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EX-32.1 - EXHIBIT 32.1 - First Connecticut Bancorp, Inc.t83447_ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - First Connecticut Bancorp, Inc.t83447_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - First Connecticut Bancorp, Inc.t83447_ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - First Connecticut Bancorp, Inc.t83447_ex32-2.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 10-Q 

 

 

 

x Quarterly Report-
Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended September 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   (I.R.S. Employer
incorporation or organization)   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    x     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    x     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 ¨ Accelerated filer x
       
Non-accelerated filer ¨ Smaller reporting company ¨

 

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

 

As of October 26, 2015, there were 15,878,263 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 September 30, 2015 (unaudited) and  December 31, 2014   1
       
  Consolidated Statements of Income for the three and nine months ended September 30, 2015 and 2014 (unaudited)   2
       
  Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2015 and 2014 (unaudited)   3
       
  Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2015 (unaudited)   4
       
  Consolidated Statements of Cash Flows for the nine months ended September 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   50
       
Item 3. Quantitative and Qualitative Disclosures About Market Risk   67
       
Item 4. Controls and Procedures   68
       
Part II. Other Information    
       
Item 1. Legal Proceedings   68
       
Item1A. Risk Factors   68
       
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   68
       
Item 3. Defaults upon Senior Securities   68
       
Item 4. Mine Safety Disclosure   69
       
Item 5. Other Information   69
       
Item 6. Exhibits   69
       
Signatures     71
       
Exhibit 31.1    
Exhibit 31.2    
Exhibit 32.1    
Exhibit 32.2    

 

 

 

 

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

 

   September 30,   December 31, 
   2015   2014 
(Dollars in thousands, except share and per share data)        
Assets          
Cash and due from banks  $33,564   $35,232 
Interest bearing deposits with other institutions   13,883    7,631 
Total cash and cash equivalents   47,447    42,863 
Securities held-to-maturity, at amortized cost   25,486    16,224 
Securities available-for-sale, at fair value   171,390    188,041 
Loans held for sale   8,416    2,417 
Loans (1)   2,338,267    2,138,877 
Allowance for loan losses   (20,010)   (18,960)
Loans, net   2,318,257    2,119,917 
Premises and equipment, net   17,870    18,873 
Federal Home Loan Bank of Boston stock, at cost   23,038    19,785 
Accrued income receivable   6,305    5,777 
Bank-owned life insurance   50,633    39,686 
Deferred income taxes, net   15,935    16,841 
Prepaid expenses and other assets   23,677    14,936 
Total assets  $2,708,454   $2,485,360 
           
Liabilities and Stockholders' Equity          
Deposits          
Interest-bearing  $1,613,598   $1,402,517 
Noninterest-bearing   359,757    330,524 
    1,973,355    1,733,041 
Federal Home Loan Bank of Boston advances   373,600    401,700 
Repurchase agreement borrowings   10,500    21,000 
Repurchase liabilities   58,084    48,987 
Accrued expenses and other liabilities   49,720    46,069 
Total liabilities   2,465,259    2,250,797 
Stockholders' Equity          
Common stock, $0.01 par value, 30,000,000 shares authorized; 17,976,893 shares issued and 15,893,263 shares outstanding at September 30, 2015 and 18,006,129 shares issued and 16,026,319 shares outstanding at December 31, 2014   181    181 
Additional paid-in-capital   181,195    178,772 
Unallocated common stock held by ESOP   (11,893)   (12,681)
Treasury stock, at cost (2,083,630 shares at September 30, 2015 and 1,979,810 shares at December 31, 2014)   (30,411)   (28,828)
Retained earnings   111,274    103,630 
Accumulated other comprehensive loss   (7,151)   (6,511)
Total stockholders' equity   243,195    234,563 
Total liabilities and stockholders' equity  $2,708,454   $2,485,360 

 

(1) Loans include net deferred loan costs of $4.0 million and $3.8 million at September 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 September 30,   Nine Months Ended September 30, 
   2015   2014   2015   2014 
(Dollars in thousands, except share and per share data)                
Interest income                    
Interest and fees on loans                    
Mortgage  $15,861   $14,490   $46,250   $41,793 
Other   4,594    3,608    12,853    10,389 
Interest and dividends on investments                    
United States Government and agency obligations   401    258    1,109    665 
Other bonds   13    57    66    196 
Corporate stocks   217    109    493    307 
Other interest income   8    6    19    12 
Total interest income   21,094    18,528    60,790    53,362 
Interest expense                    
Deposits   2,412    1,845    6,761    5,250 
Federal Home Loan Bank of Boston advances   890    479    2,445    1,166 
Repurchase agreement borrowings   96    182    351    538 
Repurchase liabilities   24    37    87    109 
Total interest expense   3,422    2,543    9,644    7,063 
Net interest income   17,672    15,985    51,146    46,299 
Provision for loan losses   386    1,041    1,664    1,956 
Net interest income after provision for loan losses   17,286    14,944    49,482    44,343 
Noninterest income                    
Fees for customer services   1,536    1,459    4,409    3,967 
Gain on sales of investments   -    -    1,523    - 
Net gain on loans sold   993    633    1,925    1,072 
Brokerage and insurance fee income   54    47    163    140 
Bank owned life insurance income   349    284    946    847 
Other   309    355    1,013    580 
Total noninterest income   3,241    2,778    9,979    6,606 
Noninterest expense                    
Salaries and employee benefits   9,302    8,593    27,127    25,519 
Occupancy expense   1,219    1,271    3,858    3,829 
Furniture and equipment expense   1,034    1,093    3,147    3,217 
FDIC assessment   413    361    1,227    1,010 
Marketing   443    332    1,386    1,219 
Other operating expenses   2,307    2,569    8,507    7,639 
Total noninterest expense   14,718    14,219    45,252    42,433 
Income before income taxes   5,809    3,503    14,209    8,516 
Income tax expense   1,594    997    4,011    2,328 
Net income  $4,215   $2,506   $10,198   $6,188 
                     
Net earnings per share (See Note 3):                    
Basic  $0.28   $0.17   $0.68   $0.41 
Diluted   0.28    0.17    0.67    0.41 
Dividends per share   0.06    0.05    0.16    0.12 

 

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 September 30,   Nine Months Ended September 30, 
   2015   2014   2015   2014 
(Dollars in thousands)                
Net income  $4,215   $2,506   $10,198   $6,188 
Other comprehensive (loss) income, before tax                    
Unrealized  (losses) gains on securities:                    
Unrealized holding (losses) gains arising during the period   103    (209)   (2,872)   88 
Less: reclassification adjustment for gains included in net income   -    -    1,523    - 
Net change in unrealized (losses) gains   103    (209)   (1,349)   88 
Change related to pension and other postretirement benefit plans   170    69    361    211 
Other comprehensive (loss) income, before tax   273    (140)   (988)   299 
Income tax (benefit) expense   96    (47)   (348)   102 
Other comprehensive (loss) income, net of tax   177    (93)   (640)   197 
Comprehensive income  $4,392   $2,413   $9,558   $6,385 

 

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   -    -    319    788    -    -    -    1,107 
Cash dividend paid ($0.16 per common share)   -    -    -    -    -    (2,554)   -    (2,554)
Treasury stock acquired   (132,020)   -    -    -    (1,963)   -    -    (1,963)
Stock options exercised   28,200    -    (15)   -    380    -    -    365 
Cancelation of shares for tax witholding   (29,236)   -    (498)   -    -    -    -    (498)
Tax benefits from stock-based compensation   -    -    149    -    -    -    -    149 
Share based compensation expense   -    -    2,468    -    -    -    -    2,468 
Net income   -    -    -    -    -    10,198    -    10,198 
Other comprehensive loss   -    -    -    -    -    -    (640)   (640)
Balance at September 30, 2015   15,893,263   $181   $181,195   $(11,893)  $(30,411)  $111,274   $(7,151)  $243,195 

 

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

 

 4 

 

 

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

 

   Nine Months Ended September 30, 
(Dollars in thousands)  2015   2014 
Cash flows from operating activities          
Net income  $10,198   $6,188 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:          
Provision for loan losses   1,664    1,956 
Provision for off-balance sheet commitments   38    22 
Depreciation and amortization   1,990    2,355 
Amortization of ESOP expense   1,107    1,107 
Share based compensation expense   2,468    2,193 
Gain on sale of investments   (1,523)   - 
Loans originated for sale   (170,638)   (46,954)
Proceeds from the sale of loans held for sale   166,564    64,210 
Loss on disposal of premises and equipment   51    - 
Gain on fair value adjustment for mortgage banking derivatives   (52)   (47)
Impairment losses on alternative investments   144    41 
(Gain) loss on sale of foreclosed real estate   (567)   2 
Net gain on loans sold   (1,925)   (1,072)
Accretion and amortization of investment security discounts and premiums, net   (47)   (60)
Amortization and accretion of loan fees and discounts, net   (205)   (256)
Increase in accrued income receivable   (528)   (414)
Deferred income tax   1,255    272 
Increase in cash surrender value of bank-owned life insurance   (947)   (847)
Increase in prepaid expenses and other assets   (8,721)   (56)
Increase in accrued expenses and other liabilities   3,799    1,148 
Net cash provided by operating activities   4,125    29,788 
Cash flow from investing activities          
Maturities and calls of securities held-to-maturity   24,738    5,544 
Maturities, calls and principal payments of securities available-for-sale   215,934    252,174 
Purchases of securities held-to-maturity   (34,000)   (5,000)
Purchases of securities available-for-sale   (199,062)   (295,847)
Loan originations, net of principal repayments   (201,790)   (251,650)
Purchases of Federal Home Loan Bank of Boston stock, net   (3,253)   (4,588)
Purchase of bank-owned life insurance   (10,000)   - 
Proceeds from sale of foreclosed real estate   2,620    830 
Purchases of premises and equipment   (1,038)   (1,120)
Net cash used in investing activities   (205,851)   (299,657)
Cash flows from financing activities          
Net (payments to) proceeds from Federal Home Loan Bank of Boston advances   (28,100)   45,700 
Decrease in repurchase agreement borrowings   (10,500)   - 
Net increase in demand deposits, NOW accounts, savings accounts and money market accounts   170,485    221,135 
Net increase (decrease) in time deposits   69,829    (6,642)
Net increase in repurchase liabilities   9,097    23,039 
Stock options exercised   365    27 
Excess tax benefit from stock-based compensation   149    110 
Cancellation of shares for tax withholding   (498)   (440)
Repurchase of common stock   (1,963)   (6,014)
Cash dividend paid   (2,554)   (1,931)
Net cash provided by financing activities   206,310    274,984 
Net increase in cash and cash equivalents   4,584    5,115 
Cash and cash equivalents at beginning of period   42,863    38,799 
Cash and cash equivalents at end of period  $47,447   $43,914 
           
Supplemental disclosure of cash flow information          
Cash paid for interest  $9,557   $7,018 
Cash paid for income taxes   4,007    2 
Loans transferred to other real estate owned   1,991    626 

 

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 23 branch locations throughout central Connecticut and western Massachusetts, offering commercial and residential lending as well as wealth management services. 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 nine months ended September 30, 2015, the Company had repurchased 132,020 of these shares at a cost of $2.0 million. Repurchased shares are held as treasury stock and are available for general corporate purposes. The Company has 772,745 shares remaining available to be repurchased at September 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 September 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 Income. 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 Income.

 

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.

 

 7 

 

 

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

 

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.

 

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 nine months ended September 30, 2015.

 

 8 

 

 

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

 

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.

 

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.

 

 9 

 

 

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

 

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.

 

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 September 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.

 

 10 

 

 

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

 

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 $338,000 and $400,000 as of September 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 $4.9 million at September 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.

 

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.

 

 11 

 

 

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

 

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 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.

 

 12 

 

 

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

 

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.

 

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.

 

In August 2015, the FASB issued ASU No. 2015-14 "Revenue from Contracts with Customers (Topic 606)." In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), with an original effective date for annual reporting periods beginning after December 15, 2016. 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 2015-14 deferred the effective date of ASU 2014-09 to annual periods and interim periods within those annual periods beginning after December 15, 2017. 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 2015-14 on its accounting and disclosures.

 

 13 

 

 

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 $18.7 million and $10.1 million to meet these requirements at September 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 September 30,   Nine Months Ended September 30, 
   2015   2014   2015   2014 
(Dollars in thousands, except per share data):                
                 
Net income  $4,215   $2,506   $10,198   $6,188 
Less:  Dividends to participating shares   (8)   (13)   (33)   (41)
Income allocated to participating shares   (63)   (41)   (127)   (109)
Net income allocated to common stockholders  $4,144   $2,452   $10,038   $6,038 
                     
Weighted-average shares issued   17,998,820    18,027,081    18,003,666    18,032,553 
                     
Less:   Average unallocated ESOP shares   (993,416)   (1,088,776)   (1,017,019)   (1,112,408)
Average treasury stock   (2,084,182)   (1,962,577)   (2,031,904)   (1,854,879)
Average unvested restricted stock   (288,271)   (362,613)   (247,835)   (387,616)
Weighted-average basic shares outstanding   14,632,951    14,613,115    14,706,908    14,677,650 
                     
Plus: Average dilutive shares   254,510    97,765    176,454    101,311 
Weighted-average diluted shares outstanding   14,887,461    14,710,880    14,883,362    14,778,961 
                     
Net earnings per share (1):                    
Basic  $0.28   $0.17   $0.68   $0.41 
Diluted  $0.28   $0.17   $0.67   $0.41 

 

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

 

For the nine months ended September 30, 2015 and 2014, respectively, 79,500 and 72,250 options were anti-dilutive and therefore excluded from the earnings per share calculation.

 

 14 

 

 

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

 

4.Investment Securities

 

Investment securities are summarized as follows:

 

   September 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  $78,764   $265   $-   $79,029   $-   $-   $79,029 
U.S. Government agency obligations   80,011    211    (6)   80,216    -    -    80,216 
Government sponsored residential mortgage-backed securities   5,310    266    -    5,576    -    -    5,576 
Corporate debt securities   1,000    60    -    1,060    -    -    1,060 
Preferred equity securities   2,000    -    (411)   1,589    -    -    1,589 
Marketable equity securities   108    48    (1)   155    -    -    155 
Mutual funds   3,927    -    (162)   3,765    -    -    3,765 
Total securities available-for-sale  $171,120   $850   $(580)  $171,390   $-   $-   $171,390 
Held-to-maturity                                   
U.S. Government agency obligations  $17,000   $-   $-   $17,000   $60   $-    17,060 
Government sponsored residential mortgage-backed securities   8,486    -    -    8,486    221    -    8,707 
Total securities held-to-maturity  $25,486   $-   $-   $25,486   $281   $-   $25,767 

 

   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 

 

 15 

 

 

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 September 30, 2015 and December 31, 2014:

 

   September 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:                                   
U.S. Government agency obligations   3   $23,997   $(6)  $-   $-   $23,997   $(6)
Preferred equity securities   1    -    -    1,589    (411)   1,589    (411)
Marketable equity securities   1    -    -    5    (1)   5    (1)
Mutual funds   1    -    -    2,796    (162)   2,796    (162)
Total investment securities in an unrealized loss position   6   $23,997   $(6)  $4,390   $(574)  $28,387   $(580)

  

   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   1    6,992    (8)   -    -    6,992    (8)
    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 September 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 September 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 September 30, 2015.

 

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 September 30, 2015.

 

 16 

 

 

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

 

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

 

There were gross realized gains on sales of securities available-for-sale totaling $-0- and $1.5 million for the three and nine months ended September 30, 2015, respectively. There were no gross realized gains on sales of securities available-for-sale for the three and nine months ended September 30, 2014.

 

As of September 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 $147.6 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 September 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:

 

   September 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  $84,999   $85,018   $-   $- 
Due after one year through five years   74,776    75,287    17,000    17,060 
Due after five years through ten years   -    -    -    - 
Due after ten years   -    -    -    - 
Government sponsored residential mortgage-backed securities   5,310    5,576    8,486    8,707 
   $165,085   $165,881   $25,486   $25,767 

 

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

 

The Company, as a member of the FHLBB, owned $23.0 and $19.8 million of FHLBB capital stock at September 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 September 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 September 30, 2015 and December 31, 2014.

 

 17 

 

 

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

 

Alternative Investments

 

Alternative investments, which totaled $2.5 million and $2.7 million at September 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 September 30, 2015. The Company recognized a $144,000 and $41,000 other-than-temporary impairment charge on its limited partnerships for the nine months ended September 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 $26,000 and $27,000 for the nine months ended September 30, 2015 and 2014, respectively. 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 September 30, 2015.

 

5.Loans and Allowance for Loan Losses

 

Loans consisted of the following:

 

   September 30,   December 31, 
   2015   2014 
(Dollars in thousands)        
Real estate:          
Residential  $851,784   $827,005 
Commercial   862,367    765,066 
Construction   29,244    57,371 
Installment   3,007    3,356 
Commercial   410,704    309,708 
Collateral   1,632    1,733 
Home equity line of credit   174,579    169,768 
Revolving credit   96    99 
Resort   807    929 
Total loans   2,334,220    2,135,035 
Net deferred loan costs   4,047    3,842 
Loans   2,338,267    2,138,877 
Allowance for loan losses   (20,010)   (18,960)
Loans, net  $2,318,257   $2,119,917 

 

 18 

 

 

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

 

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

 

   For the Three Months Ended September 30, 2015 
   Balance at
beginning of
period
   Charge-offs   Recoveries   Provision for
(Reduction)
loan losses
   Balance at
end of period
 
(Dollars in thousands)                    
Real estate:                         
Residential  $4,452   $(2)  $95   $(432)  $4,113 
Commercial   9,001    -    -    464    9,465 
Construction   361    -    -    (135)   226 
Installment   36    -    -    (2)   34 
Commercial   3,745    (4)   6    348    4,095 
Collateral   -    -    -    -    - 
Home equity line of credit   1,986    -    -    91    2,077 
Revolving credit   -    (58)   6    52    - 
Resort   -    -    -    -    - 
   $19,581   $(64)  $107   $386   $20,010 

 

   For the Three Months Ended September 30, 2014 
   Balance at
beginning of
period
   Charge-offs   Recoveries   Provision for
(Reduction)
loan losses
   Balance at
end of period
 
(Dollars in thousands)                    
Real estate:                         
Residential  $3,631   $(424)  $9   $439   $3,655 
Commercial   8,782    -    -    574    9,356 
Construction   900    -    -    89    989 
Installment   41    (1)   -    (1)   39 
Commercial   3,089    (13)   54    (104)   3,026 
Collateral   -    -    -    -    - 
Home equity line of credit   1,468    -    -    23    1,491 
Revolving credit   -    (26)   4    22    - 
Resort   1    -    -    (1)   - 
   $17,912   $(464)  $67   $1,041   $18,556 

 

 19 

 

 

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

 

   For the Nine Months Ended September 30, 2015 
   Balance at
beginning of
period
   Charge-offs   Recoveries   Provision for
(Reduction)
loan losses
   Balance at
end of period
 
(Dollars in thousands)                    
Real estate                         
Residential  $4,382   $(195)  $111   $(185)  $4,113 
Commercial   8,949    (213)   -    729    9,465 
Construction   478    -    -    (252)   226 
Installment   41    (3)   -    (4)   34 
Commercial   3,250    (24)   6    863    4,095 
Collateral   -    -    -    -    - 
Home equity line of credit   1,859    (138)   -    356    2,077 
Revolving credit   -    (179)   21    158    - 
Resort   1    -    -    (1)   - 
   $18,960   $(752)  $138   $1,664   $20,010 

 

   For the Nine Months Ended September 30, 2014 
   Balance at
beginning of
period
   Charge-offs   Recoveries   Provision for
(Reduction)
loan losses
   Balance at
end of period
 
(Dollars in thousands)                    
Real estate                         
Residential  $3,647   $(686)  $10   $684   $3,655 
Commercial   8,253    (93)   1    1,195    9,356 
Construction   1,152    -    -    (163)   989 
Installment   48    (4)   -    (5)   39 
Commercial   3,746    (968)   67    181    3,026 
Collateral   -    -    -    -    - 
Home equity line of credit   1,465    -    -    26    1,491 
Revolving credit   -    (52)   11    41    - 
Resort   3    -    -    (3)   - 
   $18,314   $(1,803)  $89   $1,956   $18,556 

 

 20 

 

 

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 September 30, 2015 and December 31, 2014:

 

   September 30, 2015   December 31, 2014 
       Reserve       Reserve 
(Dollars in thousands)  Total   Allocation   Total   Allocation 
Loans individually evaluated for impairment:                    
Real estate:                    
Residential  $11,957   $142   $11,791   $285 
Commercial   16,292    38    19,051    233 
Construction   4,719    -    4,719    - 
Installment   269    7    251    8 
Commercial   7,642    556    5,680    225 
Collateral   -    -    -    - 
Home equity line of credit   978    -    1,031    - 
Revolving Credit   -    -    -    - 
Resort   807    -    929    1 
    42,664    743    43,452    752 
                     
Loans collectively evaluated for impairment:                    
Real estate:                    
Residential  $844,446   $3,971   $819,630   $4,097 
Commercial   845,574    9,427    745,501    8,716 
Construction   24,525    226    52,652    478 
Installment   2,721    27    3,093    33 
Commercial   403,008    3,539    303,980    3,025 
Collateral   1,632    -    1,733    - 
Home equity line of credit   173,601    2,077    168,737    1,859 
Revolving Credit   96    -    99    - 
Resort   -    -    -    - 
    2,295,603    19,267    2,095,425    18,208 
Total  $2,338,267   $20,010   $2,138,877   $18,960 

 

 21 

 

 

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

 

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

 

   September 30, 2015 
   30-59 Days   60-89 Days   > 90 Days       Past Due 90
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   14   $2,291    6   $1,192    16   $5,965    36   $9,448   $- 
Commercial   -    -    -    -    1    1,021    1    1,021    - 
Construction   -    -    -    -    1    187    1    187    - 
Installment   2    40    1    3    2    33    5    76    - 
Commercial   5    3,628    1    4    -    -    6    3,632    - 
Collateral   10    96    -    -    -    -    10    96    - 
Home equity line of credit   4    285    1    100    5    697    10    1,082    - 
Demand   1    56    -    -    -    -    1    56    - 
Revolving Credit   -    -    -    -    -    -    -    -    - 
Resort   -    -    -    -    -    -    -    -    - 
Total   36   $6,396    9   $1,299    25   $7,903    70   $15,598   $- 

 

   December 31, 2014 
   30-59 Days   60-89 Days   > 90 Days       Past Due 90
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   $- 

 

 22 

 

 

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:

 

   September 30,   December 31, 
(Dollars in thousands)  2015   2014 
Nonaccrual loans:          
Real estate:          
Residential  $9,088   $9,706 
Commercial   1,136    2,112 
Construction   187    187 
Installment   141    155 
Commercial   5,055    2,268 
Collateral   -    - 
Home equity line of credit   1,061    1,040 
Revolving Credit   -    - 
Resort   -    - 
Total nonaccruing loans   16,668    15,468 
Loans 90 days past due and still accruing   -    - 
Other real estate owned   338    400 
Total nonperforming assets  $17,006   $15,868 

 

 23 

 

 

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

 

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

 

   September 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  $11,080   $12,280   $-   $5,862   $6,286   $- 
Commercial   13,360    13,418    -    13,804    13,828    - 
Construction   4,719    4,965    -    4,719    4,965    - 
Installment   243    257    -    220    232    - 
Commercial   4,228    4,359    -    3,527    3,584    - 
Collateral   -    -    -    -    -    - 
Home equity line of credit   978    1,002    -    1,031    1,264    - 
Revolving Credit   -    -    -    -    -    - 
Resort   807    807    -    -    -    - 
Total   35,415    37,088    -    29,163    30,159    - 
                               
Impaired loans with a valuation allowance:                              
Real estate:                              
Residential   877    887    142    5,929    6,848    285 
Commercial   2,932    2,932    38    5,247    5,523    233 
Construction   -    -    -    -    -    - 
Installment   26    26    7    31    31    8 
Commercial   3,414    3,471    556    2,153    2,266    225 
Collateral   -    -    -    -    -    - 
Home equity line of credit   -    -    -    -    -    - 
Revolving Credit   -    -    -    -    -    - 
Resort   -    -    -    929    929    1 
Total   7,249    7,316    743    14,289    15,597    752 
Total impaired loans  $42,664   $44,404   $743   $43,452   $45,756   $752 

 

 24 

 

 

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   Nine Months       Three Months   Nine Months 
       Ended   Ended       Ended   Ended 
   September 30,   September 30,   September 30,   September 30,   September 30,   September 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  $9,204   $25   $78   $6,987   $30   $73 
Commercial   13,817    144    433    16,324    162    591 
Construction   4,719    35    103    187    -    - 
Installment   243    3    11    189    3    10 
Commercial   4,083    27    82    3,226    34    118 
Collateral   -    -    -    -    -    - 
Home equity line of credit   1,010    2    3    560    1    1 
Revolving Credit   -    -    -    -    -    - 
Resort   841    5    20    -    -    - 
Total   33,917    241    730    27,473    230    793 
                               
Impaired loans with a valuation allowance:                              
Real estate:                              
Residential   2,308    9    27    5,441    8    35 
Commercial   4,086    36    122    4,123    59    106 
Construction   -    -    -    -    -    - 
Installment   29    -    -    28    -    1 
Commercial   1,694    3    13    2,547    10    64 
Collateral   -    -    -    -    -    - 
Home equity line of credit   -    -    -    -    -    - 
Revolving Credit   -    -    -    -    -    - 
Resort   -    -    -    1,108    9    29 
Total   8,117    48    162    13,247    86    235 
Total impaired loans  $42,034   $289   $892   $40,720   $316   $1,028 

 

There was no interest income recognized on a cash basis method of accounting for the three and nine months ended September 30, 2015 and 2014.

 

 25 

 

 

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

 

The following tables present information on loans whose terms had been modified in a troubled debt restructuring at September 30, 2015 and December 31, 2014:

 

   September 30, 2015 
   TDRs on Accrual Status   TDRs on Nonaccrual Status   Total TDRs 
(Dollars in thousands)  Number of
Loans
   Recorded
Investment
   Number of
Loans
   Recorded
Investment
   Number of
Loans
   Recorded
Investment
 
Real estate:                              
Residential   15   $2,598    10   $5,378    25   $7,976 
Commercial   4    6,723    -    -    4    6,723 
Construction   1    4,532    1    187    2    4,719 
Installment   4    233    2    35    6    268 
Commercial   6    1,967    8    1,551    14    3,518 
Collateral   -    -    -    -    -    - 
Home equity line of credit   3    153    -    -    3    153 
Revolving Credit   -    -    -    -    -    - 
Resort   1    807    -    -    1    807 
Total   34   $17,013    21   $7,151    55   $24,164 

 

   December 31, 2014 
   TDRs on Accrual Status   TDRs on Nonaccrual Status   Total TDRs 
(Dollars in thousands)  Number of
Loans
   Recorded
Investment
   Number of
Loans
   Recorded
Investment
   Number of
Loans
   Recorded
Investment
 
Real estate:                              
Residential   11   $1,849    10   $5,608    21   $7,457 
Commercial   7    8,359    -    -    7    8,359 
Construction   1    4,532    1    187    2    4,719 
Installment   4    212    1    39    5    251 
Commercial   8    2,783    5    1,621    13    4,404 
Collateral   -    -    -    -    -    - 
Home equity line of credit   -    -    2    126    2    126 
Revolving Credit   -    -    -    -    -    - 
Resort   1    929    -    -    1    929 
Total   32   $18,664    19   $7,581    51   $26,245 

 

The recorded investment balance of TDRs approximated $24.2 million and $26.2 million at September 30, 2015 and December 31, 2014, respectively. At September 30, 2015 and December 31, 2014, the majority of the Company’s TDRs are on accrual status. TDRs on accrual status were $17.0 million and $18.7 million while TDRs on nonaccrual status were $7.2 million and $7.6 million at September 30, 2015 and December 31, 2014, respectively. At September 30, 2015, 97% of the accruing TDRs have been performing in accordance with the restructured terms. At September 30, 2015 and December 31, 2014, the allowance for loan losses included specific reserves of $367,000 and $592,000 related to TDRs, respectively. For the nine months ended September 30, 2015 and 2014, the Bank had charge-offs totaling $204,000 and $1.2 million, respectively, related to portions of TDRs deemed to be uncollectible. The Bank may provide additional funds to borrowers in TDR status. The amount of additional funds available to borrowers in TDR status was $778,000 and $206,000 at September 30, 2015 and December 31, 2014, respectively.

 

 26 

 

 

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

 

The following tables include the recorded investment and number of modifications for modified loans. The Company reports the recorded investment in the loans prior to a modification and also the recorded investment in the loans after the loans were restructured for the three and nine months ended September 30, 2015 and 2014:

 

   For the Three Months Ended September 30, 2015   For the Nine Months Ended September 30, 2015 
(Dollars in thousands)  Number of
Modifications
   Recorded
Investment
Prior to
Modification
   Recorded
Investment
After
Modification (1)
   Number of
Modifications
   Recorded
Investment
Prior to
Modification
   Recorded
Investment
After
Modification (1)
 
Troubled Debt Restructurings:                              
Real estate                              
Residential   2   $507   $507    8   $1,549   $1,536 
Commercial   -    -    -    1    493    487 
Installment   -    -    -    1    44    41 
Commercial   -    -    -    3    133    129 
Home equity line of credit   -    -    -    3    153    153 
Total   2   $507   $507    16   $2,372   $2,346 

 

   For the Three Months Ended September 30, 2014   For the Nine Months Ended September 30, 2014 
(Dollars in thousands)  Number of
Modifications
   Recorded
Investment
Prior to
Modification
   Recorded
Investment
After
Modification (1) 
   Number of
Modifications
   Recorded
Investment
Prior to
Modification
   Recorded
Investment
After
Modification (1) 
 
Troubled Debt Restructurings:                              
Real estate                              
Residential   1   $141   $141    10   $1,604   $1,545 
Installment   -    -    -    1    17    16 
Commercial   1    1,096    1,096    4    3,763    3,376 
Total   2   $1,237   $1,237    15   $5,384   $4,937 

 

(1)The period end balances are inclusive of all partial paydowns and charge-offs since the modification date. TDRs fully paid off, charged-off or foreclosed upon by period end are not included.

 

The following table provides TDR loans that were modified by means of extended maturity, below market adjusted interest rates, a combination of rate and maturity, or by other means including covenant modifications, forbearance and/or the concessions and borrowers discharged in bankruptcy for the three and nine months ended September 30, 2015 and 2014:

 

   For the Three Months Ended September 30, 2015 
(Dollars in thousands)  Number of
Modifications
   Extended
Maturity
   Adjusted
Interest
Rates
   Combination
of Rate and
Maturity
   Other   Total 
Real estate                              
Residential   2   $-   $-   $-   $507   $507 
Total   2   $-   $-   $-   $507   $507 

 

   For the Nine Months Ended September 30, 2015 
(Dollars in thousands)  Number of
Modifications
   Extended
Maturity
   Adjusted
Interest
Rates
   Combination 
of Rate and
 Maturity
   Other   Total 
Real estate                              
Residential   8   $-   $-   $-   $1,536   $1,536 
Commercial   1    -    -    -    487    487 
Installment   1    -    -    -    41    41 
Commercial   3    -    -    34    95    129 
Home equity line of credit   3    -    -    -    153    153 
Total   16   $-   $-   $34   $2,312   $2,346 

 

 27 

 

 

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

 

   For the Three Months Ended September 30, 2014 
(Dollars in thousands)  Number of
Modifications
   Extended
Maturity
   Adjusted
Interest
Rates
   Combination 
of Rate and
 Maturity
   Other   Total 
Real estate                              
Residential   1   $-   $-   $-   $141   $141 
Commercial   1    -    -    -    1,096    1,096 
Total   2   $-   $-   $-   $1,237   $1,237 

 

   For the Nine Months Ended September 30, 2014 
(Dollars in thousands)  Number of
Modifications
   Extended
Maturity
   Adjusted
Interest
Rates
   Combination
 of Rate and 
Maturity
   Other   Total 
Real estate                              
Residential   10   $-   $-   $-   $1,545   $1,545 
Installment   1    -    -    -    16    16 
Commercial   4    2,239    -    -    1,137    3,376 
Total   15   $2,239   $-   $-   $2,698   $4,937 

 

A TDR is considered to be in re-default once it is more than 30 days past due following a modification. The following loans defaulted and had been modified as a TDR during the twelve month period preceding the default date during the three and nine months ended September 30, 2015 and 2014.

 

   For the Three Months Ended   For the Nine Months  Ended 
   September 30, 2015   September 30, 2015 
(Dollars in thousands)  Number of
Loans
   Recorded
Investment (1)
   Number of
Loans
   Recorded
Investment (1)
 
Real estate                    
Residential   1   $319    1   $319 
Installment   1    33    1    33 
Total   2   $352    2   $352 

 

   For the Three Months Ended   For the Nine Months  Ended 
   September 30, 2014   September 30, 2014 
(Dollars in thousands)  Number of
Loans
   Recorded
Investment (1)
   Number of
Loans
   Recorded
Investment (1)
 
Real estate                    
Residential   -   $-    2   $711 
Commercial   -    -    2    454 
Total   -   $-    4   $1,165 

 

(1)The period end balances are inclusive of all partial paydowns and charge-offs since the modification date.

TDRs fully paid off, charged-off or foreclosed upon by period end are not included.

 

 28 

 

 

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

 

Credit Quality Information

 

At the time of loan origination, a risk rating based on a nine point grading system is assigned to each commercial-related loan based on the loan officer’s and management’s assessment of the risk associated with each particular loan. This risk assessment is based on an in depth analysis of a variety of factors. More complex loans and larger commitments require the Company’s internal credit risk management department further evaluate the risk rating of the individual loan or relationship, with credit risk management having final determination of the appropriate risk rating. These more complex loans and relationships receive ongoing periodic review to assess the appropriate risk rating on a post-closing basis with changes made to the risk rating as the borrower’s and economic conditions warrant. The Company’s risk rating system is designed to be a dynamic system and we grade loans on a “real time” basis. The Company places considerable emphasis on risk rating accuracy, risk rating justification, and risk rating triggers. The Company’s risk rating process has been enhanced with its implementation of industry-based risk rating “cards.” The cards are used by the loan officers and promote risk rating accuracy and consistency on an institution-wide basis. Most loans are reviewed annually as part of a comprehensive portfolio review conducted by management and/or by an independent loan review firm. More frequent reviews of loans rated low pass, special mention, substandard and doubtful are conducted by the credit risk management department. The Company utilizes an independent loan review consulting firm to review its rating accuracy and the overall credit quality of its loan portfolio. The review is designed to provide an evaluation of the portfolio with respect to risk rating profile as well as with regard to the soundness of individual loan files. The individual loan reviews include an analysis of the creditworthiness of obligors, via appropriate key ratios and cash flow analysis and an assessment of collateral protection. The consulting firm conducts two loan reviews per year aiming at a 65.0% or higher commercial and industrial loans and commercial real estate portfolio penetration. Summary findings of all loan reviews performed by the outside consulting firm are reported to the board of directors and senior management of the Company upon completion.

 

The Company utilizes a point risk rating scale as follows:

 

Risk Rating Definitions

 

Residential and consumer loans are not rated unless they are 45 days or more delinquent, in which case, depending on past-due days, they will be rated 6, 7 or 8.

 

Loans rated 1 – 5, 55: Commercial loans in these categories are considered “pass” rated loans with low to average risk.
   
Loans rated 6: Residential, Consumer and Commercial loans in this category are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management.
   
Loans rated 7: Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.
   
Loans rated 8: Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.
   
Loans rated 9: Loans in this category are considered uncollectible (“loss”) and of such little value that their continuance as loans is not warranted.

 

 29 

 

 

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

 

The following table presents the Company’s loans by risk rating at September 30, 2015 and December 31, 2014:

 

   September 30, 2015 
(Dollars in thousands)  Pass   Special Mention   Substandard   Doubtful   Total 
Real estate:                         
Residential  $840,357   $1,246   $10,181   $-   $851,784 
Commercial   842,574    11,019    8,774    -    862,367 
Construction   24,525    -    4,719    -    29,244 
Installment   2,810    57    140    -    3,007 
Commercial   392,752    8,758    9,014    180    410,704 
Collateral   1,632    -    -    -    1,632 
Home equity line of credit   173,224    148    1,207    -    174,579 
Revolving Credit   96    -    -    -    96 
Resort   807    -    -    -    807 
Total Loans  $2,278,777   $21,228   $34,035   $180   $2,334,220 

 

   December 31, 2014 
(Dollars in thousands)  Pass   Special Mention   Substandard   Doubtful   Total 
Real estate:                         
Residential  $815,209   $488   $11,308   $-   $827,005 
Commercial   741,278    12,550    11,238    -    765,066 
Construction   51,947    705    4,719    -    57,371 
Installment   3,113    41    202    -    3,356 
Commercial   285,185    14,754    9,557    212    309,708 
Collateral   1,733    -    -    -    1,733 
Home equity line of credit   168,238    302    1,228    -    169,768 
Revolving Credit   99    -    -    -    99 
Resort   929    -    -    -    929 
Total Loans  $2,067,731   $28,840   $38,252   $212   $2,135,035 

 

The Company places considerable emphasis on the early identification of problem assets, problem-resolution and minimizing loss exposure. Delinquency notices are mailed monthly to all delinquent borrowers, advising them of the amount of their delinquency. Residential and consumer lending borrowers are typically given 30 days to pay the delinquent payments or to contact us to make arrangements to bring the loan current over a longer period of time. Generally, if a residential or consumer lending borrower fails to bring the loan current within 90 days from the original due date or to make arrangements to cure the delinquency over a longer period of time, the matter is referred to legal counsel and foreclosure or other collection proceedings are initiated. The Company may consider forbearance or a loan restructuring in certain circumstances where a temporary loss of income is the primary cause of the delinquency, and if a reasonable plan is presented by the borrower to cure the delinquency in a reasonable period of time after his or her income resumes. Problem or delinquent borrowers in our commercial real estate, commercial business and resort portfolios are handled on a case-by-case basis, typically by our Special Assets Department. Appropriate problem-resolution and workout strategies are formulated based on the specific facts and circumstances.

 

 30 

 

 

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

 

6.Mortgage Servicing Rights

 

The Company services residential real estate mortgage loans that it has sold without recourse to third parties. The carrying value of mortgage servicing rights was $4.2 million and $3.3 million at September 30, 2015 and December 31, 2014, respectively, and the balance is included in prepaid expenses and other assets in the accompanying condensed Consolidated Statements of Financial Condition. The fair value of mortgage servicing rights approximated $4.7 million and $3.6 million at September 30, 2015 and December 31, 2014, respectively. Total loans sold with servicing rights retained were $149.2 million and $52.7 million for the nine months ended September 30, 2015 and 2014, respectively. The net gain on loans sold totaled $1.9 million and $1.1 million for the nine months ended September 30, 2015 and 2014, respectively, and is included in the accompanying condensed Consolidated Statements of Income.

 

The principal balance of loans serviced for others, which are not included in the accompanying condensed Consolidated Statements of Financial Condition, totaled $436.9 million and $335.2 million at September 30, 2015 and December 31, 2014, respectively. Loan servicing fees for others totaling $653,000 and $571,000 for the nine months ended September 30, 2015 and 2014, respectively, are included as a component of other noninterest income in the accompanying condensed Consolidated Statements of Income.

 

7.Credit Arrangements

 

The Company has access to a pre-approved line of credit with the Federal Home Loan Bank of Boston (“FHLBB”) for $8.8 million, which was undrawn at September 30, 2015 and December 31, 2014. The Company has access to a pre-approved unsecured line of credit with a financial institution totaling $20.0 million, which was undrawn at September 30, 2015 and December 31, 2014. The Company has access to a $3.5 million unsecured line of credit agreement with a bank which expires on August 31, 2016. The line was undrawn at September 30, 2015 and December 31, 2014. The Company maintains a cash balance of $262,500 with the bank to avoid fees associated with the above line.

 

In accordance with an agreement with the FHLBB, the Company is required to maintain qualified collateral, as defined in the FHLBB Statement of Credit Policy, free and clear of liens, pledges and encumbrances, as collateral for the advances, if any, and the preapproved line of credit. The Company is in compliance with these collateral requirements.

 

FHLBB advances totaled $373.6 million and $401.7 million at September 30, 2015 and December 31, 2014, respectively. Advances from the FHLBB are collateralized by first mortgage loans with an estimated eligible collateral value of $1.1 billion and $812.8 million at September 30, 2015 and December 31, 2014, respectively. The Company has available borrowings of $316.5 million and $122.5 million at September 30, 2015 and December 31, 2014, respectively, subject to collateral requirements of the FHLBB. The Company is required to acquire and hold shares of capital stock in the FHLBB in an amount at least equal to the sum of 0.35% of the aggregate principal amount of its unpaid residential mortgage loans and similar obligations at the beginning of each year, or up to 4.5% of its advances (borrowings) from the FHLBB. The carrying value of FHLBB stock approximates fair value based on the redemption provisions of the stock.

 

The Company participates in the Federal Reserve Bank’s discount window loan collateral program that enables the Company to borrow up to $67.7 million and $71.0 million on an overnight basis at September 30, 2015 and December 31, 2014, respectively, and was undrawn as of September 30, 2015 and December 31, 2014. The funding arrangement was collateralized by $145.3 million and $141.6 million in pledged commercial real estate loans as of September 30, 2015 and December 31, 2014, respectively.

 

 31 

 

 

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

 

The Bank has a Master Repurchase Agreement borrowing facility with a broker. Borrowings under the Master Repurchase Agreement are secured by the Company’s investments in certain securities with a fair value of $11.6 million and $23.0 million at September 30, 2015 and December 31, 2014, respectively. Outstanding borrowings totaled $10.5 million and $21.0 million at September 30, 2015 and December 31, 2014, respectively.

 

The Bank offers overnight repurchase liability agreements to commercial or municipal customers whose excess deposit account balances are swept daily into collateralized repurchase liability accounts. The overnight repurchase liability agreements do not contain master netting arrangements. The Bank had repurchase liabilities outstanding of $58.1 million and $49.0 million at September 30, 2015 and December 31, 2014, respectively. They are secured by the Company’s investment in specific issues of U.S. Treasury obligations, Government sponsored residential mortgage-backed securities and U.S. Government agency obligations with a market value of $66.5 million and $74.4 million as of September 30, 2015 and December 31, 2014, respectively.

 

8.Deposits

 

Deposit balances are as follows:

 

   September 30,   December 31, 
   2015   2014 
(Dollars in thousands)        
Noninterest-bearing demand deposits  $359,757   $330,524 
Interest-bearing          
NOW accounts   527,128    355,412 
Money market   440,249    470,991 
Savings accounts   211,170    210,892 
Time deposits   435,051    365,222 
Total interest-bearing deposits   1,613,598    1,402,517 
Total deposits  $1,973,355   $1,733,041 

 

The Company has established a relationship to participate in a reciprocal deposit program with other financial institutions as a service to our customers. This program provides enhanced FDIC insurance to participating customers. The Company also has established a relationship for brokered deposits. There were brokered deposits totaling $55.5 million and $-0- at September 30, 2015 and December 31, 2014, respectively.

 

Time certificates of deposit in denominations of $250,000 or more approximated $79.8 million and $83.4 million at September 30, 2015 and December 31, 2014, respectively.

 

 32 

 

 

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

 

9.Pension and Other Postretirement Benefit Plans

 

The following tables set forth the components of net periodic pension and benefit costs.

 

   Pension Benefits   Other Postretirement Benefits 
   Three Months Ended September 30   Three Months Ended September 30 
   2015   2014   2015   2014 
(Dollars in thousands)                
Service cost  $-   $-   $14   $15 
Interest cost   259    255    30    37 
Expected return on plan assets   (362)   (334)   -    - 
Amortization:                    
Loss   178    76    3    5 
Prior service cost   -    -    (13)   (13)
Net periodic benefit cost  $75   $(3)  $34   $44 

 

   Pension Benefits   Other Postretirement Benefits 
   Nine Months Ended September 30,   Nine Months Ended September 30, 
   2015   2014   2015   2014 
(Dollars in thousands)                
Service cost  $-   $-   $43   $45 
Interest cost   777    766    91    110 
Expected return on plan assets   (1,086)   (1,004)   -    - 
Amortization:                    
Loss   532    229    9    14 
Prior service cost   -    -    (38)   (38)
Net periodic benefit cost  $223   $(9)  $105   $131 

 

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.

 

The Company has contributed a total of $1.0 million to the qualified defined benefit plan for the year ended December 31, 2015. Since the supplemental plan and the postretirement benefit plans are unfunded, the Company accrues for the estimated costs of these plans through charges to expense during the year that employees render service. The Company makes contributions to cover the current benefits paid under these plans.

 

Employee Stock Ownership Plan

 

The Company established the ESOP to provide eligible employees the opportunity to own Company stock. The Company provided a loan to the Farmington Bank Employee Stock Ownership Plan Trust in the amount needed to purchase up to 1,430,416 shares of the Company’s common stock. The loan bears an interest rate equal to the Wall Street Journal Prime Rate plus one percentage point, adjusted annually, and provides for annual payments of interest and principal over the 15 year term of the loan. At September 30, 2015, the loan had an outstanding balance of $13.0 million and an interest rate of 4.25%. The Bank has committed to make contributions to the ESOP sufficient to support the debt service of the loan. The loan is secured by the unallocated shares purchased. The ESOP compensation expense was $1.1 million for the nine months ended September 30, 2015 and 2014.

 

 33 

 

 

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

 

Shares held by the ESOP include the following as of September 30, 2015:

 

Allocated   381,444 
Committed to be released   71,325 
Unallocated   977,647 
    1,430,416 

 

The fair value of unallocated ESOP shares was $15.8 million at September 30, 2015.

 

10.Stock Incentive Plan

 

In August 2012, the Company implemented the First Connecticut Bancorp, Inc. 2012 Stock Incentive Plan (the “Plan”). The Plan provides for a total of 2,503,228 shares of common stock for issuance upon the grant or exercise of awards. The Plan allows for the granting of 1,788,020 non-qualified stock options and 715,208 shares of restricted stock.

 

In accordance with generally accepted accounting principles for Share-Based Payments, the Company expenses the fair value of all share-based compensation grants over the requisite service periods. Stock options granted vested 20% immediately and will vest 20% at each annual anniversary of the grant date through 2016 and expire ten years after grant date. The Company recognizes compensation expense for the fair values of these awards, which vest on a straight-line basis over the requisite service period of the awards. Restricted shares granted vested 20% immediately and will vest 20% at each annual anniversary of the grant date through 2016. The product of the number of shares granted and the grant date market price of the Company’s common stock determines the fair value of restricted shares under the Company’s restricted stock plan. The Company recognizes compensation expense for the fair value of restricted shares on a straight-line basis over the requisite service period for the entire award.

 

The Company classifies share-based compensation for employees within “Salaries and employee benefits” and share-based payments for outside directors within “Other operating expenses” in the consolidated statement of income. For the nine months ended September 30, 2015 and 2014, the Company recorded $2.5 million and $2.2 million of share-based compensation expense, respectively, comprised of $1.0 million and $901,000 of stock option expense, respectively and $1.5 million and $1.3 million of restricted stock expense, respectively. Expected future compensation expense relating to the 359,920 non-vested options outstanding at September 30, 2015, is $1.1 million over the remaining weighted-average period of 1.32 years. Expected future compensation expense relating to the 126,290 non-vested restricted shares at September 30, 2015, is $1.4 million over the remaining weighted-average period of 0.93 years.

 

The fair value of the options awarded is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted in the following table. Expected volatility is based on the Company’s historical volatility and the historical volatility of a peer group as the Company does not have reliably determined stock price for the period needed that is at least equal to its expected term and the Company’s recent historical volatility may not reflect future expectations. The peer group consisted of financial institutions located in New England and the Mid-Atlantic regions of the United States based on whose common stock is traded on a national securities exchange, asset size, tangible capital ratio and earnings factors. The expected term of options granted is derived from using the simplified method due to the Company not having sufficient historical share option experience upon which to estimate an expected term. The risk-free rate is based on the grant date for a traded zero-coupon U.S. Treasury bond with a term equal to the option’s expected term.

 

 34 

 

 

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

 

Weighted-average assumptions for the nine months ended September 30, 2015 and 2014:

 

   2015   2014 
Weighted per share average fair value of options granted  $3.33   $3.77 
Weighted-average assumptions:          
Risk-free interest rate   1.61%   1.93%
Expected volatility   24.96%   28.20%
Expected dividend yield   1.99%   1.89%
Weighted-average dividend yield   1.50% - 2.35%   1.09% - 2.51%
Expected life of options granted   6.0 years    6.0 years 

 

The following is a summary of the Company’s stock option activity and related information for its option grants for the nine months ended September 30, 2015.

 

   Number of
Stock Options
   Weighted-Average
Exercise Price
   Weighted-Average
Remaining
Contractual Term
(in years)
   Aggregate
Intrinsic Value
(in thousands)
 
Outstanding at December 31, 2014   1,671,157   $13.04           
Granted   38,000    16.26           
Exercised   (28,200)   12.95           
Forfeited   (19,900)   13.49           
Expired   (1,200)   12.95           
Outstanding at September 30, 2015   1,659,857   $13.11    6.72   $4,991 
                     
Exercisable at September 30, 2015   1,299,937   $13.02    6.56   $4,030 

 

The total intrinsic value of options exercised during the nine months ended September 30, 2015 was $68,000.

 

The following is a summary of the status of the Company’s restricted stock for the nine months ended September 30, 2015.

 

   Number of
Restricted
Stock
   Weighted-Average
Grant Date
Fair Value
 
Unvested at December 31, 2014   266,884   $12.95 
Granted   -    - 
Vested   (140,594)   12.95 
Forfeited   -    - 
Unvested at September 30, 2015   126,290   $12.95 

 

 35 

 

 

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

 

11.Derivative Financial Instruments

 

Non-Hedge Accounting Derivatives/Non-designated Hedges:

 

The Company does not use derivatives for trading or speculative purposes. Interest rate swap derivatives not designated as hedges are offered to certain qualifying commercial customers and to manage the Company’s exposure to interest rate movements but do not meet the strict hedge accounting under FASB ASC 815, “Derivatives and Hedging”. The interest rate swap agreements enable these customers to synthetically fix the interest rate on variable interest rate loans. The customers pay a variable rate and enter into a fixed rate swap agreement with the Company. The credit risk associated with the interest rate swap derivatives executed with these customers is essentially the same as that involved in extending loans and is subject to the Company’s normal credit policies. The Company obtains collateral, if needed, based upon its assessment of the customers’ credit quality. Generally, interest rate swap agreements are offered to “pass” rated customers requesting long-term commercial loans or commercial mortgages in amounts generally of at least $1.0 million. The interest rate swap agreement with our customers is cross-collateralized by the loan collateral. The interest rate swap agreements do not have any embedded interest rate caps or floors.

 

For every variable interest rate swap agreement entered into with a commercial customer, the Company simultaneously enters into a fixed rate interest rate swap agreement with a correspondent bank, agreeing to pay a fixed income stream and receive a variable interest rate swap. The Company is party to master netting agreements with its correspondent banks; however, the Company does not offset assets and liabilities for financial statement presentation purposes. The master netting agreements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract. Collateral generally in the form of cash is received or posted by the counterparty with the net liability position, in accordance with contract thresholds. As of September 30, 2015, the Company maintained a cash balance of $13.2 million with a correspondent bank to collateralize its position. As of September 30, 2015, the Company has an agreement with a correspondent bank to secure any outstanding receivable in excess of $10.0 million.

 

Credit-risk-related Contingent Features

 

The Company’s agreements with its derivative counterparties contain the following provisions:

 

·if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations;

 

·if the Company fails to maintain its status as a well/adequately capitalized institution, then the counterparty could terminate the derivative positions, and the Company would be required to settle its obligations under the agreements;

 

·if the Company fails to maintain a specified minimum leverage ratio, then the Company could be declared in default on its derivative obligations; and

 

·if a specified event or condition occurs that materially changes the Company’s creditworthiness in an adverse manner, it may be required to fully collateralize its obligations under the derivative instrument.

 

The Company is in compliance with the above provisions as of September 30, 2015.

 

 36 

 

 

 

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

 

The Company has established a derivatives policy which sets forth the parameters for such transactions (including underwriting guidelines, rate setting process, maximum maturity, approval and documentation requirements), as well as identifies internal controls for the management of risks related to these hedging activities (such as approval of counterparties, limits on counterparty credit risk, maximum loan amounts, and limits to single dealer counterparties).

 

The interest rate swap derivatives executed with our customers and our counterparties, are marked to market and are included with prepaid expenses and other assets and accrued expenses and other liabilities on the condensed consolidated Statements of Financial Condition at fair value. The Company had the following outstanding interest rate swaps that were not designated for hedge accounting:

 

      September 30, 2015   December 31, 2014 
(Dollars in thousands)  Consolidated
Balance Sheet
Location
  # of
Instruments
   Notional
Amount
   Estimated
Fair
Values
   # of
Instruments
   Notional
Amount
   Estimated
Fair
Values
 
                            
Commercial loan customer interest rate swap position  Other Assets  $63   $267,099   $13,315    43   $174,884   $7,167 
                                  
Commercial loan customer interest rate swap position  Other Liabilities   -    -    -    8    27,988    (431)
                                  
Counterparty interest rate swap position  Other Liabilities   63    267,099    (13,449)   51    202,872    (6,821)

 

The Company recorded the changes in the fair value of non-hedge accounting derivatives as a component of other noninterest income except for interest received and paid which is reported in interest income in the accompanying condensed consolidated statements of income as follows:

 

   For The Three Months Ended September 30, 
   2015   2014 
   Interest Income
Recorded in
Interest Income
   MTM Gain  
(Loss) Recorded
in Noninterest
Income
   Net Impact   Interest Income
Recorded in
Interest Income
   MTM Gain  
(Loss) Recorded 
in Noninterest 
Income
   Net Impact 
(Dollars in thousands)                        
Commercial loan customer interest rate swap position  $(1,462)  $6,923   $5,461   $(855)  $(943)  $(1,798)
                               
Counterparty interest rate swap position   1,462    (6,923)   (5,461)   855    943    1,798 
Total  $-   $-   $-   $-   $-   $- 

 

   For The Nine Months Ended September 30, 
   2015   2014 
   Interest Income 
Recorded in 
Interest Income
   MTM Gain
(Loss) Recorded
in Noninterest 
Income
   Net Impact   Interest Income
Recorded in
Interest Income
   MTM Gain
(Loss) Recorded
in Noninterest
Income
   Net Impact 
(Dollars in thousands)                        
Commercial loan customer  interest rate swap position  $(3,799)  $6,148   $2,349   $(2,570)  $441   $(2,129)
                               
Counterparty interest rate swap position   3,799    (6,148)   (2,349)   2,570    (441)   2,129 
Total  $-   $-   $-   $-   $-   $- 

 

 37 

 

 

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

 

Mortgage Banking Derivatives

 

Certain derivative instruments, primarily forward sales of mortgage loans and mortgage-backed securities (“MBS”) are utilized by the Company in its efforts to manage risk of loss associated with its mortgage loan commitments and mortgage loans held for sale. Prior to closing and funding certain single-family residential mortgage loans, an interest-rate lock commitment is generally extended to the borrower. During the period from commitment date to closing date, the Company is subject to the risk that market rates of interest may change. If market rates rise, investors generally will pay less to purchase such loans resulting in a reduction in the gain on sale of the loans or, possibly, a loss. In an effort to mitigate such risk, forward delivery sales commitments, under which the Company agrees to deliver whole mortgage loans to various investors or issue MBS, are established. At September 30, 2015, the notional amount of outstanding rate locks totaled approximately $18.2 million. The notional amount of outstanding commitments to sell residential mortgage loans totaled approximately $27.6 million, which included mandatory forward commitments totaling approximately $22.6 million at September 30, 2015. The forward commitments establish the price to be received upon the sale of the related mortgage loan, thereby mitigating certain interest rate risk. There is, however, still certain execution risk specifically related to the Company’s ability to close and deliver to its investors the mortgage loans it has committed to sell.

 

12.Offsetting of Financial Assets and Liabilities

 

The following table presents the remaining contractual maturities of the Company’s repurchase agreement borrowings and repurchase liabilities as of September 30, 2015, disaggregated by the class of collateral pledged.

 

   September 30, 2015 
   Remaining Contractual Maturity of the Agreements 
(Dollars in thousands)  Overnight and
Continuous
   Up to One
Year
   One Year to
Three Years
   Total 
Repurchase agreement borrowings                    
U.S. Government agency obligations  $-   $-   $6,000   $6,000 
Government sponsored residential mortgage-backed securities   -    -    4,500    4,500 
Total repurchase agreement borrowings   -    -    10,500    10,500 
Repurchase liabilities                    
U.S. Government treasury obligations   2,941    -    -    2,941 
U.S. Government agency obligations   47,007    -    -    47,007 
Government sponsored residential mortgage-backed securities   8,136    -    -    8,136 
Total repurchase liabilities   58,084    -    -    58,084 
Total  $58,084   $-   $10,500   $68,584 

 

The right of setoff for a repurchase agreement resembles a secured borrowing, whereby the collateral pledged by the Company would be used to settle the fair value of the repurchase agreements should the Company be in default (e.g., fail to make an interest payment to the counterparty). The collateral is held by a third party financial institution in the Company's trustee account. The counterparty has the right to sell or repledge the investment securities if the Company defaults. The Company is required by the counterparty to maintain adequate collateral levels. In the event the collateral fair value falls below stipulated levels, the Company will pledge additional securities. The Company closely monitors collateral levels to ensure adequate levels are maintained, while mitigating the potential risk of over-collateralization in the event of counterparty default.

 

 38 

 

 

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

 

The following table presents the potential effect of rights of setoff associated with the Company’s recognized financial assets and liabilities at September 30, 2015 and December 31, 2014:

 

   September 30, 2015 
               Gross Amounts Not Offset in the Statement of 
Financial Condition
 
   Gross Amount
of Recognized
Assets
   Gross Amounts 
Offset in the 
Statement of 
Financial Condition
   Net Amounts of 
Assets Presented 
in the Statement of 
Financial Condition
   Financial 
Instruments
   Securities
Collateral
Received
   Cash 
Collateral 
Received
   Net 
Amount
 
(Dollars in thousands)                            
Interest rate swap derivatives  $13,315   $-   $13,315   $-   $-   $13,150   $165 
Total  $13,315   $-   $13,315   $-   $-   $13,150   $165 

 

   September 30, 2015 
               Gross Amounts Not Offset in the Statement of 
Financial Condition
 
   Gross Amount
 of Recognized
Liabilities
   Gross Amounts
Offset in the
Statement of
Financial Condition
   Net Amounts of
Liabilities Presented
in the Statement of
Financial Condition
   Financial
Instruments
   Securities
Collateral
Pledged
   Cash 
Collateral
Pledged
   Net 
Amount
 
(Dollars in thousands)                            
Interest rate swap derivatives  $13,449   $-   $13,449   $-   $-   $13,150   $299 
Repurchase agreement borrowings   10,500    -    10,500    -    10,500    -    - 
Total  $23,949   $-   $23,949   $-   $10,500   $13,150   $299 

 

   December 31, 2014 
               Gross Amounts Not Offset in the Statement of
Financial Condition
 
   Gross Amount
of Recognized
Assets
   Gross Amounts
Offset in the
Statement of
Financial Condition
   Net Amounts of
Assets Presented
in the Statement of
Financial Condition
   Financial
Instruments
   Securities
Collateral
Received
   Cash
Collateral
Received
   Net
Amount
 
(Dollars in thousands)                            
Interest rate swap derivatives  $7,167   $-   $7,167   $-   $-   $6,750   $417 
Total  $7,167   $-   $7,167   $-   $-   $6,750   $417 

 

   December 31, 2014 
               Gross Amounts Not Offset in the Statement of 
Financial Condition
 
   Gross Amount
of Recognized 
Liabilities
   Gross Amounts 
Offset in the 
Statement of 
Financial Condition
   Net Amounts of 
Liabilities Presented
in the Statement of 
Financial Condition
   Financial 
Instruments
   Securities
Collateral
Pledged
   Cash 
Collateral 
Pledged
   Net 
Amount
 
(Dollars in thousands)                            
Interest rate swap derivatives  $7,252   $-   $7,252   $-   $-   $6,750   $502 
Repurchase agreement borrowings   21,000    -    21,000    -    21,000    -    - 
Total  $28,252   $-   $28,252   $-   $21,000   $6,750   $502 

 

 39 

 

 

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

 

13.Financial Instruments with Off-Balance Sheet Risk

 

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and unused lines of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statement of condition. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

 

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Financial instruments whose contract amounts represent credit risk are as follows:

 

   September 30,   December 31, 
   2015   2014 
(Dollars in thousands)        
Approved loan commitments  $34,420   $33,737 
Unadvanced portion of construction loans   40,146    41,604 
Unused lines for home equity loans   181,397    173,493 
Unused revolving lines of credit   360    367 
Unused commercial letters of credit   4,077    4,028 
Unused commercial lines of credit   194,190    190,247 
   $454,590   $443,476 

 

Financial instruments with off-balance sheet risk had a valuation allowance of $478,000 and $440,000 as of September 30, 2015 and December 31, 2014, respectively.

 

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 many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on management’s credit evaluation of the counterparty. Collateral held is primarily residential property and commercial assets.

 

At September 30, 2015 and December 31, 2014, the Company had no off-balance sheet special purpose entities and participated in no securitizations of assets.

 

14.Significant Group Concentrations of Credit Risk

 

The Company primarily grants commercial, residential and consumer loans to customers located within its primary market area in the state of Connecticut. The majority of the Company’s loan portfolio is comprised of commercial and residential mortgages. The Company has no negative amortization or option adjustable rate mortgage loans.

 

 40 

 

 

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

 

15.Fair Value Measurements

 

Fair value estimates are made as of a specific point in time based on the characteristics of the financial instruments and relevant market information. In accordance with FASB ASC 820-10, the fair value estimates are measured within the fair value hierarchy. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC 820-10 are described as follows:

 

·Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

 

·Level 2 - Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability;

 

·Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

 

Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. When available, quoted market prices are used. In other cases, fair values are based on estimates using present value or other valuation techniques. These techniques involve uncertainties and are significantly affected by the assumptions used and judgments made regarding risk characteristics of various financial instruments, discount rates, and estimates of future cash flows, future expected loss experience and other factors. Changes in assumptions could significantly affect these estimates. Derived fair value estimates cannot be substantiated by comparison to independent markets and, in certain cases, could not be realized in an immediate sale of the instrument.

 

Fair value estimates are based on existing financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not financial instruments. Accordingly, the aggregate fair value amounts presented do not purport to represent the underlying market value of the Company. There were no transfers between levels during the nine months ended September 30, 2015 and 2014.

 

 41 

 

 

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

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis

 

The following is a description of the valuation methodologies used for instruments measured at fair value:

 

Securities Available-for-Sale: Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models. Level 1 securities are those traded on active markets for identical securities including U.S. treasury obligations, U.S. Government agency obligations and marketable equity securities. Level 2 securities include U.S. government agency obligations, government-sponsored residential mortgage-backed securities, corporate debt securities, trust preferred debt securities, preferred equity securities and mutual funds. When a market is illiquid or there is a lack of transparency around the inputs to valuation, the respective securities are classified as level 3 and reliance is placed upon internally developed models and management judgment and evaluation for valuation. The Company had no Level 3 securities at September 30, 2015 and December 31, 2014.

 

The Company utilizes a third party, nationally-recognized pricing service (“pricing service”); subject to review by management, to estimate fair value measurements for the majority of its investment securities portfolio. The pricing service evaluates each asset class based on relevant market information considering observable data that may include dealer quotes, reported trades, market spreads, cash flows, the U.S. Treasury yield curve, the LIBOR swap yield curve, trade execution data, market prepayment speeds, credit information and the bond’s terms and conditions, among other things. The fair value prices on all investment securities are reviewed for reasonableness by management. Also, management assessed the valuation techniques used by the pricing service based on a review of their pricing methodology to ensure proper pricing and hierarchy classifications. Management employs procedures to monitor the pricing service’s assumptions and establishes processes to challenge the pricing service’s valuations that appear unusual or unexpected.

 

Interest Rate Swap Derivatives: The fair values of interest rate swap agreements are calculated using a discounted cash flow approach and utilize observable inputs such as the LIBOR swap curve, effective date, maturity date, notional amount, stated interest rate and are classified within Level 2 of the valuation hierarchy. Such derivatives are basic interest rate swaps that do not have any embedded interest rate caps and floors.

 

Forward loan sale commitments and derivative loan commitments: Forward loan sale commitments and derivative loan commitments are based on fair values of the underlying mortgage loans and the probability of such commitments being exercised. Significant management judgment and estimation is required in determining these fair value measurements therefore are classified within Level 3 of the valuation hierarchy. The Company recognized a gain of $52,000 and $47,000 for the nine months ended September 30, 2015 and 2014, respectively, included in other noninterest income in the accompanying condensed Consolidated Statements of Income.

 

 42 

 

 

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

 

The following table details the financial instruments carried at fair value on a recurring basis as of September 30, 2015 and December 31, 2014 and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value:

 

   September 30, 2015 
       Quoted Prices in
Active Markets for
Identical Assets
   Significant
Observable
Inputs
   Significant
Unobservable
Inputs
 
(Dollars in thousands)  Total   (Level 1)   (Level 2)   (Level 3) 
Assets                    
U.S. Treasury obligations  $79,029   $79,029   $-   $- 
U.S. Government agency obligations   80,216    80,216    -    - 
Government sponsored residential mortgage-backed securities   5,576    -    5,576    - 
Corporate debt securities   1,060    -    1,060    - 
Preferred equity securities   1,589    -    1,589    - 
Marketable equity securities   155    155    -    - 
Mutual funds   3,765    -    3,765    - 
Securities available-for-sale   171,390    159,400    11,990    - 
Interest rate swap derivative   13,315    -    13,315    - 
Derivative loan commitments   266    -    -    266 
Total  $184,971   $159,400   $25,305   $266 
                     
Liabilities                    
Interest rate swap derivative  $13,449   $-   $13,449   $- 
Forward loan sales commitments   200    -    -    200 
Total  $13,649   $-   $13,449   $200 

 

   December 31, 2014 
       Quoted Prices in 
Active Markets for 
Identical Assets
   Significant 
Observable 
Inputs
   Significant 
Unobservable 
Inputs
 
(Dollars in thousands)  Total   (Level 1)   (Level 2)   (Level 3) 
Assets                    
U.S. Treasury obligations  $123,816   $123,816   $-   $- 
U.S. Government agency obligations   49,109    49,109    -    - 
Government sponsored residential mortgage-backed securities   6,907    -    6,907    - 
Corporate debt securities   1,085    -    1,085    - 
Trust preferred debt securities   1,557    -    1,557    - 
Preferred equity securities   1,676    -    1,676    - 
Marketable equity securities   170    170    -    - 
Mutual funds   3,721    -    3,721    - 
Securities available-for-sale   188,041    173,095    14,946    - 
Interest rate swap derivative   7,167    -    7,167    - 
Derivative loan commitments   40    -    -    40 
Total  $195,248   $173,095   $22,113   $40 
                     
Liabilities                    
Interest rate swap derivative  $7,252   $-   $7,252   $- 
Forward loan sales commitments   26    -    -    26 
Total  $7,278   $-   $7,252   $26 

 

 43 

 

 

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

 

The following table presents additional information about assets measured at fair value for which the Company has utilized Level 3 inputs.

 

   Derivative and Forward Loan Sales Commitments, Net 
   For the Three Months Ended September 30,   For the Nine Months Ended September 30, 
   2015   2014   2015   2014 
(Dollars in thousands)                
Balance, at beginning of period  $140   $50   $14   $47 
Total realized gain (loss):                    
Included in earnings   (74)   44    52    47 
Balance, at the end of period  $66   $94   $66   $94 

 

The following tables present the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a recurring basis at September 30, 2015 and December 31, 2014:

 

September 30, 2015
          Significant    
(Dollars in thousands)  Fair Value   Valuation Methodology  Unobservable Inputs  Input 
                 
Derivative and forward loan sales commitments, net  $66   Adjusted quoted prices in active markets  Embedded servicing value   1.23%

 

December 31, 2014
          Significant    
(Dollars in thousands)  Fair Value   Valuation Methodology  Unobservable Inputs  Input 
                 
Derivative and forward loan sales commitments, net  $14   Adjusted quoted prices in active markets  Embedded servicing value   1.07%

 

The embedded servicing value represents the value assigned for mortgage servicing rights and based on management’s judgment. When the embedded servicing value increases or decreases there is a direct correlation with fair value.

 

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

 

Certain assets and liabilities are measured at fair value on a non-recurring basis in accordance with generally accepted accounting principles. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period as well as assets that are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.

 

The following table details the financial instruments carried at fair value on a nonrecurring basis at September 30, 2015 and December 31, 2014 and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value:

 

   September 30, 2015   December 31, 2014 
   Quoted Prices in   Significant   Significant   Quoted Prices in   Significant   Significant 
   Active Markets for   Observable   Unobservable   Active Markets for   Observable   Unobservable 
   Identical Assets   Inputs   Inputs   Identical Assets   Inputs   Inputs 
   (Level 1)   (Level 2)   (Level 3)   (Level 1)   (Level 2)   (Level 3) 
(Dollars in thousands)                              
Impaired loans  $-   $-    $3,604   $-   $-   $1,647 
Other real estate owned   -    -    187    -    -    - 

 

 44 

 

 

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

 

The following is a description of the valuation methodologies used for instruments measured on a non-recurring basis:

 

Mortgage Servicing Rights: A mortgage servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans are expected to more than adequately compensate the Company for performing the servicing. The fair value of servicing rights is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Adjustments are only recorded when the discounted cash flows derived from the valuation model are less than the carrying value of the asset. As such, measurement at fair value is on a nonrecurring basis. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy.

 

Loans Held for Sale: Loans held for sale are accounted for at the lower of cost or market and are considered to be recognized at fair value when recorded at below cost. The fair value of loans held for sale is based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted as required for changes in loan characteristics.

 

Impaired Loans: Impaired loans for which repayment of the loan is expected to be provided solely by the value of the underlying collateral are considered collateral dependent and are valued based on the estimated fair value of such collateral using Level 3 inputs based on customized discounting criteria.

 

Other Real Estate Owned: The Company classifies property acquired through foreclosure or acceptance of deed-in-lieu of foreclosure as other real estate owned in its financial statements. Upon foreclosure, the property securing the loan is written down to fair value less selling costs. The write down is based upon the difference between the appraised value and the book value. Appraisals are based on observable market data such as comparable sales within the real estate market, however assumptions made in determining comparability are unobservable and therefore these assets are classified as Level 3 within the valuation hierarchy. As appraisals on foreclosed real estate are not necessarily completed on the period end dates presented in the table above, the fair value information presented may not reflect the actual fair value as of September 30, 2015 and December 31, 2014.

 

The following tables present the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a non-recurring basis at September 30, 2015 and December 31, 2014:

 

September 30, 2015
(Dollars in thousands)  Fair Value   Valuation Methodology  Significant
Unobservable Inputs
  Range of Inputs  Weighted
Average Inputs
 
                  
Impaired loans  $3,604   Appraisals  Discount for dated appraisal  0% - 20%   10.0%
           Discount for costs to sell  8% - 15%   11.5%
Other real estate owned  $187   Appraisals  Discount for costs to sell  5% - 10%   7.5%

 

December 31, 2014
          Significant     Weighted
 
(Dollars in thousands)  Fair Value   Valuation Methodology  Unobservable Inputs  Range of Inputs  Average Inputs 
                  
                    
Impaired loans  $1,647   Appraisals  Discount for dated appraisal  0% - 20%   10.0%
           Discount for costs to sell  8% - 15%   11.5%

 

 45 

 

 

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

 

Disclosures about Fair Value of Financial Instruments

 

The following methods and assumptions were used by the Company in estimating its fair value disclosure for financial instruments:

 

Cash and cash equivalents: The carrying amounts reported in the statement of condition for cash and cash equivalents approximate those assets’ fair values.

 

Investment in Federal Home Loan Bank of Boston (“FHLBB”) stock: FHLBB stock does not have a readily determinable fair value and is assumed to have a fair value equal to its carrying value. Ownership of FHLBB stock is restricted to the FHLBB, and can only be purchased and redeemed at par value.

 

Alternative Investments: The Company accounts for its percentage ownership of alternative investment funds at cost, subject to impairment testing. These are non-public investments which include limited partnerships, an equity fund and membership stocks. These alternative investments totaled $2.5 million and $2.7 million at September 30, 2015 and December 31, 2014, respectively. The Company recognized a $144,000 and $41,000 other-than-temporary impairment charge on its limited partnerships for the nine months ended September 30, 2015 and 2014, respectively, included in other noninterest income in the accompanying condensed Consolidated Statements of Income. The Company has $692,000 in unfunded commitments remaining for its alternative investments as of September 30, 2015.

 

Loans: In general, discount rates used to calculate values for loan products were based on the Company’s pricing at the respective period end and included appropriate adjustments for expected credit losses. A higher discount rate was assumed with respect to estimated cash flows associated with nonaccrual loans. Projected loan cash flows were adjusted for estimated credit losses. However, such estimates made by the Company may not be indicative of assumptions and adjustments that a purchaser of the Company’s loans would seek.

 

Deposits: The fair values disclosed for demand deposits and savings accounts (e.g., interest and noninterest checking and passbook savings) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts for variable-rate, fixed-term certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregate expected monthly maturities of time deposits.

 

Borrowed funds: The fair values for borrowed funds, including FHLBB advances and repurchase borrowings, are estimated using discounted cash flow analysis based on the Company’s current incremental borrowing rate for similar types of agreements.

 

Repurchase liabilities: Repurchase liabilities represent a short-term customer sweep account product. Because of the short-term nature of these liabilities, the carrying amount approximates its fair value.

 

 46 

 

 

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

 

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of September 30, 2015 and December 31, 2014. For short-term financial assets such as cash and cash equivalents, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. 

 

      September 30, 2015   December 31, 2014 
          Estimated       Estimated 
   Fair Value  Carrying   Fair   Carrying   Fair 
   Hierarchy Level  Amount   Value   Amount   Value 
(Dollars in thousands)                   
Financial assets                       
Securities held-to-maturity  Level 2  $25,486   $25,767   $16,224   $16,416 
Securities available-for-sale  See previous table   171,390    171,390    188,041    188,041 
Loans  Level 3   2,338,267    2,325,374    2,135,035    2,130,994 
Loans held-for-sale  Level 2   8,416    8,671    2,417    2,469 
Mortgage servicing rights  Level 3   4,231    4,700    3,336    3,572 
Federal Home Loan Bank of Boston stock  Level 2   23,038    23,038    19,785    19,785 
Alternative investments  Level 3   2,481    2,447    2,694    2,695 
Interest rate swap derivatives  Level 2   13,315    13,315    7,167    7,167 
Derivative loan commitments  Level 3   266    266    40    40 
                        
Financial liabilities                       
Deposits other than time deposits  Level 1   1,538,304    1,538,304    1,367,819    1,367,819 
Time deposits  Level 2   435,051    438,999    365,222    368,974 
Federal Home Loan Bank of Boston advances  Level 2   373,600    374,649    401,700    400,226 
Repurchase agreement borrowings  Level 2   10,500    11,137    21,000    21,669 
Repurchase liabilities  Level 2   58,084    58,082    48,987    48,986 
Interest rate swap derivatives  Level 2   13,449    13,449    7,252    7,252 
Forward loan sales commitments  Level 3   200    200    26    26 

 

16.Regulatory Matters

 

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on their financial statements.

 

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s and the Bank’s capital amounts and classifications are also subject to quantitative judgments by the regulators about components, risk weightings and other factors.

 

In July 2013, the Federal Reserve published final rules for the adoption of the Basel III regulatory capital framework (the "Basel III Capital Rules"). The Basel III Capital Rules, among other things, (i) introduced a new capital measure called "Common Equity Tier 1", (ii) specify that Tier 1 capital consists of Common Equity Tier 1 and "Additional Tier 1 Capital" instruments meeting specified requirements, (iii) define Common Equity Tier 1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to Common Equity Tier 1 and not to the other components of capital and (iv) expand the scope of the deductions/adjustments as compared to existing regulations and a higher minimum Tier I capital requirement. Additionally, institutions must maintain a capital conservation buffer of common equity Tier 1 capital in an amount greater than 2.5% of total risk-weighted assets to avoid being subject to limitations on capital distributions and discretionary bonus payments to executive officers. The Basel III Capital Rules became effective for the Company beginning on January 1, 2015 with certain transition provisions fully phased in through January 1, 2019.

 

 47 

 

 

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

 

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total capital, Tier I capital and common equity Tier I capital (as defined in the regulations) to risk-weighted assets (as defined in the regulations) and of Tier I capital (as defined in the regulations) to average assets (as defined in the regulations).

 

Management believes, as of September 30, 2015 and December 31, 2014 that the Company and the Bank meet all capital adequacy requirements to which they are subject. The Federal Deposit Insurance Corporation categorizes the Company and the Bank as well capitalized under the regulatory framework for prompt corrective action as of September 30, 2015. To be categorized as well capitalized, the Company and the Bank must maintain minimum total risk-based, Tier I risk-based, common equity Tier I capital and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution’s category.

 

The following table provides information on the capital amounts and ratios for the Company and the Bank:

 

   Actual   Minimum Required
for Capital Adequacy
Purposes
   To Be Well
Capitalized Under
Prompt Corrective
Action
 
(Dollars in thousands)  Amount   Ratio   Amount   Ratio   Amount   Ratio 
                         
Farmington Bank:                              
At September 30, 2015                              
Total Capital (to Risk Weighted Assets)  $232,835    10.96%  $169,953    8.00%  $212,441    10.00%
Tier I Capital (to Risk Weighted Assets)   212,347    10.00    127,408    6.00    169,878    8.00 
Common Equity Tier I Capital (to Risk Weighted Assets)   212,347    10.00    95,556    4.50    138,026    6.50 
Tier I Leverage Capital (to Average Assets)   212,347    7.85    108,202    4.00    135,253    5.00 
                               
At December 31, 2014                              
Total Capital (to Risk Weighted Assets)  $220,616    11.65%  $151,496    8.00%  $189,370    10.00%
Tier I Capital (to Risk Weighted Assets)   201,216    10.63    75,716    4.00    113,574    6.00 
Tier I Leverage Capital (to Average Assets)   201,216    8.25    97,559    4.00    121,949    5.00 
                               
First Connecticut Bancorp, Inc.:                              
                               
At September 30, 2015                              
Total Capital (to Risk Weighted Assets)  $270,491    12.72%  $170,120    8.00%  $212,650    10.00%
Tier I Capital (to Risk Weighted Assets)   250,003    11.76    127,553    6.00    170,070    8.00 
Common Equity Tier I Capital (to Risk Weighted Assets)   250,003    11.76    95,664    4.50    138,182    6.50 
Tier I Leverage Capital (to Average Assets)   250,003    9.24    108,226    4.00    135,283    5.00 
                               
At December 31, 2014                              
Total Capital (to Risk Weighted Assets)  $260,157    13.73%  $151,585    8.00%  $189,481    10.00%
Tier I Capital (to Risk Weighted Assets)   240,757    12.70    75,829