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EX-32.1 - EXHIBIT 32.1 - First Connecticut Bancorp, Inc.t82880_ex32-1.htm
EX-32.2 - EXHIBIT 32.2 - First Connecticut Bancorp, Inc.t82880_ex32-2.htm
EX-31.1 - EXHIBIT 31.1 - First Connecticut Bancorp, Inc.t82880_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - First Connecticut Bancorp, Inc.t82880_ex31-2.htm

 

 

 UNITED STATES

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

 

FORM 10-Q

 

 

Quarterly Report-

Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2015

 

OR

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from              to             

 

Commission File No. 333-171913

 

 

First Connecticut Bancorp, Inc.

(Exact name of registrant as specified in its charter)

 

     
Maryland   45-1496206

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number) 

   
One Farm Glen Boulevard, Farmington, CT   06032
(Address of Principal Executive Offices)   (Zip Code)

 

(860) 676-4600 

(Registrant’s telephone number)

 

N/A

(Former name or former address, if changed since last report)

 

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such requirements for the past 90 days.    YES   ☒     NO   ☐ .

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES   ☒     NO   ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer“ and “accelerated filer“ and “smaller reporting company“ in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  o Accelerated filer  x
       
Non-accelerated filer  o Smaller reporting company  o

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ☐    NO  ☒

 

As of July 27, 2015, there were 15,924,088 shares of First Connecticut Bancorp, Inc. common stock, par value $0.01, outstanding.

 

  
 

  

       
First Connecticut Bancorp, Inc.
       
Table of Contents
 
      Page
       
Part I. Financial Information    
       
Item 1. Consolidated Financial Statements    
       
  Consolidated Statements of Financial Condition at June 30, 2015 (unaudited) and December 31, 2014   1
       
  Consolidated Statements of Income for the three and six months ended June 30, 2015 and 2014 (unaudited)   2
       
  Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2015 and 2014 (unaudited)   3
       
  Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2015 (unaudited)   4
       
  Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (unaudited)   5
       
  Notes to Unaudited Consolidated Financial Statements   6
       
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   52
       
Item 3. Quantitative and Qualitative Disclosures About Market Risk   69
       
Item 4. Controls and Procedures   70
       
Part II. Other Information    
       
Item 1. Legal Proceedings   70
       
Item1A. Risk Factors   70
       
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   70
       
Item 3. Defaults upon Senior Securities   70
       
Item 4. Mine Safety Disclosure   71
       
Item 5. Other Information   71
       
Item 6. Exhibits   71
       
Signatures   73
       
Exhibit 31.1    
Exhibit 31.2    
Exhibit 32.1    
Exhibit 32.2    

 

  
 

 

First Connecticut Bancorp, Inc.
Consolidated Statements of Financial Condition (Unaudited)

 

   June 30,   December 31, 
   2015   2014 
(Dollars in thousands, except share and per share data)
Assets          
Cash and due from banks  $35,595   $35,232 
Interest bearing deposits with other institutions   7,397    7,631 
Total cash and cash equivalents   42,992    42,863 
Securities held-to-maturity, at amortized cost   34,366    16,224 
Securities available-for-sale, at fair value   143,799    188,041 
Loans held for sale   7,550    2,417 
Loans (1)   2,287,966    2,138,877 
Allowance for loan losses   (19,581)   (18,960)
Loans, net   2,268,385    2,119,917 
Premises and equipment, net   17,964    18,873 
Federal Home Loan Bank of Boston stock, at cost   21,496    19,785 
Accrued income receivable   6,425    5,777 
Bank-owned life insurance   50,283    39,686 
Deferred income taxes, net   16,450    16,841 
Prepaid expenses and other assets   16,507    14,936 
Total assets  $2,626,217   $2,485,360 
Liabilities and Stockholders’ Equity          
Deposits          
Interest-bearing  $1,500,948   $1,402,517 
Noninterest-bearing   377,092    330,524 
    1,878,040    1,733,041 
Federal Home Loan Bank of Boston advances   400,700    401,700 
Repurchase agreement borrowings   10,500    21,000 
Repurchase liabilities   56,041    48,987 
Accrued expenses and other liabilities   41,854    46,069 
Total liabilities   2,387,135    2,250,797 
Stockholders’ Equity          
Common stock, $0.01 par value, 30,000,000 shares authorized; 18,006,129 shares issued and 15,922,888 shares outstanding at June 30, 2015 and 18,006,129 shares issued and 16,026,319 shares outstanding at December 31, 2014   181    181 
Additional paid-in-capital   180,764    178,772 
Unallocated common stock held by ESOP   (12,160)   (12,681)
Treasury stock, at cost (2,083,241 shares at June 30, 2015 and 1,979,810 shares at December 31, 2014)   (30,389)   (28,828)
Retained earnings   108,014    103,630 
Accumulated other comprehensive loss   (7,328)   (6,511)
Total stockholders’ equity   239,082    234,563 
Total liabilities and stockholders’ equity  $2,626,217   $2,485,360 

 

(1) Loans include net deferred loan costs of $4.2 million and $3.8 million at June 30, 2015 and December 31, 2014, respectively.

The accompanying notes are an integral part of these consolidated financial statements.

 

1
 

 

First Connecticut Bancorp, Inc.
Consolidated Statements of Income (Unaudited)

  

    Three Months Ended June 30,     Six Months Ended June 30,  
    2015     2014     2015     2014  
(Dollars in thousands, except share and per share data)                        
Interest income                        
Interest and fees on loans                        
Mortgage   $ 15,331     $ 13,875     $ 30,389     $ 27,303  
Other     4,264       3,573       8,259       6,781  
Interest and dividends on investments                                
United States Government and agency obligations     385       218       708       407  
Other bonds     35       81       53       139  
Corporate stocks     145       105       276       198  
Other interest income     4       2       11       6  
Total interest income     20,164       17,854       39,696       34,834  
Interest expense                                
Deposits     2,140       1,711       4,349       3,405  
Federal Home Loan Bank of Boston advances     804       368       1,555       687  
Repurchase agreement borrowings     92       179       255       356  
Repurchase liabilities     29       32       63       72  
Total interest expense     3,065       2,290       6,222       4,520  
Net interest income     17,099       15,564       33,474       30,314  
Provision for loan losses     663       410       1,278       915  
Net interest income after provision for loan losses     16,436       15,154       32,196       29,399  
Noninterest income                                
Fees for customer services     1,500       1,317       2,873       2,508  
Gain on sales of investments     1,250       -       1,523       -  
Net gain on loans sold     412       317       932       439  
Brokerage and insurance fee income     60       49       109       93  
Bank owned life insurance income     324       281       597       563  
Other     528       102       704       225  
Total noninterest income     4,074       2,066       6,738       3,828  
Noninterest expense                                
Salaries and employee benefits     9,035       8,638       17,825       16,926  
Occupancy expense     1,272       1,209       2,639       2,558  
Furniture and equipment expense     1,077       1,106       2,113       2,124  
FDIC assessment     402       321       814       649  
Marketing     534       509       943       887  
Other operating expenses     3,277       2,471       6,200       5,070  
Total noninterest expense     15,597       14,254       30,534       28,214  
Income before income taxes     4,913       2,966       8,400       5,013  
Income tax expense     1,441       776       2,417       1,331  
Net income   $ 3,472     $ 2,190     $ 5,983     $ 3,682  
                                 
Net earnings per share (See Note 3):                                
Basic   $ 0.23     $ 0.15     $ 0.40     $ 0.24  
Diluted     0.23       0.14       0.40       0.24  
Dividends per share     0.05       0.04       0.10       0.07  

The accompanying notes are an integral part of these consolidated financial statements.

2
 

First Connecticut Bancorp, Inc.

Consolidated Statements of Comprehensive Income (Unaudited) 

    Three Months Ended June 30,     Six Months Ended June 30,  
    2015     2014     2015     2014  
(Dollars in thousands)                        
Net income   $ 3,472     $ 2,190     $ 5,983     $ 3,682  
Other comprehensive (loss) income, before tax                                
Unrealized  (losses) gains on securities:                                
Unrealized holding (losses) gains arising during the period     (2,793 )     161       (2,975 )     297  

Less: reclassification adjustment for gains included in net income

    1,250       -       1,523       -  
Net change in unrealized (losses) gains     (1,543 )     161       (1,452 )     297  
Change related to pension and other postretirement benefit plans     29       86       191       142  
Other comprehensive (loss) income, before tax     (1,514 )     247       (1,261 )     439  
Income tax (benefit) expense     (533 )     84       (444 )     149  
Other comprehensive (loss) income, net of tax     (981 )     163       (817 )     290  
Comprehensive income   $ 2,491     $ 2,353     $ 5,166     $ 3,972

The accompanying notes are an integral part of these consolidated financial statements.

3
 

First Connecticut Bancorp, Inc.

Consolidated Statement of Changes in Stockholders’ Equity (Unaudited)

 

                      Unallocated                 Accumulated        
    Common Stock     Additional     Common                 Other     Total  
    Shares           Paid in     Shares Held     Treasury     Retained     Comprehensive     Stockholders’  
    Outstanding     Amount     Capital     by ESOP     Stock     Earnings     Loss     Equity  
(Dollars in thousands, except share data)                                                
Balance at December 31, 2014     16,026,319       181       178,772       (12,681 )     (28,828 )     103,630       (6,511 )     234,563  

ESOP shares released and committed to be released

    -       -       197       521       -       -       -       718  
Cash dividend paid ($0.10 per common share)     -       -       -       -       -       (1,599 )     -       (1,599 )
Treasury stock acquired     (124,431 )     -       -       -       (1,844 )     -       -       (1,844 )
Stock options exercised     21,000       -       (11 )     -       283       -       -       272  
Tax benefits from stock-based compensation     -       -       4       -       -       -       -       4  
Share based compensation expense     -       -       1,802       -       -       -       -       1,802  
Net income     -       -       -       -       -       5,983       -       5,983  
Other comprehensive loss     -       -       -       -       -       -       (817 )     (817 )
Balance at June 30, 2015     15,922,888     $ 181     $ 180,764     $ (12,160 )   $ (30,389 )   $ 108,014     $ (7,328 )   $ 239,082  

The accompanying notes are an integral part of these consolidated financial statements.

4
 

First Connecticut Bancorp, Inc.

Consolidated Statements of Cash Flows (Unaudited)

 

    Six Months Ended June 30,  
(Dollars in thousands)   2015     2014  
Cash flows from operating activities            
Net income   $ 5,983     $ 3,682  

Adjustments to reconcile net income to net cash (used in) provided by operating activities: 

               
Provision for loan losses     1,278       915  
(Reversal of) provision for off-balance sheet commitments     (3 )     3  
Depreciation and amortization     1,351       1,578  
Provision for foreclosed real estate     -       (5 )
Amortization of ESOP expense     718       741  
Share based compensation expense     1,802       1,444  
Gain on sale of investments     (1,523 )     -  
Loans originated for sale     (49,809 )     (30,308 )
Proceeds from the sale of loans held for sale     45,608       29,357  
Gain on fair value adjustment for mortgage banking derivatives     (126 )     (2 )
Impairment losses on alternative investments     113       41  
Loss (gain) on sale of foreclosed real estate     9       (2 )
Net gain on loans sold     (932 )     (439 )
   Accretion and amortization of investment security discounts and premiums, net     (25 )     (40 )
Amortization and accretion of loan fees and discounts, net     (323 )     (371 )
Increase in accrued income receivable     (648 )     (216 )
Deferred income tax     836       (3 )
Increase in cash surrender value of bank-owned life insurance     (597 )     (564 )
Decrease (increase) in prepaid expenses and other assets     95       (373 )
(Decrease) increase in accrued expenses and other liabilities     (3,996 )     4,855  
Net cash (used in) provided by operating activities     (189 )     10,293  
Cash flow from investing activities                
Maturities and calls of securities held-to-maturity     8,858       5,268  
Maturities, calls and principal payments of securities available-for-sale     153,384       178,511  
Purchases of securities held-to-maturity     (27,000 )     (5,000 )
Purchases of securities available-for-sale     (109,046 )     (188,072 )
Loan originations, net of principal repayments     (151,414 )     (130,494 )
Purchases of Federal Home Loan Bank of Boston stock, net     (1,711 )     (4,588 )
Purchase of bank-owned life insurance     (10,000 )     -  
Proceeds from sale of foreclosed real estate     303       401  
Purchases of premises and equipment     (442 )     (1,031 )
Net cash used in investing activities     (137,068 )     (145,005 )
Cash flows from financing activities                
Net (payments to) proceeds from Federal Home Loan Bank of Boston advances     (1,000 )     32,000  
Decrease in repurchase agreement borrowings     (10,500 )     -  

Net increase in demand deposits, NOW accounts, savings accounts and money market accounts 

    85,774       123,137  
Net increase (decrease) in time deposits     59,225       (5,859 )
Net increase in repurchase liabilities     7,054       4,510  
Stock options exercised     272       -  
Excess tax benefit from stock-based compensation     4       9  
Repurchase of common stock     (1,844 )     (5,978 )
Cash dividend paid     (1,599 )     (1,128 )
Net cash provided by financing activities     137,386       146,691  
Net increase in cash and cash equivalents     129       11,979  
Cash and cash equivalents at beginning of period     42,863       38,799  
Cash and cash equivalents at end of period   $ 42,992     $ 50,778  
                 
Supplemental disclosure of cash flow information                
Cash paid for interest   $ 6,179     $ 4,526  
Cash paid for income taxes     3,384       2  
Loans transferred to other real estate owned     1,991       434  

The accompanying notes are an integral part of these consolidated financial statements.

5
 

  

First Connecticut Bancorp, Inc. 
Notes to Consolidated Financial Statements (Unaudited)
 

 

1.Summary of Significant Accounting Policies

 

Organization and Business

  

First Connecticut Bancorp, Inc. is a Maryland-chartered bank holding company that wholly owns its only subsidiary, Farmington Bank (collectively with its subsidiary, the “Company”). Farmington Bank’s main office is located in Farmington, Connecticut. Farmington Bank is a full-service, community bank with 22 branch locations throughout central Connecticut, offering commercial and residential lending as well as wealth management services in Connecticut and western Massachusetts. Farmington Bank’s primary source of income is interest accrued on loans to customers, which include small and middle market businesses and individuals residing primarily in Connecticut and western Massachusetts. However, the Bank will selectively lend to borrowers in other northeastern states.

 

Wholly-owned subsidiaries of Farmington Bank are Farmington Savings Loan Servicing, Inc., a passive investment company that was established to service and hold loans collateralized by real property; Village Investments, Inc.; the Village Corp., Limited, and Village Square Holdings, Inc. are presently inactive; 28 Main Street Corp., is a subsidiary that was formed to hold residential other real estate owned and Village Management Corp., is a subsidiary that was formed to hold commercial other real estate owned.

 

On June 21, 2013, the Company received regulatory approval to repurchase up to 1,676,452 shares, or 10% of its current outstanding common stock. During the six months ended June 30, 2015, the Company had repurchased 124,431 of these shares at a cost of $1.8 million. Repurchased shares are held as treasury stock and are available for general corporate purposes. The Company has 780,334 shares remaining available to be repurchased at June 30, 2015.

 

Basis of Financial Statement Presentation

 

The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. The Company has condensed or omitted certain information and footnote disclosures normally included in the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America pursuant to such rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement have been included. All significant intercompany transactions and balances have been eliminated in consolidation. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2014 included in the Company’s 10-K filed on March 16, 2015. The results of operations for the interim periods are not necessarily indicative of the results for the full year.

 

In preparing the consolidated financial statements, management is required to make extensive use of estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statement of condition and revenues and expenses for the interim period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, investment security other-than-temporary impairment judgments and investment security valuation.

 

6
 

 

First Connecticut Bancorp, Inc. 
Notes to Consolidated Financial Statements (Unaudited)
 

 

Investment Securities

  

Marketable equity and debt securities are classified as either trading, available-for-sale, or held-to-maturity (applies only to debt securities). Management determines the appropriate classifications of securities at the time of purchase. At June 30, 2015 and December 31, 2014, the Company had no debt or equity securities classified as trading. Held-to-maturity securities are debt securities for which the Company has the ability and intent to hold until maturity. All other securities not included in held-to-maturity are classified as available-for-sale. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Premiums and discounts on debt securities are amortized or accreted into interest income over the term of the securities using the level yield method. Available-for-sale securities are recorded at fair value. Unrealized gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported in accumulated other comprehensive income, a separate component of equity, until realized. Further information relating to the fair value of securities can be found within Note 4 of the Notes to Consolidated Financial Statements. In accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 320- “Debt and Equity Securities”, a decline in market value of a debt security below amortized cost that is deemed other-than-temporary is charged to earnings for the credit related other-than-temporary impairment (“OTTI”), resulting in the establishment of a new cost basis for the security, while the non-credit related OTTI is recognized in other comprehensive income if there is no intent or requirement to sell the security. The securities portfolio is reviewed on a quarterly basis for the presence of other-than-temporary impairment. If an equity security is deemed other-than-temporarily impaired, the full impairment is considered to be credit-related and a charge to earnings would be recorded. Gains and losses on sales of securities are recognized at the time of sale on a specific identification basis.

 

Loans Held for Sale

 

Loans originated and intended for sale in the secondary market are carried at the lower of amortized cost or fair value, as determined by aggregate outstanding commitments from investors or current investor yield requirements. Net unrealized losses, if any, are recognized through a valuation allowance by charges to other noninterest income in the accompanying condensed Consolidated Statements of Operations. Gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold on the trade date to net gain on loans sold in the accompanying condensed Consolidated Statements of Operations.

 

7
 

 

First Connecticut Bancorp, Inc. 
Notes to Consolidated Financial Statements (Unaudited)
 

 

Loans

 

The Company’s loan portfolio segments include residential real estate, commercial real estate, construction, installment, commercial, collateral, home equity lines of credit, demand, revolving credit and resort. Construction includes classes for commercial and residential construction.

 

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method. When loans are prepaid, sold or participated out, the unamortized portion is recognized as income or expense at that time.

 

Interest on loans is accrued and recognized in interest income based on contractual rates applied to principal amounts outstanding. Accrual of interest is discontinued, and previously accrued income is reversed, when loan payments are more than 90 days past due or when, in the judgment of management, collectability of the loan or loan interest becomes uncertain. Loans may be returned to accrual status when all principal and interest amounts contractually due (including arrearages) are reasonably assured of repayment within a reasonable period and there is a sustained period of repayment performance (generally a minimum of six months) by the borrower, in accordance with contractual terms involving payment of cash or cash equivalents. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual status. If a residential real estate, commercial real estate, construction, installment, commercial, collateral, home equity line of credit, demand, revolving credit and resort loan is on non-accrual status cash payments are applied towards the reduction of principal.  If loans are considered impaired but accruing, cash payments are applied first to interest income and then as a reduction of principal as specified in the contractual agreement, unless the collection of the remaining principal amount due is considered doubtful.

 

The policy for determining past due or delinquency status for all loan portfolio segments is based on the number of days past due or the contractual terms of the loan. A loan is considered delinquent when the customer does not make their payments due according to their contractual terms. Generally, a loan can be demanded at any time if the loan is delinquent or if the borrower fails to meet any other agreed upon terms and conditions.

 

On a quarterly basis, our loan policy requires that we evaluate for impairment all commercial real estate, construction, commercial and resort loan segments that are classified as non-accrual, loans secured by real property in foreclosure or are otherwise likely to be impaired, non-accruing residential and installment loan segments greater than $100,000 and all troubled debt restructurings.

 

Nonperforming loans consist of non-accruing loans, non-accruing loans identified as trouble debt restructurings and loans past due more than 90 days and still accruing interest.

 

Allowance for Loan Losses

 

The allowance for loan losses is maintained at a level believed adequate by management to absorb potential losses inherent in the loan portfolio as of the statement of condition date. The allowance for loan losses consists of a formula allowance following FASB ASC 450 – “Contingencies” and FASB ASC 310 – “Receivables”. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

 

8
 

 

First Connecticut Bancorp, Inc. 
Notes to Consolidated Financial Statements (Unaudited)
 

 

The allowance for loan losses is evaluated on a regular basis by management. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. The allowance consists of general, allocated and unallocated components, as further described below. All reserves are available to cover any losses regardless of how they are allocated.

  

General component:

  

The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by the following loan segments: residential real estate, commercial real estate, construction, installment, commercial, collateral, home equity line of credit, demand, revolving credit and resort. Construction loans include classes for commercial investment real estate construction, commercial owner occupied construction, residential development, residential subdivision construction and residential owner occupied construction loans. Management uses a rolling average of historical losses based on a time frame appropriate to capture relevant loss data for each loan segment. This historical loss factor is adjusted for the following qualitative factors: levels/trends in delinquencies and nonaccrual loans; trends in volume and terms of loans; effects of changes in risk selection and underwriting standards and other changes in lending policies, procedures and practices; experience/ability/depth of lending management and staff; and national and local economic trends and conditions. There were no material changes in the Company’s policies or methodology pertaining to the general component of the allowance for loan losses during the six months ended June 30, 2015.

 

The qualitative factors are determined based on the various risk characteristics of each loan segment. Risk characteristics relevant to each portfolio segment are as follows:

 

Residential real estate – Residential real estate loans are generally originated in amounts up to 95.0% of the lesser of the appraised value or purchase price of the property, with private mortgage insurance required on loans with a loan-to-value ratio in excess of 80.0%. The Company does not grant subprime loans. All loans in this segment are collateralized by owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower. All residential mortgage loans are underwritten pursuant to secondary market underwriting guidelines which include minimum FICO standards. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment.

 

Commercial real estate – Loans in this segment are primarily income-producing properties throughout the northeastern states. The underlying cash flows generated by the properties may be adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, may have an effect on the credit quality in this segment. Management generally obtains rent rolls and other financial information, as appropriate on an annual basis and continually monitors the cash flows of these loans.

 

Construction loans – Loans in this segment include commercial construction loans, real estate subdivision development loans to developers, licensed contractors and builders for the construction and development of commercial real estate projects and residential properties. Construction lending contains a unique risk characteristic as loans are originated under market and economic conditions that may change between the time of origination and the completion and subsequent purchaser financing of the property. In addition, construction subdivision loans and commercial and residential construction loans to contractors and developers entail additional risks as compared to single-family residential mortgage lending to owner-occupants. These loans typically involve large loan balances concentrated in single borrowers or groups of related borrowers. Real estate subdivision development loans to developers, licensed contractors and builders are generally speculative real estate development loans for which payment is derived from sale of the property. Credit risk may be affected by cost overruns, time to sell at an adequate price, and market conditions. Construction financing is generally considered to involve a higher degree of credit risk than longer-term financing on improved, owner-occupied real estate. Residential construction credit quality may be impacted by the overall health of the economy, including unemployment rates and housing prices.

 

9
 

 

First Connecticut Bancorp, Inc. 
Notes to Consolidated Financial Statements (Unaudited)
 

 

Commercial – Loans in this segment are made to businesses and are generally secured by assets of the business. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer spending, will have an effect on the credit quality in this segment.

 

Home equity line of credit – Loans in this segment include home equity loans and lines of credit underwritten with a loan-to-value ratio generally limited to no more than 80%, including any first mortgage. Our home equity lines of credit have ten-year terms and adjustable rates of interest which are indexed to the prime rate. The overall health of the economy, including unemployment rates and housing prices, may have an effect on the credit quality in this segment.

 

Installment, Collateral, Demand, Revolving Credit and Resort – Loans in these segments include loans principally to customers residing in our primary market area with acceptable credit ratings. Our installment and collateral consumer loans generally consist of loans on new and used automobiles, loans collateralized by deposit accounts and unsecured personal loans. The overall health of the economy, including unemployment rates and housing prices, may have an effect on the credit quality in this segment. Excluding collateral loans which are fully collateralized by a deposit account, repayment for loans in these segments is dependent on the credit quality of the individual borrower. The resort portfolio consists of a direct receivable loan outside the Northeast which is amortizing to its contractual obligations. The Company has exited the resort financing market with a residual portfolio remaining.

 

Allocated component:

 

The allocated component relates to loans that are classified as impaired. Impairment is measured on a loan by loan basis for commercial real estate, construction, commercial and resort loans by the present value of expected cash flows discounted at the effective interest rate; the fair value of the collateral, if applicable; or the observable market price for the loan. An allowance is established when the discounted cash flows (or collateral value) of the impaired loan is lower than the carrying value of that loan. The Company does not separately identify individual consumer and residential real estate loans for impairment disclosures, unless such loans are subject to a troubled debt restructuring agreement or they are nonaccrual loans with outstanding balances greater than $100,000.

 

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent. Management updates the analysis quarterly. The assumptions used in appraisals are reviewed for appropriateness. Updated appraisals or valuations are obtained as needed or adjusted to reflect the estimated decline in the fair value based upon current market conditions for comparable properties.

 

The Company periodically may agree to modify the contractual terms of loans. When a loan is modified and a concession is made to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring (“TDR”). All TDRs are classified as impaired.

 

10
 

 

First Connecticut Bancorp, Inc. 
Notes to Consolidated Financial Statements (Unaudited)
 

 

Unallocated component:

 

An unallocated component is maintained, when needed, to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio. The Company’s Loan Policy allows management to utilize a high and low range of 0.0% to 5.0% of our total allowance for loan losses when establishing an unallocated allowance, when considered necessary. The unallocated allowance is used to provide for an unidentified loss that may exist in emerging problem loans that cannot be fully quantified or may be affected by conditions not fully understood as of the balance sheet date. There was no unallocated allowance at June 30, 2015 and December 31, 2014.

  

Troubled Debt Restructuring

 

A loan is considered a troubled debt restructuring (“TDR”) when the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower in modifying or renewing the loan the Company would not otherwise consider. In connection with troubled debt restructurings, terms may be modified to fit the ability of the borrower to repay in line with their current financial status, which may include a reduction in the interest rate to market rate or below, a change in the term or movement of past due amounts to the back-end of the loan or refinancing. A loan is placed on non-accrual status upon being restructured, even if it was not previously, unless the modified loan was current for the six months prior to its modification and we believe the loan is fully collectable in accordance with its new terms. The Company’s policy to restore a restructured loan to performing status is dependent on the receipt of regular payments, generally for a period of six months and one calendar year-end. All troubled debt restructurings are classified as impaired loans and are reviewed for impairment by management on a quarterly basis per Company policy.

 

Foreclosed Real Estate

 

Real estate acquired through foreclosure comprises properties acquired in partial or total satisfaction of problem loans. The properties are acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure. At the time these properties are foreclosed, the properties are initially recorded at the lower of the related loan balance less any specific allowance for loss or fair value at the date of foreclosure less estimated selling costs. Losses arising at the time of acquisition of such properties are charged against the allowance for loan losses. Subsequent loss provisions are charged to the foreclosed real estate valuation allowance and expenses incurred to maintain the properties are charged to noninterest expense. Properties are evaluated regularly to ensure the recorded amounts are supported by current fair values, and a charge to operations is recorded as necessary to reduce the carrying amount to fair value less estimated costs to dispose. Revenue and expense from the operation of other real estate owned and the provision to establish and adjust valuation allowances are included in noninterest expenses. Costs relating to the development and improvement of the property are capitalized, subject to the limit of fair value of the collateral. In the Consolidated Statements of Financial Condition, total prepaid expenses and other assets include foreclosed real estate of $2.1 million and $400,000 as of June 30, 2015 and December 31, 2014, respectively, with no specific valuation allowance. The recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction totaled $5.0 million at June 30, 2015.

 

Pension and Other Postretirement Benefit Plans

 

The Company’s non-contributory defined-benefit pension plan and certain defined benefit postretirement plans were frozen as of February 28, 2013 and no additional benefits will accrue.

 

11
 

 

First Connecticut Bancorp, Inc. 
Notes to Consolidated Financial Statements (Unaudited)
 

 

The Company has a non-contributory defined benefit pension plan that provides benefits for substantially all employees hired before January 1, 2007 who meet certain requirements as to age and length of service. The benefits are based on years of service and average compensation, as defined in the Plan Document. The Company’s funding policy is to contribute annually the maximum amount that could be deducted for federal income tax purposes, while meeting the minimum funding standards established by the Employee Retirement Income Security Act of 1974.

 

In addition to providing pension benefits, we provide certain health care and life insurance benefits for retired employees. Participants or eligible employees hired before January 1, 1993 become eligible for the benefits if they retire after reaching age 62 with fifteen or more years of service. A fixed percent of annual costs are paid depending on length of service at retirement. The Company accrues for the estimated costs of these other post-retirement benefits through charges to expense during the years that employees render service. The Company makes contributions to cover the current benefits paid under this plan. The Company believes the policy for determining pension and other post-retirement benefit expenses is critical because judgments are required with respect to the appropriate discount rate, rate of return on assets and other items. The Company reviews and updates the assumptions annually. If the Company’s estimate of pension and post-retirement expense is too low it may experience higher expenses in the future, reducing its net income. If the Company’s estimate is too high, it may experience lower expenses in the future, increasing its net income.

 

Income Taxes

 

Deferred income taxes are provided for differences arising in the timing of income and expenses for financial reporting and for income tax purposes. Deferred income taxes and tax benefits are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company provides a deferred tax asset valuation allowance for the estimated future tax effects attributable to temporary differences and carryforwards when realization is determined not to be more likely than not.

 

FASB ASC 740-10 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. Pursuant to FASB ASC 740-10, the Company examines its financial statements, its income tax provision and its federal and state income tax returns and analyzes its tax positions, including permanent and temporary differences, as well as the major components of income and expense to determine whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. The Company recognizes interest and penalties arising from income tax settlements as part of its provision for income taxes.

 

Recent Accounting Pronouncements

 

In May 2014, the FASB issued ASU No. 2014-09 “Revenue from Contracts with Customers (Topic 606).” The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. ASU 2014-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those annual periods, however, on July 9, 2015 the FASB has delayed the effective date by one year. The amendments can be applied retrospectively to each prior reporting period or retrospectively with the cumulative effect of initially applying this Update recognized at the date of initial application. Early application is not permitted. The Company is assessing the impact of ASU 2014-09 on its accounting and disclosures.

 

12
 

 

First Connecticut Bancorp, Inc. 
Notes to Consolidated Financial Statements (Unaudited)
 

 

In June 2014, the FASB issued ASU No. 2014-11, “Transfers and Servicing (Topic 860) - Repurchase to Maturity Transactions, Repurchase Financings, and Disclosures”, which aligns the accounting for repurchase to maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements. Going forward, these transactions would all be accounted for as secured borrowings. ASU 2014-11 is effective for fiscal years beginning on or after December 15, 2014, and interim periods within those annual periods. In addition the disclosure of certain transactions accounted for as a sale is effective for fiscal years beginning on or after December 15, 2014, and interim periods within those annual periods, and the disclosure for transactions accounted for as secured borrowings is required for annual periods beginning after December 15, 2014, and interim periods beginning after March 15, 2015. Early adoption is prohibited. The adoption of ASU 2014-11 did not have a material impact on the Company’s financial statements (See Note 12).

 

In August 2014, the FASB issued ASU No. 2014-14, “Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40) - Classification of Certain Government Guaranteed Mortgage Loans upon Foreclosure.” ASU 2014-14 requires that a mortgage loan be derecognized and a separate other receivable be recognized upon foreclosure if certain conditions are met. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. ASU 2014-14 is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2014. The amendments can be applied using either a prospective transition method or a modified retrospective transition method. Early adoption is permitted. The adoption of ASU 2014-14 did not have an impact on the Company’s financial statements.

 

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” ASU 2014-15 provides guidance in accounting principles generally accepted in the United States of America about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company does not expect ASU 2014-15 to have a significant impact on its financial statements.

 

In November 2014, the FASB issued ASU 2014-16, “Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity” (a consensus of the FASB Emerging Issues Task Force). ASU 2014-16 clarifies how current U.S. GAAP should be interpreted in subjectively evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Public business entities are required to implement ASU 2014-16 in fiscal years and interim periods within those fiscal years beginning after December 15, 2015. The Company does not expect ASU 2014-16 to have a significant impact on its financial statements.

 

In January 2015, the FASB issued ASU 2015-01, “Income Statement – Extraordinary and Unusual Items”, (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” ASU 2015-01 eliminates from GAAP the concept of extraordinary items. ASU 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply ASU 2015-01 prospectively. A reporting entity also may apply ASU 2015-01 retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not expect ASU 2015-01 to have a significant impact on its financial statements.

 

13
 

 

First Connecticut Bancorp, Inc. 
Notes to Consolidated Financial Statements (Unaudited)
 

 

In February 2015, the FASB issued ASU No. 2015-02, “Amendments to the Consolidation Analysis.” This ASU affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, the amendments: (1) Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities; (2) Eliminate the presumption that a general partner should consolidate a limited partnership; (3) Affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) Provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. ASU No. 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015. The Company does not expect ASU 2015-02 to have a significant impact on its financial statements.

 

In April 2015, the FASB issued ASU No. 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” This ASU provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s accounting for service contracts. ASU No. 2015-05 is effective for interim and annual reporting periods beginning after December 15, 2015. The Company does not expect ASU 2015-05 to have a significant impact on its financial statements.

 

In May, 2015, the FASB issued ASU No. 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent))”. This ASU removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value (“NAV”) per share practical expedient. In addition, this ASU removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. ASU No. 2015-07 is effective for interim and annual reporting periods beginning after December 15, 2015 and which should be applied retrospectively to all periods presented. Earlier application is permitted. The Company does not expect ASU 2015-07 to have a significant impact on its financial statements.

 

14
 

 

First Connecticut Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited) 

 

  

2.Restrictions on Cash and Due from Banks

 

The Company is required to maintain a percentage of transaction account balances on deposit in non-interest-earning reserves with the Federal Reserve Bank, offset by the Company’s average vault cash. The Company also is required to maintain cash balances to collateralize the Company’s position with certain third parties. The Company had cash and liquid assets of approximately $10.3 million and $10.1 million to meet these requirements at June 30, 2015 and December 31, 2014.

 

3.Earnings Per Share

 

The following table sets forth the calculation of basic and diluted earnings per share:

 

   Three Months Ended June 30,    Six Months Ended June 30,  
   2015    2014    2015    2014  
(Dollars in thousands, except per share data):            
Net income  $3,472   $2,190   $5,983   $3,682 
Less: Dividends to participating shares   (13)   (16)   (26)   (28)
Income allocated to participating shares   (47)   (41)   (77)   (68)
Net income allocated to common stockholders  $3,412   $2,133   $5,880   $3,586 
                     
Weighted-average shares issued   18,006,129    18,035,335    18,006,129    18,035,335 
                     
Less:  Average unallocated ESOP shares   (1,017,278)   (1,112,637)   (1,029,017)   (1,124,420)
    Average treasury stock   (2,034,097)   (1,920,957)   (2,005,332)   (1,800,137)
    Average unvested restricted stock   (260,282)   (400,325)   (263,565)   (400,325)
Weighted-average basic shares outstanding   14,694,472    14,601,416    14,708,215    14,710,453 
                     
Plus:   Average dilutive shares   144,982    106,056    136,779    103,113 
Weighted-average diluted shares outstanding   14,839,454    14,707,472    14,844,994    14,813,566 
                     
Net earnings per share (1):                    
    Basic  $0.23   $0.15   $0.40   $0.24 
    Diluted  $0.23   $0.14   $0.40   $0.24 

 

(1)  Certain per share amounts may not appear to reconcile due to rounding.

 

For the six months ended June 30, 2015 and 2014, respectively, 93,250 and 46,250 options were anti-dilutive and therefore excluded from the earnings per share calculation.

 

15
 

 

First Connecticut Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited) 

 

  

4.Investment Securities

 

Investment securities are summarized as follows:

                                    
   June 30, 2015
        Recognized in OCI        Not Recognized in OCI      
        Gross   Gross        Gross   Gross      
   Amortized   Unrealized   Unrealized    Carrying   Unrealized   Unrealized   Fair 
(Dollars in thousands)  Cost   Gains   Losses   Value   Gains   Losses   Value 
Available-for-sale                                   
Debt securities:                                   
U.S. Treasury obligations  $63,756   $171   $-   $63,927   $-   $-   $63,927 
U.S. Government agency obligations   67,011    106    -    67,117    -    -    67,117 
Government sponsored residential mortgage-backed securities   5,861    300    -    6,161    -    -    6,161 
Corporate debt securities   1,000    70    -    1,070    -    -    1,070 
Preferred equity securities   2,000    -    (376)   1,624    -    -    1,624 
Marketable equity securities   108    49    (1)   156    -    -    156 
Mutual funds   3,898    -    (154)   3,744    -    -    3,744 
Total securities available-for-sale  $143,634   $696   $(531)  $143,799   $-   $-   $143,799 
Held-to-maturity                                   
U.S. Government agency obligations  $25,611   $-   $-   $25,611   $8   $(79)   25,540 
Government sponsored residential mortgage-backed securities   8,755    -    -    8,755    150    -    8,905 
Total securities held-to-maturity  $34,366   $-   $-   $34,366   $158   $(79)  $34,445 

 

   December 31, 2014 
        Recognized in OCI        Not Recognized in OCI      
        Gross   Gross        Gross   Gross      
   Amortized   Unrealized   Unrealized   Carrying   Unrealized   Unrealized   Fair 
(Dollars in thousands)  Cost   Gains   Losses   Value   Gains   Losses   Value 
Available-for-sale                                   
Debt securities:                                   
U.S. Treasury obligations  $123,739   $81   $(4)  $123,816   $-   $-   $123,816 
U.S. Government agency obligations   49,013    110    (14)   49,109    -    -    49,109 
Government sponsored residential mortgage-backed securities   6,624    283    -    6,907    -    -    6,907 
Corporate debt securities   1,000    85    -    1,085    -    -    1,085 
Trust preferred debt securities   -    1,557    -    1,557    -    -    1,557 
Preferred equity securities   2,100    2    (426)   1,676    -    -    1,676 
Marketable equity securities   108    63    (1)   170    -    -    170 
Mutual funds   3,838    -    (117)   3,721    -    -    3,721 
Total securities available-for-sale  $186,422   $2,181   $(562)  $188,041   $-   $-   $188,041 
Held-to-maturity                                   
U.S. Government agency obligations  $7,000   $-   $-   $7,000   $-   $(8)  $6,992 
Government sponsored residential mortgage-backed securities   9,224    -    -    9,224    200    -    9,424 
Total securities held-to-maturity  $16,224   $-   $-   $16,224   $200   $(8)  $16,416 

 

16
 

 

First Connecticut Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited) 

 

  

The following table summarizes gross unrealized losses and fair value, aggregated by investment category and length of time the investments have been in a continuous unrealized loss position at June 30, 2015 and December 31, 2014:

 

   June 30, 2015 
        Less than 12 Months   12 Months or More   Total 
             Gross        Gross       Gross 
   Number of   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized  
(Dollars in thousands)  Securities   Value   Loss   Value   Loss   Value   Loss 
Available-for-sale:                                   
  Preferred equity securities   1   $-   $-   $1,624   $(376)  $1,624   $(376)
  Marketable equity securities   1    -    -    6    (1)   6    (1)
  Mutual funds   1    -    -    3,744    (154)   3,744    (154)
Total investment securities in an unrealized loss position   3   $-   $-   $5,374   $(531)  $5,374   $(531)
                                    
Held-to-maturity                                   
  U.S. Government agency obligations   3    14,921    (79)   -    -    14,921    (79)
    3    14,921    (79)   -    -    14,921    (79)
Total investment securities in an unrealized loss position   6   $14,921   $(79)  $5,374   $(531)  $20,295   $(610)
                                    
   December  31, 2014
        Less than 12 Months   12 Months or More   Total 
             Gross        Gross        Gross 
   Number of   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized  
(Dollars in thousands)  Securities   Value   Loss   Value   Loss   Value   Loss 
Available-for-sale:                                   
  U.S. Treasury obligations   4   $43,919   $(4)  $-   $-   $43,919   $(4)
  U.S. Government agency obligations   2    16,989    (14)   -    -    16,989    (14)
  Preferred equity securities   1    -    -    1,574    (426)   1,574    (426)
  Marketable equity securities   1    -    -    5    (1)   5    (1)
  Mutual funds   1    -    -    2,842    (117)   2,842    (117)
    9   $60,908   $(18)  $4,421   $(544)  $65,329   $(562)
Held-to-maturity                                   
  U.S. Government agency obligations                                   
  Government sponsored residential   1    6,992    (8)   -    -    6,992    (8)
mortgage-backed securities   1    6,992    (8)   -    -    6,992    (8)
Total investment securities in an unrealized loss position   10   $67,900   $(26)  $4,421   $(544)  $72,321   $(570)

  

Management believes that no individual unrealized loss as of June 30, 2015 represents an other-than-temporary impairment (“OTTI”), based on its detailed review of the securities portfolio. The Company has no intent to sell nor is it more likely than not that the Company will be required to sell any of the securities in a loss position during the period of time necessary to recover the unrealized losses, which may be until maturity.

 

The following summarizes the conclusions from our OTTI evaluation for those security types that incurred significant gross unrealized losses as of June 30, 2015:

 

Preferred equity securities - The unrealized loss on preferred equity securities in a loss position for 12 months or more relates to one preferred equity security. This investment is in a global financial institution. When estimating the recovery period for securities in an unrealized loss position, management utilizes analyst forecasts, earnings assumptions and other company-specific financial performance metrics. In addition, this assessment incorporates general market data, industry and sector cycles and related trends to determine a reasonable recovery period. Management evaluated the near-term prospects of the issuer in relation to the severity and duration of the impairment. Management concluded that the preferred equity security is not other-than-temporarily impaired at June 30, 2015.

 

17
 

 

First Connecticut Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited) 

 

  

Mutual funds - The unrealized loss on mutual funds in a loss position for 12 months or more relates to one mutual fund. The fund invests primarily in high quality debt securities and other debt instruments supporting the affordable housing industry in areas of the United States designated by fund shareholders. When estimating the recovery period for securities in an unrealized loss position, management utilizes analyst forecasts, earnings assumptions and other fund-specific financial performance metrics. In addition, this assessment incorporates general market data, industry and sector cycles and related trends to determine a reasonable recovery period. Management evaluated the near-term prospects of the fund in relation to the severity and duration of the impairment. Management concluded that the mutual fund is not other-than-temporarily impaired at June 30, 2015.

 

The Company recorded no other-than-temporary impairment charges to the investment securities portfolios for the three and six months ended June 30, 2015 and 2014.

 

There were gross realized gains on sales of securities available-for-sale totaling $1.3 million and $1.5 million for the three and six months ended June 30, 2015, respectively. There were no gross realized gains on sales of securities available-for-sale for the three and six months ended June 30, 2014.

 

As of June 30, 2015 and December 31, 2014, U.S. Treasury, U.S. Government agency obligations and Government sponsored residential mortgage-backed securities with a fair value of $133.5 million and $127.4 million, respectively, were pledged as collateral for loan derivatives, public funds, repurchase liabilities and repurchase agreement borrowings.

 

The amortized cost and estimated fair value of debt securities at June 30, 2015 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or repayment penalties:

 

   June 30, 2015
   Available-for-Sale    Held-to-Maturity
        Estimated        Estimated 
   Amortized   Fair   Amortized   Fair 
   Cost   Value   Cost    Value 
(Dollars in thousands)                    
Due in one year or less  $69,994   $69,996   $-   $- 
Due after one year through five years   61,773    62,118    25,611    25,540 
Due after five years through ten years   -    -    -    - 
Due after ten years   -    -    -    - 
Government sponsored residential mortgage-backed securities mortgage-backed securities   5,861    6,161    8,755    8,905 
   $137,628   $138,275   $34,366   $34,445 

 

Federal Home Loan Bank of Boston (“FHLBB”) Stock

The Company, as a member of the FHLBB, owned $21.5 and $19.8 million of FHLBB capital stock at June 30, 2015 and December 31, 2014, respectively, which is equal to its FHLBB capital stock requirement. The Company evaluated its FHLBB capital stock for potential other-than-temporary impairment at June 30, 2015 and December 31, 2014. Capital adequacy, credit ratings, the value of the stock, overall financial condition of both the FHLB system and FHLBB as well as current economic factors was analyzed in the impairment analysis. The Company concluded that its position in FHLBB capital stock is not other-than-temporarily impaired as of June 30, 2015 and December 31, 2014.

 

18
 

 

First Connecticut Bancorp, Inc.
Notes to Consolidated Financial Statements (Unaudited)
 

 

Alternative Investments

 

Alternative investments, which totaled $2.5 million and $2.7 million at June 30, 2015 and December 31, 2014, respectively, are included in other assets in the accompanying condensed Consolidated Statements of Financial Condition.  The Company’s alternative investments include investments in certain non-public funds, which include limited partnerships, an equity fund and membership stocks. These investments are held at cost and were evaluated for potential other-than-temporary impairment at June 30, 2015.  The Company recognized an $113,000 and $41,000 other-than-temporary impairment charge on its limited partnerships for the six months ended June 30, 2015 and 2014, respectively, included in other noninterest income in the accompanying condensed Consolidated Statements of Income.  The Company recognized profit distributions in its limited partnerships of $42,000 and $27,000 for the six months ended June 30, 2015.  See a further discussion of fair value in Note 15 - Fair Value Measurements.  The Company has $692,000 in unfunded commitments remaining for its alternative investments as of June 30, 2015.

 

5. Loans and Allowance for Loan Losses

 

Loans consisted of the following:

 

    June 30,     December 31,  
    2015     2014  
(Dollars in thousands)            
Real estate:            
Residential   $ 888,376     $ 827,005  
Commercial     817,955       765,066  
Construction     42,858       57,371  
Installment     3,103       3,356  
Commercial     359,537       309,708  
Collateral     1,551       1,733  
Home equity line of credit     169,507       169,768  
Revolving credit     77       99  
Resort     837       929  
Total loans     2,283,801       2,135,035  
Net deferred loan costs     4,165       3,842  
Loans     2,287,966       2,138,877  
Allowance for loan losses     (19,581 )     (18,960 )
Loans, net   $ 2,268,385     $ 2,119,917  

 

19
 

 

First Connecticut Bancorp, Inc.
Notes to Consolidated Financial Statements (Unaudited)
 

 

Changes in the allowance for loan losses by segments for the three and six months ended June 30, 2015 and 2014 are as follows:

 

    For the Three Months Ended June 30, 2015  
    Balance at                 Provision for        
    beginning of                 (Reduction)     Balance at  
    period     Charge-offs     Recoveries     loan losses     end of period  
(Dollars in thousands)                              
Real estate:                              
Residential   $ 4,383     $ (45 )   $ 16     $ 98     $ 4,452  
Commercial     8,917       (213 )     -       297       9,001  
Construction     472       -       -       (111 )     361  
Installment     40       (1 )     -       (3 )     36  
Commercial     3,427       (18 )     -       336       3,745  
Collateral     -       -       -       -       -  
Home equity line of credit     1,993       -       -       (7 )     1,986  
Revolving credit     -       (59 )     6       53       -  
Resort     -       -       -       -       -  
    $ 19,232     $ (336 )   $ 22     $ 663     $ 19,581  
                                         
      For the Three Months Ended June 30, 2014  
    Balance at                     Provision for          
    beginning of                     (Reduction)     Balance at  
    period     Charge-offs     Recoveries     loan losses     end of period  
(Dollars in thousands)                                        
Real estate:                                        
Residential   $ 3,760     $ (123 )   $ 1     $ (7 )   $ 3,631  
Commercial     8,601       -       1       180       8,782  
Construction     927       -       -       (27 )     900  
Installment     42       (3 )     -       2       41  
Commercial     2,847       (1 )     6       237       3,089  
Collateral     -       -       -       -       -  
Home equity line of credit     1,453       -       -       15       1,468  
Revolving credit     -       (12 )     2       10       -  
Resort     1       -       -       -       1  
    $ 17,631     $ (139 )   $ 10     $ 410     $ 17,912  

 

20
 

 

First Connecticut Bancorp, Inc.      
Notes to Consolidated Financial Statements (Unaudited)      
       

 

    For the Six Months Ended June 30, 2015  
    Balance at                 Provision for        
    beginning of                 (Reduction)     Balance at  
    period     Charge-offs     Recoveries     loan losses     end of period  
(Dollars in thousands)                              
Real estate                              
Residential   $ 4,382     $ (193 )   $ 16     $ 247     $ 4,452  
Commercial     8,949       (213 )     -       265       9,001  
Construction     478       -       -       (117 )     361  
Installment     41       (3 )     -       (2 )     36  
Commercial     3,250       (20 )     -       515       3,745  
Collateral     -       -       -       -       -  
Home equity line of credit     1,859       (138 )     -       265       1,986  
Revolving credit     -       (121 )     15       106       -  
Resort     1       -       -       (1 )     -  
    $ 18,960     $ (688 )   $ 31     $ 1,278     $ 19,581  
                                         
    For the Six Months Ended June 30, 2014  
    Balance at                     Provision for          
    beginning of                     (Reduction)     Balance at  
    period     Charge-offs     Recoveries     loan losses     end of period  
(Dollars in thousands)                                        
Real estate                                        
Residential   $ 3,647     $ (262 )   $ 1     $ 245     $ 3,631  
Commercial     8,253       (93 )     1       621       8,782  
Construction     1,152       -       -       (252 )     900  
Installment     48       (3 )     -       (4 )     41  
Commercial     3,746       (955 )     13       285       3,089  
Collateral     -       -       -       -       -  
Home equity line of credit     1,465       -       -       3       1,468  
Revolving credit     -       (26 )     7       19       -  
Resort     3       -       -       (2 )     1  
    $ 18,314     $ (1,339 )   $ 22     $ 915     $ 17,912  

 

21
 

 

First Connecticut Bancorp, Inc.
Notes to Consolidated Financial Statements (Unaudited)
 

 

The following table lists the allocation of the allowance by impairment methodology and by loan segment at June 30, 2015 and December 31, 2014:

 

    June 30, 2015     December 31, 2014  
          Reserve           Reserve  
(Dollars in thousands)   Total     Allocation     Total     Allocation  

Loans individually evaluated for impairment:

                       
Real estate:                        
Residential   $ 11,567     $ 136     $ 11,791     $ 285  
Commercial     16,897       48       19,051       233  
Construction     4,719       -       4,719       -  
Installment     277       8       251       8  
Commercial     4,643       202       5,680       225  
Collateral     -       -       -       -  
Home equity line of credit     1,035       -       1,031       -  
Revolving Credit     -       -       -       -  
Resort     837       -       929       1  
      39,975       394       43,452       752  
                                 

Loans collectively evaluated for impairment:

                               
Real estate:                                
Residential   $ 881,544     $ 4,316     $ 819,630     $ 4,097  
Commercial     800,554       8,953       745,501       8,716  
Construction     38,139       361       52,652       478  
Installment     2,807       28       3,093       33  
Commercial     354,847       3,543       303,980       3,025  
Collateral     1,551       -       1,733       -  
Home equity line of credit     168,472       1,986       168,737       1,859  
Revolving Credit     77       -       99       -  
Resort     -       -       -       -  
      2,247,991       19,187       2,095,425       18,208  
Total   $ 2,287,966     $ 19,581     $ 2,138,877     $ 18,960  

 

22
 

 

First Connecticut Bancorp, Inc.
Notes to Consolidated Financial Statements (Unaudited)
 

 

The following is a summary of loan delinquencies at recorded investment values at June 30, 2015 and December 31, 2014:

 

    June 30, 2015  
                                      Past Due 90  
    30-59 Days     60-89 Days     > 90 Days             Days or More  
(Dollars in thousands)   Past Due     Past Due     Past Due     Total   and Still  
    Number   Amount     Number   Amount     Number   Amount     Number   Amount   Accruing  
Real estate:                                                  
Residential     17     $ 3,122       4     $ 942       17     $ 6,366       38   $ 10,430   $ -  
Commercial     -       -       -       -       3       1,086       3     1,086     -  
Construction     -       -       -       -       1       187       1     187     -  
Installment     2       11       -       -       1       30       3     41     -  
Commercial     4       199       -       -       3       70       7     269     -  
Collateral     6       58       -       -       -       -       6     58     -  
Home equity line of credit     1       65       -       -       7       1,050       8     1,115     -  
Demand     1       58       -       -       -       -       1     58     -  
Revolving Credit     -       -       -       -       -       -       -     -     -  
Resort     -       -       -       -       -       -           -     -     -  
Total     31     $ 3,513       4     $ 942       32     $ 8,789       67   $ 13,244   $ -  
                                                                     
    December 31, 2014  
                                              Past Due 90  
    30-59 Days     60-89 Days     > 90 Days                 Days or More  
(Dollars in thousands)   Past Due     Past Due     Past Due     Total   and Still  
    Number   Amount     Number   Amount     Number   Amount     Number   Amount   Accruing  
Real estate:                                                                    
Residential     16     $ 3,599       6     $ 1,263       16     $ 6,819       38   $ 11,681   $ -  
Commercial     2       348       -       -       3       1,979       5     2,327     -  
Construction     -       -       -       -       1       187       1     187     -  
Installment     3       69       2       82       2       33       7     184     -  
Commercial     1       40       1       4       7       550       9     594     -  
Collateral     9       99       -       -       -       -       9     99     -  
Home equity line of credit     3       202       1       349       5       389       9     940     -  
Demand     1       67       -       -       -       -       1     67     -  
Revolving Credit     -       -       -       -       -       -       -     -     -  
Resort     -       -       -       -       -       -       -     -     -  
Total     35     $ 4,424       10     $ 1,698       34     $ 9,957       79   $ 16,079   $ -  

 

23
 

 

First Connecticut Bancorp, Inc. 

Notes to Consolidated Financial Statements (Unaudited) 

 

 

Nonperforming assets consist of non-accruing loans including non-accruing loans identified as troubled debt restructurings, loans past due more than 90 days and still accruing interest and other real estate owned.  The following table lists nonperforming assets at:

 

    June 30,     December 31,  
(Dollars in thousands)   2015     2014  
Nonaccrual loans:            
Real estate:            
Residential   $ 8,678     $ 9,706  
Commercial     1,206       2,112  
Construction     187       187  
Installment     142       155  
Commercial     1,686       2,268  
Collateral     -       -  
Home equity line of credit     1,074       1,040  
Demand     -       -  
Revolving Credit     -       -  
Resort     -       -  
Total nonaccruing loans     12,973       15,468  
Loans 90 days past due and still accruing     -       -  
Other real estate owned     2,079       400  
Total nonperforming assets   $ 15,052     $ 15,868  

 

24
 

 

First Connecticut Bancorp, Inc. 

Notes to Consolidated Financial Statements (Unaudited) 

 

 

The following is a summary of information pertaining to impaired loans at June 30, 2015 and December 31, 2014:

  

      June 30, 2015       December 31, 2014  
          Unpaid                 Unpaid        
    Recorded     Principal     Related     Recorded     Principal     Related  
(Dollars in thousands)   Investment     Balance     Allowance     Investment     Balance     Allowance  

Impaired loans without a valuation allowance: 

                                   
Real estate:                                    
Residential   $ 10,425     $ 11,543     $ -     $ 5,862     $ 6,286     $ -  
Commercial     13,953       13,995       -       13,804       13,828       -  
Construction     4,719       4,965       -       4,719       4,965       -  
Installment     250       264       -       220       232       -  
Commercial     4,085       4,199       -       3,527       3,584       -  
Collateral     -       -       -       -       -       -  
Home equity line of credit     1,035       1,048       -       1,031       1,264       -  
Revolving Credit     -       -       -       -       -       -  
Resort     837       837       -       -       -       -  
Total     35,304       36,851       -       29,163       30,159       -  
                                                 

Impaired loans with a valuation allowance: 

                                               
Real estate:                                                
Residential     1,142       1,158       136       5,929       6,848       285  
Commercial     2,944       2,944       48       5,247       5,523       233  
Construction     -       -       -       -       -       -  
Installment     27       27       8       31       31       8  
Commercial     558       675       202       2,153       2,266       225  
Collateral     -       -       -       -       -       -  
Home equity line of credit     -       -       -       -       -       -  
Revolving Credit     -       -       -       -       -       -  
Resort     -       -       -       929       929       1  
Total     4,671       4,804       394       14,289       15,597       752  
Total impaired loans   $ 39,975     $ 41,655     $ 394     $ 43,452     $ 45,756     $ 752  

 

25
 

 

First Connecticut Bancorp, Inc. 

Notes to Consolidated Financial Statements (Unaudited) 

 

  

The following table summarizes average recorded investment and interest income recognized on impaired loans: 

                                     
          Three Months     Six Months           Three Months     Six Months  
          Ended     Ended           Ended     Ended  
    June 30,     June 30,     June 30,     June 30,     June 30,     June 30,  
    2015     2015     2015     2014     2014     2014  
    Average     Interest     Interest     Average     Interest     Interest  
    Recorded     Income     Income     Recorded     Income     Income  
(Dollars in thousands)   Investment     Recognized     Recognized     Investment     Recognized     Recognized  

Impaired loans without a valuation allowance: 

                                   
Real estate:                                    
Residential   $ 7,934     $ 26     $ 53     $ 6,895     $ 20     $ 43  
Commercial     14,016       147       289       16,844       174       429  
Construc