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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-A
FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
PURSUANT TO SECTION 12(b) or 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
NSS BANCORP, INC.
(Exact Name of Registrant as Specified in its Charter)
Connecticut 06-1485317
(State of Incorporation of Organization) (I.R.S. Employer
Identification No.)
48 Wall Street, Norwalk, Connecticut 06852
(Address of Principal Executive Office) (Zip Code)
If this form relates to the registration of a class of debt securities and
is effective upon filing pursuant to General Instruction (A)(C)(1) please
check the following box.
If this form relates to the registration of a class of debt securities and
is to become effective simultaneously with the effectiveness of a
concurrent registration statement under the Securities Act of 1933
pursuant to General Information (A)(C)(2) please check the following box.
Securities to be registered pursuant to Section 12(b) of the Act:
NONE
Securities to be registered pursuant to Section 12(g) of the Act:
Name of Each Exchange on Which
Title of Each Class to be so registered Each Class is to be registered
Common Stock, par value, $0.01 NASDAQ - National Market
INFORMATION REQUIRED IN REGISTRATION STATEMENT
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ITEM 1. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
a. Capital Stock
The securities of NSS Bancorp, Inc. (the "Company") to be registered
consist of 7,000,000 shares of common stock par value of $0.01 per share
("Common Stock"). No shares of Common Stock are presently issued or
outstanding. The Common Stock will be issued in accordance with that
certain Agreement and Plan of Reorganization dated May 20, 1997 between the
Company and its wholly owned subsidiary, Norwalk Savings Society (the "Plan
of Reorganization"). The following statements are summaries of certain
provisions of the Plan of Reorganization, the Company's Certificate of
Incorporation and Bylaws and the Connecticut Business Corporation Act
("CBCA"). The statements made herein do not purport to be complete in all
respects and are qualified in their entirety by reference to the full
Certificate of Incorporation, Bylaws and CBCA, the first two of which have
been filed as Exhibit 3.1 and Exhibit 3.2, respectively, to this Form 8-A.
(1) Dividends may be paid on Common Stock if and when declared by
the Company's Board of Directors out of funds legally available for such
purpose. Under present Federal Reserve Board policy, the Company may pay
cash dividends only out of the Company's past year's net income, only if
prospective earnings retention is consistent with the Company's expected
future needs and only if payment of dividends does not undermine the
Company's ability to serve as a source of strength to its subsidiary bank.
When the Common Stock is issued and delivered in accordance with the Plan,
it will be validly issued, fully paid, non-assessable, and not subject to
any further calls by the Company.
At the time of issuance, holders of Common Stock will possess voting
power for the election of directors of the Company and for all other
purposes, each holder being entitled to one vote for each share of Common
Stock held. Holders of the Common Stock do not have cumulative voting
rights, preemptive rights, or conversion rights with respect to any such
shares. The Common Stock is not presently subject to any sinking fund or
restrictions on transferability or alienability. In the event of a
liquidation of the Company, holders of Common Stock are entitled to a
pro-rata share in all assets of the Company after payment of all amounts
due to creditors.
The Certificate of Incorporation of the Company prohibits any person
from directly or indirectly offering to acquire, or acquiring, beneficial
ownership of 10% or more of the Common Stock without the prior written
approval of the Company's Board of Directors, the Connecticut Banking
Commissioner and all applicable federal regulatory agencies. Any
shareholder owning 10% or more of the Common Stock may not vote any shares
that exceed 10% on any matter that is submitted for a vote of the
shareholders.
The Company must give the Federal Reserve Board prior notice of any
repurchase or redemption of shares of Common Stock if the gross
consideration for the purchase or redemption, when combined with the net
consideration paid by the holding company for all such purchases or
redemptions during the preceding twelve months, exceeds 10% of the holding
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company's consolidated net worth. The Federal Reserve Board may disapprove
such a purchase or redemption if it determines that the proposal would
constitute an unsafe or unsound practice or would violate any law,
regulation, Federal Reserve Board order, or any condition imposed by, or
written agreement with, the Federal Reserve Board. This prior notice
requirement, however, will not apply to the Company if it continues to
maintain its "well capitalized" status in accordance with applicable
Federal Reserve Board regulations, if it continues to maintain a "1" or "2"
rating in its most recent safety and soundness regulatory examination and
if there continues to be no unresolved regulatory issues concerning the
Company. Except as described above, there are no other restrictions on the
repurchase or redemption of Common Stock by the Company.
The Certificate of Incorporation of the Company provides for a
staggered Board of Directors as it divides the directors into three
classes, as nearly equal in number as possible, with one class elected each
year. Each director of the Company holds office for a three year term.
(2) The rights of holders of Common Stock may not be modified in any
event or for any purpose except by a vote of a majority or more of the
holders of outstanding shares of Common Stock.
(3) No preferred stock is to be registered.
(4) The rights of holders of Common Stock may, under certain
circumstances, be limited by the holders of serial preferred stock of the
Company. No serial preferred stock is presently issued or outstanding.
The Certificate of Incorporation of the Company authorizes 500,000 shares
of serial preferred stock, of which 50,000 shares have been designated as
Series A Preferred Stock. Shares of Series A Preferred Stock may be issued
in connection with a Shareholder's Rights Agreement which is attached
hereto as Exhibit 4. Generally, the Shareholder Rights Agreement is
designed to assure that holders of Common Stock receive fair and equal
treatment in the event of an attempted hostile takeover of the Company and
to maximize the value and rights of their shares of Common Stock in the
event of a hostile takeover attempt. Series A Preferred Stock may be
issued to holders of Common Stock (except for the potential hostile
takeover person) under certain circumstances specified in the Shareholder
Rights Agreement.
If issued, shares of Series A Preferred Stock, in preference to the
holders of Common Stock of the Corporation, and of any other junior stock,
are entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, quarterly dividends payable
in cash, in an amount per share equal to or greater than (i) $1 or (ii)
subject to the provision for adjustment hereinafter set forth, 100 times
the aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions, other than a dividend payable in shares of Common
Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding payment of a quarterly dividend or, with respect to
the initial quarterly dividend payment since the first issuance of any
share or fraction of a share of Series A Preferred Stock. If the Company
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at any time declares or pays any dividend on the Common Stock payable in
shares of Common Stock, or effects a subdivision or combination or
consolidation of the outstanding shares of Common Stock into a greater or
lesser number of shares of Common Stock, then in each such case the amount
to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
Dividends may accrue and cumulate on outstanding shares of Series A
Preferred Stock under certain circumstances but do not bear interest.
Dividends paid on the shares of Series A Preferred Stock in an amount less
than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all
such shares at the time outstanding.
When issued in accordance with the Shareholder's Rights Agreement,
each share of Series A Preferred Stock shall entitle the holder thereof to
100 votes on all matters submitted to a vote of the shareholders of the
Company. In the event the Company shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect
a subdivision or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the number of votes per
share to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event. Except as set forth herein, or as
otherwise provided by law, holders of Series A Preferred Stock have no
other special voting rights and their consent is not required (except to
the extent they are entitled to vote with holders of Common Stock as set
forth herein) for taking any corporate action.
Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock are in arrears, thereafter and
until all accrued and unpaid dividends and distributions, whether or not
declared, on shares of Series A Preferred Stock outstanding shall have been
paid in full, the Company will not declare or pay dividends, or make any
other distributions, on Common Stock or any other shares of stock ranking
junior as to dividends or upon liquidation, dissolution or winding up to
the Series A Preferred Stock ("Junior Stock").
The Company also may not declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series
A Preferred Stock, except dividends paid ratably on the Series A Preferred
Stock and all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the holders of such
shares are then entitled. The Company cannot, under those circumstances
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redeem or purchase or otherwise acquire for consideration shares of any
Junior Stock, provided that the Company may at any time redeem, purchase or
otherwise acquire shares of any such Junior Stock in exchange for shares of
any other Junior Stock.
The Company may not redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any shares of
stock ranking on a parity with the Series A Preferred Stock, except in
accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such shares upon
such terms as the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or classes.
Upon any liquidation, dissolution or winding up of the Corporation,
no distribution shall be made (a) to the holders of Common Stock or shares
of Junior Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment, provided that the holders of shares
of Series A Preferred Stock shall be entitled to receive an aggregate
amount per share, subject to the provision for adjustment hereinafter set
forth, equal to 100 times the aggregate amount to be distributed per share
to holders of shares of Common Stock, or (b) to the holders of shares of
stock ranking on a parity (either as to dividends upon liquidation,
dissolution or winding up) with the Series A Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of
such shares are entitled upon such liquidation, dissolution or winding up.
In the event the Company shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision
or combination or consolidation of the outstanding shares of Common Stock,
then in each such case the aggregate amount to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such event
under the proviso in clause (a) of the preceding sentence shall be adjusted
by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
In case the Company shall enter into any consolidation, merger,
combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any
other property, then in any such case each share of Series A Preferred
Stock shall be, subject to the provision for adjustment hereinafter set
forth, equal to 100 times the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as the case may be, into which
or for which each share of common stock is changed or exchanged. If the
Company shall at any time declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision or combination
or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the amount set forth in the preceding sentence with
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respect to the exchange or change of shares of Series A Preferred Stock
shall be adjusted by multiplying such amount by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such event.
The shares of Series A Preferred Stock are not redeemable and rank,
with respect to the payment of dividends and the distribution of assets,
junior to all series of any other class of the Corporation's Preferred
Stock.
(5) The Certificate of Incorporation of the Company provides that a
"super-majority" vote of shareholders must approve certain business
combinations, including mergers, consolidations, share exchanges, sales of
all or substantially all assets, liquidations, dissolutions or
reclassifications, between the Company and an "Interested Shareholder" (as
such term is defined below) or any other corporation (whether or not itself
an Interested Shareholder) which is or after such merger or consolidation
would be, an affiliate or associate of any Interested Shareholder unless
the transaction is approved by the Board of Directors of the Company or
certain fair price procedural requirements are satisfied. An "Interested
Shareholder" is generally defined as a person or entity who is the
beneficial owner, directly or indirectly, of 10% or more of the voting
power of the outstanding shares of voting stock of the Company. Such
transactions must first be approved by the Company's Board of Directors and
then by the affirmative vote of the holders of at least 80% of the voting
power of the then outstanding shares of the voting stock, and by two-thirds
of the voting power of the outstanding shares of the voting stock exclusive
of shares held by or on behalf of the Interested Shareholder, unless: (1)
the transaction is approved by the Board of Directors before the Interested
Shareholder first became an Interested Shareholder; (2) or in the case of
a merger, consolidation or share exchange, and in all other business
combinations, certain fair price and procedural provisions are met. The
fair price provisions generally require that shareholders whose stock is
acquired in a business combination be paid at least as much as the highest
price the Interested Shareholder paid for shares within the two prior years
or the price that the Interested Shareholder paid in the transaction by
which the Interested Shareholder first became an Interested Shareholder,
whichever is higher. The procedural provisions include prohibitions
against omissions of dividends on preferred stock, reductions in dividends
on the Common Stock and acquisitions by the Interested Shareholder of more
stock of the Company.
In the event that the fair price and procedural requirements are met
or the requisite approval of the Board of Directors is given with respect
to a particular business combination, the normal voting requirements of
Connecticut law would apply. Under Connecticut law, a merger,
consolidation, sale of substantially all of the assets of the Company and
the adoption of a plan of dissolution of the Company would generally
require the approval of a majority of the issued and outstanding shares of
the Company's capital stock entitled to vote thereon. A reclassification
of the Company's securities involving an amendment to its Certificate of
Incorporation and other issues requiring shareholder approval would also
require the approval of the holders of a majority of the voting power of
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the Company's capital stock entitled to vote thereon. A sale of less than
substantially all of the assets of the Company, a merger of the Company
with a company in which it owns not less than 90% of the outstanding
capital stock or a reclassification of the Company's securities not
involving an amendment to its Certificate of Incorporation would not
require shareholder approval.
As noted above the Certificate of Incorporation of the Company
prohibits any person from acquiring 10% or more of the outstanding stock of
the Company entitled to vote for the election of directors (defined as
"Voting Stock") unless: (a) such acquisition has been approved prior to
its consummation by the affirmative vote of the holders of at least
two-thirds of the Voting Stock entitled to vote at a meeting of
shareholders called for such purpose; and (b) all federal and state
regulatory approvals required under the Change in Bank Control Act of 1978,
the Bank Holding Company Act of 1956 and any similar Connecticut law and in
accordance with all regulations of the FDIC, Federal Reserve Board and
Connecticut Banking Commissioner.
Moreover no person may make an offer to acquire 10% or more of the
then-outstanding Voting Stock unless such person has notified the Company's
Board of Directors of such intent and the Board of Directors has not within
fifteen days after receipt of such notice, disapproved of such offer, or
before the offer is made, obtained prior approval of the acquisition by the
FDIC or FRB and the Banking Commissioner.
b. Debt Securities
No debt securities are to be registered hereunder.
c. Warrants and Rights
The Common Stock will not be offered pursuant to warrants or
rights.
d. Other Securities
No securities other than the Common Stock are to be registered
hereunder.
e. Market Information for Securities other than Common Equity
No securities other than the Common Stock are to be registered
hereunder.
f. American Depository Receipts
No Depository Shares will be registered hereunder.
g. Security Rating
The Company has not obtained a security rating from a nationally
recognized statistical rating organization with respect to its securities.
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ITEM 2. EXHIBITS
Exhibit 2: Agreement and Plan of Reorganization
Exhibit 3i: Certificate of Incorporation of NSS Bancorp, Inc.
Exhibit 3ii: Bylaws of NSS Bancorp, Inc.
Exhibit 4: Shareholder Rights Agreement
Exhibit 4.1 Amendment to Rights Agreement
Exhibit 4.2 Assignment of Rights Agreement
Exhibit 10.1: Employment Agreement-Robert T. Judson
Exhibit 10.1.2 Amendment One to Employment Agreement
Exhibit 10.1.3 Amendment Two to Employment Agreement
Exhibit 10.1.4 Amendment Three to Employment Agreement
Exhibit 10.2.1: Employment Agreement-Charles F. Howell
Exhibit 10.2.2 Amendment One to Employment Agreement
Exhibit 10.2.3 Amendment Two to Employment Agreement
Exhibit 10.2.4 Amendment Three to Employment Agreement
Exhibit 10.3.1: Employment Agreement-Jeremiah T. Dorney
Exhibit 10.3.2 Amendment One to Employment Agreement
Exhibit 10.3.3 Amendment Two to Employment Agreement
Exhibit 10.3.3 Amendment Three to Employment Agreement
Exhibit 10.4.1: Employment Agreement-Marcus I. Braverman
Exhibit 10.4.2 Amendment One to Employment Agreement
Exhibit 10.4.3 Amendment Two to Employment Agreement
Exhibit 10.4.4 Amendment Three to Employment Agreement
Exhibit 10.4.5 Amendment Four to Employment Agreement
Exhibit 10.5: Divestiture Agreement between Westport Asset Management
and Norwalk Savings Society
Exhibit 21: Subsidiaries of NSS Bancorp, Inc.
1. Norwalk Savings Society
Exhibit 99.1: Form F-2 Annual Report Norwalk Savings
Exhibit 99.2 Form F-4 Quarterly Report Norwalk Savings
SIGNATURE
Pursuant to the requirements of section 12 of the Securities
Exchange Act of 1934, the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned thereto duly
authorized.
NSS BANCORP, INC.
Registrant Date:
By:
Robert T. Judson
Its President
1
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Exhibit 2
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Plan of
Reorganization"), dated as of May 20, 1997, is made and entered
into by and between NORWALK SAVINGS SOCIETY, a Connecticut stock
savings bank (the "Bank") and NSS BANCORP, INC., a newly formed
capital stock corporation organized at the direction of the Bank
(the "Holding Company") pursuant to Section 36a-181 of the
Connecticut General Statutes.
WHEREAS, the authorized capital stock of the Bank consists of
(a) 7,000,000 shares of Common Stock, par value $0.01 per share
(the "Bank Common Stock"), of which 2,442,129 shares are issued and
outstanding and 422,332 shares are reserved for issuance pursuant
to the Bank's various stock option and benefit plans, and (b)
500,000 shares of Preferred Stock, par value $0.01 (the "Bank
Preferred Stock"), none of which are issued or outstanding and
50,000 of which are reserved for issuance pursuant to a
Shareholders Rights Agreement, as more fully described below.
WHEREAS, the authorized capital stock of the Holding Company
shall consist of (a) 7,000,000 shares of Common Stock, par value
$0.01 per share (the "Holding Company Common Stock"), none of which
are issued and outstanding or reserved for issuance, and (b)
500,000 shares of Preferred Stock, $0.01 (the "Holding Company
Preferred Stock"), none of which are issued and outstanding and
50,000 of which are reserved for issuance.
WHEREAS, the Bank and the Holding Company wish to enter into
the Plan of Reorganization whereby the Holding Company will acquire
all of the issued and outstanding shares of the Bank Common Stock
(other than shares held by the Dissenting Shareholders, as
hereinafter defined) in exchange for an equal number of shares of
Holding Company Common Stock (such exchange is hereinafter referred
to as the "Reorganization").
WHEREAS, each Shareholder of Bank Common Stock (other than
Dissenting Shareholders who have validly exercised their rights
under Section 36a-181(c) of the Connecticut General Statutes)
will receive one share of Holding Company Common Stock for each
share of Bank Common Stock held as of the Effective Time (as
hereinafter defined).
WHEREAS, the Bank believes that the Reorganization is
desirable and in the best interests of its shareholders.
WHEREAS, the Bank and the Holding Company intend the
Reorganization to constitute a non-taxable event to each entity and
to their respective shareholders pursuant to the Internal
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Revenue Code of 1986, as amended (the "Code").
WHEREAS, this Plan of Reorganization has been approved by the
Board of Directors of the Bank which has duly authorized the
officers whose respective signatures appear below to execute
and deliver the Plan of Reorganization.
NOW, THEREFORE, in consideration of the mutual promises,
representations, and covenants herein contained, the Bank and the
Holding Company agree as follows:
Section 1. Approval and Filing of Plan of Reorganization.
1.1 This Plan of Reorganization shall be submitted for the
approval of holders of Bank Common Stock at a meeting to be duly
called and held on May 20, 1997 in accordance with the
Bylaws of the Bank and all applicable laws and regulations (the
"Annual Meeting"). Notice of the Annual Meeting shall be mailed
directly to all stockholders at their last known addresses as
contained on the records of the Bank.
1.2 Subject to the approval of this Plan of Reorganization
by the affirmative vote of the holders of at least two-thirds of
each class of the voting securities of the Bank, this Plan of
Reorganization shall be submitted, in accordance with Section
36a-181 of the Connecticut General Statutes, for the approval of
the Commissioner of Banking of the State of Connecticut (the
"Banking Commissioner"). This Plan of Reorganization shall be
accompanied by a certificate from the Bank that this Plan of
Reorganization has been submitted to and approved by the required
two-thirds vote of and such other documentation as may be required
by law or by regulation of the Banking Commissioner.
1.3 If the Plan of Reorganization is approved by the
requisite number of votes of Shareholders at the Annual Meeting,
thereafter and until the Effective Time (as hereinafter
defined), the Bank shall issue certificates for Bank Common Stock,
whether upon transfer or otherwise, only if such certificates bear
a legend indicating that this Plan of Reorganization has been
approved and that shares of Bank Common Stock evidenced by such
certificates are subject to the acquisition by the Holding Company
pursuant to this Plan of Reorganization.
Section 2. The Closing.
2.1 Subject to the terms and conditions of this Plan of
Reorganization, the closing of the Reorganization (the "Closing")
shall take place on the date on which this Plan of Reorganization
is filed in the Office of the Secretary of the State of Connecticut
(the "Secretary of State"), which filing shall not occur until all
of the conditions to Closing set forth in Section 7 hereof have
been satisfied. The Closing and this Plan of Reorganization shall
be effective at the time of such filing (the "Effective Time").
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2.2 At the Closing, the Holding Company and the Bank shall
deliver to each other such certificates and other documents as are
required pursuant to this Plan of Reorganization and as are
necessary and appropriate, in the reasonable opinion of counsel for
the Bank, to consummate the Reorganization.
Section 3. Actions at the Effective Time.
3.1 At the Effective Time, the Holding Company shall,
without any further action by it or by holders of the Bank Common
Stock, automatically and by operation of law, acquire and become
the owner of all issued and outstanding shares of Bank Common Stock
(excluding shares held by the Bank as treasury stock, all of which
shall be canceled and extinguished as of the Effective Time) and
shall be entitled to have issued to it by the Bank a certificate or
certificates representing such shares. Thereafter, the Holding
Company shall have full and exclusive power to vote such shares of
Bank Common Stock, to receive dividends thereon and to exercise all
rights of an owner thereof.
3.2 At the Effective Time, each share of Bank Common Stock
issued and outstanding prior to the Effective Time shall, without
any further action by Shareholders or by the Holding Company,
automatically and by operation of law, be converted into one share
of Holding Company Common Stock. Holders of the issued and
outstanding shares of Bank Common Stock (except for holders
exercising Dissenters Rights) shall, automatically and by operation
of law, cease to own such shares and shall instead become the
owners of one share of Holding Company Common Stock for
each share of Bank Common Stock held by them. Thereafter, such
persons holding Holding Company Common Stock shall have full and
exclusive power to vote such shares, to receive dividends thereon,
except as otherwise provided herein, and to exercise all rights of
an owner thereof. Notwithstanding any of the foregoing, any
Dissenting Shareholder shall have such rights as provided for in
Section 8 hereof and by the laws of the State of Connecticut.
3.3 At the Effective Time, all previously issued and
outstanding certificates representing shares of Bank Common Stock
(the "Old Certificates") shall automatically and by operation of
law cease to represent shares of Bank Common Stock or any interest
therein and each Old Certificate shall instead represent the
ownership by the holder thereof of an equal number of shares of
Holding Company Common Stock. No holder of an Old Certificate
shall be entitled to vote the shares of Bank Common Stock formerly
represented by such certificate, or to receive dividends thereon,
or to exercise any other rights of ownership in respect thereof.
Section 4. Shareholders Rights Agreement.
4.1 Upon approval of the Plan of Reorganization but in any
event not later than the Effective Time, the Holding Company shall
adopt and enter into a shareholders' rights agreement which shall
be, in form and substance, acceptable to and approved by the Board
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of Directors of the Bank (the "HC Agreement").
4.2 The HC Agreement shall contain terms, covenants, and
conditions which shall be as nearly identical as possible to the
terms, covenants, and conditions contained in that certain
Shareholders' Rights Agreement between the Bank and Chemical Mellon
Shareholder Services, LLC dated May 10, 1996 (the "NSS-Chemical
Agreement"), a copy of which is required to be furnished to
the Holding Company not later than ten days after the Annual
Meeting.
4.3 At the Effective Time, the Bank shall, without any
further action by the Bank or Holding Company, assign all right,
title and interest, in the NSS-Chemical Agreement to the Holding
Company and the Holding Company shall accept such assignment and
become the Bank's successor-in-interest to the NSS-Chemical
Agreement.
4.4 At the Effective Time, the Holding Company shall, in
connection with its acquisition of all issued and outstanding
shares of Bank Common Stock and without any further
action by the Holding Company or by the shareholders of the Bank,
acquire and become the holder of all Rights (as defined in the
"NSS-Chemical Agreement") issued as a dividend distribution to
holders of Bank Common Stock under the NSS-Chemical Agreement.
Thereafter, the Holding Company shall terminate the NSS-Chemical
Agreement and retire and extinguish all such Rights
acquired by it thereunder.
4.5 At the Effective Time, the Holding Company shall,
without any further action by it or by the Bank, declare a dividend
distribution to holders of Holding Company Common Stock entitling
such holders to a "Holding Company Right" (as defined in the HC
Agreement) in an amount and under such terms and conditions as are
prescribed in the HC Agreement.
4.6 At the Effective Time, Holders of Bank Common Stock
shall, automatically and by operation of law, cease to own such
Rights issued under the NSS-Chemical Agreement and, in
substitution therefor, shall, automatically and by operation of
law, be granted an equal number of Holding Company Rights.
4.7 Holding Company Rights shall be automatically traded
with Holding Company Common Stock subject to the terms and
conditions of the HC Agreement.
Section 5. Stock Option and Benefit Plans.
5.1 At the Effective Time, the Holding Company shall
automatically and without further action on its part adopt, and
assume the rights and obligations of the Bank under the Bank's 1994
Employee Stock Option Plan, the Bank's 1994 Director Stock Option
Plan, the Bank's 1995 Executive Incentive Plan, and the Bank's 1994
Employee Stock Ownership Plan, all as amended (collectively, the
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"Stock Plans"), as the Stock Plans are then in effect (subject to
certain conforming amendments necessitated by or appropriate for
the change in sponsorship of such Stock Plans). The Stock Plans
shall, pursuant to their terms, thereafter apply only to shares of
Holding Company Common Stock in the same manner as they theretofore
applied to shares of Bank Common Stock.
The Holding Company shall reserve for issuance a sufficient number
of shares of Holding Company Common Stock in order to fulfill its
obligations pursuant to this Section 5.1 and shall take such
action as it deems necessary or advisable to permit the issuance of
such shares under applicable state and federal securities laws and
rules and regulations thereunder. Approval of the Reorganization
by the shareholders of the Bank shall be deemed to be approval of
the Stock Plans and any grants of Holding Company Common Stock
thereunder by the Holding Company.
5.2 At the Effective Time, all options then outstanding
under any of the Stock Plans, which immediately prior thereto had
given the holder thereof the right to purchase shares of Bank
Common Stock shall, automatically and without further action on the
part of the holder thereof, be converted into options giving the
holder thereof the right to purchase the same number of shares of
Holding Company Common Stock at the same exercise price per share,
and in accordance with such other terms and conditions, as
pertained under the options outstanding under any of the Stock
Plans immediately prior to the Effective Time.
Section 6. Actions After the Effective Time.
As soon as practicable and in any event not more than thirty days
after the Effective Time:
6.1 The Holding Company shall deliver to the transfer agent
for the Bank and the Holding Company (the "Transfer Agent"), as
agent for the holders of the Old Certificates (other than Old
Certificates representing shares of Bank Common Stock as to which
Dissenting Shareholders' appraisal rights shall have been properly
exercised), a certificate or certificates for the aggregate
number of shares of Holding Company Common Stock (the "New
Certificates"), to which such holders shall be entitled. Each such
holder may, but shall not be required to, surrender his Old
Certificates to the Transfer Agent and receive in exchange therefor
a New Certificate for an equal number of shares of Holding Company
Common Stock. Until so surrendered, each Old Certificate
shall be deemed, for all corporate purposes, to evidence the
Ownership of the number of shares of Holding Company Common Stock
which the holder thereof would be entitled to receive upon its
surrender, except that the Holding Company may in its sole
discretion, deny the holders of such shares voting rights thereon
and withhold from the holder of shares represented by such Old
Certificate, distribution of any or all dividends declared by the
Holding Company on such shares until such time as such Old
Certificate shall be surrendered in exchange for one or more New
Certificates, at which time dividends so withheld by the Holding
<PAGE>
Company with respect to such shares shall be delivered (without
interest thereon and less the amount of taxes, if any, which may
have been imposed or paid thereon or which are required by law to
be withheld in respect thereof), to the shareholder to whom such
New Certificates are issued.
6.2 If any certificate for shares of Holding Company Common
Stock is to be issued in a name other than that in which the
certificate surrendered in exchange therefor is registered, it
shall be a condition of the issuance thereof that the certificate
so surrendered shall be properly endorsed and otherwise in proper
form for transfer as the Holding Company in its sole discretion may
specify and that such transfer otherwise be proper and that the
person requesting such transfer pay to the Transfer Agent any
transfer or other taxes or other fee payable by reason of the
issuance of such New Certificate in any name other than the
registered holder of the certificate surrendered, or establish to
the satisfaction of the Transfer Agent that such tax has been paid
or is not payable or that any fee has been paid to the party to
which it is due and waived by such party.
6.3 The Holding Company shall publish, in accordance with
applicable law, a notice to the holders of all Old Certificates,
specifying the Effective Time of this Plan of Reorganization and
notifying such holders that they may present their Old Certificates
to the Transfer Agent for exchange. Such notice shall likewise be
given by mail to such holders at their last known addresses
as contained on the Bank's records.
Section 7. Conditions Precedent.
7.1 The Plan of Reorganization and the transactions
provided for herein shall not become effective unless all of the
following conditions shall have occurred, none of which may be
waived:
(a) This Plan of Reorganization and the transactions
contemplated hereby shall have been approved by the affirmative
vote of at least two-thirds of the voting securities of the Bank
at the Annual Meeting or at any adjournment thereof.
(b) The Plan of Reorganization shall have been approved by
the Banking Commissioner, and the Reorganization and the other
transactions contemplated hereby shall have been approved by any
other bank regulatory agency of competent jurisdiction, and all
notice and waiting periods after the granting of any such approval
shall have expired.
(c) The Holding Company shall have provided notice to the
Federal Reserve Bank of New York (the "Reserve Bank") in accordance
with 12 C.F.R. 225.15 and the Reserve Bank shall not have objected
to the consummation of the transaction contemplated under this Plan
of Reorganization within 30 days after the Reserve Bank's receipt
of such notice or, alternatively, the Reserve Bank or the Board of
<PAGE>
Governors of the Federal Reserve System pursuant to section 3(a)(1)
of the Bank Holding Company Act of 1956, as amended, shall have
approved the application of the Holding Company to become a bank
holding company upon consummation of the Reorganization
and any and all applicable waiting periods shall have expired.
(d) Unless otherwise waived, all approvals from the
Federal Deposit Insurance Corporation and any other state or
federal government agency having jurisdiction for the lawful
consummation of the transactions contemplated by this Plan of
Reorganization shall have been obtained, all conditions imposed by
such regulatory approvals shall have been satisfied, and all
waiting periods required in connection with such approvals shall
have expired.
(e) The Shares of Holding Company Common Stock to be
issued to holders of Bank Common Stock pursuant to the Plan of
Reorganization shall have been registered or qualified for
such issuance without registration to the extent required under the
Securities Act of 1933 and under all applicable state securities
law.
(f) The Holding Company and the Bank shall have received
an opinion from the Bank's independent auditors to the effect that
the Reorganization will qualify for pooling-of-interests
accounting treatment.
(g) The number of shares of Bank Common Stock as to which
the Dissenting Shareholders shall have exercised their rights to be
paid the value of such Bank Common Stock shall not exceed the
lesser of (i) 5% of the number of shares of Bank Common Stock
issued and outstanding at the Effective Time, or (ii) such number
of shares as in the opinion of the Bank's independent auditors
would prevent accounting for the Reorganization on a "pooling of
interests" basis in accordance with generally accepted accounting
principles.
Section 8. Rights of Dissenting Shareholders.
8.1 "Dissenting Shareholders" shall mean those holders of
Bank Common Stock who file with the Bank, before the taking of the
vote on this Plan of Reorganization and the transactions
contemplated hereby, written objection thereto, pursuant to Section
36a-181(c) of the Connecticut General Statutes, which written
objection states that they intend to demand payment for their
shares of Bank Common Stock if the Reorganization is consummated
and whose shares are not voted in favor of the Reorganization.
8.2 Dissenting Shareholders who comply with the provisions
of Section 36a-181(c) of the Connecticut General Statutes and all
other applicable provisions of law shall be entitled to
receive from the Bank payment of the value of their shares of Bank
Common Stock upon surrender by such holders of the certificates
which previously represented shares of Bank Common Stock.
<PAGE>
Certificates so obtained by the Bank, upon payment of the value of
such shares as provided by law, shall be canceled. Shares of
Holding Company Common Stock to which Dissenting Shareholders
would have been entitled had they not dissented, shall be deemed to
constitute authorized but unissued shares of Holding Company Common
Stock and may be sold or otherwise disposed of by the Holding
Company at the discretion of, and at such time and on such terms as
may be fixed by, its Board of Directors.
Section 9. Termination, Abandonment, Amendment and Waiver.
9.1 This Plan may be abandoned or terminated by either the
Bank or the Holding Company at any time before the Effective Time
in the event that:
(a) The number of shares of Bank Common Stock owned
by Dissenting Stockholders, as defined in Section 8 hereof, shall
make consummation of the transactions contemplated by this Plan of
Reorganization inadvisable in the opinion of the Bank or the
Holding Company;
(b) Any action, suit, proceeding or claim has been
instituted, made or threatened relating to this Plan of
Reorganization which shall make consummation of the transactions
contemplated by this Plan inadvisable in the opinion of the Bank or
the Holding Company;
(c) The Reorganization shall not have been consummated
by August 1, 1997; or
(d) For any other reason consummation of the
transactions contemplated by this Plan of Reorganization is
inadvisable in the opinion of the Bank or the Holding Company.
9.2 In the event of termination or abandonment of this Plan
of Reorganization in any manner, this Plan of Reorganization shall
be terminated and shall be of no further force or effect
and there shall be no liability hereunder or on account of such
abandonment or termination on the part of the Bank or the Holding
Company or the Directors, officers, employees, agents or
stockholders of either entity. In the event of such abandonment or
termination of this Plan of Reorganization, the Bank shall pay all
expenses incurred in connection with this Plan of Reorganization
and the proposed transactions contemplated hereby. If either party
hereto gives written notice of abandonment or termination to the
other party pursuant to this, the party giving such written notice
shall simultaneously furnish a copy thereof to the Banking
Commissioner.
9.3 This Plan of Reorganization may be amended by the
parties hereto, by action taken by or on behalf of their respective
Boards of Directors, at any time before or after approval of the
Reorganization by the Shareholders of the Bank; provided, however,
that any material change in the Plan of Reorganization subsequent
to the approval thereof by Shareholders shall require the
additional approval of Shareholders of any such material change or
amendment, and, provided further, that after the initial
Shareholder approval, no such amendment shall be submitted for the
approval of Shareholders which has the effect of reducing the
amount or change the form of the consideration to be delivered to
the Bank's Shareholders as contemplated by this Plan of
Reorganization. This Plan of Reorganization may not be amended
except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 10. Governing Law.
10.1 This plan of Reorganization shall be governed by and
construed in accordance with the laws of the State of Connecticut.
IN WITNESS WHEREOF, the parties have executed this Plan of
Reorganization as of the date first written above.
NORWALK SAVINGS SOCIETY
/s/ Robert T. Judson
------------------------------
By: Robert T. Judson
Its President
NSS BANCORP, INC.
/s/ Robert T. Judson
-------------------------------
By: Robert T. Judson
Its President
<PAGE>
Exhibit 3.I
CERTIFICATE OF INCORPORATION
OF
NSS BANCORP, INC.
The undersigned incorporator, Norwalk Savings Society, a
Connecticut stock savings bank, hereby forms a Corporation under
the Connecticut Business Corporation Act.
I. CORPORATE NAME. The name of the Corporation is NSS Bancorp,
Inc. The principal office of the Corporation shall be located in
the City of Norwalk, County of Fairfield, and State of Connecticut.
II. PURPOSES. The nature of the business to be transacted and
the purposes to be promoted, carried out or engaged in by the
Corporation are the following activities:
<PAGE>
A. To acquire, invest in or hold stock in any subsidiary
permitted under the Bank Holding Company Act of 1956 or sections
36a-180, et. seq., of the Connecticut General Statutes, as such
statutes may be amended from time to time, and engaging in any
other enterprise or activity which may be lawfully conducted under
said statutes; and
B. To engage generally in any business activity that may
be lawfully carried on by a corporation organized under the
Connecticut Business Corporation Act.
III. CAPITAL STOCK. The amount of capital stock of the
Corporation hereby authorized shall consist of 7,000,000 million
shares of Common Stock, par value $0.01 per share, and 500,000
shares of Serial Preferred Stock, par value $0.01 per share. A
description of the different classes and series of the
Corporation's capital stock and a statement of the powers,
designations, preferences, limitations and relative rights of the
shares of each class of and series of capital stock are as follows:
A. Common Stock. Except as provided in this Article
Third (or in any resolution or resolutions adopted by the Board of
Directors pursuant hereto), the holders of the Common Stock shall
exclusively possess all voting power. Each holder of shares of
Common Stock shall be entitled to one vote for each share held by
such holder. There shall be no cumulative voting rights in the
election of directors. Each share of Common Stock shall have the
same relative rights as and be identical in all respects with all
other shares of Common Stock.
Whenever there shall have been paid, or declared and set
aside for payment, to the holders of the outstanding shares of any
class of stock having preference over the Common Stock as to the
payment of dividends, the full amount of dividends or sinking fund
or retirement fund or other retirement payments, if any, to which
such holders are respectively entitled in preference to the Common
Stock, then dividends may be paid on the Common Stock and on any
class or series of stock entitled to participate therewith as to
dividends, out of any assets legally available for the payment of
dividends; but only when and as declared by the Board of Directors.
In the event of any liquidation, dissolution or winding up of
the Corporation after there shall have been paid to or set aside
for the holders of any class having preferences over the Common
Stock in the event of liquidation, dissolution or winding up of the
full preferential amounts of which they are respectively entitled,
the holders of the Common Stock, and of any class or series of
stock entitled to participate therewith, in whole or in part, as to
distribution of assets, shall be entitled after payment or
provision for payment of all debts and liabilities of the
Corporation, to receive the remaining assets of the Corporation
available for distribution, in cash or in kind.
<PAGE>
B. Serial Preferred Stock. The Board of Directors of the
Corporation is authorized, subject to limitations prescribed by law
and the provisions of this Article Third, to provide by resolution
for the issuance of Serial Preferred Stock in series, including
convertible preferred Stock, and by filing a certificate pursuant
to the applicable law of the State of Connecticut, to establish
from time to time the number of shares to be included in each such
series, and to fix the designations, powers, preferences and
relative, participating, optional and other special rights of the
shares of each such series and the qualifications, limitations or
restrictions thereof.
The authority of the Board of Directors with respect to each
series shall include, but not be limited to, determination of the
following:
(1) The number of shares constituting that series and the
distinctive designation of that series;
(2) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or
dates, and the relative rights of priority, if any, of payment of
dividends on shares of that series;
(3) Whether that series shall have voting rights, in
addition to the voting rights provided by law, and if so, the terms
of such voting rights, including but not limited to providing
voting rights which are more or less heavily weighted than other
series of Preferred Stock and/or of Common Stock;
(4) Whether that series shall have conversion privileges,
and, if so, the terms and conditions of such conversion, including
provision for adjustment of the conversion rate in such events as
the Board of Directors shall determine;
(5) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such
redemption, including the date or dates upon or after which they
shall be redeemable, and the amount per share payable in case or
redemption, which amount may vary under different conditions and at
different redemption dates;
(6) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the
terms and amounts of such sinking fund;
(7) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution, or winding up of
the Corporation, and the relative rights of priority, if any, of
payment of shares of that series; and
(8) Any other relative rights, preferences, and limitations
of that series.
<PAGE>
To the extent that this Certificate of Incorporation does not
fix or determine the terms, limitations and relative rights and
preferences of any shares of Preferred Stock, or does not establish
series and fix and determine the variations as among series, the
Board of Directors shall have the authority to do so from time to
time.
C. Series A Junior Participating Preferred Stock:
(1) Designation and Amount. The shares of such series
shall be designated as "Series A Junior Participating Preferred
Stock" (the "Series A Preferred Stock") and the number of shares
constituting the Series A Preferred Stock shall be 50,000. Such
number of shares may be increased or decreased by resolution of the
Board of Directors; provided, that no decrease shall reduce the
number of shares of Series A Preferred Stock to a number less than
the number of shares then outstanding plus the number of shares
reserved for issuance upon the exercise of outstanding options,
rights or warrants or upon the conversion of any outstanding
securities issued by the Corporation convertible into Series A
Preferred Stock.
(2) Dividends and Distributions.
(a) Subject to the rights of the holders of any shares of
any series of Preferred Stock (or any similar stock) ranking prior
and superior to the Series A Preferred Stock with respect to
dividends, the holders of shares of Series A Preferred Stock, in
preference to the holders of Common Stock of the Corporation, and
of any other junior stock, shall be entitled to receive, when, as
and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on
the first day of March, June, September and December in each year
(each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment
Date after the first issuance of a share of Series A Preferred
Stock, in an amount per share (rounded to the nearest cent) equal
to the greater of (i) $1 or (ii) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per share
amount of all cash dividends, and 100 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common
Stock or a subdivision of the outstanding shares of Common Stock
(by reclassification or otherwise), declared on the Common Stock
since the immediately preceding Quarterly Dividend Payment Date or,
with respect to the first Quarterly Dividend Payment Date, since
the first issuance of any share or fraction of a share of Series A
Preferred Stock. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares
of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in
shares of Common Stock) into a greater or lesser number of shares
of Common Stock, then in each such case the amount to which holders
<PAGE>
of shares of Series A Preferred Stock were entitled immediately
prior to such event under clause (ii) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(b) The Corporation shall declare a dividend or
distribution on the Series A Preferred Stock as provided in
paragraph (a) of this Section immediately after it declares a
dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date
and the next subsequent Quarterly Dividend Payment Date, a dividend
of $1 per share on the Series A Preferred Stock shall nevertheless
be payable on such subsequent Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such
shares, unless the date of issue of such shares is prior to the
record date for the first Quarterly Dividend Payment Date, in which
case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock
entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividends
shall begin to accrue and be cumulative from such Quarterly
Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Preferred Stock
in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata
on a share-by- share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series A Preferred Stock
entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than sixty days prior
to the date fixed for the payment thereof.
(3) Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(a) Subject to the provision for adjustment hereinafter
set forth, each share of Series A Preferred Stock shall entitle the
holder thereof to 100 votes on all matters submitted to a vote of
the shareholders of the Corporation. In the event the Corporation
shall at any time declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number
<PAGE>
of shares of Common Stock, then in each such case the number of
votes per share to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction, the numerator of
which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately
prior to such event.
(b) Except as otherwise provided herein or as otherwise
provided by law, if the Board of Directors creates a series of
Preferred Stock or any similar stock, or by law, the holders of
shares of Series A Preferred Stock and the holders of shares of
Common Stock and any other capital stock of the Corporation having
general voting rights shall vote together as one class on all
matters submitted to a vote of shareholders of the Corporation.
(c) Except as set forth herein, or as otherwise provided
by law, holders of Series A Preferred Stock shall have no special
voting rights and their consent shall not be required (except to
the extent they are entitled to vote with holders of Common Stock
as set forth herein) for taking any corporate action.
(4) Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided
in Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on
shares of Series A Preferred Stock outstanding shall have been paid
in full, the Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either
as to dividends or upon liquidation, dissolution or winding up)
with the Series A Preferred Stock, except dividends paid ratably on
the Series A Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to divi
dends or upon liquidation, dissolution or winding up) to the Series
A Preferred Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such junior
stock in exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series A Preferred Stock; or
<PAGE>
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any shares
of stock ranking on a parity with the Series A Preferred Stock,
except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series and
classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could,
under paragraph (a) of this Section 4, purchase or otherwise
acquire such shares at such time and in such manner.
(5) Reacquired Shares. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and canceled promptly after the
acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Stock and may be
reissued as part of a new series of Preferred Stock subject to the
conditions and restrictions on issuance set forth herein or in any
other Certificate of Designations creating a series of Preferred
Stock or any similar stock or as otherwise required by law.
(6) Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (a) to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock unless,
prior thereto, the holders of shares of Series A Preferred Stock
shall have received $100 per share, plus an amount equal to accrued
and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment, provided that the holders of
shares of Series A Preferred Stock shall be entitled to receive an
aggregate amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount to
be distributed per share to holders of shares of Common Stock, or
(b) to the holders of shares of stock ranking on a parity (either
as to dividends upon liquidation, dissolution or winding up) with
the Series A Preferred Stock, except distributions made ratably on
the Series A Preferred Stock and all such parity stock in
proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding
up. In the event the Corporation shall at any time declare or pay
any dividend on the Common Stock payable in shares of Common Stock,
or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock,
then in each such case the aggregate amount to which holders of
shares of Series A Preferred Stock were entitled immediately prior
to such event under the proviso in clause (a) of the preceding
<PAGE>
sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(7) Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged for
or changed into other stock or securities, cash and/or any other
property, then in any such case each share of Series A Preferred
Stock shall at amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate
amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged. In the event the
Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the
amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be
adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately
prior to such event.
(8) No Redemption. The shares of Series A Preferred Stock
shall not be redeemable.
(9) Rank. The Series A Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets,
junior to all series of any other class of the Corporation's
Preferred Stock.
IV. QUORUM. Unless otherwise provided in this Certificate of
Incorporation or by law, to constitute a quorum for the transaction
of business on any matter at a meeting of shareholders, there must
be present, in person or by proxy, the holders of a majority of the
shares of voting stock of the Corporation entitled to vote thereon.
The shareholders present at a duly held meeting at which a
quorum was present may continue to transact business
notwithstanding the withdrawal of enough shares to leave less than
a quorum.
V. DIRECTORS; BYLAWS. All the powers of the Corporation,
insofar as the same may be lawfully vested by this Certificate of
Incorporation in the Board of Directors, are hereby conferred upon
the Board of Directors of the Corporation. In furtherance and not
in limitation of that power, the Board of Directors shall have the
<PAGE>
power to make, adopt, alter, amend and repeal from time to time
Bylaws of the Corporation, subject to the right of the shareholders
entitled to vote with respect thereto to adopt, alter, amend and
repeal Bylaws made by the Board of Directors. Any shareholder
action effecting an amendment or repeal of or an adoption of a
provision inconsistent with the Corporation's Bylaws shall require:
(i) the affirmative vote of the holders of not less than 60%
of the voting power of the issued and outstanding shares entitled
to vote for the election of Directors, and (ii) if there is an
Interested Shareholder (as defined in Article Seventh hereof), the
affirmative vote of not less than 60% of the voting power of the
issued and outstanding shares entitled to vote for the election of
Directors held by shareholders other than the Interested
Shareholder.
The business, property and affairs of the Corporation shall
be managed by and under the direction of its Board of Directors.
The number of directors shall be not less than seven and not more
than eleven as fixed from time to time by the Board of Directors
pursuant to the Corporation's Bylaws, except as a greater number
may be required to give effect to the rights of the holders of the
Preferred Stock or any series thereof to elect additional
Directors.
The Board of Directors, other than those who may be elected
by the holders of Preferred Stock or any series thereof, shall be
divided into three classes, as nearly equal in number as possible.
At each annual meeting of the shareholders of the Corporation, the
successors of the class of directors whose terms expire at that
meeting shall be elected to hold office for a term expiring at the
annual meeting of shareholders held in the third year following
their year of election. Each director shall hold office until his
or her successor shall have been duly elected and qualified. The
election of directors need not be by ballot unless the Bylaws so
provide. No decrease in the number of directors shall shorten the
term of any incumbent director. If the number of director is not
evenly divisible by three, the remaining director(s) shall be
allocated first to Class Two, and then to Class Three.
The names, addresses and occupations of those persons of each
class to initially serve on the Board of Directors and the year of
expiration of their respective initial terms (which should expire
on the date of the annual meeting in the year shown below) shall be
as follows:
Class One: 1998
Charles F. Howell
Alan R. Staack
Herbert L. Jay
Class Two: 1999
Donald St. John
Robert T. Judson
<PAGE>
Edward J. Kelley
Class Three: 2000
Brian A. Fitzgerald
John L. Segall
The terms, classifications, qualifications, and election of
the Board of Directors, and the method of filling vacancies thereon
shall be provided herein and in the Bylaws.
VI. BUSINESS COMBINATIONS. The shareholder vote required to
approve any Business Combination shall be set forth in this Article
Sixth. The term "Business Combination" is used as defined in
Section B of this Article Sixth. All other capitalized terms not
otherwise defined in this Article Seventh or elsewhere in this
Certificate of Incorporation are used as defined in Section 4 of
this Article Sixth.
A. Higher Vote for Business Combinations. In addition to
any affirmative vote required by law or this Certificate of
Incorporation, and except as otherwise expressly provided in
Section C of this Article Sixth;
(1) any merger or consolidation of the Corporation or any
Subsidiary with (a) any Interested Shareholder or (b) any other
corporation (whether or not itself an Interested Shareholder) which
is or after such merger or consolidation would be, an Affiliate or
Associate of an Interested Shareholder that was an Interested
Shareholder prior to the transaction; or
(2) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition other than in the usual and regular course of
business, in one transaction or a series of transactions in any
twelve-month period to or with any Interested Shareholder or any
Affiliate or Associate of any Interested Shareholder, other than
the Corporation or any of its Subsidiary having, measured at the
time the transaction or transactions are approved by the Board of
Directors of the Corporation, an aggregate book value as of the end
of the Corporation's most recent fiscal quarter of 10% or more of
the total Market Value of the outstanding shares of the Corporation
or of its retained earnings as of the end of its most recent fiscal
quarter; or
(3) the issuance of transfer by the Corporation or any
Subsidiary in one transaction or a series of transactions of any
equity securities of the Corporation or any Subsidiary having an
aggregate Market Value of 5% or more of the total Market Value of
the outstanding shares of the Common Stock of the Corporation to
any Interested Shareholder or any Affiliate or Associate of any
Interested Shareholder, other than the Corporation or any of its
Subsidiaries, except pursuant to the exercise of warrants, rights
or options to subscribe to or purchase securities offered, issued
or granted pro rata to all holders of the Voting Stock of the
Corporation or any other method affording substantially
<PAGE>
proportionate treatment to the holders of Voting Stock; or
(4) the adoption of any resolution for the liquidation or
dissolution of the Corporation or any Subsidiary proposed by or on
behalf of an Interested Shareholder or any Affiliate or Associate
of any Interested Shareholder, other than the Corporation or any of
its Subsidiaries; or
(5) any reclassification of securities, including any
reverse stock split, or recapitalization of the Corporation, or any
merger, consolidation or share exchange of the Corporation with any
of its Subsidiaries which has the effect, directly or indirectly,
in one transaction or a series of transactions, of increasing by 5%
or more of the total number of outstanding shares, the
proportionate amount of the outstanding shares of any class or
equity or convertible securities of the Corporation or any
Subsidiary which is directly or indirectly owned by any Interested
Shareholder or any Affiliate or Associate of any Interested
Shareholder, other than the Corporation or any of its subsidiaries;
shall first be approved by the Board of Directors and then be
approved by the affirmative vote of: (a) the holders of at least
80% of the voting power of the then outstanding shares of Voting
Stock of the Corporation, and (b) the holders of at least
two-thirds of the voting power of the then outstanding shares of
Voting Stock, exclusive of any shares of Voting Stock held by or on
behalf of such Interested Shareholder or any Affiliate or Associate
of such Interested Shareholder. Such affirmative votes shall be
required notwithstanding the fact that no vote may be required, or
that a lesser percentage may be specified, by law, in any agreement
with any national securities exchange, or otherwise.
B. Definition of "Business Combination". The term
"Business Combination" as used in this Article Sixth shall mean any
transaction which is referred to in any one or more of paragraphs
(1) through (5) of Section A of this Article Sixth.
C. When Higher Vote is Not Required. The provision of
Section A of this Article Sixth shall not be applicable to any
particular Business Combination, and such Business Combination
shall require only such affirmative vote as is required by law, any
other provision of this Certificate of Incorporation, or otherwise
if in the case of any Business Combination defined in paragraph (1)
of Section A of this Article Sixth the conditions specified in
either of the following paragraphs (1) or (2) are met, or in the
case of any other Business Combination the condition specified in
the following paragraph A is met:
(1) Approval by Board of Directors. If such Business
Combination involves transactions with a particular Interested
Shareholder or its existing or future Affiliates, or Associates,
such Business Combination shall have been approved by a resolution
of the Board of Directors at any time prior to the time that the
Interested Shareholder first became an Interested Shareholder.
<PAGE>
(2) Price and Procedure Requirements. All of the following
conditions shall have been met:
(a) The aggregate amount of the cash and the Market Value
as of the Valuation Date of the consideration other than cash to be
received per share by holders of Common Stock in such Business
Combination shall be an amount at least equal to the highest of the
following (it being intended that the requirements of this
paragraph (a) shall be required to be met with respect to all
shares of Common Stock outstanding, whether or not the Interested
Shareholder has previously acquired any shares of the Common
Stock):
(i) the highest per share price, including any brokerage
commissions, transfer taxes and soliciting dealers' fees, paid by
the Interested Shareholder for any shares of Common Stock acquired
by it (a) within the two-year period immediately prior to the first
public announcement of the proposed Business Combination (the
"Announcement Date") or (2) in the transaction in which it became
an Interested Shareholder, whichever is higher; or
(ii) the Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested
Shareholder became an Interested Shareholder (the "Determination
Date"), whichever is higher; or
(iii) the price per share equal to the Market Value per share
of Common Stock determined pursuant to subsection (a) (ii) hereof,
multiplied by the fraction of (1) the highest per share price,
including any brokerage commission transfer taxes and soliciting
dealers' fees, paid by the Interested Shareholder for any shares of
Common Stock acquired by it within the two-year period immediately
prior to the Announcement Date, over (2) the Market Value per share
of Common Stock on the first day in such two-year period on which
the Interested Shareholder acquired any shares of Common Stock.
(b) The aggregate amount of the cash and The Market Value
as of the Valuation Date of the consideration other than cash to be
received per share by holders of shares of any class or series of
outstanding Voting Stock, other than the Common Stock, shall be an
amount at least equal to the highest of the following:
(i) the highest per share price including any brokerage
commissions, transfer taxes and soliciting dealers' fees, paid by
the Interested Shareholder for any shares of such class or series
of Voting Stock acquired by it (1) within the two-year period
immediately prior to the Announcement Date or (2) in the
transaction in which it becomes an Interested Shareholder,
whichever is higher; or
(ii) the highest preferential amount per share to which the
holders of shares of such class or series of Voting Stock are
entitled in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; or
<PAGE>
(iii) the Market Value per share of such class or series of
Voting Stock on the Announcement Date or on the Determination Date,
whichever is higher; or
(iv) the price per share equal to the Market Value per share
of such class or series of stock determined pursuant to subsection
(b)(iii) hereof multiplied by the fraction of: (1) the highest per
share price, including any brokerage commissions, transfer taxes
and soliciting dealers' fees, paid by the Interested Shareholder
for any shares of any class or series of Voting Stock acquired by
it within the two-year period immediately prior to the Announcement
Date, over (2) the Market Value per share of the same class or
series of Voting Stock on the first day in such two-year period on
which the Interested Shareholder acquired any shares of the same
class or series of Voting Stock.
(c) The consideration to be received by holders of a
particular class or series of outstanding Voting Stock shall be in
cash or in the same form as the Interested Shareholder has
previously paid for shares of such class or series of Voting Stock.
If the Interested Shareholder has paid for shares of any
class or series of Voting Stock with varying forms of
consideration, the form of consideration for such class or series
of Voting Stock previously acquired by it.
(d) After such Interested Shareholder has become an
Interested Shareholder and prior to the consummation of such
Business Combination: (i) there shall have been no failure to
declare and pay at the regular date therefor any full quarterly
dividends (whether or not cumulative) on any outstanding Preferred
Stock; (ii) there shall have been no reduction in the annual rate
of dividends paid on the Common Stock, except as necessary to
reflect any subdivision of the Common Stock; and there shall have
been an increase in such annual rate of dividends as necessary to
reflect any reclassification including any reverse stock split,
recapitalization, reorganization or any similar transaction which
has the effect of reducing the number of outstanding shares of
Common Stock; and (iii) such Interested Shareholder shall not have
become the beneficial owner of any additional shares of Voting
Stock except as part of the transaction which resulted in such
Interested Shareholder or by virtue of proportionate stock splits
or stock dividends.
The provisions of subdivisions (d)(i) and (d)(ii) of this
subsection do not apply if no Interested Shareholder and no
Affiliate or Associate of any Interested Shareholder voted as a
director of the Corporation in a manner inconsistent with such
subdivisions and the Interested Shareholder, within ten days after
any act or failure to act inconsistent with such subdivisions,
notifies the Board of Directors of the Corporation in writing that
the Interested Shareholder disapproves thereof and requests in good
faith that the Board of Directors rectify such act or failure to
act.
<PAGE>
(e) After such Interested Shareholder has become an
Interested Shareholder, such Interested Shareholder shall not have
received the benefit, directly or indirectly, except
proportionately as a shareholder, of any loans, advances,
guarantees, pledges or other financial assistance of any tax
credits or other tax advantages provided by the Corporation or any
of its Subsidiaries, whether in anticipation of or in connection
with such Business Combination or otherwise.
(f) A proxy or information statement describing the
proposed Business Combination and complying with the requirements
of the Securities Exchange Act of 1934 and the rules and
regulations thereunder, or any subsequent provisions replacing such
Act, rules or regulations, shall be mailed to the shareholders of
the Corporation at least thirty days prior to the consummation of
such Business Combination, whether or not such proxy or
registration statement is required to be mailed pursuant to such
Act or subsequent provisions.
D. Definitions. For the purposes of this Article Sixth:
1. "Affiliate" means a person that directly or indirectly
through one or more intermediaries controls, or is controlled by,
or is under common control with, a specified person.
2. "Associate", when used to indicate a relationship with
any person, means: (a) any domestic or foreign corporation or
organization, other than the Corporation or a subsidiary of the
Corporation, of which such person is an officer, director or
partner or is, directly or indirectly, the beneficial owner of 10%
or more of any class of equity securities; (b) any beneficial
interest or as to which such person serves as a trustee or in a
similar fiduciary capacity; and (c) any relative or spouse of such
person, or any relative of such spouse, who has the same home as
such person or who is a director or officer of the Corporation or
any of its Affiliates.
3. "Beneficial Owner", when used with respect to any
Voting Stock, means a person:
(a) which, or any of its Affiliates or Associates of
which, beneficially owns Voting Stock directly or indirectly; or
(b) which has (a) the right to acquire Voting Stock,
whether such right is exercisable immediately or only after passage
of time, pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights, warrants
or options, or otherwise; or (b) the right to vote or direct the
voting of Voting Stock pursuant to any agreement, arrangement or
understanding; or (c) the right to dispose of or to direct the
disposition of Voting Stock pursuant to any agreement, arrangement
or understanding; or
(c) which, or any of its Affiliates or Associates of
<PAGE>
which, has an agreement, arrangement or understanding for the
purposes of acquiring, holding, voting or disposing of Voting Stock
with any other person that beneficially owns or whose Affiliates or
Associates beneficially own, directly or indirectly, such shares of
Voting Stock.
4. "Interested Shareholder" means any person, other than
the Corporation or any Subsidiary, who or which:
(a) is the beneficial owner, directly or indirectly, of
10% or more of the voting power of the then outstanding Voting
Stock; or
(b) is an Affiliate of the Corporation and at any time
within the two-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly, of 10%
or more of the combined voting power of the then outstanding Voting
Stock; or
(c) is an assignee of or has otherwise succeeded to any
shares of Voting Stock which were at any time within the two-year
period immediately prior to the date in question beneficially owned
by any person described in (i) or (ii) above, if such assignment or
succession shall have occurred in the course of a transaction or
series of transactions not involving one of the following: a public
offering within the meaning of the Securities Act of 1933, a
transfer of shares on the open market, or a transfer of shares made
with the approval of the Connecticut Banking Commissioner.
5. For the purposes of determining whether a person is an
Interested Shareholder pursuant to paragraph 4 of this Section D,
the number of shares of Voting Stock deemed to be outstanding shall
include shares deemed owned through application of paragraph 3 of
this Section D, but shall not include any other shares of voting
Stock which may be issuable to persons other than the person in
question pursuant to any agreement, arrangement or understanding,
or upon exercise of conversion rights, warrants or options, or
otherwise.
6. "Market Value" as of any date means: (a) in the case
of stock, the highest closing sale price during the thirty-day
period immediately preceding the date in question of a share of
such stock on the composite tape for New York Stock Exchange-Listed
Stocks, or, if such stock is not quoted on the composite tape, on
the New York Stock Exchange, or, if such stock is not listed on
such exchange, on the principal United States securities exchange
registered under the Securities Exchange Act of 1934 on which such
stock is listed, or, if such stock is not listed on any such
exchange, the highest closing bid or last sale quotation with
respect to a share of such stock during the thirty-day period
preceding the date in question on the National Association of
Securities Dealers, Inc. Automated Quotations System or any similar
system then in use, or if no such quotations are available, the
Fair Market Value on the date in question of a share of such stock
<PAGE>
as determined by a majority of the Board of Directors in good
faith; and (b) in the case of property other than cash or stock,
the Fair Market Value of such property on the date in question as
determined by a majority of the Board of Directors in good faith.
7. A "person" means any natural person, company,
partnership, trust, unincorporated organization or other entity,
and any two or more of the foregoing acting together or in concert.
8. "Subsidiary" means any natural person, company,
partnership, trust, unincorporated organization or other entity,
and any two or more of the foregoing acting together or in concert.
9. "Valuation Date" means: (a) for a Business
Combination voted on by shareholders, the latter of the day prior
to the date of the shareholders vote or the date twenty days prior
to the consummation of the Business Combination; and (b) for a
Business Combination not voted upon by the shareholders, the date
of the consummation of the Business Combination.
10. "Voting Stock" means the then outstanding shares of
capital stock of the Corporation entitled to vote generally in the
election of directors.
11. In the event of any Business Combination in which the
Corporation is the surviving corporation, the phrase "consideration
other than cash to be received" as used in paragraph 2(a) and 2(b)
of Section 2 of this Article Sixth shall include the shares of
Common Stock and/or the shares of any other class or series of
outstanding Voting Stock retained by the holders of such shares.
E. Powers of the Board of Directors. A majority of the
Board of Directors of the Corporation shall have the power and duty
to determine, on the basis of information known to them after
reasonable inquiry, all facts necessary to determine compliance
with this Article Sixth, including without limitation: (A) whether
a person is an Interested Shareholder, (B) the number of shares of
Voting Stock beneficially owned by any person, (C) whether a person
is an Affiliate or Associate of another, and (D) whether the
requirements of paragraph B of Section 3 have been met with respect
to any Business Combination; and the good faith determination of a
majority of the Board of Directors on such matters shall be
conclusive and binding for all the purposes of this Article Sixth.
F. No Effect on Fiduciary Obligations of Interested
Shareholders. Nothing contained in this Article Sixth shall be
construed to relieve the Board of Directors or any Interested
Shareholder form any fiduciary obligation imposed by law.
VII. SPECIAL MEETING OF SHAREHOLDERS. Special meetings of
Shareholders may be called at any time but only by the Chairman of
the Board, the President or a majority of the Board of Directors of
the Corporation, unless otherwise required by law.
<PAGE>
VIII. VACANCIES ON THE BOARD. Vacancies created by an increase in
the number of directors may be filled by action of the Board of
Directors. Vacancies occurring by reasons other than by an
increase in the number of directors may be filled until the next
shareholders meeting at which directors are elected by a concurring
vote of a majority of the Directors remaining in office, even
though such remaining Directors may be less than a quorum, even
though the number of Directors at the meeting may be less than a
quorum and even though such majority may be less than a quorum.
Any Director elected in accordance with the preceding sentence
shall hold office until the next shareholders' meeting at which
Directors are elected, provided that he shall serve until such
Director's successor shall have been elected and qualified or until
there is a decrease in the number of Directors. No decrease in
the number of Directors constituting the Board of Directors shall
shorten the term of any incumbent Director.
Any voting requirement provided for under Connecticut law or
under the Bylaws of the Corporation may be amended by the
affirmative vote of the Shareholder provided that the adoption of
any such Bylaw must meet the same quorum requirement and be
approved by the same vote then effective or proposed to be adopted,
whichever is greater.
IX. DIRECTOR LIABILITY. The personal liability to the
Corporation or its shareholders of a person who is or was a
director of the Corporation for monetary damages for breach of duty
as a director shall be limited to the amount of the compensation
received by the director for serving the corporation during the
year of the violation if such breach did not: (1) involve a
knowing and culpable violation of law by the director; (2) enable
the director or an associate, as defined in subdivision (3) of
Section 33-843 of the Connecticut General Statutes, as amended to
receive an improper personal economic gain; (3) show a lack of good
faith and a conscious disregard for the duty of the director to the
Corporation under circumstances in which the director was aware
that his or her conduct or omission created an unjustifiable risk
of serious injury to the Corporation; (4) constitute a sustained
and unexcused patter of inattention that amounted to an abdication
of the director's duty to the Corporation; or (5) create liability
under Section 33-757, as amended, or Section 36a-58 of the
Connecticut General Statutes. This paragraph shall not limit or
preclude the liability of a person who is or was a director for any
act or omission occurring prior to the effective date hereof. Any
lawful repeal or modification of this paragraph or the adoption of
any provision inconsistent herewith by the Board of Directors and
the shareholders of the Corporation shall not, with respect to a
person who is or was a director, adversely affect any limitation of
liability, right or protection existing at or prior to the
effective date of such repeal, modification or adoption of a
provision inconsistent herewith.
X. REMOVAL OF DIRECTORS.
<PAGE>
Any Director may be removed from office at any time for cause
by the affirmative vote of at least two-thirds of the Directors
then in office.
XI. NOMINATIONS FOR DIRECTOR.
Not less than twenty days advance notice of nominations for
the election of Directors, other than by the Board of Directors or
a committee thereof, shall be given in the manner provided in the
Bylaws.
XII. ACTION BY SHAREHOLDERS.
Any action required or permitted to be taken by the
shareholders of the Corporation must be effected at a duly called
annual or special meeting of such holders and may not be effected
by any consent in writing by such holders.
XIII. APPROVAL FOR CERTAIN ACQUISITIONS AND OFFERS TO ACQUIRE
VOTING STOCK.
No person, acting singly or together with any Affiliates,
Associates or group of persons acting in concert with such person,
shall acquire 10% or more of the issued and outstanding stock of
the Corporation entitled to vote for the election of directors
("Voting Stock") at any time, unless: (a) such acquisition has
been approved prior to its consummation by the affirmative vote of
the holders of at least two-thirds of the outstanding Voting Stock
entitled to vote at a duly constituted meeting of shareholders
called for such purpose, and (b) all federal and state regulatory
approvals required under the Change in Bank Control Act of 1978
(the "Change in Control Act"), the Bank Holding Company Act of 1956
(the "Holding Company Act") and any similar Connecticut law
(including but not limited to The Connecticut Bank Holding Company
and Bank Acquisition Act) and in the manner provided by all
applicable regulations of the Federal Deposit Insurance Corporation
(the "FDIC"), the Federal Reserve Board (the "FRB") and the
Connecticut Banking Commissioner have been obtained (or, as
applicable, with regard to each such agency, any required filings
has not been disapproved within the applicable time period).
Notwithstanding any provision of this Certificate of Incorporation,
nothing in this Certificate shall be construed to restrict any
authority of the Connecticut Banking Commissioner to authorize an
acquisition as provided in The Connecticut Bank Holding Company and
Bank Acquisition Act. The Corporation shall be entitled to
institute a private right of action to enforce such statutory and
regulatory provisions.
Moreover, no person may make an offer to acquire 10% or more
of the then outstanding Voting Stock of the Corporation unless such
person has notified the Board of Directors of the Corporation in
writing of its intention to so offer and the Board of Directors has
not, within fifteen days after receipt of such notice, disapproved
such offer or, before the offer is made, obtained prior approval of
<PAGE>
the acquisition by the FDIC or the FRB and the Banking Commissioner
(or, as applicable, with regard to each such agency, any required
filings with such regulatory agency have been made in a timely
fashion and the action or proposed action set forth therein has not
been disapproved within applicable time period.)
All shares of Voting Stock owned by any person violating the
foregoing provisions of this Article Thirteenth shall be considered
from and after the date of the acquisition by such Person to be
"excess shares" to the extent such shares exceed 10%, of the Voting
Stock issued and outstanding. Such excess shares shall thereafter
no longer be entitled to vote on any matter or to take other
shareholder action or be counted in determining the total number of
outstanding shares for purposes of any matter involving shareholder
action, and the Board of Directors may cause such excess shares to
be transferred to an independent trustee for sale on the open
market or otherwise, with the expenses of such trustee to be paid
out of the proceeds from such sale.
The term "person" shall include any individual, group acting
in concert, firm, corporation, partnership, association, joint
stock company, trust, unincorporated organization thereof,
syndicate, or other entity. When any person, directly or
indirectly, acquires beneficial ownership of more than 10% of the
then outstanding voting stock of the Corporation without the prior
written approval of said Commissioner as required by this Article
Thirteenth, any voting stock beneficially owned by said person in
excess of said 10% shall not be counted as shares of voting stock
entitled to notice, to vote or to take any other shareholder action
and shall not be voted by any person or be counted in determining
the total number of outstanding shares for purposes of any matter
involving shareholder action. The term "group acting in concert"
includes persons seeking to combine or pool their voting or other
interests in the securities of the Corporation for a common
purpose, pursuant to any contract, trust, understanding,
relationship, agreement, or other arrangement, whether written or
otherwise. The term "offer" includes every offer to buy or
acquire, solicitation of an offer to sell, tender offer for, or
request or invitation for tender of, a security or interest in a
security for value.
XIV. CONSIDERATIONS FOR MERGER, CONSOLIDATION OR OTHER OFFERS.
The Board of Directors of the Corporation, when evaluating
any tender or exchange offer for stock of the Corporation, offer or
proposal to merge or consolidate the Corporation with another
institution, or an offer or proposal to purchase or otherwise
acquire all or substantially all of the properties and assets of
the Corporation, shall, in connection with the exercise of its
judgment in determining what is in the best interests of the
Corporation and its shareholders, give due consideration to all
relevant factors, including without limitation what he reasonably
believes to be in the best interests of the Corporation, including
(a) the long-term as well as the short-term interests of the
<PAGE>
Exhibit 3.ii
BY-LAWS
of
NSS BANCORP, INC.
Effective June 30, 1997
ARTICLE I
Offices
Section 1. Location. The principal office of the Company
shall be located in the Town of Norwalk, County of Fairfield and
State of Connecticut, but the Company may maintain such branch
office or offices within or without the State of Connecticut as
authorized by the Board of Directors and any other regulatory body
that might have jurisdiction over the Company.
ARTICLE II
Shareholders' Meetings
Section 1. Place of Meetings. Every meeting of the
shareholders of the Company shall be held at the principal office
of the Company or at such other place either within or without the
State of Connecticut as shall be specified in the notice of said
meeting given as hereinafter provided.
Section 2. Annual Meeting. The annual meeting of the
shareholders shall be held on such day and at such time and place
in the month of April or such other month of each year as the Board
of Directors may determine from time to time. At such meetings,
the shareholders shall elect Directors and transact such other
business as may properly be brought before the meeting. Failure to
hold an annual meeting as herein prescribed shall not affect
otherwise valid corporate acts. In the event of such failure, a
substitute annual meeting may be called in the same manner as a
special meeting.
Except for nominations of Directors as provided in
Article III, Section 2 of these By-laws, business is properly
brought before an annual meeting if it is (a) specified in the
<PAGE>
notice of meeting (or any supplement thereto) given by or at the
direction of the Board, (b) otherwise properly brought before the
meeting by or at the direction of the Board, or (c) otherwise
properly brought before the meeting by a shareholder. For business
to be properly brought before an annual meeting by a shareholder,
the shareholder must have given timely notice thereof in writing to
the Secretary. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive
offices of the Company not less than twenty (20) days nor more than
one hundred thirty (130) days prior to the meeting. A
shareholder's notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the annual meeting
(a) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such
business at the annual meeting, (b) the name and address, as they
appear on the Company's books, of the shareholder proposing such
business, (c) the class and number of shares of the Company which
are beneficially owned by the shareholder, and (d) any material
interest of the shareholder in such business. The Secretary may
also require, in writing and prior to the meeting, any and all
information about the shareholder or the proposed matter which the
Secretary determines in his discretion to be appropriate using the
then current requirements of Securities Exchange Commission
Rule 14a-101 as a guide. Notwithstanding anything in the By-laws
to the contrary, no business shall be conducted at an annual
meeting except in accordance with the procedures set forth in this
paragraph. The presiding officer of an annual meeting shall, if
the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting and in
accordance with the provisions of this paragraph, and if he should
so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be
transacted.
Section 3. Special Meetings. Special meetings of the
shareholders may be called at any time but only by the Chairman of
the Board, the President or a majority of the Board of Directors of
the Corporation unless otherwise required by law.
Section 4. Notice of Meetings. Notice of the time and place
of all annual and special meetings of shareholders and the purpose
thereof shall be handed or mailed, postage prepaid, by or at the
direction of the Secretary, not less than ten (10) nor more than
sixty (60) days before such meeting, to each shareholder of record
and at such address as shall appear on the books of the Company.
Whenever notice is required to be given to any person, a written
waiver of notice signed by the person or persons entitled to such
notice, whether before or after the time stated therein, and filed
with the Secretary, shall be equivalent to the giving of such
notice. Any shareholder who attends any shareholders' meeting
without protesting the lack of proper notice, prior to or at the
commencement of the meeting, shall be deemed to have waived such
notice. Failure of any shareholder to receive notice of any
meeting shall not invalidate the meeting.
<PAGE>
Section 5. Quorum. To constitute a quorum for the
transaction of business at any meeting of shareholders, there must
be present, in person or by proxy, the holders of a majority of the
issued and outstanding shares of stock of the Company entitled to
vote thereat. The shareholders present at a duly held meeting at
which a quorum was present may continue to transact business
notwithstanding the withdrawal of enough shares to leave less than
a quorum.
Section 6. Adjournment of Meetings. The holders of a
majority of the voting power of the shares present, in person or by
proxy, and entitled to vote, whether or not a quorum is present,
may adjourn the meeting to a future date as may be agreed. Notice
of such adjournment shall be given to the shareholders not present
or represented at the meeting. The holders of the voting power of
the shares present and entitled to vote, whether or not a quorum is
present, may recess the meeting to a future time to resume not
later than 48 hours after the time of recess for the sole purpose
of collecting and soliciting proxies. Notice of such recess need
not be given to the shareholders not present or represented at the
meeting.
Section 7. Voting Requirements. Except as may be otherwise
specifically provided in these By-laws or in the Certificate of
Incorporation, the vote requirements provided for in the
Connecticut Business Corporation Act, the Connecticut banking laws,
or other applicable law, shall be the act of the shareholders.
Section 8. Record Date. For the purpose of determining the
shareholders entitled to notice of or to vote at a meeting of
shareholders, or entitled to receive a payment of any dividend, the
Board of Directors may set a record date which shall not be a date
earlier than the date on which such action is taken by the Board of
Directors, nor more than seventy (70) nor less than ten (10) days
before the particular event requiring such determination is to
occur. If no record date is fixed by the Board of Directors, the
date on which the notice of the meeting is mailed or if no notice
is given, the day preceding the meeting shall be the record date
for determination of shareholders entitled to vote at such meeting,
and the date on which the resolution of the Board of Directors
declaring a dividend is adopted shall be the record date for
determination of shareholders entitled to receive such
distribution.
Section 9. Proxies. At all meetings of shareholders, any
shareholder entitled to vote may vote either in person or by proxy.
All proxies shall be in writing, signed and dated and shall be
filed with the Secretary of the Company before or at the time of
the meeting. No proxy shall be valid for more than eleven (11)
months after its execution, unless otherwise provided therein and
in no event shall a proxy be valid for more than ten (10) years
after its execution.
<PAGE>
Section 10. Committee on Proxies. The Board, in advance of
any shareholders' meeting, shall appoint not less than two
inspectors to act as a Committee on Proxies and as tellers at the
meeting or any adjournment thereof. In case the Board does not so
act, or any person appointed to be an inspector fails to appear or
act, the vacancy may be filled by appointment made by the Board in
advance of the meeting or at the meeting by the presiding officer.
The inspectors shall receive and take in charge the proxies and
ballots, shall decide all questions concerning the qualification of
voters, the validity of proxies and the acceptance or rejection of
votes, and shall count the ballots cast and report to the presiding
officer the result of the vote.
Section 11. Presiding Officer. The Chairman of the Board, or
such Director as he may designate, shall preside over all meetings
of the shareholders.
Section 12. Number of Votes for Each Shareholder. Each
shareholder shall be entitled to one vote for each share of stock
standing in his name on the books of the Company as of the record
date unless, and except to the extent that, voting rights of shares
of any class are increased, limited, or denied pursuant to the
Certificate of Incorporation.
ARTICLE III
Directors
Section 1. Authority and Term of Office. The business,
property and affairs of the Company shall be managed by, and under
the direction of, the Board of Directors.
The Board of Directors are empowered to engage the
Company in any activity authorized by the Connecticut Business
Corporation Act or by applicable State or Federal banking laws.
The Board of Directors shall have charge of the care and management
of the affairs and property of the Company.
The Board of Directors shall, pursuant to the laws of the
State of Connecticut, as the same may be amended from time to time,
be empowered to make rules and regulations essential to the
performance of its duties of caring for and managing the property
and affairs of the Company, to elect the officers, to fill the
vacancy of any elected officer, to elect or appoint such assistants
and committees as it may deem necessary for the business of the
Company and to prescribe their duties, to determine the amount and
sufficiency of the bonds and to prescribe the duties of all the
officers and employees, to fix the compensation of the Directors,
officers and employees of the Company, to declare dividends, to
prescribe the rate, method of computation and time of payment of
such dividends due depositors and to take or to prescribe the
taking of such other action as may be necessary to the performance
of its duties.
<PAGE>
Directors need not be residents of Connecticut. At the
time of election, however, each Director must own in his individual
capacity one or more shares of stock of the Company. No Director
attaining the age of seventy-five (75) years shall be eligible for
reelection, and if he or she attains such age during his or her
term of office, he or she shall be retired on the first day of the
month following, and his or her office will be deemed vacant at
that time.
Section 2. Nominations. Subject to any rights of the holders
of Preferred Stock to elect Directors under specified
circumstances, only persons who are nominated in accordance with
the procedures set forth in this section shall be eligible for
election as Directors. Nominations of persons for election to the
Board may be made at a meeting of shareholders by or at the
direction of the Board or by any shareholder of the Company
entitled to vote for the election of Directors at the meeting who
complies with the notice procedures set forth in this section.
Such nominations by a shareholder shall be made only if written
notice of such shareholder's intent to make such nomination or
nominations has been given to the Secretary, delivered to or mailed
and received at the principal executive offices of the Company not
less than twenty (20) days nor more than one hundred thirty (130)
days prior to the meeting. Such shareholder's notice shall set
forth (1) as to each person whom the shareholder proposes to
nominate for election as a Director, (a) the name, age, business
address and residence address of such person, (b) the principal
occupation or employment of such person, (c) the class and number
of shares of the Company which are beneficially owned by such
person, and (d) any other information relating to such person that
is required to be disclosed in solicitations of proxies for
election of Directors, or is otherwise required, in each case
pursuant to applicable law and regulations (including without
limitation such person's written consent to being named in the
proxy statement as a nominee and to serving as a Director if
elected); and (2) as to the shareholder giving the notice, (a) the
name and address, as they appear on the Company's books, of such
shareholder, (b) the class and number of shares of the Company
which are beneficially owned by such shareholder, (c)
representation that the shareholder is a holder of record of stock
of the Company entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to nominate the person
or persons specified in the notice, and (d) a description of all
arrangements or understandings between the shareholder and each
nominee and any other person or persons (naming such person or
persons) pursuant to which the nomination or nominations are to be
made by the shareholder. At the requirement of the Board, any
person nominated by the Board for election as a Director shall
furnish to the Secretary that information which would be required
to be set forth in a shareholder's notice of nomination which
pertains to the nominee. The presiding officer of the meeting
shall refuse to acknowledge the nomination of any person not made
in compliance with this section and the defective nomination shall
be disregarded.
<PAGE>
Section 3. Vacancies. Except as otherwise fixed by or
pursuant to the provisions of law or the Certificate of
Incorporation and subject to the rights of holders of the Preferred
Stock, if any, to elect additional Directors under specified
circumstances, vacancies in the Board resulting from death,
resignation, disqualification, removal from office or other cause
shall be filled until the next shareholders meeting at which
Directors are elected by a majority vote of the Directors then in
office even though such remaining Directors may be less than a
quorum of the Board and such majority may be less than a quorum.
Any Director so chosen shall hold office for a term expiring at the
annual meeting of shareholders at which the term of the class to
which he has been elected expires and until such Director's
successor shall have been elected and qualified. Vacancies created
by an increase in the number of Directors may be filled by action
of the Board of Directors.
Section 4. Removal of Directors. Subject to the rights of
the holders of the Preferred Stock to elect Directors under
specified circumstances, any Director may be removed from office at
any time for cause in accordance with the provisions of the
Certificate of Incorporation or applicable provisions of the
Connecticut Business Corporation Act. In addition, the office of
any Director who fails to attend six (6) consecutive meetings of
the Board, special or regular, shall become vacant if the majority
of the Board of Directors determines that such absence was without
good cause.
Section 5. Place of Meetings. The Board of Directors shall
hold its meetings at the principal office of the Company or at such
place or places within or without the State of Connecticut as it
may determine from time to time.
Section 6. Regular Meetings. Regular meetings of the Board
of Directors shall be held at least monthly, at such times and
places as shall be fixed by the Directors, or with such other
frequency as the Board of Directors may determine.
Section 7. Special Meetings. Special meetings of the Board
of Directors may be called by the Chairman of the Board, the
President, or, in their absence or disability, by a Vice President,
or in writing by three (3) of the Directors. Notice thereof, oral
or written, specifying the date, time, place and object of such
meeting, shall be given to each Director at least two (2) days
prior to such meeting. If notice is given by mail, the Secretary
shall address notices to the Directors at their usual place of
business or such address as may appear on the Company's books.
Section 8. Waiver of Notice. Whenever notice is required to
be given to any person, a written waiver of notice signed by the
person or persons entitled to such notice, whether before or after
the time stated therein, and filed with the Secretary, shall be
equivalent to the giving of such notice. If any Director present
at a meeting of the Board of Directors does not protest the lack of
<PAGE>
proper notice prior to or at the commencement of the meeting such
Director shall be deemed to have waived notice of such meeting.
Section 9. Action by Directors Without a Meeting. Any
resolution in writing concerning action to be taken by the Company,
which resolution is approved and signed by all of the Directors,
severally or collectively, shall have the same force and effect as
if such action were authorized at a meeting of the Board of
Directors duly called and held for that purpose, and such
resolution together with the Directors' written approval thereof,
shall be recorded by the Secretary in the minute book of the
Company.
Section 10. Telephonic Participation in Directors Meetings.
A Director or member of a committee of the Board of Directors may
participate in a meeting of the Board of Directors or of such
committee by means of a conference telephone or similar
communications equipment enabling all Directors participating in
the meeting to hear one another, and participation in such a
meeting shall constitute presence in person at such meeting.
Section 11. Quorum and Voting Requirement. A majority of the
number of directors shall constitute a quorum for the transaction
of business at all meetings of the Board of Directors. The act of
a majority of the Directors present at a meeting at which a quorum
is present shall be the act of the Board, unless a higher
percentage vote is required by law, the Certificate of
Incorporation, or these By-laws.
Section 12. Voting. At meetings of the Board of Directors,
each Director shall have one vote.
Section 13. Committees; Appointment and Authority. The Board
of Directors, by resolution adopted by the affirmative vote of
Directors holding a majority of the directorships, may designate
two or more Directors to constitute an Executive Committee or other
committees, which committees shall have and may exercise all such
authority of the Board as shall be provided in such resolution and
may be permitted by law. Directors may be removed from committee
memberships by resolution adopted by the affirmative vote of a
majority of the Directors. Vacancies on any committee shall be
filled by the Board of Directors at any regular or special meeting.
All committees shall perform such duties as may be assigned to them
and shall report to the Board of Directors at such time and in such
manner as the Board shall direct. A majority of any committee
shall constitute a quorum. If the Board of Directors does not
designate a Chairman of the committee, the committee shall elect
its own Chairman.
Section 14. Compensation of Directors. The Board of
Directors shall have authority to fix the fees of Directors,
including reasonable allowance for expenses actually incurred in
connection with their duties.
<PAGE>
Section 15. Chairman of the Board. The Board of Directors,
at the next regular meeting following the annual meeting, shall
elect, each year, from among its members, a person to be Chairman
of the Board to preside at all meetings of the Board of Directors
and at the annual meeting of the shareholders, and such Chairman
shall have one (1) vote to break any ties that exist at the
meetings of the Board of Directors. In the event that such
Chairman shall be absent from any meeting of the Board of
Directors, the remaining Directors shall have the power to elect a
temporary Chairman in his or her place and stead.
ARTICLE IV
Officers
Section 1. Election of Officers. At the next regular meeting
of the Board of Directors, following the annual meeting of the
shareholders, or at another time as determined by the Board, the
Board of Directors shall elect a President, one or more Vice
Presidents (who may be designated "Executive," "Senior," or other
to distinguish them from other Vice Presidents), a Secretary, a
Treasurer and shall designate a Chief Executive Officer for the
ensuing year.
The Board may, in its discretion, from time to time,
appoint such other officers and assistants as it shall deem
necessary who shall have such authority and such designation and
shall perform such duties as the Board of Directors or the
President from time to time prescribe.
The same person may be elected or appointed to serve
simultaneously in more than one office.
The officers need not be shareholders, and need not be
residents of Connecticut. The duties of the officers of the
Company shall be such as are imposed by these By-laws and from time
to time prescribed by the Board of Directors or the President.
Section 2. Vacancies. Vacancies in any office may be filled
at any regular or special meeting of the Board of Directors.
Section 3. Removal. Any officer may be removed from office
by the affirmative vote of two-thirds (2/3) of the whole Board of
Directors at any regular or special meeting, or as may otherwise be
provided in any agreement between the Company and the officer. In
addition, any officer below the level of Vice President may be
removed from office in the discretion and at the direction of the
President unless such officer's duties require that he report
directly to the Board.
Section 4. President. The President shall have the general
charge, supervision, and control of the business and affairs of the
Company subject to the direction of the Board of Directors. The
President shall have such other powers and perform such other
<PAGE>
duties as are generally incident to the office of President and as
may be assigned to the President by the Board of Directors. The
President shall be an ex-officio member of all committees of the
Board, except the Auditing Committee.
Section 5. Vice Presidents. The Vice Presidents shall
perform such executive and administrative duties as from time-to-
time may be assigned to them by the President or the Board of
Directors and in the absence of the President, the Vice Presidents,
in the order of their ranking in the Company's management
hierarchy, as determined by the Board of Directors from time to
time, shall perform the duties of the President.
Section 6. Treasurer. The Treasurer shall be responsible for
the custody and safekeeping of all of the assets of the Company and
shall perform all acts incident to the position of Treasurer and
shall submit such reports and statements as may be required by law
or by the Board of Directors and perform such other duties as are
assigned to the Treasurer from time-to-time by the Board of
Directors or the President.
Section 7. Secretary. The Secretary shall perform such
executive and administrative duties as from time-to-time may be
assigned to the Secretary by the Board of Directors or the
President. The Secretary shall have charge of the seal of the
Company and shall have such other powers and perform such other
duties as designated in these By-laws or as are generally incident
to the office of Secretary. The Secretary shall notify the
shareholders and Directors of all meetings and shall keep the
minutes of meetings of the shareholders and of the Board of
Directors.
Section 8. Retirement. The normal retirement age of any
officer or employee shall be age sixty-five (65); under unusual
conditions, the Directors may retain the services of an officer or
employee on an annual basis beyond such age, depending upon the
ability of the officer or employee to perform the duties of the
position in a satisfactory manner, but there shall be no more than
five (5) such annual extensions. Notwithstanding the foregoing,
this provision shall not be enforceable if it is determined by a
court in a final adjudication to be illegal or contrary to any law
or regulation.
ARTICLE V
Indemnification
Section 1. Indemnification. The Company shall indemnify the
Directors, officers, employees and agents of the Company to the
maximum extent permitted by and/or required by the Connecticut
Business Corporations Act. Without otherwise limiting the
foregoing, Sections 33-770 to 33-778 of the Connecticut Business
Corporations Act of Connecticut as from time to time amended
governs and applies to certain matters of indemnification of
<PAGE>
Directors, officers, employees and agents of the Company, and is
incorporated herein by reference as a part of these By-laws.
ARTICLE VI
Stock
Section 1. Issuance by the Board of Directors. The Board of
Directors may issue at one time, or from time to time, all or a
portion of the authorized but unissued shares of the capital stock
of the Company, including treasury stock, as in their opinion and
discretion may be deemed in the Company's best interests. The
Board may accept, in consideration for such shares, money,
promissory notes, other securities and other property of any
description actually received by the Company, provided, that such
consideration equals or exceeds in value the par value of said
shares, if any, and that the consideration is legally acceptable
for the issue of said shares.
Section 2. Certificates of Stock. Certificates of stock
shall be in a form adopted by the Board of Directors and shall be
signed by the President or the Vice President and by the Secretary
or Assistant Secretary, or by facsimile signature of any or all of
the foregoing, and shall carry the corporation seal of the Company.
All certificates shall be consecutively numbered and the name of
the person owning the shares represented thereby and the number of
such shares and the date of issue shall be entered on the Company's
books.
Section 3. Transfer of Stock. Shares of stock shall be
transferred only on the books of the Company by the holder thereof
in person or by his attorney, upon surrender of the certificate of
stock properly endorsed. The Company shall issue a new certificate
to the person entitled thereto for all shares surrendered.
Section 4. Cancellation of Certificate. All surrendered
certificates properly endorsed, shall be marked "cancelled" with
the date of cancellation and a notation of such cancellation made
in the shareholder book.
Section 5. Lost Certificates. The President or any officer
designated by the President may, in case any share certificate is
lost, stolen, destroyed, or mutilated, authorize the issuance of a
new certificate in lieu thereof, upon such terms and conditions,
including reasonable indemnification of the Company, as the
President or any designated officer shall determine, and notation
of the transaction made in the shareholder book.
Section 6. Closing of Stock Transfer Book. The stock
transfer book may be closed, if so ordered by the Board, for not
exceeding twenty (20) days before any dividend payment date or any
meeting of the shareholders.
<PAGE>
ARTICLE VII
Finance and Dividends
Section 1. Fiscal Year. The fiscal year of the Company shall
begin on the first day of January in each year.
Section 2. Dividends. Dividends may be voted by the
Directors as prescribed by applicable law, as from time to time
amended. Such dividends will be payable to shareholders of record
at the close of business on such subsequent days as the Directors
may designate and to be paid on a named day not more then seventy
(70) days thereafter, and the Directors may further close the
transfer books during the period from the day as of which the right
to such dividend is determined through the day upon which the same
is to be paid. No dividend shall be paid unless duly voted by the
Directors of the Company and the name of each Director voting for
any dividend shall be entered by the Secretary on the records of
the Company. Dividends may be paid in cash, property, or shares of
the Company.
ARTICLE VIII
Amendment of By-laws
These By-laws may be altered or amended by the Board at any
meeting by a majority vote of the directors on the entire Board or
at any meeting of the shareholders, whether annual or special, by
a majority in interest of the stock entitled to vote, provided
however that in order to amend or repeal or to adopt any provision
inconsistent with Article II, Article III (other than sections 5,
6, 14, the last paragraph of section 1 thereof and the last
sentence of section 4 thereof) or this Article XIII, any vote of
shareholders shall require (i) the affirmative vote of the holders
of at least sixty percent (60%) of the voting power of all of the
issued and outstanding shares of the Company then entitled to vote
for the election of Directors, and (ii) if there is an "Interested
Shareholder" (as that term is defined in the Certificate of
Incorporation), the affirmative vote of sixty percent (60%) of the
voting powers of all of the issued and outstanding shares of the
Company entitled to vote for the election of Directors held by
shareholders other than the Interested Shareholder, and any action
of Directors shall require the affirmative vote of a majority of
the Directors then in office.
Any changes in the By-laws made by the Board between meetings
of the shareholders shall be reported to the shareholders at the
next annual meeting. Any notice of a meeting of the shareholders
or the Board at which the By-laws are to be altered or amended
shall include notice of such proposed action.
ARTICLE IX
These new adopted By-laws supersede any and all prior By-laws
previously adopted.
CERTIFICATION
These By-laws were adopted at a meeting of the Directors of
the Company on the 20th day of May, 1997.
/s/ Jeremiah T. Dorney
----------------------------------
Secretary
<PAGE>
Exhibit 4
NORWALK SAVINGS SOCIETY
and
CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C.
as Rights Agent
RIGHTS AGREEMENT
Dated as of May 10, 1996
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1. Certain Definitions
Section 2. Appointment of Rights Agent
Section 3. Issue of Right Certificates
Section 4. Form of Right Certificates
Section 5. Countersignature and registration
Section 6. Transfer, Split Up, Combination and Exchange of
Right Certificates; Mutilated, Destroyed, Lost or
Stolen Right Certificates
Section 7. Exercise of Rights; Purchase Price; Expiration Date
of Rights
Section 8. Cancellation and Destruction of Right Certificates
Section 9. Reservation and Availability of Capital Stock
Section 10. Common Stock Record Date
Section 11. Adjustment of Purchase Price, Number and Kind of
Shares or Number of Rights
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares
Section 13. Consolidation, Merger or Sale or Transfer of Assets
or Earning Power
Section 14. Fractional Rights and Fractional Shares
Section 15. Rights of Action
Section 16. Agreement of Right Holders
Section 17. Right Certificate Holder Not Deemed a Stockholder
Section 18. Concerning the Rights Agent
Section 19. Merger or Consolidation or Change of Name of Rights
Agent
Section 20. Duties of Rights Agent
Section 21. Change of Rights Agent
Section 22. Issuance of New Right Certificates
Section 23. Redemption
Section 24. Notice of Proposed Actions
Section 25. Notices
Section 26. Supplements and Amendments
Section 27. Successors
Section 28. Determinations and Actions by the Board of
Directors, etc
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 29. Benefits of This Agreement
Section 30. Severability
Section 31. Governing Law
Section 32. Counterparts
Section 33. Descriptive Headings
Testimonium and Signatures
Exhibit A - Form of Amendment to Articles of Incorporation
Exhibit B - Form of Right Certificate
Exhibit C - Summary of Rights to Purchase Preferred Shares
</TABLE>
<PAGE>
RIGHTS AGREEMENT
This Rights Agreement dated as of May 10, 1996, between
NORWALK SAVINGS SOCIETY, a Connecticut-chartered capital stock
savings bank (the "Bank"), and CHEMICAL MELLON SHAREHOLDER
SERVICES, L.L.C., as Rights Agent (the "Rights Agent"),
W I T N E S S E T H:
WHEREAS, on May 10, 1996 the Bank declared a dividend
distribution of one Right (hereafter referred to as a "Right") for
each outstanding share of the Common Stock, par value $.01 per
share, of the Bank (the "Common Stock") outstanding at the close of
business on May 28, 1996 (hereinafter referred to as the "Record
Date") (other than shares of such Common Stock held in the Bank's
treasury on such date) and has authorized the issuance of one Right
(as such number may hereafter be adjusted pursuant to the
provisions of Section 11(p) hereof) in respect of each share of
Common Stock of the Bank that shall become outstanding after the
Record Date (whether originally issued or delivered from the Bank's
treasury) and on or prior to the earlier of the Distribution Date
and the Expiration Date (as such terms are hereinafter defined),
each Right representing the right to purchase one one-hundredth of
a share of the Bank's Series A Junior Participating Preferred Stock
upon the terms and subject to the conditions hereinafter set forth
(the "Rights");
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereby agree as
follows:
Section 1. Certain Definitions. For purposes of this
Agreement, the following terms have the meanings indicated;
(a) "Acquiring Person" shall mean any Person (as
hereinafter defined) who or which, together with all
Affiliates (as hereinafter defined) and Associates (as
hereinafter defined) of such Person, shall be the Beneficial
Owner (as hereinafter defined) of 10% or more of the shares of
Common Stock then outstanding, but shall not include the Bank,
any Subsidiary (as hereinafter defined) of the Bank, any
employee benefit plan of the Bank or any Subsidiary of the
Bank, or any entity (including its Affiliates) organized,
appointed or established for or pursuant to the terms of any
such plan acting solely in its capacity (or their capacities)
under such plan. Notwithstanding the foregoing, no Person
shall become an "Acquiring Person" solely as the result of an
acquisition of Common Stock by the Bank which, by reducing the
number of shares outstanding, increases the proportionate
<PAGE>
number of shares beneficially owned by such Person to 10% or
more of the shares of Common Stock then outstanding; provided
however, that if a Person becomes the Beneficial Owner of 10%
or more of the shares of Common Stock then outstanding by
reason of share acquisitions by the Bank and shall, after such
acquisitions, become the Beneficial Owner of any additional
shares of Common Stock, then such Person shall be deemed to be
an "Acquiring Person."
(b) "Affiliate", "Associate" and "Control" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of
the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as in
effect on the date hereof.
(c) A Person shall be deemed the "Beneficial Owner" of,
and shall be deemed to "beneficially own", any securities:
(i) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly,
beneficially owns (as determined pursuant to Rule 13d-3
of the General Rules and Regulations under the Exchange
Act as in effect on the date of this Agreement) or has
the right to dispose of;
(ii) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has (A)
the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant
to any agreement, arrangement or understanding (whether
or not in writing), or upon the exercise of conversion
rights, exchange rights, rights (other than the Rights),
warrants or options, or otherwise; provided, however,
that a Person shall not be deemed the "Beneficial Owner"
of or to "beneficially own" securities tendered pursuant
to a tender or exchange offer made by or on behalf of
such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted
for purchase or exchange; or (B) the right to vote,
including pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided,
however, that a Person shall not be deemed the
"Beneficial Owner" of or to "beneficially own" any
security under this clause (B) as a result of an
agreement, arrangement or understanding to vote such
security if such agreement, arrangement or understanding
(1) arises solely from a revocable proxy or consent given
in response to a public proxy or consent solicitation
made pursuant to, and in accordance with, the applicable
rules and regulations under the Exchange Act and (2) is
not also then reportable by such Person on Schedule 13D
under the Exchange Act (or any comparable or successor
report); or
<PAGE>
(iii) which are beneficially owned, directly or
indirectly, by any other Person (or any Affiliate or
Associate thereof) with which such Person or any of such
Person's Affiliates or Associates has any agreement,
arrangement or understanding (whether or not in writing)
for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy as described in clause (B)
of subparagraph (ii) of this paragraph (c)) or disposing
of any voting securities of the Bank.
(d) "Business Day" shall mean any day other than a
Saturday, Sunday, or a day on which banking institutions in
the State of Connecticut are authorized or obligated by law or
executive order to close.
(e) "Close of business" on any given date shall mean
5:00 P.M., Eastern time, on such date; provided, however, that
if such date is not a Business Day it shall mean 5:00 P.M.,
Eastern time, on the next succeeding Business Day.
(f) "Common Stock" shall mean the Common Stock, par
value $.01 per share, of the Bank, except that "Common Stock"
when used with reference to any Person other than the Bank
shall mean the capital stock of such Person with the greatest
voting power, or the equity securities or other equity
interest having power to control or direct the management, of
such Person.
(g) "Common Stock Equivalent" shall mean a share, or
depositary receipt exchangeable for a fraction of a share, of
any authorized class or series of preferred stock of the Bank
having dividend, voting, liquidation and other rights which
result, in the judgment of the Board of Directors, in such
share, or depositary receipt, being approximately equivalent
in value to one share of Common Stock as of the date of
occurrence of a Section 11 (a) (ii) Event (as such term is
hereinafter defined) (the "Event Date"); provided, however,
that, if there is no authorized class or series of preferred
stock of the Bank or if in the judgment of the Board of
Directors there are not sufficient authorized but unissued
shares of preferred stock available for the creation of Common
Stock Equivalents, "Common Stock Equivalent" shall mean such
cash, reduction in Purchase Price (as such term is hereinafter
defined), other equity securities, debt securities, other
assets or any combination of the foregoing, that the Board of
Directors shall determine to be approximately equivalent in
value to one share of Common Stock as of the Event Date.
(h) "Continuing Director" shall mean (i) any member of
the Board of Directors of the Bank, while such Person is a
member of the Board, who is not an Acquiring Person or an
Affiliate or Associate of an Acquiring Person or a
representative or nominee of an Acquiring Person or of any
such Affiliate or Associate and was a member of the Board
<PAGE>
prior to the time any Person becomes an Acquiring Person, and
(ii) any Person who subsequently becomes a member of the
Board, while such Person is a member of the Board, who is not
an Acquiring Person or an Affiliate or Associate of an
Acquiring Person or a representative or nominee of an
Acquiring Person or of any such Affiliate or Associate, if
such Person's nomination for election or election to the Board
is recommended or approved by a majority of the Continuing
Directors.
(i) "Distribution Date" shall have the meaning defined
in Section 3 hereof.
(j) "Exchange" and "Exchange Ratio" shall have the
respective meanings defined in Section 25 hereof.
(k) "Exchange Date" shall have the meaning defined in
Section 7(a) hereof.
(l) "Expiration Date" shall have the meaning defined in
Section 7(a), hereof.
(m) "Person" shall mean any individual, firm, limited
liability company, corporation, partnership or other entity.
(n) "Preferred Shares" shall mean shares of Series A
Junior Participating Preferred Stock, par value $.01 per
share, of the Bank having the rights and preferences set forth
in the Form of Amendment to Articles of Incorporation attached
to this Agreement as Exhibit A.
(o) "Purchase Price" shall have the meaning defined in
Section 4 hereof.
(p) "Section 11(a) (ii) Event" shall mean the event
described in Section 11(a) (ii).
(q) "Stock Acquisition Date" shall mean the first date
of public announcement (which, for purposes of this
definition, shall include, without limitation, the filing of
a report pursuant to Section 13(d) under the Exchange Act or
pursuant to a comparable successor statute) by the Bank or an
Acquiring Person indicating that an Acquiring Person has
become such.
(r) "Subsidiary" of any Person shall mean any other
Person of which securities or other ownership interests having
ordinary voting power, in the absence of contingencies, to
elect a majority of the board of directors or other Persons
performing similar functions as a board of directors are at
the time directly or indirectly owned by such first Person, or
which is otherwise controlled by such first Person.
(s) "Trading Day" shall have the meaning defined in
<PAGE>
Section 11(d) hereof.
(t) "Triggering Event" shall mean any Section 11(a) (ii)
Event or any event described in Sections 13(a)(i), (ii) or
(iii) hereof.
Section 2. Appointment of Rights Agent. The Bank hereby
appoints the Rights Agent to act as agent for the Bank in
accordance with the terms and conditions hereof, and the Rights
Agent hereby accepts such appointment. The Bank may from time to
time appoint such Co-Rights Agents as it may deem necessary or
desirable. In the event the Bank appoints one or more Co-Rights
Agents, the respective duties of the Rights Agent and any Co-Rights
Agents shall be as the Bank shall determine.
Section 3. Issue of Right Certificates.
(a) Until the earliest of (i) the close of business on
the tenth day after the Stock Acquisition Date (or, if the
tenth business day after the Stock Acquisition Date occurs
before the Record Date, the close of business on the Record
Date); or (ii) the close of business on the tenth Business Day
after the date of the commencement of a tender or exchange
offer by any Person if, upon consummation thereof, such Person
would be an Acquiring Person (including any such date which is
after the date of this Agreement and prior to the issuance of
the Rights; or (iii) the tenth day (or such later day as may
be determined by action of the Board of Directors of the Bank
prior to such time as any person becomes an Acquiring Person)
after the filing by any Person (other than the Bank) of a
registration statement under the Securities Act of 1933, as
amended, with respect to a contemplated exchange offer to
acquire (when added to any shares as to which such person is
the beneficial owner immediately prior to such filing)
beneficial ownership of 10% or more of the issued and
outstanding shares of Common Stock; the earliest of such dates
being herein referred to as the "Distribution Date"), (x) the
Rights will be evidenced (subject to the provisions of
paragraph (b) of this Section 3) by the certificates for the
Common Stock registered in the names of the holders of the
Common Stock (which certificates for Common Stock shall be
deemed also to be Right Certificates) and not by separate
Right Certificates, and (y) the Rights will be transferable
only in connection with the transfer of the underlying shares
of Common Stock. As soon as practicable after the Bank has
notified the Rights Agent of the occurrence of the
Distribution Date, the Rights Agent will send, by first-class,
insured, postage prepaid mail, to each record holder of the
Common Stock as of the close of business on the Distribution
Date, at the address of such holder shown on the records of
the Bank, one or more right certificates, in substantially the
form of Exhibit B hereto (the "Right Certificates"),
evidencing one Right for each share of Common Stock so held,
subject to adjustment as provided herein. In the event that
<PAGE>
an adjustment in the number of Rights per share of Common
Stock has been made pursuant to Section 11(p) hereof, at the
time of distribution of the Right Certificates, the Bank shall
make the necessary and appropriate rounding adjustments (in
accordance with Section 14(a) hereof) so that the Right
Certificates representing only whole numbers of Rights are
distributed and cash is paid in lieu of any fractional Rights.
As of and after the Distribution Date, the Rights will be
evidenced solely by such Right Certificates.
(b) As soon as practicable after the Record Date, the
Bank will send a copy of a Summary of Rights to Purchase
Preferred Shares, in substantially the form of Exhibit C
hereto (the "Summary of Rights"), by first-class, postage
prepaid mail, to each record holder of the Common Stock as of
the close of business on the Record Date at the address of
such holder shown on the records of the Bank. With respect to
certificates for the Common Stock outstanding as of the Record
Date, until the Distribution Date (or the earlier redemption,
exchange or expiration of the Rights), the Rights will be
evidenced by such certificates for the Common Stock registered
in the names of the holders of the Common Stock together with
a copy of the Summary of Rights, and the registered holders of
the Common Stock shall also be registered holders of the
associated Rights. Until the Distribution Date (or the earlier
redemption, exchange or expiration of the Rights), the
transfer of any of the certificates for the Common Stock
outstanding as of the Record Date with or without a copy of
the Summary of Rights attached thereto, shall also constitute
the transfer of the Rights associated with the Common Stock
represented by such certificates.
(c) Rights shall be issued in respect of all shares of
Common Stock which become outstanding after the Record Date
but on or prior to the Distribution Date (or the earlier
redemption, exchange or expiration of the Rights).
Certificates representative of such shares of Common Stock
shall be deemed also to be certificates for Rights and shall
have impressed on, printed on, written on or otherwise affixed
to them the following legend:
This certificate also evidences and entitles the holder
hereof to certain Rights as set forth in a Rights
Agreement between Norwalk Savings Society (the "Bank")
and Chemical Mellon Shareholder Services, L.L.C. dated as
of May 10, 1996 (the "Rights Agreement"), the terms of
which are hereby incorporated herein by reference and a
copy of which is on file at the principal executive
offices of the Bank. Under certain circumstances, as set
forth in the Rights Agreement, such Rights will be
evidenced by separate certificates and will no longer be
evidenced by this certificate. The Bank will mail to the
holder of this certificate a copy of the Rights Agreement
<PAGE>
without charge promptly after receipt of a written
request therefor. As described in the Rights Agreement,
Rights beneficially owned by (i) an Acquiring Person or
any Associate or Affiliate thereof (as such terms are
defined in the Rights Agreement), (ii) a transferee of an
Acquiring Person (or of any such Affiliate) who becomes
a transferee after the Acquiring Person becomes such is
designated as such or (iii) under certain circumstances,
a transferee of an Acquiring Person (or of any such
Affiliate) who becomes a transferee before or
concurrently with the Acquiring Person becoming such,
shall become null and void.
With respect to such certificates containing the foregoing
legend, until the Distribution Date (or the earlier redemption,
exchange or expiration of the Rights) the Rights associated with
the Common Stock represented by such certificates shall be
evidenced by such certificates alone, and the transfer of any of
such certificates shall also constitute the transfer of the Rights
associated with the Common Stock represented by such certificates.
(d) Effective on or before the Distribution Date, the Board
of Directors of the Bank shall, pursuant to the provisions of
Connecticut General Statutes 33-341(c) and 33-360(b), cause the
Articles of Incorporation of the Bank to be amended to include the
provisions related to the Preferred Shares as set forth in the Form
of Amendment to Articles of Incorporation attached hereto as
Exhibit A and made a part hereof.
Section 4. Form of Right Certificates. The Right
Certificates (and the forms of election to purchase and of
assignment to be printed on the reverse thereof) shall be
substantially in the form of Exhibit B hereto and may have such
marks of identification or designation and such legends, summaries
or endorsements printed thereon as the Bank may deem appropriate
and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law, rule or
regulation or with any rule or regulation of any stock exchange on
which the Rights may from time to time be listed, or to conform to
usage. Subject to the provisions of Section 11 and Section 22
hereof, the Right Certificates, whenever distributed, shall be
dated as of the Record Date and on their face shall entitle the
holders thereof to purchase such number of one one-hundredths of a
Preferred Share as shall be set forth therein at the price per one
one-hundredths of a Preferred Share set forth therein (such
exercise price per one one-hundredth of a share, the "Purchase
Price"), but the amount and type of securities purchasable upon the
exercise of each Right and the Purchase Price thereof shall be
subject to adjustment as provided herein.
Section 5. Countersignature and Registration.
(a) The Right Certificates shall be executed on behalf
of the Bank by its Chairman of the Board, its President or any
<PAGE>
Vice President, either manually or by facsimile signature, and
shall have affixed thereto the Bank's seal or a facsimile
thereof which shall be attested by the Secretary or an
Assistant Secretary of the Bank, either manually or by
facsimile signature. The Right Certificates shall be manually
countersigned by the Rights Agent and shall not be valid for
any purpose unless so countersigned. In case any officer of
the Bank whose manual or facsimile signature is affixed to the
Right Certificates shall cease to be such officer of the Bank
before countersignature by the Rights Agent and issuance and
delivery by the Bank, such Right Certificates, nevertheless,
may be countersigned by the Rights Agent, issued and delivered
with the same force and effect as though the Person who signed
such Right Certificates had not ceased to be such officer of
the Bank. Any Right Certificate may be signed on behalf of
the Bank by any Person who, at the actual date of the
execution of such Right Certificate, shall be a proper officer
of the Bank to sign such Right Certificate, although at the
date of the execution of this Rights Agreement any such Person
was not such an officer.
(b) Following the Distribution Date, the Rights Agent
will keep or cause to be kept, at its principal office or
offices designated as the appropriate place for surrender of
Right Certificates upon exercise or transfer, books for
registration and transfer of the Right Certificates issued
hereunder. Such books shall show the names and addresses of
the respective holders of the Right Certificates, the number
of Rights evidenced on its face by each of the Right
Certificates, the certificate number of each of the Right
Certificates and the date of each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of
Right Certificates; Mutilated, Destroyed, Lost or Stolen Right
Certificates.
(a) Subject to the provisions of Section 7(e) and
Section 14 hereof, at any time after the close of business on
the Distribution Date, and at or prior to the close of
business on the Expiration Date, any Right Certificate or
Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11(a)(ii)
hereof) may be transferred, split up, combined or exchanged
for another Right Certificate or Right Certificates, entitling
the registered holder to purchase a like number of shares of
Common Stock (or, following a Triggering Event, Common Stock,
other securities, cash or assets, as the case may be) as the
Right Certificate or Right Certificates surrendered then
entitled such holder (or former holder in the case of a
transfer) to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any Right Certificate
or Certificates shall make such request in writing delivered
to the Rights Agent, and shall surrender the Right Certificate
or Right Certificates to be transferred, split up, combined or
<PAGE>
exchanged at the principal office or offices of the Rights
Agent designated for such purpose. Neither the Rights Agent
nor the Bank shall be obligated to take any action whatsoever
with respect to the transfer of any such surrendered Right
Certificate until the registered holder shall have completed
and signed the certificate contained in the form of assignment
on the reverse side of such Right Certificate and shall have
provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Bank shall reasonably request.
Thereupon the Rights Agent shall, subject to Section 7(e) and
Section 14 hereof, countersign and deliver to the Person
entitled thereto a Right Certificate or Right Certificates, as
the case may be, as so requested. The Bank may require
payment of a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any transfer,
split up, combination or exchange of Right Certificates.
(b) Upon receipt by the Bank and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft,
destruction or mutilation of a Right Certificate, and, in case
of loss, theft or destruction, of indemnity or security
reasonably satisfactory to them, and, at the Bank's request,
reimbursement to the Bank and the Rights Agent of all
reasonable expenses incidental thereto, and upon surrender to
the Rights Agent and cancellation of the Right Certificate if
mutilated, the Bank will make and deliver a new Right
Certificate of like tenor to the Rights Agent for
countersignature and delivery to the registered owner in lieu
of the Right Certificate so lost, stolen, destroyed or
mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration of
Rights.
(a) The Rights shall not be exercisable prior to the
Distribution Date. Subject to Section 7(e) hereof, the
registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein
including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a) (iii)
and Section 23(a) hereof) in whole or in part at any time
after the Distribution Date upon surrender of the Right
Certificate, with the form of election to purchase and the
certificate on the reverse side thereof duly executed, to the
Rights Agent at the principal office or offices of the Rights
Agent designated for such purpose, together with payment of
the aggregate Purchase Price with respect to the total number
of one one-hundredths of a Preferred Share (or other
securities or property, as the case may be) as to which such
surrendered Rights are then exercisable, at or prior to the
earliest of (i) the close of business on May 27, 2006 (the
"Final Expiration Date"), (ii) the time at which the Rights
are redeemed as provided in Section 23 hereof or (iii) the
<PAGE>
time at which the Rights are exchanged as provided in Section
24 hereof (the "Exchange Date") (the earliest of (i), (ii) and
(iii) being herein referred to as the "Expiration Date").
(b) The Purchase Price for each one one-hundredths of a
Preferred Share purchasable pursuant to the exercise of a
Right shall initially be $40.00, shall be subject to
adjustment from time to time as provided in Section 11 and
Section 13(a) hereof and shall be payable in lawful money of
the United States of America in accordance with paragraph (c)
below.
(c) Upon receipt of a Right Certificate representing
exercisable Rights, with the form of election to purchase and
the certificate duly executed, accompanied by payment, with
respect to each Right so exercised, of the Purchase Price per
one one-hundredths of a Preferred Share (or other shares,
securities or property, as the case may be) to be purchased,
and an amount equal to any applicable transfer tax, in cash,
or in the form of a certified check or money order payable to
the order of the Bank, the Rights Agent shall, subject to
Section 20(k) hereof, thereupon promptly (i) requisition from
any transfer agent of the Preferred Shares (or make available,
if the Rights Agent is the transfer agent therefor)
certificates for the total number of Preferred Shares to be
purchased and the Bank hereby irrevocably authorizes its
transfer agent to comply with all such requests, (ii)
requisition from the Bank the amount of cash, if any, to be
paid in lieu of issuance of fractional shares in accordance
with Section 14 hereof, (iii) promptly after receipt of such
certificates cause the same to be delivered to or upon the
order of the registered holder of such Right Certificate,
registered in such name or names as may be designated by such
holder and (iv) after receipt thereof, promptly deliver such
cash, if any, to or upon the order of the registered holder of
such Right Certificate. In the event that the Bank is
obligated to issue other securities of the Bank, pay cash
and/or distribute other property pursuant to Section 11(a)
hereof, the Bank will make all arrangements necessary so that
such other securities, cash and/or other property are
available for distribution by the Rights Agent, if and when
appropriate.
(d) In case the registered holder of any Right
Certificate shall exercise less than all the Rights evidenced
thereby, a new Right Certificate evidencing Rights equivalent
to the Rights remaining unexercised shall be issued by the
Rights Agent and delivered to, or upon the order of, the
registered holder of such Right Certificate, registered in
such name or names as may be designated by such holder,
subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of a Section
<PAGE>
11(a)(ii) Event, any Rights beneficially owned by (i) an
Acquiring Person or an Associate or Affiliate of an Acquiring
Person, (ii) a transferee of an Acquiring Person (or of any
such Associate or Affiliate) who becomes a transferee after
the Acquiring Person becomes such or (iii) a transferee of an
Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee prior to or concurrently with the
Acquiring Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person (or from any such
Associate or Affiliate) to holders of equity interests in such
Acquiring Person (or in any such Associate or Affiliate) or to
any Person with whom the Acquiring Person (or any such
Associate or Affiliate) has any continuing agreement,
arrangement or understanding regarding the transferred Rights
or (B) a transfer which the Board of Directors of the Bank has
determined (whether before or after such transfer) is part of
a plan, arrangement or understanding which has as a primary
purpose or effect the avoidance of this Section 7(e), shall
become null and void without any further action and no holder
of such Rights shall have any rights whatsoever with respect
to such Rights, whether under any provision of this Agreement
or otherwise. No Right Certificate shall be issued pursuant
to Section 3 hereof that represents Rights beneficially owned
by an Acquiring Person or any Associate or Affiliate thereof
and no Right Certificate shall be issued at any time upon the
transfer of any Rights to an Acquiring Person or any Affiliate
or Associate thereof or to any nominee of such Acquiring
Person, Associate or Affiliate. Any Right Certificate
delivered to the Rights Agent for transfer to any of the
foregoing Persons, or which represents void Rights, shall be
canceled. The Bank shall use all reasonable efforts to insure
that the provisions of this Section 7(e) are complied with,
but shall have no liability to any holder of Right
Certificates or other Person as a result of its failure to
make any determinations with respect to an Acquiring Person or
its Affiliates and Associates or any transferee of any of them
hereunder.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Bank shall be
obligated to undertake any action with respect to a registered
holder of Rights upon the occurrence of any purported transfer
as set forth in Section 6 hereof or exercise as set forth in
this Section 7 unless such registered holder shall have (i)
completed and signed the certificate contained in the form of
election to purchase set forth on the reverse side of the
Right Certificate surrendered for such exercise and (ii)
provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Bank shall reasonably request.
Section 8. Cancellation and Destruction of Right
Certificates. All Right Certificates surrendered for the purpose
<PAGE>
of exercise, transfer, split up, combination or exchange shall, if
surrendered to the Bank or to any of its agents, be delivered to
the Rights Agent for cancellation or in canceled form, or, if
surrendered to the Rights Agent, shall be canceled by it, and no
Right Certificates shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Agreement.
The Bank shall deliver to the Rights Agent for cancellation and
retirement, and the Rights Agent shall so cancel and retire, any
other Right Certificate purchased or acquired by the Bank otherwise
than upon the exercise thereof. The Rights Agent shall deliver all
canceled Right Certificates to the Bank, or shall, at the written
request of the Bank, destroy such canceled Right Certificates, and
in such case shall deliver a certificate of destruction thereof to
the Bank.
Section 9. Reservation and Availability of Capital Stock.
(a) The Bank covenants and agrees that it will cause to
be reserved and kept available out of its currently authorized
and unissued Preferred Shares (or other shares or securities,
as the case may be) the number of Preferred Shares (or other
shares or securities, as the case may be) that, as provided in
this Agreement, including Section 11(a) (iii) hereof, will be
sufficient to permit to the maximum extent possible the
exercise of all outstanding Rights.
(b) So long as the Preferred Shares (or other shares or
securities, as the case may be) issuable and deliverable upon
the exercise of Rights may be listed on any national
securities exchange, the Bank shall use its best efforts to
cause, from and after such time as the Rights become
exercisable, all shares reserved for such issuance to be
listed on such exchange upon official notice of issuance upon
such exercise.
(c) The Bank shall use its best efforts, if necessary,
to (i) file, as soon as practicable following the earliest
date after the occurrence of a Section 11(a)(ii) Event as of
which the consideration to be delivered by the Bank upon
exercise of the Rights has been determined in accordance with
Section 11(a)(ii) or Section 11(a)(iii) hereof, or as soon as
is required by law following the Distribution Date, as the
case may be, a registration statement under the Securities Act
of 1933, as amended (the "Act"), with respect to the
securities purchasable upon exercise of the Rights on an
appropriate form, (ii) cause such registration statement to
become effective as soon as practicable after such filing and
(iii) cause such registration statement to remain effective
(with a prospectus at all times meeting the requirements of
the Act) until the earlier of (A) the date as of which the
Rights are no longer exercisable for such securities and (B)
the Expiration Date. The Bank will also take such action as
may be appropriate under, or to ensure compliance with, the
securities or "blue sky" laws of the various states in
<PAGE>
connection with the exercisability of the Rights. The Bank
may temporarily suspend, for a period of time not to exceed 90
days after the date set forth in clause (i) of the first
sentence of this Section 9(c), the exercisability of the
Rights in order to prepare and file such registration
statement and permit it to become effective. Upon any such
suspension, the Bank shall issue a public announcement stating
that the exercisability of the Rights has been temporarily
suspended, as well as a public announcement at such time as
the suspension is no longer in effect. Notwithstanding any
such provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction if the requisite
qualification in such jurisdiction shall not have been
obtained, the exercise thereof shall not be permitted under
applicable law or a registration statement shall not have been
declared effective. Nothing herein shall require the Bank to
bear the expense of obtaining registration if the cost of such
registration in a particular jurisdiction presents an
unreasonable burden on the Bank under the circumstances.
(d) The Bank covenants and agrees that it will take all
such action as may be necessary to insure that all Preferred
Shares (or other shares or securities, as the case may be)
delivered upon exercise of Rights shall, at the time of
delivery of the certificates for such shares (subject to
payment of the Purchase Price), be duly and validly authorized
and issued and fully paid and nonassessable.
(e) The Bank further covenants and agrees that it will
pay when due and payable any and all federal and state
transfer taxes and charges which may be payable in respect of
the issuance or delivery of the Right Certificates and of any
certificates for Preferred Shares (or other shares or
securities) upon the exercise of Rights. The Bank shall not,
however, be required to pay any transfer tax which may be
payable in respect of any transfer involved in the transfer or
delivery of Right Certificates to a Person other than, or the
issuance or delivery of Preferred Shares (or other shares or
securities) in respect of a name other than that of, the
registered holder of the Right Certificate evidencing Rights
surrendered for exercise or to issue or deliver any
certificates for Preferred Shares (or other shares or
securities) in a name other than that of the registered holder
upon the exercise of any Rights until any such tax shall have
been paid (any such tax being payable by the holder of such
Right Certificate at the time of surrender) or until it has
been established to the Bank's satisfaction that no such tax
is due.
Section 10. Preferred Shares Record Date. Each Person in
whose name any certificate for a Preferred Share (or other shares
or securities) is issued upon the exercise of Rights shall for all
purposes be deemed to have become the holder of record of such
Preferred Shares (or other shares or securities) represented
<PAGE>
thereby on, and such certificate shall be dated, the date upon
which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable
transfer taxes) was made; provided, however, that if the date of
such surrender and payment is a date upon which the Preferred
Shares or other appropriate transfer books of the Bank are closed,
such Person shall be deemed to have become the record holder of
such shares on, and such certificate shall be dated, the next
succeeding Business Day on which the Preferred Shares or other
appropriate transfer books of the Bank are open. Prior to the
exercise of the Rights evidenced thereby, the holder of a Right
Certificate shall not be entitled to any rights of a stockholder of
the Bank with respect to shares for which the Rights shall be
exercisable, including, without limitation, the right to vote, to
receive dividends or other distributions or to exercise any
preemptive rights, and shall not be entitled to receive any notice
of any proceedings of the Bank, except as provided herein.
Section 11. Adjustment of Purchase Price. Number and Kind of
Shares or Number of Rights. The Purchase Price, the number and
kind of shares covered by each Right and the number of Rights
outstanding are subject to adjustment from time to time as provided
in this Section 11.
(a) (i) In the event the Bank shall at any time after
the date of this Agreement (A) declare a dividend on the
Preferred Shares payable in Preferred Shares, (B)
subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares into a smaller number of
shares or (D) issue any shares of its capital stock in a
reclassification of the Preferred Shares (including any
such reclassification in connection with a consolidation
or merger in which the Bank is the continuing or
surviving corporation) except as otherwise provided in
this Section 11(a) and Section 7(e) hereof, the Purchase
Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision,
combination or reclassification, and the number and kind
of shares of Preferred Shares or capital stock, as the
case may be, issuable on such date, shall be
proportionately adjusted so that the holder of any Right
exercised after such time shall be entitled to receive,
upon payment of the Purchase Price then in effect, the
aggregate number and kind of Preferred Shares or capital
stock, as the case may be, which, if such Right had been
exercised immediately prior to such date and at a time
when the Preferred Shares transfer books of the Bank were
open, he would have owned upon such exercise and been
entitled to receive by virtue of such dividend,
subdivision, combination or reclassification.
(ii) In the event that any Person, alone or together
with its Affiliates and Associates or otherwise, shall
become an Acquiring Person, then proper provision shall
<PAGE>
promptly be made so that each holder of a Right, except
as provided below and in Section 7(e) hereof, shall
thereafter have a right to receive, upon exercise thereof
at the then current Purchase Price multiplied by the
number of one one-hundredths of a Preferred Share for
which a Right is then exercisable, in accordance with the
terms of this Agreement, such number of shares of Common
Stock of the Bank as shall equal the result obtained by
(x) multiplying the then current Purchase Price by the
number of one one-hundredths of a Preferred Share for
which a Right is then exercisable and (y) dividing that
product by 25% of the current market price per share of
the Common Stock (determined pursuant to Section 11(d))
on the date of the occurrence of the Section 11(a) (ii)
Event.
(iii) In the event that the number of shares of
Common Stock which are authorized by the Bank's
certificate of incorporation but not outstanding or
reserved for issuance for purposes other than upon
exercise of the Rights is not sufficient to permit the
exercise in full of the Rights in accordance with the
foregoing subparagraph (ii) of this Section 11(a), proper
provision shall promptly be made so that each holder of
a Right, except as provided in Section 7(e) hereof,
shall, in the discretion of the Bank's Board of
Directors, thereafter have a right to receive, upon
exercise thereof in accordance with the terms of this
Agreement such number of Common Stock Equivalents or the
maximum number of shares of Common Stock available for
issuance to such holder at a reduced Purchase Price which
reflects a per share Purchase Price of 25% of current
market value as determined pursuant to subparagraph (ii)
above.
(b) In case the Bank shall fix a record date for the
issuance of rights, options or warrants (other than the
Rights) to all holders of Preferred Shares entitling them to
subscribe for or purchase (for a period expiring within 45
calendar days after such record date) Preferred Shares (or
securities having the same rights, privileges and preferences
as the Preferred Shares ("equivalent Preferred Shares")) or
securities convertible into Common Stock or equivalent
Preferred Shares at a price per share of Preferred Shares or
per share of equivalent Preferred Shares (or having a
conversion or exercise price per share, if a security
convertible into or exercisable for Preferred Shares or
equivalent preferred shares) less than the current market
price (as determined pursuant to Section 11(d) hereof) per
share of Preferred Shares on such record date, the Purchase
Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect
immediately prior to such date by a fraction, the numerator of
which shall be the number of Preferred Shares outstanding on
<PAGE>
such record date, plus the number of Preferred Shares which
the aggregate offering price of the total number of Preferred
Shares and/or equivalent preferred shares so to be offered
(and/or the aggregate initial conversion price of the
convertible securities so to be offered) would purchase at
such current market price and the denominator of which shall
be the number of Preferred Shares outstanding on such record
date plus the number of additional Preferred Shares and/or
equivalent preferred shares to be offered for subscription or
purchase (or into which the convertible securities so to be
offered are initially convertible). In case such subscription
price may be paid by delivery of consideration part or all of
which shall be in a form other than cash, the value of such
consideration shall be as determined in good faith by the
Board of Directors of the Bank, whose determination shall be
described in a statement filed with the Rights Agent and shall
be binding on the Rights Agent and the holders of Rights.
Preferred Shares owned by or held for the account of the Bank
shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively
whenever such a record date is fixed; and in the event that
such rights or warrants are not so issued, the Purchase Price
shall be adjusted to be the Purchase Price which would then be
in effect if such record date had not been fixed.
(c) In case the Bank shall fix a record date for the
making of a distribution to all holders of Preferred Shares
(including any such distribution made in connection with a
consolidation or merger in which the Bank is the continuing or
surviving corporation) of evidences of indebtedness, cash
(other than a regular periodic cash dividend out of the
earnings or retained earnings of the Bank), assets (other than
a dividend payable in Preferred Shares, but including any
dividend payable in stock other than Preferred Shares) or
convertible securities, subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the
Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the
numerator of which shall be the current market price (as
determined pursuant to Section 11(d) hereof) per share of
Preferred Shares on such record date, less the fair market
value (as determined in good faith by the Board of Directors
of the Bank, whose determination shall be described in a
statement filed with the Rights Agent and shall be binding on
the Rights Agent and the holders of Rights) of the portion of
the cash, assets or evidences of indebtedness so to be
distributed or of such convertible securities, subscription
rights or warrants applicable to one Preferred Share and the
denominator of which shall be such current market price (as
determined pursuant to Section 11(d) hereof) per Preferred
Share. Such adjustments shall be made successively whenever
such a record date is fixed; and in the event that such
distribution is not so made, the Purchase Price shall again be
<PAGE>
adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
(d) For the purpose of any computation hereunder, the
"current market price" per share of any security of the Bank
(a "Security") on any date shall be deemed to be the average
of the daily closing prices per share of such Security for the
30 consecutive Trading Days (as such term is hereinafter
defined) immediately prior to such date; provided, however,
that in the event that the current market price per share of
the Security is determined during a period following the
announcement by the issuer of such Security of (A) a dividend
or distribution on such Security payable in shares of such
Security or securities convertible into shares of such
Security (other than the Rights), or (B) any subdivision,
combination or reclassification of such Security, and prior to
the expiration of the requisite 30 Trading Day period, as set
forth above, after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case,
the "current market price" shall be properly adjusted to take
into account ex-dividend trading. The closing price for each
day shall be the last sale price, regular way, or, in case no
such sale takes place on such day, the average of the closing
bid and asked prices, regular way, in either case as reported
by the National Association of Securities Dealers, Inc.
Automated Quotation System National Market ("NASDAQ") or such
other exchange or system on which the Security is then listed
or quoted, or, if on any such date the Security is not quoted
by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker
making a market in the Security selected by the Board of
Directors of the Bank. If on any such date no market maker is
making a market in the Security, the fair value of such
Security on such date as determined in good faith by the Board
of Directors of the Bank shall be used. The term "Trading Day"
shall mean a day on which the principal national securities
exchange on which the Security is listed or admitted to
trading or traded is open for the transaction of business or,
if the shares of the Security are not listed or admitted to
trading on any national securities exchange, a Business Day.
If the Security is not publicly held or not so listed or
traded, "current market price" per share shall mean the fair
value per share as determined in good faith by the Board of
Directors of the Bank, or, if at the time of such
determination there is an Acquiring Person, by a majority of
the Continuing Directors then in office, or if there are no
Continuing Directors, by a nationally recognized investment
banking firm selected by the Board of Directors, which
determination shall be described in a statement filed with the
Rights Agent and shall be conclusive for all purposes.
(e) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such
<PAGE>
adjustment would require an increase or decrease of at least
1% in the Purchase Price; provided, however, that any
adjustments which by reason of this Section 11(e) are not
required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under
this Section 11 shall be made to the nearest cent or to the
nearest one millionth of a Preferred Share or ten-thousandth
of any other share or security, as the case may be.
Notwithstanding the first sentence of this Section 11(e), any
adjustment required by this Section 11 shall be made no later
than the earlier of (i) three years from the date of the
transaction which mandates such adjustment or (ii) the
Expiration Date.
(f) In the event that at any time, as a result of an
adjustment made pursuant to Section 11(a) (ii), Section 11(a)
(iii) or Section 13(a) hereof, the holder of any Right shall
be entitled to receive upon exercise of such Right any shares
of capital stock other than Preferred Shares, thereafter the
number of such other shares so receivable upon exercise of any
Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in Section 11(a), (b),
(c), (e), (g), (h), (i), (j), (k), (l) and (m) and the
provisions of Sections 6, 7, 9, 10, 13 and 14 with respect to
the Preferred Shares shall apply on like terms to any such
other shares.
(g) All Rights originally issued by the Bank subsequent
to any adjustment made to the Purchase Price hereunder shall
evidence the right to purchase, at the adjusted Purchase
Price, the number of one one-hundredths of a Preferred Share
purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Bank shall have exercised its election as
provided in Section 11(i), upon each adjustment of the
Purchase Price as a result of the calculations made in Section
11(b) and (c), each Right outstanding immediately prior to the
making of such adjustment shall thereafter evidence the right
to purchase, at the adjusted Purchase Price, that number of
one one-hundredths of a Preferred Share (calculated to the
nearest one millionth) obtained by (i) multiplying (x) the
number of one one-hundredths of a Preferred Share covered by
a Right immediately prior to this adjustment by (y) the
Purchase Price in effect immediately prior to such adjustment
of the Purchase Price and (ii) dividing the product so
obtained by the Purchase Price in effect immediately after
such adjustment of the Purchase Price.
(i) The Bank may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of
Rights, in lieu of any adjustment in the number of one one-
<PAGE>
hundredths of a Preferred Share purchasable upon the exercise
of a Right. Each of the Rights outstanding after such
adjustment of the number of Rights shall be exercisable for
the number of one one-hundredths of a Preferred Share for
which such Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of
Rights (calculated to the nearest ten thousandth) obtained by
dividing the Purchase Price in effect immediately prior to
adjustment of the Purchase Price by the Purchase Price in
effect immediately after adjustment of the Purchase Price.
The Bank shall make a public announcement of its election to
adjust the number of Rights, indicating the record date for
the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on
which the Purchase Price is adjusted or any day thereafter,
but, if the Right Certificates have been issued, shall be at
least 10 days later than the date of the public announcement.
If Right Certificates have been issued, upon each adjustment
of the number of Rights pursuant to this Section 11(i), the
Bank shall, as promptly as practicable, cause to be
distributed to holders of record of Right Certificates on such
record date Right Certificates evidencing, subject to Section
14 hereof, the additional Rights to which such holders shall
be entitled as a result of such adjustment, or, at the option
of the Bank, shall cause to be distributed to such holders of
record in substitution and replacement for the Right
Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the
Bank, new Right Certificates evidencing all the Rights to
which such holders shall be entitled after such adjustment.
Right Certificates so to be distributed shall be issued,
executed and countersigned in the manner provided for herein
(and may bear, at the option of the Bank, the adjusted
Purchase Price) and shall be registered in the names of the
holders of record of Right Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the
Purchase Price or the number of Preferred Shares (or other
shares or securities, as the case may be) issuable upon the
exercise of the Rights, the Right Certificates theretofore and
thereafter issued may continue to express the Purchase Price
and the number of shares which were expressed in the initial
Right Certificates issued hereunder.
(k) Before taking any action that would cause an
adjustment reducing the Purchase Price below one one-hundredth
of the then par value, if any, of the Preferred Shares
issuable upon exercise of the Rights, the Bank shall take any
corporate action which may, in the opinion of its counsel, be
necessary in order that the Bank may validly and legally issue
fully paid and nonassessable Preferred Shares at such adjusted
Purchase Price.
<PAGE>
(l) In any case in which this Section 11 shall require
that an adjustment in the Purchase Price be made effective as
of a record date for a specified event, the Bank may elect to
defer until the occurrence of such event the issuance to the
holder of any Right exercised after such record date of the
Preferred Shares and other capital stock or securities of the
Bank, if any, issuable upon such exercise over and above the
Preferred Shares and other capital stock or securities of the
Bank, if any, issuable upon such exercise on the basis of the
Purchase Price in effect prior to such adjustment; provided
however, that the Bank shall deliver to such holder a due bill
or other appropriate instrument evidencing such holder's right
to receive such additional shares upon the occurrence of the
event requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Bank shall be entitled to make such
reductions in the Purchase Price, in addition to those
adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to
be advisable in order that any consolidation or subdivision of
the Preferred Shares, issuance wholly for cash of any
Preferred Shares at less than the current market price,
issuance wholly for cash of Preferred Shares or securities
which by their terms are convertible into or exchangeable for
Preferred Shares, stock dividends or issuance of rights,
options or warrants referred to hereinabove in this Section
11, hereafter made by the Bank to the holders of its Preferred
Shares, shall not be taxable to such stockholders.
(n) The Bank covenants and agrees that it shall not at
any time after the earlier of the Stock Acquisition Date and
the Distribution Date (i) consolidate with, (ii) merge with or
into, or (iii) sell or transfer to, in one transaction or a
series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning power of
the Bank and its Subsidiaries taken as a whole, any other
Person or Persons if (x) at the time of or immediately after
such consolidation, merger or sale there are any rights,
warrants or other instruments outstanding or agreements or
arrangements in effect which would substantially diminish or
otherwise eliminate the benefits intended to be afforded by
the Rights or (y) prior to, simultaneously with or immediately
after such consolidation, merger or sale, the stockholders of
a Person who constitutes, or would constitute, the "Principal
Party" for the purposes of Section 13(a) hereof shall have
received a distribution of Rights previously owned by such
Person or any of its Affiliates and Associates.
(o) The Bank covenants and agrees that after the earlier
of the Stock Acquisition Date and the Distribution Date it
will not, except as permitted by Section 23, Section 24 or
Section 27 hereof, take (or permit any Subsidiary to take) any
action if at the time such action is taken it is reasonably
<PAGE>
foreseeable that such action will substantially diminish or
otherwise eliminate the benefits intended to be afforded by
the Rights.
(p) Anything in this Agreement to the contrary
notwithstanding, in the event that the Bank shall at any time
after the date hereof and prior to the Distribution Date (i)
declare a dividend on the outstanding shares of Common Stock
payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, the number of
Rights associated with each share of Common Stock then
outstanding, or issued or delivered thereafter but prior to
the Distribution Date, shall be proportionately adjusted so
that the number of Rights thereafter associated with each
share of Common Stock following any such event shall equal the
result obtained by multiplying the number of Rights associated
with each share of Common Stock immediately prior to such
event by a fraction the numerator of which shall be the total
number of shares of Common Stock outstanding immediately prior
to the occurrence of the event and the denominator of which
shall be the total number of shares of Common Stock
outstanding immediately following the occurrence of such
event. The adjustments provided for in this Section 11(p)
shall be made successively when ever a dividend is declared or
paid or such a subdivision or combination is effected.
Section 12. Certificate of Adjusted Purchase Price or Number
of Shares. Whenever an adjustment is made as provided in Sections
11 and 13 hereof, the Bank shall (a) promptly prepare a certificate
setting forth such adjustment and a brief statement of the facts
accounting for such adjustment, (b) promptly file with the Rights
Agent and with each transfer agent for the Common Stock a copy of
such certificate and (c) mail a brief summary thereof to each
holder of a Right Certificate (or, if prior to the Distribution
Date, to each holder of a certificate representing shares of Common
Stock) in accordance with Section 25 hereof. The Rights Agent
shall be fully protected in relying on any such certificate and on
any adjustment therein contained.
Section 13. Consolidation, Merger or Sale of Assets or
Earning Power.
(a) In the event that, following the earlier of the
Distribution Date and the Stock Acquisition Date, directly or
indirectly, (i) the Bank shall consolidate with, or merge with
and into, any other Person, and the Bank shall not be the
continuing or surviving corporation of such consolidation or
merger, (ii) any Person shall merge with and into the Bank,
and the Bank shall be the continuing or surviving corporation
of such merger and, in connection with such merger, all or
part of the Common Stock shall be changed into or exchanged
for stock or other securities of any other Person or cash or
any other property, or (iii) the Bank shall sell or otherwise
<PAGE>
transfer (or one or more of its Subsidiaries shall sell or
otherwise transfer), in one transaction or a series of related
transactions, assets or earning power aggregating more than
50% of the assets or earning power of the Bank and its
Subsidiaries (taken as a whole) to any other Person or
Persons, then, and in each such case, proper provision shall
be made so that: (w) each holder of a Right, except as
provided in Section 7(e) hereof, shall thereafter have the
right to receive, upon the exercise thereof at the then
current Purchase Price multiplied by the number of one one-
hundredths of a Preferred Share for which a Right is then
exercisable (without taking into account any adjustment
previously made pursuant to Section 11(a) (ii) or 11(a)
(iii)), in accordance with the terms of this Agreement and in
lieu of Preferred Shares, such number of validly authorized
and issued, fully paid and nonassessable shares of freely
tradeable Common Stock of the Principal Party (as hereinafter
defined), not subject to any rights of call or first refusal,
liens, encumbrances or other claims, as shall be equal to the
result obtained by (1) multiplying the then current Purchase
Price by the number of one one-hundredths of a Preferred Share
for which a Right is then exercisable (without taking into
account any adjustment previously made pursuant to Section
11(a) (ii) or 11(a)(iii)) and dividing that product by (2) 25%
of the current market price (determined pursuant to Section
11(d) (i) hereof) per share of the Common Stock of such
Principal Party on the date of consummation of such
consolidation, merger, sale or transfer; (x) the Principal
Party shall thereafter be liable for, and shall assume, by
virtue of such consolidation, merger, sale or transfer, all
the obligations and duties of the Bank pursuant to this
Agreement; (y) the term "Bank" shall thereafter be deemed to
refer to such Principal Party, it being specifically intended
that the provisions of Section 11 hereof shall apply to such
Principal Party and (z) such Principal Party shall take such
steps (including, but not limited to, the authorization and
reservation of a sufficient number of shares of its Common
Stock to permit exercise of all outstanding Rights in
accordance with this Section 13(a)) in connection with such
consummation as may be necessary to assure that the provisions
hereof shall thereafter be applicable, as nearly as reasonably
may be, in relation to the shares of its Common Stock
thereafter deliverable upon the exercise of the Rights.
(b) "Principal Party" shall mean
(1) in the case of any transaction described in
clause (i) or (ii) of the first sentence of Section
13(a), the Person that is the issuer of any securities
into which shares of Common Stock of the Bank are
converted in such merger or consolidation, and if no
securities are so issued, the Person that is the other
party to the merger or consolidation; and
<PAGE>
(2) in the case of any transaction described in
clause (iii) of the first sentence of Section 13(a), the
Person that is the party receiving the greatest portion
of the assets or earning power transferred pursuant to
such transaction or transactions; provided, however, that
in any such case, (x) if the Common Stock of such Person
is not at such time and has not been continuously over
the preceding 12-month period registered under Section 12
of the Exchange Act, and such person is a direct or
indirect Subsidiary of another Person the Common Stock of
which is and has been so registered, "Principal Party"
shall refer to such other Person; and (y) in case such
Person is a Subsidiary, directly or indirectly, of more
than one Person, the Common Stocks of two or more of
which are and have been so registered, "Principal Party"
shall refer to whichever of such Persons is the issuer of
the Common Stock having the greatest aggregate market
value.
(c) The Bank shall not consummate any such
consolidation, merger, sale or transfer unless the Principal
Party shall have a sufficient number of authorized shares of
its Common Stock which have not been issued or reserved for
issuance to permit the exercise in full of the Rights in
accordance with this Section 13 and unless prior thereto the
Bank and such Principal Party shall have executed and
delivered to the Rights Agent a supplemental agreement
providing for the terms set forth in paragraphs (a) and (b) of
this Section 13 and further providing that, as soon as
practicable after the date of any consolidation, merger or
sale of assets mentioned in paragraph (a) of this Section 13,
the Principal Party will
(i) prepare and file a registration statement under the
Act with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate
form, will use its best efforts to cause such
registration statement to become effective as soon as
practicable after such filing and will use its best
efforts to cause such registration statement to remain
effective (with a prospectus at all times meeting the
requirements of the Act) until the Expiration Date; and
(ii) will deliver to holders of the Rights historical
financial statements for the Principal Party and each of
its Affiliates which comply in all respects with the
requirements for registration on Form 10 under the
Exchange Act.
The provisions of this Section 13 shall similarly apply to
successive mergers or consolidations or sales or other transfers.
If any event described in Section 13(a)(i), (ii) or (iii) shall
occur at any time after the occurrence of a Section 11(a) (ii)
Event, the Rights which have not theretofore been exercised shall
<PAGE>
thereafter become exercisable in the manner described in Section
13(a).
Section 14. Fractional Rights and Fractional Shares.
(a) The Bank shall not issue fractions of Rights or
distribute Right Certificates which evidence fractional
Rights. In lieu of such fractional Rights, there shall be paid
to the registered holders of the Right Certificates with
regard to which such fractional Rights would otherwise be
issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For the purposes of
this Section 14(a), the current market value of a whole Right
shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights
would have been otherwise issuable. The closing price of the
Rights for any day shall be the last sale price, regular way,
or, in case no such sale takes place on such day, the average
of the closing bid and asked prices, regular way, in either
case as quoted on NASDAQ or, if on any such date the Rights
are not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional
market maker making a market in the Rights selected by the
Board of Directors of the Bank. If on any such date no such
market maker is making a market in the Rights the fair value
of the Rights on such date as determined in good faith by the
Board of Directors of the Bank shall be used and shall be
conclusive for all purposes.
(b) The Bank shall not issue fractions of Preferred
Shares, or of any other share or security, as the case may be,
upon exercise of the Rights or distribute certificates which
evidence fractions of Preferred Shares or of any other share
or security, as the case may be. In lieu of fractional
shares, the Bank shall pay to the registered holders of Right
Certificates at the time such Right Certificates are exercised
as herein provided an amount in cash equal to the same
fraction of the current market value of one Preferred Share or
of one share or security, as the case may be, issued in lieu
of a Preferred Share. For purposes of this Section 14(b), the
current market value of one share of Preferred Share or one
share or security, as the case may be, shall be the closing
price of a share of Preferred Share or one share or security,
as the case may be, (as determined pursuant to Section 11(d)
hereof) for the Trading Day immediately prior to the date of
such exercise.
(c) The holder of a Right by the acceptance of the
Rights expressly waives his right to receive any fractional
Rights or any fractional share upon exercise of Rights.
Section 15. Rights of Action. All rights of action in
respect of this Agreement are vested in the respective registered
holders of the Right Certificates (and, prior to the Distribution
<PAGE>
Date, the registered holders of Common Stock); and any registered
holder of any Right Certificate (or, prior to the Distribution
Date, of the Common Stock), without the consent of the Rights Agent
or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in his own behalf and
for his own benefit, enforce, and may institute and maintain any
suit, action or proceeding against the Bank to enforce, or
otherwise act in respect of, his right to exercise the Rights
evidenced by such Right Certificate in the manner provided in such
Right Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have
an adequate remedy at law for any breach of this Agreement and will
be entitled to specific performance of the obligations under, and
injunctive relief against actual or threatened violations of the
obligations of, any Person subject to this Agreement.
Section 16. Agreement of Right Holders. Every holder of a
Right by accepting the same consents and agrees with the Bank and
the Rights Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of Common
Stock;
(b) after the Distribution Date, the Right Certificates
are transferable only on the registry books of the Rights
Agent if surrendered at the principal office or offices of the
Rights Agent designated for such purposes, duly endorsed or
accompanied by a proper instrument of transfer and with the
appropriate certificates fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the
Bank and the Rights Agent may deem and treat the Person in
whose name the Right Certificate (or, prior to the
Distribution Date, the associated Common Stock certificate) is
registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership
or writing on the Right Certificates or the associated Common
Stock certificate made by anyone other than the Bank or the
Rights Agent) for all purposes whatsoever, and neither the
Bank nor the Rights Agent, subject to the last sentence of
Section 7(e) hereof, shall be affected by any notice to the
contrary; and
(d) notwithstanding anything in this Agreement to the
contrary, neither the Bank nor the Rights Agent shall have any
liability to any holder of a Right or other Person as a result
of its inability to perform any of its obligations under this
Agreement by reason of any preliminary or permanent injunction
or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or
administrative agency or commission, or any statute, rule,
regulation or executive order promulgated or enacted by any
<PAGE>
governmental authority prohibiting or otherwise restraining
performance of such obligation; provided however, the Bank
must use its best efforts to have any such order, decree or
ruling lifted or otherwise overturned as soon as possible.
Section 17. Right Certificate Holder Not Deemed a
Stockholder. No holder, as such, of any Right Certificate shall be
entitled to vote, receive dividends or be deemed for any purpose
the holder of the number of shares of Common Stock or any other
securities of the Bank which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything
contained herein or in any Right Certificate be construed to confer
upon the holder of any Right Certificate, as such, any of the
rights of a stockholder of the Bank or any right to vote for the
election of directors or upon any matter submitted to stockholders
at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions
affecting stockholders (except as provided in Section 25), or to
receive dividends or subscription rights, or otherwise, until the
Right or Rights evidenced by such Right Certificate shall have been
exercised in accordance with the provisions hereof.
Section 18. Concerning the Rights Agent.
(a) The Bank agrees to pay to the Rights Agent
reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights
Agent, its reasonable expenses and counsel fees and
disbursements and other disbursements incurred in the
administration and execution of this Agreement and the
exercise and performance of its duties hereunder. The Bank
also agrees to indemnify the Rights Agent for, and to hold it
harmless against, any loss, liability, or expense, incurred
without negligence, or willful misconduct on the part of the
Rights Agent, for anything done or omitted by the Rights Agent
in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending
against any claim of liability.
(b) The Rights Agent shall be protected and shall incur
no liability for or in respect of any action taken, suffered
or omitted by it in connection with its administration of this
Agreement in reliance upon any Right Certificate or
certificate for Common Stock or for other securities of the
Bank, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by
it to be genuine and to be signed, executed and, where
necessary, verified or acknowledged, by the proper Person or
Persons.
Section 19. Merger or Consolidation or Change of Name of
Rights Agent.
<PAGE>
(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be
consolidated, or any corporation resulting from any merger or
consolidation to which the Rights Agent or any successor
Rights Agent shall be a party, or any corporation succeeding
to the corporate trust or stock transfer business of the
Rights Agent or any successor Rights Agent, shall be the
successor to the Rights Agent under this Agreement without the
execution or filing of any paper or any further act on the
part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor
Rights Agent under the provisions of Section 21. In case at
the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Right
Certificates shall have been countersigned but not delivered,
any such successor Rights Agent may adopt the countersignature
of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, any
successor Rights Agent may countersign such Right Certificates
either in the name of the predecessor Rights Agent or in the
name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the
Right Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent
shall be changed and at such time any of the Right
Certificates shall have been countersigned but not delivered,
the Rights Agent may adopt the countersignature under its
prior name and deliver Right Certificates so countersigned;
and in case at that time any of the Right Certificates shall
not have been countersigned, the Rights Agent may countersign
such Right Certificates either in its prior name or in its
changed name; and in all such cases such Right Certificates
shall have the full force provided in the Right Certificates
and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent
undertakes the duties and obligations imposed by this Agreement
upon the following terms and conditions:
(a) The Rights Agent may consult with legal counsel (who
may be legal counsel for the Bank), and the opinion of such
counsel shall be full and complete authorization and
protection to the Rights Agent as to any action taken or
omitted by it in good faith and in accordance with such
opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or
desirable that any fact or matter (including, without
limitation, the identity of any "Acquiring Person" and the
determination of "current market price") be proved or
established by the Bank prior to taking or suffering any
<PAGE>
action hereunder, such fact or matter (unless other evidence
in respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established by a
certificate signed by the Chairman of the Board, the President
or any Executive or Senior Vice President and by the Treasurer
or any Assistant Treasurer or the Secretary or any Assistant
Secretary of the Bank and delivered to the Rights Agent; and
such certificate shall be full authorization to the Rights
Agent for any action taken or suffered in good faith by it
under the provisions of this Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder only for
its own negligence, or willful misconduct.
(d) The Rights Agent shall not be liable for or by
reason of any of the statements of fact or recitals contained
in this Agreement or in the Right Certificates (except its
countersignature thereof) or be required to verify the same,
but all such statements and recitals are and shall be deemed
to have been made by the Bank only.
(e) The Rights Agent shall not be under any
responsibility in respect of the validity of this Agreement or
the execution and delivery hereof (except the due execution
hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its
countersignature thereof); nor shall it be responsible for any
breach by the Bank of any covenant or condition contained in
this Agreement or in any Right Certificate; nor shall it be
responsible for any change in the exercisability of the Rights
(including the Rights becoming void pursuant to Section 7(e)
hereof) or any adjustment in the terms on the Rights
(including the manner, method or amount thereof) provided for
in Sections 3, 11, 13, 23 or 24, or the ascertaining of the
existence of facts that would require any such adjustment
(except with respect to the exercise of Rights evidenced. by
Right Certificates after actual notice of any such
adjustment); nor shall it by any act hereunder be deemed to
make any representation or warranty as to the authorization or
reservation of any shares of Common Stock to be issued
pursuant to this Agreement or any Right Certificate or as to
whether any shares of Common Stock will, when issued, be
validly authorized and issued, fully paid and nonassessable.
(f) The Bank agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed,
acknowledged and delivered all such further and other acts,
instruments and assurances as may reasonably be required by
the Rights Agent for the carrying out or performing by the
Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed
to accept instructions with respect to the performance of its
<PAGE>
duties hereunder from the Chairman of the Board, the President
or any Executive or Senior Vice President or the Secretary or
any Assistant Secretary or the Treasurer or any Assistant
Treasurer of the Bank, and to apply to such officers for
advice or instructions in connection with its duties, and it
shall not be liable for any action taken or suffered to be
taken by it in good faith in accordance with instructions of
any such officer.
(h) The Rights Agent and any shareholder, director,
officer or employee of the Rights Agent may buy, sell or deal
in any of the Rights or other securities of the Bank or become
pecuniarily interested in any transaction in which the Bank
may be interested, or contract with or lend money to the Bank
or otherwise act as fully and freely as though it were not the
Rights Agent under this Agreement. Nothing herein shall
preclude the Rights Agent from acting in any other capacity
for the Bank or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty
hereunder either itself or by or through its attorneys or
agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Bank resulting
from any such act, default, neglect or misconduct, provided
reasonable care was exercised in the selection and continued
employment thereof.
(j) No provision of this Agreement shall require the
Rights Agent to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its
duties hereunder or in the exercise of its rights if there
shall be reasonable grounds for believing that repayment of
such funds or adequate indemnification against such risk or
liability is not reasonably assured to it.
(k) If, with respect to any Right Certificate
surrendered to the Rights Agent for exercise or transfer, the
certificate attached to the form of assignment or form of
election to purchase, as the cases may be, has either not been
completed or indicates an affirmative response to any item
therein, the Rights Agent shall not take any further action
with respect to such requested exercise or transfer without
first consulting with the Bank.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties
under this Agreement upon 30 days' notice in writing mailed to the
Bank and to each transfer agent of the Common Stock by registered
or certified mail and to the holders of the Right Certificates by
first-class mail. The Bank may remove the Rights Agent or any
successor Rights Agent upon 30 days' notice in writing, mailed to
the Rights Agent or successor Rights Agent, as the case may be, and
<PAGE>
to each transfer agent of the Common Stock by registered or
certified mail and to the holders of the Right Certificates by
first-class mail. If the Rights Agent shall resign or be removed
or shall otherwise become incapable of acting, the Bank shall
appoint a successor to the Rights Agent. If the Bank shall fail to
make such appointment within a period of 30 days after such removal
or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the
holder of a Right Certificate (who shall, with such notice, submit
his Right Certificate for inspection by the Bank), then the
registered holder of any Right Certificate may apply to any court
of competent jurisdiction for the appointment of a new Rights
Agent. Any successor Rights Agent, whether appointed by the Bank
or by such a court, shall be (a) a corporation organized and doing
business under the laws of the United States or of any state of the
United States, in good standing, having a principal office in the
State of Connecticut or New York, which is authorized under such
laws to exercise stock transfer or corporate trust powers and is
subject to supervision or examination by federal or state authority
and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $50,000,000 or (b) an
Affiliate of a corporation described in clause (a) of this
sentence. After appointment, the successor Rights Agent shall be
vested with the same powers, rights, duties and responsibilities as
if it had been originally named as Rights Agent without further act
or deed; but the predecessor Rights Agent shall deliver and
transfer to the successor Rights Agent any property at the time
held by it hereunder, and execute and deliver any further
assurance, conveyance, act or deed necessary for the purpose. Not
later than the effective date of any such appointment, the Bank
shall file notice thereof in writing with the predecessor Rights
Agent and each transfer agent of the Common Stock and mail a notice
thereof in writing to the registered holders of the Right
Certificates. Failure to give any notice provided for in this
Section 21, however, or any defect therein, shall not affect the
legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case
may be.
Section 22. Issuance of New Right Certificates.
Notwithstanding any of the provisions of this Agreement or of the
Rights to the contrary, the Bank may, at its option, issue new
Right Certificates evidencing Rights in such form as may be
approved by its Board of Directors to reflect any adjustment or
change in the Purchase Price and the number or kind or class of
shares of stock or other securities or property purchasable under
the Right Certificates made in accordance with the provisions of
this Agreement. In addition, in connection with the issuance or
sale of shares of Common Stock following the Distribution Date and
prior to the earliest of the redemption, exchange or expiration of
the Rights, the Bank (a) shall, with respect to shares of Common
Stock so issued or sold pursuant to the exercise of employee stock
options or under or to any employee plan, profit sharing trust or
other arrangement outstanding, granted or awarded as of the
<PAGE>
Distribution Date, or upon the exercise, conversion or exchange of
securities issued by the Bank prior to such date, and (b) may, in
any other case, if deemed necessary or appropriate by a majority of
Continuing Directors, issue Right Certificates representing the
appropriate number of Rights in connection with such issuance or
sale; provided, however, that (i) no such Right Certificate shall
be issued if, and to the extent that, the Bank shall be advised by
counsel that such issuance would create a significant risk of
material adverse tax consequences to the Bank or the person to whom
such Right Certificate would be issued, and (ii) no such Right
Certificate shall be issued if, and to the extent that, appropriate
adjustment shall otherwise have been made in lieu of the issuance
thereof.
Section 23. Redemption.
(a) The Board of Directors of the Bank may, at its
option and subject to receipt of all necessary bank regulatory
approvals (if any), at any time prior to the earlier of (i)
the close of business on the tenth day after the Stock
Acquisition Date or (ii) the Final Expiration Date, redeem all
but not less than all the then outstanding Rights at a
redemption price of $.001 per Right appropriately adjusted to
reflect any stock split, stock dividend, reclassification or
similar transaction occurring after the date hereof (such
redemption price being hereinafter referred to as the
"Redemption Price"); provided, however, that if the Board of
Directors of the Bank authorizes redemption of the Rights at
or after the time a Person becomes an Acquiring Person, then
there must be Continuing Directors then in office and such
authorization shall require the concurrence of a majority of
such Continuing Directors. Notwithstanding anything in this
Agreement to the contrary, the Rights shall not be exercisable
after the first occurrence of a Section 11(a) (ii) Event until
such time as the Bank's right of redemption hereunder has
expired which time period may be extended by the Board of
Directors for so long as necessary to obtain any required bank
regulatory approvals. The Bank may, at its option, pay the
Redemption Price in cash, shares of Common Stock (based on the
"current market price," as defined in Section 11(d)(i) hereof,
of the Common Stock at the time of redemption) or any other
form of consideration deemed appropriate by the Board of
Directors.
(b) Immediately upon the action of the Board of
Directors of the Bank ordering the redemption of the Rights
and without any further action and without any notice, the
right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the
Redemption Price for each Right so held. Promptly after the
action of the Board of Directors ordering the redemption of
the Rights, the Bank shall give notice of such redemption to
the Rights Agent and the holders of the then outstanding
Rights by mailing such notice to all such holders at their
<PAGE>
last addresses as they appear upon the registry books of the
Rights Agent or, prior to the Distribution Date, on the
registry books of the Transfer Agent for the Common Stock.
Any notice which is mailed in the manner herein provided shall
be deemed given, whether or not the holder receives the
notice. Each such notice of redemption will state the method
by which the payment of the Redemption Price will be made.
Neither the Bank nor any of its Subsidiaries may redeem,
acquire or purchase for value any Rights at any time in any
manner other than that specifically set forth in this Section
23 or in Section 24 hereof, and other than in connection with
the purchase or other acquisition of shares of Common Stock
prior to the Distribution Date.
Section 24. Notice of Proposed Actions.
(a) In case the Bank shall propose, at any time after
the Distribution Date, (i) to pay any dividend payable in
stock of any class to the holders of Preferred Shares or to
make any other distribution to the holders of Preferred Shares
(other than a regular quarterly cash dividend out of earnings
or retained earnings of the Bank), or (ii) to offer to the
holders of its Preferred Shares rights or warrants to
subscribe for or to purchase any additional shares of
Preferred Shares or shares of stock of any class or any other
securities, rights or options, or (iii) to effect any
reclassification of its Preferred Shares (other than a
reclassification involving only the subdivision of outstanding
shares of Preferred Shares), or (iv) to effect any
consolidation or merger into or with any other Person, or to
effect any sale or other transfer (or to permit one or more of
its Subsidiaries to effect any sale or other transfer), in one
transaction or a series of related transactions, of more than
50% of the assets or earning power of the Bank and its
Subsidiaries (taken as a whole) to any other Person or
Persons, (v) to effect the liquidation, dissolution or winding
up of the Bank, or (vi) to declare or pay any dividend on the
Common Stock payable in Common Stock or to effect a
subdivision, combination or consolidation of the Common Stock
(by reclassification or otherwise than by payment of dividends
in Common Stock), then, in each such case, the Bank shall give
to each holder of a Right, to the extent feasible and in
accordance with Section 25, a notice of such proposed action,
which shall specify the record date for the purposes of such
stock dividend, distribution of rights or warrants, or the
date on which such reclassification, consolidation, merger,
sale, transfer, liquidation, dissolution, or winding up is to
take place and the date of participation therein by the
holders of Common Shares and/or Preferred Shares, if any such
date is to be fixed, and such notice shall be so given in the
case of any action covered by clause (i) or (ii) above at
least 20 days prior to the record date for determining holders
of the Preferred Shares for purposes of such action, and in
the case of any such other action, at least 20 days prior to
<PAGE>
the date of the taking of such proposed action or the date of
participation therein by the holders of Common Shares and/or
Preferred Shares, whichever shall be the earlier. The failure
to give notice required by this Section 24 or any defect
therein shall not affect the legality or validity of the
action taken by the Bank or the vote upon any such action.
(b) In case any Section 11(a) (ii) Event shall occur,
then, in any such case, the Bank shall as soon as practicable
thereafter give to each holder of a Right Certificate, in
accordance with Section 25 hereof, a notice of the occurrence
of such event, which notice shall describe such event and the
consequences of such event to holders of Rights under Section
11(a)(ii) hereof.
Section 25. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder
of any Right Certificate to or on the Bank shall be sufficiently
given or made if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing with the
Rights Agent) as follows:
Norwalk Savings Society
48 Wall Street
Norwalk, CT 06852
Attention: Corporate Secretary
Subject to the provisions of Section 21, any notice or demand
authorized by this Agreement to be given or made by the Bank or by
the holder of any Right Certificate to or on the Rights Agent shall
be sufficiently given or made if sent by first-class mail, postage
prepaid addressed (until another address is filed in writing with
the Bank) as follows:
Chemical Mellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, N.J. 07660
Notices or demands authorized by this Agreement to be given or made
by the Bank or the Rights Agent to the holder of any Right
Certificate (or, prior to the Distribution Date, to the holder of
any certificate representing shares of Common Stock) shall be
sufficiently given or made if sent by first-class mail, postage
prepaid, addressed to such holder at the address of such holder as
shown on the registry books of the Bank.
Section 26. Supplements and Amendments. Prior to the earlier
of the Stock Acquisition Date and the Distribution Date and subject
to the penultimate sentence of this Section 26, the Bank and the
Rights Agent shall, if the Bank so directs, supplement or amend any
provision of this Agreement (whether or not adverse to the holders
of Rights) without the approval of any holders of Rights. From and
after the earlier of the Stock Acquisition Date and the
<PAGE>
Distribution Date and subject to the penultimate sentence of this
Section 26, the Bank and the Rights Agent shall, if the Bank so
directs, supplement or amend this Agreement without the approval of
any holders of Rights in order (i) to cure any ambiguity, (ii) to
correct or supplement any provision contained herein which may be
defective or inconsistent with any other provisions herein, (iii)
to shorten or lengthen any time period hereunder (which shortening
or lengthening shall be effective only if there are Continuing
Directors then in office and shall require the concurrence of a
majority of such Continuing Directors if such supplement or
amendment occurs at or after the time a Person becomes an Acquiring
Person) or (iv) to change or supplement the provisions hereof in
any manner which the Bank may deem necessary or desirable and which
shall not materially adversely affect the interests of the holders
of Rights Certificates (other than an Acquiring Person or an
Affiliate or Associate of an Acquiring Person); provided, however,
that this Agreement may not be supplemented or amended to lengthen,
pursuant to clause (iii) of this sentence, (A) a time period
relating to when the Rights may be redeemed at such time as the
Rights are not then redeemable or (B) any other time period unless
such lengthening is for the purpose of protecting, enhancing or
clarifying the rights of, and/or the benefits to, the holders of
Rights. Upon the delivery of a certificate from an appropriate
officer of the Bank which states that the proposed supplement or
amendment is in compliance with the terms of this Section 26, the
Rights Agent shall execute such supplement or amendment.
Notwithstanding anything contained in this Agreement to the
contrary, no supplement or amendment shall be made which decreases
the Redemption Price. Prior to the Distribution Date, the
interests of the holders of Rights shall be deemed coincident with
the interests of the holders of Common Stock.
Section 27. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Bank or the Rights
Agent shall bind and inure to the benefit of their respective
successors and assigns hereunder.
Section 28. Determinations and Actions by the Board of
Directors, etc. For all purposes of this Agreement, any
calculation of the number of shares of Common Stock and/or
Preferred Shares outstanding at any particular time, including for
purposes of determining the particular percentage of such
outstanding shares of Common Stock of which any Person is the
Beneficial Owner, shall be made in accordance with the last
sentence of Rule 13d-3(d)(1)(i) of the General Rules and
Regulations under the Exchange Act. The Board of Directors of the
Bank (with, where specifically provided for herein, the concurrence
of the Continuing Directors) shall have the exclusive power and
authority to administer this Agreement and to exercise all rights
and powers specifically granted to the Board (with, where
specifically provided for herein, the concurrence of the Continuing
Directors) or to the Bank, or as may be necessary or advisable in
the administration of this Agreement, including without limitation,
the right and power to (i) interpret the provisions of this
<PAGE>
Agreement and (ii) make all determinations deemed necessary or
advisable for the administration of this Agreement (including a
determination to redeem or not redeem the Rights, to exchange or
not to exchange the rights or to amend the Agreement). All such
actions, calculations, interpretations and determinations
(including, for purposes of clause (y) below, all omissions with
respect to the foregoing) which are done or made by the Board (or,
where specifically provided for herein, by the Continuing
Directors) in good faith, shall (x) be final, conclusive and
binding on the Bank, the Rights Agent, the holders of the Rights
and all other parties, and (y) not subject to the Board or the
Continuing Directors to any liability to the holders of the Right.
Section 29. Benefits of This Agreement. Nothing in this
Agreement shall be construed to give to any Person other than the
Bank, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the Common
Stock) any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive
benefit of the Bank, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, the
Common Stock).
Section 30. Severability. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants
and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
Section 31. Governing Law. This Agreement, each Right and
each Right Certificate issued hereunder shall be deemed to be a
contract made under the laws of the State of Connecticut and for
all purposes shall be governed by and construed in accordance with
the laws of such state applicable to contracts to be made and
performed entirely within such state.
Section 32. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for
all purposes be deemed to be an original, and all such counterparts
shall together constitute one and the same instrument.
Section 33. Descriptive Headings. The captions herein and in
the table of contents hereto are included for convenience of
reference only, do not constitute a part of this Agreement and
shall be ignored in the construction and interpretation hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, all as of the day and year first
above written.
<PAGE>
NORWALK SAVINGS SOCIETY
By /s/ Robert T. Judson
------------------------------------
President
CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C.
By /s/
------------------------------------
Vice President
Exhibit A
FORM
of
AMENDMENT TO ARTICLES OF INCORPORATION
of
NORWALK SAVINGS SOCIETY
(Pursuant to Connecticut General Statutes
Sections 33-341(c) and 33-360(b))
NORWALK SAVINGS SOCIETY, a capital stock savings bank
organized and existing under the laws of the State of Connecticut
(hereinafter called the "Corporation"), hereby certifies that the
following resolution was adopted by the Board of Directors of the
Corporation at a meeting duly called and held on April 24, 1996:
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of this Corporation (hereinafter called
the "Board of Directors" or the "Board") in accordance with the
provisions of the Amended and Restated Articles of Incorporation of
the Corporation and sections 33-341(b) and (c) of the Connecticut
General Statutes, the Board of Directors hereby creates a series of
Preferred Stock, par value $0.01 per share (the "Preferred Stock"),
of the Corporation and hereby states the designation and number of
shares, and fixes the relative rights, preferences, and limitations
thereof as set forth in the following amendment to the Amended and
Restated Articles of Incorporation of the Corporation:
FURTHER RESOLVED, that the Amended and Restated Articles of
Incorporation of the Corporation shall be, and they hereby are,
amended by the addition of the following pursuant to ARTICLE THIRD:
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series
<PAGE>
shall be designated as "Series A Junior Participating Preferred
Stock" (the "Series A Preferred Stock") and the number of shares
constituting the Series A Preferred Stock shall be 50,000. Such
number of shares may be increased or decreased by resolution of the
Board of Directors; provided, that no decrease shall reduce the
number of shares of Series A Preferred Stock to a number less than
the number of shares then outstanding plus the number of shares
reserved for issuance upon the exercise of outstanding options,
rights or warrants or upon the conversion of any outstanding
securities issued by the Corporation convertible into Series A
Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and
superior to the Series A Preferred Stock with respect to dividends,
the holders of shares of Series A Preferred Stock, in preference to
the holders of Common Stock, par value $0.01 per share (the "Common
Stock"), of the Corporation, and of any other junior stock, shall
be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the first day of March, June,
September and December in each year (each such date being referred
to herein as a "Quarterly Dividend Payment Date"), commencing on
the first Quarterly Dividend Payment Date after the first issuance
of a share of Series A Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $1 or (b)
subject to the provision for adjustment hereinafter set forth, 100
times the aggregate per share amount of all cash dividends, and 100
times the aggregate per share amount (payable in kind) of all non-
cash dividends or other distributions, other than a dividend
payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately
preceding Quarterly Dividend Payment Date or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of
any share or fraction of a share of Series A Preferred Stock. In
the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock)
into a greater or lesser number of shares of Common Stock, then in
each such case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under
clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (A) of
<PAGE>
this Section immediately after it declares a dividend or
distribution on the Common Stock (other than a dividend payable in
shares of Common Stock); provided that, in the event no dividend or
distribution shall have been declared on the Common Stock during
the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1 per
share on the Series A Preferred Stock shall nevertheless be payable
on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such
shares, unless the date of issue of such shares is prior to the
record date for the first Quarterly Dividend Payment Date, in which
case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock
entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividends
shall begin to accrue and be cumulative from such Quarterly
Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Preferred Stock
in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata
on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series A Preferred Stock
entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to
the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the
holder thereof to 100 votes on all matters submitted to a vote of
the stockholders of the Corporation. In the event the Corporation
shall at any time declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the number of
votes per share to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction, the numerator of
which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately
prior to such event.
(B) Except as otherwise provided herein, if the Board of
<PAGE>
Directors creates a series of Preferred Stock or any similar stock,
or by law, the holders of shares of Series A Preferred Stock and
the holders of shares of Common Stock and any other capital stock
of the Corporation having general voting rights shall vote together
as one class on all matters submitted to a vote of stockholders of
the Corporation.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series A Preferred Stock shall have no special
voting rights and their consent shall not be required (except to
the extent they are entitled to vote with holders of Common Stock
as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided
in Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on
shares of Series A Preferred Stock outstanding shall have been paid
in full, the Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution
or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution
or winding up) with the Series A Preferred Stock, except
dividends paid ratably on the Series A Preferred Stock
and all such parity stock on which dividends are payable
or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either
as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock, provided
that the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such junior stock in
exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or
any shares of stock ranking on a parity with the Series
A Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by
the Board of Directors) to all holders of such shares
upon such terms as the Board of Directors, after
<PAGE>
consideration of the respective annual dividend rates and
other relative rights and preferences of the respective
series and classes, shall determine in good faith will
result in fair and equitable treatment among the
respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could,
under paragraph (A) of this Section 4, purchase or otherwise
acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A
Preferred Stock purchased or otherwise acquired by the Corporation
in any manner whatsoever shall be retired and canceled promptly
after the acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred
Stock subject to the conditions and restrictions on issuance set
forth herein, in the Certificate of Incorporation, or in any other
Certificate of Designations creating a series of Preferred Stock or
any similar stock or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (1) to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock unless,
prior thereto, the holders of shares of Series A Preferred Stock
shall have received $100 per share, plus an amount equal to accrued
and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment, provided that the holders of
shares of Series A Preferred Stock shall be entitled to receive an
aggregate amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount to
be distributed per share to holders of shares of Common Stock, or
(2) to the holders of shares of stock ranking on a parity (either
as to dividends upon liquidation, dissolution or winding up) with
the Series A Preferred Stock, except distributions made ratably on
the Series A Preferred Stock and all such parity stock in
proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding
up. In the event the Corporation shall at any time declare or pay
any dividend on the Common Stock payable in shares of Common Stock,
or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock,
then in each such case the aggregate amount to which holders of
shares of Series A Preferred Stock were entitled immediately prior
to such event under the proviso in clause (1) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
<PAGE>
immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the
Corporation shall enter into any consolidation, merger, combination
or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash
and/or any other property, then in any such case each share of
Series A Preferred Stock shall at amount per share, subject to the
provision for adjustment hereinafter set forth, equal to 100 times
the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for
which each share of Common Stock is changed or exchanged. In the
event the Corporation shall at any time declare or pay any dividend
on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the
amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be
adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately
prior to such event.
Section 8. No Redemption. The shares of Series A Preferred
Stock shall not be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank,
with respect to the payment of dividends and the distribution of
assets, junior to all series of any other class of the
Corporation's Preferred Stock.
Section 10. Amendment. The Certificate of Incorporation of
the Corporation shall not be amended in any manner which would
materially alter or change the powers, preferences or special
rights of the Series A Preferred Stock so as to affect them
adversely without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Series A Preferred Stock,
voting together as a single class.
FURTHER RESOLVED, that 50,000 shares of Series A Preferred
Stock be, and they hereby are, initially reserved for issuance upon
exercise, in accordance with the terms of a certain Rights
Agreement dated as of May 10, 1996 by and between the Corporation
and Chemical Mellon Transfer Services, Inc. as Rights Agent, as
amended from time to time (the "Rights Agreement"), of the Rights
(as defined in the Rights Agreement), such number to be subject to
adjustment from time to time in accordance with the Rights
Agreement.
<PAGE>
Exhibit B
Form of Right Certificate
Certificate No. R- __________ Rights
NOT EXERCISABLE AFTER MAY 27, 2006 OR EARLIER IF REDEEMED OR
EXCHANGED BY THE BANK. THE RIGHTS ARE SUBJECT TO REDEMPTION,
AT THE OPTION OF THE BANK, AT $.001 PER RIGHT, AND TO EXCHANGE
AT THE OPTION OF THE BANK, ON THE TERMS SET FORTH IN THE
RIGHTS AGREEMENT. AS DESCRIBED IN THE RIGHTS AGREEMENT, RIGHTS
BENEFICIALLY OWNED BY (l) AN ACQUIRING PERSON OR ANY ASSOCIATE
OR AFFILIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT), (2) A TRANSFEREE OF AN ACQUIRING PERSON (OR OF ANY
SUCH ASSOCIATE OR AFFILIATE) WHO BECOMES A TRANSFEREE AFTER
THE ACQUIRING PERSON BECOMES SUCH OR (3) UNDER CERTAIN
CIRCUMSTANCES, A TRANSFEREE OF AN ACQUIRING PERSON (OR OF ANY
SUCH ASSOCIATE OF AFFILIATE) WHO BECOMES A TRANSFEREE BEFORE
OR CONCURRENTLY WITH THE ACQUIRING PERSON BECOMING SUCH, SHALL
BECOME NULL AND VOID.
Right Certificate
Norwalk Savings Society
This certifies that __________________________, or
registered assigns, is the registered owner of the number of Rights
set forth above, each of which entitles the owner thereof, subject
to the terms, provisions and conditions of the Rights Agreement
dated as of May 10, 1996 (the "Rights Agreement") between Norwalk
Savings Society, a Connecticut-chartered capital stock savings bank
(the "Bank"), and Chemical Mellon Shareholder Services, L.L.C. (the
"Rights Agent"), to purchase from the Bank at any time after the
Distribution Date (as such term is defined in the Rights Agreement)
and prior to 5:00 P.M. (Eastern time) on May 27, 2006 at the office
or offices of the Rights Agent designated for such purpose, or its
successors as Rights Agent, one one-hundredths of a fully paid,
non-assessable share of Series A Junior Participating Preferred
Stock, par value $.01, (the "Preferred Shares") of the Bank, at a
cash purchase price of $40.00 per one one-hundredths of a Preferred
Share (the "Purchase Price"), upon presentation and surrender of
this Right Certificate with the Form of Election to Purchase and
the related Certificate duly executed. The number of Rights
evidenced by this Right Certificate (and the number of one one-
hundredths of a Preferred Share which may be purchased upon
exercise thereof) set forth above, and the Purchase Price per one
<PAGE>
one-hundredths of a Preferred Share set forth above, are the number
and Purchase Price as of May 28, 1996, based on the Preferred
Shares as constituted at such date.
Upon the occurrence of a Section 11(a) (ii) Event (as such
term is defined in the Rights Agreement), if the Rights evidenced
by this Right Certificate are beneficially owned by (i) an
Acquiring Person or an Affiliate or Associate of any such Acquiring
Person (as such terms are defined in the Rights Agreement), (ii) a
transferee of an Acquiring Person (or of any such Affiliate or
Associate) who becomes a transferee after the Acquiring Person
becomes such), or (iii) under certain circumstances specified in
the Rights Agreement, a transferee of an Acquiring Person (or of
any such Affiliate or Associate) who becomes a transferee before or
concurrently with the Acquiring Person becoming such), such Rights
shall become null and void and no holder hereof shall have any
right with respect to such Rights from and after the occurrence of
such Section 11(a) (ii) Event.
As provided in the Rights Agreement, the Purchase Price and
the number of one one-hundredths of the Preferred Shares and the
number and kind of other securities which may be purchased upon the
exercise of the Rights evidenced by this Right Certificate are
subject to modification and adjustment upon the happening of
certain events.
This Right Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms,
provisions and conditions are hereby incorporated herein by
reference and made a part hereof and to which Rights Agreement
reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder
of the Rights Agent, the Bank and the holders of the Right
Certificates, which limitations of rights include the temporary
suspension of the exercisability of such Rights under the specific
circumstances set forth in the Rights Agreement. Copies of the
Rights Agreement are on file at the above-mentioned office of the
Rights Agent and are also available upon written request to the
Bank.
This Right Certificate, with or without other Right
Certificates, upon surrender at the office or offices of the Rights
Agent designated for such purpose, may be exchanged for another
Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate
number of Preferred Shares as the Rights evidenced by the Right
Certificate or Right Certificates surrendered shall have entitled
such holder to purchase. If this Right Certificate shall be
exercised in part, the holder shall be entitled to receive upon
surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate (i) may be redeemed by the Bank at
<PAGE>
its option at a redemption price of $.001 per Right or (ii) may be
exchanged by the Bank at its option for Preferred Shares or shares
of the Bank's Common Stock, par value $.01 per share (or, in
certain circumstances, Common Stock Equivalents (as such term is
defined in the Rights Agreement)).
No fractional Preferred Shares or fractional shares of
Common Stock or other securities will be issued upon the exercise
of any Right or Rights evidenced hereby, but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to
vote or receive dividends or be deemed for any purpose the holder
of Preferred Shares or of shares of any other securities of the
Bank which may at any time be issuable on the exercise hereof, nor
shall anything contained in the Rights Agreement or herein be
construed to confer upon the holder hereof, as such, any of the
rights of a stockholder of the Bank or any right to vote for the
election of directors or upon any matter submitted to stockholders
at any meeting thereof, or to give or withhold consent to any
corporate action, or, to receive notice of meetings or other
actions affecting stockholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, or
otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights
Agreement.
This Right Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Rights
Agent.
WITNESS the facsimile signature of the proper officers of the
Bank and its corporate seal.
Dated as of ____________________, 19__.
Attest: Norwalk Savings Society
- -------------------------- ---------------------------
Secretary Title:
(seal)
Countersigned:
- --------------------------
as Rights Agent
By
------------------------
Authorized Signature
<PAGE>
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED _____________________________________________
hereby sells, assigns and transfers unto _______________________
________________________________________________________________
(Please print name and address of transferee)
_______________________________________________________________
this Right Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint
________________ Attorney, to transfer the within Right Certificate
on the books of the within-named Bank, with full power of
substitution.
Dated: _______________, ____.
---------------------------------
Signature Guaranteed: Signature
Certificate
The undersigned hereby certifies by checking the
appropriate boxes that:
(1) the Rights evidenced by this Right Certificate ____ are
____ are not being exercised by or on behalf of a Person who is or
was an Acquiring Person or an Affiliate or Associate of any such
Acquiring Person (as such terms are defined in the Rights
Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, the Rights evidenced by this Right Certificate ___ are
___ are not being sold, assigned and transferred to a Person who is
an Acquiring Person, an Affiliate or Associate of an Acquiring
Person or a nominee of any such Acquiring Person, Affiliate or
Associate.
<PAGE>
(3) after due inquiry and to the best knowledge of the
undersigned, it ____ did ____ did not acquire the Rights evidenced
by this Right Certificate from any Person who is, was or
subsequently became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person.
Dated: ___________, 19__ ------------------------------
Signature
NOTICE
The signatures to the foregoing Assignment and Certificate
must correspond to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement
or any change whatsoever.
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Right Certificate.)
To: Norwalk Savings Society
The undersigned hereby irrevocably elects to exercise
___________________ Rights represented by this Right Certificate to
purchase the Preferred Shares issuable upon the exercise of the
Rights (or such other securities of the Bank or of any other person
which may be issuable upon the exercise of the Rights) and requests
that certificates for such shares be issued in the name of and
delivered to:
Please insert social security
or other identifying number
________________________________________________________________
(Please print name and address)
________________________________________________________________
If such number of Rights shall not be all the Rights
evidenced by this Right Certificate, a new Right Certificate for
the balance of such Rights shall be registered in the name of and
delivered to:
<PAGE>
Please insert social security
or other identifying number
___________________________________________________________________
(Please print name and address)
___________________________________________________________________
___________________________________________________________________
Dated: __________________, 19__.
----------------------------------
Signature Guaranteed: Signature
Certificate
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) the Rights evidenced by this Right Certificate ____ are
____ are not being exercised by or on behalf of a Person who is or
was an Acquiring Person or an Affiliate or Associate of any such
Acquiring Person (as such terms are defined in the Rights
Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it ____ did ____ did not acquire the Rights evidenced
by this eight Certificate from any Person who is, was or became an
Acquiring Person or an Affiliate or Associate of an Acquiring
Person.
Dated: ____________, 19__. --------------------------------
Signature
NOTICE
The signature to the foregoing Election to Purchase and
Certificate must correspond to the name as written upon the face of
this Right Certificate in every particular, without alteration or
enlargement or any change whatsoever.
<PAGE>
Exhibit C
NORWALK SAVINGS SOCIETY
SUMMARY OF RIGHTS TO PURCHASE COMMON SHARES
On May 10, 1996 (the "Declaration Date"), Norwalk Savings Society
(the "Bank") declared a dividend distribution of one Right for each
outstanding share of Common Stock of the Bank. The dividend is
payable on May 28, 1996 to the stockholders of record as of the
close of business on such date (the "Record Date"). Each Right
entitles the registered holder to purchase from the company one
one-hundredths of a share of Series A Junior Participating
Preferred Stock, par value $.01 per share (the "Preferred Shares")
at a price of $40.00 per one one-hundredths of a Preferred Share
(the "Purchase Price"), subject to adjustment. The description and
terms of the Rights are set forth in a Rights Agreement (the
"Rights Agreement") between the Bank and Chemical Mellon
Shareholder Services, L.L.C. (the "Rights Agent").
Until the close of business on the earliest of (i) the tenth day
after a public announcement that a person or group of affiliated or
associated persons has acquired, or obtained the right to acquire,
beneficial ownership of 10% or more of the outstanding shares of
Common Stock of the Bank (an "Acquiring Person"); (ii) the tenth
day (or such later day as may be determined by action of the Board
of Directors of the Bank prior to such time as any person becomes
an Acquiring Person) after the date of the commencement of a tender
or an exchange offer by any person (other than the Bank) to acquire
(when added to any shares as to which such person is the beneficial
owner immediately prior to such commencement) beneficial ownership
of 10% or more of the issued and outstanding shares of Common
Stock; and (iii) the tenth day (or such later day as may be
determined by action of the Board of Directors of the Bank prior to
such time as any person becomes an Acquiring Person) after the
filing by any Person (other than the Bank) of a registration
statement under the Securities Act of 1933, as amended, with
respect to a contemplated exchange offer to acquire (when added to
any shares as to which such person is the beneficial owner
immediately prior to such filing) beneficial ownership of 10% or
more of the issued and outstanding shares of Common Stock (the
earliest of such dates being called the "Distribution Date"), the
Rights will be evidenced, with respect to any of the Bank's Common
Stock certificates outstanding as of the Record Date, by such
Common Stock certificate and this Summary. The date of
announcement of the existence of an Acquiring Person referred to in
clause (i) above is hereinafter referred to as the "Stock
Acquisition Date."
The Rights Agreement provides that, until the Distribution Date,
the Rights will be transferred with and only with the Bank's Common
Stock. New Common Stock certificates issued after the Record Date
upon transfer or new issuance of the Bank's Common Stock will
contain a notation incorporating the Rights Agreement by reference.
<PAGE>
Until the Distribution Date, the surrender for transfer of any of
the Common Stock certificates outstanding as of the Record Date
will also constitute the transfer of the Rights associated with the
Common Stock represented by such certificate and the number of
Rights associated with each share of Common Stock shall be
proportionately adjusted in the event of any dividend in Common
Stock on the Common Stock or subdivision, combination or
reclassification of the Common Stock. As soon as practicable
following the Distribution Date, separate certificates evidencing
the Rights ("Right Certificates") will be mailed to holders of
record of the Bank's Common Stock as of the close of business on
the Distribution Date and such separate certificates alone will
evidence Rights.
The Rights are not exercisable until the Distribution Date. The
Rights will expire on May 27, 2006, unless earlier redeemed by the
Bank as described below.
The Purchase Price payable, and the number of Preferred Shares or
other securities or property issuable, upon exercise of the Rights
are subject to adjustment from time to time to prevent dilution (i)
in the event of a stock dividend on, or a subdivision, combination
or reclassification of, the Preferred Shares, (ii) upon the grant
to holders of the Preferred Shares of certain rights or warrants to
subscribe for or purchase Preferred Shares at a price, or
securities convertible into Preferred Shares with a conversion
price, less than the then-current market price of the Preferred
Shares or (iii) upon the distribution to holders of the Preferred
Shares of evidences of indebtedness or assets (excluding regular
periodic cash dividends paid out of earnings or retained earnings
or dividends payable in Preferred Shares) or of subscription rights
or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-
hundredths of a Preferred Share issuable upon exercise of each
Right are also subject to adjustment in the event of a stock split
of the Common Shares or a stock dividend on the Common Shares
payable in Common Shares or subdivisions, consolidations or
combinations of the Common Shares occurring, in any such case,
prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not
be redeemable. Each Preferred Share will be entitled to a minimum
preferential quarterly dividend payment of $1 per share but will be
entitled to an aggregate dividend of 100 times the dividend
declared per Common Share. In the event of liquidation, the
holders of the Preferred Shares will be entitled to a minimum
preferential liquidation payment of $100 per share but will be
entitled to an aggregate payment of 100 times the payment made per
Common Share. All liquidation payments are subject to the prior
rights of Bank account holders to the Bank's "liquidation account"
established in accordance with Connecticut Banking Law in
connection with the Bank's conversion from mutual to capital stock
form in 1994. Each Preferred Share will have 100 votes, voting
<PAGE>
together with the Common Shares. Finally, in the event of any
merger, consolidation or other transaction in which Common Shares
are exchanged, each Preferred Share will be entitled to receive 100
times the amount received per Common Share. These rights are
protected by customary anti-dilution provisions.
In the event that the Bank is acquired in a merger or other
business combination, proper provision shall be made so that each
holder of a Right shall thereafter have the right to receive, upon
the exercise thereof at the then current exercise price of the
Right, that number of shares of common stock of the surviving
company (or its parent company or other controlling entity) which
at the time of such transaction would have a market value of four
times the exercise price of the Right. In the event that the Bank
were the surviving corporation in a merger with any Person, or in
the event that the Stock Acquisition Date occurs, the Rights
Agreement provides that proper provision would be made so that each
holder of a Right, other than the Acquiring Person (whose Rights
would thereafter be null and void) and certain of its transferees,
would thereafter have the right to receive upon exercise that
number of shares of the Bank's Common Stock having a market value
of four times the exercise price of the Right (i.e., a 75% discount
to market value); if insufficient shares are available to satisfy
the Right, the Bank may substitute other consideration, as
appropriate, or make an adjustment to the exercise price of the
Right to achieve substantially the intended economic benefit to
shareholders (other than the Acquiring Person) of the 75% discount.
With certain exceptions, no adjustment in the Purchase Price will
be required until cumulative adjustments require an adjustment of
at least 1% in such Purchase Price. No fractional Preferred Shares
or fractional shares of other securities will be issued and, in
lieu thereof, if necessary, an adjustment in cash will be made
based on the market price of the Preferred Shares or other
securities on the last trading date prior to the date of exercise.
At any time prior to the close of business on the date that Rights
holders become entitled to purchase Preferred Shares of the Bank
(which time period may be extended by the Board of Directors for so
long as necessary to obtain any required bank regulatory
approvals), the Bank may redeem the Rights in whole, but not in
part, at a price of $.001 per Right (payable in cash, Preferred
Shares, shares of Common Stock or other consideration),
appropriately adjusted to reflect any stock split, stock dividend
or similar transaction occurring after the date hereof (the
"Redemption Price"). Immediately upon the action of the Board of
Directors of the Bank electing to redeem the Rights, the right to
exercise the Rights will terminate and the only right of the
holders of Rights will be to receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have
no rights as a stockholder of the Bank, including, without
limitation, no right to vote or to receive dividends.
The terms of the Rights may be amended by the Bank and the Rights
Agent, provided that following the earlier of the Distribution Date
and the Stock Acquisition Date, the amendment does not materially
adversely affect the interests of the holders of the Rights (other
than an Acquiring Person) and provided that no amendment shall be
made which decreases the Redemption Price.
A copy of the Rights Agreement is being filed with the Federal
Deposit Insurance Corporation as an Exhibit to a Form F-10. A copy
of the Rights Agreement will be available free of charge from the
Bank. This summary description of the Rights does not purport to
be complete and is qualified in its entirety by reference to the
Rights Agreement, which is incorporated herein by reference.
<PAGE>
Exhibit 4.1
AMENDMENT TO RIGHTS AGREEMENT
THIS AMENDMENT TO RIGHTS AGREEMENT between NORWALK SAVINGS
SOCIETY, a Connecticut Chartered stock savings bank (the "Bank")
and CHASEMELLON SHAREHOLDERS SERVICES, L.L.C., as successor-in-
interest to Chemical-Mellon Shareholder Services, L.L.C., (the
"Rights Agent") is dated as of February 28, 1997 (the "Amendment").
WHEREAS, the Bank and the Rights Agent have entered into that
certain Rights Agreement dated May 10, 1996 (the "Agreement"), a
copy of which is attached hereto and incorporated by reference.
WHEREAS, Section 26 of the Agreement provides that, under
certain conditions, the Bank and the Rights Agent may, if the Bank
so directs, amend the Agreement in any manner which the Bank may
deem necessary or desirable and which shall not materially
adversely affect the interests of Rights Holders (as defined in the
Agreement) without the approval of Rights Holders.
WHEREAS, the Board of Directors of the Bank has determined at
a meeting held on February 26, 1997 that it is in the best interest
of the Bank to amend the Agreement as set forth herein.
NOW THEREFORE, the undersigned parties mutually agree to
following terms and conditions and to amend the Agreement as
follows:
1. Section 1(a) of the Agreement shall be amended and
restated in its entirety to read as follows:
<PAGE>
" Section 1. Certain Definitions. For purposes of this
Agreement, the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as
hereinafter defined) who or which, together with all
Affiliates (as hereinafter defined) and Associates (as
hereinafter defined) of such Person, shall be the Beneficial
Owner (as hereinafter defined) of 10% or more of the shares of
Common Stock then outstanding, but shall not include (i) the
Bank, (ii) any Subsidiary (as hereinafter defined) of the
Bank, (iii) any employee benefit plan of the Bank or any
Subsidiary of the Bank, (iv) any entity (including its
Affiliates) organized, appointed or established for or
pursuant to the terms of any such plan acting solely in its
capacity (or their capacities) under such plan, or (v) any
Person that beneficially owns 10% or more of the Common Stock
if the Bank's Board of Directors, in its sole discretion,
formally determines that such Person should not be considered
an "Acquiring Person" for purposes of this Agreement because
of the identity of such Person and/or the nature of the
ownership of shares of Common Stock held by such Person or for
other good cause shown. Notwithstanding the foregoing, no
Person shall become an "Acquiring Person" solely as the result
of an acquisition of Common Stock by the Bank which, by
reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such
Person to 10% or more of the shares of Common Stock then
outstanding; provided however, that if a Person becomes the
Beneficial Owner of 10% or more of the shares of Common Stock
then outstanding by reason of share acquisitions by the Bank
and shall, after such acquisitions, become the Beneficial
Owner of any additional shares of Common Stock, then such
Person shall be deemed to be an "Acquiring Person" subject
only to the foregoing.
2. Section 3 of the Agreement shall be amended to add a new
Section 3(e) as set forth below:
" Section 3. Issuance of Rights Certificates.
(e) In no event shall Rights Certificates be issued to
Rights Holders if, pursuant to Section 1(a)(v) of this
Agreement, the Board of Directors of the Bank determines, on
or before the 10th day after a Stock Acquisition Date, that a
Beneficial Owner of 10% or more of Common Stock should not be
considered an "Acquiring Person" for purposes of this
Agreement because of the identity of such Person and/or the
nature of the ownership of shares of Common Stock held by such
Person or for other good cause shown.
3. Except as expressly modified or amended by this Amendment,
all of the terms, covenants and conditions of the Agreement are
hereby ratified and confirmed, all to remain in full force and
effect.
IN WITNESS WHEREOF, the undersigned parties have executed this
Amendment as of the date first written above.
NORWALK SAVINGS SOCIETY
By: /s/ Robert T. Judson
Robert T. Judson
Its President
CHASE MELLON SHAREHOLDERS SERVICES, LLC
By: /s/ Harriet Drandoff
Harriet Drandoff
Its
<PAGE>
Exhibit 4.2
ASSIGNMENT
This ASSIGNMENT is dated May 20, 1997 and is entered into
between and among NORWALK SAVINGS SOCIETY, a Connecticut stock
savings bank (the "Assignor"), NSS BANCORP, INC., a Connecticut
corporation (the "Assignee"), and CHASEMELLON SHAREHOLDER SERVICES,
LLC (the "Rights Agent")
WHEREAS, the Assignor and the Rights Agent have entered into
that certain Rights Agreement dated May 10, 1996, as amended by
that certain Amendment to Rights Agreement dated as of February 28,
1997 (collectively, the "Rights Agreement");
WHEREAS, section 27 of the Rights Agreement provides that all
of the covenants and provisions of the Rights Agreement by or for
the benefit of the Assignor or the Rights Agent shall bind and
inure to the benefit of their respective successors and assigns;
and
WHEREAS, pursuant to that certain Agreement and Plan of
Reorganization entered into between the Bank and that Company dated
May 20, 1997 (the "Plan"), the Bank is obligated to assign all
right, title, and interest in the Rights Agreement to the Company
and the Company is obligated to accept such assignment from the
Bank.
NOW THEREFORE, in consideration of the mutual promises and
covenants contained herein, the Bank, the Company and the Rights
Agent agree as follows:
1. Assignment. The Assignor hereby assigns to Assignee all
right, title, and interest in and to the Rights Agreement and
<PAGE>
Assignee hereby accepts such assignment effective upon the
effective date of the Plan.
2. Covenants of Assignor. Assignor warrants that the Rights
Agreement is valid and is now in full force and effect and that all
covenants and conditions of the Rights Agreement have been and
continue to be fulfilled.
3. Covenants of Assignee; Performance of Duties. The
Assignee hereby agrees to perform all duties of the Assignor under
the Rights Agreement, and shall indemnify and hold harmless
Assignor from any claim or demand made thereunder.
4. Amendment to Rights Agreement. The following terms as
used in the Rights Agreement shall have the following meaning:
(a) Section 1(f) of the Rights Agreement shall be
deleted in its entirety and the following shall be substituted in
lieu thereof:
(f) "Common Stock" shall mean the Common
Stock, par value $0.01 per share, of NSS Bancorp, Inc., except that
"Common Stock" when used with reference to any Person other than
the Bank shall mean the capital stock of such Person with the
greatest voting power, or the equity securities or other equity
interest having power to control or direct the management, of such
Person.
(b) All references to the "Bank" made in the Rights
Agreement shall hereafter be deemed to refer not to "Norwalk
Savings Society" but instead to "NSS Bancorp, Inc."
5. Acknowledgement of Rights Agent. The Rights Agent hereby
acknowledges that all right, title, and interest in the Rights
Agreement previously vested in the Assignor has been validly
assigned to and accepted by the Assignee. The Rights Agent hereby
releases the Assignor from all of Assignor's obligations to perform
under the Rights Agreement and agrees to accept performance of all
obligations thereunder by the Assignee.
IN WITNESS WHEREOF, the undersigned parties have executed this
Assignment this 20th day of May, 1997.
NORWALK SAVINGS SOCIETY
By: /s/ Robert T. Judson
Robert T. Judson
Its President
NSS BANCORP, INC.
By: /s/ Robert T. Judson
Robert T. Judson
Its President
CHASE MELLON SHAREHOLDERS SERVICES, LLC
By: /s/ Harriet Drandoff
Harriet Drandoff
Its Relationship Manager
<PAGE>
Exhibit 10.1.1
EMPLOYMENT AGREEMENT
This Employment Agreement, dated as of March 1, 1994, is
between NORWALK SAVINGS SOCIETY, a mutual savings bank organized
and existing under the laws of the State of Connecticut with
headquarters located in Norwalk, Connecticut (the "Bank"), and
ROBERT T. JUDSON of Wilton, Connecticut ("Executive").
RECITALS
Executive has worked for the Bank for approximately 37 years,
most recently as President, Treasurer and Chief Executive Officer.
The Bank desires to enter into an Employment Agreement with
Executive for several primary reasons: (1) to provide Executive
with additional job security, particularly in the event that the
Bank experiences a change-of-control; (2) to provide further
incentive to Executive in the discharge of his responsibilities to
the Bank; (3) to further define Executive's duties and terms of
employment; and (4) to obtain certain contractual commitments from
Executive not present in the existing, at-will employment
arrangement.
The Executive desires to enter into an Employment Agreement
primarily to obtain contractual commitments from the Bank not
present in his existing, at-will employment arrangement.
The Bank and Executive contemplate that the Bank will: (i)
disclose to Executive information concerning the Bank's business
affairs, including certain confidential information; and (ii)
assist Executive in establishing good will and rapport with certain
customers of the Bank. The use by Executive of this information,
good will and rapport in competing with or in aiding others in
competing with the Bank would have a detrimental effect on future
<PAGE>
profitable operations of the Bank.
NOW THEREFORE, in consideration of the mutual promises and
covenants hereinafter described, the parties agree as follows:
1. Term of Employment. The Bank agrees to employ Executive, and
Executive agrees to accept employment with the Bank for a
term commencing on March 1, 1994 and continuing for a period
of three (3) years, unless subsequently extended or sooner
terminated as provided in this Agreement (the "Employment
Period").
2. Duties.
(a) During the Employment Period, Executive shall perform the
duties and exercise the powers relating to the office of
President, Treasurer and Chief Executive Officer
(provided such designations may change during the course
of the Employment Period except the designation of Chief
Executive Officer) as the Bank shall from time to time
assign to him. All duties assigned shall be consistent
with the customary duties of persons exercising the
functions of the above-described offices at a
Connecticut-chartered savings bank and, if the Bank
converts from mutual to capital stock form, at a capital
stock savings bank. Executive shall continue to be
nominated to serve on the Bank's Board of Directors.
(b) During the Employment Period, Executive shall devote his
entire business time, best efforts and ability to the
business of the Bank, shall faithfully and diligently
perform his duties, shall comply in all material respects
with the overall policies established by the Board of
Directors of the Bank and shall do all that is reasonably
in his power to promote, develop and extend the business
of the Bank.
3. Compensation and Benefits.
(a) Salary. The Bank shall pay Executive as compensation
for his services during the Employment Period an annual
base salary of One Hundred Sixty-Eight Thousand Eight
Hundred Dollars ($168,800.00). Salary payments shall be
made in equal increments consistent with the Bank's
standard payroll practices for its officers. The base
annual salary shall be reviewed by the Directors each
year during the Employment Period and set by the
Directors in an amount not less than the prior year's
salary; any increase in annual salary may take the form
of a contingent increase based upon achievement of
articulated personal or corporate goals, or both.
(b) Expenses. Upon submission of appropriate invoices or
vouchers, the Bank shall pay or reimburse Executive for
<PAGE>
all reasonable expenses incurred by him in the
performance of his duties under this Agreement in
furthering the business, and in keeping with the
policies, of the Bank.
(c) Vacation. Executive shall be entitled to four (4) weeks
paid vacation each contract year, to be taken each year
at a time or times as shall be mutually agreed upon by
the Bank and Executive and consistent with applicable
regulatory requirements. If Executive fails to use all
of his vacation time during a particular calendar year,
the unused portion shall not be carried over to the
subsequent year nor shall he be paid additionally for
such unused time.
(d) Incentive Compensation. The Bank's Board of Directors,
in its sole discretion, may authorize the payment of cash
incentive compensation to Executive from time to time.
Payment of incentive compensation will not set a
precedent requiring or suggesting that similar incentive
compensation will be paid in the future.
(e) Insurance Policies
i. Term Life Insurance. During the Employment Period,
Bank shall provide term life insurance coverage for
Executive in such form and amount as is not less
favorable than that coverage provided by the Bank
to other Bank employees from time to time
generally.
ii. Key Man Insurance. During the Employment Period,
Executive shall permit the Bank to insure his life
under a policy or policies of life insurance issued
by an insurance company or companies selected by
the Bank, and to name the Bank as sole beneficiary
thereunder. Executive agrees to submit to any
physical examinations which may be reasonably
required in connection with such policies.
iii. Disability Insurance. During the Employment
Period, Bank shall provide Executive with
disability insurance coverage in such form and
amount consistent with that provided to other Bank
employees generally.
(f) Benefits. During the Employment Period, Executive shall
be entitled to and shall be included in any employee
welfare and retirement plan or program of the Bank
available generally to its employees and/or officers
including, without limitation, plans for hospital
services, medical services benefits, sick pay, dental and
other health plans.
<PAGE>
(g) Stock Plans. During the Employment Period, Executive may
be included in any stock incentive or stock compensation
plan as the Board of Directors of the Bank may determine.
4. Disability. If during any period in which Executive shall
have continued to perform his duties as an employee of the
Bank, Executive shall incur a total or partial disability (as
defined in subparagraph (d) below), then until the earlier of
(a) 180 days after the date such disability is incurred, or
(b) the expiration of the term of the Employment Period
(either shall be termed the "Disability Period"), the Bank
shall pay Executive during the Disability Period on the basis
of his then-regular salary (any payments that Executive does
or would otherwise receive pursuant to the Bank's disability
coverage for employees generally for this period of disability
shall be set off against these payments).
(a) If Executive's total disability shall terminate prior to
the expiration of the Employment Period, then Executive
shall return to full and active employment with the Bank
under the terms of this Agreement; provided that if he
shall again become disabled within a period of three (3)
months after such return, other than by reason of an
event which is not causatively related to his original
disability, then Executive shall be deemed to have been
continuously disabled from the date he incurred his
original disability;
(b) In the event Executive shall incur a partial disability
(as defined in (d) below), then during the period of the
partial disability, the compensation to be paid to him in
consideration of his services to the Bank shall be
equitably adjusted to reflect the time that he is able to
devote to the affairs of and the value of the service he
is able to impart to the Bank; provided, however, that
during the Disability Period, the compensation shall not
be less than Executive would have received under this
Section 4 had he been totally rather than partially
disabled (this is to say, he shall receive his then-
regular salary for that Disability Period);
(c) Payments to Executive under this Section 4 shall be
reduced by the amounts, if any, as may be payable to him
by reason of his disability under policies of insurance
maintained and/or paid for by the Bank;
(d) As used in this Agreement, the term "total disability"
shall mean a disability such that, for physical or mental
reasons, Executive is unable to perform substantially his
obligations hereunder for the reasonably foreseeable
future (not less than 90 days), as determined by the
Bank's Board of Directors after considering competent
medical evidence. As used in this Agreement, the term
"partial disability" shall mean a disability, other than
<PAGE>
a total disability, such that, for physical or mental
reasons, Executive is unable to perform a material
portion of his usual duties at the Bank on a full-time
basis. As determined by the Bank's Board of Directors
after considering competent medical evidence.
5. Termination.
(a) Termination by Death. If Executive dies during the
Employment Period, the Bank's obligations under this
Agreement shall terminate immediately and Executive's
estate shall be entitled to all arrearages of salary and
expenses but shall not be entitled to further
compensation.
(b) Termination With or Without Cause. This Agreement and
Executive's employment with the Bank may be terminated
for cause at any time upon thirty (30) days advance
written notice from the Bank to Executive, which notice
shall set forth the facts on which the termination is
based. Upon termination, Executive shall be entitled to
all arrearages of salary and expenses, but shall not be
entitled to further compensation or benefits. As used in
this Agreement, and without limitation, "cause" shall
include: (i) Executive's conviction by any trial court of
any crime involving fraud, embezzlement, theft or
dishonesty; (ii) serious willful misconduct by Executive,
including personal dishonesty in connection with Bank
business or customers or the breach of a fiduciary duty
to the Bank or its customers; (iii) the total disability
of Executive, as defined in Paragraph 4 above; (iv) any
material breach by Executive of this Agreement; or (v) if
the Bank's regulatory authorities issue an order removing
Executive from his positions at the Bank, or if such
regulatory authorities inform the Directors that
continuation of Executive in his position at the Bank
would constitute an unsafe and unsound banking practice.
Executive's employment may be terminated by the Bank
without cause at any time, provided that, in such event,
Bank shall pay Executive, in one lump-sum payment paid
within 30 days after such termination, an amount equal to
the higher of the following: (i) that amount which is
equal to the aggregate amount of salary payments that
would be made to Executive for the remainder of the
Employment Period, calculated at the Executive's then
annual base salary; or (ii) that amount which is equal to
the number of Executive's full years of service to the
Bank at the time of termination multiplied by a number
derived by dividing his then annual base salary by
twenty-six (26). In addition, if Executive is terminated
without cause, the Bank shall either continue to carry
Executive at no cost to him under the Bank's employee
hospital, medical services, dental and other health plans
for the remainder of the Employment Period, or, if he is
<PAGE>
not eligible for continued coverage under such plans, pay
the cost of similar coverage for Executive pursuant to
COBRA or similar private insurance plans offering
comparable coverage. Also, if Executive is terminated
without cause, the Bank agrees to provide Executive, at
his request, with outplacement services for a period not
to exceed one year after the date of termination,
provided the Bank's obligation to provide these services
shall not exceed a maximum aggregate cost of $25,000.
Executive, should he elect to receive such services,
agrees to pursue possible employment opportunities
diligently and in good faith, and to cooperate in all
reasonable respects with the requests and instructions of
the outplacement services firm. A termination "without
cause" shall mean any termination not satisfying the
"cause" criteria specified in this Paragraph 5(b).
(c) Termination of the Old Arrangement. This Agreement shall
supersede any and all terms and conditions of Executive's
employment at the Bank that may be assertable by
Executive pursuant to previous documents, decisions of
the Board, custom and practice, or the like.
(d) Immediate Cessation of Employment. In the event
Executive's employment terminates for cause pursuant to
subparagraph (b), the Bank may further direct Executive
to cease immediately his activities on behalf of the Bank
and to discontinue using any of the Bank's facilities;
provided, however, that in the event of these directions,
the Bank shall continue to provide Executive with salary
and other benefits required by this Agreement until the
expiration of the notice period set forth in sub-
paragraph (b).
(e) Survival. Anything in this Agreement to the contrary not
withstanding, the provisions of Paragraphs 6, 7, 8, 9 and
10 shall survive the termination of Executive's
employment with the Bank.
6. Non-Competition Agreement.
(a) Executive absolutely and unconditionally covenants and
agrees with the Bank that, from the period commencing on
the date of this Agreement and continuing for a period of
one (1) year following the termination of his employment
as provided for in this Agreement, Executive will not,
anywhere in the Restricted Area (as defined in
subparagraph (b) below), either directly or indirectly,
solely or jointly with any other person or persons (a
"Competitor"), as an employee, consultant, or advisor
(whether or not engaged in business for profit), or an
individual proprietor, partner, shareholder (provided
that share ownership of less than 5% of the share voting
power shall be permitted), director, officer, joint
<PAGE>
venturer, investor (provided that such investment will
not be a violation if it is limited to less than 5% of
the ownership of such entity), lender, or in any other
capacity, compete with the business of the Bank (i) as
conducted as of the date of execution of this Agreement;
or (ii) as conducted during the Employment Period; or
(iii) as conducted as of the end of the Employment
Period; or (iv) as proposed to be conducted by the Bank
as of the end of the Employment Period (collectively, the
"Business").
(b) As used in this Section 6: (i) the term "compete" shall
mean engaging , participating, or being involved in any
respect in the business of banking, or furnishing any
aid, assistance or service of any kind to any person in
connection with, the Business; (ii) the term "Restricted
Area" shall refer to a Competitor which has its home
office in Norwalk, or which has a branch or other place
of business in Norwalk and where Executive is based or in
which he spends the majority of his office time.
(c) If a court or arbitration panel concludes through
appropriate proceedings that Executive has breached the
covenant set forth in this Section, the term of the
covenant shall be extended for a term equal to the period
for which Executive is determined to have breached the
covenant.
7. Covenant Not to Disclose. Executive agrees that, by virtue
of the performance of the normal duties of his position with
the Bank and by virtue of the relationship of trust and
confidence between Executive and the Bank, he possesses and
will possess certain data and knowledge of operations of the
Bank which are proprietary in nature and confidential.
Executive covenants and agrees that he will not, at any time,
whether during the term of this Agreement or otherwise,
reveal, divulge or make known to any person(other than the
Bank) or use for his own account, any confidential or
proprietary record, data, trade secret, price policy, rate
structure, personnel policy, method or practice of obtaining
or doing business by the Bank, or any other confidential or
proprietary information whatever (the "Confidential Informa-
tion"), whether or not obtained with the knowledge and
permission of the Bank and whether or not developed, devised
or otherwise created in whole or in part by his efforts.
Executive further covenants and agrees that he shall retain
all such knowledge and information which he shall acquire or
develop respecting such Confidential Information in trust for
the sole benefit of the Bank and its successors and assigns.
8. Non-Interference Covenant. Executive covenants and agrees
that he will not, for a period of one (1) year following the
termination of this Agreement, directly or indirectly, for
whatever reason, whether for his own account or for the
<PAGE>
account of any other person, firm, corporation or other
organization: (i) solicit, employ, or otherwise interfere with
any of the Bank's contracts or relationships with any
employee, officer, director or any independent contractor who
is employed by or associated with the Bank at the time of
termination of this Agreement; or (ii) actively solicit, or
otherwise actively interfere with any of the Bank's contracts
or relationships with any independent contractor, customer,
client or supplier of the Bank.
9. Business Materials and Property Disclosure. All written
materials, records and documents made by Executive or coming
into his possession concerning the business or affairs of the
Bank shall be the sole property of the Bank and, upon termina-
tion of his employment with the Bank, Executive shall deliver
the same to the Bank and shall retain no copies. Executive
shall also return to the Bank all other property in his
possession owned by the Bank upon termination of his
employment.
10. Breach by Executive. It is expressly understood, acknowledged
and agreed by Executive that (i) the restrictions contained in
Sections 6, 7, 8 and 9 of this Agreement represent a
reasonable and necessary protection of the legitimate
interests of the Bank and that his failure to observe and
comply with his covenants and agreements in those Sections
will cause irreparable harm to the Bank; (ii) it is and will
continue to be difficult to ascertain the nature, scope and
extent of the harm; and (iii) a remedy at law for such failure
by Executive will be inadequate. Accordingly, it is the
intention of the parties that, in addition to any other rights
and remedies which the Bank may have in the event of any
breach of said Sections, the Bank shall be entitled, and is
expressly and irrevocably authorized by Executive, to demand
and obtain specific performance, including without limitation,
temporary and permanent injunctive relief, and all other
appropriate equitable relief against Executive in order to
enforce against Executive, or in order to prevent any breach
or any threatened breach by Executive, of the covenants and
agreements contained in those Sections.
11. Change of Control. If during the Employment Period and
thereafter (provided the Executive is then a full-time officer
of the Bank) there is a "Change of Control" of the Bank, the
Executive shall be entitled to receive a severance payment in
consideration of services previously rendered to the Bank.
The severance payment shall be made as a lump sum cash payment
as provided for herein, unless the Executive and Bank enter
into a new employment agreement within two months after the
Change of Control. The amount of such severance payment shall
equal three (3) times the Executive's average annual
compensation which was payable by the Bank and was includible
in the Executive's gross income for federal income tax
purposes with respect to the five (5) most recent taxable
<PAGE>
years ending before the date on which the Change of Control
occurs, less one dollar. Payment under this Section 11 shall
be in lieu of any amount due or payable to the Executive under
Sections 3 and 5. Payment under this Section 11 shall be
paid in full within 90 days following the date of the Change
of Control and shall not be reduced by any compensation which
the Executive may receive from other employment with another
employer after termination of the Executive's employment with
the Bank.
Notwithstanding any other provision of this Agreement or
of any other agreement, understanding or compensation plan,
Bank shall not pay, and Executive shall not receive, any
payment which would be deemed (taking into account all
payments, rights and benefits whether or not under this
Agreement) to be an "excess parachute payment" under Section
280G of the Internal Revenue Code of 1986 as amended, and the
amount of the payment hereunder shall be reduced to the extent
necessary to ensure that Executive receives no "parachute
payment" in connection with such Change of Control.
(a) "Change of Control" shall be deemed to have occurred if:
(1) a Person (as defined below) beneficially
owns (i.e. directly, indirectly or acting through
one or more other persons owns, controls or has
power to vote) 25% or more of any class of voting
securities of Bank;
(2) a Person controls in any manner the election of
more than 20% of the directors of Bank; or
(3) the Board of Directors of Bank determines that a
Person directly or indirectly exercises a
controlling influence over the management or
policies of Bank.
A "Change of Control" shall be deemed not to have
occurred if (A) such event is mandated or directed by a
regulatory body having jurisdiction over the Bank's
operations; or (B) it occurs pursuant to the terms of a plan
for the acquisition of the capital stock of the Bank by a
newly formed bank holding company if in the consummation of
such plan the shareholders of Bank will receive, pro rata, all
of the common stock of such bank holding company; unless, in
such conversion, a Person satisfies sub-paragraph (1), (2) or
(3) above.
A "Person" shall include a natural person, corporation,
or other entity. When two or more persons act as a
partnership, limited partnership, syndicate, or other group
for the purpose of acquiring, holding or disposing of Bank
capital stock, such partnership, syndicate or group shall be
<PAGE>
considered a Person. Beneficial ownership shall be determined
under the then current provisions of Securities Exchange Act
Rule 13d-3; Reg. Section 240. 13d-3, or their successor
provision(s).
This Section 11 shall survive and continue beyond the
term of employment set forth in Section 1 for as long as the
Executive is a full-time officer of the Bank.
12. Regulatory Restrictions. Notwithstanding any provision to the
contrary in this Agreement, the Bank shall not be required
under this Agreement to continue Executive in his position(s)
at the Bank, or to make any payments to Executive, if the
regulatory authorities having jurisdiction over the Bank order
the Executive's removal from the Bank, or if such regulations
determine that any payment would constitute an illegal "excess
parachute" payment under 12 U.S.C. Section 1828(k) and
regulations promulgated thereunder, or an "unsafe or unsound
banking practice" pursuant to 12 U.S.C. Section 1818(b).
13. Arbitration. Any dispute whatsoever relating to the
interpretation, validity or performance of this Agreement, or
any other dispute arising out of this Agreement which cannot
be resolved by any party upon thirty days' written notice to
the other party shall be settled by arbitration in the City of
Norwalk, Connecticut, in accordance with the rules then
prevailing of the American Arbitration Association, and the
judgment upon the award rendered by the arbitrators may be
entered in any court of competent jurisdiction. It is the
purpose of this Agreement, and the intent of the parties
hereto to make the submission to arbitration of any dispute or
controversy arising out of this Agreement, as set forth
hereinabove, an express condition precedent to any legal or
equitable action or proceeding of any nature whatsoever.
14. General Provisions.
(a) All notices required by this Agreement shall be in
writing and shall be sufficiently given if delivered or
mailed by registered or certified mail, return receipt
requested, to the parties at their respective addresses
set forth below. Any party may specify a different
address by written notice to the other, in accordance
with this Section. All notices shall be deemed to have
been given as of the date so delivered or mailed.
To the Bank
Norwalk Savings Society
48 Wall Street
Norwalk, CT 06852
To Executive:
<PAGE>
Robert T. Judson
21 Bald Hill Road
Wilton, CT 06897
(b) Except insofar as Executive may be subject to general
policies adopted by the Bank from time to time, this
Agreement contains the entire agreement between the
parties, and there are no other representations,
warranties, conditions or agreements relating to the
subject matter of this Agreement.
(c) The waiver by any party of any breach or default of any
provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach.
(d) This Agreement may not be changed orally but only by an
agreement in writing duly executed on behalf of the party
against which enforcement of any waiver, change,
modification, consent or discharge is sought.
(e) This Agreement shall be binding upon and inure to the
benefit of the Bank and Executive and their respective
successors, assigns, heirs and legal representatives.
Insofar as Executive is concerned, this Agreement is
personal and Executive's duties under it shall not be
assigned by Executive.
(f) Each of the parties agrees to execute all further
instruments and documents and to take all further action
as the other party may reasonably request in order to
effectuate the terms and purposes of this Agreement.
(g) This Agreement may be executed in one or more
counterparts, all of which taken together shall
constitute one and the same instrument.
(h) This Agreement shall be construed pursuant to and in
accordance with the laws of the State of Connecticut.
(i) Wherever used in this Agreement, the masculine, feminine
and neuter pronouns shall be fully interchangeable, and
the singular shall include the plural where the context
so requires and vice versa.
(j) If any term or provision of this Agreement is held or
deemed to be invalid or unenforceable, in whole or in
part, by a court of competent jurisdiction, such term or
provision shall be ineffective to the extent of such
invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first above written.
NORWALK SAVINGS SOCIETY
By
Chairman of Board of Directors
EXECUTIVE
Robert T. Judson
<PAGE>
Exhibit 10.1.2
AMENDMENT NO. ONE TO EMPLOYMENT AGREEMENT
Amendment No. One, dated as of April 1, 1994, to Employment
Agreement, dated as of March 1, 1994, between NORWALK SAVINGS
SOCIETY, a mutual savings bank organized and existing under the
laws of the State of Connecticut with headquarters located in
Norwalk, Connecticut (the "Bank"), and ROBERT T. JUDSON of Wilton,
Connecticut ("Executive").
RECITALS
WHEREAS, the Bank and the Executive mutually desire to amend
the Employment Agreement, dated as of March 1, 1994.
NOW THEREFORE, the parties agree as follows:
1. Section 5(b) of the Employment Agreement shall be amended
to include the following sentence as the new last sentence of such
Section:
"In no event, however, shall the lump-sum payment
described in the fourth sentence of this Section 5(b) be
equal to or in excess of three times the Executive's then
annual base salary."
2. This Agreement may be executed in one or more counterparts,
all of which taken together shall constitute one and the same
instrument.
3. This Amendment No. One to Employment Agreement shall be
construed pursuant to and in accordance with the laws of the State
of Connecticut.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment
No. One to Employment Agreement on the date first above written.
NORWALK SAVINGS SOCIETY
By
-------------------------------------
Chairman of the Board of Directors
EXECUTIVE
----------------------------------
Robert T. Judson
<PAGE>
Exhibit 10.1.3
AMENDMENT NO. TWO TO EMPLOYMENT AGREEMENT
Amendment No. Two, dated as of November 7, 1995, to Employment
Agreement, dated as of March 1, 1994, amended by Amendment No. One
dated as of April 1, 1994, between NORWALK SAVINGS SOCIETY, a
capital stock savings bank organized and existing under the laws of
the State of Connecticut with headquarters located in Norwalk,
Connecticut (the "Bank"), and ROBERT T. JUDSON of Wilton,
Connecticut ("Executive").
RECITALS
WHEREAS, the Bank and the Executive mutually desire to amend
the Employment Agreement.
NOW THEREFORE, the parties agree as follows:
1. Section 1 of the Agreement shall be amended to provide
that the term of employment shall be extended to March 1, 1999,
unless subsequently extended or sooner terminated as provided in
the Agreement.
2. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and
the same instrument.
3. This Amendment No. Two to Employment Agreement shall be
construed pursuant to and in accordance with the laws of the State
of Connecticut. The Agreement shall otherwise remain in full force
and effect as originally written, except that the Change of Control
provisions of Section 11 have been and are superseded by a separate
agreement regarding change of control between the Executive and the
Bank.
IN WITNESS WHEREOF, the parties have executed this Amendment
No. Two to Employment Agreement on the date first above written.
NORWALK SAVINGS SOCIETY
By
--------------------------------------
Chairman of the Board of Directors
EXECUTIVE
-----------------------------------------
Robert T. Judson
<PAGE>
Exhibit 10.1.4
AMENDMENT NO. THREE TO EMPLOYMENT AGREEMENT
Amendment No. Three, dated as of ________________, 1997, to
Employment Agreement, dated as of March 1, 1994, amended
by Amendment No. One dated as of April 1, 1994, and Amendment No.
Two dated as of November 7, 1995, between NORWALK SAVINGS
SOCIETY, a capital stock savings bank organized and existing under
the laws of the State of Connecticut with headquarters
located in Norwalk, Connecticut (the "Bank"), and ROBERT T. JUDSON
of Wilton, Connecticut ("Executive").
RECITALS
WHEREAS, the Bank and the Executive mutually desire to amend
the Employment Agreement.
NOW THEREFORE, the parties agree as follows:
1. Section 1 of the Agreement shall be amended to provide
that the term of employment shall be extended to
March 1, 2001, unless subsequently extended or sooner terminated as
provided in the Agreement.
2. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute
one and the same instrument.
3. This Amendment No. Three to Employment Agreement shall be
construed pursuant to and in accordance with the
laws of the State of Connecticut. The Agreement shall otherwise
remain in full force and effect as originally written, except
that the Change of Control provisions of Section 11 have been and
are superseded by a separate agreement regarding change
of control between the Executive and the Bank.
IN WITNESS WHEREOF, the parties have executed this Amendment
No. Three to Employment Agreement on the date first
above written.
NORWALK SAVINGS SOCIETY
By
--------------------------------------
Chairman of the Board of Directors
EXECUTIVE
-----------------------------------------
Robert T. Judson
<PAGE>
Exhibit 10.2.1
EMPLOYMENT AGREEMENT
This Employment Agreement, dated as of March 1, 1994, is
between NORWALK SAVINGS SOCIETY, a mutual savings bank organized
and existing under the laws of the State of Connecticut with
headquarters located in Norwalk, Connecticut (the "Bank"), and
CHARLES F. HOWELL of Danbury, Connecticut ("Executive").
RECITALS
Executive has worked for the Bank for approximately 25 years,
most recently as Executive Vice President and Chief Operating
Officer.
The Bank desires to enter into an Employment Agreement with
Executive for several primary reasons: (1) to provide Executive
with additional job security, particularly in the event that the
Bank experiences a change-of-control; (2) to provide further
incentive to Executive in the discharge of his responsibilities to
the Bank; (3) to further define Executive's duties and terms of
employment; and (4) to obtain certain contractual commitments from
Executive not present in the existing, at-will employment
arrangement.
The Executive desires to enter into an Employment Agreement
primarily to obtain contractual commitments from the Bank not
present in his existing, at-will employment arrangement.
The Bank and Executive contemplate that the Bank will: (i)
disclose to Executive information concerning the Bank's business
affairs, including certain confidential information; and (ii)
assist Executive in establishing good will and rapport with certain
customers of the Bank. The use by Executive of this information,
good will and rapport in competing with or in aiding others in
competing with the Bank would have a detrimental effect on future
profitable operations of the Bank.
NOW THEREFORE, in consideration of the mutual promises and
covenants hereinafter described, the parties agree as follows:
1. Term of Employment. The Bank agrees to employ Executive, and
Executive agrees to accept employment with the Bank for a
term commencing on March 1, 1994 and continuing for a period
of three (3) years, unless subsequently extended or sooner
terminated as provided in this Agreement (the "Employment
Period").
2. Duties.
(a) During the Employment Period, Executive shall perform the
duties and exercise the powers relating to the office of
<PAGE>
EXHIBIT 10.2.2
AMENDMENT NO. ONE TO EMPLOYMENT AGREEMENT
Amendment No. One, dated as of April 1, 1994, to Employment
Agreement, dated as of March 1, 1994, between NORWALK SAVINGS
SOCIETY, a mutual savings bank organized and existing under the
laws of the State of Connecticut with headquarters located in
Norwalk, Connecticut (the "Bank"), and CHARLES F. HOWELL of
Danbury, Connecticut ("Executive").
RECITALS
WHEREAS, the Bank and the Executive mutually desire to amend
the Employment Agreement, dated as of March 1, 1994.
NOW THEREFORE, the parties agree as follows:
1. Section 5(b) of the Employment Agreement shall be amended
to include the following sentence as the new last sentence of such
Section:
"In no event, however, shall the lump-sum payment
described in the fourth sentence of this Section 5(b) be
equal to or in excess of three times the Executive's then
annual base salary."
2. This Agreement may be executed in one or more counterparts,
all of which taken together shall constitute one and the same
instrument.
3. This Amendment No. One to Employment Agreement shall be
construed pursuant to and in accordance with the laws of the State
of Connecticut.
IN WITNESS WHEREOF, the parties have executed this Amendment
No. One to Employment Agreement on the date first above written.
NORWALK SAVINGS SOCIETY
By_____________________________________
Chairman of the Board of Directors
EXECUTIVE
__________________________________
Charles F. Howell
<PAGE>
EXHIBIT 10.2.3
AMENDMENT NO. TWO TO EMPLOYMENT AGREEMENT
Amendment No. Two, dated as of November 7, 1995, to Employment
Agreement, dated as of March 1, 1994, amended by Amendment No. One
dated as of April 1, 1994, between NORWALK SAVINGS SOCIETY, a
capital stock savings bank organized and existing under the laws of
the State of Connecticut with headquarters located in Norwalk,
Connecticut (the "Bank"), and CHARLES F. HOWELL of Danbury,
Connecticut ("Executive").
RECITALS
WHEREAS, the Bank and the Executive mutually desire to amend
the Employment Agreement.
NOW THEREFORE, the parties agree as follows:
1. Section 1 of the Agreement shall be amended to provide
that the term of employment shall be extended to March 1, 1999,
unless subsequently extended or sooner terminated as provided in
the Agreement.
2. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and
the same instrument.
3. This Amendment No. Two to Employment Agreement shall be
construed pursuant to and in accordance with the laws of the State
of Connecticut. The Agreement shall otherwise remain in full force
and effect as originally written, except that the Change of Control
provisions of Section 11 have been and are superseded by a separate
agreement regarding change of control between the Executive and the
Bank.
IN WITNESS WHEREOF, the parties have executed this Amendment
No. Two to Employment Agreement on the date first above written.
NORWALK SAVINGS SOCIETY
By _____________________________________
Chairman of the Board of Directors
EXECUTIVE
_________________________________________
Charles F. Howell
<PAGE>
EXHIBIT 10.2.4
AMENDMENT NO. THREE TO EMPLOYMENT AGREEMENT
Amendment No. Three, dated as of ________________, 1997, to
Employment Agreement, dated as of March 1, 1994, amended by
Amendment No. One dated as of April 1, 1994, and Amendment No. Two
dated as of November 7, 1995, between NORWALK SAVINGS SOCIETY, a
capital stock savings bank organized and existing under the laws of
the State of Connecticut with headquarters located in Norwalk,
Connecticut (the "Bank"), and CHARLES F. HOWELL of Danbury,
Connecticut ("Executive").
RECITALS
WHEREAS, the Bank and the Executive mutually desire to amend
the Employment Agreement.
NOW THEREFORE, the parties agree as follows:
1. Section 1 of the Agreement shall be amended to provide
that the term of employment shall be extended to March 1, 2001,
unless subsequently extended or sooner terminated as provided in
the Agreement.
2. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and
the same instrument.
3. This Amendment No. Three to Employment Agreement shall be
construed pursuant to and in accordance with the laws of the State
of Connecticut. The Agreement shall otherwise remain in full force
and effect as originally written, except that the Change of Control
provisions of Section 11 have been and are superseded by a separate
agreement regarding change of control between the Executive and the
Bank.
IN WITNESS WHEREOF, the parties have executed this Amendment
No. Three to Employment Agreement on the date first above written.
NORWALK SAVINGS SOCIETY
By _____________________________________
Chairman of the Board of Directors
EXECUTIVE
_________________________________________
Charles F. Howell
<PAGE>
EXHIBIT 10.3.1
EMPLOYMENT AGREEMENT
This Employment Agreement, dated as of March 1, 1994, is
between NORWALK SAVINGS SOCIETY, a mutual savings bank organized
and existing under the laws of the State of Connecticut with a
headquarters located in Norwalk, Connecticut (the "Bank"), and
JEREMIAH T. DORNEY of Wilton, Connecticut ("Executive").
RECITALS
Executive has worked for the Bank for approximately 31 years,
most recently as Senior Vice President and Secretary.
The Bank desires to enter into an Employment Agreement with
Executive for several primary reasons: (1) to provide Executive
with additional job security, particularly in the event that the
Bank experiences a change-of-control; (2) to provide further
incentive to Executive in the discharge of his responsibilities to
the Bank; (3) to further define Executive's duties and terms of
employment; and (4) to obtain certain contractual commitments from
Executive not present in the existing, at-will employment
arrangement.
The Executive desires to enter into an Employment Agreement
primarily to obtain contractual commitments from the Bank not
present in his existing, at-will employment arrangement.
The Bank and Executive contemplate that the Bank will: (i)
disclose to Executive information concerning the Bank's business
affairs, including certain confidential information; and (ii)
assist Executive in establishing good will and rapport with certain
customers of the Bank. The use by Executive of this information,
good will and rapport in competing with or in aiding others in
competing with the Bank would have a detrimental effect on future
profitable operations of the Bank.
NOW THEREFORE, in consideration of the mutual promises and
covenants hereinafter described, the parties agree as follows:
1. Term of Employment. The Bank agrees to employ Executive, and
Executive agrees to accept employment with the Bank for a
term commencing on March 1, 1994 and continuing for a period
of three (3) years, unless subsequently extended or sooner
terminated as provided in this Agreement (the "Employment
Period").
2. Duties.
(a) During the Employment Period, Executive shall perform the
duties and exercise the powers relating to the office of
Senior Vice President and Secretary (provided such
designations may change during the course of the
<PAGE>
Employment Period) as the Bank shall from time to time
assign to him. All duties assigned shall be consistent
with the customary duties of persons exercising the
functions of the above-described offices at a
Connecticut-chartered savings bank, and, if the Bank
converts from mutual to capital stock form, at a capital
stock savings bank.
(b) During the Employment Period, Executive shall devote his
entire business time, best efforts and ability to the
business of the Bank, shall faithfully and diligently
perform his duties, shall comply in all material respects
with the overall policies established by the Board of
Directors of the Bank and shall do all that is reasonably
in his power to promote, develop and extend the business
of the Bank.
3. Compensation and Benefits.
(a) Salary. The Bank shall pay Executive as compensation
for his services during the Employment Period an annual
base salary of Eighty-Eight Thousand Six Hundred Dollars
($88,600.00). Salary payments shall be made in equal
increments consistent with the Bank's standard payroll
practices for its officers. The base annual salary shall
be reviewed by the Directors each year during the
Employment Period and set by the Directors in an amount
not less than the prior year's salary; any increase in
annual salary may take the form of a contingent increase
based upon achievement of articulated personal or
corporate goals, or both.
(b) Expenses. Upon submission of appropriate invoices or
vouchers, the Bank shall pay or reimburse Executive for
all reasonable expenses incurred by him in the
performance of his duties under this Agreement in
furthering the business, and in keeping with the
policies, of the Bank.
(c) Vacation. Executive shall be entitled to four (4) weeks
paid vacation each contract year, to be taken each year
at a time or times as shall be mutually agreed upon by
the Bank and Executive and consistent with applicable
regulatory requirements. If Executive fails to use all
of his vacation time during a particular calendar year,
the unused portion shall not be carried over to the
subsequent year nor shall he be paid additionally for
such unused time.
(d) Incentive Compensation. The Bank's Board of Directors,
in its sole discretion, may authorize the payment of cash
incentive compensation to Executive from time to time.
Payment of incentive compensation will not set a
precedent requiring or suggesting that similar incentive
<PAGE>
compensation will be paid in the future.
(e) Insurance Policies
i. Term Life Insurance. During the Employment Period,
Bank shall provide term life insurance coverage for
Executive in such form and amount as is not less
favorable than that coverage provided by the Bank
to other Bank employees from time to time
generally.
ii. Key Man Insurance. During the Employment Period,
Executive shall permit the Bank to insure his life
under a policy or policies of life insurance issued
by an insurance company or companies selected by
the Bank, and to name the Bank as sole beneficiary
thereunder. Executive agrees to submit to any
physical examinations which may be reasonably
required in connection with such policies.
iii. Disability Insurance. During the Employment
Period, Bank shall provide Executive with
disability insurance coverage in such form and
amount consistent with that provided to other Bank
employees generally.
(f) Benefits. During the Employment Period, Executive shall
be entitled to and shall be included in any employee
welfare and retirement plan or program of the Bank
available generally to its employees and/or officers
including, without limitation, plans for hospital
services, medical services benefits, sick pay, dental and
other health plans.
(g) Stock Plans. During the Employment Period, Executive may
be included in any stock incentive or stock compensation
plan as the Board of Directors of the Bank may determine.
4. Disability. If during any period in which Executive shall
have continued to perform his duties as an employee of the
Bank, Executive shall incur a total or partial disability (as
defined in subparagraph (d) below), then until the earlier of
(a) 180 days after the date such disability is incurred, or
(b) the expiration of the term of the Employment Period
(either shall be termed the "Disability Period"), the Bank
shall pay Executive during the Disability Period on the basis
of his then-regular salary (any payments that Executive does
or would otherwise receive pursuant to the Bank's disability
coverage for employees generally for this period of disability
shall be set off against these payments).
(a) If Executive's total disability shall terminate prior to
the expiration of the Employment Period, then Executive
shall return to full and active employment with the Bank
<PAGE>
under the terms of this Agreement; provided that if he
shall again become disabled within a period of three (3)
months after such return, other than by reason of an
event which is not causatively related to his original
disability, then Executive shall be deemed to have been
continuously disabled from the date he incurred his
original disability;
(b) In the event Executive shall incur a partial disability
(as defined in (d) below), then during the period of the
partial disability, the compensation to be paid to him in
consideration of his services to the Bank shall be
equitably adjusted to reflect the time that he is able to
devote to the affairs of and the value of the service he
is able to impart to the Bank; provided, however, that
during the Disability Period, the compensation shall not
be less than Executive would have received under this
Section 4 had he been totally rather than partially
disabled (this is to say, he shall receive his then-
regular salary for that Disability Period);
(c) Payments to Executive under this Section 4 shall be
reduced by the amounts, if any, as may be payable to him
by reason of his disability under policies of insurance
maintained and/or paid for by the Bank;
(d) As used in this Agreement, the term "total disability"
shall mean a disability such that, for physical or mental
reasons, Executive is unable to perform substantially his
obligations hereunder for the reasonably foreseeable
future (not less than 90 days), as determined by the
Bank's Board of Directors after considering competent
medical evidence. As used in this Agreement, the term
"partial disability" shall mean a disability, other than
a total disability, such that, for physical or mental
reasons, Executive is unable to perform a material
portion of his usual duties at the Bank on a full-time
basis. As determined by the Bank's Board of Directors
after considering competent medical evidence.
5. Termination.
(a) Termination by Death. If Executive dies during the
Employment Period, the Bank's obligations under this
Agreement shall terminate immediately and Executive's
estate shall be entitled to all arrearages of salary and
expenses but shall not be entitled to further
compensation.
(b) Termination With or Without Cause. This Agreement
and Executive's employment with the Bank may be terminated
for cause at any time upon thirty (30) days advance
written notice from the Bank to Executive, which notice
shall set forth the facts on which the termination is
<PAGE>
based. Upon termination, Executive shall be entitled to
all arrearages of salary and expenses, but shall not be
entitled to further compensation or benefits. As used in
this Agreement, and without limitation, "cause" shall
include: (i) Executive's conviction by any trial court of
any crime involving fraud, embezzlement, theft or
dishonesty; (ii) serious willful misconduct by Executive,
including personal dishonesty in connection with Bank
business or customers or the breach of a fiduciary duty
to the Bank or its customers; (iii) the total disability
of Executive, as defined in Paragraph 4 above; (iv) any
material breach by Executive of this Agreement; or (v) if
the Bank's regulatory authorities issue an order removing
Executive from his positions at the Bank, or if such
regulatory authorities inform the Directors that
continuation of Executive in his position at the Bank
would constitute an unsafe and unsound banking practice.
Executive's employment may be terminated by the Bank
without cause at any time, provided that, in such event,
Bank shall pay Executive, in one lump-sum payment paid
within 30 days after such termination, an amount equal to
the higher of the following: (i) that amount which is
equal to the aggregate amount of salary payments that
would be made to Executive for the remainder of the
Employment Period, calculated at the Executive's then
annual base salary; or (ii) that amount which is equal to
the number of Executive's full years of service to the
Bank at the time of termination multiplied by a number
derived by dividing his then annual base salary by
twenty-six (26). In addition, if Executive is terminated
without cause, the Bank shall either continue to carry
Executive at no cost to him under the Bank's employee
hospital, medical services, dental and other health plans
for the remainder of the Employment Period, or, if he is
not eligible for continued coverage under such plans, pay
the cost of similar coverage for Executive pursuant to
COBRA or similar private insurance plans offering
comparable coverage. Also, if Executive is terminated
without cause, the Bank agrees to provide Executive, at
his request, with outplacement services for a period not
to exceed one year after the date of termination,
provided the Bank's obligation to provide these services
shall not exceed a maximum aggregate cost of $25,000.
Executive, should he elect to receive such services,
agrees to pursue possible employment opportunities
diligently and in good faith, and to cooperate in all
reasonable respects with the requests and instructions of
the outplacement services firm. A termination "without
cause" shall mean any termination not satisfying the
"cause" criteria specified in this Paragraph 5(b).
(c) Termination of the Old Arrangement. This Agreement shall
supersede any and all terms and conditions of Executive's
employment at the Bank that may be assertable by
<PAGE>
Executive pursuant to previous documents, decisions of
the Board, custom and practice, or the like.
(d) Immediate Cessation of Employment. In the event
Executive's employment terminates pursuant to
subparagraph (b), the Bank may further direct Executive
to cease immediately his activities on behalf of the Bank
and to discontinue using any of the Bank's facilities;
provided, however, that in the event of these directions,
the Bank shall continue to provide Executive with salary
and other benefits required by this Agreement until the
expiration of the notice period set forth in sub-
paragraph (b).
(e) Survival. Anything in this Agreement to the contrary not
withstanding, the provisions of Paragraphs 6, 7, 8, 9 and
10 shall survive the termination of Executive's
employment with the Bank.
6. Non-Competition Agreement.
(a) Executive absolutely and unconditionally covenants and
agrees with the Bank that, from the period commencing on
the date of this Agreement and continuing for a period of
one (1) year following the termination of his employment
as provided for in this Agreement, Executive will not,
anywhere in the Restricted Area (as defined in
subparagraph (b) below), either directly or indirectly,
solely or jointly with any other person or persons (a
"Competitor"), as an employee, consultant, or advisor
(whether or not engaged in business for profit), or an
individual proprietor, partner, shareholder (provided
that share ownership of less than 5% of the share voting
power shall be permitted), director, officer, joint
venturer, investor (provided that such investment will
not be a violation if it is limited to less than 5% of
the ownership of such entity), lender, or in any other
capacity, compete with the business of the Bank (i) as
conducted as of the date of execution of this Agreement;
or (ii) as conducted during the Employment Period; or
(iii) as conducted as of the end of the Employment
Period; or (iv) as proposed to be conducted by the Bank
as of the end of the Employment Period (collectively, the
"Business").
(b) As used in this Section 6: (i) the term "compete" shall
mean engaging , participating, or being involved in any
respect in the business of banking, or furnishing any
aid, assistance or service of any kind to any person in
connection with, the Business; (ii) the term "Restricted
Area" shall refer to a Competitor which has its home
office in Norwalk, or which has a branch or other place
of business in Norwalk and where Executive is based or in
which he spends the majority of his office time.
<PAGE>
(c) If a court or arbitration panel concludes through
appropriate proceedings that Executive has breached the
covenant set forth in this Section, the term of the
covenant shall be extended for a term equal to the period
for which Executive is determined to have breached the
covenant.
7. Covenant Not to Disclose. Executive agrees that, by virtue
of the performance of the normal duties of his position with
the Bank and by virtue of the relationship of trust and
confidence between Executive and the Bank, he possesses and
will possess certain data and knowledge of operations of the
Bank which are proprietary in nature and confidential.
Executive covenants and agrees that he will not, at any time,
whether during the term of this Agreement or otherwise,
reveal, divulge or make known to any person(other than the
Bank) or use for his own account, any confidential or
proprietary record, data, trade secret, price policy, rate
structure, personnel policy, method or practice of obtaining
or doing business by the Bank, or any other confidential or
proprietary information whatever (the "Confidential Information"),
whether or not obtained with the knowledge and
permission of the Bank and whether or not developed, devised
or otherwise created in whole or in part by his efforts.
Executive further covenants and agrees that he shall retain
all such knowledge and information which he shall acquire or
develop respecting such Confidential Information in trust for
the sole benefit of the Bank and its successors and assigns.
8. Non-Interference Covenant. Executive covenants and agrees
that he will not, for a period of one (1) year following the
termination of this Agreement, directly or indirectly, for
whatever reason, whether for his own account or for the
account of any other person, firm, corporation or other
organization: (i) solicit, employ, or otherwise interfere with
any of the Bank's contracts or relationships with any
employee, officer, director or any independent contractor who
is employed by or associated with the Bank at the time of
termination of this Agreement; or (ii) actively solicit, or
otherwise actively interfere with any of the Bank's contracts
or relationships with any independent contractor, customer,
client or supplier of the Bank.
9. Business Materials and Property Disclosure. All written
materials, records and documents made by Executive or coming
into his possession concerning the business or affairs of the
Bank shall be the sole property of the Bank and, upon termination
of his employment with the Bank, Executive shall deliver
the same to the Bank and shall retain no copies. Executive
shall also return to the Bank all other property in his
possession owned by the Bank upon termination of his
employment.
10. Breach by Executive. It is expressly understood, acknowledged
<PAGE>
and agreed by Executive that (i) the restrictions contained in
Sections 6, 7, 8 and 9 of this Agreement represent a
reasonable and necessary protection of the legitimate
interests of the Bank and that his failure to observe and
comply with his covenants and agreements in those Sections
will cause irreparable harm to the Bank; (ii) it is and will
continue to be difficult to ascertain the nature, scope and
extent of the harm; and (iii) a remedy at law for such failure
by Executive will be inadequate. Accordingly, it is the
intention of the parties that, in addition to any other rights
and remedies which the Bank may have in the event of any
breach of said Sections, the Bank shall be entitled, and is
expressly and irrevocably authorized by Executive, to demand
and obtain specific performance, including without limitation,
temporary and permanent injunctive relief, and all other
appropriate equitable relief against Executive in order to
enforce against Executive, or in order to prevent any breach
or any threatened breach by Executive, of the covenants and
agreements contained in those Sections.
11. Change of Control. If during the Employment Period and
thereafter (provided the Executive is then a full-time officer
of the Bank) there is a "Change of Control" of the Bank, the
Executive shall be entitled to receive a severance payment in
consideration of services previously rendered to the Bank.
The severance payment shall be made as a lump sum cash payment
as provided for herein, unless the Executive and Bank enter
into a new employment agreement within two months after the
Change of Control. The amount of such severance payment shall
equal three (3) times the Executive's average annual
compensation which was payable by the Bank and was includible
in the Executive's gross income for federal income tax
purposes with respect to the five (5) most recent taxable
years ending before the date on which the Change of Control
occurs, less one dollar. Payment under this Section 11 shall
be in lieu of any amount due or payable to the Executive under
Sections 3 and 5. Payment under this Section 11 shall be
paid in full within 90 days following the date of the Change
of Control and shall not be reduced by any compensation which
the Executive may receive from other employment with another
employer after termination of the Executive's employment with
the Bank.
Notwithstanding any other provision of this Agreement or
of any other agreement, understanding or compensation plan,
Bank shall not pay, and Executive shall not receive, any
payment which would be deemed (taking into account all
payments, rights and benefits whether or not under this
Agreement) to be an "excess parachute payment" under Section
280G of the Internal Revenue Code of 1986, as amended, and the
amount of the payment hereunder shall be reduced to the extent
necessary to ensure that Executive receives no "parachute
payment" in connection with such Change of Control.
<PAGE>
(a) "Change of Control" shall be deemed to have occurred if:
(1) a Person (as defined below) beneficially
owns (i.e. directly, indirectly or acting through
one or more other persons owns, controls or has
power to vote) 25% or more of any class of voting
securities of Bank;
(2) a Person controls in any manner the election of
more than 20% of the directors of Bank; or
(3) the Board of Directors of Bank determines that a
Person directly or indirectly exercises a
controlling influence over the management or
policies of Bank.
A "Change of Control" shall be deemed not to have
occurred if (A) such event is mandated or directed by a
regulatory body having jurisdiction over the Bank's
operations; or (B) it occurs pursuant to the terms of a plan
for the acquisition of the capital stock of the Bank by a
newly formed bank holding company if in the consummation of
such plan the shareholders of Bank will receive, pro rata, all
of the common stock of such bank holding company; unless, in
such conversion, a Person satisfies sub-paragraph (1), (2) or
(3) above.
A "Person" shall include a natural person, corporation,
or other entity. When two or more persons act as a
partnership, limited partnership, syndicate, or other group
for the purpose of acquiring, holding or disposing of Bank
capital stock, such partnership, syndicate or group shall be
considered a Person. Beneficial ownership shall be determined
under the then current provisions of Securities Exchange Act
Rule 13d-3; Reg. Section 240.13d-3, or their successor
provision(s).
This Section 11 shall survive and continue beyond the
term of employment set forth in Section 1 for as long as the
Executive is a full-time officer of the Bank.
12. Regulatory Restrictions. Notwithstanding any provision to the
contrary in this Agreement, the Bank shall not be required
under this Agreement to continue Executive in his position(s)
at the Bank, or to make any payments to Executive, if the
regulatory authorities having jurisdiction over the Bank order
the Executive's removal from the Bank, or if such regulations
determine that any payment would constitute an illegal "excess
parachute" payment under 12 U.S.C. Section 1828(k) and
regulations promulgated thereunder, or an "unsafe or unsound
banking practice" pursuant to 12 U.S.C. Section 1818(b).
13. Arbitration. Any dispute whatsoever relating to the
interpretation, validity or performance of this Agreement, or
<PAGE>
any other dispute arising out of this Agreement which cannot
be resolved by any party upon thirty days' written notice to
the other party shall be settled by arbitration in the City of
Norwalk, Connecticut, in accordance with the rules then
prevailing of the American Arbitration Association, and the
judgment upon the award rendered by the arbitrators may be
entered in any court of competent jurisdiction. It is the
purpose of this Agreement, and the intent of the parties
hereto to make the submission to arbitration of any dispute or
controversy arising out of this Agreement, as set forth
hereinabove, an express condition precedent to any legal or
equitable action or proceeding of any nature whatsoever.
14. General Provisions.
(a) All notices required by this Agreement shall be in
writing and shall be sufficiently given if delivered or
mailed by registered or certified mail, return receipt
requested, to the parties at their respective addresses
set forth below. Any party may specify a different
address by written notice to the other, in accordance
with this Section. All notices shall be deemed to have
been given as of the date so delivered or mailed.
To the Bank
Norwalk Savings Society
48 Wall Street
Norwalk, CT 06852
To Executive:
Jeremiah T. Dorney
11 Blueberry Hill Place
Wilton, CT 06897
(b) Except insofar as Executive may be subject to general
policies adopted by the Bank from time to time, this
Agreement contains the entire agreement between the
parties, and there are no other representations,
warranties, conditions or agreements relating to the
subject matter of this Agreement.
(c) The waiver by any party of any breach or default of any
provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach.
(d) This Agreement may not be changed orally but only by an
agreement in writing duly executed on behalf of the party
against which enforcement of any waiver, change,
modification, consent or discharge is sought.
(e) This Agreement shall be binding upon and inure to the
benefit of the Bank and Executive and their respective
<PAGE>
successors, assigns, heirs and legal representatives.
Insofar as Executive is concerned, this Agreement is
personal and Executive's duties under it shall not be
assigned by Executive.
(f) Each of the parties agrees to execute all further
instruments and documents and to take all further action
as the other party may reasonably request in order to
effectuate the terms and purposes of this Agreement.
(g) This Agreement may be executed in one or more
counterparts, all of which taken together shall
constitute one and the same instrument.
(h) This Agreement shall be construed pursuant to and in
accordance with the laws of the State of Connecticut.
(i) Wherever used in this Agreement, the masculine, feminine
and neuter pronouns shall be fully interchangeable, and
the singular shall include the plural where the context
so requires and vice versa.
(j) If any term or provision of this Agreement is held or
deemed to be invalid or unenforceable, in whole or in
part, by a court of competent jurisdiction, such term or
provision shall be ineffective to the extent of such
invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first above written.
NORWALK SAVINGS SOCIETY
By
Chairman of Board of Directors
EXECUTIVE
Jeremiah T. Dorney
<PAGE>
Exhibit 10.3.2
AMENDMENT NO. ONE TO EMPLOYMENT AGREEMENT
Amendment No. One, dated as of April 1, 1994, to Employment Agreement,
dated as of March 1, 1994, between NORWALK SAVINGS SOCIETY, a mutual savings
bank organized and existing under the laws of the State of Connecticut with
headquarters located in Norwalk, Connecticut (the "Bank"), and JEREMIAH T.
DORNEY of Wilton, Connecticut ("Executive").
RECITALS
WHEREAS, the Bank and the Executive mutually desire to amend the Employment
Agreement, dated as of March 1, 1994.
NOW THEREFORE, the parties agree as follows:
1. Section 5(b) of the Employment Agreement shall be amended to include the
following sentence as the new last sentence of such Section:
"In no event, however, shall the lump-sum payment
described in the fourth sentence of this Section 5(b) be
equal to or in excess of three times the Executive's then
annual base salary."
2. This Agreement may be executed in one or more counterparts, all of which
taken together shall constitute one and the same instrument .
3. This Amendment No. One to Employment Agreement shall be construed
pursuant to and in accordance with the laws of the State of Connecticut.
IN WITNESS WHEREOF, the parties have executed this Amendment No. One to
Employment Agreement on the date first above written.
NORWALK SAVINGS SOCIETY
By
-------------------------------------
Chairman of the Board of Directors
EXECUTIVE
-------------------------------------
Jeremiah T. Dorney
<PAGE>
Exhibit 10.3.3
AMENDMENT NO. TWO TO EMPLOYMENT AGREEMENT
Amendment No. Two, dated as of November 7, 1995, to Employment Agreement,
dated as of March 1, 1994, amended by Amendment No. One dated as of April 1,
1994, between NORWALK SAVINGS SOCIETY, a capital stock savings bank organized
and existing under the laws of the State of Connecticut with headquarters
located in Norwalk, Connecticut (the "Bank"), and JERE T. DORNEY of Wilton,
Connecticut ("Executive").
RECITALS
WHEREAS, the Bank and the Executive mutually desire to amend the Employment
Agreement.
NOW THEREFORE, the parties agree as follows:
1. Section 1 of the Agreement shall be amended to provide that the term
of employment shall be extended to March 1, 1999, unless subsequently extended
or sooner terminated as provided in the Agreement.
2. This Agreement may be executed in one or more counterparts, all of
which taken together shall constitute one and the same instrument.
3. This Amendment No. Two to Employment Agreement shall be construed
pursuant to and in accordance with the laws of the State of Connecticut. The
Agreement shall otherwise remain in full force and effect as originally written,
except that the Change of Control provisions of Section 11 have been and are
superseded by a separate agreement regarding change of control between the
Executive and the Bank.
IN WITNESS WHEREOF, the parties have executed this Amendment No. Two to
Employment Agreement on the date first above written.
NORWALK SAVINGS SOCIETY
By
----------------------------------
Chairman of the Board of Directors
EXECUTIVE
----------------------------------
Jere T. Dorney
<PAGE>
Exhibit 10.3.4
AMENDMENT NO. THREE TO EMPLOYMENT AGREEMENT
Amendment No. Three, dated as of ______________, 1997, to Employment
Agreement, dated as of March 1, 1994, amended by Amendment No. One dated as of
April 1, 1994, and Amendment No. Two dated as of November 7, 1995, between
NORWALK SAVINGS SOCIETY, a capital stock savings bank organized and existing
under the laws of the State of Connecticut with headquarters located in Norwalk,
Connecticut (the "Bank"), and JERE T. DORNEY of Wilton, Connecticut
("Executive").
RECITALS
WHEREAS, the Bank and the Executive mutually desire to amend the Employment
Agreement.
NOW THEREFORE, the parties agree as follows:
1. Section 1 of the Agreement shall be amended to provide that the term
of employment shall be extended to March 1, 2001, unless subsequently extended
or sooner terminated as provided in the Agreement.
2. This Agreement may be executed in one or more counterparts, all of
which taken together shall constitute one and the same instrument.
3. This Amendment No. Three to Employment Agreement shall be construed
pursuant to and in accordance with the laws of the State of Connecticut. The
Agreement shall otherwise remain in full force and effect as originally written,
except that the Change of Control provisions of Section 11 have been and are
superseded by a separate agreement regarding change of control between the
Executive and the Bank.
IN WITNESS WHEREOF, the parties have executed this Amendment No. Three to
Employment Agreement on the date first above written.
NORWALK SAVINGS SOCIETY
By
----------------------------------
Chairman of the Board of Directors
EXECUTIVE
----------------------------------
Jere T. Dorney
<PAGE>
Exhibit 10.4.1
EMPLOYMENT AGREEMENT
This Employment Agreement, dated as of March 1, 1994, is between NORWALK
SAVINGS SOCIETY, a mutual savings bank organized and existing under the laws of
the State of Connecticut with a headquarters located in Norwalk, Connecticut
(the "Bank"), and MARCUS I. BRAVERMAN of Yorktown Heights, New York
("Executive").
RECITALS
The Bank desires to enter into an Employment Agreement with Executive for
several primary reasons: (1) to provide Executive with job security,
particularly in the event that the Bank experiences a change-of-control; (2) to
provide incentive to Executive in the discharge of his responsibilities to the
Bank; (3) to define Executive's duties and terms of employment; and (4) to
obtain certain contractual commitments from Executive.
The Executive desires to enter into an Employment Agreement primarily to
obtain contractual commitments from the Bank.
The Bank and Executive contemplate that the Bank will: (i) disclose to
Executive information concerning the Bank's business affairs, including certain
confidential information; and (ii) assist Executive in establishing good will
and rapport with certain customers of the Bank. The use by Executive of this
information, good will and rapport in competing with or in aiding others in
competing with the Bank would have a detrimental effect on future profitable
operations of the Bank.
NOW THEREFORE, in consideration of the mutual promises and covenants
hereinafter described, the parties agree as follows:
1. Term of Employment. The Bank agrees to employ Executive, and Executive
agrees to accept employment with the Bank for a term commencing on March 1,
1994 and continuing for a period of one (1) year, unless subsequently
extended or sooner terminated as provided in this Agreement (the
"Employment Period").
2. Duties.
(a) During the Employment Period, Executive shall perform the duties and
exercise the powers relating to the office of Senior Vice President
and Chief Financial Officer (provided such designations may change
during the course of the Employment Period) as the Bank shall from
time to time assign to him. All duties assigned shall be consistent
with the customary duties of persons exercising the functions of the
above-described offices at a Connecticut-chartered savings bank, and,
if the Bank converts from mutual to capital stock form, at a capital
stock savings bank.
<PAGE>
(b) During the Employment Period, Executive shall devote his entire
business time, best efforts and ability to the business of the Bank,
shall faithfully and diligently perform his duties, shall comply in
all material respects with the overall policies established by the
Board of Directors of the Bank and shall do all that is reasonably in
his power to promote, develop and extend the business of the Bank.
3. Compensation and Benefits.
(a) Salary. The Bank shall pay Executive as compensation for his
services during the Employment Period an annual base salary of Eighty-
Five Thousand Dollars ($85,000.00).
Salary payments shall be made in equal increments consistent with the
Bank's standard payroll practices for its officers. The base annual
salary shall be reviewed by the Directors each year during the
Employment Period and set by the Directors in an amount not less than
the prior year's salary; any increase in annual salary may take the
form of a contingent increase based upon achievement of articulated
personal or corporate goals, or both.
(b) Expenses. Upon submission of appropriate invoices or vouchers, the
Bank shall pay or reimburse Executive for all reasonable expenses
incurred by him in the performance of his duties under this Agreement
in furthering the business, and in keeping with the policies, of the
Bank.
(c) Vacation. Executive shall be entitled to four (4) weeks paid vacation
each contract year, to be taken each year at a time or times as shall
be mutually agreed upon by the Bank and Executive and consistent with
applicable regulatory requirements. If Executive fails to use all of
his vacation time during a particular calendar year, the unused
portion shall not be carried over to the subsequent year nor shall he
be paid additionally for such unused time.
(d) Incentive Compensation. The Bank's Board of Directors, in its sole
discretion, may authorize the payment of cash incentive compensation
to Executive from time to time. Payment of incentive compensation will
not set a precedent requiring or suggesting that similar incentive
compensation will be paid in the future.
(e) Insurance Policies
i. Term Life Insurance. During the Employment Period, Bank shall
provide term life insurance coverage for Executive in such form
and amount as is not less
<PAGE>
favorable than that coverage provided by the Bank to other Bank
employees from time to time generally.
ii. Key Man Insurance. During the Employment Period, Executive shall
permit the Bank to insure his life under a policy or policies of
life insurance issued by an insurance company or companies
selected by the Bank, and to name the Bank as sole beneficiary
thereunder. Executive agrees to submit to any physical
examinations which may be reasonably required in connection with
such policies.
iii. Disability Insurance. During the Employment Period, Bank shall
provide Executive with disability insurance coverage in such form
and amount consistent with that provided to other Bank employees
generally.
(f) Benefits. During the Employment Period, Executive shall be entitled
to and shall be included in any employee welfare and retirement plan
or program of the Bank available generally to its employees and/or
officers including, without limitation, plans for hospital services,
medical services benefits, sick pay, dental and other health plans.
(g) Stock Plan. During the Employment Period, Executive may be included
in any stock incentive or stock compensation plan as the Board of
Directors of the Bank may determine.
4. Disability. If during any period in which Executive shall have continued
to perform his duties as an employee of the Bank, Executive shall incur a
total or partial disability (as defined in subparagraph (d) below), then
until the earlier of (a) 180 days after the date such disability is
incurred, or (b) the expiration of the term of the Employment Period
(either shall be termed the "Disability Period"), the Bank shall pay
Executive during the Disability Period on the basis of his then-regular
salary (any payments that Executive does or would otherwise receive
pursuant to the Bank's disability coverage for employees generally for this
period of disability shall be set off against these payments).
(a) If Executive's total disability shall terminate prior to the
expiration of the Employment Period, then Executive shall return to
full and active employment with the Bank under the terms of this
Agreement; provided that if he shall again become disabled within a
period of three (3) months after such return, other than by reason of
an event which is not causatively related to his original disability,
then Executive shall be deemed to have been continuously disabled from
the date he incurred his original disability;
<PAGE>
(b) In the event Executive shall incur a partial disability (as defined in
(d) below), then during the period of the partial disability, the
compensation to be paid to him in consideration of his services to the
Bank shall be equitably adjusted to reflect the time that he is able
to devote to the affairs of and the value of the service he is able to
impart to the Bank; provided, however, that during the Disability
Period, the compensation shall not be less than Executive would have
received under this Section 4 had he been totally rather than
partially disabled (this is to say, he shall receive his then-regular
salary for that Disability Period);
(c) Payments to Executive under this Section 4 shall be reduced by the
amounts, if any, as may be payable to him by reason of his disability
under policies of insurance maintained and/or paid for by the Bank;
(d) As used in this Agreement, the term "total disability" shall mean a
disability such that, for physical or mental reasons, Executive is
unable to perform substantially his obligations hereunder for the
reasonably foreseeable future (not less than 90 days), as determined
by the Bank's Board of Directors after considering competent medical
evidence. As used in this Agreement, the term "partial disability"
shall mean a disability, other than a total disability, such that, for
physical or mental reasons, Executive is unable to perform a material
portion of his usual duties at the Bank on a full-time basis. As
determined by the Bank's Board of Directors after considering
competent medical evidence.
5. Termination.
(a) Termination by Death. If Executive dies during the Employment Period,
the Bank's obligations under this Agreement shall terminate
immediately and Executive's estate shall be entitled to all arrearages
of salary and expenses but shall not be entitled to further
compensation.
(b) Termination With or Without Cause. This Agreement and Executive's
employment with the Bank may be terminated for cause at any time upon
thirty (30) days advance written notice from the Bank to Executive,
which notice shall set forth the facts on which the termination is
based. Upon termination, Executive shall be entitled to all arrearages
of salary and expenses, but shall not be entitled to further
compensation or benefits. As used in this Agreement, and without
limitation, "cause" shall include: (i) Executive's conviction by any
trial court of any crime involving fraud, embezzlement, theft or
dishonesty; (ii) serious willful misconduct by Executive,
<PAGE>
including personal dishonesty in connection with Bank business or
customers or the breach of a fiduciary duty to the Bank or its
customers; (iii) the total disability of Executive, as defined in
Paragraph 4 above; (iv) any material breach by Executive of this
Agreement; or (v) if the Bank's regulatory authorities issue an order
removing Executive from his positions at the Bank, or if such
regulatory authorities inform the Directors that continuation of
Executive in his position at the Bank would constitute an unsafe and
unsound banking practice. Executive's employment may be terminated by
the Bank without cause at any time, provided that, in such event, Bank
shall pay Executive, in one lump-sum payment paid within 30 days after
such termination, an amount equal to the higher of the following: (i)
that amount which is equal to the aggregate amount of salary payments
that would be made to Executive for the remainder of the Employment
Period, calculated at the Executive's then annual base salary; or (ii)
that amount which is equal to the number of Executive's full years of
service to the Bank at the time of termination multiplied by a number
derived by dividing his then annual base salary by twenty-six (26). In
addition, if Executive is terminated without cause, the Bank shall
either continue to carry Executive at no cost to him under the Bank's
employee hospital, medical services, dental and other health plans for
the remainder of the Employment Period, or, if he is not eligible for
continued coverage under such plans, pay the cost of similar coverage
for Executive pursuant to COBRA or similar private insurance plans
offering comparable coverage. Also, if Executive is terminated without
cause, the Bank agrees to provide Executive, at his request, with
outplacement services for a period not to exceed one year after the
date of termination, provided the Bank's obligation to provide these
services shall not exceed a maximum aggregate cost of $25,000.
Executive, should he elect to receive such services, agrees to pursue
possible employment opportunities diligently and in good faith, and to
cooperate in all reasonable respects with the requests and
instructions of the outplacement services firm. A termination "without
cause" shall mean any termination not satisfying the "cause" criteria
specified in this Paragraph 5(b).
(c) Immediate Cessation of Employment. In the event Executive's employment
terminates pursuant to subparagraph (b), the Bank may further direct
Executive to cease immediately his activities on behalf of the Bank
and to discontinue using any of the Bank's facilities; provided,
however, that in the event of these directions, the Bank shall
continue to provide Executive with salary and other benefits required
by this Agreement until the expiration of the notice period set forth
in sub-paragraph (b).
<PAGE>
(d) Survival. Anything in this Agreement to the contrary not withstanding,
the provisions of Paragraphs 6, 7, 8, 9 and 10 shall survive the
termination of Executive's employment with the Bank.
6. Non-Competition Agreement.
(a) Executive absolutely and unconditionally covenants and agrees with the
Bank that, from the period commencing on the date of this Agreement
and continuing for a period of one (1) year following the termination
of his employment as provided for in this Agreement, Executive will
not, anywhere in the Restricted Area (as defined in subparagraph (b)
below), either directly or indirectly, solely or jointly with any
other person or persons (a "Competitor"), as an employee, consultant,
or advisor (whether or not engaged in business for profit), or an
individual proprietor, partner, shareholder (provided that share
ownership of less than 5% of the share voting power shall be
permitted), director, officer, joint venturer, investor (provided that
such investment will not be a violation if it is limited to less than
5% of the ownership of such entity), lender, or in any other capacity,
compete with the business of the Bank (i) as conducted as of the date
of execution of this Agreement; or (ii) as conducted during the
Employment Period; or (iii) as conducted as of the end of the
Employment Period; or (iv) as proposed to be conducted by the Bank as
of the end of the Employment Period (collectively, the "Business").
(b) As used in this Section 6: (i) the term "compete" shall mean engaging,
participating, or being involved in any respect in the business of
banking, or furnishing any aid, assistance or service of any kind to
any person in connection with, the Business; (ii) the term "Restricted
Area" shall refer to a Competitor which has its home office in
Norwalk, or which has a branch or other place of business in Norwalk
and where Executive is based or in which he spends the majority of his
office time.
(c) If a court or arbitration panel concludes through appropriate
proceedings that Executive has breached the covenant set forth in this
Section, the term of the covenant shall be extended for a term equal
to the period for which Executive is determined to have breached the
covenant.
7. Covenant Not to Disclose. Executive agrees that, by virtue of the
performance of the normal duties of his position with the Bank and by
virtue of the relationship of trust and confidence between Executive and
the Bank, he possesses and will possess certain data and knowledge of
operations of the
<PAGE>
Bank which are proprietary in nature and confidential. Executive covenants
and agrees that he will not, at any time, whether during the term of this
Agreement or otherwise, reveal, divulge or make known to any person(other
than the Bank) or use for his own account, any confidential or proprietary
record, data, trade secret, price policy, rate structure, personnel policy,
method or practice of obtaining or doing business by the Bank, or any other
confidential or proprietary information whatever (the "Confidential
Information"), whether or not obtained with the knowledge and permission of
the Bank and whether or not developed, devised or otherwise created in
whole or in part by his efforts. Executive further covenants and agrees
that he shall retain all such knowledge and information which he shall
acquire or develop respecting such Confidential Information in trust for
the sole benefit of the Bank and its successors and assigns.
8. Non-Interference Covenant. Executive covenants and agrees that he will
not, for a period of one (1) year following the termination of this
Agreement, directly or indirectly, for whatever reason, whether for his own
account or for the account of any other person, firm, corporation or other
organization: (i) solicit, employ, or otherwise interfere with any of the
Bank's contracts or relationships with any employee, officer, director or
any independent contractor who is employed by or associated with the Bank
at the time of termination of this Agreement; or (ii) actively solicit, or
otherwise actively interfere with any of the Bank's contracts or
relationships with any independent contractor, customer, client or supplier
of the Bank.
9. Business Materials and Property Disclosure. All written materials, records
and documents made by Executive or coming into his possession concerning
the business or affairs of the Bank shall be the sole property of the Bank
and, upon termination of his employment with the Bank, Executive shall
deliver the same to the Bank and shall retain no copies. Executive shall
also return to the Bank all other property in his possession owned by the
Bank upon termination of his employment.
10. Breach by Executive. It is expressly understood, acknowledged and agreed
by Executive that (i) the restrictions contained in Sections 6, 7, 8 and 9
of this Agreement represent a reasonable and necessary protection of the
legitimate interests of the Bank and that his failure to observe and comply
with his covenants and agreements in those Sections will cause irreparable
harm to the Bank; (ii) it is and will continue to be difficult to ascertain
the nature, scope and extent of the harm; and (iii) a remedy at law for
such failure by Executive will be inadequate. Accordingly, it is the
intention of the parties that, in addition to any other rights and remedies
which the Bank may have in the event of any breach of said Sections, the
Bank shall be entitled, and is
<PAGE>
expressly and irrevocably authorized by Executive, to demand and obtain
specific performance, including without limitation, temporary and permanent
injunctive relief, and all other appropriate equitable relief against
Executive in order to enforce against Executive, or in order to prevent any
breach or any threatened breach by Executive, of the covenants and
agreements contained in those Sections.
11. Change of Control. If during the Employment Period and thereafter
(provided the Executive is then a full-time officer of the Bank) there is a
"Change of Control" of the Bank, the Executive shall be entitled to receive
a severance payment in consideration of services previously rendered to the
Bank. The severance payment shall be made as a lump sum cash payment as
provided for herein, unless the Executive and Bank enter into a new
employment agreement within two months after the Change of Control. The
amount of such severance payment shall equal three (3) times the
Executive's average annual compensation which was payable by the Bank and
was includible in the Executive's gross income for federal income tax
purposes with respect to the five (5) most recent taxable years ending
before the date on which the Change of Control occurs (or for such shorter
period as Executive has been employed by the Bank), less one dollar.
Payment under this Section 11 shall be in lieu of any amount due or payable
to the Executive under Sections 3 and 5. Payment under this Section 11
shall be paid in full within 90 days following the date of the Change of
Control and shall not be reduced by any compensation which the Executive
may receive from other employment with another employer after termination
of the Executive's employment with the Bank.
Notwithstanding any other provision of this Agreement or of any other
agreement, understanding or compensation plan, Bank shall not pay, and
Executive shall not receive, any payment which would be deemed (taking into
account all payments, rights and benefits whether or not under this
Agreement) to be an "excess parachute payment" under Section 280G of the
Internal Revenue Code of 1986, as amended, and the amount of the payment
hereunder shall be reduced to the extent necessary to ensure that Executive
receives no "parachute payment" in connection with such Change of Control.
(a) "Change of Control" shall be deemed to have occurred if:
(1) a Person (as defined below) beneficially
owns (i.e. directly, indirectly or acting through
one or more other persons owns, controls or has
power to vote) 25% or more of any class of voting
securities of Bank;
(2) a Person controls in any manner the election of
more than 20% of the directors of Bank; or
<PAGE>
(3) the Board of Directors of Bank determines that a
Person directly or indirectly exercises a
controlling influence over the management or
policies of Bank.
A "Change of Control" shall be deemed not to have occurred if (A) such
event is mandated or directed by a regulatory body having jurisdiction over
the Bank's operations; or (B) it occurs pursuant to the terms of a plan for
the acquisition of the capital stock of the Bank by a newly formed bank
holding company if in the consummation of such plan the shareholders of
Bank will receive, pro rata, all of the common stock of such bank holding
company; unless, in such conversion, a Person satisfies sub-paragraph (1),
(2) or (3) above.
A "Person" shall include a natural person, corporation, or other
entity. When two or more persons act as a partnership, limited partnership,
syndicate, or other group for the purpose of acquiring, holding or
disposing of Bank capital stock, such partnership, syndicate or group shall
be considered a Person. Beneficial ownership shall be determined under the
then current provisions of Securities Exchange Act Rule 13d-3; Reg. Section
240. 13d-3, or their successor provision(s).
This Section 11 shall survive and continue beyond the term of
employment set forth in Section 1 for as long as the Executive is a full-
time officer of the Bank.
12. Regulatory Restrictions. Notwithstanding any provision to the contrary in
this Agreement, the Bank shall not be required under this Agreement to
continue Executive in his position(s) at the Bank, or to make any payments
to Executive, if the regulatory authorities having jurisdiction over the
Bank order the Executive's removal from the Bank, or if such regulations
determine that any payment would constitute an illegal "excess parachute"
payment under 12 U.S.C. Section 1828(k) and regulations promulgated
thereunder, or an "unsafe or unsound banking practice" pursuant to 12
U.S.C. Section 1818(b).
13. Arbitration. Any dispute whatsoever relating to the interpretation,
validity or performance of this Agreement, or any other dispute arising out
of this Agreement which cannot be resolved by any party upon thirty days'
written notice to the other party shall be settled by arbitration in the
City of Norwalk, Connecticut, in accordance with the rules then prevailing
of the American Arbitration Association, and the judgment upon the award
rendered by the arbitrators may be entered in any court of competent
jurisdiction. It is the purpose of this Agreement, and the intent of the
parties hereto to make the submission to arbitration of any dispute or
controversy arising out of this Agreement, as set forth hereinabove, an
express condition precedent to any legal or
<PAGE>
equitable action or proceeding of any nature whatsoever.
14. General Provisions.
(a) All notices required by this Agreement shall be in writing and shall
be sufficiently given if delivered or mailed by registered or
certified mail, return receipt requested, to the parties at their
respective addresses set forth below. Any party may specify a
different address by written notice to the other, in accordance with
this Section. All notices shall be deemed to have been given as of the
date so delivered or mailed. To the Bank
Norwalk Savings Society
48 Wall Street
Norwalk, CT 06852
To Executive:
Marcus I. Braverman
3280 Princeton Drive
Yorktown Heights, NY 10598
(b) Except insofar as Executive may be subject to general policies adopted
by the Bank from time to time, this Agreement contains the entire
agreement between the parties, and there are no other representations,
warranties, conditions or agreements relating to the subject matter of
this Agreement.
(c) The waiver by any party of any breach or default of any provision of
this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
(d) This Agreement may not be changed orally but only by an agreement in
writing duly executed on behalf of the party against which enforcement
of any waiver, change, modification, consent or discharge is sought.
(e) This Agreement shall be binding upon and inure to the benefit of the
Bank and Executive and their respective successors, assigns, heirs and
legal representatives. Insofar as Executive is concerned, this
Agreement is personal and Executive's duties under it shall not be
assigned by Executive.
(f) Each of the parties agrees to execute all further instruments and
documents and to take all further action as the other party may
reasonably request in order to effectuate the terms and purposes of
this Agreement.
(g) This Agreement may be executed in one or more counterparts, all of
which taken together shall
<PAGE>
constitute one and the same instrument.
(h) This Agreement shall be construed pursuant to and in accordance with
the laws of the State of Connecticut.
(i) Wherever used in this Agreement, the masculine, feminine and neuter
pronouns shall be fully interchangeable, and the singular shall
include the plural where the context so requires and vice versa.
(j) If any term or provision of this Agreement is held or deemed to be
invalid or unenforceable, in whole or in part, by a court of competent
jurisdiction, such term or provision shall be ineffective to the
extent of such invalidity or unenforceability without rendering
invalid or unenforceable the remaining terms and provisions of this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
NORWALK SAVINGS SOCIETY
By
------------------------------
Chairman of Board of Directors
EXECUTIVE
------------------------------
Marcus I. Braverman
<PAGE>
Exhibit 10.4.2
AMENDMENT NO. ONE TO EMPLOYMENT AGREEMENT
Amendment No. One, dated as of April 1, 1994, to Employment
Agreement, dated as of March 1, 1994, between NORWALK SAVINGS
SOCIETY, a mutual savings bank organized and existing under the
laws of the State of Connecticut with headquarters located in
Norwalk, Connecticut (the "Bank"), and MARCUS I. BRAVERMAN of
Yorktown Heights, New York ("Executive").
RECITALS
WHEREAS, the Bank and the Executive mutually desire to amend
the Employment Agreement, dated as of March 1, 1994.
NOW THEREFORE, the parties agree as follows:
1. Section 5(b) of the Employment Agreement shall be amended
to include the following sentence as the new last sentence of such
Section:
"In no event, however, shall the lump-sum payment
described in the fourth sentence of this Section 5(b) be
equal to or in excess of three times the Executive's then
annual base salary."
2. This Agreement may be executed in one or more counterparts,
all of which taken together shall constitute one and the same
instrument.
3. This Amendment No. One to Employment Agreement shall be
construed pursuant to and in accordance with the laws of the State
of Connecticut.
IN WITNESS WHEREOF, the parties have executed this Amendment
No. One to Employment Agreement on the date first above written.
NORWALK SAVINGS SOCIETY
By
-------------------------------------
Chairman of the Board of Directors
EXECUTIVE
----------------------------------
Marcus I. Braverman
<PAGE>
Exhibit 10.4.3
AMENDMENT NO. TWO TO EMPLOYMENT AGREEMENT
Amendment No. Two, dated as of March 1, 1995, to Employment
Agreement, dated as of March 1, 1994, between NORWALK SAVINGS
SOCIETY, a capital stock savings bank organized and existing under
the laws of the State of Connecticut with headquarters located in
Norwalk, Connecticut (the "Bank"), and MARCUS I. BRAVERMAN of
Yorktown Heights, New York ("Executive").
RECITALS
WHEREAS, the Bank and the Executive mutually desire to amend
the Employment Agreement, dated as of March 1, 1994 (the
"Agreement").
NOW THEREFORE, the parties agree as follows:
1. Section 1 of the Agreement shall be amended to extend the
term of employment from March 1, 1995 to March 1, 1997, unless
subsequently extended or sooner terminated as provided in the
Agreement. All other provisions of the Agreement shall remain in
full force and effect, except insofar as they may be modified by a
Change of Control Agreement by and between Executive and Bank dated
as of February 1, 1995.
2. This Agreement may be executed in one or more counterparts,
all of which taken together shall constitute one and the same
instrument.
3. This Amendment No. Two to Employment Agreement shall be
construed pursuant to and in accordance with the laws of the State
of Connecticut.
IN WITNESS WHEREOF, the parties have executed this Amendment
No. Two to Employment Agreement on the date first above written.
NORWALK SAVINGS SOCIETY
By
-------------------------------------
Chairman of the Board of Directors
EXECUTIVE
----------------------------------
Marcus I. Braverman
<PAGE>
Exhibit 10.4.4
AMENDMENT NO. THREE TO EMPLOYMENT AGREEMENT
Amendment No. Three, dated as of November 7, 1995, to
Employment Agreement, dated as of March 1, 1994, amended by
Amendment No. One dated as of April 1, 1994, and Amendment No. Two
dated as of March 1, 1995, between NORWALK SAVINGS SOCIETY, a
capital stock savings bank organized and existing under the laws of
the State of Connecticut with headquarters located in Norwalk,
Connecticut (the "Bank"), and MARCUS I. BRAVERMAN of Yorktown
Heights, New York ("Executive").
RECITALS
WHEREAS, the Bank and the Executive mutually desire to amend
the Employment Agreement.
NOW THEREFORE, the parties agree as follows:
1. Section 1 of the Agreement shall be amended to provide
that the term of employment shall be extended to March 1, 1999,
unless subsequently extended or sooner terminated as provided in
the Agreement.
2. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and
the same instrument.
3. This Amendment No. Three to Employment Agreement shall be
construed pursuant to and in accordance with the laws of the State
of Connecticut. The Agreement shall otherwise remain in full force
and effect as originally written, except that the Change of Control
provisions of Section 11 have been and are superseded by a separate
agreement regarding change of control between the Executive and the
Bank.
IN WITNESS WHEREOF, the parties have executed this Amendment
No. Three to Employment Agreement on the date first above written.
NORWALK SAVINGS SOCIETY
By
-------------------------------------
Chairman of the Board of Directors
EXECUTIVE
-----------------------------------------
Marcus I. Braverman
<PAGE>
Exhibit 10.4.5
AMENDMENT NO. FOUR TO EMPLOYMENT AGREEMENT
Amendment No. Four, dated as of ________________, 1997, to
Employment Agreement, dated as of March 1, 1994, amended by
Amendment No. One dated as of April 1, 1994, Amendment No. Two
dated as of March 1, 1995, and Amendment No. Three dated as of
November 7, 1995, between NORWALK SAVINGS SOCIETY, a capital stock
savings bank organized and existing under the laws of the State of
Connecticut with headquarters located in Norwalk, Connecticut (the
"Bank"), and MARCUS I. BRAVERMAN of Yorktown Heights, New York
("Executive").
RECITALS
WHEREAS, the Bank and the Executive mutually desire to amend
the Employment Agreement.
NOW THEREFORE, the parties agree as follows:
1. Section 1 of the Agreement shall be amended to provide
that the term of employment shall be extended to March 1, 2001,
unless subsequently extended or sooner terminated as provided in
the Agreement.
2. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and
the same instrument.
3. This Amendment No. Four to Employment Agreement shall be
construed pursuant to and in accordance with the laws of the State
of Connecticut. The Agreement shall otherwise remain in full force
and effect as originally written, except that the Change of Control
provisions of Section 11 have been and are superseded by a separate
agreement regarding change of control between the Executive and the
Bank.
IN WITNESS WHEREOF, the parties have executed this Amendment
No. Four to Employment Agreement on the date first above written.
NORWALK SAVINGS SOCIETY
By
-------------------------------------
Chairman of the Board of Directors
EXECUTIVE
-----------------------------------------
Marcus I. Braverman
<PAGE>
Exhibit 10.5
AGREEMENT
THIS AGREEMENT is dated as of the first day of May, 1997 and
made and entered into by NORWALK SAVINGS SOCIETY, a Connecticut
chartered stock savings bank (the "Bank") having an office located
at 48 Wall Street, Norwalk, Connecticut and WESTPORT ASSET
MANAGEMENT, INC., a Connecticut corporation having an office
located at 253 Riverside Avenue, Westport, Connecticut
("Westport").
WHEREAS, the Bank's Articles of Incorporation (the "Articles")
authorize 7,000,000 shares of common stock, par value 0.01, of
which approximately 2,442,129 are issued and outstanding (the "Bank
Common Stock", which shall include for purposes of this Agreement,
any larger or smaller amount of shares of Bank Common Stock which
may hereafter be issued and outstanding);
WHEREAS, Westport has filed a Form F11-A under the Securities
Exchange Act of 1934 indicating that 439,600 shares (the "Westport
Shares") or approximately 18.0% of all outstanding shares of Bank
Common Stock are held in certain discretionary managed accounts of
Westport ("Managed Accounts") and Westport has disclaimed
beneficial ownership of such shares beneficially owned by such
persons and has disclaimed the existence of a group;
WHEREAS, (i) certain provisions in the Articles prohibit any
person from acquiring or offering to acquire 5% or more of the
outstanding shares of Bank Common Stock until June 15, 1997 without
prior approval of the Bank's Board of Directors and, in addition,
prohibit any person from acquiring 10% or more of the outstanding
shares of Bank Common Stock at any time without prior approval by
a 2/3 vote of the Bank's shareholders and the Banking Commissioner
of the State of Connecticut (the "Commissioner"), the Federal
Deposit Insurance Corporation (the "FDIC"), and/or the Federal
Reserve Board (the "FRB"), as appropriate;
WHEREAS, Westport does not acknowledge that the ownership of
Westport Shares as reported in the Form F11-A violates certain
provisions of the Articles but is willing to enter into this
Agreement to avoid any actions that the Bank may choose to pursue
arising out of the approximately 18.0% ownership as reported;
WHEREAS, the Bank does not acknowledge that Westport's
ownership of the Westport Shares does not violate certain
provisions of the Articles, but is willing to enter into this
Agreement to avoid the time and expense of enforcing its provisions
while at the same time achieving a result which is considered to be
consistent with the corporate goals of the Bank;
WHEREAS, Westport has represented to the Bank and their
attorneys that Westport does not hold the shares of the Bank Common
Stock with the purpose of changing or influencing management
<PAGE>
policies of the Bank; and
WHEREAS, Westport and the Bank have proposed entering into an
agreement whereby Westport will divest of certain of the Westport
Shares on the terms and conditions as described herein.
NOW, THEREFORE, in consideration of the mutual promises,
representations and warranties contained herein, the Bank and
Westport hereby agree as follows:
1. Termination Date.
This Agreement shall terminate (a) one year from the execution
date of this Agreement or (b) at such time that Westport shall be
the Beneficial Owner (as hereinafter defined) of no more than the
Maximum Stock Ownership Limit (as hereinafter defined), whichever
shall occur first (the "Termination Date").
2. Westport Divestiture.
(a) On or before the Termination Date, Westport agrees that
it shall be the Beneficial Owner (as hereinafter defined) of less
than 10% of the Bank Common Stock (the "Maximum Ownership Limit").
Westport shall divest and relinquish ownership of a sufficient
number of Westport Shares in order to comply with the Maximum Stock
Ownership Limit in any manner which it deems advisable including,
but not limited to, selling, donating, pledging, exchanging or
forfeiting the Westport Shares. The term "Beneficial Owner" shall
have the same meaning as set forth in Rule 13d-3 to the Securities
and Exchange Act of 1934, as amended, and shall include any person
who, directly or indirectly, through any contract arrangement,
understanding, relationship, or otherwise has or shares (i) voting
power which includes the power to vote, or to direct the voting of
such securities or (ii) investment power, which includes the power
to dispose of, or to direct the disposition of such securities.
(b) Until the Termination Date, Westport agrees to furnish to
the Bank, on or before the third business day of the month, a
written summary showing Westport's then-current holdings of Bank
Common Stock and a summary of each transaction in the Westport
Shares entered into by Westport during the previous calendar month,
provided however, that Westport shall not furnish such report to
the Bank if Westport did not complete a transaction in the Westport
Shares in the previous calendar month.
(c) Until the Termination Date, the Bank agrees not to seek
to exercise its Liquidation Right (as hereinafter defined) to
require the liquidation of any of the Westport Shares, provided,
that Westport shall be in compliance with this Agreement and,
provided further, that Westport shall not have breached or
otherwise violated this Agreement, which breach or violation shall
remain uncured for a period of 15 days or more.
(d) In the event that Westport fails to comply with the
<PAGE>
Maximum Stock Ownership Limit by the Termination Date, Westport
agrees that the Bank may, in its sole discretion, require Westport
to liquidate the Excess Shares (as defined below) in accordance
with certain provisions in the Articles as in effect on the date of
this Agreement (the "Liquidation Right"). The Bank's failure to
exercise its Liquidation Right on or after the Termination Date
shall not constitute a waiver by the Bank of its right to exercise
such Liquidation Right at any future time.
(e) In the event that Westport fails to comply with the
Maximum Stock Ownership Limit by the Termination Date, the Bank
reserves the right to take any other action at law or in equity
that may be available to it.
3. Dividends.
During the term of this Agreement, the owners of the Westport
Shares shall be entitled to collect and receive all dividends that
may be paid or accrue upon their shares of Bank Common Stock.
4. No Additional Acquisition.
Until the Termination Date of this Agreement, Westport agrees
that it shall not purchase any additional shares of Bank Common
Stock. After the Termination Date, Westport may purchase such
amounts of Bank Common Stock to the extent permitted by the Bank's
Articles of Incorporation and applicable law.
5. Changes in Common Stock.
Until the Termination Date, any shares or other securities
that are issued on or in exchange for the shares of Bank Common
Stock (other than the shares or securities of any other corporation
issued to the stockholders of the Bank pursuant to a plan of
merger) by reason of any stock split, stock dividend, consolidation
of shares, reclassification or corporate reorganization (including
an exchange of shares pursuant to the formation of a bank holding
company), shall be deemed to be shares of Bank Common Stock for
purposes of this Agreement.
6. Representations, Warranties and Covenants.
(a) Westport hereby makes the following representations and
warranties to the Bank:
(i) Westport represents and warrants that, as of the
date of this Agreement, it is the shareholder of
record of all of the Westport Shares as set forth
on Exhibit A to this Agreement.
(ii) Westport represents and warrants that it does not
hold the shares of the Bank's stock with the
purpose of changing or influencing management
policies of the Bank.
<PAGE>
(iii) Westport represents and warrants that it has full
power to enter into this Agreement.
(iv) Westport represents and warrants that, prior to the
date of this Agreement, it has not executed or
delivered any proxy or entered into any voting
agreement, voting trust, or any other agreement
that would adversely affect the Bank's ability to
enforce this Agreement.
(v) Westport represents and warrants that all consents
of the Beneficial Owners of shares of Bank Common
Stock required to enter into this Agreement, if
any, have been obtained and that Westport's
organizational documents and bylaws do not prevent
it from entering into this Agreement.
(vi) Westport covenants and warrants that it will not
take any action inconsistent with the purposes of
this Agreement.
(b) The Bank hereby makes the following representations and
warranties:
(i) The Bank represents and warrants that it has full
power to enter into this Agreement.
(ii) The Bank represents and warrants that all corporate
action required to enter into this Agreement has
been obtained and that the Bank's Articles of
Incorporation and bylaws do not prevent it from
entering into this Agreement.
(iii) The Bank covenants and warrants that it will not
take any action inconsistent with the purposes of
this Agreement.
7. Enforceability; Validity.
Westport and the Bank expressly agree that this Agreement
shall be specifically enforceable in any court of competent
jurisdiction in accordance with its terms against it and that all
of the covenants and agreements contained in this Agreement shall
be binding upon and enforceable against Westport and the Bank and
their successors, assigns, or other legal representatives. This
Agreement constitutes the entire agreement between the parties as
to the subject hereto, and shall take precedence over any actual or
alleged prior agreement, whether written or oral. This Agreement
may be modified only in writing executed by the parties hereto,
their successors, assigns or other legal representatives.
8. Governing Law.
This Agreement shall be governed by and construed in
<PAGE>
accordance with the laws of the State of Connecticut.
9. Severability.
If any provision of this Agreement shall be declared void or
unenforceable by a court or administrative board of competent
jurisdiction, such provision shall be deemed to have been severed
from the remainder of this Agreement and this Agreement shall
continue in all respects to be valid and enforceable.
10. Remedies for Breach.
In the event of a breach or repudiation of this Agreement by
Westport or the Bank, the nonbreaching party shall have all
remedies available at law or equity, including the right to the
specific performance of this Agreement.
11. Notices.
All notices, offers, acceptances, requests and other
communications hereunder shall be in writing and shall be deemed to
have been duly given if delivered or mailed postage prepaid, first
class, by certified or registered mail to the parties hereto at the
addresses set forth below or to such other address as any party
hereto shall designate to the other parties in writing:
If to the Bank:
Norwalk Savings Society.
45 Wall Street
Norwalk, Connecticut 0618-2554
Attention: Robert T. Judson, President
with a copy to:
William W. Bouton III, Esquire
Tyler Cooper & Alcorn
City Place, 35th Floor
185 Asylum Street
Hartford, Connecticut 06103
If to Westport:
Westport Asset Management, Inc.
253 Riverside Avenue
Westport, Connecticut 06511
Attention: Andrew J. Knuth, Chairman
with a copy to:
Robert M. Taylor, III, Esquire
Day Berry & Howard
CityPlace
Hartford, Connecticut 06103
12. Amendment.
This Agreement may not be amended, modified or altered in any
manner unless and until such change is reduced to writing making
specific reference to this Agreement and signed by the parties
hereto.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of this first day of May, 1997.
NORWALK SAVINGS SOCIETY
/s/ Robert T. Judson
By: Robert T. Judson
Its President
WESTPORT ASSET MANAGEMENT
/s/ Andrew J. Knuth
By: Andrew J. Knuth
Its Chairman
<PAGE>
Exhibit 21
Subsidiaries of NSS Bancorp, Inc.
1. Norwalk Savings Society
<PAGE>
Exhibit 99.1
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20429
Form F-2
ANNUAL REPORT
UNDER SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR
THE YEAR ENDED DECEMBER 31, 1996
FDIC Insurance Certificate No. 17944
NORWALK SAVINGS SOCIETY
-----------------------
(Exact name of bank as specified in its charter)
48 Wall Street, Norwalk, CT 06852
---------------------------------
(Address of principal executive offices)
Connecticut
-----------
(State or other jurisdiction of incorporation or organization)
06-0475300
----------
(I.R.S. Employer Identification Number)
(203) 838-4545
--------------
(Bank's telephone number, including area code)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 10 is
not contained herein, and will not be contained, to the best of the bank's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form F-2 or any amendment of this Form F-2. [ ]
Indicate by check mark whether the Bank (1) has filed all reports required to be
filed by Section 13 of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Bank was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the Bank's classes of
common stock, as of the latest practicable date:
2,442,129 shares of Common Stock, par value
$.0l per share as of March 7, 1997
As of March 7, 1997, the aggregate market value of the 2,442,129 shares of
common stock of the registrant issued and outstanding on such date was
$61,663,757.25. As of that same date, the aggregate market value of the voting
stock held by non-affiliates of the registrant was $43,229,464.50.
<PAGE>
PART I.
- -------
ITEM 1. BUSINESS
- -----------------
General
Historically, the principal business of the Bank has been attracting
deposits from the general public, extending loans to individuals in the
community for the purchase or construction of one- to four-family residences,
making consumer installment loans, investing in securities, and providing
typical consumer banking services. During the early 1980's, the Bank also began
to emphasize loans secured by multi-family (e.g., five or more units) and
commercial real estate, as well as construction loans, land acquisition and
development loans and, to a lesser extent, commercial business, consumer and
other loans. As a result, the Bank experienced dramatic growth as assets
increased from $185 million in 1980 to $509 million in 1988. As the local and
regional economies deteriorated in 1989, the Bank experienced increasing levels
of problem loans and losses primarily resulting from delinquencies in commercial
real estate, construction and land acquisition and development loans. Since
1990, a significant portion of the Bank's resources has been devoted to
resolving problems associated with high levels of non-performing assets,
including sales of OREO, loan restructurings and development for sale of a
number of residential subdivisions and condominiums held as OREO. Since that
time, the Bank has limited multi-family commercial real estate and construction
lending to borrowers purchasing OREO from the Bank and to borrowers refinancing
or restructuring currently outstanding loans. The Bank has since returned the
focus of its lending activities to one- to four-family residential lending and
is beginning to offer asset-based commercial and industrial loans to local small
businesses. The Bank recently resumed commercial and commercial real estate
lending.
The principal sources of funds for the Bank's activities are deposit
accounts, amortization and prepayment of loans, borrowings from the Federal Home
Loan Bank (FHLB) and funds provided from operations. The Bank's principal
sources of income are interest on loans and mortgage-backed securities, and
interest and dividends on investments. In recent years, the Bank also has
realized income from the sale of loans and mortgage-backed and investment
securities. To a lesser extent, the Bank realizes other non-interest income,
including income from service charges on deposit accounts and income from its
Trust Department and Savings Bank Life Insurance ("SBLI").
Market Area and Competition
Norwalk Savings Society (NSS) has seven retail banking offices
located in Norwalk, Wilton, Westport, Georgetown, and Fairfield. All of the
Bank's office facilities and its primary market area are located in Fairfield
County, Connecticut. The State of Connecticut is reported to be the wealthiest
state in the United States, and Fairfield County among the wealthiest counties
in terms of per capita income. Fairfield County is located in the southwestern
corner of Connecticut in close proximity to New York City. Based on 1990 census
data, Fairfield County had a population of over 828,200 with approximately
307,800 households and average household income of $72,700. At December 31,
1996, the unemployment rate for the Norwalk metropolitan area was 3.0% compared
to 4.6% for the State of Connecticut as a whole.
Fairfield County has a diversified mix of industry groups, including
manufacturing, service, government and corporate offices. Fairfield County is
the location for the headquarters of 19 Fortune 500 industrial companies, 6
Fortune 500 service companies and 62 of Connecticut's largest 100 companies. The
southwestern portion of Fairfield County, which includes the towns of Norwalk,
Wilton and Westport, reported as of April 1992 that 43% of its residents over 25
years of age had completed four or more years of college, as compared to 27.2%
for the State as a whole. Fairfield County's industrial economy includes the
manufacture of helicopters and other aircraft, sophisticated electronics,
missile parts, clothing and precision instrumentation. In addition to the
headquarters of large corporations, Fairfield County is the home for an
increasing number of small businesses as well as a large number of research and
development laboratories, which take advantage of the County's convenient
location, access to investment capital and sales opportunities, and a highly
educated labor force.
-1-
<PAGE>
As of December 31, 1996, the latest date for which information is
available, the Bank ranked as the third largest depository institution
headquartered in Fairfield County. In addition, the Bank ranked 6th out of 181
mortgage lenders in Fairfield County based on the number of mortgages originated
in 1996.
Intense competition exists in all major lines of business in which
the Bank is presently engaged. The Bank's market area has a significant number
of financial institutions with offices of commercial banks, thrift institutions
and credit unions in Fairfield County alone. Due to its proximity and the number
of commuters traveling to New York City, the Bank also faces intense and varied
competition for loans and deposits with financial institutions headquartered in
New York, many of which have, or have indicated plans to have, offices in
Fairfield County. Recent federal legislation expanding interstate banking
options may cause this type of competition to increase. The Bank faces
additional competition for deposits from short-term money market funds and other
securities funds offered by brokerage firms and other financial institutions as
well as significant competition for retail products from insurance companies.
Lending Activities
General. Historically the Bank, like most other savings institutions,
concentrated its lending activities on the origination of loans secured by first
mortgage liens for the purchase or refinancing of one- to four-family
residential properties. Through the 1980's, in an effort to diversify its loan
portfolio and originate higher yielding adjustable rate loans, the Bank expanded
its lending activities to include a significant volume of permanent and
construction financing of a wide variety of real estate properties, including
residential subdivision developments, condominium developments, land and various
types of commercial properties. The Bank also emphasized various home equity,
home improvement, commercial business and consumer loan products. However,
following a sharp downturn in the New England real estate markets, a significant
portion of the Bank's real estate loans became non-performing.
The Bank has refocused its lending activities on maintaining and
expanding its market presence as a one- to four-family residential lender and on
maintaining current banking relationships with borrowers that have good credit
histories with the Bank. The Bank is also engaged in lending activities to
facilitate the sale of OREO and the refinancing and restructuring of
non-performing and other loans. The Bank has expanded home equity, home
improvement and direct consumer lending and has begun to offer small business
lending. The Bank recently resumed commercial and commercial real estate lending
on a conservative basis. A commercial lending department has been established
and experienced commercial lenders have been hired to underwrite and service
loans. The Bank is also engaged in indirect auto leasing on a limited basis.
Such auto lease loans are secured by an assignment of individual consumer auto
leases. NSS loan officers underwrite the individual auto lease loans prior to
accepting the credit. In addition, the Bank is engaged in airplane financing on
a limited basis.
-2-
<PAGE>
Loan Portfolio Composition. The following table sets forth, at the
dates indicated, information concerning the Bank's loan portfolio in dollar
amounts and in percentages, by type of loan.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------------
1996 % 1995 % 1994* %
---- --- ---- --- ----- ---
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family adjustable rate............ $302,686 72.28% $231,168 64.13% $180,275 62.07%
One- to four-family fixed rate ................ 31,933 7.62 56,360 15.63 42,840 14.75
Multi-family .................................. 7,450 1.78 8,902 2.47 8,605 2.96
Commercial real estate ........................ 46,272 11.05 44,914 12.46 41,367 14.24
Land .......................................... 828 0.20 1,290 0.36 1,806 0.62
Construction .................................. 1,227 0.29 1,617 0.45 987 0.35
-------- ------ -------- ------ -------- ------
Total ....................................... 390,396 93.22 344,251 95.50 275,880 94.99
-------- ------ -------- ------ -------- ------
Other Loans:
Commercial business ........................... 8,425 2.01 1,485 0.41 30 0.01
Home equity lines of credit ................... 7,127 1.70 5,698 1.58 6,570 2.25
Home improvement and
second mortgages ........................... 2,568 0.61 3,422 0.95 4,392 1.51
Passbook ...................................... 1,510 0.36 1,634 0.45 1,761 0.62
Credit Cards................................... 991 0.24 - - - -
Other consumer ................................ 7,801 1.86 3,985 1.11 1,783 0.62
-------- ------ -------- ------ -------- ------
Total ....................................... 28,422 6.78 16,224 4.50 14,536 5.01
-------- ------ -------- ------ -------- ------
Total Loans (before net items) .................. 418,818 100.00% 360,475 100.00% 290,416 100.00%
-------- ======= -------- ======= -------- =======
Deduct:
Deferred loan fees ............................ 718 509 704
Allowance for credit losses ................... 7,334 4,170 4,827
-------- -------- --------
Total ......................................... 8,052 4,679 5,531
-------- -------- --------
Loans, net ...................................... $410,766 $355,796 $284,885
======== ======== ========
<CAPTION>
At December 31,
--------------------------------------------------
1993* % 1992* %
----- --- ----- ---
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family adjustable rate............ $150,333 55.82% $153,315 50.21%
One- to four-family fixed rate ................ 39,124 14.53 53,359 17.47
Multi-family .................................. 8,391 3.12 9,507 3.11
Commercial real estate ........................ 50,259 18.66 57,333 18.77
Land .......................................... 2,338 0.87 6,201 2.03
Construction .................................. 3,505 1.30 6,678 2.19
-------- ------ -------- ------
Total ....................................... 253,950 94.30 286,393 93.78
-------- ------ -------- ------
Other Loans:
Commercial business ........................... 30 0.01 30 0.01
Home equity lines of credit ................... 7,340 2.73 9,681 3.17
Home improvement and
second mortgages ........................... 4,727 1.76 5,897 1.93
Passbook ...................................... 1,788 0.66 1,823 0.60
Credit Cards................................... - - - -
Other consumer ................................ 1,465 0.54 1,562 0.51
-------- ------ -------- ------
Total ....................................... 15,350 5.70 18,993 6.22
-------- ------ -------- ------
Total Loans (before net items) .................. 269,300 100.00% 305,386 100.00%
-------- ======= -------- =======
Deduct:
Deferred loan fees ............................ 587 688
Allowance for credit losses ................... 2,532 4,567
-------- --------
Total ......................................... 3,119 5,255
-------- --------
Loans, net ...................................... $266,181 $300,131
======== ========
</TABLE>
- --------------------
* Includes assets originally disclosed as in-substance foreclosures, under then
current accounting pronouncements, for the years ended December 31, 1994, 1993,
and 1992.
-3-
<PAGE>
Maturity of Loan Portfolio. The following table sets forth certain
information at December 31, 1996 regarding the dollar amount of loans maturing
in the Bank's loan portfolio. Demand loans and loans having no stated schedule
of repayments and no stated maturity are reported as due within one year. Loan
amounts are net of non-accruing loans.
<TABLE>
<CAPTION>
After One After
Year through Five Years
Within Five through After
Amount One Year Years Ten Years Ten Years
------ -------- ------------ ---------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family adjustable rate... $265,717 $118,789 $127,989 $18,939 $ -
One- to four-family fixed rate........ 74,588 1,244 2,013 12,061 59,270
All other loans secured by
real estate........................... 49,623 25,562 14,643 2,601 6,817
All other loans (primarily consumer).... 18,449 8,292 8,308 1,364 485
-------- -------- -------- ------- -------
Total .................................. $408,377 $153,887 $152,953 $34,965 $66,572
======== ======== ======== ======= =======
</TABLE>
The following table sets forth the dollar amount of all loans
maturing or repricing after December 31, 1997 by fixed or adjustable interest
rates.
<TABLE>
<CAPTION>
Fixed Rates Adjustable Rates
----------- ----------------
(In thousands)
<S> <C> <C>
Real estate loans:
One- to four-family................... $73,344 $146,928
All other loans secured
by real estate...................... 15,740 8,321
All other loans
(primarily consumer)................... 10,035 122
------ -------
Total................................... $99,119 $155,371
======= ========
</TABLE>
-4-
<PAGE>
Loan Portfolio Activity. The following table shows loan origination,
sale and repayment activity of the Bank at and during the periods indicated.
<TABLE>
<CAPTION>
At or For the Year Ended December 31,
---------------------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Loans at beginning of period (before net items) ................ $360,475 $290,416 $269,300
-------- -------- --------
Add:
Loans originated:
Real estate loans:
One- to four-family adjustable rate ........................ 102,109 78,624 48,263
One- to four-family fixed rate ............................. 23,574 18,116 13,954
Multi-family................................................ - - 1,214
Commercial real estate ..................................... 12,355 8,617 5,588
Land ....................................................... 58 525 847
Construction ............................................... 7,516 4,784 3,078
Other loans:
Commercial business ........................................ 2,995 1,965 12
Home improvement and second mortgage ....................... 6,334 520 618
Passbook ................................................... 1,132 726 965
Other consumer ............................................. 5,911 1,424 1,179
-------- -------- --------
Total loans originated ......................................... 161,984 115,301 75,718
-------- -------- --------
Loans Purchased................................................. 13,724 - -
-------- -------- --------
Less:
Loans sold ..................................................... 45,319 1,296 221
Loans securitized .............................................. - 4,361 829
Loan repayments ................................................ 67,800 37,462 51,963
-------- -------- --------
Total loans sold, securitized and repaid ....................... 113,119 43,119 53,013
-------- -------- --------
Less:
Charge-offs .................................................... 2,488 1,799 1,589
Net transfers to OREO .......................................... 1,758 324 -
-------- -------- --------
Net increase in loans ...................................... 58,343 70,059 21,116
-------- -------- --------
Loans at end of period ......................................... $418,818 $360,475 $290,416
======== ======== ========
</TABLE>
-5-
<PAGE>
One to Four-Family Residential Lending. The Bank continues to focus
on the origination of loans secured primarily by first mortgage liens on
existing one- to four- family residences, offering a variety of fixed and
variable-rate mortgage loan products. At December 31, 1996, $334.6 million, or
79.9%, of the Bank's total loan portfolio consisted of one- to four-family
mortgage loans, substantially all of which are conventional loans (i.e., loans
that are neither insured by the Federal Housing Administration ("FHA") nor
partially guaranteed by the Veterans Administration (the "VA")).
The Bank actively solicits one- to four-family residential mortgage
loan applications through its branch banking offices, as well as its team of
"outside" loan originators, who will complete residential loan applications
"off-site" throughout the Bank's market area. In addition, the Bank periodically
conducts first-time home buyer seminars in an effort to develop residential loan
applications and promote the Bank's community reinvestment.
Other than with respect to certain single-family residential loans
originated in connection with loans to facilitate the sale of OREO, the Bank's
current practice is primarily to originate single-family residential loans which
qualify for sale to FNMA and FHLMC underwriting standards. In addition, the Bank
has entered into agreements with several conduits whereby these institutions
will purchase loans at a pre-determined price and on a pre-approved basis. This
relationship will allow the Bank to make mortgage loans that do not conform to
the Bank's asset/liability management strategy. All of the Bank's rights and
interest in such loans, including, in some instances, the right to service the
loan, are thereby transferred to the purchasers. The Bank will earn an
origination fee on any loans sold. The Bank presently originates both fixed-rate
and adjustable-rate mortgage loans with loan terms of 10, 15, 30 and 40 years.
Adjustable-rate mortgage loans have interest rates that adjust at annual
intervals based upon an index tied to the average yield on U. S. Treasury
securities adjusted to a constant maturity of one year. These loans typically
provide that the amount of any increase or decrease in the interest rate is
limited to two percentage points per adjustment period and is limited to an
aggregate of seven percentage points by which the rate can increase or decrease
over the life of the loan. The Bank also originates, on a limited basis,
self-insured residential loans with a maximum L.T.V. of 90% as well as limited
documentation loans.
Borrower demand for adjustable-rate versus fixed-rate mortgage loans
is a function of the level of interest rates, expectations as to future changes
in interest rates, and pricing differences between fixed-rate mortgage loans and
adjustable-rate mortgage loans. The relative amount of fixed-rate and
adjustable-rate residential loans that are originated at any time is therefore
largely determined by market and financial conditions.
At December 31, 1996, $31.9 million, or 7.6%, of the Bank's one- to
four-family residential loan portfolio consisted of loans which provide for
fixed rates of interest. Although these loans generally provide for repayment of
principal over a fixed period of 10, 15 or 30 years, it is the Bank's experience
that because of prepayments and due-on-sale clauses, such loans generally remain
outstanding for a substantially shorter period of time.
Adjustable-rate loans tend to decrease the risks to the Bank's net
interest income associated with changes in interest rates, but involve credit
risk, primarily because as interest rates rise, the payment by the borrower
rises to the extent permitted by the terms of the loan, thereby increasing the
potential for default. At the same time, the marketability of the underlying
property may be adversely affected by higher interest rates. The Bank offers
introductory rates on its adjustable-rate residential mortgage loans, which are
lower than the fully indexed rate on adjustable-rate loans but are competitive
with other lenders in the Bank's market. The Bank typically underwrites the
ability of borrowers to service the one year adjustable-rate mortgage loans at
the fully indexed rate or at rates acceptable to the secondary markets.
The Bank's general practice is to lend up to 80% of the appraised
value of the property securing a one- to four-family residential loan. Under
certain circumstances, the Bank will lend up to 95% of the appraised value.
Except as to certain loans to facilitate the sale of residential subdivision
OREO, to the extent that a loan exceeds 80% of the appraised value of the
property, the borrower generally must obtain private mortgage insurance on the
portion of the principal amount of the loan that exceeds 80%, which effectively
reduces the loss exposure to an 80% loan-to-value ratio or less. The Bank offers
self-insured residential mortgage loans to a maximum L.T.V. of 90%. The Bank
will, under certain circumstances, lend up to 95% of appraised value to
facilitate the sale of residential OREO and up to 85% for the sale of
non-residential OREO.
-6-
<PAGE>
Appraisals on property securing the Bank's one- to four-family
residential loans are made by both independent appraisers and by the Bank's
licensed, in-house appraisal staff.
The Bank's policy also requires that appraisals be performed in
accordance with applicable federal and state laws and regulations. Borrowers
also must obtain hazard insurance prior to closing and, when required by the
United States Department of Housing and Urban Development, flood insurance. The
Bank generally has required borrowers to advance funds, with each monthly
payment of principal and interest, to a loan escrow account from which the Bank
makes disbursements for items such as real estate taxes as they become due.
Multi-Family, Commercial Real Estate, Land and Construction Lending.
During the 1980s, the Bank expanded its origination of loans secured by
multi-family and commercial real estate located primarily within the Bank's
market area, and to a lesser extent throughout Connecticut. The Bank also
increased the origination of land acquisition and development loans, as well as
construction loans for one- to four-family, multi-family and commercial real
estate projects. These loan programs reflected efforts to diversify the type of
property securing loans in the Bank's portfolio and to increase the sensitivity
of the loan portfolio to changes in interest rates by originating loans with
adjustable rates tied to indices more reflective of actual market rates. Such
loans also generally had higher fees and interest rates than comparable one- to
four-family residential real estate loans. The Bank also originated fixed rate
commercial mortgages generally matched by FHLB advances of like terms.
At December 31, 1996, $7.5 million, or 1.8%, of the Bank's total loan
portfolio consisted of loans secured by multi-family properties. Multi-family
loans are comprised primarily of loans secured by income producing properties
with five to 10 residential units.
At December 31, 1996, $46.3 million, or 11.0%, of the Bank's total
loan portfolio consisted of loans secured by commercial real estate. Also at
December 31, 1996, $1.2 million, or 0.3% of the Bank's total loan portfolio,
were construction loans, the majority of which were for construction of one to
four-family residential units. Land loans to acquire and develop real estate at
December 31, 1996 amounted to $828,000 or 0.2% of the Bank's total loan
portfolio. Most of the Bank's land loans were for residential real estate
development projects, and, to a lesser extent, commercial and small industrial
developments. The Bank has curtailed the origination of land loans, except in
connection with loans to facilitate the sale of land held and under other
limited circumstances.
From 1990 to December 31, 1994, the Bank had limited multi-family,
commercial real estate and construction lending to borrowers purchasing OREO
from the Bank and to borrowers refinancing or restructuring currently
outstanding loans. Beginning in 1995, the Bank originates permanent loans to
borrowers for owner-occupied, one- to four-family units and originates
construction loans on a limited basis. The Bank's lending policy allows for
loans secured by multi-family properties and commercial real estate with a
maximum loan-to-value ratio of 80% (or up to 85% to finance the sale of OREO).
Historically, the Bank's multi-family and commercial real estate loans had
maturities of 15 to 30 years. As to current loans, the Bank typically offers
maturities of 3 to 25 years and terms which provide that interest rates thereon
adjust at regular intervals of one, three, five, seven, or ten years, based upon
an index tied to a treasury securities index or the FHLB advance rate for a
period matching the repricing period of the loan. The Bank also originates fixed
rate commercial mortgages having maturities from 15 to 25 years. The Bank
generally obtains personal guarantees on loans from the principals of the
borrowing entity. Appraisals of the property securing such loans are generally
made by both independent appraisers and by the Bank's licensed, in-house
appraisal staff.
Multi-family, commercial real estate and commercial construction
lending to builders is generally considered to involve a higher degree of risk
than one- to four-family residential lending. Such lending typically involves
larger loan balances concentrated in a single property or with a single borrower
or groups of related borrowers. In addition, the payment experience on loans
secured by existing income-producing properties is typically dependent on the
successful operation of the related real estate project and thus may be more
susceptible to adverse conditions in the real estate markets or in the economy
generally. Moreover, such financing is generally considered to involve a higher
degree of risk of loss than long-term financing on improved, owner-occupied real
estate because of the uncertainties of construction, including the possibility
of cost exceeding the initial estimates and risk associated with the failure of
the ultimate purchaser to purchase such property, or the failure of the lender
holding take-out financing to
-7-
<PAGE>
provide such financing. The Bank recently resumed such lending, but on a limited
basis consistent with prudent underwriting standards.
Home Equity Lines of Credit, Home Improvement and Second Mortgages.
At December 31, 1996, $7.1 million, or 1.7% of the Bank's total loan portfolio,
consisted of home equity lines of credit. At that date, the Bank had outstanding
commitments for an additional $7.8 million of unused home equity lines of
credit. Also at December 31, 1996, the Bank had outstanding a variety of home
improvement loans and second mortgages secured by one- to four-family
residential properties. Although home equity lines of credit and home
improvement loans typically are secured by second mortgage liens on residential
properties, some of the Bank's home equity lines and home improvement loans are
secured by first mortgage liens on property which is not otherwise mortgaged or
subject to similar encumbrances.
Originations of home equity, home improvement and other second
mortgages on residential properties have declined substantially since 1990.
Reduced origination volume of equity line of credit, home equity and second
mortgages are in part the result of lower interest rates which make refinancing
a first mortgage a preferred alternative. Also in more recent periods, the Bank
generally has not offered other introductory rates or substantial discounts on
loan fees and closing costs which have been offered by some of its competitors.
Management believes, however, that the residential real estate market in
Fairfield County has stabilized and the Bank now markets such products more
actively.
The Bank currently offers home equity lines of credit consistent with
prudent underwriting standards and favorable economic conditions. The Bank also
currently offers amortizing second mortgage loans to enable home owners to
access equity in their home. The Bank offers repayment schedules up to 15 years.
The Bank also offers installment second mortgage loans fully amortized over five
years. These loans are underwritten based on the borrower's consumer credit and
may be up to 100% of the equity in the borrower's home. These loans do not
exceed $40,000.
The Bank's current Loan Policy permits home equity and second
mortgage loans to be made for up to 80% of the appraised value of the property
securing the loan, less any existing encumbrances. Appraisals on the property
securing the Bank's home equity and second mortgage loan products and lines are
made by both independent appraisers and by the Bank's licensed, in-house
appraisal staff.
Commercial Business Lending. The Bank formed a Commercial Business
Lending Department in late 1994 offering a wide array of commercial lending and
deposit services. The Bank is offering traditional commercial and industrial
loan products and commercial real estate loans to local businesses consistent
with prudent underwriting standards. The Bank believes these loan products will
provide higher interest rates and will allow the Bank to serve the local small
business community, a market sector which is not currently being served by large
regional commercial banks or money center banks. Management believes development
of the Bank's commercial department affords the Bank the best opportunity to
increase market penetration in the Bank's local market area.
Consumer Lending. The Bank currently offers a variety of consumer
loan products, including loans secured by passbook accounts at the Bank,
unsecured lines of credit, education and automobile loans and personal loans.
Interest rates are set from time to time and are intended to be generally
competitive in the Bank's market. The Bank is now more actively pursuing direct
consumer lending. In addition, the Bank also funds indirect consumer auto leases
subject to prudent underwriting. Management believes that higher interest rates
and shorter maturities associated with this type of lending will complement both
earnings and asset/liability management objectives. The Bank intends to actively
market consumer loan products and to build the consumer loan and lease
portfolio.
-8-
<PAGE>
Credit Cards. The Bank currently offers consumer and business credit
cards. In addition, the Bank provides merchants services as an additional source
of fee income. The Bank acquired this department in conjunction with the
Fairfield First Bank and Trust Co. transaction. See "Management's Discussion and
Analysis - Financial Condition - Fairfield First Bank & Trust Company."
Mortgage Loan Servicing. The following table sets forth information
regarding the Bank's loan servicing portfolio at the dates indicated.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
1996 1995 1994
-------------------- -------------------- ---------------------
(Dollars in thousands)
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Loans owned and serviced by
the Bank (before net items) ...... $418,818 85.74% $360,475 81.42% $286,167 76.17%
Loans serviced for others .......... 69,680 14.26 82,281 18.58 89,545 23.83
-------- ------ -------- ------ -------- ------
Total loans serviced by
the Bank (before net items) ...... $488,498 100.00% $442,756 100.00% $375,712 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
The Bank has historically serviced loans for other institutions as a
means of maintaining customer relationships and generating fee income. These
loans are comprised of loans originated by the Bank and securitized into
participation certificates or whole loans sold to private banking institutions
or FNMA or FHLMC. Fee income derived from these loans serviced for others
totalled $334,000, $379,000 and $427,000 in 1996, 1995 and 1994, respectively.
Non-Performing, Delinquent and Classified Assets
General. At December 31, 1996, non-performing assets were comprised
of $10.4 million of non-performing loans and $858,000 of OREO. Most of the
Bank's non-performing assets consist of OREO and non-performing loans secured by
property located in the Bank's Fairfield County, Connecticut market area.
The Bank believes that the reduction in non-performing assets is the
result of concentrated efforts by the Bank's management and Board of Directors
to improve credit quality and dispose of problem assets. Utilizing the
accelerated non-performing asset disposition program (ADP) which concluded in
1995, and through the normal course of business, the major steps taken to reduce
non-performing assets included (i) the decision to build out and improve OREO
properties, which were priced and marketed aggressively and subsequently sold
through a subsidiary, The NSS Realty Corporation ("NSS Realty"), formed for this
purpose; (ii) increased collection efforts and charge-offs; and (iii) the
origination of loans to facilitate the sale of OREO at aggressive prices. The
Bank believes the stabilization of the Fairfield County residential real estate
market and lower market interest rates also helped facilitate the reduction in
non-performing assets.
The Bank also maintains a "watch list" which consists of Watch List
Loans that are classified as performing loans but which the Bank believes
exhibit a higher than normal degree of risk than other loans due to a variety of
factors, such as geographic and industry related weaknesses, downturn in
operations in recent years, bankruptcy of a related company and other loans from
the same borrower that are classified as non-performing. Watch List Loans
totalled $8.5 million at December 31, 1996, compared to $5.6 million at December
31, 1995.
As mentioned above, the Bank implemented the Accelerated
Non-Performing Asset Disposition Program in 1994 to allow the Bank to more
rapidly dispose of certain non-performing assets at discounts below their net
realizable value. The program established a $5.7 million special allowance to
dispose of $14.0 million of non-
-9-
<PAGE>
performing assets, $3.1 million allocated to the provision for credit losses and
$2.6 million allocated to the provision for estimated losses on OREO. The Bank
concluded the ADP program on December 31, 1995 with the following results having
been achieved. In total, gross assets of $16.1 million were disposed of, and a
total of $4.6 million was charged to the ADP allowances. The Bank continued to
reduce non-performing assets in 1996 through the normal course of business.
Non-performing loans totalled $10.4 million at December 31, 1996, a decrease of
$2.7 million from the $13.1 million level at December 31, 1995. OREO totalled
$858,000 at December 31, 1996, a decrease of $3.4 million from the $4.3 million
level at December 31, 1995. Total non-performing assets totalled $11.3 million
at December 31, 1996 or 1.9% of total assets compared to $17.3 million or 3.4%
of total assets at December 31, 1995.
-10-
<PAGE>
Non-Performing Assets. The following table sets forth the amounts
of the Bank's non-performing assets, by category at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-performing loans:
Real estate loans:
One- to four-family ...................... $ 2,784 $ 1,422 $ 2,402 $ 6,219 $ 9,465
Multi-family ............................. 1,739 2,330 2,119 2,120 1,645
Commercial real estate ................... 3,819 7,645 4,538 15,756 22,106
Land ..................................... - 105 509 1,180 4,285
Construction ............................. - 450 191 590 3,152
Other loans:
Commercial ............................... 1,197 65 12 - -
Home equity lines of credit .............. 175 395 57 141 274
Home improvement and second mortgage ..... 653 658 148 169 160
Other consumer ........................... 74 - - 5 134
------- ------- ------- ------- -------
Total non-performing loans (a) (b)............ 10,441 13,070 9,976 26,180 41,221
------- ------- ------- ------- -------
OREO:
One- to four-family ...................... 90 148 2,257 2,246 2,336
Multi-family ............................. - - - 548 426
Commercial real estate ................... 586 3,386 6,480 10,555 10,054
Land ..................................... 182 733 2,885 4,475 4,797
Allowance for estimated losses
on OREO ................................ - - (802) (194) (1,025)
------- ------- ------- ------- -------
Total OREO, net .............................. 858 4,267 10,820 17,630 16,588
------- ------- ------- ------- -------
Total non-performing assets, net ............. $11,299 $17,337 $20,796 $43,810 $57,809
======= ======= ======= ======= =======
Total non-performing assets, net, as a
percentage of total assets ............... 1.92% 3.36% 4.47% 10.24% 13.41%
</TABLE>
- -----------------
(a) For presentation purposes, no amount of the allowance for credit
losses has been allocated to non-performing loans.
(b) Includes amounts previously reflected as in-substance foreclosures
under prior accounting methods in effect as of the years ended
December 31, 1992 through 1994.
-11-
<PAGE>
Troubled debt restructurings ("TDRs") are loans to which the Bank has
granted certain concessions in light of the borrower's financial difficulty. The
objective of the Bank in granting these concessions, through a modification of
terms, is to maximize the recovery of its investment. This modification of terms
may include a reduction in stated rate, an extension of maturity at a more
favorable rate and a reduction of accrued interest. In the past, any TDRs
entered into by the Bank were classified as non-performing loans. The Bank may,
from time to time, engage in TDRs when appropriate. At December 31, 1996, the
Bank had no TDR's classified as non-performing.
An additional form of troubled debt restructuring that is available
to the Bank is loan splitting. In instances where cash flows are insufficient to
service total debt, the debt may be split into two separate notes, one note at
current market terms and a second at below market terms. This practice enables a
certain portion of the loan to return to performing status. At December 31,
1996, the Bank had $2.1 million in former TDR's which have been integrated into
the Bank's performing loan portfolio based on satisfactory performance.
Delinquent Loans. Total loans delinquent 30 to 89 days increased
to $4.1 million as of December 31, 1996 from $2.6 million at December 31, 1995.
The delinquency consisted primarily of one- to four-family residential loans (29
loans with an aggregate balance of $2.7 million).
The Bank continues to address collection of delinquent loans. Each
loan officer is assigned a portfolio of delinquent loans. Delinquent borrowers
receive written correspondence once a loan becomes 30 days past due. A loan
officer will make contact before the loan becomes 20 days past due. A call
letter will be sent out by the time a loan becomes 60 days past due unless a
work-out schedule has been agreed to with the borrower. Foreclosure will
commence after the loan becomes 90 days past due unless a repayment schedule has
been mutually accepted or the Bank determines that foreclosure would not be in
its best interests.
Because of certain provisions of Connecticut foreclosure law, the
Bank may encounter delays in its attempt to foreclose on property for which it
is mortgagee. Unlike many states which permit a secured party such as a bank
mortgagee to foreclose on real estate without court involvement, Connecticut
foreclosure law requires a lawsuit by the foreclosing party against the
mortgagor (owner) of real estate (and the suit must name as defendants all
junior lien holders). In addition, Connecticut law protects consumers who are
unemployed or under-employed, as defined by statute, by permitting them to
obtain a six-month stay of a mortgage foreclosure action and to restructure
their mortgage debt. In general, although foreclosure actions are subject to far
fewer defenses than ordinary lawsuits, mortgagors can and sometimes do raise
defenses which, even if not meritorious, can delay the foreclosure process for
months or even years. Foreclosure in Connecticut is typically accomplished by
strict foreclosure in contrast to foreclosure by sale. Strict foreclosure
involves the rendering of a judgment by a court in favor of the foreclosing
party (e.g., a bank) and sets a date by which the property owner (the mortgagor)
and any other mortgagees must either redeem the property by paying the
foreclosing party the full amount of its debt or lose their interest in the
property. Foreclosure by sale requires a court to appoint a committee to sell
property at public auction, and involves advertising and appraisal of the
property. Although foreclosure by sale is less common in Connecticut than in
some other states, to the extent it is used, it frequently imposes significant
delays when compared to the strict foreclosure process.
-12-
<PAGE>
Management of the Bank regularly reviews delinquent loans, which are
placed on non-accrual status when, in its judgment, the probability of
collection is too uncertain to warrant further accrual. All loans 90 days or
more past due as to interest or principal are placed on non-accrual status
unless, in exceptional circumstances, the loan is both well secured and in the
process of collection. The Bank was accruing interest on one loan which was 90
days or more past due with a principal balance of $347,000 at December 31, 1996.
Allowances for Credit Losses. The Bank uses four separate analyses
for determining a reasonable range for an adequate level of allowance for credit
losses. At December 31, 1996, the allowance calculations under the four analyses
were $3.9 million, $3.3 million, $4.4 million, and $4.6 million. The average of
these three methods was $4.1 million. The Bank's allowance for credit losses was
$7.3 million at December 31, 1996. The Bank's Watch List loans, unused lines of
credit, and letters of credit are also taken into account in establishing the
allowance for credit losses.
The following table sets forth an analysis of the activity in the
allowance for credit losses at and during the periods indicated.
<TABLE>
<CAPTION>
At or for the Year Ended December 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period........ $ 4,170 $ 4,827 $ 2,532 $ 4,567 $ 6,081
-------- -------- -------- -------- -------
Add:
- ---
Provision charged to operations....... 4,415 2,105 690 1,000 2,330
Allowance on Acquired Loans .......... 1,000 - - - -
ADP plan ............................. - (1,100) 3,100 - -
Recoveries............................ 237 137 94 38 56
-------- ------- -------- -------- --------
Less:
- ----
Charge offs:
Real estate loans:
One- to four-family ................ 394 648 956 392 465
Multi-family ....................... 220 355 1 83 -
Commercial real estate ............. 1,788 671 551 1,442 2,598
Land ............................... 18 118 - - 538
Construction ....................... - - 61 1,075 275
Consumer and commercial
business ........................... 68 7 20 81 24
-------- -------- -------- -------- --------
2,488 1,799 1,589 3,073 3,900
-------- -------- -------- -------- --------
Balance at end of period ............. $ 7,334 $ 4,170 $ 4,827 $ 2,532 $ 4,567
======== ======== ======== ======== ========
Net charge-offs ...................... $ 2,251 $ 1,662 $ 1,495 $ 3,035 $ 3,844
======== ======== ======== ======== ========
Loans outstanding
(before net items) ................. $418,818 $360,475 $290,416 $269,300 $305,386
======== ======== ======== ======== ========
Ratio of net charge-offs to
loans outstanding (before
net items) at end of
period ............................. 0.54% 0.46% 0.51% 1.13% 1.26%
</TABLE>
-13-
<PAGE>
The following table sets forth, at the dates indicated, the Bank's
allocation of the allowance for credit losses to the total amount of loans in
each of the categories listed.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------------------------------------
1996 1995
-------------------------------------------- --------------------------------------------
Percent of Percent of Loans Percent of Percent of Loans
Total Allowance in each Category Total Allowance in each Category
Amount For Credit Losses to Total Loans Amount for Credit Losses to Total Loans
------ ----------------- ---------------- ------ ----------------- ----------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage Loans
Residential (a) ..... $1,045 14.2% 79.9% $ 750 18.0% 79.8%
Commercial (b) ...... 4,710 64.3 13.3 3,153 75.6 15.7
Other Loans (c) ....... 1,579 21.5 6.8 267 6.4 4.5
------ ------ ------ ------ ------ ------
Total allowance for
credit losses ....... $7,334 100.0% 100.0% $4,170 100.0% 100.0%
====== ====== ====== ====== ====== ======
Ratio of allowance
for credit losses to
loans outstanding
(before net items)
at end of period .... 1.75% 1.16%
====== ======
<CAPTION>
At December 31,
---------------------------------------------
1994
---------------------------------------------
Percent of Percent of Loans
Total Allowance in each Category
Amount for Credit Losses to Total Loans
------ ----------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C>
Mortgage Loans
Residential (a) ..... $ 524 10.9% 76.8%
Commercial (b) ...... 4,013 83.1 18.2
Other Loans (c) ....... 290 6.0 5.0
------ ------ ------
Total allowance for
credit losses ....... $4,827(d) 100.0% 100.0%
========= ====== ======
Ratio of allowance
for credit losses to
loans outstanding
(before net items)
at end of period .... 1.66%
======
</TABLE>
- --------------------
(a) Includes one- to four-family loans.
(b) Includes all commercial real estate loans, multi-family, land and
construction loans.
(c) Includes commercial business, home equity lines of credit, home
improvement, second mortgages, passbook and other consumer loans.
(d) Includes the 1994 provision of $3.1 million for the ADP Program, the
balance of which was $2.2 million as of December 31, 1994.
-14-
<PAGE>
Allowance for Estimated Losses on OREO. The following table sets
forth an analysis of the activity in the allowance for estimated losses on OREO
at and during the periods indicated.
<TABLE>
<CAPTION>
At or For the Year Ended December 31,
----------------------------------------------------
Allowance for Estimated Losses on OREO 1996 1995 1994 1993
- -------------------------------------- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period ........... $ - $ 802 $ 194 $ 1,025
------ ------ ------ ------
Add:
Provision charged to operations ........ 459 460 2,894(b) 3,975
------ ------ ------ ------
Less:
Charge-offs:
One- to four-family .............. - 284 449 298
Multi-family ..................... - 58 153 224
Commercial real estate ........... 459 582 1,097 2,008
Land ............................. - 338 193 840
Construction ..................... - - 394 1,436
------ ------ ------ ------
459 1,262 2,286 4,806
------ ------ ------ ------
Balance at end of period (a) ............. $ - $ - $ 802 $ 194
====== ====== ====== ======
</TABLE>
- --------------------
(a) The Bank carries OREO at net realizable value. Beginning in 1991, the
Bank established general and specific reserves against OREO to arrive
at net realizable value. Beginning in 1993, the Bank netted the
specific reserves against OREO carrying values, and continues to
maintain a general reserve when deemed necessary by management to
arrive at net realizable value.
(b) Of the $2.9 million provision charged to operations, $2.6 million
was a result of the ADP Program.
Investment Activities
General. In accordance with Statement of Financial Accounting
Standard No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"), which the Bank adopted as of January 1, 1994, the Bank
was required to classify each security in the portfolio as either
"Held-to-Maturity," "Available-for-Sale," or "Trading Account Security." It was
the decision of management to classify substantially all of the portfolio as
Held-to-Maturity at the adoption date based upon the Bank's ability and intent
to hold, taking into account currently available liquidity and the potential for
additional liquidity afforded by the Bank's stock conversion (see Note 2 to the
consolidated financial statements).
In accordance with the additional guidance provided by the Financial
Accounting Standards Board ("FASB") in conjunction with SFAS 115, during 1995
the Bank reassessed and reclassified certain of its investments originally
classified as Held-to-Maturity to Available-for-Sale. Most of the short-term
Treasury and Federal Agency positions and all of the five- and seven-year
balloon mortgage-backed securities were reclassified. Furthermore, during 1996
the Bank assessed whether the Held-to-Maturity classification was supported by
management's intent due to the repositioning of the Bank's long term objectives
and financial condition; as a result, the Bank reclassified substantially all of
these investments to Available For Sale. This decision required the Bank to mark
each security to market through Shareholders' equity as of December 31, 1996 and
reflect each investment at fair value.
Under Connecticut law, the Bank has authority to purchase a wide
range of investment securities. However, as a result of recent changes in
federal banking laws, financial institutions such as the Bank may not engage as
principals in any activities that are not permissible for a national bank,
unless the FDIC has determined that the activity would pose no significant risk
to the Bank Insurance Fund and the Bank is in compliance with applicable capital
standards. In March 1993, the Regional Director of the FDIC approved a request
by the Bank to invest in certain listed stock and/or registered stock subject to
certain conditions. As of December 31, 1996, the Bank had accumulated
investments in equity securities amounting to $5.5 million compared to $4.8
million as of December 31, 1995.
-15-
<PAGE>
The Bank utilized the trading account classification to account for
the portion of the equity portfolio with common stock investments in the covered
call option program. This program is designed for yield enhancement and to
lessen the Bank's exposure to a potentially volatile stock market. In this
program, the Bank purchases shares of qualified common stock and sells a call
option against the investment. The holding period of each investment averages
one to three months and there are ten to fifteen investment positions in the
program. As required by SFAS 115 the Bank marks the common stock and related
covered call option to market through current period earnings. The mark to
market affect on earnings as of December 31, 1996 was a loss of $61,000 on the
$3.3 million trading portfolio.
During 1996 the Bank liquidated the utility stock portfolio; however,
it intends to maintain the equity stock portfolio under the guidance provided by
the investment committee of the Board of Directors and the policies and
procedures established by the Bank's investment policy.
During the second half of 1995, the Bank accumulated a significant
investment in the common stock of Hometown Bancorporation ("Hometown"), a local
bank holding company, which resulted in the Bank's filing a form 13-D with an
over 5% ownership position. In April 1996 the Bank sold its position shortly
after HUBCO, Inc., a New Jersey-based bank holding company, announced its
planned acquisition of Hometown. The Bank recorded a $627,000 gain on the sale
of its investment.
-16-
<PAGE>
The following table sets forth the composition of the Bank's
securities at fair value at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Debt Securities:
U.S. Treasury securities ........ $ - $ 8,316 $24,137 $38,488 $31,985
Obligations of other U.S.
Government agencies .......... 42,120 20,366 25,240 19,633 -
------- ------- ------- ------- -------
Total ........................... $42,120 $28,682 $49,377 $58,121 $31,985
======= ======= ======= ======= =======
Equity Securities.................. $ 5,528(1) $ 4,844 $ 22 $ 23 $ 23
======= ======= ======= ======= =======
</TABLE>
(1) Includes $3,292 classified as trading.
The following table sets forth the maturities of the Bank's
investment securities (excluding equity securities) by amortized cost at
December 31, 1996 and the weighted average yields of such securities.
<TABLE>
<CAPTION>
After One But After Five But
Within One Year Within Five Years Within 10 Years After 10 Years Totals
---------------- ----------------- ---------------- ---------------- ------------------
(Dollars in Thousands)
Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Other Bonds and
notes (a) ...... $ - -% $ - -% $29,316 7.40% $13,120 7.40% $42,436 7.40%
Mortgage-backed
securities (b) . 24,961 7.10 3,859 6.80 12,432 7.60 51,191 8.20 92,443 7.76
------- ------ ------- ------- -------
Total ........... $24,961 7.10% $3,859 6.80% $41,748 7.46% $64,311 8.04% $134,879 7.65%
======= ====== ======= ======= ========
</TABLE>
- -------------------
(a) Solely U.S. Government agencies.
(b) Solely FHLMC and FNMA participation certificates.
Mortgage-Backed Securities and Secondary Market Activities.
Mortgage-backed securities increase the quality of the Bank's assets because of
the insurance or guarantees of federal agencies on non-guaranteed mortgage
loans. In addition, mortgage-backed securities are more liquid than individual
mortgage loans and may be more readily available to collateralize borrowings or
other obligations of the Bank. All of the FNMA or FHLMC securities owned by the
Bank at December 31, 1996 had initial maturities of five to 30 years, although
the Bank expects the average lives will be considerably shorter due to principal
amortization and prepayments. There were no significant sales of mortgage-backed
securities during 1994. In 1995 the Bank sold $38.6 million (carrying value) of
securities, $4.4 million (carrying value) of which were created by mortgages
originated and securitized by the Bank during that year to alleviate an excess
concentration in those products. In 1996 the Bank sold $11.9 million (carrying
value) of primarily low yielding fixed rate mortgage-backed securities for yield
enhancement.
-17-
<PAGE>
The following table sets forth the activity in the Bank's
mortgage-backed securities portfolio at and during the periods indicated.
<TABLE>
<CAPTION>
At or For the Year Ended December 31,
--------------------------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Mortgage-backed securities at beginning of period ...... $90,281 $97,719 $58,219
Purchases ............................................ 38,650 44,318 77,195
Acquired in exchange for loans ....................... - 4,361 829
Sales ................................................ (11,886) (38,615) -
Repayments ........................................... (24,602) (17,502) (38,524)
------- ------- -------
Mortgage-backed securities at end of period ............ $92,443 $90,281 $97,719
======= ======= =======
</TABLE>
Sources of Funds
The primary sources of funds for the Bank's use in its lending
activities and for other general business purposes are amortization and
prepayment of loans, deposit accounts and funds provided from operations. See
"Management's Discussion and Analysis - Liquidity and Capital Resources."
Loan repayments and funds provided from operations are relatively
stable sources of funds, while deposit inflows and outflows are significantly
influenced by prevailing interest rates and general economic conditions. See
"Management's Discussion and Analysis - Liquidity and Capital Resources."
The Bank offers a variety of deposit accounts having a wide range of
interest rates and terms. The Bank attempts to control the flow of funds in its
deposit accounts according to its need for funds and the cost of alternative
sources of funds primarily through the pricing of deposits and, to a lesser
extent, by promotional activities.
Among the deposit accounts offered by the Bank at December 31, 1996
were regular passbook and statement savings accounts, which earn interest at an
annual rate of 1.99% with an effective annual yield at 2.00%. Interest on
passbook and statement savings accounts is compounded daily and credited
monthly. The Bank requires a minimum deposit of $5.00 to open a passbook or
statement savings account. The Super Savings Account earns interest at annual
rates of 1.99% to 2.98% with an effective annual yield of 2.00% to 3.00%. The
minimum deposit to open Super Savings Accounts is $1,000 and the interest is
compounded and credited monthly. The Bank also offers money market accounts
which are competitive with similar money market mutual funds. The Bank requires
a $2,500 minimum deposit to open the account. Balances of less than $2,500 are
subject to service charges. Interest is compounded and credited monthly. The
interest rate is reviewed weekly and adjusted as money market conditions
warrant. Minimum balance requirements for the Bank's certificates of deposit for
one year or more are $500. Certificates which have a maturity of under one year
have a minimum balance requirement of $1,000. Interest rates on all certificates
are determined by the Bank's Funds Management Committee based on market
conditions, competitive factors, cash flow requirements of the Bank, and funding
objectives. Interest is compounded and credited monthly on all certificates. The
Bank also offers checking accounts which require a $25 minimum initial deposit
and bear no interest, and NOW accounts which pay interest on balances over
$1,000 and require a $25 minimum initial deposit.
-18-
<PAGE>
The following table sets forth, at the dates indicated, the distribution of
the Bank's deposit accounts at the dates indicated and the weighted average cost
on each category of deposits for the periods then ended.
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------------------
1996 1995
--------------------------------- --------------------------------
(Dollars in Thousands)
Percent of Weighted Percent of Weighted
Total Average Total Average
Total Deposits Cost Total Deposits Cost
----- ---------- -------- ----- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Demand deposits .................... $22,479 5.31% 0.00% $ 13,697 3.40% 0.00%
Savings:
Regular savings ................. 28,096 6.64 2.06 28,660 7.12 1.82
Super savings ................... 45,404 10.73 2.60 55,042 13.66 2.79
NOW ............................. 30,262 7.15 1.88 35,097 8.71 .95
Money Market fund ............... 47,957 11.33 2.95 59,724 14.83 3.89
Escrow deposits ................. 4,965 1.17 2.83 4,142 1.03 2.73
Certificates:
Certificate accounts ............ 197,108 46.56 6.03 154,340 38.32 5.31
Money Market certificates....... 47,019 11.11 5.01 52,095 12.93 4.47
-------- ------ ------- ------
Total Deposits ..................... $423,290 100.00% 3.91% $402,797 100.00% 3.81%
======== ======= ======== ======
<CAPTION>
At December 31,
--------------------------------
1994
--------------------------------
(Dollars in Thousands)
Percent of Weighted
Total Average
Total Deposits Cost
----- ---------- --------
<S> <C> <C> <C>
Demand deposits .................... $ 9,201 2.53% 0.00%
Savings:
Regular savings ................. 29,052 8.00 1.52
Super savings ................... 84,555 23.29 2.50
NOW ............................. 26,998 7.44 1.00
Money Market fund ............... 38,390 10.57 2.93
Escrow deposits ................. 3,818 1.05 2.11
Certificates:
Certificate accounts ............ 138,384 38.11 4.10
Money Market certificates....... 32,673 9.01 2.93
------- ------
Total Deposits ..................... $363,071 100.00% 2.94%
======= =======
</TABLE>
The following table sets forth the net deposit flows of the Bank during the
periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Net deposit inflow (outflow)........ $ 3,649 (a) $ 25,557 $( 6,265)
Interest credited .................. 16,844 14,169 10,273
------- -------- --------
Net increase in deposits ........... $20,493 $ 39,726 $ 4,008
======= ======== ========
</TABLE>
(a) Includes deposits assumed in the FFB&T transaction of $47.6 million, and
$48.0 million in deposits sold in the Brookfield and Bethel branch sales
(see Management Discussion and Analysis - Financial Condition).
-19-
<PAGE>
The following table presents the amounts of certificate accounts of the
Bank at December 31, 1996 maturing during the periods reflected below and the
weighted average interest rate of such accounts at such date:
<TABLE>
<CAPTION>
Weighted Average
Amount Interest Rate
------ ----------------
(Dollars in thousands)
Certificate accounts maturing during the 12 months ending:
<S> <C> <C>
December 31, 1997 ......................................... $186,547 5.39%
December 31, 1998 ......................................... 32,981 5.77
December 31, 1999 ......................................... 7,937 5.89
Thereafter .............................................. 16,662 6.69
--------
Total ....................................................... $244,127 5.54%
========
</TABLE>
The following table presents the maturities of the Bank's time certificates
of deposit in amounts of $100,000 or more at December 31, 1996 by time remaining
to maturity.
<TABLE>
<CAPTION>
Maturing
--------
(In thousands)
<S> <C>
Six months or less .............................................. $12,602
Over six through twelve months .................................. 3,366
Over twelve months .............................................. 5,759
-------
Total ................................................. $21,727
=======
</TABLE>
Borrowings. Although deposits are the Bank's primary source of funds,
the Bank also utilizes borrowings from the FHLB as an alternative funding
source. The Federal Home Loan Bank System functions in a reserve credit
capacity for savings institutions and certain other home financing
institutions. The Bank is required to own capital stock in the FHLB in order to
access the System and is authorized to apply for advances on the security of
such stock and certain of its home mortgages and other assets (principally
securities which are obligations of, or guaranteed by, the United States)
provided certain credit worthiness standards have been met. FHLB advances to
the Bank at December 31, 1994, 1995, and 1996 were $62.5 million, $61.8
million, and $82.2 million, respectively.
-20-
<PAGE>
At December 31, 1996, the Bank had outstanding $82.2 million in borrowings
from the FHLB, maturing as follows: Next Interest Adjustable Rate Due Date
Adjustment Amount Rate (in thousands)
<TABLE>
<CAPTION>
Next Interest
Adjustable Rate Due Date Adjustment Amount Rate
- --------------- -------- ------------- ------ ----
(in thousands)
<S> <C> <C> <C> <C>
March 1997 January 1997 $10,000 5.61%
May 1999 November 1997 4,400(a) 5.73
------
Total Adjustable Rate 14,400
------
Fixed Rate January 1997 5,000 5.40
- ---------- January 1997 900(b) 8.20
January 1997 600(b) 8.25
April 1997 3,000 5.39
April 1997 750 5.39
November 1997 10,000 5.66
November 1997 4,000 5.78
December 1997 2,000 5.50
February 1998 5,000 5.30
April 1998 5,000 5.98
May 1998 10,000 6.13
May 1998 5,000 6.28
June 1998 5,000 6.28
July 1998 5,000 5.26
November 1998 5,000 5.90
December 2013 1,558(b)(c) 6.55
-------
Total Fixed Rate 67,808
-------
Total Borrowings $82,208
-------
</TABLE>
- --------------------
(a) These borrowings were initiated as a direct arbitrage against adjustable
rate mortgage-backed securities to "lock in" an interest rate spread.
(b) These borrowings were initiated as a direct arbitrage against long-term
fixed rate lending to "lock in" an interest rate spread. On a weighted
average basis, that spread amounts to 190 basis points. See "Management's
Discussion and Analysis - Asset/Liability Management."
(c) This borrowing has an amortization feature attached to it and pays down
over a term consistent with the loan it is matched against.
-21-
<PAGE>
From time to time, as interest rate market conditions allow, the Bank may
also use reverse repurchase agreements as a short-term source of funds. The Bank
had outstanding borrowings of $31.4 million and $4.6 million under various
reverse repurchase agreements at December 31, 1996 and 1995, respectively.
The following table sets forth, at the dates indicated, information
concerning the Bank's reverse repurchase agreements:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1996 1995 1994
---- ---- ----
(Dollar amounts in thousands)
<S> <C> <C> <C>
Average Balance During the Year $29,203 $6,857 $ -
Maximum Month-End Balance During the Year $36,350 $9,310 $ -
Average Interest Rate During the Year 5.61% 5.88% $ -
</TABLE>
At December 31, 1996, repurchase agreements aggregating approximately $22.4
million and $9.0 million mature during the years ending December 31, 1997 and
1998, respectively.
The following table sets forth, at the dates indicated, information
regarding the weighted average interest rate and the highest and average month-
end balances of the Bank's total borrowings.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Weighted average interest rate of total borrowings .......... 5.89% 6.44% 6.15%
Highest outstanding balance of total borrowings ............. $159,903 $77,229 $62,981
Average month end balance of total borrowings ............... $115,465 $65,644 $49,386
</TABLE>
Trust Department
The Bank offers a full array of trust services through its Trust
Department which was organized in 1984. The Trust Department generated $552,000
in gross revenues in 1996 on assets totalling $262.2 million. In 1995 and 1994,
gross revenues were $515,000 and $513,000, respectively. Trust services are
considered to be an integral element of the Bank's strategy for future growth of
non-interest income by providing an alternative investment choice to depositors
seeking returns other than that of traditional certificates of deposit, as well
as an attractive investment for the Banks' commercial depositor base.
Savings Bank Life Insurance
The Bank offers savings bank life insurance ("SBLI") to customers up
to a maximum of $300,000 per insured. The Bank also offers mortgage life,
disability and credit life insurance relating to loans as part of its SBLI
business. During 1995 and 1996, the Bank had pre-tax income of $23,000, and
$18,000, respectively, from all SBLI sales.
-22-
<PAGE>
Subsidiaries
The Bank has one wholly owned subsidiary, NSS Realty, which was formed in
1990 for the sole purpose of developing and disposing of certain real estate the
Bank acquired through foreclosure or deed in lieu of foreclosure. NSS Realty has
recorded sales of Bank owned real estate of $1.2 million for the twelve months
ended December 31, 1996. Currently, NSS Realty has one property with a book
value of $114,000. NSS Realty has one wholly owned subsidiary, NSS Westport
Development Corp., which was formed in 1992 solely for the purpose of developing
an OREO property, Sherwood Farms in Westport, CT. This subdivision was
completely sold out in 1996 and the subsidiary is currently inactive.
Employees
155 employees were employed by the Bank as of February 28, 1997; 146 were
full time equivalents.
Miscellaneous
A material portion of the Bank's deposits have not been obtained from a
single customer. A material portion of the Bank's loans is not concentrated in
one industry or related group (other than residential mortgage lending in
Fairfield County, Connecticut). The Bank holds no material patents, trademarks,
licenses or concessions except as required by regulatory authorities. The Bank
has undertaken no material research activities related to new services or the
improvement of existing services, other than routine activities in the ordinary
course of the Bank's business. The Bank conducts substantially all of its
marketing research using existing personnel, none of which is engaged full-time
in such activities.
-23-
<PAGE>
ITEM 2.
- -------
Properties
At December 31, 1996 the Bank had seven full service banking offices
and one satellite (ATM) branch. The following table lists information at
December 31, 1996 for the properties of the Bank.
<TABLE>
<CAPTION>
Lease Year Office Area Amount of Owned or
Location Opened by Square Feet Deposits Leased
- -------- ------ -------------- --------- --------
Expiration
- ----------
(Dollars in thousands)
Executive Offices:
<S> <C> <C> <C> <C> <C>
48 Wall Street 1849 24,000 Owned
Norwalk, Connecticut
Full Service
Banking Offices:
48 Wall Street 1849 2,950 $155,047 Owned
Norwalk, Connecticut
117 Old Ridgefield Road 1960 3,450 41,220 Owned
Wilton, Connecticut
Rt. 7 & 107 1972 2,560 29,207 Leased June 30, 2002
Georgetown, Connecticut
Main Avenue &
West Rocks Road 1974 3,560 71,405 Leased April 30, 2006
Norwalk, Connecticut
578 Westport Avenue 1983 3,500 53,043 Owned
Norwalk, Connecticut
1815 Post Road East 1988 3,392 35,307 Owned
Westport, Connecticut
2000 Post Road 1996 3,300 38,061 Leased October 31, 2006
Fairfield, Connecticut
Satellite Branch
So. Norwalk Railroad Station 1996 Free standing - Leased June 14, 2001
ATM --------
$423,290
========
</TABLE>
-24-
<PAGE>
ITEM 3.
- -------
Legal Proceedings
Norwalk Savings Society is not involved in any legal proceeding that it
believes is material to its financial condition.
ITEM 4.
- -------
Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference from page 5 of the definitive Proxy Statement
filed with the FDIC on March __, 1997, pursuant to Section 335.204 of the FDIC
Rules and Regulations ("Proxy Statement").
PART II
- -------
ITEM 5.
- -------
Market for the Bank's Common Stock and Related Shareholder Matters
See Item 7 in the section captioned "Market Price of Common Stock" on Page
53.
The Bank began paying dividends to its shareholders in 1996. The first
dividend since becoming a public company in June, 1994 was $0.05 per share
payable to the shareholders of record as of the close of business on May 6,
1996. Subsequent dividends were declared and paid on a quarterly basis during
1996. The Board of Directors recognizes that it is under no obligation to
continue paying dividends and will consider such a payment on a quarterly basis
assuming such action would be consistent with its primary goal of maintaining
the adequacy of the Bank's capital. Connecticut law prohibits the Bank from
paying dividends other than to the extent of retained net profits from the
current fiscal year and two preceding full fiscal years.
-25-
<PAGE>
ITEM 6.
- -------
Selected Financial Data
The following tables set forth certain selected consolidated financial and
other data of the Bank at or for the dates indicated. This information should be
read in conjunction with the Consolidated Financial Statements and notes thereto
included elsewhere herein. The consolidated financial data as of and for the
years ended December 31, 1992 through 1996 have been derived from the audited
Consolidated Financial Statements of the Bank.
<TABLE>
<CAPTION>
At or For the Year Ended December 31,
---------------------------------------------------------------------
($ thousands, except per share data) 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Selected Balance Sheet Data:
Total assets ................................. $589,589 $515,267 $464,901 $427,950 $431,079
Treasury & other gov't agency securities...... 42,120 28,682 51,139 58,129 31,743
Mortgage-backed securities ................... 92,453 90,339 97,270 58,219 46,725
Equity Securities............................. 5,528 4,844 22 9 9
Loans, net of deferred loan fees ............. 418,100 359,966 289,712 268,713 304,698
Allowance for credit losses................... 7,334 4,170 4,827 2,532 4,567
-------- -------- -------- -------- --------
Loans, net ................................... 410,766 355,796 284,885 266,181 300,131
OREO ......................................... 858 4,267 11,622 17,824 17,613
Allowance for estimated losses ............... - - 802 194 1,025
-------- -------- -------- -------- --------
OREO, net .................................... 858 4,267 10,820 17,630 16,588
Deposits ..................................... 423,290 402,797 363,071 359,063 368,214
Borrowings.................................... 114,043 67,123 63,510 48,765 42,550
Shareholders' Equity/Retained Earnings ....... 49,353 43,595 37,513 19,712 18,931
Non-Performing Assets:
Non-performing loans ....................... 10,441 13,070 9,976 26,180 41,221
OREO, net .................................. 858 4,267 10,820 17,630 16,588
-------- -------- -------- -------- --------
Total non-performing assets ................ $ 11,299 $ 17,337 $ 20,796 $ 43,810 $ 57,809
======== ======== ======== ======== ========
Summary of Operations:
Interest and dividend income ................. $ 41,255 $ 33,015 $ 25,045 $ 24,520 $ 29,860
Interest expense ............................. 23,640 18,398 13,112 13,719 18,382
-------- -------- -------- -------- --------
Net interest income .......................... 17,615 14,617 11,933 10,801 11,478
Provision for credit losses .................. 4,415 1,005 * 3,790 1,000 2,330
-------- -------- -------- -------- --------
Net interest income after provision
for credit losses .......................... 13,200 13,612 8,143 9,801 9,148
Non-interest income:
Service charges and other income ........... 2,687 1,897 1,890 2,173 1,842
Gains (losses) on loans and
investment securities .................... 517 798 (64) 2,410 1,454
Gain on sale of branches ................... 3,639 - - - -
Non-interest expenses:
Provision for estimated losses on OREO ..... 459 460 **2,894 3,975 1,550
Holding costs and expenses of OREO, net .... 903 955 532 850 44
Operating expenses ......................... 14,104 11,304 9,980 8,705 8,284
-------- -------- -------- -------- --------
Income (loss) before income taxes ............ 4,577 3,588 (3,437) 854 2,566
Current income tax provision ................. 175 10 50 73 430
Deferred income tax benefit .................. (1,300) (1,200) - - (600)
-------- -------- -------- -------- --------
Net income (loss)............................. $ 5,702 $ 4,778 $ (3,487) $ 781 $ 2,736
======== ======== ======== ======== ========
Net income excluding the effects of the
ADP Program (*, **) .......................... $ 2,213
========
Income (loss) per share....................... $2.39 $2.04 $(1.51) N/A N/A
Income per share excluding the effects of
the ADP Program (*, **)....................... N/A N/A $0.96 N/A N/A
</TABLE>
- -----------------
* Includes $3.1 million allocated to loans of the total $5.7 million one-time
special charge for the Accelerated Non-Performing Asset Disposition Program
(ADP).
** Includes $2.6 million allocated to OREO of the total $5.7 million one-time
special charge for the ADP Program.
-26-
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31,
----------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Performance Ratios:(***)
Return on average total assets ............... 0.97% 0.76% 0.51% 0.18% 0.63%
Return on average retained earnings .......... 12.52 8.97 7.36 3.95 15.41
Net yield on interest-earning assets ......... 3.12 3.17 2.96 2.84 2.90
Asset Quality Data:
Non-performing loans as a % of net loans ..... 2.54 3.67 3.50 9.84 13.73
Non-performing assets as a % of total assets.. 1.92 3.36 4.47 10.24 13.41
Allowance for credit losses as a % of
net loans ................................ 1.79 1.17 1.69 0.95 1.52
Allowance for credit losses as a % of
non-performing loans........................ 70.24 31.91 48.39 9.67 11.08
Net charge-offs to average loans ............. 0.56 0.53 0.56 1.13 1.30
Capital Ratios:
Tier 1 leverage capital ...................... 7.9 8.4 8.2 4.6 4.4
Tier 1 risk-based capital .................... 15.7 16.7 14.5 8.9 7.8
Total risk-based capital ..................... 17.0 17.9 15.8 10.0 9.0
Other Selected Financial and Statistical Data:
Loans originated during period ............... $161,984 $115,301 $75,718 $55,133 $43,204
Dividend payout ratio......................... 6.3% - - - -
</TABLE>
- --------------------
*** Ratios for 1995 and 1994 exclude the effects of the ADP Program. All
such ratios for 1994 would be negative if the ADP charge of $5.7 million
was included.
-27-
<PAGE>
ITEM 7.
- ------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
-28-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview
--------
Norwalk Savings Society was founded in 1849 and is a Connecticut chartered
capital stock savings bank, with deposits insured by the Federal Deposit
Insurance Corporation (FDIC), headquartered in Norwalk, Connecticut. Its initial
public offering of common stock was effective June 15, 1994.
The Bank reported net earnings of $5.7 million, or $2.39 per share, for the year
ended December 31, 1996. Included in net earnings were $1.3 million in deferred
tax benefits.
During 1996, the Bank consummated a series of significant transactions to better
position itself for profitable growth, franchise strength and flexibility. To
that end, the Bank began the transformation of its financial condition and the
refocus of its branch network toward the more commercially-oriented area of
southern Fairfield County.
The Bank acquired certain assets and assumed essentially all of the liabilities
of Fairfield First Bank & Trust Company ("FFB&T") in an FDIC-assisted
transaction (see Financial Condition-Fairfield First Bank & Trust Company) and
applied for permission to open a new branch in Darien. The Bank completed the
sale of its northernmost branch offices in Brookfield and Bethel to the Savings
Bank of Danbury (see Financial Condition-Branch Sales). During the year the Bank
aggressively expanded the residential mortgage portfolio and continued the
expansion of its commercial loan operations, building upon the efforts initiated
in 1995. To fund these activities the Bank aggressively pursued deposits,
especially lower cost core deposits, and supplemented deposit growth with
short-term use of FHLBB borrowings and reverse repurchase agreements. The Bank
intends to replace these borrowings with additional core deposit growth from its
newly refocused commercially-oriented franchise.
In addition, in connection with the transformation of the Bank's financial
condition, the Bank sold $44.8 million of five year adjustable rate residential
mortgages with servicing released (see Financial Condition-Loans), reclassified
all of its Held-to- Maturity securities to Available-for-Sale, and established a
Trading portfolio of equity securities allocated to a covered call option
program (see Financial Condition-Investment Securities).
The Tier one leverage capital ratio was 7.9% as of December 31, 1996, qualifying
the Bank as "well capitalized" according to standards established by the FDIC.
Asset quality continued on a steady course of improvement. Non-performing
assets, comprised of non-accrual and restructured loans (collectively,
"non-performing loans"), and other real estate owned (OREO) declined to $11.3
million or 1.9% of total assets. In addition, the Bank substantially increased
the provision for credit losses to $4.4 million for the year ended December 31,
1996, which resulted in a coverage ratio provided by the allowance for credit
losses to the loan portfolio of 1.8% and to non- performing loans of 70.2% (see
Financial Condition-Asset Quality).
-29-
<PAGE>
RESULTS OF OPERATIONS
---------------------
Comparison of Operating Results for the Years Ended
---------------------------------------------------
December 31, 1996 and 1995.
---------------------------
Overview
--------
Net earnings for the year ended December 31, 1996 were $5.7 million, or $2.39
per share, compared to $4.8 million or $2.04 per share for 1995. Net earnings
for 1996 and 1995 included $1.3 million and $1.2 million, respectively, of
deferred tax benefits from the recognition of the benefits of operating loss
carryforwards.
Several significant non-recurring items were included in 1996 net earnings. The
first of these items was the gain on the sale of the branch operations in
Brookfield and Bethel, the result of the deposit premium of $3.6 million or 7
1/2% percent of total deposits of $48.0 million in the two branches. In
addition, the Bank recognized a gain on the sale of its investment in Hometown
Bancorporation of $627,000.
The allowance for credit losses was increased to $7.3 million at December 31,
1996, resulting from a provision for credit losses aggregating $4.4 million for
the year ended December 31, 1996 and a $1.0 million credit risk allocation for
the loans acquired in the FFB&T transaction.
Net Interest Income
- -------------------
Net interest income, which is the primary source of income for the Bank, is the
difference between the interest earned on loans and investments and the interest
paid on deposits and borrowings.
Net interest income was $17.6 million for the year ended December 31, 1996, an
increase of 20.5% over the $14.6 million for the year ended December 31, 1995.
The $3.0 million increase resulted from an increase in interest income of $8.2
million partially offset by a $5.2 million increase in interest expense. The 25%
growth in interest income, from $33.0 million for 1995 to $41.3 million for
1996, was primarily attributable to the growth in the mortgage and commercial
loan portfolios, while the 28% growth in interest expense, from $18.4 million in
1995 to $23.6 million in 1996, resulted primarily from the increased levels of
deposits and short term borrowings.
The Bank's "wholesale" borrowings, which increased 71% from 1995, are comprised
of borrowings from the Federal Home Loan Bank and reverse repurchase agreements.
These funding tools were utilized to sustain the Bank's substantial growth in
total assets over the last two years. The Bank's plan, through the branch
transactions accomplished in 1996 and the upcoming opening of a new branch in
Darien in 1997, is to move away from higher cost borrowings from the wholesale
market into less costly core deposits, primarily from small business commercial
and consumer relationships.
The overall favorable interest rate environment played a significant role in the
Bank's net interest income improvement for 1996. The effect of lower, more
attractively priced rates (from the borrower's viewpoint) in the residential
mortgage loan market spurred activity, and the Bank's share of that activity
contributed $6.8 million of the $7.6 million volume increase in the Bank's gross
interest income, while $0.6 million of the increase was due to rate increases,
primarily in the securities portfolio.
-30-
<PAGE>
The Bank's average cost on interest-bearing liabilities rose to 4.54% for the
year 1996 from 4.29% for the year 1995. The Bank's interest expense increased
primarily as a result of the increase in the volume of borrowed funds and
secondarily from the increased volume of time deposits, reflecting the continued
shift by the consumer into time deposits from regular savings and money market
accounts. However, the Bank was able to mitigate the effect of higher interest
rates on time deposits through lower rates on borrowed funds.
On an overall basis, approximately $2.4 million of the $3.0 million increase in
net interest income was due to increased volume, while $0.6 million of the
increase in net interest income was due to favorable rate adjustments.
As a result of all of these significant movements in interest income and
interest expense, the Bank experienced a slight decrease in its net interest
margin during the year ended December 31, 1996, from 3.17% for 1995 down to
3.12% for 1996.
The following table summarizes the Bank's net interest income and net yield on
average interest-earning assets. Non-accruing loans are included in average
loans outstanding during the periods, and daily average amounts were used to
compute average balances.
-31-
<PAGE>
TABLE 1 - AVERAGE BALANCE SHEETS AND NET INTEREST INCOME
($ thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1996
------------------------------------------
Average Average
Balance Interest Rate
------- -------- -------
<S> <C> <C> <C>
Interest-Earning Assets
Loans Receivable $403,207 $30,589 7.59 %
Investment Securities 36,012 2,571 7.14
Mortgage-Backed Securities 104,000 7,076 6.80
Short-Term Investments 14,970 739 4.94
Marketable Equity Investments 7,253 280 3.86
------- ------
Total Interest-Earning Assets 565,442 41,255 7.30 %
------- ------ ----
Non-Interest-Earning Assets
Cash and Cash Equivalents 9,310
Accrued Income Receivable 6,645
Premises and Equipment 3,150
Other 9,957
Less: Allowance for Credit Losses (4,882)
-------
Total Non-Interest-Earning Assets 24,180
-------
Total Assets $589,622
=======
Interest-Bearing Liabilities
Deposits
--------
Regular Savings and NOW $ 58,599 $ 745 1.27 %
Super and Money Market Savings 116,232 3,411 2.93
Time 227,255 12,580 5.54
------- ------
Total Deposits 402,086 16,736 4.16
Borrowings 115,465 6,796 5.89
Mortgage Escrow Deposits 3,556 108 3.04
------- ------
Total Interest-Bearing Liabilities 521,107 23,640 4.54 %
------- ------ ----
Non-Interest-Bearing Liabilities
Non-Interest-Bearing Deposits 18,922
Other Liabilities 4,036
-------
Total Non-Interest-Bearing Liabilities 22,958
-------
Shareholders' Equity 45,557
-------
Total Liabilities and Shareholders' Equity $589,622
=======
Net Interest-Earning Assets
and Interest Rate Spread $44,335 2.76 %
====== ----
Net Interest Income and Net Yield on
Average Interest-Earning Assets $17,615 3.12 %
====== ====
<CAPTION>
Years Ended December 31,
-------------------------------------------
1995
-------------------------------------------
Average Average
Balance Interest Rate
------- -------- -------
<S> <C> <C> <C>
Interest-Earning Assets
Loans Receivable $313,072 $23,666 7.56 %
Investment Securities 39,490 1,961 4.97
Mortgage-Backed Securities 98,334 6,753 6.87
Short-Term Investments 6,915 514 7.43
Marketable Equity Investments 3,076 121 3.93
------- ------
Total Interest-Earning Assets 460,887 33,015 7.16 %
------- ------ ----
Non-Interest-Earning Assets
Cash and Cash Equivalents 8,138
Accrued Income Receivable 3,532
Premises and Equipment 3,117
Other 10,341
Less: Allowance for Credit Losses (4,468)
-------
Total Non-Interest-Earning Assets 20,660
-------
Total Assets $481,547
=======
Interest-Bearing Liabilities
Deposits
Regular Savings and NOW $ 53,788 $ 749 1.39 %
Super and Money Market Savings 123,582 3,902 3.16
Time 182,430 9,434 5.17
------- ------
Total Deposits 359,800 14,085 3.91
Borrowings 65,644 4,229 6.44
Mortgage Escrow Deposits 3,089 84 2.72
------- ------
Total Interest-Bearing Liabilities 428,533 18,398 4.29 %
------- ------ ----
Non-Interest-Bearing Liabilities
Non-Interest-Bearing Deposits 10,221
Other Liabilities 1,787
-------
Total Non-Interest-Bearing Liabilities 12,008
-------
Shareholders' Equity 41,006
-------
Total Liabilities and Shareholders' Equity $481,547
=======
Net Interest-Earning Assets
and Interest Rate Spread $32,354 2.87 %
====== ----
Net Interest Income and Net Yield on
Average Interest-Earning Assets $14,617 3.17 %
====== ====
</TABLE>
-32-
<PAGE>
Rate/Volume Analysis
- --------------------
The following table presents the changes in interest and dividend income and the
changes in interest expense attributable to changes in interest rates or changes
in volume of interest-earning assets and interest-bearing liabilities during the
years of 1996 and 1995. Changes which are attributable to both rate and volume
have been allocated proportionately.
TABLE 2 - RATE/VOLUME ANALYSIS
($ thousands)
Year Ended December 31, 1996
Compared to Year Ended
December 31, 1995
----------------------------
<TABLE>
<CAPTION>
Net
Rate Volume Change
---- ------ ------
<S> <C> <C> <C>
Interest Income:
---------------
Loans Receivable $ 94 $6,829 $6,923
Mortgage-Backed Securities (69) 392 323
Short-Term Investments (217) 442 225
Investment Securities 793 (24) 769
--- ----- -----
Total 601 7,639 8,240
--- ----- -----
Interest Expense:
----------------
Deposits:
--------
Savings and Other 68 (64) 4
Super and Money Market 270 221 491
Time (709) (2,438) (3,147)
--- ----- -----
Total Deposits (371) (2,281) (2,652)
Borrowings 396 (2,962) (2,566)
Mortgage Escrow Deposits (10) (14) (24)
--- ----- -----
Total 15 (5,257) (5,242)
--- ----- -----
Change in Net Interest Income $616 $2,382 $2,998
=== ===== =====
</TABLE>
-33-
<PAGE>
Provision for Credit Losses
- ---------------------------
The provision for credit losses for the year ended December 31, 1996 was $4.4
million, compared to $2.1 million for the year ended December 31, 1995.
The allowance for credit losses as of December 31, 1996 was $7.3 million
compared to $4.2 million as of December 31, 1995. Coverage of non-performing
loans provided by the allowance for credit losses was 70.2% and 31.9% as of
December 31, 1996 and 1995, respectively. Coverage of the net loan portfolio
provided by the allowance for credit losses was 1.8% and 1.2% as of December 31,
1996 and 1995, respectively.
The increase in the allowance was the result of several factors, including the
overall loan portfolio growth, the increased level of higher risk consumer and
commercial lending, the increasing average size of the residential mortgages
being originated, and the increase in the Bank's Watch List from $5.6 million at
December 31, 1995 to $6.0 million at September 30, 1996 and $8.5 million at
December 31, 1996. The Bank's Watch List is comprised of loans which have been
identified by the Bank's credit analysis system as exhibiting more than usual
risk of nonperformance or loss.
Non-Interest Income
- -------------------
Non-interest income consists of deposit service charges and fees, fees derived
from servicing of loans, net realized and unrealized gains on securities, net
gain on sale of loans, fees derived from the Bank's Trust Department and, in
1996, the credit card program.
Non-interest income for the year ended December 31, 1996 was $6.8 million
compared to $2.7 million for the comparable period of 1995.
The table below identifies the primary components of Non-interest income. The
core elements of Non-interest income, in total, showed sustainable improvement
over the prior period.
TABLE 3 - NON-INTEREST INCOME
($ thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1996 1995
---- ----
<S> <C> <C>
Loan Servicing Fees $ 334 $ 379
Other Loan Fees 146 136
Deposit Service Charges 763 599
Credit Card Fees 514 -
Trust Department Fees 552 515
Other 378 268
----- -----
Total Fees 2,687 1,897
----- -----
Net Gains on Securities 661 798
Net Loss on Sale of Loans (144) -
Gain on Sale of Branches 3,639 -
----- -----
Total Gains on Sales of Assets and Liabilities 4,156 798
----- -----
Total Non-Interest Income $6,843 $2,695
===== =====
</TABLE>
-34-
<PAGE>
Non-interest income for 1996 increased by $4.1 million, or 153.9% over 1995.
Service fees from deposits increased to $763,000 for the year ended December 31,
1996 compared to $599,000 for the same period a year ago. The 27.4% increase of
$164,000 is indicative of the Bank's strategy of establishing small business
commercial account relationships, which provide a higher level of fee income.
Excluding the gain transactions, the overall increase in fee income was
primarily attributable to the credit card fees from both the consumer and
merchant programs aggregating $514,000, which resulted from the Bank acquiring a
credit card portfolio in the FFB&T transaction in July 1996.
Included in Non-interest income for the year ended December 31, 1996 is $3.6
million of gain on deposits as a result of selling the Bank's branch operations
in Brookfield and Bethel. Included in the net gain on sales of securities and
loans was the $627,000 gain from the sale of the Bank's investment in Hometown
Bancorporation, other securities gains and losses (both realized and unrealized
as a result of the Trading portfolio of equities), and the loss of $144,000 from
the sale of $44.8 million in five year adjustable residential mortgages.
Non-Interest Expense
- --------------------
Non-interest expense is comprised of general and administrative expenses
incurred in managing the business of the Bank and costs associated with managing
and selling OREO properties.
Non-interest expense was $15.5 million for the year ended December 31, 1996,
compared to $12.7 million for the same period in 1995.
The table that follows indicates the elements of Non-interest expense, including
OREO related expense, which is directly related to the level of non-performing
assets.
TABLE 4 - NON-INTEREST EXPENSE
($ thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
General and Administrative Expense
----------------------------------
Compensation $ 5,726 $ 4,665
Employee Benefits 1,923 1,567
Occupancy and Equipment 1,646 1,336
Data Processing 1,303 702
Regulatory Assessments 9 438
Marketing 687 700
Legal and Professional 779 354
Office Supplies 578 481
Insurance 228 237
Other 1,225 824
------ ------
Total 14,104 11,304
------ ------
OREO Related Expense
--------------------
Net Holding Costs and Expenses 352 728
Net Loss on Sales of OREO 551 227
Provision for Estimated Losses 459 460
------ ------
Total 1,362 1,415
------ ------
Total Non-Interest Expense $15,466 $12,719
====== ======
</TABLE>
-35-
<PAGE>
Overall, Non-interest expense increased by $2.7 million or 21.6%. The overall
result was the difference between a net increase of $2.8 million in general and
administrative expense and a $0.1 million decrease in OREO related expenses. On
an overall basis, there were approximately $500,000 of nonrecurring expenses in
1996 included in the classifications of compensation, occupancy, data
processing, and other, primarily related to the Bank's significant, one-time
transactions.
General and Administrative Expense
- ----------------------------------
Of the total increase of $2.8 million in general and administrative expense,
approximately $1.4 million was attributable to increased compensation and
benefits expenses. Part of the increase was the result of the expanded labor
force in the commercial loan and credit card departments, and additional branch
personnel to enhance service capability; incentive compensation programs were
also offered to all personnel for loan origination, service performance, and
Bank profitability goals. As of December 31, 1996, the Bank employed 157 people
based on a full time equivalent measure. The comparable number as of December
31, 1995 was 146, representing a 7.5% increase, most of which was attributable
to the commercial lending function. The balance of the increase was attributable
to an average salary increase of 4%.
Employee benefits rose $356,000 as a result of higher staff levels, a severance
package for former FFB&T employees, and an increase in Employee Stock Ownership
Program (ESOP) costs. The ESOP cost is based on the average market price per
share for NSS stock, which calculated out to be $21.56 per share for 1996,
compared to $16.33 for 1995. The price per share increase of more than $5.00,
combined with the shares allocated in 1996, resulted in an additional $128,000
of employee benefits expense. Although the ESOP purchased the shares at the time
of the stock conversion for $10.00 per share, the accounting rules for ESOP
compensation require the expense to be based upon the average market value of
the Bank's stock during the period employees perform service to earn their
allocated shares.
Occupancy and equipment costs rose $310,000 from 1995's level as a result of
increased square footage of space under lease for a period of time in 1996. The
total square footage increased as there was an overlap of time between the FFB&T
transaction and the sale of the Brookfield and Bethel branches. Additionally,
the Bank incurred significantly higher depreciation costs on capital
improvements, primarily attributable to the updating and replacement of the
automated teller machine network during the year.
Higher data processing costs resulted for the most part from the FFB&T
transaction, the branch sales, and upgrades and integration enhancements to the
Bank's EDP capabilities during the year. In addition, other elements of 1996
Non-interest expense not present in 1995, but likely to continue, are the fees
the Bank paid to an outside service bureau relating to the credit card program,
which amounted to $382,000 for the year ended December 31, 1996. Expenses
associated with legal and professional fees increased as a result of the large
and unusual transactions in 1996; legal fees also increased as a result of
several new litigations related to the Bank's lending activities. Office
supplies showed slightly more than a 20% increase, attributable to outfitting
the Bank's newly acquired office in Fairfield and the Bank's generally expanded
level of operations. These increases were partially offset by the decline in
regulatory assessments from $438,000 for 1995 to $9,000 for 1996, reflecting the
full year's effect of the roll-back of FDIC insurance assessments. The Bank
qualifies as well-capitalized in accordance with FDIC guidelines and pays the
lowest rate available to member institutions.
OREO Related Expenses
- ---------------------
In addition to the general and administrative component of Non-interest expense,
OREO related expenses declined by $53,000 to $1,362,000 for the year ended
December 31, 1996.
Net holding costs and expenses declined to $352,000 from $728,000 for the years
ended December 31, 1996 and 1995, respectively. This reduction is a result of
the overall decline in the OREO portfolio. The net balance of OREO was $0.9
million as of December 31, 1996 compared to $4.3 million at December 31, 1995.
As of December 31, 1996 there were six properties comprising the OREO portfolio,
four of which were under contract of sale.
Management's long-standing approach has been to reduce OREO as quickly,
efficiently and effectively as possible, balancing the effect of accepting a
reduced offer for an OREO property against the holding costs associated with
continued ownership. Aggregating the allowance provisions and net losses on
sales, the Bank incurred losses on OREO properties of $1.0 million in 1996 and
$687,000 in 1995.
-36-
<PAGE>
Provision for Income Taxes
- --------------------------
The current provision for income taxes for the year ended December 31, 1996 as
well as the year ended December 31, 1995 represented estimated minimum state and
federal tax requirements for the periods inasmuch as both federal and state
income-based tax liabilities were offset by loss carryforwards.
In 1995 the Bank recognized a portion of its net deferred tax assets in the
amount of $1.2 million by reflecting a deferred tax benefit. In 1996 the Bank
recovered the remainder of the valuation allowance against its net deferred tax
assets by reflecting a deferred tax benefit in the current year's earnings of
$1.3 million.
As of December 31, 1996 the Bank has recognized all of its available net
deferred tax assets, and future taxable earnings will be subject to taxation at
a combined state and federal rate of approximately 40%.
RESULTS OF OPERATIONS
---------------------
Comparison of Operating Results for the Years Ended
---------------------------------------------------
December 31, 1995 and 1994.
--------------------------
Operations
- ----------
Net earnings for the year ended December 31, 1995 were $4.8 million, or $2.04
per share, compared to a net loss of $3.5 million or $1.51 per share for 1994.
Net earnings for 1995 included $1.2 million of net deferred tax benefits as well
as a $1.1 million recovery from the successful completion of the ADP Program.
The loss sustained for the year ended December 31, 1994 was due primarily to a
one-time special charge of $5.7 million for the ADP Program in order to
facilitate the rapid disposition of certain non-performing assets at discounts
below their net realizable value. Excluding the one time special charge, the
Bank recorded net earnings of $2.2 million, or $0.96 per share, for the year
ended December 31, 1994.
Net Interest Income
- -------------------
Net interest income, which is the primary source of income for the Bank, is the
difference between interest earned on loans and investments and the interest
paid on deposits and borrowings.
The increase in net interest income of $2.7 million for the year ended December
31, 1995, compared to the year ended December 31, 1994, was attributable to an
increase in interest income of $8.0 million partially offset by a $5.3 million
increase in interest expense.
The 31.8% improvement in interest income was the result of a combination of
yield enhancement and increased levels of interest-earning assets. The yield on
total interest-earning assets increased to 7.16% from 6.21% as of December 31,
1995 and 1994, respectively. In addition, average interest-earning assets rose
to $460.9 million for 1995 from a $403.1 million average for 1994. The Bank's
calculations indicate that of the $8.0 million improvement in interest income,
$3.6 million was attributable to higher yields and $4.4 million was attributable
to higher levels of interest-earning assets.
During 1995 the Bank focused on maximizing returns on interest-earning assets
through a number of different approaches. Interest income on investment
securities and short-term investments declined by $809,000 as the Bank
redirected the funds invested in these two portfolios toward higher yielding
assets in loans and mortgage backed securities. Loan growth, centered in
residential lending with added emphasis on commercial lending, provided for the
majority of the higher yield of interest income. Additional interest income of
$5.4 million came from the loan portfolio during 1995 and $3.3 million came from
the mortgage-backed securities portfolio.
Interest expense increased to $18.4 million for the year ended December 31,
1995, from $13.1 million for the comparable period of 1994. Interest expense was
driven by a rising interest rate environment during most of 1995. Overall, the
Bank's cost of funds rose to 4.29% from 3.28% on interest bearing-liabilities
for the year ended December 31, 1995, compared to the same period a year ago.
Volume, or the average balance of deposits and borrowings, rose to $428.5
million from $399.2 million for the years ended December 31, 1995 and 1994,
respectively, contributing to the increase in interest expense as well.
-37-
<PAGE>
As the competition for deposits intensified during much of 1995, the banking
industry generally experienced a higher interest rate environment on liabilities
while yields on earning assets remained constant or declined. NSS experienced
just the opposite with regard to interest-earning assets. Taking advantage of a
portfolio of loans and mortgage-backed securities heavily weighted toward
adjustable rate products and, therefore, tied to shorter term interest rates,
the Bank experienced higher yields on its portfolios. The higher yields achieved
on loans and mortgage backed securities resulted from a combination of
adjustable rates repricing to higher levels as well as additional investments at
current rates; overall, net interest margin improved to 3.17% from 2.96%.
The following table summarizes the Bank's net interest income and net yield on
average interest-earning assets. For the purpose of this analysis, non-accruing
loans are included in average loans outstanding during the periods indicated and
daily average amounts were used to compute average balances.
-38-
<PAGE>
TABLE 5 - NET INTEREST INCOME ANALYSIS
($ thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------------
1995 1994
------------------------------------ ----------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets
Loans Receivable $313,072 $23,666 7.56 % $265,581 $18,234 6.87 %
Investment Securities 39,490 1,961 4.97 58,870 2,633 4.47
Mortgage-Backed Securities 98,334 6,753 6.87 65,348 3,471 5.31
Short-Term Investments 3,498 277 7.92 9,802 445 4.54
Equity Investments 6,493 358 5.51 3,459 262 7.57
------- ------ ------- ------
Total Interest-Earning Assets $460,887 $33,015 7.16 % $403,060 $25,045 6.21 %
======= ====== ---- ======= ====== ----
Interest-Bearing Liabilities
Deposits
--------
Savings and Other $177,086 $ 4,651 2.63 % $184,702 $ 4,046 2.19 %
Time 182,714 9,434 5.16 161,841 6,144 3.80
------- ------ ------- ------
Total Deposits 359,800 14,085 3.91 346,543 10,190 2.94
Borrowings 65,644 4,229 6.44 49,386 2,839 5.75
Mortgage Escrow Deposits 3,089 84 2.72 3,238 83 2.56
------- ------ ------- ------
Total Interest-Bearing Liabilities $428,533 $18,398 4.29 % $399,167 $13,112 3.28 %
======= ====== ---- ======= ====== ----
Net Interest-Earning Assets
and Interest Rate Spread $32,354 2.87 % $3,893 2.93 %
====== ---- ===== ----
Net Interest Income and Net Yield on
Average Interest-Earning Assets $14,617 3.17 % $11,933 2.96 %
====== ==== ====== ====
</TABLE>
-39-
<PAGE>
Rate/Volume Analysis
- --------------------
The following table presents the changes in interest and dividend income and the
changes in interest expense attributable to changes in interest rates or changes
in volume of interest-earning assets and interest-bearing liabilities during the
years of 1995 and 1994. Changes which are attributable to both rate and volume
have been allocated proportionately.
TABLE 6 - RATE/VOLUME ANALYSIS
($ thousands)
Year Ended December 31, 1995
Compared to
Year Ended December 31, 1994
----------------------------
<TABLE>
<CAPTION>
Net
Rate Volume Change
---- ------ ------
<S> <C> <C> <C>
Interest Income:
---------------
Loans Receivable $1,964 $3,468 $5,432
Mortgage-Backed Securities 1,205 2,077 3,282
Short-Term Investments 217 (385) (168)
Investment Securities 180 (756) (576)
----- ----- -----
Total 3,566 4,404 7,970
----- ----- -----
Interest Expense:
----------------
Deposits:
--------
Savings and Other (778) 173 (605)
Time (2,421) (869) (3,290)
----- ----- -----
Total Deposits (3,199) (696) (3,895)
Borrowings (373) (1,017) (1,390)
Mortgage Escrow Deposits (5) 4 (1)
----- ----- -----
Total (3,577) (1,709) (5,286)
----- ----- -----
Change in Net Interest Income ($11) $2,695 $2,684
== ===== =====
</TABLE>
Provision for Credit Losses
- ---------------------------
The regular provision for credit losses for the year ended December 31, 1995 was
$2.1 million compared to $690,000 for the year ended December 31, 1994. The $1.4
million increase resulted from loan growth of approximately $70 million during
the period, of which $61 million was residential mortgages. In addition, the
Bank's newly formed Commercial Loan Department originated $8.7 million of
commercial loans, the majority of which closed in the second half of 1995.
Increased commercial lending necessarily involves increased inherent credit
risk. The additional provision in 1995 is deemed prudent by management to
accommodate this increased risk.
Upon the successful completion of the ADP program, the Bank recovered $1.1
million of the original ADP allowance. As a result, the Bank had a net provision
of $1.0 million for the year ended December 31, 1995 compared to $3.8 million,
of which $3.1 million was the special ADP provision, for the year ended December
31, 1994.
The allowance for credit losses as of December 31, 1995 was $4.2 million
compared to $4.8 million as of December 31, 1994. Coverage of non-performing
loans provided by the allowance for credit losses was 31.9% and 48.4% as of
December 31, 1995 and 1994, respectively. Coverage of net loans provided by the
allowance for credit losses was 1.2% and 1.7% as of December 31, 1995 and 1994,
respectively.
-40-
<PAGE>
Non-Interest Income
- -------------------
Non-interest income consists of service charges and fees, fees derived from
servicing of loans, net securities gains, fees derived from the Bank's Trust
Department, and third party sales of annuities and mutual funds.
Non-interest income for the year ended December 31, 1995 was $2.7 million
compared to $1.8 million for the comparable period of 1994. The increase of
$869,000 or 47.6% was primarily attributable to gains on sales of securities of
$798,000 recorded in 1995 compared to a net loss on the sale of securities of
$64,000 during 1994.
The table below identifies the primary components of non-interest income. The
core elements of non-interest income were virtually unchanged for the periods.
TABLE 7 - NON-INTEREST INCOME
($ thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1995 1994
---- ----
<S> <C> <C>
Loan Servicing Fees $ 379 $ 427
Other Loan Fees 136 152
Deposit Service Charges 599 546
Trust Department Fees 515 513
Other 268 252
------ ------
Total Fees 1,897 1,890
Net Gains (Losses) on Securities 798 (64)
------ ------
Total Non-Interest Income $2,695 $1,826
===== =====
</TABLE>
Non-Interest Expense
- --------------------
Non-interest expense is comprised of general and administrative expenses
incurred in managing the business of the Bank and costs associated with managing
and selling OREO properties.
Non-interest expense was $12.7 million for the year ended December 31, 1995,
compared to $13.4 million for the same period in 1994.
-41-
<PAGE>
The table that follows indicates the elements of non-interest expense, including
OREO related expense, which is directly related to the level of non-performing
assets.
TABLE 8 - NON-INTEREST EXPENSE
($ thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1995 1994
---- ----
<S> <C> <C>
General and Administrative Expense
----------------------------------
Compensation $ 4,665 $ 3,888
Employee Benefits 1,567 1,229
Occupancy and Equipment 1,854 1,639
Regulatory Assessments 438 1,054
Marketing 700 400
Legal and Professional 354 271
Office Supplies 481 299
Insurance 237 310
Other 1,008 890
------ ------
Total 11,304 9,980
------ ------
OREO Related Expense
--------------------
Net Holding Costs and Expenses 728 851
Net Loss (Gain) on Sales of OREO 227 (319)
Provision for Estimated Losses 460 294
Provision for ADP - 2,600
------ ------
Total 1,415 3,426
------ ------
Total Non-Interest Expense $12,719 $13,406
====== ======
</TABLE>
Overall, non-interest expense decreased by $687,000 or 5.1%. The overall result
was the difference between a net increase of $1.3 million in general and
administrative expense and a $2.0 million decrease in OREO related expenses.
Slightly more than half of the total increase in general and administrative
expense, or $777,000, was attributable to compensation expense. The reason for
the increase in compensation expense was two-fold: staff levels increased as the
Bank added additional staff to the commercial lending function along with new
residential loan originators; the balance of the increase was attributable to
salary increases and incentive-based compensation. Employee benefits rose
$338,000 as a result of higher staff levels along with increased Employee Stock
Ownership Program (ESOP) costs. The ESOP cost is based on the average market
price per share for NSS stock which calculated out to be $16.33 per share for
1995, compared to $11.69 for 1994. The price per share increase of almost $5.00
combined with the shares allocated in 1995 resulted in an ESOP employee benefits
expense of $434,000 for 1995 compared to $283,000 for 1994. Although the ESOP
purchased the shares at the time of the stock conversion for $10.00 per share,
the accounting requirements for ESOP compensation expense is based upon the
market value of the shares allocated to employees.
Occupancy and equipment costs rose $215,000 from 1994's level as a result of
increased depreciation costs on capital improvements coupled with higher data
processing costs included in these totals. Marketing expenses increased as the
Bank stepped up general image and specific product advertising campaigns.
Expenses associated with legal and professional fees as well as office supplies
are higher as a result of the Bank's having been a public company for a full
year in 1995 and incurring a full year's worth of associated costs. All other
expenses increased to $1.0 million from $890,000 for the years ended December
31, 1995 and 1994, respectively. Included in 1995 was an out-of-court settlement
of a long running law suit amounting to $83,000.
These increases were partially offset by regulatory assessments declining by
$616,000 to $438,000 for 1995 reflecting the roll- back of FDIC insurance
premiums during the year. The Bank qualified as well-capitalized in accordance
with FDIC guidelines and paid the lowest rate available to member institutions.
-42-
<PAGE>
In addition to the general and administrative component of non-interest expense,
OREO related expenses declined to $1.4 million from $3.4 million for the years
ended December 31, 1995 and 1994, respectively. The $2.0 million decline is
primarily attributable to the ADP provision of $2.6 million included in 1994's
OREO expense. The ADP was a program begun after the Bank's stock conversion in
1994 and was designed to more rapidly dispose of certain nonperforming assets at
discounts below their net realizable values. The ADP program was concluded on
December 31, 1995 with no additional provision taken during 1995. Holding costs
and expenses declined to $728,000 from $851,000 for the years ended December 31,
1995 and 1994, respectively. This reduction is a result of the overall decline
in the OREO portfolio. The net balance of OREO was $4.3 million as of December
31, 1995 compared to $10.8 million at December 31, 1994. The provision for
estimated OREO losses amounted to $460,000 for 1995 compared to $294,000 in
1994. As a result of the relatively low balance of OREO as of year end 1995,
combined with the stabilization in real estate values in Fairfield County,
management determined that there was no need for an allowance for estimated OREO
losses. Since management's approach is to reduce OREO as quickly, efficiently
and effectively as possible, the Bank may incur losses to dispose of OREO below
its net realizable value, should the opportunities arise. Sales of OREO
properties in 1995 resulted in net losses of $227,000 compared to net gains in
1994 of $319,000.
Provision for Income Taxes
- --------------------------
The current provision for income taxes during the year ended December 31, 1995
as well as the year ended December 31, 1994 represented estimated minimum state
income tax requirements for the periods as both federal and state income-based
tax liabilities are offset by loss carryforwards. In addition, the Bank
recovered a portion of the valuation allowance against its net deferred tax
asset by reflecting a deferred tax benefit in the current year's earnings of
$1.2 million. The remaining available net deferred tax asset as of December 31,
1995 amounted to $3.3 million and was offset entirely by a valuation allowance
as of that date.
FINANCIAL CONDITION
-------------------
General
- -------
Total assets were $589.6 million as of December 31, 1996, representing a $74.3
million increase from the $515.3 million at December 31, 1995. Total loans, net
of allowance for credit losses, were $410.8 million, an increase of $55.0
million from the $355.8 million as of December 31, 1995. Total deposits were
$423.3 million, an increase of $20.5 million from the December 31, 1995 level of
$402.8 million. Shareholders' equity was $49.4 million as of December 31, 1996
compared to $43.6 million as of December 31, 1995. The tier one leverage capital
ratio was 7.9% as of December 31, 1996 compared to 8.4% as of December 31, 1995.
Two significant transactions during 1996 significantly affected the Bank's asset
and liability composition. A summary of each transaction follows:
Fairfield First Bank & Trust Company (FFB&T)
- -------------------------------------------
In July 1996 the Bank assumed essentially all liabilities, primarily $47.6
million in deposits, and acquired certain assets of Fairfield First Bank & Trust
Company (FFB&T), Fairfield, Connecticut, in an FDIC-assisted transaction.
Certain of the commercial real estate loans acquired from the FDIC were
simultaneously sold to another bank at an amount in excess of the Bank's bid
price to the FDIC.
As of September 30, 1996 the Bank completed its evaluation and allocated the net
purchase price to the assets acquired and the liabilities assumed based upon
their fair values. The net acquired loans were reflected at a fair value of
$13.7 million, which was net of a valuation allowance of $1.0 million, and the
excess of the purchase price over the net assets acquired, which approximated
$1.8 million and which management deems to represent a core deposit intangible,
has been reflected as Goodwill in the Consolidated Statement of Financial
Condition. Approximately $76,000 of goodwill amortization has been included in
Other non-interest expense for the year ended December 31, 1996, based on an
estimated life of six years.
-43-
<PAGE>
Branch Sales
- ------------
In October 1996 the Bank sold two of its branch office operations, comprised of
deposits aggregating $48.0 million, loans aggregating $0.2 million, and premises
and equipment amounting to $307,000. As a result of the sale, the Bank
recognized a total gain of $3.6 million, essentially all of which was the
deposit premium gain.
Investment Securities
- ---------------------
Total securities amounted to $140.1 million as of December 31, 1996 compared to
$123.9 million at December 31, 1995, representing a $16.2 million increase or
13.1%. Purchases of investments made during 1996 amounted to $82.4 million,
compared to $67.6 million for the year ended December 31, 1995.
In accordance with Statement of Financial Accounting Standard No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115),
which the Bank adopted as of January 1, 1994, the Bank was required to classify
each security in the portfolio as either "Held-to-Maturity," "Available-for-
Sale," or "Trading Account Security." In accordance with the additional guidance
provided by the Financial Accounting Standards Board ("FASB") in conjunction
with SFAS 115, during 1995 the Bank re-assessed and reclassified certain of its
investments originally classified as Held-to-Maturity to Available-for-Sale.
During 1996 management continued to assess the objectives of the Bank's
investment portfolio in light of its plans to transform the Bank's financial
condition, and decided during the fourth quarter that the Held-to-Maturity
classification was no longer supported by management's intent for the portfolio.
Therefore, effective December 31, 1996, the Bank reclassified all of its
Held-to-Maturity investments to the Available-for-Sale classification. This
decision required the Bank to mark each security to fair value through an
adjustment to Shareholders' equity, net of income tax effect, as of December 31,
1996.
During 1996 the Bank decided to liquidate its portfolio of utility stocks as a
result of the decision to re-position the investment security portfolios. This
resulted in a net loss of $165,000. The Bank has established two portfolios of
equity securities, an Available-for-Sale portfolio of a variety of equities and
mutual funds aggregating $2.2 million at December 31, 1996, and a Trading
Account group of equities for certain other common stock equity securities
against which the Bank sells covered call options from time to time as market
conditions allow.
The Bank's covered call option program is designed for yield enhancement and to
lessen the Bank's exposure to a potentially volatile stock market. In this
program, the Bank purchases shares of qualified common stock and sells a call
option against the investment. The holding period of each investment is usually
one to three months and there are ten to fifteen investment positions in the
program. As required by SFAS 115, the Bank marks the common stock and related
covered call option to market through current period earnings. The mark to
market effect on earnings as of December 31, 1996 was a loss of $61,000 on the
$3.3 million Trading Portfolio.
Inasmuch as the Bank has had its equity investment privileges grandfathered by
the FDIC, it intends to continue to maintain an equity stock portfolio. To
provide direction, the Bank's Board of Directors has established upward limits
and an investment policy which includes guidelines which require that the Bank's
equity investments have a minimum quality rating of "A" by a widely recognized
rating service; the policy also requires adequate diversification to avoid
concentrations in lines of business and geographic regions.
During the second half of 1995, the Bank accumulated a significant common stock
position in Hometown Bancorporation ("Hometown"), a local bank holding company,
to the extent that the Bank filed a Form 13-D with an over 5% ownership
position. In April 1996 the Bank liquidated its position shortly after HUBCO,
Inc., a New Jersey-based bank holding company, announced its planned acquisition
of Hometown. The Bank recorded a $627,000 gain on the sale of its investment in
Hometown in 1996.
In total, net securities gains for the year ended December 31, 1996 were
$661,000 compared to $798,000 for the year ended December 31, 1995.
-44-
<PAGE>
The following table presents a summary of the investments and other securities
portfolios as of December 31, 1996 and December 31, 1995, fair values and
unrealized gains and losses as of those dates.
TABLE 9 - INVESTMENT & OTHER SECURITIES
($ thousands)
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------------------------
Unrealized Holding
Amortized ----------------------- Fair
Cost Gains Losses Value
--------- ----- ------ -----
<S> <C> <C> <C> <C>
Available for Sale
- ------------------
U.S. Government and Federal
Agency Obligations $ 42,436 $145 $461 $ 42,120
Mortgage Backed Securities 92,443 382 372 92,453
Equity Securities 2,110 138 12 2,236
------- --- --- -------
Total Available for Sale $136,989 $665 $845 $136,809
======= === === =======
Trading
- -------
Equity Securities $3,353 $46 $107 $3,292
===== == === =====
<CAPTION>
December 31, 1996
----------------------------------------------------------------------
Unrealized Holding
Amortized ----------------------- Fair
Cost Gains Losses Value
--------- ----- ------ -----
Trading
- -------
<S> <C> <C> <C> <C>
Equity Securities $268 $ - $5 $263
=== == = ===
Available for Sale
- ------------------
U.S. Government and Federal
Agency Obligations $26,611 $128 $ 55 $26,684
Mortgage-Backed Securities 50,243 220 162 50,301
Equity Securities 4,572 94 85 4,581
------- ---- ---- -------
Total Available for Sale $81,426 $442 $302 $81,566
====== === === ======
Held to Maturity
- ----------------
U.S. Government and Federal
Agency Obligations $ 1,998 $ - $ - $ 1,998
Mortgage-Backed Securities 40,038 358 114 40,282
------ --- --- ------
Total Held to Maturity $42,036 $358 $114 $42,280
====== === === ======
</TABLE>
-45-
<PAGE>
Loans
- -----
Total loans, before reductions for deferred credits, fees and the allowance for
credit losses, amounted to $418.8 million, representing a $58.3 million or 16.2%
increase over the December 31, 1995 level of $360.5 million.
TABLE 10 - LOAN PORTFOLIO
($ thousands)
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
Real Estate Loans
- -----------------
<S> <C> <C> <C> <C>
1 To 4 Family Adjustable Rate $302,686 72.3% $231,168 64.1%
1 To 4 Family Fixed Rate 31,933 7.6% 56,360 15.6%
Multi-Family 7,450 1.8% 8,902 2.5%
Commercial 46,272 11.0% 44,914 12.5%
Home Equity Lines Of Credit 7,127 1.7% 5,698 1.6%
Home Improvement and
Second Mortgages 2,568 0.6% 3,422 0.9%
Land 828 0.2% 1,290 0.4%
Construction 1,227 0.3% 1,617 0.4%
------- -------
Total Real Estate Loans 400,091 95.5% 353,371 98.0%
------- -------
Commercial Loans 8,425 2.0% 1,485 0.4%
- ---------------- ------- -------
Consumer Loans
- --------------
Passbook 1,510 0.4% 1,634 0.4%
Automobile Loans 2,619 0.6% 2,792 0.8%
Automobile Leases 3,149 0.8% 230 0.0%
Credit Cards 991 0.2% - -
All Other 2,033 0.5% 963 0.3%
------- -------
Total Consumer Loans 10,302 2.5% 5,619 1.6%
------- -------
Total Loans, Gross 418,818 100% 360,475 100%
Deferred Fees and Credits (718) (509)
------- -------
418,100 359,966
Allowance for Credit Losses (7,334) (4,170)
------- -------
Total Loans, Net $410,766 $355,796
======= =======
</TABLE>
The increase in demand for new residential mortgage loans continued during 1996
as a result of the Bank's loan originators offering competitively priced
residential mortgage products combined with NSS's outstanding reputation for
service. During 1996, the Bank continued to focus on originating adjustable rate
residential loans. As indicated by the table, 79.9% of the total loan portfolio
is in first mortgage residential loans. Of the $418.8 million in the loan
portfolio, 72.3% of the portfolio or $302.7 million is in residential adjustable
first mortgage loan products.
The Bank continued to emphasize small business commercial lending during 1996.
By December 31, 1996 the commercial and industrial portion of the portfolio had
grown to $8.4 million from $1.5 million as of December 31, 1995. These loans are
originated by the commercial loan team that was established in 1995 and
continues to grow. The loans are most often at a margin over and above the NSS
bank rate which follows the prime rate and adjusts whenever the prime changes.
Automobile leases also increased substantially during the year. These leases are
originated on an indirect basis, which means that they are acquired from a third
party provider after having been re-underwritten by an NSS credit
representative. The indirect automobile lease portfolio as of December 31, 1996
was $3.1 million compared to $0.2 million, last year.
-46-
<PAGE>
In conjunction with the FFB&T transaction the Bank acquired a credit card
portfolio. As of December 31, 1996 this portfolio was $1.0 million and the Bank
plans to maintain the credit card product and to continue to offer it on a
prudent lending basis.
The sale of $44.8 million in five year adjustable rate residential mortgages was
consummated during the fourth quarter of 1996. This sale generated a loss of
$144,000 but alleviated a concentration of assets in a particular product and
was done in conjunction with the plan to accomplish the transformation of the
Bank's balance sheet. The sale was negotiated on a servicing-released basis,
whereby the servicing of the loans was sold along with the mortgages. A
marketing evaluation of these borrowers resulted in the assessment that as a
group they could not be cross-sold on additional Bank products and services; as
such, the profitability of a continued relationship was limited.
There were no loan securitizations during 1996. Securitization of $4.3 million
of certain types of adjustable rate mortgage loans took place during the year
ended December 31, 1995 to alleviate an excess concentration in those products
at that time.
Non-Performing Assets/Asset Quality
- -----------------------------------
The Bank's level of non-performing assets continued to steadily decline during
1996. Total non-performing assets as of December 31, 1996 were $11.3 million,
representing 1.92% of total assets. As of December 31, 1995, non-performing
assets were $17.3 million or 3.36% of total assets.
Details of the Bank's asset quality are shown in the analysis provided by Table
11.
-47-
<PAGE>
TABLE 11 - ASSET QUALITY
($ thousands)
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Non-Performing Assets
- ---------------------
Non-Accrual Loans $10,441 $12,598 $ 9,489 $26,180 $40,591
Restructured Loans - 472 487 - 630
------- ------- -------- ------- -------
Total Non-Performing Loans 10,441 13,070 9,976 26,180 41,221
------- ------- -------- ------- -------
Foreclosed Assets 858 4,267 11,622 17,824 17,613
Allowance for Estimated OREO Losses - - (802) (194) (1,025)
------- ------- -------- ------- -------
Total OREO 858 4,267 10,820 17,630 16,588
------- ------- -------- ------- -------
Total Non-Performing Assets $11,299 $17,337 $ 20,796 $43,810 $57,809
======= ======= ======== ======= =======
Allowance for Credit Losses
- ---------------------------
Balance at Beginning of Period $4,170 $4,827 $2,532 $4,567 $6,081
Provision for Credit Losses 4,415 1,005(A) 3,790 1,000 2,330
Allocated to FFB&T Acquired Loans 1,000 - - - -
Charge-Offs (2,488) (1,799) (1,589) (3,073) (3,900)
Recoveries 237 137 94 38 56
------- ------- -------- ------- -------
Net Charge-Offs (2,251) (1,662) (1,495) (3,035) (3,844)
------- ------- -------- ------- -------
Balance at End of Period $7,334 $4,170 $4,827 $2,532 $4,567
======= ======= ======== ======= =======
(A) Gross Provision of $2,105
Less ADP Credit of $1,100
Allowance for Estimated OREO Losses
- -----------------------------------
Balance at Beginning of Period $ - $ 802 $ 194 $1,025 $1,146
Provision for Estimated OREO Losses 459 460 2,894 3,975 1,550
Charge-Offs (459) (1,262) (2,286) (4,806) (1,671)
------- ------- -------- ------- -------
Balance at End of Period $- $- $802 $194 $1,025
= = === === =====
Loans Receivable, Net
- ---------------------
End of Period $410,766 $355,796 $284,885 $266,181 $300,131
Average 403,207 313,072 265,581 267,729 295,209
------- ------- -------- ------- -------
Total Assets, End Of Period $589,589 $515,267 $464,901 $427,950 $431,079
======= ======= ======== ======= =======
Ratios
- ------
Allowance for Credit Losses to Total Loans 1.79% 1.17% 1.69% 0.95% 1.52%
Net Charge-Offs to Average Loans 0.56% 0.53% 0.56% 1.13% 1.30%
Non-Performing Loans to Total Loans 2.54% 3.67% 3.50% 9.84% 13.73%
Non-Performing Assets to Total Assets 1.92% 3.36% 4.47% 10.24% 13.41%
Allowance for Credit Losses to
Non-Performing Loans 70.24% 31.91% 48.39% 9.67% 11.08%
</TABLE>
-48-
<PAGE>
Of the total non-performing assets, non-performing loans were $10.4 million as
of December 31, 1996 compared to $13.1 million as of December 31, 1995. There
were no troubled debt restructurings included in non-performing loans as of
December 31, 1996 and $472,000 of troubled debt restructurings as of December
31, 1995.
The allowance for credit losses amounted to $7.3 million as of December 31,
1996, representing coverage of 70.24% of non- performing loans compared to $4.2
million and 31.91% coverage of non-performing loans at December 31, 1995. The
allowance for credit losses at December 31, 1996 includes $1.0 million of credit
risk allowance allocated to the loans acquired through the FFB&T transaction.
Net charge-offs for 1996 were $2.3 million or 56 basis points of the average
loan portfolio, compared to $1.7 million and 53 basis points for the year ended
December 31, 1995.
During 1996 the Bank decided to substantially increase its allowance for credit
losses in light of its increased levels of commercial and consumer loans, the
significant increase in mortgage lending, and the substantial increase in its
Watch List at December 31, 1996.
No allowance for estimated OREO losses was deemed necessary as of December 31,
1996 as a result of the minimal amount of OREO remaining at that time, the
stabilization of the residential real estate market, and management's assessment
that the carrying value of OREO fairly represents net realizable values.
The Bank concluded the ADP program on December 31, 1995 with the following
results. In total, gross assets of $16.1 million were disposed of. A total of
$4.6 million was charged to the ADP allowances. The Bank exceeded its initial
target in each category, as originally the ADP program was set up to dispose of
$14.0 million of assets utilizing a reserve of $5.7 million. The OREO component
of the program resulted in sales of $12.4 million utilizing a reserve of $2.6
million. Loans disposed of through the program amounted to $3.7 million
utilizing a reserve of $2.0 million. In addition, the $1.1 million remaining in
the ADP allowance was credited to income upon the program's conclusion on
December 31, 1995.
Deposits
- --------
Total deposits at December 31, 1996 were $423.3 million compared to $402.8
million as of December 31, 1995, an increase of $20.5 million or 5.1%. The Bank
continues to seek deposits with marketing and sales efforts directed towards all
of its products. As a result of the Bank's building the small business
commercial lending operation, coupled with aggressive marketing campaigns,
demand deposits ("DDA") increased by $8.8 million, or 64.1%, to $22.5 million as
of December 31, 1996. This result comes after a year when the Bank had 48.9%
growth in DDA deposits during 1995. Back-to-back substantial gains in
interest-free money provided by demand accounts continues to contribute to net
interest margin enhancement. The Bank does not solicit, nor does it accept,
brokered deposits.
-49-
<PAGE>
The following table presents a summary of deposits as of December 31, 1996 and
1995.
TABLE 12 - DEPOSITS
($ thousands)
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C> <C> <C>
Demand $22,479 5.3% $13,697 3.4%
Savings
Regular Savings 28,096 6.6% 28,660 7.1%
NOW 30,262 7.2% 35,097 8.7%
Super and Money Market Accounts
Super Savings 45,404 10.7% 55,042 13.7%
Money Market 47,957 11.3% 59,724 14.8%
Time
Certificate Accounts 197,204 46.6% 154,205 38.3%
Money Market Certificates 46,923 11.1% 52,230 13.0%
Escrow Deposits 4,965 1.2% 4,142 1.0%
--------- ------- --------- -------
Total Deposits $423,290 100.0% $402,797 100.0%
========= ======= ========= =======
</TABLE>
Federal Home Loan Bank of Boston Advances and Other Borrowings
- --------------------------------------------------------------
The Bank continues to utilize the FHLB as a source of funds alternative to the
traditional deposit account relationship. As of December 31, 1996, borrowings
from the FHLB totaled $82.2 million compared to $61.8 million as of December 31,
1995. In addition, the Bank increased the use of the reverse repurchase
agreement as a means to borrow funds. These agreements are essentially
collateralized borrowings, similar to FHLB borrowings, and to the extent that
the rates and terms are more favorable, the Bank utilizes the reverse repurchase
agreement in lieu of an FHLB borrowing. As of December 31, 1996 there was $31.4
million of borrowings outstanding under reverse repurchase agreements compared
to $4.6 million as of December 31, 1995.
In total, borrowings as of December 31, 1996 were $113.6 million at a weighted
average rate of 5.74% and a weighted average maturity of 1.1 years, compared to
$66.4 million at a weighted average rate of 6.42% and a weighted average
maturity of 1.38 years as of December 31, 1995. As a percentage of total assets,
borrowings amounted to 19.3% as of December 31, 1996 compared to 13.0% as of
December 31, 1995.
As a result of the Bank's stock conversion, the Bank has reflected the guaranty
of the ESOP loan as an obligation of the Bank. This note is a five-year
adjustable rate note (convertible to a fixed rate at the Bank's option) with
interest and principal payable monthly. The outstanding balance was $485,000 and
the rate in effect as of December 31, 1996 was 6.86%.
-50-
<PAGE>
Shareholders' Equity
- --------------------
Shareholders' equity at December 31, 1996 increased to $49.4 million from $43.6
million at December 31, 1995, reflecting Tier 1 regulatory leverage capital
ratios of 7.9% and 8.4%, respectively.
The following table indicates required and actual levels of capital as of
December 31, 1996 and 1995.
TABLE 13 - REGULATORY CAPITAL
<TABLE>
<CAPTION>
Required Actual
-------- ------
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
Tier 1 Risk-Based Capital 4.0% 15.7% 16.6%
Total Risk-Based Capital 8.0% 17.0% 17.9%
Tier 1 Leverage Capital 4.0%-5.0% 7.9% 8.4%
</TABLE>
Asset and Liability Management
- ------------------------------
In accordance with the Asset and Liability Management Policy of Norwalk Savings
Society, senior management postures the Bank toward an acceptable level of
interest rate risk, in turn producing a stable net interest income in ever
changing interest rate environments. On a continual basis, at its monthly asset
and liability committee meeting and more frequently, if necessary, the level of
interest-earning assets is monitored and measured in relation to
interest-bearing liabilities utilizing the "gap" schedule in conjunction with
other supporting documents and systems providing relevant information. Certain
assumptions are made during this process, and the applicable assumptions to the
gap schedule are indicated on the following page. These assumptions may or may
not be indicative of future withdrawals of deposits or loan repayments.
The following table presents the Interest Rate Risk Exposure ("GAP") as of
December 31, 1996.
-51-
<PAGE>
TABLE 14 - GAP AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
Repricing
Repricing After One Repricing
($ thousands) Total Percent Within and Within Over
A S S E T S Amount of Total One Year Five Years Five Years
- ----------- ------ -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Loans (1)
- ---------
Fixed Rate by Maturity $105,890 17.96% $ 6,779 $ 17,664 $ 81,447
Floating Rate by Maturity 302,487 51.31 158,416 126,242 17,829
Securities:
- ----------
Governments and Agencies 42,120 7.14 - - 42,120
Mortgage-Backed Securities (1) 92,453 15.68 42,862 3,859 45,732
Equity Securities/FHLB Stock 11,712 1.99 11,712
Short-Term Investments 4,121 0.70 4,121
-------- ------- ------- ------- -------
Total Rate Sensitive Assets 558,783 94.78 223,890 147,765 187,128
------- ------- -------
Cumulative Rate Sensitive Assets $223,890 $371,655 $558,783
======= ======= =======
Other Assets (2) 30,806 5.22
-------- -------
Total Assets $589,589 100.00%
======= ======
Liabilities and Shareholders' Equity
- ------------------------------------
Deposits:
- --------
Savings $ 28,096 4.77% $28,096 $ - $ -
Super Savings 45,404 7.70 45,404 - -
NOW 30,262 5.13 30,262 - -
Money Market 47,957 8.13 47,957 - -
Escrow 4,965 0.84 4,965 - -
Certificates 244,127 41.42 186,405 57,722 -
-------- ------- ------- ------- -------
Total Deposits 400,811 67.99 343,089 57,722 -
Borrowings 114,043 19.34 68,557 44,051 1,435
-------- ------- ------- ------- -------
Total Rate Sensitive Liabilities 514,854 87.33 411,646 101,773 1,435
------- ------- -------
Cumulative Rate Sensitive Liabilities $411,646 $513,419 $514,854
======= ======= =======
Other Liabilities 25,382 4.30
Shareholders' Equity 49,353 8.37
-------- -------
Total Liabilities and Shareholders' Equity $589,589 100.00%
======== =======
Net Position of Assets (Liabilities) ($187,756) $45,992 $185,693
Adjustments (3), (4) (117,713) 61,947 55,766
------- ------- -------
Adjusted GAP (70,043) (15,955) 129,927
------- -------
Cumulative Repricing Difference (Cumulative Gap) ($70,043) ($85,998) $ 43,929
======= ======= =======
Cumulative GAP to Total Assets (11.88%) (14.59%) 7.45%
===== ===== ====
</TABLE>
Note:
(1) Included in the one year period are regularly scheduled monthly
payments to be received on Loans and Mortgage-backed securities.
(2) Not included above as interest rate sensitive are $10.4 million in
non-accruing loans and $0.9 million in OREO property.
(3) 95% of savings and NOW accounts were reclassified to the over five year
period.
(4) Money market and super savings were divided 1/3, 2/3, respectively in
each of the first two periods.
52
<PAGE>
Liquidity and Capital Resources
- -------------------------------
Liquidity is the ability of the Bank to meet its cash flow requirements arising
from fluctuations in loans, securities, deposits, and other borrowings. At
December 31, 1996, the Bank's primary liquidity, consisting of cash, cash
equivalents and marketable securities with maturities of one year or less was
$30.6 million or 5.2% of total assets, compared to $30.3 million or 5.9% of
total assets at December 31, 1995.
The Bank's primary sources of funds are deposits and other borrowings, primarily
from the FHLB. The Bank monitors its liquidity in accordance with policy
guidelines established by the Asset and Liability Management Policy and
regulatory standards, administered by the Asset and Liability Management
Committee of the Bank.
As of December 31, 1996, the Bank had approved loan commitments outstanding for
one-to four-family loans of $4.1 million. In addition, there was $7.8 million of
unused credit under the home equity line of credit facility, $833,000 under the
overdraft protection credit line facility, and $1.1 million in unused credit
card lines. The unadvanced portion of residential construction loans amounted to
$1.8 million. There were $2.6 million in approved loan commitments in the
Commercial Lending Department, $1.7 million in unused commercial lines of credit
and $603,000 in commercial letters of credit outstanding.
Management believes that the Bank's liquidity is currently in a position to meet
normal operating needs. To meet unexpected demands, the Bank maintains a line of
credit with the FHLB. At December 31, 1996, this line of credit was $10.3
million, of which no amount was outstanding.
Management also believes that the Bank's capital position is currently adequate
to meet present needs and anticipated growth, and does not currently plan to
raise capital from external sources in the near future. (see Shareholders'
Equity).
Market Price of Common Stock
- ----------------------------
Norwalk Savings Society trades on the NASDAQ National Market under the symbol
"NSSY".
The following table sets forth the high/low price range as reported by NASDAQ
and dividends paid for the periods indicated:
<TABLE>
<CAPTION>
1996 1995
---- ----
High Low Div(1) High Low Div (1)
---- --- --- ---- --- ----
<S> <C> <C> <C> <C> <C> <C>
First Quarter $22.00 $18.75 $ - $15.63 $11.00 $ -
Second Quarter $22.25 $17.94 $.05 $16.38 $14.63 $ -
Third Quarter $23.13 $20.88 $.05 $20.00 $15.88 $ -
Fourth Quarter $24.88 $22.75 $.05 $19.25 $17.50 $ -
</TABLE>
(1) The Bank began paying quarterly dividends during the second quarter of 1996.
The Bank's initial public offering of common stock was effective June 15, 1994.
At December 31, 1996 Norwalk Savings Society had approximately 750 shareholders
of record.
-53-
<PAGE>
ITEM 8.
- -------
Financial Statements and Supplementary Data
-54-
<PAGE>
NORWALK SAVINGS SOCIETY
Consolidated Financial Statements
YEARS ENDED
DECEMBER 31, 1996 AND 1995
-55-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
CONTENTS
Independent auditor's report
CONSOLIDATED FINANCIAL STATEMENTS
Statements of financial condition..................................Exhibit A
Statements of operations...........................................Exhibit B
Statements of shareholders' equity.................................Exhibit C
Statements of cash flows...........................................Exhibit D
Notes to consolidated financial statements
-56-
<PAGE>
[LETTERHEAD OF FRIEDBERG, SMITH & CO., P.C. APPEARS HERE]
Independent Auditor's Report
----------------------------
The Board of Directors and Shareholders
Norwalk Savings Society
Norwalk, Connecticut
We have audited the accompanying consolidated statements of financial condition
of Norwalk Savings Society as of December 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of Norwalk Savings
Society's management. Our responsi-bility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
-57-
<PAGE>
The Board of Directors and Stockholders
Norwalk Savings Society
Page Two
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Norwalk
Savings Society at December 31, 1996 and 1995, and the consolidated results of
their operations, changes in their shareholders' equity and their cash flows for
each of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
FRIEDBERG, SMITH & CO., P.C.
Bridgeport, Connecticut
February 20, 1997
-58-
<PAGE>
NORWALK SAVINGS SOCIETY EXHIBIT A
-----------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1996 AND 1995
----------------------------------------------
<TABLE>
<CAPTION>
A S S E T S 1996 1995
- ----------- ---- ----
(Dollar amounts in thousands)
<S> <C> <C>
Cash and Due from Banks (Note 1) $ 14,978 $ 10,222
Interest-Bearing Deposits in Other Banks (Notes 2 and 8) 2,373 406
Federal Funds Sold (Note 1) 1,500 8,000
Securities (Notes 1 and 2):
- --------------------------
Trading, At Fair Value 3,292 263
Available-for-Sale, At Fair Value 136,809 81,566
Held-to-Maturity (Fair Value $42,280 in 1995) - 42,036
------- -------
140,101 123,865
Loans Receivable, Net of Allowance for Credit Losses of $7,334
in 1996 and $4,170 in 1995 (Notes 1, 3, 7, 14, 17 and 18) 410,766 355,796
Accrued Income Receivable (Notes 1 and 3) 4,034 3,012
Investment in FHLBB Stock, At Cost (Note 7) 6,184 3,621
OREO, Net (Notes 1, 4 and 14) 858 4,267
Bank Premises and Equipment, Net (Notes 1, 5 and 17) 3,151 3,319
Deferred Income Tax Asset, Net (Notes 1 and 9) 2,574 1,200
Other Assets (Notes 1 and 18) 3,070 1,559
------- -------
TOTAL ASSETS $589,589 $515,267
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities
- -----------
Deposits (Notes 6, 17 and 18):
-----------------------------
Non-Interest Bearing $ 22,479 $ 13,697
Interest Bearing 400,811 389,100
------- -------
423,290 402,797
Advances from FHLBB (Note 7) 82,208 61,795
Securities Sold Under Agreements to Repurchase (Notes 2 and 7) 31,350 4,600
Other Borrowings (Notes 8 and 12) 485 728
Accrued Expenses and Other Liabilities (Note 8) 2,903 1,752
------- -------
Total Liabilities 540,236 471,672
------- -------
Commitments and Contingent Liabilities (Notes 5 and 11)
- -------------------------------------------------------
Shareholders' Equity (Notes 1, 2, 5, 8, 11, 12, 13, 16 and 20):
- --------------------------------------------------------------
Preferred Stock - $.01 Par Value -
500,000 shares Authorized, None Issued - -
Common Stock - $.01 Par Value -
Authorized 7,000,000 shares; Issued 2,442,129 shares in 1996 and 2,435,234
shares in 1995; Outstanding 2,397,312 shares in 1996
and 2,364,720 shares in 1995 24 24
Additional Paid-In Capital 23,545 23,133
Retained Earnings 26,339 21,003
Net Unrealized (Losses) Gains on Securities
Available-for-Sale, Net of tax effect (106) 140
------- -------
Total 49,802 44,300
Less: Unearned ESOP Shares (449) (705)
------- -------
Total Shareholders' Equity 49,353 43,595
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $589,589 $515,267
======= =======
</TABLE>
See notes to consolidated financial statements.
-59-
<PAGE>
NORWALK SAVINGS SOCIETY EXHIBIT B
-----------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
--------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Dollar amounts in thousands,
except per share data)
<S> <C> <C> <C>
Interest Income (Note 1)
- -----------------------
Interest and Fees on Loans $30,589 $23,666 $18,234
------ ------ ------
Securities:
----------
U.S. Government and Agencies 2,571 1,961 2,633
Mortgage-Backed Securities 7,076 6,753 3,471
Marketable and Other Equities 528 358 262
------ ------ ------
10,175 9,072 6,366
Cash Equivalent Investments and Other 491 277 445
------ ------ ------
Total Interest Income 41,255 33,015 25,045
------ ------ ------
Interest Expense
- ----------------
Deposits (Note 6) 16,844 14,169 10,273
Borrowed Funds (Note 7) 6,796 4,229 2,839
------ ------ ------
Total Interest Expense 23,640 18,398 13,112
------ ------ ------
Net Interest Income 17,615 14,617 11,933
Provision for Credit Losses (Notes 1 and 3) 4,415 1,005 3,790
------ ------ ------
Net Interest Income after
Provision for Credit Losses 13,200 13,612 8,143
------ ------ ------
Non-Interest Income
- -------------------
Trust Department Fees 552 515 513
Net Securities Gains (Losses) (Note 2) 661 798 (64)
Net Loss from Sale of Loans (Note 3) (144) - -
Loan Servicing and Other Loan Fees 480 515 579
Service Charges on Deposit Accounts 763 599 546
Other (Note 17) 4,531 268 252
------ ------ ------
Total Non-Interest Income 6,843 2,695 1,826
------ ------ ------
Non-Interest Expense
- --------------------
Salaries and Employee
Benefits (Notes 8 and 13) 7,649 6,232 5,117
Occupancy and Equipment (Note 5) 2,391 1,854 1,639
Losses and Expenses of OREO, Net (Note 4) 1,362 1,415 3,426
Other (Notes 10, 12 and 18) 4,064 3,218 3,224
------ ------ ------
Total Non-Interest Expense 15,466 12,719 13,406
------ ------ ------
Income (Loss) before Income Tax
(Benefit) Provision 4,577 3,588 (3,437)
Income Tax (Benefit)
Provision, Net (Notes 1 and 9) (1,125) (1,190) 50
------ ----- -----
Net Income (Loss) $5,702 $4,778 ($3,487)
===== ===== =====
Per Share Data (Note 1)
- ----------------------
Weighted Average Shares Outstanding 2,381,264 2,346,487 2,305,524
========= ========= =========
Income (Loss) Per Share $2.39 $2.04 ($1.51)
==== ==== ====
</TABLE>
See notes to consolidated financial statements.
-60-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
EXHIBIT C
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
--------------------------------------------------------------
<TABLE>
<CAPTION>
Additional Unrealized
Common Paid-In Retained Gains
Shares Stock Capital Earnings (Losses)
------ ----- ---------- -------- ----------
(Notes 1 and 2)
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1994 - $ - $ - $19,712 $ -
Net Loss for 1994 - - - (3,487) -
Stock Conversion (Note 12) 2,426,740 24 22,797 - -
Shares Purchased by ESOP (Note 12) (121,337) - - - -
Shares Committed to be Released (Note 8) 24,267 - 41 - -
Change in Unrealized Gains (Losses), Net - - - - (603)
--------- -- ------ ------ ---
Balance - December 31, 1994 2,329,670 24 22,838 16,225 (603)
Net Income for 1995 - - - 4,778 -
Shares Committed to be Released (Note 8) 26,556 - 168 - -
Stock Options Exercised (Note 13) 8,494 - 127 - -
Change in Unrealized Gains (Losses), Net - - - - 743
--------- -- ------ ------ ---
Balance - December 31, 1995 2,364,720 24 23,133 21,003 140
Net Income for 1996 - - - 5,702 -
Cash Dividends Paid on Common Stock,
$0.15 per share (Note 12) - - - (366) -
Shares Committed to be Released (Note 8) 25,697 - 304 - -
Stock Options Exercised (Note 13) 6,665 - 103 - -
Shares Distributed to Advisory Board (Note 12) 230 - 5 - -
Change in Unrealized Gains (Losses), Net - - - - (246)
--------- -- ------ ------ ---
Balance - December 31, 1996 2,397,312 $24 $23,545 $26,339 ($106)
========= == ====== ====== ===
<CAPTION>
Total
Unearned Share-
ESOP holders'
Shares Equity
-------- ------
(Notes 8 and 12)
(Dollar amounts in thousands)
<S> <C> <C>
Balance - January 1, 1994 $ - $19,712
Net Loss for 1994 - (3,487)
Stock Conversion (Note 12) - 22,821
Shares Purchased by ESOP (Note 12) (1,213) (1,213)
Shares Committed to be Released (Note 8) 242 283
Change in Unrealized Gains (Losses), Net - (603)
----- ------
Balance - December 31, 1994 (971) 37,513
Net Income for 1995 - 4,778
Shares Committed to be Released (Note 8) 266 434
Stock Options Exercised (Note 13) - 127
Change in Unrealized Gains (Losses), Net - 743
--- ------
Balance - December 31, 1995 (705) 43,595
Net Income for 1996 - 5,702
Cash Dividends Paid on Common Stock,
$0.15 per share (Note 12) - (366)
Shares Committed to be Released (Note 8) 256 560
Stock Options Exercised (Note 13) - 103
Shares Distributed to Advisory Board (Note 12) - 5
Change in Unrealized Gains (Losses), Net - (246)
--- ------
Balance - December 31, 1996 ($449) $49,353
=== ======
</TABLE>
See notes to consolidated financial statements.
-61-
<PAGE>
NORWALK SAVINGS SOCIETY EXHIBIT D
----------------------- Page 1 of 2
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
--------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities
- ------------------------------------
Net Income (Loss) $ 5,702 $ 4,778 $(3,487)
------ ------ ------
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided by Operating Activities:
-----------------------------------------
Provision for Credit Losses 4,415 1,005 3,790
Provision for Estimated Losses on OREO 459 460 2,894
Provision for ESOP Benefit Cost 560 434 283
Stock Issued to Advisory Board As Compensation 5 - -
Depreciation and Amortization 521 391 286
Goodwill Amortization 76 - -
Net Amortization (Accretion) of Discounts
and Premiums on Securities 504 (954) (746)
Deferred Income Tax Benefit (1,300) (1,200) -
Net Gain on Sale of Deposits (3,600) - -
Net Realized (Gains) Losses on
Sales of Securities Available-for-Sale (693) (803) 64
Net Loss on Sale of Loans 144 - -
Net Losses (Gains) on Sales of OREO 551 227 (319)
Net Increase in Trading Securities (847) (263) -
Net Gain on Sale of Bank
Premises and Equipment (33) - -
Increase in Accrued Income Receivable (1,022) (477) (341)
Decrease (Increase) in Other Assets 243 (341) 31
Increase in Accrued
Expenses and Other Liabilities 1,151 945 397
------ ------ ------
Total Adjustments 1,134 (576) 6,339
------ ------ ------
Net Cash Provided by
Operating Activities 6,836 4,202 2,852
------ ------ ------
Cash Flows from Investing Activities
- ------------------------------------
Proceeds From:
-------------
Sales of Securities Available-for-Sale 37,261 62,062 17,294
Maturities and Principal Amortization
of Securities Available-for-Sale
and Held-to-Maturity 29,612 37,199 30,134
Sale of Loans 45,319 - -
Sale of Bank Premises and Equipment 340 - -
Sales of OREO 2,917 3,288 12,907
Purchase of Loans (13,724) - -
Purchases of Securities Available-for-Sale (81,601) (67,571) (55,746)
Purchases of Securities Held-to-Maturity (792) - (22,847)
Purchase of FHLBB Stock (2,563) (290) (158)
Net Increase in Loans Receivable (91,532) (72,529) (29,277)
Additions to OREO (110) (1,170) (2,719)
Additions to Bank Premises and Equipment (660) (750) (330)
Acquisition of Goodwill (1,830) - -
------ ------ ------
Net Cash Used by Investing Activities (77,363) (39,761) (50,742)
------ ------ ------
</TABLE>
See notes to consolidated financial statements.
-62-
<PAGE>
NORWALK SAVINGS SOCIETY EXHIBIT D
----------------------- Page 2 of 2
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
--------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
Cash Flows from Financing Activities
Net Increase in Deposits from Customers $20,934 $39,726 $ 4,008
Assumption of Deposits 47,556 - -
Sale of Deposits (44,397) - -
Advances from FHLBB 68,750 32,900 30,681
Repayments of Advances
from FHLBB and Other Borrowings (48,580) (33,887) (17,149)
Net Increase in Securities Sold
Under Agreements to Repurchase 26,750 4,600 -
Net Proceeds from Stock Conversion - - 22,821
Proceeds from Exercised Stock Options 103 127 -
Dividends Paid to Shareholders (366) - -
------ ------ ------
Net Cash Provided by
Financing Activities 70,750 43,466 40,361
------ ------ ------
Increase (Decrease) in Cash
and Cash Equivalents (Note 1) 223 7,907 (7,529)
Cash and Cash Equivalents - Beginning 18,628 10,721 18,250
------ ------ ------
Cash and Cash Equivalents - Ending $18,851 $18,628 $10,721
====== ====== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
- -------------------------------------------------
Cash Paid During the Year For
- -----------------------------
Interest $23,546 $18,458 $13,048
====== ====== ======
Income Taxes $22 $ - $18
== === ==
Non-Cash Investing and Financing Activities
Loans Receivable Transferred to OREO $1,758 $324 $ -
===== === ===
Loans Originated in Connection
with Sales of OREO $1,350 $4,072 $7,650
===== ===== =====
Exchange of Loans for
Mortgage-Backed Securities $ - $4,361 $829
===== ===== ===
Transfer of Securities
Available-for-Sale to Trading $2,182 $ - $ -
===== ===== ===
Transfer of Securities
Held-to-Maturity to Available-for-Sale $30,514 $36,628 $
====== ====== ===
</TABLE>
See notes to consolidated financial statements.
-63-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 1 - NATURE OF OPERATIONS AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------------
The following is a summary of significant accounting policies
followed by Norwalk Savings Society (Bank) and its wholly owned
subsidiary NSS Realty Corporation (NSSR), and reflected in the
accompanying Consolidated financial statements:
Nature of Operations
--------------------
The Bank is primarily engaged in the business of providing
credit secured by residential real estate and retail banking
services to the consumer segment of its service area, which is
in and around the Norwalk, Connecticut area. Its operations are
regulated by the Banking Commissioner of the State of
Connecticut and its deposit accounts are insured by the Federal
Deposit Insurance Corporation, and as such its activities are
subject to periodic examination by both agencies. NSSR is a
special-purpose subsidiary whose operations consist of the
development and sale of certain of the real property acquired
by the Bank in satisfaction of loans.
Principles of Consolidation
---------------------------
The accompanying Consolidated financial statements include the
accounts of the Bank and NSSR. Inasmuch as the results of the
operations of NSSR and the financial condition of NSSR are
wholly dependent on the financial and administrative support of
the Bank, separate financial information on NSSR has not been
provided. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Basis of Consolidated Financial Statement Presentation
------------------------------------------------------
The accompanying Consolidated financial statements have been
prepared in accordance with generally accepted accounting
principles and general practice within the banking industry. In
preparing the Consolidated financial statements, management is
required to make estimates and assumptions that effect the
reported amounts of assets, liabilities, income and expenses,
and disclosure of contingent assets and liabilities. Actual
results could differ significantly from those estimates.
-64-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
-------------------------------------------
NOTE 1 - NATURE OF OPERATIONS AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
- ----------------------------------------------------------------
Material Estimates
------------------
Material estimates that are particularly susceptible to
significant change in the near-term relate to the
determination of the Allowance for credit losses and the
valuation of real estate acquired in satisfaction of loans
(other real estate owned or OREO). Such estimates reflect the
realization that the Bank's OREO and a substantial portion of
the Bank's mortgage loans receivable are related to real estate
located in markets in and around Norwalk, Connecticut, which
have experienced value fluctuations in recent years.
While management uses available information to recognize
possible losses on loans and OREO, including the services of
professional appraisers for significant properties, future
adjustments to the Allowance for credit losses and valuation of
OREO may be necessary based on changes in economic and real
estate market conditions in and around the Bank's service area.
In addition, various regulatory agencies, as an integral part
of their examination process, periodically review the Bank's
Allowance for credit losses and valuation of OREO and may
require the Bank to recognize adjustments based on their
judgment of information available to them at the time of their
examination.
Cash Equivalents
----------------
For the purposes of reporting cash flows in the Consolidated
statements of cash flows, cash equivalents include federal
funds sold and interest-bearing deposits in other financial
institutions.
Securities
----------
Securities are accounted for in accordance with the Statement
of Financial Accounting Standards (SFAS) No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" (SFAS
No. 115). This statement establishes standards of financial
accounting and reporting for investments in equity securities
that have readily determinable fair values and for all
investments in debt securities.
-65-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 1 - NATURE OF OPERATIONS AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
- ---------------------------------------------------------------
Securities (continued)
---------------------
SFAS No. 115 requires the classification of investment securi-
ties into categories of Held-to-maturity, Available-for-sale or
Trading. Investments in debt securities are classified as
Held-to-maturity only if there is a positive intent and ability
to hold those securities to maturity. Carrying basis is
reflected at amortized cost and adjusted for any premiums or
discounts. Premiums are amortized and discounts are accreted to
interest income using the level yield method.
Securities classified as Trading comprise securities purchased
in connection with the Bank's trading activities and, as such,
are expected to be sold in the near-term. Trading securities
are carried at fair value with unrealized holding gains and
losses recognized in Non-interest income. Equity securities and
debt securities not classified as Held-to-maturity or Trading
are classified as Available-for-sale. Securities classified as
Available-for-sale are carried at estimated fair value, with
net unrealized holding gains and losses reported as a separate
component of Shareholders' equity, net of applicable income
taxes.
A decline in the estimated fair value of any security below its
carrying value that is deemed by management to be other than
temporary results in a write-down of the individual security to
its estimated fair value. Such write-downs are recognized as a
realized loss in Operations in the accompanying Consolidated
financial statements.
Mortgage-backed securities are accounted for in the same manner
as debt securities and consist of certificates that are
participation interests in pools of long-term first mortgage
loans.
Gain or loss on dispositions of securities is based on the net
proceeds and adjusted carrying amount of the securities sold
using the specific identification method.
Loans Held for Sale
-------------------
Loans held for sale generally consist of certain first mortgage
loans that management has identified will most likely be sold
for reasons of managing rate risk, liquidity, and/or asset
growth and are reflected at the lower of aggregate cost or
estimated market value. Net unrealized losses, if any,
resulting from market value less than cost are recognized
through a valuation allowance by a charge to Operations in the
accompanying Consolidated financial statements.
-66-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 1 - NATURE OF OPERATIONS AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
- ---------------------------------------------------------------
Loans Receivable
----------------
Loans receivable that the Bank has the intent and ability to
hold for the foreseeable future or until maturity or payoff are
reflected at amortized cost (unpaid principal balances reduced
by any partial charge-offs or specific valuation accounts) net
of any net deferred fees or costs on originated loans or any
unamortized premiums or discounts on purchased loans, and less
an Allowance for credit losses.
Effective January 1, 1995, the Bank implemented the provisions
of SFAS Nos. 114/118, "Accounting by Creditors for Impairment
of a Loan" (SFAS Nos. 114/118). These statements address the
accounting for loans considered impaired and the recognition of
impairment. A loan is considered impaired when, in management's
judgment, current information and events indicate it is
probable that collection of all amounts due according to the
contractual terms of the loan agreement will not be met. The
provisions of these statements are prospective, with any
adjustments resulting from initial application reflected as an
adjustment to the provision for credit losses. The effect on
the accompanying Consolidated financial statements of adopting
these statements was not significant.
Interest on loans is included in income as earned based on
rates applied to principal amounts outstanding. The accrual of
inter-est income is generally discontinued and all previously
unpaid accrued interest is reversed when a loan becomes past
due 90 days or more as to contractual payments of principal or
interest, or is determined to be impaired. Management may elect
to continue the accrual of interest when the estimated net
realizable value of collateral is sufficient to cover the
principal balance and accrued interest. Interest on purchased
loans is adjusted for the accretion of discounts and the
amortization of premiums using the interest method over the
contractual lives of the loans, adjusted for estimated
prepayments.
-67-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 1 - NATURE OF OPERATIONS AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
- ---------------------------------------------------------------
Loans Receivable (continued)
---------------------------
Loan origination fees and certain direct related costs are
deferred, and the net fee or cost is amortized as an
adjustment of the loan yield over the life of the related
loan.
The Allowance for credit losses has been established by
provisions charged to Operations, decreased by loans charged
off (net of recoveries). This Allowance represents an amount
which, in management's judgment, is adequate to absorb possible
losses on loans that may become uncollectible based on such
factors as the Bank's past loan loss experience, changes in the
nature and volume of the loan portfolio, current and
prospective economic conditions that may affect the borrowers'
ability to pay, overall portfolio quality, and review of
specific problem loans. Allowances for impaired loans are
generally determined based on collateral values or the present
value of estimated future cash flows.
Effective January 1, 1996, the Bank implemented the provisions
of SFAS No. 122, "Accounting for Mortgage Servicing Rights an
Amendment to SFAS 65" (SFAS No. 122). This statement requires
recognition of the value of the rights to service mortgage
loans (MSR's) for others as a separate asset, however those
servicing rights are acquired, and assessment for impairment
based on fair value. Capitalized MSR's are amortized to
Non-interest income in proportion to estimated mortgage service
fee revenues. Any impairment adjustments are reflected through
a valuation allowance recognized by a charge or credit to
Non-interest income. The effect on the accompanying
Consolidated financial statements of adopting this statement
was not significant.
Bank Premises and Equipment
---------------------------
Bank premises and equipment are stated at cost less accumulated
depreciation and amortization.
Depreciation is computed by accelerated and straight-line
methods, generally at rates based on estimated useful lives of
the related assets. Bank premises are generally depreciated
over periods ranging from 10 to 50 years; furniture and
equipment are generally depreciated over periods ranging from 3
to 20 years. For income tax purposes, the Bank uses the
appropriate depreciation provisions of the Internal Revenue
Code.
-68-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
-------------------------------------------
NOTE 1 - NATURE OF OPERATIONS AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
- ---------------------------------------------------------------
Other Real Estate Owned (OREO)
-----------------------------
OREO includes real estate properties that are held for sale
which have been acquired through foreclosure proceedings or
deeds accepted in lieu of foreclosure. These properties are
initially recorded at the lower of the carrying value of the
related loans or the estimated fair value of the real estate
acquired, with any excess of the loan balance over the
estimated fair value of the property charged to the Allowance
for credit losses. Subsequent changes in net realizable values
are reflected by charges or credits to the Allowance for
estimated losses on OREO. Costs relating to the subsequent
development or improvement of a property are capitalized when
value is increased. All other holding costs and expenses, net
of rental income, if any, are expensed as incurred.
Goodwill
--------
The goodwill acquired in connection with the Fairfield First
Bank and Trust Company transaction (Note 18) is being
amortized on a straight-line basis over six years.
Income Taxes
------------
Deferred income tax assets and liabilities are recognized for
the future tax consequences attributable to temporary
differences, which are differences between the financial
statement carrying amounts of existing assets and liabilities
and their respective tax bases.
Deferred income 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 effect on deferred income tax assets
and liabilities of a change in tax rates is recognized in
Operations in the period that includes the enactment date.
-69-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 1 - NATURE OF OPERATIONS AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
- ---------------------------------------------------------------
Income Taxes (continued)
-----------------------
Provisions for income taxes are computed based on all taxable
revenue and deductible expense items included in the
accompanying Consolidated statements of operations regardless
of the period in which such items are recognized for income tax
filing purposes. The Bank and NSSR file consolidated Federal
and combined Connecticut income tax returns.
Employee Retirement Benefits
----------------------------
Employee retirement benefits and related deferred assets and/or
liabilities are accounted for in accordance with SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other than
Pensions" (SFAS No. 106). Post-retirement health care expenses
are based on actuarial computations of current and future
benefits.
Earnings Per Share
------------------
Income (loss) per share is based on the weighted average number
of common shares outstanding during the period. Shares held in
trust by the Bank's Employee Stock Ownership Plan (ESOP) are
not considered outstanding until such shares are committed to
be released by the Trust (Note 8). Potential dilutive effects
of exercisable stock options are reflected under applicable
financial disclosure requirements, if and when material.
Stock Options
-------------
The Bank accounts for stock options in accordance with the
provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25).
Accordingly, no compensation cost is recognized at the time
options are granted. Pursuant to SFAS No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123), stock-based
compensation awards granted in 1995 and 1996 that continue to
be accounted for under APB 25 require pro forma disclosures of
net income and earnings per share as if the fair value based
method of accounting under SFAS No. 123 had been applied (Note
13).
-70-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 1 - NATURE OF OPERATIONS AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
- ---------------------------------------------------------------
Financial Instruments
---------------------
Financial instruments include substantially all the Bank's
financial assets and liabilities, and certain
off-balance-sheet rights and/or obligations. Such items
generally reflect cash and cash equivalents and contractual
rights or obligations to receive cash or other financial
instruments, respectively.
Derivative financial instruments are financial instruments used
to construct a transaction that is derived from and reflects
the underlying value of assets, other instruments or various
indices. The primary purpose of derivative financial
instruments is to transfer price risk associated with the
fluctuations in asset values rather than borrow or lend funds.
Such items include forward contracts, interest rate swap
contracts, options and futures, and other financial instruments
with similar characteristics, which include the Bank's
off-balance-sheet financial instruments. All derivative
financial instruments held or issued by the Bank are held or
issued for purposes other than trading.
In accordance with SFAS No. 105, "Disclosure of Information
About Financial Instruments with Off-Balance-Sheet Risk and
Concentrations of Credit Risk," SFAS No. 107, "Disclosures
About Fair Value of Financial Instruments," and SFAS No. 119,
"Disclosure About Derivative Financial Instruments and Fair
Value of Financial Instruments," the Bank is required to
disclose information about financial instruments with
off-balance-sheet market or credit risk and concentrations of
credit risk associated with its financial instruments (Notes 14
and 15), fair values of its financial instruments (Note 15),
and information about its derivative financial instruments
(Note 15), respectively.
-71-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 1 - NATURE OF OPERATIONS AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
- ---------------------------------------------------------------
Reclassification
----------------
Certain reclassifications have been made to the accompanying
1995 and 1994 Consolidated financial statements to conform
to the 1996 presentation.
NOTE 2 - SECURITIES
- -------------------
Securities have been classified in the accompanying
Consolidated statements of financial condition according to
management's intent. Carrying amounts and approximate fair
values of Securities consisted of the following:
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------------------------
Amortized Gross Unrealized Holding Fair
------------------------
Trading Cost Gains Losses Value
------- --------- ----- ------ -----
(Amounts in thousands)
<S> <C> <C> <C> <C>
Equity Securities $3,353 $46 ($107) $3,292
===== == === =====
Available-for-Sale
------------------
U.S. Government and
Agency Obligations $ 42,436 $145 ($461) $42,120
Mortgage-Backed
Securities 92,443 382 (372) 92,453
Mutual Funds 2,011 88 (12) 2,087
Equity Securities 99 50 - 149
------- --- --- -------
Total $136,989 $665 ($845) $136,809
======= === === =======
</TABLE>
-72-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 2 - SECURITIES (continued)
- -------------------------------
<TABLE>
<CAPTION>
December 31, 1995
---------------------------------------------------------------------
Amortized Gross Unrealized Holding Fair
------------------------
Trading Cost Gains Losses Value
------- ---- ----- ------ -----
(Amounts in thousands)
<S> <C> <C> <C> <C>
Equity securities $268 $ - ($5) $263
=== === = ===
Available-for-Sale
------------------
U.S. Government and
Agency Obligations $26,611 $128 $(55) $26,684
Mortgage-Backed
Securities 50,243 220 (162) 50,301
Equity Securities 4,572 94 (85) 4,581
------ --- --- ------
Total $81,426 $442 ($302) $81,566
====== === === ======
<CAPTION>
Held-to-Maturity
----------------
<S> <C> <C> <C> <C>
U.S. Government and
Agency Obligations $ 1,998 $ - $ - $ 1,998
Mortgage-Backed
Securities 40,038 358 (114) 40,282
------ --- --- ------
Total $42,036 $358 ($114) $42,280
====== === === ======
</TABLE>
The scheduled contractual maturities of debt securities at
December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- -----
(Amounts in thousands)
<S> <C> <C>
Due After Five Years $ 29,316 $ 29,340
Through Ten Years 13,120 12,780
------- -------
Due Over Ten Years 42,436 42,120
Mortgage-Backed Securities 92,443 92,453
------- -------
Total $134,879 $134,573
======= =======
</TABLE>
-73-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 2 - SECURITIES (continued)
- ------------------------------
Proceeds and gross realized gains and losses from sales of
securities classified as Available-for-sale and Trading
securities gains and losses consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
Available-For-Sale
------------------
Proceeds from Sales $37,261 $62,062 $17,294
====== ====== ======
Gross Realized Gains $1,157 $985 $ 9
Gross Realized Losses (464) (182) (73)
----- --- --
Net Realized Gains (Losses) 693 803 (64)
--- --- --
Trading
-------
Realized Gains 24 - -
Gross Change in
Unrealized Losses (56) (5) -
--- --- --
(32) (5) -
--- --- --
Net Securities Gains (Losses) $661 $798 ($64)
=== === ==
</TABLE>
During the year ended December 31, 1996, the Bank transferred
securities Available-for-sale with a carrying basis of
approximately $2.2 million to the classification of Trading
and securities Held-to-maturity with an amortized cost of
approximately $30.5 million to the classification of
Available-for-sale at their fair value of approximately $30.6
million. The transfer of securities Held-to-maturity to the
classification of Available-for-sale was the result of
management's assessment that there was no longer a positive
intent to hold these securities to maturity based on
management's revised asset/liability management strategies.
Gross unrealized gains and losses reflected in the accompanying
Consolidated statements of operations for the year ended
December 31, 1996 as a result of the transfer to Trading were
approximately $95,000 and $41,000, respectively. Net unrealized
gains, net of tax effect, which were reflected in the
accompanying Consolidated statements of shareholders' equity as
a result of the transfer to Available-for-sale were
approximately $46,000.
-74-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 2 - SECURITIES (continued)
- ------------------------------
The Financial Accounting Standards Board issued a "Special
Report" in November 1995, "A Guide to Implementation of SFAS
115" (Note 1). This guide provided additional guidance as to
the criteria for the financial statement classifications
prescribed in SFAS No. 115. As a result of this additional
guidance, the Bank could reassess the appropriateness of the
classification of all its securities held and, accordingly, in
December 1995, reclassified securities Held-to-maturity with an
aggregate amor-tized cost approximating $37.0 million to the
classification of Available-for-sale at a fair value
approximating $36.6 million.
At December 31, 1996, the aggregate amortized cost of
securities pledged as collateral against public funds and
securities sold under agreements to repurchase (Note 7) were
approximately $3.0 million and $32.4 million, respectively,
which approximated fair values.
NOTE 3 - LOANS RECEIVABLE
- -------------------------
The components of Loans receivable, net in the accompanying
Consolidated statements of financial condition consisted of
the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
---- ----
(Amounts in thousands)
<S> <C> <C>
Loans Secured by Real Estate:
----------------------------
One-to-Four Family Residential $344,314 $296,648
Commercial and Multi-Family 54,550 55,106
Construction and Land Development 1,227 1,617
------- -------
400,091 353,371
Consumer 10,302 5,619
Commercial 8,425 1,485
------- -------
Total Loans Receivable 418,818 360,475
Less:
----
Net Deferred Fees, Premiums
and Discounts (718) (509)
------- -------
418,100 359,966
Less:
----
Allowance for Credit Losses (7,334) (4,170)
------- -------
Loans Receivable, Net $410,766 $355,796
======= =======
</TABLE>
Loans receivable carry interest rate terms as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
---- ----
(Amounts in thousands)
<S> <C> <C>
Fixed Rate $110,245 $ 91,815
Variable Rate 308,573 268,660
------- -------
Total Loans Receivable $418,818 $360,475
======= =======
</TABLE>
-75-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 3 - LOANS RECEIVABLE (continued)
- ------------------------------------
Activity in the Allowance for credit losses consisted of the
following:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1996 1995 1994
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
Balance - January 1 $4,170 $4,827 $2,532
Allowance on Acquired
Loans (1) 1,000 - -
----- ----- -----
Provisions (Credit)
for Credit Losses:
------------------
Regular 4,415 2,105 690
ADP (2) - (1,100) 3,100
----- ----- -----
Net Provision for
Credit Losses 4,415 1,005 3,790
----- ----- -----
Loans Charged-Off
or Settled at Loss:
-------------------
Regular (2,488) (662) (726)
ADP (2) - (1,137) (863)
----- ----- -----
Total Loans Charged-Off
or Settled at Loss (2,488) (1,799) (1,589)
Recoveries of Loans
Previously Charged-Off 237 137 94
----- ----- -----
Net Loans Charged-Off (2,251) (1,662) (1,495)
----- ----- -----
Balance - December 31 $7,334 $4,170 $4,827
===== ===== =====
</TABLE>
(1) In connection with the Fairfield First Bank and Trust
Company transaction (Note 18), the Bank reflected
approximately $1.0 million as an allowance against the
acquired loans. This valuation allowance reflects the
estimated credit risk associated with the respective loans
and was based on the Bank's valuation analysis of the loans
acquired in the transaction.
-76-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 3 - LOANS RECEIVABLE (continued)
- ------------------------------------
(2) In order to further position the Bank to reduce non-
performing assets, the Board of Directors of the Bank
approved an Accelerated Non-Performing Assets Disposition
Program (the "Accelerated Disposition Program" or "ADP") in
December 1993. In conjunction with the Bank's stock
conversion in June 1994 (Note 12), the Bank made a special
provision for credit losses of $3.1 million and a special
provision for estimated losses on OREO of $2.6 million in
order to more rapidly dispose of certain non-performing
assets at discounts below their net realizable value. As of
December 31, 1995 and 1994, the Bank had absorbed
approximately $2.0 and $0.9 million of the special
allowance for credit losses, respectively, and $2.6 and
$1.8 million of the special allowance for OREO losses,
respectively, through packaged or individual discounted
sales of loans and OREO or other discounted settlements of
non-performing assets with borrowers. The Bank concluded
the ADP on December 31, 1995 and reflected a credit to the
Provision for credit losses in the amount of $1.1 million
for the unused portion of the special provisions for
estimated losses. Total non-performing assets sold or
otherwise settled under the ADP aggregated approximately
$3.7 million of loans and $12.4 million of OREO.
The Bank has sold the rights to receive payments of interest
and principal on certain loans while retaining the related
servicing rights (Note 1). Aggregate principal balances of
loans serviced for others that are not reflected in the
accompanying Consolidated statements of financial condition
approximated $69.7 and $82.3 million at December 31, 1996 and
1995, respectively.
During the year ended December 31, 1996, the Bank sold mortgage
loans aggregating approximately $45.0 million, all with
servicing released. As a result of such sale, a loss
approximating $144,000 is reflected in Non-interest expense in
the accompanying Consolidated statements of operations for the
year ended December 31, 1996.
There were no significant loan sales during the years ended
December 31, 1995 and 1994.
-77-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 3 - LOANS RECEIVABLE (continued)
- ------------------------------------
Loans securitized into participation certificates (Note 1)
issued by the Federal Home Loan Mortgage Corporation, with
servicing retained, aggregated approximately $4.4 million and
$0.8 million for the years ended December 31, 1995 and 1994,
respectively. There were no loan securitizations during the
year ended December 31, 1996.
At December 31, 1996, the Bank had no capitalized mortgage
servicing rights under SFAS No. 122 (Note 1).
SFAS Nos. 114/118 (Note 1) applies to loans that are
individually evaluated for impairment in accordance with the
Bank's ongoing loan review procedures. The Bank's recorded
investment in impaired loans and related Allowance for credit
losses measured under SFAS Nos. 114/118 approximated $10.4
million and $1.4 million at December 31, 1996 and $13.1 million
and $1.4 million at December 31, 1995, respectively. The
average recorded investment in impaired loans during the years
ended December 31, 1996 and 1995 was approximately $11.7
million and $12.4 million, respectively. During the years ended
December 31, 1996 and 1995, amounts recognized as interest
income on impaired loans were not significant. At December 31,
1996, the Bank had no commitments outstanding to lend
additional funds to debtors whose loans were determined to be
impaired.
Loans to directors and their associates aggregated
approximately $341,000 and $373,000 at December 31, 1996 and
1995, respectively. These related party loans are made on
substantially the same terms, including interest rates and
collateral requirements, as those prevailing at the time for
comparable transactions with unrelated persons and do not
involve more than normal risk of collectibility.
-78-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 4 - OTHER REAL ESTATE OWNED (OREO)
- --------------------------------------
OREO, net consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
---- ----
(Amounts in thousands)
<S> <C> <C>
Real Estate Owned:
-----------------
One-to-Four Family Residential $272 $3,033
Commercial Real Estate 586 1,234
--- -----
Total Real Estate Owned 858 4,267
Allowance for Estimated Losses - -
--- -----
OREO, Net $858 $4,267
=== =====
</TABLE>
Activity in the Allowance for estimated losses consisted of
the following:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1996 1995 1994
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
Balance - January 1 $ - $ 802 $ 194
--- ----- -----
Provision Charged to Expense:
----------------------------
Regular 459 460 294
ADP (Note 3) - - 2,600
--- ----- -----
Total Provision Charged to Expense 459 460 2,894
--- ----- -----
Losses Charged to the Allowance:
-------------------------------
Regular (459) (494) (454)
ADP (Note 3) - (768) (1,832)
--- ----- -----
Total Losses Charged to the Allowance (459) (1,262) (2,286)
--- ----- -----
Balance - December 31 $ - $ - $802
=== ===== ===
</TABLE>
Losses and expenses, net related to OREO consisted of the
following:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1996 1995 1994
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
Provision Charged to Expense $ 459 $ 460 $2,894
----- ----- -----
Gains on Sales (73) (163) (573)
Losses on Sales 624 390 254
----- ----- -----
Losses (Gains) on Sales, Net 551 227 (319)
----- ----- -----
Holding Costs and Expenses 523 839 1,159
Rental Income (171) (111) (308)
----- ----- -----
352 728 851
----- ----- -----
Losses and Expenses of OREO, Net $1,362 $1,415 $3,426
===== ===== =====
</TABLE>
-79-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 5 - BANK PREMISES AND EQUIPMENT
- ------------------------------------
Bank premises and equipment, net consisted of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
---- ----
(Amounts in thousands)
<S> <C> <C>
Banking House and Land $4,086 $4,484
Furniture, Equipment and Autos 2,317 1,898
Leasehold Improvements 82 535
----- -----
Total Bank Premises and Equipment 6,485 6,917
Accumulated Depreciation
and Amortization (3,334) (3,598)
----- -----
Bank Premises and Equipment, Net $3,151 $3,319
===== =====
</TABLE>
Depreciation and amortization expense included in Non-interest
expense in the accompanying Consolidated statements of
operations for the years ended December 31, 1996, 1995 and
1994 was approximately $521,000, $391,000 and $286,000,
respectively.
The Bank has operating leases for certain branch and
administrative offices and equipment. Rental expense of
$333,000, $220,000 and $179,000 is included in Occupancy and
equipment expense in the accompanying Consolidated statements
of operations for the years ended December 31, 1996, 1995 and
1994, respectively. The office leases contain provisions which
provide for adjustments of the rent to reflect changes in cost
of living and real estate taxes.
During the year ended December 31, 1995, the Bank entered into
an operating lease agreement for office space with one of its
directors. Amounts included in Occupancy and equipment expense
in the accompanying Consolidated statements of operations for
the years ended December 31, 1996 and 1995 relating to this
lease aggregated approximately $49,000 and $32,000,
respectively.
Future minimum payments under non-cancellable operating leases
with initial or remaining terms of one year or more at December
31, 1996 consisted of the following:
<TABLE>
<CAPTION>
Years Ending December 31, Amount
------------------------ ------
(Amounts in thousands)
<S> <C>
1997 $ 344
1998 322
1999 320
2000 284
2001 237
-----
Total Future Minimum
Lease Payments $1,507
======
</TABLE>
-80-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 6 - DEPOSITS
- -----------------
Deposits consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------
1996 1995
------------------------ ------------------------
Weighted Average Weighted Average
Rates (a) Amount Rates (a) Amount
--------------- ------ ---------------- ------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
Demand - $ 22,479 - $ 13,697
NOW 1.00-2.75% 30,262 1.00-1.50% 35,097
Regular Savings 1.99 28,096 2.00 28,660
Money Market and
Super Savings 1.99-2.98 93,361 1.99-3.45 114,766
Time Accounts 5.54 244,127 5.50 206,435
Escrow 3.10 4,965 2.80 4,142
------- -------
Total Deposits $423,290 $402,797
======= =======
</TABLE>
(a) ranges indicate tiers
Scheduled maturities of time accounts at December 31, 1996 were
as follows:
<TABLE>
<CAPTION>
Weighted
Average Stated Rate Amount
------------------- ------
(Dollar amounts in thousands)
Year of Maturity
----------------
<S> <C> <C>
1997 5.39% $186,547
1998 5.77% 32,981
1999 5.89% 7,937
2000 6.82% 13,940
2001 5.95% 2,722
-------
Total Time Accounts 5.54% $244,127
=======
</TABLE>
Time accounts of $100,000 or more approximated $21.7 million at
December 31, 1996. Of those amounts approximately $12.6
million mature in six months or less, $3.3 million mature
after six months to one year, and $5.8 million mature after
one year.
Interest expense on deposits consisted of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1996 1995 1994
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
NOW $ 309 $ 242 $ 251
Regular Savings 436 507 446
Money Market and Super Savings 3,411 3,902 3,349
Time Accounts 12,580 9,434 6,144
Escrow 108 84 83
------ ------ ------
Total Interest
Expense on Deposits $16,844 $14,169 $10,273
====== ====== ======
</TABLE>
-81-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 7 - BORROWED FUNDS
- -----------------------
Advances from Federal Home Loan Bank of Boston (FHLBB)
------------------------------------------------------
Terms of the Advances from FHLBB consisted of the following:
<TABLE>
<CAPTION>
1996 1995
----------------- ------------------
Weighted Weighted
Average Average
Maturity/ Interest Interest
Reprice Date Rate Amount Rate Amount
------------ -------- ------ -------- ------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C>
Fixed Rate 1996 -% $ - 6.52% $43,317(a)
1997 5.72 26,250 6.28 7,500
1998 5.91 40,000 - -
2013 6.55 1,558(b) 6.55 1,578(b)
Adjustable
Rate 1996 - - 7.00 5,000
1997 5.61 10,000 - -
1999/1997 5.73 4,400 6.00 4,400
------ ------
Total Advances
from FHLBB $82,208 $61,795
====== ======
</TABLE>
(a) includes amortizing balance of approximately $2.2 million;
monthly payment $223,496 and a balloon payment of $222,206
at maturity
(b) amortizing with monthly payment of $10,358 and balloon
payment of $917,000 at maturity
The Bank has a cash management line of credit with FHLBB
approximating $10.3 million. There were no advances
outstanding on the line at December 31, 1996 or 1995.
The Bank's investment in the stock of the FHLBB, mortgage loans
and mortgage-backed securities with market values as determined
in accordance with FHLBB's blanket collateral pledge agreement,
at least equal to the outstanding advances and any unused line
of credit, are pledged against outstanding advances from the
FHLBB.
-82-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 7 - BORROWED FUNDS (continued)
- -----------------------------------
Securities Sold Under Agreements
to Repurchase (Repurchase Agreements) (Note 2)
-----------------------------------------------
Information concerning Repurchase agreements consisted of the
following:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995
---- ----
(Dollar amounts in thousands)
<S> <C> <C>
Average Balance During the Year $29,203 $6,857
Maximum Month-End
Balance During the Year $36,350 $9,310
Average Interest Rate
During the Year 5.61% 5.88%
</TABLE>
Repurchase agreements aggregating approximately $22.4 million
and $9.0 million mature during the years ending December 31,
1997 and 1998, respectively.
Interest Expense
----------------
Interest expense on borrowed funds consisted of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1996 1995 1994
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
Advances from FHLBB $5,158 $4,015 $2,839
Repurchase Agreements 1,638 214 -
----- ----- -----
Total Interest
Expense on Borrowed Funds $6,796 $4,229 $2,839
===== ===== =====
</TABLE>
NOTE 8 - EMPLOYEE BENEFIT PLANS
- -------------------------------
Incentive Savings Plan
----------------------
The Bank sponsors an incentive savings plan which is available
to substantially all of its employees. The Bank may make a
discretionary 50% match of employee contributions up to 4% of
each employee's salary. The Bank's matching expense
contributions, included in Salaries and employee benefits in
the accompanying Consolidated statements of operations for the
years ended December 31, 1996 and 1995, approximated $86,000
and $60,000, respectively. No expense provision was made for
the year ended December 31, 1994.
-83-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 8 - EMPLOYEE BENEFIT PLANS (continued)
- -------------------------------------------
Postretirement Benefits Other Than Pensions
-------------------------------------------
The Bank provides certain health care, dental care and life
insurance benefits to previously retired employees. The health
care benefits are provided through an insurance company whose
premiums are based on benefits paid during the year. The Bank
is self-insuring the dental care and death benefits.
The following table sets forth the accumulated postretirement
benefit obligation (APBO) and amounts recognized in the
accompanying Consolidated statements of financial condition:
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
(Amounts in thousands)
<S> <C> <C>
Accumulated Postretirement
Benefit Obligation
--------------------------
Retirees $290 $294
Unrecognized Transition Obligation (224) (246)
--- ---
Accrued Postretirement Benefit Cost
Included in Accrued Expenses and
Other Liabilities $66 $48
== ==
</TABLE>
The APBO includes approximately $221,000 and $218,000
attributable to the Bank's postretirement health care plan
at December 31, 1996 and 1995, respectively.
The components of net periodic postretirement benefit cost
reflected in Salaries and employee benefits in the accompanying
Consolidated statements of operations consisted of the
following:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
Service Cost - Benefits
Attributable to Service
During the Period $ - $ - $ -
Interest Cost on APBO 21 22 22
Amortization of Transition
Obligation 22 22 22
-- -- --
Net Periodic Postretirement
Benefit Cost $43 $44 $44
== == ==
</TABLE>
-84-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 8 - EMPLOYEE BENEFIT PLANS (continued)
- -------------------------------------------
Postretirement Benefits Other Than Pensions (continued)
-------------------------------------------------------
For measurement purposes, a 4.0% annual rate of increase in the
per capita cost of covered health care benefits was assumed for
each of the years ended December 31, 1996 and 1995. The rate
was assumed to be consistent over the period of coverage. The
health care cost trend rate assumption has a significant effect
on the amounts reported. To illustrate, increasing the assumed
health care cost trend rates by 1% in each year would increase
the accumulated postretirement benefit obligation as of
December 31, 1996 by approximately $12,000 and the aggregate of
the service and interest cost components of net periodic
postretirement benefit cost for the year then ended by
approximately $1,000.
The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation in 1996 and
1995 was 7.5%.
Employee Stock Ownership Plan (ESOP)
------------------------------------
The Bank established a leveraged ESOP and a related trust in
connection with its stock conversion in 1994 (Note 12) as a
long-term non-contributory benefit for substantially all of its
employees. In accordance with the terms of its Plan of
Conversion, the Bank sold to the ESOP 5% of the shares issued
in its conversion, or 121,337 shares at $10 per share, the
stated conversion offering price. The shares were purchased by
the ESOP with the proceeds of a five-year LIBOR-based interest-
bearing loan from a third party lender guaranteed by the Bank
and requiring monthly payments of principal and interest. The
Bank has pledged an interest-bearing deposit as security for
its guarantee of the loan. At December 31, 1996, the amount on
deposit at the third party lender was approximately $605,000.
The loan and guarantee are reflected in the accompanying
Consolidated statements of financial condition as a long-term
debt and a reduction of Shareholders' equity. At December 31,
1996 and 1995 the interest rate on the loan was 6.86%. Interest
expense on the loan included in Salaries and employee benefits
expense in the accompanying Consolidated statements of
operations approximated $45,000, $60,000 and $37,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
-85-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 8 - EMPLOYEE BENEFIT PLANS (continued)
- -------------------------------------------
Employee Stock Ownership Plan (ESOP) (continued)
------------------------------------------------
The shares are held by the ESOP in trust and are committed to
be issued to employees' accounts in the ESOP ratably over a
five-year period in settlement of the Bank's agreed-upon annual
ESOP benefit cost. The Bank's ESOP benefit cost, included in
Salaries and employee benefits in the accompanying Consolidated
statements of operations, aggregated approximately $560,000,
$434,000 and $283,000 for the years ended December 31, 1996,
1995 and 1994, respectively. The difference between the annual
ESOP benefit cost and the cost basis of the shares to be
committed is charged or credited to Additional paid-in capital.
The shares subject to the ESOP consisted of the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Shares - Beginning 70,514 97,070 121,337
Shares Committed to be Released (25,697) (26,556) (24,267)
------ ------ -------
Shares - Ending 44,817 70,514 97,070
====== ====== ======
Shares Allocated to ESOP 26,556 24,267 -
====== ====== ======
</TABLE>
NOTE 9 - INCOME TAXES
- ---------------------
The components of the federal and state income tax (benefit)
provision consisted of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------
1996 1995 1994
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
Current Income Tax Provision:
-----------------------------
Federal $ 150 $ - $ -
State 25 10 50
----- ----- --
Total Current Income
Tax Provision 175 10 50
----- ----- --
Deferred Income Tax Benefit:
----------------------------
Federal (960) (984) -
State (340) (216) -
----- ----- --
Total Deferred Income
Tax Benefit (1,300) (1,200) -
----- ----- --
Income Tax (Benefit)
Provision, Net ($1,125) ($1,190) $50
===== ===== ==
</TABLE>
-86-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 9 - INCOME TAXES (continued)
- ---------------------------------
The significant components of the deferred income tax (benefit)
expense consisted of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
Allowances for Losses $ (869) $ 820 $(1,208)
Basis Difference - Securities (389) (265) 345
Deferred Compensation
and Benefits (106) (18) -
Deferred Loan Fees 264 389 (26)
Depreciation 75 - -
Net Operating Losses 3,031 1,236 (736)
Other, Net (42) 26 (6)
----- ----- -----
1,964 2,188 (1,631)
Valuation Allowance (3,264) (3,388) 1,631
----- ----- -----
Total ($1,300) ($1,200) $ -
===== ===== =====
</TABLE>
The Bank's effective income tax rate differed from the federal
statutory tax rate of 34% as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1996 1995 1994
------------- ------------- -------------
Amount % Amount % Amount %
------ ---- ------ ---- ------ ----
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tax at Statutory
Federal Rate $1,556 34.0 $1,220 34.0 ($1,169) (34.0)
State Tax* 167 3.6 276 7.7 (419) (12.2)
Capital Loss
Carryover Benefit (95) (2.1) (200) (5.6) - -
Effect of ESOP 108 2.4 65 1.8 - -
Current Loss
Carryover Benefit (1,930) (42.2) (1,322) (36.9) 1,631 47.4
Future Loss Carryover
Benefit (1,037) (22.7) (1,200) (33.4) - -
Federal Minimum Tax 150 3.3 - - - -
Other (44) (0.9) (29) (0.8) 7 0.2
----- ---- ----- ---- ----- ----
Total and
Effective Rate ($1,125) 24.6 ($1,190) (33.2) $50 1.4
===== ==== ===== ==== == ===
</TABLE>
* Net of Federal tax benefit
-87-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 9 - INCOME TAXES (continued)
- ---------------------------------
The tax effects of significant components of temporary
differences and net unrealized gains (losses) on securities
Available-for-sale that give rise to deferred income tax assets
and deferred income tax liabilities consisted of the following:
<TABLE>
<CAPTION>
December 31,
-----------
1996 1995
---- ----
(Amounts in thousands)
<S> <C> <C>
Deferred Income Tax Assets:
--------------------------
Allowance for Credit Losses $1,798 $ 929
Goodwill 19 -
Employee Benefits 149 43
Trading Loss 25 2
Future Loss Carryover Benefit 1,037 4,068
----- -----
Gross Deferred Tax Asset 3,028 5,042
Less: Valuation Allowance - (3,264)
----- -----
Deferred Tax Asset, Net Of Allowance 3,028 1,778
----- -----
Deferred Income Tax Liabilities:
-------------------------------
Depreciation 75 -
Basis Difference on Securities 68 457
Deferred Loan Fees 385 121
----- -----
Gross Deferred Tax Liability 528 578
----- -----
Net Deferred Income Tax Asset -
Operations 2,500 1,200
Tax Benefit on Unrealized
Loss on Securities Available-for-Sale 74 -
----- -----
Deferred Income Tax Asset, Net $2,574 $1,200
===== =====
</TABLE>
No income tax effect has been reflected on the net unrealized
gains or losses on securities Available-for-sale as of December
31, 1995 and 1994 due to the Bank's net operating loss
carryforward position and the substantial portion of net
deferred income tax assets against which a valuation allowance
has been reflected at both of those dates.
During the first calendar quarter of the year ended December
31, 1995, management reviewed its current projections for
future profitability and estimated that a portion of the Bank's
net deferred income tax asset as of December 31, 1994 could be
recognized in the amount of $1.2 million. The amount was
recognized through a partial adjustment of the valuation
allowance for the portion of the net deferred income tax asset
attributable to a net operating loss carryforward benefit which
management was of the opinion was realizable during the year
ended December 31, 1995. At December 31, 1995, management again
reviewed its current projections of future profitability and
determined that $1.2 million of net deferred income tax asset
was more likely than not realizable in the future.
-88-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 9 - INCOME TAXES (continued)
- ---------------------------------
During the fourth quarter of 1996, management reviewed the
Bank's estimated profitability for the year ended December 31,
1996 and, on a projected basis, for the year ending December
31, 1997. Based on this review, management determined that it
was more likely than not that the Bank's net deferred tax
assets, including available future net operating loss benefits
of approximately $1.1 million, as of December 31, 1996 were
realizable, and therefore, reversed the existing valuation
allowance against net deferred tax assets. Realization of the
Bank's net deferred tax assets is dependent, however, on
various factors and is not assured.
The Bank has state and Federal tax operating loss carryforwards
aggregating approximately $3.0 million and $2.4 million,
respectively, at December 31, 1996. The state carryforwards
ultimately expire in the year ending December 31, 1999, and the
Federal carryforward expires in the year ending December 31,
2009.
During the years ended December 31, 1996 and 1995, the Bank was
able to absorb approximately $278,000 and $494,000,
respectively, of available capital loss carryforwards, the
benefits of which approximated $95,000 and $200,000,
respectively, which benefits had not been previously reflected
in deferred income tax assets.
Deductions from taxable income in prior years have been claimed
as loan loss provisions for qualifying (real estate) loans in
accordance with the Internal Revenue Code. Retained earnings at
December 31, 1996 includes a tax reserve for qualifying loans
aggregating approximately $4.6 million. If the reserve is used
for any purpose other than to absorb losses on loans, an income
tax liability could be incurred. Management does not anticipate
that this reserve will be made available for any purposes other
than to absorb losses on loans. In accordance with generally
accepted accounting principles, no deferred income taxes have
been provided for this temporary difference.
-89-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 9 - INCOME TAXES (continued)
- ----------------------------------
In August 1996, Congress amended the Internal Revenue Code retroactively
to January 1, 1996 relative to existing tax bad debt reserves of savings
banks as well as to allowable methods of taking future tax bad debt
deductions. The amendment requires savings banks with "excess tax bad
debt reserves", as defined, to recapture such excess into taxable income
ratably over the next six to eight years beginning in 1996. In addition,
future tax bad debt deductions will be based solely on loan charge-offs.
Based on the Bank's tax return as filed for the year ended December 31,
1995, the Bank has an excess tax bad debt reserve approximating $1.9
million which is subject to recapture in accordance with the change in
the tax law.
NOTE 10 - OTHER NON-INTEREST EXPENSE
- ------------------------------------
Other non-interest expense consisted of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C>
Advertising and Marketing $ 687 $ 700 $ 400
Legal and Professional 779 354 271
Regulatory Assessments 9 438 1,054
Office Supplies and Expense 578 481 299
Insurance 228 237 310
All Other, None Greater
than 1% of Income 1,783 1,008 890
----- ----- -----
Total Other
Non-Interest Expense $4,064 $3,218 $3,224
===== ===== =====
</TABLE>
Payments to a related party for advertising services for the years ended
December 31, 1996, 1995 and 1994 approximated $353,000, $316,000 and
$284,000, respectively, significant portions of which were
reimbursements for payments by the related party to media companies.
-90-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 11 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
Off-Balance-Sheet Risk
----------------------
The accompanying Consolidated financial statements do not reflect
various commitments and contingent liabilities which arise in the normal
course of business and which involve elements of credit risk, interest-
rate risk and liquidity risk. These commitments and contingent
liabilities are described in Note 15.
Litigation
----------
The Bank and NSSR are parties to certain litigation and claims arising
from the normal course of business. After consultation with legal
counsel, management is of the opinion that the liabilities, if any,
arising from such litigation and claims will not be material to the
consolidated financial condition.
NOTE 12 - SHAREHOLDERS' EQUITY
- ------------------------------
Stock Conversion
----------------
On February 23, 1994, the Board of Directors unanimously adopted and
approved the Bank's plan of Conversion (Conversion) to convert from a
Connecticut-chartered mutual to a Connecticut-chartered capital stock
savings bank through amendment of its mutual charter and the sale of
common stock to the Bank's depositors and others.
As part of the Conversion, the Board of Directors adopted a tax-
qualified employee stock ownership plan (ESOP) (Note 8). In addition,
the Board has adopted stock option plans for the benefit of the
employees and directors of the Bank, which became effective following
approval by the Bank's shareholders at the Annual Meeting in April 1995.
The options to be issued under the plans are granted on a post-
Conversion basis and began to become exercisable as of the first annual
anniversary date of the Conversion (Note 13).
At the time of Conversion, the Bank established a liquidation account in
an amount equal to its Retained earnings as of that date, which
approximated $19.7 million. The liquidation account will be maintained
for a period of ten years from the date of the Conversion for the
benefit of eligible account holders who continue to maintain their
accounts in the Bank
-91-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 12 - SHAREHOLDERS' EQUITY (continued)
- -----------------------------------------
Stock Conversion (continued)
----------------------------
after Conversion. In the event of a complete liquidation (and only in
such an unlikely event), each eligible account holder would be entitled
to receive a liquidation distribution equal to the current amount in
their subaccount balance.
The Bank may not declare or pay dividends on its stock if such
declaration and payment would violate statutory or regulatory
requirements.
In the event transactions resulting from the Conversion or from future
events unrelated to the Conversion occur, causing an ownership change,
as defined by the Internal Revenue Code, the Bank's ability to utilize
its net operating losses may be limited (Note 9).
Advisory Board Compensation
---------------------------
During the year ended December 31, 1996, the Bank compensated its
advisory board members with shares of the Bank's common stock in lieu of
cash. The Bank reflected compensation expense in Other non-interest
expense in the accompanying Consolidated statements of operations for
the year ended December 31, 1996 in the amount of approximately $5,000,
which represented the fair value of the shares on the date of issuance.
Dividends
---------
During the year ended December 31, 1996, the Bank declared and paid cash
dividends on common stock aggregating $0.15 per share, which totalled
approximately $366,000. In January 1997 the Bank declared a cash
dividend of $0.05 per share to shareholders of record on February 10,
1997 and payable on February 28, 1997.
Preferred Stock
---------------
In May 1996, the Bank declared and paid a dividend distribution of one
"Right" for each outstanding share of Bank common stock. Each Right
entitles the holder to purchase from the Bank one one-hundredths of a
share of preferred stock, at a price of $40.000 per one one-hundredths
of a preferred share, subject to adjustment. The Rights are not
exercisable except as a result of particular events, including certain
acquisitions of 10% or more of the Bank's common stock and certain
exchange offers. If not sooner exercised, the Rights will expire in May
2006.
-92-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 12 - SHAREHOLDERS' EQUITY (continued)
- -----------------------------------------
Preferred Stock (continued)
--------------------------
Preferred shares purchasable upon exercise of the Rights will not be
redeemable. Each preferred share will be entitled to a minimum
preferential quarterly dividend payment of $1 per share but will be
entitled to an aggregate dividend of 100 times the dividend declared per
common share. In the event of liquidation, the holders of the preferred
shares will be entitled to a minimum preferential liquidation payment of
$100 per share but will be entitled to an aggregate payment of 100 times
the payment made per common share. All liquidation payments are subject
to the prior rights of Bank account holders to the Bank's "Liquidation
Account". Each preferred share will have 100 votes, voting together with
the common shares. In the event of any merger, consolidation or other
transaction in which common shares are exchanged, each preferred share
will be entitled to receive 100 times the amount received per common
share.
In the event that the Bank is acquired in a merger or other business
combination, proper provision shall be made so that each holder of a
Right shall thereafter have the right to receive, upon the exercise
thereof at the then current exercise price of the Right, that number of
shares of common stock of the surviving company which at the time of
such transaction would have a market value of four times the exercise
price of the Rights.
At any time prior to the close of business on the date that Rights
holders become entitled to purchase preferred shares of the Bank, the
Bank may redeem the Rights in whole, but not in part, at a price of
$.001 per Right as adjusted.
NOTE 13 - STOCK OPTIONS AND EXECUTIVE INCENTIVE PLANS
- -----------------------------------------------------
Stock Option Plan
-----------------
During the year ended December 31, 1995, the Bank's Share-holders
approved stock option plans (Plans) for the benefit of the Bank's
employees and directors. Under the Plans, 169,872 and 72,802 shares of
the Bank's common stock were reserved for the Employee and Director
Plans, respectively.
In April 1996, the Shareholders approved increasing the shares of common
stock reserved by 150,000 shares.
-93-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 13 - STOCK OPTIONS AND EXECUTIVE INCENTIVE PLANS (continued)
- -----------------------------------------------------------------
Stock Option Plan (continued)
----------------------------
At December 31, 1996, 377,515, shares of common stock remained reserved
under the Bank's plans. Included in this amount are 111,477 shares of
common stock reserved for the Director Plans and 266,038 shares of
common stock reserved for the Employee Plans.
The Bank accounts for its stock options under APB 25 (Note 1).
Accordingly, at the time options are granted no accounting entry is
made; however, when options are exercised, proceeds are credited to
Common stock for the par value of the options purchased and the excess
of the option price over the par value of shares issued is credited to
Additional paid-in capital. The exercise price of options granted
equalled the fair market value of the shares on the dates granted.
The following table summarizes the shares subject to options under the
Plans for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Directors Employees Total
--------- --------- -----
<S> <C> <C> <C>
Outstanding at January 1, 1995 - - -
Granted in 1995 54,602 169,804 224,406
Exercised in 1995 (8,494) - (8,494)
------ ------- -------
Outstanding at December 31, 1995 46,108 169,804 215,912
Granted in 1996 12,000 30,000 42,000
Exercised in 1996 (2,831) (3,834) (6,665)
Cancelled in 1996 - (5,666) (5,666)
------ ------- -------
Outstanding at December 31, 1996 55,277(a) 190,304(b) 245,581(c)
====== ======= =======
Exercisable at December 31, 1996:
Options 39,908 102,219 142,127
====== ======= =======
Average Price $16.17 $15.25 $15.50
===== ===== =====
</TABLE>
(a) Exercisable at prices ranging from $15 to $18.88.
(b) Exercisable at prices ranging from $15 to $21.75.
(c) Includes options that are exercisable based on three-year
vesting schedules from the dates of grant. These options expire
after 10 years.
-94-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 13 - STOCK OPTIONS AND EXECUTIVE INCENTIVE PLANS (continued)
- ----------------------------------------------------------------
Executive Incentive Plan
------------------------
During the year ended December 31, 1995, the Bank's Share-holders
approved an incentive plan for certain of the Bank's executives. Under
the plan, the Bank has reserved 100,000 shares of the Bank's common
stock. The Plan has a 10-year term during which awards of common stock
can be made based on specific performance goals over a three-year
period. The first measurement period covers the period January 1, 1995
to December 31, 1997. The Bank reflected an expense provision of
approximately $200,000 in Salaries and employee benefits in the
accompanying Consolidated statements of operations for the year ended
December 31, 1996 relative to this plan; no compensation expense was
reflected for the year ended December 31, 1995.
In accordance with SFAS No. 123 (Note 1), the Bank has elected to
continue accounting for its stock options under APB 25. Had compensation
cost for the Bank's stock option plans been deter-mined based on the
fair value at the grant dates for awards granted during the years ended
December 31, 1996 and 1995, which is consistent with the method under
SFAS No. 123, the Bank's net income and per share data would have been
reduced to the pro forma amounts as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
(Dollar amounts in thousands,
except per share data)
Net Income
----------
As Reported $5,702 $4,778
===== =====
Pro Forma $5,456 $4,650
===== =====
Income Per Share
----------------
As Reported $2.39 $2.04
==== ====
Pro Forma $2.29 $1.98
==== ====
</TABLE>
-95-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 14 - SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK
- --------------------------------------------------------
The concentration of the Bank's loan portfolio by type of loan at
December 31, 1996 and 1995 is set forth in Note 3. A substantial portion
of these loans are collateralized by real estate located in markets in
and around Norwalk, Connecticut. The Bank also has loan commitments,
including unused lines of credit and amounts not yet advanced on
construction loans, secured by real estate substantially located in
these same markets. In addition, at December 31, 1996 a substantial
portion of the Bank's OREO was located in those same markets.
Accordingly, the ultimate collectibility of a substantial portion of the
Bank's loan portfolio and the recovery of a substantial portion of the
carrying amount of its OREO are particularly susceptible to changes in
real estate market conditions in and around Norwalk, Connecticut.
In the normal course of business the Bank may have deposits in
correspondent accounts substantially in excess of depository insurance
limits. To reduce the credit risk associated with such activities the
Bank periodically reviews the financial condition of such correspondent
banks.
NOTE 15 - FINANCIAL INSTRUMENTS
- -------------------------------
Financial Instruments with Off-Balance-Sheet Risk
-------------------------------------------------
The Bank 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 and basically includes commitments to extend credit. These
instruments involve, to varying degrees, elements of credit risk in
excess of amounts recognized in the accompanying Consolidated statements
of financial condition. The contract or notional amounts of these
instruments reflect the extent of the Bank's involvement in particular
classes of financial instruments.
The Bank's exposure to credit loss in the event of non-performance by
the counterparty for commitments to extend credit is represented by the
contractual notional amount of those instruments.
-96-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 15 - FINANCIAL INSTRUMENTS (continued)
- ------------------------------------------
Commitments to Extend Credit
----------------------------
Loan commitments are agreements to lend to a customer as long as there
is no violation of any condition established in the contract. These
financial instruments are recorded in the financial statements when they
are funded or when related fees are incurred or received. Loan
commitments are subject to the same credit policies as loans and
generally have fixed expiration dates or other termination clauses.
Since commitments may expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements.
The Bank evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained is based on management's credit
evaluation of the counterparty. Collateral held is primarily residential
and commercial real property. Interest rates are generally variable with
the exception of the unadvanced portions of construction loans, which
have fixed rates of interest and generally mature within one year.
The contractual notional amounts of the Bank's credit commitments
consisted of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1996 1995
---- ----
<S> <C> <C>
(Amounts in thousands)
Loan Commitments:
----------------
Commitments to Extend Credit:
----------------------------
One-to-Four Family Residences $4,054 $5,869
Commercial Loans 2,581 100
Letters of Credit 603 -
Unadvanced Portion of Construction Loans 1,823 4,076
Unused Lines of Credit:
----------------------
Home Equity 7,771 6,036
Consumer Loans 833 830
Consumer Credit Cards 1,080 -
Commercial Loans 1,689 784
</TABLE>
-97-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 15 - FINANCIAL INSTRUMENTS (continued)
- ------------------------------------------
Fair Value of Financial Instruments
-----------------------------------
Estimating the fair values of the Bank's financial instruments includes
the use of information that is highly subjective. The subjective factors
include, among other things, the estimated timing and amount of cash
flows, risk characteristics, and credit quality and interest rates, all
of which are subject to change. As a result, fair values estimated could
be significantly different from amounts actually realized or paid at
settlement or maturity of the financial instruments. The following
methods and assumptions were used to estimate the fair values of each
class of financial instruments:
Cash and equivalent investments. For those short-term instruments, the
-------------------------------
carrying amount is a reasonable estimate of fair value.
Securities. Fair values are based on quoted market prices.
----------
Loans receivable. Fair value for certain homogeneous categories of loans
----------------
is estimated using quoted market prices for securities backed by similar
loans, adjusted for differences in loan characteristics. Fair value for
other types of loans is estimated by discounting future cash flows using
current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
Accrued income receivable. The carrying amount approximates fair value.
-------------------------
Investment in FHLBB stock. The carrying amount approximates fair value.
-------------------------
-98-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 15 - FINANCIAL INSTRUMENTS (continued)
- ------------------------------------------
Fair Value of Financial Instruments (continued)
----------------------------------------------
Deposit liabilities. Carrying amounts for checking, NOW accounts,
-------------------
regular and club savings, money market and mortgagors' escrow accounts
are reasonable estimates of fair value, since they generally represent
amounts payable on demand. Fair value of time deposits is estimated to
be the present value of the deposits using rates currently offered for
deposits of similar remaining maturities.
Advances from FHLBB. The fair values of advances and borrowings from the
-------------------
FHLBB are estimated using rates which approximate the rates currently
being offered by the FHLBB for similar remaining maturities.
Securities sold under agreements to repurchase and Other borrowings. The
-------------------------------------------------------------------
fair value of these borrowings is estimated using rates which
approximate rates currently being offered for similar borrowings and
remaining maturities.
Off-balance-sheet financial instruments. The fair values of commitments
---------------------------------------
to extend credit and unadvanced lines of credit are estimated based on
interest rates and fees currently charged to enter into similar
transactions, considering the remaining terms of the commitments and the
creditworthiness of the potential borrowers.
-99-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 15 - FINANCIAL INSTRUMENTS (continued)
- ------------------------------------------
Fair Value of Financial Instruments (continued)
----------------------------------------------
the Bank's financial instruments consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
1 9 9 6 1 9 9 5
------------------------ -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
(Amounts in thousands)
Financial Assets
----------------
Cash and Due
from Banks $ 14,978 $ 14,978 $ 10,222 $ 10,222
Federal Funds
Sold and Interest-
Bearing Deposits
in Other Banks 3,873 3,873 8,406 8,406
Securities 140,101 140,101 123,865 124,109
Total Loans
Receivable 418,818 411,200 360,475 354,000
Accrued Interest
Receivable 4,034 4,034 3,012 3,012
Investment in
FHLBB Stock 6,184 6,184 3,621 3,621
Financial Liabilities
---------------------
Deposits 423,292 424,740 402,797 404,300
Advances from FHLBB 82,208 81,958 61,795 62,100
Securities Sold Under
Agreements to
Repurchase 31,350 31,369 4,600 4,630
Other Borrowings 485 485 728 728
Off-Balance-Sheet
Financial Instruments
----------------------
Commitments to
Extend Credit * (a) * (a)
</TABLE>
(a) Amounts were not significant
-100-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 16 - REGULATORY MATTERS AND CAPITAL ADEQUACY
- -------------------------------------------------
The Bank is subject to the regulations of certain federal and state
agencies and undergoes periodic examinations by those regulatory
authorities (Note 1).
On May 13, 1992, the Board of Directors of the Bank and the Banking
Commissioner of the State of Connecticut (Commissioner) entered into a
Stipulation and Agreement (Stipulation) in order to address certain
capital, asset quality and other concerns of the Commissioner. Although
not a party to the Stipulation, the FDIC concurred that the corrective
measures agreed to in the Stipulation were necessary to return the Bank
to a safe and sound condition. In June 1994 the Bank obtained additional
capital from its stock conversion to satisfy the capital requirements of
the Stipulation (Note 12). On October 25, 1994 the Stipulation was
terminated by the Commissioner with the concurrence of the FDIC.
In December 1991 the Federal Deposit Insurance Corporation Improvement
Act (FDICIA) established guidelines to determine capital adequacy for
insured banks. These guidelines evaluate the capital adequacy of banks
by the measure of their leverage capital ratio, which is the ratio of
capital (defined essentially as shareholders' equity minus intangibles)
to average assets. Such ratios are measured at the end of each calendar
quarter. FDICIA establishes categories based on a bank's leverage
capital ratio as of certain measurement dates; these categories affect a
bank's deposit insurance cost, place restrictions on certain types of
operating activities, and require certain types of regulatory action in
cases of failure to achieve certain minimum ratios.
The Bank's capital ratios consisted of the following at
December 31, 1996:
<TABLE>
<CAPTION>
Risk-Based
Leverage ----------
Capital Tier 1 Total
-------- ------ -----
<S> <C> <C> <C>
Minimum Guidelines 4.0%-5.0% 4.0% 8.0%
Norwalk Savings Society 7.9% 15.7% 17.0%
</TABLE>
-101-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 17 - BRANCH SALE
- ---------------------
In October 1996, the Bank sold two of its branch office operations,
comprised of deposits aggregating approximately $48.0 million, loans
aggregating approximately $210,000, and premises and equipment amounting
to approximately $307,000. As a result of the sale, the accompanying
Consolidated statements of operations for the year ended December 31,
1996 includes a total gain, reflected in Other non-interest income, of
approximately $3.64 million, which includes a deposit premium gain of
approximately $3.6 million and a gain of approximately $33,000 from the
sale of assets.
NOTE 18 - ACQUISITION OF ASSETS AND RELATED LIABILITY OF FAIRFIELD FIRST
BANK & TRUST COMPANY (FFBT)
- ------------------------------------------------------------------------
In July 1996, the Bank assumed essentially all liabilities, primarily
$47.6 million in deposits, and acquired certain assets of FFBT, in an
FDIC-assisted transaction. Certain of the commercial real estate loans
acquired from the FDIC were simultaneously sold to another bank at an
amount in excess of the Bank's bid price to the FDIC.
The Bank has allocated the net purchase price to the assets acquired and
the liabilities assumed based upon their fair values. The net acquired
loans were reflected at a fair value of approximately $13.7 million,
which was net of a valuation allowance of $1.0 million (Note 3), and the
excess of the purchase price over the net assets acquired, which
approximated $1.8 million and which management deems to represent a core
deposit intangible, has been reflected as Goodwill in the accompanying
Consolidated statements of financial condition. Approximately $76,000 of
goodwill amortization has been included in Other non-interest expense in
the accompanying Consolidated statements of operations for the year
ended December 31, 1996.
-102-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 19 - RECENT ACCOUNTING PRONOUNCEMENTS
- ------------------------------------------
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities,"
(SFAS No. 125) which was amended by SFAS No. 127 in December 1996 to
defer the effective date of certain provisions of SFAS No. 125 for one
year. SFAS No. 125 provides for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings and
bases such distinguishment on control. It also amends SFAS No. 115 to
clarify that a debt security may not be classified as held-to-maturity
if it can contractually be prepaid in a way that an institution would
not recover substantially all of its recorded investment. SFAS No. 125
is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, except
as amended by SFAS No. 127, and is to be applied prospectively.
Management has not yet determined the effect, if any, which application
of SFAS No. 125 will have on the Bank's financial condition.
NOTE 20 - PROPOSED HOLDING COMPANY
- ----------------------------------
In January 1997, the Board of Directors authorized management to pursue
the formation of a holding company and to present such proposal to the
Shareholders at the Annual Meeting in 1997.
-103-
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
------------------------------------------
NOTE 21 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
- ----------------------------------------------------
The quarterly results of operations consisted of the following:
<TABLE>
<CAPTION>
Quarters Ended
------------------------------------------------------------
12/31/96 9/30/96 6/30/96 3/31/96
-------- ------- ------- -------
<S> <C> <C> <C> <C>
(Dollar amounts in thousands)
Interest Income $10,920 $11,298 $9,962 $9,075
Interest Expense 6,376 6,638 5,650 4,976
----------------------------------------------------------
Net Interest Income 4,544 4,660 4,312 4,099
Provision for Credit Losses 3,205 405 405 400
Non-Interest Income 4,574 499 1,149 621
Non-Interest Expense 5,003 3,443 3,624 3,396
Income Taxes (1,147) - 17 5
---------------------------------------------------------
Net Income $2,057 $1,311 $1,415 $919
=========================================================
Income Per Share $0.85 $0.55 $0.60 $0.39
Average Shares 2,394,383 2,388,213 2,375,828 2,368,040
<CAPTION>
Quarters Ended
12/31/95 9/30/95 6/30/95 3/31/95
-------- ------- ------- -------
<S> <C> <C> <C> <C>
(Dollar amounts in thousands)
Interest Income $8,670 $8,501 $8,106 $7,738
Interest Expense 4,970 4,829 4,423 4,176
---------------------------------------------------------
Net Interest Income 3,700 3,672 3,683 3,562
Provision for Credit Losses 255 350 250 150
Non-Interest Income 1,009 676 600 447
Non-Interest Expense 3,548 3,028 3,060 3,120
Income Taxes 10 - (15) (1,185)
---------------------------------------------------------
Net Income $896 $970 $988 $1,924
=======================================================
Income Per Share $0.38 $0.41 $0.42 $0.83
Average Shares 2,361,401 2,350,501 2,332,703 2,332,703
</TABLE>
-104-
<PAGE>
PART III
- --------
ITEM 9.
- -------
Directors and Principal Officers of the Registrant
Director information is incorporated by reference from page of the
definitive Proxy Statement. The principal officers of the Bank (other than
Messrs. Judson and Howell, who are also Directors), all of whom are subject to
election annually by the Board of Directors, are:
Jeremiah T. Dorney has been Senior Vice President of the Bank since
April 1985, and was elected Corporate Secretary in June 1988. His
responsibilities are that of Senior Operations Officer and Director of Human
Resources. Mr. Dorney's career spans 35 years of diversified banking education
and experience.
Marcus I. Braverman, C.P.A. has been Senior Vice President and Chief
Financial Officer of the Bank since January 1994. He was appointed Treasurer in
1995. From 1988 through June 1993, he was Vice President in the Finance Division
of People's Westchester Savings Bank and Senior Vice President in June 1993.
ITEM 10.
- --------
Management Compensation and Transactions
Incorporated by reference to the definitive Proxy Statement under the
caption "PROPOSAL TWO - ELECTION OF DIRECTORS --Compensation of Directors;
Executive Compensation; Executive Compensation Pursuant to Plans; Compensation
Committee Report on Executive Compensation; and Performance Graph."
-105-
<PAGE>
PART IV.
- --------
ITEM 11.
- --------
Exhibits, Financial Statement Schedules and Reports on Form F-3
(a) (1) Financial Statements - see Item 8.
(2) Financial Statement Schedules - Financial Statement Schedules are
omitted due to inapplicability or because required information is
shown in the Consolidated Financial Statements or the Notes thereto.
See Item 8.
(b) Reports on Form F-3 filed during the last quarter of the period covered by
this report: None
(c) Exhibits
(3) Material Contracts*
(a) Change of Control Agreement dated as of February 1, 1995 with
Robert T. Judson
(b) Howell
(c) Dorney
(d) Braverman
(e) Amendment No. 2 dated as of March 1, 1995 of Employment Agreement
with Braverman
(f) Deferred Compensation Plan for Management Employees
(g) Deferred Compensation Plan for Non-Employee Directors
(h) 1995 Executive Incentive Plan
(i) Amended 1994 Director Stock Option Plan
(j) Amended 1994 Employee Stock Option Plan
(k) Amendment No. 2 dated November 8, 1995 of Employment Agreements
with Judson, Howell, and Dorney
(l) Amendment No. 3 dated November 8, 1995 of Employment Agreement
with Braverman
* Previously Filed
(9) List of Subsidiaries
Subsidiary State of Incorporation
---------- ----------------------
NSS Realty Connecticut
-106-
<PAGE>
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Bank has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NORWALK SAVINGS SOCIETY
Bank
By: /s/ Donald St. John Date: March --, 1997
------------------- ---------------------
Donald St. John
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/ Brian A. Fitzgerald Date: March --, 1997
----------------------- ---------------------
Brian A. Fitzgerald
Director
/s/ Charles F. Howell Date: March --, 1997
--------------------- ---------------------
Charles F. Howell
Director
/s/ Herbert L. Jay Date: March --, 1997
------------------ ---------------------
Herbert L. Jay
Director
/s/ Dr. Edward J. Kelley Date: March --, 1997
------------------------ ---------------------
Dr. Edward J. Kelley
Director
/s/ John L. Segall Date: March --, 1997
------------------ ---------------------
John L. Segall
Director
/s/ Alan R. Staack Date: March --, 1997
------------------ ---------------------
Alan R. Staack
Director
-107-
<PAGE>
/s/ Robert T. Judson Date: March --, 1997
-------------------- ---------------------
Robert T. Judson
Director,
President and
Chief Executive Officer
/s/ Marcus I. Braverman Date: March --, 1997
----------------------- ---------------------
Marcus I. Braverman
Senior Vice President,
Chief Financial Officer
and Treasurer
-108-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Bank has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NORWALK SAVINGS SOCIETY
Bank
By: Date: March --, 1997
----------------------- ---------------------
Donald St. John
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: Date: March --, 1997
----------------------- ---------------------
Brian A. Fitzgerald
Director
Date: March --, 1997
----------------------- ---------------------
Charles F. Howell
Director
Date: March --, 1997
----------------------- ---------------------
Herbert L. Jay
Director
Date: March --, 1997
----------------------- ---------------------
Dr. Edward J. Kelley
Director
Date: March --, 1997
----------------------- ---------------------
John L. Segall
Director
Date: March --, 1997
----------------------- ---------------------
Alan R. Staack
Director
-109-
<PAGE>
Date: March --, 1997
----------------------- ---------------------
Robert T. Judson
Director,
President and
Chief Executive Officer
Date: March --, 1997
----------------------- ---------------------
Marcus I. Braverman
Senior Vice President,
Chief Financial Officer
and Treasurer
-110-
<PAGE>
EXHIBIT 99.2
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, DC 20429
FORM F-4
QUARTERLY REPORT
UNDER SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR
THE QUARTER ENDED MARCH 31, 1997
FDIC Insurance Certificate No. 17944
NORWALK SAVINGS SOCIETY
-----------------------
(Exact name of bank as specified in its charter)
48 WALL STREET, NORWALK, CT 06852
---------------------------------
(Address of principal executive offices)
CONNECTICUT
-----------
State or other jurisdiction of incorporation or organization)
06-0475300
----------
(I.R.S. Employer Identification Number)
(203) 838-4545
--------------
(Bank's telephone number, including area code)
Indicate by check mark whether the Bank (1) has filed all reports required to be
filed by Section 13 of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Bank was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
day.
Yes X No___
---
Indicate the number of shares outstanding of each of the Bank's classes of
common stock, as of the latest practicable date:
2,442,129 shares of Common Stock, par value
$.01 per shares as may 12, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
I CONSOLIDATED FINANCIAL STATEMENTS Page
<S> <C>
A. Statement of Financial Condition 1
B. Statement of Operations 2
C. Statement of Shareholders' Equity 3
D. Statement of Cash Flows 4
E. Notes to Financial Statements 6
II. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10
III. SIGNATURES 28
Exhibit A 29
</TABLE>
<PAGE>
NORWALK SAVINGS SOCIETY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31, December 31,
1997 1997
---------- ------------
(Unaudited)
(in thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 10,435 $ 14,978
Interest bearing deposits in other banks 5,265 2,373
Federal funds sold 500 1,500
Securities
Trading, at fair value 1,463 3,292
Available for sale, at fair value 154,698 136,809
Loans receivable, net of allowance for credit losses of $7,344 as of
March 31, 1997 & 7,334 as of December 31, 1996, respectively) 424,246 410,766
Accrued interest receivable 5,532 4,034
Investment in Federal Home Loan Bank Stock, at cost 6,184 6,184
Other real estate owned, net 631 858
Bank premises and equipment, net 3,333 3,151
Deferred income tax asset, net 2,819 2,574
Goodwill 1,769 1,754
Other assets 492 1,315
---------- ----------
Total assets $617,367 $589,589
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Non interest bearing $ 24,343 $ 22,479
Savings, money market and NOW accounts 158,818 156,684
Time accounts 238,539 244,127
---------- ----------
Total deposits 421,700 423,290
Borrowed funds 144,377 114,043
Accrued expenses and other liabilities 1,558 2,903
---------- ----------
Total liabilities 567,635 540,236
SHAREHOLDERS' EQUITY
Preferred stock ($.01 par value, 500,000 shares
authorized, none outstanding) -- --
Common stock ($.01 par value, 7,000,000 shares
authorized, 2,442,129 issues; outstanding 2,403,638
as of March 31, and 2,397,312 as of December 31) 24 24
Additional paid-in capital 23,609 23,545
Retained earnings 27,261 26,339
Net unrealized (loss) on securities available for sale (799) (106)
---------- ----------
50,095 49,802
Less: unearned ESOP shares 363 449
---------- ----------
Total shareholders' equity 49,732 49,353
---------- ----------
Total liabilities and shareholders' equity $617,367 $589,589
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
<PAGE>
NORWALK SAVINGS SOCIETY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
($ in thousands, except shares and per share data) March 31,
-------------------------
1997 1996
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans, including fees $7,963 $6,860
Investment securities and other
Taxable interest 2,574 2,124
Dividends 308 91
--------- ---------
Total 10,845 9,075
--------- ---------
INTEREST EXPENSE
Deposits 4,215 3,785
Borrowed funds 1,970 1,191
--------- ---------
Total 6,185 4,976
--------- ---------
NET INTEREST INCOME 4,660 4,099
Provision for credit losses - 400
--------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 4,660 3,699
--------- ---------
NON-INTEREST INCOME
Customer service fees 201 170
Loan servicing fees 116 92
Trust department fees 141 130
Net gain on sale of securities 25 125
Credit card fees 284 -
Other 83 104
--------- ---------
Total non-interest income 860 621
--------- ---------
NON-INTEREST EXPENSE
Compensation and benefits 1,872 1,754
Occupancy, equipment & data processing 672 554
Regulatory assessments 15 4
OREO holding costs and expenses 84 128
Sale of OREO, (gains) losses, net (180) 138
Credit card expense 247 -
Goodwill amortization 81 -
Other 994 818
--------- ---------
Total non-interest expense 3,785 3,396
--------- ---------
EARNINGS BEFORE INCOME TAXES 1,735 924
Current tax provision 691 5
--------- ---------
NET EARNINGS $1,044 $ 919
========= =========
EARNINGS PER SHARE $ 0.43 $ 0.39
========= =========
Weighted average shares outstanding (excluding
shares committed to ESOP) 2,400,436 2,368,040
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
NORWALK SAVINGS SOCIETY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Unrealized
Additional Gains Unearned Total
Common Paid-in Retained (Losses) on ESOP Shareholders'
Shares Stock Capital Earnings Securities Shares Equity
------------ -------- ------------- ------------ ---------------- -------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1994 2,329,670 $24 $22,838 $16,225 ($603) ($971) $37,513
Net Earnings 4,778 4,778
ESOP shares committed for
release 26,556 168 266 434
Stock options exercised 8,494 127 127
Adjustment of unrealized
gains, net 743 743
--------- -------- ------------ ---------- ----------- --------- ---------
Balance - December 31, 1995 2,364,720 $24 $23,133 $21,003 $140 ($705) $43,595
--------- -------- ------------ ---------- ----------- --------- ---------
Net Earnings 5,702 5,702
Adjustment of unrealized
gains (losses), net (246) (246)
Stock options exercised 6,665 103 103
Shares distributed to Advisory
Board 230 5 5
Dividends paid (366) (366)
ESOP shares committed to be
released 25,697 304 256 560
---------- -------- ----------- ---------- ----------- --------- ---------
Balance - December 31, 1996 2,397,312 $24 $23,545 $26,339 ($106) ($449) $49,353
---------- -------- ----------- ---------- ----------- --------- ---------
Net Earnings 1,044 1,044
Adjustment of Unrealized
gains (losses), net (1,246) (1,246)
Tax effect of AFS 553 553
Dividends paid (122) (122)
ESOP shares committed to be
released 6,326 64 86 150
---------- -------- ----------- ---------- ----------- --------- ---------
Balance - March 31, 1997 2,403,638 $24 $23,809 $27,261 ($799) ($363) $49,732
=========== ======== =========== ========== =========== ========= ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended:
March 31
------------------------------
1997 1996
------------- -----------
($ in thousands)
<S> <C> <C>
Cash Flows from Operating Activities
- ------------------------------------
Net Earnings $ 1,044 $ 918
----- ---
Adjustments to Reconcile net earnings to cash
provided (used) by operating activities
- ---------------------------------------------
Provision for Credit Losses - 400
Provision for Estimated OREO Losses - -
Deferred Income Tax 234 -
Provision for ESOP Benefit Cost 45 -
Depreciation and Amortization 149 130
Goodwill Amortization 81 -
Net Amortization (Accretion) of Discounts
and Premiums on Securities 149 68
Net (Gains) Losses on Sale of Loans & Investments 74 (125)
Net (Gains) Losses on Sales of OREO (180) 138
Net Decrease in Trading Securities 1,629 -
(Increase) in Accrued Interest Receivable (348) (456)
(Increase) Decrease in Other Assets 37 (158)
Increase (Decrease) in Accrued Expense and Other
Liabilities (897) 618
--- ---
Total Adjustments 1,175 615
----- ---
Net Cash Provided By (Applied to) Operating Activities 2,219 1,533
----- -----
Cash Flows from Investing Activities
- ------------------------------------
Proceeds from:
Sales of Loans, Investments & Mortgage Backed Securities 20,485 16,649
Maturities of Investments & Mortgage Backed Securities 4,923 7,982
Sales of Other Real Estate Owned 356 1,751
Purchases of Investment & Mortgage Backed Securities (44,693) (43,610)
Net Increase in Loans (13,709) (13,556)
Additions to OREO - -
Additions to Goodwill (95) -
Additions to Bank Premises & Equipment (417) (111)
--- ---
Net Cash Provided by (Applied to) Investing Activities (33,150) (30,895)
------ ------
Cash Flows from Financing Activities
- ------------------------------------
Net (Decrease) in Deposits (1,933) (5,212)
Repayments of ESOP borrowing (61) (61)
Cash Dividends (122) -
Securities Sold under Repurchase Agreements 13,500 22,450
Repayments of Repurchase Agreements (16,600) -
Advances from FHLB of Boston 62,487 (29,750)
Repayments of Advances from FHLB of Boston (28,993) (20,643)
------ ------
Net Cash Provided by (Applied to) Financing Activities 28,278 26,284
------ ------
Increase (Decrease) in Cash and Cash Equivalents (2,652) (3,077)
Cash and Cash Equivalents - Beginning 18,851 18,628
------ ------
Cash and Cash Equivalents - Ending $ 16,199 $ 15,551
------ ------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
NORWALK SAVINGS SOCIETY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended:
March 31,
----------------------
1997 1996
---------- ----------
($ in thousands)
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Period For:
Interest $ 6,161 $ 3,785
========== ==========
Income Taxes $ 691 $ 5
========== ==========
Non-Cash Investing and Financing Activities:
Transfer from Loans to OREO $ 246 $ 4
========== ==========
Loans originated in connection with sale of OREO $ 298 -
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
NORWALK SAVINGS SOCIETY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997 (unaudited) and December 31, 1996
NOTE 1 - NATURE OF BUSINESS AND REGULATIONS
- -------------------------------------------
The Norwalk Savings Society (Bank) provides a full range of banking services to
its local area customers. The Bank is subject to competition from various other
financial institutions, and is also subject to the regulations of certain
federal and state agencies and undergoes periodic examination by those
regulatory authorities.
The following summarizes the Bank's capital ratios at March 31, 1997, and
December 31, 1996:
<TABLE>
<CAPTION>
Actual
------------
March 31, Dec 31,
Required 1997 1996
-------- ---- ----
<S> <C> <C> <C>
Tier 1 risk-based capital 4.0% 14.7% 15.7%
Total risk-based capital 8.0% 15.9% 17.0%
Tier 1 leverage capital 4.0%-5.0% 8.0% 7.9%
</TABLE>
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
The condensed consolidated financial statements in this report have not been
audited, with the exception of the information derived from the Consolidated
Statement of Financial Condition as of December 31, 1996, which information
should be read in conjunction with the Bank's audited financial statements and
footnotes thereto included in the Bank's Annual Report to Shareholders for the
year ended December 31, 1996.
The consolidated financial statements include the accounts of the Bank and its
wholly owned subsidiary, NSS Realty Corporation. All significant intercompany
accounts and transactions have been eliminated in consolidation. In the opinion
of management, all adjustments necessary for a fair presentation of financial
position and results of operations for the interim periods presented have been
made, and all such adjustments are of a normal recurring nature.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the report amounts of assets and
liabilities as of the date of the consolidated statement of financial condition
and income and expenses for the periods presented. Actual results could differ
significantly from those estimates.
Material estimates that are particularly susceptible to significant change in
the near-term related to the determination of the allowance for credit losses
and the valuation of other real estate owned ("OREO"). In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the
6
<PAGE>
Bank's allowances for losses. Such agencies may require the Bank to recognize
additions to the allowances based on their judgment of information available to
them at the time of their examination.
Effective January 1, 1993, the Bank adopted SFAS 109, "Accounting for Income
Taxes", without applying its provisions to prior years. There was no impact
on the Bank's consolidated statement of operations for the year ended December
31, 1993 from the cumulative effect of the change in the method of accounting
for income taxes, due primarily to the Bank's net operating loss carryforward
position.
During the years 1993 and 1994, the Bank reflected a full valuation allowance
against its net deferred tax assets due to significant net operating loss
carryovers and uncertainty over the Bank's ability to generate sufficient and
consistent future taxable income to be able to support recognition of any
portion of its net deferred tax assets.
During the first calender quarter of the year ended December 31, 1995,
management reviewed its current projections for future profitability and
estimated that a portion of the Bank's net deferred income tax assets as of
December 31, 1994 could be recognized in the amount of $1.2 million. The amount
was recognized through a partial adjustment of the valuation allowance for the
portion of the net deferred income tax asset attributable to a net operating
loss carry-forward benefit which management was of the opinion was realizable
during the year ended December 31, 1995. At December 31, 1995, management again
reviewed its current projections of future profitability and determined that
$1.2 million of net deferred income tax asset was more likely than not
realizable in the future.
During the fourth quarter of 1996, management reviewed the Bank's estimated
profitability for the year ended December 31, 1996 and, on a projected basis,
for the year ending December 31, 1997. Based on this review, management
determined that it was more likely than not that the Bank's net deferred tax
assets, including available future net operating loss benefits of approximately
$1.1 million, as of December 31, 1996 were realizable, and therefore, reversed
the existing valuation allowance against net deferred tax assets. Realization of
the Bank's net deferred tax assets is dependent, however, on various factors and
is not assured.
Effective January 1, 1994, the Bank applied the provisions of SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities". Under this
pronouncement, investment securities are classified into one of three
categories: held to maturity, available-for-sale or trading. The classification
is based upon management's intended holding period and, in the case of held-to-
maturity, the ability to hold the securities to maturity, Investments classified
as held-to-maturity are carried at amortized cost. Investments classified as
available for sale are carried at fair value with unrealized gain or loss
reported as a separate component of retained earnings, net of applicable income
tax. Trading securities are carried at fair value with unrealized gains or
losses included in earnings.
The Financial Accounting Standards Board issued a "Special Report" in November
1995. "A Guide to Implementation of SFAS 115". This guide provided additional
guidance as to the criteria for the financial statement classifications
prescribed in SFAS 115. As a result of this additional guidance, the Bank could
reassess the appropriateness of the classification of all its securities held.
In December 1995, the Bank reclassified securities Held-to-Maturity with an
aggregate amortized cost approximately $37.0 million to the classification of
Available-for-Sale at a fair value approximating $36.6 million. During the year
ended December 31, 1996, the Bank transferred securities Available-for-sale with
a carrying basis of approximately $2.2 million to the classification of Trading
and securities Held-to-Maturity with an amortized cost of approximately $30.5
million to the classification of Available-for-sale at their fair value of
approximately $30.6
7
<PAGE>
million. The transfer of securities Held-to-maturity to the classification of
Available-for-sale was the result of management's assessment that there was no
longer a positive intent to hold these securities to maturity based on
management's revised asset/liability management strategies. The gain or loss on
investments sold is computed by the specific identification method.
Effective January 1, 1995, the Bank implemented the provisions of SFAS Nos.
114/118, "Accounting by Creditors for Impairment of a Loan" (SFAS 114/118). The
basic provisions of these statements eliminate the financial statement
classification of in-substance foreclosed assets as OREO, resulting in the
classification of such assets and related specific allowance for credit losses
as Loans receivable. Additionally, these statements address the accounting for
loans considered impaired and the recognition of impairment. A loan is
considered impaired when, in management's judgment, current information and
events indicate it is probable that collection of all amounts due according to
the contractual terms of the loan agreement will not be met. The provisions of
these statements are prospective, with any adjustments resulting from initial
application reflected as an adjustment to the provision for credit losses.
Insubstance foreclosed assets prior to January 1, 1995 have been reclassified to
Loans receivable for comparability purposes. The effect on the accompanying
Consolidated Financial Statements of adopting SFAS 114/118 was not significant.
Effective January 1, 1996, the Bank has implemented the provisions of SFAS Nos.
121 and 122, which implementation had no significant effect on the Bank's
financial condition or results of operations at and for the three month periods
ended March 31, 1997 and 1996, or at and for the year ended December 31, 1996.
NOTE 3 - SUPPLEMENTAL DISCLOSURES
- ---------------------------------
Additional information and supporting disclosures as to investment securities,
loans, other real estate owned and related allowances for losses are included in
Management's Discussion and Analysis.
NOTE 4 - OTHER SIGNIFICANT MATTERS
- ----------------------------------
On February 23, 1994, the Board of Directors unanimously adopted and approved
the Bank's plan of Conversion (Conversion) to convert from a Connecticut-
chartered mutual to a Connecticut-chartered capital stock saving bank through
amendment of its mutual charter and the sale of common stock to the Bank's
depositors and others.
The Bank commenced its subscription offering on May 4, 1994, and concluded the
offering on June 9, 1994. A total of 2,426,740 shares were issued on June 15,
1994, the effective issuance date of the securities.
As part of the Conversion, the Board of Directors adopted a tax-qualified
employee stock ownership plan (ESOP). The ESOP Trustee borrowed the funds to
purchase Conversion stock in an amount equal to 5% of the total number of shares
issued in the Conversion. The Trustee for the ESOP acquired 121,337 shares in
connection with the stock conversion through the subscription offering. The
shares were purchased with a loan obtained from a third party, guaranteed by the
Bank, reflected as "Other Borrowings" on the Consolidated Statement of Financial
Condition.
8
<PAGE>
In addition, the Board adopted stock option plans for the benefit of the
employees and directors of the Bank (Plans). The stock option plans became
effective as a result of the approval by the Bank's stockholders on April 25,
1995. The number of shares reserved for the plans was 169,872 for the Employee
Plan and 72,802 for the Director Plan as of March 31, 1996. At the April 1996
Annual Meeting shareholders approved an amendment of the 1994 Employee Stock
Option Plan to increase the number of shares of common stock subject to the Plan
by 100,000 from 169,872 to 269,872 shares. In addition, the shareholders
approved an amendment to the 1994 Director Stock Option Plan to (i) increase the
number of option shares granted to each director per year from 1,000 shares to
2,000 shares (effective immediately) following the 1996 Annual Meeting and (ii)
increase the total number of shares subject to the Plan by 50,000 from 72,802 to
122,802 shares.
At the time of Conversion, the Bank established a liquidation account in an
amount equal to its Retained Earnings as of that date. The liquidation account
will be maintained for a period of ten years from the date of the Conversion for
the benefit of eligible account holders who continue to maintain their accounts
in the Bank after Conversion. In the event of a complete liquidation (and only
in such an unlikely event), each eligible account holder would be entitled to
receive a liquidation equal to the current amount in their subaccount balance.
The Bank may not declare or pay dividends on its stock if such declaration and
payment would violate statutory or regulatory requirements.
In the event transactions resulting from the Conversion or from future events
unrelated to the Conversion occur, causing an "ownership change", as defined by
the Internal Revenue Code, the Bank's ability to realize all of the deferred tax
assets attributable to net operating loss carryforwards may be limited.
On April 24, 1997, the NSS Board of Directors declared a cash dividend of ten
cents ($.10) per share to common shareholders of record May 14, 1997 and payable
on May 29, 1997.
NOTE 5 - NEW BRANCH
- -------------------
THe Bank has recently announced plans to open a full service branch office at
1089 Post Road in Darien, Connecticut. The branch is scheduled to open towards
the end of May, 1997.
NOTE 6 - PROPOSED HOLDING COMPANY
- ---------------------------------
In January 1997 the Bank's Board of Directors authorized management to pursue
the formation of a holding company. Stockholders will be voting on this matter
at the Annual Meeting on May 20, 1997.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
--------
Norwalk Savings Society reported first quarter 1997 net earnings of $1.0 million
or $0.43 per share.
The Bank declared a quarterly dividend of ten cents ($.10) per share, payable to
shareholders of record as of the close of business on May 14, 1997.
The tier one leverage capital ratio was 8.0% as of March 31, 1997, continuing to
qualify the Bank as "well capitalized" according to standards established by the
Federal Deposit Insurance Corporation ("FDIC").
Asset quality continued on a steady course of improvement as of the end of the
first quarter. Non-performing assets, comprised of non-accrual and restructured
loans (collectively "non-performing loans"), and other real estate owned, were
$12.5 million or 2.0% of total assets.
RESULTS OF OPERATIONS
---------------------
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED
-----------------------------------------------------------
MARCH 31, 1997 AND 1996
-----------------------
OPERATIONS
- ----------
The net earnings for the three months ended March 31, 1997 were $1.0 million or
$0.43 per share compared to $919,000 or $0.39 per share for the comparable
period in 1996, a 13% increase in net earnings.
NET INTEREST INCOME
- -------------------
Net interest income, which is the primary source of income for the Bank, is the
difference between interest earned on loans and investments and the interest
paid on deposits and borrowings.
Net interest income was $4.7 million for the three months ended March 31, 1997
compared to $4.1 million for the same period last year. The increase in net
interest income of $0.6 million for the three months ended March 31, 1997
compared to the three months ended March 31, 1996 resulted from a $1.8 million
increase in interest income offset by a $1.2 million increase in interest
expense.
The improvement in interest income is primarily a result of the increased level
of earning assets, particularly in the loan portfolio. To a much lesser extent,
the benefit was also derived from higher interest rates. Average interest-
earning assets improved to $587.8 million for the three months ended March 31,
1997, compared to
10
<PAGE>
$499.7 million for the same period in 1996. The continued growth of interest-
earning assets was attributable primarily to loan growth funded by deposit
growth and increased levels of Federal Home Loan Bank and other borrowings. In
addition to net loan growth was the increase in marketable equity securities.
Purchases of preferred stocks with a callable feature which converts the initial
fixed rate to an adjustable rate after a period of five to seven years on
average; and in addition, these securities carry a dividend equalization feature
which will adjust the dividend rate higher to equalize the effect of any
reduction in the dividend received deduction in the present tax law. The average
interest rate on earning assets for the three months ended March 31, 1997 was
7.38% compared to 7.26% for the same period a year ago.
Interest expense increased to $6.2 million for the three months ended March 31,
1997 from $5.0 million for the comparable period last year. The $1.2 million
increase was primarily a result of the higher balances of interest bearing
liabilities. The Bank's cost of funds increased 30 basis points to the first
quarter's level of 4.66% from 4.36% last year. The cost of funds associated with
deposits increased while the cost of funds associated with borrowings showed a
modest decline. The "market" for borrowings or wholesale funding is extremely
competitive and the reduced rate is reflective of that environment even though
maturities have been extended.
Overall, the Bank's net interest margin declined modestly to 3.17% for the three
months ended March 31, 1997 compared to 3.28% for the comparable period in 1996.
Table 1 summarizes the Bank's net interest income and net yield on average
interest-earning assets. Non-accruing loans for the purpose of this analysis are
included in average loans outstanding during the periods indicated. For the
purpose of this computation, daily average amounts were used to compute average
balances.
11
<PAGE>
Table 1 Three Months Ended March 31, 1997
Compared to Three Months Ended March 31, 1996
<TABLE>
<CAPTION>
($ thousands) 1997 1996
- ---------------------------------------------------------------------------------- -----------------------------------------------
Average Average Average Average
balance Interest rate balance Interest rate
- ---------------------------------------------------------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Loans receivable $421,715 $ 7,963 7.55 % $ 363,232 $ 6,660 7.55 %
Investment securities 39,865 729 7.31 26,417 445 6.74
Mortgage backed securities 95,875 1,736 7.24 96,643 1,633 6.76
Short term investments 11,975 196 6.55 7,143 104 5.82
Marketable equity investments 18,407 221 4.80 6,242 33 2.11
---------- ------- ---------- -------
Total interest-earning assets 587,837 10,845 7.38 % 499,677 9,075 7.26 %
---------- ------- ----- ---------- ------- ----
Non-interest-earning assets
Cash and cash equivalents 9,288 12,590
Accrued income receivable 3,874 3,574
Premises and equipment 3,208 3,288
Other 9,017 2,699
Less: Allowance for credit losses (7,371) (4,347)
---------- ----------
Total non-interest-earning assets 18,018 17,804
---------- ----------
Total assets $605,853 $517,481
========== ==========
Interest-bearing liabilities
Deposits
Regular savings & NOW $ 57,487 $ 221 1.54 % $ 54,759 $ 212 1.55 %
Super savings & money market 93,808 729 3.11 112,812 821 2.91
Time 240,587 3,242 5.39 205,446 2,732 5.32
---------- ------- ---------- -------
Total deposits 391,882 4,192 4.28 373,017 3,765 4.04
Borrowings 135,918 1,970 5.60 80,826 1,191 5.89
Mortgage escrow deposits 3,282 23 2.80 3,024 20 2.65
---------- ------- ---------- -------
Total interest-bearing liabilities 531,082 6,185 4.66 % 456,867 4,978 4.36 %
---------- ------- ----- ---------- ------- ----
Non-interest-bearing liabilities
Non-interest-bearing deposits 21,562 16,616
Other liabilities 2,329 578
---------- ----------
Total non-interest-bearing liabilities 23,891 17,194
---------- ----------
Shareholder's equity 50,880 43,420
---------- ----------
Total liabilities & shareholders' equity $605,853 $517,481
========== ==========
Net interest-earning assets
and interest rate spread $ 56,755 2.72 % $ 42,810 2.90 %
========== ===== ========= ====
Net interest income & net yield on
average interest-earning assets $ 4,660 3.17 % $ 4,099 3.28 %
======= ===== ======= ====
</TABLE>
<PAGE>
RATE/VOLUME ANALYSIS
- --------------------
Table 2 presents the changes in interest and dividend income and the changes in
interest expense attributable to changes in interest rates or changes in volume
of interest-bearing assets and interest-bearing liabilities during the periods
indicated. Changes which are attributable to both rate and volume have been
allocated proportionately.
13
<PAGE>
Table 2 Three Months Ended March 31, 1997
Compared to Three Months Ended
March 31, 1996
<TABLE>
<CAPTION>
RATE VOLUME NET
(in thousands) CHANGE
<S> <C> <C> <C>
INTEREST INCOME:
Loans receivable $75 $1,028 $1,103
Mortgage-backed securities 116 (13) 103
Short term investments 14 78 92
Investment securities 115 357 472
--- --- ---
Total 320 1,450 1,770
--- ----- -----
INTEREST EXPENSE:
Deposits
Savings & NOW 1 (10) (9)
Super savings & money market (53) 145 92
Time (37) (473) (510)
--- ---- ----
Total deposits (89) (338) (427)
Borrowings 18 (797) (779)
Mortgage escrow deposits (1) (2) (3)
-- -- --
TOTAL (72) (1,137) (1,209)
--- ------ ------
NET INTEREST INCOME $248 $313 $561
</TABLE>
<PAGE>
PROVISION FOR CREDIT LOSSES
- ---------------------------
There was no provision for credit losses for the three months ended March 31,
1997 compared to $400,000 for the comparable period in 1996. The balance in the
allowance for credit losses account as of March 31, 1997 was $7.3 million
providing 61.7% coverage of non-performing loans and 1.7% of total loans. In
comparison, the allowance for credit losses account balance at March 31, 1996
was $4.5 million, providing a coverage ratio of 33.7% of non-performing loans
and 1.2% of total loans. Although there was no provision for credit losses for
the three months ended March 31, 1997, it is management's opinion that the
allowance for credit losses is adequate based upon its review of the asset mix,
the level of delinquencies, reduced levels of chargeoff, significant levels of
recoveries, and the coverage of nonperforming loans.
NON-INTEREST INCOME
- -------------------
Non-Interest income consists of service charges and fees, fees derived from
servicing of loans, net realized gains on sale of securities, as well as fees
derived from the Bank's Trust Department, and, since the acquisition of
Fairfield First Bank and Trust in July 1996, credit card fees.
Non-Interest income for the three months ended March 31, 1997 was $860,000,
compared to $621,000 for the comparable period of 1996. Increases to the "core"
elements of non-interest income such as the fees from deposit accounts, Trust
Department relationships, and the servicing of loans were up a total of $66,000
or 16.8% in the current quarter, compared to a year ago as the Bank continues to
concentrate on the generation of fee income. Fees from credit card services,
which primarily derived from the merchant credit card business, are new since
July of 1996 and have continually increased since the Bank acquired the business
and introduced this new service to existing customers.
NON-INTEREST EXPENSE
- --------------------
Non-Interest expense is comprised of general and administrative expenses
incurred in managing the business of the Bank and costs associated with managing
and selling OREO properties.
15
<PAGE>
The following table indicates the elements of non-interest expense including
OREO related expense which is directly related to the level of non-performing
assets.
<TABLE>
<CAPTION>
NON-INTEREST EXPENSE Three months ended;
- -------------------- -------------------
March 31,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Compensation $1,351 $1,333
Employee benefits 521 421
Occupancy, Equipment & Data Processing 672 554
Regulatory assessments 15 4
Marketing 106 124
Goodwill amortization 81 --
Legal & professional 205 144
Office supplies 137 180
Insurance 30 67
Credit card expenses 247 --
Other 516 303
------ ------
Total operating expenses 3,881 3,130
------ ------
Net OREO holding costs & expenses 84 128
Sale of OREO, (gains) losses, net (180) 138
------ ------
Total OREO related expense (96) 266
------ ------
Total non-interest expenses $3,785 $3,396
------ ------
</TABLE>
Non-interest expenses amounted to $3.8 million compared to $3.4 million for
the three months ended March 31, 1997 and 1996, respectively. The increase of
$389,000 or 11.5% is a result of the combination of increased expenses directly
associated with higher operating costs in the data processing and credit card
functions and partially offset by holding the line on "back office" expenses.
Non-interest expense for the three months ended March 31, 1997 including $81,000
from the amortization of goodwill associated with the acquisition of Fairfield
First Bank & Trust Company in July, 1996. Total OREO related costs declined
substantially as a result of the lower balance and number of properties in the
OREO portfolio. Holding costs and expenses were down 34% from the prior year and
gains of $180,000 compared to a loss of $138,000 on the disposition of OREO
property during the first three months of 1997 and 1996, respectively.
16
<PAGE>
PROVISION FOR INCOME TAXES
- --------------------------
The current provision for income taxes during the three months ended March 31,
1997 represents estimated taxes owed based on taxable earnings subject to
taxation at a combined state and federal rate of approximately 40%. The
provision for income taxes for the three months ended March 31, 1996 represented
estimated minimum state income tax requirements as both federal and state tax
liabilities were offset by loss carryforwards.
As of December 31, 1996, the Bank recognized all of its available net operating
loss carryforwards.
17
<PAGE>
FINANCIAL CONDITION
-------------------
GENERAL
- -------
Total assets were $617.4 million as of March 31, 1997 compared to $589.6 million
as of December 31, 1996, representing an increase of $27.8 million. Total
loans, net of allowance for loan losses, were $424.2 million, an increase of
$13.4 million from the $410.8 million as of December 31, 1996. Total deposits
were $421.7 million compared to $423.3 million, a decrease of $1.6 million from
December 31, 1996. Shareholders' equity as of March 31, 1997 was $49.7 million
compared to $49.4 million at December 31, 1996. The tier one leverage capital
ratio was 8.0% as of March 31, 1997 and 7.9% at December 31, 1996.
INVESTMENTS SECURITIES
- ----------------------
Total securities amounted to $156.2 million and $140.1 million as of March 31,
1997 and December 31, 1996, respectively. The $16.1 million increase represented
the net effect of sales of lower yielding securities, monthly amortization (pay-
downs) of the mortgage backed securities portfolio and purchases of $44.7
million of various investments, primarily callable preferred stocks that have
dividend received deduction protection.
The Bank continued with its investment philosophy of purchasing mortgage backed
securities as a supplement to the mortgage lending program.
In total, security gains for the first three months of 1997 were $25,000
compared to $125,000 for the comparable period in 1996.
The following table presents a summary of the investments and other securities
portfolios as of March 31, 1997 and December 31, 1996, fair values and
unrealized gains and losses as of those dates.
18
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT & OTHER SECURITIES
MARCH 31,1997
-------------------------------------------------------
Amortized Unrealized Holding Fair
Cost Gains Losses Value
------------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Available for sale
-------------------
U.S. Government & Federal
Agency Obligations $38,432 $25 $777 $37,680
Mortgage Backed Securities 85,505 313 710 86,108
Equity Securities 29,113 93 296 28,910
------ -- --- ------
Total Available for Sale $156,050 $431 $1,783 $154,698
Trading
-------
Equity Securities $1,492 $349 $378 $1,463
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------
Amortized Unrealized Holding Fair
Cost Gains Losses Value
---------- ------------ --------- --------
<S> <C> <C> <C> <C>
Available for Sale
------------------
U.S. Government & Federal
Agency Obligations $ 42,436 $145 $461 $ 42,120
Mortgage Backed Securities 92,443 382 372 92,453
Equity Securities 2,110 138 12 2,236
------- --- --- -------
Total Available for Sale $136,989 $665 $845 $136,809
Trading
-------
Equity Securities $ 3,353 $ 48 $107 $ 3,292
</TABLE>
19
<PAGE>
LOANS
- -----
Total loans, before reductions for deferred credits, fees and the allowance for
credit losses amounted to $432.3 million, representing a $13.5 million or 3.2%
increase over the December 31, 1996 level of $418.8 million. Demand for new
residential mortgage loans continued at a good pace for the first three months
of the year. The Bank continues to focus on residential loans with emphasis on
adjustable rate products as its primary lending vehicle. As indicated by the
following table, more than 80% of NSS's loan portfolio is in first mortgage
residential loans, with 62.3% of the portfolio in adjustable rate first mortgage
loans.
There were no significant sales or securitizations during the first three months
of 1997.
20
<PAGE>
Table 4
LOAN PORTFOLIO
$ thousands
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Real Estate Loans
- -----------------
1 to 4 family adjustable rate $269,221 62.3% $257,459 61.5%
1 to 4 family fixed rate 77,550 17.9% 77,160 18.4%
Multi-family 7,034 1.6% 7,450 1.8%
Commercial 48,502 11.2% 46,272 11.0%
Home equity lines of credit 7,270 1.7% 7,127 1.7%
Home improvement &
second mortgages 2,556 0.6% 2,568 0.6%
Land 823 0.2% 828 0.2%
Construction 1,553 0.4% 1,227 0.3%
----- ---- ----- ----
Total Real Estate Loans 414,509 95.9% 400,091 95.5%
------- ----- ------- -----
Commercial Loans 7,987 1.8% 8,425 2.0%
- ---------------- ----- ---- ----- ----
Consumer Loans
- --------------
Passbook 1,577 0.4% 1,510 0.4%
Automobile loans 2,485 0.6% 2,619 0.6%
Automobile leases 3,061 0.7% 3,149 0.8%
Credit cards 936 0.2% 991 0.2%
All other 1,743 0.4% 2,033 0.5%
----- ---- ----- ----
Total Consumer Loans 9,802 2.3% 10,302 2.5%
----- ---- ------ ----
Total Loans, gross 432,298 100% 418,818 100%
Deferred fees & credits (708) (718)
--- ---
431,590 418,100
Allowance for Credit Losses (7,344) (7,334)
------- -------
Total Loans, net $424,246 $410,766
-------- --------
</TABLE>
21
<PAGE>
NON-PERFORMING ASSETS/ASSET QUALITY
- -----------------------------------
The Bank's level of non-performing assets stood at $12.5 million or 2.0% of
assets as of March 31, 1997 compared to $11.3 million or 1.9% of assets as of
December 31, 1996. The $1.2 million increase in non-performing assets was
primarily attributable to 7 loans secured by one- to four-family residential
real estate slipping into the non accrual category. Management has reviewed the
present status of the loans and no relationship or trend is evident.
Sales of 3 OREO properties amounted to a reduction of $474,000 in the carrying
value of OREO during the first three months of 1997.
There were no troubled debt restructures included in non-performing loans as of
March 31, 1997 or December 31, 1996.
The allowance for credit losses amounted to $7.3 million at March 31, 1997,
representing coverage of 61.7% of non-performing loans compared to $7.3 million
as of December 31, 1996, representing coverage of 70.2% of non-performing loans.
Through its credit rating system, the Bank has identified $8.7 million of
watchlist loans at March 31, 1997 compared to $8.5 million at December 31, 1996.
Details of the Bank's asset quality are shown in the analysis provided by the
table on the following page.
22
<PAGE>
Table 5
ASSET QUALITY
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------- --------- -----------------------------------
March 31, March 31, 1996 1995 1994
1997 1996
<S> <C> <C> <C> <C> <C>
Non-performing assets
- ---------------------
Non-accrual loans $11,910 $13,175 $10,441 $12,598 $9,489
Restructured loans - 138 - 472 487
------- ------- ------- ------- -------
Total non-performing loans 11,910 13,313 10,441 13,070 9,976
------- ------- ------- ------- -------
Foreclosed assets 631 2,382 858 4,267 11,622
Allowance for estimated OREO losses - - - - (802)
------- ------- ------- ------- -------
Total OREO 631 2,382 858 4,267 10,820
------- ------- ------- ------- -------
Total non-performing assets $12,541 $15,695 $11,299 $17,337 $20,795
======= ======= ======= ======= =======
Allowance for credit losses
- ---------------------------
Balance at beginning of period $7,334 $4,170 $4,170 $4,827 $2,532
Provision for credit losses - 400 4,415 1,005 3,790
Addition to the reserve through goodwill - - 1,000 - -
Charge-offs (346) (97) (2,488) (1,799) (1,589)
Recoveries 358 9 237 137 94
--- - --- --- --
Net Charge-offs 10 (88) (2,251) (1,662) (1,495)
-- --- ------ ------ ------
Balance at end of period $7,344 $4,482 $7,334 $4,170 $4,827
Allowance for estimated OREO losses
- -----------------------------------
Balance at beginning of period $0 $0 $0 $802 $194
Provision for estimated OREO losses - - $459 460 2,894
Charge-offs - - ($459) (1,262) (2,288)
----- ------ ------
Balance at end of period $0 $0 $0 $0 $802
Loans, receivable, net
End of period 424,246 373,944 410,766 355,796 284,885
Average 421,715 367,579 403,207 313,072 265,581
Assets, end of period 617,367 541,702 589,589 515,267 464,901
Ratios
Allowance for credit losses to total loans 1.73% 1.20% 1.79% 1.17% 1.69%
Net charge-offs to average loans - 0.02% 0.56% 0.53% 0.56%
Non-performing loans to total loans 2.81% 3.56% 2.54% 3.67% 3.50%
Non-performing assets to total assets 2.03% 2.90% 1.92% 3.36% 4.47%
Allowance for credit losses to
non-performing loans 61.66% 33.67% 70.24% 31.91% 46.39%
</TABLE>
<PAGE>
DEPOSITS
- --------
Total deposits at March 31, 1997 were $421.7 million compared to $423.3 million
as of December 31, 1996 representing a decrease of $1.6 million or less than
one-half of one percent. In terms of deposit mix, non-interest bearing accounts
as well as savings and money market deposit gains partially offset the decline
in time accounts. The Bank continues to focus on the total business deposit
relationship. The Bank's goal is to attract small business customers and capture
the majority of the business banking relationships through its commercial
lending function. The Bank continues to aggressively seek time deposits and all
other types of consumer deposits, but the best product to stimulate the Bank's
net interest margin is the non-interest bearing checking account. The Bank does
not solicit nor does it accept brokered deposits.
The following table presents a summary of deposits as of March 31, 1997 and
December 31, 1996.
24
<PAGE>
Table 6
DEPOSITS
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
($ in thousands)
<S> <C> <C> <C> <C>
Demand deposits $ 24,434 5.8% $ 22,479 5.3%
Savings
Regular savings 27,544 6.5% 28,096 6.6%
Super savings 47,035 11.2% 45,404 10.7%
NOW 31,546 7.5% 30,262 7.2%
Money market 49,525 11.7% 47,957 11.3%
Escrow deposits 3,077 0.7% 4,965 1.2%
Certificates
Certificate accounts 197,710 46.9% 197,204 46.6%
Money market
certificates 40,829 9.7% 46,923 11.1%
-------- ----- -------- -----
Total Deposits $421,700 100.0% $423,290 100.0%
-------- ----- -------- -----
</TABLE>
25
<PAGE>
FEDERAL HOME LOAN BANK OF BOSTON, ADVANCES AND OTHER BORROWINGS
- ---------------------------------------------------------------
The Bank continues to utilize the FHLB as an alternative source of funds to the
traditional deposit account relationship. As of March 31, 1997, borrowings from
the FHLB amounted to $115.7 million at a weighted average rate of 5.75% and a
weighted average maturity of 1.3 years compared to $82.2 million at a weighted
average rate of 5.78% and a weighted average maturity of 1.3 years as of
December 31, 1996. In addition to borrowing from the FHLB, the Bank utilizes the
"REPO" market from time to time. There was $28.3 million outstanding in
securities sold under agreements to repurchase as of March 31, 1997 at a
weighted average rate of 5.93% and a weighted average maturity of 1.6 years. The
comparable data as of December 31, 1996 was $31.4 million at 5.73% for
approximately one year.
SHAREHOLDERS' EQUITY
- --------------------
The Bank's Shareholders' equity at March 31, 1997 was $49.7 million compared to
$49.4 million as of December 31, 1996. The Tier 1 leverage capital ratios were
8.0% and 7.9% at March 31, 1997 and December 31, 1996, respectively.
The following table indicates required and actual levels of regulatory capital
as of March 31, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
Required Actual
-------- ------
Mar. 31, Dec. 31,
1997 1996
------- -------
<S> <C> <C> <C>
Tier 1 risk-based capital.................................. 4.0% 14.7% 15.7%
Total risk-based capital................................... 8.0% 15.9% 17.0%
Tier 1 leverage capital.................................... 4.0% - 5.0% 8.0% 7.9%
</TABLE>
ASSET AND LIABILITY MANAGEMENT
- ------------------------------
In accordance with the Asset and Liability Management policy of Norwalk Savings
Society, senior management postures the Bank towards an acceptable level of
interest rate risk in turn producing a stable net interest income in ever
changing interest rate environments. On a continual basis, at its monthly asset
and liability committee meeting and more frequently, if necessary, the level of
interest-earning assets is monitored and measured in relation to
interest-bearing liabilities, utilizing the "gap" schedule (Exhibit A) in
conjunction with other supporting documents and systems providing relevant
information. Certain assumptions are made during this process, and the
applicable assumptions to the gap schedule are indicated at the bottom of the
page at Exhibit A. These assumptions may or may not be indicative of future
withdrawals of deposits or loan repayments.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Liquidity is the ability of the Bank to meet its cash flow requirements arising
from fluctuations in loans, securities, deposits, and other borrowings. At March
31, 1997, the Bank's primary liquidity consisting of cash,
26
<PAGE>
cash equivalents and marketable securities (with maturities of one year or
less) was $44.7 million or 7.2% of total assets, compared to $30.6 million or
5.2% of total assets at December 31, 1996.
The Bank's primary source of funds is deposits and other borrowings, primarily
from the FHLB. The Bank monitors its liquidity in accordance with policy
guidelines established by the Asset and Liability Management Policy and
regulatory standards, administered by the Asset and Liability Management
Committee of the Bank.
As of March 31, 1997, the Bank had approved loan commitments outstanding for
one- to four-family loans of $4.0 million. In addition, there was $8.2 million
available unused credit under the home equity line of credit facility and $0.9
million available unused credit under the overdraft protection credit line
facility. The unadvanced portion of residential construction loans amounted to
$1.8 million as of March 31, 1997. There was $1.9 million in approved loan
commitments in the Commercial Lending Department as of March 31, 1997, $1.6
million unused lines of credit, and $0.7 million in commercial letters of
credit. There was $1.1 million available unused credit in the credit card
program.
Management believes that the Bank's liquidity position is currently adequate to
meet normal operating needs. To meet unexpected demands, the Bank maintains a
line of credit with the FHLB. At March 31, 1997, this line of credit was $10.3
million of which no amount was outstanding.
Management also believes that the Bank's capital position is currently adequate
to meet anticipated growth and does not currently have plans to raise capital
from external sources in the near future.
MARKET PRICE OF COMMON STOCK
- ----------------------------
Norwalk Savings Society trades on the (NASDAQ) National Market under the symbol
"NSSY". The following table sets forth the high/low price range of "NSSY" common
stock as reported by NASDAQ and dividends declared for the periods indicated:
<TABLE>
<CAPTION>
1997 1996
High Low Dividend High Low Dividend
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $26.25 $22.94 $.05 $22.00 $18.75 --
Second Quarter 22.25 17.94 $.05
Third Quarter 23.13 20.88 .05
Fourth Quarter 24.88 22.75 .05
</TABLE>
27
<PAGE>
NORWALK SAVINGS SOCIETY
-----------------------
(Registrant)
Date: May 14, 1997 By /s/ Robert T. Judson
---------------------------------
Robert T. Judson
President & CEO
Date: May 14, 1997 By /s/ Marcus I. Braverman
---------------------------------
Marcus I. Braverman
Senior Vice President
Treasurer & CFO
28
<PAGE>
EXHIBIT A
---------
The following table presents the interest Rate Risk Exposure ("GAP") as of
March 31, 1997.
<TABLE>
<CAPTION>
Repricing
Repricing after one Repricing
Total Percent within and within over
amount of total one year five years five years
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Loans (1)
Fixed rate by maturity $105,706 17.12% $5,448 $16,662 $83,596
Floating rate by maturity 314,682 50.97% 176,853 117,419 20,410
Securities
Governments & agencies 37,680 6.10% 0 0 37,680
Mortgage-backed securities (1) 88,505 14.34% 23,641 2,674 62,190
Equity securities / FHLB stock 35,297 5.72% 8,312 26,985
Short term investments 5,765 0.93% 5.765
- -------------------------------------------------------------------------------------------------------------------
Total rate sensitive assets 587,635 95.18% $220,019 $136,755 $230,861
- -------------------------------------------------------------------------------------------------------------------
Cumulative rate sensitive assets $220,019 $356,774 $567,635
- -------------------------------------------------------------------------------------------------------------------
Other assets (2) 29,732 4.82%
- -------------------------------------------------------------------------------------------------------------------
Total assets 617,367 100.00%
- -------------------------------------------------------------------------------------------------------------------
Liabilities and shareholders' equity
Deposits
Savings 27,544 4.46% 27,544
Super savings 47,035 7.62% 47,035
NOW 31,546 5.11% 31,546
Money market 49,525 8.02% 49,525
Escrow 3,077 0.50% 3,077
Certificates 238,539 38.64% 184,351 54,188
- -------------------------------------------------------------------------------------------------------------------
Total deposits 397,266 64.35% 343,078 54,188
- -------------------------------------------------------------------------------------------------------------------
Borrowings 144,377 23.39% 88,246 54,703 1,428
- -------------------------------------------------------------------------------------------------------------------
Total rate sensitive liabilities 541,643 87.73% 431,324 108,891 1,428
- -------------------------------------------------------------------------------------------------------------------
Cumulative rate sensitive liabilities $431,324 $540,215 $541,643
- -------------------------------------------------------------------------------------------------------------------
Other liabilities 25,992 4.21%
Shareholders' equity 49,732 8.06%
- -------------------------------------------------------------------------------------------------------------------
Total liabilities & shareholders's equity 617,367 100.00%
- -------------------------------------------------------------------------------------------------------------------
Net position of assets (liabilities) (211,305) 27,864 229,433
- -------------------------------------------------------------------------------------------------------------------
Adjustments (3), (4) ($120,509) $64,373 $56,136
- -------------------------------------------------------------------------------------------------------------------
Adjusted Gap ($90,796) ($36,509) $173,288
- -------------------------------------------------------------------------------------------------------------------
Cumulative repricing difference (cummulative Gap) ($90,796) ($127,306) $45,992
- -------------------------------------------------------------------------------------------------------------------
Cumulative GAP to total assets -14.7% -20.62% 7.45%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Note:
(1) Included in the one year period are regularly scheduled monthly payments
to be received on Loans and Mortgage-backed securities.
(2) Not included above, as interest rate sensitive are $11.9 million in
non-accruing loans and $0.6 million in OREO property.
(3) 95% of savings and NOW accounts were reclassified to the over five year
period.
(4) Money market and super savings were divided 1/3, 2/3, respectively in
each of the first two periods.
29
