Notes to Financial Statements
December 31, 2017 and 2016
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1.
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Description of the Plan
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The following description of
the Farmington Bank 401(k) Plan (the “Plan”) provides only general information. Participants should refer to the Plan
document for a more complete description of the Plan’s provisions.
General
The Plan was established by Farmington
Bank (the “Company”) on July 1, 1989 for the purpose of providing employees of the Company with retirement benefits
and was amended and restated in its entirety on January 1, 2016. The Plan changed from a Qualified Matching Contribution safe harbor
plan to a Qualified Non-elective Contribution safe harbor plan. The Plan is a defined contribution retirement plan, covering substantially
all employees of the Company. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”).
The Board of Trustees determines the appropriateness of the Plan’s investment offerings, monitors investment performance
and is responsible for the oversight of the Plan.
Eligibility
To be eligible to participate
in the Plan, an employee must be at least 21 years of age and have completed six months of service. Six months of service is defined
as a period of six consecutive months, beginning on the employee’s date of hire. Employees may enroll in the Plan on the
first day of the month immediately following the date these eligibility requirements are met.
Contributions
The Plan permits both employee
and employer contributions. Participants may contribute up to 100% of annual pre-tax compensation, as defined by the Plan, subject
to certain limitations. Effective January 1, 2016, the Company began making qualified non-elective contributions in the amount
equal to 3% of compensation for the Plan year for persons who were active participants at any time during the Plan year. The qualified
non-elective contributions are 100% vested when made. The Company may contribute to the Plan discretionary matching contributions,
provided the Company has net profit for the Plan year, and any qualified contribution necessary to ensure that the Plan complies
with the nondiscrimination regulations of certain sections of the Internal Revenue Code (the “IRC”) and ERISA. There
was no discretionary matching contribution for the plan years ended December 31, 2017 and 2016. Participants may direct the investment
of their contributions, as well as contributions made on their behalf by the Company, into various fund accounts offered by the
Plan, through Principal Financial Group (“Principal”), the custodian and record keeper of the Plan. Participants may
change their investment options at any time. There are no non-participant directed funds.
Vesting
Participants are 100% vested
in their contributions plus actual earnings thereon at all times. Participants also vest immediately in the Company’s matching
contribution portion of their investments.
Forfeitures
If a participant terminates employment
with the Company at a time when the participant does not have a fully vested interest and liquidates his or her account prior to
December 31, the Company’s discretionary matching contributions and the actual earnings thereon are forfeited. Forfeitures
are retained in the Plan and used to reduce future Company matching contributions and or administrative expenses. There was $13,982
and $-0- of forfeitures used to reduce the Company’s matching contributions and or administrative expenses for the years
ended December 31, 2017 and 2016, respectively. There were no forfeitures allocated to eligible participants for the years ended
December 31, 2017 and 2016, respectively.
Farmington Bank 401(k) Plan
Notes to Financial Statements
December 31, 2017 and 2016
Payment of Benefits
Upon attainment of normal retirement
age, termination of service, or termination of service due to death or disability, participants may elect to receive benefit payments
under the Plan. The form of benefit payment is either a lump sum distribution, equal to the participant’s vested account
balance, or substantially equal installment distributions of the participant’s vested account balance. If a participant’s
account balance is less than the minimum dollar limit under the IRC ($5,000 for the years ended December 31, 2017 and 2016), distributions
due to termination may be made without the authorization of the participant.
In-Service Distributions
The Plan does permit payment
of benefits to participants while employed by the Company in the case of an immediate and heavy financial hardship, such as medical
or education expenses, or to purchase a primary residence. Recipients of hardship withdrawals are prohibited from contributing
to the Plan for a period of six months after the receipt of the hardship withdrawal.
Notes Receivable from Participants
Participants may borrow from
their individual accounts a minimum of $1,000 up to a maximum equal to the lesser of 50% of their vested account balance or $50,000,
subject to certain restrictions, as described in the Plan document. Notes receivable from participants are evidenced by promissory
notes for the amount of the note and are collateralized by the participant’s vested account balance for terms of up to five
years, or greater if used for the purchase of a primary residence. Notes receivable from participants bear interest at a rate commensurate
with local prevailing rates as determined by the plan administrator. The interest rate on all notes receivable from participants
range from 4.25% to 5.25% as of December 31, 2017 and maturity dates range from 2018 to 2032. Delinquent notes receivable from
participants are reclassified as distributions based upon the terms of the Plan document. Principal and interest are paid ratably
through payroll deductions.
Discretionary Profit Sharing
Contributions
The Company may, but is not required
to, make discretionary profit sharing contributions to the Plan for a Plan year. Company discretionary profit sharing contributions
that are made with respect to a Plan year will be allocated to all participants who are employed by the Company on the last day
of the Plan year and are credited with at least 1,000 hours of service during such year (and to participants who terminate service
during a Plan year on account of death, total and permanent disability or retirement on or after normal retirement date). The amount
allocated shall be equal to the discretionary contributions plus any forfeitures multiplied by the ratio of such person’s
annual compensation to the total annual compensation of all such persons. Vesting of the Company’s profit sharing contributions
are prorated over five years of service or upon the attainment of normal retirement age (age 65), upon death or disability. There
were no profit sharing contributions in 2017 and 2016.
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2.
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Summary of Significant Accounting Policies
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Basis of Presentation
The financial statements of the Plan are prepared under the accrual method of accounting.
Farmington Bank 401(k) Plan
Notes to Financial Statements
December 31, 2017 and 2016
Investment Valuation and
Income Recognition
The Plan’s mutual funds,
common stock and pooled separate account investments are stated at fair value. Fair value is the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. See
Note 3 for discussion of fair value measurements. Purchases and sales of securities are recorded on a trade-date basis. Interest
income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
The Plan’s investment contract
is reported at contract value. Contract value is the measurement attribute for that portion of the net assets available for benefits
of a defined contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount
participants would receive if they were to initiate permitted transactions under the terms of the Plan.
The Plan presents in the statements
of changes in net assets available for benefits the net appreciation in the fair value of its investments which consists of the
realized gains or losses and the unrealized appreciation on those investments.
Administrative Expenses
Administrative expenses related
to the Plan are primarily paid by the assets in the Plan and/or directly by the Company. Plan expenses paid by the Company are
not included in these financial statements. Transaction charges (for loan and benefit payment transactions) are paid by the Plan
by reducing the balances of those participants initiating the transactions. Investment related expenses are included in net appreciation
in fair value of investments.
Payment of Benefits
Benefit payments are recorded
when paid.
Use of Estimates
The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires the plan administrator
to make significant estimates and assumptions that affect the reported amounts of net assets available for benefits at the dates
of the financial statements and the changes in net assets available for benefits during the reporting periods, and when applicable,
disclosures of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ from those estimates.
Notes Receivable from Participants
Notes receivable from participants
are measured at their unpaid principal balance plus any accrued but unpaid interest. Interest income is recorded on the accrual
basis. No allowance for credit losses has been recorded at December 31, 2017 and 2016.
Risks and Uncertainties
The Plan provides for various investment options in any combination of funds. Such investments are exposed
to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities
and the level of uncertainty related to changes in the value of investment securities, it is at least reasonably possible that
changes in the values of investments will occur in the near term and that such changes could materially affect participants’
account balances and the amounts reported in the statements of net assets available for benefits.
Farmington Bank 401(k) Plan
Notes to Financial Statements
December 31, 2017 and 2016
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3.
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Fair Value Measurements
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The Plan uses a three level fair
value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. 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 inputs used to measure fair value are described below:
Basis of Fair Value Measurement
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Level 1
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Quoted prices in active markets for identical assets
or liabilities;
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Level 2
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Observable inputs other than quoted prices included
in Level 1, such as quoted prices for markets that are not active or other inputs that are observable or can be corroborated by
observable market data.
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Level 3
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Unobservable inputs that are supported by little or
no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models,
discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
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A financial instrument’s
level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The Plan also
considers non-performance risk in the overall assessment of fair value.
The following is a description
of the valuation methodologies used for investments measured at fair value as of December 31, 2017 and 2016. There have been no
changes in the methodologies used at December 31, 2017 and 2016.
Mutual funds
: Valued based
on the number of shares held at year end at the fund closing price quoted in an active market.
Common stock
: Valued at
the closing price of First Connecticut Bancorp Inc.’s common stock reported on the active market on which it is traded.
Pooled Separate Account (PSA):
Valued at its net asset value (“NAV”) based on the market value of its underlying investments, but the PSA NAV
is not a publicly quoted price in an active market. Prices are validated through an investment analyst review process including
direct interaction with external sources or review of recent trade activity. The PSA invests mainly in domestic stock. As of December
31, 2017 and 2016, there were no unfunded commitments related to the PSA. The PSA may be redeemed on a daily basis with no redemption
restrictions, and investments in any class can be transferred once every 30 days at the current net asset value per share based
on the fair value of the underlying assets. Participants are not allowed to transfer back into that originating class until the
30-day period has expired. New contributions are allowed during this time period. This PSA seeks long-term growth of capital and
under normal circumstances invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity companies
that compose the S&P 500 Index at the time of purchase. The Index is designed to represent U.S. equities with risk/return characteristics
of the large cap universe.
Farmington Bank 401(k) Plan
Notes to Financial Statements
December 31, 2017 and 2016
The preceding methods described
may produce a fair value calculation that may not be indicative of net realizable value or reflective of future values. Furthermore,
although the Plan believes its valuation methods are appropriate and consistent with those of other market participants, the use
of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different
fair value measurement at the reporting date.
The following tables set forth
by level within the fair value hierarchy the Plan’s investments at fair value, as of December 31, 2017 and 2016:
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December 31, 2017
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Level 1
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Level 2
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Level 3
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Total
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Mutual Funds
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$
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27,783,690
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$
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-
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$
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-
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$
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27,783,690
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Common Stock
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741,324
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-
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-
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741,324
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Pooled Separate Account
(1)
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1,584,878
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Total investments
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$
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28,525,014
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$
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-
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$
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-
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$
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30,109,892
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December 31, 2016
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Level 1
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Level 2
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Level 3
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Total
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Mutual Funds
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$
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22,491,762
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$
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-
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$
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-
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$
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22,491,762
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Common Stock
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584,733
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-
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-
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584,733
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Pooled Separate Account
(1)
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1,005,229
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Total investments
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$
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23,076,495
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$
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-
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$
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-
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$
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24,081,724
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(1) -
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In accordance with Accounting Standards Codification Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts in this table are intended to permit reconciliation of the fair value hierarchy table to the fair value of investments presented in the statements of net assets available for benefits.
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There were no assets measured at fair value on a non-recurring basis at December 31, 2017 or 2016. There
were no transfers from one fair value level to another for the years ended December 31, 2017 and 2016.
The Principal Fixed Income Guaranteed
Option (“PFIGO”) is a fully benefit-responsive group annuity contract (“GAC”) issued by the Principal Life
Insurance Company (“PLIC” or the “Issuer”). The GAC consists of over 6,000 investments, which include corporate
bonds, asset-backed securities, commercial real estate mortgages, government bonds, and short-term cash equivalents. The crediting
interest rate is based on a formula agreed upon with the Issuer. Under the terms of the existing contract, the crediting rate is
currently reset on a semiannual basis and will never be less than the guaranteed minimum interest rate.
Certain events limit the ability
of the Plan to transact at contract value with PLIC. Such events include the following: (1) amendments to the Plan documents
(including complete or partial Plan termination or merger with another Plan), (2) changes to the Plan’s prohibition
on competing investment options or deletion of equity wash provisions, (3) bankruptcy of the Plan sponsor or other Plan sponsor
events (for example, divestitures or spin-offs of a subsidiary) that cause a significant withdrawal from the Plan, or (4) the
failure to qualify for exemption from federal income taxes or any required prohibited transaction exemption under ERISA. The Plan
administrator does not believe that the occurrence of any such value event, which would limit the Plan’s ability to transact
at contract value with participants, is probable.
Farmington Bank 401(k) Plan
Notes to Financial Statements
December 31, 2017 and 2016
The GAC does not permit the insurance
company to terminate the agreement prior to the scheduled maturity dates without additional termination charges.
The Internal Revenue Service
has determined and informed the Company by letter dated June 28, 2017 that the Plan is designed in accordance with applicable sections
of the IRC.
Accounting principles generally
accepted in the United States of America require Plan management to evaluate tax positions taken by the Plan and recognize a tax
liability (or asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination
by the Internal Revenue Service. The Plan administrator has analyzed the tax positions taken by the Plan, and has concluded that
as of December 31, 2017, there are no uncertain positions taken or expected to be taken that would require recognition of a liability
(or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions.
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6.
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Related Party Transactions
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Plan assets include investments
in funds managed by Principal. Principal is the Plan’s custodian and, as such, transactions with the custodian qualify as
party-in-interest. In addition, the Plan holds shares of First Connecticut Bancorp, Inc., the parent of the Plan’s sponsor,
which also qualifies as a party-in-interest. Personnel and facilities of the Company have been used to perform administrative functions
at no charge to the Plan.
Although it has not expressed
any intent to do so, the Company reserves the right under the Plan to discontinue its contributions at any time and to terminate
the Plan, subject to the provisions of ERISA. In the event of Plan termination, participants will immediately become 100% vested
in their account.
On June 19, 2018, First Connecticut
Bancorp, Inc. ("FCB") announced its entry into a definitive Agreement and Plan of Merger with People’s United Financial,
Inc. ("People's United"), pursuant to which FCB will merge with and into People's United. Completion of the transaction
is subject to customary closing conditions, including receipt of regulatory approvals and the approval of First Connecticut Bancorp,
Inc. shareholders.
Farmington Bank 401(k) Plan
EIN: 06-0339930 PN: 002
Schedule H, Line 4i - Schedule of Assets (Held at End of
Year)
December 31, 2017 and 2016
