, resulting in the
classification of such amounts and related specific allowance for credit losses
as Loans receivable. Additionally, these statements address the accounting for
loans considered impaired and the recognition of impairment. A loan is
considered impaired when, in management's judgement, current information and
events indicate it is probable that collection of all amounts due according to
the contractual terms of the loan agreement will not be met. The provisions of
these statements are prospective, with any adjustments resulting from initial
application reflected as an adjustment to the provision for credit losses. The
effect on the accompanying Consolidated Financial Statements of adopting these
statements was not significant.
Interest on loans is included in income as earned, based on rates applied to
principal amounts outstanding. The accrual of interest income is generally
discontinued and all previously unpaid accrued interest is reversed when a loan
becomes past due 90 days or more as to contractual payment of principal or
interest, or is determined to be impaired. Interest on purchased loans is
adjusted for the accretion of discounts and the amortization of premiums using
the interest method over the contractual lives of the loans, adjusted for
estimated prepayments.
Loan origination fees and certain direct related costs are deferred, and the net
fee or cost is amortized as an adjustment of loan yield over the life of the
related loan.
Allowances for credit losses have been established by provisions charged to
income and decreased by loans charged off (net of recoveries). These Allowances
represent amounts which, in management's judgment, are adequate to absorb
possible losses on loans that may become uncollectible based on such factors as
the Bank's past loan loss experience, changes in the nature and volume of the
loan portfolio, current and prospective economic conditions that may affect the
borrowers' ability to pay, overall portfolio quality, and review of specific
problem loans.
BANK PREMISES AND EQUIPMENT are stated at cost, less accumulated depreciation
and amortization. The Bank uses primarily accelerated methods of calculating
depreciation. Leasehold improvements are amortized over the shorter of the
estimated service lives or the terms of the leases. Bank premises are
depreciated over a period of between 30 and 40 years; furniture and equipment
are depreciated over a period of between 1 and 20 years. For income tax
purposes, the Bank uses the appropriate depreciation provisions of the Internal
Revenue Code.
FORECLOSED ASSETS include real estate properties acquired through foreclosure
proceedings or deeds accepted in lieu of foreclosure. These properties are
initially recorded at the lower of the carrying value of the related loans or
the estimated fair value of the real estate acquired, with any excess of the
loan balance over the estimated fair value of the property charged to the
Allowance for credit losses. Subsequent changes in the net realizable values
are reflected by charges or credits to the Allowance for estimated losses on
foreclosed assets. Costs relating to the subsequent development or improvement
of a property are capitalized when value is increased. All other holding costs
and expenses, net of rental income, if any, are expensed as incurred.
- 6 -
CORE DEPOSIT INTANGIBLE. In connection with the Burritt transaction (Note 13),
the core deposit intangible is being amortized on a straight line basis over
seven years.
INCOME TAXES. Deferred income tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases.
Deferred income tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
income tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Provisions for income taxes are computed based on all taxable revenue and
deductible expense items included in the accompanying Consolidated Statements of
Earnings regardless of the period in which such items are recognized for income
tax filing purposes. The Company and it subsidiary file consolidated Federal
and combined Connecticut income tax returns.
PRIMARY AND FULLY DILUTED EARNINGS PER SHARE are based on the weighted average
number of common shares outstanding during the period and additional common
shares assumed to be outstanding to reflect the dilutive effect of common stock
equivalents. Stock options and their equivalents are included in earnings per
share computations using the treasury stock method, which assumes that the
options are exercised at the beginning of the period. Proceeds from such
exercise are assumed to be used to repurchase common stock. The difference
between the number of common shares assumed to have been issued from the
exercise of options and the number of common shares assumed to have been
purchased are added to the weighted average number of common shares outstanding.
EMPLOYEE RETIREMENT BENEFITS and related deferred assets and liabilities are
accounted for in accordance with SFAS No. 87, "Employers' Accounting for
Pensions" and SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions". Pension expense and postretirement health care expense
are based on actuarial computations of current and future benefits for employees
and retirees.
RECLASSIFICATION. For comparative purposes, certain amounts in prior period
consolidated financial statements have been reclassified to conform with the
current period classifications.
- 7 -
NOTE 2 - SECURITIES
Securities have been classified in the accompanying Consolidated Statements of
Financial Position according to management's intent. Carrying amounts and
approximate fair values of Securities were as follows (amounts in thousands):
MARCH 31, 1996
------------------------------------------
GROSS UNREALIZED HOLDING
AMORTIZED ------------------------ FAIR
COST GAINS LOSSES VALUE
-------- -------- -------- --------
TRADING
Marketable equities $ 1,660 $ 38 $ 18 $ 1,680
-------- -------- -------- --------
-------- -------- -------- --------
AVAILABLE-FOR-SALE
U.S. Government and agency
obligations $ 6,402 $ 16 $ 111 $ 6,307
Mortgage-backed securities 198,762 1,580 2,522 197,820
Other bonds and notes 2,175 --- 19 2,156
-------- -------- -------- --------
Total debt securities 207,339 1,596 2,652 206,283
Marketable equities 13,253 285 405 13,133
Mutual funds 1,101 126 --- 1,227
-------- -------- -------- --------
Total $221,693 $ 2,007 $ 3,057 $220,643
-------- -------- -------- --------
-------- -------- -------- --------
HELD-TO-MATURITY
Mortgage-backed securities 68,787 47 1,755 67,079
Money market preferred stock 8,000 --- --- 8,000
-------- -------- -------- --------
Total $ 76,787 $ 47 $ 1,755 $ 75,079
-------- -------- -------- --------
-------- -------- -------- --------
DECEMBER 31, 1995
-----------------------------------------
GROSS UNREALIZED HOLDING
AMORTIZED ------------------------ FAIR
COST GAINS LOSSES VALUE
-------- -------- -------- --------
TRADING
Marketable equities $ 1,148 $ 23 $ --- $ 1,171
-------- -------- -------- --------
-------- -------- -------- --------
AVAILABLE-FOR-SALE
U.S. Government and agency
obligations $ 8,297 $ 109 $ --- $ 8,406
Mortgage-backed securities 213,538 2,378 1,826 214,090
Other bonds and notes 4,175 3 11 4,167
-------- -------- -------- --------
Total debt securities 226,010 2,490 1,837 226,663
Marketable equities 13,329 307 294 13,342
Mutual funds 1,070 61 --- 1,131
-------- -------- -------- --------
Total $240,409 $ 2,858 $ 2,131 $241,136
-------- -------- -------- --------
-------- -------- -------- --------
HELD-TO-MATURITY
U.S. Government and agency
obligations $ 2,000 $ --- $ --- $ 2,000
Mortgage-backed securities 70,881 62 549 70,394
-------- -------- -------- --------
Total debt securities 72,881 62 549 72,394
Money market preferred stock 5,000 --- --- 5,000
-------- -------- -------- --------
Total $ 77,881 $ 62 $ 549 $ 77,394
-------- -------- -------- --------
-------- -------- -------- --------
- 8 -
The scheduled contractual maturities of debt securities at March 31, 1996 are as
follows:
AVAILABLE-FOR-SALE HELD-TO-MATURITY
------------------- -------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
-------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
Due in one year or less $ 2,000 $ 1,990 $ --- $ ---
Due after one year through five years 176 167 --- ---
Due after five years through ten years 701 717 --- ---
Due after ten years 5,700 5,589 --- ---
-------- -------- -------- --------
8,577 8,463 --- ---
Mortgage-backed securities 198,762 197,820 68,787 67,079
-------- -------- -------- --------
Total $207,339 $206,283 $ 68,787 $ 67,079
-------- -------- -------- --------
-------- -------- -------- --------
Proceeds from sales of securities and realized gains (losses) from sales of
securities were as follows:
FOR THE THREE MONTHS ENDED MARCH 31, 1996
-----------------------------------------
GROSS REALIZED NET
PROCEEDS -------------- (LOSSES)
FROM SALES GAINS LOSSES GAINS
---------- ----- ------ ------
(AMOUNTS IN THOUSANDS)
AVAILABLE-FOR-SALE
Marketable equities $ 863 $ 195 $ 42 $ 153(a)
---------- ----- ------ ------
---------- ----- ------ ------
(A) EXCLUDES A $23,100 CAPITAL GAIN ON MUTUAL FUNDS.
FOR THE THREE MONTHS ENDED MARCH 31, 1995
-----------------------------------------
GROSS REALIZED NET
PROCEEDS -------------- (LOSSES)
FROM SALES GAINS LOSSES GAINS
---------- ----- ------ ------
(AMOUNTS IN THOUSANDS)
AVAILABLE-FOR-SALE
U.S. Government and agency obligations $ 27,994 $ --- $ 1,223 $(1,223)
Other bonds and notes 17,583 --- 555 (555)
---------- ------- ------- -------
45,577 --- 1,778 (1,778)
Marketable equities 54 9 --- 9
---------- ------- ------- -------
Total $ 45,631 $ 9 $ 1,778 $(1,769)
---------- ------- ------- -------
---------- ------- ------- -------
At March 31, 1996, the aggregate amortized cost and fair value of securities
pledged as collateral against public funds and treasury tax and loan deposits
were approximately $4.0 million and $3.9 million, respectively.
- 9 -
NOTE 3 - LOANS RECEIVABLE AND LOANS HELD-FOR-SALE
The components of Loans receivable, net in the accompanying Consolidated
Statements of Position were as follows:
MARCH 31, DECEMBER 31,
1996 1995
-------- --------
(AMOUNTS IN THOUSANDS)
MORTGAGE
Residential real estate $709,627 $695,419
Commercial real estate 33,022 31,234
Multi-family real estate 11,674 11,237
Residential construction 3,437 3,518
-------- --------
757,760 741,408
-------- --------
CONSUMER
Home equity lines of credit 80,644 78,523
Home equity installment 20,834 21,735
Collateral 3,116 3,330
All other 19,991 21,492
-------- --------
124,585 125,080
-------- --------
COMMERCIAL
Commercial 16,173 15,463
Real estate development 4,860 3,603
-------- --------
21,033 19,066
-------- --------
TOTAL 903,378 885,554
Net deferred loan fees, premiums & discounts (3,188) (3,309)
Allowances for credit losses (7,142) (6,906)
-------- --------
893,048 875,339
Residential real estate loans held-for-sale (4,053) (2,035)
-------- --------
LOANS RECEIVABLE, NET $888,995 $873,304
-------- --------
-------- --------
Loans are summarized between fixed and adjustable rates as follows:
MARCH 31, DECEMBER 31,
1996 1995
-------- --------
(AMOUNTS IN THOUSANDS)
Fixed rate $228,339 $224,741
Adjustable rate 675,040 660,813
-------- --------
Total $903,379 $885,554
-------- --------
-------- --------
The Bank has sold certain mortgage loans and retained the related servicing
rights (Note 20). The principal balances of loans serviced for others, which
are not included in the accompanying Consolidated Statements of Position, were
approximately $144.9 million and $147.1 million at March 31, 1996 and December
31, 1995, respectively.
The recorded investment in impaired loans (Note 1) at March 31, 1996
approximated $15.3 million and included approximately $12.2 million in mortgage
loans, $1.8 million in consumer loans and $1.3 million in commercial loans. The
amount of the related Allowance for credit losses on these loans at March 31,
1996 approximated $1.5 million. The average recorded investment in impaired
loans during the three months ended March 31, 1996 was approximately $14.7
million. During the three months ended March 31, 1996, amounts recognized as
interest income on impaired loans were not significant.
- 10 -
The recorded investment in impaired loans at December 31, 1995 approximated
$13.8 million and included approximately $11.1 million in mortgage loans, $1.5
million in consumer loans and $1.2 million in commercial loans. The amount of
the related Allowance for credit losses on these loans at December 31, 1995
approximated $1.6 million.
Activity in the Allowances for credit losses for the periods indicated were as
follows:
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
-------- --------
(AMOUNTS IN THOUSANDS)
MORTGAGE LOANS
Balance at beginning of period $ 4,183 $ 4,495
Provision for credit losses 650 400
Loan charge-offs (391) (444)
Recoveries 48 5
-------- --------
Balance at end of period $ 4,490 $ 4,456
-------- --------
-------- --------
CONSUMER LOANS
Balance at beginning of period $ 1,751 $ 1,266
Provision for credit losses --- 200
Loan charge-offs (86) (139)
Recoveries 1 47
-------- --------
Balance at end of period $ 1,666 $ 1,374
-------- --------
-------- --------
COMMERCIAL LOANS
Balance at beginning of period $ 972 $ 1,042
Provision for credit losses --- ---
Loan charge-offs (27) (21)
Recoveries 41 2
-------- --------
Balance at end of period $ 986 $ 1,023
-------- --------
-------- --------
TOTAL ALLOWANCE FOR CREDIT LOSSES
Balance at beginning of period $ 6,906 $ 6,803
Provision for credit losses 650 600
Loan charge-offs (504) (604)
Recoveries 90 54
-------- --------
Balance at end of period $ 7,142 $ 6,853
-------- --------
-------- --------
In connection with the Burritt transaction (Note 13), the Bank purchased two
loan pools at discounts of approximately $9.0 million and $1.3 million, which
were added to the Bank's Allowance for mortgage and consumer credit losses,
respectively, in 1992. During 1993, the Bank completed a valuation analysis of
these loans and allocated approximately $6.0 million from these amounts to a
purchased loan discount, which will be accreted to interest income over the
remaining terms of the acquired loans. At March 31, 1996, the Allowances for
credit losses, which totaled approximately $7.1 million, included approximately
$1.1 million allocated to the loans acquired in the Burritt transaction.
NOTE 4 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers and
manage its interest rate risk. These financial instruments substantially
include commitments to extend credit and commitments to sell mortgage loans.
These instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of amounts recognized in the accompanying Consolidated
Statements of Position. The contract or notional amounts of these instruments
reflect the extent of the Bank's involvement in particular classes of financial
instruments.
- 11 -
The Bank's exposure to credit loss in the event of non-performance by the
counterparty for commitments to extend credit is represented by the contractual
notional amount of those instruments. The Bank's exposure to market risk
associated with commitments to sell residential mortgage loans relates to the
possible inability of counterparties to meet contract terms or the Bank's
inability to originate loans to fulfill these commitments.
COMMITMENTS TO EXTEND CREDIT. Loan commitments are agreements to lend to a
customer as long as there is no violation of any condition established in the
contract. These financial instruments are recorded in the financial statements
when they are funded or when related fees are incurred or received. Loan
commitments are subject to the same credit policies as loans and generally have
fixed expiration dates or other termination clauses. Since commitments may
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of the collateral obtained
is based on management's credit evaluation of the counterparty. Collateral held
is primarily residential and commercial real property. Interest rates are
generally variable with the exception of the unadvanced portions of construction
loans, which have fixed rates of interest and generally mature within one year.
The Bank also issues traditional letters of credit which commit the Bank to make
payments on behalf of its customers based upon specific future events. Since
many of the letters of credit are expected to expire without being drawn upon,
the total letters of credit do not necessarily represent future cash
requirements. Collateral is obtained based upon management's credit assessment
of the customer.
The Bank's exposure to credit risk is represented by the contractual notional
amount of those instruments and is summarized below:
MARCH 31, DECEMBER 31,
1996 1995
-------- --------
(AMOUNTS IN THOUSANDS)
LOAN COMMITMENTS
Commitments to extend credit $ 15,972 $ 15,648
Commitments to purchase loans --- 6,151
Unadvanced commercial lines of credit 11,291 10,021
Unadvanced portion of construction loans 4,152 3,751
Unused portion of home equity lines of credit 70,492 65,458
Other consumer lines of credit 1,371 1,263
-------- --------
Total $103,278 $102,292
-------- --------
-------- --------
Letters of credit $ 2,266 $ 2,291
-------- --------
-------- --------
COMMITMENTS TO SELL RESIDENTIAL MORTGAGE LOANS. The Bank enters into forward
commitments to sell residential mortgage loans to reduce market risk associated
with originating loans for sale in the secondary market. In order to fulfill a
forward commitment, the Bank delivers originated loans at prices specified by
the contracts. At March 31, 1996, the Bank had commitments of $560,000 to sell
mortgage loans.
NOTE 5 - FORECLOSED ASSETS
Foreclosed assets consisted of the following:
MARCH 31, DECEMBER 31,
1996 1995
------- -------
(AMOUNTS IN THOUSANDS)
One-to-four family residential $ 947 $ 1,384
Multi-family --- ---
Commercial real estate 9 10
Land 2,505 2,548
------- -------
Total 3,461 3,942
Allowance for estimated losses (102) (230)
------- -------
Foreclosed assets, net $ 3,359 $ 3,712
------- -------
------- -------
- 12 -
Activity in the Allowance for estimated losses on Foreclosed assets is as
follows:
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
------ ------
(AMOUNTS IN THOUSANDS)
Balance at beginning of period $ 230 $ 439
Provision charged to expense 300 500
Net losses charged to the allowance (428) (631)
------ ------
Balance at end of period $ 102 $ 308
------ ------
------ ------
Losses and expenses related to Foreclosed assets are summarized as follows:
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
------ ------
(AMOUNTS IN THOUSANDS)
Provision charged to expense $ 300 $ 500
Gain on sale of real estate (77) (7)
Holding costs and expenses 277 (1)
Rental income (5) (44)
------ ------
Foreclosed asset expense, net $ 495 $ 448
------ ------
------ ------
NOTE 6 - BANK PREMISES AND EQUIPMENT
Bank premises and equipment were comprised of the following:
MARCH 31, DECEMBER 31,
1996 1995
------- -------
(AMOUNTS IN THOUSANDS)
Buildings and land $ 7,381 $ 7,381
Leasehold improvements 912 870
Furniture and equipment 6,302 6,077
------- -------
14,595 14,328
Accumulated depreciation and amortization 7,995 7,824
------- -------
Bank premises and equipment, net $ 6,600 $ 6,504
------- -------
------- -------
Depreciation and amortization included in Non-interest expense aggregated
approximately $198,200 and $195,600 for the three months ended March 31, 1996
and 1995, respectively.
LEASES.
Rent expense for banking premises of $184,900 and $175,700 is included in
Occupancy expense in the accompanying Consolidated Statements of Earnings for
the three months ended March 31, 1996 and 1995, respectively.
Future minimum payments, by year and in the aggregate, under noncancelable
operating leases with initial or remaining terms of one year or more consist of
the following at March 31, 1996 (AMOUNTS IN THOUSANDS):
1996 $ 465
1997 536
1998 366
1999 224
2000 105
Thereafter 101
------
Total future minimum lease payments $1,797
------
------
These leases include options to renew for periods ranging from 3 to 22 years.
- 13 -
NOTE 7 - DEPOSITS
Deposits were comprised of the following:
MARCH 31, DECEMBER 31,
------------------------- -------------------------
1996 1995
----------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS)
RATES % AMOUNT RATES % AMOUNT
------------- ---------- ------------- ----------
Demand $ 35,144 $ 35,999
NOW 1.75-2.00%(a) 48,325 1.75-2.00%(a) 47,460
Regular and club savings 2.00 187,660 2.00 185,610
Money market deposit accounts 5.77 (b) 202,697 5.57 (b) 209,265
Time accounts 5.59 (b) 596,357 5.66 (b) 579,811
---------- ----------
Total deposits $1,070,183 $1,058,145
---------- ----------
---------- ----------
(a) Ranges indicate tiers
(b) Weighted average stated rate
Time accounts at March 31, 1996 mature as follows:
WEIGHTED AVERAGE
MATURITY STATED RATE AMOUNT
-------- ---------------- ------
(DOLLAR AMOUNTS IN THOUSANDS)
One year or less 5.50% $439,553
One to two years 5.72% 77,567
Two to three years 5.46% 23,196
Beyond 6.12% 56,041
--------
Total 5.59% $596,357
--------
--------
Time deposit accounts of $100,000 or more approximated $41.9 million at March
31, 1996. Of that amount, approximately $15.7 million mature in six months or
less, $12.6 million mature after six months to one year, and $13.6 million
mature after one year.
Interest expense on deposits is summarized as follows:
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1996 1995
------- -------
(AMOUNTS IN THOUSANDS)
NOW $ 226 $ 225
Regular and club savings 928 1,014
Money market deposits 2,758 2,642
Time savings 8,222 6,661
Escrow 40 37
------- -------
Total interest expense on deposits $12,174 $10,579
------- -------
------- -------
- 14 -
NOTE 8 - BORROWED FUNDS
Terms of the Advances from the Federal Home Loan Bank of Boston ("FHLBB") were
as follows:
MARCH 31, DECEMBER 31,
MATURITY/REPRICE DATE 1996 1995
- --------------------- ----------------------- -----------------------
(DOLLAR AMOUNTS IN THOUSANDS)
WEIGHTED AVERAGE WEIGHTED AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- ------------- -------- -------------
1996 $ 48 --- $ 1,011 ---
1996 60,654 5.57 71,955 5.45
1997 19,190 5.55 19,190 5.55
1998 1,600 5.48 1,600 5.48
1999 2,200 8.60 2,200 8.60
2000 920 9.16 920 9.16
-------- --------
Total advances from the FHLBB $ 84,612 $ 96,876
-------- --------
-------- --------
The Bank has a cash management line of credit from the FHLBB in the amount of
$20.0 million at March 31, 1996. At March 31, 1996 and December 31, 1995, the
Bank had book overdrafts of approximately $48,000 and $1.0 million,
respectively, which are included in advances from the FHLBB in the accompanying
Consolidated Statements of Position.
Interest expense on borrowed funds is summarized as follows:
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1996 1995
------ ------
(AMOUNTS IN THOUSANDS)
FHLBB advances $1,228 $1,152
------ ------
------ ------
Stock of the FHLBB, mortgage loans and mortgage-backed securities with fair
values, as determined in accordance with FHLBB's collateral pledge agreement, at
least equal to the outstanding advances and any unused lines of credit were
pledged against outstanding advances from the FHLBB at March 31, 1996 and
December 31, 1995.
NOTE 9 - BENEFIT PLANS
A. RETIREMENT PLAN
The Bank sponsors a defined benefit pension plan which is noncontributory and
covers all full-time employees who meet certain age and length of service
requirements. Benefits are based on years of service and the employee's highest
compensation during any consecutive five year period during the last ten years
before normal retirement. The Bank's funding policy is to contribute annually
amounts at least equal to minimum required contributions under the Employee
Retirement Income Security Act of 1974 (ERISA). Contributions are intended to
provide not only for benefits attributed to service to date, but also for those
expected to be earned in the future.
The components of the net pension expense reflected in Employee benefits expense
were as follows:
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1996 1995
---- ----
(AMOUNTS IN THOUSANDS)
Service cost-benefits earned during the period $117 $ 87
Interest cost on projected benefit obligation 105 95
Expected return on plan assets (112) (100)
Net amortization and deferral 10 (2)
---- ----
Net pension expense $120 $ 80
---- ----
---- ----
- 15 -
Assumptions used in the accounting were:
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1996 1995
---- ----
Discount/settlement rates 7.00% 8.50%
Rates of increase in compensation levels 5.00% 5.00%
Expected long-term rate of return on assets 9.50% 9.50%
The following table sets forth the Plan's funded status and amounts recognized
in the Consolidated Statements of Position:
DECEMBER 31, 1995
-----------------
(AMOUNTS IN THOUSANDS)
Actuarial present value of benefit obligations:
Accumulated benefit obligation - vested $(4,543)
Accumulated benefit obligation - nonvested (120)
-------
Total accumulated benefit obligation (4,663)
Effect of projected future compensation levels (1,964)
-------
Projected benefit obligation (PBO) for service
rendered to date (6,627)
Plan assets, at fair value * 4,801
-------
PBO in excess of plan assets (1,826)
Unrecognized net asset existing at January 1, 1987
being recognized over approximately 18 years (84)
Unrecognized net loss from past experience different
from that assumed, and effects of changes in
assumptions 1,785
-------
Accrued pension cost included in Other liabilities $ (125)
-------
-------
* THE PLAN'S ASSETS ARE ALLOCATED AMONG EQUITY SECURITIES AND VARIOUS
SHORT AND INTERMEDIATE TERM BOND FUNDS.
B. DEFERRED COMPENSATION PLAN
The Bank has adopted deferred compensation agreements for its directors whereby
directors can defer earned fees to future years with benefits commencing at
retirement or pre-retirement benefits at death prior to retirement. The
deferred compensation expense for the three months ended March 31, 1996 and 1995
was $26,700 and $25,100, respectively. The Bank has purchased life insurance
policies which it intends to use to fund the retirement benefits. For income
tax purposes, no deduction is allowed for the insurance premium expense or
deferred compensation expense, but a deduction will be allowed at the time
compensation is paid to the participant. For the quarters ended March 31, 1996
and 1995, the Bank had no insurance premium expenses inasmuch as policy loans
were utilized to fund premiums due.
In September 1995, both the Bank and the Company adopted a deferred compensation
plan for non-employee directors. Under the plan, non-employee directors may
elect to defer the payment of all or any portion of their Board or Committee
fees, with deferred amounts to be payable commencing upon the director's death,
disability or termination of service for reason other than death or disability.
Deferred amounts bear interest at a rate equal to the one year U.S. Treasury
rate, plus 50 basis points, adjusted monthly.
C. THRIFT PLAN
The Bank has established a defined contribution thrift plan (the "Thrift Plan")
covering eligible employees. Full-time employees are eligible to participate in
the Thrift Plan upon completion of six months of service. Eligible employees
participating in the Thrift Plan may contribute between one percent and ten
percent of their pre-tax annual compensation. If an employee contributes the
maximum ten percent of annual compensation, the employee may also contribute an
additional ten percent of post-tax annual compensation. The Bank contributes
$.50 to the Thrift Plan for each $1.00 contributed by participants up to three
percent of each participant's compensation. The Bank's expense during the three
months ended March 31, 1996 and 1995 was $12,900 and $19,100, respectively.
- 16 -
D. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Bank provides certain health care and life insurance benefits for retired
employees. Substantially all of the Bank's employees become eligible if they
reach normal retirement age while still working for the Bank. These benefits
are provided through an insurance company whose premiums are based on the
benefits paid during the year. The premiums paid by the Bank are based on the
retiree's length of service with the Bank.
The following table sets forth the accumulated postretirement benefit obligation
("APBO") reconciled to the accrued postretirement benefit cost included in the
Company's Consolidated Statements of Position:
DECEMBER 31, 1995
-----------------
(AMOUNTS IN THOUSANDS)
Accumulated postretirement benefit obligation:
Retirees $ (518)
Fully eligible active plan participants (213)
Other active plan participants (1,973)
-------
Total APBO (2,704)
Unrecognized transition obligation 1,812
Unrecognized net gains from past experience
different from that assumed and effects
of changes in assumptions (780)
-------
Accrued postretirement benefit cost
included in Other liabilities $(1,672)
-------
-------
The APBO includes approximately $2.1 million attributable to the Company's
postretirement health care plan.
Net periodic postretirement benefit cost reflected in Employee benefits expense
in the accompanying Consolidated Statements of Earnings included the following
components:
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1996 1995
---- ----
(AMOUNTS IN THOUSANDS)
Service cost-benefits attributable to
service during the period $ 56 $ 53
Interest cost on APBO 47 47
Amortization 19 17
---- ----
Net periodic postretirement benefit cost $122 $117
---- ----
---- ----
For measurement purposes, a 13.0% annual rate of increase in the per capita cost
of covered health care benefits was assumed in 1995. The rate was assumed to
decrease gradually to 4.0% in year 12 and remain at that level thereafter. The
health care cost trend rate assumption has a significant effect on the amounts
reported.
The weighted-average discount rate used in determining the APBO was 7.00%.
- 17 -
NOTE 10 - INCOME TAXES
The allocation of federal and state income taxes between current and deferred
portions, calculated using the liability method is as follows:
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1996 1995
------ ------
(AMOUNTS IN THOUSANDS)
CURRENT INCOME TAX PROVISION
Federal $1,232 $ 813
State 447 297
------ ------
Total current 1,679 1,110
------ ------
DEFERRED INCOME TAX BENEFIT
Federal (203) (10)
State (23) (4)
------ ------
Total deferred (226) (14)
------ ------
TOTAL PROVISION FOR INCOME TAXES $1,453 $1,096
------ ------
------ ------
The Company's effective income tax rate differed from the Federal statutory tax
rate as follows:
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1996 1995
-------------- --------------
(DOLLAR AMOUNTS IN THOUSANDS)
Amount % Amount %
------ ---- ------ ----
Tax at statutory Federal rate $1,227 34.0 $ 924 34.0
State tax* 280 7.7 193 7.2
Dividend income exclusion (54) (1.5) (22) (0.8)
Other -- -- 1 --
------ ---- ------ ----
Effective rate on operations $1,453 40.2 $1,096 40.4
------ ---- ------ ----
------ ---- ------ ----
* NET OF FEDERAL TAX BENEFIT
The components of the net deferred income tax asset are as follows:
March 31, 1996 December 31, 1995
-------------- -----------------
(AMOUNTS IN THOUSANDS)
DEFERRED INCOME TAX LIABILITY
Federal $ 415 $ 677
State 147 253
------ ------
562 930
------ ------
DEFERRED INCOME TAX ASSET
Federal 3,236 3,077
State 1,146 1,146
------ ------
4,382 4,223
------ ------
NET DEFERRED INCOME TAX ASSET $3,820 $3,293
------ ------
------ ------
- 18 -
The tax effects of each item of income and expense and net unrealized gains
(losses) on securities available-for-sale that give rise to deferred income
taxes are:
March 31, 1996 December 31, 1995
-------------- -----------------
(AMOUNTS IN THOUSANDS)
Allowances for losses $2,298 $2,141
Depreciation (136) (122)
Deferred loan fees (194) (185)
Deferred compensation 244 244
Loan expense 299 311
Employee benefits 812 745
Trading loss (8) (10)
Intangible asset 505 470
------ ------
3,820 3,594
Unrealized losses (432) (301)
------ ------
Net deferred income tax asset $3,388 $3,293
------ ------
------ ------
A summary of the change in the net deferred income tax asset for the three
months ended March 31, 1996 and 1995 is as follows (AMOUNTS IN THOUSANDS):
Net deferred income tax asset at December 31, 1995 $3,293
Deferred tax provision:
Income and expense 226
Unrealized losses (131)
------
Net deferred income tax asset at March 31, 1996 $3,388
------
------
Net deferred income tax asset at December 31, 1994 $7,293
Deferred tax provision:
Income and expense 14
Unrealized losses (2,390)
------
Net deferred income tax asset at March 31, 1995 $4,917
------
------
The Company has recorded a net deferred income tax asset of approximately $3.4
million. Realization is dependent on various factors and is not assured.
However, management is of the opinion that it is more likely than not that all
of the net deferred tax asset will be realized.
Deductions from taxable income in prior years have been claimed as loan loss
provisions for qualifying (real estate) loans in accordance with the Internal
Revenue Code. Retained earnings includes a tax reserve for qualifying loans.
If the reserve is used for any purpose other than to absorb losses on loans, an
income tax liability could be incurred. Management does not anticipate that
this reserve will be made available for any other purposes. In accordance with
generally accepted accounting principles, no deferred income taxes have been
provided for this temporary difference.
NOTE 11 - STOCK OPTIONS
Under the Company's stock option plans, 456,682 shares of common stock, adjusted
to reflect stock dividends, if any, were reserved at March 31, 1996. At the
time options are granted, no accounting entry is made. The proceeds from the
exercise of options are credited to common stock for the par value of the shares
purchased and the excess of the option price over the par value of the shares
issued is credited to additional paid-in capital. The exercise price of options
granted approximated the fair market value of the shares on the dates granted.
Additionally, stock appreciation rights have been granted in tandem with stock
options under the Company's 1985 Stock Option Plan.
- 19 -
In accordance with generally accepted accounting principles, compensation
accruals are required for SARS when the market value exceeds the option exercise
price. However, compensation expense should be measured according to the terms
the Company's SARS holders are most likely to elect based upon the facts
available each period. Accordingly, no expense accruals have been made for the
three months ended March 31, 1996 and 1995 inasmuch as management does not
anticipate exercise of SARS at this time.
The following table and the data below summarizes the shares subject to option
under the Plans which have been adjusted to reflect stock dividends declared:
FOR THE THREE MONTHS ENDED MARCH 31, 1996
-----------------------------------------
Outstanding at beginning of period 351,140
Granted 39,500
Exercised ---
Cancelled ---
-------
Outstanding at end of period 390,640
-------
-------
As of March 31, 1996, 390,640 options were exercisable at prices ranging from
$9.03 to $27.25.
At March 31, 1996, there were 390,640 options in the Plans that remained
outstanding. Through March 31, 1996, 150,614 options have been exercised and
45,590 options, adjusted to reflect subsequent stock dividends, have been
cancelled. 66,042 options are available for grant.
During the three months ended March 31, 1996, there were no SARS exercised.
During the three months ended March 31, 1995, 1,313 SARS were exercised which
resulted in payments to employees aggregating $6,200. These amounts are
included in Salary and wage expense in the accompanying Consolidated Statements
of Earnings for the three months ended March 31, 1995.
NOTE 12 - CONDENSED FINANCIAL INFORMATION OF DS BANCOR, INC.
(PARENT COMPANY ONLY)
The condensed Statements of Position for DS Bancor, Inc. were as follows:
MARCH 31, DECEMBER 31,
1996 1995
------- -------
(DOLLAR AMOUNTS IN THOUSANDS)
ASSETS
Cash in subsidiary bank $ 609 $ 812
Investment in bank subsidiary, at equity 80,782 79,658
Other assets 353 344
------- -------
TOTAL ASSETS $81,744 $80,814
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Other liabilities $ 5 $ 5
------- -------
STOCKHOLDERS' EQUITY
Common Stock 3,368 3,368
Additional paid-in capital 44,514 44,514
Retained earnings 38,370 37,440
Less: Treasury stock, at cost (339,500 shares) (4,513) (4,513)
------- -------
TOTAL STOCKHOLDERS' EQUITY 81,739 80,809
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $81,744 $80,814
------- -------
------- -------
- 20 -
The condensed Statements of Earnings were as follows:
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
------ ------
(DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATE)
INCOME
Other income $ 10 $ 13
------ ------
Total income 10 13
------ ------
EXPENSE
Other expense 30 48
------ ------
Total expense 30 48
------ ------
Income before income tax and change in equity
of subsidiary (20) (35)
Income tax benefit 8 15
------ ------
Income before change in equity of subsidiary (12) (20)
Change in equity of subsidiary 2,169 1,638
------ ------
NET INCOME $2,157 $1,618
------ ------
------ ------
WEIGHTED AVERAGE SHARES OUTSTANDING
Primary 3,135,406 3,081,171
Fully Diluted 3,173,128 3,081,171
EARNINGS PER SHARE
Primary $ 0.69 $ 0.53
Fully diluted $ 0.68 $ 0.53
The condensed changes in the components of Stockholders' Equity for the three
months ended March 31, 1996 and 1995 were as follows:
Additional
Common Paid-In Retained Treasury
Stock Capital Earnings Stock
------ ------- ------- -------
(DOLLAR AMOUNTS IN THOUSANDS)
Balance - December 31, 1994 $3,085 $37,780 $30,785 $(4,513)
Net income 1,618
Stock dividend declared on common stock 137 3,283 (3,420)
Shares issued for fractional interest 12
Cash in lieu of fractional shares (12)
Adjustment for unrealized losses, net 3,358
------ ------- ------- -------
Balance - March 31, 1995 $3,222 $41,075 $32,329 $(4,513)
------ ------- ------- -------
------ ------- ------- -------
Balance - December 31, 1995 $3,368 $44,514 $37,440 $(4,513)
Net income 2,157
Cash dividend declared on common stock (183)
Adjustment for unrealized losses, net (1,044)
------ ------- ------- -------
Balance - March 31, 1996 $3,368 $44,514 $38,370 $(4,513)
------ ------- ------- -------
------ ------- ------- -------
- 21 -
The condensed Statements of Cash Flows were as follows:
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1996 1995
----- -----
(AMOUNTS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Interest on deposit account $ 10 $ 13
Cash paid to suppliers (30) (47)
----- -----
Net cash provided from
operating activities (20) (34)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid to stockholders (183) (12)
Issuance of common stock --- 12
----- -----
Net cash applied to financing
activities (183) ---
----- -----
Net decrease in cash (203) (34)
Cash at beginning of period 812 860
----- -----
CASH AT END OF PERIOD $ 609 $ 826
----- -----
----- -----
A reconciliation of net earnings to cash provided by operating activities was as
follows:
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1996 1995
-------- ------
(AMOUNTS IN THOUSANDS)
Net Income $2,157 $1,618
Items not resulting in cash flow:
Equity in undistributed earnings
of subsidiary (2,168) (1,638)
Increase in income tax benefits
receivable (9) (14)
-------- ------
Net cash flow from operating activities $ (20) $ (34)
-------- ------
-------- ------
NOTE 13 - ACQUISITION OF BURRITT INTERFINANCIAL BANCORPORATION
On December 4, 1992, Derby Savings entered into an Insured Deposit Purchase and
Assumption Agreement 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, among others, loans totaling approximately
$169.3 million that were purchased at a $10.4 million discount (Note 3). The
Bank recorded approximately $5.0 million as a core deposit intangible, which is
included in Other assets and approximated $2.7 million, net of amortization, at
March 31, 1996 (Note 1).
- 22 -
NOTE 14 - REGULATORY MATTERS
DS Bancor and Derby Savings Bank, pursuant to the regulations of the Federal
Reserve Board (the "Board") and the FDIC, respectively, are subject to
risk-based capital standards. These risk-based standards require a minimum
ratio of total capital to risk-weighted assets of 8.0%. Of the required
capital, 4.0% must be tier 1 capital (primarily Stockholders' Equity).
The Board has supplemented these standards with a minimum leverage ratio of 3.0%
of tier 1 capital to total assets. The Board has indicated that all but the
most highly rated bank holding companies should maintain a leverage ratio of 4%
to 5% of tier 1 capital to total assets. The FDIC has adopted a similar
leverage requirement.
In August 1995, the FDIC and the Connecticut Banking Commissioner terminated the
Memorandum entered into by the Bank in April 1992. The Memorandum, as amended,
required that the Bank achieve a tier 1 capital to total assets ratio of at
least 5.75% by June 30, 1995. Additionally, the Memorandum limited the payment
of cash dividends by the Bank to DS Bancor to the Company's debt service and
non-salary expenses.
By June 30, 1995, the Bank had achieved a tier 1 capital to total assets ratio
of 5.9%, which led to the termination of the Memorandum by the FDIC and the
Connecticut Banking Commissioner. At March 31, 1996, this ratio stood at 6.3%.
In connection with the termination of the Memorandum, the Bank's Board of
Directors has adopted a policy that limits the payment of cash dividends by the
Bank to the Company up to 10% of the Bank's net income.
The following table summarizes the capital ratios of DS Bancor and Derby Savings
Bank at March 31, 1996:
RISK-BASED
----------
LEVERAGE RATIO TIER 1 TOTAL
-------------- ------ ------
DS Bancor 6.4% 11.11% 12.11%
Derby Savings Bank 6.3% 10.98% 11.98%
- 23 -
SELECTED FINANCIAL AND OTHER DATA
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE QUARTER
ENDED MARCH 31,
------------------
1996 1995
------- ------
(UNAUDITED)
OPERATING DATA:
Interest income $22,247 $20,584
Interest expense 13,376 11,671
------- -------
Net interest income 8,871 8,913
Provision for credit losses 650 600
------- -------
Net interest income after provision for credit
losses 8,221 8,313
Non-interest income, net 894 543
Non-interest expense 5,505 6,142
------- -------
Income before income taxes 3,610 2,714
Provision for income taxes 1,453 1,096
------- -------
Net Income $2,157 $1,618
------- -------
------- -------
Earnings Per Share
Primary $0.69 $0.53
Fully diluted $0.68 $0.53
STATISTICAL DATA:
Net interest rate spread (a) 2.58% 2.86%
Net yield on average interest-earning assets (a) 2.94% 3.10%
Return on average assets (a) 0.70% 0.55%
Return on average stockholders' equity (a) 10.36% 9.11%
Average stockholders' equity to average assets 6.73% 5.99%
MARKET PRICES OF COMMON STOCK:
High $33.50 $27.50
Low $24.75 $21.75
At March 31 $32.75 $24.25
FINANCIAL CONDITION AND OTHER DATA AT: MARCH 31, DECEMBER 31,
1996 1995
------- ------
(UNAUDITED)
Total assets $1,247,739 $1,254,483
Loan portfolio, net 893,048 875,339
Securities portfolio 299,110 320,188
Deposits 1,070,183 1,058,145
Federal Home Loan Bank of Boston advances 84,612 96,876
Stockholders' equity 81,739 80,809
Book value per share 26.99 26.68
Leverage ratio 6.39% 6.19%
Tier 1 capital to risk-weighted assets 11.11% 10.94%
Total capital to risk-weighted assets 12.11% 11.91%
Non-performing loans 15,255 13,768
Foreclosed assets 3,359 3,712
------ ------
Total non-performing assets 18,614 17,480
Restructured loans 4,118 4,385
Allowance for credit losses 7,142(b) 6,906(b)
Allowance as a percentage of non-performing loans 46.8% 50.2%
- -------------------
(A) ANNUALIZED.
(B) INCLUDES $1.1 MILLION AND $1.2 MILLION, ALLOCATED TO LOANS ACQUIRED AS
PART OF THE BURRITT TRANSACTION, FOR MARCH 31, 1996 AND DECEMBER 31, 1995,
RESPECTIVELY.
- 24 -
MANAGEMENT'S DISCUSSION AND ANALYSIS
COMPARISON OF RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
GENERAL. Net income for the first quarter ended March 31, 1996 totaled
$2,157,000 or $.68 per share (fully diluted) compared to $1,618,000 or $.53 per
share (fully diluted) for the comparable period in 1995. Net income for the
three months ended March 31, 1996 represented an annualized return on average
assets of .70% compared to .55% for the corresponding period in 1995.
Income before taxes of $3.6 million for the current period represents an
$896,000 or 33.0% increase compared to income before taxes for the prior year
period. This increase essentially resulted from a $351,000 increase in
non-interest income and a decline in non-interest expense of $637,000 for the
current quarter compared to the year earlier period. Net interest income for
the first quarter of 1996 of $8.9 million remained virtually unchanged, posting
a $42,000 decline from the first quarter of 1995, while the provision for
credit losses of $650,000 in the current period represented a $50,000 increase
from the prior year period.
INTEREST INCOME. Interest and fee income from loans and interest from
investment securities increased $1.7 million or 8.1% during the three months
ended March 31, 1996 compared to the corresponding period in 1995. The increase
in interest income was due to the combined effect of an increase in the yield
on average interest-earning assets and an increase in the volume of average
interest-earning assets outstanding for the quarter ended March 31, 1996
compared to the quarter ended March 31, 1995.
The average yield on interest-earning assets increased 22 basis points
(100 basis points equals one percent) from 7.15% during the first quarter of
1995 to 7.37% during the current quarter. The increase in yield on
interest-earning assets, achieved during a general decrease in the level of
interest rates between the periods, reflects the Company's strategy of placing
greater emphasis on variable rate loan products as opposed to securities and
also the ongoing control of the level of non-performing assets. Total
interest-earning assets increased $56.0 million to $1,207.8 million in the
first quarter 1996 compared to $1,151.8 million in the first quarter 1995.
Growth in total loans accounted for $42.0 million of the increase in
interest-earning assets. The yield on loans increased by 50 basis points
during this period from 7.35% to 7.85%. The combination of higher yields and
greater average loans outstanding produced $1.9 million in additional interest
income in the first quarter of 1996 compared to the same period in 1995. In
contrast, the yield on taxable securities declined by 53 basis points from
6.62% to 6.09% between the same periods, while the average balance outstanding
increased by $16.8 million, the net effect of which resulted in a $136,000
decline in interest income from the securities portfolio between the two
periods.
INTEREST EXPENSE. Interest expense increased $1.7 million or 14.6% during
the three months ended March 31, 1996 compared to the corresponding period in
1995. The increase in interest expense was due to a change in the mix of
interest-bearing liabilities and an increase in average interest-bearing
liabilities outstanding between the two periods. Average interest-bearing
liabilities increased by $28.7 million or 2.6% to $1,117.5 million at March 31,
1996 compared to $1,088.8 million at March 31, 1995. Growth in total deposits
of $27.0 million between the comparable periods accounted for the majority of
the increase in interest-bearing liabilities. The cost of deposits increased
52 basis points between the first quarters of 1995 and 1996, rising from 4.18%
to 4.70%. The increase in the average cost of deposits resulted from a shift
in deposit funds from lower costing regular savings to higher costing
certificates of deposit. Regular savings accounts declined by $12.0 million
between the two periods while certificates of deposit increased by $16.5
million. The cost of borrowings also increased over the comparable periods by
25 basis points from 5.63% to 5.88%. Average borrowed funds increased slightly
from $81.9 million at March 31, 1995 to $83.6 million at March 31, 1996.
NET INTEREST INCOME. Net interest income remained virtually unchanged at
$8.9 million for the quarters ended March 31, 1995 and March 31, 1996. The net
interest rate spread declined by 28 basis points from 2.86% at March 31, 1995
to 2.58% for the current quarter. The net yield on average interest-earning
assets during the same period decreased by 16 basis points from 3.10% to 2.94%.
- 25 -
The following table summarizes the Bank's net interest income (including
dividends) and net yield on average interest-earning assets. Non-accruing
loans, for the purpose of this analysis, are included in average loans
outstanding during the periods indicated. For the purpose of these
computations, daily average amounts were used to compute average balances.
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------------
1996 1995
---------------------------------- -----------------------------
(AMOUNTS IN THOUSANDS)
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
---------- -------- ----- ---------- -------- -----
INTEREST-EARNING ASSETS
Loans $ 879,027 $17,257 7.85% $ 836,990 $15,390 7.35%
Taxable securities 311,156 4,737 6.09 294,392 4,873 6.62
Federal funds 7,854 99 5.04 11,535 163 5.65
FHLBB stock 9,793 154 6.29 8,899 158 7.10
---------- -------- ---------- --------
TOTAL INTEREST-EARNING ASSETS $1,207,830 22,247 7.37 $1,151,816 20,584 7.15
---------- -------- ---------- --------
---------- -------- ---------- --------
INTEREST-BEARING LIABILITIES
Deposits $1,033,919 12,148 4.70 $1,006,899 10,519 4.18
Borrowed funds 83,575 1,228 5.88 81,877 1,152 5.63
---------- -------- ---------- --------
TOTAL INTEREST-BEARING LIABILITIES $1,117,494 13,376 4.79 $1,088,776 11,671 4.29
---------- -------- ---------- --------
---------- -------- ---------- --------
NET INTEREST INCOME $ 8,871 $ 8,913
-------- --------
-------- --------
NET INTEREST RATE SPREAD 2.58% 2.86%
----- -----
----- -----
NET YIELD ON AVERAGE INTEREST-EARNING ASSETS 2.94% 3.10%
----- -----
----- -----
RATE/VOLUME ANALYSIS. The following table sets forth the changes in
interest earned and interest paid resulting from changes in volume and changes
in rates. Changes in interest earned or paid due to both rate and volume have
been allocated in proportion to the relationship of the absolute dollar amounts
of the changes in each. There were no material out of period items or
adjustments included in interest income or interest expense during the periods
indicated.
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 COMPARED TO 1995
----------------------------
VOLUME RATE NET
------ ------- ------
(AMOUNTS IN THOUSANDS)
INTEREST EARNED ON:
Loans $ 795 $1,072 $1,867
Taxable securities 268 (404) (136)
Federal funds (48) (16) (64)
FHLBB stock 15 (19) (4)
------ ------- ------
INTEREST INCOME 1,030 633 1,663
------ ------- ------
INTEREST PAID ON:
Deposits 289 1,340 1,629
Borrowed funds 24 52 76
------ ------- ------
INTEREST EXPENSE 313 1,392 1,705
------ ------- ------
------ ------- ------
NET INTEREST INCOME $ 717 $ (759) $ (42)
------ ------- ------
------ ------- ------
- 26 -
PROVISION FOR CREDIT LOSSES. The Bank provided $650,000 for credit losses
for the first quarter of 1996 compared to $600,000 for the first quarter 1995.
At the end of the first quarter of 1996, the Company's allowance for credit
losses totaled $7.1 million, representing 46.8% of non-performing loans
(non-performing loans includes loans past due 90 days or more and non-accruing
loans). The allowance for credit losses includes $1.1 million allocated to the
loans acquired in the Burritt transaction (see notes to Consolidated financial
statements).
NON-INTEREST INCOME. Non-interest income increased $351,000 or 64.6%
from $543,000 during the first quarter of 1995 to $894,000 during the first
quarter of 1996. During the first quarter of 1996, net realized securities
gains totaled $257,000 compared to a net realized loss of $1.6 million for
the 1995 period. During the first quarter of 1996, there was a net gain of
$18,000 on the sale of $1.6 million of loans. This gain was offset by a
$78,000 market valuation charge on loans classified as held-for-sale. During
the first quarter of 1995, there was a net gain on the sale of loans of $1.5
million. In a balance sheet restructuring effort during the first quarter of
1995, the Bank sold $45.6 million in investment securities and $29.5 million
in mortgage loans. As a result of those transactions during the first
quarter of 1995, the Bank incurred a net loss of $288,000. Service charges
and other income, comprised principally of loan service and deposit related
fees, increased $33,000 or 5.0% from $660,000 for the first quarter of 1995
to $693,000 for the current quarter.
NON-INTEREST EXPENSE. Non-interest expense decreased $637,000 or 10.4%
from $6.1 million during the first quarter of 1995 to $5.5 million during the
corresponding period in 1996. The primary reason for the decline in
non-interest expense was the reduction in the deposit insurance premium
assessed by the FDIC. In the first quarter 1995 the FDIC deposit insurance
premium paid by the Bank totaled $660,500. As a result of the full
recapitalization of the Bank Insurance Fund during 1995, the deposit insurance
premium assessed by the FDIC to the Bank for the first quarter of 1996 dropped
to $750.
Salaries and employee benefits, the largest component of the Company's cost
of operations, totaled $2.6 million, increasing $53,000 or 2.1% in the 1996
period compared to the first quarter 1995. For the current quarter, foreclosed
asset expense totaled $495,000 compared to $448,000 for the comparable year
earlier period. Included in this expense is the provision for estimated losses
on foreclosed assets, which amounted to $300,000 in the current quarter
compared to $500,000 for the year earlier period. The Company expects that
until the level of foreclosed assets declines substantially, foreclosed asset
expense will continue to be significant.
As required by the Statement of Financial Accounting Standards No. 91, the
Bank deferred certain direct costs resulting from the origination of loans.
These deferred costs, which are principally comprised of salaries, employee
benefits and other loan expenses, totaled approximately $378,000 for the
current quarter compared to $171,000 for the year earlier period.
NET NON-INTEREST MARGIN. The net non-interest margin, the difference
between non-interest income and non-interest expense, as a percentage of
average assets (annualized) outstanding, increased by 40 basis points from
(1.89%) during the quarter ended March 31, 1995 to (1.49%) during the current
1996 period. Non-interest income, as a percentage of average assets
(annualized), increased from .18% to .29% for the quarters ended March 31, 1995
and 1996, respectively. Non-interest expense, as a percentage of average
assets (annualized), decreased 29 basis points from 2.07% during the quarter
ended March 31, 1995 to 1.78% during the current quarter.
- 27 -
NET NON-INTEREST INCOME/EXPENSE ANALYSIS
AS A PERCENTAGE OF AVERAGE ASSETS
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
------- -------
NON-INTEREST INCOME .29 .18
------- -------
NON-INTEREST EXPENSE
Foreclosed asset .16 .15
FDIC insurance premium --- .22
Other 1.62 1.70
------- -------
TOTAL NON-INTEREST EXPENSE 1.78 2.07
------- -------
NET NON-INTEREST MARGIN (1.49) (1.89)
------- -------
------- -------
PROVISION FOR INCOME TAXES. The provision for income taxes during the
current quarter totaled $1.5 million reflecting a 40.2% effective income tax
rate, compared to $1.1 million or an effective income tax rate of 40.4% for the
comparable 1995 period.
FINANCIAL CONDITION
The Company's assets totaled $1,247.7 million at March 31, 1996,
representing a $6.7 million or .5% decrease from year end 1995. The decrease
in total assets during the first quarter of 1996 was primarily attributable to
a reduction in investment securities of $21.1 million and an increase in net
loans and loans held-for-sale of $17.7 million.
The assets of the Company are primarily invested in loans to individuals and,
to a lesser extent, the businesses located in the Bank's market area. The
Company's loan portfolio is segregated into three broad categories of loans:
mortgage, consumer and commercial. The Company's investment in mortgage loans
totaled $749.7 million, representing 60.1% of total assets at March 31, 1996
compared to $735.3 million or 58.6% of total assets at year end 1995. The
Bank's investment in mortgages is primarily secured by residential properties
and, to a lesser extent, multi-family housing. This portfolio also includes
financing for commercial real estate and real estate development and
construction. Loans to finance one-to-four family residences totaled $701.8
million or 78.3% of the Bank's total loan portfolio at March 31, 1996 compared
to $691.6 million, representing 78.4% of the total loan portfolio, at year end
1995. Mortgage loans closed during the first quarter of 1996 totaled $15.2
million compared to $12.2 million closed during the first quarter of 1995. As
in prior years, the Bank continued to supplement local loan origination through
the purchase of single family adjustable rate mortgage loans. The Bank
purchased $37.4 million of these loans during the first quarter of 1996
compared to $19.3 million during the comparable 1995 period. The origination
and purchase of adjustable rate loans is an integral part of the Bank's
management of interest rate risk.
Multi-family housing loans totaled $11.6 million or 1.3% of the total loan
portfolio at March 31, 1996 compared to $11.2 million or 1.3% of the total loan
portfolio at year end 1995. Loans to finance commercial real estate totaled
$32.8 million or 3.6% of the total loan portfolio at March 31, 1996. At year
end 1995, this portfolio totaled $31.1 million, representing 3.5% of total
loans. Loans to finance real estate construction, primarily residential
condominiums and single family residences totaled $3.4 million or .4% of total
loans at March 31, 1996 compared to $3.5 million or .4% of total loans at year
end 1995. Unadvanced construction commitments approximated $1.4 million at
March 31, 1996 and $2.1 million at December 31, 1995.
The Company's investment in consumer loans totaled $125.5 million,
representing 13.9% of total loans at March 31, 1996, compared to $125.9 million
or 14.2% of total loans at year end 1995. The consumer loan portfolio is
primarily comprised of home equity lines of credit, which complement the Bank's
primary business of providing financing for single family residences. The home
equity line of credit, which is collateralized by the equity in residential
real property, has become the Bank's second largest investment in loans. Home
equity lines of credit totaled $151.1 million, with $80.6 million in use at
March 31, 1996 compared to $144.0 million, with $78.5 million in use at year
end 1995. The remainder of the consumer loan
- 28 -
portfolio is substantially comprised of home equity loans and automobile loans.
Home equity loans of $20.8 million at March 31, 1996 decreased by $.9 million
during the first quarter 1996. Automobile loans of $16.3 million at March 31,
1996 decreased by $1.6 during the first quarter 1996.
During 1995, the Company's automobile loan portfolio increased by $15.3
million to $17.9 million at December 31, 1995. The growth in the automobile
portfolio was attributable to the periodic purchase of $16.6 million of
sub-prime automobile loans from a third party provider and servicer. During
the first quarter of 1996, the Company took over servicing of this portfolio
which totaled approximately $15.8 million. After a complete file review, the
Company allocated approximately $700,000 to repossessed collateral and wrote
off approximately $900,000 against a cash reserve account that had been
established in conjunction with the purchase of these loans. At March 31,
1996, the remaining cash reserve balance and the Company's allowance for credit
losses specifically allocated for these loans totaled approximately $1.0
million.
In addition to mortgage and consumer lending, the Company also provides
credit to businesses located within the Bank's market area. The Bank's
commercial lending department invests in loans for the development of real
estate and other business needs. The Bank's investment in commercial loans
totaled $21.0 million at March 31, 1996, reflecting a $2.0 million or 1.7%
increase from the $19.0 million invested at year end 1995. At March 31, 1996,
$4.9 million or 23.2% of this portfolio was invested in loans for the
development of real estate and $16.1 million or 76.8% was invested in loans for
various business needs. Unadvanced real estate development commitments totaled
approximately $2.7 million at March 31, 1996 and $1.6 million at December 31,
1995.
NON-PERFORMING ASSETS. At March 31, 1996, non-performing assets, which
include loans past due 90 days or more, non-accrual loans and foreclosed assets
(see Consolidated Financial Statements Note 1) totaled $18.6 million,
representing 1.5% of total assets, compared to $17.5 million of non-performing
assets, or 1.4% of total assets, at year end 1995. At March 31, 1996,
foreclosed assets totaled $3.4 million, representing .3% of total assets,
compared to $3.7 million or .3% of total assets at year end 1995.
The following table sets forth non-accrual loans and loans past due
for 90 days or more, including loans in foreclosure ("non-performing loans"),
and the allowance for credit losses at the dates indicated:
March 31, 1996 December 31, 1995
---------------------------------------------- ----------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS)
Allowance for Allowance for
Non-performing Loans Credit Losses Non-performing Loans Credit Losses
---------------------- -------------------- ---------------------- --------------------
% of Non- % of Non-
% of Loans Performing % of Loans Performing
LOAN TYPE Balance Outstanding Balance Loans Balance Outstanding Balance Loans
- --------- -------- ----------- -------- ---------- ------- ----------- ------- ----------
MORTGAGE
1-4 Family $ 8,429 1.2% $ 7,251 1.0%
Commercial 1,446 4.4 1,495 4.8
Multi-family 2,280 19.6 2,354 21.1
-------- -------
TOTAL MORTGAGE 12,155 1.6 $4,490 36.9% 11,100 1.5 $4,183 37.7%
-------- -------
CONSUMER
HELOC 941 1.2 978 1.2
All other 820 1.8 480 1.0
-------- -------
TOTAL CONSUMER 1,761 1.4 1,666 94.6 1,458 1.2 1,751 120.1
-------- -------
COMMERCIAL
Real estate
development 314 6.5 314 8.7
All other 1,025 6.4 896 5.8
-------- -------
TOTAL COMMERCIAL 1,339 6.4 986 73.7 1,210 6.4 972 80.3
-------- ------ ------- ------
TOTAL $15,255 1.7 $7,142 46.8 $13,768 1.6 $6,906 50.2
-------- ------ ------- ------
-------- ------ ------- ------
- 29 -
The following table summarizes the Bank's non-performing loans and
foreclosed assets ("non-performing assets") and restructured loans:
MARCH 31, DECEMBER 31,
----------------- -----------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- ------- -------
(AMOUNTS IN THOUSANDS)
NON-ACCRUAL LOANS:
Mortgage $11,559 $10,530 $10,658 $11,000 $12,302 $18,387 $18,984
Consumer 1,728 1,402 1,421 1,280 1,789 2,082 1,616
Commercial 1,339 1,640 1,210 1,576 3,215 3,901 8,108
------- ------- ------- ------- ------- ------- -------
TOTAL 14,626 13,572 13,289 13,856 17,306 24,370 28,708
------- ------- ------- ------- ------- ------- -------
ACCRUING LOANS PAST
DUE 90 DAYS:
Mortgage 596 2,052 442 1,186 2,317 3,006 4,096
Consumer 33 112 37 --- 249 1 151
------- ------- ------- ------- ------- ------- -------
TOTAL 629 2,164 479 1,186 2,566 3,007 4,247
------- ------- ------- ------- ------- ------- -------
TOTAL NON-
PERFORMING LOANS 15,255 15,736 13,768 15,042 19,872 27,377 32,955
------- ------- ------- ------- ------- ------- -------
FORECLOSED ASSETS 3,461 5,624 3,942 6,195 9,379 10,456 7,305
Valuation allowance (102) (308) (230) (439) (1,040) (438) (412)
------- ------- ------- ------- ------- ------- -------
TOTAL, NET 3,359 5,316 3,712 5,756 8,339 10,018 6,893
------- ------- ------- ------- ------- ------- -------
TOTAL NON-PERFORMING
ASSETS $18,614 $21,052 $17,480 $20,798 $28,211 $37,395 $39,848
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
RESTRUCTURED LOANS $ 4,118 $ 4,189 $ 4,385 $ 4,213 $ 2,273 $ 8,262 $ 6,985
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
As detailed in the previous table, the level of non-performing loans
increased from $13.8 million at year end 1995 to $15.3 million at March 31,
1996. At March 31, 1996, the Bank had $3.4 million in foreclosed assets,
consisting of 21 properties, compared to $3.7 million, consisting of 27
properties at year end 1995. During the first quarter of 1996, the Bank
reclassified $1.2 million in loans to foreclosed assets.
During the past several years, as the volume of assets acquired by the
Bank through the foreclosure process increased and the value of the underlying
real estate declined, the Bank adopted a policy of reappraising foreclosed
assets on at least an annual basis. This policy has assisted the Bank in
quantifying the net realizable value of these assets, and has provided the
basis, as necessary, for subsequent write-downs of the carrying amount of these
assets. Additionally, in order to provide for unidentified and possible future
declines in the value of foreclosed assets, the Bank maintains an allowance for
estimated losses on foreclosed assets through a provision which is charged to
and included in foreclosed asset expense. For the first quarter of 1996, the
Bank provided $300,000 to this allowance compared to $500,000 for the
comparable 1995 period. During the current quarter, the Bank charged $428,000
in specific write-downs against this allowance compared to $630,000 during the
comparable year earlier period. At March 31, 1996, the allowance for estimated
losses on foreclosed assets totaled $.1 million compared to $.2 million at year
end 1995.
The reduction of non-performing assets has been one of the primary
objectives of the Bank. A principal focus in 1996 will be a continuation of
the Bank's efforts to reduce the level of non-performing assets. Continued
weakness in the local economy suggests that progress in this area may be
moderate. One of the measures used to identify the trends in non-performing
assets is the level of loans past due 60 days. As noted in the following
table, the amount of loans past due 60 days has decreased to $6.3 million at
March 31, 1996, representing .7% of the total loan portfolio compared to $9.3
million or 1.1% of the total loan portfolio
- 30 -
at year end 1995. Purchased automobile loans accounted for $.8 million of
loans past due 60 days at March 31, 1996.
The following table summarizes the Bank's accruing loans past due 60 days:
MARCH 31, DECEMBER 31,
--------------- ------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------ ------
(AMOUNTS IN THOUSANDS)
LOANS PAST DUE
60 DAYS:
Mortgage $4,911 $4,201 $8,111 $5,014 $7,369 $8,829 $9,072
Consumer 1,130 579 994 1,015 651 815 525
Commercial 265 --- 203 62 --- 95 353
------ ------ ------ ------ ------ ------ ------
TOTAL $6,306 $4,780 $9,308 $6,091 $8,020 $9,739 $9,950
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
The foundation of the Bank's program to reduce the level of non-performing
assets is the loan collection and workout process. In addition to the
personnel assigned to the collection/workout area, the Bank has an officer
responsible for the management and sale of foreclosed assets. This crucial
function of the Bank is supported by a standing committee of the Board of
Directors, comprised of individuals experienced in the areas of real estate
sales and development, which was established to assist and give advice on the
management and disposition of troubled assets.
To the extent that the Bank ultimately takes title to troubled assets, the
Bank has established several programs to facilitate the timely disposition of
foreclosed assets. The foundation of these programs is to establish fair and
realistic value for foreclosed assets, taking into consideration the potential
opportunity cost associated with lengthy marketing time. The Bank augments
this pricing policy through preferred Bank financing, including special
first-time home-buyer programs. To further expand sales efforts and reduce
marketing time, the Bank also maintains consistent marketing programs and
premium realtor commissions. The employment of these programs has enabled the
Bank to sell and close on 14 properties for an aggregate consideration of $1.0
million in first quarter of 1996. During the comparable 1995 period, the Bank
sold and closed on 9 properties for an aggregate consideration of $900,000.
In order to maintain the quality of the loan portfolio, as well as to
provide for potential losses that are inherent in the lending process, the Bank
controls its lending activities through adherence to loan policies adopted by
the Board of Directors and stringent underwriting standards. To provide for
possible losses within the loan portfolio, the Company maintains an allowance
for credit losses. The allowance for credit losses is maintained through
provisions charged to income. These provisions are determined on a quarterly
basis, based upon management's review of the anticipated uncollectability of
loans, current economic conditions, historical trend analysis, real estate
deflation factors, overall portfolio quality, specific problem loans and an
assessment of the adequacy of the allowance for credit losses. Based on these
factors, the Company provided $650,000 to the allowance for credit losses
during the current quarter compared to $600,000 for the comparable 1995 period.
During the quarter ended March 31, 1996, the Bank wrote off $414,000 (net of
recoveries). At March 31, 1996 the allowance for credit losses totaled $7.1
million, which includes $1.1 million allocated to the loans acquired in the
Burritt transaction. In comparison, the allowance for credit losses totaled
$6.9 million at year end 1995, which included $1.2 million allocated to the
loans acquired in the Burritt transaction (see Consolidated Financial
Statements Note 13). The allowance for credit losses represented 46.8% of
non-performing loans at March 31, 1996, compared to 50.2% at year end 1995.
In addition to collection and workout efforts, management also monitors
and works closely with certain borrowers that may experience financial
difficulties. The debtors may be experiencing cash flow problems which inhibit
their ability to service their debt in accordance with its terms. This may
result in a modification of loan terms in order to assist a debtor who has been
adversely affected by the state of the economy. The modification of terms may
be in the form of the waiver of principal payments, a reduction in the interest
rate or the waiver of interest payments for a specified period of time. At
March 31, 1996, in addition to non-performing assets, the Bank had $4.1 million
in loans which have been restructured.
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INVESTMENT SECURITIES. The Bank's securities portfolio was $299.1 million
or 24.0% of total assets at March 31, 1996, down from $320.2 million or 25.5%
at December 31, 1995. The securities portfolio serves primarily as a source of
liquidity and as a vehicle to help balance the interest rate sensitivity of the
Bank. Notwithstanding the need for liquidity and interest rate sensitivity,
the portfolio is also structured for yield. The Bank's securities are
classified into one of three categories: held-to-maturity, available-for-sale
or trading (see Consolidated Financial Statements Notes 1 and 2). At March 31,
1996, the Bank had securities totaling $76.8 million classified as
held-to-maturity, compared to $77.9 million at December 31, 1995. These
investments are primarily comprised of intermediate and long-term fixed rate
mortgage-backed securities and are carried at amortized cost.
Securities classified as available-for-sale at March 31, 1996 totaled
$220.6 million compared to $241.1 million at December 31, 1995. The
available-for-sale category was principally comprised of mortgage-backed
securities with adjustable rate interest features. SFAS 115 also requires that
securities classified as available-for-sale be carried at fair value with
unrealized gains and losses, net of tax effect, reported as a separate
component of Stockholders' equity. At March 31, 1996, the Bank had unrealized
losses, net of tax effect, of $.6 million compared to net unrealized gains, net
of tax effect, of $.4 million at December 31, 1995.
The trading portfolio, which consists of equity securities, totaled $1.7
million at March 31, 1996 compared to $1.2 million at December 31, 1995. This
portfolio is carried at fair value with changes in unrealized gains or losses
reflected in earnings. At March 31, 1996, the trading portfolio had net
unrealized holding gains of $20,000 compared to unrealized holding gains of
$23,000 at December 31, 1995.
FUNDING SOURCES. The investment activities of the Bank are funded from
several sources. The primary source of funds is provided by local depositors
and is complemented by advances from the Federal Home Loan Bank of Boston
("FHLBB"). In addition, the Bank is provided with a steady flow of funds from
the amortization and prepayment of loans as well as the amortization and
maturity of securities. The Bank also derives funds, from time to time,
through the sale of loans into the secondary market and the sale of securities.
During the first quarter of 1996, deposits increased by $12.9 million or
1.1%, after interest credited of $12.2 million, from $1,058.1 million, funding
84.3% of total assets at year end 1995, to $1,070.9 million, funding 85.8% of
total assets at March 31, 1996. Retail deposits are essentially derived from
the communities in which the Bank's offices are located. The Bank offers a
wide variety of deposit accounts which include money market deposit accounts,
certificates of deposit and regular savings.
The Bank also utilizes the FHLBB as an alternative source of funds. At
March 31, 1995, FHLBB advances totaled $84.6 million, funding 6.8% of total
assets, compared to $96.9 million, funding 7.7% of total assets at year end
1996. The flexibility, pricing and repricing characteristics of the funding
alternatives offered by the FHLBB have allowed the Bank to match-fund fixed
rate commercial mortgage loans, one year adjustable rate mortgage loans and
home equity lines of credit. The Bank has also employed funds from the FHLBB
to fund the purchase of various mortgage-backed securities.
Amortization, prepayments and the sale of loans into the secondary market
supplied the Bank with an additional $61.1 million in investable funds during
the first quarter of 1996. In keeping with the Bank's asset and liability
management objectives (see "Asset/Liability Management"), the Bank periodically
may sell loans. The Bank sold $1.5 million in loans during the first quarter
of 1996. The Bank has retained servicing on all loans that have been sold and
was servicing $144.9 million of mortgage loans for others at March 31, 1996.
At March 31, 1996 the Bank had $4.1 million in loans classified as
held-for-sale, net of a $78,000 lower market value adjustment, compared to
$2.0 million at December 31, 1995.
LIQUIDITY. The Bank monitors its liquidity position to ensure that it is
able to meet its need for funds. In general, the Bank maintains a level of
asset-based liquidity which is consistent with its current business plan. The
volume of liquid assets carried by the Bank will vary from time to time based
on management's business objectives, which in part, will be influenced by
expected economic activity. During periods of economic expansion, coupled with
a commensurate increase in loan demand, or during a period of
disintermediation, financial resources may be allocated from asset-based
liquidity to fund these demands. In the event that asset-based liquidity is at
a minimum, the Bank will rely upon liability based liquidity to augment its
funding needs. This source of liquidity is primarily provided by the FHLBB. As
a member of the FHLBB, the Bank is
- 32 -
eligible to borrow against certain qualifying collateral assets as defined by
the FHLBB. At March 31, 1996, the Bank had $759.7 million in qualifying
collateral against which actual borrowings were $84.6 million.
As of March 31, 1996, the Company had short-term liquid assets consisting
of cash, due from banks, federal funds, unpledged available-for-sale
securities, and loans held-for-sale of $240.7 million. The Company's
short-term liquid assets represented 21.5% of the Company's liquidity base,
defined as all withdrawable deposit accounts, less the unpaid balance of loans
secured by such accounts, and the principal amount of all borrowings payable on
demand in one year or less.
CAPITAL RESOURCES. Stockholders' Equity at March 31, 1996 increased to
$81.7 million from $80.8 million at December 31, 1995. The $.9 million or
1.2% increase in Stockholders' Equity was primarily attributable to net income
of $2.2 million for the three months ended March 31, 1996 partially offset by a
change in the unrealized loss on securities available-for-sale, net of tax
effect, of $1.0 million.
The Federal Reserve Board (the "FRB") and the FDIC have adopted risk-based
capital standards which require bank holding companies and banks, respectively,
to maintain a minimum ratio of total capital to risk-weighted assets of 8.0%.
Of the required capital, 4.0% must be tier 1 capital. Tier 1 capital is
primarily common stockholders' equity and certain categories of perpetual
preferred stock. As part of the Burritt transaction (see Consolidated
Financial Statements Note 13), Derby paid the FDIC a premium of $6.2 million.
Of the premium paid, $5.0 million was recorded as a core deposit intangible.
At March 31, 19965, the core deposit intangible totaled $2.7 million. This
amount, in addition to approximately $138,000 of other intangible assets
resulting from the transaction, are required to be deducted from the Company's
and the Bank's capital prior to determining regulatory capital requirements.
After giving effect to the transaction, the Company had a ratio of total
capital to risk-weighted assets of 12.1% and a ratio of tier 1 capital to
risk-weighted assets of 11.1% at March 31, 1996. Derby Savings' ratio of total
capital to risk-weighted assets was 12.0% and its ratio of tier 1 capital to
risk-weighted assets was 11.0% at March 31, 1996.
The FRB and the FDIC have supplemented the risk-based capital requirements
with a required minimum leverage ratio of 3% of tier 1 capital to total assets.
The FRB and the FDIC have indicated that all but the most highly rated holding
companies, however, should maintain a leverage ratio of 4% to 5% of tier 1
capital to total assets. At March 31, 1996, the Company had a ratio of tier 1
capital to total assets of 6.4% and the Bank had a ratio of tier 1 capital to
total assets of 6.3%.
Under the FDIC's prompt corrective action regulation, a savings bank is
considered: (i) "well capitalized" if the savings bank has a total risk-based
capital ratio of 10% or greater, a tier 1 risk-based capital ratio of 6% or
greater, and a leverage ratio of 5% or 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 total
risk-based capital ratio of 8% or greater, a tier 1 risk-based capital ratio of
4% or greater, and a leverage ratio 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 total risk-based capital
ratio that is less than 8%, a tier 1 risk-based capital 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
total risk-based capital ratio that is less than 6%, a tier 1 risk-based
capital ratio that is less than 3%, or a leverage ratio that is less than 3%;
and (v) "critically undercapitalized" if the institution has a ratio of
tangible equity to total assets that is equal to or 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 March 31, 1996, the
Bank met the "well capitalized" criteria based on its capital ratios at that
date.
ASSET/LIABILITY MANAGEMENT. Derby Savings' asset liability management
program is based upon operating the Bank within a framework of fundamentally
matching interest-sensitive assets and interest-sensitive liabilities. The
purpose of pursuing this policy is to position the Bank to produce stable net
interest income through all phases of the business cycle and resulting interest
rate levels.
The table on the following page summarizes the Company's interest-sensitive
assets and interest-sensitive liabilities that mature or reprice during the
various time periods noted. Loans are net of deferred loan fees and net of
non-accruing loans.
- 33 -
MARCH 31, 1996 MORE THAN MORE THAN MORE THAN MORE THAN MORE THAN
SIX MONTHS ONE YEAR THREE YEARS FIVE YEARS 10 YEARS
SIX MONTHS TO ONE TO THREE TO FIVE TO TEN TO 20 MORE THAN
OR LESS YEAR YEARS YEARS YEAR YEARS 20 YEARS TOTAL
-------- -------- ------- ------- ------- ------- ------- ----------
(DOLLAR AMOUNTS IN THOUSANDS)
ASSETS:
Investments:
Securities $153,722 $72,167 $33,615 $18,153 $6,177 $8,232 $154 $292,220
Federal funds sold 2,445 -- -- -- -- -- -- 2,445
-------- -------- ------- ------- ------- ------- ------- ----------
Total investments 156,167 72,167 33,615 18,153 6,177 8,232 154 294,665
-------- -------- ------- ------- ------- ------- ------- ----------
Loans:
Fixed-rate mortgages 5,410 5,685 24,382 24,745 54,879 48,501 26,377 189,979
Adjustable-rate mortgages 269,821 243,441 17,174 16,774 1,957 3,043 -- 552,210
Consumer loans 92,266 7,687 11,634 4,195 5,892 2,083 -- 123,757
Commercial loans 19,353 13 69 26 140 18 -- 19,619
-------- -------- ------- ------- ------- ------- ------- ----------
Total loans 386,850 256,826 53,259 45,740 62,868 53,645 26,377 885,565
-------- -------- ------- ------- ------- ------- ------- ----------
TOTAL INTEREST-SENSITIVE ASSETS $543,017 $328,993 $86,874 $63,893 $69,045 $61,877 $26,531 $1,180,230
-------- -------- ------- ------- ------- ------- ------- ----------
-------- -------- ------- ------- ------- ------- ------- ----------
LIABILITIES:
Regular & club savings $187,660 $ -- $ -- $ -- $ -- $ -- $ -- $187,660
Certificates of deposit 246,343 193,879 100,239 55,896 -- -- -- 596,357
Money market accounts 202,697 -- -- -- -- -- -- 202,697
NOW accounts 48,325 -- -- -- -- -- -- 48,325
FHLBB advances 51,098 19,604 10,790 3,120 -- -- -- 84,612
-------- -------- ------- ------- ------- ------- ------- ----------
TOTAL INTEREST-SENSITIVE
LIABILITIES $736,123 $213,483 $111,029 $59,016 $ -- $ -- $ -- $1,119,651
-------- -------- ------- ------- ------- ------- ------- ----------
-------- -------- ------- ------- ------- ------- ------- ----------
GAP (repricing difference) ($193,106) $115,510 ($24,155) $4,877 $69,045 $61,877 $26,531
Cumulative GAP ($193,106 ($77,596) ($101,751) ($96,874) ($27,829) $34,048 $60,579
Cumulative GAP/total assets -15.5% -6.2% -8.2% -7.8% -2.2% 2.7% 4.9%
Ratio of interest-sensitive
assets to interest-sensitive
liabilities 73.8% 154.1% 78.2% 108.3% 105.4%
Cumulative ratio of interest-
sensitive assets to interest-
sensitive liabilities 91.8% 90.4% 91.3% 97.5% 103.0% 105.4%
- 34 -
PART II. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Not Applicable
ITEM 2 CHANGES IN SECURITIES
Not Applicable
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5 OTHER INFORMATION
Not Applicable
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Exhibit Index
Exhibit Page of this
Number Report
27 Financial Data Schedule 37
- 35 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DS Bancor, Inc.
----------------------------------------
Registrant
Date: May 14, 1996 By: /S/ Harry P. DiAdamo, Jr.
------------------- ----------------------------------------
Harry P. DiAdamo Jr.
President & CEO
Date: May 14, 1996 By: /S/ Alfred T. Santoro
------------------- ----------------------------------------
Alfred T. Santoro
Vice President, Treasurer and CFO
- 36 -