UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 31, 2001
---------------
Commission File Number 0-28389
CONNECTICUT BANCSHARES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1564613
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
923 Main Street, Manchester, Connecticut 06040
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(860) 646-1700
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changes since
last report)
The Registrant hereby amends the items, financial statements,
exhibits or other portions of its Current Report on Form 8-K dated August 31,
2001 and filed on September 5, 2001 as set forth herein.
Item 7. Financial Statements, Pro Forma Information and Exhibits
(a) Financial Statements of Businesses Acquired.
First Federal Savings and Loan Association of
East Hartford and Subsidiaries Audited Consolidated
Financial Statements as of December 31, 2000 and 1999 and
for the Years Ended December 31, 2000, 1999 and
1998......................................................................... 3
First Federal Savings and Loan Association of
East Hartford and Subsidiaries Unaudited Consolidated
Financial Statements as of June 30, 2001 and for the
Three Month and Six Month Periods Ended June 30,
2001 and 2000 ............................................................... 31
(b) Pro Forma Financial Information.
Connecticut Bancshares, Inc. and Subsidiary Unaudited Pro Forma
Condensed Consolidated Statement of Operations for the Year
Ended December 31, 2000 ..................................................... 41
Connecticut Bancshares, Inc. and Subsidiary Unaudited Pro Forma
Condensed Consolidated Statement of Operations for the Nine
Months Ended September 30, 2001 ............................................. 42
Connecticut Bancshares, Inc. and Subsidiary Notes to Unaudited Pro
Forma Condensed Consolidated Statements of Operations ....................... 43
(c) Exhibits.
The following Exhibit is filed as part of this report:
Exhibit No. Description
----------- -----------
23 Consent of KPMG LLP
2
KPMG
One Financial Plaza
Hartford, CT 06103-4103
Independent Auditors' Report
The Board of Directors
First Federal Savings and Loan Association of East Hartford:
We have audited the accompanying consolidated balance sheets of First Federal
Savings and Loan Association of East Hartford and subsidiaries ("First Federal")
as of December 31, 2000 and 1999, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the years
in the three-year period ended December 31, 2000. These consolidated financial
statements are the responsibility of First Federal's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First Federal
Savings and Loan Association of East Hartford and subsidiaries as of December
31, 2000 and 1999, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America.
KPMG LLP
February 2, 2001
3
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2000 and 1999
(Dollars in thousands)
Assets 2000 1999
------ ---- ----
Cash and amounts due from depository institutions (note 2) $ 12,296 31,018
Other short-term investments 25,804 22,525
Securities, at market value (notes 3 and 9) 218,007 142,242
Loans receivable, net (notes 4 and 9) 263,203 232,484
Mortgage-backed securities, at market value (notes 5 and 9) 546,806 518,769
Accrued interest receivable (note 6) 7,780 6,155
Real estate owned 12 38
Federal Home Loan Bank stock, at cost (note 9) 21,034 18,332
Cash surrender value of life insurance 19,587 18,371
Premises and equipment, net (note 7) 4,729 4,594
Deferred income taxes (note 10) 473 8,582
Prepaid expenses and other assets 1,819 1,996
----------- ---------
Total assets $ 1,121,550 1,005,106
=========== =========
Liabilities and Stockholders' Equity
------------------------------------
Deposits (note 8) $ 621,621 608,935
Borrowed funds (note 9) 405,683 325,805
Advance payments by borrowers for taxes and insurance 114 185
Accrued expenses and other liabilities 6,102 4,821
----------- ---------
Total liabilities 1,033,520 939,746
----------- ---------
Stockholders' equity (note 11):
Serial preferred stock $.01 par value; 5,000,000 shares authorized;
none issued and outstanding - -
Common stock, $.01 par value; 15,000,000 shares authorized;
2,830,084 issued and outstanding (2,805,568 in 1999) 28 28
Additional paid-in capital 29,105 28,557
Retained earnings (substantially restricted) 55,553 50,343
Accumulated other comprehensive income (loss) (notes 3, 5 and 14) 3,344 (13,568)
----------- ---------
Total stockholders' equity 88,030 65,360
Commitments (notes 4, 7 and 9)
Total liabilities and stockholders' equity $ 1,121,550 1,005,106
=========== =========
See accompanying notes to consolidated financial statements.
4
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 2000, 1999 and 1998
(In thousands, except per share data)
Interest Income: 2000 1999 1998
---- ---- ----
Loans $19,311 16,938 16,592
Mortgage-backed securities 36,722 33,778 33,854
Securities 14,035 11,234 12,884
Tax-exempt securities 1,431 134 -
Short-term investments 1,316 1,562 1,548
------- ------ ------
Total interest income 72,815 63,646 64,878
------- ------ ------
Interest expense:
Deposits (note 8) 25,075 22,781 23,407
Borrowed funds 24,362 19,052 19,733
------ ------ ------
Total interest expense 49,437 41,833 43,140
------ ------ ------
Net interest income 23,378 21,813 21,738
Provision for loan losses (note 4) 210 87 595
------- ------ ------
Net interest income after provision for loan losses 23,168 21,726 21,143
------- ------ ------
Other income:
Other fees and services charges 2,010 1,790 1,567
Gain (loss) on investment securities, net (notes 3 and 5) (101) 873 (743)
Increase in cash surrender value of life insurance 1,216 371 -
Real estate owned operations, net (42) 9 (4)
Other 264 193 193
------- ------ ------
Total other income 3,347 3,236 1,013
------- ------ ------
General and administrative expenses:
Compensation, taxes and benefits (note 12) 9,524 8,018 7,368
Office occupancy and equipment expenses 2,370 2,183 2,152
Federal deposit insurance premiums 126 348 349
Advertising 930 873 846
Other 3,656 3,193 2,744
------- ------ ------
Total general and administrative expenses 16,606 14,615 13,459
------- ------ ------
Income before income taxes 9,909 10,347 8,697
Income taxes (note 10) 2,446 3,202 3,538
------- ------ ------
Net income $ 7,463 7,145 5,159
======= ====== ======
Net income per share (note 13)
Basic $ 2.65 2.57 1.89
======= ====== ======
Diluted $ 2.61 2.54 1.83
======= ====== ======
See accompanying notes to consolidated financial statements
5
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 2000, 1999 and 1998
(In thousands)
Accumulated
Additional other
Common paid-in Retained comprehensive
Stock capital earnings income (loss) Total
----- ------- -------- ------------- ---------
Balance at December 31, 1997 $ 27 26,491 41,894 (1,424) 66,988
Comprehensive income (note 14)
Net income for 1998 - - 5,159 - 5,159
Net unrealized gains on available-for-sale
securities, net of reclassification adjustment - - - 1,578 1,578
---------
Total comprehensive income 6,737
Cash dividends - common, $0.68 per share (note 11) - - (1,857) - (1,857)
Stock issued upon exercise of stock options - 941 - - 941
Stock issued through dividend reinvestment plan - 191 - - 191
------ ------- -------- ------------- ---------
Balance at December 31, 1998 27 27,623 45,196 154 73,000
Comprehensive income (note 14)
Net income for 1999 - - 7,145 - 7,145
Net unrealized gains on available-for-sale
securities, net of reclassification adjustment - - - (13,722) (13,722)
---------
Total comprehensive loss (6,577)
Cash dividends - common, $0.72 per share (note 11) - - (1,998) - (1,998)
Stock issued upon exercise of stock options 1 740 - - 741
Stock issued through dividend reinvestment plan - 194 - - 194
------ ------- -------- ------------- ---------
Balance at December 31, 1999 28 28,557 50,343 (13,568) 65,360
Comprehensive income (note 14)
Net income for 2000 - - 7,463 - 7,463
Net unrealized gains on available-for-sale
securities, net of reclassification adjustment - - - 16,912 16,912
---------
Total comprehensive income 24,375
Cash dividends - common, $0.80 per share (note 11) - - (2,253) - (2,253)
Stock issued upon exercise of stock options - 349 - - 349
Stock issued through dividend reinvestment plan - 199 - - 199
------ ------- -------- ------------- ---------
Balance at December 31, 2000 $ 28 29,105 55,553 3,344 88,030
====== ======= ======== ============= =========
See accompanying notes to consolidated financial statements
FIRST FEDERAL SAVINGS AND LOAN ASSOCATION
OF EAST HARTFORD AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2000, 1999 and 1998
(In thousands)
2000 1999 1998
---- ---- ----
Operating activities:
Net income $ 7,463 7,145 5,159
Adjustments to reconcile to net cash:
Depreciation and amortization 478 460 437
Provision for loan losses 210 87 595
(Gain) loss on investment securities, net 101 (873) 743
Loss (gain) on real estate owned 41 (8) (4)
Increase in cash surrender value of life insurance (1,216) (371) --
(Increase) decrease in interest receivable (1,625) (489) 673
Decrease in prepaid and other assets 177 30 122
(Increase) decrease in deferred income taxes, net (499) 161 534
Increase (decrease) in accrued and other liabilities 1,281 635 (164)
(Accretion) amortization of discounts and premiums, net (2,300) 445 646
--------- --------- ---------
Net cash provided by operating activities 4,111 7,222 8,741
--------- --------- ---------
Investing activities:
Securities:
Proceeds from sales of available-for-sale 61,094 48,814 53,436
Maturities and calls of held-to-maturity -- 90,279 119,413
Maturities of available-for-sale 30,164 151,438 56,646
Purchase of held-to-maturity -- (69,618) (38,731)
Purchase of available-for-sale (126,088) (73,829) (86,541)
Mortgage-backed securities:
Proceeds from sales of available-for-sale 332 5,721 --
Purchase of held-to-maturity -- (10,083) (53,305)
Purchase of available-for-sale (82,441) (246,942) (186,596)
Principal repayments of held-to-maturity -- 52,052 96,577
Principal repayments of available-for-sale 40,889 64,696 69,498
Loans:
Principal repayments 45,814 53,353 60,911
Originations (76,975) (80,899) (75,220)
Purchase of FHLB stock (2,702) -- --
Purchase of life insurance -- (18,000) --
Purchase of premises and equipment (613) (441) (338)
Proceeds from real estate owned sales 195 399 351
Other, net (82) (66) (29)
--------- --------- ---------
Net cash (used) provided by investing activities (110,413) (33,126) 16,072
--------- --------- ---------
Financing activities:
Net increase in deposits 12,686 12,893 20,186
Net increase (decrease) in borrowed funds 79,878 10,230 (19,744)
Dividends paid to stockholders (2,253) (1,998) (1,857)
Proceeds of stock options exercised and dividend reinvestment
Plan 548 935 1,132
--------- --------- ---------
Net cash provided (used) by financing activities 90,859 22,060 (283)
--------- --------- ---------
(Decrease) increase in cash and cash equivalents (15,443) (3,844) 24,530
Cash and cash equivalents, beginning of year 53,543 57,387 32,857
--------- --------- ---------
Cash and cash equivalents, end of year $ 38,100 53,543 57,387
========= ========= =========
See accompanying notes to consolidated financial statements
7
FIRST FEDERAL SAVINGS AND LOAN ASSOCATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
(a) Basis of Presentation and Consolidation
---------------------------------------
The accompanying consolidated financial statements have been
prepared in conformity with generally accepted accounting
principles and include the accounts of First Federal Savings and
Loan Association of East Hartford and its wholly-owned
subsidiaries, First Eastern Corporation and FFS Capital
Corporation ("First Federal"). Certain 1998 and 1999 amounts have
been reclassified to conform to the 2000 presentation. All
significant intercompany balances and transactions have been
eliminated for purposes of the consolidated financial statements.
On February 7, 2001, First Federal and Connecticut Bancshares,
Inc., the holding company for Savings Bank of Manchester ("SBM"),
entered into an Agreement and Plan of Reorganization (the
"Agreement") which provides for, among other things, the
acquisition of First Federal by Connecticut Bancshares. Under the
terms of the Agreement, First Federal shareholders will receive
$37.50 per share in cash. First Federal is expected to merge with
and into SBM upon completion of the transaction. The transaction,
which is expected to be completed during the third quarter of
2001, is subject to approval by First Federal shareholders and
regulatory authorities.
The transaction may be terminated by one or both of the parties'
Boards of Directors if, among other things: (i) First Federal
shareholders do not approve the transaction; (ii) all regulatory
approvals are not obtained; (iii) the closing does not take place
by October, 31,2001; (iv) there has been a material breach of any
covenant contained in the Agreement; or (v) First Federal's Board
of Directors receives and approves a superior proposal. The
Agreement includes a provision for a break-up fee paid by First
Federal to Connecticut Bancshares, Inc. upon the occurrence of
certain events should the transaction not close as presently
anticipated.
First Federal is a stock chartered federal savings and loan
institution based in East Hartford, Connecticut. Its deposits are
insured up to the applicable limits by the SAIF of the FDIC.
First Federal is subject to extensive regulation by the OTS, its
primary federal regulator, and by the FDIC, its deposit insurer.
First Federal provides numerous services to individuals and small
businesses including checking and NOW accounts, savings and time
deposits, mortgage loans, consumer and other installment loans,
home equity lines and loans, credit arrangements, and secured and
unsecured personal and business loans. The primary market area is
the seven-town area comprised of Coventry, East Hartford,
Ellington, Glastonbury, Manchester, South Windsor and Vernon.
(b) Risks and Uncertainties
-----------------------
In the normal course of its business, First Federal encounters
several significant sources of risk. First Federal is subject to
interest rate risk to the degree that its interest-earning assets
mature or reprice at different speeds, or on different bases,
from its interest-bearing liabilities. Credit risk results from
the risk of default on the loan portfolio by borrowers' inability
or unwillingness to make contractually required payments. Market
risk results from changes in the value of loan collateral and
from changes in the market price of securities and
mortgage-backed securities. First Federal's loans receivable are
concentrated in the Greater Hartford area. The ability of
borrowers to repay amounts owed is dependent on several factors,
including the economic conditions in borrower's geographic region
and the borrower's financial condition.
8
FIRST FEDERAL SAVINGS AND LOAN ASSOCATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In preparing the financial statements, management is required to
make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the balance sheet and
revenues and expenses for the period. Actual results could differ
from those estimates. Material estimates that are particularly
susceptible to change in the near term are the determination of
the allowance for loan losses and the valuation of real estate
owned.
(c) Loan Interest Income and Fees
-----------------------------
Interest on loans is credited to income as earned based on the
rate applied to principal amounts outstanding. Past due interest
on impaired and unimpaired loans is not accrued if collection in
the near term appears uncertain. Such interest is accounted for
in a reserve for uncollected interest account by a charge to
interest income equal to all interest previously accrued, and
income is subsequently recognized only to the extent cash
payments are received until, in management's judgment, the
borrower's ability to make periodic interest and principal
payments is back to normal, in which case the loan is returned to
accrual status. A loan is considered impaired when, in
management's judgment and based upon current information and
events, it is probable that all amounts due according to the
contractual terms of the loan agreement will not be collected.
Impaired loans are measured and reported based on the present
value of expected future cash flows or the fair value of the
collateral if the loan is collateral dependent. If the measure is
less than an impaired loan's recorded investment, an impairment
loss is recognized as part of the allowance for loan losses.
Large groups of smaller-balance homogeneous loans are evaluated
collectively.
Loan origination fees received and certain direct loan
origination costs are deferred and the net amount amortized as an
adjustment to the related loan's yield using the interest method
over the life of the related loan.
(d) Allowance for Loan Losses
-------------------------
An allowance for loan losses is maintained at a level to provide
for losses that are probable and estimable under guidelines
established by SFAS No. 5 based on management's best judgment,
appraisals for properties where necessary, continuing review of
the loan portfolio, loss experience, economic conditions and
other pertinent factors. While management uses available
information to recognize losses on loans, future additions to the
allowance for loan losses may be necessary, as a result of the
impact of changes in economic conditions. The allowance is
increased by provisions for loan losses charged against income.
Charge-offs to the allowance are made when the loan is considered
uncollectible or is transferred to real estate owned. Recoveries
are credited to the allowance.
In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the allowance for
loan losses and carrying value of real estate owned. Such
agencies may require First Federal to increase the allowance for
loan loss and decrease the carrying value of real estate owned
based on the regulator's judgments about information available to
them at the time of their examination.
9
FIRST FEDERAL SAVINGS AND LOAN ASSOCATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(e) Securities and Mortgage-Backed Securities
-----------------------------------------
The held-to-maturity classification is for securities and
mortgage-backed securities that First Federal has both the
positive intent and ability to hold to maturity and are carried
at cost adjusted for premium and discounts. Amortization of
premiums and accretion of discounts are recognized in interest
income using the level-yield method over the period to maturity.
First Federal will not classify securities as held-to-maturity in
the foreseeable future.
The available-for-sale classification is for securities and
mortgage-backed securities desired to be held for an indefinite
period of time but not to maturity. The carrying value is
adjusted to fair value with an offset adjustment reflected as a
separate component of stockholders' equity (net of income tax
effects). Unrealized losses on securities that are determined to
be other than temporary are charged to operations. Amortization
of premiums and accretion of discounts are recognized in interest
income using the level-yield method over the period to maturity.
The specific identification method is used to determine gains or
losses from securities sales.
Securities and mortgage-backed securities classified as trading
securities are carried at market value as they are purchased for
the purpose of benefiting from short-term price movements.
Unrealized gains and losses on trading securities are included in
income.
(f) Depreciation and Amortization
-----------------------------
Depreciation and amortization of premises and equipment are
accumulated on a straight-line basis over the estimated useful
lives of the related assets or, with respect to leasehold
improvements, over the terms of the respective leases.
(g) Real Estate Owned
-----------------
Real estate owned includes properties acquired by loan
foreclosure or by accepting a deed in lieu of foreclosure.
Properties acquired are transferred to real estate owned at the
lower of the unpaid balance of the loan at the transfer date, or
fair value less estimated selling costs. Adjustments made to the
value at transfer date are charged to the allowance for loan
losses. After transfer, any additional write-downs are charged to
real estate owned operations. Costs relating to the development
and improvement of the property are capitalized, whereas those
relating to holding the property are charged to real estate owned
operations. Gains and losses on sales are recorded in real estate
owned operations when realized.
(h) Cash Flow Presentation,
-----------------------
For purposes of the statements of cash flows, cash and cash
equivalents include cash and amounts due from depository
institutions, investments in federal funds, and Other short-term
investments consisting of overnight funds.
Interest disbursed on deposits consists of interest posted to
demand deposit and certificates of deposit accounts and monthly
interest checks disbursed on certificates of deposit, net of
funds received from interest rate caps, and approximated $25.1
million, $22.8 million and $23.4 million during 2000, 1999 and
1998, respectively. Interest disbursed on borrowed funds
approximated $23.8 million, $18.9 million and $19.9 million
during 2000, 1999 and 1998, respectively. Cash
10
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Consolidated Financial Statements
payments for income taxes approximated $3.3 million, $3.1 million
and $2.9 million during 2000, 1999 and 1998, respectively.
Noncash investing and financing activities consisted of $199,000,
$190,000 and $424,000 of loans transferred to real estate owned
during 2000, 1999 and 1998, respectively. In addition, as of June
30, 1999, First Federal transferred securities with a book value
of $55.7 million and a market value of $55.0 million and
mortgage-backed securities with a book value of $237.7 million
and a market value of $240.0 million from held-to-maturity
classification to available-for-sale classification.
(I) Income Taxes
------------
In accordance with the provisions of SFAS No. 109, deferred tax
assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.
(j) Retirement Plans
----------------
The current costs of employee benefit plans are charged to income
and funded as accrued. The provisions of SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement
Benefits" were adopted on December 31, 1998. SFAS No. 132 revised
the required disclosure about pension and other postretirement
benefit plans; it did not change the measurement or recognition
of these plans. Prior period disclosures have been revised to
confirm with SFAS No. 132.
(k) Stock Options Plans
-------------------
First Federal applies APB Opinion No. 25 and related
interpretations, whereby, no compensation cost is recognized for
the issuance of stock options.
(2) Cash and Amounts Due from Depository Institutions
First Federal is required to maintain reserves against its respective
transaction accounts and nonpersonal time deposits. At December 31, 2000
and 1999, cash or liquid assets of $275,000 and $400,000, respectively,
were required to be maintained to meet these requirements.
11
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Securities
Securities consist of U.S. Government and agency securities, municipal
securities, high-grade corporate notes and bonds, callable preferred stock
of FHLMC and FNMA, and mutual funds. The entire securities portfolio was
classified as available-for-sale at both December 30, 2000 and 1999. A
summary of investment securities as of December 31 follows (in thousands):
Amortized Gross unrealized Market
Cost Gains Losses value
---- ----- ------ -----
December 31, 2000:
U.S. Government and agency obligations:
Due after one year through five years $ 19,240 430 - 19,670
After five through ten years 73,359 890 (266) 73,983
After ten years 22,476 631 (55) 23,052
--------- ------ ------- ---------
Total U.S. Government and agency
obligations 115,075 951 (321) 116,705
--------- ------ ------- ---------
Bank qualified municipal securities:
Due after ten years 28,899 1,543 - 30,442
--------- ------ ------- ---------
Corporate. bonds and notes:
Due within one year 33,533 - (29) 33,504
After one year through five years 18,477 263 (3) 18,737
After five through ten years 4,560 296 - 4,856
After ten years 1,502 - - 1,502
--------- ------ ------- ---------
Total corporate bonds and notes 58,072 559 (32) 58,599
--------- ------ ------- ---------
Equity securities 12,258 25 (22) 12,261
--------- ------ ------- ---------
Total securities $ 214,304 4,078 (375) 218,007
========= ====== ======= =========
December 31, 1999:
U.S. Government and agency obligations:
Due within one year $ 10,000 - (119) 9,881
After one through five years 75,849 - (2,697) 73,152
After five through ten years 20,044 3 (948) 19,099
---------- ------ ------- ---------
Total U.S. Government and agency
obligations 105,893 3 (3,764) 102,132
--------- ------ ------- ---------
Bank qualified municipal securities:
Due after ten years 16,761 34 (120) 16,675
--------- ------ ------- ---------
Corporate bonds and notes:
Due after one year through five years 465 - - 465
After five through ten years 2,728 - (29) 2,699
--------- ------ ------- ---------
Total corporate bonds and notes 3,193 - (29) 3,164
--------- ------ ------- ---------
Equity securities 20,475 133 (337) 20,271
--------- ------ ------- ---------
Total securities $ 146,322 170 (4,250) 142,242
========= ====== ======= =========
At December 31, 2000, the available-for-sale securities portfolio had a
net unrealized gain of $3.7 million included in the carrying value of the
portfolio and the after tax effect of $2.4 million included in accumulated
other comprehensive income (loss) in the stockholders' equity section. At
December 31, 1999, the available-for-sale securities portfolio had a net
unrealized loss of $4.1 million included in the carrying value of the
portfolio and the after tax effect of $2.8 million included in accumulated
other comprehensive (loss) income in the stockholders' equity section.
As of June 30, 1999, held-to-maturity securities with an amortized cost of
$55.7 million and a market value of $55.0 million were transferred to
available-for-sale, as First Federal no longer had the intent to
12
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Consolidated Financial Statements
hold these securities to maturity. Consequently, for the foreseeable
future, First Federal will no longer use the held-to-maturity
classification.
At December 31, 2000, U.S. Government agency obligations with carrying
values approximating $2.4 million were pledged as collateral for certain
retirement deposit liability accounts with balances in excess of $100,000.
At December 31, 2000, U.S. Government and agency obligations with a market
value of $19.6 million, municipal securities with a market value of $29.4
million and corporate notes with a market value of $2.9 million are
callable at the discretion of the issuer prior to their maturity date.
Also, at December 31, 2000, U.S. Government and agency obligations with a
market value of $12.5 million and corporate notes with a market value of
$1.5 million are puttable at par at the discretion of First Federal prior
to their maturity date.
No held-to-maturity securities were sold during 2000, 1999 or 1998.
Information on sales of available- for-sale securities follows (in
thousands):
Gross realized
Sales --------------
proceeds gains losses
-------- ----- ------
2000 $ 61,094 389 (398)
1999 48,814 61 (1,417)
1998 53,436 729 -
(4) Loans Receivable
A summary of loans by major categories as of December 31 follows (in
thousands):
2000 1999
---- ----
Mortgage loans on real estate
Conventional, V.A. and F.H.A. first mortgage loans:
Fixed rate- residential $ 159,366 142,938
Fixed rate - commercial 2,659 2,693
Variable rate- residential 28,071 25,749
Variable rate - commercial 18,730 13,342
Second mortgage equity loans 14,212 12,418
Construction loans 17,960 6,966
----------- ---------
240,998 204,106
Consumer loans 30,960 30,332
Business loans 3,373 3,343
----------- ---------
Total loans 275,331 237,781
Less:
Undisbursed portion of construction loans (9,136) (2,680)
Net deferred loan origination fees (806) (530)
Allowance for loan losses (2,186) (2,087)
----------- ---------
Net loans $ 263,203 232,484
=========== =========
Loan commitments outstanding at December 31, 2000 and 1999,
approximated $15.5 million and $4.8 million, respectively, including
the undisbursed portion of construction loans. The 2000 loan
commitments included fixed rate commitments for $7.4 million at rates
between 6.5% and 8.25% and variable rate commitments for $8.1 million
at initial rates between 5.25% and 11%. Also, there were
13
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Consolidated Financial Statements
commitments outstanding of approximately $9.7 million for unused
equity lines of credit and $6.2 million for unused credit card lines.
Generally, loans under such equity lines bear interest at the prime
rate plus 1 to 1-1/2% and credit card lines bear interest at
approximately 14%.
Included in consumer loans at December 31, 2000 are $1.5 million of
credit card balances that are held for sale. The carrying value of the
credit card portfolio approximates market value. The sale is expected
to close in the first quarter of 2001.
At December 31, 2000, 1999 and 1998, First Federal serviced, for the
benefit of others, mortgage loans aggregating approximately $7.0
million, $10.3 million and $13.5 million, respectively.
Nonperforming loans were $700,000 at December 31, 2000 ($640,000 in
nonaccrual loans and $60,000 of accruing loans 90 or more days
delinquent) as compared to $1.0 million of nonperforming loans at
December 31, 1999 ($948,000 in nonaccrual loans and $49,000 of accruing
loans 90 or more days delinquent). During 2000, 1999 and 1998, the
amount of interest actually earned on the nonaccrual loans and included
in income was approximately $25,000, $39,000 and $28,000, respectively,
while the amount of interest income that would have been earned had
such loans been accruing the entire year under their original terms was
approximately $52,000, $74,000 and $100,000, respectively.
At December 31, 2000, $542,000 of loans are considered impaired under
SFAS No. 114 criteria, as compared to $472,000 as of December 31, 1999.
Such loans have an impairment allowance of approximately $6,000 and
$3,000, which is included in the total allowance for loan losses of
$2.2 million and $2.1 million at December 31, 2000 and 1999,
respectively. Included in the impaired loan balance at December 31,
2000 are $536,000 of restructured loans that are performing in
accordance with the restructured terms. The average outstanding balance
of impaired loans totaled $489,000, $807,000 and $1.2 million during
2000, 1999 and 1998, respectively. During 2000, 1999 and 1998, the
amount of interest actually earned on the impaired loans and included
in income was approximately $42,000 (none of which was included in the
nonperforming loans income above), $40,000 and $43,000, while the
amount of interest income that would have been earned had such loans
been accruing the entire year under their original terms was
approximately $42,000 (none of which was included in nonperforming
loans income above), $40,000 and $76,000, respectively.
Changes in the allowance for loan losses during the years ended
December 31 follow (in thousands):
2000 1999 1998
---- ---- ----
Balance at beginning of year $ 2,087 2,480 2,592
Provision for losses 210 87 595
Recoveries 70 51 35
Charge-offs (181) (531) (742)
------- ----- ------
Balance at end of year $ 2,186 2,087 2,480
======= ===== ======
14
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Mortgage-Backed Securities
Mortgage-backed securities consist of mortgage pass-through securities
that are issued or guaranteed by FNMA or FHLMC and collateralized mortgage
obligation securities that represent interests in trusts that are backed
by either mortgage pass-through securities issued by FNMA or FHLMC or by
whole loans. The entire mortgage-backed securities portfolio was
classified as available-for-sale at both December 30, 2000 and 1999. A
summary of such mortgage-backed securities as of December 31 follows (in
thousands):
Amortized Gross unrealized Market
cost Gains Losses value
---- ----- ------ -----
December 31, 2000:
Mortgage pass-through securities $ 82,628 335 (302) 82,661
Collateralized mortgage obligations 462,813 4,818 (3,486) 464,145
--------- ----- -------- -------
Total mortgage-backed securities $ 545,441 5,153 (3,788) 546,806
========= ===== ======== =======
December 31, 1999:
Mortgage pass-through securities $ 95,872 96 (2,842) 93,126
Collateralized mortgage obligations 439,269 153 (13,779) 425,643
--------- ----- -------- -------
Total mortgage-backed securties $ 535,141 249 (16,621) 518,769
========= ===== ======== =======
At December 31, 2000, the available-for-sale mortgage-backed securities
portfolio had a net unrealized gain of $1.4 million included in the
carrying value of the portfolio and the after tax effect of $901,000
included in accumulated other comprehensive income (loss) in
stockholders' equity. At December 31, 1999, the available-for-sale
mortgage-backed securities portfolio had a net unrealized loss of
$16.4 million included in the carrying value of the portfolio and the
after tax effect of $10.8 million included in accumulated other
comprehensive (loss) income in stockholders' equity.
As of June 30, 1999, held-to-maturity mortgage-backed securities with
an amortized cost of $237.7 million and a market value of $240.0
million were transferred to available-for-sale, as First Federal no
longer had the intent to hold these securities to maturity.
Consequently, for the foreseeable future, First Federal will no longer
use the held-to-maturity classification.
No held-to-maturity securities were sold during 2000, 1999 or 1998.
Information on sales of available-for-sale mortgage-backed securities
follows (in thousands):
Sales Gross realized
proceeds gains losses
--------- ------ ------
2000 $ 30,164 70 (162)
1999 151,438 3,052 (823)
1998 56,646 90 (1,562)
15
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Accrued Interest Receivable
A summary of accrued interest receivable as of December 31 follows (in
thousands):
2000 1999
---- ----
Loans $ 1,412 1,121
Securities 3,263 1,953
Mortgage-backed securities 3,105 3,081
----- -----
Total accrued interest receivable $ 7,780 6,155
===== =====
(7) Premises and Equipment
A summary of premises and equipment, at cost less accumulated depreciation
and amortization, as of December 31 follows (in thousands):
2000 1999
---- ----
Land $ 977 977
Buildings 4,413 4,284
Furniture, fixtures and equipment 4,943 4,686
Leasehold improvements 609 432
Improvements in progress 78 129
--------- --------
Total premises and equipment 11,020 10,508
Accumulated depreciation and amortization (6,291) (5,914)
------- -------
Total premises and equipment, net $ 4,729 4,594
======= =======
First Federal was also obligated under several noncancelable leases on
branch office facilities. These leases have renewal options and
escalation clauses which provide for increased rental expense based
upon increases in property taxes over a particular base year. Rental
expense under these leases approximated $289,000 in 2000, $227,000 in
1999 and $235,000 in 1998. The estimated minimum rentals using the
lease terms are $318,000 for 2001, $301,000 for 2002, $230,000 for
2003, $157,000 for 2004, $127,000 for 2005 and $331,000 thereafter.
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Deposits
Deposit balances as of December 31 are summarized as follows (dollars in
thousands):
2000 1999
------------------------------------- ---------------------------------
Average Average
rate Amount % rate Amount %
---- ------ - ---- ------
Balance by interest rate:
Demand Deposits:
Non-interest bearing -% 27,102 4% -% 19,599 3%
Interest-bearing checking 1.52 76,988 13 1.52 71,955 12
Passbook 2.00 108,025 17 2.00 108,504 18
Money market 3.89 50,199 8 3.85 45,235 7
--------- --- --------- ---
2.01 262,314 42 2.04 245,293 40
--------- --- --------- ---
Certificate accounts with
Original maturities of:
Up to one year 5.70 127,214 21 4.48 137,483 23
Over one to two years 5.91 181,173 29 5.40 162,156 27
Over two to three years 5.79 18,963 3 5.71 23,404 4
Over three to four years 5.94 1,869 - 5.90 2,928 -
Over four to five years 6.01 16,878 3 6.29 22,707 4
Over five years 6.02 13,210 2 6.20 14,964 2
--------- --- --------- ---
5.84 359,307 58 5.16 363,642 60
--------- --- --------- ---
Total deposits 4.23% $621,621 100% 3.90% $608,935 100%
========= === ========= ===
Outstanding certificates of deposit accounts with balances of $100,000
or more approximated $35.4 million, $34.7 million and $34.6 million at
December 31, 2000, 1999, and 1998, respectively.
Maturities of certificate accounts as of December 31 are
summarized as follows (dollars in thousands):
2000 1999
------------------------------------- -------------------------------------
Average Average
rate Amount % rate Amount %
---- ------ - ---- ------ -
Certificate accounts maturing:
Within 12 months 5.70% $ 258,871 72% 4.97% $ 222,351 61%
13 months to 24 months 6.27 79,720 22 5.38 115,156 32
Over 24 months 5.95 20,716 6 5.82 26,135 7
--------- --- --------- ---
Total 5.84% $ 359,307 100% 5.16% $ 363,642 100%
========= === ========= ===
Interest on deposits is summarized as follows (in thousands):
2000 1999 1998
---- ---- ----
Interest-bearing checking $ 1,097 1,069 1,000
Passbook 2,181 2,259 2,223
Money market 1,953 1,176 752
Certificate accounts - under $100,000 17,874 16,463 17,770
Certificate accounts - over $100,000 1,970 1,814 1,662
------- ------ ------
Total interest expense $25,075 22,781 23,407
======= ====== ======
17
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Borrowed Funds
Borrowed funds consist of the following as of December 31 (dollars in
thousands):
2000 1999
----------------------------- -----------------------------
Interest Interest
Balance Rate Balance Rate
------- ---- ------- ----
Fixed rate FHLB advances:
Due 2000 - - $129,000 5.83%
Due 2001 $ 50,000 6.78% - -
Due 2002 20,000 6.76 - -
Due 2003 75,000 6.24 60,000 5.98
Due 2004 60,000 6.61 - -
Due 2005 9,000 6.45 - -
Due 2006 20,000 6.53 20,000 6.53
Due 2007 23,519 6.79 23,519 6.79
Due 2008 43,056 5.39 43,056 5.39
Due 2009 15,108 6.97 15,230 6.97
Due 2010 55,000 6.30 - -
Due 2012 20,000 6.58 20,000 6.58
Due 2013 15,000 5.39 15,000 5.39
----------- ------------
Total borrowed funds $405,683 6.37% $325,805 5.99%
========================= =========================
Included in the fixed rate advances listed above are $115 million of
advances that are callable prior to maturity at the discretion of the FHLB
of Boston. These advances are first callable in 2001 ($40 with five days
million), 2003 ($20 million), 2004 ($20 million), 2007 ($20 million) and
2008 ($15 million) generally notice from the FHLB.
As a member of the FHLB of Boston, First Federal has access to a
pre-approved overnight line of credit for up to $5 million and the
capacity to borrow an amount up to the value of its qualified collateral,
as defined by the FHLB. Such qualified collateral principally consists of
U.S. Government and agency obligations, mortgage-backed securities and
FHLB stock. At December 31, 2000, available qualified collateral
approximated $663 million, which could support approximately $604 million
of FHLB advances, including the $406 million outstanding.
18
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Income Taxes
Charges for income taxes in the consolidated statements of operations are
composed of the following (in thousands):
2000 1999 1998
---- ---- ----
Current:
Federal $ 2,945 3,040 2,547
State - - 457
------- ----- -----
2,945 3,040 3,004
------- ----- -----
Deferred
Federal (499) 162 (208)
State - - 742
------- ----- -----
(499) 162 534
------- ----- ------
Total:
Federal 2,446 3,202 2,339
State - - 1,199
------- ----- -----
$ 2,446 3,202 3,538
======= ===== =====
A reconciliation of the federal statutory rate and the effective tax rate
follows:
Percentage of pretax earnings
-----------------------------
2000 1999 1998
---- ---- ----
Statutory federal income tax rate 34.0% 34.0 34.0
Increase (decrease) resulting from:
Connecticut corporation business tax,
net of federal income tax benefit - - 4.5
Valuation allowance on state deferred
tax assets - - 4.5
Dividend received deduction (1.7) (2.0) (2.4)
Tax-exempt income (8.1) (1.6) -
Valuation allowance due to capital loss
carryforward 0.4 0.5 -
Other 0.1 - 0.1
---- ---- ----
24.7% 30.9 40.7
==== ==== ====
19
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The tax effects of temporary differences that comprise the deferred tax
assets and deferred tax liabilities follows (in thousands):
2000 1999
---- ----
Deferred tax assets:
Compensation expense $ 735 275
Core deposit intangibles amortization 239 285
Accumulated postretirement benefit obligation 710 696
Allowance for loan losses for financial statement purposes 786 792
Net deferred loan organization fees 284 184
Unrealized loss on available-for-sale securities - 7,966
Net operating and capital loss carryforwards 974 465
Available state tax credits 89 89
-------- -------
Total gross deferred tax assets 3,817 10,752
Valuation allowance (1,252) (1,766)
-------- -------
Deferred tax assets after valuation allowance 2,565 8,986
-------- -------
Deferred tax liabilities:
Depreciation expense (159) (131)
Allowance for loan losses for tax return purposes (190) (253)
Unrealized gain on available-for-sale securities (1,723) -
Other (20) (20)
-------- -------
Total gross deferred tax liabilities (2,092) (404)
-------- -------
Net deferred tax asset $ 473 8,582
======== =======
Based on First Federal's historical pre-tax earnings and taxes paid,
management believes that it is more likely than not that First Federal
will realize the federal benefit of the deferred tax assets and that the
existing net deductible temporary differences will reverse during periods
in which First Federal generates net taxable income for federal purposes.
However, based upon the operation of the passive investment company,
management believes it will not realize the state benefit of the deferred
tax assets and has established a valuation allowance against those
assets. Of the $1.2 million valuation allowance, $952,000 represents an
allowance against net operating and capital loss carryforwards and
$278,000 reserved for other state tax benefits and credits. There can be
no assurance, however, that First Federal will generate any earnings or
any specific level of continuing earnings.
State net operating loss carryforwards arising during 2000 and 1999 are
approximately $8.8 million and $8.0 million, and expire in 2020 and 2004,
respectively.
First Federal has not provided deferred income taxes for the tax return
reserve for bad debts that arose in tax years beginning before December
31, 1987 because it is not expected that this difference will reverse in
the foreseeable future. The cumulative net amount of temporary difference
related to the reserve for bad debts for which deferred taxes have not
been provided was approximately $7.0 million at December 31, 2000. If
First Federal does not meet the Internal Revenue Code requirements as
amended by the Small Business Job Protection Act of 1996, First Federal,
under certain circumstances, could incur a tax liability for the
previously deducted tax return loan losses in the year in which such
requirements are not met. The potential liability for which no deferred
income taxes have been provided was approximately $2.9 million as of
December 31, 2000.
20
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Stockholders' Equity
At the time of conversion to a federal stock savings and loan association,
First Federal established a liquidation account for the benefit of eligible
depositors who continued to maintain their deposit accounts after
conversion. In the event of a complete liquidation (and only in such an
event), each eligible depositor will be entitled to receive a liquidation
distribution from the liquidation account, in the proportionate amount of
the then current adjusted balance for deposit accounts then held, before
any liquidation distribution may be made with respect to the stockholders.
Except for the repurchase of shares and payment of dividends, the existence
of the liquidation account will not restrict use or application of net
worth.
The payment of dividends on common stock of federally chartered savings
institutions, like First Federal, is limited by federal regulation. Such
regulations do not permit cash dividend payments if, among other
restrictions, a savings institution's capital would thereby be reduced
below the amount required for the liquidation account or the capital
requirements prescribed for insured institutions.
In July 1994, First Federal filed for registration of 500,000 shares of
authorized First Federal common stock for its Dividend Reinvestment and
Stock Purchase Plan ("the Plan") and amended the Plan to allow for a cash
payment option (maximum of $5,000 per quarter) enabling participants to
purchase common stock of First Federal directly through the Plan. The
filing was declared effective on August 15, 1994. With this declaration,
the Plan may sell up to 500,000 shares of unissued First Federal common
stock directly to participants in exchange for such optional cash payment
or the reinvestment of cash dividends paid by First Federal on
participants' outstanding common stock. As of December 31, 2000, there are
447,993 unissued shares remaining in the Plan.
A federally chartered savings and loan association, such as First Federal,
is required to maintain a certain level of capital in accordance with
existing requirements of the OTS. Failure to meet the capital requirements
exposes an institution to regulatory sanctions that could have a direct
material effect on its financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, an
institution must meet specific capital guidelines that involve quantitative
measures of assets, liabilities and certain off-balance sheet items, as
well as, qualitative judgments by the OTS.
21
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of December 31, 2000, the most recent notification from OTS categorized
First Federal as well capitalized under the regulatory framework for
prompt corrective action. At December 31, 2000, management believes First
Federal meets all regulatory capital requirements to which it is subject.
The following table sets forth First Federal's actual capital amounts and
ratios and the minimum and well-capitalized capital requirements as of
December 31, 2000 and 1999 (dollars in thousands).
Minimum to be considered
------------------------
Actual adequately capitalized well capitalized
------ ---------------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
December 31, 2000:
Stockholders' equity $ 88,030 7.8% - - - -
Unrealized gain, net of tax,
on available-for-sale
portfolio (3,344)
--------
Tangible capital $ 84,686 7.6 $ 22,378 2.0% - -
======== ========
Core capital $ 84,686 7.6 $ 44,757 4.0 $ 55,946 5.0%
======== ======== ========
Tier one capital to risk-
weighted assets $ 84,686 21.4 $ 15,848 4.0 $ 23,773 6.0
======== ========
Unrealized gains on
available-for-sale equities 2
General valuation
allowances 2,168
--------
Risk-based capital $ 86,856 21.9 $ 31,697 8.0 $ 39,621 10.0
======== ======== ========
December 31, 1999
Tangible capital 78,725 7.7 $ 20,376 2.0% - -
Core capital 78,725 7.7 40,752 4.0 $ 50,940 5.0%
Tier one capital to risk-
weighted assets 78,725 23.0 13,697 4.0 20,546 6.0
Risk-based capital 80,797 23.6 27,394 8.0 34,243 10.0
(12) Employee Benefit and Stock Option Plans
Pension Plans and Other Retirement Benefits
First Federal has a non-contributory defined benefit pension plan for all
employees over age 20-1/2 and who have at least one year of service. The
benefits are based on years of service and the highest average earnings
received in any five consecutive full years during the last 10 years
before normal retirement. First Federal also has a nonqualified pension
benefit restoration program for three senior officers affected by ERISA
regulations capping the earnings level on which qualified plan benefits
are based. First Federal's outside directors are provided with a
nonqualified retirement plan for those directors who have seven or more
years of service and meet certain age requirements. In addition to pension
benefits, First Federal provides certain health care and life insurance
benefits (other retirement benefits) for retried employees. Employees
hired before January 1, 1993 will become eligible for a certain level of
such other retirement benefits if they fulfill eligibility requirements of
age and service. Employees hired after January 1, 1993 are not eligible
for such other retirement benefits.
22
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The projected benefit obligations, plan' assets, funded status and
weighted average assumptions for First Federal's pension plans and
other retirement benefits are as follows (dollars in thousands):
Pension Benefits Other Benefits
---------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
Change in projected benefit obligation:
Benefit obligation at January 1 $ 14,246 14,846 1,327 1,465
Service cost 603 652 29 33
Interest cost 1,145 1,035 102 86
Actuarial (gain)loss (149) (1,653) (9) (197)
Benefits paid (688) (634) (74) (60)
Plan amendments 89 - - -
-------- -------- ------- -------
Benefit obligation at December 31 16,146 14,246 1,375 1,327
-------- -------- ------- -------
Change in plan assets
Fmr value of plan assets at January 1 13,644 12,532 - -
Actual return on assets 409 1,134 - -
Employer contributions 598 612 74 60
Benefits paid (688) (634) (74) (60)
-------- -------- ------- -------
Fair value of plan assets at December 31 13,963 13,644 - -
-------- -------- ------- -------
Funded status (2,183) (602) (1,375) (1,327)
Unrecognized net transition asset (36) (73) - -
Unrecognized net actuarial (gain) loss 344 (356) (448) (459)
Unrecognized prior service cost 775 377 - -
-------- -------- ------- -------
Accrued benefit cost $ (1,100) (654) (1,823) (1,786)
======== ======== ======= =======
Weighted average assumptions
Discount rate 7.75% 7.75% 7.75% 7.75%
Expected return on plan assets 9.00 9.00 - -
Rate of compensation increase 5.00 5.00 - -
For 2000 and 1999 measurement purposes, an 8.5% annual rate of increase
in the per capita cost of covered health care benefits was assumed.
Such rate was assumed to decrease gradually to 5% by 2006 and remain at
that level thereafter.
At December 31, 2000, First Federal's qualified pension plan has an
accumulated benefit obligation of $11.6 million and plan assets of
$13.6 million. The non-qualified pension plans have an accumulated
benefit obligation of $1.2 million with no plan assets.
The health care cost trend rate assumption has a significant effect on
the amounts reported. To illustrate, increasing the assumed health care
cost trend rates by 1 percent would increase the accumulated
postretirement benefit obligation as of December 31, 2000 by 7.0% to
$1,472,000. The aggregate of the service and interest cost components
of net periodic postretirement benefit cost for the year then ended
would increase by 6.5% to $140,000. Conversely, a 1 percent decrease in
the assumed health care cost trend rate would decrease the accumulated
postretirement benefit obligation as of December 31, 2000 by 6.6% to
$1,284,000. The aggregate of the service and interest cost components
of net periodic postretirement benefit cost for the year then ended
would decrease by 6.6% to $122,000.
23
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Consolidated Financial Statement
Net periodic benefit costs include the following components (in
thousands):
Pension Benefits Other Benefits
---------------- --------------
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
Service cost $ 603 652 454 29 33 32
Interest cost 1,145 1,035 976 102 86 97
Expected return on plan assets (1,222) (1,105) (1,029) - - -
Amortization and deferral 519 24 (112) (20) (22) (20)
------- ------ ------ ---- ---- ----
Net periodic benefit cost $ 1,045 606 289 111 97 109
======= ====== ====== ==== ==== ====
Effective January 1, 1990, First Federal established an employee
savings plan pursuant to section 401(k) of the Internal Revenue Code.
Beginning January 1, 1997, First Federal began partially matching
employee contributions to the 401(k) plan. Included in expense for the
years ending December 31, 2000, 1999 and 1998 were $108,000, $101,000
and $98,000, respectively, of matching employee contribution costs.
Employee Stock Ownership Plan
First Federal has a non-contributory Employee Stock Ownership Plan (the
"ESOP") which invests in First Federal common stock for all employees
over age 21 and having at least one year of service. For regulatory
purposes, the ESOP is not deemed to be an affiliate of First Federal.
The ESOP constitutes a qualified stock bonus plan for income tax
purposes. The ESOP is authorized to borrow money to finance the
acquisition of First Federal common stock and to pledge the stock
acquired to secure payment of the loan. The ESOP did not borrow funds
at any time during the three-year period ended December 31, 2000. First
Federal makes annual contributions to the ESOP at the discretion of the
Board of Directors. These contributions are used to purchase common
shares by the ESOP on the open market. At December 31, 2000, ESOP
shares owned by eligible participants totaled 118,239, or 4.2% of
outstanding shares.
During 1996, First Federal instituted a nonqualified ESOP restoration
program for three senior officers affected by the new ERISA regulations
capping the earnings level on which qualified plan benefits could be
based.
Included in compensation, taxes and benefits expense for the years
ended December 31 were the following (in thousands):
2000 1999 1998
---- ---- ----
ESOP contributions expense $150 143 188
ESOP restoration expense 9 9 -
24
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Stock Option Plan
At December 31, 2000, 1999, and 1998, 28,805, 85,602 and 132,418 shares,
respectively, were reserved for future grants in connection with incentive
and non-incentive option plans for the benefit of directors, officers and
other full time employees.
All options are granted at prices no less than the fair market value of the
common stock on the date of grant and have a maximum term of not more than
ten years. Incentive options are usually granted to officers and other full
time employees and usually contain a vesting schedule whereby one-third
become exercisable each year following the date of grant. Options granted to
officers and other full time employees may be accompanied by stock
appreciation rights or limited rights which permit an option holder to
surrender an option and receive cash or, in limited instances, common stock,
equal to the excess of fair value of the common stock over the option
exercise price. No such rights have been granted as of December 31, 2000.
Non-incentive options are usually granted to outside directors and are not
subject to a vesting schedule. Changes in options outstanding were as
follows:
2000 1999 1998
---------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding at January 1/st/ 276,511 $ 24.62 271,162 $ 22.18 270,730 $ 20.28
Granted 65,197 31.79 51,950 29.50 48,600 27.37
Exercised (17,777) 16.39 (41,467) 13.74 (45,518) 15.73
Expired or canceled (9,000) 28.24 (5,134) 32.99 (2,650) 33.59
------- ------- -------
Outstanding at December 31/st/ 314,931 26.47 276,511 24.62 271,162 22.18
======= ======= =======
Options exercisable at year end 240,118 25.11 216,061 23.06 197,495 19.36
Options outstanding at December 31, 2000 consist of incentive type options
on 217,564 shares granted to officers and full-time employees and 97,367
non-incentive type options granted to officers and outside directors.
The following table summarizes information about stock options outstanding
at December 31, 2000:
Options Outstanding Options Exercisable
----------------------------------------- --------------------------------
Weighted Weighted Weighted
Average Average Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
--------------- ----------- ---- ----- ----------- -----
(years)
$ 6.75 - $ 16.50 52,984 3.2 $14.65 52,984 $14.65
$ 19.00 - $ 23.25 59,900 5.4 21.23 59,900 21.23
$26.813 - $29.875 102,950 7.8 28.47 73,267 28.34
$ 31.00 - $ 34.70 64,697 9.7 32.17 19,734 32.30
$ 37.00 - $ 39.94 34,400 6.9 37.04 34,233 37.03
------- -------
$ 6.75 - $ 39.94 314,931 6.9 26.47 240,118 25.11
======= =======
25
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Consolidated Financial Statements
SFAS No. 123 "Accounting for Stock-Based Compensation" establishes proper
accounting treatment for all stock based compensation, including stock
option plans. Consistent with SFAS No. 123, First Federal has elected to
use Accounting Principles Board ("APB") Opinion No. 25 "Accounting for
Stock Issued to Employees", to account for its stock option plans. Under
APB No. 25, no compensation cost is recorded if, at the grant date, the
exercise price of the options is equal to the fair value of the company's
common stock. The alternate method under SFAS No. 123 uses a fair value
based approach under which compensation cost is measured at the option
grant date based upon the value of the award and is recognized over the
service period. The fair value of options granted is estimated as follows
using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
2000 1999 1998
---- ---- ----
Weighted average fair value of options granted $ 9.20 $ 9.39 $ 9.37
Dividend yield 2.6% 2.6% 2.0%
Expected volatility 25% 27% 31%
Risk free interest rate 5.51% 6.43% 4.73%
Expected lives of options granted 7.3 years 7.4 years 7.5 years
Had First Federal recorded compensation cost under the alternate method as
stated in SFAS No. 123, net income and earnings per share would have been
reduced to the pro forma amounts indicated below (in thousands, except per
share amounts).
2000 1999 1998
---- ---- ----
As Pro As Pro As Pro
reported forma reported forma reported forma
-------- ----- -------- ----- -------- -----
Net income $ 7,463 7,192 7,145 6,741 5,159 4,910
Basic earnings per share 2.65 2.55 2.57 2.43 1.89 1.80
Diluted earnings per share 2.61 2.51 2.54 2.39 1.83 1.74
26
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Net Income Per Share
Earnings per share have been computed on the basis of the following (net
income in thousands):
2000 1999 1998
---- ---- ----
Income/ Income/ Income/
Shares EPS Shares EPS Shares EPS
Net Income available to
common stockholders $ 7,463 $ 7,145 $ 5,159
========== ========== ==========
Basic EPS:
Average common shares
outstanding 2,818,751 $ 2.65 2,775,663 $ 2.57 2,733,443 $ 1.89
====== ====== ======
Effect of dilutive securities:
Stock option plans 43,528 40,157 83,592
---------- ---------- ----------
Diluted EPS:
Average common shares and
assumed conversions 2,862,279 $ 2.61 2,815,820 $ 2.54 2,817,035 $ 1.83
========== ====== ========== ====== ========== ======
(14) Other Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income", establishes standards for
reporting and displaying comprehensive income and its components in a full
set of general-purpose financial statements with the same prominence as
other financial statements. Comprehensive income is defined as changes in
the equity of an entity from transactions or events other than those
resulting from investments by or distributions to owners.
The following table summarizes reclassification adjustments for unrealized
gains or losses on available for sale securities, which is included in
other comprehensive income, and the related tax effects for the years
ended December 31 (in thousands):
Before Tax Income Tax Net of Tax
---------- ---------- ----------
2000:
Unrealized holding gains arising during the period $ 25,419 8,574 16,845
Reclassification adjustment for losses realized
during the period 101 34 67
---------- ---------- ----------
Other comprehensive gain 25,520 8,608 16,912
========== ========== ==========
1999:
Unrealized holding losses arising during the period (19,837) 6,694 (13,143)
Reclassification adjustment for gains realized
during the period (873) 294 (579)
---------- ---------- ----------
Other comprehensive loss 20,710 6,988 (13,722)
========== ========== ==========
1998:
Unrealized holding gains arising during the period 1,925 787 1,138
Reclassification adjustment for losses realized
during the period 743 303 440
---------- ---------- ----------
Other comprehensive gain $ 2,668 1,090 1,578
========== ========== ==========
27
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(15) Disclosures About Fair Value of Financial Instruments
SFAS No. 107, Disclosures about Fair Value of Financial Instruments,
requires the disclosure of the estimated fair value of financial
instruments. The disclosed fair values represent prices for individual
units of financial instruments rather than the prices which may result
from the sale of the entire holdings. Potential taxes and other selling
expenses were also not considered. In instances where a discounted cash
flow methodology was used, the fair value assumptions were based upon
subjective estimates of market conditions and perceived risks of the
financial instrument as of December 31, 2000 and 1999.
2000 1999
-------------------------- -----------------------
Carrying Fair Carrying Fair
Financial Assets: (in thousands) amount value amount value
------ ----- ------ -----
Fair value equals carrying amount $ 86,501 86,501 96,401 96,401
========= ======= ======= =======
Fair value equals quoted market price $ 764,813 764,813 661,011 661,011
========= ======= ======= =======
Fair value of loans equals carrying amount $ 11,657 11,657 12,446 12,446
Fair value of loans using discounted
cash flow 253,732 258,781 222,125 217,994
--------- ------- ------- -------
Total loans 265,389 270,438 234,571 230,440
Less allowance for loan losses (2,186) (2,186) (2,087) (2,087)
--------- ------- ------- -------
Net loans $ 263,203 268,252 232,484 228,353
========= ======= ======= =======
Fair Value Equals Carrying Amount. These assets include cash and amounts
due from depository institutions, other short-term investments, Federal
Home Loan Bank stock, cash surrender value of life insurance and accrued
interest receivable on interest earning assets. The carrying amounts of
these assets are reasonable estimates of fair value.
Fair Value Based on Quoted Market Price. These instruments include
investment securities and mortgage-backed securities. The fair value is
based on bid prices published in financial newspapers or bid quotations
received from securities dealers.
Fair Value of Loans Equals Carrying Amount. The carrying amount is a
reasonable estimate of fair value on these loans which are either payable
on demand with no set maturity or reprice to market rates with no rate
caps.
Fair Value of Loans Using Discounted Cash Flow. Fair values are estimated
for portfolios with similar financial characteristics. Mortgage loans,
including nonperforming loans, were segregated by homogeneous categories
such as residential mortgages, commercial mortgages, and second mortgage
equity loans. Fair value was estimated by discounting contractual cash
flows adjusted for prepayment estimates using discount rates based on
secondary market sources, adjusted to reflect differences in servicing and
credit costs. Nonperforming loans were included in the categories for
computation of fair value using discounted cash flow since such group is
insignificant to the total loan portfolio. The fair value of personal,
automobile and other installment loans was estimated by discounting
estimated cash flows to maturity date using estimated market discount
rates that reflect the credit and interest rate risks
28
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Consolidated Financial Statements
inherent in the loan category. Credit risk in the portfolio is also
adjusted through the application of 100% of the allowance for loan losses
as a deduction in arriving at fair value for loans.
2000 1999
-------------------------- -----------------------
Carrying Fair Carrying Fair
Financial Liabilities: (in thousands) amount value amount value
------ ----- ------ -----
Fair value of deposits equals carrying
amount $ 262,314 262,314 245,293 245,293
Fair value of deposits using discounted
cash flow 359,307 359,467 363,642 360,424
--------- ------- ------- -------
Total deposits $ 621,621 621,781 608,935 605,717
========= ======= ======= =======
Fair value of borrowed funds using
discounted cash flow $ 405,683 405,612 325,805 319,302
========= ======= ======= =======
Fair value of accrued interest payable
equals carrying amount $ 2,262 2,262 1,738 1,738
========= ======= ======= =======
Fair Value Equals Carrying Amount. The fair value of deposits with no
stated maturity, such as non- interest-bearing and interest-bearing
checking deposits, passbook, and money market accounts, is required by
SFAS No. 107 to be the carrying amount. The fair value of accrued interest
payable on deposits and borrowed funds, which is short-term in nature, is
equal to the carrying amount.
Fair Value Using Discounted Cash Flow. This category includes certificates
of deposit borrowed funds. The fair value is based on the discounted value
of these liabilities using actual contractual rates and scheduled
maturities. The discount rate is estimated using an independent market
funding source.
Off-Balance-Sheet Financial Instruments:
Commitments to Extend Credit. The fair value of commitments is estimated
using the fees currently charged to enter into similar agreements, taking
into account the remaining terms of the agreements and the present
creditworthiness of the counterparties. At December 31, 2000, the fair
value of commitments to extend credit equals the carrying amount, which is
zero.
29
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(16) Financial Instruments with Off-Balance-Sheet Risk
First Federal is party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. Such instruments include commitments to originate loans, unused
lines of credit, unadvanced portions of construction loans and standby
letters of credit. These instruments involve elements of credit and
interest rate risk in excess of the amount recognized in the financial
statements. The contract amounts of these instruments reflect the extent
of involvement First Federal has in the particular classes of financial
instruments.
First Federal's exposure to credit loss in the event of nonperformance by
the customer with respect to loan commitments, unused lines of credit,
unadvanced portions of construction loans and standby letters of credit is
represented by the contractual amount of those instruments. First Federal
uses the same credit policies in making such commitments as they do for
on-balance-sheet instruments. Most of First Federal's lending activity is
with customers located in the Greater Hartford, Connecticut, area.
Significant amounts of the lending business are residential real estate
loans and consumer loans to individuals with no industry or borrower
concentrations. Investment securities activities are conducted through
nationally recognized security dealers.
Financial instruments with off-balance-sheet risk follow (in thousands):
2000 1999
---- ----
Financial instruments whose contract amounts represent credit risk:
Loan commitments and unadvanced portions of construction loans:
At fixed rates of interest $ 7,409 3,617
At variable rates of interest 8,054 1,160
Unused portions of equity lines of credit at variable rates 9,737 9,049
Unused lines of credit on credit cards at fixed rates 6,184 6,567
Stand-by letters of credit 35 15
Commitments to purchase investment securities - 805
Loan commitments, unadvanced portions of construction loans and unused
lines of credit are based on agreements to extend credit to a customer as
long as there is no violation of any condition established in the
contract. Loan commitments and the unadvanced portions of construction
loans have fixed expiration dates and unused lines of credit have
termination clauses under which the credit lines may be reduced or
canceled. Financial instruments with fixed interest rates generally expire
within 60 days or, in the case of credit cards, have provisions whereby
the interest rate may be changed upon notification to the customer. First
Federal evaluates each customer's creditworthiness on a case by case
basis. The amount of collateral obtained, if deemed necessary, is based on
management's credit evaluation of the borrower. Collateral held is
primarily residential property.
30
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Consolidated Balance Sheets - Unaudited
(dollars in thousands)
June 30, December 31,
2001 2000
---- ---------
ASSETS
Cash and due from depository institutions $ 17,398 12,296
Other short term investments 123,232 25,804
----------- ---------
Cash and cash equivalents 140,630 38,100
Securities, at market value (note 4) 138,098 218,007
Mortgage-backed securities, at market value (note 5) 490,638 546,806
Loans receivable, net (notes 6, 7 and 8) 279,166 263,203
Accrued interest receivable 6,256 7,780
Real estate owned 9 12
Federal Home Loan Bank stock, at cost 19,283 21,034
Cash surrender value of life insurance 20,166 19,587
Premises and equipment, net 4,608 4,729
Deferred income taxes - 473
Prepaid expenses and other assets 1,680 1,819
----------- ---------
Total assets $ 1,100,534 1,121,550
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 638,369 621,621
Borrowed funds (note 9) 355,617 405,683
Advance payments by borrowers 3,133 114
Accrued expenses and other liabilities 6,605 6,102
Deferred income taxes 2,047 -
----------- ---------
Total liabilities 1,005,771 1,033,520
=========== =========
Serial preferred stock, $.01 par value; 5,000,000 shares authorized;
none issued and outstanding - -
Common stock, $.01 par value; 15,000,000 shares authorized;
2,845,332 issued and outstanding (2,830,084 in 2000) 28 28
Additional paid-in capital 29,577 29,105
Retained earnings (substantially restricted) 58,508 55,553
Accumulated other comprehensive income, net 6,650 3,344
----------- ---------
Total stockholders' equity (note 10) 94,763 88,030
----------- ---------
Total liabilities and stockholders' equity $ 1,100,534 1,121,550
=========== =========
See accompanying notes to consolidated financial statements.
31
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Consolidated Statements of Operations - Unaudited
(in thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
2001 2000 2001 2000
--------------------------------------------------
Interest Income:
Loans $ 5,382 4,719 10,682 9,292
Mortgage-backed securities 7,993 9,155 16,829 18,060
Securities 2,998 4,070 6,322 6,732
Tax-exempt securities 278 338 586 613
Other 730 240 1,303 620
--------------------------------------------------
Total interest income 17,381 18,522 35,722 35,317
--------------------------------------------------
Interest Expense:
Deposits 6,371 6,198 12,900 12,198
Borrowed funds 5,815 5,945 12,069 11,208
--------------------------------------------------
Total interest expense 12,186 12,143 24,969 23,406
--------------------------------------------------
Net interest income 5,195 6,379 10,753 11,911
Provision for loan losses - 165 - 165
--------------------------------------------------
Net interest income after provision for loan losses 5,195 6,214 10,753 11,746
--------------------------------------------------
Other income (expense):
Other fees and service charges 621 512 1,209 969
Gain on sale of securities, net 236 - 2,458 91
Real estate owned operations, net - (18) (4) (18)
Cash surrender value appreciation 299 266 579 531
Merger related expenses (64) - (720) -
Other income 112 59 207 112
--------------------------------------------------
Total other income (expense) 1,204 819 3,729 1,685
--------------------------------------------------
General and administrative expenses:
Compensation, taxes and benefits 2,473 2,224 4,992 4,317
Office occupancy expense 636 561 1,303 1,152
Federal deposit insurance premiums 29 32 59 63
Advertising 123 230 480 591
Other 808 1,146 1,615 1,987
--------------------------------------------------
Total general and administrative expenses 4,069 4,193 8,449 8,110
--------------------------------------------------
Income before income taxes 2,330 2,840 6,033 5,321
Income taxes 624 729 1,831 1,353
--------------------------------------------------
Net Income $ 1,706 2,111 4,202 3,968
==================================================
Net Income per Share (note 11)
Basic $ 0.60 0.75 1.48 1.41
Diluted 0.58 0.74 1.44 1.39
==================================================
Cash Dividends per Share $ 0.22 0.20 0.44 0.40
==================================================
See accompanying notes to consolidated financial statements.
32
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity - Unaudited
Six Months ended June 30, 2001 and 2000
(in thousands)
Accumulated
Additional other
Common paid-in Retained comprehensive
Stock capital earnings income (loss) Total
----- ------- -------- ------------- -----
Balance at December 31, 1999 $ 28 28,557 50,343 (13,568) 65,360
Comprehensive income
Net income for 6 months ended June 30, 2000 - - - 3,968 - 3,968
Net unrealized gains on available-for-sale
securities net of reclassification adjustment - - - 323 323
---
Total comprehensive income 4,291
Cash dividend - common, $ 0.40 per share - - (1,124) - (1,124)
Stock issued upon exercise of stock options - 195 - - 195
Stock issued through dividend reinvestment plan - 100 - - 100
--------------------------------------------------------
Balance at June 30, 2000 $ 28 28,852 53,187 (13,245) 68,822
========================================================
Balance at December 31, 2000 $ 28 29,105 55,553 3,344 88,030
Comprehensive income
Net income for 6 months ended June 30, 2001 - - 4,202 - 4,202
Net unrealized gains on available-for-sale
securities, net of reclassification adjustment - - - 3,306 3,306
-----
Total comprehensive income 7,508
Cash dividend - common, $ 0.44 per share - - (1,247) - (1,247)
Stock issued upon exercise of stock options - 373 - - 373
Stock issued through dividend reinvestment plan - 99 - - 99
--------------------------------------------------------
Balance at June 30, 2001 $ 28 29,577 58,508 6,650 94,763
========================================================
See accompanying notes to consolidated financial statements.
33
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Consolidated Statements of Cash Flows - Unaudited
(in thousands)
Six months ended
June 30,
2001 2000
---------------------------
Operating activities:
Net income $ 4,202 3,968
Adjustments to reconcile to net cash:
Depreciation and amortization 268 230
Provision for loan losses - 165
Cash surrender value appreciation (579) (531)
Gain on sale of securities (2,458) (91)
Loss on real estate owned 4 18
Decrease (increase) in accrued interest receivable 1,524 (1,980)
Decrease (increase) in prepaid expenses and other assets 139 (114)
Increase in accrued expenses and other liabilities 503 43
Accretion of premiums, net (1,355) (757)
---------------------------
Net cash provided by operating activities 2,248 951
---------------------------
Investing activities:
Securities:
Proceeds from sale of available-for-sale 96,819 9,883
Maturities of available-for-sale 106,126 174
Purchases of available-for-sale (117,653) (70,476)
Mortgage-backed securities:
Proceeds from sale of available-for-sale 148,977 9,930
Principal repayments of available-for-sale 36,938 22,486
Purchases of available-for-sale (125,513) (74,349)
Loans:
Principal repayments 30,884 21,637
Originations (46,844) (34,770)
Redemption (purchase) of FHLB stock 1,751 (1,705)
Purchases of premises and equipment (147) (171)
Proceeds from real estate owned sales 18 119
---------------------------
Net cash provided (used) by investing activities 131,356 (117,242)
---------------------------
Financing activities:
Net increase in deposits 16,748 13,159
Net (decrease) increase in borrowed funds (50,066) 74,940
Dividends paid to stockholders (1,247) (1,124)
Proceeds of stock options exercised and dividend reinvestment plan 472 295
Increase in advance payments by borrowers 3,019 3,322
---------------------------
Net cash (used) provided by financing activities (31,074) 90,592
---------------------------
Increase (decrease) in cash and cash equivalents 102,530 (25,699)
Cash and cash equivalents, beginning of period 38,100 53,543
---------------------------
Cash and cash equivalents, end of period $ 140,630 27,844
===========================
See accompanying notes to consolidated financial statements.
34
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(1) Basis of Presentation and Consolidation
The accompanying unaudited consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in
the United States of America and include the accounts of First Federal
Savings and Loan Association of East Hartford and its wholly owned
subsidiaries, First Eastern Corporation and FFS Capital Corporation
("First Federal"). These unaudited consolidated financial statements
should be read in conjunction with the consolidated financial statements
and related notes included in First Federal's 2000 Annual Report on Form
10-K. All significant intercompany balances and transactions have been
eliminated for the purposes of the consolidated financial statements.
In preparing the statements and accompanying notes and management's
discussion and analysis, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as
of the date of the balance sheets and revenues and expenses for the
periods. Actual results could differ from those estimates. Material
estimates that are particularly susceptible to change in the near term
relate to the determination of the allowance for loan losses and the
valuations of securities, mortgage-backed securities, and real estate
owned. The market value of securities and mortgage-backed securities is
based upon bid prices published in financial newspapers or bid quotations
received from security dealers, and is susceptible to changes in interest
rates and prepayment expectations. In the opinion of management, all
adjustments necessary for a fair presentation of the results of operations
for the interim periods presented have been made. Such adjustments were of
a normal recurring nature. The results of operations for the interim
periods are not necessarily indicative of the results that may be expected
for the entire fiscal year.
On February 7, 2001, First Federal and Connecticut Bancshares, Inc., the
holding company for Savings Bank of Manchester ("SBM"), entered into an
Agreement and Plan of Reorganization (the "Agreement") which provides for,
among other things, the acquisition of First Federal by Connecticut
Bancshares. Under the terms of the Agreement, First Federal shareholders
will receive $37.50 per share in cash. First Federal is expected to merge
with and into SBM upon completion of the transaction. The stockholders of
First Federal approved the Agreement at the Annual Meeting of Stockholders
held on May 15, 2001. On July 17, 2001, Connecticut Bancshares announced
that it has received all regulatory approvals and anticipates a closing
date of August 31, 2001.
In addition to historical information, these unaudited consolidated
financial statements may include certain forward-looking statements based
on current management expectations, projections and estimates. An example
of a forward-looking statement is the discussion on the allowance for loan
losses. First Federal's actual results could differ materially from those
management expectations, projections and estimates. Factors that could
cause future results to vary from current management expectations include,
but are not limited to, general economic conditions, legislative and
regulatory changes, monetary and fiscal policies of the federal
government, changes in tax policies, rates and regulations of federal,
state and local tax authorities, changes in interest rates, deposit flows,
the cost of funds, demand for loan products, demand for financial
services, competition, changes in the quality or composition of First
Federal's loan and investment portfolios, changes in accounting
principles, policies or guidelines, and other economic, competitive,
governmental and technological factors affecting First Federal's
operations, markets, products, services and prices. Further description of
the risks and uncertainties to the business are included in detail in Item
1, Business, of First Federal's 2000 Annual Report on Form 10-K.
35
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(2) Accounting Standards
In June 1998, FASB issued Statement of Financial Accounting Standards
("SFAS") No. 133, Accounting for Derivative Instruments and Hedging
Activities. This statement establishes accounting and reporting standards
for derivative instruments and hedging activities. It requires that an
entity recognize all derivatives in its statement of financial position
and measure those instruments at fair value. The accounting for changes in
fair value of a derivative depends on the intended use of the derivative
and the resulting designation. Under this statement, an entity that elects
to apply hedge accounting is required to establish at the inception of the
hedge the method it will use for assessing effectiveness of the hedge and
the measurement approach for determining the ineffective aspect of the
hedge. Those methods must be consistent with the entity's approach to
managing risk SFAS No. 133, as amended, is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. In June 2000, the
FASB issued SFAS No. 138, which amends certain accounting and reporting
standards of SFAS No. 133. This Statement is to be adopted concurrently
with SFAS No. 133. Management adopted these standards on January 1, 2001
and the adoption of these standards did not have any impact on First
Federal's results of operations or its financial position, as it does not
have any derivative instruments or hedging activities outstanding which
fall under the scope of SFAS No. 133.
In July 2001, the FASB issued SFAS No. 141, Business Combinations, and
SFAS No. 142, Goodwill and Other Intangible Assets. Among other things,
SFAS No. 141 requires the use of the purchase method to account for all
business combinations; use of the pooling-of-interests method is not
permitted for business combinations initiated after June 30, 2001. SFAS
No. 142 requires that goodwill no longer be amortized to expense, but
instead be reviewed annually for impairment, with impairment losses
charged to expense when they occur. Amortization of goodwill (including
goodwill recorded in prior acquisitions) ceases upon the adoption of SFAS
No. 142, which for calendar year-end entities such as First Federal, will
be on January 1, 2002. SFAS No. 142 also requires that acquisition-related
intangible assets other than goodwill continue to be amortized to expense
over their estimated useful lives. First Federal has no goodwill or other
acquisition-related intangible assets at June 30, 2001 and, accordingly,
the adoption of SFAS No. 142 is not expected to affect First Federal's
consolidated financial statements.
(3) Cash Flow Presentation
For purposes of the statements of cash flows, cash and cash equivalents
include cash and amounts due from depository institutions, investments in
federal funds, and other short term investments. Interest disbursed on
deposits consists of interest posted to demand deposit and certificates of
deposit accounts and monthly interest checks disbursed on certificates of
deposit and approximated $12.9 million and $12.2 million for the six
months ended June 30, 2001 and 2000, respectively. Interest disbursed on
borrowed funds approximated $12.4 million and $10.9 million for the six
months ended June 30, 2001 and 2000, respectively. Cash payments for
income taxes approximated $1.1 million and $1.4 million for the six months
ended June 30, 2001 and 2000, respectively.
The following is a supplemental schedule of noncash investing and
financing activities for the six months ended June 30 (in thousands):
2001 2000
-----------------------------
Real estate acquired through foreclosure $ 18 $ 135
=============================
Pending security settlements - $ 3,173
=============================
Increase in market value of available-for-sale securities $ 5,826 $ 652
Tax effect of change in market value included in net deferred income taxes (2,520) (329)
-----------------------------
Increase in stockholders' equity (net of tax effect) $ 3,306 $ 323
=============================
36
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(4) Securities
A summary of available-for-sale investment securities follows (in
thousands):
Amortized Gross unrealized Market
Cost Gains Losses value
---- ----- ------ -----
June 30, 2001:
U.S. Government and agency obligations $ 70,265 3,239 (16) 73,488
Bank qualified municipal securities 19,582 956 - 20,538
Corporate bonds and notes 6,523 164 (42) 6,645
Equity securities 37,349 78 - 37,427
---------------------------------------------------
Total investment securities $133,719 4,437 (58) 138,098
===================================================
December 31, 2000:
U.S. Government and agency obligations $115,075 1,951 (321) 116,705
Bank qualified municipal securities 28,899 1,543 - 30,442
Corporate bonds and notes 58,072 559 (32) 58,599
Equity securities 12,258 25 (22) 12,261
---------------------------------------------------
Total investment securities $214,304 4,078 (375) 218,007
===================================================
At June 30, 2001, U.S. Government agency obligations with amortized cost
approximating $3.0 million were pledged as collateral for certain
retirement deposit liability accounts with balances in excess of $100,000.
Included in the June 30, 2001 balance of U.S. Government and agency
obligations are $50.4 million of inflation indexed notes, whose return
varies based upon a stated coupon rate plus changes in the consumer price
index for urban areas.
(5) Mortgage-Backed Securities
Mortgage-backed securities ("MBSs") consist of mortgage pass-through
securities ("PCs") that are issued or guaranteed by Fannie Mae ("FNMA"),
Freddie Mac ("FHLMC") or Government National Mortgage Corporation ("GNMA")
and collateralized mortgage obligation securities ("CMOs") that represent
interests in trusts that are backed by either PCs issued by FNMA, FHLMC or
GNMA or by whole loans. A summary of such available-for-sale MBSs follows
(in thousands):
Amortized Gross unrealized Market
cost Gains Losses value
---- ----- ------ -----
June 30, 2001:
Fixed rate CMOs $ 377,218 6,618 (979) 382,857
Fixed rate PCs 106,906 904 (29) 107,781
----------------------------------------------------
Total MBSs $ 484,124 7,522 (1,008) 490,638
====================================================
December 31, 2000:
Fixed rate CMOs $ 462,813 4,818 (3,486) 464,145
Fixed rate PCs 82,628 335 (302) 82,661
----------------------------------------------------
Total MBSs $ 545,441 5,153 (3,788) 546,806
====================================================
37
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(6) Loans Receivable
Loans receivable are stated at unpaid principal balance net of undisbursed
portion of loans in process, net deferred loan origination fees and
allowance for loan losses. A summary of loans by major category follows (in
thousands):
June 30, 2001 December 31, 2000
------------- -----------------
Residential mortgage loans $ 212,368 187,437
Commercial mortgage loans 26,816 21,389
Construction loans 18,258 17,960
Consumer loans 29,311 30,960
Business loans 4,267 3,373
--------------------------------------------
Total loans, gross 291,020 275,331
Deduct
Undisbursed portion of loans (8,694) (9,136)
Net deferred loan origination fees (996) (806)
Allowance for loan losses (2,164) (2,186)
--------------------------------------------
Total loans, net $ 279,166 263,203
============================================
At June 30, 2001, $535,000 of loans are considered impaired under generally
accepted accounting principles. At December 31, 2000, $542,000 of loans
were similarly considered impaired. Such loans had an impairment allowance
of $2,000 and $6,000 at June 30, 2001 and December 31, 2000, respectively.
Average outstanding impaired loans for the six months ended June 30, 2001
and 2000 were $537,000 and $467,000, respectively. Of the loans considered
impaired, $533,000 and $536,000 were restructured loans that are performing
in accordance with the restructured terms as of June 30, 2001 and December
31, 2000, respectively.
(7) Allowance For Loan Losses
An allowance for loan losses is maintained at a level to provide for losses
that are probable and estimable under guidelines established by SFAS No. 5,
based on management's best judgment, appraisals of properties, where
necessary, and a continuing review of the loan portfolio, loss experience,
economic conditions and other pertinent factors. While management uses
available information to recognize losses on loans, future additions to the
allowance for loan losses may be necessary as a result of the impact of
changes in these factors. The allowance is increased by provisions for loan
losses charged against income. Charge-offs to the allowance are made when a
loan is considered uncollectible or is transferred to real estate owned.
Recoveries are credited to the allowance.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review First Federal's allowance for loan
losses. Such agencies may require First Federal to increase the allowance
for loan losses based on the regulators' judgments about information
available to them at the time of their examination.
38
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(8) Nonperforming Assets
The following depicts information concerning nonperforming assets (dollars
in thousands):
June 30, December 31,
2001 2000
-------------------------------
Nonperforming loans:
Loans accruing interest - 90 days or more past
due $ 262 60
Loans on non-accrual status 552 640
-------------------------------
Total nonperforming loans 814 700
Real estate owned 9 12
-------------------------------
Total nonperforming assets $ 823 712
===============================
Total loans, gross $ 291,020 275,331
Total assets 1,100,534 1,121,550
Allowance for loan losses 2,164 2,186
Nonperforming loans to total loans, gross 0.28% 0.25
Nonperforming assets to total assets 0.07 0.06
Allowance for loan losses to nonperforming loans 265.85 312.29
Allowance for loan losses to total loans, gross 0.74 0.79
(9) Borrowed Funds
Borrowed funds consist of the following (dollars in thousands):
June 30, 2001 December 31, 2000
-------------------------- --------------------------
Interest Interest
Balance Rate Balance Rate
------- ---- ------- ----
Fixed rate FHLB advances
Due 2001 - - $ 50,000 6.78%
Due 2002 $ 20,000 6.76% 20,000 6.76
Due 2003 75,000 6.24 75,000 6.24
Due 2004 60,000 6.61 60,000 6.61
Due 2005 9,000 6.45 9,000 6.45
Due 2006 20,000 6.53 20,000 6.53
Due 2007 23,519 6.79 23,519 6.79
Due 2008 43,056 5.39 43,056 5.39
Due 2009 15,042 6.97 15,108 6.97
Due 2010 55,000 6.30 55,000 6.30
Due 2012 20,000 6.58 20,000 6.58
Due 2013 15,000 5.39 15,000 5.39
------------- -------------
Total borrowed funds $ 355,617 6.31% $405,683 6.37%
========================== ==========================
Included in the June 30, 2001 advances listed above are $115 million of
advances that are callable prior to maturity at the discretion of the
Federal Home Loan Bank ("FHLB") of Boston. These advances are first
callable in 2001 ($40 million), 2003 ($20 million), 2004 ($20 million),
2007 ($20 million) and 2008 ($15 million). Also included as of June 30,
2001 above are $5.0 million of monthly amortizing advances listed by final
maturity.
39
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF EAST HARTFORD AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
As a member of the FHLB of Boston, First Federal has access to a
pre-approved overnight line of credit for up to $5 million and the
capacity to borrow an amount up to the value of its qualified collateral,
as defined by the FHLB. First Federal is required to maintain qualified
collateral free and clear of liens, pledges and encumbrances as collateral
for FHLB advances. At June 30, 2001, First Federal had available qualified
collateral of approximately $695 million, which could support
approximately $625 million of FHLB advances, including the $356 million of
outstanding FHLB advances.
(10) Stockholders' Equity
During the first half of 2001, options were exercised for 12,466 shares of
common stock (9,000 by directors and 3,466 by officers of First Federal)
at exercise prices that ranged from $6.75 to $37.00 per share. In
addition, 2,782 shares were purchased at an average price of $36.67 per
share through the stockholders' dividend reinvestment plan. These
transactions had the effect of increasing the outstanding shares to
2,845,332 shares outstanding at June 30, 2001 from 2,830,084 at December
31, 2000, since shares reserved under First Federal's option plans and
dividend reinvestment plan are part of authorized but unissued shares.
(11) Net Income Per Share
Earnings per share has been computed on the basis of the following
(dollars in thousands, except per share data):
For the three months ended June 30, For the six months ended June 30,
------------------------------------- -------------------------------------
2001 2000 2001 2000
---------------------------------------------------------------------------------
Income/ Income/ Income/ Income/
Shares EPS Shares EPS Shares EPS Shares EPS
------ --- ------ --- ------ --- ------ ---
Net income available to
common stockholders $ 1,706 $ 2,111 $ 4,202 $ 3,968
========== ========== ========== ==========
Basic EPS:
Average common shares outstanding 2,842,729 $0.60 2,816,214 $0.75 2,838,173 $1.48 2,812,609 $1.41
===== ===== ===== =====
Effect of dilutive securities:
Stock option plans 76,915 44,081 75,901 43,504
---------- ---------- ---------- ----------
Diluted EPS:
Average common shares and
Assumed conversions 2,919,644 $0.58 2,860,295 $0.74 2,914,074 $1.44 2,856,113 $1.39
========== ===== ========== ===== ========== ===== ========== =====
40
Connecticut Bancshares, Inc. and Subsidiary
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 2000
(In thousands, except per share amount)
Historical
Historical First Federal Pro Forma
Connecticut Savings and Connecticut
Bancshares, Loan Assoc. Bancshares,
Inc. and of East Pro Forma Inc. and
Subsidiary Hartford Adjustments Subsidiary
------------- ------------ ------------ ------------
Interest income $ 95,092 $ 72,815 $ (1,378) (1) $ 166,529
Interest expense 43,842 49,437 318 (2) 93,597
------------- ------------ ------------ ------------
Net interest income 51,250 23,378 (1,696) 72,932
Provision for loan losses 1,200 210 - 1,410
Noninterest income 10,269 3,347 - 13,616
Noninterest expense 49,277 16,606 4,544 (3) 70,427
------------- ------------ ------------ ------------
Income before provision for income taxes 11,042 9,909 (6,240) 14,711
Provision for income taxes 3,659 2,446 (2,184) (4) 3,921
------------- ------------ ------------ ------------
Net income $ 7,383 $ 7,463 $ (4,056) $ 10,790
============= ============ ============ ============
Earnings per share-diluted $ 1.04
============
Weighted average shares outstanding-
diluted (5) 10,364,640
============
The accompanying notes are an integral part of this unaudited pro forma
condensed financial statement.
41
Connecticut Bancshares, Inc. and Subsidiary
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Nine Months Ended September 30, 2001
(In thousands, except per share amount)
Historical
Historical First Federal Pro Forma
Connecticut Savings and Connecticut
Bancshares, Loan Assoc. Bancshares,
Inc. and of East Pro Forma Inc. and
Subsidiary Hartford Adjustments Subsidiary
---------------- --------------- --------------- ---------------
Interest income $ 79,622 $ 46,574 $ (957) (1) $ 125,239
Interest expense 35,010 36,493 (123) (2) 71,380
----------- ------------ -------- -----------
Net interest income 44,612 10,081 (834) 53,859
Provision for loan losses 1,625 - - 1,625
Noninterest income 5,007 5,447 - 10,454
Noninterest expense 36,238 22,803 (8,937) (3) 50,104
----------- ------------ -------- -----------
Income (loss) before provision
for (benefit from) income taxes 11,756 (7,275) 8,103 12,584
Provision for (benefit from) income taxes 3,983 (2,412) 2,836 (4) 4,407
----------- ------------ -------- -----------
Net income (loss) $ 7,773 $ (4,863) $ 5,267 $ 8,177
=========== ============ ======== ===========
Earnings per share-diluted $ 0.76
===========
Weighted average shares outstanding-
diluted 10,705,598
===========
The accompanying notes are an integral part of this unaudited pro forma
condensed financial statement.
42
Connecticut Bancshares, Inc. and Subsidiary
Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations
(Unaudited)
1. Acquisition and Basis of Presentation
On August 31, 2001, The Savings Bank of Manchester (the "Bank) a wholly-owned
subsidiary of Connecticut Bancshares, Inc. ("CTBS"), (collectively, the
"Company") acquired First Federal Savings and Loan Association of East Hartford
("First Federal"). The Bank acquired all of the outstanding common stock of
First Federal for cash of $106.75 million, excluding transaction costs. As of
September 30, 2001, $10.53 million had yet to be paid to First Federal
shareholders and is included in other liabilities of the Company. The Bank
expects the remaining amount to be paid during the fourth quarter of 2001. The
purchase was funded primarily with proceeds from Advances from Federal Home Loan
Bank prior to the acquisition. Immediately after the completion of the
acquisition, First Federal was merged into the Bank.
The acquisition was accounted for as a purchase and the purchase price
was allocated based on the estimated fair market values of the assets
and liabilities acquired. The preliminary allocation of the purchase
price is as follows (in thousands):
Cash and cash equivalents $ 91,826
Investment securities 612,493
Loans 282,481
FHLB stock 19,283
Cash surrender value life insurance 20,364
Goodwill 19,970
Core deposit intangible 8,846
Noncompete agreement intangible 3,548
Other assets 8,413
Deposits (635,123)
FHLB Advances (316,547)
Other liabilities (8,808)
-------------
Total purchase price $ 106,746
=============
In accordance with Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets", goodwill will not be amortized but will
be subject to an annual fair value based impairment test.
The pro forma information presented is theoretical in nature and not necessarily
indicative of future consolidated results of operations of the Company or the
consolidated results of operations which would have resulted had the Company
acquired the stock of First Federal during the periods presented. The unaudited
pro forma condensed consolidated financial statements reflect the effects of the
First Federal acquisition, assuming that the acquisition occurred as of the
beginning of the period for the statement of operations for the year ended
December 31, 2000 and for the nine months ended September 30, 2001. The
results of First Federal are included in the historical results of the Company
subsequent to August 31, 2001.
43
The historical Company and First Federal financial information included in the
accompanying unaudited pro forma condensed consolidated statements of operations
was derived from the audited financial statements of the Company and First
Federal for the year ended December 31, 2000 and from the unaudited interim
financial statements of the Company for the nine months ended September 30, 2001
and of First Federal for the eight months ended August 31, 2001.
In accordance with SEC Regulation S-X, an unaudited pro forma condensed balance
sheet is omitted because the First Federal acquisition is already reflected in
the Company's unaudited consolidated balance sheet as of September 30, 2001,
which is contained in the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2001, filed on November 12, 2001.
2. Pro Forma Adjustments
Pro forma adjustments include the following (in thousands):
(1) Reduction in interest income as a result of amortization of fair value
adjustment on loans. The original amount of the fair value adjustment on
loans was $4,699.
(2) Change in interest expense as a result of amortization of fair value
adjustment on deposits and Advances from Federal Home Loan Bank of $6,450
for the year ended December 31, 2000 and $4,635 for the nine months ended
September 30, 2001 offset by additional interest expense on funds used to
finance the acquisition of $6,768 for the year ended December 31, 2000 and
$4,512 for the nine months ended September 30, 2001. The original amount of
the fair value adjustment was $3,859 for deposits and $9,471 for Advances
from Federal Home Loan Bank.
(3) Record (i) amortization of $1,106 for the year ended December 31, 2000 and
$737 for the nine months ended September 30, 2001 related to a core deposit
intangible (asset of $8,846 amortized over estimated life of 8 years), (ii)
amortization of $3,548 for the year ended December 31, 2000 and $2,365 for
the nine months ended September 30, 2001 related to noncompete agreements
(intangible asset of $3,548 amortized over life of noncompete agreements of
one year) and (iii) reduction in depreciation of $110 for the year ended
December 31, 2000 and $73 for the nine months ended September 30, 2001 as a
result of reduction in carrying value of property and equipment based on an
independent appraisal of certain fixed assets and eliminates (i)
acquisition expenses recorded by First Federal in the first eight months of
2001 of $11,199 and (ii) branch closing costs of $767 recorded by the Bank
in the third quarter of 2001 as a result of the acquisition which amounts
are included in the historical amounts for First Federal and the Company,
respectively.
(4) Record tax effect of above adjustments.
(5) CTBS, a Delaware corporation, was organized in October 1999 for the purpose
of becoming the holding company for the Bank, upon the conversion of the
Bank's former parent mutual holding company, Connecticut Bankshares, M.H.C.
("MHC") from a mutual to stock form of organization (the "Conversion"). The
Conversion was completed on March 1, 2000. The pro forma weighted average
shares outstanding-diluted are based on 10,333,440 (actual shares issued
less unearned ESOP shares at conversion date) pro forma shares for the
period prior to conversion (January 1, 2000 to March 1, 2000) and the
actual weighted average diluted shares for the ten months ending December
31, 2000.
44
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONNECTICUT BANCSHARES, INC.
Dated: November 14, 2001 By: /s/ Richard P. Meduski
----------------------
Richard P. Meduski
President and Chief Executive Officer
(principal executive officer)
Dated: November 14, 2001 By: /s/ Michael J. Hartl
--------------------
Michael J. Hartl
Senior Vice President and Chief Financial
Officer (principal financial and accounting
officer)
45