Item 1 Business - --------------------------------------------------------------------------------
General Westport Bancorp, Inc. ("Bancorp") was organized in 1983 as a Delaware corporation for the purpose of becoming the holding company of The Westport Bank & Trust Company (the "Bank") (collectively, the "Company"), a Connecticut-chartered bank and trust company headquartered in Westport, Connecticut, the deposit accounts of which are insured by the Bank Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC"). Bancorp is regulated and examined by the Federal Reserve Board. The Bank is regulated by the FDIC and the Banking Commissioner of the State of Connecticut (the "Commissioner").
Bancorp's principal asset is all of the capital stock of the Bank and Bancorp's principal business is the business of the Bank. Bancorp is a separate legal entity from the Bank; the principal sources of its revenues on an unconsolidated basis are interest and other income received from its investments, including dividends from the Bank.
The Bank was originally chartered in 1852. Bancorp acquired the Bank on October 9, 1984.
The principal business of the Bank is to provide a broad range of corporate and individual banking products and services, including commercial banking, residential mortgage origination, commercial lending, commercial real estate lending, retail banking and trust services to individuals, and small to medium size businesses. The Bank's operations are conducted from its home office in Westport, Connecticut and from branch offices located in the mid-Fairfield County, Connecticut communities of Weston, Fairfield, Redding/Georgetown, Greens Farms and Saugatuck. In addition, the Bank's operations center is located in Shelton, Connecticut.
Principal Market Area The Bank's branch office network currently consists of six banking offices, including its main office. The towns in the Bank's market area, which consists principally of Fairfield County, Connecticut, are primarily bedroom communities of New York City, although Stamford, Bridgeport and Norwalk are commercial centers. Two major highways (Interstate 95 and the Merritt Parkway) traverse the area and a number of regional airports are located within Fairfield County. Those towns bordering I-95 have had substantial commercial office development, particularly near the major highway intersections. This market is also accessible by railway.
Lending Activities The Bank's principal lending activities include the origination of conventional and construction mortgage loans on residential, one-to-four family real properties, as well as commercial and real estate loans to businesses. The Bank also provides consumer loans, which include home equity credit lines, installment loans (such as home improvement, automobile and personal loans) and checking account related loans. See Item 6 of this Form 10-K.
Residential Mortgage Loans. While the Bank is authorized to make loans secured by real estate located either within or outside the State of Connecticut, its past and present policy is to concentrate on loans secured by properties located within Connecticut, particularly in Fairfield County. Less than 2% of the Bank's total residential real estate loan portfolio at December 31, 1995 represented loans on properties located outside the State of Connecticut.
The Bank currently offers adjustable and fixed rate mortgages, the majority of which are originated to conform with the existing criteria for sale in the secondary mortgage market. Points are generally charged on residential mortgage loans. Interest rate adjustments on adjustable rate loans are generally determined by reference to rates on one-year Treasury obligations published by the Federal Reserve Board.
Commercial Mortgage Loans. The Bank's commercial mortgage investments consist of loans made on commercial property and multi-family homes (more than four units). In general, the Bank lends up to 75% of the appraised value of a commercial property. Status reports on all commercial mortgage loans are reviewed by the Bank's Management Loan Committee and Directors' Loan Committee on a regular basis. Given the general economic downturn and the dramatic decline since the late 1980's in real estate values in New England, and in Connecticut in particular, real estate development and construction within the Bank's market area has dramatically declined over the past several years. During 1995 and 1994, this trend showed signs of stabilizing and the Bank experienced some increased demand for commercial mortgage loans.
Commercial Loans. The Bank has been engaged in commercial lending activity for more than fifty years. Term loans to finance machinery, equipment or vehicle purchases, short term loans for working capital needs, revolving credit supported by accounts receivable and/or inventory, and lines of credit are representative of these types of loans in the Bank's portfolio. These loans are generally secured by collateral other than real property; less than 11% of the Bank's commercial loan portfolio at December 31, 1995 was unsecured.
Home Equity Loans. Home equity loans consist of lines of credit, which are collateralized by first or second mortgages on residential one-to-four family real properties.
Consumer Loans. Consumer loans consist primarily of installment loans, which include home improvement loans, automobile loans, personal loans and checking account overdraft protection related loans.
FDIC Loans. In the fourth quarter of 1992, the Bank purchased $18.8 million in performing commercial business loans from the FDIC, of which $12.6 million consisted of loans to businesses located in the Bank's primary market area of Fairfield County, with $6.2 million in the area immediately surrounding Westport. The loans were acquired at par value; the purchase
was funded from existing liquidity. The purchase agreement contained a three year provision (the "put"), which ended on December 7, 1995, that required the FDIC to repurchase any loans that became nonperforming, at a previously negotiated price plus sixty days of accrued interest. Losses resulting from repurchases during the three year period have been minimal due to the loans' performing status. At December 7, 1995, the outstanding balance of these loans retained by the Bank was $4.3 million.
Interest Rates. Interest rates charged on loans are primarily determined by the Bank's cost of funds, comparable investment alternatives available to the Bank and competitive conditions.
Loan Commitments. Commitments to extend commercial lines of credit and to make mortgage loans on residential and commercial real property are made for periods of up to 60 days from the date of commitment. Commitments on residential transactions are generally made at the market interest rate prevailing at the time the commitment is made to the customer. Commitments on commercial transactions are generally made at the market interest rate in effect on or immediately prior to the date of closing.
Deposits and Other Sources of Funds Deposits have traditionally been the Bank's major source of funds for investments and lending and are expected to continue to be in the foreseeable future. The Bank also derives funds from scheduled loan principal payments, the sale of residential mortgage loans in the secondary market, loan prepayments, the sale or maturity of investment securities, interest income and fee income. Other sources of funds include the sale of investment securities to securities firms and correspondent banks under repurchase agreements, unsecured lines of credit with correspondent banks and secured lines of credit with the Federal Home Loan Bank. See Item 6 of this Form 10-K.
Deposits. The Bank offers a wide range of retail and commercial deposit accounts designed to attract both short and long-term funds. It has been the Bank's policy to offer a variety of rates and types of deposit accounts to meet its customers' requirements. Demand deposits, certificates of deposit, regular savings, money market deposits and NOW checking accounts have been the primary source of deposit funds. Certificates of deposit currently offered by the Bank have maturities which range from seven days to five years.
The Bank encounters competition for deposits from other community banks, the branch offices of larger commercial banks and thrift institutions. The Bank also competes for interest-bearing funds with securities firms, mutual funds and issuers of commercial paper and other securities. Bank management anticipates that competition for deposits in the Bank's market area will continue to increase in the foreseeable future due to competition from securities firms, mutual funds, and as other banks enter the Bank's market area as a result of changes in the interstate banking law.
Trust Operations At December 31, 1995, the Bank's Trust department held, for the account of others, assets under trust management and in custodial accounts having a market value of $548.5 million. As allowed by state law, the Bank acts as executor and administrator of decedents' estates, as trustee of inter-vivos and testamentary trusts, as guardian and conservator of estates of minors and incapable persons, as custodian of funds, as investment advisor and as trustee of employee benefit plans. From its trust and related activities, the Bank generates substantial fee income. In the trust business, the Bank competes with commercial banks, located both in and out of state, and with individuals and entities appointed to act under testamentary and other instruments as fiduciaries, investment managers and financial advisors. See Item 6 of this Form 10-K.
Employees At December 31, 1995, the Bank had a total of 133 employees, 105 on a full-time basis and 28 on a part-time basis. Management considers the Bank's relations with its employees to be good. The Bank's employees are not represented by any collective bargaining group.
Competition Competition in the financial services industry in the Bank's market area is strong. Numerous commercial banks, savings banks and thrift institutions maintain home offices in the area and banks headquartered elsewhere maintain offices in the area. Commercial banks, savings banks, thrift institutions, mutual funds, mortgage brokers, finance companies, credit unions, insurance companies, securities firms and private lenders compete with the Bank for deposits, loans and employees. Many of these competitors have far greater resources than the Bank does and are able to conduct more intensive and broader based promotional efforts to reach both commercial and individual customers.
Changes in the financial services industry resulting from fluctuating interest rates, technological changes and deregulation have resulted in increased competition, merger activity, failures among banking institutions and customer awareness of product and service differences among competitors.
Regulation and Supervision As a Connecticut-chartered state bank whose deposits are insured by the FDIC, the Bank is subject to extensive regulation and supervision by both the Commissioner and the FDIC. The Bank is also subject to various Federal Reserve Board regulatory requirements applicable to FDIC insured financial institutions. As a bank holding company, Bancorp is regulated by the Federal Reserve Board. Such governmental regulation is intended to protect depositors, not stockholders.
Connecticut Regulation. As a state-chartered capital stock bank, the Bank is subject to the applicable provisions of Connecticut law and the regulations adopted thereunder by the Commissioner. The Commissioner administers Connecticut banking laws, which contain comprehensive provisions for the regulation of banks. The Bank derives its lending and investment powers from these laws, and is subject to periodic examination by, and reporting to, the Commissioner.
Connecticut bank and trust companies are empowered by statute, subject to limitations expressed therein, to accept savings and time deposits, to offer checking accounts, to pay interest on such deposits and accounts, to make loans on residential and other real estate, to make consumer and commercial loans, to invest, with certain limitations, in equity securities and debt obligations of banks and corporations, to issue credit cards, and to offer various other banking services to their customers. Connecticut banking laws grant banks broad lending authority. Such authority is limited, however, to the extent that a bank's loans to any one obligor may not exceed 25%, if fully secured, and 15%, if not fully secured, of the total of a bank's equity capital and loan loss reserves.
The Connecticut Interstate Banking Act permits Connecticut banks and bank holding companies, with the approval of the Commissioner, to engage in stock acquisitions of banks and bank holding companies in other states with reciprocal legislation. Many states have such legislation. Before the Interstate Banking Act was adopted in March 1990, Connecticut banks and bank holding companies were allowed to engage in stock acquisitions with banks and bank holding companies in other New England states with reciprocal legislation, all of which have such legislation. See "Recent Developments" for a discussion of recent changes to the regulations relating to interstate banking and branching.
Several interstate mergers involving large Connecticut banks with offices in the Bank's service area and banks headquartered out-of-state have been completed during recent years, resulting in increased competition for the Bank. A New York based institution acquired two failed institutions from the FDIC in the Bank's market area in 1991 and a New Jersey based institution acquired another bank, headquartered in the Bank's principal market, in 1993. During 1995 and early 1996, two of the largest commercial banks in the Bank's market area completed their merger, while numerous smaller institutions were acquired by larger in-state and out-of-state financial institutions.
The Bank is prohibited by Connecticut banking law from paying dividends except from its net profits, which are defined as the remainder of all earnings from current operations. The total of all dividends declared by the Bank in any calendar year may not, unless specifically approved by the Commissioner, exceed the total of its net profits for that year combined with its retained net profits from the preceding two years. These dividend limitations can affect the amount of dividends payable to Bancorp as the sole stockholder of the Bank, and therefore affect Bancorp's payment of dividends to its stockholders. During 1995, Bancorp resumed the payment of dividends after all regulatory restrictions were removed.
Under Connecticut banking law, no person may acquire the beneficial ownership of more than 10% of any class of voting securities of a bank chartered by the State of Connecticut or having its principal office in Connecticut or a bank holding company thereof, unless the Commissioner approves such acquisition.
Any state-chartered bank meeting statutory requirements may, with the approval of the Commissioner, establish and operate branches in any town or towns within the state.
During January 1996, representatives of the Commissioner completed a routine examination of the Bank as of October 30, 1995. Other than minor suggestions for improvements, there were no significant examination findings which are believed to have potentially negative implications for the Bank.
FDIC Regulation. The deposit accounts of the Bank are insured by the Bank Insurance Fund of the FDIC to a maximum of $100,000 for each insured depositor. As an insured bank, the Bank is subject to supervision and examination by the FDIC and to FDIC regulations regarding many aspects of its business, including types of deposit instruments offered, permissible methods for acquisition of funds, and activities of subsidiaries and affiliates. The FDIC periodically examines insured institutions.
In December 1991, the Federal Deposit Insurance Act ("FDIA") was amended with the enactment of the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). Provisions of FDIA, as amended, which may have a material effect on the Bank and Bancorp include, among others, the following:
1. FDIA classifies banks in one of five categories according to capital levels. With respect to banks not meeting prescribed minimum capital levels, and depending on the extent to which a bank is undercapitalized, federal bank regulators may be required, in certain cases, to take corrective actions against the bank, including requiring an acceptable capital restoration plan or placing a bank into conservatorship or receivership. In addition, undercapitalized banks may be subject to certain restrictions on their activities and operations, including restrictions on asset growth, rates of interest paid on deposits, transactions with affiliates, engaging in material transactions not in the ordinary course of business, and other activities. See "Prompt Corrective Action" below.
2. FDIA makes it more difficult for undercapitalized banks to borrow funds from the Federal Reserve's "discount window", thus possibly limiting or eliminating a source of liquidity for a bank. The Bank is approved to borrow funds from the "discount window".
3. FDIA can result in higher deposit insurance premiums for banks under a "risk-based" premium determination, with possible negative effects on a bank's operating results and financial condition.
4. FDIA limits, with certain exceptions, the ability of banks to engage in activities or make equity investments that are not permissible for national banks.
In addition, the FDIC has issued regulations providing for capital guidelines based upon the ratio of a bank's capital to total assets adjusted for risk. Under such regulations, a bank's risk-based capital ratio is calculated by dividing its qualifying total capital base by its risk-weighted assets. Banks are expected to meet a minimum Tier 1 capital to risk-weighted asset ratio of 4.00% and a total capital to risk-weighted asset ratio of 8.00%. At December 31, 1995, Bancorp's Tier 1 capital to risk-weighted asset ratio was 12.77%, and its total capital to risk-weighted asset ratio was 14.02%, well above the minimum requirements. There are no significant differences between Bancorp's and the Bank's capital ratios at December 31, 1995.
Prompt Corrective Action. Pursuant to the FDIA, the federal banking agencies established for each capital measure levels at which an insured institution is deemed to be well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Federal banking agencies are required to take prompt corrective action with respect to insured institutions that fall below minimum capital standards. The degree of required regulatory intervention for institutions that are not at least adequately capitalized is tied to an insured institution's capital category, with increasing scrutiny and more stringent restrictions, including the appointment of a receiver, being imposed as an institution's capital declines. An insured institution that falls below the minimum capital standards must submit a capital restoration plan and could be subject to operating restrictions.
The prompt corrective action regulations are generally based upon an institution's capital ratios. Under the prompt corrective action regulation adopted by the FDIC, a bank will be considered to be (i) "well-capitalized" if the institution has a total risk-based capital ratio of 10% or greater, a Tier 1 or core capital to risk-weighted assets ratio of 6% or greater, and a leverage ratio of 5% or greater (provided that the institution is not subject to an order, written agreement, capital directive or prompt corrective action directive to meet and maintain a specific capital level for any capital measure); (ii) "adequately capitalized" if the institution has a total risk-based capital ratio of 8% or greater, a Tier 1 or core capital to risk-weighted assets ratio of 4% or greater, and a leverage ratio of 4% or greater (3% or greater if the institution is rated composite 1 under the CAMEL rating system in its most recent report of examination); (iii) "undercapitalized" if the institution has a total risk-based capital ratio that is less than 8%, a Tier 1 or core capital to risk-weighted assets ratio of less than 4%, or a leverage ratio that is less than 4% (3% if the institution is rated composite 1 under the CAMEL rating system in its most recent report of examination); (iv) "significantly undercapitalized" if the institution has a total risk-based capital ratio that is less than 6%, a Tier 1 or core capital to risk-weighted assets ratio that is less than 3%, or a leverage ratio that is less than 3%; and (v) "critically undercapitalized" if the institution has a ratio of tangible equity to total assets that is less than or equal to 2%. The prompt corrective action regulations also permit the FDIC to determine that a bank institution should be classified in a lower category based on other information, such as the institution's examination report, after written notice. Under the FDIC's prompt corrective action regulations, at December 31, 1995, the Bank was classified as well-capitalized based on its capital ratios.
An institution that is not well-capitalized is prohibited from accepting deposits through a deposit broker. However, an adequately capitalized institution can apply for a waiver to accept brokered deposits. Institutions that receive a waiver are subject to limits on the rates of interest they may pay on brokered deposits. Undercapitalized institutions are prohibited from offering rates of interest on insured deposits that significantly exceed the prevailing rate in their normal market area or the area in which the deposits would otherwise be accepted. Institutions classified as undercapitalized are precluded from increasing their assets, acquiring other institutions, establishing additional branches, or engaging in new lines of business without an approved capital plan and an agency determination that such actions are consistent with the plan. Institutions that are significantly undercapitalized may be required to take one or more of the following actions: (i) raise additional capital so that the institution will be adequately capitalized; (ii) be acquired by, or combined with, another institution if grounds exist for appointing a receiver; (iii) refrain from affiliate transactions; (iv) limit the amount of interest paid on deposits to the prevailing rates of interest in the region where the institution is located; (v) further restrict asset growth; (vi) hold a new election for directors, dismiss any director or senior executive
officer who held office for more than 180 days immediately before the institution became undercapitalized, or employ qualified senior executive officers; (vii) stop accepting deposits from correspondent depository institutions; and (viii) divest or liquidate any subsidiary that the FDIC determines is a significant risk to the institution. Critically undercapitalized institutions are subject to additional restrictions.
Any company that controls an "undercapitalized" institution, must guarantee that the institution will comply with the plan and provide appropriate assurances of performance in connection with the submission of a capital restoration plan by the depository institution. The aggregate liability of any such controlling company under such guaranty is limited to the lesser of (i) 5% of the institution's assets at the time it became undercapitalized; or (ii) the amount necessary to bring the institution into capital compliance at the time the institution fails to comply with the terms of its capital plan. If the Bank were to become "undercapitalized", Bancorp would be required to guarantee performance of any capital restoration plan submitted as a condition to FDIC approval of that plan pursuant to the FDIA.
Safety and Soundness Guidelines. The federal banking agencies have prescribed safety and soundness guidelines relating to (i) internal controls, information systems, and internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate exposure; (v) asset growth; and (vi) compensation and benefit standards for officers, directors, employees and principal shareholders. Such guidelines impose standards based upon an institution's asset quality and earnings. The guidelines are intended to set out standards that the agencies will use to identify and address problems at institutions before capital becomes impaired. Institutions are required to establish and maintain a system to identify problem assets and prevent deterioration of those assets in a manner commensurate with its size and the nature and scope of their operations. Furthermore, institutions must establish and maintain a system to evaluate and monitor earnings and ensure that earnings are sufficient to maintain adequate capital and reserves in a manner commensurate with their size and the nature and scope of its operation.
Under the guidelines, an institution not meeting one or more of the safety and soundness guidelines is required to file a compliance plan with the appropriate federal banking agency. In the event that an institution, such as the Bank, were to fail to submit an acceptable compliance plan or fail in any material respect to implement an accepted compliance plan within the time allowed by the agency, the institution would be required to correct the deficiency and the appropriate federal agency would be authorized to: (1) restrict asset growth; (2) require the institution to increase its ratio of tangible equity to assets; (3) restrict the rates of interest that the institution may pay; or (4) take any other action that would better carry out the purpose of the corrective action. The Bank was in compliance with all such guidelines as of December 31, 1995.
Community Reinvestment Act. Under the Community Reinvestment Act (the "CRA") and the implementing FDIC regulations, which were amended in 1995 to provide for a performance-based evaluation system, the Bank has a continuing and affirmative obligation to help meet the credit needs of its local communities, including low and moderate-income neighborhoods, consistent with the safe and sound operation of the Bank. The CRA requires that the Board of Directors of the Bank adopt a CRA statement for each assessment area that, among other things, describes its efforts to help meet community credit needs and the specific types of credit that the institution is willing to extend. The FDIC and the Federal Reserve Board are required to take
into account the Bank's record of meeting the credit needs of its community in determining whether to grant approval for certain types of applications including mergers and acquisitions.
Under CRA, the federal banking agencies established the following ratings: (i) "outstanding" - an institution in this group has an outstanding record of, and is a leader in, ascertaining and helping to meet the credit needs of its entire delineated community, including low and moderate income neighborhoods, in a manner consistent with its resources and capabilities, (ii) "satisfactory" - an institution has a satisfactory record of ascertaining and helping to meet the credit needs of its entire delineated community including low and moderate income neighborhoods, in a manner consistent with its resources, (iii) "needs to improve" - an institution in this group needs to improve its overall record of ascertaining and helping to meet the credit needs of its entire delineated community, including low and moderate income neighborhoods, in a manner consistent with its resources, and (iv) "substantial noncompliance" - an institution in this group has a substantially deficient record of ascertaining and helping to meet the credit needs of its entire delineated community, including low and moderate income neighborhoods, in a manner consistent with its resources and capabilities. The Bank's current CRA rating is satisfactory.
Federal Reserve System. Pursuant to the Depository Institutions Deregulation and Monetary Control Act of 1980 (the "Deregulation Act"), the Federal Reserve Board adopted regulations that require the Bank to maintain reserves against its transaction accounts and non-personal time deposits. At December 31, 1995, these regulations generally require that reserves of 3% be maintained for aggregate transaction accounts of up to $52.0 million and that reserves of 10% be maintained against the portion of transaction accounts in excess of that amount.
The Deregulation Act also gives the Bank authority to borrow from the Federal Reserve Bank's "discount window".
The Federal Reserve Board has established capital adequacy guidelines for bank holding companies that are similar to those required by the FDICIA. Bank holding companies are currently required to comply with the FDICIA's risk-based capital and minimum leverage capital requirements.
Bancorp is subject to regulation by the Federal Reserve Board as a registered bank holding company. The Bank Holding Company Act of 1956, as amended (the "BHCA"), under which Bancorp is registered, limits the types of companies which Bancorp may acquire or organize and the activities in which it or they may engage. In general, Bancorp and its subsidiaries are prohibited from engaging in, or acquiring direct control of any company engaged in, non-banking activities unless such activities are so closely related to banking or managing or controlling banks as to be a proper incident thereto. At this time, Bancorp has not determined which, if any, of these or other permissible non-banking activities it might seek to engage in.
Under BHCA, Bancorp is required to obtain the prior approval from the Federal Reserve Board to acquire, with certain exceptions, more than 5% of the outstanding voting stock of any bank or bank holding company, to acquire all or substantially all of the assets of a bank or to merge or consolidate with another bank holding company.
Under BHCA, Bancorp and the Bank and any other subsidiaries are prohibited from engaging in certain tying arrangements among Bancorp and its subsidiaries relating to any extension of
credit or provision of any property or services to third parties. The Federal Reserve Board relaxed some of these restrictions in 1994. The Bank is also subject to certain restrictions imposed by the Federal Reserve Board on extending credit to Bancorp or any of its subsidiaries, or on making investments in the stock or securities thereof, and on taking such stock or securities as collateral for loans to any borrower.
Bancorp is required under BHCA to file annually with the Federal Reserve Board a report on its operations. Bancorp and the Bank and any other subsidiaries are subject to examination by the Federal Reserve Board.
Pursuant to the Change in Bank Control Act of 1978, as amended, any person must give 60 days notice to the Federal Reserve Board prior to acquiring control of a bank holding company such as Bancorp. Control is defined as ownership of 25% of any class of voting stock of a bank holding company, or the power to direct the management or policies of the bank holding company. Control is presumed upon ownership of 10% or more of any class of voting stock if (i) the bank holding company's shares are registered pursuant to Section 12 of the Securities Exchange Act of 1934 as amended (as are Bancorp's shares of Common Stock), or (ii) the acquiring party would be the largest stockholder of the class of voting stock of the bank holding company. The statute and underlying regulations authorize the Federal Reserve Board to disapprove a proposed transaction on certain specified grounds.
In addition to the Change in Bank Control Act, prior approval by the Federal Reserve Board is required under the BHCA for any "company" to become a bank holding company and to become subject to regulation as such by the Federal Reserve Board. A company may become a bank holding company with Federal Reserve Board approval if the company controls a bank or a bank holding company. A "company" includes certain trusts, partnerships, corporations and other business entities, but does not include individuals. For purposes of BHCA, control is defined as (i) ownership, control or the power to vote 25% or more of any class of voting securities of a bank or a bank holding company; (ii) control in any manner of the election of a majority of the directors of a bank or a bank holding company; or (iii) direct or indirect exercise of a controlling influence over the management or policies of a bank or a bank holding company, as determined by the Federal Reserve Board. A company that is required to obtain prior approval under BHCA to become a bank holding company is exempt from the prior approval requirement of the Change in Bank Control Act.
Recent Developments. In 1994, Congress enacted the Riegle-Neal Interstate Banking and Branching Efficiency Act, which will remove restrictions on interstate branching and interstate bank acquisitions. In connection with the Riegle-Neal Act, the State of Connecticut has enacted legislation that permits merger transactions between a Connecticut and an out-of-state bank beginning on September 25, 1995. Moreover, restrictions on interstate branching will be removed effective on January 1, 1997.
Item 2

Item 2 Properties - --------------------------------------------------------------------------------
Bancorp does not directly own or lease any real property. It uses the premises and equipment of the Bank, without payment of rental fees to the Bank. The table below sets forth certain information relating to the Bank's properties:
Item 3

Item 3 Legal Proceedings - --------------------------------------------------------------------------------
There are no material pending legal proceedings, other than ordinary routine litigation incidental to their business, to which Bancorp or the Bank is a party or to which any of their property is subject.
Item 4

Item 4 Submission of Matters to a Vote of Security Holders - --------------------------------------------------------------------------------
No matter was submitted to a vote of Bancorp's security holders during the fourth quarter of 1995.
PART II Item 5

Item 5 Market For Bancorp's Common Equity and Related Stockholder Matters - --------------------------------------------------------------------------------
Bancorp's Common Stock trades on the NASDAQ National Market tier of The NASDAQ Stock Market under the symbol "WBAT". The following table sets forth the high and low bid prices of the Common Stock as reported by NASDAQ for the periods indicated. At December 31, 1995, the Company had approximately 658 stockholders of record and 5,433,665 outstanding shares of Common Stock. The 658 estimated stockholders does not reflect the number of persons or entities who hold their stock in nominee or "street" name through various brokerage firms.
Price Range ---------------- Dividends Dividends Fiscal Year High Low Declared Paid (1) - -------------------------------------------------------------------------------
1995 First Quarter $ 5 $ 2 7/8 --- --- Second Quarter 6 4 $.02 $.02 Third Quarter 5 3/4 4 1/2 $.02 $.02 Fourth Quarter 7 4 3/4 $.05 $.025
1994 First Quarter $ 3 1/2 $ 2 1/2 --- --- Second Quarter 3 1/4 2 1/4 --- --- Third Quarter 3 1/2 2 1/4 --- --- Fourth Quarter 3 1/2 2 3/4 --- ---
(1) See Item 1 "Regulation and Supervision -- Connecticut Regulation" and Item 7 "Liquidity" for discussion regarding restriction on payment of dividends.
Item 6

Item 6 Selected Consolidated Financial Data - --------------------------------------------------------------------------------
The selected consolidated financial information of the Company set forth below has been derived from the Company's audited consolidated financial statements for such periods. This selected financial information should be read in conjunction with the Company's consolidated financial statements and related notes included elsewhere herein. Certain prior year amounts have been reclassified to conform with the 1995 presentation.
Item 7

Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations - --------------------------------------------------------------------------------
Overview The following is a discussion and analysis of the Company's financial condition at the end of 1995 and 1994 and of the results of its operations for the last three years. This section should be read in conjunction with the consolidated financial statements included in Item 8.

Item 8 Financial Statements and Supplementary Data - --------------------------------------------------------------------------------
See notes to consolidated financial statements.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
WESTPORT BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Summary of Significant Accounting and Reporting Policies
Principles of Consolidation The consolidated financial statements include the accounts of Westport Bancorp, Inc. ("Bancorp") and its subsidiary, The Westport Bank & Trust Company (the "Bank") (collectively, the "Company"). All significant intercompany accounts and transactions have been eliminated.
Basis of Financial Statement Presentation The consolidated financial statements have been prepared in accordance with generally accepted accounting principles within the banking industry.
In preparing the financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statement of condition and the reported amounts of revenues and expenses during the reporting period. Actual future results could differ significantly from these estimates. Estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses and the valuation of real estate acquired through foreclosures or in satisfaction of loans. In determining the allowance for loan losses and the valuation of other real estate owned, independent appraisals are obtained for significant properties collateralizing loans or other real estate owned. Future additions to the allowance for loan losses or write-downs of other real estate owned may be necessary based on changes in economic conditions, particularly in the Bank's service area, Fairfield County, Connecticut. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses and the carrying value of other real estate owned. Such agencies may recommend that the Bank recognize additions to the allowance for loan losses or the reserve for other real estate owned based on their judgments and information available to them at the time of their examinations.
Securities Effective January 1, 1994, the Bank adopted Financial Accounting Standards Board's ("FASB") Statement of Financial Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments in Debt and Equity Securities". SFAS 115 addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. Adoption of SFAS 115 did not have a material effect on the financial statements.
In accordance with SFAS 115, at the time of purchase, investment securities are classified as available for sale if the securities are purchased for asset/liability management and liquidity purposes, or as held to maturity if management has the intent and ability to hold the securities to maturity. However, in the fourth quarter of 1995, the FASB provided companies with a one time opportunity to reclassify securities between the available for sale portfolio and the held to
maturity portfolio. The Company took advantage of this opportunity and reclassified its entire $42,459,000 held to maturity portfolio to the available for sale portfolio. This reclassification resulted in the transfer of $146,000 to the unrealized depreciation on the securities available for sale component of stockholder's equity, before the related tax effect. This reclassification is not reflected in the consolidated statement of cash flows because no cash was involved.
Securities in the available for sale portfolio are carried at fair value, with unrealized gains and losses net of tax, adjusted for the amortization of premiums or accretion of purchase discounts, recorded in a separate component of stockholders' equity. Gains and losses on the sale of securities in the available for sale portfolio are determined by specific identification and are included in operations.
Securities which are classified as held to maturity are stated at cost, adjusted for amortization of premiums or accretion of discounts to the date of maturity or earlier call date or, in the case of mortgage-backed securities, over the estimated life of the security. The Company has the ability and intention to hold these investments until maturity.
If a security held in either the available for sale portfolio or held to maturity portfolio has experienced a decline that is other than temporary, it is written down to estimated fair value through a charge to operations.
Prior to the adoption of SFAS 115 on January 1, 1994, securities available for sale were carried at the lower of aggregate cost or market while securities held to maturity were carried at cost. In both cases, cost was adjusted for the amortization of premiums or accretion of discount.
Loans Effective January 1, 1995, the Bank adopted FASB's Statement of Financial Accounting Standards No. 114 ("SFAS 114"), "Accounting by Creditors for Impairment of a Loan", and Statement of Financial Accounting Standards No. 118 ("SFAS 118"), "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures". SFAS 114 and 118 address the accounting by creditors for impairment of certain loans and the recognition of interest income on these loans and requires that impairment of certain loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or the fair value of collateral. The adoption did not materially affect the Company's consolidated financial statements or the amount of the allowance for loan losses.
Interest income on loans is accrued based on rates applied to principal amounts outstanding and includes loan fees, net of direct origination costs, which are amortized over the term of the loan using the interest method. The accrual of interest is discontinued when: 1) it appears that future collection of interest or principal may be doubtful, or 2) when principal or interest is due and remains unpaid for ninety days or more, unless the loan is both well secured and in the process of collection. At the time a loan is placed on nonaccrual status, interest accrued but not collected is generally reversed. Nonaccrual loans that commence repayment are returned to accrual status only when, in management's opinion, there has been demonstrated performance for a reasonable period and continued timely repayment according to loan terms is reasonably
assured. Restructured loans represent loans formally renegotiated as to maturity, or at interest rates lower than market rates at the time of restructure. To the extent these loans are currently performing and the interest rate remains below market, they are presented as impaired accruing loans and are included in the consolidated financial statements as nonperforming assets.
Allowance for Loan Losses The provision for loan losses is the amount deemed appropriate by management to maintain the allowance for loan losses at a level adequate to absorb probable losses in the loan portfolios. The allowance for loan losses is based on estimates; actual losses may vary from the current estimates. In estimating losses, consideration is given to the performance of the loan, the financial condition of the borrower or guarantor, an analysis of the borrower's cash flow, estimates of the current value of the underlying collateral based on appraisals or recent sale prices (net of costs of disposal), the overall risk characteristics of the Company's portfolios, past credit experience, current economic and real estate market conditions, and other relevant factors. Management monitors these factors and adjustments are reported in earnings in the period in which they become known.
When losses on specific loans are judged by management to be certain, the portion deemed uncollectible is charged to the allowance for loan losses. Subsequent recoveries, if any, are credited to the allowance.
In accordance with SFAS 114 and 118, effective January 1, 1995 the Company revised the method by which the allowance for loan losses is determined for impaired loans. The impact of this change was not material.
Mortgage Banking Activities The Bank originates residential mortgage loans, some of which are held in portfolio and others of which are sold to investors. Loans originated for sale but not yet sold are carried at the lower of cost or market. Origination and commitment fees, net of direct origination costs, relating to sold loans are recognized as a component of the gain on loan sales. The Bank serviced, on behalf of investors, approximately $50.7 million, $41.3 million and $45.9 million of residential mortgage loans at December 31, 1995, 1994 and 1993, respectively.
In May 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 122 ("SFAS 122"), "Accounting for Mortgage Servicing Rights". SFAS 122 addresses the accounting for mortgage servicing rights for purchased as well as originated mortgages by a servicer. Additionally, SFAS 122 requires the capitalization of the fair value of mortgage servicing rights and amortization of these rights in proportion to the net servicing income over the period during which servicing income is expected. The Company adopted SFAS 122 in the fourth quarter of 1995. The adoption of SFAS 122 resulted in the recognition of a servicing asset of $171,000, which amount is included in 1995 loan sale gains on the statement of income.
Other Real Estate Owned Other real estate owned ("OREO") consists of properties acquired through foreclosure. OREO properties are recorded at the lower of cost or fair value, less estimated disposal costs, at the date transferred to OREO. Losses arising at the time of transfer to OREO are charged against the allowance for loan losses. Subsequent write-downs of the carrying value of these properties may be required to reflect the properties at the lower of cost (market value at the date of transfer to OREO) or market value and are charged to operations. Realized gains and losses from the sale of OREO are also included in operations. Transfers of loans to OREO of $450,000 and $524,000 in 1994 and 1993, respectively, are not reflected in the consolidated statement of cash flows because no cash was involved in these transfers. No loans were transferred to OREO during 1995. The 1994 transfer of an OREO property, valued at $1,349,000, to bank-owned premises is also not reflected in the consolidated statement of cash flows because no cash was involved in the transfer.
Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed principally on the straight-line method over the estimated useful life of each type of asset, ranging from 3 to 30 years, or the lease term, if shorter.
Income Taxes In January 1993, the Company adopted Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes". The adoption of SFAS 109 changed the Company's method of accounting for income taxes from the deferred method (APB Opinion No. 11) to an asset and liability approach. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities. Adoption of SFAS 109 had no effect on the Company's consolidated financial statements due to the tax position of the Company at that time.
Earnings Per Share Primary and fully diluted earnings per share were computed by dividing earnings (adjusted, if applicable) by the weighted average number of common shares and common share equivalents outstanding. For primary earnings per share, common share equivalents are computed using the average closing price of the Company's common stock for the period. For fully diluted earnings per share, common share equivalents are computed using the closing price of the Company's common stock at the end of the period. Fully diluted earnings per share were not applicable in 1994 and 1993.
For the year ended December 31, 1995 and 1994, the computation includes 4,706,250 and 3,148,913 weighted average common shares outstanding and 1,483,337 and 2,787,921 weighted average common equivalent shares, (fully diluted for 1995), respectively, computed under the treasury stock method. The earnings per share computations also include 4,279,712 and 4,445,000 weighted average common shares in 1995 and 1994, respectively, issuable upon the adjusted conversion of preferred stock. Adjusted earnings consist of net income and the interest effect of the assumed reduction in short-term borrowings, computed under the treasury stock method.
Other For purposes of presenting the consolidated statements of cash flows, cash equivalents include due from banks, interest-bearing deposits with banks and Federal funds sold, all of which have original maturities of three months or less.
Trust income is recorded on an accrual basis. Assets held in a fiduciary or agency capacity for customers are not included in the consolidated statements of condition since such items are not assets of the Bank.
Certain amounts from prior years have been reclassified to conform with the 1995 presentation.
Note 2 Regulatory Matters
The Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) require bank holding companies and banks, respectively, to comply with capital guidelines based upon the ratio of capital to total assets adjusted for risk.
The following summarizes the minimum capital requirements and Bancorp's capital position (there are no significant differences between the Bank's and Bancorp's capital ratios) at December 31, 1995.
Regulatory Bancorp Minimum - -------------------------------------------------------------------------------- ($ in thousands)
Tier 1 leverage ratio 8.18% 3.00%(1) Tier 1 leverage capital $23,903 $8,766
Tier 1 risk-based ratio 12.77% 4.00% Tier 1 risk-based capital $23,903 $7,487
Total risk-based ratio 14.02% 8.00% Total risk-based capital $26,249 $14,973
Risk-weighted assets $187,167 ---
(1) An additional 1% to 2% and the corresponding additional capital is required for all but the most highly rated institutions.
The Federal Deposit Insurance Act ("FDIA"), as amended by the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), classifies banks in one of five categories according to capital levels. At December 31, 1995, the Company was "well capitalized" under FDIA, as amended, based upon the above capital ratios. Deterioration of economic conditions and real estate values could adversely affect future results, leading to increased levels of loan charge-offs, provision for loan losses and nonaccrual loans, affecting the ability of the Company to maintain the well capitalized classification, and resulting in reductions in income and total capital.
Note 3 Investment Securities
In accordance with SFAS 115 and as discussed in Note 1, during the fourth quarter of 1995, the Company's held to maturity portfolio was reclassified as available for sale.
Securities Available for Sale The aggregate amortized cost and estimated market value of securities available for sale at December 31, 1995 and 1994 were as follows:
Sales of securities available for sale during 1995 consisted of $28.8 million of U.S. Government Agency securities. During 1994, sales of securities from the available for sale portfolio consisted of $4.2 million of U.S. Government Agency securities. Gains of $59,000 and $3,000 for 1995 and 1994, respectively, were realized on the sales of these securities. Losses of $288,000 were realized on the sale of securities during 1995. No losses were realized in 1994 from sales of securities.
The following represents the contractual maturities and weighted average yields of securities available for sale at December 31, 1995. Expected maturities may differ from contractual maturities due to prepayments.
Securities Held to Maturity The table below summarizes the aggregate financial statement carrying value and market value of securities held to maturity at December 31, 1994. The Company had no securities in the held to maturity portfolio at December 31, 1995.
Note 4 Restricted Assets
At December 31, 1995, securities with a carrying value of $12,652,000 were pledged to secure treasury deposits, municipal deposits and repurchase agreements.
Cash and due from banks of $5,488,000 was subject to withdrawal and usage restrictions as of December 31, 1995, as a result of Federal Reserve requirements to maintain certain average balances.
Note 5 Loans
The composition of the Bank's loan portfolio at December 31, 1995 and 1994 was as follows:
Changes in the allowance for loan losses for the years ended December 31, 1995, 1994 and 1993 were as follows:
Nonperforming assets at December 31, 1995 and 1994 were as follows:
1995 1994 - ------------------------------------------------------------------------------- ($ in thousands) Loans 90 days or more past due on accrual status: Mortgage: Secured by residential property $ 5 $ 78 Commercial and other --- --- Commercial --- 6 Home equity 149 102 Consumer and other 4 14 - ------------------------------------------------------------------------------- Total 158 200 - -------------------------------------------------------------------------------
Nonaccrual loans: Mortgage: Secured by residential property 85 2,659 Commercial and other 1,098 1,098 Commercial 813 500 Home equity --- 59 Consumer and other --- --- - ------------------------------------------------------------------------------- Total 1,996 4,316 - -------------------------------------------------------------------------------
Impaired accruing loans 447 3,724 - -------------------------------------------------------------------------------
Total nonperforming loans 2,601 8,240
Other real estate owned --- 352 - -------------------------------------------------------------------------------
Total nonperforming assets $ 2,601 $ 8,592 ===============================================================================
At December 31, 1995, the recorded investment in loans for which impairment has been recognized in accordance with SFAS 114 and 118 totaled $2,443,000, of which $1,996,000 were nonaccrual loans. At December 31, 1995, the valuation allowance related to all impaired loans totaled $634,000 and is included in the allowance for loan losses on the statement of condition. For the year ended December 31, 1995, the average recorded investment in impaired loans was approximately $5.2 million. During 1995, total interest of $95,000 was recognized on accruing impaired loans.
The Bank would have recorded an additional $214,000, $183,500 and $382,000 of interest income in the years ended December 31, 1995, 1994 and 1993, respectively, if loans on nonaccrual status at each year end had been current throughout the year. At December 31, 1995, the Bank has no commitments to lend additional funds to borrowers whose loans are classified as nonaccrual or impaired. The Bank would have recorded an additional $7,700, $27,000 and $113,000 of interest income during 1995, 1994 and 1993 if accruing restructured loans had made payments in accordance with the original repayment terms.
Certain directors, executive officers and affiliates of the Bank had loans outstanding aggregating approximately $511,000 and $1,579,000, at December 31, 1995 and 1994,respectively. Such loans were made on substantially the same terms as comparable loans to others and were performing in 1995 and 1994. Changes in loans outstanding to such parties during 1995 and 1994 were as follows:
December 31, 1995 1994 - ------------------------------------------------------------------------------- ($ in thousands)
Balance, January 1, $ 1,579 $ 1,324 Additional loans 205 637 Loans repaid (1,273) (244) Other --- (138) - ------------------------------------------------------------------------------- Balance, December 31, $ 511 $ 1,579 ===============================================================================
The "other" amount primarily represents loans to directors and officers (including members of their immediate families or associates) who resigned, retired or changed qualifying employment status during the year ended December 31, 1994.
Note 6 Premises and Equipment
Premises and equipment and accumulated depreciation and amortization are summarized as follows:
December 31, 1995 1994 - ------------------------------------------------------------------------------- ($ in thousands)
Land $ 572 $ 572 Premises 3,817 3,847 Equipment 2,482 2,971 Leasehold improvements 1,018 1,027 - ------------------------------------------------------------------------------- Total 7,889 8,417 Less: Accumulated depreciation and amortization (2,956) (3,280) - ------------------------------------------------------------------------------- Premises and equipment - net $ 4,933 $ 5,137 ===============================================================================
Note 7 Deposits and Short-term Borrowings
Deposits by major classifications were as follows: December 31, 1995 1994 1993 - -------------------------------------------------------------------------------- ($ in thousands) Demand $ 78,421 $ 72,972 $ 57,479 NOW 47,816 51,861 55,047 Savings 45,455 56,854 61,944 Money market 22,141 27,541 28,393 Certificates of deposit and other 80,837 44,730 52,653 - -------------------------------------------------------------------------------- Total deposits $274,670 $253,958 $255,516 ================================================================================
Included in the table above are certificates of deposit in denominations of $100,000 or more. These certificates and their remaining maturities were as follows:
December 31, 1995 1994 - -------------------------------------------------------------------------------- ($ in thousands) Three months or less $34,733 $ 1,436 Three through twelve months 1,771 1,133 Over twelve months 1,150 1,568 - -------------------------------------------------------------------------------- Total $37,654 $ 4,137 ================================================================================
Interest expense on certificates of deposit with denominations of $100,000 or more was $887,000, $138,000 and $125,000 in 1995, 1994, and 1993, respectively.
Short-term borrowings aggregated $7,733,000 and $10,484,000 at December 31, 1995 and 1994, respectively. Such borrowings include securities sold under agreements to repurchase of $1,050,000 and $7,800,000 in 1995 and 1994, respectively, and U.S. Treasury note obligations related to treasury, tax and loan deposits in the amount of $1,683,000 in 1995 and $2,684,000 in 1994. The weighted average interest cost of short-term borrowings was 5.94% and 4.95% at December 31, 1995 and 1994, respectively, and the terms of the agreements ranged from one to seven days.
In addition to the securities sold under repurchase agreements and U.S. Treasury note obligations, the Bank entered into two unsecured Federal fund line of credit arrangements with correspondent banks totaling $5,000,000. At December 31, 1995, the outstanding balance of these lines was $5,000,000.
During the second quarter of 1995, the Bank became a member of the Federal Home Loan Bank of Boston ("FHLBB"). Services offered by the FHLBB include an unsecured credit line of up to a maximum of 2% of the Bank's assets, and collateralized fixed and variable rate borrowings. At December 31, 1995 these available lines amounted to $17.1 million. The FHLBB also offers cash management services, investment services, as well as lower cost advances for affordable housing or community investment programs. During 1995, borrowings under these lines were immaterial. The Bank did not have any borrowings from the FHLBB at December 31, 1995.
The following table summarizes the average balances, weighted average interest rates and the maximum month end outstanding amounts of short-term borrowings for 1995, 1994 and 1993.
1995 1994 1993 - -------------------------------------------------------------------------------- ($ in thousands) Federal funds purchased and securities sold under agreements to repurchase: Average balance $13,778 $ 6,172 $ 1,420 Weighted average interest rate 6.0% 4.5% 2.6% Maximum month end outstanding amount $28,230 $19,289 $ 3,648
U.S. Treasury note obligation related to treasury, tax and loan deposits: Average balance $ 1,657 $ 668 --- Weighted average interest rate 5.6% 4.6% --- Maximum month end outstanding amount $ 3,613 $ 3,193 ---
The Bank paid approximately $5,670,000, $4,799,000 and $5,744,000 in interest on deposits and short-term borrowings during 1995, 1994 and 1993, respectively.
Note 8 Commitments
Long-term Leases All noncancellable leases are operating leases at December 31, 1995, 1994 and 1993. The Bank has leases for administrative and branch offices with terms (including renewal options) ranging from one to ten years. Under most lease arrangements, the Bank pays property taxes, insurance, maintenance and expenses related to the leased property. Total rental expense under operating leases was $779,000 in 1995, $761,000 in 1994 and $844,000 in 1993.
Minimum future obligations on leases (including base rents and common area charges) in effect at December 31, 1995 were:
Operating Leases - -------------------------------------------------------------------------------- ($ in thousands) 1996 $ 784 1997 753 1998 706 1999 710 2000 663 Thereafter 280 - -------------------------------------------------------------------------------- Total minimum obligations $3,896 ================================================================================
Employment Contracts At December 31, 1995, the Bank was committed under employment agreements with various key officers requiring aggregate annual salary payments of approximately $532,000 for the terms of the contracts which expire at various dates through 1998. These agreements provide that if the key officers are terminated following a change in control (as defined) of Bancorp, they are entitled to receive lump sum severance payments and to continue to participate in certain benefit plans for three years.
Note 9 Stockholders' Equity
Preferred Stock and Warrants In February 1992, Bancorp completed a private placement of 46,700 investment units (the "Private Placement"). Each unit consisted of 1 share of Series A Noncumulative Convertible Preferred Stock (each share being convertible into 100 shares of Common Stock) and 50 Warrants (each Warrant being exercisable commencing in 1994 for 1 share of Common Stock at an exercise price of $.75 per share). Holders of record of the Series A Preferred Stock are entitled to dividends, when and if declared by Bancorp's Board of Directors, at a rate to be determined by Bancorp's Board of Directors. Holders of shares of Series A Preferred Stock vote together as a class with holders of the Common Stock for the election of directors and all other matters as to which holders of the Common Stock are entitled to vote. Each share of Series A Preferred Stock is entitled to 100 votes. All warrants expire on December 31, 1996.
Dividends Connecticut banking law prohibits the Bank from paying dividends except from its net profits, which are defined as the remainder of all earnings from current operations. The total of all dividends declared by the Bank in any calendar year may not, unless specifically approved by the State of Connecticut Banking Commissioner, exceed the total of its net profits of that year combined with its retained net profits of the preceding two years. These dividend limitations can affect the amount of dividends payable to Bancorp as the sole stockholder of the Bank, and therefore affect Bancorp's payment of dividends to its stockholders.
Dividend Reinvestment and Stock Purchase Plan Bancorp introduced a Dividend Reinvestment and Stock Purchase Plan on January 1, 1989. Under the terms of the plan, participating stockholders were allowed to purchase additional shares of Common Stock by reinvesting their cash dividends. Such plan participants could also make optional cash payments, up to $3,000 per quarter, to purchase additional shares. Shares purchased through the plan directly from Bancorp were priced at 95% of the average market value at the time of purchase; shares purchased in the open market were priced at cost. Bancorp discontinued the Dividend Reinvestment and Stock Purchase Plan in 1996.
Stockholder Rights Offering In the fourth quarter of 1992, holders of Bancorp's Common Stock received rights to acquire additional shares of Common Stock. The rights entitled each shareholder to purchase one share of Common Stock for every two shares owned as of February 21, 1992. The purchase price was initially set at $1.50 per share and increased to $2.00 on December 1, 1992 and $3.00 on June 1, 1993. Prior to its expiration on May 31, 1994, the rights offering raised $1,117,000, net of expenses. Bancorp contributed a total of $1,000,000 of the net proceeds during 1993 and 1994 to the capital of the Bank.
Stock Option Agreements On December 17, 1992, Bancorp's Board of Directors conditionally granted certain executive officers options to purchase a total of up to 725,000 shares of Bancorp's Common Stock at an exercise price of $2.00 per share, which was the fair market value of the stock on that date. The grants became effective upon approval by the shareholders of Bancorp at the 1993 Annual Meeting of Bancorp's shareholders. These stock options become exercisable gradually over a five year period and expire within ten years following the date of the conditional grant. All unexpired options become immediately exercisable if a change in control (as defined) of Bancorp occurs.
Incentive Stock Option Plans Under the 1995 Incentive Stock Option Plan (the "1995 Plan"), the Board of Directors may grant options to purchase a total of up to 200,000 shares of Bancorp's Common Stock to key employees of Bancorp and the Bank. Under the 1985 Incentive Stock Option Plan (the "1985 Plan"), for which the authority to grant options expired on December 31, 1995, the Board was authorized to grant options to purchase a total of up to 300,000 shares of Bancorp's Common Stock to key employees of Bancorp and the Bank. The exercise price of options granted under the Plans are set at the market price of Bancorp's Common Stock on the date of the grant. Each option may be exercised as to one-half of the total number of shares covered by such option after one year of continuous employment, and, as to the other one-half, after two years of continuous employment. Options, in both Plans, expire ten years after the date of their grant. No options have been granted under the 1995 Plan.
Activity for the 1985 Plan for the years ended December 31, 1995, 1994 and 1993 was as follows:
1995 1994 1993 - -------------------------------------------------------------------------------
Options outstanding, January 1, 276,550 274,310 129,310 Options granted 5,000 37,200 150,000 Options exercised (9,750) (17,500) --- Options canceled --- (9,960) (5,000) Options expired (4,850) (7,500) --- - ------------------------------------------------------------------------------- Options outstanding, December 31, 266,950 276,550 274,310 ===============================================================================
Options exercisable, December 31, 243,350 164,350 68,810 ===============================================================================
Price per share of options $2.00 $2.00 $2.00 outstanding, December 31, to to to $3.50 $19.75 $19.75 ===============================================================================
At the discretion of Bancorp's Board of Directors, all outstanding unexercisable options under the 1985 Plan may become exercisable if a change in control (as defined) of Bancorp occurs.
Note 10 Income Taxes
At December 31, 1995, 1994 and 1993, the Company had recorded net deferred tax assets (included in Other Assets) of $2,772,000, $1,650,000 and $350,000, respectively, for anticipated future utilization of net operating loss carryforwards ("NOL's") and the tax effect of other temporary differences. At December 31, 1995, the Company has recognized substantially all of the financial statement benefit of its deferred tax assets.
The provision (benefit) for income taxes was comprised of the following:
Years ended December 31, 1995 1994 1993 - --------------------------------------------------------------------------------
Federal - current $ 103,000 $ 48,000 $ 23,000 State - current 14,000 16,000 75,000 Federal - deferred (benefit) (1,122,000) (1,300,000) (350,000) - -------------------------------------------------------------------------------- $(1,005,000) $(1,236,000) $(252,000) ================================================================================
Cash payments for income taxes were $111,000, $78,000 an $89,000 in 1995, 1994 and 1993, respectively.
A reconciliation of the statutory federal income tax provision to the reported income tax benefit for the years ended December 31, 1995, 1994 and 1993 is as follows:
In addition, $470,000 and $256,000 of state taxes (net of the related federal tax benefit) were not provided in 1995 and 1994, respectively, because of the utilization of state NOL's.
The components of and changes in the deferred tax asset during 1995, 1994 and 1993, were as follows:
At December 31, 1995, the only temporary difference which gives rise to a significant portion of the tax effected temporary differences shown above was the loan loss allowance, which resulted in a deferred liability of approximately $340,000.
As of December 31, 1995, the Company has aggregate NOL's of approximately $5.9 million for federal purposes and $6.5 million for state purposes which are available to offset future income for tax return purposes. The NOL's are scheduled to expire as follows:
Federal State - -------------------------------------------------------------------------------- 2006 - $5.8 million 1996 - $6.4 million 2007 - $0.1 million 1997 - $0.1 million
Note 11 Employee Benefit Plans
The Bank has a qualified noncontributory defined benefit pension plan (the "Pension Plan") covering all employees over the age of 21 who have worked at least 1,000 hours per year. The Pension Plan was temporarily frozen, effective January 1, 1992, resulting in no additional benefits for future service since that date. The Bank also has a non-qualified supplemental executive retirement plan (the "Supplemental Plan") for certain senior officers. Under the terms of the Supplemental Plan, if participants are terminated on or after their early retirement date following a change in control (as defined) of Bancorp, they are entitled to receive benefits which amount to 70% of average annual compensation, reduced by a factor for age and any pension benefits. During 1995, several participants were discontinued from the Supplemental Plan, resulting in a curtailment gain.
The following table sets forth the funded status of the plans and the amounts shown in the accompanying consolidated statements of condition at December 31, 1995 and 1994:
Pension (benefit) expense for 1995, 1994 and 1993 included the following components:
Key assumptions used in the above calculations at December 31, 1995, 1994 and 1993 were as follows:
Pension Plan assets are primarily invested in fixed income and equity securities. The net unrecognized loss from past experience different than assumed is being amortized on a straight line basis over 12 years. The Bank uses the straight-line method of amortization for prior service cost (over 10.8 years) and unrecognized gains and losses (over 12 years) which aggregate more than 10% of the value of plan assets.
The Bank also has a qualified Employee Stock Ownership Plan ("ESOP") and, commencing in 1992, a 401(k) Plan covering all eligible employees. Contributions to the ESOP are at the discretion of the Board of Directors of the Bank; no contributions were made in 1995, 1994 or 1993. Participants in the 401(k) Plan are entitled to contribute up to 20% of their compensation, subject to Internal Revenue Service annual limitations. The Bank contributed 25% in 1993 and 1994 and 50% of annual employee contributions in 1995, up to 6% of a participants' compensation. Employees are fully vested in the Bank's contributions after five years of service. The Bank contributed $91,000, $49,000 and $20,000 to the 401(k) Plan in 1995, 1994 and 1993, respectively.
Note 12 Related Party Transactions
The Bank purchases insurance from an insurance brokerage firm owned by a director of the Bank and Bancorp. This director is the president of the insurance firm. During 1995, the Bank made insurance payments of $364,062 to this firm. Payments to this firm for insurance premiums were $326,791 and $475,462 during 1994 and 1993, respectively.
The Bank leases office space from a trust of which a director of the Bank and Bancorp serves as trustee. Rental payments of $54,584, $53,740 and $53,527 for this office space were paid during 1995, 1994 and 1993, respectively.
The Bank also leases office space from a trust which benefits a family member of a director of the Bank and Bancorp. The Bank made rental payments totaling $194,196, $195,000 and $184,141 during 1995, 1994 and 1993, respectively, relating to this office space.
Note 13 New Accounting Standards Not Yet Adopted
In March 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. SFAS 121 applies to financial statements for fiscal years beginning after December 15, 1995. Bancorp does not anticipate that adoption of this pronouncement will have a material impact on its consolidated financial statements.
In October 1995, FASB issued Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation". SFAS 123 establishes financial accounting and reporting standards for stock-based employee compensation plans. SFAS 123 is effective for fiscal years beginning after December 15, 1995. Bancorp does not anticipate that adoption of this pronouncement will have a material impact on its consolidated financial statements.
Note 14 Westport Bancorp, Inc. (Parent Company Only) Condensed Financial Statements
There are various restrictions which limit the ability of a bank subsidiary to transfer funds in the form of cash dividends, loans or advances to its parent company. The Bank is prohibited by Connecticut banking law from paying dividends except from its net profits, which are defined as the remainder of all earnings from current operations. The total of all dividends declared by the Bank in any calendar year may not, unless specifically approved by the Commissioner, exceed the total of its net profits for that year combined with its retained net profits from the preceding two years. These dividend limitations can affect the amount of dividends payable to Bancorp as the sole stockholder of the Bank, and therefore affect Bancorp's payment of dividends to its stockholders.
In addition, the Bank is subject to restrictions under Section 23A of the Federal Reserve Act. These restrictions limit the transfer of funds to a parent company, in the form of loans or extensions of credit, investments and purchases of assets. Such transfers are limited to 10% of the Bank's capital and surplus. These transfers are also subject to various collateral requirements.
Note 15 Financial Instruments with Off-Balance Sheet Risk and Concentrations of Credit Risk
The Bank is a party to financial instruments with off-balance sheet risk entered into in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit (unfunded loans and unused lines of credit) and standby letters of credit.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of these commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank uses the same credit policies in making commitments as it does for on-balance sheet instruments and evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank, upon extension of credit is based on management's credit evaluation of the borrower. Collateral held varies, but may include real estate, accounts receivable, inventory, property and securities.
Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued at the customer's request to support various personal and/or business obligations. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The amount of credit is based on management's credit evaluation of the counterparty. Collateral held varies but may include real estate, accounts receivable, inventory, property, securities and certificates of deposit.
The Bank's maximum exposure to credit loss from outstanding loan commitments and standby letters of credit at December 31, 1995 was: ($ in thousands) Loan commitments: Residential mortgage $ 2,588 Commercial mortgage 260 Residential construction 1,276 - -------------------------------------------------------------------------------- Total 4,124 - --------------------------------------------------------------------------------
Lines of Credit commitments: Commercial 15,352 Home equity 16,865 Personal 2,333 - -------------------------------------------------------------------------------- Total 34,550 - --------------------------------------------------------------------------------
Standby letters of credit 1,532 - --------------------------------------------------------------------------------
Total commitments and letters of credit $ 40,206 ================================================================================
The Bank grants residential, commercial and consumer loans to customers, principally in the town of Westport and the Fairfield County area of Connecticut. Although the loan portfolio is diversified, a substantial portion of its debtors' ability to honor their contracts is dependent upon the economic conditions in the area, especially in the real estate sector. There are no other concentrations of loans exceeding 10% of total loans.
Note 16 Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 ("SFAS 107"), "Disclosures about Fair Value of Financial Instruments", requires disclosure of the estimated fair value of financial instrument assets, liabilities, commitments and guarantees. Approximately 96% of the Company's assets and 99% of its liabilities are considered financial instruments as defined in SFAS 107. Many of the Company's financial instruments, however, lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction. In addition, the majority of the Company's financial instruments, such as loans and deposits, are held to maturity and are realized or paid according to the contractual agreement with the customer.
Significant estimations and present value calculations were used by the Company for the purposes of this disclosure. The estimation methodologies used, the estimated fair values, and financial statement balances at December 31, 1995 and 1994 ($ in thousands) are shown below.
Financial instrument assets actively traded in a secondary market have been valued at quoted available market prices. For short-term financial instruments, the financial statement balance equals fair market value.
The following financial instrument liabilities with no stated maturities have been valued at an estimated fair value equal to both the amount payable on demand and the financial statement balance:
The loan portfolio has been valued using a combination of quoted market prices and recent comparable sales data for both home equity credit lines and residential mortgages and discounted cash flow for commercial mortgages, consumer loans and business loans. The discount rate used in these calculations are current market rates for similar items.
Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values.
Management is concerned that reasonable comparability between financial institutions may not be possible due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values.
All off-balance sheet items are believed to relate to quality assets. There are no off-balance sheet items that relate to adversely classified assets. The fees charged for off-balance sheet items are at fair values for similar transactions. See Note 15 for further information on off-balance sheet items.
Note 17 Quarterly Data (Unaudited)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Westport Bancorp, Inc.:
We have audited the accompanying consolidated statements of condition of Westport Bancorp, Inc. (a Delaware corporation) and subsidiary as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three year period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Westport Bancorp, Inc. and subsidiary as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 1995, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
New York, New York January 25, 1996
Item 9

Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure - --------------------------------------------------------------------------------
None.
PART III Item 10

Item 10 Directors and Executive Officers of the Registrant - --------------------------------------------------------------------------------
The information required by this item is set forth under the captions "Election of Directors -- Information about Nominees," "Management -- Executive Officers" and "Management -- Section 16(a) Compliance" in Bancorp's definitive Proxy Statement for Bancorp's 1996 Annual Meeting of Stockholders. Such information is hereby incorporated by reference herein and specifically made a part hereof by reference.
Item 11

Item 11 Executive Compensation - --------------------------------------------------------------------------------
The information required by this item is set forth under the captions "Management -- Executive Compensation," "Management -- Option Exercises and Holdings," "Management -- Pension and Retirement Plans," "Management -- Supplemental Executive Retirement Plan," "Management -- Split Dollar Life Insurance," "Management -- Compensation of Directors," "Management -- Agreements With Certain Executive Officers," and "Management -- Compensation Committee Interlocks and Insider Participation" in Bancorp's definitive Proxy Statement for Bancorp's 1996 Annual Meeting of Stockholders. Such information is hereby incorporated by reference herein and specifically made a part hereof by reference.
Item 12

Item 12 Security Ownership of Certain Beneficial Owners and Management - --------------------------------------------------------------------------------
The information required by this item is set forth under the caption "Security Ownership of Management and Certain Beneficial Owners" in Bancorp's definitive Proxy Statement for Bancorp's 1996 Annual Meeting of Stockholders. Such information is hereby incorporated by reference herein and specifically made a part hereof by reference.
Item 13

Item 13 Certain Relationships and Related Transactions - --------------------------------------------------------------------------------
The information required by this item is set forth under the captions "Management -- Compensation Committee Interlocks and Insider Participation" and "Management -- Certain Other Transactions" in Bancorp's definitive Proxy Statement for Bancorp's 1996 Annual Meeting of Stockholders. Such information is hereby incorporated by reference herein and specifically made a part hereof by reference.
PART IV Item 14

Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K - --------------------------------------------------------------------------------
Financial Statements. The following financial statements are included in Item 8 of this Form 10-K:
(a) Westport Bancorp, Inc. Consolidated Statements of Condition as at December 31, 1995 and 1994.
(b) Westport Bancorp, Inc. Consolidated Statements of Income for years ended December 31, 1995, 1994 and 1993.
(c) Westport Bancorp, Inc. Consolidated Statements of Changes In Stockholders' Equity as at December 31, 1995, 1994, and 1993 and January 1, 1993.
(d) Westport Bancorp, Inc. Consolidated Statements of Cash Flows for years ended December 31, 1995, 1994, and 1993.
(e) Westport Bancorp, Inc. Notes to Consolidated Financial Statements.
(f) Report of Independent Public Accountants, on Westport Bancorp, Inc.'s Consolidated Financial Statements for 1995, 1994 and 1993.
Financial Statement Schedules. Schedules are omitted either because they are not applicable or because the information is included at Item 8 in this Form 10-K.
Exhibits. The exhibits which are filed with this Form 10-K or which are incorporated herein by reference are set forth below:
Exhibit No. Exhibit Description - --------------------------------------------------------------------------------
3(a) Restated Certificate of Incorporation of Bancorp. (Filed as Exhibit 3(a) to Annual Report on Form 10-K for the year ended December 31, 1991, File No. 0-12936 ("1991 Form 10-K"), and incorporated herein by reference.)
3(b) Certificate of Designation of Series A Convertible Preferred Stock of Bancorp. (Filed as Exhibit 3(b) to 1991 Form 10-K, and incorporated herein by reference.)
3(c) Certificate of Amendment of Bancorp.
3(d) By-Laws of Bancorp, as amended. (Filed as Exhibit 3(d) to Annual Report on Form 10-K for the year ended December 31, 1992, File No. 0-12936 ("1992 Form 10-K"), and incorporated herein by reference.)
4(a) Specimen Common Stock Certificate. (Filed as Exhibit 4 to Registration Statement on Form S-1, File No. 2-93773, and incorporated herein by reference.)
4(b) Specimen Series A Convertible Preferred Stock Certificate. (Filed as Exhibit 4(b) to 1991 Form 10-K, and incorporated herein by reference.)
4(c) Specimen Warrant Certificate. (Filed as Exhibit 4(c) to 1991 Form 10-K, and incorporated herein by reference.)
10(a) Weston lease dated June 5, 1979 between the Bank and Weston Shopping Center, Inc. (Filed as Exhibit 10(c) to Registration Statement on Form S-1, File No. 2- 93773, and incorporated herein by reference.)
10(b) Weston lease dated August 23, 1979, between the Bank and Weston Shopping Center Associates, as amended by Modification dated July 1, 1993. (Filed as Exhibit 10(e) to Annual Report on Form 10-K for the year ended December 31, 1989, File No. 0-12936, and as Exhibit 10(c) to Annual Report on Form 10-K for the year ended December 31, 1993, File No. 0-12936 ("1993 Form 10-K"), respectively, and incorporated herein by reference.)
10(c) Trust Department lease dated November 7, 1986 between the Bank and John Sherwood, Trustee. (Filed as Exhibit 10(e) to 1992 Form 10-K, and incorporated herein by reference.)
10(d) Gault Building lease dated April 1, 1987 between the Bank and William L. Gault, Trustee. (Filed as Exhibit 10(f) to 1992 Form 10-K, and incorporated herein by reference.)
10(e) Shelton Operations Center lease dated March 22, 1991 between the Bank and One Research Drive Associates Limited Partnership. (Filed as Exhibit 10(h) to 1991 Form 10-K, and incorporated herein by reference.)
10(f) Fairfield branch lease dated March 20, 1995 between the Bank and C.A.T.F. Limited Partnership.
10(g) Employment Agreement among Michael H. Flynn, Bancorp and the Bank dated August 31, 1989, as amended December 17, 1991 and November 13, 1995. (Agreement dated August 31, 1989 and Amendment dated December 17, 1991 filed as Exhibit 10(i)(1) to 1992 Form 10-K, and incorporated herein by reference.)
10(h) Employment Agreement among Thomas P. Bilbao, Bancorp and the Bank dated June 16, 1992 and as amended November 13, 1995. (Agreement dated June 16, 1992 filed as Exhibit 10(i)(1) to 1992 Form 10-K, and incorporated herein by reference.)
10(i) Employment Agreement among Richard T. Cummings, Jr., Bancorp and the Bank dated January 12, 1990, as amended December 17, 1991 and November 13, 1995. (Agreement dated January 12, 1990 and Amendment dated December 17, 1991 filed as Exhibit (10)(i)(1) to 1992 Form 10-K, and incorporated herein by reference.)
10(j) Employment Agreement among William B. Laudano, Jr., Bancorp and the Bank dated February 23, 1995 and as amended November 13, 1995. (Agreement dated February 23, 1995 filed as Exhibit 10(g)(6) to 1994 Form 10-K, and incorporated herein by reference.)
10(k) Employment Agreement among Richard L. Card, Bancorp and the Bank dated November 15, 1993, and as amended November 13, 1995. (Agreement dated November 15, 1993 filed as Exhibit 10(i)(4) to 1993 Form 10-K, and incorporated herein by reference.)
10(l) Executive Agreement between Arnold Levine and Bancorp dated October 16, 1989 and as amended December 17, 1991. (Filed as Exhibit 10(i)(1) to 1992 Form 10-K, and incorporated herein by reference.)
10(m) Stock Option Agreement between Michael H. Flynn and Bancorp dated December 17, 1992. (Filed as Exhibit 10(i)(3) to 1992 Form 10-K, and incorporated herein by reference.)
10(n) Stock Option Agreement between Thomas P. Bilbao and Bancorp dated December 17, 1992. (Filed as Exhibit 10(i)(3) to 1992 Form 10-K, and incorporated herein by reference.)
10(o) Stock Option Agreement between Richard T. Cummings, Jr. and Bancorp dated December 17, 1992. (Filed as Exhibit 10(i)(3) to 1992 Form 10-K, and incorporated herein by reference.)
10(p) Stock Option Agreement between William B. Laudano, Jr. and Bancorp dated September 2, 1993. (Filed as Exhibit 10(i)(5) to 1993 Form 10-K, and incorporated herein by reference.)
10(q) Stock Option Agreement between Richard L. Card and Bancorp dated November 18, 1993. (Filed as Exhibit 10(i)(5) to 1993 Form 10-K, and incorporated herein by reference.)
10(r) Split Dollar Insurance Agreement between William B. Laudano, Jr. and the Bank.
10(s) Split Dollar Insurance Agreement between Richard T. Cummings, Jr. and the Bank.
10(t) Split Dollar Insurance Agreement between Richard L. Card and the Bank.
10(u) Supplemental Executive Retirement Plan of Bancorp dated November 13, 1995, as amended November 29, 1995 and January 18, 1996.
10(v) Trust under Supplemental Executive Retirement Plan between the Bank and People's Bank, Trustee.
10(w) Directors Retirement Plan of Bancorp. (Filed as Exhibit 10(m) to 1992 Form 10-K, and incorporated herein by reference.)
10(x) 1985 Incentive Stock Option Plan of Bancorp, as restated. (Filed as Exhibit 10(n) to 1992 Form 10-K, and incorporated herein by reference.)
10(y) 1995 Incentive Stock Option Plan of Bancorp.
11 Statement Regarding Computation of Per Share Earnings.
21 Subsidiary of Bancorp. (Filed as Exhibit 22 to 1991 Form 10-K, and incorporated herein by reference.)
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
Reports on Form 8-K.
Bancorp did not file any reports on Form 8-K during the fourth quarter of 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WESTPORT BANCORP, INC. ----------------------- (Registrant)
DATE March 21, 1996 By: /s/ Michael H. Flynn ---------------- -------------------- Michael H. Flynn President and Chief Executive Officer (principal executive officer)
DATE March 21, 1996 By: /s/ William B. Laudano, Jr. ---------------- --------------------------- William B. Laudano, Jr. Senior Vice President and Chief Financial Officer (principal financial officer and principal accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signatures Title Date - --------------------------------------------------------------------------------
Director - ------------------- George H. Damman
/s/Michael H. Flynn Director March 21, 1996 - ------------------- Michael H. Flynn
/s/William L. Gault Director March 21, 1996 - ------------------- William L. Gault
/s/Kurt B. Hersher Director March 21, 1996 - ------------------- Kurt B. Hersher
Signatures Title Date - --------------------------------------------------------------------------------
/s/William E. Mitchell Director March 21, 1996 - ------------------------- William E. Mitchell
/s/David A. Rosow Chairman of the March 21, 1996 - ------------------------- Board of Directors David A. Rosow
Director - ------------------------- William D. Rueckert
/s/Jay Sherwood Director March 21, 1996 - ------------------------- Jay Sherwood
EXHIBIT INDEX
Exhibit No. Exhibit Description - --------------------------------------------------------------------------------
3(a) Restated Certificate of Incorporation of Bancorp. (Filed as Exhibit 3(a) to Annual Report on Form 10-K for the year ended December 31, 1991, File No. 0-12936 ("1991 Form 10-K"), and incorporated herein by reference.)
3(b) Certificate of Designation of Series A Convertible Preferred Stock of Bancorp. (Filed as Exhibit 3(b) to 1991 Form 10-K, and incorporated herein by reference.)
3(c) Certificate of Amendment of Bancorp.
3(d) By-Laws of Bancorp, as amended. (Filed as Exhibit 3(d) to Annual Report on Form 10-K for the year ended December 31, 1992, File No. 0-12936 ("1992 Form 10-K"), and incorporated herein by reference.)
4(a) Specimen Common Stock Certificate. (Filed as Exhibit 4 to Registration Statement on Form S-1, File No. 2-93773, and incorporated herein by reference.)
4(b) Specimen Series A Convertible Preferred Stock Certificate. (Filed as Exhibit 4(b) to 1991 Form 10-K, and incorporated herein by reference.)
4(c) Specimen Warrant Certificate. (Filed as Exhibit 4(c) to 1991 Form 10-K, and incorporated herein by reference.)
10(a) Weston lease dated June 5, 1979 between the Bank and Weston Shopping Center, Inc. (Filed as Exhibit 10(c) to Registration Statement on Form S-1, File No. 2- 93773, and incorporated herein by reference.)
10(b) Weston lease dated August 23, 1979, between the Bank and Weston Shopping Center Associates, as amended by Modification dated July 1, 1993. (Filed as Exhibit 10(e) to Annual Report on Form 10-K for the year ended December 31, 1989, File No. 0-12936, and as Exhibit 10(c) to Annual Report on Form 10-K for the year ended December 31, 1993, File No. 0-12936 ("1993 Form 10-K"), respectively, and incorporated herein by reference.)
10(c) Trust Department lease dated November 7, 1986 between the Bank and John Sherwood, Trustee. (Filed as Exhibit 10(e) to 1992 Form 10-K, and incorporated herein by reference.)
10(d) Gault Building lease dated April 1, 1987 between the Bank and William L. Gault, Trustee. (Filed as Exhibit 10(f) to 1992 Form 10-K, and incorporated herein by reference.)
10(e) Shelton Operations Center lease dated March 22, 1991 between the Bank and One Research Drive Associates Limited Partnership. (Filed as Exhibit 10(h) to 1991 Form 10-K, and incorporated herein by reference.)
10(f) Fairfield branch lease dated March 20, 1995 between the Bank and C.A.T.F. Limited Partnership.
10(g) Employment Agreement among Michael H. Flynn, Bancorp and the Bank dated August 31, 1989, as amended December 17, 1991 and November 13, 1995. (Agreement dated August 31, 1989 and Amendment dated December 17, 1991 filed as Exhibit (10)(i)(1) to 1992 Form 10-K, and incorporated by reference.)
Exhibit No. Exhibit Description - --------------------------------------------------------------------------------
10(h) Employment Agreement among Thomas P. Bilbao, Bancorp and the Bank dated June 16, 1992 and as amended November 13, 1995. (Agreement dated June 16, 1992 filed as Exhibit 10(i)(1) to 1992 Form 10-K, and incorporated herein by reference.)
10(i) Employment Agreement among Richard T. Cummings, Jr., Bancorp and the Bank dated January 12, 1990, as amended December 17, 1991 and November 13, 1995. (Agreement dated January 12, 1990 and Amendment dated December 17, 1991 filed as Exhibit 10(i)(1) to 1992 Form 10-K, and incorporated herein by reference.)
10(j) Employment Agreement among William B. Laudano, Jr., Bancorp and the Bank dated February 23, 1995 and as amended November 13, 1995. (Agreement dated February 23, 1995 filed as Exhibit 10(g)(6) to 1994 from 10-K, and incorporated herein by reference.)
10(k) Employment Agreement among Richard L. Card, Bancorp and the Bank dated November 15, 1993, as amended November 13, 1995. (Agreement dated November 15, 1993 filed as Exhibit 10(i)(4) to 1993 Form 10-K, and incorporated herein by reference.)
10(l) Executive Agreement between Arnold Levine and Bancorp dated October 16, 1989 and as amended December 17, 1991. (Filed as Exhibit 10(i)(1) to 1992 Form 10-K, and incorporated herein by reference.)
10(m) Stock Option Agreement between Michael H. Flynn and Bancorp dated December 17, 1992. (Filed as Exhibit 10(i)(3) to 1992 Form 10-K, and incorporated herein by reference.)
10(n) Stock Option Agreement between Thomas P. Bilbao and Bancorp dated December 17, 1992. (Filed as Exhibit 10(i)(3) to 1992 Form 10-K, and incorporated herein by reference.)
10(o) Stock Option Agreement between Richard T. Cummings, Jr. and Bancorp dated December 17, 1992. (Filed as Exhibit 10(i)(3) to 1992 Form 10-K, and incorporated herein by reference.)
10(p) Stock Option Agreement between William B. Laudano, Jr. and Bancorp dated September 2, 1993. (Filed as Exhibit 10(i)(5) to 1993 Form 10-K, and incorporated herein by reference.)
10(q) Stock Option Agreement between Richard L. Card and Bancorp dated November 18, 1993. (Filed as Exhibit 10(i)(5) to 1993 Form 10-K, and incorporated herein by reference.)
10(r) Split Dollar Insurance Agreement between William B. Laudano, Jr. and the Bank.
10(s) Split Dollar Insurance Agreement between Richard T. Cummings, Jr. and the Bank.
10(t) Split Dollar Insurance Agreement between Richard L. Card and the Bank.
10(u) Supplemental Executive Retirement Plan of Bancorp dated November 13, 1995, as amended November 29, 1995 and January 18, 1996.
10(v) Trust under Supplemental Executive Retirement Plan between the Bank and People's Bank, Trustee.
10(w) Directors Retirement Plan of Bancorp. (Filed as Exhibit 10(m) to 1992 Form 10-K, and incorporated herein by reference.)
10(x) 1985 Incentive Stock Option Plan of Bancorp, as restated. (Filed as Exhibit 10(n) to 1992 Form 10-K, and incorporated herein by reference.)
Exhibit Description - --------------------------------------------------------------------------------
10(y) 1995 Incentive Stock Option Plan of Bancorp.
11 Statement Regarding Computation of Per Share Earnings.
21 Subsidiary of Bancorp. (Filed as Exhibit 22 to 1991 Form 10-K, and incorporated herein by reference.)
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.